International Research Journal of Applied and Basic Sciences. Vol., 2 (4), 155-162, 2011 Available online at http://www. irjabs.com 2011 ECONOMIC ANALYSIS OF GROUNDNUT ENTERPRISE IN RAFI LOCAL GOVERNMENT AREA OF NIGER STATE, NIGERIA NWANOSIKE, M.R.O. DEPARTMENT OF AGRIC. EDUCATION FEDERAL COLLEGE OF EDUCATION PMB 1041 ZARIA Present Address: Department of Crop Science and production, Faculty of Agriculture, Sokoine University of Agriculture, P O Box 3005, Morogoro, Tanzania. *Corresponding author: E-mail: martinroyal2002@yahoo.com, Mobile 08023635581. Abstract: This investigation assessed the economic analysis of groundnut business in Rafi local Government Area of Niger State. 120 closed structural questionnaires were randomly distributed to 120 groundnut traders in six selected markets in the LGA. In each market, 20 questionnaires were randomly distributed to the selected traders. Data obtained were subjected to means, percentage, market and gross margin statistical analysis. The marketing channel was also determined. Results of the socio-economic characteristics showed that 77.5% were male who are between the ages of 31-40 (45%) years. Result also showed that, 69.2% are married and majority had Arabic Education (61.7%). 52.5% combined the enterprise with farming while 64.1% had between 2-10 years of experience on the business. 67.5% of them were retailers who sponsored themselves through personal savings (70%). Six marketing channels were identified through which 73.3% o f the dried threshed groundnut were marketed and the major market outside the LGA is Makarfi (49.2%) which gave gross margin of N1275,343.30 and marketing margin of 11.7% per week. The commonest channel was the one from producer's rural assembler's wholesellers retailer's consumers while the most economical was the channel from producer's consumers. Transportation is the major problem of the enterprise followed by finance which gave 48.35% and 31.7% respectively. Recommendation was based on the problems for subsequent increase in the margins of groundnut enterprise in Rafi LGA. Key words: Groundnut business, Economic analysis and Marketing. INTRODUCTION Before independence Nigeria was able to grow not only all of its food needs but produced surpluses of other agricultural raw materials such as cocoa, coffee, groundnut, cotton, palm produce etc ( Abdullahi, 1984). In other words agriculture then not only provided the Nigerian population with all its food needs but it also provided the much needed foreign currency with which the country financed its capital development. Groundnut (Arachis hypogea) provided ram materials for edible and industrial vegetable oils and groundnut cake for livestock feeds. The seed contains about 27% protein, 45% oil and 10% carbohydrate. It is eaten raw, boiled, roasted, made into paste, use for soup and stews and is extensively used in West Africa as a cooking oil as well as in industries for making margarine (Onwueme, 1979). As a cash crop, groundnut played an important role in the economy of Nigeria as over 20% of the total export was from the crop between 1960 1969, placing Nigeria as the third largest producer of the crop in the world after India and china (Harkness, et al. 1976). The export market and local industrial processing of
groundnut led to the famous pyramid of Kano in the peak production years of between 1950s 1960 (NAERLS, 1995). To encourage the marketing of the crop, Northern marketing board established in 1947, was to buy agricultural produce from farmers minimum price, accumulate the produce and exclusively control its exportation. The board was responsible for the complex function of buying, assembling, storage, grading, and transportation before the crop is exported. Abalu, (1978) reported that the board gave birth to the licence buying agent ( LBAs), which was responsible for buying groundnut from farmers at agreed prices. The Nigeria marketing board hit a peak in 1967/68 when the board purchased 1026427 tonnes of unshelled groundnut and exported 723,476 tonnes. Thereafter, there was a decline in production early 1970s and in 1985, only 400,000 tonnes unshelled groundnut was purchased. In 1986, the structural adjustment programme under which the importation of vegetable was ban increased production, consequently, 657,000 million tones was purchased in 1987, 1.2MT in 1989, 1.33MT in1992 and in 1993, the partial lifting of the ban again dropped production to 1.3million tones (NAERLS, 1995). Abdullahi (1984) associated poor agricultural development to physical constraints which includes climatic factor such as drought and unreliability of rainfall and soil or edaphic factors involving low inherent fertility, toxicities, intense leaching, erosion etc. According to him, biological constraints like human activities in the existing ecosystem use of crop and livestock species with low productivity, and high incidence of diseases, pests and weeds contributes immensely to poor development. Land tenure system and ethnic boundaries are socio- economic factors as well as shortage of labour, lack of credit facilities, poor marketing facilities and pricing structure, illiteracy and superstition. Scientifically he further explained that lack of modern facilities to save labour and high cost inputs such as fertilizers, pesticides, herbicides etc., inadequate extension and inadequate research packages to fit into the farmers system of production needs serious attention. The liberalization of international trade has worsened the situation of African producers, due to harsh realities of the international market and its savage competition. Under this condition, agricultural market needs to be assisted to derive more profit from marketing of their products. The share of African market is less than 1% and receives barely 1.2% of direct foreign investment, with the effect that very little benefit is made particularly the farmers (Houedanou, 2005). Agricultural marketing according to Olukosi et al. (2005) is the performance of all business activities which direct the forward flows of goods and services to consumers in order to accomplish producer s objective. This system determines the price allocation of resources, income distribution and capital formation. Olukosi at al.further explained that, specialized production, structure and performance of the marketing system enhance the total production of a given commodity, consumer price, adoption of improved technology, development and growth of the entire economy. Adekanye (1988) identified marketing information as a serious tool in the collection, analysis, and dissemination of data on demand and supply while Abbot and Mekaham (1979) added that it helps producers, traders and consumers to balance supply and demand in particular markets, avoids surpluses with their corresponding fluctuation in prices. The overall policy of the Federal Government of Nigeria under Green Revolution Programme was to attain self- sufficiency in food by 1985. After 22 years, Nigeria is still talking of reforms of the agricultural sector. Agricultural marketing surfer greatly in both local and international markets due, to large number of small scale operations, low degree of efficiency in terms of returns to labour and capital, poor quality standards of the products, lack of grading, standardization and high prices. The procurement cost of the products is always high for both traders and consumers as a result of high cost of transportation, inadequate storage facilities, finance, processing, packaging, pest and diseases. These factors tend to have negative impact in the groundnut enterprise. People no longer see the business as a viable one. Considering the contribution of the crop before independence and the fact that the new Nigeria reform extends to agriculture, it becomes imperative that marketing of groundnut be evaluated. The choice of Rafi for this study is based on high production level of the crop in the area. This investigation is therefore aimed at; i. Determining socio- economic characteristics of the traders, ii. Assessing the sources of funding and problems of the traders, 156
iii. Determining the marketing channels of the crop and iv. To assess the gross and marketing margins of the crop MATERIALS AND METHODS Location of the study area This investigation was carried out in Rafi local government area of Niger state because of its lucrative nature in groundnut production and business. The area is made up of 6792 square kilometers, with annual rainfall of 1100mm- 1600mm. At the north, the area is bounded with Birnin Gwari LGA in Kaduna State, to the south with Wushishi LGA, in the West with Mariga and East with Shiroro LGA in Niger State. The entire LGA is made up of six districts for administrative conveniences namely; Kongoma, Madaka, Tegina, Gunna, Uregi and Kusherki. Data collection Random sampling of data collection was used. 120 questionnaires were randomly distributed to six randomly selected markets in the six districts in the local government. 20 questionnaires were randomly distributed to 20 groundnut traders in each market and data was based on the socio-economic characteristics of the traders, marketing channels of the business, sources of funding, and level of profitability of groundnut enterprise through marketing and gross margins among others. Marketing margin represent the difference between what the consumer pays for a commodity and what the farmer gets and is usually expressed as a percentage of producer price. Data analysis Data obtained were subjected to simple descriptive analysis such as means, frequency distribution and percentages. The parameters include, the socio-economic characteristics, funding sources and problems associated with the traders. A flow chart was used to determine the channel through which groundnut is sold in the area. The level of profitability and the proportion of interest that goes to the 120 traders were assessed with gross margin (GM) and market margin (GM) using the relationships below; GM= TR- TVC Where, TR= total revenue, TVC= total variable cost SP - PP MM = x 100 SP Where, MM= marketing margin, SP= selling price, PP= purchasing price RESULTS AND DISCUSSION Socio-economic characteristics of the traders Results (Table 1) showed that 77.5% of the traders were male and they dominated the business in the markets as only 22.5% are female. 45% of them aged between 31-40 years and majority (69.2%) of them are married. In terms of education, Arabic education (61.7%) dominated and majority (52.5%) of the traders combined the business and farming with relatively low number of years of experience (2-10years) which constituted 64.1%. Similar investigation by Nwanosike, (2007) also showed that, the married males dominated farming in Zaria because of the purdah culture which does not allow the young females to participate in most agricultural activities. Women are known to be the driving force as many of micro-credit programmes are targeted on them world over possibly because they tend to be more financially responsible and uses loan to benefit their households and communities. Contrary to Nwanosike, majority of the traders were illiterates in Rafi but educated in Zaria, possibly because of the metropolitan nature of Zaria coupled with long period of its educational status. 157
Table1: Socio-economic characteristics of the traders in Rafi LGA, 2007. Characteristics frequency Percentage (%) Sex Male 93 77.5 Female 27 22.5 Age 20-30 14 11.7 31-40 54 45.0 41-50 42 35.0 >50 10 8.3 Marital Status Single 37 30.8 Married 83 69.2 Education Arabic 74 61.7 Adult 13 10.8 Primary 23 19.2 Secondary 07 5.8 Tertiary 03 2.5 Occupation Full time trading 41 34.2 Trading/farming 63 52.5 Trading/civil service 04 3.3 Others 12 10.0 Years of experience 2-10 77 64.1 11-20 30 25.1 >20 13 10.8 Source: Field survey, 2007. Each characteristic comprised of 120 respondents Sources of funding of the traders From table 2, results showed that personal savings (70%) dominated the source of funding of the traders in Rafi LGA in Niger State. This is followed by borrowing from money lenders which constituted 17.5% while cooperative and Bank loan together gave 12.5%. Earlier, Nwanosike, (2007) reported that, 82.5% of farmers in Zaria financed their activities through personal and family savings. Agriculture had traditionally provided main source of food and income to the generality of populace in Africa, but this livelihood is increasingly threatened by poor adoption of innovations (Nwanosike, 2005) and inadequate capital (Imoukhuede, 1999). Auta et al. (1992) reported that increase in productivity of traditional agriculture requires adoption of improved technologies and is difficult in Nigeria because majority of the farmers are peasants who depend mostly on subsistence agriculture. Table 2: The trader s sources of funding their business Sources Frequency Percentage (%) Personal saving 84 70.0 Money lenders 21 17.5 Co-operative 12 10.0 Bank loan 03 2.5 Source: Field survey, 2007. 120 100 Forms of selling groundnut in Rafi LGA Results (Table 3) showed that 73.3% of the groundnut sold in Rafi LGA are in dry and thresh form while 19.3% sold theirs in the dry pods. This is because groundnut stores well and longer under dry and threshed condition. Such 158
state makes the crop easy to buying, assembling, storage, grading and transportaion. Field observation showed that 49.2% and 32.5% of the produce in Rafi were sold in Makarfi LGA and Kaduna respectively for higher gross and marketing margins. Domestic selling of groundnut in Nigeria is not restricted to use, tier and bags, shelled and unshelled, but varies from house to house, village to village, local market to local market and then to the urban markets. This markets according to Adekanye, (1988) operates periodically usually once or twice per week. However, in the local markets various agencies and representatives comes to buy the produce particularly the local processors. Only few middle men transport the produce to other markets to sell and this group of people makes relatively high gross margin. Dale, (1994) reported that groundnut stores better in the pod and as nut to avoid insect pest, fungi and bacteria. Table 3: The forms in which groundnut is sold by traders in Rafi LGA Form Frequency Percentage (%) Dry/threshed 88 73.3 Dry with shell 23 19.2 Fresh with shell 3 2.5 All of the above 6 5.0 120 100 Source: Field survey, 2007 Problems of groundnut marketing in Rafi LGA Results (Table 4) revealed that transportation is the most important problem (48.3%) followed by finance which constituted 31.7% and inadequate storage facilities which gave 11.7%. This is probably due to bad roads which increased transport fare coupled with the fact that the farmers sponsored their business activities through their personal saving and as such do not have enough money to purchase the required quantity. According to Abbot (1975), transportation is required to bring the product to the right place particularly when the market is located in some distance from the place of consumption. He further added that some times, storage is required to adjust supply to meet demands at moderate prices since consumption is regular and continuous. Table 4: Problems of groundnut marketing in Rafi LGA in 2007 Problems Frequency Percentage (%) Transportation 58 48.3 Finance 38 31.7 Inadequate storage facilities 14 11.7 Pests and Diseases 8 06.7 Theft 2 1.60 120 100 Source: Field survey, 2007. Marketing channels Six channels of selling groundnut were observed in Rafi LGA. However, retailers dominated the selling market (67.5%) while the wholesalers (52.5%) dominated the buying market. Generally, 55.8% of the purchases were made in the village markets. The marketing channels identified in the study area are; i Producers consumers 159
ii Producers rural assemblers retailers consumers iii Producers retailers consumers iv Producers rural assemblers wholesalers retailers consumers v Producers wholesalers retailers consumers iv Producers wholesalers consumers. Out of the six channels, the commonest to the traders in Rafi was the channel from, Producers rural assemblers wholesalers retailers consumers while the most cost effective channel was the one from the Producers consumers. Figure 1: Marketing channels of groundnut in Rafi LGA in 2007. PRODUCERS RURAL ASSEMBLERS Source: Field survey, 2007 RETAILERS WHOLESALERS Gross and Marketing margins of groundnut enterprise in Rafi LGA in 2007. CONSUMERS Variable cost per bag Transportation N400.00 Storage/security N20.00 Empty bags N70.00 Revenue/Tax N40.00 Bagging N30.00 Wheel barrow N20.00 Loading & off loading N40.00 Total N620.00 Total number of bags purchased by the 120 traders = 979 Average price per bag purchased = N110330.00 = N9194.00 120 160
Total purchase in bags = N9194.00 x 979 = N 9000926.00 Total amount for processing all the bags = N620.00x 979 = N606980.00 Total variable cost (TVC) therefore = N9000926.00 + N606980.00 = N9607906.00 Total Revenue (TR) Total revenue in the markets is in two forms; i those that buy and sell in the village markets in Rafi LGA and ii those that buy and sell in the markets outside Rafi LGA local markets such as Makarfi, Kaduna and Talata Mafara Average cost of groundnut per bag in Rafi LGA for 120 traders = N10,200.00 x 979 Average cost of groundnut per bag outside Rafi LGA for 120 traders = N11,116.70 x 979 TR for Rafi local markets = N9985800.00 TR for markets outside Rafi local markets = N10883249.30 Gross margin for the local markets = N377894.00 Gross margin for markets outside Rafi LGA = N1275343.30 Marketing margin for Rafi markets = 3.8% Marketing margin for the markets outside Rafi LGA = 11.7% The results of gross margin and marketing margin showed that groundnut enterprise is a lucrative business in Rafi LGA as N377894.00 and 3.8% respectively were observed. However, attempt to buy and sell the produce outside the LGA yielded higher gross margin (N1275343.30) and marketing margin (11.7%). This level of profit was made by 120 traders sampled in Rafi LGA in the first week of June, 2007. CONCLUSION The profit levels of 3.8% and 11.7% in the local markets and Makarufi market respectively is encouraging even though majority of the traders are illiterates. The number of channels involved was much and as such reduced the marketing margin (profit level). Groundnut was an important economic crop in the 70s, because it provided significantly to Nigeria gross domestic product through international trade. Production of the crop failed due high cost fertilizers, pesticides, herbicides, as well as inadequate extension, inadequate research packages, inadequate finance and transportation which do not fit into the farmers system of production. Locally, groundnut is consumed in different ways hence it sustains the lives of majority of our people particularly in rural environments. RECOMMENDATIONS * Youth participation in groundnut business will go a long in poverty alleviation particularly the females who are discouraged due to cultural background in the study area. * Co-operative organization among traders will solve the problem of funding since such organizations tend to have more financial security from government, private, non governmental organization, international funding organizations, and even banks. This will also enable traders buy the produce in bulk and then transport to places where they can make higher profit. * Transportation problem can be solved by the provision of good and accessible roads in all the markets in Rafi LGA to reduce the cost of conveying agricultural produce particularly groundnut. ACKNOWLEDGEMENT The author appreciates Musa Alhassan, his former student for data collection. REFERENCES Abalu GOI (1978). An economic analysis of groundnut production in Northern Nigeria. National seminar on groundnut held at Bagauda lake hotel, Kano State, 13 th -14 th February. Abbot JC, Mekaham JE (1979). Agricultural economics and marketing in the tropics. London, Longman Group Limited. Abdullahi A (1984). The problems and prospects of the green revolution for agricultural and rural development of Nigeria technical and environmental perspectives. 161
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