CHAPTER ONE

INTRODUCTION

1.1       Background of the Study

Three out of every four people in developing countries live in rural areas; 2.1 billion people live on less than 2 US dollars a day and 880 million on less than 1 US dollar a day (Damme, 2009). Majority of these people considered poor depend on agriculture either directly or indirectly for their livelihoods (World Bank, 2007). The 2008 World Development Report (WDR) stresses the important role agriculture can play in achieving the first Millennium Development Goal (MDG) of reducing by halve the number of people suffering from extreme poverty and hunger. The 2008 WDR further draws attention to the fact that agriculture has unique features embedded in its ability to: function with other sectors as an economic activity for livelihoods, produce faster growth, reduce poverty and sustain the environment (Godoy and Dewbre, 2010).

In agriculture-based economies, agriculture generates an average of 29% of the Gross Domestic Products (GDP) and employs 65% of the labour force (Damme, 2009). In Nigerian economy, agriculture remains one of the largest sectors, where it plays an important role as food provider, employer of labour and foreign exchange earner, contributing about 40% of the GDP, broadly defined with crops accounting for 85%, livestock 19%, fisheries 4% and forestry 1% (Federal Ministry of Finance and National Food Reserve Agency, 2008). Agriculture also employs about 77% of the working population and accounts for 70% contribution to GDP of the non-oil sector (Federal Republic of Nigeria, 2006; Mang, 2009). However, Ayinde, Adewumi and Ojehomon, (2009) noted that the increase in farm output has not led to a corresponding increase in the earnings of the vast majority of farmers. One of the factors emphasized as being responsible for the imbalance is a poorly developed agricultural marketing system for major food staples, leading to high rate of spoilage, rising farm product prices and huge importation of food by government.

Banana and plantain (Musa Spp.) are among the major staple food throughout the humid tropics of the world (Chander, 1995). They are major food crops in the humid parts of Africa and are major sources of energy for millions of people in these regions. Banana and plantain fruits have diverse uses to millions of Nigerians and they have always been important traditional staples food for both rural and urban populace in Nigeria (Philips, 1995; Baiyeri, 1996). Nutritionally, unripe banana and plantain are sources of iron, while ripped ones provide mainly energy (Achike, Okoroafor and Mkpado, 2011).

Musa spp. constitute a rich energy source with carbohydrates accounting for 22% and 32% of fruit weight for banana and plantain respectively, and rich in vitamins A, B and C, as well as minerals and dietary fibre necessary for healthy growth (Honfo, Kayode and Tenkouano, 2007). The dense caloric content coupled with nutritional quality makes Musa spp. one of the most important and regularly consumed staple foods in Nigeria and other sub Saharan African countries (Ajayi and Aneke, 2002; Lusty, Akyeampong, Davey, Ngoh and Markham, 2006). Banana and plantain provide cash income and employment to the rural populace in the producing countries like Nigeria. The crops have become a key source of revenue as they are not only traded within the region, but also exported to other countries of the world (Ortis and Vuylsteke, 1996 in Adejoro, Odubanjo and Fagbola, 2010). The status changes from food to food/cash crop and enhances its importance. They are useful in the management of common diseases such as diabetes, ulcer and tonsillitis and are also considered a major component of livestock feed (Babatunde, 1991; Food and Agricultural Organisation, 2007).

According to Ajayi and Mba (2004), banana and plantain have similar features of Musa spp. and provides an important source of carbohydrate, minerals, vitamins and revenue. Banana and plantain cultivation has become a feature of great socio-economic importance from the point of job creation and food security. These crops produce fruits throughout the year, the major harvest occurs in the dry season (December to March). During this period, many food crops are in short supply or difficult to harvest (Alves, 1987 as cited in Achike et al, 2011). Banana and plantain thus, contribute to food security, provide employment, diversification of income sources in both rural and urban areas, as well as contributing to the Gross National Product ( Nkedah and Akyeampond, 2003; Ajayi and Mba, 2007).  In view of the importance of banana and plantain, marketing of the products become pertinent to meet the needs of consumers and also to increase income of the producers and the marketers in Enugu State.

            Marketing of agricultural products such as banana and plantain is said to involve everything that happens between the farm gate and the consumer including processing, storage, assembling, wholesaling and retailing (Taleke, 2010). Agricultural marketing is the main driving force of economic development and has a guiding and stimulating impact on production and distribution of agricultural products (Mussema, 2006). The transformation of the production system requires the existence of efficient market system that can transfer the products from the points of production to the required market at the least possible cost (Lutez, 1994).

Efficient and good marketing system can only operate where there is fully utilized good market structure and conduct (Adegeye and Ditto, 1985). Olukosi and Isitor (1990) defined market structure as those features of the organisation of a market that change nature of competition and pricing within the market. These characteristics include the number of buyers and sellers in the market, level of product differentiation, ease or barrier of exit and entry into the markets and knowledge of cost, price and market condition among the marketers in the market.

            Market structure in agricultural and food sectors has changed fundamentally and rapidly since 1950s in developed and developing countries (in the latter countries usually with a delay of three decades or more) (McCorriston, Sexton and Sheldon, 2004). Reardon and Timer (2005) stated that it is important to understand the market structure especially the producer-retailer relationship because it helps in the analysis of food chain. Another important variable in marketing structure analysis as stated by Okereke & Anthonio (1988) is concentration level which shows the nature of the market and pricing system.

            The marketing channel of food crops such as banana and plantain is an important part of its cost, and its location to the market may shorten the path of distribution from producers to consumers and makes the marketing process simple and efficient (Egbuna, 2009). Farm producers may not effectively distribute their produce to all consumers who are widely separated in space and time without the services of middlemen. These middlemen no doubt, play prominent roles in the distribution of crop for consumption in, within and outside the main producing states of Nigeria (Anzaku, 2007). These specialized agents, according to Arene (2003), perform the functions of marketing more efficiently than would the farmers themselves. It is expected that in a competitive market, that middlemen who provide marketing services must charge the lowest price to cover their cost and allow for a normal profit. The profit margin must be just sufficient to reward investment at the going rate of interest, pay for risk bearing, provide incentive for new ideas and to save cost or improve service (Abbott & Makeham, 1986; Arene, 2003).  Unless middlemen earn profit in excess of what they require to pay for the borrowed capital and cater for the risk they take, their morale to continue to invest will be dampened (Abbott and Makeham, 1986). The critical determinant of returns to producers and middlemen and to retail food price is the marketing margin. Marketing margins include all the costs incurred by middlemen for moving the products from the point of production to the point of consumption, of any processing which may be undertaken, handling at all levels plus profits accruing to them, if any (Kohls, 1969)

The major components of the analysis of marketing margin consist of gross marketing margin, net marketing margin and farmer’s share. The net marketing margin accrues to middlemen as profit (Anuebunwa, 2006), while the farmer’s share is the proportion of the consumer price that goes to the farmer (Majeha, Nwosu and Efenkwe, 2000).  This obviously determines farm investment decision. Effective coordination of different markets is critical to increasing the opportunities for exchange and interdependence that underlie growing and expanding economies. Market integration ensures that a regional balance occurs among food deficit, surplus and non-cash crop producing regions (Goletti, Ahmed and Farid, 1995). Market integration is enhanced by the provision of transport infrastructure, provision of adequate formal marketing information and standardization of weights and measures in the marketing system (Dittoh, 1994; Oladopo, 2004). According to Barrett, (1996), studies on market integration provide information on market performance which is necessary for proper policy formulation and macroeconomic modelling. If markets are not spatially integrated it could be indicative that market inefficiencies exist as a result of, amongst others, collusion and market concentration which results in price fixing and distortions in the market. In such cases, inter temporal or cross-sectional aggregation of demand and supply loses its logical foundation (Barrett, 1996 as cited in Adeoye, Dontsop, Badmus and Amao, 2011).

Market integration is central to the assessment of market performance and a useful measure of competitiveness and interdependence between markets and middlemen. This study intends among other things to analyse the market integration of plantain and banana products by focusing on the price adjustment in the rural and urban markets in Enugu State. A critical review of the changing pattern of the prices for both products in rural and urban markets of Enugu State can be shown in the charts below:

Figure 1: Trend of prices of plantain in Enugu State, from Jan 2010-Oct 2011

Figure 2: Trend of prices of banana in Enugu State, from Jan 2010-Oct 2011

Source: plotted by the researcher from ENADEP data bank (2010-2011).

(PPR represent rural plantain price and PPU represent urban plantain price while PBR represent rural banana price and PBU represent urban banana price).

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