ASSESSMENT OF COST EFFICIENCY OF ROCK AGGREGATES PRODUCTION IN SELECTED QUARRIES IN SOUTH WESTERN, NIGERIA

Abstract

This study analyzed the cost efficiency of rock aggregates production in selected quarries in South Western, Nigeria with a view to predict economic viability using stochastic frontier cost function. Primary data were collected from 18 operational Quarries selected from Oyo, Ogun and Ondo States. Six quarries were selected from each State for rock aggregates production for a period of five (5) years. The average production cost of granite stone produced by the quarries was N1, 195.353,806.30 during the studied period. Among various factors, cost of drilling by quarries accounted for the highest share in the production cost followed by use of explosives and repair of machineries, they accounted for 26.86%, 24.49% and 22.90% of the total cost of production respectively. The maximum-likelihood (ML) estimates of the parameters of the stochastic cost frontier model revealed that cost of diesel, cost of explosives, cost of repairs, tax payment, cost of drilling and payment of salaries gave positive coefficient and were significant at 1% level while the estimated coefficient of royalties payment, petrol and miscellaneous cost were not significant at 5% level. Further quantitative estimates obtained from the cost function shows the mean cost efficiency of an average granite stone quarry was estimated at 1.1024 indicating that an average quarry company from the study area incurred costs that are about 0.21% above the frontier cost which is an indication of inefficiency. From the analysis of scale effect among quarries, it was revealed that the quarry companies experienced an increasing return to scale, that is, the output increased more proportionately than the total production cost. It is therefore recommended that Government should facilitate access to loans to finance quarry operation since it will help to improve the economy of the Country and reduce unemployment rate.