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ECONOMIC VIABILITY OF OUTGROWER SCHEMES IN NIGERIAN AGRIBUSINESS: A CASE STUDY OF PRIVATE SECTOR INVESTMENTS

Abstract

This thesis examines the economic sustainability of outgrower schemes within Nigeria’s agribusiness sector, emphasizing private sector involvement through a case study methodology. Outgrower schemes, also referred to as contract farming arrangements, establish collaborative relationships between smallholder farmers and agribusiness enterprises, wherein farmers cultivate specified crops or livestock under predefined contractual conditions. These conditions typically encompass input supply, technical assistance, and assured market access. In the Nigerian context, such schemes have emerged as a important mechanism for improving agricultural output, incorporating small-scale producers into formal value chains, and fostering economic diversification in response to diminishing oil-based revenues.

Despite their potential, persistent issues including power asymmetries between contracting parties, fluctuating market conditions, and infrastructural deficiencies raise concerns regarding the long-term feasibility and equitable distribution of benefits among participants. Employing a mixed-methods research design, this study integrates econometric modeling and qualitative fieldwork from private-sector-driven initiatives, focusing on poultry and maize production between 2015 and 2025. The findings indicate that while outgrower schemes contribute substantially to increased farm revenues and the adoption of modern agricultural techniques, their effectiveness hinges on adaptable contractual frameworks, financial accessibility, and policy reinforcement.

Private investment, particularly in poultry and staple crop sectors, yields measurable improvements in household-level food security and operational efficiency, though disparities remain among non-participating farmers. The research highlights the necessity for structured regulatory oversight to promote fairness, advocating for targeted incentives for private stakeholders and enhanced training initiatives for farmers to maximize scheme performance. These insights advance broader policy discussions on sustainable agribusiness frameworks in emerging economies.

Keywords: Outgrower schemes, contract farming, economic viability, private sector investments, Nigerian agribusiness, food security

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Nigeria’s agricultural sector serves as a fundamental pillar of economic development, accounting for roughly a quarter of the nation’s GDP while sustaining livelihoods for more than 70% of the rural workforce. As part of broader economic diversification strategies aimed at reducing reliance on petroleum revenues, private sector engagement in agribusiness has become increasingly prominent. Outgrower schemes exemplify one such collaborative framework, wherein agribusiness enterprises establish contractual relationships with smallholder farmers to cultivate designated crops or livestock. These partnerships typically involve the provision of agricultural inputs—including improved seeds, fertilizers, and extension services in return for guaranteed produce supply at prearranged prices. Such models have been deployed across multiple agricultural value chains such as staple crops (maize, rice) and commercial commodities, with objectives spanning productivity enhancement, import substitution, and rural economic empowerment.

The contemporary implementation of outgrower schemes builds upon historical precedents dating to colonial agricultural projects, though their modern iteration gained substantial momentum through government-backed interventions like the Anchor Borrowers’ Programme (ABP). Instituted by the Central Bank of Nigeria in 2015, the ABP fostered formalized relationships between agricultural producers and processing firms, channeling upwards of one trillion naira in credit facilities by 2023 with considerable private sector involvement. Notably, private capital has been particularly active in poultry value chains, where initiatives such as Akwa Prime and Dayntee Farm have successfully integrated small-scale producers into commercialized production systems. Empirical evidence from Akwa Ibom State illustrates how privately coordinated poultry outgrower operations have contributed to regional protein supply stabilization and measurable increases in producer incomes, underscoring their relevance within economic diversification agendas.

Economic assessments demonstrate that participation in outgrower schemes correlates with measurable improvements in both technological adoption and production efficiency. Research indicates maize growers enrolled in such programs achieve yield premiums approaching 30% relative to independent farmers, attributable principally to facilitated access to hybrid cultivars and mineral fertilizers. Parallel findings in poultry contract farming reveal elevated net profitability among participants, stemming from diminished marketing uncertainties and consistent offtake agreements. That said, performance outcomes exhibit variability contingent upon contractual parameters particularly the distinction between rigid fixed-price structures versus more adaptable semi-fixed frameworks. Private operators frequently opt for flexible terms, thereby granting producers operational latitude while insulating them from volatile commodity price movements.

Nevertheless, structural impediments persist within Nigeria’s agribusiness environment, including climatic instability, logistical deficiencies, and financial inclusion gaps, all of which threaten the enduring viability of outgrower models. Notwithstanding these challenges, private investment inflows into agricultural outgrower initiatives surpassed $500 million in 2024, reflecting growing corporate interest in securing sustainable raw material supply chains. While this capital infusion has ameliorated certain supply-side constraints, it simultaneously invites scrutiny regarding the equitable distribution of economic gains between agribusiness entities and contracted smallholders. This investigation concentrates on privately orchestrated outgrower interventions, employing comparative case analysis from the poultry and maize sectors to evaluate critical viability indicators: investment returns, household income effects, and risk buffering mechanisms.

1.2 Statement of the Problem

While outgrower schemes present a potential mechanism for stimulating growth in Nigeria’s agricultural sector, their long-term economic sustainability continues to be debated. Smallholder farmers frequently encounter exploitative arrangements characterized by inequitable contractual conditions, which contribute to rising indebtedness and diminished negotiating capacity. Particularly in state-supported fixed contract frameworks, producers assume excessive exposure to input cost volatility and production shortfalls, frequently culminating in negative financial outcomes.

The private sector’s involvement, while introducing novel approaches, tends to favor commercial gains at the expense of agricultural households, thereby widening socioeconomic disparities. Food insecurity remains pervasive, with survey data indicating that 35% of non-participants and 18% of enrolled farmers lack consistent access to nutritious diets, revealing systemic deficiencies in program execution. Structural barriers, including restricted financing opportunities and elevated participation expenses, further limit engagement.

Macroeconomic disruptions such as the COVID-19 crisis and currency depreciation have intensified precarity, particularly within the poultry subsector, where earnings declined by 20-30% from 2020 to 2023. Compounding these challenges, inadequate transportation networks and storage infrastructure precipitate post-harvest waste nearing 40% for staple crops. Such persistent bottlenecks threaten the feasibility of private investment models, potentially reinforcing rural impoverishment cycles. This investigation employs case study methodology to critically examine these systemic constraints and identify deficiencies in prevailing operational paradigms.

1.3 Objectives of the Study

The primary objective is to assess the economic viability of outgrower schemes in Nigerian agribusiness, focusing on private sector investments. Specific objectives are:

1. To examine the structure and operational models of private-led outgrower schemes in Nigeria.
2. To evaluate the impact of these schemes on farmer incomes, productivity, and technology adoption.
3. To analyze the role of private sector investments in enhancing scheme sustainability and food security.
4. To identify challenges and propose policy recommendations for improving economic viability.

1.4 Research Questions

1. What are the key features of private sector-led outgrower schemes in Nigerian agribusiness?
2. How do outgrower schemes influence farmer incomes and productivity?
3. In what ways do private investments contribute to the sustainability of these schemes?
4. What are the main challenges to economic viability, and how can they be addressed?

1.5 Research Hypotheses

H0: Participation in outgrower schemes has no significant positive impact on farmer incomes in Nigerian agribusiness.

H1: Participation in outgrower schemes has a significant positive impact on farmer incomes in Nigerian agribusiness.

H0: Private sector investments do not enhance the economic viability of outgrower schemes.

H1: Private sector investments enhance the economic viability of outgrower schemes.

1.6 Significance of the Study

This research holds significant implications across multiple domains. For policymakers, it supplies empirical data to enhance outgrower program structures and stimulate increased private sector engagement. Agribusiness enterprises may utilize the findings to improve contractual arrangements in ways that generate reciprocal advantages. The study contributes theoretically by expanding the scholarly discourse on African agricultural contracting systems, while its applied dimensions provide actionable guidance for small-scale farmers regarding effective engagement approaches. At a macroeconomic level, the research aligns with Nigeria’s broader objectives of economic restructuring and advancement toward Sustainable Development Goal 2 pertaining to food security.

1.7 Scope of the Study

This study examines private sector-led outgrower schemes in Nigeria during the period spanning 2015 to 2025, with a particular focus on poultry and maize production sectors. The research draws on case studies conducted in selected states, including Osun and Akwa Ibom, as well as broader Southwestern regions. Data sources comprise secondary materials such as academic journals and industry reports, supplemented by primary survey data where relevant.

1.8 Limitations of the Study

The research encounters potential constraints related to data availability, particularly concerning proprietary information held by private sector entities. Additionally, macroeconomic policy shifts may introduce external variability, though analytical rigor is maintained through econometric modeling. While the case study methodology offers detailed contextual understanding, its applicability to all outgrower schemes may be limited, reflecting the inherent trade-off between depth and generalizability.

1.9 Definition of Terms

• Outgrower Schemes: Contractual arrangements where smallholders produce for a central buyer with provided inputs and support.
• Economic Viability: The ability of schemes to generate sustainable profits and benefits for all stakeholders over time.
• Private Sector Investments: Funding and resources from non-governmental entities in agribusiness ventures.

References

Omodara, O. D., Oluwasola, O., & Oyebanji, A. T. (2025). Modelling contract farming impact on poultry farm income: Lessons from the Nigerian Anchor-Borrower Outgrowers’ Programme. Journal of Agriculture and Environment for International Development (JAEID), 119(1), 85–100. https://doi.org/10.36253/jaeid-15968

Omodara, O. D., Oyebanji, A. T., & Oluwasola, O. (2023). Improving food security of farming households in Nigeria: Does broiler outgrowers’ program make any difference? PLoS ONE, 18(9), Article e0291611. https://doi.org/10.1371/journal.pone.0291611

Umeh, O. J., & Odoemelam, L. E. (2025). Agriculture in Nigeria’s economic diversification process: A study of a poultry outgrower scheme. International Journal of Food System Dynamics, 16(2), 130-144. https://doi.org/10.18461/ijfsd.v16i2.M4

Omodara, O. D., Oluwasola, O., & Oyebanji, A. T. (2024). Do outgrower schemes enhance technology adoption and productivity? Evidence from maize farmers in Nigeria. Agribusiness, 40(3), 567-589. https://doi.org/10.1002/agr.21967

Abegunde, B. O., & Oluwatayo, I. B. (2023). Effectiveness of outgrower scheme among cassava farmers in Nigeria: A case study of Owerri Agricultural Zone. Asian Journal of Agricultural Extension, Economics & Sociology, 41(5), 1-12. https://journalajaees.com/index.php/AJAEES/article/view/1492