Global Journal of Management and Business Research Vol. 10 Issue 1 (Ver 1.0), Febuary 2010 Page | 176 Sensitivity and Uncertainty Analysis: Applications to Small-land Scale Agriculture Systems in Nigeria * Ayinde, O. E, Ayinde K; Omotesho O.A. and Muhammad-Lawal. A Department of Agric – Economics and Farm Management University of Ilorin, P.M.B.1515, Ilorin, Nigeria. * E- mail: opeayinde@yahoo.com Abstract- Sensitivity and uncertainty analysis is useful in providing information about local and global change tendency of the management of enterprise mixtures to the choice of target return level. Hence, the study examines the sensitivity and uncertainty analysis in small-land scale agriculture in Nigeria. The study used both primary and secondary data (time series). A structured questionnaire was employed to obtain information from the five hundred (500) randomly selected small-land scale farmers in central part of Nigeria. Descriptive statistics and Target-MOTAD (Minimization of Total Absolute Deviation) model were used to analyze the data. The result reveals the normative plans for the small-land scale agriculture system in Nigeria. The sensitivity analysis reveals that there is a positive relationship between capital and returns and negative relationship exists between risk level and returns in small-land scale agriculture systems. Hence, policies and programmes that increase returns and reduce risk level should be put in place in order to shape the small land scale agriculture system. Keywords- Small-land scale, sensitivity, Nigeria, Target- MOTAD model I INTRODUCTION Nigeria is blessed with various climatic zones, enormous resources and the potentials of producing, processing, marketing and exporting of different output and commodities from agriculture (Babafada 2003). Agriculture is an indispensable real sector in Nigerian economy. The roles of agriculture remain significant in the Nigerian economy despite the strategic importance of the oil sector. Agriculture provides primary means of employment in Nigeria (Ogundari and Ojo, 2007), and accounts for more than one-third of total Gross Domestic Product (GDP) (World Bank, 2003). Nigerian agriculture is characterized by: a multitude of small land scale agriculture systems scattered over wide expanse of land area, with smallholding ranging from 0.05 to 3.0 hectares per farmland, rudimentary farm systems, low capitalization, and low yield per hectare (Ogundari and Ojo, 2007). Nigeria agriculture has for decades depended largely on these small-scale landholders farmers, in spite of the existence of urban agriculture. This set of small land scale holders representing over 90% of the farming populace, cultivate produce as much as 85% of the total agricultural production and 87% of export crops (Adubi, 2000). More so, these small-land scale farmers will continue to constitute the backbone of Nigeria agriculture for the next twenty-five years. Despite the importance of the small- land scale farmers, they still operate largely under risk and uncertainty and are inadequately equipped against risk and uncertainties (Adubi, 2000). Risk and Uncertainty may result from one or a combination of four factors which may be endogenous or exogenous (Anderson, Hardakier and Huirne 1997). These factors include prices or markets, production inputs, farm outputs and institutional factors. Invariably, these result into the different types of risk and uncertainty faced by farmers. Production risk could emanate from the unpredictable nature of the weather and uncertainty about the performance of crops or livestock. Price or market risk comes from imperfect knowledge about prices of farm inputs and outputs at the time that a farmer takes decisions. Financial risk may result from unexpected risk in interest rates on borrowed funds, and the possible lack of availability of loan finance when required. While institutional risks emanate from the instabilities in government and its policies, and socio-legal uncertainty within which the farmer operates. The international environment also creates uncertainties because of unpredictability. For examples, the merging of Eastern and Western Europe definitely had an effect in the world market; so also was the outcome of Europe‘ 92 on commodities. In addition, Globalization has caused the East Asian countries to enjoy remarkable increases in per capita income but sub- Saharan African countries have had effect of low rates of economic performance (LeBel, 2003). And World Trade Organization, although creates free trade, has results into high inequality internationally and within the countries. Given this setting of the small-land scale agriculture in uncertainty, their aforementioned importance and with the expectation that developing countries such as Nigeria is expected to experience increase in economic growth, Nigerian governments have over time tried several strategies and introduced numerous policies and programmes aimed at shaping the Nigeria agriculture production, increasing the level, grade and varieties of their export crops. These policies and programmes include Agricultural Credit Guarantee Scheme, Operation Feed the Nation, Green Revolution, River Basin Development Authorities, National Accelerated Food Production Programme, Guaranteed Minimum Price Scheme, Marketing Board System,