Economics of Small - Scale Oil Palm Production in Kogi State Nigeria.

ABSTRACT The study was conducted to examine the Economics of Small-scale Oil Palm Production in Kogi State of Nigeria. The objectives of the study are to: determine the factors affecting resource use efficiency by Oil Palm Producers in the study area and determine the optimum replacement age of oil palm. The tools of analysis used are:- simple descriptive statistics, multiple regression analysis, optimum replacement model and gross margin analysis. From the estimate of oil palm in the state,40,30,20 and 30 oil palm farmers were proportionally and purposively sampled from the four (4) Agricultural Zones, A,B,C and D with their headquarters at Ayetoro-Gbede, Anyigba, Koton-Karfe and Alloma respectively, to give a sample size of 120 oil palm producers. The oil palm producers were interviewed with structured questionnaire to obtain information on oil palm production. Data for optimum replacement age were obtained from NIFOR oil palm plantation, Acharu substation. The data collected were analysed using the tools of analysis as specified. The t-values and F-statistics are significant up to 5 percent level of significance. The oil palm currently on the fields were planted over 26 years ago, most of which are over 45 years, already having impaired productivity. The gross margin analysis shows a margin of N2,046,844.00. The benefit-cost analysis shows a ratio of 1:1.56, indicating that one naira invested in oil palm production will yield N1.56. The production has not been able to keep pace with consumption demand, hence Nigeria has to import palm oil to fill the deficit gap. The highest output recorded in research station was 13.50tonnes of fresh fruit bunch (ffb) per hectare. The study shows that optimum replacement age of oil palm is 35 years for the production to enjoy a flow of output. The major constraint being lack of good policy direction and inadequate financial support and other incentives to boost oil palm produce economy. It is recommended that there should be conscious desire to implement research findings. The need to commission agency(ies) to undertake the establishment of oil palm farms by government and after tending it to certain age shall hand them over to private individuals on charge is imperative. There is a need for credit policy to offer credit assistance to oil palm producers. Oil palm producers should be encouraged to cut down their oil palm at the age of 35 years.

TABLE OF CONTENTS

Cover page ---------------------------------------------------------- i

Title page------------------------------------------------------------- ii

Declaration ---------------------------------------------------------- iii

Certification -------------------------------------------------------- iv

Dedication ---------------------------------------------------------- v

Acknowledgement ------------------------------------------------- vi

Table of contents ----------------------------------------------------- viii

List of tables--------------------------------------------------------- xiii

List of figures-------------------------------------------------------- xv

Abstract -------------------------------------------------------------- xvi

CHAPTER ONE

1.0 Introduction--------------------------------------------------- 1

1.1 Background information------------------------------------ 1

1.2 The problem statement------------------------------------- 9

1.3 The objectives of the study--------------------------------- 13

1.4 Hypotheses--------------------------------------------------- 13

1.5 Justification of the study---------------------------------- 13

1.6 Limitations of the Study ------------------------------------ 15

1.7 Basic Assumptions ------------------------------------------ 16

CHAPTER TWO

2.0 Literature Review------------------------------------------- 17

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2.1 The small-scale farms------------------------------------- 17

2.2 Origin and distribution of oil palm---------------------- 18

2.3 Oil palm development in Nigeria------------------------ 20

2.4 Social and economic value of oil palm----------------- 22

2.4.1 Social value---------------------------------------------- 22

2.4.2 The economic value------------------------------------ 23

2.5 Methods of oil palm production in Nigeria------------ 23

2.5.1 Sources of planting material-------------------------- 23

2.5.2 Agronomy of the oil palm------------------------------ 24

2.5.2.1 Germination------------------------------------------- 25

2.5.2.2 Nursery------------------------------------------------- 25

2.5.2.3 Harvesting--------------------------------------------- 27

2.6 Resource use in oil palm industry---------------------- 28

2.7 Oil palm processing in Nigeria-------------------------- 31

2.7.1 Local method--------------------------------------------- 31

2.7.2 Modern method----------------------------------------- 32

2.8 Funding -------------------------------------------------- 32

2.9 Costs and returns in oil palm industry----------------- 34

2.10 The importance of oil palm in Nigerian economy---- 35

2.11 Uses of oil palm products------------------------------- 36

2.12 Conceptual framework------------------------------------ 36

2.13 Theoretical framework----------------------------------- 38

2.14 Analytical framework------------------------------------ 39

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2.14.1 Farm budgeting technique-------------------------- 39

2.14.2 Resource use efficiency------------------------------ 40

2.14.3 Capitalization Techniques ---------------------------- 40

2.14.4 Optimum replacement model------------------------- 41

2.14.5 Price Instability and Production---------------------- 42

2.14.6 Production function---------------------------------- 43

2.14.7 Regression Analysis---------------------------------- 43

2.15 Empirical studies---------------------------------------- 47

CHAPTER THREE

3.0 Research Methodology---------------------------------- 50

3.1 The study area------------------------------------------- 50

3.2 Sampling procedure------------------------------------ 53

3.3 Method of data collection------------------------------ 54

3.4 Analysis of data----------------------------------------- 55

3.4.1 Descriptive statistics---------------------------------- 55

3.4.2 Farm budgeting technique---------------------------- 55

3.4.3 Model specification------------------------------------- 56

3.4.4 Optimum Replacement Model------------------------- 58

3.4.5 Price Instability and Production ------------------------ 59

CHAPTER FOUR

4.0 Results and Discussions -------------------------------- 61

4.1 Socio-Economic Characteristics of Small-Scale

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Oil Palm Producers -------------------------------------- 61

4.1.1 Age of Respondents ------------------------------------- 61

4.1.2 Marital Status -------------------------------------------- 62

4.1.3 Distribution of Respondents According to

Occupation ----------------------------------------------- 63

4.1.4 Household Size ------------------------------------------ 63

4.1.5 Level of Education -------------------------------------- 64

4.1.6 Experience of Oil Palm Production ------------------- 65

4.1.7 Income ---------------------------------------------------- 66

4.2 Oil Palm Production ----------------------------------- 68

4.2.1 Field Planting Period by Respondents --------------- 68

4.2.2 Success Rate of Field Planting ------------------------ 69

4.2.3 Field Maintenance Activities -------------------------- 71

4.2.4 Interest in Oil Palm Production ------------------- 72

4.2.5 Relative Contribution of Variables to Production

Using Linear and Double Log Functions -------------- 73

4.2.6 Loans and Credit --------------------------------------- 77

4.3 Yield of Oil Palm --------------------------------------- 79

4.3.1 National Output of Oil Palm 1998 – 2008 ---------- 81

4.3.2 The Optimum Replacement Age of Oil Palm ------ 82

4.4 Productivity of Oil Palm ------------------------------ 88

4.4.1 Gross Margin Analysis ------------------------------- 88

4.4.2 Cost and Returns in Oil Palm ------------------------ 89

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4.4.3 Capitalization of Annual Net Returns on Oil Palm at

22% Discount Rate 1998 – 2007 for the Four Zones of

The Study Area ----------------------------------------------- 94

4.5 Price Instability and Production ----------------------------- 96

4.5.1 Declining Productivity of Oil Palm ----------------------- 98

4.6 Products of the Oil Palm--------------------------------------- 100

4.6.1 Uses of Oil Palm Products ---------------------------------- 101

4.7 The Constraints of Oil Palm Production ------------------ 103

CHAPTER FIVE

5.0 Summary of Findings, Conclusion and Recommendations-- 106

5.1 Summary of Findings --------------------------------- 106

5.2 Suggestions for Further Studies………………… 108

5.3 Conclusion --------------------------------------------- 109

5.4 Recommendations ------------------------------------ 109

References ---------------------------------------------- 113

Appendices --------------------------------------------- 119