Analysis of Vertical and Horizontal Integration as Determinants of Market Channel Choice among Smallholder Dairy Farmers in Lower Central Kenya
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Date
2015-11
Authors
Mutura, James K.
Journal Title
Journal ISSN
Volume Title
Publisher
Kenyatta University
Abstract
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.
Description
A Thesis Submitted to the School of Agriculture and Enterprise Development in Fulfillment of the Requirements for the Award of the Degree of Doctor of Philosophy in Agricultural Economics Kenyatta University, November 2015