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ECONOMIC ANALYSIS OF RICE MARKETING MARGIN

10,000 3,000

ADANI UZO-UWANI LOCAL GOVERNMENT AREA OF ENUGU STATE, NIGERIA AS CASE STUDY

Topic Description

CHAPTER ONE

INTRODUCTION

Background of the Study

Agriculture has contributed immensely to the nation’s development. According to the Central Bank of Nigeria (1995), the contribution of agriculture to the nation’s gross domestic product in 1985 was 54.4%. Its role in food production, provision of raw materials for industries, as a major source of employment and income to a great number of the citizens of the country cannot be overemphasized. In recognition of this crucial role of agriculture in economic development, past governments have sought ways to increase domestic food production so as to alleviate food shortage and excessive high cost of food items, which have been a prevalent feature of many development countries.

The basic problem of Nigeria’s agricultural sector is high and rapidly increasing food prices, which are symptomatic of some deeply rooted structural problems. For example, the all cities composite consumers price index for food with 1960 as base rose from 216.6 in 1972 to 670.0 in December 1977 (Central Bank of Nigeria, 1980 and 1979). Thus food registered a higher rate of price increase than other items in the consumer’s budget. In 1979, the Federal Government spent the sum of N83,225,940, that is about 15% of her annual budget on agriculture out of the N5.2 billion capital expenditure. Out of N2.8 billion for current expenditure, Agriculture and rural development received N1,971, 170 that is about 69%, (Central Bank of Nigeria Annual Report 1986). In spite of this big amount allocated to agriculture, when compared to other sectors, there is no visible progress to justify the expenditure.

In order to attain agriculture policy objectives, programmes such as the National Accelerated Food Topicion Programme, the Agricultural Development Projects, River Basic and Rural Development Authorities, Operation Feed the Nation, the Green Revolution, Back to Land and Operation Food for All were launched. Associated with these programmes were support facilitates such as 18 agricultural commodity research institutes, 44 agricultural inputs and services units and the National Seed Services (Ogunrende, 1988).

Mention should also be made of the Nigerian Agricultural Cooperative and Rural Development Bank (NACRDB). The Supervised Agricultural Credit Guarantee Scheme and Rural Banking Scheme Obeta, 1990. Yet agricultural policy objectives have not be achieved as evidenced by the general food scarcity in the country. Advancing reasons for this, Nnadozie (1983) stated that the declining contribution of agricultural sector is not is not a consequence of development; rather, it is as a result of neglect of agricultural Development.

Nigeria is endowed with rich agricultural land, estimated at about 71.2 million hectares, out of which 34 million hectare are under cultivation. The manpower and climate are adequate to support a variety of crops. But in spite of all these potentials,  there is considerable gap between the estimated food supply and projected demand of major food items (Olayemi, 1985). Because of this shortage, Nigeria imports major food items.

Nigeria spends huge sum of   money estimated at about N15 billion annually on importation of food (Newsletter publication 1985). T he  same source reported  that  in 1975,  the  sum of  N21.71  million was  used  to  import

440,415 metric tones of rice and N362 million for 850.000 metric tones in 1982 and N2.3 billion in 1983. On the basis of this ugly development of massive food importation, the Federal Government banned the importation of rice on first October 1985. As was expected, the price of rice went up instantaneously. Farmers saw it as a challenge and went into greater production. Consequently, total rice output estimated at about 152.000 metric tones was produced in 1985 and increased to 283, 300 metric tones in 1986 (Central Bank of Nigeria Annual Report, 1980).

Farmers tend to concentrate more on production, managing their production process more than they do their marketing process. As a result, they dispose their product with little or no gain. The economic policies of developing countries in the past reflected a general tendency to considered marketing in some sense as an adjunct to the production process and of only limited relevance to the main issues in economic development. Although it is a known fact that production level is still insufficient to match increasing demand of the population of the country, it is necessary that this available product be adequately distributed to the consumers.

In subsistence agriculture, every farmer grows his own food and fibre. The farm is also generally self-sufficient for input supplies. Marketing posed little problems because there were virtually no surpluses. As individuals in the society became more specialized in their economic activities; they came to rely on others for the supply of the products, which they need but cannot produce (Crawford, 1989). This begins a process of exchange among buyers and sellers. This exchange process according to him is called marketing. An efficient marketing system can be an important means for raising the income levels of farmers and increasing the consumer satisfaction. The farmers allocate their resources according to their comparative advantage and invest in modern inputs to obtain enhanced productivity and production.

Rice commands a prime position among other cereals grown in Nigeria. Buddenhayen C.W. and Persleey (1990) reported that amongst the cereal grains, rice was second to wheat in terms of total world production with 34 million tones recorded in 1975. Rice provides food for men and feed for livestock. It has high starch content and contains varying amounts of protein, oil and vitamin. In Nigeria, rice has gradually assumed a major food item of an average family menu. For this reason, the various State Grains Boards and Rice Topicion Stabilization Programme (RPSP) of 1988 were introduced by the Federal Government to assist in the production, marketing and distribution of rice.

In spite of all these efforts made by the government at improving the production and marketing of agricultural products, rice marketing is still faced with a lot of problems. The problem is not with much production as it is with instability of marketable supplies, which is normally affected by losses in the distribution system. Efforts should therefore be made to ensure that agricultural products are distributed to the ultimate consumers effectively. It is therefore necessary that proper strategies be devised to stabilize marketable surplus and develop reliable and sustainable market so as to alleviate hunger and poverty.

Problem Statement

Agricultural policy-makers in the past attributed the problem of agriculture to lack adequate food production without realizing that inefficient market can and do

 

discourage increase in production. Osuji (1985) and Abdulsalami (1984) noted that many works done on rice dwelt mainly on production and consumption, neglecting the aspect, which deals on the share of profit that goes to producers and marketers of the produce.

In recent times, the price of rice has been rising. Abbott (1980), observed that in spite of the rising price of rice, relatively small proportion of retail price for rice is actually returned to the farmer and this does note encourage increased production. Equally important are insufficient handling methods; excessive interest payment and pledging of growing crops are often responsible for farmer’s problem. Service valued by consumers packaging, grading and packing also absorbs much of the profit that would have accrued to the farmer.

Savings in the marketing costs by elimination of such defects like high transport cost, inadequate storage facilities and poor processing facilities would permit the enhancement of consumer demand through lower retail prices without any comparable reduction in price to farmers. The reduction of costs and margins in marketing is the best way to improve farm income, because it allows the rest of the population to benefit from  a relatively lowering of agricultural prices (Abbot, 1980).

Objectives of the Study

The broad objectives of this study are to analyze marketing margin for rice among participants in marketing of rice in Adani, Uzo-Uwani Local Government Area.

The specific objectives are to:

  • identify and describe the marketing channel for rice in the study area;
  • identify and describe the participation in the rice trade and their activities in the marketing of rice;
  • determine the cost of performing the physical functions of transportation storage, and processing;
  • determine the margin accruable to the producers, wholesalers and retailers.
  • suggest ways of improving the marketing of rice in Adani-Uzo-Uwani Local Government Area.

Justification of the Study

There is a consensus among the people that the economic survival of any nation depends largely on her ability to feed her population. Such ambition usually remains mere utopia (are never realized) because of the problem arising from poor yield, distribution network and agricultural policies and programmes. The relationship between food prices and the general services is often of interest to the government because food is an important item in total consumer expenditure so that when the price of an important foodstuff changes, it has an additional effect on the real income of the consumer (Kohls R.L. and Uhl 1990).

Over the years, there has been as sustained criticism of middlemen involved in marketing of foodstuffs of creating artificial scarcity of staple food items, fixing prices arbitrarily and barriers to entry into the market (Miller, 1987). This interference with market mechanism, which results in artificial scarcity of essential food items like rice causes great suffering to the poor masses because it forms part of their every day meal.

Margins are often used in the analysis of he efficiency of the marketing systems. Subba Reddy (2004) observed that they are often misused even if they are correctly calculated because the presentation of a producer’s share of the final selling price in percentage terms can give a totally misleading impression unless you know the costs involved. It will also show if imperfections in the marketing system or poor yield from the producer are the causes of low share of the consumer’s money to the producers. The researcher will also the role

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