1’} sé‘ .1, gin" '( %\. (ff ‘ l.l "A 7 AGRICULTURAL EXPORT POTENTIALS ANDLBALANCE ,j ’ " ' or PAYMENTS ASPECTS OF THE NIGERIAN ' 1 ECONOMY » Dissertation for thé Degree mm. D. _ _ , f ‘ * MICHIGAN STATE‘UNIVERSITY ROBERT EUGENE GRAY ' 1975 ' I E! III IIIIIIIII III I l II I l I II II u , ,, Michigan Stab University This is to certify that the thesis entitled Agricultural Export Potentials and Balance of Payments Aspects of the Nigerian Economy presented by Robert E . Gray has been accepted towards fulfillment of the requirements for Doctoral . Agricultural Economics degree In Major profe o | Date 5/ I 5/75 0-7539 ABSTRACT AGRICULTURAL EXPORT POTENTIALS AND BALANCE OF PAYPIENTS ASPECTS OF THE NIGERIAN ECONOMY By Robert Eugene Gray Agricultural exports have played a fundamental but multi-faceted role in the economic development of Nigeria. They have provided a basis for income and employment for the country's two - three million small, export-oriented farmers and for related industries. Until very recently agricultural exports supplied a major portion of foreign exchange earnings and government revenues for the development of other sectors 0f the economy. A major agricultural policy issue presently facing Nigerian Government administrators is whether to accept and encourage the smallholder export sector as a major develop- ment agent over the next 15 - 20 years. This dissertation analyzes the export potentials for selected Nigerian agri- cultural commodities over the 1970-1985 period under three alternative sets of export and agricultural policy strategies. The commodities considered are the present principal export crops-—cocoa, palm products, groundnuts, groundnut Pmdtmts and rubber--as well as the import substitute and Robert Eugene Gray minor export crops of cotton, rice, hard fibers, feedgrains, and beef. The three broad strategies are: Strategy I. A continuation of present export policies while allowing food production and marketing to be guided by market forces. Strategy II. Movement to higher producer prices and improved services for export and selected import substitute crops; expanded research on high-cost staple foods. Strategy III. Harsher strategy than at present: for private producers; large public investments in agricul- tural production; cheap food policies; and heavy taxation of agriculture. «. A theoretical framework comparing the Vent for Surplus and Comparative Costs models of international trade is developed for analyzing the export performance and for pro- jecting export growth in countries similar to Nigeria. The theoretical framework also provides a reconciliation between the two models which give the same results as to quantities traded, resources employed, and returns to factors of pro- duction-when the same general sets of assumptions are used for both models- The most fundamental conclusion of the study is that the overall outlook for Nigeria's present and known potential export croPS is generally favorable over the next 15 years and that agricultural export production should be increased. Robert Eugene Gray The market outlook for Nigeria's principal import substitute and minor export crOps is especially favorable. Projected export earnings, government revenues, govern- ment expenditures, and farmers' incomes are calculated for each of the three alternative development strategies over the 1970- 1985 period. Export earnings and farmers' incomes from export crops would be expected to increase dramatically with the favorable Strategy II policies and to decline from the 1970 levels with either a continuation of the present Strategy I policies or the harsher policies of Strategy III. AGRICULTURAL EXPORT POTENTIALS AND BALANCE OF PAYMENTS ASPECTS OF THE NIGERIAN ECONOMY By Robert Eugene Gray A DISSERTATION Submitted to Michigan State University in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY Department of Agricultural Economics 1975 ACKNOWLEDGMENTS My sincerest gratitude and appreciation go to the many people who guided and encouraged me through my graduate study and thesis preparation. I would like to express my special appreciation to my major professor and thesis supervisor, Professor Glenn L. Johnson of Agricultural Economics. Professor Johnson's guidance, direction and encouragement were major factors in helping me to complete my studies. I will always be appre- ciative. Professors Carl K. Eicher and George K. Dike of Agri- cultural Economics also contributed greatly to my studies and to my dissertation. As was Professor Johnson, they were always ready to assist me with any problem and to give excellent counsel and advice. A word of appreciation and thanks also goes to Professor Lawrence L. Boger, Harold M. Riley, and Vernon L. Sorenson of the same department. Professors Victor E. Smith and Carl E. Liedholm of the Economics Department and Lewis K. Zerby of Philosophy also contributed greatly to my study, and to them goes a word of thanks. I would like to give special mention to Professor Mordechai Kreinin of Economics who taught me the principles and concepts of International Trade. His lecture ii classes are among my most treasured moments at Michigan State University. 'Io nw'fellow graduate students also goes a heart felt word of thanks for the fine counselling, advising, and teaChing which one can get from such an outstanding group of young professionals. Earl Kellogg was especially helpful to me. He often explained in simple terms what I had found confusing and overly complicated in lectures. To my wife, Nancy, all I can say is thank you for your ever-present support and encouragement. To our three children--Rob, Kelley, and Cris, I appreciate your constant interest, encouragement, and patience in seeing this job to its successful completion. iii TABLE OF CONTENTS PART I. GENERAL ASPECTS OF NIGERIAN AGRICULTURAL EXPORT TRADE Chapter I INTRODUCTION . Purposes and Objectives of Study . The Consortium for the Study of Nigerian Rural Development (CSNRD) Agricultural Policy Alternatives Resource Allocation Resource Employment in Export Agriculture Timing and Availability of Inputs Taxing Policies . Marketing Facilities and Marketing Policies Political Implications of the Study Geographic Dependence on Certain Export Crops Inter- Relationships Between the Export Sector and Other Sectors of the Economy II THEORETICAL FRAMEWORK FOR THE STUDY OF NIGERIAN AGRICULTURAL EXPORTS AND THE METHODOLOGICAL APPROACH TAKEN The Theoretical Framework The Comparative Cost Model . The Vent for Surplus Model . Trade and Product Mix Other Uses of the Theory . Conclusions . . III EXPORT PROJECTION FRAMEWORK iv Page 11 14 17 18 20 20 21 21 23 25 25 28 45 50 51 53 Chapter Supply Responses Supply Responses From Annual Crops CSNRD Approach--Non- Computer Simulation . . . IV AGRICULTURAL EXPORT POLICY: PAST, PRESENT AND FUTURE . . . . . Methodology for Studying the Effects of Export Policy Changes . . Present Export Policies Export and Producer Taxes Summary PART II. WORLD DEMAND FOR NIGERIA'S PRESENT AND POTENTIAL AGRICULTURAL EXPORT PRODUCTS, 1970 TO 1985 V COCOA Introduction . . Growth of the World Cocoa Market World Cocoa Production . . International Cocoa Agreement Cocoa Substitutes VI FATS AND OILS The Fats and Oils Market Recent Trends . Palm Oil . . . EEC Fats and Oils Policy . U. S. Soybean Policy VII RUBBER . Production of Natural Rubber . Synthetic Rubber . . . . Prospects for Natural Rubber . VIII IMPORT SUBSTITUTE CROPS AND MINOR EXPORTS . . . . Cotton . Rapidly Growing Domestic Demand V Page 54 63 64 69 74 77 83 87 89 89 107 113 116 118 118 123 139 142 143 147 147 150 159 164 164 164 Chapter Page Import Substitution Possibilities . . 165 Rice . . . . . . . . . . . . . . . . . 166 The World Rice Market . . . . . . 166 Export Markets for Nigerian Rice . . 171 Rice Production in West Africa . . . 174 Costs of Production and Rice Prices in West Africa . . . . . . . . . . . 175 Hard Fibers . . . . 177 Feed Grains (Corn and Grain Sorghums) . 178 Beef . . . . . . . . . . . . . . . . . 181 IX SUMMARY OF THE WORLD DEMAND FOR NIGERIA'S PRESENT AND KNOWN POTENTIAL AGRICULTURAL EXPORT PRODUCTS, 1970 TO 1985 . . . . . . 182 Cocoa Summary . . . . . . . . . . . 183 Fats and Oils Summary . . . . . . . . . 185 Rubber Summary . . 189 ' Summaries of World Demands for. Import Substitute and Minor Export CrOps . . . 190 Cotton . . . . . . . . . . . . . . . 190 Rice . . . . . . . . . . . . . . 190 Hard Fibers . . . 191 Feed Grains (Corn and Grain Sorghum). 192 Beef . . . . . . . . . . . . . . . . 193 PART III. NIGERIA'S RESPONSE TO WORLD MARKET DEMANDS x SUPPLY CONDITIONS WITHIN NIGERIA . . . . 194 Production Characterized by Low Yields. 194 Present Low Level of Usage of Modern Inputs . . , _ 196 The Supply Projections Under Three. Sets of Alternative Policy Strategies . 200 Cocoa . . . . . . . . . . . . . . . . 202 Groundnuts . . . . . . . . . . . . . 205 Oil Palm Products . . . . . . . . . . 209 Rubber . . . . . . . . . . . . . . . 3%: Cotton . . . . . . . . . . . . . . . Rice . . . . . . . . . . . . . . . 224 Feed Grains . . . . . . . . . . . . . 224 vi Chapter' Page XI CONCLUSIONS AND RECOMMENDATIONS . . . . . 227 A Favorable Outlook for Nigerian Exports . . . . 227 Projections of Farmers' Incomes from. Export Crops, Government Revenue from Export Agriculture, and Foreign Exchange Earnings, 1970-1985 . . . . . 229 Export Earnings ; . . . . . . 231 Expected Government Revenues . . . . 232 Farmers' Income from Exports . . . . 232 Farmers' Total Income from Export Crops . . . . . . . . 233 Employment ConsideratiOns . . . . . . 234 Expected Petroleum Revenues . . . . . 235 Specific Recommendations on Export Crops . . . . . . . . . . . . . . . . . 235 Cocoa . . . . . . . 235 Groundnuts and. Groundnut Oil . . . . 237 Palm Oil . . . . . . . . . . . . . . 238 Rubber . . . . . . . . . . . . . . . 239 Import Substitute and Minor Export Crops . . . . . . . . . . . . . . . . . 241 Cotton . . . . . . . . . . . . . . . 241 Rice . . . . . . . . . . . . . . 241 Hard Fibers . . . . . . . . . . 242 Corn and Grain Sorghums . . . . . . . 242 Beef . . . . . . . . . . . . . . . . 243 Policy Recommendations and Implications . . . . . . . . . . . . . 243 Resource Employment in Export Agriculture . . , , 243 Timing and Availability of Inputs . . 244 Marketing Facilities and Marketing 2 Policies . . . . . . . . . . . . . 45 Taxing Policies . . . . . . . . . . . 245 Additional Research Needs . . . . . . . 247 Research on Costs of Production and on 24 Diversification of Export Crops . . . 7 The Domestic Food Production Sector . 249 vii Page APPENDIX.....................252 BIBLIOGRAPHY...................281 viii LIST OF TABLES Customs Duties Collected, Nigeria, 1900-1963 . Estimates of Marketing Board Surpluses, Pro- ducer Purchase Taxes, and Export Taxes on Agricultural Goods, Nigeria, 1949-1966 . Tax Make-up for Major Export Commodities, Nigeria, 1961-65 Averages . . . . Major World Cocoa Exporters, 1947-51 to 1968 . World Consumption of Cocoa Beans and Cocoa Products in Terms of Beans, by Geographical Area, Annually, 1963-68 . . . . . . . Per Capita Cocoa Consumption in Developed Countries, Pre-War Averages to 1967 Purchases of Raw Cocoa from Nigeria, by Country, 1959-1968 . . . . West African Shares of World Cocoa Production 1963-68, and Production Projected to 1985 Cocoa Production Growth Rates, by Country, 1950-52 to 1966 and Projeeted Growth Rates to 1975 . . . . . . . . World Production of Fats and Oils, or Oil Equivalent, by Type, Average 1954-56 to 1965- 67 . . . . . . . . . . . . Exports and Imports of Fats and Oils or Oil Equivalent, by Region and Country, Average 1954-56 and 1965-67 . . . . . . . WbrldExports of Fats and Oils, or Oil Equivalent, by Groups and Type of Oil Average 1954- 56 and 1965- 67 . . ix Page 73 84 85 96 101 102 105 108 111 125 126 128 10.1 Trends in World Prices of Selected Fats, Oils and Soybean Meal, 1954-1969 . Prices of Selected Vegetable Oils and Fish Oil, 1967, 1968, 1969 and Lowest Price During 1958-66 . World ProductionénuiConsumption of Fats and Oils, or Oil Equivalent, by Region, 1965-67 and Projections to 1975 . . . . . . . . . . World Production, Exports and Imports of Palm Oil by Major Exporting and Importing Countries, Average 1955-59, Annually 1963-67 . . . . . . . . . . . . . . . World Rubber Consumption, 1950/52-1967 Net Exports of Natural Rubber from Major Rubber Producing Countries, 1950-52 to 1967 . World Production of Synthetic and Natural Rubber 1955-67 to 1966, 1968 . . World Rubber Exports--Va1ue, Volume and Unit Values, 1950-67 . . . . . Real Price of Natural Rubber, RSS 1, New York 1920-1967 . . . . . . . . . Projected Consumption of New Rubber by Type, 1958-1975 . . . . . . . . . World Rice Imports and Exports, 1959/63-1969. Milled Rice Imports in West Africa by Volume and Value, 1952- 67 Paddy Rice Production in West Africa, 1962/63 1967/68 . World Coarse Grains Imports and Exports, 1959/63-1969 . . . . . . Selected Aspects of Cocoa Production Under Three Alternative Strategies, Nigeria, 1963, 1967, 1970, 1975, and 1985 . . . . . Page 133 132 136 141 149 151 151 155 156 161 167 172 175 180 203 Table 10. 10 10. 10. 10 10. 10. 10. 10. 10. 2 Cocoa Projections Under Three Alternative Strategies: Payments to Farmers from Exports Government Revenues and Exchange Earnings, Nigeria, 1970, 1975, and 1985 . .3 Selected Aspects of Groundnuts Production Under Three Alternative Strategies, Nigeria, 1963, 1966, 1967, 1970, 1975 and 1985 . . . . . . . . . . . . . . . . . . . 4 Groundnut Products Projections Under Three Alternative Strategies: Payment to Farmers from Exports, Government Revenues and Exchange Earnings, Nigeria, 1970, 1975 and 1985 . . . . . . . . . . . . . . 5 Strategy II. Suggested Oil Palm Campaign Acreage, Nigeria, 1970-1975 . . . .6 Selected Aspects of Oil Palm Produce Pro- duction Under Three Alternative Strategies, Nigeria, 1963, 1967, 1970, 1975 and 1985 7 Palm Products Projections Under Three Alternative Strategies: Payments to Farmers from Exports and Domestic Consumption, Government Revenues and Exchange Earnings, Nigeria, 1970, 1975 and 1985 . 8 Selected Aspects of Rubber Production Under Three Alternative Strategies, Nigeria, 1963, 1966, 1970, 1975 and 1985 9 Rubber Projections Under Three Alternative Strategies: Payments to Farmers from Exports and Domestic Consumption, Government Revenues and Exchange Earnings, Nigeria, 1970, 1975 and 1985 . . . . . . . . . . . . . . . . 10 Selected Aspects of Cotton Production Under Three Alternative Strategies, Nigeria, 1963, 1967, 1970. 1975 and 1985 . . . . . 11 Cotton and Cotton Products Projections Under Three Alternative Strategies: Payments to Farmers From Exports and Domestic Consumption Government Revenues and Exchange Earnings, Nigeria, 1970, 1975 and 1985 . . xi Page 206 208 210 212 213 215 219 220 222 223 Table 11.1 A.1 A.2 A.3 A.4 A.5 Projected Export Earnings, Farmers Incomes, Government Revenues, and Government Expen- diture from Export Crops, Under Three Alternative Strategies, Nigeria. 1970-1985. Value of Nigerian Exports of Principal Agricultural Products, 1950-1968 Nigeria's Share of World Trade in Major Crops, 1948—52 to 1968 Destination of Nigeria's Exports by Percentages, 1958-1968 Nigerian Exports and Destinations of Selected Commodities, 1958-1968 . Preferences in the United Kingdom and EEC for Selected Tropical Products, 1965 xii Page 230 260 263 267 270 274 N \l LJ'IU'ILAJUJUD NI—‘WNH H LIST OF FIGURES Production Possibilities Curve and Edgeworth Box . Changes in Factor Endowment Effects of Factor Supplies Changes on the Production Possibility Curves . . Production Possibility Curves, Countries A and B . A Trading Relationship Between Countries A and B . Optimizing the Product Mix Shifts of Production Possibility Curves and Point of Production and Trade Fully Reversible Supply Curve Expansion and Contraction Paths for a Firm. Fixity of a Factor in Production Cocoa--Postwar Supply and Demand Cocoa--Wor1d Production and Grindings 1930-1968 . Index Prices for Synthetic Rubber, 1956-67. Growth of Agricultural Exports, Nigeria, 1953- 1969 . . . . . . . . xiii Page 32 41 43 45 46 47 49 55 56 60 92 93 158 258 PART I GENERAL ASPECTS OF NIGERIAN AGRICULTURAL " EXPORT TRADE CHAPTER I INTRODUCTION Agricultural exports have played a fundamental but mmlti-faceted role in the economic development of Nigeria. They have not only provided employment and a source of income for the 2-3 million small export-oriented farmers, but they have contributed the vast majority of the foreign exchange earnings of the country as well as millions of pounds of export taxes for financing development in other sectors of the economy. They have indeed served as what W. Arthur Lewis calls the prime mover of the economy. Lewis specifies four ways in which the prime mover influences the rest of the economy: 1. It buys the goods and services of the other sectors for use in producing or selling its product. It requires intermediate products, transport, distri- bution, banking, and port facilities. 2. It serves as an expanding market for other indus- tries in the form of consumer goods, medical services, and entertainment. 1W. Arthur Lewis, Reflections on Nigeria's Economic Growth (Paris: OECD, 1967), pp.’15-22. 3. It generates savings and pays taxes which can be used to develop other goods and services including the services provided by government. 4. It may serve as the base for expansion of output of other industries which use it as raw materials. Agricultural exports have been the most dynamic element of the Nigerian economy in the past. Lewis also lists large scale manufacturing based mainly on import substitution as the other, though largely potential, prime mover of the economy. This is apart from the rapidly growing petroleum industry which is just coming into being. Agricultural export production has contributed more than large scale manufacturing despite the rapid growth of the manufacturing sector in recent years. This is primarily because manufacturing in Nigeria is expanding from a small base. To achieve development via agricultural exports is con- trary to the early development experiences of most less developed countries.2 Primary exports are not generally believed to serve as the important propulsive sector in the early stages of development because of the lack of backward and forward linkages that exists in many developing countries between export agriculture and the rest of the economy. 2Gerald K. Helleiner, Peasant Agriculture, Government, and Economic Growth in Nigeria (Homewood: Richard D. Irwin, Inc., 1966), p. 44. Export agriculture in the early stages of development is often limited to foreign enclaves which contribute little to the overall growth of the economy. This has not been the case in Nigeria. Peasant export agriculture has been part and parcel of the traditional economy. One of the first major tasks of the development planner, 3 is to determine the areas in which according to Hagen, great advances in productivity, which will lead to greater comparative advantages, are likely to occur. It is then the job of the nation's leaders to help establish the con- ditions which.will encourage and facilitate the growth of these most promising sectors. The point of departure in isolating areas of high potential is through a thorough examination of the previous points or areas of growth, or in Hagen's words, "to look at the previous comparative advantages of the country.” In the case of Nigeria, this would mean a thorough examination of the agricultural export sector. There are two important and related reasons why the study of past development is essential to an assessment of the future, according to Stolper.4 One is that the accom— plishments of the past serve as a useful benchmark against 3Everett E. Hagen, The Economics of Development, (Homewood: Richard D. Irwin, Inc., 1968). 4Wolfgang F. Stolper, Planning Without Facts: Lessons in Resource Allocation from Nigeria's Development (Cambridge: Harvard University Press, 1966). which to judge developments of the present and future. The other reason is that past decisions may largely influence future developments, and that new decisions have to come to terms with the inheritances of the past. Purposes and Objectives of Study It is with the past experiences and contributions of export agriculture clearly in mind that this study is framed. The study endeavors to point up the contributions of export agriculture in the past and to make projections of the most likely contributions over the 1970-1985 period under certain sets of supply, demand, and export policy assumptions.S Specifically, this study has four primary objectives: 1. To conduct a projective analysis of the export poten- tials for selected Nigerian agricultural commodities over the 1970-1975-1985 period. 2. To calculate expected farm incomes, government revenues, and foreign exchange earnings to be derived from export agriculture under three alter- native sets of export and agricultural policy strategies. 5A3 Helleiner points out (pp. cit., p. 46), it is impossible to simply designate one dIEtinct part of the Nigerian economy as the agricultural export sector and another as the subsistence sector as the two are generally overlapping. Often Nigerian farmers engage at one and the same time, and on the same plot of land, in production for export, production for domestic trade within the country, and production for subsistence. Nevertheless, the terms "export sector" and "subsistence sector" will be used for the purposes of simplification while realizing the problems associated with the use of these terms. To make policy recommendations as to the desired allocation of resources between the export and food production sectors within the Nigerian economy based upon research already completed by the Consortium for the Study of Nigerian Rural Development (CSNRD). To develop a theoretical framework for analyzing export performances and for projecting export growth in countries such as Nigeria. This involves a reconciliation of the comparative costs and vent for surplus theories of international trade. The Cbnsortium for the Study of NIgefian Rural Development (CSNRD) The analysis of Nigerian agricultural export potentials the subject of this study, is a part of the larger sectoral study of the Nigerian agricultural economy which was com- pleted in 1969 by the Consortium for the Study of Nigerian Rural Development (CSNRD). The Consortium, composed of united States educational institutions and governmental agencies involved in rural development work in Nigeria and administered from Michigan State University, conducted research in cooperation with Nigerian agencies for over two years to meet the following objectives: 1. To summarize the relevant agricultural history of Nigeria with special emphasis on the period since Independence in 1960. 2. To present three alternative sets of projections and policies for Nigerian agricultural development from 1970-1985. 3. To identify major problems and to present recom- mendations for rural development in Nigeria. The author did research under the guidance of Professor Glenn L. Johnson, Director of CSNRD, on Nigerian agricultural exports to be included in the overall sectoral study. The export section is a vital part of the overall CSNRD analysis and furnishes the basis for many of the CSNRD recommendations. The author's relationship to the CSNRD group and to the final agricultural sector analysis was a two-way relationship. He both contributed to and benefitted from the overall CSNRD effort. His principal task was to cover the agricul- tural export sector of the Nigerian economy.‘ He was to assimilate and analyze data on past export growth and to present export projections over the 1970-1975-1985 period under three sets of alternative development strategies. The projections include foreign exchange earnings, farmers' incomes, and government revenues that would be expected under each of the development strategies. This necessitated projecting the world demand and supply conditions expected to prevail for the actual and potential export crops during the study period as well as supply and demand projections for the commodities within Nigeria itself. Mbre of the specific methodology of how the export projections and ‘world demand and supply conditions were handled is included in Chapter III. The writer also contributed in the assimilation of data and preparation of the export production campaigns which are included in the CSNRD final report, Strategies and Recommendations for Nigerian Rural Development, 1969/1985. He projected national income earnings based on his findings in the export sector using the Nigerian national income 6 The author's research model developed for CSNRD by Cownie. findings are included mainly in Chapter VII of the CSNRD final report: Recommended Production Campaigns.7 This is not the sum total of his findings, however. His contributions are also found dispersed in other parts of the final CSNRD document. The author, in turn, drew heavily from other CSNRD researchers and CSNRD publications for much of the data used in the export study. Many unpublished CSNRD working papers developed by researchers in Nigeria in cooperation with Nigerian personnel specifically for the purpose of under- standing the Nigerian economy and developing the agricultural sector analysis were of great value. The information was simply not available in published form. 6John Cownie, Nigerian National Income Accounts: Historical Summary and Projections to 1985. CSNRD No. 14 (East Lansing: CSNRD, I968). 7Glenn L. Johnson, 0. J. Scoville, G. K. Dike, and C. K. Eicher, Strategies and Recommendations for Nigerian Rural Development, I96971985. CSNRD No. 33 (East—Lansing: CSNRD, 1969). The agricultural export study presented here contains many public policy recommendations and other policy impli- cations which are not specifically spelled out. Following the criteria established in the overall CSNRD study, it is more concerned with policies than with programs. To date, Nigeria's First Development Plan has been evaluated by numerous researchers in terms of whether the projected government capital and recurrent expenditures exceeded, equalled, or lagged behind the targets of the 1962-68 Develop- ment Plan. However, we contend that policies, especially those which affect the motivation of 5,000,000 Nigerian farmers, are much more impor- tant in determining the performance of the agri- cultural sector than the mere expenditures of monies. For these reasons, we stress strategies and policies in this report rather than evaluation of expenditures--capital and recurrent--on agriculture.8 The major agricultural policy decision facing Nigeria today is whether to accept and encourage the smallholder export producer as the principal development agent of the country over the next 15-20 year period. That decision has not been irrevocably made. The role of the Nigerian Governments,FederalanuiRegional, prior to the formulation of the 1962-68 Plan was primarily one of furnishing social- overhead and administrative services to the export and traditional agricultural sectors. The Ministry of Agri- culture and other related agricultural agencies provided crop and livestock research, agricultural education, produce 8Glenn L. Johnson, et. al., op, cit., p. 7. inspection, some credit and other assistance. Also, the government provided roads, railroads, communications, port facilities, and marketing services. National agricultural development policy changed from the social-overhead/administrative service philosophy of the 1900-60 period to one of "government directed investment" with the formulation of the 1962-68 National Development Plan.9 Although industry and technical education shared the focus of emphasis with agriculture in the 1962-68 Plan, there was an increase in allocation of public funds to agriculture. Resources allocated to agriculture in Federal, plus Regional capital and recurrent budgets, increased from an average of 3.5 to 5.6 percent of the total resources during the 1949-62 period to 13.6 percent during the 1962-68 Plan period.10 More than one-third of the public resources assigned to agriculture in the 1962-68 Plan were allocated to government directed investment projects such as farm settlements, plantations, and irrigation schemes.11 Approx- imately 75 percent of the capital earmarked for agricultural projects in the Western and Mid-Western Regions and 20 per- cent in Eastern Nigeria was for the development of farm settlements. 9Federal Government of Nigeria, National Development Plan, 1962-68 (Lagos: Government Printer, 1962). 1OJ. C. Wells, "Government Investment in Nigerian Agri- culture: Some Unsettled Issues," Nigerian Journal of Economic and Social Studies, Vol. VIII (March, 196677 lllbid. 10 The efforts of the Southern Regional Governments to increase agricultural production and employment opportuni- ties through directed land settlement and government-run plantations, as laid out in the 1962-68 Plan, have been largely unsuccessful, according to FAO and others.12 The reasons generally given for the failure of these projects have been excessive costs, often totaling as much as £5,000 per settler, poor selection of settlers, below expected crop yields, and defection of settlers. The FAO report on Nigeria (cited above) maintains that even if settlement costs could be lowered to £1,000 to £2,000 per settler, the total cost still would be completely prohibitive for providing employment for the estimated one million new workers who enter the labor force each year. Other approaches must be found for increasing production and employment opportunities. Saylor, in a study for CSNRD in 1967, showed that all existing government owned oil palm plantations for which data were available were economically unviable.13 The government palm.plantations were unable to break even on recurrent expenditures, let along repay development costs. 12Food and Agriculture Organization of the United Nations (FAO), Agricultural Development in Nigeria: 1965-80 (Rome: T1966). 13R. G. Sa lor, A Study of Obstacles to Investment in Oil‘Palm and Ru ber Plantations. CSNRD No. lSTKEast Lansing: CSNRD, August, 1968)I 11 The Nigerian Government has not irrevocably settled on one general policy for agricultural development. The alter- natives are still open to Nigeria (a) to encourage the small- holder with price incentives, increased research and other agricultural inputs along with improved credit and marketing facilities, or (b) to continue with the governmental directed agricultural program started in the Western Region in 195914 and emphasized on a much wider scale in the 1962-68 Plan. Agricultural PolicygAlternatives Agricultural policy alternatives in the less developed countries--all of which are still open to Nigeria--seem to fall into one of three general categories: 1. One general policy alternative, and the one pre- sently followed by Nigeria, is to tax export agriculture to help finance the nonagricultural sector of the economy 'while at the same time permitting food production to grow under the guidance of market forces. Many developing countries have chosen this alternative. The obvious result of this type of policy with export taxation is to have unfavorable terms of trade for the export sector relative to the rest of the economy. A substantial portion of the income generated by exports is taken by government through a variety of devices including marketing board margins, export taxes, and taxes on production before it ever reaches the producer. 14Future Policy of the Ministry of Agriculture and Natural Resources,TSessional Paper (Ibadan: Ministry of AngCulture and Natural Resources, 1959). 12 2. A second general type of strategy, and the one recommended by CSNRD, is to fully support agriculture, to provide incentives for agricultural production and to support agricultural producers with infrastructure, research, and modern services--realizing that a viable agriculture is a valuable asset that can only be attained at great costs even with wise policies. The specific features of this strategy, as well as the other two, will be presented at a later point in the paper. 3. A third type policy, and one often labelled as an "enlightened policy" because of a larger planning input, severely forces the terms of trade away from agriculture through the extensive use of export taxes, producer taxesi and marketing board policies often reinforced by ceiling prices, rationing, and heavy taxes on agricultural inputs. It is designed with the intention to extract large amounts of tax revenue from agriculture and to keep food prices low for urban dwellers rather than to further rural develop- ment. It provides for heavy direct governmental investment in agriculture and is considerably more negative toward private agriculture than is the present Nigerian policy. The CSNRD agricfiltural sector analysis, of which this export study is a part, traces the consequences of following each of the three above alternative agricultural strategies through the 16-year period between 1969 and 1985. The CSNRD study projected the consequences of each of the three 13 strategies at three points in time--l970, 1975, and 1985. The export study follows the same procedure. It projects the export earnings, farmers' incomes and government revenues from following each of the "let drift," ”more favorable,‘ and "less favorable" agricultural policies as identified as alternatives 1, 2 and 3 (above). This neces- sitates the calculations of supply responses of the millions of smallholder producers; the Nigerian demand for crops and products that are normally exported, or can be exported; the demand for crops with import substitution or improved nutrition potentials; and world prices expected to prevail in 1970, 1975, and 1985. The economic consequences of following each of the alternative policy approaches listed above will be quanti- fied in this study to provide a basis for comparison among the policy alternatives so that the agricultural policy most conducive to overall Nigerian economic development may be selected and pursued. The agricultural policy approach taken, if it differs from present policy, may well affect or alter existing sectoral and structural relationships within the economy. It may call for non-Pareto better adjustments to be made among different groups in the Nigerian economy. An example of such an adjustment would be the substitution of some part of the nonagricultural sector as the main source of taxes which are now taken from the agricultural sector, or the trade-off between gains of farmers who would 14 receive more of the world value of their produce if taxes are reduced and others whose taxes would have to be increased. Resource Allocation One of the primary distinctions made by Johnson in identifying relevant kinds of research in support of African rural development is that between (1) problems which can be solved by the market mechanisms, and (2) problems which have to be solved by technological, institutional, or educational changes generated outside the market.15 Johnson asserts that a very high proportion of the problems involving economic equilibria, including those of pricing, the ration- ing of consumption, and the allocation of productive resources, can best be settled in the market place. Such problems, if they are handled via governmental or other control programs instead of entrusted to the market mechanism, can consume an almost limitless amount of research and admin- istrative talent. Quoting Johnson directly: Generally speaking, about all the research which West African countries can afford on problems which can be turned over to the market is research of a policy nature to identify how existing pro- grams and policies interfere with the operation of the market, and in turn, what policy changes are needed in order to turn the problem over to the market place. As a corollary, the adminis- trative burden of merely making the changes required to turn such problems over to the market generally taxes the administrative machinery and 15Glenn L. Johnson, "Relevant Rural Development Research fer West Africa," paper presented at the Seminar on Research on Agricultural Development in East and West Africa, East Lansing, Michigan, June, 1968. 15 personnel of West Africa so heavily that obvi- ously there would be little administrative and research capacity left over, either (1) to tackle the enormous problems of administering prices, consumption and production, or (2) to solve and execute decisions concerning problems which can- not be solved in the market place. . .The problems, which the market cannot settle, are the kinds of problems about which men some- times fight ignobly, seeking the self interest of groups and sometimes noble, seeking capacity to develop superior societies. In any case, the problems are so important, so relevant, and so numerous that they are worthy of the best atten- tion of whatever research and administrative personnel are available. Following Johnson's line of thought, it is the hypo- thesis of this study that the decisions concerning pricing and resource allocations for Nigerian export agriculture can best be made by the market mechanism. At present, civil servants directly or indirectly help determine how many resources should be employed in export agriculture, in which particular exports, and what the returns to these resources will be. The agricultural sector has long been isolated from actual world demand and price considerations fer its products. Farmers seldom realize the world market price for their products. They respond generally to arbi- trary prices purposefully set low by administrative government personnel in the marketing board scheme designed to tax export agriculture and transfer resources out of agricul- ture to other parts of the economy. 16Ibid., p. 5 16 Resources are not allocated in Nigeria today so as to maximize returns to the Nigerian economy principally duetx)the Marketing Board trading system which generally allows not more than one-half to two-thirds of the actual world market price to be paid for agricultural exports. The difference between what is paid by the Marketing Boards to the export producers for their goods and what is received: for them on the world markets is deemed "Marketing Board Profits." These "profits," totaling L120 million over the 1947-54 period have been invested in many agricultural and nonagricultural projects, often of low return. The Marketing Board profits have been much less in recent years due primarily to the fall in world prices of many of the products exported. More on the Marketing Board phil- sophy, and its structure and role in economic development, will be included in a later chapter. As previously stated, this is a policy paper based upon historical findings and projections of the Nigerian economy through time for three alternative sets of develop- mental strategies. It offers recommended policy changes such as the major one already mentioned--that is, to turn the resource allocation and pricing determinations of the agricultural export sector back to the market mechanism. This will bring about a more optimal allocation of resources within the economy as each resource will theoretically move to the employment where its Marginal Value Product (MVP) 17 is the greatest. A return to the market mechanism is sure to bring some adjustments of resource use within the economy. These might be described as follows. Resource Employment in Export Agriculture Increased resource employment in export agriculture-- the primary concern of administrators and planners in an economy which has a dynamic smallholder agriculture must be the formulation of policies and priorities that will induce the millions of small farmers to invest their labor and savings into agriculture. More resources can be expected to move into the export sector if, in fact, export agriculture is encouraged by greater provision of infrastruCture and if export agricul- ture becomes more profitable as outlined in the CSNRD sectoral analysis. A change in the terms of trade between agriculture and the nonagricultural sectors 6f the economy would be a reversal of present policies whereby export agriculture is taxed to support development in other parts of the economy. The owners of resources already in export agriculture or readily transferrable to export agriculture would bene- fit economically relative to the remainder of the population with such a change in policy. This would mean direct increases in farm income for the present 2.8-3.0 million small Nigerian farmers who now produce some crops for export. The increased farm.income of the export oriented population 18 itself would generate greater demands for foodstuffs on the part of the producers themselves. An indirect effect of the extra income would be to increase the demand by smallholder producers for the simple products of Nigeria's growing indigenous industry. Changes in resource allocation with changes in the profitability of certain crops may cause greater geographical specialization in export crops and resultant shifts in geo- graphical location of food crop production. However, there is little reason to believe that domestic food production cannot continue to expand more or less parallel to export production as it has done in the past. Timing and Availability of Inputs The timing and availability of farm inputs becomes more important as greater emphasis and a planned effort is made to promote and encourage the export sector as the prime mover of the economy. The obvious contrast can be made between oil palm or rubber production from wild or semi-wild trees where farmers or itinerate laborers harvest the produce relating the marginal costs of harvest to the selling price per unit to reach the point of profit maxima- tion and a more modern approach. In other words, in the first case there may be no spraying, weeding, planting or other cultural activities generally carried out in more modern farm technology other than harvesting. This requires one kind of planning and one kind of provision for inputs. 19 The more modern side of the production picture calls for research and dissemination of new crops varieties and cultural practices, the provision of fertilizers, extension personnel, and agricultural credit to develop a modern pro- duction framework within the institutional framework or farming system that has been chosen. The CSNRD group main- tains that the decentalized nature of decision making in a country like Nigeria with wide variations in ecological zones and in systems of farming requires that the over- riding concern of federal, state, and local governments should be in the formulating and execution of sound policies for the millions of farmers.17 A production cam- paign approach was chosen by CSNRD to serve as the device for integrating the policy issues affecting the main crops with the bulk of Nigeria's farmers. The production cam- paigns provide off-farm inputs such as new varieties, fer- tilizers, insecticides, credit, and extension personnel necessary for the expected increase in production. They are also coupled with price incentives (generally through lower taxes) to make the exports more profitable. The campaigns were developed on a commodity-by-commodity basis according to the profitability of producing selected crops within specific geographical areas of Nigeria. The resource allocation process is complicated even further by the long gestation and long lives of the export 17Glenn L. Johnson, et. al., op. cit., p. 6. 2O tree crops which constitute the major part of the agricul- tural exports in the Southern area of the country. Taxing Policies Returning the pricing function and allocation of resources in export agriculture to the market mechanism requires a rethinking and a restructuring of present Nigerian tax policies. Present policies of export agricul- ture taxatiOn will have to be changed if greatly expanded export production is to be achieved. Agriculture has been an important contributor to public revenues through export duties and produce sales taxes. Approximately 10 percent of all Federal revenues, or L15.4 million, came from agriculture in 1965-66. Total taxes paid on agricultural products amounted to about 3 percent of Gross Domestic Product (GDP) from agriculture, or 15 percent of the value of agricultural exports from which they were largely derived. Fortunately, the dramatic rise in petroleum exports from 1963-66 and the projected further increase in petroleum exports in the early 19703 provides policy makers with an alternative source of governmental revenues which may allow a re-examination of the heavy tax burden now placed on export agriculture. Marketing Facilities and Marketing Policies The facilities for assembling, transporting, processing, storing and selling Nigeria's agricultural exports are 21 presently strained to the limits. These facilities would have to be greatly expanded if export production.were dramatically increased. The system would have to be altered in many ways to allow for greater volumes to be handled, quality control, and proper and timely transport and storage to prevent excessive deterioration of produce. The licensed buyer approach to securing Nigerian pro- duce should also be re-examined in light of any sustained program to increase agricultural production. More on the marketing boards and the licensed buying agents will be covered in a later chapter. Political Implications of the Study Any policy paper regarding income from agriculture, distribution of income, taxing policies, and resource allocation in agriculture and in the rest of the economy has political as well as economic implications. There are many reasons for this. Some of the reasons are discussed as follows. Geographic Dependence on Certain Export Crops Rainfall and soil types in Nigeria largely determine which individual crops may be grown and where. There are certain areas where two or more export crops such as rubber and palm oil compete for the available resources. A slight change in the pricing policy between oil palm and rubber, for example, may clearly shift the economic advantage 22 between the two. A case in point is the decision that rubber should not be subject to export tax when the world rubber price is below 18d per pound. There is no marketing board for rubber. With palm oil producers paying roughly 21.0 percent of their potential income in taxes and 28.1 percent for palm kernels, the former comparative advantage of palm produce may easily shift over to the untaxed rubber. Policy and price instruments may be very effective tools with large multiplier effects when dealing with as many as the 100,000 rubber producers or 1,000,000 export palm growers. Linked with the geographic dependence on specific export crops is the fact that in the future it is imperative, in the interest of political stability, that all geographical sections of the country develop. The per capita income gap that now separates the North from the South must somehow be lessened. The complicating factor of reconstruction and reintegration of the former Eastern Region must be considered as well. Large numbers of people must be brought into the development effort and made to realize that they are a part of it. This can most efficiently and economically be done through the market mechanism and an expanded export program as described. Programs such as recommended by this study and by CSNRD have internal political implications, and it is best to spell these out and be conscious of them as they and their consequences are assessed. Income distributions among 23 geographical areas and among individuals within the economy are always subjects for consideration of the political as well as the economic decision making processes. The domestic terms of trade between agriculture and the rest of the economy, domestic food production and food prices, and sources and kinds of taxation are not generally simple Pareto-better adjustments where all parties stand to gain from every particular policy decision. Inter-Relationships Between the Export Sector and Other Sectors of the Economy Likewise, the export sector is not an autonomous sector, but is interrelated with other sectors of the economy. As already discussed, there is no agricultural sector that can be simply defined as the export sector. Most small farmers in both the coastal, southern export areas as well as the cotton and groundnut producing areas of the North produce (1) food for home consumption, (2) food and other crops for internal trade, and (3) an export crop. These may all be grown on the same plot of land. Labor and capital are continually moving in and out of agriculture as economic opportunities change. Nigeria now has the opportunity not often afforded a country to make major structural and institutional changes. Nigeria is already in a period of acute and large-scale institutional change. In addition to the costly Civil War just concluded, the division into states, and the recon- struction-reintegration efforts that will be demanded, 24 Nigeria appears to be on the brink of becoming one of the world's leading petroleum exporters. Petroleum exports increased from L4.4 million in 1960 to L92 million in 1966. In 1966, petroleum exports amounted to 32.4 percent of all Nigerian exports. The projected rapid increase in petroleum exports in the future will enable planners to shift a part of the tax burden now imposed upon agriculture over to the expanding petroleum industry. 0Q- .- CHAPTER II THEORETICAL FRAMEWORK FOR THE STUDY OF NIGERIAN AGRICULTURAL EXPORTS AND THE METHODOLOGICAL APPROACH TAKEN The major objective of this chapter is to develop a theoretical framework for analyzing agricultural export performance and for projecting export growth in countries such as Nigeria. Although the detailed approach outlined in this chapter was developed after the empirical analysis was completed, it is hoped that the theoretical analysis may aid other researchers who are pursuing similiar studies in other countries. The Theoretical Framework Although there has been, and still is, some controversy as to the applicability of the Classical Theory of inter- national trade to the less developed countries, this body of theory still offers illuminating insights into the past and preSent patterns of international trade of many countries, such as Nigeria. Economists of today usually use one or the other of what they consider to be distinctive elements of the Classical Theory to explain the expansion of trade in less developed countries. One alternative doctrine is the comparative cost theory which had its beginning with 25 .fi \.1\ Ins. . ..I\\. .. .\\. 26 Ricardo and tends to dominate economic thinking even today. The other is the vent fOr surplus theory developed principally by Myint. Caves, in commenting on the increasing number of theoretical models of the interaction of international trade and economic growth, noted that several of the models which have attracted attention for their apparent power to explain historical cases bear a basic structural similarity.1 The staple theory, developed primarily with reference to the Canadian economy, but widely believed to apply to other temperate zone lands originally settled by European migrant labor and capital, the vent for surplus model of development as proposed by Myint, and Lewis' ' model of development with unlimited supplies of labor all have the same essential common denominator; that is, they exploit resources which in that time and place are lacking alternative uses of significant economic value. Thus, Caves maintains that the term "vent for surplus" provides a fitting generic name for these theories as it touches directly upon their most distinctive characteristic. In this chapter, the author goes beyond the conclu- sions reached by Caves--that is, simply that the two models have the same common denominator--and argues that the 1Richard E. Caves, "Vent for Surplus Models of Trade and Growth," in Trade, Growth and Balance of Payments: Essays in Honor 6f Gottfried HaBerler on the Occasibn of HTS 65th Birfhda (New York: Rand McNally and Company, , pp. 5- 5. 27 comparative cost model as it applies to the developing countries implies the vent for surplus argument and that vent for surplus implies comparative cost. The comparative cost doctrine, as well as vent for surplus, applies to the exchange of goods in excess of those which could be absorbed without altered access to foreign markets, changed institutions or new technologies. Adam Smith in The Wealth of Nations referred to ex- change as one of the major benefits to a country from participating in international trade. It (international trade) carries out that surplus part of the produce of their land and labour for which there is no demand among them and brings back in return for it something else for which there is demand. It gives a value to their superfluities, by exchanging them for something else, which may satisfy a partzof their wants, and increase their enjoyments. Continuing the line of thought expressed above, the author contends that the empirical results within the country from either the opening or increasing of trade will be the same regardless of whether the entry and parti- cipation in international trade is analyzed via the vent for surplus theory or by the conventional comparative cost model. The country will ultimately employ the same overall amount of productive resources, exchange its goods at the 2Adam Smith, The Wealth of Nations, Vol. 1. Cannan Edition. (New York? Mbdern LiErary, Randbm—House, Inc., 1937). 28 same overall amount of productive resources, exchange its goods at the same exchange rate, and receive the same income and welfare benefits no matter which of the two theories is used for analysis. The production of goods will expand because of the trade linkages. Resources, which were previously unused or under-used within the closed economy because of low returns on private account, will be drawn into production with the initiation and participation in trade. This is, of course, assuming that the marginal value products (MVPs) of the previously under-used resources rise with the expanded market outlet. The conclusion that "comparative cost" implies the "vent for surplus” argument, and vice versa, (and that the two theories are in fact essentially the same) is reached through an examination and comparison of the two presently distinct and recognized theories themselves. The Heckscher- Ohlin formulation, the most highly developed form of com- parative cost theory, and the vent for surplus theory developed largely by Myint are chosen as the most represen- tative of the two bodies of theory and as the two to be compared and, hopefully, reconciled. The Comparative Cost Model The standard Heckscher-Ohlin model of comparative advantage assumes (1) two countries producing two commodi- ties using two factors which are identical between the countries, (2) on production functions the same in both J“! v I. 29 countries with constant returns to scale and with either relative factor intensities that do not vary with respect to changes in factor price or are within the range of relative factor prices permitted by the assumedly fixed factor endowments of the countries. It further assumes (3) that identical tastes, free mobility of resources within countries, perfect competition, zero tariffs and zero transport cost exist in both countries. The assumptions of the comparative cost model concern- ing free mobility of resources within the country and perfect competition in both the factor and product markets provide major implications for the acquisition and dis- posal of resources which will be analyzed and discussed throughout this chapter. The assumptions state that there is a zero cost attached to transfer of resources from one use to another within the country and that the resources are free to make that move. This is contrary to empirical evidence which shows that factors of production typically cost more when purchased than can be netted for them when sold and that there is indeed a difference between acquisi- tion costs and salvage values. Aside from the physical fixities of land, buildings, and stands of trees, in the case of agriculture, there are transport and transaction 3Harry G. Johnson, "The Theory of International Trade." Paper presented at the Third Congress of the International Economics Association, Mbntreal, September, 1968. 30 costs involved when assets are purchased. The comparative cost implications for cost of transfer of factors and products may be summarized as follows: (1) Within country transfer of resources (a) Equal acquisition costs and salvage values for the resources which have zero transport costs (i.e. Ilv > . _ m = PAX = PSXi -m for 1 — 1,. . -,d i (the variable inputs)) (b) Infinite acquisition costs and -w salvage values for fixed variables such as land, buildings, trees, fences, and drainage ditches which have infinite transport costs (i.e. w = PAXi > PSXi = -m for i = d+l,...,n (the fixed inputs)) PAXi = acquisition cost of Xi and PSXi = salvage value of Xi assuming a one-to-one correspondence between stocks and service flows of X1' (2) Between country transfers (a) Zero transfer cost for products (b) Infinite transfer cost for factors of production. The Heckscher-Ohlin model demonstrates that, under the conditions stated above, trade will originate from differences in relative factor endowments (of both kinds of factors--the variable and the fixed) between two countries and that each 31 country will export that commodity which uses relatively much of its abundant factors. Also, if factor endowments are not so different that one or more countries specializes in production, trade will result in complete equalization of factor prices and compensate for the immobility of factors between countries so that this will prove to be no impediment to the attainment of an equilibrium where output is a maximum given the prevailing distribution of resource ownership. According to the Heckscher-Ohlin assumptions, the volume of resources within a country that is available for production is fixed at any given point in time.4 Figure 2.1 shows the relationship between the amount of variable resources available at one point in time as illustrated in the box diagram.in Figure 2.1(b) and the possible output that can be attained from these resources given in Figure 2.1(a).5 TOT is the given international terms of trade. The line l'l' (the production possibility curve in Figure 2.1(a)) represents the total volume of Y1 and Y2 4The possibility of drawing additional resources into production as the MVPs of the resources rise because of the international trade linkages will be discussed below. 5Much of the graphical presentation in this chapter is adapted from that of H. Robert Heller, International Trade, Theogy and Empirical Evidence, (Englewood Cliffs, New Jersey: ‘PrentiCe Hall, Inc., 1968). 32 A F I I so ourpu-r I or: I a I I ran- (A) I I I I . so ‘> CAPITAL ourpur or: Va A I Y1 I LABOFK- 0 Yea- Y‘ : (B) o - -—->LABOR Ya I I CAprrA L Figure 2.1(A) and (B). Production possibilities curve and Edgeworth box. that can be produced given the amounts of resources avail- able for their production at one point in time. Point E represents a combination of output of Y1 and Y2 that can be achieved although it is not the most efficient production that can be attained. The production points that lie along the l'l' curve itself represent the maximum combinations p... . . a -.p no .v .n... a a hl-th woo. -.. nu... In I :L I‘a. \: u HI ‘5 33 of production of Y1 and Y2 that can be reached. Point F represents a combination of production that cannot be attained with the quantity of resources shown in the pro- duction box in Figure 2.1(b). The assumed fixed factor endowments which largely determine the shape and location of the production possi- bility curve under the comparative cost model (as illus- trated in the box diagram in Figure 2.1(b)) hold only under certain and very specific assumptions regarding acquisition and disposal of resources. These assumptions are : (a) co _>_ PAX- = P8X. i-oo for i = 1,. . .,d 1 1 (the variable inputs) (b) w = P > P = m for i = d+l,. . .,r (the fixed inputs) Empirical evidence from Nigeria shows that the assumptions under which certain of the inputs are irrevocably fixed do not hold upon close examination. In the Classical, comparative cost model assuming a production function Y = f(X1,. . "Xdlxland’ Xcapital)' in a closed economy, the point of greatest economic efficiency will be the point, which by using the opportunity cost principle, maximizes the return to the fixed factors given the con- straint of no trade. Applying the production function given above to Nigeria where, for example, X 1 represents the stock capita ‘A ,1 34 of living oil palm trees of producing age, it can be seen that the stock of trees is fixed at any point in time. Trees are both difficult to acquire and unprofitable to sell in any market except the palm market. It is costly to remove them should the land they occupy be desired for other uses. Thus, they may even have a negative salvage value, or a cost of removal. Trees, especially of modern varieties, for producing palm oil or palm kernels have a high acquisition price relative to their private MVPs as it takes from three to seven years, depending upon variety, for them to come into production. But their acquisition costs are not infinite as the previously listed set of assumptions specifies. More palm trees can be planted and maintained as prices and palm technology dictate and the quantity of palm trees in production can vary over time. Theoretical reasoning and empirical evidence both show that the assumptions of fixed factor endowments over a period of time as shown in Figure 2.1(b) are invalid in umny instances in both the developed and the developing cmuntries. Factor endowments do change with growth and chvelopment. As a matter of fact,economic growth often causes, or is caused by, changes in factor endowments émd factor ratios. Trade itself can both increase the amount of factors available to a country for production aSit.works through capital production (and hence real .n; 35 income), savings and investment, or it can influence the amount of factors available for production at any one time as it affects factor remuneration (if we consider that factor supplies are responsive to factor remunerations). The process by which additional resources are brought into export production because of rising MVPs that may come with trade will be explained in greater detail below. Assuming that factor endowments can change, the consequences of change will be the same in both the comparative cost and in the vent for surplus models; more will be said on this later. The possiblity, or likelihood, of increasing factor endowments through population growth, capital production, savings and investment, and foreign aid has been largely accepted by proponents of the comparative cost theory. Rybcznski assumed this possibility in his 1955 article and went on to specify under most likely conditions what effect increased factor endowments would have on production and exports.6 Expanding the basic formulation of the comparative cost model to allow for increases in factor endowments under certain conditions necessitates the altering of amsumptions concerning acquisition and disposal of fixed inputs from.the assumptions listed above. _‘ — 6T. N. Rybcznski, "Factor Endowments and Relative (bmmodity Prices," Economica, (November, 1955), pp. 336-341. 36 The assumptions must be changed from (1) w Z-PAXi = PSXi 3 -m for i = 1,. . .,d (variable inputs) (2) m = PAX.>' PSX. = -w for i = d+l,. . .,n 1 1 (the fixed inputs) to a more flexible and realistic set: (3) m 2.? > P > -m for i = l, ,n AXi-— SXi-— (all inputs) The transport and transaction costs explain those acquisition costs which exceed salvage values as shown in (3) above. There are costs besides the cost of purchase involved in locating, contracting for, and transporting purchased inputs from the place of purchase to the place of use. This also includes the cost of overcoming the physical fixities of items such as land, stands of trees, buildings, and fences. The comparative cost assumptions cited at the begin- ning of this chapter (and as shown in (l) and (2), above) hold that transport costs within the country are zero for one claSs of inputs and infinite for the other. This distinction underlies the differences between (1) and (2) above. All inputs employed under the second set of assumptions (3 above) may be either fixed or variable depending upon the marginal value products (MVPs) that the resources earn 37 in production. Resources whose MVPs in production fall (after put on a comparable stock or flow basis) between acquisition price of additional units and salvage value for the units on hand will be truly economically fixed in production. Factors whose MVPS in production are greater than acquisition costs of additional units will be variable (regardless of the type of input, i.e., land, labor, or whatever). Likewise, resources whose MVPs in production fall below salvage value for the resource will be variable and at least part of the stock of these vari- ables on hand will be sold. The relationships are pointed up in mathematical SYmbols below: ’~ (1) fixed inputs: PAX. < MVPXi in production > PSX 1 i (2) variable inputs: (a) P _<_ MVP > PSX AXi X1 1 (b) PAXi > MVPXi < PSXi with both input prices and MVPs on comparable stock or flow bases, The use of variables in (2a), where the MVPs in pro- duction are greater than the acquisition cost of additional units, Will be increased. In Nigeria this applies “Qt onl y to the use of locally produced inputs but to the i o . mp rtatJ-On and use of inputs available from outside of 38 the country as well.‘ Producer sales taxes, export duties, and marketing board surpluses have depressed the value of productive resources and restrained the importation and use of imported pesticides and fertilizers, for example, below the level that would maximize social returns to the country and below the level that would be achieved if the differences between social and private returns were eliminated. The amount of resources employed in (2b), where the MVPs in production are less than salvage value, will be decreased. The MVPs themselves are determined by product prices, initial quantities on hand for which P the > P , AXi SXi nature of the production functions that use the resources, and the prices (including opportunity costs) of other inputs. Product prices received by Nigerian farm decision- makers are often determined by governmental pricing policy rather than by market forces. This is especially true for the export crops. As stated in Chapter I, the present general agricultural policy in Nigeria is to tax export agriculture to help finance the nonagricultural part of the economy while permitting food production to grow under the guidance of market forces. This type of policy, based on heavy export taxation via producer sales taxes, export duties, and marketing board profit-making operations, 39 creates a gap between the private and social marginal earnings from investment in export agriculture. The gap is caused by the difference between the world price received by the country for a unit of agricultural export and the much lower price received by the farm producer for the same unit. An empirical example can be given with oil palm. Suppose the world price of palm oil is L81.5 per long ton, as it was in 1963, and that L42.0 per ton is the price paid to the farmer. The difference between L81.5 and L42.0 is absorbed by the various export taxes and by trans- port costs to the export location. The gross social returns to the farmer being roughly half that amount--or L42.0 per ton. The farmer is interested not in the social returns to the country, but in the private net returns to his operation and will produce so as to maximize net returns to himself. Unwise Nigerian taxing policies have made it unprofitable for farmers to expand output to its socially optimal limit although the same farmers are probably now overcommitted in production on private account as shown by the low rates of return in agriculture for land, labor, and capital. Evidence for this includes marginal value products (MVPs) for labor in the neighborhood of l shilling per day and returns to land of L1 to Ll.5 per acre in subsistence agriculture.7 Okurume found somewhat higher 7Delane E. Welsch, "The Rice Industry in the Abakaliki Area of Eastern Nigeria." Ph.D. dissertation, Michigan State University, 1964. . .,I\\. 40 returns to labor in the cocoa producing areas of the Western State in 1968 where they were estimated at 3 shillings to 3 shillings 6 pence per man-day of labor.8 However, for many crops and areas, land has little or no market value and does not seem to carry a well established price for agricultural purposes. The prime agricultural concern in Nigeria is to moti- vate small farmers to do that which is socially desirable for the country as a whole. One way to move farmers to do that which is socially desirable is to close the gap that now exists between private and social returns. The closing of the gap would necessarily mean the elimination of the taxing burden which now creates the gap. This step would allow Nigeria to vent more of her surplus productive capability. The Rybcznski modification of the original comparative cost possibility curve and production box showing that 10 factor endowments can and do change is given in Figure 2.2. Here it is assumed (following Heller's interpretation of 8Godwin Okurume, The Food Crop Economy in Nigerian Agricultural Policy, CSNRD No. 31 (East Lansing: January, 1969). 9Glenn L. Johnson, Factor Markets and the Problem of _Economic Development, Working Paper No. 3, CSNRD (East Lansing: November, 1967). 10 Rybcznski, op. cit. 41 pl" TOT l' ' :39 ___________ a I :1an 29 __________ I _ 3 DP‘ I“ "—‘ I I I \\\\ I (A) | ‘ I q I a 60 q I -‘ OUTPUT or: Ya I ‘3 'v = 100 , so v2=so (B) D ______ .l --_LABm v2 : CApITAL Figure 2.2 (A) and (B). Changes in factor endowment. the Rybcznski result) simply that there is an autonomous increase in the labor force of the country due to popula- 11 The increase in the size of the production tion growth. box could have been brought about by the attraction and employment of factors of production which had previously been llHeller, 92. 535., pp. 112—116. 42 unemployed or underemployed but were pulled into export production by the increased MVPs ocCurring because of the trade linkages. The acquisition price for labor gained through population growth equals 0 as far as the market is concerned as the market has no control over its acqui- sition. The size of the production box in Figure 2.2(b) is increased by the size of the increase in the labor force. The increase is shown in dotted lines. Before the increase in the labor force, the country was confined to production curve l'l'. Given the inter- national terms of trade, TOT, the country produced commodity bundle B. The increase in the labor force brought about an outward shift in the production possibility curve to l" l" and to commodity bundle C. The Rybcznski finding regarding the effects of an increase in one factor of production in the standard, Heckscher-Ohlin case can be summarized as "an absolute expansion in production of the commodity using relatively much of that (the expanding) factor, and. . .an absolute curtailment of production of the commodity using relatively little of the same factor.”12 We are not so concerned.with the-Rybcznski finding as such but rather as a means of finding and showing that the comparative cost model (assuming that factor acquisi- tion and diaposal depend upon the MVPs of the resources in 12Rybczynski, pp. 913., pp. 337-338. 43 production and on acquisition costs and salvage values) has not just one given production possibility curve but rather a series of curves whose shapes and locations depend in large part upon the remunerations, and thus the oppor- tunity costs, that are paid to factors of production rela- tive to their acquisition costs and salvage values. The possible multiple production curves of the comparative cost model may be illustrated as in Figure 2.3 below. OUTPUT OF v2 Figure 2.3. Effects of factor supplies changes on the production possibility curves. The Vent for Surplus Model The vent for surplus model as visualized by Myint13 is less developed technically and logically than is the Heckscher-Ohlin theory. The Myint formulation merely assumes that a previously isolated country about to enter 13Hla Myint, "The Classical Theory of International Trade and the Underdeveloped Countries," Economic Journal, (June 1958). PP. 317-337. 44 into international trade possesses some surplus produc- tive capacity over and above that demanded for the domestic market. It assumes that large amounts of resources will remain idle or only partially used within the economy because of a lack of profitability on private account. These unemployed resources can be brought into use as the MVPs for these resources rise above their acquisition costs, if the country is linked to effective world demand through trade. Even before trade, these resources will be employed, as in the comparative cost case, to the point where their MVPs in production equal their opportunity costs in all alternative employment. The MVPs on private account before trade may be very low or even approaching zero, however. Although the assumptions are not spelled out in great detail as in the Heckscher-Ohlin model, the vent for surplus model assumes a more general set of assumptions (00 3 PAxi Z PSXi 3 -m for i = 1,. . .,n) regarding the acquisition and disposal of factors of production. Greater quantities of resources will be brought into production as the MVPs in production exceed the acquisition price of additional units. In fact, this is the basis for the vent for surplus model as it assumes that the production possi- bility curve readily shifts outward as greater quantities of factors are brought into production through the tie to international markets. There is no assumption in the vent for surplus model, either explicit or implicit, that resources are absolutely fixed. 45 Trade and Product Mix It is possible to use the conclusions already reached (that the production possibility curves of both the compara- tive cost and vent for surplus models shift outward in a like manner under the same general set of assumptions regarding resource acquisition and disposal) to take the analysis a step farther. This section will establish (1) how and where production and trade will take place on the frontier, (2) the economic determinants of resource employ- ment, and (3) the feet that output can be increased through trade and a change in product mix even with resources already fully employed in a closed economy. D o Ye Figure 2.4. Production possibility curves, countries A and B. Consider two countries (A and B, above in Figure 2.4) whose production possibility curves are shown for producing two products, Y1 and Y2. In isolation Country A produces 46 at point J on its production possibility curve and divides its production into 0c of commodity Y1 and 0d of Y2. Country B also in isolation, but facing a different domestic price ratio from that of Country A, produces Oe of Y1 and Of of Y2. If the two Countries are combined in a trading relationship as in Figure 2.5, one may see that production for both export and for domestic consumption can be in- creased by adjusting the points of production. 3 D D A Y2 Figure 2.5. A trading relationship between countries A and B. It can be seen from Figure 2.5 that the production possibility curves of the two countries intersect and that it would be profitable for both countries to move to a new position on their production possibility curves so that the curves of the two countries would be just tangent to maximize the overall quantities of Y1 and Y2 produced. If the two origins of the production box, A and B, were pulled apart so that the production possibility 47 curves of the two countries were just tangent at point L, where they are also tangent to TOTI, the international exchange rate between Y1 and Y2, one can see that the size of the production box would be increased. This possibility at TOTI is shown in Figure 2.6. Alternatively, (1) mainly Y1 could be expanded, or (2) both Y1 and Y2 could be expanded in more equal proportions if TOTI were different. I0< §U”""""-"-— ,6 Figure 2.6. Optimizing the product mix. The increase in production from changing the product mix as in Figure 2.6 is labelled AY2 which is in fact the gain from optimizing the product mixes of the two countries. The production of Y2 after specialization can be shown as 0d + Of + AYZ. There is no increase in production of Y1 in this particular example. We know several things about the change in composition of production that has come about through the introduction of trade as shown in Figure 2.6. First, we know that the -.\. 48 proportion of production of domestic use declines in both countries as trade is introduced. Second, we know that the absolute production for home use may either increase or fall with the greater specialization. Third, we know that the overall increase in consumption within the two countries will be i 0 with trade and specialization. We also know that the factors (labor and capital) used in producing Y1 and Y2 in both the comparative cost > P > —00) will be employed in both countries until the MVPs of and vent for surplus models (assuming w 3 P the resources in use = PAX of additional units, or i PSX for some of the units on hand, or i opportunity cost in other employment. Figure 2.7 illustrates the results of outward shifts of the production possibility curves of both countries A and B as the MVPs of resources in use become greater than acquisition costs and more of the two resources are acquired in both countries--although not necessarily in the same proportions. 1A1A and lBlB are the original production possibility curves for countries A and B, respectively, with point L on both curves signifying the point of production and trade with the original resource base (see Figure 2.6). As the MVPs of capital and labor become greater than their acquisition price in the two countries, because of the o . '(J u. .4- .a] I . "~ Q ._~ 49 the link of international market, (again, assuming 0° :2 PAX ; PSX ; -oo) more of each input is acquired and the productionlpossibility curves shift outward to lA'lA' mullB.lB.. Production and trade occur at M which is the point of tangency on both curves with the same international terms of trade, TOTI, as seen in Figure 2.6. Country A Idoes not change output of Y1 with the increased resource employment but does increase output of Y2 by the amount t1Yé.. Country B produces the same quantity of Y2 as before tihe shift in its production possibility curve but expands ITIoduction of Y1 by the amount AYII. Y2 IB ‘3 . D 'B' l I l le. I IA‘ ' Y‘I Y1 i"—-"~—'--l- - —————— .I AY1. I '8 l I i I l TOT, 1 1 IA. AD Ave' '1: Y2 ITigure 2.7. Shifts of production possibility curves and point of production and trade. 50 Other Uses of the Theopy Johnson and others have applied the theory used in this chapter (based on differentials between acquisition costs and salvage values under conditions of imperfect knowledge) to explain the tendency toward private over- investment in agriculture in many parts of the world that are characterized by private ownership of resources. Johnson maintains that the small Nigerian export farmer, like his U.S. farm counterpart, finds himself with sub- :stantial overcommitments of his own labor and resources tc>agricultural production in view of returns obtained :from resources and effort in a nonfarm economy.14 Due to tfmabreadth of theoretical and policy implications con- nectedwith a discussion of an over-commitment of resources t<> agriculture, the subject will not be included in this dissertation although a footnote15 provides references of WC>rk already done on this subject. \ 14Glenn L. Johnson, "Factor Markets and Economic DeVelopment," Chapter 6 in Economic Development of Tropical figflgiculture. Edited by W. W. McPherson, (Gainesville, UIliversity of Florida Press, 1968). 15Glenn L. Johnson and Lowell Hardin, The Economics of Fora e Evaluation, Purdue Agricultural ExperIment Station BlJIIetin #625, I955; Clark Edwards, "Resource Fixity and Farm Organization," Journal of Farm Economics, November, 59; Glenn L. Johnson, "Supply Functions--Some Facts and 1S) NOtions," Agricultural Adjustment Problems in a Growipg Eeaonomy, Iowa State University Press, 1956; Glenn L. JOhnson, "The State of Agricultural Supply Analysis," kaurnal of Farm Economics, May, 1960, pp. 441-2; Glenn - Johnson, "Implications of the IMS for Study of Responses 0 Price,” A Study of Managerial Processes of Midwestern -armers, editéd'by Johnson, et al., Iowa: Glenn L. Johnson, 51 Conclusions The following conclusions are drawn from the compari- son of the comparative cost and vent for surplus theories. The models are essentially the same. Only the termin- ology, and not the basic structure or purpose, is different. Resources in both models are unused or under-used because of low returns to the farmer with their potential employ- ment. Production will take place in both models at the point where the MVP of each resource in production equals its opportunity cost in all alternative employment--both before and after trade. International trade may help raise MVPs in both models and draw additional resources into Production as the country's products are linked to inter- national demand. The production possibility curves of both models shift outward as larger quantities of resources are brought into Production as the result of MVPs of the factors in produc- tion exceeding acquisition costs (assuming the second, more geI‘Ieral set of assumptions is used for the comparative cost mercomfifitment of Resources in the Production of Farm Pro- guction of Farm Products," Implications of Changes on Farm flagement and Marketing Research, CAED Report 29, Iowa 1:ateHIniversfty Of Science and Technology, Iowa, 1967, pp. 180-217. Recent examples of policy and farm business applications of this theory include Dale Hathaway, Govern- 1963; and the Phase II tment in Agriculture, McMillan Co. , noaeI of the [WEEK—Study of Feed Grain and Livestock Pro- duction in the Midwest. Other applications are by Theordor Heidues, "A Recursive Programming Model of Farm Growth in No.I'thern Germany," Journal of Farm Economics, Augu'st, 1966, and Robert Young, "AnTconomic StuTy of the Eastern Beet Sugar Industry," Michigan State University, Agricultural Xperiment Station, Bulletin #9, 1965. 52 model as are already implied for vent for surplus). The comparative cost model with its multiple producton possi- bility curves corresponds in purpose and structure to vent for surplus which in the literature has been based solely upon "expanding production possibilities" through the link- ing of previously unemployed resources to effective world demand. Any difference in the results of the two models as to quantities traded, resources employed, or returns to factors, could be traced to the use of the more restrictive set of assumptions (involving infinite acquisition costs and -w salvage values) with the comparative cost model and the more general set (where factor employment is based on the MVPs of the factors in production) in vent for surplus. Once the assumption is made of m i P i P i -m for all inputs, AX. SX. 1 1 in both the comparative cost and the vent for surplus models, the models and the results are essentially the same. In both cases, fixed resources will be more fully used after trade, and production will still take place at the point where the MVP for each resource equals its opportunity cost in alternative uses--just as it did before trade. If there is any difference calculated for the conse- quences of the two theories (when the same, more general set of assumptions is used regarding the acquisition and disposal of resources), the difference must be due to an error in calculation. ‘7 h. h 'I.. " '. .I \“I ‘ 1 CHAPTER III EXPORT PROJECTION FRAMEWORK The actual model for projecting Nigerian agricultural export growth is based on the impressive body of knowledge that Nigerian smallholder export producers are indeed "economic men." The concept of "economic man,‘ as defined by Jones, refers to the idea that farmers are aware of and highly responsive to opportunities to "better themselves" and that their activities can be largely understood and analyzed within the framework of traditional economic analysis.1 There is ample documented evidence of Nigerian smallholder responses to economic incentives to justify using the traditional form of economic analysis when deal- ing with the Nigerian export economy. Appendix A, entitled "Historical Performance of Agriculture", points up in detail various examples of smallholder profit maximizing, price responsive behavior. The Nigerian examples are widespread in geographical location and broad in time. They date back at least 60-70 years and cover such varied crops as oil palm, cocoa and groundnuts, and apply to the profit maximizing use of fertilizers and insecticides, as well. 1William 0. Jones, "Economic Man in Africa," Food Research Institute Studies, Vol. No. 2, May, 1960, pp. 107-134. 53 .'I Q N NnIsah fluxe‘. uIL .NNIII .\ -. v.l.V 5.1». I n (V 54 Supply Responses The responses of farmers in less developed countries to changes in economic variables has been a topic for dis- 2 It has been cussion and investigation for some years. found that their supply responses cannot be analyzed in simple, completely reversible terms as is outlined in most economic textbooks.3 According to the supply response concept found in most elementary economic textbooks, the supply curve-- which relates price to output--is completely reversible fer both upward and downward price movements. Thus, the decrease in production resulting from a decline in price is the negative of the response to an increase in price. 2Merrill J. Bateman, "Supply Relations for Perennial Crops in the Less-Developed Areas," in Subsistence Agricul- ture and EconOmic Development, Clifton J. Wharton, Jr., (3617,71969. 3Glenn L. Johnson, et. al., op. cit., pp. 40-42. This section on responses to price and—Che general frame- work for the supply model draws heavily upon Chapter II of Strategies and Recommendations for Nigerian Rural Developmenf} 1969/1985--tfiat chapter being entitled "Nigerian Agriculture--Its Present State." The theoretical framework for the CSNRD supply response model draws from Johnson, Glenn L. and Hardin, Lowell, The Economics of Fora e Evaluation, Purdue Agricultural—Experiment Station BuIIetIn #523, I955; Edwards, Clark "Resource Fixity and Farm Organization," Journal of Farm Economics, Nov. 1959; Johnson, Glenn L., "Supply Function--Some Facts and Notions," Agricultural Adjustment Probleps in a Growing Economy, Iowa State University Press, 1956; Johnson, Glenn L., "Implica- tions of the IMS for Study of Responses to Prices" in.A Stud of the Mana erial ngcesses of Midwestern_§armers, (ed.; by Johnson, et al., Iowa State University Press, 1961; and Vincent, warren (ed.), Egonomics and Management in Agriculture, Prentice Hall, New York, 1962. ”HI-0' o ~..—-l HI'CH -- . 7"- "um. 55 This usual elementary supply analysis rests on the set of assumptions cited in Chapter II. The crucial assumptions necessary to insure that the supply curve is completely reversible are (1) perfect knowledge and foresight, (2) equal acquisition and salvage values for the variable inputs, and (3) infinite acquisition costs and -w salvage values for the fixed resources. As a result of these assumptions not being met, supply responses in Nigerian agriculture, as in other parts of the world, differ greatly from the simple, fully reversible kind shown in general economics textbooks and shown in Figure 3.1 which depicts complete reversibility and independence from the direction, duration and size of price changes. PH ICE OUTPUT Figure 3.1. Fully reversible supply curve. The difference between assumptions of the usual static economic theory, as expressed in the completely reversible curve, and reality are particularly great in Nigeria. First, I._.,. A! A ..ou-- ~_..- O u .‘an-b- - . .. "I on 1\ un I" ".qu it- a. u... '- "" .‘I u "I .- . p -.... ~\ In ' ‘ ll ‘4... __ ‘1 ““v. . . ‘ a. h‘ "" ~Ii I a... £1- a 'u‘“ a .1 (I) ~ .I,‘ . . C t~ u. ."5 ‘. h 56 Nigerian producers are generally poorly informed about the prices that theyshould expect for their produce, as well as on the institutional arrangements for marketing their products and the pricing and supply of inputs. Also, they know little of the changes that are taking place in agricul- tural technology. Secondly, the acquisition costs of capital-- such as cocoa stands, palm groves, and rubber trees--are generally substantially greater than the salvage value but less than infinite, so that resources may be either fixed or variable, depending upon price relationships and the past mistakes of poorly informed producers. A more likely supply response from a firm in a country such as Nigeria would be the hypothetical one shown in Figure 3.2. PRICE OUTPUT o ' - OUANTITY OF OUTPUT Figure 3.2. Expansion and contraction paths for a firm. 57 Output from the production process represented in Figure 3.2 depends not only upon the price level but upon the direction, magnitude and duration of price changes as well. At price P1 the firm produces quantity le' Suppose in the Nigerian case that this is the production of palm oil from wild trees and that at price Pl the farmer harvests all of the palm oil produced by the wild trees available to him. Even at the higher price P2 the farmer continues to harvest the production of the same wild palms that were available to him.before the price increase. Production does not increase with the higher price and remains at 0Q1 as the price moves to P2. When the product price reaches P3, the MVPs of some of the factors of production, such as improved palm planting material, begin to exceed their acquisition costs (assuming w ; PAxi a PSXi ; -m) and the firm begins to acquire units of inputs which were previously fixed for it. The input of improved planting material may have been fixed at zero for this particular firm before the price increase. As the firm acquires new inputs which were previously fixed for it (possibly at zero quantities), it moves to a new subproduction function and to output OQ3. In other words, the size of the production box is increased as was shown in Chapter II to be theore- tically and empirically possible. A fall in the price of palm oil might be expected after some time lag, assuming that many oil palm growers reacted positively to the u‘.‘ - .,... u u... .x.~ I Q”. so. I a... e..- ~.. ..~‘ a. u- H. I ‘\« c _ « u 'I L. I \ r | J 58 increased price and that they purchased new inputs and shifted to new subproduction functions as this firm has done. This might cause the price to fall to P4. Again, the firm represented in Figure 3.2 might show no change in output although the price declines from P3 to P4. The firm has invested in improved palm trees at price P3 which will continue in production at price P4 as the MVPs of these trees in production are greater than the salvage values that could be realized for them if the trees were eliminated. (Figure 3.3 will show in greater detail how this case develops.) Thus, there is no cut-back in pro- duction even with the sizable drop in price--from P3 to P4. Output remains at OQ3. An additional fall in price, say to P5, may be sufficient to bring about some liquida- tion of investments made when prices increased from P2 to P3. At the price P5, output stands at OQS' Assuming a later price increase to P6, output again does not change due to the liquidation of assets that took place when the price dropped from P4 to P5. A further price increase (to P7) may cause the MVPs of inputs which were fixed at both P5 and P6 to again exceed their acquisition costs and the firm to move to a new subproduction function and to output 0Q7 at price P7. It should be kept in mind that supply responses of most export oriented farmers in Nigeria are influenced by whether or not the producer finds it advantageous to 59 invest or disinvest in such items as palm trees, cocoa stands or simple processing machinery for palm oil or 4 groundnuts. Little or no response can be expected for small increasesin price to farmers if the earnings (marginal value products--MVPs) of the durable capital items are still above their salvage values and below acquisition costs. As already explained, factors of production used by farmers typically cost more when purchased than can be netted for them when sold. Aside from the costs of over- coming the physical fixities involved with buildings, tree crops and roads, there are transportation and trans- action costs involved when assets are purchased. When two prices exist for an input, it is obvious that it pays to acquire more of it if its value in use exceeds its acquisition cost. Conversely, it is clear that at least part of the stock of an input should be disposed of if its salvage value exceeds its value in use. When its value in use is less than or equal to its acquisition cost and equal _to or greater than its salvage value, it does not pay to vary use of the input--the factor is fixed in production. This may be illustrated in Figure 3.3 where two inputs, X1 and X2, are used by a single firm to produce product Y.5 4Glenn L. Johnson, et al., op. cit., p. 42. 5Glenn L. Johnson, "Implications of the IMS for Study of Responses to Price," in A Study of Managerial Processes of Midwestern Farmers,(lowa State University Press, Ames, I5wa7—1961). 6O / / 3 x,.x,_, Figure 3.3. Fixity of a factor in production. Let X1 be a one-use ihput and hence a flow or service. Let X2 represent the services of a durable input. Assume a one-to-one relationship between the flow or service and stock of X2. Also, assume that sz acquisition > MVPx2 in use > PX2 salvage for all quantities of X1 and X2 on hand as well as for any price of Y to be considered and any amount of X1 it may prove possible to use with X2. Under these stringent con- ditions, X2 is fixed for the entire range of possibilities to be considered. The fixity of X2 justifies the assumption that Y = f(X1|X2 = a) conforms to the law of diminishing returns. As le acq. > PX salv. because net acquisition 1 61 costs at the farm for factors exceeds off-farm salvage values, an amount of X1 on hand such as "a" in Figure 3.3 is fixed under some conditions and variable under others. If "a" amount of X1 is on hand and the MVPle = MM, then it does not pay to acquire more of X1 or to sell any of the X1 on hand. Therefore, X1 is economically fixed at a If Py were to increase so that the MVP = MUM", X the MVPx1 salvage value, and it would pay to 5211 X1 until point "c" is reached. The point of the above discussion is to emphasize that small pripe changes for products may havelittle effect upon output, as the small price changes may not spbstantially alter the amount of inputs that a farmer. uses. The amount of X1 demanded in Figure 3.3 would remain at quantity "a" until (1) either the marginal physical product (MPP) or the price of product (Py) increases sufficiently so that the marginal value product (MVP) of X1 in use exceeds the acquisition price of X1, in which case more X1 will be purchased and used, or (2) the MVP of X1 in use falls below the salvage price of X1 so that X1 will be sold at the salvage price. Any smaller price movement (that merely moves the MVPx between lines M'M' and M"M") would have no effect 1 upon the use of X1. This conclusion has many implications r . T \ ., .. ' a .1. K. v.' v. . q . V .hm.‘ ""‘¥~ ' G H. ‘n.., uu“ vu.‘ i. .,‘I L“L . .5 I“: UL..~ . 5,; 7" Q “n.- 1,; , W " ”a. ‘ A ‘ugJ‘L 62 for Nigerian policy formulation. First, and as already pointed out, small price movements, either up or down, can be expected to have little effect upon prOduction of many of Nigeria's crops--especially tree crops which involve high initial investments, long gestation periods, and long productive lives. Price increases (or decreases) may have t6 be substantial to move the MVPs of many of the inputs out of the range of being fixed as shown in Figure 3.3. Secondly, this finding gives insight into the reason why farmers may readily accept one recommendation or innovational practice and reject another despite the efforts of govern- mental planners and extension workers to get both adopted. The MVPs of the new inputs in use under the prevailing product price may never exceed their acquisition costs and thus they will never be adopted. Another complicating factor for projecting tree crop response in Nigeria is the problem of the transition from natural generation of oil palm and rubber where acquisition costs are near zero and salvage values are negative to the new improved varieties where man has a major hand in the rehabilitation effort but also expends high acquisition outlays. 'With the present type of cropping arrangement, i.e. with much of the rubber and palm oil coming from wild groves, little reduction in output can be expected with modest price declines. Likewise, little new investment will be forthcoming with small price increases although 63 large price increases will make the MVPs greater than the costs of acquiring new production inputs such as improved planting material. Thus, under these conditions, new production units would be added. Supplnyesponses From Annual Crops In contrast to tree crops, likely responses to price can be calculated for most Nigerian annual crops, which are not dependent on heavy investments in durable equip- ment or facilities and for which simple, well-known tech- nologies are available. Response to price for these crops may be rather symetrical for both price increases and price decreases as suggested in elementary economics textbooks. There is, however, always the problem of human labor, which is in fact more durable than the tree crops, becoming fixed in the production of annual crops as it can be in the production of perennials. Cotton and groundnuts are examples of annual crops grown in Nigeria with hand tools and simple technology and which could be expected to have something like reversible supply responses for both upward and downward price movements. The problem arises in Nigeria, and elsewhere in agri- culture, of men erroneously committing their life's labor to agriculture and then continually expanding productiOn through the acquisition of more capital and more land in an effort to minimize losses to the over-committed labor. The results of this loss-minimization effort is to lower product 64 price relative to costs and to lower returns at the margin for capital, land, and labor, to levels such as are typical in Nigeria today. CSNRD Approach--Non-Computer Simulation In view of the fore-going analysis pointing up the IDroblems connected with the simple elasticity models, which specify the same supply elasticities for both large and ssmall changes in price and for both upward and downward [Drice movements, CSNRD sought to avoid some of the pitfalls :inherent in relying solely upon the conventional, mathe- Dnatical models by supplementing the supply elasticity Eistimates with a non-computer simulation technique to Egain additional information and estimates on the Nigerian. aigricultural economy. CSNRD chose non-computer simulation for a number of reasons which all hinge on the ability <>f the model of analysis to help solve the problems at lland. The principal reasons for the type of analysis chosen are: (l) Workability--The non-computer simulation allowed the CSNRD researchers to project the consequences of specific policy strategies (including both production campaigns and price changes) through time to arrive at estimates of aggregate output, income to farmers, government revenues, and foreign exchange. Specifically, it predicts the consequences of following each of the three 65 strategy alternatives outlined in Chapter I at three points in time--1970, 1975 and 1985. (2) Problem definition and solution--Researchers working on practical problems such as a strategy for rural develOpment or the export development in Nigeria have long since discovered that such practical problems are not only interdisciplinary in nature but must involve both the normative and the non-nOrmative aspects of the problem as well. Quantitative non-normative data are required to describe the nature of the agricultural sector and its interrelationship to the other parts of the economy. Normative concepts are required as criteria for evaluating programs so that right actions or goals maybe chosen. Researchers must often respond to both normative and non-normative questions from decision-makers who are interested in the good or bad consequences of formulating and implementing a particular agricultural policy. Simulation offers the kind of a flexible tool needed to include both normative and non-normative criteria, to :avoid the pitfalls of a purely maximizing model because ‘3f the problem of choosing a common denominator to maxi- nmize and the related lack of interpersonlly valid utility Ineasures, as well as the difficulty of obtaining concensus (1')".J pl c-v_ [J (in .2.) (I) [,1 N {'0 r9. (3 L! can rfrrmmf—1 .I‘,n ’ ml. \ P IJ“ C. I." ,‘ O I n ‘u ‘\ \ h I h, We \ UL I... (l- Ca. n. 66 on the proper "basis for choice” for defining what is the right action or goal. Brinkman summed up the case for using the simulation approach in Nigeria.6 Simulation is useful because it provides a speedy method of examining many alternative policies and their consequences through time so that decision- makers may interact with researchers in choosing policies they feel will lead to right actions and goals in view of both the important normative and non-normative considerations. Furthermore, by simulating alternative policies through time, researchers and decision-makers are not forced to make choices involving a single, unrealistic common denominator necessary to maximize a single function. Simulation also can be used when the mathematical second order conditions for maximi- zation are absent and when alternative decision- making rules exist, although simulation may be considered as non-maximizing because it does not specifically attempt to determine a single maxi- mizing solution, it still may be used to develop and examine the consequences of alternatives that are much better than others. In doing so, simula- tion may allow decision-makers to choose rationally what they feel is a maximum. Granted that non-computer simulation is the method chosen for making the CSNRD overall and export projections, let us see on what basis the projections are actually made. The CSNRD strategies paper lists the background information used as a basis to make the Nigerian projections. ‘ 6George L. Brinkman, ”Reconciling Proposed Public Investments in Agricultural Education, Infrastructure and Production in Nigeria, 1969/1985," Ph.D. dissertation, Michigan State University, 1969. 71“ \ '1 J 6‘ ‘5 67 (1) available data on the present Nigerian agricultural economy, (2) information on the performance of other agricul- tural economies, (3) information on and an evaluation of the contribu- tions of research, plant and animal breeding over the next several years and the performance of agricultural education systems, credit organiza- tions and resettlement schemes within the Nigerian economy, (4) the informed judgements of economists and agricul- turalists--both Nigerian and expatriate. CSNRD stresses that because of the poor quality of agricultural data available the projections made in the CSNRD study are not highly objective statistical forecasts to which probability of different sized errors can be attached.7 MOre important perhaps is the fact that histor- ical data on the performance of traditional agriculture are not very relevant for projecting how the economy might Operate if modernized. Johnson compares the use of histori- cal data on the traditional agricultural economy to predict how the economy might perform if modernized to that of an architect's use of information on the known strength and Performance of traditional building materials for the designing of a large and modern building made of glass and K 7Glenn L. Johnson, et al., op. cit., p. 64. .._ “V nu». .‘In. r. in»... "4.. "V-H 68 steel. The old rules and coefficients no longer apply. A call is made for creativity and originality in envisioning designs for the future. Therefore, the experiences of other developing countries such as Mexico, Pakistan, and the Philippines--which have shown both originality and creativity in designing and developing their agricultural sectors--have been examined to find insights for the Nigerian economy. CHAPTER IV AGRICULTURAL EXPORT POLICY: PAST, PRESENT AND FUTURE The major emphasis of this dissertation is on agri- cultural export policies and the effects of those policies on overall economic growth in Nigeria. Export policies are important for a number of reasons. First, agricul- tural exports have long been the backbone of economic growth in Nigeria. Even since the discovery and production of petroleum, they have continued to provide more than 50 percent of all foreign exchange earnings (see Table A.1). Agricultural exports also provided approximately L15.4 million, or 10 percent of all governmental revenues, during 1965-66. In addition to the taxes, approximately L160 million in income have been transferred out of the agri- cultural export sector since 1947 mainly to other sectors of the economy through the marketing board operations. Equally, if not more important, than the quantifiable foreign exchange earnings, tax revenues, and marketing board surpluses invested outside of agriculture is the affect that export agriculture has had on income distribu- tion in Nigeria. North refers to the "character of the 69 7O export commodity" in influencing economic growth.1 He Specified one type of production system as the plantation system.which provides opportunities for significant returns to scale. This type of production system, according to North, will have very different effects upon development from the second type system in which the export commodity is produced most efficiently pn family-sized farms.2 Nigeria's 2-3 million export-oriented farmers typify the second type system--one in which the agricultural economy is based upon family-sized, labor intensive units. This type of farm organization has generally shown to be the most profitable in Nigeria. A review of studies of smallholder returns from three crops in 19683 indicated that smallholder investments in tree crOps gave satis- factory private returns under the existing price and tax structure while a comparable report in the same year4 showed 1Douglass C. North, "Agriculture in Regional Economic Growth," Journal of Farm Economics, Vol. 51, (December, 1959) pp. 953-951. 2There seem to be no known important economies of scale connected at least with the production of the tradi- tional tree crop exports in Nigeria--cocoa, rubber, and oil palm--as the principal tasks of land clearing, planting, weeding, and harvesting must all be performed by hand. On the contrary, there is increasing evidence that small farmers can produce these cr0ps on a competitive basis with planta- tions as long as the small farmers have access to new tech- DOlogy, credit, extension, and infrastructural services such as transport and marketing facilities. 3C. K. Laurent, Investment in Nigerian Tree Crops: §gallholder Production, CSNRD IBTTEast Lansing: October, 68). 4R. G. Saylor, A Study of Investment in Oil Palm and Egbber Plantations, CSNRD 15 (East Lansing: August, 1968). 71 that most plantations of the same crops in Nigeria gave only marginal private returns. This indicates that the private returns to labor were generally not high enough to justify plantation production. A significant aspect of the returns to smallholders is their low investment in social overhead in contrast to the sizable investments required of plantation owners. Capital investments in housing, hospitals, schools, and recreational facilities all add to the cost of operating plantations. Also, small- holders, who employ mainly family labor, have considerably more flexibility in the use and payment of labor than do the plantations. It is the contention of this writer that domestic economic growth in Nigeria is largely dependent upon export growth and that this relationship will continue for some years to come. This relationship will continue if exports themselves continue to serve as the "prime mover" of the economy. The relationships between export and domestic growth are pointed out in Chapter I where the major influ- ences of the prime mover on the rest of the economy were specified. These influences include serving both as a market for and as a supplier to industries producing other goods and services, and as an expanded market for their own produce and for other domestic food. Considering (1) the importance of exports to the economy, (2) the small farmer make-up of the export sector ... n. . “v "v p an. a1 \. m 72 with the resultant wide distribution of export income, and (3) the profit maximizing behavior that small Nigerian farmers have demonstrated in the past, it is only fitting that major attention should be given to the policy measures which affect the motivations and actions of the export group. This means attention to export policy itself--to that aggregation of rules, guidelines, taxing structures, pricing policies, and assistance programs which working together help make exports what they are. A starting place for evaluating past export policies and for devising new patterns of action for the future is to ascertain what export policies have been in the past and what they are presently. Helleiner using Government of Nigeria statistics since 1900 traced the customs duties collected both as import duties and export duties over the period 1900-1963.5 Table 4.1 shows important dates and amounts of taxes collected. It is noted from Table 4.1 that import duties have been in effect continuously since 1900. Export duties, on the other hand, were not begun until 1916 when they earned the very modest amount of £58,000. They, likewise, have continued in effect every year since their beginning. Export duties, however, remained a relatively unimportant source of government revenue--earningless than L1 million 5Helleiner, op, cit., p. 559, Table V-E-4. 73 Table 4.1. Customs Duties Collected, Nigeria, 1900-1963 Year Import Export Total Customs Duties Duties Duties ------------ Thousand L---—--------- 1900 517 --- 517 1908 1,183 --- 1,183 1916 1,087 58 1,144 1924 2,038 679 2,717 1932 1,809 501 2,310 1940 2,105 434 2,540 1948 8,241 1,944 10,185 1951 14,697 10,820 25,517 1954 22,164 21,293 43,439 1956 33,611 13,475 46,486 1960 50,696 15,490 66,186 1963 61,130 13,543 75,273 Source: G. K. Helleiner, Peasant Agriculture, Government and Economic Growth in Ni eria (Homewood: Richard D. Irwin, Inc., 966) p. 559, Table V-E-4. annually until after World War II. Their importance increased drammatically between 1947 and 1954 when their share of total customs duties collected went from 9.2 per- cent to 49.0 percent. In 1954, L21,293,000 were collected from export taxes in Nigeria.6 The volume of export taxes has actually declined since its 1954 high and totalled L13.5 million in 1963. It is the contention of this writer that there has been no one unified, concerted export policy in Nigeria 6Helleiner, ibid., p. 560. 74 designed to maximize foreign exchange earnings, maximize farmers' incomes from exports, or to maximize government revenues from the export sector, (n: for any one single purpose. It is his contention that Nigeria's export policy has been a policy of happenstance based upon reactions to events and not one aimed at attaining a specific goal. Nigeria's export policy has been an ambiguous one designed at one and the same time to heavily tax some export crops which seem to have great comparative advantages in the world market, such as palm products or cocoa, and encourage other exports such as rubber, which have demonstrated less com- parative advantage in production. But the fact remains that Nigeria does have a definite agricultural export policy. It is a de fagtg policy based on marketing board monopsony buying power, export taxes, and producer taxes all designed to tax export agriculture as a means of financing other activities. It is the con- tention of this writer that agricultural policies designed to turn the terms of trade from agriculture have kept agri— cultural growth and purchasing power throughout the economy lower than it would have been under a more favorable pricing policy. Methodology for Studying the Effects of Export Policy Changes The conclusions of comprehensive research and appraisal by the Consortium fortjugStudy of Nigerian Rural Development 75 (CSNRD), of which this research is a part, point to major changes in several areas of Nigerian policies which must be made if economic growth is to be effectively increased. The development strategy suggested by CSNRD rests largely upon improved export policies although it contains other policy recommendations as well. CSNRD chose a system of non-computer simulation and projection to predict and present the consequences of following the three strategy alternatives which Nigeria considers in developing her agriculture. The three broad strategies considered by CSNRD for Nigerian agriculture are as follows:7 Strategy 1. Continue present strategy for export agriculture while allowing food production and marketing to be guided by the market mechanism. Strategy II. Moving from the present strategy to (a) higher producer prices and improved producer incentives and services for the production of export and selected import substitution crops, and (b) vigorous research to find new technologies for the high cost staple foods. Strategy III. A harsher strategy than at present for private producers of export crOps with a relatively large public agricultural sector involving the possible imposition of price ceilings, resource allocation controls, and food rationing with 7Glenn L. Johnson, et al., op. cit., p. 59. 76 the objectives of producing cheap foods for city dwellers and obtaining heavy extraction of government revenues from agriculture. Estimates and projections of the consequences on exports of following each of the three strategies spelled out above will be presented in Chapters X and XI for the years 1970, 1975 and 1985. The yields and production estimates on export crops presented in Chapters X and XI are the result of research and discussions among CSNRD researchers and Nigerian and non—Nigerian policy and decision makers. This study will strive to answer some of the funda- mental questions that agricultural planners are asking: (1) Can, or should, export agriculture continue as the prime mover of the economy? (2) Where should emphasis on agriculture be placed in order to maximize social and private returns? (3) Do the present agricultural exports still offer the most profitable Opportunities for agricultural investment? (4) What is the potential role of new exports, such as livestock or rice, superior food crops, or import substitutes and how can these potentials be developed? 77 Present Export Policies Any discussion of export policies in Nigeria centers around two items--marketing board operations and export taxes. Each will be discussed in detail. Since the out- break of World War II in September, 1939, the marketing boards or their predecessors have controlled the domestic purchase and sale of Nigeria's major agricultural exports with the exception of rubber.8 These boards are statutory monopsonies which establish the prices to be paid to domestic producers, or middlemen, largely on the basis of nonmarket criteria. The marketing boards are important in Nigeria and accounted for 63 percent of the value of total exports as late as 1963. Eicher summarized the justification of the introduc- tion of marketing boards in the 1939-1940 period as follows: (1) inflationary pressures generated by the shortage of consumer goods during and immediately following World War II had to be controlled, (2) import and export trade were controlled by a few large foreign firms which could easily exert monopolistic and political influences on Nigerian society, (3) the "Native Lands Acquisition" enactment of 1910-1914 precluded the establishment of "easy to tax" foreign owned plantations, (4) shortage of administrative skills, records, and collection techniques necessary to T 8Helleiner, op. cit., Chapter 6. 78 establish some alternative systems of taxation such as land or income taxes, and (5) there was no known adequate alternative source of governmental revenues such as minerals or petroleum deposits.9 Nigeria's marketing boards, it should be remembered, had their origins in war-time arrangements "for the orderly marketing of West African produce and the protection of the United Kingdom supplies of raw materials." After the war the boards assumed the responsibility for producer price stabilization and for the further development of the producing industries. The stabilization objective of the marketing boards has been carefully analyzed by members of 10 the economics profession. Helleiner maintains that stabilization, of whatever sort, was never the sole respon- sibility of the marketing boards.11 The marketing boards from their very conception held considerable powers to accumulate and expend funds derived from their trading operations, but, according to Helleiner, they have long since exceeded the limits originally set for them as revenue 9Carl K. Eicher, ”Reflections on West Africa's Rural Development Problems of the 19703” presented at the Adlai Stevenson Institute of International Affairs in a Symposium: Africa in the 19803, Chicago, April 14-18, 1969. 10P. T. Bauer's West African Trade, (Cambridge University Press, 1954), is the classic work on the marketing boards. Bauer analyses the marketing boards' operations and severely criticizes the boards for not fulfilling what he considers to be their first and only major responsibility-- that of producer price stabilization. 11G. K. Helleiner, ”The Fiscal Role of the Marketing Boards in Nigerian Economic Development, 1947-61,” Economic Journal, Vol. LXXIV, No. 295, (September 1964) pp. 582-610 79 12 The evolution of the revenue collection agencies. generating goal of the marketing boards reached the overt public policy stage in the early 19603 when Regional Governments in the Federation explicitly stated that the marketing board operations were and would continue to be important sources of revenues for their development budgets. The evolution of the marketing boards' function from mainly stabilization agencies to taxing agencies is well documented by Helleiner.13 When considering economic growth, it seems reasonable to follow the lead of CSNRD and to evaluate the performance of what the marketing boards have done, not on their ability to extract funds from the agricultural sector, but on the effects of the export taxation on rates of growth in the export sector as well as the effectiveness of use of the marketing board sur- pluses themselves once they have been extracted.14 'In reply to the first question, the volume of Nigeria's agricultural exports with the exception of palm oil has grown at an annual compound rate of 4-6 percent during the past 10-15 years despite the high marketing board and export 12Helleiner, ibid., p. 583. 13Helleiner, Peasant Agriculture, Government and Economic Growth in Nigeria, 0 . cit., and The Fiscal’Role of the Marketing Boards in Nigerian Economic Development, 12117;“, 22- 9};- 14 Eicher, Symposium on Africa in the 19803, op. cit. 80 taxes. Specifically, cotton production grew at an annual compound rate of 9.5 percent per year between 1949-50 and 1964-65.15 Groundnut exports (including groundnut oil) grew at a 5.2 percent compound rate between 1956-58 and 1964-66.16 The volume of cocoa exports increased at a. compound annual rate of approximately 7.0 percent over the ten year period between 1956-58 and 1965-67. Rubber, the one major export crOp not under marketing board control and which has not been taxed at all in recent years due to its low price, produced exports which grew at a compound annual rate of 6.25 percent over the 1956-58 to 1964-66 period. The impressive growth rates of cotton, groundnut exports, rubber and cocoa despite the marketing board taxes were no doubt what led Helleiner to make the optimistic, though somewhat questionable, statement in 1964 that "it can therefore unambigously be stated (emphasis added) that Nigerian development has been aided through the device of channeling a portion of its export earnings via the marketing boards away from the producer to other (governmental) decision-makers."17 The bases for Helleiner's evaluation 15 16 17 FAQ, op. cit., p. 505. Glenn L. Johnson, et al., op. cit., p. 88. Helleiner, "The Fiscal Role. . .," op. cit., p. 603. 81 are not known. Some of the exports which enjoy great com- parative advantage, such as cotton (mainly for domestic markets) and cocoa, grew despite the tax disincentives and achieved a little faster rate of growth than did rubber which benefitted from the policies and which thus far has not demonstrated comparative advantage in Nigeria. Impli- citly, Helleiner asserts that the benefits from the taxing policies were either (1) Pareto-better adjustments through which all concerned parties benefitted, or (2) non-Pareto better adjustments in which at least one group or interest benefitted and at least one suffered--with the benefits being greater than the losses thereby making the conflict resolvable. Rubber benefitted because of the producer pricing and taxing policies, for example, while palm oil and palm producers suffered. These benefits and losses must be recognized and weighed before a blanket evaluative statement can be made. The record of the uses of marketing board surpluses has also been investigated and well documented. It is not the purpose of this paper to evaluate the achievements of the uses of those funds. The Coker Commission on the Management of Western Nigeria's Marketing Board surpluses from cocoa is often cited as evidence that at least one marketing board acted unwisely in dispensing its funds.18 18Federal Ministry of Information, "Report of the Coker Commission of Inquiry into the Affairs of Certain Statutory Board Corporations in Western Nigeria,l962." (Lagos, 1963). 82 Less well known than the Coker Commission Report are the 1967 White Papers on Northern Nigeria's Development Cor- poration19 20 and in the Northern Nigeria Marketing Board. These papers vividly point out the shortcomings of some schemes financed with marketing board derived funds. Despite the many failures and shortcomings of market- ing board financed projects, the concomittant disincentive effects that the heavy taxation had on rural to urban migration, and the fact that Nigerian export production has been held far below its optimum social level, most economists agree that no other satisfactory taxing alter- native was available until the tremendous increase in petroleum exports in 1965. Export and Producer Taxes In light of the diminishing relative importance of the marketing board revenues in recent years, it is the contention of this writer that much of the recent attention placed on marketing board operations has been misdirected. Export taxes have been far more important in the repressive 19Government of Northern Nigeria, A White Paper on the Military Governments Polioy for the Reorganization of the Northern Nigeria Development Corporation (Kaduna: Government Printer, 1967). 20Government of Northern Nigeria, A White Paper on the Northern Nigeria Military Governmenth Policy fOr the Comprehensive Review of Past Operations of the Northern Nigeria MafketingBoard (Kaduna: Government Printer, 1967). 83 tax structure for agriculture in recent years than have been the marketing board charges. Table 4.2 shows the government revenues raised by marketing board surpluses, producer purchase taxes, and export taxes over the period 1949-1966. Due to problems of separating calendar years from crop years the revenues are only estimates; but the magnitudes and the trends are evident. Several factors of note come out of Table 4.2. First is the fact that export taxes surpassed marketing board surpluses as an earner of government revenues in 1952 and have continued to earn more than marketing board sur- pluses every year since that time. The second item of interest is the sudden, practically overnight increases in export tax earnings over the first few years after the end of World War II. Although started in 1916, export taxes op popo earned less than £1 million per year until 1948 when the amount first climbed over the L1 million 21 Thus, it becomes clear that the marketing boards mark. are playing a declining role in the provision of government revenues while export taxes have become more important. The declining marketing board surpluses may need some clarification, however. Just as the name implies, any board's ”surplus" is the difference between the total income of the board and its total expenses. The higher 21 V-E-4. Helleiner, op, cit , Statistical Appendix, Table 84 Table 4.2. Estimates of Marketing Board Surpluses, Producer Purchase Taxes, and Export Taxes on Agricultural Goods, Nigeria, 1949-1966 Year Estimated Total Producer Export Taxes Marketing Board Purchase Tax** from Total Surpluses* Agriculture ------------------- L Million/N--------------------- 1949 17,150.9 3,884*** 1950 20,180.5 4,224*** 1951 l4,438.0 10,820*** 1952 11,585.9 14,559*** 1953 8,336.5 705.1 12,779*** 1954 5,917.9 700.7 21,293*** 1955 2,447.4 2,511.0 13,916*** 1956 3,970.1 2,444.0 13,262.7 1957 1,362.0 2,031.1 13,215.1 1958 5,775.6 2,669.8 12,749.2 1959 7,570.0 2,519.0 12,477.2 1960 -1,431.6 2,152.6 16,677.9 1961 1,061.6 3,173.3 14,599.2 1962 3,357.2 2,928.4 13,113.7 1963 7,515.2 2,311.3** 11,842.0 1964 3,582.1 2,375.2** 14,203.9 1965 4,813.5 2,576.5** 14,432.7 1966 2,538.8** 15,851.1 *Some problems may arise from totaling as part of the data is for crop year (e.g., 1957-58) and other from calendar years. The purpose is to show the trend, however. **Does not include marketing board surpluses or producer taxes on oil palm from Eastern Region after 1962. ***All export duties collected; i.e. export taxes derived from nonagricultural exports are not subtracted out. Source: Helleiner, G. K., Peasant Agriculture, Government and Economic Growth in Nigeria. Kriesel, H. C.,"W0rking Papers on Statutory Marketing in Nigeria," University of Ibadan, August, 1968. 85 the cost of operation, the lower the profits (or surpluses), ceteris paribus. Thus, declining profit rates might pos- sibly reflect declining export prices or an escalation of costs of operation. Several things which might inflate costs come quickly to mind--the subsidizing of unprofitable operations, the protected marketing charges, and ineffi- ciencies of the licensed buying system, a general weakening of effort and enterprise, or corruption and cover-up within the boards themselves. The tax make-up on agricultural exports is spelled out in detail below in Table 4.3, where 1961-65 export tax, marketing board surpluses and producer purchase tax averages per ton of produce are given for the major export crops. Table 4.3. Tax Make-up for Major Export Commodities, Nigeria, 1961-65 Averages Commodity Export Duty Producer Tax Surplus Total Tax ------------------- L per ton----------------- Cocoa 20.5 4.0 6.0 30.5 Groundnuts 6.0 1.4 0.6 8.0 Cotton 2.5 0.1 -- 2.6 Palm Kernels 5.3 1.5 3.2 10.0 Palm Oil 8.7 3.8 4.7 17.2 Rubber 19.61 --- --- 19.6 Source: Estimated from CSNRD, unpublished working papers. 1There is no export duty on rubber when price is below 18d per pound. 86 In conclusion on the marketing boards, one might say that the marketing board taxing policy was an effective tool to obtain governmental revenues in Nigeria and for preventing unfavorable and unnecessary economic movements during periods of very high producer prices and/or short- ages of goods. This simple taxing mechanism was employed when no simple, alternative taxing system.was known. Despite the beneficial effects of the use of the revenues generated by the export tax structure, the tax policies have had their effect on the negative side as well, as spelled out by Eicher.22 Eicher states that the negative export crop tax policies have (a) aided in stimulating the rural to urban migration which was added to the ranks of the urban unemployed, (b) held down rural land values by taxing away the rent, (c) diverted potential foreign in- vestors to agricultural production in other African coun- tries, (d) discouraged the use of new agricultural techno- logy through low producer prices, and (e) perhaps most importantly, held down the expansion of the effective demand of rural people--who comprise 75 percent of Nigeria's p0pulation. Even Helleiner, one of the strongest advocates of the marketing boards' negative pricing policies, wrote in 1964,23 22 p. 28. Eicher, Symposium on Africa in the 19803, op. cit., 23Helleiner, "The Fiscal Role. . .," op. cit., p. 605. 87 . .as opportunities for direct taxation of other sources of other income appear, one would hope for a gradual shift to a more equitable (and less distorting) tax structure. This may, unfortunately, be a long time coming. Fortunately, the opportunities to substitute other forms of governmental taxation have come much sooner than Helleiner had expected. Summary Considering (1) the importance of agricultural exports to the Nigerian economy, (2) the small farmer make-up of the export sector with resultant widespread distribution of income and employment, and (3) the profit maximizing behavior of small Nigerian export-oriented farmers, the author concentrates in this chapter on the policy measures which affect the motivations and actions of the agricul- tural export producing group: A starting place for evaluating past export policies and for devising new patterns of action is to ascertain what export policy has been in the past and what it is at present. After reviewing the development of export policies in the past, the author contends that there has been no one, unified export policy in Nigeria with one specific goal in mind. Nigerian policy toward exports has often been an ambigious one designed at one and the same time to heavily tax some export commodities which seem to have great comparative advantages in the world market and 88 encourage production of other exports which have demon- strated less comparative advantage in production. But the fact remains that Nigeria does have a definite agricultural export policy. It is a oo foopo policy based on marketing board monopsony buying power, export taxes, and producer taxes all designed to tax agriculture primarily as a means of financing other activities. Any discussion of present export policy in Nigeria centers around two items--marketing board operations and export taxes. The marketing boards have controlled the domestic purchase and sale of Nigeria's major export crops, with the exception of rubber, since the outbreak of World War II. They are statutory monopsonies which establish the prices to be paid to domestic producers, or middlemen, largely on the basis of nonmarket criteria. The marketing boards are important in Nigeria not only because of the huge amounts of revenues collected and transferred out of agriculture through the marketing board "surpluses" but also for the fact that they controlled 63 percent of the value of Nigeria's total agricultural exports as late as 1963. Export taxes have surpassed marketing board surpluses as means of earning government revenue, however, and it is evident that the marketing boards are playing a smaller role in the provision of government revenues. PART II WORLD DEMAND FOR NIGERIA'S PRESENT AND POTENTIAL AGRICULTURAL EXPORT PRODUCTS, 1970 TO 1985 CHAPTER V COCOA Introduction This section (Chapters V through IX) assess the export demand over the next decade and a half for Nigeria's present and known potential export crops. The demand and price projections developed are generally divided into two dis- tinct time periods: (1) 1970 to 1975, and (2) 1975 to 1985. Data for the demand projections are primarily drawn from publications and projections available from five sources: (1) FAQ publications, (2) IBRD information (both published and unpublished), (3) USDA material, (4) special reports and studies pertaining to both world markets for agricultural commodities and markets within regional economic areas, such as the EEC, and (5) trade publications. A summary of the demand projections for Nigeria's major export crops is included in Chapter IX. The demand and price projections from this section are combined with the expected supply responses from Nigerian export agriculture in order to calculate export earnings, payments to farmers from export crops, balance of payments, and degrees of specialization that may occur 89 90 within the Nigerian agricultural economy under each of the three alternative rural development strategies. This fitting of Nigeria into the world demand——supply framework is done in Chapter X. Nigeria is the world's second largest cocoa exporter-- annually furnishing about 20 percent of the world's cocoa 1 Cocoa ranks either production Of 1.2-1.3 million tons. first or second as a foreign exchange earner among Nigeria's agricultural exports--a1ternating for the number one posi- tion with groundnuts and groundnut products.” The value of cocoa exports was L51.7 million in 1968, or 24.5 percent of all foreign exchange earned by Nigeria in that year. The foreign exchange earnings, important as they are to Nigeria's growth and development, may in fact be less important, however, than the farmer's income, employment, and distribution of income generated by cocoa. A total of 350,000 small farmers, mostly in the Western State of Nigeria, produce the 225-250 thousand tons of cocoa that goes annually into the world market. The economic welfare of this group and the determination of whether they and their families will be effective purchasers in other markets in Nigeria depends largely upon (1) their produc- tion of cocoa and (2) the price that they receive for their produce. 1FAO, Cocoa Statistics, (July, 1969) p. 7. 91 Production and consumption of cocoa have nearly doubled since the early post-war years. Figure 5.1 shows availability of cocoa, grindings, and cocoa prices since 1947.2 The crucial role of "availability" as combining both stocks and production quickly comes to the fore from Figure 5.1 as a prime determinant in establishing price. Prices begin to fall as the gap between availability and consumption begins to widen and vice versa. Time series analysis has shown that the development of world market prices from say, month to month, is systematically related to the most recently published crop forecasts for the coming season, the expected level of grindings, and the volume of stocks in consuming countries--the size of the cr0p forecast being the most important determinant.3 This relationship, which reflects short-term expectations about quantities rather than the actual quantities themselves may provide some explanation for the wide fluctuations in price which cocoa experiences. Figure 5.2 shows production and grindings of cocoa over the 1930-1968 period. Mid-1965 initiated the longest and most dramatic period in the 38 year horizon when grind- ings have exceeded production. This period also marks the 2The term "availability" refers to estimated stocks on hand at the beginning of the season plus new production for that year. "Grindings" may be equated with consumption. 3 FAQ, Agricultural Development in Nigeria. (Rome: United Nations, 1966) p. 46. 92 .H.m magmas .msma .umaouoo "nausea NewsaEaa .mzmmsn was Haas =.moaumaumum «coco: "mouaom MUZUQ DJEO; l o l o | m07:02_fl0 I .l . I I >F.J_mJnn=Jm E135 I (008 93 .~.m «Human .moaa umnouoo “scene; “emuaaaq .mammsa cam Haao :.muaumaumum moooo: Hmousom m awDZmJQUcmOZOZEOI III I ZOmdwngO+WWmmmwm l mm mm vm mm 0m mamllmJllfiuqhml—lflm v mu. 3 ..Ju_.....- .quaflvamv.mdmu1wqm.vmqm.mlljommm IOOOUOW IDODOOV \\ " ‘\\) 1‘ i I/ x I 1000000 all I “J \ x n s / \ \II \I \\ II\ a\\ \ \ s 1000 00m ‘I \ I \ \ \ \ 1000000.. \ x \ ‘ a 100000me s \\.|\ \ .000 00v _. 08—180? 3262.8 0.“ 20.5.0168“ Baglgu _ 000 000 _. mZE mZOJ 94 beginning of a significant up-turn in cocoa prices (see Figure 5.1). Growth of the World Cocoa Market It is evident from Figure 5.2 that world cocoa pro- duction increased slowly and erratically throughout the decade of the 19503 moving from 733,000 tons per annum in 1949/50-1951/52, scarcely more than for the immediate pre- war years, to 800,000 tons in 1956/57-1958/59 for a com- pound annual increase in production of 2.3 percent. World market prices averaged U.S. 37 cents per pound over the 1950-59 period and were in general much higher than pre- war prices and extremely high during years of poor crops. However, beginning with the 1959/60 crop year, pro- duction in West Africa, which during the 19503 had provided abdut 70 percent of the world's cocoa, began a marked ex- pansion and soon provided close to 80 percent of world cocoa supplies. The vast West African expansion was due to two 4 One was the large-scale spray programs major developments. mounted against diseases and pests, particularly capsids. The second factor was the coming into bearing of new plant- ings made during the previous 5-12 years because of the generally high cocoa prices in the immediate post-war period. Cocoa production in Nigeria can be looked at generally at two 1eve13--the first being the 106-107 thousand ton level 4FAO, Agricultural Commodities--Projections for 1975 ood 1985. (Rome: United Nations, 1967) p. 232. 95 prior to 1959 and the 190-195 thousand ton level after 1960.5 Table 5.1 shows cocoa exports from major exporting countries over the 1947-51 to 1968 period. World cocoa production increased, largely as the result of capsid control in West Africa and later from young trees coming into production, by an average of 7.8 percent per annum between the 1956/57—1958/59 and 1960/61-1962/63, rising to an average of 1,164,000 tons in the latter three seasons.6 The dramatic increase in production beginning in 1959 had its effects upon prices and upon cocoa consumption as well (see Figure 5.1). World cocoa prices fell from the average U.S. 37 cents per pound over the 1950-59 period to U.S. 23 cents per pound average in 1961-63. 'The price decline stimulated greatly increased cocoa consump- tion and forced an increase in world grindings from an average of 860,000 tons in 1956/57-1958/59 to 1,099,000 tons in 1961-63--this increase being equivalent to 6.1 percent annually since 1957-59.7 Stocks of cocoa beans (which are held almost entirely by consuming countries) varied from year to year but built up over the 1957-59 5Cocoa production in Ghana (as well as other West African countries) underwent the same magnitude of expan- sion as did Nigerian production. Ghana production averaged approximately 230,000 tons prior to 1959 and 400,000 tons after 1960. Latin American and other cocoa producing areas did not experience this dramatic increase in production. 6FAO, Agricultural Commodities--Projections . . ., op, cit., p. 232. 7 Ibid., p. 232. \ 1\\ .1 ifF-In-ifl u.- INA.\- «a v.1... ~—.~ I. D '5‘ 9- njv h :34 pi! V, EN ‘V. N.. 96 .moumafiumm woma How moma .Hmnou00numnamuamm .m .02 .N »Ho> .mmumu o .mUHUmHuwum $0000 .O4h "mmohfiom 330.3 o.mmo.a H.mam.a o.o3o.a a.oao.a 3.333 m.~33 muuoaxm mayo: Hmuoe .m.c 0.3“ 3.5a 3.3a 3.m3 3.Nm 3.33 mucoumamo .m.a H.moa 3.3NH a.mm 3.33 H.m3 3.33 ammou spo>H on m.3HH o.~m A.33 H.303 H.aoa N.3oa Haumum mom N.m3N m.mom 3.5AH m.3mH n.3oa H.aca maumwaz mmm 3.3mm 3.30m o.HH3 3.303 H.3NN 5.3mm «cane uuuuuuuuuuuuuuuuuuuuuuuuuuu mcoe mood ooo.Hnuuuuununuunununnunsnauuuuun4 amaowmw>oum mead mesa mama mama Hema 3m-~nma Hm-a3ma suucaoo mesa ou Hm-a3ma .mnmuuoaxm mouou vane: “ohm: .H.n magma 97 to 1961-63 period as production was increasing faster than consumption. This stock build up helped to repress prices (Figure 5.1). Grindings began to exceed current production in 1965. There has been a further expansion of the world cocoa economy since 1961-63. Cocoa production rose to an average of 1,343,000 tons over the seasons 1964/65-1966/67 with grindings rising even more rapidly to 1,362,000 tons in 1965-67. The period 1961-63 to 1965-67 was marked by great priceinstabilityas shown in Figure 5.1. First, the largest West African crop of 1964-65--the increase largely due to favorable weather—-raised world output to 1,485,000 tons--approximately 22 percent more than the previous year's production and 25 percent above the 1964 grindings.8 The large volume of cocoa, together with a delay and other unusual features in getting the cocoa marketed, resulted in a drastic decline in world market price to an average of only 12 cents per pound in July 1965. The average world price in 1965 was only 17 cents per pound, and the 1964 level of 21 cents was not regained until early in 1966 after much of the 1965/66 crOp had been sold. The low prices at which large quantities of the 1964/65 and 1965/66 cocoa crop were purchased had a further 8Cocoa Statistics. (London: Gill and Duffus Limited, 1968). - 98 marked and profound impact on world grindings.9 These low prices stimulated greater use of cocoa and cocoa products in the manufacture of confectionery items and also led to reduced retail prices in the principal manufacturing countries. It is also likely that the lower prices helped bring about more liberal import policies on the part of the centrally planned countries (CPC) whose imports rose very sharply beginning with 1965. World grindings increased by 13 percent in 1965 alone and increased to 1,380,000 tons in 1966 and a bit more in 1967, both clearly above current production levels. As mentioned earlier, the pattern of consumption exceeding production began in 1965 and has continued ever since. The 1969/70 crop forecast at 1,376,000 metric tons, is expected to be the second largest on record (second only to the bumper 1964 crop) and is expected to exceed consumption requirements in 1970 after 4 years of consecutive deficit production.10 Cocoa bean prices have continued their downward trend during the first two months of 1970 after peaking in November of last year, when New York spot Accra prices reached 50 cents per pound. New York spot Accra prices had fallen to U.S. 33 cents per pound at the end of February, well below the 1969 annual average of 45.7 cents. 9FAO, 92. 95., p. 236. 10USDA, "World Cocoa Bean Crop Second Largest of Record," Foreign Agriculture Circular, (March 1970). 99 The drastic decline in prices in 1964-66 which had a strong positive effect on increasing world cocoa con- sumption had at least a negative psychological effect on cocoa suppliers. The profound effects of the 1964-65 crisis when world cocoa prices dropped to as low as U.S. 10-12 cents per pound are not soon to be forgotten, say FAO commodity specialists who view the world cocoa out- look with optimism.ll Ghana, for instance, is just recovering from the results of the cocoa crisis which saw the discontinuance of cocoa research and seed selection within the country, the lowering of producers' prices paid for cocoa, and the general loss of interest in cocoa on the part of both farmers and governmental officials. waever, higher export prices have revived interest in cocoa in the past 2-3 years.12 The importance of the developed world in cocoa con— sumption quickly comes to the fore from Table 5.2. The developed regions of the world (Western Europe, Eastern EurOpe, the United States and Canada, and Oceania) in aggregate accounted for more than 92 percent of world cocoa consumption in 1968. The potential role of Asia, Africa, and Latin America as cocoa buyers of the future may be great. But for the present, and for the foreseeable 11FAO, "Cocoa: A Commodity on the Rise," Ceres, Vol. 2, No. 5, (September-October, 1969) pp. 18-19. 121bid., p. 18. 100 future, Nigeria and other cocoa exporting countries must look to the now developed countries as their principal markets. As far as growth rates of the market are con- cerned, however, South America, Asia, and Africa all experienced considerably higher growth rates of cocoa consumption than did either Western Europe or the U.S. and Canada. Only Eastern Europe (whose cocoa consumption increased by 40 percent over the period 1963-68) had consumption growth rates greater than African and South America. Table 5.2 shows the growth of the cocoa export market during the period 1963-68 and per capita cocoa consumption for inhabitants of major regions of the world. An inter-country comparison of per capita cocoa consumption rates, as shown in Table 5.3, indicates higher consumption levels for the more developed countries of North America and Western Europe and the lower per capita consumption rates for the Mediterranean countries, Finland, Ireland, and Japan. There are only slight evident rela- tionships between per capita incomes and per capita cocoa consumption in the high consumption countries as consumption is measured as net imports of cocoa beans and cocoa pro- ducts in terms of beans. Consumption measured in this manner is high in countries traditionally exporting cocoa powder and/or chocolate. Thus, several countries including 101 .Asesa .sassv NH .Ho> .eosuesueem soooo .o3s “mounom .moumu cosuqapmaou .m.:H o.owm.a m.mm~.a m.NHN.H “.moo.a muuoaSH vHHo3 kuOH mo.¢ HH.3 mm.m mo.m N.m m.m~ N.n~ n.3N m.NN mwcmooo om. om. om. ma. H.m o.NH m.HH m.oa m.m mosuw< mo. mo. mo. mo. m.m o.mo ~.no m.~m m.mm mwm< mm. mm. mm. mm. N.m 0.3H w.NH o.mH m.m moHuoa< .m Hom.3 HoH.3 Hmm.m Hom.m s.mo n.0mq 0.0H3 m.~mm o.~om mvmomo w m: Ho.H mm. mm. mm. 3.33 H.mma m.¢ma 0.53H m.oaa mmounm .ummm mm.m mm.m so.m om.m N.mm o.Nmm m.mmm N.onm w.cm¢ onoudm .umoz nunumusamo Mom .mnH uuuuuuuuuuuuu mcou assume ooo.H uuuuuuuu wonmcma woma noma moma moma monomEH CH mmmmuocH mmu< nosesssecou eusseo Hes sesaoeea mess sesa mesa mesa wasuuosaH mcumoma .>Hamscc< .mmn< Hmossdmuwooo an .mcmom mo mahoa as muospoum moooo was mammm mooou mo aowumaumcoo pHHoB .N.m manna NZ 1950-52 1956-58 1960 1963 1965 ‘ 1967 ------------------Kilograms Per Capita--------------- he Mm 010 2 92280 21755 24WM1 fifiMW ..................... 12212 01211 00213 00100 QLLQ 870 360 3 58 11212 02221 01113 00000 QlLO 53 87 7 7 37 55 18 3 I4 72 11212 02211 01113 00000 QLIQ 97562 27136 73 739 9 I4 77 11212 01111 00113 00000 0110 8 3 2 30 8173 212 87 0 0 I40 6 0 6 01%3 OOOOOOOOOOOOOOOOOOOO 11111 02111 00112 00000 QLLQ 13 27 I... mm 0 osmz 11111 02201 00112 00000 QLLQ 777 27 10 523 101... 20 01 019 11111 03101 00112 00000 0110 “Mm'ANerages to 1967 ammv Table 5.3. Per Capita Cocoa Consumption in Developed Countries, Pre- Mann Rmmk hflmd Imhm WWW mam swuahm mam mmgfl fimn mag figflwm kmm Amman fimhfifim EAO, Cocoa Statistics, Vol. 12 (July 1969). .(Homewood, 111., Richard D. Irwin, Inc., 1964). Swmw:Bdakhwakamemmmewdwmgmmums 103 Switzerland, the Netherlands, Belgium, and Germany all have consumption levels higher than those of the U.S. The most impressive item to come of Table 5.3 is possibly the fact that while cocoa consumption varies from more than 3 kilo- grams among the higher income countries of the world to less than half a kilogram all of the countries listed, except the Netherlands, showed greater cocoa consumption levels in 1967 than in pre-war years--the increase in consumption reaching several hundred percent in some cases such as Germany, Italy, Austria, Portugal, Spain, or Japan. It is interesting from a Nigerian point of view to know exactly what have been the major points of growth in the dynamic increase in cocoa consumption over the past 20 years. The most rapid growth of cocoa grindings has occurred in the centrally planned countries, largely as the result of their more liberal import policies with respect to tropi- cal products. The COCs overall share of the world cocoa market increased from a mere 2 percent inl950-52 to 9 per- 13 The share of cent in 1961-63 and to 12 percent in 1966. world grindings in the "other developed countries of the world," (i.e. in Western Europe, North America, Oceania, and Japan) as a whole declined from 85 percent in 1950-52 to 75 percent in 1961-63 and to 70 percent in 1966. Among the deve10ped countries, however, there has been a rapid expansion in cocoa grindings within the EEC and in South 13FAO, 92. cit., p. 232. 104 Europe and Japan, although the latter two areas still account for a small share of world grindings. Cocoa grindings in Nbrth America and in Western Europe, excluding the EEC and Southern Europe, declined during the 19503 and only regained their 1950-52 levels since the 1961-63 period. Table 5.4 shows the changing makeup of Nigeria's cocoa buyers with more and larger Nigerian sales going to the centrally planned countries, Japan, and the EEC members in the later years. The United Kingdom took 29.2 percent of Nigeria's cocoa exports in 1959-60 but only 16.4 percent in 1967—68. U.S. purchases which averaged 30,000 tons in 1959-60 averaged 36,000 tons in 1967-68. Nine buyers pur- chased 1,000 tons or more from Nigeria in 1959. Sixteen purchasers took 1,000 or more tons of Nigerian cocoa in 1968. The production and consumption of cocoa have nearly doubled since the early post-war years. Production increased from a yearly average of 707,000 tons over the 1947-49 period to an average of 1,307,000 tons in 1966-68--a1though the rate of growth has been far from regular. FAO projects world demand to grow to 1.8 million tons in 1975 at the price of U.S. 25 cents per pound14 and to 2.2-2.4 million tons in 1985 at an average price of around U.S. 23 cents per pound.15 14 15FAQ, Agricultural Commodities--Projection3. . ., op. cit., p. 242. FAQ, Ceres, op. cit. 105 Table 5.4. Purchases of Raw Cocoa from Nigeria, by Country, 1959-1968 Country 1959 I 1960] 1962 1964 1967 1968 --------------- 1,000 Long Ton3--------- United Kingdom 46 41 47 46 41 34 Australia --- --- --- 2 1 --- Canada 1 5 6 9 10 6 Ireland --- --- l 6 2 4 United States 25 34 62 28 43 30 West Germany 17 16 20 34 35 36 Netherlands 44 31 39 47 57 45 Italy 6 10 10 6 18 8 France 1 1 4 3 2 --- Norway --- 2 --- --- --- --- Sweden --- 3 --- --- 1 1 Denmark --- --- --- 1 2 1 USSR --- 9 --- 8 16 18 Poland --- --— --- --- --- 3 Hungary --- --- --- --- --- 4 Yugoslavia --- --- l 2 7 11 Japan 1 2 3 5 11 3 China --- --- --- --- 2 1 Others 1 --- --- --- l 3 Total 143 154 195 197 248 209* *Does not total because of rounding. Sources: GATT, The First Six-Year Plan of Nigeria, General Agreement on Tariffs and Trade,(Geneva, 1966) p. 1 8 ' FAO, Cocoa Statistics (July 1969) p. 35. 106 Looking specifically at the FAO demand projections and presuming that they are the best demand projections avail- able for cocoa, we will try to determine three things: 1. Where and how rapidly does FAO predict consumption rise? 2. What would (or could) the projected consumption increases mean for Nigeria? 3. What are Nigeria's possibilities for maintaining or expanding, her share of the world cocoa market? The FAO in projecting world cocoa demand for 1975 made the following assumptions:16 1. For the world as a whole, demand at 1961-63 prices (approximately U.S. 23 cents per pound) is projected to grow at a rate of 3.7 to 3.9 percent per year up to 1975. The developed countries would continue to provide the main unrkets for cocoa beans and cocoa products although their rate of growth of cocoa grindings is projected at 1.7-1.9 percent a year, as compared to 2.3 percent during 1950-52 to 1961-63. 2. Demand in the CPCs is expected to increase at about 10 percent annually as compared to 15 percent per year between 1957-59 and 1964-66. This rate of growth would raise per capita availabilities from 300 grams in 1965 to 770 grams in 1975 for the USSR and from 680 to 1,000 grams 16FAO, ibid., p. 24. 31' 107 in Eastern Europe as compared to current U.S. and Western Europe averages of about 1,800 grams. The projected growth rates would be relatively higher for the developing coun- tries; however, total grindings for domestic consumption would remain small. 3. 0n the production side, world production is expected to grow at an average rate of 3.2 percent per year up to 1975. The FAO projections thus include a rea- sonably close balance between production and consumption at 1961-63 prices. As stated above, FAO projects yearly world cocoa con- sumption to total 2.2-2.4 million tons by 1985 as compared to the approximately 1.3-1.4 million tons consumed annually between 1966 and 1968. A3 FAQ is quick to point out, this consumption rate assumes that the cocoa demand within the centrally planned countries (CPCs) begins to show a more direct and systematic relationship between the underlying growth factors of population and income and less dependence on purely administrative and policy decisions than has been seen in the past. World Cocoa Production Assuming that world cocoa consumption does total from 2.2-2.4 million tons in 1985 and that Africa continues to produce approximately 73 percent of the world's cocoa as it did during the 19603, the production provided by African countries in 1985 would total approximately 1.6 108 million tons (using the 2.2 million ton world production figure) as compared with 972,000 tons produced on the African continent in 1968. Table 5.5 shows the world cocoa production shares of the four major African cocoa producers over the 1965-67 period and what their contributions to world cocoa production might be in 1985 assuming overall production of 2.2 million tons in that year and constant shares of production.17 Table 5.5. West African Shares of World Cocoa Production, 1963-68, and Production Projected to 1985 Country Share of World Estimated production by Production country in 1985 with 2.2 . 1963-68, mdllion tons of cocoa produced and no change in production shares ---Percent---- ------- 1,000 Long Tons --------- Ghana 35.4 778.8 Nigeria 21.7 477.4 Ivory Coast 10.5 231.0 Cameroons 6.3 138.6 Total 73.9 1,625.8 Source: FAO, Ceres, "Cocoa: A Commodity on the Rise," Vol. 2, No. 5, (September-October, 1969) for . percentages of world production. 17The distinction between production and exports should be made. African countries exported an average of 93.4 per- cent of their cocoa production in 1963-65. Latin American countries on the other hand exported 61.4 percent of their production. Latin American production increased by a yearly average of 59,000 tons between 1963-65 and 1967-68; however, exports increased by a yearly average of 31,000 tons over the same period. 109 Table 5.6 shows the production growth rates realized by the major cocoa producing countries between 1950-52 and 1964-66 as well as the growth rates projected by FAO up through 1975. Nigerian cocoa production grew at a 6 percent annual compound rate during 1950-52 and 1964-66 (see Table 5.6). Only one other country, Ivory Coast, experienced a higher growth rate--that of 6.2 percent compounded annually. Nigerian production is projected by FAQ to average a 4 percent growth rate over the entire period, 1961-63 to 1975 while the Ivory Coast production growth is expected to further increase to 6.8 percent compounded annually. Ghana is expected to drop back to a growth rate which will only make the 1961-63 to 1975 growth rate average 1.9 percent per year. The question is: On what basis did FAO expect \ the growth rate to increase for Ivory Coast, decrease for Nigeria, and fall off drastically for Ghana? '/ Although there are many other economic, social, and political factors which may influence the growth of cocoa production, the numbers, age make-up, and yields of cocoa trees are possibly the most essential factors. Cocoa is a tree crop with a very specific yield pattern--cocoa plants, after a 3-7 year period of immaturity--depending on variety, gradually increase productive capacity for a number of years d.l8 until full production is reache On unprotected farms 18FAO, Agricultural Development in Nigeria, op. cit., pp. 53-54. 110 .sss .s Asesa .eaosesz Umusdb ”mfiomv mama cam whoa How mcosuoufioumuummsumwmmaoo Hmnpuasoflum< .oH 0.3 0.0 0.5 w.NH ¢.H mwuowsz 0.H 0.3 m.m 0.3a H.0 manna ¢.m N.m N.m m.NH m.H mosum< uuuuuuuuuuuuuuuuuuuuuuuu 0c500800 Epcc< Mom unmouomuuuuunn:uuuuuuuuunnuuuu qnma Ou mouaoma 00:300H ou omnqoma Ou mouaoma ou mmnmmma ou Nmuomma mo-a00a mmunmma Nmuomma moumm ausohu vouoonoum mmumm nuBOHO cosmoswoum huucsoo mmma cu moumm nu3ouo vmuomnoum 03m coma ou Nmuomma .znucnou an .moumm £u3ono cowuoawoum woooo .0.m candy Dglyfi- ". AA- 5‘3...‘ C) H) 111 planted very densely, the decline in output commences between the 17th and 22nd year after planting. The down- turn in production on farms where capsids are controlled comes at least 5 years later or between the 22nd and 27th years. The period of declining yields may last from 10-15 years, that is, until the 32nd year for unprotected and the 37th year for protected trees. Another 5 years and production is usually so low as to not merit harvest. The production pattern may be summarized as follows: Stage of Approximate Age at End of Stage (Yrs.) Production Sprayed* Unsprayed* Immaturity 3-4 yrs for Amazon to 7 yrs for Amelonado Increasing yields 22 - 27 17 - 22 Declining yields 37 32 Low but still profitable yields 42 37 *for capsid control As might already have been suspected, the development of improved cultural practices, fertilization, and intro- duction of blackpod and capsid control during the second half of the 19503 substantially changed the simple corre- lation between age and yield that existed prior to that 19 time. The case could be made that increased productivity of cocoa already planted is more important for increasing 19FAO, ibid., p. 53. «.190! sbvv‘ l q'fl'," (5»! h are. H-‘v‘ U. 112 output, at least in the short—run, than is the expansion of acreage planted to cocoa. The age of trees may still provide an ever present constraint even under the "productivity" assumption. The proportion of old trees is greater in Ghana than in Nigeria as new plantings in Ghana have declined since the beginning of the 19603. Much of Ghana's post-war growth of production was due to improvements in pest and disease control which was seriously neglected during the mid-19603 with low world prices and fear of overproduction of cocoa. In most other West African countries the areas under pre-war planted cocoa are proportionately much smaller than in Ghana and Nigeria.20 The post-war expansion in new plantings started later than in Ghana and continued during the 19603. Prospects for increased production are particularly favorable in the Ivory Coast where production is expected to rise over the next few years through reduc- tion of disease and insect losses.21 After 1973 the contri- butions from new plantings may rise substantially. Thus, the FAO projected Ivory Coast cocoa production to increase by 6.8 percent per year from 1961-63 to 1975 and to possibly reach 300,000 tons by 1980—83. The Ivory Coast at that 20FAO, Agricultural Commodities--Projections. . ., op. cit., p. 239. 21FAO, Ceres, "Cocoa: A Commodity on the Rise,” op. cit., p. 19. ‘— 113 point would be expected to have gained a larger share of the world market. The question is: Whose share would decline? International Cocoa Agreement For the past several years and particularly since the convening of UNCTAD I in 1964, the world's major cocoa producers and buyers have been meeting periodically for discussions and negotiations attempting to develop an international cocoa agreement. The cocoa producing countries are concerned with preventing severe price changes and fluctuations in foreign exchange earnings over time as they see such foreign exchange fluctuations as detrimental to their overall economic development. Specifically, the revised draft of the proposed cocoa agreement lists five major objectives: 1. To alleviate serious economic difficulties which would persist if adjustment between the produc- tion and consumption of cocoa cannot be effected by normal market forces alone as rapidly as circumstances require. 2. To prevent excessive fluctuations in the price of cocoa which affect adversely the long-term interests of both producers and consumers. 3. To make arrangements which will help maintain and increase the export earnings from cocoa to producing countries thereby helping to provide 114 such countries with resources for accelerated economic growth and social development while at the same time taking into account the interests of consumers in importing countries. 4. To assure adequate supplies and reasonable prices, equitable to producers and consumers. 5. To facilitate expansion of consumption and, if necessary, and in so far as possible, an adjust— ment of production, so as to secure an equili- brium in the long term between supply and demand.22 Despite the series of meetings and draft proposals, the 14 producing and consuming countries involved have not been able to reach an agreement thus far. FAO attri- butes the lack of conclusiveness of the meetings to the fact that although there is general agreement that prices and export earnings from cocoa should be more stable, there are wide differences on specifically how the program should be effected and what it should cover.23 Dell, on the other hand, states that an understanding had already been reached as to the appropriate price range for the agreement, the application of export quotas where required, the establishment and financing of a buffer stock, the disposal of surplus and on all the other basic features 22UNCTAD, "Draft International Cocoa Agreement," TD/Cocoa. 1/2, 15 Nov. 1967. 23 op. cit. FAO, Ceres, "Cocoa: A Commodity ontjuaRise," u 4“» "a n- (1') ‘1 9 h—v n, in 115 of the agreement before the negotiations were broken off. He attributes the fact that no agreement has been signed to the strong opposition to the agreement from cocoa traders who reject the idea of stabilization per se as prejudicial to their interest.24 It is ironical, according to Dell, that many months were spent in the last round of cocoa negotiations in agreeing on a minimum price of 20 cents per pound, while little or no attention was paid to the ceiling price of 25 This was because of the view 29 cents per pound. generally taken at that timeby the consuming countries that cocoa prices would never again reach 29 cents per pound. In fact, cocoa prices have lately reached and exceeded U.S. 50 cents a pound for certain grades and in March, 1970 were at U.S. 33 cents a pound. Dell sees the pending cocoa agreement as a test case for future international marketing agreements for all commodities.26 Cocoa has all of the technical precondi- tions for agreement--a commodity which is produced and exported by a limited number of developing countries, one which has no competing producers in the developed countries, 24Sidney Dell, "African Trade and Aid in the 19803," a paper presented at the Adlai Stevenson Institute of International Affairs in a Symposium: Africa in the 19803, Chicago, Illinois, April 14-18, 1969. 25 26 Dell, ibid., p. 27. Ibid., p. 27. ZEVE 116 and the program.wou1d clearly be in the interests of millions of peOple in both consuming and producing countries. Dell goes on to assert that what ultimately made it possi- ble for the International Coffee Agreement to emerge was that the industrialized countries became convinced that this was a matter of high political importance for a large number of countries. He implies that unless a similar kind of conclusion is reached for cocoa that the agreement may never become a reality. Cocoa Substitutes Cocoa, unlike other primary exports such as palm oil, cotton, or livestock, does not face competition from close-substitute farm products originating in the indus— trialized world. Neither has it been confronted with strong competition from synthetic manufactures such as rubber or cotton. Some observers believe that recent very high cocoa prices do, however, constitute a real danger to the cocoa industry in the long run as they serve to dis- 27 and encourage substitution as courage cocoa consumption well. The normal substitution of milk products, nuts, and other extenders may be expected when cocoa import prices reach very high levels in the manufacturing countries. This substitution may partially explain why U.S. cocoa imports 27 op. cit. FAO, Ceres, "Cocoa: A Commodity on the Rise," 117 were down 26,000 tons for the first 10 months of 1969 as compared to the similar 10 month period of 1968.28 Another type of substitution seems to be worrying the cocoa producing countries more than the changes in propor- tions of the traditional inputs into cocoa confectionary products. The possibility exists that some consuming coun- tries are using, or considering the use of, less expensive edible fats as a natural substitute for cocoa butter in the 29 The manufacture of chocolate and other cocoa products. delegates of the cocoa commodity agreements hope to per- suade developed countries to pass legislation, based on the American patter, to prohibit the use of cocoa substitutes in confectionary manufacture.3O Very little can be said with precision or certainty about the long-term implicationsof substitutes for cocoa. Cocoa prices were moderate to low from 1960-66 and there was little incentive to develop and use substitutes. However, recently high cocoa prices (averaging 45.7 cents per pound in 1969 for New York spot Accra cocoa bean331) may possibly lead to increased interest tx>substitutes among chocolate manufacturers. Exporting countries will undoubtedly insist on including some type of legislated ban on cocoa substitutes in any cocoa agreement that might be developed. 28USDA, World Agricultural Production and Trade, FAS, USDA, (December, 1969). 29Lagos, Daily Times (April 29, 1968). 3OIbid. 31USDA, World Agricultural. . ., op. cit. CHAPTER VI FATS AND OILS The Fats and Oils Market Oilseeds, oils, and fats account for a major segment of world trade in agricultural commodities and are of particular interest to Nigeria. The total world value of these products traded in 1967 (including oilcakes)1 was estimated at nearly $4 billion as compared with approxi- mately $3.5 billion for wheat, $2 billion for coffee, and 2 The value of oilseeds and oilseed $0.5 billion for cocoa. products traded in that year was exceeded only by the value of meat as far as agricultural products were conCerned. The fats and oils market, with 14 major fats and oils being traded, is a large and complicated market. There are varying degrees of substitutability, or potential sub- stitutability, among the oils. It is a market where pro- ducts from.the developed and from the developing countries compete side by side for a share of world trade. It is also a market where institutional and political factors 1 2World export earnings from cocoa beans and products totaled about U.S. $760 million in 1968--an increase of $94 million over 1967. (FAO, Ceres, September-October, 1969). FAO, Ceres, March-April 1968, pp. 9-10 118 119 often exert over-riding pressures for solutions of problems which would otherwise be determined by market forces. The 14 major oils and fats that are important in world production may be classified under a variety of nomeclatures.3 For our purposes, they are classified as: (1) animal fats (including butter, lard, and tallow), (2) marine oils (fish and whale oils), and (3) vegetable 3 oils. Vegetable oils may be further subdivided into a M number of categories: E a. edible oils (including groundnut, soybean, cottonseed, rapeseed, sunflower, olive, and other minor oils used mainly for food); b. edible-industrial oils (including palm, palm kernel and coconut oil) which are used both for food and industrial uses such as the manufac- turing of soap, detergents, and chemicals; and c. industrial oils (including tung, linseed, and castor) which are used exclusively for industrial purposes such as drying agents, lubricants, and in the manufacture of nylon. Nigeria's principal interest lies with the vegetable oils as all of its oil exports fall within that category. But Nigeria is interested in other categories as well because of the substitutability--real and potential--among the various oils and among the classes. 3FAO classifies the groups into "Soft Oils" including the general vegetable oils: "Lauric Acid Oils" made up of palm kernel oil and coconut oil; "Hard Oils" composed of 120 The fats and oils market, although basically consid- ered as one market, has some product differentiation within it. Each oil has some special characteristics. None is equally well suited for all purposes although improved processing methods in recent years have made the different oils increasingly interchangeable. The possibility of substituting one oil for another is somewhat limited in the short-run, however, as evidenced by occasional price move- ments of some oils in a direction contrary to the general price trend as has happened for coconut and cottonseed oils in recent years. These movements are the result of short supplies of the commodities which are apparently replaceable, at least in the short-run, only on a very limited basis. Over the long-run, the potentials for substitution are great with the cheaper oils tending to set the price level. The potential for substitution of synthetic edible fats for natural fats and oils is also great over the long-run although the synthesis process has not yet overcome the many technical and economic problems which still impede commercialization.4 The possibility of marine—oils, palm oil and tallow; ”Industrial Oils" includ- ing linseed, castor and tung; and "Other Oils," which are not included in any of the already listed categories. 4Inedible tallow and the lauric acid oils (coconut and palm kernel oils--the principal fats and oils used in soap making) have already felt the impact of displacement caused by introduction and use of synthetic detergents. The volume of saponifiable materials used in soap making in the U.S. declined by 28 percent between 1955 and 1962. The United Kingdom and French reductions were 5 and 28 percent, respectively, over the same period. (FAO, Synthetics and Their Effects on Agricultural Trade (Rome: United Nations, 19647. PP. 45-507 Rn 121 substitution and the continuous progress in altering tastes, color, and storing qualities offer great opportunities for expansion of the share of the world market for any oil which can achieve a marked price advantage over others in the international market. More will be included on this in the discussion of palm oils. More than 30 million tons of the world's production of fats and oils (or three-fourths of the total) is used for food. Industrial uses account for the remaining one- fourth. The rate of increase in production over the 1950- 1967 period has exceeded the rate of increase in world popu- lation so that per capita supplies of fats and oils for all purposes increased from approximately 9 kilograms in 1950 to 10.5 kilograms in 1965.5 These figures mask the great differences in per capita consumption from region to region and from country to country. The country by country differences are exemplified by the fact that 17.7 kilograms was the per capita average consumption in the developed countries during the 1961-63 period, followed by 6.0 kilos in the centrally planned economies, and 4.7 kilos in the developing countries of the world. West African per capita consumption in general was around the 4.7 kilo level of the average of the less developed countries of the world. East Africa, with 1.6 kilos annual consumption, had the lowest 5FAO, Agricultural Commodities--Projections for 1975 23d 1985, (Rome: United Nations, 1967), p. 161. 122 level for any region listed by FAO in the 1967 document.6 U.S. and European Common Market countries each registered annual per capita food consumption of more than 20 kilo- grams of fats and oils per person. Countered against the estimated actual per capita consumption of fats and oils is what nutritionists consider to be the minimum requirements for fat and oil intake. Minimum total visible and nonvisible fat requirements for temperate and northern zones of the world are calculated at about 17 kilograms per person per year7 and these levels are generally met. In the tropical and subtropical "low calorie" zones of the world, an estimated 14 kilograms per person are needed.8 The deficit between "what is needed" and what is consumed would amount to roughly 3 million tons per year in 1970 as compared to average total world trade of 10 million tons per year over the 1965-67 period. The U.S. through its P.L. 480 program is about the only country with a major effort to help close the fats and oils needs gap. Mbre will be said about this later in the chapter. —_~ 6 7Visible fats and oils are those consumed directly Such as butter, margarine, table oils, etc. Invisible fats and oils are those contained in foods. 8FAQ, World Food Survey (Rome: United Nations, 1963) Study No. 11. FAO, ibid., p. 163. .-.m ‘.' -Jl.~ '1“ 123 Mbre than 50 percent of the world's supply of fats and oils (including butter) is made up of by-products. Butter, lard, and tallow--for example--are all by-products of the meat and/or milk industries and are not produced for their values alone. Fish oil is a by-product of the fishmeal industry as is soybean oil a by-product of the production of soybean meal, or cake, which is of greater value than the oil produced along with it. While meal and oil are joint products, the demand for each is governed by distinct and separate factors. The demand for high protein meal, which is used primarily for animal feed, has been growing in recent years much more rapidly than the demand for oil, which is used mainly for human food. The fats and oils produced as by-products--with the excepd tion of fish oi1—-are produced mainly within the developed countries while they compete with fats and oils from the developing countries. Recent Trends World production of fats and oils has increased at an estimated rate of about one million tons per year, or by 3.2 percent compounded annually from 1954-56 to 1965-67 and reached 38.9 million tons in 1967.9 Consumption has — 9Production is forecast to reach 43 million short tons in 1970, reaching a record high for 12 consecutive Years. (USDA, World Agricultural Production and Trade FAS, USDA (January, 1970)). 124 increased similarly and there have been no significant stock accumulations except in 1962-63 and 1967. Table 6.1 gives a detailed account of this change uncultput of individual fats and oils from the mid-19503 through 1965-67. In absolute terms, the greatest increases in production were from soybeans, sunflower, butter, and tallowu Generally, these fats and oils are primarily T‘—l--——?~I produced in the developed and centrally planned economies. Although the quantities of oils produced by the developing EU countries increased over the same period, the increases V in absolute amounts were small compared to the increases from the developed countries. Only the expansion of ground- nut oil, which is mainly a product of the develOping countries, with a yearly growth of 3.5 percent over the 1954-56 to 1965-67 period and an absolute increase in OUtPut of almost one million tons, approached the scale 0f growth of soybeans, sunflower, butter, and tallow. The developed countries over the 1954-56 to 1965-67 period increased their share of world fat and oil production from 65 Percent to 70 percent with the developing countries' Share declining correspondingly. ‘World exports of fats and oils, which have been exPanding even more rapidly than production, increased at an annual rate of 3.6 percent, or by approximately 300,000 tons Per'year, over the same period reaching approximately 10'illllii-llion tons in 1967. Detailed data on the export exPanSixan by economic region are given in Table 6.2. The 1125 .3. wk... 0 H . .. :. . .1 .0 .. . . 0.4.1.354]... $0775... . _. 0000000000 0000 005000050c0 ”0000500 .m00O 00008 0:0 003000000 00:00: 0 N.m 0.000 000.00 0.000 330.00 00009 00003 0.0 3.0 000 3.0 000 2000 0.3- 0.0 000 0.0 303 000:3 0.0 0.0 000.0 0.0 000 0000 00000: 0.3 0.00 003.3 0.00 000.0 300009 0.0 0.00 000.3 0.00 030.0 0000 3.N 0.00 000.0 3.30 000.0 000050 0.~ 0.00 000.00 0.00 000.00 0000 0080c< 0.0 0.0 00 ~.0 N3 5mmmnmm 0.0 0.0 000.0 0.0 000.0 000 8000 0.0 N.0 003 0.0 ~03 003000 6000 0.0 0.0 000.0 3.0 300.0 05cooo0 0.0 0.00 000.0 0.00 003.0 0000 0000 0.3 0.0 ~03 0.0 000 000000 0.0 0.0 N00 3.0 000 0:58 3.0 0.0 000 0.0 000 c000 MO0000 0.0 s.N 030.0 0.0 000 000m¢00 0.0 0.3 000.0 0.0 000.0 0000 00cm 0000005050 0.00 0.0 003 0.0 330 wm00000 0.6- 0.3 Nee.0 s.e 0oe.0 p meeaem 0.0 0.0 N00 0.0 030 050000 0.0 0.0 000.0 0.0 330.0 0>000 0.0 0.s 000.0 0.3 000.0 003000050 0.s s.s0 oos.e 0.s 0e3.s csepsom 0.0 0.0 000.0 0.0 300.0 05:035000 0.0 0.0 000.0 0.0 000.0 0000000000 3.3 0.03 0N3.s0 0.03 000.00 0000 0000 000000 A0c00000v A0C00000v 050050 050050 00:000000 00009 00009 00-0000 0o 0C00000 Amcoe 000.00 00 0C00000 Amcoe 000.00 O0 00-3000 00 050050 050050 00 050050 050050 .050050 :0 E5ac< 000 00:0:0 se-ees0 ewepe>< 00-3000 00000>< 000 no 0000 se-ees0 60 ee-3es0 60606>< .6sse 0e .0:60s>0:sm 000 06 .e000 6:6 e060 06 6606630600 60062 .0.e 60ess Table 6.2. 126 thports and Inports of Fats and Oils or 011 Equivalmt, by Region and Comtry, Average 1954-56 and 1965-67 Region or Comtry Average 19 54- 56 Average 1965-67 Export Import Export Import -------- 1,000 Metric Tons----------- pevelgping Countries 2,739 5,153 4,864 7,452 North America 2,011 599 3,530 759 United States 1,882 448 3,184 549 Western Europe 413 4,133 879 5,523 European Economic Commity 122 2,208 223 3,038 United Kingdan --- 1,270 --- 1,552 Others 315 421 455 1,170 Japan 7 338 --- 1,028 ic‘ltrally Flamed Ecomxrdes 400 411 878 573 Diveloping Countries , 3,259 1,079 4,147 2,061 Africa 1,465 239 1,639 464 Latin Arm-16a 321 446 828 617 Asia 1,473 394 1,680 980 Antarctic 484 --- 288 --- World Total 6, 882 6,643 10,177 10,086 \ W Countries: United States, Canada, Western Europe, Australia, New Zealand, Japan, South Africa. 0.921313 Planned Comtries: USSR, Eastern Europe, Mainland China. Remit-g Oomtries: All other countries. Source: Unpublished IBRD Statistics . 127 developed countries increased their share of world exports from 400 percent in 1954-56 to 48 percent in 1965-67. The share of the developing countries in world trade declined from 47 percent to 41 percent over the same period. Only part of the decline in the less developed countries' (LDCs) share of the world market can be blamed on their lower pro- duction growth rates. Another factor that reduced export availabilities from the LDCs was the growing domestic demand for fats and oils within the less developed countries themselves. United States soybean exports contributed greatly to the rising importance of the developed countries as exporters (see Table 6.3). In fact, increased soybean exports accounted for about 40 percent of the 3.3 million ton increase in exports over the 11 year period. On the other hand, most fat and oil exports from the developing countries (i.e. coconut, palm oil, and palm kernel oil) showed little or no growth. Aside from technological advances and reduction in production costs, the development of soybean exports characterizes one of the major influences at work in the fats and oils market during the past decade. The problem is that soybean oil and soybean meal--the joint product of the soybean crushing process--do not enjoy similar strengths of demand. The demand for meal has been rising rapidly in recent years along with expanding production of livestock and poultry which has shown a high correlation with rising -...- c...r u..-. . n A .3. .mowumwumum owcmwansac: DMmH ”condom .Hao bosonmwmm mcou ooo.mo cows: no 1j28 N .mcoflumcoo .m.: movaaucHH o.m 0.00H 05H.0H 0.00H me.o Hmuoh oHHoB m.~ 0.0N ¢H0.N ~.Hm 5¢H.N HmEfic< Hmuoe 0.0 N.m mmm w.~ 00H swam 5.q- 0.N wwm 0.5 «we «Han: m.a 0.x Hmm m.m «as maao usaumm m.m 0.NH 05N.H m.0H mm5 SoHHmH 0.H- m.~ wmm 5.q 0mm mung m.H ~.m gown N.o 0mq umuusm m.m o.o~ moo.N «.am mas.a mummsmmammw 0.¢ ¢.H5 com.5 0.00 qM5.q manmumwm> Hmuoe 0.0 H.0 5 -u- m ammmnmm H.0u q.m 0mm H.0 0mm ago Eamm N.H- q.m mom 5.m com Hmcuox Sand m.0 m.NH HON.H 0.5a 00N.H uncouoo H.o «.am mmH.N «.an so~.~ mammnmmmm m.m m.H Nme m.H 00H .w.o.c .muwzoo --- «.0 me 0.0 me many o.q 0.H 00H 0.H 00H coon wouwmo m.0- q.q oqq 0.0 05¢ nmomcfiq 5.0 0.0 «50 0.0 mmo HmwuumavcH 5.0a q.m Ham 5.0 5q roommamm 0.m 5.0 q5 0.0 0e mammmm N.q 0.H me m.H HOH m>wao 0.Hm 0.m 00m «.0 0m um3oamcom «.ma H.wa qum.a a.“ neon mammnaom 0.N H.0H o~0.H 0.HH «m5 unconsouo 0.mo 0.N Hmom m.m H000 vmmeOuuou m.5 m.Hq 0H~_c 0.0m Hc0_H mapwvm «.0 0.0m H00.m «.50 05m.~ mane owom Aucoouomv muuoaxm muuoaxm 5oumomH Hmuoe Amcoa annoy AwCOH ou onucmoa mo unmouwm owuumz 000.Hv mo unmouwm owuumz 000.Hv muuoaxm mm muuoaxm monomxm mm uwoaxm muuoaxm CH Eocc< II HHO wo awoke you mwomno 5o-m00H mwmuw>< 0m-Qm0H owmum>< 0cm wdaouo 50-noma sum om-qman mwmnm>< HHO mo ooze new wasouo An .ucoam>fisvu awo no .wawo vcm much mo muuoaxm vauoz .m.o oHQmH 129 incomes and with expansion of the mixed feed industry in 10 Since 1955, the uptrend in the developed countries. world exports of the major cakes and meals has averaged 1.15 million tons annually, or 8.4 percent. Of the total annual average increase, U.S. exports, primarily soybean cake and meal, accounted for the major share, expanding by about 670,000 tons annually, or by 13.2 percent. Prices for the major meals used in livestock feeding have tended upward over the past decade.11 The price increases ranged from 5.0 percent per year for fish meal to .7 percent annually for sunflower meal. Soybean meal prices rose by 2.7 percent annually between 1960 and 1969. Soybeans have been one of the most favored oilseeds in the foreign meal and cake markets because of their high protein content, low oil-to-meal ratio and desirable amino acid balance.12 The increasing amounts of vegetable oil obtained as a by-product of producing greater quantities of meal, on the other hand, have experienced no rapidly expanding use. Aggregate oil supplies have tended to grow faster than effective demand thus generally lowering prices. 10USDA, Foreign Agriculture, "The Story of the 19603: U.S. Meal and Oil in World Trade," Vol. VIII, No. 7, (February 16, 1970). 11USDA, ibid., p. 6. 12The cake yield for soybeans is between 82 and 85 percent, compared to 44-46 percent for groundnuts. (GATT, op, cit., p. 78). 130 Western Europe is by far the largest world fats and oils import market, (see Table 6.2) although its share decreased from 60 percent in 1954-56 to 50 percent in 1965-67, reflecting both a slowdown in the rate of per capita con- sumption and a drive toward increased self-sufficiency. Japan has a rapidly growing import market, and this market is expected to continue strong in the future. The develop- ing countries are increasingly relying on fats and oils imports as their populations and per capita incomes increase. Their share of world imports increased from 16 to 21 per- cent over the 1954-56 to 1965-67 period and would increase much more if a sustained drive were mounted to close the gap between actual consumption of fats and oils and nutritional minimum requirements. Fats and oils prices have declined moderately over the past 15 years. Palm oil, soybean oil, coconut oil, soybean meal and palm kernel prices for 1954 to 1969 are given in Table 6.4. The FAQ index of edible and soap oils and fats is also given in Table 6.4, as well. The table reflects major movements in the price index in 1962, when there were large stock accumulations, and again in 1967 when a series of factors caused prices of several oils to fall to low levels. Table 6.5 gives the prices of several vegetable oils and fish oil in 1967, 1968 and 1969 and the lowest prices during the 1958-66 period. Particularly noticeable in Table 6.5 are the low prices of sunflower oil, soybean ".fl 1nfl—.—'.U 131 Table 6.4. Trends in World Prices of Selected Fats, Oils and Soybean Meal, 1954-1969. Year FAD Indexl Palm Soyb Cooonzt Soyb Palm (1952-54:100) 0112 01:51n 011 male?“ Kernelsé --— E Per long Ton- ---- 1954 103 81.5 122.6 122.5 n.a. 58.3 1955 93 87.2 108.6 103.6 37.1 57.3 1956 103 85. 8 124. 7 105. 7 35. 7 57. 6 1957 101 94.0 114.9 108.5 32.6 56.3 1958 96 84.2 94.5 126.5 34.0 61.1 1959 101 90.0 84.2 151.3 34.3 76.0 1960 93 82.8 81.1 126.7 32.9 78.4 1961 90 84.2 104.2 101.4 36.2 54.3 1962 81 78.5 . 82.6 100.6 38.4 54.5 1963 89 89.7 80.9 113.2 40.9 61.0 1964 95 86.9 83.4 118.4 40.7 60.4 1965 108 98.9 101.5 144.0 42.0 71.9 1966 99 85.5 94. 8 124.4 44.9 62.4 1967 917 82.1 78.4 132.78 43.2 65.6 1968 . 94 61.6 64.8 146.1 43.6 55.3 1969 n.a. 64.7 72.0 n.a. 42.1 n.a. 1'on Index of edible and soap oils and fats. 2Malayan, c.i.f. , U.I(. 3c.i.f. Europe 4White Ceylon, 1 percent bulk, c.i.f. Europe 545 percent Canadian, c.i.f. Europe 6Nigerian, c.i.f. Europe 7January-June, preliminary 8.] anuary—October, preliminary Sources: IBRD unpublished statistics. mm, "The Story of the 19608: U.S. Meal and Oil in World Trade," ForeignAgriculture, Vol. VII, No. 7, (February 16, 1970). 132 Table 6.5. Prices of Selected Vegetable Oils and Fish Oil, 1967, 1968, 1969 and Lowest Price During 1958-66 Type of Oil Lowest Price 1967 1968 1969 1958-66 - ------------- L Per Long Ton ------------ Groundnut 96.1 ('63) 102.5 96.7 120.0 Cottonseed 83.9 ('60) 99.3 103.9 86.3 Soybean 76.8 ('63) 77.1 64.8 72.0 Sunflowerseed 84.3 ('63) 75.7 61.6 76.8 Rapeseed 76.8 ('63) 73.6 94.1 67.1 Coconut 90.0 ('62) 118.6 143.92 n.a. Palm Oil 75.0 ('62) 80.7 61.6 64.8 Fish Oil 35.3 ('62) 45.3 36.0 54.3 1 O I O O O C I Figures in parentheses indicate year in which prices were low. 2January-October Groundnut Oil: Cottonseed Oil: Soybean Oil: Sunflowerseed Oil: Rapeseed Oil: Coconut Oil: Palm Oil: Fish Oil: Sources: Nigerian 3-5% bulk c.i.f. Europe U.S. crude, tank cars, f.o.b. southwestern mills Any origin, ex-tank Rotterdam Any origin, crude, ex-tank Rotterdam Any origin, crude, ex-tank Rotterdam White Ceylon. 1% bulk, c.i.f. Europe Nigerian, 5% c.i.f. Europe. 1968: Malayan crude, 5% .Peruvian, semi-refined c i.f. Europe Unpublished IBRD data USDA, "The Story of the 19603: U.S. Meal and Oil in World Trade," Foreign Agriculture, Vol. VII, No. 7, (February 16, 1970). 133 oil, rapeseed oil and palm oil in 1967 and 1968.. Fish oil prices were also low in 1968, being only slightly above the 1962 low. On the other hand, coconut prices in 1968 were higher than they had been at any time during the previous decade. This can be explained by a shortage of supply and a relatively inelastic demand for coconut oil compared with other oils. A number of reasons are generally given for u—vJ‘IJ—Hfllfl I' “ l . the low price level of fats and oils in 1967-68. These reasons are as follows: l. Greatly increased sunflower oil production and exports from the USSR and Eastern Europe. Sunflower exports moved from approximately 200,000 tons in 1965 to 400,000 tons in 1967 while the annual increase in total exports of all fats and oils averaged only 300,000 tons during the 19503 and early 19603. 2. Large increases in rapeseed production in the EEC where rapeseed prices are supported at approximately twice the present world market price. 3. Expansion of output and exports of fish oil. Both Norwegian and Peruvian production increased by approximately 100,000 tons in 1967. 4. Continued expansion of U.S. soybean production at a rate well above the rate of increase in world fat and oil production. This upsurge in production and exports, with the exception of U.S. soybeans, has begun to subside, however. 134 The decline is reflected in world fishmeal exports which in calendar year 1969 were estimated to be down by 16 percent, or 692,000 short tons, from their 1968 level, primarily due to reduced Peruvian catches in late 1969.13 Soviet sun- flower exports are also reduced due principally to greater protein use in the Soviet Union itself as it tries to expand poultry and livestock production but also due in part to a 14 Most fats and oils somewhat smaller sunflower crOp. prices began to recover in late 1968 and are presently above the levels of that year. The demand for the different kinds of fats and oils is determined by availabilities, taste and preferences, and 15 Up until 1956, an increase relative prices and incomes. in income in the EEC, for example, was positively correlated with an increase in consumption. Since 1956, however, the income elasticity of demand for per capita consumption of all fats and oils has lessened or has even become negative in some countries. The lack of a strong income demand elasticity for the 13USDA,‘FEO Fishmeal Outturn and Exports, "Peru's Output, Export of Fishmeal,"Foreign Agriculture, (March 30, 1970). 14USDA, "Soybean Exports Are Again Setting New Records," Foreign Agriculture, Vol. VIII, No. 11, (March 16, 1970). 15Dieter Elz, Oilseed Product Needs of the European Economic Community, USDA, Economic ResearEh Service, (May 1967), p. 94. VEEE‘TT‘T‘PFFEW 135 purchase of fats and oils has important implications for Nigeria as the U.K. and the EEC have historically purchased between 75 and 85 percent of Nigerian fats and oils exports.16 The demand in other Western European countries is important to the world market as well since that region has in the past purchased more than half of the fats and oils offered for sale on the world market. (See Table 6.2 for shares of the world import market.) Table 6.6 using mainly FAO data summarizes projected fats and oils production and consumption estimates for 1975.17 the production estimate of 47.7 million metric tons is a compromise between (1) the high FAO estimate for 1975 based on a 3.1 percent annual increase in production over the 1961-63 and 1975 period and (2) a low FAO estimate based on a yearly increase in production of 2.5 percent. World production rose by 3.4 percent compounded annually over the 1950 to 1961-63 period. World consumption in 1975 on the other hand, is pro- jected by FAQ to total between 45.7 million metric tons (low estimate) and 48.8 million tons based on a higher rate of growth of GNP. The average of the two consumption limits is 16International Bank for Reconstruction and Develop- ment, International Development Association, Economic Growth Of Nigeria, Problems and Prospects, Vol. II (November, 1965). 17Primarily based on FAO, Agricultural Commodities-- Projections for 1975 and 1985, op. cit., pp. 164-173. 1L36 A5000 .mcowuwz vmu0cD .050050 0.50 can A3000 .mx 0.00 H0500 0.0x 0.00 "50-0000 00:00:0mzv 0:000 wC0vs0oxo c00uaadmcoo mu0amo 0000 ”05000 .vcmaov mo 0u0o0umm0m waooc0 0:0c00oou so 000mm .mouma0umo numw.0m£ .0000 05m 0500 now mc00uomnoumuumo0u0voeaoo 0musu0no00 .mo0um0umum 0010000 no vommm ”0000500 0 0 .00.0000 Boum 000cmnocs :00uaEbmcoo woowcoc van 0000 mo co0uuoaoua new mxooum c0 owcmno o: wc0snmmm nmum0no0mU0 % 500.50 0.0 _ 5.0 000.00 _ 005.00_ 000.50 0.0 005.50 000.00 0muoH 00.0 00.5 000.00 000.00 000.0 00.5 000.00 000.0 moHMucboo voccm0m N00mnucoo --- -u- --- --- --- --- 00 000 o0uoumua< 0.0 0.0 000.0 000.5 050.0 0.0 000.0 055.0 «0m<. 0.0 0.0 555.0 000.0 000.0 00.0 000.0 050.0 mo0uw¢ 0.0 0.0 050.0 000.0 500.0 00.0 000.0 000.0 mo0uofi¢ . Lusom 0cm 0muucoo 0.0 0.0 005.00 000.00 500.00 0.0 000.00 000.00 mco0wom 0:0000m>on 0.00 0.00 000.0 050.0 000.0 0.00 000.0 000.0 mo0uucboo 00:00 0.00 0.00 005.00 000.00 000.0 0.00 000.0 000.0 amounm cumumm3 0.00 0.00 0000.5 050.5 000.0 0.00 000.00 050.0 «000084 nuuoz 0.00 0.00 000.00 000.00 000.00 0.00 000.00 000.00 0600000 00000o>on Amamuwo00xv uuuuuu Amcoe 00000: 000.00 ...... Amawu0000xv AchH UHHuuz 000.00 0000 360 :00: 360 0000 voom you ao0uaasmcoo How vamamn numfioo mu0amo Hum :00u985mcoo 0muOH 0muOH wu0mmo 00m 050 50-0000 0500 c600000600 000-0000 :o0uoo cum a00uaESmcou c00uuavoum :00mom 0500 on mc00uuonoum 0cm 5010000 .CO0mom 00 .uco0w>0ncm 000 HO .0000 van mumh mo £00unadmcou cam :00uostHm v0u03 .0.0 m0nm9 F1! I} (IV, 1'1; pin! 9,. p1 137 47.3 million and is included in Table 6.6. The 47.3 million nmtric ton consumption projected for 1975 would be equivalent to a 2.6 percent consumption growth rate over the 1965-67 to 1975 period as compared to a growth rate of 3.0 to 3.5 percent during the 1950s. The production and consumption figures in Table 6.6 indicate a likely balance in the fats and oils market in 1975 at around 47.7 million tons. The possibility always remains, however, that production of fats and oils could reach as high as 48.8 million tons per year in the mid- 19708 if past production trends continue and if national supply expansion programs, especially in developing nations, are fulfilled. It is difficult to define exactly how near the expansion plans will come to their goals. But with a potential world fats and oil surplus of some 1.5 million tons or 10 percent of the 1975 projected export market, it seems reasonable to assume that prices will have a role to play in the world fats and oils market in the mid-19708. Many observers believe that the overall price level of fats and oils will tend downward between 1967 and the mid- 1970s to a lower price level than that reached in 1962, mainly because of the extremely low levels that some oils will reach in their struggle to increase their world market share. The FAO projections imply a big increase in world trade, despite the slow rate of growth of Western EurOpean 138 imports, both as the result of increased domestic,production and demand trends. It assumes that (1) Japan, (2) the developing importing nations, and (3) the centrally planned economies must absorb most of the large projected increase in output supplies from North America and the developing exporting countries. The future of greatly increased imports into both the less developed countries and the centrally planned economies are uncertain--because of the scarcity of foreign exchange in the former and the danger of basing projections on pasttrendsiin the latter. World demand for fats and oils is projected by FAQ to continue to grow at a 204 percent compound growth rate between 1975 and 1985. It would then lie between 57.2 million tons and 68.5 tons, or approximately double the 32.8 million tons consumed on the average between 1961 and 1963.18 To sum up the market outlook, a few points seem fairly clear. One is that there will quite likely be downward price pressures between 1965-67 and 1975. Some oils, such as groundnut oil, cottonseed oil, and sunflower oil-~which are more valuable from a processor's point of view, may not move below their price levels of the early 1960s. Prices of some other oils, particularly soybean and palm oil, may decline more drastically. This is 18FAo, ibid. 139 particularly true for palm oil if it is to gain a greater share in food uses. Palm Oil One of the most interesting struggles for a larger share of the world export oil market is now underway with palm oil. World palm production, following several years of slight fluctuations, is now expanding rapidly. World export availabilities of this commodity are expected to almost triple over the years 1968 to 1975,19 as the per- centage of palm oil in total trade moves up from 5.4 percent to 8.5 percent. The reason for the great upsurge and renewal of interest in palm oil is the great strides that have been made in improving productivity of oil palm. The oil palm cultivated in plantations yields more edible vegetable oil per acre--from 0.5 to 2.0 tons or more-—than any other oil 20 U.S. soybeans yield about 300 pounds of bearing plant . oil per acre. In addition to the much greater productivity of new palm oil hybrids now being cultivated and a sub- stantially shorter gestation period than the old varieties (reduced from 10 to 4 years), improved and timely processing provides high quality oil whose principal use is now food production while previously it sold primarily for industrial purposes. 19USDA, Fats and Oils Situation (Economic Research Service, June 1969): 201618. 140 Nigeria, although still the world's largest palm oil producer, has experienced great difficulty in converting her semi-wild palm groves to the new high producing hybrids. Internal production has been discouraged by low producer prices. The Civil War slashed output in the main palm pro- ducing areas. Table 6.7 gives the world production, imports, and exports of palm oil over the 1955-59 to 1968 period. Malaysia moved into the position of the world's leading palm oil exporter in 1966 and exported 39 percent of the 1.5 billion pounds exported in 1968.21 Malaysia plans to up her palm oil exports to 800,000 to 1,000,000 tons by 1980. Mainly because of the problems and costs of substi- tuting, any oil must sell at substantially lower prices than its competition if it is to entice manufacturers to switch over to it from other ingredients for which this manufac- turing process is already set up. Palm oil because of the great improvements in productivity is now able to sell at prices low enough to encourage the change-over, as evidenced by the rapidly increasing palm oil imports into the United States where it is selling at prices well below 22 prices of domestically produced fats and oils. The low ZlIbid. 22USDA, ibid. The Bureau of the Census reports that 1968 palm oil imports were valued at U.S. 7.2 cents per pound, or £58 per long ton. 141 Table 6.7. World Production, Exports and Imports of Palm Oil by Major Exporting and Importing Countries, Average 1955-59, Annually 1963-67 Countries Average 1 1955-59 1963 1964 1965 1966 1967 ------------ 1,000 Metric Tons--------- Production . Nigeria 200 151 150 167 132 332 Congo, Dem. Rep. 224 224 209 162 1682 2002 Indonesia 155 148 160 163 185 163 Malaysia 64 130 128 155 194 231 Others 49 54 61 62 57 57 WOrld Total 692 707 708 709 736 684 Exports Nigeria 180 128 136 152 146 17 Congo, Dem. Rep. 160 143 124 79 85 116 Indonesia 1213 110 133 126 153 125 Malaysia 62 115 125 143 184 188 Others 33 48 48 48 38 38 World Total 556 544 566 548 606 484 Retained Imports EEC 226 247 279 249 267 252 United Kingdom 198 114 116 117 150 98 United States 13 11 3 3 34 29 Japan 20 17 18 16 20 22 Iraq 4 28 29 50 36 47 Others 92 118 107 76 91 72 World Total 553 535 552 511 598 520 1Preliminary 2Unofficial estimates based on import returns. 3Excluding trade with Singapore. Sources: IBRD unpublished data USDA, Fats and Oils Situation (Economic Research Service. June 1969). 142 palm oil prices, both present and expected, lose much of their negative aSpect when they are considered along with greatly improved productivity which allows a greater MVP per palm unit than was the case with the unimproved palm groves. This is an example of the fallacy of the general- ization that high prices are always good and that low prices are always bad. It is also an example that thoroughly nullify's Prebisch's simple adverse terms of trade argu- ment as applied to the developing countries. EEC Fats and Oils Policy Western Europe is by far the world's largest fats and oils import market taking 50 percent of the world's exports in 1965-67. The EEG, which is only able to meet approximately one-third of its fats and oils consumption requirements from domestic sources,took 30 percent of the world's exports in 1965-67. The policies it adopts on (1) fats and oils imports, (2) the handling of its present 400,000 ton butter surplus, and (3) oil and oilcake imports may have important consequences for world trades in fats and oils. The controversey surrounding agricultural policy in the EEC was heightened about a year ago with the introduc— 23 tion of the so-called Mansholt Plan. The vigorous, long- 23USDA, "The Common Market: A Review and a Look at the Problems Ahead," Foreign Agriculture, Vol. VIII, No. 2, (January 12, 1970). 143 range Mansholt Plan contains recommendations aimed at re- storing balance in the various commodity markets. It recommends a 30 percent reduction in the support price for butter and establishment of a "slaughter premium" for' dairy cows, "fattening premiums" to encourage beef pro- duction, and a tax on vegetable oils, oilcakes, and other competing fats and oils products, presumably to increase demand for butter relative to margarine and for grains relative to oilcake. As a result of the failure to reach agreement on the Mansholt Plan and the steadily worsening surplus situation in some commodities, a modified less ambitious version of the Mansholt Plan was submitted to the EEC Council of Ministers on November 24-25, 1969.24 The propOsed reduc- tion of the butter support price is about half that included in the original proposal. The tax on oilseeds has been dropped at least for the time being due to strong U.S. opposition. U.S. Soybean Poligy ‘ The dominant U.S. position in world fats and oils trade is evidenced by the fact that U.S. edible oil exports (mainly soybeans) made up 41.8 percent of the world edible 25 U.S. soybean meal oil trade over the years 1965-69. 24 25 Ibid. USDA, "The Story of the 19605:. . ., QB. cit. 144 exports were equivalent to 53 percent of all meal exports, and exports of soybeans and soybean products are expected to bring in a total of $1.25 billion in foreign exchange .this fiscal year.26 Soybeans and soybean products compete strongly in value with the leading export products of U.S. industry. It is of little wonder that domestic policy concerning the soybean industry of the U.S. could have repercussions around the world. A perennial problem of oilseed crushers during this past several years is that meals are in greater demand than oils. As the soybean meal has been the much more valuable product than the 10.5 pounds of oil produced along with it from each bushel of soybeans, the U.S. has sought some method for orderly disposal of the oil surplus to its needs. About 85 percent of U.S. soybean oil exports have been made on concessional terms under P.L. 480 during the past 2-3 years. The percentage sold under P.L. 480 terms varies, however, with commerical demand, and the need for food sales on concessional terms seems to rise when commercial sales are low. In general, the effect of the P.L. 480 program has been considered to have had a positive and stabilizing effect on the world fats and oils market. A recent 26 pp. cit. USDA, "Soybeans Are Again Setting New Records," 145 University of Minnesota study on this subject showed that concessional export sales of soybean oil under P.L. 480 have done much since the mid-19503 to sustain prices and incomes of soybean growers and that abandonment of these shipments in 1965 would have depressed oil prices by an estimated 2-3 cents per pound and bean prices by as much as 28 cents per bushel.27 In other words, P.L. 480 ship- ments of soybean oil amounting to approximately 350,000 tons in 1965 raised the price of soybean oil on the com- mercial market by about 20 percent above what it would have been had these noncommercial outlet channels not been available. The study does not estimate the effects upon market prices of other oils. The effect must be substantial, however, as soybeans and soybean oil are so large a share of the world market and also because of the interchangeability factor--especially for those oils most similar to soybean oil. U.S. soybean policy, like EEC agricultural policy, cannot be projected with a great deal of certainty. Con- cessional soybean exports are expected to decline at least in 1970 despite a predicted record U.S. crush of soybeans. U.S. domestic demand for soybean oil is growing and soybean oil exports are finding an unusually strong market in 27J. P. Houck and J. S. Mann, "Domestic and Foreign Demand for U.S. Soybeans and Soybean Products," Agricul- tural Experiment Station, University of Minnesota. 146 Europe because of reduced oil supplies from other sources for reasons already given. Over the longer term, however, it appears as if the U.S. will have to expand its conces- sional shipments of soybean oil if it does not wish to unduly depress the world soybean price. This is assuming that world protein demand continues to grow more rapidly than the demand for soybean oil and that the U.S. further expands soybean production to help meet that demand. CHAPTER VII RUBBER Production of Natural Rubber Natural rubber, with an annual export value averag- . ing nearly U.S. $1 billion during the years 1955-67, ranks between fourth and sixth as the most important agricultural export of the developing countries. It is a long gestation crOp which requires a substantial planning horizon as it does not reach full production for at least a decade after planting. As is well known, it also experiences close competition from synthetic products. Concentration of natural rubber production is high. Four countries in Southeast Asia (Malaysia, Indonesia, Thailand, and Ceylon) accounted for 90 percent of total exports in 1967.1 The remainder of the world export market is made up of the produce of 15 relatively minor exporting countries of which Viet Nam and Nigeria are the most important. Nigeria is Africa's largest rubber producer and annually accounts for about three percent of the world natural rubber supply. The most striking change in world 1International Rubber Studies Group, Rnbber Statistical Bulletin 147 148 market share of rubber production in recent years has been that of Malaysia which doubled her rubber exports over the 1964-1968 period and increased her world market share by ten percent (from 38.6 percent to 48.4 percent) between 1958 and 1967. The market shares of both Thailand and Ceylon remained relatively constant with Indonesia losing market share to Malaysia. World consumption of all elastomers (both natural and synthetic) has grown at a six percent compound rate since the immediate post-war period (1950-52) to the present-~increasing from 2,120 thousand tons in 1950-52 to 5,162 thousand tons in 1967--an increase of 243 percent. Table 7.1 gives world rubber consumption by important con- suming countries and areas as well as percent growth of the market. Rubber consumption growth rates have been high since 195-52, averaging above or near eight percent per year for the EEC, the rest of Western Europe except the U.K., Japan, and "the rest of the world." (Consumption figures for the centrally planned countries are not given in Table 7.1.) Only the U.S. and the U.K. (of the major consuming countries) experienced consumption growth rates of four percent or less. The period 1950-52 to 1967 thus saw shifts in world share of consumption away from the U.S. and U.K. toward the rest of the world. Japan's growth in share of the world rubber market was most spectacular--increasing from 2.9 percent in 1950-52 to 9.8 percent in 1967. 149 lable 7.1. Wbrld Rnbber(1xnnnption, 1950/52-1967l Year USA EEC UK Other Japan Rest Wbrld western of Europe World Actual Consumption 1,000 long Tbns ................. 1950—52 1,244 302 220 66 63 245 2,120 1959-61 1,570 635 282 151 226 489 3.355 1962 1,719 722 297 192 294 572 3,796 1963 1,764 790 312 212 318 629 4,025 1964 1,933 846 347 237 362 740 4.465 1965 2,055 903 364 268 371 770 4,731 1966 2,212 965 371 294 431 830 5,103 1967 2,117 970 372 299 508 896 5,162 Rate of Growth of Consuuption 1,000 long Tons 1950/52-1966 4.0 7.9 3.3 10.5 13.7 8 5 6 0 1959/61—1966 7.1 7.7 5.7 14.3 13.8 11 3 8 8 1950/52-1962 3.3 9.1 3.1 11.2 16.7 9 3 5 4 Share in Wbrld Total I‘Cl. cent 1950-52 58.1 14.1 10.3 3.1 2.9 11.5 100.0 1959-61 46.8 18.9 8.4 4.5 6.8 14.6 100.0 1962 45.3 19.0 7.8 5.1 7.7 15.1 100.0 1963 43.8 19.6 7.8 5.3 7.9 15.6 100.0 1964 43.3 10.0 7.8 5.3 8.1 16.6 100.0 1965 43.4 19.1 7.7 5.7 7.8 16.3 100.0 1966 43.4 18 9 7.3 5.7 8.4 16.3 100.0 7.2 5.8 9.8 17.4 100.0 1967 41.0 18.8 1Excluding centrally planned countries. Source: International Rubber Studies Group, Rubber Statistical Bulletin, various Issues. 150 Natural rubber production has grown much more slowly than world consumption of elastomers--natura1 rubber thereby losing substantial share of the world market to synthetics. Table 7.2 gives net exports of natural rubber over the 1950-52 to 1967 period. Natural rubber production grew at a compound rate of only 2.3 percent over the period while world consumption increased at 6 percent compounded per annum. Nigerian rubber exports grew at a faster rate than world natural rubber exports averaging a 6.25 percent com- pound growth rate over the period 1956-58 to 1964-66. Nigerian rubber exports increased from approximately 21,000 tons in 1954 to a high of 70,000 tons in 1966. Exports fell to 47,878 tons in 1967 and 51,973 in 1968. Synthetic Rubber The most important occurrence in the world rubber market during thepast three decades has been the increasing production and consumption of synthetic rubber. Natural rubber was virtually a unique material in 1939 but by 1945 synthetic rubber was produced in large quantities.2 As shown in Table 7T3 synthetic rubber production increased by more than 3.5 times over the 12 year period from 1955-57 to 1968 for an annual growth rate of 10.6 percent. 2 Production in Midwestern Nigeria.’ Michigan State University, 1965. Kurt R. Anschel, "Economic Aspects of Peasant Rubber ' Ph.D. dissertation, 151 Table 7.2. Net Exports of Natural Rubber From Major Rubber Producing Countries, 195o_52 to 1967 Year Wbrld1 Malaysia Indonesia Thailand Ceylon. Others ------------------------ 1,000 Long Tons-—----------------- 1950-52 1,808 656 745 106 103 197 1955-57 1,822 690 686 132 93 221 1960-62 1,956 772 631 180 98 275 1962-64 2,067 884 606 196 103 278 1965 2,270 983 684 213 122 274 1966 2,340 1,065 680 199 123 274 1967 2,558 1,237 726 206 134 255 Percentage Share l950~52 100.0 36.3 41.2 5.9 5.7 10.9 1955-57 100.0 37.9 37.6 7.2 5.2 12.1 1960-62 100.0 39.5 32.3 9.2 5.0 14.1 1962-64 100.0 42.8 29.3 9.5 5.0 13.5 1965 100.0 43.3 30.0 9.4 5.4 12.1 1966 100.0 45.5 29.1 8.5 5.3 11.7 1967 100.0 48.4 28.4 8.1 5.2 10.0 ykmahsuaylxnzaddCME‘u>rommfing. Source: International RUbber Studies Group, Statistical Bulletin. Table 7.3. World Production of Synthetic And Natural Rubber 1955-57 to 1966, 1968 Year Natural Synthetic Synthetic All (USA) (Other OECD) Synthetic ------------------ 1,000 Long Tons--é------------- 1955-57 1,936 1,073 132 1,455 1966 2,436 2,001 1,212 4,172 1968 2,622 2,165 1,656 4,882 Source: FAO, Commodity Review and Outlook (Rome: United Nations, 1969). 152 Natural rubber production grew at a 2.5 percent compound rate over the same period. Synthetic rubber use increased from 38 percent of the market in 1952 to 63 percent in 1967. There are indica- tions that the percentage of synthetic in total rubber consumptions has increased ever since 1967.3 The growth of synthetic rubber production can be separated both by time and by technical innovation. Two definite rounds of expansion of synthetic rubber can be distinguished--the first in the U.S. during the 19503 and the second largely in Western Europe during the early 19608. Table 7.3 indicates these growth periods. The 19608 also saw the development of two new synthetics-- polybutadiene (PB) and polyisoprene (PI)--both with improved technical qualities allowing for greater substitu- tability for natural rubber. Polyisoprene synthetic rubber now duplicates the qualities of natural rubber. The new polybutadiene is said to exceed natural rubber in the key characteristic of abrasive resistance-—so highly desired by the tire industry. In order to understand the recent development in the rubber trade and to gain an insight into the future possi- bilities for natural rubber, the question must be asked and understood as to why the share of natural rubber 3Rubber Agg, (September 1969) p. 40. 153 declined in the face of rapidly expanding world demand for elastomers while natural rubber technology was available which would have made the natural product fully competitive both price-wise and technologically with synthetic rubber. The answer, pure and simple, is that natural rubber produc- tion failed to expand as rapidly as world demand and that synthetic rubber production was undertaken, at least in the beginning, to fill the gap left by a shortage of supply of the natural product. The failure of natural supply to expand as rapidly as the market in the postwar period can undoubtedly be reflected in the fact that rubber is a long gestation tree crop whose supply response to anticipated changes in the rate of growth of demand faces a considerable lag for agronomic reasons. In addition, apparent technical (and probably financial) limitations on planting and replanting in the postwar period, especially for smallholder schemes, and political instability in Southeast Asia were probably partly responsible for the slow, and in any case small, response of natural rubber to market opportunities as they opened up. It is the writer's hypothesis that other reasons can also be specified for the lack of supply response to the increasing market demand. Certainly one of the most important is the lack of confidence in the utilization of primary exports in general as a reliable and efficient 154 route to economic growth. The development and utilization of primary exports as an engine of growth has long been clouded by pessimism and doubt as best expressed by the Prebisch thesis of deteriorating terms of trade for primary products. The lack of response to the growing elastomer market may be analogous to the conclusion reached by Braun and Jay as to one of the principal reasons for lack of development of Argentine agriculture. "It seems that the Prebisch thesis of pessimism about the long term prospects for agriculture has encouraged its continuing neglect in Argentina."4 The second reason for failure to respond to expanding demand may be the over-dependence on price as the principal or only variable upon which production plans are made. Table 7.4 illustrates that growth of foreign exchange earnings from rubber exports lagged far behind the growth in export quantities. Even disregarding 1950-52 and 1967 as exceptional years (because of the Korean war in 1951 and the industrial recession in 1967), total export earnings fell by 7 percent during the postwar period while export volume grew by 25 percent. 40. Braun and L. Jay, "A Model of Economic Stagation: A Case Study of the Argentine Economy," Economic Journal, Vol. LXXVIII (December 1968). 155 Table 7.4. World Rubber Exports--Value, Volume and Unit Values, 1950-67 Year Value Volume Total Unit Value Value --l962-64 = 100-- Million $ US $/Ton3 1950-52 143.7 87.5 1,583 892.8 1955-57 107.8 88.2 1,153 633.5 1960-62 114.5 94.7 1,226 627.2 1965 104.3 110.0 1,116 491.6 1966 100.4 113.3 1,074 459.6 1967 87.6 123.8 923 408.7 Source: IBRD unpublished statistics. A review of the past 50 years (Table 7.5) shows that rubber prices in real terms reached a high point in 1950-51 and have trended downward since that time--reaching a low of U.S. 19.8 cents per pound average for 1967. The real rubber prices during the late 19403, the 19503 and the early 19603 were all greater than they had been during the 19303 when the International Rubber Regulation Agreement (IRRA) was in effect and African Nations, none of which were signatores to the agreement, increased their rubber exports by more than 300 percent.5 World rubber exports rose by 66 percent during the 19303 despite low prices6 but by only 8 percent between 1950-52 and 1960-62 despite the higher export prices. (See Table 7.2.) 5K. E. Knorr, World Rubber and Its Regulation (Stan- ford University Press, Food Research Institute, 1945) Appendix Table l. 6 Ib id . Table 7.5. Real1 Price of Natural Rubber, RSS 1, New York 1920—1967 Year US Cents Year US Cents Year US Cents Per Lb Per Lb Per Lb 1920-29 61.8 1950 50.5 1959 38.5 1930-38 28.1 1951 66.4 1960 40.0 1948-54 37.7 1952 43.7 1961 31.1 1948-67 33.6 1953 27.6 1962 30.1 1955-59 28.7 1954 26.9 1963 27.6 1960-64 31.1 1955 44.5 1964 26.6 1965—67 23.2 1956 37.6 1965 26.5 1957 33.3 1966 23.6 1958 29.6 1967 19.8 1Delfator: U.S. Wholesale Price Index 1966 = 100. Source: IBRD Unpublished statistics. The author maintains that there is a strong psycho- logical factor which works against accepting, or responding to, a declining price, even if the offered price is well above some long-term average price. He also argues that over-dependence has been placed on export price as the principal, or only, variable responsible for supply responses. The lowering of costs of production, in order to become more price-competitive with synthetic rubber, has received far too little attention.8 The slow growth in natural rubber supplies during the 19503 and the inelastic nature of production with respect 8Malaysian officials estimate the rubber estates can market natural rubber with costs as low as U.S. 9.7 cents per pound when obtaining yields of 1,100 pounds of dry rubber per acre. ("Natural Rubber: The Malaysian Commit- ment," Rubber World, Vol. 161, No. 2, (November, 1969).' 157 to prices has caused natural rubber prices to remain con- sistently above the price for synthetic rubber. The rela- tively high natural rubber prices instead of accelerating natural rubber production only served as a stimulus for rubber manufacturers to substitute greater quantities of synthetic rubber for natural. Synthetic rubber has not only achieved great progress toward the development of closer substitutes for natural rubber, but has made progress in reducing processing costs as well. Figure 7.1 shows the downward trend in synthetic rubber prices after a constant price for some years. The steady price decline may be attributed largely to (l) declining prices of raw materials used in the synthetic rubber industry and (2) greater competition among synthetic producers. An important factor which may largely determine natural rubber's ability to hold at least one-third of the world market is the ability of the synthetic rubber industry to further lower prices of inputs. More will be said on this later in the chapter. The natural rubber industry in facing the challenge of synthetics has adopted two basic policies. One is cost reduction through the replanting of high yielding clones in an effort to become more price competitive. The Inter- national Rubber Study Group (IRSG) at various international conferences has estimated that Southeast Asian rubber producers on replanted high yielding acreage should be 158 able to produce rubber profitably at prices as low as U.S. 12 cents per pound c.i.f. consuming countries. Whether Nigeria can do this or not is another question. It assumes yields of 1,000 pounds or more and generally plantation conditions. 1 1°? FRICE (INDEX, 1959 =100) 9° \ BO 30 l l l l J l l 1958 1957 1958 1959 1960 1961 1962 1963 198d 1985 1956 1967 Source: IBRD unpublished data._ Figure 7.1. Index Prices for Synthetic Rubber, 1956-1967. The second prong of attack of natural rubber is quality improvement and standardization of product. The experimental use in Malaysia of polyethylene bags for collection of latex so that labor can be reduced as the bags need not be emptied more than every 14 days or so may result in later widespread adoption which may lower 159 production costs by 2 to 5 cents per pound.9 The further devsalopment of block rubber processing, by using the Hevea- crumb process, offers further opportunity to reduce pro- cesssing costs as well as improve uniformity of the natural pro duct . Prospects for Natural Rubber As the outlook for natural rubber is so intertwined witll production and substitutability of synthetic rubber, prospects at least in the medium run must be analyzed in ternm of 1. the growth in demand for all new elastomers, 2. potential production of both natural rubber and synthetic rubber, 3. the degree of substitutability between the two, 4. costs of production. The projection of the demand for rubber can be done in 81: least two alternative‘ways.10 One method is to ralallezrubber consumption to some aggregate economic vari- able such as GNP or industrial production; the second is to forecast activity levels in the rubber-using industries. The former method has been used in this study. Demand projections are based on an aSsessment of med-i-u‘m—term developments for industrial output in the 01‘*~§¥ 9Rubber World, gp. cit. C 10Bela Balassa, Trade Prospects for Developing _Ountries (Homewood, 111., Richard D. Irwin, Inc., 1964). 160 developed world (OECD) following the method used by the WOrld Bank. A comparison of world manufacturing output and world rubber consumption over the 1951-67 period yields an income elasticity of demand coefficient of 1.1 The elasticity coefficient of 1.1 held remarkably strong over the period from 1951 to 1967 and gave an R value of 0.988.11 Following this method of analysis and projection (i.e. relating projected industrial output to rubber con- sumption). Table 7.6 gives projected consumption of new rubber over the period 1968 to 1975. Rubber consumption for the rest of the world outside of the centrally planned countries is expected to grow at a 5.5 percent per annum rate and reach 8.4 million tons by 1975. The centrally planned countries projected net import of 700,000 tons of natural rubber plus an additional 40,000 tons of synthetic rubber produced and used within the CPCs themselves should leave total world consumption of new rubber at around 9.14 million tons by 1975. The IRSG study projects that natural rubber will maintain approximately one-third of that market. Potential natural rubber production is expected to increase to 3.5 million long tons by 1975 (as contrasted to net exports of 2.67 million tons in 1968). This would ~ 11From IBRD Unpublished data. .0000 mo 0000002 0000 00 0005002 0000000>onm .05000 00500 000050 0mco0umcu0uc0 "000500 .00000850000 02 00003 0000 03008 00009 00003 0000 000500 co0uaabmcoo Mm 161 0 .0000080 00: mo 000080000 00000 .00000000 0300050 .0.D 8000 600:0 000 0000 0000 000.05 0000 0000 00 000000000 02 mo coHuodooua 000500 co0umabmaoo 020 0.0 000800 00 00000000000 nu- . us: :1- 0.0 0.0 5.0 0.0 0000 503000 0.00 000.0 00 000.0 005 000.0 000.0 0500 0.00 000.0 00 000.0 005 005.0 000.5 0500 0.00 000.0 00 000.0 050 000.0 000H5 0500 0.00 000.5 00 000.0 000 000.0 000 5 0500 0.00 000.5 00 000.0 000 050.0 005.0 0500 0.00 000.5 00 000.0 000 000.0 000.0 0500 0.00 000.0 00 000.0 000 000.0 00ou0 0000 0.00 000.0 00 005.0 000 000.0 005 0 0000 uuuuuuuuuuuuuuuuuuuuuuuuuuuuuuu 0009 0000 000.0nun:unuuuaunnnuuuuununuuunnuunu 0000:0000 0000500z 00000 00003 0000 0000000300 000000300 0005002 000009 c0 0000002 00003 00008 0000000 000050000 0000000 0 00003 00003 00mm 00 0000000000 00003 000000000 0003 0000 000000000 0000 00mm 000» mam0-moo0 .ooaa 0n nonnsm 3oz mo 060nnssnsoo poaommoum .0.0 00000 162 mean that the proportion of natural rubber to total rubber consumption would stabilize at about 33 percent. The rapid rate of substitution between the two, which saw natural rubber decline from 56.2 percent of the market in 1955 to 36.6 percent in 1967 would have to be checked if natural rubber is to maintain its traditional share. This would most likely happen only if natural rubber became fibre price competitive with synthetic rubber. Many experts see the possibility of natural rubber prices falling to about U.S. 16 cents per pound by the mid-19703 if natural rubber is to maintain its present share of the world market. This forecast is based on an assessment of possible costs in synthetic rubber manufacture, which are expected to decline over the period with a low- ering of cost of inputs, particularly those used in the production of polyiosoprene whose price is expected to serve as the ceiling for natural rubber prices. Beyond 1975 the projections, of course, become much more uncertain. Rubber trees that will be producing in 1975 at least are already in the ground. The greatest uncertainties relative to them are their numbers, their ages, and the yields they will attain by 1975. Much of the production in 1985, however, may come from trees that have not yet been planted. The potential for substitution of more synthetic for natural rubber will be greater over the 1975-85 period 163 with the possibility of a major technical breakthrough in the production of inputs of polyisoprene becoming much more likely. A major technical breakthrough in the cost of producing polyisoprene could lower polyisoprene prices to as low as U.S. 12 cents per pound by 1985. CHAPTER VIII IMPORT SUBSTITUTE CROPS AND MINOR EXPORTS Cotton Rapidly Growing Domestic Demand Several of the most important import substitute crops and minor export crops offer vast possibilities for expan— sion, cotton, hard fibers, rice, feed grains and beef are among the most important of these crOps at present, and are discussed below. The primary role of cotton production in Nigeria during, at least, the next decade and a half will be that of meeting the rapidly growing domestic demand for cotton textiles where per capita consumption is expected to increase by perhaps 60 percent.1 Such a rapid increase in per capita domestic cotton consumption (based partly on a projected doubling of export earnings from agriculture and a wide distribution of these earnings to the masses who produce the export crops) would bring Nigerian consumption up to about 3.6 pounds of lint cotton per person in 1985. This would still be less than 50 percent of the world, average per capita cotton consumption in 1966.2 1Glenn L. Johnson, et al., "Strategies and Recommenda- tions,. . .," 22- cit., p. 95. 2From FAO estimates as reproduced in International 164 165 Although Nigeria annually exports cotton valued at L5-6 million (see Table A.l), she is far from being a major exporter on the world market. With world exports averaging approximately 17 million bales (or 478 pounds each) over the period 1963/64-1967/68, Nigeria's approximately 100,000 bales exported is roughly .5 percent of the world export market. Nor have cotton exports been a major contributor of foreign exchange earnings to the country as they accounted for only 1.7 percent of the total export earnings over the period 1964-1966.3 Import Substitution Possibilities It is not the purpose of these comments to underplay the excellent import substitution possibilities that cotton offers to the Nigerian economy nor the role of cotton as a major source of income, employment, and overall economic growth-~especially in the cotton producing and textile manufacturing areas. These comments are made to emphasize that cotton's major contribution to economic growth will be primarily on the domestic production front and that Nigeria need not overly concern herself with mild fluctu- ations in world cotton prices and production until the domestic demand is met. Cotton Advisory Committee (ICAC) World Cotton Statistics, various issues, and FAQ, Monthly Bulletin of Agricultural Economics and Statistics, (February, 1967Y. 3Computed from FAO, Trade Yearbook, 1967 and United Nations, Monthly Bulletin of Statistics (January, 1969). 166 Rice The World Rice Market The decade of the 19605 was a period of change in almost all aspects of the world rice situation.4 It saw changes in yields, production, prices, consumption, exports and imports. Perhaps the most striking change, was the 30 percent increase in rice production which moved rice pro- 5 for the duction from 150 million metric tons of paddy crop year beginning July 1, 1960 (excluding production for China, North Korea, and North Vietnam) to an estimated 195 million tons for 1969-70. The increase in production can generally be attributed to use of improved high yielding varieties and the increased use of fertilizers, insecticides, pesticides and irrigation--rather than to increased acreage under rice cultivation. The major breakthrough in rice production came with the widespread adoption in the late 19603 of the "miracle rice"--IR-8-- developed by the Inter- national Rice Research Institute in the Philippines. World trade accounts for only about 4 percent of world rice production (see Table 8.1). Total world imports in 1965 were slightly over 7.5 million tons, well above the average 6.4 million tons for 1959-63. There has been a steady decline, however, since 1965 with total estimated 4USDA, "Story of the 19603: US Rice in World Trade," Foreign Agriculture, Vol. VIII, No. 10, (March 9, 1970). 5Paddy, or rough rice, refers to rice in the husk after threshing. 167 Table 8.1. Vbrld Rice Imports and Exports, 1959/63-1969 1959-63 1965 1966 1967 1968 1969 -----+—-----1,000 Metric Tons (Milled) -------- rts ' World Total 6,149 7,627 7,192 6,808 6,388 6,300* Developed Countries 1,418 2,151 2,161 1,780 1,552 1,300* J aqaan 196 940 794 489 264 35* USSR 6: Eastern Europe 605 502 586 645 511 500* EC 278 260 362 259 323 280* DeveloPing Countries 4,731 5,476 5,031 5,028 4,836 5,000* Far Fast 3,504 3,821 3,430 3,651 3,439 3,550* India 451 783 787 453 446 400* Pakistan 257 60 139 149 35 100* Ceylon 477 642 488 376 338 300* Indonesia 1 , 006 193 306 347 625 650* Philippines 90 569 105 182 —-- --- Korea, Rep. of 24 --- 31 118 216 700* VietNam, Rep. of 12 216 475 749 650 500* China (Mainland) 32 112 74 77 80 80* Near East 342 388 354 367 361 420* Latin America 338 496 462 358 365 400* Africa 502 710 705 591 606 580* M World Total 6,364 7,562 7,114 6,933 6,467 6,300* Developed Countries 1,250 1,819 1,611 2,247 2,363 --- United States 957 1,549 1,352 1,838 1,898 1,900)? Japan --- --- --- --- --- 400* Developing Countries 5, 114 5, 743 5,503 4,686 4,104 —-- Far East 4,634 4,934 4,528 3,877 2,986 --- Burma 1,685 1,348 1,128 540 335 600* Thailand 1,309 1,851 1,510 1,480 1,022 1,000* China (Mainland) 872 740* 1,202* 1,192* 1,025* --- Near East 222 341 348 439 574 ~---- U .A. R. 220 330 347 435 570 .0. 600* Latin America 214 449 595 315 460 --- Africa 44 19 32 55 84 --- *Tndicates a very rough estimate. E. M. Ojala, "Increasing Agricultural Export Markets," 9p. git. Source: p. 20. 168 imports totaling 6.3 million tons in 1969. There are two reasons for this decline in rice imports,6 one reflects the declining shipments into previously high import develop- ing countries, primarily Ceylon, India and the Philippines, with the increased domestic production that has taken place in those areas. The second lies with the developed countries whose imports have been reduced by almost one-half since 1965. The principal figure in the decline of imports into the developed countries was Japan, whose imports declined from almost one million tons in 1965 to a net exporter in 1969. The EEC countries are buying less, also, as Italian rice acreages have been increased and yields improved. The production boom oftflu219603 did not enlarge the total amount of rice trade, but it did change the pattern of trade. The U.S., outranked in rice exports by Burma, China, and Thailand (in that order) in 1960 had by 1967 become the world's largest rice exporter. Cash sales of U.S. rice increased by almost four fold between 1960-61 and 1967-68. 6E. M. Ojala, "Increasing Agricultural Export Markets,‘ A paper presented at the Cornell Workshop on Some Emerging Issues Accompanying Recent Breakthroughsin Food Production. Ithaca, New York, March 30-April 3, 1970. 7USDA, "World Rice Crop Forecast 5 Percent Above Last Year," FAS, Foreign Agriculture, Circular, (January 1970). 169 African rice imports have likewise declined since their maximum of 710 thousand tons in 1965 (see Table 8.1) but are still expected to total 580 thousand tons in 1969. African rice exports, on the other hand, totaled only 84 thousand metric tons in 1968--thus equalling not more than 15 percent of Africa's rice import needs. Income elasticity of demand for rice in West Africa is calculated by FAQ to be above 1.0 as there is a shift from starch roots (cassava, etc.) to cereals, and particularly rice, as incomes rise 8 and urban population grows. The income elasticity in other parts of Africa was calculated in 1963 to lie between zero and -0.1.9 FAQ projections to 1975 made in 1967-68 point to a close balance between world production and demand for rice on the basis of the pessimistic assumption for economic growth.10 They concluded that a state of significant rice surplus could develop, however, based on a higher assumption due to a faster rate of production than of demand in the developing countries, particularly in the Far east. This latter possibility is given support by the events of the past decade which saw world rice production increased by about 45 million tons and import requirements declining in a number of countries. Several of the countries which are 8FAQ, The World Rice Economy, Vol. 11: Trends and Egrces, (Rome: United Nations, 1963). 9FAO, ibid., p. 53. 1003a1a, 92. gig., p. 6. 170 importers at the beginning of the 19608 now find themselves with small exportable surpluses--mostly produced at high costs and necessitating subsidies for export. The extremely difficult task of predicting with any certainty what direction world rice trade will take during the next decade is pointed up by USDA. If production increases continue and more countries become self-sufficient in rice, it is not likely that there will be an increase in the amount of rice entering world trade. There will undoubtedly be further breakthroughs in rice variety production, and the IRRI types will be supplemented by varieties more accept- able to consumers. Many countries, however, are working not only toward self-sufficiency but toward entering export markets. The question is, who will be the importer? If production does increase, prices in the next decade should not only stabilize but be reduced somewhat. The FAQ World Indicative Plan concludes that developing countries as a whole have an export potential which could reach 13 million tons of exportable surplus rice by 1985, most of which would come from the Far East. The high income countries as a whole are already net exporters, with falling imports and rising exports aided by subsidies. The adjust- ments necessary to bring a long-run world balance in rice 11USDA, "Story of the 19605: U.S. Rice in World Trade," op. cit., p. 6. 171 trade will take place within the developing countries themselves in the absence of drastic changes in the world rice economy. If world prices, which are still relatively high, fall sufficiently under the pressure of abundant supplies, it is possible that the trend to self-sufficiency and/or an export balance might be restrained.12 Export Markets for Nigerian Rice The greatest export possibility for Nigerian rice 13 imported lies with her West African neighbors who in 1967 332 thousand tons of rice valued at US $46.6 million and whose demand for rice was outstripped supply under existing 14 Table 8.2 gives production and marketing conditions. milled rice imports for the 11 West African countries over the years 1962 to 1967. Senegal, where rice consumption has risen faster than in any other West African Country, accounts for from 40 to 60 percent of West African rice imports. Four other countries--Ghana, Liberia, Sierra Leone, and Ivory Coast-- account for most of the remaining imports. 1.ZOjala, op. cit., p. 7. 131967 imports were down 15 percent from those of 1966 because of favorable weather during the growing season. 14James Reese, et al., Rice in West Africa, U.S. Department of Agriculture and U.S. Agency iorFInternational Development, (December, 1968). .ma .0 ..uwo .mm .wowhm¢ umm3 cw mowm ..Hm um .mmmmm "mounom .moumawumo humawaaamuma m.0« w.«m w.H« 0.H« 0.0m n.am m.«mm m.«mm 0.Hmm H.0«m 0.NmN 0.aHm mamuoy N.0 «.0 0.0 H.0 N.0 ~.0 m.H N.H m.~ 0.0 H.N m.H Hmwwz «.0 0.0 0.0 m.0 m.0 «.0 m.H m.H «.H 0.H m.H 0.H mwumwwz «.0 .0.0 «.0 «.0 m.0_ m.0 n.m n.m «.N H.m 0.m H.m oon 5.0 0.0 m.0 «.0 «.0 «.0 m.m a.« m.m m.m H.m m.~ muHo> H6000 9.H.H 0.0 0.H 0.0 0.0 0.0 0.5 0.0 0.5 m.m m.« 0.« zmaonmn Hum.a 0.0 0.H H.H 0.H m.H 0.0 0.0 0.0 0.0 ~.0 0.0a mflnfimw ugh 0.0 m.« 0.~ H.0 0.N m.m 0.- 0.0m 0.0H 0.0 ~.H~ m.mm maomq munmam 0.« 0.NH 0.0 0.5 N.m m.m n.0N N.mw 0.5m H.0m 0.m~ N.m« ummou >uo>H m.0 m.n m.m 0.m 0.0 m.m N.mm m.0« m.m~ N.mm m.mm 0.5m mwuman 0.0 0.0 H.m m.m N.« n.0H 0.0m 0.m« H.0m .m.wm 0.0m 0.Hn mango N.NN m.NH H.0a 0.0H H.HH 0.NH 0.0wa n.ama «.mna m.«mH m.0HH H.0HH Hammomm suu ...... mHmHHoo GOHHHHZ uuuuuuuuuuuuuuuuuuuuu mace ofluuoz 000.H uuuuuuuuuuu Hmoma 000a moma «00H moma Noma moma 000a moma «00H moma Noma maam> oEsHo> myocaou moawmma .oaam> 0cm 6E5Ho> hp mownmd ummz aw muHOQEH muwm vmaaaz .~.m manna 173 Rice consumption varies widely in West Africa. It ranges from 120-155 kilograms per person in Liberia to 15 Rice con- 2.3 to 3.2 kilograms per capita in Nigeria. .sumption in West Africa can generally be divided into two categories: 1. Rural consumption in the heavy rainfall areas where rice has long been a staple food (i.e., Liberia, Sierra Leone, The Gambia, Senegal, and Ivory Coast). 2. Consumption by middle and upper income groups in urban centers. Average yearly rice consumption is over 100 kilograms per person in the traditional, high rainfall, rice zone. There is little current potential for increases in consump- tion per capita and consumption grows at about the same 16 Total rice rate as population (2.6-3 percent per year). consumption has grown at 10 percent per year in the Ivory Coast over the past two decades, however. West African cities are the source of much of the increase in consumption. Rice is considered by many to be a high prestige food and with the rapid growth of urban centers, rice consumption has grown rapidly. Growth of the new rice market has been closely related to the growth of urbanization and demand is highly income elastic. Not 15 16 Reese, et al., ibid., p. 15. Ibid. 174 all of the increase in consumption is found in the tradi- tional zone or in towns.and cities, however. New consump- tion habits are filtering down to the people in the country- side in many areas and the future demand for rice in West Africa, as incomes and populations increase, appears to be bright. Rice Production in West Africa As stated, local rice production has not been able to keep up with the new demand for rice although it has been able to meet much of that demand. Table 8.3 shows paddy rice production in West Africa over the 1962/63- 1967/68 period. The overall rate of growth of West African paddy production was a little less than 4 percent compounded annually over that period. Most of the expansion that has taken place in rice production in West Africa has been obtained by expanding 17 For example, acreages using traditional techniques. the expansion of Ivory Coast production, which averaged 7.5 percent annually for 15 years, was achieved in this way.18. Other more or less traditional cultures responded relatively satisfactorily to meet the increasing demands l7 18Ivorian rice consumption has been increasing at about 10 percent peryear since 1948. Reese, ibid., p. 5. 175 Table 8.3. Paddy Rice Production in West Africa, 1962/63-1967/ 68 Country 1962/63 1963/64 1964/65 1965/66 1966/67 1967/68 -- —— 1,0MJPEtthzlbns ----------------- - Sierra.Leone 330 330 310 400 390 400 Nigeria 330 400 350 350 400 385 Iyory Coast 219 250 250 250 274 300 Iiberia 180 180 184 180 150 152 Senegal 106 110 110 122 110 137 Giana 33 43 41 29 42 . 5 43 The Garbia 31 37 37 35 33 36 Upper Vblta 25 34 36 34 35 35 Togo 23 28 17 20 23 25 Niger 10 12 12 12 19 27 Ddxmey l 1 1 1.5 1.5 1.5 Total 1,288 wmumuum Hows: Amuwmoua wowvmuu unmoo wcauoxume wawooaoowv oudpoum mo sou you mxmu xwa woflumxuma wcfloopoua mo mumoo mnu mm Ham3 mm mEoocH oHumHHoaocoE mooaocw zma EmuH mane .0N0H How woumvwmooo ma o>fiumcumuam amoumuum moo mHoo« .moouuoonoua Ham How mwmum>m mosaoma mnu Hm>o unmoved 0H mo womanhoow mw HHH >wmomuum noon: .mnma an omumcwefiam 0cm 050A you dump nouamma moo mamnuoco .mcowuomnoua Ham How many n0IH00H onu um woumaooamo ma 0 .meH>Hmm COHUMuHOQmCGHU UCM N .ucmaaoon QMZmo mnu cw wouommoum mmonu coco .uo>oBon .mcofiumasoflmo ommnu ca Hmnwws mum moowum umosuoua pom moowua mouoo pauoa umooonoum .m00Hu000H .ucoanHo>oo Honda omfiuowflz How mCOflumoCmB uaoomm pom mowwoumuum ..Hm um .aomcn00 .A comao CH ~.HH> oHomH mm mumommm mason HmHHEHm < H 0N0.0N 000.00 0N~.0m 00N.nm 000.Nm 00a.m« 00m.0m m00.0 nun 000.0 m00.0 nu: mmN.0H «00.HH nmn.H nun «ma.~ n00.« uuu ««m.« mm«.m m0N.« In: H00.« nm0.« -un n«H.m m00.« mmm nun 000 HHO nun «00.H 0H0 000.« 000.0 mmm.m Hm«.« 500.0 NN«.m 0«m.« «50.0H «0N.00 0H«.m~ «0H.mm mmm.0« m00.mm 0mm.«m uuuuuuuuuuuuuuuuuuuuuuuuu 000. Anni--un1auunuaunuannuuanun HHH _ HH _ H HHH _ HH # H «H xwmumuum zmmumuum Ammumuum mama mnma 0mmH N mwowcumm owszoxm moocm>ou oomEcuo>ow Hmuoe moamuom whoop wowuoxumz mowuoo uuoaxm xmu mmmzouoo Hoodooum mm53m>mh UCGECHN>OU wowuoxuma pom cowumouoamcmue mumEumm oo mummexmm umumuoomw mmDCO>QH UGQECHO>OMCOZ .mauowaz .mwawcumm mwcmnoxm pom mooco>om ucoacuo>ou H "mowwwumnum m>auocumua< mounh Home: mcowuomnoum mooou ou mucmfihmm mwma pom monomxm Boum muoaumm .mwma .OBmH .N.0H manme 207 evacuation of the produce).11 Groundnut production would be expected to expand from approximately 1 million tons to 3 million tons between 1970 and 1985 under Strategy II. This is an annual compound growth rate of 6.3 percent over the entire period. Groundnut exports grew at a compound rate of 5.2 percent between 1956-58 and 1964-66. Table 10.3 illustrates that groundnut production may increase from 1.2 million tons in 1970 to 1.6 million tons in 1975 and to 3.2 million tons in 1985 under the CSNRD recommendations. The world price of groundnuts (f.o.b. Nigeria) is assumed to be L70 per ton in 1970 and L53 per ton for the 1975-1985 period. As Nigerian groundnut oil is only a small part of the world fats and oils market, Nigeria is assumed to be a "price taker" as it is thought that the Nigerian expansion of output would have little effect on world fats and oils prices. Table 10.3 also summarizes producer price policies for 1970—1985. Producer prices would be maintained at L37 per ton for Strategy 11 as the world price is expected to decline from the present L70 per ton f.o.b. to L53 by 1975. The price for Strategy II would be maintained by eliminating the average L8 per ton tax that has been collected over the 1961-65 period (see Table 4.3) as well 11See Glenn L. Johnson, et al., Strategies and Recommendapions, Chapter VII, "Recommended Production Campaigns?“ pp. cit. 208 Table 10.3. Selected Aspects of Groundnut Production Under Three Alternative Strategies, Nigeria, 1963, 1966, 1967, 1970, 1975 and 1985 Year and Acres Yield Total Price tp WOrld Alternative Per Production Farmers Price Strategy Acre (f.o.b. Nigeria) 1,000 Pounds Long Tons L/Tons L/tons 1963-64 3,000 705 991 30.0 59.33 1966-67 3,700 777 1,2912 32.0 1967-68 n.a. n.a. 620 29 Grade I 27 Grade II 1970 Strategy I4 3,330 740 1,100 30 70 1975 Strategy I 3,500 800 1,250 27.0 53 Strategy 11 4,080 880 1,600 37.0 53 Strategy 111 3,400 720 1,090 26.2 53 1985 Strategy I 4,125 900 1,600 27.0 53 Strategy 11 5,830 1,330 3,200 37.0 53 Strategy 111 3,650 760 1,240 26.2 53 1Tax levels per ton of groundnut products under the three alternative strategies are given in Table 10.4. 2The average yield in 1966-67 was substantially because of exceptionally favorable weather. A above normal yield of around 700 pounds and production of about 1,000,000 tons are considered more realistic averages for the late 19605. 31961-65 average price calculated from NPMC and marketing board data. 4Only one strategy alternative is considered for 1970. Source: A similar table appears as Table VII.8 in Glenn L. Johnson, et al., pp. cit. Projected world groundnut prices and prodfiEer prices for 1970 are higher than these projected in the CSNRD document. 209 as the "above normal" marketing board surpluses expected to be earned in 1970. Improvements in marketing efficiency are expected to add an additional L2 per ton to the producer price. Table 10.4 summarizes payments to farmers, government revenues, and foreign exchange earnings resulting from Strategies 1, II, and III. Payments to farmers from ground- nut sales are expected to increase by approximately 50 per- cent between 1970 and 1975 and to approximately triple between 1970 and 1985 under Strategy 11. Foreign exchange earnings are expected to also increase from around L65 million in 1970 to L69 million in 1975 and to L148 million in 1985. 4 Oil Palm Products About 90 percent of present Nigerian palm oil produce is harvested from semi-wild trees which produce about one ton of bunches per acre per year.12 Fortunately, Nigeria has improved palm varieties (the tenera hybrid palms) which are adapted for Nigerian growing conditions and pro- duce at least six tons of palm bunches under experimental conditions and three tons per acre by small farmers. According to Johnson, the problem of getting mass farmer adoption of the new hybrid palms is the transition from the present unplanned ecological process of palm regeneration in which man participates but does not consciously manage . 13 to a planned, directed system where man is the manager. Iijid., p. 83. 210 .003 you 00.8008:00 ma 939300000 00933 000 N050 .9638 080 3 0800.0 90 005 08000 S .3 8888.." 08 088 $-83 omen?» 80 £3 .3 03330 03 003 How 000.090 00-33 0:... up HH 0030.30 you 033330 0.8 .8060 0Hmon 00390.88 0505.35" .0980. 03.5000 928% 300580 3.83 0300 .080 .UHO . .053qu 080 Sm Mom 30..— 00035 00:33 9.0. um 03006.08 m0 H 0030.00 .305 “.3030 mo 03 H0 903 080.0 MW 030000.00 mmofi own... .8503 0.3 003 How 08.20 5300.00 05 30.000 :0... 00 .835. .0 :88 5 $9 03$ mm 080% 033 033...“ < H $0.8 Saga 83m 0.8.3 menaefi Show 89% @0050? 000.0 ...i 000.0 30.0 nu- 30.0 000.3 mama“ 30.93260 038. Sn --- Re a --- fin 03.: 3308 808 000.30% 000.0 u-.. 000.0 «3.0 In- «00.0 «00.0 «0.320 3090 001.“ I- «004 30.." 1!. 0004 H34 x05 .8me «$5523 ugoo 000.0.” 000.3 000.00 0-.«H 000.00 000.: 0.00.0.0 0582.85 05 0800380085 «00.0w «3.0.2 000.00 000.00 000.00 000.00 000.00 33080 3.009% . 0.8 320580 88w mam—FEM on 388000 H38. «00 .0 03.3 000 .0 000 .0 \.«0 .0 3.0 .0 000.0 30:03.0 0500580 05. 3225.40 0250.08 03.330980 3 08.8 «3.2: «8.8 $0.8 £33 3.3. 8me 80°00 3085.0 3:05on 058 03009380 Baum mgm on 388.80 030.4050 0335M “030% HHH HH H HHH HH H 0H 0080.30 00.30.30 0030.30 003 003 003 83H scum 0.50.8.0 ou 358.80 H003 05 03..” .003 .3..qu .m0§ 005080 03 8255mm ”Em—3830 .mfloefl "000080.50 033532 00.30. 900:: “0.8300080 33080 ”02050.6 «.0." 0300. 211 The CSNRD recommended oil palm production campaign is built around three points. First is the utiliZation of the smallholder type of farm organization as the chief mechanism to expand oil palm production in areas where oil palm has a comparative advantage over alternative crops. Research on the economies of alternative forms of farm production strongly supports the smallholder form of farm organization linked with an input subsidy program as the central mechanism for the wide scale planting of hybrid palms over the 1970-1975 period. The second point of strategy is based on both loan and subsidy components to small farmers to help increase plantings of the new varie- ties. The third point is a continuing loan program to‘ small holders after 1975, when all marketing board and export taxes have been eliminated. Following the pattern of the oil palm rehabilitation scheme in the former Eastern Region, CSNRD recommends that palm campaigns be inaugurated in the three Eastern States, Mid4West, Kwara, Lagos, and the Western State. Table 10.5 gives recommended acreages of new plantings to hybrid oil palm to be supported through the oil palm campaign over the 1970-1975 period. Table 10.6 spells out the expected results of the three alternative strategies and associated policies and programs. Without the production campaigns and incentive programs designed to increase output, production of both 212 Table 10.5. Strategy II: Suggested Oil Palm Campaign Acreage, Nigeria, 1970-1975 Year Eastern Mid-Western Kwara, Lagos Total States State and Western States ------------------------ Acres-----—---------------- 1970 10,000 500 500 11,000 1971 20,000 1,000 1,000 22,000 1972 30,000 5,000 5,000 40,000 1973 40,000 10,000 10,000 60,000 1974 40,000 15,000 15,000 70,000 1975 40,000 20,000 20,000 80,000 Source: Glenn L. Johnson, et al., Strategies and Recom— mendations for Nigerian Rural Development, 1969? 1985, Table VII.5. oil and kernels would be expected to remain more or less stagnant as it has been since 1954. Consumption of palm oil is expected to increase in any case with growing population, and Nigeria could well become a palm oil importer within 15 to 18 years if steps are not made to increase production. Table 10.6 illustrates that the major expansion of output (from 560,000 to 800,000 tons of palm oil) can be accomplished under Strategy II mainly through replanting wild palm with hybrid varieties and through improved pro- cessing. The total acreage would increase only slightly. It is expected that prices to farmers could be maintained at L40 per ton despite the 25 percent fall in the world palm oil price that occurred between 1967 and 1968. -“ ‘..fWhK' r 21L3 v.0. ; I\._ ,.. {31.1.0.1 , . . I... LA .. a: r 4‘1. _ . 0 i . .w - 000000000..u00 w. 0... .. . . .szmo 00 000000000 00onu 0000 00000 0050 :0 00500: 000 000000 000:0o00 000000 EH00 WW0 00o B000 00 0003 00 0000 000 000000 000000 8000 000 00o E000 000o3 o .0000 000 00000000o0 00 0>000000u00 00000000 00o 0000 .0.00 00008 00 C0>00 000 000:0o00 E000 00o mo sou 000 000>00 009 ..00 00 .0000500 .0 00000 00 0.00> 00008 00 0000000 00000 0000500 < "000so0 0 .0005000 000 Eo0m 00000050800 00200 .00000>0 00.0000N 0 00 mm o.m~ 0.00 000 000 cam 000 0cm oo0.m 000 00000000 00 mm 0.00 0.00 0N0 000 com 000 000 oom.m 00 00000000 00 N0 0.00 0.00 000 com 0N0 000 000 oo0.m 0 00000000 0000 00 N0 o.m~ 0.00 Q00 000 C00 000 ~00 000.0 000 00000000 00 mm 0.00 0.00 000 000 moo 000 000 000.0 00 00000000 00 N0 0.00 0.00 000 000 com ~00 com oo0.m 0 00000000 . 0000 00 om 0.00 0.00 000 000 ooq 000 000 000.0 0 00000000 0000_ .m.c .m.: 0.00 0.00 00m 000 0N0 000 000 000.0 0000 0.00 00.00 0.00 00.00 000 ooq 00¢ O00 000 000.0 0000 . ................ coa\0 ................... 0:00 0co0 000.0 ...... ---00csom--- ooo.0 Hmcumx 000 00:000 00o 00:000 000 Hocumx 000 0 0| 000 00000000 00000002 .n.o.mv 000E000 co0u0830coo 0000 0>0u0a0000< 00000 000o3 00 00000 00000Eo0 co00000o00 000 0000» 0000< 000 00000 .0000002 .0000000000 0000 000 0000 .0000 .0000 .0000 0>0u000000< 000:8 000:0 GO00050000 0050o00 5000 000 mo 000000< 00000000 .0.00 00000 214 Table 10.7 illustrates that total farmers' earnings from palm production (for both export and domestic consump- tion) may reach L49 million by 1985. This is approximately L20 million greater than could be expected as farmers earn- ings for either Strategy I or Strategy II. Annual foreign exchange earnings by that time would be expected to be approximately L14 million higher for Strategy II than for r either of the alternatives. Rubber The long-run potential for Nigerian produced rubber to compete pricewise and qualitywise on the world elastomer market is a virtual unknown for Nigerian planners. There are on the one hand, estimates on the world market outlook for rubber as pointed up in Chapter VII--rates at which the world market is expected to grow, costs of production under the improved natural rubber technology of the Far East, natural rubber yields and potential yields in important rubber producing countries, and the long-run price expecta- tions for both natural rubber and synthetics. These data are of limited use to Nigeria, however, as Nigeria has little agronomic or economic evidence as to how much of the Far Eastern rubber technology can be adapted to local conditions. And Nigeria has little rubber technology of her own waiting to be put into use. Despite the low level of technology in producing tapping, and processing, Nigeria's natural rubber, exports 215 Table 10.7. Palm Products Projections Under Three Alternative Strategies: Payments to Fanners from Exports and Dunestic (kxetnrmion, Government Revenues and Exchange Earnings, Nigeria, 1970, 1975 and 1985 Item 1970 1975 1985 Strategy Strategy Strategy I51 II III I II III I II III gonggvernment revenues generatedI Payments to farmers from palm products exported 14.940 21,300 14.940 10,640 19,880 9,250 9,360 23,700 8,500 From domestically con- sumed palm products 17,640 20,160 17,640 15,120 19.080 14.640 18,900 25,040 18,300 TOtal payments to farmers from pahn products 32,580 41,460 32,580 25,760 38,960 23,890 28,260 48,740 26,800 _C::O£I'EE_IE nt revenues Producer taxes2 2,462 2,735 2,708 2,477 --- 2,608 2,535 --- 2,686 Export duties3 4 2,729 3,364 3,002 2,040 --- 2,146 1,908 -—- 1,972 Marketing board surplus 8,125 6,581 7,765 1,326 --- 1,295 1,152 --- 1,190 Total government revenues 13,316 12,680 13,475 5,843 --- 6,049 Exchagg§_garning§ 30,300 36,900 30,300 17,595 24,286 15,910 15.480 29.043 14.620 1Transportation and marketing costs within Nigeria of exported pahn produce are calculated at L12 per’. ton for palm oil and £7 per ton for palm kernels. 2 'but eliminated under Strategy II by 1975. III are increased by 10 percent over the 1961-65 average for all projections. Producer purchase taxes for both oil and kernels are calculated at the 1961-65 average for all pro- jections for Strategy I. They are also calculated at the 1961-65 average for 1970 for Strategy 11 Producer taxes for both paln10il and kernels under Strategy 3Export duties are calculated for palm oil at the 1961-65 average rate for Strategies I for 1970. They are eliminated for all three Strategies for palm oil by 1975. Export duties for palm kernels under Strategy I are calculated at the 1961-65 average for all projections; at the 1961—65 average level for Strategy II in 1970 and then eliminated by 1975; and at 110 percent of the 1961-65 average rate for Strategy III for all projections. “Marketing board surpluses are expected to be substantial for 1970. They are calculated as the difference between the world price received for the products and transportation and marketing costs, taxes, and payments to farmers. They will be eliminated by 1975 for Strategy II as the world palm prices are ting board surpluses are expected to continue for Strategy I for 1975 and expected to decline. Marke 1985 at rates comparable to the 1961-65 average and at 110 percent of that rate for Strategy III for both 1975 and 1985. 5 Source: A sindlar table appears as Table VII.7 in Glenn L. Johnson, et al., 92. gig. palnlprices and producer prices in 1970 are higher in these calculations than in the CSNRD document. Only one strategy alternative is considered for 1970. Projected world iTHEflfi —. V'J'CI'-‘ 1' f .‘. '1 . _ g , ‘4'“ EL : If" v. 216 have continued to grow.14 Exports achieved an annual compound growth rate of 6.25 percent between 1956-58 and 1964-66 as total rubber exports increased from 20,900 tons in 1954 to 72,100 tons in 1964. Nigeria is Africa's leading producer of rubber--furnishing approximately 3 percent of the world natural rubber supply. Despite Nigeria's small share of the world rubber market, rubber production is important in Nigeria. It annually contributes more than £10 million in foreign exchange (except during the war years) and is an important source of income and rural employment, especially in the Midwest State where most of the rubber is produced. As rubber and palm oil are competing crOps (at least potentially) in large sections of South Central Nigeria, there are two major questions the planner must answer to have a basis for choice between the two: (1) What can be done economically to increase yields, quality of product, farmers' incomes, and foreign exchange earnings from the existing 460,000 acres of wild rubber? (2) What is the relative profitability of producing hybrid palm oil as compared with rubber under improved rubber technology. improved tapping techniques, high—yielding clones, and improved processing? 14See Figure A.1 in the Appendix. ,1! ,a‘ “4“!" -m.‘ lt’l'AJ- m . we . _ "LL 15+}: 217 This researcher maintainsthat at least the second question depends very heavily on "how much of the Far Eastern rubber technology can be adapted to Nigerian con- ditions.” Nigerian researchers and planners have much greater information on the production and economic potentials of palm as the bulk of the agronomic research on hybrid palm was done in Nigeria. Faced with the above problems and a basic lack of information on the potentials of improved rubber within the country, CSNRD chose a three-pronged production- research program as its recommended approach to rubber 15 production in Nigeria. The CSNRD recommended program is as follows: (1) to introduce the new crumb-processing technology to improve the quality of wild rubber and thereby increase producer incomes and foreign exchange earnings from.wild rubber; (2) to launch a pilot rubber production-research campaign which utilizes improved (a) clones, (b) tapping techniques, and (c) processing technology, and (3) to strengthen rubber research at the Rubber Research Station at Iyanomo, Mid-West State. 15Glenn L. Johnson, et al., gp. cit. 218 As the crumb rubber processing in Malaysia is still in the development stage, it could only be presently used in Nigeria in a pilot, experiemntal effort. Thus, the entire CSNRD program could be summarized with the phrase "additional research to determine the economic potentials for rubber in Nigeria." Table 10.8 illustrates that rubber acreages and total rubber production are likely to decline under all three policy alternatives. The 55,000 ton figure as given under Strategy II for 1985 may be substantially surpassed if Nigeria demonstrates an ability to adopt the new Far Eastern rubber technology. Correspondingly, with projected declines in world natural rubber prices over the 1970-1985 period along with expected reduced Nigerian rubber acreages, farmers' income from rubber is expected to fall, as are foreign exchange earnings from rubber exports. There are presently no government revenues from rubber exports--nor are there expected to be over the 1970-1985 period. The above figures are shown in Table 10.9. Cotton Cotton is one of Nigeria's most promising import- substitute crOps. The domestic consumption of cotton lint is expanding rapidly and is expected to continue expansion for years to come. Although there are ample opportunities to increase cotton acreage, particularly 219 Table 10.8. Selected Aspects of Rubber Production Under Three Alternative Strategies, Nigeria, 1963, 1966, 1970, 1975 and 1985 Year and Acres Yield Total Price to WOrld Alternative Per Production Farmers Price Strategy Acre (f.o.b. Nigeria) 1,000 Pounds 'LOng Tons L/Tons L/Tons 1963 480 317 68,000 165 1961 1966 480 328 70,270 130 160 1970 Strategy 12 485 320 70,000 130 160 1975 Strategy I 414 325 60,000 93 120 Strategy II 414 330 61,000 93 120 Strategy III 400 320 57,000 93 120 1985 Strategy I 355 315 50,0003 93 120 Strategy II 355 345 55,000 93 120 Strategy III 320 300 43,000 93 120 1 1961-65 average CSNRD calculations from EAO data. 2Only one strategy alternative is considered for 1970. 3The 55,000-ton production output in 1985 is not a pro- jection. It is a conservative estimate which may be substantially increased if Nigeria demonstrates an ability to adopt new rubber technology. Source: A similar table appears as Table VII.3 in Glenn ‘ L. Johnson, et al., 92. gig. Projected world rubber prices and producer prices for 1970 are higher in this table than those projected by CSNRD. 220 .uHo .mm ..Hm um .GOmcnow .4 madam an ¢.HH> mHQMH mm museums canon umawefiw < .omma Mom ownmofimcou ma m>fiumnhmuam hwmumuum moo haco .ucmasooo QMZmo osu ow coco maoaumaooamo ommmu cw “memes mum onma How mmoflum Hmooooua pom moofina weapon oHHo3 omuoonoum "mouoom N .ocoom Mom owH coco mmoH ma oofium on» ao£3 kuoo uuoaxo on ma oHoSHH ooa.m 000.0 000.0 oqw.o omm.m oom.m oom.HH mwnwcumm omcmnoxm unu nun nu: sun In: nun nun Hmowuoo unoaxm monso>on uooaano>ou aoH.H mmaua cmm.H mmm.a mqo.a omo.a omm.a wcflumxuma one nowumuuommamne mmm.m mHH m one.¢ Hom.m mno.m owm.m OOH.m mwmanmm ou muaoahmm moumhmmww moono>on ucoacum>owcoz uuuuuuuuuuuuuuuuuuuuuuuuu ooo. mnnnnununnunnnuuunusuuuIn: HHH HH H HHH HH H NH xwmumuum mmmumuum xwoumuum mmma mmma Omma muoaumm ou mucmfihmm mama ecu mama .oaaa .maumwaz .mwcacumm owcmnoxm one monso>om uCoBch>ou .GOfiuanmcoo oflumoaom ram muuoaxm Scum "mowwoumuum o>HumcumuH< mouse noon: maowuoomoum Honnom .m.oa manna 221 in the Northeast State where soils are well suited to cotton production and competition from groundnuts is less than in some other parts of the northern cotton growing areas, there can also be substantial increases in yield per acre through utilization of existing knowledge. CSNRD points up the research done at the Institute of Agricultural' Research, Samaru, which shows that per acre yields can be increased up to four-fold with proper timing of planting, plant spacing, weeding, fertilization, and insect and 16 disease control. The main thrust of the CSNRD recommended production campaign is based on extension demonstration plot programs including improved practices and varieties for both cotton and for the food grains as the two crops compete for land and particularly for labor at the crucial planting time. Table 10.10 and 10.11 give the expected consequences of following each of the alternative development strategies through the next 15 year period. Foreign exchange earnings from cotton in 1985 would be maintained at about the 1967 levels under Strategy II, whereas they would almost dis- appear under either a continuation of the present policies or a shift to a harsher strategy and programs. Payments to the 250,000 cotton farmers under Strategy II would be almost double the L16-Ll7 million paid under the other two strategies in 1985. 16Glenn L. Johnson, et al., QE- cit., p. 96. .GOmGLOW .A cacao cm HH.HH> manna mm manomam owam manmu mack .aa.oa magma ca cm>am .OamH Mom omuooamnoo ma m>aumcumuam mwoumuum one mace .uao .mm ..Hm um mam moawmumuum wousu mnu Moons muooooua couuoo co mHo>oH xMH .aamamanma mum ”moanom N a N.a am --- am omm mam oom.a aaa ammumaam m.m oma am oa mam oom oom.m aa awmamuum m.m mm --- am mma omm moa.a a awmamaum mmma N.a mm a- ma mma mam oma.a aaa ammumaum N.m am «a ma mma mom mom.a aa ammumaum m.m mm --- om mma omm mmm.a a ammumaum 2 mama u m.a mm m am mma omm oom.a Na ammumaum oama m.a am ma ma maa oma mmN.a amma a.m --- --- ma maa omm Naa.a mmma .moa\mocmm uuuuuuuuuuuuuuuu mCOH mcoa ooo.a ............... mocoom ooo.a couuoo Couuoo AquHm> comm cm a poem oaumofioa uaomxm uaovm usaq ouo< zwoumuum mHoEMmm cav nuoHo couuoo comm Mom m>aumcumua< ou ouaam ucaq mo munanH coauooooum mama» mmuo< can you? mmma ecu mama .oama .amma .mmma .maamwaz .moawoumuum m>aumcumua< ooHLH noon: coauooooum Gouuoo mo muoomm< wouuoawm .OH.OH oHDMH 223 upon oa so oemeeuona one meuen mouaoaa mweue>e may monaoma enu ue omueanoaeo mm H mweueuum neon: oonooun mo nou Mom oxen new .aa.aa> magma ..uau .mm ..am am .comcnon .a ccmao "meadow .mnoauoonoun HHH Amoueuum ecu neon: uneo .mnoauoenoum Hae now open oweuo>e .mnma >2 oeuenafiaae one HH zwouenum neon: muawoun wnaoeuu oueon wnmumxues wnaonaona .moerm .oama How oeuooamnoo mm o>muenueuae xuaaon eno manoN .muuomaa nuoau heuw Mom nomuonooum oaumoEoo ounuaumnnm ou Seawoun manammon e now woes news we: eone3oaae oMH H qaa.~ oom.~a Nqo.m moa.a ooa.o mom eam.m ewnannee ownenuxm 1-- nu: -1- n-- unu uuu ma meauno uuonxm mm nu- am ma -u- OH «H mxeu neonooum menne>eu unmanne>oo mmnauoxuea o noaueuuonmneuy moa.oa oom.mm mma.ma cam.m ~wo.ma w~¢.oa omq.m neuuoo oeanm unoo maaeuaumeaoo Bonn -u- mam.m nu- uun mwm.m nu- Ham oouuoaxo nouuoo Scum mHoEHeM ou muneahem oouenenom enne>mu unmanno>ounoz .......................... ooo.4----nuu----u-suuuuun-:-u aaa aa _ a aaa aa a Na mweueuum mwoueuum mweuenum mwma mama cama Sena “meawoueuum e>auenueuan mouse noon: mnoauoemoum muonooum nouuoo one nouuou nwma one mama .omaa .emuewaz .mwnanuem ownenoxm one menno>em unmanne>oo .noauaanmnoo oaumoaoo one wuuoaxm Boum mueauem ou munoshem .HH.OH eHQeH 224 Rice The possibility for exporting Nigerian rice to other West African countries was covered in some detail in Chapter VIII. Reese17 and Welsch18 both found that rice producer prices in Nigeria were comparable to those in countries which sell rice on the world market Without sub51dies. If E y Nigerian c.i.f. prices to West African ports is greater than import rice prices from competing countries (the U.S., Burma, or Italy), the reason must lie with the buying, E? transport, marketing, and processing costs of getting the Nigerian rice to the ports of entry. Rice research should be geared not only to lowering costs of production but to marketing, transport and processing costs as well. Feed Grains Research on maize and grain sorghums, now well under- way in Nigeria, offers hope of substantially improving feed grain yields and lowering costs of production over the next several years. The maize improvement program in Nigeria is conducted at (l) Ahmadu-Bello University, Insti- tute for Agricultural Research, Zaria, (2) Mokwa, also in the north, and (3) the Federal and Western State Agricultural Research stations near Ibadan.19 Average maize yields at 17Reese, et al., op. cit. .— 18 19U.S. Department of Agriculture, Sixth Annual Report of the AID-ARS Project, Major Cereals in Africa, 1969. Welsch, QB- cit. 225 the Samaru Station near Zaria have exceeded 4,000 pounds per acre each year since the maize improvement program was started in that location in 1964. Maximum yields have exceeded 7.000 pounds per acre. 0. J. Webster, Geneticist and Coordinator of the U.S. sponsored Major Cereals Project in Africa, maintains that farmers in the Zaria area should be able to duplicate these yields by planting seed of the improved varieties developed at Samaru and by following 20 Seed and fertil- recommended practices of good husbandry. izer are being distributed to a small group of selected farmers this year as a part of the extension services education program. The research work on maize production done at Samaru is particularly important as the station is representative of an ecological zone that extends across Nigeria and West Africa. This area could become a major maize producing area as adapted varieties are developed and management problems resolved. Tests on local sorghums and sorghum breeding work has also progressed in the north. Plot yields of over 3,000 pOunds per acre, nearly four times the production of the local check variety, have been achieved at Kano.21 201bid., p. 27. 21 Ibid., p. 57. 226 The possibility for Nigeria to export feed grains lies far in the future. It must first lower costs of production and improve uniformity and quality levels if it wishes to compete in the world feed grain market. The research for increasing yields and lowering costs of production is well underway. CHAPTER XI CONCLUSIONS AND RECOMMENDATIONS This chapter presents the conclusions and recommen- dations from the study of the export potentials for selected Nigerian agricultural exports over the 1970-1985 period. Estimates of the export potentials are based on the expected world demand for Nigeria's agricultural exports (as discussed in Chapters V - IX, Part II) and Nigeria's likely responses to world demand conditions under three alternative sets of agricultural policy assumptions, (as presented in Chapter X). A Favorable Outlook for Nigerian Exports The most fundamental conclusion from the study is that the overall outlook for Nigeria's present and known potential export crops over the next 15 years is generally favorable and that agricultural export production should be increased. Chapters II and III provide theoretical insights into how export production can be increased to socially desired levels as well as an explanation of why it may not be at socially desired levels at present. The diversified make-up of Nigeria's agricultural exports, where no one agricultural export provides more than 25 percent of foreign exchange earnings from agriculture 227 228 and where 10-12 agricultural exports normally earn more than L2 million annually in foreign exchange, is pointed up in Appendix A. This diversification serves as protec- tion to Nigeria from severe world price fluctuations in one or two commodities which might cause great variability in foreign exchange earnings and farmers' incomes from export crops in a less diversified economy. This state- ment is made although of Nigeria's present major agricul- tural exports--with the possible exception of rubber-- appear to be facing serious overproduction problems and drastically reduced prices over the projected period. Palm oil prices are expected to decline as they bid for greater usage in food products (see Chapter VI). The outlook for Nigeria's major import substitute and some minor export cr0ps is especially optimistic. Cotton and the hard fibers have a readily available domestic market which can absorb the major part of pro- duction for at least the next 15 years. Beef and feed- grains face similarly favorable demand conditions, both within Nigeria as well as on the world market. The potentials for these are discussed in a later section in this chapter. The conclusions that the outlook for Nigerian agri- cultural export production is favorable and that export production should be increased is based upon the structure of the Nigerian agricultural export production sector as well as upon the world market outlook for the export 229 products over the next 15 years. Nigerian agricultural export production is largely provided by smallholder, price—responsive producers who have proven that they can economically compete in the world markets with their major export products. Increased income and employment from expanded export production under the present export production system could be widely distributed over the present 2-3 million export—oriented farmers and among others who might enter that sector because of the increased earning possibility. The subject of employment is further discussed below. Projections of Farmers' Incomes From Export Crops,. Government Revenue From Export AgricultureL and Foreign Exchange Earnings, 1970-1985 Table 11.1 illustrates the magnitudes of changes in farmers' incomes from export crops, government revenues from export agriculture, and foreign exchange earnings which might be expected over the 1970-1985 period under each of the three alternative strategies considered throughout this dissertation. The projections for 1970 serve as a benchmark against which the performances of the succeeding years can be measured and compared. The more favorable policies of Strategy II and the harsher policies of Strategy III would be expected to be implemented in 1971 although they would not be reflected in Table 11.1 until 1975. 230 .MfllU» .mm a .Hm um .882. .a sea :a «5 mafia mm 88% mans awash... < .aaaa fiaoafi a.x 83d son 8:88 ”meadow .855 mama .68: £50388 nausea nae ..a_§8m anaemia 9o 8 .5965 fiaoHouuem 05 mo uoennaH cg ohfipm eHn—ammom one Heooaoumam on”. no Modem wnmxnos: .Emueom .m uuoomm .aaco 3:858 ea 888 .aa0 Baum 3335 men .aaaeoaummfie oouomeu macho :uuonxo: Ho mun—nape 9.3 no 8.3.38 oueon geuoaefi mo muoemmo 93 30% 3 one: ooooHoan .nouuoo one mounooum Sea .muooooum unnonnonm .eooou now ovueHaaoHeo one wanna/on ones—.598 H 3N CNN 00H manHoauom 80am enne>on oouoe noun 0mm oom mam mEDeHonuen 80am mwanHeo €880 oeuoemonm mm me mHH mm «3 MOH mHH macho unomxo Eonw mEoona Heoou hum—Eek no No me om .3 mm mm Nmaonu 9890 we on: 3qu Scam «Sousa .mnmaaem mm 03 0a mm mNH Ha cm 3.890 89am gonna .mgm am. am ma m mm m ma- 96%.. .056 onooem na oeumHH wannabe/mu ue>o mania—unmade Ho mmooxm 3 am. .3 mm mm mm am manaaanwm now webauaonenxo unmaFHea/ow oouuomonm 3 I: mm mm In- «N No Honcho 3098 89am meauno 3098 one 53 omenoann nouooonm .momnHaaanm oueoo wnaueufimn 88m nanny/on magma/ow oeuoenonm mm mm oma moa mma mNa qma goddamn son 8588 foam WhoaHHE a uuuuuuuuuuuuuuuuuuuuuu HHH _ HH g H HHH HI HH # H H ammuehum ammuebm aoueuum . mme mag 93 mmmaéama .mahswaz .mmamflsnm Bangui 8H8. 525 .380 team eon oHauHofimuam one—5598 one dogma/mm magma/ow .emuoonH mHeEHeh .mwng uuoaunm oouoofldnm .H.HH oHAeH. 231 Export Earnings Agricultural export earnings (drawn from Table 11.1) could be expected to increase from the projected L154 million in 1970 to L169 million in 1975 under the favorable Strategy II policies (which generally reflect increased producer prices and greater emphasis on accompanying infra- structural support for export agriculture). They would be expected to decline to L128 million by 1975 under Strategy I policies, largely as the result of falling export prices and would be only partially offset by production increases. Export earnings under the harsher Strategy III policies would be expected to decline by 1975 to L109 million, or to approximately two-thirds of the amount of foreign ' exchange generated in 1975 under the more favorable Strategy 11. The long-term investments in agriculture under Strategy II would be expected to show dramatic results by 1985, with export earnings reaching L282 million even with the rather low projected long-run world prices. A contin- uation of present policy (Strategy I) would see agricultural export earnings leveling off at around L130 million per year by 1975 (after the projected high of L154 million in 1970) and the maintaining of the lower level through 1985. Agricultural export earnings could actually decline under the harsher policies of Strategy III and move to less than L100 million by 1985. 232 Expected Government Revenues Government revenues from export agriculture may be expected to vary between L40-L45 million in 1970. This amount of government revenues expected in 1970 (which are calculated in this thesis to go principally to the marketing boards) may be expected to develop despite the fact that many producer prices for export products have been raised by the marketing boards in the past 6-8 months, partially as a means of discouraging out-of-country smuggling. The relatively high world prices should provide substantial windfall gains to the Federal Government and to the market- ing boards during the present year. Government revenues from export agriculture would be expected to return to more normal levels by 1975 at around L24 to L23 million for Strategies I and III, respectively. All taxes (including producer purchase taxes, export duties, and marketing board assessments) would be eliminated for Strategy II by 1975 as a means of maintaining producer prices at or above their 1970 levels and thus encouraging greater output. Farmers' Income from Exports This category portrays the results of the CSNRD recommended policy (Strategy II) of (l) expanding export production to more fully meet world demand for Nigerian products and (2) giving a wide distribution to the income derived from.exports. Because of the higher producer 233 prices projected under Strategy II and the greater amounts of exports forthcoming under the producer incentives and improved infrastructure, farmers' income from exports under Strategy II by 1975 would be expected to exceed the income generated by exports under Strategy I by L52 million and by L65 million as compared to Strategy III. The L52 and L65 million gains in farmers' incomes from exports under Strategy 11 would be partially off-set by the L23-L24 million "cost" in government revenue foregone under Strategy II in order to pay the higher producer prices and get the higher export production. 8 Farmers' income from exports would be expected to rise over the 1970-1985 period under Strategy II moving from L84 million in 1970 (in a time of relatively high export prices) to L123 million in 1975 (with lower real prices) and L196 million in 1985 (again with lower prices). Farmers' income from exports might actually decline over the 1970-1985 period under both Strategies I or III as shown in Table 11.1. Farmer's Total Income from Export Crops Table 11.1 shows that farmers' total income from those crops which are both exported and consumed domestically can more than double under the favorable policies of Strategy II between 1970 and 1985. Strategy I, reflecting a continu- ation of present taxing and price policies, would be expected to produce farmers' income from export crops in 1985 only equal to what these incomes had been in 1970 in 234 a favorable year. Total farmers' income from export crops under the harsher Strategy III would be expected to decline by 1985 relative to its 1970 level. Employment Considerations Although the effects of expanded export production on employment are not specified in Table 11.1, the interrela- tionships between employment opportunities and a vigorous, growing agricultural sector must be considered. Providing employment for Nigeria's rapidly increasing labor force is one of the most difficult tasks facing the country over the next several decades. It is estimated that while Nigeria's population is growing by about 1.5 million per year, fewer than 20,000 additional industrial jobs can be expected per year over the next 12 years.1 Most economists now agree that agriculture is the sector with major employ- 2 Fortunately, Nigerian policy ment growth potential. makers are recognizing the importance of employment creation within agriculture. The Nigerian agricultural export sector can provide large numbers of jobs as export production is moved to socially desired levels. This will require imple- mentation of improved economic, agricultural and social policies. Such policies include those designed to promote 1 2See Carl Eicher, et al., ”Employment Generation in African Agriculture," Institute for International Agricul- ture (East Lansing, Michigan: Michigan State University‘ July, 1970). West Africa, No. 2752, (March 1970). 235 export growth (which can be based on producer price incen- tives and infrastructural support as outlined throughout this dissertation) and suppression of policies which inhibit employment generation in agriculture such as (l) premature tractor mechanization, (2) anti-export agricultural policies, (3) food policies which raise consumer prices and induce higher minimum statutory wage rates, and (4) heavy emphasis upon government operated or supported direct production schemes, such as irrigation schemes, state farms, and land settlement programs, all of which are capital intensive. Expected Petroleum Revenues Fortunately, the discovery and rapid exploitation of petroleum offers Nigeria large amounts of tax revenue and foreign exchange as shown in Table 11.1. The implications of the petroleum boom are of major significance for agri- cultural policy. Specific Recommendations on Export Crop§ Cocoa The general conclusion from the analysis of the cocoa market is that the long-run outlook for cocoa over the 1970- 1985 period is good and that Nigerian cocoa production should be expanded. World cocoa consumption is expected to almost double over the next 15 years, moving from the present 1.3 31bid., p. 56. 236 to 1.4 million tons to 2.2-2.4 million tons in 1985 at f.o.b. prices greater than US 20 cents per pound (in 1970 $) even during the later part of the projection period when prices are expected to decline. Assuming that Nigeria main- tains the 21-22 percent of world cocoa production that she held on the average between 1963 and 1968, she could expect a minimum export outlet under these conditions for approxi- mately 480 thousand tons of cocoa by 1985. This is more than double present Nigerian cocoa exports and represents a 4.5 percent compound growth rate of exports over the 15 year projection period. It is the opinion of this writer that because of insect and disease problems and the fact that a high percentage of Nigeria's cocoa trees have reached the unproductive stage of their life cycle, this production goal Of 480 thousand tons of exports by 1985 will not be achieved unless vigorous, well-planned cocoa production campaigns are implemented along with increased producer prices. A review of Table 5.6 on cocoa production trends shows that Nigerian cocoa production grew at a 6.0 percent annual compound rate between 1950—52 and 1964-66. The 1950/52- 1964/66 growth rate was boosted by the 1957/59-1961/63 increases when production grew at an unprecedented annual compound rate of 12.8 percent largely as the result of increased insect and disease control and the coming into production of new plantings which had been made in prior 237 years due to high cocoa prices. The 1950/52-1957/59 period had seen Nigerian cocoa production grow at only 1.4 percent annual compound rate. CSNRD researchers have shown that there are no known crops which are as profitable to farmers in the cocoa belt as cocoa even if world prices were to decline moderately during the 1970s. Cocoa production, employing 350,000 small farmers at present, offers employment opportunities during the 19703 and 19803 for additional workers as acreages of cocoa and cocoa yields per acre are increased. Thus far, there are no known important economies of scale for cocoa production which would tend to lower the labor input per unit of cocoa produced. Groundnuts and Groundnut Oil Groundnuts and groundnut products are expected to lemainthe most profitable export crOp for the Northern areas of the country to which they are best suited. Ground- nut oil, as a premium quality product in the world market, faces a favorable export demand outlook over the 1970-1985 period although some decline in price from the present relatively high levels is foreseen. Projected prices are not expected to move below their lowest levels of the early 19603, however. The future demand for groundnut mean, both within Nigeria and abroad, also appears to be favorable as more high protein animal feeds are demanded as incmmes and the demand for fattened livestock expand within the next few years. 238 There is still a great potential for expansion of groundnut production in the Northern States where produc- tion has increased in the past despite generally low pro- ducer prices. This potential should be further developed. Table 10.3 illustrates that groundnut production may increase from 1.2 million tons in 1970 to 1.6 million tons in 1975 and to 3.2 million tons in 1985 under favorable conditions. The expanded groundnut production, as expanded cocoa production, would be expected to provide additional employment opportunities. Palm Oil Palm oil offers opportunities for Nigeria to increase her farmers' incomes and export earnings through increased exports. Through improved technology and new processing techniques, palm oil is rapidly gaining entry and acceptance into many food-use markets in developed countries where palm oil was once sold only for industrial uses. This acceptance has been brought about by improvements in quality control, taste and color which occur with improved and timely processing. The expansion of this market is occur- ring because palm oil, as the highest known vegetable oil producer per acre, is underselling the more traditional edible oils used in the food industry, such as cottonseed, coconut, and soybean oils. Palm oil prices are expected to move to much lower levels in the world market as this struggle for a larger 239 share of the world market intensifies. This lowering of price is necessary to induce food manufacturers to over- come the problems and costs of substituting palm oil for the presently used oils. Nigeria, still the world's largest palm oil producer, has experienced great difficulty in converting her semi-wild palm groves over to the new high producing hybrids which will be necessary to compete effectively in the future palm oil world market. The transformation process to the new hybrids should be encouraged through production cam- paigns and pricing policies directed at increasing pro- duction and exports. Here, as in the production of the other major export crops, expansion of production is expected to increase employment opportunities in agriculture, something that will be needed throughout the 19703 and 19803. Rubber Although there are estimates on the world elastomer market over the next 15 years (such as projected prices, rates of growth of the market, and the expected competitive positions of natural and synthetic rubbers), Nigeria has little agronomic or economic research on rubber upon which to project her competitive position during that period. The long-run potential for Nigerian produced rubber to compete price-wise and quality-wise in the world elastomer market is a virtual unknown for Nigerian planners. 240 Her competitive position will depend largely upon how much and how rapidly Nigeria can assimilate the known Far Eastern rubber technology into the production process. The relative profitability of rubber production as compared to palm oil (as the two are generally competitive for land and labor, especially in the Mid-West State) will also help determine the amounts of resources that should be directed into Nigerian rubber production. The author fully concurs with the production/research program for natural rubber that was proposed by CSNRD researchers (see Chapter X) although he is less optimistic on the future of natural rubber production in Nigeria. The author believes, for example, that the crumb rubber processing technique is still very much in the development stage in Malaysia itself and that it holds little immediate hope of improving the quality of Nigerian produced rubber. The crumb rubber processing should be tried in Nigeria on a limited and experimental basis, however. Further research on adaptability of the Far Eastern rubber technology to Nigerian conditions, firm estimates of expected yields per acre, costs of production, and the comparative profitability between palm oil and rubber must all be determined before Nigeria undertakes any major problems to increase rubber production. 241 Import Substitute and Minor Export Crops Cotton Cotton is one of Nigeria's most promising import- substitute crops and should be encouraged over the next 15 year period. Table 10 11 shows that payments to farmers can be increased by approximately L10 million annually by 1985 through a vigorous cotton production campaign coupled with improved producer prices compared to the farmers' income that could be expected in 1985 from a continuation of present policies. The calculations in Tables 10.10 and 10.11 also indicate that Nigeria, with favorable infra- structural and pricing policies, can continue its present approximate level of cotton exports as well as supply the vast bulk of the rapidly rising domestic consumption. Cotton acreages under the favorable Strategy II would almost double their 1967 level by 1985. The expanded acreages, increased yields per acre, and the increased handling, harvesting, and processing of the expanded cotton production should add employment opportunities in the Northern cotton producing states. Rice The economic possibilities for Nigeria to export rice to her West African neighbors should be investigated. Research has shown that Nigerian producer rice prices are comparable to prices received by producers in countries which sell rice on the world market without subsidies. 242 However, it appears that high buying, marketing, and trans- port costs for Nigerian rice prevent it from competing price-wise at the West African importing countries' ports of entry.. Rice research in Nigeria should be geared not only to lowering costs of production but also to research on marketing, buying, and transport costs so that Nigeria might supply at least part of the present L16—L17 million rice import market that exists in West Africa. Hard Fibers Nigeria has yet to prove that she can economically supply her own hard fiber needs, even on an import substi- tute basis. Agronomic and economic studies should be consolidated to provide a basis for estimating the real social and private costs and returns from producing hard fibers to fill local demand. Corn and Grain Sorghums FAO commodity experts consider the coarse grains market as one of "reasonably good prospects for the less developed countries fortjmgfirst half of this decade. Research on maize and grain sorghums is well underway in Nigeria and offers hope of substantially improving feed grain yields and lowering costs of production over the next several years. This research should be continued. Mean- while, Nigeria seems to have little opportunity to export feed grains until such time as the results of research are implemented to bring about improved yields and lowered costs of production. 243 Beef The world beef market, although bright in outlook, is not of particular concern to Nigeria at this time. First, Nigeria must concentrate upon solving beef production, marketing, quality improvement, disease and sanitation control problems before there will be major opportunities to sell beef on the world market. Policy Recommendations and Implications As previously stated, this is a policy paper based upon historical findings and projections of the Nigerian economy through time for three alternative sets of develop- mental strategies. It offers recommended policy changes such as the major one already mentioned, that is, to turn the resource allocation and pricing determinations of the agricultural export sector back to the market mechanism. This will bring about a more socially desirable allocation of resources within the economy as each resource will theoretically move to the employment where its Marginal Value Product (MVP) is the greatest. Resource Employment in Export Agriculture The owners of resources already in export agriculture or readily transferrable to export agriculture would benefit economically relative to the remainder of the population with such a change in policy. This would mean direct increases in farm income for the present 2.8-3.0 million small Nigerian farmers who now produce some crops 244 for export. The increased farm income of the export- oriented population would generate greater demands for foodstuffs on the part of the producers themselves. An indirect effect of the extra income would be to increase the demand by smallholder producers for the simple pro- ducts of Nigeria's growing indigenous industry. Changes in resource allocation with changes in the profitability of certain crops may cause greater geographical specialization in export crOps and resultant shifts in geographical location of food crop production. However, there is little reason to believe that domestic food production cannot continue to expand more or less parallel to export production as it has done in the past. Timing and Availability of Inputs The provision and timing of availability of produc- tion inputs becomes more important as greater emphasis and a planned effort is made to promote and encourage the smallholder, export-oriented sector as a prime mover of the economy. Modern agricultural production requires research and dissemination of new crop varieties, technical guidance for the farmer, and arrangements whereby the farmer can obtain the purchased inputs he needs at the time he needs them. A series of production campaigns are proposed as the method of making the various inputs available at the farm level. The campaigns would be developed on a commodity- 245 by-commodity basis according to the profitability of producing selected crops within specific geographical areas of the country. The production campaigns will be supported by the favorable agricultural policies proposed under Strategy II. The lowering or elimination of taxing on export agriculture will help to ensure that producer prices remain at an attractive level. Marketing Facilities and Marketing Policies The facilities for assembling, transporting, process- ing, storing, and selling Nigeria's agricultural exports are presently strained to the limits. These facilities will have to be greatly expanded if export production were dramatically increased. The system would have to be altered in many ways to allow for (a) greater volumes to be handled, (b) improved quality control, and (c) proper and timely transport and storage to prevent excessive deterioration of produce. Taxing Policies Returning the pricing function and allocation of resources in export agriculture to the market mechanism as is proposed in these conclusions requires a rethinking and a restructuring of present Nigerian tax policies. Present policies of export agriculture taxation will have to be changed if greatly expanded export production is to be achieved. 246 Agriculture has been an important contributor to public revenues through export duties and producer taxes. Approximately 10 percent of all Federal revenues, or L15.4 million, came from agriculture in 1965-66. Total taxes paid on agricultural products amounted to about 3 percent of Gross Domestic Product (GDP) from agriculture, or 15 percent of the value of agricultural exports from which they were largely derived. Fortunately, the dramatic rise in petroleum exports from 1963-66 and the projected further increase in petroleum exports during the early 19703 provides policy makers with an alternative source of governmental revenues which may allow a re-examination of the heavy tax burden now placed on export agriculture. Nigeria now has the opportunity not often afforded a country to make major structural and institutional changes. Nigeria is in a period of acute and large-scale institutional, social, and economic change. In addition to the costly Civil War just concluded, the division into states, and the reconstruction-reintegration efforts that will be demanded, Nigeria appears to be on the brink of becoming one of the world's leading petroleum exporters. Petroleum exports increased from L4.4 million in 1960 to L92 million in 1966. In 1966, petroleum exports amounted to 32.4 percent of all Nigerian exports. The projected rapid increase in petroleum exports in the future will 247 enable planners to shift a part of the tax burden now imposed upon agriculture over to the expanding petroleum industry. Additional Research Needs There are many areas of the Nigerian agricultural economy for which adequate data do not exist to allow for effective policy decision making. Some of these, which relate specifically to export agriculture, are listed below as areas in which additional research should be done. Research on Costs of Production and on Diversification of Export Cr0ps Research in this area could be endless with innum- erable sets of calculations for innumerable changes in the variables concerned. What is called for is research based on likely values of parameters so that Nigerian agricultural and industrial representatives would be able to estimate for example, as Malaysian officials have done that "Malaysian officials estimate that rubber estates can market natural rubber with costs as low as US 9.7 cents per pound when obtaining yields of 1,100 4 Such calculations, if pounds of dry rubber per acre.” they are possible and practical, would put the planning process on a much firmer, more confident basis. The 4Rubber World, Vol. 161, 92. cit. 248 problem of costs of production being dependent upon the values assigned to land complicates this type of analysis. The already low land values in Nigeria would leave little opportunity to lower costs of production by lowering the returns paid to land. The world demand section of this dissertation gener- ally points to declining real prices for Nigeria's major agricultural exports over the next 5-15 years. Nigerian farmers must find ways to lower costs of production if present crops are to be profitable at the expected lower prices. The utilization of known technology in some crops, such as palm oil, may lead to lower costs per unit of output. For other crops this is less certain. Little) information is available on the costs of rubber production, for example, nor for the economic potential for putting Nigerian rubber on the world market at prices of 12-16 cents per pound (U.S. 1970 prices). The calculations made in this study have also pointed up the excessively high marketing and transport costs for many of Nigeria's agricultural export crops. These exces— sively high costs already prevent some crops, such as rice, from.being exported to neighboring markets. The high costs will become relatively more important in future years as world export prices are expected to decline. Marketing costs will need to be reduced to offer price incentives to producers. Recent research by Stanford Research Institute 249 (SRI) on food marketing in Nigeria has shown that most of the inefficiencies of the Nigerian marketing system lie within the government agencies involved and not with the competitive market operations. The government control agencies should be investigated and inefficiences of operation removed wherever possible. The Domestic Food Production Sector CSNRD has recommended that long-term food production research be undertaken in Nigeria with the expressed purposes of lowering costs of starch production to world market levels and of increasing the availability of high quality foods, especially proteins, for human consumption. The lack of effective demand has been identified within Nigeria as well as within other developing and developed countries as a major constraint to expanded food marketing. It is recommended that research be under- taken to more rigorously define what is meant by effective demand as well as the role it can be expected to play in future Nigerian economic development. The importance of the agricultural export sector to overall economic development in Nigeria has been evi- dent throughout this thesis. The employment and income distribution effects of a smallholder, export-oriented 250 agricultural sector have been pointed up as well as farmers' earnings from export agriculture, foreign exchange earnings, and government revenues from exports which might be expected under alternative development policies. The need for a long-term view of the export develop- ment and of export trade has also been substantiated. The connection between long-term export policy and the 35-40 year productive life of some tree crops has been made. The failure to take a long-term view (and to be overly impressed by the events of the moment) may lead to unwise policy decisions. For example, when the world price of cocoa fell during the mid-19603, the Ghana government halted cocoa research and selection programs and little new planting was done. Now, however, improved world cocoa prices have again revived Ghana interest in cocoa. Improved market analysis on the part of Nigeria coupled with the cost of production studies called for above would enable Nigeria to more adequately evaluate her expected competitive export position and to plan accordingly. Nigeria's relative export position is continually changing relative to the positions of competitors, domestic production alternatives, price relationships, and production inputs. Any export analysis to be of major policy impor- tance will have to be under constant review and up-dated as new information and new price relationships become 251 evident if Nigeria seeks to maximize her social returns from the export sector. Production of certain annual export crops, for example, might be substantially increased in a relatively short period based on a favorable export market in the short-run, if the outlook information were available. In order to provide the effective continual analysis of the world markets for Nigerian agricultural exports and to provide the information for effective policy decisions that Nigeria must have to maximize her social returns from exports, it is suggested that a Market Intelligence Unit be established within the Federal Ministry of Agricul- ture to (1) provide the continual analysis listed above, (2) search for new uses and new outlets for Nigerian agricultural export products, and (3) undertake research necessary to lower costs of marketing, processing, and transport which affect exports. APPENDIX APPENDIX HISTORICAL PERFORMANCE OF AGRICULTURE As previously stated, the principal impetus for Nigerian economic growth has been smallholder agricultural production for export. Despite the low level of technology and the small scale of operation, the Nigerian export- oriented farmer has repeatedly shown his receptivity to economic incentives. In response to the economic incentives offered, he has increased exports dramatically since 1900--and especially rapidly since World War I. Nigerian agricultural producers have generally proven themselves to be astute businessmen and surprisingly adept at finding and responding to economic incentives. This business astuteness and profit maximizing behavior dates back several centuries to the time when cloth woven in Kano was sold throughout North and West Africa as the finest that could be obtained. The profit maximizing behavior can be shown again in the North with the expan- sion of the groundnut industry where it was groundnuts for Hamburg and not cotton for the Leicester mills as intended by the British government that emerged as the 252 253 most profitable crop and thus developed into the major export of the area.1 Cocoa farmers in Southern Nigeria, as in Ghana, are commonly cited as examples of price responsive peasants.2 Galletti, Baldwin and Dina showed that cocoa plantings from the mid-19203 to the end of the 19303 were posi- tively correlated with the import purchasing power of a given weight of cocoa beans.3 The vast increases in cocoa production in the late 19503 and early 19603, however, are attributed principally to more effective cocoa dis- ease control rather than to a lagged response to extremely high cocoa prices in the early 19503. Another type of response to price incentives is that of adjustment in the quality of produce marketed in response to the introduction of price differentials between the various grades. Bauer and Yamey found from.analyzing marketing board statistics in Nigeria that the proportion of the highest quality palm oil and cocoa rose dramatically within a few years after price differentials were employed and that the lower grades soon completely disappeared from.the market.4 1Jan Stafford Hoggendorn,"The Origin of the Groundnut Trade in Northern Nigeria,"Ph.D. dissertation, University of London, 1966. 2Helleiner, pp. 215., pp. 59-60. 3Galletti, Baldwin, and Dina, Nigerian Cocoa Farmers. (London: Oxford University Press, 1956). 4P. T. Bauer and B. S. Yamey, "A Case Study of Response to Price in an Underdeveloped Country," Economic 254 Unfortunately, the Nigerian export producer, econo- mically motivated as he may be, is not always able to see and respond to the world prices for his products. He only sees and responds to marketing board prices, which are often not more than one-half to two-thirds of the world price. The difference which may occur between what the products bring on the world market and what the farmer receives for them is taken by government via export and producer taxes as well as marketing board profits. Estimated withdrawals through taxes and marketing board surpluses amounted to the following proportions of poten- tial producer income between the years 1947 and 1962: cocoa 31.9 percent; groundnuts 24.9 percent; palm kernels 29.1 percent, palm oil 21.0 percent, and cotton 22.1 percent. Domestic Agricultural Growth It is believed that the output of agricultural pro- ducts for domestic use has increased more or less in line with the rate of growth of population which is now estimated to be growing at 2.4 percent per annum.6 It is difficult to obtain a more accurate estimate of the present food production growth rate in Nigeria. As the last agricultural Journal, Vol. LXIX, No. 276,(December 1959) pp. 800-805. 5Helleiner, op. cit., Appendix Tables V-F.1 through V-F.5. "“ 6Glenn L. Johnson, et al., op. cit., p. 24. 255 census was conducted in 1950, the lack of basic data makes it difficult to identify meaningful benchmarks against which to compare any annually collected data. One way to estimate whether internal food production is satisfying the effective demand at current prices is to look at domestic food price trends over a period of years. This is done by analyzing the movements of consumer price indices for food as well as for other consumption items over a period of time for the major consumption centers 7 Food index prices for Lagos for which data are available. rose a total of 16 percent from the 1960 base to 1967 for a compound price increase of 2.2 percent per year. Ibadan had a total increase in the food price index of 45.5 per- cent over a 14 year period (considering the 1953 base and the average of the 1967 quarters) for a compound price increase of 2.7 percent per year. Kaduna's food and drink indices increased a total of 24 percent over a 10 year period for a 2.2 percent compound rate of increase. Benin had an increase of 39 percent over the same 10 year period for a yearly compound increase of 3.4 percent. Food price changes.in Enugu have not been calculated because of a lack of data and the war conditions that existed in the former Eastern Region from 1967 until recently. It is interesting to note that food prices seemed to "peak" in 1966 in all 7The price indices included are drawn from Nigerian Trade Journal, (April-June, 1969). 256 parts of Nigeria for which there are data and have generally moved downward since that time.8 It is noteworthy that the quarterly averages for 1968 that are available are generally lower than the quarterly averages for 1967. A factor that would tend to corroborate the hypothesis that food production is growing more or less parallel to the population growth rate is the fact that food imports have remained remarkably stable at around 10 percent of the total value of all imports since 1954.9 Three-fourths of the food imports in the 1966-68 period were for what might be called nutritionally "superior" foods--fish, wheat, milk, and cream, and sugar.10 Overall, the evidence indicates that domestic foOd prices have risen rather steadily over the past several 8Consumer Price Indices for food and "all items"for Lagos, Ibadan, Enugu and Kaduna covering the period 1961-67 are as follows: (Lower Income Group - 1960 = 100). Period Lagos Ibadan Enugu Kaduna Food All Food All Food All Food All Items Items Items Items 1961 109 106 111 109 107 102 110 106 1962 ' 116 110 121 117 136 125 118 113 1963 109 110 106 109 117 120 110 110 1964 110 112 104 108 121 123 107 109 1965 114 117 111 112 123 124 114 113 1966 131 127 133 125 153 139 130 122 1967 119 122 123 120 --- --- 121 118 Source: Economic Indicators. 9 Glenn L. Johnson, et al., pp. 935., Table 11.2, p. 23. 1°Ib1d., Table 11.1, p. 23. 257 years in all areas of Nigeria for which data are available. Reasons for this (if it is the case) are not clear. Acceptance of the occurrence of moderate but steady price increases might imply that domestic food production has not kept pace with the demand for it. As the methods by which the data on food costs are gathered and interpreted can themselves cause distortions of the trends, a more thorough look at the domestic food prices and their trends might be in order. Export Growth ' Despite the disincentive marketing board and export taxing policies, agricultural exports have also grown, expanding at a compound growth rate of 4.5 percent since 1950.11 Figure A.l traces out the growth of agricultural exports over the 1953-1968 period. Groundnuts, groundnut oil, cocoa, and rubber have shown the greatest export increases over the 16 year period. Domestic palm oil consumption has increased although exports have fallen. Both palm oil and palm kernels began their downward export trends even before the outbreak of the Civil War, after having reached their maximums in 1954 with 464,000 tons of oil and 208,000 tons of kernels. Both fell markedly with the outbreak of hostilities. Cotton production in Nigeria has also grown rapidly 11Glenn L. Johnson, et al., op, cit., p. 5. 258 LOVG TDNS‘OOO‘ WTH OF AGRICULTURAL Em, “IBERIA. 1953-ease Source: Helleiner, Peasant A riculture, Government and Economic Growth, TableI A8 F53 Economic Indicators, May 1968. Kreise1,CSNRD unpublished data. Nigerian Trade Journal, April/June 1969. Figure A.l. 259 during the past twenty years, although this is not reflected in the export figures as an increasing amount of it is being manufactured into cloth and consumed locally. It grew at an annual compound rate of 9.5 percent from 1949-50 to 1964-65, the source of this growth being almost entirely an increase in acreage planted. Cotton production, which depends on natural rainfall in the North, fluctuates annually according to weather conditions. Thus, cotton exports also vary according to growing conditions in a given year. Nigeria has long competed successfully in world markets for palm oil, cocoa, and groundnuts despite export taxes and marketing board operations. Table A.1 gives the values of the major agricultural export commodities covering the period from 1950 through 1968. Table A.1 also shows the percentages of total export earnings accounted for by the major export commodities. There are several noteworthy conclusions to be drawn from this table. One is the apparent balance that has existed in the Nigerian export sector in that foreign exchange earnings from export agriculture and from nonagricultural exports grew at relatively comparable rates over the 1950-64 period. Both continued to grow through 1966 when the civil crisis interrupted the export picture. Speci- fically, one sees the steadily declining role that palm products play in Nigerian exports and the growing importance 260 .AoomH .onnouHHHQ<~ .HMChnoo woeufi neHum Hz “mucueowonH UHEOCOom one onumHueum Ho umowHo .mUHumaueuw mo mowwmo Heuoomm a.uwo .mm .oHeuwo .MunHoHHo: “monnom c.30a n.0om o.ooH H.mm~ 3.03H a.qw~ o.ooH q. .H.< oHoeH 261 of both groundnuts and cocoa as foreign exchange earners. Another major conclusion is the decreasing relative impor- tance of all agricultural exports in the total export figure and the growing importance of petroleum as the major source of foreign exchange revenues up until the disruptions of oil exports in 1966-67. Nigeria's Share of World Trade in Major Crops Nigeria has several advantages in agricultural exports over most other developing countries. First, Nigeria has the advantage of a diversified export base, with 12 or more commodities annually earning more than L2 million each in the export market. This diversification has been reduced since the outbreak of the Civil War as palm oil exports have fallen below the L2 million export level.12 Nigeria is not dependent upon any one agricultural export for a majority of her foreign exchange. The largest single family of exports (groundnuts, groundnut oil, and cake) accounted for 24.8 percent of total exports earnings in 1968. The three largest export groups (cocoa, groundnut products, and palm products) accounted for 59.2 percent of total exports in 1968. Also, Nigeria is not the most important or even a major supplier to the markets of many of the products she exports. Table A.2 shows Nigeria's share in world trade 12Nigerian Trade Journal, (April-June, 1969) p. 85. 262 Table A.2. Nigeria' 3 Share of World Trade in Major Crops, 1948- 52 to 1968 (in Percentages) Item 1948-52 1960 1965 1966 1967 1968 Cocoa 15.5 20.1 23.2 17.2 22.7 20.2 Groundnuts 34.7 26.6 37.4 35.7 32.3 36.4 Palm Produce Palm Oil 34.1 31.2 27.6 21.1 3.0 n.a Palm Kernels 48.8 57.5 64.9 64.0 46.7 n.a Cotton .5 .7 .4 .4 Rubber .6 2.4 2.7 2.9 Sources: Trade Yearbook (Rome: FAO, United Nations). FAU,_Commodity Review, 1967 (Rome: FAO, United Nations). P.N.C. Obigbo, Africa and the Common Market. (London: Longmans, Green andPCo., Ltd., 1967). Cocoa Statistics, (Rome: FAO, United Nations, Vol. 12, July, 1969). Monthly Bulletin of Agricultural Economics and Statistics, (Rome: FAO, United Nations, Vol. 10, October, 1969). of her major exports. Table A.2 also shows some of the trends in Nigeria's agricultural exports that have developed over the past twenty years. Nigeria has increased her share of the world cocoa market from an average of 15.5 percent over the 1948-52 period to an average of 20.0 percent for the years 1966-68. Ghana's share of world cocoa exports remained relatively stable over that period up until 1964 at approximately double the Nigerian share. Ghana‘s share has been less than double Nigeria's share 263 since 1964.13 Despite the tremendous growth of groundnut and groundnut oil exports, as shown in Table A.1 and Figure A.1, Nigeria's share of the world groundnut market has remained.surprisingly constant at around 34-36 percent since 1948-52. The Nigerian world palm oil export share declined steadily over the 1948-52 to 1966 period although the country continued to furnish more than half of the palm kernels sold on the world market until the outbreak of the Civil War. She still furnished 46.7 percent of the world palm kernel trade in 1967. Despite Nigeria's sizable world share of some of the export markets (cocoa 20 percent; groundnut products 34-36 percent; and palm kernels 50 percent or more), it should be kept in mind that export price elasticity of demand for a country's product is inversely related to that country's share of the world market. Even if the overall demand for a certain product is inelastic, this does not mean that the world demand for every single country's share is inelastic. Demand for groundnut oil, which constitutes, say 20 percent l3FAO, Cocoa Statistics,(July, 1969) p. 7. Compara- tive shares for Ghana and Nigeria since 1947-1951 are as follows: Percentage of World Cocoa Exports 1947—51 1952-56 1961 1964 1966 1967 1968 Nigeria 16.1 15.2 18.4 19.3 17.3 22.7 20.2 Ghana 35.4 32.0 40.7 37.4 35.6 30.7 32.3 264 of total world oil exports, may be quite elastic due to the many substitutes and potential substitutes in the market even though the demand for edible oil in general is inelastic. Demand for Nigerian groundnut oil will be more elastic still when considered as one-third of the world's groundnut and groundnut oil supply. All Nigerian fats and oil as a group constituted approximately 11 per- cent of the world fats and oils exports over the 1961-63 14 North America provided 34.7 percent of the period. net exports. Realizing that the world market for primary products is growing less rapidly than incomes in the developed countries, there is some general disenchantment or even skepticism about the possibility of primary agricultural exports serving as an important means of development in Nigeria or in other less developed countries. A case can easily be made for moving away from dependence on one or two crops as the source of 60-80-90 percent of the foreign exchange. Nigeria, as has been noted, is not in that mono-culture class. The current discussion in Nigeria often follows the pattern set by the Western Regional Government which has vigorously sought to diversify its economy through a variety of agricultural production projects including investments in such varied enterprises 14FAO, Agricultural Commodities--Projections for 1975 and 1985. (Rome: United Nations, 1966) p. 175i 265 as avocados, geese, ducks, milk goats, and gardens. Each of these may be limited worthwhile projects in their own rights, but the low level of incomes with the (now) Western State, and within all of Nigeria, can be expected to restrict expansion of these minor agricultural crops and prevent them from appreciably contributing to the incomes of farmers within the Western State. Some authorities on the Nigerian economy put little credence in the FAO demand elasticity type studies as a major or important device by which to make investment decisions in Nigeria. The CSNRD report makes the case for vigorous expansion of exports on comparative advantage grounds stating that the effective demand for agricultural exports is growing faster than internal domestic demand within Nigeria and that the rate of growth in domestic demand depends directly upon the generation of income by 15 Nigeria has a strong, smallholder export crop producers. not fully exploited comparative advantage in producing export crops, great diversity in export crop production and major fixed natural resources and an expanding rural labor force which can gain substantially higher returns from export employment than from any other alternative employment open to them. W. Arthur Lewis in his writing, ”Reflections on 15Glenn L. Johnson, et al., op. cit , p. 69. 266 Nigeria's Economic Growth,” states that Nigeria can expand exports very substantially with no adverse effects on her earnings.16 Based on what he describes as a well balanced agricultural export base and the fact that each export is only a small part of the world market (including all vegetable oils in a single market), Lewis maintains that "The numerous prognostications that the world demand for agricultural commodities will increase by only 3 to 4 percent a year has no significance for Nigerian policy."17 Direction of Trade The direction and distribution of Nigeria's export trade have changed dramatically over the past 15 years; These changes may be generally described in two ways. First are the relative changes in percentages of exports going to the United Kingdom and to the European Economic Community (EEC). The United Kingdom took 72 percent of all Nigerian 18 The EEC's exports in 1954 but only 38 percent in 1964. share of Nigerian exports rose from 14 percent to 36 per- cent over the same 10 year period. The second major change is the broadening distribution pattern of Nigerian exports. l6Lewis, op. cit., p. 18. 17Ibid., p. 18. 18P.N.C. Okigbo, Africa and the Common Market. (London: Longmans, Green and Co., Ltd., 1967). 267 The present EEC countries and the United Kingdom together took 87 percent of all Nigerian exports in 1954 but only 61.3 percent in 1968.19 Exports to countries "other than EEC or UK” totalled 13.9 percent of all exports in 1958 but 38.7 percent in 1968. Table A.3 shows the changes in the destination of Nigerian exports that has taken place since 1958. One can see that Nigeria exports to three principal markets, the United Kingdom, which takes approximately one-third of Nigeria's exports, the EEC which takes one-third, and ”other countries” which take one-third. Table A.3. Destination of Nigeria's Exports by Percentages, 1958-1968 Purchaser 1958 1960 1962 1964 1967 1968 United Kingdom 56.3 48.1 43.0 38.4 29.5 29.9 EEC 30.8 31.0 34.5 36.4 30.6 31.4 Other Countries 13.9 20.9 22.5 25.2 39.9 38.7 Total 100.0 100.0 100.0 100.0 100.0 100.0 Sources: P.N.C. Okigbo, Africa and the Common Market, op. cit., p. 96. Data taken from Nigerian Trade Summary, Nigerian (April-June, 1969) p. 83. Trade Journal, l9 Nigerian Trade Journal (April-June, 1969) p. 83. 268 The U.K. and EEC component of Nigerian exports is well-defined and self-explanatory. But it is interesting to note which countries buy the one-third of exports pur- chased by countries other than the United Kingdom of the EEC. Other Sterling Area countries including Ghana, Hong Kong, Ireland, and India annually purchase approxi- mately 2 percent of Nigeria's exports. Canada normally purchases 2-3 percent, Japan 1.5-2.5 percent and the U.S. approximately 8 percent on an annual basis since 1966. This leaves approximately 20 percent of Nigerian exports to be purchased by Czechoslavakia, Denmark, East Germany, Norway, and other lesser purchasers. Of the lesser trading partners, trade between Nigeria and the Soviet Union has grown rapidly over the past few years.20 Beginning with insignificant exports of L325 in 1963, exports to the Soviety Union mainly cocoa, totalled L4.0 million in 1967. The fact remains that the Western European market is still the largest purchaser of Nigerian exports although the purchase of her exports is not as concentrated as it was 10 or 15 years ago. Nigeria must keep three markets in mind for the sale of her products--the EEC, the United Kingdom, and the rest of the world. The present lack of importance of other less developed countries' purchases of Nigerian products is pointed up by the trade statistics. 20Nigerian Trade Journal, (January-March, 1969) p. 19. 269 Ghana, the largest purchaser of Nigerian products among the current less developed countries, purchased an average of .2 to .3 percent of all Nigerian exports over the 1966-68 period.21. The less developed countries may provide a growing and important market for Nigeria over the next 15 year period but that market is not evident as yet. An even more interesting analysis than to merely look at the destination and distribution of all Nigerian trade is to look at it on a commodity-by—commodity basis. Table A.4 does that. The absolute quantities of products purchased by the United Kingdom declined over the 1958-67 period in all categories listed in Table A.4 except groundnut oil pur- chases. The percentage of cocoa sales going to the United Kingdom fell from 52 percent in 1958 to 16 percent in 1967. The percentage of United Kingdom groundnut purchases fell from 36 percent in 1958 to 9.6 percent in 1967. Part of the market share given up by the U.K. went to the EEC bloc and a part to third countries. Okigbo calls attention to the fact that although the United Kingdom's absolute pur- chases and relative share of Nigerian exports is declining, the United Kingdom is still the largest single market for 22 Consequently, any accommodation that Nigerian exports. Nigeria might seek in the EEC should take that factor into account . 21Nigerian Trade Journal, (April-June, 1969) p. 83. 22P.N.C. Okigbo, 92. cit., p. 97. 27C) .AoomH .enno-HananeEEnm neEESm ooene neHnesz Eonw noxeu AaomH ..oua ..00 one neeno .mneEwnoa ”noonoqv .omxnez noEEoo one one eoanw< .ocwaxo .o.z.m amounnom e.n .e.n .e.n Na H No moH 0 mm Hm m cm mo 0 mm oq HH Hm Hao unnonnonu .e.n .e.n .e.n com mom mm mam can an mmm qam aoH 0mm com NmH MHm com qu munnonnono .e.n .e.n .e.n 0H m o qu om mm QMH om no mHH mm mm HaH mH aqH HHO EHem .e.n .e.n .e.n moH we ow «mm ooH qu ooq new NoH mom mHH maH qu mmH omm mHennez EHem mow om on com 1 on oq omH an mm aoH ma we mmH am an aw HH we eoooo uuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuu mnOH wnoa monemoonHun-uuuuuuu-uu-sn--n-nuuunnu1uuuuuuuuuunuu- oHnoz # 0mm ‘ x: oHn03Aommfiz: oHn03_ 0mm _ z: oHnozfl umm fix: oHnozfi 0mm MD oHnoz 0mm x: zuHooEEoo momH aomH oomH «OOH NomH wmmH unonxm womH-wmoH .moauaooEEou oeuoeHem mo mnoHoenHomoQ one munooxm neauesz .q.< oHceH 271 Trade Relations African countries enjoy two kinds of special trade relations with major trading partners in Western Europe. First is the long standing Imperial Preference arrangement which traces its origin back to its imposition by Britain in 1915.23 The second is the Associative Arrangement of 19 African nations with the EEC. Imperial Preference Britain, a traditional advocate of free trade in the nineteenth century turned protectionist just prior to World War I and posted import duties of 33 1/3 percent ad valorem of all imports. As the British Empire considered itself as one economic unit at the time, it would have been inconsistent with the concept of unity to impose the appli- cation of these duties to all products regardless of origin. Thus, the first preferences to imports from the Commonwealth was granted in 1919 with a margin varying from between 30 and 40 percent and applicable on all goods grown, produced or manufactured any place within the Empire. Generally, the less developed African Commonwealth countries—~Ghana, Nigeria, Kenya, Tanganyika, and Uganda, did not offer reciprocity for the preferences they obtained in the British market or in other Commonwealth markets. 23Clive M. Schmitthof, The Commonwealth System of Preferences. (British Institute of International and . Comparative Law, No. 7, 1965) as quoted in Okigbo, op. c1t. 272 The Commonwealth preferences have continued since that time. The value of the preferences has been generally eroded, however, with the general tendency among the major trading and industrialized nations to reduce the level of duties on raw materials. The developing countries on the other hand, are transforming more and more of their raw materials into semi-processed form prior to export, thus making the preferences more valuable. The increased pro- cessing shifts the exports from hitherto low to relatively higher value exports, thus increasing the value of trade preferences. Table A.5 gives the magnitudes of the pre- ferences as they stood in 1965 as well as EEC preferences for the Associate African states. Associations with the European Economic Community When the Treaty of Rome was being negotiated in 1957, four of the future members of the European Economic Com- munity (EEC)--France, Belgium, the Netherlands and Italy—- still had responsibility for dependent territories. At the same time, France was still giving preferential treat- ment to imports from a number of her former colonies, as was Italy giving preferences to imports from Libya. France made it clear in the negotiations for the Community as a whole. The other five countries agreed reluctantly.24 2"Owen Jefferson, "The Terms of Association Between Countries at Different Stages of Development as Reflected in Some Recent Trade Agreements" in West Indies--Canada Economic Relations, Institute of Social and Economic Research (Jamaica: University of West Indies, 1967). 273 Part IV of the Treaty of Rome provides for the associ- ation with the Community of non-European countries and territories which have special relations with Belgium, France, Italy and the Netherlands. The objective of this association was to "promote the economic and social develop- ment of the countries and territories and to establish close economic relations between them and the Community as a whole."25 In 1957 as all of the 19 eligible territories were still administered by the European metropolitan powers, their association with the proposed Community was not open to choice. The decisions on the proposed association were made as the result of unilateral action taken by the six member states of the Community and not as the result of negotiations among the Six and the associated countries. By 1962, when the first treaty of association had expired, all of the associated territories in Africa with the exception of French Somaliland had become independent. Thus, the second treaty of association reflected in the Yaounde Convention, which became effective in 1964, was negotiated between the Community and the associated states themselves.26 The African countries generally accepted the 25Treaty§of Rome, Part IV, Article 131. 26Burundi, Cameroons, Central African Republic, Chad, Congo (Brazzaville) Congolese Republic (Leopoldville), Dahomey, Gabon, Ivory Coast, Madagascar, Mali, Mauritania, Niger, Revandi, Senegal, Somalia, Togo and Upper Volta; Guinea alone repudicated association. onwaxo .o.z.m scam twang .+\@ .Q ..U.HU .mmma .ameaeomo .m\3\o\an .200 .mmnsmmez auaaom amaoaeEEoo .mm .naammaa .azam was no munomxe aemaucaam was to coauamom enaama .omm u830m o.mH o.MH o.mH o.MH o.mH o o.0H oeunuHumnooem o.nH o.mH o.mH o.mH o.mH o o.OH ooozka o.w o.w 0.x o.w o.m o 0.0H noeno> I- nu .. nu I- u: u- u- u- I- .. nBem one mwOH ooozoaem 0.0 m.m~ m.a o.aN o.m o.HH m.m o.mw o.aN o o.~ nooBom m.o N.NN n.a o.mN o.m o.0H m.0H o.mm o.mN o o.H eumem m.a m.o~ m.a o.MH w.H o.MH m.0H m.HN o.om o m.o nouoom q.m q.m q.m ¢.m q.m o m.H mneom eoooo o o o o o o o o o o OH mHonnoM I- u- I: I- n- I: o o mH 0 OH HHo HenneM o qH o «H m N.HH n.a N.HH eH I- .. nonuo .HHO o H.N o m o H.N m.~ N.o m o OH eon.Ho .HHo M eoooonm EHem 2 m m.mH H.w N.©H m m.HH m.¢ m.HH mH u- .: nonuo m o.¢H H.w o.mH m.N m.o m.N m.o 0H .. u- eoono -- -- -- -1 -- u- -- -- -- o mH Hao unconsoao o o o o o o o o o 0 0H munnonnouu uuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuu unoonemnunu:uuuuuuu:Iquuuuuunuuuuununu:u Houm zmz Honm zmz Honm _ 2m: mean zmz Hmo mean zmz hHeuH moneum anonom mnefiuow mHHHaeH HenoHuez EoownHM mannEEoo UHEonoom neoQOHnm oeanD huHooEEoo moaH .muonoonm HeoHQOHH oouooHom now 0mm one EoownHM oeanD onu nH moononomonm .m.< eHneH 275 same rights and responsibilities as did full members of the Community in setting up the second treaty of association. For example, tariffs and quotas between the six and the associated countries were supposed to be abolished in the same manner as among the six themselves. Ultimately, at the end of the 12 year transitional period, the associated countries would have full access to the whole of the EEC market instead of only to their former metropolitan countries while third countries would face a common external tariff. The associated states, following the same rights and obligations as the six full-member countries, were also required to reduce the duties they charged on imports from the metropolitan member states. There would thereby be relatively free movement of goods and services among the Community members and the associate states. "The division of labor would thus be pushed further; associated states would specialize in the production of those agricul- tural commodities for which they had special advantages (by reason of climate and geography) while the member states specialized in industrial goods and those agricul- tural commodities for which they had particular advantages."27 The associated states claimed two advantages in tying themselves to the EEC market. First, their exports could enter the markets of the Six at preferential tariff rates. 27Okigbo, op. cit., p. 27. 276 Secondly, they became eligible for assistance from the EEC Development Fund which funded at equivalent to $581.2 million. The available data suggest that the treaty of associ- ation did not have a very great effect on Community imports from the associated states over the first 5 year period.28 The tariff concessions granted to the associated states would have been very significant if the markets of the Six were incapable of absorbing the output of the commodities traditionally traded by African countries.29 In virtually every case, however, the Community had to supplement its supplies by imports from third countries. The value of the imports from the Associated States rose by 23 percent dur- ing the first 5 year period while Community imports from all developing countries rose by 29 percent and from all non-member countries by 53 percent. The growth of pro- cessing industries did offer greater advantages over third countries, however. Semi-finished agricultural products and semi-manufactures would find a sheltered market in Europe without facing competition from third countries with similar products and manufactures. Nigeria's Bid for Association At the signing of the Yaounde Convention, the Council of Ministers issued a statement that the Community would 28 29 Jefferson, pp. 933., pp. 125-126. Okigbo, op. cit., p. 29. 277 be willing to negotiate "in a sympathetic spirit with any non-member who so requested and whose economic structure and production was comparable to those of the Associated States.30 In July 1963 rapidly following the Declaration of Intent of the Ministers of the Six, Nigeria applied for exploratory talks which might lead to association. These talks took place between 21 and 28 November 1963. After a long delay due to the crisis in the Community during 1964-65, the agreement was signed in July 1966 to run through 1969. The agreement was never implemented because of the Nigerian Civil War, however, and was finally negated by the Nigerian Parliament in 1969. The Development of Two Trading Blocs The Association of African countries and dependencies with the European Economic Community created two distinct trading blocs within Africa.31 One group, mainly franco- phone states, had special relations with the Community. The other group enjoyed special privileges as members of the British Commonwealth. The first serious bid to link the two groups stemmed from Britain's application to join the Community in 1962. Despite the fact that the British negotiations collapsed in January 1963, Nigeria continued 3oEEC, Seventh General Report, 1963-64, pp. 225-226 as quoted in Okigbo, op. cit., p. 116. 31 Okigbo, op. cit., p. 70. 278 in her quest to restore her competitive position vis-a-vis the associated states in the markets of Europe. Nigeria spelled out her intentions to the EEC that she was not interested in the develOpment aid fund of the Community but only in the trade provisions as given to the other associated states. Under the terms of the trade provisions of the agreement all Nigerian exports of all products, except cocoa beans, groundnut oil, palm oil and plywood were to benefit from reductions of duties and 32 For the four elimination of quotas by member countries. products mentioned above, all of which compete with pro- duction from the associate states, there were to be duty- free quotas. The 1966 quotas were set at 6 percent more than the average of Nigerian exports to the Community for the years 1962-64; quotas thereafter were to be increased 3 percent per year.33 Although it was never implemented, the Nigerian-EEC agreement is still important for several reasons. First, it serves as a pattern to other African countries who might negotiate with the EEC. Its terms allowed Nigeria to assume the special trade relationship with the EEC without endangering her trade with the rest of the world. Secondly, the pattern of the agreement was a comprehensive one covering all Nigerian exports andtunzsimply a certain 32 33 Jefferson, op. cit., pp. 131-132. Ibid., p. 132. 279 list of products. Such an agreement could be especially beneficial to a developing country as it expands its processing and manufacutring capacity. Third, the agree- ment did not include Nigeria's right to share in the Development Fund aid which many countries have considered as a tool of political manipulation by the European powers. It showed the rest of Africa that an association agreement could cover the trade needs of a developing country with- out tying that country to multilateral aid, and thus multi- lateral pressures. She could still accept bilateral aid from the Euroepan powers, however. Lastly, and maybe most importantly, the agreement might serve to bridge the gap between the two polarized trading groups that have I developed, one representing Britain and the Commonwealth countries and the other representing the Common Market countries and the French-speaking African countries. It could also serve as a basis for expanding internal trade between the members of the sub-regional groupings in Africa.34 Summary Despite the disincentive marketing board and taxing policies of the Colonial and Nigerian governments, Nigerian agriculture has continued to grow and compares favorably 340kigbo, 92. cit., p. 132. 280 in its growth to most other developing countries. Agri- cultural exports expanded at a 4-5 percent compound rate overtfluaperiod 1950-68 with all major export commodities with the exception of palm oil showing substantial gains in export values. 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