CHAPTER
ONE

INTRODUCTION

1.1     
Background
of the study

Inflation has been apparent in Nigeria from the outset
of her national life as it was propelled in the 1960s through the “cheap money
policy” adopted by the government to stimulate development after independence
(Bayo, 2005). Nigeria has experienced all manners of inflationary episodes,
from creeping to moderate and from high to galloping (Olubusoye and Oyaromade,
2008). Inflationary pressure in Nigeria was largely contained in 2010 and 2011,
though the rate remained above the national and the West African Monetary Zone
(WAMZ) single-digit inflation rate target (CBN, 2011). However, the 12-month
moving average headline inflation rate was 10.8 percent in 2011, compared with
13.7 percent at end-December 2010. The agricultural sector is strategic to national
economic development and contributes 42.1% of the current GDP (Eleri et al.,
2012). It remains a major source of food and raw material for agro-industrial
processing and has strong links to employment, national income, market
opportunities for industrial production and strong potentials for poverty
reduction and health improvement. However, Nigerian agriculture faces
tremendous challenges which include the rising food prices amongst others. Food
price inflation has risen in recent years because of many factors, on and off
farms throughout the world (Oppedahl, 2009). The future direction of world food
prices will depend on whether research and development increases agricultural
productivity faster than the growth in world food demand. Key sources and features
of recent increases of food prices in developing countries have been identified
as being the underinvestment in agricultural innovation and rural
infrastructure, shift of land and crops towards biofuel feedstocks, natural
disasters, high global energy prices, unequal distribution of resources,
mismanagement of natural resources, population growth and competition for land
and water (Alam and Shahiduzzaman, 2008) Global food prices registered a new
high in February 2011, rising by more than 30 percent year-on-year, underpinned
by large increases in the prices of cereals, edible oils, and meat (ADB, 2011).
While the recent price increases were triggered largely by production
shortfalls due to bad weather, structural and cyclical factors that were at
play during the 2007–2008, food crisis continue to be relevant, especially in
the light of the strong recovery of many emerging economies from the global
economic crisis. Inflation is undeniably one of the most leading and dynamic
macroeconomic issues confronting most economies of the world and has become a
leading topic of discussion in Nigerian families and press as its effects
penetrate more deeply into nation’s life due to prevailing increase in prices
(Olatunji et al., 2010). The consumer price index for food over the years in
Nigeria constituted a larger proportion of the composite consumer price index
and as noted by Oppedahl (2009), households in developing countries spend more
on food relative to overall spending and therefore, food price inflation had played
a bigger role in overall inflation. Despite the critical position of inflation
in the macroeconomic environment of Nigeria, research efforts have not hitherto
addressed the links between the direction of inflation, agricultural
productivity and economic growth over the years in Nigeria and therefore, this
study was carried out to the effect of inflation and interest rate on
Agricultural productivity in Nigeria from 2000-2015.

1.2
STATEMENT OF THE PROBLEM

Inflation is undeniably one of the most leading and
dynamic macroeconomic issues confronting economy of Nigeria and has become a
leading topic of discussion in Nigerian families and press as its effects
penetrate more deeply into nation’s life due to prevailing increase in prices
(Olatunji et al., 2010). The consumer price index for food over the years in
Nigeria constituted a larger proportion of the composite consumer price index
and as noted by Oppedahl (2009), households in developing countries spend more
on food relative to overall spending and therefore, food price inflation had
played a bigger role in overall inflation. That is why the researcher wants to
investigate the effect of inflation and interest rate on Agricultural
productivity in Nigeria from 2000-2015

1.3
OBJECTIVE OF THE STUDY

The objectives of the study are;

1.   To ascertain
the factors that affect agricultural productivity

2.   To
ascertain the effect of inflation on Nigeria’s economy

3.   To
ascertain the relationship between effect of inflation and agricultural
productivity

4.   To
ascertain the effect of inflation and interest rate on agricultural
productivity in Nigeria from 200-2015

1.4
RESEARCH HYPOTHESES

For the successful completion of the study, the
following research hypotheses were formulated by the researcher; 

H0:
there
are no factors that affect agricultural productivity

H1:
there
are factors that affect agricultural productivity

H02:there
is no relationship between effect of inflation and agricultural productivity

H2:there
is relationship between effect of inflation and agricultural productivity

1.5 SIGNIFICANCE OF THE
STUDY

This
study will be of significance to students of different higher of learning as it
would enlighten them and the entire nation. Finally, this study will also help
to serve as literature (reference source) to the public, individuals and
corporate bodies into what to carry out on further research on the effect of
inflation and interest rate on agricultural productivity in Nigeria.

1.6 SCOPE AND LIMTATION OF
THE STUDY

The
scope of the study covers the effect of inflation and interest rate on
agricultural productivity in Nigeria from 200-2015. The researcher encounters
some constrain which limited the scope of the study;

a)
AVAILABILITY OF RESEARCH MATERIAL:
The research material available to the researcher is insufficient, thereby
limiting the study       

b) TIME:
The time frame allocated to the study does not enhance wider coverage as the
researcher has to combine other academic activities and examinations with the
study.

c)
Organizational privacy: Limited Access to the selected
auditing firm makes it difficult to get all the necessary and required
information concerning the activities. 

1.7
DEFINITION OF THE TERM

INFLATION:
Inflation is defined as a sustained increase in the general level
of prices for goods and services in a county, and is measured as an annual
percentage change. Under conditions of inflation, the prices
of things rise over time. When inflation goes
up, there is a decline in the purchasing power of money.

INTEREST RATE: Interest rate is
the amount charged, expressed as a percentage of principal, by a lender to a
borrower for the use of assets. Interest rates are
typically noted on an annual basis, known as the annual percentage rate (APR). Interest is
essentially a rental, or leasing charge to the borrower, for the asset’s use.

AGRICULTURAL PRODUCTIVITY: Agricultural productivity is measured as the ratio ofagricultural outputs to agricultural inputs. While individual products are usually
measured by weight, their varying densities make measuring overall agriculturaloutput difficult.

1.8 ORGANIZATION OF THE STUDY

This
research work is organized in five chapters, for easy understanding, as follows

Chapter one is concern with the introduction, which
consist of the (overview, of the study), historical background, statement of
problem, objectives of the study, research hypotheses, significance of the
study, scope and limitation of the study, definition of terms and historical
background of the study. Chapter two highlights the theoretical framework on
which the study is based, thus the review of related literature. Chapter three
deals on the research design and methodology adopted in the study. Chapter four
concentrate on the data collection and analysis and presentation of
finding.  Chapter five gives summary,
conclusion, and recommendations made of the study

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