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