Project – Effect of Rising Input Costs on Smallholder Farmers’ Profitability: A Case Study of Selected Smallholder Farmers in Benue State.

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Agriculture is an important sector of the Nigerian economy because it contributes to food production, employment, household income, and the supply of raw materials for agro-allied industries. Smallholder farmers play a particularly important role in this sector because they produce a substantial share of the food consumed by households and support agricultural activities in rural communities. Their production decisions, however, are influenced by the availability and cost of farm inputs, access to land, labour, credit, extension services, and markets. Rising input costs can increase the amount of money farmers need to cultivate their land, maintain crops, harvest produce, and transport their output to market. When production costs increase faster than the prices farmers receive for their produce, their profit margins may decline even when they maintain or increase production. The Food and Agriculture Organization (FAO, 2017) emphasises that smallholder farmers’ productivity and economic sustainability depend partly on their access to appropriate inputs, technology, and agricultural support services. In Nigeria, Liverpool-Tasie, Omonona, Sanou, and Ogunleye (2017) found that high fertilizer transportation costs and low marginal productivity significantly reduced the profitability of fertilizer use in maize production. These findings establish the importance of examining how rising agricultural input costs affect the financial performance of smallholder farmers.

Agricultural input costs comprise the expenses incurred in obtaining and using the resources required for crop and livestock production. For crop farmers, these costs may include improved seeds, fertilizers, herbicides, pesticides, hired labour, machinery services, fuel, irrigation, land preparation, harvesting, packaging, and transportation. The relative importance of each input varies according to the crop cultivated, farm size, production method, location, and season. An increase in the price of one input may also increase expenditure on other production activities. For example, higher fuel prices can raise the cost of tractor hiring, transportation of farm inputs, irrigation, and delivery of harvested produce to markets. Similarly, higher wage rates can increase the cost of land preparation, planting, weeding, and harvesting where farmers rely on hired labour. Liverpool-Tasie et al. (2017), in their analysis of fertilizer profitability in Nigeria, demonstrated that profitability depends not simply on the quantity of fertilizer applied but also on its cost, transportation expenses, yield response, and the availability of complementary inputs. This indicates that the effect of rising input costs should be examined as a combined production-cost problem rather than as an isolated increase in the price of fertilizer or any other single input.

Smallholder farmers are particularly vulnerable to rising production costs because many operate with limited financial resources and have restricted access to affordable formal credit. Their capacity to purchase inputs in bulk, store them when prices are favourable, invest in mechanisation, or withstand temporary losses may be limited. Consequently, they may depend on informal borrowing, delayed input purchases, family labour, or reduced input application when production expenses become difficult to manage. Such responses may reduce the quality or quantity of inputs used and subsequently affect crop yields and farm income. Sheahan and Barrett (2017), in their review of agricultural input use in sub-Saharan Africa, explained that smallholder input decisions are shaped by prices, access constraints, risk, and the expected returns from input use. Similarly, Liverpool-Tasie et al. (2017) found that the profitability of fertilizer use in Nigerian maize production depended on the relationship between input costs, productivity, transportation expenses, and complementary production resources. These findings suggest that the financial consequences of rising input costs may extend beyond higher expenditure to include changes in farmers’ production decisions, productivity, and ability to sustain their farming activities.

The profitability of a farming enterprise is determined by the relationship between the revenue generated from agricultural production and the total costs incurred in achieving that revenue. Profitability can be assessed through gross margin, net farm income, returns on investment, and other indicators that compare farm revenue with production expenditure. Rising input costs can reduce profitability when additional expenditure is not matched by a corresponding increase in output, quality, or selling price. Even when farmers obtain higher yields after applying more fertilizer or using improved seeds, the additional revenue may be insufficient to cover the extra expenditure if input prices are too high or market prices for produce are low. Liverpool-Tasie et al. (2017) demonstrated this issue in Nigeria by showing that the profitability of fertilizer use depended on yield response and the prevailing relationship between input and output prices. In Benue State, a 2025 study of yam production in Okpokwu Local Government Area found that gross margin was lower after fuel subsidy removal than before it, with high input and transportation costs identified among the major challenges faced by yam producers. This evidence illustrates how increases in production-related expenses can reduce farm earnings and highlights the need to examine the relationship between rising input costs and smallholder farmers’ profitability.

The agricultural economy of Benue State makes this issue particularly important because farming supports rural livelihoods, food supply, employment, and local trade. Farmers in the state cultivate crops such as yam, maize, rice, soybean, cassava, groundnut, and sesame, with production costs varying according to crop type, farm size, labour requirements, and access to markets. When the costs of fertilizer, seeds, herbicides, hired labour, and transportation rise, farmers may have to reduce their cultivated area, change production methods, or spend a larger share of their earnings on inputs. Adikwu, Ochimana, and Babafemi (2025), in their study of yam production in Okpokwu Local Government Area of Benue State, reported that farmers identified high input costs and transportation expenses as major production challenges. Their analysis also found that the estimated annual gross margin declined from ₦1,538,300 before fuel subsidy removal to ₦737,125.83 afterward. Although these results relate specifically to the yam producers studied, they provide local evidence that changes in production and transportation costs can substantially affect farm profitability.

Rising input costs can also influence farmers’ decisions about the quantity and quality of resources used in production. When improved seeds, fertilizer, pesticides, herbicides, and machinery services become more expensive, smallholder farmers may reduce their application rates or delay purchases until resources become available. Such adjustments can affect crop establishment, weed control, soil fertility, yields, and the quality of harvested produce. The Food and Agriculture Organization (FAO, 2026) reported that high agricultural input prices and rising fuel costs were expected to constrain cereal production in Nigeria, with increases in fertilizer prices likely to reduce application rates and negatively affect yields. Liverpool-Tasie et al. (2017) similarly demonstrated that fertilizer profitability depends on the relationship between fertilizer prices, crop response, transportation costs, and complementary inputs. These findings show that rising input costs may affect profitability through two related channels: direct increases in expenditure and possible reductions in production when farmers cannot afford the inputs required for effective cultivation.

1.2 Statement of the Problem

Smallholder farmers depend on agricultural production for income, food, and household livelihood, yet the costs of obtaining essential farm inputs can place considerable pressure on their earnings. Expenditure on seeds, fertilizers, agrochemicals, labour, machinery, fuel, and transportation may increase the cost of cultivation, leaving farmers with smaller profits when sales revenue does not rise proportionately. This problem is especially important where farmers operate with limited savings and have restricted access to affordable credit. Liverpool-Tasie et al. (2017) found that high transportation costs and low marginal productivity reduced the profitability of fertilizer use for maize production in Nigeria. In Benue State, Adikwu et al. (2025) also reported that high input and transportation costs were major challenges among yam producers in Okpokwu. These findings raise an important question about how rising input costs affect the profitability of selected smallholder farmers in Benue State, particularly across different farm enterprises and production conditions.

A second problem is that increasing production costs may force farmers to make difficult decisions about input use, farm size, and production methods. Farmers who cannot afford recommended quantities of fertilizer, quality seeds, or appropriate crop-protection products may experience reduced yields or lower-quality output. Alternatively, farmers who continue purchasing expensive inputs may incur production expenses that are not fully recovered through sales. Omonona, Liverpool-Tasie, Sanou, and Ogunleye (2019), in their study of fertilizer profitability in Nigerian sorghum production, showed that the profitability of fertilizer use depended on yield response, input prices, and the costs of obtaining and applying fertilizer. Sheahan and Barrett (2017) also highlighted the complex economic and institutional constraints affecting agricultural input use in sub-Saharan Africa. Therefore, the problem is not simply that inputs are becoming expensive; it is also whether the inputs purchased by farmers generate sufficient additional revenue to justify their cost.

Another concern is that input costs do not operate independently of other farm expenses and market conditions. Higher fuel prices can increase the cost of transporting inputs to rural communities, hiring tractors, operating irrigation equipment, and moving harvested produce to buyers. Labour shortages or higher wage rates can further increase expenditure during planting, weeding, and harvesting. At the same time, fluctuating farm-gate prices may prevent farmers from transferring higher production costs to consumers through higher selling prices. Adikwu et al. (2025) found that the gross margin of yam producers in Okpokwu was substantially lower after fuel subsidy removal than before it, while high input and transportation costs were among the leading reported challenges. FAO (2026) also identified rising fuel and fertilizer costs as factors likely to constrain agricultural production in Nigeria. These findings indicate that farmers’ profitability may be affected by several interconnected cost pressures, making it necessary to examine the main input categories and their relationship with farm revenue.

Although previous studies have investigated fertilizer profitability in Nigeria and production costs among farmers in Benue State, further investigation is needed into the effect of rising input costs on the profitability of the selected smallholder farmers covered by this study. Liverpool-Tasie et al. (2017) focused on fertilizer profitability in maize production, Omonona et al. (2019) examined fertilizer use in sorghum production, and Adikwu et al. (2025) investigated changes in the profitability of yam production in Okpokwu following fuel subsidy removal. These studies provide valuable evidence, but the effect of rising input costs may differ according to crop type, farm size, input combinations, access to credit, labour requirements, and the prices received for harvested produce. Without examining these relationships among the selected farmers, it may be difficult to identify which costs place the greatest pressure on profitability or which practical interventions would offer the greatest benefit. This study therefore seeks to assess the effect of rising input costs on smallholder farmers’ profitability in Benue State.

1.3 Aim and Objectives of the Study

The aim of this study is to assess the effect of rising input costs on the profitability of selected smallholder farmers in Benue State.

The specific objectives are to:

1. Identify the major agricultural input costs affecting selected smallholder farmers in Benue State.

2. Examine the effect of rising input costs on the production expenditure and profitability of selected smallholder farmers.

3. Determine the relationship between agricultural input costs, farm revenue, and farmers’ profit margins.

4. Identify the challenges farmers face in managing rising input costs and suggest measures for improving their profitability.

1.4 Research Questions

The following research questions will guide the study:

1. What are the major agricultural input costs affecting selected smallholder farmers in Benue State?

2. How do rising input costs affect the production expenditure and profitability of selected smallholder farmers?

3. What relationship exists between agricultural input costs, farm revenue, and farmers’ profit margins?

4. What challenges do farmers face in managing rising input costs, and what measures could improve their profitability?

1.5 Research Hypothesis

The following null hypothesis will be tested at the 0.05 level of significance:

H₀: There is no statistically significant relationship between agricultural input costs and the profitability of selected smallholder farmers in Benue State.

1.6 Significance of the Study

The findings of this study are expected to benefit smallholder farmers, agricultural extension officers, government agencies, agricultural input suppliers, financial institutions, policymakers, and researchers.

Smallholder farmers: The study may help farmers understand how expenditure on seeds, fertilizers, agrochemicals, labour, machinery, and transportation affects their profit margins. It may also encourage improved budgeting, careful input selection, cooperative purchasing, and better farm cost records.

Agricultural extension officers: The findings may assist extension officers in advising farmers on efficient input application, improved agronomic practices, appropriate crop varieties, and production methods that improve returns from agricultural expenditure.

Government and agricultural policymakers: The study may provide evidence to guide policies on input affordability, agricultural credit, transportation infrastructure, extension services, and support programmes for smallholder farmers in Benue State.

Agricultural input suppliers: The findings may help suppliers understand the cost constraints experienced by farmers and identify opportunities to improve the availability, accessibility, and affordability of quality agricultural inputs.

Financial institutions and agricultural cooperatives: The study may highlight the importance of suitable credit arrangements and collective purchasing in helping farmers manage rising input costs. The findings may also inform the development of financing products suited to seasonal agricultural cash flows.

Researchers and students: The study may contribute to literature on farm economics, agricultural production costs, and smallholder profitability in Nigeria. It may also provide a foundation for future studies comparing different crops, locations, and input-management strategies.

1.7 Scope of the Study

The study focuses on the effect of rising input costs on the profitability of selected smallholder farmers in Benue State, Nigeria. The geographical scope covers the locations from which the selected farmers will be drawn according to the study’s sampling procedure.

The content scope includes the costs of seeds, fertilizers, agrochemicals, hired labour, machinery services, fuel, land preparation, irrigation where applicable, harvesting, and transportation. It also considers farm revenue and profitability indicators, such as gross margin and net farm income, depending on the availability of reliable data.

The study will examine the challenges farmers experience in purchasing and using agricultural inputs and consider possible measures for improving profitability. The findings will relate to the selected farmers and will not automatically represent all smallholder farmers in Benue State.

1.8 Limitations of the Study

The study may face challenges in obtaining complete and accurate records of input expenditure and farm revenue. Some farmers may not maintain written records and may need to estimate past spending on seeds, fertilizer, labour, transportation, and other inputs. Such estimates may be affected by memory errors.

Differences in crop types, farm sizes, production methods, and farming seasons may also complicate comparisons between respondents. In addition, input prices and farm-gate prices may change during the study period, limiting the extent to which findings from one period can be applied to another.

Time and financial constraints may limit the number of farmers and communities included in the study. To minimise these limitations, the researcher will use a consistent data collection instrument, explain questions clearly, and cross-check reported information where supporting records are available. The findings will be interpreted within the limits of the sample and data collected.

1.9 Operational Definition of Terms

Smallholder farmers: Farmers who operate relatively small-scale agricultural holdings and generally rely on household labour, limited capital, and modest production resources.

Agricultural input costs: The expenses incurred in acquiring and using resources required for agricultural production, including seeds, fertilizers, agrochemicals, labour, machinery, fuel, and transportation.

Rising input costs: Increases in the prices or total expenditure associated with the resources required for agricultural production over a specified period.

Profitability: The ability of a farming enterprise to generate returns above its production costs, assessed through measures such as gross margin, net farm income, or return on investment.

Farm revenue: The income generated from the sale of crops or other agricultural products during a specified production period.

Production expenditure: The total cost incurred in carrying out agricultural activities during a specified period or production cycle.

Gross margin: The difference between total farm revenue and the variable costs directly associated with production.

Net farm income: The amount remaining after the relevant production costs, including applicable fixed costs, have been deducted from farm revenue.

Farm inputs: The materials, labour, services, and other resources used in agricultural production.

Selected smallholder farmers: The farmers chosen through the study’s sampling procedure to provide information on input costs and profitability in Benue State.

Project – Effect of Rising Input Costs on Smallholder Farmers’ Profitability: A Case Study of Selected Smallholder Farmers in Benue State.