Project – Access to Agricultural Credit and the Commercialisation of Smallholder Farming: A Study of Cassava Farmers in Ido Local Government Area, Oyo State.

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Agriculture remains a fundamental component of Nigeria’s economy, rural livelihoods and food systems. Beyond its contribution to food production, agriculture provides employment, household income, raw materials for agro-processing industries and a source of livelihood for millions of rural households. In many rural communities, smallholder farmers constitute the dominant group involved in crop production. Their activities are therefore important not only for household welfare but also for local food supply, rural employment and the functioning of agricultural value chains. However, the capacity of smallholder farmers to transform subsistence-oriented production into commercially viable enterprises is strongly influenced by their access to productive resources, particularly finance.

Smallholder farming is generally characterised by relatively small farm holdings, limited capital, dependence on family labour and restricted access to modern production technologies and formal markets. While smallholder farmers may produce substantial quantities of agricultural commodities collectively, individual farmers often face difficulties expanding production because their financial resources are inadequate to purchase improved planting materials, fertilizers, herbicides, farm machinery, hired labour and other inputs. Consequently, agricultural credit becomes an important instrument through which farmers can overcome liquidity constraints and increase the scale and productivity of their farming activities. Research on Nigeria shows that smallholders face both supply-side and demand-side credit constraints, including inadequate collateral, information limitations, transaction costs, risk perceptions and difficulties meeting lending conditions (Abdullah et al., 2022).

Agricultural credit refers broadly to financial resources made available to farmers for agricultural production and related value-chain activities, with the expectation that such funds will be repaid according to agreed conditions. Credit can be obtained from formal sources such as commercial banks, microfinance banks, agricultural finance institutions and government-supported programmes, as well as informal sources such as cooperatives, rotating savings groups, friends, relatives, produce buyers and moneylenders. The importance of agricultural credit is particularly pronounced where farmers must incur production expenditures several months before obtaining revenue from the sale of their crops. Credit can therefore bridge the gap between the timing of production expenses and the timing of agricultural income.

In Nigeria, institutional efforts have long been made to increase agricultural lending. One important mechanism is the Agricultural Credit Guarantee Scheme Fund (ACGSF), established in 1977 and operational from 1978. The scheme was designed to reduce the risks faced by financial institutions when lending to agriculture and thereby encourage greater bank credit to the agricultural sector. Under the scheme, eligible participating institutions include deposit money banks and microfinance banks, while smallholder farmers across the agricultural value chain are among the eligible beneficiaries. The scheme also covers activities connected with crop production and other agricultural value-chain operations (Central Bank of Nigeria [CBN], 2021).

The continuing existence of agricultural credit schemes, however, does not necessarily mean that smallholder farmers have adequate access to credit. Access involves more than the physical existence of a financial institution or loan programme. It includes the farmer’s ability to obtain a loan when needed, the amount available relative to the farmer’s production requirements, affordability of the interest rate, repayment conditions, collateral requirements, transaction costs and the timeliness of disbursement. Thus, a farmer may technically qualify for a credit programme but remain credit constrained if the loan is too small, arrives after the planting period, carries unaffordable conditions or requires collateral that the farmer cannot provide. Evidence from Nigeria confirms that collateral requirements, information problems, transaction costs and risk-related considerations continue to influence smallholder farmers’ access to formal agricultural finance (Abdullah et al., 2022).

The problem of agricultural finance is particularly significant for cassava farmers. Cassava (Manihot esculenta) is one of Nigeria’s major food and industrial crops and is cultivated extensively by smallholder farmers. The crop contributes to household food security and provides raw materials for products such as gari, fufu, high-quality cassava flour, starch and other processed products. Cassava also provides opportunities for employment and income generation through production, processing, transportation and marketing. Because cassava has an established market and several processing possibilities, its production can potentially move beyond subsistence farming toward a more commercially oriented agricultural enterprise.

Commercialisation of smallholder farming involves a shift from production primarily intended for household consumption toward production decisions increasingly influenced by markets, prices, profitability and opportunities for generating cash income. Commercialisation does not necessarily mean that farmers sell all their produce. Rather, it reflects the extent to which agricultural production is integrated into markets. A farmer who produces cassava partly for household consumption and sells a significant proportion of the harvest can be regarded as participating in agricultural commercialisation. Higher levels of commercialisation may involve greater market participation, larger quantities sold, increased production for identified buyers, investment in farm expansion and stronger linkages with processors and traders.

The relationship between agricultural finance and commercialisation is important because commercial agriculture requires capital. A farmer who intends to produce cassava for the market may need to cultivate a larger area, purchase improved planting materials, hire labour, apply fertilizers and herbicides, transport produce to markets and sometimes store produce until favourable market conditions emerge. Where the farmer lacks sufficient capital, production may remain at a low scale, limiting the quantity available for sale and the farmer’s ability to take advantage of market opportunities. Agricultural credit can therefore serve as working capital that enables farmers to increase production, acquire inputs and participate more actively in agricultural markets.

Empirical evidence from Oyo State supports the importance of credit to cassava production and commercialisation. Adenegan (2015), in a study of smallholder cassava farmers in Oyo State, found a high level of cassava commercialisation but identified credit inaccessibility, poor roads, unattractive market prices and transaction bottlenecks among the major constraints to fuller commercialisation. The study also found that factors such as gender, education and farm size were significant determinants of agricultural commercialisation and that commercialisation had implications for household income.

Similarly, Otekunrin et al. (2022) examined the determinants and challenges of agricultural commercialisation among smallholder cassava farmers in Oyo State. Their study of 211 farmers reported that about 83.9% participated in the commercialisation of cassava roots, with a mean Crop Commercialization Index of 53.64%. The researchers identified farm size, age, cassava marketing experience and distance to market among factors influencing commercialisation. Poor rural infrastructure and other constraints were also identified as obstacles to higher levels of market participation.

The relevance of agricultural finance is further demonstrated by studies specifically examining financial services among cassava farmers in Oyo State. Adamu, Adebayo and Oose reported that most cassava farmers who benefited from Bank of Agriculture financial services received assistance through credit facilities and insurance. Their findings suggested that financial services could provide important benefits to cassava farmers and that educational characteristics were associated with perceived benefits from such services (Adamu et al., 2016).

Akinwalere and Uche (2019) also investigated community financing institutions and cassava farmers in Oyo State. Their study included Ido Local Government Area together with Akinyele and Lagelu Local Government Areas and examined the factors affecting access to credit facilities as well as the relationship between community financing programmes and cassava farmers’ income. The inclusion of Ido LGA in that study demonstrates the relevance of local financing institutions to cassava production in the area.

More recent evidence continues to demonstrate the relationship between access to agricultural finance and cassava production in Oyo State. Olagunju et al. (2025) examined cooperative loans and cassava-based farmers in Oyo State and reported that agricultural credit remains an important issue for sustainable cassava production. The study highlights the potential of cooperative financing as a mechanism for improving farmers’ access to production capital.

Even more recent research has provided evidence from a neighbouring Local Government Area in Oyo State. Ismaila, Akanbi and Fakayode (2026) examined microcredit access among cassava farmers in Ona-Ara LGA and found differences in farm size and profitability between credit beneficiaries and non-beneficiaries. The study also identified gaps between the amount of credit farmers requested and the amount actually disbursed, alongside constraints involving transportation, delayed or inadequate loans and high labour costs. This evidence is particularly relevant because it illustrates that the issue is not simply whether farmers have access to credit, but whether the credit obtained is adequate and timely enough to influence production outcomes.

Ido Local Government Area provides an important context for investigating these issues. Ido is located within the Ibadan/Ibarapa agricultural development environment of Oyo State and contains rural communities where crop farming constitutes an important livelihood activity. Cassava is among the crops cultivated in the area. Research conducted specifically among cassava farmers in Ido LGA has examined issues such as the adoption of climate-smart agricultural practices, indicating the continuing importance of cassava farming to the agricultural economy of the area. That study identified credit access, income, farmer-association membership and farming experience among factors associated with farmers’ adoption decisions (2024).

The choice of Ido Local Government Area is therefore significant because the broader Oyo State evidence cannot automatically be assumed to describe the circumstances of cassava farmers in Ido. Farmers within the same state may face different conditions depending on the availability of financial institutions, cooperative organisations, market access, road infrastructure, farm size, land tenure, extension contact, farming experience and relationships with cassava processors and traders. A farmer located closer to a major market or financial institution may have different commercialisation opportunities from one in a remote community. Likewise, differences in collateral ownership, education and membership of farmer organisations may affect the likelihood of obtaining agricultural credit.

Access to agricultural credit may influence cassava commercialisation through several mechanisms. First, credit can enable farmers to increase the area cultivated. Farm expansion increases the potential quantity of cassava produced and consequently the volume available for sale. Second, credit may enable farmers to purchase improved inputs and employ labour, thereby increasing productivity. Third, access to finance can allow farmers to transport produce to more profitable markets instead of selling immediately to local middlemen because of financial pressure. Fourth, credit may facilitate the acquisition of processing or storage equipment, enabling farmers and farmer groups to participate in higher-value segments of the cassava value chain. Finally, reliable financing may encourage farmers to regard cassava production as a commercial enterprise rather than merely a subsistence activity.

However, access to credit can also be complicated by the conditions attached to loans. High interest rates, collateral requirements, short repayment periods, delayed disbursement, bureaucratic procedures and insufficient loan amounts can reduce the usefulness of credit. CBN’s agricultural credit framework recognises the need to reduce the risks associated with agricultural lending through credit guarantees, but farmers still have to satisfy lending and documentation requirements. Therefore, the availability of a formal credit programme does not necessarily guarantee effective access for all smallholder cassava farmers.

The issue is particularly important because cassava production involves substantial labour and input requirements, while revenue is realised only after a relatively lengthy production cycle. If farmers cannot obtain sufficient funds at the appropriate stage of production, they may reduce the area cultivated, use fewer inputs, depend excessively on family labour or sell their crop through channels that provide immediate cash but lower returns. Such circumstances can weaken the commercial potential of cassava farming. Conversely, when farmers have access to affordable and timely credit, they may be better positioned to invest in production, respond to market opportunities and increase the proportion of output marketed.

The wider agricultural development literature also emphasises the importance of investment and functioning food systems. FAO (2023) stresses that agrifood systems generate livelihoods and employment while requiring investment and improved decision-making to achieve sustainable transformation. For smallholder farmers, access to finance is one of the practical mechanisms through which investment in production and market participation can occur.

Against this background, it becomes necessary to examine whether access to agricultural credit actually contributes to the commercialisation of cassava farming at the local level. Although previous studies have examined credit, income, profitability and commercialisation among cassava farmers in Oyo State, relatively limited attention has been directed specifically at the relationship between access to agricultural credit and cassava commercialisation among farmers in Ido Local Government Area. This study therefore focuses on cassava farmers in Ido LGA in order to assess their sources and level of access to agricultural credit, identify the constraints they encounter in obtaining credit, examine their level of cassava commercialisation and determine whether access to agricultural credit is associated with increased commercialisation.

1.2 Statement of the Problem

Smallholder agriculture remains central to rural livelihoods in Nigeria, yet many smallholder farmers continue to operate under serious financial constraints. The production of crops such as cassava requires expenditure on land preparation, planting materials, labour, fertilizers, herbicides, harvesting, transportation and marketing. For farmers with limited savings, meeting these costs from personal resources can restrict the scale and intensity of production. Agricultural credit is expected to address this financing gap by providing farmers with capital for productive investment. Nevertheless, the existence of agricultural financing schemes has not eliminated the problem of credit constraints among Nigerian smallholders.

The Central Bank of Nigeria has established and administered mechanisms such as the Agricultural Credit Guarantee Scheme Fund to encourage lending to agriculture by reducing the risks faced by participating financial institutions. The scheme covers smallholder farmers and agricultural value-chain activities. Yet evidence from national-level research indicates that smallholder farmers continue to experience both supply-side and demand-side credit constraints. Inadequate collateral, information asymmetry, transaction costs, risk perceptions and limited capacity to meet lending requirements can all restrict access to agricultural finance (Abdullah et al., 2022).

For cassava farmers, inadequate access to credit can have direct consequences for production and commercialisation. A farmer who lacks funds may cultivate a smaller farm area than desired, purchase fewer inputs, depend heavily on family labour or postpone essential farm operations. Such limitations can reduce production volume and productivity. Since commercialisation depends partly on the quantity and value of agricultural output sold, inadequate production capital may consequently restrict the farmer’s ability to participate effectively in the market.

The problem extends beyond the mere absence of credit. Even when credit is available, farmers may not obtain an amount sufficient to meet their actual production needs. Loan disbursement may also occur after the appropriate planting or input-purchase period. The conditions attached to credit may further discourage farmers from borrowing. In Nigeria, evidence indicates that farmers’ credit constraints can arise from both lenders and borrowers, meaning that improving the supply of agricultural finance alone may not be sufficient. Farmers’ perceptions of risk, information, transaction costs and ability to meet collateral requirements also influence their participation in rural credit markets (Abdullah et al., 2022).

The commercialisation challenge is also evident in Oyo State. Adenegan (2015) identified credit inaccessibility among the important constraints to fuller cassava commercialisation in the state, alongside poor roads, unattractive prices and transaction bottlenecks. Otekunrin et al. (2022) similarly reported that although a large proportion of cassava farmers participated in commercialisation, several factors and infrastructural constraints affected the extent of their market participation. These findings suggest that market participation among cassava farmers exists, but the capacity to achieve deeper commercialisation may remain constrained.

There is therefore an important practical question concerning the role of agricultural credit in overcoming these limitations. If credit provides farmers with adequate working capital, it should enable them to increase production, acquire improved inputs, cultivate larger areas and improve their capacity to market cassava. However, if the credit available is inadequate, inaccessible, expensive or poorly timed, its contribution to commercialisation may be limited. It is consequently necessary to establish empirically whether farmers who have better access to agricultural credit demonstrate higher levels of cassava commercialisation.

Another concern is that previous studies have often examined Oyo State at a relatively broad geographical level or have concentrated on related outcomes such as income, profitability, adoption or general commercialisation. For instance, Akinwalere and Uche (2019) included Ido LGA in a broader study of community financing institutions and cassava farmers, while Adenegan (2015) and Otekunrin et al. (2022) examined cassava commercialisation across Oyo State. These studies provide useful evidence, but they do not adequately answer the specific question of how agricultural credit access affects cassava commercialisation among farmers in Ido Local Government Area.

The local context matters because farmers in Ido may experience specific institutional, economic and infrastructural conditions that differ from farmers elsewhere in Oyo State. Access to banks and microfinance institutions, farmer cooperatives, extension services, roads, cassava processors, markets and informal credit networks may differ across communities. Socio-economic characteristics such as farm size, education, age, farming experience and membership of farmer organisations may also shape access to credit and the ability to commercialise cassava.

Furthermore, there is a potential mismatch between the availability of agricultural credit policies and the actual experiences of smallholder farmers. Although the ACGSF provides institutional support for agricultural lending, effective access depends on whether farmers know about available schemes, satisfy eligibility requirements, possess acceptable forms of security, receive adequate amounts and obtain the funds when they are most useful. Consequently, an assessment at the farmer level is required to determine the practical accessibility and usefulness of agricultural credit.

The problem addressed by this study, therefore, is the continued difficulty experienced by smallholder cassava farmers in obtaining adequate and suitable agricultural credit and the possible consequences of this difficulty for their participation in commercial cassava farming. Without adequate financing, farmers may remain trapped in low-input, low-scale production, limiting their ability to generate income from cassava and to participate effectively in growing cassava value chains.

It is against this background that this study investigates Access to Agricultural Credit and the Commercialisation of Smallholder Farming: A Study of Cassava Farmers in Ido Local Government Area, Oyo State. The study seeks to determine the extent of farmers’ access to credit, identify major constraints to such access, assess the level of cassava commercialisation and empirically examine the relationship between agricultural credit access and commercialisation among cassava farmers in the study area.

1.3 Aim of the Study

The main aim of this study is to examine the relationship between access to agricultural credit and the commercialisation of smallholder cassava farming in Ido Local Government Area, Oyo State.

1.4 Objectives of the Study

The specific objectives are to:

1. examine the socio-economic characteristics of smallholder cassava farmers in Ido Local Government Area, Oyo State;
2. identify the major sources of agricultural credit available to cassava farmers in the study area;
3. assess the level of access to agricultural credit among cassava farmers in Ido Local Government Area;
4. examine the major constraints affecting cassava farmers’ access to agricultural credit.

1.5 Research Questions

The study will answer the following questions:

1. What are the socio-economic characteristics of smallholder cassava farmers in Ido Local Government Area?
2. What are the major sources of agricultural credit available to cassava farmers in the study area?
3. To what extent do cassava farmers have access to agricultural credit?
4. What are the major constraints affecting cassava farmers’ access to agricultural credit?

1.6 Research Hypothesis

The following null hypothesis will be tested at a 5% level of significance:

H₀: There is no significant relationship between access to agricultural credit and the commercialisation of cassava farming among smallholder farmers in Ido Local Government Area, Oyo State.

1.7 Significance of the Study

The study will be significant to several groups.

Smallholder cassava farmers: The findings will provide evidence on the importance of agricultural credit in supporting production and market participation. Farmers may gain greater understanding of the available sources of agricultural finance and the factors that influence successful access to credit.

Government and policymakers: The findings may assist agricultural policymakers in evaluating whether existing agricultural credit interventions adequately address the financing needs of smallholder cassava farmers. The findings could support improvements in loan accessibility, collateral arrangements, interest conditions, repayment schedules and timely disbursement.

Financial institutions: Commercial banks, microfinance banks and agricultural finance institutions may benefit from information about the difficulties farmers encounter when attempting to access agricultural credit. Understanding these constraints could assist financial institutions in developing products that are more suitable for smallholder farmers.

Cooperative societies and farmer organisations: The study may demonstrate the potential role of collective financing arrangements in improving access to agricultural credit. Farmer organisations could use the findings to strengthen collective savings, credit applications, input procurement and marketing arrangements.

Agricultural extension personnel: Extension workers may use the findings to advise farmers on financial management, loan utilisation, production planning and market-oriented farming. Since credit alone may not produce the desired outcomes without adequate knowledge and management capacity, extension support may complement agricultural financing.

Cassava processors and marketers: Improved commercialisation among farmers could increase the regularity and volume of cassava supplied to processors and traders. The findings may therefore contribute to stronger linkages between producers and other actors in the cassava value chain.

Researchers and students: The study will contribute to the literature on agricultural finance, smallholder commercialisation and cassava production in Nigeria. It will also provide a basis for future studies on agricultural credit, rural finance and value-chain development in Oyo State.

1.8 Scope of the Study

The study focuses on access to agricultural credit and the commercialisation of smallholder cassava farming in Ido Local Government Area of Oyo State.

Geographically, the study is limited to selected communities within Ido Local Government Area. The target population consists of smallholder farmers who cultivate cassava within the study area.

The study will examine farmers’ socio-economic characteristics, sources of agricultural credit, accessibility of credit, amount and adequacy of credit, timeliness of loan disbursement, interest rates, collateral requirements, repayment conditions and other constraints affecting access to agricultural finance.

With respect to commercialisation, the study will focus on the proportion of cassava output sold, quantity produced, quantity marketed, farm size, market participation and related indicators of market-oriented cassava production.

The study does not primarily focus on cassava processors or traders except where their activities are relevant to understanding farmers’ commercialisation opportunities. It also does not attempt to examine every factor influencing agricultural commercialisation; rather, it concentrates specifically on the role of agricultural credit access.

1.9 Operational Definition of Terms

Access to Agricultural Credit: The ability of a farmer to obtain and effectively use financial resources from formal or informal sources for agricultural production and related activities under acceptable conditions.

Agricultural Credit: Financial resources provided to farmers or agricultural enterprises to finance production, processing, transportation, storage, marketing and other agricultural activities, usually subject to agreed repayment conditions.

Cassava: A root crop scientifically known as Manihot esculenta, cultivated by farmers for food, income generation and processing into products such as gari, fufu, starch and cassava flour.

Cassava Commercialisation: The extent to which cassava production is oriented toward the market, reflected particularly in the proportion of cassava output produced and sold for cash income.

Commercialisation: The process through which agricultural production becomes increasingly market-oriented, with farmers producing greater quantities for sale and making production decisions in response to market opportunities.

Smallholder Farmer: A farmer operating on a relatively small scale with limited land, capital and other productive resources compared with medium- and large-scale commercial farmers.

Agricultural Loan: A specified amount of money provided by a financial institution, cooperative or other lending source to a farmer for agricultural purposes, normally subject to repayment within an agreed period.

Credit Constraint: A situation in which a farmer cannot obtain the amount of credit desired or needed because of factors such as inadequate collateral, high interest rates, lack of information, transaction costs, risk, eligibility requirements or limited loan supply.

Credit Source: An institution, organisation, group or individual from which a farmer obtains agricultural finance, including banks, microfinance institutions, cooperatives, government programmes, relatives and informal lenders.

Household Commercialisation: The degree to which a farming household produces agricultural commodities for sale rather than solely for household consumption.

Market Participation: The involvement of a farmer in buying or selling agricultural commodities, particularly the sale of cassava output in local or external markets.

1.10 Organisation of the Study

The study will be organised into five chapters. Chapter One presents the introduction, including the background to the study, statement of the problem, aim and objectives, research questions, hypothesis, significance, scope and operational definitions. Chapter Two will review relevant conceptual, theoretical and empirical literature on agricultural credit, smallholder farming and agricultural commercialisation. Chapter Three will present the methodology, including the research design, study area, population, sampling procedure, data collection instruments, validity and reliability procedures, methods of data collection and techniques of data analysis. Chapter Four will present and analyse the data obtained from the field, while Chapter Five will provide the summary of findings, conclusion and recommendations.

Project – Access to Agricultural Credit and the Commercialisation of Smallholder Farming: A Study of Cassava Farmers in Ido Local Government Area, Oyo State.