CCAA Nigeria Report

Background paper for the
COMPETITIVE COMMERCIAL AGRICULTURE IN

AFRICA STUDY (CCAA)
NIGERIA CASE STUDY
Professor Aderibigbe S. Olomola

Director, Agriculture and Rural Development Department
Nigerian Institute of Social and Economic Research (NISER), Ibadan
Disclaimer:
This background report is being made available to communicate the results of Bank-funded work to the
development community with the least possible delay. The manuscript therefore has not been prepared in
accordance with the procedures appropriate to formally edited texts. Some sources cited in this report may
be informal documents that are not readily available.
The findings and interpretations expressed in this report are those of the author(s) and do not necessarily
reflect the views of the Board of Executive Directors of the World Bank or the governments they
represent, or those of the Food and Agriculture Organization of the United Nations (FAO).
The World Bank and FAO do not guarantee the accuracy of the data included in this work. The
designations employed and the presentation of the material in this work, including the boundaries, colors,
denominations, and other information shown on any map do not imply any judgment on the part of the
World Bank or FAO concerning the legal status of any territory or the endorsement or acceptance of such
boundaries.
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COMPETITIVE COMMERCIAL AGRICULTURE IN AFRICA:
NIGERIAN CASE STUDY
By
Professor Aderibigbe S. Olomola

Director, Agriculture and Rural Development Department
Nigerian Institute of Social and Economic Research (NISER), Ibadan
FINAL REPORT SUBMITTED TO THE CANADIAN INTERNATIONAL

DEVELOPMENT AGENCY (CIDA) AND THE WORLD BANK
OCTOBER, 2007
2
CURRENCY EQUIVALENTS, WEIGHTS AND MEASURES
Currency Equivalents (as of December 2005)
Currency Unit: Naira ( )
Official Rate:
US$1 = 131.7
Naira 1 = US$0.0076
Autonomous Market Rate:

US$1 = 142.6
Naira 1 = US$0.0070
Mass and Weight Measure
1000 grammes = 1 Kilogramme (kg)

1000 kilogrammes = 1 Tonne
Area Measure
100 Acres = 1 Hectare (ha)
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TABLE OF CONTENTS
Table of Contents iii

List of Tables v
List of Figures viii
Abbreviations and Acronyms x
Executive Summary xii
CHAPTER
1. INTRODUCTION AND BACKGROUND 1
1.1 Objectives 1
1.2 Conceptual Framework 2
1.3 Methodology 4
1.4 Structure of the Report 7
2. REVIEW OF BROAD DEVELOPMENT EXPERIENCE IN NIGERIA 8
2.1 Macroeconomic Performance 8
2.2 Review of Agricultural Development in Nigeria 10
2.3 Constraints to Competitiveness of Commercial Agriculture in Nigeria 18
3. THE VALUE CHAIN ANALYSIS FOR SELECTED COMMODITIES 23

3.1 Value Chain Analysis of the Cassava Industry 26
3.2 Value Chain Analysis of the Cotton Industry 47
3.3 Value Chain Analysis of the Maize Industry 58
3.4 Value Chain Analysis of the Rice Industry 75
3.5 Value Chain Analysis of the Soybean Industry 94
3.6 Value Chain Analysis of the Sugarcane Industry 108
3.7 Comparative Analysis of Value Chain By Type of Crops 118
3.8 Sensitivity Analysis 127
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4. SUMMARY, CONCLUSIONS AND POLICY RECOMMENDATIONS 131
4.1 Main Findings and Conclusions on Profitability and Export Competitiveness 131
4.2 Constraints 134
4.3 Opportunities for Improved Agricultural Commercialization and Competitiveness 134
4.4 Recommendations for Improved Agricultural Competitiveness in Nigeria 141
REFERENCES 148
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LIST OF TABLES
TABLE PAGE
2.1 Selected Macroeconomic Indicators 9
2.2 Phases of Agricultural Development Policies in Nigeria: 1960-2006 11
2.3 Average Credit Disbursed By Trading Banks Under the ACGS, By Zone 14
2.4 Moratorium for Agricultural Loans 15
2.5 Index of Production of Selected Crops: 1961-2005 17
2.6 Share of Agriculture in Total Imports and Non-Oil Exports 17
2.7 Trend in US Agricultural Export Dumping Levels, 1990-2003 22
3.1 Farm Sectors and Locations for the Value Chain Analysis 23
3.2 Basic Features of the Agro-Ecological Regions of the Selected Commodities 24
3.3 Gross Margin in Cassava Production in South-west Nigeria 26
3.4 Cassava Starch Value Chain Activity Results 28
3.5 World Cassava Production, 2002 30
3.6 Cassava Production in Nigeria, 1999-2004 33
3.7 Structure of Financial Costs in Cassava Enterprises 37
3.8 Profitability Indicators of Cassava Enterprises (Per MT) 38
3.9 Cassava Value Chain Indicators for 1MT of Final Traded Products 40
3.10 Cassava Profitability and Value Chain Indicators By Level of Commercialization 42
3.11 Comparison of Composition of Cassava Shipment Values in Nigeria (%) 43
3.12 Comparison of Selected Cassava Production Indicators in Nigeria 44
3.13 Build-up of Cassava Final SV in Nigeria By Stage (%) 46
3.14 Cotton Production in Nigeria, 1999-2004 51
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3.15 Structure of Financial Costs in Cotton Enterprises (FAM) 53
3.16 Profitability Indicators of Cotton Enterprises (Per MT) (FAM) 54
3.17 Cotton Value Chain Indicators in Nigeria (Per MT) 56
3.18 Composition of Cotton Shipment Values in Nigeria (%) 56
3.19 Build-up of Cotton Final SV By Stage (%) 56
3.20 Gross Margin in Maize Production in Nigerian Agro-Ecological Zones 59
3.21 Gross Margin Analysis per Ha of Selected Enterprises 59
3.22 Maize Production in Nigeria, 1999-2004 63
3.23 Structure of Financial Costs in Maize Enterprises in Nigeria 67
3.24 Financial and Profitability Indicators of Maize Enterprises in Nigeria 68
3.25 Value Chain Indicators for Maize Enterprises in Nigeria 70
3.26 Maize Profitability and Value Chain Indicators By Level of Commercialization 71
3.27 Comparison of Composition of Maize Shipment Values in Nigeria 72
3.28 Comparison of Selected Maize Production Indicators 74
3.29 Gross Margin in Rice Production in Nigeria 75
3.30 Comparison of Domestic and Import Price of Rice in Nigeria 76
3.31 Rice Production in Nigeria, 1999-2004 80
3.32 Structure of Financial Costs of Rice Enterprises in Nigeria 84
3.33 Profitability Indicators of Rice Enterprises in Nigeria (Per MT) 86
3.34 Value Chain Indicators for Rice Enterprises in Nigeria (Per MT) 88
3.35 Rice Profitability and Value Chain Indicators By Level of Commercialization 90
3.36 Comparison of Composition of Rice Shipment Values in Nigeria (%) 91
3.37 Comparison of Selected Rice Production Indicators in Nigeria 93
3.38 Build-up of Rice Final SV By Stage (%) 93
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3.39 Soybean Production in Nigeria, 1999-2004 96
3.40 Structure of Financial Costs in Soybean Enterprises in Nigeria 99
3.41 Financial and Profitability Indicators of Soybean Enterprises in Nigeria (Per MT) 100
3.42 Soybean Value Chain Indicators in Nigeria (Per MT) 102
3.43 Soybean Profitability and Value Chain Indicators By Level of Commercialization 104
3.44 Comparison of Composition of Soybean Shipment Values in Nigeria (%) 105
3.45 Comparison of Selected Soybean Production Indicators in Nigeria 105
3.46 Build-up of Soybean Final SV By Stage (%) 107
3.47 Sugar Supply in Nigeria, 1990-2000 110
3.48 Sugar-Cane Production in Nigeria, By Zones, 1999-2004 112
3.49 Structure of Financial Costs in Sugar-cane Enterprises in Nigeria 114
3.50 Profitability Indicators of Sugar-cane Enterprises in Nigeria (Per MT) 115
3.51 Sugar-cane Value Chain Indicators in Nigeria (Per MT) 116
3.52 Composition of Sugar-cane Shipment Values in Nigeria (%) 117
3.53 Deviations of SVs From Parity Prices of Selected Commodities in Nigeria 126
3.54 Ranking of Selected Commodities in Order of Degree of Competitiveness 126
3.55 Changes in Profitability Indicators With 50% Increase in Yield and 50% Reduction in
Transport Cost 128
3.56 Changes in Shipment Value With 50% Increase in Yield and 50% Reduction in
Transport Cost 129
4.1 Summary of Main Findings By Crops 132
4.2 Value Chain Constraints of Agricultural Commodities in Nigeria 136
4.3 Achievements and Challenges of the Presidential Initiatives on Agriculture 139
4.4 Key Strategies for Improved Agricultural Competitiveness 142
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LIST OF FIGURES
FIGURE PAGE
1.1 Stages in the Value Chain 3
2.1 Real Export Prices of Selected Agricultural Commodities, 1993-2003 20
3.1 Production of Cassava By Agro-Ecological Zones in Nigeria 34
3.2 Land Area Cultivated to Cassava in Nigerian Agro-Ecological Zones 34
3.3 Composition of Shipment Value for Cassava Enterprises in Nigeria 45
3.4 Cotton Production in Nigerian Agro-Ecological Zones 52
3.5 Land Area Cultivated to Cotton in Nigerian Agro-Ecological Zones 52
3.6 Trend in Maize Import in Nigeria, 2002-2005 62
3.7 Production of Maize By Agro-Ecological Zones in Nigeria 65
3.8 Land Area Cultivated to Maize in Nigerian Agro-Ecological Zones 65
3.9 Composition of Shipment Value for Maize Enterprises in Nigeria 73
3.10 Import of Paddy Rice in Nigeria, 2002-2005 78
3.11 Import of Paddy Rice in Nigeria, 2002-2005 78
3.12 Rice Production in Nigerian Agro-Ecological Zones 81
3.13 Land Area Cultivated to Rice in Nigerian Agro-Ecological Zones 81
3.14 Comparison of Composition of Shipment Values in Rice Enterprises 92
3.15 Trend in Soybean Import in Nigeria, 2002-2005 95
3.16 Soybean Production By Agro-Ecological Zones in Nigeria 97
3.17 Land Area Cultivated to Soybean in Nigerian Agro-Ecological Zones 97
3.18 Composition of Shipment Value for Soybean Enterprises in Nigeria 106
3.19 Sugar-cane Production in Nigeria, 1990-2000 109
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3.20 Trend in Sugar Export in Nigeria, 2002-2004 111
3.21 Trend in Sugar Import in Nigeria, 2002-2005 111

3.22 Sugar-cane Production in Nigerian Agro-Ecological Zones 113
3.23 Land Area Cultivated to Sugar-cane in Nigerian Agro-Ecological Zones 113
3.24 Composition of Shipment Value for Sugar-cane 117
3.25 Yield of Selected Crops in Nigeria 119
3.26 Comparison of Unit Cost of Production By Crops in Nigeria 120
3.27 Gross Margins in Selected Farm Sectors in Nigeria, By Crops 121
3.28 Net Profit in Selected Farm Sectors in Nigeria, By Crops 122
3.29 Final Shipment Values for Traded Grain Commodities in Nigeria 124
3.30 Final Shipment Values for Selected Traded Products in Nigeria 125
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ABBREVIATIONS AND ACRONYMS
ADP Agricultural Development Project
ACGS Agricultural Credit Guarantee Scheme
AfDB African Development Bank
CBN Central Bank of Nigeria
DVA Domestic Value Added
EBA Everything But Arms
ECA Economic Commission for Africa
ECF Emerging Commercial Farms
EU European Union
FAM Family Farm
FAO Food and Agriculture Organization
GDP Gross Domestic Product
IDRC International Development Research and Cooperation
IFAD International Fund for Agricultural Development
IFPRI International Food Policy Research Institute
IITA International Institute for Tropical Agriculture
ISO International Sugar Organization
LCF Large Commercial Farms
MBD Million Barrels Per Day
NACB Nigerian Agricultural Cooperative Bank
NACRDB Nigerian Agricultural Cooperative and Rural Development Bank
NAERLS Nigerian Agricultural Extension Research and Liaison Service
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NAIC National Agricultural Insurance Corporation
NCEMA National Centre for Economic Management and Administration
NISER Nigerian Institute of Social and Economic Research
NSPRI Nigerian Stored \Products Research Institute
RCMP Root Crop Monitoring Programme
RTEP Root and Tuber Expansion Programme
SAP Structural Adjustment Programme
SME Small and Medium-Scale Enterprises
SSCN Social Science Council of Nigeria
SV Shipment Value
UNCTAD United Nation Conference for Trade and Development
USDA United State Department of Agriculture
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EXECUTIVE SUMMARY
INTRODUCTION
Since the inception of democratic governance in 1999, Nigeria has witnessed determined efforts
by the government to achieve rapid economic growth and development and to significantly
reduce poverty. Real GDP growth rate made a significant jump from an average of 2.8 percent in
1997/1998 to 5.4 percent in 2000. Although it has been difficult to maintain a steady growth
thereafter, the GDP growth rate has not fallen to the very low level often recorded before 2000.
Indeed, in 2003 the target growth rate of 10 percent set by the government was met for the first
and last time between 2000 and 2005. The 10.2 percent growth rate in 2003 was the highest in
three decades, and was driven mainly by improvements in agriculture which grew by 7 percent
and the oil sector which grew by 23 percent. Despite the improvement in growth performance,
low level of savings and investment is still a major constraint. The highest investment ratio
obtained so far is 16.2 percent while the savings ratio is 15.6 percent. The highest investment
ratio attained since 2000 is far below the minimum investment to GDP ratio of about 30 percent
which is required to unleash a poverty-reducing growth rate of at least 7-8 percent per year (see
NEED, 2004). Increased private investment requires a stable macroeconomic environment
characterized by a low rate of inflation, low rate of interest, stable real exchange rate and well-
managed current account and fiscal balances. The inflation rate which came down to a single
digit in 2000 (6.9 percent) rose to an all time high of 18.9 percent in 2001. It trended downwards
thereafter to a single digit again in 2006 (8.2 percent) although the rate remains higher than the
rate as at 2000. The lending rate which also peaked at 31.2 percent in 2001 declined to 18.7
percent in 2006 - a rate still regarded by investors as too high for operating profitably. Invariably,
manufacturing capacity utilization which stood at 36.1% in 2000 grew somewhat; but followed a
declining trend between 2003 and 2006.
Improvement in macroeconomic management has led to substantial reduction in fiscal
deficits, less volatility in exchange rate and rising external reserves. Between 2000 and 2003 the
problem of fiscal imbalances actually worsened. Fiscal deficit rose from 2.1 percent of GDP to
4.0 percent in 2001 and peaked at 5.5 percent in 2002. Part of the associated problem is the
considerable reduction in the growth of credit to the private sector with adverse consequences on
investment and output expansion. However, by 2003, the fiscal deficit was less than 3 percent of
GDP and by 2004 it was only 1.7 percent. The external reserves increased from about US$9.91
billion in 2000 to about US$16.955 in 2004. These recent macroeconomic trends indicate that the
country is right on the path to macroeconomic stability. The implementation of macroeconomic
reforms as well as reforms in various sectors of the economy has been going on relentlessly since
2000, but while macroeconomic stability is being achieved, it appears that desirable outcomes in
the areas of employment generation, poverty reduction, export expansion and diversification of
the economy are yet to be achieved to a significant extent. The transformation of the agricultural
sector and investments in infrastructure development will contribute in no small way to the
realization of the development objectives in these areas.
The agricultural sector provides employment for about 60 percent of the labour force and
raw materials for industrial development. Its provision of food for the growing population and
income for millions of smallholders is remarkable for the maintenance of peace in the country.
Nonetheless, the performance of the sector over the years is far below expectation because
development efforts have failed to place it as the foundation for economic growth and
development; thus it has not witnessed the desired transformation and the available resource
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endowment has been grossly underutilized. Its role in terms of foreign exchange and revenue
generation that used to be prominent in the 1960s has been relegated to the background while
attention is shifted to the development and export of crude oil. Up to the mid-1960s, Nigeria
commanded a share in world agricultural exports of more than one percent and had a leading
position for several of its export crops. Nigeria supplied more than half of all traded palm kernel,
more than a third of all groundnuts, and more than a fifth of all palm oil. As the country shifted
towards petroleum exploitation and export agricultural exports declined and by the mid-1980s,
Nigeria’s world market share for agricultural products had dwindled to less than 0.1 percent.
Today none of the country’s export crops, with the exception of cocoa, commands any
significant world market share. With the increasing need to eradicate poverty and put an end to
hunger and malnutrition as enshrined in the MDG targets, Nigeria and indeed many African
countries are returning to the agricultural sector for possible solution. In Nigeria, various
development approaches have been adopted – the market has been relied upon, the government
has been directly involved; yet there remains chronic under-investment in the sector and the
efforts have not been able to fully unlock the available potentials.
The goal of the Competitive Commercial Agriculture in Africa (CCAA) study is to
explore the feasibility of restoring competitiveness and growth in selected African countries by
identifying key commodities or products, production systems, and marketing arrangements that
have the potential to underpin a rapid development of competitive commercial agriculture. The
competitiveness study in Nigeria will inform on the potential for growth of commercial
agriculture in the country. The aim of the competitiveness study is to identify commodities or
products that are currently competitive or stand good prospects of becoming competitive in
domestic, regional, or global markets. The Nigerian case study focuses on six commodities:
cassava, cotton, maize, soybeans, rice and sugar. The specific objectives of the study are
threefold.
a) To review the broader development situation for Nigeria in general and for agriculture in
particular touching issues such as growth, savings and investment, macro–economic and
agricultural policy environment, etc.). Specifically the review involves studies on the
investment climate affecting agricultural and agro–industrial development such as policies,
state of infrastructure, transport costs, land availability, labor availability, credit availability,
institutional environment, and other cross cutting factors.
b) To review existing studies on the competitiveness of the selected commodities in the targeted
agro–climatic zone. This involves: (i) identifying and briefly describing the target zone, as
well as the most important agricultural production trends within the zone, (ii) identifying and
reviewing existing value chain studies that have been conducted in the country for the
selected commodities. The scope and coverage of the study, the extent to which the study
conforms to the methodological guidelines provided, and the overall quality of the study are
examined. (iii) summarizing the qualitative and quantitative conclusions that have been
drawn about the actual and potential competitiveness of the commodity for the three farm
production systems that are being covered in the study, (iv) identifying weak links in the
value chain that are the main obstacles to achieving competitiveness and (v) describing the
sorts of improvements that existing studies suggest could be made in the value chain to
significantly enhance competitiveness.
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c) To analyze selected commodity chains from farm–gate to foreign destination ports using the
value chain approach. Both qualitative and quantitative analyses of the value chains are
carried out.
Data for the analysis came mainly from relevant literature and secondary sources
including the Project Coordinating Unit of the Federal Ministry of Agriculture and Water
Resources, the Central Bank of Nigeria and the Nigerian Bureau of Statistics. To augment the
secondary data, smallholders, emerging commercial farmers and large commercial farmers were
visited in different production zones in Oyo, Kwara, Niger and Adamawa states to collect
relevant data. The author visited the Zimbabwe farmers in Shonga, Kwara state and obtained
useful information through the use of questionnaire and interviews. With this personal contact, it
was possible to seek further clarifications through telephone conversations even after the visit.
Also input suppliers, processors and exporters were visited to obtain necessary information. A
number of companies dealing in export of agricultural commodities were visited in Lagos where
discussions were held with key representatives who also supplied useful information relating to
domestic and international logistics. With the aid of Research Assistants, cassava, rice and sugar
processing enterprises were visited in Oyo, Niger and Adamawa states respectively to obtain
necessary data.
THE VALUE CHAIN ANALYSIS FOR SELECTED COMMODITIES

The analysis of the selected commodity chains from farm gate to foreign destination port using
the value chain approach and follows the algorithm laid out in the Excel Templates specifically
designed for this study. In addition to the quantitative aspects of the analysis, priority is also
accorded to the qualitative aspects of the chain covering key areas such as world market
structure, the Nigerian market structure and a description of the value chain for each commodity
from the production stage up till final consumption. The targeted commodities - cassava, cotton,
maize, rice, soybean and sugarcane are produced in specific agro-ecological regions which also
reflect the zonal classification of all the 36 states in the country. Cassava, rice and maize are
produced in virtually all the six regions while cotton is common in the northwest and northeast
agro-ecological regions. Sugarcane is produced mainly in the northeast and north-central regions
while soybean is produced in all the regions with the exception of south-south. Commercial
production of the selected crops vary considerably across the agro-ecological zones. Whereas
cassava, maize and rice are produced in commercial quantity in all the zones, cotton soybean and
sugar-cane are restricted to specific zones. The NW (Northwest) zone is the leading producer of
cotton, followed by the NE (Northeast) and NC (Northcentral) agro-ecological zones. The
Northwest is also leading in the production of sugar-cane. Other zones producing sugar-cane are
NE, NC and SW. Available data from 1999 to 2004 indicate that the NC is the leading producer
of cassava, maize, rice and soybean. During this period, the production of these commodities
maintained a positive but haphazard trend although there seems not to be any significant
expansion in land area under cultivation. The value chain analysis seeks to examine the main
links in the chain (production, assembly, processing, trade) with a view to determining the
international competitiveness of the commodity. The analysis is conducted at three levels of
operation – family farm (FAM), emerging commercial farm (ECF) and large commercial farm
(LCF) and the results are presented accordingly.
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Value Chain Indicators and Profitability of Cassava Enterprises
With regard to profitability of the cassava FAM, the results show that operating profit and net
profit are positive only at the production and processing stages. At the production stage, the
gross margin is US$149.89 while net profit is $149.08; whereas at the processing stage, the gross
margin and net profit are US$85.18 and US$84.23 respectively. Moreover, the rate of return is
higher at the production stage than at the processing stage. Operating profit of cassava ECF is
positive at the production, assembly and processing stages. The gross margin per tonne is
US$19.19, US$45.15 and US$85.18 respectively. Whereas net profit is positive at the assembly
(US$45.15) and processing (US$84.58) stages, it is negative at the production stage indicating
the difficulty to ensure viability of commercial production of cassava. The rate of return is about
22 percent at the production stage; but it is slightly higher at the assembly stage (25 percent)
while it is highest at the processing stage (27 percent). Profitability indicators follow virtually the
same pattern for cassava LCF as that of the cassava FAM. The results show that operating profit
and net profit are positive only at the production and processing stages. At the production stage,
the gross margin is US$127.80 while net profit is $107.73; whereas at the processing stage, the
gross margin and net profit are US$83.44 and US$82.49 respectively. Moreover, the rate of
return is higher at the production stage than at the processing stage.
The transformation of cassava from the FAM into various products results in
considerable increase in value along the chain. From the farm production stage to the assembly
stage SV increased by 579 percent while the increase from assembly to processing is 14 percent.
From processing to the stage of final trading, the SV increased by 62 percent in respect of
cassava chips, 74 percent in respect of cassava pellets and 66 percent in respect of starch. The
transformation of cassava from farm production into cassava starch, cassava chips and cassava
pellets at the final trading stage is associated with an increase in shipment value from US$40.33
at the cassava production stage to US$504.81 for cassava chips, US$542.68 for pellets and
US$519.96 for starch. This represents an increase in shipment values of about 1152 percent,
1246 percent and 1189 percent in respect of cassava chips, pellets and starch respectively.
Cassava production yields a value added (US$36.48) which represents 90% of the shipment
value. Value added also represents a high proportion of the shipment value of the cassava
products. The proportion varies from 82 percent in the case of cassava chips and starch to 84
percent for pellets. The DVA is made up largely (99 percent) of domestic costs and mark-ups.
The substantial increase in shipment value from the production stage to the stage of final
traded product is not unexpected on account of the nature of the conversion of cassava tuber to
the cassava products (chips, pellets, starch). A high quantity of raw cassava tuber (about three
tones) of cassava tuber is required for the production of one tonne of each product. In view of the
fact that the purchase of cassava tubers is included in the computation of shipment value and
given the fact that the price of the commodity increases from one stage to another, it is not
surprising that significant increase in shipment value is experienced between the production
stage and the final traded commodity stage. The final SVs for cassava chips, pellets and starch
are US$504.81, US$542.68 and US$519.96 respectively. Compared with the export parity price
(US$-4.00) at the final commodity stage, none of these products is competitive at the
international market. Apart from the high domestic costs, the very low level of international
prices of these products makes them unprofitable and uncompetitive. As regards ECF, the
transformation of cassava along the chain results in considerable increase in value. From the
farm production stage to the processing stage SV increased by 26 percent. From processing to
the stage of final trading, the SV increased by 62 percent in respect of cassava chips, 74 percent
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in respect of cassava pellets and 66 percent in respect of starch. The transformation of cassava
from farm production into cassava starch, cassava chips and cassava pellets at the final trading
stage is associated with an increase in shipment value from US$248.63 at the cassava production
stage to US$508.55, US$546.97 and US$520.75 at the stage of final trading of cassava chips,
pellets and starch respectively. This represents an increase in shipment values of about 105%,
120% and 109% in the case of cassava chips, pellets and starch respectively. Cassava production
yields a value added (US$229.76) which represents 92% of the shipment value. Value added also
represents a high proportion of the shipment value of the cassava products. The proportion varies
from 72 percent in the case of cassava chips, to 73 percent for starch and 75 percent for pellets.
About 90 percent of the DVA in the case of cassava chips is made up of domestic costs and
mark-ups while the proportion for pellets is 91 percent. For cassava starch, domestic costs and
mark-ups account for 90 percent of the DVA. The final SVs for cassava chips, pellets and starch
are US$508.55, US$546.97 and US$520.75 respectively. Compared with the export parity price
(US$-3.00) at the final commodity stage, none of these products is competitive at the
international market. Again apart from the high domestic costs, the very low level of
international prices of these products makes them unprofitable and uncompetitive.
Also, in the case of LCF, the transformation of cassava into various products results in
Cassava production of LCF yields a value added (US$41.85) which represents 96% of the
shipment value. Domestic Value Added (DVA) also represents a high proportion of the shipment
value of the cassava products. The proportion varies from 83% in the case of cassava chips, to
85% for starch and 84% for pellets. In each case over 80% of the DVA is made up of domestic
costs and mark-ups. The final SVs for cassava chips, pellets and starch are US$506.63,
US$544.39 and US$522.61 respectively. Compared with the export parity price (US$-3.00) at
the final commodity stage, none of these products is competitive at the international market. In
addition to high domestic costs, the very low level of international prices of these products
makes them unprofitable and uncompetitive.
The results show that the costs incurred by FAM in addition to the domestic costs of
production constitute a higher proportion of the SV than it is the case for ECF and LCF. The
results show that increasing commercialization of cassava production has not led to an
improvement in the degree of competitiveness of the commodity in the international market. A
comparison of the final shipment values for the cassava products among the three categories of
enterprises shows that domestic costs and mark-ups seem to be highest in the case of FAM while
they appear to be lowest in the case of ECF. On the other hand, foreign costs seem to be the
highest in the case of ECF followed by LCF and lowest in the case of FAM. The highest level of
unofficial extras is also observed in the case of ECF. This finding implies that measures aimed at
reducing cost at the farm product level in order to improve the competitiveness of the commodity
will be different for the various categories of producers. As it turned out, the ECF is a high cost
17
producer with negative returns. The high production cost incurred by the ECF is due to the cost
associated with the fixed assets which cost is by far the highest among the three categories of
farmers. The net return is apt to improve if there is a reduction in the cost of capital and
increased access to markets that offer more remunerative prices.
Impediments to Growth in the Cassava Industry

There are production processing and marketing constraints in the cassava industry. The cost of
hiring labour and the tedium encountered in manual cultivation particularly during land
preparation with local implements seem to discourage investment in cassava production. With
regard to processing, equipment are generally not easily available, and when available, they are
usually inefficient, their parts wear down easily, while the public power supply is very unreliable
forcing the processors to depend on the expensive alternative of using power generators in the
face of ever escalating cost of fuel for the generators. As regards marketing, unattractive prices
of products remain a serious problem. A situation where the cost of transportation due to poor
state of the access roads, cost of fuel etc are added to the cost of production make the prices
offered for the cassava tubers and processed products like garri and flour unattractive.
Value Chain Indicators and Profitability of Cotton Enterprises

The results show that operating profit and net profit are positive at every stage of the cotton
value chain. At the production stage, the gross margin is US$28.55 while net profit is US$17.56;
whereas at the assembly stage, the gross margin and net profit are US$76.82 and US$69.57.
Profitability is lowest at the processing stage judging by the level of gross margin (US$7.70) and
net profit (US$5.29). The rate of return attained at the processing stage is about one percent
compared to 26 percent at the assembly stage and 7 percent at the production stage. Profit is
highest at the trading stage. Cotton lint trade attracts net profit of US$472.88 with 58 percent rate
of return while net profit for cotton seed trade is US$278.45 with 91 percent rate of return.
The transformation of cotton into cotton lint and cotton seed results in considerable
increase in value along the chain. The transformation of cotton into cotton lint, is associated with
an increase in shipment value from US$219.73 at the cotton production stage to US$815.11 at
the stage of trading in cotton lint representing an increase of about 271 percent. For cotton seed,
the shipment value increases from US$219.73 to US$307.55 or by about 40 percent (Table 3.17).
Cotton production yields a value added (US$219.72) which represents 89 percent of the
shipment value. Value added also represents a high proportion of the shipment value of both
cotton lint (88 percent) and cotton seed (81 percent) trade. In respect of cotton lint, 92 percent of
the DVA is accounted for by domestic costs and mark-ups while in the case of cotton seed
domestic costs and mark-ups account for 94 percent of the DVA. The final SV for cotton lint
(US$815.11) is lower than the export parity price (US$1,196) implying that Nigerian cotton lint
is competitive at the international market. With regard to cotton seed, the final SV (US$307.55)
is also lower than the export parity price (US$494) implying that the commodity is competitive
at the international market. The composition of shipment values shows considerable variation
within each stage but not across the various stages in the value chain. In general, domestic costs
and mark-ups constitute not less 80 percent of the SV in each of the stages. This is followed by
the foreign costs, unofficial expenses and official duties and tax.
18
Impediments to Growth in the Cotton Industry
The major constraints to growth include (i) inadequate and untimely supply of inputs, (ii) seed
contamination which often leads to loss of viability and low yields and (iii) absence of
institutional arrangement for commodity grading and quality control.
Value Chain Indicators and Profitability of Maize Enterprises

With regard to profitability indicators of the maize FAM, the results show that operating profit
and net profit are positive at the production stage whereas the reverse is the case at the assembly
stage. At the production stage, the gross margin is US$227.45 while net profit is $220.73. The
rates of return at this stage range from 147 percent to 158 percent. The gross margin per tonne
for maize ECF is US$48.5. The negative net profit portrays the difficulty in ensuring increased
viability on the basis of the current level of investment and commercialization. At the assembly
stage both the gross margin and net profit tend to be negative. In the case of the LCF, only
operating profit is positive at the production stage. The gross margin per tonne is US$111.70.
The negative net profit is an indication that the long term viability of large commercial maize
farms may be difficult. At the assembly stage both operating and net profits tend to be negative.
The value chain indicators for the final traded commodity reveal that substantial increase
in shipment value occurs between the production stage and final delivery of the commodity. For
the maize FAM, the SV increased from US$150.48 to US$414.83 representing an increase of
about 176 percent. Maize production is associated with a value added (US$142.26) which
represents 95 percent of the shipment value. About 96 percent of the DVA is accounted for by
domestic costs and mark-ups. The result shows that the final SV (US$414.83) is higher than the
import parity price (US$131.10) implying that Nigerian maize is not competitive in the
international market. In the case of the ECF the SV increased from US$336.68 to US$418.03
representing an increase of about 24 percent. ECF maize production yields a value added
(US$274.03) which represents 81 percent of the shipment value. About 88 percent of the DVA is
accounted for by domestic costs and mark-ups. The result shows that the final SV (US$418.03)
is higher than the import parity price (US$131.10) implying that Nigerian maize is not
competitive in the international market. As regards LCF maize production is associated with a
value added (US$434.94) which represents 90 percent of the shipment value. The DVA is made
up entirely of domestic costs and mark-ups. The result shows that the final SV (US$422.73) is
higher than the import parity price (US$131.10) implying that Nigerian maize is not competitive
in the international market.
The analysis shows that irrespective of the level of commercialization of maize
production in Nigeria, the commodity remains uncompetitive in the international market. This
finding implies that measures aimed at reducing cost at the farm product level in order to
improve the competitiveness of the commodity should be targeted at domestic costs and mark-
ups in general but in the case of ECF and LCF there is need also to address the foreign costs.
With the low cost profile of the FAM it has the highest gross margin ($332.05/ha), followed by
LCF ($155.21/ha) and ECF ($72.26/ha). The maize FAM also has the highest net returns
whereas the other categories of farms have negative net returns. The net return is apt to improve
if there is a reduction in the cost of capital and increased access to markets that offer more
remunerative prices.
19
Impediments to Growth in the Maize Industry
The major constraints to growth in the maize industry include the following.
Inadequate and untimely supply of modern inputs
Lack of credit facilities for processing enterprises
Unattractive prices of products
High transportation cost arising from high and rising fuel prices
The lack of pre-planting contracts expose farmers to unfavourable market dynamics. For
instance, in August 2005 maize was sold at N80,000 ($606.06) per tonne but in August 2006
the price dropped to N28,000 ($212.12) per tonne due to the outbreak of bird flu in some
states and the resultant fall in the demand for maize in the feed industry.
Poor storage facilities
Value Chain Indicators and Profitability of Rice Enterprises

At the FAM level, the results show that except for raw material processing, operating profit and
net profit are positive at every stage of the rice value chain. At the production stage, the gross
margin is US$339.49 while net profit is US$333.91; whereas at the assembly stage, the gross
margin (US$83.33) and net profit remains the same. At the level of trading, both the gross
margin and net profit are positive but remain at the same level (US$83.23) since the traders made
no significant investment on rice marketing. The rate of return (net profit/total costs) at the
marketing stage (12 percent) is the smallest when compared to the 18 percent at the assembly
stage and 277 percent at the production stage.
With regard to profitability indicators, the result shows that both operating profit and net
profit are also positive at every stage of the value chain with the exception of raw material
processing. At the production stage, the gross margin per tonne is US$402.69 while net profit is
US$398.75; whereas at the assembly stage, the gross margin (US$79.70) and net profit remain
the same. At the level of trading, both the gross margin and net profit are positive but remain at
the same level (US$79.83) since the traders made no significant investment on rice marketing.
The rate of return (net profit/total costs) at the marketing stage (12 percent) is the lowest when
compared to the 17 percent at the assembly stage and 272 percent at the production stage. The
pattern of profitability for the LCF category is similar to that of ECF and FAM. At the
production stage, the gross margin per tonne is US$373.79 while net profit is US$164.83;
whereas at the assembly stage, the gross margin (US$76.52) and net profit remain the same. At
the level of trading, gross margin is US$79.45 while net profit remains at the same level. The
rate of return (net profit/total costs) at the marketing stage (12 percent) is the lowest when
compared to the 16 percent at the assembly stage and 43 percent at the production stage.
in shipment value occurs between the production of paddy and final delivery of milled rice
(Table 3.34). With regard to the FAM, the transformation of paddy rice into milled rice is
associated with an increase in shipment value from US$120.64 at the paddy production stage to
US$462.12 at the assembly stage (or about 283 percent), US$562.27 at the processing stage (or
about 22 percent from the previous stage) and US$674.34 at the final delivery point representing
an increase of about 20 percent from the previous stage. Rice production is associated with a
value added of US$109.54 which represents 91 percent of the shipment value. About 94 percent
of the DVA is accounted for by domestic costs and mark-ups. At the final stage of delivery, the
value added obtained (US$653.17) represents 97 percent of the shipment value (US$674.34); and
98 percent of the DVA is made up of domestic costs and mark-ups. The final SV (US$674.34) is
20
greater than the import parity price (US$330) implying that Nigerian rice is not competitive at
the international market. With regard to the ECF, the transformation of paddy rice into milled
rice is associated with an increase in shipment value from US$146.70 at the paddy production
stage to US$465.76 at the assembly stage (or about 217 percent), US$564.03 at the processing
stage (or an increase of 21 percent from the previous stage) and US$677.76 at the final delivery
point representing an increase of about 20 percent from the previous stage. Rice production
yields a value added (US$137.98) which represents 94 percent of the shipment value and it is
entirely accounted for by domestic costs and mark-ups. At the final stage of delivery, the
domestic value added obtained (US$659.80) represents 97 percent of the shipment value
(US$677.76); and of this DVA, costs and mark-ups account for 99 percent. The final SV
(US$677.76) is greater than the import parity price (US$330) implying that Nigerian rice is not
competitive at the international market.
As regards LCF, the transformation of paddy rice into milled rice is associated with an
increase in shipment value from US$380.63 at the paddy production stage to US$468.95 at the
assembly stage (or about 23 percent), US$565.24 at the processing stage (or about 21 percent
from the previous stage) and US$678.14 at the final delivery point representing an increase of
about 20 percent from the previous stage. Rice production yields a domestic value added
(US$326.52) which represents 86 percent of the shipment value. Of this DVA, 82 percent is
accounted for by domestic costs and mark-ups. At the final stage of delivery, the domestic value
added obtained (US$596.08) represents 88 percent of the shipment value (US$678.14); and of
this DVA, costs and mark-ups account for 96 percent. The final SV (US$678.14) is greater than
the import parity price (US$330) implying that Nigerian rice is not competitive at the
international market. At the FAM level, costs incurred in addition to domestic costs of
production constitute a higher proportion of SV than it is the case for ECF and LCF. As it turned
out, however, Nigerian rice remains uncompetitive in the international market irrespective of the
level of commercialization of its production. Nonetheless, rice production is quite profitable in
each of the three categories of farms. The gross margin per hectare for the ECF is the highest
followed by LCF and FAM. Moreover, net return per hectare is also positive across the farms. It
is the highest in the case of ECF followed by FAM and LCF. Overall, it appears that the
emerging commercial farms will likely require the most serious attention in terms of efforts
aimed at reducing production cost and enhancing the competitiveness of rice. The results also
imply that the intensity of efforts will not only vary across the farms but also in terms of the
specific components of shipment value.
Impediments to Growth in the Rice Industry

There are several constraints militating against the competitiveness of rice production in the
country. These include (i) lack of pre-planting contracts which expose farmers to unfavourable
market dynamics, (ii) inadequate processing facilities and (iii) inadequate financing of key
activities in the value chain.
Value Chain Indicators and Profitability of Soybean Enterprises

As regards the FAM, the results show that operating profit and net profit are positive at both the
production and assembly stages as well as the final delivery stage. At the production stage, the
gross margin is US$159.95 while net profit is US$156.54. The rates of return at this stage range
from 76 percent on the basis of net profit to 79 percent based on operating profit. In view of the
negligible investment cost at the assembly stage the operating profit (US$9.09) is the same as the
21
net profit and the rate of return is only two percent. At the stage of final delivery, both the gross
margin and the net profit have the same value (US$107.89) and the rate of return is about 26
percent. As regards the ECF, both operating profit and net profit are also positive at all stages of
the chain. At the production stage, the gross margin per tonne is US$183.46 while at the
assembly stage it is US$9.09. At the final delivery stage the operating profit is US$103.79. The
rates of return (net profit/total cost) range from 2 percent at the assembly stage to 26 percent at
the final delivery stage and 81 percent at the farm production stage. In the case of LCF, both
operating profit and net profit are positive at all relevant stages of the chain with the exception of
the farm production stage. At the assembly stage, the gross margin per tonne is US$9.09 while at
the final delivery stage the operating profit (gross margin) per tonne is US$86.43. The rates of
return (net profit/total cost) range from 2 percent at the assembly stage to 22 percent at the final
delivery stage.
in shipment value occurs between the production stage and final delivery of the commodity. The
SV for the FAM sector increased from US$207.10 to US$422.42 representing an increase of
about 104 percent. Soybean production yields a value added (US$154.06) which represents 74
percent of the shipment value. About 95 percent of the DVA is accounted for by domestic costs
and mark-ups. The result shows that the final SV (US$422.41) is higher than the import parity
price (US$259.56) implying that Nigerian soybean is not competitive in the international market.
In the case of ECF, the value chain indicators for the final traded commodity also reveal that
substantial increase in shipment value occurs between the production of soybean and final
delivery of the commodity. The SV increased from US$232.3 to US$426.52 representing an
increase of about 84 percent. Soybean production yields a value added (US$255.71) which
represents 110 percent of the shipment value which is accounted for entirely by domestic costs
and mark-ups. The result shows that the final SV (US$426.52) is higher than the import parity
With regard to the LCF sector, the value chain indicators for the final traded commodity reveal
that substantial change in shipment value occurs between the production of soybean and final
delivery of the commodity. The SV decreased from US$3,146.46 to US$435.23 or by about 86
percent. Soybean production yields a value added (US$587.93) which represents 19 percent of
the shipment value out of which 17 percent is accounted for by domestic costs and mark-ups.
Foreign costs represents 81 percent of the shipment value at the soybean production stage
indicating the high degree of foreign dependence by large commercial farms in terms of
imported inputs. The result shows that the final SV (US$435.23) is higher than the import parity
At the LCF level, costs incurred in addition to domestic costs of production constitute a higher
proportion of SV than it is the case for FAM and ECF. As it turned out, however, soybean
production in Nigeria remains uncompetitive in the international market irrespective of the level
of commercialization. The results point to the fact that domestic costs and mark-ups contribute
more to the rising shipment values in the soybean chain than foreign costs as far as the FAM and
ECF sectors are concerned whereas in the case of LCF the foreign costs contribute more than
domestic costs. Improving the profitability and competitiveness of soybean will therefore,
require different policy measures across the farm sectors. Whereas the LCF will benefit more
from trade and other related policies, the soybean FAM and ECF may derive greater benefits
from sector-specific and other domestic interventions.
22
Impediments to Growth in the Soybean Industry
The major constraints to higher soybean production and utilization in the country are (i)
ignorance of improved production methods among the farmers, (ii) inadequate supply of modern
inputs, (iii) low output price, (iv) inaccessibility of credit facilities to majority of the farmers and
(v) poor storage facilities.
Value Chain Indicators and Profitability of Sugar-cane Enterprises

The results show that with the exception of processing, operating profit and net profit are
positive at every stage of the value chain. At the production stage, the gross margin per tonne is
US$7.25 while net profit is US$4.86; whereas at the assembly stage, the gross margin per tonne
(US$6.06) is the same as net profit in view of the negligible investment cost at this stage. As
expected, the rate of return (16 percent) at the assembly stage is much lower than at the
production stage which is 92 percent on the basis of gross margin and 47 percent based on net
profit. Trading in white sugar attracts net profit per tonne of US$105.49 with 13 percent rate of
return while net profit for brown sugar trade is US$29.73 with three percent rate of return.
The transformation of sugar-cane into sugar (white and brown sugar) results in
considerable increase in value along the chain. The transformation of sugar-cane into white sugar
is associated with an increase in shipment value from US$13.14 at the sugar-cane production
stage to US$803.60 at the stage of trading in white sugar. For brown sugar, the shipment value
increases from US$13.14 to US$955.11. Sugar-cane production yields a value added (US$10.25)
which represents 78 percent of the shipment value. About 87 percent of the DVA is made up of
domestic costs and mark-ups. At the level of trading, value added also represents a high
proportion (98 percent) of the shipment value of both white and brown sugar. About 99 percent
of the DVA is accounted for by domestic costs and mark-ups. In general the major components
of shipment value are domestic costs and mark-ups, official duties and tax, additional (unofficial)
expenses and foreign costs. In the case of sugar-cane, at each stage of the value chain the
shipment value consists largely of domestic costs and mark-ups whose share ranges from 67
percent at the production stage to 89 percent at the assembly stage and 99 percent at the
processing stage. Although foreign costs seem to be negligible at the processing stage, they
represent a sizable proportion at the production stage (22 percent) and assembly stage (7
percent). The final SVs for white sugar (US$803.60) and brown sugar (US$955.11) are both
higher than the import parity price (US$409.7) implying that Nigerian sugar is unlikely to be
competitive at the international market.
Impediments to Growth in the Sugar-cane Industry

Several problems militate against the performance and growth in the sugar industry. In general
the problems cut across the production, processing and marketing stages of the value chain. The
main constraints include (i) reliance on estate-based industrial cane production system which is
bedeviled with myriads of operational deficiencies and has thus hindered regular supply of raw
materials to the sugar factories over the years, (ii) low output price, (iii) restricted market for
sugar-cane which has tended to discourage increased production by small-scale farmers, (iv) low
yield, (v) reliance on imported cultivars for the estate-based production systems, (vi) low level of
capacity utilization in existing sugar mills and (vii) inadequate and irregular supply of sugar-cane
to the mills.
23
CONCLUSIONS AND POLICY RECOMMENDATIONS
The analysis of competitiveness of the selected commodities shows that with the exception of
cotton, none of the other commodities (cassava, maize, rice, soybean and sugar-cane) is
competitive at the international market. Moreover, it is found that the commodities remain
uncompetitive irrespective of the level of commercialization at the production level. In other
words, the commodities are not competitive in the international market notwithstanding whether
or not the producer operates as a small family farm (FAM), emerging commercial farm (ECF) or
large commercial farm (LCF). However, in the different farm sectors (FAM, ECF and LCF) the
production of the crops appears to be profitable although as expected, the degree of profitability
varies by crops and from one sector to another. The results of the analysis show that across the
sectors, rice is the most profitable crop. It is followed by soybean, maize, cassava and cotton. For
maize, rice, and soybean the unit cost of production increases with rising degree of commercial
orientation.
These findings imply that measures aimed at reducing cost at the farm product level in
order to improve the competitiveness of the commodity should be targeted at domestic costs and
mark-ups in general but in the case of ECF and LCF there is need also to address the foreign
costs especially for soybean and maize production which involves the importation of different
types of machines and chemical inputs. The results also imply that the intensity of efforts will
not only vary across the farms but also in terms of the specific components of shipment value.
For instance, in the case of soybean, improving the profitability and competitiveness will require
different policy measures across the farm sectors. Whereas the LCF will benefit more from trade
and other related policies, the soybean FAM and ECF may derive greater benefits from sector-
specific and other domestic interventions. In general, the net return is apt to improve if there is a
reduction in the cost of capital and increased access to markets that offer more remunerative
prices for the farm products.
Recommendations for Improved Agricultural Competitiveness in Nigeria

For improved agricultural competitiveness in Nigeria all the identified constraints in this study as
earlier itemized should be the focus of attention with a view to providing enduring solutions
within the shortest time possible. In addition, however, there are specific policies and strategies
for increased profitability and competitiveness of the selected commodities which should also be
considered pari pasu. These can be classified into three broad categories namely; (i) crop-
specific interventions, (ii) sector-specific strategies and (iii) macro-related and other strategies.
The crop-specific interventions vary from yield improvement and contract farming in the case of
cassava, use of animal traction and production credit for cotton, irrigation and establishment of
rice processing mills for rice, provision of storage facilities in the case of maize, use of farmers’
associations for input distribution in the case of soybean and development of non-estate-based
production systems for sugar-cane. The other recommended strategies are as follows.
Sector-specific interventions
-Adequate Funding of Research and Extension for Improved Productivity
-Improved Agricultural Financing
-Promotion of Contract Farming to Enhance Market Access
-Improved Agricultural Market Information
24
Macro-Related and Other Policies
-Monetary Policy (lowering cost of capital)
-Fiscal Policy (favourable exchange rate and tax regimes)
-Investment in Infrastructure
-Fostering Value Added Enterprises Through Public-Private Parnership
-Export Incentives
Finally, it is important to stress that the findings of this study have not contradicted
popular claims concerning competitiveness in Nigeria. In the case of cassava in particular, it has
been argued that Nigeria is in a position of great disadvantage compared to other competitors.
For instance, the market price of cassava from Thailand was about a third of the production cost
in Nigeria; and that even though Nigeria has been producing about 70 percent of the world
cassava, domestic demand and high cost of production have made Nigerian cassava
uncompetitive in the world market. Besides, the latest report on trade competitiveness of a
sample of 30 African countries placed Nigeria among the five least competitive countries
together with Democratic Republic of Congo, Mali, Burkina Faso and Sierra Leone. Nigeria is in
this group on account of its poor institutional quality and high inflation as well as low
governance and infrastructure scores. Although, efforts to create a more favourable trade
environment have been intensified over the years, there seems not to have been any significant
reduction in production and marketing costs in the country in general and in the agricultural
sector in particular. It is therefore, not surprising that many of the crops included in this study
continue to be uncompetitive in the international market.
25
CHAPTER ONE
INTRODUCTION
The main objective of the Competitive Commercial Agriculture in Africa (CCAA) study is to
explore the feasibility of restoring competitiveness and growth in selected African countries by
identifying key commodities or products, production systems, and marketing arrangements that
have the potential to underpin a rapid development of competitive commercial agriculture.
Competitiveness will be analyzed using primarily value chain analysis. The CCAA study is
concerned with (1) qualitative features of the supply chain, including the policy, institutional,
and organizational factors that affect costs and shape relationships among the various actors, and
(2) quantitative information about the supply chain, in particular financial costs and time
requirements. Here the term “competitiveness” is used to mean competitiveness of a commodity
in domestic markets, neighboring countries, and global markets. In a globalizing trading system,
prices in all of these markets are ultimately linked to the global market, so broadly speaking the
study is concerned with competitiveness in an open international market environment. The
ultimate aim of the CCAA study is to promote the growth of commercial agriculture in ways that
achieve broad–based poverty reduction.
The competitiveness study in Nigeria will inform on the potential for growth of
commercial agriculture in the country. The aim of the competitiveness study is to identify
commodities or products that are currently competitive or stand good prospects of becoming
competitive in domestic, regional, or global markets. In order to ensure comparability across
countries, the CCAA is focusing on tropical savannah zones featuring fairly reliable rainfall in
which mixed cereals–root crops systems prevail, often associated with livestock. In West and
Central Africa, these zones are commonly referred to as Guinea Savannah. The Nigerian case
study focuses on six commodities: cassava, cotton, maize, soybeans, rice and sugar.
1.1 Objectives
The specific objectives of the study are threefold.
d) To review the broader development situation for Nigeria in general and for agriculture in
particular touching issues such as growth, savings and investment, macro–economic and
agricultural policy environment, etc.). Specifically the review involves studies on the
investment climate affecting agricultural and agro–industrial development such as policies,
state of infrastructure, transport costs, land availability, labor availability, credit availability,
institutional environment, and other cross cutting factors.
e) To review existing studies on the competitiveness of the selected commodities in the targeted
agro–climatic zone. This involves: (i) identifying and briefly describing the target zone, as
well as the most important agricultural production trends within the zone, (ii) identifying and
reviewing existing value chain studies that have been conducted in the country for the
selected commodities. The scope and coverage of the study, the extent to which the study
conforms to the methodological guidelines provided, and the overall quality of the study are
examined. (iii) summarizing the qualitative and quantitative conclusions that have been
drawn about the actual and potential competitiveness of the commodity for the three farm
production systems that are being covered in the study, (iv) identifying weak links in the
value chain that are the main obstacles to achieving competitiveness and (v) describing the
26
sorts of improvements that existing studies suggest could be made in the value chain to
significantly enhance competitiveness.
f) To analyze selected commodity chains from farm–gate to foreign destination ports using the
value chain approach. Both qualitative and quantitative analyses of the value chains are
carried out.
1.2 CONCEPTUAL FRAMEWORK

Broadly defined, quantitative value chain analysis is focused on the amount of money a customer
is willing to pay for a firm’s output. In an open economy, this price is determined competitively
and flows upstream from the consumer to each producer and marketing company involved in the
growing, collection, transformation, and delivery of that commodity to its terminal market.
Supply chain analysis is a complementary concept applied to a network of companies across a
given industry. Whereas value chain analysis looks at the upstream accumulation of value as a
determinant of international competitiveness, supply chain analysis is a downstream concept that
looks at the flow of goods from the supplier to consumer. Both concepts are concerned with the
organization of value adding activities while competing in a particular industry, but the key
analytical distinction comes in the flow of value between the supplier and consumer.
Value chain and supply chain analysis are also concerned with product differentiation and
timeliness of delivery. These factors are major determinants of a commodity’s final market price
and total value that can be divided between participants in the production and marketing system.
Seasonality is an especially important factor in agriculture since the prices of most farm
commodities are cyclical depending on world production and patterns in consumer demand.
Quality differences are likewise an important source of competitive advantage as is the ability of
a country to supply guaranteed minimum quantities according to a specific time schedule.
Interpretation of the quantitative value chain indicators, therefore, requires knowledge of
conditions in other countries in order to pick the most relevant price with which to compare local
production.
Value chain analysis has gained considerable popularity in recent years. Although many
approaches are taken, value chains essentially represent enterprises in which different producers
and marketing companies work within their respective businesses to pursue one or more end-
markets. Value chain participants sometimes cooperate to improve the overall competitiveness of
the final product, but may also be completely unaware of the linkages between their operation
and other upstream or downstream participants. Value chains therefore encompass all of the
factors of production including land, labor, capital, technology, and inputs as well as all
economic activities including input supply, production, transformation, handling, transport,
marketing, and distribution necessary to create, sell, and deliver a product to a certain
destination. The main stages of an agricultural value chain as defined for the quantitative
methodology are illustrated in the figure below (see Keyser, 2006). In this diagram, dashed
arrows flow from input supply to all other stages to show that this is a crosscutting function that
affects all participants, not just at the farm level. A dashed arrow is also drawn from farm
production to processing to show that some farmers may deliver their crop directly to a factory,
thereby fulfilling the assembly function as well. This can either happen as part of a vertically
integrated supply chain managed by a large company or because the scale or proximity of an
individual’s production to the factory justifies direct delivery.
27
Figure 1.1: Stages of the Value Chain
Input Farm
Assembly Processing Logistics
Supply Production
Some of the main activities that occur at each stage of the value chain include the following.
Input supply. This stage is concerned with the sourcing of raw materials required for
agriculture production, processing, and trade. Inputs may either be procured locally or
imported. The final value of an input at its place of use includes all manufacturing costs,
transportation costs, customs duty and tax, and unofficial payments incurred up to that
point. The efficiency of a country’s input supply system therefore has a major bearing on
the performance of the entire value chain.
Farm production. This stage is concerned with primary agriculture production and ends
with the sale of a raw commodity at the farm gate. These transactions may occur literally
at the farm gate or at some other point where the farmer hands over ownership of the
product to the next value chain participant. Depending on the crop, some type of primary
processing (such as the shelling or bagging of dry grain) may take place at the farm level.
Assembly. This stage involves the collection of agricultural produce from many farmers
and delivery of the raw material to a factory for industrial processing or packaging. In the
case of livestock operations, assembly is defined in a broader sense to include the feedlot
process for delivery of fattened animals to an abattoir. Bagging and simple grading of
crops can also occur at this stage depending on arrangements made at the first point of
sale.
Processing. The processing stage involves the transformation of agriculture raw

materials into one or more finished internationally traded goods. Raw commodities, of
course, are also traded and this stage may not apply to every crop. The spreadsheet
templates have been designed to accommodate the production of up to three goods from a
single raw material.
Domestic and international logistics. The logistics stage is concerned with the delivery
of traded commodities to their final market destination. This may either be a foreign
market in the case of exports, or a local market for import substitutes. For import
substitutes, the logistics stage ends at the domestic level, but the analysis is still concerned
with the cost of importing a similar product from the nearest or most competitive country.
28
1.3 Methodology
From these essential concepts, quantitative value chain analysis has become a multidimensional
task that requires careful attention to a great many details and individual product differences.
Towards this end, the quantitative methodology focuses on the measurement of accumulated
production costs, private financial returns, and time requirements at each stage of the value
chain. These measurements of cost components, private profitability, and time requirements are
drawn from standard per hectare or per ton budgets for farm production, crop assembly,
industrial processing, and logistics to the final delivery point which may be a domestic location
in the case of import substitutes or foreign location in the case of export commodities. In value
chain analysis, all inputs and outputs carry forward their inherited value from the previous stage.
This point may seem obvious enough, but is important to stress in value chain analysis where the
focus is on cost levels at different stages as a key determinant of international competitiveness.
The competitiveness of Nigerian soybeans as an import substitute, for example, depends on the
efficiency of the input supply system, farm production, assembly, processing, and logistics costs
up to the final domestic market. The accumulated value at the delivery point must then be
compared with the cost of bringing similar quality soybeans into the country from the best
alternative source. By looking at the cost composition at each stage of the value chain and
comparing these costs with world standards, value chain analysis not only shows if the country is
internationally competitive, but also helps to identify key stages where costs can most effectively
be reduced.
1.3.1 Value Chain Indicators

In addition to looking at the build-up of total costs at each stage, quantitative value chain
analysis is also interested in the type of costs incurred as a product accumulates its value. This
helps to identify areas where new policies or process innovations could have the greatest impact
on international competitiveness. Because a country is only able to influence prices within its
own borders, the analysis is particularly interested in the composition of domestic costs. These
costs include legitimate local business expenses and mark-ups, official customs duties and taxes,
and any number of unofficial payments that sometimes have to be made to facilitate a particular
operation. A product’s total value at any given stage in the value chain, therefore, is equal to the
sum of all domestic prices and imported cost components. For the CCAA study, these costs are
measured in terms of Domestic Value Added (DVA) and Shipment Value (SV), which
constitute the main value chain indicators as follows.
Domestic Value Added (DVA) = Domestic costs and mark-ups [1]

+ Official duties and tax
+ Unofficial charges and extra costs
Shipment Value (SV) = Domestic Value Added

+ Foreign components [2]
DVA and SV are measured according to equations [1] and [2] respectively on a per tonne basis
at each stage of the value chain for the following products.
Farm production Farm gate product

Assembly Assembled raw material
29
Processing Processed raw material
International logistics Traded commodity
The final calculation of SV for each traded commodity is the most comprehensive measure of
actual and potential competitiveness. For a given product or commodity produced in a specific
country, international competitiveness is determined by comparing the SV at the final destination
(sale point) with a benchmark. The benchmark will usually be the cost–insurance–freight (cif)
reference price for the product or commodity at the specified destination.
The measurements of DVA and SV may also be compared, both in an absolute and
relative sense, with international benchmarks established by successful competitors. This is one
of the main features of the CCAA value chain analysis and this study compares the final
shipment values with the most relevant import and export parity prices against which Nigeria
must compete. In cases where production increases substitute for imports (such as rice, maize,
soybean and sugar), import parity prices are used. Import parity prices are determined by first
finding the price the country is most likely to pay in order to import the commodity and then by
adding transportation costs to obtain the landed price in domestic cif terms. In cases where
increased production is to be exported (such as cassava and cotton), export parity prices are used.
And this is determined by subtracting international transport costs from the international prices
to give the domestic fob equivalent.
1.3.2 Financial Costs and Profitability Indicators

Beyond the analysis of cost structures and price components, the quantitative analysis is
extended to the private costs and returns that accrue to value chain participants. Since
agricultural production and marketing begin with the decisions private investors make, it is
important to have a sense of the underlying costs and profitability of competing enterprises and
marketing systems. Thus, the main analytical templates are designed to calculate total variable
costs, investment costs, gross profit, and net profit on per hectare and per ton basis. The net
profit is particularly important because it serves as a useful indicator for assessing the viability of
each enterprise. A farm enterprise is expected to continue operating as long as operating profit
(gross revenue minus operating costs) is positive. Thus, as long as operating costs are covered,
the enterprise will operate. However, unless all fixed costs are covered, the farm enterprise is not
tenable in the long run; the tendency is for the operations to terminate when the economic life of
the existing fixed assets expire.
Each Excel workbook in the analytical templates includes a similar table summarizing
basic financial indicators for a particular stage in the value chain. These indicators are measured
in different terms following the value chain conventions listed below. At the assembly,
processing and logistics stages, the cost of commodity purchases is also recorded in the summary
table in addition to basic variable cost and total investment cost data. For the purpose of
calculating gross margin, commodity purchases are treated as a variable cost.
30
Farm Production Farm gate product Per Ha; per MT
Assembly Assembled raw material Per Ha; per MT
Processing Processed raw material Per MT; share from Product
Logistics Traded commodity Per MT processed raw material;
per MT traded commodity
Other financial indicators such as the gross and net rates of return are also calculated from the
templates. These measures show the rate of return to an investor’s outlay of cash and the ability
of the enterprise to cover its long-run depreciation costs respectively and are especially useful in
comparing different enterprises. Enterprises with a high ratio provide a better return than those
with a low ratio.
• Gross rate of return = gross profit / total variable costs.
• Net rate of return = net profit / total production costs.
With regard to the farm production stage, the returns to hired labor and personal management are
calculated automatically in the Template as follows.
• Return per day hired labour = Gross (or net) return / days total employment.
• Return per day total labour = Gross (or net) return / days total employment
and family management.
1.3.3 Data
Data for the analysis came mainly from relevant literature and secondary sources including the
Project Coordinating Unit of the Federal Ministry of Agriculture and Water Resources, the
Central Bank of Nigeria and the Nigerian Bureau of Statistics. To augment the secondary data,
small holders, emerging commercial farmers and large commercial farmers were visited in
different production zones in Oyo, Kwara, Niger and Adamawa states to collect relevant data.
The author visited the Zimbabwe farmers in Shonga, Kwara state and obtained useful
information through the use of questionnaire and interviews. With this personal contact, it was
possible to seek further clarifications through telephone conversations even after the visit. Also
input suppliers, processors and exporters were visited to obtain necessary information. A number
of companies dealing in export of agricultural commodities were visited in Lagos where
discussions were held with key representatives who also supplied useful information relating to
domestic and international logistics. With the aid of Research Assistants, cassava, rice and sugar
processing enterprises were visited in Oyo, Niger and Adamawa states respectively to obtain
necessary data.
Unlike the situation with the Zimbabwe farmers who were visited through the
cooperation of the Permanent Secretary of the Kwara State Ministry of Agriculture and his
officials, the cooperation of the Lagos-based expatriate officials of foreign companies dealing in
rice, cotton and other crops was difficult to secure during the data collection exercise. In spite of
visits, numerous telephone and Internet contacts and promises by them to supply necessary data,
31
they were so tactical in ensuring that at the end no data was supplied. Another remarkable
problem during the exercise was the great difficulty encountered in searching out the locations of
export companies whose addresses had been obtained from the Internet. Many of the Lagos
addresses could not be traced and in some instances where the addresses exist, the “exporters”
could not be traced. Some of them who were contacted through their telephone addresses
promised to arrange a meeting for us to discuss but those promises were never fulfilled.
However, a few of those genuinely involved in the export of agricultural commodities were
identified and were helpful in providing the required information.
1.3.4 Limitations of the Study

Right from inception, this study was not designed as a survey research. It was to be based
essentially on existing data on various aspects of the study including data to be obtained from
existing value chain studies on the targeted commodities. As it turned out, value chain studies on
the commodities were scanty. Indeed, the analytical template designed for the study by the
World Bank has never before been applied in Nigeria. The secondary data therefore, had to be
augmented by primary data where necessary (as in the case of cotton) and in some cases there
was reliance on small samples of farmers (of all categories i.e. FAM, ECF and LCF), assemblers,
input suppliers and exporters for data on 2005 activities in respect of each of the stages of the
value chain (production, assembly, processing and international logistics). One limitation of the
study especially at the production stage is the limited coverage of the value chain participants
that volunteered information for the study. Nonetheless, the nature of the analysis is such that the
validity of the results depends more on the accuracy of the data especially the input, output and
price data than on large number of respondents.
1.4 Structure of the Report

The remaining part of the report is structured as follows. Chapter two undertakes a review of the
broad development experience in Nigeria in recent times with emphasis on the agricultural
sector. Chapter three deals with the value chain analysis of the CCAA target commodities
(cassava, cotton, maize, rice, soybean and sugar-cane) beginning in each case with a review of
literature on available value chain studies in the country. The main findings and suggestions for
improved agricultural commercialization and competitiveness in the country are presented in
chapter four.
32
CHAPTER TWO
REVIEW OF BROAD DEVELOPMENT EXPERIENCE IN NIGERIA
The precarious situation of the Nigerian economy prior to the assumption of office of the
democratically elected government in 1999 is widely known and documented (see NEEDS,
2004). The economy has been grossly mismanaged and the country was characterized by
instability socially, politically and economically. Thus, growth was retarded and development
constrained in spite of huge endowment of human and material resources. On assumption of
office the government specified its economic policies, priorities and implementation strategies as
contained in the “Nigerian Economic Policy - 1999-2003" and “Obasanjo’s Economic Direction
- 1999-2003" to remedy the situation. In principle government is to be lean, efficient, transparent
and function mainly as a facilitator. The economy is to be market-oriented, competitive and
private-sector led and is to be revived through clearly identified policy instruments (see Nigerian
Economic Policy 1999, and Obasanjo’s Economic Direction, 2000). This has been the
philosophy of the grand economic reforms which the government has embarked upon since
2000. In 2004, the National Economic Empowerment and Development Strategy (NEEDS) was
launched as the basic policy framework to guide the reform agenda of the government and its
development efforts. The development experience since 2000 shows that the economy is moving
in the right direction judging by the trend of some key indicators both at the macro and sectoral
levels. In this chapter, we undertake a review of the broad development situation in the country
focusing on agriculture with a view to identifying the most important constraints that will have to
be overcome to achieve broad competitiveness in commercial agriculture.
2.1 Macroeconomic Performance

Since the inception of democratic governance in 1999, Nigeria has witnessed determined efforts
by the government to achieve rapid economic growth and development and to significantly
reduce poverty. Real GDP growth rate made a significant jump from an average of 2.8% in
1997/1998 to 5.4% in 2000. Although it has been difficult to maintain a steady growth thereafter,
the GDP growth rate has not fallen to the very low level often recorded before 2000. Indeed, in
2003 the target growth rate of 10% set by the government was met for the first and last time
between 2000 and 2005 (see Table 2.1). The 10.2% growth rate in 2003 was the highest in three
decades, and was driven mainly by improvements in agriculture which grew by 7% and the oil
sector which grew by 23%. Despite the improvement in growth performance, low level of
savings and investment is still a major constraint. The highest investment ratio obtained so far is
16.2% while the savings ratio is 15.6%. The highest investment ratio attained since 2000 is far
below the minimum investment to GDP ratio of about 30% which is required to unleash a
poverty-reducing growth rate of at least 7-8% per year (see NEED, 2004).
Increased private investment requires a stable macroeconomic environment characterized
by a low rate of inflation, low rate of interest, stable real exchange rate and well-managed current
account and fiscal balances. The inflation rate which came down to a single digit in 2000 (6.9
percent) rose to an all time high of 18.9 percent in 2001. It trended downwards thereafter to a
single digit again in 2006 although the rate remains higher than the rate as at 2000 (Table 2.1).
The lending rate which also peaked at 31.2 percent in 2001 declined to 18.7 percent in 2006 - a
rate still regarded by investors as too high
33
Table 2.1: Selected Macroeconomic Indicators
Indicator 2000 2001 2002 2003 2004 2005 2006
Domestic Output and Prices
Real GDP Growth Rate (%) 5.40 4.70 4.60 9.6 6.6 6.5 5.6
-Oil Sector 11.10 5.20 -5.70 23.9 3.30 0.5 -4.7
-Non-Oil Sector 2.90 4.30 8.3 5.2 7.8 8.2 8.9
-Agric Sector 2.90 3.86 4.22 6.64 6.50 7.1 7.2
Oil Production (mbd) 2.2 2.2 2.1 2.3 2.5 2.5 2.2
Manufacturing Capacity Utilisation (%) 36.1 39.6 54.9 56.5 55.7 54.8 53.3
Gross National Savings (% of GDP) 5.3 3.5 7.2 18.4 19.4 n.a
Gross Fixed Capital Formation (% GDP) 7.3 5.3 6.3 8.6 11.9 12.0 12.5
Inflation Rate (%) 6.9 18.90 12.90 14.0 15.0 17.9 8.2
Federal Govt Finance (% of GDP)
Overall Fiscal balance
-2.1 -4.3 -5.5 -2.8 -1.5 -1.1 -0.6
Retained Revenue
13.1 15.4 13.1 13.9 10.7 11.2 10.1
Total Expenditure
15.4 19.6 18.6 16.7 12.2 12.2 10.6
Domestic Debt Stock
19.8 19.6 21.3 18.1 11.7 10.2 9.7
External Debt Stock
68.1 61.2 72.0 61.1 41.9 18.1 2.5
Money and Credit (Growth Rate %)
Net Domestic Credit -25.3 79.9 64.6 29.1 12.0 14.5 -65.0
Net Credit to Government -170.1 95.2 63.6 58.4 -17.9 -37.0 -676.2
Credit to Private Sector 30.9 43.5 19.7 18.4 26.6 30.8 28,2
External Sector
External Reserves (US $ billion) 9.910 10.416 7.681 7.468 16.955 28.279 42.298
Average Crude Oil Price (US$/barrel) 28.6 24.5 25.0 29.2 38.5 55.4 66.4
Average AFEM/DAS Rate (x/$1.0) 101.7 111.9 121.0 129.3 133.5 132.1 128.7
Source: Central Bank Annual Report and Statement of Accounts, 2006
for operating profitably. Invariably, manufacturing capacity utilization which stood at 36.1% in
2000 grew somewhat; but followed a declining trend between 2003 and 2006.
Improvement in macroeconomic management has led to substantial reduction in fiscal
deficits, less volatility in exchange rate and rising external reserves. Between 2000 and 2003 the
problem of fiscal imbalances actually worsened. Fiscal deficit rose from 2.1 percent of GDP to
4.0 percent in 2001 and peaked at 5.5 percent in 2002. Part of the associated problem is the
considerable reduction in the growth of credit to the private sector with adverse consequences on
investment and output expansion. However, by 2003, the fiscal deficit was less than 3 percent of
GDP and by 2006 it was only 0.6 percent. The external reserves increased from about US$9.91
billion in 2000 to about US$42.298 in 2006. These recent macroeconomic trends indicate that the
country is right on the path to macroeconomic stability. The implementation of macroeconomic
reforms as well as reforms in various sectors of the economy has been going on relentlessly since
2000, but while macroeconomic stability is being achieved, it appears that desirable outcomes in
the areas of employment generation, poverty reduction, export expansion and diversification of
the economy are yet to be achieved to a significant extent. The transformation of the agricultural
sector and investments in infrastructure development will contribute in no small way to the
realization of the development objectives in these areas. As expected the government has placed
34
considerable emphasis on the development of agriculture as a major priority sector since 2000.
Thus, in what follows we examine the agricultural development policies and strategies and the
recent performance of the sector.
2.2 Review of Agricultural Development in Nigeria

The agricultural sector is critical to the development of Nigerian economy. It provides
employment for about 60% of the labour force and raw materials for industrial development. Its
provision of food for the growing population and income for millions of smallholders is
remarkable for the maintenance of peace in the country. Nonetheless, the performance of the
sector over the years is far below expectation because development efforts have failed to place it
as the foundation for economic growth and development; thus it has not witnessed the desired
transformation and the available resource endowment has been grossly underutilized. Its role in
terms of foreign exchange and revenue generation that used to be prominent in the 1960s has
been relegated to the background while attention is shifted to the development and export of
crude oil. Up to the mid-1960s, Nigeria commanded a share in world agricultural exports of
more than one percent and had a leading position for several of its export crops. Nigeria supplied
more than half of all traded palm kernel, more than a third of all groundnuts, and more than a
fifth of all palm oil. As the country shifted towards petroleum exploitation and export
agricultural exports declined and by the mid-1980s, Nigeria’s world market share for agricultural
products had dwindled to less than 0.1 percent. Today none of the country’s export crops, with
the exception of cocoa, commands any significant world market share (Walkenhorst, 2006).
With the increasing need to eradicate poverty and put an end to hunger and malnutrition
as enshrined in the MDG targets, Nigeria and indeed many African countries are returning to the
agricultural sector for possible solution. In Nigeria, various development approaches have been
adopted – the market has been relied upon, the government has been directly involved; yet there
remains chronic under-investment in the sector and the efforts have not been able to fully unlock
the available potentials. In what follows we review the existing efforts in terms of the
development policies and examine the investment climate affecting the development of Nigerian
agriculture.
2.2.1 Agricultural Development Policies

Agricultural development policies in Nigeria can be examined in four distinct phases since
independence in 1960. The first phase is the first post-independence decade (1960-69) during
which the development approach was essential laissez-faire. Agriculture was mainly in the hands
of private-sector operators while government involvement was limited to the development of
institutions basically for research and product marketing. The second phase is the period of
intensive state control of agricultural activities (1970-85) while the third phase is the period of
Structural Adjustment Programme (SAP) and guided deregulation (1986-93; 1994-99). The
fourth phase is the new era of reform under a democratic government (2000-2006) in which the
economy is conceived to be market-oriented and private-sector led. The phases are examined
based on three broad policy categories namely; factor policies, commodity policies and macro-
related policies. The key policies are highlighted in Table 2.2.
35
Table 2.2: Phases of Agricultural Development Policies in Nigeria: 1960-2006
FACTOR POLICY COMMODITY POLICY MACRO-RELATED POLICY
Phase I -approach generally laissez- -export crop marketing and -agriculture conceived as a residual sector
Minimal faire pricing through activities from which surplus labour could be
State of the marketing boards. withdrawn for the development of a
Intervention “modern capitalist sector”
(1960-69)
Phase II -Centralization of fertilizer -creation of Commodity -Imposition of export tax
Widespread procurement and distribution Boards in 1977 for cocoa, -direct importation and sale of imported
State at the Federal level in 1975 groundnut, palm produce, food commodities such as rice, wheat flour,
Control -Establishment of a Federal cotton, rubber and food vegetable oils, livestock products etc)
(1970-85) Superphosphate Fertilizer grains to replace the -overvalued exchange rate
plant marketing board operating -Credit control
-Farm Subsidy covering since 1954. -Concessional interest rate
inputs such as fertilizers, -Launching of National -Establishment of NACB in 1972, ACGS
seeds, herbicides, pesticides Accelerated Food and Rural Banking Scheme in 1977
and farm machinery as well Production Project in 1973
as services such as land -Introduction of
clearing, tractor hiring, Guaranteed Minimum
irrigation etc. Prices (GMP)
-Creation of a National Seed -export of agricultural
Service in 1972 produce by CBs
-Promulgation of the Land -fixing of product prices
Use Decree in 1978 -strategic grain reserve
Phase III -Subsidy withdrawal -product price decontrol -abolition of export tax
Period of -abolition of CBs -exchange rate deregulation
SAP and -liberalization of -expenditure reduction
Guided agricultural trade -abolition of import licensing
Deregulation -rationalization of tariff structure
(1986-93) -relaxation of import restrictions but when
(1994-99) necessary, ban on food importation (e.g.
rice, maize, wheat, barley and vegetable
oils) was imposed
-deregulation of credit market
-interest rate decontrol
-promotion of export financing through the
introduction of Rediscounting and
Refinancing Facility by the CBN
-commercialization and privatization of
agro-parastatals
-provision in 1987 of a five-year tax-free
period for profits earned by companies
engaged in agricultural production and
agro-processing.
Phase IV -Government disengaged -privatization of sugar -Merging of NACB, People’s Bank, FEAP
Widespread from fertilizer procurement companies to form the NACRDB
Economic and distribution -creation of agricultural -Tax Reform
Reforms --privatization of National production companies for -Trade policy reform
(2000-2006) Fertilizer Company of initial operation and -Modernization of Customs and port
Nigeria (NAFCON) subsequent handover to management
private sector -Adoption of ECOWAS common external
tariff (CET) in October 2005
Source: Author’s compilation
36
2.2.2 Agricultural Land Use and Availability
Land is the most important input for agricultural enterprises but it is generally not believed to be
abundant relative to other inputs. It is estimated that only 40% of about 71 million hectares of
cultivable land is under use at any point in time. About 10% usually remains under fallow
(Olukosi et al, 1991). In the traditional farming system, size of land is generally small and fields
are highly fragmented, partly as a result of inheritance laws and also due to practices of shifting
cultivation and bush fallow. The distribution is however highly skewed. While the majority of
farmers cultivate less than 2 hectares, a few (less than 10 percent) have land holdings of between
2 and 10 hectares. An even more limited proportion, less than 5 percent have land holdings of 10
hectares and above.
As expected the land use patterns vary across the agro-ecological zones. In the northern
guinea savanna, Manyong et al (1996) observed in a cereal-based farming system, average farm
sizes of 3.1 hectares with about 25 percent of farmers having less than one hectare. Only 2
percent had larger than 10 hectares in the derived savanna zone. In the yam-based farming
system of south eastern Nigeria, an average of 3.7 hectares per household was also noted out of
which 55 percent was planted to yam, 10 percent to cassava and 35 percent to other arable crops.
In the forest re-growth ecology, 2.9 hectares per household was recorded for yam cultivation. In
the rice-based farming system, swamp land is relatively limiting. Thus farmlands range from 1
to 3 hectares maximum with an average of 1.46 hectares to swamp rice and average of 1.5
hectares to upland rice. In some agro-ecological zones, there is an increasing population pressure
on land resulting in declining quality. And in view of the gross under-investment by the small-
scale farmers, land improvement is at a rather low level. This has grave consequences for
agricultural productivity and competitiveness in the country.
2.2.3 Agricultural Labour Availability

The availability of labour affects the use of farm land in the traditional farming system.
Although family members contribute the bulk of labour input, where hired labour is used, cost of
labour often exceeds 70% of total cost of production (Ogungbugbe, 1997). In general, wages
depend on age, gender and nature of task and the cost structure varies by crop and production
system. For instance in the case of irrigated and non-irrigated rice production systems in Enugu
state it was found that 55.07 percent of total production cost was spent on labour in non-irrigated
system, while a lower proportion (50.5 percent) was spent in the irrigated system (Dankoli and
Dugje, 1994, Dugje, 1995). Since agriculture in Nigeria is virtually unmechanised, human labour
becomes vital in all production systems, accounting for almost 90 percent of all farm operations.
Under semi-mechanised systems, including animal traction use, human labour use is still as high
as 70 percent of all operations (NISER, 2001).
37
38
In terms of labour use, pattern an average household was observed to expend 708 man-
days of labour in the guinea savanna region. In the derived savanna zone, man-day utilization
was higher - 924 man days - out of which yam cultivation operations took up the major share of
65 percent. In the forest re-growth zone, 429 man-days were noted and 70 percent was used for
yam, 20 percent for cassava and 10 percent for other crops (Nweke et al, 1991). Labour use for
swamp rice production was only 103 man-days per hectare while 123 man-days were utilised for
upland rice. For this farming system, preference is for hired labour (56 percent of total labour)
(Ekwe, 1990).
In the northern semi-arid ecology, the estimated labour use pattern shows that the
proportion of family labour ranges from 30 to 90 percent, proportion of hired labour ranges
from 10 to 50% while the proportion of communal labour ranges from 5 to 10 percent of the
labour force (IAR, 1998). Although labour is not generally a constraint in the region, there are
two peak labour demand periods which correspond to the planting and harvesting time. It is only
during these peak periods that hired or communal labour is used. Other forms of labour are
traditional work groups who are used less frequently than other categories. All categories of
household members - men, women, children are involved in the supply of communal labour.
Although farming is largely labour-intensive, farmers generally often experience seasonal labour
shortages. The supply of labour is affected by unending migration of able-bodied youths from
the rural to urban areas creating labour shortages especially at peak periods when labour is
required for land preparation, weeding and harvesting.
2.2.4 Agricultural Credit Availability

The government has put in place a plethora of institutional arrangements to enhance the
availability of formal credit for agricultural production in the country. The Nigerian Agricultural
Cooperative Bank was established in 1972 and commenced full operations in 1973 as a
specialized credit institution for agricultural development. At inception, the Bank’s authorized
share capital was N1.0 million but this was increased to N1.0 billion in 1993. Another
agricultural finance innovation - the Agricultural Credit Guarantee Scheme Fund was launched
in 1977 to reduce the risk borne by commercial banks in extending credit to farmers. Under the
scheme, the Central Bank of Nigeria guaranteed up to 75% of the value of the principal and
interest on loans granted to farmers by participating commercial banks up to a maximum of
N100,000 for individual loans and N1.0 million for loans to co-operatives and corporate bodies.
Between 1978 when the scheme commenced operation and 1998, the Scheme guaranteed loans
totaling N1.97 billion for the implementation of about 267,144 projects. The rate of repayment
achieved during the period was 55.6 percent (CBN, 1999).
Also in 1977 the rural banking scheme was launched and commercial banks were
required to open specified numbers of rural branches in different parts of the country. At least
40% of the total deposit in these rural banks should be lent to borrowers within those rural areas.
Between 1980 and 1991, a total of 765 branches were opened and the bank to person ratio was
reduced from 1:178,191 to 1:54,640 (CBN, 1999). These schemes have been reorganized in
various ways over the years. However, the ACGS continues to operate while the NACB was
merged in 2000 with the People’s Bank which was established in 1989 and the Family Economic
Advancement Programme which was also given out loans for farming and other activities, to
form what is now known as Nigerian Agricultural Cooperative and Rural Development Bank
(NACRDB). Following the 60% (US$18million) debt relief granted Nigeria by the Paris Club of
creditors in 2005, the Federal Government earmarked a sum of N50 billion for disbursement by
38
39
NACRDB to various categories of farmers in the country. Available data show that between
1990 and 1998, the loans disbursed under the ACGS vary in all the six geo-political zones in the
country according to the type of crops produced. The distribution more or less reflects the zones
where the production of a particular type of crops is predominant (Table 2.3). The highest
proportion of the loans was for the production of cereals (maize, rice, sorghum, millet) in the
Northwest, Northeast and Northcentral zones. This is followed by legumes (groundnut, cowpea
and soybean) also produced mainly in these zones and roots and tubers (cassava and yam)
produced mainly in the Southwest, Southeast and Southsouth zones.
Table: 2.3
Average Credit Disbursed By Trading Banks Under the ACGS, By Zone ( ’million)
Zone Cereals Legumes Roots/Tubers
1990-93 1994-98 1990-93 1994-98 1990-93 1994-98
Northwest 14.70 37.61 3.03 12.77 0.58 1.62
Northeast 18.49 27.14 4.41 11.32 0.66 4.89
Northcentral 5.75 21.13 1.22 2.65 2.19 4.62
Southwest 1.27 4.52 0.18 0.29 1.98 7.06
Southeast 1.30 2.66 0.002 0.450 3.13 4.78
Southsouth 1.52 2.40 0.29 0.33 4.40 3.88
Source: Adapted from NISER, 2001 with underlying data from CBN Annual Report and
Statement of Accounts (various issues)
Several problems have militated against effective performance of the institutions over the
years. As regards the NACB the main problems included inadequacy of loanable funds, high
administrative cost and low rate of loan recovery (Tahir, 1999). The major constraints militating
against improved performance of the ACGS include (i) weak capacity of personnel in
agricultural financing and administration in most of the commercial banks, (ii) high rate of
default (especially in the first ten years of the scheme) due to poor project appraisal by banks,
poor project management by farmers and inadequate monitoring of guaranteed projects by the
lending banks and willful default by farmers, (iii) failure of the banks to file their claims in
accordance with the procedures and provisions stipulated by the ACGSF guidelines leading to
delays in the settlement of claims (iv) delays by lending banks in processing, approving and
disbursing loans to farmers due to over-concentration of decision making at the banks’ head
offices, (v) inadequacy of the limit of loans guaranteed, which was insufficient under an
inflationary economy and (vi) declining level of participation in the scheme by lending banks in
response to the financial sector deregulation of 1986 and the abolition of mandatory sectoral
credit allocation requirement of 1996.
Without prejudice to government commitment to deregulation of the financial sector,
banks have been enjoined to recognize differences in the gestation periods within each category
of agricultural projects and observe grace periods on agricultural loans as an incentive to make
credit available for the development of agriculture in the country. The moratorium covers
projects in the crop, livestock, fisheries and forestry sub-sectors (Table 2.4)
39
40
Table 2.4: Moratorium for Agricultural Loans

Agric Sub-Sector Type of Moratorium
Crop 12-18 months for seasonal staple and cash crops e.g.
cassava, cotton and groundnut and loans for the construction
of on-farm storage structures requiring small capital outlay
and short period of construction.
5-7 years for tree crops including palm oil, cocoa, citrus,
kolanut and other tree and fruit plants.
A minimum period of 7 years for rubber plantation
Livestock 6 months for broilers
24 months for layers
24 months for swine breeding
24-30 months for sheep and goat breeding
6 months for sheep, goat and cattle fattening
12 months for rabbitry
7 years for cattle ranching/dairy production
Fisheries 12-18 months for aquaculture
Forestry & Wild 8-10 years for short, long fibre pulpwood production and
Life sawn timber production
8 years for fuelwood/firewood production
1-2 years for wild honey production
1-2 years for wild life domestication
2.2.5 Institutional Environment

Nigeria has a large network of research institutes to develop technological innovations in
agriculture. Altogether there are 17 of such institutes covering all sub-sectors (crops, livestock,
fisheries, forestry) and major crops such as cereals, legumes, roots/tubers, cocoa, rubber, oil
palm etc. The National Agricultural Extension Research and Liaison Services (NAERLS)
ensures that there is proper linkage between research and extension activities in order to make
the benefits of research findings available to the farmers. Each state of the federation also has an
Agricultural Development Project (ADP) that provides direct extension services to the farmers.
An important institutional arrangement which is crucial for improving the investment climate in
agriculture is the Nigerian Agricultural Insurance Corporation (NAIC) which was established in
1987 to provide insurance cover for farmers against natural disasters and other risks associated
with agricultural activities. The existence of NAIC has encouraged commercial banks to be more
liberal in granting credit to farmers. The CBN stipulates guidelines to assist NAIC’s operations
one of which is the mandatory insurance cover for agricultural loans granted by banks under the
ACGS. Indeed, the decree establishing NAIC provides that insurance cover is compulsory for
farmers who benefit from any agro-allied credit by approved lending institutions or agencies. In
general, a farmer who is not a beneficiary is eligible for NAIC’s cover.
Undoubtedly, Nigeria has developed a very high capacity in the area of policy
formulation. It has not been possible, however, to ensure that the policies operate effectively.
Effectiveness has been constrained by political instability, policy inconsistencies, narrow base of
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policy formulation, top-down approach to policy formulation and weak institutional framework
for policy coordination (Manyong et al, 2005).
2.2.6 Agricultural Performance

From the foregoing review of agricultural policies in Nigeria there is no doubt that over the years
the sector has witnessed massive intervention by the government through numerous policy
measures. The relevance of the policies at different times is incontrovertible. There are persistent
problems however, with the management of treasury resources flowing into the sector, the level
of commitment to project implementation and the extent to which the peculiarities of the sector
are taken into consideration in the allocation of resources from time to time. Until recently, there
seems to be no consistent pattern of improvement irrespective of whether activities in the sector
are controlled by the government or market. Since independence in 1960, the pattern of
agricultural growth has been at variance with the strong policy pronouncements and intentions
towards agricultural development and the crucial role the sector is expected to play. National
account figures indicate that the growth of agricultural GDP was very low (1.7%) between 1960
and 1966 and actually became negative (-1.0%) between 1970 and 1975. During these sub-
periods which witnessed the reliance on the laissez-faire philosophy (1960-66) and massive
government intervention (1970-75) in the development of agriculture, total GDP grew by 4.7 and
8.4 percent respectively but the performance of agriculture was still sub-optimal. The crop sub-
sector experienced the worst performance, growing by 1.3 and –3.6 percent during the two sub-
periods respectively. At the same time the livestock GDP grew by 2.5 and 3.1 percent while
fishery GDP grew by 10.6 and 10.3 percent respectively (Olomola, 1995).
The lack of consistent pattern of agricultural transformation and sub-optimal
development is evidenced by the unsystematic fluctuations in the sector’s contribution to total
GDP. Agriculture’s contribution to GDP declined from an average of 60 percent annually in the
1960s to about 31 percent in 1971-75 and 22.4 percent in 1976-80. Its contribution rose to 25
percent in 1981-85 and to about 38 percent in 1986-90 before declining again to 30 percent in
1991-92 (Olomola, 1995). Here again, unstable performance of the sector has taken place at
different policy regimes – an era of widespread state control (1971-85) and the era of SAP during
which the roll back of the state and reliance on market mechanisms appeared to be the order of
the day. Since 2000 when reforms took the centre stage and agriculture was prioritized as the
engine of economic growth, the contribution of the sector to GDP has risen considerably to an
average of 41.5 percent between 2001 and 2005.
Within the agricultural sector, notable shifts have occurred in the performance of specific
crops over the years. Since the early 1960s, the production of cassava more than quadrupled
while the output of yam increased nearly six fold. During the first decade after independence,
there was expansion in the production of cassava, cocoa, maize, rice and yam while the
production of groundnut, oil palm and sorghum trended downwards. Thereafter, and in spite of
massive government intervention, cocoa, yam, groundnut and oil palm production followed a
downward trend up to 1985. In general, the food staples performed much better than the
traditional export crops. Right from the inception of SAP in 1986 up to 2005 the production of
both export and food crops with the exception of maize, followed an upward trend. Between
1961 and 1985, food per capita ratio declined markedly since growth in production failed to
match the rapidly growing population. However, from 1986 to 2000 crop output and food
availability outpaced the growth of the population and since the early 1990s food per capita ratio
has surpassed the level that prevailed during the first decade of independence (Table 2.5).
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Table 2.5: Index of Production of Selected Crops: 1961-2005

1961-65 1966-70 1971-75 1976-80 1981-85 1986-90 1991-95 1996-00 2001-05
CROPS 32 37 37 33 35 50 79 96 102
Cassava 24 28 30 36 35 49 92 101 109
Cocoa 64 72 68 49 47 62 82 93 105
Groundnuts 64 59 41 19 19 33 48 91 97
Maize 27 28 22 17 27 118 155 125 115
Millet 43 43 56 41 49 72 77 97 100
Oil Palm 80 68 63 66 63 74 86 96 105
Rice 6 10 14 18 39 67 90 98 99
Sorghum 54 47 44 39 53 65 79 96 101
Yams 17 34 30 22 19 32 80 95 101
LIVESTOCK 28 34 41 57 76 77 82 95 106
FOOD per 89 94 82 66 63 74 96 101 96
capita
Source: Walkenhorst, 2006 based on FAOSTAT database and World Bank, World Development
Indicators database.
Table 2.6: Share of Agriculture in Total Imports and Non-Oil Exports

Year Imports Exports
Total Food & Share of Total Non- Agricultural Share of
N’billion Live Food & Oil Produce Agricultural
Animals Live N’billion N’billion Produce
N’billion Animals (%)
(%)
2000 985.02 113.63 11.54 24.82
2001 1,358.18 158.66 11.68 28.01
2002 1,512.70 144.30 9.54 95.05
2003 2,080.24 201.65 9.69 95.09
2004 1,987.05 178.75 8.99 113.74 37,532.60 33.0
2005 2,479.32 171.82 6.93 105.96 44,395.49 41.9
2006 2,528.09 174.23 6.89 133.59 50,498.86 37.8
Source: CBN Annual Report & Statement of Accounts, 2004 - 2006
Moreover, growth in agricultural GDP has become more appreciable since 2001. As shown
earlier in Table 2.1 the growth rate which was 2.90 percent in 2000, increased steadily to 7.2
percent in 2006.
Another notable trend in agricultural performance relates to external trade. As shown in
Table 2.6, the food import bill has been declining since 2003 on account of expansion in
domestic production and pragmatic tariff policies. And from 2001 to 2005, the share of food and
live animals in total import has followed a declining trend. As regards agricultural exports,
available data shows an increase between 2004 and 2006 during which period the share of
agricultural exports in non-oil exports peaked at 41.9 percent.
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2.3 Constraints to Competitiveness of Commercial Agriculture in Nigeria

The constraints to the competitiveness of commercial agriculture in Nigeria can be classified into
two broad categories – domestic constraints and external constraints.
(a) Domestic Constraints
Inadequate and Under-developed Infrastructure

Agricultural performance in Nigeria is greatly impaired by the low level of development of
infrastructure. In the rural areas where majority of the smallholders operate, inadequate
infrastructure constitutes a major constraint to agricultural investment, production and trade. In
many parts of the country, physical and marketing infrastructure are poorly developed, storage
and processing facilities are rudimentary and access to markets is highly restricted. The rural
areas in particular where agricultural activities predominate, continue to lag significantly behind
the urban areas in infrastructure investments, including paved roads, telephone lines and
electricity production. The situation is a reflection of the urban bias in the pattern of development
in the country.
Inadequate Market Information

There is asymmetric information in both the product and input markets. Thus, the prices
agricultural inputs and commodities are not accurately and timely transmitted to buyers and
sellers in different parts of the country. This has been a disincentive to intending farmers and a
source of frustration to many smallholders in remote parts of the country.
Inadequate access to credit facilities

Many farmers have no access to formal credit. This situation has worsened the problem of under-
investment in the agricultural sector. With the scarcity and rising cost of farm inputs, it is
difficult for many farmers to engage in commercial agriculture especially in view of their low
level of income and savings. And with limited access to modern means of production the
problems of low productivity and low quality of output continue unabated.
Poor Business Environment Relative to Other Developing Countries

As demonstrated by a recently concluded value and supply chain study, the performance of
Nigeria when compared to some developing countries is rather low in terms of some key
variables affecting competitiveness in the agricultural sector (Yee and Paludetto, 2005). The
variables include (i) cost of credit, (ii) level of electricity service, (iii) cost of delivery of public
utilities, (iv) cost of labour, (v) rigidity and skill of the labour market, (vi) extent to which the
logistics system is cumbersome, and (ii) burden of regulatory compliance. When compared to
strategic competitors such as Bangladesh, China, India, Indonesia, and Kenya, Nigeria fares
poorly with regard to finance costs. The 19 percent annual interest rate in Nigeria is four
percentage points higher than in its most costly neighbor, Kenya, and more than three times as
much as in China.
According to the study, infrastructure cost is particularly critical with regard to power,
water, and steam generation. A firm in Nigeria will pay a total of 45.2 cents for one unit of each
input. Firms in Kenya face similar costs because of high water cost outlays, but Nigerian firms
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do not come close to comparators in Asia, such as India, a modest comparator in which the
equivalent is almost half the price (24.2 cents) for all three units. The cost in Nigeria reflects the
high cost of power and steam generation: Power costs at least twice as much as in Nigeria than it
does for its nearest comparator, and steam costs almost five times as much. The study also found
that labor costs are especially high in Nigeria. Apart from South Africa, where costs rise to 222
cents per hour, Nigeria has the highest costs of all its comparators at 92 cents per hour, almost 30
cents more than its closest competitors: Kenya at 66 cents and China at 57 cents.
Moreover, inefficient and costly logistics services weaken the supply chain of time-
sensitive production, particularly of the cassava root for downstream processing, which is subject
to a four-day window after harvesting before it spoils. The situation is worsened by late delivery
of supplies occasioned cumbersome port procedures. For example, it was found that import
customs formalities alone require up to 13 different documents for compliance. Whereas the
procedures for registering a business appear to be efficient, licensing requirements and customs
regulations continue to be a major source of business concern. On the average, it takes 17.8 days
to claim imports from customs (more than twice the duration in China) and 14 days to clear
exports (in contrast to 7.7 in China and 4.7 in Kenya).
(b) External Constraints
Agricultural Subsidies in Developed Countries

The agricultural subsidies provided to farmers in developed countries constitute an impediment
for African farmers’ exports because consumers tend to favour the artificially cheaper products
from developed countries. Subsidized imported products also often displace the locally produced
products in African countries. While the Uruguay Round Agreement did encourage countries to
shift from trade-distorting subsidies to non trade-distorting subsidies, more than 60% of the
support provided to farmers in wealthy countries still distorts trade. The US spent $1.3 billion on
income support for rice farmers in 1999–2000 when its total rice production was worth $1.2
billion. Japan’s subsidies to its farmers, on the other hand, are greater than the entire contribution
made by agriculture to the nation’s economy. The total transfers to agriculture amounted to 1.4%
of GDP in 2000, compared to the sector’s 1.1% share of GDP (Sharma, 2003). Despite the
decoupling of subsidies by the rich countries and the reform of the common agricultural policy
undertaken in the EU since 2003, the existing subsidies still cause considerable distortions in the
global market and constitute barriers to developing countries’ exports. The EU spends about 40%
of its budget (some $60 billion) in subsidies for farmers (Godoy, 2005).
Agricultural export subsidies are particularly debilitating for developing countries
because they artificially lower world market prices for their exports. In the short term, low-
income countries benefit from lower food import prices. But in the longer-term, farmers in low-
income countries cannot compete against subsidized imports and are forced out of business.
Developing countries cannot afford to subsidize their farmers, and their farmers cannot compete
against highly subsidized farmers in developed countries. Effects of subsidization seem to be
particularly severe in Africa. Indeed, studies have shown that EU agricultural policies have
reduced African exports of milk products by more than 90 percent, livestock by nearly 70
percent, meat by about 60 percent, non-grain crops by 50 percent and grains by more than 40
percent (see Hassett and Shapiro, 2003). The rich countries of the Organization for Economic
Cooperation and Development (OECD) spend close to US$1 billion a day on agricultural
subsidies, or about US$300 billion a year. These substantial subsidies artificially boost
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production and depress world prices. Cotton subsidies, for example, depress world prices by
more than 20 percent, thus lowering the income of African farmers. Simulations suggest that
overall OECD farm subsidies cost farmers in Sub-Saharan Africa US$1.8–1.9 billion per year in
lost agricultural income (Chigunta et al, 2004).
Unfavourable International Agricultural Commodity Prices

Low international agricultural prices constitute a major constraint to the survival of African
farmers. The low prices are only advantageous to the minority of farmers who can continue to
invest, progress and gain market share. They are insufficient and disadvantageous for the
majority of farmers especially the less equipped, land-deprived and poorly situated half of the
small farming sector. Apart from the low level of prices a more serious problem is the volatility
of the commodity prices which has been a major constraint to increased investment in
agriculture. The main causes of the unfavourable and volatile price trend include imbalances
between supply and demand, slow consumption growth, over-protection by developed countries
and political instability (Olomola, 2006). Indeed, current agricultural commodity prices have
increased less rapidly than prices of other products and real agricultural prices have fallen
sharply. As illustrated in Fig.2.1, the real export prices of major agricultural commodities in
Africa have followed a declining trend over the years; continuing into a few years early in the
new millennium. Although some commodities (coffee, cotton, tea, sugar and shrimp) started to
witness a rebound since 2002, producers still face enormous challenges. A major challenge is
how to ensure that the proportion of the final commodity price accruing to the farmers increase
with rising commodity price inflation.
Fig. 2.1: Real Export Prices of Selected Agricultural

Commodities, 1993-2003
160
140
120 cocoa
Index (1995 = 100)
cotton
100
coffee
80 tea
60 sugar
fish
40
shrimp
20
0
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Year
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Imposition of High Tariffs By Developed Countries

The high tariffs imposed by developed countries on agricultural products from developing
nations reduce the ability of the latter to export their products and compete in the world market.
Indeed, tariff escalation - application of higher tariffs on more highly processed products – has
been a major tool of exclusion in the hands of developed countries. Developing countries often
face low tariffs for raw materials but higher tariffs for processed foods, thereby limiting their
ability to move up the value chain. For example, imports of live animals into North America face
an average tariff of 21 percent, whereas imports of fresh and frozen meat face average tariffs of
65%; and fresh fruit imports into the European Union face an average tariff of 21 percent, but
fruit juice faces an average import tariff of 37 percent (ERS, 2001). Latin American exporters to
the EU face tariffs that are five times higher for tomato sauces than those levied on fresh
tomatoes. Such practices discourage investments in local processing and deny producers in
developing countries opportunities to enter higher-value-added markets where new jobs could be
created.
Moreover, tariffs on some agricultural products, especially those of interest to developing
countries, have been extremely high. As at 2001, tariffs on dairy products were as high as 325
percent; on chocolate, 275 percent; on oilseeds, 170 percent; on sugar, 350 percent (Pinstrup-
Andersen, 2001). Intending beef exporters to Europe face tariffs of up to 150 percent while fruit
and nut exporters to the US face tariffs of 200 percent or more (Watkins and von Braun, 2003).
Besides, tariffs on agricultural goods in the EU and US are four to five times those applied to
manufactured goods and peaks in excess of 100 percent for groundnuts in the US and dairy
produce in Europe, for example, are common. Invariably, many developing country agricultural
exporters have been restricted to the least dynamic part of the global economy and they are
systematically excluded from a larger stake in higher-value-added trade. Paradoxically, these
tariffs harm poor people in developed countries, raise food prices for consumers and provide
little protection to farmers. Tariffs and quotas are also very inefficient ways to protect farm
income: the OECD estimates that farmers receive less than 25 cents of every dollar of border
protection. Thus, working against de-subsidization and tariff reduction or delaying the process is
tantamount to cutting the finger to spite the nose.
Export Dumping
Export dumping is a persistent trade distorting practice which has contributed to the low
performance of African agriculture over the years. Despite WTO efforts and agreement to end
market-distorting practices in agriculture, agricultural export dumping has been on the increase
since the inception of the organization about a decade ago. Available data from USDA and
OECD indicate that US agricultural commodities continue to be sold well below the cost of
production. The proportion by which the average prices of the commodities fell below the cost of
production in 2003 stood at 28 percent in the case of wheat, 10 percent for soybeans, 10 percent
for corn, 47 percent for cotton and 26 percent for rice (see The NewFarm, 2005). The US farm
policies have more or less institutionalized agricultural dumping over the years. As shown in
Table 2.7, each of the commodities witnessed considerable increase in the dumping levels
between the sub-periods 1990-1996 and 1997-2003.
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Table 2.7: Trend in US Agricultural Export Dumping Levels, 1990-2003
Commodity Export Dumping Levels

1990-1996 (% per year) 1997-2003 (% per year)
Wheat 27 37
Soybean 2 11.8
Corn 6.8 19.2
Cotton 29.4 48.4
Rice 13.5 19.2
Source: Adapted from The NewFarm, March 2005.
Despite the free trade era being championed by the World Trade Organisation,
industrialized countries have protected themselves against the most dynamic exports of
developing countries, including textiles and clothing, agriculture, and processed raw materials.
Huge surpluses of products like sugar, dairy and beef accumulated under high tariff walls in
industrialized countries, are often disposed of by resorting to subsidized exports, to the detriment
of African producers in particular, as they displace their products in third country (export)
markets and in the domestic markets of African countries themselves. (ECA, 2000).
Market Concentration
The international market for some agricultural commodities have become much more
concentrated. Large trading companies dealing in many commodities have replaced smaller and
specialized companies while the total share of all trading companies has fallen relative to direct
purchases by processors or final sellers. A highly concentrated commodity market has a strong
influence on prices and will not allow free expression of the forces of demand and supply. The
concentration of the markets for certain commodities imply that fewer larger companies can
dictate the prices they are willing to pay to producers. Producers in Sub-Saharan African
countries are mainly smallholders who are largely unorganized and in no way capable of
negotiating commodity prices. The situation is worsened by the abolition of commodity boards
in many African countries. The boards should have been a useful intermediary that could
improve farmers’ bargaining power with large corporate buyers. Some of the services formerly
provided by the boards (financing, stockholding) are now provided by foreign companies, thus
decreasing the share of commodity income remaining in the producing country (see Olomola,
2007).
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CHAPTER THREE
THE VALUE CHAIN ANALYSIS FOR SELECTED COMMODITIES
This chapter presents the analysis of the selected commodity chains from farm gate to foreign
destination port using the value chain approach and following the algorithm laid out in the Excel
Templates specifically designed for this study. In addition to the quantitative aspects of the
analysis, priority is also accorded to the qualitative aspects of the chain covering key areas such
as world market structure, the Nigerian market structure and a description of the value chain for
each commodity from the production stage up till final consumption. The distribution of the
selected commodities according to the location of production, processing and consumption is
shown in Table 3.1.
Table 3.1: Farm Sectors and Locations for the Value Chain Analysis
Commodity Produc- Admini- Ecological Processing Con-
tion strative Unit Zone Location sumption
Location Location
Cassava – FAM Obananko Oyo state Southwest Oyo China
Cassava – ECF Onikoko Oyo State Southwest Ibadan China
Cassava – LCF Ilora Oyo State Southwest Ibadan China
Cotton Funtua Katsina State Northwest Funtua Europe
Maize – FAM Awe Oyo state Southwest Ibadan Ibadan

Maize – ECF Erelu Oyo state Southwest Lagos Lagos
Maize – LCF Onikoko Oyo state Southwest Lagos Lagos
Rice – FAM Sachi Niger State Northcentral Bida Ilorin

Rice – ECF Nna Niger State Northcentral Bida Ibadan
Amuna
Rice – LCF Yezhiba Niger State Northcentral Bida Lagos
Soybean-FAM Lagunna – Oyo state Southwest Ibadan Ibadan

Oyo
Soybean – ECF Erelu – Oyo state Southwest Ibadan Ibadan
Oyo
Soybean – LCF Shonga Kwara State Northcentral Lagos Lagos
Sugarcane – FAM Bacita Kwara State Northcentral Bacita Lagos

Sugarcane – LCF Eminpa Kwara State Northcentral Numan Lagos
Note: FAM = Family Farm,
ECF = Emergent Commercial Farm;
LCF = Large Commercial Farm
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The targeted commodities - cassava, cotton, maize, rice, soybean and sugarcane are produced in
specific agro-ecological regions which also reflect the zonal classification of all the 36 states in
the country as illustrated in Table 3.2. Cassava, rice and maize are produced in virtually all the
six regions while cotton is common in the northwest and northeast agro-ecological regions.
Sugarcane is produced mainly in the northeast and north-central regions while soybean is
produced in all the regions with the exception of south-south. In general, the main crops
produced in each region, land availability and other features are shown in Table 3.2.
Table 3.2: Basic Features of the Agro-Ecological Regions of the Selected Commodities
ZONAL NORTH- NORTH- NORTH- SOUTH-WEST SOUTH-EAST SOUTH-
XTICS WEST EAST CENTRAL SOUTH
Component Katsina, Adamawa, Benue Ekiti, Abia, Akwa Ibom,
States Kaduna, Bauchi, Borno, Kogi Lagos Anambra, Bayelsa,
Sokoto, Gombe, Kwara Ondo Ebonyi, Cross River,
Kano, Taraba, Yobe Niger Ogun Enugu, Delta
Kebbi, Nasarawa Osun Imo Edo
Jigawa, Plateau Oyo Rivers
Zafara
Vegetation Sahel, Sahel Savanna, Forest- -Deciduous Forest, -Freshwater -Freshwater
Sudan, and Derived savanna, Derived Savannah, Swamp Swamp
Northern- Savanna Secondary Woodland -Rain forest -Mangrove
Guinea Forest and Southern Forest
Savanna Guinea Savannah
Mean Annual 500-1200 500-1200 800-2000 1200-2200
Rainfall (mm)
Rural Pop (% 80% 80% 77%
of Total)
Population 103 47 195
Density(p/km2)
Arable Land 14million 3.4 million 24.7 million 4.06 million 5.8 million 8.5 million
(Ha)
Land Under 9.5 million 6.6 million 2.4 million 2.8 million 2.5 million
Cultivation
(Ha)
Main Crops Sorghum, Sorghum, maize, rice, cassava, yam, cassava, oil palm,
maize, rice, millet, maize, millet maize, yam, rice, cocoyam, maize, citrus, mango,
groundnut, rice, cowpea, sorghum, melon, cowpea, rice, banana, raffia palm,
cotton, groundnut, cowpea, cocoyam, plantain plantain, melon, cocoa,
wheat, cotton, wheat groundnut, and vegetables. vegetables Oil- coconut.
tomato, yam, palm, cocoa, Cassava, yam,
pepper cassava, rubber and cocoyam,
melon cashew maize, sweet
potatoes,
plantain,
banana
vegetables
Source: Adapted from NISER (2001)
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Commercial production of the selected crops vary considerably across the agro-ecological zones.
Whereas cassava, maize and rice are produced in commercial quantity in all the zones, cotton
soybean and sugar-cane are restricted to specific zones. The NW (Northwest) zone is the leading
producer of cotton, followed by the NE (Northeast) and NC (Northcentral) agro-ecological
zones. The Northwest is also leading in the production of sugar-cane. Other zones producing
sugar-cane are NE, NC and SW. Available data from 1999 to 2004 indicate that the NC is the
leading producer of cassava, maize, rice and soybean. As we shall see later, during this period,
the production of these commodities maintained a positive but haphazard trend although there
seems not to be any significant expansion in land area under cultivation.
Cattle is one of the commodities slated for inclusion in this study at the preliminary stages.
However, the level of commercialization of cattle production in the country is such that the type
of data required for the value chain analysis and assessment of competitiveness is not easy to
come by. It was also not possible to obtain relevant data from the literature. Available studies
relating to value chain analysis in Nigeria places less emphasis on the economic significance of
competitiveness. The focus is largely on the formal and informal institutions associated with the
commodity chain (Adamu et al, 2005). The studies sought to examine the major marketing and
transport institutions which regulate cattle trade from the production region in the north
(Mamman, 2005) to the consumption region in the south (Filani, 2005) with a view to identifying
areas where the potential for the consumers to benefit from the trade could be improved. In order
to understand the social context and regulatory mechanisms surrounding market transactions and
transport operations within the cattle commodity chain the approach adopted in the studies is
essentially qualitative. Conceptually, the transport aspects of the chain are analysed from the
standpoint of (i) a functional approach which examines the functions performed right from the
production stage to livestock sale, transportation, handling processes, meat storage and retail, (ii)
a behavioural approach which seeks to understand the behaviour of the major actors involved in
the commodity chain and (iii) an institutional approach which considers the regulatory
mechanisms relating to marketing functions and exchange transactions within the chain. The
study by Mamman (2005), which was based on the production region in Sokoto in Northwest
Nigeria came up with the following findings.
Most cattle traders inherited their business from their fathers or relations.
They depend on friend, co-traders and family sources for credit.
The system of cattle production and ownership is informal and traditional.
Actors in the commodity chain rely on traders associations and use of mobile telephone
for market information relating to cattle supply and demand, prices, security issues and
fuel supply situation.
Efficient functioning of the chain is constrained by factors such as (i) inadequate capital
and lack of access to formal credit, (ii) lack of basic facilities such as water, electricity and
secured environment in the cattle market, (iii) inadequate space for the display of cattle in
the market, (iv) inadequate grazing resources for cattle rearers/producers and (v)
numerous police check points where bribes have to be paid by the drivers while
transporting animals from the north to the south and (vi) high rates of tax and levies
imposed by state and local governments.
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To remedy the situation the author calls for a shift from road to rail transport, modern form of
processing of cattle to beef, introduction of a refrigerated system of marketing livestock
products, reduction in transit levies and taxes and improved security on the roads.
3.1 Value Chain Analysis of the Cassava Industry
3.1.1 Review of Cassava Value Chain Studies in Nigeria

Analysis of profitability and value chain indicators of cassava has attracted attention in Nigeria
in recent times not only because the commodity is assuming increasing economic importance in
terms of domestic and industrial demand but also in view of the current policy attention being
focused on export of cassava products. With regard to profitability, studies have shown that
cassava enterprises are quite profitable. According to NISER (2001), cassava production is
profitable under the traditional and improved system of production. Under the traditional
production system, a combination of maize, cassava and melon yielded gross margins of
N46,200 and N137,750 in South-east and South-south respectively. However, the same crop
mixture, grown under improved system yielded N73,800 in the South-east. The study found that
where cassava was cultivated as a sole crop in the Southwest of the country, it was possible to
realize a gross margin of N18,750.88 per hectare (see Table 3.3).
Table 3.3: Gross Margin in Cassava Production in South-west Nigeria ( )

Improved Sole Cropping
Labour 29,470.00
Seed/Cutting 1,114.97
Fertilizer 880.50
Herbicide 775.00
Pesticide -
Tractor -
Water Application -
Transportation 3,991.00
Total Variable Cost 36,231.47
Total Value of Output 54,981.55
Gross Margin 18,750.08
Source: NISER, 2001
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The most extensive value chain study for cassava in Nigeria was conducted in 2005 by
Yee and Paludetto to support the World Bank’s initiative in enhancing Nigerian competitiveness
and growth in the non-extractive sectors of the economy. The value chain was explored through
a case study of a shipment of cassava starch from the southwestern part of the country to Lagos.
The main results are presented in Table 3.4. The value chain analysis for 16 tonnes of cassava
starch requires that 80 tonnes of cassava roots with a value of N400,000 be transformed to
produce cassava starch worth N886,000 yielding an increase in shipment values of about 122%.
There is downward pressure on shipment value due to strong competition from overseas sources
and domestic substitutes. The strongest foreign competition comes from Thailand, which is the
world’s largest exporter of cassava products. In addition, Nigeria faces competition in the form
of corn starch. Cassava and corn starch are substitutes in the food starch industry and up until the
end of July 2004, corn starch was being imported at prices about 10 to 20 percent lower than
cassava starch. Since then, the import tariff applied to corn starch has risen from 15 to 80
percent, thereby providing some room for cassava starch producers to raise their prices.
Intermediate inputs represent 47 percent of the shipment value of cassava starch. The
major intermediate input in the starch production process is cassava in the form of roots. The
price of the root has escalated about four to five times compared to 4 years ago in 2000 when the
price was about N1000 per tonne. The rise of root prices was caused largely by a rising demand
that was not accommodated by a corresponding response in supply. The rising demand was
attributed to increasing industrial and human consumption, particularly the former in the form of
poultry livestock feed, starch and alcohol production. With the high cost of intermediate inputs
and downward pressure in the price of cassava starch, there is difficulty in expanding value
added along the chain. This is demonstrated by the realized value added (N466,000) for cassava
starch which accounts for only 53 percent of shipment value. In contrast, cassava root production
realized a value added (N366,000) that represented 91 percent of the shipment value, a much
preferable situation. This is largely the result of a fast-rising cassava price that is not
accompanied by similar price increases in intermediate input costs (stem cuttings) so that value
added is spread as wide as possible to compensate for the cost of primary inputs and logistics
activities. As crop cultivation is largely manual, value added is expended mainly on wages,
which is sweat labor provided by the grower, and also on logistics.
The results show that there is insufficient value added to cover both the full cost of the
value adding activities as well as provide a return to equity. In cassava farming, value added of
N365,851 is used to cover logistics costs of N120,207 (33 percent of value added) as well as
primary input costs of N245,644 (67 percent of value added) that include depreciation,
maintenance, labor, overheads, and utilities (power, diesel, water). In the case of starch
production, value added of N466,064 is used to cover logistics costs of N58,064 (12 percent of
value added) and primary input costs of N408,000 (88 percent of value added). Accordingly,
there are no residual resources left to reward risk equity capital and therefore no profit is
accrued. The lack of profitability is due to (i) high Labor cost of root production (ii) high
logistics cost of cassava farming and harvesting and (iii) unreliable supply and high cost of
utilities. The analysis of cassava starch production shows that the producer is operating with
barely enough revenues to cover the costs of production but is not left with anything to
recompense capital charge, particularly the cost of equity. Consequently, no profit is realized
from operations.
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Table 3.4
Cassava Starch Value Chain Activity Results
Cassava
Cassava Cassava
Cassava
Growing
Growing && Starch
Starch
Harvesting
Harvesting Processing
Processing
Shipment Value 400,000 Naira 886,064 Naira
Realized Value Added 365,851 Naira 466,064 Naira
Total Elapsed Time 376 Days 386 Days
Intermediate Inputs 34,149 Naira 420,000 Naira
Primary Inputs 245,644 Naira 408,000 Naira
Logistics Costs 120,207 Naira 58,064 Naira
Profit/(Loss) 0 Naira 0 Naira
Shipment Value Metrics

VA as % of SV 91% 53%
Intermediate Inputs as % of SV 9% 47%
Logistics Costs as % of SV 30% 7%
Value Added Metrics

Primary Inputs as % of VA 67% 88%
Logistics Costs as % of VA 33% 12%
Profit as % of VA 0% 0%
Value Adding Input Cost Structure

Primary Inputs
Capital Charge N/A 25%
Repair & Maintenance N/A N/A
Labour 64% 13%
Administrative Overheads N/A 26%
Utilities N/A 24%
Supplies & Incidentals 3% N/A
Logistics Inputs
Inbound <1% 4%
Outbound 33% 9%
Source: Consilium International Inc.
3.1.2 Weak Links in the Cassava Value Chain

The authors identified three major weaknesses in the cassava value chain. The first major
weakness in the Nigerian cassava chain relates to the growing and harvesting of the root. The
yield of 12 to 15 tonnes per hectare is indicative of the yields experienced in the south-eastern
region of Nigeria as per the case study. This region is one of the most productive in the country
with respect to cassava. The national average is somewhat lower at 10.0 tonnes/ha. In contrast,
Thailand, nationally, experienced yields of 17.1 tonnes/ha in 2002. Regional yields in countries
such as India, Laos, Thailand and Barbados have been estimated as high as 25 to 40 tonnes/ha.
Obviously, Nigeria’s highest productivity yields fall short of these rates and this situation is due
to a number of factors including small scale farming (on plots that are usually less than 1
hectare), manual operation, little or no use of fertilizers and limited knowledge in the use of high
yield roots to name a few. Farming at this level makes it difficult to achieve scale economies
and, furthermore, in increasing supply responsively to market needs (which at the present time is
geared towards gari consumption as food). At the same time, the emergence of a cassava
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processing industry (e.g. starch, alcohol, adhesives, etc.) would consume a significant amount of
the annual production of cassava root (in addition to that traditionally required for food
production), as demonstrated by the starch example in which the conversion of root to starch is a
5:1 ratio, and this would necessitate a strong increase in the supply of the root. In other words,
there is the potential for a strong imbalance between supply of and demand for root cassava
which will lead to a shortage of raw material for the hungry processing mills. If that is the case,
unavailability is not the only problem as it will be accompanied by significant upward price
adjustment that would render the economics of cassava processing infeasible. Obviously, this
would undermine the development of the cassava value chain by cutting it short of the
processing stage.
Secondly, the small scale of operation has a deleterious effect on the on the supply chain
in view of the uneconomic gathering or collection of the root in small shipments from numerous
and dispersed growers frequently reaping only 12 to 15 tonnes per harvest. On this basis, the unit
cost of transporting small shipments to the destination is naturally more expensive than that of
large shipments which could only materialize through higher output farming. In addition, the
performance of the supply chain is also negatively affected by the poor road infrastructure, as it
provides poor access to the farms. Most of the small farms are not served by paved roads and
consequently road freight vehicles cannot provide service on a door-to-door basis, especially
after a rain storm. Instead, the harvest is handled from farm to truck manually, frequently with a
wheel barrow, over a distance as much as a couple of kilometers, before the truck hauls it to the
processing plant or a designated depot. In the process, the transit time is longer than it should
have been, thus jeopardizing the short shelf life of the root. Overall, the resources used in
carrying out this activity are inordinately high, with transportation charges alone accounting for
N1,500 per tonne against a delivered price of the root at the plant gate of about N5000 per tonne.
In essence, the high cost of logistics associated with the raw material jeopardizes the commercial
viability of the processing operation and extension of the cassava chain to greater value added.
Thirdly, at the plant, the economics of production is impeded by a host of factors that are similar
to that faced by producers in other industries. These include (i) high rate of interest, (ii) poor and
costly public utilities, (iii) random disruption of utility supply that leads to temporary stoppages
in plant operation with the consequence of lost output and product spoilage and (iv) low
productivity and poor quality of labour. Overall, the operating environment hinders
competitiveness and reduces profit-making to a high risk venture.
3.1.3 World Market Structure

Cassava has been growing in economic importance over the years and in recent times, its
recognition in producing and consuming countries for industrial development is also increasing
very widely. However, the low level of development of the cassava industry in the producing
countries has not made it possible for producers and consumers to derive the desired level of
satisfaction. Nonetheless, the cassava market is growing internationally. The world output of
cassava stood at 186 million tonnes in 2002 and to date Nigeria is the largest producer of the
crop. The top 10 producers of cassava accounted for about 75 percent of the production that year
(Table 3.5). Available data from 1961-2005 indicate that the cumulative annual growth rate of
cassava production was 3.85 percent in Western Africa and 2.60 percent in Central Africa. In
2004, production of fresh cassava roots stood at 56 million tonnes in the former and 28 million
tonnes in the latter. According to IFAD (2006), the annual value of fresh roots at farm gate in the
region was estimated at USD 3 to 4 billion.
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Table 3.5: World Cassava Production, 2002
Country Output (Million MT)

Nigeria 34.5
Brazil 23.1
Indonesia 16.9
Thailand 16.9
Democratic Republic of Congo 14.9
Ghana 9.7
India 7.0
Tanzania 6.9
Mozambique 5.9
Angola 5.6
Others 45.0
TOTAL 186
Source: FAOSTAT, 2004
In West Africa many countries have ventured into the export of cassava products to the
European Community (EU) with mixed success. The major limitation to this export market is the
fixed 145,000 tonnes per annum quota granted for ACP countries by the EU. In Asia, very little
cassava is utilized for direct human consumption (except in Indonesia) and most is processed
into chips and pellets. The cassava starch industry is most important and most dynamic in
Thailand, followed by Indonesia, China, India, and Vietnam. Relatively new entrants into the
Asian cassava starch industry are Vietnam and China. Since their respective initial free market
policy implementations, very significant investments have been made on cassava starch based,
largely on export oriented industries. Most of the starch products are destined for the food
processing (MSG, noodles etc), soft drinks, and pharmaceutical industries. For this purpose, both
China and Indonesia originally, exporters of cassava presently import cassava products in the
form of chips and pellets for their growing processing industries. In fact, China is fast replacing
EU as a major importer of cassava chips with over 1million tonne import of the commodity in
2002. Other importers of cassava chips in the Asian region include Japan, South Korea and
Malaysia. The major cassava products exported to the EU are the chips and pellets. Thailand is
the major supplier contributing about 90% of the products requirements of these markets.
In Latin America and the Caribbean, cassava continues its transition towards a market
oriented product and raw materials for the processing industries. The utilization of cassava both
as food and for the processing industries has significantly been on the increase in Brazil,
followed by Colombia, Venezuela and recently Paraguay. The export of cassava roots to the US
and the EU (for food consumption by mainly ethnic groups) is presently dominated by Costa
Rica. The US and the EU have highly protected import (and subsidized export) markets. This
also affects cassava products especially cassava starches. High levies and quotas are used to
protect their domestic industries. Thai cassava pellet imports to the EU continue to decrease
since the 1990’s, mainly due to policy changes in favour of the EU domestic grain prices. Other
SE-Asian pellet import quotas have remained largely unfilled. The US shows only very minor
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dried cassava imports. Fresh cassava (waxed or frozen) imports mainly from Costa Rica,
continue to increase in the US. Nonetheless, the principal consumers of these products do not
show a significant additional future demand. Specialty cassava starches are being imported to
both the EU and US, despite the prohibitive levies placed on imports above the small quota given
by the EU. The major market for cassava in the EU is Netherlands, while Germany, Portugal,
Spain, United Kingdom, and Belgium are minor importers. Netherlands imports are re-exported
to other destinations in Europe and Russia. Chips and Pellets are the principal products that are
exported to these countries, while Rotterdam is the major market centre in Europe. Some inter-
and intra-regional trade in cassava exist in Africa. However, there has not been any documented
record on the volume and nature of these trades. It is therefore, possible that the trades have been
in the form of illegal trans-border transactions. A recent trade mission to South African countries
by the Presidential Committee on Cassava Export showed that there is an immediate demand for
about 400,000 tonnes of cassava chips (about 1.6million tonnes of cassava) for animal feeds in
South Africa and Botswana alone.
3.1.4 Nigerian Cassava Market Structure

Great imbalances continue to exist between the demand and supply of cassava in Nigeria. There
is great demand for products from cassava processing. Such products apart from the traditional
foods, include industrial raw materials like native and modified starches for the textile, food and
beverages, pharmaceutical, pulp and paper industries etc, sweeteners e.g. glucose/dextrose,
fructose, citric acid, for both the beverage and pharmaceutical industries, dextrins and other
adhesives for packaging industries etc, ethanol for beverage, pharmaceutical, and cosmetic
industries, as well as high quality unfermented cassava flour for bakery and confectionery
industries. It is roughly estimated that more than 40 million tonnes of cassava would be needed
to satisfy the demand of the different industries for the aforementioned products. Demand will
also increase as a result of some policy actions taken by the Federal Government including (i) the
setting up of a Presidential Committee on national cassava production and export in 2002, (ii)
mandatory requirement since January 2005 that 10 percent cassava flour should be included in
all composite formulations for the baking and confectionery industry and (iii) the introduction of
gari in the National Strategic Food Reserve Programme which hitherto was limited to grains.
The supply for the cassava is at present, inadequate due mainly to some factors such as
inadequate pricing for the tubers and processing centres among others. This does not however,
imply that there is inadequate availability of cassava roots in the country. The problem of supply
is mainly due to inadequate pricing. This is because a number of producers find it inexpedient to
sell their roots at the price offered, thus leading to some of them leaving the roots in the farms;
resulting into wastage in some cases. The suppliers of cassava roots are mainly the farmers. This
is because cassava cannot be stored after harvest. The presence of middlemen in the supply chain
of cassava is at present, not very significant. These exist mainly when there are large-scale
processors of the roots.
3.1.5 Characterization of the Cassava Value Chain
Cassava Production and Cropping System

Cassava production in Nigeria is largely in the hands of smallholders who operate about 87
percent of the total land area cultivated to the crop. The medium holding farms constitute about
10 percent, while the large-scale farms make up the remaining 3 percent. Cassava can be grown
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almost in all the states either as a sole crop or an intercrop with principal staples, such as maize,
yam, cocoyam, sweet potato, rice, sorghum, millet; and subsidiary crops, such as beans, okro and
leafy vegetables. Cassava can also be grown with oil palm, rubber, cashew and cocoa within the
first few years of the permanent crop before the canopy covers. In most of the southern areas of
Nigeria, farmers grow cassava in mixtures with maize, cocoyam, yam and vegetables but some
grow it sole. In northern areas, sole cropping is more common (Unamma et al., 1985, Okoli and
Nnodu, 1996). A recent survey in the country indicates that on the average, for all the crops,
about 25 percent of the fields are sole cropped and 75 percent are intercropped (RMDRC, 2004).
Cassava is grown in areas where rainfall is greater than 100 mm, and accounts for over 70
percent of the total production of the tuber crop in West Africa. This achievement has been
attributed to the improved high yielding, pest and disease resistant cassava varieties produced
and released to farmers through research collaboration of IITA, Ibadan and the National Root
Crops Research Institute (NRCRI), Umudike.
Harvesting
It is best to harvest cassava when the roots have accumulated enough starch; but this will depend
on the variety, soil conditions and climatic factors. Early maturing varieties are ready for
harvesting at 7 months after planting while late maturing varieties are ready at 12 months after
planting. However, studies have shown that several cassava varieties attain optimum fresh
weight from 12 – 15 months after planting (IITA, 1990 and Eke-Okoro et al., 1999). Leaving
maturing roots unharvested will lead to the roots being very fibrous. Manual harvesting is the
main method of harvesting. The stem is cut 30 cm above the soil surface and the roots are lifted
up by pulling the stump gently. Cassava can be harvested both in the rainy and dry seasons but it
is better to harvest when the soil is wet, to avoid damage to the roots and also to use the stems for
fresh planting. This is better than the dry season when the stems are likely to be dried up.
The structure and trend of cassava production in Nigeria between 1999 and 2004 are
presented in Table 3.6 and Figures 3.1 and 3.2. During the period the North-central zone was the
leading producer of cassava annually except in 2004 when it lost the position to the South-south.
On the average the contribution of NC to total output is 26.95 percent while NE has the lowest
share. Average yield of cassava is highest in SW (13.4 mt/ha) while the lowest occurred in NE
(8.17 mt /ha). The leading producers, NC and SS, witnessed major declines in output in 2004 and
2003 respectively. Output growth virtually stagnated in NW and NE although in the case of the
latter there was a big jump between 2003 and 2004. In general, cassava production followed an
upward trend in the Southwest and Southeast. There is virtually no expansion in land area
cultivated to cassava except in SE and SW. In the NC, the trend is actually on the decline
between 1999 and 2004 (Fig. 3.2).
Factors Affecting Production
The decline in production may be related to losses arising from livestock (mainly cattle), pests
and diseases and/or declining soil fertility. Unless fenced round, which is prohibitive considering
the relatively low value of the crop, cassava fields could be destroyed by cattle and other
domestic animals such as goats and sheep especially during dry season when pasture is scarce.
Reduction in soil fertility, which could arise from either soil erosion, as is the case in some
southern states, or short rain fall duration in the northern states where farmers with a limited
supply of fertilizer would prefer to grow short duration crops like millet or sorghum, may also be
contributory. Non-availability of land particularly in the southern parts due to the land tenure
system in the zone could also limit the production of cassava. In addition, negative market forces
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Table 3.6: Cassava Production in Nigeria, 1999-2004
1999 2000 2001 2002 2003 2004

NORTHWEST
-Area(‘000Ha) 211.54 209.734 211.61 215.80 215.69 217.05
-Output(‘000MT) 1906.13 1865.46 1895.54 1990.00 1990.00 2004.95
-Share of Total (%) 6.65 7.08 6.89 7.13 7.84 7.06
-Yield (MT/Ha) 9.03 8.92 8.98 9.25 9.25 9.23
NORTHEAST
-Area(‘000Ha) 21.47 20.81 18.59 18.32 18.573 227.15
-Output(‘000MT) 179.9 165.34 141.53 140.62 147.28 1929.57
-Share of Total (%) 0.63 0.63 0.51 0.50 0.58 6.80
-Yield (MT/Ha) 8.52 8.25 7.83 7.77 8.16 8.49
NORTHCENTRAL
-Area(‘000Ha) 665.20 603.36 575.92 574.95 580.15 587.01
-Output(‘000MT) 8285.26 7680.30 7735.78 7745.44 7861.81 5343.80
-Share of Total (%) 28.89 27.14 28.12 27.73 30.97 18.83
-Yield (MT/Ha) 13.22 12.73 12.98 13.49 13.55 9.10
SOUTHWEST
-Area(‘000Ha) 442.82 382.54 421.19 444.3 449.4 456.41
-Output(‘000MT) 5846.32 4993.38 5663.61 5883.81 6055.37 6356.58
-Share of Total (%) 20.39 18.95 20.59 21.07 23.86 22.40
-Yield (MT/Ha) 13.22 13.07 13.45 13.25 13 48 13.93
SOUTHEAST
-Area(‘000Ha) 471.94 432.51 448.61 456.04 468.74 499.89
-Output(‘000MT) 5852.19 5384.13 5542.41 5846.31 6024.6 6317.11
-Share of Total (%) 20.41 20.43 20.14 20.93 23.74 22.26
-Yield (MT/Ha) 12.42 12.46 12.37 12.82 12.87 12.65
SOUTH-SOUTH
-Area(‘000Ha) 607.98 605.804 609.75 600.23 603.54 587.29
-Output(‘000MT) 6609.29 6268.11 6533.94 6321.67 3302.69 6430.44
-Share of Total (%) 23.05 23.78 23.75 22.64 13.01 22.66
-Yield (MT/Ha) 10.99 10.33 10.72 10.53 5.47 10.95
ALL ZONES
-Area(‘000Ha) 2420.90 2254.80 2285.70 2309.60 2336.10 2571.80
-Output(‘000MT) 28679.10 26356.70 27512.80 27927.90 25381.80 28382.50
Source: Underlying data from the Project Coordinating Unit of the Federal Ministry
of Agriculture and Rural Development, Abuja
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Fig. 3.1: Production of Cassava

By Agro-Ecological Zones in
Nigeria
Output ('000 MT)
10000
8000 NW
6000 NE
4000 NC
2000
SW
0
SE
1999 2000 2001 2002 2003 2004
SS
Year
F ig . 3 .2 : L a n d A r e a C u lt iv a t e d t o
C a s s a v a in N ig e r ia n A g r o -
E c o lo g ic a l Z o n e s
700
600 NW
500 NE
'000 Ha
400 NC
300 SW
200 SE
100 SS
0
99
00
01
02
03
04
19
20
20
20
20
20
Y ear
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e.g. low price offer for fresh roots, and products e.g. garri may also contribute to reduced
production. The general increase in the production of cassava observed could be related to rapid
population growth and hence increased market demand for cassava-based foods. As at present,
there is relatively low industrial demand for cassava for the production of the various industrial
products in Nigeria. However, there is increasing demand for cassava foods such as garri, and
instant fufu flour (which are major consumption items in the Southeast and Southwest) which are
being increasingly consumed by some populations that hitherto did not have them as their
staples. Other factors, which could explain the increasing trend in cassava production include:
the availability of improved varieties of cassava
adoption of improved farm management
existence of improved processing technology
the interest of government in promoting the cultivation of cassava
rapid population growth - which tends to increase market demand.
participation of more middlemen in cassava marketing
relatively well-developed market access infrastructure
increased industrial usage of cassava.
Post-Harvest Management
Cassava stems when cut from the field may not be planted soon after they have been cut for one
reason or the other. It therefore becomes necessary to preserve them for sometime until the
farmer is ready to plant them. Similarly, cassava roots may be harvested but it may not be
possible to process them into other food forms immediately. Cassava roots are extremely
perishable. Once they have been harvested, they begin to deteriorate within 40 – 48 hours (IITA,
1990). The deterioration is caused by physiological changes and subsequently, by rot and decay
due to infection by rot –causing microorganisms. Bruises and wounds during harvesting and
handling predispose roots to rapid deterioration. This deterioration has adverse effects on the
processed product and thus the roots must be stored properly before processing. The Nigerian
Stored Products Research Institute (NSPRI) has developed low-cost and practical methods which
can store cassava roots fresh for at least 6 – 8 weeks and can be applied easily by farmers and
processors. Appropriate methods have also been developed for storing cassava stems for up to 2
– 3 months before using them for planting.
Once harvested, cassava has to be either consumed immediately or processed into more
stable product forms. The root consists of 60 to 70% water and has a shelf life of 2 to 3 days.
Processing it into dry form reduces the moisture content and converts it into a more durable and
stable product with less volume, which makes it easier for transportation. Processing is also
necessary to eliminate or reduce the level of hydrocyanic acid (HCN) or cyanide in the crop and
to improve the palatability of the food products. Processed cassava products are also used as raw
materials for a number of small- or medium-scale industries in Africa. The cassava root can be
processed into food products such as garri, fufu, instant flour, fermented flour, and industrial
products including chips, pellets, native starch, modified starch/adhesives, alcohol (ethanol),4
Monosodium glutamate (MSG), citric acid, sweeteners e.g. glucose, fructose and sorbitol. The
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processing of cassava leaves for the production of hay (animal feed); as well as for leaf protein
concentrates are also gaining grounds.
3.1.6 Results of the Cassava Value Chain Analysis

The value chain analysis seeks to examine the main links in the cassava chain (production,
assembly, processing, trade) with a view to determining the international competitiveness of the
commodity. The analysis is conducted at three levels of operation – family farm (FAM),
emerging commercial farm (ECF) and large commercial farm (LCF) and the results are
presented accordingly.
(a) Financial Costs and Profitability Indicators

As regards the FAM, the costs at the farm product stage consist largely of variable cost that
represents about 97 percent of total production costs. As expected, the total cost is on the
increase in the value chain from the production stage to the assembly and processing stage. After
the production stage total costs are inclusive of the price paid for cassava (tuber) by the
assembler and processor. The analysis keeps track of the build-up of financial costs at every
stage of the value chain and this reveals the contribution of the various cost items. At the
production stage, labour cost is the single largest component (47 percent) of financial costs and
this is followed by seeds, fertilizer and chemicals (38 percent). At the assembly stage, the single
most important cost component is also hired labour, with the cost representing 56 percent of the
financial costs. The cost of vehicle hire is the next important cost component and it represents 29
percent of total cost. At the processing stage, the bulk of the cost (81 percent) is incurred on
storage and plant repair and maintenance (Table 3.7). With regard to profitability of the cassava
FAM, the results show that operating profit and net profit are positive only at the production and
processing stages. At the production stage, the gross margin is US$149.89 while net profit is
$149.08; whereas at the processing stage, the gross margin and net profit are US$85.18 and
US$84.23 respectively (Table 3.8). Moreover, the rate of return is higher at the production stage
than at the processing stage.
The cost structure of the cassava ECF, shows that production costs consist largely of
depreciation of fixed assets (64 percent) followed by non-labour inputs such as seeds, fertilizer
and chemicals (20 percent) while hired labour represents 13 percent of the total costs (Table 3.7).
The relatively high proportion of depreciation in the case of ECF and LCF is accounted for by
the availability of capital equipment such as ploughs and harrows which are very expensive cost
items owned and used by the farmers for land preparation and whose costs have to be
incorporated into the computation of depreciation. The profitability indicators appear to be
encouraging. Operating profit is positive at the production, assembly and processing stages. The
gross margin per tonne is US$19.19, US$45.15 and US$85.18 respectively. Whereas net profit is
positive at the assembly (US$45.15) and processing (US$84.58) stages, it is negative at the
production stage indicating the difficulty to ensure viability of commercial production of
cassava. The rate of return is about 22 percent at the production stage; but it is slightly higher at
the assembly stage (25 percent) while it is highest at the processing stage (27 percent) (Table
3.8).
Table 3.7 also presents the build-up of financial costs in respect of cassava LCF. There
are four important cost items at the production stage. They are, in order of importance,
depreciation of fixed assets (46 percent), hired labour (21 percent), chemical application and
machine operation (19 percent) and seed, fertilizer and chemicals (14 percent). Profitability
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indicators follow virtually the same pattern for cassava LCF as that of the cassava FAM. The
results show that operating profit and net profit are positive only at the production and
processing stages. At the production stage, the gross margin is US$127.80 while net profit is
$107.73; whereas at the processing stage, the gross margin and net profit are US$83.44 and
Table 3.7: Structure of Financial Costs in Cassava Enterprises

percent
COST ITEMS FARM ASSEMBLY PROCESSING
PRODUCT
FAM
Hired Labour 47 56 2
Seed, Fertilizer & Chemicals 38
Marketing 6
Spraying & Machine Operation 6
Vehicle Hire 29
Fees & Crop Levies 14
Packing & Consumables 1 8
Storage & Plant R&M 81
Overhead & Licence 6
Energy & Machine Operation 2
Depreciation 3 1
TOTAL 100 100 100
ECF
Marketing
Spraying& Machine Operation 3
Vehicle O & M 29 2
Packaging & Consumables 1 7
Depreciation 64 1
TOTAL 100 100 100
LCF
Marketing
Spraying, & Machine 19
Operation
Vehicle O & M 24 2
Depreciation 46 1
TOTAL 100 100 100
Source: Author’s computations
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Table 3.8: Profitability Indicators of Cassava Enterprises (Per MT)

FAM CASSAVA
FARM GATE ASSEMBLED PROCESSED

PRODUCT RAW MATERIAL RAW MATERIAL
NGN USD NGN USD NGN USD
Gross revenue 25,000 189.39 30,000 227.27 52,360 396.67
Production costs
Crop purchase - 25,000 189.39 30,000 227.27
Other variable costs 5,214 39.50 11,140 84.39 11,116 84.21
Investment costs 108 0.82 - - 125 0.95
Total costs 5,322 40.32 36,140 273.79 41,241 312.43
Final income
Gross margin 19,786 149.89 (6,140) (46.52) 11,244 85.18
Net profit 19,678 149.08 (6,140) (46.52) 11,119 84.23
Rates of return
Gross margin/total VC 3.79 -0.17 0.27
Net profit/total costs 3.70 -0.17 0.27
ECF CASSAVA

Gross revenue 14,000 106.06 30,000 227.27 52,360 396.67
Production costs
Crop purchase - 14,000 106.06 30,000 227.27
Investment costs 21,353 161.77 - - 125 0.95
Total costs 32,820 248.64 24,040 182.12 41,321 313.04
Final income
Gross margin 2,533 19.19 5,960 45.15 11,164 84.58
Net profit (18,820) (142.58) 5,960 45.15 11,039 83.63
Rates of return
Gross
Grossmargin/total
margin/totalVCVC 0.22 0.25 0.27
Net profit/total costs (0.57) 0.25 0.27
LCF CASSAVA
Gross revenue 20,000 151.52 30,000 227.27 52,360 396.67
Production costs
Crop purchase - 25,000 189.39 30,000 227.27
Investment costs 2,649 20.07 - - 125 0.95
Total costs 5,779 43.78 37,740 285.91 41,471 314.17
Final income
Gross margin 16,870 127.80 (7,740) (58.64) 11,014 83.44
Net profit 14,221 107.73 (7,740) (58.64) 10,889 82.49
Rates of return
Gross
Grossmargin/total
margin/totalVCVC 5.39 -0.21 0.27
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US$82.49 respectively. Moreover, the rate of return is higher at the production stage than at the
processing stage (Table 3.8).
(b) Value Chain Indicators

The transformation of cassava from the FAM into various products results in considerable
increase in value along the chain. From the farm production stage to the assembly stage SV
increased by 579 percent while the increase from assembly to processing is 14 percent. From
processing to the stage of final trading, the SV increased by 62 percent in respect of cassava
chips, 74 percent in respect of cassava pellets and 66 percent in respect of starch. The
Cassava production yields a value added (US$36.48) which represents 90% of the shipment
value. Value added also represents a high proportion of the shipment value of the cassava
products. The proportion varies from 82 percent in the case of cassava chips and starch to 84
percent for pellets. The DVA is made up largely (99 percent) of domestic costs and mark-ups
(Table 3.9).
The substantial increase in shipment value from the production stage to the stage of final
traded product is not unexpected on account of the nature of the conversion of cassava tuber to
the cassava products (chips, pellets, starch). A high quantity of raw cassava tuber (about three
tones) of cassava tuber is required for the production of one tonne of each product. In view of the
fact that the purchase of cassava tubers is included in the computation of shipment value and
given the fact that the price of the commodity increases from one stage to another, it is not
surprising that significant increase in shipment value is experienced between the production
stage and the final traded commodity stage.
For the purpose of determining the international competitiveness of the cassava products,
the final shipment values are compared with the relevant export parity price. The final SVs for
cassava chips, pellets and starch are US$504.81, US$542.68 and US$519.96 respectively (Table
3.9). Compared with the export parity price (US$-4.00) at the final commodity stage, none of
these products is competitive at the international market. Apart from the high domestic costs, the
very low level of international prices of these products makes them unprofitable and
uncompetitive. As regards ECF, the transformation of cassava along the chain results in
considerable increase in value. From the farm production stage to the processing stage SV
increased by 26 percent. From processing to the stage of final trading, the SV increased by 62
percent in respect of cassava chips, 74 percent in respect of cassava pellets and 66 percent in
respect of starch. The transformation of cassava from farm production into cassava starch,
cassava chips and cassava pellets at the final trading stage is associated with an increase in
shipment value from US$248.63 at the cassava production stage to US$508.55, US$546.97 and
US$520.75 at the stage of final trading of cassava chips, pellets and starch respectively. This
represents an increase in shipment values of about 105%, 120% and 109% in the case of cassava
chips, pellets and starch respectively. Cassava production yields a value added (US$229.76)
which represents 92% of the shipment value. Value added also represents a high proportion of
the shipment value of the cassava products. The proportion varies from 72 percent in the case of
cassava chips, to 73 percent for starch and 75 percent for pellets. About 90 percent of the DVA
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Table 3.9: Cassava Value Chain Indicators for 1MT of Final Traded Products
FAM CASSAVA
TRADED COMMODITIES (1 MT Final Traded Product)

CHIPS PELLETS STARCH
Domestic Value Added
Costs & mark-ups 54,003 409.11 59,299 449.23 55,929 423.70
Official duties & tax 17
177 1.34 219- 1.66- 199 1.51
Additional costs 77
423 4 2 438 - 3.32- 475 3.60
3.20
Total DVA 54,603 413.66 59,956 454.21 56,603 428.81
Foreign costs 12032 91.15 11678 88.47 12,032 91.15
Total Shipment Value 66,635 504.81 71,634 542.68 68,635 519.96
ECF CASSAVA

Costs & mark-ups 43,665 330.80 49,425 374.43 45,342 343.50
Official duties & tax 1,216 9.21 1,181 8.95 1,173 8.89
Additional costs 3,649 27.64 3,542 26.83 3,625 27.46
Total DVA 48,530 367.65 54,148 410.21 50,140 379.85
Foreign costs 18,599 140.90 18,052 136.76 18,599 140.90
LCF CASSAVA

Costs & mark-ups 55,178 418.02 60,557 458.77 57,288 434.00
Official duties & tax 125 0.95 111 0.84 125 0.95
Additional costs 384 2.91 333 2.52 384 2.91
Total DVA 55,687 421.87 61,001 462.13 57,797 437.86
Foreign costs 11,188 84.76 10,859 82.27 11,188 84.76
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in the case of cassava chips is made up of domestic costs and mark-ups while the proportion for
pellets is 91 percent. For cassava starch, domestic costs and mark-ups account for 90 percent of
the DVA.
For the purpose of determining the international competitiveness of the cassava products,
the final shipment values are compared with the relevant export parity price. The final SVs for
cassava chips, pellets and starch are US$508.55, US$546.97 and US$520.75 respectively (Table
3.9). Compared with the export parity price (US$-3.00) at the final commodity stage, none of
these products is competitive at the international market. Again apart from the high domestic
costs, the very low level of international prices of these products makes them unprofitable and
uncompetitive.
Also, in the case of LCF, the transformation of cassava into various products results in
Cassava production of LCF yields a value added (US$41.85) which represents 96% of the
shipment value. Domestic Value Added (DVA) also represents a high proportion of the shipment
value of the cassava products. The proportion varies from 83% in the case of cassava chips, to
85% for starch and 84% for pellets. In each case over 80% of the DVA is made up of domestic
costs and mark-ups. For the purpose of determining the international competitiveness of the
cassava products, the final shipment values are compared with the relevant export parity price.
The final SVs for cassava chips, pellets and starch are US$506.63, US$544.39 and US$522.61
respectively. Compared with the export parity price (US$-3.00) at the final commodity stage,
none of these products is competitive at the international market. In addition to high domestic
costs, the very low level of international prices of these products makes them unprofitable and
uncompetitive.
3.1.5 Comparative Value Chain Analysis By Type of Cassava Farms
Cassava Profitability and Value Chain Indicators

Table 3.10 presents a summary of the results comparing the profitability and value chain
indicators for the three category of farming enterprises included in the study namely; family
farms (FAM), emerging commercial farms (ECF) and large commercial farms (LCF). The results
show considerable variation in both operating and net profit as well as rate of return in respect of
cassava production. The gross margin per tonne is highest for the FAM (US$149.89) followed by
LCF (US$127.80) while that of the ECF is the lowest (US$19.19). Net profit is also highest for
FAM (US$149.08) followed by LCF (US$107.73) while net profit for ECF is negative. The rate
of return (net profit/total cost) for FAM is higher than that of LCF. Moreover, DVA for cassava
production (i.e. at the farm product stage) is highest for ECF (US$229.76) followed by LCF
(US$41.85) while that of FAM is the lowest (US$36.48). Similarly, the SV is highest for ECF
(248.63) followed by LCF (US$43.78) and FAM (US$40.33).
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Table 3.10
Cassava Profitability and Value Chain Indicators By Level of
Commercialization of Farms in Nigeria, 2005
FARM ASSEM- PROCESSED TRADED COMMODITIES
GATE BLED RAW RAW
PRODUCT MATERIAL MATERIAL Chips Pellets Starch
PROFITABILITY
INDICATORS
FAM
GM (US$) 149 -46 85 -410 -447 -425
NET PROFIT (US$) 149 -46 84 -410 -447 -425
GM/TVC (%) 379 -17 27 -81 -83 -82
NET PROFIT/TC (%) 370 -17 27 -81 -83 -82
ECF
GM (US$) 19 45 85 -409 -447 -424
NET PROFIT (US$) -142 45 84 -409 -447 -424
GM/TVC (%) 22 25 27 -81 -82 -82
NET PROFIT/TC (%) -57 25 27 -81 -82 -82
LCF
GM (US$) 127 -46 84 -409 -447 -424
NET PROFIT (US$) 107 -46 83 -409 -447 -424
GM/TVC (%) 539 -17 27 -81 -82 -82
NET PROFIT/TC(%) 246 -17 27 -81 -82 -82
VALUE CHAIN
INDICATORS
FAM
DVA (US$) 36 269 282 413 454 428.
SV (US$) 40 274 312 504 542 519
DVA/SV (%) 90 98 90 94 89 82
DC/DVA (%) 96 99 99 99 100 99
ECF
DVA (US$) 229 161 266 367 410 379
SV (US$) 249 182 313 508 546 520
DVA/SV (%) 99 89 85 72 75 73
DC/DVA (%) 100 92 95 89 91 99
LCF
DVA (US$) 41 283 286 421 462 437
SV (US$) 43 285 314 506 544 522
DVA/SV (%) 96 99 91 83 85 84
DC/DVA (%) 97 99 99 99 99 99
Source: Author’s computation
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The ratio of DVA to SV is highest for ECF (99 percent) followed by LCF (96 percent) while that
of FAM is the lowest (90 percent). Domestic cost of production as a proportion of DVA is also
the highest for ECF (100 percent) followed by LCF (97 percent) while that of FAM (96 percent)
is the lowest. This implies that the costs incurred by FAM in addition to the domestic costs of
production constitute a higher proportion of the SV than it is the case for ECF and LCF. The
results show that increasing commercialization of cassava production has not led to an
improvement in the degree of competitiveness of the commodity in the international market.
Comparison of Cassava Shipment Values

The shipment value consists of domestic costs and mark-ups, official duties and taxes, additional
(unofficial) expenses and foreign costs. As noted earlier, domestic costs and mark-ups constitute
a dominant part of the shipment value at each stage of the value chain. However, the structure
varies not only from one stage to another but also among the three categories of farms. As shown
in Table 3.11, composition of shipment values varies considerably across the farms and the
various stages in the value chain. In general, domestic costs and mark-ups constitute not less 80
percent of the SV in each of the stages and for each category of farms. All the afore-mentioned
items of cost are incurred at the farm product stage by all categories of farmers. The domestic
costs and mark-ups are highest in each category followed by the foreign costs, unofficial
expenses and official duties and tax. At the assembly and processing stages only the ECF can be
associated with some cost on all the items. There was no cost incurred in the form of duties and
Table 3.11: Comparison of Composition of Cassava Shipment Values in Nigeria (%)

FAM ECF LCF
FARM
-Domestic costs and mark-ups 80 88 93
-Official duties and tax 2 1 1
-Additional expenses 4 3 2
-Foreign costs 14 8 4
-Total 100 100 100
ASSEMBLY
-Domestic cost and mark-ups 98 82 99
-Official duties and tax - 2 -
-Additional expenses - 5 -
-Total 100 100 100
PROCESSING
-Additional expenses - 3 -
-Total 100 100 100
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tax as well as unofficial expenses that can be associated with the supply chain from the FAM and
LCF categories. A comparison of the final shipment values for the cassava products among the
three categories of enterprises shows that domestic costs and mark-ups seem to be highest in the
case of FAM while they appear to be lowest in the case of ECF. On the other hand, foreign costs
seem to be the highest in the case of ECF followed by LCF and lowest in the case of FAM. The
highest level of unofficial extras is also observed in the case of ECF (see Figure 3.3). This
finding implies that measures aimed at reducing cost at the farm product level in order to
improve the competitiveness of the commodity will be different for the various categories of
producers.
Comparison of Cassava Production and Market Indicators

The production stage is very critical in the analysis of value chain. All the activities at
subsequent stages in the value chain and decision by the producer to stay in business depend
largely on critical variables that are associated with crop production. They include the crop yield,
unit cost of production and price received by the farmer. A comparison of these and related
variables among the three categories of farmers is apt to provide a better understanding of some
of the constraints facing the farmers and the nature of support required to enable each category of
farmers operate competitively and derive maximum benefits from the value chain. As shown in
Table 3.12, cassava yield is very low, but it is lowest in the case of cassava ECF. The cassava
FAM obtained the highest yield followed by the LCF. The price received by the farmers
followed exactly the same pattern; it is highest in the case of FAM, followed by LCF while the
ECF received the lowest price. As it turned out, the ECF is a high cost producer with negative
returns. The high production cost incurred by the ECF is due to the cost associated with the fixed
assets which cost is by far the highest among the three categories of farmers. The net return is apt
to improve if there is a reduction in the cost of capital and increased access to markets that offer
more remunerative prices.
Table 3.12: Comparison of Selected Cassava Production Indicators in Nigeria, 2005

FAM ECF LCF
1 Yield MT/Ha 9.15 3.6 5.0
2 Unit Cost of 40 248 44
Production $/MT
3 Farm 189 106 152
Gate Price $/MT
4 Variable Cost $/Ha 252 312 119
5 Gross Margin $/Ha 1,480 69 639
6 Net Return $/Ha 1,473 -513 539
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Figure 3.3: Composition of Shipment Value for Cassava Enterprises in Nigeria
Composition of SV
600 (USD per MT Traded Commodity) CASSAVA FAM
500
400
300
200
100
-
Costs & Mark-ups Duties & Tax Unofficial Extras Foreign costs
Composition of SV
600 (USD per MT Traded Commodity)
500 CASSAVA ECF

400
300
200
100
-
Composition of SV
500
400
300 CASSAVA LCF

200
100
-
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Build-up of Cassava Final Shipment Value By Stage

Analysis of the final shipment value is carried out on the basis of the incremental cost incurred
(per 1 MT of raw material) at each stage of the value chain. Table 3.13 presents the cost structure
for the three categories of farms. In the case of the cassava FAM the shipment value becomes
more prominent at the processing and logistics stages; whereas the shipment values for the ECF
and LCF tend to concentrate at the logistics stage. The proportion of the shipment value at the
assembly stage is negligible except in the case of the ECF.
Table 3.13: Build-up of Cassava Final SV in Nigeria By Stage (%)

FAM ECF LCF
Farm 7 2 2
Assembly 1 13 0
Processing 45 19 32
Trade 47 66 66
TOTAL 100 100 100
3.1.6 Impediments to Growth in the Cassava Industry
Production
The problems of some pests e.g. grasshoppers, rodents e.g. grass-cutter, domestic animals like
cattle, still persist. Although efforts at controlling the rodents by traditional practices seem to be
in use, its effect at controlling the pests do not seem to be appreciable. The problems of the cattle
under the control of the nomads, and the insects are still persistent. Another problem faced by the
producers (farmers) is availability of land. This is particularly encountered in the southern parts
of the country. Land is usually expensive to obtain and large area of land for farming is usually
difficult to come by. The problems of desertification in the northern parts, erosion and flooding
in the southern parts of the country militate against extensive cultivation of cassava crop.
Environmental degradation through oil spillage is also a critical problem in the South – South
geopolitical zone. The lack of mechanization in the production process of cassava in the country
is a very important problem highlighted by the respondents. The cost of hiring labour and the
tedium encountered in manual cultivation particularly during land preparation with local
implements seem to discourage investment in cassava production.
Processing. Equipment are generally not easily available, and when available, they are usually
inefficient, their parts wear down easily, while the public power supply is very unreliable forcing
the processors to depend on the expensive alternative of using power generators in the face of
ever escalating cost of fuel for the generators.
Marketing. Unattractive prices of products remain a serious problem. A situation where the cost
of transportation due to poor state of the access roads, cost of fuel etc are added to the cost of
production make the prices offered for the cassava tubers and processed products like garri and
flour unattractive. There is need to ensure increased flow of funds to the cassava industry to
encourage investment in the production, processing, and marketing of cassava.
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3.2 Value Chain Analysis of the Cotton Industry
3.2.1 Review of Cotton Value Chain Studies in Nigeria

The most relevant work on cotton value chain in Nigeria is the study recently concluded by Yee
and Paludetto (2005) which focused on the cotton textile industry in the country. The study
divides the cotton textile value chain into five major activities – cotton growing, cotton ginning,
yarn spinning, fabric weaving and fabric finishing (dyeing and printing). The value chain is
investigated through a case study of a shipment of 204,000 metres of wax prints produced by a
manufacturer whose plant is located in the northern part of the country. The plant has the
capacity to produce 100,000 linear metres of wax fabric a day based on an integrated operation
that gins cotton, spins yarn, weaves grey fabric and processes wax prints on the same site.
However, garment production is excluded from the chain of value adding activities at this time.
For this shipment, the purchase order is placed by a buyer in Mali on a cost and freight basis with
a landed value of 38.7million naira (or 190 naira/metre). This order takes about 50 days to
deliver that involves cross-border transport by truck which takes 15 days. However, the cycle of
activity to meet this order goes back much earlier in time, beginning with the financing of
farmers in the field to grow cotton followed by harvesting over a 5-month season and subsequent
processing of cotton material through ginning, spinning, weaving, dyeing and printing into wax
African print. This is a long processing cycle characterized by lengthy storage periods that carry
a high inventory cost driven by the capital carrying charge for the cotton material. Each stage of
processing is linked together in a chain that adds value as a result of activities engaged in
inbound logistics for intermediate/raw materials, processing of intermediate inputs together with
primary inputs into a fabricated product, and outbound logistics of the fabricated product. The
main findings of the study can be summarized as follows.
Competitive Pricing and High Intermediate Input Cost are Squeezing Value Added
With the high cost of intermediate inputs and downward pressure in the price of printed fabric,
there is difficulty in expanding value added along the chain in spite of increased processing. This
is demonstrated by the pattern of value added of 7.3 million naira for yarn, 5.8 million naira for
grey cloth, and 7.9 million naira for wax print. These added values also represent 47%, 26% 20%
of shipment value respectively for yarn, grey cloth and wax print, a distinctly declining trend. As
a consequence, the residual amount of value added left in the chain leaves little room to
compensate for the use of primary inputs and logistics.
Value Added is Insufficient to Meet the Full Cost of Value Adding Activities
Values added along the chain are inadequate to cover the cost of primary inputs and logistics. As
a consequence, there are no surpluses to distribute to profit. For example, in yarn spinning, value
added of 7.32 million naira is spent on covering logistics costs of 1.73 million naira (24% of
value added) as well as primary input costs of 5.59 million naira (76% of value added) that
include depreciation, debt financing, labor, overheads, and utilities (power, steam, water).
Accordingly, there are no residual resources left to reward risk equity capital and therefore no
profit is accrued. Although this type of integrated operation is expected to be logistically more
efficient compared to a non-integrated operation where the spectrum of value adding activities is
divided and intermediate materials are sourced outside from producers in the chain, this
integrated producer encounters significant problems that jeopardize business survival. According
to Yee and Paludetto (2005), the major constraints to the value adding process are (i) unreliable
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supply and high cost of utilities, (ii) high capital charge (depreciation, debt interest charges), (iii)
poor labour performance and (iv) burdened management as reflected in relatively high cost of
administrative overheads. The producer struggles to offset the cost of intermediate inputs and
other non-capital related value adding inputs from the receipt of sales. This example, leads to an
operating loss of about N4.7 million which represents -60% of realized value added.

The economic importance of cotton in many developing countries is significant
especially in terms of its contribution to household income and national revenue. It contributed
between 30 and 44 percent to total merchandize exports in 5 West African cotton-producing
countries (Benin, Burkina Faso, Chad, Mali, Togo) during 1998-99. According to Baffes (2004),
the corresponding figures for Uzbekistan, Tajikistan, and Turkmenistan were 32, 15, and 12
percent, respectively. Cotton’s contribution to the GDP of these countries has been substantial,
ranging between 3.6 percent (Turkmenistan) and 8.2 percent (Tajikistan). In Africa, cotton is
typically a smallholder crop, it is grown in rain-fed land and the use of purchased inputs such as
chemicals and fertilizers is minimal. The United Nations Food and Agriculture Organization
(FAO) estimated that about 100 million rural households were involved in cotton production
worldwide in 2001. Among the countries in which cotton is an important contributor to rural
livelihoods are China, India, and Pakistan—where 45, 10, and 7 million rural households,
respectively were engaged in cotton production. In Africa cotton producing countries, including
Nigeria, Benin, Togo, Mali, and Zimbabwe, the number of rural households depending on cotton
totaled 6 million. The cotton market has been exposed to considerable market interventions -
subsidization in the US, EU, and China and taxation in Africa and Central Asia. In 2002,
support to the cotton sector by major players reached almost $6 billion, more than one quarter of
the global value of production (Baffes, 2004).
About 33 percent of cotton production is traded internationally. The four dominant cotton
exporters—the United States, Uzbekistan, Francophone Africa, and Australia - account for more
than two-thirds of world exports. Four major producers—China, India, Pakistan, and Turkey—
import cotton to supply their textile industries. However, the eight largest importers account for
more than half of world cotton imports. The four East Asian textile producers—Indonesia,
Thailand, Taiwan, and Korea—accounted for 22 percent of world cotton imports in 2002,
compared to just 3 percent in 1960. Real cotton prices have declined over the last two centuries,
although with temporary spikes. The reasons for the long-term decline are similar to those
characterizing most primary commodities: on the supply side reduced production costs due to
technological improvements and on the demand side stagnant per capita consumption and
competition from synthetic products. Reductions in the costs of production have been associated
primarily with a doubling of yields, from 300 kilograms per hectare in the early 1960s to surpass
600 kilograms per hectare in 2000. The phenomenal growth in yield has been aided primarily by
the introduction of improved varieties, expansion of irrigation and use of chemical fertilizers.
Additional diffusion of GM varieties and precision farming, introduced during the 1990s, are
expected to further reduce the costs of production (Baffes, 2004).
In Africa, while cotton production has been increasing steadily, just as export of the
commodity has maintained an upward trend. However, due to the low level of development of
the textile industry especially in West Africa, the level of consumption has been very low and
there has been virtually no import. The consumption pattern of cotton is primarily determined by
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the size of the textile industries of the dominant cotton consumers. China, the leading textile
producer, absorbed more than one-quarter of global cotton output during the late 1990s. Other
major textile producers (and hence major cotton consumers) are India, Turkey, and the United
States, which together with China account for three-quarters of global cotton consumption.
Several East Asian countries have emerged recently as important cotton consumers. For
example, Indonesia, Korea, Taiwan, and Thailand, which together consumed only 130,000 tons
in 1960 (1.2 percent of global consumption), absorbed 1.5 million tons in 2002 (7.2 percent of
global consumption). Between 1960 and 2000, cotton demand has grown at the same rate as
population (1.8 percent per annum) implying that per capita cotton consumption has remained
stagnant. By contrast, consumption of chemical fibers has increased consistently over the last
four decades, causing cotton’s share in total fiber consumption to decline from 60 percent in
1960 to less than 40 percent in 2000 (Baffes, 2004).
3.2.3 Nigerian Cotton Market Structure

Since abolition of the Cotton Board in 1986 and the deregulated of the market as part of the
Structural Adjustment Programme at that time, operations in the cotton market has been
following the dictates of the forces of supply and demand. The price of cotton is determined in
an open market between buyers and sellers. There are over forty textile mills in the country and a
similar number of ginneries, which compete for this cotton. Consumption of cotton lint by textile
industry in Nigeria is about 100,000 tonnes plus or minus 15 percent. Textile mills are therefore
forced to import about 15,000 tons of cotton in order to cover the shortfall in local supply and for
certain specific requirement for finer yarns such as 30-40’s, which is not grown locally. It is
therefore clear that the local supply is not enough to meet the demand. Against a total demand of
about 80,000 MT of lint per annum (240,000 MT seed cotton) by the textile mills, the total
production of lint has been less, thus resulting in a gap between demand and supply. It is
expected that this gap will widen further as the steps taken by the government to revive the
textile industry may lead to increase in capacity utilization, thus resulting in higher demand for
cotton. Since 1989, Nigerian cotton is exported after about ten years of absence in the
international market. Prices of cotton in the international market have been unstable but high.
This was because of increased demand from cotton consuming countries like China, which had
an adverse weather and an increase in consumption and export. China’s textile industry has
urged the government to double cotton imports in 2004 to help the industry to recover from
shortage (RMRDC,2004).
Nigeria has also been involved in cotton seed import as production and marketing
activities faced more severe constraints in recent times than hitherto has been the case; while
export has been on the decline. Available data from the National Bureau of Statistics (NBS)
indicate that the value of cotton seed export as at 2002 when the Federal Government introduced
the Presidential Initiatives on Agriculture (PIA) programme which emphasized export expansion,
stood at 11.10 million and since then there has been no official record of exports. As regards
imports of cotton seeds, the value increased from 6.43 million in 2002 to 10.55 million (or
by 64 percent) in 2004.
3.2.4 Characterization of the Cotton Value Chain

Cotton is the most important vegetable fibre used in spinning. Presently there are six varieties of
cottonseed. Samcot 9 is of the short medium staple variety being grown in the Northwest region
comprising Sokoto, Kebbi, Kano, Katsina, Zamfara, Jigawa and Kaduna States. Samcot 10 is
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also used in this region. Samcot 8 is for the North East, also short-medium variety mainly grown
in Adamawa, Taraba, Borno, Yobe, Gombe, and Bauchi States. In 2003, the National Seed
Varietal Release Committee (NSVRC) approved the release of samcot 11, 12 and 13, which are
of long staple. Samcot 11 is for the rain fed southern states where there is adequate rainfall.
Samcot 13 is for the Northern ecological zone under irrigation. Movement of seeds across
regions has been going on over the years resulting in some instances in contamination and loss of
viability. The Cotton Revolving Fund Management Committee (CRFMC), which was saddled
with the responsibility of seed purification and development, took up the responsibility to purify
and restrict movement of seeds across the regions. This has successfully been concluded in the
North East and is ongoing in the North West.
Nigeria’s cotton is known internationally as poly contaminated. This is due to the use of
polypropylene bags by farmers to pick and deliver their seed cotton to buyers and ginneries. In
the process particles of the poly bag do get mixed up with the cotton during ginning, spinning
and even weaving. The damage will be seen only at the dyeing stage, thus most of the cotton lint,
yarn or grey exported is discounted because there is no dye guarantee. Efforts are currently being
intensified by stakeholders, which have led to the reduction in poly contamination. Firstly, at the
buying level both at farm gate and market, farmers are encouraged to use other packaging
materials rather than poly bags. In some cases agents issue out cloth sacks, baskets or jute bags
to farmers and encouraged them to pick their cotton in those containers. This is called poly free
cotton. Buyers pay a premium price for such cotton. Secondly, ginneries have also developed an
ingenious ways of reducing the poly contamination using rolling spikes on the suction floor.
There is also the manual picking of poly threads to reduce the contamination. Cotton produced in
this way is called poly reduced.
Production and Cropping System

The world zone of cotton production lies between 37oN and 32oN latitude. Cotton (Gossypium
hirsutum) is grown on over 33 million hectares world wide, from which 12 million metric tons
has given an average yield of 0.35 MT/ha. Cottonseed production exceeds 24 million metric
tons. In Nigeria, two broad agronomic zones have been identified. These are; Northern and
Southern Cotton Zones. Cotton is cultivated in Nigeria on 0.6 – 0.8 million hectares annually.
The major producing areas in the North are Katsina, Kaduna, Zamfara, Kano, Jigawa, Bauchi,
Gombe, Plateau, Yobe, Borno, Taraba and Adamawa states. The southern cotton zone comprises
Kwara, Ogun, Ondo and Oyo States. A greater majority of cotton farmers are the small to
medium holders. The average land holding is two hectares. This constitutes over 80 percent of
the farmers. There exist very few large cotton farms with average holding of about 15.2 hectares.
The crop harvest is seldom mechanized. Only few large-scale farms do that. Cotton is hand
picked usually three times. The first picking begins about ten days after the opening of the first
fruit (bolls). The other two pickings follow each other after an interval of a little over one week.
It is important to sort the cotton straight away during harvesting into white, stained and waste
cotton. The cotton has to be as dry as possible. Hand picked cotton is of high grade and fetches a
better price than machine harvest cotton (RMRDC, 2004).
The production of cotton takes place in three out of the six agro-ecological zones in the
country. Production is concentrated in the northern part of the country especially the Northwest.
Available data show that annually from 1999 to 2004, over 80 percent of the cotton produced
came from the Northwest zone (Table 3.14). During the period production followed a positive
trend in each of the zones (Fig. 3.4). Similarly, the land area cultivated to cotton maintained an
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increasing trend (Fig. 3.5). However, there is no significant increase in yield. Average yield
during the period ranges from 0.88 MT/ha in NC to 1.06 MT/ha in NE.
Table 3.14: Cotton Production in Nigeria, 1999-2004
Zone 1999 2000 2001 2002 2003 2004

NORTHWEST
-Area(‘000Ha) 276.84 256.07 259.00 313.00 307.34 311.15
-Output(‘000MT) 271.78 268.26 272.00 299.00 294.00 308.21
-Share of Total (%) 89.04 83.76 81.94 84.63 80.94 89.15
-Yield (MT/Ha) 0.98 1.04 1.05 0.95 0.96 0.99
NORTHEAST
-Area(‘000Ha) 20.99 41.99 27.77 25.78 40.66 40.81
-Output(‘000MT) 17.41 35.83 38.37 36.3 36.58 37.5
-Share of Total (%) 5.70 11.19 11.56 10.27 10.07 10.85
-Yield (MT/Ha) 0.85 0.853 1.40 1.44 0.9 0.925
NORTHCENTRAL
-Area(‘000Ha) 20.04 19.31 23.718 19.00 34.45
-Output(‘000MT) 16.03 16.2 21.583 18.00 32.66
-Share of Total (%) 5.25 5.04 6.50 5.09 8.99
-Yield (MT/Ha) 0.80 0.84 0.91 0.95 0.94
ALL ZONES
-Area(‘000Ha) 317.90 317.37 310.49 357.80 382.45 352.00
-Output(‘000MT) 305.20 320.30 332.00 353.30 363.20 345.70
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Fig. 3.4: Cotton Production in Nigerian

Agro-Ecological Zones
350
Output ('000 MT)
300
250
NW
200
NE
150
100 NC
50
0
1999 2000 2001 2002 2003 2004
Year
Fig. 3.5: Land Area Cultivated to

Cotton in Nigerian Agro-Ecological
Zones
350
300
250
NW
'000 ha
200
NE
150
NC
100
50
0
1999 2000 2001 2002 2003 2004
Year
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3.2.5 Results of the Cotton Value Chain Analysis

The analysis focuses on key indicators of profitability in the cotton value chain (production,
assembly, processing, trade) as well as the indicators of performance of the value chain with a
view to determining the international competitiveness of the commodity. Cotton production is
largely in the hands of small-scale farmers thus, the production stage of the analysis is limited
only to the family farm (FAM).

The analysis keeps track of the build-up of financial costs at every stage of the value chain and
this reveals the contribution of the various cost items. Whereas variable costs constitute a large
proportion (94 percent) of total financial costs at the production stage, crop purchases are the
major component in each of the other stages. Nonetheless, for comparative purposes, the crop
purchase price is often excluded from the build-up of financial costs. At the production stage,
labour cost is the single largest component (64 percent) of financial costs followed by seeds,
fertilizer and chemicals (30 percent). The other stage where there is concentration of cost on a
particular activity is the logistics stage where 78 percent of the cost is accounted for by
transportation to delivery point. At the assembly stage, the cost is spread among vehicle hire (33
percent), depreciation (33 percent), hired labour (23 percent) and fees and crop levies (11
percent). At the processing stage, the major cost components are overhead and licence, energy
and machine operation, hired labour and depreciation in that order (Table 3.15).
Table 3.15: Structure of Financial Costs in Cotton Enterprises (FAM)

(percent)
COST ITEMS FARM ASSEMBLY PROCESSING LOGISTICS
PRODUCT
Loading & Storage 11
Transport to Delivery Point 78
Vehicle Hire 33
Custom Duties & Tax 2
Plant Repair & Maintenance 2
Overhead & Licence 31 9
Depreciation 6 33 15
TOTAL 100 100 100 100
The results show that operating profit and net profit are positive at every stage of the value chain.
At the production stage, the gross margin is US$28.55 while net profit is US$17.56; whereas at
the assembly stage, the gross margin and net profit are US$76.82 and US$69.57. Profitability is
lowest at the processing stage judging by the level of gross margin (US$7.70) and net profit
(US$5.29). Moreover, the rate of return attained at the processing stage is about one percent
compared to 26 percent at the assembly stage and 7 percent at the production stage. Profit is
highest at the trading stage. Cotton lint trade attracts net profit of US$472.88 with 58 percent rate
of return while net profit for cotton seed trade is US$278.45 with 91 percent rate of return (Table
3.16).
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Table 3.16: Profitability Indicators of Cotton Enterprises (Per MT) (FAM)

Gross revenue 35,000 265.15 45,000 340.91 47,790 362.05
Production costs
Crop purchase - 33,000 250.00 45,000 340.91
Investment costs 1,451 10.99 957 7.25 318 2.41
Total costs 32,682 247.59 35,817 271.34 47,092 356.76
Final income
Gross margin 3,769 28.55 10,140 76.82 1,016 7.70
Net profit 2,318 17.66 9,183 69.57 698 5.29
Rates of return
Gross
Gross margin/total
margin/total VC
VC 0.12 0.29 0.02
Net profit/total costs 0.07 0.26 0.01
Cotton Lint Cotton Seed

NGN USD NGN USD
Gross revenue 170,016 1,288.00 77,352 586.00
Production costs
Crop purchase 90,000 681.82 23,000 174.24
Other variable costs 17,596 133.30 17,596 133.30
Investment costs - - - -
Total costs 107,596 815.12 40,596 307.55
Final income
Gross margin 62,420 472.88 36,756 278.45
Net profit 62,420 472.88 36,756 278.45
Rates of return
Gross margin/total VC 0.58 0.91
Net profit/total costs 0.58 0.91
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The transformation of cotton into cotton lint and cotton seed results in considerable increase in
value along the chain. The transformation of cotton into cotton lint, is associated with an increase
in shipment value from US$219.73 at the cotton production stage to US$815.11 at the stage of
trading in cotton lint representing an increase of about 271 percent. For cotton seed, the shipment
value increases from US$219.73 to US$307.55 or by about 40 percent (Table 3.17). Cotton
production yields a value added (US$219.72) which represents 89 percent of the shipment value.
Value added also represents a high proportion of the shipment value of both cotton lint (88
percent) and cotton seed (81 percent) trade. In respect of cotton lint, 92 percent of the DVA is
accounted for by domestic costs and mark-ups while in the case of cotton seed domestic costs
and mark-ups account for 94 percent of the DVA.
For the purpose of determining the international competitiveness of cotton lint and cotton
seed, the final shipment values are compared with the relevant export parity price. The final SV
for cotton lint (US$815.11) is lower than the export parity price (US$1,196) implying that
Nigerian cotton lint is competitive at the international market. With regard to cotton seed, the
final SV (US$307.55) is also lower than the export parity price (US$494) implying that the
commodity is competitive at the international market. The composition of shipment values
shows considerable variation within each stage but not across the various stages in the value
chain. In general, domestic costs and mark-ups constitute not less 80 percent of the SV in each of
the stages. This is followed by the foreign costs, unofficial expenses and official duties and tax
(Table 3.18).
Analysis of the final shipment value is also carried out on the basis of the incremental
cost incurred (per 1 MT of raw material) at each stage of the value chain. As shown in Table
3.19, the proportion of the shipment value at the trade logistics stage is the highest. It is closely
followed by the farm product stage; whereas the proportions are much lower at the assembly and
processing stages. By these results, it is clear that efforts aimed at reducing cost in the cotton
value chain should be concentrated at the logistics and the production stages. Moreover,
domestic costs and mark-ups are the major items that should be the focus of attention relative to
foreign costs, official duties and tax and unofficial expenses.
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Table 3.17: Cotton Value Chain Indicators in Nigeria (Per MT)

Costs & mark-ups 26,919 203.93 28,996 219.67 39,582 299.86
Additional costs 1,556 11.79 1,665 12.61 1663 12.60
Total DVA 29,004 219.73 31,384 237.76 42,317 320.58
Foreign costs 3,679 27.87 4,432 33.58 4,775 36.17

Cotton Lint Cottonseed
Costs & mark-ups 86,974 658.89 28,322 296.86 -
Official duties & tax 3,255 24.66 2,075 9.53 -
Additional costs 4460 33.79 2620 1.16 -
Total DVA 94,689 717.34 33,017 307.55 - -
Foreign costs 12,906 97.77 7,579
- - -
Total Shipment Value 107,596 815.11 40,596 307.55 - -
Table 3.18: Composition of Cotton Shipment Values in Nigeria (%)

FARM ASSEMBLY PROCESSING TRADING
PRODUCT LOGISTICS
Cotton Cotton
Lint Seed
Domestic costs & 82 81 84 81 70
mark-ups
Official duties and tax 2 2 2 3 5
Additional expenses 5 5 4 4 6
Foreign costs 11 12 10 12 19
Total 100 100 100 100 100
Table 3.19: Build-up of Cotton Final SV By Stage (%)
Farm 39
Assembly 8
Processing 4
Trade 49
Total 100
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3.2.6 Impediments to Growth in the Cotton Industry
(a) Production Constraints

Farmers accord higher priority to food crops than cotton take an economic decision in
most cases to cultivate food crops as against cotton. Arguably, food crops can be used at
home and as well exchanged for other essentials whereas cotton can only be used to
exchange for cash or other items.
Farmers tend to reduce the area cultivated to cotton in reaction to poor prices and market
dynamics.
Since agriculture in Nigeria is mostly rain-fed, timely arrival of rain is critical. Farmers
often take a decision against the cultivation of cotton due to late arrival of rain. The arrival
of rain is as important as its cessation in maximizing yield. If rain continues beyond a
particular time, it may lead to drastic reduction in output.
Inadequate and untimely supply of inputs
Seed contamination also leads to reduction in yield. The seeds approved for the two
major cotton-growing regions - North East and North West, are samcot 8 and samcot 9
respectively. There is the tendency for these seeds to be to be mixed up as they are
transported from one region to the other. This can happen either through buyers of the
seed cotton or oil mills. The mixing could lead to loss of viability and low yields.
Unavailability of funds at critical times also affects production. In this case funds from
household sources are scarce or non-existent. Farmers and operators are thus forced to
take loans at commercial rates to finance the production of cotton. Recently, however,
there exist a window of opportunity through the Nigerian Agricultural, Cooperative and
Rural Development Bank (NACRDB) where loans for cotton cultivation are given at 8%
interest rate.
The impact of government policy towards the agricultural sector in general and cotton in
particular also affects cotton production. Policies such as subsidy on inputs like fertilizers,
provision of tractors at moderate rates for land preparation exist but only a few farmers
have access to the goods and services provided.
(b) Marketing Constraints

Possibility of adulteration of seed cotton. (e.g. sprinkling of water, adding stones to seed
cotton to gain extra weight)
Standard of cotton quality not assured.
Cottonseed multiplication system in disarray.
Different varieties are indiscriminately cultivated.
Use of polypropylene bags by farmers for packing cotton lint.
Difficulty in controlling farmers’ practices and the ginners
Absence of institutional arrangement for commodity grading and quality control
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3.3 Value Chain Analysis of the Maize Industry
3.3.1 Review of Maize Value Chain Studies in Nigeria

Studies in different parts of Nigeria have examined some aspects of commercialization and
competitiveness of maize enterprises and have shown that maize production has been highly
profitable in various agro-ecological zones across the country (NISER, 2001). The studies show
that gross margins for maize enterprises vary widely; ranging from N1,090 in the Northwest
zone to N49,000 in the South-South zone (see Table 3.20). The authors attributed the variations
to differences in production systems and varying prices across the zones. It was also found that
the trend of profitability in the country has been on the increase over the years. For instance,
gross margins of N86.95 and N402 were obtained in 1985 and 1989 respectively for maize
cultivated under the traditional production system, while gross margins of N607.75 and
N1,310.50 were obtained during the same period for maize cultivated under improved system in
Nigeria (Table 3.21). Despite the empirical nature of the studies and their extensive geographical
coverage, major gaps remained when compared to the present study. They have tended to focus
attention on profitability indicators to the utter neglect of value chain indicators. Moreover, the
analysis is more often than not limited to operating profit. Besides, the profitability indicator is
often expressed on per hectare basis making it difficult to have a comparison between the unit
cost of production and the operating profit per unit of output. These weaknesses will be redressed
in this study.
In a more recent study of maize commodity chain in Nigeria, Ahmed et al (2005) examined
the market institutions that regulate its operations with emphasis on access to market
information, credit facilities and transport infrastructure. The study focused on two major
bulking markets in the main maize production areas of Northwest and North-central zones of
Nigeria. The study provides a rough estimate of the commission of buying agent (.55 percent of
producer price) while the assembler’s profitability was put at 6.2 percent and concludes that the
maize markets are fairly competitive. Some of the constraints identified by the study are (i)
inadequate access to formal credit facilities, (ii) inadequate security for goods in transit, (iii) poor
market infrastructure, (iv) unofficial charges by a diverse range of actors and (v) lack of formal
insurance. The study suggests the following interventions to enhance the performance of the
maize commodity chain.
Transport sector improvements are essential across the maize distribution chain. This
requires a concerted effort from central, state and local governments, together with donor
support. Currently poor producers suffer substantial losses from: failure to evacuate
products from producing areas and get them to the most profitable markets at the right
time due to poor roads and unreliable transport; diversion of goods in transit by corrupt
transporters and highway robbers; extortion from state officials during transit. These
losses reduce prices for producers, reduce profits for traders and manufacturers and raise
prices for consumers. Although informal insurance operates among richer traders who
support one another when losses occur, poor producers do not have the same safety net.
NGOs should be encouraged to find ways to empower transporters to resist unofficial
payments, such as through radio phone-in programmes.
Rent-seeking behaviour by state officials is widespread in the maize industry (and not
only within the transport component), and must be reduced if the benefits of increased
maize demand are to be translated into increased income for poor producers. This could be
assisted by more timely payment of salaries in the public sector.
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Table 3.20: Gross Margin in Maize Production in Nigerian Agro-Ecological Zones

Naira/ha
North- North- North- South- South- South-
West East Zone Central West East South
Zone Zone Zone Zone Zone
Labour 15,170 4.58 12,300 15,825 20,600 20,000
Seed 750 7,333 500 2,625 1,000 -
Fertilizer 6,000 10,000 12,000 11,700 4,000 7,200
Herbicide - 5,050 4,000 - 7,800
- - -
Seed dressing - 500
Insecticide 750 - -
Transportation 720 - 1,000 3,000
-
Bags 720 1,650 600
Tractor 5,500 20,000
Water 3,000
application
Total Variable 24,110 20,893.79 31,950 42,650 27,600 55,000
Cost
Total Value of 25,200 62,700 35,720 64,750 75,000 104,000
Output
Gross Margin 1,090 17,880.4 3,770 22,100 47,400 49,000
Source: NISER, 2001
Table 3.21: Gross Margin Analysis per Ha of Selected Enterprises

Naira/ha
Source Year Enterprise Total Total Gross
Variable Value of Margin
Cost Output
CBN/NISER 1985 Maize (Unimproved) 438 525 87
(1992) 1989 “ “ 648 1050 402
“ 1985 Maize (Improved) 517 1125 608
1989 “ “ 939 2250 1310
“ 1985 Swamp rice 1857 3000 1143
1989 (Improved) 4,106 5400 1294
Source: Adapted from NISER, 2001
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Local government control over space/stall allocation in markets often leads to rent-
seeking behaviour among elites and damages the interests of poorer traders, especially
women. A national study, supported by central government, is needed to examine the
potential benefits, difficulties and processes of contracting out revenue collection and
market management to private companies. This would be best conducted by an NGO or
research institution.
Small farmers’ dependence on dillalai (commission agents) for credit (which reduces
their flexibility in marketing) could be reduced by credit schemes specifically targeted at
small producers: these need to provide much more timely credit with far less paperwork
than conventional schemes (which commonly respond far too slowly and without
consideration for credit needs over the farming year). Interest charges which are higher
than conventional bank schemes would be needed to cover the costs of such schemes, but
could still be lower than rates often charged by informal and family credit providers.
Collaboration between private sector banks and NGOs could probably best achieve this.
Better regulation to ensure trader’s correct use of standardized measures is needed in the
maize sector. Market associations and/or independent NGOs would probably be the best
group to undertake such regulation. NGOs could offer market-based education to poor
buyers and sellers who need knowledge and experience of standard measures and how to
identify potentially adulterated produce.
The relevance of the study to the issue of competitiveness is not in terms of analysis of
value addition at specific stages within the chain but in terms of identifying constraints
within the chain and suggesting ways of eliminating them. The study mainly employed
qualitative techniques and did not address in specific details the issue of international
competitiveness of maize. This is the lacuna being filled by the current study.

The demand and supply of maize depend on several factors which are often difficult to predict.
This derives from its use not only for human consumption but also for livestock production. By
and large, maize trade will be affected by the domestic production environment, exchange rates,
as well as population and income growth. Considering world commodity prices for maize from
1997-2002, the percentage change over previous year range from –25.3 to 4.2 in 1997 and 2001
respectively (UNCTAD, 2003). The price increase was as a result of drought and unfavorable
weather conditions in the major producing areas. Price declines are expected as a result of high
levels of stocks and weak demand from industry. Supply of maize is harder to project than
demand because production could change dramatically in response to policy changes, which are
very difficult to predict – maize producer subsidies in the European Union (EU) and the United
States of America (USA) are currently encouraging chronic over production. Surplus grain is
sold at the international market or given away as food aid, depressing international prices and
undermining production incentives in other countries. Thus, if the EU and USA continue to
support maize production, global markets are likely to remain awash in grain, international prices
are likely to remain low and current production patterns are unlikely to change significantly
(CIMMYT, 2004). At the global level, supply of maize will keep pace with demand for the
foreseeable future, since most of the major producing countries and regions have considerable
capacity to expand production quickly in response to favorable changes in price incentives. Most
of the maize produced in the USA, China and Brazil (the three largest maize producing
countries), will be yellow maize destined for domestic and international feed markets. Assuming
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no radical changes in current policies, the USA will remain the world’s dominant maize exporter,
while the EU, East Asia and South East Asia will remain major maize importers. While the
overall global picture is one of increasing trade in maize, there will be exceptions. Some
developing countries including Nigeria will continue to make limited use of international
markets because of the high transportation costs involved in accessing them.
A major shift in global cereal demand is underway. By 2020, demand for maize in
developing countries will surpass the demand for both wheat and rice. Maize requirements in the
developing world alone will increase from 282 million tonnes in 1995 to 504 million tons in
2020 (IFPRI, 2003). The challenge of meeting this unprecedented demand for maize is daunting,
especially for the developing world with its level of subsistence farming. Rising incomes and the
subsequent growth in meat and poultry consumption will result in a rapid increase in the demand
for maize as livestock feed (especially for poultry and pig). In the least developed parts of the
world, unabated population growth and the persistence of poverty will maintain upward pressure
on the demand for food maize. Relative to 1995 level, annual maize demand in sub – Saharan
Africa is expected to double to 52 million tonnes by 2020. Global population growth will
stimulate demand for the crop at an annual rate of approximately 3 percent in this century.
Raising incomes will translate into increased demands for maize, both for livestock feed and
human consumption. At higher income levels, the demand for maize for food may diminish, but
this effect will be more than offset by an increase in demand for maize used as feed and or in
industry.
3.3.3 Nigerian Maize Market Structure

There is still considerable gap in the demand and supply of maize in the country. The gap could
be reduced through expansion of land for maize production, rotation, mixed cropping and
production of the crop under irrigation where possible. Domestic demand for maize continues to
be largely driven by the evolution of traditional markets (e.g. feed and food markets) as well as
by industrial use and the development of alternative uses for maize. Maize demand in the country
can be estimated to increase at an average of 3.2 percent per year. Traditionally considered a
subsistence crop, maize is now transformed into a commercial crop owing to the demands of the
feed and poultry industries. Maize producers have become more market oriented and open to the
adoption of improved technologies. In the next two decades, the composition of demand for
maize will likely change, with feed use of maize increasing more rapidly than food use. As a
result of projected faster growth in feed use, the market for yellow maize will expand relative to
that for white maize. A lot of the maize produced in the guinea savanna zone of the country is
transported to different parts of the country, north, west and east.
Despite the determination of the government to double the output of maize and promote
export, it has not been possible to export maize in Nigeria and the country continue to rely on
importation in an attempt to satisfy industrial demand. Due to foreign exchange limitations and
competing import demand, however, maize import has declined considerably since 2002 (see
Fig. 3.6). This has further reduced the supply of the commodity in the country.
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Fig. 3.6: Trend in Maize Import in Nigeria,

2002-2005
350
300
million naira
250
200
150
100
50
0
2002 2003 2004 2005
Year
3.3.4 Characterization of the Maize Value Chain
Maize Production and Cropping System

The cultivation of maize in Nigeria is performed in two major ways depending on the
environment and customs of the people concerned. Sole cropping is seldom practiced; the great
majority of the maize crop is grown as mixed crop with yam, cassava, guinea corn, rice, cowpea,
groundnut, soybeans etc. Maize is typically intercropped with other food crops, with the
predominant combinations varying by production zones. When grown in mixtures the maize is
usually in low density mixed with one or more associated crops including cassava, sorghum,
pumpkin, cowpea, groundnut, yam, sweet potato, rice, vegetables etc. Mixed cropping lowers
maize yields, but it helps farmers increase the overall productivity of the resources invested in
agriculture and reduces losses if any of the crops fails. However, some farmers grow a super
imposed mixture of the maize with legumes particularly groundnut, soybean and cowpea. In the
case of groundnut and soybean, the crops are intercropped at the onset of the season while
cowpea is usually planted three to four weeks after the maize relay. The population of the
legume is usually lower and optimum population of the maize is maintained which results in
higher yields. A common mixture is also that of maize with either millet or sorghum or all the
three in few instances. All combinations with maize were found to yield better than the standard
millet/sorghum mixture suggesting that inclusion of maize increase the total grain yield of the
crops. Despite the fact that maize in the savanna regions is usually grown in mixed stands,
monocropped maize is becoming prevalent for all categories of farmers (small, medium and
large scale farmers).
As shown in Table 3.22, maize is produced in all the agro-ecological zones in the
country. The trend of maize production does not show any significant improvement between
1999 and 2004. Clearly, it shows that the NC is the leading producer of maize in Nigeria. The
contribution of this zone to total maize production averaged 34.13% during the period while the
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Table 3.22: Maize Production in Nigeria, 1999-2004
1999 2000 2001 2002 2003 2004

NORTHWEST (NW)
-Area(‘000Ha) 752.56 642.116 738.94 727.72 616.93 647.92
-Output(‘000MT) 1128.79 908.04 870.74 880.77 896.63 1001.22
-Share of Total (%) 22.55 20.50 20.07 20.01 20.10 20.67
-Yield (MT/Ha) 1.5 1.41 1.17 1.21 1.45 1.55
NORTHEAST (NE)
-Area(‘000Ha) 604.66 515.62 520.72 522.82 532.763 747.14
-Output(‘000MT) 727.15 593.21 587.52 593.13 603.34 828.51
-Share of Total (%) 14.53 13.39 13.54 13.47 13.52 17.12
-Yield (MT/Ha) 1.20 1.15 1.13 1.14 1.133 1.11
NORTHCENTRAL
-Area(‘000Ha) 958.61 867.93 835.29 816.62 835.2 798.18
-Output(‘000MT) 1556.06 1401.89 1270.05 1258.26 1287.01 1211.00
-Share of Total (%) 31.08 31.65 29.00 28.58 28.85 55.01
-Yield (MT/Ha) 1.62 1.62 1.52 1.54 1.541 1.51
SOUTHWEST (SW)
-Area(‘000Ha) 502.7 461.45 483.43 506.65 398.42 559.22
-Output(‘000MT) 781.6 734.47 816.74 866.99 877.63 948.06
-Share of Total (%) 15.61 16.58 18.83 19.69 19.67 19.58
-Yield (MT/Ha) 1.55 1.59 1.69 1.71 2.20 1.70
SOUTHEAST (SE)
-Area(‘000Ha) 180.54 184.81 189.91 191.33 194.69 203.52
-Output(‘000MT) 363.29 358.77 368.52 371.77 369.62 390.59
-Share of Total (%) 7.26 8.10 8.49 8.44 8.29 8.07
-Yield (MT/Ha) 2.01 1.95 1.74 1.942 1.90 1.92
SOUTH-SOUTH (SS)
-Area(‘000Ha) 279.52 267.20 128.38 265.50 266.58 276.21
-Output(‘000MT) 449.10 432.41 425.02 431.33 426.84 463.47
-Share of Total (%) 8.97 9.76 9.80 9.70 9.57 9.57
-Yield (MT/Ha) 1.61 1.62 1.59 1.63 1.60 1.68
ALL ZONES
-Area(‘000Ha) 3278.60 2939.10 2896.70 3030.60 2844.60 3232.20
-Output(‘000MT) 5006.00 4428.80 4338.60 4402.30 4461.10 4842.80
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share of SE (8.11%) seems to be the least. The only zone where production followed an upward
trend is Southwest (Fig. 3.7). Land area under maize cultivation trended upwards in SW and NE,
virtually stagnated in SE and SS but followed a declining trend in NW and NC (Fig. 3.8). There
is also no significant improvement in yield. On the average, the yield of maize ranges from
1.14mt/ha in NE to 1.9mt/ha in SE.
Maize Processing
Nigeria’s maize processing enterprises are generally engaged in primary processing and are
limited by the backward technology and small-scale nature of the enterprise. The future of maize
production lies not only on output increase but also on the development of processing industries.
When maize is harvested which in most parts of Nigeria is done manually, the cobs are dehusked
on the farm or are transported home and left to dry before shelling. Maize grains can be
processed into different products for a variety of uses at both the traditional and industrial levels.
Two methods are utilized to process maize industrially - wet and dry milling. The objective of
the wet milling of maize is to obtain starch, oil and other components, which are useful in other
areas such as livestock feeds. The dry milling process involves physical breaking of maize grains
into various fractions and the size of the product determines its use. The main objectives of dry
milling are: (i) To obtain maximum yield of grits with the least contamination with fat and black
specks of the tip cap, to recover as much as possible the endosperm as meal, (ii) To produce the
maximum amount of flour and (iii) To obtain the maximum amount of oil. Products from dry
milling are maize meal, flour and maize grits. Other by - products are fractions, characterized by
various dimensions and sizes which affect composition and utilization.
Maize Marketing
The established marketing channel for the commodity is mainly through direct sale in open
market by the farmers. The middleman buys and hoards the grains to sell at higher prices at off-
season. Storage is an important and crucial marketing function that allows the farmers the
opportunity to delay the sales of their produce, especially when there is glut, to a later time to
enable them sale at higher prices. Some important modern storage facilities include cribs and
silos. However, most of the farmers have their own storage facilities such as rumbu, drums, jute
bags and sometimes rooms specially prepared for storing farm produce. It is usual that most
farmers report problems of rodents, pests and diseases in these storage facilities. Thus, farmers
often hurriedly dispose their produce after harvest owing to the non-availability of adequate
storage facilities.
3.3.5 Results of the Maize Value Chain Analysis

The relevant stages in the value chain analysis for maize are production, assembly and trade.
Data on individual products resulting from maize processing is difficult to come by within the
period earmarked for collecting data for this study. In any case, the competitiveness of maize can
still be examined since the commodity is traded internationally (directly) in the form of grains. It
is treated in this study as an import substitute. The analysis focuses on key financial and
profitability indicators in the maize value chain as well as the indicators of performance of the
value chain with a view to determining the international competitiveness of the commodity. The
analysis is conducted at three levels of operation – family farm (FAM), emerging commercial
farm (ECF) and large commercial farm (LCF).
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90
Fig. 3.7: Production of Maize By

Agro-Ecological Zones in Nigeria
1800
1600
1400 NW
Output ('000 MT)
1200 NE
1000 NC
800 SW
600 SE
400 SS
200
0
99
00
01
02
03
04
19
20
20
20
20
20
Year
Fig. 3.8: Land Area Cultivated to

Maize in Nigerian Agro-Ecological
Zones
1200
1000
NW
800 NE
'000 Ha
NC
600
SW
400 SE
SS
200
0
99
00
01
02
03
04
19
20
20
20
20
20
Year
90
91

The build-up of financial costs at every stage of the value chain reveals the importance of the
various cost items. The cost structure varies widely among the three categories of farms (Table
3.23). With regard to the maize FAM, labour cost is the single largest component (59 percent) of
financial costs at the production stage, and this is followed by seeds, fertilizer and chemicals (18
percent). At the assembly stage, the cost is more evenly spread among four items; fees and crop
levies (30 percent), vehicle hire (26 percent), hired labour (23 percent) and packing materials and
consumables (21 percent). At the logistics stage, transport to delivery point is the dominant cost
item (74 percent of total cost) followed by loading and storage (23 percent) and overhead, fees
and licence (3 percent). With regard to profitability indicators of the maize FAM, the results
show that operating profit and net profit are positive at the production stage whereas the reverse
is the case at the assembly stage. At the production stage, the gross margin is US$227.45 while
net profit is $220.73. The rates of return at this stage range from 147 percent to 158 percent.
(Table 3.24).
The cost structure of the maize ECF provides an insight into the extent of capitalization
of maize production. Evidently, labour cost represents only 6 percent of the total production cost
whereas depreciation accounts for 44 percent of the cost. Moreover, the cost incurred on seeds,
fertilizer and chemicals is four times as high as the labour cost. With this pattern of investment,
only operating profit is positive. The gross margin per tonne is US$48.5. The negative net profit
portrays the difficulty in ensuring increased viability on the basis of the current level of
investment and commercialization. At the assembly stage both the gross margin and net profit
tend to be negative (Table 3.24). Also in the case of the LCF, depreciation accounts for the
highest proportion (46 percent) of total production cost. The relatively high proportion of
depreciation in the case of both ECF and LCF is accounted for by the availability of capital
equipment such as ploughs and harrows which are very expensive cost items owned and used by
the farmers and whose costs have to be incorporated into the computation of depreciation. This is
followed by seeds, fertilizer and chemicals which account for 38 percent of the total cost and
hired labour (16 percent). The results show that only operating profit is positive at the production
stage. The gross margin per tonne is US$111.70. The negative net profit is an indication that the
long term viability of large commercial maize farms may be difficult. At the assembly stage both
operating and net profits tend to be negative.
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Table 3.23: Structure of Financial Costs in Maize Enterprises in Nigeria

percent
COST ITEMS FARM ASSEMBLY LOGISTICS
PRODUCT
FAM
Hired Labour 59 23
Marketing 12
Vehicle Hire 26
Packing & Consumables 21
Overhead, Licence & Fees 3
Depreciation 6
TOTAL 100 100 100
ECF
Hired Labour 6 25
Marketing 3
Vehicle O & M 26
Packaging & Consumables 22
Overhead, Licence & Fees 14 5
Depreciation 44
TOTAL 100 100 100
LCF
Hired Labour 16 26
Spraying, & Machine Operation
Vehicle O & M 26
Overhead, Licence & Fees 7
Depreciation 46
TOTAL 100 100 100
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Table 3.24: Financial and Profitability Indicators of Maize Enterprises in Nigeria (Per MT)
FAM MAIZE
FARM GATE ASSEMBLED TRADED

PRODUCT RAW MATERIAL PRODUCT
Gross revenue 49,000 371.21 53,000 401.52 55,000 416.67 -
Production costs
Crop purchase - 49,000 371.21 53,000 401.52
Investment costs 888 6.73 - - - -
Total costs 19,864 150.48 54,510 412.95 54,758 - 414.83 -
Final income
Gross margin 30,024 227.45 (1,510) (11.44) 243 1.84
Net profit 29,136 220.73 (1,510) (11.44) 243 1.84
Rates of return
ECF MAIZE
PRODUCT RAW MATERIAL COMMODITY
Gross revenue 31,666 239.89 53,000 401.52 55,000 416.67
Production costs
Crop purchase - 49,000 53,000 53,000 401.52
Other variable costs 25,264 191.39 6,060 2,180 2,180 16.52
Investment costs 19,177 145.28 - - - -
Total costs 44,441 336.67 55,060 55,180 55,180 418.03
Final income
Gross margin 6,402 48.50 (2,060) (15.6) (180) (1.36)
Net profit (12,775) (96.78) (2060) (15.6) (180) (1.36)
Rates of return
Net profit/total costs (0.29) -0.04 0.00
LCF MAIZE
PRODUCT RAW MATERIAL PRODUCT
Gross revenue 49,000 371.21 53,000 401.52 55,000 416.67
Production costs
Crop purchase - 49,000 371.21 53,000 401.52
Investment costs 29,219 221.36 - - -
Total costs 63,474 480.86 55,590 421.14 55,800 422.73
Final income
Gross margin 14,745 111.70 (2,590) (19.62) (800) (6.06)
Net profit (14,474) (109.65) (2,590) (19.62) 800 (6.06)
Rates of return ((8888
Gross margin/total VC 0.43 -0.05 -0.01
Net profit/total costs (0.23) -0.05 -0.01
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(b) Maize Value Chain Indicators

The value chain indicators for the final traded commodity reveal that substantial increase in
shipment value occurs between the production stage and final delivery of the commodity (Table
3.25). For the maize FAM, the SV increased from US$150.48 to US$414.83 representing an
increase of about 176 percent. Maize production is associated with a value added (US$142.26)
which represents 95 percent of the shipment value. About 96 percent of the DVA is accounted
for by domestic costs and mark-ups. For the purpose of determining the international
competitiveness of maize the final shipment value is compared with the import parity price. The
result shows that the final SV (US$414.83) is higher than the import parity price (US$131.10)
implying that Nigerian maize is not competitive in the international market.
In the case of the ECF the SV increased from US$336.68 to US$418.03 representing an
increase of about 24 percent. ECF maize production yields a value added (US$274.03) which
represents 81 percent of the shipment value. About 88 percent of the DVA is accounted for by
domestic costs and mark-ups. For the purpose of determining the international competitiveness
of maize the final shipment value is compared with the import parity price. The result shows that
the final SV (US$418.03) is higher than the import parity price (US$131.10) implying that
Nigerian maize is not competitive in the international market. As regards LCF maize production
is associated with a value added (US$434.94) which represents 90 percent of the shipment value.
The DVA is made up entirely of domestic costs and mark-ups. For the purpose of determining
the international competitiveness of maize the final shipment value is compared with the import
parity price. The result shows that the final SV (US$422.73) is higher than the import parity
price (US$131.10) implying that Nigerian maize is not competitive in the international market.
3.3.5 Comparative Analysis of Maize Profitability and Value Chain Indicators
Maize Profitability and Value Chain Indicators

A comparative analysis of profitability based on the level of commercialization of the enterprises
reveals considerable variation in both operating and net profit as well as the rates of return in
respect of maize production. The gross margin per tonne is highest for the FAM (US$227.45)
followed by LCF (US$111.70) while the ECF has the lowest (US$48.50). Net profit is also
highest for FAM (US$220.73) while for both ECF and LCF net profit is negative. Moreover,
FAM has higher rates of return than ECF and LCF (Table 3.26). The value chain indicators also
vary considerably. The DVA for maize production is highest for LCF (US$434.94) followed by
ECF (US$274.03) while that of FAM (US$142.26) is the lowest. The SV follows the same
pattern. It is highest for LCF (US $480.86) followed by ECF (US$336.68) and FAM
(US$150.48). The DVA as a proportion of SV is highest for FAM (95 percent) followed by LCF
(90 percent) and ECF (82 percent). However, the domestic cost as a proportion of DVA is
highest in the case of LCF (100 percent) followed by FAM (96 percent) and ECF (88 percent).
This implies that additional costs incurred by ECF apart from the domestic costs constitute a
higher proportion of SV than it is the case for FAM and LCF. The analysis shows however, that
irrespective of the level of commercialization of maize production in Nigeria, the commodity
remains uncompetitive in the international market.
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Table 3.25: Value Chain Indicators for Maize Enterprises in Nigeria (Per MT)
FAM MAIZE
FARM GATE ASSEMBLED TRADED PRODUCT

PRODUCT RAW MATERIAL YELLOW MAIZE
Costs & mark-ups 18,116 137.24 52,747 399.60 52,980 401.36
Official duties & tax 162 1.23 2 169 1.28 160 1.21
-
Total DVA 18,778 142.26 53,423 404.72 53,671 406.60
Foreign costs 1,086 8.23 1,087 8.23 1,087 8.23
ECF MAIZE

Costs & mark-ups 31,830 241.14 42,448 321.58 42,452 321.61
Total DVA 36,172 274.03 46,790 354.47 46,910 355.38
Foreign costs 8,270 62.65 8,270 62.65 8,270 62.65
LCF MAIZE

Costs & mark-ups 57,412 434.94 49,528 375.21 49,538 375.29
Official duties & tax - - - - -
Additional costs - - - - 200 1.52
Total DVA 57,412 434.94 49,528 375.21 49,738 376.80
Foreign costs 6,062 45.92 6,062 45.92 6,062 45.92
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Table 3.26
Maize Profitability and Value Chain Indicators in Nigeria By Level of
Commercialization of Farms in Nigeria, 2005
FARM GATE ASSEMBLED TRADED COMMODITY

PRODUCT RAW MATERIAL
YELLOW MAIZE
PROFITABILITY
INDICATORS
FAM
GM (US$) 227 -11 2
NET PROFIT (US$) 220 -11 2
GM/TVC (%) 158 -3 0.4
NET PROFIT/TC (%) 147 -3 0.4
ECF
GM (US$) 48 -15 -1
NET PROFIT(US$) -96 -15 -1
GM/TVC (%) 25 -4 0
NET PROFIT/TC (%) -29 -4 0
LCF
GM (US$) 111 -19 -6
NET PROFIT (US$) -109 -19 -6
GM/TVC (%) 43 -5 -1
NET PROFIT/TC (%) -23 -5 -1
VALUE CHAIN
INDICATORS
FAM
DVA (US$) 142 404 406
SV (US$) 150 413 415
DVA/SV (%) 95 98 96
DC/DVA (%) 96 99 99
ECF
DVA (US$) 274 354 355
SV (US$) 336 417 418
DVA/SV (%) 81 85 85
DC/DVA (%) 88 91 91
LCF
DVA (US$) 435 375 377
SV (US$) 481 421 423
DVA/SV (%) 90 89 88
DC/DVA (%) 100 100 99
96
97
Comparison of Maize Shipment Values

There is considerable variation in the structure of shipment values in the maize value chain not
only from one stage to another but also among the three categories of farms. As shown in Table
3.27, the type and proportion of the key components of shipment values vary across the farms
and the various stages in the value chain. In general, domestic costs and mark-ups constitute not
less than 71 percent of the SV in each of the stages and for each category of farms. The domestic
costs and mark-ups are highest in each category followed by the foreign costs, unofficial
expenses and official duties and tax. In the case of FAM, the SV at the farm product stage
consists of domestic costs and mark-ups, official duties and tax, unofficial expenses and foreign
costs although the proportion of duties and tax is negligible. Unofficial expenses as well as duties
and tax are also negligible at the assembly and logistics stages. With regard to ECF, the SV
consists of the four major elements and the proportion of domestic costs and mark-ups ranges
between 71 and 77 percent. This is the lowest among the three categories of farms. As shown in
Figure 3.9, however, ECF has the highest proportion of the remaining components of SV (i.e.
official duties and tax, unofficial expenses and foreign costs). As regards LCF, the SV consists of
only domestic costs and mark-ups and foreign costs; with the former having a dominant share.
Table 3.27: Comparison of Composition of Maize Shipment Values in Nigeria (%)

FAM ECF LCF
FARM
-Official duties and tax 1 2 -
-Additional expenses 3 8 -
-Total 100 100 100
ASSEMBLY
-Total 100 100 100
LOGISTICS
-Total 100 100 100
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Figure 3.9: Composition of Shipment Value for Maize Enterprises in Nigeria

FAM MAIZE
Composition of SV
400
350
300
250
200
150
100
50
-
MAIZE
ECF MAIZE
Composition of SV
400
350
300
250
200
150
100
50
-
MAIZE
LCF MAIZE
Composition of SV
400
350
300
250
200
150
100
50
-
MAIZE
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99
This finding implies that measures aimed at reducing cost at the farm product level in order to
improve the competitiveness of the commodity should be targeted at domestic costs and mark-
ups in general but in the case of ECF and LCF there is need also to address the foreign costs.
Comparison of Maize Production and Market Indicators

The performance of the three categories of farms are compared using some important indicators
such as yield, unit cost of production, gross margin per hectare and net returns per hectare. The
results are presented in Table 3.28. In general maize yield is very low, but it is lowest in the case
of FAM. The ECF obtained the highest yield followed by the LCF. However, the farm gate price
is lower for the ECF than it is the case for FAM and LCF. The unit cost of production is highest
for LCF ($480.86/mt) followed by ECF ($336.68/mt) and FAM ($150.49/mt). As expected, the
variable cost of production per hectare also has the same pattern. With the low cost profile of the
FAM it has the highest gross margin ($332.05/ha), followed by LCF ($155.21/ha) and ECF
($72.26/ha). The maize FAM also has the highest net returns whereas the other categories of
farms have negative net returns. The net return is apt to improve if there is a reduction in the cost
of capital and increased access to markets that offer more remunerative prices.
Table 3.28: Comparison of Selected Maize Production Indicators, 2005

FAM ECF LCF
1 Yield MT/Ha 1.30 1.49 1.39
2 Unit Cost of 150 336 481
Production $/MT
3 Farm 371 239 371
Gate Price $/MT
5 Gross Margin $/Ha 332 72 155
6 Net Return $/Ha 323 -144 -152
3.3.6 Impediments to Growth in the Maize Industry

The lack of pre-planting contracts expose farmers to unfavourable market dynamics. For
instance, in August 2005 maize was sold at N80,000 ($606.06) per tonne but in August 2006 the
price dropped to N28,000 ($212.12) per tonne due to the outbreak of bird flu in some states and
the resultant fall in the demand for maize in the feed industry.
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3.4 Value Chain Analysis of the Rice Industry
3.4.1 Review of Rice Value Chain Studies in Nigeria

Studies on the competitiveness of rice production based on the methodology designed for the
current study are non-existent in Nigeria. Available studies have tended to limit analysis to
profitability indicators. In this category, the studies by NISER (2001), found that rice production
has been profitable in various parts of the country judging by the level of gross margins per
hectare. Gross margins range between N17,880.4 in the Northeast zone and N71,560 in the
North-central zone (see Table 3.29). The authors attributed the variations to differences in rice
production systems.
Table 3.29: Gross Margin in Rice Production in Nigeria

Naira/ha
North- North-East North-Central South-East
West Zone Zone Zone
Zone
Labour 24,020 8,313.48 12,390 41,800
Seed 5,850 129 1000 1,000
Fertilizer 12,600 3,510 10,000 2,000

-
Herbicide - 7,500
Seed dressing - 1,000 -
Tractor 3,600
3,000
Transportation 700 1,000
Bags 840 1,200 910 -
Total Variable 46,910 13,852.48 33,800 47,800

Cost
Total Value of 73,500 31,732.88 105,360 75,000
Output
Gross Margin 26,590 17,880.4 71,560 27,200
Source: NISER, 2001
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Of the available studies focusing on production and trade in the rice sub-sector, the most
relevant to the current work is the one by Ezedinma (2005) which, inter alia, sought to assess the
competitiveness of domestic rice relative to imported rice. Data for the study were collected
between 2001 and 2003 from 21 states namely; Abia, Akwa Ibom, Anambra, Adamawa, Benue,
Cross River, Ebonyi, Enugu, Imo, Jigawa, Kaduna, Kano, Katsina, Kogi, Kwara, Niger, Ogun,
Ondo Osun, Taraba and Zamfara. The component of the study which deals with the issue of
competitiveness involves a comparison between the domestic prices of paddy and milled rice in
Nigeria with the international prices of the worst grade of rice – white broken rice, Thai A1
super, f. o. b. Bangkok from 1993 to 2002. The author sought to know whether the price of
Nigeria’s domestic rice would be competitive in the local market if it were to be processed to the
quality and standards of imported rice (i.e. polished, destoned and dirt free with uniform grain
characteristics). It was observed through field observations and interviews that on the average an
extra cost of 25 percent was needed to process domestic rice to the quality and standards of
imported rice. The comparison of prices for different locations of rice mills as at 2002 is shown
in Table 3.30.
Table 3.30: Comparison of Domestic and Import Price of Rice in Nigeria

Location of Miller’s Additional Marketing Estimated Price of Percentage
Mills Price Processing margin Urban Imported Difference
(N/25kg) Cost (25%) (N/25kg) Market Rice
(N/25kg) Price (N/25kg)
(N/25kg)
Abakaliki 900 225 613 1738 1575 10
Adani 1018 254 431 1704 1575 8
Omor 1068 267 531 1867 1575 18
Bende 1137 284 461 1883 1575 19
Source: Ezendinma, 2005.
The results indicate that further processing of domestic rice to meet the quality and standards of
imported rice will mean that rice from the Abakaliki mills will be 10.3 percent more expensive
than the imported rice while rice from the Adani mills will be more expensive by 8.23 percent.
Similarly, rice from the Omor mills will be more expensive by 18.53 percent and Bende by 19.50
percent. Thus, although improving the standards of local rice was feasible and desirable it was
not competitive. The author concludes that Nigerian domestic rice is expensive to produce and
expensive to process and so cannot compete in the international market.

Rice is a major food crop in the world. It is being consumed by more than half of the world
population. Available data indicate that world output has witnessed some decline for the recent
past. Production of milled rice in the world totaled 409.2 million tonnes in 1999 but declined to
384.4 million tonnes in 2002 (USDA, 2002). The top five producers then were China, India,
Indonesia, Bangladesh and Vietnam. The international rice market accounts for only about 5-6
percent of global output despite the expansion of trade. Unlike other bulk commodities, the rice
market is segmented into a number of different varieties and qualities, each with strong
consumer loyalty. The major rice exporters are Thailand, Vietnam, China, USA, India and
Pakistan. A significant disincentive in the market has been the downward trend of prices over the
101
102
years. According to Vorley (2005) real world rice prices averaged $860 per tonne from 1950 to
1964, dropping to under $300 by the late 1990s and hovering slightly under $200 in the early
2000s; though higher quality (basmati) rice from Pakistan still attracts up to $370 per tonne.
Since June 2001, India has been the lowest-priced source of rice, and more recently, of higher
quality regular milled white rice. With intense competition among producers and exporters with
suppressed demand and low prices, farmers face much difficulty in making a living out of rice
farming.
3.4.3 Nigerian Market Structure

The rice market situation in Nigeria is complex. The country is a major consumer and importer
with low level of domestic production. Nigeria is the largest rice producer in the West African
sub-region and has in recent times assumed the status of the largest importer of rice in the world.
By 1999 production of paddy rice stood at about 3.2 million tonnes but declined to about 2.38
million tonnes in 2004. The demand for rice in Nigeria has been soaring over the years. The
increasing demand has been triggered by a combination of factors. The high rate of urbanization,
rising population growth, as well as changes in family income an occupational structures have
affected the demand for rice. As women enter the work force, the opportunity cost of their time
increases and convenience foods such as rice, which can be prepared quickly, rise in importance.
Similarly, as men work at greater distances from their homes in the urban setting, more meals are
consumed away from home and rice is often the preferred meal. These trends have meant that
rice is no longer a luxury food but has become a major source of calories for all strata of the
urban population. However, evidence suggests that domestic production capacity is far below the
national requirements for rice (Wudiri and Fatoba, 1992; and Ladebo, 1999). The annual demand
for rice in the country is estimated at 5 million tones of milled rice, while production level is 3
million tonnes resulting in a deficit of 2 million tonnes.
Over the years the country had resorted to imports to bridge this deficit. For instance in
1999, the value of rice imports was US$259 million and this increased to US$655 million in
2001 and US$756 in 2002. Between 1990 and 2002, Nigeria imported 5,132,616 tons of rice
valued at US$1,883,553 million (Ezedinma, 2005). Recent data on rice import show that both
paddy and non-paddy rice are being imported into the country. Import of paddy rice rose sharply
between 2002 and 2003, from 242,000 to 1,583,689 but declined precipitously thereafter
reaching an all time low of 128,442 in 2005 (see Fig. 3.10). Import of non-paddy rice
consisting of husked (brown) rice, broken rice and milled rice increased steadily from about
28.3 billion in 2002 to 30.3 billion in 2004. Although it declined somewhat in 2005 (Fig.
3.11), the level of import was higher than it was in 2002 despite the determination of the
government to increase domestic production and reduce import under the Presidential Initiative
on Agriculture introduced in 2002.
3.4.4 Characterization of the Rice Value Chain
Production and Cropping Systems

The rice production systems in Nigeria include rainfed upland, rainfed lowland, irrigated lowland
and deep water and mangrove rice (Singh et al., 1997). Rice farmers tend to be small-scale, with
farms of 1-2 ha. Rainfed Upland Rice Production Systems account for 30 percent of the total
area under rice. Under this system, rice is directly seeded in non-flooded, well drained soil on
level to steeply sloping fields. Rainfall is the only source of water – generally limiting this
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103
Fig. 3.10: Import of Paddy Rice in

Nigeria, 2002-2005
1800000
1600000
1400000
1200000
Naira
1000000
800000
600000
400000
200000
0
2002 2003 2004 2005
Year
Fig. 3.11: Import of Non-Paddy Rice in Nigeria,

2002-2005
30.5
30
29.5
billion naira
29
28.5
28
27.5
27
2002 2003 Year 2004 2005
103
104
system to areas with more than 1,300 mm of annual rainfall. Because of better rainfall, yields are
slightly higher in the south than in the north. The average yield of the rainfed upland rice is 1.7
tons/ha. Upland rice is typically intercropped with various other crops, including vegetables,
maize, yam or cassava. The land is cleared between December and March. With the onset of the
rains in early April, the land is prepared and the seeds broadcast and harrowed in with a hoe.
Ofada is the traditional variety cultivated. Hand-weeding is the usual practice and harvesting is
manual. Rainfed lowland rice is the most important system and accounts for approximately half
of total rice area in Nigeria. Increasing use of rainfed lowlands appears to have been a major
source of the rapid increase in paddy production in recent years (FAO, 2001). Rice under this
system is transplanted or seeded directly in the soil on level to slightly sloping fields with
variable depth and duration of flooding depending on rainfall. This system is found mainly along
the flooded river valleys such as the Niger Basin, Kaduna Basin, Benue Basin, etc. of the
Northern states. But such system is also common in Abakaliki and Ogoja areas of Ebonyi and
Cross River states respectively. In most of these areas, the river banks or Fadamas are usually
flooded during the rainy season which lasts for 4-5 months. Only one crop is planted in a year
under sole cropping practice. The average yield is about 2.2 tons/ha. Fertilizer and improved
seeds are now being introduced in the production system. Irrigated rice systems account for 16%
of total rice area in Nigeria. Irrigated rice encompasses lowlands with good water control,
enabling two crops per year. The yield obtained (3.5 tons/ha) is generally higher than in other
systems. Irrigated rice systems include both large-scale irrigation schemes in the north and small-
scale developed inland valley bottoms in the south. Rice is the main irrigated crop in Nigeria –
particularly in the main season (Fagade, 1997; Shaib et al., 1997).
Deepwater rice system can generally be defined as those where flooding achieves a depth
of 60-100 cm, and floating rice system as those where flooding exceeds 100 cm. Deepwater and
floating rice represents an increasingly marginalized production system for which area and
production figures are generally limited. This production system can be found in the Sokoto-
Rima valleys and in some other flooded plains or fadamas where water depth is very high. The
mangrove swamp rice production system is found where the ocean’s tidal action causes
inundation at high tide and drainage at low tide. Most mangrove swamps experience a salt- free
growing period during the rainy season when freshwater floods wash the land and displace tidal
flows. As a result, the rice growing period is directly related to distance from the ocean, varying
between less than four months in the nearest estuaries to more than six months in those more
distant. Soils are generally more fertile than in other ecologies since they benefit from regular
deposits of silt during annual flooding. However, the soils are also characterized by high salinity
and sulfate acidity. Specific areas where this production system can be found include the Niger
Delta – particularly in the deep flooded areas of Ilushi, Lagos and Calabar. While this system
holds a great potential for rice cultivation in Nigeria, high labour costs associated with clearing
and potential negative environmental impacts arising from oil exploration activities pose major
constraints to further area expansion.
Rice is produced in all the agro-ecological zones. As shown in Table 3.31, the NC is the leading
producer of rice in Nigeria. Its contribution to total production averaged 41.57 per cent between
1999 and 2004 whereas the lowest contribution (3.9 per cent) is recorded in the South-South
zone. Nonetheless, rice production followed a declining trend in NC just as it is the case in each
of the other agro-ecological zones (Fig. 3.12). Moreover, there is no expansion in land area
cultivated to rice; rather, each of the zones records a downward trend during the period (Fig.
3.13).
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Table 3.31: Rice Production in Nigeria, 1999-2004
1999 2000 2001 2002 2003 2004

NORTHWEST
-Area(‘000Ha) 284.47 264.474 227.76 225 232.67 239.05
-Output(‘000MT) 424.9 381.54 327.61 313.01 334.75 341.36
-Share of Total (%) 13.34 13.24 2.46 13.73 14.27 14.32
-Yield (MT/Ha) 1.47 1.45 1.44 1.39 1.43 1.42
NORTHEAST
-Area(‘000Ha) 451.64 409.126 371.83 373.01 386.516 393.72
-Output(‘000MT) 756.18 695.64 600.98 684.62 638.02 647.83
-Share of Total (%) 23.74 24.14 86.69 30.03 27.23 27.18
-Yield (MT/Ha) 1.67 1.69 1.62 1.83 1.65 1.64
NORTHCENTRAL
-Area(‘000Ha) 592.89 575.24 469.406 390.8 427.69 443.05
-Output(‘000MT) 1356.12 1273.79 1020.04 861.80 946.85 987.14
-Share of Total (%) 42.57 44.20 7.67 37.81 40.44 41.42
-Yield (MT/Ha) 2.29 2.21 2.17 2.20 2.22 2.23
SOUTHWEST
-Area(‘000Ha) 103.6 97.919 84.489 82.6 80.53 82.184
-Output(‘000MT) 177.9 153.08 123.12 120.67 113.44 113.77
-Share of Total (%) 5.58 5.31 0.93 5.29 4.84 4.77
-Yield (MT/Ha) 1.72 1.57 1.47 1.46 1.41 1.37
SOUTHEAST
-Area(‘000Ha) 117.7 99.392 76.417 76.329 78.35 79.995
-Output(‘000MT) 353.19 273.99 194.71 195.6 204.19 220.59
-Share of Total (%) 11.09 9.51 1.46 8.58 8.71 9.26
-Yield (MT/Ha) 3.01 2.75 2.55 2.56 2.61 2.78
SOUTH-SOUTH
-Area(‘000Ha) 56.99 49.32 46.75 46.65 45.667 33.79
-Output(‘000MT) 117.08 103.53 103.96 103.81 105.84 72.52
-Share of Total (%) 3.68 3.59 0.78 4.55 4.52 3.04
-Yield (MT/Ha) 2.08 2.10 2.23 2.23 2.33 2.18
ALL ZONES
-Area(‘000Ha) 1607.30 1495.50 1276.70 1194.40 1251.40 1271.80
-Output(‘000MT) 3185.40 2881.60 2370.40 2279.50 2343.10 2383.20
Source: Underlying data from the Project Coordinating Unit of the Federal Ministry of
Agriculture and Rural Development, Abuja
105
106
Fig. 3.12: Rice Production in Nigerian Agro-Ecological

Zones
1600
1400 NW
Output ('000 MT)
1200
NE
1000
NC
800
SW
600
SE
400
200 SS
0
99
00
01
02
03
04
19
20
20
20
20
20
Year
Fig. 3.13: Land Area Cultivated to Rice in Nigerian

700
600
NW
500 NE
'000 ha
400 NC
300 SW
200 SE
SS
100
0
1999 2000 2001 2002 2003 2004
Year
106
107
What is more, there is no significant increase in rice yield annually from 1999 to 2004. The
range of the average yield is from 1.43mt/ha in the NW to 2.71mt/ha in the SE.
Rice Processing
Rice processing activities essentially entail parboiling and milling of paddy. Parboiling precedes
milling and it is often carried out with the use of local drums which permits uniform final
product from a mixture of paddy derived from different varieties of rice. The traditional domestic
parboiling techniques as narrated by Stuykers (1982), involve soaking the paddy in cold water
for two days, and then heating in drums until the grains show signs of splitting, whereupon the
rice is removed for drying. The problem lies in the long soaking when fermentation commences,
and also with the very drying (in 2 hours or less) which leads to broken grains of as much as 49
per cent on milling. There is complete absence of modern technology for the drying of parboiled
paddy. Often, drying is done by the road side under the sun. This accounts for the presence of
foreign bodies such as stones in the final product. Sun drying in the open does not allow for
drying during the rainy seasons. Again, this accounts for the low level of milling during such
periods. Where it is possible to dry during the rainy season, often the paddies do not dry properly
and this partly accounts for the foul odour of the final product. With respect to milling, three
main methods can be identified in Nigeria. These are the Traditional or Hand-pounding System,
the Small Mill Processing System and the Large Mill Processing System. The traditional system
isvery slow and labour intensive and the final product obtained often contains a high percentage
of broken grains and foreign bodies. Given these limitations, this system is fast disappearing.
The small rice mills are the most predominant of the three milling systems. They can be
found in major rice processing areas such as Abakaliki in Ebonyi state, Lafia in Nasarawa state
and a host of others. Experts believe that about 85 percent of Nigerian rice is processed through
the small milling system. This system of processing involves the use of mechanised milling units
(often operating the old cono disc technology) with a maximum and minimum capacity of 600
and 200-300 tons per day respectively. At the moment, most small rice mills operate at about 1
tonne/hr. This is due to the lack of availability of sufficient paddy for processing. Some of the
millers go far away to look for paddy to buy and sometimes they even go beyond the shores of
the country in search of paddy. The final product of the small mills is generally superior to that
processed under the traditional hand-pounding system. In some cases however, the final product
contains a high percentage of broken grains and thus fetches a lower price in the market. Another
major problem with processing is the non-availability of destoning machine. Although some
major rice processing areas have destoners, this is not commonly utilized by farmers because of
the small volume which farmers have. The lack of destoners coupled with the drying of parboiled
paddy by the road side accounts for the large presence of stones in the final product. However, a
few large mills exist and most are owned by government or quasi-government parastatals such as
the State Agricultural Development Projects. The Pateggi, Uzo-Awani, and the Agbede rice mills
are typical examples of large mills in Nigeria. These mills combine rice milling with rice
polishing, and in most cases, they possess separate parboiling equipment. Large mills are not
popular with the Nigerian farmers. It is also important to note that for large mills the amount of
capital investment required is substantial and most of the existing large mills have broken down
as a result of lack of spare parts and inadequate maintenance.
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108
Rice Marketing
Rice marketing is the performance of all business activities in the flow of paddy and milled rice,
from the point of initial production until they are in the hands of the ultimate consumers at the
right time, in the right place and as convenient as possible, at a profit margin so as to keep the
farmer in his farming operations (Ihene, 1996). Seen from this perspective, Aderibigbe (1997)
divided the marketing of local rice into four stages with a change of product ownership occurring
between each pair of stages. The first stage is production through harvesting. Stage two include
movement from the farms to processing centres while stage three consists of moving the milled
rice from processing areas to urban consumption centres. The fourth stage encompasses
wholesaling and retailing in the urban centres.
The marketing of locally milled rice in Nigeria has undergone three phases. During the
first phase terminating in 1976, the marketing of locally milled rice was undertaken by private
individuals. But during the second phase commencing 1977, a limited form of government
participation in the marketing of rice and other cereals was introduced through the establishment
of the Nigerian Grains Board. The board purchased milled and paddy rice directly from farmers
and provided storage such that rice could be available in the market during non harvest periods.
In the third phase commencing in 1986, private individuals were in full charge of the marketing
of locally produced rice. The main marketing channel of imported rice is directly from the
importers to wholesalers and retailers. The retailers sell directly to the final consumers. The flow
of imported rice directly from the importers to the household consumers is very minor. With
respect to domestic rice, paddy rice flows mainly from the farmers to the assemblers and
processors. The assemblers are commissioned agents who assist in purchasing rice paddy from
the individual farmers either on behalf of the millers or to sell to them. They serve as the main
link between the farmers and the processors. Rice paddy also flows in the main from the farmers
directly to the manufacturers of livestock feed. From the processors, milled rice flows to the
wholesalers, from wholesalers to the retailers who now sell directly to the final consumers.
3.4.5 Results of the Rice Value Chain Analysis

The analysis of the rice value chain (production, assembly, processing, trade) seeks to determine
the international competitiveness of the commodity through the instrumentality of key indicators
of profitability and indicators of value chain performance. At the production level, the analysis is
based on the operations of family farms (FAM), emerging commercial farms (ECF) and large
commercial farms (LCF).

Table 3.32 presents the structure of financial costs associated with the rice value chain in
Nigeria. The build-up of financial costs varies widely not only from one stage to another but also
among the three categories of producers. With regard to the rice FAM, seed, fertilizer and
chemicals constitute the most important cost component; representing 46 percent of the total
production cost. Hired labour, which is next in importance, represents 40 percent, followed by
depreciation (10 percent) while marketing cost has the lowest proportion (4 percent). At the
assembly stage, packing and storage cost tends to dominate (55 percent) followed by hired
labour (20 percent), vehicle operation and maintenance (17 percent) while the lowest proportion
(8 percent) is due to fees and crop levies. The processing cost consists largely of plant repairs
and maintenance as well as storage (47 percent) while the cost of vehicle operation and
maintenance follows with 18 percent of total cost. Other cost items in order of importance are
108
109
Table 3.32: Structure of Financial Costs of Rice Enterprises in Nigeria

percent
PRODUCT
FAM
Hired Labour 40 20
Marketing 4
Spraying & Machine Operation
Vehicle Operation & Maintenance 17 18
Depreciation 10 10
TOTAL 100 100 100 100
ECF
Hired Labour 58 21
Marketing 17
Vehicle O & M 16 20
Packaging & Consumables 54 7
Depreciation 3 9 10
TOTAL 100 100 100 100
LCF
Hired Labour 17 22
Marketing 1
Spraying, & Machine Operation 7
Vehicle O & M 16 19
Depreciation 55 8
Loading and Storage 11
TOTAL 100 100 100 100
109
110
overhead (13 percent), depreciation (10 percent), packing materials (8 percent) and energy and
machine operation (4 percent). At the logistics stage, transport to delivery point is the dominant
cost item (98 percent of total cost). At the FAM level, the results show that except for raw
material processing, operating profit and net profit are positive at every stage of the rice value
chain. At the production stage, the gross margin is US$339.49 while net profit is US$333.91;
whereas at the assembly stage, the gross margin (US$83.33) and net profit remains the same. At
the level of trading, both the gross margin and net profit are positive but remain at the same level
(US$83.23) since the traders made no significant investment on rice marketing. The rate of
return (net profit/total costs) at the marketing stage (12 percent) is the smallest when compared
to the 18 percent at the assembly stage and 277 percent at the production stage (Table 3.33).
The cost structure of the rice ECF depicts the labour intensive nature of rice production in
the country. Whereas the highest proportion (58 percent) of total production cost was incurred on
hired labour, depreciation of fixed capital represents only 3 percent. Marketing cost represents 17
percent, while 11 percent was incurred on seed, fertilizer and chemical. The same proportion was
also incurred on spraying and machine operation. At the assembly stage, packing and storage
account for 54 percent of the total cost while at the processing stage the highest (48 percent)
proportion of total cost was incurred on plant repair and maintenance. At the logistics stage, the
dominant cost item is transportation to delivery point and it represents 88 percent of total cost.
This is followed by loading and storage (10 percent) while fees and licence constitute only 2
percent. With regard to profitability indicators, the result shows that both operating profit and net
profit are also positive at every stage of the value chain with the exception of raw material
processing. At the production stage, the gross margin per tonne is US$402.69 while net profit is
US$398.75; whereas at the assembly stage, the gross margin (US$79.70) and net profit remain
the same. At the level of trading, both the gross margin and net profit are positive but remain at
the same level (US$79.83) since the traders made no significant investment on rice marketing.
The rate of return (net profit/total costs) at the marketing stage (12 percent) is the lowest when
compared to the 17 percent at the assembly stage and 272 percent at the production stage (Table
3.33).
As regards the rice LCF, depreciation of fixed capital is the single most important cost
item at the farm product level representing 55 percent of total production cost. This is followed
by seed, fertilizer and chemicals (20 percent), hired labour (17 percent), machine operation (7
percent) while marketing cost is the lowest (1 percent). The relatively high proportion of
depreciation is accounted for by the availability of capital equipment such as ploughs and
harrows which are very expensive cost items owned and used by the farmers and whose costs
have to be incorporated into the computation of depreciation. At the assembly level, the major
cost items, in order of importance, are packing and consumables (52 percent), hired labour (22
percent), vehicle operation and maintenance (16 percent) and fees and crop levies (10 percent).
The highest proportion (51 percent) of rice processing cost is due to storage as well as plant
repairs and maintenance, followed by 19 percent for vehicle operation and maintenance, 11
percent for overhead, 8 percent for depreciation and the lowest (4 percent) is for energy and
machine operation. As expected, the dominant cost item at the logistics stage is transportation to
the point of delivery which represents 87 percent of total cost. This is followed by loading and
storage (11 percent) and fees, levies and overhead (2 percent). The pattern of profitability for the
LCF category is similar to that of ECF and FAM. At the production stage, the gross margin per
tonne is US$373.79 while net profit is US$164.83; whereas at the assembly stage, the gross
margin (US$76.52) and net profit remain the same. At the level of trading, gross margin is
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111
Table 3.33: Profitability Indicators of Rice Enterprises in Nigeria (Per MT)
FAM RICE

TRADED COMMODITY
PRODUCT RAW MATERIAL RAW MATERIAL Milled Rice
NGN USD NGN USD NGN USD NGN USD
Gross revenue 60,000 454.55 72,000 545.45 68,000 515.15 100,000 757.58
Production costs
Crop purchase - 50,000 378.79 72,000 545.45 85,000 643.94
Other variable costs 15,187 115.05 11,000 83.33 1,998 15.14 4,013 30.40
Investment costs 737 5.58 - - 220 1.67 - -
Total costs 15,924 120.64 61,000 462.12 74,218 562.26 89,013 674.34
Final income
Gross margin 44,813 339.49 11,000 83.33 (5,998) (45.44) 10,987 83.23
Net profit 44,076 333.91 11,000 83.33 (6,218) (47.11) 10,987 83.23
Rates of return
Gross margin/total VC 2.95 0.18 -0.08 0.12
Net profit/total costs 2.77 0.18 -0.08 0.12
ECF RICE
Gross revenue 72,000 545.45 72,000 545.45 68,000 515.15 100,000 757.58
Production costs
Crop purchase - 50,000 378.79 72,000 545.45 85,000 643.94
Investment costs 520 3.94 - - 220 1.67 -
Total costs 19,365 146.70 61,480 465.76 74,452 564.03 89,463 677.75
Final income
Gross margin 53,155 402.69 10,520 79.70 (6,232) (47.21) 10,537 79.83
Net profit 52,635 398.75 10,520 79.70 (6,452) (48.88) 10,537 79.83
Rates of return
LCF RICE

TRADED COMMODITY
Gross revenue 72,000 545.45 72,000 545.45 68,000 515.15 100,000 757.58
Production costs
Crop purchase - 50,000 378.79 72,000 545.45 85,000 643.94
Investment costs 27,582 208.95 - - 220 1.67 -
Total costs 50,242 380.62 61,900 468.94 74,612 565.24 89,513 678.13
Final income
Gross margin 49,340 373.79 10,100 76.52 (6,392) (48.42) 10,487 79.45
Net profit 21,758 164.83 10,100 76.52 (6,612) (50.09) 10,487 79.45
Rates of return
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112
US$79.45 while net profit remains at the same level. The rate of return (net profit/total costs) at
the marketing stage (12 percent) is the lowest when compared to the 16 percent at the assembly
stage and 43 percent at the production stage (Table 3.33).
(b) Rice Value Chain Indicators

shipment value occurs between the production of paddy and final delivery of milled rice (Table
3.34). With regard to the FAM, the transformation of paddy rice into milled rice is associated
with an increase in shipment value from US$120.64 at the paddy production stage to US$462.12
at the assembly stage (or about 283 percent), US$562.27 at the processing stage (or about 22
percent from the previous stage) and US$674.34 at the final delivery point representing an
increase of about 20 percent from the previous stage. Rice production is associated with a value
added of US$109.54 which represents 91 percent of the shipment value. About 94 percent of the
DVA is accounted for by domestic costs and mark-ups. At the final stage of delivery, the value
added obtained (US$653.17) represents 97 percent of the shipment value (US$674.34); and 98
percent of the DVA is made up of domestic costs and mark-ups. For the purpose of determining
the international competitiveness of rice, the final shipment value is compared with the import
parity price. The final SV (US$674.34) is greater than the import parity price (US$330) implying
that Nigerian rice is not competitive at the international market.
With regard to the ECF, the transformation of paddy rice into milled rice is associated with an
assembly stage (or about 217 percent), US$564.03 at the processing stage (or an increase of 21
percent from the previous stage) and US$677.76 at the final delivery point representing an
increase of about 20 percent from the previous stage. Rice production yields a value added
(US$137.98) which represents 94 percent of the shipment value and it is entirely accounted for
by domestic costs and mark-ups. At the final stage of delivery, the domestic value added
obtained (US$659.80) represents 97 percent of the shipment value (US$677.76); and of this
DVA, costs and mark-ups account for 99 percent. For the purpose of determining the
international competitiveness of rice, the final shipment value is compared with the import parity
price. The final SV (US$677.76) is greater than the import parity price (US$330) implying that
Nigerian rice is not competitive at the international market.
As regards LCF, the transformation of paddy rice into milled rice is associated with an
assembly stage (or about 23 percent), US$565.24 at the processing stage (or about 21 percent
from the previous stage) and US$678.14 at the final delivery point representing an increase of
about 20 percent from the previous stage. Rice production yields a domestic value added
(US$326.52) which represents 86 percent of the shipment value. Of this DVA, 82 percent is
accounted for by domestic costs and mark-ups. At the final stage of delivery, the domestic value
added obtained (US$596.08) represents 88 percent of the shipment value (US$678.14); and of
this DVA, costs and mark-ups account for 96 percent. For the purpose of determining the
international competitiveness of rice, the final shipment value is compared with the import parity
price. The final SV (US$678.14) is greater than the import parity price (US$330) implying that
Nigerian rice is not competitive at the international market.
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Table 3.34: Value Chain Indicators for Rice Enterprises in Nigeria (Per MT)
FAM RICE
D.
Costs & mark-ups 13636 103.3 58,282 441.53 70,624 535.03
Total DVA 14459 109.5 59,389 449.91 71,984 545.33
Foreign costs 1,465 11.10 1,612 12.21 2,235 16.93
Total Shipment Value 15924 120.6 61,001 462.12 74,219 562.26
D.
RICE
Costs & mark-ups 84,420 639.55 - -
Official duties & tax 810 6.14 - -
Additional costs 989 7.49 - -
Total DVA 86,219 653.17 - - - -
Foreign costs 2,794 21.17 - -
Total Shipment Value 89,013 674.34 - - - -
ECF RICE
Costs & mark-ups 18,213 137.98 59,963 454.27 72,084 546.09
Official duties & tax - - 250 1.89 472 3.58
Additional costs - - - - - -
Total DVA 18,213 137.98 60,213 456.16 72,556 549.67
Foreign costs 1,152 8.73 1,267 9.60 1,896 14.36
D.
RICE
Costs & mark-ups 86,368 654.30 - -
Official duties & tax 635 4.81 - -
Additional costs 90 0.68 - -
Total DVA 87,093 659.80 - - - -
LCF RICE
Costs & mark-ups 41,126 311.56 51,572 390.70 63,223 478.96
Official duties & tax 616 4.67 978 7.41 1,204 9.12
Total DVA 43,101 326.52 54,045 409.43 65,947 499.60
Foreign costs 7,142 54.11 7,856 59.52 8,665 65.64
D.
Product 1 Product 2 Product 3
Costs & mark-ups 75,235 569.96 - -
Official duties & tax 1,484 11.24 - -
Additional costs 1,964 14.88 - -
Total DVA 78,683 596.08 - - - -
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3.4.5 Comparative Value Chain Analysis By Type of Rice Farms
Rice Profitability and Value Chain Indicators

The results comparing the profitability and value chain indicators for the three category of rice
farming enterprises included in the study namely; family farms (FAM), emerging commercial
farms (ECF) and large commercial farms (LCF) are presented in Table 3.35. The results show
considerable variation in both operating and net profit as well as rate of return in respect of rice
production. Operating profit is highest for ECF (US$402.69) followed by LCF (US$373.97)
while the FAM has the lowest operating profit (US$339.49). Net profit has a different pattern
being the highest for ECF (US$398.76) followed by FAM (US$333.91), while LCF has the
lowest net profit (US$164.83). The rate of return is the highest for FAM followed by ECF and
LCF (Table 3.35).
The value chain indicators relating to rice at the farm gate reveal that DVA for LCF
(US$326.52) is the highest followed by that of ECF (US$137.98) while the lowest is DVA at the
FAM level (US$109.54). In the same vein, SV is highest for LCF (US$380.63) followed by ECF
(US$146.70) and FAM (US$120.64). The ECF has the highest ratio of DVA to SV (93 percent)
followed by FAM (91 percent) and LCF (85 percent). Moreover, the ratio of domestic costs to
DVA is also the highest for ECF (100 percent) followed by LCF (95 percent) and FAM (94
percent). This implies that at the FAM level, costs incurred in addition to domestic costs of
production constitute a higher proportion of SV than it is the case for ECF and LCF. As it turned
out, however, Nigerian rice remains uncompetitive in the international market irrespective of the
level of commercialization of its production.
Comparison of Rice Shipment Values

(unofficial) expenses and foreign costs. As noted earlier, domestic costs and mark-ups constitute
a dominant part of the shipment value at each stage of the value chain. However, the structure
varies not only from one stage to another but also among the three categories of farms. As shown
in Table 3.36, composition of shipment values varies considerably across the farms and the
various stages in the value chain.
At the LCF level, domestic costs and mark-ups range from 82 percent of SV at the
production stage to 84 percent at the final delivery point. Compared to other categories of farms,
foreign costs constitute the highest proportion (14 percent) of SV at the production stage. It is
followed by FAM with 9 percent while ECF has the lowest (6 percent). Also, at the production
stage, the proportion of official duties and tax as well as unofficial expenses appear to be the
highest for the rice LCF compared to ECF and FAM; although in general, official duties and tax
appear to be relatively very low. In the case of ECF, domestic costs and mark-ups constitute the
highest proportion of SV at each stage of the value chain ranging from 94 percent at the
production stage to 96 percent at the final delivery stage. The range in the case of FAM is
between 86 percent at the production stage and 95 percent at the final delivery point. Although
the proportion of domestic costs and mark-ups seems to be lowest in the case of LCF each in the
value chain, the proportion of foreign costs remarkably exceeds that of FAM and ECF (see
Figure 3.14). Overall, it appears that the emerging commercial farms will likely require the most
serious attention in terms of efforts aimed at reducing production cost and enhancing the
competitiveness of rice. The results also imply that the intensity of efforts will not only vary
across the farms but also in terms of the specific components of shipment value.
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115
Table 3.35
Rice Profitability and Value Chain Indicators By Level of
Commercialization of Farms
FARM GATE ASSEMBLED PROCESSED TRADED COMMODITY
PRODUCT RAW RAW MATERIAL
MATERIAL MILLED RICE
PROFITABILITY
INDICATORS
FAM
GM (US$) 339 83 -45 83
NET PROFIT (US$) 333 83 -47 83
GM/TVC (%) 295 18 -8 12
NET PROFIT/TC (%) 277 18 -8 12
ECF
GM (US$) 403 79 -47 79
NET PROFIT (US$) 398 79 -49 79
GM/TVC (%) 282 17 -8 12
NET PROFIT/TC (%) 272 17 -9 12
LCF
GM (US$) 374 76 -8 79
NET PROFIT(US$) 165 76 -50 79
GM/TVC (%) 218 16 -9 12
NET PROFIT/TC (%) 43 16 -9 12
VALUE CHAIN
INDICATORS
FAM
DVA (US$) 109 449 546 654
SV (US$) 121 462 562 674
DVA/SV (%) 91 97 97 97
DC/DVA (%) 94 98 98 98
ECF
DVA (US$) 138 456 549 659
SV (US$) 147 465 564 677
DVA/SV (%) 93 98 97 98
DC/DVA (%) 100 99 99 99
LCF
DVA (US$) 326 409 499 596
SV (US$) 381 469 565 678
DVA/SV (%) 85 87 89 90
DC/DVA (%) 95 96 95 97
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Table 3.36: Comparison of Composition of Rice Shipment Values in Nigeria (%)

FAM ECF LCF
FARM
-Official duties and tax 1 - 1
-Additional expenses 4 - 3
-Total 100 100 100
ASSEMBLY
-Official duties and tax 1 - 2
-Total 100 100 100
PROCESSING
-Total 100 100 100
LOGISTICS
-Total 100 100 100
Comparison of Rice Production and Market Indicators

The farm-level performance of producers who invariably are key participants in the value chain
is compared among the three categories of farmers using indicators such as crop yield, unit cost
of production and farm gate price. A comparison of these and related variables among the three
categories of farmers is important because it will provide vital insight into the supply
characteristics of the crop and thus elicit appropriate actions to improve the domestic supply
situation. Unless improved performance is guaranteed at the supply end, expansion of
downstream activities may be difficult to sustain.
As shown in Table 3.37, the yield of rice is very low, but it is lowest in the case of FAM.
The ECF obtained the highest yield followed by the LCF. The farm gate price for ECF and LCF
is higher than that of FAM by about 20 percent. The relatively lower farm-gate price of FAM
derives from its cost of production which is the lowest among the group. Indeed, the LCF has the
highest unit cost of production that is more than double that of ECF and about seven times the
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117
Figure 3.14: Comparison of Composition of Shipment Values in Rice Enterprises
FAM RICE
Composition of SV
700
600
500
400
300
200
100
-
RICE
ECF RICE
Composition of SV
700
600
500
400
300
200
100
-
RICE
LCF RICE
Composition of SV
700
600
500
400
300
200
100
-
RICE
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118
Table 3.37: Comparison of Selected Rice Production Indicators in Nigeria

FAM ECF LCF
1 Yield MT/Ha 0.82 2.00 1.80
2 Unit Cost of 120 146 381
Production $/MT
3 Farm 454 545 545
Gate Price $/MT
5 Gross Margin $/Ha 333 805 673
6 Net Return $/Ha 329 797 297
unit cost of production of the rice FAM. Nonetheless, rice production is quite profitable in each
of the three categories of farms. The gross margin per hectare for the ECF is the highest followed
by LCF and FAM. Moreover, net return per hectare is also positive across the farms. It is the
highest in the case of ECF followed by FAM and LCF.
Build-up of Rice Final Shipment Value By Stage

(per 1 MT of raw material) at each stage of the value chain. Table 3.38 presents the cost structure
for the three categories of farms. In general, the highest proportion of the incremental value was
realized at the production stage. This stands at 83 percent for the LCF followed by 65 percent for
FAM and 61 percent for ECF.
Table 3.38: Build-up of Rice Final SV By Stage (%)

FAM ECF LCF
Farm 65 61 83
Assembly 7 6 8
Processing 28 33 9
TOTAL 100 100 100
Another general pattern that is unfolding is that the proportion of the incremental value is lowest
at the assembly stage for the three categories of farms. At the processing stage, the proportion of
the value realized is highest in the case of ECF followed by FAM and LCF.
3.4.6 Impediments to Growth in the Rice Industry

There are several constraints militating against the competitiveness of rice production in the
country. These include (i) lack of pre-planting contracts which expose farmers to unfavourable
market dynamics, (ii) inadequate processing facilities and (iii) inadequate financing of key
activities in the value chain.
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3.5 Value Chain Analysis of the Soybean Industry

The production of soybean as a commercial crop has been going on from time immemorial in
temperate ecologies, first in northern Asia and in more recent years in North America and
countries of the Southern Cone of Latin America. The remarkable success of this crop in
temperate zones is well known to all, but there is also a very important potential role for soybean
in many cropping systems of the tropics and subtropics, where often the farms are mostly small
and with little mechanization. Access to local markets appears to be the main constraint in many
developing countries in the tropics and sub-tropics where local soybean production could
improve farmer incomes and the sustainability of the production system. Often soybean is
imported into countries by the local vegetable oil and feed industries and as a consequence no
demand for the crop is felt in the farming community. Where good market links from processors
to local farmers have been made, as in Nigeria and especially in India, the farmers generally
respond and the crop finds a good home in diverse cereal and root crop based production
systems. (Thoenes, 2004).
Evidence suggests that soybean contributes significantly to the total value added by the
agricultural sector in the major producing countries and particularly so in Brazil, Argentina,
Paraguay and the USA. In these countries, soybeans and its two main sub-products also occupy
an important position in export earnings from agriculture as well as in terms of total merchandise
exports. A few other countries, notably India and China, are also involved in exports (mainly
soymeal) but these play a more limited role and are subject to considerable year-to-year
variation. Among the group of undernourished countries, apart from India, Bolivia is the only
country that derives significant income from export of soybean and derived products. A
significant feature of the soybean economy is that considerable value addition occurs at the
downstream stages of the production and processing chain. On-farm storage of soybean plays a
minor role and small-scale processing and marketing at local level is only relevant in those -
statistically less important - areas where soybeans are directly consumed as food. At the global
level, the bulk of soybeans produced is stored and shipped in bulk to large-scale industrial units
for further processing into oil and meal. Within the soy complex, beans account for about half of
the total value of trade; the shares of soymeal and soyoil are 35 and 15 percent respectively,
while that of soyfoods is negligible. Soyoil occupies a dominant position in global vegetable oil
trade both in volume and value terms. However, over the years, palm oil has become a major
competitor, and the two oils directly compete for market share, based on their relative price.
Soymeal, on the other hand, as a high value ingredient for compound feed, occupies a leading
position in global feedstuffs trade. The key producing countries export a combination of beans
and their two subproducts (soyoil and soymeal), depending on the requirements of the market
and domestic policies. A main feature of the market is the high level of concentration, with five
countries (two developed and three developing) accounting for over 90% of the market. The
main competitors on the export market are USA, Brazil and Argentina. Soybean output and
exports from Brazil and Argentina have grown phenomenally; both countries share
approximately 30 percent of the soybean export market. Brazilian soybean output in 2000/02
stood at 45 million tonnes while Argentina’s output increased to 29.5 million tonnes (Vorley,
2005). A large number of countries are involved in the importation of soybeans and/or products
for domestic consumption and, in some cases, for re-exportation purposes. Depending on
domestic demand, which is also determined by the structure of the local processing industry,
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countries import either the raw material, soybeans, or directly soyoil and/or soymeal. In recent
years, a number of importing countries have shifted from the importation of soyoil or meal to
purchases of beans, which reflects efforts to promote processing - and thus value addition - at the
domestic level.

Soybean has significant economic and nutritional importance and it is in high demand in Nigeria.
Economically soybean cake and oil are of great importance to the country. The cake/meal serves
as feeding stuff (protein concentrates) to livestock while oil is consumed locally and used in the
manufacture of skin lotions, margarine, salad oil, drying oil, etc. By 2003, the industrial demand
for soybeans was about 634,000 metric tonnes compared with a supply level of 386,853 metric
tonnes. Considering the use of soybean for boosting the protein and mineral content of local diets
such as soymeal, dadawa, soy ogi, soya egusi and others in addition to the industrial use, the
level of demand in the country has still not been met (RMRDC, 2004).
Nigerian soybean has been reported to be one of the best quality soybeans in the world.
Its quality is said to compare favourably with ‘yellow gold’, the United State of America’s
variety. Soya-bean gained export status in 1943 when a tonne of soybean was exported from
Nigeria. The exported quantity rose to 26,000 in 1962/63 and ever since, the export market has
not expanded as expected. The major international buyers are the countries in the West African
sub-region: Niger Republic, Chad etc, whose climatic conditions do not favour the cultivation of
soybeans. Other consuming countries are Netherlands, United Kingdom, Turkey, France and
Poland. Although Nigerian soybeans is exported and is utilized by other nations in their
industries, it was observed that there was no sufficient documented evidence of this transaction.
Soybeans as a crop does not seem to enjoy an organized trade, the business is rather left in the
hands of actors who run it based on their whims and caprices. Since the documented records of
commercial transactions are not available, it becomes difficult to reliably determine the quantity
of soybeans exported or imported into the country. The available import data between 2002 and
2005 show a haphazard trend. As shown in Fig. 3.15, soybean import rose sharply from 15.23
million in 2002 to 157.58 million in 2003. There was no official record of import in 2004; but
by 2005, about 78 tonnes of soybean valued at 17.21 million were imported into the country.
Fig. 3.15: Trend in Soybean

Import in Nigeria,2002-2005
200
million naira
150
100
50
0
2002 2003 2004 2005
Year
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4.5.3 Characterization of the Soybean Value Chain
Soybean Production and Cropping System

Soybean production is prominent in the three northern zones – NW, NE and NC; but the leading
producer is NC (Table 3.39 and Fig. 3.16). The share of NC in total soybean production between
1999 and 2004 averaged 61 percent. Nonetheless, production trended downwards in NC whereas
the trend is on the increase in NW and NE (Fig. 3.16). The land area cultivated to soybean
follows a similar trend (Fig. 3.17). The average yield of soybean ranges from 0.59mt/ha in SW to
1.27mt/ha in NC.
Table 3.39: Soybean Production in Nigeria, 1999-2004
1999 2000 2001 2002 2003 2004

NORTHWEST
-Area(‘000Ha) 78.17 81.51 89.474 90 121 122.32
-Output(‘000MT) 102.39 114.21 112 117.38 123.28 125.89
-Share of Total (%) 32.84 32.90 34.13 35.27 36.42 34.86
-Yield (MT/Ha) 1.30 1.40 1.25 1.3 1.01 1.02
NORTHEAST
-Area(‘000Ha) 10.21 8.042 8.27 7.81 8.06 34.61
-Output(‘000MT) 7.33 6.27 7.41 6.93 6.84 24.68
-Share of Total (%) 2.35 1.81 2.26 2.08 2.02 6.83
-Yield (MT/Ha) 0.7 0.75 0.87 0.85 0.75 0.70
NORTHCENTRAL
-Area(‘000Ha) 147 146.45 171.03 170.9 167.167 159.36
-Output(‘000MT) 195.73 218.88 202 203.24 202.954 205.15
-Share of Total (%) 62.77 63.04 61.77 61.08 59.95 56.80
-Yield (MT/Ha) 1.32 1.49 1.18 1.19 1.20 1.28
SOUTHWEST
-Area(‘000Ha) 6.99 8.91 10.1 9.42 9.02 7.54
-Output(‘000MT) 5.41 6.771 5.09 4.25 4.38 4.33
-Share of Total (%) 1.74 1.95 1.55 1.28 1.29 1.20
-Yield (MT/Ha) 0.83 0.75 0.5 0.44 0.45 0.57
SOUTHEAST
-Area(‘000Ha) 0.76 0.84 0.81 0.89 1.03 1.08
-Output(‘000MT) 0.95 1.06 0.94 0.96 1.07 1.13
-Share of Total (%) 0.30 0.31 0.29 0.29 0.32 0.31
-Yield (MT/Ha) 1.25 1.26 1.16 1.07 1.03 1.04
ALL ZONES
-Area(‘000Ha) 243.10 245.80 279.70 279.00 306.30 324.90
-Output(‘000MT) 311.80 347.20 327.40 332.80 338.50 361.20
Source: Underlying data from the Project Coordinating Unit of the Federal Ministry of
Agriculture and Rural Development, Abuja
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Fig. 3.16: Soybean Production By Agro-

Ecological Zones in Nigeria
250
200
Output ('000 MT)
NW
150 NE
NC
100 SW
SE
50
0
1999 2000 2001 2002 2003 2004
Year
Fig. 3.17: Land Area Cultivated to Soybean in Nigerian

200
150 NW
NE
'000 Ha
100 NC
SW
50 SE
0
1999 2000 2001 2002 2003 2004
Year
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123
Although it is more profitable to grow soybean as a sole crop, the traditional farmer plants
soybean in mixture with millet, sorghum and maize. Cereals are grown for food while soybean is
for cash. Good rotation sequence with soybean improves the yield of cereals. Usually the farms
are small and are less than 5 hectares. Harvesting is carried out when pods are dry. Seed moisture
content decreases rapidly when drying weather prevails during harvest time. In such a case, seed
moisture may drop to 10 percent or less. Prompt harvest is essential in soybean; if harvesting is
delayed, the pods may shatter resulting in yield losses and seed deterioration due to alternate
wetting and drying. Harvesting and threshing can be manual or mechanical.
Soybean is utilized as cooking oil and protein concentrates in feed milling. The crop also
finds uses for soymilk, confectionery, infant weaning foods and seasonings. Soybean processing
in Nigeria is therefore geared towards obtaining these products. Processing soybeans to oil
employs both the mechanical system of presses and expellers and the chemical system of solvent
extraction. The de-oiled cake from soybean processing is marketed as protein concentrate and
used for livestock feed milling. Soybean protein extract is also processed to obtain texturized
vegetable protein which is utilized in food formulations as meat alternative in view of its protein
quantity and physical attributes. The nutritional goodness of soybean is also fully utilized in
other food processing operations for producing weaning foods, seasonings and soy milk.
3.5.4 Results of the Soybean Value Chain Analysis

The relevant stages in the value chain analysis for soybean are production, assembly and trade.
Data on individual products resulting from soybean processing is difficult to come by within the
period earmarked for collecting data for this study. Therefore, the analysis of the competitiveness
of soybean focuses on soybean as grains since the commodity is still traded internationally in the
form of grains. It is treated in this study as an import substitute. The analysis focuses on key
indicators of profitability in the soybean value chain as well as the indicators of performance of
the value chain with a view to determining the international competitiveness of the commodity.
The analysis is conducted at three levels of operation – family farm (FAM), emerging
commercial farm (ECF) and large commercial farm (LCF).

The results show clearly the major cost items at each stage in the soybean value chain with
considerable variation at the production stage. With regard to the soybean FAM, hired labour is
the most important cost component; representing 44 percent of the total production cost. This is
followed by seeds, fertilizer and chemicals (27 percent), marketing (18 percent), spraying and
machine operations (9 percent) while the proportion of depreciation (2 percent) is the lowest. In
the case of ECF, overhead and management has the highest share (36 percent) of production
cost; followed by hired labour (28 percent), seed, fertilizer and chemicals (19 percent), spraying
and machine operation (14 percent) while the proportion of marketing cost (3 percent) is the
lowest. The cost structure for the LCF sector is quite different. The cost of fixed capital is
overwhelming especially in view of the fact that the LCF is highly capitalized with expensive
machines (ploughs, harrows, harvesters etc.) which were purchased within the last three years.
Invariably, the fixed cost measured by the depreciation of the fixed capital represents 99.6
percent of total production cost. At the assembly stage, packing and storage cost tends to
dominate in all the farm sectors (with a share of 66 percent of total cost); followed by hired
labour and crop levies which have a share of 17 percent each. The build-up of logistics cost
shows a distribution that is heavily skewed towards transport to delivery point whose share of
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total cost ranges from 74 percent for the FAM sector to 79 percent for the ECF and 87 percent
for the LCF (Table 3.40).
As regards the FAM, the results show that operating profit and net profit are positive at
both the production and assembly stages as well as the final delivery stage. At the production
stage, the gross margin is US$159.95 while net profit is US$156.54. The rates of return at this
stage range from 76 percent on the basis of net profit to 79 percent based on operating profit. In
view of the negligible investment cost at the assembly stage the operating profit (US$9.09) is the
same as the net profit and the rate of return is only two percent. At the stage of final delivery,
both the gross margin and the net profit have the same value (US$107.89) and the rate of return
is about 26 percent (Table 3.41).
Table 3.40: Structure of Financial Costs in Soybean Enterprises in Nigeria

percent
COST ITEMS FARM ASSEMBLY LOGISTICS
PRODUCT
FAM
Hired Labour 44 17
Marketing 18
Overhead & Management 3
Depreciation 2
TOTAL 100 100 100
ECF
Hired Labour 28 17
Marketing 3
Packaging & Consumables 66
Overhead & Management 36 4
Depreciation
TOTAL 100 100 100
LCF
Hired Labour 0.1 17
Seed, Fertilizer & Chemicals 0.2
Spraying, & Machine Operation 0.1
Vehicle O & M
Depreciation 99.6
TOTAL 100 100 100
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Table 3.41: Financial and Profitability Indicators of Soybean Enterprises in Nigeria (Per MT)
FAM SOYBEAN

Gross revenue 48,000 363.64 54,000 409.09 70,000 530.30
Production costs
Crop purchase - 48,000 363.64 54,000 409.09
Investment costs 450 3.41 - - -
Total costs 27,337 207.10 52,800 400.00 55,758 422.41
Final income
Gross margin 21,113 159.95 1,200 9.09 14,242 107.89
Net profit 20,663 156.64 1,200 9.09 14,242 107.89
Rates of return
Gross
Grossmargin/total
margin/totalVCVC 1.79
0 0.02 0.26
ECF SOYBEAN
Gross revenue 54,000 409.09 54,000 409.09 70,000 530.30
Production costs
Crop purchase - 48,000 363.64 54,000 409.09
Investment costs - - - - -
Total costs 29,783 225.63 52,800 400.00 56,300 426.52
Final income
Gross margin 24,217 183.46 1,200 9.09 13,700 103.79
Net profit 24,217 183.46 1,200 9.09 13,700 103.79
Rates of return
Gross
Grossmargin/total
margin/totalVCVC 0.81 0.02 0.24
LCF SOYBEAN

Gross revenue 45,000 340.91 54,000 409.09 63,636 482.09
Production costs
Crop purchase - 48,000 363.64 49,091 371.90
Investment costs 413,801 3,134.86 - - -
Total costs 460,955 3,492.08 52,800 400.00 52,227 395.66
Final income
Gross margin (2,154) (16.32) 1,200 9.09 11,409 86.43
Net profit (415,955) (3,151.17) 1,200 9.09 11,409 86.43
Rates of return
Gross
Grossmargin/total
margin/totalVCVC (0.05) 0.02 0.22
Net profit/total costs (0.90) 0.02 0.22
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As regards the ECF, both operating profit and net profit are also positive at all stages of
the chain. At the production stage, the gross margin per tonne is US$183.46 while at the
assembly stage it is US$9.09. At the final delivery stage the operating profit is US$103.79. The
rates of return (net profit/total cost) range from 2 percent at the assembly stage to 26 percent at
the final delivery stage and 81 percent at the farm production stage. In the case of LCF, both
operating profit and net profit are positive at all relevant stages of the chain with the exception of
the farm production stage. At the assembly stage, the gross margin per tonne is US$9.09 while at
the final delivery stage the operating profit (gross margin) per tonne is US$86.43. The rates of
return (net profit/total cost) range from 2 percent at the assembly stage to 22 percent at the final
delivery stage.
(b) Soybean Value Chain Indicators

shipment value occurs between the production stage and final delivery of the commodity. As
shown in Table 3.42, the SV for the FAM sector increased from US$207.10 to US$422.42
representing an increase of about 104 percent. Soybean production yields a value added
(US$154.06) which represents 74 percent of the shipment value. About 95 percent of the DVA is
accounted for by domestic costs and mark-ups. For the purpose of determining the international
competitiveness of soybean, the final shipment value is compared with the import parity price.
The result shows that the final SV (US$422.41) is higher than the import parity price
(US$259.56) implying that Nigerian soybean is not competitive in the international market.
In the case of ECF, the value chain indicators for the final traded commodity also reveal
that substantial increase in shipment value occurs between the production of soybean and final
delivery of the commodity. As shown in Table 3.42, the SV increased from US$232.3 to
US$426.52 representing an increase of about 84 percent. Soybean production yields a value
added (US$255.71) which represents 110 percent of the shipment value which is accounted for
entirely by domestic costs and mark-ups. For the purpose of determining the international
competitiveness of soybean, the final shipment value is compared with the import parity price.
The result shows that the final SV (US$426.52) is higher than the import parity price
(US$259.56) implying that Nigerian soybean is not competitive in the international market.
With regard to the LCF sector, the value chain indicators for the final traded commodity
reveal that substantial change in shipment value occurs between the production of soybean and
final delivery of the commodity. As shown in Table 3.42, the SV decreased from US$3,146.46 to
US$435.23 or by about 86 percent. Soybean production yields a value added (US$587.93) which
represents 19 percent of the shipment value out of which 17 percent is accounted for by domestic
costs and mark-ups. Foreign costs represents 81 percent of the shipment value at the soybean
production stage indicating the high degree of foreign dependence by large commercial farms in
terms of imported inputs. For the purpose of determining the international competitiveness of
soybean, the final shipment value is compared with the import parity price. The result shows that
the final SV (US$435.23) is higher than the import parity price (US$259.56) implying that
Nigerian soybean is not competitive in the international market.
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127
Table 3.42: Soybean Value Chain Indicators in Nigeria (Per MT)
FAM SOYBEAN

Costs & mark-ups 19,337 146.49 44,782 339.26 51,587 390.81
Total DVA 20,336 154.06 45,799 346.96 52,645 398.83
Foreign costs 7,001 53.04 3,114 23.59 3,114 23.59
ECF SOYBEAN

Costs & mark-ups 33,754 255.71 55,890 423.41 66,504 503.82
Official duties & tax - - - - -
Additional costs - - - - 100 0.76
Total DVA 33,754 255.71 55,890 423.41 66,604 504.58
Foreign costs (3,090) (23.41) (10,304) (78.06) (10,304) (78.06)
LCF SOYBEAN

Costs & mark-ups 72,140 546.52 (290,394) (2,199.95) 106,090 803.71
Official duties & tax 1,432 10.85 1,432 10.85 1,432 10.85
Total DVA 77,607 587.93 (284,926) (2,158.53) 111,608 845.52
Foreign costs 337,726 2,558.53 (54,157) (410.28) (54,157) (410.28)
Total Shipment Value 415,333 3,146.46 (339,083) (2,568.81) 57,451 435.23
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3.5.5 Comparative Value Chain Analysis By Type of Soybean Farms
Soybean Profitability and Value Chain Indicators

Table 3.43 presents a summary of the results comparing the profitability and value chain
indicators for the three categories of soybean farms included in the study namely; FAM, ECF
and LCF. The results show that operating profit is highest for ECF (US$183.42) followed by
FAM (US$159.95) while in the case of LCF the operating profit is negative. Net profit has a
similar pattern but remains at the same level as operating profit for ECF. The rates of return (in
terms of gross margin/total variable cost and net profit/total cost) are higher for ECF than FAM.
The value chain indicators relating to soybean at the farm product stage reveal that DVA for LCF
(US$587.93) is the highest followed by that of ECF (US$255.71) while the lowest is DVA at the
FAM level (US$154.06). In the same vein, SV is highest for LCF (US$3,146.46) followed by
ECF (US$232.30) and FAM (US$207.10). The ECF has the highest ratio of DVA to SV (109
percent) followed by FAM (74 percent) and LCF (18 percent).
Moreover, the ratio of domestic costs to DVA is also the highest for ECF (100 percent)
followed by FAM (95 percent) and LCF (93 percent). This implies that at the LCF level, costs
incurred in addition to domestic costs of production constitute a higher proportion of SV than it
is the case for FAM and ECF. As it turned out, however, soybean production in Nigeria remains
uncompetitive in the international market irrespective of the level of commercialization.
Comparison of Soybean Shipment Values

(unofficial) expenses and foreign costs. As shown in Table 3.44, the composition of soybean
shipment values varies considerably across the farms and the various stages in the value chain.
At the FAM level, domestic costs and mark-ups range from 71 percent of SV at the production
stage to 92 percent at the assembly stage and 93 percent at the final delivery point. Compared to
other categories of farms, foreign costs in respect of LCF constitute the highest proportion (82
percent) of SV at the production stage. It is followed by FAM with 26 percent while ECF has the
lowest (8 percent).
In the case of ECF, domestic costs and mark-ups constitutes the highest proportion (92
percent) of SV at the production stage whereas LCF has the lowest proportion (17 percent).
Although the proportion of domestic costs and mark-ups seems to be lowest in the case of LCF
at the final delivery stage, the proportion of foreign costs still exceeds that of FAM and ECF (see
Figure 3.18). The unfolding results point to the fact that domestic costs and mark-ups contribute
more to the rising shipment values in the soybean chain than foreign costs as far as the FAM and
ECF sectors are concerned whereas in the case of LCF the foreign costs contribute more than
domestic costs. Improving the profitability and competitiveness of soybean will therefore,
require different policy measures across the farm sectors. Whereas the LCF will benefit more
from trade and other related policies, the soybean FAM and ECF may derive greater benefits
from sector-specific and other domestic interventions.
Comparison of Soybean Production and Market Indicators

In comparing farm-level performance of the three farm sectors, attention is focused on key
indicators such as yield, unit cost of production and farm gate price. As shown in Table 3.45, the
yield of soybean is very low, but it is lowest in the case of FAM. The ECF obtained the highest
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129
Table 3.43
Soybean Profitability and Value Chain Indicators By Level of
Commercialization of Farms
DRY SOYBEAN
GRAINS
PROFITABILITY
INDICATORS
FAM
GM (US$) 159 9 107
NET PROFIT(US$) 156 9 107
GM/TVC (%) 79 2 26
NET PROFIT/TC (%) 76 2 26
ECF
GM (US$) 183 9 103
NET PROFIT(US$) 183 9 103
GM/TVC (%) 81 2 24
NET PROFIT/TC (%) 81 2 24
LCF
GM (US$) -16 9 86
NET PROFIT (US$) -3,151 9 86
GM/TVC (%) -5 2 22
NET PROFIT/TC (%) -90 2 22
VALUE CHAIN
INDICATORS
FAM
DVA (US$) 154 347 398
SV (US$) 207 370 422
DVA/SV (%) 74 91 92
DC/DVA (%) 95 98 98
ECF
DVA (US$) 256 423 504
SV (US$) 232 345 426
DVA/SV (%) 109 123 118
DC/DVA (%) 100 100 99
LCF
DVA (US$) 588 -2,158 845
SV (US$) 3,146 -2,568 435
DVA/SV (%) 18 84 194
DC/DVA (%) 93 102 95
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Table 3.44: Comparison of Composition of Soybean Shipment Values in Nigeria (%)

FAM ECF LCF
FARM
-Official duties and tax 1 - -
-Total 100 100 100
ASSEMBLY
-Official duties and tax 1 - -
-Total 100 100 100
LOGISTICS
-Official duties and tax - - 1
-Total 100 100 100
Table 3.45: Comparison of Selected Soybean Production Indicators in Nigeria

FAM ECF LCF
1 Yield MT/Ha 0.98 1.41 1.30
2 Unit Cost of 207 226 3,492
Production $/MT
3 Farm 364 409 341
Gate Price $/MT
5 Gross Margin $/Ha 206 259 -21
6 Net Return $/Ha 203 259 -4,096
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Figure 3.18: Composition of Shipment Value for Soybean Enterprises in Nigeria

FAM SOYBEAN
Composition of SV
400
350
300
250
200
150
100
50
-
SOYBEAN
Costs & Mark- Duties & Unofficial Foreign

ups Tax Extras costs
ECF SOYBEAN
Composition of SV
500
400
300
200
100
-
SOYBEAN
(100)
(200)

LCF SOYBEAN
Composition of SV
1,000 (USD per MT Traded Commodity)
800
600
400
200
-
SOYBEAN
(200)
(400)
(600)
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132
yield followed by the LCF. The farm gate price for the ECF sector is the highest; followed by
FAM and LCF. Soybean appears to be profitable at the FAM and ECF sectors (but more so in
the latter than the former) whereas in the case of the LCF the returns seem to be negative. The
unit cost of production is lowest in the FAM sector; the level of variable cost is also the lowest
compared with ECF and LCF. However, this has not translated to the highest level of
performance in terms of gross margin and net return per hectare due to the fact that the farm gate
price in the FAM sector is the lowest.
Build-up of Soybean Final Shipment Value By Stage

(per 1 MT of raw material) at each stage of the soybean value chain. Table 3.46 presents the cost
structure for the three categories of farms. The highest proportion (50 percent) of the incremental
value was realized at the production stage only in respect of the FAM sector. With regard to the
ECF, the highest proportion (50 percent) was realized at the final delivery stage while the lowest
(15 percent) was realized at the production stage. In the case of LCF, the highest proportion (50
percent) of the incremental value was realized at the assembly stage, whereas only 7 percent was
realized at the final delivery stage.
Table 3.46: Build-up of Soybean Final SV By Stage (%)

FAM ECF LCF
Farm 50 15 43
Assembly 28 35 50
Trade 22 50 7
TOTAL 100 100 100
3.5.6 Impediments to Growth in the Soybean Industry

The major constraints to higher soybean production and utilization in the country include the
following.
Ignorance of improved production methods among the farmers
Inadequate supply of modern input
Poor pricing of agricultural produce
Inaccessibility of credit facilities to majority of the farmers
Untimely release of loans resulting in delayed farm operations such as late planting, late
harvesting, inability to procure inputs on time and reliance on manual harvesting in a
situation where mechanization should have been ideal
Very low fertility of the soil. The level of availability of critical nutrients such as
phosphates, nitrogen, potassium, boron is extremely low in some areas
Available fertilizer is grossly deficient in essential micronutrients.
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3.6 Value Chain Analysis of the Sugarcane Industry
3.6.1 Review of Sugar-cane Value Chain Studies

Quantitative studies on sugar-cane value chain studies are non-existent in the country. However,
the issues of competitiveness of sugar products in the international market and the performance
of the sugar industry have been a major concern in existing literature. Busari (2004) considered
some of the qualitative aspects of these issues and identified some causes of the dismal
production record of the sugar industry. They are (i) low capacity utilization in the existing mills,
(ii) too few operating sugar mills in the country, (iii) availability of cheap imported sugar which
led to progressive decline in local output, (iv) persistently inadequate supply of raw material
(sugar-cane), (v) lack of improved indigenous technology for sugar processing, (vi) lack of a
statutory regulatory organ for sugar-cane and sugar research and development prior to the
establishment of the National Sugar Development Council in 1993 and (vii) low level of
efficiency of sugar recovery in existing mills. As argued by the author, the unit cost of
production of local sugar is higher than the price of imported sugar due largely to the heavy
subsidies and varied grants enjoyed by producers who dumped their surplus sugar on the
international market. He concludes that it is highly unlikely that countries like Nigeria can
produce sugar at costs that will be low enough to match the prices of such cheap imports. This
implies that domestic efforts aimed at reducing production costs will be necessary but not
sufficient to ensure that Nigerian sugar is competitive in the international market.

There has been widespread participation of several countries in the production, consumption,
import and export of sugar all over the world leading to rapid expansion of the global sugar
industry over the last two decades. Available data (IS0, 2000) indicate that world output of sugar
increased from about 118 million tonnes in1995 to 130 million tonnes in 2000. Over the period
the share of beet sugar declined from 31 to 27 percent while that of cane sugar rose from 69 to 73
percent. Sugar has a distinct characteristic in the sense that the major producers and exporters
also tend to be the major consumers and importers. The top five sugar producers, Brazil, EU,
India, China and USA were also the top consumers in the world. India was on top of the list of
consumers in 2000 (consuming about 16.4 million tonnes) followed by EU (14.1 million tonnes),
Brazil (9.7 million tones), USA (8.9 million tonnes) and China 98.5 million tonnes). As at 2000,
Brazil remained the leading exporter followed by EU, Australia, Thailand and Cuba. At the top
of the five leading importers in 2000 was the Russian Federation followed by EU, Japan, Korea
and USA.
Increased world sugar output has been due a combination of factors including field
expansion and radical improvement in technology (in Brazil), improved efficiency and increased
capacity utilization of existing facilities (in China), area expansion and favourable weather (in
Thailand), fertile land, good weather and supportive role of government in the form of subsidies
and financing of research and infrastructure (in the US) (see Busari, 2004). Between 1995 and
2000, sugar imports followed an upward trend in view of the persistent decline in world prices.
From an all time high of 13.28 cents/lb in 1995, the ISA daily price (which is the average of the
New York Coffee and Sugar Exchange spot price and the London Daily Price) declined to 6.27
cents/lb in 1999. And on the basis of the London Daily Price, sugar prices have slumped from
$333/tonne in 1995 to $160.8/tonne in 1999. Thus, it has been possible to stabilize the world per
capita consumption of sugar at about 21 kg annually over the period.
133
134

Two types of sugar-canes are produced in Nigeria – industrial cane and the chewing cane.
Industrial sugar-cane is the major raw material used in the manufacture of sugar in the country.
The chewing cane is mainly chewed in its natural form for its sweet juice, although the local
populace often process part of the sugar-cane into various forms of sugar products. However,
despite the long history of commercial sugar-cane cultivation in Nigeria which dates back to the
1950s, the sugar industry remains grossly underdeveloped. The sugar requirements of the
country remains largely unmet from domestic sources despite favourable agro-climatic and
edaphic conditions for the production of sugar-cane and in spite of the long period of existence
of sugar mills. This is due to several reasons chief among them is the very low level of
production of industrial cane in the country.
Between 1990 and 2000, the output of industrial cane was higher than that of chewing
cane only for a period of three years - 1990 to 1992. Thereafter, the output of chewing cane has
been much higher. Besides, the output of chewing cane has trended upwards over the years
whereas that of industrial cane followed a declining trend (Figure 3.19). Output of chewing cane
increased from 336,000 tonnes in 1990 to 793,000 tonnes in 2000 while the output of industrial
cane plunged precipitously from
584,000 tonnes to 52,000 tonnes Fig. 3.19: Sugar-cane Production in
during the same period. The Nigeria, 1990-2000
downstream activities in the sugar
industry have also not achieved the
desired results. Domestic 1000
800
'000 MT
production of sugar had suffered Industrial

600
considerably with the output 400 Cane
declining from 41851 tonnes in 200 Chewing
0 Cane
1990 to mere 4000 tonnes in 2000.
It has not been possible for Total
90
92
94
96
98
00
19
19
19
19
19
20
domestic output to meet up to 5

percent of sugar supply in the Year
country during the period. There
has been heavy reliance on import
(Table 3.47). Even in the face of declining domestic output, sugar import could not be allowed to
rise continuously due to foreign exchange difficulties. The overall consequence, is that per capita
consumption of sugar in Nigeria has been very low. It stood at 8.0 kg in 1999 far behind the
world figure of 20.8 kg and figures in some developing countries such as Swaziland (69.0 kg),
Gibraltar (83.3 kg), Singapore (69.0 kg) just to mention a few (see Busari, 2004) Hitherto, sugar
production in the country had been carried out largely by two government-owned companies
which had demonstrated very woeful performance over the years. One of the companies (The
Nigerian Sugar Company Ltd) started operations since 1964 while the other (Savannah Sugar
Company Ltd) was commissioned in 1980. Recently, however, the companies have been
privatized under the 2003-2007 reform agenda of the government. Since the liberalization of the
sugar industry, there has been favourable private sector response; the most significant of which
was the establishment of a huge sugar refinery in 2000 with a capacity of 650,000 tonnes of
refined sugar annually. It is expected that increased private sector investment in the sugar
industry should, in due course, begin to yield desired results especially in terms of increased
sugar consumption and reduced import.
134
135
Table 3.47: Sugar Supply in Nigeria, 1990-2000

Year Domestic Import Total Share of
Production (MT) (MT) Import (%)
(MT)
1990 41851 857149 899000 95.34
1991 45295 866705 912000 95.03
1992 32624 917376 950000 96.57
1993 28522 818978 847500 96.63
1994 23003 737797 760800 96.98
1995 16199 684801 701000 97.69
1996 11234 618766 630000 98.22
1997 15805 535768 551573 97.13
1998 9850 763414 773264 98.73
1999 10000 771782 781782 98.72
2000 4000 735890 739890 99.46
Source: Adapted from Busari, 2004
Whereas sugar import is reducing over the past few years, there seems to be considerable
expansion in export (Fig. 3.20). Available data from the National Bureau of Statistics between
2002 and 2005 indicate that sugar export increased from about 35.8 million in 2002 to 227.4
million in 2003 and 422.9 million in 2004. Nonetheless, Nigeria is still largely a net importer
of sugar. Sugar import which stood at 30.7 billion in 2002 declined to 20.9 billion in 2003. It
rose to 24.9 billion in 2004 but by 2005, it has plunged to only 4.7 billion (Fig. 3.21).
3.6.4 Characterization of the Sugar-cane Value Chain
Production Trend
With the available record of sugar-cane production between 1999 and 2004 it is possible to
disaggregate the relevant data by zones; but unlike the data presented earlier it is impossible to
make a distinction between industrial and chewing canes. On zonal basis, the production of
sugarcane is concentrated in the NW which accounts for an average of 80.44 percent of the
output between 1999 and 2004 (Table 3.48). Nevertheless, production remains virtually at the
same level over the period (Fig. 3.22). Production in the NE, which accounts for 8.62 per cent of
the total, is highly unstable even though this is where the yield is highest in the country. The
yield, which averaged 16.07mt/ha, is about double the yield recorded in the NW. The output
trend is as haphazard in the SW as in NE whereas in the South-South zone, output growth is
completely stagnant. It is only in the NC that sugarcane production followed an upward trend
during the period. There seems to be some expansion in land area under cultivation in both the
NW and NC during the period whereas in the SW and NE no significant expansion has occurred
(Fig. 3.23).
135
136
Fig. 3.20: Trend in Sugar Export in Nigeria,

2002-2004
500
400
million naira
300
200
100
0
2002 2003 2004
Year
Fig. 3.21: Trend in Sugar Import in Nigeria,

2002-2005
35
30
billion naira
25
20
15
10
5
0
2002 2003 2004 2005
Year
136
137
Table 3.48: Sugar-Cane Production in Nigeria, By Zones, 1999-2004
1999 2000 2001 2002 2003 2004

NORTHWEST
-Area(‘000Ha) 93.73 95.03 95.36 97.01 97.76 102.42
-Output(‘000MT) 838.72 835.89 838.75 839.99 843.95 844.22
-Share of Total (%) 85.01 81.48 80.83 80.40 99.87 74.87
-Yield (MT/Ha) 9.01 8.78 8.82 8.65 8.69 8.27
NORTHEAST
-Area(‘000Ha) 5.58 5.86 5.72 6.09 6.16 7.24
-Output(‘000MT) 88.20 92.14 89.76 91.93 87.23 91.55
-Share of Total (%) 8.94 8.98 8.65 8.80 8.25 8.12
-Yield (MT/Ha) 17.60 18.40 17.8 15.16 14.50 13.00
NORTHCENTRAL
-Area(‘000Ha) 5.59 9.40 10.27 10.62 11.68 18.23
-Output(‘000MT) 59.30 91.96 102.27 106.27 120.10 182.77
-Share of Total (%) 6.01 8.96 9.86 10.17 11.37 16.21
-Yield (MT/Ha) 11.70 10.11 10.20 10.00 10.90 10.02
SOUTHWEST
-Area(‘000Ha) 1.05 1.18 1.13 1.05 1.72
-Output(‘000MT) 5.45 6.37 6.08 5.42 8.99
-Share of Total (%) 0.53 0.61 0.58 0.51 0.80
-Yield (MT/Ha) 51.90 5.39 5.38 5.16 5.23
SOUTH-SOUTH
-Area(‘000Ha) 0.10 0.10 0.10 0.10
-Output(‘000MT) 0.49 0.49 0.49 0.49
-Share of Total (%) 0.05 0.05 0.05 0.05
-Yield (MT/Ha) 4.90 4.49 4.49 4.49
ALL ZONES
-Area(‘000Ha) 104.99 111.40 112.60 115.00 116.70 129.61
-Output(‘000MT) 986.70 1025.90 1037.70 1044.80 1056.70 1127.50
137
138
Fig. 3.22: Sugar-cane Production in Nigerian Agro-

Ecological Zones
900
800
700
Output ('000 MT)
600 NW
500 NE
400 NC
300 SW
200
100
0
1999 2000 2001 2002 2003 2004
Year
Fig: 3.23: Land Area Cultivated to Sugar-cane

in Nigerian Agro-Ecological Zones
120
100
80 NW
'000 ha
NE
60
NC
40 SW
20
0
1999 2000 2001 2002 2003 2004
Year
138
139
3.6.5 Results of the Sugar-cane Value Chain Analysis

The analysis focuses on key indicators of profitability in the sugar-cane value chain (production,
assembly, processing, trade) as well as the indicators of performance of the value chain with a
view to determining the international competitiveness of the commodity. It was possible to
include only large commercial farmers (LCF) in the analysis.

The structure of financial costs associated with the sugar-cane value chain in Nigeria is presented
in Table 3.49. The type and composition of costs vary from one stage to another. At the
production stage, seeds, fertilizer and chemicals represent 48 percent of the total cost, followed
by machine operation (22 percent), depreciation of fixed capital (18 percent) and hired labour
(12 percent). At the assembly stage, the two important cost items are vehicle operation and
maintenance (which represents 67 percent of the total cost) and hired labour whose share of total
cost is 33 percent. At the processing stage, the operational cost, excluding raw materials, consists
largely of hired labour leaving only a marginal share to packing and storage. At the logistics
stage, the relevant cost items in order of importance are transport to delivery point (66 percent of
total cost), loading and storage (31 percent) and overhead (3 percent).
Table 3.49: Structure of Financial Costs in Sugar-cane Enterprises in Nigeria

percent
PRODUCT
Vehicle Operation & Maintenance 67
Packing & Storage 1
Depreciation 18
Total 100 100
The results show that with the exception of processing, operating profit and net profit are
positive at every stage of the value chain. At the production stage, the gross margin per tonne is
US$7.25 while net profit is US$4.86; whereas at the assembly stage, the gross margin per tonne
(US$6.06) is the same as net profit in view of the negligible investment cost at this stage. As
expected, the rate of return (16 percent) at the assembly stage is much lower than at the
production stage which is 92 percent on the basis of gross margin and 47 percent based on net
profit. Trading in white sugar attracts net profit per tonne of US$105.49 with 13 percent rate of
return while net profit for brown sugar trade is US$29.73 with three percent rate of return (Table
3.50).
139
140
Table 3.50: Profitability Indicators of Sugar-cane Enterprises in Nigeria (Per MT)

Gross revenue 2,000 15.15 5,800 43.94 38,000 287.88
Production costs
Crop purchase - 2,000 15.15 5,800 43.94
Investment costs 316 2.39 - - 23 0.17
Total costs 1,359 10.30 5,000 37.88 58,826 445.65
Final income
Gross margin 957 7.25 800 6.06 (20,803) (157.60)
Net profit 641 4.86 800 6.06 (20,826) (157.77)
Rates of return
Gross
Grossmargin/total
margin/totalVCVC 0.92 0.16 -0.35
Net profit/total costs 0.47 0.16 -0.35
TRADED COMMODITIES (1MT Final Product)

White Sugar Brown Sugar
NGN USD NGN USD
Gross revenue 120,000 909.09 130,000 984.85
Production costs
Crop purchase 100,000 757.58 120,000 909.09
Other variable costs 6,075 46.02 6,075 46.02
Investment costs - - - -
Total costs 106,075 803.60 126,075 955.11
Final income
Gross margin 13,925 105.49 3,925 29.73
Net profit 13,925 105.49 3,925 29.73
Rates of return
Gross margin/total VC 0.13 0.03
Net profit/total costs 0.13 0.03
140
141

The transformation of sugar-cane into sugar (white and brown sugar) results in considerable
increase in value along the chain. The transformation of sugar-cane into white sugar is associated
with an increase in shipment value from US$13.14 at the sugar-cane production stage to
US$803.60 at the stage of trading in white sugar. For brown sugar, the shipment value increases
from US$13.14 to US$955.11 (see Table 3.51 and Figure 3.26). Sugar-cane production yields a
value added (US$10.25) which represents 78 percent of the shipment value. About 87 percent of
the DVA is made up of domestic costs and mark-ups. At the level of trading, value added also
represents a high proportion (98 percent) of the shipment value of both white and brown sugar.
About 99 percent of the DVA is accounted for by domestic costs and mark-ups.
In general the major components of shipment value are domestic costs and mark-ups,
official duties and tax, additional (unofficial) expenses and foreign costs. In the case of sugar-
cane, at each stage of the value chain the shipment value consists largely of domestic costs and
mark-ups whose share ranges from 67 percent at the production stage to 89 percent at the
assembly stage and 99 percent at the processing stage. Although foreign costs seem to be
Table 3.51: Sugar-cane Value Chain Indicators in Nigeria (Per MT)

Costs & mark-ups 1,178 8.92 4,618 34.98 58,272 441.45
Total DVA 1,352 10.24 4,791 36.30 58,444 442.76
Foreign costs 382 2.89 382 2.89 -
D.
Product 1 Product 2 Product 3
Costs & mark-ups 103,129 781.28 122,200 925.76 -
Official duties & tax 292 2.21 390 2.95 -
Additional costs 745 5.64 940 7.12 -
Total DVA 104,166 789.14 123,530 935.83 - -
Foreign costs 1,909 14.46 2,545 19.28 -
Total Shipment Value 106,075 803.60 126,075 955.11 - -
141
142
Fig. 3.24: Composition of Shipment Value for Sugar-cane
Composition of SV
1,200 (USD per MT Traded Commodity)
1,000
800
600
400
200
-
White Sugar Brown Sugar

negligible at the processing stage, they represent a sizable proportion at the production stage (22
percent) and assembly stage (7 percent) (Table 3.52).
For the purpose of determining the international competitiveness of sugar, the final
shipment values are compared with the relevant import parity price. The final SVs for white
sugar (US$803.60) and brown sugar (US$955.11) are both higher than the import parity price
(US$409.7) implying that Nigerian sugar is unlikely to be competitive at the international
market.
Table 3.52: Composition of Sugar-cane Shipment Values in Nigeria (%)
FARM ASSEMBLY PROCESSING LOGISTICS

PRODUCT
Domestic costs & mark-ups 67 89 99 97
Official duties and tax 3 1 - -
Additional expenses 8 3 - 1
Foreign costs 22 7 1 2
Total 100 100 100 100
( c) Build-up of Sugar-cane Final SV By Stage (%)

(per 1 MT of raw material) at each stage of the sugar-cane value chain. At the production stage,
the share of the final shipment value is 25 percent while the processing stage also has a similar
share. The final delivery stage has the largest share which is 50 percent of the final shipment
value.
142
143
3.6.6 Impediments to Growth in the Sugar-cane Industry

Several problems militate against the performance and growth in the sugar industry. In general
the problems cut across the production, processing and marketing stages of the value chain. The
main constraints are as follows.
Reliance on estate-based industrial cane production system which is bedeviled with myriads
of operational deficiencies and has thus hindered regular supply of raw materials to the sugar
factories over the years.
Low output price for sugar-cane. Only few farmers have joined the estate-based out-grower
schemes due largely to unattractive prices offered to farmers. Up till the 1992 season, farmers
were paid about N130 per tonne of cane delivered to the Nigerian Sugar-cane Company Ltd.
The price increased thereafter to N300 and N1,500 over the years but stood at only N1,700 in
the 2000 season. According to Busari (2004), local farmers obtain higher returns for putting
their resources into the cultivation of other crops like rice and chewing cane which share
similar ecology with industrial cane.
Restricted market for sugar-cane which has tended to discourage increased production by
small-scale farmers. The mills available are too few compared to the number of farmers.
Moreover, available mills are located close to few farmers and far away from several others;
thus constituting great disincentive for both producers and millers. Whereas farmers growing
chewing cane can sell their products various markets, producers of industrial cane can only
sell to the limited number of mills which in some instances can be reached at very high cost
of transportation.
Low yield. Sugar-cane yield in the country has been very low. This has adverse
consequences for profitability and competitiveness of the commodity.
Reliance on imported cultivars for the estate-based production systems.
Low level of capacity utilization in existing sugar mills
Inadequate and irregular supply of sugar-cane to the mills
3.7 Comparative Analysis of Value Chain By Type of Crops

The previous sections show different levels of production performance as well as profitability
and value chain indicators for the three farm sectors considered in the analysis. Moreover, many
of the crops are not competitive at the international market. The comparative analysis in this
section is focused on the crops in order to ascertain their relative positions in terms of
production, profitability and value chain performance across the sectors. This will permit a more
targeted approach towards enhancing the competitiveness of each commodity. Thus, the key
indicators for the comparative analysis are yield of the selected crops, unit cost of production,
gross margin, net profit and shipment value.
3.7.1 Production Performance

The relative production performance of the farmers is assessed using two indicators; yield and
unit production cost. The relative positions of the crops in terms of yield are illustrated in Fig.
3.25. No attempt is made to compare the yield of cassava which is a root crop with the other
crops. Its inclusion in the figure is to demonstrate the huge gap between cassava yield in the
FAM sector and in each of the two other sectors. The FAM sector therefore, should not be seen
as necessarily backward and non-responsive to the various efforts of the government aimed at
disseminating improved crop varieties and modern farming techniques in the country. Within the
FAM sector, the yield of maize is the highest while that of rice is the lowest. In the case of ECF,
143
144
Fig. 3.25: Yield of Selected Crops in Nigeria, 2005
10
6 Cassava
MT/Ha Cotton
4 Maize
Rice
2 Soybean
0
FAM ECF LCF
SECTOR
the yield of rice is the highest while that of soybean is the lowest. And in the LCF sector, the
yield of rice is also the highest while that of soybean is the lowest.
With regard to unit cost of production in the FAM sector, it is highest in the case of
cotton, followed by soybean, maize and rice while the lowest is in respect of cassava. Of the four
crops produced in the ECF sector, the unit cost of production for maize is the highest, followed
by that of cassava and soybean while the lowest is for rice. And in the case of LCF, unit
production cost is highest also in the case of maize, followed by rice and cassava while the
lowest is in respect of sugar-cane (Figure 3.28). For maize, rice, and soybean it is true that unit
cost of production increases with rising degree of commercial orientation.
3.7.2 Profitability Indicators

Judging by the level of operating profit (gross margins), the results show that rice is the most
profitable crop across the sectors. It is followed by soybean, maize, cassava, cotton and sugar-
cane. However, in specific sectors, the order of profitability changes somewhat. In the FAM
sector, the most profitable crop is rice followed by soybean, maize and cassava while the least
profitable is cotton. In the case of ECF, the order is: rice, soybean, cassava and maize, whereas in
the LCF sector rice maintains the lead and it is followed by cassava, maize and sugar-cane
(Figure 3.29). Thus, if operating profit is to be used as a criterion to select key crops that should
be supported for export purposes and enhancement of international competitiveness with
144
145
Fig. 3.26: Comparison of Unit Cost of Production By

Crops in Nigeria
600
500 Cassava
USD/MT
400 Cotton
Maize
300 Rice
200 Soybean
100 Sugar-cane
0
FAM ECF LCF
SECTOR
145
146
Fig. 3.27: Gross Margins in Selected Farm Sectors in Nigeria,

By Crops
450
400
350
300
cassava
250 cotton
USD/MT
maize
200
rice
150 soybean
sugar
100
50
0
FAM ECF LCF
-50
SECTOR
146
147
continued reliance on smallholders who are responsible for the production of over 80 percent of
the agricultural commodities in Nigeria, the order of increasing importance of the crops included
in this study will be rice, soybean, maize, cassava and cotton. Even on the basis of net return,
which is another indicator of profitability, the commodities will still be selected in that order. As
shown in Figure 3.30, net returns for these crops in the FAM sector are all positive with the
highest returns accruing from rice, followed by soybean, maize, cassava and cotton.
Fig. 3.28: Net Profit in Selected Farm Sectors in Nigeria, By Crops
500
400
300
cassava
200 cotton
USD/MT
maize
rice
100 soybean
sugar
0
FAM ECF LCF
-100
-200
SECTOR
147
148
3.7.3 Comparison of Value Chain Indicators By Crops

For the purpose of comparison, the crops can be classified into two broad categories the grains
(rice, soybean and maize) and other crops (cassava, cotton sugar-cane), the processing of which
involves substantial transformation into various products. Although the profitability of the crops
at the production stage is crucial for the purpose of improved commercialization and
competitiveness, it is important to stress that profitability is a necessary but not sufficient
condition for international competitiveness. A sound judgement about the ranking of the
commodities for export promotion and enhancement of competitiveness depends on the
magnitude of the final shipment values and the divergence of such values from the export or
import parity prices. With regard to the grains, rice has the highest shipment values irrespective
of the degree of commercialization of production (see Figure 3.31). And among the sectors the
shipment value is the highest in the case of the large commercial farms (LCF). The final
shipment values for soybean and maize are quite close but in each sector the SV for rice is
followed by that of soybean while that of maize is the lowest.
For the other crops, the traded commodities vary among the sectors with only cassava
products appearing in each of the sectors. Of the three cassava products, pellets have the highest
shipment value followed by starch and chips in each of the sectors. Cotton appears only in the
FAM sector where the shipment value of cotton lint is higher than that of cotton seed and indeed
higher than any of the traded commodities in the FAM sector. Sugar appears only in the LCF
sector where the shipment value of brown sugar is higher than that of white sugar and indeed
higher than that of any other commodity across the sectors (Figure 3.32). For these commodities
to be competitive, the shipment values should be much lower than the levels revealed in this
study. Information about the divergence between the SV and the parity price is crucial in this
regard as it will be required to determine the position of each commodity in terms of the support
necessary for the attainment of international competitiveness. Table 3.53 presents the deviations
of the SVs of the crops from parity prices across the sectors. For cassava, cotton and sugar-cane,
computation of the deviations is based on the traded products with the highest shipment values as
identified earlier. In a sense, the commodity with the minimum absolute deviation from the
parity price can be regarded to have the best performance in terms of degree of competitiveness.
On this basis, the ranking of the crops in order of competitiveness is presented in Table 3.54.
The results show that efforts aimed at promoting international competitiveness of the
selected crops will still need to be greatly intensified in general but most especially in respect of
cassava. Such efforts cannot be limited to campaigns to expand production but should be
extended to the development of appropriate and inexpensive local technologies that will reduce
costs in each stage of the value chain. There will also be the need to seek international
collaborative efforts to tackle the artificial barriers which create imperfections in the global
agricultural market especially those barriers that distort agricultural product prices to the
disadvantage of potential exporters from Nigeria.
148
149
Fig. 3.29: Final Shipment Values for Traded Grain Commodities in

Nigeria
800
700
600
USD/MT
500
MAIZE
400 RICE
300 SOYBEAN
200
100
0
FAM ECF LCF
SECTOR
149
150
Fig. 3.30: Final Shipment Values for SelectedTraded Products in

Nigeria
1200
1000
Chips
800 Pellets
USD/MT
Starch
600 Cotton Lint
Cotton Seed
400 White Sugar
Brown Sugar
200
0
FAM ECF LCF
SECTOR
150
151
Table 3.53: Deviations of SVs From Parity Prices of Selected Commodities in Nigeria
CASSAVA COTTON MAIZE RICE SOYBEAN SUGAR
FAM
-Domestic Price ($/MT) 189 265 371 454.55 363.64
-SV ($/MT) 543 816 415 674.34 422.41
-Parity Price*($/MT) -3 1,196 131 330.00 259.56
-Deviation (%) -13,667 -32 +216 +104.35 +62.74
ECF
- Domestic Price ($/MT) 106.06 239 545.45 409.09
-SV ($/MT) 546.97 418 677.76 426.52
-Parity Price ($/MT) -3.00 131 330.00 259.56
-Deviation (%) -18,332.33 +219 +105.38 +64.32
LCF
- Domestic Price ($/MT) 151.52 371 545 341 15
-SV ($/MT) 544.39 423 678 435 955
-Parity Price ($/MT) -3.00 131 330 259 409
-Deviation (%) -18,246.33 +222 +105 +67 +133
*For cassava and cotton, parity price is on export basis while for all other commodities it is on
the basis of import substitution.
Table 3.54: Ranking of Selected Commodities in Order of Degree of Competitiveness
Selected Crop FARM SECTORS

FAM ECF LCF
Cotton 1
Soybean 2 1 1
Rice 3 2 2
Maize 4 3 4
Cassava 5 4 5
Sugar 3
151
152
3.8 Sensitivity Analysis

This study reveals some variables that can affect the competitiveness of the selected
commodities as well as the value chain and profitability indicators. The most critical of them are
low level of yield and high cost of transportation. These are common problems to all the selected
crops. A sensitivity analysis is carried out to examine the extent of their effects on the value
chain and to determine the extent to which the inclusion of these variables in policy measures
aimed at improving the degree of competitiveness of the commodities can be justified. It is
expected that an increase in yield levels and a reduction in transportation costs will have
desirable impact on profitability and the value chain indicators. The levels of profit and net profit
are expected to increase while achieving a reduction in shipment values. Yield can be increased
through improved farm management practices, the use of adequate quantity and quality of
modern inputs and the planting of highly improved varieties of crops. These methods of yield
improvement can be influenced by policy actions to ensure that they do not necessarily lead to an
escalation of production cost. In Nigeria today, the most critical problem is inadequate supply of
improved varieties of crops. Thus, even at the current level of farm management and use of
complementary inputs, the yield of several crops can improve considerably if the farmers have
access to improved varieties. The increase in yield achieved by rice farmers who have been
planting NERICA rice in recent times tends to corroborate this assertion.
With regard to transportation cost, the effects at each stage of the value chain can be
deleterious. In Nigeria, the high production cost in the agricultural sector and indeed in many
other sectors of the economy is policy induced. Government policies and some administrative
procedures directly or indirectly lead to an increase in cost at every stage of the value chain.
Indeed, over the last two decades increases in production and marketing costs in the country have
been closely related to increases in transportation costs occasioned by incessant increases in the
price of petroleum products. The attainment of a high degree of competitiveness of agricultural
commodities which are produced in remote parts of the country and transported over long
distances to final destinations for domestic consumption, industrial use and export may be
difficult unless there are changes in the mode of transportation and in the frequency and
magnitude of increases in the price of fuel in the country.
The sensitivity analysis captures the effects of an increase in crop yield (by 50 percent) as
well as a reduction in transport cost (by 50 percent). The analysis shows that neither scenario is
in itself capable of yielding any appreciable result. However, simultaneous application of the
variables in the analytical templates tends to have considerable effects on the profitability
indicators and shipment values. The results of the sensitivity analysis are presented in Tables
3.55 and 3.56. As regards profitability indicators, the results show that (i) changes in the applied
variables have no effect on operating profit of processors (except rice ECF), (ii) the changes have
no effect on operating profit of assemblers in respect of maize and soybean, (iii) the changes
have no effect on operating profit of farmers in the FAM sector whereas considerable
improvement in profitability is observed in the ECF and LCF sectors in respect of all crops at the
production stage, and (iv) the changes result in profitability improvement at the trading logistics
stage which is most pronounced in the case of maize compared to other crops. As shown in Table
3.55, similar effects are observed in respect of net profit. However, unlike in the case of
operating profit, changes in crop yield and transportation cost result in some improvement in net
profit for all the selected crops within the FAM sector.
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Table 3.55: Changes in Profitability Indicators With 50% Increase in Yield and 50% Reduction in Transport Cost
percent
Change in Operating Profit Change in Net Profit
(with 50% increase in yield and 50% reduction in (with 50% increase in yield and 50% reduction in
transport cost) transport cost)
Farm Assem- Pro- Logistics Farm Assem- Pro- Logistics
Product bly cessing Prod 1 Prod 2 Prod 3 bly cessing Prod 1 Prod 2 Prod 3
Cassava
-FAM 0 20 0 12 11 11 0 20 0 12 11 11
-ECF 150 20 0 11 10 11 -1 21 0 11 10 11
-LCF 6 692 0 11 10 11 13. 693 0 11 10 11
Cotton
-FAM 0 186 0 7 18 20 186 0 8 18
Maize
-FAM 0 0 269 3 0 269
-ECF 131 0 445 -115 0 445
-LCF 77 0 151 -146 0 151
Rice
-FAM 0 4 0 17 1 4 0 18
-ECF 11 0 3 18 12 0 -3 18
-LCF 15 5 0 18 77 5 0 18
Soybean
-FAM 0 0 4 1 0 4
-ECF 40 0 6 41 0 6
-LCF 729 0 23 -37 0 23
Sugar
-LCF 36.41 125.08 0 14 50 70 125 0 14 51
Note: For cassava, Prod 1 = chips; Prod 2 = pellets; Prod 3 = starch
For cotton, Prod 1 = cotton lint; Prod 2 = cotton seed
For sugar-cane, Prod 1 = white sugar; Prod 2 = brown sugar
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Table 3.56: Changes in Shipment Value With 50% Increase in Yield and
50% Reduction in Transport Cost
Farm Assembly Processing Trading Logistics

Product Prod 1 Prod 2 Prod 3
Cassava
-FAM -34 -3 0 -9 -9 -9
-ECF -33 -5 0 -9 -9 -9
-LCF -33 -3 0 -9 -9 -9
Cotton
-FAM -33 0 0 -4 -16
Maize
-FAM -69 0 -1
-ECF 0 0 -1
-LCF -18 0 -2
Rice
-FAM -34 -0 0 -2
-ECF -32 0 0 -2
-LCF -33 -0 0 -2
Soybean
-FAM -4 0 -1
-ECF 0 0 -1
-LCF -33 -57 -2
Sugar-cane
-LCF 0 -19 0 -1 -1
Note: For cassava, Prod 1 = chips; Prod 2 = pellets; Prod 3 = starch
For cotton, Prod 1 = cotton lint; Prod 2 = cotton seed
For sugar-cane, Prod 1 = white sugar; Prod 2 = brown sugar
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The ultimate effect of an increase in yield and decrease in transaction cost should be a
reduction in shipment values in order to achieve an improvement in the degree of
competitiveness of the commodities. As expected, the changes yielded the desired effects in the
value chain but there seems to be variation from one stage to another. The results show that (i)
the changes have no effect on the SVs at the processing stage, (ii) the changes have no effects on
SVs at the assembly stage in respect of maize and cotton, (iii) the changes have no effect on the
SVs of sugar-cane producers, (iv) the effects on SVs at the production stage are more
pronounced in respect of cassava, cotton and rice compared to other crops and (v) at the trading
logistics stage, the effects on SVs are more pronounced in the case of cotton, cassava and rice
but marginal in the case of other crops (see Table 3.56).
In sum, the reductions achieved in the SVs of the various crops is far from being
sufficient to make them competitive at the international market. As noted earlier, the yield of
each of the crops at the FAM level is rather low. The yield of the crops especially in the FAM
sector will have to increase by much greater proportion (than 50 percent) in order to have a
meaningful impact on international competitiveness. It is also important to stress, that the actions
aimed at improving the degree of commercialization and competitiveness cannot be singular at
any point in time. A combination of variables will be required locally by both policy makers and
private investors. Actions are required within and outside the agricultural sector especially in the
areas of governance, infrastructure development as well as within and outside the country in
terms of redressing the global imperfections in agricultural trade. There should be vigorous
negotiations within and outside the purview of WTO to ensure that the international reference
prices of the selected commodities fully reflect the forces of demand and supply. More
importantly, however, is the need for the government to provide well-articulated export
incentives to support the drive to enhance the competitiveness of Nigerian agricultural
commodities in the international market.
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CHAPTER 4
SUMMARY, CONCLUSIONS AND POLICY RECOMMENDATIONS
This study has analyzed the competitiveness of selected agricultural commodities in Nigeria
using the value chain approach. As a prelude to the analysis we undertake a review of the
broader development situation in the country in general and in the agricultural sector in
particular. A review of literature on the competitiveness of the selected commodities (cassava,
cattle, cotton, maize, rice, soybean and sugar) in the targeted agro-climatic zone is also
undertaken and this serves as a major source of data for the value chain analysis. Additional data
had to be obtained from primary sources to augment gaps in the secondary data. This chapter
presents a summary of the main findings, the constraints to profitability and competitiveness of
the selected commodities, the opportunities for improved performance and recommendations of
relevant policies and strategies.
4.1 Main Findings and Conclusions on Profitability and Export Competitiveness

The analysis of competitiveness of the selected commodities shows that with the exception of
cotton, none of the other commodities (cassava, maize, rice, soybean and sugar-cane) is
competitive at the international market. Moreover, it is found that the commodities remain
uncompetitive irrespective of the level of commercialization at the production level. In other
words, the commodities are not competitive in the international market notwithstanding whether
or not the producer operates as a small family farm (FAM), emerging commercial farm (ECF) or
large commercial farm (LCF). However, in the different farm sectors (FAM, ECF and LCF) the
production of the crops appears to be profitable although as expected, the degree of profitability
varies by crops and from one sector to another as indicated in the summary of the profitability
analysis presented in Table 4.1. The results of the analysis show that across the sectors, rice is
the most profitable crop. It is followed by soybean, maize, cassava and cotton. For maize, rice,
and soybean the unit cost of production increases with rising degree of commercial orientation.
These findings imply that measures aimed at reducing cost at the farm product level in
order to improve the competitiveness of the commodity should be targeted at domestic costs and
mark-ups in general but in the case of ECF and LCF there is need also to address the foreign
costs especially for soybean and maize production which involves the importation of different
types of machines and chemical inputs. The results also imply that the intensity of efforts will
not only vary across the farms but also in terms of the specific components of shipment value.
For instance, in the case of soybean, improving the profitability and competitiveness will require
different policy measures across the farm sectors. Whereas the LCF will benefit more from trade
and other related policies, the soybean FAM and ECF may derive greater benefits from sector-
specific and other domestic interventions. In general, the net return is apt to improve if there is a
reduction in the cost of capital and increased access to markets that offer more remunerative
prices for the farm products.
It is important to stress that the findings of this study have not contradicted popular
claims concerning competitiveness in Nigeria. In the case of cassava in particular, it has been
argued that Nigeria is in a position of great disadvantage compared to other competitors.
Daramola (2004), noted that the market price of cassava from Thailand was about a third of the
production cost in Nigeria; and that even though Nigeria has been producing about 70 percent of
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Table 4.1: Summary of Main Findings By Crops
CROP PROFITABILITY EXPORT COMPETITIVENESS

CASSAVA Both operating profit and net profit Cassava products (chips, pellets, starch)
are positive at the production and appear not to be competitive in the
processing stages in respect of the international market.
cassava FAM. The rate of return is Increasing commercialization of cassava
higher at the production stage than at production has not led to an improvement in
the processing stage. the degree of competitiveness of the main
In case of the ECF, operating profit products in the international market.
is positive at the production, In addition to high domestic costs, the very
assembly and processing stages. low level of international prices of these
Whereas net profit is positive at the products makes them uncompetitive.
assembly and processing stages, it
is negative at the production stage
indicating the difficulty to ensure
viability of commercial production
of cassava.
Profitability indicators follow
virtually the same pattern for cassava
LCF as that of the cassava FAM.
Both operating profit and net profit
are positive at the production and
processing stages; and the rate of
return is higher at the former than at
the latter stage.
COTTON The results show that operating profit Both cotton lint and seed are found to be
and net profit are positive at every stage competitive at the international market.
of the value chain.
MAIZE Operating profit and net profit are The maize farms are not competitive in
positive at the production stage for international markets irrespective of the
the maize FAM. degree of commercialization.
With the pattern of investment of
maize ECF and LCF, only operating
profit is positive.
The maize FAM also has the highest
net returns whereas the other
categories of farms have negative net
returns.
RICE Rice production is quite profitable in The rice farms are not competitive in
each of the three categories of farms. international markets irrespective of the
The gross margin per hectare for the degree of commercialization.
ECF is the highest followed by LCF The emerging commercial farms will likely
and FAM. require the most serious attention in terms of
Net return per hectare is also positive efforts aimed at reducing production cost and
across the farms. It is the highest in enhancing the competitiveness of rice.
the case of ECF followed by FAM
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and LCF.
SOYBEAN Soybean appears to be profitable at Soybean is not competitive at the international

the FAM and ECF sectors (but more market.
so in the latter than the former) Notably, domestic costs and mark-ups
whereas in the case of the LCF the contribute more to the rising shipment values
returns seem to be negative. in the soybean chain than foreign costs as far
The unit cost of production is lowest as the FAM and ECF sectors are concerned
in the FAM sector; the level of whereas in the case of LCF the foreign costs
variable cost is also the lowest contribute more than domestic costs.
compared with ECF and LCF. Foreign costs represents 81 percent of the
However, this has not translated to shipment value at the LCF soybean
the highest level of performance in production stage indicating the high degree of
terms of gross margin and net return foreign dependence by large commercial
per hectare due to the fact that the farms in terms of imported inputs.
farm gate price in the FAM sector is
the lowest.
SUGAR- With the exception of processing, Sugar appears not to be competitive at the
CANE both operating profit and net profit international market.
are positive at all stages of the value
chain.
the world cassava, domestic demand and high cost of production have made Nigerian cassava
uncompetitive in the world market. Besides, the latest report on trade competitiveness of a
sample of 30 African countries placed Nigeria among the five least competitive countries
together with Democratic Republic of Congo, Mali, Burkina Faso and Sierra Leone. Nigeria is in
this group on account of its poor institutional quality and high inflation as well as low
governance and infrastructure scores (see ECA, 2004). Although, efforts to create a more
favourable trade environment have been intensified over the years there seems not to have been
any significant reduction in production and marketing costs in the country in general and in the
agricultural sector in particular. It is therefore, not surprising that many of the crops included in
this study continue to be uncompetitive in the international market.
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4.2 Constraints
Several internal and external constraints account for the non-competitiveness of some of the
selected crops. The major external constraints are (i) agricultural subsidies in developed
countries, (ii) unfavourable international agricultural prices, (iii) imposition of high tariffs by
developed countries, (iv) export dumping and (v) market concentration. It may be difficult for
Nigeria alone to tackle the external constraints but joint actions can be taken at the level of
African Union and within the framework of NEPAD to engage the relevant countries in the
developed world. Nigerian can also mobilize other African countries that are most affected by
these external constraints in engaging the WTO with a view to negotiating appropriate solutions
to these problems. It is also possible to involve relevant organizations within the United Nations
system especially the United Nations Conference on Trade and Development (UNCTAD) in
tackling the knotty issues. With regard to the internal constraints, they are multi-dimensional.
They are very critical at the production, processing and marketing stages of the value chain (see
Table 4.2).
4.3 Opportunities for Improved Agricultural Commercialization and Competitiveness

Agriculture is being accorded high priority by the government in the development of the
Nigerian economy. In spite of the existing constraints, there seems to be bright prospects that the
government is interested in continuing to uphold this priority and in finding lasting solutions to
the problems of the sector. While the smallholders are giving due recognition in the development
of the sector, government has also demonstrated the willingness to make the sector attractive to
the organized private sector and to encourage vertical integration between the large-scale and
small-scale farmers so that the sector can fulfill its role of generating employment, creating
wealth and reducing poverty in the country. This section examines the emerging opportunities
for enhancing the competitiveness of the target commodities not only to demonstrate the
rationale for reversing the unimpressive trend in due course, but also to identify the scope and
specific areas of possible interventions by key players in the sector.
Conducive Policy Environment

The economic policy environment in Nigerian is becoming increasingly conducive and
investment-friendly. Indeed, it is the avowed policy of government over the past eight years to
make the economy market-oriented and private-sector-led. This has been a veritable source of
encouragement for increased private sector participation in the economy. For instance, some
private companies have invested in integrated paddy production and rice processing activities
with from which a number of out-growers are now reaping considerable returns. Indeed, the last
four years have witnessed some improvement in business conditions, operations at the ports,
customs procedures and the regulatory environment in general.
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Table 4.2: Value Chain Constraints of Agricultural Commodities in Nigeria

Crops Production Constraints Processing Constraints Marketing Constraints
Cassava The lack of mechanization in the production Equipment are generally not easily Unattractive prices of products remain a serious
process of cassava in the country is a very available locally, and when available, problem
important problem. they are usually expensive and inefficient High transportation cost arising from high and
The cost of hiring labour and the tedium and their parts wear down very fast rising fuel prices
encountered in manual cultivation Public power supply is very unreliable Inadequate credit facilities for commodity
particularly during land preparation with forcing the processors to depend on the marketing
local implements seem to discourage expensive alternative of using power Poor storage facilities
investment in cassava production. generators in the face of ever escalating Lack of standard measures in some markets
cost of fuel for the generators Poor roads and unreliable transport system prevent
Lack of credit for processing enterprises timely delivery of products in profitable markets
Unofficial payments to security agents and other
government functionaries for goods in transit
Cotton Climatic fluctuations. Since agriculture in Equipment are generally not easily Absence of institutional arrangement for
Nigeria is mostly rain-fed, timely arrival of available locally, and when available, commodity grading and quality control
rain is critical. Farmers often decide against they are usually expensive and inefficient Unattractive prices of products remain a serious
the cultivation of cotton due to late arrival and their parts wear down very fast problem
of rain. The arrival of rain is as important as Public power supply is very unreliable High transportation cost arising from high and
its cessation in maximizing yield. If rain forcing the processors to depend on the rising fuel prices and poor state of access roads
continues beyond a particular time, it may expensive alternative of using power Due to poor access to market information, buyers
lead to drastic reduction in output. generators in the face of ever escalating often exploit the farmers by offering low prices
Farmers tend to reduce the area cultivated in cost of fuel for the generators Inadequate credit facilities for commodity
reaction to poor prices and unfavourable Lack of credit facilities for processing marketing
market dynamics enterprises
Inadequate and untimely supply of modern
Lack of control over product adulteration
inputs
Unavailability of funds at critical times also
affects production.
Maize Inadequate and untimely supply of modern Equipment are generally not easily Unattractive prices of products
inputs available locally, and when available, High transportation cost arising from high and
Unavailability of funds at critical times also they are usually expensive and inefficient rising fuel prices
affects production. and their parts wear down very fast The lack of pre-planting contracts expose farmers
Public power supply is very unreliable to unfavourable market dynamics. For instance, in
forcing the processors to depend on the August 2005 maize was sold at N80,000 ($606.06)
expensive alternative of using power per tonne but in August 2006 the price dropped to
generators in the face of ever escalating N28,000 ($212.12) per tonne due to the outbreak
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cost of fuel for the generators of bird flu in some states and the resultant fall in
Lack of credit facilities for processing the demand for maize in the feed industry.
enterprises Inadequate credit facilities for commodity
marketing
Poor roads and unreliable transport system prevent
timely delivery of products in profitable markets
Rice Reliance on manual harvesting in a situation Unattractive prices of products

where mechanization should have been High transportation cost arising from high and
ideal rising fuel prices and poor state of access roads
Inadequate and untimely supply of modern Inadequate credit facilities for commodity
inputs marketing
Unavailability of funds at critical times also Poor storage facilities
affects production. Lack of control over product adulteration
Soybean Very low fertility of the soil. The level of Equipment are generally not easily Unattractive prices of products remain a serious
availability of critical nutrients such as available locally, and when available, problem
phosphates, nitrogen, potassium, boron is they are usually expensive and inefficient High transportation cost arising from high and
extremely low in some areas and their parts wear down very fast rising fuel prices
Available fertilizer is grossly deficient in Public power supply is very unreliable Inadequate credit facilities for commodity
essential micronutrients forcing the processors to depend on the marketing
Ignorance of improved production methods expensive alternative of using power Poor storage facilities
among the farmers generators in the face of ever escalating Poor roads and unreliable transport system prevent
Untimely release of loans resulting in cost of fuel for the generators timely delivery of products in profitable markets
delayed farm operations Lack of credit facilities for processing Unofficial payments to security agents and other
Inadequate and untimely supply of modern enterprises government functionaries for goods in transit
inputs
Sugar Inadequate and untimely supply of modern Equipment are not easily available Unattractive prices of products remain a serious
inputs locally, and when available, they are problem
Unavailability of funds at critical times also expensive and inefficient and their parts High transportation cost arising from high and
affects production. wear down very fast rising fuel prices and poor state of access roads
Public power supply is very unreliable Due to asymmetric information, buyers often
forcing the processors to depend on the exploit the farmers by offering low prices
expensive alternative of using power Inadequate credit facilities for commodity
generators in the face of ever escalating marketing
cost of fuel for the generators
Lack of credit for processing enterprises
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Inclusion of the Selected Crops in the Presidential Initiatives on Agriculture in Nigeria

The Federal government originated the Presidential Initiatives on Agriculture (PIA) in 2002 to
promote growth in the agricultural sector, reduce poverty and enhance food security. All the
target crops in this study except sugar-cane are included in the programme. The objectives,
achievements so far and the constraints in respect of cassava, cotton, maize, rice and soybean are
presented in Table 4.3. There is no doubt that the PIA programme has provided considerable
opportunity for the expansion of output in respect of each crop. It has also been reported in a
recent briefing by the Ministry of Commerce and Industry that in the case of cassava a
substantial amount of money ($2.1 million) has been realized from export of cassava products.
Although the specified targets have not been fully met due largely to inadequate funding, the
achievements are remarkable. It is expected that if the programme is continued with renewed
vigour, adequate attention to timeliness in operational matters and release of budgeted funds, it
should be possible to sustain the current gains and make significant improvement in the
performance of agriculture in the country.
High Growth in Other Developing Countries Especially China and India

This has tended to stimulate increased demand for exports from Nigeria and many other African
countries. In Uganda Chinese traders are buying up specialty woods, leather hides and fish
innards – a delicacy that is much relished in Asia. Chinese officials are also negotiating for the
purchase of a million tonnes of soybeans a year and large quantities of cassava (Zachary, 2006).
Similar arrangements are going on in other countries including Nigeria. Indeed, Chinese demand
for commodities in recent years appears to be unprecedented. According to UNCTAD (2005)
China accounts for over 15 percent of global imports of copper, iron ore, natural rubber and
soybeans. While developed country demand has largely remained stable, China has been
generating much of the marginal commodity demand that has been driving up prices.
Global Economic Growth and Agricultural Trade

The world economy is growing at an unprecedented pace reflecting the cessation of the Cold
War and expansion of new global technologies. In what appears to be a reversal of historical
trends, economic growth today is fastest in developing countries where 74% of the world’s 6.1
billion people live. Arguably, the developing countries are growing fast enough that they are now
causing a restructuring of the world economy especially world commodity markets – a trend that
may continue and even accelerate in the foreseeable future. Economic growth and agricultural
trade have been projected to remain much more rapid in developing countries such as China,
India, the Middle East and parts of Africa than in Europe, the United States and Japan. These
trends are being stimulated by shifts in economic policies that are successfully attracting
international investment and supporting rapid development largely focused on export growth and
investment in training and education of the work force. These are opportunities that sharply
stimulate food demand.
Policy Shifts in Many Developing Countries

Economic policy reforms in developing counties have led to the collapse of the former self-
sufficiency policies and have resulted in aggressive pursuit of competition and reliance on world
markets. This pattern has boosted world trade in recent times. In view of the enormous size of
many of these countries (especially China, India, Vietnam, etc) and their rapid growth,
considerable pressure is being brought to bear on the structure and conduct of world commodity
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Table 4.3: Achievements and Challenges of the Presidential Initiatives on Agriculture

CROP OBJECTIVES/TARGETS ACHIEVEMENTS CONSTRAINTS
CASSAVA -Increased cassava production -Increase in annual production of cassava -Inadequate supply
and export with the target from 33 million MT in 1999 to 49 million of planting
earning of US$5.0 billion from MT in 2006. materials
cassava export in 7 years. The -43 newly improved cassava varieties have -Inadequate
production target is 150 million been tried out of which 5 were selected and funding
metric tonnes of cassava per officially released. -Lack of
annum by the end of 2010. -Increase in the fabrication of small-scale entrepreneurial
processing equipment skill
-Increase in private sector investment in
cassava downstream activities
-Establishment of 5 primary processing
centers nationwide
-Inclusion of 10 percent high quality cassava
flour production in composite flour
production for bread making and other
confectioneries. Over 5,000 MT of cassava
flour have so far been supplied to five
composite flour mills for this purpose as at
December 2006.
-60 ha planted by NRCRI to produce 24,00
bundles of breeder stock; 80 ha planted by
RTEP to produce 32,000 bundles of
foundation stock, and 148 ha planted by
ADPs to produce 59,200 bundles of certified
stock
-Over 2,500 MT of cassava chips exported
to China
-500 extension agents from SW, SE and NE
zones trained
COTTON -Develop a viable and -Launching of a National Cotton Rebirth -Inadequate
sustainable cotton sector programme in June 2006 funding
covering the -Increase in total output of seed cotton from
cotton/textile/garment chain 150,000 MT in 1999 to 350,000 MT in 2006
through a market-oriented -Implementation of sustainable cotton seed
strategy multiplication scheme for medium and long
-Development of 1.25 million staple cotton with about 1,800 ha cultivated
ha to produce 1.0 million tones to different varieties of cotton
of seed cotton to boost -Procurement and distribution of agro-
vegetable oil production chemicals including 3,100 litres of
lambdacy halothrin, 3,190 litres of
cypermetrin 10EC and 1,360 litres of
pohytrin ka 315 EC/uhv for the cotton
multiplication scheme.
-The N50 billion Textile Rehabilitation
Fund to support cotton/textile/garment
industries is currently being facilitated by
the Presidential Committee on Revival of
the Textile Industry.
MAIZE -the main objective is to double -5000 MT of improved maize seeds and -Inability of
the production of maize from 60,000 litres of agro-chemicals have been farmers to organize
the current 7 million MT to 14 produced for distribution to farmers in themselves to take
million MT within two years participating states. advantage of
(2006-2007) in order to meet its available
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demand for human opportunities

consumption and industrial -Lack of credit
uses. facilities for
participating
farmers
RICE -Increased rice production and -Area cultivated to rice increased from 2.2 -Inadequate supply
export with a target of million ha in 1999 to 2.8 million ha in 2006 of appropriate
producing 6.0 million MT of -Annual production increased from 3.3 technologies
milled rice per annum by 2005 million MT in 1999 to 4.2 million MT in -Inadequate
and surplus for export by 2007. 2006. irrigation facilities
-Rice importation has reduced from 2.0 -Irregular supply of
million MT in 2003 to about 500,000 MT in inputs
2006 thereby reducing the amount of foreign -Inadequate farm
exchange expended on rice imports. power
-A sum of N1.0 billion was released for the -Poor processing
multiplication of NERICA and other infrastructure
improved varieties of rice. -Ineffective
-Training of 370 Extension Agents (EAs) on farmers
rice production and processing technologies organization and
-Conduct of facilitation training workshops cooperation
at 16 venues for 1,550 farmers, 185 EAs and
37 FDA Field Officers preparatory to the
implementation of the 2004 and 2005 R-Box
technology trials.
-Establishment of Management Training
Plots for the demonstration of the R-Box
technology trials in all the 36 states of the
Federation and the FCT.
-Procurement of 90,505 R-Boxes for
distribution to farmers.
-Training of engineers and technicians on
the installation, operation and maintenance
of modern rice mills for improved quality of
locally milled rice.
SOYBEAN -Increased vegetable oil -Expansion of land area under cultivation -Inadequate and
production with a target of -Rehabilitation of obsolete mills untimely release of
678,000 MT of soybean per -Installation of post-harvest facilities such as funds
annum over a five year period dryers, threshers and cleaners -Undue delay in
(2003-2007) under VODEP -Support for production of breeder seeds Due Process
Initiative -Production of foundation seeds using out- Certification
growers -High cost of farm
machinery and
other inputs due to
inflation
Source: Underlying information from the Federal Ministry of Agriculture and Water Resources, Abuja
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and transportation markets. And this seems to be driving the inflationary trends now affecting
every major commodity market. There is no indication of a reversal of the policies in the
foreseeable future thus the opportunity for growth in the demand for agricultural commodities
should continue for some time.
Innovations for Investment in Agro-Processing Enterprises

The Federal Government through the Ministry of Agriculture and Water Resources is working
out arrangements for investing in agro-processing enterprises in conjunction with state
governments and the private sector. A total of 575 agro-processing centers across 26 states
participating in the Root and Tuber Expansion Programme (RTEP) are to be established. Each
centre is to have complementary root and tuber processing machines capable of producing gari,
chips and high quality cassava flour. The beneficiaries are expected to contribute 20 percent of
the total cost (Clement-Ogbuanu, 2007).
4.4 Recommendations for Improved Agricultural Competitiveness in Nigeria

For improved agricultural competitiveness in Nigeria all the identified constraints in this study as
earlier itemized should be the focus of attention with a view to providing enduring solutions
within the shortest time possible. In addition, however, there are specific policies and strategies
for increased profitability and competitiveness of the selected commodities which should also be
considered pari pasu. These can be classified into three broad categories namely; (i) crop-
specific interventions, (ii) sector-specific strategies and (iii) and macro-related and other
strategies.
(a) Crop-Specific Interventions

On the basis of the constraints identified in this study in respect of each of the stages of the value
chains for cassava, cotton, maize, rice, soybean and sugar-cane, there are specific actions to be
taken by the government, the farmers and private sector organizations to enhance the profitability
and competitiveness of the various commodities. Highlights of the crop-specific interventions are
presented in Table 4.4, while the other strategies are considered in what follows.
(b) Sector-Specific Strategies
Adequate Funding of Research and Extension for Improved Productivity

In order to improve the contribution of research towards greater competitiveness of the
agricultural sector there is need to increase funding for agricultural research and extension
services in the country. This is critical to productivity improvement in the sector. One of the
important ways of increasing competitiveness in respect of each of the commodities included in
this study is to ensure significant increase in yield. The research institutes will have a role to play
in this regard by directing resources into the production of improved varieties that are high-
yielding and disease resistant. And through effective funding and management of the extension
services, such varieties should be widely disseminated to farmers at all levels – FAM, ECF and
LCF. This will also assist in reducing production cost and thus lead to an improvement in the rate
of returns. Furthermore, in order to enhance competitiveness, there is need to broaden the scope
of extension services beyond on-farm technologies to include marketing, processing and business
management aspects.
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Table 4.4: Key Strategies for Improved Agricultural Competitiveness

Crop Strategy
Cassava PRODUCTION (FAM)
Production: FAM • Yield improvement. Research Institutes should intensify efforts to
come up with high yielding cassava varieties of international
standards. Farmers should have access to improved varieties as well
as modern inputs such as herbicides, pesticides and fertilizers.
• Out-grower scheme. Contract farming should be part of the private
sector initiatives in fostering vertical integration in the cassava
industry.
PROCESSING
• Establishment of cassava processing plants in key production zones
through PPP arrangements. The state governments should be
actively involved in the partnership.
• NACRDB should create a credit window to address the financial
requirements of SMEs engaged in cassava processing.
Cotton PRODUCTION (FAM)
Production: FAM • Use of animal traction. This should be encouraged in cotton
producing areas to reduce labour cost and drudgery of farming.
• Yield improvement. Research Institutes should intensify efforts to
come up with high yielding cotton varieties of international
standards. Farmers should have access to improved varieties as well
as modern inputs such as herbicides, pesticides and fertilizers.
• Quality control. The Ministry of Agriculture in cotton producing
states should design effective mechanisms for controlling the
quality of cotton produced and passed through the marketing
channel.
• Out-growers scheme. As part of the revitalization of the textile
industry, the textile manufacturing companies should be encouraged
to engage in production contracts with cotton farmers.
• Production credit. For out-growers, production credit should be part
of the contract conditions; while other producers should have access
to credit from NACRDB.
PROCESSING
• Establishment of ginneries through PPP arrangements in key
production zones. Active participation of state governments in the
partnership is highly recommended.
requirements of processing SMEs in the cotton industry.
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167
Rice PRODUCTION (FAM)

• Yield improvements. This will involve increased research activities,
extension services and improved farm management practices.
Efforts should be intensified to increase production of NERICA and
other improved rice varieties to meet rising demand from farmers.
• There should be increased training and re-training of extension
agents who should be actively deployed for the training of farmers
in the application of emerging technological innovations.
• Irrigation. The rehabilitation of abandoned irrigation schemes
should be given priority by the Federal Government. There should
be a shift in emphasis from large to small and simple irrigation
schemes. The smallholder beneficiaries should be involved in the
management of such schemes to ensure sustainability.
• Out-grower scheme. Contract farming should be an integral
component of the activities of new firms operating in the rice
industry.
PROCESSING
• Establishment of modern rice mills through PPP arrangements in
key production zones
requirements of SMEs engaged in rice processing.
Maize • Yield improvement. Tractor hiring services should be available to
Production: FAM ensure timely farming operations. The formation of virile farmers
associations should be encouraged so that they can serve as
channels for distributing modern inputs and thus widening the
coverage of users of such inputs.
• Production credit. Credit facilities should be provided for maize
farmers to enable them engage in commercial cultivation of maize.
• Storage facilities (on-farm storage facilities should be provided in a
scheme to be jointly funded by the government and participating
farmers)
Soybean • Yield improvement. Tractor hiring services should be available to
Production: FAM ensure timely farming operations. The formation of virile farmers
associations should be encouraged so that they can serve as
channels for distributing modern inputs and thus widening the
coverage of users of such inputs.
• Production Credit. Credit facilities should be provided for soybean
farmers to enable them engage in commercial cultivation of the
crop.
167
168
Sugarcane PRODUCTION (FAM)

• Yield improvement. Research Institutes should intensify efforts to
come up with high yielding and disease resistant varieties of
industrial cane that will conform to international standards in terms
of yield and other production-related qualities. Farmers should have
access to improved varieties as well as modern inputs such as
herbicides, pesticides and fertilizers.
• There is need for deliberate efforts to discover new varieties to
reduce reliance on imported cultivars and the attendant adverse
consequences.
• Irrigation. Small-scale irrigation facilities should be provided to
encourage non-estate-based production of industrial cane.
• Out-grower scheme. Establishment of non-estate-based out-grower
schemes by sugar companies should be accorded high priority in
order to ensure regular supply of industrial canes.
• Establish cooperative producers of industrial canes that will operate
in close proximity to mini sugar mills.
PROCESSING
• Establishment of mini sugar mills (10-1000 tonnes cane per day)
through PPP arrangements in key production zones
requirements of SMEs engaged in sugar-cane processing.
Improved Agricultural Financing

The arrangements for agricultural finance in the country has to be harmonized and properly
institutionalized. The management of available loanable funds from the government should not
be ad hoc, but should fall within the framework of the operations of agricultural finance
institutions relating especially to the Nigerian Agricultural Cooperative and Rural Development
Bank (NACRDB) and the commercial banks. All stages of the commodity chain including
production, processing and marketing should be appropriately targeted as far as credit facilities
are concerned in order to improve the competitiveness of the agricultural sector.
Promotion of Contract Farming to Enhance Market Access

Contract farming is becoming increasingly recognized as an important approach for the
modernization of peasant farming. It guarantees linkages between smallholders and large-scale
producers and facilitates access to modern inputs and production credit. It is also an approach for
ensuring that small-scale farmers play active role in export trade. Many agricultural products
such as banana, rubber, cotton and sugar have been produced and marketed through contracting
small-scale producers in some developing countries. Usually, the exporter takes responsibility
168
169
for organizing growers, arranging finance and providing technical. Contract farming is a
partnership arrangement between the private sector and small-scale farmers which should be
encouraged in view of its commercial orientation and employment potentials especially in
ensuring longer-term contractual production relationships. In practical terms, contract farming
(out-grower schemes) should be introduced into the arrangements for attracting both domestic
investors and foreign direct investment into the agribusiness sector. The participating companies
will process products in Nigeria using state-of-the-art technology and produce high quality
products that conform to international standards while the involvement of out-growers will
ensure uninterrupted supply of the required raw materials.
Improved Agricultural Market Information
This study reveals that sometimes farmers sell their products at very low prices due to lack of
information; and this has tended to lower the rate of returns. Thus, for efficient operation of the
commodity markets there is need for a regular flow of relevant information. Fortunately, there
are arrangements to upgrade the flow of agricultural market information in Nigeria. However,
there is need to strengthen the process through increased funding of institutions involved so that
farmers in the rural areas and the various production zones have access to relevant information at
the appropriate time. This will enable them take accurate decisions concerning their involvement
in the production and marketing of specific commodities.
(c ) Macro-Related and Other Policies
Monetary Policy Dimension

The Federal Government has worked out a single digit interest rate – 8 percent for agricultural
loans as a matter of policy. The gap between this rate and the lending rate by commercial banks
is to be bridged up to 14 percent by the government with debt relief funds under an arrangement
involving the CBN. This policy should be implemented effectively at the level of smallholders.
Fiscal Policy Dimension

It is expected that government will continue with the policy of duty-free importation of
agricultural equipment and machinery. Moreover, important agricultural inputs should be
exempted from VAT. Government should avoid deficit budgeting and thus relax the pressure on
frequent increase in the price of petroleum products.
Investment in Infrastructure
Infrastructure plays a critical role in ensuring efficient operations in the value chains of all the
targeted commodities. At the trading logistics stage in particular, transportation costs represent
well over 70 percent of total cost. The high cost of transportation is due mainly to incessant
increases in the prices of petroleum products and poor conditions of the road in the country.
There is need for the government to (i) expedite action on the rehabilitation of the railway
system, (ii) improve the conditions of existing roads, (iii) ensure regular maintenance of the
roads and (iv) put a stop to the arbitrary and incessant increase in fuel prices. This will lead to
improved physical access to markets and reduction transaction costs in the value chain. The
government is expected to embark on sustained development of rural road network as this is apt
to engender striking returns in terms of output expansion, better flow of information and
commodity exchange.
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170
Fostering Value Added Enterprises Through PPP

In view of the limited financial capacity of the Nigerian private sector and reluctance to invest in
agribusiness, the public sector (especially at the state level) can work out a partnership
arrangement in which processing plants for relevant crops (cassava, rice, sugar-cane, cotton) will
be established by the state government while the private-sector partner who would have been
involved at the beginning, will be expected to operate and manage the plants on the basis of
agreed concession. This innovation is currently being implemented by the government of Osun
State in Southwest Nigeria. Under its Integrated Cassava Industrial Projects the State recently
completed 15 processing plants as at May 2007 which are to be leased to viable companies,
cooperative groups and registered associations through a competitive bidding process.
Export Incentives
This study has shown the wide divergence between the shipment value and parity price of each
of the target commodities and has argued that bridging the gap and making the commodities
competitive will warrant innovations outside the agricultural sector. In this regard, the use of
export incentives by the government is imperative. It should be noted that there is no amount of
reduction in production cost given the current level of technology development and general price
levels in the country that will solve the problem in the short- to medium term. Nigerian farmers
are not competing with only the producers in other exporting countries but also with the
government in each of those countries. The world market prices of most of the commodities in
question hardly reflect the production costs in those (OECD) countries. They reflect the
influence of the government on the market. Such influence in the form of subsidies and all sorts
of price supports, is far more important than the real forces of supply and demand in global
agricultural market. For instance, according to Vorley (2005), sugar is sold on the global market
at prices barely covering the variable costs of growing and processing in developing countries.
The commodity is one of the most heavily subsidized in world. The US government supports
domestic sugar prices through loans to sugar processors. The EU sugar regime pays European
farmers three times the world price. It stabilizes the market for sugar through a system of quotas
and price supports on producing and marketing beet and cane sugar from certain ACP and least
developed countries. Vorley (2005) argued convincingly that under the Everything but Arms
(EBA) initiative, the EU is phasing in duty and quota free market access for sugar from the 49
poorest countries in the world between 2006 and 2009; but the commodity was not part of the
recent mid-term reform of the EU’s Common Agricultural Policy, so dumping of European sugar
will continue to depress world markets. Clearly, the low and declining level of prices at the
world market is not due to low level of production costs but high level of massive incentives by
the government of developed countries to sustain domestic profitability and welfare at all cost.
According to the World Bank (2006), there is little Nigeria can do to reduce the agricultural
subsidies in industrialized countries other than to continue to participate actively in the global
dialogue on trade policy reform. Also depressed international commodity prices are a binding
reality for Nigeria given the fact that the country is basically a price-taker. The Bank however,
stressed that both factors make it difficult for Nigerian producers to compete in world markets.
To my mind, one way of enhancing the competitiveness of the commodities included in this
study is for the Nigerian government to review the existing legislation on export incentives to
ensure that not only the exporters but also the farmers derive some benefits. The incentives have
to be commodity specific and will be realistically determined using hard data on the number of
producers and exporters, area under cultivation, quantity produced and exported, production
170
171
costs, domestic prices and other information relevant to the value chain of each commodity.
Financial resources from the Agricultural Development Fund can be earmarked to provide
necessary incentives.
By and large, the findings of this study are consistent with existing knowledge about the
nature of trade competitiveness in Nigeria in general and competitiveness in the agricultural
sector in particular. Essentially, the study provides a penetrating and innovative empirical basis
for a better understanding of the performance of value chains in the sector and for the adoption
of meaningful commodity-focused measures to sustain profitability of enterprises and enhance
competitiveness. If agriculture must continue to make significant contribution to the growth of
the Nigerian economy, there should be a sustained policy commitment to strengthen the
performance of the sector. The impressive growth being experienced in the sector will be
difficult to sustain unless the constraints militating against competitiveness of the sector are
effectively addressed. Arguably, the solutions do not lie entirely within the sector. There is need
to cleanse the governance system, sanitize the business environment and purge the economy of
administrative pitfalls and corrupt tendencies that unduly escalate costs in the production and
trading systems.
If farmers are to become more competitive than they are at the moment, they will need to
see improved access to markets and lower marketing costs. The weakness of the rural markets is
not only a problem of poor infrastructure. Poor quality standards, timing, and lack of trust and
confidence are also penalizing local products in both domestic and international markets.
Therefore, the public sector has a role to play not only in providing necessary infrastructure but
also in creating institutions to ensure quality control and maintain high standards. Finally,
progress on the diversification of the economy is unlikely to follow the desired pace unless the
country drastically reduces its reliance on the export of primary products and move rapidly up
the value chain to export value added agricultural commodities. Urgent steps should therefore, be
taken to implement the actions recommended in this study in order to enhance the
competitiveness of the sector and attract the required investment from both domestic and foreign
sources.
171
172
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Background paper for the

COMPETITIVE COMMERCIAL AGRICULTURE IN

NIGERIA CASE STUDY

Professor Aderibigbe S. Olomola

Professor Aderibigbe S. Olomola

FINAL REPORT SUBMITTED TO THE CANADIAN INTERNATIONAL

Currency Equivalents (as of December 2005)

Currency Unit: Naira ( )

Autonomous Market Rate:

Mass and Weight Measure

1000 grammes = 1 Kilogramme (kg)

100 Acres = 1 Hectare (ha)

Table of Contents iii

1. INTRODUCTION AND BACKGROUND 1

1.2 Conceptual Framework 2

1.4 Structure of the Report 7

2. REVIEW OF BROAD DEVELOPMENT EXPERIENCE IN NIGERIA 8

2.1 Macroeconomic Performance 8

2.2 Review of Agricultural Development in Nigeria 10

2.3 Constraints to Competitiveness of Commercial Agriculture in Nigeria 18

3. THE VALUE CHAIN ANALYSIS FOR SELECTED COMMODITIES 23

3.2 Value Chain Analysis of the Cotton Industry 47

3.3 Value Chain Analysis of the Maize Industry 58

3.4 Value Chain Analysis of the Rice Industry 75

3.5 Value Chain Analysis of the Soybean Industry 94

3.6 Value Chain Analysis of the Sugarcane Industry 108

3.7 Comparative Analysis of Value Chain By Type of Crops 118

3.8 Sensitivity Analysis 127

4.2 Constraints 134

4.3 Opportunities for Improved Agricultural Commercialization and Competitiveness 134

4.4 Recommendations for Improved Agricultural Competitiveness in Nigeria 141

2.1 Selected Macroeconomic Indicators 9

2.2 Phases of Agricultural Development Policies in Nigeria: 1960-2006 11

2.4 Moratorium for Agricultural Loans 15

2.5 Index of Production of Selected Crops: 1961-2005 17

2.6 Share of Agriculture in Total Imports and Non-Oil Exports 17

2.7 Trend in US Agricultural Export Dumping Levels, 1990-2003 22

3.2 Basic Features of the Agro-Ecological Regions of the Selected Commodities 24

3.3 Gross Margin in Cassava Production in South-west Nigeria 26

3.4 Cassava Starch Value Chain Activity Results 28

3.5 World Cassava Production, 2002 30

3.6 Cassava Production in Nigeria, 1999-2004 33

3.7 Structure of Financial Costs in Cassava Enterprises 37

3.8 Profitability Indicators of Cassava Enterprises (Per MT) 38

3.10 Cassava Profitability and Value Chain Indicators By Level of Commercialization 42

3.11 Comparison of Composition of Cassava Shipment Values in Nigeria (%) 43

3.12 Comparison of Selected Cassava Production Indicators in Nigeria 44

3.13 Build-up of Cassava Final SV in Nigeria By Stage (%) 46

3.14 Cotton Production in Nigeria, 1999-2004 51

3.16 Profitability Indicators of Cotton Enterprises (Per MT) (FAM) 54

3.17 Cotton Value Chain Indicators in Nigeria (Per MT) 56

3.18 Composition of Cotton Shipment Values in Nigeria (%) 56

3.19 Build-up of Cotton Final SV By Stage (%) 56

3.20 Gross Margin in Maize Production in Nigerian Agro-Ecological Zones 59

3.21 Gross Margin Analysis per Ha of Selected Enterprises 59

3.22 Maize Production in Nigeria, 1999-2004 63

3.23 Structure of Financial Costs in Maize Enterprises in Nigeria 67

3.24 Financial and Profitability Indicators of Maize Enterprises in Nigeria 68

3.25 Value Chain Indicators for Maize Enterprises in Nigeria 70

3.26 Maize Profitability and Value Chain Indicators By Level of Commercialization 71

3.27 Comparison of Composition of Maize Shipment Values in Nigeria 72

3.28 Comparison of Selected Maize Production Indicators 74

3.29 Gross Margin in Rice Production in Nigeria 75

3.30 Comparison of Domestic and Import Price of Rice in Nigeria 76