The Determinationf the Market Concentration amongst Palm Oil Marketers In Cross River State, Nigeria

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1 PAT June 2011; 7 (1): ISSN: Online copy available at Publication of Nasarawa State University, Keffi The Determinationf the Market Concentration amongst Palm Oil Marketers In Cross River State, Nigeria Tiku, N. E and Sinonya, J. B Department of Agricultural Economics and Extension Cross River University of Technology, Obubra Campus, Nigeria Abstract The Study was designed to determine the market concentration among palm oil marketers in Cross River State, Nigeria. The problem of trade restriction sometimes imposed by commodity traders association, bars some prospective traders from joining trade thereby creating entry difficulties and imperfect market. The objective of the study therefore is to investigate if there is presence of monopsony power among the marketers of palm oil after the abolition of commodity boards in Nigeria and the liberalization of the market. The researchers employed the multi-stage sampling techniques to select 6 Local Government Areas (LGAs), 18 villages, 180 processors, 90 commissioned agents and 90 retailers for the study. The descriptive statistics, Gini coefficient combined with the Lorenz curve was used to determine the market concentration power among the market institutions. The result revealed Gini coefficient values of 59%, 65%, 54%, and 32% for processors, merchants, commissioned agents and retailers respectively. The study concluded that the market is a pure competitive market structure as no single individual or organization could influence the market price or the supply of the product. It was recommended that government should intervene in the area of research and development and provision of amenities that will enhance product quality and market efficiency. Keywords: Market concentration, palm oil marketers. Introduction Nigeria has for a long time recognised the importance of agricultural marketing as a critical component and catalyst to promote viable agricultural production system and economic growth. The country s agricultural marketing policy aimed at the attainment of self-sufficiency in food commodities, increased production of the raw materials for increased production processes and preservation of environment and modernization of agricultural processes has been stressed in several quarters (Ogungbile, 2004). The introduction of small- holder oil palm development scheme, the establishment of oil palm plantation in Cross River State, and most recently, the raising and distribution of free hybrid oil palm seedlings to farmers by the Cross River State government was among the steps taken to promote and expand oil palm production to satisfy domestic and international market demands. With the introduction of the liberalized market, prices of inputs and output in the industry are to be determined by market forces. It is

2 PAT 2011;7 (1): ISSN: ; Tiku and Sinonya The Determinationf the Market Concentration government s belief that farmers would enjoy better prices for their products and hence be encouraged to increase production of improved oil palm varieties, which in turn would positively affect output (Idiong, 1999). Adejobi, et, al (2004) observed that rapid changes in the economy of Nigeria after the Structural Adjustment Programme (SAP) necessitated the needs for diversification of household income generating activities, most especially among the farming households whose income from farm activities could not sustain their non-food expenditure on basic needs such as education of children, health care, housing, clothing among others. Agricultural output commercialization is considered as the most readily adoptable income diversification option for the farming households that need to meet their basic needs. Informed by the government abolition of the commodity board system, many people went into the business of palm oil as farmers, processors, wholesalers, speculators, and retailers (Tiku, 2009) In Nigeria, oil palm cultivation is part of a way of life. Indeed, it is the culture of millions of people with an estimated 2.4 million hectares of land under oil palm cultivation (Nwawe et al, 2005). Also, between 1987 and 2005, tonnes of palm oil was produced (CBN, 2005). In the 60s foreign exchange from palm produce was a major source of revenue for Nigeria s economic development. The bulk of palm oil production in Africa came from Nigeria and constituted over 78% of total world production (Nwawe et al., 2005). After 1965, Nigeria ceased from being the leading producer and exporter of oil palm. By 1974, the country had become a net importer of palm oil, falling from 43% in 1980 to 7% in the 1990 of the total global output (Nwawe, et al., 2005). The structural changes of the market was to ignite production and make allowances for better prices of agricultural products, achieved through the determination of prices by market forces. The objective of the study therefore is to investigate the level of concentration of the various market institutions (processors, commissioned agents, wholesalers, and retailers). Okereke and Anthonio, (1988) opined that an important variable in market structure analysis is concentration which depicts a situation in which a few large firms have the largest share of the business. They recommended the use of Lorenz curve and the Gini coefficient to analysis market concentration. Many researchers in this area of marketing study adopted this technique (Okereke and Anthonio, 1988, Abu, 1996, Tiku, 2001). The study is important because any significant trade restriction among marketers will run counter productive and will frustrate the very essence of privatization and commercialization efforts of the government to boost commodity production and enhance market efficiency for economic viability of economy and the market functionaries in particular.

3 PAT 2011;7 (1): ISSN: ; Tiku and Sinonya The Determinationf the Market Concentration Materials and Methods The study was conducted in Akamkpa, Biase, Etung, Boki, Ogoja and Bekwarra Local Government Areas (LGAs) of Cross River State. The six LGAs are evenly spread across the state. Cross River State is at the South-South geo-political zone of Nigeria. It has eighteen LGAs with a population of about 2.8m people (NPC, 2006). The climate of the area is control by two tropical air masses namely the equatorial maritime (MT) air mass, which originates from the South-West and the tropical continent (CT) air mass, which originates from North East (Alobi, 1992). Average annual rainfall in Cross River State is about 2,298.7mm (CBN Statistical bulletins, 2005). The relatively moderate rainfall, long west season and high humidity favour the growth of tree Crops like Cocoa and Oil-Palms and non-tree Crops such as maize, cassava, melon etc. Information for the study was from primary sources. The primary data was used through Personal interviews and the use of structured questionnaires to obtain data from the processors, palm oil market participants in 18 villages of the six selected LGAs. The study adopted the multi-stages sampling technique. The first stage was the grouping of the 18 LGAs that constituted the Cross River State into 3 districts; each district is composed of 6 LGAs. The second stage is the selection of 2 LGAs per district using random sampling method to make a total of 6 LGAs used for the study. The third stage was the random selection of 3 villages per LGA to give a total of 18 villages. The proportionality factor was introduced to select 180 processors, 30 palm oil merchants, 90 commissioned agents and 90 retailers for the study. The proportionality factor used is stated as thus S = P/p*n (Adejobi, et al) Where: S = the desired sample size p = the number of respondents sampled from a district. P* = the number of respondents in all the districts in the state n = the desire numbers of respondents to be selected for the study. Empirical model: The study adopted the descriptive statistics, the Gini Co-efficient and Lorenz curve to measure the degree of concentration. The Gini Co-efficient model is given by G = 1 - xy Where: G = value of the Gini coefficient X = percentage of market participants Y = cumulative percentage of purchase (quantity palm oil) = summation sign. Gini coefficient is equal 0 when there is perfect equality in the size and distribution of buyers or sellers, and Gini value equal to 1 when there is perfect monopoly in the market. Generally, Gini coefficient values range from zero to one and expresses the

4 PAT 2011;7 (1): ISSN: ; Tiku and Sinonya The Determinationf the Market Concentration extent to which market is concentrated. The Gini coefficient is a numerical representation of degree of inequality in the distribution which is derived directly from Lorenz curve (Abu, 1996, Tiku, 2009). Results and Discussion 1. Market concentration among processors The Gini value of 59% in Table1 revealed that there is adequate competition among the processors in the market and no single individual or organization can influence the market. The 59% Gini value represents the curvation of the Lorenz curve in figure 1 the nearness of the line of departure from the lines of equality or line of perfection in the market reveals the high level of competition among the processors. The introduction of a liberalized system of marketing in the palm oil trade ushered in a lot of buyers and sellers in marketing of the palm oil thereby creating job opportunities for thousand of people and eliminating the imperfection of the monopsony earlier created by the Commodity Boards in the country. Table 1 illustrates the distribution of palm oil produced by the processors in Cross River State. Table 1: Number and distribution of palm oil processors in Cross River State, Nigeria S/No Processors (Frequency) Palm oil Processed Percentage of palm oil Percentage of Cum % of palm oil CUM% of processors (Tonnes) processed processors processed total Survey data, 2009

5 PAT 2011;7 (1): ISSN: ; Tiku and Sinonya The Determinationf the Market Concentration The palm oil merchants (wholesalers) The merchants are private individuals and corporate bodies wholesalers that went into palm oil trade following the scrapping of the Nigeria palm oil board in The activities of merchants in Cross River State were further accelerated by the privatization of government owned oil palm estates and the raising of nursery palm seedlings to private farmers free of charge, thereby increasing production in the state. The merchants purchase palm oil and sell to manufacturers of pharmaceutical products, soap and other industrial firms using palm oil as their raw materials. Also, the bulk of the merchants sell their products to consumers who use it directly as one of the ingredients for food preparation. In the state very few merchants operate as corporate organization with well organized administrative structure. There individual merchants are more in the palm oil trade. The individual merchants were the wealthy local trader who engage in palm oil business and personally run the business (mainly from their homes and warehouses) with the assistance of few staff, usually their relations. The major operation of the merchants is buying of palm oil in bulk, usually measured in 20 litres rubber cake containers. They used Lorries (911) to transport the product to the Northern part of Nigeria where production of palm oil is absent but with high demand. The major Northern towns that form the collection central market for palm oil are Kano, Kaduna, Jos, Bauchi, Jalingo, Abuja, where the merchants sell to retailers who carry the palm oil to the villages, and towns and other hinterlands. It was observed that the merchant pay as much as N50, (Fifty thousand Naira) per Lorry per journey. Each Lorry usually carries 500 (20 litres rubber cake containers) of palm oil which is equivalent to 10,000 litres (10tonnes). The study also revealed that 99% of the merchants do not personally own Lorries but only hires them to transport the product. So, the marketing cost does not involve the cost of vehicle maintenance. The owners of the Lorries do bear responsibility for the repairs of the Lorries. The merchants major take off-point, which also formed the main palm oil markets in Cross River State, are Okundi in Boki LGA, Betem and Ibogo in Biase LGA, Calaro in AkamkpaLGA and Bendeghe Ekiem in Etung LGA.. There is no merchants operating in Ogoja and Bekwarra Local Government Areas. The reason is that palm oil is not produce in large quantities in these Local Government Areas. The small palm oil produced in the areas is consumed locally. Their demand requirement is augmented from the palm oil the local assemblers buy from Okundi market in Boki Local Government Area because of the proximity of the market to Ogoja and Bekwarra LGAs. The merchants and their commissioned agents effect buying of the palm oil mostly at the processing sites. The distribution of merchants average palm oil purchase is illustrated in table 3. The other activities of the merchants in addition to buying and selling of palm oil include, transportation, supply of inputs like empty containers for packaging palm oil,

6 PAT 2011;7 (1): ISSN: ; Tiku and Sinonya The Determinationf the Market Concentration credit facilities and storage services, handling and delivering to final warehouses at various states where they effect sales. Other palm oil merchants identified in the study were the speculators. The speculators take advantage of price fluctuation by purchasing palm oil at the period when prices were low usually between March and June and sell later in the season when the prices are high. With good timing, this category of merchants makes substantial profit during palm oil marketing season. For example, in 2009, palm oil that was bought for N3500/20litres in March was sold for N5500 in December, 2009, translating to a profit as high as 40%/20 liters of palm oil. 3: Market Concentration among Merchants Wholesalers The degree of market concentration of the merchants is shown in Table 2 and Figure 2 respectively. The degree of concentration of the merchants is given by a Gini coefficient value of 65%. The Gini coefficient of 65% was rather high because of the middle range of the merchants. A few merchants had the capacity of effecting high purchases of palm oil as observed in Table 2. This accounted for the high value of the Gini coefficient. Realistically, there exists healthy competition among palm oil merchants in the study area. Table2: Distribution of Palm Oil Purchased (Tonnes) by Merchants in Cross River State, Nigeria Class interval of palm oil purchase No. of merchant X XY %X Cum% X % Purchase Xy Cum %Y No of purchase s Y Total Source: Survey data, 2009 N/B: X = No. of merchants Y= No. of purchased palm oil XY= Total no of purchased palm oil %X= percentage of merchants %Y= percentage of purchased palm oil Cum %X= cumulative percentage of merchants Cum %Y= cumulative percentage purchased palm oil

7 PAT 2011;7 (1): ISSN: ; Tiku and Sinonya The Determinationf the Market Concentration The commissioned Agents/local Assemblers The merchants employed the services of commissioned agents to source and purchase palm oil from processors. The agents purchase and take charge of handling and transportation of the palm oil to various points, as demanded by the merchants, usually delivered at their closest storage centers. Some times the merchant take the initiative of using pick-up vans and land rovers to transport the purchased palm oil by the commissioned agents to their storage houses. The merchants sometimes advanced money to the local assemblers to effect purchase of palm oil on their behalf. The study found that a larger sum of money is entrusted to the commissioned agents and local assemblers by merchants to help them buy palm oil. The agents deal directly with the processors. Most times the agents assist the processors to process the palm oil as a means to guaranteed supply. In area where privatized government estate existed, the commissioned agents and local assemblers sometimes buy FFB from the farmers directly, process and keep for the merchants to pick. This method is adopted especially where supply is no more guaranteed by the actual processors during low periods of production. In terms of commission to agents, it was observed that N 100/20litres was paid to them, while the local assemblers make as much as N300/ 20litre. The high margin is attributed to the fact that they own title to the products and bear responsibility for their decisions 5. Market concentration among commissioned agents The distribution of the volume of trade made by the agents is shown in Table 3. The Gini coefficient value of 54% was obtained reflecting the concentration of the in term of competitive among the agents. Table 3 shows the distribution of average palm oil purchased by the commissioned agents.. The Lorenz curve for palm oil purchased by commissioned agents was used to obtain the level of competition among the agents. The result revealed a pure market competition among the commissioned agents. Table 3: Distribution of average purchase of palm oil by the commissioned agents in Cross River State Range of purchase (tone) Commissioned agents/local assemblers Average purchase Total purchase %X Cum% X %Y Cum% Y Total Source: Survey data, % X= percentage of palm oil purchased Cum % X = cumulative percentage of palm oil purchased % Y = percentage commissioned agents / local assemblers. Cum % Y = cumulative percentage of commissioned agents/ local assemblers.

8 PAT 2011;7 (1): ISSN: ; Tiku and Sinonya The Determinationf the Market Concentration Retailers: The main function of the retailers is to obtain supplies and display them for sale in the forms, times and places desired by consumers. The palm oil retailers buy from one or more wholesalers, processors and local assemblers, sometimes on credit and serve consumers who buy in smaller quantities on a day to day basis. Frequently, retailers sell palm oil at several retail outlets; they affect sales at homes, shops and open markets. Some retailers moved from one village market to another depending on the market days. They equally sell at home and some of them sell along side other articles in provision shops.. The unit of measurement in the study area is the Star beer bottle which was sold at an average price of N (Two hundred and twenty naira) only. They also use smaller bottles to sell palm oil to customers seeking smaller quantities. The prices vary according to the size of the bottle desired by customers. So, various prices are attached to particular containers at a time and place. The study revealed that, prices of palm oil vary from place to place depending on the supply and demand factors at a particular location. For instance in the Southern Cross River State which comprises Akamkpa and Biase as used for this study, the average price of palm oil is N219/ litre while Etung and Boki it is N190 and N216 respectively. The palm oil prices in Ogoja and Bekwarra were rather high at an average of N232 and N237 per litre. The study revealed that Akamkpa and Biase share a common boundary and similar agro-ecological characteristics that favoured the establishment of large oil palm estates by government. This made it possible for large supplies of palm oil in the region. There was effective flow of market information as it was discovered that the same marketing agents operated between the two Local Government Areas. This must have accounted for the two Local Government Areas to have the same average prices of palm oil per litre during the period under survey. For Etung and Boki local government areas situated in the central, part of Cross River State, they sharing the same agronomic, socio-ecological environment. However, the characteristics of the market prices for palm oil differ. The reasons were that much of the palm oil consumed in Etung LGA is produced locally and does not depend on external supplies. Also because there is no government owned oil palm estate in the area, external demand is equally small. Individual estates are small but adequate to take care of local consumption. But the case is different in Boki local government where government oil palm estates are situated in Borum and Nsadep. The production and market activities are quite high. Because of the need to meet up local consumption and external demands that increase the usual prices upward as the supply sometimes falls short of demand. This accounted for an average price of N216/ litre in the areas as

9 PAT 2011;7 (1): ISSN: ; Tiku and Sinonya The Determinationf the Market Concentration against N198/litre in Etung. The findings showed that in the Northern part of Cross River State i.e Ogoja and Bekwarra, the ecological condition does not favour much production of palm oil, as the average rainfall is low and the soil texture does not favour palm oil production. Some of the oil palm farms developed by private individuals produce below capacity and the local breed palms planted here and there in the area are used mainly for palm wine production rather than palm oil. So, there is high production and marketing of palm wine around Ogoja and Bekwarra and less production of palm oil. This accounted for the high price of palm oil in the area with an average price of N233 / litre. 7: Market Concentration Among retailers From table 4and figure 4, analysis shows that the Gini coefficient value of 32% demonstrated a high level of market competition in the palm oil market at the retail level. Figure 4 showed that the line of departure from the 45 0 line of perfect competition was quit close, indicating that no single seller could influence the market and could have monopoly control over the purchase of palm oil in the study area. The volume of palm oil purchased by a retailer depends on the volume of capital he/she has, the rate of sale in their respective localities and the availability of stock in the market. Table 4: Distribution of average purchase of palm oil by Retailers (20litres) Range of Retaile Average Total % Cum % %y Cum % y Purchase tonnes rs Y purchase X purchase y x x , Total Where: y = Retailers X = purchase of palm oil %x = percentage purchased %y = percentage of retailers Cum% x = cumulative percentage Cum %y = cumulative percentage frequency of retailers Cum% x and cum %y were used to plot Lorenz curve figure 4.4. NB = x and y are Gini values computed from Table 4:21

10 PAT 2011;7 (1): ISSN: ; Tiku and Sinonya The Determinationf the Market Concentration Conclusion The liberalization of palm oil market in Nigeria has created more job opportunities in the industry where many people are engaged as market participants in the form of processors, commissioned agents, local assemblers, wholesalers, and retailers. The values of the Gini coefficient revealed by the study suggest a pure market competition in the palm oil business in the study area. Recommendations Due to the central role play by oil palm products in Nigeria it is recommended that to enhance product quality and market efficiency, there need for the provision basic infrastructures like good roads and railways to facilitate movement of palm oil to other part of country with ease. Also, government agencies in-charge of oil palm products should monitor and control marketers against formation of any marketing cartel that will create market monopoly, distortion and imperfections. References Abu, G.A. (1996).The structure, conduct and performance of soyabeans market in Benue State. Unpublished M.Sc. Thesis: Department of Agricultural Economics and Rural Sociology, Ahmadu Bello University, Zaria.. Adejobi, A. O., Manyong, V. M., Awotide, D.O.,and Olayemi, k. J (2004). Agricultural output commercialization and rural household welfare in Kebbi State,Nigeria A paper presented at the 2004 Annual Conference, National Association of Agricultural Economist (NAAE) held at Ahmadu Bello University, Zaria. 3-5 November, 2004 Alobi, B.O. (1992). Plantation agriculture in Cross River State study of Abia-Bendeghe Cocoa Estate, Ikom Unpublished Bachelor of Science Degree Project, Department of Geography and Regional Planning, University of Calabar, Calabar Central Bank of Nigeria (2005). Statistical Bulletin volume 16, Abuja. Idiong, I.C. (1999).Oil Palm Hectarage Response to changing and Product Price in Akwa-Ibom State, Nigeria. Unpublished M.Sc. Thesis. Department of Agricultural Economics and Extension, University of Calabar. Nwawe, C.N., and Edokpayi, A.A. (2005). Determinations of Adoption of Improved Oil- Palm Production Technologies in Delta State, Nigeria. Journal of Agriculture, Forestry and Social Sciences, (3) 2: Ogungbile, A.O. (2004) Market -Driven Technologies and value added Activities for

11 PAT 2011;7 (1): ISSN: ; Tiku and Sinonya The Determinationf the Market Concentration sustainable Development in Nigeria. A lead paper presented at the 2004 Annual Conference, National Association of Agricultural Economist (NAAE) held at Ahmadu Bello University, Zaria. 3-5 November, Okereke, O. and Anthonio, Q. B. O. (1988). The structural characteristics of the market for grains in Eastern Nigeria Reading in Agricultural Marketing Adekanye, T. O.(Ed). Longman Nigeria Ltd pp, Tiku, N.E.(2001). Cocoa Marketing in a Deregulated Economy in Etung, Boki and Ikom Local Government Areas of Cross River State. Unpublished M.Sc Thesis, Department of Agricultural Economics and Rural Sociology, ABU, Zaria, Nigeria. Tiku, N.E (2009). The Structure, Conduct and Performance of Palm Oil Marketing in Cross River State, Unpublished Ph.D Dissertation, Department of Agricultural Economics and Rural Sociology, ABU, Zaria, Nigeria.

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