EFFECTS OF CLIMATE ON REVENUE FROM OIL PALM PRODUCTION IN SOUTHERN NIGERIA

EFFECTS OF CLIMATE ON REVENUE FROM OIL PALM PRODUCTION IN SOUTHERN NIGERIA

Abstract

This study investigated the effects of climate variables on the revenue from oil palm production in Southern Nigeria. The specific objectives were to describe the socio-economic characteristics of oil palm farmers; analyze the trends in key climate variables (temperature and rainfall) over the study period; determine the trends in oil palm yield and revenue; analyze the relationship between climate variables and oil palm revenue; and identify the adaptation strategies employed by farmers to mitigate the effects of adverse climate conditions. The study employed a mixed-methods approach, utilizing secondary time-series data on climate (from the Nigerian Meteorological Agency, NiMet) and oil palm production (from the Food and AgricultureOrganization, FAO) from 1981 to 2023, as well as primary data collected from 240 oil palm farmers across the three southern geopolitical zones (South-East, South-South, and South-West). The data were analyzed using descriptive statistics, trend analysis, a Ricardian model, and a Likert-type scale. The findings revealed a significantincreasing trend in average temperatures and a slight but variable trend in annual rainfall over the study period. Oil palm yield and revenue were found to be highly sensitive to climate variability. The Ricardian model analysis showed that increased temperature, particularly during the dry season, had a significant negative effect on net revenue per hectare, while moderate rainfall during the growing season had a positive effect. The major adaptation strategies identified were the use of improved, drought-tolerant varieties, mulching, and the implementation of soil and water conservation measures. The study concluded that climate change poses a significant threat to the economic viability of oil palm production in Southern Nigeria. It was recommended that policymakers should prioritize investments in climate-resilient agriculture, including the development and dissemination of heat-tolerant oil palm varieties, and support farmers in adopting sustainable land and water managementpractices.

Chapter One – Introduction

1.1 Background of the Study

Climate change is one of the most pressing global challenges of the 21st century, with far-reaching implications for the environment, human societies, and economic development. The scientific consensus is clear: the Earth’s climate is warming at an unprecedented rate, driven primarily by human activities that release greenhouse gases into the atmosphere. The effects of this warming are already being felt around the world, including changes in temperature and precipitation patterns, an increase in the frequency and intensity of extreme weather events, and a rise in sea levels. (Intergovernmental Panel on Climate Change [IPCC], 2021).

Agriculture is one of the most climate-sensitive sectors of any economy. Crop production, in particular, is highly dependent on specific climatic conditions, including temperature, rainfall, and solar radiation. Changes in these variables can have profound effects on crop yields, farm incomes, and overall food security. In developing countries like Nigeria, where agriculture is largely rain-fed and farmers have limited capacity to adapt, the impacts of climate change on agriculture are expected to be particularly severe. (Food and Agriculture Organization [FAO], 2021).

Nigeria’s agricultural sector is the backbone of its economy, employing a significant majority of the labor force and contributing substantially to the Gross Domestic Product (GDP). The country’s diverse agro-ecological zones support a wide range of crops, from cereals and legumes in the north to root and tuber crops and tree crops in the south. The performance of the agricultural sector is therefore a critical determinant of national economic growth, poverty reduction, and food security. Climate change poses a direct threat to this performance. (World Bank, 2022).

Southern Nigeria, comprising the South-East, South-South, and South-West geopolitical zones, is characterized by a humid tropical climate with high rainfall and temperatures. This region is the heartland of oil palm production in the country. The crop thrives in this environment, which provides the necessary heat and moisture for optimal growth. However, the region is also highly vulnerable to the impacts of climate change, including changes in the distribution and intensity of rainfall, rising temperatures, and the increased risk of flooding and drought. (Nigerian Meteorological Agency [NiMet], 2022).

The oil palm (Elaeis guineensis) is a tree crop of immense economic importance. It is the most efficient producer of vegetable oil per unit area in the world, yielding two distinct types of oil: palm oil from the fruit’s flesh and palm kernel oil from its seed. These oils are essential ingredients in a vast array of food and non-food products, including cooking oil, margarine, soaps, cosmetics, and increasingly, biofuels. The global demand for palm oil is robust and growing. (Corley and Tinker, 2019).

Nigeria has a long and storied history with oil palm. Before the discovery of crude oil, the country was the world’s leading producer and exporter of palm oil, with the wild groves of the southern region being the primary source. Although Nigeria’s global market share has declined significantly, oil palm remains a vital crop for the southern region’s economy. Millions of smallholder farmers depend on the crop for their livelihoods, and it is a major source of raw material for domestic industries. The sector has been identified as a key area for economic diversification. (Partnership Initiatives in the Niger Delta [PIND], 2020).

The relationship between climate and oil palm production is complex and well-documented. Oil palm is a tropical crop that requires specific climatic conditions to thrive. It is highly sensitive to water stress, with a water deficit leading to a reduction in the number and size of fruit bunches. Conversely, prolonged flooding can also be detrimental, leading to root damage and reduced nutrient uptake. Temperature is another critical factor; while oil palm prefers warm conditions, extreme heat can reduce photosynthetic efficiency and increase respiration, reducing overall productivity. (Carr, 2018).

The concept of the Ricardian model provides a powerful framework for analyzing the economic impacts of climate change on agriculture. The model, named after the economist David Ricardo, is based on the principle of comparative advantage. In this context, the Ricardian model of climate and agriculture posits that the value of farmland reflects the net productivity of the land under a given climate. By analyzing the relationship between climate variables and land values or net revenues, the model can quantify the economic impact of climate on agricultural production, taking into account the ability of farmers to adapt. (Mendelsohn, Nordhaus, and Shaw, 2014).

The revenue earned by an oil palm farmer is directly linked to the yield of fresh fruit bunches (FFBs) and the market price of these bunches. Both yield and price are influenced by climate. A drought, for example, can reduce the yield of FFBs, leading to lower revenue. Conversely, a bumper harvest resulting from favorable weather conditions can lead to a glut in the market and lower prices. The net effect of climate on revenue is therefore an empirical question that requires careful analysis. The Ricardian model, by focusing on net revenue, captures these complex interactions. (Seo and Mendelsohn, 2018).

The trends in climate variables over the past few decades in Nigeria, and particularly in the south, are a cause for concern. Data from the Nigerian Meteorological Agency (NiMet) show a clear warming trend, with average temperatures increasing steadily. The rainfall patterns are also changing, with some areas experiencing increased rainfall variability, while others are seeing shifts in the timing of the rainy season. These changes are consistent with the projections of global climate models for the region. The implications for agriculture are significant. (NiMet, 2022).

The adaptation strategies employed by farmers are a key determinant of the actual impact of climate change on agricultural revenue. Farmers are not passive victims of climate change; they are active agents who respond to changes in their environment. These responses can include changing planting dates, adopting drought-tolerant crop varieties, investing in irrigation, or diversifying their income sources. The ability of a farmer to adapt is influenced by a range of factors, including their access to information, credit, and technology. The Ricardian model, by analyzing net revenue, implicitly accounts for these adaptations. (Di Falco, Veronesi, and Yesuf, 2019).

The empirical evidence on the effects of climate change on oil palm in Nigeria is still developing. Several studies have used agronomic models to project future yields under different climate scenarios, while others have used econometric methods to analyze historical data. These studies generally point to a negative impact of rising temperatures on oil palm yields, although the magnitude of the impact varies. The specific effect on revenue, taking into account price effects and farmer adaptation, requires further investigation, particularly using a robust Ricardian framework. (Adeniyi and Ojo, 2021).

This study is therefore designed to contribute to this important area of research by providing a comprehensive analysis of the effects of climate on revenue from oil palm production in Southern Nigeria. It will use a combination of secondary climate and production data, as well as primary data from a survey of oil palm farmers, to quantify the relationship between key climate variables and farm revenue. The study will employ the Ricardian model, a well-established methodology in climate impact assessment. (Emmanuel and Okafor, 2022).

The findings of this study are expected to be of significant value to a wide range of stakeholders. For policymakers, the study will provide crucial evidence on the economic consequences of climate change for a key agricultural sector. This can inform the design of adaptation policies, such as investments in climate-resilient varieties and irrigation infrastructure. For farmers, the study will provide insights into the climate risks they face and the potential benefits of different adaptation strategies. For researchers, the study will contribute to the academic literature on climate change and agriculture in Nigeria. (World Bank, 2022).

1.2 Statement of the Problem

Oil palm production is a major source of income and livelihood for millions of people in Southern Nigeria. The core problem is that this vital economic activity is under increasing threat from the adverse effects of climate change. Rising temperatures, changing rainfall patterns, and more frequent extreme weather events are disrupting production, reducing yields, and threatening the long-term viability of the sector. The economic consequences of these climate-induced changes are not fully understood, limiting the ability of stakeholders to respond effectively. (IPCC, 2021).

A fundamental problem is the evident and ongoing change in the climatic conditions upon which oil palm production depends. The rising average temperatures in Southern Nigeria are a clear signal of a warming climate. The problem is that oil palm has specific temperature thresholds for optimal growth, and exceeding these thresholds can lead to heat stress, reduced photosynthesis, and lower yields. The increasing frequency of heatwaves poses a direct and immediate threat to the health and productivity of the palms. (Carr, 2018).

The problem of erratic and unpredictable rainfall patterns is another critical concern. Oil palm requires a consistent and well-distributed water supply throughout the year. The problem is that climate change is leading to greater variability in rainfall, with more intense downpours interspersed with longer dry spells. This can lead to both flooding, which can damage roots and cause nutrient leaching, and drought, which causes water stress and reduces fruit production. The increasing unpredictability makes it difficult for farmers to plan their operations. (NiMet, 2022).

There is a significant problem with the lack of a robust, quantitative understanding of the economic impact of these climatic changes on oil palm revenue. While the agronomic effects of climate stress on oil palm yields are relatively well-documented, the translation of these yield changes into economic terms—specifically, their effect on farmer revenue—is less clear. The problem is that without this economic evidence, policymakers cannot accurately assess the scale of the challenge or justify the necessary investments in adaptation. (Mendelsohn et al., 2014).

The issue of the vulnerability of smallholder farmers is particularly acute. The majority of oil palm in Southern Nigeria is produced by smallholder farmers who have limited financial resources and a low capacity to adapt to climate change. The problem is that these farmers are the least able to invest in costly adaptation measures, such as irrigation or the purchase of new, climate-resilient varieties. They are therefore the most exposed to the negative impacts of climate variability on their income and livelihoods. (FAO, 2021).

The problem of a potential decline in oil palm yields due to climate change has serious implications for Nigeria’s food security and industrial sector. Palm oil is a staple cooking oil in the country, and any significant decline in domestic production would increase the nation’s dependence on imports, putting pressure on foreign exchange reserves. The problem is that this would also have knock-on effects on the many industries that use palm oil as a raw material, leading to higher prices for consumers. (PIND, 2020).

There is a problem with the limited adoption of climate-smart agricultural practices among oil palm farmers. While various adaptation strategies, such as the use of drought-tolerant varieties and improved soil and water conservation, are known to be effective, their uptake among smallholder farmers is often low. The problem is that there are significant barriers to adoption, including a lack of awareness, the high cost of new technologies, and a lack of access to credit. This slow rate of adaptation leaves the sector more vulnerable to climate shocks. (Di Falco et al., 2019).

The issue of the interactive effects of climate variables is a complex problem. The impact of a rise in temperature may be exacerbated by a simultaneous decline in rainfall, or vice versa. The problem is that many existing studies analyze the effects of temperature and rainfall in isolation, failing to capture these crucial interactions. A more sophisticated analytical approach is needed to understand the combined effect of multiple climate stressors on oil palm productivity and revenue. (Seo and Mendelsohn, 2018).

The problem of data limitations is a significant constraint on research in this area. While long-term climate data are available from NiMet, reliable and disaggregated data on oil palm production, yields, and farm-level revenue are often scarce or inconsistent. The problem is that this lack of quality data makes it difficult to conduct rigorous econometric analysis and to establish robust quantitative relationships between climate variables and economic outcomes. This data gap hinders evidence-based policymaking. (NBS, 2020).

The issue of the spatial variation in climate impacts is a critical concern. The effects of climate change are not uniform across Southern Nigeria. Some areas may experience more severe warming or more erratic rainfall than others. The problem is that a single, national-level analysis may mask these important regional differences. A more nuanced, spatially disaggregated approach is needed to identify the “hotspots” where the impacts of climate change on oil palm are likely to be most severe. (NiMet, 2022).

The problem of the long-term nature of oil palm production complicates adaptation. Oil palm is a perennial crop with a productive lifespan of 25 years or more. The problem is that decisions made today about which variety to plant or how to manage the land will have implications for decades to come. Farmers are therefore making decisions under conditions of deep uncertainty about the future climate. This long planning horizon makes adaptation particularly challenging. (Corley and Tinker, 2019).

This study is designed to address these problems by providing a rigorous, empirical analysis of the effects of climate on revenue from oil palm production in Southern Nigeria. It will use the Ricardian model, a well-established framework in climate impact assessment, to quantify the relationship between climate variables and net farm revenue. The core problem this research aims to solve is the lack of credible, quantitative evidence on the economic consequences of climate change for the oil palm sector, which is essential for informing policy and investment decisions. (Mendelsohn et al., 2014).

1.3 Aim of the Study

The aim of this study is to analyze the effects of climate variables on the revenue from oil palm production in Southern Nigeria.

1.4 Objectives of the Study

The specific objectives of this study are to:

1. Describe the socio-economic characteristics of oil palm farmers in Southern Nigeria.
2. Analyze the trends in key climate variables (temperature and rainfall) in the study area over the period 1981 to 2023.
3. Determine the trends in oil palm yield and revenue in Southern Nigeria over the same period.
4. Analyze the relationship between climate variables and net revenue from oil palm production using the Ricardian model.
5. Identify the adaptation strategies employed by oil palm farmers to mitigate the effects of adverse climate conditions.

1.5 Research Questions

The following research questions were formulated to guide this study:

1. What are the socio-economic characteristics of oil palm farmers in Southern Nigeria?
2. What are the trends in key climate variables (temperature and rainfall) in the study area from 1981 to 2023?
3. What are the trends in oil palm yield and revenue in Southern Nigeria over the period?
4. What is the relationship between climate variables and net revenue from oil palm production?
5. What adaptation strategies are employed by oil palm farmers to mitigate the effects of adverse climate conditions?

1.6 Research Hypotheses

The following null (H₀) and alternative (H₁) hypotheses were tested in this study:

1. H₀: Average temperature does not have a significant effect on the net revenue per hectare from oil palm production in Southern Nigeria.
   H₁: Average temperature has a significant effect on the net revenue per hectare from oil palm production in Southern Nigeria.
2. H₀: Annual rainfall does not have a significant effect on the net revenue per hectare from oil palm production in Southern Nigeria.
   H₁: Annual rainfall has a significant effect on the net revenue per hectare from oil palm production in Southern Nigeria.
3. H₀: The interaction between temperature and rainfall does not have a significant effect on the net revenue per hectare from oil palm production.
   H₁: The interaction between temperature and rainfall has a significant effect on the net revenue per hectare from oil palm production.
4. H₀: The level of climate variability (e.g., coefficient of variation of rainfall) does not have a significant effect on the net revenue per hectare from oil palm production.
   H₁: The level of climate variability has a significant effect on the net revenue per hectare from oil palm production.
5. H₀: The socio-economic characteristics of the farmer (age, education, experience) do not have a significant influence on the net revenue per hectare from oil palm production.
   H₁: The socio-economic characteristics of the farmer (age, education, experience) have a significant influence on the net revenue per hectare from oil palm production.

1.7 Significance of the Study

This study holds significant value for a wide range of stakeholders. For policymakers at the Federal and State Ministries of Agriculture, the Federal Ministry of Environment, and the National Planning Commission, the findings will provide crucial, quantitative evidence on the economic threat posed by climate change to a key agricultural sector. This will inform the development of national adaptation plans and the prioritization of investments in climate-resilient agriculture. The study will highlight the potential economic losses associated with inaction and justify the case for funding programs that support farmers in adapting to the changing climate.

For oil palm farmers, their cooperatives, and industry stakeholders , the study will provide valuable information on the climate risks they face and the potential benefits of different adaptation strategies. By understanding the specific impact of temperature and rainfall on their revenue, farmers can make more informed decisions about farm management practices. The study will also empower them to advocate for the support they need, such as access to improved, heat-tolerant varieties and investment in water management infrastructure.

For researchers and academics, this study will make a significant contribution to the literature on climate change economics in sub-Saharan Africa. The application of the Ricardian model to the specific context of oil palm in Southern Nigeria is a valuable addition. The use of both secondary time-series data and primary survey data provides a robust analytical framework. The findings will serve as a benchmark for future studies on the impact of climate on tree crops and will contribute to the global effort to understand and mitigate the economic consequences of climate change.

For development partners, internationalorganizations (e.g., World Bank, FAO, UNDP), and NGOs working on climate change adaptation and agricultural development in Nigeria, this study will provide an evidence base for designing and targeting their interventions. The findings will help them to justify investments in climate-resilient agriculture and to identify the geographical areas and farmer groups that are most vulnerable. The study can also serve as a baseline for monitoring and evaluating the impact of their adaptation projects.

1.8 Scope of the Study

This study is focused on the effects of climate on revenue from oil palm production in Southern Nigeria. The geographical scope covers the three southern geopolitical zones: South-East, South-South, and South-West. The study uses a combination of secondary time-series data on climate (from NiMet) and oil palm production (from FAO) from 1981 to 2023, and primary data collected from oil palm farmers in the study area. The analysis focuses on the relationship between key climate variables (temperature and rainfall) and net revenue per hectare. The study does not cover other oil palm-producing regions in Nigeria or other crops.

1.9 Limitation of the Study

This study is subject to certain limitations. The Ricardian model, while a powerful tool, is a cross-sectional approach that assumes that the current distribution of farms represents a long-run equilibrium. It may not fully capture the dynamic effects of a changing climate over time. The accuracy of the primary data is dependent on the recall of the farmers, which can be subject to error. The study is also limited by the availability of reliable, disaggregated data on oil palm production and farm-level revenue. Furthermore, the study focuses on the direct effects of temperature and rainfall and does not explicitly model the impact of other climate-related factors, such as increased CO2 concentrations or changes in the incidence of pests and diseases. Finally, the study’s scope is limited to Southern Nigeria, and the findings may not be generalizable to other regions.

1.10 Definition of Terms

For the purpose of clarity, the following terms are defined as they are used in this study:

1. Climate Change: A long-term shift in global or regional climate patterns, primarily attributed to human activities that increase the concentration of greenhouse gases in the atmosphere.
2. Climate Variability: The natural variations in climate on time scales of seasons to decades, which occur in addition to long-term climate change.
3. Ricardian Model: An econometric model used to estimate the economic impact of climate on agriculture by analyzing the relationship between climate variables and farmland values or net revenues.
4. Net Revenue: The profit from a farming enterprise, calculated as the total revenue minus the total costs (variable and fixed). It is the measure of economic return used in the Ricardian model.
5. Fresh Fruit Bunches (FFBs): The fruit bunches harvested from the oil palm tree, which are the primary raw material for palm oil production.
6. Adaptation Strategy: A deliberate action taken by a farmer to reduce the negative impacts of climate change or to take advantage of new opportunities it may present.
7. Climate-Resilient Variety: A crop variety that has been bred to tolerate specific climate stresses, such as drought or high temperatures.
8. Water Stress: A condition in which the demand for water by a plant exceeds the available supply, leading to reduced growth and productivity.
9. Heat Stress: A condition in which plants are exposed to temperatures above their optimal range, leading to cellular damage and reduced physiological function.
10. Time-Series Data: A sequence of data points collected over a period of time at uniform intervals, used to analyze trends and relationships.