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Profit and profitability of Rice Production in Ndop Plain, Cameroon

A Value Chain Analysis Approach

by Fuh George Cheo (Author) Sama Joseph Nkwain (Author)

Research Paper (postgraduate) 2015 30 Pages

Business economics - Trade and Distribution

Excerpt

Index

Abstract

Introduction

Rice Production in Ndop Plain

The Concept of Value Chain and Value Chain Analysis

Objectives

Methodology
Target population
DATA Collection

Data Analysis
i) Estimating the Cost of Production
ii) Estimating Profit per Unit Product at Each Stage on the Value Chain
iii) Estimating the profit of actors along the Value Chain
iv) Estimating Added Value, Revenue And Profit Distribution Along The Chain.

RESULTS AND DISCUSSION
DESCRIPTION AND ANALYSIS OF THE NDOP RICE VALUE CHAIN
Structure of Costs and Returns

Comparing Prices of White Rice From Different Supply Sources

SWOT Analysis
Strengths Identified
Weaknesses Identified
Opportunities
Threats

RECOMMENDATIONS

REFERENCES

Abstract

This study has identified the main actors in the Ndop rice value chain along with starting with the cost of production at the farmer’s level, then the costs or added values at each stage identified along the value chain. It has been shown that farmers incur a production cost of 114.6 Francs per kilogram of paddy rice, which they sell at 120 Francs to millers. It has also estimated the costs and returns to all the actors on the rice production value chain, mill at a cost of 61.05 Francs/kg for private miller and 88.41 Francs/kg for the UNDVA. The millers sell the milled rice to wholesalers at the rates of 278.0 and 320.5 Francs respectively. The wholesalers then transport and sell to retailers at 306 and 349.2 Francs respectively for privately milled and UNVDA milled rice. The milled rice is later retailed to consumers at the rates of 317.3 and 362 Francs. In this process along the value chain it is shown that the millers make the highest profit. UNDVA gets the lion’s share (154909.96 Francs) followed by the private miller (105504 Francs) per hectare, while the farmers gets only 27,200 Francs. Further analyses show that the farmer could improve his profit margin by 78,304 Francs if he mills his rice with the private millers and sells to a wholesaler and by 127,709 Francs a if he mills with UNDVA, if he was not financially handicapped and /or restrained from pursuing such an option. Also, the farmer’s profit situation is sometimes worsened by local rice collectors when because of financial constraints he is lured into unfair production pre-financing deals involving taking loans from middlemen to repay in kind at harvest time and at giveaway rates. On other hand, millers further increase their lion’s share of the profit from the sales of rice brand, a byproduct of milled rice, which is never handed to the farmer.

Value chain analysis revealed the following weaknesses along the chain: the activities of the actors are as yet uncoordinated; income distribution is unequal and disfavors the farmers; returns to the farmers, who the principal actors, are discouragingly very low and due mainly to high cost of the labour intensive activities, unattractively low producer price(less than a third of the consumer price, and to financial constraints that hinder him from extending his production activities to include milling.

Generally in the Cameroon rice market, Ndop rice is less competitive when faced with competition from imported rice, especially that imported from India and Vietnam whose higher quality attracts consumers to the extent that rice dealers prefer dealing with imported rice despite its higher cost, because the consumer market prices are high enough to give them profits higher by up to 1250 francs per 50 kilogram bag when compared to Ndop rice deals.

From the SWOT analysis, the major strength of the Ndop rice production project is the availability of both developed and undeveloped land with underutilized irrigation water, for the production of rice that is still in short supply. The major weaknesses that require immediate attention include the low quality of rice due mostly to poor processing and management practices that render the rice uncompetitive against imported rice. The disadvantaged position of small holder rice farmers who face low profits due to lack of financial resources to expand and benefit from economies of scale and/or enable them mill their own rice to capture the rather high profits that now go to the millers.

The major opportunity is the availability of suitable land that has the potential of increasing current yield to well over 5.02 tons per hectare and the potentials for increase quality through better production and processing management and of becoming more competitive in the growing rice market. The major threat is the Cameroonians’ taste for imported rice which may be difficult to sway towards locally produced rice even after its quality is improved

Introduction

The demand for rice in sub-Saharan Africa in general and Cameroon in particular is growing faster than that for any other grain. It grows at an annual rate of about 5% (WARDA 2006; Molua 2010) and national production is estimated at 100,000 tons of paddy, grown on about 44,000 hectares. In 2011, imports stood at 429,864 tons, which is over 90% of national consumption even though the huge potential for domestic production is largely unexploited (MINADER 2009) .

Table 1: Cameroon’s Rice production and Imports (2006 to 2012)

illustration not visible in this excerpt

Source: United States Department of Agriculture, (2013)

Table 1 shows a fluctuating production trend between 2006 and 2012, which peaked at 77000 metric tons in 2009 followed by a steep decline that registered negative growth in 2010 and 2012. The table shows an average annual importation of over 300 thousand metric tons.

Figure 1 presents Cameroon’s rice import, production, and consumption trends from 2002 to 2012. It aso presents yield and area harvested trends from 2002 to 2013and shows that whereas production is falling, consumption and importation are rising, and that yields dropped from 2010 whereas area cultivated increased. In order to meet the nation’s consumption needs, government is stimulating domestic productions with the financial support of multilateral donors like the World Bank and the International Fund for Agricultural Development (MINADER, 2009). According to its Rice Growing Strategic Paper, government’s target is to increase local production to about 627,000 tons by the year 2018 thereby replacing all rice imports. This will however still leave Cameroon with the problems of meeting the high quality taste that Cameroonians have developed for imported rice and of stimulating the demand for locally produced lower quality rice. Also, due to the landlocked nature of some of the production zones, rice produced in the Northern regions is often sold to Nigeria, which is nearby and offers higher prices for the rice. Increased production efforts in this case fail to bridge the shortage gap in Cameroon.

In addition to Nigeria, although Cameroon spent 125 billion francs on rice imports in 2012, (National Institute of Statistics, 2012), it still exports rice to the other neighboring Central and West African countries of Chad, Gabon, and Equatorial Guinea (MINADER 2009).

Figure 1: Cameroon’s Rice Production, Consumption, Imports, Area, and Yields, 2002 to 2013

illustration not visible in this excerpt

Source: United state Department of Agriculture - USDA (2013)

Rice Production in Ndop Plain

The Ndop rice project started in 1970 with the creation of a rice production mission which was later transformed in 1978 into a development authority-- the Upper Noun Valley Development Authority (UNVDA), which is a parastatal charged with transforming the swamps and marshy areas of the Ndop plain into an irrigated rice project (UNVDA, 2012). Most the rice farmers in the plain so far, are small holder producers who employ intensive labour practices rather than the mechanized rice farming advocated by the project.

MINADER (2012), discloses that UNVDA has developed 2500 hectares for rice production involving 8500 farmers. This translates to less than 0.3 hectare per farmer and to less than 25% of the area ear-marked for rice farming. Also, only 1,800 of the 2500 hectares developed are currently under cultivation. Alongside the developed rice farms, there exists undeveloped traditional rice farms which lack basic infrastructure such as access roads and a well-developed irrigation system. UNVDA-developed farms are irrigated with water from the Bamenjim dam and from numerous rivers and streams.

The Concept of Value Chain and Value Chain Analysis

The term Value Chain refers to all the production activities that add value at each step of production from the raw materials to finished products. Kaplinsky and Morris (2000) define it as “the full range of activities required to bring a product or service from conception, through production, delivery to final consumers, and to its final disposal after use”. Value chain describes how producers, processors, buyers, sellers, and consumers, though separated by time and space, gradually add value to products as they pass from one link in the chain to the next (UNIDO,2009 ). It also describes how enterprises are linked by a series of business transactions through which a product passes from primary producers to end consumers. In this context, an enterprise is no more treated as a single entity but as part of an integrated chain of economic functions and linkages across geographic boundaries (Gudmundson, et al, 2006).

An agricultural value chain is defined to include all firms and their activities that are engaged in input supply, production, transport, processing and marketing of an agricultural product or product s. The application of the value chain concept in agriculture is desirable because it takes into consideration the need to improve on the specific demands of consumers (Boehlje et ale 1999), which include the expectation of high quality products with specified characteristics, when desired.

The concept of value chain analysis, introduced by Michael Porter in 1985, is an alternative technique of evaluating internal and external business processes as against standard financial techniques that use Profit and Loss, Balance Sheet, and Cash Flows (Van den Berg et al 2009). By this technique, the value paid by the customer has to be greater than the cost of all value added activities so as to earn a profit (Roduner 2004). The technique describes all the activities that make up the economic performance and capability of the firm or industry as a whole and portrays the activities required to create value for the customers of a given product or service (Pitt and Lei, 2006). Value chain analysis is also a frame work by which stakeholders can determine the strengths and weaknesses of each activity vis-a-vis their competitors. Walker (2009) holds that the approach also has an increased productivity objective compared to competitors, and that it uses intervention mechanisms that raise value to the customers or lowers cost, thereby leading to a net improvement on the firm’s market position.

In the value chain, value and cost drivers are identified. V alue drivers include technology, quality, delivery, and environmental policy while cost drivers include economies of scale, economies of scope, low input cost, organizational practices, and vertical integration.

The World Bank (2007), considers value chain analysis as a method of accounting and presenting the value created as a product or service is transformed from raw inputs into the final product consumed by end users. Keyser (2006), points out that value chain analysis consists of identifying chain actors at each stage and discerning their functions and relationships; determining chain leadership, facilitating chain formation and strengthening; and identifying value adding activities on the chain and assigning costs and added value to each of the activities. The analytical framework depicts value chain actors, supporters, and influencers as the major value chain participants. The actors include input suppliers, producers, collectors, processors, wholesalers and retailers who directly deal with the products. The supporters do not participate directly in production but their services add value to the product at a given level of the chain, while the influencers are policies, regulatory framework, infrastructures, and the operating environment.

UNIDO (2009) points out that the flow of goods, information and finance through the various stages of the value chain can be evaluated to determine the problems and opportunities of each specific actor along the chain in order to improve individual contribution and the overall performance of the chain. To this end, the value created and captured at each stage minus the cost of creating the value is referred to as the profit margin. By analyzing the cost composition at each stage and comparing the costs with world standards, value chain analysis not only can determine whether or not the chain is competitive even at international level, but also helps to identify key stages where costs can most effectively be reduced.

As stated above, the plan for the development of rice production in Cameroon within the framework of the National Strategy for the Development of Rice Growing (MINADER, 2009), seeks to improve the productivity and competitiveness of local rice. This is done through the acquisition of appropriate and adequate agricultural inputs as well as ensuring the appropriate processing and marketing of rice. So far, most of the attention is focused on large farm sizes while little attention is paid to the small farmers, the various actors involved in the chain, and to the roles and influences of actors/stakeholders on the efficiency of the various stages along the value chain. Such roles and influences can significantly affect efficient resource use and the level of exploitation of existing potentials. It is also important to pay attention to the post-harvest dimensions and the supportive services on the value chain in order to improve on their efficiencies.

Consequently, this paper uses the value chain analysis approach to determine the various actors along the chain and their profit/profitability levels in order to assist potential participants determine at which stages in the chain they can intervene. The presence of any attractive profit and profitability levels in the various stages should attract profit-motivated investors to participate in manners that ensure the production of the high quality competitive rice that is so vital not only for bridging the production-consumption gap but also for bridging the competitive gap between imported and locally produced rice in Cameroon.

Objectives

The objectives of this paper are:

- To apply the value chain analysis concept on the irrigated rice production project in Ndop Plain in order to determine and compare costs, returns, profits and relative profitability at each stage of the value chain,
- To conduct a SWOT analysis of the rice production venture in Ndop Plain.

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Details

Pages
30
Year
2015
ISBN (eBook)
9783668164819
ISBN (Book)
9783668164826
File size
903 KB
Language
English
Catalog Number
v316390
Grade
3.6/5
Tags
rice cameroon value chain

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Title: Profit and profitability of Rice Production in Ndop Plain, Cameroon