University of Nigeria Research Publications

NNADI, Chinwe O.

Aut

hor

PG/MBA/96/19634

Title

Cashflow Determinants in Export Trade the Case of Palm

Produce Export in Nigeria

Facu

lty

Business Administration

Dep

artm

ent

Finance

Dat

e 1998

Sign

atur

e

CASHFLOW DETERMINANTS I N EXPORT TRADE

THE CASE OF PALM PRODlJCE EXPORT I N NIGERIA

NNADl CHINWE 0.

REG. NO. PG/MDA/96/19634

PRESENTED T O THE DEPARTMENT OF BANKING AND

FINANCE. FACULTY OF BUSINESS ADMINISTRATION

I N PARTIAL FULFILMENT OF THE REQUIREMENTS FOR

THE AWARD OF MASTERS I N BUSINESS ADMINISTRATION (MBA)

,DEGREE I N ACCOUNTANCY OF THE UNIVERSITY OF NIGERIA,

N SlJ K I<A

CERTIFICATION

This is to certify that this research work was undertaken

by NNADl CHINWE 0. a graduate student of Department of

Banking and Finance, Faculty of Business Administration,

University of Nigeria Nsukka.

DR:EHI KELEZE

l'roject Supervisor

Department of Finance I

- ------ ---.-----.------------.--- &MG

DR, ANYAFO

H.O. D. Banking /Finance

llniversity of Nigeria, Nsukka

i i i

D E D I C A T I O N

Dedicated to GOD ALMIGHTY WHOSE

MERCIES ENDURETH FOREVER.

The completion o f th is work would not have been possible i f

not because o f help which I received from many people too numerous

to mention.

I am part icular ly indebted to my supervisor DR. CHI KELEZE

fo r h is thoroughness and editorial sk i l l which contr ibuted much to the

qual i ty o f th is study.

My big thanks are also due t o my mother MRS ROSELINE NNADI

and HON. TONY EZE f o r the i r encouragement, material, intellectual

support, financial hackup and prayers. ..

I would also l ike t o record my special grat i tude to the following

p e t w s who have been part icular ly helpful t o me in one way o f another

VR "HENRY NNADI, CHUKS NNADI, ADA and OGOCHUKWU NNADI.

Finally, I am grateful to al l o ther people who have d i rect ly o r

indirect ly contr ibuted towards my education up t o th is level.

v

ABSTRACT ------- The main object ive o f t h i s work i s t o invest igate emperically, those

factors t h a t determine t h e cashflow accru ing f r o m expor t o f a produce

l i ke palm kernel.

The t rade Liberal isat ion pol icy o f t h e Government a r i s ing f r o m t h e

S t ruc tu ra l Adjustment Programme (SAP) s tar ted in 1986, created investment

oppor tun i t ies t h a t were h i t h e r t o not available f o r p r i v a t e sector investment,

especially in expor t a n d fo re ign exchange management. T h i s new investment

climate there fore cal l fo r adequate unders tand ing o f t h e m c r o elements

t h a t wi l l have d i rec t impl icat ion t o investment re tu rns . The ident i f icat ion

o f these as they relate t o cashflow management i s t h e main t h r u s t o f t h i s

work.

Data were collected f r o m companies engaged in b o t h palm produce

product ion local market ing a n d expor t w i th in t h e o i l pa lm belt . The

stat is t ica l tool o f mean, s tandard deviat ion a n d coeff ic ient o f var ia t ion were

used in determining t h e var ia t ion o f t h e raw data a n d establ ish t h e main

i n p u j s t h a t wi l l be used.

Simple corre lat ion analysis was used in invest iga t ing t h e level o f

relat ionship t h a t e x i s t between cashflow a n d t h e dependent variables -

Internat ional p r i ce o f palm kernel, Exchange rates, Incremental cost a r i s ing

from e x p o r t ac t iv i t ies - Handl ing charges, f re igh t , Insurance etc. tonnage

p e r expor t shipmenf. The simple corre lat ion resu l ts showed no stat is t ica l

relat ionship between cashflow f r o m e x p o r t a n d internat ional p r i c e f o r palm

kerne l a n d Exchange Rates but showed stat ist ical ly, s iy n i f icant relat ionship

w i t h l ncremantal Cost, a r i s ing f r o m e x p o r t act iv i t ies. The mult iple

v i

correlation Analysis was employed t o investigate the relationship between

cashflow and a combination o f a l l t he variables. A statistically significant

relationship was established in th is regard. Backward elimination approac~h

was applied t o measure the relat ive importance o r marginal contr ibut ion

b y each o f the dependent variables. It was found tha t only incremental

cost variable made a statistically significant contr ibut ion t o changes in

cashflow. In as much as pr ice and exchange r a t e did not show a statis-

t ical ly significant relationship wi th cashflow, it was however established

tha t they had a ve ry significant relationship wi th handling charges and

therefore ind i rect ly affected cashflow.

It i s hoped that th is s tudy wil l be o f some use to companies involved

in o r intending to get involved in expor t activit ies. The recommendations

made would prove useful.

v i i

L IST OF TABLES

Table 4.1

Table 4.2

Table, 4.3

Table 4.4

Table 4.5

Table 4.6

Table 4.7

Table 4.8

Table 4.9

Table 4.10

Table 4.11

Table 4.12

Table 4.t3

Table 4.14

Table 4.15

Table 4.16

Table 4.16A

Table 4.17

ExporterSlManufacturers o f Palm Kernel

Product ion Capacity - Manufacturers

Average Local Sel l ing pr ices o f Palm Kernel

Product ion Circles

Factors Af fec t i i ig Cashflow

Quar ter ly shipment p a t t e r n 1987

Quar ter ly shipmenmt p a t t e r n 1988

Form o f sales cont rac t

C u r r e n c y denomination o f sales cont rac t 1987

Cur rency denomination o f sales cont rac t 1988

World Market Price o f Palm Kernels Quar t e r l y Average 1984 - 1988 Monthly Average Exchange Ratest Naira t o US Dollars, German Mark a n d Pound Ster l ing 1987, 1988.

Average Quar ter ly Exchange Rates 1987

Average Quart e r l y Exchange Rates, Naira t o t h e US Dollar, Pound Ster l ing a n d German Mark 1988

Mean, Standard Deviation, a n d Coeff ic ient of Var ia t r ion o f 3 major currencies .l988.

Mean, Standard Deviation, Coeff ic ient of var iat ion of 3 major cur renc ies 1987.

Corre lat ion Mat r ix

Result o f Mul t ip le Corre lat ion Analysis

v i i i

Table 4.18 Result o f Backward Elimination

Table 4.18A Corre lat ion Mat r ix

Table 4.19 Simple Corre lat ion Coeff ic ient between cashflow a n d t h e independent variables, calculated t-values a n d absolute t- table values a t 0.05 level.

~ a 6 l e 4.19 Simple Cor re la t i on Coeff ic ient between hand l i ng charges a n d independent variables, calculated t-values a n d absolute t- table value a t 0.05 level.

Table 4.20 Stepwise Regression Analys is Tes t

TABLE OF CONTENT

PACES

viii

... ... ... ... Title Page ...

... ... ... Certification ... . .. . . . . . . ... ... Dedication ...

... ... Acknowledgement ... ... ... ... . . . . * . Abstract ... ...

List of Tables ... ... ... ... ... . . . . . . Table of Content ... ... ...

I ' I ' .

C H A P 1 : INTRODUCTION

... Overview ... ... ... ... Statement of Pmblem ... ... ... ...

... Purpose of Study ... ... ... ... Research Questions ... ... ... ... Hypothesis ... ... ... ... ...

... Significance of Study ... ... ... ... Scope and Limitation of Study . . . . . .

Definition of terms ... ... ... ... Summary

References

i

i i

iii

i v

v

vii

viii

PACES

CHAPTER 4 : DATA ANALYSIS AND FINDINGS

... ... ... l ntroduction ...

... ... Hypothesis Testing ... ... ... Simple Correlation Test ...

... Multiple Correlation Test ...

... Backward Elimination Test ... Salmma r y

References

CHAPTER 5 -" '

Summary

Discussions

Conclusion

... ... ... ...

... ... ... ... SUMMARY. Dl SCUSSIONS.

AND RECOMMENDATIONS

... ... ... ...

... ... ... . .

... ... ... ... ... ... Recommendation ... ...

CONCLUSIONS

APPENDICES

'A' Questionnaire

Bibliography

PAGES

CHAPT'ER 2 : LITERATURE REV1 EW

... l nt roduct ion . . . . . . Price o f Palm Kernel . . . . . .

... Foreign Exchange Rate ... ... l nt roduct ion . . . . . .

... Foreign Exchange Market . .

... Exchange Rate Determination

T h e Niger ian Experience ...... Local Demand and Supp ly f o r Palm

... ... References ... CHAPTER 3 : METHODOLOGY

... I ntf ioduct ion ... ... Sources o f Data ...

Questionnaire Design ... Model Specif ication ...

... Percentages . O r d i n a r y Least Squares (OLS)

Mean and Standard Deviat ion

Simple Corre lat ion ... ... Mult ip le Corre lat ion ... Backward Elimination Analysis

... References ...

... Kernel

... ... ... Methods ...

CHAPTER 1

INTRODUCTION

OVERV l EW

Expor t t rade in Nigeria s tar ted w i t h t h e a r r i v a l o f t h e colonial

masters i n t o t h e count ry . They a r r i v e d w i t h some manufactured

goods a n d in r e t u r n took back ag r i cu l tu ra l p roducts l i ke palm oil,

groundnuts, cocoa etc. Due t o t h e importance o f these products t o

t h e nat ional economy, the Market ing Boards were later formed t o manage

t h e purchase and expor t o f ag r i cu l tu ra l products. Crude o i l was

s t r u c k in commercial q u a n t i t y in Niger ia in 1958. Earnings t o t h e

government remained essential ly in t h e f o r m o f royal t ies a n d taxes until

a f t e r t h e C i v i l War when t h e government began a gradua l involvement

in in l / es tmn t prograrmrre a n d expor t o f c rude oil. From t h e above, it

caq be observed tha t palm produce expor t has been a major source and

tha t f rom ear ly 1950's t o v e r y recent times, t h e expor t t rade had been

essential ly government contro l led business which was done t h r o u g h it's

numerous agencies l i ke t h e Commodity Boards a n d t h e Nigeria National

Petroleum Corporat ion.

A major character is t ic o f t h e e x p o r t t rade i s t h e payment f o r t h e

goods a n d services in a coun t ry ' s c u r r e n c y not denominated in t h a t o f

t h e exporters. Th is implies t h a t t h e e x p o r t e r must be able t o conver t

what eve r r e t u r n s he has made t o t h e cu r rency o f h is home c o u n t r y a t

a ra te tha t is adequate t o compensate f o r any p r i ce d i f fe rent ia l hetween

the local market and t h e e x p o r t market. T h u s i f t h e expor te r h a d a

choice, he wi l l exchange a t a market tha t o f fe rs t h e h ighest ra te of

exchange t o maximise h i s re tu rn . U p t o late 1986, t h e Centra l Bank

o f Nigeria was t h e oh ly au tho r i t y t h a t can f i x exchange rates in

Nigeria. Umoh (1985) dwel t extensively o n t h e fo re ign exchange

management pract ice in Nigeria up t o 1985, a n d concludes t h a t t h e

of f ic ia l fore ign exchange market was over-managed by t h e government.

Impl ic i t o f a l l these there fore i s t h e fac t t h a t a l l t h e machineries for

e x p o r t market had h i the r to been t h e sole responsib i l i ty o f t h e government.

A l l these have changed recent ly w i t h t h e government l iberal izat ion o f

expor t t rade and the in t roduct ion o f market forces in t h e determinat ion

o f exchange rates. T h e p r i v a t e sector has there fore corm t o join in

t h i s v i t a l sector o f t h e economy. The advent o f p r i va te sector in t h i s

area of t he economy b r i n g s along wi th it, cer ta in problems. It i s known

tha t p r i v a t e sector investment can on ly b e made if a n d on ly if i t s ne t

flow f r o m expor t business i s af fected by internat ional p r i c e o f product ,

exdhange rate, timing o f receipt o f proceeds, incremental cost associated

w i th expor t , local demand and p r i ce of p roduct . Each o f these

variables i s subject t o a var iab i l i t y o f facts a n d can a f fec t t h e var iab i l i t y

o f t h e cash flow.

1.2 STATEMENT OF PROBLEM ----------------- There i s a h i g h level o f var iab i l i t y associated w i t h t h e cashflow

. resu l t ing f r o m t h e expor t o f a p roduc t l i ke kernel. Th is va r iab i l i t y must

: have ar isen f rom changes occur ing w i th in t h e variables t h a t determine

r

L

the cashflow. T h e basic problem o f t h i s s t u d y there fore i s t o inves t ig

the determinants o f t h e cashflow f r o m expor t i ng t h e i r operat ional

relat ionship and t h e i r re la t ive importance. Also t o be invest igated i s

t h e i r combined ef fect o n t h e var iab i l i t y o f t he cashflow.

1.3 PURPOSE OF STUDY ----------------

The 0bjectives.~odt2his research are :

1. To determine emperically t h e variables t h a t af fect t h e

cashflow o f expor t o f kernel .

2 . T o determine the re lat ive inrportarlce o f t h e ef fect o f each

I these variables.

3. To establ ish t h e combined ef fect o f these variables t o t h e

cashflow earnings f rom expor t t rade.

1.4 RESEARCH QUESTIONS --- - - - - - - - -- - -

The s t u d y wi l l attenrpt t o answer t h e following quest ions:

1. I s the re any relat ionship between the cashflow f rom t h e

e x p o r t o f kerne l and t h e fol lowing - Internat ional market F

of kernel, exchange ra te o f t he Naira t o the Dol lar o r Pou

ster l ing, incremental cost associated w i th expor t ac t iv i ty ,

I local palm kerne l pr ices, and changes in pr ices due t o

seasonal f luctuat ion.

2 . I s t he re a l inear re lat ionship between t h e cashflow a n d a

combination o f these variables upon which a pred ic t ion o f

va r iab i l i t y can be built?

3 . I s there any o f t h e variables whose inf luence i s more bear ing

o n the cashflow than t h e o ther?

HYPOTHESIS

The fol lowing hypothesis w i l l b e tested :

T h e r e i s a re lat ionship between the~.cashf low f rom t h e e x p o r t o f

kerne l and t h e fol lowing:

- Price o f kerne l a t t h e In ternat iona l Market.

- Exchange ra te o f t h e Naira against t h e U.S. Dollar o r Pound

Sterl ing.

- Incremental Cost associated w i th expor t o f kernel .

- Quant i ty p e r unit o f e x p o r t shipment.

- Changes in p r i c e due t o seasonal variat ion.

There i s a p red ic t i ve re lat ionship between t h e cashflow and a

combination o f these factors.

T h e greater t h e magnitude o f t h e weighted average of t h e

combination of these factors, t h e h igher t h e inf luence o f such

var iable to t h e cashflow.

1.6 SIGNIFICANCE OF STUDY

Private sector investment in the export t rade is a recent

development since Nigerian Independence. Due t o this, emperica l

evidence o f investigation in to cashflow var iabi l i ty and determinant have

not been proper ly investigated previously. Most studies in the area o f

Nigerian export had centred m relationship o f export t o Gross Domestic

Product, Prices o f Commodities and foreign exchange generation

potentials. Attempts have also been made at establishing a relationship

between produce export, local prices o f commodity and per capita income.

There had also been tremendous ef for t in establishing macro-economic

variables that affect the supply o f palm kernels and pol icy options that

may stimulate supply. Most o f these have concentrated on a government

managed expor t sector o f the economy. Th is research therefore i s

expected to: /

a. Form a base for fu r ther research in to th is v i ta l sector o f the

national economy.

b. Provide a tool for investment decision making b y the investors.

c. Pinpoint the most cr i t ical factor o r factors tha t affect t he net cashflow;

a bet ter management o f such factor wi l l have a direct effect on the

net cashflow. Mellemer (1966) related changes in rat io o f Palm

Kernel sales to the Commodity Boards ( Y ) t o changes in the index

o f real Market ing Board Producers Price (P) and t o a time t rend

measured in years ( T ) and calculated the elast ici ty o f supply from

l inear regressions equations Mellemer did not however, incorporate

weather variable in his equation ( i t should be noted tha t palm produce

market is subject t o seasonal f luctuation in both supply and price).

ON1 (1969) and OLAYIDE (1972) incorporated the weather variable in

the i r supply equation. While ON1 argues that cu r ren t producer pr ice

can explain changes in supply, OLAYIDE argues t o the contrary;

specifying ra ther that producers pr ice lagged 7 years. UDOM (1983)

segregated actual Marketing Boards purchases in to South Eastern Nigeria

(comprising present Anambra, Cross River, Akwa Ibom, Rivers and

Imo State), and South Western Nigeria (comprising Bendel, Lagos, Ogun,

Ondo and Oyo States) over the per iod 1955 - 1975 and labelled t he oi l

palm indus t ry in the two sectors as "decreasing cost indust ry" and

"increasing cost indust ry" respectively. Using pr ice elasticities and

statiktical tools it will be concluded that there are locational differences /

in the manner palm kernel production and prices respond to economic

activities, and tha t real producer prices ie money pr ice deflated b y

consumer pr ice index explains changes in supply bet ter than money prices.

UDOM et , a1 (1 985) in reviewing the performance o f th is sector between

1975 - 1985 concludes that the decl ining t rend in supply dur ing the period

cannot be at t r ibuted t o t he increase in money pr ice o f the product bu t

b y fall ing real producer prices. They also concluded that Palm Kernel

supply responds favourably to good increase in prices evidenced b y real

increases in producer prices. ARSHAD e t al (1985) opines that oil seeds

are h igh ly substi tuable and thus pr ice dif ferentials are very necessary

7

and react instantaneously t o each other . In t h e demand func t ion

therefore, p r i c e i s a major determinant o f t h e cashflow and can

d i s to r t t h e investment appraisal basis in t h e analysis o f a n investment.

He there fore advocates t h e simulation o f t h e var ious possible ranges

o f each o f t h i s determinants and t h e combined analysis o f t h i s

before a n investment decision o f t h i s can be reached.

SCOPE AND LIMITATION OF STUDY

The relevance o f th is s tudy i s more appropriate fo r period of

January 1967 - December, 1988. Prior t o th is per iod expor t t rade

was thougk~t o f mostly as a government controlled sector. Due t o

this, moqt of t he researches in to th is area had been wi th l i t t le o r

no consideration for the pr ivate sector. The import o f th is therefore

is the insuff iciency o f references and comparison o f f indings wi th

previous works. There may also be t he problems o f unwill ingness

on the par t o f the management o f t he companies t o be surveyed t o

provide t he information required.

DEFINITION OF TERMS

In the context o f th is study, the terms stated below are used as

follows :

Cashflow - This i s defined as t he monetary inflow accruing from

the sale o f palm kernel, f re ight on Board in any

Nigerian port.

Risk

Price

- Risk i s defined as the variat ion o f the cashflow from

expectation.

- This is the market pr ice per tonne o f kernel quoted in

the London Commodity Exchange for any part icular

point in time.

Handling ,! - Defined as the ext ra Cost Per tonne o f kernel Charges

at t r ibutable to export act ivi ty. This includes f re ight

charges (where applicable) a l l local ta r i f f s and

inspection fees and al l other such related cost.

Seasonality - This refers essentially to the variat ion in prices

Effect demand o r sup,Ay at t r ibuted t o changes in season.

/

1.9 SUMMARY

In th is proposal, we have presented an overview o f the problems

o f th is sector tha t necessitated th is study. We have ident i f ied the

variables that might affect t he cashflow o f an exporter and have

included some o f them in our model to determine the effect on the

cashflow. Regression and correlation analysis wil l be used as analytical

tools. The limitations o f th is s tudy have also been stated. It is

our hope tha t export ing firms wil l find th is s tudy ve ry useful in

ensur ing an eff icient management o f th is industr ia l sub sector.

REFERENCES

ANON (1948):

ARSHAD F.M. & GHAFFAR A. (1985) :

MELLEMER G. K. (1966) :

HERTZ B.D. (1964):

O L k Y l D E S.O. (1972) :

ON1 S.A. and ANTHONIO 0. B. (1974) :

UDOM D. & OREWA S.I. (1985) :

"The Product ion o f Palm Oi l a n d Palm

Kernel in Nigeria". The Un i ted

Af r ican Company Limited, Stat ist ical

and Economic Review No. 1, 15-31.

"Casualty among selected o i l a n d fats

prices". Paper presented a t t h e

Internat ional Conference in Oi l Palm

in Port Harcourt .

"Peasant A g r i c u l t u r e Government and

Economic Growth in Nigeria". Homewood,

I l lonois .

llRisl< Analysis Capital Investment"

Havard Business Review Jan.-Feb. 1964.

"Some estimates o f supp ly elast ic i t ies for

Nigeria Cash Crops" Journal o f

Ag r i cu l tu ra l Economic Vol. 23 No. 3.

" A n emperical analysis o f food

consumption expend i tu re in Nigeria: A

case s t u d y o f lbadan Ci ty" . The

Niger ian Agr i cu l tu ra l Journal Vol 11 No. 1

"Economics o f Palm Oi l Product ion a n d

t h e Niger ian Palm Oil Market". Paper

Presented a t t h e l nternat ional Conference

a n d Oil Palm, Port Harcourt , 1985.

UDOM D . S . (1983):

UDOH P. (1985):

"The case for using Nigerian Resources

to save imports o f edible vegetable

oils and oilseeds". Journal of the

Nigerian Institute for Oil Palm ,Research

Vol. 6.

"Historical Perspective and Implications

o f Foreign Exchange Practices i n

Nigeria". Managing Nigeria Economic

Systems, a book o f Readings.

CHAPTER 2 -------

LITERATURE REVIEW ----------------

2.1 INTRODUCTION

Oi l Palm Produce has been a main con t r i bu to r t o t h e fo re ign

e ~ c h a n ~ e ' e a r n i n g s o f Nigeria. F i r s t mentioned as a commodity f o r

in ternat ional t rade in 1588, (OLUWASANMI l966), it has been v e r y

s igni f icant as source o f fore ign exchange earnings. FARQU I4 AR (1 91 3)

mentioned t h a t 173,000 tonnes o f palm kerne l were expor ted t o Europe

in 1910. Oi l pa lm p roduc t has been t h e main expor t p roduc t f o r Niger ia

Unt i l eBr ly 1960. I t % dor i t r ibut ion t o t h e to ta l e x p o r t value decreased

f rom 80% in 1910 t o 18% in 1965 (USORO 74).

In t h e f i r s t decade o f t h e twent ie th century , it p rov ided 80% of

t h e tota l fo re ign exchange earn ings in Nigeria. Between 1931 - 54, it

accounted f o r 33.3% o f to ta l fo re ign exchange earn ings 19.2% between

1955 - 66 (FAD 1973) a n d less t h a n 1% between 1970 - 1985.

W i t h t h e advent o f c rude o i l e x p o r t o i l palm products became less

important in t h e overal l cont r ibu t ion t o t h e nat ional economy. T h i s was

compounded b y t h e c i v i l war which seriously d i s rup ted v i r t u a l l y a l l t h e

o i l palm plantat ions in t h e count ry . Th is s tagnat ing product ion o f palm

produce resul ted t o Niger ia be ing a net impor ter by 1972, (MOLL 1972).

The Federal Government s o ~ t f o r t h e assistance o f t h e World Bank in

revers ing t h i s t rend. Generally f o r most ag r i cu l tu ra l products, expor t

and fo re ign market ing were contro l led b y t h e var ious Corlrmodity Boards

that were set u p fo r that purpose. For Palm produce, the Nigerian Palm

Produce Board (NPPB) was the main marketing outlet that was established.

They had the responsibi l i ty o f purchasing palm oi l and palm kernel f rom

Local Producers and export same. The aim was t o ensure that the local

, farmers were protected against t he high var iabi l i ty associated w i th

infernational pr ice o f produce. The NPPB had the monopoly o f export o f

palm produce. Thei r purchasing and p r i c ing policies affected mostly

palm kernel since most palm oil produced in the country were consumed

locally. In the case o f palm kernel, they had a sole monopoly since

local use was limited. MOLL (1984) said that t he guaranteed producer

pr ice in rehl terms fo r palm kernels rose b y 80% in 1974 and declined

t o below the pr ice o f kernels in 1980.

The guaranteed producer pr ice was in most cases below the world

market pr ice until after 1980 when it rose t o above the world market

price. The World Bank repor t (1984) postulates that t h e subsidising o f

palm kernel expor t a f ter 1980 was due t o largely the over valuation o f

the Naira and tha t such subsidy diminishes' if shadow rate of exchange

was used.

UDOM and OREWA (1985) observes the declining t r end in percentage

contr ibut ion o f o i l palm produce t o total foreign exchange earnings and

concludes that Nigerians foreign exchange policy d i d not favour the

export o f palm produce.

2.2 PRICE O F PALM K E R N E L ------------ ANON (1948) who pioneered work in the area of palm kernel trade

in Nigeria tabulated annual indices of t he export of palm kernels between

1930 - 1939, the free on Board (F.O.B.) prices of the commodity and

with the terms of trade; without any statistical analysis concluded that

export of palm kernels was positively correlated with the producers

terms of trade. H e also pointed out that local prices alone is not a

determining factor in the total quantity of palm kernels (PK) to be ,

exported. UDOM (1980) using annual indices of exports and the F.O.B.

price of palm kernels for 1930 - 1939, alongside the indices of terms

of trade and real value of commrcial imports found that palm kernel

export was perfectly correlated with the producers terms of t rade (0.13).

Mellemr (1966) investigated the relationship between real producer price

of palm kernel and supplies to the Marketing Board between 1949 - 1963.

He related (y ) changes in ratio of palm kernel sales to Marketing Board

to (P) changes in the index of real producer prices and to ( t ) time trend

measured in years.

Using a linear regression equation, he calculated the elasticity of /

supply of palm kernel t o the Eastern Regional Marketing Board with

respect t o real producers price a s + 0.41 using the equation:

T = 33.71 + 0.23P + 0.43t ratios (10.03), (2.97), R~ = 0.936

( t ratios a r e shown in parenthesis) and concludes among other things

that time t rend is important and relevant t o real producer price of the

commdity. Melleinerts s tudy as in most ear ly studies in Palm Kernel

expor t related more t o the explanation o f supply behaviour to changes

in pr ice and to policy options in determination o f factors that stimulates

supply. Th is i s ve ry understandable as emphasis in most cases was

on t he macro economic..aspect o f expor t o f palm kernels. These studies

however, help in the appreciation o f not only the supply function bu t

also the pr ice and time variables which are important factors in

determining t he cashflow from the trade. ON1 (1969) and OLAYIDE

(1972) in the i r supply functions incorporated weather variable as one

o f the explanatory variables us ing the equations

Q t = F (Pt, Pwt, At, W t - 2,T) and Q t = F(Pt - 7,

Pwt, At - 8, Wt , T, Q t - 1) respectively where

Q t = Quant i ty o f produce supplied

D = Domestic pr ice o f the commodity

Pw = World Market Price o f the Commodity

A = Average o f Oil Palm in Production

W = Weather Index

T = Time t rend measured in years.

While ON1 concludes that cur rent producer pr ice is one o f the major

determinants o f cur rent supply, OLAY l DE argues tha t lagged producer

prices are the most relevant response variable which have val id

implication for pr ice incentives.

According t o OLAYIDE, cur rent prices are :only relevant in assessing

changes in efficiency o f production. In both cases the prices used were

money prices instead -of real producer prices (UDOM 1980) ie money

prices deflated b y the consumer pr ice index.

Blandord (1973) argues tha t producers prices are more l ike ly variable

to affect supply than the world market pr ice tha t was used by bo th

ON1 and OLAYIDE. However non o f the pr ice coefficients used (cur rent

and !agged) b y OLAYIDE were signif icant a t the 5 percent level. The

short r u n elasticities calculated b y ON1 fo r palm kernel was estimated

as + 0.2829 to + 0.3935 while tha t o f OLAYIDE was + 0.048 t o 0.050.

UDOM (1980) related market output o f palm kernels [Qt) t o cur ren t

and lagged real producers prices (Pt - 1 l ) , d r y season weather lagged

two time period (w t - 2) t o time t rend (T) measured in years but

excluded world market pr ice hectrage and lagged dependent variable

(Qt - 1) in veiw of the small sample used (Koutsoyiannis 1979). Using

pr ice data from South Eastern Nigeria 1934 - 1974; and Actual Market ing

Board purchases o f palm kernels in South Eastern Nigeria 1955 - 1966 and

South Western Nigeria 1955 - 1974, he computed polynomial and sample

d is t r ibut ion lag equations. The choice o f the equation wi th the best fit

was based on the consideration o f the coefficient o f determination

adjusted fo r degrees on freedom (R2), the Durbi-Watson Statistic, the

significance of individual lag coefficients and the shape o f the lag

distr ibution. He computed the short term to long term pr ice elast ici ty

for t he South Eastern Nigeria as + 0.4442 and -0.0585 respectively while

that of South Western Nigeria were + 0.5404 and + 1.2562 respectively.

Due t o the negative value of the non-significant lagged pr ice variable, and

t h e shor t : run per iod observat ion in t h e South Eastern area an=lysis,

h e tagged t h e o i l palm. i n d u s t r y in t h e area as a "decreasing cost

indust ry" . OREWA AND UDOM (1985) while analys ing t h e decreasing

t r e n d in t h e supp ly o f palm kerne l in Nigeria between 1975 and 1985

a t t r i b u t e d t h e decline t o decrease in real p roducer pr ices a n d not

money price.

Palm kerne l i s t h e main raw material in t h e product ion , palm kerne l

o i l a n d o ther devivat ives therefrom. Thus i t 's demand i s a de r i ved

one and there fore posi t ive ly corre lated t o t h a t of i t 's end products.

According t o ARSHAD ET-AL (19851, o i l seeds a r e h i g h l y subst i tuable

and t h u s p r i ce d i f fe rent ia ls a r e necessary and react instantenously

t o each other. Table 6 shows the internat ional pr ices of palm kernels,

palm kerne l oil, a n d soya beans o i l f o r t h e per iod 1974 - 1983. MOLL

(1987) projects t h a t palm kerne l p r ices a t t h e internat ional market h a d

been exper iencing a decl ine in 1960 constant p r ices o f about 1.75.

Table 2.7 gives t h e average q u a r t e r l y wor ld market p r i c e of palm

kernels between 1981 and 1985. T h e var iab i l i t y in annual average

pr ices a re v e r y s igni f icant in t h e explanation and management o f

cashflow.

2.3 FOREIGN EXCHANGE RATE

2.3.1 INTRODUCTION

Internat ional t rade involves par t ies res ident in countr ies w i t h

d i f f e ren t nat ional currencies. Each p a r t y would l i k e t o ho ld i t ' s cu r rency

!although invoices f o r t h e commercial t ransact ion may b e denominated I

;in a d i f fe rent cur rency . Expor t sales wi l l v a r y in va lue d u e t o changes ; - I

Iln exchange rate. Since movement o f goods ove r a f a i r l y long distance

Is t he character is t ic o f e x p o r t trade, it follows t h a t t he re must b e a time

[lag' between t h e time o f negotiat ion o f a n e x p o r t cont rac t a n d t h e

I / receipt of t h e proceeds o f t h e contract . A l l these wi l l have d i rec t

I

,effect on t h e ne t earnings and cashflow from a n internat ional trade.

12.3.2 FOREIGN EXCHANGE MARKET r

The fo re ign exchange market i s t h e mechanism by which purchaging

, power and t rade c red i t i s p rov ided in internat ional t r a d e transact ions.

I "it provides a means of minimising exposure t o t h e r i s k o f exchange ra te i "fluctuation, COOMBS (1976). The market operates simultaneously in most

:finahcial centres o f t he wor ld a n d involves customers, b a n k s and o ther i rfinancial intermediar ies who b u y and sell fore ign currencies. It i s done I

through bo th t h e llspot'r a n d " forward" transactions. Spot transact ions

involves t h e purchase o f a n d payment f o r f o re ign exkhange w i t h de l ivery

and payment t o be completed a t once o r w i th in a few business days.

.A forward cont rac t cel ls f o r de l i ve ry a t a f i x e d f u t u r e date o f a

specified amount of one cu r rency a t a specif ied amount o f another cu r rency .

!The exchange ra te i s establ ished a t t h e time t h e cont rac t i s agreed o n

but payment a n d de l ivery a r e not requ i red until matur i ty . Usual ly fo rward b Icontracts a re fo r fa i r l y stable currencies since t h e r i s k ( a n d hence t h e xi for forward contracts i s high, (ARDLAR, MICHAEL AND DUMAS

2.3.3. EXCHANGE RATE DETERMINATION

The overr id ing r i s k accompanying international t rade transaction

i s managing t h e foreign exchange r isk, (DINCE and UMOH 1981). The

r i s k o f managing Foreign exchange values i s ve ry high in the world

o f dai ly f luctuation in rates o f exchange. The international monetary

s y s t ~ m i s characterised by a mix of methods f o r f i x i ng rates o f exchange.

Usually th is i s der ived from a mix ture o f economic and polit ical decisions.

The methods range from a mix o f f reely f loat ing system to f ixed exchange

rate-systems. The under ly ing pr incip les under the free f loat ing system

(w i th a l l attendant modifications) in economic theories has resul ted in

various forms o f th is model. Under the free floating systems, 5 basic

theories underl ine that establishment o f an exchange rate, Brenner (1976).

They are:

1. The theory o f purchasing power p a r i t y

2. The f ishers effect

3. The international f ishers effect

4. The theory o f interest rate pa r i t y and

5. The forward rate as an unbiased predict ion o f the fu tu re spot rate.

The theory o f purchasing power pa r i t y holds tha t if the spot

exchange rate between two countr ies star ts in equil ibrium, any change

in di f ferent ia l ra te o f inf lat ion between them wil l tend t o be of fset over

the longt - run by an equal but opposite change in the spot exchange rate.

Th is wi l l come about as a resu l t o f arbitrage. However, t h i s theory relies

2 0

at deal on changes in rates o f inflation, balance o f t rade and

n payment. It has been proven to hold over a long te rm bu t

e not been a useful tool in explaining exchange rate changes at the

rt run. The f ishers chart named af ter I r v i n g f isher states tha t

nal interest rates in each count ry i s equal t o the required real

e of re turn t o investors plus the expected rate o f inflation, (AL I BER

a. In a world where investors can buy any interest bearing securities,

I rates of r e tu rn should tend toward equality everywhere b u t nominal

8 of interest will va ry b y the dif ference in expected rate o f inflation,

anson 1 9 6 9 ) . Empirical fact us ing ex-post national inf lat ion rates

8 shown the fisher effect t o exist part icular ly for short maturi ty

ment securities. The international Fisher Effect holds tha t spot

qnge rate should change in equal b u t opposite direct ion t o the

rence in interest rates between two countries. The theory o f

rest rate par i t y states that except for transaction cost, a difference

nal interest rates fo r securit ies o f similar r i s k and matur i ty

equal bu t opposite in sign to the forward exchange rate discount

um for foreign currency. The rational for interest rate par i t y

from the use of "Covered Interest Arbitrage1'. The theory explains

e k n t in the forward rate (Rodriguez and Carter 1 9 8 0 ) .

In the case o f managed f ixed ra te the state o f equilibrurrr in spot

forward rates, interest rates and inflation rates a r e prevented f rom

ring b y the government-Central Banks who are wil l ing t o absorb the

Ign exchange losses as the cost for stabil izing the exchange rates.

I n th i s k i nd o f situation, the exchange rate decisions are usually

polit ically motivated. However, in general, the rate o f exchange i s

deter nri ned b y :

1. Balance o f payments and interest rate par i ty .

2. Dif ferential rates o f inf lat ion.

3. Growth in money supply.

4. Business Cycles.

5. Decline o r otherwise on international monetary reserves and

6. Spread between of f ic ia l and "free" rates o f exchange.

1.4 THE NIGERIAN EXPERIENCE -- -----------------

The rate at which a country 's cur rency i s exchanged f o r o ther

International Currencies i s usual ly related t o tha t Country 's balance o f

.: payment position. Nigeria i s therefore not an isolation in th is general

scenerio. From inception, Nigeria d i d not operate an independent foreign

exchange policy. The per iod between 1960 - 1983 witnessed the pegging

of the country's exchange rates t o single o r multiple currencies. Reviewing

the foreign exchange practises in Nigeria dur ing th is per iod (UMOH 1985)

divides the per iod in to fou r (4) d ist inct periods:

1. The pound ster l ing peg 1960 - 1971.

2. The Dollar peg 1971 - 1974.

3. The managed float 1974 - 1981 and

4. The import weighted basket 1982 - 1985.

Nigeria joined the World Bank in 1961 wi th a n off icial exchange

rate o f one Nigerian Pound (NE) t o US 2.80. The Nigerian pound was

f i r s t issued in 1959. Dur ing th is period u p t o 1971, the value o f the

Nigerian Currency was t ied to the pound sterl ing. However when the

ster l ing was devalued in 1967 b y 14.3%, the Nigerian pound was not

devalued but was ra ther revalued upwards in 1971 as a result o f 8.57%

devaluation o f the Nigerian dollar. The combined e f fo r t was the

over-valuation o f the Nigerian pound: Nigeria established the link wi th

the U.S. Dollar in 1971 wi th the of f ic ia l (.exchange rate o f PIE t o US 3.00

on December 23rd 11471 wi th a f luctuation nrargin of 4.5%.

/ Nigeria changed t o the Naira cur rency and even when the Dollar

was devalued b y 10% in 1973, i t ' s rate was not signif icantly changed,

In 1974, Nigeria allowed i t 's cur rency t o float upwards. Dur ing th is

period, the Naira was,f loat ing around $1.52 - $1.62. Th is was not a

period o f free float b u t afloat managed b y the Central Bank hence the

period was re fer red t o a "managed float period".

The Central Bank o f Nigeria introduced the import weighted basket

of currencies in Ap r i l 1982, The currencies included in the basket were

the US Dollar, the pound sterling, the German Dutch Mark, the f rench t .

Frank, the Swiss Franc, the Dutch Gulder and the Japanese Yen. The

changes in these cur rency rates weighted b y the i r share o f Nigeria's

import payment were used t o determine the rate o f exchange. By 1986 I

due to acuFe balance o f payment problems, the Nigerian government

decided to deregulate the economy and de-emphasize the managed exchang

rate system. The Second Tier Foreign Exchange Market (SFEM) was

introduced b y the end o f September 1986. The SFEM (Later FEM, IFEM)

a free market for spot transaction in currencies.

It is a money market in which Naira changes hand for commercial

foreign exchange (Afr ican Guardian Magazine, August, 1966). It is basic:

an auction system w i th the aim of evolving a f ree nrarket situation devoid

o f the f ixed exchange management approach. It aims a t market forces o f

demand and supply determined exchange rate fo r currencies. ICON NEWS

JOURNAL (1988) says that i t 's objective is to evolve a free market where

al l coercive demand management approach o f f ixed exchange ra te regime

will be completely dismantled. Under th is system, the rate o f exchange is

determined b y demand and supply although, there had been minor

interference in the market by the Central Bank. The immediate effect o f

the introduction i n 1986 was a large depreciation o f the Naira.

The depreciation continued up t o end o f 1988. Faced wi th acute

shortage o f foreign exchange, the depreciation is expected. Parallel to

the official exchange nrarket, the government in a bid t o deregulate the

economy, allowed for autonomous market fo r the sale o f foreign exchange.

Under this, the exporters o f goods and services can arrange t o sell the i r

proceeds t o potential customers a t an agreed price. There was also the

"Black Market" in the sale o f foreign exchange. This market developed

as in the managed exchange era when denrand for fore ign exchange a . :'* 0.

: yGrL?l; *

*-'5 ' j

- : .+., 91 9%

!outstr ipped supply. . D u r i n g th i s per iod also, some customers who did I I not want t o face t h e off ic ial s c r u t i n y o f t h e author ised market found

solace at t h e "Black Market". The pr ices a r e usual ly h igher than t h e

[:pfRcia, rate. The spread according t o ETMAN and STONEHILL (1979)

1;'lr a measure o f loss o f confidence in t h e local cur rency . Table 2.8 g ives

1 the off ic ial , e f fec t ive a n d Black market rates o f t h e Naira and the Dol lar

1 for 1973 - 1977.

Generally therefore, t h e opt ions available for t h e sale o f fo re ign

exchange i s varied. T h u s t h e a l te rnat ive o f fe rs t o a n expor te r var ies

options t o enhance h i s earn ings t h u s improv ing h i s net cashflow.

2.3.5 LOCAL DEMAND AND SUPPLY FOR PALM KERNEL --------------------------------

Palm Kernel had p r i o r t o 1970 been essential ly a n expor t p roduct .

Handled essential ly by government corporat ions, local processing, usage,

and thus demand was marginal. B y mid 1970, w i t h t h e reorganisat ion o f

,the Niger ian Palm produce Board, ,Emphasis was placed o n c rush ing o f

,palm kerne l a n d o f i t 's products. Table 2.9 shows t h e Palm Kerne l

Production and e x p o r t in Nigeria between 1975 and 1985. D u r i n g t h i s

$period, on ly v e r y few Niger ian Crush ing Plants and t h u s b u y e r s ex is ted

for kernels in t h e coun t ry . W i t h t h e deregulat ion o f t h e economy in

1986, t h e Federal Government not on l y allowed p r i v a t e sector expor t o f t '. . /goods and services; it also banned t h e importat ion o f o i l and fats. W i t h ! / 1 this ban there fore arose t h e establishment o f indust r ies f o r t h e processing i t 1 of oi l and fat. Between 1986 and 1989, t h e to ta l insta l led capacity f o r

palm kernel crushing plants was approximated at 25,000 metric tonnes

o f palm kernels annually. Coupled with th is was the increase i n export

activities. Beside the various support services provided b y the

..gqvernment for export activities; the government also allowed pr ivate

,investors t o retain 100% o f the i r export proceeds. UDOM (1989) observes

the inflow o f these pr ivate exporters o f palm kernel between 1986 and

1989 and the implication to the local pr ice o f palm kernels. He observes

that b y 1988, the domestic pr ice has rendered the export o f palm kernels

unattractive especially where export proceeds were exchange at the

official rate o f exchange.

REFERENCES

Afr ican Guardian (1 987) :

ANON (1948) :

ARSHAD, F.H. a n d

CHAFFER A. (1985) :

SLANDFORD D. (1973) :

BRANSON W.H. (1969) :

BRENNER M.J. (1976) :

DlNCE AND UMOH (1981):

FAQUHAR J.H. (1913):

August, PP II Alder a n d Berneard

(1 976) : Portfolio Choice and demand

fo r fo rward exchange.

"The product ion o f palm oi l a n d palm

kernels in Nigeria". T h e Uni ted

A f r i can Co. Ltd. Stat ist ical a n d

Economic Review No. 1.

"Casualty Among Selected Oi l and Fat

Prices". Paper presented a t t h e

Internat ional Conference on Oi l Palm,

Port Harcourt .

Some estimates o f supp ly elast ic i t ies f o

Niger ian Cash Crops: A Comment

Journal fo r Ag r i cu l tu ra l Economics

Vol. 24, No. 3. 601 - 604.

The minimum covered interest d i f f e ren l

need f o r in ternat ional a rb i t ra* ac t i v i t *

NovIDec. 1969. PP 1028 - 1035.

The Polit ics o f I nternat ional Monetary

Reform Cambridge Mcss. Bal l inger 1976

Foreign Exchange Risk and t h e Port fo l i

Approach : Columbia Journal o f World

Business S p r i n g 1981.

T h e Oil Palm and i t s var iet ies c rown a<

f o r Colonies London 48P.

Food & Ag r i cu l tu ra l Organisat ion "Agr i cu l tu ra l Development in (1986) : Nigeria" FAO ROME.

HELLEINER C.K. (1966): "Peasant Agr icul ture, Government a n d

Economic Growth in Nigeria".

Homewood, I llonoise.

IMF (1984) : Internat ional Financial Stat ist ics Year

Book 1984, Washington.

KOUTSOYIANNIS A. (1979) : Theory of Econometrics : T h e Macmillian

Press Ltd. London England, 2nd

Edi t ion x v i i + 681 PP.

LAURENT C.K. ET A L (1973) : A g r i c 11 nvestment St ra tegy in Nigeria.

Consortium f o r s t u d y o f Nigeria Rura l

Development (CSNRI) 26.

MOLL, H.A.J. (1987):

OLAYIDE, S.O. (1972) :

USORO, E.H. (1974):

ONI, S.A. (1969):

"The Economics o f Oi l Palm" Pudoc

Wagenngen.

"Some estimates o f supp ly elast ic i t ies f o ~

Niger ian Cash Crops". Journal o f

Ag r i cu l tu ra l Economics Vol 23 No. 31.

"The Niger ian Oi l Palm lbadan Un ive rs i t

Press, Ibadan, 153 PP.

"Product ion response in Nigeria

Agr i cu l tu re : A case s t u d y o f palm prod^

1946-1966. Niger ian Journal Economic

and Social Studies Vol I I, Nov. 1, 81-91

OMOT, U. ET A L (1985): "The Soils o f t he Niger ian Oi l Palm

Belt : T h e i r character is t ics and

management of o i l palm cul turat ion" .

"Paper presented a t Internat ional

Conference in Oil Palm", Port Harcourt.

OREWA, S. E UDOM D. (1985): 'lEconomics o f palm o i l p roduct ion and t t

Niger ian Palm Oil Market1'. Nigerian

Journal Economics a n d Social Studies

Vol. 11 NO. 1, 181-191.

WORLD BANK (1983) :

WORLD BANK (1984) :

UDOM, D.S. (1989):

ZEVEN (1967) :

Nigeria Agr i cu l tu ra l Sector Review,

Washington.

Price Prospects for major Pr imary

Commodities Washington.

" A rev iew o f Recent Oil Palm Product ior

Policies in Nigeria". Paper presented

at t h e lnternat ional Conference o n Palm

Products, Benin.

"The Semi-wild Oi l Palm and i t s l n d u s t r

in Afr ica, Pudoc, WegLt~ingen.

CHAPTER 3 ----------

METHODOLOGY

, 3.1 INTRODUCTION ---------- There is a high level o f var iab i l i t y associated w i t h cash f low

result ing f rom e x p o r t o f ag r i cu l tu ra l produce l i ke Palm Kernels. T h i s

variabi l i ty ar ises f r o m changes occur ing w i th in t h e variables t h a t

determine the cash . f low. These variables include:

Price o f kerne ls a t t he Internat ional Market.

Exchange ra te o f t h e Naira against major World Currencies L ike U.S.

Dollar o r Pound Sterl ing.

Batch Size o r q u a n t i t y o f Kernels p e r expor t ac t i v i t y .

Incremental Cost associated w i t h t h e expor t ac t i v i t y .

Seasonality effect.

These variables there fore e x e r t a tremendous inf luence o n t h e nature

of the cashflow resu l t i ng f o r m a n e x p o r t ac t i v i t y . l l sua l ly m s t expor t

trade f o r commodities as ca r r i ed o u t in Nigeria a r e ef fected b y t h e use o f

Letters o f Credit. Thus, the re i s always a t ime lag between t h e per iod o f

fmnalisation o f contract a n d receipt o f t h e proceeds a r i s ing f r o m t h e

Contract. Th is there fore mean tha t many in terven ing variables may have

affected the quantum o f income received f r o m such ac t i v i t y . Beside t h e

issue o f t h e actual inf low o f income a r i s ing f r o m t h i s ac t iv i ty , t h e per iod

,of the year in which t h e expor t a c t i v i t y i s ca r r i ed o u t also p lays a role

since b o t h demand and supp ly o f palm kerne l a re subject t o seasonal

variat ions. In t h i s s t u d y therefore, these in te rven ing variables wi l l be

subjected t o actual analysis t o deternrine t h e i r re lat ive importance in

expla in ing t h e changes in cashflow. The cashflow (CF) i s t h e depende

var iable a n d i s postu lated t o have a: l inear re lat ionship w i t h t h e

independent variables as :

World Market Price o f Palm Kernels.

Exchange ra te o f t h e Naira against t h e Dollar.

Incremental Cost associated w i t h expor t a c t i v i t y ( Hand ling C hz

Quan t i t y Per Shipment.

Seasonality effect.

SOURCES OF D A T A :

The data f o r t h e s t u d y a r e nmnthly a n d q u a r t e r l y data coverinl

t he per iod 1987 a n d 1988. Questionnaires a r e administered t o b o t h p ro '

local users and expor te rs o f Palm Kernels. Addit ional in for rmt ion i s

obtained f r o m var ious Cent ra l Bank o f Nigeria (CBN) publ icat ions a n d

off ic ial c i r cu la rs especially those re la t ing t o fo re ign exchange rates anc

practices. Data wi l l also be taken f r o m I-onclon Co~~rmodi ty Market

Publications o n Palm Kernel Prices ( inc lud ing f u t u r e pr ices) .

3.3 QUESTIONNAIRE DESIGN:

The quest ionnaire i s designed in t w o p a r t s in such a way t h a t

p r imary data can be obtained from. respondents. Series of quest ions w

comespnding choice of range of ans.wers a r e p rov ided f o r respondents

t o choose t h e appropr ia te option. T h e respondents a r e essential ly in

two categories:

7 I ndus t r i a l p roducers o f Palm Kernels.

- Indus t r i a l c rushers of Palm Kernels a n d / o r expor te rs o f Kernels.

These a r e however few cases o f respondents belonging t o t h e t w o

categories. T h e respondents in t h e f i r s t category ( ie l ndus t r i a l Producer!

are:

Risonpalm Limited, Port Ha rcou rt . Adapalm Limited Ohaji, Im State.

O k o m Oi l Mi l ls Limited, Okomu Bendel State.

Bendel OPC Limited, Ajenrodudu, Bendel State.

Ok i t ipukpa Oi l Mi l ls Limited, Ondo State.

Sam Grace a n d Co. Limited, Uyo, Akwa lbom State.

Adam Rivers States Limited, Benin, Bendel State.

Respondents in t h e second category ( ie l ndus t r i a l IJsers/exporters) ,

are as follows:

Nal in Indust r ies Limited, Port Harcourt .

PZ Indust r ies Limited, Aba,

Lever ~ i o t h e r s (Nig.) Limited, Aba.

Creek p lan Consultants Limited, Port Harcou rt . Combined A g r i c and Indus t r i a l Consultants Limited, Por t Harcourt.

6. Tony Anthony and Co. Limited, Port Harcourt .

7. Rivoc Limited, Por t Harcourt .

8. Gen. Agro. Co. Ltd., Por t Harcout.

Risonpalm Limited and Adapalm Limited also t r i e d d i rec t e x p o r t on

a few occasions.

3.4 MODEL SPECIFICATION: --- --- The regression model f o r t h e s t u d y aims a t making oashflow

(dependent var iable) a func t ion o f t he independent variables. The model

represent ing t h e re lat ionship i s g i v e n by:

CF = f(Pw, R, Ic, di, P l , We)

where C I = X I = Cashflow f rom e x p o r t operation.

' Pw = X2 = In ternat iona l Market Pr ice of Palm Kernel.

I c = X3 = Incremental Cost associated w i th Expor t a c t i v i t y - Handl ing

Charges.

Q I = X4 = Quant i ty Per Shipment.

We = X5 = Seasonality effect.

The stat is t ica l technique employed f o r analys ing the data inc lude:

3.4.1 PERCENTAGES: --------- These a re employed to determine the propor t ion o f t he respondents

that fa l l w i th in a pa r t i cu la r response group. Th is i s usua l ly expressed

as f rac t ion o f 100.

3.4.2 ORDINARY LEAST SQUARES (OLS) METHODS: -----------------,------------

T h i s involves corre lat ion a n d regression analysis. The variables

,a re corre lated before t h e y a r e regressed against each other . Aids l i ke

t h e Lotus 1-2-3 Software Programme ( IBM compartible) and SPSS Programme

wil l be used t o assist in t h e analysis.

3.4.3 MEAN AND STANDARD DEVIATION: --------------------- The mean i s a representat ive o f a set o f data and tends t o l ie

cent ra l l y w i th in t h e set o f data where such data a r e ar ranged in o r d e r o f

magnitude. It i s usua l ly r e f e r r e d t o as a measure o f Centra l tendency,

Spiegel (1961). It, g ives t h e average o f range data a n d t h e algebraic

sum o f the deviat ion f r o m it i s zero. T h e mean shal l b e appl ied in locat ing

the measure o f cent ra l tendency a n d f o r t h e purpose o f calculat ing t h e

standard deviat ion f o r such data as fore ign exchange rates, p r ices and

cashflow. It i s def ined as

Where X i = a n y o f n values X1, X2, X3, ... Xn

n = Number o f X values.

'Y-he standard deviat ion represents t h e degree t o which numerical data

/.tend t o spread about a n average value a n d i s de f ined as:

Where X = any o f n values XI, X2, X3, Xn. i

n = number o f X values.

Standard deviation has been used in the nreasurement o f r i s k and will

be applied here in determining the relative dispersion o f the numbers

around the m a n . It implies that it will be used to measure fo r instance

the variation o f the rates o f exchange over a g iven period.

3.4.4 SIMPLE CORRELATION : ------------- Correlation analysis is a measure employed t o predict how

strongly related dependent and independent variables are t o each other.

Specifically it is employed t o investigate the level o f relationship between

the cashflow and the other independent variables. Our assumptions in

the analysis is the s a m in Wonnacott and Wonacott (1977) which implies

that it i s assumed that :

A There i s a Linear relationship between the dependent and

independent variables.

B. Both dependent and independent variables are random variables.

C. All independent variables have a bivariate normal d is t r ibut ion wi th

the independent variables.

We are also assuming that succeeding observations are uncorrelated

for the dependent and independent variables (Kazinier 1979). A

correlation matrix wi l l be constructed t o determine the level o f association

between the dependent and independent variables.

3.4.5 MULTIPLE CORRELATION : ---- --------- Th is wi l l be employed t o invest igate t h e dependent var iable and

311 t h e independent variables combined. S t i l l fol lowing t h e assumptions o f

Wonnacott and Wonnacott (19771, it i s assumed t h a t t he re i s a l inear

re lat ionship between dependent a n d independent variables a n d b o t h a re

randomly d is t r ibu ted. In addition, Kazinier's assumptions a r e also

applicable as follows:

a. For . each dependent and independent variable, t h e d i s t r i bu t i on of

condit ional values g i ven var ious combinations o f values o f o the r

variables a r e normally d is t r ibu ted. Th is implies t h a t t h e d i s t r i bu t i on

o f t he several variables jo in t ly i s a mult i -variance normal d is t r ibu t ion .

c. Succeeding observat ion f o r each o f t h e variables are uncorrelated.

The mult iple corre lat ion model assumes t h a t t he re i s a normal

d i s t r i bu t i on o f t h e dependent var iable fo r e v e r y combination o f t h e

values o f t he dependent variables. According t o Wonnacott (1 977),

it sor ts o u t and isolate a l l d i rec t re lat ionship between dependent

and independent variables, reduces the res idual variables and t h u s

reduces t h e s tandard e r r o r o f t h e regression coeff ic ient thereby

s t rengthen ing stat is t ica l test and confidence in terva Is. A l l t h e

mult iple corre lat ion coefficients a re calculated w i th t h e a id of

mult iple corre lat ion software. T h e resu l t i s g i v e n in a mul t ip le

corre lat ion matr ix f o r a l l variables.

3.4.6 BACKWARD ELIMINATION ANALYSIS: --------- -------- Backward elimination enters a l l var iables in t h e equation and

sequential ly eliminates t h e dependent variables (Norusis 1986). T h i s i s

in reverse o f t h e fo rward selection which s ta r t s w i t h no independent

variables and sequential ly in t roduces them i n t o t h e equation. Thus, in

backward elimination analysis, removal c r i t e r i a are specif ied. The variables

are a l l en tered a t t h e f i r s t instance and a t least important variables a re

left. Two removal c r i t e r i a a re used in t h i s analysis. The minimum

F - :value (F - Out), in which case a var iable w i t h " F value" less t h a n

F wi l l be e l ig ib le f o r elimination i s t h e f i r s t c r i t e r i a whi le t h e second i s

the maximum p robab i l i t y o f F - t o - remove (keyword P out) . T h e

default F out value i s 2.71 and t h e defaul t P out value i s 0.10. The

defaul t c r i t e r i a i s P out. The f i r s t var iable t o remove f rom t h e equation

i s t h e one t h a t i s least important.

nier, L. J. (1979)

usis, J. N. (1986)

REFERENCES

Basic Statistics for Business and

Economics McCrow-Hill Book Co.

New York PP 301.

Statistical Package for the Social

Science.

Theory and Problems of Statistics,

McGraw-Hill Book Co. New York.

nacoot, R. J. and : .

nacott T. H. (1977) Introductory Statistics 3rd Edition,

New York, John Wiley and Sons

Int. PP 315 - 440.

CHAPTER 4 --

DATA ANALYSIS AND FINDINGS

4.1 INTRODUCTION:

The s tudy was carr ied out w i th the aid o f questionnaires and

by personal interv iew o f key off icials in the respondent companies. While

the ord inary least square method was used as the main stat ist ical tool,

percentages among others have been used in analysing the data collected

from the questionnaire. The questionnaire was div ided in to 2 parts. Part

1 was essentially fo r companies engaged i n d i rect production o f palm

kernels. Questionnaires were sent t o 7 companies and seven (7) re turned

the i r questionnaires representing 100% response rate. The second

category o f respondents were companies engaged in e i ther local usage o f

palm kernels of exporters o f palm kernels. Eight (8) companies received

questionnaire and eight (8) responded showing a response rate o f 100%.

Of the 7 companies i n the f i r s t category, al l o f them responded

that they are manufacturers and two, Risonpalm Limited and Adapalm

Limited engaged in d i rec t export between 1987 and 1989. Three (3)

companies, Lever Brothers Limited (LBN) , PZ l ndustr ies and Rl VOC /

Limited (20%) were engaged i n only local processing o f palm kernels. A l l

the companies agreed that the i r products are not graded. However, it

was established during interv iew tha t there a re minimum indust r ia l

L standard i n terms o f qual i ty. Thus so long as the product fa l l wi th in

this acceptable standard, it commands the same general pr ice pe r tonne

appl icable in t h e market. The tota l maxinrum annual p roduct ion capacity

o f t h e 7 companies i s about 27,600 tonnes. T h e World Bank (1983) p u t s

the to ta l palm kerne l p roduct ion in 1987 a n d 1988 a t 400,000 a n d 435,000

respect ively. Th is shows t h a t t h e combined ou tpu t o f a l l these

manufactures i s less than 7%.

TABLE 4.1

EXPORTERS/MANUFACTlJKERS OF PALM KERNEL ----------------------------------

RESPONSE NO %

Manufacturer

Expor ter on ly

Local use only

Expor ter Manufacturer

Source: Response f r o m quest ion 1 & 2 o f t h e p a r t 1 o f questionnaire. --- Only 13.33% engaged in d i rec ted manufacture and also expor t a t t h e same

time. 46.70% are manufacturers while 33.33% engage in expor t a c t i v i t y

only. 20% engage in local processing o f palm kernel .

TABLE 4.2 -------

Maximum Annual Capacity No o f Companies Gross %

Response f r o m quest ion 3 o f quest ionnaire.

4 0

, . Dur ing interview, it was observed that the companies l isted are

major industr ia l producers in the country. However, a major supply

source are the millions o f local farmers dispersed over a very wide

economic t e r r i t o r y o f the oi l palm belt. The indiv idual production

capacity o f each farmer is minimal b u t the combined effect is the main

supply base o f palm kernels. However, since the farmers are not

organised and are dispersed over a wide te r r i to ry , these 7 companies

belong t o a common Cartel (Palm oi l Producing Companies o f Nigeria) and

tend to be the pr ice setters and also tend to relate more to the buyers.

They therefore exer t a higher influence over the market than the local

farmers. Only one company (Risonpalm Limited) has a capacity fo r more

than 8000 tonnes (above 30%). Three companies produce a combined

output o f 39.2% while 2 produce 8.7% and 1 - Adapalm Limited produces

I about 21.7%. This i s reflected in Table 4.2

When asked to assess the influence o f seasons on the production

and marketing o f the produce, a l l agreed to the fact that th is has a

significant impact on production and selling pr ice o f palm kernels. The

production circle is g iven as having the peak period in the 2nd quarter

o f the year wi th the last quar ter as the lowest period. Conversely,

this i s reflected in the local market pr ice o f the product wi th the product

1 commanding t h e highest pr ice in the last quar ter o f the year. From the

, export ing point o f view, th is is also reflected in the pr ice movement.

Responded export ing companies however, agreed that t h e impact o f

seasonality effect in the international market is less than those in the

local market due. to use o f "Fu tu re huy ing" a n d storage. Table 4.3

and 4.4 c lear ly shows t h e response t o these changes.

Respondent manufactur ing companies when asked t o ra te t h e

importance o f cer ta in factors determining t h e i r cashflow maintained t h a t

demand, supp ly season and government pol icy decisions a re v e r y

important factors.

TABLE 4.3 ------- AVERAGE LOCAL SELLING PRICE OF PALM KERNEL

YEAR I S T QTR 2ND QTR 3RD QTR 4TH QTR

. J - . l ' -. ..- - Source : Risonpa lm Limited , Port Ha r c o u r t . ----

TABLE 4.4 -----

Pea k

High

Low

Very Low

Source: Response o f quest ion I I o f questionnaire. ---- .I

The cost o f product ion was the least important. On fu r ther

:inquiry, it was explained that Palm Kernel production i s a by-product

'of a major product - Palm oil. So long as it i s prof i table for such 1,

jcompnnies t o produce palm oil, they wil l continue to produce palm kernel.

' A l l the expor t oriented respondents have Western Europe as the i r , ./

:mai=ket and a l l agreed tha t minirm~m quant i ty pe r shipment o f at least

~5OOnrltonnes i s specified in the contract. Th is has di rect impact on the

,cost o f shipment and handl ing on bo th the expor ter and the importer. r. - -

:Table 4.6 and 4.7 shows the response on the shipment pattern. Three (3) I

'companies exported about 500mltonnes 22 (38%) times in the year 1987 and

'In 1988 f ive (5) companies exported in batches o f 500mltonnes 20 times

jln the year. Fewer companies exported in larger quant i ty , 1500m/tonnes

,in 1987 and 1988. Most companies exported in batch quanti t ies about 1000 I

:tonnes most times o f the year.

I

I To the question as t o whether sales contract are made Free On

[Board (FOB) any Nigerian Ports o r are made t o include Freight and I llnsurance (CIF), 33.3% confirmed tha t t he i r contracts are made FOB

2 66 l3 are made CIF. For companies wi th FOB contracts, handl ing

;charges up t o the point o f shipment i s put at about 5% o f sell ing pr ice I

?while those w i th CIF contract agreed t o handl ing charges o f between i 110% - 15%. 5 1 - , A l l respondent companies sold t o C o m o d i t y Brokers in Western

Eurbye and theiri prices were the same wi th the quoted prices in the j .:/

London Community Exchange. The mode o f payment was also the same 1

(Le t te rs o f C red i t ) f o r a l l respondent companies. When asked to name

the major currencies t h a t t h e i r contracts were denominated in, a l l t h e

s ix (6) agreed t o have had contracts in US Dollars. T h e sales contract

denomination currencies a r e g i v e n in Table 4.9 a n d 4.10. In 1987, a l l

the companies had contracts in US Dollars and 5705 o f transact ions b y t h e

respondent companies were denominated in US Dollars. In 1988, 50% o f

the transact ions were in Dol lars and a l l conrpanies also had contracts in

Dollars .

TABLE 4.5 ----- FACTOR AFFECTING THE CASHFLOW

FACTOR ---- RATING

Demand Very important

s u p p l y Very important

Sea son Important

Government Policy Very i mportant

Cost Not important

source: Response t o quest ion 10 in p a r t 1 o f t he quest ionnaire. ---- /

TABLE 4.6 -------- SHIPMENT QUARTERLY PATTERN 1987 ------------------

Quarter ly No o f Companies A v e r s e No in t h e Year -A-p- -- --- -----

About 500mlt 3 2 2

About 1000 6 2 4

About 1500

Source: Response f rom quest ion 2 o f p a r t 2 o f questionnaire. --

TABLE 4.7 ------

Source: Response from question 2 of par t 2 of questionnaire. ----

TABLE 4.8

FORM OF SALES CONTRACT --------------------- Response

,- - No -

..' FOB

Source: Response t o question 5 in pa r t 2 of questionnaire. ----

TABLE 4.9 ------

No of No of % of companies % of transaction Companies Transaction dea l ins with cu r rency in t h e cu r rency ; j --- -- --------- ----- ----------- ---------- - I I

PO; nd Sterling E 4 * 11 66. 213 19 I 1 1 .

US Dollars 6 3 3 100 57 4 ! r"

German DM 2 4 33113 Japanese Yen - - - French Francs 1 10 1 62/3 17

, 8 i

Others - - - - --- ' I I

58 1m ' !

Source: Response t o quest ion No. 16 p a r t 2 of questionnaire. ------ -

CURRENCY DENOMINATION OF SALES CONTRACT 1988 -------------------------.-----.--.-------

No o f No of % o f Coys % of C o m a nies ----- , ,Transaction I dealing with -------.-- ------- transaction

2 6 33 '1~ 11

Others -

TABLE 4 . l l A ------ I I

WORLD MARKET PRICE OF PALM KERNEL QUARTERLY ---------- ------- AVERAGE 1984 - 1988 (U.S. $ / M t ) . -----------------

I. L

LYea r -C-

I st Quarter ------ 2nd Quarter ---.---- 3rd Quarter -----------.-

4th Quarter en-------

L .

MONTHLY AVERAGE EXCHANGE RATES: ------------------------

Naira (PI,) to U S Dollar ($); Pound Sterl ing (E) and Germany Mark (DM)

I,.: ' f * 1 1 ; 1988 , 1987

Month $ E DM $ f DM

JAN '

FEB

MAR.

QTR A V .

APR

MAY

JUN

QTR A V .

JUL

AUG

SEPT

QTR AV.

OCT

NOV,

DEC

QTR AV.

YRL AV .

------_.I------------------------

Sourcec : Various CBN Exchange Rates published b y Banks.

The Pound Ster l ing had 4 companies in 1987 w i t h 19% a n d 11%

total t ransact ions in t h e respect ive years. Fewer transact ions were I

J~~panese Yen o r o the r currencies during t h i s period. When asked t o

rank t h e currencies in o r d e r o f preference, a l l companies ranked the

Dollar f i r s t . On ly one c o w a n y combined A g r i c a n d Indus t r i a l

Consultants (CIACO) - A f renah company ranked t h e FF second o r third. I

On f u r t h e r inquiry most o f t h e execut ives o f these companies conf irmed

that t hey would have l i ked t o deal in Japanese Yen because o f i t ' s , . stabil i ty in t h e wor ld market, but it i s no t highly marketable in Nigeria

due t o low demand. A l l t h e companies accepted exchange rate,

conver.t ibi l i ty a n d demand as t h e basis o f preference o f t h e currencies.

Tk.,average exchange rates f o r t h e currencies f o r January t o December,

'1987 a n d 1988 are g i ven in Table 4.11 while t h e average q u a r t e r l y f

exchange rates f o r t h e same pe r iod i s g i v e n in Table 4.12 a n d 4.13

respectively. Companies also accepted expor t p roduc t p r i ce a n d exchange r il

rates as t h e most important determinant factor in t h e cashflow. T h i s i s h r ,

followed by t h e local p r i c e o f palm kernels a n d handl ing charges as

important factors. Seasonality e f fec t i s also considered important. I ' I

With t h e a id o f o r d i n a r y least square methods o f corre lat ion a n d h' egression, these factors were tes ted t o see how t h e y af fect t h e cashflow.

k i th the a i d o f a co.mputer, t h e mult iple regression analysis were also I b r r i e d out. Cashflow (Dependent variable) was entered in column one,

Im Kernel p r ices in Column two, exchange ra te o f t h e Dol lar t o t h e

in column three, ba tch quan t i t y shipment in colunrn f o u r a n d hand l ing

' I .

charges a t 10% o f r evenue in co lumn f i ve . T h e to ta l number o f cases f o r

!the s t u d y was t w e n t y f o u r ( i e t w e n t y f o u r months da ta o f t h e f i v e / 'variables) a n d a l l da ta ana lys is by t h e compu te r was done a t 0.05 leve l

bf s ign i f icance i m p l y i n g t h a t in t e s t i n g o u r hypo thes is a t t h i s level, t h e ?, /probabil i ty o f r e j ec t i ng t h e hypo thes i s i f it is t r u e i s 0.05 F r e u n d a n d I

'Williams ( 1977) .

:TABLE 4.12 I I

, AVERAGE QUARTERLY EXCHANGE RATES

1: {Naira (W! t o US Dol lar ($1; Pound S t e r l i n g (El a n d German M a r k (DM) ,---- - I 1987 !' . /

1

iCurrency 1st Q t r 2nd Q t r 3 r d Q t r 4 t h Q t r

1 $ 2.98 3.51 3.87 4.12 1 i E 4.64 5.78 6.82 7.58

;Sources : Computed f r om CBN Pub l i shed Exchange Rates. L

1 AVERAGE QUARTERLY EXCHANGE RATES

p l r a (W) t o US Dol lar (1). Pound S t e r l i n g ( £ 1 a n d German M a r k (DM)

I988

1s t Q t r 2 n d Q t r 3 r d Q t r 4 t h Q t r

4.25 4.18 4.63 5.04 7.64 7.79 7.85 8.63 2.54 2.45 2.51 2.87

: Computed from C B N Pub l i shed Exchange Rates.

Standard Deviation and Coefficient of Deviation :

,The mean, s tandard deviation, a n d coefficient variation for t h e

:three major currencies ( U S Dollars, Pound Sterling, and German ~ a r k s )

;was computed and shown below in Table 4.14 a n d 4.15.

Mean, Standard deviation arid Coefficient of Variation of Major Currencies I988 - .. - Standard deviation Coefficient of Variatiori -

.536 1 1 -86%

.384 4.8%

.327 12.63%

puted from CBN published exchange rates.

!Mean, Standard deviation a n d Coefficient of Variation of Major Currencies 1987 - Standard deviation - -- Coefficient of Variation

.428 11.890

1.107 17.8%

.336 16%

The mean being a measure of central tendency clearly shows t h e average t

exchange ra te of each of t h e major currencies dealt with by each of t h e

espondent firms. It is believed tha t a company will deal with a cur rency

is relatively more stable for ni .mum re tu rn on investment. The

m t ~ n d a r d deviation is a measure of t h e spread o r dispersion around t h e

nean and therefore symbolises t h e level of exchange r i sk associated

Hlrtr gad.rab U U P C Y I * ~ ~ .

, Houever, th is level of variation is reported in absolute f igures

!hich may distort t h e f igures. Therefore t h e relative dispersion was

Aculated a s t h e coefficient of variation which now gives t h e relative

+ersion around t h e mean in percentages. From table 4.15, it can

be seen tha t in 1987, Dollar was relatively more stable with coefficient

of variation of 11.8% a n d 17.8% a n d 16% for t h e Pound Sterling a n d

Dutch Mark respectively. In 1988, t h e Dollar was fairly stable a t

11.8630 while Pound improved significantly t o 4.8% and t h e Dutch M a r k , J at 12.63%. Thus , it can be observed tha t the Dollar remained more

stable in period under review than the o the r currencies and was therefore

used in f u r t h e r analysis in place of t h e o ther currencies.

! i :..4.3 SIMPLE CORRELATION RESULTS: I t, t A correlation matrix from t h e variables in t h e s t u d y was computed

kar a f lrst s t e p in analysing t h e data. The variables, cashflow, price

1 of kernels, exchange ra te a n d handling charges a r e represented by

jXi, X2, Xg and Xg respectively. Xq, t h e hatch expor t quanti ty is

[*stant ( 1000mt 1 a n d could therefore not be processed by t h e computer

w& eliminated in t h e analysis. The coefficients matrix showing t h e

[Lcnefoefiieients between t h e variables is given in Table 4.16. The level of

I.. ,

'belationship . . t h a t ex is t between two variables i s establ ished by t h e i r

'~Imple corre lat ion coeff ic ient a n d t h e values range f rom -1 t o 1. The I

:level o f re lat ionship between t h e cashflow ( X i ) a n d t h e p r i ce of kerne l i

/IS established a t .000 showing tha t t he re i s n o stat is t ica l l inear t i

elationship between t h e two. T h i s also appl ies t o exchange ra te w i t h a

value of ,000. The re lat ionship between cashflow and hand l ing charges

is inverse w i t h absolute f i g u r e o f -1, Th is implies t h a t cashflow

/decreases as hand l ing charges increases by t h e same proport ion. Xq

/has been eliminated in t h e analysis because it i s constant. A re lat ionship L

'can also b e establ ished between t h e independent variables X2, X3, a n d 1 lX5. T h u s when corre lated against each other , X2 pr i ce o f kerne l has ,!I inverse relat ionship w i t h X3 a n d X5 a t level o f -.7274 a n d -.I973

tr espectively imp ly ing t h a t as p r i c e increases, exchange ra te a n d hand l ing

/charge; decreases. When corre lated also Xg and X5 exh ib i ted t h e d i rec t L "relationship a t a level o f .6606 . i

L j1.4 MULTIPLE CORRELATION RESULTS:

L t

I The mul t ip le corre lat ion analysis was executed w i t h t h e a id o f t he

ISPSSIPC + Computer Programmes. The mult iple corre lat ion ( R ) i s a

.measure o f t he level o f re lat ionship between the dependent var iable (XI) t . bnd al l t he independent variables combined (X2. Xa, X5). The values

aye reported in absolute f igures a n d ranges from zero t o one. The aim 1 'of the mult iple regression i s t o establ ish t h e combined ef fect of t h e 1:

esults o f t h e mul t ip le corre lat ion analysis.

INTERPRETATION OF RESULTS:

The mul t ip le (R) as shown in Table 4.17 i s 1 a n d R-Square t h e

:oefficient o f determinat ion i s I. T h i s implies t h a t level o f re lat ionship

)etween X 2 , X 2 , X 3 a n d Xg i s equal t o 1 a n d t h a t these independent

rariables account fo r 10% o f t h e observed var iat ions in t h e cashflow

'eceived b y a n e x p o r t e r o f palm kernels. The F-Value usua l ly expressed as:

/ .. = Mean Square resu l t i ng f rom Regression . . - Mean Square resu l t i ng f rom Sampling e r r o r

jenotes t h a t overal regression ef fect . T h e constant represents t h e

ihange t h a t wi l l occur in cashflow i f a l l o ther independent variables a r e

!qua1 t o zero a n d as shown in t h e table, it has a value of .000 imp ly ing

hat no change

111 measured in

'ABLE 4-16

wi l l occur if a l l independent variables i f t h e y a r e

t h e same unit.

CORRELATION MATRIX

Corre lat ion x 1 x 2 x 3 x 5 I -- I

X I .ooo

x 2 . O O O .96 106

RESULT OF BACKWARD ELIMINATION

R-Squa r e F-Value R-Sq. Change F-Change

1 495395 1 495395.

le data values i s t h e standardize comparative regression coefficients

r the variables when measured in d i f f e ren t un i ts . It ensures t h e

~mparison o f t h e coeff ic ient o f t h e independent variables. T h e i r values

,wever, a r e dependent o n t h e o the r variables in t h e equation and

fected b y t h e corre lat ion o f t h e independent variables in t h e equation.

?ey do not re f lec t t h e important o f t h e independent variable.

For t h i s s t u d y however, where as t h e p r i c e o f palm kerne l i s g i ven

I Dollars, t h e o t h e r variables a r e stated in Naira. On ly hatch quan t i t y i s

ven in metr ic tonnes a l though it i s no t inc luded in t h e analysis. The

kta weight a re therefore used in evaluat ing t h e re la t ive sensi t iv i t ies o f

10 dependent variables t o changes in t h e independent variables. F-Values

+e used t o test t h e s igni f icant o f t h e regression coefficients. They a r e

sually compared w i t h t h e F-table values a t t h e chosen level o f significance.

lgnificant T-Values shows t h e level o f signif icance o f t h e variables. The

lgnificance level means t h a t t h e regression coeff ic ient o f one is s igni f icant

t 0.05 level. The R-square value o f 1 implies t h a t t h e variables combined I

;count f o r 100% charge in cashflow but i t has also been establ ished tha t

the d i rec t re lat ionship ex i s t o n l y between cashflow a n d hand l ing charges.

The obvious impl icat ion t o t h i s t he re fo re i s t h a t whi le the o the r t w o

variables may n o t have a d i rec t re la t ionsh ip w i t h cashflow, t h e y do have I

some ind i rec t re lat ionship as can b e seen f rom t h e cor re la t ion ma t r i x

below g i v e n hand l i ng charges as t h e dependent variable.

TABLE 4.18A

Correlat ions

x 5

x 2

x 3

CORRELATION MATRIX - -

x 5 x 2

1

.I9734

.66063 -.72736 .5636

;Thus it w i l l there fore be necessary t o determine t o what ex ten t these

variables a f fec t t h e hand l ing charges t h u s i nd i rec t l y a f fec t i ng cashflow.

A mult iple regression ana lys ing reveals t h a t t h e mult iple R = .4633.

This there fore implies t h a t p r i c e of ke rne l a n d Exchange r a t e account

fot- 461.33 o f t h e obse rved var ia t ion in hand l ing charges a n d there fore

16.33% o f observed charges in cashflow. (Hand l ing charges has a - 1

'elationship w i t h cashflow) .

. 5 BACKWARD El-IM INATION RESULTS: ------------------- Th is at tempts t o show the marginal con t r i bu t i on o f each o f t he

independent variables t o t h e changes in t h e dependent variables. This

is given in Table 14.18. The .R- Square value is one a n d implies tha t

handling cha rges explains 100% observed variation in cashflow.

The R-Square changes represent the marginal contribution of each

of the independent variable t o observed changes in cashflow. Th i s is

.reported in absolute f igure of 1 a n d fo r only t h e independent variable

- handling charges . T h e F-Change Stat is t ics is used t o t e s t t h e

significance of t h e R-Square. It tes t t h e null hypothesis on t h e t r u e

population value for t h e change in R-Square, (Norusis 1986) and

calculated by t h e formula :

F - Change R Z Change (N-P-1) --------- Q (1 - R Z )

Where N .= Number of cases in t h e equation.

P = Total No of independent variables in equation.

Q = No. of variables removed a t eaclr s tep.

4.2 I-IYPOTHESES TESTING: ---------------

Hypothesis is used in reaching a valid decision about a subject . .

,,matter. They a r e usually tested agains t some s e t c r i te r ia , a s in th i s case

:by criteria se t in simple correlation, multiple correlation and backward

elimination analysis.

U.2.1 SIMPLE CORRELATION TEST: - -___-__-_____-- ---

' T h e null hypothesis represented b y Ho and t h e a l ternate

hypothesis represented b y HA states as follows:

There i s no re lat ionship between cashflow f r o m e x p o r t Bf; pa lm

kernels a n d each o f t h e independent variables.

l nternat ional market p r i c e o f palm kernel.

Exchange ra te o f t h e Naira against t h e Dollar.

Incremental Cost associated w i th expor t t rade - hand l ing charges.

Batch q u a n t i t y p e r unit o f expor t .

HA: There i s a re lat ionship between cashflow f r o m expor t o f palm

kernels and each o f t h e independent variables.

l nternat ional market p r i c e o f pa lm kernels.

Exchange ra te o f t h e Naira against t h e Dollar.

Incremental Cost associated w i t h expor t t rade - hand l ing charges.

Batch q u a n t i t y p e r unit o f expor t .

DECISION RULE - ------

Reject Nu l l hypothesis i f t h e F - Value fo r each o f t h e corre lat ion

coefficients i s g reater t h a n o r equal t o t h e t - table value at 0.05 level /

of significance; otherwise accept hypothesis.

To e i the r reject o r fa i l t o reject t h e null hypathesis in respect o f

I

each o f t h e independent variables, t h e computed t - value f o r t h e simple

correlation coeff ic ient a t df = 22 was compared w i t h t - value table a t

22 and 0.05 level.

TABLE 4.19 ------ Simple Corre lat ion coeff ic ient between cashflow a n d t h e independent

variables, calculated t-values a n d absolute t - table values at 0.05 level.

. . : L Simple Corre lat ion Calculated Absolute t - SlNo . Varjables . I Coeff ic ient t - value tab le value

I a t 0.05 --____________1_---_--_1--11-__----.-I_----.-------.--

1 Price o f Palm 1-

- Kernel t

' 2 Exchange Kate

3 Handl ing Charges

TABLE 4.19A

6 :

I. : Simple Corre lat ion Coeff ic ient Between Handl ing Charges and

j Independent Variables, Calculated t-values a n d Absolute t- table values 2.'

E a t 0.05 level.

SIN0 Variables Simple Corre lat ion Calculated Absolute t - Coeff ic ient t - value table value

a t 0.05

I1 Price o f Palm

Kernel .I9734

2 Exchange Rate -66063

Table 4.19 shows t h e comparison o f th OUS

2.074

2.074

variab$ls. From t h e Table,

It can b e seen t h a t t h e calculate pos i t i ve values are less t h a n 2 .O74 for

I

5 9 i

rice o f palm kernels and exchange rate. We can therefore accept the

null hypothesis and in fe r tha t there is no statistical relationship between I 1 cashflow and expor t pr ice of palm kernels and exchange rate. The

'calculated value o f t i s greater than 2.074 in the case o f handl ing charges.

We can therefore reject t he nu l l hypothesis and in fe r that there is a

statistical relationship between t h e two. Apply ing the same pr incip le in

determining the relationship o f handling charges wi th two independent

variables, pr ice o f kernels and exchange rate, t he nu l l hypothesis wil l

be accepted. Thus it can be concluded that :

1. Whereas there i s no statistical relationship between cashflow and

1, pr ice o f kernels and exchange rate, a statistical relationship exist

I between cashflow and handling charges.

I 1 /

1 ' 2 . There i s no statistical relationship between the handling charges I

and pr ice o f kernels but such relationship exist between handling

: ' ? charges and exchange rate. !

E 4.2.2 MULTIPLE CORRELATION TEST

r In the multiple correlation test, the nu l l and alternate hypothesis

1 test wil l also be applied. The relationship between cashflow and al l

Y f independent variables combined wil l be analysed. The nu l l hypothesis b i 3 w i l l be denoted b y Ho while the alternate hypothesis wil l be denoted I

1 Ho: There is no relationship between the cashflow from export of palm

f kernels and the following variables combined.

I nternational pr ice o f palm kernels.

Exchange rate o f the 1JS Dollar t o the Naira.

I ncremental Cost o f expor t activit ies, handl ing charges.

Batch quant i ty pe r expor t shipment.

HA: There i s a relationship between the cashflow f rom expor t o f

palm kernels and the following variables combined.

International pr ice o f palm kernels.

Exchange rate o f t he Naira t o the IJS Dollar.

Incremental cost o f expor t act ivi t ies - handl ing charges.

Batch quant i ty pe r expor t shipment.

The purpose o f t he test i s t o establ ish whether a l inear

relationship exist between the dependent and the ent i re independent

variable. F - test i s employed f o r th i s purpose.

DECISION RULE -------- Reject the null hypothesis if the F - value is equal t o o r

reater than F - table value a t the corresponding degrees o f freedonr

id 0.05 level o f significance. The degrees o f freedom is g iven b y the

Q ~rnrular F N-P-I where

= Number of variables entered. Th is i s the numerator degrees o f

freedom.

= Number o f cases.

= Total number o f independent variables in the equation.

6 1

' The f i g u r e (N-P-I) i s cal led t h e denominator degrees o f freedom and

4 4 4 f rom t h i s s t u d y i s F 24-4-1 = F 19. From t h e F-table t h e value o f F 19

at 0.05 level i s 2.90. T h e calculated F-value f o r a mult iple corre lat ion

o f 1 . i s 4954000. .S ince t h i s value i s g rea te r t h a n 2.90, we there fore

reject t h e null hypothesis.

/

T h i s hypthes is states t h a t t he re i s no re lat ionship between t h e

cashflow f r o m e x p o r t o f palm kernels a n d t h e fol lowing variables combined.

- Internat ional p r i ce o f pa lm kernel .

- Exchange ra te o f t h e US Dol lar t o t h e Naira.

- Incremental Cost o f e x p o r t act iv i t ies, hand l ing charges.

- Batch q u a n t i t y p e r e x p o r t shipment.

We can accept t h e a l ternate hypothesis a n d conclude t h a t t h e r e i s

a re lat ionship between cashflow f r o m e x p o r t a n d t h e independent

variables combined. In t h e same way F-value when hand l ing charges

i s considered an independent value i s 17.037 wh ich i s also greater

t h a n t h e F-table value o f 2.90 a n d t h u s t h e null hypothesis w i l l b e

rejected a n d t h e a l ternate hypothesis accepted.

Th is i 4 a test o f t h e marginal cont r ibu t ion made b y each o f t h e

independent varia6les towards exp la in ing t h e observed t r e n d a n d var iat ions

on dependent variable. On ly one var iable - handl ing charges qual i f ies fo r

this.'. For t h i s test, the null hypothesis stales tha t :

Ho-i The marginal cont r ibu t ion o f t h e independent var iable i s expla in ing

t h e observed var iat ions in cashflow i s no t important.

6 2

HA : The margina,l cont r ibu t ion o f t h e independent variable in exp la in ing

t h e observed var ia t ion in cashflow i s important. Changes in

R-Square is t h e basis fo r determining t h e marginal cont r ibu t ion

made by t h e independent var iable towards expla in ing var iat ions in

the dependent variable.

DECISION RULE: ---------- /

Reject t he null hypothesis in respect o f t h e marginal con t r i bu t i on

o f any o f t h e independent var iable whose F-Change value i s equal t o

o r exceeds t h e F-d is t r ibu t ion value a t t h e corresponding numerator

degrees o f freedom Q a n d t h e denominator degrees o f freedom N - P - I and a t 0.05 level o f signif icance. Q i s also t h e number o f independent

variables removed a t t h i s pa r t i cu la r step, N i s t h e number o f cases and

P i s t h e to ta l number o f independent variables. The Summary o f F-Change

and F-table value f o r t h e backward el iminat ion analysis a t 0.05 level i s

g iven in Table 4.20. Since F-change value f o r hand l ing changes i s

greater t h a n t h e calculated F value, t h e null hypothesis i s no t va l i d a n d

should therefore be rejected. The a l te rnat ive hypothesis t h a t states

tha t t h e marginal con t r i bu t i on o f hand l ing in expla in ing changes in

cashflow i s va l id should be accepted.

TA

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4.6 SUMMARY -------

W i t h the aid o f the statistical package (SPSS) and IBM PC,

the simple and multiple correlation and Backward Elimination analysis

test have been performed. Al l tests f o r hypothesis were significant

at 0.05 level. For each o f these tests, the nu l l hypothesis and i t ' s

alternate ,testing technique has been applied. The t-test was applied

for the simple correlation coefficient and the nu l l hypothesis was

accepted in the case o f handling charges hence the alternate

hypot,hesis was upheld as valid. A multiple correlation coefficient . ,

lee. i o the P rejection o f the nu l l hypothesis. For Backward /

Elimination test, F-Change value test was used and the null hypothesis

was rejected.

REFERENCES ---------

Freunel, J . E. and

Williams F. J . (1977)

Elementary Business Statistics :

The Modern Approach; 2nd Edition,

Printice-Hall Inc. Engleword Cliff,

New Jersey, P. 224.

, ... , .. . Notusis, J . .M'. ( 1 986) SPSS/PC for the IRM PC X ; /AT ,

Illinosis, SPSS, INC., PP 13, 196 - B. 233.

CHAPTER 5 --------

SUMMARY, DISCUSSIONS, CONCLUSIONS

- AND RECOMMENDATIONS ---- -- -

5.1 , SUMMARY: -------

T h i s s t u d y has been proposed t o i den t i f y a n d measure the effect

o f variables t h a t d i rec t l y af fect t h e cashflow f r o m e x p o r t ac t i v i t y l i ke

t h e expor t o f pa lm kernel. The marginal cont r ibu t ion o f each o f these

variables was also measured.

The s tudy invo lved 16 companies f o r a per iod o f two years w i t h

monthly data o n p r i ce exchange rate, a n d handl ing charges were

analysed. Stat ist ical tools l i k e percentages, mean, s tandard deviat ion

correlat ion a n d regression analysis enhanced b y computer appl icat ion

packages were u t i l i sed in exp la in ing t h e behaviour o f these variables.

Percentages made it possible t o assess t h e propor t ion o f respondents

react ing in a pa r t i cu la r way t o a pa r t i cu la r question. Simple corre lat ion

analysis was appl ied in determing whether a l inear re lat ionship ex is ted

between cashflow a n d each o f t h e dependent variable. The test

executed a t 0.05 level of signif icance showed t h a t t he re was stat is t ica l

l inear relat ionship between cashflow and some o f t h e independent variables.

The null hypothesis .was accepted in t h e case o f palm kerne l p r i ce and

exchaage ra te but rejected in hand l ing charges. Batch q u a n t i t y was not

correiated because it was held constant and was therefore not incorporated

in the analysis. The t- test was employed t o a r r i v e a t va l i d conclusions.

The mul t ip le regression analysis was employed in establ ish ing

the stat is t ica l s igni f icant re lat ionship between cashflow a n d a combination

o f a l l t h e independent variables. The independent variables showed

s t rong stat is t ica l re lat ionship w i t h t h e independent var iable hence t h e

null hypothesis was rejected a n d t h e a l ternate hypothesis accepted

b y t h e use o f F - test. T h e Backward El i~ninat ion regression analysis

was employed t o invest igate t h e marginal cont r ibu t ion o f each o f t h e

variables towards t h e var ia t ion in cashflow. By t h e use o f F - test,

it was establ ished t h a t on l y hand l ing charges showed s igni f icant

marginal cont r ibu t ions t o changes in cashflow.

5.2 DISCUSSION : ---- L

! The mult iple corre lat ion analysis test showed a n R - Square o f

: one meaning t h a t t h e th ree variables accounted f o r 100% o f t h e changes

in cashflow. The Backward Elimination analysis tes t showed t h a t on l y l

one o f t h e variables, handl ing charges showed a 100% cont r ibu t ion t o

changes in cashflow. Since t h i s i s t h e case, it became necessary t o

it determine t o what ex ten t t h e o ther variables af fected hand l ing charges

1' since t h e simple corre lat ion showed t h a t o the r variables have a l inear

relat ionship w i t h handl ing charges. It was determined b y mult iple

i correlat ion t h a t exchange ra te a n d p r i ce o f palm kernels accounted fo r

1; 47.53% o f t h e var iat ions in t h e hand l ing charges. T h u s in as much as the i I , two variables did no t show any d i rec t s tat is t ica l signif icant re lat ionship I: 1 t o changes in cashflow, it i s i nd i rec t l y do ing so by in f luenc ing t h e major I: i

i I: i:

factor that affects cashflow. Since pr ice o f palm kernel is inversely

related t o handling charges ( - .19734), i t implies that increase in pr ice wil l

reduce handling charges. Handling charges has also an inverse.

relationship (-1) wi th cashflow, it implies that increase in pr ice will

result t o decrease in handling charges and therefore increase in cashflow.

, it also follows tha t some other factors that affect handling charges

(52.473,) may also affect the cashflow. Th is may include such factors

as distance o f the market, variat ion in quant i ty exported per shipment,

and other factors. These are exegenous factors which were not taken

into account in th is analysis and therefore not easy to quanti fy. Since

they play a major pa r t in the determination o f t he value o f handling

charges, it is necessary that management must ensure that they are

adequately controlled t o ensure maximum re tu rns fo r expor t trade.

5.3 CONCLUSIONS: --------- It can be concluded wi th in the confines o f th is study, the following

as they relate t o management o f cashflow from export ac t iv i ty can be

adduced.

1. International pr ice o f product (Palm Kernels), exchange ra te of the

Naira t o the Dollar, handling charges among others inf luence the

cashflow from expor t act iv i ty.

2. Handling charges is the most important factor affect ing the cashflow

from export trade.

6 9

Price o f product and exchange rate play a major but not most

prominent role in determining the handl ing charge and inversely

the cashflow.

Other factors that may affect handl ing charges must be adequately

be investigated and analysed as they may have a greater influence

on the cashflow than expected.

It can also be seen that theoretical factors that affect cashflow l ike:

a. Price o f product may be stat ist ical ly insignificant.

b. Increase in pr ice of product wi l l have a negative effect on

handl ing charges and wil l t hus increase cashflow.

RECOMMENDATIONS:

It i s strongly recommended tha t a company engaged in export

act iv i ty should careful ly analyse i t ' s handl ing charges for maximum returns.

It should also explore a higher pr ice f o r i t 's products as it has been

shown tha t p r i ce i s a major contr ibutor t o changes in handling cost.

, Where t h i s i s done, the company wi l l be in a bet ter posit ion t o manager I

i t 's cashflow.

Finally it i s advised that the conclusion reached in th is s tudy be

treated wi th caution due t o the various limitations of the study. Effort

should be made t o fu r the r research in to th i s v i ta l sector o f o u r economy.

BOOKS

Alder H. E Bennard (1976) :

, B renner M. J. (1976):

Faquhar J. H. (1913):

Freund J. E Willianrs F.S. (1977) :

Hellaner G. K. (1 966) :

IMF (1984) :

I

, Kazinier, L. J. (1979):

Laurent C. K. e t a l (1973) :

Port fo l io Choice a n d demand f o r f o rward Exchange . The Pol i t ics o f ln te rna t iona l Monetary Returns : Cambridge Mass Ba l l inger 1976.

T h e Arena o f ln te rna t iona l Finance: New York, Willey 1976.

The Oi l Palm and i t ' s Var iet ies Crown Agents f o r Colonies; London 1913 48 P.

Elementary Business Stat ist ics a n d t h e Modern Approach, 2nd Edition, Pr in t i ce - Hall Inc. Engle Wood NJ.

Peasant Agr icu l tu re , Government a n d Economic Growth in Nigeria : Homewood i l l in iose.

ln te rna t iona l Financial Stat is t ics Year Book. 1984 Washington.

Basic Stat is t ics fo r Business a n d Economics: Mc Graw-Hall Book Co. N Y PP. 304

Theory o f Econonret r i cs : T h e McMillan Press Ltd: London 2nd Ed i t ion X V l l PP 681.

Agric. Investment S t ra tegy in Niger ia

Consort ium for S t u d y o f N iger ian Rura l Development (CSRND) 26.

MOLL, H.A.J. ( 1987 ) :

Norusis, J . N. (1986) :

Rodri tzuez & Car ter ( 1 980) :

Spiegel M. R. ( 1961 ) :

lnnianga (1985) :

Usoro E. H. (1974) :

/

Anon J. (1948) :

Blandford D. ( 1 973) :

Branson W. H. ( 1969 ) :

The Economics o f Oi l Palm Pudoc Wagenngen.

Stat ist icsIPackage f o r t h e Social Science f o r I BNDPCIXTIAT i l l inois, SPSS INC. P 96 - B 233.

Mul l inatura l Finance Management 2nd Edi t ion Prince-Hall Chapt 8

Theory a n d Problems o f Stat ist ics McGraw-Hill Book Co. NY.

Managing Nigeria's Economic Systems : A book o f Readings Heinnemen Lagos PP. 110.

The Niger ian Oi l Palm I n d u s t r y Un ive rs i t y Press lbadan 153 PP.

JOURNALS -- -----

"The Product ion o f Palm O i l a n d Palm Kernels in Nigeria .I1 T h e Uni ted Af r ican Co. Ltd. Stat ist ical a n d Economic Review No. 1.

"Some Estimates o f Supp ly Elasticit ies f o r Nigeria Cash Crops: A Comment .I' Journal for Ag r i cu l tu ra l Economics Vol. 24 NO. 3, 601 - 604.

"The Minimum covered In teres t d i f fe rent ia l need f o r Internat ional.

Centra l Bank o f Nigeria: Annual Reports - Various Issues.

Dince E Umoh P. N. :

Hertz B. D. (1964):

"Foreign Exchange Risk and the Portfol io Approach". Columbia Journal o f World Business Spr ing 1981.

"R isk Analys is in Capital Investment". Harva rd Business Review Jan-Feb. 1964.

OLAYIDE, S. 0. (1972): "Some Estimates o f Supply Elasticit ies f o r Cash Crops". Journal o f Ag r i cu l tu ra l

Economics Vol. 23.

ON1 S.A. E Anthonio 0. (1974) : A n Empirical Analysis o f f o o d consumption Expend i tu re in Nigeria". A case s tudy

o f lbadan Ci ty" . The Niger ian Agr i cu l tu ra l Economics Journal, Vol. II No. 1.

ON1 S.A. (1969):

UDOM D.S. (1983):

Wood B. J. (1981):

"Product ion Response in Niger ian Agr icu l tu re : A Case S tudy o f Palm Produce, 1949 - 1966". Niger ian Journal o f Economics a n d Social Studies Val. 11, NO. 1, 81 - 91.

" T h e case f o r us ing Niger ian Resources t o save import o f Edible Vegetable Oils a n d Oi l Seeds". Journal o f t h e Niger ian Ins t i t u te f o r O i l Palm Research Vol. 6.

"Technical Development in Oi l Palm Product ion in Malaysia1'. The Planter 57, 361 - 378.

World Bank (1983): Niger ian Agr i cu l tu ra l Section Review, Washington.

World Bank (1984): Pr ice Prospect f o r Major Pr imary Commodit ies Washington.

Department o f Bank ing and Finance Un ive rs i t y o f Nigeria Enugu Campus

10th Februa ry 1998

ear SirIMadam,

T h e attached quest ion f o r y o u r completion i s in tended as p a r t

' Master in Business Administ rat ion (MBA) Thesis aimed a t determining

re variables t h a t af fect t h e cashflow f o r expor t ac t iv i ty .

The research i s p u r e l y academic and t h e researcher guarantees

rat t he information suppl ied wi l l be t reated w i t h utmost confidence.

We a r e hopefu l o f you r assistance in o u r desi re t o a t ta in ou r

?sired objective.

Thank you f o r you r co-operation.

Yours fa i th fu l l y ,

Cashflow Determinants in Expor t Trade: --------- --- --------

Direct ions: Please t i c k t h e appropr iate answer. ----

PART I - PRODUCER OF COMMODITIES - PK -------------------------

NAME OF COMPANY: .. .... . .. . . . . . . . .. . . . . . . . . .. . . . . . .. . . . . . . . .. . .. . .. Nature o f Business: Manufacture 1-7 T r a d i n g 1-7 Others 1-7 - - --

Market : Local 1-7 - Expor t -- 1-7

Average Monthly Product ion (Tonnes) : 1 - 2 0 0 --- 1-7 - I 300 -- 1-7 - 1 400 1-7 -

Are y o u r Products Graded? Yes 7 No 1-7 -- --

To what ex ten t does y o u r Product Grade a f fec t y o u r Price: V e r y

Important I7 Important I7 Not Important 1 7 - - ---

Does y o u r volume o f Product ion p e r per iod af fect y o u r sel l ing pr ice?

--- -- Who a r e y o u r major Customers: Other Manufacturers I I Expor ters I I ---- ---

Please state the range o f y o u r sel l ing pr ices l tonnes between January -

December 1987 a n d January - June 1988:

Prices . I .

Prices -

; Agr icul tural Products tend t o exh ib i t some characteristics ar is ing

from seasonal f luctuation. To what extent does th is apply t o your

Palm Kernel Production? Materially 1 7 Not Materially 1 7 - No effect o f any consequence - 1 7

, Does t h i s affect your Product Prices: Yes - 1 7 No - 1 7

, Please rank t he seasons div ided in to quar ters in to the ranges o f product ion

using peak as the highest production per iod and v e r y low as the lowest

production per iod :

- , Peak

High

Low

Very Low

1 s t Qtr. 2nd Qtr. 3 rd Qtr. 4 th Qtr.

Are your Proceeds denominated i n any currency other than the Naira?

.......................................................... . If yes why?

....................................................................... . Please rank the following in order of importance i n explaining price

changes with (1 ) as most input and ( 5 ) as least.

Demand

Price

Seasonality

Effect

Govt. Policy

Cost

/

PART I I EXPORTER

NAME OF COMPANY: .................................................... Please speci fy y o u r market : . .

1 7 Western Europe 7 Eastern Europe 7 America - - - 1 7 Afr ica I Far East - -

. What i s y o u r average e x p o r t tonnage p e r per iod:

/ 500 7 / 1000 1 7 L 2500 7 / 2000 7 - - - - -

. I s t h e minimum shipment quan t i t y specif ied in y o u r sales contract?

Yes 1 7 No. 1 7

. Does t h i s af fect y o u r pr ices?

Yes - 1 7 No. - 1 7

. A r e y o u r sales contract

CIF - 1 7 FOB 1 7 -

. Who a r e y o u r main sources o f supp ly of PK:

/

' - / I Own Factory - 1-J' Major Palm Oil Mi l l - 1 7 Purchase Agents 1 7

/ 1 Combination o f 2 o r more o f t h e sources above. -

. State t h e range o f y o u r Average purchase p r i ce p e r tonne o f PK o v e r t h e

per iod Jan. - Dec. 1987 a n d Jan. - June, 1988 in t h e table below:

Prices

5 . . Do you sell:

Direct ly to End Users - 1 7 Commodity Brokers ~7 Others 1-1

9. Commodity prices are l is ted in the London Commodity Exchange. Do you

negoriate your sales contract on these prices?

.............................. 10. If No. What i s the basis of your pr ic ing?

1 1 . Does th is obtain even when you sell t o brokers? Yes - I / No - 7

12. To what extent does the Exchange pr ice d i f fe r from your negotiated pricc

~ & r i a l l ~ - 1-1 Not Materially - I Difference is negligible - 1 7

13. Where your contract is FOB a Nigerian Port. On the average what

percentage of sell ing pr ice is goods handling charge up to the Port:

14. Where your contracts are on CIF basis; What i s the percentage o f

handling charges including f re ight and insurance.

5. Please the range o f your prices f o r t he period Jan. - Dec. 1987 and

Jan. - June, 1988 in US$.

i

Prices

Name the major currencies that you deal with others then the Naira:

US Dollars - 1 7 Pound Sterling - 1 French Francs = German Marc - 1 7 Japaness Yen - I Others - 1 7

Rank them in your order o f preference starting with I

./ 18. In your order of preference, please state your main reasons in the

table below:

Exchange

Rate Staility

Conversi-

bility

Demand

Others

19 . How are payments fo r your products effected:

Telegraphic Transfers Letters o f Credit - 1 7 Bank Draf t ,

Others - Specify.

20. Do you prefer any? I f y e s * why?

.....................................................................

.....................................................................

21. How do you convert your foreign currency to the Naira.

- FEM Rate -- 17 Parallel Market Rate 1 1 Others 17

22. Please state your average Exchange Rate f o r the per iod Jan. - June.

fo r your sales returns.

RATE OF EXCHANGE /

Jari

March

! - Apr i l

23.- Please rank the following on your perceive effect on your export

cashflow with I a s most important factor.

Product Export Price

Currency

Exchange Rate

Seasonality Effect

Nature of Contract

Handling Changes

Others