Consilience: The Journal of Sustainable Development Vol. 13, Iss. 1 (2014), Pp. 336-346 Economic Survey of Oil Palm Products’ Processing and Marketing in Kogi State, Nigeria Anthony Ojonimi Onoja Department of Agricultural Economics and Extension University of Port-Harcourt, Port-Harcourt, Nigeria tonyojonimi@gmail.com T. U. Ogali Department of Agricultural Economics and Extension University of Port-Harcourt, Port-Harcourt, Nigeria Abstract This study was designed to ascertain the level of profitability and inherent problems derivable from oil palm products’ processing and marketing in Kogi State of Nigeria. Primary data used for the study was obtained through the use of structured questionnaire and oral interviews. From the six agricultural Zones in Kogi State a total sample size of 60 was finally drawn to form the sampling frame from 3 Agricultural Zones. Descriptive statistics were used to attain objectives 1 and 3; while objective 2 was attained by the use of gross margin analysis. Majority of the farmers obtained their Fresh Fruit Bunches for processing from the village or open market (50%); oil palm processing and marketing is profitable business in the area with a gross margin of N603,320.00K (USD 4,695.10) and gross margin ratio of 2.72 from an average enterprise; problems identified in the enterprises included fluctuating prices, lack of basic infrastructure and inputs such as capital and processing machines. The study recommended the need for government to hasten the supply of rural infrastructure, reduce taxes and let processors/marketers be encouraged to form cooperatives so as to access credit. Keywords: Oil palm, gross margin, oil palm processing and marketing. 1. Introduction Oil Palm is a common name for an ornamental and economically valuable palm tree, Elaeis guineensis, native of the west coast of Africa and widespread throughout the tropics. The oil palm grows up to 9 m (30 ft) in height. It has a crown of feathery leaves that are can be up to 5 m (15 ft) long. The flower cluster is on a short thick spike at the base of the leaves. Flowering is followed by the development of a cluster of egg-shaped, red, orange, or yellowish fruits. Each fruit is approximately 3 cm (1 in) long and contains from one to three seeds embedded in a reddish pulp. Palm oil is extracted from the fruit pulp (Encarta, 2008). Palm oil is extracted from the mesocarp of fruits of oil palm tree (Elaeis guineensis Jacq). The fruit, a drupe that is ,prolate spheroid in shape varies between 20 to 50 mm in length and could be as large as 25 mm in diameter, is found in bunches that are attached to the crown of the tree through a stalk (Orji & Mbata, 2008). Extraction of palm oil from fruits involves field operations and factory/house mailto:tonyojonimi@gmail.com Consilience Onoja: Economic Survey of Oil Palm Products operations. The field processes include cutting ripe fruit bunches from the palm tree and carrying the fresh fruit bunches (ffbs) and fallen loose fruits to the factory/house by field workers while the factory/house processes involves sterilization, stripping, milling, pressing, clarification, and storage (Nigerian Institute of Forestry Research, NIFOR, 1975; Badmus, 1990;. Opeke 1997). Palm oil is used in the manufacture of soap, liniments, and ointments, and in West African and Brazilian cooking. Its chief chemical constituent is palmitic acid. Oil is also obtained from the kernel of the palm fruit. Known as palm -kernel oil, this is lighter oil, resembling coconut oil. FAO (2008) noted that the development of agriculture can play a direct role in rural poverty alleviation. FAO (2009) held that for many farmers in the West African region, processing forest and farm tree products provides an essential source of off-farm income. Notable products from oil palm trees in Nigeria apart from Fresh Fruits Bunches of palm fruits includes palm kernel, palm -wine, brooms, palm kernel oil, storage baskets, and climbing ropes. The stems can be cut as wood for building tooas well. FAO (2009) noted that activities which are common throughout the West African region include palm oil processing and other forest food processing, alcohol distilling, fish smoking, raphia and rattan basketry, woodworking, charcoal production, cloth dyeing and soap production. Cashman (1987) in FAO (2009) also found that palm oil processing was one of the most lucrative activities for women in southeastern Nigeria but the labour required in palm oil processing was great. According to National Open University of Nigeria (NOUN) (2004) by the beginning of the 20th Century, Nigeria was the largest exporter of palm oil in the world. The relative contributions of palm produce to the country’s exports continued to decline (to 36.4% in 1969 and 13.2% in 1974). Recent data by Central Bank of Nigeria (CBN, 2007), which showed the trend of oil palm production in Nigeria (from 1970 to 2006), indicated that the output of palm oil rose from 88,000 tonnes in 1970 to 949,000 tonnes in 2003, then decreasedbefore decreasing to 187,000 tonnes in 2004; while that of palm kernel rose from 315,000 tonnes in 1970 to 745,500 tonnes in 2004. One of the major problems of Nigerian palm oil in the local and international market is the issue of poor quality product. According to NOUN (2004), poor harvesting methods and poor processing methods were largely responsible for this. Nevertheless, NOUN (2004) reported that the introduction of pioneer oil mills was gradually raising the quality of palm oil among some producers. To what extent this has helped reduce the market quality of palm oil at the macro level in Nigeria is a subject for anotherof further research. Besides the issue of poor quality outputs, lack of capital or inadequate finance is one of the major problems facing the oil palm products marketers and processors in Nigeria. Orji (2006) corroborated this assertion in his report where he noted that “mechanized palm oil mills is capital intensive and this may be one of the reasons why very few mechanized palm oil mills exist in Nigeria”. It is noteworthy that most of the palm oil in Nigeria was obtained from self- owned plants in Imo, Anambra, Enugu, Abia, Cross River, Akwa Ibom, Delta, and Edo States. Some parts of Kogi State also fall within the oil palm belt. NOUN (2004) observed that establishment of plantations growing improved high-yielding oil palms bred at NIFOR in Benin had some positive impacts on the output of oil palm in Nigeria. Despite the potentials of NIFOR extolled by NOUN above, reports of Consilience Onoja: Economic Survey of Oil Palm Products NIFOR’s performance in Kogi State is demoralizing. Egwu (2008) observed that at the breeding center, Acharu-Egume, Dekina local government area of Kogi State, the experimental station of National Institute for Oil Research, (NIFOR), the plantation which was there since 1961 failed to drive the trend of palm oil production in the area. NIFOR operation secured an estimated 385 hectares of land in the area, but only 90 hectares has so far been put to use by the institute. He further observed that Within within this arrangement, there have been 10 trials, but 5 units have been completed and put on observation, while the remaining five are still on trials, he further observed. Experts assured that the result of the experiment was something that should gladden the minds of the people. The aim of NIFOR in intensifying the experiment on palm oil produce, according to Mr Samuel Omoreghe, the representative in Acharu-Egume, site of the palm plantation, Mr Samuel Omoreghe, was to evolve a "robust, practical and sustainable palm oil production for the country”. Unfortunately, the Acharu Oil Mill in Egume, Kogi State today is a shadow of its old self. It was last talked about in 1996 when the then governor of Kogi state, Col Paul Umeruo, reactivated it. Since then, this gigantic engine had been abandoned by successive governments in the state. This scenario is not restricted to Kogi State alone. A Voice of America (VOA) English-to-Africa Service reporter, Ntaryike (2008) noted that oil palms were grown throughout West and Central Africa, but the development of the palm oil industry has been slow, despite a thriving market. The report raised the hope that a project sponsored by the United Nations Industrial Development Organization was about to change the palm oil industry in Cameroon and Nigeria. The reported reasons for the low output included obsolete production equipment, aging plantations, and little access to technology and financing. The above scenario is prevailing at a time when local demand for palm oil and palm kernel oil are increasing in Nigeria, owing partly to its importance as food for the teeming population and as industrial raw materials for the manufacture of margarine and soap. As a result of these, Nigeria is now a net importer of palm oil. Incidentally, the imports are from Malaysia, a country which obtained its first oil palm seeds from Nigeria (NOUN, 2004). This scenario, which poses a serious concern, informed this study. 1.1 Purposes of the Study This paper was designed to, among other things, ascertain the level of profitability and inherent income/problems derivable from oil palm products’ processing and marketing in Kogi State of Nigeria, especially the parts of Kogi State which fall within the oil palm belt. The study specifically, objects at: (1.) identifying the sources of Fresh Fruit Bunches (FFBs) and other economic palm products in the study area. (2.) determining the costs and returns of oil palm products among processors in the study area; and (3.) describing the problems encountered by the processors and marketers in the Zones being studied. The results from this study will expectedly provide evidence for policy making in sustainable development of oil palm marketing and value addition in a Consilience Onoja: Economic Survey of Oil Palm Products major oil palm producing zone of Nigeria. Lessons will also be learnt by other countries producing oil palm in other parts of the world. 2. Methodology of Research Kogi State lies between longitudes 5o40‘E and 7o49‘E; and latitudes 6o 33‘N and 8o44‘N. It is bounded to the South by Anambra and Edo States; and to the North by Niger, Nassarawa and Federal Capital Territory; to the East by Benue and Enugu States. On the Western flank it shares a common border with Ondo, Ekiti and Kwara States (Kogi A.D. P, 1993). The state which is structured into 21 LGA’s comprises is comprised of three major ethnic groups: i.e. Igala, Ebira and Okun (Yoruba); other minor groups include –: Bassa Komo, Bassa Nge, Kakanda, Kupa, Ogori-Magongo, Nupe, Oworo, Gwari, etc. (Kogi State Government, 2008). Going by the 2006 population census, the state pooled a population of 3,278,487, representing 2.34% of the Nigerian population. The population of farmers in the three agricultural zones selected (based on the list obtained from Kogi Agricultural Development Project) is 159,671. A purposive random sampling was used to select the respondent for this survey. Out of the six agricultural zones delineated by Kogi Agricultural Development Project in the state, only three were selected. The selection was based on the presence of oil palm tree belt in the zone. The two zones selected are Zones A, B and D, which are called Aiyetoro Gbede, Anyigba, and Alloma Zones, respectively. Three Local Government Areas named Aiyetoro Gbede ,Dekina and Olam aboro LGAs were selected with twenty (20) oil palm processors and marketers sampled randomly from each local government of the respective zones above, giving a total sample size of 60 to form the sampling frame. Primary data used for the study was obtained through the use of structured questionnaire and oral interviews. The secondary sources of data used came from published texts, journals, periodicals and offline computer resources as Digital Video Discs. Descriptive analysis such as mean and percentages were used to attain objectives 1 and 2; while objective 2 was attained by the use of gross margin analysis. Gross Margin(GM) is the difference between the gross farm income (GFI) and the Total Variable Costs (TVC). Thus the model is given by: GM = GFI – TVC 3. Results and Discussion Table 1: Frequency Distribution of Sources of FFBs in the Study Area S/No. Sources Frequency by Agricultural Zones Ankpa Zone Dekina Zone Idah Zone Total Percentage(%) 1. Personal farm 10 9 6 25 42 2. Gifts from friends 2 1 2 5 8 3. Bought from market 8 10 12 30 50 Consilience Onoja: Economic Survey of Oil Palm Products Source: Field Survey, 2006 (a) Sources of Fresh Fruits Bunches (FFBs): Table 1 above shows the frequency distribution of the sources of FFBs in the study area. The table indicated that majority of the farmers obtained their FFBs for processing from the village or open market (50%). This source is closely followed by farmers’ own farms, which pooled a 42% response. The source which may be the least reliable of the FFBs as indicated in the table is in the form of gifts and royalties from farms operated by other farmers in the area to relations and land lords (8%). Table 2: Gross Margin Analysis of Oil Palm Production in the Zones A, B, and C Agricultural Zones of Kogi State A. Operations of Palm Oil Marketers Amount in Nigerian Naira *Amount in US dollars Harvesting 59,600.00 463.81 Transportation 61,400.00 477.82 Sterilization 7,670.00 59.69 Stripping/milling 26,500.00 206.23 Pressing/clarification 16,300.00 126.85 Water used for processing 35,330.00 274.94 Fuel wood used up (as energy source) 26,730.00 208.02 Tax on revenue/rates 6,620.00 51.52 Packaging cost 85,250.00 663.42 Handling cost (loading/offloading) 25,040.00 194.86 TOTAL VARIABLE COST 350,440.00 2727.16 B Oil Palm Products Sold Income (N) Palm oil 533,780.00 4153.93 Palm Kernel 279,420.00 2174.47 Palm Wine 279,420.00 2174.47 Brooms 29,860.00 232.37 Storage baskets 16,850.00 131.13 Climbing ropes 10,500.00 81.71 GROSS FARM INCOME = 953,760.00 7422.26 GROSS MARGIN = B – A 603,320.00 4695.10 Source: Field Survey, 2006. *The researchers used the 2005 USD/NGN rate of $1: N128.5 (b) Costs and Returns of oil palm processing enterprises in the selected agricultural zones: A gross Margin Approach Table 2 itemized the costs and returns of oil palm products’ processing enterprises in the selected agricultural zones of the state. From the table it can be observed that the Gross Farm Income was N 953,760 (USD$7,422.26) while the Total Variable Cost was N 350,440.00 (USD$2,727.16). This difference gave a Gross Margin of N 603,320.00 (USD$ 4,695.10). This value represents the profit made from the oil palm Consilience Onoja: Economic Survey of Oil Palm Products processing enterprise for an average farm in the three agricultural zones. The figure showed that oil palm products’ processing and marketing is a very profitable business. Table 3: Frequency Distribution of Response to Problems Constraining Effective Processing and Marketing of Oil Palm Products in the Agricultural Zones Studied S/ NO. ITEM Frequency "YES" % "YES" Frequency "NO" % "NO" Total Frequency Total % 1 Low level of education 23 38 37 62 60 100 2 Lack of capital to start up the business 52 87 95 13 60 100 3 Lack of inputs 38 63 22 37 60 100 4 Govt. taxes/rates are too overbearing or high 44 73 16 27 60 100 5 Unstable exchange rate discourages export 13 22 47 78 60 100 6 High risk in processing and marketing 28 47 32 53 60 100 7 Poor knowledge of farm accounting 19 32 41 68 60 100 8 Family & friends take products as gifts 23 38 37 62 60 100 9 Unstable prices of oil palm products 35 58 25 42 60 100 10 High cost of processing machines 56 93 4 7 60 100 11. Lack of storage facilities 13 22 47 78 60 100 12. High cost of transport due to poor transport facilities in the area 48 80 12 20 60 100 13. Lack of electricity to reduce dependency on 47 78 13 22 60 100 Consilience Onoja: Economic Survey of Oil Palm Products fuel wood Source: Field Survey, 2006 This point is buttressed by the gross margin ratio of the enterprise, which gave a figure of 2.72, a value greater than 1. This implies that returns from oil palm products processing, and marketing in Kogi State could pay off the cost of processing and marketing and even leave some extra income which can improve the household’s welfare. Hence, we can infer from the gross margin ratio found here that for every N 1 (USD$ 0.01 cents) spent on processing and marketing of oil palm products in this agricultural zone, two naira seventy two kobo (N2.72K) i.e. USD$ 0.02 cents profit, is made. (c) Problems constraining effective processing and marketing of oil palm products in the Agricultural Zones studied Table 1.3 showed that lack of capital (87%); %), lack of inputs (63%); %), overbearing or high taxes and rates (73%); %), lack of electricity supply to reduce dependency on fuel-wood (78%), and fluctuating prices of oil palm products (58%), with their respective percentage acceptances (in parenthesis), were identified as the major problems constraining the effective and profitable processing as well as marketing of oil palm products in the study area. Other major problems identified included the high cost of processing machines (93%) and the high cost of transport arising from bad roads (80%) in the area. Regular dependence on processors of oil palm on fuel- wood as a major energy source means portend serious environmental hazards such as desertification. The problem of high cost of processing machines received a wider acceptance by the respondents followed by the problem of high cost of transport. Most vehicles charge the farmers very high amounts since they ply bad roads in the area as they haul the palm products from the processing centres to the markets. In fact, the dominant form of transport as a result of these bad roads is by motorcycles, popularly called “Okada”. These cannot carry enough palm products at a time. 4. Conclusion This study has been able to describe some aspects of the sustainable marketing of oil palm production looking at the potentials or viability of the business as well as the challenges hindering sustainable processing and marketing of oil palm it in a Nigerian state. It was found that the business is viable but sti ll faced some challenges against itswith sustainability. The major findings of the study is are that oil palm processing and marketing portends a very useful and reliable means of making profits and raising household incomes in the study area. This implies that encouraging farmers who are in these business to solve their problems will go a long way in solving the problem of poverty and looming food crisis crises in Nigeria. The study revealed some of these major problems being faced by oil palm processors and marketers in the area. An attempt at solving these problems at the national and state levels will actually be a way forward in the drive for food security and poverty Formatted: Indent: First l ine: 0.5" Formatted: Indent: First l ine: 0.5" Consilience Onoja: Economic Survey of Oil Palm Products alleviation. Hence, the need to follow the recommendations above is hereby reiterated. Based on the findings of this research, it is recommended that the State state and Federal federal Government government should gear up efforts to provide basic infrastructure such as electricity and good, motorable roads in the oil palm belts so that the efficiency of production or processing and marketing of oil palm products can be guaranteed. The issue of electricity supply will reduce dependency on fuel wood, and thus stemming environmental degradation in the area. The State state and Federal federal Government government should use their agencies and parastatals to subsidize inputs, especially processing machines in the oil palm processing zone of the state. This will boost their output and reduce the cost of production or processing and marketing. Farmers should be encouraged by banks and Agricultural agricultural Extension extension agents in the state to form oil palm processing and marketing cooperatives so that they may benefit from the banks’ loan facilities or government agencies’ loans. This can solve the problem of lack of capital. The State state and Federal federal governments should reform the tax policies with a view of making the taxes and rates paid by farmers more realistic and friendly. Consilience Onoja: Economic Survey of Oil Palm Products Bibliography Badmus GA (1990). Factors affecting the design of a fruit bunch harvesting system of tall oil palm trees in plantations. Nigerian Journal of Palms and Seeds 11:1: 102-1114. Central Bank of Nigeria (2007). Statistical bulletin. CBN: Abuja. Egwu, Sam (2008). Nigeria: Agriculture - Palm Oil - The Country's Untapped Potential. In The Daily Trust. 28th April. Food and Agricultural Organization, FAO (2008). World Agriculture: Towards 2010: An FAO Study. 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