Effects of Fertilizer Subsidy on Coffee Production and its Influence on Technical Efficiency in Mukurwe-Ini, Nyeri County, Kenya

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Mathagu, Samuel Wandeto
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Kenyatta University
Coffee production plays a key role in Kenya‘s economy. It contributes to foreign exchange earnings, food security, household income and employment creation. In Kenya, it is a major cash crop ranked third after tea and horticulture. Coffee productivity has been declining partly due to various reasons such as low use of inputs, poor cooperatives management, and market problems (Bichanga & Kabaka, 2013). In the literature, loss of soil fertility is considered a major cause of declining coffee productivity, hence the need for planned replenishment of the depleted soil nutrients. High prices of retail fertilizer limits its use by farmers and the Kenyan government has addressed the challenge by introducing fertilizer subsidy program since 2006. The program targets increased production of coffee and other crops through accessibility of cheaper fertilizer input. Despite the intervention policies, coffee productivity remains low in Mukurwe-ini sub-county. However, it is not clear what contributes to decline in yields in the county, and whether the coffee production is efficient or not. The study sought to determine the effects of fertilizer subsidy on coffee yields, and to determine the technical efficiency in coffee production in the context of fertilizer subsidy in Mukurwe-ini sub-county. Non-experimental research design was be used where stratified random sample provided data for the study using questionnaires. The multiple regression analysis and maximum likelihood method was applied to estimate the stochastic frontier production function. Multiple regression analysis revealed that fertilizer subsidy has a significant influence on coffee production. An increase in one 50kg bag of subsidized fertilizer would result to 0.191074 Kgs increase in coffee yields per bush. SFA analysis revealed that fertilizer subsidy has a significant effect on the technical efficiency. The technical efficiency for the individual farmers was found to range between 10.44% and 95.15% with a mean of 77.87%. The results revealed that about 76% of the coffee farmers were operating above 70 percent or more technical efficiency levels. Additionally, about 94% of the coffee farmers were operating at a technical efficiency level of above 50%. However, there were still a room for improvement and the frontier level was not achieved. The observed inefficiency was found to be associated with age, gender, education level, cooperatives‘ management, manure quantity and fertilizer availability.
Thesis Submitted to the Department of Econometrics and Statistics in Partial Fulfilment of the Requirement for the Award of Masters of Economics (Econometrics) of Kenyatta University, June 2019