PROFIT EFFICIENCY AMONG MAIZE PRODUCERS IN OYO STATE, NIGERIA

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1 VOL. 6, NO., NOVEMBER 0 ISSN Asian Research Publishing Network (ARPN). All rights reserved. PROFIT EFFICIENCY AMONG MAIZE PRODUCERS IN OYO STATE, NIGERIA Ogunniyi L. T. Deartment of Agricultural Economics, Ladoke Akintola University of Technology, Ogbomoso, Oyo state, Nigeria titiogunniyi@yahoo.com ABSTRACT The study emloyed a stochastic frontier rofit function to measure rofit efficiency among maize roducers in Oyo State, Nigeria. A multistage random samling technique was used to select 40 maize roducers. The results showed that rofit efficiencies of the farmers varied widely between % and 99.9% with a mean of 4.4% suggesting that an estimated 58.6% of the rofit is lost due to a combination of both technical and allocative inefficiencies in maize roduction. From the inefficiency model, it was found that education, exerience, extension and non-farm emloyment were significant factors influencing rofit efficiency. This imlies that rofit inefficiency in maize roduction can be reduced significantly with imrovement in the level of education of samled farmers. Keywords: maize roducers, rofit efficiency, factors exlaining inefficiency, rofit loss. INTRODUCTION Maize (Zea mays) is a major imortant cereals being cultivated in the rainforest and derived savanna zone of Nigeria. Maize is one of the oular cereals in Nigeria. Maize is high yielding, easy to rocess, readily digested, and cheaer than other cereals. It is also a versatile cro; growing across a range of agro ecological zones. Every art of the maize lant has economic value: the grain, leaves, stalk, tassel, and cob can all be used to roduce a large variety of food and non-food roducts. In industrialized countries, maize is largely used as livestock feed and as a raw material for industrial roducts, while in develoing countries, it is mainly used for human consumtion. In sub-saharan Africa, maize is a stale food for an estimated 50% of the oulation. It is an imortant source of carbohydrate, rotein, iron, vitamin B, and minerals. Africans consume maize as a starchy base in a wide variety of orridges, astes, grits, and beer. Green maize (fresh on the cob) is eaten arched, baked, roasted or boiled; laying an imortant role in filling the hunger ga after the dry season (IITA, 007a). Maize is an imortant food in Africa and the main ingredient in several well-known national dishes. Examles are tuwon, masara and akamu in northern Nigeria, koga in Cameroon, injera in Ethioia and ugali in Kenya. It is also used as animal feed and as raw material for brewing beer and for roducing starch (IITA, 008). In Nigeria, the demand for maize is increasing at a faster rate daily. This may be due to the fact that grain is being used for feeding oultry and also serve as the main food for many household. But the challenge that is currently confronting Nigerian agriculture is low roductivity. A number of factors could have been resonsible for the low roductivity. These include little or no use of imroved seeds, herbicides and fertilizers, increased levels of biotic and abiotic constrains and the fact that rices of inuts have triled in the last ten years. Global warming and its associated effects have changed rainfall attern leading to erratic and unreliable rainfall in some cases resulting in drought. Furthermore, the little or no use of fertilizers and organic manure has resulted in soil becoming oorer with an oortunistic exansion in Striga infestation roblems. Continuous growing of cro for cash also result in build-u and carry over of ests notably stem borers from one cro to the next within the same environment (IITA, 007b). Low roductivity in maize roduction has led to increase in the rice of maize. According to Akinrinde and Olukotun (00), if resources are roerly managed the yield of maize should range from, 0 to, 40 kg/ha for early cro and 670 to, kg/ha for late cro. However, it aears that maize farmers in Nigeria are not getting maximum return from the resources committed to the enterrise. It is therefore necessary to examine the factors that reduce rofit from maize roduction. The analysis of efficiency dates back to Knight (9), Debrew (95) and Koomans (95). Koomans (95) rovided a definition of technical efficiency while Debrew (95) introduced its first measure of the coefficient or resource utilization. Following on Debrew in a seminal aer Farrell (957), rovided a definition of frontier roduction functions, which embodied the idea of maximality. Farrell (957) distinguished three tyes of efficiency: () technical efficiency, () rice or allocative efficiency and () economic efficiency which are the combination of the first two. Technical efficiency is an engineering concet referring to the inut-outut relationshi. A firm is said to be efficient if it is oerating on the roduction frontier (Ali and Byerlee, 99). On the other hand, a firm is said to be technically inefficient when it fails to achieve the maximum outut from the given inuts, or fails to oerate on the roduction frontier. Mbowa (996) in his study on the sugarcane industry in South Africa defined an efficient farm as that which utilizes fewer resources than other farms to generate a given quantity of outut. Yilma (996) while studying efficiency among the smallholder coffee roducers in Uganda defined an efficient farm as that which roduces more outut from the same measurable inuts than that one which roduces less. Fan (999) referred to technical

2 VOL. 6, NO., NOVEMBER 0 ISSN Asian Research Publishing Network (ARPN). All rights reserved. inefficiency as a state in which actual or observed outut from a given inut mix is less than the maximum ossible. Allocative efficiency deals with the extent to which farmers make efficient decisions by using inuts u to the level at which their marginal contribution to roduction value is equal to the factor cost. Technical and allocative efficiencies are comonents of economic efficiency. It is ossible for a firm to exhibit either technical or allocative efficiency without having economic efficiency. Technical and allocative efficiencies are therefore together necessary conditions for economic efficiency. Following Farrell s (957) work there has been a roliferation of studies in the field of measuring efficiencies in all fields. But in the field of agriculture, the modeling and estimation of stochastic function, originally roosed by Aigner et al., (977) and Meeusen and van den Broeck (977) has roved to be invaluable. A critical narrative of the frontier literature dealing with farm level efficiency in develoing countries conducted by Battese (99), Bravo-Ureta and Pinheiro (99), Coelli (995) and Thiam et al., (00) indicated that there were wideranging theoretical issues that had to be dealt with in measuring efficiency in the context of frontiers and these included selection of functional forms and relevant aroaches (arametric as oosed to non-arametric). Hyuha (006) investigated rofit efficiency among rice roducers in eastern and northern Uganda using normalized translog functional form. The results showed area under rice and caital had a ositive influence on rofit levels while cost of family labor and other inuts had a negative effect. The analysis also showed that all farmers were not oerating on the rofit frontier and scored a mean rofit efficiency of 66 ercent with about 70 ercent of the farmers scoring at least 6 ercent. The efficiency levels at the district level were 75, 70 and 65 ercent, resectively for Pallisa, Lira and Tororo, resectively. Rahman (00, 00) estimated a stochastic rofit function for Bangladesh rice farmers. The results showed that there existed a high level of inefficiency in rice farming because γ was close to one. The average rofit efficiency scores were 60%, which imlied that the farmers could imrove their rofitability by as much as 40%. The farmers also exhibited a lot of rofit inefficiency. The farm-secific factors resonsible were oor access to inut markets, unfavorable tenancy arrangements, and off farm emloyment. Abdulai and Huffman (998) examined the rofit inefficiency of rice farmers in northern Ghana. The emirical results show that farmers human caital reresented by the level of schooling contributes ositively to roduction efficiency, suggesting that investment in farmers education imroves their allocative erformance. Ogundari (006) investigated factors that determine the rofit efficiency among small scale rice farmers in Nigeria. The results showed that their rofit efficiency where ositively influence by age, educational level, farming exerience and household size. As ointed out by a number of researchers including Akinwumi and Djato (996, 997) a rofit function is much suerior to roduction function because first it ermits straight forward derivation of own-rice and cross-rice elasticities and outut suly and inut demand functions, second, the indirect elasticity estimates via rofit function have a distinct advantage of statistical consistency, third, it avoids roblems of simultaneity bias because inut rices are exogenously determined. Akinwumi and Djato (997) quoting Quismbing (994) confirm that roblems of endogeneity can be avoided by estimating the rofit or cost function instead of the roduction function. Besides, the rofit function is extensively used in literature (Yotooulos and Lau, 97; Saleem, 988; Akinwumi and Djato, 996 and 997; Abdulai and Huffman, 000). A number of functional forms exist in literature for estimating the rofit function which includes the Cobb- Douglas (C-D) and flexible functional forms, such as normalized quadratic, normalized translog and generalized Leontif. The C-D functional form is oular and is frequently used to estimate farm efficiency desite its known weaknesses (Saleem, 988; Kalirajan and Obwona, 994; Dawson and Lingard, 99; Nsanzugwanko et al., 996; Battesse and Safraz, 998). The translog model has its own weaknesses as well but it has also been used widely (Ali and Flinn, 989; Wang et al., 996). The main drawbacks of the translog model are its suscetibility to multicollinearity and otential roblems of insufficient degrees of freedom due to the resence of interaction terms. The interaction terms of the translog also don t have economic meaning (Abdulai and Huffman, 000). The objective of the study therefore was to examine the rofit efficiency among maize roducers in Oyo State, Nigeria. MATERIALS AND METHODS The data used in this study were based on the farm level study of maize farmers in Oyo State of Nigeria. Oyo State is located between latitudes o 8 and east of the Greenwich meridian. Oyo State covers an area of 8, 454 square kilometer (FOS, 996). According to NPC (006), Oyo State had a oulation of 5,59,585. The state has two distinct ecological zones - the western rain forest to the south and the intermediate savannah to the north. The state is divided into four agricultural zones. These are Ibadan/ Ibaraa, Oyo, Ogbomoso and Saki agricultural zones. Agriculture is the main occuation of the eole and small scale traditional farming system redominates in the area. The four agricultural zones were taken as the samling units as a first stage of samling. At the second stage, one local government areas were randomly selected to reresent the zone making a total of four LGAs. The last stage involved random selection of sixty (60) maize farmers in each local government area making a total of 40 resondents. Data were collected with the use of a structure questionnaire to collect inut-outut data of the

3 VOL. 6, NO., NOVEMBER 0 ISSN Asian Research Publishing Network (ARPN). All rights reserved. farmers. Data were analyzed using descritive statistic and Tran slog frontier rofit function model. Model secification ln π ' l= q= α i ln i + i= i= = α 0 + r ln ln + φ ln ln z + β l ln z ϕ lq ln z ln z l q + ν µ i k i k il i l k= i= l= l= () l + where 6 µ = δ + δ w d + ϑ () 0 d= d r ik = r ki for all k, i π ' restricted normalized rofit comuted for jth farm defined as gross revenue less variable costs divided by farm secific maize rice j. ln = natural log i = rice of variable inuts normalized by rice of outut where (for i =,, and ) so that: = the cost of hired labor normalized by rice of maize ( y ) = the cost of seed normalized by rice of maize ( y ) = Imuted cost of other inuts normalized by the rice of maize ( y ) z l = the quantity of fixed inut (ι =, ) where z = land under maize (hectares under maize) for each farm j z = caital used in farm j. µ = inefficiency effects ϑ = truncated random variable δ 0 = constant in equation d = variables exlaining inefficiency effects and are defined as follows: = education = exerience = household size 4 = extension services = non-farm emloyment 5 α 0, α i, r ik ø il, β l, φ lq, δ 0 and δ d, are the arameters to be estimated. Profit loss due to inefficiency was then calculated as maximum rofit at farm - secific rices, fixed factors, and soil dummies multilied by farm- secific rofit inefficiency. Profit loss is defined as the amount that has been lost due to inefficiency in roduction given rices and fixed factor endowments and is calculated by multilying maximum rofit by (-Pe). Maximum rofit er hectare is comuted by dividing the actual rofit er hectare of individual farms by its efficiency score. PL where PL PE = maximum rofit (-PE) = rofit loss = rofit efficiency RESULTS AND DISCUSSIONS In this section, the results of the estimates of arameters of the stochastic translog rofit function, factors affecting inefficiency and rofit loss are resented and discussed. Estimation of frontier rofit function: translog model The maximum likelihood estimates of the arameters of the stochastic rofit frontier model are resented in Table-. The deendent variable was restricted rofit from an outut of one season. All the estimated coefficients carry the theoretically exected signs in the MLE model and are statistically significant. This imlies that all the variables are influential variables in maize roduction. Area under maize affects rofit efficiency ositively. The estimated value of γ is chose to and is significantly different from zero thereby establishing the fact that a high level of inefficiencies exists in maize roduction. The estimated gamma arameter (γ) of was highly significant at ercent level of significance. This imlies that 99.9 ercent of variation in actual rofit from maximum rofit (rofit frontier) between farms mainly arose from differences in farmers ractices rather than random variability.

4 VOL. 6, NO., NOVEMBER 0 ISSN Asian Research Publishing Network (ARPN). All rights reserved. Factors exlaining inefficiency The urose was to determine factors that exlain rofit inefficiency. The variables included in the model were in line with theory. These are education, exerience, household size, extension services and non-farm emloyment. The results in Table-4 showed that the estimated coefficient on education is negative and statistically significant indicating reduction in rofit inefficiency. This imlies that to an extent more education brings about decrease inefficiency (increase in efficiency) in maize roduction. This also indicates that farmers with more years of schooling incur significantly higher rofit efficiency than farmers with less years of schooling. These results are consistent with Ali and Flinn (989), Abdulai and Hoffman (000) and Kumbhakar and Bhattarcharya (99). The estimated coefficient associated with exerience, carries the exected negative sign and is statistically significant at 5 ercent level. The result imlies that those with exerience are better erformers than those without. In other words, maize farmers with more years of exerience tend to oerate at significantly higher level of rofit efficiency. The estimated coefficient associated with the extension services is significant in the study area. This result reveals that farmers who have access to extension services erform significantly better in oerating at higher level of efficiency. This result is also consistent with findings obtained by other researchers (Seyoum et al., 998; Rahman, 00; Hyuha, 006). This result therefore serves to emhasize the role of extension services in reducing rofit inefficiency in maize roduction. The ositive and significant coefficient of the non-farm emloyment variable indicates that farmers who engaged in non-farm activities oerate at significantly lower levels of efficiency. Rahman (00) reorted similar result for rice farmers in Bangladesh. Profit efficiency score estimates The frequency distribution of farm- secific efficiency scores for the maize farmers is shown in Table-. The findings showed that maize farmers achieved on average 4 ercent level of efficiency. This imlies that the average farmer in the study area could increase rofit by 59% by imroving their technical and allocative efficiency. The maize farmers exhibit a wide range of rofit inefficiency ranging from % to 99%. It is worthy noting, however, that this wide variation is not unique to Nigeria, similar results have been reorted by other researchers else where. Ali and Flinn (989) obtained a minimum of ercent and a maximum of 9.5 ercent for rice farmers of Gujranwala district, Pakistan. Wang et al., (996) reorted efficiency levels ranging from 6 ercent with a mean of 6 ercent for rural farm households in China. Profit loss in maize roduction The inefficiency translated into a rofit loss ranging from N5.6k to 78, 60.60k with a mean of 8, This could be recovered by eliminating technical and allocative inefficiency (Table-4). Table-. Summary statistics of variable. Parameters Mean Minimum Maximum Standard deviation Gross margin (N) Seed cost (N /kg) Labor cost (N /ha) , Farm size (ha) Fertilizer cost (N/ha) Herbicide cost (N/ha) Equiment (N) Education (years) Exerience (years) Household size (years) Source: Survey,

5 VOL. 6, NO., NOVEMBER 0 ISSN Asian Research Publishing Network (ARPN). All rights reserved. Table-. Maximum likelihood estimates of translog rofit frontier function. Variable Parameter Coefficient t-ratio Profit Function Constant α In P α xxx In P α xxx In P α xxx In Z A β A xxx ½ In Z B β B xxx ½ In P Γ xxx ½ In P Γ ½ In P Γ ½ In P A θ AA xxx ½ In P B θ BB xxx In P x In P Γ In P x In P Γ xx In P x In P Γ xxx In P x In Z A A In P x In P B B x In P x In Z A A In P x In Z B B In P x In Z A A xxx In P x In Z B B xxx In Z A x In Z B θ AB xx Variance arameters Parameter Coefficient t-ratio Sigma - square σ xxx Gamma Γ xxx Log likelihood Inefficiency Effects Constant δ xx Education δ xxx Exeriences δ xx Household size δ Extension δ xxx Non Farm Emloyment δ x Source: Result from data analysis,

6 VOL. 6, NO., NOVEMBER 0 ISSN Asian Research Publishing Network (ARPN). All rights reserved. Table-. Deciles frequency distribution of rofit efficiencies of maize farmers. Efficiencies Frequency Percentage < Total Mean 0.44 Minimum 0.0 Maximum Std. Deviation 0.97 Source: Data analysis, 009. Table-4. Frequency distribution of rofit loss in maize roduction. Efficiencies Frequency Percentage > Total 0 00 Mean Minimum 5.6 Maximum Std. Deviation Source: Data analysis, 009. CONCLUSIONS This aer used stochastic translog rofit frontier model to examine rofit efficiency among maize farmers in Oyo State of Nigeria using farm level data obtained from 40 maize roducers. The study showed that rofit efficiency varied widely among the samled farmers. It ranged from % to 99% with a mean of 4%. The mean level of efficiency indicates that there exists room to increase rofit by imroving the technical and allocative efficiency. Among those factors that have significant imacts on rofit efficiency are education, exerience, extension and non farm emloyment. The olicy imlication in maize roduction of these finding is that inefficiency in maize roduction can be reduced significantly by imroving the level of education among the farmers and awareness by extension agents. Most imortant are the extension services and the existing technological ackages that need to be critically examined. REFERENCES Abdulai A. and Huffman W An examination of rofit inefficiency of rice farmers in Northern Ghana. Iowa State university, Deartment of Economics, staff aers No. 96. Abdulai A. and Huffman W Structural adjustment and economic efficiency of Rice Farmers in Northern Ghana. Economic Develoment and Cultural Change Aigner D.J., Lovell C.A.K. and Schmidt P Formulation and estimation of stochastic frontier roduction function models. J. of Econometrics. 6: -7. Akinwumi A. and Djato K. K Farm size, relative efficiency and agrarian olicy in Cote d Ivoire: Profit function analysis of rice farms. Agricultural Economics. 4: 9-0. Akinwumi A. and Djato K. K Relative efficiency of women as farm managers: Profit function analysis in Cote d Ivoire. Agricultural Economics. 6: Ali M. and Byerlee D. 99. Economic efficiency of small farmers in a changing world: A survey of recent evidence. Journal of International Develoment. l(): -7. Ali M. and Flinn J Profit efficiency among Basmati rice roducers in Punjab, Pakistan. American Journal of Agricultural Economics. 7(): 0-0. Battese G.E. 99. Frontier roduction functions and technical efficiency: A survey of emirical alications in agricultural economics. Agric. Economics. 7: Battese G.E. and Safraz H Technical efficiency of cotton farmers in Vehari District of Punjab, Pakistan. Centre for Efficiency and Productivity Analysis (CEPA), Deartment of Econometrics, University of New England, Armidale, Australia, Working Paers No. 8/98. htt:/ Bravo-Ureta B.E. and Pinheiro A.E. 99. Efficiency analysis of develoing country agriculture: A review of the frontier function literature. Agriculture and Resource Economics Review. : Coelli T. J Recent develoment in frontier modeling and efficiency measurement. Australian J. of Agricultural Economics. 9:

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