The program thrust of the ABP is provision of farm inputs in kind and cash (for farm labour) to small holder farmers (SHF) to boost production of these commodities, stabilize inputs supply to agro processors and address the country’s negative balance of payments on food. At harvest, the SHF supplies his/her produce to the agro-processor (Anchor) who pays the cash equivalent to the farmer’s account. The programme evolved from consultations with stakeholders comprising Federal Ministry of Agriculture and Rural Development, State Governors, millers of agricultural produce, and smallholder farmers to boost agricultural production and non-oil exports in the face of unpredictable crude oil prices and its resultant effect on the revenue profile of Nigeria ( Central Bank of Nigeria (CBN), 2016). In order to boost agricultural output, provide food security and reduce importation of Agricultural commodities particularly those Nigeria has a comparative advantage to produce, the CBN established the ABP. The Programme which is intended to create a linkage between anchor companies involved in processing and the SHFs of the required major agricultural commodities.

For many years, Nigeria has been grappling with food insecurity and its attendant consequences leading to hunger, massive importation, and social disorders among others. In order to overcome the challenges posed by food insecurity so many agricultural programs were introduced with the sole aim of boosting food production, and stemming the tide of food insecurity and also leverage on Agricultural financing which is a key challenge in Agriculture, led to the setting up of ABP in order to boost the production of certain Agricultural commodities such as Rice, Maize, Sugarcane, Wheat among others.

Despite the prospects that greeted the launch of the ABP, with the hope that the program targets to alleviate poverty, increase income by enhancing the profit of the beneficiary farmers, an empirical study of the profit efficiency of the beneficiary farmers has not been documented in Kebbi State, Nigeria. This study hopes to provide information that would be useful to policy  makers by serving as a guide on the success or otherwise of the ABP. It is against this backdrop that this study hopes to investigate the following questions.

Whether ABP beneficiary rice farmers maximize their profit?

What are the determinants of profit efficiency among ABP beneficiary rice farmers?

Conceptual framework

The conceptual framework for the study is based on the concept of technical efficiency of resource utilization and the concept of production by Coelli et al. (1998). Production is the transformation of a given set of inputs to produce output. In the light of rice production, farmers are required to combine certain measure of inputs such as rice, seed, land, labour, fertilizer agrochemicals and capital in order to produce paddy rice in which they sell so as to make profit. Given that for paddy rice to be produced that the farmers can be viewed have maximized profit, it requires that the resources be combined or appropriated in a definite proportion. Technical efficiency is the ability of the farmer to produce a given level of output using least amount of physical inputs. It signifiers a peak level of performance that uses the least amount of inputs to achieve higher amount of output, optimality is therefore required in deciding the level of inputs that are to be mixed.

Figure 1 depicts the concept of possible production set that is the set of all resources (inputs)-output combination that are feasible. If the obtained outlet lies along the frontier (the points from OF) the farm is technically efficient indicating the efficient subset of feasible production set. But if it lies below the frontier (point A), it means that it is technically inefficient because it could increase output towards the level associated with point B. without increasing input. Whereas points B and C represents efficient points.

The socioeconomic and institutional variables are expected to influence a farmer’s profit efficiency. These factors includes marital status, age, educational level, household size, farming experience, cooperativeness seed variety, planting technology, income level among others.

Consequent upon the design of ABP targeted to provide incentives both in cash and in kind to the beneficiary rice farmers, the intervention from ABP was anticipated to influence the profitability and profit efficiency of the beneficiary rice farmers.

In the context of frontier literature, DD in Figure 2 represents profit frontier of farms in the industry (the best practice firm in the industry with the given technology. EE is the average response function (profit function) that does not take into account the farm specific inefficiencies. All farms that fall below DD are not attaining optimal profit given the prevailing input and output prices in the product and the input markets. They are producing at allocatively inefficient point F in relation to M in Figure 2. Profit inefficiency is defined as profit  loss  of  not  operating  on the frontier. In Figure 1, a firm operating at F, is not efficient and its profit inefficiency is measured as FP/MP (Ali and Flinn, 1989; Sadoulet and De Janvry, 1995).

Study area

The study was carried out in Kebbi State (Figure 3). The choice of Kebbi State was because that is where the ABP was first launched in Nigeria. The State is in north-western Nigeria, occupying a land area of about 36,229 km² Projecting the population of the State as at 2018 based on 2006 census at the growth rate of 2.38% reveals a total population of about 4.938,006 people. The state lies between latitudes 10° 05¹ and 13° 27¹N of the equator and between longitudes 3° 35¹ and 6° 03¹E of the Greenwich. This area is characteristic of Sudan savannah sub-ecological zone with distinct wet and dry seasons. Soils are ferruginous on sandy parent materials evolving from sedentary weathering of sandstones.

Over two-third of the population are engaged in agricultural production, mainly arable crop alongside cash crops with animal husbandry. The main crops cultivated include sorghum, millet, maize, cowpea, sweet potato, rice, vegetables and fruits. Cash crops grown here include soybeans, wheat, ginger, sugarcane, tobacco and gum-arabic.

Sampling procedure and sample size

To achieve the objective of the study, a multistage sampling method was adopted for the study. First, the purposive selection of 7 local government areas (LGA) with the highest concentration of Anchor Borrowers Programme beneficiary farmers in the state. The LGAs are Suru, Brinin-Kebbi, Bunza, Argungu, Augie, Dandi and Jega). Secondly, purposive selection of two villages/communities with the highest number of  (ABP)  beneficiary  farmers  from  the  7 local government areas giving a total of 14 villages/communities. Thirdly, from each of the 14 villages/communities all together 499 beneficiary and non-beneficiary rice farmers each were proportionately selected randomly thus, giving a sample size of 998 rice farmers for the study (Table 1).

Data collection

Data on the socio-economic characteristics of both ABP beneficiary and non-beneficiary rice farmers, inputs and output such as farm inputs (fertilizer, seed, agrochemicals), labour, rice output and their various costs and the problems involved in accessing ABP intervention among beneficiary in the state were collected.

Stochastic frontier profit function and cost models

The Cobb-Douglas stochastic frontier profit function model was used to examine the profit efficiency and the determinants of profit efficiency for both ABP beneficiary and non-beneficiary rice farmers. The stochastic frontier profit function is the double log (Cobb-Douglass functional form) which is specified explicitly as follows:

where π =normalized profit (N) defined as gross revenue less variable cost, divided by price of output, P₁= normalized price of seed (N) computed as total expenditure on seed divided by price of output, P₂= normalized  wage  of  labour (N) as total expenditure on labour divided by price of output, P₃= normalized price of fertilizer (N) as total expenditure on fertilizer divided by price of output, P₄= normalized price of Agrochemicals (N) as total expenditure on Agrochemicals divided by price of output, P₅= Depreciation charges on Capital (farm implements) (N), P₆= normalized price of land (N) as total expenditure on land divided by price of output, P₇= normalized price of transportation (N) as total expenditure on transportation divided by price of output, and P₈= normalized price of empty bags (N) as total expenditure on empty bags divided by price of output

V_i + U_{i =} Error term.

Inefficiency factors

Inefficiency in production and are often assumed to be independent of V_i such that U_i is the non-negative truncated (at zero).

U_i is defined as:

U_i= δ₀ + δ₁Z₁ + δ₂Z₂ + δ ₃Z₃ + δ ₄Z₄ + δ ₅Z_{5 +} δ₆Z₆₊ δ₇Z₇ +δ ₈Z_{8 +} δ₉Z₉₊ δ₁₀Z₁₀+ δ ₁₁Z₁₁

where U_i = Profit Inefficiency, Z₁ =Age (years), Z₂ = Gender (1 for male, 0 for otherwise), Z₃ = Marital status (1 for married, 0 for otherwise), Z₄= Educational level (years), Z₅ = Experience in rice farming (Years), Z₆ = House hold size (Number of members living in the family), Z₇= Membership of association (1 for yes, 0 for otherwise), Z₈= Amount of Credit accessed (Naira), Z₉₌ Planting technology (1 for broadcasting, 0 for otherwise), Z₁₀₌ Seed varieties (1 for improved, 0 for otherwise), Z₁₁₌ Extension contact (1 for contact with extension, 0 for otherwise), and δ₀ – δ₁₁ = Parameters estimated.

Summary statistics

Results in Table 2 revealed the mean value of total revenue for beneficiary rice farmers as N296, 020.00 and N200, 763, 30 for non-beneficiary rice farmers per hectare. Comparing this value with the total cost of production (N 145,192.38 and N138, 468.93 for ABP beneficiary and non-beneficiary rice farmers respectively, shows that production of rice among the two category of farmers was profitable. However, beneficiary farmers realized more profit than the non-beneficiaries as for every N1.00 invested N2,04 was realized as investment turn over for the beneficiary rice farmers while for every N1.00 invested N1.45 was realized as investment turn over. This implies that ABP improves the profitability of the beneficiary farmers.

Estimates of the stochastic frontier profit function

Results in Table 3 indicate the sigma squired value of 0.0327 and 0.1469 for ABP beneficiary and non- beneficiary rice farmers respectively, and the variance ratio of 97.9% and 89.9% for the two categories of farmers and are significant at 5% level, respectively. This parameter estimate ascertains the goodness – of - fit and the correctness of the specified distributional assumptions of the composite error term. The variance ratio/gamma(r = 0.979 and 0.899) for the two group of farmers signifies that the unexplained influences by the profit function are the major sources of the random errors indicating also that 97.9% and  89.9% of the variation in rice farming among the two categories of farmers is attributed to profit in inefficiency. This confirms the presence of the one sided error component in the model that makes the average function inadequate in representing the data. 

For the ABP beneficiary farmers, the coefficient for seed cost, labour cost, fertilizer cost, Agrochemical cost, and cost of farm tools are negatively significant in determining profit efficiency at 1% level, respectively while transportation cost and cost of empty bags were positively significant at 1% level respectively. The implication of the negative coefficient is that increase in the price of these variables, would lead to a corresponding farmers’ profit efficiency to decrease. This implied that increase in the cost of these variables with existing technology will reduce profit efficiency. For the non-beneficiary farmers, seed cost, labour cost, fertilizer cost, Agrochemicals  cost  and  cost  of  farm  tools  were negatively significant in determining profit efficiency  and cost of farm tools were positively significant at 1% level of probability. The significance of labour input could be due to the fact that it is an important factor of production. Farm production is subsistence and labour intensive. Merem et al. (2017) in their study among beneficiary and non-beneficiaries of developmental programme noted that labour is the second most import factor of production in rice production. The findings of this study are similar to that of Ogundari and Ojo (2005) who stated that labour and herbicides are the most important inputs contributing significantly to output.

Profit efficiency of rice farmers

The results in Table 4 reveal that profit efficiency ranged from 0.44 to 0.96, with a mean value of 0.94 for ABP beneficiary rice farmers while it ranged from 0.11 to 0.93 with a mean value of 0.86 for non-beneficiary rice farmers. Based on the mean efficiency estimate among beneficiary farmers, the average farmer requires 2.08%, that is,  (1-(0.94/0.96) × 100)  cost  savings  to  attain  the status of the most efficient beneficiary farmer and 7.5%, that is, (1-(0.86/0.99) × 100) to achieve the level of the most efficient non- beneficiary farmer. The least performing beneficiary farmer would need 54.2% cost savings and non-beneficiary farmer would need 88.2% to become the most efficient farmer.

The difference in the profit efficiency of the two categories of farmers could be attributed to the ABP support granted to the beneficiaries in terms of seed, chemicals, cash, fertilizer, training etc. system of production, and difference in the quantity of input used by the two groups of farmers which offered them advantage over non-beneficiary rice farmers. Even though the fact that the profit efficiencies of all sampled farmers are less than 1 is an indication that no farmer reached the frontier of production. Thus, opportunity still exists for increasing farmers’ productivity  through increasing efficiency  in  the use of existing resources.

The estimated t-value of 10.14 was significant at 1% level indicating that there is significant difference in the profit efficiency of the two categories of farmers. Since the beneficiaries were expected to have more access to farm inputs, credit facilities, and extension advisory services from the ABP which could place them on production advantage over their colleagues who are not benefiting from the program. The result suggests that ABP beneficiaries are more prudent in maximizing profit compared with their counterparts.

Determinants of profit efficiency among ABP beneficiary and non-beneficiary rice farmers

The result in Table 5 for the  beneficiary farmers indicates that the coefficients of gender, marital status, age, educational level, household size farming experience cooperativeness, seed variety planting technology and income are negative and statistically significant at 1% level of probability respectively. This tally with the apriori expectation. In a one- step stochastic frontier estimation, the parameter for a negative sign of a variable in the Z – vector implies that the corresponding variable would reduce profit inefficiency (or increase efficiency). In the case of non-beneficiary farmers the result is similar to that of the beneficiary farmers.

Results revealed that both ABP beneficiary and non-beneficiary rice farmers were not efficient in the use of existing resources, however, ABP beneficiary rice farmers are more profit efficient with a mean value of 0.94 compared with the non-beneficiary rice farmers having a mean profit efficiency estimate of 0.74. It is thus concluded that ABP enhances the profit efficiency of the beneficiary rice farmers. Result further revealed that ABP beneficiary rice farmers realized more profit than the non-beneficiary rice farmers suggesting that ABP is an intervention that should be advocated to reach all categories of farmers in Nigeria in order to boost profit and efficiency among farming households in Nigeria. 

The authors have not declared any conflict of interests.