Efficiency and Profitability Analysis of Rice Production and Marketing in Taraba State
Chapter One
Objectives of the Study
The over all objective of this study is to Efficiency and profitability analysis of rice production and marketing in Taraba state. The specific objectives are:
- To examine the determinants of household’s rice supply to markets
- To analyze the structure of rice productions costs and determine profitability of rice production in the study
- To analyze the structure, conduct and performance of rice
- To examine the support services (like extension, input supply, credit, and marketing services) in rice production and marketing.
- To identify major constraints and opportunities in rice production and supply to
CHAPTER TWO
LITERATURE REVIEW
Definitions of Basic marketing Concepts
Market and marketing
The term market has got a variety of meanings. Abbott and Makeham (1979), defined market as an area in which exchange can take place. It also means the people living there who have the means and the desire to buy a product. Thus, there can be a “local” market, a “domestic” market, and a “world” market. The limits of this kind of market are set not by a physical boundary fence but by the ease of communication, transportation, political and monitory barriers to the free movement of goods and money.
Mendoza (1995) also defined marketing as a system because marketing usually comprises several interrelated structures along the production, distribution and consumption units underpinning the economic process. According to Casavant et al. (1999), marketing encompasses all of the business activities performed in directing the flow of goods and services from the producer to the consumer or final user. These activities are usually classified into six stages. These are: production, assembly, processing, wholesaling, retailing and consumption.
According to Kotler (2003), marketing is a social process by which individuals and groups obtain what they need and want through creating, offering, and freely exchanging products and services of value with others. For managerial definition, marketing has often been described as ‘the art of selling products’, but people are surprised when they hear that the most important part of marketing is not selling, i.e., selling is only the tip of the marketing iceberg.
Marketing channels
According to Giles (1973), the term ‘channels of distribution’ refers to the system of marketing institutions through which goods or services are transferred from the original producers to the ultimate users or consumers. Most frequently a physical product transfer is involved, but sometimes an intermediate marketing institution may take title to goods without actually handling them.
Kohls and Uhl (1990), cited in Duc Hai, (2003) define marketing channels as “alternative routes of product flows from producers to consumers”. They focus on the marketing of agricultural products, as does this study. Their marketing channel starts at the farm-gate and ends at the consumer’s front door. The marketing channel approach focuses on firm’s selling strategies to satisfy consumer preferences.
Kotler (2003) also explains marketing channels as a set of interdependent organizations involved in the process of making a product or services available for use or consumption. Most producers do not sell their goods directly to the final users; between them stands a set of intermediaries performing a variety of functions. These intermediaries constitute a marketing channel also called a trader channel or distribution channel.
Market chain, supply chain and value chain analysis
According Harahap (2004), Undertaking a sub-sector or market chain analysis is a way of gaining insight into the (1) operations of specific market channels while focusing on their growth potential, (2) activities and efficiency of actors along the chain, (3) business support services involved, and (4) policy and regulatory frameworks. With the information from the analysis, opportunities and constraints can be identified within specific market chains, and ways can be seen to improve a defined client’s capacity to compete more effectively.
Lundy et al. (2004) also clearly stated that a market chain is used to describe the numerous links that connect all the actors and transactions involved in the movement of agricultural goods from the farm to the consumer, it means agricultural goods and products flow up the chain and money flows down the chain.
The term supply chain analysis is used to refer to the overall group of economic agents (a physical person such as a farmer, a trader or a consumer, as well as legal entities such as a business, an authority or a development organization) that contribute directly to the determination of a final product. Thus the chain encompasses the complete sequence of operations which, starting from the raw material, or an intermediate product, finishes downstream, after several stages of transformation or increases in value, at one or several final products at the level of the consumer (FAO, 2005).
On the other hand, a similar terminology with a market chain is value chain. The term value chain has been used for more than twenty years. It refers to the full ranges of activities needed to bring a product or a service from conception, through production and delivery to final consumers. A value chain can be the way in which a firm develops competitive advantages and creates shareholder value. It can also demonstrate the interrelation and dynamic between individual businesses. A narrow economic-based definition of value chains involves identifying the serious of value-generating activities performed by an organization. A broader system approach looks of activities implemented by various actors, from primary producers, harvesters, processors, traders, service providers, and upstream suppliers to the down stream customers.
CHAPTER THREE
RESEARCH METHODOLOGY
Methods of Data Collection
The data for this study were collected from both primary and secondary sources. Primary data were collected from samples of the respondents. Sources of primary data were smallholder farmers, traders, brokers, retailers and rice millers. The data collected through a questionnaire survey includes the following:
- Data on quantity of rice marketed, price of rice supplied, total acreage of rice cultivated, expenditure on factors of production, distance from market, size of output, access to market, market information, livestock ownership, land holding, extension service contact, credit access, family size, were collected and these were used to analyse factors determining marketable supply of
- Data on output produced and sold, production costs, input costs, and marketing costs were collected and used to analyse the net returns (profitability) of rice production and the cost and price information used to construct marketing costs and margins.
- Data on market information system, exchange arrangements, system of storage, transport facilities, price setting strategy, purchasing strategy, selling strategy, barriers to entry and capital were collected from sample informants using a questionnaire, and these were used to investigate the structure and conduct of the
- Data on input usage, credit facilities, agriculture extension service, marketing information, and institutional support activities were collected and used to analysis production and marketing support services.
In addition to primary data on the above issues, secondary data like population number, agricultural inputs and output prices, land use pattern, agro-ecology, list of licensed and non- licensed traders, marketing agents and their role, marketing directions, conversion factors were collected from different sources. Secondary data sources were Village office of Agriculture Rural Development, Research centers, Cooperatives at different levels, Office of Trade and Industry, and other bureaus, different publications, research studies, websites, etc.
CHAPTER FOUR
RESULTS AND DISCUSSION
This chapter deals with the findings, descriptive statistics and econometric models, on rice marketing in Taraba state especially, on marketing channels, and the marketing agents. It also deals with the analysis of cost and profit of paddy production. It quantifies costs and margins for key traders, identifies factors affecting rice market participation and volume of sales in the study area. This chapter, in addition, examines the support services (extension services, input supply, credit, and marketing services) in rice production and marketing. It also identifies major constraints and opportunities in production and marketing of rice.
CHAPTER FIVE
SUMMARY AND CONCLUSIONS
Summary
Rice is a main stay of Fogera farmers and it is the only “Rice basket of the region “. The main objective of the study is to analyze the profitability rice production and marketing chain of rice in Taraba state. The study specifically has focused on the profitability of rice production of farmers and traders, structure and conduct of the rice markets. And it investigates factors contributing towards household’s market participation in rice market and volume of rice supplied to market. The study also assesses the support inputs services, and constraints and opportunities of rice market in the study area.
The data were generated by using pre-tested structured questionnaires. Data were obtained both from primary and secondary sources. The primary information was collected by interviewing farm households. Secondary data were obtained from different sources like Rural and Development office, Trade and industry office the Village, IPMS, agricultural research centers, Inland Revenue offices, publications and research studies, CSA, websites and agricultural magazines.
A total of 165 farmers, 6 wholesalers, 10 millers, and a total of 60 retailers (from Bahir Dar, Gondar, Woreta) and 25 assemblers, 5 urban distributors were interviewed and the analyses were made using SPSS and LIMDEP. Summary of results obtained was the following.
The descriptive analysis shows that the average family size of all households was 5.72 and with minimum 2 and maximum 13. The farmer’s average family labor force was 2.67 in man- equivalent with 6.15 maximum and 1 minimum.
Rice producers are private farmers who produced paddy during main cropping season. The major reason for growing rice is for consumption and sale. In terms of land utilization rice is planted approximately on 0.6 hectares of land as compared with 0.36 and 0.31 hectares planted in Teff and Maize.
The production inputs used were seed and to some extent herbicides and pesticides. only 3% of the sampled households used urea, 1.2% use DAP and 4.9% used organic fertilizer for rice production The application of fertilizer was very minimum, because of flooding and the soil is fertile alluvial soil (Abay,2006; IPMA,2005).
The common types of rice varities are X-Jigna (local) and Gumara (IAC-164.) the improved one. About 96% of the sampled household used X-Jigina variety (local and mostly popularized by farmers). However Gumara variety used less. Since it is red in color it is less demanded and used for consumption purpose as compare to the white seed X-Jigina variety which has high market demanded.
From a total of sampled producers of households about 24% of rice producers were found to be non-sellers of rice mainly for different factors. Farmers have different market outlets and traveled 1.6 hour per trip to sell their product. Twenty four lines of market channels were identified. Five of these went outside the region and the rest sixteen ran inside. The main receivers from farmers were wholesalers, Millers, Rural assemblers, urban assemblers with an estimated percentage share of 44.9, 26.9, 14.1 and 11.9 percent respectively. Besides, the volume that passed through each channel was compared and based on the result the channel that went out of region consisting 95 quintal hosted the largest (42.1%) , followed by channels that stretched from Farmer→ Wholesalers→ Retailers→ Consumers hosted 81.98 qt respectively.
The central question for this study is “What will influence farmers’ decisions to sell rice and what will stimulate them to sell more?” many variables were hypothesized for analysis. In order to test the above hypothesis, different methods were followed. The selectivity models encompass two steps to estimate factors on market participation and volume of sale.
The result of the Heckman two step model indicates that market information access, quantity of paddy produced, extension contact with farmers and total livestock value increased the likelihood of households decision to sell rice. And education level and quantity of rice produced affects volume of rice sales positively but family size determines volume of sale negatively. The Tobit result also revealed that quantity produced was jointly affected both the probability of market participation and volume of supply.
The SCP model analyses also showed that the important entry barrier in rice market was high competition with prior control of farmer and lack of investment capital. They had fewer problems with taxes and license procedures. The survey result indicate that 46.7% of the respondents have 2-5 years of experience in rice trading and about 40% of them had 6-10 years of experience. Their educational status also indicates 64.3% were in secondary education and the rest are in primary education level.
Regarding to pricing strategy 53.3% of sampled traders set price by the market, 26.7% set price by themselves, 13.3% set by negotiation of buyer and traders and the rest was by marketing experts.
The four-firm Concentration Ratio (CR4) indicated that the rice market is dominated by few wholesalers. The CR4 ratio is about 77%. That means 77% of the market share going to major four wholesalers. This indicates the rice market is strongly oligopsonistic.
The profitability analysis of rice production shows that, the gross income obtained from paddy production was N17549.21 per hectare and the total cost per hectare was 11688.23 Non samples households. Opportunity cost of land (rental value of land) , was the items occupying maximum share in total cost (40.23%) followed by labour cost (34.65%), animal power cost (13.11%). Material input cost like manure, herbicides, seed (10.26%) and other costs like land rent/ tax and interest rate (26.86%) consists of the minimum cost share.
The cost benefit analysis of rice production shows that rice production is a profitable business for farmers. The net income obtained from production per hectare of rice is 5006.48 N. The cost margin indicates that producers obtain on average a profit of 35.97 Nper qt with the market margin of 55.2 Nper qt, assemblers get 139 Nper qt, millers a profit of 5.4 Nper qt, wholesalers 9 Nper qt, urban distributors N3.88 Nper qt and retailers around 19 Nper qt. Though, assemblers get more profit, they also incur more marketing cost.
Constraints associated with farmers can be classified based on three categories, this are production constraints, marketing and institutional aspect. Shortage of land is the primary problem of the sample farm households in which 77% of households were respond it. The lack of improved varieties (disease resistant, high yield and early mature) was also a constraint in production which is responded positively by 76.1 per cent of the farmers. Most farmers cultivate local variety X-Jigina (local variety) than the improved variety Gumara (IAC -164).
Marketing is the second main constraints of farmers. Problems of threshing machine or polishers to its marketing quality of rice were responded positively by 55.8 per cent of the farmers. And also 45% of the respondents were complaining various malpractices such as scaling or weighing, deduction and quoting of lower prices than actual. Moreover, about 33% also respond that there were market problems associated with low output price, maintenance of standards and grades.
The last constraints for farm households are the institutional and financing aspect. The main problems were transportation facilities, capital and credit availability. About 47% of the sampled farmers were responding positively for transportation problem and 40% to 46 % for capital and credit respectively were perceived these problems.
The major problems of wholesalers and millers are limitation of capital. This is responded by 53.7% followed by tax payment. Usually millers as well as wholesalers pay tax based on the number of milling machine they have and their licensed trading. Another problem which was responded for wholesalers and millers were prior control of farmers followed by information asymmetry and competition. It is responded by 20% of the sampled millers and wholesalers.
The problems associated with assemblers are road accessibility, lack of market; storage problems, capital shortage, and credit access were the main once. With regarding to retailers, the common problems were shortage of capital, quality, adulteration, and shortage of credit.
Conclusions and Recommendations
Rice is a newly introduced crop in Nigeria. However; it is increasing in production and area coverage. Rice is an exceptional crop due to its water loving nature and its higher productivity than other field crops. Though Nigeria has tremendous area suitable for rice production little has been used until recently while many tones of imported rice are consumed in Africa as well as in Nigeria. Hence, increasing production and productivity of this crop may contribute to food security.
In Fogera and the nearby Villages, rice is becoming a strategic crop for the livelihood of many farmers. In the past, the study area was very food insecure due to flooding problem. However, after the introduction of this crop, it is considered to be one of the surplus producing Villages in South Gondar zone. The production trend shows that rice production increased from 160 qt in 1993/94 to 417,735 qt in 2007/08. Similarly, the area coverage of rice increased from 6 hectare in 1993/94 to 9,213 hectare in 2007/8.
A number of factors may have affected market participation decision and volume of sales of rice in the country. In the case of Fogera district, the identified factors are access to market information, quantity of paddy produced, extension contact and livestock value were the main determinants of market participation decision for a household positively. For the volume of supply, household head’s education level (positively), quantity produced (positively), and family size (negatively) were the important variables that determines volume of rice sale in the market
Findings based on the results of the study (Heckman two-stage model), to promote rice market participation in a sustainable way, some policy implications are suggested to be addressed.
Strengthening the existing price and market information system
Generally, commercial farmers are capable of sourcing price and buyer information from different sources whereas poor farmers rely on other farmers and government extension staff for the same information. There is therefore, a great need to make information available to farmers at the right time and place. In response to this challenge, it is good to develop an integrated agricultural marketing information system that will be linked to Village information center, and to link them to government’s program.
Intervention to increase production and productivity of rice
The quantity of rice produced at the farm level affected marketable supply of rice positively and significantly. However, farmers are working under limited plots of land by natural as well as socio-economic factors without using improved technologies and agricultural inputs. Rice producers in Taraba state used little inputs (like improved seeds, pesticides and insecticides and modern technologies). Hence, increasing production and productivity of rice per unit area of land is better alternative to increase marketable supply of rice. Introduction of improved varieties, application of chemical fertilizers, using of modern technologies, controlling disease and pest practices should be promoted to increase production.
Facilitating extension services
The results of the study indicates provision of extension service improve market participation of rice. Farmers have to linking production with marketing. And also it is good to enlightening farmers to produce based on market signals, consumer preferences and to direct or advice on the proper methods of handling, storing, transporting, and above all improving quality of rice. Hence, it is recommended to assign efficient extension system, updating the extension agent’s knowledge and skills with improved production and marketing system.
Promoting education and trainings in production and marketing
Changing the attitudes of farmers is a crucial factor in improving the marketing performance of households. If farmers have awareness about the benefit of the specialty market, they do not need only immediate economic advantages from the sale of their product. In case of production, household heads with very limited education encounter in successfully managing, fertilizer and pesticide applications, and also what to produce inline with taste and preference of consumers demand, especially in the presence of ineffective extension services. So stakeholders’ and Agricultural and Rural Development Offices have to create awareness about the specialty of market. Continuous education and training on production and marketing will have a positive impact on their attitudes.
Promoting potentially collective organizations (cooperatives)
Cooperatives are assumed to play important role in improving the bargaining position of the producers and creating, lowering transaction costs, reducing the level of oligopolistic market type by creating competitive market.
Improving the quality of rice
Most attributes for rice is its quality. The Fogera rice has poor quality as compared to imported ones (Basmati, Ponte, and others types) both in kernel size and in color. This results from, its poor post harvest handling, spoilage during harvesting, hulling and threshing problems all together reduces the quality of rice in the market upon its selling price. Hence, especial attention should be given to improve quality so as to satisfy consumer’s desire, and farmer’s market price return.
Licensing the traders
Traders should have license to operate at any level of trade, some of the traders have continued to operate with no license. Assemblers and brokers (though few) are with no licensing. Also no clear demarcation of trading (fore instance, millers are acting as wholesaler). This has put the legal traders at a disadvantage when competing in the market. Therefore, public authorities in collaboration with representatives of traders should devise means of controlling those engaged in illegal trade.
Promoting family planning
Family size is one of the significant demographic variables that affect volume of supply. With limited production, supporting a larger and extended family size would have been difficult for the farmers. This can be possible through the intervention of integrating family planning with health extension service and with respective concerned bodies.
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