Economics Of Farm-Gate Rice Marketing In Enugu State, Nigeria

Project and Seminar Material for Agricultural Engineering AE

Economics Of Farm-Gate Rice Marketing In Enugu State, Nigeria


Abstract


Rice has become a staple food, just like yam, garri and beans. As a result, the marketing of rice has become very important due to increasing demand of the product. The study examined the economics of farm-gate rice marketing in Enugu State, Nigeria. Five objectives and one hypothesis guided the study. The study covered all the communities in the local government areas in the three Agricultural Zones that produce rice in the study area. The population of the study consisted of rice farmers/assemblers, rice wholesalers and retailers. Purposive sampling technique was adopted in drawing the sample. Data for the study were collected from both primary and secondary sources through the use of pre-tested structured questionnaire, oral interview, personal observations, journals, texts and other publications. Data collected were analysed using means, frequencies, percentages, marketing margin, gross margin and profit functions. The major findings were: Majority of the farmers (77.1%) completed at least primary education while all the marketing participants, namely wholesalers and retailers passed through formal education, some up to degree level. The average hectarage cultivated was 2.77ha, while average rice yield was 1.4 tons, with Nsukka Agricultural Zone having the highest yield. Uniform measuring unit was found to be lacking among the farmers and the marketing participants. The marketing margin of the middlemen was found to be 14.3 percent while 85.7 percent was the consumers’ spending that accrued to the producer as his own share of the profit. The gross margin analysis showed that the farmers/assemblers had the highest gross margin of N34,992.9. Output, fertilizer and labour were found to influence profit at significant level of 0.05. They explained 88.3 percent of variation in profit. Out of this, output alone explained 85.7 percent; fertilizer explained 1.8 percent while labour explained 0.8 percent. The Farmers were found to be profiteering at the rational areas of the profit functions. Factors such as low-level productivity, poor market infrastructures, financial constraints were found to be militating against rice enterprise. Some recommendations were made to help improve the productivity of rice enterprise. These include the provision of better storage facilities and improved seeds, establishment of uniform measuring units and provision of adequate machineries as well as maintaining the existing ones, provision of chemical inputs such as fertilizers and herbicides at a subsidized rate, provision of loans and credits to farmers with little or no stringent measures to help them expand their scope of operations. Above all, adequate extension services to our rice farmers on up-to-date scientific rice enterprise should be ensured and the rehabilitations of our rural roads for easy evacuation of farm produce.


Chapter One


Introduction

1.1 Background Information

Consumption is the sole end and purpose of all production and the interest of the producer is to be attended to, only in so far as it may be necessary for promoting that of the consumer (Smith, 1990). Production and marketing are interrelated that any defects in one would readily affect the performance of the other. Every effort should therefore be made to ensure that both farm and industrial products are well distributed to the ultimate consumers (Kohl & Downey, 1972).

The marketing of any commodity is a specialized technique and demands proper organisation. In case of agriculture and particularly rice products, the marketing aspect is even more important and demands a proper organisation, considering the increasing demand of the products (Ikeme, 1990). Efficient marketing system creates and activates new demand by improving and transforming production and by seeking and stimulating customer’s links. It guides farmers to production opportunities and encourages innovation and improvement in response to demand and price (Kohl & Downey, 1972).

Olukosi & Isitor (1990) remarked that it is within the marketing system that price allocation of resources, income distribution and capital formation are determined. Care (2004) described marketing as a machine that directs production along the line most suited to the consumer requirement. Thus, production is limited by the extent of marketing. Where the local markets are too small to absorb the increased output of the farmers and the prospects for moving the local gluts to areas of scarcity are poor, then the producer incentives to production are likely to be dampened. Where the local market with poor absorptive capacity is the only outlet, the farmers will be constrained to make their production decision or plan with the local market in view. Ikisan (2004) highlighted the contributions of agriculture and food marketing towards an attempt to improve rural income in developing countries. According to him, the inequality of income between the rural and urban areas draws people away from agricultural production and places greater stress upon the infrastructure and social services of a country’s towns and cities. According to Crawford (1997), marketing is a leading sector in development. It stimulates and sustains the transition from traditional to marketing oriented economy.

Mame (2006) also asserted that a guaranteed market for farmer’s produce was a ready invitation to produce more. He further stressed that the marketing arrangement in a community must ensure that what was produced was sold or stored. Kohls & Uhl (1972) suggested that products should not even be produced at all unless it has a market. Marketing therefore begins with production on the farm. Hays & McCoy (1978) in their study of grains marketing in northern Nigeria emphasized that an effective agricultural marketing system facilitated optimum allocation of resources in agricultural production and contributed directly to the total product as it increased price, time and form utility.

Rice is the world’s most important staple food crop. More than four-fifths of the world’s rice is produced and consumed by small-scale farmers in low-income and developing countries. More than half of the world’s population relies on rice as their major daily source of calories and protein (FAO, 2003). Rice is the most important and extensively grown food crop in the world (USDA, 2004). In fact rice has become a staple food in Nigeria, just like garri, yams, cassava, millet and probably the most important food grain, permeating states, religion, tribes and cultures (Arene, 1995). It commands a prime position among other cereals grown in Nigeria. Among other grains, it was second to wheat in terms of total world production with 34 million tones recorded in 1975 (FAO, 2002).

Rice is the main source of food energy and an important source of protein providing substantial amounts of the recommended nutrient uptake of zinc and niacin. It is very low in calcium, iron, thiamin and riboflavin and nearly with no beta-carotene (FAO, 2003). The major part of rice consists of carbohydrate in the form of starch, which is about 72-75 percent of the total grain composition. The protein content of rice is around 7 percent. The protein of rice contains glutelin, which is also known as oryzenin. The nutritive value of rice protein (biological value = 80) is much higher than that of wheat (biological value = 60) and maize (biological value = 50) or other cereals. Rice contains most of the minerals mainly located in the pericarp and germ and about 4 percent phosphorus. Rice also contains some enzymes (USDA, 2004).

Table 1: Nutritional Value of Edible Portion of Rice Per 100 Gram

Type of RiceEnergy (Cal)Protein (g)Fat

(g)

Ca

(mg)

Fe

(mg)

Thiamin

(mg)

Riboflavin

(mg)

Niacin

(mg)

Raw (milled)3456.80.5103.10.060.061.9
Parboiled (milled)3466.40.494.00.210.053.8
Flakes3466.61.22020.00.210.054.0
Puffed3257.50.1206.60.210.014.1

Source: USDA (2004)

Over the years, greater percentage of rice output in Nigeria has been from the rural small-holder farmers. It has been observed that Nigeria was virtually self-sufficient in rice enterprise up to the mid 70’s (WARDA, 2004). The self-sufficiency level fluctuated between 96.3 percent and 99.8 percent between 1963 and 1975.

However, since 1976, the level has dropped drastically to 41.46 percent in 1978 following sharp increase in the quantities of rice imported. The major reason for the decline in self-sufficiency is the dramatic increase in aggregate per capital income following the oil boom, urbanization and changes in consumption patterns and the effects of government food importation policy which aimed at increasing the availability of food at reasonable prices under the National Supply Company (WARDA, 1981).

With the ban on importation of rice in 1986, as a structural adjustment measure, Nigerian government both at the state and federal levels stepped up effort to promote the local production and marketing of rice through incentive schemes and programmes (Mbanasor, 1999). These agencies and programmes, such as Nigerian Agricultural Land Development Authority (NALDA) established in 1992, the Community Banks established in 1990, the Rice Production Stabilization Programme (RPSP) of 1988 and the various states’ Grains Boards among others, were introduced to assist in the production, marketing and distribution of rice.

Considering the importance of rice to man and in national development, the Nigerian government as well as individuals have made several attempts to increase commercial rice enterprise but their efforts have been beset with a lot of constraints, such as infrastructural and marketing problems and very high and rising costs of labour and equipment. Thus, a progressive and chronologically receptive marketing system can help promote economic growth since increasing the marketability of rice will stimulate production. So, the ever-increasing demand for rice products makes the marketing of rice a significant area to investigate.


1.2 Statement of the Problem

The demand for rice in Nigeria is growing at a faster rate than domestic supply. The domestic supply is 3 million metric tons per annum, while the demand is 5 million metric tons per annum. This leaves a wide gap of 2 million metric tons which is the highest in Africa (FAO, 2002). In order to make up for the inadequacy in domestic supply of rice, imports have increased steadily accounting for up to 60 percent of the total supply, a situation which has continued to drain the country’s foreign exchange (Momoh, 2007). This has led to increased poverty, declining growth and competitiveness. It has also led to decrease in domestic production of rice and over dependence on rice importation.

Central to the issue of inadequate domestic supply of rice is the problem of efficiency of agricultural marketing system. Inadequate marketing of agricultural produce has been one major problem limiting agricultural expansion (Care, 2004). Rice farmers and domestic traders are constrained by a number of factors such as infrastructural and market facilities, costs of equipment, price differentials and the structure of the market.

Most of our roads, especially the rural roads where these foods are produced are not accessible and communication network is inadequate, making it more expensive for the food to reach the market. Market facilities – such as transportation, already existing market, warehousing – are factors that are likely to influence the efficiency of the marketing system. This is because without a niche market, farmers will not produce crops (Ikisan, 2004). Also, the wide gap between rural and urban prices weakens the farmers’ morale thereby reducing productivity and in some cases stoppage of production (Care, 2004). High rising cost of labour and equipment also constitutes a major hindrance to rice marketing, especially these days that family labour is not readily available.

Most studies on rice dwelt on production. These include the works of Nwoye (1997) and Onoja (2008). Nwoye (1997) worked on the economics of rice production by small-holder farmers in Anambra state, while Onoja (2008) studied the efficiency of rice production under traditional small-scale farmer-managed irrigation schemes and rainfed systems in Kogi state. There are some works in the area of marketing of rice such as the works of Orjiekwe (1995), Ogbuakanne (1998) and Maduchie (2003). The study by Orjiekwe (1995) focused on the prospects and problems of rice marketing without considering the marketing channels as well as the marketing margins; the study by Ogbuakanne (1998) had its main thrust on the difference between the producers and the middlemen margin; while Maduchie (2003) determined only the influence of socio-economic characteristics of the marketers on profitability of rice.

All these works dealt with gross margin of rice marketing without considering the influence of producer and farm input prices on the farmers’ profit. In the light of the above, this study attempts to focus more on producer profit by determining the effects of producer and farm input prices on the profitability of farm-gate rice marketing in Enugu State. This is with a view to identifying the variable factors that influence the profitability of farm-gate rice marketing and drawing implications on farmers’ income and welfare.


1.3 Objectives of the Study

The broad objective of this research is to study the economics of farmgate rice marketing in Enugu State. The specific objectives are to

  1. Examine the existing market structure and marketing channels for rice in the state;
  2. Estimate the profitability of farm-gate, wholesale and retail rice enterprises in the state;
  3. Analyse the factors that affect the profitability of farm-gate rice enterprise in the state;
  4. Identify and describe the problems of the participants in rice marketing activities;
  5. Suggest ways of improving the marketing of rice in Enugu State.

1.4 Research Hypothesis

The null hypothesis that was tested was that profitability of rice marketing at farm-gate level was not affected by producer and farm input prices.


1.5 Justification of the Study

The ever-increasing importance of rice as food crop in Nigeria calls for effort to increase its enterprise. This is more so when improved marketing technologies for rice enterprise are available. Small-holder farmers have been constrained from increasing their enterprise, despite increasing demand for the product. It is important therefore that the practices adopted by the farmers are evaluated and the profitability or otherwise of the rice enterprise as well as its constraints to increasing rice marketing be examined.

The study could hopefully provide clearer insight into the economics of rice marketing and be useful in assisting agricultural policy makers and national development planners in their formulation of national policies especially as it affects rice marketing in the country.

The findings would also be useful to research scholars interested in this or related topics as information and data would be made available to them.


Chapter Five


Summary, Conclusion and Recommendations

5.1 Summary

Enugu State is an agrarian community with majority of the population living in the rural areas and primarily dependent on agriculture for their livelihood. Rice is one of the important staple food in Nigeria and most extensively grown crop in the world (USDA, 2004). As a result of the importance of rice, increasing the productivity and marketability has been a major focus of government efforts. It is hoped that this can be achieved through the repairs of major infrastructure such as roads and market facilities so as to assist farmers in marketing surplus production.

However, it has been observed that locally produced rice is not as readily available as imported rice. This shows that there are likely problems of production and marketability of domestic rice. This has necessitated the research on the Economics of Farm-gate Rice Marketing in Enugu State so as to determine the economic viability of the business as well as its financial rewards.

The study has five objectives and was guided by the following null hypothesis:

Ho: Prices of output, labour, land, fertilizer, pesticides and seeds do not significantly affect profit.

The three agricultural zones in the state were used. All the 14 communities that produce rice in the three zones were used. Five farmers were randomly selected from each of the fourteen communities, giving a total of 70 farmers.

The middlemen were randomly selected from the three main markets in the zones. Ten wholesalers and 10 retailers from one of the main markets in each zone were randomly selected, making a total of 30 wholesalers and 30 retailers.

Structured questionnaires were used to generate data for the study. The data generated were analysed using descriptive statistics, marketing margin, gross margin, and profit function analysis.

The results showed that the educational attainment of the farmers and the marketing participants was high, and family labour was usually employed in running the business. It was also found that rice was not a gender biased business although more males participated in the business. The rice farmers produced different varieties of rice from which their customers made their choice with I416 as the most popular.

The use of chemical inputs such as fertilizers and pesticides was low and this was represented by 34.3 percent and 28.5 percent of the farmers respectively. There was not much borrowed capital for the business as 81.4 percent, 70 percent and 83.3 percent of the farmers, wholesalers, and retailers respectively financed their businesses from personal savings. The average hectarage cultivated was 2.77ha while the average rice yield was 1.44.76kg.

Marketing margin analysis showed that the farmers’ own share of the profit was 90 percent while the wholesalers, village merchant and retailers’ shares were 1.8 percent, 1.4 percent and 6.8 percent respectively.

The gross margin analysis showed that farmers had the highest gross margin of N34,992.9, followed by the retailers who had N11,150; then the wholesalers with N2,799.9, while the village merchants had the least gross margin of N2,060.1.

The F-value of 93.694 was significant at probability level of 0.05. Therefore, the null hypothesis which stated that prices of that output, fertilizer, labour, land, pesticides and seeds do not significantly influence profit was rejected. The analysis showed that the combined effects of the factors accounted for 89.9 percent of the variation in maximum variable profit. Out of this, output price alone explained 85.7 percent, 1.8 percent was explained by fertilizer price while labour price explained 0.08 percent. The remaining variables: prices of land, seed and pesticides jointly explained 1.6 percent of the variation in the profit. Output price (t = 20.201), fertilizer price (t = 3.110), and labour price (t = 2.164) had significant influence on profit.

Rice enterprise was lucrative and contributed significantly to the upkeep of the families engaged in the production and marketing. However, lack of finance was found to be the major problem hindering the enterprise. Other problems included low productivity level and inadequate marketing facilities.


5.2 Conclusion

The rice farmers were found to be producing at subsistence level and the rice traders were also operating at low scale. The profit margin of rice farmers was relatively higher than that of the middlemen. The rice farmers benefited more than the retailers who benefited more than the wholesalers. From the study, it was shown that prices of output, fertilizer and labour have significant effects on profit. Output price alone explained 85.7 percent of the total variation in profit.

Lack of finance, inadequate marketing facilities and low productivity level were found to be the major hindrances limiting the enterprise. Considering the importance of rice in the diet of man, effort should be made by the government and other stakeholders towards the expansion of the enterprise. This could be achieved by subsidizing the costs of inputs, instituting flexible credit policies to farmers and marketers, upgrading rural roads, improving storage and processing facilities and the provision of machineries to those involved in rice enterprise. When the business has been expanded, output will increase with subsequent increase in the profitability of the enterprise.


5.3 Recommendations

Though the study was not exhaustive, it has provided some insights into the economics of farm-gate rice enterprise for both government and other stakeholders, as well as recommendations for future interventions.

1. Food Security:

Some of the farmers interviewed were not selling their produce and quantities sold were small. They complained of low and unstable prices, lack of buyers and fear of family food shortage as some of their reasons for not selling. Government policy and intervention should use food security as a logical departure for future policy and planning. More attention should be paid to improving food security through the provision of better storage facilities and improved seeds.

2. Need for Research and Data Collection:

A lot of difficulties constrained the collection and analysis of agricultural data in the study area where actual measurements were not available. Farmers did not use standard units of measurement and have only arbitrary estimation of the area that they cultivated. The quantity of land farmers cultivated in terms of hectares and land units were not known to them and these vary between different areas. The absence amongst farmers of standard measuring units made it difficult to make accurate estimates of land area. Similarly the units used by farmers to determine yields were not homogenous. Kilograms were rarely used and the units vary from place to place and from farmers to farmers. This made accurate estimation of yield difficult.

There is need to establish standard measuring unit as well as reliable and systematic agricultural collection in order to make accurate estimation of land cultivated and the quantity produced. A similar problem was observed in the marketing sector with the use of non-uniform units that vary significantly. There is need for regular and systematic data collection to determine appropriate marketing policies and interventions.

3. Seed:

Farmers generally used saved seeds from the previous seasons and over time the viability and purity deteriorate. This gave rise to non-uniform grains which mature at different rates. Farmers should be informed on the need to restock their seed supplies in order to retain their viability and quality.

4. Access to Inputs and Alternatives:

Addressing the limited availability of machine and establishing means of maintaining and repairing those in existence should be a priority. Also, machines for which spare parts can be accessed are essential.

There is also the need to provide access to chemicals such as fertilizers and herbicides at acceptable prices for those that choose to use them. The promotion of such chemicals is debatable since majority of the farmers are still at subsistence level. Training in the application of alternatives to chemical such as green manures should be pursued as a more sustainable option. Similarly, alternative means of controlling pests should be explored. There is need to establish irrigation to augment with the often erratic rainwater.

Agricultural and commercial banks should provide adequate loans and credit grants to rice farmers as well as the marketers with little or no stringent measures. This will help to increase their productivity thereby increasing profitability of the enterprise.

5. Improvement in Transportation:

Provision of accessible roads and government assisted transportation system will ensure easy evacuation of the produce as well as reduction in the transportation costs.

6. Storage and Processing Facilities:

Modern silos should be established at strategic places in each of the rice producing local government areas in the state. This would make for better and cheaper storage and also make for continuous availability of the produce. Government assisted modern rice-mills should also be established in the study area. This will compliment the existing commercial plants thereby reducing the processing costs.


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