an economic assessment of rural based agro industries in ogoni land rivers state, nigeria

An economic assessment of rural based agro-industries in

Ogoni land Rivers State, Nigeria

ABSTRACT: An economic assessment of rural based agro-industry in Ogoni land is a research conducted to ascertain the economic viability of the rural agro industry at ogoniland in Rivers State, especially the micro, small and medium scale agro based industries. Thirty industries were randomly selected from a population of 150 micro small and medium scale enterprises obtained from the Ministry of Commerce and Industries, the data for this research was analyzed using cost and revenue model. Only variable cost was considered, this is because if a business can cover its variable cost then it has good leverage. The net farm income revealed that return on investment was higher than variable expenses, that is, the total net income was higher than Total Variable Cost (TVC) in all the rural industries. Inferentially, this is a sign of economic viability and so it means that the rural agro- based industry was economically viable. The study recommended that government should assist the rural Agro-based industries with necessary infrastructural facilities such as electricity to power their equipment so as to reduce the cost of fuel. Road should also be provided to reduce cost of transportation, this will drastically reduce variable cost and increase net profit.

180-186 | JRA | 2013 | Vol 2 | No 2

This article is governed by the Creative Commons Attribution License (http://creativecommons.org/

licenses/by/2.0), which gives permission for unrestricted use, non-commercial, distribution and reproduction in all medium, provided the original work is properly cited.

www.jagri.info

Journal of Research in

Agriculture An International Scientific

Research Journal

Authors:

Okidim IA and

Albert CO.

Institution:

Department of Agric and

Applied Economics/ Ext.

Rivers state University of

Science and Technology,

Port Harcourt, Rivers State,

Nigeria. PMB 5080.

Corresponding author:

Albert CO.

Email:

Web Address:

http://www.jagri.info/

documents/AG0041.pdf.

Dates: Received: 18 Mar 2013 Accepted: 02 May 2013 Published: 27 Aug 2013

Article Citation: Okidim IA and Albert CO. An economic assessment of rural based agro-industries in Ogoni land Rivers State, Nigeria. Journal of Research in Agriculture (2013) 2(2): 180-186

Original Research

Journal of Research in Agriculture

Jou

rn

al of R

esearch

in

A

gricu

ltu

re

An International Scientific Research Journal

Keywords: Economic Assessment, Rural Based Agro-Industries.

INTRODUCTION

Before crude oil and gas were discovered in

Ogoni land, the predominant occupation of the people

was farming. Industrialization was not a part of the

economic activities in Ogoni-land. The rural economy

was predominantly dependent on production of primary

raw materials. Soon after the discovery of oil in Ogoni-

Land, there was a gradual decline in agricultural

activities which also affected the rural base industries.

The rural based industries have obviously contributed to

the development of Ogoni-land in particular and Rivers

State in general, it has proven to be one of the most

viable sectors with enormous employment and economic

growth potentials. The small scale farmer or farm family

who resides in the rural area produce over 80% of the

food consumed in Nigeria (Ikesiofor, 2012).

The rural based industries have contributed

immensely to industrial and economic development

through effective use of local raw materials from

agriculture for the production of intermediate goods and

transformation of rural technology. Agro-based

industries depend on agricultural input, which are mainly

raw materials from farm. Rural agro-based industries

also depend on electricity for efficient operation, but

often times, electricity is not always available which

makes these industries to depend on small generators and

thereby increasing the cost of operation (Chima, 1994)

Rural based industries face problem of poor record

keeping and inadequate working capital because of poor

accessibility to bank credit facilities.

Problem statement

Ogoni-land is highly devastated because of oil

exploration and exploitation. This devastation has

grossly affected the hitherto vibrant rural based

industries which were agro-based, not minding that a

nation cannot grow without small and medium agro

industries, in other to bring back the vibrant agro base

industries, it is necessary to conduct survey for

ascertaining the economic viability of these rural agro

based industries so as to find out whether or not they still

meet up the very purpose for which they were set up

before the advent of oil exploration and exploitation in

Ogoni.

Objectives of the study

The general objective of this study is to examine

the economic viability of rural agro-base industries in

Ogoni-Land, while the specific objectives were:

To identify all the agro-based rural industries

To analyze or examine their level of economic

viability; and

To investigate their problem and prospect if any.

Literature Review

Rural based industry is an industry that depends

on agricultural product for its support and sustainability

(Maisamari, 2002). The rural base industries depend on

farm products such as cassava, cocoyam, groundnut,

honey, olives, palm kernel, palm oil, palm wine, timber

and other agricultural raw materials (Koleshore,1984).

The rural based agro industries are usually involved in

the production, processing and manufacturing of

agricultural products. They manufacture local gin

through palm wine, process cassava into garri and

“fofo”, processing oil palm into palm oil, processing of

hide and skin into leather, roofing woods, plywood etc.

On bases of size, Teal (2002) define small scale

agro-based industries as an industry that employ up to

5-29 employees. Nicholas (1996) defined small scale

agro-based industry as industry with employees between

9-29. Teal, (2002) also maintained that medium scale

agro based industries employ between 30-99 staff, while

micro agro based enterprise has between 1-5 employees.

On the basis of finance, the rural micro and

medium scale enterprises have financial investment not

more than, but between ₦ 150 - ₦ 200 million naira

excluding land (just working capital) in Nigeria. In

Ghana, it is not more than 10 million Ghanian Cedis, in

Malawi, it is two million dollars. Rural based agro allied

industries, mobilize funds which otherwise would have

181 Journal of Research in Agriculture (2013) 2(2): 180-186

Okidim and Albert, 2013

been ideal. They promote indigenous technology and

employee ideal labour (Peter, 2002). Rural micro and

medium agro-based industries source their money

through loans from friends and relatives (Chima,

1994).They also source funds through personal savings –

the most common source of equity finance. (Olashore,

1985). Retain earning (Plough back) is also another

method of equity financing. Retained earnings are

earnings or profit set aside after dividend is paid (Ernest,

1985) Rural agro-based industries also source finance

from commercial banks and Isuzu cooperatives among

others.

METHODOLOGY

Ogoni is one of the ethnic groups or tribes of the

Niger Delta region, southern Nigeria. It is an ethnic

group in Rivers State of Nigeria which spread through

four local government councils of Tai, Gokana Eleme

and Khana. It covers an area of 1,212sq km and has a

population of 740,744 (NPC, 2005). Even though there is

a huge present of hydro-carbon (oil and gas) available,

the main occupation of the people is fishing and farming.

The data for this study were mainly collected through

well structured questionnaire and personal interview as

well as secondary data. The population of this study was

150 micro small and medium scale industry workers,

obtained from Ministry of Commerce and Industry

workers. Sample size was 30% of the population which

was randomly selected in each of the categories of

industries (micro, small and medium) as follows:

Ten palm oil processing industries

Eight local gin production industries

Five timber production/logging enterprises

Four cassava processing enterprises

Three breed production enterprises

Method of Data Analysis

The data for this study were analyzed using

descriptive statistics such as simple percentage, averages,

frequency table, cost and revenue analysis (cost -revenue

model).

RESULTS AND DISCUSSION

Table 1, is in line with objective one of this

study, which is to identify the rural agro-based

industries. The following agro-based industries were

identified- oil palm processing industry, local gin

production, Timber (logging) cassava processing

industries, bread production.

Table 1 shows the distribution of the number of

industries, the table shows a total of 38 industries, Out of

the 38 industries surveyed 18 (33.33%) were palm oil

processing. 8 (26.67%) were local gin producing

5 (16.67%) were Timber/logging, while 4 (13.33) were

cassava processing, and 3 (11.00.) were bread industries.

Majority of the agro-based rural industries were palm

processing industries. Bread industries were the least,

with only three industries; this was due to the high cost

of building bakery.

Table 2 revealed that amongst the variable cost,

fresh fruit bunch (ffb) had the highest cost with two

hundred and fifty thousand naira. It was also revealed

that in palm oil production land and electricity were also

costs intensive. Another cost intensive item was labour.

For the purpose of this study, labour was classified as

variable cost since labour cost only increased with

increase in the quantity of FFB. The amount spent on

Journal of Research in Agriculture (2013) 2(2): 180-186 182


Type of industry Number of

industry Percentage

Oil palm processing 18 33.33

Local gin production 8 26.67

Timber/logging 5 16.67

Cassava processing 4 13.33

Bread production 3 11.00

Total 38 101.00

Table 1: Types of Agro-based industries in Area

Field survey 2012

labour was one hundred and twenty eight thousand

(128000) naira. The study also revealed that with

increase in mechanization, the quantity of labour

employed as well as labour cost will reduce drastically.

Furthermore, the study shows the cost and returns on oil

palm production. The finding shows that the total

variable cost (Tvc) of producing 150 jerry cans of

processed oil palm was ₦ 406, 150 It was earlier said

that this work will be based on variable cost only in the

short run The table showed that, the gross revenue was

600,000 while the net farm income was 193,850 naira; it

means that there was a return above variable cost,

confirming the viability of the industry with generating

set and land taking the highest cost. This is in agreement

with Okidim and Albert (2012) work on determinant of

growth in the oil palm industry, the capital recovery was

above 12.8% indicating that the business was profitable.

Average monthly income/returns from local gin

production

Variable cost

Raffia stems 6,280

Fire wood/kerosene 8,500

Hired labour 16,250

Miscellaneous 6,000

Total variable cost (TVC) = 37,030

Total revenue = 25 cans of 20 litres at ₦ 2800 per

20 litre = 70,000

π=TR-TVC= 70,000-37,030 = 32,970 per month



Item Quantity Fixed cost (₦) Variable Cost (₦) Revenue

Land 3 plot 200,000 -

Generator 1 150,000 Digesting machine 1 60,000

Shalker 1 40,000

Factory building 1 50,000

drums 7 21,000

pipes 2 5,000

Jerry cans 10 5,000

Miscellaneous - 5,000

50 tons of

fresh fruit bunch 251,000 -

Labour 128,000 per month Firewood 24,000 per month Kerosine 3,150 per month

Total 536,000 406,150

Gross Revenue 150 Jerry cans (20

litres) processed

oil 4000 naira per

1 (4000x150)= ₦

600,000

Net Farm

Revenue

600,000-406,150

=193,850

Table 2: Average monthly Cost, and Returns on oil Palm Production

Source 2012

Items Fixed Cost (₦) Revenue

Local

Condenser

1 plot of land

10,000

30,000

-

-

Drum preservation 7,200 -

Factory building 25,000 -

Taping knives 1,500 -

I cooking drum 3,500 -

Pipe 200 -

Jerry cans

20 litres (20) 10,500 -

Miscellaneous 3,000 -

Total ₦ 32,970

Table 3: Cost and returns on local Gin production

Source 2012

Table 3 shows the monthly cost and return on

local gin production. The monthly total variable cost

stood at ₦ 37, 30 while total monthly revenue stood at

70,000. The net monthly income was 32,970. Since the

monthly total revenue was above the monthly total

variable cost, it means the business was economically

viable. Again, we are only considering short run profit,

which is why the fixed cost is not considered. If in the

short run, we can cover the variable cost then the

business is considered economically viable. Again, like

the palm oil production, local gin production had labour

as its highest variable expense. The study also revealed

that the demand for local gin was lesser than the demand

for palm oil this because not everybody in the study area

consume local gin for health and religious reasons.

Although, local gin apart from directly consuming it,

could be used as raw materials for the manufacture of

other products.

Table 4 shows the monthly cost and returns on

timber/logging. The study revealed that transportation

cost was one of the biggest variable costs with about

eighty four thousand eight hundred (84,800) naira per

lorry load of timber. The processed timber is always

transported to the city from the forest. The cost of diesel

and labour were also high with 75,000 and 64,000

respectively. Also, multiple taxations made tax paid to

rose up to 7,420.

The total monthly variable cost was eight

hundred and thirty one thousand two hundred and twenty

naira (₦ 831,220.00), while the gross monthly revenue

was nine hundred and sixty thousand naira (₦ 960,000).

The net revenue income was one hundred and twenty

eight thousand seven hundred and eighty naira

(₦ 128, 780.00). This net profit is economically viable to

keep the timber/logging business. The result confirms



Items (variable)

Cost (₦) Revenue

200, pieces of 4x12x12 @ ₦

1,500 per piece 300,000.00

200, pieces of 9x12x12 @ ₦

1,500 per piece 300,000.00

Diesel 75,000.00

Labour 64,000.00

Tax 7,420.00

Transport 84,800.00

Total variable cost ₦ 831,220.00

Gross revenue 800 pieces (1x12x12 at ₦

1,200 = 960,000.00 – ₦ 831,220.00= ₦

128,780.00

Table 4: Cost and Return on Timber/logging industries

Field survey 2012

Items (variable) Cost (₦) Revenue

2, 800kg of cassava at

500/35kg 40,000

Diesel/oil 5,400

Labour (frying, feeling 16,000

Transport 2,000

Total variable cost 63,400

Gross Revenue

1, 200kg of garri per month /8kg ₦ 125 per kg. 1200 x ₦

125 = ₦ 150,000

Net monthly return ₦ 150,000- ₦ 66,400 = ₦ 83,600

Field survey 2012

Table 5: Cost and Return on Cassava Processing

Timber Organization Company (TOC) (1999) that timber

production has a high economic value.

Table 5 shows the cost and Return on cassava

processing to garri. The study shows that cassava

demand is high in the study area even though the supply

is high. Labour also constitutes one of the highest

variable costs like other industries studied. This shows

that in all the industries, labour cost is high.

The table shows that ₦ 66, 400 was spent as total

variable cost (TVC) to process 1,200 kilogram of cassava

monthly. The table also shows that the sum of

₦ 150, 000 was realized from cassava processing as

gross returns while N83, 600 was realized as net monthly

income from cassava processing. This margin indicates

that the business has some financial leverage. The result

is in line with Agundu and Okidim, (2004) who observed

that cassava production is a money spinner due to high

net income from foreign export.

Table 6 shows the monthly cost and gross as well

as net returns on bread production in Ogoni-land. The

table shows that the total variable cost (TVC) was one

million seven hundred and four thousand, six hundred

Naria (₦ 1, 704,600) the gross revenue earning was two

million and five hundred thousand. While the net

revenue earnings was six hundred and seventy four

thousand four hundred naira (₦ 674, 400). This was the

highest in terms of net revenue of the six rural based

industries surveyed. Murray and Dey (2008) indicated

gross operating surplus as one of the factors in bread

production.

This survey did not include fixed cost but only

based on total variable cost on monthly basis. The study

shows that bread had the highest variable cost of all the

six local industries studied with one million seven

hundred and four thousand six hundred (1704, 600) naira

with labour taking 300,000 naira. The study also showed

that as variable cost increases, gross revenue and profit

also increase, the table also revealed that of all the six

local industries studied, bread industries had the highest

gross earnings.

CONCLUSION

The rural base agro industry with respect to

income generation was observed that bread production

had highest income; this means that if bread making

industries are located in rural areas profit could be made.



Items Cost (₦) Revenue Raw materials 168 bags of flour

at 5, 400 per bag

Variable cost

907,200 -

21 bags of sugar at 10,000/bag 210,000 -

42 packet of yeast at N600/per

packet 25,200 -

Salt 8,400 -

Preservatives 12,000

80 packets of butter 28,000 -

180 litres of groundnut oil 34,800 - Hired labour 300,000 -

Diesel and water 34,000 -

Fire wood 100,000 -

Taxes 15,000 -

Miscellaneous 30,000 -

Total variable cost (TVC) 1,704,600

Gross earning Gross Revenue 12,500 loaves of bread at ₦ 250/ loave

= ₦ 2,500,000

Net earnings ₦ 2,500,000-₦1,704,600 =₦ 674,400

Table 6: Cost and Returns on Bread Production (Monthly)

Field survey 2012

The research also showed that all the agro- based rural

industries were economically viable; at least they

covered their variable cost in the short run. It is therefore

recommended that government should assist the rural

agro-based industries with necessary infrastructural

facilities such as electricity to power their equipment so

as to reduce the cost of fuel. Road should also be

provided to reduce cost of transportation, this will

drastically reduce variable cost and increase net profit.

REFERENCES

Agundu PUC and Okidim IA. 2004. Commercial

cassava optimization challenges and strategies

imperatives in Nigeria. The Abuja Management Review,

2(2),58-77.

Chima PA. 1994. Finance and Management of Small

and Medium Enterprise in Nigeria PP. 132.

Ernest J and William W. 1978. Financial Management

of Small Firm, Eagle Wood cliff. Prentice Hall.

Ikesiofor MC. 2012. Strategies toward achieving

agricultural transformation and rural development in

Nigeria. Proceedings of Agricultural Conference Ansuiac

2012 P 445.

Koleshore CN. 1984. Prospect and Problems of Agro-

allied Industry in Nigeria A paper presented at seminar

organized By Societe General Bank, Illorin Kwara State.

Maisamari UH. 2002. Monitoring over heads account

and Capital Accounts Returns: Reconciliation and

Reporting at Federal Inland Revenue Service.

Murray J and Dey C 2008. Assessing the impact of a

loaf of bread. Australia: University of Sydry.

Nicholas M. 1996. Small and Medium Enterprise, PDR.

The results of National Survey. www.11o.org.

Okidim IA and Albert CO. 2012. Analysis of the

determinants of growth of the oil palm industry in

Nigeria. Journal of Economic and Sustainable

Development, 3(9), 25-29.

Olashore AO. 1985. Financing SME in Nigeria

Business Times, Vol.5, No 4, pp887

Teal F. 2002. Background information use of data set

region project on enterprise development (RPED) Ghana

Manufacturing sector survey.

Timber Organization Company (TOC). 1999.

Economic principles of timber production.

www.forgov.oc.c9/hpp/post/00083/sdu-31-htm



Submit your articles online at www.jagri.info

Advantages

Easy online submission Complete Peer review Affordable Charges Quick processing Extensive indexing You retain your copyright

[email protected]

www.jagri.info/Submit.php.

http://www.11o.org

an economic assessment of rural based agro industries in ogoni land rivers state, nigeria

Documents