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ECONOMIC EFFECTS OF CRUDE OIL EXPLOITATION ON CASSAVA PRODUCTION IN DELTA STATE
ABSTRACT
This study examined the economic effects of crude oil exploitation on cassava production in Delta State. Specifically, the effect of crude oil exploitation on land productivity, farm income and cassava yield was explored. The costs and returns, and hence profitability of cassava production as influenced by oil pollution, the farming systems and socio-economic characteristics of cassava farmers were critically examined. Copies of well-structured questionnaires were used to collect primary data from a sample of 204 small scale cassava farmers drawn using stratified and simple random sampling techniques from the three (3) agro-ecological zones of Delta State between October 2007 and February 2009. Data were analyzed using descriptive statistics, costs and returns analyses, net margin and regression analyses. The results revealed that total fixed cost per cassava farmer was N27, 624.49 while total variable cost per cassava farmer was N19, 108.68. Total output of cassava product (garri) before and after oil spill incidents were 48,636kg and 40,549.22kg with an average yield of 328kg and 274kg respectively per cassava farmer. A net margin of N27, 846.43 and N19, 206.43 before and after oil spills incidents per cassava farmer, indicating a 31% reduction in profit, was also revealed. Using the Ordinary Least Square (OLS) multiple regression method to estimate the effect of crude oil exploitation on the major dependent variables, the linear functions had the best fit with adjusted R2 of 0.432 and DW-statistic of 2.08 for land productivity, adjusted R2 of 0.953 and DW-statistic of 1.537 for farm income and adjusted R2 of 0.950 and DW-statistic of 2.015 for cassava yield. The results of the regression analyses and all the hypotheses tested using the paired t-test statistic at 1% and 5% probability levels, indicated that crude oil exploitation had a negative and statistically significant effect on cassava production in consonance with a prior expectations. Thus, it is recommended among other measures that government at all levels should take pragmatic steps at enacting and enforcing stringent environmental laws that will protect the oil producing farming communities as well as guaranteeing the people a better means of livelihood.
TABLE OF CONTENT
Title Page i
Certification ii
Dedication iii
Acknowledgement iv
Abstract v
Table of content vi
CHAPTER ONE
INTRODUCTION
1.1 Background Information 1
1.2 Problem Statement 4
1.3 Objectives of the Study 7
1.4 Research Hypotheses 7
1.5 Significance of the Study 8
CHAPTER TWO
LITERATURE REVIEW
2.1 A Brief History of Petroleum Development in Nigeria 9
2.2 Oil Exploitation and Environmental Pollution 10
2.2.1 Meaning of Oil Exploitation and Pollution 10
2.2.2 Sources and Types of Oil Industry Pollution 12
2.3 Oil Spillage and Pollution 14
2.3.1 Causes of Oil Spillage 15
2.3.2 Frequency and Magnitude of Oil Spills 15
2.4 Effects of Oil Exploitation 18
2.4.1 Oil Exploitation and Land Availability for Agriculture 19
2.4.2 Oil Exploitation and Soil Pollution 21
2.4.3 Effect of Oil Exploitation on Water/Aquatic Lives 23
2.4.4 Oil Exploitation and Hydrocarbon Pollution of Air 25
2.4.5 Oil Exploitation and Rural/Urban Migration 26
2.5 Oil Companies and Corporate Social Responsibility 27
2.6 Farming System in Cassava Production 31
2.7 Farm Resource Use 32
2.8 Valuation of the Environment: Empirical Measures 33
2.8.1 Non-Market Demand Approaches 34
2.8.2 Market Demand Approaches 34
2.9 Productivity Implications of Environmental Pollution 36
2.10 Conflicts and Resource Use 38
2.11 Theoretical Framework 40
2.11.1 Integrated Environmental Impact Model for Oil and Chemical Spills 40
2.11.2 Concept of Agricultural Resource Productivity 41
2.12 Analytical Framework 42
2.12.1 Multiple Regression Analysis 42
2.12.2 Gross Margin/Profit Function Analyses 42
2.12.3 The Student’s “t” Test 43
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Study Area 45
3.2 Sampling Procedure 46
3.3 Data Collection 47
3.4 Data Analyses 48
3.4.1 Model Specification and Estimation 49
3.4.2 Gross Margin Analysis 51
3.4.3 Hypotheses Testing 52
CHAPTER FOUR
RESULTS AND DISCUSSION
4.1 Farming Systems of Cassava Farmers 53
4.2 Socio-Economic Characteristics of Cassava Farmers 54
4.3 Profitability Analysis of Cassava Farming 56
4.3.1 Cost Analysis in Cassava Farming 56
4.3.2 Returns in Cassava Production 59
4.3.3 Net Margin Analysis 61
4.4 Corporate Social Responsibility of Oil Companies and Cassava Farming Activities 63
4.5 Effects of Crude Oil Exploitation on Land Productivity and Farm Income of Cassava Farmers 66
4.6 Effect of Oil Pollution on Cassava Farm Income 69
4.7 Effect of Crude Oil Pollution on Cassava Yield 71
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary of Findings 74
5.2 Conclusion 76
5.3 Recommendations 76
5.4 Contribution of Knowledge 78
5.5 Suggestion for Further Study 78
References 79
Appendix 94
LIST OF TABLES
PAGE
1.1 Nigeria Net Oil Revenue (N million) 3
2.1 Oil spills in Nigeria (1976-1996) 16
3.1 Communities Surveyed and Sample Sizes 47
4.1 Farming Systems of Cassava Farmers 53
4.2 Distribution of Socio-Economic Characteristics of Cassava Farmers 54
4.3 Average Fixed and Variable Costs in Cassava Production per hectare 57
4.4 Total and Average Yield of Garri per Cassava Farmer before and after Oil Spill Incidents 59
4.5 Test for Difference in Yield of Garri before and after Oil Spill Incidents 60
4.6. Cost and Returns in Cassava (Garri) Production per Cassava Farmer 61
4.7 Depreciation of Fixed Cost Items 62
4.8 Test for Difference in Net Margin (Profit) per Cassava Farmer before and after Oil Spill Incidents. 63
4.9 CSR: Responses of Male Cassava Farmers. 64
4.10 CSR: Reponses of Female Cassava Farmers. 64
4.11 Farmers’ Response as to whether CSR of oil companies has improved their farming activities 65
4.12 Regression Results on Factors Affecting Land Productivity in Delta State 67
4.14 Factors Affecting Cassava Yield in Delta State 71
CHAPTER ONE
INTRODUCTION
1.1 Background Information
One of the most discussed issues in Nigeria in recent time is that of sustainable development. Sustainable development, according to the Bruntland commission, is development that meets the needs of the present generation without compromising the ability of future generations to meet their own needs (World Commission, 1987).
Agriculture plays fundamental role in the development of any economy. Thus, according to Uwakahet al, (1991), agriculture is the bedrock of the economic development of most developing nations. Edordu, (1986) put it succinctly as follows: “experience has shown that no modern developed country around the world achieved rapid industrialization without having previously or simultaneously attained a marked increase in agricultural production”. The contribution of agriculture to development, most especially in the developing countries includes provision of food supplies, employment, capital formation, release of labour for industrial development and fibre needs of industries (Okorie and Eboh, 1999; Njoku, 2000; FAMRD, 2002). This implies that agriculture is very crucial to the social and economic development of Nigeria.
Agriculture is a vital business enterprise having various components. One of these components that is productive in nature is crop production-a component that dominates largely the Nigerian agricultural scene. It is noteworthy that agriculture in Nigeria is dominated by small scale farmers who are responsible for about 90 percent of the total production (Olatunbode, 1990). The small holder farmers usually have farm sizes ranging between 1-4 hectares and cultivate mainly staple food crops (Obinne and Mundi, 1999).
In recognition of the importance of crop production in the Nigerian economy, successive governments in Nigeria have undertaken various policy measures to revitalize the agricultural sector. However, none of these measures has yielded adequate fruitful result. This is an evidence of the fact that the bulk of Nigeria’s foreign currency earning presently comes from crude oil and gas. NNPC, (2004) reports that the national budget depends heavily on the revenue expectation from oil and gas and this will remain for a while. Thus, the dominant role of crude oil has pushed agriculture, the traditional mainstay of the economy from the early fifties and sixties, to the background.
According to Onwudiwe, (2003), there are eighteen oil companies operating currently in Nigeria. These companies operate over 159 oil fields and produce from over 1,481 oil wells. Of this figure, the Shell Petroleum Development Company (SPDC), controls about half (83 oil fields and 748 oil wells). All of these are almost exclusively in the Niger Delta region.
Oil production in Nigeria has come a long way from the early days of the 1950s. Today, of Africa’s proven crude oil reserves of some 66 billion barrels, Nigeria accounts for 25 billion barrels, more than 35 percent of the total. Therefore, the significance of oil in Nigeria’s political economy has grown considerably. From accounting for one percent of Nigeria’s export earning in 1958, it now accounts for up to 98 percent of export earnings; and from accounting for some 70 percent of total government revenue in 1970, it now accounts for between 80 and 90 percent. This phenomenal rise is attributable to crude oil output, which grew from 1.88 million barrels in 1958 to 822.75 million in 1974 and to 547.08 million in 1985 (NNPC, 1985). This figure rose significantly to 751.8 million barrels as at 1996 (CBN, 1996).
According to CBN, (2000) Nigeria’s crude oil production, including condensates, rose by 11.2 percent over the level in the preceding year (1999) to 2.18 million barrels per day (mbd). Consequently, net oil revenue rose sharply from N204, 848m in 1996 to N857, 582m in 2000 as shown in the following table.
Table 1.1: Nigeria Net Oil Revenue (Nmillion)
Fiscal Year Oil Revenue (Net) (N million)
1996 204,848.0
1997 218,727.3
1998 166,333.1
1999 1/ 336, 131.6
2000 2/ 857,582.2
Sources: Federal Ministry of Finance Central Bank of Nigeria. In CBN Annual and Statement of Accounts for the year ended 31st December, 2000 (P. 102).
Extracted from Federation and Account Operation
1/Revised
2/Provisional
There is therefore, no doubt that the Nigerian oil industry has affected the country in a variety of ways. On one hand, it has fashioned a remarkable economic landscape for the country. However, on the negative side, petroleum exploration and production also have adverse effects on fishing and farming which are the traditional means of livelihood of the people of the oil producing communities in the Niger Delta region of Nigeria, specifically Delta State.
Eteng, (1997) asserts that “oil exploration and exploitation had over the last four decades impacted disastrously on the socio-physical environment of the Niger-Delta Oil-bearing communities, massively threatening the subsistent peasant economy and the environment and hence the entire livelihood and basic survival of the people”.
In a similar vein, Gbadegesin, (1997) averred that “oil exploration and production in South Eastern Nigeria, has adversely affected peasant agriculture, the basis of sustenance of millions of rural inhabitants through a complex web of interaction of several negative environmental factors. Such factors include contamination of streams and rivers, the problem of oil spill, forest destruction and bio-diversity loss, the environmental effect of gas flaring and effluent discharge and disposal”. Thus, if the oil industry is considered in view of its enormous contribution to foreign exchange earnings, it has achieved a remarkable success. On the other scale, when considered in respect of its negative impact on the socio-economic life and the environment of the immediate oil bearing local communities and their inhabitants, it has left a balance sheet of ecological and socio-physical disaster. This rightly provides a framework to carry out an economic assessment of the effects of crude oil exploitation on small scale cassava production in Delta State of Nigeria.
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