HEDONIC PRICE ANALYSIS OF SHEEP AND
GOAT MARKET IN LAGOS STATE, NIGERIA
AKINLEYE S.O.1, OLUBANJO O.O AND ADENRELE O.O.
Department of Agricultural Economics, Olabisi Onabanjo University, Ago Iwoye, Ogun State, Nigeria.
Abstract
Nigeria has substantial livestock resources but problems of infrastructure limit the trade
in and the profit from the trade. This study, using the hedonic price methodology,
examined the factors that influence the prices of livestock in the major livestock market
in Lagos State, Nigeria’s most populous urban centre. The results showed that while the
marketers identified the characteristics that consumers were felt to be interested in, only
few of these were significant in the analysis and the most consistent of these
characteristics were age and body weight. The study concluded that the targeting of
animals with these characteristics for sale would increase the profits made by the traders
Keywords: Hedonic, Analysis of Covariance, Livestock, Lagos, Nigeria.
INTRODUCTION
Nigeria, with a population of almost 130 million people, has a surface area of
approximately 923,770 square meters. About 35 per cent of this land mass is believed to be
arable while 15 per cent is used as pastures, 10 per cent as forest reserve, 10 per cent for
settlements and the remaining 30 per cent is considered uncultivable, for one reason or the other
(Cleaver and Shreiber, 1994). The agricultural sector provides the primary means of employment
for Nigerians, accounting for one-third of both total GDP and labor force (FAO, 2003; World
Bank, 2003).
Nigeria has substantial livestock resources of over 15.1 million heads of cattle, 45.06
million sheep, 855.43 million goats, 137.8 million poultry and 6 million pigs (Magaji, 2004).
Livestock contribute 20 per cent of the agricultural GDP and provides employment to a large
number involved in direct production and those engaged in the trade of livestock and livestock
1
Corresponding Author (Email: [email protected], Phone: +234 803 3483 326)
products. Most of the livestock are managed under nomadic livestock production systems, while
few are managed by semi extensive and intensive production systems.
Livestock held by pastoralists in semi-arid regions represents livelihood, income and
employment in these areas (Blench and Marriage, 1999). It is also the principal source of protein
to the Nigerian nation. The importance of livestock to the national economy is however masked
by the fact that many transactions take place by barter, and tax revenue is not gained from
communities which interact largely within an informal economy. Also, the sale of livestock is
not a crucial element of pastoralism, as only the surplus to subsistence requirements is taken to
market (Aronson, 1980).
Nonetheless, the gradual depopulation of rural areas as people gravitate towards cities,
and the commensurate increase in demand from the urban sector for livestock produce, means
that livestock can potentially play an increasingly important economic role. In this respect, a
substantial portion of the meat consumed in the populous and more economically advanced
southern regions are brought in from the north of Nigeria, where it is easier to rear livestock
because of the absence of the tsetse fly, which is the most debilitating of livestock pests. For the
consumers in the south, the dominant issue is that of obtaining value for the money spent on
livestock purchases while for the sellers, the overriding issue is that of ensuring profitability
against the backdrop of the many uncertainties associated with livestock sales. The specific
objective of this paper is to find out if sheep and goat consumers would pay significantly
different prices for different animals, based on the physically observable characteristics of the
livestock. Such characteristics include, but are not limited to, smoothness of skin, large body
weight, age, sex and colour of the animal. If this is found to be so, it would provide an insight
into the characteristics that consumers would willingly pay more for; ensuring the consumers get
2
value for the money spent on purchases and the sellers maximise earnings. The study would also
examine the problems associated with the trade in livestock in Lagos State and the means by
which the livestock get to the market.
METHODOLOGY
The choice of the study area is purposive. Lagos is the most populous state in Nigeria,
and it is the major commercial center in the country (NPC, 1992). The major livestock market is
the Berger market, located at the boundary with Ogun State, another state in Southwest Nigeria.
The location of the market is strategic, as its location is also the entry point for articulated
vehicles conveying the livestock from the tsetse-fly free northern parts of the country, which is
also the main breeding area for the livestock.
The Berger market exists primarily as a livestock market and the animals traded in the
market are cattle, sheep and goats. The market holds daily but the major sales days are Thursdays
to Saturdays, when people buy livestock for the many parties/ceremonies that are held over the
weekends. Data were collected between the months of June and September, 2004. The periods
immediately preceding and after the data collection were festive periods when more sales take
place and data collection during this period was deliberately avoided. The market was thus
visited for 32 days and records were taken of animal purchases during this period.
Data were collected from buyers for all animals traded during this period. The data
collected were on the socioeconomic characteristics of livestock sellers and the characteristics of
the livestock that buyers deemed desirable. Data were also collected on the prices of the
livestock, the purpose of purchase and the grade of the animals.
3
A hedonic price function was used to determine the effects of various factors on price.
The hedonic function assumes that the price of a heterogeneous good is a function of the
characteristics/attributes of that good. The function is based on the assumption that consumers
obtain utility from consuming the characteristics of the good in question; that is, that these
characteristics rather than the goods per se are arguments in an individuals utility function
(Gorman, 1956; Becker, 1965; Lancaster, 1966 and Muth, 1966). The underlying hypothesis of
such analysis is that products have utility bearing attributes and that the values of those attributes
contribute to the price of the product. The observed product price is therefore a composite of the
implicit values of the product’s attributes.
The theory of hedonic pricing offers no suggestion concerning the functional form
governing the relationship between price and different attributes; this is considered a matter for
empirical determination (Williams, 1989). The theoretical framework suggested by Rosen (1974)
assumes competitive market structure where consumers’ bid functions and suppliers’ offer price
functions are tangential at the equilibrium. So hedonic price function is essentially a function of
product attributes and not of individual buyer and seller attributes (Oczkowski, 1994). This
means that only products are differentiated, while their markets, buyers and sellers are not.
Most hedonic regression models use a set of quantitative (continuous) variables, a set of
qualitative (discrete) variables in the form of dummies, and in some cases a set of interaction
variables. For quantitative variables in the regression, the respective partial derivative of the
function represents the implicit marginal attribute price. For qualitative variables, the estimated
coefficient measures the impact of the presence of the given attribute. In this case, the implicit
(predicted) price cannot be derived from a partial derivative but requires additional manipulation
(Gujarati, 1988). In models with many qualitative attributes each with several categories
4
requiring many dummy variables and numerous interaction terms, the number of terms in the
equation may become large. In such cases, the estimation of the predicted prices becomes
cumbersome and at times difficult to interpret and compare (Francis, 1990; Andargachew and
Brokken, 1993 and Rodriguez et al., 1995).
An alternative is to use Analysis of Covariance (AnCov) technique which is a
combination of linear regression and analysis of variance (ANOVA). In the AnCov technique,
the ANOVA results are adjusted for the linear relationships between the dependent variable and
the covariates. The general explicit form of the AnCov model may be written as P = F(Q,C) + U,
where P is the observed price of the product, Q is a set of factors (qualitative variables) each with
more than one categories, C is a set of covariates (quantitative variables), and U is a residual
error term. Relevant interaction terms may be optionally included in the model. In principle,
linear regression and AnCov techniques perform the same function but slightly differently. The
principle advantage of AnCov results is that they can be interpreted more directly and easily to
compare differences between categories of a factor. The factors and covariates are as seen in
Table 1.
Table 1: Definition of Variables Used in the Study
Variable
Definition
Age
Age of animal in years
Occupation Occupation of buyer where food vendor =1 and 0 otherwise
Bdwtsmsk Body weight, smooth skin desirable =1 and 0 otherwise
Sura
All desirable characteristics present =1 and 0 otherwise
Wtsmclhn
Weight, smooth skin, colour, horn desirable =1 and 0 otherwise
Bodywt
Body weight desirable =1 and 0 otherwise
Bodywtsex Body weight, sex desirable =1 and 0 otherwise
Wtsmagcl
Weight, smooth skin, age, colour desirable =1 and 0 otherwise
Colour
Colour desirable =1 and 0 otherwise
5
RESULTS AND DISCUSSION OF RESULTS
Socioeconomic Characteristics of Respondents
The socioeconomic characteristics of the respondents are as presented in Table 2.
Expectedly, the number of male sellers is much more than the number of female respondents.
Also, the bulk of the respondents are middle aged, muslim and are married. Furthermore, most of
the households involved in the study have households comprising 6 to 10 members while the
modal income group is N10,000-20,000/month (US$75 – 150). Also, from Table 1, it is seen that
livestock selling is the primary occupation for most of the sellers.
Table 2: Socioeconomic Characteristics of the Respondents in per cent (n = 961)
Socioeconomic
Goat Sellers Sheep Sellers
Characteristics
n = 613
n = 348
Sex of Respondents
Male
62.50
35.42
Female
1.04
1.04
Age of Respondents
< 20
2.08
1.04
21 – 40
43.75
21.88
> 41
17.71
13.54
Religion of Respondent
Muslim
58.33
30.20
Christian
5.21
6.25
Marital Status of the Respondents
Married
57.29
29.17
Non married
6.25
7.29
Household Size of the Respondents
1-5
28.13
16.67
6-10
31.25
17.71
> 10
4.17
2.08
Income earned by Respondents (N ‘000s)
< 10
16.67
6.25
10- 20
30.21
26.04
> 20
6.25
4.17
Primary Occupation
Yes
40.63
26.04
No
22.92
10.42
Total
63.75
36.25
Source: Computed from Survey Data, 2004
6
Marketing Channel for Livestock Traded in Lagos State, Nigeria
The marketing channel for livestock traded in the Lagos area is as seen in Figure 1. The
bulk of the livestock traded in Lagos State come from the Northern parts of Nigeria and across
the border in Niger Republic. The markets range from the weekly ones – Kano and Kebbi – to
the everyday markets in Oyo. The major breeds brought to Lagos from these markets are Kuru,
Bokolo, Ouda and Koso. When the livestock get to the central market in Lagos, they are
purchased largely by resellers with the intention to sell in smaller units in other markets in
Lagos. The many uses to which livestock traded in Lagos are put include slaughter during
religious festivals, use as meat for special occasions such as naming and funeral ceremonies and
in certain instances, the flesh is sun dried prior to preservation.
Hedonic Regression Results
Table 3 shows the results of the analysis of covariance (hedonic) regression done on the
respondents. Of the two regressions, the variables are more relevant for sheep buyers, as the
adjusted coefficient of multiple determination is higher than that for the other equation at 76 per
cent to 18 per cent. Similarly, 4 of the 8 variables are significant in the sheep equation as against
3 in the goat equation. The age variable is significant for both sheep and goats buyers and the
coefficient has a positive sign, thus the greater the age of the animal, the higher the price it would
attract. This is understandable given the difference in demand and supply of livestock in Nigeria,
with the resultant outcome of many livestock getting to market at a less than ideal (under) age.
The other significant variables for goat buyers are the combination of all desirable characteristics
(sura) and the combination of bodyweight and sex, which are both significant at the 10 per cent
level. Given that bodyweight is not significant as a stand-alone variable, and the sign of the
coefficient, it means it is goats that have desirable bodyweight and are male that draw relatively
7
Fulani and Shuwa Herdsmen
KANO
KEBBI
NIGER REPUBLIC
Bugungu
(Sunday Market)
Singer (Friday)
Market
OYO
Everyday Market
Kuru (native ram or goat
MAIDUGURI
KADUNA
Kio
Kuru,
Kio
Akuya Traore Gambaru Ngala
(Everyday Market)
Livestock reared and
fed at home
Koso,
Ouda Bokolo
KAARA (BERGER MARKET) – LAGOS STATE
Wholesale/Itinerant
goat/sheep buyers
Individual purchases for
ceremonies and festivals
Intermediate
sheep buyers
Local butchers/caterers
Dried beef wholesalers
Alarobo (people that
resell the livestock )
Hawkers and food sellers
Catering, ceremonies
festivals
Final Consumers
Figure 1: Marketing Channel for Livestock Traded in Lagos State
8
higher prices. Moreover, it is expected that culled females should get to the market at about the
same size.
For sheep, the significant variables are those to do with body weight (3), smooth skin (3),
colour (2) age of sheep (1) and horn size (1). What is obvious from this result is that animal
characteristics, in isolation, are seldom adequate in making consumers pay a higher price than
they would otherwise pay for the animal.
Table 3: Results of the Hedonic Regression
Variable
Goat Buyers
Coefficient
Standard Error
Constant
1.54
2.68
Age
2.10 *
1.16
Occupation
0.01
0.40
Bdwtsmsk
0.02
0.48
Sura
0.95*
0.55
Wtsmclhn
-0.16
0.70
Bodywt
0.19
0.56
Bodywtsex
29170.19*
12953.80
Wtsmagcl
-0.94
0.75
Colour
-0.79
1.30
2
R
54.12
Adjusted R2 17.68
F
1.49
Sheep Buyers
Coefficient
Standard Error
66441.75
19043.24
32552.62*
12817.77
-14437.76
7699.82
-12983.30**
4805.08
-7962.14
7379.75
-47180.78***
9920.72
-1496.31
6276.49
-21527.38**
7970.36
95.85
75.95
4.82**
Source: Computed from Survey Data, 2004.
*** Significant at 1%
** Significant at 5%
* Significant at 10%
Problems of Livestock Trading in Lagos State, Nigeria
Many problems were identified by livestock seller+-s in the study area. The principal
problem identified by the livestock sellers was that of transportation. Much of the infrastructure
in Nigeria is in a piteous state and the rail lines that should normally be used to transport animals
do not function. This means the animals have to be transported on roads that are in need of
repairs. The effect of this is twofold; on one level, the cost of transport increases abnormally, and
has to be passed to the consumer, thus contributing to high meat prices. On the other hand, the
9
traders are waylaid by robbers who dispossess them of the money they would use to buy the
animals. To forestall this, they many times make alternative, private security arrangements which
cost money and which cost is passed to the consumer.
Another infrastructure related problem is the absence of animal shelters in the markets,
many of which exist without proper planning. This exposes the animals to diseases and
sicknesses that need not be. The losses the traders suffer from the ill health, or even death, of
their animals, are passed to the consumers.
Lastly, the traders identified the inadequacy/high prices of feeds as a problem. Given the
increasing emphasis on child education, the children who would help their parents seek out
pasture/forage for their parents, are away at school and the few hours they spend away from
school have to be shared between this responsibility, doing their assignments and performing
other household chores such as fetching water and cleaning the house.
CONCLUSION
This study has examined the desirable observable characteristics that livestock buyers
look for in buying livestock in Lagos State, Nigeria. The results show that while the marketers
identified certain characteristics that consumers were felt to be interested in, not all
characteristics were seen as such by the consumers. This is evidenced by the non-significance by
these factors in the analysis. Also, different set of observable characteristics were seen as
desirable by goat and sheep farmers. The most consistent of these characteristics were age and
body weight. The study therefore concludes that the specific targeting by animal rearers and
traders would both increase the profits they make off livestock trading and at the same maximise
the utility the consumers obtain from the livestock purchases.
10
References
Andargachew K and R.F. Brokken (1993): Intra-annual Sheep Price Patterns and Factors
Underlying Price Variations in the Central Highlands of Ethiopia. Agricultural
Economics 8; 125-138.
Aronson, D. R. (1980): Must Nomads Settle? Some Notes toward Policy on the Future of
Pastoralism. In When Nomads Settle: Processes of Sedentarisation as Adaptation and
Response. pp. 173–184. New York: J. F. Bergin Publishers.
Becker G.S. (1965): A Theory of the Allocation of Time. The Economic Journal 75(3); 493-517.
Blench R. and Z. Marriage (1999): Drought and Livestock in Semi-arid Africa and Southwest
Asia. Overseas Development Institute, Portland House, Stag Place, London.
Cleaver K. M. and A. G. Shreiber, (1994): Reversing the Spiral. World Bank, Washington, D.C.
Food and Agriculture Organisation (2003): FAOSTAT Database. http://www.faostat.fao.org.
Francis P.A. (1990): Small-ruminants Marketing in Southwest Nigeria. Agricultural Economics
4; 193-208.
Gorman W.M. (1956): A Possible Procedure for Analysing Quality Differentials in the Egg
Market. Reprinted in Review of Economic Studies 47; 843-56.
Gujarati D.N. (1988): Basic Econometrics. Second Edition, McGraw-Hill, New York.
Lancaster K.J. (1966): The New Approach to Consumer Theory. Journal of Political Economy
74(2); 132-57.
Magaji M. (2004): Nigerian Statement at The Meeting of Experts of the States Parties to the
Convention on the Prohibition of the Development, Production and Stockpiling of
Bacteriological (Biological) and Toxin Weapons and on Their Destruction.
Muth R.F. (1966): Household Production and Consumer Demand Functions. Econometrica
34(3); 699-708.
National Population Commission (1992): Report of the 1991 Population Census, NPC, Abuja.
Oczkowski E. (1994): A Hedonic Price Function for Australian Premium Table Wine. Australian
Journal of Agricultural Economics, 38(1); 93-110.
Rodriguez A, I. Ali, M. Afzal, N.A. Shah and U. Mustafa (1995): Price Expectations of Sheep
and Goats by Producers and Intermediaries in Quetta Market, Pakistan. Agricultural
Economics 12; 79-90.
11
Rosen S. (1974): Hedonic Prices and Implicit Markets: Product Differentiation in Pure
Competition. Journal of Political Economy 82; 34-55.
Williams C.H. (1989): The Choice of Functional Form for Hedonic Price Function: An
Application of the Box-Cox Transformation to Cattle prices In Queensland. Discussion
Paper 16, Department of Economics, University of Queensland.
World Bank (2003): World Development Indicators. World Bank, Washington, D.C. Mimeo.
12