EFFECTS OF OFF-FARM WORK ON TECHNICAL EFFICIENCY AND PRODUCTION RISK AMONG RICE FARMERS IN ENUGU STATE NIGERIA

ABSTRACT

The study analysed the effects of off-farm work on technical efficiency and production risks among rice farmers in Enugu State, Nigeria. Ninety respondents were selected using multi- stage sampling technique. Data for the study were collected  by the use of  well structured questionnaire.  Descriptive  statistics and stochastic  production frontier  model were used to analyse  the data. Results  showed  that the two  groups of rice  farmers  had similar  socio- economic characteristics.  Technical efficiency scores for the farmers ranged from 0.579 to

1.000 and 0.0606 to 1.000 for the rice farmers without and with off-farm work respectively. The average  efficiencies  are 0.964 and 0.871 for rice farmers without  and  with off-farm work,  respectively.  This  suggests  that  off-farm  work  has  a  negative effect  on  farmers’ technical  efficiency.  The  result  of the  student  t-test  conducted  at  5%  significance  level showed  that there is a significant  difference  in  the  mean technical  efficiency of the two groups of rice farmers. For rice farmers without off-farm work average number of farmers associations (0.646), age (0.328), education (3.838) and extension access (3.144) significantly and positively influenced technical inefficiency effects while for their counterpart age (0.159) and extension  access  (4.727) significantly and positively  influenced  technical inefficiency effects and household size (-0.970) was significant but negative. For farmers without off-farm work, family labour (1.287) has a positive and significant effect on production risk, meaning that family labour is a risk increasing factor. Depreciated value of equipment (-12.255) used has a negative and significant effect on production risk which indicates that investment on equipment will decrease the production risk in rice production. For rice farmers with off-farm work  none  of  the  factors  was  significant  even  though  they  all  had  negative  sign.  The constraints  faced  by  the  farmers  were  inaccessible  road,   high  cost  of  transportation, inadequate credit, birds’ invasion, inadequate extension support, inaccessibility to cheap farm inputs ranked in ascending order of importance.

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

The struggle for food is desperate for the 240 million people of West Africa: one of every three of who is a Nigerian (West Africa Rice Development Association (WARDA),

2002). Rice (Oryza sativa) is the staple food of approximately half of the world’s population (International Rice Research Institute (IRRI), 1997). It has traditionally been an important basic food commodity for certain populations in sub-Saharan Africa (SSA), and West Africa in particular. Recent important and major changes have led to  a  structural increase in rice consumption in the sub-region. Since 1973, regional demand has grown at an annual rate of

6%, driven by a combination of population growth and substitution away from  traditional coarse grains (WARDA, 2001). The consumption of traditional cereals, mainly sorghum and millet, has fallen by 12 kg per capita, and their share in cereals used as food decreased from

61% in the early 1970s to 49% in the early 1990s. In contrast, the share of rice in cereals consumed  has grown  from  15% to 26% over  the same  period  (Akpokodje,  Lancon  and Erenstein, 2001). Also it was observed that between 1961and 2005, the  annual increase in rice consumption was 4.52% in SSA (WARDA, 2007). Growth in regional rice consumption remains high.

The demand for rice has been increasing at a much faster rate in Nigeria than in other

West African  countries  since  the  mid  1970s  (WARDA,  2001).  For example,  during  the

1960’s  Nigeria  had  the  lowest  per-capita  annual  consumption  of  rice  in  the  sub-region (average  of  3  kg).  Since  then,  Nigeria’s  per  capita  consumption  levels  have  grown significantly at 7.3% per annum (Ogundele and Okoruwa, 2006).  Consequently,  per-capita consumption  during  the  1980s  averaged  18  kg  and  reached  22  kg in 1995-1999.  In an

apparent move to respond to the increased per capita consumption of rice in Nigeria, local production  boomed,  averaging  9.3%  per  annum  (Ogundele  and  Okoruwa,  2006).  These increase in local production have been traced to vast expansion of rice  area at an annual average of 7.9% and to a lesser extent to increase in rice yield of 1.4% per annum. The reality is that Nigeria has not been able to attain self-sufficiency in rice production despite increasing hectares  put into  production  annually (CBN,  2000).  Consequently,  Nigeria  has depended heavily on imported rice to meet her consumption needs and has become the World’s largest importer of rice (WARDA, 2003). According to Okorji and Onwuka (1994) the rice import bill for Nigeria was N123.61 million in 1980 and has since continued to rise. That Nigeria has remained a net importer of rice with well over ₦150.15 billion spent annually (FOS, 2000) is indicative of the declining self-sufficiency. This constitutes a huge drain on Nigeria’s foreign reserve and a major bottleneck in the balance of payments (Egbuna, 2003).

In a bid to address the demand-supply gap for rice, governments have at various times come up  with policies  and  programmes.  However,  these  policies  according  to  WARDA (2001)  have  not  been  consistent  due  mostly  to  oscillating  import  tariffs  and  import restrictions. For instance, from 1986 to the mid-1990s imports were illegal. In 1995 imports were allowed at a 100% tariff. In 1996 the tariff was reduced to 50% but increased to 85% in

2001.  The  erratic  rice  import  policy  reflects  the  dilemma  of  securing  cheap  rice  for consumers  and  a fair  price  for producers.  Notwithstanding  the  various  policy  measures, domestic rice production has not increased sufficiently to meet the increased demand. Even during the rice import ban period, Nigeria was still importing several hundred thousand tons of rice per year through illegal trade. With the removal of the rice import ban, consumption resumed its rapid growth taking advantage of the downward trends of rice price on the world market.

This fluctuation  and  limited  capacity of the  Nigerian  rice economy  to  match  the domestic demand has raised a number of pertinent questions both in the policy circle and amongst  researchers.  Such  questions  include:  what  are  the  factors  explaining  the  lag  in domestic rice production vis-a-vis demand  for the commodity in  Nigeria? Which strategy could lead to a sustainable contribution of the Nigerian rice economy to the national food security within a competitive and open economy? Central to this explanation is the issue of efficiency  of  the  rice  farmers  in the  use  of  resources.  West  African  Rice  Development Association (WARDA) in collaboration with the Nigerian Institute for Social and Economic Research (NISER) suggested this strategy of increasing efficiency at producer level as one of the key components to revitalize the rice sector in Nigeria (WARDA, 2003).

Efficiency is a very important factor of productivity growth in an economy  where resources are scarce and opportunities for new technologies are lacking. Inefficiency studies have  shown  that  it  is  possible  to  raise  productivity  by  improving  efficiency  without increasing the resource base or developing new technology (Adedapo, 2008). Farrel (1957) decomposed   economic   efficiency   into   technical   efficiency   and   allocative   efficiency. Technical efficiency is the ability to produce a given level of output with a minimum quantity of inputs under a given technology (Tijani, 2006). Allocative efficiency refers to the ability to choose optimal input levels for given factor prices.

All production  is subject  to uncertainty,  but the risks associated  with  agricultural production are particularly salient. Crop yields may be affected by the amount and timing of rainfall, temperatures during the growing season, pests, diseases, hailstorms and fire among many other factors (Nauges, O’Donnell and Quiggin, 2011). However, studies have shown that the effect of these uncertainties on production can be investigated through the choice of inputs  on  the  output  variance,  otherwise  known  as  production  risk  in  inputs  (Jaenicke, Frechette and Larson 2003; Bokusheva and  Hockmann 2006; Villano and Fleming 2006).

This  is  because  some  inputs  increase  while  others  reduce  the  level  of  output  variance (production risk). Assessment of the efficiency of biological production sectors (such as rice production)    distils  important  policy  implications,  provided  such  assessment  takes  into account  the effects of input use on output  variance  (production  risk),  as this  is vital for agricultural  development  planning  (Jaenicke,  Frechette  and  Larson  2003;  Villano  and Fleming 2006). The implication of this is that it is important to incorporate production risk in the measurement of the efficiency of rice farmers.

Off-farm work by farm households is a persistent phenomenon throughout the world, both in less developed and developing countries, and the dependence of farm families on the income from off-farm work has increased steadily over the years (Chang and Wen, 2011) . The  importance  of  off-farm  work  has  also  been  acknowledged  in  many  countries.  For example,  by using a random  farmer  survey in rural Ghana,  Jolliffe  (2004)  reported  that approximately 74% of the farm households engaged in some form of off-farm work. Similar evidence  has  also  been  found  in  Taiwan.  Based  on  the  statistics  summarized  from  the Agricultural Census data in 2001, approximately 75% of the farm households have reported off-farm income.

In light of the increasing importance of off-farm income as a crucial determinant of farm  household  well-being,  a considerable  body of  literature  has  examined  the  roles  of household characteristics, the human capital of the farm operator and spouse, as well as farm programs related to off-farm labour participation (e.g., El-Osta and Morehart, 2008; El-Osta, Mishra and Morehart, 2007, 2008; Huffman and Lange, 1989; Lass, Findeis and Hallberg, 1991; Mishra and Goodwin, 1997). Attention has also been paid to the interaction between the farm practice and the off-farm work of the farm household (e.g., Phimister and Roberts,

2006). It is expected that the increased reliance on off-farm employment affects the allocation of family labour, and thus exerts an influence on farm productivity. On the other hand, off-

farm work provides an opportunity for farm households to stabilize household income  and reduce the uncertainty associated with agricultural production. It is a generally held  belief that off-farm employment provides a risk management tool to reduce the income variability associated  with  the  farm  household  (El-Osta  and  Morehart,  2008;  El-Osta  et al.,  2007). Hence, this study becomes crucial in examining the  interconnection among off farm work, technical  efficiency  and  rice  production  risk  since  increased  output  and productivity  are directly related to production efficiency and production risk.

1.2 Problem Statement

Rice is an important food crop in Nigeria and its consumption is growing particularly among  urban dwellers.  Domestic  production  of this commodity has been  inadequate  and unable  to  bridge  the  increasing  demand-supply  gap.  Government  efforts  of  making  the country self sufficient has not yielded the required results and thus the resort to importation of  the  commodity.   This  constitutes   a  great   drain  in   the  country’s   foreign  reserve. Government’s  goal of achieving  self sufficiency in  rice  production to a large extent will depend on the level of farmers’ productivity which can be determined by rates of adoption of improved  technologies  and  efficiency  of  resource  use.  However,  with  the  difficulties encountered  by  farmers  in  developing  countries  for  developing  and  adopting  improved technologies  due  to  resource  poverty,  efficiency  has become  a very significant  factor  in increasing productivity (Ali and Chandry, 1990).

Numerous studies (Obwona, 2006; Ogundele and Okoruwa 2006; Tijani, 2006;    Al- hassan,  2008;  Nwaru  and  Iheke,  2010,  Onoja,  and  Achike,  2010;)  have  attempted  to determine technical efficiencies of farmers in developing countries including Nigeria because determining the efficiency status of farmers is important for policy purposes. However, few of  these  studies  took  account  of  the  presence  of risk  and  the  farmers’  responses  to  it,

considering  the  common  knowledge  that  economic  units  make  their  decisions   under uncertainty.  This  presents  a  research  gap  that  needs  to  be  filled.  The  presence  of  risk influences not only production output but also producers’ behaviour, primarily with regard to input use. If risk mitigation plays a principal role in decision-making, then a farm’s technical efficiency   score   may   alter   significantly.   Therefore,   technical   efficiency   assessment considering a producer’s response to uncertainty is not the same in a setting where no effect of risk on input-use decisions is taken into account. Thus, when uncertainty is pervasive, the theoretical framework for studying technical efficiency is to be extended with respect to risk and producers’ responses to risk. In this study, production risk is assumed to be an important factor  that  influences  production  decisions  of farmers.  Hence,  the present  study aims  to estimate the magnitudes of both technical inefficiency and production risk in rice production in Enugu State.

In recent times farm families in general and small farm operators in particular  have been seeking off-farm employment in increasing numbers. A number of studies exist which try to explain the reasons for this phenomenon. Some of the reasons observed by Lanjouw (1999) include declining farm incomes and desire to insure  against agricultural production risk. In the beginning,  increasing off-farm work by farm operators was viewed only as a transitional phenomenon, but in recent years researchers have concluded that this change is rather permanent. Economists have since turned their attention towards developing models of multiple job holding (Bollman, 1979; Shiskhko and Bernard, 1976). Little attention has been given to estimating the relative efficiency of rice farmers who take up off-farm work viz a viz their counterpart who do not especially in Nigeria. While there is a growing realization that part-time farming is becoming an integral part of Nigerian agriculture, these farms are also likely to have the most staying power since they do not depend solely on farm income for their  viability. Some studies have also documented  the impacts of off-farm work on farm

productivity (Bagi, 1984; Kumbhakar et al., 1989; Sherlund et al., 2002; Smith, 2002).     On the other hand, studies on production risk in agricultural production have been extensive over several decades and research interest in agricultural risk continues to grow. The relationship between farmers’ off-farm  work and production risks has also  been examined.  Mishra  & Goodwin (1997), for example, have demonstrated  that farm  households may treat off-farm work as a vehicle to stabilize their income due to farm commodity prices being more variable than off-farm wages. As predicted by production theory, a risk-averse farmer will allocate labour and other resources to the less risky income sources (i.e., the off-farm work) until the expected marginal returns between available activities are equal to each other. As a result, the reduction  in farm  production  risk may lead  farmers  to participate  in the off-farm  labour market.  In  spite  of  this  inter-relationship  between  off-  farm  work,  production  risk  and technical efficiency  available literature reviewed  showed that little or no study have been done in Nigeria with particular emphasis on Enugu State to examine these connections. This study intends  to fill this gap. Also, there is need to assess the current levels of technical efficiency  of rice  farmers  in Enugu  State  and  identify  factors  that affect  their  technical efficiency. More importantly there is need to determine whether off- farm  work improves efficiency,  whether there are differences  between rice farmers with and  without off- farm work, and why.

This study will contribute to previous studies on off farm work by accommodating technical  efficiency  and  production  risk  simultaneously.  The  joint  consideration  of  risk, efficiency and off-farm work is important since the technical efficiency of each farmer, as well as production risk, may affect the output response of crop production.

This study in a bid to fill the above-mentioned  gaps will provide  answers  to  the following research questions:

i.     How does off-farm work influence technical efficiency and production risk of  rice farmers in Enugu State;

ii.      Are  there  factors  that  affect  the  technical  efficiency  and  production  risk  of  rice farmers with and without off-farm work and

iii.      What are the constraints faced by rice farmers in the study area.

1.3 Objective of the Study

The broad  objective  of this  study is to  examine  the effects  of off-farm  work  on technical efficiency and production risk among rice farmers in Enugu State,  Nigeria. The specific objectives are to:

i.         describe the socio-economic characteristics of rice farmers with and without off-farm work;

ii.        describe rice production in the study area;

iii.       determine the technical efficiency of rice farmers with and without off-farm work;

iv.       compare the technical efficiency of rice farmers with and without off-farm work;

v.        ascertain factors that affect technical efficiency and production risk of the two groups of rice farmers;

vi.       identify the constraints faced by the rice farmers in the study area and vii.      make policy recommendations based on the findings.

1.4 Hypotheses of the Study

i.         farmers in the study are not technically efficient;

ii.        production risk effects are not present in the model;

iii.        there is no significant difference in the technical efficiency of farmers  with and without off-farm work and

iv.       socio-economic characteristics do not affect the technical efficiency of the two groups of rice farmers.

1.5 Justification of the Study

Efficiency  studies  help  countries  to determine  the extent  to which they can  raise productivity by improving the neglected  source, i.e., efficiency,  with the existing resource base and available technology (Al- Hassan, 2008). Such studies could support decisions on whether to improve efficiency first or to develop a new technology in the  short run. More importantly, enhanced technical efficiency will not only enable farmers to increase the use of productive resources, it will also give direction for the adjustments required in the long run to achieve food sustainability.

It is now widely accepted  that to meet the challenges  of future agricultural  policy design in the future, we must understand farm household behaviour in a more complex policy context that recognizes the diverse nature of farms with respect to farm size, farm production and business organization. We must also recognize the increasing interconnection between decisions made by farm businesses and farm households, and their effects on the well-being of farm families (Kuhn and Offutt 1999; Offutt, 2002).  Recommendations  suggested from such  would  boost  the  effectiveness  and  success  of  policies  and  programmes  targeted  at increasing productivity.  Given the increasing  number of farm families taking up off-farm work, the increasing rice demand-supply gap and the risk associated with rice production the need for this study is justified.   The recommendations from this study are expected to give direction to policy makers in designing appropriate policies to increase rice productivity in Enugu State and Nigeria as a whole. This is because more knowledge about whether farm productivity  and  efficiency  are  affected  by part-time  farming  could  help  policy  makers introduce better rural development policies. Also, farmers will find this work very useful as it will help increase their productivity as they gain understanding of the interconnection between off-farm work, technical efficiency and  rice  production  risk.  Moreover,  the  results  from  this  study  will  provide  baseline information  to  researchers  who  want  to  undertake  further  studies  in  this  area.  Other stakeholders  who  can benefit  from  the results  of this  study are donor  agencies,  research stations and even extension workers.

₦5,000.00 – DOWNLOAD FULL PROJECT DOWNLOAD FULL PROJECT Added to cart

---

---

---

---

Related Project Topics :