AN ANALYSIS OF SAVINGS AND INVESTMENT BEHAVIOUR OF FARMERS (CASE STUDY OF GIWA AND SABON-GARI LOCAL GOVERNMENT AREAS OF KADUNA STATE)

Project Abstract

<p>&nbsp;                  <b>ABSTRACT&nbsp;</b></p><p>The need to have adequate record about savings and investment necessitated this study. The research was carried out in Giwa and Sabon Gari Local Government Areas of Kaduna State. The specific objectives of the study were to describe the socio-economic characteristics of the farmers; examine their savings profiles; identify the factors determining their rate of savings; determine their level of investment in both farm and off-farm activities, and examine the determinants of their investment behaviour. Information was obtained from a total of 160 farmers that were randomly selected, with 80 farmers each from the two local government areas. The analytical tools employed were descriptive statistics, multiple regression and correlation analysis. The study showed that the mean income, savings and investment per farmer were N204,118, N47,351 and N65,457 respectively. The regression coefficients showed that farm income, off-farm income, and family size were responsible for about 61 percent variations observed in the level of savings. Also, farm income, off-farm income and loan obtained were responsible for about 71 percent variations in the level of investment of the farmers. The correlation analysis revealed that farm income, off-farm income, age, education, household size, farm size and farming experience were statistically significant at 1% level of probability in their relationship with savings. For investment, the result revealed that farm size, loan, farm income, off-farm income, age and farming experience were statistically significant at 1% level of probability in their relationship with investment. The conclusion drawn was that saving potential exists in the two local government areas. Some of the&nbsp; factors that exert significant positive influence on the level of savings and total investment include income, family size, loan and farm size, significant at 1% and 5% level of probability. Farm investments made were mostly recurrent investment, these include purchase of fertilizer, seeds, chemicals, hoes, cutlasses and hired labour with very little capital investment. The study recommended that price support for farmers and granting of soft loans will encourage farmers to make capital investments. There is the need for mass education and enlightenment campaign for mobilizing savings and intimating the farmers on investment opportunities. &nbsp;&nbsp;<br></p>

Project Overview

<p><b>1.0 INTRODUCTION&nbsp;</b></p><p><b>1.1 BACKGROUND OF THE STUDY&nbsp;</b></p><p>Agriculture still occupies a key position in Nigeria’s economy. Up till the late sixties, it contributed on average about 65 percent of Gross Domestic Product. Its percentage contribution however has fallen drastically in recent years. 22 percent between 1976 and 1980, it rose slightly to 29 percent in 2001 (CBN, 2001). The fall in agriculture’s contribution was attributed partly to the boom in the petroleum industries and the growth of the industrial sector. However, the oil boom not withstanding, the agricultural sector still provides employment for over 70 percent of the Nigerian population (Ogungbile and Olukosi, 1991; Ogunfiditimi, 1996; Joshua, 1999). Agriculture plays an important role in employment and revenue generation as well as in the provision of raw materials for industrial development. However, the nation’s agricultural potentials are far from being fully realized and this has serious implications for food security and sustainable economic development. The underdevelopment of agriculture is, indeed worrisome, given the fact that the country is naturally agriculturally well endowed. Nigeria agriculture suffers greatly from low capitalization. It is dominated by millions of small peasant farmers who are predominantly subsistence in nature. They produce primarily for consumption (Ogungbile and Olukosi, 1991). Crop sale is usually to generate income to meet other family expenses or to purchase other goods that they do not directly produce. Low capitalization of farm sector had also been observed to translate into low income which in turn translates into low savings, low savings translate 2 into low investment which in turn translate into low return or income, thus forming a vicious cycle of poverty (Ogunfiditimi, 1996). Savings is the act of abstaining from present consumption in order to provide for larger consumption in future. Savings is residual after consumption out of available income during a period of time (Darby, 1979), that is, the difference between private income and consumer expenditures. Savings include tangible things such as landed properties, livestock, bags of grains and other assets. <br></p><p> Investment on the other hand means production or acquisition of real capital assets during any period of time, (Jhingan, 1997). Investment adds to capital equipments and leads to increase in level of income and production by increasing the production and purchase of capital goods. Investment can be described as the formation of real net capital through improvement of the productive capacity of an individual’s farm or business set-up. Mobilization of savings should be an important source of funds for investment in the rural sector. The major factor limiting the tapping of rural savings is the meager disposable income of small-scale farmers. It is the level of income that determine the volume of savings and therefore, the amount of capital that could be channeled into investment. <br></p><p> Small holders in developing countries face the same problem. Their ability to accumulate sufficient capital for new and costly investment is rather limited. Thus, outside financial help is required to induce more capital investments in the agricultural sector (Barau, 1991). <br></p><p> <b>1.2 PROBLEM OF STATEMENT&nbsp;</b>&nbsp;</p><p>Agriculture in Nigeria, like in most other developing countries is predominated by small farm producers. Several constraints and barriers, which appear insurmountable, limit the overall farming activities. One of the predominant factors responsible for the stagnation of agricultural sector in Nigeria is low savings capacity of farm families. This is as a result of low income which in turn definitely leads to low investment in both farm add off-farm activities.</p><p> Savings is indispensable to economic development by virtue of its relationship with investments (Igben and Akande, 1988). Economic theory indicates a one-to-one correspondence between savings and investment so that the size distribution of savings indicates investment potentials and possibilities. If investment remains localized in accordance to size of savings generated in specific areas, there are likely to be more investments in areas of much savings than in those of meager savings. Savings according to Igben and Akande, (1988) is preferred more in the financial form which make funds readily available to investors and others needing money to expand their business operations. It has been shown that savers in developing countries, particularly in rural areas prefer to save their money in terms of physical or tangible assets such as land, building, livestock etc. This practice leads to scarcity of monetary saving for investment purposes. Savings as a determinant of income growth and economic development was emphasized by classical economists. However, there has been no consensus on factors which actually affect the proportion of income that is saved. Several variables have been indicated as influencing savings and these include current income, permanent income, wealth, interest rates, the price level, demographic characteristics and a host of other variables.&nbsp;</p><p> Very little research had been done especially in the area of savings and investment in the study areas. There is, therefore, a lot of important information to be gathered which would be essential for planning and policy making. This study intends to answer the following questions:&nbsp;</p><p>1. What are the socio-economic characteristics of the farmers in the study area.&nbsp;</p><p>2. What are the saving profiles of the farmers in Giwa and Sabon-Gari Local Government Areas?&nbsp;</p><p>3. What are the factors responsible for savings by these farmers?&nbsp;</p><p>4. How much of their savings goes into investment?&nbsp;</p><p>5. What are the determinants of their investment behaviour? &nbsp;</p><p> 1.3 <b>OBJECTIVES OF THE STUDY&nbsp;</b></p><p><b></b>The broad objective of the study is to determine the savings and investment behaviour of farmers in Giwa and Sabon-Gari Local Government Areas of Kaduna State. However, the specific objectives are to:&nbsp;</p><p>1. describe the socio-economic characteristics of the selected households&nbsp;</p><p>2. examine the savings profiles of the farmers in the study area.&nbsp;</p><p>3. examine the factors affecting the amount of savings among the farmers.&nbsp;</p><p>4. determine the level of investment of the farmers in both farm and off-farm activities in the study area. &nbsp;</p><p> 5. examine the factors affecting the level of investment in the study area.&nbsp;</p><p> <b>1.4&nbsp;JUSTIFICATION FOR THE STUDY&nbsp;</b><b></b></p><p>It has been contended that the level of capital involvement in the agricultural production process is a clear index of the magnitude of its growth and development (Abalu et al; 1981). This reasoning is based on the fact that as agriculture becomes modernized, more off-farm technologies must be identified, procured and then injected into the production process. The fact still remain that large number of our populace who engage in agriculture are poor without necessary fund to invest into their agricultural ventures and other activities to increase their income. The bulk of capital injection by this category of farmers come from owner’s equity and informal credit sources. The attractiveness of agricultural investment must be a major consideration, if it is going to compete with other industries or sectors for resources (Onucheyo, 1998). The importance of this study is to underscore the lack of empirical work on the savings and investment behaviour of farmers in the study area. This study, therefore, intends to reduce the gap in knowledge in this regard as it attempts to provide detailed empirical findings. The relevance of the study lies in its attempt to contribute to the information base necessary for objective decision-making. &nbsp; &nbsp;&nbsp;<br></p><p>1.5&nbsp;<b>HYPOTHESIS</b>&nbsp;</p><p>The null hypotheses (Ho) tested are as stated.&nbsp;</p><p>1. (i) There is no relationship between farm income and savings.&nbsp;</p><p>(ii) There is no relationship between off-farm income and savings.&nbsp;</p><p>(iii) There is no relationship between age of household heads and Savings. <br></p><p> (iv) There is no relationship between Education and savings.&nbsp;</p><p>(v) There is no relationship between Household size and savings.&nbsp;</p><p>(vi) There is no relationship between Farm size and savings.&nbsp;</p><p>(vii) There is no relationship between Farming experience and savings. <br></p><p> 2. (i) There is no relationship between Farm size and investment.&nbsp;</p><p>(ii) There is no relationship between loan and investment.&nbsp;</p><p>(iii) There is no relationship between Farm income and investment.&nbsp;</p><p>(iv) There is no relationship between off-farm income and investment.&nbsp;</p><p>(v) There is no relationship between interest rate and investment.&nbsp;</p><p>(vi) There is no relationship between age of household heads and Investment.&nbsp;</p><p>(vii) There is no relationship between Farming Experience and Investment. <br></p>