ABSTRACT

In most agrarian economies like the type that exists in Nigeria, agricultural production provides the needed fulcrum upon which sustainable development would blossom. Being the main source of food for most of the population, agricultural production remains a cornerstone of the Nigerian economy. It provides the means of livelihood for most of the population, a major source of raw materials for agro-allied industries, and a potent source of much-needed foreign exchange (FAO, 2024; CBN, 2024). However, inadequate credit (among other factors) to the agricultural sector has led to the downward trend observed in agricultural productivity in Nigeria. To avert such a trend, the Federal Government of Nigeria established the Agricultural Credit Guarantee Scheme Fund (ACGSF) in 1977 to assist farmers in accessing credit to improve agricultural productivity. The setting up of the ACGSF was predicated on the unwillingness of commercial banks to give loans to smallholder farmers due to high default rates on loan repayment and, therefore, high risk (Sulaimon, 2022; Ubru, Asogwa & Attamah, 2025). In the course of the fund's operations, a number of problems have been identified as militating against its smooth performance; some of which have affected the amount of credit granted to the various agricultural subsectors. Therefore, this study sought to examine (i) the impact of Agricultural Credit Guarantee Scheme Fund on crop output in Nigeria; (ii) the impact of Agricultural Credit Guarantee Scheme Fund on livestock output in Nigeria; (iii) the impact of Agricultural Credit Guarantee Scheme Fund on fisheries output in Nigeria; and (iv) the impact of Agricultural Credit Guarantee Scheme Fund total fund granted on Agricultural output and productivity in Nigeria. The ex-post facto research design was adopted to enable the researcher to make use of secondary data and determine cause-effect relationships during the period, 2010–2024. The Ordinary Least Square (OLS) estimation technique was adopted using SPSS statistical software to test the hypotheses, where Total Agricultural Credit Guarantee Scheme Fund (TACGSF), Agricultural Credit Guarantee Scheme Fund to crop production (ACGSFCP), Agricultural Credit Guarantee Scheme Fund to livestock (ACGSFLSP) and Agricultural Credit Guarantee Scheme Fund to fisheries (ACGSFP) were used as the independent variables, while Agricultural Production (AP), Gross Domestic Product Agricultural Crop Production (GDPACP), Gross Domestic Product Agricultural Livestock Production (GDPALS) and Gross Domestic Product Agricultural Fisheries Production (GDPAFP) were used as the dependent variable. The study found that Agricultural Credit Guarantee Scheme Fund for crop production, livestock production and fisheries had significant positive impact on crop, livestock and fisheries productivity in Nigeria for the period of the study, and also, the total agricultural credit guarantee scheme fund had a significant positive impact on agricultural output in Nigeria. The study therefore recommends that stakeholders in the scheme viz: the farmers, lending institutions and government must show greater commitment and dedication for the scheme to achieve its laudable objectives.

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Agricultural production in Nigeria has been progressively declining in terms of its contribution to Gross Domestic Product (GDP) as well as in satisfying the country's food requirements, despite the fact that the sector continues to engage a significant proportion of the population (FAO, 2024; Oxford Business Group, 2024). According to the Food and Agriculture Organization (FAO, 2024), agriculture contributed approximately 19% to 25% of Nigeria's overall GDP between 2023 and the first quarter of 2024, with agricultural crop production alone accounting for about 19.24% of GDP in Q1 2024. Despite this contribution, Nigeria's agricultural sector has been unable to fulfil its most basic and traditional role of adequately feeding the nation; consequently, food imports have continued to rise. Between 2021 and 2024, Nigeria imported ₦16 trillion in food more than double its food export earnings of ₦7 trillion resulting in a food trade deficit equal to 3% of agricultural GDP (FAO, 2024).

There is a growing recognition among Nigerian farmers of the effect of improved inputs and new technologies on agricultural yield. The use of these inputs and the adoption of high-yielding techniques have given rise to an increased need for agricultural credit, since the majority of Nigerian farmers are small-scale farmers and are often limited by unfavourable economic, social, cultural and institutional conditions (Musa et al., 2022; Olagunju et al., 2022). Insufficiency of capital has been identified as a major constraint to agricultural development; in order to improve agricultural production, modern farm inputs such as fertilizers, improved seed, feeds, plant protection chemicals, and agricultural machinery are needed over the hoe and machete technology. Most of these technologies have to be purchased, yet very few farmers have the financial resources to finance such purchases (Abdulrafiu & Dabo, 2022; Achumu et al., 2022).

Agriculture contributes immensely to the Nigerian economy in various ways, namely: in the provision of food for the increasing population; supply of adequate raw materials and labour to a growing industrial sector; a major source of employment; generation of foreign exchange earnings; and provision of a market for products of the industrial sector (Ekenta et al., 2023; FAO, 2024; Nwankwo et al., 2024). Between 2021 and 2024, agriculture contributed 28% of GDP while the sector employed about 40% of the labour force, making it a central pillar of rural livelihoods (FAO, 2024). The agrarian sector has a strong rural base; hence, concern for agriculture and rural development is often treated as synonymous, sharing a common developmental root (Ikehi et al., 2024).

Support for agriculture in Nigeria is widely driven by the public sector, which has established institutional support in the form of agricultural research, extension, commodity marketing, input supply, and land use legislation to fast-track agricultural development (Nwankwo et al., 2024). Private sector participation is not limited to local or foreign direct and portfolio investment financing, but also to sponsorship of research and breakthrough on agricultural issues in universities, capacity building for farmers, and most importantly, the provision of financing to farm businesses. International governmental and non-governmental agencies, including the World Bank, the Food and Agriculture Organization of the United Nations (FAO), and the International Fund for Agricultural Development (IFAD), also contribute through on-farm and off-farm support in the form of finance, input supply, and strengthening of the technical capacity of support institutions (Ubru et al., 2025).

After independence, government interventions in agriculture were realized within the framework of development plans and annual budgets. Food was relatively abundant and demand was met without extensive resort to imports. However, the discovery of crude oil shifted governmental attention and resources away from the agricultural sector, initiating a progressive decline that continues to the present day (Ikehi et al., 2024). In recent times, this challenge has been compounded by security crises, climate change-induced flooding, and macroeconomic instability. The Nigerian Meteorological Agency (NiMET, 2024) reported that climate-induced flooding in 2022 alone destroyed over 676,000 hectares of farmland across 33 states, severely disrupting food production and supply chains (Okonkwo et al., 2025).

According to the Central Bank of Nigeria (CBN, 2024), the agricultural sector supports over 70% of rural households and remains the most accessible source of income for the poor, making it a critical instrument for poverty reduction and inclusive development. Agricultural exports, particularly cocoa, rubber, sesame, and fish/shrimp, constituted approximately 40% of non-oil exports from Nigeria in 2023, equivalent to 5% of total exports (World Bank, 2025). In the first half of 2024, the non-oil sector recorded increased growth to over USD 2.7 billion in export receipts (NEPC, 2024). Despite this, Nigeria remains a huge net importer of agricultural products, and the import-export gap has continued to widen, putting the country's agricultural policy under scrutiny (IMF, 2023).

Agriculture remains a significant sector of the Nigerian economy. Although Nigeria depends heavily on the oil industry for revenue, it is predominantly an agrarian society, with the sector contributing an average of 23% to GDP annually over the last decade (Oxford Business Group, 2024; World Bank, 2025). Despite this, there are doubts about the sustainability of the current growth rate. The recent trajectory in agricultural growth has been driven mainly by the production of staple crops, while productivity has remained low and internationally uncompetitive; yields of most crops have stagnated over the past decade, and Nigeria's Total Factor Productivity in agriculture has been stagnant compared to its peers (World Bank, 2025; IMF, 2023).

Approximately 70% of Nigeria's population engages in agricultural production, predominantly at subsistence level, while agricultural holdings are generally small and scattered (Oxford Business Group, 2024). Smallholder farmers constitute between 81% and 88% of all farm holdings, and their production system is largely inefficient (Veriva Africa, 2025). Small-scale (0.1–5.9 ha), medium-scale (6.0–9.9 ha), and large-scale (>10 ha) are the three broad categories of farm holdings in Nigeria, with small-scale holdings predominating and accounting for the vast majority of total farm area and agricultural output. The estimated average operational holding is approximately 2 ha per farm family. These structural characteristics severely limit the capacity of farmers to access formal credit, as they lack collateral and bankable assets (Musa et al., 2022; Adewale et al., 2022).

Data from the National Bureau of Statistics (NBS) indicate that the agriculture sector is largely sustained by crop production, with crop production contributing 91.5% of agricultural GDP in 2024, followed by livestock (5.6%), forestry (1.0%), and fishing (1.9%) (NBS/KPMG, 2025). Despite the significance of agriculture in the nation's economy, limited access to finance remains a critical challenge: less than 5% of total commercial bank credit is allocated to the agricultural sector as of 2023 (CBN, 2024), constraining investment in mechanization, irrigation, and agro-processing industries. This underfinancing of the sector has been identified as one of the most persistent structural bottlenecks undermining Nigeria's agricultural productivity (Efuntade et al., 2024; Abdulrafiu & Dabo, 2022).

The Agricultural Credit Guarantee Scheme Fund (ACGSF) was established under Decree No. 20 of 1977 with an initial capital base of N100 million distributed between the Federal Government (60% equity) and the Central Bank of Nigeria (40%). The ACGSF is exclusively managed by a board set up under the supervision of the CBN as management agent. The fund was established with the sole purpose of providing guarantees in respect of loans granted by banks for agricultural purposes, thereby serving as an inducement to commercial banks to increase and sustain lending to agriculture (Onuegbu et al., 2022; CBN, 2024). Under the scheme, bank loans to farmers are guaranteed 75% against default. When a default occurs, the CBN remits to the participating lending banks 75% of the amount in default, net of any amount realized from the pledged security (Onuegbu et al., 2022). The capital base of the scheme was subsequently increased to N3 billion in March 2001.

The ACGSF was formed with the objective of encouraging financial institutions to lend funds to those engaged in agricultural production as well as agro-processing activities, with the aim of enhancing the export capacity of the nation as well as facilitating production for local consumption (Samaila & Idris, 2023; Sulaimon, 2022). Nwosu et al. (as cited in Ubru et al., 2025) identified major problems associated with the ACGSF scheme, including the increasing incidence of loan defaulters, bank-related problems, and ambiguity in the requirement for "personal guarantee" as a condition for collateral. Since the decree establishing the ACGSF did not explicitly define this term, banks utilise personal judgment and circumstantial frameworks to interpret it, thereby hindering the achievement of the scheme's objectives.

The ACGSF is aimed at guaranteeing agricultural outfits specialising in the following: the establishment and management of plantations for cash crop produce such as rubber production, oil palm extraction, and cocoa cultivation; the cultivation and production of food crops including fruits, tubers of yam, cereals, and all other food crops; and large-scale animal husbandry. The vast employment opportunity and the quest towards diversification of revenue sources by the Federal Government and development agencies have refocused attention on the agricultural sector (Nwankwo et al., 2024). For example, the National Agricultural Technology and Innovation Policy (NATIP, 2022–2027), launched in August 2022, aims to boost agricultural growth and resilience for food security and job creation through ten strategic pillars (FAO, 2024).

There are four sub-sectors of agriculture in Nigeria: arable crops (including food crops), livestock, fishery, and forestry (including tree crops). Most research conducted in this area has dealt with the overall impact of the Agricultural Credit Guarantee Scheme Fund on non-oil export output and contribution to Nigeria's GDP (Sulaimon, 2022; Samaila & Idris, 2023; Ubru et al., 2025). Achumu et al. (2022) examined agricultural financing and economic growth using a Bayesian VAR framework and found that public sector expenditure to agriculture, bank credits, and ACGSF all contribute positively to aggregate agricultural output. Similarly, Oyedepo et al. (2022) found that commercial bank credit has significant positive effects on agricultural growth outcomes in Nigeria, underscoring the critical importance of formal credit availability to the sector.

1.2 Statement of the Problem

Agricultural credit is expected to play a critical role in agricultural development (Efuntade et al., 2024; Musa et al., 2022). Agricultural credit has for long been identified as a major input in the development of the agricultural sector in Nigeria. The decline in the contribution of the sector to the Nigerian economy has been attributed to the lack of a formal national credit policy and paucity of credit institutions that can assist farmers, among other things. The provision of this input is important because credit or loan-able fund (capital) is viewed as more than just another resource such as labour, land, equipment, and raw materials. It determines access to all the resources on which farmers depend (Adewale et al., 2022; Abdulrafiu & Dabo, 2022). However, agricultural production has not improved sufficiently, and this underwhelming performance underpins the continuing relevance of interventions like the Agricultural Credit Guarantee Scheme. The problems which inadequate credit through the scheme may have had on agricultural productivity include:

1. Low agricultural cash crop productivity in Nigeria

2. Low agricultural livestock productivity in Nigeria

3. Low agricultural fisheries productivity in Nigeria

4. Poor overall agricultural productivity in Nigeria

In the course of the fund's operations, a number of problems have been identified as militating against its smooth performance, which have limited the fund's contribution to the cash crop, livestock, and fisheries agricultural subsectors, leading to low agricultural productivity in Nigeria. According to Sulaimon (2022), some of these problems include: an increasing incidence of loan defaults, high interest rates on agricultural loans, natural disasters, poor farm management, low product prices, loan diversion, and deliberate refusal to repay. The inability of farmers to properly assess loan requirements often leads to the receipt of inadequate or excessive loans, further undermining productivity (Musa et al., 2022).

Participatory banks in the ACGSF do not cooperate fully in lending to farmers. Because of the high cost of processing loans relative to the actual loan amounts and the high default rate of the farmers, many banks prefer to pay penalties rather than risk lending their funds to agriculture (Efuntade et al., 2024; Veriva Africa, 2025). Banks have also been found to fault farmers for submitting incomplete application forms. In some cases where loans are approved, the funds arrive too late to fulfil the purpose for which they were intended, a delay that appears more administrative than operational (Onuegbu et al., 2022).

Another problem that militates against the smooth operation of the scheme is the condition of "personal guarantee" as security that may be offered to a bank for the purpose of a loan. This requirement was not clearly defined in the enabling decree. It is common knowledge that most people, especially in rural areas, do not have clear titles to their land that could serve as collateral for loans under the scheme (Musa et al., 2022). Finally, the ACGSF has suffered from inadequate publicity; surveys have consistently shown low awareness of the scheme among farming communities across various states of the federation (Efuntade et al., 2024; Sulaimon, 2022).

1.3 Objectives of the Study

The general objective of this study is to examine the impact of Agricultural Credit Guarantee Scheme Fund on agricultural production in Nigeria. The specific objectives therefore include:

1. To examine the impact of Agricultural Credit Guarantee Scheme Fund on crop output in Nigeria.

2. To examine the impact of Agricultural Credit Guarantee Scheme Fund on livestock output in Nigeria.

3. To examine the impact of Agricultural Credit Guarantee Scheme Fund on fisheries output in Nigeria.

4. To examine the impact of Agricultural Credit Guarantee Scheme Fund total fund granted on agricultural output and productivity in Nigeria.

1.4 Research Questions

Having considered the problems inherent in the grant of credit to the agricultural sector and specifically the impact of Agricultural Credit Guarantee Scheme Fund towards agricultural production, the following research questions are raised:

1. To what extent does Agricultural Credit Guarantee Scheme Fund credit to the agricultural cash crop sub-sector have a significant impact on crop output in Nigeria?

2. To what extent does Agricultural Credit Guarantee Scheme Fund credit to the agricultural livestock sub-sector have a significant impact on livestock output in Nigeria?

3. How far does Agricultural Credit Guarantee Scheme Fund credit to the agricultural fisheries sub-sector have a significant impact on fisheries output in Nigeria?

4. To what extent does Agricultural Credit Guarantee Scheme Fund credit to the agricultural sub-sector have a significant impact on agricultural output in Nigeria?

1.5 Research Hypotheses

As a result of the research questions raised above, the hypotheses for this study are:

1. Agricultural Credit Guarantee Scheme Fund does not have a significant positive impact on cash crop output in Nigeria.

2. Agricultural Credit Guarantee Scheme Fund does not have a significant positive impact on livestock output in Nigeria.

3. Agricultural Credit Guarantee Scheme Fund does not have a significant positive impact on fishery output in Nigeria.

4. Agricultural Credit Guarantee Scheme Fund does not have a significant positive impact on agricultural output in Nigeria.

1.6 Scope of the Study

The research covers the period 2010 to 2024. The Agricultural Credit Guarantee Scheme Fund (ACGSF) was established by Act 20 of 1977 and started operations in 1978. The principal objective of the scheme was to facilitate the provision of credit to farmers by providing guarantees to participating banks, known as Deposit Money Banks (DMBs), for loans granted to farmers in accordance with the scheme's enabling act. The study period of 2010–2024 was selected to capture the more recent operational phases of the scheme and to align with contemporary data availability on agricultural GDP sub-sectors from the CBN Statistical Bulletin 2024 and the National Bureau of Statistics. This period is particularly relevant because it encompasses significant policy shifts including the Agricultural Transformation Agenda (2010–2016), the Agricultural Promotion Policy (2016–2020), the Anchor Borrowers' Programme, and the National Agricultural Technology and Innovation Policy (NATIP, 2022–2027), all of which substantially affected agricultural credit allocation patterns in Nigeria.

1.7 Significance of the Study

This study is aimed at contributing to the literature available in agricultural finance and development economics. It will further establish reasons why subsequent research in this area will contribute to the growth and development of emerging markets like Nigeria. The following users will find this study useful and pertinent:

i) Government

The government is keen on exploring ways to enact policies consonant with the establishment and promotion of improved agricultural productivity and output. Hence, the government stands to benefit from evidence-based research that can guide its credit policy interventions, the reform of the ACGSF, and the development of complementary schemes such as the Anchor Borrowers' Programme and NIRSAL, all of which are critical to achieving the objectives of the NATIP (2022–2026) and broader food security goals (FAO, 2024; World Bank, 2025).

ii) Academic Purpose

An advancement of knowledge is achieved when series of research are being carried out in the academic environment. This study adds to the growing body of empirical literature on agricultural finance in Nigeria, particularly by extending the analysis to more recent data periods (2010–2024) and employing updated methodological approaches. It widens the scope and horizon of readers and researchers and contributes to the volume of literature available to students and scholars in agricultural economics, development finance, and related disciplines.

1.8 Definition of Terms

The following terms, as they relate to this study, are defined below:

Agricultural Development: A process that involves the adoption by farmers of new and improved practices, technologies, and institutional arrangements aimed at increasing output and enhancing rural livelihoods (Nwankwo et al., 2024).

Agricultural Credit: Credit that facilitates the acquisition and application of state-of-the-art technology and enables agricultural enterprises to drive productivity improvements and competitiveness. It encompasses both formal credit from banks and institutions, and semi-formal credit from cooperatives and microfinance bodies (Efuntade et al., 2024; Musa et al., 2022).

Agricultural Productivity: An increase in the agricultural sector's contribution to the Gross Domestic Product of the nation, reflecting efficiency gains in the use of land, labour, capital, and technology in agricultural production (Sulaimon, 2022; Ubru et al., 2025).

Agricultural Credit Guarantee Scheme Fund (ACGSF): A partial credit guarantee fund established by the Nigerian Federal Government under Decree No. 20 of 1977 and managed by the Central Bank of Nigeria, which guarantees 75% of bank loans to farmers in the event of default, with the objective of inducing commercial banks to increase lending to the agricultural sector (CBN, 2024; Onuegbu et al., 2022).

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