IFPRI Discussion Paper 00954, February. Xinshen Diao, Manson Nwafor, Vida Alpuerto, Kamiljon Akramov, and Sheu Salau (2010).

This study examines the optimal agricultural development strategy in Nigeria, focusing on subsectors, spillovers, and state and national public policy targeting.

Poverty reduction continues to be a challenge in Nigeria.  69 million people, or 54% of the population, lived below the poverty line in 2004.  Nigeria has achieved impressive growth rates in recent years however, raising hopes for improved poverty reduction.  In this lengthy and well researched report, Diao, Nwafor, Alpuerto, Akramov, and Salau argue that Nigeria should prioritize the agricultural sector in its development and poverty reduction efforts.  This sector has “been a key driver of recent growth in Nigeria,” accounting for 47% of total growth over 1990 to 2006 (1).  As a benchmark, oil accounted for 39% of growth over this period.  They also note that agriculture “outperforms all other sectors in reducing poverty” as it is the sector responsible for the most employment, especially among the poor (1).

In recent years, the Nigerian government has promoted agricultural growth through several policies, including the National Economic Empowerment and Development Strategies (NEEDS) I and II, the Comprehensive Africa Agriculture Development Program (CAADP), the National Food Security Program (NSFP), and initiatives for crops including cassava and rice.  Partly as a result of these programs, agricultural growth rates jumped from 3.5% annually in 1990-1999 to 5.9% annually in 2000-2007.

The authors estimate that if several agricultural subsectors reach official growth targets, Nigeria will experience 9.5% annual agricultural growth and 8.0% annual GDP growth.  Moreover, the poverty rate will be halved by 2017, falling to 30.8% from 65.6% in 1996.  The authors argue that to achieve such growth, Nigeria must implement an agricultural development strategy based on four factors: subsectoral sizes, the multiplier effect of linkages, the elasticity between poverty reduction and agricultural growth, and the price effects and market for specific agricultural goods.  They position their recommendations within the context of Nigeria’s current NEEDS II agricultural development program.

Methodologically, the authors develop an economy-wide dynamic computable general equilibrium model characterizing Nigeria.  It includes 62 subsectors, over half of which are agricultural (including cereals, roots, other food, export crops, livestock, forestry, fisheries, and processing).  It also allows for regional production heterogeneity across six zones in Nigeria. 

The authors use this model to examine the micro- and macroeconomic links between growth and poverty reduction.  They look at two cases: a baseline scenario of current growth trends projected into the future, and an accelerated growth scenario in which official targets are met.  The growth target is 10% annually compared to a 6% CAADP target.  This accelerated growth comes from productivity gains.  The data on finances, production, yield, prices, and employment used in this model is from the Nigeria Bureau of Statistics, Central Bank of Nigeria, Federal Ministry of Agriculture and Rural Development, and the Food and Agriculture Organization, and Nigeria Living Standards Survey.  Overall, the model is “based on the most recent available data for Nigeria and represents the country’s economy in 2006” (4).

If the accelerated growth scenario is to be realized, cereals production is especially important as it contributes most to agricultural growth (30.9%).  Rice by itself accounted for 14.5% of growth under this scenario.  Root crops, though they are the largest agricultural subsector, are the second most important contributors to agricultural growth (accounting for 29.1%).  Cassava and yams are particularly important, accounting for 14.1% and 12.2% of growth, respectively.  Other foods are third most important, accounting for 18.4% of accelerated growth.’

Under the baseline scenario, agricultural growth and its associated spillover effects lead to a 11.9 percentage point decrease in poverty by 2017.  Under the accelerated growth scenario, the decline is 20.8 percentage points. Poverty reduction is concentrated in rural areas in both scenarios.

If the accelerated growth scenario is achieved, an additional 16.5 million people will move out of poverty by 2017.  This would turn around Nigeria’s increasing number of poor people due to population growth.  From the current 77 million people in poverty, this figure would fall to 59.7 million under the accelerated growth scenario and increase slightly to 78.7 million under the baseline scenario.  Thus, it is clear that achieving high agricultural growth rates is key to offsetting population growth and decreasing the total number of poor.

Another way to assess the contribution of agricultural growth to overall economic growth is through its spillover effects in non-agricultural sectors.  The authors’ analysis indicates that pulse production has the highest spillover effects on the wider economy.  A $1 million increase in value added output in pulse production leads to $1.9 gained in the wider economy. 

Millet, sorghum, and cassava have particularly strong multiplier effects.  A $1 million increase in value added output in millet and sorghum generates $1.8 in agricultural GDP.  The figure is $1.2 million for cassava.  Export crops do not show the same ability to stimulate growth in other subsectors.  There are important policy recommendations that arise from this finding:

“Although the development of export-oriented agricultural production is often a governmental priority… this growth will have weak linkages with the domestic economy in the absence of additional resources (land and labor), or if export-oriented production cannot create domestic demand for such products (either through the development of agro-processing or through consumer demand). In addition, focusing on export-oriented crops may also negatively affect growth outside export-oriented production, decreasing the economy-wide gains from such a strategy” (26).  Moreover, “subsector size matters because if a subsector is small, even setting (and achieving) a very high growth goal may have only a small economy-wide impact. Our DCGE modeling simulations show that even double-digit growth in a small subsector (e.g., wheat or sugar) may have a negligible (or nonexistent) contribution to overall agriculture or the whole economy. On the other hand, a large agricultural subsector (e.g., rice or cassava) can create more economy-wide growth if it becomes the leading force in the growth process” (58). 

The authors note that though productivity improvements under the accelerated growth scenario decrease poverty, they may hurt some farmers who do not adopt high-yield technologies. 

Overall, the authors conclude that certain crops and agriculture in certain regions may be more effective than other types in reducing poverty, and national and state level development policies should investigate these linkages to determine the most effective, targeted policies. 

Agricultural expenditure as a share of total public expenditure is low in Nigeria compared to African peers (1.1-5.9%, specifically), yet spending has increased recently.  Public spending is also extremely concentrated, with 3 out of 179 programs receiving 81% of funds.  These programs focus on fertilizer market stabilization, food security, and the strategic grain reserve.  The authors call for more funding in “vital” investments such as research and extension, capacity building, financing, irrigation, and agribusiness (41).

The authors calculate that if we assume agricultural spillovers to broader growth but do not assume that government spending is any more efficient than it now is, the government would need to allocate 8.6% of expenditures to reach the accelerated growth scenario.  If agricultural investment efficiency increased 70%, this requirement would drop to under the 10% stipulated by the CAADP.