Project Abstract

Project Overview

1.1 INTRODUCTION

Groundnut, which is a highly valuable legume in Nigeria, is processed in many ways: roasting, boiling, homogenising, and toasting. However, toasting of groundnut, which commenced about a decade ago produces defects that may make the product unacceptable: broken or grinded nuts, nuts with peeled-off sugar coating, burnt nut, soft nuts, uncooked nuts, and two nuts stuck together. Since some processing norms are observed before obtaining the final product, an investigation of these norms may provide useful guidance on how to minimise these defects [1].

According to [2], modern edible oil extraction can be grouped into two: mechanical pressing and solvent extraction. Sometimes the latter compliments the former. For oilseeds with high oil content such as ground nut, first mechanical pressing will be applied and over 85% of the oil will be extracted. The remaining oil in the expeller cake will then be extracted with solvent. For some other oilseed with low oil content, solvent extraction is generally considered as the best alternative. However, the initial investment cost of solvent extraction is much higher than mechanical pressing. In addition, solvent extraction is more appropriate for large scale than small-scale enterprise. Therefore, for the purpose of this study the mechanical pressing technology has been focused.

There are many varieties of groundnut grown in Nigeria [3]. Some of these were considered 'traditional' but others have been introduced in the last few decades; the Yardakar (Ex-Dakar) and Maiborgo (RMP-12) which are known for their high content of edible oil [4]. Under normal circumstances, groundnuts being the major raw materials of oil extraction and cake production flow from the farms and/or rural markets to the processing plants in the urban centres where the demand is relatively high. The produce are assembled in big lots and move to bigger isolated urban regional markets. Standard units of measurement and pricing were established in groundnut oil and groundnut cake marketing; edible oils are poured into gallons, jerry cans, bottles etc of different shapes and sizes, the cakes are bagged and weighted in tonnes. Despite groundnuts are seasoned crops, the modern oil millers partake in the business all year round [5].

According to [6], groundnut processing vis-à-vis oil extraction is a common socioeconomic activity found in Gombe State; as increase in production leads to a derived demand of the outputs, necessitated the establishment of small, medium and large-scale processing plants so as to add value to the crop. But, the oil processing enterprise in the State is mainly dominated by small-scale operators, based in urban areas. Small-scale groundnut mills are commercially viable, returning an annual average of 51% on typical investments of between N 0.5 million - N 2.5 million, with profits of 21% on sales. The socioeconomic benefits of groundnut oil mills include:

i) A typical small-scale groundnut oil mill employs at least 10 people on a permanent basis and 3 – 5 temporary workers with an average monthly income that is 2.5 – 3 times the rural average incomes.

ii) The mills offer a ready cash market for groundnut. A typical mill buys several thousands of Naira worth of groundnut per year from many different markets across the country.

iii) Other beneficiaries are that, school children who collect bottles for recycling, fuel wood suppliers, roasting and separation of seeds and (local) maintenance workshops that repair the mills. This amount to a further twenty five beneficiaries, earning hundreds of Naira per year from a mill.

iv) Benefits accrue to the community through cheaper oil of good quality; typically the groundnut oil is relatively cheaper than the refined blended oils produced by the larger companies.

The marketing efficiency measurement of groundnut oil processing depends on reducing the capital and operating costs as much as possible, and at the same time maximising the income from the sales of oil and other by-products. A careful study of all costs is therefore necessary before setting up a processing plant. In particular the cost of the main pieces of equipment, salaries for the expected number of workers, and the prices for raw materials, fuel and power should be assessed. The price that can be charged for oil and by-products depends on a number of factors including quality, packaging, and the number, type and quality of competing products. These should each be assessed in order to predict the likely income at the planned scale of production over the year.

The processing costs can then be compared with the expected income to calculate the likely profitability. In most cases it is necessary to make full use of the by-products to make the enterprise financially successful [7]. It is worth while study to groundnut value chain to identify its processing and marketing efficiencies, to provide information that looks into the possible ways and means of increasing the traders’ income through accumulating capital and enhancing productivity and marketing. To this effect, the research is therefore made to provide answers to the following questions: 

(i) is small-scale groundnut oil processing a profitable venture? 

(ii) what type of market is marketing efficiency of groundnut oil processing achieved? 

(iii) what are the marketing channels of groundnut products?

 Thus; the specific objectives of the study were to: 

(i) ascertain the profitability of groundnut oil processing in the study area; 

(ii) determine the marketing efficiency of groundnut oil and groundnut cake in the study area;

 (iii) identify the possible marketing channels of groundnut oil and groundnut cake in the study area.

Methodology

Gombe metropolis is the principal urban centre of Gombe State which serves as the State capital as well the headquarters of Gombe Local Government Council. Situated on longitude 11° 10´ E and latitude 10° 17´ N, with an altitude of 435.13 meters above sea level, covering an area of 5,200 km2 and had human population of 268,536, with males constituting 68.3% with a projection of 280,000 people in 2012. About 80% of the population engaged in agriculture and agro-allied investments. It’s a multi-ethnic town constituting mainly of Fulani, Hausa, Tera, Bolewa, Tangale, Kanuri and etc. The weather is characterised by a warm climate, having a mean diurnal temperatures of 35°C – 40°C in the months of March – May and less than 30°C during harmattan and had mean annual rainfall of 850mm [8].

A multi-stage sampling technique was used to select 90 small-scale groundnut oil processors. In stage I, Gombe metropolis was purposively selected. The choice was made by the fact that it’s the commercial centre of the State and constituted about 85% of the target population for this study. In stage II, six market districts namely; Tudunwada, Jekadafari, Pantami, Herwagana, Bolari and Nassarawo were purposively selected because they were notable and predominant areas for modern groundnut oil processing. In stage III, two markets were selected each from the market districts. In stage IV, a total of 90 groundnut oil processors were selected using simple random sampling proportionate to the number of processors in each market.

In determining the sample size appropriate for this study, the Barlett et al. (2001) model as modified by [9] was used, where 20% of the population was sampled. The study sought to define sample size such that at least 95% level of confidence was obtained as probable error of using a sample did not exceed 5%. According to this model, the appropriate sample size for a population of 451 processors was ninety (90). A proportional allocation technique was then used to determine the number of sample from each market.

Data for this study were collected using structured questionnaires; this was supported with personal interview in situations where the respondents did not understand the questions.

Data were analysed using farm budget, profitability index, gini-coefficient, t-test and shephered-futrel. To determine the costs, returns and gross incomes, the farm budget model was employed. The gross margin analysis as a popular model was used, which also measured profitability of the enterprise. According to [10], the Gross Margin (GM) equation is specified as;

GM = TR- TVC

where:

GM = Gross Margin (N)

TVC = Total variable costs (N)

TR = Total Revenue (N).

To determine the income distribution and market concentration, the gini-coefficient model was used. It is a measure of statistical dispersion most prominently used as a measure of inequality in income distribution. The model is most easily calculated from unordered size data as the “relative mean difference,” that is the mean of the difference between every possible pair of individuals, divided by the mean size. The Gini-coefficient ranges from zero to one. A perfect equality in concentration (low) of sellers is expected if Gini-coefficient tends towards zero, while perfect inequality in concentration (high) of sellers is expected if gini-coefficient tends towards one. If Gini-coefficient equals to one then the market is imperfect and if Gini-coefficient is equals to zero the market is perfect and competitive [11]. However, analysis of the market structures (objective four of the study) for groundnut oil and cake of RMP-12 and Ex-dakar varieties was done using Gini-coefficient. According to [12] Gini-coefficient also, called the Gini index is expressed as:

GC = 1 - ∑XY (2)

where; GC = Gini-Coefficient

X = Proportion of groundnut oil and cake processors

Y = Cumulative proportion of processors earnings

∑ = Summation sign.

Also, The Shephered-futrel model was used to determine marketing efficiency of groundnut oil processing in the study area. Efficiency in agro-processing firms is the most frequently used measure of market performance. Improved market performance is the common goal of agri-business firms. The model is simplified as;

M.E =         marketing costs      x100%

       Total value of marketing of the products 

                             (3)

Also this model considers marketing efficiency as;

where;

M.E = Marketing efficiency (coefficient)

TR = Total revenue

TC = Total costs

The coefficient shows what percentage of the total revenue is taken by the total costs. Therefore the lower the coefficient the better the marketing margin, hence the more efficient market is [13]. However, to test for significance, the Paired t-test analysis was used to assess statistical differences in costs, returns, profit level, marketing margin and marketing efficiencies between the two respective groundnut varieties. The model is assumed appropriate to compare the means of the two sample groundnut groundnut varieties [14]. Generally the model is specified as;

where;

t = t- value

 and X2 = Arithmetic means for the two sample groups

S1 and S2 = Variances of the two sample groups

n1 and n2 = Sample sizes of the two group

To take decision on whether or not the difference between the two groundnut varieties is significant, the confidence limit is set at 0.05. This means that five times out of a hundred, one would find a statistically significant difference between the mean outputs from the two varieties [14].

3. Results and Discussion

Costs are the actual expenses incurred in the process of marketing agricultural products. “Reference [15]” reported that, marketing costs comprises of the actual expenses incurred in the performance of the marketing activities as the commodity moves from the farm to the ultimate consumer. Costs in processing and marketing of groundnut products were grouped basically into two; the fixed costs and the variable costs, while returns were obtained from the sales of the products (oil and cake). Also, profits and/or lost were determined from the differences between the total revenue and the total costs incurred in marketing.

The average total costs and returns from processing of average 3.12 tonnes of shelled groundnut per trader per processing cycle of at least two days per week were determined and presented in Table 1. The results revealed, the average total costs of processing 3.12 tonnes of shelled groundnut per week, was N 417,959.13 and N 386,596.21 for RMP-12 and Ex-dakar respectively. The average total costs of processing differed because raw RMP-12 incurred higher cost than Ex-dakar. Also the results depicted that, fixed cost components were merely 0.42% and 0.47% of the average total costs of processing RMP-12 and Ex-dakar respectively. The cost of raw RMP-12 variety accounted for 92.25% while that for Ex-dakar variety constituted 91.62% of the average total costs. In terms of returns, the average gross margin (GM) of  N 73,786.77 and N 96,964.69 were realised from the sales of 1,606 litres (oil) and 1.53 tonnes (cake) obtained from RMP-12; and 1,512.7 liters (oil) and 1.63 tonnes (cake) obtained from Ex-dakar respectively. This also reveals that groundnut oil accounted for 67.54% of gross income from RMP-12 and 64.67% from Ex-dakar, with the remaining proportion (32.46% and 35.33%) of the gross incomes from the respective groundnut varieties, accounted for revenues realised from the sales of groundnut cake. This implies that both the products must be sold jointly so as to cover the total variable costs and make profit.

Moreover, the revenues from edible oil accounted for 78.84% and 80.95% of the total costs of processing RMP-12 and Ex-dakar respectively. This implies that, for processors to make sufficient profit they have to sell both the cake and the oil. Similar findings were made by [16]; [17]; [18]; who reported that, to cover up the variable costs and make reasonable profit both groundnut oil and cake must be sold jointly. The result further showed the respective average net returns of N 72,458.65 and N 95,636.57 were made, and the difference was significant (P<0.01). This implies that net revenue of about N23,223.93 and N30,652.75 per tonne were realised from RMP-12 and Ex-dakar respectively. This is in line with [19], who reported N 20,000.00 – N 30,000.00 profit was realised from processing one tonne raw groundnut in South East Nigeria. This translates that the business was profitable, as further confirmed by the rate of return to investment of 17.34% and 24.74% meaning that for every N1 invested, N 0.17 and N 0.25 were realised as net returns from the respective groundnut varieties. This agrees with [20]; and [21] that groundnut oil processing and marketing was a profitable venture in Bauchi State. Although, the level of profit was low, which was attributed to low price paid for the products and coupled with high cost of groundnuts [18]. The high cost of groundnuts which is a cash crop may be attributed to the decline in its production due to negligence by the government since the discovery of petroleum in 1960s [22]; and [23].