ABSTRACT
There has been a drive on the part of consumers, producers, researchers and policy makers for a transition toward a new phase of agriculture. Within this vision, diversifying income among farm households is critical to this drive. In the process of traditional economy transforming into modern economy in Nigeria, farmers’ diversification phenomena has arisen and developed and will continue a long time in the future. Income instability has been a major challenge to the rural farming households and this has adversely affected agricultural productivity. This necessitated the study on on-farm income diversification decisions of rural farm households in Enugu State, Nigeria. The study adopted the survey research design. Five objectives and one hypothesis guided the study. The sample of the study comprised 240 respondents from three agricultural zones sampled through multi-stage random sampling technique. Researcher-developed questionnaire was the instrument used for data collection and the instrument was validated by three experts in agriculture. Cronbach’s alpha method was used to determine the internal consistency of the items and the result yielded a coefficient of 0.78 and was therefore reliable. The researcher with the help of three research assistants distributed the questionnaire which were used for data analysis. Data were analysed using descriptive and inferential statistics: statistical mean, multinomial logit model, participation index, exploratory factor analysis and chi-square test. The study found that women (62.13%) dominated the rural farm household heads. Forty-two percent of the household heads were within the highly productive age range of 41-50 years. Twenty percent of the household heads attended primary school while 26% and 45% attended secondary and tertiary institutions respectively. Farming was the major occupation of majority (43.83%) of the respondents with majority having a household size of 1-5 members. Most of the farmers (53.19%) have a farm size of not more than 2 hectares. Most of the farmers (50.21%) practised mixed farming. Average annual on-farm income of the farm households was N158,000.00, N132,000.00 and N215,000.00 for crop farming, livestock farming and mixed farming respectively. Factors influencing the choice of income sources were identified as gender (p<0.05), age (p<0.01), educational level (p<0.10), farm size (p<0.10), on-farm annual income (p<0.01) and access to credit facilities (p<0.05). The participation index of gender (men and women) on income diversification showed that men dominated women in decision making with a mean score of 2.64 and
2.62 respectively. Institutional, financial and infrastructural constraints were the major barriers faced by rural farm households in raising income from various farm sources. The result of the hypothesis showed that there was a significant (P<0.01) and positive correlation between socio- economic characteristics of rural farmers and their choice of income sources. It was recommended among others that farmers should join a farmers association in order to gain better access to extension services, farmers should identify and include high-valued agricultural products in their farm businesses in order to expand diversification portfolios and government should rehabilitate abandoned rural roads in order to reduce high cost of transportation.
CHAPTER ONE
INTRODUCTION
1.1 Background Information
Nigeria has been an agricultural economy since the colonial period up to the 1970s when we witnessed the oil boom. The agricultural sector contributed over 60% to the country’s Gross Domestic Product (National Technical Working Group (NTWG), 2009). From early 1970s to mid-1980s, rapid expansion of the oil sector played a role in eroding the competitiveness of agriculture. The nation grew to rely heavily on earnings from oil exports without making the investments needed to diversify the economy through sustained agricultural growth (NTWG, 2009). However, it has been realised that agricultural sector in Nigeria is currently a key sector that can address the multiple challenges which has kept the country from achieving broad-based economic growth, increasing household incomes, increasing employment, and reducing food/nutrition insecurity and poverty (Stakeholder’s Forum, 2009). The forum stated that agriculture provides 88% of non-oil foreign exchange earnings. According to NTWG (2009) and National Bureau of Statistics (NBS) (2013), agriculture contributes about 42% of Gross Domestic Product (GDP) as against 13-13.5% of Oil and Gas as well as employs two-thirds of Nigeria’s entire labour force.
According to Enete and Achike (2008), no less than a quarter of the world population belongs to the farm households. One way or another, their livelihoods depend on agriculture (Department for International Development (DFID), 2002). This is to say that agriculture and allied activities are the mainstay of the people living in rural areas (Pal and Biswas, 2011). According to National Planning Commission (NPC) (2004), the bulk of agricultural production in Nigeria takes place in the rural areas. Ogwumike and Akinnibosun (2013) stated
that agriculture is the economic stronghold of majority of households in Nigeria and is the source of livelihood for about 90% of the rural population and provides raw materials for agro-allied industries. In addition, the rural farm households are the country’s major hope for sustained agricultural production as major investments in agriculture are targeted in arable lands in the rural areas.
Farm households have many challenges which include income variability (Adebayo, Akogwu & Yisa, 2012). This is because high levels of income inequality are likely to create a hostile atmosphere for economic growth and development (Adepoju & Oyewole, 2014). Enete and Achike (2008) asserted that unstable income of farm households could be accounted for by unfavourable weather changes, outbreak of plague, pollution in coastal waters, eruption of negative externalities, and other uncertainties which pose threats to farming activities and yields, thereby causing income to fluctuate erratically. The continuous increase in the rate of poverty in Nigeria and the dwindling nature of income of individuals has made and still make people look elsewhere for succour through income diversification (Adeyemi, Ijaiya & Ijaiya,
2007; Ijaiya, Ijaiya, Bello, Ijaiya & Ajayi, 2009; Adebayo et al., 2012). There has been a drive on the part of a vocal contingent of consumers, producers, researchers and policy makers who call for a transition toward a new face of agriculture. Within this vision, diversifying income with respect to farming system has emerged to maintain ecosystem services critical to agricultural production (Bowman & Zilberman, 2013).
Most rural households in developing countries are undergoing the process of diversifying their income sources (Zhao & Barry, 2013). Delgado and Siamwalla (1997) and Gomes and Livdan (2004) opined that rural households adjust their activities to exploit attractive new productive opportunities. Rural households in many different countries have been found to diversify their income sources allowing them to spread risk (Ellis, 1998, in Ibrahim, Rahman, Envulus & Oyewole, 2009). The food crisis experienced in 2006 which soared in 2007 (Stakeholders Forum, 2009) seemed to have driven Nigeria to delve into
diversification. Several researchers maintained that these adjustments in agricultural activities are found to have an important impact on income, income distribution and welfare across rural households (Ellis, 2000a; Reardon, Taylor, Stamoulis, Lanjouw & Balisacan, 2000; Block & Webb, 2001; Hoogeven, 2001; Canagarajah, Newman & Bhattamishra, 2001 and de Janvry & Sadoulet, 2001).
Income diversification is a form of risk management strategy aimed at cushioning the effects of shocks (economic and agro-climate), poverty reduction, reduction in income inequality, production instability and overall improvement in the standard of living of the people (Barrett & Reardon, 2000; Abdulai & CroleRees, 2001; Barrett, Reardon & Webb,
2001; Deininger & Olintro, 2001; Little, 2001; Woldenhanna & Oskan, 2001; Adugna, 2006; Minot, Epprecht, Anh & Trung, 2006). Abdulai and CroleRees (2001) maintained that income diversification is the allocation of productive resources among different income generating activities, both on-farm and off-farm. Some researchers asserted that income diversification involves adding income-generating activities including livestock, crop, non-farm and off-farm activities (Barrett, Bezuneh & Aboud, 2000; Barrett et al., 2001a; Kydd, 2002; Reardon, Berdegue, Barrett & Stamoulis, 2006). Income diversification among rural farmers is geared towards improving their household livelihood (Dixon, Gulliver & Gibbon, 2001). More comprehensively, Minot et al. (2006) stated that income diversification has been used to describe four distinct but related concepts. One definition refers to an increase in the number of sources of income or the balance among the different sources (Joshi, Gulati, Birthal & Twari, 2003; Ersado, 2003; Ijaiya et al., 2010). A second definition concerns the switch from subsistence food production to commercial agriculture. This also implies an increasing mix of income activities on the farm. Third, income diversification is often used to describe expansion in the importance of non-crop or non-farm income. Fourthly, income diversification can be defined as the process of switching from low-value crop production to
higher-value crops, livestock and non-farm activities (Ibrahim & Onuk, 2009). High-value crops are defined as crops that generate high economic returns per unit of labour or land.
The literature on income diversification varies in its use of terms such as “on-farm”, “non-farm” and “off-farm” (Barrett et al. 2000b). Terms like off-farm and non-farm incomes have been used at first glance in a synonymous way with slightly different definitions (Schwarze & Zeller, 2005). Barrett et al. (2000c) pointed out that the terms “off-farm”, “non- farm” and “non-agricultural” are used in seemingly synonymous ways but actually refer to very different settings under which activities take place. Kim (2011) affirmed that farm diversification refer to farm activities and off-farm diversification refers to seeking business or employment opportunities other than traditional crop production and livestock rearing and it relates to agriculture as it includes processing and trading of agricultural produce. According to Reardon et al. (2000) and Escobal (2001), nonfarm diversification includes off- farm wage labour and nonfarm self-employment. Barrett et al. (2000b) and Ellis (2000a) stated that “farm/nonfarm” distinction revolves around sectoral classifications (primary, secondary and tertiary sectors); where farm activities are associated with primary sector production while nonfarm activities are associated with secondary and tertiary sector production. “On-farm/off-farm” distinction reflects the spatial distribution of activities, with off-farm income generated away from one’s own farm.
According to Enete and Uguru (2012), agriculture in the developing world remains one of the most vulnerable sectors as a result of climate change. Changes in precipitation patterns and rises in extreme weather events increase the likelihood of production failures and overall production declines. Income diversification is often necessary in agriculture-based peasant economies because of risks such as variability in soil quality, crop diseases, animal diseases, price shock, unpredictable rainfall and other weather-related events (Ibrahim et al.,
2009). Kwadwo and Samson (2012) reiterated that climate change could substantially reduce yields from rainfed agriculture in some countries. Therefore, diverse agricultural activities which are able to combat these problems in Nigeria have been sought after. The farm and non-farm sectors have been changing in structure through diversification of activities on one hand and through increasing employment and income generation on the other (Pal & Biswas,
2011). Whether the two sectors are complementary or substitutable in the context of overall economic development is an issue attracting the interest of recent researches.
Diversification has been analysed as a rational response by households to lack of opportunities for specialisation, though was initially considered not the most desirable option (Warren, 2002). Ellis and Freeman (2005) indicated that rather than promoting specialisation within existing portfolios, upgrading them through diversification could be more realistic and relevant to sustain agriculture. But Kimenju and Tschirley (2011) argued that to achieve rapid growth in rural areas and the economy as a whole, it is widely recognized that countries must go through an agricultural transformation, which involves more specialization by rural households, not more diversification.
Resolving this tension between the clear benefits from diversification to rural households in the short- and medium-term is a major policy challenge to Nigerian government (Olugbire, Falusi, Adeoti, Oyekale & Adeniran, 2011). Diversification is being advocated in many parts of rural Nigeria today to ensure food security. Hence, the need to investigate into the income diversification decisions among rural households.
1.2 Statement of the Problem
Nigeria’s agricultural sector has a high potential for increased growth, but this potential is not being fully realised. Agriculture still suffers from a wide range of distortions and influences that limit its contribution to food sustainability. Nigeria Bureau of Statistics (2013) maintained that agriculture is the largest sector of the economy, yet the fastest growing segments are wholesale, retail trade and telecommunication. Income instability has been a major challenge to the rural farming households and this has adversely affected agricultural productivity. Hence, there is need for a coherent action at all levels of farming activities of the farm households in order to stabilise her reportedly very volatile income.
Most Nigerian studies on income diversification focused on non-farm diversification (to mention a few: Okali, Okpara & Olawoye, 2001; Babatunde & Qaim, 2009; Ibrahim & Onuk, 2009; Ibekwe et al., 2010; Ijaiya et al., 2010; Idowu, Banwo & Akerele, 2011; Adebayo et al., 2012; Tasie, Offor & Wilcox, 2012). On the other hand, few studies within the past ten years have been carried out on income diversification with respect to farm and farm-related activities only. These studies highlighted farming as an occupation of rural farmers but very few considered the factors driving the farmers’ decisions to diversify income among various farming activities. Again, income diversification has received minute attention in agricultural economics and extension literatures in Nigeria (examples: Enete & Achike,
2008; Babatunde & Qaim, 2009; Ibrahim, Rahman, Envulus & Oyewole, 2009; Ibrahim & Onuk, 2009; Idowu, Aihonsu, Olubanjo & Shittu, 2011; Adebayo et al., 2012; Adepoju & Oyewole, 2014). The existing literature is somewhat deficient in well-established principles on the use of indicators to capture observed rural income diversification (Ijaiya et al., 2009).
Perhaps, farm households that have more assets should be less risk averse and more willing to participate in market production, while farm households with fewer assets are more likely to settle for subsistence production in a desire to avoid high transaction costs in selling crops and buying food (Olale & Nazli, 2010). The researcher’s interest here is whether the decisions they take is in the best pursuit of improving the general economy and rural economy in particular. Understanding the decisions of farming households with regard to how they allocate their income among various farming activities is crucial for adjusting farming and rural policies. Babatunde and Qaim (2009) affirmed that more research is needed to understand what conditions lead to what outcomes in order to identify appropriate policy responses. Hence, the gap this study seeks to fill is to highlight the key factors driving rural farm households in their decisions to diversify income among alternative farming activities (on-farm diversification). This constitutes the problem of the study.
1.3 Objectives of the Study
The broad objective of the study was to examine the on-farm income diversification decisions of rural farm households in Enugu State. The specific objectives were to:
i. describe the socio-economic characteristics of rural farmers in the study area. ii. identify the various sources of on-farm income of the rural households.
iii. determine the factors influencing the choice of income sources.
iv. determine the level of gender participation in income diversification decision making. v. examine the constraints in raising income from the various sources of farm income.
1.4 Hypothesis of the Study
Based on the specific objectives of the study, the following hypothesis was tested:
Ho: Socioeconomic characteristics of farmers have no significant effect on their choice of income sources.
1.5 Justification of the Study
The study of on-farm income diversification decisions in an agricultural state such as Enugu state is important for several reasons. Firstly, Enugu state is an agrarian state with majority of its population engages in agriculture to earn a living (Egboke, 2004). Secondly, diversification choices are supposed to reflect optimal strategies followed by farm households in order to balance their expected returns with the related risk exposure they face. Démurger et al. (2010) foretold that since all diversification strategies may not be equally lucrative, understanding both the incentives and the constraints that rural households face in their decision between alternative options can offer important insights as to what policy might effectively improve the rural poor access to higher return activities. Thirdly, diversification
choices reflect the allocation of household assets and the allocation of household labour resources across various activities.
In this rationale, this study has provided interesting and useful information for individual farmers, government, non-governmental organisations (NGOs) and agro-based industries. This study has contributed to literature by highlighting a variety of channels for diversification decisions. Farmers will be able to determine if they will gain or lose out in the process of diversification and understand how to manage diversification alternatives properly. It is also hoped that the findings of this study would be considered by the various teams of experts and consultants now assisting African countries to reach a higher path of economic growth through agriculture-led development for rural population under the Comprehensive African Agriculture Development Programme (CAADP) agenda.
1.6 Limitations of the Study
During the course of the study, there were challenges which ranged from dialect barrier, unwillingness of some rural farmers to fill the questionnaire or to be interviewed, low record keeping and financial constraints. The validity of the information given largely depended on the perception of the respondents on the issues raised in the questionnaire which influenced the quality of the information obtained from the farmers.
Through the help of research assistants, the researcher was able to collect sufficient information required to achieve the objectives of the study. However, extra efforts were made by the researcher to cross-check responses and discard the invalid questionnaire.
This material content is developed to serve as a GUIDE for students to conduct academic research
ON-FARM INCOME DIVERSIFICATION DECISIONS OF RURAL FARM HOUSEHOLDS IN ENUGU STATE NIGERIA
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