An economic assessment of rural based agro industries in Ogoni land Rivers State, Nigeria

An economic assessment of rural based agro-industries in
Ogoni land Rivers State, Nigeria
ABSTRACT:
An economic assessment of rural based agro-industry in Ogoni land is a
research conducted to ascertain the economic viability of the rural agro industry at
ogoniland in Rivers State, especially the micro, small and medium scale agro based
industries. Thirty industries were randomly selected from a population of 150 micro
small and medium scale enterprises obtained from the Ministry of Commerce and
Industries, the data for this research was analyzed using cost and revenue model.
Only variable cost was considered, this is because if a business can cover its variable
cost then it has good leverage. The net farm income revealed that return on
investment was higher than variable expenses, that is, the total net income was
higher than Total Variable Cost (TVC) in all the rural industries. Inferentially, this is a
sign of economic viability and so it means that the rural agro- based industry was
economically viable. The study recommended that government should assist the rural
Agro-based industries with necessary infrastructural facilities such as electricity to
power their equipment so as to reduce the cost of fuel. Road should also be provided
to reduce cost of transportation, this will drastically reduce variable cost and increase
net profit.
180-186 | JRA | 2013 | Vol 2 | No 2
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www.jagri.info
Journal of Research in
Agriculture
An International Scientific
Research Journal
Authors:
Okidim IA and
Albert CO.
Institution:
Department of Agric and
Applied Economics/ Ext.
Rivers state University of
Science and Technology,
Port Harcourt, Rivers State,
Nigeria. PMB 5080.
Corresponding author:
Albert CO.
Email:
Web Address:
http://www.jagri.info/
documents/AG0041.pdf.
Dates:
Received: 18 Mar 2013 Accepted: 02 May 2013 Published: 27 Aug 2013
Article Citation:
Okidim IA and Albert CO.
An economic assessment of rural based agro-industries in Ogoni land Rivers State,
Nigeria.
Journal of Research in Agriculture (2013) 2(2): 180-186
Original Research
Journal of Research in Agriculture
JournalofResearchinAgriculture An International Scientific Research Journal
Keywords:
Economic Assessment, Rural Based Agro-Industries.

INTRODUCTION
Before crude oil and gas were discovered in
Ogoni land, the predominant occupation of the people
was farming. Industrialization was not a part of the
economic activities in Ogoni-land. The rural economy
was predominantly dependent on production of primary
raw materials. Soon after the discovery of oil in Ogoni-
Land, there was a gradual decline in agricultural
activities which also affected the rural base industries.
The rural based industries have obviously contributed to
the development of Ogoni-land in particular and Rivers
State in general, it has proven to be one of the most
viable sectors with enormous employment and economic
growth potentials. The small scale farmer or farm family
who resides in the rural area produce over 80% of the
food consumed in Nigeria (Ikesiofor, 2012).
The rural based industries have contributed
immensely to industrial and economic development
through effective use of local raw materials from
agriculture for the production of intermediate goods and
transformation of rural technology. Agro-based
industries depend on agricultural input, which are mainly
raw materials from farm. Rural agro-based industries
also depend on electricity for efficient operation, but
often times, electricity is not always available which
makes these industries to depend on small generators and
thereby increasing the cost of operation (Chima, 1994)
Rural based industries face problem of poor record
keeping and inadequate working capital because of poor
accessibility to bank credit facilities.
Problem statement
Ogoni-land is highly devastated because of oil
exploration and exploitation. This devastation has
grossly affected the hitherto vibrant rural based
industries which were agro-based, not minding that a
nation cannot grow without small and medium agro
industries, in other to bring back the vibrant agro base
industries, it is necessary to conduct survey for
ascertaining the economic viability of these rural agro
based industries so as to find out whether or not they still
meet up the very purpose for which they were set up
before the advent of oil exploration and exploitation in
Ogoni.
Objectives of the study
The general objective of this study is to examine
the economic viability of rural agro-base industries in
Ogoni-Land, while the specific objectives were:
To identify all the agro-based rural industries
To analyze or examine their level of economic
viability; and
To investigate their problem and prospect if any.
Literature Review
Rural based industry is an industry that depends
on agricultural product for its support and sustainability
(Maisamari, 2002). The rural base industries depend on
farm products such as cassava, cocoyam, groundnut,
honey, olives, palm kernel, palm oil, palm wine, timber
and other agricultural raw materials (Koleshore,1984).
The rural based agro industries are usually involved in
the production, processing and manufacturing of
agricultural products. They manufacture local gin
through palm wine, process cassava into garri and
“fofo”, processing oil palm into palm oil, processing of
hide and skin into leather, roofing woods, plywood etc.
On bases of size, Teal (2002) define small scale
agro-based industries as an industry that employ up to
5-29 employees. Nicholas (1996) defined small scale
agro-based industry as industry with employees between
9-29. Teal, (2002) also maintained that medium scale
agro based industries employ between 30-99 staff, while
micro agro based enterprise has between 1-5 employees.
On the basis of finance, the rural micro and
medium scale enterprises have financial investment not
more than, but between ₦ 150 - ₦ 200 million naira
excluding land (just working capital) in Nigeria. In
Ghana, it is not more than 10 million Ghanian Cedis, in
Malawi, it is two million dollars. Rural based agro allied
industries, mobilize funds which otherwise would have
181 Journal of Research in Agriculture (2013) 2(2): 180-186
Okidim and Albert, 2013

been ideal. They promote indigenous technology and
employee ideal labour (Peter, 2002). Rural micro and
medium agro-based industries source their money
through loans from friends and relatives (Chima,
1994).They also source funds through personal savings –
the most common source of equity finance. (Olashore,
1985). Retain earning (Plough back) is also another
method of equity financing. Retained earnings are
earnings or profit set aside after dividend is paid (Ernest,
1985) Rural agro-based industries also source finance
from commercial banks and Isuzu cooperatives among
others.
METHODOLOGY
Ogoni is one of the ethnic groups or tribes of the
Niger Delta region, southern Nigeria. It is an ethnic
group in Rivers State of Nigeria which spread through
four local government councils of Tai, Gokana Eleme
and Khana. It covers an area of 1,212sq km and has a
population of 740,744 (NPC, 2005). Even though there is
a huge present of hydro-carbon (oil and gas) available,
the main occupation of the people is fishing and farming.
The data for this study were mainly collected through
well structured questionnaire and personal interview as
well as secondary data. The population of this study was
150 micro small and medium scale industry workers,
obtained from Ministry of Commerce and Industry
workers. Sample size was 30% of the population which
was randomly selected in each of the categories of
industries (micro, small and medium) as follows:
Ten palm oil processing industries
Eight local gin production industries
Five timber production/logging enterprises
Four cassava processing enterprises
Three breed production enterprises
Method of Data Analysis
The data for this study were analyzed using
descriptive statistics such as simple percentage, averages,
frequency table, cost and revenue analysis (cost -revenue
model).
RESULTS AND DISCUSSION
Table 1, is in line with objective one of this
study, which is to identify the rural agro-based
industries. The following agro-based industries were
identified- oil palm processing industry, local gin
production, Timber (logging) cassava processing
industries, bread production.
Table 1 shows the distribution of the number of
industries, the table shows a total of 38 industries, Out of
the 38 industries surveyed 18 (33.33%) were palm oil
processing. 8 (26.67%) were local gin producing
5 (16.67%) were Timber/logging, while 4 (13.33) were
cassava processing, and 3 (11.00.) were bread industries.
Majority of the agro-based rural industries were palm
processing industries. Bread industries were the least,
with only three industries; this was due to the high cost
of building bakery.
Table 2 revealed that amongst the variable cost,
fresh fruit bunch (ffb) had the highest cost with two
hundred and fifty thousand naira. It was also revealed
that in palm oil production land and electricity were also
costs intensive. Another cost intensive item was labour.
For the purpose of this study, labour was classified as
variable cost since labour cost only increased with
increase in the quantity of FFB. The amount spent on
Journal of Research in Agriculture (2013) 2(2): 180-186 182
Type of industry
Number of
industry
Percentage
Oil palm processing 18 33.33
Local gin production 8 26.67
Timber/logging 5 16.67
Cassava processing 4 13.33
Bread production 3 11.00
Total 38 101.00
Table 1: Types of Agro-based industries in Area
Field survey 2012

labour was one hundred and twenty eight thousand
(128000) naira. The study also revealed that with
increase in mechanization, the quantity of labour
employed as well as labour cost will reduce drastically.
Furthermore, the study shows the cost and returns on oil
palm production. The finding shows that the total
variable cost (Tvc) of producing 150 jerry cans of
processed oil palm was ₦ 406, 150 It was earlier said
that this work will be based on variable cost only in the
short run The table showed that, the gross revenue was
600,000 while the net farm income was 193,850 naira; it
means that there was a return above variable cost,
confirming the viability of the industry with generating
set and land taking the highest cost. This is in agreement
with Okidim and Albert (2012) work on determinant of
growth in the oil palm industry, the capital recovery was
above 12.8% indicating that the business was profitable.
Average monthly income/returns from local gin
production
Variable cost
Raffia stems 6,280
Fire wood/kerosene 8,500
Hired labour 16,250
Miscellaneous 6,000
Total variable cost (TVC) = 37,030
Total revenue = 25 cans of 20 litres at ₦ 2800 per
20 litre = 70,000
π=TR-TVC= 70,000-37,030 = 32,970 per month
Item Quantity Fixed cost (₦) Variable Cost (₦) Revenue
Land 3 plot 200,000 -
Generator 1 150,000
Digesting machine 1 60,000
Shalker 1 40,000
Factory building 1 50,000
drums 7 21,000
pipes 2 5,000
Jerry cans 10 5,000
Miscellaneous - 5,000
50 tons of
fresh fruit bunch
251,000 -
Labour 128,000 per month
Firewood 24,000 per month
Kerosine 3,150 per month
Total 536,000 406,150
Gross Revenue 150 Jerry cans (20
litres) processed
oil 4000 naira per
1 (4000x150)= ₦
600,000
Net Farm
Revenue
600,000-406,150
=193,850
Table 2: Average monthly Cost, and Returns on oil Palm Production
Source 2012
Items Fixed Cost (₦) Revenue
Local
Condenser
1 plot of land
10,000
30,000
-
-
Drum preservation 7,200 -
Factory building 25,000 -
Taping knives 1,500 -
I cooking drum 3,500 -
Pipe 200 -
Jerry cans
20 litres (20)
10,500 -
Miscellaneous 3,000 -
Total ₦ 32,970
Table 3: Cost and returns on local Gin production
Source 2012

Table 3 shows the monthly cost and return on
local gin production. The monthly total variable cost
stood at ₦ 37, 30 while total monthly revenue stood at
70,000. The net monthly income was 32,970. Since the
monthly total revenue was above the monthly total
variable cost, it means the business was economically
viable. Again, we are only considering short run profit,
which is why the fixed cost is not considered. If in the
short run, we can cover the variable cost then the
business is considered economically viable. Again, like
the palm oil production, local gin production had labour
as its highest variable expense. The study also revealed
that the demand for local gin was lesser than the demand
for palm oil this because not everybody in the study area
consume local gin for health and religious reasons.
Although, local gin apart from directly consuming it,
could be used as raw materials for the manufacture of
other products.
Table 4 shows the monthly cost and returns on
timber/logging. The study revealed that transportation
cost was one of the biggest variable costs with about
eighty four thousand eight hundred (84,800) naira per
lorry load of timber. The processed timber is always
transported to the city from the forest. The cost of diesel
and labour were also high with 75,000 and 64,000
respectively. Also, multiple taxations made tax paid to
rose up to 7,420.
The total monthly variable cost was eight
hundred and thirty one thousand two hundred and twenty
naira (₦ 831,220.00), while the gross monthly revenue
was nine hundred and sixty thousand naira (₦ 960,000).
The net revenue income was one hundred and twenty
eight thousand seven hundred and eighty naira
(₦ 128, 780.00). This net profit is economically viable to
keep the timber/logging business. The result confirms
Items
(variable)
Cost (₦)
Revenue
200, pieces of 4x12x12 @ ₦
1,500 per piece
300,000.00
200, pieces of 9x12x12 @ ₦
1,500 per piece
300,000.00
Diesel 75,000.00
Labour 64,000.00
Tax 7,420.00
Transport 84,800.00
Total variable cost ₦ 831,220.00
Gross revenue 800 pieces (1x12x12 at ₦
1,200 = 960,000.00 – ₦ 831,220.00= ₦
128,780.00
Table 4: Cost and Return on Timber/logging industries
Field survey 2012
Items (variable) Cost (₦) Revenue
2, 800kg of cassava at
500/35kg
40,000
Diesel/oil 5,400
Labour (frying, feeling 16,000
Transport 2,000
Total variable cost 63,400
Gross Revenue
1, 200kg of garri per month /8kg ₦ 125 per kg. 1200 x ₦
125 = ₦ 150,000
Net monthly return ₦ 150,000- ₦ 66,400 = ₦ 83,600
Field survey 2012
Table 5: Cost and Return on Cassava Processing

Timber Organization Company (TOC) (1999) that timber
production has a high economic value.
Table 5 shows the cost and Return on cassava
processing to garri. The study shows that cassava
demand is high in the study area even though the supply
is high. Labour also constitutes one of the highest
variable costs like other industries studied. This shows
that in all the industries, labour cost is high.
The table shows that ₦ 66, 400 was spent as total
variable cost (TVC) to process 1,200 kilogram of cassava
monthly. The table also shows that the sum of
₦ 150, 000 was realized from cassava processing as
gross returns while N83, 600 was realized as net monthly
income from cassava processing. This margin indicates
that the business has some financial leverage. The result
is in line with Agundu and Okidim, (2004) who observed
that cassava production is a money spinner due to high
net income from foreign export.
Table 6 shows the monthly cost and gross as well
as net returns on bread production in Ogoni-land. The
table shows that the total variable cost (TVC) was one
million seven hundred and four thousand, six hundred
Naria (₦ 1, 704,600) the gross revenue earning was two
million and five hundred thousand. While the net
revenue earnings was six hundred and seventy four
thousand four hundred naira (₦ 674, 400). This was the
highest in terms of net revenue of the six rural based
industries surveyed. Murray and Dey (2008) indicated
gross operating surplus as one of the factors in bread
production.
This survey did not include fixed cost but only
based on total variable cost on monthly basis. The study
shows that bread had the highest variable cost of all the
six local industries studied with one million seven
hundred and four thousand six hundred (1704, 600) naira
with labour taking 300,000 naira. The study also showed
that as variable cost increases, gross revenue and profit
also increase, the table also revealed that of all the six
local industries studied, bread industries had the highest
gross earnings.
CONCLUSION
The rural base agro industry with respect to
income generation was observed that bread production
had highest income; this means that if bread making
industries are located in rural areas profit could be made.
Items Cost (₦) Revenue
Raw materials 168 bags of flour
at 5, 400 per bag
Variable cost
907,200
-
21 bags of sugar at 10,000/bag 210,000 -
42 packet of yeast at N600/per
packet
25,200 -
Salt 8,400 -
Preservatives 12,000
80 packets of butter 28,000 -
180 litres of groundnut oil 34,800 -
Hired labour 300,000 -
Diesel and water 34,000 -
Fire wood 100,000 -
Taxes 15,000 -
Miscellaneous 30,000 -
Total variable cost (TVC) 1,704,600
Gross earning
Gross Revenue 12,500 loaves of bread at ₦ 250/ loave
= ₦ 2,500,000
Net earnings ₦ 2,500,000-₦1,704,600 =₦ 674,400
Table 6: Cost and Returns on Bread Production (Monthly)
Field survey 2012

The research also showed that all the agro- based rural
industries were economically viable; at least they
covered their variable cost in the short run. It is therefore
recommended that government should assist the rural
agro-based industries with necessary infrastructural
facilities such as electricity to power their equipment so
as to reduce the cost of fuel. Road should also be
provided to reduce cost of transportation, this will
drastically reduce variable cost and increase net profit.
REFERENCES
Agundu PUC and Okidim IA. 2004. Commercial
cassava optimization challenges and strategies
imperatives in Nigeria. The Abuja Management Review,
2(2),58-77.
Chima PA. 1994. Finance and Management of Small
and Medium Enterprise in Nigeria PP. 132.
Ernest J and William W. 1978. Financial Management
of Small Firm, Eagle Wood cliff. Prentice Hall.
Ikesiofor MC. 2012. Strategies toward achieving
agricultural transformation and rural development in
Nigeria. Proceedings of Agricultural Conference Ansuiac
2012 P 445.
Koleshore CN. 1984. Prospect and Problems of Agro-
allied Industry in Nigeria A paper presented at seminar
organized By Societe General Bank, Illorin Kwara State.
Maisamari UH. 2002. Monitoring over heads account
and Capital Accounts Returns: Reconciliation and
Reporting at Federal Inland Revenue Service.
Murray J and Dey C 2008. Assessing the impact of a
loaf of bread. Australia: University of Sydry.
Nicholas M. 1996. Small and Medium Enterprise, PDR.
The results of National Survey. www.11o.org.
Okidim IA and Albert CO. 2012. Analysis of the
determinants of growth of the oil palm industry in
Nigeria. Journal of Economic and Sustainable
Development, 3(9), 25-29.
Olashore AO. 1985. Financing SME in Nigeria
Business Times, Vol.5, No 4, pp887
Teal F. 2002. Background information use of data set
region project on enterprise development (RPED) Ghana
Manufacturing sector survey.
Timber Organization Company (TOC). 1999.
Economic principles of timber production.
www.forgov.oc.c9/hpp/post/00083/sdu-31-htm
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An economic assessment of rural based agro industries in Ogoni land Rivers State, Nigeria

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An economic assessment of rural based agro industries in Ogoni land Rivers State, Nigeria