Agricultural credit guarantee scheme fund and oil palm production in Nigeria: A vector autoregressive (VAR) approach

Abstract

Oil palm has been identified as one of the key agricultural products that can diversify Nigeria’s economy. However, its production and export have been hampered by capital constraints. Consequently, the Agricultural Credit Guarantee Scheme Fund (ACGSF) was introduced to encourage lending to farmers and agro-processors to enhance agricultural productivity. Therefore, this study aims to determine the effectiveness of ACGSF allocations to the oil palm production subsector. Time series data on oil palm production, as well as data on ACGSF allocations to oil palm and cash crop production, prime lending rate and commercial banks' loans to agriculture were obtained from FAOSTAT and the Central Bank of Nigeria. Vector autoregression, Granger causality and impulse response functions were used to estimate the short-run relationship. The results reveal that ACGSF allocations to the oil palm subsector and commercial banks’ loans to agriculture have negative and positive effects, respectively, on oil palm production. There was unidirectional causality from ACGSF and commercial banks to agriculture to oil palm production. The findings suggest expansion and close monitoring of the ACGSF scheme, and the intensification and esterification of oil palm production. The study shows that estimating the effect of ACGSF on overall agricultural productivity does not provide deep insight into commodity-specific credit packages.