Analysis of Vertical and Horizontal Integration as Determinants of Market Channel Choice among Smallholder Dairy Farmers in Lower Central Kenya
Mutura, James K.
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Dairy farming is a significant economic activity in Kenya as it accounts for four percent of the country’s Gross Domestic Product (GDP) and fourteen percent of total value of agricultural output. Market-oriented smallholder dairy farms in the country tend to be concentrated close to urban centres because the effects of market forces over-ride many production factors. Urbanization creates competition for alternative land uses thus leading to land fragmentation which has a potential negative impact on dairy farming especially in Lower Central Kenya. The resultant diminishing land sizes implies that peri-urban smallholder dairy farmers have to intensify milk production by adopting cost minimizing strategies, value addition and marketing through integration. Integration leads to high gross margins, better choice of market channel and improved market participation thus encouraging commercialization of dairy smallholder farming. Multistage sampling technique was used in collecting data from 288 farmers in Kiambu County in 2012. Data management was carried out using SPSS version 20 while econometric analysis were carried out using STATA version 12. Descriptive statistics were used to characterize households while multinomial logit regression (MNL) was used to estimate the probability of households using different marketing channels. Logit regression model was used to determine the likelihood of a household to integrate vertically or horizontally in its dairy enterprise. Mean difference was used to distinguish integrated and non-integrated smallholder dairy farmers. Fixed investment cost, storage type, milk cost share, percentage of milk sold and dairy enterprise turnover explain a household likelihood to vertically integrate in its dairy sector. An increase in total fixed investments, turnover and volume of output increases the probability of household integrating horizontally. The gender of the household head, age, distance from markets, land parcel sizes, milk output and level of education have a significant relationship with horizontal integration. Level of education, training, milk output, and access to information and transaction costs significantly influences the choice of marketing channel. It is recommended that programmes relating to information on milk marketing be made accessible to farmers. There is need to profile farmers on the basis of production and education level and encourage them to use specific marketing channel. Policy makers should identify strategies for disseminating information. It is recommended that farmers should establish and strengthen existing associations and integrate vertically and horizontally on the basis of their spatial location and milk output.