Investigating the Trend and Sources of Economic Efficiency in the Sugar Industry in Nigeria

Abstract

This study analyzed economic efficiency indices in the sugar industry in the period 1970 to 2010 in Nigeria. Secondary data were obtained from the sugar firms, Food and Agricultural Organization (FAO), Central Bank of Nigeria (CBN) and National Bureau of Statistics (NBS) as well as the federal Ministry of Finance. Stochastic Cobb-Douglas cost function for the sugar industry was estimated from which indices of economic efficiency were obtained. Trend in the estimated economic efficiency indices showed time invariant fluctuations across the study period with an average index of 41.80% and excess cost efficiency of 58.20%. Multiple-regression of various forms based on the ordinary least squares technique was used to determine factors that influence the economic efficiency in the industry. Empirical result revealed that economic efficiency in the sugar industry was influenced positively by the industry’s sales growth and capital-labour ratio. On the other hand, the industry’s expenditures on research and training, physical capacity utilization rates and the real exchange rate of naira for US dollar impacted negatively on the economic efficiency of the industry. It is recommended that capital intensive method of production should be adopted as a means of promoting economic efficiency of resource use in the industry. Also, effective marketing policy on the sugar industry manufactures is strongly recommended. Government should increase budgetary allocation to the Sugarcane Research Development and Training Center to intensify its activities in areas of manpower development. Finally, the industrial policy package for the industry during import substitution period should be used as a basis for regulating economic efficiency in the sugar industry in Nigeria.