Agricultural Economics, Extension, Marketing

What you need to know

• Agricultural economics applies economic principles to farming: how to allocate scarce land, labour, capital and management so as to get the greatest return. The four factors of production and their rewards are land earning rent, labour earning wages, capital earning interest and management or entrepreneurship earning profit.
• The law of diminishing returns states that as more and more of a variable input such as fertiliser is added to a fixed input such as a hectare of land, output rises at first, then rises more slowly, and finally falls. This is why doubling the fertiliser rate does not double the yield.
• Opportunity cost is the value of the next best alternative given up when a choice is made. A farmer who uses a hectare for maize gives up the cowpea he could have grown on it, and that forgone cowpea is the real cost of the maize.
• Fixed costs do not change with the level of output in the short run and must be paid even if nothing is produced: land rent, depreciation on tractors and buildings, salaries of permanent staff, insurance and interest on long-term loans. Variable costs change directly with output: seed, fertiliser, agrochemicals, casual labour, fuel, feed, drugs and transport of produce.
• Gross income or total revenue is the quantity sold multiplied by the price. Gross margin is gross income minus total variable cost, and it is the figure Nigerian farm advisers use most because it compares enterprises without arguing about how to share fixed costs. Net farm income is gross margin minus fixed costs.
• Depreciation is the loss in value of a durable asset through wear, age and obsolescence. The straight line method spreads that loss evenly: subtract the salvage value from the purchase cost and divide by the expected useful life in years.
• Farm records are the backbone of farm management: the farm diary of daily operations, the inventory of assets, the production record of yields, the sales and expenditure records, the labour and payroll record, the livestock breeding and health record, the profit and loss account and the balance sheet. They are used to measure profit, compare one enterprise with another, plan next season, support a loan application to the Bank of Agriculture, settle tax and inheritance matters and detect theft and waste. Most Nigerian smallholders keep none, which is why they cannot prove creditworthiness.
• Agricultural finance comes from personal savings, from informal sources such as esusu and ajo thrift contributions, from cooperative societies, from the Bank of Agriculture, from commercial and microfinance banks, from the Central Bank's Anchor Borrowers' Programme, from the Agricultural Credit Guarantee Scheme Fund, and from NIRSAL risk sharing. The obstacles are lack of collateral, high interest rates, absence of records, the long gestation of tree crops and the lender's fear of weather and price risk.
• Marketing covers everything between the farm gate and the consumer: assembling produce from scattered small farms, grading and standardisation, processing, packaging, storage, transportation, financing, risk bearing, market information and selling. The common Nigerian channel runs producer, local assembler or middleman, wholesaler, retailer, consumer. Middlemen are blamed for widening the gap between farm gate and market price, but they also assemble small lots, provide transport, extend credit and bear the risk of loss, services the small farmer cannot provide himself.
• The problems of agricultural marketing in Nigeria are poor rural feeder roads, inadequate storage and processing facilities leading to heavy post-harvest loss, bulkiness and perishability of produce, seasonal price fluctuation with a glut at harvest and scarcity in the lean season, absence of grading and standard measures, too many middlemen, and lack of reliable market price information. Remedies are feeder roads, cooperative marketing, silos and cold stores, rural processing, standard weights and grades, and market information by radio and mobile phone.
• Agricultural extension is the education of farmers outside the classroom, carrying research findings from the institute to the farm and carrying farmers' problems back to the researcher. Its aims are to raise productivity, improve farm income, improve rural living standards and build the farmer's own ability to solve problems.
• Extension teaching methods are individual, such as the farm and home visit, the office call and the telephone call; group, such as the method demonstration, the result demonstration, the field day, the group discussion and the field trip; and mass, such as radio and television programmes, posters, bulletins, newspapers and social media. Group demonstrations are the most effective for a new practice because the farmer sees the result on a real farm.
• The institutions to name are the Agricultural Development Programmes in each state, which are the main extension delivery agency; the National Agricultural Extension and Research Liaison Services at Zaria, which coordinates extension nationally; the International Institute of Tropical Agriculture at Ibadan; the National Horticultural Research Institute at Ibadan; the National Root Crops Research Institute at Umudike; the National Cereals Research Institute at Badeggi; the Cocoa Research Institute of Nigeria at Ibadan; the Nigerian Institute for Oil Palm Research at Benin; the National Animal Production Research Institute at Shika; the National Veterinary Research Institute at Vom; and the Bank of Agriculture for credit.
• Extension in Nigeria is hampered by inadequate funding, a very poor extension agent to farmer ratio, farmer illiteracy, language and cultural barriers, lack of transport for agents, poor rural roads, farmers' conservatism towards new practices, insecurity in rural areas and weak linkage between research institutes and the field.