ECONOMICS OF FRESH TOMATO MARKETING IN KOSOFE LOCAL GOVERNMENT AREA OF LAGOS STATE, NIGERIA

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1 Obayelu et al.: Nigerian Journal of Agricultural Economics (NJAE). Volume 4(1), 2014 Pages ECONOMICS OF FRESH TOMATO MARKETING IN KOSOFE LOCAL GOVERNMENT AREA OF LAGOS STATE, NIGERIA Obayelu, A.E., Arowolo, A.O., Ibrahim S.B. and Croffie A.Q. Department of Agricultural Economics and Farm Management, Federal University of Agriculture, P.M.B 2240, Abeokuta, Nigeria of Corresponding Author: Tel: +234(0) Abstract The study was carried out to analyze the economics of fresh tomato marketing in Kosofe Local Government Area of Lagos State, Nigeria. The study was based on primary data using structured questionnaire. A total of 80 tomato marketers were selected from four major markets using simple random sampling technique. Descriptive statistics, gross margin analysis, marketing margin analysis and multiple regression analysis were used to analyze the data. The study revealed that female marketers dominated (73.7%) the markets. Most (56.2%) were within the age bracket of 31-50years and 47.5% of them had no formal education. The cost and return analysis revealed that the variable costs constitute the total cost of marketing (100%) with cost of purchase (99.76%) constituting the highest. The cost of marketing was 48.57/kg and total revenue was 27, A gross margin of N6, and returns per naira invested of 1.34k indicates that fresh tomato marketing is profitable. The marketing margin on fresh tomato was 25.66%. Purchase price of tomato, transportation costs, marketing experience and level of education were significant determinants of the quantity of fresh tomatoes purchased by the marketers for sale. Problems associated with fresh tomato marketing included inadequate storage facilities (29%), high cost of transportation (23%) and lack of capital (20%). It is therefore recommended that means of transportation and storage facilities should be made available to reduce the marketing costs and facilitate the marketing of tomato. Marketers should be encouraged to join co-operative societies to help improve means of credit and as well acquire more formal education. Keywords: Fresh tomato, Marketing, Lagos, Nigeria. Introduction Agriculture is an important sector in most developing countries (Haruna et al. 2012). It contributes more than 30% of the total annual GDP and provides over 80% of the food needs of the country (Adegboye, 2004). Increase in agricultural productivity depends heavily on its marketability (Haruna et. al., 2012). Efficient market does not only link sellers and buyers in reacting to current situations in supply and demand but rather has a dynamic role to play in stimulating consumption of outputs which are essential elements of economic development (Haruna et al., 2012). Agricultural marketing articulates all processes that take place from when the farmer plans to meet specified demands and market prospects to when the producers finally gets it to the consumers (Haruna et al., 2012). Marketing task involves transferring goods from producers 58

2 to consumers (Olukosi et.al, 2007). It is the marketing function that ensures that consumer acquires the product in the form, places and time desired (Haruna et al., 2012). Marketing functions are specialized activities performed in accomplishing the marketing process. These functions are broadly classified as follows: physical functions, exchange functions, facilitating functions (Haruna et al., 2012). The role of marketing in economic development is viewed from the improvement of trade, in raising the level of living of all concerned and of the economic wealth of the community and nation at large. Tomatoes are important in the daily meal preparation. It can be eaten raw as fruit, as salad or be processed into paste or puree which can be cooked to form accomplishment in savory dishes. The seeds which are extracted from the pulp and its residues contain 24% oil which is used for salad dressing and in the manufacturing of margarine and soap (Haruna et al., 2012). The residual press cake is used as stock feed as well as fertilizer (Haruna et al., 2012). Fresh tomatoes make a significant contribution to human nutrition due to concentration and availability of nutrients. It serves as a low cost method of providing adequate supply of vitamins, minerals and fibres to the people. Vegetables such as tomato apart from being consumed at home, also earns foreign exchange to the producer countries due to exportation (Haruna et al., 2012). Tomatoes marketing begin at the farm gate (Haruna et al., 2012). They are transported from the farm to the nearest assembly market for the consumers or wholesalers who assemble them to a big city market and sell to other wholesalers, retailers or consumers. The unique characteristics of agricultural products including tomatoes pose some problems both to the farmers, marketers and final consumers. Its seasonality, bulkiness and perishability exert pressure on handling, packaging, transportation and sales with an attendant effect on the market price. On the other hand, storage facilities for tomato are lacking. This hinders large purchase by sellers and decreases production by producers. Improper handling of tomatoes after harvest lowers quality and causes losses. This waste coupled with unpredictable prices accentuates variability in farm income which discourages small scale farmers from growing tomatoes for marketing. The high perishability of tomato also discourages many farmers from going into large scale production, and the present growers from increasing their scale of production. This has resulted in low productivity and high prices of both fresh and processed tomato products. In view of the various uses and economic importance of tomatoes, its distribution from producer to the point of consumption or usage is very important. It will be interesting to describe the socio-economic characteristics of fresh tomato marketers; determine the profitability of fresh tomato marketing and analyse the marketing margin on fresh tomato and examine the factors that affects the quantity of fresh tomatoes purchased by the marketers for sale. Methodology Study Area: The study was carried out in four major markets within Kosofe Local Government Area of Lagos state namely Ojodu Berger Retail Market, Ogba Sunday Market, Ketu Retail Market and Mile 12 International Market. Lagos State is located in southwestern Nigeria, bordered in the north and east by Ogun State, in the west by the Republic of Benin and in the south by the Atlantic Ocean. The state has an area of approximately 3,345 square kilometers, which is about 0.4% of the total land area of Nigeria. The climate of Lagos State 59

3 is the wet equatorial type influenced by its nearness to the equator and the Gulf of Guinea. Lagos experiences two rainy seasons, with the heaviest rains falling from April to July and a weaker rainy season in October and November. Lagos State has consistently high temperatures, with the mean monthly maximum temperature of about 30 degrees Celsius (Iwugo et al., 2003). The state has a population of 7,937,932 (NPC, 2006). The population density of the state is about 4,193 persons per square km. The state is divided into 5 administrative divisions, which are further divided into 20 Local Government Areas and 37 Local Council Development Areas for administrative convenience. However, kosofe local government area has its headquarters in the town of Kosofe, occupies a land area of 81km 2 and a population of 665,393 (NPC, 2006). Sampling Technique and Data collection: Purposive and random sampling technique was used. Four markets were purposively selected being the major markets within the study area. These include the ojodu berger retail market, Ogba sunday market, Ketu retail market, and Mile 12 international market. Twenty respondents (tomato marketers) were randomly selected from each market giving a total of eighty marketers. The study was based on primary data collected through structured questionnaire administered on the tomato marketers. The data collected included the socio economic characteristics of the marketers, price, costs, returns, sales and problems associated with tomato marketing. Analytical techniques: Descriptive statistics, gross margin analysis, marketing margin and efficiency analysis and multiple regression analysis were used to analyze the study data. Descriptive statistics: Descriptive statistics involving the use of measure of central tendency such as frequency, means and percentages were used to describe the socioeconomic characteristics of tomato marketers and problems associated with the marketing. Gross margin analysis: Gross margin analysis was used to determine the profitability level of tomato marketing. The Gross Margin model was specified from the point of view of estimation of total expenses (costs) as well as various returns or revenue within a marketing period. Gross Margin (GM) = GR TVC Where, GI = Gross Revenue TVC = Total Variable Cost.. (2) Gross Revenue (GR) = Q. Py...(3) Where, Q = Quantities of tomatoes sold (Kg); Py = Unit price of tomatoes ( /kg). Marketing margin analysis: Marketing margin is a measure of market performance. It is the difference between the price paid by consumer and that received by the producers. It can be expressed in cash or in percentage of the retail cost (Abbot & Makeham, 1986; Adegeye & Dittoh, 1982). The formula adopted for this study is that specified by Olukosi & Isitor (1990) and as used by Ali et al., (2008) and Nwaru et al., (2011) as follows: 60

4 Marketing margin = Selling price - Purchase price X 100 Selling price Ordinary least square (OLS) regression technique: Multiple regression using OLS was used to determine factors affecting the quantity of tomatoes purchased by the marketers for sale. The model was specified as follows: Y = b0 +b1x1 + b2x2 + b3x3 + b4x4 + U Where: Y= Quantity of tomatoes purchased for sale (kg) X1 = Purchase price of tomatoes (N/kg) X2 = Transportation costs (N) X3= Marketing experience (years) X4= Educational level of marketers (years) b0 b4 = Coefficients to be estimated X1..X4 = Independent variables U = Disturbance term assumed to be normally distributed with zero mean and constant variance. Results and Discussion Socioeconomic characteristics of fresh tomato marketers: The socioeconomic characteristics of the marketers which include their gender, age, marital status, household size, educational level, marketing experience and source of capital are presented in Table 1. Accordingly, the table revealed that female marketers (73.7%) dominated the markets. However, males are not being left out in tomato marketing. Majority (56.2%) of the marketers are between the ages of years. The marketers mean age of 40.81years indicates that the tomato marketers are in their economic active years. It was further revealed that majority (67.5%) of the marketers is married with a mean household size of approximately 6 persons. Distribution of the marketers by education showed that most (47.5%) of the marketers had no formal education. The mean year in school of 5.3years implies that majority of the marketers had little or no formal education which would have significant influence on their marketing decision making process and sales. This finding substantiated the findings of Lawal and Idega (2004) who observed that the level of education attended by the marketers to a large extent determine the strategies, which he/she may use to solve his/her marketing problem and to adopt new innovation without difficulties that will increase his profit as soon as they became available to him/her. The mean year of experience of marketing of the marketers was 14.75years. This implies that the marketing of fresh tomatoes is done practically by well experienced marketers which corroborate the findings of Emam (2011). Ali et. al., (2008) asserted that marketing experience is important in determining the level of profitability obtained by a marketer. The more years of marketing experience, the more knowledge and 61

5 profits the marketers tends to get, as he/she will use his/her understanding of the marketing system, market condition, market trends and price. The result further revealed that majority (64.9%) of the marketers source their capital from family members, 32.5% started their business with personal savings and 1.3% started with bank loans and loans from cooperatives respectively. This shows that there is very little assistance from formal lending institutions to fresh tomato marketers in the study area. Cost and Return to Fresh Tomato: The cost and return analysis of fresh tomato marketing is indicated in Table 2. The table revealed that no fixed costs were incurred. The variable costs constitute 100% of the total cost of marketing fresh tomatoes in the study area. The results further indicated that the cost of purchase (99.75%), transportation cost (0.10%) and rental cost (0.07%) were the major variable costs incurred in tomato marketing. Based on the computation per basket, the average basket of tomato was 30kg and average purchase and selling price per basket was 4, and 6, An average of baskets (132.75kg) of fresh tomatoes was sold per marketer per month. This gives total revenue of 27, and a gross margin of 6, The return per naira invested was 1.34k indicating that the enterprise is profitable. In review of this costs and returns results, fresh tomato marketing in the study area was profitable. Marketing margin: Table 3 presents an analysis of the margin on fresh tomato marketing. The market margin in percentage was 25.66% which implies that the tomato marketers realize a margin of 25.66% of the producer price. This marketing margin is acceptable as opined by Scarborough and Kydd (1992) that five percent and ten percent marketing margins are acceptable for storable and perishable goods, respectively. Determinants of quantity of fresh tomatoes purchased for sale by marketers: The summary of the parameter estimates for the factors that affect the quantity of fresh tomatoes purchased for sale by the marketers is presented in Table 4. Based on the R-Squared value, F-ratio and the number and signs of significant variables, the linear functional form was chosen as the lead equation. The model shows that the independent variables accounted for 70 percent of the variation in the quantity of fresh tomatoes the marketers purchase for sale. All the variables were found to be significant. This implies that all four variables exerted significant influence on the quantity of tomatoes purchased for sale by the marketers in the study area. The purchase price of tomatoes showed a negative relationship with the quantity purchased for sale at one percent significant level (P<0.01). This is however expected. If the purchase price per unit increases, the quantity that will be demanded by the marketers for sale is bound to decrease, ceteris paribus. Conversely, if the price of purchase per unit decreases, the quantity that will be purchased by the marketers for sale will increase, ceteris paribus. Transport costs negatively and significantly (P<0.01) influence the quantity of fresh tomatoes purchased by the marketers, which implies that increase in transport cost will lead to a decrease in quantity of fresh tomatoes that the marketers will purchase for sale. Marketing experience was significant at 5 percent and positively related to quantity of fresh tomatoes 62

6 purchased for sale. This implies that the more experience acquired, the higher the quantity of tomatoes that will be purchased for sale by the marketers. The years of education have a coefficient that is significant at 5 percent and it is positive. This implies that the higher the educational level of the marketers, the more quantity of fresh tomatoes that the marketers would purchase for sale. Constraints to Tomato marketing: Figure 1 shows the distribution of the problems faced by fresh tomato marketers in the study area. Most (29%) of the marketers were faced with the problem of inadequate storage facilities which often lead to produce loss due to spoilage as a result of fungal and bacteria attack, insects and rodents infestation. These result into increase in marketing costs leading to higher retail prices and reduced marketing efficiency. High cost of transportation due to inadequate transport facilities (23%), lack of capital (20%), lack of access to formal credit (18%) and lack of market facilities such as water, toilets and good roads (10%) are other constraints to the marketing of tomato in the study area. Conclusion and Recommendation The study concludes that fresh tomato marketing is a profitable venture in Kosofe Local Government Area as indicated by a gross margin of N6, and return per naira invested of 1.34k realized on fresh tomato. The market margin in percentage of 25.66% implies that the tomato marketers realize a margin of 25.66% of the producer price. Major constraints to tomato marketing included: inadequate storage facilities, high cost of transportation and lack of capital. Based on the findings of the study, the following recommendations were made: Provision of adequate transportation and storage facilities to help reduce marketing costs and aid marketing of tomato; marketers should join cooperative societies to improve means of credit and aid business expansion. Markers should also be encouraged to acquire formal education as this will contribute to efficient marketing. References Abbot, J. C. & Markeham, J. P. (1986). Agricultural marketing in the tropics. London: Longman Group Ltd. Adegboye, R. O. (2004). Land, agriculture and food security in Nigeria. Third Faculty Lecture, Faculty of Agriculture, University of Ilorin, 25/2/2004. Adegeye, A. J. & Dittoh, J. S. (1982). Essentials of agricultural economics. Ibadan: Impact Publishers Ltd. Ali, E. A., Gaya, H. I. M. and Jampada, T. N. (2008). Economic analysis of fresh fish marketing. In Maiduguri Gamboru market and Kachallarialau dam landing site of Northeastern, Nigeria. Journal of Agricultural Social Science 4:

7 Emam, A. A. (2011). Evaluating marketing efficiency of tomato in Khartoum State, Sudan. Journal of Agricultural Social Science. 7: Haruna, U., Sani, M. H., Danwanka, H. A. and Adejo, E. (2012). Economic analysis of fresh tomato marketers in Bauchi metropolis of Bauchi State, Nigeria. Nigerian Journal of Agriculture, Food and Environment; 8(3):1-8 Iwugo, K.O., D Arcy, B. & Andoh, R. (2003). Aspects of land-based pollution of an African coastal megacity of Lagos. Poster Paper Diffuse Pollution Conference, Dublin, 2003 Lawal, W. L. and Idega, E. O. (2004). Analysis of fish marketing in Borno State. A paper presented at the NAAE Annual Conference, held at Ahmadu Bello University, Zaria- Nigeria, 2-3 Nov Nwaru J. C, Nwosu, A. C. and Agommuo, V. C. (2011). Socioeconomic determinants of profit in wholesale and retail banana marketing in Umuahia agricultural zone of Abia State, Nigeria. Journal of Sustainable Development in Africa, 13 (1): Olukosi J. O., Isitor S. U. and Ode, O. (2007). Agricultural marketing and prices: Principles and applications, 3rd edition. Living books series GU publications Abuja. Pp6-7. Olukosi, J. O. and Isitor, S. V (1990). Introduction to agricultural market and price; Principles and applications. Agitab Publishers, Zaria. Pp 34 Scarborough, V. and Kydd, J. (1992). Economic analysis of agricultural markets: A manual, Vol. 5. United Kingdom: Chatham. National Population Commission (NPC) (2006). Population and housing census, Nigeria. 64

8 Table 1: Distribution of marketers by socio-economic characteristics (N=80) Variable Frequency Percentage Mean Gender Male N/A Female Age > Marital status Single Married N/A Widowed Divorced Household size >8 4 5 Education No formal education Primary education Secondary education Tertiary education Others Marketing experience > Source of capital Personal savings Bank loan N/A Cooperative loan Family NA implies not applicable Source: Field Survey,

9 Table 2: Cost and return analysis of fresh tomato marketing in /Kg Cost items Amount ( /Kg) Variable cost Cost of purchase 20, (99.75) Taxes 1.96 (0.01) Rent (0.07) Marketing materials 6.23 (0.03) Transportation (0.10) Labour 2.07 (0.01) Storage 3.64 (0.02) Total Variable Cost (TVC) (100) Total Cost (TC) Returns Gross Revenue (GR) Return/Naira invested (GR/TC) 27, Gross Margin 6, Marketing materials include baskets, bowls, plates and trays Figures in parenthesis shows the percentage of the total Source: Field Survey, 2011 Table 3: Marketing margin on fresh tomatoes Price Amount ( /Kg) Purchase Selling Marketing Margin (Percent) Source: Field Survey,

10 Table 4: Linear regression result of the determinants of quantity of fresh tomatoes purchased for sale Variables Coefficient t-ratio Constant 2.688* (1.484) Purchase price *** (0.000) Transportation cost *** (0.000) Marketing experience 0.124*** (0.051) Education 0.245*** (0.096) R F *** ***, * indicates significant at 1% and 10% respectively Standard errors are in parenthesis Source: Field Survey, % 18% 10% Lack of access to formal credit (18%) Lack of market facilities (10%) lack of capital (20%) 23% Figure 1: Distribution of the constraints associated with fresh tomato marketing 20% high cost of transportation (23%) inadequate storage facilities (29%) Figure 1: Distribution of the constraints associated with fresh tomato marketing 67