This document analyzes the effects of monetary and fiscal policy indicators on agricultural output in Nigeria from 1990-2000. It specifically examines the relationship between money supply, interest rates, inflation, savings, budgetary allocation and the output of cereals like maize, millet, rice and wheat. The results of a regression analysis showed that money supply, budgetary allocation and interest rates had a significant relationship with agricultural output, while inflation and savings were not significant. The analysis also revealed that while budgetary allocations to agriculture increased dramatically over the period, agricultural output levels remained largely the same, indicating a weak relationship between fiscal policy and output.

1. Analysis of the effects of monetary and fiscal policy indicators on
agricultural output (Cereal) (1990-2000)
Keywords:
Monetary, Fiscal Policy Indicators, Agricultural Output.
ABSTRACT:
The research was conducted to determine the effect of monetary and fiscal
policy indicators on Nigeria’s agricultural output. The output considered were mainly
cereals such as maize, sorghum, rice, millet and wheat while the monetary policy
indicators studied were inflation, money supply, interest rate and savings. Budgetary
allocation represents the fiscal component while inflation, savings, interest rate,
money supply represented monetary policy indicators. One of the fundamental
objectives was to examine the relationship between monetary and fiscal policy
indicators on agricultural output. Multiple regression was used as the main analytical
tool, and the result showed that money supply, budgetary allocation, interest rate
were 94%, 54% and 82% significant in the order above i.e. they had significant
relationship with output, while inflation and savings were not significant. The result
also revealed that within the period of study, agriculture contributed 28% to 35% of
the gross domestic product. Forestry and fisheries contributed the least, while crop
and animal sub sectors contributed the highest.
058-064 | JRA | 2012 | Vol 1 | No 1
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Journal of Research in
Agriculture
An International Scientific
Research Journal
Authors:
Okidim IA and Albert CO.
Institution:
Department of Agricultural
and Applied Economics/
Extension. Rivers State
University of Science and
Technology-Nkpolu
Port Harcourt, Rivers State,
Nigeria.
Corresponding author:
Okidim IA.
Email:
carobinedo@yahoo.com.
Web Address:
http://www.jagri.info
documents/AG0021.pdf.
Dates:
Received: 23 Feb 2012 Accepted: 07 Mar 2012 Published: 09 Apr 2012
Article Citation:
Okidim IA and Albert CO.
Analysis of the Effects of Monetary and Fiscal Policy Indicators on Agricultural
Output (Cereal) (1990-2000).
Journal of Research in Agriculture (2012) 1: 058-064
Original Research
Journal of Research in Agriculture
JournalofResearchinAgriculture An International Scientific Research Journal

2. INTRODUCTION
According to Panda (2007), agriculture had
suffered low productivity due to labour shortage as a
result of labour drift from rural to urban areas. This drift
may be due to low wages in agriculture, drudgery of
farming, poor infrastructural facilities and other factors
that include land tenure system, illiteracy and climate
(rainfall, humidity, draught, temperature, light intensity).
More often than not, the economic factors are ignored.
The activities of the Federal Reserve System or the
central bank may affect agricultural output e.g. interest
rate may have direct or indirect effect on agricultural
output (panda 2007). This is because farmers obtain
credit or capital to facilitate the acquisition of inputs. If
interest rate is low, more input will be procured,
conversely, employment of labour inflation, investment
in other sub sectors may also tend to affect output. Also
in terms of employment, if there is an increase in
employment in agro allied industries and agri business
firms, output may increase. Meaning that if there is a
proper management of macro-economic variables such
as interest rate, employment in agro allied and agri
business firms, inflation, savings etc by managers of
monetary policies, there may be a positive effect on the
output of agriculture.
Literature Review
In Nigeria, agriculture still remains the highest
employer of labour and the only source of food (Panda
2007). In spite of its numerous contributions, the sector
has still not paid the desired attention. According to CBN
(1999) index on agriculture, production has increased by
3.6%. The inability of the real sector to contribute to the
gross domestic product (GDP) is the major factor that is
responsible for the sluggish growth of the sector
(Nworguu 2004). Government at all levels (federal, state
and local), allocate whooping sums of money to the
agricultural sector, yet output has never been
proportional to budgetary allocation (Horwite, 2002).
The budgetary system has failed to carry out
performance evaluation of previous budgetary
allocations vis-a-vis the output. The GDP in 2000 stood
at 117.95 billion, 2001 GDP was 122 billion, 2002 GDP
was 127.72 billion, 2003 GDP was 135.95 billion, 2004
GDP was 144.84 billion (CBN 2002). The national
output for maize, millet, sorghum, rice, wheat were
6,491, 9,743, 8,824, 3,841, 550 tones respectively (CBN,
2002). The money supply was 766.035 billion, while the
interest rate was 21.52%.
Problem Statement
In 1980, the budgetary allocation of the
agricultural sector was 435 million naira, while the
allocation for 2003 was over eight billion (CBN 2003).
This radical difference in the budgetary allocation has
not reflected in the output. A critical look at the non
proportionality between the budgetary allocation and
output revealed that poor monetary policy management
and inconsistency in government policy towards
agriculture may be responsible for this condition
(Jhangan 2008). Government can use the instrumentality
of the monetary policy to influence employment, output
savings, inflation, interest rate and money supply. They
can do this through the expansionary and contractionary
measures. Due to the large nature of the agricultural
sector, it is decided that we examine how these monetary
operations affect cereals (maize, millet, sorghum, rice,
wheat) which are major staples in Nigeria. It is against
this backdrop that this research is carried out to ascertain
the effect of monetary policy operations on agricultural
output using cereal as a case study.
Objectives of the study
Specifically, the study was set put to;
1 examine some monetary and fiscal policy
indicators such as money supply, interest rate, inflation,
savings as well as budgetary allocation;
2 determine the relationship between monetary
and fiscal policy indicators and the output of cereals and
3 examine the output of major agricultural
commodities.
059 Journal of Research in Agriculture (2012) 1: 058-064
Okidim and Albert, 2012

3. METHODOLOGY
The study focused was on the entire Nigeria and
not a particular state or region. The study covered a
period of 21 years (1980-2000). The data for this
research work were mainly collected from secondary
sources, which include Central Bank of Nigeria (CBN)
bulletin, journal, Federal Office of Statistics (FOS) and
text books. Due to the large nature of agricultural output,
only cereals (maize, millet, sorghum, rice, wheat) were
conveniently selected. Data for this research were
analyzed with the use of tables and regression analysis.
The following model was built to establish a
functional relationship as follows
Y=F(X1+X2+X3+X4+X5) +U eq 1
Where;
Y=Agricultural output (cereal)
X1= inflation
X2= Budgetary allocation
X3= Savings
X4= Monetary supply
X5= Interest rate
U= error term
Eq 2
Y=BO+B1X1+B2X2+B3X3+B4X4+B5X5
where
Y=General output of cereal
B1=Maize
B2=Millet
B3=Sorghum
B4=Rice
B5=Wheat.
RESULTS AND DISCUSSION
The relationship between output of cereals and
inflation are shown in Table 1
Table 1 shows the output of cereals and inflation
rate. The table shows that the inflation rate did not reveal
a definite trend, it was 9.90%in 1980 and increased to
20.90 in 1981 then reduced to 7.70% and then increased
to 23.20.i.e. the inflation was fluctuating up to 2001, but
Journal of Research in Agriculture (2012) 1: 058-064 060
Okidim and Albert, 2012
Table 1: The relationship between output of cereals and inflation
Year
Inflation
Rate
Maize Millet
Sorghum Rice Wheat
1980 9.90 612.00 3,354.00 3,346.00 105.00 24.00
1981 20.90 720.00 2,687.00 3,364.00 158.00 26.00
1982 7.70 766.00 2666.00 3,740.00 212.00 26.00
1983 23.20 594.00 2,783.00 3,292.00 143.00 26.00
1984 37.60 2,055.00 3,349.00 4,608.00 157.00 27.00
1985 5,50 1,190.00 3,684.00 4,911.00 196.00 113.00
1986 5.40 1,336.00 4,111.00 5,455.00 283.00 132.00
1987 10.20 4,612.00 3,905.00 5,182.00 808.00 139.00
1988 38.30 5,268.00 5,136.00 7,265.00 2,081.00 565.00
1989 40.90 5,008.00 4,770.00 4,185.00 3,303.00 554.00
1990 7.50 5,768.00 5,136.00 5,367.00 2,500.00 554.00
1991 13.00 5,810.00 4,109.00 5,909.00 3,226.00 455.00
1992 44.50 6,840.00 4,501.00 6,051.00 3,260.00 515.00
1993 57.20 6,290.00 4,602.00 6,051.00 3,065.00 33.00
1994 57.00 6,902.00 4,757.00 6,197.00 2,427.00 35.00
1995 72.80 6,931.00 5,563.00 6,997.00 3,203.00 44.00
1996 29.50 6,217.00 5,803.00 7,514.00 3,122.00 47.00
1997 8,50 6,285.00 5,997.00 7,954.00 3,230.00 49.00
1998 10.00 6,435.00 6,328.00 8,401.00 3,486.00 51.00
1999 6.60 6,515.00 6,423.00 8,504.00 3,522.00 53.00
2000 6.90 6,491.00 9,743.00 8,824.00 3,841.00 55.00
SOURCE: Production Year Book (2000) CBN Nigeria Annual Agricultural Survey; Annual Report FM A&D

4. the output of cereal continued to increase from 1980 to
2001. Apart from wheat, that fell drastically from 515.00
tones to 57.00 tonnes from 1992 to 2001.
Relationship between budgetary allocation (capital)
and agricultural output
Table 2 shows budgetary allocation to the
agricultural sector and output. A critical analysis shows
that from 1997 to 2003, there has been an appreciable
increase in budgetary allocation to the agricultural sector,
but output maintained the same level. e.g. maize
maintained six million tones, rice maintained three
million tones, wheat maintained 51000 tonnes, millet
maintained between six and seven million tones. But
budgetary allocation astronomically rose from six billion
in 1997 to 57 billion in 2001 and 32 billion in 2002, but
maize output maintained the same as well as rice and
wheat although, there is an increase in output as
budgetary allocation increase, but not as proportional.
This was confirmed by the result of the regression
showing a very weak coefficient of determination (R2
) of
54%.
Relationship between savings and output
Table 3 revealed that there was no definite
relationship between savings and output. This is because
in 1986, 1999, 2003, savings were negative, yet there
were appreciable increase in output. The table did not
show any trendy relationship between savings and
output. The regression result also showed negative
relationship between savings, maize, sorghum and wheat.
Meaning that as savings increases, most output
decreases. It is in line with theoretical expectation
because savings is a withdrawal from the circular flow of
income. The coefficient of determination R2
was 33
showing no significant relationship.
Relationship between money supply and agricultural
output
Table 4 shows money supply and output of
cereal. The table revealed that there was a steady
increase in money supply from 14.897 billion in 1981 to
766.035 billion in 2000. Also output of cereal increased
within the period, although not as much as money supply
except wheat in 1993 to 2000 that had a sharp decline.
061 Journal of Research in Agriculture (2012) 1: 058-064
Okidim and Albert, 2012
Table 2: Budgetary Allocation and Agricultural Output (#millions)
Year
Budgetary
Allocation
Maize Millet Sorghum Rice Wheat
1980 435.60 612.00 3,354.00 3,346.00 105.00 24.00
1981 775.10 720.00 2,687.00 3,364.00 158.00 26.00
1982 1,035.10 766.00 2666.00 3,740.00 212.00 26.00
1983 1,185.20 594.00 2,783.00 3,292.00 143.00 26.00
1984 252.50 2,055.00 3,349.00 4,608.00 157.00 27.00
1985 985.40 1,190.00 3,684.00 4,911.00 196.00 113.00
1986 892.50 1,336.00 4,111.00 5,455.00 283.00 132.00
1987 365.1 4,612.00 3,905.00 5,182.00 808.00 139.00
1988 595.7 5,268.00 5,136.00 7,265.00 2,081.00 565.00
1989 981.5 5,008.00 4,770.00 4,185.00 3,303.00 554.00
1990 1,758.5 5,768.00 5,136.00 5,367.00 2,500.00 554.00
1991 551.2 5,810.00 4,109.00 5,909.00 3,226.00 455.00
1992 763.0 6,840.00 4,501.00 6,051.00 3,260.00 515.00
1993 1,820.0 6,290.00 4,602.00 6,051.00 3,065.00 33.00
1994 2,800.6 6,902.00 4,757.00 6,197.00 2,427.00 35.00
1995 4,691.0 6,931.00 5,563.00 6,997.00 3,203.00 44.00
1996 3,892.8 6,217.00 5,803.00 7,514.00 3,122.00 47.00
1997 6,247.40 6,285.00 5,997.00 7,954.00 3,230.00 49.00
1998 8,876.60 6,435.00 6,328.00 8,401.00 3,486.00 51.00
1999 6,912.60 6,515.00 6,423.00 8,504.00 3,522.00 53.00
2000 5,761.70 6,491.00 9,743.00 8,824.00 3,841.00 55.00
Source: (1) Year Book Central Bank Year Book (2) Fed. Ministry of Agriculture

5. The regression result also confirmed a strong and
positive relationship with a coefficient of determination
(R2
) of 94 % meaning that increase in money supply
increase output.
Relationship between interest rate and output
Table 5 shows interest rate and output of cereals.
The table showed that the interest rate was single digit
from 1980 to 1983 as well as 1985. It rose to double digit
Journal of Research in Agriculture (2012) 1: 058-064 062
Okidim and Albert, 2012
Table 3: Relationship between saving and output (cereals1000 tones)
Year Saving Maize Millet Sorghum Rice Wheat
1980 11,189.10 612.00 3,354.00 3,346.00 105.00 24.00
1981 5,604.30 720.00 2,687.00 3,364.00 158.00 26.00
1982 4,237.10 766.00 2666.00 3,740.00 212.00 26.00
1983 3,607.50 594.00 2,783.00 3,292.00 143.00 26.00
1984 2,678.70 2,055.00 3,349.00 4,608.00 157.00 27.00
1985 3,944.50 1,190.00 3,684.00 4,911.00 196.00 113.00
1986 -1,494.70 1,336.00 4,111.00 5,455.00 283.00 132.00
1987 3,573.70 4,612.00 3,905.00 5,182.00 808.00 139.00
1988 361.10 5,268.00 5,136.00 7,265.00 2,081.00 565.00
1989 48,589.90 5,008.00 4,770.00 4,185.00 3,303.00 554.00
1990 61,785.20 5,768.00 5,136.00 5,367.00 2,500.00 554.00
1991 56,601.60 5,810.00 4,109.00 5,909.00 3,226.00 455.00
1992 57,119.10 6,840.00 4,501.00 6,051.00 3,260.00 515.00
1993 63,408.00 6,290.00 4,602.00 6,051.00 3,065.00 33.00
1994 63,405.00 6,902.00 4,757.00 6,197.00 2,427.00 35.00
1995 58,987.10 6,931.00 5,563.00 6,997.00 3,203.00 44.00
1996 173,984.10 6,217.00 5,803.00 7,514.00 3,122.00 47.00
1997 114,411.00 6,285.00 5,997.00 7,954.00 3,230.00 49.00
1998 216,394.90 6,435.00 6,328.00 8,401.00 3,486.00 51.00
1999 -168,126.10 6,515.00 6,423.00 8,504.00 3,522.00 53.00
2000 942,399.50 6,491.00 9,743.00 8,824.00 3,841.00 55.00
Source: FOS Lagos and CBN Annual Agricultural Survey
Table 4: Money supply and agricultural output cereal
Year Money supply Maize Millet Sorghum Rice Wheat
1980 - 612.00 3,354.00 3,346.00 105.00 24.00
1981 14,897.40 720.00 2,687.00 3,364.00 158.00 26.00
1982 15,548.10 766.00 2666.00 3,740.00 212.00 26.00
1983 16,894.00 594.00 2,783.00 3,292.00 143.00 26.00
1984 19,368.90 2,055.00 3,349.00 4,608.00 157.00 27.00
1985 21,600.50 1,190.00 3,684.00 4,911.00 196.00 113.00
1986 23,818.60 1,336.00 4,111.00 5,455.00 283.00 132.00
1987 24,592.70 4,612.00 3,905.00 5,182.00 808.00 139.00
1988 29,994.60 5,268.00 5,136.00 7,265.00 2,081.00 565.00
1989 42,220.90 5,008.00 4,770.00 4,185.00 3,303.00 554.00
1990 64,932.70 5,768.00 5,136.00 5,367.00 2,500.00 554.00
1991 86,932.00 5,810.00 4,109.00 5,909.00 3,226.00 455.00
1992 128,283.70 6,840.00 4,501.00 6,051.00 3,260.00 515.00
1993 192,458.00 6,290.00 4,602.00 6,051.00 3,065.00 33.00
1994 267,759.00 6,902.00 4,757.00 6,197.00 2,427.00 35.00
1995 295,211.00 6,931.00 5,563.00 6,997.00 3,203.00 44.00
1996 368,762.30 6,217.00 5,803.00 7,514.00 3,122.00 47.00
1997 431,196.60 6,285.00 5,997.00 7,954.00 3,230.00 49.00
1998 522,479.60 6,435.00 6,328.00 8,401.00 3,486.00 51.00
1999 633,086.00 6,515.00 6,423.00 8,504.00 3,522.00 53.00
2000 766,035.00 6,491.00 9,743.00 8,824.00 3,841.00 55.00
Source: FOS Lagos and CBN Annual Agricultural S

6. from 1986 to 2000, fluctuating between 11 and 25%,
with 31% in 1993. Within this range of interest rate
output of cereal rose from 1,336 tonnes to 6,491 tonnes
for maize, 4,111 to 9,743 tonnes for millet and 5,455 to
8,824 tonnes for sorghum. This shows that output of
cereal can still increase within an interest rate regime of
between 11 and 25%. It confirmed the result of the
regression that shows the coefficient of determination
(R2
) of 82% showing a very strong positive relationship
between output of cereal and interest rate
Output of major agricultural commodities
Table 6 showed the output of major agricultural
commodities (crops, livestock, forestry, fishing). The
table showed that within the period of study, agriculture
contributed 28% to 35% of the gross domestic product.
In 1981, the gross domestic product GDP from the
agricultural sector was 57%, in 2000 it dropped to 35%.
The table also showed that forestry has been static since
1981 to 2000 (no remarkable growth). While crop,
livestock and fishing sub sectors grew tremendously.
CONCLUSION
The study revealed that most monetary policy
indicators such as savings and inflation do not have
direct influence on agricultural output at the macro-level
due to improper management policy. Although, increase
in savings is seen to have reduced output of agriculture
since it is a withdrawal from the circular flow of income
(Jhangan 2008)
The study also revealed conversely, that money
supply in the form of loanable funds, interest rate and
increase budgetary allocation have been seen to increase
agricultural output if properly managed but if not
properly managed, there will be no positive effect. This
is because if there is an increase in money supply and the
transactionary demand for money which is a function of
interest rate and profit level are not well taking care-off
they will not produce positive relationship. Finally, it can
be summarized that monetary policy indicators can
increase output of agriculture if properly managed
through better policy frame work.
063 Journal of Research in Agriculture (2012) 1: 058-064
Okidim and Albert, 2012
Table 5: Relationship between interest rate and output (cereals1000 tones)
Year Interest Rate(%) Maize Millet Sorghum Rice Wheat
1980 8.43 612.00 3,354.00 3,346.00 105.00 24.00
1981 8.92 720.00 2,687.00 3,364.00 158.00 26.00
1982 9.54 766.00 2666.00 3,740.00 212.00 26.00
1983 9.98 594.00 2,783.00 3,292.00 143.00 26.00
1984 10.24 2,055.00 3,349.00 4,608.00 157.00 27.00
1985 9.43 1,190.00 3,684.00 4,911.00 196.00 113.00
1986 11.50 1,336.00 4,111.00 5,455.00 283.00 132.00
1987 13.96 4,612.00 3,905.00 5,182.00 808.00 139.00
1988 16.30 5,268.00 5,136.00 7,265.00 2,081.00 565.00
1989 20.44 5,008.00 4,770.00 4,185.00 3,303.00 554.00
1990 25.30 5,768.00 5,136.00 5,367.00 2,500.00 554.00
1991 20.04 5,810.00 4,109.00 5,909.00 3,226.00 455.00
1992 24.76 6,840.00 4,501.00 6,051.00 3,260.00 515.00
1993 31.65 6,290.00 4,602.00 6,051.00 3,065.00 33.00
1994 20.48 6,902.00 4,757.00 6,197.00 2,427.00 35.00
1995 20.24 6,931.00 5,563.00 6,997.00 3,203.00 44.00
1996 19.20 6,217.00 5,803.00 7,514.00 3,122.00 47.00
1997 18.40 6,285.00 5,997.00 7,954.00 3,230.00 49.00
1998 18.30 6,435.00 6,328.00 8,401.00 3,486.00 51.00
1999 20.53 6,515.00 6,423.00 8,504.00 3,522.00 53.00
2000 21.32 6,491.00 9,743.00 8,824.00 3,841.00 55.00
Source: FOS Lagos and CBN Annual Agricultural Survey

7. Source: FOS Lagos and CBN Annual Agricultural
Survey.
Recommendation
A proper and long term policy framework be put
in place by the apex bank or the federal reserve system to
work with ministries of agriculture to ensure actual
release and utilization of agricultural fund through the
instrumentality of the budget.
REFERENCES
CBN. 1999. Annual report CBN.
CBN. 2003. Annual report & Statistical bull.
CBN. 2002. Statistical bulletin & Annual report.
Panda SC. 2007. Farm management and agricultural
marketing Kalyani Publisher, New Delhi.
.
Nworguu FC. 2004. prospect and pitfall of agricultural
production in Nigeria .Blessed Publication, Nigeria.
Horwite PN. 2002. Monetary policy and financial
system. Prentice Hall, New York.
Jhangan ML. 2008. The Economic of Development and
planning Urimda Publication Ltd Delhi.
Journal of Research in Agriculture (2012) 1: 058-064 064
Okidim and Albert, 2012
Table 6: Agricultural share of the Gross Domestic Product GDP 1980-2000
Year Crops Livestock Forestry Fishing Agric total All Sector
1981 44,862.30 7,062.80 2,305.30 3,759.10 57,989.50 205,222.00
1982 45,885.70 7,470.50 2,187.40 3,907.20 59,450.80 199,685.00
1983 44,570.50 8,132.80 2,228.10 4,078.20 59,009.60 185,598.00
1984 42,548.70 8,268.40 2,269.80 2,831.30 55,918.20 183,563.00
1985 52,750.90 8,856.20 2,310.90 1,830.40 65,748.40 202,036.00
1986 58,705.70 8,722.30 2,592.40 9,190.70 79,211.10 205,971.00
1987 56,356.90 8,966.00 2,592.40 2,144.40 70,059.70 204,806.00
1988 62,442.50 9,190.70 2,631.30 1,692.20 75,956.70 219,875.00
1989 65,564.60 9,374.50 1,992.00 2,489.20 79,420.30 236,729.00
1990 68,416.70 9,562.00 2,149.10 4,216.80 84,344.60 267,550.00
1991 71,495.50 9,409.00 2,213.50 4,385.00 87,503.00 265,379.00
1992 73,640.30 9,493.70 2,264.40 3,947.00 89,345.40 271,365.00
1993 75,775.00 9,550.60 2,309.70 2,960.30 90,595.60 274,833.00
1994 78,049.00 9,646.20 2,369.80 2,767.80 92,832.80 275,450.00
1995 80,702.00 10,051.30 2,421.90 3,004.60 96,219.80 281,407.00
1996 83,761.50 14,342.80 2,434.00 3,677.90 104,216.20 293,745.00
1997 87,363.00 10,601.00 2,455.90 4,093.50 104,513.40 302,022.00
1998 90,770.00 10,887.60 2,485.40 4,670.70 108,813.70 310,890.00
1999 95,526.00 11,192.50 5,517.70 5,333.80 114,570.00 312,183.00
2000 98,392.00 11,449.90 2,555.50 5,547.10 117,944.50 329,178.00
Source: FOS Lagos and CBN Annual Agricultural Survey
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