Productivity and Credit Access among Smallholder Dairy Farmers: Case of Nyandarua County, Kenya
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Date
2025-10
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Abstract
Agricultural financing plays a vital role in enhancing productivity and improving the live-lihoods of rural households. In Kenya, the government has implemented various initia-tives, including the Agricultural Finance Corporation, credit guarantee schemes, and co-operative-based lending, to expand credit access to smallholder farmers. Despite these efforts, many smallholder dairy farmers continue to face financial exclusion due to high interest rates, collateral requirements, and complex loan procedures, which undermine productivity. This study investigated the relationship between credit access and produc-tivity among smallholder dairy farmers in Nyandarua County, Kenya. Guided by the Cobb-Douglas Production Function, the study employed descriptive statistics, linear re-gression, and binary logistic regression to analyze both primary and secondary data col-lected from 400 farmers selected through stratified and simple random sampling. The re-sults showed that farmers with access to credit produced, on average, 2.09 liters more milk per cow daily compared to those without credit, demonstrating that financial re-sources significantly improve productivity. However, only 28 percent of farmers accessed credit, while the majority (72 percent) remained excluded. Analysis further revealed that membership in Savings and Credit Cooperative Organizations significantly increased the likelihood of accessing credit, with members being three times more likely to obtain loans than non-members. On the other hand, demographic and resource-based factors such as gender, age, farm size, and farming experience were not significant determinants of credit access. In terms of productivity drivers, the regression results indicated that feed quality (β = 0.255, p < 0.001) had the strongest positive effect, followed by credit access (β = 0.203, p < 0.001). Farm size, farming experience, and veterinary visits did not significant-ly influence output. The study concludes that limited access to affordable credit contin-ues to constrain the productivity of smallholder dairy farmers in Nyandarua County. Poli-cy implications suggest the need to strengthen farmer cooperatives, reduce lending costs, expand credit guarantee schemes, and enhance extension services to unlock the full po-tential of the dairy sector. By addressing these financial barriers, the government and fi-nancial institutions can enhance efficiency, improve rural livelihoods, and support national food security goals.
Description
A Research Project Submitted to the Department of Economic Theory in the School of Business, Economics and Tourism in Partial Fulfillment of the Requirements for the Award of the Degree of Master of Economics, Kenyatta University, October 2025.
Supervisor
1. Paul Gachanja