TRANSPORTATION COST VARIATION AND ITS EFFECT ON AGRICULTURAL PRODUCT

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TRANSPORTATION COST VARIATION AND ITS EFFECT ON AGRICULTURAL PRODUCT

CHAPTER ONE

INTRODUCTION

Background of the Study

Agricultural products encompass all categories of products related to agriculture. They range from raw and finished goods under the classifications of plants, animals and other life forms. Agricultural products can, therefore be referred to as crops and animals grown under cultivated conditions whether used for personal consumption, subsistence or sold for commercial benefits (Calestous, 2011). Agricultural products come in the form of fruits and vegetables, grains or cereals, livestock, natural fibres, forest and marine products (Adirika, 2001). Some agricultural products produced in Lagos State include: sugarcane, rice, groundnuts, beans, oil palms, cocoa, coffee, cattle, millet, maize, guinea corn, cotton, tomatoes, cowpea, cocoyam, sweet potatoes, tea, timber, banana, yam, beniseed, coconut, cassava, citrus fruits, oranges, guavas, sheep, goats, pigs, apples, and grapes (Lagos State Ministry of Information, Culture and Tourism, 2012). Being agrarian in nature, the predominant population of Lagos State is engaged in farming as an occupation. About seventy-five percent (75%) of the population of the people are farmers or local producers while an estimated twenty-five percent (25%) is engaged in other economic activities. John (2002) stated that local producers are unsophisticated farmers in rural communities who are engaged in agricultural production which include raising of livestock, cultivation of crops and vegetables to eat and to sell at a local market. Local producers therefore, are farmers (comprising of both male and female farmers) who own, work on or operate an agricultural enterprise either for commercial purpose or self-sustenance. Farmers in Lagos State usually move their products to local markets in small quantities by carrying them either on their heads or backs. A few others use either donkeys or bicycles to convey their goods to market places, due to the fact that vehicles do not reach their locations or farm centers. Equally, farmers make use of short channel structure, which is selling goods directly to the consumers without involving wholesalers and agents in the distribution process. The use of short channel of distribution is often done because farmers will want to dispose of their products immediately after harvest even when the prices are low, for fear that the products, especially perishable ones, might get spoilt soon as they cannot be stored because of lack of storage facilities, hence restricting the distribution of their products.

The words “distribution” and “place” are synonymous in marketing, and is one of the components of marketing mix. In the view of Kotler, Keller& Burton (2009), distribution is the handling, movement, and storage of goods from the points of origin or production to the point of consumption, via various channels. It is a marketing function aimed at getting goods and services from the producer to the ultimate consumer, transferring ownership and physically moving the goods to place of need. Distribution is an important marketing function, not only in the post-production marketing situation, but also in the pre-production situation by bringing about time and place utilities; aiding demand creation and satisfaction. The physical distribution of goods from producer to users requires the integration of subsystems such as fixed infrastructural facilities, warehousing, inventory, and logistics supports. A good distribution system brings a reduction in handling cost, a reduction in the incidence of product damage especially through physical spoilage and deterioration, a reduction in the incidence of loss through theft, and leads to considerable savings in transport cost. Through distribution, products are made available throughout the market place; such that a large number of people can buy them (Braton, 1998). Distribution involves a good transport system to take the goods into different geographical areas; a good tracking system so that the right goods reach at the right time and in the right quantity; a good packing, which takes the wear and tear of transport, tracking the places where the goods can be placed such that there is a maximum opportunity for sales; and a good distribution channel.

Transportation cost variation (also known as trade channels), as defined by Nicholson (2007), are the paths or route along which goods or products move from producer or manufacturer to ultimate consumers or industrial users. In other words, they are distribution networks through which farmers or local producers put their products in the market and pass them to the actual users. Transportation cost variation normally serve as a bridge or link between the gap in time and space where goods are produced to the period of consumption of the products. Henderson (2008) suggested that Transportation cost variation make it possible for products to be moved from the producer to the ultimate consumer. The author further stated that there are usually five channel alternatives for marketing of goods, namely: producer to consumer, producer to retailer to consumer, producer to wholesaler to retailer or consumer, producer to agent/broker to wholesaler to retailer to consumer and producer to agent/broker to retailer to consumer. Adirika, Ebue and Nnolim (2001) stated that where middlemen are not available for one reason or the other, direct selling and therefore, short channel structure is forced on the producer. The unavailability of middlemen may arise as a result of a prohibitive cost of using them or as a result of their inability to offer the services required by the producer or unacceptability of the producer’s channel policy and terms or by government action.

According to Ross (2004) there are basically two types of channel used for the distribution of goods; marketing channel for industrial good as well as that for consumer goods. Both types of channels directly and indirectly make goods available to end-users. While all goods and services pass through the marketing transportation cost variation, the perishability of farm produce sometimes compel farmers to make use of direct distribution channels. Also, since majority of farmers reside in rural areas and are separated from their customers they on the other side make use of the indirect marketing channels. There are special characteristics of most farm produce that require unique commercial distribution such as seasonality, bulkiness, perishability and scattered production among others. Therefore, the agricultural produce distribution channel could take any of the following forms: Direct channel: From the producers (farmers) to the consumers, and no intermediaries at all. This is common with fruits and vegetables, and fresh livestock products which are highly perishable. Short channel: The products are moved from the producer through an intermediary before getting to the consumer. This is favoured by products like Yam, Cassava, and Potato which have long shelve life. Long channel: Many intermediaries are involved in the movement of the commodities. This type of channel is common with products that can be stored for longer period such as grains, yam flour, maize flour, hide and skin, cotton and live animals. Coyle (2003) explained that transportation cost variation serve to bridge the gap between the point of production and the point of consumption; thereby creating time, place and possession utilities. It involves the management of such elements as order processing, finished goods management, material handling and packaging, transportation, storage and warehousing.

Warehousing is the use of scientific storage structures, especially constructed for the protection of the quantity and quality of stored products (Kent& Jonathan, 2000). It helps in stabilizing price of agricultural products by checking the tendency of making post-harvest sales among farmers. Moses (2000) stated that warehousing is helpful in storing goods after the demand is less than the supply, thereby regulating supply of goods and also stabilizing prices. It enables businessmen and producers to curtail various risks like loss, fire, theft, and damage of goods. Storage is another important marketing function, which involves holding and preserving goods from the time they are produced until they are needed for consumption. Storage of goods from the time of production to the time of consumption ensures a continuous flow of goods in the market, protects the quality of perishable and semi-perishable products from deterioration, and helps in coping with products that have seasonal demand(Paul&Kelvin,2010).In order to achieve cost-effective marketing, minimize postharvest losses and to reduce health risks that may occur at all stages between the farm level and the final level of consumption, storage facilities and infrastructures are very essential.

Infrastructural facilities play a significant role in Africa’s economic development, and will need to play an even greater role if the continent’s development targets are to be reached (World Bank, 2006). The World Bank further stated that in most African countries, particularly the developing countries, infrastructure is a major constraint to doing business, and is found to depress productivity by around forty percent. Infrastructural deficit is to be found in the power and transport sectors. The infrastructural deficit in power sector could be measured in terms of shortage of generation capacity, electricity consumption, or lack of security of supply of power in those countries. In the transport sector, Africa’s road density is sparse when viewed against the vastness of the continent, and as a result, only one-third of Africans living in rural areas are within two kilometers of an all-season road, compared with two-thirds of the population in other developing regions. According to Teruel and Kuroda (2005) the basic agricultural infrastructure (electricity, telecommunications, irrigation and transportation) directly impacts on productivity by providing farmers and rural households with feasible options for production, processing, marketing and distribution. Transportation is one of the factors of production in an economic process (David & Jaclyn, 2013). Readily available, low-cost transportation makes it possible to bring raw materials from the mines, fields, and forests to the factory to be transformed into desired products. Likewise, dependable transportation makes it possible for the factories to supply finished products to their customers where and when they are needed and in the form and quantities desired. Without an efficient, well-managed transport system, the growth and development of an economy and/ or region is adversely affected.

The authors further noted that because of special characteristics of agricultural products such as perishability, seasonality, bulkiness; it is uniquely dependent on a dependable and flexible transportation system, and that a dependable transport system enables farmers to sell surpluses at affordable cost to the market place and fulfills three of the “rights” of supply which are: getting the goods to the market at the right time, in the right condition, and in a cost- effective manner. Goods will arrive as scheduled, at the right price, in maximized loads with no breakages or pilferage. A good transport system complements an efficient distribution system, which may be from points of production, storage or prepositioning to points of use, or from hubs to end- use, or from distribution points to end-use, or return from end-use back to hub and pre-positioning points or producers; on the other hand, a bad transport system constitutes a distribution constraint.

Constraint, as described by Collins (2003),is anything that limits or controls what a person wants to do. It is an element, a factor, or sub-system that works as a bottleneck. Constraint restricts an entity, project, or system (such as manufacturing or decision making process) from achieving its goal. Constraint to the distribution process refers to something that imposes a limit or restriction or that prevents the movement of goods to other places of need from occurring or occurring smoothly. These constraints may vary among products and also among local producers from one State or location to another, which is applicable to agricultural producers in Lagos State that are faced with distribution constraints for their products; which are in the forms of poor road networks for transportations, absence or poor electricity supply, absence or inadequate warehousing and storage facilities, inadequate farm inputs and high cost of distribution occasioned by unfavourable government policies on agriculture.

Agricultural Policies are the instruments of action that governments employ to effect a change within the agricultural sector. Handcock (2012) stated that government’s agricultural policy is a set of decisions and actions relating to domestic agriculture and imports of foreign agricultural products. Governments usually implement agricultural policies with the goal of achieving a specific outcome in the domestic agricultural markets; some of which includes risk management and adjustment (including policies related to climate change, food safety and natural disasters), economic stability (including policies related to taxes), natural resources, and environmental sustainability (especially water supply policy),research and development; and market access for domestic commodities (including relations with global organizations and agreements with other countries). Hancock further explained that Policy programmes can range from financial programmes, in the forms of taxation, subsidies, tariffs and other measures, sometimes meant to encourage producers to enroll in voluntary quality assurance programmes. Government policy, as described by Richard (2002), may have a direct or indirect effect on the prevalent agricultural system through increasing productivity and ensuring regular food supply in the country, improving farmers’ standards of living, stabilizing market prices at a level beneficial to farmers and reasonable for consumers through the instrument of price support policies. Some of these policies have bearing on distribution of agricultural products.

Statement of the Problem

With the advent of new farming technologies such as machinery and farm inputs, selfsufficiency is almost being achieved in agriculture (John, Oral, Parr & Richard, 2010). What is now needed is the efficient distribution and marketing of the products to the places that require them for consumption and other uses. Greater thrust is laid on the problems of marketing. If the marketing facilities are developed; it gives signals to increase production and thereby ensures the availability of agricultural goods and services both locally and internationally. To distribute the surplus agricultural products, the marketing facilities have to be strengthened through provision and upgrading, right from the center of production to place of market.

Despite the agrarian nature of Lagos State, with about seventy-five percent (75%) of the population engaged in farming various forms of agricultural products such as rice, groundnuts, beans, cocoa, coffee, cattle, millet, cotton, tea, timber, bananas, yams, cassava, tomatoes, maize, sheep and goats, among others, (Lagos State Ministry of Information, Culture, & Tourism, 2012), the distribution systems have been observed to be very inefficient and ineffective; products are damaged either in the field or on transit, high cost of goods, delay in goods reaching places of use or markets, or some goods not spread at all throughout the state and even beyond. The absence of good infrastructure causes significant loss of earnings on the local producers and deprives them of capital for reinvestment and acquisition of machines for project expansion. Infrastructural deficiencies create high scarcity and cost of agricultural products borne by end-users in needed places of the state.

Constraints arising from warehousing lead to inability of local producers to store goods in order to meet demand during off-production seasons (Ashok & Balasubramanian, 2006). Lack of warehousing and storage facilities compel local producers to sell their products at give –away price during harvesting period and even when demand is low as a way of avoiding waste or spoilage, especially perishable goods; this causes decline in their income and standards of living; hence the need for this study, transportation cost variation of agricultural products by local producers in Lagos State and to identify the strategies for improving the distribution of agricultural products.

Purpose of the Study

The major purpose of this study was to ascertain the transportation cost variation of agricultural products by local producers in Lagos State. Specifically, the study sought to:

1) determine the infrastructural constraints (land transportation) to the distribution of agricultural products by producers.

2) determine the warehousing transportation cost variation of agricultural products by producers.

3) determine the channel of distribution constraints to the distribution of agricultural products.

4) determine the constraints posed by government policies on the distribution of agricultural products.

5) Identify the strategies for improving the distribution of agricultural products in Lagos State.

Significance of the Study

The findings of this study will be of immense benefit to local producers of agricultural products, consumers/industrialists, government agencies, and researchers. Agricultural producers who constitute the bulk of the population of Lagos State and by extension, the country, will benefit from the results of this study. The results of this study will make the general public aware of the transportation cost variation faced by farmers. Through this study, farmers will understand the effects of transportation cost variation and need for adopting good transportation cost variation of different types of products produced. This study will still be of great benefit to agricultural producers as the findings on the constraints if solved, will help reduce costs of production and distribution incurred by them, thus raising their propensity to save and standards of living. All these shall be made known to the local producers through organization of workshops and seminars by the researcher for them to learn.

Equally, consumers/industrialists who are the ultimate users of agricultural products will have value in this study as it will expose them to the various challenges producers face in getting products available to them, and the reasons responsible for high prices of the goods they pay. This study will also enable consumers and industrialists understand the link between government policies on agriculture and distribution of quantitative and qualitative goods they consume, thereby channeling complaints to Consumers Protection Council for redress, thus enabling them buy better goods in the desired quantity and at affordable prices.

Government agencies (especially, Federal and States ministries of agriculture) will also find the findings of this study significant because it will uncover the different constraints farmers encounter in the distribution of the products, which is the last stage of the production process, which may include the effects of the policies made on agriculture. This will then enable the government to formulate favourable policies on agriculture in order to ensure availability of agricultural products all over the country.

Finally, future researchers will find this study useful and as a premise for further studies either through replication or as a source of literature to future studies. The findings of this study when published, will be displayed in public libraries for all people including government officials to read and extract relevant information, for decision making.

Research Questions

The following four research questions were developed to guide this study:

1) What are the transportation cost variation of agricultural products?

2) What are the warehousing constraints experienced by agricultural producers in the distribution of products?

3) What are the transportation cost variation to the distribution of agricultural products?

4) What are the government’s policies transportation cost variation of agriculture products?

5) What are the strategies for improving the distribution of agricultural products?

Hypotheses

The following null hypotheses formulated to guide the study will be tested at 0.05 level of significance.

Ho1: There is no significant difference in the mean responses of male and female agricultural producers on the transportation cost variation of agricultural products in Lagos State.

Ho2: There is no significant difference in the mean responses of agricultural producers of tea and tomatoes on the warehousing transportation cost variation of products in Lagos State.

Ho3: There is no significant difference in the mean responses of producers of cassava products on the transportation cost variation to the distribution of agricultural products in Lagos State.

Ho4: There is no significant difference in the mean responses of producers of cassava products on the warehousing constrains to the distribution of agricultural products in Lagos State.

Ho5: There is no significant difference in the mean responses of producers of cassava products on the government’s policies transportation cost variation of agricultural products.

SCOPE OF THE STUDY

This study was delimited to transportation cost variation of agricultural products by local producers in Lagos State. The agricultural products covered in this study are tomatoes, dairy and tea products. The study was focused on local producers of the agricultural products in Lagos state.

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