International Journal of Environment, Agriculture and Biotechnology (IJEAB) Vol-3, Issue-2, Mar-Apr- 2018

http://dx.doi.org/10.22161/ijeab/3.2.9 ISSN: 2456-1878

Economics of Groundnut Production among

Smallholder Farmers in Michika Local
Government Area of Adamawa State, Nigeria
Lawal Haruna, Muhammad Auwal Ahmed

Department of Agricultural Economics and Extension, Modibbo Adama University of Technology, P.M.B. 2076 Yola Adamawa
State, Nigeria

Abstract—This study assessed economics of groundnut million metric tons (mmt)at an average productivity of 1.4
production among smallholder farmers in Michika local metric tons per haduring2014[International Crop Research
government area of Adamawa State, Nigeria. Multistage Institute for the Semi-Arid Tropics,[1,2]. Malaysia, Israel,
sampling technique which involves purposive selection of China, Nicaragua, Nigeria, USA and Saudi Arabia are some
Michika and simple random selection of farmers from eight of the leading groundnut producing countries in the world.
wards was embraced in collecting primary data from 172 Asia, with 25.6mmt (58.28%) and Africa, with 13.9mmt
farmers using structured questionnaire. The analytical tools (31.62%) grasps maximum global groundnut output.
used were mainly descriptive, gross margin and regression Developing countries in Asia, Africa and South America
analysis. The analysis found that groundnut production is account for 99.85% of the total quantity of groundnut
profitable with an average gross margin of N97,477.80, produced in the world in 2014 [2]. Groundnut is an
total revenue of N167,160, and net farm income of N important crop in many developing countries where it
94,540.64 per hectare. The regression analysis indicated serves as a protein source, vitamins and cooking oil.
that Cobb-Douglas production function gave the best fit Groundnut is the 13thmost significant food crop of the
with R2 value of 0.748, implying that the specified factor world. It is the world’s 4thmost vital source of edible oil and
inputs in the regression equation explained up to 74.8% of 3rdmost important source of vegetable protein[3].The
the variation in groundnut output and only 25.2% was haulms being a good source of feed supplement for
accounted for by the random error term. Production inputs livestock, also increases farmers income particularly during
such as farm size, labour, agrochemicals, seeds and the dry season when fresh green grasses are in short supply
farming experience were statistically significant at varying and the silage is in high demand[1].
levels of probability. This means that any increase in such The meager output of groundnut in African countries may
inputs would bring about increase in groundnut output. be attributed to production challenges such as rainfall
Resource use efficiency analyses indicate that the ratios of variability and drought, poor soil fertility, biotic and abiotic
MVP and MFC in respect to seeds, labour and constraints, input supply constraints, traditional smallholder
Agrochemicals were greater than unity and hence were farming with little or no mechanization, prevalence of pests
under-utilized by the farmers during production period. and diseases and partial extension services. Groundnut is a
Therefore, policies aimed at assigning more production major source of edible oil as well as employment generation
inputs to farmers should be introduce by government in for smallholder farmers in Northern Nigeria where 48% of
order to enhance farmers’ output and profitability. the total output in West Africa was produced in 2015.It
Keywords—Profitability, Resource use efficiency, occupies about 34% of the total land area under cultivation
Regression, Groundnut, Smallholders. and contributes 23% of household earnings of the country.
The total output was 1.6 mmt in 1961, but fell to 4.5mmt in
I. INTRODUCTION 1982.Since 1996, production has been increasing at an
Groundnut (Arachishypogaea L.) is a leguminous oilseed estimated rate of 2.3 mmt to about 3.4 mmt in 2015[2],as a
crop which contains 20-50% protein, 40-50% fat and 10- result of both area expansion (5.52%) and increase in
20% carbohydrate. It is cultivated in the semi-arid and productivity [4].
subtropical regions of about 114 countries of the world on Previous studies on groundnut production of smallholder
nearly 31.2million hectares, with a total output of 60.5 farmers provide a variety of results. [5], in a study on the

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International Journal of Environment, Agriculture and Biotechnology (IJEAB) Vol-3, Issue-2, Mar-Apr- 2018
http://dx.doi.org/10.22161/ijeab/3.2.9 ISSN: 2456-1878
profit and market efficiency of modern groundnut oil on the West by Borno State and by Mubi and Hong LGAsin
extraction of RMP-12 and Ex-dakar varieties discovered the South. The LGA has four development areas namely
that it was a profitable venture, though with a low profit Michika metropolitan, Garta, Bazza and Madzi which
margin. [6]In a study entitled economics of groundnut covers a land mass of 961km2with an estimated population
production in Nigeria indicated that groundnut is a of 211,124[11]. The study area is heterogeneous in ethnic
profitable enterprise as farmers received a net farm income composition. It is agrarian in nature and has a great
of N14, 355 per hectare. A similar view was shared by [7], percentage of its populace engaged in farming as an
who indicated that the total revenue, gross margin and net occupation. It has a tropical type of climate marked by
farm income per hectare were N100, 818, N42, 422 and distinct dry and rainy seasons. The dry season commences
N41, 172 respectively whereas the gross margin and net in December and ends in April whereas the wettest months
farm income per naira invested were N0.73 and N0.69 are August and September (Adebayo, 1999).
respectively, implying that groundnut production in
Northern Part of Taraba State was profitable. 2.2 Data Collection
[8], observed that groundnut production in Adamawa State, Multistage and simple random sampling techniques were
Nigeria is profitable as farmers realized a total revenue of used to gather information from the farmers. In the first
N90, 843.75, gross margin ofN31, 363.75 and net farm stage, Michika LGA was selected based on it prominence in
income ofN29, 003.75per hectare. In order to maximize groundnut production. The second stage involved the
profit, farmers should procure their required inputs from a selection of eight wards from a total of sixteen wards that
competitive market and should make use of the obtainable made up the study area. This is followed by the selection of
organic manure to minimize cost of production where two villages each from the selected wards given rise to
necessary. According to [9], pests and diseases, inadequate sixteen villages all together. Finally, a sample of 186
inputs, instability of market prices, high cost of inputs and groundnut farmers were randomly selected from a sampling
poor storage facilities negatively affect the efficiency and frame of 360 registered farmers in the study area. Though,
marketing of groundnut product. Others as indicated by only 172 questionnaires were retrieved and use for the
[10],include transportation cost, proximity to market analysis due to inappropriate response from the
location, infrastructural facilities like road network and respondents. Data collected was based on production inputs,
exploitative activities of middle men that are involve in outputs, both inputs and output prices as well as socio-
buying and selling affect profitability of groundnut demographic characteristics of the farmers for the year 2017
production in Nigeria. cropping season.
Inspite the enormous importance of this cash crop,
availability of ample land and human resources in Nigeria, 2.3 Data analysis
there seems to be inadequate supply of groundnut product to This involved both descriptive and inferential analysis.
meet both local and international market demand. Inferential analyses such as gross margin technique and
Therefore, there is need to explore the economics of regression model as used by [7], [9],[5] and[6]were adopted
groundnut production among smallholder farmers in for the study.
Adamawa State, Nigeria. The study evaluates the costs and
returns associated with groundnut production in Michika 2.4 Model specification
Local Government Area, determined the relationship 2.4.1 Gross margin
between inputs and output as well as the resource use Gross margin technique was used to determine the
efficiency of groundnut production in the area. profitability (costs and returns) of groundnut production in
the study area. The model is specified as follows:
II. METHODOLOGY GM  TR  TVC (1)
2.1 Study area
NFI  GI  TC (2)
The research was conducted in Michika local government
area (LGA) of Adamawa State. It is situated at the far north
TC  TVC  TFC (3)
east of the state which lies between latitude 110- 8’ South NFI
RNI  (4)
and longitude 150-13’ E. It is bounded to the North by TC
MadagaliLGA and shares an international boundary with Where;
the Republic of Cameroun in the North-East. It is bounded GM  Gross Margin

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International Journal of Environment, Agriculture and Biotechnology (IJEAB) Vol-3, Issue-2, Mar-Apr- 2018
http://dx.doi.org/10.22161/ijeab/3.2.9 ISSN: 2456-1878
TR  Total Revenue  i  Error term
TVC  Total Variable Cost The apriori expectation was that the coefficients of X1-X7
TFC  Total Fixed Cost would be positive.
NFI  Net Farm Income
GI  Gross Income realized from groundnut production 2.4.3 Resource use efficiency
The estimated coefficients of the linear regression model
TC  Total Cost of groundnut production wereused to compute the marginal value product (MVP)
RNI  Return on every naira invested during the and it ratio (r), whilemarginal factor cost (MFC)was usedto
production process determine the economic efficiency of resource used.The
model was estimated as given below:
2.4.2 Regression analysis MVP
Regression is defined as the amount of change in the value r (9)
of one variable associated with a unit change in the values
MFC
Where: r represents the efficiency ratio, MVP = marginal
of the other variables. However, this study appliedfour
value product of the variable inputs and MFC = marginal
different functional formssuch as linear, double-log,
factor cost i.e. price per unit of input.
exponential and semi-log functions to determine the inputs
Based on economic theory as also reported by [13] and[14],
(independent variables) and output (dependent variable)
a firm maximizes profits with respects to resource use when
relationship. The specifications of the functions are given
the ratio of the marginal return to the opportunity cost is
as:
one. However, the values are interpreted as:
( i ) Linear function
(i ) If r is less thanone, resource is over utilizehence
Y  bo  b1 X 1  b2 X 2  b3 X 3  ...  b7 X 7   i (5)
reducing the quantity use of that resource willincrease
( ii ) Double-log function farmers’profits.
ln Y  ln bo  b1 ln X 1  b2 ln X 2  b3 ln X 3  ...  b7 ln X 7 )i If r is greater than one, resource is being underutilized
(ii
(6) during production hence increasing the quantity use of the
( iii ) Exponential function resource will upsurge profitlevel accruing to the farmers.
ln Y  bo  b1 X 1  b2 X 2  b3 X 3  ...  b7 X 7   i (iii) If r is equal to one, it showsthe resource is being used
(7) efficiently and that is the point ofprofit maximization [15].
( iv ) Semi-log function
Y  ln bo  b1 ln X 1  b2 ln X 2  b3 ln X 3  ...  b7 ln X 7   i III. RESULTS AND DISCUSSION
3.1 Economic analysis of groundnut production
(8)
Economics of groundnut production was analyzed using
Where;
2017 prevailing market prices of inputs and output as
Y  Quantity of groundnut shell produced measured in
presented in Table 1. The average output obtained per
kilogram
hectare was 597 kg, while the average selling price/kg was
X 1  Years of farming experience N280. The total variable cost incurred on production
X 2  Agrochemicals used measured in liters constituted the greater proportion of the total production
cost which was estimated at N69,682.20 (95.96%), while
X 3  Fertilizer used measured in kilogram the total fixed cost which is depreciated on land and
X 4  Man-days of labour equipment was N2,937.16 (4.04%) implying that variable
cost is the most sensitive components in groundnut
X 5  Farm size measured in hectares
production. The gross margin and total revenue received
X 6  Quantity of seeds measured in kilogram from the sale of groundnut output in the study area on
average was N97,477.80 and N167,160 respectively. The
X 7  Access to extension services (Dummy: 1 if a farmer
results further revealed that net farm income was estimated
had access to extension services, 0 = otherwise) at N94,540.64, while the return per naira invested was
b1  b7  Estimated regression parameters N1.30 per hectare. This indicated that for every naira
invested in groundnut production in the study area,a farmer

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International Journal of Environment, Agriculture and Biotechnology (IJEAB) Vol-3, Issue-2, Mar-Apr- 2018
http://dx.doi.org/10.22161/ijeab/3.2.9 ISSN: 2456-1878
realized a profit ofN1.30. Therefore, groundnut production [9], who in their different studies reported that groundnut
is a profitable venture inMichika local government area. production is highly profitable.
The results agreed with the findings of [16], [8],[17], [7],

Table.1: Average Cost and Returns in Groundnut Production/Hectare/Farmer

Variables Amount in naira/ha Percent
Total Variable Cost (TVC) 69,682.20 95.96
Total Fixed Cost (TFC) 2,937.16 4.04
Total cost of production (TC) 72,619.36 100.0
Returns
Total output 247,755 kg
Output/ha 597 kg
Total hectare of land 415
Price/kg 280
Total Revenue (TR) 167,160
Gross Margin (TR–TVC) 97,477.80
Net Farm Income (GM–TFC) 94,540.64
RNI 1.30
Source: Field Survey, 2017

3.2 Regression analysis result production is very important in groundnut production in the
This section presents the results of four different functional study area as farmers tend to derive the benefits of
forms which include Linear, Semi-logarithm (linear-log and economies of scale. This result is in conformity with the
log-linear) and Double-logarithm analyzed using Eviews 8 findings of [7] and [6]who found out that farm size is one of
statistical package (Table 2). Based on the summary of the the most important factors in groundnut production. The
results, Double-logarithm function gave the best fit and was coefficient of labour was significant at 1% with an elasticity
chosen as the lead equation. The selection of lead equation coefficient of 0.126 which indicated that a 1% increase in
was based on the comparison of coefficients ofmultiple man-days of labour increased groundnut output by 12.6%.
determinations (R2), statistical significance of the F-ratios, This result is similar to that obtained by[17] who observed
the magnitude of standard error of the estimated parameters that labour significantly influenced groundnut output in
( b1  b7 ),statistical significance of the estimated regression Benue State, Nigeria. Agrochemical is another significant
input in groundnut production with an elasticity coefficient
coefficients and the apriori expectation. Since Double-
of 0.166 which was statistically significant at 1%
logarithm function gave the best fit, the regression
probability level. This implies that a 1% increase in the use
coefficients are still the elasticities. Elasticity of production
of Agrochemicals would increase output by 16.6%. In their
is defined as the measure of output response to changes in
study on groundnut production, [17] and[19]found that
the variable input [18]. The coefficients of all the
quantity of Agrochemicals applied is directly related to
explanatory variables bore positive signs and hence reflect
groundnut output.
the apriori expectation. The predictive power of the model
As one of the factor inputs in groundnut production, seed
represented by R2 was 0.748, meaning the specified factor
was positive and significant with an elasticity coefficient of
inputs explained up to 74.8% of the variation in groundnut
0.430implying that a 5% increase in the quantity of seed
output and that only 25.2% was taken care by the random
would increase output by 43%. This result agrees with the
error term. The overall significance (F-statistic) of the
findings of [20] who found that increase in seed input can
model at 1% explains the fitness of the model.
increase agricultural productivity. The elasticity coefficient
Farm size being one of the most important variables was
of farming experience was positive (0.049) and statistically
found to be positive (0.298) and statistically significant at
significant at 1% probability level possibly depicting the
1% level of probability. This means that a 1% increase in
impact of experience on groundnut production. This means
hectare of land under cultivation would increase output by
that experience farmers were likely to achieve higher yields
29.8%. This also indicated that land as a factor of
than the inexperience ones which could result in higher

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International Journal of Environment, Agriculture and Biotechnology (IJEAB) Vol-3, Issue-2, Mar-Apr- 2018
http://dx.doi.org/10.22161/ijeab/3.2.9 ISSN: 2456-1878
efficiency and net farm income as well. The result agreement with the expected sign whereas the statistical
conformed to the findings of [21] who stated that insignificance implies that the factor inputs does not
experience is a significant determinant of output in determine output in groundnut production as also indicated
agricultural production. However, the coefficients of by [13].
fertilizer and extension factors were positive and in

Table.2: Regression Results of the Various Specified Functional Forms

Coefficient of Independent Variables

Functions Constant X1 X2 X3 X4 X5 X6 X7 R2 R-2 F-value

Linear 1295.541 7.127 2.702 23.582 1.263 -103.942 2.892 48.291 59.2 48.3 9.455***
(8.933) (1.698)* (3.775)** (2.684)*** (1.697)* (- (0.483) (0.724)
* 3.783)***
Log-linear 7.123 0.006 0.002 0.017 0.001 -0.079 0.003 0.044 50.3 47.9 9.367***
(66.175)** (1.855)* (3.632)** (2.583)** (1.533) (- (0.649) (0.891)
* * 3.871)***
Linear-log -2.863 59.875 224.271 92.188 180.217 409.345 34.200 39.110 61.4 58.7 10.982**
*
(-0.009) (1.791)* (3.957)** (1.574) (3.027)** (4.123)** (0.613) (0.608)
* * *
Double-log 2.170 0.049 0.166 0.059 0.126 0.298 0.430 0.038 74.8 71.4 10.746**
*
(0.348) (1.988)* (3.929)** (1.359) (2.854)** (4.038)** (3.040)* (0.790)
* * * * *
Source: Field Survey, 2017
Note: ***, ** and * represents 1%, 5% and 10% significant levels
Figures in parenthesis are t-values

3.3 Efficiency of resource use analysis Agrochemicals are greater than unity, indicating that the
The Marginal Value Product (MVP) of seeds, labour and inputs were under-utilized hence increasing quantity of the
farm size were computed and compared to their unit prices inputs use will enhance output and profit level. However,
in order to determine the degree of efficiency in their use in this result is in agreement with the findings of [7], [13]
respect to groundnut production. The results as presented in and[17] who observed that resources were inefficiently
Table 3shows that the ratios of seeds, labour and utilized in groundnut production.

Table.3: Estimated Resource-Use Efficiency in Groundnut Production

Variable inputs MVP MFC MVP
MFC
Seeds 909.76 763.55 1.19
Labour 453 235.83 1.92
Agrochemicals 756.56 203.74 3.71
Source: Field Survey, 2017

IV. CONCLUSION function gave the best fit based on economic, econometric
Groundnut production in the study area has been found to and statistical criteria. The elasticity coefficients of all
be a profitable enterprise as farmers on the average, realized explanatory variables bore positive signs and hence are in
a net income of N94,540.64with a gross margin of accordance with the apriori expectation. Factor inputs such
N97,477.80 at an average selling price of N 280/kg. The as agrochemicals, years of farming experience, labour,
regression analysis results revealed that Cobb-Douglas seeds quantity and land hectares under cultivation

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International Journal of Environment, Agriculture and Biotechnology (IJEAB) Vol-3, Issue-2, Mar-Apr- 2018
http://dx.doi.org/10.22161/ijeab/3.2.9 ISSN: 2456-1878
significantly affects groundnut output at 1% and 5% levels [7] Taphe, B. G., Agbo, F. U. and Okorji, E. C. (2015).
of probability. Comparison of the ratio of the MVP to MFC Resource Productivity and Technical Efficiency of
shows that farmer’ under-utilized seeds, labour and Small ScaleGroundnut Farmers in Taraba State,
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