EFFECTS OF CLIMATE ON REVENUE FROM OIL PALM PRODUCTION IN SOUTHERN NIGERIA

ABSTRACT

The  study  focused  on the  Effects  of Climate  on revenue  from  Oil  Palm  Production  in Southern Nigeria. The broad objective was to examine the effects of climate change variables on Oil Palm Production. The specific objectives are to: (i) identify farmers’  perception on climate change variables in the study area; (ii) identify the choice of adaptation strategies and determine the factors affecting the choice of adaptation strategies by farmers in the area; (iii) estimate the cost and returns associated with the  choice of  each adaptation strategies; (iv) determine  the effect of climate  change  variables  on oil palm production;  (v) identify the constraints  encountered  by farmers  in adopting  climate  change  adaptation  strategies;  (vi) make recommendations  on the basis of findings. Multistage Sampling method was used to select  171 respondents,  from three states (Imo, Ondo  and Delta) for the study.  A set of structured questionnaires was administered to the respondents to obtain required information. Data were analysed using descriptive statistics (to achieve objective 1 and 2), multinomial logit  regression  (to achieve  part of objective  2),  Partial  budget  (to  achieve  objective  3), Ricardian model (to achieve objective 4), Exploratory factor analysis (to achieve objective 5), and ANOVA test. Results showed that the dominant perception of farmers on climate change variables, tend to be that sunshine hours has been increasing (or is serious) in the study area. The adaptation  strategies  practiced  by farmers  in the study  area  include  use of resistant varieties,   mulching,   purchase   of   water   for   irrigation   (for   nursery),   planting   trees, intercropping,  crop diversification,  changing  planting  dates, migration  for income and no adaptation. The Multinomial logit regression model was used to capture choice probabilities across the various options of climate change  adaptation strategies.  Results of multinomial logit  model  highlights  that  farm  size,  household  size  and  income  influenced  adaptation positively while frequency of extension contact influenced adaptation negatively. Results of partial budget which looked at one adaptation strategy at a time showed that the adaptation strategies are  profitable (worthwhile)  and can increase farm income. The Ricardian model was employed to test the relative importance of climate normals (average temperature and rainfall) in explaining the annual revenue from Southern Nigeria’s Oil Palm agriculture. The results  showed  that  increase  in  temperature  will  reduce  annual  Revenue  while  annual Revenue  increases  with  increase  in  rainfall,  for  all  farms.  The  identified   constraints encountered by farmers in adopting climate change adaptation strategies included production constraints,  information  and training,  lack of inputs and lack of  technology.  The findings underscore  the  need  for  farmers’  education,  poverty  alleviation  and  increased  access  to technologies and more efficient inputs as potent tools for climate change adaptation in the area.  The  study  therefore  recommended  that  due  to  increasing  investment  of  Nigerian government to increase oil palm production, more research and analyses of climate change on its agriculture  should  be  encouraged.  Annual Revenue  of farmers can further  increase  if research and  extension, the private sector, NGOs encourage and ensure increase in farmer training, availability and accessibility of inputs.

CHAPTER ONE INTRODUCTION

1.1      BACKGROUND INFORMATION

The oil palm (Elaeis guineensis) is indigenous to West Africa. The main oil palm growing area in  Nigeria  is  the  south  especially the  south-Eastern and  mid  western regions  ecologically conforming to the tropical rain forest and derived savannah portion of Nigeria. Annual rainfall in these regions ranges from 1500mm in the derived savannah to 3000mm in the tropical rainforest. The primary products of commerce of the oil palm tree are palm and kernel oil and kernel cake. Global production of palm oil has doubled over the last decade. Around the world, vegetable oil production totals approximately 150 million metric tons per year, of which approximately one- third is palm oil (Food and Agriculture Organization, 2013).

In Africa, the oil palm has been cultivated for its oil, and its range of cultivation extends from the probable origin in Guinea to the west and central Africa. The notable growing areas include Nigeria, Coted’voire, Cameroon, Liberia, Zaire, Ghana, Sierra Leone, Togo, Benin, Congo and Angola. (Raw Materials Research and Development Council, 2004).

It is a source of food stuffs and medicines, its sap is used to make palm wine and its fibres are also used for various purposes. However, the large scale monoculture oil palm plantations being promoted today are geared towards two main objectives. Their primary purpose until now  has been the extraction of palm oil ( from fresh oil palm fruit) and palm kernel oil (from its kernel or seed) for the production of edible and industrial oils. More recently a second major objective has emerged, the production of biodiesel from crude palm oil. Domestic annual production of palm oil stands at about 785,000MT from the 2.5million hectares of wild groove, small holdings and large estate planting. However, the current annual demand is in excess of one (1) million metric tons of palm oil (RMRDC, 2004). There is thus a clear deficit. The supply gap, high returns on investment and bright external trade opportunities in the oil palm business makes investment in the oil palm sector a safe and profitable venture (RMRDC, 2004).

Nigeria’s production system is mostly based on semi-natural groves. The medium and smallholder plantations and the large estate plantations represent a  very small share of the

production system (Foundation for partnership in the Niger Delta-PIND, 2011). The dominance of the wild groves (about 91% tones of the total outputs) in the production system affects the competitiveness of the palm oil sector, and represents one of the major constraints to an increase of the country’s outputs.

Indeed, yields from wild harvest are about 1.5 tonnes of fresh fruit bunches (FFB) per hectare,

while they are 5 hectares on average in the plantations (PIND, 2011). Wild trees correspond to the Dura variety. Pisifera and Tenera are the other two varieties available in Nigeria. Oil palm farmers prefer Tenera, a crossbreed between Dura and Pisifera, because it can yield 30% more oil than the equivalent fruit weight of Dura (PIND, 2011). Seeds are produced and provided by the Nigerian Institute for Oil Palm Research (NIFOR).

Palm oil is the main vegetable oil consumed in the country and it is consumed in all regions. It accounts for 25%, on average,  of total fat  supply in the  country between 1990  and  2009 (FAOSTAT, 2012). Although the global fat supply in Nigeria increased during the 1990-2009 period, the share corresponding to palm oil slightly decreased. Demand is concentrated in the South almost of the industries are located in this area. (Gourichon, 2013).

Oil palm produce (especially palm oil and palm kernel ) had been the bedrock of Nigeria’s foreign exchange earnings in the years  before the oil boom of the 1970’s.Rural women often engage in agro-based food processing and preservation activities on a small scale basis such as garri making, maize processing, fish smoking and palm oil extraction (Okorji,1991).

.Nevertheless, palm oil will continue to play a  positive role  in global supply and  demand equation of the oils and fats industry. The global demand and consumption of palm oil is increasing fast and is expected to grow more given the exponential growth in population, income and myriads of emerging uses. Thus increasing production of oil palm and subsequently its products is an imperative across the globe particularly Nigeria. (Dimelu and Anyaiwe,2011).

While there is a need to feed the world, there is also a growing concern about global climate change issues. Steps are being taken to arrest, mitigate or slow down climate change. It is well known that anthropogenic activities during the cultivation of crops cause green house gas (GHG) emissions. (Yew, Sundram, Ng & Basiron, 2009). The two factors affecting crop yield are weather conditions and erosion (Wright, 1993). Thus, to improve the production of any crop,

there is need to understand the average weather conditions of an area (observed as the climate), because climate parameters such as temperature, rainfall, humidity as well as sunshine hours affect the agricultural output of any region. Daily, seasonal or annual variations in the values of the  climatic  element are of great  importance in determining the  efficiency of crop  growth (Ayoade, 2004).

The issue of climate change has become more threatening, not only to the sustainable development of socio-economic and agricultural activities of any nation, but to the totality of human existence (Adejuwon, 2004).Human beings have been adapting to the variable climate around them for centuries worldwide. Local climate variability can influence peoples’ decision with consequences for their social, economic, political and personal conditions and can affect their lives and livelihoods (United Nation Framework Convention on Climate Change, 2007). As further explained by United Nation framework convention on climate change (UNFCCC) the effect of climate change implies that the local climate variability that people have previously experienced and adapted to is changing and this change is observed in a relatively greater speed.

The intergovernmental panel on climate change (IPCC) has warned that the latest scientific evidence points strongly towards a climate changing world (CGIAR, 2000), which has been supported by many Researchers (Hassan,2010; Ngaira, 2007; Erda, Yinlong, Shaolong, Hui, Shiming, 2007; Pender, 2008 ; Rarieya, 2007; Easterling, Hurd, & Smith, 2004 and McCarthy, Canziani, Leavy, Dekken & White, 2001). Although the degree of the impact of climate change and its distribution is still debated, the current evidence of high temperatures, rising sea levels, artic thinning, and low rainfall suggest that countries in temperate locations may benefit from small economic advantages because additional warming will increase their agricultural sector (Mendelsohn, Ariel and Arne, 2000; Centre for International Climate and Environment Research,

2000).

Many countries in tropical and subtropical regions, of which Nigeria is included are expected to be more vulnerable to warming because of additional temperature increases that will affect their marginal water balance and harm their agricultural sector (Mendelsohn, Ariel & Arne, 2000). The problem is expected to be most severe in Africa, where current information is the poorest, technological change has been the slowest, and the domestic economies depend heavily on

agriculture  (Action aid,  2008).  Rain  fed-farming dominates agricultural production in  sub- saharan Africa, covering around 97 percent of the total crop land  and  exposes agricultural production to high seasonal rainfall variability (Alvaro, Tingju, Katrin Richard and Claudia,

2009).

Agriculture in the developing world is vulnerable to climate change (Action Aid, 2008). However, Agricultural production remains the main source of livelihood for most rural communities and  sub-Saharan Africa,  in  particular.  Here,  agriculture provides a  source of employment for more than 60 percent of the population and contributes about 30 percent of gross domestic product (Kandlinkar and Risbey, 2000).

The location, size of and characteristics relief in Nigeria give rise to a variety of climates, ranging from tropical rain forest climate along the coast to the Sahel climate in the northern parts of the country, each being different by its annual precipitation, sunshine, and other climatic elements (Federal Government of Nigeria-FGN 1997; Adejuwon, 2004).

The  diverse  nature  of  biological  diversity results,  mainly  in  seven  vegetation  zones.  The mangrove swamps, the salt water and fresh water swamps, tropical rainforests, guinea Savannah, derived Savannah, Sudan Savannah and Sahel Savannah (Adejuwon, 2004).

Variation in human and social environment usually affects land use patterns and was found to have had serious implications of varying magnitude for climate change within the zones. The importance of oil palm in national and world food economies underscores the need for the intensification of research efforts on the crop. The economy and food supply are closely linked to climate. Significant variations in climate events will cause farm yield and income of oil palm farmers to fluctuate unpredictably in Southern Nigeria.

The increasing demands for palm oil either for food or fuels have stirred up formal discussions or arguments among actors in the industry and also the general public at large on issues such as price, deforestation, indigenous rights abuses, ecological degradation and climate change. These issues remain at the centre point of the palm oil dynamics at present and in the near future (Virgilio, Tuomar, Marjukka, Risto & Lassi, 2009).

Table 1.1 shows the climate change impact in regions within the tropics. The table shows that some of the consequences of climate change vary with location and depend on resilience and capacity. The effects will continue to emerge and in fact become progressively significant in years and decades to come.

Table 1.1 Climate change impact in regions within the tropics.

S/N     REGION                               IMPACT

1.       Africa                          Increased drought, desertification, floods, sea level rise at salt water intrusion affecting coastal areas. Changes in pattern and quantity of rainfall, decline in crop yield, land Degradation, food security will diminish. Water resources like streams and rivers will be affected reducing water available for agriculture and power generation. Increase in tropical storms and others extreme events.

2.      Asia                              Increase in drought and reduced soil moisture, flooding, forest fires, sea level rise, tropical cyclones, diminish food security within tropical areas, increased land degradation and desertification.

3.    Latin America             Floods and drought would increase. Increase in tropical cyclone.

Source: Bothends, 2007.

. Table 1.2 shows glaring differences in agro-climatic data (rainfall, temperature) as well as in crop livestock diversity in Nigeria. Rainfall increased from the semi-arid to very humid zones, temperature declined following the same trend.

Table 1.2: Agro-climatic data, and Agricultural potentials of zones in Nigeria.

Zones

States

Human populatio

Major crops

Major livestock

Rainfall quantity

Mean (max) monthly tem. (0C)

n density

(mm)

Semi

Adjacent to

27,071,96

Millet, sorghum,

Cattle,

400 – 600

40

arid

chad and Niger

2

Barley, vegetables

Sheep, camel,

Republic                                                                         donkey

Dry

Kano,  Borno,

29,

Millet, beans,

Sheep, goat

600–1000

39

sub- humid

sokoto,  Yobe Zamfara,

257,073

onions, Rice, groundnut

Jigawa

cotton, maize,vegetable,

sorghum

Sub-

Kaduna,

26,

Sorghum, maize,

Cattle, sheep

1000– 1300

37

humid

Niger Katsina,

078,361

yam cotton, vegetable

goat

Bauchi crombe,

kabbi.

Humid

Osun, Oyo,

30,000,

Yam, cassava,

Sheep,  goat,

1100

–

37

Kogi, FCT, Kwara,

469

upland Rice

donkey, cattle

1400

Benue, Adamawa,

Taraba, Ekiti, Nassarawa.

Very	Ebonyi, Imo,	46,690,28	Yam,	cassava,	Fish farming	1200-2000	33
humid	Edo, Delta, Abia, Ogun,	3	Rice, plantain,	Maize,
	Cross River,		cocoyam	,        oil

Ondo, Enugu,

Anambra, AkwaIbom,

                     Lagos                                       

palm, vegetable

Swamp

Bayelsa, Rivers

6,888,758

Swamp Raffia Palm

rice,

Marine resources

2000+

32

Plateau

Plateau

3,

178,

Maize, sorghum,

Small stock

1400 –1500

31

712

irish potatoes,

cattle

millet, vegetables

Monte

Obudu(cross

Part       of

Maize, Cocoyam,

Cattle

1400–2000

36

ne

River) Mambilla

very humid and

Avocado, Vegetable.

+

(taraba)

Humid zone

Total:  140,003,542

Source: ODA, 1999 National Population Commission 2006 provisional census

Fig.1.1 shows the trend in the production and consumption of palm oil in Nigeria. From 1964 to

2010,  there  has  been  rising  production  (supply)  and  consumption  (demand)  of  palm  oil  in Nigeria. However, in the last 10 years, demand has grown faster than the supply, leading to an increasingly  widening  gap.  According  to  the  USDA  in  their  analysis  based  on  estimated production and import figures, the shortfall in supply (the supply gap) is about 150,000 MT of

palm oil per annum, as per figure 1.1

Figure 1.1: Trend in production and consumption of palm oil in Nigeria .

Source: United States Department of Agriculture

In addition, there has been little or no export to neighboring countries, taking advantage of lower transaction   cost.  (Department   for  international   development-DFID,   2005).   Moreover   the smuggling of vegetable oils (palm oil and palm kernel oil) into Nigeria from Togo and Benin is taking place.(Golub, 2012; Kuku,2015).

Consequently, the supply of inputs (fertilizer, seeds, agro-chemicals, farm tools and processing equipment) by industry needed to increase oil palm productivity, is low in relation to effective demand.(DFID,2005).The majority of FFB (fresh fruit bunch) used to make palm oil are derived from low yielding grooves.  The major planted  area is in small  holdings (1-5ha)  where it is intercropped  and  results  in low  yields (2t/ha).Yields  are  higher  in medium  sized  and  large plantations. (DFID,2005).

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