Analysis of Determinants of Vertical and Horizontal Integration among Smallholder Dairy Farmers in Lower Central Kenya

Abstract

This study sought to analyze the determinants of vertical and horizontal integration among smallholder dairy farmers in Lower Central Kenya. Integration leads to high gross margins, influences choice of marketing channel and improves market participation, encouraging commercialization of dairy smallholder farming. A logit regression model was used to determine the likelihood of a household to integrate vertically or horizontally in its dairy enterprise. A multistage sampling technique was used, and data was collected from 288 small holder dairy farmers in Kiambu County. Processing and analysis of the survey data was carried out using SPSS version 20 and STATA version 12. Fixed investment cost, storage type, milk cost share, percentage of milk sold and dairy enterprise turnover were hypothesized to be key factors in explaining a household’s likelihood to vertically integrate in its dairy enterprise. An increase in total fixed investments, turnover and volume of output contribute to the probability of a household integrating vertically. Horizontally integrated farmers were willing to pay more for market information and had higher monthly margins. The paper recommends that farmers should establish and strengthen existing associations and integrate vertically and horizontally on the basis of their spatial location and milk output.