The Roles Of Middlemen In The Marketing Of Paddy Rice

Project and Seminar Material for Agricultural Economics and Extension

The Roles Of Middlemen In The Marketing Of Paddy Rice


Abstract


The study assessed the role of middlemen in the marketing of paddy rice in Kwande Local Government Area of Benue state. Simple random technique was used to select respondents. 140 copies of questionnaire were administered with the aim of reaching out to 70 rice farmers and 70 middlemen in the four major markets of study area. Frequency distribution, percentage, ranking, mean, the matrices correlation and the student t-test were used to analyze the data collected.

The studies revealed that majority (66.4%) of the respondents were male whose major occupation was farming. 78.6% of the respondents had formal education (Primary, Secondary and Tertiary. Their major source of capital for rice production and marketing was through personal saving and informal sources of credit. Majority (60.0%) of the middlemen determined the time of sales, they (middlemen) also determined market price of rice through haggling and haggling (Bargaining). Majority 84.3% of middlemen determined storage place for paddy rice in the area as personal house they also formed market associations to problems of rice marketing in the area.

It was also revealed that, rice production in the area was on a small scale with 67.2% of farmers cultivating less than 21bags of rice per season. The t-cal of 5.337> t-tab of 1.96 at (p<0.05) revealed that, there was a significant difference between the profit generated per annum by farmers and middlemen, the correlation test also revealed that, there was a significant relationship between the price of 100kg bag of rice in the four major markets in the study area at 5% and 1%level of significance.


Chapter One


Introduction

1.1 Background of the Study

Rice is the seed of a monocot plant, Oryza sativa. It belongs to the family Poaceae; as a cereal grain, it is the most important staple food for a larger part of the world’s human population especially in Asia, the Middle East, Latin America, West Indies and Africa. It is one of the world’s three most produced grains along with wheat and maize (corn) (Chandler, 1979; Erebor, 1998 and Eleanor,1975).

The Nigerian rice sector has a lot of potentials for increased rice productivity as the country is blessed with abundant rice growing environment. However, WARDA (2004) noted that rice policy in Nigeria is characterized by inconsistency shifting, between open and protectionist trade policy and such changes hinder the ability of stakeholders to develop long term strategies for the growth of the sector. FAO (2004) identified rice as a very important primary food source and this is drawn from the understanding that rice–based systems are essential for food security, poverty alleviation and improved livelihoods by enhancing the socio- economic profile/status of the farmer.

Rice is grown in paddies or on upland fields depending on the requirements of the particular variety, there is also limited mangrove cultivation. Upland rice production is practiced on different ecologies by majority of farmers due to it less tedious operation. Upland contributes substantially less the total rice output in relation to its share in total area, but still accounts for an important means of rice production (WARDA 2003 et al., and Oyewole et al., 2010). In Nigeria, out of 4.6 million hectares available for rice production, only 1.7 million hectares are put to rice cultivation, despite that its production is labour intensive and labour represents major production costs (Nwachukwu et al., 2008). Rice is produced in the middle belt, south east and some far northern states of Nigeria (Audu, 2008).
According to Esonu, (2009), food security implies having physical and economic access to food that is adequate in terms of quality, quantity and safety. Food security can be described as ―when all people at all times have physical and economic access to sufficient food to meet their dietary need for productive and healthy life (USAID, 1995) Hence, food security does not mean makingfood available alone, it is the guarantee of making the healthy and nutrient food available and accessible for all the needy people at local level and at affordable prices. Food security undoubtedly is a broad and complex concept that is determined by agro-ecological, agro-physical, socio-economic and biological factors (Campbell, 1991; Von Braun et al, 1992).

The majority of the poor in developing countries depend on agriculture for their livelihoods. Moreover, high and volatile food prices can have severe negative consequences for the welfare of the poor. Improving the efficiency of agricultural markets is therefore a priority. Agricultural supply chains are often dominated by middlemen with substantial market power. Their high margins distort the market by driving a wedge between the price paid to farmers and by final consumers. One source of market power lies in the fact that middlemen are better informed about market conditions, especially the prices further down the supply chain. This raises the possibility that better access to market information can increase the prices that farmers receive from middlemen, thereby increasing their income and helping them to make better production decisions.

The middlemen for their high profit margin dictate the prices of these food items especially in the urban areas where there is a large pool of well to do who can easily afford the prices. By the time a portion of their goods are sold at the dictated prices, they have recovered their principals and adequate profits. They still insist on the prices until spoilage sets in and the items rot and are thrown away. They are not bothered at this loss because they have enough profits already to enable them go back to the market. Those who cannot afford these prices are denied the food items and enormous resources are therefore wasted. Food is therefore not utilized (Asiabaka, 2010).

The degree of involvement of middlemen in the trade channel is usually, implicitly or explicitly, explained by a functional argument. In other words, the role of middlemen is determined by their economic value for sellers and buyers. In the pre-industrial era the circumstances for involvement of middlemen in (international) trade were very favourable: industry was widely dispersed, the means of communication and transport were poor, and both production and transport were of a seasonal nature. Consequently, the middlemen prospered (Driel, 2003) in the supply chain.

The tasks performed by middlemen to fulfill their functions are manifold and can be described in different ways. Four dimensions of conditions of supply and demand are distinguished which include, place, time, quantity, and quality. If there are large gaps between these conditions, uncertainty for buyers and sellers is relatively high. Middlemen are particularly suited to reduce this uncertainty by bridging the gaps in the supply chain (Rao, 2008). It has been observed that stability in food availability is not always guaranteed and as a result of this uncertainty, the possibility of realizing economies of scale is crucial for buyers and sellers in deciding for or against direct trade. In certain circumstances, middlemen are able to reach economies of scale which buyers and sellers cannot create themselves. These economies of scale refer to the process of distribution.

According to Onu and Okunmadewa (2001), market performance includes the relative efficiency of production (that is, price relative to the average cost of production).

However, there seems to exist a gap in knowledge of the role of middlemen role on the marketing of paddy rice in Kwande L.g.a, Benue state which has been also declining the income level of the farmers. Both Okoruwa and Ogundele (2008) have noted that rice farmers in Benue State are not getting maximum returns from the resources committed into their enterprises; leading to a decline in per capital food production. This situation manifests in low output per area which no doubt lead to low profitability. This study therefore aims at examining the role of middlemen role on the marketing of paddy rice in Kwande L.g.a, Benue state.


1.2 Statement of the Problem

Farmers in their need to meet up with demand of consumers, they go ahead to borrow money or even loan money from banks, this they do year in year out achieving little or nothing. This leads us to the area of paddy rice investment as the farmers are part holders of the business, they are in form of managers over the farm business while the main players are the investors who put in large sum of money into the business expecting profit. In any ways there is always expected returns over investment made in any portfolio; taking the paddy rice farming as an agribusiness portfolio of an investor who finances two to three farmers managing 30 hectares of arable farmland each of who are in charge of 10 hectares with his own co-laborers. The issue of middlemen standing between the farmers(producers) and the consumers will go a long way to create increase or decrease profit of the entire production.

Paddy rice farming in Nigeria has experienced a whole lot of improvement over the years and will continue to improve if there are no hinges hindering its production, processing, storage and marketing. Farmers encounter high production costs in their efforts to boost production but hardly get fair pricing of their products from the middlemen, the bulk farm gate buyers. The real profit goes to the middlemen who buy up the farm products at almost give away prices and sell at outrageous prices to the consumers. This attitude of middle men has discouraged genuine investors getting into agriculture because of the marginal profit associated with it as the middle men cart away the bulk of the profits (Oguoma, Nkwocha, and Ibeawuchi et al,2010).

Paddy rice experiences various transformation as it goes on from one stage to another, thus there must be proper monitoring in other to observe the increased prices or better say price changes along these processes. In some areas of Kwande in Nigeria, the farmers are involved in the planting of these crops, caring for them until they are harvested, then the paddy rice traders come and buys them on the farm land. To explain the involvement of middlemen by means of their function is a complicated matter because they fulfill different needs at the same time (Campbell, 1991).


1.3 Objective of the Study

The overall objective of this study is to determine the role of middlemen role on the marketing of paddy rice in Kwande L.g.a, Benue state, Nigeria.

The specific objectives of this paper are to:

  1. Examine the socio-economic characteristics of the paddy rice marketers in the studyarea.
  2. Identify the marketing channels adopted by the middlemen in the studyarea.
  3. Ascertain the participation of middlemen in the paddy rice trade and their activities in the marketing of paddy rice.
  4. Ascertain the cost and returns of paddy rice marketers in the study area.
  5. Analyze the relationship between middlemen role and performance of paddy rice marketers in the study area.

1.4 Research Questions

  1. What are the socio-economic characteristics of the paddy rice marketers in the study area?
  2. What are the marketing channels adopted by the middlemen in the study area?
  3. What is the participation of middlemen in the paddy rice trade and their activities in the marketing of paddy rice?
  4. What is the cost and returns of paddy rice marketers in the study area?
  5. What is the relationship between middlemen role and performance of paddy rice marketers in the study area?

1.5 Research Hypothesis

  • H1 = there is no significant relationship socio-economic characteristics of paddy rice marketers and their performance.
  • H2 = there is no significant relationship between change in price caused by the middlemen role and performance of the paddy rice marketers.

1.6 Scope of Study

Majority of the poor in Nigeria live in the rural area and derive their income primarily from agriculture (World Bank, 1996). Agriculture is the predominant occupation of the population in the state and is therefore the major source of their income. The study is to be conducted in Kwande local Government Area, in Benue State, Nigeria.

This study will focus on the role of middlemen role on the marketing of paddy rice. The locality Kwande which is known for the practice of paddy rice farming will be covered by the research using well-structured questionnaires which will be distributed among relevant entrepreneurs such as farmers and traders.


1.7 Significance of the Study

The research work will assist in the understanding of why price of rice increases from the farm gate before it gets to the consumers, the place of the middlemen in the supply chain of paddy rice and how they affect the performance of the paddy rice marketers.

It is believed that the results of this research will assist stakeholders in the decision-making process regarding how to channel their goods to the consumers, make profit from their production.


Chapter Five


Summary, Conclusion and Policy Recommendations

5.1 Summary of Findings

This study seeks to evaluate the role of middlemen roles on the marketing of paddy rice in Kwande L.G.A of Benue State, Nigeria. The specific objectives of the study include examining the socio-economic characteristics of rice marketers, identify the marketing channels adopted by the middlemen, ascertain the participation of middlemen in the paddy rice trade and their activities in the marketing of paddy rice, ascertain the cost and returns of paddy rice marketers, analyze the relationship between middlemen role and performance of paddy rice marketers and analyze the factors affecting the marketing of paddy rice in the study area. The descriptive statistics, schematic figures, cost and returns analysis and simple linear regression analysis were used to analyze the objectives.

Result from the socio economic characteristics of the sampled respondents’ shows that the male rice farmers constituted 67.5% of the sampled population; while 32.5% comprises of the female paddy rice marketers. The mean age of the paddy rice farmers was 43 years. The marital status shows that 84.2% of the rice traders were married, 11.7% were single and 4.2% of the sampled population indicated otherwise.

The main four channels are wholesalers and millers (73.3%), rural assemblers (12.5%), urban assemblers (10.83%) and consumers (3.3%) respectively.

Study showed that 5.83% were rice millers amongst the team of respondents, rice wholesalers represented 12.5% of the population, closely followed were the rice assemblers contributing to 10% of the population, then the retailers who were up to 20.83% of the entire population studied and lastly the producers themselves contributed the highest population of about 63 persons (50.83%).

Gross margin analysis (cost and returns) of the paddy rice marketers in Kwande L.g.a, of Benue state revealed that the total variable cost was ₦1,184,250 while total fixed cost was ₦13,516,400. Meanwhile total revenue and profit were ₦82,387,500 and ₦67,686,850.0 respectively; therefore, this is a sure sign that the rice business outfit in question is profitable enough to keep the farmer owner in further production.

The significant variables influencing the performance of local entrepreneurs in the study area was marital status, farming experience, household size, age, cost of transportation, marketing cost, farm gate price, distance to market and sales volume.

The marital status of the respondents was positive and statistically significant at 1% level; with a coefficient of 10697.193. This implies that a unit increase in the marital status of the respondents will result in 10697.193 rise in the marketing of paddy rice in the study area.

Cost of transportation was negative and statistically significant at 5% level; with a coefficient of 21.861. This indicates that a unit increase in the cost of transportation will lead to 21.861 decrease in the performance of the paddy rice marketers as the increase in the cost of transportation will lead to an increase in variable cost of production which will affect the net revenue.

Distance to market on the other hand had a positive relationship with the net income at 1% significance with a coefficient of 175.912. This is contrary to the thought that increase in distance to market will bring about a decrease in net profit, but the study reveals that as the distance to market increases, the marketing channels and middlemen create a form of absorption of cost and thus they take care of the increasing cost of marketing. This indicates that a 1unit increase (1km2) will lead to 175.912 increase in net revenue of the respondents in the area.


5.2 Conclusion

  1. Majority of the rice marketers were males. This could be as a result of the nature of intense energy requirements for rice farming, drudgery and time-consuming activities associated with the production of the cereal.
  2. Virtually all the randomly sampled rice farmers in the study area weresmall-scale.
  3. The rice farmers in the study area were comparatively literate.
  4. Mainstream of the respondents were wholesalers and millers.
  5. Marketing cost was found to be negatively significant to the net revenue which depicted the profit. This result shows that marketing cost which is high affects the performance of the paddy rice traders in studyarea.

5.3 Recommendation

The government should try every possible way to provide subsidized transportation vehicles from rice farms to milling locations as to reduce marketing cost. The government should also utilize adequate pricing mechanisms which will help keep the profits of the farmers’ high, this will go a long way in keeping the net revenue as performance level high.


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