International Journal of AgriScience Vol.

3(8): 636-648, August 2013

ISSN: 2228-6322 International Academic Journals

www.inacj.com

Impact of credit access on value chain activities of Agro-Processing Industries

in Oyo State, Nigeria

Olagunju F.I.*
Department of Agricultural Economics, Ladoke Akintola University of Technology, P.M.B 4000 Ogbomoso, Oyo State,
Nigeria. Author for corespondence (email:olagfunk@yahoo.com)

Received June 2013; accepted in revised form July 2013

ABSTRACT
This paper explores the structure, the financial viability of agro-processing industries and the
effect of credit access on value addition by different agro-processing units in Oyo State, Nigeria.
A multistage random sampling method was used to select a sample of 160 credit and non credit
agro-processors of different types from each selected local government areas by using
proportional allocation method. The data were analyzed using descriptive statistics. The extent of
value addition has been about 34% and 20% for credit and non credit users in the cassava mill
sector respectively. The maximum value addition has been observed in fruits/vegetable
processing (103%) followed by cashew based units. The results obtained for the processors with
credit indicated that they are efficient than their counterparts producing without credit. This
result is expected and points to the positive impact of credit on value chain activities. There was
under capacity utilization in almost all types of processing industries in the state due to lack of
adequate supplies of raw material, bottlenecks in market penetration and marketing strategies,
inadequate credit. The break-even output is very low hence the agro industries in the state were
running into loss due to low capacity utilization. Improvement in basic infrastructure like
developing railway links, metallic roads, cool chains, adequate/ uninterrupted power supply,
disposal of sewage/ industrial effluents, housing, control of traffic congestion can bring a
positive change on resource utilization.

Keywords: Financial viability, Oyo state, Value Chain, Value Addition, Credit, small scale enterprises

INTRODUCTION
The potential of the Agricultural sector in
securing incomes, employment and food
supply and thus to reduce poverty among the
small scale enterprises has greatly reduced.
The greatest challenge to the development in
the sector is low productivity and the
reasons for this among other things are little
access to financial resources by the

producers and weak modern technologies

and their organizational structures. Credit to
farmers can be categorised into cash credit
(loans given to farmers by financial
institutions), and non-cash credit which
comprise the supply of inputs to farmers by
companies,
individual
entrepreneurs/businessmen etc., for which

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636

these farmers make payments after

harvesting. This study is focused on cash
credit (i.e., loans that farmers received from
the financial institutions). In most
developing countries, agricultural credit is
considered an important factor for increased
agricultural
production
and
rural
development
because
it
enhances
productivity and promotes standard of living
by breaking the viciouscycle of poverty of
small scale farmers. Credit is regarded as
more than just another resource such as land,
labor and equipment, because it determines
access to most of the farm resources
required by farmers. The explanation is that
farmers adoption of new technologies
necessarily requires the use of some
improved inputs which may be purchased.
Credit also acts as a catalyst for rural
development by motivating latent potential
or making under-used capacities functional
(Olagunju and Babatunde, 2011).
Generally, the accessibility of a good
financial service is considered as one of the
engines
of
economic
development.
Governments of less developed countries
have frequently practiced
the policy of providing cheap credit to the
agricultural sector through financial
intermediaries.
This cheap credit, it was hoped, would lower
the dependence on the rural money lenders.
The provision of credit has increasingly
been regarded as an important tool for
raising the incomes of rural populations,
mainly by mobilizing resources for more
productive uses. As development takes
place, one question that arises is the extent
to which credit can be offered to the rural
poor farmers to facilitate their farm
operations, all things being equal. Thus, the
usefulness of any agricultural credit program
does not only depend on its availability,
accessibility and affordability but also on its
proper and efficient allocation and

637

utilization for intended the purpose by

beneficiaries Oboh (2008)
In Nigeria, the problems of agricultural
credit to small scale farmers arise from the
following: source, availability and use.
There is inadequate or complete absence of
financial projections and planning, and also
high level of illiteracy among the processors
and lack of relevant information as to how,
when and where to obtain credit. There is
also lack of skilled personnel in our credit
institutions to supervise and monitor loan
packages as well as manage them, and
diversion of credit to non-agricultural
purposes by the beneficiaries. Every
segment of agricultural production requires
the availability of adequate capital since
capital determines access to all other
resources on which farmers depend for their
operation (Olagunju et. al. (2013).
Nevertheless, small scale processors are
constrained by inadequate credit to carry on
with meaningful agro-processing activities.
Accessibility to credit alone without good
management by beneficiaries cannot
guarantee the expected improvement in food
production level, income and hence prompt
loan repayment. It has been shown that farm
level credit if well applied, enhances capital
formation and diversified agriculture,
increases resource productivity, size of farm
operations,
innovations
in
farming,
marketing efficiency, value added and net
farm incomes (Olagunju and Ajiboye,
2010).
In both developed and emerging economies,
the availability of credit in promoting a
favourable environment for the development
of small and medium scale enterprises
(SMEs) is seen as critical. SMEs are a
primary driver for job creation and GDP
growth. They greatly contribute to economic
diversification and social stability and also
play an important role for private sector
development (Knight, 1998). Increase
in
volume of production, the optimal use of

International Journal of AgriScience Vol. 3(8): 636-648, August 2013

agricultural resources, the creation of a

stable food market, the achievement of
greater level of productivity, increase the
competitiveness of agricultural products and
implementation of integrated agricultural
goals. Favorable natural conditions as well
as tradition in the production and processing
of agricultural products, a relatively
favorable geographic position, qualified and
relatively cheap workforce, good transport
infrastructure, as well as a relatively
unpolluted environment, are just some of the
stimulating factors for the development of
small and medium sized enterprises in
Nigeria.
In the last decade or two there has been a
resurgence of interest in value-added
agriculture,
driven
by
consumer
characteristics and the desire of farmers to
capture a larger share of the consumer
dollar. As interest in on-farm processing
(and
value-added
activities
more
generally) has grown, governments at the
national and regional levels have determined
that there are benefits to supporting various
types of value-added agricultural activities.
The main motivations of governments are
enhancing or stabilizing farm-household
incomes, creating rural employment and
economic development, and maintaining
land in agricultural (or open) use (Streeter
and Bills, 2003).
The relative importance of SMEs in
advanced and developing countries has led
and would continue to lead to a
of supply (e.g. land, seeds, fertilizer etc.).
Production problems include those related to
scarcity and high cost of inputs, technical
production problems (low yield, pest and
diseases problems) and unstable agroclimatic conditions that aggravate farmers
production risks. Others include socioeconomic problems (low level literacy,
pervading poverty and aging farming
population). Processing and storage
problems include those of poor technology,

and rural development are some of the

strategic objectives of the development.
Small and medium sized enterprises in
agribusiness have an important role in the
realization
of
these
reconsideration of the role of SMEs in the
economy of nations. The development of
many countries is often measured by such
indices as the level of industrialization,
modernization, urbanization, gainful and
meaningful employment for all those who
are able and willing to work, income per
capital, equitable distribution of income, and
the welfare and quality of life enjoyed by the
citizenry. There are various multiplier
effects of agro-processing industry such as
spread of industrialization in rural areas
leading to more livelihood options to
teeming millions, nutritional supplements,
stable prices of agricultural commodities
and many other effects due to backward and
forward linkages. The economic prosperity
of rural farmers in particular was achievable
only with an effective integration and
synergy between agriculture and agro-based
industries (Tripathi, 2006).
The value addition in agriculture derives
from the value chain which encompasses all
activities involving agricultural input and
production, processing, storage, marketing
and distribution, household and industrial
consumption and export. All along the chain
many problems and constraints persist.
Agricultural input constraints include those
relating to availability and quality
high wastage, inadequate infrastructure
(energy) and poor quality of primary
products. Marketing and distribution
constraints include those of poor
infrastructure (access roads), inadequate
market information, lack of quality control
and safety standards and weak market
linkages. The key problem of exports is
mainly the un-competitiveness of many
commodities in the international market
(high cost of production and poor quality

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638

control). Consumption problems relate to

household poverty, low industrial capacity
utilization and inadequate quality control
and safety standards. Common to all nodes
of the value chain are financial constraints
which include poor access to loan and high
interest rates. But, it is disheartening to note
that despite large and diversified agricultural
base, commercial processing in Nigeria is
quite low (Aremu and Adeyemi, 2011). As
such, agricultural development may not go
very far unless there is enough access to
production credit for development of agrobased industries not only to take up surplus
labour force from agriculture but also to
provide a solid technical base to modernize
agriculture. Added to this, SMEs in Nigeria
suffer from very poor inter and intra-sectoral
linkages, and as a result lose benefits
synonymous with economies of large-scale
production. Hence the weak inter industry
relationship badly affects to weaken the
value chain thereof low value addition.
Credit supply to farmers is widely perceived
as an effective strategy for enhancing the
increase in agricultural productivity (Phillip
et al., 2008).
Agricultural credit is
considered essential to the process of
improving agriculture and transformation of
the rural economy. According to Mahmood
et al., (2009), the introduction of easy and
cheap credit is the quickest way for boosting
production. The argument is that the
agricultural sector depends more on credit
than any other sector of the economy
because of the seasonal variations in the
farmers returns and credit requirement in
the transformation of subsistence to
commercial farming. Credit provides the
opportunity for them to earn more money
and improve on their standard of living.
Therefore, provision of adequate credit for
agro-based industries should be enhanced.
This is perhaps the most critical factor that
planners and policy makers have ignored in
the past and that is why the burden of

639

workforce down the ladder (farming) in

primary sector has not diminished. This
clearly shows lopsided development wherein
changes in sectoral output composition have
not led to the proportionate changes in
structure and occupation of workforce.
Consequently, the disparity between per
worker income in agricultural vis--vis nonagricultural sector has widened over the
years. Therefore, rapid growth of agroprocessing industry close to agricultural
production centres can bring about the
desirable shift in employment structure
without moving people from rural to urban
areas (Aremu, 2004).
The major objective of this study is to
determine the impact of credit use on value
chain of agro processing industries in the
study area. The specific objectives of the
study were:
(i) To study the structure, capital investment
and extent of value addition in various
types/sizes of agro-processing units in Oyo
State and (ii) To examine the effect of credit
use on value addition of different categories
of commodity specific agro processing units
in the state.
Value chain: Concept and Issues
The value chain concept is introduced by
Michael Porter in his book. The value chain
can break down the activity of the company
into a sequence of elementary operations
and identify potential sources of competitive
advantage. According to Adetonah et al
(2010), the value is the amount that
customers are willing to pay for the product
that is offered. The value chain is a concept
which can be simply described as the entire
range of activities required to bring a
product from the initial input-supply stage,
through various phases of production, to its
final market destination. The production
stages entail a combination of physical
transformation and the participation of
various producers and services, and the

International Journal of AgriScience Vol. 3(8): 636-648, August 2013

chain includes the products disposal after

use. As opposed to the traditional exclusive
focus on production, the concept stresses the
importance of value addition at each stage,
thereby treating production as just one of
several value-adding components of the
chain. It resulted from different activities
performed by suppliers, the firm and
distribution networks. According to Giertz,
et al (2008), the value chain includes all
activities undertaken by transforming raw
materials into semi-finished or finished
goods for sale or consumption. Value Chain
describes all the activities required to bring a
product or service from conception through
production stages (involving a succession of
physical and uses of various services),
distribution to final consumers and its
destruction after use. The overall
performance of the value chain can be
enhanced both by strengthening each link
and by strengthening the connections
between the links
In reality, value chains tend to be more
complex, to involve numerous interlinked
activities and industries with multiple types
of firms operating in different regions of one
country or in different countries around the
globe. For instance, agro-food value chains
encompass activities that take place at the
farm as well as in rural settlements and
urban areas. They require input supplies
(seeds,
fertilizers,
pesticides,
etc.),
agricultural machinery, irrigation equipment
and manufacturing facilities, and continue
with handling, storage, processing, and
packaging and distribution activities. Other
elements, such as power generation,
logistics, etc., which form the chain
environment, are also important factors
affecting the performance of value chains.
Value chain analysis is a useful analytical
tool that helps understand overall trends of
industrial reorganization and identify change
agents and leverage points for policy and
technical interventions. It is increasingly

used by donors and development assistance

agencies, including UNIDO, to better target
their support and investments in various
areas such as trade capacity, enterprise
competitiveness, income distribution and
equity among value chain participants.
Value chain analysis is the process of
breaking a chain into its constituent parts in
order to better understand its structure and
functioning. The analysis consists of
identifying chain actors at each stage and
discerning their functions and relationships;
determining the chain governance, or
leadership, to facilitate chain formation and
strengthening; and identifying value adding
activities in the chain and assigning costs
and added value to each of those activities.
The flows of goods, information and finance
through the various stages of the chain are
evaluated in order to detect problems or
identify opportunities to improve the
contribution of specific actors and the
overall performance of the chain. In many
parts of the world, agriculture continues to
play a central role in economic development
and to be a key contributor to poverty
reduction. However, agriculture alone will
not be sufficient to address the poverty and
inequality that are so pervasive in todays
world. It is becoming increasingly crucial
for policy makers to focus immediate
attention on agro-industries. Such industries,
established along efficient value chains, can
increase significantly the rate and scope of
industrial growth. Agro-industrial products
offer much better prospects of growth than
primary commodities. In addition, the
marked trend to break down production
processes into specific tasks opens up new
opportunities for developing countries to
specialize and take a more profitable part in
global trade provided they meet increasingly
stringent market requirements (UNIDO,
2009).
MATERIAL AND METHODS

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640

The study was carried out in Oyo State,

located in the Southwest geopolitical zone of
Nigeria. The State lies between longitude
2.5o E and 5 E and latitude 7o N and 19o N
of the equator and covers an area of
approximately 26,500 km2. The state has a
total population of 5.6 million going by
provisional figures of the National
Population Commission (2008). It has a land
area of 27,140,000sq.km. The State enjoys a
tropical humid climate with two climatic
seasons, the rainy season that prevails from
April to October and the dry season that
lasts from November to March. The
Southern part of the State is dominated by
the tropical rainforest while the guinea
savannah belt dominates the remaining parts
(Agboola, 1979). In Oyo state, there are
numerous small and medium sizes of agroprocessing units for processing of fruits,
vegetables, cereals, oilseeds, animal
products, herbal/medicinal oils/products and
a variety of ancillary agricultural
commodities. Within the State however,
there are five sub-ethnic groups with distinct
dialect peculiarities, they are: Ibadans,
Ibarapas,
Oyos,
Oke-Oguns
and
Ogbomosos. Two stage sampling design was
followed to select the processing units. In
the first stage of sampling, two local
government areas each from the groups were
randomly selected. The local government
areas selected are: Lagelu-Iyana ofa , Ibadan
north-Agodi, Atiba- Ofa Mefa, AfijioJobele, Atisbo Tede, Saki West- Saki,
Ibarapa East-Eruwa, Olorunsogo- Igbeti,
Ogbomoso North kinnira and Ogo Oluwa
Ajawa. The complete list of agro
processing units in the study area were
obtained from the state ministry of
commerce and industry, local government
areas and federal Ministry of commerce and
industry. These units were grouped into
different categories on the basis of
commodity specific agro-processing as:
cereals-based (flour mills, rice mills,

641

bakery), fruits and vegetables-based,

oilseeds-based, cashew based, cassava and
poultry processing units. In the second stage
of sampling, a sample of 160 agroprocessing units of different types for
processors with or without access to loan
were selected purposively from each
selected local government areas (Table 1).
The primary data on different aspects of
agro processing were collected from the
selected processing units through survey
method for the year 2010-11. The primary
data comprised information on size, type,
location, installed capacity and utilization,
capital investments, labour employment,
sources of raw material and supply
mechanism, cost of processing, value
addition, and marketing of processed
products, quality aspects, sales turnover,
financial accounts, profits, equity position
and general constraints. Different sets of
data were classified and tabulated for
carrying out detailed analysis. Tabular
analysis was extensively used in the study to
workout ratios, averages, and indices to
derive different parameters of performance
of agro-processing sector. The primary data
on different aspects of agro processing were
collected from the selected processing units
through survey method for the year 2011-12.
The primary data comprised information on
size, type, location, installed capacity and
utilization, capital investments, labour
employment, sources of raw material and
supply mechanism, cost of processing, value
addition, and marketing of processed
products, quality aspects, sales turnover,
financial accounts, profits, equity position
and general constraints. Different sets of
data were classified and tabulated for
carrying out detailed analysis. Tabular
analysis was extensively used in the study to
workout ratios, averages, and indices to
derive different parameters of performance
of agro-processing sector.

International Journal of AgriScience Vol. 3(8): 636-648, August 2013

Table 1. Type of Sample Agro-processing Units in Oyo State

Processing units
With credit
Vegetable/ Fruit based
4
Oil seed based
7
Cereal based
18
flour mill
8
Cassava mill
15
Livestock Based
10
Cashew based
7
Total
69
Source: Local Government Areas: Various Records, 2012

RESULTS AND DISCUSSIONS

Socio-Economic Characteristics of Agroprocessors
Table 2 shows the age distribution of the
agro-processors. Majority of the respondents
(54.3%) were within the age range of 30
39 years while 20.8% were even younger. A
total of 88.1% of the respondents were thus
aged below 50 years. The mean age was
38.6 years. This indicates that most of the
processors were young and in their prime
age in terms of productivity. Hence, given
the necessary resources, these sets of
respondents have high potentials to attain a
high level of productivity. The relatively
young age of the respondents should, all
things being equal have positive impacts on
enterprise size, earnings, the ability to take
risks and adopt modern innovations within
the context of a familiar and clearly
understood technological terrain. Women
were always involved performing such tasks
as washing, sorting, roasting, peeling,
sieving and frying the products as the case
may be. This confirms the view that
processing is predominantly a female
enterprise in Nigeria and indeed, most
African societies (Ajayi, 1995; Olagunju, et,
al., 2012). This can thus be interpreted that
agricultural research and extension as well
traditional societies as typified by rural
areas, the education of the female gender is
not a major family priority and this was
clearly manifested in the study area. This
has serious implications for the development

Without credit
6
6
23
12
23
12
9
91

as policy efforts aimed at enhancing food

processing in Nigeria should be tailored to
meet the needs and constraints of women.
These constraints will include the ability of
women to call on investment funds required
to purchase new technology and the
compatibility of the technology to womens
physiological conditions. This is particularly
important if post harvest food losses must be
minimized through adding value to the food
crops especially at the farm gate level
(Oluwasola, 2010). Only 7.5% of the
processor had a family size of between 1 and
5. About 65% of the respondents had a
family size of between 6 and 10 while the
remaining had more than 10. The average
family size in the study area was 9.4, which
compares with similar findings from other
studies conducted in the Southwestern
region of Nigeria (Olagunju and Sanusi,
2010). The large family size is typical of
most rural farming communities in Nigeria
where household labour is the most
dependable source of farm labour. About
17.5% of the respondents did not go to
school at all, 60.0% had only primary
education, 20% completed secondary
education while 2.5% attended tertiary
institutions. Clearly, the level of education
among respondents was very low. In
of small-scale farm based enterprises in the
rural areas. The low level of education
among the respondents could have serious
implications on their ability to access
information,
use
new
technological

International Journal of AgriScience Vol. 3(8): 636-648, August 2013

642

innovations and even access or procure

credit from formal financial institutions. The
tendency is to operate the processing
business using traditional methods as was
done in the study area. Hence, while
attempts need to be made to access the
processors to modern machines to enhance
their output, it should be done within the
context of familiar, clearly understood and
tested technological environment. In other
words, locally fabricated technology will
serve a better purpose than imported exotic
ones as a result of their scale of operation
and level of education. Eight (5%)
respondents were new entrants in the
processing business as they had spent only
between 1 and 5 years while 63.8% had
been in the business for between 6 and 10
years. The others have been involved in
cassava processing for more than 10 years.
The mean experience of processors was 7.8
years. The experience of the processors in
various fields is sufficient for a thorough
understanding of the technical procedures of
doing the business profitably. The main
source of take-off capital for the business for
72.7% of the respondents was personal
savings although some of them invested
these savings in an inherited enterprise or
combined it with gifts from family and
friends. About 64% got credit from formal
institutions. The Small and Medium
Industries Equity Investment Scheme was
established to energize the Nigerian
economy by channeling funds from banks to
the small and medium industries.
Status of Agro- Processing Sector in Oyo
State
The Small scale enterprises in Oyo State fall
into categories such as organized and
unorganized enterprises. The organized
groups have registered offices and have paid
workers, whilst the unorganized ones are
mainly made up of artisans. Most of these
enterprises are largely made up of family
groups and individual artisans. The activities

643

in the small scale enterprise sector range

from agro processing, pottery and ceramics
to manufacturing of spare parts and
electronic assembly. The small scale
industry is acknowledged to have huge
potential for employment generation and
wealth creation in any economy. Yet in
Nigeria, the sector has stagnated and
remained relatively small in terms of its
contribution to GDP or to gainful
employment. Activity mix in the sector is
also quite limited dominated by import
dependent processes and factors. The agroprocessing development in Oyo State has
been quite slow just as other state in the
country. In view of this, Interest in the
development of SMEs and their contribution
in the development process continue to be in
the forefront of policy debates in the
developing countries
hence, the state
government had extended some fiscal reliefs
to its citizens in other to promote industrial
development in general and agro-processing
in particular. To reap the benefits of fiscal
incentives and to promote industrial
development, the state government has
established Ministry of Industry, Applied
Science and Technology about 7 years ago.
It was created on the 24th of August, 2005
with staff strength of 90 for the promotion of
technology driven SMEs for rapid
industrialization
and
technological
transformation and to harness the available
raw materials and mineral resources of the
state. The classification of agro-processing
units has been depicted in Table 3. It is
observed that most of the processing units
were cereal-based, followed by cassava mill,
livestock-based, cashew and oilseed-based.
There were only 25 registered fruits and
vegetable based processing units. This
clearly shows the slow expansion of fruit
and vegetable processing industry, despite
the fact Oyo state is one of the leading
producers of fruits and off-season vegetables
in the country. This therefore disproves our

International Journal of AgriScience Vol. 3(8): 636-648, August 2013

assertion and hypothesis that processing

industries expanded nearer to the potential
source/ supply of raw material. The cassava
mill can be said to be highly favoured since
UNIDO
(United
Nations
Industrial
Development Organization) has on going
projects in Oyo State, where it is helping to
develop a cassava processing plant mainly

focusing on the major problem in cassava

processing which is drying - to develop a
cassava flash drier and this has been a
project in partnership with the Japanese
government. It is also working at improving
the quality of Nigerian products so that they
can compete favourably in the international
market.

Table 2. Socio-economic Characteristics of Agro-processors(with and without credit access)

Age of respondents (Years):
Frequency
Percentage
Cumulative percentage
<30
32
20.0
20.0
30 39
87
54.3
74.3
40 49
22
13.8
88.1
50 59
11
6.9
95.0
>59
8
5.0
100.0
Mean = 38.6
Gender distribution of respondents:
Female
160
100
100.0
Family size of respondents:
15
members
12
7.5
7.5
6 10

104
65.0
72.5
11 15

36
22.5
95.0
16 20

5
3.1
98.1
>20

3
1.9
100.0
Mean = 9.4
Level of education of respondents:
No formal Education
28
17.5
17.5
Completed up to primary school
96
60.0
77.5
Completed up to secondary school
32
20.0
97.5
Completed up to tertiary Institution
4
2.5
100.0
Experience of processors(Years):
15
8
5.0
5.0
6 10
102
63.8
68.8
11 15
36
22.4
91.2
16 20
8
5.0
96.2
>20
6
3.8
100.0
Mean = 7.4
*Source of take-off capital
Own savings
112
72.7
Credit (formal)
98
63.6
Inheritance
42
27.3
Gifts/donations from family/friends
32
20.8
Source: Field Survey, 2012 *multiple choice

Table 3. Commodity-wise Classification of Agro-processing Units in Oyo State

Processing units
Number
Percent
Vegetable/ Fruit based
25
6.5
Oil seed based
32
8.0
Cereal based
102
26.5
Flour mill
46
12.0
Cassava mill
91
24.0
Livestock Based
50
13.0
Cashew based
38
10.0
Total
384
100.0
Source: LGAs; Ministry of Commerce and Industry, Oyo State.

International Journal of AgriScience Vol. 3(8): 636-648, August 2013

644

Investment Pattern
The total capital investment under different
types of agro-processing units has been
depicted in Table 4. The total capital
investment was highest in case of livestock
(N 42.1m) followed by flour mills (N22.1m)
followed by rice mill and fruit/ vegetable
processing (N18.1m). The share of land and
Installed Capacity, Utilization and Breakeven Production under Different Agroprocessing units in Oyo State
The processors response based on installed
capacity and break-even analysis are
presented in Table 5. The table shows that
the processors have not benefited in terms of
timely availability of raw materials (72.7%),
very few (12.9) only benefitted from timely
availability of raw materials required for
processing. The results further showed that
inadequate supply of raw material was the
major factor for low capacity utilization.
The result was similar to what was obtained
in Himachal Pradesh (Sharma et al., 2010)

building structures was substantial in all the

units that accounted for about 72, 78 and 74
per cent in case of cassava mill and rice mill,
and in Oil seed based units respectively.
There is a different story in the case of
livestock based, cashew based and fruit/
vegetable units with just about 40, 31 and 53
% respectively.
For instance some of the processing units
find it difficult to run the units from local
supplies and were forced to purchase raw
material from other states at higher prices. In
essence, there was under capacity utilization
in almost all types of processing industries
in the state. It was mainly due to lack of
adequate supplies of raw material as well as
bottlenecks in market penetration and
marketing strategies to woo the consumers.
Most of the processors agreed that the
break-even output is very low (66.3%)
hence most of the agro industries in the state
were running into loss due to low capacity
utilization.

Table 4. Capital Investment under Different Types of Agro-processing Units in Oyo State
Processing Units
Land and
Plant/
(N/unit)
Buildings
Machinery
Total
Vegetable/ Fruit based
9,636,555
8,548,623
18,185,178
Oil seed based
5,407,419
1,859,519
7,266,939
Rice meal
12,013,282
6,287,619
18,300,901
Flour mill
14,320,953
7,818,200
22,139,153
Cassava mill
867,420
342,286
1,209,706
Livestock Based
16,540,350
25,658,200
42,198,550
Cashew based
594,434
1,345,324
1,939,776
Overall average
4,075,307
2,486,448
6,561,755
Source: Field Survey, 2012
Table 5. Distribution of Agro-processing Units by Installed Capacity and Break-even Analysis
Processing Units
Strongly Agree Undecided
Disagree
Strongly
Agree
Disagree
Timely availability of raw material
7(4.5)
13(8.4)
22(14.3) 45(29.2)
67(43.5)
High Capacity Utilization
12(7.8) 18(11.7)
32(20.8) 44(28.6)
48(31.2)
Break-even points
9(5.8)
14(9.1)
29(18.8) 48(31.2)
54(35.1)
Source: Field Survey, 2012 Figures in parentheses are the percentage respondents

Processing and Value Addition

For farmers, value-added has a particular
importance in that it offers a strategy for

645

transforming an unprofitable enterprise into

a profitable one. In fact, there are very few
items that a small farmer can produce and

International Journal of AgriScience Vol. 3(8): 636-648, August 2013

sell profitably at the first level (that is, on

the open wholesale market). Therefore, a
value-added strategy is critical to the longterm survival of most small farms in Oyo
state. Many producers will look for ways to
be economically viable through voluntary,
incentive-based
solutions.
Producers
greatest opportunities may lie in activities
that add value to theirproducts and move
their point of first sale downstream toward
consumers. Adding value to bulk raw
commodities is one way for producers to
keep a larger share of the margins associated
with further processing and market
development. Progressive producers respond
to market developments, determine what
factors will drive the future of their industry,
and use these results to their advantage by
adapting to change. The extent of value
addition was found to vary from industry to
industry and product to product, depending
upon the nature/ brand of raw materials,
technology, packaging requirement and
extent & magnitude of selling and
distribution expenses involved. It was
discovered that better training on
management and technical aspects should be
provided with market information and
infrastructure so that they could scale-up
their production and become competitive in
the market. The extent of value addition
under different types of processing
industries for those that have access to credit
and those without credit was estimated and

is shown in Table 6. It can be observed that

Vegetable/ Fruit based processors with
credit used the total inputs worth N35,758
632 and produced processed output value
totaling to N 72740712 resulting in the net
value addition of over 100 per cent over
input cost while those without credit used
total inputs that worth N15,354,431 and
produced processed output value totaling
N95,323,985 resulting in the net value
addition of N83.89. The results for the
processors without credit are not as high as
that of their counterparts; this could be an
indication of lack of resources and inability
to acquire additional capital for value
addition. The results obtained for the
processors with credit indicated that they are
efficient than their counterparts producing
without credit. This result is expected and
points to the positive impact of credit on
value chain. The flour mill, on the other
hand, enhanced value by about 28 per cent
for credit worthy processors while non credit
processors had 43%. In the case of rice mill,
46 per cent and 43% value addition were
made with rice milling for both credit
worthy and non credit worthy processors
respectively. The value addition was quite
high in cashew based (72%), oil seed based
(56%) and moderately low in cassava
processing (34%). This follows the same
trend with processors without credit access.

Table 6. Extent of Value Addition in Different Agro-processing Industries in Oyo State

Processing units
Agro-Processors with Credit
Agro-Processors without Credit
Value of
Value of
Value
Value of
Value of
Value
material
final
addition
Material
final
addition
Inputs
output
(%)
Inputs
output
(%)
Vegetable/Fruit based
35,758, 632 72,740,712
103.42
15,354,431 95,323,985
83.89
Oil seed based
Rice mill
6,968,212
10,900,408
56.43
4,342,489
6,212,432
43.06
Flour mill
22,555,436
32,941,621
46.04
20,224,631 28,897,064
42.88
Cassava mill
25,915,224
33,208,729
28.14
22,453,915 25,282,245
11.19
Livestock Based
2,254,113
3,024,265
34.17
1,997,877
2,407,164
20.48
Cashew based
50,864,342
75,957,390
49.33
25,732,321 38,202,332
48.46
Overall average
2,815,796
4,849,440
72.22
2,252,342
3,312,332
47.06
10,272,131 13,123,510
27.76
7,367,484 8,953,886
21.53
Source: Field Survey, 2012 Note: Inputs included value of additives/preservatives, etc.

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646

CONCLUSIONS
The agro processing industries face variety
of constraints. Factor availability and cost
are the most common constraints. Access to
finance remains a dominant constraint to
small scale enterprises in the state. Other
constraints faced by the sector include: lack
of access to appropriate technology; the
existence of laws, regulations and rules that
impede the development of the sector; weak
institutional capacity and lack of
management skills and training. In an
attempt to enable the sector perform its role
effectively; a number of technical and
financial support institutions were put in
place by the Oyo State government. These
ranged from government institutions,
parastatals, private institutions and nongovernmental organizations.
The relatively young age of the respondents
should, all things being equal have positive
impacts on enterprise size, earnings, the
ability to take risks and adopt modern
innovations within the context of a familiar
and clearly understood technological terrain.
The low level of education among the
respondents could have serious implications
on their ability to access information, use
new technological innovations and even
access or procure credit from formal
financial institutions. The tendency is to
operate the processing business using
traditional methods as was done in the study
area. Hence, while attempts need to be made
to access the processors to modern machines
to enhance their output, it should be done
within the context of familiar, clearly
understood and tested technological
environment. In other words, locally
fabricated technology will serve a better
purpose than imported exotic ones as a
result of their scale of operation and level of
education. This study shows that credit is
very important in value chain activities.
Most of the processors shy away from

647

formal lending and depend on personal

savings, relatives and friends. Policy makers
should therefore solve for the bottlenecks
that hinder formal lending to small scale
processors. This is a major challenge to
policymakers and operators of credit
institutions such as banks and cooperative
societies.
Policy Implications
There should be a necessity for costeffective and adequate supply of raw
material by strengthening direct linkages
through suitable contract farming models
safeguarding the interests of farmers.
Liberal credit policy to modernize smallscale processing units to enable them
(women) to compete with organized
industries and effective R&D support to the
agro-processing sector in
enterprise
development/management
and
marketing/exports is very essential. This will
afford them more access to funds for
business development.
Improvement in basic infrastructure like
developing railway links, metallic roads,
cool chains, adequate/ uninterrupted power
supply, disposal of sewage/ industrial
effluents, housing, control of traffic
congestion, etc. Finally, as more funds were
made available to the small scale poultry
farmers at minimal costs, the level of output
in industry will improve.
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