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

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.