ECONOMIC EFFECTS OF CRUDE OIL EXPLOITATION ON CASSAVA PRODUCTION IN NIGERIA

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ECONOMIC EFFECTS OF CRUDE OIL EXPLOITATION ON CASSAVA PRODUCTION IN DELTA STATE

 

ABSTRACT

This study examined the economic effects of crude oil exploitation on cassava production in Delta State. Specifically, the effect of crude oil exploitation on land productivity, farm income and cassava yield was explored. The costs and returns, and hence profitability of cassava production as influenced by oil pollution, the farming systems and socio-economic characteristics of cassava farmers were critically examined. Copies of well-structured questionnaires were used to collect primary data from a sample of 204 small scale cassava farmers drawn using stratified and simple random sampling techniques from the three (3) agro-ecological zones of Delta State between October 2007 and February 2009. Data were analyzed using descriptive statistics, costs and returns analyses, net margin and regression analyses. The results revealed that total fixed cost per cassava farmer was N27, 624.49 while total variable cost per cassava farmer was N19, 108.68. Total output of cassava product (garri) before and after oil spill incidents were 48,636kg and 40,549.22kg with an average yield of 328kg and 274kg respectively per cassava farmer. A net margin of N27, 846.43 and N19, 206.43 before and after oil spills incidents per cassava farmer, indicating a 31% reduction in profit, was also revealed. Using the Ordinary Least Square (OLS) multiple regression method to estimate the effect of crude oil exploitation on the major dependent variables, the linear functions had the best fit with adjusted R2 of 0.432 and DW-statistic of 2.08 for land productivity, adjusted R2 of 0.953 and DW-statistic of 1.537 for farm income and adjusted R2 of 0.950 and DW-statistic of 2.015 for cassava yield. The results of the regression analyses and all the hypotheses tested using the paired t-test statistic at 1% and 5% probability levels, indicated that crude oil exploitation had a negative and statistically significant effect on cassava production in consonance with a prior expectations. Thus, it is recommended among other measures that government at all levels should take pragmatic steps at enacting and enforcing stringent environmental laws that will protect the oil producing farming communities as well as guaranteeing the people a better means of livelihood. 

TABLE OF CONTENT

Title Page                                                                                                                    i

Certification                                                                                                                ii

Dedication                                                                                                                  iii

Acknowledgement                                                                                                      iv

Abstract                                                                                                                      v

Table of content                                                                                                          vi

CHAPTER ONE

INTRODUCTION

1.1       Background Information                                                                                1

1.2       Problem Statement                                                                                          4

1.3       Objectives of the Study                                                                                  7

1.4       Research Hypotheses                                                                                      7

1.5       Significance of the Study                                                                               8

CHAPTER TWO

LITERATURE REVIEW

2.1       A Brief History of Petroleum Development in Nigeria                                  9

2.2       Oil Exploitation and Environmental Pollution                                               10

2.2.1    Meaning of Oil Exploitation and Pollution                                                    10

2.2.2    Sources and Types of Oil Industry Pollution                                                 12

2.3       Oil Spillage and Pollution                                                                               14

2.3.1    Causes of Oil Spillage                                                                                     15

2.3.2    Frequency and Magnitude of Oil Spills                                                          15

2.4       Effects of Oil Exploitation                                                                             18

2.4.1    Oil Exploitation and Land Availability for Agriculture                                 19

2.4.2    Oil Exploitation and Soil Pollution                                                                 21

2.4.3    Effect of Oil Exploitation on Water/Aquatic Lives                                       23

2.4.4    Oil Exploitation and Hydrocarbon Pollution of Air                                       25

2.4.5    Oil Exploitation and Rural/Urban Migration                                                  26

2.5       Oil Companies and Corporate Social Responsibility                                      27

2.6       Farming System in Cassava Production                                                         31

2.7       Farm Resource Use                                                                                         32

2.8       Valuation of the Environment: Empirical Measures                                       33

2.8.1    Non-Market Demand Approaches                                                                  34

2.8.2    Market Demand Approaches                                                                          34

2.9       Productivity Implications of Environmental Pollution                                   36

2.10     Conflicts and Resource Use                                                                           38

2.11     Theoretical Framework                                                                                   40

2.11.1  Integrated Environmental Impact Model for Oil and Chemical                   40

Spills

2.11.2  Concept of Agricultural Resource Productivity                                             41

2.12     Analytical Framework                                                                                    42

2.12.1  Multiple Regression Analysis                                                                         42

2.12.2  Gross Margin/Profit Function Analyses                                                         42

2.12.3  The Student’s “t” Test                                                                                                43

CHAPTER THREE

RESEARCH METHODOLOGY

3.1       Study Area                                                                                                      45

3.2       Sampling Procedure                                                                                        46

3.3       Data Collection                                                                                               47

3.4       Data Analyses                                                                                                 48

3.4.1    Model Specification and Estimation                                                              49

3.4.2    Gross Margin Analysis                                                                                    51

3.4.3    Hypotheses Testing                                                                                         52

CHAPTER FOUR

RESULTS AND DISCUSSION                                                     

4.1       Farming Systems of Cassava Farmers                                                            53

4.2       Socio-Economic Characteristics of Cassava Farmers                                     54

4.3       Profitability Analysis of Cassava Farming                                                     56

4.3.1    Cost Analysis in Cassava Farming                                                                  56

4.3.2    Returns in Cassava Production                                                                       59

4.3.3    Net Margin Analysis                                                                                       61

4.4       Corporate Social Responsibility of Oil Companies and Cassava

Farming Activities                                                                                          63

4.5       Effects of Crude Oil Exploitation on LandProductivity and Farm

Income of Cassava Farmers                                                                            66

4.6       Effect of Oil Pollution on Cassava Farm Income                                           69

4.7       Effect of Crude Oil Pollution on Cassava Yield                                            71

CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1       Summary of Findings                                                                                                 74

5.2       Conclusion                                                                                                      76

5.3       Recommendations                                                                                          76

5.4       Contribution of Knowledge                                                                           78

5.5       Suggestion for Further Study                                                                         78

References                                                                                                      79

Appendix                                                                                                        94

LIST OF TABLES

                                                                                                            PAGE

1.1       Nigeria Net Oil Revenue (N million)                                                              3

2.1       Oil spills in Nigeria (1976-1996)                                                                     16

3.1       Communities Surveyed and Sample Sizes                                                      47

4.1       Farming Systems of Cassava Farmers                                                            53

4.2       Distribution of Socio-Economic Characteristics of Cassava

Farmers                                                                                                           54

4.3       Average Fixed and Variable Costs in Cassava Production per hectare          57

4.4       Total and Average Yield of Garri per Cassava Farmer before and

after Oil Spill Incidents                                                                                  59

4.5       Test for Difference in Yield of Garri before and after Oil Spill

Incidents                                                                                                         60

4.6.      Cost and Returns in Cassava (Garri) Production per Cassava Farmer           61

4.7       Depreciation of Fixed Cost Items                                                                  62

4.8       Test for Difference in Net Margin (Profit) per Cassava Farmer

before and after Oil Spill Incidents.                                                               63

4.9       CSR: Responses of Male Cassava Farmers.                                                   64

4.10     CSR: Reponses of Female Cassava Farmers.                                                 64

4.11     Farmers’ Response as to whether CSR of oil companies has

improved their farming activities                                                                    65

4.12     Regression Results on Factors Affecting Land Productivity in

Delta State                                                                                                      67

4.13     Factors Affecting Cassava Farm Income in Delta State                                69

4.14     Factors Affecting Cassava Yield in Delta State                                             71

 

CHAPTER ONE

INTRODUCTION

1.1       Background Information

One of the most discussed issues in Nigeria in recent time is that of sustainable development. Sustainable development, according to the Bruntland commission, is development that meets the needs of the present generation without compromising the ability of future generations to meet their own needs (World Commission, 1987).

Agriculture plays fundamental role in the development of any economy. Thus, according to Uwakahet al, (1991), agriculture is the bedrock of the economic development of most developing nations. Edordu, (1986) put it succinctly as follows: “experience has shown that no modern developed country around the world achieved rapid industrialization without having previously or simultaneously attained a marked increase in agricultural production”. The contribution of agriculture to development, most especially in the developing countries includes provision of food supplies, employment, capital formation, release of labour for industrial development and fibre needs of industries (Okorie and Eboh, 1999; Njoku, 2000; FAMRD, 2002). This implies that agriculture is very crucial to the social and economic development of Nigeria.

Agriculture is a vital business enterprise having various components. One of these components that is productive in nature is crop production-a component that dominates largely the Nigerian agricultural scene. It is noteworthy that agriculture in Nigeria is dominated by small scale farmers who are responsible for about 90 percent of the total production (Olatunbode, 1990). The small holder farmers usually have farm sizes ranging between 1-4 hectares and cultivate mainly staple food crops (Obinne and Mundi, 1999).

In recognition of the importance of crop production in the Nigerian economy, successive governments in Nigeria have undertaken various policy measures to revitalize the agricultural sector. However, none of these measures has yielded adequate fruitful result. This is an evidence of the fact that the bulk of Nigeria’s foreign currency earning presently comes from crude oil and gas. NNPC, (2004) reports that the national budget depends heavily on the revenue expectation from oil and gas and this will remain for a while. Thus, the dominant role of crude oil has pushed agriculture, the traditional mainstay of the economy from the early fifties and sixties, to the background.

According to Onwudiwe, (2003), there are eighteen oil companies operating currently in Nigeria. These companies operate over 159 oil fields and produce from over 1,481 oil wells. Of this figure, the Shell Petroleum Development Company (SPDC), controls about half (83 oil fields and 748 oil wells). All of these are almost exclusively in the Niger Delta region.

Oil production in Nigeria has come a long way from the early days of the 1950s. Today, of Africa’s proven crude oil reserves of some 66 billion barrels, Nigeria accounts for 25 billion barrels, more than 35 percent of the total. Therefore, the significance of oil in Nigeria’s political economy has grown considerably. From accounting for one percent of Nigeria’s export earning in 1958, it now accounts for up to 98 percent of export earnings; and from accounting for some 70 percent of total government revenue in 1970, it now accounts for between 80 and 90 percent. This phenomenal rise is attributable to crude oil output, which grew from 1.88 million barrels in 1958 to 822.75 million in 1974 and to 547.08 million in 1985 (NNPC, 1985). This figure rose significantly to 751.8 million barrels as at 1996 (CBN, 1996).

According to CBN, (2000) Nigeria’s crude oil production, including condensates, rose by 11.2 percent over the level in the preceding year (1999) to 2.18 million barrels per day (mbd). Consequently, net oil revenue rose sharply from N204, 848m in 1996 to N857, 582m in 2000 as shown in the following table.

Table 1.1: Nigeria Net Oil Revenue (Nmillion)

Fiscal Year Oil Revenue (Net)

(N million)

1996 204,848.0
1997 218,727.3
1998 166,333.1
1999 1/ 336, 131.6
2000 2/ 857,582.2

Sources: Federal Ministry of Finance Central Bank of Nigeria. In CBN Annual and Statement of Accounts for the year ended 31st December, 2000 (P. 102).

Extracted from Federation and Account Operation

1/Revised

2/Provisional

There is therefore, no doubt that the Nigerian oil industry has affected the country in a variety of ways. On one hand, it has fashioned a remarkable economic landscape for the country. However, on the negative side, petroleum exploration and production also have adverse effects on fishing and farming which are the traditional means of livelihood of the people of the oil producing communities in the Niger Delta region of Nigeria, specifically Delta State.

Eteng, (1997) asserts that “oil exploration and exploitation had over the last four decades impacted disastrously on the socio-physical environment of the Niger-Delta Oil-bearing communities, massively threatening the subsistent peasant economy and the environment and hence the entire livelihood and basic survival of the people”.

In a similar vein, Gbadegesin, (1997) averred that “oil exploration and production in South Eastern Nigeria, has adversely affected peasant agriculture, the basis of sustenance of millions of rural inhabitants through a complex web of interaction of several negative environmental factors. Such factors include contamination of streams and rivers, the problem of oil spill, forest destruction and bio-diversity loss, the environmental effect of gas flaring and effluent discharge and disposal”. Thus, if the oil industry is considered in view of its enormous contribution to foreign exchange earnings, it has achieved a remarkable success. On the other scale, when considered in respect of its negative impact on the socio-economic life and the environment of the immediate oil bearing local communities and their inhabitants, it has left a balance sheet of ecological and socio-physical disaster. This rightly provides a framework to carry out an economic assessment of the effects of crude oil exploitation on small scale cassava production in Delta State of Nigeria.

1.2       Problem Statement

Before the discovery of oil in Nigeria, and even up to the time of Nigeria’s political independence in 1960, agriculture was undisputably the mainstay of the country’s economy, providing employment for the bulk of the population and bearing the physical brunt of economic development. As a share of GDP, agricultural output (crops, livestock, forestry and fishery) accounted for 41.5 percent, compared with 41.0 percent in 1999 (CBN, 2000). This corroborated the report of Erinle and Mijindadi (1992) that agriculture is the most important enterprise in the country employing over 60% of the total labour force and providing over 40% of the National Gross Domestic Product (GDP).

Toluyemi, (1990) asserts that the small scale farmers constitute the bulk (about 60%) of the Nigerian farmers. These peasants, operating at low level of resource inputs are constrained by a number of factors. These factors, as summarized by FMAWR and RD, (1994), are technical, socio-economic, organizational and institutional problems. In recent years, however, the oil boom has compounded the problem of agriculture.

According to Onyige, (1996), the euphoria that followed the large revenues from oil, among other things, not only led to the neglect of other sectors of the economy, particularly agriculture, but also to a neglect of the effects of oil exploitation on the areas in which it is taking place. One other way in which oil exploration has affected agriculture is through pollution. Uchegbu, (2002), citing Imevbore, (1973), maintains that the various activities in all the phases of the oil industry are sources of emissions and products whose entry into the natural environment produces effects of pollution greater than the amount that can be controlled by natural self purification capacity of the ecosystem. Unfortunately, a review of nearly three decades of development planning in the country (1962-1985) shows that government planning did not take a serious view of these externalities nor has planning been sufficient to prevent poor distribution of wealth, uneven resource allocation and undesirable exploitation patterns (Onyige, 1996).

Oil production in Nigeria, has had severe environmental and human consequences for the indigenous people who inhabit the areas surrounding oil extraction. Of course, it is precisely the peasants in the oil-producing areas, especially farmers, who are the main victims of industrial pollution. Degradation of the environment through pollution has had serious consequences for peasant economy and society. Obioma, (1985), argues that the problem of the oil communities is not just that they do not gain from the oil operations but that they suffer numerous and severe damages to their economic resources.

The above is justified in the minutes of meeting between Rivers State Government, the Egbema liaison committee and Nigerian Agip Oil Company Limited (NAOC), 30 December, 1981 which contain the devastating effects of oil exploitation on the people of Egbema particularly farmers and fishermen. A similar point was also made by the Egbema Youth Association in a reminder to NAOC about the repercussions of its industrial activities in their farmlands, claims which equally apply to oil producing communities in Delta State.

Corroborating all the assertions above, Mba, (2001) maintains that the people of the rural Niger Delta communities live with a deep sense of loss and deprivation. The communities are found to be suffering immense human, economic, ecological or environmental and agricultural damages on the account of the operations of the oil exploration companies there, notably the Shell Petroleum Development Company (SPDC). While reporting on the damaging effects of gas flaring, an integral part of oil exploration and exploitation on the communities of the Niger Delta where oil prospecting takes place, Adegbulugbe, (1994), asserts that cumulative gas flaring between 1965 and 1987 amounted to 3.15 x 1011m3. This represents a significant amount of pollutants discharge into the atmosphere with consequent negative impacts on the growth of vegetation and increased localized haze in the affected areas (Salau, 1987). Ibe, (1998) in his view, reports that oil spillages from SPDC had consequently led to the pollution of water and destruction of both aquatic life and agricultural land in their host communities.

Thus far, the pollution of farmlands, water bodies, top soil depletion, deforestation and other ecological and economic problems by oil exploration and exploitation activities had culminated in the small scale crop producers experiencing diminishing returns to their efforts year in year out. Emphasis has always been placed on increased crude oil exploration without giving enough thought to how the environment and agricultural productivity are affected and ways of controlling oil spillage and other forms of pollution by the exploring companies concerned. It should be noted that in Nigeria, as in other developing countries, a key policy objective targeted at achieving sustainable human development is to establish energy development paths that are economically efficient and environmentally sustainable. Though theoretical explanations abound on the impacts of oil exploration on the environment, there is a dearth of empirical studies on how it economically affects the activities of small scale crop producers (especially cassava) in Delta State. Thus, there is the need to undertake a detailed economic study of the effects of oil exploitation and other related activities on cassava production by small-scale farmers in Delta State with a view to improving the living standard of the people.

1.3       Objectives of the Study

The broad objective of this study is to assess the economic effects of crude oil exploitation on cassava production in Delta State.

The specific objectives are to:

  1. describe the farming systems and examine the socio-economic characteristics of cassava farmers in Delta State.
  2. assess the effects of crude oil exploitation on land productivity and farm income of cassava farmers in the study area.

iii.        ascertain the effects of crude oil pollution on cassava yield in the study area.

  1. determine the costs and returns and hence, profitability of cassava farming as influenced by oil exploitation
  2. describe the extent to which corporate social responsibility of oil companies has improved the activities of cassava farmers in the study area.
  3. make policy recommendation based on research findings.

1.4       Research Hypotheses

The following hypotheses were tested in the study.

  1. Oil pollution has no significant effect on land productivity of cassava farmers.
  2. Oil pollution has no significant effects on cassava yield in Delta State.

iii.        Oil exploitation has no significant effect on farm income of cassava farmers.

  1. Socio-economic characteristics of cassava farmers have no significant effect on cassava production.

1.5       Significance of the Study

Agriculture forms a major economic activity in Nigeria particularly in the Niger Delta region. According to CBN (2010) the overall contribution of agriculture to real GDP was N316, 728.70 million. Of this total, crop production accounted for about 89%.

Thus, in attempting to build an environmentally sustainable economic and social order, we have to be virtually concerned about safe-guarding the life-support systems of the oil-bearing communities of which crop farming is one of such life support systems. It is therefore, essential to create a broad awareness of the actual or potential hazards threatening the subsistent peasant economy and the environment and hence the entire livelihood and basic survival of the people. As mentioned earlier, no much emphasis has been placed on how oil exploitation and its related activities have impacted economically or otherwise on small scale crop farmers in Delta State. The researchers, therefore, believes that this study will enable the oil companies appreciate the extent of damage done through their activities on the agricultural resources of the area and to take appropriate step(s) to remedy such situations. The study will also give an insight into the effects of oil exploitation on the socio-economic lives of small-scale crop farmers in Delta State. It is also hoped that the research findings will draw the attention of the multi-national oil companies and every other stakeholder in the oil industry to be aware of the hardship being suffered by farmer’s vis-à-vis oil exploitation so that policies could be aimed at alleviating the suffering of these people

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