ANALYSIS OF FACTOR-PRODUCT RELATIONSHIP IN 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 (    =2.22m2) and feed

(    =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 (    =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 (  >3.8), lack of credit (    >3.6), high cost of inputs (    >3.4) and poor technical know-how (  >3.4). Value chain exerted no significant effect on

CHAPTER ONE

1.1 Background of the Study

INTRODUCTION

Food  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 Statement

Fish 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 Study

The 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 Justification

The 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 Study

This  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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