Why agriculture is an indispensable business in nigeria

Despite an increase in crop production and international trade following a pandemic-disrupted , global food prices have risen to year highs, increasing pressure on many emerging markets. For many countries across Africa, agriculture remains one of the most important sectors of the economy. Shifting consumption trends have seen domestic rice demand Against a backdrop of increasingly severe and financially straining climate events and natural disasters, technology is poised to play an important role in maintaining and improving global agricultural output.

The adoption of digital and precision farming practices has been shown to improve crop resiliency, and boost productivity and incomes, All 40 Countries. There are also environmental challenges; climate change-changes in temperature, precipitation, sea level, extreme weather conditions, floods, droughts and heat waves which represent major challenges for the small holder farmers operating with primitive technology. Corporate agriculture could pull capital together to afford agricultural technology innovations for large scale fisheries, livestock, fruits, vegetables and grains, as well as value-added agricultural industry.

Corporate agribusiness has many advantages which include economies of scale, extensive research and development, diseases and pest control, efficient processing with high quality produce, efficient sales organization etc. Globally, agriculture is being researched, resourced, developed and financed as a business. Wassily Leontief developed strategies for the industrialization of Florida citrus industry to the benefit of small citrus farmers through the control of distribution and processing.

The benefits were agricultural efficiency, commercialization and economies of scale. Starting with the development of commercial hybrid double-cross seed corn varieties by the public sector in the s, the private sector has assumed an increasing role in genetic improvement and seed reproduction in developed countries [5].

This has had global influence on agribusiness. Taking China as another instance, the rural income distribution in China was worse than Nigeria in the period before when the Chinese Opening Up Policy became effective.

It began to change following the household responsibility system HRS , otherwise known as the privatization of agricultural production in the s. In terms of land mass and favorable weather suitable for corporate agriculture, Nigeria is better endowed than China. From the period of HRS in the s, the resources devoted to agricultural science and technology in China have expanded rapidly till date. Corporate agricultural enterprises in China with government policy support have assisted in transforming the production technology of peasant farmers, lifting millions out of poverty in just a decade [8].

The theoretical framework of this study is anchored on three theories: the Portfolio Theory, the Efficient Market Hypothesis EMH and Cost of Capital Corporate agricultural investment in Nigeria has expected returns measured by the risk involved. Risk is the danger or uncertainty in the midst of opportunity. The opportunity refers to returns or gains or the expected profits.

Contextually, the returns refer to the actual or expected gains from corporate agriculture, measured as:. The pioneering effort in developing this theory is credited to [9] [10]. An investment portfolio is a collection of income-generating assets that have been purchased to meet a financial objective, [11].

The principal objective of the analysis is to identify mispriced stocks. Portfolio theory deals with how risk-averse investors can construct portfolios to optimize or maximize expected returns based on a given level of market risk.

The theory states that rational investors are averse to taking increased risk, unless they are compensated by an adequate increase in expected returns. The theory further states that for any given expected returns, rational investors will prefer a lower level of risk. Where offered the same level of risk, they will prefer an investment with higher expected returns. The portfolio which offers the highest expected returns for a given level of risk is regarded as efficient or optimal portfolio.

It was further propounded by [14] and [15]. EMH is a pillar of modern finance. The theory states that an efficient financial market is one which prices incorporate all available public and private information about an industry or company. Furthermore, the theory emphasizes an efficient financial market that gets capital from the surplus spending unit to the deficit spending unit with profitability but minimized risk.

If the Nigerian economy must have effective demand and supply of capital, and invest optimally, the allocation of capital in the Nigerian Stock Exchange NSE should be done in such a manner that capital gets to those who can make good use of it to generate the highest returns. The potential for highest returns lies not in petroleum or imports, but in the agricultural industry local content. Agro-allied corporate industries with the most promising investment opportunities should have access to the Nigerian stock exchange market.

Agricultural enterprises should be registered and traded in the NSE. They should have access to needed finance to accomplish the federal government vision of agricultural sector transformation and job creation. Nigeria agriculture has potential in providing needed raw materials for smooth industrialization. When funds are channeled to areas of comparative advantage such as agriculture, the market is said to be allocationally efficient as it adjusts to new information.

It is thus a measure of the risk in the asset or the portfolio. The set of information available at the NSE show that corporate agricultural companies are yet to be sufficiently listed at the NSE. The financial cost of capital from the theory of the firm explains that the objective of the firm is to maximize profit in order to maximize the share value and vice versa.

In order to maximize the profits and share value, both transaction cost and the discount rates have to be minimized. The discount rate by definition is the rate at which the financial market is willing to exchange one naira today for one naira in the future, it is the present value of future earnings. This is referred to as interest rate or generally as the cost of capital. There are therefore two types of cost associated with the financing decisions of corporate firms; the cost of raising the finances required from the capital or money market; the interest rate and the transaction costs.

The later include registration fees, the underwriting fees, the issuing house commission and the stock exchange commission. The magnitude of these costs depends on the extent of imperfection and competition in the financial market.

The Nigerian financial market is imperfect and competitive. Consequently, transaction costs are not zero. The size and magnitude of costs are also affected by the large amount of capital required for corporate agriculture [3]. This affects the expected profit from large scale agricultural investment. They could as such, affect the share value of the corporate enterprise.

Since the costs are fixed in proportion, the new firm could do nothing to influence them. It is only the corporate financial policy of the government could adjust the transaction costs for the financial health of the economy. This is part of the monetary policy for macroeconomic stability. The second type of cost is the opportunity cost of capital which is used in discounting future sums to their present value.

It is the cost of forgone alternative investments of capital or the loss of profit associated with forgone alternatives; such as the investor lending such capital to the financial market at a certain interest rate.

The high transaction costs are a concern for the corporate enterprise because they act as impediments, excluding enterprises from raising capital in the capital and money markets.

Similarly, the bigger the discount rate, all things being equal, the smaller will be the net present value of shares, stocks and bonds. This increases the risk of investment in corporate agriculture as new entrants evaluate the uncertainties associated with returns to the enterprise. Government financial policy should favor agriculture in a way that the corporate enterprise can choose a combination of types of capital that have the lowest cost advantages.

In the methodology, we use secondary data. We use descriptive statistics and simple percentages for evaluation. Secondary data from the Nigerian Stock Exchange are collected, sorted, classified and used for the analysis, with extensive literature review.

We undertake an analysis of price per share and returns on 20 most capitalized companies in the Nigerian Stock Exchange. The objective is to measure the number of corporate agricultural enterprises in Nigeria listed among the top 20 in the NSE. The NSE was founded in , classified as an emerging market. It has over listed firms cutting across many industries and a number of trading branches in some Nigerian cities. However, agricultural enterprises are yet to take a center stage among the 20 most capitalized companies.

Agricultural industry is seen as the highest job creator in Nigeria. This analysis covers the mean, standard deviation, variance, and covariance, [18] and [14]. The higher the standard deviation, the riskier the investment, and the higher the expected returns.

The variance is the average squared deviation in the sample, while the sample covariance of 20 most capitalized companies is a measure of association between the Nigeria capital market X and corporate agriculture Y for the period under study. This is presented in Table 1 and Table 2. Table 1 shows the closing price per share for each of these 20 companies. In all 20 most capitalized companies, none is agricultural, especially in the forward linkages.

Let us therefore observe the security returns for these 20 most capitalized companies in Nigeria as at December, , as presented in Table 2. In Table 2 , Security return represents the return on each share incorporating the dividend paid and the capital appreciation or loss during the period. Agricultural industries are hardly listed among these stocks. The table shows that there is variability of returns accruing to capital.

The overall variability in returns show that the selected firms have not made reasonable profits given that the comparative and absolute advantages lie in the agricultural industry yet untapped. Table 1. Closing price per share for 20 most capitalized companies in Nigeria Table 2. Security returns for 20 most capitalized companies in Nigeria as at December, Corporate agricultural industry cannot succeed in accelerating rural development and employment unless it is supported by adequate infrastructural facilities such as good rural roads, electricity, functional banks, water supply, hospitals and communication infrastructure.

Capital Investment is the sacrifice of current consumption for future gains. It is divided into real estate investment in land, housing, machineries, factories, trademarks, patents, technical knowledge etc.

Nigeria has huge potentials of becoming the largest and most profitable agricultural industry in Africa. The opportunities exist in cocoa, rubber, oil palm, cashew, mango, citrus, pear, pineapple, tobacco, cotton, grains, beans and cassava.

Other areas of promising investment in corporate farming in Nigeria are fresh water fish farming, mushroom cultivation, raising poultry and rabbit. All these investments require supportive infrastructure. Corporate agriculture can reduce poverty in two major ways.

Firstly by creating jobs. Secondly, since these agricultural resources are rural-specific, it will create rural infrastructure, reduce rural-urban migration and speed off rural development in Nigeria. Nigeria has huge potentials for expanding foreign exchange earnings from agriculture.

The nature endowments of agricultural resources are renewable and sustainable. Sustainable agriculture is a key to rural development. It is labour-intensive and has the potential of creating jobs for millions of Nigerian youths, thereby promoting economic development and reducing poverty.

However, the innovation and investment needed in the sector are still missing. There are successful indigenous entrepreneurs in cement, sugar, flour, but in corporate farming. Agricultural innovation is driven by competitive market structure, food crisis decline in food quality and quantity , environmental challenges disasters, climate change, drought, and heat , science and technology, political factors and infrastructure. These requirements have sophisticated beyond the reach of subsistence peasant farmers or informal sector operations.

The majority of peasant farmers do not have the capacity to adopt new technology because they are capital-intensive. They also lack collaterals and have difficulties in obtaining loans for large-scale production. It is corporate investment that has the potential for sustainable agricultural development in Nigeria. These investments have a defined process for efficient allocation in terms of initial decision to invest, the types of investment, the amount to be committed to the investment, where and when to invest.

Chapter 2 When Opportunity Meets Strategy. Africa could produce two to three times more cereals and grains, which would add 20 percent more cereals and grains to the current worldwide 2. Ultimately, BCIU was able to use its agility and expertise to represent several different points of view before and during the convening. We helped stimulate ideas and actions for sustainable economic activity and innovative partnerships.

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