CHAPTER ONE
INTRODUCTION
1.1             Background of  the Study
The significance of agriculture in bringing about economic growth and development of a nation cannot be underestimated, the reason why a nation possesses sustainable food security, is because it  produces enough food to feed her citizens and even export these goods to other needy countries thereby generating foreign exchange which in turn increases the national income in the long-run. The agricultural sector serves all other sectors in the economy especially the industrial sector. The problem facing the Nigerian agricultural economy is inadequate capital and credit for start-up, investment and expansion. Monetary policy through its influence on the financial sector of the economy  plays a major role in making credit available to the agricultural sector.
Monetary policy refers to the combination of measures designed to regulate the value, supply and cost of money in an economy. It can be described as the art of controlling the direction and movement of credit facilities in pursuance of stable price and economy growth in an economy (CBN, 1992). Monetary policy in the Nigerian context refers to the actions of the Central Bank of Nigeria to regulate the money supply which could be through discretional monetary policy instruments such as the open market operation (OMO), discount rate, reserve requirement, moral suasion, direct control of banking system credit, and direct regulation of interest rate (Iyoha, 2002).
 The Central Bank of Nigeria (CBN) derives its mandate from the CBN Act of 1958. Section one of the CBN Decree No. 24 of 1991, stipulates that the principal objects of the Bank shall be to issue legal tender currency in Nigeria; maintain external reserves to safeguard the international value of the legal tender currency, promote monetary stability and a sound financial system in Nigeria, and act as banker and financial adviser to the Federal Government (CBN, 2006). Therefore the central bank is the principal monetary authority.
Agriculture in the context of the economy is tied with the various sectors and is essential for generating broad based growth necessary for development. Agriculture is fundamental to the sustenance of life and is the bedrock of economic development, especially in the provision of adequate and nutritious food vital for human development, the sector is a catalyst and major source of raw materials for the industrial sector and provides most of the staple food consumed by the 120 million Nigerians. Although developments in the oil sector have dominated Nigeria's economic scene since the mid-1970s, the country remains basically agricultural. More than 70 percent of its population depends on agriculture, which contributes roughly 25 percent of GDP and 60 percent of non-oil exports.
Monetary policy facilitates the establishment of agricultural businesses through availability of credit and finance for start-up, investments, and expansion. The CBN controls the availability of credit through monetary policy instruments. These instruments affect agricultural output through agricultural banks and other financial institutions. Therefore, in our study of agricultural output monetary policy is a very important factor.