Nigerian commercial farmers versus government commodity marketing boards: revisiting the cost of a partnership gone sour

Abstract

The abolition of the Nigerian government-instituted commodity marketing boards (CMBs) in 1986 is considered a positive step in view of the boards' method of market intervention, which is criticised as having brought disincentives to producers of agricultural exports. This study argues that, apart from the intervention activities of the CMBs, the lack of proper agricultural reforms in Nigeria would eventually have been equally unfavourable to the agricultural production. It therefore recommends that the authorities revisit three key policy issues, namely education, capital assistance and land reform, to revive production in the agricultural sector.

1. Introduction

For over two decades, the production of primary export crops in Nigeria has been at a bottom level and in some cases, production for export has ceased completely. The crops in question are cocoa, palm produce (palm oil and palm kernel), groundnuts and cotton. The output of these export crops peaked in the 1960s to the very early 1970s, after which it generally deteriorated (CMB, various issues; CBN, various issues; World Bank, various issues). Based on the 1945 level, the output of cocoa recorded 302 400 tons in 1970, reflecting a growth rate of about 292,7 per cent. A decade later in 1980, it decreased to 151 000 tons, and further to 130 000 tons in 1990. It remained more or less the same for the whole of the 1990s. The output of groundnuts peaked at 1 026 600 tons in 1966, reflecting a growth rate of about 482,6 per cent, based on the 1945 level. It stood at only 1000 tons in 1980, was negligible in 1990, and maintained the same dismal picture in the 1990s. Output peaks of 201 300 tons of palm oil and 462 100 tons of palm kernels were recorded in 1953 and 1961, respectively. These peaks meant growth rates of 76,3 per cent for palm oil and 60 per cent for palm kernel, based on their levels in 1945. During this period, Nigeria was the world's biggest exporter of palm produce, particularly palm oil, with a market share of about 32 per cent, followed by Malaysia and Indonesia with export shares of 26 per cent and 24 per cent, respectively (Kilby, 1969: 141). By 1980, Nigerian output of palm produce had decreased so drastically that its exports virtually ceased except for insignificant quantities of palm kernel – only 96 000 tons in 1980, 20 000 tons in 1990, and around 0–1000 tons throughout the 1990s. An output peak of 69 000 tons of cotton was recorded in 1963, representing a growth rate of over 6000 per cent, based on the 1945 level. In 1980, it stood at zero tons, revived slightly at 3000 tons in 1990, and thereafter continued a downward trend throughout the 1990s. The level of output of all these export crops remains dismal.

The collapse of the Nigerian primary export sector preceded the abolition of the country's Commodity Marketing Boards (CMBs) in April 1986 (Andrae & Beckman, 1987: 52). The CMBs were monopolies, statutory institutions empowered by the Nigerian authorities to handle the country's major agricultural exports. They bought the agricultural export crops from peasant farmers and then resold the crops on the world market at prices different from those paid to the farmers. Generally, the prices they offered them fell below world market prices. The declared objective of the CMBs was to stabilise export crops producer price and producer income. Nevertheless, the official documents relating to the establishment of the CMBs and the powers granted to them suggested that their establishment was the result of several different and distinct opinions and ideas (Nigerian Government, 1948). It has since been observed that the intervention in commodity markets by the Nigerian authorities was, to a considerable degree, motivated by political circumstances (Forest, 1993: 195). A serious consequence of this intervention was the collapse of the primary export sector. Intervention in producer prices dampens producer enthusiasm (Lambert & Parker, 1998). In other words, producers who are not assured that the output they produce, or the value of their output, belongs to them lack incentives to produce (Hillman, 2003: 25). Rare exceptions are the cases where farmers themselves encourage such interventions because they lack the skills and creativity to find and design marketing systems (Dimara & Skuras, 1999).

The abolition of the CMBs in 1986, although viewed as a positive step, occurred only after production activities in the primary export sector were, more or less, at a bottom level, with the output of the export crops at its lowest since the early years of that sector's introduction to international trade. Efforts by the Nigerian authorities to revive the sector through frequent subsidies to farmers failed. The important question therefore remains why the agricultural sector has refused a revival even after the dismantling of the CMBs, viewed by some observers as a good decision, as the CMBs have been accused of being instrumental in the gradual collapse of the sector. In this article, we look at two main issues. First, we review the activities of the CMBs, ranging from their official stabilisation method to the actual results of their price and income stabilisation exercise. We argue that producers of the agricultural export crops might actually have been better off without market intervention by the CMBs, in particular considering the fact that the CMBs violated their initial promises concerning their method of price and income stabilisation. There is hardly any doubt that the activities of the CMBs were a source of disincentive to farmers and therefore precipitated the virtual disappearance of the agricultural exports. However, even in the absence of the CMBs, it is unlikely that a continuous progress in the country's export agriculture would have been sustainable without some transformation in the form of a shift towards mechanised farming methods, albeit simple affordable ones. In other words, a lack of significant reforms in the Nigerian agricultural sector would, sooner or later, have brought about the same dismal performance, even without any intervention in prices by the CMBs. The second part of this article, therefore, deals with the important issue of recommending some necessary reforms that could help revive the production of the agricultural export crops.

2. The official stabilisation method of the CMBS

The stabilisation method of the CMBs was to impose a buffer between domestic producer prices and world market prices. The CMBs aimed to hold producer prices of cash crops lower than world market prices in periods of high world market prices and pay higher prices to export crops producers in periods of low world market prices. In this way, they hoped that the average prices received by farmers would in the long term be equal to the average net price realised in the world market. The CMBs were intended to protect farmers from short-term fluctuations in world market prices, and the necessary funds for fulfilling this policy would be low. If the accumulated funds increased too much the excess would be distributed to the producers of export crops.

The CMBs' policy was unclear in several respects, because it neglected some important issues. In the first place, the CMBs neglected to specify the period over which the levelling process between the world market price and the producer price would take place. Secondly, they failed to refer to any of the fundamental concepts and practical problems associated with stabilisation. Thirdly, they failed to distinguish between stabilisation of income and stabilisation of prices. The first point has to do with the necessary funds for fulfilling a stabilisation policy. If no upper limit for necessary funds is specified, the accumulation of funds will continue and eventually income will be redistributed to future export crops farmers who will benefit from the accumulated surpluses. This means that some farmers will be subsidised at the expense of others. The second point has to do with defining the specific roles of the government in the stabilisation process. If such roles are not clearly defined, there could be the danger of interweaving stabilisation with entirely different aims of policy. This is especially true in the case of public finance issues, such as compulsory savings or the raising of revenue for purposes other than stabilisation. With regard to the third point, the claim by the CMBs that the protection from short-term price fluctuations would guarantee income stability to export crops farmers is not shared by many economists.

Some economists have long argued that if fluctuations in price are due largely to autonomous changes in output, a stabilised price will destabilise producers' income (Macbean, 1962). Others have maintained that a highly pertinent question in the design of any price stabilisation scheme is the price or range of prices at which market prices are to be stabilised (Anderson et al., 1977). Generally, however, a long-term market efficiency will only be sustained in a decentralised economy if prices are allowed to retain their role in providing signals to producers in allocating their resources (Anderson et al., 1977). In other words, market intervention through price stabilisation denies price its function of directing resources into and out of different lines of production. Price stabilisation through market intervention removes the desirable inducement for output expansion or contraction. It generates lack of actual supply response to changes in demand as expressed through price movements, as it interferes with the incentive to produce more when prices are high, and serves to perversely keep up production when export prices are low.

Proponents of stabilisation, on the other hand, see it as a cure for market uncertainty, particularly in developing countries that are mostly dependent on few primary commodities with uncertain export prices. For example, UNCTAD (1975) was among the early proponents of the argument that uncertainties associated with price fluctuations disrupt the behaviour of competitive economic agents, introducing difficulties and errors in investment and production decisions. The debate that raged during the second half of the 20th century on the entire issue of stabilisation included the question of whether the desirability of market interventions to remove uncertainty is really obvious. Some economists have argued that uncertainty is only undesirable if accompanied by market failure and that the obvious remedy is to correct the market failure rather than remove the uncertainty itself (Arrow, 1970; Hannoch, 1974).

Let us consider producers of primary exports as competitive firms faced with an uncertain demand. This uncertainty takes the form of instability in the price of the primary exports produced by the farmers. Theoretically, it could be shown that price instability is not at all undesirable, as it might intuitively appear (Oi, 1961). Suppose that the farmer sells his output in a competitive market, with price as an exogenously determined stochastic variable. The farmer maximises short-term profits, so that given the price at any period, the farmer produces at the point where marginal cost equals price. For each and every commodity price, there is a corresponding value of total profit. Total profit is a single-valued function of the price and the profit function is monotonically increasing and convex in the price. This property of the profit function implies a well-known result (Varian, 1984): the greater the variability of prices, the higher are expected profits. (See Appendix 1 for a diagrammatic demonstration of a firm's output choice and profits, both guided by output prices at different periods.) One could conclude from the above that price stabilisation would lead to greater reduction in the average annual surplus of primary producers the larger is the initial dispersion of price and the less steep is the supply curve, i.e. the more responsive is supply to price changes or the slower are increasing marginal costs in the production activities of the producers.

Perhaps critics were justified when at the peak of the CMBs' activities in the 1960s they argued that the CMBs were probably using the concept of stabilisation for accumulating trading surpluses designed for purposes other than producer price and income stabilisation (Bauer & Yamey, 1968: 145–51). Forest (1993: 195) was more specific, arguing that the CMBs' intervention in the commodity markets was, to a large extent, motivated by political circumstances. The activities of the CMBs more or less vindicated the long-held Wicksellian notion quoted in Ekelund and Herbert (1990: 639) ‘that collective or public sector decisions emerge from a political process rather than from the mind of some benevolent despot’. Hillman (2003: 4) has echoed a similar sentiment warning that one should be cautious when certain offers by the authorities to buy or sell are accompanied by claims of altruistic motives.

3. Stabilisation results of the CMBS

We examine the level of price stability achieved by the CMBs by comparing the actual degree of nominal producer price instability with that which would have been obtained had there been no CMBs in existence. The period under our investigation is 1942–85, the motive for our choice of this period being twofold: (a) it was in 1942 that the CMBs took control of all the export crops discussed in our study (Bauer & Yamey, 1968: 144–145) and (b) the CMBs were dissolved in April, 1986 (Andrae & Beckman, 1987: 52). For each of the crops under study, we consider the degree of their price instability in terms of the variability of their annual prices around a trend line. For our analysis we have used annual, rather than daily or monthly data, mainly because of its advantage in eliminating very high frequency fluctuations. In other words, annual data does not dramatise the degree of instability in commodity prices. Besides, it is almost impossible to get hold of daily or monthly data on the Nigerian agricultural commodities. Our stability measure is the coefficient of variation. We have decided to use this particular measure because of its computational convenience and relative accuracy, especially considering our long annual data series that cover over 40 years. This measure is especially relevant whether the discussion is on prices, revenues or supplies (Newbery & Stiglitz, 1981: 285–7). In the present study, it is calculated after smoothing the price curve, using a five-year moving average. This method of measuring the coefficient of variation has the advantage that it does not overstate the degree of instability (Newbery & Stiglitz, 1981: 291–2).

In our analysis, a greater coefficient of variation indicates a greater instability and vice versa. Table 1 shows the effects of price stabilisation on producer prices. The table shows that the producer prices of all the export crops were destabilised during the period 1942–85. The worst-hit sectors were those of groundnuts, palm kernels and palm oil, where the producer price instabilities were worsened by 76,1 per cent, 72,9 per cent and 70,2 per cent, respectively. Though the figures in the cotton and cocoa sectors were relatively less, with 38,4 per cent for cotton and 20,0 per cent for cocoa, they were, none the less, equally unsatisfactory.

Table 1: Effects of price stabilisation on producer prices, 1942–1985

Coefficient of variation*
Crop	World price	Producer price	Instability
Cocoa	0,7124	0,8550	Worsened by 20,1%
Palm oil	0,4908	0,8352	Worsened by 70,2%
Palm kernel	0,4207	0,7276	Worsened by 72,9%
Groundnuts	0,5607	0,9874	Worsened by 76,1%
Cotton	0,5212	0,7213	Worsened by 38,4%
Sources: Computations are based on data from: CMB, Annual Report of the Commodity Marketing Boards (various issues); CBN, Economic and Financial Review (various issues); CBN, Annual Report and Statement of Accounts (various issues); and UN, FAO, Annual Production Statistics (various issues).
*Coefficient of variation, cv = si/mi, where i signifies a particular commercial crop; mi denotes the mean calculated as: mi = ∑pi/ni. ∑pi denotes the sum of the price of crop i, ni is the number of observations. si is the standard deviation calculated as the square root of the variance s^2, where s^2 = ∑(pi–mi)^2/n − 1.

The CMBs' failure was hardly a surprise considering that they completely violated their stabilisation rules. According to their stabilisation policy declaration, part of farmers' export receipts should be temporarily withheld from them in periods of high world market prices, to be later returned to them in the form of subsidy payments in periods of low world market prices.

A serious defect of the policy was the failure to specify the time period during which the accumulation of funds should be stopped. As it turned out, the policy declaration was never respected by the CMBs. Rather, they continued to withhold part of primary producers' export receipts during most of the period and rarely returned anything to farmers, even when world market prices were low. For example, in the cocoa sector, the world market price, based on the 1948 price level, dropped by 7,6 per cent and 19 per cent during the periods 1960–62 and 1964–65, respectively. Yet there were no subsidy payments to farmers. Instead producer prices were depressed even further by the CMBs during these periods. In the palm oil sector, the world market price, based on the 1952 price level, dropped by 33,2 per cent and 27,3 per cent in the periods 1953–54 and 1957, respectively; in the palm kernel sector, prices dropped by 24 per cent in the period 1954–57; and in the groundnut sector they dropped by 31,3 per cent and 36,5 per cent during the periods 1954 and 1957–58, respectively. Yet in none of these sectors did farmers receive any subsidy payments from the CMBs. In the cotton sector, producer prices were so depressed that they were below one-third of the world market price throughout most of the period.

Little did the authorities know that their policies would ultimately (but not inevitably, had they realised their mistakes and acted accordingly) lead to the destruction of the country's primary sector. Subsidy payments to farmers only became a relatively common occurrence as from the mid-1970s, when the authorities eventually became fully aware of the total collapse of output in the primary agricultural sector (Ilorah, 2000). The subsidy payments were not necessarily because of poor world market prices, but were rather a desperate attempt by the authorities to discourage the exodus of farm labour into the cities. Income earners in the agricultural sector were therefore given some respite, particularly since the oil (petroleum) sector had replaced the agricultural sector as the financial arm of the government in 1973.

The stabilisation results of the CMBs on producer income were equally poor. We define producer income as the product of the producer price per ton and the volume of the exported output (supply to the CMBs) of the particular crop. This means that variations in either producer prices or the volume of output or both would affect producer income. Table 2 gives the results of the operation of the CMBs on producers' income. It shows that the CMBs were, on balance, ineffective in their pursuit of the objective of stable producer incomes from exported primary produce. The operations of the CMBs, at best, only marginally stabilised the incomes of producers of palm kernels, palm oil and groundnuts, with instability reductions by 6 per cent, 1,7 per cent and 0,5 per cent, respectively. This marginal success in these sectors should be viewed with caution, however, particularly as their supply data series, especially palm oil and groundnuts data, stood at a negligible level during the late 1970s to the first half of the 1980s (Ilorah, 2000). Finding deviations in trend is particularly difficult in cases of very pronounced erratic supplies (Newbery & Stiglitz, 1981: 291). Worse results were revealed in the CMBs' performance on the other producer incomes. The incomes of the producers of cocoa and cotton were destabilised by 11,8 per cent and 16,8 per cent, respectively.

Table 2: Effects of price stabilisation on producer incomes, 1942–1985

Coefficient of variation*
Crop	Export income	Producer income	Instability
Cocoa	0,7789	0,8708	Worsened by 11,8%
Palm oil	0,8890	0,8737	Reduced by 1,7%
Palm kernel	0,5164	0,4854	Reduced by 6,0%
Groundnuts	0,8810	0,8764	Reduced by 0,5%
Cotton	0,6885	0,8045	Worsened by 16,8%
Sources: Computations are based on data from the same sources as in Table 1.
*We have followed the same method of calculation as in Table 1.

Generally, the period under study was marked by no remarkable difference in variability between the export income and the producer income, and this was especially the case in the groundnut sector. Our results lend weight to the argument by critics that the export monopolies are better defended in their roles as revenue earners of the Nigerian government than in their roles as stabilising organisations (Helleiner, 1966: 200; Bauer & Yamey, 1968: 145–51).

When the CMBs were fully established in 1942, they had a clearly defined expenditure formula in the order of: 70–22,5–7,5 (Helleiner, 1964). What this meant was that of the Boards' total accumulated surpluses, minus their requirement of working capital, 70 per cent would be spent on stabilisation, 22,5 per cent on development and 7,5 per cent on research.

After the CMBs were regionalised in the mid-1950s they began to modify their expenditure formula. For example, their expenditure pattern was diverted more in favour of the government and even the private sector, and less in favour of the farm sector. The regional governments, in collaboration with the CMBs operating in their regions, embarked on various projects that were financed mainly with taxes from the agricultural sector. For example, during the period 1955–61, the CMBs awarded several loans and grants to regional and federal governments, regional development and finance corporations, and private companies (CMB, various issues). The loans, particularly those to the regional and federal governments, which accounted for about 79 per cent the total loans, were still outstanding at the time of the dissolution of the CMBs in April 1986. This meant that they were never repaid to the CMBs; hence they formed part of income losses incurred by farmers. According to Oyejide (1986: 13), the deviation of the CMBs' expenditure pattern implied that ‘agriculture was assigned the role of a reservoir that provided resources for the manufacturing industrial sector that was considered by the authorities as the leading sector’.

4. Reforms to boost output of the export agriculture

A reform of the agricultural sector would entail that the authorities follow the turn of events in terms of changing technologies and land reforms. Any significant reform of Nigerian export agriculture would require a massive and sustained government support on at least three key issues. First, a proper labour force has to be trained. Those who refuse to be trained should be phased out of commercial agriculture. Secondly, large farms should be encouraged, supported by large-scale transfers of capital through the auspices of the government. Thirdly, the authorities should not be afraid to embark on a radical land reform programme.

Successful farming requires a level of education which unfortunately most Nigerian farmers do not possess. Access to technical and scientific skills and information has become indispensable for survival on the land. This makes educational proficiency a compulsory requirement for the progressive farmer. Lack of education means that farmers are neither able to understand disseminated information of a scientific and practical nature nor properly equipped to attend crash courses on productivity-boosting initiatives, such as new farming techniques, seed selection, water conservation and prevention of soil erosion. The dissemination of information on such matters as local climatic conditions, rainfall figures, market prices, agricultural shows and the results of trials at experimental farms, all of which are important for successful farming, is also hindered when education is lacking. Todaro (1994: 386) has noted that in most less developed countries small subsistence farmers are largely neglected by organised educational programmes, both formal and informal and, as a result, little or no contribution is made toward improving levels of agricultural productivity. Todaro's argument implies that education, preferably in properly equipped agricultural schools, colleges and universities, will go a long way towards widening farmers' mental horizons. Such agricultural education institutions will also promote new seeds through research, and accustom potential farmers to a new package of practical discipline. However, much as the importance of education projects in agriculture is strongly emphasised, they should not be pursued in isolation, since they may have little or no effect on output unless there are follow-ups in the form of financial assistance by the government.

Agriculture is a risky business, particularly if practised on a large scale. Its capital base is very vulnerable to destruction by natural causes such as climate, diseases and pests. A major aspect of government involvement should therefore be the mobilisation of financial support to farms that have the potential for success with sustainable commercial opportunities. Keegan (1986: 108) has noted that in South Africa, which has some of the most successful farms in sub-Saharan Africa, government assistance included not only the encouragement of mechanised farming, into which it initially poured large amounts of capital, but also a continually increasing level of financial involvement in productivity-enhancing farm projects. For example, the government intervened in the search for water by making provision for the purchase of drills and granting loans to individual farmers for sinking wells (Keegan, 1986).

The problem of Nigerian agriculture has, to a large extent, remained the lack of capital. A farmer who has been given land to farm should also acquire other inputs such as fertiliser, water, seeds and mechanical tools. To buy these, the farmer must have money. Nigerian farmers, because of their lack of collateral securities, do not have access to official credit facilities. The lack of credit from official sources has often driven these farmers into the clutches of the local moneylenders. Earlier studies have also confirmed the same credit problem among Nigerian farmers. Osuntogun (1975) found that about 32 per cent of farmers' credit needs were supplied by friends and relatives, and 13 per cent by local moneylenders, whereas only about 1 per cent was met by formal sources. Miller (1977) revealed in another study that in the western and some parts of the northern states in Nigeria, about 58 per cent of the credit available to farmers was obtained from relatives and friends, 24 per cent from local moneylenders, and nothing at all from formal sources. The problem of credit from formal sources is usually complicated by the location of the credit institutions. As of 1981, over 95 per cent of Nigerian government-instituted credit sources were still located in the urban areas (Ijere, 1982), whereas the farmers who needed such credit lived in the rural areas (Ilorah, 2000).

Apart from the problem of producing collateral securities, Aku (1983) has noted that the primary crops farmers also often complained about the time-consuming and costly trips to the urban credit centres, and also the cumbersome and complicated application forms they had to fill in to secure the loans. The situation has since deteriorated because Nigeria was progressively over-militarised for most of the second half of the 20th century, among the tolls of the military regimes being the closure of several banks and several agro-allied industries, both groups that should have formed good partnerships with farmers. The shortage of working capital for farmers might, among other factors, explain why on much of the Nigerian arable land under cultivation even primary crops farmers continue to concentrate on food crops production, albeit at subsistence level, at the expense of the more lucrative, albeit more risky, cash crops production. Part of the solution to the plight of Nigerian farmers requires therefore that the farmers be given access to fairly substantial funds from outside agriculture and be able to count on continual government support as a cushion against climatic conditions and market fluctuations. The Nigerian CMBs, as statutory marketing monopolies, were supposed to act as price supports through which government assistance would be extended to farmers, but that support failed to materialise as had been officially envisaged when the CMBs were established.

In Nigeria, credit is usually given against security and never tied to identifiable productive purposes. This condition has worked against potential farmers and rather favoured the so-called ‘overnight’ farmers recruited from the urban elite, many of whom use agriculture as a weekend pastime, their real sources of wealth lying outside agriculture. In principle, there is nothing wrong in combining other forms of entrepreneurial activities with capitalised farming. Keegan (1986: 113) has noted that many of the capitalised farmers in South Africa at the end of the 19th century had been entrepreneurs of various non-farm activities or had fathers who had done this. Keegan means that prior engagements in non-farm activities actually gave these farmers privileged access to exchange and credit networks (1986). However, diverting to farming becomes deceitful if the entrepreneurs-turned-farmers merely use their influence to secure easy credit that they then use for non-farm purposes.

The issue of land reform is equally important since the sustainability of agricultural development, particularly in the long term, depends on the system of land tenure. According to Kwaw (2002: 160), a system of land tenure, comprising permanent land ownership and temporary land holding rights, embodies both legally binding and informal arrangements under which land is used by those with access to it. Kwaw means that regulations, rights and procedures do affect individuals' access to land as well as their market decisions with respect to the use of land (2002).

Nigeria has a surplus of potentially cultivable land, estimated at about 72 million hectares. Oyejide (1986: 15) has reported that, by the first half of the 1980s, of that total only about 34 million hectares was being cultivated. In other words, less than 50 per cent of potentially cultivable land was under actual cultivation. To date, the situation has remained more or less the same. The World Bank (2003) shows that in Nigeria arable land (including land under temporary crops, temporary meadows, pasture, land under market gardens and land temporarily fallow) and permanent cropland (including land under perennial crops such as cocoa, palm produce, rubber, etc.) as percentages of total land area remained more or less the same between 1980 and 1999. For example, the Bank shows that Nigerian arable land and permanent cropland were 30,6 percent and 2,8 percent, respectively, of total land area in 1980 and 30,9 percent and 2,8 percent, respectively, in 1999 (World Bank, 2003). This revelation implies that, as far as agricultural production is concerned, potentially cultivable land is not a constraint in Nigeria. The problem, however, remains the poor method of land use, reflecting the lack of a properly executed land reform in the country.

A major reform of the Nigerian land tenure system was undertaken by the Federal Military Government in March 29 1978, in its Land Use Decree No. 6 of 1978, when the right to possess land was extended across community and even state borders. The authorities had embarked on the land reform programme to facilitate resource movements so Nigerians from land-scarce areas would stand a chance of obtaining land in land-surplus areas (Fabiyi, 1979). Included in the land reform was a change from the traditional system, where community heads allocated land, to a system where all powers to allocate land were vested in the local government, headed by a state military governor. This local government then had the power to grant customary rights of occupancy to any person or organisation who intended to use the land for agriculture, grazing, residential and other purposes. In order not to disrupt agricultural activities, the decree allowed those who had been cultivating the land to remain in possession of them, as long as continued proper use of the land for agriculture was guaranteed. To encourage large-scale farming, while avoiding land-grabbing tendencies, ceilings in the order of 500 hectares for agriculture and 5000 hectares for grazing purposes were set, to represent optimum sizes for individual acquisition (Fabiyi, 1979).

Poor implementation of the government land reform programme meant that the entire exercise had little or no effect on the output of agricultural exports. Among those who benefited from the programme were the so-called ‘overnight’ farmers, comprising urban businesspeople, military officers and politicians, all of whom had no training as farmers. Their access to land, and also to credit, has made no difference to the country's total agricultural output. In fact, access to both land and credit was easier for the Nigerian elite because, to a large extent, the security of the country's leadership and hence of the military aristocracy, was intimately connected with obtaining freedom and access to land and credit for the elite.

Ownership of land is supposed to act as an incentive to a farmer to make proper use of land. The attitude of Nigerian producers of export crops during the past three decades has proved otherwise, admittedly for reasons some of which are beyond their control. The Nigerian situation is a classic case of disgruntled unemployed farmers who lack the motivation for farm work, even though they own potentially cultivable free land. The Nigerian authorities should try to transform the mind-set of subsistence activism into readiness to access the mainstream commercial farming that is characterised by large farms. In addition to providing farmers with the necessary education and credit, the government could decree that farmers who sign an agreement to grow export crops will receive land for a specific period of time. A title to keep the land for a longer period could be granted as long as it is used to its full capacity, and production of agricultural crops fully maintained. Failing to use the land properly would automatically render the granted title void. The so-called ‘overnight’ farmers who, at best, operate as absentee landlords, should disappear completely from the farms. Farmers should either cultivate the land or relinquish it for proper use to those who are prepared to do so.

6. Conclusion

The price and income stabilisation results of the CMBs were unsatisfactory. The main losers in the stabilisation exercise were farmers whose agricultural exports income was heavily taxed in the form of deductions by the CMBs. The losses by farmers have been aggravated by the fact that there have been no significant reforms in the agricultural sector as a whole. Structures remain more or less the same in this sector even though the generation of potential farmers has changed. The general perception of farming in Nigeria remains negative, since the sector's characteristics of low productivity, poverty, indebtedness and slow transformation have remained unchanged.

The Nigerian authorities should address problems in the agricultural sector by revisiting the key issues: land, credit, and training. All concerned partners, including the government, farmers, financial institutions, industries, and even academic institutions should commit their efforts and resources to solving the problems related to these issues. The common objective of the exercise should be mainly to increase farm output and income, the achievement of both of which will give farming a completely new and attractive outlook. Farmers should be re-motivated to view farming as a profit-driven production process rather than mere subsistence. The authorities should discourage the mind-set that farming is a ‘way of life’ that generates satisfaction even though it may not be rewarding financially.

A move to increase farm output and income should include a radical approach that encourages commercial farming and larger farms. The authorities should identify potentially viable farmlands and help farmers acquire them. Acquisition of land should not necessarily grant permanent ownership; rather, the process should involve rent payments by those making use of the land. The land should be retrieved as soon as it is discovered to be lying idle. An important role for the authorities would also include the provision of an adequate and broadly based educational system and incentives for firms to invest in agricultural regions. Education and investment should complement each other so that young rural school-leavers will be given wider job opportunities. Displaced farmers who are unable to cope with the new structures should be reabsorbed through policies that eradicate occupational immobility.

The author would like to thank Dr J Arrow, Professor A Amey and Ms R Makwela for their expert advice on the statistical problems in this article. The usual disclaimer applies.

Additional information

Notes on contributors

Richard Ilorah

Head of Department of Economics, School of Economics and Management, University of Limpopo, South Africa.

Appendix 1: A firm's output choice and profits

Intervention in the market through, for example, price stabilisation would remove the desirable inducement for output expansion or contraction, in response to changes in demand as expressed through price movements. Theoretically, the greater the variability of prices, the higher are expected profits, since there would be the incentive to produce more at higher prices and less at low prices.

Figure A1 demonstrates a competitive firm's short- and long-term profit-maximising output decision. We assume that the firm, being a price taker, faces a perfectly elastic demand curve, i.e. a horizontal demand curve (Melotte & Moore, 1995: 199–201). We also assume that the market-determined price is reasonably high at N100. The firm's price line is its demand curve, which is also known as its average revenue (AR) curve (Melotte & Moore, 1995).

In the short term the firm produces an output of q₁, where its short-term marginal cost (SRMC), its marginal revenue (MR) and its price (P) are equal. The firm's profit is given by the rectangle ABCD, with the short-term average (total) cost (SRAC) and the SRMC low enough to guarantee this profit. In the long term, the firm may want to increase its plant size in order to enjoy some economies of scale reflected by the low long-term average cost (LRAC) curve and the long-term marginal cost (LRMC) curve (Pindyck & Rubinfeld, 1995: 256–70). If the price remains high at N100 the firm would produce an output q₃, at which point its total profit increases from ABCD to AIJE. A higher market price would guarantee a higher profit. Similarly, should the price decrease to N70, the firm would produce at q₂, corresponding to the point of long-term (minimum) average cost (LRAC) that guarantees the firm a mere competitive return on its investment while economic profit falls to zero, on the assumption that price equals average total cost (ibid.).

Figure A1: Output choice and profits at different periods

The problem with regard to market intervention on farm output through prices is that the authorities may ‘blindly’ set prices at a level that only guarantees farmers competitive returns, at best, whereas economic profit that acts as the main incentive booster (Haydam, 2004: 174) is decreased to zero. Loss of economic profit, especially in the commercial farm sector, would result not only in lost incentives but also in mass exits from farming and, coupled with the absence of mechanisation in production, in lost output.