Feedmill Article

IJRMEC
Volume2, Issue 4(April 2012)
ISSN: 2250-057X
ECONOMIC ANALYSIS OF FEED MILL INDUSTRY IN LAGOS STATE,

NIGERIA
Oladejo, Joana Adefemi
Department of Agricultural Economics, Ladoke Akintola University of Technology, Ogbomoso,
Oyo State, Nigeria
ABSTRACT
This study analyzed the cost and returns to feed milling firms in Lagos state of Nigeria. The
simple random sampling technique was employed to select thirty (30) feed mills in the study area
and a well structured interview schedule was used to collect relevant data from the feed mills
managers. The study specifically investigated the socio-economic characteristics of feed millers,
productive resources utilized by feed mill industry, processing activities carried out, cost and
returns to the industry and problems militating against feed milling activities in the study area.
Data collected were subjected to descriptive and inferential statistical analyses to bring out valid
results. Budgetary analysis was carried out to examine the profitability of the industry. The study
revealed that 83.3% of the feed mill managers were male. The mean age for the respondents was
36.17 years. Seventy percent were married while 86.7% received some level of formal education.
Sixty three percent of the managers engaged in no other business while the remaining claimed to
diversify. Budgetary analysis revealed a gross margin of 71,544.26k per day was realized from
the business and a benefit cost ratio of 1.2 revealed that the business is profitable. Regression
analysis revealed that significant relationship exists between land rent, tools/ equipments cost,
age of respondents and revenue generated from feed milling business. Problems faced by feed
mill industry in the study area include lack of capital, irregular supply of electricity, theft of
produce and unavailability of feed ingredients. The study recommended that the feed millers
should establish cooperative groups among themselves from which members could acquire loans
at very low interest rates. Also, sophisticated tools and expensive machines could be jointly
purchased by the group for the use of its members.
Key words: Economic analysis, Feed mill, Livestock, Benefit-cost ratio, Gross margin, Nutrient
International Journal of Research in Management, Economics and Commerce

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INTRODUCTION
Feed mill industry is involved in formulation of various livestock feeds such as Broiler starter,
Broiler finisher, Grower mash, Layer mash, Chick mash and many others. The feed millers used
different kinds of feed ingredients which include maize, wheat offal, blood meal, fishmeal, bone
meal, oyster shell, palm kernel cake (PKC), methionine, lysine salt etc. These are mainly to
satisfy the protein, energy, mineral and vitamin requirements of the various animals. These were
against the old practice of leaving the animals to feed on only grains or tuber, as they might be
accessible. Feed claims about 75% of cost of production. It is highly essential as the cost of
procurement of the animal itself. The major ingredient used as a source of carbohydrate is noted
to be maize, which constitutes about 60% of the total feed formulation. However, lack of maize
in feed mill industry obstructs production processes which lead to unavailability of feeds for
livestock animals. This also lead to shortage in profitability of feed mill business due to frequent
demand of feeds by livestock farmers who can not do without feeding their livestock daily. The
purpose of livestock feed mill is to produce a compact feed mixture that satisfies 90% of the
livestock daily nutrient needs 95% of the time (Odunsi et al, 2008).
Nutrients are organic or inorganic substances that nourish the body of animals. There are six
main nutrients in animal feed. They comprise; water, protein, carbohydrate, fats, mineral
elements and vitamins. The six nutrients are vital to animal survival. However, there are
variations in nutrient requirements for different farm animals, but the level of dietary energy and
associated nutrient should be high enough to allow expression of animal potentials under certain
environmental circumstances within the economic limitations (Wilson, 1990). These have to be
combined in such a proportion as feed produced will contain the requirements for the different
classes and ages of poultry without any waste and at the cheapest cost. This function is expected
to be carried out by feed mill industry.
According to Oladunjoye et al. (2005), ingredients used in feed formulation are classified into
the following: Energy sources, Protein sources of plant origin, Protein sources of animal origin,
Mineral source, Fibre sources or Fillers, Amino acids and Feed additives. Energy sources include
generally grains such as maize, millet, wheat, sorghum and non-cereal sources such as sweet
potatoes, cassava, cocoyam all of which needs processing and have low crude protein content.
Protein sources could be of plant origin such as groundnut cake, soybean meal and palm kernel
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ISSN: 2250-057X
cake or protein sources of animal origin such as fish meal, blood meal and meat meal. Mineral
sources are di-calcium phosphate which supplies calcium and phosphorus, oyster shell which
supplies calcium, bone meal which supplies calcium and phosphorus, ground limestone supplies
only calcium while common salt supplies sodium and chlorine. Fibre sources include rice bran,
wheat bran, corn bran, corn starch residue and dry brewers grain. Essential amino acids are
methionine and lysine while feed additives include antibiotics, hormones, trace mineral and
vitamin as well as enzymes. Feeds for livestock composed largely of grains such as corn, wheat
or barley, oil seeds, cake meal (originating mainly from oil Production seeds such as soybeans),
sunflower seeds, peanuts, cotton seed and protein products of animal origin such as fish meal and
bone meal, slaughter house of fat and feather meals. (Bale et al, 2002),
Feed mills play an important role in life and profitability of livestock production. Livestock
producers can not do without feeding their livestock daily. They often depend on feeds from feed
mill industry to survive the life of their livestocks as well as profitability in their production.
The importance of feed ingredients (resources) utilized in feed mill industries can not be
overemphasized especially maize, which constitutes about 60% of the total feed formulated.
However, unavailability of the resources affects production processes as well as outputs of the
feed mill industry. This will also cause shortage in profitability of feed mill business due to
frequent demand of feeds by livestock farmers who can not do without feeding their livestocks
daily.
Economic efficiency of feed mill industry therefore has direct implication on livestock producers
as cost of Feed claims up to 75% of cost of production. It is highly essential as the cost of
procurement of the animal itself. This research therefore examined the resources utilized by feed
mill industry as well as their processing activities, cost and returns analysis as well as problems
militating against feed mill industry in the study area.
METHODOLOGY
The study was carried out in Lagos State of Nigeria. Lagos State is a large city with population
of 5,828,202 and land area of 3,473km2. It is located in the tropical zone lying between 70N and
90N of the equator and longitude 30E and 50E of the Greenwich Meridian.
The part of Lagos state where most feed mills were cited is the Orile Agege Local Government
Area of the State. The major occupation of the people in Orile Agege Local Government Area is
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ISSN: 2250-057X
trading which include sales of electronics, building materials, provision like beverages and
biscuits, different vehicles parts, food and used clothes. So many feed mills are cited in the area,
specifically around Abibat Mogaji modern market. An abattoir/ meat market can also be found
which serves as source of feed ingredient such as bone meal and blood meal to feed mill industry
in the local government area. Livestock raised in Orile Agege Local Government area include
Poultry, Fish, Pig, Rabbit, Sheep, Goats and Cattle.
All feed mill located in Orile Agege Local Government Area of the state constitute the
population of this study. A complete list of all feed mills in the area was compiled, making forty
feed mills in all. A random sampling technique was employed to select 30 out of the available 40
(75%) feed mills in the area.
Primary data was collected through the use of interview schedule administered on manager of
each feed mill. Information sought includes socio-economic characteristics of the mill manager,
production practices and experience, cost and returns as well as problems encountered by the
mill.
Method of Data Analysis
The analytical techniques used in data include descriptive statistics such as frequency table,
percentages and mean, gross margin analysis and multiple regression analysis.
Budgetary analysis was employed to investigate the profitability of the enterprise. The gross
margin was computed as the total revenue minus total variable cost of production. Profit was
calculated by subtracting the total cost from the total revenue.
Mathematically,
Total Revenue = Output x Unit price
Total cost = Total variable cost + Total fixed cost
Gross margin = Total Revenue Total Variable Cost
Profit = Gross Margin Total fixed cost (depreciated value)
Benefit cost Ratio = Total Revenue
Total Cost
Benefit cost ratio is a measure of profitability and investment criteria requires that benefit cost
ratio (BCR) should be greater than one (i.e. BCR>1) before a business can be termed profitable.
The inferential analytical tool used is the regression analysis, this was used to determine the
relationship between revenue generated and cost of production. The equation is given as:
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ISSN: 2250-057X
Y = F (X1, X2, X3, X4, X5, X6, X7, U).

Where;
Y = Total revenue
X1 =Rent on land
X2 = Cost of labour
X3 = Cost of ingredients
X4 = Cost of tools and equipments
X5 = Age of respondents
X6 = Years of experience
X7 = Years of schooling
U = Error term
DATA ANALYSIS AND RESULT PRESENTATION

The data obtained were analyzed using descriptive analysis, budgetary analysis and regression
analysis. The results of the analyses are hereby presented.
Socio-Economic Analysis of Feed mills managers in the Study Area.
The socio economic characteristics considered include age, sex, marital status, level of education
attained, years of feed milling experience and major occupation. Statistics were revealed in Table
1. The mean age of respondents was 36.17 years and this implies that most of the feed mill
managers were in their active and agile age. Majority (83.3%) of the respondents in the study
area were male while 16.7% were female as shown in the table. This implies that feed milling in
the study area is a male dominated business. The table further revealed that majority (70%) of
the respondents was married while 30% were single. The higher percentage of married people in
the study area can positively affect the production of feeds in feed milling industry as family
members can assist in serving as sources of labour. The table further showed that 86.7% of the
respondents received some level of formal education while 13.3% of the respondents do not have
formal education. This implies that the literacy level of feed mills managers is high and this is
expected to have positive impact on their production. Result revealed that the average number of
years of experience in feed production for respondents is 6.8 years. This indicates that most of
the feed mill managers in the study area had been involved in feed mill business for long, thereby

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ISSN: 2250-057X
experienced. Sixty three percent of the managers engaged in no other business while the
remaining claimed to diversify.
Table 1: Socio Economic Characteristics Distribution of Respondents
Age
Frequency
Percentage
< 30
10
30 39
12
40
40 49
30
50+
20
Total
30
100
Sex
Frequency
Percentage
Male
25
83.3
Female
16.7
Total
30
100
Marital status
Married
Frequency
Percentage
21
70
Single
30
Total
30
100
Education level
Tertiary institution
Frequency
25
Secondary school
Percentage
83.3
3.4
No formal education
13.3
Total
30
100
Years of experience Frequency

<5
Percentage
20.0
57
16
53.3
8 10
26.7
Total
30
100
Source: Field survey, 2010.

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Productive Resources Utilized by Feed Mills in the Study Area

This section considered the mode of land acquisition, equipment and tools utilized, labour
employed, as well as feed ingredients utilized by feed mills in the study area. The result showed
that 100% of the respondents in the study area acquired land on rent. The equipments and tools
utilized in feed milling include crushers, mixers, pelleting machines, weighing scales, wheel
barrows, spades, and sacks. Labour utilized are categorized to permanent and casual labour.
Table 2 showed that 50% of the respondents employed less than 5 permanent staff, 40%
employed between 5 7 permanent staffs while 10% employed above 7 permanent staffs. The
permanent staffs in feed mill industry include the secretary, accountant, machine operators and
managers. This is expected to have impact on their production. Result showed that an average of
7.8 casual staffs was employed by the feed mills. The casual staffs include those that carry out
feed milling activities such as crushing, mixing, measuring of ingredients, weighing and bagging.
Table 2 further revealed that 6.7% of the feed mills utilize a total of 2000kg of feed ingredients
per day, 33.4% uses feed ingredients between 20014000kg, and 46.7% uses about 4001
6000kg while 13.3% uses 6001 8000kg of feed ingredients in feed production per day. This
implied that quantity of feed ingredients utilized by feed millers vary with respect to scale of
production. Feed ingredients, according to the respondents, compose of corn, wheat or barley, oil
seeds, cake meal, sunflower seeds, peanuts, cotton seeds and protein products of animal origin
such as fish meal, bone meal and feather meals.
Table 2: Productive Resources Utilized by Feed Mills
Permanent Staff
Frequency
Percentage
<5
15
50
57
12
40
Above 7
10
Total
30
10
Casual staff
Frequency
Percentage
<5
11
36.7
57
12
40.0
Above 7
23.3
Total
30
100

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Feed ingredients (kg)
Frequency
ISSN: 2250-057X
Percentage
_________________________________________________________
2000
6.7
2001 4000
10
33.4
4001 6000
14
46.7
6001 8000
13.3
30
100
Total
Processing Practices of Feed Mills in the Study Area

This section discussed sources of ingredients, types of feed produced, means of transportation,
processing methods, buyers of products and major source of financing processing activities of
feed mills in the study area.
Table 3 revealed that 63.3% of the feed mills obtained their ingredients from local markets in
wholesales while 36.7% claimed to obtain their ingredients directly from farmers. According to
most of them, it is more convenient to buy from markets rather than moving from one farm to
another. Some however claimed that prices are lower at farm gates. The table revealed that
majority (60%) of the feed mills produce growers mash, layers mash, chicks mash, broilers
starter, broilers finisher, ruminants pellets and fish feed (all), while 6.7% claimed to produce
only fish feed. The remaining 33.3% produce all feed mentioned earlier except fish feed. Table 3
revealed that 50% of the respondents engaged in modern method of feed production i.e. use of
machine all through while 3.3% and 46.7% claimed to employ traditional/local and semi-modern
methods of production respectively. Traditional/local method entails the use of manual labour all
through the operations while semi-modern refers to a combination of both methods. This result
showed that some of feed mills in the study area depend on manual labour which will have a
direct impact on their level of output. Data revealed that all of the mills produce feeds on daily
basis. A standard bag of feed in the study area weighs 50kg. Table 3 revealed that 6.7% of the
feed mills produce 2000kg feed per day, 33.4% produce 2001 4000kg per day, 46.7%
produce6001 8000kg per day. The mean value of the quantity of feed produced by feed mills in
the study area per day was found to be 4743.33kg. This implies that quantity of feed produced
per day on the average by the feed mills in the study area is 95 bags of different types of feed.
The quantity varied among mills with respect to the scale of production. Table 3 further revealed
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that 20.0% of the mills sell their products to secondary buyers. These are the wholesalers and
retailers that will re-sell to livestock farmers. The next 43.3% submitted that they only sell
directly to farmers (primary buyers) while 36.7% claimed that their customers comprises of both
groups of buyers. Finally, Table 3 indicated that 50% of the feed mills depend on personal
savings of owners in financing the processing activities while the remaining half (50%) claimed
to have access to bank loans. Many of the group that uses personal savings complained about
financial constrain. Some of them claimed to have applied for various types of loans without
success, while most of them claimed they could not afford to obtain available loans as a result of
high interest rate charged or not being able to meet up with required collateral.
Table 3: Processing Practices of Feed Mills in the Study Area
____________________________________________________________
Source of ingredients
Frequency
Percentage
Farm gates
11
36.7
Local markets
19
63.3
Total
30
100
Feed produced
Frequency
Percentage
All
18
60.0
All except fish feed
10
33.3
Fish feed
6.7
Total
30
100
Processing method
Frequency
Traditional/Local
Percentage
1
3.3
Semi-modern
14
46.7
Modern
15
50.0
Total
30
100
Production Cycle
Frequency
Percentage
Daily
30
100
Total
30
100
Frequency
Percentage
6.7
Feed produced (kg)

2000

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2001 4000
10
33.4
4001 6000
14
46.7
6001 8000
13.3
Total
30
100
Customers
Frequency
Secondary
20.0
Primary
13
43.3
Both
11
36.7
Total
30
100
Major source of finance
Percentage
Frequency
Personal savings
ISSN: 2250-057X
Percentage
15
50
Bank loans
15
50
Total
30
100

Cost and Returns per Production Cycle
Cost in this study is the monetary value of all input used in feed production, while returns
referred to the revenue generated from sales of output (feed).
Mathematically:
Total Revenue = Output x Unit price
Total cost = Total variable cost + Total fixed cost (depreciated value)
Profit = Gross Margin Total fixed cost (depreciated value)
Total Cost
From data collected, the average values for each of the above variables were used to
determine profitability of feed mill industry in the study area.
Output = 95 bags of feed per production cycle
Unit price ranges from #3000 - #5000 depending on type of feed, averaging
# 4005.96
Total Revenue= 95 bags x # 4005.96
= #380,566.67
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Total variable cost comprises cost of feed ingredients + casual labour cost +
transportation cost = # 309,012.41
Items of fixed cost consist of rent on land, salaries of permanent staff, cost of equipments
and tools.
Depreciated fixed cost for the feed mills per production cycle is #276.25
Total cost = Total variable cost + Total fixed cost (depreciated value)
= #309,012.41 + #276.25
= #309,288.66
= #380,566.67 - #309,012.41
= #71,544.26
Profit = Gross Margin depreciated fixed cost
= #71,544.26 - #276.25
= #71,268.01
Total Cost
= #380,566.67
#309,288.66
= 1.2
The budgetary analysis above revealed that feed production is a profitable venture in the
study area.
Major problems faced by the feed mills
The respondents were asked to indicate the major problem/constraint militating against each of
the mills. 36.7% of the respondents opted for lack of capital, 6.7% claimed to experience
problem of irregular demand for product, 6.7% identified with unavailability of feed ingredients,
10% identified with irregular supply of electricity, 6.7% claimed to experience transportation
problem while others opted for pilfering of products in the study area.
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Regression Analysis Result

This reveals the result of hypothesis testing using regression analysis. The dependent variable Y
is Total Revenue while the independent variables are year of schooling, age, cost of labour, cost
of ingredients, amount paid on laid rentage, years of experience, tools cost.
The result of the estimated model was summarized in table 25. It was discovered that the linear
function had the best fit for the study, so it was chosen as the lead function for the gross margin
equation. This choice is backed up with some criteria such as it is the one with highest R-square
(R2), the appropriateness of the sign of the regression coefficients, t-values and the significance
of the F-value. The results on factors influencing gross margin among respondents in the study
area were obtained by means of regression analysis.
Table 4:
Regression results
Variable
Coefficient
T-value
Sig.
Constant
916622.19
1.037
.314
Rent on Land (#)
10.309**
2.478
.024
Cost of labour (#)
3.425
.312
.758
Cost of ingredients (#) -130.479
-.945
.358
Tools/Equipments (#) 1.460***
3.019
.008
Age(years)
9321.035*
1.910
.126
Years of exp.
-7797.328
-817
.425
Years of schooling
-26834.916
-632
.536
R square = 87.2%
Adjusted R square = 0.761
N.B: *** Significant at 1%
** Significant at 5%
* Significant at 1%
Source: Data Analysis, 2010.
From result in table 4 it was discovered that rent on land, tools/equipment cost and age of
respondent are significant variables affecting total revenue generated by the feed mills at 5%, 1%
and 10% respectively.

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Rent on land: The positive coefficient sign showed that there exists a positive (direct)
relationship between the variable and total revenue. Feed milling processes require a sufficient
space to carry out various activities such as weighing and measuring of feed ingredients,
cruching/miling, mixing, weighing and bagging of feeds as well as spaces/ stores for storing feed
ingredients and feed produced. It was noticed from the study area that insufficient space obstruct
their processing activities and reduces their output and it was discovered from this estimate that
more spacious land for feed milling activities will result in increased output.
Tools/Equipment cost: The positive coefficient sign indicated that it has a direct relationship
with total revenue. This means that increased expenditure on tools/equipments will result in
acquiring more sophisticated tools and machinery which lead to increased output and
consequently increased total revenue.
Age of respondent: The positive sign indicated that the age of respondents has a direct
relationship with total revenue. The age of respondents is synonymous to their experience in feed
milling activities since most of the feed millers have been involved in feed milling business for a
long time. This leads to their improvement in feed milling techniques which result in greater
efficiency and output.
From the model summary, adjusted R-square is 0.761 which reveals that 76.1% of the
variations in total revenue (Y) is explained by the estimated variables while the remaining 33.8%
of the variations is unexplained which is resident in the error term of the model.
CONCLUSION
Considering the findings from the study area, it was discovered that feed milling business is
highly profitable. Findings revealed that rent on land, tools/equipments cost as well as age of the
respondents were significant in the study area and also has a direct impact on the level of
production and total revenue.
Finding showed that some of the feed mills are faced with problems of lack of capital to acquire
more input especially tools and machines, theft among workers as well as irregular supply of
electricity. These affect level of production and profitability of the feed milling business.

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Recommendations
Based on the result of this study, the following recommendations are made:
-
The feed millers can form a cooperative society from which members could acquire
loans at very low interest rates to obtain
sophisticated tools, machines, power
generating set, and enough land area required to make the processing activities easier
and more profitable.
-
Through the cooperative society, the feed millers can join hands together in building a
storage house where raw materials are kept, as well as provide maximum security to
prevent theft of produce.
There is need for the government through the Agricultural Development Programme
to monitor feed processing activities in the study area to prevent wrong formulation
of feeds and to avoid the risk posed to livestock.
REFERENCES
1. Bale, O.O, A.A. Sekoni and C.W Kwanashie, (2002). A Case Study of Possible Health
Hazard Associated with Poultry House. Nig. J. Animal Production, 29:1022-1111.
2. Odunsi, A.A, Akande, T.O, and Rafiu T.A. (2008): Understanding Practical Poultry and
Feed Mill Management. Ola Printers, Ogbomoso. Revised Edition. Pp 28 31.
3. Oladunjoye, I.O, Ojedapo, L.O. and Ojebiyi, O.O.(2005): Essentials of Non Ruminant
Animal Production. Pp. 34-35.
4. Wilson, J.E, (1990). Raw materials Animal protein. Feed tech V Revised Edition l, 2:
26-31.

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IJRMEC

Volume2, Issue 4(April 2012)

ECONOMIC ANALYSIS OF FEED MILL INDUSTRY IN LAGOS STATE,

International Journal of Research in Management, Economics and Commerce

Volume2, Issue 4(April 2012)

Volume2, Issue 4(April 2012)

Volume2, Issue 4(April 2012)

Volume2, Issue 4(April 2012)

Y = F (X1, X2, X3, X4, X5, X6, X7, U).

DATA ANALYSIS AND RESULT PRESENTATION

International Journal of Research in Management, Economics and Commerce

Volume2, Issue 4(April 2012)

Years of experience Frequency

Source: Field survey, 2010.

International Journal of Research in Management, Economics and Commerce

Volume2, Issue 4(April 2012)

Productive Resources Utilized by Feed Mills in the Study Area

International Journal of Research in Management, Economics and Commerce

Volume2, Issue 4(April 2012)

Feed ingredients (kg)

Processing Practices of Feed Mills in the Study Area

Volume2, Issue 4(April 2012)

All except fish feed

Feed produced (kg)

International Journal of Research in Management, Economics and Commerce

Volume2, Issue 4(April 2012)

Major source of finance

Source: Field survey, 2010.

Volume2, Issue 4(April 2012)

Volume2, Issue 4(April 2012)

Regression Analysis Result

Rent on Land (#)

Cost of labour (#)

Cost of ingredients (#) -130.479

Tools/Equipments (#) 1.460***

International Journal of Research in Management, Economics and Commerce

Volume2, Issue 4(April 2012)

International Journal of Research in Management, Economics and Commerce

Volume2, Issue 4(April 2012)

sophisticated tools, machines, power

International Journal of Research in Management, Economics and Commerce

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