ABSTRACT
The study evaluated
the traditional and modern groundnut processing and marketing in North Central
Nigeria. The focus was on groundnut oil processing and marketing systems; input
use efficiency in production and factors that made for efficiency;
profitability of the processing activity and factors that determined
profitability; examination of value added by processing; integration of markets
for the processed products and problems of the industry. A total of 175
traditional processors were selected and 17 small-Scale modern processors
covered from Nasarawa, Benue and Niger States. Pre-tested, structured
questionnaires and observations were used as instruments of data collection.
Types of data collected were those on socio-economic characteristics of
processors, groundnut procurement, processing, and ground nut oil (GNO) and
groundnut cake (GNC) marketing. Weekly price series for GNO and GNC were also
collected at various markets within the region. Data analyses were attained by
use of descriptive and inferential statistics, stochastic frontier analysis
(SFA), profit function analysis, t-test statistic and Johansen test for
co-integration. Hypotheses were also tested appropriately. The average age of
traditional processors in North Central Nigeria was 38 years and 41 years for
modern processors. Ninety-four percent of the traditional processors were women
while 88% of modern processors were men. Majority of the processors did not participate
in co-operative activities.
Sixty percent of
groundnut processed by traditional processors came from farmers while 94% of
groundnut processed by modern processors was obtained from traders. The maximum
likelihood result for traditional processors indicated the presence of
inefficiency. Raw groundnut variable was significant at 1% level of
significance (LOS) in Nasarawa and Niger States. Fuel-wood and salt were both
significant at 1% LOS in Nasarawa and Benue States. In the inefficiency
aspects, age and years of experience were significant at 1% LOS in all the
states. For the zone, labour and salt were significant at 1% LOS; fuel-wood 5%
and raw groundnut 10% LOS. In the inefficiency aspect for the zone, household
size was significant at 5% LOS, while level of education was significant at 10%
level of probability. Raw groundnut and labour were significant in modern
processing, while education and experience at 10% in the inefficiency aspect.
Most of the traditional processors had their efficiency scores above 0.80 and
modern processors were from 0.47. In the profit function results for
traditional processors, fuel-wood and packaging variables were significant at
1% LOS. Raw groundnut, procurement and maintenance were significant at 1% in
modern processing. Value added was 41% for traditional processors and 44% for
modern processors. There was significant difference in the value of groundnut
before and value after processing. The Johansen trace test result indicated
five co-integration vectors at 5% level of probability for GNO and two
co-integration equations for GNC. The markets for GNO and GNC were not fully
integrated. Administrative regulations affected market integration for GNO
which was significant at 5% LOS. Constraints identified included inadequate
finance, inadequate electricity, machine breakdown and transportation.
Recommendations made included improved packaging, finance, electricity supply
and co-operative education.
TABLE
OF CONTENTS
Content Page
Cover page
Title page
i
Certification
ii
Dedication iii
Acknowledgement
iv
Abstract v
Table of
contents
vi
List of tables
x
List of figures xii
CHAPTER ONE: INTRODUCTION
1.1 Background of the study
1
1.2 Statement of the problem
6
1.3 Objectives of the study
9
1.4
Hypotheses
10
1.5 Justification 10
1.6 Limitation of the Study 12
CHAPTER TWO:
LITERATURE REVIEW
2.1 Groundnut Processing Technologies and
Systems 13
2.1.1 The traditional and modern methods of
groundnut oil extraction in Nigeria 15
2.1.2 Capital ownership and organizational
structures of agricultural processing 17
2.2 Marketing of Finished Products 18
2.2.1 Marketing strategies for
agro-industrial products 21
2.2.2 Market demand for agro-industrial
products 22
2.3 Profitability Measures and Value
addition 24
2.3.1 Profitability analysis
26
2.3.2 The value adding process in
agriculture
27
2.4 Input Use and Efficiency
29
2.4.1 Efficiency measurement 30
2.5 Market Integration
34
2.5.1 Market integration and the law of one
price (LOP) 35
2.5.1.1Stochastic Process and the Unit Root
Problem 36
2.5.1.2 Co-integration
38
2.5.1.3 Co-integration and Error correction
Mechanism (ECM) 39
2.5.1.4 The Johansen Trace test 39
2.6 Problems of Agricultural Processing
Industry 40
2.7Theoretical Framework
41
2.7.1 Value chain in Agricultural Processing
and marketing 44
2.8 Analytical Framework
47
2.8.1 Stochastic frontier production
function 47
2.8.2 Profitability analysis 51
2.8.3 Measurement of co-integration and the
law of one price (LOP) 52
2.8.3.1 The unit root problem
53
2.8.3.2 Unit root test 54
2.8.3.3 Co-integration: The Johansen
test 56 2.8.3.4 Determinants of
co-integration
58
CHAPTER THREE: METHODOLOGY
3.1 Study area
59
3.2 Sampling technique
60
3.3 Data collection 61
3.4 Data Analysis
62
3.4.1. Stochastic Frontier Model
62
3.4.2 Profit Function Analysis
65
3.4.3 Value addition model
66
3.4.3 Johansen trace test 67
3.4.3.1 Determinants of co-integration 67
CHAPTER FOUR: RESULTS
AND DISCUSSION
4.1 Socio-economic Characteristics of
Small-scale traditional and modern Groundnut Processors in Northern Central
Nigeria 69
4.1.1 Age distribution of groundnut oil
processors 69
4.1.2 Gender distribution of the
processors 70
4.1.3 Marital status 71
4.1.4 Household size
71
4.1.5 Educational level of processors 72
4.1.6 Cooperative participation 72
4.1.7 Years of experience
73
4.2 Groundnut Oil Production, Marketing, and
the Value Chain in the Study Area 75
4.2.1
Procurement
77
4.2.2 Traditional groundnut oil production
method 79
4.2.3 Modern groundnut oil production
method
80
4.2.4 Marketing
82
4.3. Input Use Efficiency in Traditional and
Modern Groundnut Oil Production in North Central Nigeria 86
4.3.1Technical efficiency estimates for
groundnut oil producers in North Central Nigeria 89
4. 4. The Profitability Analysis of
Traditional and Small-scale Modern Processing and Marketing of GNO and GNC 94
4.4.1 Gross margin results of groundnut
processing
94
4.4.2 Determinants of profitability of
groundnut processing in North Central Nigeria 97
4.5 Value Added by Processing Groundnut into GNC
and GNC 100
4.5.1Test of significance of value added
102
4.6 Level of Integration of Markets Groundnut
oil (GNO) and Groundnut cake (GNC)
103
4.6.1 Result of the unit root test
104
4.6.2 Result of the Johansen test for
co-integration 105
4.6.3 Determinants of market integration 107
4. 7 Constraints Facing the Groundnut
Processing Industry 109
4.7.1 Identified constraints
109
CHAPTER FIVE:
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary
113
5.2 Conclusion 118
5.3 Recommendations 119
5.4 Addition to knowledge
120
5.5 Areas needing further research
121
REFERENCES
123
APPENDIX A
131
APPENDIX B
141
LIST OF TABLES
Table
Page
1.1 Categories of Agro-processing by level
of transformation of raw materials 3
1.2. Top ten world producers of peanuts –
2008/2009 5
3.1: Population and sample selection for
the study 61
4.1 Socio-economic characteristics of
traditional small-scale modern processors in North Central Nigeria 73
4.2 Statistical summary of selected
activities of traditional and small-scale modern GNO processors in North
Central Nigeria 77
4.3 Marketing activities of processors in
the States and North Central Nigeria 84
4.4 Generalized log likelihood-ratio tests
of the complete technical efficiency of groundnut oil processors in North
Central Nigeria 86
4.5 Maximum likelihood estimates (MLE) of
the stochastic frontier production (processing) function for traditional GNO
processors in Nasarawa and Benue States
90
4.6 Maximum likelihood estimates (MLE) of
the stochastic frontier production(processing) function for GNO processing in
Niger state and North Central Nigeria
91
4.7 Maximum likelihood estimation (MLE) of
the stochastic frontier production (processing) function for modern GNO
processors in North Central Nigeria 92
4.8 Distribution of technical efficiency
estimates for traditional (small – scale) and modern GNO processors in the
states and the North Central 93
4.9 Gross Margin for Traditional and
modern GNO processing the States and the Region 95
4.10 Regression results of the
determinants of profitability of traditional GNO processing in Nasrawa, Benue
and Niger states 98
4.11 Regression results of the profit
function of determinants of profitability of traditional and small-Scale modern
GNO processing in North Central Nigeria 99
4.12 Value added by processing groundnut
into oil and cake in North Central Nigeria
100
4.13 Result of test of differences in
value of groundnut seed before and after processing 102
4.14 Augmented Dickey -Fuller (ADF) Unit
root test for price series at level and at first difference 103
4.15 Result of the multivariate Johansen
test for Co-integration for GNO price series 105
4.16 Result of the multivariate Johansen
test for Co-integration for GNC price series 105
4.17 Result of factors that determine the
level of integration of groundnut oil markets in North Central Nigeria 107
4.18 Result of factors that determine the
level of integration of groundnut cake market in North Central Nigeria 107
4.19 Constraints to groundnut oil
processing in the selected states in North Central Zone 111
LIST OF FIGURES
Figure
Page 1.1 Peanut (Arachis hypogea) plant
4
2.1 Illustration of production efficiency 33
2.2: The generic
value chain of Michael E Porter 44
2.3 Flow chart of
Agro-processing value chain
46
4.1The Groundnut oil processing chain in North
Central Nigeria 75
CHAPTER
ONE
INTRODUCTION
1.1
BACKGROUND OF THE STUDY
Processing, storage and marketing
of agricultural produce have become increasingly important to the economies of
most developing countries, as they have been to industrialized nations at
various stages of their development. Due to technical progress, marketable
surpluses from agricultural production have grown significantly; while rapid
growth in urban populations and rising per capita incomes have enlarged and
diversified the demand for processed agricultural products, whether food or raw
materials for industries. Perhaps Processing is one of the most important
physical functions of agricultural marketing. Olayide & Heady (1982) opined
that processing was an important component of agribusiness development, because
a large portion of farm production underwent some degree of change between
harvesting and final use. More so agro-processing is capable of strongly
shaping farm production decisions. It enables quality enhancement, preservation
and differentiation of farm production thereby enhancing its marketability. It
has also been noted that Agricultural processing activities are small-scale and
require low investment capital, hence can easily be undertaken by women
(Fellows & Hampton, 1997; RMRDC, 2004; Kadurumba, Kadurumba & Umeh,
2009; FAO, 2011).
Farm products’ processing play a
significant role in the economies of developing countries, where it accounts
for between 51% and 60% of value added by manufacturing and between 60% and 70%
of total industrial development. Over half of the manufacturing activities in
the developing countries of the world consist of agro-industries preserving and
transforming agricultural raw materials (Olayide & Heady, 1982; Brown,
1986). FAO (2012) observed that increased urbanization, distance between home
and work-place, working women and changes in family cohesion has increased
demand for shelf-stable, convenience and value added food.
Agricultural processing facilities
have a strong impact of stimulating consumer demands backward to the farm
sector, to keep pace with demand for raw materials supply for processing. Based
on farm products, agricultural processing schemes can be sited in areas where
other industries will not be viable, as they are more intensive users of
domestic rather than imported raw materials due to their local availability
(Brown, 1986; Austin, 1992; Brown, Deloitte & Touche, 1994). More importantly,
the gains of increased agricultural production through technical progress will
be lost if it is not consolidated through the development of economically
viable processing sector. So also the skills developed through planning and
implementation of agricultural processing and preservation will strengthen
stakeholders’ entrepreneurial attributes, thereby enhancing their economic
empowerment (FAO, 2011). As a means of mitigating problem of food shortage, FAO
(2012) among other issues emphasized adding value or improving the food agro-
processing for consumption and the market.
An efficient marketing system
connects producers and consumers, directs efficient allocation of resources in
production and distribution of output, while ensuring maximum economic benefits
to participants. Conceptually, agricultural processing which is a segment in
agricultural marketing, involves the transformation of raw materials to the
forms required by the consumer or for the next stage in a manufacturing and
distribution chain (Olukosi & Isitor, 1990; Boland, 2009).This entails
transforming and preserving agricultural output, through physical and/ or
chemical alteration. FAO (2011) defined food processing and preservation as a
set of physical, chemical and biological processes that are performed to
prolong shelf-life of foods, and at the same time retain the features that
determine the quality, such as colour, texture, flavour and especially its
nutritional value. Austin (1992) also viewed agricultural processing industry as
any enterprise that is involved in the processing of materials of plant or
animal origin, which he also described as agro-industry. In the World Bank
development activities, the term “agro-industry” covered agro-industrial
processes such as grain milling, fruit and vegetable canning, oil seeds
crushing, and meat packaging as well as the function of marketing(Brown,1986).
Hence it was touted that starting a small rice mill or an oil press marked an
early stage in the first steps on the road to industrialization. The nature of
processing and level of transformation can vary tremendously ranging from
cleaning, grading and boxing fruits and milling to oil extraction, mixing and
chemical alteration(Austin,1992), (Table 1.1).
Groundnut (Arachis hypogea) is
known to the Hausas as ‘Gyadda’, to the Ibos as ‘Opapa’, the Yorubas as ‘Epa,’
the Americans as peanuts, and the French as arachides. It is a leguminous crop
grown all over the world as an important oil seed crop native to South America.
Groundnut is thought to have been introduced to West Africa early in the slave
trade by the Portuguese, mainly to supplement the diet of slaves in transit.
Its spread into the interior of West Africa was rapid in the eighteenth
century. By 1850s it was common in parts of Hausa land of Nigeria and thought
to be as important as potatoes in Europe by a British traveler (Hogendorn,
1978). Groundnut is a short herbaceous annual crop that produces its pods
inside the soil, (figure 1.1).
Historically, the Sudan and
northern guinea savanna of Nigeria have been the high producing zones. However,
the development of several varieties by the Institute for Agricultural Research
(IAR), Ahmadu Bello University, Zaria, has led to even higher output in the
southern guinea savannah zone, covering the North Central States of Nigeria
(RMRDC, 2004). Nigeria was third among the world ten highest producers of
groundnut with 3, 835,600 tonnes (unshelled) after China and India in 2007/2008
output year (USDA, 2010), but now fourth with 1.55million metric tonnes
(shelled) in the 2008/2009 output season (USDA, 2010), ( Table 1. 2).
A mature groundnut pod contains 2-4
kernels (nuts) per pod depending on the variety and is traded decorticated and
unshelled. In Nigeria, it is eaten as whole nut, raw, boiled or roasted and
also crushed to get the oil and the cake. The oil is known as groundnut oil
(GNO) and the residue known as groundnut cake (GNC). Groundnut is rated the
third major oil seed of the world after soya bean and cotton (USDA, 2010).
Groundnut oil is used for cooking, as salad oil, for canning sardines, and
margarine manufacturing (Sharma & Caralli, 2004).The residue after oil
extraction is a source of protein for animal feed. In traditional oil
extraction method, this residue is fried into a local delicacy known as
groundnut cake (GNC) or ‘kulikuli’in Hausa. This is ground and consumed in
composite with several local dishes. Elsewhere, groundnut is processed into
peanut butter, peanut flour, peanut flakes and many other products.
Bulk export of groundnuts from Nigeria started
to decline in the 1960s in favour of local crushing by mills in and around Kano
and else-where. In 1973/74 cropping season, only 35% of the 559,000 metric
tonnes purchased by the marketing board was exported. By 1973/74 also a policy
decision to discontinue export of groundnuts entirely was put in place to allow
for local processing. Any export of groundnut after then was in form of
groundnut oil (GNO) or cake (GNC) (Hogendorn, 1978).
The petroleum oil boom and its consequence
upon the agricultural sector saw Nigeria importing groundnut oil. In 1980,
about 200,000 tonnes of groundnut products were imported in form of vegetable
oil. The 1.95million tonnes output in 1974 dropped to 0.4million tonnes in
1983. Consequently many groundnut processing mills had to close down because of
unavailability of the raw material (RMRDC, 2004). However, with the abolition
of organized marketing of agricultural products in 1986, the processing and marketing
of groundnuts and its products have been left to the private sector (Ingawa,
2004). A survey by RMRDC (2004) showed groundnut output to be 1.98million
tonnes for 2003, with greater portion coming from Bauchi and Nasarawa States
with 72,000 tonnes and 70,420 tonnes, respectively, and higher estimates for
2004. The rain fed output for Nasarawa State in 2008 was put at 92,450 metric
tonnes (NADP, 2009). The soaring demand for groundnut oil in manufacturing and
domestic need has kept the pressure on the groundnut crushing industry.
1.2
STATEMENT OF THE PROBLEM
Agricultural development policies
and programmes have tended to lay emphasis on improving farm productivity, but
with less attention on the processing and storage of the resultant output. For
instance, 95% of funding of the Consultative Group on International
Agricultural Research (CGIAR) in about 20 to 30 years was devoted to production
related research activities (Ferris, 1999). Agricultural credit disbursement in
Nigeria has also been in favour of crop production with grain alone taking 67%
(CBN, 1998). Consequently, the gains of increased agricultural productivity
will not be fully realized if not sustained through the development of a viable
processing and marketing sector to support the technical progress attained in
production. Market forces have instigated greater opportunities for product
differentiation and value addition in some respects (Boland, 2009). These
include i) increased consumer demand regarding health, nutrition, and
convenience food; ii) efforts by food processors to improve their productivity;
and iii) technological advances that enable producers to produce what consumers
and processors/manufacturers desire. Importantly, improvement of efficiency in
the value chain fosters more equitable, transparent and sustainable distribution
of benefits to the various stakeholders (FAO, 2011)
Local processing of groundnut and
other sources of oil have still not met the domestic demand for vegetable oil.
This is shown in the importation of vegetable oil to supplement local production,
with its attendant drain on foreign exchange. The short fall in demand has been
estimated at between 300,000 tonnes and 400,000 tonnes per annum. Hence the
Presidential Initiative on Vegetable Oil was put in place, to obtain three
million tonnes of vegetable oil per annum from five million tonnes of groundnut
and to start exportation by the year 2010 (Ojowu, 2004). Consequent upon the
above, the challenge of achieving this target was on the groundnut processing
industry. Hence this study focused on critical areas in groundnut processing
and products marketing chain for appropriate intervention measures to achieve
efficiency and increase products availability.
In agricultural processing schemes
as in production, several inputs are involved. Raw material that is the farm
produce can constitute 90% of the entire inputs needed depending on the level
of processing (Austin, 1992). The efficiencies involved in transforming inputs
into desired output need be known (Olayide & Heady, 1982). One of the
problems responsible for poor performance of developing countries especially in
sub- Sahara Africa in international trade is attributed to low value addition.
Consequently, products do not meet international standards, and do not compete
favourably in the international trade. Optimization of groundnut oil (GNO) and
groundnut cake) GNC processing and marketing, is therefore an ultimate desire.
It is also understood from the
foregoing that there are information and product gaps in the value chain with
respect to groundnut oil, all pointing to inefficiency along the value chain.
Most technical and economic efficiency studies have concentrated on primary
production of crops and livestock with few on processing, for example Okoh,
(1999) worked on cassava roots and its processed products. Kadurumba, Kadurumba
& Umeh, (2009) also worked on allocative efficiency of traditional palm oil
processing in Imo State. Analysis of technical and economic efficiency data
from processing through marketing, with its positive effects in the chain, and
integration of markets for processed products is crucial, but unavailable.
Consequently, this research has addressed the inefficiencies in the value
chain, as depicted in capacity under utilization of plants, poor quality
products, low quantity of output from
given level of raw material, inadequate price and output information,
unattractive profit incentives, and income fluctuations.
It has been established that
initiating activities from the market – end of the commodity value chain, using
improvements in processing and market expansion to provide “demand pull” that
benefits raw material producers, especially small- holder farmers, is necessary
for sustainable agricultural development (Ojowu, 2006). A survey by RMRDC
(2004) revealed Nigerian’s groundnut output of 1.976million tonnes. With the
entire crop consumed in Nigeria, examining the performance of the processing
segment and hence the downstream segment of groundnut industry will improve
efficiency in operations for processors, and entire value chain.
The synchronous movement over time
among prices in different markets has become an important index of efficiency
in the markets. For a market system, domestic or foreign, efficient performances
of its developmental functions depend on the ease with which price changes and
responses are transmitted spatially and temporally within the system. Market
integration modeled within the framework of the spatial price equilibrium (SPE)
model of inter market linkages in the point space tradition, that is subject to
production shocks and general price information is crucial for attainment of
efficiency of the markets. The poor infrastructural development in developing
countries as Nigeria leaves lots of doubts in the attainment of integration of
the markets for agro-industrial products, such as groundnut oil and groundnut
cake and hence the much desired efficiency in their marketing systems. Acquah
& Owusu (2012) suggested further investigation into influence of external
factors such as market infrastructure, government policy and self sufficient
production, product characteristics and utilization towards market integration.