Economics of Small-scale Oil Palm Production in Kogi State, Nigeria

Economics of Small-scale Oil Palm Production in Kogi State, Nigeria

ABSTRACT

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

CHAPTER ONE

INTRODUCTION
Background Information

The production of oil palm is as old as the history of the inhabitants of Kogi State. Few wild trees are of as much economic and social value to Nigerian farmers and the country as the oil palm tree, (Usoro, 1974). The oil palm (Elaeis guineensis Jacq) no doubt is believed to have originated in the tropical rain-forest region of West Africa, (Zeven, 1965; Agboola, 1979; Hartley, 1988; CTA, 1998).

Oil palm is a monocotyledonous tree belonging to the family, palmae and the subfamily, cocoideae. The normal (diploid) chromosome number is 2n = 32. The adult plant possesses an impressive crown of 30 to 45 green leaves, each 5-9m long at the top of a trunk bearing old leaf bases arranged spirally, (Kochhar, 1976; Opeke, 1992; CTA, 2000). The stem may be 30 to 38cm in diameter, with progressive thickening towards the base. On older palms, the stem is punctuated with conspicuous and regularly arranged leaf scars and the stem terminates in a handsome growth of leaves (fronds). The palm leaf is compound and is known as the frond. The leaf is paripinnate with a prominent petiole (0.9 to 1.5m long). The petiole often broadens at the base to form a clasper round the stem. Each palm frond bears, 20 to over 150 pairs of leaflets arranged in more or less two rows along each side of the flattened rachis with the longest pinnate varying up to 120 cm. The pinnae are parallel-veined.

The plant is monoecious with separate male and female flowers (inflorescences) on the same plant. Cross-fertilization is achieved through successive cycles of male and female flower production. It produces bunches of fleshy fruits, the pulp (mesocarp) of which yields a solid, edible, orange-red oil called palm oil. The endosperm or kernel yields a clear, yellowish oil, that is also edible and solid, and is called palm kernel oil. These two products are important in world trade.

Oil palm adapts well to most textures from medium loams to clays. Extremely coarse or fine textures may not always be suitable, especially if they affect water supply to the roots. The climatic and soil requirements constitute the physical factors that are responsible for the growth of oil palm. They include availability of water supply, soil conditions in terms of fertility and topography that is suitable for the growth of oil palm. It is recommended that rainfall of 1600mm to 5000mm per year evenly distributed will enhance the growth of oil palm, (Keu, 2001; Khera, 1976). The oil palm has a wide adaptability range of soils to low p^H but sensitive to high p^H (above 7.5) and stagnant water. Neutral p^H soils are most favoured.

The temperature requirement varies between 18⁰C and 34⁰C. Opeke (1992), observed that oil palm would tolerate even higher temperature provided there is adequate moisture. It requires plenty of sunshine; productivity is reduced in areas with excessive sky overcast. It thrives under conditions of high relative humidity; yields are adversely influenced when the crop is exposed to dry harmattan winds (CTA, 2000).

Oil palm is a lowland crop although it can grow well up to altitude of 900m. It has fibrous root system and benefits from deep soils which are fertile, free from iron deposits and well-drained.

Oil palm is affected by pests and diseases attack. The pests and diseases attack both seedlings in the nursery and mature plants on the field. Some notable pests of oil palm are snails, crickets and mammals especially rodents (rats and mice). Others include leaf-minners, weevils, caterpillars, birds and squirrels. The oil palm diseases include Anthracnose, Freckle, Blast, Ganoderma trunk rot, Vascular wilt disease, Basal rot and crown diseases. These pests and diseases pose serious problems to the production of oil palm. They attack the plants at various stages of growth and development (Uguru, 1996; CTA, 1998).

In the 1950s and 1960s, Kogi State was a major producer and exporter of palm oil and palm kernels (about 12,000 tons or 2.40% of national palm kernel output)(Idachaba, 2005). At that time, he noted, there were pyramids of palm kernels in John Holt Warehouses at Idah. Also, there was annual loading of palm kernels at Idah River port for export through Delta Inland port of Burutu to Europe. Until after the First World War, palm oil and kernels were supplied entirely from groves of Africa and to a much lesser degree of Brazil. It was not until after the Second World War that the West African groves were studied with thoroughness.

Hartley (1988), postulated that in areas where the palm was already part of the natural vegetation, the factors of greatest importance in the development of a grove was the growth of a dense population. The cutting down of forest areas for annual crop cultivation removed dense shade and created conditions suitable for rapid establishment of the palm.

Because of economic importance of oil palm as high yielding source of edible and technical oils, the oil palm is now grown as a plantation in most countries with high rainfall (minimum 1600mm/year) in tropical climates within 10⁰ north and south of equator, (USDA, 2000). Raymond (1961); McCall (2003), compared the potential oil yield from various crops and placed the oil palm at the head of the list.

The extensive development of oil palm industries in many countries in the tropics has been motivated by its extremely high potential productivity. The oil palm gives the highest yield of oil per unit area compared to any other oil crop and produces two distinct oils – palm oil and palm kernel oil – both of which are important in World Trade, (USDA, 2000). Oil palm seems to be part of the traditional agriculture of Kogi State. The climatic condition and soil type of Kogi State appear favourable for the growth of oil palm. The production and development is in the hands of small-scale holders. They have all been dependent on rainfed cultivation and a large proportion of the palm produced are on wild groves. Apart from the wild groves, three economically important varieties are grown in the study area. These are the Dura, the Pisifera and the Tenera. The Tenera is a cross between Dura and Pisifera (Nigerian Institute for Oil Palm Research, NIFOR, 1985).

Oil palm requires the application of fertilizer particularly nitrogenous fertilizers such as sulphate of ammonia, muriate of potash, etc. for growth of young seedlings. Government established plantations at Acharu, Alade, Alloma and Kabba to boost oil palm production. Apart from government established plantations, the deliberate cultivation or establishment by small holders has been little. They have, however, relied on nurturing the wild oil palm groves. Rehabilitation of the wild groves has been difficult. In some parts much of this economically important tree crop has been neglected, while in some cases the wild groves have been vandalized without rehabilitation.

McCall (2003), classified farmers having 7.50 hectares as small-scale farmers. Olayide (1980), classified small-scale farms as those that range from under 0.10 ha holdings to 5.99 ha holdings. Saliu et al (2006), classified small-scale holders as those having 50 to 100 stands of oil palm. In this study, a small-scale holder is one who uses hand tools and has oil palm stands of between 50 and 200 stands either cultivated or nurtured.

Oil palm is rich in palm oil, having higher yield of oil than any other seeds. The processing of oil palm fruits for edible oil has been practiced in Africa for thousand of years, and the oil produced, highly coloured and flavoured is essential ingredient in much of the traditional West African Cuisine, (USDA, 2000). The traditional processing is simple but tedious and inefficient.

Oil Palm Production, the Historical Perspective, Njoku, (2001), reported that oil palm was the most important of the crops and is indigenous. It grew in abundance in the forest belt, but especially profusely in the South-Eastern parts. Most oil palm, he noted, grew on farm lands through human protection. There was hardly any deliberate attempt to cultivate them before 19^th century, except perhaps around homesteads. He noted too, that there was hardly any part of oil palm that was not put to domestic use. Among southern Nigerians, no main food was fully prepared without palm oil as an essential ingredient. The production was basically for family consumption and mostly women’s affair.

The industrial revolution in Europe created unprecedented demand for palm oil in the 19^th century. It was needed for the manufacture of soap, candle, margarine and tin plate. When Germany discovered that palm kernel could be made into very good feeding cake for cattle, a market was created for it. The industrial revolution changed all this and turned the oil palm from a subsistence crop to a cash crop. It became the single most important crop from the 19^th century when cocoa and groundnut began to challenge its dominance.

Certain transformations in the oil palm industry followed. First, some people started to establish oil palm plantations. The plantation work was facilitated by the existence of slaves who were used to work on these plantations. Second, attempts were made by individual citizens to appropriate oil palms owned by the community. This trend became a source of communal tension and court litigation during colonial era. Third, men began to take interest in the production of oil palm, an affair which used to be left largely to their wives. Men cut the palm fruits and pounded them while women did the rest of the processing. Fourthly, innovations were introduced in the organization of production which economized time and man-power, thus raising the productivity level of the people. Men formed reciprocal work groups for the purpose of cutting and processing the palm bunches and pounding the fruits. Among the Isoko and Urhobo, large dug–out canoes replaced small mortars hitherto used in processing palm fruits. In Ohafia, large round holes (ikwe akwu) about eight feet in diameter and four feet deep, paved all round with stone slabs, replaced wooden mortars. These innovations permitted more palm fruits to be processed in a unit time than was possible with wooden mortars.

The end result of all this was that from very humble beginnings, Nigeria soon attained world leadership in the production of palm oil and palm kernels. Early export figures are incoherent; nevertheless, they show rapid growth. Thus, palm oil export from Niger Delta ports rose from 4,700 tons in 1827 to 13,945 tons in 1834. In 1945, export reached 25,000 tons, and by the end of the century the volume had more than trebled, even in spite of trade fluctuations.

Where the oil palm flourished, its commercial exploitation could be constrained by two major problems. First, oil palm production was labour intensive, unlike raiding and kidnapping in slave trade. It involved the risky job of climbing the oil palm to cut the bunches, the gruesome tasks of head-loading the bunches home and then rigorous processing to procure the oil. Second, transportation of produce posed a major difficulty. While slaves were self-transporting, palm oil and palm kernel were not. They were bulky, only water transportation was most profitable.

Palm oil and Palm kernel have been very important commodities in International trade in Nigeria. Below is the summary of Oil palm production (Palm oil and palm kernel) between 1850 – 1985 in Nigeria.

Table 1.1: Pre-Colonial, Colonial and Post-Colonial Production of Palm Oil and Palm Kernel Output in Nigeria. 1850 – 1885; 1931 – 1954; and 1960 – 1985. (Metric tons)

Pre – Colonial		1850	1855	1860	1865	1870	1875	1880	1885
	Palm Oil	21,650	47,113	45,786	51,192	58,775	72,744	89,550	90,196
	Palm Kernel	22,000	22,100	153,000	128,000	126,000	160,000	130,000	161,000
Colonial		1931	1935	1940	1945	1950	1954
	Palm Oil	118,133	142,628	154,195	116,324	167,124	216,587
	Palm Kernel	254,454	312,746	296,632	299,039	380,929	464,940
Post – Colonial	–	1961	1965	1970	1975	1980	1985
	Palm Oil	423,000	517,900	525,900	664,500	889,000	1,125,600
	Palm Kernel	429,000	400,100	389,500	398,600	432,200	394,400

Source: CBN Annual Report, 1992; Lynn, 1989; Usoro, 1974; FAO, 1980.

Table 1.1 shows that there had been steady progress in the production of oil palm products – pre-colonial, colonial and post-colonial era. The production, however, suffered some fluctuations. This is to be expected because the production had solely been dependent on natural rainfall and weather conditions. For example, in 1885, total production was 90,196 metric tons, this in 1890 fell to about 89,841 metric tons. In 1940, palm oil production was about 154,000 metric tons, this fell to about 116,000 metric tons by 1945 and by 1954, palm oil output rose to about 217,000 metric tons. The increases in production as witnessed in post-colonial era, not withstanding, it has not been able to keep pace with the consumption demand for palm oil particularly.

Also, palm oil and palm kernel from oil palm form the bulk of exportable products of oil palm up to late 1960s. Its neglect in 1970s was as a result of the discovery of crude oil (Petroleum). It has earned substantial foreign exchange for Nigeria. Today, Nigeria has become a net importer of palm oil. The summary of production, imports, exports and consumption of some selected countries is presented in Table 1.2 below.

Table 1.2: Oil Palm – Production, Consumption, Exports and Imports Statistics of some selected Countries -2000.

S/N	Country	Beginning Stocks (1000 MT)	Production (1000 MT)	Imports (1000 MT)	Total Supply (1000 MT)	Exports (1000 MT)	Industrial domestic Consumption (1000 MT)	Food Use Domestic Consumption (1000 MT)	Feed Waste Consumption (1000 MT)	Total Domestic Consumption (1000 MT)	Ending Stocks (1000 MT)	Total Distribution (1000 MT)
1.	Brazil	0	110	19	129	29	62	38	0	100	0	129
2.	Cameroon	0	125	7	132	14	0	118	0	118	0	132
3.	Democratic Rep. of the Congo	0	155	0	155	1	60	90	0	150	4	155
4.	Cote d’lvoire	1	248	30	279	78	75	125	0	200	1	279
5.	Ghana	0	108	14	122	17	0	105	0	105	0	122
6.	Indonesia	391	8,300	5	8,696	4,776	264	2,950	52	3,266	654	8,696
7.	Liberia	0	42	0	42	0	0	42	0	42	0	42
8.	Malaysia	1,368	11,937	61	13,366	10,475	1,130	420	125	1,675	1,216	13,366
9.	Nigeria	30	730	250	1,010	0	190	790	0	980	30	1,010
10.	Sierra Leone	0	36	0	36	0	0	36	0	36	0	36
11.	Venezuela	0	73	10	83	0	3	80	0	83	0	83

Source: United States Department of Agriculture, 2000.

From table 1.2, it is evident that Nigeria has become a net importer (250,000MT in 2000) as against a leading producer and exporter (158,400MT) in the 1960s (Usoro, 1974). While Indonesia and Malaysia have advanced in production of palm oil, Nigeria has actually declined. This can be attributed to inadequate attention paid to the oil palm industry in Nigeria.

The Problem Statement

Oil palm no doubt originated from West Africa of which Nigeria was once a leading producer, (Zeven, 1965; Agboola, 1979). Purvis (1968), reported that oil palm rehabilitation scheme was set at replantation of 24,282 hectares (or 60,000 acres) for the 1962-1968 Development Plan. By 1966, only 20,215.17 hectares (or 49,951 acres) was replanted through efforts of 4,315 participants on the average of 4.68 hectares per participant. This showed a deficit balance of 4,066.83 hectares (or 10,049 acres) unplanted. Again, the plan to rehabilitate 133,551 hectares (or 330,000 acres) by government of the then Eastern Region, 1970-1974 Development Plan, only 117,363 hectares (or 290,000 acres) was replanted. By the two plans, a total deficit of 20,254.83 hectares (or 50,049 acres) was not rehabilitated. Whereas countries such as Malaysia, Indonesia exceed their planned planting targets, Nigeria has never reached her planting targets of oil palm.

In a study carried out on oil palm production in South Eastern Nigeria, Ibe and Nweke (1985), reported similar deficit on planting targets in Nigeria. The summary is presented in Table 1.3 below.

Table 1.3: Planted area compared with planting targets 1976 – 1981

Annual Cumulative

Target Planted Target Planted

Year Ha/Yr Ha/Yr % Ha/Yr Ha/Yr %

1976 2,000 415 21 2,000 415 21

1977 3,000 853 28 5,000 1,268 25

1978 3,000 1,588 53 8,000 2,856 36

1979 4,000 1,900 48 12,000 4,756 40

1980 4,000 1,312 33 16,000 7,069 44

1981 – 1,482 – 16,000 8,551 53

Source: Ibe and Nweke, 1985.

The declining productivity and production of oil palm over the years makes it necessary to carry out an in-depth investigation. The share of oil palm contribution to Gross National Product (GNP) has equally suffered a setback or decline. Ibe and Nweke (1985), estimated production and demand for palm oil in Nigeria. The result showed that demand far exceeded the production. The summary is presented in Table 1.4 below.

Table 1.4: Estimated demand and production of oil palm in Nigeria.

Estimated Estimated

Year Demand (Tonne) Production (Tonne) Deficit (Tonne)

1985 950,000 600,000 290,000

1990 1.12 million 685,000 436,000

1995 1.33 million 710,000 610,000

2000 1.62 million 860000 760000

2005 2.42 million 1067000 1353000

Source: Ibe and Nweke, 1985; NIFOR, 2008.

Also, there has been a dearth of information on the current production data. Again, there is currently an increase in the demand for palm oil to meet the local consumption needs. This has necessitated the importation of palm oil as stated earlier (USDA, 2000). It is expected that the declining productivity and production would have attracted interest groups (government, non-governmental organizations (NGOs) and Individuals) to sponsor research in such a crop that had contributed up to 43 percent of world production of palm oil in 1960s, (WRM’s bulletin, 2001).

Agboola (1979), noted that there was a dense population of wild oil palm groves in Kabba and Igala areas of Kogi State, about 125 stands per hectare. This he noted, occurred along the watercourse. The dense grove has greatly disappeared. This is because there has been indiscriminate felling of the oil palm trees without replanting. Consequently, the output of palm oil and palm kernel oil has been low. Today, Nigeria has become a net importer of palm oil (USDA, 2000).

Malaysia which sourced her seedlings from Nigeria, by 1967 has overtaken Nigeria as an important producer of palm oil (USDA, 2000; Akinjide, 2005). The general decline in the palm produce economy in recent years brings to focus the significance of rehabilitation efforts made since 1950s. West African Institute for Oil Palm Research (WAIFOR)’s initial investigation has revealed that uneven, inadequate and seasonal rainfall, the long dry season and the growth of wild oil palms on nutrient deficient sandy soils limited Nigeria’s chance of competing effectively with other leading producers such as Malaysia, Indonesia, and Zaire (Democratic Republic of the Congo). Efforts made in the 1960s to get farmers to rehabilitate wild oil palm groves by planting improved seedlings generally failed. The situation thus appears in Nigeria that neither large-scale monocultures nor small-scale holdings seem able to provide answers to problem of the scarcity of palm oil in one of the countries, which the oil palm is native.

The small-scale farmers who constitute the bulk of oil palm producers in the state seemed not to be adequately involved. Thus, they have continued to rely on wild oil palm groves. Besides, the processing of fruits into oil and kernel is still being done by the traditional method, which is tedious and low yielding. This seems to have negative effects at increasing production of palm produce.

In view of the foregoing, the following questions become pertinent:

What are the socio-economic variables affecting the productivity of oil palm in Kogi State?
What are the motivating factors in the choice of oil palm for cropping by farmers?

What costs are involved in the production of oil palm?
What is the optimum replacement age of oil palm?
What factors are responsible for the declining productivity of the oil palm industry?

How can the declining production in the oil palm produce be improved?

Objectives of the Study

The broad objective of the study is to examine the economics of small-scale production of oil palm in Kogi State. The specific objectives are to:

i identify the techniques being used in the production of oil palm products in

the area;

ii determine factors affecting the resource use efficiency by oil palm farmers

in the area;

iii determine the optimum replacement age of oil palm;

iv determine the costs and returns of oil palm production;

v determine the effect of price on product output; and

vi identify and describe the constraints of oil palm production.

Hypotheses

The following null hypotheses will be tested:

The resources are not efficiently being utilized.
Socio-economic factors do not influence resource use efficiency.

Justification of the Study

The widespread acceptance of palm oil as cooking oil and industrial oil means higher demand for the product than other oils. Besides, the presence of carotenoid in palm oil makes it very valuable. Carotene is a precursor for vitamin A, which is very vital for remedy of night blindness (NRDC, 2003). Palm oil is used in the homes as cooking oil. In industries, it is used for the manufacture of margarine, soap, lubricating oils and candles. Palm kernel oil is used as skin lotion or as laxative, when mixed with kerosene, it is used as a wood polish. After extracting the oil, the residue, palm kernel cake form an excellent animal feed. Palm wine obtained by tapping the tree is used as a very good source of alcoholic drink in many social gatherings in Nigeria. Both the oil and wine obtained from oil palm have medicinal value.

Oil palm is a very valuable economic tree crop in Nigeria. It provided large quantity of palm oil and palm kernels, which in the 1960s accounted for 43 percent of the world production. Today, it only accounts for 7 percent of total global output, (WRM’s bulletin, 2001).

“Production” in economics refers to the type of activity which changes the form of the materials with which it works into goods or services capable of satisfying human needs either directly or indirectly, (Usoro, 1974; Lipsey, 1980). In agriculture, the activity would include cultivation, nurturing, harvesting, and for some products, processing. Output of the final products is a function of land, labour and capital, (Usoro, 1974). To achieve increases, the productivity of the various factors (resources) needs to be increased.

The present monolithic economy as a result of over dependence on crude oil (petroleum) makes it necessary to focus on such economic tree crop like the oil palm. This is because oil palm was one of the export crops that provided the economic foundation of Nigerian economy before and after independence. It is believed that oil palm has the potential capacity if properly developed and nurtured of boosting the economy of Nigeria, Malaysia being a case study, (Khera, 1976; Hartley, 1988; CTA, 2000).

Besides, the contribution of oil palm to the economy and palm oil to the nutrition and health of Nigerians make the study imperative. It is hoped that the findings will be useful to policy makers, researchers for further research works and oil palm farmers for the overall improvement and to restore the lost opportunity in the oil palm industry.

1.6 Limitations of the Study

The study has been limited by the fact that: –

there was a dearth of information due to lack of adequate record keeping. This gives room for some data to be estimated.
where current literatures on oil palm exist or are available, they are scanty, particularly publication on oil palm in Nigeria.
there was some difficulty in getting accurate information from the farmers because some believe that such will expose the secret of their business.
there was lack of adequate financial support, the high cost of transport fare coupled with other financial problems, imposed a severe limitation on the extent of travels in order to obtain further information. Friends and other well-wishers who supported in this case had been fully acknowledged.
the attitude of some of the respondents who withheld information and would even throw away questionnaire after having collected it. This actually brought a set back. With serious prayers and perseverance one overcomes.
there was lack of new planting. The activities on field were limited to mere harvesting of oil palm fruits of which owner(s) of the farm may not be easily traced. The problem was overcome by the use of ADP extension staff who were familiar with the oil palm farmers in their respective areas.

1.7 Basic Assumptions

The following assumptions are made for the purposes of this study that: –

the inputs will be limited to labour and fertilizer use to measure efficiency.
the fresh fruit bunch (ffb) shall be considered as oil palm products for the yield of palm oil and palm kernel.
both time series and cross-sectional data shall be used for the study.
the time series data shall be collected from established research institute (NIFOR), Agricultural Development Project (ADP) and National Bureau of Statistics (NBS).
market price of input of labour and fertilizer are used as standard.
the farm gate price of the product shall be used for the computation.