Agricultural export supply response to price and non-price Variables: a case of horticultural sub-sector in Kenya
Njenga, Peter Miring'u
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ABSTRACT Kenya has a long history of growing horticultural crops for both domestic and export markets. The climatic conditions are highly varied supporting the growth of a wide range of horticultural crops. The horticultural sector currently ranks as one of the economy's fastest growing sectors and is ranked as the second leading foreign exchange earner after tea. The sub-sector is a major source of livelihood to smallholder farmers and has been identified as a key 'driver' towards the realization of "Vision 2030" which envisages Kenya as a middle income economy and a semiindustrialized country by the year 2030. Although horticultural exports have been contributing to increased rural incomes and reduction of rural poverty in Kenya, horticultural exports remain a small fraction of Kenya's overall export sector. This produce is far from saturating world demand. The understanding of the responsiveness of horticultural export supply to changes in price and non-price factors is crucial for formulating a sound horticultural export specific policy package. The key issue is how urgently Kenya should increase horticultural exports supply and make such an increment sustainable. This study investigated the effect of price and non-price variables on horticultural export supply in Kenya and also drew policy implications from the findings. Time series secondary data for the period between 1973 and 2010 was used. The study used the autoregressive distributed lag (ARDL) estimation procedure which tested for the existence of a non-spurious long-run relationship between price and non-price factors and horticultural export supply response. Diagnostic tests were also carried out. The Error Correction Term lagged once was negative and statistically significant indicating high speed of adjustment. In the long-run, the empirical findings show that horticultural export supply responds positively to agricultural credit, classified road network, foreign direct investment, trade openness and EurepGap. The horticultural exports had elastic response on all factors apart from that of foreign direct investment which was inelastic, otherwise all were statistically significant. Coefficients for relative producer price and income per capita were statistically significant and had negative effect on horticultural export supply. This study recommends that more data and information on prices and market connections should be made available so as to make horticultural export suppliers to be well informed on any price fluctuation. There should be construction and maintenance of rural access roads. Embassies abroad and private companies should carry out promotions through trade fairs and exhibitions so as to maintain and improve on this low horticultural export supply response with respect to relative producer price. The study further recommends provision of appropriate credit packages for horticultural producers and dissemination of information on available sources of funding. Work permits should be provided to genuine foreign investors who are interested in horticultural export business. Government should also enhance the capacity of public research institutions. Monitoring and evaluation of trade flows should be encouraged. Where feasible, private sector players should be facilitated to undertake self-regulation and conform to international market requirements.