PROFITABILITY ANALYSIS OF SUGARCANE (SACCHARUM OFFICINARUM) PRODUCTION IN NUMAN LOCAL GOVERNMENT AREA ADAMAWA STATE, NIGERIA. A.A.

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1 PROFITABILITY ANALYSIS OF SUGARCANE (SACCHARUM OFFICINARUM) PRODUCTION IN NUMAN LOCAL GOVERNMENT AREA ADAMAWA STATE, NIGERIA Abstract A.A. Girei Adamawa State Community and Social Development Agency, Yola, Nigeria, and D.Y. Giroh Rubber Research Institute of Nigeria, Benin City, Nigeria The study was conducted to analyze profitability of sugarcane production in questionnaire survey where 120 farmers were randomly selected. Data collected were analyzed using budgetary technique. Analysis of the results indicated revealed that the cost of production of sugarcane per hectare which consist of both the total variable cost (TVC) and total fixed cost (TFC) per hectare were and N 20,959.accounting for 85.48% and 14.52% of the total cost of production. The gross farm income was N38, while the NFI was Nl7,666.83/ha. Similarly the return/naira invested in the production of sugarcane by the out-grower farmers was N0.84 implying a positive return of 84 Kobo on every N1 invested, showing that production is profitable in the short run. Recommendations were however made in the study. Keywords: Sugar cane, out grower, scheme, budgetary technique Introduction Sugarcane (Saccharum sp.) is a tropical crop that usually takes between 8 12 months to reach its maturity. Matured cane may be green, yellow, purplish or reddish considered ripe when sugar content is at its maximum (Onwueme and Sinha, 1993). Nigeria is one of the most important producers of the crop with a land potential of over 500,000 hectares of suitable cane field capable of producing over 3.0 million metric tonnes of sugarcane and processed will yield about 3.0 million metric tons of sugar (NSDC, 2003).Nigeria is noted to be abundantly blessed with human, water and environmental potentials for the production of sugarcane. Most of the areas in the northern states where water for irrigation is available can be used for sugarcane cultivation. The crop can be rotated or even inter-planted with other crops where land with adequate sources of water abounds like in the various River Basin Development Authority Areas. The long hours of sun shine and its intensity in the north is one of the major determinants of the high yield potentials of sugarcane and other similar crops. Generally, sugarcane for domestic consumption is produced more than that produced for industrial use for obvious reason. Thus, chewing cane account for between percent of the total cane production. The bulk of these is of course consumed raw for its sweetness of the juice but some of it also is processed into a variety of products such as sugar, molasses, baggasse Jaggery (Mazarkwaila), sweets (Alewa) and left over leaves/stalks,(busari and Misari, 1997). The Savannah Sugar Company (SSCL) has taken off at Numan, Adamawa State in 1980.The sugar industry is the major user of the sugarcane as its raw material source their requirement from local producers through the concept of out growers scheme of cane delivery. This is the major practice in Nigeria. Under this concept, sugarcane farmers are organized to grow and supply sugarcane for processing by the existing sugar plants. This is to encourage the production of sugarcane to feed sugar mills through the activities of smallholder and corporate out-growers. This approach tends to minimize the overhead cost of sugarcane processors and enable them to concentrate on processing rather than growing of sugarcane (NSDC, 1996). In order to be able to continue production with reduction in overhead costs of any investment, many agricultural production enterprises resorted to contracting out the production of its raw materials to the farmers that lives within and around their respective companies so as to concentrate only on processing. This arrangement will ensure steady supply of raw material, employment generation and economic empowerment of the rural communities as well as reduction in rural-urban migration. In the case of the Savannah 141

2 Sugar Company Limited, Numan for it to maintain the peaceful co-existence with its immediate community, it resorted to providing array of social services such as health services, education, electricity in addition it went further to apportion part of its estate farm and allocated to the communities so as to keep the communities employed throughout the year with generation of employment to the teeming population living around the company. This arrangement in which the company contracts out their raw material production is referred to as out grower s scheme. The main focus of this study therefore, is to economically assess the sugarcane production amongst the out grower farmers of Savannah Sugar Company Limited, Numan. Methodology The Study Area: The Study was carried out in Numan, Numan Local Government Area of Adamawa State( longitude and E and latitude and N and covers a land area of about 2,193 km. 2 The climate of Numan is that of the guinea savannah region ranging from 28 0 C to 32 0 C with a mean rainfall of 676 mm. Similarly, the out grower farms of Savannah Sugar Company are located in six (6) outgrower zones and each being managed by estate managers. Sampling: The method of sampling adopted was the simple random sampling where respondents were selected from each of the six (6) zones of SSCL estates comprising of 40 farmers. Out of these, a sample of 20 respondents was randomly selected from each site, giving a total of 120 farmers selected for the study. Data collection: Questionnaires were administered to 120 respondents which was the main source of data collection for the research work and this was complemented by oral interview amongst other sources. Data analysis The main tools for data analysis were descriptive statistics such as mean, percentages and frequency distribution and budgetary technique for analysis of cost and benefit associated with sugarcane production. Farm budget model Farm budget is a detailed physical and financial plan needed for the operation of the farm over a given period of time (Olukosi and Erhabor, 1989).Therefore, this study made use of this tool so as to enable the estimation of the total expenses and receipts accruable. Total expenses is defined as the total cost (TC) incurred during the production process and is simply calculated by multiplying the quantities of various inputs applied by the corresponding unit market price, while the total revenue (receipts or returns) is defined as the product of the total output and their unit market price. However, the difference between the total cost (TC) and total revenue (TR) gives the net returns or income. This tool has been widely used by scientist in determining the profitability of farm enterprise(baba,1989;hamidu,1995). Mathematically, it can be expressed as follows:- NF = TR-TC (1) TC = TVC+TFC (2) NFl = GM-(TC) (3) Where NFl =Net Farm Income, GM= Gross margin, TVC =Total variable cost and TFC= Total Fixed Cost Cost and returns analysis To assess the profitability or otherwise of any given enterprise(s) or a production process, the examination of expenditure (Cost) and income (Returns) is very necessary The profitability of small scale sugarcane will be better described from the variable cost point of view. This is because fixed cost (FC) is negligible and has little or no significant influence on the total cost (TC) of production in traditional small scale farming enterprises. It went further to state that fixed cost items such as hoe, matched and other simple implement used by peasant farmers are infinite and therefore negligible. The variable cost (VC) is the cost that constitutes the major cost of production in small scale farming. Such costs include; labour, fertilizer, water, seeds, insecticides, transportation etc. Labour constitutes the 142

3 most important variable input in traditional peasant agriculture. It was estimated that human labour accounts for almost 90% of all farm operation in a non mechanized system of farming (Hamidu 1995), hence the author concluded that cost accounts for greater portion of the variable cost. Table 1 shows that the cost of production of sugarcane per hectare which consist of both the total variable cost (TVC) and total fixed cost (TFC) was estimated to be N 20,959. The total fixed cost and variable cost used in the analysis were defined to include inputs such as setts, irrigation (water), fertilize and labour (hired and family). These inputs are referred to as variable input while capital and land were considered as the fixed inputs. From this analysis it was observed that the total variable cost (TFC) accounted for 85.48%. This amount includes the cost of setts, fertilizer irrigation (water) and labour requirement. The remaining 14.52% was the contribution of the fixed cost consisting of the cost of land and capital. The analysis further revealed that out of the total variable cost, family labour accounted for a substantial part of the cost of production and this constituted about 47%. Therefore, from this analysis it was clear that labour constitute substantial part of input required in the production of sugarcane and hence this is why it is generally regarded that sugarcane production is both labour and capital intensive (NSDC,2002). The fixed cost aspect of the total production cost constituted about 14.52%. It was observed that very few of the respondents where able to obtain loans from any source and that could be a major constrain to their expansion of their cane field and subsequently low yield. Table 1: Cost and Returns in Sugarcane Production Inputs Cost (N) Percentage of total cost Variable cost Setts Fertilizer Irrigation water Labour i.hired ii. Family TVC Fixed Cost Land Cost of capital TFC Total cost of production , Returns GFI 38, NFI 17, Returns on investment 0.84 The gross farm income was N38, while the NFI was N l7,666.83/ha. Similarly the return/naira invested in the production of sugarcane by the out-grower farmers which is determined by dividing the NFI by the total cost of production/ha and this was computed to be N0.84. By implication this means that the out-grower sugarcane farmers of the Savannah Sugar Company Limited, Numan will have a positive return of about 84 Kobo on every N 1 invested. This shows that production is profitable in the short run based on the analysis. Table 2: Distribution of Respondents According to Net Farm Income/ha Income Range(N) Frequency Percentage > 10, ,001-15,

4 15,001-20, ,001-25, ,001-30, > 30, The distribution of respondents according to their net returns from their investment in sugarcane production /ha is presented in Table 2.The analysis shows that the respondents made profit after deducting all their operational expenses from the overall revenue generated. It shows that despite their constraints they were able to recoup investment cost and generate profit to meet up their socio-economic needs such as school fees, medication and savings for further investment and so on. This analysis reveals that 25% of the respondents had a positive returns of between N25,000 - N 30,000 while those with profit of over N 30,000 represents 6.67% of the respondents. 22.5% of the respondent realized a profit of between N 10,000 - N 15,000 with those farmers having a net farm income of between N 15,000-20,000 representing 16.67%.Those in the net farm income category of less than N10,000 accounted for 11.67% of the respondents. However, the net farm income generated by the remaining 17.5% of the respondents fell within the range of N 20,000 - N 25,000. From this analysis it was observed that all the respondents were able to recover their investment expenditure and generate positive net farm income from their business. This is in line with the opinion of Wegener (1997) who stressed that most farmers realized a satisfactory profit levels from their businesses. Hence, one may deduce that sugarcane farming if given the required support and attention, is a business worth going into, this is because it has a ratoon effect which does not require additional expenses for land preparation, setts acquisition in the subsequent years besides this, other uncertainties affecting agricultural production can be controlled starting from land preparation up to harvesting and processing provided that the necessary inputs are not only provided adequately but timely especially under the out-growers scheme in the study area which is located close to water source (Kiri Dam). This provides water throughout the year to supplement the water requirement of the plants which is highly water dependent during the critical periods of their growth. Conclusion Sugarcane production in the area is profitable as a net farm income of N17, was realized in the study area. There should be timely provision of agro-inputs/mechanical services to the farmers as well as sufficient Irrigation Water so as to enhance farmers operation leading to higher yield. An effective system should be put in place where farmers should be linked with service providers community money lenders. To meet the demand of the company in terms of high quality cane supply and to generate sufficient funds for the out grower farmers, the issue of low cane yield should be addressed through provision of high yielding, disease resistant, productive and pest/disease free farms through expansion of the estate farms. References Baba, K. M. (1989): Economics of Resource use in irrigated Agriculture: A case study of pump system in the western area of Bauch State, ADP. Un published M.Sc. Thesis, Ahmadu Bello University, Zaria, Nigeria. 84pp. Busari, L.D. and Misari, S.N. (1997): Traditional method of processing Mazarkwaila and Alewa from sugarcane National Cereal Research Institute, Agricultural Information Documentation and Dissemination,1 21. Hamidu, B.M. (1995): Comparative Analysis of Farm Labour Utilization in sole and mixed cropping in Bauch State. Unpublished M.Sc. Thesis, Abubakar Tafawa Balewa University, Bauch, Nigeria. 100pp. 144

5 National Sugar Development Council (NSDC,1996): Annual Report for the year ended NSDC Publication. Pp 1-28 National Sugar Development Council (NSDC,2002). Nationwide survey on industrial and domestic consumption of sugar in Nigeria. Pp National Sugar Development Council, NSDC (2003): Information Brochure towards SelfSufficiencyinSugar,Abuja.Ppl-26 Olukosi, J. O and Erhabor P. O. (1988: Introduction to Farm Management Economics, Principles and Applications; Zaria: Agitab Publishers Onwueme, 1. C.and Sinha, T.D. (1999): Field Crop Production in Tropical Africa, CTA, Wageningen, Netheflands, pp Tukur, A. L. and Adebayo A. A. (1997): Variation in Environmental Resources and Food Crop Production in Adamawa State: In Daura M. M. (eds) lssues in Environmental Monitoring in Nigeria. Pp20 145