ECONOMIC ANALYSIS OF INTERMEDIATE TECHNOLOGY METHOD OF PALM OIL EXTRACTION INONDO STATE, NIGERIA

Abstract

The need to look into our agricultural sector at disaggregated level has motivated this study to assess the technical efficiency and net returns of intermediate technology method of palm oil extraction. Specifically, the study sought to find the following: the socio economic profiles of the mill owners, cost of production, income generated, net returns, Technical Efficiencies. comparison of income generated, cost involved and technical Efficiencies and the problems associated with the owners of these intermediate technology mills. Eighty mill owners from two local Government Areas of Ondo State. Nigeria (35 from lIe-Olujil Oke-Igbo and 45 from Okitipupa) were interviewed on their production activities during the operation season, 2002 Finding indicated that amount of fresh fruit bunch (ffb) processed during the period averaged 64.52 tone per mill in okitipupa while it was an average of 43.25 tone per mill in Ile-Oluj il Oke-Igbo. Palm oiI production was an average of 405.4 kegs (each of 20 Iiters) and 627.50 kegs per mill owner in lIe-Oluji Oke-Igbo and Okitipupa respectively while kernel production per mill stood at an average of I863.66kg and 2779.14kg respectively. Analysis of cost showed that average processing or extraction cost (cash plus non cash) per mill and per tone of ffb processed during the period was higher in Okitipupa. Average processing cost per mill and per tone was respectively N 892.803.28 and N 13,837.16 while it was N 532,994.82 and 12,323.99 respectively per mill and pre tone of ffb processed in Ile-Oluji/Oke-Igbo. Cost per tone of ffb and hired Labour cost were generally higher in Okitipupa than ile-Olujil Oke_Igbo. The reverse is the case with respect to maintenance cost and mills other expenses. From harvesting of ftb to production or marketable palm oil, labour use 'was appropriately 10% man-day per tone of ffb processed in okitipupa while it was an average of lOman-day in Ile-Oluji/ Oke-Igbo . Income Analysis showed that average gross income per mill per tone of ffb processed during the period was higher in Okitipupa. It was respectively N, 134,959.52 and N 17.590.20 while it was N 728,683.21 per mill and N 16, 848.72 per tone of ffb milled in 11e Oluji Oke-Igbo. On net income basis, mill owners in lIe-Oluji Oke-Igbo generated higher net income per tone of ffb processed. The net income average N 4, 524. 73 while it was an average ofN 3,753.04 per tone of ffb processed in Okitipupa. On this basis, net earning per tone of ffb is higher among the mill owners in lIe-Oluji Oke-Igbo than their counterparts in Okitipupa. A t-ratio test of the difference between the means of net mill income of mill owners in the two Local Government Areas (LlG.As) showed a significant difference at 5% level of Significance. The stochastic frontier production function was applied to four quarters of panel data on oil mill owners in the two local government areas. The four quarters are as follows: I" quarter-January to March, 2002; 2nd quarter:-April to June, 2002; 3rd quarter:-July to September, 2002 and 4th quarter: October to December, 2002. Determination of technical efficiency using the time-course stochastic production frontier model revealed that technical efficiencies of the mill owners in lle-Oluji Oke-Igbo for four quarters of the year (Jan.-March; April-June; July- Sept and Oct-Dee ..2002) analyzed were higher than their counterparts in Okitipupa. The average technical efficiencies for each of the four quarters observed were 69.2% for Ist quarters, 85.4% for 2nd quarter,93.7% for 3rd quarter and 97.4% for 4th quarter in the case of Ile-Oluji/Oke-Igbo while it was 68.5% for 1 5t quarter, 83.3% for 2nd quarter, 91.6% for 3r t! quarter and 95.9% for 4th quarter in the case of Okitipupa. A generalized likelihood ratio test showed that inefficiencies were significantly present in the estimated models for the two local government areas. In both L.G. As, technical efficiencies increased over time while inefficiency that is the gap between maximum achievable output and what was actually produced declined over the four quarters of the year observed. Analysis of returns to scale in the two L.G. As showed that the sampled mills showed increasing returns to scale. It is 1.263 for lIe-Oluji/Oke-lgbo and 1.360 for Okitipupa. T-ratio test of difference between the means of technical efficiencies at 5% level of significance efficiencies showed that there was significant difference between the means of technical for all the quarters observed expect I" quarter of the year. Also, t-ratio test of the variables of the stochastic frontier production function at 5% level of significance showed that the amount of ffb milled (x I), labour (Xl), ratio of hired labour to total labour (X5). price of palm oil (X7), and age of mill (XIO) are the significant variables contributing to explanation of the variation in net mill income (Y) with x I and X7 the most critical variables in lIe-Oluji / Oke-Igbo while in Okitipupa, amount of ffb milled, receipt in naira from work done for palm oil producing non-mill owners (X6), mill other expenses (X3) and price of palm oil are the significant variables contributing to the explanation of the variation in net mill income with x I,X6 and X3 the most critical variables. Such problems as low price, high cost of labour and labour shortage, lack of funds. bad roads, long distance and constantly faulty milling machines were blamed for low productivity. Generally the mill owners in both L.G.As are yet to achieve their best. This was confirmed by the presence of inefficiency in the estimated models.