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Determinants of profitability of smallholder palm oil processing units in Ogun state, Nigeria.

OR Adeniyi
GO Ogunsola


A total of 70 questionnaires were administered to the palm oil farmers randomly selected from five purposively sampled towns in Ogun state. Selection was based on the predominance of producers in the towns as well as their geographical spread covering the entire land space of the state. The response rate was 95.71 percent. Altogether, data used for final analyses were obtained from 17 manual, 36 semi-mechanized and 14 fully mechanized palm oil processors. Data were analyzed by the use of descriptive statistics, multiple regressions and budgeting. The quantity of input used (palm fruits) and output (palm oil) were measured in kilogramme and litres respectively. Other by-products of processing were measured also in kilogrammes. Averages of market prices for the input and output variables obtained through the consumer panel approach were used in calculating profitability. The profitability analysis revealed that fully mechanized palm oil processing was more profitable than other methods of processing. The F-ratio value is statistically significant (P<0.01) implying that the model is adequate for use in further analysis. The coefficient of determination (R2) was 68%. Extraction cost and cost of palm fruits are negative and significantly associated with net returns, so also depreciation on tools and other fixed inputs. In contrast, no significant relationship was found to exist between net returns and such factors as processing experience and cost of labour. There is the need to improve palm oil processing techniques using mechanized (improved) systems in order to boost profitability among palm oil farmers in the study area and in Nigeria as a whole.

Keywords: Oil palm, cost, net return, profitability, mechanized processing.