STRUCTURE, CONDUCT AND PERFORMANCE OF PALM OIL MARKETING


STRUCTURE, CONDUCT AND PERFORMANCE OF PALM OIL MARKETING   

ABSTRACT

This study analysed marketing system of the palm oil in Abia and Kaduna states by describing the socio- economic characteristics, structure and conduct, performance, the factors that influence the performance and identifying the problems that faced palm oil marketing in the two States. Multi-stage sampling technique was employed in selecting the respondents. Primary data for the study were collected using structured questionnaire, administered to 180 respondents, these included the middlemen between the villagers that produce the oil and the wholesalers that gathers them in cans, drums and then sell to marketers (wholesalers) from the north which in turn sell to the retailers was used for the study. Data were analyzed using descriptive statistics, structure analysis, marketing margin, marketing efficiency and regression analyses. The results showed that the average ages of palm oil marketers in Abia and Kaduna were 38 and 36 years respectively. In Abia State, the male marketers were 72.5% and the female marketers constitute 27.5. In Kaduna State, 75% were male while 25% were female. Abia state, 45 % of the respondents had secondary education while in Kaduna state, 46.7% of the respondents had a secondary education. Majority of the respondents had experience in palm oil business. The value of gini coefficient (0.65) for oil palm trader in Abia State is tending towards unity indicating that there is an equality or high level of seller concentration at this level. From the Lorenz curve, the extent of deviation of the curve from the line of equality shows an imperfect market competition (65% gini). In the case of oil palm marketers in Kaduna state, for the wholesalers, the market was found to be purely competitive (gini 48%) as indicated in the Lorenz curve. The calculated gini coefficient (0.47) pointed towards a low level of seller concentration. The results further revealed that in Abia state, the middlemen had a marketing margin of 1.29% which signifies their profit making. The wholesalers had a marketing margin of 1.25% and the retailers had a marketing margin of 1.43%. In Kaduna state, the retailers had a marketing margin of 1.25% and the wholesalers had theirs as 1.21%. For the marketers in Abia State, the marketing efficiencies of the middlemen was 13%, wholesalers was 45% and the retailers was 43% while in Kaduna State the efficiency of wholesalers were 20% and retailers was 32%. Factors influencing marketing efficiency were age, education and years of marketing experience. The major constraints to palm oil marketing in the study area were Lack of efficient and affordable technology, lack of effective marketing research and dirty environment/poor hygienic state.

TABLE OF CONTENTS

Title page ……………………………………………………………….. i

Declaration ……………………………………………………………….. ii

Certification ……………………………………………………………….. iii

Dedication ……………………………………………………………….. iv

Acknowledgement ……………………………………………………………….. v

Table of content ……………………………………………………………….. vi

List of Tables ……………………………………………………………….. viii

List of Figures ……………………………………………………………….. ix

Abstract ……………………………………………………………….. x

Chapter One…………………………………………………………………………. 1

Introduction………………………………………………………………………….. 1

1.1 Background to the Study………………………………………………… 1

1.2 Problem Statement……………………………………………………….. 4

1.3 Objectives of the study…………………………………………………… 5

1.4 Justification for the study………………………………………………. 5

Chapter Two………………………………………………………………………….. 8

Literature Review……………………………………………………………… 8

2.1 The Origin of Palm Oil…………………………………………………… 9

2.2 Oil Palm Production in Nigeria…………………………………………… 12

2.3 Palm Oil Marketing and its Future prospect……………………………… 12

2.4 The Role of Marketing in Agriculture and Economic Development……… 15

2.5 Roles and function of Market stakeholders……………………………….. 16

2.6 Theoretical Framework for Studying Marketing…………………………… 18

2.6.1 Functional approach………………………………………………………... 19

2.6.2 The institutional approach………………………………………………….. 20

2.6.3 Structure-conduct-performance approach…………………………………. 20

2.7 Market Structure…………………………………………………………… 21

2.8 Market Conduct……………………………………………………………. 21

2.9 Market Performance………………………………………………………… 22

2.9.1 Variables…………………………………………………………………….. 23

2.9.2 Physical measure……………………………………………………………. 24

2.9.3 Fixed-price value……………………………………………………………. 24

2.9.4 Nominal price value………………………………………………………… 25

2.10 Marketing Margin…………………………………………………………… 25

2.11 Marketing channel…………………………………………………………… 26

2.12 Empirical Studies on palm oil marketing in Nigeria………………………... 27

2.13 Review of Analytical Tools…………………………………………………. 29

2.13.1 Marketing efficiency……………………………………………………….. 29

2.13.2 The gini coefficient…………………………………………………………. 29

2.13.3 Concentration ratio………………………………………………………….. 30

2.13.4 Multiple regression………………………………………………………….. 31

Chapter Three……………………………………………………………………………. 33

Methodology………………………………………………………………….. 33

3.1 The Study Area………………………………………………………………… 33

3.2 Sampling and Data Collection Methods…………………………………. 36

3.3 Analytical Tools…………………………………………………………….. 37

3.3.1 Descriptive statistics………………………………………………………… 37

3.3.2 Market structure analysis…………………………………………………… 38

3.3.4 Multiple regression analysis………………………………………………….. 39

Chapter Four……………………………………………………………………………. 41

Results and Discussion…………………………………………………………. 41

4.1 Socio-economic Characteristics of Palm oil Marketers…………………….. 41

4.1.1 Age distribution of the palm oil marketers…………………………………. 41

4.1.2 Gender of the respondents…………………………………………………. 43

4.1.3 Educational Qualification of palm oil marketers…………………………… 43

4.1.4 Marketing experience of palm oil marketers……………………………….. 43

4.2 Market Structure and Conduct…………………………………………….. 44

4.2.1 Barriers to entry……………………………………………………………. 45

4.2.2 Nature of the product………………………………………………………. 45

4.2.3 Market information…………………………………………………………. 46

4.2.4 Marketing channel………………………………………………………….. 47

4.2.5 Market integration………………………………………………………….. 48

4.2.6

4.2.7 Number and size of market participants…………………………………….

Concentration ratio…………………………………………………………. 48

50

4.3 Market Performance of Palm oil marketing………………………………… 51

4.3.1 Marketing margin……………………………………………………………. 51

4.3.2 Marketing efficiency…………………………………………………………. 52

4.4 Factors Influencing Performance of Palm Oil Marketing in Abia and Kaduna

States……………………………………………………………………………

53

4.5 Problems Associated with Palm Oil Marketing in Abia and Kaduna States….. 55

Chapter Five……………………………………………………………………………… 58

Summary, Conclusion and Recommendations…………………………………… 58

5.1 Summary………………………………………………………………………. 58

5.2 Conclusion…………………………………………………………………….. 59

5.3 Recommendations…………………………………………………………….. 60

References………………………………………………………………………………... 62

Appendix I: wholesaler’s Research Questionnaire ……….……………………………. 66

Appendix II: Retailer’s Research Questionnaire ………………………………..………. 70

CHAPTER ONE INTRODUCTION

1.1 Background to the Study

Palm oil is usually one of the products produced from the oil palm tree which is a perennial crop that originates from the tropical rain forest of West Africa. In Nigeria, palm oil tree grows in the coastal belt of Nigeria which varies in depth from 100 to 150 miles and a riverine belt which follows the valleys of the Niger and Benue for a distance of about 450miles from the sea and naturally, production of palm oil usually occur along these locations (FOA, 1999). The main palm oil producing states in Nigeria include Cross River, Abia, Akwa Ibom, Imo, Rivers, Anambra, Enugu, Ogun, Delta, Edo, Oyo and Ekiti.

Agricultural marketing is a driving force for economic growth and development and has a guiding and stimulating impact on production and distribution of agricultural produce. The increasing proportion of the population living in urban areas and rising level of income require more organized channels for processing and distributing agricultural products. Agricultural marketing acts as an agent of rural development. Moreover, agricultural marketing will play a coordinating role, steering supply and demand with respect to place, time and form utilities. A properly functioning market (such as pricing system) for agricultural products is generally perceived at the best organizational structure to achieve more efficient production, in terms of type, quantity, quality and consumption decisions (Bradhan, 1990).

Improved information and marketing facilities enable farmers to plan their production more in line with demand, schedule their harvests at the most profitable times, to decide which market to send their produce to and negotiate on a more even footing with traders and also it enables traders to move produce profitably from a surplus to a deficit market and to make decisions about the economics of storage, where technically possible. The possible increment in output resulting from the introduction of improved technology could not be exploited in the absence of convenient marketing conditions. As efficient, integrated and responsive market mechanism is of critical importance for optimal area of resources in agriculture and in stimulating farmers to increase their output (Jones 1972 and cited in Andargachew, 1990).

Farris(1997) stated that there are three(3) categories of agricultural market analysis; the application of structure/conduct/performance analysis(the idea of effective competition), the analysis of marketing margins and the analysis of supply and demand relation which includes the explanation for price movement overtime and space.Market structure can be defined as the characteristics of the organization of a market, which strategically influence the nature of competition and pricing behavior within the market (Bain,1987 cited in Girma 2002). Kotler (1999), opined that the three theoretical market models often used in analyzing market structure are the perfectly competitive market, oligopolistic market and the monopolistic market. Farris (1997), argued that a market structure has implications for its price and output levels everywhere a single seller dominates a market and output can be restricted and prices forced up. Some market structures result in highly competitive and efficient markets, but others tends to be less satisfactory. The structure of a market is in turn, an important indicator of the conduct and economic performance of the market.

The ease with which potential participants can enter the various functions is commonly used as a means of assessing the degree of competition in an industry (Scarborough and Kydd, 1992). Stigler (2005) suggests about three points that can create barriers to entry: legal barrier (franchise and patents), economies of scale and pace of entry.

Market conduct is the pattern of behavior of enterprises in determining prices, sales promotions and coordination policies and the extent of predictor or exclusionary tactics directed against established rivals or potential entrants (Pomeroy and Trinidad, 1995). The determinants of conduct indicators are price setting behavior, buying and selling practices, advertising, merging together others that make traders profit. Market conduct indicates the ways by which firms compete, whether they look for new techniques and apply the techniques early as practicable or whether they are dis-investing and transferring funds elsewhere (USAID, 2008).

The sole aim of marketing is the successful movement of produce from point of production to the ultimate consumer putting into consideration time, price and quality of produce at the point of consumption. The terms market conduct means the pattern of behaviour in the market between the sellers and the buyers.

Performance of a market reflects the impact of the structure and conduct on prices, costs, volume and the quality of the product. There are such practical indicators of how well a certain marketing system is operating. In addition, quantity supplied, equity (distributional and informational), access to market information are main performance indicators (USAID, 2008).

1.2 Problem Statement

The recognition of critical role of markets in economic development led to sweeping marketing reforms across a number of developing countries. In spite of these reforms, symptoms of poorly functioning markets in tropical Africa are evident in the segmentation of markets, low investment in the market infrastructure, the persistence of high margins and limited progression towards more complex arrangements (Eleni, 2001).

Nwawe (2005), observed that Nigeria ranked the largest producer and exporter of palm oil in the 1970’s, but now palm oil marketing is not as competitive as it was within Nigeria and even in the world market. A properly functioning market (such as pricing system) for agricultural products is generally perceived as the best. In Nigeria, the production of palm oil is constrained by seasonal conditions as a result the variation in its supply in rural and urban market is seen. Furthermore, the marketing activities and their characteristics in the eastern and northern states have not been fully described.

There was study on the marketing activities that takes place in the two study areas, the inter-transit factors that affects the competition on palm oil marketing in Nigeria and reducing information gap on the subject. The following research questions was answered:

i. What are the socio –economic characteristics of the palm oil marketers in Abia and Kaduna states?

ii. What is the structure and conduct of palm oil marketing in Abia and Kaduna states?

iii. What is the performance of the palm oil marketing in the two states?

iv. What factors influencing the performance of palm oil marketing in the two states?

v. What are problems being encountered by the palm oil marketers in Abia and Kaduna states?

1.3 Objective of the Study

The general objective of the study is to describe the structure, conduct and performance of palm oil marketing in Abia and Kaduna states of Nigeria.

The specific objectives of the study are to:

i. describe the socio economic characteristics of the palm oil marketers in Abia and Kaduna states.

ii. describe the structure and conduct of palm oil marketing in Abia and Kaduna states.

iii. describe the performance of palm oil marketing in the two states.

iv. determine the factors influencing the performance of palm oil marketing in the two states.

v. describe the problems faced by the palm oil marketers in the two states.

1.4 Justification of the Study

In Nigeria, palm oil marketing is concerned with all stages of operation that aids movement from the producers to the final consumer. These include: assemblage, storage, transportation, grading and financing. Marketing of palm oil in Nigeria takes place in homes of the processors, road sides, local/periodic market centres and stalls. These can involve both wholesalers and retailers in both rural and urban markets.

Distribution and marketing of agricultural products are as essential as the product itself (FAO, 2002). The findings of this study are also believed to be useful to oil palm producers, traders and marketing agents to make informed decisions. The work also serves as a reference document for researchers to embark on studies of the same or related kinds in other parts of the country. The study is also envisaged to generate valuable information on palm oil marketing that would assist policymakers in designing appropriate policies for intervention. Governmental and non -governmental organizations that are engaged in the palm oil industry would benefit from the results of this study.

The study will give detailed information on how oil palm marketing is currently functioning in the study areas. It points out factors that constrain oil palm production and marketing system. The study also generates information that will help formulate palm oil marketing development programs and guidelines for interventions that would improve efficiency of the palm oil marketing system.It’s important to know the activities that happen beyond the palm oil producing states especially the marketing aspect so as to improve on the competiveness of palm oil marketing all over Nigeria and beyond to close the wide gap in knowledge between marketers and the final consumer. With the recent move of the government to improve the transportation sector such as rehabilitating the railway system, the transporting of the palm oil from the South eastern part of the country to the northern part. This study showed if the price of palm oil will be reduced if the railway lines become fully functional. This study provides a clearer understanding of organisational characteristics such as the actors involved in the palm oil marketing specifically in Abia and Kaduna states. It knows what happens around the palm oil marketing ie activities been carried out from where its been brought into the

markets in Abia state and then how it gets to the selected markets in Kaduna state.This study will help us know the level of performance in the marketing of palm oil and how to improve on it between the selected markets in Abia and Kaduna State.

The successful application of oil palm trunk to multi- industrial usages portends huge economic opportunities for our people. This offers opportunity for wealth creation and economic empowerment of our people if properly harnessed. The study will close the gap between the participants in palm oil marketing such as the wholesalers, commission agent, retailers and the consumers by providing adequate information such as the price, season when palm oil is more in the market so that they could always have fresh palm oil at low prices.

The study made effort to identify and proffer solutions to problems that prevail in the palm oil marketing between supply and demand areas. I believe that investors in the palm oil industry will find this research useful.

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