Available online at http://www.ajol.info/index.php/njbas/index Nigerian Journal of Basic and Applied Science (2011), 19(2): 293-298 ISSN 0794-5698
Profitability Analysis of Rice Processing and Marketing in Kano State, Nigeria
1I.M.S. Inuwa, 2 U.B. Kyiogwom, 2A.L. Ala, 2M.A. Maikasuwa, 3N.D. Ibrahim 1Department of Agricultural Economics and Extension, Usmanu Danfodiyo University, Sokoto 2Department of Crop Science, Usmanu Danfodiyo University, Sokoto 3Department of Agricultural Education, Sa’adatu Rimi College of Education, Kumbotso, Kano. [Corresponding address: [email protected]]
ABSTRACT: The study determined the profitability of rice processing and marketing in Kano State. The objective of the study was to assess the profitability levels of rice processing and marketing, evaluate the value added to the commodity at each stage in the study area and determine the most efficient services produce. Primary data were collected from 120 randomly selected respondents comprising parboilers, millers, retailers and wholesalers using interview schedule. The findings indicated that Net Milling Income of millers was N3,378,855.08 per respondent per year; the value added was N5,736,658.82 and service efficiency was 243.3. This result, therefore, showed that the Net Milling Income, value added and service efficiency for millers were higher, followed by wholesalers (N2,239,086.63, N2,239,086.63 and 3.5 respectively) and retailers (N422,230.77, N422,230.77 and 5.65 respectively), with the parboilers having the least. The millers had a Net Present Value of N10, 555,709 at 22% and an Internal Rate of Return of 140 which shows that the business of milling can payback money loaned from bank at even 140% interest rate. Based on the findings, it was recommended that the parboilers should be paid for their services separately from costs of input for parboiling and the traders should enhance the existing co-operatives societies and encourage bulk purchase and transportation of the milled rice. This will reduce the high cost of milled rice as well as reduce the cost of transportation. Keywords: Rice, Processing, Marketing, Profitability
INTRODUCTION half the rate of the imported rice (NRDS, 2009). Rice (Oryza sativa L.) being the second largest This increase in demand is because rice has consumed cereal (after wheat) shapes the lives changed from being an elitist to a staple food for of millions of people; more than half the world’s many Nigerians. Many local dishes are prepared population depends on rice for about 80 percent with rice because of its relative ease in terms of of its food calorie requirements. Rice has been a storage and preparation. In terms of local good partner to mankind. The adaptations in production, rice is now one of the main cereals terms of ecological, economical and produced by Nigerian farmers; it is cultivated in technological changes around rice facilitated virtually all the agro-ecological zones of this “partnership between man and rice” (Braun, Nigeria. It covers both the upland and the 2006). For instance, in terms of rapid swamps, depending on the variety (KNARDA, population growth, soaring rice demands were 2007). met largely due to the increase in rice production. As such, we must continue to Global value chain concept, as pointed out by nurture this partnership (Braun, 2006). Global Value Chain Initiative GVCI (2007) is an arrangement that describes the linkages of Local rice demand is growing quickly due to participants and their value creating activities population growth and urbanization. Nigeria’s that enhanced the movement of goods and estimated annual rice demand is put at 5 million services from production, processing to the end metric tons while annual production on the user (consumer). The number and conduct of the average, was about 2.21 million tons of milled participants along the chain determine its rice product leaving a deficit of 2.79 million efficiency, pricing and returns accruing to each tons which is bridged by importation (NRDS, participant at every state (GVCI, 2007). Daniel 2009). Domestic demand for rice is projected to et al., (2006) pointed out that value chain is an rise to 7.5 million tons by 2013, on the analysis that allows an understanding of a assumption that demand rises at 10% per sequence of activities, which are needed to bring annum, with demand for local rice growing at
293 Inuwa et al.: Profitability Analysis of Rice Processing and Marketing in Kano State, Nigeria a product from its production to the final Methodology consumer. Study Area and Sampling Technique The study was conducted in Kano State of The ‘value chain view’ implies a system of Nigeria. The existing Kura– Kano Rice Corridor interaction and relationships between different which stretch up to Tudun Wada and the famous actors and organizations. The system usually Garko-Sumaila rice-production axis are an includes more than a handful of producers and important rice production and processing areas market stalls. In value chain, business in Kano State. The Kura- Kano Rice Corridor is development services such as the enabling an important rice production and processing environment are integral part of the chain just clusters in the State, the corridor processed even like the producers, processors, retailers and more rice than is being produced in the consumers (Daniel et al., 2006). Therefore, immediate surroundings (USAID, 2005). The understanding the mechanism within the value State therefore, has a significant number of chain system mitigates distinguishing producers, processors and quality oriented retail bottlenecks and failure thereby creating markets for both paddy rice and milled local rice improvement possibilities within the system. across the State most of which is located along the Kura – Kano rice corridor. The value chain model asserts that a product is Six Local Government Areas (LGA’s) were rarely directly consumed at the place of its purposively selected based on the intensity of production. It is transformed, combined with rice processing and marketing. From each of other products, transported, packaged, and the six LGA’s two major rice processing and displayed and so on until it reaches the final marketing clusters were purposively chosen. consumer. This identifies the various actors who From each cluster, 10 paddy rice processors and are linked by trade; own the raw materials, traders were randomly selected for the study intermediate products and final products and given a total of 120 respondents. services and each add some value to the product. Therefore the value chain model supposes that Data collection by understanding these interactions, it is Interview schedule using close and open ended possible for private and public agencies questionnaire were used in collecting primary (including development agencies) to identify data from the respondents, while secondary data points of intervention to: were sourced from agricultural journal, i. increase efficiency thereby monographs, textbooks, browsing on internets, increasing total generated value, records from Ministry of Agriculture and and Natural Resource and Kano State Agricultural ii. improve the competence of the and Rural Development Authority (KNARDA). intended actors to increase their Data were collected on rice processing, share of the total generated revenue. parboiling and milling operations. Information collected on parboiling operations were costs at The main thrust of the study was to determine various stages of parboiling such as cost of the profitability of paddy rice processing and cornstalk, firewood, water, kerosene, soaking, marketing in the study area. The study also to steaming, drying, spreading, storage, fixed determine the point where value is most added assets used, transportation and marketing. Data along the chain for profit maximization. A part on milling were collected on various costs of from helping to identify the important actors and milling operations such as pre-milling, cleaning, leverage points requiring innovative hulling, milling, polishing, grading, de-stoning, intervention for the purpose of increase in storage of milled rice, transportation marketing production, efficiency and effective as well as cost of fuel, diesel and various spare management, the information generated from parts. While data collected on marketing the study may also be of importance to included unit prices of different categories of practicing rice farmers, parboilers, millers and rice, cost of transport, cost of re-milling, traders who may use it to improve on their winnowing, handling and storage. performance.
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Data analysis I = Interest rate (N) The data generated through the interview N = Years of useful life of different categories schedule were subjected to various analyses in of processing/marketing order to achieve the stated objective of the study. Descriptive Statistics, Farm Budgetary The internal rate of return is also known as the Technique, Value Added Model and Measure of marginal efficiency of capital or yield of Efficiency were used in analyzing the data. investment. It is the discount rate that makes the Some costs incurred in the processing process NPV just equal to zero. were continuing in nature as such, Net Present It is expressed as:- Value (NPV), Benefit Cost Ratio (BCR) and R1 R2 R3 Rn NPV C = 0 Internal Rate of Return (IRR) were computed to 1 i1 1 i 2 1 i 3 1 i n determine the yearly return which is the Where : investments worth in the different types of R1- Rn = Annual net cash flow (N) categories over their entire useful life and time R = Interest rate of return (N) value of money was taken into consideration. C = Initial investment cost (N) Model specification n = Years of useful life of different categories of Net processing income was calculated as processing/marketing enterprises follows:- NPI = GPI-TC Value Added and Measure of Efficiency Or Models: NPI = GR – TFC – TVC Value added is a process of increasing the Where: economic value of a commodity. Value added NPI/NMI = Net Processing/Marketing Income here referred to cost of purchasing transformed (N) paddy or milled rice less cost of paddy or milled GR = Gross Revenue (N) or Gross Receipts rice in its untransformed form and it is express (GR) is the total output multiply by the price per as:- unit of produce. VA = CPT - C PU TFC = Total Fixed Cost (N) include cost of all Where: fixed inputs used in parboiling, processing and VA = Value Added marketing of processed rice. These costs include CPT = Cost of purchasing transformed paddy/ depreciation on containers, pots, taxes paid and milled rice (N) so on. CPU = Cost of paddy/milled rice in its TVC = Total Variable Cost (N) - Total Variable untransformed form (N) Cost or operating cost in this case include costs of paddy, transport and so on. Efficiency is an engineering terminology, which The NPV is expressed mathematically as:- is measured as a ratio of output (Y) per unit of input (X). Therefore measure of efficiency was R1 R2 R3 Rn NPV 1 2 3 n C used to determine the most efficient services 1 i 1 i 1 i 1 i provided along the rice value chain in the study Where area. NPV = Net present value (N) This is expressed as:- I = Interest rate (N) Value Added by processing Processing Efficiency x 100 R1 – Rn = Annual net cash flows (N) cost of processing services C = Cost of initial investment (N) Value Added by marketing Marketing Efficiency x 100 N = Years of useful life of different categories Cost of marketing services of enterprise Note: The processing comprises of parboiling The benefit cost ratio is expressed as follows:- and milling operations. n R1 / 1 i BCR n RESULTS AND DISCUSSION C1 / 1 I The profitability, value added and efficiency at Where the two different levels of paddy rice processing BCR = Benefit Cost Ratio and marketing were determined and the results R1 = Annual net Cash flows (N) are presented in Table 1. Analysis of the results C1 = Discounted cost of investment (N) revealed that the Net Parboiling Income per
295 Inuwa et al.: Profitability Analysis of Rice Processing and Marketing in Kano State, Nigeria respondent per year for parboilers was N843.15, The studies of NCRI, (2006), Yakubu et al., with a value added of N228,925.22 and (2006) and Olabisi, (2007) concur with the efficiency of 100.36. The Net Milling Income of finding that rice parboiling is mostly a women millers was N3,378,855.08 per respondent per affair and that, although it is a profitable year, the value added was N5, 736,658.82 and venture, the level of profit is very small the efficiency attained by this category was compared with enormous work of parboiling 243.3. Also the Net Marketing Income recorded paddy rice. per respondent per year by the retailers category was N422, 230.77, the value added recorded The wholesalers travel far and near to purchase was N422, 230.77 and the efficiency attained the milled rice in high quantity and may have was 5.65. While the wholesalers recorded a Net choice in terms of lower prices than the retailers Marketing Income of N2, 239,086.63 per who mostly were confined within their respondent per year and the value added was immediate environment. Also the study revealed N2, 239,086.63 and the efficiency attained by that the wholesalers are involved in further this category was 3.5. This result, therefore, value addition processes like re-milling and showed that the Net Milling Income of N winnowing to add more value and attract higher 3,378,855.08 with value added of N5, price. This explained why wholesalers of 736,658.82 and an efficiency of 243.31 for processed rice attracted higher Net Marketing millers was higher, followed by wholesalers and Income than retailers. retailers, with the parboilers having the least. Result of the parboilers invariably showed that Further analysis showed that millers had a Net they were operating at a small amount of net Present Value of N10, 555,709 at 22% and an income. Internal Rate of Return of 140 compared to the Net Present Value of N6.574, 865 for The parboilers whom were mainly women wholesalers, N2, 025,484 for retailers and N386, charged between N180 and N300 for parboiling 842 for parboilers all at 22% with an Internal 76 Kg to 100kg of paddy rice depending on the Rate of Return of 95 each for wholesalers and area and location. Out of this amount charged retailers and 90 for parboilers respectively. the costs of firewood, kerosene, cornstalk, Result showed further that the business of labour water, rice husk and cost for spreading/ milling could payback money loaned from bank drying processes were all inclusive in the at 140% interest rate which is over and above amount. High costs imposed on such activities the present Central Bank of Nigeria stipulated couple with poor bargaining power among the commercial lending rate of 22%. Similarly, women folk might have resulted in their low Net other ventures, namely; wholesaling, retailing Parboiling Income. and parboiling could also payback borrowed money at higher interest rate of 95% and 90% respectively.
296 Nigerian Journal of Basic and Applied Science (2011), 19(2): 293-298
Wholesalers 2,239,086.63 2,239,086.63 3.5 6.574,865 3,296 1.03 95 4% 10,207.12 13.16 482.16
Retailers Retailers 422,230.77 422,230.77 5.65 2,025,484 4,503 1.09 95 9% 6,560.64 57.80 52.57
) ) / respondent/year
N
Millers Millers 3,378,855.08 5,736,658.82 243.31 10,555,709 25,361 2.51 140 34% 64.26 31.90 1,382.16 ious actors ious
Parboilers Parboilers 843.15 228, 22 925. 100.36 386,842 1,432 2.24 90 8% 40.98 1.23 105.5
Stands for Net Parboiling, Milling or Marketing Income Marketing or Milling Net Parboiling, for Stands
- 150%
Net Profit to Sale Net Profit
-
Profitability of rice processing and marketing in the study area ( area instudy the and of rice marketing Profitability processing – Stands for the quantity processed and marketed by var by and marketed processed the quantity Stands for
ome – Field Survey 2008/2009 Field Survey Return on Capital on Return Benefit Cost Ratio Cost Benefit Net Present Value Net Present
– Investment on Return – –
- Table 1: Table Item/Category P.Net Income Value Added Efficiency NPV@ 22% NPV@ 90 BCR IRR P.Net Sale ROC ROI Quantity (tons) Source: Source: Inc Net P. NPV BCR Net Sale P. ROC ROI Quantity
297 Inuwa et al.: Profitability Analysis of Rice Processing and Marketing in Kano State, Nigeria
CONCLUSION in Kano State. A package prepared by The findings of the study show that Kano State Marditech Corporation Sdn. Bhd. has great potentials for rice processing and Malaysia for KNARDA. 1-44. marketing. Paddy rice processing and marketing National Cereal Research Institute (NCRI) is a worthwhile investment at both processing (2006). Financial Analysis of Rice and marketing level as evident in the net Parboiling/Processing System in Bida, processing/marketing income, value added and Niger State. Project report submitted to internal rate of return recorded by all the Promoting Pro-poor Opportunities in categories of actors. There are prospects for Commodity and Service Markets processors and marketers, however higher (PrOpCom). Funded by Department of profits await them if all shortcomings are International Development. U.K. An properly addressed. In this respect, the unpublished monograph series number 6. parboilers should be paid for their services National Rice Development Strategy (NRDS) separately apart from costs of input for (2009). A working Document prepared for parboiling. The traders should enhance the the Coalition for African Rice existing co-operatives societies and encourage Development May 2009. bulk purchase and transportation of the milled Olabisi, O. (2007). Financial Analysis of rice. This will reduce the high cost of milled rice Parboiling and Milling Techniques in the as well as reduce the cost of transportation. Kura Kano Corridor. Project report submitted to Promoting Pro-poor REFERENCES Opportunities in Commodity and Service Braun, J.V. (2006). Public Policy and Markets (PrOpCom). Funded by International Collaboration for Department of International Sustaining and Expanding the Rice Development. U.K. An unpublished Revolution A keynote at the 2nd Monograph series number 18. 1-29. International Rice Congress on “Science, USAID-NESG (2005). Approaches on the technology and trade for peace & Markets and PrOpCom Projects. prosperity ”International Food Policy Agricultural Summit Paper in Support of Research Institute (IFPRI) Washington Market–led Development. D.C., USA. http://www,nesgroup.org. Retrieved 21st Daniel, R., Agridea, G. and Adreas, G. (2006). December 2006. The Roles of Donors in Value Chain Yakubu, A.A., Oladusu, B.O. and Kyiogwom, Intervention. Rural Development News. 2: U.B. (2006). Rural Employment 7-15. Generation and Poverty Alleviation Global Value Chain Initiative (GVCI) (2007): through Small –Scale Processing Institute of Development Studies Ventures in Nigeria: The Case of Rice www.ids.ac.uk/globalvaluechains/index.h Processing. A Proceeding of the 2006 tml.Retrievedon 26th March 2008. Annual Conference of Nigerian Kano State Agricultural and Rural Development Association of Agricultural Economist. Authority (KNARDA) (2007). The Held at LAUTECH. Ogbomosho. planning in upgrading of Rice Production
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