PERFORMANCE OF SESAME MARKETING SYSTEM IN NASARAWA STATE, NIGERIA

ABSTRACT

The study assessed the performance of sesame marketing system and the qualitative and quantitative  impact  of social capital.  For  primary data, the  sampling procedure involved a systematic random selection of 120 sesame farmers, 40 wholesalers, and 60 retailers of the produce after determining the sampling frame. The farmers were proportionately drawn from the main and minor producing areas. Similarly, the wholesalers and retailers were proportionately selected from 13 rural and urban sesame markets in the three agricultural zones of Nasarawa State. Data was collected using structured questionnaire. Retail prices for 84 months from 13 rural and urban markets of sesame were used as secondary data. The analytical tools employed in the analyses of data were descriptive and inferential statistics, regression and correlation techniques, Gini coefficient, Herfindahl index, marketing margin and principal component analysis. Steps to cointegration analysis involved augmented Dickey-Fuller (ADF) test, Granger causality test and augmented Engle – Granger (AEG) test, while price dynamics and speed of price adjustment were accomplished using error correction models (ECM). Results showed that only 34 pairs of market prices (about 21.8%) were cointegrated and the rate of price adjustment within one month was very high in nearly all the cointegrated pairs. Gini coefficient values among farmers, wholesalers and retailers were 0.686, 0.331 and 0.589, respectively. The Herfindahl index values estimated among farmers, wholesalers and retailers were 0.115, 0.442 and 0.188, respectively. The mean marketing margin value of the consumer price for wholesalers was 15.2% while the mean value for retailers was 11.4% of the consumer price. Mean farmer’s share for wholesalers was  84.8% and that of retailers was 88.6%. The key social capital factors perceived to  have  impact on the performance of the  middlemen were  named as (1) social relationships that make direct impact on market performance and (2) social relationships that make indirect impact on market performance. Social capital contributed significantly to market performance  in  the  dissemination of  information and  accessibility of credit.  Social  capital variables which contributed significantly to market performance included amount of credit from friends, relatives, social contact and membership of organizations on one hand, and number of market information on the other. Public policy intervention on infrastructural development, farm input supply and accessibility to credit by market participants in the right amount and conditions were recommended. Use of social capital variables relevant to market performance is an avenue to improve the marketing system of sesame in Nasarawa State.

CHAPTER ONE

1.1      Background to the Study

INTRODUCTION

Over the years in Nigeria, successive agricultural development policies and efforts have tended to tilt more in favour of food sufficiency, food security, increased food and fibre export than domestic marketing and processing. Paradoxically, this trend of development has led to increases in the production of certain farm commodities while at the same time, glut and scarcity are being experienced in some others (Ingawa, 2004). Even with the appreciable agricultural growth rate of 10.33% in 2011/ 2012, Nigeria still imported food and raw materials she could produce (CBN, 2012).   Noticeably, increases in output, for instance, have not translated into increases in the earnings of farmers as the vast majority and increasing number of them still live below  the  poverty  line  (Ingawa,  2004;  Adejobi,  Awotide  and  Ayanwale,  2007).  As  the agricultural marketing system in Nigeria is poorly developed, there is need for an efficient and effective agricultural marketing system to engender agricultural development so that all the benefits derivable in the process can be applied to other sectors to achieve development as well (Njoku, 2000; Ingawa, 2004). Marketing of farm produce is an essential ingredient in agricultural and economic development. Marketing can contribute to economic development in Nigeria by stimulating production and consumption, facilitating specialization and capital formation and generating income to individuals and foreign exchange earnings to the nation (Nwokoye, 1987; Olukosi and Isitor, 1990). In most cases, constraints, imperfections and inefficiencies in the market structure are most often responsible for low produce income, low consumer satisfaction, high food prices, high degree of wastages and nutritional problems (Adekanye, 1988).

Agricultural marketing systems are dynamic, competitive and involve continuous change and improvement. Market performance of farm produce is viewed as the assessment of how well marketing activities are performed (Abbott and Makeham, 1986). This is necessary on a continuous basis to get the right farm commodities to the right place at the right time and price (Fabiyi, 2004). The evaluation of market performance based on market structure, marketing margin and  efficiency reveals  how  effective,  efficient,  integrated, perfect  and  profitable or otherwise these markets are and the attention required in area of improvement.

As  the  engine  of success  in  any  economy,  efficient  marketing  effectively  connects producers and consumers, directs efficient resource allocation and maximum economic output and leads to integration of markets (Crawford, 1997; Chikwendu, 2003). Market integration is central to the assessment of market performance and a useful measure of pricing efficiency, competitiveness  and   interdependence  between   markets  and   middlemen.   Spatial   market integration ensures that a regional balance occurs among food-deficit, food-surplus and non-food producing areas through transmission of price signals (Chirwa, 2000). Consequently, volatility of prices is reduced, specialization is promoted, gains from trade are realized and welfare of market participants is enhanced through the normal profits they are expected to make.

The key players in the marketing system, whose activities significantly influence efficiency,   are   farmers   and   middlemen.   Farmers   and   middlemen   are   indispensably interdependent and marketing margin is the critical determinant of returns to them as well as retail food prices. The major components of the analysis of marketing margin consist of gross marketing margin, net marketing margin and farmer’s share. The net marketing margin accrues to the middlemen as profit (Anuebunwa, 2006). Unless middlemen earn profit in excess of what they require to pay for the interest on borrowed capital and cater for the risk they take, their morale to continue to invest will be dampened (Abbott and Makeham, 1986). The farmer’s share is the proportion of the consumer price that goes to the farmer (Mejeha, Nwosu and Efenkwe, 2000). Farmer’s share is a measure of the farmer’s economic power (Barallat, McLaughlin and Lee, 1987) and an important determinant of farm investment decisions. A low farmer’s share will obviously be a disincentive to invest (Idem, 1999). Normal profit making by middlemen is necessary but not sufficient condition for efficiency. The use of net revenue function (pseudo- profit function) also accounts for possible imperfection in the marketing system (Foltz, 2004).

Ideally, markets of farm produce in open competitive market economy are expected to be perfectly competitive with large number of buyers and sellers, homogenous product, perfect dissemination of information and perfect factor and product mobility (Subba Reddy, Raghu Ram, Neelakanta Sastry and Bharani Devi, 2005). Markets in Nigeria are far from being perfectly competitive  as  they  exhibit,  in  some  cases,  collusion,  discriminatory pricing,  monopolistic tendencies and imperfect flow of information (Adekanye, 1988). The main determinants of the nature of competition are the number of buyers and sellers and their size distribution (Branton and Livingstone, 1979). The number of sellers and buyers ranges from one to many. The size distribution is the economic power of the buyers and sellers and ranges from very small to very large. The interplay between few large firms and many small ones can be analysed in a process called  concentration to  determine how perfect, imperfect  and  monopolistic the  markets are (Okereke and  Anthonio, 1988; Tiku,  Ahmed and  Agbogo, 2004; Annuebunwa, Okoye and Achike, 2009).

Social capital, which embodies social dimensions such as social network, trust, reciprocity, social norms and collective actions, is regarded as essential as labour and physical and human capital in any productive process (Fafchamps and Minten, 1999; Beugelsdijk and Schaik, 2003; Johnson, Suarez and Lundy, 2006; Gotschi, Delve and Freyer, 2006). For traders in particular, social capital enables them deal with each other in more trustworthy manner by granting and receiving credit, exchanging price information and economizing on quality inspection, thereby ameliorating poor marketing institution, high search costs and imperfect and asymmetric information (Fafchamps and Minten, 1999). In addition, social capital is capable of sustaining capacity for collective action and supplying of public goods through collective action (Johnson et al., 2006; Sabatini, 2006). Thus, social capital has enormous potential for improving the performance of the agricultural marketing system in Nigeria beset by intractable constraints such as inadequate information and dissemination, poor and inadequate storage facilities, lack of standardization of many farm commodities and lack of access to reliable and adequate credit. The scenario of agricultural marketing and social capital in the foregoing can be applied to sesame in Nasarawa State. The study of market performance of sesame and return to social capital is an important step towards desired improvement in the marketing system for enhanced production and income to farmers and other market participants in Nasarawa State.

Sesame (Sesamun indicum L), also called beniseed, is believed to have originated from tropical Africa. Major producing areas worldwide include India, China, Malayar, Sudan, Mexico, Pakistan, Venezuela, Uganda and Nigeria. Japan, U.S.A., Italy, Israel and Venezuela are the major  importers (Negedu and Habeeb, 2001). In Nigeria, the crop  is widely grown in the northern and central zones of the country as one of the major export crops (Ochigbo and Idowu, 2002). Average seed yields, ranging from 500 – 800kg/ha obtained from farmers’ fields, are considered relatively low compared to average yield of 1000 kg/ha obtained from research farms (NCRI, 2002). Annual output figures increased from 56000 metric tonnes in 1994 to over 93,250.7 metric  tonnes  in 2007  (Negedu and  Habeeb,  2001; RMRDC, 2004; NBS,  2007). Generally, sesame seed is used in food preparation such as stew and confectioneries. The oil is used in manufacturing industries as well as substitute for olive oil in salads and cooking oil. Sesame is an important commercial crop, and one of the major crops produced in different locations of Nasarawa State. With its estimated output of over 41570 metric tonnes (about 40% of the national output) from about 46710 hectares under cultivation in the state, an annual estimated foreign exchange earning of US $12.3 million can be generated (Ochigbo and Idowu, 2002; NADP, 2010). Sesame is marketed mostly in  its primary form in the State. The oil extracted by traditional methods and the cakes resulting from the process are used mainly for local consumption.

1.2      Problem Statement

Marketing is an important component of the commodity value chain. Marketing of farm produce stimulates consumption, output and economic development if utilities of time, form and place are added as required. Farmers, farm investors, marketers, entrepreneurs, firms, policy- makers and planners are inevitably linked to marketing at one stage or the other.

Markets of farm commodities in developing countries are characterized by imperfections such as poor market institutions, high search costs and imperfect asymmetric information (Fafchamps and Minten, 1999). Marketing of farm produce in Nigeria is affected by several constraints and imperfections. The major constraints include inadequate or non-existent storage facilities, inadequate credit, lack of grades and standards, inadequate transportation facilities, inadequate information, low quality standard of produce, adulteration of produce and inadequate research (Ejiga, 1979; Njoku, 2000; Chikwendu, 2003; Arene, 2003; Aihousu and Akorede, 2004;  Ajani,  2005).  These constraints have  impact on the  varying degrees of profitability, efficiency and distortion in the marketing system of farm produce (Okereke and Anthonio, 1988; Annuebunwa et al., 2009).

Previous research efforts on sesame in Nigeria emphasized production/productivity, germplasm collection,  genetic  improvement, crop  protection and  utilization (Omojor, 1998; NCRI, 2002; Idowu, 2002, RMRDC, 2004; Babaji, Jolaiya, Jaliya, Sharifai, Kura, Ibrahim, Mahmud and Jantar, 2009; Umar and Okoye, 2010). As marketing is an integral component of farm production decision process, research on the marketing system of sesame should be given its pride of place as well and on regular basis. Presently, empirical information on the domestic marketing of sesame in Nigeria and in particular Nasarawa State has been scanty. Information provided by Ochigbo and Idowu (2002) and RMRDC (2004) centre on the marketing channels and seasonal fluctuation in the prices of sesame. Exploratory marketing research on sesame in Nasarawa State by Achike and Anzaku (2010) and Anzaku and Achike (2010) in Nasarawa State dwelt essentially on the quantity of sesame sold, analysis of marketing channels, capability of market participants, factors that affect them and the constraints they face. Assessment of market structure and marketing efficiency which characterize market performance are the main aspects of this study. There have been several researches on market structure and marketing efficiency of different farm products for different reasons in Nigeria and other parts of the world. Study of market structure and marketing efficiency, which will reflect the degree of imperfection, efficiency, profitability and distortion in the marketing system of sesame in Nasarawa State is yet to receive the desired attention. Empirical findings on market performance will therefore be useful in decision-making for all those involved in the marketing of the product. The impact of social capital on market performance is not yet clearly determined and explored as a strategy for improving the marketing system of sesame.

Social capital is regarded by economists as one of the  inputs that  can substantially improve the performance of the marketing of commodities. Social capital includes network of relationships, collective actions, social connectivity of economic agents, norms, trust, expectations and obligations which can be harnessed for the wellbeing of  individuals and the entire society (Beugelsdijk and Schaik, 2003; Johnson et al., 2006). Fafchamps and Minten (1999), Perreault, Brenner, Menzies, Filion and Ramangalahy (2003) and Johnson et al. (2006) used appropriate social capital indicators and performance proxies applicable to their various situations to empirically establish the impact of social capital on the performance of agricultural trade in Madagascar, ethnic business performance in Canada and productivity of agro-enterprises in Colombia, respectively. Exploring the impact of social capital on market performance of sesame and the possibility of using the outcome as a strategy for improving market imperfection and the livelihoods of the poor can be an attractive option for rural development in Nasarawa State and the entire country.

1.3      Objectives of the Study

The broad objective of the study was to assess the performance of sesame marketing system and return to social capital in Nasarawa State. The specific objectives were to:

i    determine the level of efficiency in the marketing of sesame;

ii.  assess the degree of market concentration among producers, wholesalers and retailers of sesame in the area;

iii. estimate marketing margin of wholesalers and retailers of sesame;

iv.   determine key social capital variables that affect market performance of sesame; and v.   assess the impact of social capital on the market performance of sesame.

1.4      Research Hypotheses

The following null hypotheses in respect of objectives i, ii and v were tested:

i.    operational efficiency was not affected by socio-economic characteristics of wholesalers and retailers of sesame;

ii.  no  relationship  existed  between sales  earnings and  socioeconomic characteristics of wholesalers and retailers of sesame; and

iii. there was no relationship between social capital and market performance of sesame.

1.5      Justification

Marketing efficiency of farm commodities is of interest to farmers, consumers, middlemen, government and the entire society. The knowledge of the efficiency of the marketing system of sesame will  influence farmers and  middlemen who  specialize in production and distribution of the produce, respectively, to strive to operate optimally (Arene, 2003; Kotler, 2003). Conflicts of interest that may be generated in the process by farmers, middlemen and consumers can be resolved for the stability of the marketing system through compromises, trade- offs and necessary government intervention so that no marketer takes undue advantage over others. Conflict of interest may arise because farmers perceive their efficiency as high when they receive consistently high prices of their products. While middlemen are interested in maximizing profits, consumers cherish products of acceptable quality at relatively low and stable prices. The stability of the marketing system of farm commodities such as sesame is a prerequisite for achieving food security, affordable food prices, increased employment, earnings and investment required for national development. The study of market structure will provide insights on the existence of imperfections that may further provide justification for any government intervention to improve competitiveness.

Marketing margin analysis is associated with several economic phenomena. Apart from components such as farmer’s share and the profit that accrue to middlemen, marketing margin reflects to some extent the various simultaneous shifts in supply and demand relations as well as changing efficiencies in input use (Barallat et al., 1987). Furthermore, it reveals the combined effects of changes in factor productivity, input prices, relative factor usage and efficiency levels of commodities. The solution to the oversimplified assumption that middlemen make excessive profits lies with the knowledge of marketing margin analysis. Thus, it is necessary for all those involved in the marketing of farm produce-producers, marketers, policy-makers, consumers and government agencies to know what marketing margin is, how to compute, interpret and apply it from  day-to-day.  Based  on  this,  concrete  decisions  can  then  be  taken to  improve  market performance of farm produce such as sesame for overall economic growth and development.

The study of social capital is useful to farmers, individuals and firms involved in the marketing of sesame and other farm commodities. Harnessing the apparent potentials inherent in social capital is one of the possibilities of improving the market performance of sesame for the benefit of market participants and the economy. The outcomes of empirical work on the impact of social capital on market performance of sesame are expected to greatly assist in decision- making by operators and policy-making by government.

It  is  expected that  the  study will  also  complement  the  present  efforts  by the  state government, non-governmental organizations, business firms and the people towards promoting the production, processing, utilization and the exportation of sesame in Nasarawa State. This is particularly important as the dearth of marketing information makes investors and government marketing agencies to  intuitively take decisions that are most often not routinely based on empirical findings.

1.6      Limitations of the Study

The followings are the main limitations of the study:

i.    Study of spatial integration of market requires information on prices, trade flows between markets and transfer costs. The study was limited to retail prices, since only retail price information on sesame was readily available and the interpretation of   integration was based on the assumption that integrated markets are connected, and changes in the degree of integration should reflect changes in efficiency or transportation cost or both. The use of retail price series in the study was good enough to determine spatial integration and consequently marketing efficiency at that level;

ii.  Social capital dimensions are many and continue to evolve. Since it is impossible to identify and incorporate all the dimensions, social capital variables used in the study were limited to those the researcher considered would have impact on market performance under the prevailing economic circumstances. The social capital variables used in the study are pertinent in improving many of the constraints in the marketing system of sesame;

iii. Twelve out of one    hundred and  twenty questionnaires distributed to  farmers were discarded for irregular and incomplete filling. Thus, the 108 respondents used in the study could still give the expected result; iv.  Many of those listed as traders in the sampling frame did not operate on regular basis and were consequently not equipped to provide all the necessary information required. The sample size of traders was therefore limited to regular traders who could provide the information elicited. This only had the effect of reducing the sampling frame from112 wholesalers to 80 and 213 retailers to 120, while the sample size proposed remained unaffected.

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