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Economic Analysis of Bread Baking Enterprises in Kaduna and Zaria Metropolis of Kaduna State, Nigeria.

This document is a dissertation submitted by Alhaji Abdullahi to Ahmadu Bello University in partial fulfillment of a Master's degree in Agricultural Economics. The dissertation analyzes the economics of bread baking enterprises in Kaduna and Zaria, Nigeria. It includes chapters on the background and justification of the study, a literature review on bread production and efficiency analysis, the methodology used for data collection and analysis, a presentation and discussion of results on the socioeconomics of producers and the costs and returns of production, an analysis of production efficiency, and conclusions and recommendations.

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0% found this document useful (0 votes)
267 views78 pages

Economic Analysis of Bread Baking Enterprises in Kaduna and Zaria Metropolis of Kaduna State, Nigeria.

This document is a dissertation submitted by Alhaji Abdullahi to Ahmadu Bello University in partial fulfillment of a Master's degree in Agricultural Economics. The dissertation analyzes the economics of bread baking enterprises in Kaduna and Zaria, Nigeria. It includes chapters on the background and justification of the study, a literature review on bread production and efficiency analysis, the methodology used for data collection and analysis, a presentation and discussion of results on the socioeconomics of producers and the costs and returns of production, an analysis of production efficiency, and conclusions and recommendations.

Uploaded by

omoyegun
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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i

ECONOMIC ANALYSIS OF BREAD BAKING ENTERPRISES IN KADUNA AND


ZARIA METROPOLIS OF KADUNA STATE, NIGERIA.

BY

Alhaji ABDULLAHI
(MSc / AGRIC /40919 / 2012-13)

A DISSERTATION SUBMITTED TO THE SCHOOL OF POSTGRADUATE


STUDIES, AHMADU BELLO UNIVERSITY, ZARIA, IN PARTIAL
FULFILMENT OF THE REQUIREMENTS FOR THE AWARD OF MASTER OF
SCIENCE DEGREE IN AGRICULTURAL ECONOMICS

DEPARTMENT OF AGRICULTURAL ECONOMICS AND RURAL SOCIOLOGY


FACULTY OF AGRICULTURE
AHMADU BELLO UNIVERSITY
ZARIA, KADUNA STATE
NIGERIA

JANUARY, 2016

i
DECLARATION

I hereby declare that this dissertation titled “Economic Analysis of Bread Baking

Enterprises Kaduna and Zaria Metropolis of Kaduna State, Nigeria” has been written

by me and it is a record of my research work. No part of this work has been presented in

any previous application for another degree or diploma at any institution. All borrowed

information have been duly acknowledged in the text and list of references.

_____________________________ ________________________

Alhaji ABDULLAHI Date


Student

ii
CERTIFICATION

This dissertation titled „Economic Analysis of Bread Baking Enterprises Kaduna and

Zaria Metropolis of Kaduna State, Nigeria‟ by Alhaji ABULLAHI meets the regulations

governing the award of the Degree of Master of Science of Ahmadu Bello University,

Zaria and is approved for its contribution to knowledge and literary presentation.

_________________________________ __________________
Prof B. Ahmed
Chairman, Supervisory Committee Date

_________________________________ __________________
Prof Z. Abdulsalam
Member, Supervisory Committee Date

_________________________________ __________________
Prof Z. Abdulsalam
Head of Department Date

_________________________________ __________________
Prof. K. Bala
Dean, School of Postgraduate Studies Date

iii
DEDICATION

I dedicate this dissertation to my lovely Dad, Alhaji B. A. Abubakar, who facilitated the

completion of my study.

iv
ACKNOWLEDGEMENT

I am deeply grateful to Almighty Allah (SWT) for favour bestowed upon me throughout

the period of my study. May the peace and blessings of Allah be upon His noble prophet

Muhammad (SAW), his household, companion and those on their foot-paths till the day of

reckoning.

My profound and unreserved gratitude goes to my supervisors: Prof B. Ahmed and Prof Z.

Abdulsalam under whose careful supervision this research work was conducted. May

Almighty Allah reward them. My appreciation also goes to the entire academic and non-

academic staff of the Department of Agricultural Economics and Rural Sociology,

Ahmadu Bello University, Zaria for their contributions.

I am sincerely grateful to my beloved parents: Alhaji B. A. Abubakar and Hajiya Maimuna

Abdullahi, my brother; Abdullahi Man for their support, prayers, encouragement and the

special virtues they have taught me through my upbringing, especially the priority they

gave to my education. Special thank also goes to my lovely wife Fatima Alhaji Hussaini,

brothers and sisters and the entire family members.

Finally, my appreciation to all my friends and entire colleagues, particularly Sani Alhaji,

Abdullahi Badiru, Alhassan, Ebel Gomina, Abdulrahaman and my entire course mates of

Ahmadu Bello University Zaria. May Almighty Allah reward you all.

v
TABLE OF CONTENTS

Content Page

Title Page……………………………………………………………………………............i

Declaration………………………………………………………………………………….ii

Certification………………………………………………………………………………..iii

Dedication.............................................................................................................................iv

Acknowledgement.................................................................................................................v

Table of Contents…………………………………………………………………………..vi

List of Tables.........................................................................................................................ix

List of Appendices………………………………………………………………………….x

Abstract.................................................................................................................................xi

CHAPTER ONE ………………………………………………………………………......1

INTRODUCTION…………………………………………………………………………1

1.1Background of the Study...................................................................................................1

1.2Problem Statement............................................................................................................3

1.3Objectives of the Study.....................................................................................................5

1.4Justification of the Study...................................................................................................6

1.5 Hypothesis…………………………………………………………………………........7

CHAPTER TWO………………………………………………………………………....8

LITERATURE REVIEW………………………………………………………………..8

2.1. Conceptual Frame Work….............................................................................................8

2.2. Review of Confectionery Industry……………………………………………………10

2.3. Concept of Production………………………………………………………………..11

2.3.1 Production Function…………………………………………………………….......12

vi
2.3.2 Process of bread baking in Nigeria…………………………………………….........12

2.3.3 Concept of efficiency in bread production…………………………………….........15


2.4 Review of Analytical Tool…………………………………………..........................16
2.4.1 Stochastic production frontier……………………………….………………………16
2.4.2 Net processing income analysis……………………………………………………..22

2.5 Empirical Study on Bread Production……………………………………………….23

CHAPTER THREE……………………………………………………………………...25

METHODOLOGY……………………………………………………………………….25

3.1. Description of the Study Area………………………………………………………...25

3.2. Sampling Procedure and Sampling Size……………………………………………...26

3.3. Data Collection………………………………………………………………………..26

3.4. Specification of the Empirical Model………………………………………………...27

3.4.1. Descriptive statistics………………………………………………………………..27

3.4.2.Net processing income………………………………………………………………27

3.4.3. Stochastic production frontier……………………………………………………...29

3.4.4 Z-statistics…………………………………………………………………………...32

3.4.5 Multiple regression analysis…………………………………………………………32

CHAPTER FOUR……………………………………………………………………......34

RESULTS AND DISCUSSION…………………………………………………………34

4.1. Socio- Economic Characteristic of Bread Producers in the Study Area……………...34

4.1.1 Age distribution of bread producers…………………………………………………34

4.1.2 Educational distribution of bread producers………………………………………...34

4.1.3 Baking experience of bread producers………………………………………………35


4.1.4 Amount of credit obtained by bread producers………………………………..........36

4.1.5 Membership of cooperative society……………………………………………........36

vii
4.1.6 Marital status of bread producers…………………………………………...............37
4.1.7 Sex distribution of bread producers…………………………………………………37
4.2 Cost and Return of Bread Production in the Study Area……………………………..38
4.2.1 Summary statistics of inputs and output…………………………………………….38

4.2.2 Cost of bread production in the study area………………………………………….40


4.2.3 Return to investment in bread production…………………………………………...40
4.3 Efficiency of Bread Production……………………………………………………….42
4.3.1 Estimated technical efficiency of bread producers………………………………….42
4.3.2 Estimated stochastic frontier cost function………………………………….………46
4.3.3 Distribution of bread producers according to technical efficiency estimates.............50

4.3.4 Distribution of bread producers according to allocative efficiency estimate..……...51


4.3.5 Distribution of bread producers according to economic efficiency estimates............52
4.4 Constraints to Bread Production in the Study Area…………………………………..54

CHAPTER FIVE…………………………………………………………………………56

SUMMARY, CONCLUSION AND RECOMMENDATIONS………………………56

5.1. Summary……………………………………………………………………………...56

5.2. Conclusion………………………………………………………………………….....57

5.3. Contribution of the Study to Knowledge…………………………………………….58

5.4. Recommendations…………………………………………………………………….58

REFERENCES………………………………………………………………………….60

viii
LIST OF TABLES

Table Page

Table 1: Sample Frame and Sample Size of Bakeries ………….………………………26

Table 4.1: Age Distribution of Bread Producers………………….....................................34

Table 4.2: Educational Level of Bread Producers…………………...................................35

Table 4.3: Baking Experience of Bread Producers………………….................................35

Table 4.4: Amount of Credit of Bread Producers…………………...................................36

Table 4.5: Cooperative Association of Bread Producers…………………........................37

Table 4.6: Summary of Input Utilized and Output Realized in Bread Production..………40

Table 4.7: Average Costs and Returns Associated with Bread Production…....................41

Table 4.8: Differences between the Cost and Revenue of Bread Production……………..48

Table 4.9: Maximum Likelihood Estimates of Stochastic Frontier Production …………..46

Table 4.10: Maximum Likelihood Estimates of Cost Function for Bread Production……50

Table 4.11: Frequency Distribution of Technical, Allocative and Economic Estimate…...53

Table 4.12: Socio-Economic Factors Influencing Technical Efficiency of Bread ……….54

Table 4.13: Constraints Faced by Bread Producers……………………………………….55

ix
LIST OF APPENDICES

Appendix Page

Appendix I Research Questionnaire…………………………………………………..61

Appendix II Regression Result……………………………………………...................68

x
ABSTRACT

The study examined the economic analyses of bread baking enterprises in Kaduna
and Zaria Metropolis of Kaduna state, Nigeria. Primary data were collected from
124 bread producers selected using multi-stage sampling technique. The data from
2015 season were collected with the aid of structured questionnaire. Data collected
were analyzed using stochastic frontier production function. The maximum
likelihood estimate (MLE) of the stochastic frontier model production function
revealed that the inputs were under-utilized. The technical efficiency score of each
respondent revealed that the most efficient producer operated at 99% efficiency, the
least was found to operate at 59% efficiency level, while the average was 71%,
indicating that bread producers still have the potential to increase the efficiency in
their baking activities by 29% in the study area. The predicted allocative
efficiencies differ substantially among the producers ranging between value 0.49
and 0.89 with the mean allocative efficiency of 0.69. The bread producers with the
best and least practice had economic efficiency of 0.89 and 0.29 respectively. The
mean economic efficiency was 0.51. The variance parameters of the frontier
production model were Sigma-squared (δ2) and Gamma (γ) and their estimated
coefficients in the study area were 0.00894 and 0.075567 respectively. The net
processing income from 50kg bag of flour in terms of other associated variable
costs was estimated to be ₦6270. The return per ₦1 invested was therefore
estimated to be ₦0.58. Hence, bread Production was profitable in the study areas.
The major constraints were inadequate capital, high cost of raw materials, untimely
supply of raw materials, problems of defaulters, lack of technical know-how, poor
power supply and poor market. The study recommended that Flour, labour, salt and
yeast that significantly affect technical efficiency of bread production should be
increase in quantities in order to boost more output. The result of the study revealed
that firewood was over-utilized. Therefore bread producers should reduce the
quantity of firewood so that they can achieve both technical and allocative
efficiency in its utilization.

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

In Nigeria, agriculture was primarily a rural based activity. But, because of the increasing

demand for food and jobs for many urban dwellers, it became necessary for urban

households to embark on agribusinessesas a means of filling the food demand and supply

gap and providing income for other household requirements. In addition, the practice of

agribusinesses has continued to increase in recent years with the structural adjustment of

xi
the Nigerian economy. The rise in food prices, un-employment and inflation brought by

the structural adjustment (BFW, 2005) and the decline in the average real income of both

rural and urban households have compelled many urban dwellers into agribusinesses in the

urban areas. The urban entrepreneurs, like any other entrepreneur, will typically produce to

satisfy household food needs or make profit or both. If the interest were in producing for

home consumption, the entrepreneur would want to obtain the optimum from his/her effort.

If on the other hand, the entrepreneur produces for the market, then the cost of production

and the returns accruable to the entrepreneur‟s effort become important measure of

performance. Either of the two objectives of production requires efficient use of resources

input.

Nigerian agribusinesses including bakery firms were captured in theNigeria‟s development

plans. This is because government had identified this unit as a veritable engine of growth

and had continuously put in place policies and incentive packages that will promote this

segment of the economy (Osuji, 2008).

Bread is a baked food produced from flour that is moistened, kneaded, proofed with the

addition of yeast. Bread is a convenience food made from wheat flour derived from bread

wheat, the technology of which dates back to the ancient Egyptians at about 4000BC.

Other raw materials for bread making apart from wheat flour include sugar, baking fat,

yeast, vegetable oil, salt and water. Hard wheat flour is used for bread making because of

gas produced by yeast during proofing and baking (Famosinpe, 2011).

The bakery production which has been increasing steadily in the country is among the

largest processed food industries in Nigeria. The two major bakery industries viz bread and

xii
biscuit account for about 82% of the total bakery products. The bakery industries in

Nigeria comprise organized and unorganized sectors. The organized sector consists of

large, medium and small scale manufacturers who produced packaged biscuits and bread.

The unorganized sector consists of small bakery units, cottage and household-type

manufacturing goods and distributing their goods in the surrounding areas (World Bank,

1995 and BFW, 2005). Bakery productsare manufactured from combinations of wheat or

other flours, sugar, baking powder, condensed milk, fat (ghee), salt, jelly, dry fruits,

various essences and flavoring. Different type of bakery products can be classified as

dry bakery products and moist bakery products. Dry bakery products include soft

biscuits, hard biscuits, cookies, crackers, fancy biscuits and cream wafer biscuits. Moist

bakery products include sweet bread, milk bread, masala bread, garlic bread, fruit bread,

various types of buns, cakes, pastries, muffins etc. These products are available in

various sizes, shapes and forms (Indian Food Industry, 2001; Beverage and Food

World, 2005).

According to Nicole et al. (2012), the demand for bread is expected to explode in the

coming years. South Africa, Nigeria, Ethiopia, Sudan and Kenya are currently the largest

and leading bread markets in Africa. The key drivers of this demand are Africa‟s rapidly

growing population, an expanding middle class which has more money to spend, an

enlarging labour force, and increasing rates of migration to African cities and towns.Africa

now has more than 50 cities inhabited by over one million people. By 2020, more than 500

million Africans are projected to live in urban areas and cities. Statistics reveal that urban

dwellers and city people eat more bread than people in the rural areas. Given the rapid

growth of African city populations, bread is sure to remain a highly sought-after food item

by African households(Nicole et al., 2012).

xiii
1.2 Problem Statement

The demand-supply gap of confectionery products in Nigeria and most countries in Sub-

SaharanAfrica is largely met by importation (Wada etal., 2006; GAIN 2008). This is

because most of the vital inputs used in production such as baking materials, wheat, yeast

and other facilities are not always within the reach of the bakers (Wayagariet al., 2003),

thus, crippling the return on investment and discouraging the bakers from continued

production of these products. This has contributed significantly to the poverty state of the

nation judging from the fact that Nigeria is a developing economy and industrial

development is a sine qua nonto economic growth. One of such industrial products is

bread.

Over the years the government has carried out policies aimed at boosting bread production

in the country. One of these policies is the inclusion of 40% cassava in composite flour

with effect from 15 July, 2012. Despite that the price of bread in Nigeria is still very high.

According to publication made by the Nigeria bakers association, prices of bread, a major

stable food have risen in the last three years by an average of about 25 per cent from

between N80 and N120 per family size loaf to between N120 and N150 amid increase in

the prices of baking materials. In January, 2011, the prices of all sizes of bread were

increased by 10 per cent. Although the rise in the prices of bread was associated with

sundry baking materials such as sugar, butter, flour and fat.

The current demand for bread is likely to exceed 2.2million tones considering their leading

role as one of the major sources of energy, protein, iron, calcium, and several vitamins

(Onwumere et al., 2012). They are no longer viewed as a luxury tea-time snacks but

essentially daily food component for an average Nigerian house hold. However in recent

xiv
time, there have been the recurrent loss of market share and dropping of sales volume in

the bakery enterprises operation in the nation (Onwumereet al., 2012).As a result, the

supply of bread becomes very low in comparison to demand. This inability to meet the

domestic demand could be attributed to low productivity, inefficiency in the use of

resources, disincentives from macro-economic environment and traditional technologies

(GAIN 2008).

The level and structure of the Nigerian bread industry reflects that bread production is

mainly constrained due to lack of productivity augmenting technologies. To meet the

emerging challenges, there is an urgent need to bring efficiency to the production process,

either through maximizing the output or minimizing the cost (Osuji, 2008).

In reality, optimum production encompass utilizing resources in their most efficient and

productive manner, providing favourable cash flows, satisfying attractiveness constraints

of buyers and or production, maximizing profit in the short and long run and satisfying the

current trend and preventing oversupply situation. The real challenge is to find a

production mix that accomplishes all or most of these things.

The problem therefore identified centers on the productivity and efficiency levels at which

bread makers use resources on these bread making. It also borders on how the various

factors that explain productivity and efficiency in this bread industry can be examined so

as to improve bread production in the country.Hence, the study analyzed the economics of

bread production in the study areas. It was against this background that the study analyzed

the economics of bread production in the study areas. In view of the foregoing, the

following research questions were answered:

xv
i. What are the socio-economic characteristics of bread producers the study areas?

ii. What are the costs and return associated with bread production?

iii. What is the resource use efficiency of bread production?

iv. What are the problems faced by the bread producers?

1.3. Objectives of the Study

The broad objective of this study was to examine the economic efficiency of bread

production in selected Local Government Areas. The specific objectives were to:

i. describe the socio-economic characteristics of bread producers in the study

areas;

ii. determine the costs and return associated with bread production;

iii. determinethe resource use efficiency of bread production;

iv. describe the constraints faced by the bread producers.

1.4 Justification for the Study

Bread is a stable food in the country today. It is consumed by all and sundry- the old,

young, poor and rich consume bread on daily basis. Bread is regarded as a food for the

masses. It is taken as breakfast in many houses. As at 2006, the population of Nigeria was

placed at 140 million by the National Population Commission. As at the end of 2012, the

population figure was estimated at about 160 million. The increase in population resulted

in more increased in demand for bread. It was thus important that the profitability and

economic of breadbe assessed. It was obvious that there was a possibility for the increase

in its production and much can be done to realize more income from its investment. In

spite of this, little or no study has been conducted to assess the economics of bread

production in the study areas. With the rapid increase in population of Nigeria and

xvi
migration to the urban areas from the rural areas, there was need to increase the supply of

bread in the country. However, from available records no adequate data on the production

of bread in Kaduna State. Thus, this study was expected to provide the valuable bench

mark information to the partially existing knowledge about bread production in the study

areas.

It was also expected that the findings of this research would help in providing information

and identifying problem areasfor improvements. Finally, the research would, as well,

serves as a guide to governmental and non-governmental organizations in designing

appropriate intervention measures in order to boost and improve the efficiency of bread

production.

1.5 Hypotheses

The hypotheses tested were:

i. There is no significant difference between the cost of production and revenue in

bread production in the study areas.

ii. There is no significant relationship between socio-economic characteristics and

technical efficiency of bread production in the study areas.

xvii
CHAPTER TWO

LITERATURE REVIEW

2.1. Conceptual Frame work

In Nigeria bread is a staple food product prepared by baking dough of flour and water

(Osuji, 2008). It has high nutritional value and its consumption is steadily on the increase

due to its convenience as a ready to eat food product (David, 2006). Wheat flour is

particularly well suited for bread making because of its glutamine and gladden content.

These two substances combine with water to form the gluten network which is

essential for dough development during bread making (Dwyer and O‟Halloran, 2009).

Bread is highly nutritious and eaten in one form or another by nearly every person on

earth. As an excellent source of vitamins, protein and carbohydrates bread has been an

essential element of human diets for centuries in all regions (Ryan, 2006). Bread is solid

foam; typical bread has the crust with the characteristic golden brown colour and white

crumbs. Bread has a short life due to its chemical composition and moisture content

compared to other baked products. Nutritionally, bread contains high percentage of

carbohydrate and fat both of which are needed for energy and source of calories. Other

nutrients like vitamins, mineral and protein are relatively in small proportion(Dwyer and

Hallow, 2009).

Fats such as butter, vegetable oils, lard, or that contained in eggs affects the development

of gluten in breads by coating and lubricating the individual strands of protein and also

helping hold the structure together. If too much fat is included in

breaddough, the lubrication effect will cause the protein structures to divide

xviii
(Nicole et al.,2012). A fat content of approximately 3% by weight is the concentration that

will produce the greatest leavening action. In addition to their effects on leavening, fats

also serve to tenderize the breads they are used in and also help to keep the bread fresh

longer after baking (Cauvain and Young, 2005).

Yeast is a leavening agent added to have desirable dough. Most leavened breads are made

with yeast, a microscopic organism that feeds on carbohydrates in flour, converting them

into alcohol and carbon dioxide in a process called fermentation. Breads made with yeast

must be allowed time to rise before baking (Akinpelu, 2010)

Sugar is broken down by the yeast to form CO2. It gives a slightly sweet taste desired in

the product. It contributes to the browning of the crust of the product when baked. It

reduces the strength of gluten and creates certain textural effects such as hardness

(Akinpelu, 2010).

Salt acts to improve the flavour, texture and colour of the bread. It stabilizes yeast

development and toughens the dough, which results in improvement in texture. The gluten

structure is strengthened and prevented from baking during fermentation (Akinpelu,

2010).This helps to develop gluten, dissolve sugar and causes chemical leavening

compounds to start a reaction. It helps the yeast growth during heating and promotes the

gelatinization of starch (Dwyer and Hallow, 2009).

Bread improvers are frequently used in the production of commercial breads to

reduce the time that the bread takes to rise, and to improve the texture and volume of

bread. Chemical substances commonly used as bread improvers include ascorbic acid,

xix
hydrochloride, sodium met bisulfate, ammonium chloride, various phosphates, amylase,

and protease (Famosinpe, 2011).

2.2 Review of Confectionery Industry

The bakery industry in the US includes 2,800 commercial bakeries with annual revenue of

$30 billion,along with 6,000 retail bakeries with total annual revenue of $3 billion. The

commercial side of theindustry is highly concentrated, with the 50 largest companies

generating 75% of revenue. On theother hand, the retail side is highly fragmented, with the

50 largest companies generating around 15%of revenue. In the retail industry, most

companies operate just one facility. For companies of all sizes,profitability is strongly tied

to the efficiency of their operations. Large bakeries are able to reacheconomies of scale

advantages, while small bakeries can compete by offering specialty goods andoffering

superior local services (Famosinpe 2011).

In Nigeria, the confectionery industry which has been increasing steadily in the country is

among the largest processed foodindustries. The two major confectionery industries viz

bread and biscuit account for about 82% of the totalbakery products. The bakery industries

in Nigeria comprise organized and unorganized sectors. The organizedsector consists of

large, medium and small scale manufacturers who produced packaged biscuits and bread.

Theunorganized sector consists of small bakery units, cottage and household-type

manufacturing goods anddistributing their goods in the surrounding areas (World Bank,

2000 and BFW, 1998.). Bakery products contain high nutritive value and are manufactured

from combinations of wheat or other flours,sugar, baking powder, condensed milk, fat

(ghee), salt, jelly, dry fruits, various essences and flavoring.

xx
Differenttype of bakery products can be classified as dry bakery products and moist bakery

products. Dry bakeryproducts include soft biscuits, hard biscuits, cookies, crackers, fancy

biscuits and cream wafer biscuits. Moistbakery products include sweet bread, milk bread,

masala bread, garlic bread, fruit bread, various types of buns,cakes, pastries, muffins etc.

These products are available in various sizes, shapes and forms (Indian FoodIndustry,

2001; Beverage and Food World, 1998). Some commercial bread and biscuitscontain

around 7.5% to7.8% protein respectively. In terms of cost, biscuits are amongst the lowest

costprocessed food in the country when compared to other salted snacks. Most of the

bakery products are easy touse during travel or at home because of its availability in

variety of pack sizes (BFW, 2005).

More than 80 percent of all imported and locally produced wheat flour in Africa is used by

bakeries to produce bread. The rest is used by food processors to make biscuits, cakes and

pasta. Over the last decade, more bread has been consumed in Africa than maize and rice

(Nicole et al., 2012).

2.3 The Concept of Production

In economics, production is the act of creating output, a good or service which has value

and contributes to the utility of individuals (Matz, 1992). According to Ekong (2003),

production does not refer simply to the process of fabricating commodities, but also covers

any activity concerned with the packaging, storage, transportation or marketing of these

products as well as the rendering of personal and commercial services of all kinds. In short,

any activity, which creates economic value, represents production.

2.3.1. Production Function


Koutsoyiannnis, (1979) defined production function as a purely technical relation which

connects inputs and output. It describes the law of proportion and includes all the technical

xxi
efficient methods of production. According to Kebede, (2009), production function is a

function showing the maximum output possible with any given set of inputs, assuming

these are used efficiently.

In economics, a production function relates physical output of a production process to

inputs or factors of production. The production function is one of the key concepts of

mainstreamneoclassical theories, used to define marginal product and to distinguish

allocative efficiency, the defining focus of economics. The primary purpose of the

production function is to address allocative efficiency in the use of factor inputs in

production and the resulting distribution of income to those factors, while abstracting away

from the technological problems of achieving technical efficiency, professional manager

might understand it (Healthfield, 1971).

2.3.2 Process of BreadProduction in Nigeria

Bread is considered to be one of the oldest „processed‟ foods by the humanity. In its

earliest forms bread would have been very different from how we see it in industrialized

countries today and it would probably be closest in character to the modern flat breads of

the Middle East (Cauvain, 2005).

Today, the bread making process is mainly based on 3 steps: dough formation,

fermentation and baking. Dough formation requires the mixing of flour, water, yeast, salt

and other ingredients depending on the bread type in appropriate ratios. Dough

development is a relatively undefined term, which covers complex changes in bread

ingredients, which are set in motion when the ingredients first become mixed. The changes

are associated with the formation of gluten, which requires both the hydration of the

xxii
proteins in the flour and the application of energy through the process of kneading.

Kneading is the development of gluten structure in the dough through the application of

energy during mixing (Cauvain, 2005). Mixing the dough provides two functions:

homogeneous distribution of components, and development of the gluten matrix. Gluten is

the skeleton of wheat-flour dough and responsible for gas retention which provides the

production of light loaf of bread. Mixing time varies with the flour, dough temperature,

dough consistency, andmixer. Excessive mixing yield a dough with reduced elasticity and

extensibility (Pomeranz, 1987).

During the fermentation process, gas is generated as a part of the metabolic activity of

yeast. Many microorganisms can ferment sugars with the production of carbon dioxide, but

the organism that seems to function best in dough is Saccharomyces cerevisiae or bakers‟

yeast. Every live yeast cell can perform many different chemical reactions, but those of

most importance are in the group called fermentation. The most obvious manifestation of

these changes is the production of carbon dioxide and ethyl alcohol, but these substances

are merely the end result of an extremely complex series of reactions that are largely

controlled by enzymes. Sugars are the substrates transformed by fermentation (Matz,

1992). A simplified equation that describes the substrate and principle end products of the

fermentation reactions is: C6H12O6 ⎯→⎯ 2C2H5OH + 2CO2 Carbon dioxide is

responsible for leavening the dough, while ethyl alcohol helps to make up the complex

aroma of the baked products. A large part of these compounds is lost during the baking and

the cooling stages (Matz, 1992). In yeast leavened dough, the products of microbial

metabolism modify the dough and are essential for production of light, well-aerated, and

appetizing bread (Pomeranz, 1971).

xxiii
Duration of the fermentation process depends on the amount and the quality of the

ingredients. Yeast is the most important ingredient that affects the fermentation process.

The relationship between dough development time and yeast level probably comes from

the contribution that enzymes present in the yeast cells, viable or dead. They modify the

protein structures, which are forming with increasing dough resting time of the enzymes

present, the proteolysis enzymes and the natural reducing agent glutathione are likely to

play the major roles. Flour also contains enzymes, which can contribute to dough

development. Since the mechanism for dough development in fermentation depends on

yeast activity, the temperature of the dough play a major role in determining the time at

which full development is achieved (Cauvain, 2005)

During baking several changes take place both in the crumb and crust. The browning

reaction that involves both caramelization of sugars and proteinaceous materials imparts a

deep color to the crust. Thermal decomposition of starch and formation of dextrin

contribute to crust brightness. This is accompanied by formation of flavor and taste

components. At the same time changes take place inside the loaf of bread. At early stages

the increase in temperature enhances enzymatic activity and growth of yeast and bacteria.

At about 50ºC-60ºC the yeast and bacteria are killed.

Above that temperature starch gelatinizes, proteins coagulate, and enzymes are inactivated.

Steam is formed at around 100ºC, at which the final volume and crumb texture of the bread

are set. The inside of the loaf does not exceed 100ºC; however, in the crust much higher

temperatures are attained. In the temperature range of 100-150ºC, light and brown dextrin

are formed which are followed by caramel (Pomeranz, 1987).

xxiv
2.3.3 Concept of Efficiency in Bread Production

The decline in output of bread production over the years may not only be connected with

deviations of producer‟s practices, but also with the use of resources at sub-optimal levels

which ultimately leads to technical and allocative inefficiency (Coelli and Battese, 1996).

An underling premise behind much of research in efficiency is that farmers are not making

efficient use of existing technology, then efforts designed to improve efficiency would be

more cost-effective than introducing new technologies as a means of increasing

agricultural output (Belbase and Grabowski, 1985: Huynh, 2008: Adeleke. 2008).

Production efficiency has two components: technical and allocative efficiency. Technical

efficiency is the extent to which the maximum possible output is achieved from a given

combination of inputs or the ability of a firm to obtain maximum output from a given set of

input. Allocative efficiency is the ability of a firm to use inputs in optimal proportions

given their respective prices and production technology (Coelliet al., 1998). Technical

inefficiency occurs when the level of production for the firm is less than the frontier output

and it increases when timing and methods of application of production inputs are

mismanaged. Allocative inefficiency increases when the ratio of marginal products of input

is not the same to the ratio of market prices (Bashkh, 2007). Another definition exits which

looks at relative technical efficiency. A producer is fully efficient on the basis of available

evidence if and only if the performance of other producers does not show that some inputs

or outputs can be improved without worsening some of its other inputs or outputs. With

this definition, there is no need for recourse to prices and other assumptions of weights

which are supposed to reflect the relative importance of the different inputs and outputs

(Adeleke. 2008). The measurement of technical efficiency is important. According to

Jondrowet al., (1982), technical efficiency reduces production costs and makes a firm more

competitive.

xxv
The allocative efficiency index measures a production unit‟s ability to choose the input

combination that minimizes cost given the best available technology. It is the ratio between

the minimum costs if it were technically efficient. Because allocative efficiency implies

substituting or intensifying the use of certain inputs based on their prices, inefficiencies

may stem from unobserved prices, from incorrectly perceived price or from lack of

accurate and timely information (Bashkh, 2007).

2.4Review of Analytical Tools

2.4.1 Stochastic Production Frontier

The production function stipulates the technical relationship between inputs and output in

theproduction process (Olayide and Heady, 1982). This function is assumed to be

continuous anddifferentiable in mathematical terms. The concept of efficiency is

concerned with the relativeperformance of the process used in the production process

(Upton, 1996). Three types ofefficiency were identified. They include: technical, allocative

and economic efficiency.Measurement of efficiency according to Ogunjobi (1999) is

important for the following reasons:Firstly, it is a success indicator, performance measure

by which productive units are evaluated.Secondly, only by measuring efficiency and

separating its effects from the effects of theproduction environment can one explore

hypotheses concerning the sources of efficiencydifferentials. Identification of sources of

inefficiency is important to institution of public andprivate agencies designed to improve

performance. Thirdly, the ability to quantify efficiencyprovides decision makers with

mechanism with which to monitor the performance of theproduction system or units under

their control. In some cases, theory provides conflicting signals concerning the impact of

xxvi
some phenomena on performance. In suchsituations, empirical measurement provides

qualitative as well as quantitative evidence (Coelli,1995).

Technical efficiency is based on expressing the maximum amount of output obtainable

fromgiven bundles of production resources with fixed technology. It is the attainment of

productiongoods without wastage (Amaza and Olayemi, 1999). This is regarded as

estimating averageproduction function (Olayide and Heady, 1982). This definition assumes

that technicalinefficiency is absent from the production frontier. Farrell (1957) suggested a

method ofmeasuring technical efficiency of a firm in an industry by estimating the

production function offirms which are fully efficient (i.e. frontier production function).

Allocative efficiency on the other hand relates to the degree to which a firm utilizes inputs

inoptimal proportions, given the observed input prices (Coelliet al., 2002; Ogundariet al.,

2006).Russell and Young (1983) looked at Allocative efficiency (AE) as a condition that

exists whenresources are allocated within the firm according to market prices. In a

materialistic societyaccording to them, this will represent a desirable characteristic when

market prices are a truemeasure of relative scarcity. This will be the case when prices are

determined in perfectlycompetitive markets, but when prices are distorted by monopolistic

influences or where somegoods remain outside the market system the role of prices in

resource allocation is greatlyimpaired. Lau and Yotopoulos (1989) stated that a firm is said

to be allocatively efficient if itmaximizes profit, that is, it equates its marginal product of

every variable input to itscorresponding opportunity cost. A firm which fails to do so is

said to be allocatively inefficient.In Farrell‟s framework, economic efficiency (EE) is an

overall performance measure and is equalto the product of Technical Efficiency (TE) and

Allocative efficiency (AE) i.e. EE = TE ´ AE.The simultaneous achievement of both

xxvii
efficient conditions according to Heady (1952) occurswhen price relationship are

employed to denote maximum profits for the firm or when the choiceindicators are

employed to denote the maximization of other economic objectives.

According to Adesina and Djato (1997) economic efficiency occurs when a firm

choosesresources and enterprises in such a way as to attain economic optimum. The

optimum impliesthat a given resource is considered to be most efficiently used when its

marginal valueproductivity is just sufficient to offset its marginal cost. Thus, economic

efficiency refers to thechoice of the best combination for a particular level of output which

is determined by both inputand output prices. This would lead to increase in the firm‟s

output as well as its incomeinvariably leading to poverty reduction, improved living

condition and wellbeing.One of the suggested ways of achieving reduction in poverty is

utilizing of the poor endowmentfor improved income earning and in living standards. In

other words, enabling the poor toincrease their level of production of economic goods,

increase their income level and therebytheir living standards. An obvious way of achieving

this is enabling the poor to increase theiroutput, so as not only to improve their income but

also lift them above thesubsistence level.The stochastic production function is written as:

Yi = f (Xi.β) + ei………………………………………………………………………………………………………. 1

ei = vi – ui…………………………………………………………………………………………………………….. 2

where:Yiis the quantity of output of the ith firm, xi is the vector of the inputs used by the ith

firm, β is the vector of the parameters to be estimated, eiis the composed error term, viis the

random error outside farmer‟s control and uiis the technical inefficiency effects.

xxviii
The inefficiency of production, Ui was modeled in terms of the factors that are assumed to

affect the efficiency of production of bakers. Such factors are related to the socio-economic

and management variables of the bakers. The determinant of technical inefficiency is

defined by:

Ui = δ0+ δ11nZ1+ δ2lnZ2 + δ3lnZ3+ δ4lnZ4+ δ5lnZ5+ δ6lnZ6 ……………………….. 3

Where;

Ui = inefficiency effects

Z1 = Age of operator (years)

Z2 = Household size (number)

Z3 = Education (years)

Z4 = Source of capital (informal/formal source)

Z5 = Access to training (number of times trained)

Z6 = Cooperative membership (years)

δ0 = Constant

δ1-δ6 = Parameters to be estimated.

These variables are assumed to influence technical efficiency of the bread bakers. The

gamma (γ =ζ2 μ/ (ζ2 μ +ζ ν) which is the ratio of the variance of U ζ 2 μ to the sigma

squared (ζ2) which is a summation of variances u and v of U and V (ζ 2 =ζ2 μ +ζ2 ν) were

also determined.On the other hand, ui is a non-negative truncated half normal random

variable associated with firm specific factors which lead to the ith firm not attaining

maximum efficiency of production. Ui is associated with technical inefficiency of the firm

and ranges between zero and one. Uifollows an independent and identical half-normal

distributed N (0.δ2u). N represents the number of the firms involved in the cross-sectional

xxix
survey. According to Bakhsh (2007), stochastic frontier production function model is

estimated using the maximum likelihood estimation procedure (MLE).

The stochastic frontier cost function is defined by:

C = F (Wi, Yi; α) expei, i= 1,2 ….n……………………………………………… 4

Where;

C = Represents the minimum cost associated with production

W= Vector of input prices

Y = Bread output

α = Vector of parameters

ei = Composite error term

Using Sheppard‟s Lemma we obtain

∂C = Xi (W, Y; α)…………………………………………………………………. 5
∂Pi
This is a system of minimum cost input demand equations (Ogundari, et al., 2006).

Substituting a farm‟s input prices and quantity of output in equation (6) yields the

economically efficient input vector Xc. With observed levels of output given, the

corresponding technically and economically efficient costs of production will be equal to

Xit P and Xie, respectively. While the actual operating input combination of the farm is Xi

P. The three cost measures can then be used to compute the technical (TE) and economic

efficiency (EE) indices as follows;

TE = (Xit. P) / (Xi. P)………………………………………………………………. 6

EE = (Xie. P) / (Xi. P)………………………………………………………. …….. 7

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The combinations of equations (7) and (8) is used to obtain the allocative efficiency (AE)

index following Farell (1957)

AE = EE / TE = (Xie. P) / (Xi. P)……………………………………………….…. 8

The efficient production is represented by an index value of 1.0 while the lower values

indicate a greater degree of inefficiency. Using the method by Bravo-Ureta and Pinheiro

(1997) which was based on the work of Jondrowet al (1982), efficiency can then be

measured using the adjusted output as shown in equation (10)

Y* = f (Xi; β) – u ………………………………………………………………….9

Where U can be estimated as

E ( ui / ε i) = б λ f* (εi λ/ б ) – Σiλ
1 + λ² 1 – f* (εiλ )…………………………………………...10

Where

f* (.) and is normal density and cumulative distribution functions respectively,

λ=бu/бv

ε = Vi - Ui and

Y* is the observed output adjusted for statistical noise

When εi, б and λ estimates, are replaced in equations (9) and (10), it will provide estimates

for U and V. The term V is a symmetric error, which accounts for random variations in

output due to factors beyond the control of the baker e.g. stealing of input materials by the

workers, measurements errors, etc. The term U are non-negative random variables

representing inefficiency in production relative to the stochastic frontier. The random error

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Vi is assumed to be independently and identically distributed as N(o, δv2) random

variables independent of the U is which are assumed to be non-negative truncation of the

N(o, δu2) distribution (i.e. half-normal distribution) or have exponential distribution.

2.4.2 Net Processing Income Approach

In this study, return to entrepreneurship in bakery industry was measure from the point of

view of enterprise profitability. In order words, the analysis was limited to investment

profitability. This is because profitability ratios are crucial to all investment analysis.

Profitability ratios are typically based on earnings that accrued to participants. Specifically

net processing income approach was used to determine the profitability of bread baking

industry. Net processing income is the difference between gross profit and total cost of

production (Olukosi and Erhabor, 2005). It is used to show the levels of costs and net

profits that accrue to producers involved in production. The technique emphasizes the costs

(fixed and variable cost) and profit of any processing enterprise. Olukosi and Ogungbile

(1999) have examined two major categories of costs involved in production. These are

fixed and variable cost. Fixed cost (FC) refers to those costs that do not vary with the level

of production or output while variable costs (VC) refer to those costs that vary with output.

The total cost (TC) is the sum of total fixed cost (TFC) and total variable cost (TVC).

The net processing income is mathematically expressed as:

Gross Profit = =PiQi- ………………………………………….11

Where,

is the gross profit in Naira per enterprise

Pi= price per unit of output (₦);

Qi= output of individual enterprise (kg)

TC= Total cost of production (₦)

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2.5.Empirical Study on Bread Production

Several studies have been carried out on bread production. For instance, Munene (2006)

analyzed consumer attitudes and theirwillingness to pay for functional foods using ordered

probit models and the ContingentValuation Method, he found that beliefs about the link

between nutrition and health, concernabout chronic diseases, current purchasing and

consumption patterns and attitude towardsfunctional foods were factors that significantly

affected the respondents‟ willingness to pay apremium for functional foods. Similarly,

Tijani (2006) in their studyon the impact of nutritional labeling on consumer buying

behavior found out thatconsumers use nutritional labeling when making a purchasing

decision because of theirhealth consciousness. They further revealed that the majority of

respondents were willing topay more money for the nutritional information on food

items.In the same vein, Bhatta et al. (2008) found available information to be an important

factorinfluencing willingness to pay for organic products. The major factors identified by

theconsumers include lack of information, higher prices over those of conventional foods

andthe limited and erratic nature of domestic supply of organic products. Majority (88%)

of theconsumers complained about irregular supply of the products which they said

discouragesthem from buying more and the lack of means of differentiating organic from

inorganicproducts. Oviahon et al. (2011) in their study on thedeterminants of bread

consumers‟ willingness to pay for safety labels in Oredo LocalGovernment Area of Edo

State, Nigeria,regression results revealed that educational level,new price, marital status,

were the variables significant in explaining consumers‟ willingness to pay.

xxxiii
CHAPTER THREE

METHODOLOGY

3.1 Description of the Study Area

Kaduna state lies in the north western part of country‟s industrial zones, about 200km

away from Abuja the federal capital. The state lies between latitudes 90 o East and 11oNorth

of the equator and between longitudes 6 oEast and 9oNorth of the prime meridian. Kaduna

state shares boundaries with Katsina and Kano state to the north. Plateau to the north east,

Nasarawa and Abuja to the south and Niger and Zamfara state to the west (Kaduna state

government, 2012). The state occupies an area of approximately 68,000 square kilometers

or 7% of Nigeria‟s land mass. The state has 23 Local Government Areas (NPC, 2006). The

state is industrialized and well noted for the production of confectionary products such as

bread, snacks, flour cakes, biscuits. Commercial occupation is also practiced in the state.

Dying of cloth, tailoring, carving as well as marketing of their products is practiced in the

state. The people of the state live mostly in organized towns and cities (Udry, 1990). A

large variety of agricultural occupations also exit.

The total population of the state was6,113,503 million (NPC, 2006). Based on annual

population growth rate of 3.2%, the projected population of the state was about 7,669,889

million people in 2014.This population was made up of people from different parts of the

country who are engaged in different occupations such as industrial workers, students,

traders, bankers and transporters. These categories of workers provide ready market for the

bakery products especially bread in the state. Within the state there are a number of

establishments and activities such ascompanies,research institute, higher institutions,

colleges, commercial activities and farming.

xxxiv
3.2 Sampling Procedure and Sample Size

A multistage sampling technique was used to select respondents for this study. From the

reconnaissance survey conducted in the study area,six locations were identified from

Kadunametropolis and three from Zaria metropolis. The first stage involved purposive

selection of Kaduna and Zaria metropolis based on the concentration of bread bakeries in

these areas.The second stage involvedrandom selection of three locations: Kakuri, Kawo

and Sabon-gariin order of proportion from these metropolises. Finally, a simple random

sampling technique was employed in selecting bread producers from each of these

locations from the list of sample frame. Eighty percent (80%) of the sample frame (155)

was used as the sample size. In all, 124 bakeries were randomly selected.

Table 1: Sample Frame and Sample Size of Bread Producers.


Metropolis Locations Sample frame Sample size (80%)
Kaduna Kakuri 59 47
Kawo 49 39
Zaria Sabon-gari 47 38

Total 155 124


Source: reconnaissance, 2014

3.3 Data Collection Techniques

Primary data was used for this study. These were collected with the aid of structured

questionnaire. The information were collected on: producer‟s socio-economic

characteristics such as age of the operator, educational status of the operator, amount of

credit received in 2014, years spent on the cooperative and access to market;Constraints

faced by the producers. The output data include the total value of bread produced by

adding cash receipt from selling baking products plus those consumed at home and gave

out as gifts while the input data include quantity of flour, quantity of sugar, total labour

xxxv
used, quantity of water, quantity of salt, quantity of fat (oil), quantity of Yeast, fueland cost

of other tools such as baking pan, oven or microwave mixer, transportation and other

simple implements and problems militating against bread business.

3.4Analytical Techniques

The model used for the analysis includes:

3.4.1 Descriptive statistics

3.4.2 Net processing income

3.4.3 Stochastic production function

3.4.1 Descriptive Statistics.

Descriptive statistics was used to achieve objective (i) and (iv) of the study. it involves the

use of measures of central tendency such as mean, maximum, minimum, coefficient of

variations, standard deviation, frequency distribution and percentages to describe the socio-

economic characteristics of bread producers in the study areasand the constraint

confronting the bread production.

3.4.2 Net Processing Income

The Net Processing Income (NPI) was employed to achieve objective two (ii). It was used

to estimate the costs and gross profit of bread production. The formula for the net

processing income model was stated as follows.

Gross Profit = =PiQi- …………………………………………….12

Where,

is the gross profit in Naira per bakery enterprise

Pi= Price per unit of bread output (₦);

xxxvi
Qi= Bread output of individual enterprise (kg)

TC= Total cost of bread production (₦)

TC= TVC+TFC

Where,

TVC= total variable cost (₦) and

TFC= total fixed cost (₦).

Total Cost (TC) = Total Variable Cost (TVC) + Total Fixed Cost (TFC)

TVC = (flour, sugar, labour, water, salt, fat, yeast and firewood)

TFC = (depreciation of equipment (oven, mixer, vehicles and baking pan))

The fixed inputs are not normally used up at short run in a production cycle. They were

depreciated using the straight line method given by:

………………………………………………………………………………………………………………..12

Where:

D = depreciation (₦),

P = Purchase value (₦),

S = salvage value (₦) and

N = life span of asset (years).

Returns per naira invested (RNI) was obtained by dividing the gross income (GI) by the

total cost (TC).

Therefore,

………………………………………………………………………13

Where,

ROR = rate of return on investment

NPI = Net processing income

xxxvii
TC = total cost.

3.4.3 Stochastic Production Frontier Analysis.

The stochastic production function was used to achieve objective iii. The stochastic

production function is written as:

Yi = f (xi.β) + ei……………………………………………………………………..14

ei = vi – ui……………………………………………………………………………15

Where;

Yi = Quantity of output of the ith firm

xi= Vector of the inputs used by the ith firm

β = A vector of the parameters to be estimated

ei = Composed error term

vi= Random error outside farmer‟s control

ui = Technical inefficiency effects

lnY = βo + β1lnX1i + β2lnX2i + β3 lnX3 i + β4 lnX4 i + β5 lnX5 i + β6 lnX6 i + β7 lnX7 i + β8 lnX8 i

(Vi-Ui)…………………………………………………………………….. 16

xxxviii
Where;

ln = The natural logarithm

Y = Output of bread in kg

βo = Constant term

β1- β8 = Regression coefficients

X1 = Quantity of flour (kg)

X2 = Quantity of sugar (kg)

X3 = Total labour used (man day)

X4 = Quantity of water (litre)

X5 = Quantity of salt (kg)

X6 = Quantity of fat (oil) (litre)

X7 = Quantity of Yeast (kg)

X8 = Quantity of Firewood (kg)

Vi = Random variability in the production that cannot be influenced by the producer.

Ui= Deviation from maximum potential output attributable to technical inefficiency.

The inefficiency of production, Ui was modelled in terms of the factors that affected the

efficiency of production of producer. Such factors are related to the socio-economic and

management variables of the producers. The determinant of technical inefficiency is

defined by:

Ui = δ0+ δ11nZ1+ δ2lnZ2 + δ3lnZ3+ δ4lnZ4………………………………………..17

Where:

Ui = Inefficiency effects

Z1 = Age of operator (years)

Z2= Education of the operator (years)

xxxix
Z3 = Baking experience of the operator (years)

Z4= Sex of the operator

δ0 = Constant

δ1-δ4 = Parameters to be estimated.

C = F (Wi, Yi; α) expeii = 1,2 ….n ……………………………………………18

Where;

C = Represents the minimum cost associated with bread production

W= Vector of input prices

Y = Bread output

α = Vector of parameters

ei = Composite error term

lnC = β0 + β1lnX1 i + β2lnX2i + β3 lnX3 i + β4 lnX4 i +β5 lnX5i + β6 lnX6 i + β7 lnX7 i (Vi +

Ui)…………………………………………………………………………………..19

Where;

ln = The natural logarithm

C = Total cost of output (₦)

X1 = Cost of flour (₦)

X2 = Cost of sugar (₦)

X3 = Cost of labour (₦)

X4 = Cost of water (₦)

X5 = Cost of salt (₦)

X6 = Cost of fat (₦)

X7 = Cost of Yeast (₦)

X8 = Cost of Firewood (₦)

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β0 = Constant term

β1- β7 = Regression coefficients

Vi = Random variability in the cost of production that cannot be influenced by the farmer.

Ui = Deviation from minimum potential cost attributable to technical inefficiency

3.4.4 Z-statistics

Z-test was used to test hypothesis (i) which is there is no significant relationship between

costs and revenue ofbread producers. It was used for larger sample greater than thirty (30).

Z-test model was used in the study to compare the differences in costs and revenue ofbread

producers in the study area. The Z-statistic is expressed as follows:

………………………………………………………………20

Where Z = calculated Z value

X1 = Average costs of bread producers.

X2 = Average returns of bread producers.

S1= Standard deviation for costs ofbread producers.

S2 = Standard deviation for revenue of bread producers.

n= Sample size of bread producers.

3.4.5 Multiple Regression Analysis

This was used to test hypothesis (ii) that is there is no significant relationship between

socio-economic characteristics andtechnical efficiency of bread producers.The regression

model specification is

Y= β0 +β1X1+ β2X2+ β3X3 + β4X4 + β5X5 + β6X6 + β7X7+ β8X8+ e………………21

Where;

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Yi=Technical Efficiency Estimates.

X1=Age (Years).

X2= Education (year of schooling)

X3= Producers experience (years)

X4= Amount of credit (Naira)

X5= Sex of the operator.

βi = The coefficients for the respective variables.

xlii
CHAPTER FOUR

RESULTS AND DISCUSSION

4.1 Socio-Economic Characteristics of Bread Producers in the Study Area

4.1.1 Age distribution of bread producers

The socio-economic characteristics of bread producers in the study areas are presented in

Table 4.1. The result revealed that about 74% of the bread producers in the study areas

were within the ages of 28 – 57 years with a mean age of 48 years. This means that they

are still in their active productive ages, which signifies increase in the output of

bread.This finding is similar to the result from Oladeebo et al.,(2012) that the average age

of 46 years obtained for the cassava processors indicate that they were still in their active

productive years which could lead to low level of profit inefficiency.

Table: 4.1 Age distribution of bread producers


Variable Frequency Percentage
Age
28-37 29 23
38-47 33 27
48-57 30 24
58-67 31 25
68-77 1 1
Mean 48

4.1.2 Educational level of bread producers

The result in Table 4.2 revealed that about 14% of the bread producers had no formal

education, about 34% had only primary education, and 42% had secondary education while

about 13% had tertiary education. However, altogether about 76% of the bread producers

had formal education. Illiteracy is believed to have a negative implication on efficient use

of productive resources and adoption of farm innovation. This indicates that the bread

producers‟ educational level is high. This high literate proportion of bread producers in the

xliii
study area implied that the producers would be better exposed to more reliable information

sources and good decision making in their production activities. Through education, the

quality of labour is improved and with it the propensity to adopt new techniques [Tijaniet

al., 2006; Hyuha, 2006]. Thus, bread producers in the study areas would easily adopt

new technologies which could improve their level of profit ceteris paribus.

Table: 4.2 Educational distribution of bread producers


Variable Frequency Percentage
Education
No formal education 17 14
Primary 42 34
Secondary 52 42
Tertiary 13 10

4.1.3 Baking experience of the bread producers

The result in Table 4.3 revealed that 78% of the bread producers had 1-8 years of bread

baking experience with a mean of 7 years. This implies that majority of the bread

producers are experienced bakers.This finding agrees with the findings of Oladeebo et al.,(

2012) As one gets proficient in the methods of production, optimal allocation of

resources is expected to be achieved. The more experienced one is the higher the

profit and the lower the profit inefficiency.

Table: 4.3 Baking experience of bread producers

Variable Frequency Percentage


Experience
1-4 42 34
5-8 54 44
9-12 15 12
13-16 7 6
17-20 6 5
Mean 7

4.1.4 Amount of credit obtained by bread producers

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The results presented in Table 4.4 indicate that the majority about 81% had access to credit

ranges between ₦100,000 -₦500,000 with an average amount of ₦363911. However, a

large number of producershad access tofunds to finance their production activities, which

in turn reduce their level of profit inefficiency. Ekong (2003) asserts that credit is a very

strong factor that is needed to acquire or develop any enterprise; its availability could

determine the extent of production capacity.According to Tijaniet al.,(2006), access to

credit provides aproducer with a means of expanding and improving his processing

enterprise. It also determines the ease with which he adopts new practices and technologies

in his enterprise. The study by Wozniak (1993) supported this fact by reporting in his study

that creditincreases the net revenue obtained from fixed inputs,market conditions and

individual characteristics.

Table: 4.4 Distribution of credit obtained by bread producers


Variable Frequency Percentage
Amount of credit
100000-500000 100 81
501000-900000 19 15
901000-1300000 3 2
1301000-1700000 1 1
1701000-2100000 1 1
Mean 363911

4.1.5 Membership of cooperative association

Membership of cooperatives influences adoption of improved technologies resulting in

higher productivity and poverty alleviation (Amazaet al., 2009). The result in Table 4.5

revealed that about 90%of the bread producers participated in cooperative association for

the period of 1-15 year. The average years of membership of cooperative society is

8year.The effect of this result is that most of the bread producers in the study area enjoy

the benefits such ashaving access to credit, market outlets, marketing information and

information on new technologies accrued to co-operative societies through pooling of

xlv
resources together for a better expansion, efficiency and effective management of

resources, and for profit maximization.This finding is in line with Odebiyi (2010) that

cooperative groups ensure that their members derive benefits fromthe groups such as they

could not derive individually.

Table: 4.5 Period of membership of cooperative association of bread producers


Frequency Percentage
Variables
Cooperative
association 44 35
1-5
6-10 49 40
11-15 18 15
16-20 4 3
21-25 9 7
Mean 8

4.1.6 Marital status

The result revealed that about 91% of bread producers are married while 9% are still

single. This is a clear indication that bread baking enterprise provided a means of

livelihood for the majority of the respondents in the study areas.

4.1.7 Sex distribution of bread producers

The result revealed thatmore males than females are involved in bread baking. 104 out of

124 producers representing84% are males, while 16% are female. This may not be

unconnected with the tedious nature of bread baking which most female producers cannot

contend.

xlvi
4.2 Costs and Returns of Bread Production in the Study Area

4.2.1 Summary statistics of inputs and output

The summary statistics of level of inputs used and output realized in the study areas are

presented in Table 4.6.The inputs that were used in bread production include; flour, sugar,

labour, water, salt, fat, yeast and firewood. Itrevealed that the average quantity of flour

used by bread operators was 233.3kg. The minimum and maximum quantity of flour used

were 150 kg and 6000 , respectively. Average quantity of sugar used by bread operators

was 79.43 kg while the minimum and maximum were found to be 50 and 600 kg,

respectively. The mean labour recorded was 11.25 man-days while the minimum and

maximum were observed to be 26.25 mandays and 232 mandays, respectively.Average

quantity of water used by bread operators was251.2litres while the minimum and

maximum were found to be 100 and 300litres, respectively.Average quantity of salt used

by bread operators was31.37kg while the minimum and maximum were found to be 15 and

43 kg, respectively.Average quantity of fat used by bread operators was2.5litres while the

minimum and maximum were found to be 0.5 and 6litres, respectively.Average quantity of

yeast used by bread operators was13.9kg while the minimum and maximum were found to

be 11 and 25 kg, respectively.Average quantity of firewood used by bread operators

was543.6kg while the minimum and maximum were found to be 200 and 550 kg,

respectively.This shows that bread production in the study areas wasof small and medium

scale and labour intensive.

The coefficient of variation of each variable inputs used and output realized are presented

in Table 4.6.The higher the coefficient of variation, the greater the dispersion in the

variable while the lowertheratio of standard deviation to mean return, the better your risk-

return tradeoff. The CV for a model aims to describe the model fit in terms of the relative

xlvii
sizes of the squared residuals and outcome values. The lower the coefficient of variation

(CV), the smaller the residuals relative to the predicted value. This is suggestive of a good

model fit.

The low of coefficient of variation is a reflection of reliability (precision) of the result

(Johnson and Welch, 1939). Johnson and Welch (1939) reported that for a normal

distribution, the ratio of mean to standard deviation should be of order of three or more.

They mentioned that 33 percent is often stated as the permissible upper fiducially limit of

coefficient of variation (CV).

Table 4.6 shows that the coefficient of variation of all the variable inputs such as the flour,

sugar, labour, water, salt, fat, yeast and firewood were 20.73, 52.88, 59.461, 12.71, 89.94,

66.69, 64.34 and 16.42 respectively. The high coefficient of variation of variable inputs

implies high level of variation in the use of variable input among bread operators in the

study area. The wide variation in input used by the operators could be attributed to the fact

that they differ in purchasing power and size of production.

The coefficient of variation in bread output was 25.13% which implies low

inconsistency in output level among bread operators in the study area. This will help the

country in attaining food security as greater proportion of operatorsproduces above

average. The instability in output of bread could be attributed to inconsistency and

inadequacy of variable inputs among operators in the study areas.

xlviii
Table 4.6:Summary of Input Utilized and Output realized in Bread Production
Variable Mean Std Dev. Min Max CV
Flour(kg) 233.3 89.94 150 6000 20.73
Sugar(kg) 79.4 67.18 50 600 52.88
Labour(man-day) 11.25 26.61 26.25 232 59.461
Water(litre) 251.2 62.31 100 300 12.71
Salt(kg) 31.37 91.87 15 43 89.94
Fat(litre) 2.5 2.15 0.5 6 66.69
Yeast(kg) 13.9 74.07 11 25 64.34
Firewood(kg) 546.3 17.85 200 550 16.42
Yield(kg) 534400 29.68 425000 637500 25.13

4.2.2 Cost of bread production per bag in the study area.

Bread flour used by the operators in the study area was mainly from wheat. The quantity of

bread flour per bag was 50kg with an average market price of ₦140 per kg and this

constitutes 65.8% of the total cost of production. The quantity of sugar used was 7kg with

an average market price of ₦240 per kg and this constitutes 15.8% of the total cost of

production. Labour costs consisted of cost of flour mixing, bread sizing, bread packaging.

The family labour was computed on the basis of opportunity cost in man-days. The wage

rate varied according to firm operation performed. An average wage rate of ₦400 per man-

day was used, giving the average labour cost per man-day to be ₦4498 while the total cost

of fixed inputs (cost of depreciation of equipment) incurred on bread production was ₦340

and this constitute 3.2% of the total cost.

4.2.3 Return to investment per bag of flour in bread production

Results presented in Table 4.7 indicated that the total revenue (TR) was ₦16910 while the

total cost (TVC + TFC) was ₦10640. The net processing income was therefore ₦6270.

The rate of return on investment was 58percent, indicating that for every ₦1 invested in

bread production in the study area; a profit of 58 kobo was made. Thus, it could be

concluded that bread production in the study area though on a small and medium scale,

xlix
was economically viable. This finding is similar to that of Okoyeet al., (2009) in

determinants of labour productivity on small-holdercocoyam farmers in Anambra State,

Nigeria. He observed that cocoyam production is profitable by returning ₦1.80 to

every₦1.00 spent.

Table 4.7:Average Costs and Return associated with Bread Production Per 50kg Bag of
Flour.
Variable Unit price (₦) Total unit Value (₦) % of TC
Total revenue (TR) 190 89 ₦16910

Variable Cost
Flour 140/kg 50kg ₦7000 65.8
Sugar 240/kg 7kg ₦1680 15.8
Labour 400MD 2.5MD ₦1000 9.4
Water 1.25/litre 20litres ₦25 0.2
Salt 100/kg 1kg ₦100 0.9
Fat 49/kg 0.5kg ₦25 0.2
Yeast 250/kg 1kg ₦250 2.4
Firewood 20/kg 11kg ₦220 2.1
Total variable cost ₦10,300 96.8

Fixed cost
Depreciation of equipment (Ovum, Mixer ₦340 3.2
and Baking pans
Total Fixed Cost (TFC) ₦340 3.2

Total Cost (TC) = (TVC + TFC) ₦10640 100

Net processing income (TR - TC) ₦6270

Rate of return = (NPI/TC*100) 58


Source: field survey (2015). * MD = man-day

Test of Hypothesis i

The null hypothesis (Ho) which stated that there is no significant difference between cost of

production and revenue in bread production was tested using the result of the z-test

presented in Table 4.8.It reveals that the average cost is ₦10640and average revenue is

l
₦16910. Calculated z-value is 48.55 and exceeds the critical value (z-critical two tails) of

1.96. Therefore Hois rejected at 5% level of significance. The result of the analysis

indicates that bread production is profitable in the study area.

Table 4.8: Difference between the Average Cost and Revenue of Bread producers
Variable Average Cost Average Revenue
Mean 10640 16910
Known Variance 1.17E+11 1.68E+13
Observations 124 124
Hypothesized Mean Difference 0
z-calculated -48.5466
P(Z<=z) one-tail 0
z Critical one-tail 1.644854
P(Z<=z) two-tail 0
z Critical two-tail 1.959964

4.3Efficiency of Bread Production

4.3.1 Estimated technical efficiency of bread producers

The model specified was estimated by the maximum likelihood (ML) method using

FRONTIER 4.1 software developed by Coelli (1995). The ML estimates and inefficiency

determinants of the specified frontier are presented in Table 4.9. The study revealed that

the generalized log likelihood function was 140.187. The log likelihood function implies

that inefficiency exist in the data set. The log likelihood ratio value represents the value

that maximizes the joint densities in the estimated model. Thus, the functional form that is,

Cobb-Douglas used in this estimation is an adequate representation of the data.The value

of gamma (γ) is estimated to be 0.076 and it was highly significant at (p<0.05) level of

probability. This is consistent with the theory that true γ-value should be greater than zero.

This implies that 7.6%of random variation in the yield of the operators was due to the

operators‟ inefficiency in their respective sites and not as a result of random variability.

Since these factors are under the control of the operators, reducing the influence of the

li
effect of γ will greatly enhance the technical efficiency of the operators and improve their

yield. The value of sigma squared (σ2)was significantly different from zero level of

probability. This indicates a good fit and correctness of the specified distributional

assumptions of the composite error terms while the gamma γ indicates the systematic

influences that are unexplained by the production function and the dominant sources of

random error. This means that the inefficiency effects make significant contribution to the

technical inefficiencies of bread operators.

However, the estimated coefficients of the following parameters of production function

(flour, labour, salt and yeast) were positive and significant at (p<0.01) and (p<0.10) level

of probability and hence play a major role in bread production in the study areas. The

average technical efficiency for the operators was 0.71 implying that, on the average, the

respondents are able to obtain 71% of potential output from a given mixture of production

inputs. Thus, in a short run, there is minimal scope (29%) of increasing the efficiency, by

adopting the technology and techniques used by the best bread operators.

The estimated coefficient for flour is 0.100 which is positive and statistically significant at

(p<0.01) level of probability. The estimated 0.100 elasticity of flour implies that

increasing flour by 1% will increase bread output by less than 1% which means, all things

being equal the output is inelastic to changes in the quantity of flour used. The significance

of flour quantity is however, due to the fact that flour determines to a large extent the

output obtained. If correct flour quantity and quality are not used, output will be low even

if other inputs are in abundance.

The coefficient of labour is 0.155 which is positive and statistically significant at (p<0.01)

level of probability. This shows that labour is an important variable in bread production in

lii
the study areas.This implies that 1% increment in quantity of labour will increase the

output of bread production by 0.155 %. The significant influence of labour is in agreement

with the findings of Okoh(2009), similarly found seed and labour asdeterminant of

technical efficiency in the cassava processing in Benue State.

The production elasticity of output with respect to quantity of salt is 0.026 which is

positive and statistically significant at (p<0.01) level of probability. This implies that a 1%

increase in salt will increase bread output by 0.026%.

The production elasticity of output with respect to quantity of yeast is 0.514 which is

positive and statistically significant at (p<0.01) level of probability. This implies that a 1%

increase in yeast will increase bread output by 0.514%. Yeast is a major bread augmenting

input because it improves the quality of bread by raising the yield.

The result of the inefficiency model is contained in table 4.9. The estimated coefficients

with negative signs attached indicate that they reduce technical inefficiency among the

bread operators, while positive signs indicate that the coefficients increase technical

inefficiency or reduce technical efficiency. The results showed that age of operators and

operators‟ experience were the determinants of technical inefficiency among the bread

operators. Firm size was negatively related with technical inefficiency, while age of

operators and operators‟ experience were positively related with technical inefficiency.

The estimated coefficient of age is 0.0054 which is significant at (p<0.01) level of

probability. The positive coefficient of age implies that the older a farmer is, the higher

will be the level of technical inefficiency or the lower will be his technical efficiency in

liii
bread production. This result agrees with Kolawole and Ojo (2007) who in their study of

small scale farmers in Nigeria found age to be positively related to inefficiency.

The coefficient of producers experience is 0.029 and significant at (p<0.01) level of

probability. This implies that the more experienced bread producers is, the higher will be

his level of technical inefficiency. This finding is congruent with that of Onu et al., (2000)

whose result showed a negative relationship between processing experience and technical

efficiency in cotton processing in Nigeria.

liv
Table 4.9: Results of Maximum Likelihood Estimates of Stochastic Frontier Production
Function of bread production
Variable Parameters Coefficient Standard-Error T-Ratio
Production Function
Constant β0 9.905394 0.918263 10.7871
Flour β1 0.100037*** 0.011673 8.570026
Sugar β2 -0.00201 0.024392 -0.08254
Labour β3 0.154976*** 0.038059 4.071989
Water β4 -0.01427 0.016463 -0.86685
Salt β5 0.026166* 0.013376 1.956141
Fat β6 -0.00237 0.020299 -0.11653
Yeast β7 0.513968*** 0.069659 7.378319
Firewood β8 0.057626 0.168265 0.342474
Inefficiency Model
Constant Z0 0.266236 0.215808 1.233675
Age Z1 0.005444*** 0.000369 14.75339
Education Z2 0.00165 0.003782 0.436406
Experience Z3 0.02912*** 0.002234 13.03544
Sigma-Squared(ζ2) 0.00894*** 0.003404 2.626238
Gamma(γ) 0.075567** 0.032245 2.343526
Log Likelihood Function 140.187
LR Test 148.3805
Number of observation 124
Mean efficiency 0.71
Note: ***=p<0.01,**=p<0.05 and *=p<0.10

4.3.2 Estimated Stochastic Frontier Cost Functions

The Maximum Likelihood (ML) estimates of the stochastic frontier cost parameters for

bread are presented in Table 4.10. For the cost function, the sigma (ζ2= 0.50) and the

gamma (γ=0.097) are quite high and highly significant at (p<0.01) level of probability. The

high and significant value of the sigma square (ζ2) indicate the goodness of fit and

correctness of the specified assumption of the composite error terms distribution (Idiong,

2005). The gamma (γ = 0.097) shows that 9.7% of the variability in the output of bread

that are unexplained by the function is due to allocativeinefficiency.


lv
The results of stochastic frontier cost function for bread production in KadunaState are

shown in Table 4.10. The estimated coefficients of the parameters of the cost function are

positive except that of water which is negative. The cost variables flour, sugar, water, salt,

fat, and yeast were significant at (p<0.01) level of probability.

The coefficient of the cost of flour is 0.2438 and statistically significant at (p<0.01) level

of probability. The implication of this is that 1% increase in the cost of flour will give rise

to 0.2438% increase in the cost of bread production.This implies that flour is important in

bread production in bread enterprise.

The coefficients cost of sugar is 0.0394 and significant at (p<0.01) level of probability

level. The implication of this is that 1% increase in the cost of sugar will give rise to

0.0394% increase in the cost of bread production.

The coefficients cost of water is -0.02791 and significant at (p<0.01) level of probability.

The implication of this is that 1% increase in the cost of water will give rise to 0.02791%

decrease in the cost of bread production.

The coefficients cost of salt is 0.058 and significant at (p<0.01) level of probability. The

implication of this is that 1% increase in the cost of salt will give rise to 0.058% increase in

the cost of bread production.

lvi
The coefficients cost of fat is 0.648 and significant at (p<0.01) level of probability. The

implication of this is that 1% increase in the cost of fat will give rise to 0.648% increase in

the cost of bread production.

The coefficients cost of yeast is 0.121 and significant at (p<0.01) level of probability. The

implication of this is that 1% increase in the cost of yeast will give rise to 0.121% increase

in the cost of bread production.

The result of the inefficiency model of the stochastic frontier cost function revealed that

age, education and operators experience were the determinants of allocative efficiency

among the bread operators. The coefficients of the variables were all significant at 1 %

level of significance with exception of education that is significant at 5% significance

level.

The coefficient of age is 0.020476, indicating that the older a producer is, the less

allocative efficient he will be. This agrees with the findings of Kolawole and Ojo (2007),

who in their study of the economic efficiency of small scale food production in Nigeria

found age to be positively related to allocative inefficiency.

The coefficient of level of education is -0.02989. The estimated coefficient of -0.02989

implies that the allocative efficiency of bread producers will increase by a magnitude of -

0.02989 as education increases by one unit. Education enhances producers‟ ability to seek

and makegood use of information about production inputs (Kebede, 2001). However, this

variable is not significant in enhancing the allocative efficiency or reducing the allocative

inefficiency of bread producers.

lvii
Producers experience has an estimated coefficient of -0.22768. This implies that the more

experienced a bread producer is, the lower will be his allocative inefficiency.The estimated

coefficient of -0.22768 implies that the allocative efficiency of bread producers will

decrease by a magnitude of -0.22768 as experience increases by one unit. This finding

disagrees the finding of Tsoho et al., (2012) who reported that farming experience was

positively related to the economic efficiency of dry season vegetable out growers in Sokoto

State, Nigeria.

lviii
Table 4.10: Results of Maximum Likelihood Estimates of Frontier Cost Function for bread
production
Variable Parameters Coefficient Standard-Error T-Ratio
Production Function
Constant β0 0.860098 0.435635 1.974351
Flour β1 0.243778*** 0.016381 14.8819
Sugar β2 0.039499*** 0.014166 2.788268
Labour β3 0.009404 0.033437 0.281248
Water β4 -0.02791** 0.013146 -2.12324
Salt β5 0.05822*** 0.009092 6.403337
Fat β6 0.647577*** 0.015249 42.46601
Yeast β7 0.121028*** 0.023434 5.164711
Firewood β8 -0.02317 0.043117 -0.53737
Inefficiency Model
Constant Z0 -1.32918 0.589267 -2.25565
Age Z1 0.020476*** 0.00783 2.615181
Education Z2 -0.02989* 0.016569 -1.80374
Experience Z3 -0.22768*** 0.067995 -3.34856
Sigma-Squared(ζ2) 0.503892*** 0.151512 3.325759
Gamma(γ) 0.097421*** 0.001543 63.13739
Log Likelihood Function 71.22339
LR Test 71.3873
Number of observation 124
Mean efficiency 0.69
Note: ***=p<0.01,**=p<0.05 and *=p<0.10

4.3.3 Distribution of bread producers according to technical efficiency estimates in


the study area.

The frequency distribution of the technical efficiency estimates for bread producers in the

study areas as obtained from the stochastic frontier model is presented in Table 4.11. It was

observed from the study that 19% of the producers had technical efficiency (TE) of 0.61

and above while 81% of the producers operated at less than 0.6 technical efficiency levels.

The producers with the best and least practice had technical efficiencies of 0.99 and 0.59

respectively.The mean technical efficiencywas0.71.This implies that on the average, output

lix
fell by 29% from the maximum possible level attainable due to inefficiency. Also, 80% of

the producers were estimated to have technical efficiency exceeding 0.4, indicating there

were some 20% technical inefficient producers in the study areas.

The study also suggest that for the average producers in the study area to achieve technical

efficiency of his most efficient counterpart, he could realize about 71% (1-

0.71/0.0.99*100) cost savings while on the other hand, the least technically efficient

producers will have about 59% (1-0.59/0.99*100) cost savings to become the most

efficient producers. This finding is in line with Okoye, (2005) who observed that average

cocoyam farmer in the state would enjoy cost saving of about 32.9% (1-0.65/0.97) if he or

she attains the level of the most efficient producer among the producers in the study area.

4.3.4 Distribution of bread producers according to allocative efficiency

estimates

The result revealed that 19% of bread producers had allocativeefficiency (AE) of 0.61 and

above while 81% of the bread producers operate at less than 0.6allocative efficiency levels.

This implies that the greater majority of bread producers were not allocative efficient as

19% of them attained efficiency level greater than 0.61 and above. In other words, the

clustering of allocative efficiencies in the region of 0.61 – 1.00 efficiency range implies

that thebread operators are not efficient. That is, the bread operators are not efficient in

producing bread at a given level of outputusing the cost minimizing input ratio as about

19% of the bread producers have allocative efficiencies of 0.61 and above. High values of

allocative efficiencies represent less efficiency or more inefficiencyamong the bread

producersduring the course of bread production in the studyareas. The estimatedallocative

efficiencies differ substantially among the bread producers ranging between the minimum

lx
value of 0.50 and maximum value of 0.90. This means that the most allocative inefficient

bread producers operated closer to their cost frontier or minimum cost of 1.00. The mean

allocative efficiency was0.69.The study also revealed that for an average bread producers

in the study areas to become the most allocativeefficient bread producers, he will need to

realize about 23% cost saving i.e. [1-(0.69/0.90)*100]while on the other hand, the least

technically efficient bread producers will need about44% [1-(0.50/0.90) x100]cost savings

to become the most allocative efficient bread producers.

4.3.5 Distribution of bread operators according to economic efficiency


estimates

The frequency distribution of the economic efficiency estimates for bread producers in the

study area as obtained from the stochastic frontier model is presented in Table 4.11. It was

observed from the study that 12% of theproducers had economic efficiency (EE) of 0.61

and above while 88% of the bread producers operate at less than 0.6 efficiency level. The

mean economic efficiency of the 124 sampled bread producers in the study area is 0.51.

The producers with the best and least practice had economic efficiencies of 0.90 and 0.29

respectively. This implies that on the average, output fall by 49% from the maximum

possible level due to inefficiency. Also 12% of the producers were estimated to have

economic efficiency exceeding 0.8, indicating there are some 20% economic inefficient

producers in the study areas.

The study also suggest that for the average producer in the study areas to achieve economic

efficiency of his most efficient counterpart, he could realize about 43%(1-0.51/0.90*100)

cost savings while on the other hand, the least technically efficient producers will have

about 68 percent (1-0.29/0.90*100) cost savings to become the most efficient producers.

However, the average economic efficiency of the bread producers is 51%. This indicates

that breadenterprise were economically inefficient.

lxi
Table 4.11: Frequency Distribution of Technical, Allocative and Economic Estimates
from the Stochastic Frontier Model
Efficiency Level Technical Efficiency Allocative Efficiency Economic Efficiency
Frequency Percentage Frequency Percentage Frequency Percentage
0.10-0.20 0 0 0 0 25 20
0.21-0.40 25 20 25 20 76 61
0.41-0.60 76 61 76 61 8 6
0.61-0.80 23 19 23 19 15 12
0.81-1.00 0 0 0 0 0 0
Total 124 100 124 100 124 100
Minimum 0.586287 0.498055 0.292003
Maximum 0.997569 0.898055 0.895872
Mean 0.711762 0.694829 0.507795

Test of Hypothesis ii

The null hypothesis (Ho) which stated thatthere is no significant relationship between

socioeconomic characteristics and technical efficiency of bread production was tested

using the result of regression analysis presented in Table 4.12.Based on the result the null

hypothesis is rejected because of the four variables included in the model,three variables

(age, education andoperators experience) significantly influence technical efficiency at

various levels of significance.

lxii
Table 4.12: Socioeconomic Factors influencing Technical Efficiency of bread production
in the Study Area
Variable Coefficients Standard Error T-Stat
Constant 0.808002 0.053161 15.19906

Age 0.004138** 0.008316 2.009667

Education -0.00692*** 0.002053 -3.37081

Experience -0.00412* 0.0022 -1.87309

Amount of Credit -1.6E-08 3.38E-08 -0.4728

R Square 0.567
Adjusted R Square 0.523
F-Value 5.419
Note: ***= p<0.0 1l,**=p<0.0 5 and *= p<0. 10

4.4 Constraints toBread Production in the Study Area.

The problems faced by bread producers in the study area were ranked as shown on Table

4.13. It was found that about 27% of the bread producers‟ranked inadequate capital as the

major constraints to expand their production. This affects bread production in the study

areas, because the meager savings the producers might have made or the funds generated

from relatives is not sufficient to satisfy various activities in bread production. Credit can

affect the development of any enterprise; its availability could determine the extent of

production capacity. This agrees with findings of Nasiru, (2010) who noted that access to

credit facility could have prospect of improving the production capacity of bread bakers

and contributing to uplifting their livelihoods. About 22% of the bread producers

rankedhigh cost of inputs like flour, sugar, yeast, firewood and labouras the second

constraints.. About 16%, 11%, 10% and 3% of the bread producers‟ ranked Untimely

supply of raw materials, Problems of defaulters, Lack of technical know-how, Poor power

supplyand poor market as the 3rd, 4th, 5th, 6th and 7th constraints faced in bread production

respectively.

lxiii
Table 4.13: Constraints faced by the Bread Producers
Constraints Frequency Percentage Rank
Inadequate capital 124 27 1st

High cost of raw materials 100 22 2nd

Untimely supply of raw materials 73 16 3rd

Problems of defaulters 50 11 4th

Lack of technical know-how 49 11 5th

Poor power supply 45 10 6th

Poor market 13 3 7th


Total 454 100
Multiple Responses Allowed*

lxiv
CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 Summary

This study focused on the economic analysis of bread baking enterprises in Kaduna and

Zaria metropolis of Kaduna State, Nigeria. Three locations were randomly selected in

order of proportion from two metropolises and 124 producers were randomly selected in

this area. Primary data were collected from 124 bread producerswith the aid of structured

questionnaire. The statistical tools used to analyze the data were descriptive statistics,

stochastic production frontier function model, net farm income and profit function model.

The results of the socio-economic analysis shows that (74%) of the producers fall within

the age range of 28-57years, the majority of the producers (76%) had one form of formal

education. Majority of the producers (78%) belong to cooperative society for the period of

1-8 years.

The average costs incurred and revenue obtained per 50kgbag of flour for bread production

were estimated to determine the profitability or otherwise of bread production in the study

area (table 3). The total revenue (TR) is ₦16910 while the total cost (TVC + TFC) is

₦10640. The net processing income is therefore ₦6270. The rate of return on investment is

58percent, indicating that for every ₦1 invested in bread production in study area; a profit

of ₦0.58 was made. Thus, it could be concluded that bread production in the study areas

on a small and medium scale, was economically viable.

lxv
The stochastic frontier production function was estimated for technical, allocative and

economic efficiency. It was observed from the study that 19% of the producers had

technical efficiency (TE) of 0.61 and above while 81% of the producers operate at less than

0.6 efficiency level. The mean technical efficiency for the 124 sampled producers in the

study areas was 0.71. The producer with the best practice has a technical efficiency of 0.99

while 0.59 was for the least efficient producers. This implies that on the average, output

fall by 29% from the maximum possible level due to inefficiency.The mean allocative

efficiency was 0.69. The result indicates that average bread producers in the state would

enjoy cost saving of about 71% while allocatively inefficient producer will have an

efficiency gain of 59% to attain the level of most efficient producers among the

respondents. The mean economic efficiency was 0.51. The producers with the best practice

have an economic efficiency of 0.90 while 0.29 was for the least efficient producers. This

implies that on the average, output fall by 49% from the maximum possible level due to

inefficiency. Finally, among the constraints identified in the study area, the majority of the

respondent attested to the fact that inadequate capital and high cost of raw materials were

major constraints faced.

5.2 Conclusion

The study revealed that bread producers in the study area did not achieve absolute

efficiency in the use of variable inputs. However, the study showed that bread production

among producers was profitable, thus yield and profit were being maximized due to certain

efficiencies in the use of some variable inputs.

lxvi
5.3 Contribution of the Study to Knowledge

i. It was found that bread production is profitable by returning 58 kobo for every

₦1.00 spent.

ii. The study revealed that bread production in the study areas is profitable with net

processing income of ₦6270 despite the problems identified.

iii. It was revealed that bread firms were economically inefficient in the study area

having an economic efficiency of 51%.

iv. The study revealed that bread producers in the study areas achieved technical

efficiency of 71%.

v. Age, education, producers experience and firm size were the socio-economic

characteristics that significantly influence the technical efficiency of bread

production in the study area at 10%, 5% and 1% levels of significance.

5.4 Recommendations

From the findings of this study, the following recommendations were made:

i. Flour, labour, saltand yeast that significantly affect technical efficiency of bread

production should be increase in quantities in order to boost more output.

ii. Most of the respondents complained of high cost of farm input such as Flour, sugar,

salt, fat and yeast as part of the constraints they faced. The cooperative societies

could link –up the producers with sources of input production. This will enable the

groups to buy inputs at factory cost thereby helping to reduce cost of production.

iii. The result of the study revealed that firewood was over-utilized. Therefore bread

producers should reduce the quantity of firewood so that they can achieve both

technical and allocative efficiency in its utilization.

lxvii
iv. Problems of high cost of raw materials, power supply and untimely supply of raw

materials can be minimized if more producers embraced cooperative association so

that they can pooltheir resources together for seeking information on new

technology, marketing and effective management of resources.

lxviii
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lxxii
APPENDIX 1: QUESTIONNAIRE

A. SOCIO –ECONOMICS CHARATERISTICS


1. Name of producer………………………………
2. Sex: Male ( ) Female ( )
3. Age (years)…………………………………………
4. Marital status: Married ( ) Single ( )
5. Highest level of Education:
(a) No Formal Education ( ) (b) Primary school Education ( ) (c) Secondary School
Education ( ) (d) Tertiary Education ( )
6. Family Size (All the number of the people depending on you for living)…………….
(a) No of Adult Male ( ) (b) No of Adult female ( ) (c) Children >15yrs ( ) (d)
Children <15yrs ( )
7. How long have you been in bread baking enterprise? (Years of
experience)…………………
8. Do you belong to any co-operative/Association? Yes ( ) No ( )
9. If yes, (Years of participation) -------------------------
10. What benefit did you derive as a member?
11. Do you have access to credit (a) Yes ( ) (b) No
12. What is your major source of capital for bread baking enterprise?
A. Personal savings ( ) b. credit (borrow) ( ) c. Friends and family ( )
d. Money Lenders (Borrow) ( )
13. If you borrow, what were the sources of the credit?
a. commercial bank( ) b. Bank of Agriculture ( ) c. Cooperative Society ( ) d. Money Lenders (
)
e. Friends and Family ( ) f. Others (specify)…………………………
14. How much did you borrow to finance last production? (Fill for the source you
indicated in Q .12)
SOURCE OF LOAN AMOUNT(₦) INTERST RATE (%)
Commercial Bank
Bank of Agriculture
Cooperative Societies
Money Lenders
Friends And Family
Others (Specify)

15. Have you been visited by an extension agent? Yes ( ) No ( )


16. If Yes, How many times in last one year……………………..?
17. What activities did the agent teach you? .....................................
18. Of what benefit were the techniques learnt to you to the success of your baking enterprise?
............................................................................................................................................

19. Have you been trained on bread baking enterprise? Yes ( ) No ( )


20. If yes, which organization conducted the training?

21. Was the training beneficial to you?


a. Not beneficial ( ) b. somehow beneficial ( ) c. beneficial ( ) d. very beneficial ( )

B. INFORMATION ON INPUTS

(ii). How did you acquire your baking enterprise? (Tick below)
No of Firm Mode of Acquisition
(a) Inheritance (b) Lease (c) Borrowed (d) Gift (e) Purchased
1

lxxiii
2
3

(iii). what does it cost to rent a baking enterprisein your community? ....……...................... Naira

23. Variable inputs (Last production Cycle)


(i). Flour (Kg)
No of firm Quantity of Flour (Kg) Cost (₦)
1
2
3

(ii). Sugar
No of firm Quantity(Kg) Cost(₦)
1
2
3

(iii). Salt
No of firm Quantity(kg) Cost(₦)
1
2
3

(iv)Yeast
No of firm Quantity(kg) Cost(₦)
1
2
3

lxxiv
(v) Firewood/Electricity
No of firm Quantity(kg) Cost(₦)
1
2
3

(vi) Fat (oil)


No of firm Quantity(litres) Cost(₦)
1
2
3

(vii) Water
No of firm Quantity(litres) Cost(₦)
1
2
3

(iv). Labour input


(a). Flower mixing
Plot No Hire Labour Family Labour
No of people No of Hours Cost (₦) No of people No of Hours Cost (₦)
1
2
3

(b). Bread sizing


Plot No Hire Labour Family Labour
No of people No of Hours Cost (₦) No of people No of Hours Cost (₦)

1
2
3

(c). Bread packaging


Plot No Hire Labour Family Labour
No of people No of Hours Cost ( ₦) No of people No of Hours Cost (₦)

1
2
3

24. Where do you sell your bread?


a. Factory gate ( ) b. Rural market ( ) c. Urban market ( )
25. When do you sell your bread?
a. immediately before packaging ( ) b. immediately after packaging ( ) c. months after packaging (
)

lxxv
26. CONSTRAINTS TO BREAD PRODUCTION
S/n Constraints
1
2
3
4
5
6
7
8
9
10

24. What can you suggest as solutions to these constraints?


…………………………………………………………………………………………………….
…………………………………………………………………………………………………….
…………………………………………………………………………………………………….
Thanks for your Attention

lxxvi
APPENDIX II: REGRESSION RESULT

SUMMARY
OUTPUT

Regression Statistics
Multiple R 0.632124
R Square 0.56732
Adjusted R
Square 0.52271
Standard Error 0.105333014
Observations 124

ANOVA
Significance
df SS MS F F
Regression 5 0.300604042 0.060121 5.4187085 0.0001597
Residual 118 1.30921517 0.011095
Total 123 1.609819213

Standard Upper Lower Upper


Coefficients Error t Stat P-value Lower 95% 95% 95.0% 95.0%
constant 0.808002117 0.053161306 15.19906 1.467E-29 0.7027283 0.913276 0.70272826 0.913276
age 0.004138 0.008316 2.009667 0.1734042 -0.000508 0.0027845 -0.0005076 0.0027845
- - - -
education 0.006921294 0.002053306 3.370805 0.0010136 -0.010987 0.0028552 -0.0109874 0.0028552
farming
experience -0.00412 0.002199574 -1.87309 0.8511293 -0.004769 0.003942 -0.0047695 0.003942
amount of -
credit -1.5962E-08 3.3762E-08 0.472795 0.6372326 -8.28E-08 5.09E-08 -8.282E-08 5.09E-08
- - - -
firm size 0.020822544 0.006331362 3.288794 0.0013264 -0.03336 0.0082847 -0.0333604 0.0082847

lxxvii

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