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DETERMINATION OF THE INTEGRATION OF RICE MARKETS

10,000 3,000

ENUGU STATE, NIGERIA AS CASE STUDY

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CHAPTER ONE

INTRODUCTION

  • Background Information

Rice is the second largest produced cereal in the world, after wheat. About half of the world population depends on rice for their staple food. In the 1960s, the world rice production averaged at 264MT and over the years it increased to 596MT during 2001-2005 (Reddy, 2006).

In Nigeria, although rice has been a traditional food, it was only recently it assumed a prominent role in the diet of the majority of Nigerians, following a structural shift in the consumption of traditional coarse grains. According to Akande and Akpokodje (2003), the demand for traditional cereals such as millet and sorghum has fallen by 12kg per capita, and their share in cereals used as food has decreased from 61% in the early 1970s to 49% in the early 90s. In contrast, the share of rice in cereals has grown from 15% to 26% over the same period. In addition, the per capita rice consumption has risen from 18kg in 1980s to 22kg from 1995 to 2000 (Ogundele and Okoruwa, 2006). Two major factors appear to be responsible for this structural shift. These include population growth and urbanization, of which the later appears to be more important factor. To the urbanites, the major edge of rice over other traditional cereals is its relative ease of preparation thereby reducing the task of food preparation and fitting more easily into the urban lifestyles of rich and poor alike. Rice indeed is no longer a luxury food in Nigeria but has become a major source of calories for the urban poor. Stylized facts from several states in Nigeria demonstrate that rice availability and rice prices become a major welfare determinant for the poorest segments of the country’s consumers who also are least food secure (Akande and Akpokodje, 2003). From this perspective, rice marketing assumes an important place.

Rice marketing is the performance of all business activities in the flow of paddy and milled rice, from the point of initial rice production until they are in the hands of the ultimate consumers at the right time, in the right place and as convenient as possible, at a profit margin so as to keep the farmer in his farming operations (Iheme, 1996). The marketing of local rice in Nigeria involves four stages with a change of product ownership occurring between each pair of stages (Aderibigbe, 1997). The first stage is production through harvesting. Stage two concerns movement from the farms to processing centers while stage three involves moving the milled rice from processing area to urban consumption centers. The fourth stage encompasses wholesaling and retailing in the urban centers.

The marketing of any commodity is a specialized technique and demands proper organization. In case of agriculture and particularly rice products, the marketing aspect is even more important and demands a proper organization considering the increasing demand for the product (Ikeme, 1990). Efficient marketing system creates and activates new demand by improving and transforming production and by seeking and stimulating customer’s links. It guides farmers to production opportunities and encourages innovation and improvement in response to demand and price (Kohl and Downey, 1972).

According to Olukosi and Isitor (1990), it is within the marketing system that price allocation of resources, income distribution and capital formation are determined. This is to say that prices are key signals in the resource allocation process that take place through markets. A guaranteed market for farmers’ produce is a ready invitation to produce more. The marketing arrangement in a community must ensure that what was produced was sold or stored. Kohl and Uhl (1972) suggested that product should not even be produced at all unless it has a market. Marketing therefore begins with production on the farm.

Over the years, greater percentage of rice output in Nigeria has been from the rural small holder farmers. It has been observed that Nigeria was virtually self-sufficient in rice enterprise up to the 1970s (WARDA, 2004). The self-sufficiency ratio fluctuated between 96.3% and 99.8% between 1963 and 1975. However, since 1976, the ratio has dropped drastically to 41.46% in 1978 following sharp increase in the quantities of rice imported. The major reason for the decline in self-sufficiency  is the dramatic increase in aggregate per capita income following the oil boom, urbanization and changes in consumption patterns and the effects of government food importation policies which aimed at increasing the availability of food at reasonable prices under the National Supply Company (WARDA, 1981).

Market integration refers to a situation in which prices of a commodity in separated markets move together, thereby offering smooth transmission of price signals and information (Reddy, 2006; Intodia, 2005). The study of market integration is important in determining the co-movements of prices and the transmission of price signals and information across spatially separated markets (Samuelson, 1952; Takayama and Judge, 1964). Baulch (1997) noted that the issue of market integration lies at the heart of many contemporary debates concerning market liberalization, price policy and parastatal reforms in developing countries. Without spatial price integration of market, price signals will not be transmitted from food deficit to food surplus areas; prices will be more volatile; agricultural producers will fail to specialize according to long-term comparative advantage, and the gains from trade will not be realized. However, government’s intervention in the pricing and marketing of food and poor marketing infrastructure may impair the role of market mechanism in price transmission between surplus and deficit areas.

 

1.2       Problem Statement

            Despite obviously abundant human and natural resources, Nigeria is still unable to feed her citizens. The projected national demand for rice in the country is put at 4.64 million metric tonnes annually, while the current rate of consumption is put at 2.3 million metric tonnes. Current local production of the commodity is a meager 525,000 metric tonnes per annum. It follows that the country will have to import the shortfall which  is projected to cost $267 million (Ashaka, 2008). Nigeria is the world’s second largest rice importer after Singapore (Ola, 2008). The federal government spent about N80 billion for   the importation of 500,000 metric tonnes of rice from Thailand and other parts of the world in 2008 (Ashaka  2008). This situation which has continued to drain the country’s foreign exchange, has also led to the decrease in the domestic production of rice and over-dependence on rice importation.

Central to the issue of inefficiency in the supply of rice is the problem of inefficiency of agricultural marketing system. Inadequate marketing of agricultural produce has been a major problem limiting agricultural expansion (Care, 2004). Rice farmers and domestic traders are constrained by a number of factors such as high transportation cost; poor market infrastructure and inefficient price information transmission channel. Problems associated with the commodity itself include quality differentials and low caliber of production techniques. Also, the wide gap between rural and urban prices weakens the farmers’ morale thereby reducing productivity and in some cases leads to complete stoppage of production (Care, 2004).

It therefore appears that rice farmers are not getting maximum return from the resources committed to the enterprise; thus the need for this study. Rice farmers do not receive a fair price for their product. This discourages them from producing and expanding their rice enterprise. Rice is cheap in food-surplus areas (rural areas) where rice is produced; and it is expensive in food-deficit areas (urban areas) where the middlemen enjoy the profit at the expense of farmers (Okon and Egbon, 2005).

Topicion and marketing constitute a continuum; and lack of development in one retards progress in the other. To increase food production there is need to develop a more efficient marketing system with information so that prices in one market can be transmitted to other markets thus synchronizing price.

Studies on market integration in agricultural commodities include those conducted by Chirwa (2000). Jha, et al (2005), and Reddy (2006). By far the most important study relevant to this research is the one by Chirwa (2000). Apart from estimating the spatial integration of maize and rice markets in Malawi, he went further to identify the structural determinants of market integration. This research proposal intends to investigate the situation in the Nigerian market setting. In addition, it intends to identify the socio economic circumstances and problems of rice traders in the area which Chirwa’s study did not cover.

 

 

1.3       Objectives of the Study

The broad objective of this research is to examine market integration via price transmission in spatial markets in Enugu State. Specifically, the study seeks to:

(i)   describe the socio-economic characteristics of rice traders in the state;

(ii)     examine the existing market structure and marketing channels for rice in the state;

  • evaluate the spatial integration of rice markets through price transmission;
  • identify the structural factors which affect the integration of rice markets;
  • identify the problems affecting rice traders in the state and
  • proffer appropriate measures to enhance the role of market mechanism in price transmission and rice distribution in Nigeria.

1.4       Research Hypotheses

The null hypotheses to be tested are that:

  • spatial markets for rice are not integrated;
  • structural factors (transportation, processing, storage, information, communication facilities, etc) do not influence market integration.

 

1.5       Justification of the Study

            Rice is one of human kind’s most ancient and most universally consumed food. It is one grain crop grown almost exclusively for human food. The demand for rice has far exceeded its supply, so, there is need to improve production and marketing of rice, and also ensure that rice markets are integrated.

The study of integration of rice markets is important in order to determine the co-movement of prices and the transmission of price signals and information across spatially separated rice markets. It will also ensure a regional balance between food deficit and food  surplus areas. It will help producers and market intermediaries to identify sources of inefficiencies and how to remedy them.

If prices of rice in different markets are synchronized, it will encourage the farmers to continue in production and to expand their enterprise, thereby making price available in the market. In this way, supply will meet up with demand and rice importation will become a forgotten issue.

 

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