Examining the Impact of Commercial Banks’ Credit, Government Expenditure, Insecurity, Inflation, and Interest Rate on Food Security in Nigeria: Evidence from Food Production Dynamics
Using annual data from 1981 to 2024 and an ARDL approach, this study finds that while agricultural credit, government spending, and insecurity significantly influence Nigeria's food production, achieving sustainable food security requires coordinated policies that expand affordable financing, improve public expenditure efficiency, and address rural insecurity.
Original paper licensed under CC BY 4.0 (https://creativecommons.org/licenses/by/4.0/). This is an AI-generated explanation of the paper below. It is not written or endorsed by the authors. For technical accuracy, refer to the original paper. Read full disclaimer
Food security is often imagined as a simple matter of having enough crops to eat, but in reality, it is a fragile balance held together by money, policy, safety, and the weather. It is not just about whether a field produces grain, but whether a farmer can afford the seeds to plant it, whether the government builds roads to get that grain to market, and whether the farmer can walk to their field without fear of violence. In Nigeria, a nation with vast agricultural potential, this balance has been tipping dangerously. For decades, the country has struggled to feed its own people, with millions facing hunger not because the land is barren, but because the systems supporting the farmers are broken. The question facing economists and policymakers is not just why food is scarce, but which specific levers—bank loans, government budgets, or the threat of conflict—actually move the needle on how much food is produced.
A team of researchers from Gombe State University set out to untangle this complex web by looking at forty-three years of history, from 1981 to 2024. They did not rely on guesswork or isolated stories; instead, they gathered hard data on five critical factors: the amount of money commercial banks lend to farmers, how much the government spends on agriculture, the level of insecurity in the country, the rate of inflation, and the interest rates charged on loans. Their goal was to see how these forces interact over time to influence the Food Production Index, a standard measure of how much food a country is actually growing. By using a statistical method that can handle data that behaves differently over time, they were able to separate the immediate, short-term shocks from the deep, long-term trends that shape the nation's ability to feed itself.
The study revealed a clear and powerful truth: money matters, but only when it is safe to spend it. The researchers found that when commercial banks provide more credit to the agricultural sector, food production rises significantly. This makes intuitive sense; when farmers have access to loans, they can buy better seeds, fertilizers, and machinery, which directly boosts the harvest. Similarly, when the government spends money on agriculture, it also leads to more food. This spending, which covers things like research, irrigation, and rural roads, builds the foundation that allows farming to thrive. These two factors were the strongest positive drivers of food security in both the short and long run, suggesting that if the flow of cash to farmers is steady and supported by public investment, the country can produce more food.
However, the study also identified a formidable enemy that can undo all these financial gains: insecurity. The researchers found that violence, banditry, and conflict have a devastating and immediate negative impact on food production. When farmers are afraid, they cannot tend their fields, and when roads are unsafe, food cannot be transported to markets. The data showed that insecurity does not just cause a temporary dip; it erodes the capacity to produce food over the long term. In a twist that highlights the interconnectedness of the economy, the study also found that insecurity drives up inflation. When violence disrupts supply chains and destroys crops, the price of food rises, creating a cycle where the lack of safety makes food unaffordable for everyone.
Interestingly, the study found that inflation and high interest rates, while theoretically harmful, did not show a statistically significant long-term impact on food production in the same way that credit and security did. While high interest rates did hurt production in the short term by making borrowing expensive, the farmers and the system seemed to adjust over time. The most striking finding was the speed at which the system corrects itself. The researchers calculated that when food production falls out of balance, about 31 percent of that gap is closed every year as the economy adjusts. This suggests that the system has a natural ability to recover, but only if the underlying conditions—specifically access to finance and safety—are allowed to function.
The path forward, according to the researchers, requires a coordinated effort that goes beyond simple farming advice. It demands that the government and banks work together to ensure that credit is available and affordable, while simultaneously tackling the security crisis that plagues the farming regions. The study concludes that you cannot fix food insecurity by just pouring money into agriculture if the farmers are too afraid to plant, nor can you solve it by improving security if the farmers cannot afford the tools to work. The solution lies in a synchronized approach where financial support, public spending, and physical safety are treated as a single, inseparable package. Only by addressing all these elements at once can Nigeria hope to stabilize its food production and ensure that its people have enough to eat.
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