INFLUENCE OF MICROFINANCE PARTICIPATION AND SOCIO-ECONOMIC FACTORS ON DAIRY COMMERCIALIZATION: THE CASE OF SMALLHOLDER FARMERS IN BOMET COUNTY, KENYA

ABSTRACT
Dairy commercialization is constrained by several factors including lack of funds. Access to financial services such as credit and savings were identified as important instruments to curb these financial challenges. Microfinance institutions (MFIs) have been found to play a critical role amongst smallholder farmers in enhancing their access to finance. This study sought to investigate factors influencing credit access and the extent of credit access and how microfinance participation and socio economic factors influences dairy farming performance amongst smallholder farmers in contributing towards dairy farming commercialization. MFIs were found to positively influence commercialization . This study was conducted in Sotik sub-county, Bomet County and a multistage sampling method used to obtain the sample of 150 dairy farmers for interview using structured questionnaires. Descriptive statistics was used to characterize socio- economic attributes of the smallholder dairy farmers. Heckman-two stage model was used to determine the factors that influenced credit access and the extent of credit access among smallholder dairy farmers. Tobit model was used to determine the influence of microfinance participation and socio-economic factors on smallholder dairy farming commercialization. Seven factors; gender, age, household size, occupation, distance, off farm income and output level were found to significantly influence the farmers’ access to credit. The extent of commercialization of milk by smallholder farmers was significantly determined by membership to groups, off-farm income, gender, age, years of education, household size, years of experience, microfinance institution access, access to credit, applicable interest rates and acquisition of savings account. This study recommends that farmers be encouraged to engage in off farm employment that buffers household income and make them more credit worthy for greater extent of credit access, farmers should also be trained on the importance of collective action through farmer groups.

CHAPTER ONE 
INTRODUCTION 
Background to the Study 
Kenya has since the early 1910 developed a dairy industry that ranks among the largest in the Sub Saharan Africa (Ngigi, 2004). It is estimated that currently 800,000 smallholder households depend on dairy for their livelihoods in Kenya and the dairy sector employs over 350,000 people in milk collection, transportation, processing and sales (SDP, 2005). The demand for milk and milk products has also risen in Kenya where the annual per capita consumption is now estimated at 145 Litres, more than five times higher than milk consumption in the East African countries. With arable land and grazing fields becoming smaller in Kenya due to population pressure and land sub-division, zero grazing has grown to be a famous venture among small-scale farmers who face land constraints. 

Market access has continued to be the main constraint facing smallholder commercialization of agriculture (Poulton et al., 2006), making smallholder farmers to produce mainly for subsistence. According to Jaleta et al. (2009), agricultural commercialization technically entails a shift from subsistence production to a more complex market-based production and consumption system leading to strengthening of the linkages between input and output sides of the market. Despite the various success stories in the Kenya dairy sub-sector, there is still a big gap between actual yield and attainable potential yield in the dairy sub-sector (Karanja, 2003). This is mainly due to the fact that milk production by the smallholder farmers is constrained by a number of factors; animal genetics, increased reliance on purchased feeds, diseases and insufficient financing (Staal et al., 1997). 

The liberalization of the milk market in Kenya to include the Small-Scale Milk Vendors (SSMVs) has positively led to the growth of the dairy sub-sector (Wambugu et al., 2011). This liberalization led to the emergence of new institutional arrangements in milk collection, marketing and processing. The success of the dairy sub-sector is also attributable to the fact that milk provides a continuous stream of cash throughout the year for households growing other cash crops whose income is realized only once or twice a year. Milk production in Kenya is mainly by small scale farmers who own one to three dairy animals, and producing up to 80% of the country’s milk (Wambugu et al., 2011). 

Small scale and commercial dairy farming is widely practiced in Bomet County, managed at family level. The dairy farming in the County ranges from natural pasture free grazing, to zero grazing (stall-fed cut-and-dry systems, supplemented with concentrate feeds). Most of the smallholder farmers however, operate below fund secure levels to help them in meeting their production needs. The low credit supply therefore limits productivity and the expansion of the sub-sector (Diagne and zeller, 2001; Akanni, 2007). According to Akanni (2007), the agriculture sector depends more on credit than any other sector of the economy because of its seasonal variation in the returns and the changing trend from subsistence to commercial farming. 

Since most smallholder farmers do not have collaterals to access bank loans, microfinance institutions has gained considerable recognition in providing financial services to these low-income farmers. Through microfinance institutions (MFIs), the poor can access collateral-free loans at relatively low interest rates and use the money to expand their dairy farming and thus increasing their incomes. Access to microfinance services is assumed to be leading to increased productivity among dairy farmers since they are able to acquire quality breeds for high productivity, purchase of quality feeds, proper milk storage facilities and marketing of milk. Access to microfinance therefore, has the potential of assisting the poor in earning incomes from improved dairy production. According to Thuita et al. (2013), improved household incomes are one of the pathways through which microfinance services are presumed to affect increased household welfare. 

A FAO study on Dairy development in Kenya points out that smallholder dairy farmers dominate the industry at the production level (Mukundi et al 2013), with more than 1 million smallholder dairy farmers (SDP, 2005). According to Mukundi et al (2013), smallholder dairy farming contributes more than 70 percent of gross marketed production from farms. Generally, smallholder farmers in Kenya have 3 to 5 acres (1.2 to 2.0 ha) of land and about two to five head of cattle yielding about 5 kg of milk per cow per day. In Kenya, the dairy production is undertaken under three main production systems (Karanja, 2003). These systems in order of their production intensity and occurrence are, smallholder open grazing, smallholder zero grazing and large-scale open grazing. Exotic breeds and their crosses collectively referred to as dairy cattle including Friesians, Aryshire, Guernsey, Jersey and their crosses among others are kept by the smallholder farmers either on zero grazing or open grazing. 

The potential for increasing dairy performance in Kenya and especially smallholder dairy remains great, however, productivity per animal has continued to be low. This has been due to low farm gate prices, unreliable market outlets, expensive feed as well as limited access to Artificial Insemination (AI). Since the AI services were privatized in 1992, the use of the service has continued to decline because of high prices (Karanja, 2003). Access to finance is therefore crucial in enhancing productivity of dairy animals and thus increasing the incomes of smallholder farmers. This study therefore seeks to fill the knowledge gap in identifying the role and the influence of microfinance on dairy sub-sector commercialization among smallholder dairy farmers in Bomet County.

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Item Type: Kenyan Postgraduate Material  |  Attribute: 60 pages  |  Chapters: 1-5
Format: MS Word  |  Price: KSh900  |  Delivery: Within 30Mins.
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