ECONOMIC ANALYSIS OF COCOA PRODUCTION IN OYO STATE, NIGERIA

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1 ECONOMIC ANALYSIS OF COCOA PRODUCTION IN OYO STATE, NIGERIA ABSTRACT Fadipe A. E. A., Adenuga A. H. and Ilori, T. E. Department of Agricultural Economics and Farm Management P.M.B 1515, University of Ilorin, Ilorin, Nigeria. Corresponding Author: Cocoa (Theobroma cacao Lineus) has remained a valuable crop and major foreign exchange earner among other agricultural commodity export of the Nigerian economy. In spite of its significance however, cocoa production in the country has witnessed a downward trend after 1971 season. This study therefore examined the economics of cocoa production in Oyo state, Nigeria. Data used for the study were collected from 150 cocoa farmers using a well structured questionnaire. Descriptive statistics, farm budget analysis, profitability and efficiency ratios and ordinary least square regression were the major analytical tools employed for the study. Results of the analysis showed that a net return of N37, per hectare was made in a production season and the profitability and efficiency ratios were 2.33 and 3.33 respectively implying that cocoa production in the study area is profitable and efficient. Farm size, access to credit chemical inputs and Farm age were identified as the significant factors affecting the output of cocoa production in the study area. The study therefore recommends that government should come up with programmes aimed at improving farm size, making credits available at no or little interest, provision of basic amenities in the rural areas and development of locally made farm machineries at affordable prices through the National Centre for Agricultural Mechanization Keywords: Cocoa (Theobroma cacao);farm Budget Analysis; Efficiency Ratios;Foreign exchange earner; Oyo State INTRODUCTION The centrality of agriculture to the development of developing economies is now beyond dispute. A vast body of knowledge has assigned a phenomenal role to agriculture in the early stages of industrialization. In West and Central Africa, agriculture has continued to play a dominant role in the provision of food, raw materials for industries, employment for the majority, and foreign earnings, which are used in financing development activities particularly the permanent crops. Permanent crops otherwise known as perennial tree crops are long term crops that occupy the field planted for a long period of time and largely harvested every year and do not have to be replanted for several years after each harvest. In the last 40 years, permanent crops, notably cocoa, coffee, oil palm, and rubber, have dominated the export agriculture (Nkamleu, Nyemeck and Gockowski, 2010). Perennial tree crop systems in Africa are important for national macroeconomic balances and rural livelihoods. In a period of rapid globalization and food crisis, countries in Africa are pursuing their comparative productive advantage to foster growth under a new liberal economic context. The pursuing of comparative advantage implies a continued (if not larger) role for tropical commodity exports in order to generate foreign exchange and to promote economic growth. Among the perennial tree crops, cocoa (Theobroma cacao Lineus) is of particular interest for West and Central Africa from where approximately 70 percent of the world supply of cocoa originates and for the global chocolate industry (Nkamleu and Kielland 2006). Cocoa is grown on about 7.2 million hectares with major concentrations in West Africa, South East Asia and Latin America. Specifically, cocoa production is dominated by four countries; Côte d Ivoire and Ghana produce approximately 41 percent and 17 percent of the world output respectively. The other two important producers are Cameroon and Nigeria, each contributing approximately five percent of the world cocoa production (Nkamleu et al, 2010). The Nigerian cocoa economy has a rich history which is well documented in literature. The contributions of cocoa to the nation s economic development are vast and have been reported by many authors (Olayide, 1969; Folayan, Daramola and Oguntade 2006). Cocoa has been the main agricultural stake of Nigeria economy until 1970 s when the crude oil was discovered in the country in commercial quantity. It has remained a valuable crop and major foreign exchange earner among other agricultural commodity export of the country (Ajayi, and Oyejide, 1974; ICCO, 2001). Apart from its contribution to the nation s economy, Cocoa is a plant-based food that contains carbohydrates, fats, proteins, natural minerals and some vitamins and like several other plant foods such as tea, red wine, fruits, vegetables and nuts cocoa contains a group of compounds which exhibit health benefits (Taubert et al, 2007). Research conducted at Harvard Medical School showed that heavy consumers of cocoa had significantly lower rates of heart disease and cancer compared to those who consume less. Cocoa has a unique natural taste and colour and possesses a delicious aroma used in many food products for extra flavour and colour. (ICCO. 2005). NJAFE VOL. 8 No. 4,

2 In spite of its significance however, Folayan, et al (2006), noted that cocoa production in Nigeria has witnessed a downward trend after 1971 season, when its export declined to 216,000 metric tons in 1976, and 150,000 metric tons in 1986, therefore reducing the country s market share to about 6% and to fifth largest producer to date, due to a combination of labour shortages and low producer prices. In recent time Federal and State government of Nigeria have made it a matter of policy attention to diversify the present over dependence of the country s economy on oil, by focusing on tree crops such as cocoa and food crops such as cassava production which is a reflection of the set up of the presidential initiative on the production of these crops. The Federal Government s concern at diversifying the nation s export base has placed cocoa in the centre-stage as the most important export tree crop. However, with the continued decline in the fortunes of the sub-sector an empirical insight into production performance and factors affecting product output in the sector would be of immense importance to policy makers. In view of this, the study was carried out to: describe the socio-economic characteristics of cocoa farmers; determine the costs and returns to Cocoa production; measure Cocoa production performance and determine those factors affecting the production of Cocoa in the study area. METHODOLOGY Study area The study was carried out in Oyo State, South Western Nigeria. The state covers approximately 28,584 square kilometers in land area and a population of 5,591,589 (Wikipedia, 2008). It is located between latitude 2 38 and 4 35 east of the Greenwich meridian. Agriculture is the major source of income for the greatest number of the people of the State. The state lies in the equatorial rainforest belt and the rainfall around this area varies from 155mm to 1800mm per annum. There is distinct wet season from April to late October and dry season from November to March, the areas have a mean annual temperature of 26.2 degree Celsius, the humidity is high between July and December and low between December and February The luxuriant forests are arranged in two or three layers consisting of undergrowth, medium higher trees and tall tree. The variety of plant species found here is one of the richest in the world (CDU Bulletin, 2007). The forest zone with high humidity favours the cultivation of tree crops such as Cocoa, Kola, Citrus and oil palm as well as arable crops like maize, cassava, Yam and Rice Sample and sampling techniques A three stage random sampling technique was used to select respondents for the study. The first stage was a purposive selection of Lagelu and Oluyole local government area of Oyo state due to the large number of cocoa farmers in the two local government areas (CDU Bulletin, 2007). The second stage was a random selection of four villages each from the two selected local government areas to make a total of eight villages. The third and final stage was a random selection of 25 farmers from each of the selected villages. In all, a total of 200 cocoa famers were interviewed and Primary data were collected in using a well structured questionnaire. Method of data analysis Descriptive statistics such percentages, mean, frequency distribution, and tabulation were used to analyse socioeconomic and farm characteristics of the respondents. Farm Budget Analysis was used to determine the net farm income of the cocoa farmers why profitability and efficiency ratios were used to measure the production performance of the cocoa farmers. The multiple regression analysis was used to determine the factors influencing the output of cocoa production in the zone. Farm budget analysis Net Profit (NP) = Total Revenue (Tr) - Total Cost (Tc) Profitability ratio (PR) = Net profit/total cost Efficiency ratio (ER) = Total revenue/total cost Multiple regression analysis The multiple regression analysis was used to identify the factors that affect cocoa production in the study area. The data obtained were fitted into four different functional forms namely, Cobb-Douglas, semi-log, exponential and linear functions. The regression model in its implicit form is given as: Y = F (x1, x2, x3, x4, x5, u). (2). Where Y = Output of cocoa in kilogram (kg) X1 = Farm size in hectares X2 = Access to credit (dummy; 1=Yes; 0= No) X3 = Chemical input in litres X4 = Farm age in years NJAFE VOL. 8 No. 4,

3 X5 = Farming experience in years U = Error term. The four functional forms are: Linear Y = β0 + β1x1 + β2x2 + β3x3 + β4x4 + β5x5 + U. (3) Semi log Y = β0 + β1logx1 + β2logx2 + β3logx3 + β4logx4 + β5 logx5 + U.. (4) Cobb-Douglas Log Y = β0 + β1logx1 + β2 logx2 + β3 logx3 + β4 logx4+ β5logx5 + U... (5) Exponential n Log Y = β0+ β1x1 + β2x2+ β3x3 + β4x4 + β5x5 + U (6) Where: β0.. β5 are the parameters to be estimated RESULTS AND DISCUSSION Socio-economic characteristics of respondents Table 1 gives a summary of the socioeconomic characteristics of the cocoa farmers. Table 1: Socio-economic characteristics of respondents Characteristics Frequency Percentage (%) Gender Male Female Marital status Married Widow Widower Age distribution > Highest level of Education No formal Education Primary Secondary Tertiary Adult Quranic Household size > Farming experience Membership of cooperatives Member Non member NJAFE VOL. 8 No. 4,

4 As shown in table 1, Majority of the cocoa farmers (about 89 percent) are males, indicating that more male were involved in Cocoa production than females in the study area. About 95 percent of the respondents are married and the mean age of the respondents was 59.4 years and more than 65 percent of the respondents are above 40 years of age. This implies that more old people are involved in the production of Cocoa in the study area. As much as 47.3 percent of the cocoa farmers had no formal education with only about 1.3 percent having tertiary education. The low level of education of the farmers could contribute to the poor adoption of new and improved technology observed among the cocoa farmers. The modal household size is 6 to 10 members and the average household size is 9 members with more than 60 percent of the respondents having household size of at least 8 members. This implies that the respondents have a relatively large household sizes which they utilize as a source of family labour. The result also revealed that about 60 percent of the respondents have more than 20 years of experience in cocoa production and only about 28 percent of the respondents are members of cooperatives societies Farm Characteristics Table 2 gives a summary of the farm characteristics of the respondents. Table 2: Farm inputs, production method and production management Items Frequency Percentage (%) Sources of Capital Personal savings Cooperatives Informal loan Personal savings/informal loan Land acquisition Inherited Purchased Leased Inherited/Purchased Inherited/Communal Land Area (Hectares) > Labour Employed Family Hired Hired/Family Total Production management system Owner Leased Group As shown in table 2, about 93 percent of the respondents have personal saving as their major source of capital and about 55 percent inherited their farm land. The average land size cultivated by the farmers is 4.42 hectares and more than 50 percent of them have farm sizes greater than 3 hectares. While only about 7 percent made use of only family labour, more than 60 percent of the farmers employed both family and hired labour in carrying out their farm operations. About 97.3 percent managed their farms themselves being their major source of their livelihood. Costs and returns analysis The costs and returns structure of any farming activity is important in order to determine costs and returns to labour and management. In examining the profitability of Cocoa production; the gross revenue (GR) was determined by adding all quantity of Cocoa beans sold; all valued at market price while the total cost incurred during the season was determined by summing up expenses incurred on land rent, land maintenance, harvesting and processing. The summary of costs and returns estimated is presented in Table 3 NJAFE VOL. 8 No. 4,

5 Table 3: Summary of costs and returns analysis Items Amount in Naira(N) per hectare (ha) Gross Revenue Less 53, Cost of labour Less 8, Cost of chemical Less 3, Cost of land rent Less 2, Cost of processing Equals 1, Net returns 37, As shown in table 3, the farmers made an average of N37, per hectare in a season. Measure of Cocoa Production Performance Result of analysis of the profitability and efficiency ratio is given in table 4 Table 4: Measure of Cocoa Production Performance Items Amount in naira (N) per hectare Net Profit Divide 37, Total cost 16, Equals 2.33 Profitability ratio 2.33:1 Gross Revenue Divide 53, Total cost 16, Equals 3.33 Efficiency ratio 3.33:1 The condition for the above measure is that Profitability ratio and efficiency ratio must be greater than one (1). From the above result, the profitability ratio (PR) is 2.33 while efficiency ratio (ER) is This indicates that cocoa production is profitable and efficient in the study area. Regression analysis Regression analysis was carried out to determine the factors that affecting output of cocoa production in the study area. The model specified output of cocoa seeds Y (Kg) as a function of farm size(x1), education of the farmer (X2), chemical inputs(x3), farm age (X4) and Farming experience(x5). The summary of the double log form of production function result is given in table 5 Table 5: Summary of regression analysis Constant Regression Coefficient X1 X2 X3 X4 X (0.243) (0.68) ** (0.269) 6.922* (0.92) * *** Note: (i) The values in parenthesis are the standard errors (ii) The values below the standard errors are t-values (iii) *, **, *** represent significance at 1%, 5% and 10% respectively (0.167) R2 F-value The result of the estimated parameter can be written thus: Log Y= logX logX logX logX logX5 The value of co-efficient of determination R2 of 0.610(61%) indicates that 61% of variation in cocoa output could be explained by the explanatory variables in the stated regression model. Farm size, access to credit chemical inputs and Farm age were identified as the significant factors affecting the output of cocoa production in the study area. The positive coefficient of chemical inputs(x3) indicates that as the cocoa farmers added more variable input such as pesticides to their cocoa farm, it increases the output. CONCLUSION AND RECOMMENDATIONS The study analysed the performance of cocoa farmers in Oyo State, Nigeria. The findings of the study has shown that cocoa production in the study area is a profitable venture and Farm size, access to credit chemical inputs and NJAFE VOL. 8 No. 4,

6 Farm age were identified as the significant factors affecting the output of cocoa production in the study area. In line with the results of study, the following recommendations are made. Farmers should be encouraged to form cooperative societies to prevent exploitation by the middle men and take advantage of economies of scale given that only 28% of the farmers belonged to a cooperative society. The government should come up with programmes aimed at improving farm size by encouraging large size jointly owned cooperative commercial farms. Credits should be made available at no or little interest, provision of basic amenities in the rural areas and development of locally made farm machineries at affordable prices through the National Centre for Agricultural Mechanization should be given priority attention. The government should ensure effective dissemination of scientific and social information to encourage the usage of modern techniques by the farmers in cocoa production. The training of more extension agents who will provide the farmers with needed technology improvements and facilities should be given appropriate attention and consideration by the government. REFERENCES Ajayi S. I. and T. A. Oyejide The role of cocoa in Nigeria economic development. Nigeria: The Economics of Cocoa Production and Marketing in Nigeria. Cocoa Development Unit of Oyo State Information Bulletin of Cocoa Development Unit, Oyo State Press, Pp 1-30 Folayan, J. A, Daramola, G. A. and Oguntade, A. E Structure and Performance Evaluation of Cocoa Marketing Institutions in South-Western Nigeria: An Economic Analysis. Journal of Food, Agriculture and Environment. 2006; 4 (2): ICCO Inventory of the health and nutritional attributes of cocoa and chocolate. International cocoa organization. PRC/3/4/Rev.1. Page 2-8. International Cocoa Organisation Bulletin of International Cocoa Organization ICCO Nkamleu, G. B., Nyemeck, J. and Gockowski, J Technology Gap and Efficiency in Cocoa Production in West and Central Africa: Implications for Cocoa Sector Development African Development Bank Group, Working Paper No. 104 April Nkamleu, G. B. and Kielland, A. (2006). Modeling Farmers Decisions on Child Labour and Schooling in the Cocoa Sector: A Multinomial Logit Analysis in Côte d Ivoire. Agricultural Economics, 35 (2006) Olayide, S. O Some Estimates of Supply and Demand Elasticities for Selected Commodities in Nigeria s Foreign Trade. Journal of Business and Social Studies, 1(9): Taubert, D., Roesen, R., Schömig, E "Effect of cocoa and tea intake on blood pressure: a meta-analysis". Arch. Intern. Med. 167 (7): doi: /archinte Wikipedia, Cocoa, But Not Tea, May Lower Blood Pressure NJAFE VOL. 8 No. 4,