ANALYSIS OF FACTOR-PRODUCT RELATIONSHIP IN THE PISCICULTURE VALUE CHAIN IN LAGOS STATE, NIGERIA.


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ANALYSIS OF FACTOR-PRODUCT RELATIONSHIP IN THE PISCICULTURE VALUE CHAIN IN LAGOS STATE, NIGERIA.

Abstract:       The broad objective of the study was to analyze factor-product relationship in pisciculture value chain in Lagos state, Nigeria. The specific objectives were to: (i) determine the socio-economic characteristics of the pisciculture farmers and examine influence on their output, (ii) identify the value chain steps in pisciculture enterprise, (iii) determine the factor-product relationship and estimate the technical efficiency in the value chain, (iv) estimate the costs and returns of pisciculture value chain and (v) identify the various constraints facing the pisciculture value chain. The study adopted the survey design. It utilized mainly primary data. A structured close-ended questionnaire was used to collect information from the 120 fish farmers in the area. Data generated were analyzed using the stochastic frontier analysis (SFA), budgetary analysis, rate of return; test of difference in mean and value chain analysis. Average output of fish per production cycle was 14,000kg, while an average farm size (land) was 1.97ha per farmer. Average scores for farming experience, household size and years of schooling were 11.7years, five persons and 14.4 years respectively. The farmers were young as indicated by mean age of 43years. The result showed that all farmers (100%) culture fingerlings, juveniles and market size fishes while only few carryout hatching of eggs (40%) and culture fries (50%) in pisciculture enterprise in the state. Mean scores for pond size (Image=2.22m2) and feed (Image=3.12N/ha) were also recorded. Six factors namely, farm size, labour, feed, fertilizer, stocking capacity and depreciation value with coefficients of 0.02, 0.28, 0.03, 0.04, 0.40 and 0.20 respectively exerted significant (p<0.05) effects on the output of fish. All the production variables analyzed were positive except farm size and feed. The major determinants of efficiency were identified to be farm size and stocking capacity. The farmers are fairly efficient technically, with a mean efficiency estimate of 0.88 (Image=88%). An average profit of N5,371,497.753 was recorded per farmer per farming cycle with a 2.2 return on investment (ROI) for farmers without value chain; while an average profit of N6,734,290.39 and a 2.0 return on investment was indicated on the other hand for farmers with value chain; indicating an average difference in margin of N1,362,792.64 between these farmers per production cycle. Also, the study revealed that hatching of eggs which only takes place in one week generates an average profit of N71,457.18 to the farmers while culturing of fries only generates on the average after two weeks a net profit of N16,928.36, while on the other hand, culturing of fingerlings which take up to four weeks generates an average profit of N467,856.72. Post-fingerlings culturing rakes in an average profit of N187,856.72 after four weeks while juvenile culture gives an average profit of N2,987,856.72 after four weeks while raising fish to market size which takes another four weeks produces on the average a profit of N1,542,223.29. It was therefore deduced that the highest profit in the chain of pisciculture enterprise remains culturing of juvenile and raising to market size respectively. Constraints to pisciculture enterprise in the state were high feed cost (Image>3.8), lack of credit (Image>3.6), high cost of inputs (Image>3.4) and poor technical know-how (Image>3.4). Value chain exerted no significant effect on Table of contentsCertification                                            iDedication                                            iiAcknowledgement                                        iiiTable of content                                        vList of Figures                                            viiList of Tables                                            viiiAbstract                                            ixChapter one: Introduction                                    11.1 Background of the Study                                    11.2 Problem Statement                                     41.3 Objectives of the Study                                    61.4 Research Hypotheses                                    71.5 Justification                                        71.6 Limitation of the Study                                    7Chapter Two: Literature Review                                92.1 Concept of Fish Farming                                    92.2 Prospect of Fish Farming                                    102.3 Relevance of Fish Farming                                102.4 Value Chain in Pisciculture Enterprise                            112.5 The Value Chain Concept Applied To Aquaculture /Fish Farming Enterprise        142.6 Value Chain Map of Inputs (Factors)                            152.6.1 Inputs                                        152.6.2 Feed Manufacturing                                162.6.3 Hatcheries                                    172.6 Value Chain versus Supply Chain                             182.7 Production (Out-Grower Fish Farmers)                             182.7.1 Production Methods                                202.8 Value Chain Map for outputs (Products)                             222.9 Value Chain versus Supply Chain                            232.10 Constraints facing Fish Farming                                232.11 Theoretical Framework                                    242.12 Analytical Framework                                    272.12.1 Stochastic Frontier Production Model                        272.12.2 Technical Efficiency (TE)                            292.12.3 Budgetary Technique                                322.12.4 Value Chain Analysis                                33Chapter Three: Research Methodology3.1 Study Area                                        343.3 Sample Techniques                                    353.2 Data collection                                        363.4 Data Analysis                                         363.4.1Stochastic Frontier Model                            373.4.2 Budgetary Analysis                                393.4.3 Value Chain Analysis                                39Chapter Four: Results and Discussions                            414.1 Socio-economic Characteristics of Respondents                        414.1.1 Age Distribution of Respondents                        414.1.2 Sex Distribution of Fish Farmers                        424.1.3 Marital Status of Respondents                            434.1.4 Educational Status of Respondents                        444.1.5 Farming Experience of Respondents                        454.1.6 Farm Size                                    464.1.7 Household Size of Respondents                            474.1.8 Distance of Farm to the Market (km)                        484.2 Steps in Pisciculture Enterprise                                494.2.1 Value Chain in Pisciculture Enterprise                        514.2.2 Production Value Chain in Pisciculture Enterprise                524.2.3 Marketing value chain in Pisciculture Enterprise                544.3 Factor-Product Relationship in Value Chain Pisciculture                564.4 Cost and Returns Associated With Pisciculture Enterprise                604.4.1 Return on Investment (ROI)                            624.5 Value Chain Analysis                                    624.6 Constraints                                        634.6.1 Constraints Facing Pisciculture Enterprise                    634.6.2 Constraints facing Value Chain Pisciculture                    654.7 Recommendations according to Respondents                        66Chapter Five: Summary, Conclusion and Recommendation                675.1 Summary                                            675.2 Conclusion                                        685.3 Recommendation                                        69References                                            AppendicesChapter oneIntroduction1.1 Background of the StudyFood and Agricultural Organization (FAO, 2002) reported that an estimated 840 millionpeople lack adequate access to food; and about 25% ofthese are in sub-Saharan Africa (Illoni, 2007). As the population grows and puts morepressure on natural resources, more people willprobably become food insecure, lacking access tosufficient amount of safe and nutritious food for normalgrowth, development and an active/healthy life(Illoni, 2007). A number of countries in sub-SaharanAfrica are characterized by low agricultural production,widespread economic stagnation, persistent politicalinstability, increasing environmental damage, and severe poverty. Given these situations, it is thereforepertinent to provide the poor and hungry with a low costand readily available strategy to increase foodproduction using less land per caput, and less waterwithout further damage to the environment (Pretty et al.,2003).Aquaculture is the farming of aquatic organisms,including fish, molluscs, crustaceans and aquatic plants,is often cited as one of the means of efficientlyincreasing food production in food-deficit countries (Inoni, 2007). According to Zohar, Dayan, Galili and Spanier (2001), pisciculture (also called fish farming) is the principal form of aquaculture, while other methods may fall under mariculture. Fish farming is an aspect of aquaculture which involves the cultivation of fishes in ponds, tanks or other chambers from which they cannot escape. A wide range of fish farming does exist including growing of fish in earthen ponds, concrete tanks, cages, pens, run-ways, glass tanks, acrylic tanks, plastic tanks, Race-ways etc. (FAO FishStat Plus 2012).Pisciculture was derived from two words Pisce(s) which means fish(es) and culture which means rearing, raising or breeding of living things. Pisciculture is therefore defined as a branched of animal husbandry that deals with rational deliberate culturing of fish or fishes to a marketable size in a controlled water body (Encyclopedia, 2009). Consequently, there are two main types of pisciculture to be distinguished: (1) the rearing in confinement of young fishes to an edible stage, and (2) the stocking of natural waters with eggs or fry from captured breeders (Encyclopedia, 2009). InNigeria, total domestic fish production fluctuatedbetween 562,972 to 524,700 metric tonnes in 1983 toyear 2003; while the output of fish farming during thisperiod was 20,476 to 52,000 metric tonnes. Fishfarming accounted for between 3.64 and 9.92% of totaldomestic fish production in Nigeria within this period,while the bulk of production came from artisanal fishing. Although the outlook of aquacultureproduction is worrisome given the growing demand forfish and the declining yield of natural fish stocks due toover-exploitation, fish farming still holds the greatestpotentials to rapidly boost domestic animal proteinsupply in Nigeria. Fish production currently contributes 3.5percent of Nigeria’s Gross Domestic Product (GDP) and accounts for 0.2% of the total global fish production (Central Bank of Nigeria (CBN), 2011).as well as provides direct and indirect employment to over 6million people (Adekoya, 2004); but if optimally explored has the potential as an enterprise to contribute significantly to the possible creation of 30,000 jobs and generation of revenue of US$160 million per annum, which would invariably improve the agricultural sector and boost the Nation’s economy at large (Federal Ministry of Agriculture and Rural Development, (FMARD), 2013). Fish farming is an integral component of the overallagricultural production system in Lagos State, Nigeria.The terrain of most part of the State is swampyand prone to seasonal flooding. This makes a vastexpanse of land in these areas unsuitable for cropfarming. The prevailing hydrographic conditionstherefore make fish farming a very attractive alternativeproduction to which the abundant land and waterresources in Lagos State can be put (Inoni and Chukwuji,2000). An efficient method of production is thatwhich utilizes the least quantity of resources in order toproduce a given quantity of output. A productionprocessthat uses more physical resources than an alternativemethod in producing a unit of output is thus said to betechnically inefficient. However, since economicefficiency embodies both technical and allocative efficiencies, once the issues of technical inefficiencyhave been removed the question of choosing betweenthe set of technically efficient alternative methods ofproduction, allocative efficiency, comes to fore.According to Oh and Kim (1980), allocative efficiencyis the ratio between total costs of producing a unit ofoutput using actual factor proportions in a technicallyefficient manner, and total costs of producing a unit ofoutput using optimal factor proportions in a technicallyefficient manner. However, a farm using a technicallyefficient input combination may not be producingoptimally depending on the prevailing factor prices.Thus, the allocatively efficient level of production iswhere the farm operates at the least-cost combination ofinputs. According to Yotopoulos and Lau (1973), a firmis allocatively efficient if it was able to equate the valueof marginal product (MVP) of each resource employedto the unit cost of that resource; in other words, if it maximizes profit. Therefore allocative efficiencymeasure, quantifies how near an enterprise is to usingthe optimal combination of production inputs when thegoal is maximum profit (Richetti and Reis, 2003).In addition to the facts above, Nigeria is proudly the most resourceful and vibrant African nation in the aquaculture industry and currently the leading producer of catfish in Africa (FMARD), 2013). “It is sad to note that we are still far behind in our efforts at reaching optimality (i.e. tapping the highest potentials from every resource use and production pattern) in fish farming thereby often leading to artificial glut, low value of non–exportable aquaculture products”(FMARD, 2011). Due to these facts, value chain has gained more recognition and importance as a way of fighting poverty and achieving food security for fish farmers, this was in-line with the statement of Gradl, Ströh de, Martinez, Kükenshöner, and Schmidt (2012), who opined that involving smallholder farmers in commercial value chains can boost their incomes and improve their food security. Value Chain according to Hempel (2010) is defined as every step, a fisheries business goes through from raw materials to the eventual end user. Value chain is thus a chain of activities; products pass through all activities of the chain in sequence and at each activity the product gains some value (Alam, Palash, Ali Mian and Mohan Dey, 2012). The chain of activities gives the products more added value than the sum of added values of all activities (FAO, 2011).Value chain therefore describes a high-level model of how fishery businesses receive raw materials as input (land, water, labour and capital), add value to the raw materials through various processes and sell finished products to customers (Alam et al, 2012). Moreover, fishery value chain can be defined as interlinked value-adding (Department of Fisheries (DoF), 2002).The nature of value chain activities differs greatly in accordance with the types of fish production the farmer is involved in (Ardjosoediro, and Neven, 2008). Value chains for pisciculture differ between fish types as well as fish management and frequently within and outside various regions (De Silva, 2011). The goal is to deliver maximum value for the least possible total cost (FAO, 2011).  The value chain framework shows that the value chain of a farmer or producer may be useful in identifying and understanding crucial aspects to achieve competitive strengths and core competencies in the marketplace (Dubay, Tokuoka, and Gereffi, 2010). Value chains have various strategies that focus on those activities that would enable the farmer to attain sustainable competitive advantageand are also tied together to ultimately create value for the consumer (DoF, 2002; Alam et al, 2012).Furthermore, value chain offers the customer a level of value that exceeds the cost of the activities, thereby resulting profit margin (Da Silva et al, 2006). Cost advantage can be pursued by reconfiguring the value chains. Reconfiguration or structural changes of value chain refers to activities such as new production processes, new distribution channels or a different sales approach (United Nations Environment Programme (UNEP), 2009). Moreover, differentiation of value chains stems from uniqueness. Differentiation advantage may be achieved either by changing individual value chain activities to increase uniqueness in the final product or reconfiguring the value chain (Wilkinson, 2006). Value chain enables rural residents to capture more margins from their farm produce, however, this is only possible if the credit and other constraints are resolved (Stanton 2000). Value chain analysis can help fish export of developing countries to be competitive in the international market (United States Agency for International Development (USAID), 2008). 1.2 Problem StatementFish farming in Lagos state and Nigeria at large till date remains an untapped goldmine based on the fact that Nigeria is a maritime nation, it is also blessed with a vast population of over 160million people and a coastline measuring approximately 853kilometres. According to Tobor (1990), there are about 1.75million hectares of suitable land for aquaculture in Nigeria and 25% of this will yield 656,820tonnes of fish per year when placed under cultivation. Similarly, about 6,450tonnes of fish can be produced annually from 75,000 hectares of coastal lagoons (Kapertsky, 1981). In spite of the great potentials of fish farming in the study area, factors such as low technical knowledge on the part of fish farmers and the high cost of production inputs have constrained its contribution to increased food supply and poverty reduction. Furthermore, the efficiency or inefficiency of utilization of available resources for fish farming has remained an unanswered question in the quest for increased Pisciculture production in Lagos State in particular, and Nigeria at large. According to FAO (2009), around 50% of fish demanded is currently being met by local supply in Nigeria. Adekoya and Miller (2005) backed this up by stating that domestic fish production of about 500,000metric tons is supplied by 85% of artisan fish-folk. According to Nigeria Bureau of Statistics (NBS, 2011), it was estimated that annual fish demand in the country was about 2.66million as against the annual domestic production of about 0.78million, giving a demand-supply gap of about 1.8million metric tons. Regrettably, the supply of food fish has been on the decline and this is due to consistent declines from the country’s major source of food fish (Ugwumba and Chukwuji, 2010). This shortfall is said to be abridged by the importation of 680,000metric tonnes annually consuming about N50billion in foreign exchange (Odukwe, 2007), therefore ranking Nigeria as the highest importer of frozen fish in the world with an annual foreign exchange drain of N50billion (Dauda, 2010; CBN, 2012). The imminent challenge therefore, is to increase the potentials of pisciculture as well as bridging the wide gap between fish demand and supply in Nigeria.The interest on pisciculture has increased over the years rapidly as a result of the awareness of the importance of this practice to individuals and the economy at large, as well as the advantages attached to it. Oladeji and Oyesola (2002)  further observed that various attempts by the government to improve fish supply in the country by importation failed, therefore prompting the Government of Nigeria to initiate various programs such as: Presidential Initiative on Fisheries and Aquaculture Development (2003); Aquaculture and Inland Fishery Project (AIFP); National Accelerated Fish Production Project (NAFPP); Fishing Terminal Projects (FTP); Fisheries Infrastructures Provision/Improvement (FIP); Presidential Initiative of Aquaculture (PIA); Commercial Agriculture Credit Scheme (CACS); Agricultural Credit Guarantee Scheme (ACGS); Nigerian Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) Programme Initiated by the Central Bank of Nigeria (FMARD, 2012) and currently, Agricultural Transformation Agenda (ATA), (2013). Momoh (2009) noted further that several government parastatals in Nigeria planned to collaborate to establish industries for expanding production, canning and further processing of fish produce, particularly tilapia and cat fish which can easily multiply in large numbers and grow rapidly. Despite all these interest shown so far by the government and the private sectors in the production of fish generally, the gap between the demand of fish and domestic supply in Nigeria have ever been widening (FMARD, 2012; 2013). Worthy of note is the fact that local supplies in terms of inputs do not match the required outputs. That is, fish production cannot single-handedly increased without the increment in other factors needed for the proper production and development of fish(es) such as feeds, fertilizers (organic and inorganic), drugs and other implements. According to Adikwu, and Yusuf, (1997) and Ikpi (2011), of all inputs required in rearing fish, feed costs more than 40% of capital investment, while labour follows suit with about 15%. This is evident as the NBS record showed that Nigeria spends N117.7billion annually on the importation of fish feeds over the last decade (NBS, 2012). Though the Federal Government however had disclosed recently that Nigeria is saving N300 million annually from the substitution of imported fish feeds, with an estimate of 25percent of the 45,000metric tones imported into the country (NBS, 2012) this is still a far cry from what we should be aspiring for. The absence of value chain in the production of fish had hindered the vast opportunities that exists in this enterprise waiting to be exploited, which will in all ways improve the profit margin of the farmers, create more job opportunities, increase the quality of produce delivered to the consumers also ensuring the availability of the produce all year round in Lagos state and beyond. Undeniably, there is a crucial gap on the analysis of factor-product relationship in pisciculture production and more significantly on the assessment of pisciculture value chain in the study area. Although a number of studies had been carried out on technical efficiency of fish farming and value chain of fish farming independently, worthy of note are:Kee-Chai, Maura, Virginia andIan (1982) who studied “Inputs as related to output in milkfish production in the Philippines”; Onoja, and Achike, (2011)who also studied “Resource Productivity In Small-Scale Catfish (Clarias gariepinus) Farming In Rivers State, Nigeria: A Translog Model Approach”; while on the other hand, “A study on the Value Chain Assessment of the Aquaculture Sector in Indonesia” was conducted by Ardjosoediro and Goetz (2007);Ardjosoediro and Neven, (2008) further studied “The Kenya Capture Fisheries Value Chain: An Amap-Fskg Value Chain Finance Case Study”;Macfadyen, G. et al. (2011), also conducted a study on “Value-Chain Analysis of Egyptian Aquaculture”; Russell and Hanoomanjee (2012) released a “Manual on Value Chain Analysis and Promotion in Southern Africa”;  to mention a few, Nwosu and Onyeneke, (2013) studied “TheEffect of Productive Inputs of Pond Fish Production on the Output of Fish in Owerri Agricultural Zone of Imo State, Nigeria”. From the above-listed studies, it is obvious that very few studies (if any at the moment) are available on Analysis of factor-product relationship in pisciculture value chain, and most especially in Lagos state, Nigeria. Due to the aforementioned scenario, this study therefore intends to bridge the research gap by analyzing the factor-product relationship in pisciculture value chain in Lagos State, Nigeria.1.3 Objectives of the StudyThe broad objective of this work is to analyze factor-product relationship in pisciculture value chain in Lagos state, Nigeria. The specific objectives are to:i.    describe the socio-economic characteristicsand examine their influence on pisciculture farmers output;ii.    identify the value chain steps in pisciculture enterprise; iii.    determine the factor-product relationship at every steps and estimate the technical efficiency in value chain pisciculture enterprise; iv.    estimate the cost and returns of pisciculture value chain in this area; v.    identify the various constraints facing pisciculture value chain; vi.    derive relevant policy recommendations based on the findings.1.4 Hypothesis    The following null hypothesis will be tested:H01: Socio-economic characteristics of pisciculture farmers have no influence on their output; H02: Pisciculture farmers are not technically efficient; and H03: Pisciculture value chain is not profitable.1.5 JustificationThe findings of the study will be useful for potential and practicing fish farmers, policy makers, researchers, extension agents and the general public at large. It will aid potential fish farmers in their enterprise selection, resource use efficiency and production pattern decisions. The fish farmers currently involved in this venture will in addition to the aforementioned information be able to utilize the findings of this research to realize vast opportunities unexploited in their enterprise. The policy makers will use these findings to plan effectively for fishery programme, since the finding will expose the inherent and peculiar socioeconomic characteristics of fish farmers and how these characteristics influence their technical efficiency. Researchers who intend to further studies on fish farming will find this work useful as a reference material. The findings will also give the extension agents good background information about the fishing community and systematic approach in carrying out the extension programs. The general public at large can also benefit from this study as it would provide information on profitability of pisciculture value chain in the study area.1.6 Limitation of the StudyThis study faced limitless limitations; worthy of note among them is lack of fund. The researcher due to lack of fund could only sample 120 pond fish farmers in Lagos State out of the estimated over 1.5million pisciculturists in this area. Also, bad road network and poor transportation system hindered my accessibility to some areas, as they require ferrying through the sea to get there and getting a boat sailor on charter, which proved quite exhaustive. On the other hand, some of the respondents withheld some information like average annual income as they presume that this information will be used against them to calculate their tax. Finally, the duration (12months – 2 fish production cycles) of this research was not enough as fishing in Lagos state is done all through the year. It would have been better to observe the effects of pisciculture over (at least) four fish production cycle to properly ascertain the efficiency level of pond fish farmers in this area.

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ANALYSIS OF FACTOR-PRODUCT RELATIONSHIP IN THE PISCICULTURE VALUE CHAIN IN LAGOS STATE, NIGERIA.


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