Journal of Agricultural Science and Technology B 1 (2011) 353-359 Earlier title: Journal of Agricultural Science and Technology, ISSN 1939-1250

Assessment of Pricing Efficiency and Levels of Concentration in Cashew Nuts Market in South Western Nigeria
K. A. Akanni and A. A. Adams
Department of Agricultural Economics, College of Agricultural Sciences, Olabisi Onabanjo University, P.M.B. 2002, Ago-Iwoye, Ogun State, Nigeria

Received: December 27, 2010 / Published: July 20, 2011. Abstract: Cashew nuts market in south western Nigeria is characterized by price fluctuations through space and time. This may be linked with the large number of market intermediaries who act between the primary producers and the markets. The sample for the study comprised 250 cashew nuts marketers who were randomly selected from the five south western states of Nigeria. About 76 % of the cashew nuts marketers had up to secondary school education and 86% of them had 15-year marketing experience and below. Pricing efficiency of the marketers was highest in Ogun state with average efficiency level of 85.1 % and least for Oyo state (68.9%). In all, 720 tonnes were transacted in the region with 206 marketers handling maximum of 2 kg per month per individual. Gini-coefficient estimate of 82.3% implied that there was a concentrated market for the cashew nuts. To further increase the pricing efficiency of the commodity it is necessary to reduce the costs incurred on various physical aspects in marketing system. Corporate organizations, government agencies and co-operative societies should assist the cashew nuts marketers in the provision of credit facilities so as to ensure a higher level of pricing efficiency, stable market prices and reduced level of concentration of the marketers. Key words: Pricing efficiency, cashew nuts market concentration, small scale traders, south western Nigeria.

1. Introduction
1.1 The Origin of Cashews The cashew plant, Anarcadium occidentale, is a native of Central and South America with its main center of variation in eastern Brazil. The Portuguese traders introduced this plant to Nigeria during the 15th and 16th century and ever since, then, it has flourished in a wild state. Cashew is a tree crop of economic importance to Nigeria and other tropical countries. Major cashew-growing areas in South Western Nigeria, according to order of importance, are: Oyo, Osun, Ondo, Ekiti and Ogun States (Fig. 1). Ripe cashew apple is sweet and rich in vitamin C and sugar. The nut contains
Corresponding author: K. A. Akanni, Ph.D., research field: agricultural economics. E-mail: akannikunle2003@yahoo.co.uk.

the fat-soluble vitamins A, D, K and minerals such as calcium, phosphorus and iron which are required for the healthy growth of human body [1, 2]. The crop has also provided immense sources of income, employment and raw materials for the producing nations [3]. 1.2 Global Acceptability of Cashew Nuts Cashew reportedly rank third in world production of edible nuts that are traded globally [4]. World trade in edible nuts had experienced rapid growth, averaging about 2.7 per cent per year since the early 1970s. The value increased from US$ 1.94 in 1980 to US$ 2.84 billion in 1990. Worldwide, trade in cashews exceeds US$ 2 billion and demand is increasing. Of the total world supply, 110,000 tonnes are traded on international markets. International trade in raw cashew nuts has traditionally involved shipments from

354

Assessment of Pricing Efficiency and Levels of Concentration in Cashew Nuts Market in South Western Nigeria

Fig. 1 Map of Nigeria showing cashew nuts producing areas in the South Western States.

East Africa to India. India was the first country to build up a processing industry, but domestic production has long been insufficient to meet the requirements of the local processing outlets. In Europe/Asia, India has been the preferred supplier, with long standing trading relationships based on confidence in product quality and on fast and regular deliveries [5]. On global level [6] reported that the United States was the largest importer of cashew kernels, accounting for over 50 per cent of world importers. Other importers include the Netherlands (ten per cent), Germany (seven per cent), Japan (five per cent) and the United Kingdom (five per cent). Other emerging markets include the Middle East, South East Asia and Australia [7, 8]. 1.3 Cashew Nuts Trade in Nigeria There are incessant fluctuations in the Nigerian cashew nuts export in the last two decades. In 1986, the quantity of export was 35,000 metric tonnes and this value dropped to 17,000 metric tonnes in the year 2004 [9]. The ageing of the cashew trees, low level of farm

inputs coupled with the reduced attention of the Federal government on cash crop production and exports may have largely been responsible for the decline. A crash in the international market prices for the product probably lowered the trends in cashew nuts exports, particularly in the 1990s. This situation got improved in 1999 when prices recorded an all-time highest value of $467.7 per tonne. This was the most impressive situation since 1990 [9, 10] however noted that 90 percent of the cashew nuts produced in Nigeria were consumed locally. The domestic trade flow has risen to offer complex traders, transporters, wholesalers and retailers that employ very large number of people. The immediate problem of this complex marketing system for the product in South Western Nigeria is price fluctuation. This might be due to large numbers of the middlemen (or market operators) in the marketing and distribution of the commodity. The resultant effect of the complex marketing structure is the general reduction in the marketing margin, efficiency and low income to most marketers. With these, the standard of

Assessment of Pricing Efficiency and Levels of Concentration in Cashew Nuts Market in South Western Nigeria

355

living of the cashew nuts marketers is below minimum comfortable level. High costs are paid on marketing activities such as transportation, storage, rents and tariffs on consumed energy. All these further worsened the socio-economic status of the cashew nuts marketers. This study therefore assessed the levels of pricing efficiency and market concentration in cashew nuts market in south western Nigeria.

The estimation is followed as Eq. (1): PE= Up/Uc (1) where Up is the retailed price per tonne of cashew nuts (N) and Uc is the cost per tonne of cashew nuts (N); including unit cost of purchase and unit cost of marketing (N). When Up/Uc is equal to 1, there is pricing efficiency in the market but when the ratio is greater than unity, there is price inefficiency in the market. This thus indicates that abnormal profits are being made in the trade. However, when the ratio is less than 1, there is pricing inefficiency in the marketing of cashew nuts and that retail prices do not cover the cost of marketing the product. The inference, which drawn from this, is that sizeable losses are being recorded in the trade. Gini co-efficient estimate was however used to analyze market concentration for cashew nuts marketers. The co-efficient is an increasing function of inequality and it is perfectly equal to zero [12]. It is numerically defined as Eq. (2): G=1+1/N-[2/N2 . Z.(N+1-i) . Yi ] (2) Where, G is the Gini co-efficient, N is the sample size of marketers, Z is the main quantity of cashew nuts transacted (Kg), Yi is the quantity of cashew nuts transacted by the surveyed marketers (Kg) and i is the number of marketers, arranged in the ascending order of quantity transacted.

2. Materials and Method
2.1 Study Area and Sampling Technique This study was conducted in the five south western states of Nigeria: Oyo, Osun, Ondo, Ekiti and Ogun. The sample for the study comprised two hundred and fifty cashew nuts marketers with fifty of them randomly taken from each of the five states in the South western region. The data used for the study were obtained from the cashew nuts marketers who were randomly selected from the study area. Other information was obtained from the textbooks, journals, annual reports and so on. The analytical techniques comprised the descriptive statistics, pricing efficiency model and Gini-co-efficient estimates. 2.2 Method of Data Analysis Descriptive statistics were used to describe the socio-economic characteristics of the respondents which include variables such as the educational status of the marketers, marketing experience and sources of credit facilities that are open to cashew nuts marketers. Generally, marketing efficiency is the movement of agricultural commodities from the producers to the final consumers at the least cost that is consistent with the provision of the services consumers desire [11]. The three types of efficiency that have been identified are pricing efficiency, technical and economic efficiency. In this study, the pricing efficiency (PE) model was used to determine the level of efficiency in the marketing of cashew nuts in south western Nigeria. It is concerned with how the market price reflects the cost of moving the output through the marketing system.

3. Result and Discussion
In this section, the researchers did a report on the major findings of the study. These findings were adequately compared with those from similar works conducted by certain researchers in the past. 3.1 Socio-Economic Characteristics of the Cashew Nuts Marketers 3.1.1 Level of Education of the Marketers The analysis of the descriptive variables of the cashew nuts marketers showed that education is an important factor that influences the level of conduct and performance of marketers in the marketing

356

Assessment of Pricing Efficiency and Levels of Concentration in Cashew Nuts Market in South Western Nigeria Table 1 Distribution of marketers according to their levels of education. Educational status No formal education Primary education Secondary education Tertiary education Total Frequency 51 83 78 36 250 Percentage (%) 20.4 33.2 31.2 14.4 100

activities [12, 13]. It was indicated that 84.8% of the respondents had secondary school education and below with the largest proportion (33.2%) having only primary school education (Table 1). This finding supports the position of Ref. [14] who noted that about 79 per cent of the cashew nuts marketers in Oke-Ogun area of Oyo state, Nigeria, had secondary school education or less. Educated marketers are expected to be more informed about marketing issues. They should therefore be able to maximize the profit level through minimization of marketing costs compared to the illiterate marketers. This further agrees with the earlier position maintained by Refs. [15] and [16] on the subject matter, that there was a positive correlation between marketing ability and level of education. This notion again corroborates earlier position of Ref. [17] that educated marketers dominated charcoal marketing in Ibadan metropolis, Oyo State, Nigeria. It was further stressed that the introduction and adoption of modern technology in marketing enhanced the level of education among the marketers. 3.1.2 Years of Marketing Experience of the Marketers Experience is very important in marketing activities, particularly those of agricultural commodities. Many marketers often rely on their past experience in drawing up their marketing strategies and operations. About 85.6% of the cashew nuts marketers had marketing experience of 15 years and below with a chunk (37.2%) having 6-10 years of experience in marketing (Table 2). On the whole, marketers of cashew nuts in South Western Nigeria had 10.3 years as the average marketing experience. Marketing experience of the cashew nuts marketers had influence on the performance of the marketers as experienced market operators are often more capable of eliminating hindrances in transactions. This helps to minimize wastage and reduce marketing costs and thus increase the margin of profit. This further agrees with the exertion of Ref. [15] who posited that years of

Table 2 Distribution of cashew marketers according to their experience in marketing. Marketing experience (years) ≤5 6 ≥ 10 11-15 ≥ 16 TOTAL Frequency 40 93 81 36 250 Percentage (%) 16.00 37.20 32.4 14.4 100

Average years of marketing experience = 10.26.

experience influence the marketers’ ability and resourcefulness in the marketing of kolanut in Sagamu local government of Ogun State, Nigeria. Quite often, experienced marketers are able to properly handle series of marketing risks such as those associated with transportation, storage and fluctuations in market supply. With this, there will be reduced marketing margin and higher profit levels for the marketing actors. 3.1.3 Sources of Credit Facilities for Cashew Nuts Marketers Adequate supply of credit facilities is a necessary ingredient for effective marketing activities. This is because funds are required to acquire warehouses, vehicles for transportation, settlement of energy bills, telecommunication facilities, settlement of wages of market porters and hired labourers, e.t.c.. Personal funds may be inadequate hence the need to complement funds from external sources such as co-operative societies, families, relatives, corporate organizations and government agencies. The distribution of the cashew nuts marketers according to their sources of credit facilities was done in Table 3. Personal savings constituted 19.6% of the total funds used by the marketers while 54.4% was sourced from either co-operative societies or corporate

Assessment of Pricing Efficiency and Levels of Concentration in Cashew Nuts Market in South Western Nigeria

357

organizations/agencies. Only 26.0% of the marketers however sourced their funds from family members/relatives and money lenders. This finding contradicts the earlier position by Ref. [18] in his study on the effect of micro-finance on small scale poultry business in South Western Nigeria. In that study, it was observed that personal savings constituted 60.75 per cent of the funds required for small-scale businesses. It was again noted that lack or limited collateral securities made it difficult to obtain bank loans as only 10.28 per cent could secure loans from banks. Availability of working capital (credit facilities) often determines the level of expansion of business activities. Many of the cashew nuts marketers could not mobilize all the required funds from owners’ equity because they are small-scale operators with limited capital base. It then became necessary to seek other means for additional funds. Hence they contacted co-operative societies, corporate organizations and others for help. It was however interesting to note that none of these marketers obtained credit facilities from banks. This might be attributed to the fact that these marketers could not afford the collateral facilities that are usually requested by the banks as the conditions for taking loans. 3.2 Level of Pricing Efficiency of the Cashew Nuts Marketers The pricing efficiency concerns how effectively prices reflect the cost of moving the commodity through the marketing system [19]. The distribution of the marketers of cashew nuts in South Western Nigeria, according to their pricing efficiency levels was stated in Table 4. Pricing efficiency of the marketers was highest in Ogun State with average efficiency level of 0.851 and was least in Oyo State with 0.689 as average price efficiency level. A large proportion (58%) of the marketers in Oyo state recorded a sizeable loss in the sale of cashew nuts as against 28% in Ogun state. However, 72% of the marketers in Ogun state made abnormal profit from the sale of the product as against

Table 3 Distribution of cashew nuts marketers according to sources of credit facilities. Item Personal savings Co-operative societies Corporate organizations/ Government agencies Family members/relatives Money lenders Total Frequency 49 76 60 39 26 250 Percentage % 19.6 30.4 24.0 15.6 10.4 100

42% of the marketers in Oyo state. This finding corroborates the earlier position maintained by Ref. [14] in his study on marketing of cashew nuts in Oke-Ogun area of Oyo State, Nigeria. Poor road conditions, particularly in the rural areas and limited access of the marketers to credit facilities may be responsible for abnormal profit levels among the marketers. The level of pricing efficiency may improve if the numbers of market intermediaries are reduced and the markets are able to further strengthen their capital base through internal and external sources of funds. 3.3 Level of Concentration of the Market Share among Cashew Nuts Marketers The Gini co-efficient (GC), which is a measure of the degree of concentration among the marketers, indicates that the co-efficient is an increasing function of inequality and equals zero when the distribution is perfectly equal [12]. The Gini-coefficient is obtained by estimating the level of relationship/association between the cumulative percentage of the quantity of cashew nuts that were transacted and the cumulative percentage of the marketers of the commodity. A total of 206 marketers (or 82.3 per cent) transacted up to 2 kg of cashew nuts per individual per month while the remaining 44 marketers (or 17.7 per cent) handled 2-3 kg of the commodity per individual per month (Table 5). The dominance of small scale handlers could be adduced largely to insufficient access of the marketers to credit facilities and poor storage facilities for the products [10]. It should be noted however that the small holding capacities of the marketers limited their

358

Assessment of Pricing Efficiency and Levels of Concentration in Cashew Nuts Market in South Western Nigeria

Table 4 Distribution of pricing efficiency of Cashew nuts marketers according to states. Efficiency Interval ≤ 1.00 1.01-1.10 1.1-1.20 Total Average Oyo state 29 (58) 8 (16) 13 (26) 50 (100) 0.689 Osun state 19 (38) 16 (32) 15 (30) 50 (100) 0.752 Ondo state 20 (40) 14 (28) 16 (32) 50 (100) 0.745 Ekiti state 16 (32) 21 (42) 13 (26) 50 (100) 0.801 Ogun state 14 (28) 18 (36) 18 (36) 50 (100) 0.851

* Figures written in parentheses are percentages of total by states. Table 5 Concentration of market share of cashew nuts among marketers in South western Nigeria. Quantity transacted/ No of month (kg) marketers 0-1 98 1-2 2-3 Total 108 44 250 Total quantity transacted (tonnes) 135 513 72 720 % of marketers 39.10 43.20 17.70 100.00 Cum.% of marketers 39.10 82.30 100.00 % of quantity transacted 18.75 71.25 100.00 100.00 Cum.% of quantity transacted 18.75 90.00 100.00

penetration of the markets. Even though Ref. [20], observed that importers may appreciate the low prices that small suppliers can offer, yet it was agreed that the lack of reliability in quality tends to make them favour the larger and more reputable suppliers. However, the Gini Coefficient (GC) value was estimated to be 0.823 (Fig. 2). This implied that cashew nuts market was dominated by small-scale marketers handling maximum of 2 kg of nuts per individual per month. This finding may be of interest to the policy makers in their attempts at improving the marketing activities and the welfare of the cashew nuts marketers in the region. For instance, access to credit facilities should be made a priority for these groups of marketers so that they can perform better on their job. With this, the pricing efficiency of the commodity may also improve. Provision of essential marketing facilities such as transportation, warehousing/stores and working capital should be made available to the marketers so that they can expand their scope of operation. This will help in reducing the level of market concentration and enhance marketing efficiency.

4. Conclusion
There has been incessant price fluctuation in cashew

nuts market in south western Nigeria. The market situation was often linked with the presence of a large number of market intermediaries in the distribution chains. The fall-out of this was an inefficient market situation with the marketers receiving low return for their efforts while the consumers complain of insufficient level of satisfaction. The estimate of pricing efficiency of marketing of cashew nuts was highest (85.1%) in Ogun State and least (68.9%) in Oyo state. A good proportion (30.4%) sourced their credit facilities from the co-operative societies while none contacted banks for financial assistance mainly due to unaffordable collateral securities and other loan conditions. Out of the 720 tonnes transacted, 206 marketers (82.30%) handled maximum of 2 kg of cashew nuts per month per individual. To improve on the level of activities and the pricing efficiency of the small scale cashew nuts marketers in the South western region of Nigeria, it is necessary to support and empower these marketers through the provision of adequate credit facilities with minimal and affordable conditions. The number of market intermediaries and the level of concentration of the marketers need to be reduced. This will ensure a higher return to the marketers of cashew nuts and a more efficient marketing system in the region.

Assessment of Pricing Efficiency and Levels of Concentration in Cashew Nuts Market in South Western Nigeria
120.00 Cumulative % of quantity transacted 100.00 80.00 90.00 60.00 40.00 20.00 0.00 0.00 100.00

359

Line of equality

18.75

Gini co-efficient

20.00

40.00

60.00

80.00

100.00

120.00

Cumulativ e % of M arke te rs

Fig. 2

Lorenz curve showing market concentration of cashew nuts. [11] A.J. Adegeye, J.S. Dittoh, Essentials of Agricultural Economics, Impact Publishers Nigeria Limited, 1985, pp. 164-182. [12] M.D. Narayanan, Marketing efficiency of cut flower market, Indian Journal of Economics 2 (1999) 455-474. [13] A.E. Agbongiarhuoyi, E.O. Aigbekaen, L.A. Akinbile, Awareness of cashew poducts potentials and market information among farmers in Kogi State, Nigeria, ARPN Journal of Agricultural and Biological Sciences (2008) 37-39. [14] A.A. Adams, Assessment of the efficiency of cashew nuts marketing in Oke-Ogun area of Oyo State, Nigeria, Unpublished BSc Thesis, Department of Agricultural Economics, Olabisi Onabanjo University, Ago-Iwoye, Nigeria, 2006, pp. 16-36. [15] M.O. Adeleye, Marketing analysis of Kolanut in sagamu local government area, Unpublished B. Agric. Thesis, University of Agriculture, Abeokuta, 2000, pp. 21-28. [16] K.A. Akanni, S.O. Akinleye, Marketing margin and risks in small scale poultry business in Abeokuta metropolis: an empirical analysis, The Ogun Journal of Agricultural Sciences 3 (2004) 80-88. [17] P.A. Dina, Economic analysis of charcoal marketing in Ibadan metropolis, Oyo state, Unpublished B. Agric. Thesis, Department of Agricultural Economics, Olabisi Onabanjo University, Ago-Iwoye, Ogun State, 2000, pp. 13-24. [18] K.A. Akanni, Effect of micro-finance on small scale poultry business in South Western Nigeria, Emirate Journal of Food and Agriculture, United Arab Emirate University, UAE, 2007, pp. 38-47. [19] M. Errington, J.P. Coulter, The international market for cashew products, Overseas Development Natural Resources Institutes, Chattam, Kent, Uk, 1989, pp. 45-48. [20] The Clipper, US cashew kernel imports remain strong, The Clipper 4 (1994) 2-5.

Acknowledgment
The authors graciously appreciate the co-operation and supports received from all the surveyed cashew nuts marketers who provided vital information for this study.

References
[1] P. Fellows, V. Hidellage, E. Judge, Making Safe Food, ITDG Publishing, London, 1999, pp. 34-41. [2] M.P. Vaidehi, R.M. Ray, Babu: cashew apple and nut recipes with nutritive value, Bangalore, India, Division of Rural Home Science, University of Agricultural Sciences, 2000, pp. 15-17. [3] K.G. Nayar, Cashew: a crop with unlimited potentials, The Cashew, 1995, pp. 26-29. [4] UN Report, United Nations Yearbook of International Trade Statistics, New York, USA, 1996. [5] S. Jaffee, J. Morton, Marketing Africa’s High Value Foods: Comparative Experiences of an Emergent Private Sector, The World Bank, Washington, USA, 1995, pp. 29-40. [6] J. Coulter, The Market for Cashew Nuts and Cashew Nut Shell Liquid, London, TDRI Market Note, 1982, pp. 45-46. [7] ITC, Edible nuts: a study of the markets in the United Kingdom, International Trade Centre, UNCTAD/GATT, Geneva, 1990, pp. 13-16. [8] P. O’Farrell, S. Blaikie, E. Chacko, The New Rural Industries: a Handbook for Farmers and Investors, Australia, RIRDC, 1998, pp. 34-53 [9] CBN, Central Bank of Nigeria, Quarterly Bulletin, 2006, pp. 46-54. [10] O.A. Olunloyo, Marketing outlets for cashew nuts, Paper presented at the workshop organized by Cocoa Research Institute of Nigeria (CRIN), Ibadan, 1996, pp. 1-10.