HQCF Audit

Since the 1980s, the Nigerian government has consistently put in place policies to rapidly increase its cassava production and marketing with the aim of transforming cassava from a rural subsistence crop to an urban staple food. These policies at the time of this project’s inception had included the Presidential Initiative on Cassava (2003-2010) and the Cassava Transformation Agenda (2011), with specific interventions to increase the productivity of small-scale farmers ( by improving the supply of planting materials, for example) as well as promote high-quality cassava flour processing (e.g. making the policy of 10% mandatory substation of wheat flour with HQCF in the baking industry).

For this component of the HQCF project, the overall objective was to conduct and audit of small, medium scale (SMEs) to large scale (LS) producers of high-quality cassava flour to assess their technological and operational constraints and opportunities. To perform this audit, primary date was collected through structured questionnaires and in-depth interviews of the HQCF processors and bakers whereas, secondary data was gathered through the review of journals, technical documents, government gazettes and published material (from the Ministry of Agriculture, for example)

The audit was conceived with the aim of providing answers to the following questions:

1. What were the socio-economic characteristics of HQCF processors and master bakers?
2. Did the socio-economic characteristics influence the processing of HQCF in Nigeria?
3. Was HQCF processing and its use for bread profitable and the profits provide sufficient incentive to SMEs and master bakers to sustain their enterprises?
4. What factors influenced the technical and allocative efficiency of HQCF processors?
5. What were the socio-economic factors that influence the level of HQCF utilization for bread?
6. Where did the processors and master bakers buy their raw materials from and sell their products to?
7. What were the factors constraining HQCF processing and its use in bread?
8. Were there other opportunities that could have been explored to promote the production and utilization of HQCF in Nigeria?

This study was conceived as a two-staged transformation process with the first stage the transformation of raw cassava to HQCF using cassava tubers, electric power (using diesel/fuel and public power supply), machines, human labour capital and other inputs into outputs of HQCF. The second stage of the process involved the transformation of HQCF to composite flour (in combination with wheat flour) using power supply, machines, labour, entrepreneurship and other inputs to produce bread.

The conceptual framework for the study was premised on the microeconomic theory of firm and production frontier which indicates the minimum inputs required to produce any given level of output for a firm operating with full efficiency. A HQCF firm is technically efficient when it combines the optimal combination of inputs (raw cassava, labour, capital/machinery, energy) to produce a given quantity of HQCF. In other words, a firm may be technically inefficient if it fails to produce maximum output of HQCF from a given bundle of inputs in which case, it operates beneath the stochastic production frontier.

It was important to keep in mind throughout the audit that the ultimate objective for the HQCF processors and master bakers were either profit maximization, cost minimization or a combination of both.

The study sample comprised 104 medium scale processors (MSEs) of HQCF and 103 master bakers selected from a population of 157 MSEs and 128 bakeries that were registered with the Federal Ministry of Agriculture under the agricultural transformation agenda (FMARD).

As shown in the table above, results from the audit revealed that a significant majority (82.7%) of HQCF processors in Nigeria were male, middle aged (above the age of 50) and reasonably literate (17 years of school). This indicated there there was a dominant involvement of males in HQCF processing with a need for greater involvement of youths in high-quality cassava processing for sustained growth in the sector. The literacy levels observed amongst the HQCF processors suggested that higher literacy levels would provide greater potential for adopting improved technology for higher productivity and efficiency.

Additionally, these results revealed both the challenges and opportunities in HQCF processing in both countries as educated process would have been more likely to embrace modern technologies and innovations and yet older processors would have been less amenable to taking risk and looking forward which would have probably been required for developments and changes in the sector.

In addition, majority of respondents (92.6%) were married with a mean household size of 6 (58.7% of the respondents having a household size of at least 6 people). In other studies conducted by other researchers prior to this HQCF project, large households and married entrepreneurs had been linked to greater stability, responsibility and labour availability as well as the likelihood of cost saving from hired labour. Income earned from other non-processing activities was on average N 1,014,800 with about 66% of the processors earning below N1,000,000 and about 34% earning between N1,000,000-3,000,000. This implied that the HQCF processors had alternative sources of capital which could have been invested into the improvement of processing technologies.

The audit results also showed that most of the processors also engaged in processing product such as garri (59.6%), fufu (28.8%), cassava chips (14.4%) and dried cassava peels for livestock feed (11.5%).

In contrast to HQCF processors, bakers in Ghana were found to be mostly female (97%).

Depending on the location and operational strategies of HQCF processors, their technical efficiencies were found to vary widely between 13 and 95% (mean 79%) which implied that given the state of technology at the time, technical efficiency in HQCF processing in Nigeria could have been increase by 21% through more efficient use of available resources. This could have potentially been achieved through more efficient use of inputs as well as the allocation of resources. Moreover, while the amount of net profit made in HQCF processing varied across the four zones surveyed, overall, the results confirmed that cassava processing into HQCF was profitable in Nigeria.

The results also showed that 54.5% of processors had preference for specified varieties of cassava for HQCF processing. In fact, 53.5% indicated preference for the TME 419 cassava variety.

The major buyers of HQCF were found to be the flour millers with 87.5% of the processors selling HQCF to them, while 20.1% sold HQCF to master bakers and 13.5% sold to distributors/wholesalers, as shown in the table above. These results suggested that the market for HQCF was a domestic market and that there was room to expand domestic demand for high-quality cassava flour if the capacities of the master bakers and confectionary firms to utilize HQCF was boosted. Majority (92.3%) of HQCF processors were observed buying cassava tubers from the open market while 81.7% of them bought from out growers (farmers). These results implied that most HQCF processors did not engage in backward integration for ready and cheaper resources of material but depended mostly on out growers and the open market.

The role of gender, age, household size, education, processing experience, access to credit, numbers of association and ownership structures on the technical efficiency of HQCF processors was examined. Contrary to apriori expectations, the results showed that household size, access to credit, gender and processing experience significant and negatively influence the technical efficiency of HQCF processors. These counter-intuitive results indicated that technical efficiencies of HQCF processing would decrease with an increasing household size as well as access to credit implying that the provision of credit would not necessarily have been directed towards the purchase of necessary inputs.

Additionally, given that the results showed that access to credit (1.04, P<.05) tended to significantly reduce technical efficiency , these results may also have been an indication of the discouragement and disenfranchisement on the part of the processors due to policy inconsistencies such as the failure of the Nigerian government to enforce the 10% inclusion of HQCF in bread flour policy which left several small processors with unsold inventories and farmers with nowhere to sell their cassava harvest.

Policies that would create reliable demand and strengthen cassava value-added chains recommended and included:

• The provision of incentives for users of cassava products
• Cash back incentives to exporters
• A levy on imports of competing products

The audit also showed that being a male processor (-1.13, P<.05) tended to increase the technical efficiency of processing relative to that achieved by female processors. This results stressed the need to involve women in the sector and suggested that HQCF processing called and would have benefited from appropriate gender sensitivity in equipment designs that could easily be operated by female processors.

Years of experience of the operator (-2.91, P<.01) increased HQCF technical efficiency in processing, suggesting that processors with more years of processing experience are more efficient when compared to their counterparts with lesser years of experience. From this it was logical to deduce that processors with many more years of experience had better knowledge on machine operation, better knowledge of efficient allocation of resources and were expected to run a more efficient and profitable enterprise when compares to processors with little or no years of processing experience.

In contrast, factors such as age, educational status and type of ownership did not show significant influence on the efficiency level of HQCF processors in Nigeria. However, the mean age and distribution of processors implied that the population of processors were getting old and exiting their productive ages and thus, policy that would encourage and empower youths to participate was recommended and promoted. These policies included the training and provision of supervised credit.

With regards to operational constraints. HQCF processors ranked the high operational cost of machines as the top constraint in the business followed by the failure of Government to enforce the mandatory 10% HQCF inclusion of wheat flour. The socio-economic factors which influenced HQCF utilization were determined and included:

• Government policy
• Labour
• The price of high-quality cassava flour
• The price of wheat flour

Not-withstanding these constraints, some of the opportunities for effective HQCF utilization included:

• The large market for diversified HQCF products
• The potential lowering of food prices for consumers
• Eliminating the demand gap for food and supplying a variety of foods
• The formation of cooperative societies
• The availability of HQCF for bakeries as a result of 10% policy inclusion among others

Thus, in transforming the HQCF industry in Nigeria, recommendations were made with regards to policy efforts that could target the critical factor inputs influencing HQCF output as well as the socio-economic factors influencing the efficiency of processors as revealed in this study.

In the case of fresh cassava tubers which were found to significantly increase the output of HQCF, policies for expanding the production of fresh cassava tubers was encouraged. However, research into the history of cassava in Nigeria showed that cassava production had been characterized by a burst-boom cycle due to unstable prices and low productivity. Moreover, processors’ access to fresh tubers was hindered by poor road and transportation infrastructure.

Thus, policy intervention that would guarantee sustained processor access to fresh cassava tubers was recommended which included:

• The formation of clusters of farmers around small- and large-scale processing factories
• The dissemination of improved production packages (improved cuttings, fertilizers) to farmers to increase productivity and cassava output
• The creation of effective supply chains
• A guaranteed minimum price scheme with government as buyers as a last resort

Similarly, the significance of capital input in the HQCF industry suggested the need for policy intervention to create incentive for investment in appropriate processing facilities.

With respect to the utilization of HQCF for bread, awareness of government policy about 10% inclusion of cassava in composite baking flour, age of master bakers, price of HQCF, price of wheat flour and the level of experience in using HQCF for baking, were found to be positive and statistically significant.

Indeed, it was clear that increasing the availability of high-quality cassava flour for use in composite flour for bread production and other food products would result in:

• Significant savings for foreign exchange
• The promotion of high yielding native cassava species
• The enhancement of domestic agriculture
• The generation of rural income
• The promotion of rural development

In conclusion, findings for the HQCF audit revealed that:

• HQCF processors were technically efficient given the state of technology with prospect for greater efficiency in the allocation of their capital inputs
• HQCF processors were not efficient in the allocation of capital with the majority (90.4%) of them under-using capital inputs
• Raw cassava tubers and capital inputs were factors that significantly promoted HQCF processing
• Gender and processing experience were factors that significantly promoted the technical efficiency of processors while credit would most likely increase their technical inefficiency contrary to apriori expectation
• The awareness of government policy of 10% inclusion of cassava in composite baking flour, age of master bakers, price of HQCF, price of what flour and level of experience in using HQQCF for baking were positive and statistically significant with regards to the utilization of HQCF for bread

The national survey provided a crucial snapshot of the HQCF industry sector in Nigeria. Some of the recommendations based on the lessons learned from the study were:

• Government should implement entrepreneurship programmes that combine training in HQCF processing with supervised credit availability, especially for women as this would empower them to become more efficient and promote HQCF processing in Nigeria
• The training of women and youth in HQCF processing and utilization for bread and confectionaries would expand the market for HQCF and provide a driving force for increasing HQCF processing in Nigeria
• There was need for enhanced networking and communication links between farmers, processors, bakers, financiers and other actors along the value-chain to help establish long-term beneficial relationships such as a reliable supply of raw materials and a stable market for HQCF competitive prices