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THE C H A L L E N G E S FACING DAIRY FARMERS IN KENYA: A
CASE OF KIAMBU COUNTY *̂
B Y
ANNE WAIRIMU NVAINAINA
A Project Report Submitted to the Chandaria School of Business in
Partial Fulfillment of the Requirement for the Degree of Masters in
Business Administration (MBA)
UNITED STATES INTERNATIONAL UNIVERSITY
United States Internaticnsi uoivarsity Africa - Library
SUMMER 2013
U S I U - A
4 0 0 0 0 0 0 1 9 6 8 1
S T U D E N T ' S D E C L A R A T I O N
1, the undersigned, declare that this is my original work and has not been submitted to any
other college, institution or university other than the United States International
University in Nairobi for academic credit.
Signed: i2bp Date: I Anne Wairimu Wainaina (ID 623648)
This project has been presented for examination with my approval as the appointed
supervisor.
Signed:
Dr. George O. K' A o l
Deputy Vice Chancellor, Academic Affairs
ii
C O P Y R I G H T
No part of this project report may be reproduced in any form or by any means, or stored
in a database system or retrieval system without prior permission of the author.
Copyright © 2013 Anne Wairimu Wainaina
All rights reserved.
iii
A B S T R A C T
The main purpose of the study was to assess the challenges facing dairy farmers in
Kiambu County. The study was guided by the following research questions: What are the
internal constraints facing dairy farmers in Kiambu County? What are the external
constraints facing dairy farmers in Kiambu County? What are the industry constraints
facing dairy farmers in Kenya?
The study adopted a descriptive survey research design. The study population comprised
of 14,000 dairy farmers in Kiambu County spread out in 5 towns. The study applied
stratified random sampling technique to select a sample size of 280 respondents. In this
study, the data collection instruments were the questionnaires containing both open ended
and close ended questions. The study generated both qualitative and quantitative data.
Data obtained from the questionnaires was processed through editing and coding and then
entering the data into a computer for analysis using descriptive statistics for all the three
variables which were based on the three research questions. Descriptive statistics which
include measures of central tendency (mean) and measures of variability (standard
deviation or variance) were used. Correlation analysis was also carried out. All the data
analysis was carried out with the help of Statistical Package for Social Sciences (SPSS)
version 20.
The findings on internal constraints revealed that 6 1 % of the farmers faced the challenge
of access to financial services; 59% of them were challenged with high transportation
costs due to dilapidated roads. Another challenge was high cost of production as a result
of insufficient access to factors of production. The farmers were also faced with the
challenge of lack of access to market information, resource constraints, limited access to
banking services as well as little farmer education.
The findings on external constraints revealed that the government could limit or even
foreclose entry into industries with such controls as licensing requirements and limits on
access to raw materials. Forty two per cent of the respondents also affirmed that
government regulatory actions could often enforce significant changes in dairy farming
practices and strategic approaches. Additionally, the study revealed that socio-cultural
iv
constraints, ecological as well market conditions were a challenge to farmers. The study
also established that 38.1% of the farmers could not get access to latest technology.
The findings on industry constraints established that early movers were able to pre-empt
resources of various types including: superior posifions in geographical space,
technological space, and customer perceptual space. Additionally the possibility that new
firms were likely to enter the dairy farming sector greatly affected competition. On the
supply constraints, 54% of the dairy farming enterprises lacked adequate information
necessary for optimal enterprise selection for them to take advantage of prevailing market
demand. Finally the study revealed that poor prices for farm goods had negative
consequences; a factor that led to compromising the quality of products produced in the
market. The correlation results in the industry constraints indicated that the government
and lack of access to technology were positively correlated (r= 0.811, p<0.01), and the
relafionship was extended to socio cultural factors (r= 0.861, p<0.01) .
The study concluded that farmers faced the challenge of access to financial services, high
transportation costs, poor storage facilities, and high costs of production as a result of
insufficient access to factors of production. Other challenges they were faced with
included lack of access to market information, resource constraints, limited access to
banking services as well as little farmer education. The study also concluded that the
government inhibited, and in some cases prevented entry into the industry. Finally that
early movers are able to preempt resources of various types including: superior positions
in geographical space, technological space, or customer perceptual space.
The study therefore recommends the need to reduce these challenges. This can be
achieved by issuing credit lines to boost activifies of dairy farmers. The study also
recommends that financial institutions, especially banks should increase the amount of
loans in order to empower milk producers financially. Finally, the study recommends that
the government has to put in place structures for dairy farmers to have a market for their
dairy products so that they can achieve significant returns on their production and
therefore improve their financial positions, which ultimately improve productivity.
V
A C K N O W L E D G E M E N T S
I would like to thank Almighty God thorough whom all things were possible, who gave
me strength to work tirelessly and with a lot of humility and patience.
1 wish to thank my supervisor. Dr. K' A o l for his guidance, insightful comments,
suggestions and who worked late to provide timely feedback.
My heartfelt gratitude also goes to the members of the Ministry of Agriculture, Kenya,
who were warm-hearted, welcoming and were ready to help me with the information I
needed during my research. I recognize especially Mr. Zakayo Magara of Kilimo House
and Mr. J. Kimunya of Kiambu County, Ministry of Agriculture office. 1 would also like
to thank the dairy farmers from Kiambu, who filled my questionnaires with a lot of
enthusiasm.
Not forgetting my friends in USIU: Susan Kaari, Dennis Wamalwa, among others who
encouraged me when the going was getting tough, and gave me helpful advice. Special
thanks to George Mose and Karen Musikoyo of the Agribusiness Program in USIU. They
believed in me, and supported me as I worked in the office while studying. Not forgetting
the USIU community as a whole for the resources that facilitated my research.
There are no words to express my profound gratitude to my parents, Mr. Humphrey
Wainaina and Mrs. Mary Wainaina for the support they gave me, and for ensuring that I
kept the fire burning. You are amazing parents, and may God richly bless you and give
you long lives.
vi
D E D I C A T I O N S
To my siblings, Shalom Wanjiru
and
Nicholas Mbogo.
Just know that all things are possible with Christ. Through Him, with hard work and
consistence all things fall into place.
vii
T A B L E O F C O N T E N T S
S T U D E N T ' S D E C L A R A T I O N ii
C O P Y R I G H T iii
A B S T R A C T iv
A C K N O W L E D G E M E N T S vi
D E D I C A T I O N S vii
L I S T O F F I G U R E S xi
L I S T O F T A B L E S xi
L I S T O F A B B R E V I A T I O N S xiii
C H A P T E R O N E 1
1.0 I N T R O D U C T I O N 1
L I Background of the Problem 1
1.2 Statement of the Problem 4
1.3 Purpose of the Study 5
1.4 Research Questions 5
1.5 Significance of the Study 5
1.6 Scope of the Study 6
1.7 Definition of Terms 6
1.8 Chapter Summary 8
C H A P T E R T W O 9
2.0 L I T E R A T U R E R E V I E W 9
2.1 Introduction 9
2.2 Internal Constraints facing Dairy farmers 9
2.3 External Constraints Facing Dairy farmers 13
2.4 Industry Constraints Facing Dairy farming 18
2.5 Chapter Summary 22
viii
C H A P T E R T H R E E 23
3.0 R E S E A R C H M E T H O D O L O G Y 23
3.1 Introduction 23
3.2 Research Design 23
3.3 Populationand Sampling Design 23
3.4 Data Collection Methods 25
3.5 Research Procedures 26
3.6 Data Analysis Method 27
3.7 Chapter Summary 27
C H A P T E R F O U R 28
4.0 R E S U L T S AND F I N D I N G S 28
4.1 Introduction 28
4.2 Background Information 28
4.3 Internal Constraints to Dairy farming 31
4.4 External Constraints to Dairy farming 35
4.5 Industry Constraints on Dairy farming 40
4.6 Chapter Summary 43
C H A P T E R F I V E 44
5.0 D I S C U S S I O N , C O N C L U S I O N S AND R E C O M M E N D A T I O N S 44
5.1 Introduction 44
5.2 Summary 44
5. 3 Discussion 46
5.4 Conclusions 51
5.5 Recommendations 52
ix
R E F E R E N C E S 54
A P P E N D I C E S 64
A P P E N D I X 1: C O V E R L E T T E R 64
A P P E N D I X 2: Q U E S T I O N N A I R E 65
X
L I S T O F F I G U R E S
Figure 4.1: Access to Financial Services 32
Figure 4.2: High Transportation Costs 32
Figure 4.3: High Cost of Production 33
Figure 4.4: Limited Access to Market Information 33
Figure 4.5: Resource Constraints 34
Figure 4.6: Limited Access to Banking 34
Figure 4.7: Little Farmer Education 35
Figure 4.8: Government 35
Figure 4.9: Regulatory Framework 36
Figure 4.10: Declining Performance of the Dairy farming Sector 37
Figure 4.11: Market Conditions 37
Figure 4.12: Access to Latest Technology 38
Figure 4.13: Socio-cultural constraints 38
Figure 4.14: Ecological constraints 39
Figure 4.15: Early Movers 40
Figure 4.16: Threat of New Entrants 41
Figure 4.17: Lack of Adequate Information 41
Figure 4.18: Poor Prices for Farm Goods 42
xi
L I S T O F T A B L E S
Table 3.1: Target Population 24
Table 3.2 Sample Size 25
Table 4.1 Response Rate Per Town 28
Table 4.2: Age of the Respondents 29
Table 4.3: Marital Status of the Respondents 29
Table 4.4: Level of Education 30
Table 4.5: Number of Employees in the Organization 31
Table 4.6: Correlation Matrix on External Constraints to Dairy farming 39
Table 4.7: Industry Constraints to Dairy farming 42
'1
xii
L I S T O F A B B R E V I A T I O N S
EADD - East Africa Dairy Development
FAG - Food and Agriculture Organization
FSD - Financial Sector Deepening
GOK - Government of Kenya
GDP - Gross Domestic Product
ILR l - International Livestock Research Institute.
KD B - Kenya Dairy Board
SDP - Smallholder Dairy Project
SRA - Strategy for Revitalizing Agriculture
SSBF - Southern Sudan Business Forum
SSMV - Small-Scale Milk Vendors
UNIDO - United Nations Industrial Development Organization
UNDP - United Nations Development Program
xiii
C H A P T E R O N E
1.0 I N T R O D U C T I O N
1.1 Background of the Problem
The word agricuhure simply means to plow a field, planting seeds, crop-harvesting,
milking cows, or feeding livestock (Eurostat, 2012). Until recently, agriculture was
simply a simple accurate picture but in the present day, agriculture is considered a
completely different phenomenon. This is because agriculture has evolved in the agro-
industry (into agribusiness) and has become a vast and complex system that goes beyond
the farm to include all those involved in the making both food and fiber for consumers
(Akridge & Gunderson, 2005).
The Kenyan economy is highly dependent on agriculture, whereby more than 75 percent
of the available workforce is employed, both in the formal and informal sectors.
Agriculture as a percentage of GDP, is more than 30 percent to the economy and
generates more than 6 percent of total foreign exchange earnings (Eurostat, 2012).
Primary production plays an important part in maintaining the country's food security,
while the industrial and horticultural crops subsectors are important foreign exchange
earners. Kenya's potential to add value to agricultural produce is largely unexploited.
This, coupled with high production costs arising from escalating energy prices and poor
infrastructure, makes Kenyan agricultural exports less competitive in global markets. The
country needs to 'scale-up' activities such as processing, branding, quality certification
and accreditation, as well as farm level quality improvements that increase the market
value of primary products. Agribusiness needs to become the driver improving the
agricultural sector's productivity and contribution to economic growth (Government of
Kenya, 2012).
Despite the growth and interest in the agribusiness, what constitutes agribusiness
management research continues to be a perennial debate (Barry, Sonka, & Lajili, 2012).
Understanding what is or what is not, agribusiness research is fundamentally dictated by
its definition. According to Davis and Goldberg (2005), agribusiness has subsequently
been defined in various ways, such as agro-industrialization (Boehlje 2009), value, or net
chains or agri-ceuticals . These definitions share a common emphasis for the
"interdependence" of the various sectors of the agri-food supply chain that work towards
1
the production, manufacturing, distribution, and retaiHng of food products and services
(Boehlje, 2009).
There is more to Dairy farming than just the farmland; but it also involves individuals
and companies that provide inputs, processing the inputs (for example milk), manufacture
of food products (for example cream, butter, ghee, etc.), as well as transportation and sale
of food to consumers (for example restaurants, supermarkets) (Akridge and Gunderson,
2005). In addition, the dairy farming system has undergone a huge transformation as new
industries have evolved and traditional agricultural activities have become larger and, in
fact, more specialized. However, the transformation does not just happen overnight, but is
the result of a slow response to a variety of forces. This study therefore aims to examine
dairy farming in Kenya, but from the point of view of farmers who face challenges in the
practice of milk production (Akridge and Gunderson, 2005).
Locally based dairy farming in developing countries refers to typically small to medium-
scale operations that take place in rural areas where either there is processing of raw
agricultural materials or provision of marketing, transport among other services (Kinsey,
1987). Although not limited to this definition, dairy farmers are more likely to be
constrained by available labor and capital, and as such, they tend to serve particular
niches. In general, therefore dairy farming is considered as an inclusion of all activities
that range from ditch bank to dinner plates although there is normally the omission of the
production elements of agriculture in the use of the term "dairy farming". Here, the focus
is explicitly on the activities that occur after harvest but prior to final sale to consumers.
In Kenya dairy farming, has a wide range of services provided by such enterprises. This
includes sorting, grading, as well as packing facilities, which take raw outputs and
consolidate them into useful categories that are thereafter shipped to wholesalers and
distributors. Companies specialized in transportation activities can also specialize in
agricultural commodities while at the same time seek ways of establishing strong market
links. Juicing facilities, freezing plants, as well as other processing functions can also turn
raw product into a value-added good before they leave the rural area. Similarly
wholesalers and marketing services can arrange for sales transactions between entities
which otherwise are strangers to each other (Muriuki, 2009).
The dairy industry is the largest single agricultural sub-sector in Kenya, bigger even than
the tea industry (Muriuki et al., 2004). It contributes 14 per cent of agricultural GDP and
2
3.5 per cent of total GDP (Government of Kenya, 2008). The industry has experienced
phenomenal growth since its liberalization in 1992. Liberalization has led to a rapid
growth in trade in the informal milk trade which consists mainly of small, specialized in
the marketing of raw milk operators. At that time, there was an emergence of new
institutional arrangements for milk collection, processing and marketing, which included
hawkers, brokers, self-help groups, neighbors and commercial establishments such as
hotels (Karanja, 2003). The informal milk market controls about 70 per cent of the total
milk marketed in Kenya ( K D B , 2009; Government Kenya, 2006). This sector is
important and is driven by various factors, including the traditional preferences for fresh
raw milk and its relatively low cost. Supply of raw milk offers two prices higher to
producers and lower prices for consumers, but with several challenges in monitoring
standards and quality and health concerns and associated safety.
The state of the country's rural roads, rail and transport facilities are poor. There is little
incentive for anyone to invest in improvements because smallholder farmers are widely
dispersed and do not create sufficient demand for investment to be profitable. It is quite
common to see produce assemblers - who are the first link in the distribution chain,
transporting produce from surplus-producing areas - using passenger transport vehicles
to transport foodstuffs. Most vehicles are poorly maintained and often over-loaded,
leading to high transit losses, the cost of which is passed on to consumers (Government
of Kenya, 2012).
The imposition of levies by local authorities, and several checkpoints, also increases the
cost of transporting agricultural produce and inputs. There is also lack of other support
infrastructure. Kenyans pay some of the highest tariffs on electricity in the region, and
lack access to reliable water supplies because of inadequate storage and distribution
infi-astructure like trucks with refrigerating facilities. Since most of the farmers are small
scale farmers, they lack fimds for procuring the high-tech machinery (Government of
Kenya, 2012).
3
1.2 Statement of the Problem
Informal milk market in the past has faced several challenges. This is because before the
policy change in 2004, the street vendors, including mobile milk merchants, milk bar
sellers and milk transporters were not officially recognized in the old dairy policy.
Consequently, they were often harassed as powerful dairy market players sought to
protect their own interests and increase their market share. There was also concern about
the safety and quality of milk sold by the informal sector actors. Dairy policy at the time
focused on promoting the value added, and increase the market share of pasteurized milk
in an attempt to deal with the potential risks to public health while consuming raw milk.
Nonetheless, since 2004 there has been a major change in policy and practice to the
informal milk market (Leksmono et al., 2006).The dairy policy now clearly recognizes
the role of small-scale milk vendors (SSMVs) and includes specific measures to support
them. These include: the development of appropriate low-cost technologies, training on
the safe handling of milk, providing incentives to improve management systems and milk
collection and implementation of a supportive certification system. While dairy policy is
ongoing, pending approval by Parliament, there has been an active participation of the
Kenya Dairy Board in the training and certification of SSMVs to protect public health
and ensure the good quality of raw milk (Heinemann, 2002).
Dairy farming sensitization has faced quite a number of challenges from the start. The
general cause of the constraints is the lack of appropriate strategies that clearly define the
objectives of each stage to the final stage (Technoserve, 2008). Domestic production,
processing and marketing constraints have played a major role in reducing the
competitiveness of the dairy sector in Kenya. This has not only limited the domestic
market, but has also closed opportunities for the expansion of the export market. Yet,
despite such earlier calls, the advancement of dairy farming as a discipline has been
"sporadic" (Cook & Chaddad, 2007). Cook and Chaddad describe that "the evolution of
this field [dairy farming management] has been sporadic with bursts of research activity
and then periods of little or no activity" (p. 212). Although there are numerous possible
explanations, such sporadic developments can be attributed to a basic philosophical
challenge faced by dairy farming researchers
Several studies have clearly indicated that indeed dairy farming is faced with a number of
challenges (Doyer, 2012; Humprey & Schmitz, 2012). Louw et al (2007), established that
4
dairy farming farmers are faced with technological challenges as most of them are still
using old technology, which is not sufficient enough to meet the market demands. Doyer
(2012) on the other hand established that the political environment as well as market
forces form part of the hindrances to dairy farming farmers who lack access to market
information. National and International Research Institutions have conducted research on
challenges facing dairy farming in Kiambu County, but they have rarely been adopted by
smallholder producers since they seem far-fetched. The farmers also feel that they need to
be empowered and sharpened on their business skills so as to have more profitable
businesses (Ayantunde et al., 2005; Hall et al., 2008). The study therefore seeks to trace,
document, and recommend ways of enhancing dairy farming on an agribusiness
approach.
1.3 Purpose of the Study
The main purpose of this study was to investigate the challenges facing dairy farmers in
Kenya.
1.4 Research Questions
The following research questions were used to guide the research;
1.4.1 What are the internal constraints facing dairy farmers in Kenya?
1.4.2What are the external constraints facing dairy farmers in Kenya?
1.4.3What are the industry constraints facing dairy farmers in Kenya?
1.5 Significance of the Study
1.5.1 Dairy Farming
The results of the research will help minimize reproductive, marketing, financial and
technological constraints in the dairy industry. Dairy farmers will also learn various ways
of managing these challenges in order to maintain competitiveness in the market and
achieve growth and they will upgrade farmers' practices for better output in dairy
products.
5
1.5.2 Researchers and Academicians
The resuhs of the research will advance the work of previous researchers by covering
issues not yet addressed, and provide basic information to researchers who might be
interested in this area of coverage. The research findings will guide academicians on the
existing knowledge gaps in the area and as such develop ways to bridge such gaps.
1.5.3 Policy Makers
The study will help to inform policy makers on the various challenges facing dairy
farming farmers in Kenya, so that they can be able to make informed decisions.
1.6 Scope of the Study
My study was based in Kiambu County, which is located in the Central Province of
Kenya; bordered by Murang'a County to the north and northeast, Machakos County on its
eastern side, Nairobi and Kajiado to the south and County of Nakuru to the west (GOK,
2011). The study was limited to Dairy farmers within the county. The research was
conducted in 2013 and was limited to the issues and events of that year.
1.7 Definition of Terms
1.7.1 Agriculture
The word simply means: plowing a field, sowing seeds, harvesting crops, milking cows
or feeding livestock (Gunderson, 2005).
1.7.2 Dairy Farming
This is a farming system specializing in the production of milk - usually from cows, but
in some regions from sheep, goats, yaks, buffalo, or reindeer. Dairy farming is most
common in the wetter, temperate areas, characteristic of the Kenyan Highlands (Baloyi,
2010).
Dairy farming includes more than just the farm land, but also the people and companies
that provide inputs and process the outputs, manufacture of food products (for example
cream, bread, breakfast cereals, etc.) as well as transportation and sale of food products to
consumers (for example in restaurants, supermarkets) (Akridge and Gunderson, 2005).
6
1.7,3 Industry
This is group of firms producing a similar product or service (Hungler & Wheelen, 2008).
1.7.4 Sustainability
Being characterized by durability (rate at which a firm's underlying resources,
capabilities or core competencies can depreciate or become obsolete) and imitability (rate
at a firm's underlying resources, capabilities can be duplicated) (Hungler & Wheelen,
2008).
1.7.5 Isolation Mechanisms
These are economic forces that limit the extent to which a competitive advantage can be
duplicated or neutralized through the resource-creation of dairy farming (Rumelt, 1984).
1.7.6 Internal constraints
Internal constraints are those constraints that affect the farmer's ability to operate
efficiently, despite any irmate potential the farmer might have to allocate resources in an
economically efficient manner. Normally the farmer has some control over such
constraints. These include liquidity problems, shortage of labor; lack of skills, knowledge
and education; and a range of cultural factors that in some instances prevent more
effective management of resources. The removal of these constraints will assist the
farmer to allocate resources in an economically optimal maimer (Baloyi, 2010).
1.7.7 External Constraints
External constraints emanate from the broader agricultural environment and are largely
beyond the control of the individual farmer. These include natural risks typical to
agricultural activity; limited availability of inputs, credit, mechanization and marketing
services; poor institutional and infrastructural support; inappropriate policies and
legislation; restrictive administrative and social structures; and problems associated with
land tenure and acquisition of agricultural resources (Baloyi, 2010).
7
1.7.8 Industry Constraints
These are the factors inhibiting the growth of the dairy farming field. These include lack
of infrastructure, lack of markets and high transaction costs. Smallholder farmers find it
difficult to compete in the new market environment. They face enormous constraints
when it comes to physically accessing markets. They also lack market information,
business and negotiating experience, and a collective organization to give them the power
they need to interact on equal terms with other - generally larger and stronger - market
intermediaries (Heinemarm, 2002).
1.8 Chapter Summary
This chapter provides a precise explanation of the topic under study. It gives a brief
introduction of the study by looking into the background of the study, the statement of the
problem. It goes fiirther to outline the purpose and scope of the study. The problem
statement has been established. The study was limited to dairy farming enterprises in
Kiambu County and it was conducted in the year 2013. The following sub-section
presents a literature review regarding the research objectives. The third chapter discusses
the research methodology, while the fourth chapter presents the results of the
investigation. The last chapter provides a summary and discussion of the results, the
conclusions and recommendations.
S
C H A P T E R T W O
2.0 L I T E R A T U R E R E V I E W
2.1 Introduction
This chapter reviews the existing Hterature on the challenges facing dairy farmers. This
chapter is organized based on the objectives of the research: to examine the internal
constraints facing dairy farmers, to analyze the external constraints facing dairy farmers
and to analyze marketing and distribution constraints facing dairy farmers.
2.2 Internal Constraints facing Dairy farmers
The section below presents the internal constraints facing dairy farmers. Internal
constraints discussed include: poor access to financial services, high transportation costs
and high costs of production.
2.2.1 Access to Financial Services
Access to financial services has the potential to improve agriculture and help contribute
to in poverty alleviation in rural communities (Kibaara, 2005). Over 70 percent of
Africa's population lives in rural areas and as such, experience a high incidence of
poverty. Many of these rural inhabitants heavily depend on agriculture for their
livelihood. Rural finance has been identified as a crucial factor in achieving pro-poor
growth and poverty reduction according to the World Bank, (2009). However, the formal
financial markets have failed for most smallholder farmers in developing countries.
Most farmers therefore rely heavily on "traditional" informal financial systems that are
underdeveloped (Financial Sector Deepening (FSD), 2006). In this sense, therefore, the
development of rural financial systems is limited by the high transaction costs of
delivering services to small and widely dispersed farmers (Poulton et al, 2006). There are
other factors that lead to the inability of the formal financial markets to support the small
farmers. They include a high covariate risks, lack of markets and sales during bad
weather and market risks due to lack of appropriate collateral (Onumah, 2002).
Transaction costs are especially high for small farmers due to poor communication and
transportation facilities, lack of production, market information and trade, as well as thin
segmented markets (Poulton et a l , 2006; . Poulton et al., 1998). Lack of working-capital
9
and low liquidity (due to lack of access to financial services) is also considered as a major
obstacle to the commercialization of smallholder agriculture (Kibaara, 2005). This is
primarily because it limits the ability of small farmers to buy inputs that improve
productivity, such as seeds, fertilizers and pesticides (Nyoro, 2002). As a result,
smallholder farmers are likely to produce small volumes that exclude them from
participation in higher-paying market products that require large volumes.
The reason why farmers remain self-sufficient and are trapped in the low equilibrium trap
of poverty is because small farmers lack the capacity to invest in productivity-enhancing
inputs such as seeds, fertilizers and pesticides (Barrett, 2008). The desire to stimulate
progress in smallholder agriculture has historically been considered as the genesis of the
search for new models of financing agriculture to meet the financial challenges faced by
farmers (Okello et al., 2010).
Financial services and products rarely suit small-scale rural dairy farmers. The costs of
delivering financial services to fragmented and small-scale businesses are generally high.
This means it is expensive for businesses to borrow money and many do not invest in
their own enterprises as a result. This low usage for financial services puts up the cost of
lending - and hence the spiral continues. Even though some of these services are already
available, the financial sector has little incentive to lend to these kinds of investors, and
does not pay much attention to creating additional financial services and products that
meet their needs (Government of Kenya, 2012).
2.2.2 High Transportation Costs
The state of the country's rural roads, and rail transport facilities is poor. There is little
incentive for anyone to invest in improvements because smallholder farmers are widely
dispersed and do not create sufficient demand for investment to be profitable. It is quite
common to see produce assemblers - who are the first link in the distribution chain,
transporting produce from surplus-producing areas - using passenger transport vehicles
to transport foodstuffs. Most vehicles are poorly maintained and often over-loaded,
leading to high transit losses, the cost of which is passed on to consumers. The imposition
of levies by local authorities, and several checkpoints, also increases the cost of
transporting agricultural produce and inputs (Government of Kenya, 2012).
10
The main constraints include high transport costs due to bad roads, poor handling of the
milk and poor storage facilities, which result into wastage of the commodities. These
result into fluctuations in both production of the commodities and income to the farmers.
For cattle, limited livestock holding grounds and interfering in stock routes have limited
access to markets. The promotion of agricultural production necessitates that the holding
grounds, watering points, stock routes and livestock markets develop, it the private sector
will be encouraged to invest in slaughterhouses and cold storage. Local authorities in
collaboration with the private sector to invest in storage facilities, the Government
provides all-weather rural roads, improving communications facilities information
systems on the market, among others. The two sets of interventions in improving
marketing systems of agricultural productivity as recognized by the SRA, (2004) will
lead to agricultural growth.
Poor infrastructure including poor rural roads, markets and transportation systems that
result in high transaction costs for farmers and inaccessibility to markets for inputs and
products are among the major concerns for the industry. The sector's performance is
affected from production to marketing nationally and even internationally. For exports
means lack of sustainable supply of raw materials due to the controlled production, with
excess alternating with shortages and lack of competitiveness since high transport costs is
reflected in the high prices. Poor infrastructure has also contributed to poor market
integration in the country (Government of Kenya, 2011).
Fees charged by outsourced transporters are high; therefore the farmer is left to enjoy
little benefit. This has affected the purchase price of the products offered to users.
Transport also has been a problem, especially during the rainy season, transportation to
the farms is difficuh, causing a delay in delivery of products at points of sale resuUing to
deterioration. Some farmers still prefer to sell their agricultural products to brokers and
this affects the quality of agricultural products brought to the centers (Government of
Kenya, 2011).
11
2.2.3 Cost of Production
Production entails a number of resources such as land, labor force and capital. If indeed
there is poor access to these assets, then it follows without saying that production will not
be high as compared to if there was access to such factor inputs. Dairy farmers, especially
those that operate on a small scale are likely to suffer from inconsistency especially in
terms of producing for the markets as a result of insufficient access to factors of
production (Ngigi, 2004).
Agricultural productivity can increase the income of farmers raised, more people fed and
in fact the overall economic welfare improved. The SRA (2004) recognizes and expect to
improve the productivity of small farms and increase income; small farmers will switch
from subsistence production to commercial enterprises profitable. Then attract private
entrepreneurs willing to invest in it and use modem agricultural techniques needed to
achieve greater productivity. When agriculture is driven by technology, not only food
security but also achieve poverty alleviation is also possible. The inability to pay for new
and available technology of agriculture, however, blamed in part on the lack of access to
financial resources, especially in a country where the majority, not just farmers are poor
and financial markets have been developed to support agricultural investment.
In addition, there is limited access to credit for production, marketing, long-term
investment and job creation for the creation of rural businesses. The dairy sector is
starved of credit; and demand exceeds supply by such a wide margin (Kodhek, 1998).
Sources of funding for agriculture and dairy companies are kept in chronological order
scarce in rural Africa (United Nations Industrial Development Organization (UNIDO),
2010). Hence many milk producers relying on financing, internal or supplier credit,
subsidized inputs provided by the government not so common (Fafchamps, 2005). This
situation has persisted for such a long period, that most producers do not even try to get
credit.
According Kodhek (1998) recent survey found that 67 percent of all farmers in the 86
percent of those who were in not co-operatives, did not receive credit or cash. Of those
who receive majority of them (52 percent) received credit from their cooperatives.
Agricultural Finance Corporation (AFC), the government's main effort to meet the needs
of agricultural credit gives some loans, in limited areas, to large-scale farmers and
12
wealthier (Kodhek, 1998). However, NGOs are responding to the credit gap by
embarking on innovative small loan programs using concepts such as investment
guarantees and character-based lending unsecured. Reimbursement rates are reported to
be high. One of the innovations that take credit is to see, not just agricultural credit.
2.3 External Constraints Facing Dairy farmers
The following section presents the external constraints faced by dairy farmers. External
constraints discussed include political, economic, technological limitations, the social and
legal factors.
2.3.1 Political Factors
The government can limit or even exclude entry in industries with controls such as
licensing requirements and restrictions on access to raw materials (Porter, 1998).
Influencing policy decisions is part of the government's corporate strategy, provided that
this is done openly and with integrity. Any dairy farming company that does not take into
account the history and the political impetus ignores an essential element of the
environment (Lynch, 2000).
Regulatory pressures restrict the heterogeneity by prescribing uniform standards of
resources, skills and ways of deploying resources from all given sectors and by defining
which resources that are socially acceptable or permissible as inputs. According to
Oliver, these pressures limit diversity by restricting the range of options, permitted
resources, companies and imposing common social expectations between companies
competing in how inputs should be combined and deployed in production. Legislation
and political processes influence and environmental standards with which industry must
comply, as with many factors in the general environment, changes can benefit or harm an
industry (Dess, Lumpkin and Eisner, 2006).
Government regulatory actions can often force significant changes in milk production
practices and strategic approaches, according to Thompson, Strickland and Gamble
(2005). Deregulation has proven to be a pro-competitive force in the airline, banking,
natural gas, telecommunications and electric utility industries. Governments can also
13
drive competitive changes in milk production by opening up their domestic markets to
intemational markets or close to protect domestic firms.
Unstable policy environment for dairy farming in Kenya affects dairy farmers greatly.
Different ministries, departments and agencies have their own dairy farming agendas.
They are rarely co-ordinated. This results in duplication, wastage of resources and
inefficiencies. Interference in markets driven by political motives also contributes
significantly to uncertainties and market distortion (Government of Kenya, 2012).
Weak governance is also an additional constraint. Political interference has been noted to
result in market distortions in Kenya. Poor resource management and misappropriation of
public funds, cartels, poor security for investors and flouting of procurement rules are
some of the challenges that must be addressed if investment in the dairy farming industry
is to be encouraged (Government of Kenya, 2012).
2.3.2 Economic Factors
Declining performance of the dairy farming sector in terms of its growth has been one of
the major concerns facing policy makers and those having interests in the sector. The
performance of agriculture, which remains the backbone of the economy slackened
dramatically over the post-independence years from an average of 4.7% in the first
decade to only below 2% in the 90s. This decline culminated in a negative growth rate of
-2.4% in 2000. As a sector that engages about 75% of the country's labour force, such a
decline implies lower levels of employment, incomes and more importantly, food
insecurity for a vast majority of rural Kenyans. It is instructive to note that a sizeable
proportion of the rural labour force (over 51%) is engaged in small-scale agriculture and
that women are the majority in the sector. A decline in agriculture has thus far reaching
implications in terms of employment and income inequality as well as food security for
the country (United Nations Development Programme (UNDP), 2002).
According to Lynch (2000), market growth rate is important because markets that are
growing rapidly offer more opportunities for sales than lower growth markets. Rapid
growth is less likely to involve stealing share from competition and more likely to come
from new buyers entering the market.
14
Porter, (1998) argues that the recognition and accurately read market signals is of great
importance for the development of competitive strategy and reading the signs of behavior
is an essential complement to competitive analysis. A prerequisite for the interpretation
of the signals is required to develop an initial competitive analysis, understanding of the
objectives of future competitors, assumptions about the market and own, current
strategies and capabilities. It is not uncommon for competitors to comment on industry
conditions, including forecasts of demand and prices, forecasts of future capacity and the
importance of external changes. . Such a comment is responsible for signals as it can
expose assumptions firm commenting on the industry in which it is probably built its own
strategy.
Dairy farming is typically characterized by much uncertainty over potential market size,
how much fime and money will be needed to surmount technological problems and what
distribution charmels and buyer segments to emphasize. When enterprises are successful
in introducing new ways of marketing their products, they spark a burst of buyer interest,
widen industry demand, increase product differentiation and lower unit costs-all of which
can alternative the competitive position of a firm (Thompson et al., 2005).
2.3.3 Technology Constraints
Technological innovations have long been a major contributor to progress in dairy
farming and will continue to influence the smooth running of business in the agricultural
value chain. Rapid dissemination of information and communication can lead to high
costs savings. E-commerce can be a good means of minimizing transaction costs in dairy
farming by enabling the online buying and selling of products. In contrast to developed
countries, smallholder farmers in developing countries are poor and have no access to
information technology, with the majority being poorly linked to intemational trade due
to technological barriers. Smallholder farmers' lack to access to technology has a
negative effect on their ability to access markets locally, nationally, and globally (Baloyi,
2010).
It is recognized that low productivity, which is reflected in low yields per hectare of land
is a major source of the high unit production costs in agriculture in Kenya. Among the
reasons for this is the inability of farmers to afford new technologies readily available for
agriculture. Therefore, the objective of policy makers in this area is to increase
15
production through improved agricuhural technologies, which, inevitably, increase
agricultural productivity and hence incomes of farmers.
Agricultural produce is commonly marketed with minimal processing, which results in a
low capacity to generate income for farmers, fishermen and creating fewer employment
opportunities for citizens. Efforts should be made to improve the processing of
agricultural products to increase the value of agricultural exports and increase their
earning potential. Some of these measures recognized by SRA, (2004) include the
provision of appropriate incentives for the establishment of agro-industries in rural areas,
the research focused on the added value in terms of processing, storage and packaging of
agricultural products, promoting partnerships between small farmers and dairy farming,
improved supportive infrastructure, such as rural roads, rural electrification, water and
telecommunications, and carry out the training of farmers and farmer institutions in
added value, among others. The media recently highlighted the situation of mango
producers, who could not sell their bumper produce.
2.3.4 Social Factors
Social conditions define the marketplace and the unique cultural norms that exist within
and outside the country, affect internationalization of companies. Foreign companies
must therefore fully consider how their products and marketing activities will be
perceived in the new territories where they want to start operations (Ireland, Hitt, &
Hokinson, 2009). For example, a company marketing birth control products or food
supplements for infants must consider how those items might clash with social values in
the foreign country. Moreover, the potential for abuse, and misuse, of health-related
products due to lack of knowledge and poor living conditions must also be measured
(Calof& Beamish, 1995).
Differences in social classes and language in foreign countries must also dictate
adjustments in the marketing messages and personnel management practices of the
entering company Cultural and language barriers are among the most obvious of these
considerations. Variations in religious beliefs, societal norms, and business negotiation
styles all have an impact on how business needs to be conducted when dealing with
16
foreign counterparts. Language barriers may present an obstacle when trying to
communicate the benefits and advantages of a company's products and services past one
country boarder (Cavusgil, 1993).
In addition, doing business internationally presents many challenges, due to a variety of
factors that vary from one market to another. These differences are basically informed by
the environment of the host country; they are often times different from that at home. One
of the environmental factors are presented as a challenge is culture. Culture can be
defined as complex construct that incorporates the knowledge of a people, morality, art,
beliefs, customs, laws and other capabilities normally collected by the community over
time. The host country's culture has a strong impact on the performance of a company
dedicated to intemational business. Highlights of culture are central to intemational
business development, including social structure, religion, language and education
(Clifton, 2004).
2.3.5 Legal Factors
The existence of bureaucratic systems and cultures is central in making the decision to
go intemational. The nature of cormption, local values and assumptions that are built into
national ideologies are major variables in this field. A great concem is the extent to which
there is a culture of law or a culture of personal patronage, where negotiations are done
on a personal rather than a legal basis (Baloyi, 2010).
The rapid growth in the amount of cross border economic activity over the past twenty
years is affecting the balance of power between the state and the market in the regulation
of such activity. The ability of economic actors to escape national regulation by
stmcturing their operations to take place in jurisdictions that they find congenial and to
avoid those that they find unsatisfactory is undermining the regulatory role of the state. It
is also creating demand for lawyers who can help their clients exploit these opportunities
for private ordering of economic transactions ( Hadjikhani & Johanson, 2005).
17
The legal requirements in Southern Sudan are more relaxed compared to those in Kenya.
At the present, the government of Southern Sudan is at the policy development stage with
most of the current legislations created to attract foreign investment. The policies of the
business including its pricing policy shall be in line with the legal requirements. For
instance, through the Investment Promotion Act of 2009, the Southern Sudan Business
Forum (SSBF) was established for consensual development of business policy. One of
the business friendly policies developed was the finance policy which was to make low
interest capital readily available for dairy farmers. The legal requirements in Southern
Sudan are generally low with deregulation policy (Dess, Lumpkin, & Eisner, 2008).
2.4 Industry Constraints Facing Dairy farming
The section below presents the industry constraints facing dairy farmers. Industry
constraints discussed include: first mover advantage, bargaining power of customer,
bargaining power of supplier, threat of new entrants, lack of human capital, restricted
market information and other industry factors.
2.4.1 First Mover Advantage
Early movers are able to anticipate the valuable resources of various types including:
superior positions in geographic space, space technology, or customer perceptual space.
Pioneers may be able to expand and defend their position by blocking product space with
expanding product line that is through diversificafion of their products. Preemption of
superior human resources is also possible if the organization can retain the best value-
adding employees (Lieberman & Montgometry, 1998).
Being the first to start a strategic move can have a high return in terms of strengthening
the market position of a company and competitiveness when: pioneer helps build the
image and reputation of a company with buyers; early investment and commitments into
new technologies, new style components and distribution channels can produce absolute
cost advantage over rival-firms; first-time consumers remain very loyal to pioneering
firms in making repeat purchases and moving first constitutes a preemptive strike,
making imitation extra hard or unlikely (Thompson et al., 2005).
18
If a business person is a fast follower or even a wait-and-see late-mover, they do not
always carry a significant or lasting competitive worth. When a first-mover skills, know-
how and actions are copied or exceeded late movers, they capture or exceed that of the
first-mover in a relatively short period. There are also times when there really are the
benefits of being a follower of experts rather than a first-mover. Late-mover advantages
are when: pioneering leadership is more expensive than the imitation of the followers and
only experience minor or benefits of the learning curve accrue to the leader (follower has
lower costs than the leader); the products of an innovator are somewhat primitive and do
not live up to buyer expectations thus allowing a clever follower to win disenchanted
buyers away from the leader with better-performing next-generation products; and
technology is advancing rapidly giving fast-followers the opening to leapfrog a first
mover's products with more attractive and full-featured second and third generation
products (Thompson et al., 2005).
2.4.2 Bargaining Power of Customer
Dairy farming is slowly becoming a high buyer concentration industry. New technology
for instance is currently changing people's life, this means customer can easily obtain
information through internet; they can therefore compare the price and services easily.
Similarly the availability of existing substitute products is high. Many substitute product
or service are very much present in recent year as they are mainly provided by other dairy
farmers (Powers, 2010).
2.4.3 Bargaining Power of Supplier
Dairy farmers require raw materials suppliers and labor, components and other inputs.
This requirement leads to lasting buyer-supplier relationships between dairy farmers and
the businesses that provide the raw materials (Kelly, 2010). Therefore, suppliers, if
powerful, can cause an influence on dairy farmers, such as selling raw materials at higher
prices to capture some of the benefits of the industry. In the service sector, there is no
direct supplier of the raw-materials. However, the provision of supporting facilities such
as, furniture, stationery, among others, support can give the same relation. A capital
supplier in milk production is low in Kenya; this is because customers will compare with
other dairy farming products to see whether to buy certain products or not (Powers,
2010).
19
2.4.5 Threats of New Entrants
The possibihty that new firms are hkely to enter the dairy farming sector greatly affects
competition. In theory, any firm should have the ability to enter as well as exit a market,
and if free entry and exit exists, then profits always needs to be nominal (Kelly & Hayes,
2010).
In reality, however, industries have characteristics that protect the high profit levels of
firms in the market and as such inhibit additional rivals from entering the market.
However, when most countries and cities join WTO as well as the Internet effect, the
barrier of dairy farming disappears. Many dairy farmers can therefore easily enter the
dairy farming industry. They can use for instance use more little money to build a
website; similarly, they can as well integrate with other organizations. The switching cost
of such behavior therefore becomes smaller than before and therefore the advantage is
larger than before also (Kelly & Hayes, 2010).
2.4.6 Lack of Human Capital
Most dairy farmers are normally run by smallholder farmers who are in most cases semi-
illiterate and do not therefore have the necessary technological skills. This can therefore
be a very big challenge especially when it comes to accessing useful information which is
requisite in disseminating knowledge (World Bank, 2002). Most of the emerging dairy
farmers do not have enough capacity in terms of financial and marketing skills thus
making it rather difficult to meet the quality standards which are set by dominant industry
players. It follows therefore that the lack of production knowledge is likely to lead to
lower quality in production (World Bank, 2002).
2.4.7 Restricted Market Information
While focusing on supply constraints, most dairy-farming enterprises suffer lack of
adequate information necessary for the optimal business decisions; so they can take
advantage of the prevailing market demand condhions (Commonwealth Business
Council, 2009). In Kenya, Public services are underfunded, and as a resuh, there is littie
or no information on market conditions, prices and trends. Similarly, the market research
services are scarce and costly for businesses. The efficient flow of market information to
the producers of milk is also very erratic, unreliable, and the level of exploitative market
analysis is clandestine and cartel-like both in the market and company level.
20
The input market is inefficient and inadequate for extension services and it remains to be
one of the main obstacles facing the growth of dairy sector in Kenya. In a study
conducted in Kiambu district by Mwangi (1995), farmers cited lack of technical
information as a major challenge for dairy production. Rural producers, especially dairy
farming entrepreneurs do not have sufficient information about the demand which is
indeed costly to obtain. Similarly dairy farmers lack information about product prices at
the local level, as well as about quality requirements with regards to best places as well as
the times to sell their products, notwithstanding the potential buyers (Bienable et al,
2004).
2.4.8 Other Industry Factors
The other major problem facing most dairy farming farmers is one of the low prices, a
common feature at each county. Poor prices have a negative consequence including low
quality since the farmers do not have enough cash a factor that lead to compromising of
the quality of products produced in the market. Since most farmers are small scale, they
sell their products through middlemen who exploit them with low prices. These brokers
are seen as necessary evil exploiting the dairy farmers yet helping the market surpluses
(Karanja, 2007).
Other limitations to increased milk production in Kenya have been identified as the
seasonality of production, inadequate quantity and quality of animal feeds, including the
limited use of manufactured livestock feed, and the lack of good and quality animal
husbandry and agricultural practices. Poor access to reproduction, animal health and high
cost of artificial insemination (Al) services are other limiting factors. In some areas, milk
producers are faced with the problem of poor infrastructure (roads, electricity),
insufficient milk collection and marketing system, lack of interaction and prioritization of
research, extension and training, and the involvement of limited farmers market
production, thus reducing the incentive to increase milk production (SDP, 2005).
Processing and marketing of milk on the other hand is limited by several factors. Primary
marketing faces infrastructure problems caused by poor road networks and lack of
storage facilities and proper cooling. Poor road infrastructure in the areas of small-scale
production affects the transport of milk from farms to the collection centers, and
subsequently from the collection centers to processors. Lack of electricity in many areas
has limited the establishment of refrigeration plants. As a resuh, particularly during the
washout period from March to June's surplus milk cannot be absorbed by the domestic
21
market. Additionally, low and irregular payments producers that match the washout
period may be largely responsible for the lack of investment in productivity-enhancing
inputs in the dairy industry. Many processors operate below capacity, and face
competition from a fluid, informal, cash-based market. Seasonal fluctuations in the
amount of milk delivered and producer prices also affect profit margins (Government of
Kenya, 2012).
According to Timmer (1997), farmers and markets are largely related when it comes to
the way in which rural decision-makers respond to incomplete as well as poor
functioning markets. It means that rural decision-makers are negatively affected by lack
of markets as well as imperfect information in remote areas. Majority of dairy farming
farmers are located in rural areas in cases where there are no formal agriculture markets
or rather agro-processing enterprises. This means that dairy farmers are under obligation
to market their produce to local communities in their areas, sometime at lower prices, or
to transport their products to urban centers at a higher cost.
2.5 Chapter Summary
This chapter has presented a review on the literature review of the topic of study. It
keenly covered the constraints that dairy farmers face, which include marketing, financial
problems as well as external constraints. The next chapter presents the research
methodology that will be used in the study.
22
C H A P T E R T H R E E
3.0 R E S E A R C H M E T H O D O L O G Y
3.1 Introduction
This chapter presents the methodology and procedures used for the collection and
analysis of survey data analysis. It describes the research design, the study population, the
sample, and definition of the sample size and sampling procedures. The chapter also
describes the instrument, data research and data collection methods with data analysis
techniques to be used.
3.2 Research Design
The study adopted a survey research design in order to conduct the study. According to
Mugenda, A. and Mugenda, O. (2003), a survey design is an attempt to collect data from
an idenfified group of people,, in order to determine the current state, given the specified
variables, in this case, the current situation of dairy farmers in Kiambu. This design was
adopted because it facilitated the collection of primary data needed to achieve the
research objectives. The design was also appropriate in collecting useful data that could
be quantified and reported as a representation of the reality or characteristic in the
population studied. In the study, the independent variables were: internal constraints to
dairy farming, external constraints to dairy farming and industry constraints to dairy
farming ; while the dependent variable was profitability, and amount of returns from the
dairy farming.
3.3 Populationand Sampling Design
3.3.1 Population
Mugenda, A. and Mugenda, O. (2003) define a population as the entire group of
individuals, events, or objects having in common observable characteristics. The study
focused on dairy farming entrepreneurs in Kaimbu County. The target population was
1400 dairy farmers in Kiambu County, spread around 5 towns in the county as seen in
Table 3.1.
23
Table 3.1: Target Population
Constituency Population Percentage
Ting'ang'a 1424 10.2
Ndumberi 3837 27.4
Riambai 4029 28.8
Kiambu Settled Area 3285 23.5
Kamiti 1425 10.2
Total 14000 100
Source: (NALEP, 2012)
3.3.2 Sampling Design
3.3.2.1 Sampling Frame
Cooper and Schindler (2000) define a sampling frame as the list of elements from which
the sample is actually drawn. The sample for the study was drawn from dairy farmers in
Kiambu County. The dairy farming officer in the county office provided the list of the
dairy farmers in the month of May, 2013. The statistical data of the farmers had been
compiled by the National Agriculture and Livestock Extension Program ( N A L E P ) and
was published in the N A L E P annual report, 2012.
3.3.2.2 Sampling Technique
A sampling technique is the method of selecting elements from the population that
represented the population. A sample is a group from the population that will be
representative of the population (Coopers & Schindler, 2008). A stratified sampling
technique was employed to determine the sample size for the study. This is the process by
which the sample is divided to include elements from each of the segments. This method
was chosen because it increased the sample's statistical efficiency; provided adequate
data for analyzing the various subpopulation and enabled different research methods and
procedures to be used in different strata (Cooper & Schindler, 2008). Farmers were
stratified according to the 5 towns in Kiambu County, and thereafter selected randomly in
order to ensure that each respondent has an equal chance of being chosen. The use of
stratified random sampling was justified in the case of the 5 towns in Kiambu County as
the population was known and the sample was being drawn from a homogenous stratum.
As such, the sample drawn was representative of the strata.
24
3.3.2.3 Sample Size
Thietart (2001), defines a sample size as the set of elements from which data is collected;
in order to generalize from the findings, the sample must not only be carefully selected to
be a representative of the population, it also needs a sufficient number. The sample size
enables the researcher to have adequate time and resources in piloting and designing the
means of collecting data. The sample size ensures that the information is detailed and
comprehensive. The study applied stratified random sampling technique to select a
sample size of 280 respondents. This was in accordance with Kothari (2006) that a
sample size of 10% - 30% is appropriate when a population is above 5,000 and assists in
generalization the research findings. This indicates that the data gathered from 280
respondents was used to reflect the overall respondents' opinions.
Table 3.2 Sample Size
Consituencies Population Percentage Sample size
Ting'ang'a 1424 2% 30
Ndumberi 3837 2% 80
Riambai 4029 2% 80
Kiambu Settled Area 3285 2% 60
Kamiti 1425 2% 30
Total 14000 280
3.4 Data Collection Methods
Primary data collection method using questionnaires was employed in this study. This
was through standard self-administered questionnaires to the dairy farmers.
Questionnaires are an important instrument of research; a tool for data collection
(Oppenheim, 1992). Since there was need to ensure that responses from the different
respondents were uniform, the questionnaires were structured. There were various
reasons for the choice of questionnaires as primary data collection instrument.
Questionnaires are not only versatile but also the most popular instruments and a
relatively inexpensive way of getting information. The first part of the questionnaire was
on the background information of the respondents, while the second and subsequent
sections had questions with regards to the specific research questions of the study which
are: what are the internal constraints facing dairy farmers in Kenya, what are the external
25
constraints facing dairy farmers in Kenya, and what are the industry constraints facing
dairy farmers in Kenya.
3.5 Research Procedures
The questionnaire was developed by the researcher on the basis of the research questions,
and a pilot study was conducted to test the reliability and validity of the research.
According to Orodho (2009), a pilot test helps to test the reliability and validity of data
collection instruments. Validity refers to the extent to which an instrument measures what
it is supposed to measure. Data need not only to be reliable but also true and accurate. If a
measurement is valid, it is also reliable. The pilot test comprised of 10 dairy farming
farmers who were selected in Kiambu using convenience sampling method. The data
from the pilot study was analysed and the findings used in revising the questionnaire. The
questionnaires were personally administered by the researcher with the help of one
assistant. This method of administration was justified as it results in higher response rate
than drop-and-pick method of administration. Further, personal administration of
questionnaires helped in clarifying any issues with the respondents while on the field;
ensuring that data collected was adequate for the purposes of research.
The sample selected included dairy farmers from the five towns in Kiambu County. A
letter introducing the purpose of the study and copies of the questionnaires were given to
these farmers during their monthly farmers' meeting. The questionnaires were left with
the respondents, and then picked later in the day after the meeting. To ensure a high
response rate, we promised to go back to the Kiambu farmers with our report, so that we
share our findings and recommendations for improvement in the dairy farming industry.
The farmers were impressed by our efforts, and thus they agreed to co-operate in our
research. Where necessary, the researcher and the assistant discussed the questionnaire
with the respondents to further clarify their answers. This ensured that the data collected
was adequate for the research. The data collection was carried out in May 2013, and took
three days to complete
26
3.6 Data Analysis Method
Descriptive statistics data analysis method was applied to analyse quantitative data. Data
obtained from the questionnaires was processed through editing and coding and then
entering the data into a computer for analysis using descriptive statistics which included
measures of central tendency - that is the mean; and measures of variability - that is the
standard deviation - were used. Inferential statistics - that is correlation analysis was also
carried out with the help of Statistical Package for Social Sciences (SPSS) version 20.
The analysed findings were then presented inform of frequency tables, and figures.
3.7 Chapter Summary
The chapter describes the methodology that was used in carrying out the study. The
research design was descriptive in nature focusing on dairy farmers in Kiambu County.
The sample size, the sampling techniques and questionnaire as a primary data collection
instrument were all described. The questionnaire developed was pilot tested before a
refined one is administered to the respondents. The chapter has also indicated that, data
was analyzed using SPSS and excel and then presented in inform of figures and tables.
The next chapter will present results and findings of the study.
27
C H A P T E R F O U R
4.0 R E S U L T S AND F I N D I N G S
4.1 Introduction
This chapter presents the resuUs and findings of the study based on the three research
questions specified in chapter one. . The purpose of this study was to conduct an
assessment of the challenges facing dairy farmers in Kenya. The study was guided by the
following research questions: What are the internal constraints facing dairy farmers in
Kenya? What are the external constraints facing dairy farmers in Kenya? What are the
industry constraints facing dairy farmers in Kenya? A total of 280 questionnaires were
issued out of which only 250 were returned, this indicates 89 per cent response rate which
was accepted for this research.
Table 4.1 Response Rate per Town
Consituencies Population Sample size
Ting'ang'a 1424 22
Ndumberi 3837 70
Riambai 4029 73
Kiambu Settled Area 3285 58
Kamiti 1425 27
Total 14000 250
The study results and findings are presented in form of frequencies, percentages, mean,
standard deviation and correlation analysis. The first part presents an analysis of the
demographics such as age, marital status and level of education as provided by the
respondents. The second part analyzes the responses to the research questions as outlined
in the study.
4.2 Background Information
The study considered a number of demographic as well as socio-economic factors. This
included age of the respondents, marital status, level of education of the respondents,
number of working years in business, number of staff as well as revenue.
28
4.2.1 Age of the Respondents
Table 4.1 presents the age of the farmers based on the responses provided by the
respondents. The table reveals that 56% of the farmers were aged between 1 9 - 2 9 years,
implying that they are within the productive age of their life (the youth), and therefore the
reason why they are mostly engaged in agricultural activities. On the other hand, 2% of
the farmers were aged below 18 years, while those above the age of 50 accounted for 3%.
Table 4.2: Age of the Respondents
Age in Years Distribution Age in Years
Frequency Percent
Below 18 5 2
19-29 140 56
30-39 80 32
40-49 18 7
50 and above 7 3
Total 250 100.0
4.2.2 Marital Status
In Table 4.2, a summary of the marital status of the respondents is provided. As shown in
the table, 44% of the respondents were married while \0% were divorced and 10% were
widowed.
Table 4.3: Marital Status of the Respondents
Marital Status Distribution Marital Status
Frequency Percentage
Married 110 44
Single 60 24
Separated 30 12
Widowed 25 10
Divorced 25 10
Total 250 100
29
4.2.3 Level of Education
The level of education of the farmers is reported in Table 4.3. The table reveals that
whereas majority of the respondents had low levels of education, a few respondents had
however not acquired any formal education. 60% of the farmers had secondary school
education, whereas 5% had a broad category of education (referred to as others). This
broad category of respondents included certificate, diploma holders including computer
studies, industrial training, accountancy holders, just to name but a few. Notwithstanding
this, 5% of the respondents had not acquired any formal education at all.
Table 4.4: Level of Education
Level of Education of the Respondents Distribution Level of Education of the Respondents
Frequency Per cent
None 10 5
Primary 50 20
Secondary 165 60
University 25 10
Others 10 5
Total 250 100
4.2.4 Number of Employees
Table 4.4 shows the results of the study findings with regards to the number of employees
in the organization. The table reveals that 59% of the dairy farming businesses have
between 10-14 employees, whereas 1% of them have 45-49 employees. This result
demonstrates that the majority of the dairy farmers are in the process of expanding, since
most of them are small-scale farmers.
30
Table 4.5: Number of Employees in the Organization
Number of Employees in the Organization Distribution
Frequency Percent
1 0 - 1 4 Employees 148 59
1 5 - 1 9 Employees 30 12
20 - 24 Employees 24 10
25 - 29 Employees 18 12
30 - 34 Employees 15 7
35 - 39 Employees 7 3
40 - 44 Employees 5 2
45 - 49 Employees 3 1
T O T A L 250 100
4.3 Internal Constraints to Dairy farming
The study first sought respondent's opinions with regards to the internal constraints to
dairy farming. The following subsection presents a summary of the findings with regards
to these challenges. As seen in the Figure 4.1, majority of the respondents agreed that
indeed dairy farmers faced the challenge of access to financial services, high
transportation costs due to dilapidated roads, poor storage facilities and wastage of
commodities, high cost of production as a result of insufficient access to factors of
production, limited access to market information, resource constraints, limited access to
banking services as well as little farmer education.
4.3.1 Access to Financial Services
As seen in Figure 4.1, 6 1 % of the respondents strongly agreed, whereas only 2% percent
of the respondents disagreed that access to financial services is a challenge to dairy
farmers.
31
• A c c e s s t o F i n a n c i a l
S e r v i c e s
Figure 4.1: Access to Financial Services
4.3.2 High Transportation Costs
As seen in the Figure 4.2, 59 percent of the respondents strongly agreed, 29 percent of the
respondents agreed, whereas only 2 percent of the respondents disagreed, and 2 percent
of the respondents were uncertain on how high transportation costs is a challenge to dairy
farmers.
• H i g h T r a n s p o r t a t i o n C o s t s
1 2 3 4 5
Figure 4.2: High Transportation Costs
4.3.3 High Costs of Production
As seen in the Figure 4.3, 63 percent of the respondents strongly agreed, 23 percent of the
respondents agreed, whereas only 3 percent of the respondents disagreed that high cost of
production is a challenge to dairy farmers.
32
X 2 3 4 5
Figure 4.3: High Cost of Production
4.3.4 Limited Access to Market Information
As seen in the Figure 4.4, 58 percent of the respondents strongly agreed, 18 percent of the
respondents agreed, whereas 1 percent of the respondents disagreed that limited access to
market information is a challenge to dairy farmers.
1 2 3 4
Figure 4.4: Limited Access to Market Information
4.3.5 Resource Constraints
As seen in the Figure 4.5, 58 percent of the respondents strongly agreed, 27 percent of the
respondents agreed, whereas 3 percent of the respondents were uncertain on how
resource constraints are a challenge to dairy farmers.
33
1 2 3 4 5
Figure 4.5: Resource Constraints
4.3.6 Limited Access to Banking Services
As seen in the Figure 4.6, 57 percent of the respondents strongly agreed, 24 percent of the
respondents agreed, 4 percent of the respondents disagreed, and only 4 percent of the
respondents were uncertain on how limited access to banking challenged dairy farmers.
A c c e s s t o b o n k i n g
1 2 3 4
Figure 4.6: Limited Access to Banking
4.3.7 Little Farmer Education
As seen in the Figure 4.7, 62 percent of the respondents strongly agreed, 25 percent of the
respondents agreed, while 2 percent of the respondents were uncertain on how little
farmer education challenged dairy farmers.
34
Figure 4.7: Little Farmer Education
4.4 External Constraints to Dairy farming
The study also sought to examine the external constraints to dairy farming. The following
subsection presents a summary of the findings with regards to the variables used in the
study.
4.4.1 Government
Figure 4.8 presents a summary of the findings with regards to how respondents regarded
the issue of how government was a challenge to farmers. The results of the respondents
view indicated that 57 percent of the respondents strongly agreed, 30 percent of the
respondents agreed, whereas only 4 percent of the respondents strongly disagreed that
indeed government could limit or even foreclose entry into industries with such controls
as licensing requirements and limits on access to raw materials.
strongly Agree
Agree
Uncertain
Disagree
Strongly Disagree
5%
it 4%
n 4%
30%
57
-A 0% 10% 20% 30% 40% 50% 60%
Figure 4.8: Government
35
4.4.2 Regulatory Framework
Figure 4.9 presents a summary of the findings with regards, to how government
regulatory actions could often force significant changes in dairy farming practices and
strategic approaches.
The results of the respondents view indicate that 42 per cent of the respondents strongly
agreed, 28 per cent of the respondents agreed, while only 8 per cent of the respondents
were uncertain how government regulatory actions could often force significant changes
in dairy farming practices and strategic approaches.
strongly
Strongly
0% 10% 20% 30% 40% 50%
Figure 4.9: Regulatory Framework
4.4.3 Declining Performance of the Dairy farming Sector
Figure 4.10 presents a summary of how the declining performance of the dairy farming
sector in terms of its growth is a challenge to farmers. The results of the study shows
clearly that 52 per cent of the respondents strongly agreed, 24 percent of the respondents
agreed while only 6 percent of the respondents disagreed that declining performance of
the dairy farming sector in terms of its growth is a challenge to farmers.
36
strongly Agree
Agree
Uncertain
Disagree
Strongly Disagree
10%
6% ./ 4 A <
0% 10% 20% 30% 40% 50% 60%
Figure 4.10: Declining Performance of the Dairy farming Sector
4.4.4 Market Conditions
Figure 4.11 presents summary of the findings with regards to how market conditions is a
challenge to dairy farming. As seen in the Figure, majority 64 per cent of the respondents
strongly agreed, 23 per cent of the respondents agreed, whereas only 2 per cent of the
respondents strongly disagreed that market conditions are a challenge to dairy farming.
Strongly Agree
Agree
Uncertain
Disagree
Strongly Disagree
0%
- 1 1
- ,
WLl 5%
6%
mi 2% y / ^ J- J- / J- (
10% 20% 30% 40% 50% 60% 70%
Figure 4.11: Market Conditions
4.4.5 Access to Latest Technology
As seen in the Figure 38.1 per cent of the respondents agreed, 23.8 percent of the
respondents strongly agreed, while 4.8 per cent of the respondents disagreed that most
farmers cannot get access to latest technology.
37
strongly Agree Neutral Disagree Strongly Agree Disagree
Figure 4.12: Access to Latest Technology
4.4.6 Socio-Cultural Constraints
Figure 4.13 presents a summary of the finding with regards to how socio-cultural
constraints hinder dairy farmers in Kenya. 24 per cent strongly agreed, 33 per cent were
neutral, while 9.5 per cent strongly disagreed that socio-cultural constraints hinder dairy
farmers in Kenya.
Figure 4.13: Socio-cultural constraints
38
4.4.7 Ecological Constraints Hinder Farmers from Enhancing Their Potential
As seen in Figure 4.14, 66.6% of the respondents agreed, whereas 2.3 per cent of the
respondents strongly disagreed that ecological constraints hinder farmers from enhancing
their potential.
66.6%
- 1 r -
Strongly Agree Neutral Disagree Strongly Agree Disagree
Figure 4.14: Ecological Constraints
4.4.8 Correlation on External Constraints to Dairy farming
The results on Table 4.5 indicate that there was a positive relationship between the
government and technology (r= 0.811, p<0.01), and the relationship was extended to
socio-cultural factors (r= 0.861, p<0.01). Access to Latest Technology strongly
correlated with socio-cultural factors (r= 0.821, p<0.01).
Table 4.6: Correlation Matrix on External Constraints to Dairy farming
Government Technology Socio cultural
Ecological
Government Pearson Correlation Sig. (2-tailed) N
1 0.000 250
.811** 0.000 250
.861** 0.000 250
.0521 0.056 250
Technology Pearson Correlation Sig. (2-tailed) N
.811** 0.000 250
1 0.000 250
.821** 0.000 250
0.564* 0.048 250
Socio-Cultural
Pearson Correlation Sig. (2-tailed) N
.861** 0.000 250
.821** 0.000 250
1 0.454 250
.819* 0.000 250
Ecological Pearson Correlation Sig. (2-tailed) N
.0521 0.056 250
0.564* 0.048 250
.819* 0.000 250
1 0.490 250
** Correlation is
* Correlation is
significant at the 0.01 level (2-tailed).
significant at the 0.05 level (2-tailed).
39
4.5 Industry Constraints on Dairy farming
The study further sought to estabhsh the industry constraints to dairy farming. The
following subsection presents a summary of the findings with regards to the various
industry factors that act as constraints to dairy farmers in Kenya.
4.5.1 Early Movers
Figure 4.15 presents a summary of the findings with regards to how early movers are a
challenge to dairy farmers in Kenya. As seen in the Figure, 52 per cent of the respondents
strongly agreed, 32 per cent of the respondents agreed, while 6 per cent of the
respondents are uncertain that early movers are able to preempt resources of various
types including: superior posifions in geographical space, technological space, or
customer perceptual space.
Strongly Disagree
Disagree
Uncertain
Agree
Strongly Agree
0% 10% 20% 30% 40% 50% 60%
Figure 4.15: Early Movers
4.5.2 Threat of New Entrants
Figure 4.16 presents a summary of the findings with regards to how possibility that new
firms are likely to enter the dairy farming sector greatly affects competition. As seen in
the Figure, 52 per cent of the respondents strongly agreed, 32 per cent of the respondents
agreed while 4 per cent of the respondents disagreed the possibility that new firms are
likely to enter the dairy farming sector greatly affects competition.
40
strongly disagree
disagree
neutral
agree
strongly agree
6%
4%
6%
32.0%
52%
0% 10% 20% 30% 40% 50% 60%
Figure 4.16: Threat of New Entrants
4.5.3 Lack of Adequate Information Necessary for Optimal Enterprise Selection
Figure 4.17 presents a summary of the findings with regards to how most dairy farming
enterprise lack adequate information necessary for optimal enterprise selection for them
to take advantage of prevailing market demand. The study findings indicated that 54 per
cent of the respondents strongly agreed, 34 per cent of the respondents agreed, while 2
per cent of the respondents were uncertain that most dairy farming enterprise lack
adequate information necessary for optimal enterprise selection for them to take
advantage of prevailing market demand.
strongly Agree
Agree
Uncertain
Disagree
Strongly Disagree
^ • i 6%
H i 4%
2% J- J- J- ^
0% 10% 20% 30% 40% 50% 60%
Figure 4.17: Lack of Adequate Information
41
4.5.4 Poor Prices for Farm Goods
Figure 4.18 presents a summary of the findings with regards to how poor prices for farm
goods are a constraint to dairy farming in Kenya. The results of the study findings
indicate that 50 per cent of the respondents strongly agreed, 36 per cent of the
respondents agreed, while 6 per cent of the respondents disagreed that poor prices for
farm goods is a constraint to dairy farming in Kenya.
strongly dii
strongly
Figure 4.18: Poor Prices for Farm Goods
4.5.5 Industry Constraints to Dairy farming
As seen in the Table 4.6, lack of adequate information, threat of new entrants as well as
poor prices from farm goods as well as early movers were considered to constraint dairy
farming in that order.
Table 4.7: Industry Constraints to Dairy farming
Industry Constraints to Dairy
farming
Mean Standard Deviation
Early Movers 3.456 1.112
Threat of New Entrants 4.001 1.004
Lack of Adequate Information 4.209 1.230
Poor Prices for Farm Goods 3.974 1.009
42
4.6 Chapter Summary
In this chapter the researcher provides the findings with respect to the information given
out by the dairy farmers in Kiambu. The first section provides the study findings based on
the respondent's baclcground. This was followed by the findings on the specific
objectives.
The first section on the specific objectives provided the study findings based on the
internal constraints on dairy farming. This was followed by the findings on the external
constraints on dairy farming, and the final findings were on the industry constraints on
dairy farming. Chapter five provides the conclusion, summary as well as the discussions
and the recommendations.
43
C H A P T E R F I V E
5.0 D I S C U S S I O N , C O N C L U S I O N S AND R E C O M M E N D A T I O N S
5.1 Introduction
This chapter consists of four sections, namely: summary, discussion, conclusions and
recommendations, in that order. The first section presents a summary of the important
elements of the study that includes the study of the objectives, methodology and results
(findings). The next section discusses the main results of the study with regard to the
specific objectives. The third section presents conclusions based on specific objectives,
while using the findings and results that are obtained in the fourth chapter. The last
subsection provides recommendations for improvements based on the specific objectives.
It also provides recommendations for future further studies
5.2 Summary
The main objective of this study was to investigate the challenges facing dairy farmers in
Kenya. The study was based on the following research questions: What are the internal
constraints faced by dairy farmers in Kenya? What are the external constraints faced by
dairy farmers in Kenya? What are the of the industry constraints facing dairy farmers in
Kenya?
The study adopted a survey design in order to obtain the necessary data, with a focus on
dairy farmers in Kiambu County. A stratified random sampling technique was used to
collect the data. This is the process by which the sample is selected randomly. The study
worked with the population sample of 280 dairy farmers in Kiambu County, where the
total population of dairy farmers is 14,000. The data collection method was through self-
administered questionnaires to the dairy farmers. The questionnaires are an important
research tool, an instrument for data collection (Oppenheim, 1992). There were several
reasons for choosing the questionnaires as the primary instrument of data collection. The
first part of the questionnaire was about the background of the respondents, while the
second and subsequent sections have questions regarding specific research topics of study
are: What are the internal constraints faced by dairy farmers in Kenya; what are the
external constraints faced by dairy farmers in Kenya; and what are the constraints faced
by dairy industry in Kenya.
44
Data aiial>sis imolvcd descriptive slatislics to determine the frequency distribution for a
demograpliie profile ol" the participants. Demographic data was tabulated using
I'requencies and percentages. Tiie data obtained from the questionnaires was processed
lha)ugh the editing and coding and then the data entered into a computer for analysis
using deseripti\'e statistics, including measures of central tendency - which is the average:
and measures of \ariability - which is the standard deviation - were used. Inferential
statistics - which is the correlation analysis, was also carried out. The data was presented
in Ibrm oftables and figures according to the research questions with the help of the
Statistical Package for Social Sciences software (SPSS).
W ith respect to internal constraints faced by dairy larmers, the study revealed that
farmers face the challenges of access to financial services, high transport costs due to
poor roads, inadequate management of commodities, poor storage facilities and waste
commodities, farmers also face other challenges, which include high production costs as
a result ol" lack of access to factors of production, lack of access to market information,
resource eoiisiraints. limited access It) banking services and little farmer education.
On external constraints faced h\y larmers. it was revealed in the study that the
goxernment could limit or even exclude entry in industries with controls such as licensing
requirements and limits on access to raw materials. The study also established that
government regulatory measures olten can force significant changes in dairy farming
practices and strategic approaches. Furthermore, the study revealed that the decrease in
\ield in the dair\ larming sector, socio-cultural constraints, ecological and market
eondilions are a challenge to farmers. Finallx'. the study found that most farmers could
not ha\'e access to the latest technology.
finally, on the constraints faced by milk producers in the industry, the study found that
most entrepreneurs are able to anticipate the various types of resources including:
technological space.superior positions in geographic space, or customer perceptual space.
l"urthermt)re. the possibility that new firms tend to enter the dairy farming sector greatly
affects competition. In the supply constraints, most dairy-farmingbusinesses lack
adequate market information neeessar>' for the optimal selection of the company so they
can take acKantage of current demand needs. Finally, the study found that the low prices
of agricultural products have negative consequences to the quality of dairy products, as
45
farmers did not have enough money for milk and quality dairy products production, a
factor that led to the compromise of the quality of the products produced in the market.
5. 3 Discussion
5.3.1 Internal Constraints Facing Dairy farmers
The study found that farmers are faced with the challenge of access to financial services,
high transport costs due to bad roads, poor handling, poor storage facilities and high
wastage, high cost of production as a result of inadequate access to factors of production,
lack of access to market information, resource constraints, limited access to banking
services and low education of farmers. As noted in the study, good access to financial
services has the potential to improve agriculture and contribute to helping in poverty
alleviation in rural communhies (Kibaara, 2005; Gine, 2009). Over 70 percent of Africa's
population lives in rural areas and as a result, experience a high incidence of poverty.
This result is in line with the World Bank, (2009) where rural finance has been identified
as a crucial factor in achieving pro-poor growth and reduceing poverty. However, the
formal financial markets have failed for the majority of smallholder farmers in
developing countries (Besley & Brigham, 2011).
The results of this study also showed that most farmers depended heavily on financial
systems "traditional" underdeveloped informal financial systems (Financial Sector
Deepening (FSD), 2006). ). In this sense, therefore, the development of rural financial
systems is limited by the high transaction costs of providing services to small and
dispersed farmers (Poulton et al, 2006). The study also showed that the transaction costs
have been especially high for smallholder farmers due to poor of communication and
transportation, lack of market information and production, and fine segmented markets
(Poulton et al, 2006;. Poulton et al., 1998; Shiferaw, 2009).
The lack of working capital and low liquidity (due to lack of access to financial services)
serves as a major barrier to the commercialization of smallholder farmers (Kibaara,
2005). This is primarily because it limits the ability of small farmers to buy inputs that
improve productivity, such as seeds, fertilizers and pesticides (Nyoro, 2002). It follows,
then, that small-scale farmers produce small volumes that exclude them from
participation in higher paying markets that require large volumes of products (Barrett,
46
2008). Likewise, the resuhs indicated that the reason farmers remain self-sufficient and
are trapped in the low equilibrium trap of poverty is due to small-scale farmers' lack of
capacity to invest in productivity-enhancing inputs (Barrett, 2008). The desire to
stimulate progress in small-holder agriculture has historically been considered as the
genesis of the search for new models of financing agriculture so as to address the
financial challenges faced by farmers (Okello et al, 2010).
The study also found that the main constraints include high transport costs due to bad
roads, poor handling of the milk and poor storage facilities, which results into wastage of
the commodities. These result into fiuctuations in both production of the commodities
and income to the farmers. For cattle, limited livestock holding grounds and interfering in
stock routes have limited access to markets. The promotion of agricultural production
necessitates that the holding grounds, watering points, stock routes and livestock markets
develop, it the private sector will be encouraged to invest in slaughterhouses and cold
storage. Local authorities in collaboration with the private sector to invest in storage
facilities, the Government provides all-weather rural roads, improving communications
facilities information systems on the market, among others. The two sets of interventions
will aid in improving marketing systems of agricultural productivity as recognized by the
SRA, 2004 will lead to agricultural growth.
According to the study, among the major concerns for the industry are, poor
infrastructure, including poor rural roads, markets and transportation systems that result
in high transaction costs for farmers and inaccessibility to markets for inputs and
products. The sector's performance is affected from production to marketing, nationally
and even internationally. For exports, it means lack of sustainable supply of raw materials
due to the uncontrolled production, with excess alternating with shortages and lack of
competitiveness since high transport costs are reflected in the high prices. Poor
infrastructure has also contributed to poor market integration in the country (Government
of Kenya, 2011). The commission charged by outsourced transporters is high, leaving the
farmer to enjoy little benefit. This has greatly affected the purchase price of the products
offered to end users. The study also revealed that milk producers, especially those
operating on a small scale are likely to suffer from inconsistency especially in terms of
production for markets because of the lack of access to factors of production (Ngigi,
2004).
47
Furthermore, the study also shows that there is limited access to credit for production,
marketing, long-term investment and job creation for the rural entrepreneurship. The
dairy sector is starved of credit demand exceeds supply by such a wide margin (Kodhek,
1998). Sources of funding for agriculture and dairy farming companies are in
chronologically scarce in rural Africa (UNIDO, 2010). Hence many milk producers
depend on internal financing, supplier credit or not so common government-subsidized
inputs (Fafchamps, 2005). This situation has persisted for an extended period so that most
producers do not even try to get credit.
5.3.2 External Constraints Facing Dairy farmers
In the study, it was revealed that the government can limit or even exclude entry in
industries with controls such as licensing requirements and restrictions on access to raw
materials. The study also established that government regulatory measures often can
force significant changes in milk production practices and strategic approaches.
Furthermore, the study revealed that the decrease in yield dairy farming sector, socio-
cultural constraints, ecological and market conditions and are a challenge for farmers.
Finally, the study found that most farmers could have access to the latest technology.
As observed in the study, the government could limit or even exclude entry into
industries with controls such as licensing requirements and restrictions on access to raw
materials (Porter, 1998). Influencing policy decisions is part of the strategy of the
company, provided that this is done openly and with integrity. Any dairy farming
business that does not take into account the history and the political impetus ignores an
essential element of the environment (Lynch, 2000).
Besides, regulatory pressures limit the heterogeneity by prescribing uniform standards of
resources, skills and ways of deploying resources from all sectors indicated and by
defining resources that are socially acceptable or permissible as inputs (Oliver, 1999).
These pressures, as Oliver explains, limh diversity by restricting the range permitted
resource options and by imposing common social expectations between companies
competing in how inputs should be combined and deployed in production. Legislation
and political processes influence the environmental standards with which industry must
comply, as it is with many other factors in the general environment, changes can benefit
or harm an industry (Dess, Lumpkin and Eisner, 2006).
48
The study also revealed that performance deterioration in the milk production sector in
terms of its growth has been one of the biggest concerns facing policy makers and those
with an interest in the sector. The performance of agriculture, which remains the
backbone of the economy, has weakened dramatically in the years after independence
from an average of 4.7% in the first decade of just below 2%> in the 90s. The decline
culminated in a negative growth-rate of -2.4% in the year 2000. As a sector that involves
about 75% of the country's labor force, such a decrease implies lower levels of
employment, income and most importantly, food insecurity for a large majority of rural
Kenyans. Interestingly, a significant proportion of the rural labor force (over 51%) is
engaged in small-scale agriculture and that women are the majority in the sector. A
deteriorafion of the agricultural sector has far reaching implicafions in terms of
employment and income inequality and food security for the country as well (UNDP,
2002).
5.3.3 Industry Constraints Facing Dairy farmers
The study found that most entrepreneurs are able to anticipate resources of various types,
which include: superior posifions in geographical space, technological space, or the
customer perceptual space. Furthermore, the possibility that new firms are likely to enter
the dairy farming sector greatly affects competition. On the other hand, in the supply
constraints, most dairy enterprises lacked adequate information necessary for the optimal
organizational decisions for them to take advantage of the current market demand.
As noted in the study, early movers were able to preempt resources of different kinds,
including: superior positions in geographic space, favorable technological space, or
customer perceptual space. Pioneers were able to expand and defend their position in the
market by blocking product space with an expanding product line. Preemption superior
human resources is also possible if the organization can retain the best employees who
are well trained in their jobs (Lieberman & Montgomery, 1998).
Furthermore, it was revealed that being the first to initiate a strategic move can result in
high returns in terms of strengthening the market position of the business and
competitiveness when: the pioneering helps build the image and reputation of the
business with buyers; early commitments and investing into new technologies, dynamic
components and distribution channels could also produce an absolute cost advantage over
49
their marlcet rivals: first-time consumers and clients remain firmly loyal to pioneerr firms
in making repeat purchases. This illustrates how moving first is a preemptive strike,
while making imitation harder or improbable (Thompson et al., 2005).
The results of the study also indicated that the other major problem facing most dairy
farmers was low raw material prices, a common feature in all counties. Poor commodity
prices have negative consequences, including poor quality, as farmers do not have
enough money for quality production, a factor that leads to compromised quality of the
products produced in the market. Most farmers were small scale, hence they found it
easier and more convenient to sell their products through middle-men who always exploit
them with low prices. These agents are seen as a necessary evil dairy farmers exploit, but
help market surpluses (Karanja, 2003).
The findings also revealed that dairy farmers, especially small-scale farmers have no
consistency in the delivery of their products to their markets. According to Louw,
Madevu, Jordan and Vermeulen (2004), most emerging dairy farmers are able to deliver
fresh products to market only two or three months of the year, and therefore cannot
ensure the continuity of the market supply. This therefore means that supermarkets will
undoubtedly be reluctant to buy emerging milk producers for this reason.
The study also concurred by Timmer (1997), farmers and markets are largely tied when it
comes to how rural policymakers react to incomplete and poor functioning markets. This
means that rural decision makers have been negatively affected by the lack of adequate
markets and inaccurate information in remote areas. Most dairy farmers are in rural areas
where there are no formal agricultural markets or rather the agro-processing firms. This
means that dairy farmers are forced to sell their products to local communities in their
areas, sometimes at lower prices, which translates into a loss, or transporting their
products to urban centers at a higher cost, which yields into low returns.
50
5,4 Conclusions
5.4.1 Internal Constraints Facing Dairy farmers
The study concludes that farmers are faced with the limitation of access to financial
services, high transport costs due to bad roads, poor handling of the commodity, poor
storage facilifies and high wastage of the commodity. The high cost of production is as a
result of inadequate access to factors of production, lack of access to market information,
lack of adequate resources, limited access to banking services and little farmer education.
5.4.2 External Constraints Facing Dairy farmers
The study concludes that the government restrains, and in some cases prevents the entry
into certain industries with controls such as licensing requirements and restrictions on
access to raw materials. The study also concludes that that the measures of goverrmient
regulation can often impose significant changes in dairy farming practices and strategic
approaches. In addition, the study concludes that deteriorating performance in the dairy
industry, socio-cultural constraints, ecological and market conditions are a challenge for
farmers. Lastly, the study concludes that most of the farmers do not have access to the
latest technology, and hence are not up to date with the current market trends .
5.4.3 Industry Constraints Facing Dairy farmers
The study concludes that more entrepreneurial early movers are able to anticipate the
resources of various types including: favorable positions in geographic space,
technological space, and customer perceptual space. Furthermore, the possibility that new
firms tend are likely the dairy farming sector greatly affects competition and market
share. In the supply constraints, most dairy farmers lack of adequate information
necessary for the optimal managerial marketing decisions, so they can take advantage of
the market demand. Finally, the study concludes that the low prices of agricultural
products does not enhance the dairy sector.
51
5.5 Recommendations
Below are the recommendations for improvement based on the specific objectives and
also recommendations for further studies.
5.5.1 Recommendations for Improvement
5.5.1.1 Internal Constraints Facing Dairy farmers
The study concedes that, dairy farmers in Kenya face internal constraints. The study
therefore recommends that it is necessary to reduce these difficulties. This can be
achieved by issuing credit lines to boost their activities. The study also recommends that
financial institutions especially banks must increase the amount of the loan amount for
dairy farmers. Lastly, the study recommends that the government has to establish
structures and policies to promote the dairy farmers so that they have a ready market for
their dairy products so that they can achieve significant returns in production and
therefore increase their financial positions that ultimately will improve their productivity.
5.5.1.2 External Constraints Facing Dairy farmers
The study recommends the need for a special provision for frequent training to dairy
farmers in the areas that challenge them on a day-to-day basis, on rational assessment and
analysis of training needs. In addition, training programs should be formulated taking into
account some important aspects such as duration, time (season), place, month and
interval of training depending on the responses recorded by farmers. Training costs
should be minimal and available to dairy farmers if charged. Lasfiy, the government,
cooperatives or private institutions should organize training programs before distribution
of loans and provide guidance to producers of milk.
5.5.1.3 Industry Constraints Facing Dairy farmers
The study recognizes that, indeed, the industry constraints faced by dairy farmers exist.
Therefore, there is need for industry players to put in place structures that will create a
level playing field for the industry players in order to improve the performance of dairy
farmers in the country.
52
5.5.2 Recommendations for Further Studies
Having done the study on the challenges facing dairy farmers in Kenya, the researcher
recommends that since the dairy farming industry is one of the many areas in
agribusiness, it would be important for other researchers, the government as well as
industry players to put into consideration other various areas in agribusiness. With
respect to that therefore, the researcher recommends that further studies should be
conducted in other areas of agribusiness.
53
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63
A P P E N D I C E S
A P P E N D I X 1: C O V E R L E T T E R
Dear Respondent,
R E : R E O U E S T F O R R E S E A R C H D A T A
I am a Master of Business (MBA), Entrepreneurship student at the United States
Intemational University, Nairobi. In partial fulfillment of the requirements for the award
of the degree, I am currently undertaking a research on challenges facing dairy farmers in
Kenya. The objectives of this study are to investigate the internal constraints facing dairy
farmers in Kiambu County, the extemal constraints facing dairy farmers in Kiambu
County, and the industry constraints facing dairy farmers in Kenya. To achieve this, you
are one of the respondents selected for the study. I kindly request you to fill the attached
questiormaire to generate required data to make this study a success.
Please note that the information you provide will be treated as confidenfial and will only
be used to complete my research project for my M B A degree. Thank you in advance.
Sincerely,
Anne Wairimu Wainaina
M B A Student-Researcher
U S I U
64
A P P E N D I X 2: Q U E S T I O N N A I R E
Section one is going to examine the Background Information
Circle the appropriate response from the alternatives provided
i) Name (optional):
ii) Age of the respondent in years:
A. Below 18
B. 19-29
C . 30-39
D. 4 0 - 4 9
E . 50 and above
iii) Marital Status: (1). Married (2). Single (3). Separated (4). Widowed (5).
Divorced (6) None of the above
iv) Level of Education: (1). None (2). Primary (3). Secondary (4). Diploma (5)
University
v) Type of professional training?
vi) When was the business started?
vii) Sales when the business started?
viii) How much are the sales now?
ix) Number of employees when the business started?
x) Current number of employees?
Section two is going to look at Internal Constraints to Dairy farming 65
Section two is tzoine to look at Internal Constraints to Dairy farming
Please indicate your opinions about the following as internal constraints to dairy farming:
Tick onl\e box for each attribute, where 1== strongly disagree, 2= disagree, 3 =
neutral, 4 = agree 5 = strongly agree.
internal Constraint
1 face the challenge of Access to Financial
Services
1 2 3 4 5 internal Constraint
1 face the challenge of Access to Financial
Services
High Transportation Costs due to
dilapidated roads, improper handling, poor
storage facilities and wastage
I face the challenge of high Cost of
Production as a result of insufficient access
tt) factors of production
1 cannot Access N'larket information
Resource C\)nstraints: Water
Resource Constraints: Adequate larming
land
1 face the challenge of Limited Access to
banking ser\ices
There is little farmer Education
1 cannot Access N'larket information
Resource C\)nstraints: Water
Resource Constraints: Adequate larming
land
1 face the challenge of Limited Access to
banking ser\ices
There is little farmer Education
1 cannot Access N'larket information
Resource C\)nstraints: Water
Resource Constraints: Adequate larming
land
1 face the challenge of Limited Access to
banking ser\ices
There is little farmer Education
1 cannot Access N'larket information
Resource C\)nstraints: Water
Resource Constraints: Adequate larming
land
1 face the challenge of Limited Access to
banking ser\ices
There is little farmer Education
1 cannot Access N'larket information
Resource C\)nstraints: Water
Resource Constraints: Adequate larming
land
1 face the challenge of Limited Access to
banking ser\ices
There is little farmer Education ;
Please state any other internal factor (not included above) which is a constraint to your
business
66
Section tliiec will examine the External Constraints to Dairy farming
Please indicate >our opinion about the following as an external constraint to dairy
farming: Tick only one box for each attribute, where 1= strongly disagree, 2= disagree,
3 = neutral, 4 = agree 5 = strongly agree.
External Constraint
CJovernment can limit or even foreckise
entrx into industries with such controls as
licensing requirements and limits on access
to raw materials
government regulatory actions can often
force significant changes in dairy farming
practices and strategic approaches
Declining ]X'rformance of the dairv farming
sector in terms of its growth is a challenge
to farmers
1 2 3 4 5
i !
I
1
j i
Market Conditions
I cannot get access to latest teclmology
Socio-Cultural Constraints hinder )'ou from
achieving full potential
I'cological Constraints hinder you irom
enhancing >our business
Please state any other external factor (not included above) which is a constraint to your
business
67
Section four is going to examine the Industry Constraints to Dairy farming
Please indicate to what extent you agree with the following as an industry constraint to
dairy farming: Tick only one box for each attribute, where 1= strongly disagree, 2=
disagree, 3 = neutral, 4 = agree 5 = strongly agree.
Industry Constraint 1 2 3 4 5
Early movers are able to take advantage of
resources of various types including:
superior positions in geographical space,
technological space, or customer perceptual
space
Dairy farming is slowly becoming a high
buyer concentration industry
Dairy fanning is slowly becoming a high
buyer concentration industry
The possibility that new firms are likely to
enter the dairy farming sector greatly
affects competition
Most dairy farmers are normally run by
smallholder farmers who are in most cases
semi-illiterate and do not therefore have the
necessary technological skills.
On the supply side constraints, most dairy
farming enterprise lack adequate
information necessary for optimal
enterprise selection for them to take
advantage of prevailing market demand
Poor Prices for farm goods
Please state any other extemal factor (not included above) which is a constraint to your
business
68
What other challenges would you like to share?
T H A N K Y O U F O R P A R T I C I P A T I N G IN T H I S R E S E A R C H
United States lnternj!!itn.,ji umvciouv Africa - Library
69