ABSTRACT
The agriculture sector in Kenya has put in place several strategies to ensure availability and access to food by all people. Market efficiency is one of the strategies that ensure effective movement of food commodities from surplus to deficit regions through market integration. This study assessed dry beans movement across Nairobi, Nakuru, Eldoret and Kitale markets. The main objective of the study was to contribute to knowledge towards monitoring prices of food staples between surplus and deficit areas and assess how well price movements in any one of the markets translate into price changes in other markets. Unit root test was used to test for stationarity, co-integration to test for the relationship between the markets, while Granger causality was used to test for causality across the markets and Threshold Autoregressive error correction model was applied to analyze time lags and the speed of market price adjustment. The study utilized deflated and seasonally adjusted monthly average price data over 216 months (1994 to 2011) and was analyzed using STATA and SPSS statistical softwares. This study was aimed at providing price information towards identification and improvement of efficient bean marketing chain that would lead to reduced transaction costs giving room for more competitive pricing for Kenya’s dry beans in the staple food market. Results showed that all the markets were integrated of order zero before differencing and the data was stationary. Co-integration test revealed that all the markets were co-integrated while granger causality test revealed independent causality with only one market link showing bidirectional causality leading to symmetric price adjustment between Kitale and Nairobi markets. Results from the TAR model revealed that, in Nairobi and Kitale market links which granger caused each other, it took approximately 3 weeks for a shock in one market to be transmitted to the other market thus prices returning to their parity bound equilibrium. This implies that, if price transmission is symmetrical across markets, then, price differences between the markets will only be equal to transaction costs between them. The study concluded that, the government can give farmers incentives to produce dry beans in high production areas, improve marketing infrastructure like roads and communication facilities which can greatly reduce transaction costs and improve price transmission. Market information should be availed in information banks in various parts of the country so that farmers can access information on which markets offer remunerative prices for their dry beans. These will prevent traders from taking advantage of increased production to lower prices of dry beans, the end result being enhancing the degree of market integration.
CHAPTER ONE
INTRODUCTION
Background information
The agricultural sector dominates the Kenyan economy although only 15 percent of the land is being used for agricultural production, and half of the agricultural output is marketed. Agriculture contributes 26 percent to gross domestic product and ranks second in its contribution after the service sector (Government of Kenya, 2010). The country’s dependence on agriculture is manifested by its contribution of 75 percent of the country’s industrial raw materials, 27 percent GDP indirectly through manufacturing, distribution, and service related sectors, and 80 percent of local food production to feed its population. Apart from food contribution, the sector employs 80% of the country’s workforce (Ministry of Agriculture, 2008). As a result, it is ranked among the six key economic sectors expected to drive the economy to a projected 10 percent economic growth annually over the next two decades through promotion of an innovative, commercially-oriented and modern agriculture (Kenya Vision, 2030).
Additionally, the sector is expected to deliver other regional and global commitments including achievement of the first Millennium Development Goal (MDG1) on poverty and hunger. This is to be achieved by reducing the number of people who face extreme hunger and poverty by half by 2015 given the fact that 50 percent of Kenyan population faces hunger and absolute poverty (MoA, 2008). Country statistics show that GDP growth originating from agriculture is at least twice as effective in reducing poverty compared to GDP originating outside agriculture (MoA, 2008).
The Ministry of Agriculture has embarked on several strategies aimed at improving the sector’s competitiveness including increasing market access through dissemination of market information, value addition, processing, packaging and branding the bulk of agricultural produce. Despite the Ministry’s efforts, agricultural marketing and trade policy in Kenya is still dominated by the challenge of how to effectively deal with food price instability, which is frequently identified as a major impediment to smallholder productivity growth and food security. These concerns relate to both the producer and the consumer whereby the challenge has been how to keep farm prices high enough to provide production incentives for farmers
while at the same time keeping them low enough to ensure poor consumers’ access food (Kirimi et al., 2010). To address the aforementioned challenges, it is critical to determine the market performance of various crops that contribute to household incomes, food and nutrition security.
Dry beans are one of the most widely cultivated legumes in the world. They are considered second most important source of human dietary protein and the third most important source of calories for over 100 million people in rural and poor urban communities in Africa. Its protein is cheaper than the animal-based protein, making it highly competitive and important in dietary regimes of poor people in Africa “United States Agency for International Development” (USAID), (2010). The total world production of dry beans was estimated at 19.2 million MT in 2008. Figure 1 below shows, the top ten world producers of dry beans.
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Item Type: Kenyan Topic | Size: 54 pages | Chapters: 1-5
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