1 1.

2 Problem Statement Small scale farmers belong to the poorest segment of Nigerias population and therefore cannot make meaningful investment in farming (Asogwa, Umeh and Ater, 2007). Onuk, Ibrahim, Bello and Patrick (2009) maintained that incidences of poverty and poor agricultural production are closely interwoven. Lack income and poverty among small scale farmers are consequences of lack of adequate finance. According to Oyeyinka, Arowolo and Ayinde (2012), lack of capital inhibits the purchase of improved seeds and agrochemicals as well as constrains the acquisition of appropriate production technologies for enhanced productivity. Furthermore, small scale farmers do not have reliable access to formal financial services. For instance, it has been noted that the vast majority of rural small scale farmers still do not have reliable and secure ways to save money, build and protect assets, accumulate capital, or transfer funds. In fact, the most basic formal financial services reach only ten per cent of rural communities (Nwokaby, 2004). According to Sahu (2004), this lack of credit or capital limits farm firms liquidity and hence, productivity and also frustrates the move towards commercial agriculture, self-sufficiency in food production and industrialization. Poor access to formal financial services is due to inherent difficulties associated with such characteristics as low population density in rural areas where farmers reside, isolated markets, seasonality of products, and highly covariant risk such as widespread crop failures, commodity price fluctuations, and high post harvest losses (Igbeka, 1992; Yaron, 2004). Lack of adequate infrastructure in rural areas often dissuades profit-oriented formal financial institutions from entering this market, thereby affecting the profitability of agricultural production (IFAD, 2009). Coupled with inadequate policies to attract formal financial intermediaries (Akintoye, 2008), small scale farmers have become vulnerable to money lenders known for cut-throat loan terms. Following the inefficiency and unreliability of formal financial intermediaries (Ajayi and Ojo, 1981; Fischer, 1994; Folawewo and Osinubi, 2006; IFPRI, 2007; Ogunmuyiwa and Ekone, 2010), some farmers have resorted to farm diversification by sourcing for finance from off-farm enterprises (Handler, 1997; Heidhues, Davis and Schrieder, 1998; Adams, 2001; Reardon, Berdegue and Escobar, 2001; Jhingan, 2003). However, the participation of farmers in off-farm

2 income generating activities leads to tradeoff in time and labour utilisation. Mishra and Holthausen (2002) and Loening, Rijkers and Soderbom (2008) observed that off-farm activities constitute diversion of critical productive resources. The consequences include reduction in specialization and efficiency in farm production (Bojnec and Ferto, 2011). In addition to these problems, there is dearth of literature on the effects, opportunities and constraints inherent in the off-farm sector of the rural economy in relation to farm firm capital accumulation in Africa and Nigeria. Loening et al. (2008) affirmed that available evidence on off-farm enterprises in sub-Saharan Africa is fragmented and sparse. Ibekwe et al. (2010) admitted that very little is known about the role off-farm activities play in the income generation strategies of farm households in Nigeria as well as their contribution to farm capital. Information asymmetry with respect to off-farm income is prevalent in rural areas. This is a pointer to the relevance of human capital as critical determinants of the successful combination of farm with off-farm income enterprises (Kurosaki, 2001). According to Harris, Blank, Erickson and Hallahan (2010), human capital (or socioeconomic characteristics) are implicated in off-farm income and investment in farm assets, thereby necessitating in-depth investigation. Some studies have been done on off-farm activities, income and wage variability. Examples include those of Ahituv and Kimhi (2006) that examined the role of heterogeneity and state dependence of off-farm work and capital accumulation decisions of farmers over the lifecycle; Babcock et al. (2009) which evaluated the relationship between agricultural profits and farm household wealth; Briggeman (2011) that assessed the importance of off-farm income to servicing farm debt in Kansas City; Davis (2003) that analysed rural non-farm economy, livelihoods and their diversification; Ji, Zhong and Yu (2011) that evaluated machinery investment decision and off-farm employment in rural China; Mishra and Holthausen (2002) that determined the effect of farm income and off-farm wage variability on off-farm labour supply in India; and Adams (2001) that assessed non-farm income, inequality and poverty in Egypt and Jordan. Others are those of Harris, Blank, Erickson and Hallahan (2010) which examined the double-hurdle approach to off-farm income and investment in farm assets; Bojnec and Ferto (2011) which determined the impact of off-farm income on farm efficiency; Kwon, Orazem and

3 Otto (2006) which examined off-farm labour supply responses to permanent and transitory farm income; and Kurosaki (2001) which determined the effects of human capital on non-farm productivity in rural Pakistan. In Nigeria, Babatunde (2008) has examined the composition and determinants of income portfolios in rural areas of Kwara State. Ibekwe et al. (2010) analysed the determinants of nonfarm income among farm households in Imo State; and Babatunde, Olagunju, Fakayode and Adejobi (2010) analysed the determinants of participation in off-farm employment among small holder farming households in Kwara State. None of these studies was carried out in Benue State. Besides, there is no evidence of causal relationship between off-farm income and farm-firm growth through capital accumulation. Furthermore, the studies cited above did not relate off-farm income to farm capital accumulation. In addition, those studies on diversification strategies or risk minimizing strategies focusing on major type of farm and major crops have not been done in the study area. More so, none of these studies used non-participants in off-farm activities as control for examining the effect of off-farm enterprises. Finally, studies in off-farm enterprises have not been linked with the financial ratios of farm firms. Although, tradeoff has been suspected in off-farm engagement, the effect of the tradeoff on cost efficiency components (technical efficiency, cost efficiency, and profit efficiency) of farm financial management has not been determined. These are the research gaps that this study is designed to fill, so as to provide empirical information for the formulation of policies that will forestall the emerging dual farm structure from adversely affecting food crop production. Hence, the study will address the following research questions: 1. How do socioeconomic characteristics of farmers relate to farm and off-farm activities and tradeoff between the two sectors? 2. What are the characteristics, opportunities and constraints of off-farm enterprises in relation to various farming systems? 3. What are the factors that influence enterprise diversification and risk aversion among small scale farmers? 4. Does the farm income of participants in off-farm activities differ from that of nonparticipants?

4 5. What are the various farm capital sources available to farmers in relation to off-farm engagement? 6. How does off-income affect farm capital accumulation among small scale farmers in the study area? 7. What is the opportunity cost of off-farm involvement, the proportion of household income that comes from off-farm enterprises and the direction of causality between offfarm and household and farm income? 8. What are the turnover and leverage ratios of farmers who engage in off-farm activities and those who do not? 9. What is the level of performance of farmers in terms of cost efficiency components of farm financial management? and 10. How do off-farm activities affect poverty reduction among farmers in the study area?