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Understanding Theory and Models of Development

The theories and models of development are presented as follows

Dual-economy Model

These models are based on a characterization principle that under developed countries operate
under a dual-economy structure, in which a primitive rural economy co-exists with a
modern economy (Lewis, 1954 and Ranis and Fei 1961). While the modern economy is
market-oriented and the technology of production involves the use of science-induced
improved inputs of capital, the primitive economy produces only for the family, using
family endowed resources of labour and land. Further characterizations indicate that
subsistent agriculture is the main vocation in the rural economy with limited interaction
with the outside world. Savings in rural households are almost not possible as the marginal
propensity to consume in close to unit. Therefore, capital formation is absent and
investment not feasible in the rural economy. On the other hand, the modern economy is
characterized by extensive commercial and industrial activities, which are generally urban-
based. While the rural economy remains stagnant, the modern economy grows over time. With
this understanding, the proponents of the dual economy models were quick to recommend
that a resource-switching strategy will be needed by developing countries to improve their
economies. This could be achieved by an underdeveloped country concentrating resources
in the dynamic and commercially-oriented modern economy by withdrawing resources
from the rural economy. This strategy, the proponents of the dual economy model claimed
will lead to increases in the growth of incomes, employment and rapid structural
transformation of underdeveloped countries. And, as development proceeds in the modern
economy, in the long run, surplus labour will cease to exist in the rural economy as all the
surpluses will become fully absorbed in the dynamic modern economy (Ranis and Fei,
1961).
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Understanding Theory and Models of Development is a chapter in a book titled ‘Government and Agriculture
in Nigeria :Analysis of Policies , Programmes and Admission’ authored by V. O. Akinyosoye

1
 A further recommendation based on these models is that as surplus labour moves
from the rural economy, Government must strive to raise labour productivity on farm and
in the industry so as not to dampen the process of industrialization in the modern economy.
The dual economy models gained prominence in the late 1950s and the 1960s, and were
adopted by most developing countries at the time, but experience showed that they had
many short-comings. Some of these are itemized below:

 The dual economy models were shallow conceptualization of the structure of the
economies of developing countries at the time. There was no country then where the
rural agricultural economy was completely characterized by absence of savings,
capital formation and investment. They may be low but were not absent. The large
presence of non-traditional saving schemes in rural areas in the past and today is a
testimony to this wrong notion of zero savings and investment in rural areas
(Akinyosoye, 1999).
 It was also wrong for development efforts to be concentrated in the urban modern
economy hoping for development to filter down to rural areas. The neglect of the
rural areas where the majority of people of developing countries live has created a
situation where food and raw materials shortages have been rampant. This had put
pressure on the general price levels affecting both demand and cost structures in the
society and impeding the process of development. Furthermore, such an approach caused
significant differences in the earnings of urban and rural resources, and contributed to the
outflow of capital and labour resources form rural to urban areas. The effects were
massive unemployment in urban areas, tremendous demand for urban social services and
diversion of scarce funds from productive investment to the provision of costly social
services such as housing, sanitation, schools and medical facilities.
 Though the dual economy models accept that agricultural activities form the main
sources of income to a large number of people in poor countries (and therefore, the
potential sources of savings and capital formation in rural areas), all considerations
towards initiating development from the rural areas were completely ignored. The
models consider the rural economy only as the source of cheap food, cheap raw
materials and eventual supplier of the surplus labor and other resources needed for

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 development. The result was persistent low income and abject poverty in rural
areas.
 A major defect of the dual economy models was that many developing countries
adopted and applied them to the fullest, but to their disappointment, as the
consequences were perpetual poverty, highly-skewed income distribution and
economic stagnation. All these happened because of the scarcity of entrepreneurial
class in the developing countries, and most of the urban-based establishments in the
1950s and 1960s did not make profit despite being monopolies. Many of them
produced small-valued products because they were heavily dependent on foreign
technical partners, raw materials and expensive personnel. Only a very small percentage
of earnings from these industries were retained, as most dividends were sent abroad
where majority of the shareholders lived. Developing countries have since realized their
mistakes in adopting the dual economy models and since the 1970s started concentrating
their development efforts on agriculture and rural areas.

Export-Led Growth Model

The export-led growth model was essentially an agricultural market-expansion model put
forward by Myint. He believed that by opening up markets in other parts of the world
through international trade, the expanded demand for exports (whose production will
intensify the use of the abundant land and labour resources in the less-developed economies
of the world) will lead to growth and development (Myint, 1958). The effects will be high
income growth, employment and government revenue which will induce massive
investment in infrastructural facilities such as roads, rail, ports, electricity, telephone and
commercial and public sector institutions. The model guided the development process of
many African and Latin American countries at the early stages of their development.
These countries were usually well-endowed in natural resources, particularly agricultural land
labour and favorable agro-ecological environment. But the model also failed to engender
sustainable development because of the following factors:-

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 The model ignores changes that can take place in the demand and supply of
agricultural commodities in consuming countries, Substitutes may be found or
developed, such as the case with natural rubber and synthetic rubber, palm oil
and refined vegetable oil from maize, soybeans, sunflower and cottonseed.
There could also be trade protection of local firms in the importing countries
such as the case with American and European farmers, which is now a bone of
contention at the World Trade Organization (WTO).
 The concentration on the production of export crops as advocated by this model
contributed significantly to food shortages and economic crisis relating to food
price increases and rise in the general price levels in the countries that adopted
the model in the past. Take Nigeria for example. The acceptance of this model
must have contributed to the concentration of agricultural research in the
country more on export crops such as cocoa, oil, rubber and cotton than on food
crops in the 1950s and 1960s (Idachaba, 1997). This too must have contributed
to the low productivity in food production manifesting the ever worseningever-
worsening food situation in Nigeria, fostering the risky reliance on food imports.
This must also have accounted for the apparent perpetual food shortages and
relatively high food prices in areas where export crops production had been very
active in Nigeria. A case in point in Ondo State, which is a major cocoa producing
area. Most food items in the State are “imported” from other States such as Benue,
Kogi, Oyo and Edo (Akinyosoye, 2003).
 The export-led growth model denied, particularly the African countries, the
need to promote the establishment of agro-allied industries to produce finished
and semi-finished products that could have earned them more income in the
international market, create more employment at home and generate more
income for the farmers. This explains why over the years counties like Nigeria
exported cocoa beans instead of cocoa butter, raw cotton instead of textile
materials; cotton seed, palm oil, groundnut and palm kernel instead of refined
cooking oil from these commodities; logs instead of furniture items; and rubber
latex instead of tyres, tubes, latex and glues, to mention a few, A developing
country that has used this model to her advantage is Malaysia, which now exports

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 large quantities of refined vegetable oil made from crude palm oil. In its entirety, the
export-led growth model has no intellectual contribution to strategies that can be
adopted to promote agricultural and rural development.

High-Input Pay-Off Model

The high-input pay-off model was an innovation-induced development model that

had significant impact in the 1960s on how traditional agriculture could be transformed
into a modern market-oriented one (Schultz, 1964). The model was based on the strategy of
using high-yielding varieties of planting materials and improvement in human capital to
promote agricultural and rural development. The idea behind the model was that, though
traditional agriculture is characterized by low productivity and low incomes, the farmers
are rational allocators of farm resources and are equally responsive to prices. And,
because they allocated resources efficiently and respond to price changes sensibly, there is
nothing much farm management and extension experts can do to improve on the poor
performance of traditional farmers than to introduce new inputs and an attractive prices
regime to make farmers increase their income. Low input prices and high output prices
are, therefore the panacea to agricultural and rural development in poor countries.
According to the proponents of the high-input pay-off model, the two things Government
can do to accelerate the process of development is to invest heavily in research, technology
transfer and education. This approach has helped many countries, particularly the
recently adjudged developed ones, to promote their agriculture. For example, Japan and
Taiwan, which are land-deficient countries, used biological research to promote their
agricultural development. Israel had sandy land with limited water, hence paid attention
to technology to boost agricultural production through irrigation. America is a land-
surplus country, and placed emphasis on mechanization as the engine of growth for the
agricultural sector. There are a number of good points in this model, and its relevance to
developing countries is enormous as it makes Government to realize that research and
training are basic to agricultural development and that price support (whether at the input
level or output level) can aid the process. However, there are still some weaknesses in the
model as itemized below:

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  The high-input pay-off model assigns an exaggerated role to market forces in
allocating resources, which in most cases does not work in developing countries. In
many of these countries, including Nigeria, it is the Government that supplies these
modern inputs and the procurement and distribution of farm supplies is generally
poorly handled to the charging of Nigerian Farmers. In many cases, the new inputs
do not get to the framers on time because officers who manage input supply schemes in
Nigeria fail to appreciate the timeliness of input supplies to agriculture. Indeed, the entire
process is riddled by bureaucracy, inefficiency, lack of transparency and accountability
and large-scale corruption.
 The model also assumes that all farmers have equal access to modern inputs no
matter their economic and political power. This has been proved wrong in some
developing countries as access depends largely on other considerations besides
economics
 The model ignores the fact that there are institutions that must be in place before
new inputs and technology can aid agricultural development. For example, there
must be a progressive land tenure arrangement to assist farmers expand production
and take advantage of the new inputs which themselves must come from well-
developed research institutes and universities. Such situations are rare in many
developing countries.
 The use of new inputs has ecological implications as was the case with India,
Pakistan and Mexico after their green revolutions. The model is anchored mainly
on the use of new inputs such as fertilizers and agro-chemicals, which usually
contribute to the pollution of soils, and at times, water which poses health hazards
to human beings and aquatic life.

Basic Resource Model

The basic resource model is based on the belief that the presence of abundant natural
resources of high quality are needed to propel the development process of a country or
specific region(s) of any country. The two natural resources of importance are mineral
resources and biological resources, particularly agricultural lands and fresh waters from
rivers. This is because the exploitation of these natural resources attracts high capital

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investments that eventually create employment opportunities and sources of income for the
people of the country or region(s). This treatise has some historical support because many
countries of the world or specific region(s) of a nation have experienced rapid economic
development through the exploitation of their abundant natural resources. For example, the
United States, Canada, Australia and New Zealand anchored their economic development on the
abundance of their natural resources. Similarly, over the years, particularly in the 1960s, South
Africa enjoyed a high rate of economic growth due mainly to the exploitation of its abundant
mineral resources. Diamonds and gold are historically the most important minerals, but others
including copper, iron ore, manganese, asbestos, chrome, silver, beryllium, antimony, tin,
platinum, coal and uranium are also important. The exploitation of these minerals in the richly-
endowed regions of Witwatersrand (including Johannesburg, the Far West Rand, Klerksdorp,
Orange Free State, Kimberley and Transvaal) made them enjoy relative affluence than the rest of
the country. Also in Nigeria in the 1950s and 1960s, the rich, agriculturally endowed areas
of the country that few export crops like cocoa, groundnut and cotton were more developed
than the less endowed areas. Since the 1970s, the oil rich State of Niger Delta region of
Nigeria has been experiencing a higher level of foreign investments than the rest of the
country. The foregoing success stories notwithstanding, development economics have come
to realize, over the years, that the abundance of natural resources is not a panacea for
rapid economic growth and development. In fact, there are many countries with enormous
natural resources that have failed to develop. This is true of most African countries,
particularly the Democratic Republic of Congo, Nigeria and Angola. In a number of cases,
abundant natural resources tend to be a curse rather than a blessing. In these richly
endowed African countries, the presence of mineral resources had attracted wars,
international crooks and gamblers, military rule and opportunists and bad governance.
This situation contrasts with the experiences of some developed countries like Japan and
Israel, and man newly-developednewly developed countries such as South Korea, Thailand,
Singapore and Malaysia which are without any appreciable presence of natural resources,
but have usedhave used will-power and technical prowess to develop. In the same vein,
Switzerland is one of the most developed countries in the world. It has limited natural
resources, has never gone to war or colonized by other country, but has been inward-

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looking, anchoring its wealth-creation on the utilization of human capital, particularly
superior intellect.

Even countries like Canada, Australia and New Zealand that are endowed with
abundant natural resources were only able to benefit greatly from their resources because
they were lucky to have immigrants, at the early stages of their development, from
economically and politically natured societies in Europe to take ownership and to manage
these natural resources. Norway too, which is one of the most developed countries of the
world only had access to large presence of natural resource (oil) after she had experienced
a large dose of economic and political maturity. Therefore, the very high Human
Development Index (HDI) exhibited by Norway in recent years may be an outcome of a
well-managed economic system built from long years of knowledge-based sustainable
development efforts. Moreover, most of the basic resources referred to in the model are
mineral resources that are not renewable, which implies that diminishing returns set in
after a period of exploitation. This is further aggravated by population pressure, stagnant
technology, over-exploitation and poor conservation practices which in the long-run leave a
hitherto richly-endowed country poor. In addition, technological change can render a
particular basic natural resource irrelevant in the market. For example, the development
of synthetic rubber greatly affected the world market for natural rubber in the 1950s, and
so were the economies of countries that were major exporters of rubber latex.

An important inference from the foregoing treatise is that it is human capital and
not natural resources that constitutes the origins of economic development. This explains
why education is a major input into the development process as confirmed by works of
renowned scholars such as Denison (1967) and Jorgenson and Giriliches (1967).

Internal Combustion Theory

The internal combustion theory has some semblance to the agglomerative force theory. Based on
this model, development is achieved by deliberately institutionalizing a process from the
lowest level of administration in a country such as the Local Government Areas (LGAs).
The thought behind the internal combustion theory is that an internal growth mechanism
engendered by technology, specialization economies of scale in production and sound political

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and administrative arrangements, can be created to promote economic development. This does
not, however, exclude the complete absence of natural resources, but arrogates
considerable responsibilities to the Government and entrepreneurship in the course of the
development of any nation. The foregoing is the strong point of the theory.

Historical experiences, however, show that internal growth stimulus may be necessary, but not
sufficient, to start the development process. Capability without opportunity is of little relevance
in the process of development. In real life, it is the presence of natural resources, albeit not
in the right forms or qualities, that create the entrepreneurial zeal to initiate processes that
lead to development. A classic example is the birth of irrigation in agriculture in Egypt and
Israel, which was invented because of the inability of farmers to use the available land resources
optimally due to the sandy nature of the top-soils in those parts of the world. Furthermore, cases
abound that external forces also exert considerable influences on the development process of a
nation. Foreign demand for goods and services of a nation can complement the internal
growth stimulus on ground to people economic development. Switzerland developed the
internal capabilities to produce technically efficient watches and financial services, but
needed outside demand, that is external growth stimulus, for these products to earn the full
benefits of the Swiss ingenuity.

Diffusion Model

The diffusion model is a natural extension of the high-input pay-off model. While the high-
input pay-off model focuses on agricultural research, education and the development of
improved planting materials, the diffusion model holds the belief that it is the effective and
timely transmission and distribution of farm innovations that actually leadlead to
development in general and to agricultural and rural development in particular. The
model is, therefore, a communication-based abstraction (Harvens ad Rogers, 1961, 1962
and Katz, 1963).

The contributions of the diffusion model to the management of the agricultural

sector of developing countries have been enormous. It led to the recognition of extension
services as a valuable component of agricultural administration, and also considerable
investments through recruitment and training of large numbers of extension staff in the

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various Ministries of Agriculture. It also led to the establishment of agricultural
experimental stations demonstration farms and research out-stations in developing
countries. International agencies also imbibed the tenets of the diffusion model in the
agricultural development programmes and projects supported in developing countries.
The World Bank-supported Agricultural Development Projects (ADPs) in Nigeria and the
Intensive Agricultural District Programme (IADP) in India are examples of such interventions
based on the model (Goldsmith, 1990). To further employ the model to promote development,
many developing countries embraced the idea of using “progressive” farmers, out-growers, farm
settlement farmers, local farm elites, traditional leaders, cooperative societies, farm
Organisations, and even religious and traditional leaders in the diffusion of farm innovations. In
some cases, radio communication outreach programmes have been designed to diffuse farm
innovations in line with the model. In the global scene the diffusion model may have contributed
to the establishment of the international agricultural research centers. Notable amongst them are
the International Institute of Tropical Agriculture (IITA), Ibadan, Nigeria; West African Rice
Centre (WARDA), Bouake, Cote d’Ivoire; Centre International de Agricultural Tropical (CIAT),
Cali, Colombia; Centre for International Forestry Research (CIFOR), Bogor, Indonesia;
International de Mejoramento de Maizy Tog (CIMMYT), Mexico city, Mexico; Centre
International de la Papa (CIP),Lima Peru; International Centre for Agricultural Research in Dry
Areas (ICARDA), Aleppa, Syria; International Crops Research Institute for Semi-Arip Tropics
(ICRISAT), Patan Cheru, India; International Food Policy Research Institute (IPFRI),
Washington DC, USA; International Livestock Research Institute (ILRI), Nairobi, Kenya;
International Plant, Genetic Research Institute (IPGRI), Rome, Italy; International Rice Research
Institute (IRRI), Los Banos, Philippines; International Water Management Institute (IWMI),
Colombo, Sri Lanka; World Agroforestry Centre (ICRAF), Nairobi, Kenya; and World Fish
Centre (WFC), Penang Malaysia. These institutes are managed under the Consultative Group on
International Agricultural Research (CGIAR)

The diffusion model is, however, not without its limitation. Experiences of many
developing countries showed that the demonstration effects envisaged by the innovations on
farms were not significant. This was particularly true in countries where farm demonstrations
were organized by one government institution or another. In view of Government’s
involvement, such demonstration suffered from the usual bureaucratic inefficiencies

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common in public Organisations. The failure of the farm settlement scheme in the old
Western Region of Nigeria, is a case in point. And, when selected farmers or out-growers
were used to spread farm innovations, they were always not sustainable as they became
moribund after some time. The case of the ADPs in Nigeria, testifies to the limitations of
the diffusion model in practice. Another set of limitations of the model has to do with the
complex organizational frameworks required to make the model effective, and this was
absent in many of the developing countries where the model was adopted. Farm innovations
by itself do not promote agricultural production unless the modern inputs had always been
limited because of their underdeveloped agricultural financial markets. Also, the design and
implementation of farm innovation programmes require the collection and analysis of a large
body of data on farm operations. But such data were often absent in most of the developing
countries that adopted the model. In many cases, the extension agents were generally not
better educated than the farmers they interacted with to the extent that they were not able,
either to properly teach the farmers or provide solutions to their problems. At the end,
adoption of innovations was always low (Adegboye, Basu and Olatunbosun, 1969). Education
is vital in the adoption of the diffusion model as literate farmers are more likely to appreciate the
benefits of any farm innovation and follow the recommendations better than illiterate farmers
that form the bulk of the farming population in developing countries. In addition, there were
cases where innovations were introduced from abroad without sufficient research to ensure
their adaptability to local conditions. The result was resistance to change in the new
environment. The resistance of Nigerian farmers to yellow maize when it was first
introduced into Nigeria in the 1950s is a case in point. Hitherto, Nigerians were used to
white colored maize for the production of maize meal. When the yellow maize produced
“colored” maize meal, consumer rejected the product and the farmers subsequently
refused to plant the apparently more productive yellow maize. Therefore, the diffusion
model can only work where scientific, managerial and socio-economic research capabilities
are well-developed. But, these conditions were absent in many of the developing countries
that adopted the model (Singh, 1972).

Induced Developmental Model

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The induced development model advocates that progress in agriculture or any other sector
can only take place when the barrier(s) imposed by the limiting factors in the production
process is broken. The proponents of the model believed that where, in a production
process, the supply of one or more important inputs was inelastic, finding substitutes for
these inputs hold the key to development. This situation, they claimed, called for
substantial basic and applied research leading to innovative practices.

Urban Industrial Impact Model

The urban industrial impact model was put forward to explain the differences in
agricultural and rural development in the different regions of a country and by associating
the differences to the varying levels of urbanization in the different locations of the
country. Using the United States as an example, the idea behind the model was that
agricultural development was more likely to occur in farming communities near to urban,
industrial and cosmopolitan centers of human habitation than those far away. This is
because of the nearness to large markets for agricultural inputs and outputs as well as
cheaper transportation cost for moving farm inputs and outputs (Schultz, 1966). The
increased agricultural produce induced by nearness to urban centers will create
employment and income opportunities for communities where the farms are located. The
model might have been relevant to explain regional variations in economic growth and
development in predominantly industrial economies, but evidence from developing
countries does not follow a similar development path.

Proximity to large urban centers does not automatically lead to improved agriculture. In
fact, as has been experienced in Nigeria over the years, the first sets of rural-urban
migrants had always been those living near the large urban centers of Lagos, Kano, Ibadan
and Port Harcourt. The effects are farm labour shortages in the nearby villages and small
towns and limited agricultural activities. And, this explains why most food items sold in
urban markets come to the cities from places farther away. Experience also showed that
nearness of farming communities to age urban centre often lead to farmland shortages as
speculators take passion possession through estate development. The more lucrative

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business enterprises in urban centers also deny farming communities near those centers the
significant investment capital as the opportunity cost of farming becomes very high. The
only noticeable agricultural practice near large urban centers is the cultivation of
horticultural crops like flowers and vegetables and management of poultry farms. Even,
the operations are usually small in scale and cannot be considered a significant addition to
overall agricultural production at the national level.

Big-Push-Big Market Theories

The big-push-big-market theories are based on the notions that for an underdeveloped
nation to escape from a low levellow-level poverty equilibrium trap, the economy needs a
“big- push and the “big-market”. The idea was that underdevelopment was a product of
the interlock of myriad of economic, social and institutional constraints that must be
broken to propel the nation on a development path. The application of gradual efforts to
development cannot work, and that only a “big-push” exceeding minimum critical level can
muster sufficient power to lift an economy out of a low-level equilibrium trap. These
theories have served some useful purposes in development economics by providing the
intellectual support for reducing birth rates in developing countries and the initiation of
policies to attract external capital to finance the “big-push” and promote export trade.

The theories, however, have their drawbacks. Many developing countries have
experienced rates of economic growth higher than population growth rate without enjoying
the fruits of economic development. In some counties, population pressures have had less
negative impact than internal political instabilities and bad governance characterized by

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poor human rights records, wasteful spending and bad functioning public institutions.
These theories require a balanced approach to economic development planning which is
absent in many developing countries. Economic planning goes beyond listing of projects.
The difficult part is with implementation of the various projects according to a planned
time-table, andtable and keeping the plans in each sector of the economy in line with the rest.
When an economy becomes more inter-dependent, for example, problems of one sector will
affect others, but managing an economy for balanced development as advocated by these
theories have always been difficult in developing countries. The complex task of
coordination, the availability of the right type of data and information and the
administrative capabilities had always been below par in most developing countries to
make these theories work. Furthermore, the urge by government of developing countries
to spend available funds without regard to balanced-growth had led to crisis demanding
sudden austerity measures and foreign-exchange controls. Finally, in most developing
countries, the diseconomies generated by poor economic management and shortages of
competent entrepreneurs and managers far out weight the advantages of “big-market”
large-scale production systems.

In concluding, it is noteworthy to observe that, despite their different colorations in terms

of emphasis, the models and theories reviewed above have some semblance of the classical
and neo-classical theories they were supposed to replace. The common feature in the old
and new theories is the emphasis on investment and efficient allocation of resources. But
faced with the disappointing experiences of most developing countries that had adopted
different variants of the old and new theories, there is currently the understanding that for
overall economic development in an agricultural based economy, priority must be given to
rural development through the introduction of farm innovations, rural infrastructural
development, rural empowerment programmes, market expansion programmes and sound
economic management practices.

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2
Stages in the Development Process

Introduction

The stages in the development process of an economy, is exemplified by differences in the

patterns of investments, production technologies, product mixes, demand pattern and the
social behaviour in the society. The object of thought follows the seminal works of Rostow in
the 1950s and 1960s (Rostow, 1953 and 1960). His analyses generated considerable interests,
especially in the underdeveloped countries of the time and they are still relevant to students
of development economics today. His idea werewas based on the dynamic theory of
production, which allows for the identification of leading sectors in an economy that can be
stimulated to promote overall economic development. Using this approach to explain the
development process, Rostow isolated five stages which every economy must go through
(similar, metaphorically, to what obtains in human life: growth, maturity and decadence).

These stages are:

1. The traditional society,

2. The pre-conditions for “take-off”,
3. The “take-off”,
4. The drive to maturity,
5. The stage of high “mass consumption”.

These stages are rooted in change in the patterns of supply, demand and technology
of production in the society. While demand changes are induced by changing levels of
income, population and taste, supply changes come through changes in the state of
technology and quality of economic management or entrepreneurship in the society. The
quality of management determines the proportion of technically available and potentially

2
Stages in the Development Process is a chapter in a book titled ‘Government and Agriculture in
Nigeria :Analysis of Policies , Programmes and Admission’ authored by V. O. Akinyosoye

15
profitable innovations incorporated in the capital stock in the economy at the different
stages.

The foregoing postulations by Rostow have an antecedent, which is also relevant

to today’s views of development from the empirical standpoint. Colin Clark had in 1951 stressed
the dominance of different sectors of an economy at different stage of its development and
modernization. Development, as viewed by Clark, is a process of successive domination by
primary, secondary and tertiary production (Clark, 1951). Primary production here is
composed of crop production, livestock husbandry, forestry, fishing and mining and their
outputs usually serve as inputs into the secondary sector. Secondary production, on the
other hand, transforms the output of primary production into higher valued products
through processing and low levellow-level manufacturing. Utilities and construction
activities also fall into secondary production. The tertiary level of production is made up of
service activities like transportation, communication, trade, hotels and restaurants, finance
insurance, real estate, housing, business services, tourism as well as government operations.
At the initial stages of development, that is, the traditional society and the stage in which
the preconditions for take-off emerge, primary production leads in terms of contributions
to overall production, employment and income in the economy. As the economy develops,
secondary production becomes a leading contributor (that is, at the take-off stage). At the
matured and mass consumption stages of development, sectoral interdependence becomes
so high that the growth of one sector stimulates growth another sectors and there is a
seamless flow of new technologies into the entire production process in the system.

A significant aspect of the development process is that declaration is of the normal

optimum path of a leading sector due to the changing interplay of demand and supply.
Each sector is expected to flow an optimal path of investment, which, by and large is
consistent for a period of time. Such optimal paths are, however, not strictly followed in
real life. The deviations from the optimal paths are generally caused by imperfections in
the private investment process, by the policies of government and by the impact of wars.
Wars alter the direction of investment by setting up arbitrary demands and changing the
conditions of supply. They destroy capital items and disturb production but sometimes
accelerate the development of new technologies relevant to peace-time economy and may

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shift the political and social framework in ways conducive to peacetime development. The
satellite communication and Internet technologies now propelling activities all over the
world had their origin in the military as war paraphernalia.

Detailed explanation of the stages is as follows

The Traditional Society

A traditional society is characterized by economic structures that are developed mainly

within limited production functions in which land and labour are the only critical factors of
production and the production process is based on primitive technologies. Production is,
therefore, wholly dependent on nature as man-made capital items of production are rarely
employed. There are usually no attempts made at manipulating nature in order to improve
production. Household chores, farming, hunting, fishing, construction and even movement
of goods from one place to the other depend on human efforts. The concept of a traditional
society does not in any way imply a static society as some form of evolution is evident from,
say, farm output increases from putting more land into farming and the production of
some rudimentary farming and household tools. Some innovations also come from the
introduction of new crops, low-level irrigation schemes a well as the exchange of goods at
farm gate market places. However, the most distinguishing characteristic of production in
traditional societies is the low productivity because of the total absence of modern science
and technology.

Other characteristics of the traditional society are limitations on productivity, low

income and abject poverty. Most of the resources available to such a society are devoted to
agriculture. Family and ethnic connections play a leading role in social organizations. The
society is ruled by superstitions and fatalism, believing that the limited range of
opportunities open to one’s grandchildren would be just about what it had been for one’s
grandparents. In other words, poverty becomes generational, thereby killing the urge to
work for a change. Political power in such a society is usually in the hands of those who

17
own and control the land. The state of infrastructure is rudimentary, and the levels of
trade within and between societies fluctuate with the degree of political and social
turbulence in them. Since a society evolves over time, a more challenging interest for
development economists is to understand the stage of post-traditional society in which
changes in the afore-mentioned characterization take place.

Pre-Conditions for Take-Off

The second stage of development embraces societies in the process of transition, that is, the
period when the pre-conditions for take-off are developed. It takes time for a traditional
society to be transformed into a modern one that exploits nature, embraces science and
uses it to develop technology and fend off low productivity. Western Europe experienced
these conditions in the 17th and 18th centuries. With modern science, the production
functions in various European countries in both agriculture and industry started to include
dynamic forces that led to expansion of output. Britain was the first to develop the take-off
conditions with her industrial revolution. The pre-conditions for take-off can be stimulated
internally (endogenous), but historically, it is usually from outside (exogenous) sources,
that is, from more advanced societies. For example, with the positive outcome of Britain’s
industrial revolution, nearby European countries like Belgium, France, Germany and their
much distant descendants in the United States, Canada and Australia imitated the success
story of the English. The pursuit of profit increases with the urge to modernize the
production process, and education is usually used as the powerful engine of development.
The acquisition of knowledge through higher enrolment in schools is, therefore, a pre-
condition for take-off and new dynamic forces (human capital) start to develop in both the
private and public sectors of the economy. Banks and other institutions for mobilizing
capital also emerge. Investments increase notably in transportation, communications and
in raw materials in which other nations may have an economic interest. The scope of
commerce, internal and external, widens and modern manufacturing concerns emerge. All
these activities, however, proceed at a minimal pace and the economy and society will still
be characterized by limited productivity increases. This is because of narrow use of
modern technologies of production, the old social structure values and low-level political

18
organization. In most of these societies, the modern sub-culture subsists with a traditional
sub-culture, which thereby creates dualism in the economy. For take-off, therefore, the
following conditions must hold:

A society in which agriculture is the dominant sector and employing over 70 per cent of its
active population must strive to develop its manufacturing, communications,
transportation, and power and energy sectors.

A society in which economic, social and political arrangements are closed within its borders
or around a specific region within the society must embrace commerce and trade on a
national scale and within an international setting.

A society that views children as a residual blessing and a moral justification for existence
must begin to move away from this fixed horizon by reducing birth rate and large family
size.

A society in which income above minimum levels of consumption is largely concentrated in

the hands of those who own land, and spends the income on personal items like country
homes, ornaments, temples, houses of worship and the like, must put the money in the
hands of those who will spend it on items of infrastructure such as schools, hospitals,
potable water, electricity supply, transport facilities, communications systems and
manufacturing and service industries that will employ people not as servants, but
responsible wage earners. This explains the importance of government in creating the pre-
conditions for take-off.

A society when people are judged by their antecedents, class, ethnic and religious
backgrounds must change to one that has respect for individual ability to perform and
exhibit specialized talent to move the society forward.

A society ready for take-off must consider its physical environment not as a factor given by
nature and providence, but as an ordered system, which well-understood, can be
manipulated and harnessed in ways that will yield productive changes and progress.

The Take-Off Stage

19
Historically, the take-off period in an economy had always been marked by a particularly
strong stimulus such as a drastic political change. This has induced changes in the balance
of power and the management of social and economic institutions in the society. Such
changes have significant impact on income distribution, pattern of capital expenditures and
choice of production technologies. The German and Japanese revolutions in the mid-
1980s, the successes that followed independence in India, the communist revolutions in
China and Cuba and the political changes that came to the likes of Singapore and Malaysia
since the 1950s are cases in point. Technological breakthroughs may also induce take-off.
They may widen the scope of economic activities like what rail, road and water
transportation did to Western Europe and North America in the 1800s. Opening of
international markets has been known to induce the take-off of development similar to
foreign capital investment. Japan, the United States, Canada and Russia benefitted from
foreign investments in the mid-1800s, while in recent years the Asian countries of South
Korea, Malaysia, Singapore, Thailand and the OPEC countries have enjoyed economic
booms from imported capital. Interestingly, poor international environment, which
compels a society to look inwards into the manufacture of import substitutes, can set the
stage for a take-off. A classic example of this situation is South Africa. For many years of
apartheid, it was isolated from most of the world, but developed a strong will to survive to
the extent of its economy becoming the most advanced in Africa.

What is germane to the discussions is not the stimulus per se, but the a priori economic
conditions required making it possible for a society to absorb any form of stimulus for
take-off. A critical factor is that sound social infrastructure must be on ground for the
society to respond favorably to the stimulus. There must be a stable political environment,
a large pool of middle class persons sufficiently educated with technological know-how, and
management skills to absorb the stimulus and exploit it for the overall development of the
society. In addition, a proper investment climate must be in place for any stimulus to
propel a society from the take-off stage.

Other necessary, but not sufficient, conditions for take-off include:

The ratio of net investment in the economy to total national income population. This
requirement is consistent with the theory of growth. Economic growth can be defined as

20
the ratio of total savings in the economy to total national output and the aggregate capital-
output ratio, that is, the number of units of additional capital required for producing an
additional unit of output. Mathematically, this is expressed, using the Harrod-Doman equation,
as follows:

Growth in total output (g) is equal to the savings ratio(s) divided by the capital-output ratio (k),
that is

s S /Q
g= ∨ where (Q) is total national output
k K /Q

The implication of the foregoing is that for take-off, the economic growth in an economy (g)
must be greater than the population growth rate (p).

In the foregoing, it can be said that an important pre-condition for take-off is the ability to
mobilize domestic savings productively, thereby an economic structure that permits a high
marginal rate of savings, take-off condition for the State is either directly or through
taxation to money from the rich and use it for activities, which encourage economic
development. Private and public investors must plough back a substantial of their profits
into new investments during the take-off stage of economic development. Similarly, funds
which can be mobilized for development should not be allowed to flow to people who will
likely sterilize by the funds by hoarding or save them in foreign economies or engage in
relaxed and luxury consumption. Government will need to create institutions to improve
the financial market to provide cheap credit to investors. It also needs to play a leading
role in providing infrastructural facilities for investment to thrive. Once these conditions
are in place, the economy transit sustainably into maturity.

Maturity and High Mass Consumption Stage

At maturity the economy becomes technologically advanced. The production

embraceembraces modern inputs derived from science and the technologies of the
improved varieties. For example, through agricultural production a small proportion of
the workforce, productivity is high because operations are based on improved farm
technologies using modern input such as fertilizer, crop protection chemical, and farm
21
machinery As the drive towards high mass consumption starts, family ties some broken as
the State takes over the welfare of the people through Social security system. Consumption
expands beyond the basic necessities of food, shelter and clothing into durable consumer
goods and resources. The desire of the mature society is to increase the nation’s stature
and power on the world scene. Household demand for leisure increase as the boost in real
income itself loses its glamour

A number of lessons flow from the foregoing discussions, which should interest economic
managers in developing countries and students of economic development. First, is that the
concept of “restricted development” must be avoided, where enclaves of great wealth and
large investments are concentrated as was the case in apartheid South Africa and Belgian
Congo (where enclaves of settlements rich in minerals enjoyed very high standards of living
different from the abject poverty in the rest of the countries) Second, governments and the
international community are much more aware now of the need for the techniques of
promoting economic development through plans deliberately designed to increase
aggregate national output, not only in socialist countries, but also in developing countries
that have chosen the path of economic liberalization and active private sector participation.
Public sector managers must, therefore, be effective, dedicated, experienced and competent
in matters of economic policy formulation and programming to pursue the economic
development. Finally, economic development is contagious, as countries that are growing
economically must find opportunities for growth in the international markets so as not to
remain stagnant. In fact, it is an established fact that the wider a countriescountry range
of international contacts, the closer its relationships with other advanced and growth in
economies, and the more likely it will share in the progress that has its origins outside its
own borders. And this explains the need of the acceptance of globalization in developing
countries. In contemporary Africa, this need is beginning to sink into the consciousness of
the leadership, hence, the emergence since 2000 of a number for economic blocs unlike the
old international interactions, which were mainly political in nature. Today, the politically
motivated Organization of African Unity (OAU) has been replaced by the more business-
oriented African Union (AU) and its New Partnership for African Development (NEPAD)
has introduced a set of policy actions aimed at pulling individual countries out of the
poverty trap.

22
23
Characteristics of developing countries

Development is often considered to be modernization that lays emphasis on social change

which is required to produce economic advancement. Development could also be viewed as
promotion of justice in a country. This raises 3 issues

(1) The nature of goods and services produced by the government

(2) The question of access to different public goods by different social classes

(3)Act of burden of development i.e. how goods and services are being shared among the 3
social classes (rich, middle class, poor) This issues discussed above lay a good foundation for
understanding characteristics of developing countries described below .

(1) Low level of Living: There is a low standard of living among the vast number of people
in developing countries. The standard of living is manifested as follows

(a)Low income

(b)Inadequate housing

(c)Poor health

(d)Limited or no education

(e)High infant mortality and maternal mortality

(f)Low life and work expectancy

(g) A sense of hopelessness

(2)Low level of productivity: Developing countries are characterized by low level of

productivity compared to that of the developed countries. The low productivity could be in
terms of labour. To raise productivity, domestic savings and foreign finance must be
invested in new physical capital good. The stock of human capital should be built up in
terms of management theory investment in education and training, Institutional changes

24
must also be made to maximize the potential of this new physical and human investment.
This could be in areas such as the land tenure system, corporate taxes, credit and banking
structure, creation or strengthening of independent, honest and efficient administrative
services, restructuring of educational and training programme to make them more
appropriate to the needs of the society

(3)High rate of population growth/over population

Birth and death rate are higher in developing countries than developed countries. Most of
the world’s population is in developing counties while a quarter is in developed countries.

(4)High level of Unemployment and under employment: One factor that contributes to the
low level of living in developing countries is the inefficient or inadequate utilization of
labour. The underutilization of labour is reflected in two forms

(a)Under employment

(b ) Unemployment

Under employment is a situation where the people are working in jobs that are below their
potential. Unemployment is a situation where people are able and eager to work but are
unable to get a job. The current rate of urban unemployment especially in developing
countries is very high. With population of developing countries growing rapidly, it is
expected that the labour force will increase with time to come i.e. jobs will have to be
created at equivalent rate of labour supply. Low skill acquisition, poor training and low
level of literacy brings about high unhigh employmentunemployment.

(5)Dependence5) Dependence on Agriculture asnd primary product of export

Agriculture is the major sustenance of developing countries because a lot of people live in
the rural area and engage in Agriculture. Dependence on unprocessed farm produce
contributes to increased level of poverty in developing countries. Productivity is low not
only because of the large no of people in relation to their variable (land) but because the
level of agriculture is characterized by primitive technology, poor organization, limited
physical and human capital input.

25
(6) Low standard of Education. Most developing countries have very low educational
standard compared to developed countries. Most class rooms, laboratories, libraries are
very far below accepted standards. Students do not have access to online books, conducive
learning environment, well trained teachers. , therefore educational system in developing
countries is faulty.

(7) Poor nutrition and high death rate is common among developing countries.

26
Problems of Planning in the Nigerian Agricultural sector.
Planning for Agriculture has been difficult for a number of reasons: Some of the reasons are
listed below
1. Lack of vision on the part of the leaders
2. Lack of coordination between the different agricultural subsectors
3. Corruption
4. Political instability
5. Bureaucracy
6. A top bottom approach to agricultural development planning until recently
7. Political interference
8. Lack of political will
9. Low technical knowledge
10. Wasteful spending
11. Poor marketing plans

Related article. https://core.ac.uk/download/pdf/234649564.pdf

27
Roles of Agriculture in the Economy
The following are some of the roles of agriculture in any economy

1) Product Contribution
(a) Provision of food for the ever increasing population
(b) Provision of raw materials for industries and by doing this it has potentials of
increasing economic growth. e.g. provision of cocoa to beverage industry and
fruits for juice miring industries

2) Market Contribution: it is the strong base of most developing countries economy at

the early stage of growth; this makes the Agric products contributions significant to
the domestic market and the product of domestic industries. This is also in two
folds
(a) Provision of market for primary product
(b) Provision of market for industrial product

[3)] Factor Contribution: Because of the relative importance of Agriculture, it is seen as

a potential source of investment for industry..industry. Hence, the development
process entails the transfer of surplus capital from the Agricultural sector to non-
Agricultural sector. In the same vein the development also involves the transfer of
labour from Agriculture to non-Agricultural occupation especially in the long run.
This comes about as a result of the growth in industries. As development and
expansion occur in the industry , need for land increases such that the industry
begin to pay for land; most especially Agricultural Land

[4)] Provision of Foreign Exchange for the Country:.Country: when exports of

agricultural produce are traded it provides foreign exchange in return. In this way,
the Agricultural sector is capable of sustaining the balance of payment by:
(a) Augmenting the country’s earning or increasing foreign reserve
(b) Expanding the production of primary products there by creating local
industries that can produce goods which otherwise would have been imported

28
3
Sustainable Development in Agriculture; Agricultural policies in Nigeria
Concept of Sustainable Development

According to the Brundtland Commission (1987), sustainable development is the type of

development that “meets the needs of the present generation without compromising the
needs for future generations”. It is a long-term view of development which has at least
three main dimensions economic, social and environmental.

The economic dimension conceptualizes sustainable development in terms of maximizing

human welfare within the constraints of available resources and technologies. But the
economist tends to have a narrow view of natural resources (natural capital) as
components of productive resources. Furthermore, the economist tends to reduce social
concerns in development to the question of inequality and poverty reduction while
environmental concern to him/her hardly goes beyond the question of natural resources
management (Serageldin, 1993).

The social dimension of sustainable development emphasized social organizations and

human interactions as key factors in sustainable development. The ecological dimension
emphasizes the conservation of natural resources and the protection of the environment.

It is evident that all these different dimensions of sustainable development are interrelated.
Together, they represent the broadening of the traditional concern for economic growth
and development to encompass concern for social welfare and the preservation of the
quality of the environment. Together, thus, they represent a broad concern for the quality
of life as against the erstwhile narrower concern for economic growth and development.

3
Sustainable Development in Agriculture; Agricultural policies in Nigeria is a chapter in a book titled ‘Sustainable
Agriculture and Economic Development in Nigeria edited by A.E. Ikpi and J.K. Olayemi

29
Requirement for Sustainable Agricultural Development

The long-term sustainability of agricultural development in Nigeria depends on how well

policies address the nexus of problems relating to population pressure (or excessive rate of
population growth), stagnating agricultural productivity, over exploitation of natural
resources as well as environmental degradation. These, therefore, constitute some (though
not all) of the requirements for sustainable agricultural development which appropriate
policies should seek to address. Population pressure puts Nigeria under pressure on land
and other natural resources and the final analysis leads to over exploration of these natural
resources .It should be noted that a stagnant production technology put undue pressure on
natural resources and tend to lower resource productivity, accentuate poverty problems and
impair the quality of the environment. Resource over exploitation, diminished productivity
and environmental degradation inhibits the sustainable development and lower quality of
life.

Generally, therefore, the overall objective of policies for sustainable agricultural development
should be the maximization of their net economic, social and environmental benefits. This
implies that policies should be designed to promote the type of economic growth and
development which is compatible with natural resource conservation and environmental
protection. However, not all policies can achieve the objective of economic growth while at
the same time promoting natural resource conservation and environmental protection. But
the subset of policies which are capable of achieving all these (i.e. the so-called “win-win”
policies) need to be given priority consideration. Even where policy conflict exists between
economic growth and environmental protection/natural resource conservation, those
policies which minimize trade-oils between them should be favoured.

Assessment of Policies within the Framework of Sustainable Development

Most agricultural policies in Nigeria are not known to have given explicit consideration to the
issue of sustainable agricultural development. However, there has been some recent
evidence of policy concern as reflected in recent policies on population, soil
conservation/erosion control, afforestation, desertification control, and so on. But these are
still far too inadequate in scope and impact.

30
Given the current concern all over the world for the sustainability of development, Nigeria’s
agricultural policies will have to be considerably refocused to accommodate this concern. In
this regard, particular attention should be given to the following, which have often been
mentioned in various critiques of Nigerian economic policies.

•Formulation of policies that is more people-ceantered in order to ensure social

sustainability. This also calls for more policy emphasis on equity and welfare
considerations, like those that focus on national and household food security, household
nutrition, rural employment generation and household real income growth.

•More articulated and better coordinated policies on population growth, natural resource
conservation and environmental protection.

•Refocusing policies to enhance emphasis on efficient technology development, adequate

infrastructural support, stable and efficient institutional support, efficient input supply and
delivery systems and other cost-effective support services in agriculture.

•A more balanced policy approach to the problem of equilibrium in agricultural

commodity supply-demand growth. The illusion that accelerated commodity production
and supply growth can be achieved in an atmosphere of inhibited demand growth should
be discarded.

•A stronger commitment by government and its functionaries to the achievement of the set
objectives of policies

Also, the federal government established a superphosphate fertilizer plant in the country to
reduce the country’s dependence on foreign sources of fertilizer supply.

(ii) The creation of a national network of agro-service centers to facilitate the distribution of
modern inputs, including the provision of tractor and farm machinery services to farmers.

31
(iii) The creation of a National Seed Service (NSS) in 1972 to produce and multiply the
improved seeds of rice, maize, cowpea millet, sorghum, wheat and cassava.

(iv)The launching of a National Accelerated Food Production project (NAFPP) in 1973 as a

promotional mechanism for introducing improved packages of technology developed in various
research institutions to famer. Three agricultural research institutions that were closely
associated with the execution of the project were: the Nigerian Cereal Research Institute in
respect of maize, rice and wheat; the National root Crops Research Institute in respect of
cassava, and the Institute for Agricultural Research in respect of sorghum, millet and wheat.

32
4
Analytical treatment of government policies-Review of Agric policies over years
.Agricultural Policy in Retrospect

The pre-1970 phase

In the pre-1970 era, government philosophy of agricultural development was characterized by

minimum direct government intervention in agriculture. As such government attitude to
agriculture was relaxed, with the private sector and particularly, the millions of small
traditional farmers bearing the brunt of agricultural development efforts. Government efforts
were merely supportive of the activities of these small farmers and these government efforts
largely took the form of setting policies and creating institutions for agricultural research,
extension and export crop marketing and pricing. Most of these policies and institutions were,
however, largely regional in nature but the federal government contributed significantly to
agricultural research activities

The low visibility of governments in agricultural development efforts was borne out of a
general philosophy of economic laissez faire and the concept of agriculture as a residual
sector form which surplus labour could be withdrawn to support the development of a
“modern capitalist sector” (Lewis, 1954). For a while, the validity of this theory seemed to be
confirmed by the generally good performance of agriculture in this era. As such, there was no

4
This write-up is a chapter in a book titled ‘Sustainable Agriculture and Economic Development in Nigeria edited
by A.E. Ikpi and J.K. Olayemi

33
pressure on governments to interfere unduly in the operation of the invisible hand that was
moving agriculture forward. To be sure, some governments were later bent on making their
presence felt in agriculture, especially in the 1950s and 1960s, by creating government-owned
agricultural development corporations and launching farm settlement schemes. But these
actions found their justification essentially in “modernization” consideration for a largely
peasant agricultural sector.

It was however, becoming quite clear towards the end of the 1960s that the Nigerian
agricultural economy might be running into some stormy weather. Tell-tale signs of emerging
agricultural problems included declining export crop production and some mild food
shortages. Even then, most of these problems were ascribed to the civil war and, as such, were
considered to be only transitory in nature. But events soon proved these optimistic
assumptions wrong as the agricultural sector sank deeper and its problems became much
more intractable than anticipated.

The 1971-1984 Phase

The turn of the 1970s was therefore, characterized by a state of general apprehension about
the conditions of the Nigerian agricultural sector. This led to a fundamental change in the
philosophy of government on agricultural development from one of minimum government
intervention to one of almost maximum intervention particularly by the federal government.

The feeling was pervasive that the solutions to the increasingly serious problems of
agriculture and especially those of food supply required the heavy clout of government in the
form of multi-dimensional agricultural policies, programsprograms, and projects, some of
them requiring the direct involvement of government in agricultural production activities
. The sudden smile of oil fortune
on Nigeria reinforced this feeling. Hence, the decade of the 1970s witnessed unprecedented
deluge of agricultural policies, programs, projects and institutions. A highlight of these is
presented as follows:

34
Macro-Economic Policies

Major macro-economic policies that affected agriculture included fiscal, tax, monetary, trade and
wage polices. Detailed discussions on the macroeconomic policies are as follows;

Fiscal Policy:

(i) Budgetary policy was characterized by a high rate of expansion in both capital and
recurrent expenditures, often with large budget deficits. As a result, capital expenditure on
agriculture by the federal government increased from only N35.4 million in 1973 to N413.3
million in 1980 and N602.2 million in 1982. These were, however, a decline to N160 million
in 1984 before a sharp increase to N306 million in 1985. These capital expenditures on
agriculture, which represent 6.2 percent of total capital expenditure by the federal government
in 1973, however, declined to 4.0 percent in 1985. Thus, although capital expenditure on
agriculture increased several-fold between 1973 and 1985, its relative share of total
expenditure by the federal government declined. State government expenditures followed a
similar pattern.

(ii) Tax policy., This focused on accelerated depreciation allowances on agricultural capital
investment and income tax reliefs on incomes from new agricultural enterprises. In this
regard, the rate of capital allowance on plantation equipment increased from 10 percent
between 1966 and 1969 to 25 percent between 1970 and 1984 before falling to 20 percent in
1985. Similarly, annual allowance on plantation equipment expenditure which stood at 10
percent between 1966 and 1969 rose to 15 percent from 1970 to 1984 and 33.3 percent in
1985.

(iii) Wage policy was characterized by a unified wage structure for all public-sector workers
and a highly centralized system of wage determination and review.

Monetary Policy:

Monetary policy in this period was characterized by a high rate of growth in money supply to
finance increasing government budget deficits. But for agriculture in particular, the key
elements of monetary policy were the use of the instrument of concessionary interest rates on
agricultural loans to subsidize agricultural credit and the use of various regulations and

35
special schemes to ease the flow ofr credit to agriculture and the rural sector at relatively low
costs. In this regard, it is noteworthy that, for most of the 1970s, interest rate on most
agricultural loans did not exceed 6 percent per annum, one of the lowest rates in the economy.
Even when, in the early 1980s, the interest rate on agricultural loans was increased to 9
percent per annum, it remained one of the lowest in the economy.

Among the major regulatory and institutional measures taken by government to direct more
credit flow to agriculture were

(i)The establishment of the Nigerian Agricultural and Co-operative Bank (NACB) in 1973 as
a specialized credit institution for agricultural development;

(ii)The designation of the agricultural sector as a “preferred sector” and as a result of which
the Central Bank of Nigeria stipulated that a minimum of 6 percent of commercial and
merchant bank loans should go to the agricultural sector; the minimum share of commercial
bank loans that must go to agriculture was subsequently increased to 12 percent;

(iii)The launching of a Rural Banking Scheme in 1977 under which designated commercial
banks were required to open specified numbers of rural branches in different parts of the
country; and, at least 40 percent of the total deposit in these rural banks should be lent to
borrowers within those rural areas; and

(iv)An Agricultural Credit Guarantee Scheme launched in 1977 to reduce the risk borne by
commercial banks in extending credit to farmers and under which the Central Bank of
Nigeria guaranteed up to 75 percent of the value of the principal and interest on loans granted
to farmers by any commercial bank up to a maximum of N50, 000 for individual loans and
N1.0 million for loans to co-operative and corporate bodies.

Trade Policy

The key instruments of trade policy were:

The promotion of agricultural export trade through the abolition of export duties on
scheduled export crops in 1973; and

36
Import liberalization in respect of food, agricultural inputs, agricultural raw materials and
agricultural machinery and equipment

First, machinery and equipment used exclusively in agriculture were exempted from import
duties. Then government undertook the direct importation and sale of cheap foreign grains
(particularly rice and wheat flour), vegetable oils, livestock products, and so on, thereby
flooding the local markets with high quality imported foods at prices which were substantially
lower than the unit costs of producing their local substitutes. As a result, most of these
domestically produced substitutes were rendered uncompetitive with the cheaper imports and
their production declined drastically.

A grossly overvalued naira, which continued to appreciate further between 1973 and 1980,
added to the damage done by the government trade policy. Not only did an appreciating naira
render agricultural import cheaper, it also placed Nigerian agricultural exports at a
considerable price disadvantage in the international market thereby discouraging the
production of these export crops.

Micro-Economic Policies in Agriculture

Agricultural Commodity Marketing and Pricing Policy

The major instrument of agricultural commodity marketing and pricing policy was the
establishment of six national commodity boards in 1977 to replace the regional, multi-
commodity boards that had been operating since 1954. The six new national commodity
boards were for cocoa, groundnut, palm produce, cotton, rubber and food grains.

The new major dimension introduced into commodity marketing through this new
arrangement was the addition of rubber and grains to the list of scheduled crops placed under
the marketing board system. The case of grains marketing boards was particularly unique as
it represented the first effort ever made in Nigeria to extend the marketing board system to
cover food crops.

37
The National Grains Boards handled maize, millet, sorghum, wheat, rice and cowpeas. It
administered a guaranteed minimum price policy whereby floor prices were nationally set for
each of the six grain crops as guaranteed minimum prices at which the board would intervene
as a buyer of last resort if and when their regular market prices fell below the guaranteed
minimum. The board also operated a strategic grain reserve scheme.

Input Supply and Distribution Policy/Agricultural Input Supply Subsidy Policy

Government policy of input supply and distribution focused on instruments for ensuring the
adequate and orderly supply of modern inputs like fertilizers, agro-chemicals, seed and
seedlings, machinery and equipment, and so on. One of the keythe key policy instruments
adopted was the centralization of fertilizer procurement and distribution in 1975 1975.
………….

Pre-1984 era agricultural policies

Agricultural Input Subsidy Policy

As long as the 1950s, various regional governments in Nigeria were already subsidizing the
prices of key inputs, especially the price of agro-chemicals used in the production of
groundnut, cotton, cocoa, palm produce and other export crops. But in thein the early 1970s,
input subsidy policy became centralized and its application extended to food crops.

38
The policy instruments of adopted comprised the following:

[(i)] Fertilizer Subsidy: Between 1976 and 1979, fertilizer attracted a 75 percent
subsidy, wholly borne by the federal government. But in 1980, the federal
government share was reduced to 50 percent while the states were required to
absorb another 25 percent. .. But with the progressive devaluation of the naira
since 1986, the percentage subsidy has been increasing and it is believed to be
over 80 percent at present.
(i)[(ii)] Seed Subsidy” There was a subsidy of 50 percent or more on various improved
seeds produced by the National Seed Service
(ii)[(iii)] Subsidy on Agro-Chemicals: Rates of subsidy on agro-chemicals varied, but
the rates were generally over 50 percent.
(iii)[(iv)] Subsidy on Tractor Hire-Services: Subsidies on tractor hire services, which
were mostly operative at the state level, ranged from about 25 percent to about
50 percent of the actual cost of tractor services.

Land use Policy

The basic instrument of land use policy was the Land Use Decree promulgated in 1978. Under
the decree,

Ownership of land was vested in state governments in trust for the people;
Use rights were to be granted to people through statutory rights granted by state
governors in respect of urban, land or customary rights granted by local
government councils in respect of rural land.

There were also the following soils policy instruments:

(i) Provision of soil survey and land evaluation facilities for the production of a
comprehensive soil map of Nigeria
(ii) Creation of a National Soil and Fertility Testing Service for the purpose of making
accurate assessment of the fertilizer needs of specific crops on particular soils

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 (iii) Launching of soil conservation, soil erosion control and desert encroachment
control programs.

Agricultural Research Policy

The major policy reform effected in the 1970s concerned the provision of institutional
mechanisms for the national co-ordination of agricultural research and for crating stronger
linkages between research and extension.

The major instruments of agricultural research policy were as follows:

[(i)] Although the Nigerian constitution of 1963 placed agricultural research on the
concurrent list, a decree promulgated in 1971 created an Agricultural Research
Council of Nigeria with the power to co-ordinate and control all agricultural
research activities in Nigeria.
(i)[(ii)] A decree promulgated in 1973 empowered the federal government to take over all
state research institutions.
(ii)[(iii)] In 1975, the federal government reconstituted the Nigerian agricultural research
institute network into 14 institutes. The number was later increased to 19

Agricultural Extension and Technology Transfer Policy

The most important feature of agricultural extension policy in the 1970s was the demise of
the old system of state-based general agricultural extension service. Under this old system
only states employed and utilized the services of agricultural extension personnel and
mainly for general advisory services to farmers. But with the demise of this system came a
new one which called for the deployment of extension personnel to specific national
programs and projects.

The basic strategy for promoting the adoption of new technologies by farmers under the
new system was the use of the National Accelerated Food Production Project (NAFPP)
and Agricultural Development Projects (ADPs) to reach the farmers. The ADPs were

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extension-oriented integrated rural development projects that focused on small farmers.
They operated on the basis of “Basic Services Package” (BSP) which involved three key
elements: (i) extension service to project farmers (ii) input delivery system through a
network of farm service centers; and (iii) the construction and repair of rural roads and
water supply systems.

Agricultural Mechanization Policy

The need for a coherent agricultural mechanization policy became very pressing in the
early 1970s in view of an increasing shortage of agricultural labour which necessitated the
substitution of some appropriate farms of mechanical power for human labour. In
attempt to achieve the objectives of an agricultural mechanization policy, the following
policy instruments were adopted

(i) The creation of a Ministry of Science and Technology and the establishment of a
number of Universities of Technology
(ii) The operation of Tractor Hire Units (THUs) by states.
(iii) Liberalized import policy in respect of tractors and agricultural equipment
(iv) Massive assistance program to farmers on land clearing through cost subsidies.
(v) The launching of a machinery ownership scheme in 1980 under which the federal
government provided half of the purchase cost of farm machinery to be owned and
used by farming co-operatives or group farms/
(vi) The establishment of a Center for Agricultural Mechanization for mechanization
research, farm machinery testing and machinery adaption to Nigerian conditions.

Agricultural C-operatives Policy

A number of policy instruments were adopted to mobilize rural people for social and
economic development through agricultural co-operatives. The following were the major
instruments:

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 (i) The use of agricultural co-operatives for the distribution of some farm inputs as
well as imported food commodities
(ii) The provision of necessary encouragement for the establishment of co-operative
farms and other co-operative enterprises
(iii) The creation of a Department of Agricultural Co-operatives within the Federal
Ministry of Agriculture, Water Resources and Rural Development in 1979.

Population Policy

Population growth affects agricultural land availability per capita, intensity of land use,
rate of rural labor migration, and so on. Hence, any population policy that influences the
rate of population growth and/or the pattern of population distribution is also of interest to
agriculture. . Population policy instruments are still limited to those dealing with voluntary
restriction on the size of family, voluntary birth control, improved primary health care
delivery, particularly the Expanded Program on Immunization (EPI) and various rural
employment generation measures designed to stem rural-urban labor migration.

Environmental Protection Policy

Although a number of natural resources conservation policies have been in existence for
very many years, their implementation has been in kicks and starts and highly un-
coordinated. Furthermore, the specific recognition of the need for environmental
protection in Nigeria is of more recent origin. Thus, while such programs as those on soil
conservation, soil reclamation, soil erosion control, flood control, afforestation,
desertification control, and so on, had been in existence for many decades, it was only

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recently that such measures as air pollution control, industrial effluent control and others
reflecting concern for environmental protection were put into operation.

Water Resource and Irrigation Policy

The major instrument of water resources and irrigation policy was the establishment of eleven
River Basic Development Authorities in 1977 with the overriding responsibility for the
development of country’s land and water resources. They had mandate for land preparation,
development of irrigation facilities and the construction of dams, boreholes and roads. They
were also involved in the distribution of farm and fishing inputs. Under the civilian regime,
between 1970 and 1983, they became the major instrument of government’s direct
agricultural production through large-scale mechanized farming; but they have since
withdrawn from direct production activities and now limit their operations to water
resources development and, in particular, the provision of irrigation facilities.

Other Policies and Programs in Agriculture

(I) Government owned companies were set up in the 1970s for the production of oil
palm, cocoa, grains, roots and tubers, fish, livestock and so on.
[(II)] An “Operation Feed the Nation” program was launched inI 1976 and operated
until 1979. This was followed by a “Green Revolution” program which was in
operation under the civilian administration between 1980 and 1983.

The Post-1984 Phase

Even before the end of the 1970-85 phases, the ineffectiveness of many government policies and
programs was becoming too obvious to be ignored. Hence, between 1982 and 1984, a number
of demand management policies were formulated. These included (i) the enactment of an
Economic Stabilization Act in 1982 for foreign exchange control and import restriction (iii)
reduction in capital and recurrent expenditures of governments and (iii) the placement of all
imports under specific import license in 1984.

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In 1985, a fifteen-month Economic Emergency” was declared during which several
austerity measures were adopted and specified percentages of workers’ salaries and
corporate profits were to be paid to government .government. This dovetailed into the
revolutionary Structural Adjustment Program (SAP) launched in July 1986.

Policy Reforms under Structural Adjustment

Structural adjustment program comprises a mix of demand side policies, supply side
policies and other policies design to improve a country’s international competitiveness
(Koester, Schafer and Valdes, 1989). Generally, structural adjustment policies are aimed
at correcting existing price distortions not only in the economy but also the structural
imbalances and for promoting non price factors which would enhance the effectiveness of
price factors.

Broadly, structural adjustment policies are often categorized into four groups. First are
expenditure reducing or demand management policies which are designed to influence the
economy’s aggregate domestic absorption, mainly through fiscal and monetary policy
instruments. Second is expenditure switching policies which are designed to alter domestic
relative prices in favor of tradable commodities and improve the price competitiveness of
export commodities and import-competing goods. The most important policy instrument
for this is the devaluation of the national currency. Third are market liberalization polices
which are designed to give the free interplay of market forces more role in the economy,
reduce administrative controls as well as government intervention in the operation of the
economy and, generally, render the economy more flexible and more resilient. Policy
instruments required for these include those aimed at reducing import and export taxes,
eliminating export and import prohibitions, relaxing input and output marketing controls,
withdrawing subsidies and price controls, and so on. Fourth are institutional or structural
policies which are designed to eliminate those structural constraints that tend to inhibit the
effectiveness of other adjustment policies. Major structural policy instrument include
those designed to promote the flow of technological innovation, provide better input
delivery systems, provide more infrastructure and utilities, improve national information

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systems, provide institutional framework of the smooth option of a free market system and,
generally, create a more favorable environment for increased investment in the economy,
efficient allocation of resources and enhanced profitability of public enterprises through
commercialization and privatization.

Specifically, the structural adjustment program in Nigeria has been assigned with the
objectives of (i) restructuring the Nigerian economy by restructuring and diversifying the
economy‘s production base, rationalizing consumption patterns and reducing the
economy’s dependence on petroleum exports and commodity import, (ii) expanding non-oil
exports; (iii) reducing the import content of locally produced goods; (iv) attaining self-
sufficiency in food and raw material production within the shortest time possible; (v)
rationalizing the county’s monetary and fiscal policies; and (vi) liberalizing the country’s
external trade and payments system and adopting appropriate measures to give the private
sector a larger role in the domestic economy, increase the reliance of the economy on
market forces and reduce administrative control of the economy by government. Clearly
objectives (i) – (iv) above depend critically on agriculture for their achievement. Hence, it
may be assumed that agriculture is the cornerstone of the structural adjustment program.

As far as Nigeria is concerned and with particular reference to the country’s agricultural
adjustment process, the economic philosophy underlying the structural adjustment program
has as the following key elements

(i) Agriculture is essentially a private-sector business and the role of government must
be largely facilitating and supportive of private-sector initiative;
(ii) The agricultural economy should be as free of government administrative control
as possible and market forces must be allowed to lay a leading role in directing the
economy;
(iii) The agricultural economy should be more inward-looking and self-reliant by
depending more on local resources while also ensuring self-sufficiency in food
production and the supply of raw materials to industries; and

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 (iv) The agricultural economy should serve as a primary avenue for the diversification
of exports.

Most of the policies adopted under SAP are macro-economic in nature and, as such, their
coverage extends beyond agriculture to the economy in the aggregate. But the following are
the major policies which have direct bearing on agriculture.

Fiscal policy

(I) In 1987, government decreed a five year tax-free period for profits earned by
companies engaged in agricultural production and agro-processing, provided at
least one percent of the equity capital of the companies was imported into
Nigeria not earlier than the beginning of 1987 and also provided the companies
were incorporated in Nigeria. There was a tight fiscal policy which had the
objectives of reduction budgetary deficits, rationalizing government
expenditures and, in particular, redirecting capital expenditure and credit to
high priority sectors, that is, agriculture, rural development and manufacturing.

Monetary Policy

A largely restrictive monetary policy was to be adopted in order to reduce liquidity in the
economy and, to that extent control aggregate demand and moderate inflationary pressure.

(i) A major monetary policy instrument that was of consequence to agriculture was
the deregulation of interest rates as a result of which a minimum interest rate of
8.5 percent was stipulated for time deposits while the minimum bank lending
rate was increased from 13 to 15 percent. But agricultural loans attracted
interest rates of between 10 and 11 percent. All interest rates later went up
considerably.
(ii) Agricultural loan terms were liberalized such that small-scale farmers could
obtain loans of up to N5,000 without tangible collaterals
(iii) In 1988, the grace period for the repayment of commercial bank loans and
advances to investors in long-gestation cash crop plantations was increased from

46
 4 to 7 years while that of investors in mechanized large-scale farms was
increased from 5 to 7 years.
(iv) Also in 1988, the minimum share of total deposit generated by rural banks
which must be given as loans and advances in the rural localities was raised
from 40 percent to 45 percent
(v) The People’s Bank of Nigeria was established in October 1989 to (a) provide
basic credit requirements to under-privileged Nigerians in both urban and rural
areas who could not normally benefit from the services of orthodox banking
system due to their inability to provide collateral security and (b) accept savings
from the same group of customers and make repayment of such savings together
with interest.
The decree establishing the bank specified a service charge of 5 percent on loans
to cover administrative cost. The bank was, however, empowered to change the
rate of service charge provided the service rate did not exceed the amount
required to cover administrative costs. Under this power, the bank’s rate of
service charge was increased from 5 percent set at its inception to 15 percent in
the third quarter of 1990, while the rate paid on savings deposits was raised to
17 percent. The bank’s branch network as at the end of 1992 stood at 169
branches located in all parts of the country. The bank’s funds come mainly from
the federal government; but state governments and individuals also make some
contributions.
(v) The program for the establishment community banks took off in December
1990. The banks were mandated to carry out most regular banking businesses at
purely local level and their role in the financial system was to provide effective
banking services for the economies of the rural area as well as small enterprises
in the urban centers. Community banks were to be privately owned, although
the Federal Government had undertaken to provide loan funds and technical
support services. At the end of 1992, 401 community banks were in operation
throughout the country.

Trade and Exchange Rate Policies

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Policies in this category were those that involved naira exchange rate adjustments, trade
liberalization, import substitution, the local sourcing of raw materials and tariff structure
adjustments designed to encourage local production and protect local industries from
undue international competition and dumping. Highlights of trade and exchange rate
policy instruments were as follows:

(i) Devaluation of the naira through the creation of a second-tier foreign

exchange market (SFEM) and, later, the Inter-Bank Foreign Exchange
Market (IFEM) where the value of the naira in terms of other currencies
would be freely determined by the forces of supply and demand. The
consequence of this was the drastic and sustained decline in the value of
the naira from about N0.90 to the dollar in 1985 to about N3.67 per dollar
in the fourth quarter of 1986, N7.62 per dollar in the first quarter of 1989
and about N21.99 per dollar at the end of 1993. These are only official
rates. This devaluation had remarkable effects on both agricultural input
and output prices, most of which increased several-fold.
(ii) Trade liberalization measures, the key elements of which were the abolition
of commodity marketing, boards, abolition of many import levies, reduction
of some excise and export duties, reduction of the number of prohibited
import items and a reduction from 100 percent to 25 percent of the advance
payment of import duties required at the time of opening letters of credit.
(iii) Export promotion of non-oil goods, including agricultural commodities, by
allowing exporters to keep all their foreign exchange earnings in a
domiciliary account from which they could freely draw for their foreign
exchange transactions. Furthermore, export financing by commercial
banks was facilitated through Central Bank discounting facilities.
[(iv)] Import substitution measures which involved the selective use of import
regulations to restrict or ban the importation of many types of food and
industrial raw materials in order to encourage their local production and,
hence promote self-sufficiency in domestic food production and the local
sourcing of agro industrial raw materials. Specifically banned were rice,
maize, wheat barley and vegetable oils. In additionaddition, landing

48
 charges of equivalent values to the excise duties payable on a number of
locally produced goods were imposed on their imported substitutes in order
to enhance the price competitiveness of the local goods.

Institutional policies

(i) In pursuance of objective of giving market forces more influence and the
private sector a greater role in the economy, most enterprises owned by
government and parastatals were to be ether privatized or
commercialized.
[(ii)] There was a reorganization of the River Basin Development Authorities inI
1986 as a result of which their functions were strictly restricted to land
development and water resources management and development,
including the provision of irrigation facilities.
(ii)[(iii)] A Directorate of Food, Roads and Rural Infrastructure (DFRRI) was
established in 1986 for the purpose of executing rural development
programs. The Directorate has been involved in the construction of rural
feeder roads, in rural water supply schemes, in rural electrification
projects and in some agricultural production support services involving
the multiplication and distribution of seeds as well as the production and
distribution of fish fingerlings.
(iii)[(iv)] The National Directorate of Employment (NDE) was established in
1986 to promote employment programs all over the country as a strategy
for ameliorating Nigeria’s increasingly severe unemployment problem.
The Directorate oversees various special school leavers and agricultural
graduate programs now in operation in all states of the federation.
(iv)[(v)] A National Agricultural Insurance Company was established in 1987 to
operate and administer the Nigerian Agricultural Insurance Scheme. The
idea of the scheme was first mooted in 1984 as a strategy for tackling the
problem of small farmers’ inability to satisfy the collateral requirements
of banks when asking for loans. It was then argued that an Insurance

49
 Scheme would serve a number of complementary purposes. It would
enhance the confidence of commercial banks in giving loans to small
farmers; the insurance certificate would serve as collateral, and funds
mobilized from the insurance scheme would be utilized for agricultural
Investment.
(v)[(vi)] The establishment of a National Agricultural Land Development
Authority (NALDA) in 1991 to execute a national agricultural
development program which would (i) provide strategic public support
for land development; (ii) promote and support optimum utilization of
the nation’s rural land resources for the accelerated production of food
and fiber; (iii) encourage and support economic-size farm holdings and
promote the consolidation of fragmented farm holdings; (iv) encourage
the evolution of economic-size village settlements; (v) provide gainful
income and employment opportunities for rural people; (vi) address the
special problems of the nation’s rural majority; (vii) expand productive
capacity in agriculture; (viii) contribute significantly to the attainment of
national food and fiber self-reliance; and (xi) facilitate the appropriate
cost-effective mechanization of agriculture.

Industrial Policy

Industrial policy instruments which are of relevance to agribusiness include those relating to
industrial location, industrial input supply, industrial credit, industrial incentives and the
export promotion of industrial products. Strategies for influencing industrial location in
Nigeria include the creation of industrial estates and the creation of an Export Processing
Zone (EPZ).

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Some Recent Agricultural Policy and National Plan

AgricPromotionalpolicy2016-Nigeria-agric-sector-policy-roadmap_june-15-2016_final1.pdf
(fscluster.org)

AgricPromotionalpolicy Simplified-Version-of-APP-for-Smallholder-Women-Farmers_1562696401.pdf
(nesgroup.org)

Nigeria Economic Sustainability Plan - Budget Office of the Federation - Federal Republic of Nigeria

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