ABSTRACT
This study analyzed the value chain in rice production systems in Ebonyi State, Nigeria. Purposive and random sampling techniques were used in the selection of respondents for the study. The Rice value chain actors comprised rice farmers, processors and traders. Data for the study were obtained from primary sources using questionnaire. Data collected were analyzed using descriptive statistics, Functional analysis, Value Chain Map, Costs and Returns analysis, Linear Programming technique, Ordinary Least Square Regression analysis and Analysis of Variance (ANOVA). The Functional analysis showed the functions of the rice value chain actors to include; input supply, production, trade in paddy, processing and marketing. The structure of the rice value chain was depicted with a Value Chain Map and showed the different levels of the rice value chain in Ebonyi State. The analysis of the costs and returns of the rice farmers adopting the three production systems showed that Swamp production system had the highest net return of N65, 200 per hectare, followed by Lowland and Upland production systems with net returns of N46,500 and N30,000 respectively. Labour was a significant component of input cost across the three production systems. The Returns on Naira spent was 37.3%, 27.4% and 20.5% for Swamp, Lowland and Upland rice production systems respectively. The net return of the processors was N1, 980 per metric tonne of milled rice while the rice traders had a net return of N9, 890 per metric tonne. The analysis of Return on Naira spent was highest for Swamp rice production system (37.3%) followed by rice processing (33%). Rice trade had the lowest return on Naira spent of 6.4%. The analysis of cost and returns associated with the processing of a tonne of milled rice showed that the total margin accruable to traders in the value chain of rice in Ebonyi State from paddy to further processing was 40.75% of the total value. The Linear Programming results suggest that only Swamp production system with a value of 2.64 hectares qualifies for allocation of production resources, and the value of the objective function increased by 164% over the existing income. The results of analysis of the factors that affect profit earned by Upland rice farmers in Ebonyi State showed that the variables for farming experience, farm size and fertilizer were significant at 1% while equipment was significant at 5% level. Farming experience, farm size and labour significantly affected rice farmers in Lowland production system at 5% and equipment at 1%. Profit earned by rice farmers using Swamp production system in Ebonyi State were affected by farming experience at 5%, and farm size, labour and fertilizer at 1% level of significance. Rice farmers were constrained by production credit, climate change etc. Rice processors were constrained by seasonality of paddy rice supply and unavailability of affordable modern processing equipment. High transportation cost was identified as a constraint by rice traders. The ANOVA result indicated a significant mean difference in the level of profit of farmers using swamp, lowland and upland rice production systems. It was recommended that Government should provide adequate infrastructure to strengthen the rice value chain in Ebonyi State, Nigeria.
Key words: Value chain, Rice, Production system, Value chain Actors, Ebonyi State, Nigeria.
TABLE OF CONTENTS
Content Page Title Page i
Certification ii
Dedication iii
Acknowledgement iv
Abstract vii
Table of Contents viii List of Tables xiii
List of Figures xv
CHAPTER ONE: INTRODUCTION
1.1 Background of the study 1
1.2 Statement of the problem 4
1.3 Objectives of the study 9
1.4 Hypotheses of the study 10
1.5 Justification of the study 10
1.6 Scope of the study 12
CHAPTER TWO: LITERATURE REVIEW
2.1 Conceptual Framework 13
2.1.1 Rice 13
2.1.1.1 Rice Cultivars 18
2.1.1.2 Rice Production 19
2.1.1.3 Rice Processing 21
2.1.1.4 Rice Marketing 22
2.1.2 Concept of Value chain 23
2.1.3 Concept of Value Chain Analysis 24
2.1.4 Value Chain Actors 25
2.1.5 Policies on Rice Production in Nigeria 26
2.1.6 Porters Value Chain Framework 30
2.1.7 Elements in Porters Value Chain 31
2.1.7.1 Primary Activities 32
2.1.7.2 Support Activities 33
2.1.8 Agricultural Value Chain 34
2.1.9 Price Build-up from Stage to Stage 36
2.1.10 Product Transformation 37
2.1.11 Approaches in Value Chain Analysis 37
2.1.11.1 Price Distribution Approach 37
2.1.11.2 Value Addition Approach 38
2.1.11.3 Input-Output Approach 38
2.1.12 Value Chain Mapping 39
2.1.13 Rice Value Chain in Nigeria and Constraints 39
2.1.14 Conceptual Framework for Rice Value Chain Analysis in Ebonyi State 42
2.2 Theoretical Framework 45
2.2.1 Theory of the Firm 45
2.2.2 Transactions Cost Theory of the Firm 45
2.2.3 Theory of Production 46
2.2.4 Profit Maximization theory of the Firm 47
2.3 Empirical Framework 48
2.3.1 Empirical Work on Value Chain 48
2.3.2 Past Studies on Linear Programming 54
2.3.3 Current Study 54
2.4 Analytical Framework 55
2.4.1 Value Chain 55
2.4.2 Limitations of Value Chain Analysis 58
2.4.3 Linear Programming 59
2.4.3.1 Objective Function 59
2.4.3.2 Resource Constraints 60
2.4.3.4 Valuation of Scarce Resources 60
2.4.3.4 Linear Programming Model 61
2.4.4 Multiple Regression Model 63
2.4.5 Cost-Returns Analysis 64
2.4.6 Returns on Naira Spent 65
2.4.7 Analysis of Variance 66
2.4.7.1 The Assumption of Homogeneity of Variance 67
2.4.7.2 Post Hoc Test 69
CHAPTER THRE: METHODOLOGY
3.1 Study area 70
3.2 Sample selection 71
3.3 Data collection 73
3.4 Data analyses 74
3.5 Test of Hypotheses 79
3.5.1 Test of Hypothesis One 79
| 3.5.2 Test of Hypothesis Two | 81 |
| 3.5.3 Test of Hypothesis Three
CHAPTER FOUR: RESULTS AND DISCUSSION |
83 |
| 4.1 Actors in the Value Chain and their Functions in Ebonyi State, Nigeria | 85 |
| a) Input Supplier | 86 |
| b) Farmers | 86 |
| c) Rice Traders | 86 |
| d) Processors | 87 |
| e) Traders | 88 |
| 4.2 Socio-economic characteristics of the Value Chain actors | 89 |
4.2.1 Age 89
4.2.2 Sex 91
4.2.3 Educational level 92
4.2.4 Marital status 94
4.2.5 Household size 95
4.2.6 Experience 96
4.2.7 Monthly income 98
4.2.8 Membership of cooperative 99
4.2.9 Farm size 100
4.2.10 Production system 101
4.1.1 Scale of trade 102
4.3 Structure of the Rice value chain 103
4.4 Costs and Returns at each stage of the value chain in the study area 107
4.4.1 Costs and Returns of Farmers’ in the Rice value chain 107
4.4.2 Costs and Returns of Processors in the Rice value chain 110
4.4.3 Costs and Returns of Traders in the Rice value chain 112
4.4.4 Costs and Returns of producing a metric tonne of milled rice in the study area 114
4.5 Optimum combination of rice enterprise using various production systems for profit maximization through value addition 119
4.6 Factors affecting profit earned by rice producers per production system in the study area 121
4.6.1 Factors affecting profit earned by rice producers in Upland production system in
Ebonyi State 121
4.6.2 Factors affecting profit earned by rice producers in Lowland production system in Ebonyi State 125
4.6.3 Factors affecting profit earned by rice producers in Swamp production system in
Ebonyi State 128
4.7 Factors constraining actors in the rice value chain in Ebonyi State 131
4.7.1 Factors constraining rice Farmers in the Rice value chain in Ebonyi State 131 4.7.2 Factors constraining rice Processors in the Rice value chain in Ebonyi State 134
4.7.3 Factors constraining Traders in the Rice value chain in Ebonyi State 136
4.8 Test of Hypothesis 137
CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary 140
5.2 Conclusion 144
5.3 Recommendations 145
5.4 Contribution to knowledge 147
REFERENCES 148
APPENDICES 160
CHAPTER ONE
INTRODUCTION
1.1 Background of the study
Rice, Oryza sativa (Asian rice) or Oryza glaberrima (African rice) is one of the world’s most important cereals, being the staple food for over 50% of the world population (Ogundele & Okoruwa, 2006; Samarendu, 2013). Rice is indispensable in the strategy for food security in Sub-Saharan Africa (SSA), because it provides 27% of the energy and 20% of protein needs in developing countries, including African countries (Seck, 2007; Tollens,
2007). In Nigeria, per capita consumption of rice in the 1980’s is put at 18kg (Akpokodje, Lancon & Erenstein, 2001) and reached 22kg between 1995 and 2000 (Ogundele & Okoruwa, 2006). In 2005, average per capita consumption was between 24-28kg and represents 9% of total caloric intake per annum (Ochigbo, 2011).
In Sub-Saharan Africa, West Africa is the leading producer and consumer of rice and accounts for 64.2% and 61.9% of total production and consumption, respectively (Longtau,
2003). Nigeria is the one of the largest producer’s and a leading consumer of rice in West Africa (Africa Rice Centre (WARDA), 2005). In 2008, Nigeria accounted for 48% of the total rice output in West Africa (United States Agency for International Development
(USAID), 2009). United States Department of Agriculture/Foreign Agricultural Service (USDA/FAS, 2007) reports also that Sub-Saharan Africa (in volume terms) is the largest importing region in the world, with average annual imports in excess of 7.4 million metric tons. In Nigeria, total consumption of rice stands at about 5.4 million metric tonnes annually while output is about 3.8 million tons (IFDC, 2008). The deficit in production is made up by massive importation of milled rice to bridge the gap between domestic demand and supply. Nigeria’s rice processing capacity is 2.8 million tonnes of paddy annually (Japan International Cooperation Agency (JICA), 2013). Nigeria is one of the world’s major importers of rice (Akinbile, 2010). In 2011/2012 estimates, Nigeria was the largest importer of rice in the world, accounting for about 3.4 million metric tonnes (USDA/FAS, 2014).
Rice grows across all agro-ecological zones (AEZ) in Nigeria (African Rice Centre
(AfricaRice), 2011). Longtau (2003) classified six rice-growing environments (RGEs) in Nigeria as; Upland, Hydromorphic, Rain-fed lowland, Irrigated lowland, Deep inland water, and Mangrove swamps. Farmers adopt a particular rice production system based on the topography, input, expected output and returns. However, growth in rice production in SSA has been due to an expansion of the area under cultivation rather than to an increase in yield (Stryker, 2010). Imolehin and Wada (2000) put potential hectares of rice production at 4.6 – 4.9 million ha and actual production at 1.7 million ha. The difference between potential and actual yields is very high. However, there is conflicting information on average yields from different sources. AfricaRice (2011) reports that in 2008 Nigeria had an increase in rice production of 31.2% over 2007 figures.
The Federal Government of Nigeria in the 201l-2015 dispensation focused on ‘Value Chain’ in the agricultural sector. Some programs implemented under the Value Chain scheme are; Nigerian Incentive-based Risk Sharing for Agricultural Lending (NIRSAL), Growth Enhancement Scheme (GES), and Crop value chains, etc. The priority crop value chains include, rice, cassava, sorghum, cocoa and cotton. The crop value chain was aimed at increasing local production of staple crops for food and nutrition security as well as to make the country self sufficient in production of certain crops.
The value chain describes the “full range of activities which are required to bring a product or service from conception, through the different phases of production (involving a combination of physical transformation and the input of various producer services), delivery to final consumers, and final disposal after use” (Kaplinsky & Morris, 2001, pg. 4). Input suppliers, producers, processors, wholesalers and retailers; produce, transform, store, transfer or market the product, adding to its value at each step in the process (Campbell, 2006). Some reasons for promoting value added production may consist in higher profits, more stable market conditions, job creation, diversification of products and markets, and down-stream economic benefits through industry support sectors (Naji, 2011).
Value chain analysis (VCA) looks at the effective utilization of resources to create competitive advantage in other to provide lower cost and improve profit margins. The number and conduct of the participants along the value chain determine its efficiency, pricing and returns accruing to each participant at every stage (Global Value Chain Initiative (GVCI), 2007). The value chain model supposes that by understanding the interactions between actors and other participants, it is possible for private and public agencies (including development agencies) to identify points of intervention to increase efficiency and total value added, thereby improving the competence of the intended actors and their share of the total generated revenue. Hence, to improve the quality of domestic rice in Nigeria, institutional interventions are needed to make producers more responsive to end-user requirements and attach more importance to milling, cleaning, sorting and grading.
Within the whole value system, there is only a certain value of profit margin available. This is the difference between the final price the consumer pays and the sum of all the costs incurred from production to delivery of the product/service (e.g. raw material, energy etc).
The structure of the value system determines how this margin spreads across the suppliers, producers, distributors, and other elements in the value system (Dagmar, 2001). By analyzing the detailed cost structures of individual value chain participants, value chain analysis can identify the types of costs that account for the majority of total value, and therefore focus on specific areas for intervention. The value chain approach is designed to help policy makers and project planners zero in on specific areas where new investment or other types of improvement could have the greatest impact on profitability, competitiveness, and growth (Hardwick & Keyser, 2010).
Value addition at various stages of the rice value chain would bring improvements in the rice sector. The value addition starts from the input supply, and flows through the production, processing and marketing stages. At the production stage, farmers adopt different production systems for various reasons and it is geared towards income maximization. Income maximization entails comparison of costs and returns from different enterprises and stages of the value chain. This serves as a decision guide to rice farmers towards the realization of their production goals, as it is necessary that they know the most reliable type of production system to cultivate on and the extent of value addition to engage in. This is because, the rising demand for processed agricultural products in the global market creates opportunities for farmers in the rice downstream sector to leverage on value chains through vertical and horizontal integration.
1.2 Statement of the problem
Rice is critical for food security throughout Africa, and especially in Nigeria. For many decades, rice had the fastest growing consumption rate among all staple crops, determined in large part by huge growth in demand in urban centres (AfricaRice, 2011). Consumers are exhibiting a shift in preference from traditional staples (such as cassava, maize and yams) to rice (Nigerian National Food Reserve Agency, Federal Ministry of Agriculture and Water Resources, Japan International Cooperation Agency, 2009). Currently, there is a demand of 5 million MT of rice yearly in Nigeria. However, only about 3.2 million MT are produced locally (Federal Ministry of Agriculture and Rural Development, FMARD, 2012) with a demand gap of 1.8 million metric tons. The inability to meet rice consumption needs through local production makes the country import-dependent (Onyenweaku & Ohajianya, 2008; Akinbile, 2010). Nigeria spends about N356 billion annually for about 2 million MT of milled rice (FMARD, 2011).
Relying on the import of expensive food on global markets not only stimulates domestic inflation, but also hurts Nigerian farmers, displacing local production and fuelling rising unemployment (FMARD, 2012). In 2016, the price of rice doubled over 2015 prices, owing largely to foreign exchange rate and fluctuations in government policy on rice importation.
Yet, domestic demand for rice is still high. United States Department of Agriculture (USDA) 2014/2015 estimates showed that of 6.4 million MT domestic demand of milled rice in Nigeria, only 2.84 million MT was produced locally (Live Rice Index [LRI] , 2016). The inflation in the price of this commodity is expected to bring shifts to domestic production and consumption, yet, consumers still demand imported rice. Consumer preference for imported rice has been attributed to various factors but chief amongst them is the quality of this rice. Demand for imported rice is driven by urban consumers for its long white grain, less preparation time, absence of stones and it saves fuel for cooking (Tollens, 2007).
Nigeria is ecologically endowed to attain self-sufficiency in paddy rice production with potential land area for rice production of between 4.6 million and 4.9 million ha (FMARD,
2012; Ezedinma, 2005). However, in spite of the immense untapped potential in rice production in Nigeria, only 1.8 million ha of Nigeria’s total land mass suitable for rice production is cropped to rice (Coalition for African Rice Development [CARD] , 2009). In spite of the very favourable ecologies for rice production in Nigeria, production of paddy rice remains low. Oyinbo, Damisa and Rekwot (2013) reports that less than 10% of the potential 3.4 million hectares are currently irrigated. The choice of a balanced approach to the use of rice production systems presents an opportunity to be exploited (Macauley, 2015).
Estimates indicate that over 90 percent of domestic rice production comes from resourcepoor and weakly organized smallholders (USAID, 2009; Cadoni & Angelucci, 2013). These smallholders apply a low-input strategy to agriculture, with minimum input requirements and low output (International Fund for Agricultural Development [IFAD] , 2009). The livelihood of these smallholder farmers have been constrained by a host of challenges: low productivity; paucity of opportunities for value addition; limited access to productive assets and inputs; inadequate support services (extension and research); inadequate market and rural infrastructure; post-harvest losses and a constrained enabling environment (IFAD, 2012). More so, a huge proportion of domestic rice in Nigeria is not tailored to meet market needs. This has also limited the market share of the domestic rice producers.
Ebonyi state, Nigeria is one of the major rice producing areas and market for locally produced rice. This makes it a reference point for rice production in Nigeria. There is prevalence of rice farmers adopting different production systems in the state. The state also boasts of the presence of cottage, industrial, private and government owned integrated rice mills. The Abakaliki rice mill is a commercial hub for rice processing and trade for rice within and beyond the state. However, there is still dearth of information on the extent of value addition as well as profit margins in rice production in the state. The value chain of rice is characterized by different actors who play significant roles and are linked to other stages in the chain. The various functions these actors perform and their links in the value chain of rice, as well as, the distribution of gains within the value chain of rice in Ebonyi State is not yet ascertained, because, it is not well understood who actually benefits from the higher prices that consumers pay for high quality rice. It is not known empirically, if it is beneficial for rice farmers to produce paddy only, or if they should be encouraged to add value by processing and marketing.
By identifying the value per Naira invested in the rice value chain, actors will be certain of the extent of value addition that would be beneficial to them. Only by understanding the costs and returns to farming and other stages from production until the final market can policymakers begin to understand the incentives for production and processing, as well as the incentives for improvement in each stage. Value addition along the value chain of rice has been highlighted in many empirical literatures, yet the weak links along the value chain of rice in Ebonyi State Nigeria is not sufficiently documented for intervention.
A number of researchers have carried out various studies on Rice. In 2011, Ugochukwu and
Ezedinma applied a Policy Analysis Matrix Approach (PAM) to study the Intensification of Rice Production Systems in South-eastern Nigeria. Their result showed that upland; lowland and double rice cropping systems in South-eastern Nigeria are profitable based on the PAM model, and rice production under various systems and technologies is socially profitable and financially competitive. However, the work only studied rice farmers and did not consider actors at other stages of the rice value chain.
Ude, Adeoye, Yusuf, Balogun and Akinlade (2013) assessed the competitiveness and impact of policies on domestic rice production in Ebonyi State. Results from their study showed that private profit was positive for processors and negative for marketers while social profit was negative for processors and positive for marketers. They concluded that rice processors were protected while marketers were not protected and further recommended that protection policy should be intensified since the rice enterprises were profitable. Their work failed to address the profit for local farmers who produce the paddy for processing and marketing.
Nwaobiala and Adesope (2015) analyzed the economics of smallholder rice production systems in Ebonyi State. They compared the net profit between upland and swamp rice farmers. This work failed to determine the production system that would ensure optimum profits for the farmers using a linear programming model. It also did not link the farmers to other levels in the value chain of rice. More so, farmers engaged in lowland production system were not included in the study. This study attempted to fill this gap as it sought to determine the profit in the production systems as well as factors constraining the farmers from attaining optimum profit in rice production through value addition in Ebonyi State, Nigeria.
Oguntade (2011) assessed the Protection and Comparative Advantage in Rice Processing in Nigeria, with focus in Ebonyi State. He determined the contributors to value-addition in the processing of paddy rice into basic milled rice and value-added rice. He asserted that the margin derivable from the processing of paddy rice into basic milled rice per tonne was lower compared to further processing of basic milled rice into value-added rice per tonne.
However, his work was only on value addition at the processing stage of the rice Value
Chain. There is still paucity of research on Rice Value Chain at different levels (production to trading) in Ebonyi State, Nigeria. There is inadequate information about the value chain of rice in different production systems in Ebonyi State from production to trading, and it has not been sufficiently established explicitly, which rice production system features best for optimum profit and resource allocation in Ebonyi state. This work tends to fill these gaps.
1.3 Objectives of the study
The broad objective of this study was to analyze the value chain in rice production systems in Ebonyi State, Nigeria.
The specific objectives were to;
- identify the rice value chain actors and their functions in the rice value chain in Ebonyi State;
- examine the socio-economic characteristics of the respondents in the rice value chain in the study area;
- describe the structure of the rice value chain in the study area;
- determine the costs and returns associated with each stage of the value chain in the study area;
- determine the optimum combination of rice production systems for attaining optimum profit through value addition in the study area;
- determine the factors affecting profits earned by rice farmers per production system in the study area; and
- identify the factors that constrain different actors in the rice value chain in the study area.
1.4 Hypotheses of the study
The null hypotheses tested in this study were:
- There are no significant differences in the profits earned by rice farmers in different production systems;
- The profit of the rice farmers through value addition is not optimal;
- Profit earned by rice farmers in the rice value chain is not significantly influenced by household size, farming experience, farm size, seed, labour, agrochemical, fertilizer and equipment.
1.5 Justification of the study
The study aimed to analyze the value chain in rice production systems in Ebonyi State, Nigeria. The findings of this study will provide relevant information to value chain actors that would enhance the competitiveness of the rice value chain. This research tends to bring to the fore the optimum rice enterprise combinations in the study area, as well as the distribution of the gains within the value chain. This would be of immense benefit to the value chain actors, especially the farmers who are resource constrained and lack adequate information on the right production system to adopt in other to optimize profit. The implementation of such information from the results of this study would bring improvements in rice production in the study area.
Increased agricultural output can reduce food prices, to the benefit of all net food buyers in both rural and urban settings. Hence, if the results of this study are adopted by the rice value chain actors in Ebonyi state and in Nigeria generally, it would translate to higher supply of milled rice and in the long run translate to lower prices of rice for consumers. Researcher’s and students will benefit from this research as this will add to available literature in rice value chain as well as provide a stepping stone for further research.
In addition, the result of this research will be of immense benefit to the Federal, State and Local Governments. This work identified constraints and points of intervention that will assist government policy makers to introduce policies and programs that will strengthen the rice value chain. The implementation of the findings would translate to increased rice production and thereby create markets and jobs that will in the end alleviate poverty. Foreign exchange could be saved and channelled to other developmental projects.
The finding on the more viable production system would encourage farmers to increase their production, hence encouraging local/ domestic supply. If this is sustained, the demandsupply gap would be bridged, and in the long run, Nigeria can be an exporter of rice. The multiplier effect would be visible in areas of international trade, trade balance, gross domestic product, as well as foreign exchange earnings. It would also attract private investments in the rice sector. The observed gaps in this research would also be of immense benefit to researchers to carry out further studies that would make the rice sector competitive.
1.6 Scope of the study
Data for the study were collected between May – October 2015 in Ebonyi State, Nigeria. Ebonyi state lies in the humid tropical agro-ecological zone of Nigeria within Longitude 70 30ˈE and 80 30ˈE and Latitude 50 40ˈN and 60 45ˈN (Okereke, 2012). It covers a land area of 5,935 km2 (ebonyistate.gov.ng, accessed 17/04/2017). It has three agricultural zones; namely Ebonyi North, Ebonyi Central and Ebonyi South. The target group for this research were rice value chain actors that comprised farmers, processors and trader
ANALYSIS OF VALUE CHAIN IN RICE PRODUCTION SYSTEMS IN EBONYI STATE, NIGERIA
