THE ECONOMIC IMPORTANCE OF BAKING INDUSTRY

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THE ECONOMIC IMPORTANCE OF BAKING INDUSTRY

CHAPTER ONE

INTRODUCTION

Background of the Study

In Nigeria, agriculture was primarily a rural based activity. But, because of the increasing demand for food and jobs for many urban dwellers, it became necessary for urban households to embark on agribusinessesas a means of filling the food demand and supply gap and providing income for other household requirements. In addition, the practice of agribusinesses has continued to increase in recent years with the structural adjustment of

the Nigerian economy. The rise in food prices, un-employment and inflation brought by the structural adjustment (BFW, 2005) and the decline in the average real income of both rural and urban households have compelled many urban dwellers into agribusinesses in the urban areas. The urban entrepreneurs, like any other entrepreneur, will typically produce to satisfy household food needs or make profit or both. If the interest were in producing for home consumption, the entrepreneur would want to obtain the optimum from his/her effort. If on the other hand, the entrepreneur produces for the market, then the cost of production and the returns accruable to the entrepreneur‟s effort become important measure of performance. Either of the two objectives of production requires efficient use of resources input.

Nigerian agribusinesses including bakery firms were captured in theNigeria‟s development plans. This is because government had identified this unit as a veritable engine of growth and had continuously put in place policies and incentive packages that will promote this segment of the economy (Osuji, 2008).

Bread is a baked food produced from flour that is moistened, kneaded, proofed with the addition of yeast. Bread is a convenience food made from wheat flour derived from bread wheat, the technology of which dates back to the ancient Egyptians at about 4000BC. Other raw materials for bread making apart from wheat flour include sugar, baking fat, yeast, vegetable oil, salt and water. Hard wheat flour is used for bread making because of gas produced by yeast during proofing and baking (Famosinpe, 2011).

The bakery production which has been increasing steadily in the country is among the largest processed food industries in Nigeria. The two major bakery industries viz bread and

biscuit account for about 82% of the total bakery products. The bakery industries in Nigeria comprise organized and unorganized sectors. The organized sector consists of large, medium and small scale manufacturers who produced packaged biscuits and bread. The unorganized sector consists of small bakery units, cottage and household-type manufacturing goods and distributing their goods in the surrounding areas (World Bank, 1995 and BFW, 2005). Bakery productsare manufactured from combinations of wheat or other flours, sugar, baking powder, condensed milk, fat (ghee), salt, jelly, dry fruits, various essences and flavoring. Different type of bakery products can be classified as dry bakery products and moist bakery products. Dry bakery products include soft biscuits, hard biscuits, cookies, crackers, fancy biscuits and cream wafer biscuits. Moist bakery products include sweet bread, milk bread, masala bread, garlic bread, fruit bread, various types of buns, cakes, pastries, muffins etc. These products are available in various sizes, shapes and forms (Indian Food Industry, 2001; Beverage and Food World, 2005).

According to Nicole et al. (2012), the demand for bread is expected to explode in the coming years. South Africa, Nigeria, Ethiopia, Sudan and Kenya are currently the largest and leading bread markets in Africa. The key drivers of this demand are Africa‟s rapidly growing population, an expanding middle class which has more money to spend, an enlarging labour force, and increasing rates of migration to African cities and towns.Africa now has more than 50 cities inhabited by over one million people. By 2020, more than 500 million Africans are projected to live in urban areas and cities. Statistics reveal that urban dwellers and city people eat more bread than people in the rural areas. Given the rapid growth of African city populations, bread is sure to remain a highly sought-after food item by African households(Nicole et al., 2012).

Problem Statement

The demand-supply gap of confectionery products in Nigeria and most countries in Sub- SaharanAfrica is largely met by importation (Wada etal., 2006; GAIN 2008). This is because most of the vital inputs used in production such as baking materials, wheat, yeast and other facilities are not always within the reach of the bakers (Wayagariet al., 2003), thus, crippling the return on investment and discouraging the bakers from continued production of these products. This has contributed significantly to the poverty state of the nation judging from the fact that Nigeria is a developing economy and industrial development is a sine qua nonto economic growth. One of such industrial products is bread.

Over the years the government has carried out policies aimed at boosting bread production in the country. One of these policies is the inclusion of 40% cassava in composite flour with effect from 15 July, 2012. Despite that the price of bread in Nigeria is still very high. According to publication made by the Nigeria bakers association, prices of bread, a major stable food have risen in the last three years by an average of about 25 per cent from between N80 and N120 per family size loaf to between N120 and N150 amid increase in the prices of baking materials. In January, 2011, the prices of all sizes of bread were increased by 10 per cent. Although the rise in the prices of bread was associated with sundry baking materials such as sugar, butter, flour and fat.

The current demand for bread is likely to exceed 2.2million tones considering their leading role as one of the major sources of energy, protein, iron, calcium, and several vitamins (Onwumere et al., 2012). They are no longer viewed as a luxury tea-time snacks but essentially daily food component for an average Nigerian house hold. However in recent

time, there have been the recurrent loss of market share and dropping of sales volume in the bakery enterprises operation in the nation (Onwumereet al., 2012).As a result, the supply of bread becomes very low in comparison to demand. This inability to meet the domestic demand could be attributed to low productivity, inefficiency in the use of resources, disincentives from macro-economic environment and traditional technologies (GAIN 2008).

The level and structure of the Nigerian bread industry reflects that bread production is mainly constrained due to lack of productivity augmenting technologies. To meet the emerging challenges, there is an urgent need to bring efficiency to the production process, either through maximizing the output or minimizing the cost (Osuji, 2008).

In reality, optimum production encompass utilizing resources in their most efficient and productive manner, providing favourable cash flows, satisfying attractiveness constraints of buyers and or production, maximizing profit in the short and long run and satisfying the current trend and preventing oversupply situation. The real challenge is to find a production mix that accomplishes all or most of these things.

The problem therefore identified centers on the productivity and efficiency levels at which bread makers use resources on these bread making. It also borders on how the various factors that explain productivity and efficiency in this bread industry can be examined so as to improve bread production in the country.Hence, the study analyzed the economics of bread production in the study areas. It was against this background that the study analyzed the economics of bread production in the study areas. In view of the foregoing, the following research questions were answered:

i. What are the socio-economic characteristics of bread producers the study areas?

ii. What are the costs and return associated with bread production?

iii. What is the resource use efficiency of bread production?

iv. What are the problems faced by the bread producers?

1.3. Objectives of the Study

The broad objective of this study was to examine the economic efficiency of bread production in selected Local Government Areas. The specific objectives were to:

i. describe the socio-economic characteristics of bread producers in the study areas;

ii. determine the costs and return associated with bread production;

iii. determinethe resource use efficiency of bread production;

iv. describe the constraints faced by the bread producers.

Justification for the Study

Bread is a stable food in the country today. It is consumed by all and sundry- the old, young, poor and rich consume bread on daily basis. Bread is regarded as a food for the masses. It is taken as breakfast in many houses. As at 2006, the population of Nigeria was placed at 140 million by the National Population Commission. As at the end of 2012, the population figure was estimated at about 160 million. The increase in population resulted in more increased in demand for bread. It was thus important that the profitability and economic of breadbe assessed. It was obvious that there was a possibility for the increase in its production and much can be done to realize more income from its investment. In spite of this, little or no study has been conducted to assess the economics of bread production in the study areas. With the rapid increase in population of Nigeria and

migration to the urban areas from the rural areas, there was need to increase the supply of bread in the country. However, from available records no adequate data on the production of bread in Kaduna State. Thus, this study was expected to provide the valuable bench mark information to the partially existing knowledge about bread production in the study areas.

It was also expected that the findings of this research would help in providing information and identifying problem areasfor improvements. Finally, the research would, as well, serves as a guide to governmental and non-governmental organizations in designing appropriate intervention measures in order to boost and improve the efficiency of bread production.

Hypotheses

The hypotheses tested were:

i. There is no significant difference between the cost of production and revenue in bread production in the study areas.

ii. There is no significant relationship between socio-economic characteristics and technical efficiency of bread production in the study areas.

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