The Effect Of Clustering On Profitability Among Small Scale Palm Oil Processors In The Birim North District Of Ghana

ABSTRACT The study was undertaken to examine the effect of clustering on profitability among small scale palm oil processing enterprises in the Birim North district of Ghana. The study sought to examine the nature of clustering among palm oil processing enterprises, the net income derived from clusters and the extent of cluster influence on profitability among small scale palm oil processors. A multistage sampling was employed to select 200 respondents for the study. Principal Component Analysis (PCA) and K-means cluster analysis was used. PCA was applied on likert scale variables measuring the extent to which small scale palm oil processing enterprises are clustered. Clusters from K-means were used as clusters of palm oil processing in the study area. Gross Margin was employed to estimate the profitability level, and the augmented Cobb Douglas model was employed to determine the extent of cluster influence on profitability among small scale palm oil processing enterprises. Results from the cluster analysis showed that small scale palm oil processors were clustered into on three groups (those that rely on common suppliers, business information, common input material and infrastructure (Cluster 1), those that rely on common suppliers, business information and common market (Cluster 2), and those that rely on transportation and infrastructure (Cluster 3). Palm oil processors in cluster 3 recorded the highest profit of (GHS 11461.28) per month compared to their counterparts in clusters 1 (GHS 6824.59) per month and 2 (GHS 6272.02) per month. The difference among the clusters in terms of their profit level was statistically significant. Results from the augmented Cobb Douglas model also revealed that palm oil processors in cluster 3 had their profit being increased by 0.76% compared to their counterparts in cluster 1. However, the results observed no effect on cluster 2. The study recommended that state policies should encourage private sector participation in setting up training and information service centers within the clusters, palm oil processing firms should be encouraged to provide support for process and product upgrading to improve the skill sets of their employees. The one-district, one factory project by the ruling New Patriotic Party (NPP) government should consider palm oil production in the Birim North district and channel resources to the district in to make it attractive for non-governmental organisation that are willing to invest in the sector.