Economic Analysis of Bread Baking Enterprises in Kaduna and Zaria Metropolis of Kaduna State, Nigeria.
Economic Analysis of Bread Baking Enterprises in Kaduna and Zaria Metropolis of Kaduna State, Nigeria.
BY
Alhaji ABDULLAHI
(MSc / AGRIC /40919 / 2012-13)
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.
_____________________________ ________________________
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
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DEDICATION
I dedicate this dissertation to my lovely Dad, Alhaji B. A. Abubakar, who facilitated the
completion of my study.
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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-
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,
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.
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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
INTRODUCTION…………………………………………………………………………1
1.2Problem Statement............................................................................................................3
1.5 Hypothesis…………………………………………………………………………........7
CHAPTER TWO………………………………………………………………………....8
LITERATURE REVIEW………………………………………………………………..8
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2.3.2 Process of bread baking in Nigeria…………………………………………….........12
CHAPTER THREE……………………………………………………………………...25
METHODOLOGY……………………………………………………………………….25
3.4.4 Z-statistics…………………………………………………………………………...32
CHAPTER FOUR……………………………………………………………………......34
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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
CHAPTER FIVE…………………………………………………………………………56
5.1. Summary……………………………………………………………………………...56
5.2. Conclusion………………………………………………………………………….....57
5.4. Recommendations…………………………………………………………………….58
REFERENCES………………………………………………………………………….60
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LIST OF TABLES
Table Page
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 4.10: Maximum Likelihood Estimates of Cost Function for Bread Production……50
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LIST OF APPENDICES
Appendix Page
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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
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
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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.
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
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
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
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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
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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
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
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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
(GAIN 2008).
The level and structure of the Nigerian bread industry reflects that bread production is
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
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
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
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i. What are the socio-economic characteristics of bread producers the study areas?
ii. What are the costs and return associated with bread production?
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:
areas;
ii. determine the costs and return associated with bread production;
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
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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,
appropriate intervention measures in order to boost and improve the efficiency of bread
production.
1.5 Hypotheses
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CHAPTER TWO
LITERATURE REVIEW
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
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
breaddough, the lubrication effect will cause the protein structures to divide
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(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
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
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
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
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,
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hydrochloride, sodium met bisulfate, ammonium chloride, various phosphates, amylase,
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
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
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
large, medium and small scale manufacturers who produced packaged biscuits and bread.
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
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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
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
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,
connects inputs and output. It describes the law of proportion and includes all the technical
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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
inputs or factors of production. The production function is one of the key concepts of
allocative efficiency, the defining focus of economics. The primary purpose of the
production and the resulting distribution of income to those factors, while abstracting away
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
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
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
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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:
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
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
1992). A simplified equation that describes the substrate and principle end products of the
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
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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
yeast activity, the temperature of the dough play a major role in determining the time at
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
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.
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
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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
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
Jondrowet al., (1982), technical efficiency reduces production costs and makes a firm more
competitive.
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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
The production function stipulates the technical relationship between inputs and output in
concerned with the relativeperformance of the process used in the production process
(Upton, 1996). Three types ofefficiency were identified. They include: technical, allocative
separating its effects from the effects of theproduction environment can one explore
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
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some phenomena on performance. In suchsituations, empirical measurement provides
estimating averageproduction function (Olayide and Heady, 1982). This definition assumes
that technicalinefficiency is absent from the production frontier. Farrell (1957) suggested a
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
market prices are a truemeasure of relative scarcity. This will be the case when prices are
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
overall performance measure and is equalto the product of Technical Efficiency (TE) and
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efficient conditions according to Heady (1952) occurswhen price relationship are
employed to denote maximum profits for the firm or when the choiceindicators are
According to Adesina and Djato (1997) economic efficiency occurs when a firm
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
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
defined by:
Where;
Ui = inefficiency effects
Z3 = Education (years)
δ0 = Constant
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
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
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survey. According to Bakhsh (2007), stochastic frontier production function model is
Where;
Y = Bread output
α = Vector of parameters
∂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
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
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The combinations of equations (7) and (8) is used to obtain the allocative efficiency (AE)
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
Y* = f (Xi; β) – u ………………………………………………………………….9
E ( ui / ε i) = б λ f* (εi λ/ б ) – Σiλ
1 + λ² 1 – f* (εiλ )…………………………………………...10
Where
λ=бu/бv
ε = Vi - Ui and
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
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).
Where,
xxxii
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
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,
xxxiii
CHAPTER THREE
METHODOLOGY
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
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
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.
Primary data was used for this study. These were collected with the aid of structured
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
3.4Analytical Techniques
Descriptive statistics was used to achieve objective (i) and (iv) of the study. it involves the
variations, standard deviation, frequency distribution and percentages to describe the socio-
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
Where,
xxxvi
Qi= Bread output of individual enterprise (kg)
TC= TVC+TFC
Where,
Total Cost (TC) = Total Variable Cost (TVC) + Total Fixed Cost (TFC)
TVC = (flour, sugar, labour, water, salt, fat, yeast and firewood)
The fixed inputs are not normally used up at short run in a production cycle. They were
………………………………………………………………………………………………………………..12
Where:
D = depreciation (₦),
Returns per naira invested (RNI) was obtained by dividing the gross income (GI) by the
Therefore,
………………………………………………………………………13
Where,
xxxvii
TC = total cost.
The stochastic production function was used to achieve objective iii. The stochastic
Yi = f (xi.β) + ei……………………………………………………………………..14
ei = vi – ui……………………………………………………………………………15
Where;
(Vi-Ui)…………………………………………………………………….. 16
xxxviii
Where;
Y = Output of bread in kg
βo = Constant term
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
defined by:
Where:
Ui = Inefficiency effects
xxxix
Z3 = Baking experience of the operator (years)
δ0 = Constant
Where;
Y = Bread output
α = Vector of parameters
lnC = β0 + β1lnX1 i + β2lnX2i + β3 lnX3 i + β4 lnX4 i +β5 lnX5i + β6 lnX6 i + β7 lnX7 i (Vi +
Ui)…………………………………………………………………………………..19
Where;
xl
β0 = Constant term
Vi = Random variability in the cost of production that cannot be influenced by the farmer.
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
………………………………………………………………20
This was used to test hypothesis (ii) that is there is no significant relationship between
model specification is
Where;
xli
Yi=Technical Efficiency Estimates.
X1=Age (Years).
xlii
CHAPTER FOUR
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
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.
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.,(
resources is expected to be achieved. The more experienced one is the higher the
xliv
The results presented in Table 4.4 indicate that the majority about 81% had access to credit
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
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.
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
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
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
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
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
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
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
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.
(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
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
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
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
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
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
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
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
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
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,
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
(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
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
with the findings of Okoh(2009), similarly found seed and labour asdeterminant of
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%
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
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.
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
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
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
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
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,
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
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
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%
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
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 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
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.
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
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
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
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
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
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
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.
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
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
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
The study also suggest that for the average producer in the study areas to achieve economic
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
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
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
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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
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
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.
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Table 4.13: Constraints faced by the Bread Producers
Constraints Frequency Percentage Rank
Inadequate capital 124 27 1st
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CHAPTER FIVE
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
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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
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
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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
iii. It was revealed that bread firms were economically inefficient in the study area
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
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
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
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iv. Problems of high cost of raw materials, power supply and untimely supply of raw
that they can pooltheir resources together for seeking information on new
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APPENDIX 1: QUESTIONNAIRE
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
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2
3
(iii). what does it cost to rent a baking enterprisein your community? ....……...................... Naira
(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
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(v) Firewood/Electricity
No of firm Quantity(kg) Cost(₦)
1
2
3
(vii) Water
No of firm Quantity(litres) Cost(₦)
1
2
3
1
2
3
1
2
3
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26. CONSTRAINTS TO BREAD PRODUCTION
S/n Constraints
1
2
3
4
5
6
7
8
9
10
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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
lxxvii