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Profitability Analysis of Traditional and Modern Processing and Marketing of GNO and GNC
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- Table 4.9: Gross Margin for Traditional and modern GNO processing the States and the Region
- Revenue (N) GNO 34447 16193 4817 19594 1127829 Cake 14658 9466 4729 9919 166780 Total Revenue 49105 25659 9546 29513 1294609
- Total 34, 272 17, 356 6, 154 21, 471 918, 264 Processing
- Total 4, 216 2, 850 1, 142 2, 937 16, 169 ( c) Marketing
- % GM 23.71% 20.86% 22.27% 16.58% 38%
- Table 4.10 Regression results of the determinants of profitability of traditional GNO processing in Nasrawa, Benue and Niger states
- Table 4.11: Regression results of the profit function of determinants of profitability of traditional and small-Scale modern GNO processing in North Central Nigeria
- 4.5 Value Added by Processing Groundnut into GNO and GNC in North Central Nigeria
- Table 4.12: Value added by processing groundnut into oil and cake in North Central Nigeria
- 4.5.1 Test of significance of value added
- Table 4.13: Result of test of differences in value of groundnut seed before and after processing
- 4.6 Level of Integration of Markets of Groundnut Oil (GNO) and Groundnut Cake (GNC)
- 4.6.1 Result of the unit root test
- Table 4.14: Augmented Dickey -Fuller (ADF) Unit root test for price series at level and at first difference
- 4.6.2 Result of the Johansen test for co-integration
4. 4. Profitability Analysis of Traditional and Modern Processing and Marketing of GNO and GNC 4.4.1 Gross margin results of groundnut oil processing The gross margin associated with processing groundnut oil both in the traditional and small-scale modern methods per week for the States and the region is presented in Table 4.9. The procurement, processing and marketing cost items for the respective quantities of raw groundnut processed are also shown. The table presents, on state basis, the costs and returns of traditional and modern GNO processing and hence the gross margin in North Central Nigeria (NCN). For an average of 263.68kg of groundnuts processed in Nasarawa State, the total revenue obtained was N49, 105 (N186, 229/tonne) while the total variable costs (TVC) of N39, 691 (N150, 527/tonne) was realized. A gross margin (GM) of N9, 414 or N35, 702/tonne representing 23.71% was obtained. In Benue State, for a quantity of 100.5kg, a total revenue of N25, 659 (N255, 950/tonne) was realized. The TVC of N21, 230 (N211, 770/tonne) and gross margin of N4, 429 (N44, 179/ton) equal to 20.86% was obtained. For a given quantity of 46kg in Niger State, the total revenue gotten was N9, 546 (N20, 752/tonne), its TVC was N7, 807 (N169, 717/tonne) with a gross margin of N1, 739 (N37, 804/tonne) representing 22.27%. For the entire North Central, TVC was N25, 314 (N172, 204/tonne) with total revenue of N29, 513 (N200, 768/tonne) per week, and GM of N4, 199 (N28, 564/tonne) representing 16.58%. For the modern processors, the total variable expenses were N937, 966 for 6222kg (6.222 tonnes) of groundnut processed per week with total revenue of N1, 294, 609. The gross margin was calculated at N356, 643 that is N57, 319/tonne and 38% of the TR. The modern mills had a high GM of 38%. This is attributable to the economies of size production enjoyed by them. It is noted from the results that GNO processing in the States in the North Central Nigeria was profitable, given that activities from procurement through processing to marketing were quantifiable and monetized. Fixed cost items were not estimated in line with the proposed tools of analysis, and because most services of the fixed cost items in traditional processing could be accessed and paid for. This explains the adherence to GM as a measure of profitability in this study (Arene, 2002)
Source: Computed from field survey data, 2010/2011 4.4.2 Determinants of profit of groundnut oil processing in North Central Nigeria This section discusses the results of regression analysis of selected economic variables on the gross margin of the traditional and modern processors in the study area. The results for the selected states are presented in Tables 4.10 and 4.11. The task here is to test the null hypothesis that β=0 or that the β’s coefficients were not statistically different from zero. The results for the states in the zone (Table 4.10) indicated that fuel-wood (X3) and packaging (X4) were significant at 1% level of probability in Nasarawa, Benue and Niger States, and all with positive coefficients. This brought to the forefront the importance of these two variables in the gross margin of the traditional processors. Fuel wood, as a source of energy for processing, is critical due to inadequate electricity, to enable the use of simple, locally fabricated, and electrically operated machines for processing. The extended effect is the continuous deforestation and environmental problems. Packaging, a convenient way of presenting a product to a consumer, has been seen to be very critical, therefore better packaging will increase the gross margin of processors and hence their profit. This also brings the packaging enterprises into the value chain. Transportation (X5) was significant in Niger State at 1% LOS, and 10% level of significance in Nasarawa State, and not significant in Benue State; but positive in all the three States implying too that transportation contributed positively to the gross margin of processors. The salt (X6) variable was significant at 5% level of probability in Nasarawa State and negative in all the States. This implied that increased use would reduce the gross margin of processors. Of course salt is a necessity with inelastic demand hence its use in GNC has to be with caution, also given the fact that in Niger State, pepper is used instead of salt. It is not needed in GNC used in steak meat (suya) making. Price of raw groundnut (X1) which included procurement cost and labour (X2) were not significant. These variables had negative coefficients calling for caution in their use. The adjusted R̄2 was 0.94 for Nasarawa State, 0.96 for Benue State and 0.88 for Niger State. This implied that the selected independent variables explained 88%, 94%, and 96% variation in the gross margin of processors in Niger, Nasarawa and Benue States, respectively. Table 4.11 presents the results for pooled data for traditional and small-scale modern processors within North Central Nigeria. Fuel wood and packaging were significant for traditional processors at 1% level of probability, while transportation was significant at 10% level. This implied that fuel wood, packaging and transportation were the critical factors that determined gross margin and hence profitability of GNO Processors. The coefficient of labour and salt were however negative, calling for caution in their use. The price of groundnut was positive but not significant, meaning it was not very critical in the level of profit of processors. The adjusted coefficient of multiple determination (R̄2) was 0.944 for the traditional processors. The F values and the standard errors are as presented in the table. For modern processors, the independent variables were selected based on their importance in the processing activity. The critical variables were raw groundnut (x1), procurement cost (x2) and maintenance cost (x3) which were all significant at 1% level of probability. Electricity, labour and fuel wood however negative implying that their increase use could deplete the profit of modern processors. The adjusted coefficient of multiple determination (R̄2) was 0.97. The F value, Durbin-Watson (DW) and the standard errors were also as presented in the table 4.11 Table 4.10 Regression results of the determinants of profitability of traditional GNO processing in Nasrawa, Benue and Niger states
***, **,* = 1%, 5% and 10% levels of significance respectively. Source: Computed from field survey data, 2010/2011 Table 4.11: Regression results of the profit function of determinants of profitability of traditional and small-Scale modern GNO processing in North Central Nigeria
***, **,* = 1%, 5% and 10% levels of significance respectively. Source: Computed from field survey data, 2010/2011 4.5 Value Added by Processing Groundnut into GNO and GNC in North Central Nigeria Processors and manufacturers are described as those who undertake some activities on the farm products to change their form (Olukosi & Isitor, 1990). This change in form implies increase in quality and value – form utility. The value added to a tonne of raw groundnut is simply the change in its value before and after processing (Gittinger, 1972; Brown, 86; Brown et al, 94). For this study, value added to groundnut per week is shown in Table 4. 12. On state basis, the highest quantity of 263kg processed per week was in Nasarawa State worth N33, 632 with final market value of products (GNO and GNC) at N49, 105. This was with added value of N15, 473 (N58, 680 per tonne) which equaled 46% value added. In Benue State, 100kg of groundnuts worth N16, 417 yielded products valued at N25, 659. The value added was N9, 242 (N92, 420 per tonne) representing 56%. The least quantity was in Niger State at 46.9kg per week worth (N5, 878) yielding products worth (N9, 546) with the highest value added of N3, 668 (N92, 420 per tonne) of groundnut processed amounting to 62.40% value addition. For the North Central Zone, an average of 147kg of groundnuts was processed per week valued at N20, 889. The value of GNO obtained was N19, 594 and GNC N9, 919 all valued at N29, 513, with added value of N8, 624 or N58, 666 per tonne representing 41.28% value addition. Table 4.12 also shows the value addition for modern processing in which the quantity processed was 6, 222kg per week on the average valued at N897, 906. The GNO obtained was valued at N1, 127, 829, and cake N166780, totaling N1, 294, 609. The valued added in modern processing was calculated at N396, 703 (44.15%) or N63, 758 per tonne. Table 4.12: Value added by processing groundnut into oil and cake in North Central Nigeria
4.5.1 Test of significance of value added The result of test comparing the means of value added through processing in the selected States and the zone, for traditional and modern processing is presented in Table 4.13. The student’s t- statistic was used to compare the mean value of raw groundnut seeds before processing and its value after processing both in traditional and modern processing. The result shows that there was significant difference in means of value of groundnut before processing and its value after processing at 5% LOS in Nasarawa, Benue and Niger States. The result for the modern processors in the zone was not significant. Therefore, the null hypothesis (H0: μ=0) that there was no significant difference between the value of groundnut before and after processing was rejected at 5% level of probability for traditional processors. This was however not rejected for modern processors. This implied that traditional processors were more efficient and added more value to raw groundnut than modern processors. This could be due to inadequate infrastructural facilities such as electricity, and good roads that enhance large scale processing activities Table 4.13: Result of test of differences in value of groundnut seed before and after processing
Source: Computed from field survey data, 2010/2011 4.6 Level of Integration of Markets of Groundnut Oil (GNO) and Groundnut Cake (GNC) The procedure started with a test for non – stationarity of the series. This was then followed by the Johansen multivariate and bivariate tests for co - integration carried out on the price series obtained in Wuse, Bida, Minna, Nasarawa Eggon, Lafia and Makurdi markets within the North Central Nigeria. 4.6.1 Result of the unit root test To examine the time series properties of the price series, the augmented Dickey – Fuller (ADF) unit root test approach was used. At the level form of each series, the null hypothesis was that each data series was non stationary. If the hypothesis was not rejected, the test was repeated using the first difference of each price series. The results of the ADF test for individual price series (GNO & GNC) in each of the markets are reported both for the prices at levels and for the prices in the first difference in Table 4. 14. For GNO prices in Lafia, Wuse and Nasarawa Eggon, the null hypothesis was not rejected at level but rejected for the other three markets. However, at first difference the null hypothesis for prices in all the markets for GNO and GNC were rejected at 5% LOS, and the series were I (0). That is, all the respective price series for GNO and GNC in all the locations were integrated of the same other. Therefore, they were set for the conduct of the Johansen test for co-integration. Table 4.14: Augmented Dickey -Fuller (ADF) Unit root test for price series at level and at first difference
Mackinnon critical values for ADF test at 1% LOS = -3.5682; 5% =-2.9215; 10%=-2.5983 Source: Computed from field survey data, 2010/2011 4.6.2 Result of the Johansen test for co-integration The Johansen multivariate and bi-variate tests were conducted for groundnut oil (GNO) and groundnut cake (GNC) price series that were integrated of the same order. The result of the Johansen multivariate test is presented in Tables 4.15 for GNO and 4.16 for GNC. For GNO (Table 4.15), there were five co-integration vectors at 5% significance level, and accordingly one common stochastic trend in the system. Hence, their locations seemed to be within the same market, the North Central Zone of Nigeria. All the bi-variate tests showed at least one co - integration vector and hence one common stochastic trend which also aligned with the result from multivariate test. The result shows that the markets were integrated as the relative prices were stable signifying long run equilibrium relationship over time and the law of one price (LOP) held. This implied that the commodity was a tradable item within the zone, though there was room for improvement in integration of the markets given the Eigen values. Table 4.16 presents the multivariate results for GNC. The result showed two co-integrating vectors at 5% significance level. This implied that the market for groundnut cake was not highly integrated. This was attributable to the fact that bulk of the GNC processed was consumed within markets of the processors. GNC was also treated as a by-product from processing so that price for GNC was not of paramount trade importance.
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R̄2= 0.94 R̄2 = 0.96 R̄2 = 0.88
asarawa Before 36632.14 70 42802.29 5115.85 -9.118 .000
enue Before 16417.67 45 12883 1920.55 -11.45 .000
iger Before 5878.16 60 5297.53 683.91 -7.76 .000
CN Before 20889.91 175 30992.95 2342.85 -12.89 .000
odern Before 897906.71 17 2.42569E6 5.8817E5 -1.329 .202