FERTILIZER SUBSIDIES: A STUDY OF POLICY EFFECTS ON MAIZE IN KENYA.

密级: 论文编号:

中国农业科学院

学位论文

肯尼亚玉米化肥补贴政策影响研究

FERTILIZER SUBSIDIES: A STUDY OF POLICY EFFECTS ON

MAIZE IN KENYA.

博士研究生：OCHOLA, R.V.Odhiambo

指导教师：聂风英研究员

申请学位类别：管理学硕士

专业：农业资源利用

研究方向：农业政策补贴

培养单位：农业信息研究所

研究生院

2015年5月

Secrecy: No.

Chinese Academy of Agricultural Sciences

Dissertation

TITLE

FERTILIZER SUBSIDIES: A STUDY OF POLICY EFFECTS ON

MAIZE IN KENYA.

MSc.Candidate：OCHOLA, R.V. Odhiambo

Supervisor： Nie Feng ying

Major： Utilization Sciences of

Agricultural Resources

Specialty： Fertilizer Subsidy Policy

Effects on Maize in Kenya.

Unit: AgriculturalInformation

Institute

May 2015

独创性声明

本人声明所呈交的论文是我个人在导师指导下进行的研究工作及取得的研究成果。尽我所知，

除了文中特别加以标注和致谢的地方外，论文中不包含其他人已经发表或撰写过的研究成果，

也不包含为获得中国农业科学院或其它教育机构的学位或证书而使用过的材料。与我一同工作

的同志对本研究所做的任何贡献均已在论文中作了明确的说明并表示了谢意。

Declaration of Originality

I hereby declare that this thesis was composed and originated entirely by myself under the guidance of

my supervisor. To the best of my knowledge, in addition to information derived from the published and

unpublished works of others that has been acknowledged in the text and a list of references is given in

the bibliography, the thesis does not contain any other published or unpublished research work by others,

or any materials for another degree or diploma from the Chinese Academy of Agricultural Sciences and

other educational institutions. The works contributed by other colleagues have been stated and

acknowledged.

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全部或部分内容。

Authorized Use Agreement

I fully understand the regulations concerning reservation and usage of the thesis in the Chinese

Academy of Agricultural Sciences: CAAS retains the right to keep the copies and disks of the thesis,

allow it to be accessed and borrowed, and compose it by photocopy and scan. CAAS can also

disseminate and publish the full and part of the thesis in different ways and on different media.

学生签名/Student‘s signature: Ochola, Robert Vicky Odhiambo Date: 28th May, 2015

导师签名/Supervisor‘s signature: Prof. Nie Feng ying Date: 28th May, 2015

I

摘要

“加速农资准入国家计划” (NAAIAP)补贴项目成立于 2006 年，是一种安全保障计划,旨在

解决贫困农户中的粮食不安全和贫困问题。本研究利用截面数据，通过对 200名农民数据进行线

性回归分析，多项类别变量回归分析和 Probit分析而得，数据来自于 2009/2010季度农业的数据，

由此估算 NAAIAP 项目对塔纳河北面的贫困和弱势农户的补贴影响。研究中包含和排除的控制错

误集中在农民实际上已经收到凭证。观察指出,那些具有小学教育水平的老年男性农民,其主要的

收入来源是农业，收入水平达平均 1美元一天。这些农民平均拥有 4英亩土地，其中只有一半是

用于生产,并且没有金融服务，主要归因于缺乏抵押品和低水平的年销售收入，同时存在路边市场

和一般信息不对称。模型结果表明, 各种由使用化肥而得的收入的投资回报对过去的化肥使用，

在合适的季节使用化肥以及公共财政支持，如集团储蓄，具有敏感的残余效应。因此这些发现证

实本研究的重要性,能为政策制定者提供更深的洞察力，并提供有价值关于政策的影响,设计和规

划目标的实现的信息。

关键词：化肥，补贴，小户型农户，政策，商业，加速农资准入国家计划，肯尼亚

II

ABSTRACT

The National Accelerated Agricultural Inputs Access Programme (NAAIAP) a subsidy programme

established in 2006 was envisioned as a safety net programme that would address the problem of food

insecurity and poverty among resource poor farmers. This study using cross-sectional data obtained

from 200 farmers employs Linear Regression, Multinomial Logistic and Probit analysis and data from

the 2009/2010 agricultural season to estimate the subsidy effects of the NAAIAP program on poor and

vulnerable farmers of Tana River Sub-County. To control for errors of inclusion and exclusion the study

focused on those farmers who had actually received vouchers. Observations point to predominantly

aging male farmers with primary level of education and whose main source of income was farming

earning them an average of $1 a day. These Farmers owning on average four(4) acres lack titles to their

pieces of land for which only half was utilized for production, had not accessed financial services

despite such services being within reach a factor that could be attributed to their lack of collateral and

low levels of realized annual incomes from sales though roadside markets and general information

asymmetries. Model results show that returns on investments to various income categories from using

use of fertilizer is sensitive to residual effects of previous fertilizer application, timing or use of fertilizer

during the right season, and communal financial support structures such as group saving. These findings

therefore confirm the importance of this study providing deeper insight to policy makersand providing

valuable information which has implications on policy, design, targeting and programme

implementation.

Key words: Fertilizer, Subsidy, Smallholder farmer, Policy, Commercialization, NAAIAP, Kenya.

III

TABLE OF CONTENTS

Chapter 1 Introduciton ........................................................................................................... 1

1.1 INTRODUCTION .................................................................................................... 1

1.1.1 Background......................................................................................................... 1

1.1.2 Agricultural sector policies................................................................................. 6

1.2 Problem Statement .................................................................................................. 11

1.3 Research Objective ................................................................................................. 12

1.4 Research Question................................................................................................... 12

1.5 Research Hypothesis ............................................................................................... 12

1.6 Justification for the study ........................................................................................ 13

1.7 Conceptual Framework ........................................................................................... 14

1.8 Scope of the study ................................................................................................... 16

1.9 Definition of Terms ................................................................................................. 16

1.10 Limitations to the study......................................................................................... 17

Chapter 2 LITERATURE REVIEW .................................................................................... 18

2.1 Fertilizer Subsidies and Input Use .......................................................................... 19

2.2 ―Smart‖ Subsidies ................................................................................................... 21

2.2.1 Design of ―Smart‖ Subsidy Programmes ......................................................... 21

2.3 Maize Value Chain and Fertilizer Subsidies ........................................................... 23

Chapter 3 STATUS OF THE FERTILIZER AND MAIZE SECTORS IN KENYA ........... 32

3.1 Status of The Fertilizer Sector In Kenya ................................................................. 32

3.1.1 Fertilizer and Fertilizer subsidy Policy in Kenya ............................................. 33

3.1.2 Major developments in the fertilizer sector ...................................................... 34

3.1.3 Evolution of maize marketing in Kenya ........................................................... 36

3.1.4 Fertilizer demand and supply trends................................................................. 38

3.1.5 Fertilizer production and consumption ............................................................. 39

3.1.6 Drivers of Fertilizer Supply and Demand......................................................... 43

3.1.7 Fertilizer types and cost .................................................................................... 45

IV

3.1.8 Fertilizer subsidies Programs in African Countries .......................................... 46

3.1.9 Smart Subsidies ................................................................................................ 47

3.2. The National Accelerated Agricultural Inputs Access Programme (NAAIAP) ..... 51

3.2.1 Overview Of The Programme .......................................................................... 51

3.2.2 Project Components.......................................................................................... 52

3.3 The Status of The Maize Subsector In Kenya......................................................... 53

3.3.1 Maize production .............................................................................................. 54

3.3.2 Technical efficiency and allocative efficiency.................................................. 57

3.3.3 Maize marketing ............................................................................................... 58

3.3.4 Maize consumption........................................................................................... 60

Chapter 4 DATA ANALYSIS ........................................................................................... 63

4.1 Study Area ............................................................................................................... 63

4.2 Agriculture in Tana River County ........................................................................... 64

4.2.1 Farming Systems in Tana River County. .......................................................... 64

4.2.2 Sample frame .................................................................................................... 64

4.3 Types and Sources of data....................................................................................... 66

4.4 Data analysis ........................................................................................................... 66

4.5 Econometric Model ................................................................................................. 66

4.6 Model 1: Estimating Fertilizer subsidy effects on Household income; The

Multinomial Approach ..................................................................................................... 67

4.6.1 Model 1Results ................................................................................................. 69

4.7 Model 2: Estimating Fertilizer subsidy effects on Commercialization; The Probit

Approach. ......................................................................................................................... 71

4.7.1 Model 2 Results ................................................................................................ 72

4.7.2 Determinants of Commercialization................................................................. 72

4.8 Definition of Variables ............................................................................................ 74

Chapter 5 FINDINGS AND DISCUSSION ........................................................................ 77

5.1 Descriptive Statistics ............................................................................................... 77

5.1.1 Background information ................................................................................... 77

V

Chapter 6 CONCLUSION AND RECOMMENDATION .................................................. 85

REFERENCES .................................................................................................................... 88

ACKNOWLEDGEMENT ................................................................................................... 96

VI

LIST OF FIGURES

Figure 1-1 .Kenya‘s Agriculture growth (real GDP) .......................................................... 1

Figure 1-2 Conceptual Framework of the NAAIAP Programme ..................................... 15

Figure 1-3 Conceptual Framework for the study.............................................................. 16

Figure 3-1 Economic (GDP) and Agricultural (Value Added) growth 1960 - 2014......... 33

Figure 3-2 Price of DAP in Mombasa and Nakuru (Constant 2007 KSh. per 50Kg bag) 38

Figure 3-3 Fertilizer Consumption in Kg/Ha of arable land ............................................ 39

Figure 3-4 Fertilizer ―Double‖Value chain....................................................................... 40

Figure 3-5 Trends in Consumption, Commercial Imports and Donor Imports of

Fertilizers in Kenya 1990/91 - 2010/11 ........................................................................ 41

Figure 3-6 Trends in the consumption of various Fertilizer products. ............................. 42

Figure 3-7 Fertilizer Supply Chains in Kenya. ................................................................. 45

Figure 3-8 World Fertilizer Consumption (Kg/Ha) .......................................................... 46

Figure 3-9 The Concept of Access Gap ............................................................................ 48

Figure 3-10 Price and quantity effects of a subsidy.......................................................... 49

Figure 3-11 Deadweight loss and Inefficiencies of a Subsidy.......................................... 50

Figure 3-12 Cropping zones of Kenya ............................................................................. 54

Figure 3-13 Fertilizer adoption and maize production costs in Kenya. ............................ 58

Figure 3-14 Maize value chain in Kenya.......................................................................... 60

Figure 3-15 Trends in Kenya‘s Maize production and consumption. ............................... 61

Figure 4-1 Location of the Study Area ............................................................................. 63

VII

LIST OF TABLES

Table 1-1 Key Crop Production Statistics .......................................................................... 2

Table1-2 Categories** Of Agricultural Land ('000 Hectares) ............................................ 2

Table 1-3 Gross Marketed Production At Current Prices 2006 - 2012 (Ksh.. Million)...... 3

Table 1-4 Maize Production ('000 Tonnes) And Average Prices (Ksh.. Per 100kg) To

Producers 2006 - 2012. ................................................................................................... 3

Table 1-5 Value Of Agricultural Inputs, 2005 - 2012 (Ksh. '000) ...................................... 5

Table1-6 Transitional Milestones In Agricultural Policy Reforms ..................................... 6

Table 3-1 Evolution Of Maize And Fertilizer Market Policy Reforms Starting In 1988 . 34

Table 3-2 Summary Of Key Policy Issues In The Fertilizer Markets .............................. 37

Table 3-3 Distribution Of Fertilizer Use Consistency By Agro Ecological Zones........... 41

Table 3-4 Fertilizer Usage By Smallholder Farmers ........................................................ 42

Table 3-5 Agricultural Input Indices, 2009 - 2013 ........................................................... 43

Table 3-6 Value Of Purchased Agricultural Inputs, 2009 - 2013 (Ksh.. Millions) ........... 44

Table 3-7 Market Prices For Fertilizer – National Cereals Produce Board ...................... 45

Table 3-8 Government Subsidized Fertilizer Distribution: Oct – Nov. 2012 ................... 47

Table 3-9 Reforms In The Maize Market 1979 to 2012 ................................................... 53

Table 3-10 Variation Of Maize Productivity By Agro-Regional Zone ............................. 55

Table 3-11 Average Maize Production From 2005 - 2009 ............................................... 56

Table 3-12 Maize Production, Consumption And Domestic Values (2004 - 2010) ......... 56

Table 3-13 .8Maize Production, Pricing And Marketing (2009 - 2013)........................... 57

Table 3-14 Sale To Marketing Boards Of Selected Crops, 2009 - 2013 .......................... 58

Table 3-15 Production And Transport Cost Of Maize To Nairobi.................................... 59

Table 3-16 Comparison Of Yields, Costs And Returns For Maize In Kenya And Uganda ..... 59

Table 4-1 Crop Statistics Tana River County.................................................................... 64

Table 4-2 .NAAIAP Inputs Distributed To Farmers In Galole Division .......................... 65

Table 4-3 Sample Villages Selected Through Purposive Sampling ................................. 65

Table 4-4 Number Of Farmers Sampled Per Village ........................................................ 66

VIII

Table 4-5 Multinomial Logit Regression Results For Annual Household Income .......... 69

Table 4-6 Probit Regression Results For Commercialization........................................... 72

Table 4-7 Description Of Variables .................................................................................. 74

Table 5-1 Descriptive Statistics For Farmers Personal Information ................................. 77

Table 5-2 Descriptive Statistics Group Membership And Activity .................................. 78

Table 5-3 Descriptive Statistics Land Ownership And Production .................................. 79

Table 5-4 Descriptive Statistics Type And Access To Financial Service.......................... 81

IX

ABBREVIATIONS AND ACRONYMS

AATF African Agricultural Technology Fund

AFC Agricultural Finance Corporation

AFC Agricultural Finance Corporation

AFRICOG African Center for Open Governance

AGMARK Agricultural Markets Development Trust

AGRA Alliance for a Green Revolution In Africa

ASAL Arid and Semi-Arid Lands

ASALs Arid and Semi-Arid Lands

ASDS Agricultural Sector Development Strategy

C.I.F Cost Insurance and Freight

CAN Calcium Ammonium Nitrate

CSRP/KMDP Cereal Support Programme/Kenya Maize Development Programme

DAP Diammonium Phosphate

DDCs District Development Committees

DFRD District Focus for Rural Development

ECA East and Central Africa

EEC/WB European Economic Commission/World Bank

ERS Economic Recovery Strategy

FAO Food and Agriculture Organization

FAOSTAT FAO Statistics

FBOs Faith Based Organization

FISP Farm Input Subsidy Programme

FRS Famine Relief Stocks

GBHL Grain Bulk Handlers Limited

GDP Gross Domestic Product

GoK Government of Kenya

HYVs High Yielding Varieties

IADP Integrated Agricultural Development Programme

IFDC International Fertilizer Development Center

IFIs International Financial Institutions

IFPRI International Food Policy Research Institute

IMF International Monetary Fund

KEBS Kenya Bureau of Standards

KENFAP Kenya National Federation of Agricultural Producers

X

KFA Kenya Farmers Association

KGGCU Kenya Grain Growers Cooperative Union

Kgs Kilograms

KIPPRA Kenya Institute Of Public Policy Research and Analysis

KNTC Kenya National Trading Corporation

KRDS Kenya Rural Development Strategy

KTDA Kenya Tea Development Authority

MAFAP Monitoring African Food and Agricultural Policies

MAP Monoammonium Phosphate

MOP Muriate of Potash

MT Metric Tonnes

NAAIAP National Accelerated Agricultural Inputs Access Programme

NARC National Rainbow Coalition

NCPB National Cereals and Produce Board

NEP National Extension Programme

NGOs Non-Governmental Organizations

NPK Nitrogen Phosphorus Potasium Fertilizer

NTBs Non-Tariff Barriers

OPV Open Pollinated Variety

PRSP Poverty Reduction Strategy Paper

SAPs Structural Adjustment Programs

SGR Strategic Grain Reserves

SRA Strategy for Revitalization of Agriculture

SSA Sub - Saharan Africa

STATA Data Analysis and Statistical Software

T&V Training and Visit

US$ United States Dollar

USAID United States Agency for International Development

VAT Value Added Tax

WFP World Food Programme

中国农业科学院硕士学位论文 Chapter 1

1

Chapter 1 Introduciton

1.1 INTRODUCTION

“The rest of the world is fed because of the use of good seed and inorganic fertilizer, full stop. This

technology has not been used in most of Africa. The only way you can help farmers get access to it is

give it away free or subsidize it heavily.” Stephen Carr, former World Bank Specialist on Sub-Saharan

African Agriculture, quoted in Dugger, 2007.

1.1.1 Background

1.1.1.1 An overview of the Agriculture sector in Kenya

Kenya‘s economy is dependent on agriculture, which contributes to rural employment, food

production, foreign exchange earnings and rural incomes. The agriculture sector directly accounts for

about 26 per cent of Kenya‘s Gross Domestic Product (GDP) and 27 percent indirectly through linkages

with manufacturing, distribution and other service related sectors. The sector accounts for 65 percent of

Kenya‘s total exports, 18 percent and 60 percent of formal and total employment respectively (KIPPRA,

2013).

Figure 1-1 .Kenya’s Agriculture growth (real GDP)

Source：www.knbs.or.ke

In 2012 the sector recorded a growth of 3.8 percent compared to a suppressed growth of

1.5percent in 2011 with marketed production rising by 3.9 percent from Ksh. 331.8 billion in 2011 to

Ksh. 344.6 billion, marketed maize production increased by 29.6 percent on account of higher marketed

volumes buoyed by improved prices paid to farmers (Kenya Economic survey 2013, Deloitte, 2013).

http://www.knbs.or.ke/


2

Table 1-1 Key Crop Production Statistics

Commodity 2011 2012 % change

Tea ('000 Tonnes) 377.9 369.4 -2.2

Coffee ('000 Tonnes) 36.3 49.0 35

Fresh Horticultural Produce ('000 Tonnes) 216.2 205.7 -4.9

Maize (Million Bags) 34.4 40.0 16.3

Wheat ('000 Tonnes) 105.9 162.7 53.6

Rice ('000 Tonnes) 80.2 83.6 4.2

Source. Kenya Economic Survey 2013.

Total maize output in Kenya has for a long time been determined by maize yield levels per unit

area and maize statistics have both captured total planted area and productivity as key indicators for

food security in a country whose food security needs are closely tied to the levels of annual maize

production. Kenya being a primarily agriculture based economy performance in the maize subsector

(Table 1-1) has had great bearing on both food security and overall economic growth. Kenya is a

country whose land mass is 80% arid and semi-arid less than 12% of the entire land mass is considered

high potential and suitable for maize production；The(table 1-2)breakdown of the categories of

agricultural land and its spread over 8 provinces (these have now been replaced by counties). Of the

entire total land area only 13% is considered high potential, 6% medium and 81% is low potential land.

Table1-2 Categories** Of Agricultural Land ('000 Hectares)

Province High

potential

Medium

potential

Low

potential

Total Other land Total land

area

Central 909 15 41 965 353 1,318

Coast 373 796 5,663 6,832 1,472 8,304

Eastern 503 2,189 11,453 14,145 1,431 15,576

Nairobi 16 - 38 54 14 68

North –

Eastern

- - 12,690 12,690 - 12,690

Nyanza 1,218 34 - 1,252 - 1,252

Rift Valley 3,025 123 12,220 15,368 1,515 16,883

Western 741 - - 741 82 823

TOTAL 6,785 3,157 42,105 52,047 4,867 56,914

Source: Economic Survey, 2014 ** The three categories are defined as follows *High Potential – annual rainfall of 857.5mm or

more ** Medium Potential – annual rainfall of 735mm-857.5mm and ***Low Potential – annual rainfall of 612.5mm or less.

Increasing maize production in Kenya has been approached both from the farm level and national

level. At the farm level, productivity and maximization of available farm size has been a major focus,

while at the national level overall output and enhancing the productivity potential of fragile land

ecosystems has been top priority. Producing higher yields on available land potential (Table 1-2) has

therefore remained a major focus for research and policy makers in an effort to generate extra

production to feed the nation.


3

Table 1-3 Gross Marketed Production At Current Prices 2006 - 2012 (Ksh.. Million)

Crop 2006 2007 2008 2009 2010 2011 2012

Maize 7,170.20 7,969.20 8,326.60 4,566.40 5,070.30 10,145.30 13,153.00

Rice 1,145.80 1,096.29 889.10 1,309.90 2,642.36 4,111.78 2,323.38

Vegetables 17,822.90 22,354.30 16,128.70 16,253.60 18,646.40 26,251.20 20,225.40

Fruits 1,737.30 1,797.90 2,071.20 2,283.50 2,789.10 3,535.40 4,680.00

Cotton 235.48 340.62 445.76 387.04 567.46 1,430.00 450.00

Pulses 43.48 24.40 33.41 53.93 40.64 69.34 97.46

Tea 45,162.00 43,887.00 55,383.10 64,684.80 87,960.10 100,145.50 100,262.30

TOTAL 75,323.16 79,476.71 85,285.87 91,548.17 119,726.36 147,699.52 143,203.54

Source: Economic Survey 2014

Since Independence the sector has been plagued by various challenges key being low

productivity (Table1-4), lack of or low value addition levels, under – developed and inefficient

markets (inputs and outputs) and inefficient land use patterns especially in densely populated high

potential areas. Because of unpredicted weather and poor infrastructure, producers and consumers

of agricultural products in Kenya face volatile market prices, with periods of surplus production

(Table 1-3) providing a boom for consumers and periods of deficit benefiting a relatively few

number of producers who are net sellers and hurting the majority of consumers (Ariga and Jayne).

Table 1-4 Maize Production ('000 Tonnes) And Average Prices (Ksh.. Per 100kg) To Producers 2006 - 2012.

2006 2007 2008 2009 2010 2011 2012

Prod. For

sale

470.7 508.8 340.5 191.0 294.6 405.8 387.3

Ave. prices

to producers

1,535.4 1,566.4 2,445.4 2,391.3 1,721.4 2,499.9 3,396.0

Source: Economic survey, 2014

Major constraints to the sector include inadequate budgetary allocation, reduced quality and

quantity of extension services, poor farmer organization and lack of structured trading, low absorption

of modern technology – primarily due to inadequate research – extension – farmer linkages, high cost

and increased adulteration of key inputs, limited capital and access to affordable credit, high post –

harvesting crop losses and heavy livestock losses due to diseases and pests, low and declining soil

fertility, inappropriate legal and regulatory framework, lack of coherent land policy, imposition of

multiple taxation on farm produce, weak surveillance on offshore fishing, inadequate infrastructure

especially poor rural roads, lack of appropriate water harvesting and storage, inadequate storage and

processing, and inadequate markets and marketing infrastructure (USAID 2010). To facilitate higher

maize yields research has focused primarily on identifying short-term productivity needs and long term

sustainable soil potential use，fertilizer use, weed control, modern technological extension, insect and

disease mitigation measures, sustainable and environmentally safe tillage operations are some of the

technologies that have continued to be put forward in managing productivity and total output. This push

for productivity has not been without its fair share of challenges however the overall maize productivity


4

and food security situation has continued to rise over the years from a low of 1,143,000MT in 1960 to

2,600,000MT in 2012 (http://www.indexmundi.com/ ). Production of maize is expected to rise even

further with the introduction of key government incentives like fertilizer and seed subsidies (Table 1-5).

The effect of these subsidies is specifically targeted at increasing productivity and production at the

household level.

http://www.indexmundi.com/agriculture/?country=ke&commodity=corn&graph=production


5

Table 1-5 Value Of Agricultural Inputs, 2005 - 2012 (Ksh. '000)

Input 2005 2006 2007 2008 2008 2010 2011 2012

Fertilizers 3,727,000 3,560,000 3,595,000 6,160,000 5,680,000 6,022,000 9,397,400 7,737,600

Insecticides 213,995 246,791 284,712 1,349,165 2,563,584 2,801,664 2,187,015 2,936,510

Fungicides 543,573 626,879 723,202 406,382 772,177 843,889 658,751 884,504

Herbicides 270,846 312,355 360,350 265,299 504,101 550,917 430,053 577,433

Plant hormones 15,586 17,974 20,736 53,227 101,138 110,530 86,281 115,850

Fuel 1,454,045 1,631,729 1,809,413 1,009,869 2,254,294 2,648,100 4,309,360 5,218,743

Power 3,406,955 3,299,865 3,590,587 6,252,131 7,515,706 7,170,200 11,261,440 19,559,057

Seed 2,694,000 2,528,000 2,548,000 3,661,000 3,182,000 4,227,000 3,337,900 3,573,800

Source: Economic Survey, 2014


6

Enhancing the performance of smallholders through promotion of intensive farming is critical to

future agricultural growth. This includes the provision of quality and timely support services including

extension to promote good agricultural practices, optimal usage of modern inputs, infrastructural

development to reduce post-harvest losses and overall cost of doing business, and storage facilities. It is

expected however that with productivity improvement comes surplus production and a need to

exchange surplus produce for cash income to support the smallholder basic needs.

Kenya‘s agricultural sector comprises six major sub–sectors which include industrial crops, food

crops, horticulture, livestock, fisheries and forestry. According USAID (2010) basing on 2008 statistics

and production values the sub sectors can be valued as indicated below:

Industrial crops including tea (US$ 738 million); coffee, (US$ 91 million); sugar (US$ 164

million); pyrethrum (US$ 1.2 million); sisal (US$ 19 million); tobacco and coconuts.

Food crops include maize (US$ 951 million) and wheat (US$ 136 million); rice (US$ 16

million); beans (US$ 174 million).

Horticultural products – vegetables, flowers and fruits (US$ 2.4 billion) both domestic and

export.

Livestock – dairy (US$ 1.5 billion) and beef (US$ 1.0 billion)

Fish – both fresh water and marine fish (US$ 120 million)

1.1.2 Agricultural sector policies

Agricultural policy in Kenya can be classified into four distinct phases (Table 1-6) characterized by

significant turning points as discussed below:

Table1-6 Transitional Milestones In Agricultural Policy Reforms

Phase Characterization of role of agriculture Rationale

Post-independence(1960s

– 1980s)

Focus was on agriculture as the main driver of

the country‘s economic growth.

To achieve the post-independence goal

of greater welfare to the citizens.

Agriculture parastatals formed to support credit

and inputs supplies, production and marketing

of major crops and livestock products.

Government was suspicious of private

sector and markets and thus had to

actively intervene to direct the economy

to achieve both productive and welfare

objectives.

Large allocation of government resources and

transfer of land from white settlers to

indigenous, focus on development technologies

appropriate for ASAL.

Improve productivity and bring new

land under production.

Introduction of price controls on agricultural

products, market incentives and annual price

reviews.

Steady increase in incomes of the

farmers vis-à-vis those in

non-agriculture sector.

Control of imports Achieve self-sufficiency in the products

the country could produce.

Liberalization (1980s – Removal of price controls, in products and input Market reforms through the SAPs led


7

Phase Characterization of role of agriculture Rationale

1990s) markets, dismantling trade restriction and

transfer of commercial functions from public to

private sector; reduction in government scope in

provision of inputs and credit facilities to

mainly public goods.

by the Bretton Wood Institutions (IMF,

World Bank), external influence.

Emphasis switched to integrated rural

development project taking up poverty

alleviation and food security investment in rural

infrastructure in the rural area.

Decentralize development planning,

coordination, project implementation,

management away from the

headquarters to the district and bring

development closer to the people.

Emphasis on industrial transformation. Shift from reliance on agriculture as the

back bone sector to industrialization in

order to become a new industrialized

country by 2020.

Stakeholder

Participatory

Approaches to Policy

Making (2001 – 2007)

Accelerating policy and Institutional reforms Create opportunities for rural

communities and private sector to

effectively carry out their activities.

Introduction of appropriate technology and

practices.

Improve agriculture sector productivity

and competitiveness.

Crop development sector prioritized as to

address the poor extension service, financial

services, infrastructure, marketing and

distribution through the SRA.

Agriculture as a priority sector of

alleviating poverty in the country.

Source: Jayne


8

Before 1964 （The Colonial Period）

Agricultural policy mainly focused on the Colonial agricultural systems and protecting the interests

of the colonial masters with little attention if any paid to African agriculture. Priority was placed on

enhancing and facilitating acquisition of prime land for white settlement and establishing key crops that

would be the reserve of the white colonial masters. European farmers and settlers were supported to

establish and undertake agricultural activities in the agriculturally rich areas of the country with

exclusive land ownership rights. Africans were alienated through control of labour supply through poll

taxation and development of residence labour (squatter system), legal control of production of specific

crops (sisal, coffee, wheat, dairy), Africans were legally restricted from occupying particular areas and

agriculture was then restricted to limited cultivation around restricted residential villages or ―reserves‖

where the colonial masters also determined the type and extent of crop production. Pricing, marketing

and credit policies were used to subsidize settler agricultural production and stifle African agriculture.

These policies generated problems of landlessness and land degradation.

Nzuma, (2013) Citing Brown, (1970) indicates that to effectively implement agricultural policy,

extension and research divisions were established in the then Department of agriculture. The

establishment of these divisions then encouraged the development of sisal, coffee, and pyrethrum

industries for the large scale European farmers. To control production and marketing, several production

and marketing boards/organizations were formed to organize production and marketing and set a basis

for economic growth and achievement of agricultural policy objectives. These boards included; the

Kenya Co-operative Creameries (1931) for dairy products, the Coffee Board (1933) for coffee, and the

Pyrethrum board (1938) to oversee the production and marketing of pyrethrum. Other existing boards

established during this period included the sisal board, the flax board, the passion fruit board, and the

pigindustry board.

In 1950 with the introduction of the Swynnerton plan of 1954 a major shift in the agricultural

policy environment occurred. With emphasis on increased expenditure on extension, research, credit

and market development to support commercial farming, this plan gave life to post – war policies which

saw the implementation of water supplies, soil conservation, farming systems research, livestock

development, and fertilizer and pasture research. However this plan did little to improve African

settlement problems and it also highly discouraged land fragmentation, it also gave co – operative

marketing great importance although it was felt that marketing was too important to be entrusted to

Africans. This eventually resulted in the establishment of marketing boards to control the marketing

system. Some of the boards that were formed in this period include the Coffee Marketing Board in 1946,

the Tea Board in 1951, the maize and produce control board in 1950, the wheat board in 1952, and the

cotton lint and seed marketing board in 1955 (Nzuma, 2013).

1964 to 1980s (The post-independence period)

Immediately after independence and against the backdrop of restrictive regulations in the pre

independence period overall economic and agricultural policy was influenced by the need for

self-determination and rapid economic growth for all citizens. Agricultural policy at this time was


9

concern with supporting a smooth transfer of prime land from white settlers to indigenous Kenyans with

help from state – supported agencies in the production and marketing of produce (such as NCPB for

maize) (Ariga and Jayne). It was widely believed that to achieve rapid economic development a lot of

focus needed to be placed on the improvement of the agricultural sector and to enable citizens to freely

engage in farming and take up the opportunities for production that had been left by the colonial masters.

The government therefore emphasized equitable allocation of land, greater access to productive land,

and bringing of new land into agricultural production. Marketing and pricing of agricultural products,

research and development, extension and livestock production became key aspects of the overall

government policy. Focus on research and extension to maintain and increase productivity and

development of livestock through ranching and conservation of natural resources was emphasized

alongside maintenance of rural infrastructure. This periodsaw a rapid establishment of parastatals to

support production and marketing of major crops such as coffee, tea, sisal, pyrethrum, cotton, sugar, rice,

maize, wheat and livestock products. Cooperative societies like Kenya Farmers Association (KFA)

provided inputs to farmers, credit support was provided through Agricultural Finance Corporation

(AFC).

Research and development focused on producing technologies that were relevant to the vast Arid

and Semi-Arid Lands (ASALs) like small-scale irrigation and the use of water harvesting technologies.

These policies were implemented through programs such as Smallholder Production Service Program

(SPSP) and Integrated Agricultural Development Programme (IADP). The effect of these policies was

that agricultural productivity and cash crop production increased with a resultant growth in GDP of 6%.

The downside however was that this period saw an increase in instances of bad governance, corruption

and rent seeking resulting in indebtedness and poor service delivery to farmers. Marketing monopolies

mushroomed resulting from state owned enterprises having exclusive rights to certain cash crop trade

regulation and pricing.

1980s to 1990s (The liberalization period)

The challenges that emerged from the post-independence period created a need for restructuring

state owned enterprises to provide better services and to eliminate monopolistic tendencies that were

hampering efficient operation of markets. In the 1980s the government therefore introduced market-led

reforms (commonly known as SAPs – Structural Adjustment Programs) partly as a result of the pressure

from external development partners‘ insistence on financial reforms and reduction in state control on

state owned enterprises. Market liberalization involved removal of price controls in product and input

markets, dismantling of trade restrictions and transfer of commercial functions from the public to

private sector. In addition there was marked reduction in government services like extension, marketing,

dipping of cattle, credit and artificial insemination.

A main characteristic of this period was the District Focus for Rural Development (DFRD) a

programme introduced in 1983 to transfer planning and implementation of rural development projects


10

from the ministries to the local level with the District taking up the role of ruraldevelopment planning,

project implementation, coordination and management of development resources through its District

Development Committees (DDCs). With the support of development partners districts could also invest

in rural infrastructure like storage facilities, rural access roads and marketing facilities. In 1983 and

1991 saw the approval of the National Extension Programme (NEP) I and II which introduced a new

extension methodology the T & V (Training and Visit).

The inability to compete in a more liberal environment saw the collapse of key state owned

enterprises formed during the post-independence period. DFRD resulted in improvement and access of

services to the rural areas to some extent. However due to the lack of participatory policy and

development planning process, the private sector and the rural clientele could not determine the

direction and priority areas of focus in government planning and project implementation. Capacity

constraints also ensured that the private sector was unable to take up the roles initially carried out by the

state owned enterprises. This had the effect of exposing farmers to market forces and cost-sharing in

services, something that lead to uncertainties and poor performance due to inadequate market

information and investment asymmetries.

1990s to 2000s (The participatory stakeholder period)

The lack of involvement of the private sector in the liberalization and the planning and

implementation of government projects created a need for a platform that would bring together the

government and the private sector. With the experience from the reform period the government also saw

the need to involve the private sector using participatory methodologies so that the private sector could

effectively take up the roles that were given up by the government. To provide a framework for

participatory development the government published the Poverty Reduction strategy Paper (PRSP) in

2001. This was done through a consultative process that brought together the public, private and civil

society groups led by the International Financial Institutions (IFIs). This saw the government

committing to create opportunities for rural community development and the private sector to operate

efficiently and effectively and accelerating policy and institutional reforms particularly on the legislative

and regulatory reforms that created bottlenecks in private sector involvement.

Through its Kenya Rural Development Strategy (KRDS) the government sought to improve

agricultural sector productivity and competitiveness through adoption of appropriate technologies and

practices. The government recognized the need for stakeholder involvement in rural development

through the multi – sector approach. The KRDS brought together Non – Governmental Organizations

(NGOs), private sector, religious groups, civil societies, and other development partners.

The year 2003 saw the installation of a new government, the National Rainbow Coalition (NARC)

and with it saw the renewed spirit for economic recovery through tabling of the Economic Recovery

Strategy (ERS) a precursor of the PRSP. ERS proposed macroeconomic stability, strengthening of

institutions of governance, rehabilitation and expansion of physical infrastructure and investment in

human capital. The productive sectors of agriculture, trade and industry, and tourism were to be the


11

prime movers of economic growth (GoK, 2004a). In the Agricultural sector the main policy document

for implementing the ERS was the Strategy for Revitalization of Agriculture (SRA).

Kenya‘s overall guiding policy is the Vision 2030, a national long – term development blue – print

to create a globally competitive and prosperous nation with a high quality of life by 2030, that aims to

transform Kenya into a newly industrializing, middle income country providing a high quality of life to

all its citizens by 2030 in a clean and secure environment (www.vision2030.go.ke). The vision is

anchored on three key pillars (Economic, social and political governance) of which agriculture falls

within the economic pillar. At sector level agricultural development is guided by the Agricultural

Sector Development Strategy – ASDS (2009 – 2020) which came into effect in June 2009. The ASDS

aims to increase agricultural productivity, commercialization and competitiveness of the agricultural

commodities to enable sector contribute to the national goals of food security, increased export for

foreign exchange earnings and employment creation. The ASDS seeks to progressively reduce

unemployment and poverty, and to spur agriculture back to growth trends (ASDS 2010). The vision of

the ASDS is: A food – secure and prosperous nation and its overall goal is to achieve an average growth

rate of 7 percent per year over the next 5 years through its strategicmission of creating an innovative,

commercially oriented and modern agriculture (ASDS, 2010).

The government has also developed specific commodity specific policies to address key challenges

and constraints. These Include Food and Nutrition Policy (2007); National Cassava Industrial Policy

(2007); National Seed Industry Policy; Horticultural Policy (2007); National Agricultural Sector

Extension Policy; National Oil Seeds Industry Development Policy; National Rice Development

Strategy (2008-2018); Sessional Paper on Cereals and Produce (Draft); And Nut Crops Development

Policy among Others (USAID 2010). Other key sector challenges include diminishing agricultural land,

over-reliance on rain fed agriculture, poor cropping choices, poor extension services, and disorganized

markets. Solutions for these challenges can be found in land consolidation, long term land leasing,

making farming commercial, ensuring that technology matches the changing environment, production

of drought tolerant crops, diversifying eating habits; crop insurance; organized markets that will

discover prices more transparently, and improved quality to reduce post-harvest losses.

1.2 Problem Statement

Agriculture which is the backbone of many economies in the world today and especially so in the

Sub – Saharan Africa is characterized by low technological innovation and a resounding little if any,

improvement in yield per unit area of land in the last 40 years. These problems in agricultural

productivity growth have been made even worse by climate change, Agricultural sector policy

implementation, crop pest and diseases, inadequate and inefficient irrigation technologies and

unsustainable farming systems.

These underlying problems have ensured that in addition to numerous biotic and abiotic production

http://www.vision2030.go.ke/


12

constraints the productivity of small holder farmers in SSA remains low (AATF, 2010) some of these

productivity constraints could be mitigated using simple technologies like water harvesting and

conservation, supplementary irrigation, plastic mulch and micro – irrigation, land management practices

and policies, revamping agricultural extension, post – harvest loss technologies, labor productivity

enhancing, disease resistant and high yielding maize varieties, dry land technologies, integrated farming

systems that combine fish, livestock and crops and use of organic and inorganic fertilizers to improve

crop yield. Dowardet al., (2007) highlights the factors limiting smallholder agriculture in Malawi as

being high levels of poverty, low productivity, increased vulnerability, seasonality, high dependence on

maize, price fluctuation, land pressure, poor market development and infrastructure, fragility of casual

labor markets and ‗coping strategies‘ of poor people.

Crop production the major driver for rural development in most African countries is closely linked

to land productivity. Soil being the medium for plant growth and stability is critical for crop production

and is a key factor determining land productivity. Studies by ECA (2003) show that soils in SSA are

naturally low in nitrogen and deficient in phosphorus, sulphur, magnesium and zinc. In addition, low

soil depth reduces crop anchorage and ability to extract nutrients and water.

Food security concerns are currently escalating in Sub – Saharan Africa due to poor soil

management practices on the fragile soils (Omotayu, 2009) Global hotspots of soil degradation with

high priority of soil restoration and C sequestration include SSA, Central and South Asia, China, the

Andean Region, the Caribbean, and the acid savannas of South America(Lal,2004). As the world moves

towards a larger population of close to 9 billion people by 2050 the future of tropical agriculture lies in

the reclamation and bringing to better use fragile soils which make up a big part of the soils in Sub

Saharan Africa.

1.3 Research Objective

This study seeks to (1) determine the effects of ―Smart‖ (government) fertilizer subsidy programs

on the annual income of farmers in the maize sector, (2) Effects of determinants/factors that affect

commercialization of smallholder farmers, (3) analyze policy implications of fertilizer subsidy

programmes in light of their effectiveness and justification in smallholder farming.

1.4 Research Question

Does participation in a ―Smart‖ (government) fertilizer subsidy program have any effect on

incomes and market commercialization in the smallholder maize sector? Are the effects substantial

enough to justify the effectiveness of government funded subsidy programs?

1.5 Research Hypothesis

Small-holder farmers are defined as those marginal and sub marginal farm households whose

contribution to the total value of agricultural output is significant in many countries. Many countries are


13

currently implementing agricultural and poverty reduction strategies that explicitly support the linkage

to and inclusion of smallholders in markets. It is however not certain the efficacy of such strategies to

the overall welfare of the farmer especially if the programs do not translate into sustainable benefits

through the market led approaches. It is believed that investments in modern technology and entering

new markets that may provide smallholders with better prospects can be extremely difficult due to the

need for economies of scale. This study seeks to prove that public investments in smallholder farmers

through smart subsidies can enable farmers to establish their presence in the market and thus break the

poverty cycle.

1.6 Justification for the study

Approximately 1.5 billion people are engaged in smallholder agriculture across the world. They

include 75% of the world‘s poorest people whose food, income, and livelihood prospects depend on

agriculture. They mainly live in rural communities (Ferris S., Robbins P., Best R., Seville D., Buxton A.,

Shriver J., & Wei E., 2014). Studies from several countries in Africa and Asia show that 50-70% of

smallholders are not transitioning from subsistence to commercial farming (Ferris S., Robbins P., Best

R., Seville D., Buxton A., Shriver J., & Wei E., 2014). Agriculture remains the best opportunity for the

estimated 1.5 to 2 billion people living in smallholder households to escape poverty (Ferris S., Robbins

P., Best R., Seville D., Buxton A., Shriver J., & Wei E., 2014). In developing countries a

significantnumber of the working population residein rural areas and depend on agriculture fortheir

livelihood (Sharma V. P., Jain D., & De S., 2012). Today, agricultural developmentis seen not just as a

vehicle for supportingindustrialization, but also as a modeof inclusive growth, pro-poor

economicdevelopment, food security andenvironmental sustainability [ibid]. However, Farmers face

several marketing constraints these include infrastructure: lack of physical infrastructure reflected in

inaccessible roads, lack of market facilities, power and electricity. Inputs: lack of and/or access to

quality seeds and other inputs including production andtrading capital. Post-harvest losses: High levels

of post-harvest losses. Assembly cost: lack of economies of scale leading to high cost of assembly.

Quality of produce: high levels of crops rejected at both farm level and at company warehouses

because products did not meet market standards. In some cases, farmers were not compensated for

rejected products. Risk: high levels of price and market uncertainty. Market information: unreliable

information on market trends or scheduling of production decisions to meet market needs. Farmers and

other market intermediaries were not aware of important information on prices and marketing, grades

and standard information further up the marketing chain (Freeman H.A, & Silim S.S, undated). The cost

of acquiring information is high, rural assemblers face high opportunity costs, lack of alternative market

outlets and the cost of finding and/negotiating with alternative markets is too high, market

intermediaries misinform farmers, farmers and market intermediaries rely on their own funds to finance

production and trading activities, farmers lose cash due to high cost of enforcing contracts and

production and marketing are characterized by high levels of uncertainty [ibid]. The smallholder


14

agriculture sector remains unprofitable and is characterized bylow uptake of improved farm inputs,

weak linksto markets, high transport costs, few farmerorganizations, poor quality control and lackof

information on markets and prices (Chirawa E, & Matita M., 2012). Farmers sell early part of

theirmaize but a greater proportion of maize is soldin the beginning of the marketing season making

households vulnerable to the effects ofchanges in food prices especially where realizedharvests were not

sufficient to meet householdrequirements [ibid]. The income gained from farm production mainly goes

to household consumption since the main target of thehouseholds is ensuring food sufficiency and

security (Balcha Y., 2013). Studies show that income growth generated by agriculture is up to four times

more effective in reducing poverty than growth in other sectors (Ferris S., Robbins P., Best R., Seville

D., Buxton A., Shriver J., & Wei E., 2014).Moving from push (selling what you grow) to pull (selling

what the consumer demands) however requires significant supply chain coordination [ibid].Statistically,

50% of smallholders will not be able to link to a commercial market [ibid]. Therefore, it is important to

keep in mind that the challenge is not merely of creating linkages to lucrative markets, but also of

adequately assessing smallholder conditions, including their market options and methods of optimizing

their market performance—all while ensuring thatthat these options are manageable for the

smallholders[ibid]. According to analysis from several market-focused teams, most smallholder farmers

in areas such as Sub-Saharan Africa rarely have enough surpluses to sell in the marketplace because of

limited land size and poor access to technologies that can improve productivity [ibid].

Use of modern technology is seen as the key to achieving the ―African Green Revolution‖ dream

for the continent. With the key to food security being in the hands of smallholder farmers, use of

modern technology has to be affordable to the majority who remain poor and vulnerable to changes in

the output and input markets. Governments in Africa have been implementing Farm Input Subsidy

Programmes (FISP) on and off from the early 1980s with mixed results in various countries. The case of

Malawi is cited as one of the most successful case studies of the use of ―smart‖ subsidies for increased

productivity and production. Malawi has however met certain challenges in its implementation that call

for closer analysis and understanding, key question being the sustainability of FISP programs and

linking farmers to more sustainable support systems after achieving increased production. This study

therefore seeks to examine the effects of ―smart‖ fertilizersubsidies and their effects on the farmer and

their relationship with the output market and whether these subsidies can create a sustainable

environment for smallholder farmers to thrive.

1.7 Conceptual Framework

The relational and causal aspects of the study will be based on the assumption that fertilizer

subsidies are a significant reduction in the production costs of a farm and that they also enhance a

farmers decision to produce a surplus for consumption and marketing.

Households are assumed to maximize utility with respect to consumption ( ),

production ( ), input use ( ), sales ( ), and purchase ( ) of each good i=1,2…N. Goods


15

consumed include self-produced agricultural goods, market commodities and leisure goods. Agricultural

products ( ) use labor and other variable inputs and land ( ). Stands for market price, is

the endowment of good i, represents exogenous transfers and other incomes and and

correspond to household consumption and production characteristics respectively.

The cash constraint states that all purchases of the household must be

less than or equal to sales and other exogenous income ( ) such as remittances. The resource balance

equation states that the consumed and sold quantity cannot exceed

production, endowment and purchased quantity of each good i. In the case of inputs , the resource

balance states that sales, input use and consumption cannot exceed endowment and purchase quantity of

each input i. corresponds to the production function that relates all inputs and outputs.

Fertilizer subsidies affect the farmer‘s expenditure on inputs the study thus seeks to isolate the

effect of fertilizer subsidies on the cost of inputs and the resultant advantages it offers to the farmer in

terms of higher productivity, reduced operational costs and market participation in the maize value chain

This relational concept can best be illustrated by the framework below. This framework is the

authors own development.

Figure 1-2 Conceptual Framework of the NAAIAP Programme

Legend Voucher Redemption


16

Figure 1-3 Conceptual Framework for the study

1.8 Scope of the study

This study is based in Tana River County, Tana River district and it focuses on the maize farmers

who have received subsidy support in the NAAIAP programme. The study seeks to examine the

NAAIAP programme with the view of understanding its effects on the smallholder farmer and its

overall effects on the maize market.

1.9 Definition of Terms

“Smart” Subsidy

A subsidy is a form of assistance provided by the government to a subset of the public that lowers

the cost of producing a good or the price that a consumer pays for a good. Federal Reserve Bank of

Boston (2011). Minde and Ndlovu (2007b) describe "smart" subsidies as those involving; Specific

targeting to farmers who would not otherwise use purchased inputs (or to areas where added fertilizer

can contribute most to yield improvement); Measureable impacts, Achievable goals, Result oriented,

Timely duration of implementation i.e. being time-bound or having a feasible exit strategy.

Smallholder farmers

Small-holder farmers are defined as those marginal and sub marginal farm households that own

or/and cultivate less than 2.0 hectare of land, they constitute about 78 per cent of the country‘s farmers.

These small holders owned only 33 percent of the total cultivated land; their contribution to national

grain production was nonetheless 41percent. In addition their contribution to household food security


17

and poverty alleviation is disproportionately high and is increasing. Moreover, as the national

population increases, so does the number of small holdings Singh et al.,(2002).

1.10 Limitations to the study

The NAAIAP programme is implemented in 104 districts across the country. This study focuses

only on one of the NAAIAP Counties and is further narrowed down to three sites (villages) within the

county. The study was also not able to exhaustively cover all the farmers who had benefited from this

programme due to limited time and resources.


18

Chapter 2 LITERATURE REVIEW

Farmers in developing countries generally face bigger risk than their counterparts in the

industrialized countries. Small holders, because of their low resource endowment, tend to be highly

vulnerable to production risks due to natural conditions and climatic shocks, as well as to the marketing

risks due to price fluctuation, opportunistic buying behavior etc. Bijman et al.,(2007). In order to better

understand what makes smallholder farmers "small" it is useful to consider the lens of poverty as the

key attribute of smallholder production. In turn, poverty can be defined as asset scarcity, in all of its

dimensions, including natural, physical, financial, human and social. In Kenya, for example, only 4% of

poor have access to credit through banks and another 3% through cooperatives Badiane et al., (1997).

Small-holder farmers are defined as those marginal and sub marginal farm households that own or/and

cultivate less than 2.0 hectare of land, they constitute about 78 per cent of the country‘s farmers. These

small holders ownonly 33 percent of the total cultivated land; their contribution to national grain

production was nonetheless 41per cent. In addition their contribution to household food security and

poverty alleviation is disproportionately high and is increasing. Moreover, as the national population

increases, so does the number of small holdings Singh et al.,(2002). Smallholder contribution to the

total value of agricultural output is significant in many countries of Asia. Small farmers are

characterized by smaller application of capital but higher use of labor and other family owned inputs,

and a generally higher index of cropping intensity and diversification Thapa G, (2010). Small holder

families constitute more than half of the national population [..] these small holder families nonetheless

constitute more than half of the nation‘s totals of hungry and poor Singh et al.,(2002). Despite their

constrained resources and their greater vulnerability to diverse happenings, the smallholding farmers

use farm inputs to a proportionately greater extent than the large holding farmers Singh et al.,(2002).

Smallholder farming is important in terms of poverty reduction, food security and wider rural

economic development in developing countries. Their importance derives from their prevalence, their

role in agricultural and economic development and the concentration of poverty in rural areas. Most

smallholders are vulnerable to economic and climatic shocks and spread their risk by diversifying their

sources of livelihood, often including significant off-farm income generating activities. Investments in

alternative crops and entering new markets that may provide them with better prospects can be

extremely difficult due to the need for economies of scale. Many countries have agricultural and poverty

reduction strategies that explicitly support the inclusion of smallholders in markets KENFAP, (2011).

The agriculture sector contributes 26% directly to gross domestic product (GDP) and 27% indirectly

through linkages with service and manufacturing sectors. The sector contributes 65% of export earnings

in the country. The smallholders' farmers in Kenya account for 75% of the agricultural output and 70%

of marketed agricultural produce. Lack of finance or appropriately packaged financial services pose

great challenge to smallholder agricultural productivity in Kenya [making] it difficult for farmers to

procure inputs needed to increase farm productivity KENFAP, (2011).Little progress can probably be


19

achieved in small holder farming in Africa without addressing the problems associated with soil and

land degradation. About 55% of Africa‘s land area is unsuitable for agriculture. Only 11% of the

continent, spread over many countries, has high quality soil that can be effectively managed to sustain

more than double its current population. Most of the remaining arable land is of medium or low

potential with at least one major constraint for agriculture. This land is at high risk of degradation under

low input system Jama et al., (2008).

2.1 Fertilizer Subsidies and Input Use

Fertilizer contributes to increase crop production in several ways. First, by replenishing nutrients [..]

Second, fertilizer enables adoption of high-yielding varieties (HYVs) [..] Third, in the nutrient-poor

soils of the tropics, fertilizer use can increase both crop yields and biomass (IFPRI). Studying the logic

of the food tightrope problem leads to the identification of the following approaches in dealing with it -

reducing farmers input costs through input subsidies. In the short run, however, the food price tightrope

can be a major constraint to development in poor rural economies. Governments have tried to address

this through different combinations of input subsidies, output price subsidies for farmers and for

consumers, and social protection to raise the incomes of the poor Dorward et al.,. With the partial or

complete removal of explicit subsidies to smallholders, hybrid maize seed purchases and fertilizer use

declined in the early 1990s in this region and population growth has outpaced grain production growth

in most of eastern and southern Africa Eleni. G. (2009). The use of inorganic fertilizers is one way to

improve crop yields in developing countries outside those in Africa. The use of fertilizer accounted for a

50-75% increase in crop yields from the mid - 1960. Unfortunately, in Africa only a small proportion of

farmers use fertilizers and the amounts used are often inadequate. On average each hectare receives less

than 9kg of nitrogen and 6kg of phosphorus. Typical crop requirements per hectare are at least 60kg of

nitrogen and 30kg of phosphorus. Chemical fertilizer use per hectare of farmland in Africa is about 10%

of the world‘s average, by far the lowest. Fertilizer use is low largely because of its high cost and it

contributes significantly to the unprofitable nature of smallholder farming that is often seen in much of

Africa. Few subsistence farmers can afford to use fertilizers, which in many parts of Africa can cost

nearly four times as much as they do in North America or Europe Jama B. and Pizarro G. (2008). SSA

displays a combination of high soil nutrient deficits and very low fertilizer use (3% globally; 7kg/ha

compared to 150kg/ha in Asia) that comes from a set of failures on input and output markets. On the

demand side, poor price incentives, high seasonal and variable production due to increasing rainfall

variability, lack of liquidity, credit or insurance and lack of knowledge about fertilizer undermine

farmers capacity to adopt the technology or to reap the benefits of its use[..]on the supply side. They

have also had negative impacts on the development of the private sector and on competition, when

distribution schemes and procurement procedure did not encourage them; they have become highly

politicized, too costly and as such unsustainable in the long run. Druilhe Z et al., (2012). Since 1980,

fertilizer consumption in Africa has increased only 0.64%, even though the population grew by 75%.


20

Because of low use of inputs, yield increase with improved crop varieties is estimated at 88% in Asia

but only 28% in Africa. Jama B. and Pizarro G. (2008).It is worth mentioning that African smallholder

farmers use too little fertilizer because they lack information on how to use fertilizer effectively and

profitably, because they are risk averse in the face of uncertain rainfall, or because they lack the cash to

pay for it because of low income and poorly functioning credit markets Minot N. et al., (2009).

The causes [of low fertilizer use] range from lack of credit, long distance between farmers and the

nearest fertilizer retailer, weak market infrastructure, and lack of government support Ariga et al., Duflo

et al., (2009) in a study on nudging farmers to use fertilizers in Kenya found out that small time-limited

reductions in the cost of purchasing fertilizer at the time of harvest induce substantial increases in

fertilizer use, as much as considerable larger price cuts later in the season. Gurara and Oslami (2012) In

a similar study in Malawi found that in the absence of the fertilizer input subsidy program, fertilizer

intake is expected to fall significantly. A study by Holden and Lunduka (2010) based on household

survey data shows that only about 20% of households are willing to buy a full package at the market

price (Mk 9000) in June -July 2009 while close to 90% are willing to buy it at subsidized price (Mk

1000).Many farmers in Kenya do not use fertilizer (95%), citing lack of financing as a constraint;

however with government and NGO projects, fertilizer use is seen to be increasing steadily Awuor, T.M.

(2003).The poverty and human development report of 2007(R&AWG (2007)) showed that 87% of

Tanzanian farmers interviewed by the research and analysis group [failed to use fertilizers] due to the

high costs of agricultural inputs and services Msuya E.E. et al., (2008). Widespread use of fertilizer on

maize by smallholder farmers is constrained by problems of profitability and affordability Dorward and

Chirwa(2011). Jayne et al., (2003) also found out that there are opportunities to reduce domestic

marketing costs through [..] reducing port fees, coordinating the timing of fertilizer clearance from the

port with up-country transport, reducing transport cost through the port, rail, and road improvements,

reducing high fuel taxes, and reducing the uncertainty associated with government distribution

programs that impose additional marketing costs on traders. Estimated reductions in farm-gate price of

fertilizer [...] range from 11to 18%.

Studies have found out that the maize price has the expected positive and significant effect on

adoption and intensity of use of fertilizer. A 1% increase in maize price increases the probability of

fertilizer adoption by 5% and fertilizer use among adopters by 1.04%. A.D Alene et al., (2008)

Government‘s policy environment and public investment in support of input market development

[...] have been successful in rationing fertilizer use and productivity of smallholder maize production

Ariga J. et al., (2010). In many countries, the withdrawal of state input delivery systems has led to

reduction in fertilizer use as commercial distribution systems compete with subsidized government

programs Ariga et al.,.

Studies on factors driving the increase in fertilizer use by smallholder farmers in Kenya find out

that liberalization of input and maize markets and public investment in support of smallholder

agriculture, leading to rapid private - sector investment in fertilizer retailing and maize marketing,

which in turn has increased farmers‘ use of fertilizer on maize, geographic differences in


21

agro-ecological potential are also fundamental factors influencing whether farmers use fertilizer or not.

Fertilizer price levels, household resource endowments, and education also influence producers‘

decisions on fertilizer use Ariga J. et al., (2010), female-headed households used fertilizer more

intensively than male headed households in Tanzania Winter-Nelson And Temu(2005). Modern variety

adoption has a positive and significant impact on the intensity of fertilizer use, variety adopters using

12% more fertilizer per ha than non-adopters. The probability of adoption of fertilizer tends to decrease

with access to land per capita and the intensity of fertilizer use decreases even significantly with land

per capita with a 1% increase in land per capita reducing fertilizer use among adopters by 0.3% .

Distance to the fertilizer market has a negative and significant impact on adoption. Since fertilizer

markets are more distant than output markets, there is considerable potential to increase fertilizer use

through improved input distribution system A.D Aleneet al., (2008)

Fertilizer subsidies can decrease the many risks that resource poor farmers have and therefore can

play an important role in increasing their food production Jama B. and Pizarro G. (2008). Input subsidies

can rapidly address or help with many, but not all of the supply and demand problems. They most

immediately and importantly increase profitability of on-farm use and, if sufficiently large, can bring

down the price sufficiently to also address the affordability problem( Dorward et al.,.)

2.2 “Smart” Subsidies

A subsidy is a form of assistance provided by the government to a subset of the public that lowers

the cost of producing a good or the price that a consumer pays for a good. Federal Reserve Bank of

Boston, (2011). Smart subsidies are mechanisms to provide subsidized goods and services designed

both to promote market development and to enhance the welfare of the poor. Below–market-cost

provision of goods and services, generally by private-sector suppliers, from which the poor in particular

are likely to benefit Minot N. et al., (2009). Minde and Ndlovu (2007b) describe "smart" subsidies as

those involving; Specific targeting to farmers who would not otherwise use purchased inputs (or to areas

where added fertilizer can contribute most to yield improvement); Measureable impacts Achievable

goals Result oriented Timely duration of implementation i.e. being time-bound or having a feasible exit

strategy. Minot N. et al., (2009) proposes that governments can avoid the mistakes of the past by

implementing "smart subsidies" which are [implemented through input vouchers] designed to target the

poor and to support, rather than undercut, the development of private input distribution markets.

2.2.1 Design of “Smart” Subsidy Programmes

Well-designed subsidies have the potential to bring about a more equitable distribution of

economic well-being than that generated by an unfettered free-market economy. Subsidies may

simultaneously generate a more just distribution of economic well-being while also promoting efficient

operation of the market economy. Federal Reserve Bank of Boston (2011). A common approach to

designing smart subsidies for fertilizer use involves input vouchers. The idea is simple. Farmers are


22

given vouchers that they can take to local, often small scale, private input suppliers to acquire fertilizer

(or seed or pesticides). The cost of the fertilizer for the farmer is reduced by the value of the voucher.

The supplier having provided fertilizer to the farmer in exchange for the voucher and any additional

cash cost beyond the value of the voucher, takes the voucher to a bank or other designated agency and is

reimbursed for its value, plus a handling fee Minot N. et al., (2009).Voucher programs provide an

opportunity to train farmers and input suppliers on efficient and profitable fertilizer use. Under this

system, farmers are given vouchers that let them acquire fertilizer cheaper from private input suppliers.

Thus a, voucher is an income transfer, which can promote investment. The vouchers are also a way to

guarantee a demand for fertilizer which in turn ensures a reliable fertilizer supply Minot and

Benson ,(2009)

IFPRI found out that it appears that one of the benefits of the voucher program was that it

developed links between rural farmers and input suppliers. Liverpool-Tasie S.L (IFPRI), (2012).

Voucher or coupon system can be an effective way of rationing and targeting subsidy access to

maximize incremental production and economic and social gains, with opportunities for innovative

public/private partnerships to develop input supply and demand systems-but there are many practical

and political challenges in programme design and implementation to increase efficiency, control costs

and limit patronage and fraud Doward et al., (2008). Policy interventions are thus needed to encourage

smallholder farmers to increase the yield of their traditional crops, as well as modern varieties, and

fertilizer subsidies in the form of vouchers and the most direct policy tool that planners have at their

disposal. Jama B. and Pizarro G, (2008).

Input subsidies are not a quick fix for dealing with high food and fertilizer prices, their design and

sustainable implementation must promote smallholders incremental access to and productive use of

inputs, build sustainable demand and private sector supply, and be integrated with other policies for

increasing agricultural productivity, rural development and management of incremental production to

provide rural people with reliable improvements in food access and real incomes Doward et al., (2008).

Druilhe Z et al., (2012) indicates that available evidence, albeit very limited, suggests that such

programmes have been effective in raising fertilizer use, average yields and agricultural production but

that their success is highly dependent on implementation. Market-smart subsidies can provide rapid

gains coupled with good rains, monitoring, learning and adjustments should be made for long run

sustainability especially in terms of better targeting and involvement of the private sector. Subsidies

should also be embedded as part of the wider agricultural development strategy. If fertilizer subsidies

are a cost - effective way of assisting the rural poor, they can be justified on equity grounds. If they help

farmers offset these constraints and reach optimal application rates such that the additional farm income

exceeds the cost of the subsidy program then they can be justified on efficiency grounds Minot N. et al.,

(2009).

Druilhe Z et al., (2012) Conclude that policy makers should adopt clear and non - contradictory

objectives that are aligned with their national food security objectives,[to] develop targeted packages for

a variety of agro-ecologic contexts and farming systems and combine these with complementary


23

services to raise farmers demand. Procurement and distribution of subsidized fertilizers should enhance

and not inhibit input market development. Fertilizer subsidies design needs to be improved to raise their

efficiency and allow tacking other dimensions of food insecurity Druilhe Z et al.,(2012). In the case of

Kenya initially the government used agro-vets to distribute the NAAIP fertilizer through the voucher

system but the agro-vets later withdrew from the programme since the government took too long to

honor these vouchers. Farmers also found the procedure put in place for acquiring these subsidies very

long, hectic and bureaucratic, yet open to abuse. The subsidies were poorly distributed, with some

regions receiving the inputs belatedly, forcing poor farmers to sell to large scale farmers who had the

money and capacity to store till the next season. Owuor B.,(2010)

It is important to note that subsidies will impact input and output markets and interact with trade

policies, and yielding positive outcomes is not given. When inputs and output markets do not work,

there might nonetheless be a case for subsidies, and this might well be the situation in SSA Druilhe Z et

al., (2012).

2.3 Maize Value Chain and Fertilizer Subsidies

Fertilizer subsidies can be an instrument to increase productivity in SSA Druilhe Z et al., 2012.

When it comes to smallholder subsistence farming, maize receives the bulk of fertilizers Crawford et al.,

(2006). There is a statistically significant relationship between adoption of improved maize production

practices and maize yields Olubandwa et al., (2010). Results show that the overall mean technical

efficiency is estimated at 49 percent [..] there is a 51 percent scope for increasing maize production

using the present technology. One percent increase in fertilizer is estimated to increase yield by 0.17

percent Kibaara, (2005). In many countries, especially those where fertilizer supplies were not

constrained, fertilizer subsidies have promoted rapid growth in fertilizer use and food production [..] the

most successful examples are China, India, Indonesia, Mexico, Nigeria, Saudi Arabia, Turkey and

Venezuela.[..] in those countries, especially in Sub-Saharan Africa, where fertilizer use levels are low

and nutrient mining is contributing to environmental damage through soil degradation and deforestation,

as strong case can be made for fertilizer subsidies especially P2O5 fertilizer, to restore and sustain soil

fertility Bumb et al., IFPRI(1996). Increasing fertilizer uptake is an important component in raising crop

yields on the continent- on average, farmers in sub-Saharan Africa use about 13kilograms(kg) of

fertilizer nutrients per hectare (ha) of arable land compared with the developing country average of

94kg/ha Minot N. et al.,(2009).

Msuya E.E. et al.,(2008) in a study to explains productivity variation among smallholder maize

farmers in Tanzania shows that smallholder productivity is very low and highly variable, ranging from

0.01t/ha to 6.77t/ha averaging 1.19t/ha. Technical efficiencies of smallholder maize farmers range from

0.011 to 0.910 with a mean of 0.606. Low levels of education, lack of extension services, limited capital,

land fragmentation, and unavailability and high input prices are found to have negative effect on

technical efficiency.


24

Fertilizer subsidies in sub-Saharan Africa are intended to increase agricultural production and

ensure development of the fertilizer market. It is a paradox that fertilizer adoption in sub Saharan Africa

is low, given the high rate of return with fertilizer use and the high levels of land degradation and

nutrient mining related to agricultural production Vondolia et al., (2012). Improving the profitability of

fertilizer use in maize production requires lower fertilizer prices， higher maize prices and/or efficiency

in fertilizer use Dorward et al.,(2011). Increased use of inorganic fertilizer and of hybrid and open

pollinated varieties (OPV) maize varieties is one important, widely recognized and, in principle,

relatively simple way of increasing maize productivity Dorward et al.,(2011). In one of the best moves

from the [Kenyan] government, agricultural subsidies were offered [in 2008] and farmers who benefited

felt a sigh of relief. Indeed the government subsidies in terms of agricultural inputs helped to boost food

security in most of the regions they were distributed in Owuor B., (2010). In Malawi the [FISP subsidy

program] has been successful in terms of increasing maize output and yield [..] Malawi started

registering surplus maize output to the tune of more than 1 million ton per annum since the

implementation of the program. Maize yield has doubled from 1.6ton/ha in 2000 to 2005 to 2.27 in

2009/10. Gurara et al.,(2012). The estimated benefit cost ratios [in Malawi] ranged from 0.76 to 1.36.

These estimates demonstrate that with good management the program can yield favorable economic

returns.

Maize is the most important food crop as well as a cash crop for many Kenyan Smallholders, and

modern input use has always been a critical policy issue for Kenya. Maize is grown on over 1.5million

ha, with a total average annual production of over 2.5millon metric tons. A.D Alene et al., (2008). Maize

consumption is estimated at 98kilograms per person per year, which translates to roughly 30 to 34

million bags (2.7 to 3.1 million metric tons) per year Nyoro et al.,. Adoption of improved maize

production practices among small scale farmers is essential for increased maize production and

consequently food security, poverty alleviation and growth in Kenya's economy. This is because small

scale farmers contribute to 70% of the maize produced in the country. The ability and willingness of

these farmers to adopt improved production practices may have been affected by the introduction of

agricultural reforms which stemmed from Structural Adjustment Programmes resulting in cut backs in

government expenditure. Adijah Olubandwa et al., (2010). Since maize will remain a crucial part of the

food security equation even while the agricultural economies of the region diversify, continued

investments in both maize research and market institutions, some of which must be public, are essential

Smale et al.,. (2003)

In studies focusing on technology adoption in Kenya current results show that 69% of respondents

have land less than 3acres and produce less than 10 bags of maize per acre way below the expected

average of 25 bags per acre. Results also show that in Lugari district where 56.7% adopted extension

packages yields realized were higher with 41.7% harvesting more than 20 bags of maize per acre. Most

of the farmers in Lugari district (91.7%) planted and (93.3%) top dressed their maize with fertilizer

Olubandwa et al., (2010).

The maize value chain provides Kenyans with their most critical staple food. On average Kenyans


25

consume 103kg/capita of maize annually and only 75% of this consumption is produced domestically.

While 25% of Kenyans domestic production is done on large scale commercial farms, there are also

approximately 2.1 million smallholder households producing maize. Maize contributes approximately

3% or USD 942M to Kenya's GDP annually A.D Alene et al., (2008). The proportion of households

selling maize increased from 35% of households in 1996/97 to 49% in 2006/07Nyoro et al.,. According

to a KARI survey in the early 1990s 41% of the small farmers nationwide sold maize. This figure was

as high as 69% in the 'highlands' area, and as low as 14-38% in the lowlands, dry mid-altitude, moist

mid-altitude, and dry transitional regions. Approximately 40% of maize produced in Kenya is marketed

A.D Alene et al., (2008).Most farmers sell their maize at farm-gate 73.1% Kirimi et al., (2010) High

potential maize zone - Trans Nzoia, Uasin Gishu, Nakuru, Bomet, and the upper elevation divisions of

Kakamega. In this region, roughly 70% of households sell maize; mean household sale are in the range

of 3 tons. According to the Tegemeo surveys, there are clear income differences between the groups of

small-scale households that sell vs buy maize. The households that are sellers of maize have annual per

capita incomes that are nearly double that of maize buying households (Ksh.. 30,396 vs Ksh.. 17,450).

The poorest 25 percent of rural households spend a larger proportion of their income on food (71%)

than the wealthiest 25% of households (59%) Nyoro et al.,. Maize purchases amounted to 28% of

annual household income for the poorest quartile of farmers. Consistent with the observation that many

farmers sell some maize right after harvest to satisfy their cash needs, maize price does not influence

market participation decisions. However, marketed supply increases with maize price, once participation

decisions are made A.D Alene et al., (2008).

The increased proportion of households selling maize may be partially due to a major rise in the

use fertilizer on maize over the 1997 to 2007 period, which has contributed to maize productivity gains;

54% of households used fertilizer on maize in 1997 compared to 70% in 2007Kirimi L, et al.,( 2011).

Given Kenyans preference for maize as a staple food and Kenya‘s high level of maize importation, this

figure could grow if the production and marketing system could be improved A.D Alene et al.,

(2008).The development of financial services for fertilizer use in maize production requires that maize

be profitable, that small holders have other sources of cash income to repay fertilizer [or/and input]

loans when they consume the majority of the maize that they produce and that very low cost systems are

used for loan disbursement and recovery Dorward et al.,(2011). Other studies have also established that

providing better access to markets is likely to induce smallholders to commercialize Azam et al., (2012).

Agricultural markets operate in dynamic environment which is greatly influences by supply and

demand forces. KENFAP (2011).Transformations in agri-food systems provide prospects for improving

livelihoods of many farmers through enhanced participation in commercial agriculture. Otieno et al.,

(2009). One of the [main] constraints to smallholder agriculture is investment in maize market

development are constrained by low traded volumes and thin markets (with large quantities of maize

produced in Malawi consumed within households and villages never reaching the market), so relatively

small changes in national production may lead to large changes in market supply and, with relatively

inelastic demand, high price variability. And this leads to government interventions in maize market.


26

Dorward et al.,(2011). Market access plays an essential role in assuring better income and welfare levels

for smallholder producers, and thus contributes to poverty alleviation. By raising incomes, markets

increase purchasing power, which creates demand for consumer goods and, thus, enhances welfare. In

addition, by creating demand for production inputs and investment goods, markets promote economic

growth Azam et al., (2012). Price signals are important factors in determining a farmer‘s decision to

participate in fertilizer markets, Ariga et al., using the Mundlak-Chamberlain device found out that it is

evident that households facing higher fertilizer prices have lower probability of participation, while

those facing higher maize output prices have higher probability of participation in fertilizer markets.

Omiti J. et al.,(2007)while studying the strategies to promote market oriented smallholder agriculture in

developing countries found out that at village level, market participation is hampered by poor quality

and high cost of inputs, high transaction costs, high market charges and unreliable market information.

Olwande J. et al.,（2012） in examining market participation among poor rural households in Kenya

found that any hope for the poor to participate in markets and make any meaningful gains from

agriculture lies in improving productivity of their land as well as improving their access to land.

Dorward et al.,(2009) mentions that subsidy impacts on production and consumption by many

households will not be fully reflected by changes in the quantities bought and sold in food markets, and

this may dampen market effects of subsidies when measured in absolute terms. However the significant

quantities of produce that are consumed within the farm households without reaching markets also

means that produce markets may be very thin, so that small changes in production can lead to very large

changes in market supply and demand, making markets very unstable. This can be important for

understanding the food market impacts of input subsidies. Olwande J. et al.,(2012). Limited ability to

produce surpluses for the market, as observed in the low volumes they produce and sell, implies low

levels of adoption of productivity enhancing inputs such as fertilizers and improved seed varieties.

Market infrastructure and institutional aspects of market access are crucial for improving opportunities

of smallholders for increased market participation and in addition to determining market orientation;

infrastructural and institutional conditions have a significant bearing on scale of small holder production.

Tung D.X & Costales A., (2007)

While there is a general agreement that improving market access and commercialization of

smallholders will help induce greater investment, productivity and income, there remains several

challenges in making progress, some of these challenges include identification of output markets and

types of commodities that can enable large numbers of smallholders to improve their incomes;

identification of which markets and commodities can provide significant opportunities for the poor and

identification of constraints to and interventions that are important for improving access to markets by

the poor Olwande J. et al.,(2012). It is also worth noting that price and amount of output are key

determinants of the percentage of farm produce that is sold Otieno et al.,(2009). Omiti J. et al.,(2007)

found out that there is a higher degree of commercialization in peri-urban villages compared to remote

rural villages. The proportion of farmers who participate in markets is lower than actual output sold, the

main market channels are brokers in peri-urban villages, and open air markets in rural areas.


27

Results show that conditional price elasticity of marketed supply is 3.91, implying that a 1%

increase in maize price increases maize supply by 3.91% among sellers. Bahta S., & Bauer S., (2012).

Studies by A.D Alene et al., (2008)in this area have also found similar results with conditional price

elasticity of marketed supply of 1.67, implying that a 1% increase in maize prices increases maize

supply by 1.67% among sellers.

The price of maize, arable land size, extension contracts, off farm income and road condition to the

nearest town positively increased the amount of sales in crop markets. Consistent with the observation

that many farmers sell some food crops right after harvest to satisfy their cash needs, maize price does

not influence crop market participation decisions. However, marketed supply increases with maize price,

once participation decisions are made. Bahta S.et al.,., (2012).

Agricultural input credit was found to have a positive and significant effect on participation, with

credit worthy farmers having 19% greater likelihood of market participation. While maize supply

declines with distance to the maize market, both maize market participation and supply decline with

distance to the fertilizer market. Farmers located far from the maize markets supply 62% less maize and

farmers far from the fertilizer markets supply 73% less maize than farmers living closer to these markets.

This confirms that fertilizer markets are less accessible and hence fertilizer use is too low to meet

production thresholds for market participation and to increase marketed supply. Group marketing has a

positive and significant impact on marketed supply. Maize participants belonging to maize marketing

groups supply 56% more maize than participants who do not belong to the group. The probability of

adoption of fertilizer decreases significantly with age [in addition] older farmers also have lower

likelihood of participation in output markets. A.D Alene et al., (2008)

Even when the policy and legal environment is supportive and enabling, farmers may still be

experiencing constraints in obtaining market access. The small size of their holdings, their limited

resource endowments, the high risks they face, and their lack of (market) information may hamper

access to and competitiveness in markets. The biggest challenge facing Kenya‘s maize sub sector is

therefore to continuously strive to raise productivity while reducing production and marketing cost.

[There is need to solve this challenge] by identifying certain practices and technology uses that

contribute to productivity growth, such findings would be important for extension and outreach

programs targeted to small farmers (Nyoro et al.).

Sub Saharan Africa‘s smallholders are positioned to be significant beneficiaries of the improving

opportunities in agricultural markets (Livingston G., Schonberger S., & Delaney S., 2011). The

theoretical efficiency advantages of smallholder production systems - in the absence of scale economies

for input and output markets - for most crops, particularly in countries with relatively high capital costs

relative to labour – are well known (Binswanger and Rosenzweig, 1986, Hazell et. al. 2007 cited in

(Livingston G., Schonberger S., & Delaney S., 2011). This theoretical Sub-Saharan Africa‘s women and

men smallholder farmers are poised to be a key driver of future economic growth and poverty reduction

if the challenges faced which translate into high levels of risk can be overcome [ibid]. Growing global

demand for agricultural products means, SSA‘s smallholders should be major beneficiaries of these


28

opportunities if they can increase their productivity through increased on-farm investments to

increasingly orientate their production towards farming as a business, and when appropriate to form

collective farmer organizations to facilitate this [ibid]. Africa needs an agricultural sector that is

commercially oriented and internationally competitive. The competitiveness of Africa‘s producers at the

farm level derives mainly from very low returns to labor (reflecting the absence of alternative

employment opportunities in rural areas) and limited use of purchased inputs (which results in

significant soil nutrient mining) (FAO &The World Bank, 2009). Agricultural productivity in Sub

Saharan Africa has also been stagnant because of low use of inputs that originates from low incomes

from agriculture, associated with inaccessible markets for farmers (IREN, 2008). By boosting the

productivity of smallholders, governments and donors can increase food production and rural

employment; reduce rural poverty through the commercialization of subsistence agriculture; and more

effectively empower women (Landesa, 2014). Increasingly, agricultural commercialization is seen as a

potential pathway out of poverty for these smallholder cultivators (Sharma V. P., Jain D., & De S., 2012).

Enhancing productivity and commercialization among smallholder farmers is widely perceived as a key

strategy for rural development, poverty reduction, and food security in Sub-Saharan Africa (World Bank,

2008 cited in Abate G. T., Francesconi G. N. & Getnet K., 2013). For productivity gains to be achieved,

smallholder farmers need to have better access to technology and improve their technical efficiency

(Abate G. T., Francesconi G. N. & Getnet K., 2013). The research evidence shows that access to markets

have a positive impact in agricultural transformation, since commercial farming system has a market

oriented production objective (Balcha Y., 2013).

In Kenya the agricultural sector plays a critical role in the economy especially to millions of rural

populations that depend on small-scale agriculture for food and income (Kirui O.K, & Njiraini G.W.,

undated). The sector contributes to about 24 percent of the Gross Domestic Product (GDP) and supports

up to 70 per cent of population that engage directly in it (Kirui O.K, & Njiraini G.W., undated). Meeting

the challenges of eliminating food insecurity and improving rural incomes in Kenya will require

transformation and transition out of the semi-subsistence, low-input, low-productivity farming systems

that currently characterize much of rural Kenya [ibid].

Commercial transformation of subsistence agriculture is an indispensable pathway towards

economic growth and development for many agriculture dependent developing countries (Von Braun

1994 Pingali and Rosegrant, 1995; Timmer 1997 cited in (Goshu D. Kassa B. & Ketema M., 2012).

Agricultural commercialization may be defined as the proportion of agricultural production that is

marketed (Govereh J., Jayne T.S, &Nyoro J., 1999; Govereh et al, 1995). Sokoni (2007:3) defined

commercialization of smallholder production as ―a process involving the transformation from

production for household subsistence to production for the market (Abera G., 2009). Hazell et al.

(2007:4) found out that most definitions refer to agricultural commercialization as ―the degree of

participation in the output markets with the focus very much on cash incomes (Abera G., 2009). In most

literature, a farm household is assumed to be commercialized if it is producing a significant amount of

cash commodities, allocating a proportion of its resources to marketable commodities, or selling a


29

considerable proportion of its agricultural outputs (Immink and Alarcon, 1993; Strasberg et al. 1999

cited in (Demeke L.B, &Haji J., 2014). The commonly accepted concept of commercialization is,

therefore, that commercialized households are targeting markets in their production decisions, rather

than being related simply to the amount of product they would likely sell due to surplus production

(Pingali and Rosegrant 1995 cited in (Demeke L.B, &Haji J., 2014). The commercialization of

agriculture refers to the production of agricultural products to meet specific demands with the sale of

fresh or processed product to consumers or to manufacturers in the case of raw material for industries

(Demeke L.B, &Haji J., 2014). A broader definition of agriculture commercialization was provided by

Jayne (Jayne et al., 2011) in which they define small holder commercialization as the virtuous cycle in

which farmers intensify their use of productivity enhancing technologies on their farms, achieve greater

output per unit of land and labor expended, produce greater surpluses (or transition from deficit to

surplus producers), expand their participation in markets and ultimately raise their incomes and living

standards (Adong A, Muhumuza T, &Mbowa S, 2014). Commercialization of agriculture involves a

transition from subsistence-oriented to increasingly market-oriented patterns of production and input

use (Govereh J., Jayne T.S, & Nyoro J., 1999). According to Penny (1969) commercialization is the

process whereby a subsistence farmer and his farm firm become increasingly involved with both the

product market and the factor market (Coward E.W Jr, 1969). Agricultural commercialization also

includes the supply, to farmers, of inputs for production (Demeke L.B, &Haji J., 2014) citing Abbott,

1987). Pingali and Rosegrant (1995) define agricultural commercialization as extending beyond the

marketing of agricultural output to include the product choice and input use decisions that are based on

the principles of profit maximization (Adong A, Muhumuza T, &Mbowa S, 2014).

The benefits of small holder commercialization to farming households are usually accredited to

increased household incomes (Adong A, Muhumuza T, &Mbowa S, 2014). The first-order effects of

commercialization are mainly income and employment effects that are directly reflected in household

welfare (Jaleta M., Gebremedhin B., & Hoekstra D., 2009). Increased income generated through

increased agricultural productivity is invested in schooling and the development of non-farm rural

enterprises, creating important new opportunities for employment and higher incomes in rural areas

(Ideas Foundation, 2009). The second-order effects include health and nutrition aspects usually

contingent on the level of income attained through the existing level of commercialization (Jaleta M.,

Gebremedhin B., & Hoekstra D., 2009). Agricultural commercialization leads to a more specialized

pattern of production at the household level (ibid quoting Timmer, 1997). The third-order (or usually

known as higher order) effects are the macro-economic and environmental effects that go beyond

household level [ibid]. Smallholder commercialization also typically leads to an increased diversity of

marketed commodities at a national level and increased specialization at regional and farm level

(Pingali and Rosegrant 1995; Timmer 1997; Kurosaki 2003 cited in (Balcha Y., 2013). Commercializing

smallholder agriculture is an indispensable pathway towards economic growth and development for

most developing countries relying on the agricultural sector (von Braun 1995; Pingali and Rosegrant

1995; Timmer 1997cited (Jaleta M., Gebremedhin B., & Hoekstra D., 2009). Moreover,


30

commercialization has a linking power between input and output sides of a market (Jaleta M.,

Gebremedhin B., & Hoekstra D., 2009). When smallholders commercialize, developing countries with

large population shares in the agricultural sector can generate more income, thus economic growth

[ibid]. Increased income in the agricultural sector raises demand for manufactured goods and services in

the other sectors of the economy, thus stimulating further growth [ibid]. Moreover, possible linkage of

smallholder commercialization to the export market could enhance foreign currency earnings and

improve the balance of payments [ibid]. Commercialization may also increase employment, especially

when labour demanding high-value commodities are targeted [ibid].

Agricultural commercialization can broadly be looked at from two perspectives: a rise in the share

of marketed output; or of purchased inputs per unit of output [(Kirui O.K, & Njiraini G.W., undated). In

essence, agricultural commercialization can occur on the output side of production with increased

marketed surplus, or on the input side with increased use of purchased inputs (Kirui O.K, & Njiraini

G.W., undated). On the output side, commercialization is a measured as a ratio of the value of

agricultural sales to the value of agricultural production while it is measured as a ratio of the value of

inputs acquired from market to the value of agricultural production on the input side [ibid]. Technically,

agricultural commercialization entails a shift from subsistence production to a more complex

market-based production and consumption system that leads to the strengthening of the linkages

between input and output sides of a market (Kirui O.K, & Njiraini G.W., undated).

Agricultural commercialization usually takes a long transformation process from subsistence to

semi-commercial and then to a fully commercialized agriculture (Pingali and Rosegrant 1995 cited in

(Jaleta M., Gebremedhin B., & Hoekstra D., 2009). Commercialization can be viewed as bi-dimensional:

increased market production and increased use of purchased factors of production (Coward E.W Jr,

1969). The commonly accepted concept of commercialization is that commercialized households are

targeting markets in their production decisions, rather than being related simply to the amount of

product they would likely sell due to surplus production (Pingali and Rosegrant, 1995 cited in (Goshu D.

Kassa B. & Ketema M., 2012). The Food and Agriculture Organization (FAO) has categorized farmers

into three different groups based on the marketable surplus as a percentage of total production in the

following manner (FAO, 1989). 1) Subsistence farmers: Marketable surplus under 25% of the total

production. 2) Transition farmers: Marketable surplus ranging between 25-50% of total production. 3)

Commercial farmers: Marketable surplus more than 50% of the total production (Mahaliyanaarachchi

R.P, & Bandara R.M.A.S., 2006). The usual path of commercialization of smallholder agriculture starts

with growth in the marketable surplus of staples (Gebre-Ab N, undated). This could continue until it

becomes the dominant portion of the total output of the household, or, there could be a diversification of

the marketed portion into staples and other food crops [ibid]. Another route consists of combining

production of staples for own consumption with production of cash crop for the market [ibid]. Both,

these routes, or, any variant of them, are the processes that took place in Asia's economic development

[ibid]. A third, and an unusual path is the replacement of subsistence production by cash crop production;

a direct switch over from subsistence to market production [ibid]. Wharton (1963:48) refers to situations


31

of: subsistence, semi-subsistence, semi-commercial and commercial—as points on the degree of

commercialization continuum (Coward E.W Jr, 1969). Abercrombie (1961:1), following Yudelman,

also conceptualizes four stages. Beginning with pure subsistence production the following three stages

are described: There are still, however, many communities where, although some sales or barter

transactions take place, the production of a small surplus above subsistence requirements is largely

unintentional and the result of an occasional particularly favorable season (stage two) [ibid]. A third

stage in the transition from subsistence to market agriculture is where the regular production of a

marketable surplus is aimed at, but the main emphasis is still on subsistence production. In the final

stage, production for the market predominates over subsistence [ibid].

Agricultural marketing systems have changed and continue to change as a result of globalization

and liberalization as well as demographic factors, particularly urbanization (Onumah G., Davis J., Kleih

U.,&Proctor F., 2007). These changes have led to the emergence of new market players and created new

market opportunities but have also exposed producers to increased risks in terms of uncertain access to

markets, price instability and the risk of counterparty non-performance [ibid]. It is difficult for small

farmers to participate in commercial agriculture unless they find ways to improve their bargaining

power and reduce transaction costs (Sharma V. P., Jain D., & De S., 2012). Commercialization enhances

the links between the input and output sides of agricultural markets (Goshu D. Kassa B. & Ketema M.,

2012). A key premise of commercialization as a development strategy is that markets provide increased

incomes to households who are able to maximize the returns to land and labor through market

opportunities, using earned income for household consumption in ways that are more efficient than

subsistence production (Asuming-Brempong S, Anarfi J.K, Aurthur S. & Asante S., 2013).It is

evidenced that policy, technological, organizational and institutional interventions aimed at promoting

commercial transformation of subsistence agriculture should follow two-pronged approach; improving

market orientation of smallholders at production level, and facilitating market entry and participation of

household in output and input markets (Gebremedhin and Jaleta, 2010 cited in (Goshu D. Kassa B. &

Ketema M., 2012). The current reality shows that commercialization of smallholder farming is not yet

high enough to enable farmers benefit from increased income and the farmers are not yet out of the

subsistence-oriented agriculture.From the perspective of a smallholder farmer, commercial agriculture

involves high costs of modern inputs such as better seeds, fertilizers, irrigation and agrochemicals. In

the absence of input and credit markets, farmers find it difficult to purchase what they need (Sharma V.

P., Jain D., & De S., 2012). Output markets are under-developed and fragmented and have acute

shortages of post-harvest infrastructure, leading to high volatility in their prices and large losses [ibid].

Studies have shown that small holder farmers when supported can be key in agriculture

commercialization and most importantly the fruits of agriculture led growth are more widely shared

when small holder farmers participate (Pingali and Rosegrant, 1995; World Bank, 2009 cited in Adong

A, Muhumuza T, &Mbowa S, 2014).


32

Chapter 3 STATUS OF THE FERTILIZER AND MAIZE SECTORS IN KENYA

3.1 Status of The Fertilizer Sector In Kenya

Agricultural Policy concerns in Kenya revolve around the following key areas:

Increasing Smallholder productivity and income: Smallholders account for close to 80% of

Kenya‘s agricultural subsector and this has far reaching implications on productivity, production and

incomes of a great part of the population. Low productivity reflected in low yields is a major cause of

high per unit production costs for most smallholder farmers. A major cause of low productivity has

always been the lack of access to modern high productive technologies like seeds and fertilizers.

However on the other hand poor institutions, marketing bottlenecks and poor storage facilities have also

limited the urge for farmers to produce more.

Enhancing food security and equity and reducing extreme hunger: Food security in Kenya is

hampered by a myriad of factors however one of the key limiting factors to improved food security and

the attainment of equitable distribution of food in the country has been over – reliance on rain fed

agriculture. In areas where rain – fed agriculture is the primary determinant of production droughts and

floods have acted to prevent consistent production and in many cases have resulted in increase in the

number of the extremely hungry even in areas where production has been sufficient to achieve food

security. Less than 7% of agricultural land in Kenya is under irrigation and as much as 83% of the land

is either arid or semi – arid and classified as low potential areas. These low potential areas however are

a resource that can come under production given appropriate technological knowhow.

Intensification of smallholder production, Farming as business and commercialization:

Farming for business and linking farmers to markets is seen as one way of enhancing production and

intensification of smallholder technological advancement. Markets function as resource allocating

agents and thus provide capital resources to farmers through which agricultural development and

improvements can be initiated and sustained. Compared to other countries Kenya still has a narrow base

of products due to limited diversification and low value addition for agricultural exports. Weak vertical

and horizontal integrations have tended to make incomes from agricultural products vulnerable to

international market pricefluctuations and dynamic trends.

Kenya still has an opportunity to exploit opportunities that arise from agro processing, regional

markets and encouraging private – sector – led development. However addressing major constraints to

commercialization, investment and diversification which include ineffective extension and delivery

systems for research, limited financial support to the sector, lack of credit to small holder farmers,

limited production options, limitation in technology access and operation scale.

The performance of the Kenyan economy is closely tied to the performance of the agricultural

sector. In many cases the effects of external and internal shocks on the agricultural sector like droughts,

floods or disease and pest outbreaks has tended to negatively affect the overall economic performance


33

as is shown below (Figure 3-1).

Figure 3-1 Economic (GDP) and Agricultural (Value Added) growth 1960 - 2014

Source. World Bank (http://data.worldbank.org/

3.1.1 Fertilizer and Fertilizer subsidy Policy in Kenya

Evolution of agricultural Inputs policy in Kenya

The experience of Kenya shows how a stable policy environment can foster an impressive private

sector response that supports smallholder agricultural productivity and poverty alleviation (Minde et al.,

2008). The Kenyan Government over time has encouraged farmers to use fertilizers through creating

and sustaining a relatively stable policy environment, financing infrastructure and supporting fertilizer

markets. From 1974 to 1984 the government gave agricultural input marketing monopoly to Kenya

Farmers Association and credit provision was solely through the Agricultural Finance Corporation (AFC)

As a result, the Government had extensive controls over imports, pricing, and marketing o fertilizer

using policy instruments such as price subsidies, price control, licensing of importers and distributors

and import quotas (Gugerty and Cook 2009, Ariga and Jayne, Yamano and Arai, 2010). This monopoly

impeded market development by stifling competition. Widespread corruption and bureaucratic costs led

to a policy change in 1972 that saw the creation of another state agency Kenya National Trading

Corporation (KNTC), tasked with importing fertilizers for distribution by KFA (Ariga and Jayne). In the

later part of the 1980s the government begun allowing other firms to enter an albeit highly regulated

fertilizer market. Fertilizer traders were to abide by official prices and the state influenced competition

through strict trade licensing requirements and control of the allocation of scarce foreign exchange to


34

importers (Ariga and Jayne quoting Argwings-Kodhek, 1996). This period also saw the government

removing import quota restriction for example in January 1990 and abolishing licensing requirements

for fertilizer imports in 1992.

In 1993, the government fully liberalized the fertilizer marketing system by decontrolling prices

and decreasing the percentage of fertilizer provided by donor aid to only five percent of total supply

(Gugerty and Cook 2009, Minde et al., 2008, Ariga and Jayne) quoting Kimuyu (1994) Ariga and Jayne

also observe that Government price controls and import licensing quotas were ultimately eliminated,

and fertilizer donation by external donor agencies were phased out. Maize trading controls were relaxed

in early 1990s to allow private traders to transport a few bags across districts with permission from

government officials, a situation that led to rent seeking behavior and increased cost for business.

3.1.2 Major developments in the fertilizer sector

The early part of Kenya‘s input subsector in the 1970s and 1980s (Table 3-1) saw the formation of

state-run Kenya National Trading Corporation (KNTC) and Kenya Grain Growers Cooperative Union

(KGGCU) which became Kenya Farmers Association (KFA) working together and doubling as both

input and output service providers as well (Ariga and Jayne, 2009) the 1970s as a result of the conflict

of interest that existed in the operational structures of KFA, AFC, and NCPB with the introduction of

fertilizer subsidies a policy change was made in favor of introducing another agency Kenya National

Trading Corporation (KNTC) charged with importing fertilizer which then KFC would distribute to

farmers (Ariga and Jayne, 2009) a move aimed at increasing competitiveness of the sector and keeping

fertilizer prices low. The 1980s saw the government relax its monopoly allowing the private sector

compete with the public state agencies however private companies were still required to abide by

stringent licensing and official pricing requirements. From the late 1980s and early 1990s the state

began easing trade restrictions in fertilizer and maize markets.

Table 3-1 Evolution Of Maize And Fertilizer Market Policy Reforms Starting In 1988

State Marketing Agency Maize Market Policy Fertilizer Market Policy

1988 NCPB faces deficits and is

financially restructured, phased

closure of NCPB depots. NCPB

debts written – off; crop purchase

fund established but not

replenished.

1988. Cereal Sector Reform program envisaged widening of NCPB price margin.

In fact, margin narrows. Proportion of grain that millers are obliged to buy from NCPB declines. Limited unlicensed maize trade allowed. State sets all prices for grain and

flour.

Pre – 1990 KGGCU/KFA and KNTC main input agencies.

Mismanagement and deficits common. Heavy government control. Imports poorly coordinated leading to

surplus/deficits. Late 1980s saw controlled licensing of private trade but low pan – territorial

pricing. State agencies

financially weak.

Early 1990s NCPB narrows its

margins. Private trade finds it

unprofitable to reach remote areas.

1991. Local and international pressure for reforms builds up. Further relaxation of inter

– district trade.

1992. Kenya moves from one party politics

to multiparty state. Restrictions on maize

trade across districts re-imposed. NCPB unable to defend ceiling prices. In 1993 maize and maize meal prices deregulated.

Import tariff abolished. No subsidies to

1992 Foreign exchange regime

liberalized. Fertilizer import

restrictions relaxed. In 1993 fertilizer market liberalized. Private traders allowed to

import and distribute. State and


35

State Marketing Agency Maize Market Policy Fertilizer Market Policy

registered millers. donor imports declined dramatically. In 1994 custom

duty and VAT removed.

1995. Donor pressure leads to

NCPB being restricted to limited

buyer and seller of last resort role.

NCPB market share declines to 10 –

20% of marketed maize trade.

NCPB operations confined mainly

to high potential areas of western

Kenya.

1995. Full liberalization of internal maize and maize meal trade. Maize import tariff re-imposed to 30%. In 1996 export ban

imposed after poor harvest. In 1997 import

tariff imposed after poor harvest.

1996 Entry estimated of 12 major importers, 500 wholesalers, and roughly 5,000

retailers (Wanzala et al)

2000 onwards. NCPB provided with

funds to purchase a greater volume

of maize. NCPB’s share of total

maize trade rises to 25 – 35% of

total marketed maize.

1997 – 2005: external trade and tariff rate levels change frequently and become difficult to predict. NCPB producer prices normally set above import parity levels.

2005 onwards: the government withdraws the maize import tariff from maize entering Kenya from EAC member countries. An

official 2.75% duty is still assessed. Variable import duty still assessed on maize entering through Mombasa Port.

2008. High world food prices.

NCPB asked to sell subsidized grain

to millers who the n could lower

prices to consumers. Difficult for

state to enforce and monitor at

miller’s end due to unknown milling

costs. allegations of corruption

emerge.

2008 Post election violence.. African Center for Open Governance (AFRICOG)

estimated 3.5 million bags destroyed. NCPB imports began late 2008 from USA and

South Africa. Estimates 5 million bags arrive (AFRICOG).

2008 High World prices for fertilizer exacerbate food crisis

from election violence. Prices more than double. Petrol and

transport costs also go up.

2009. Briefcase firms and NCPB

employees took advantage of crisis

and subsidy arrangements to favor

some firms for kickbacks.

Weaknesses in disaster

preparedness institutions and food

policy are revealed. NCPB top

management and some MOA

officials sent home due to

corruption during the crisis.

2009. Imports continue but maize production better than expected. Claims of monopoly at port (Grain handling; one large

grain handler – Grain Bulk Handlers Limited (GBHL)) and milling but not substantiated (AFRICOG)

2009. NCPB imports state subsidized fertilizer to aid in recovery from post-election

violence. Distributed through private trader networks.

2010. NCPB allocated funds to buy

maize from short rains in Eastern

Kenya.

2010. Short rains season does very well but

farmers claim poor prices from private traders.

2010 stat imports over 30,000

tonnes of fertilizer and distributed to vulnerable farmers. Distribution done through NGOs.

Source. Adapted from Ariga and Jayne 2009.

Kenya‘s fertilizer market was liberalized during the early 1990s which saw the elimination of price and

market controls, import permits and quotas and licensing requirements. This reforms coupled with the

freeing of the foreign exchange regime in 1992, led to increased entry and investment of private sector

participation in the markets resulting in growth in fertilizer use from less than 200,000mt in 1990 to

over 450,000mt in 2009 (IFDC, 2012; Ariga and Jayne, 2009) this upsurge in fertilizer use was partly a

result of the government maintaining a stable fertilizer policy, foreign exchange controls and not

interjecting market uncertainties through large – scale subsidy programs until 2007 this stability led to

increased private investment in fertilizer distribution (10 importers, 500 wholesalers and over 6,000

retailers) (IFDC, 2012)


36

3.1.3 Evolution of maize marketing in Kenya

Before liberalization

This period was mainly marked by state control of production and marketing through marketing

boards. The government set producer and mill prices with pan – territorial and pan – seasonal prices

adjusted once per year at the beginning of the marketing season. The governments marketing agent,

National Cereals and Produce Board, held a long standing monopoly on internal and external grain trade.

Informal, private and trade across district boundaries and cross – border trade was illegal and highly

regulated by the government. Traders were required to obtain permits for specific movement and

transportation of grain across district boundaries.

During the Liberalization period (1987/88)

The cereal sector reforms which begun with the introduction of the structural adjustment

programmes in 1987. These reforms saw the introduction of market reforms, legalization of cross border

maize trade with limitations on the quantity of maize permissible across districts being raised gradually.

This period also saw a reduction in the oversight role of NCPB in the maize sector. The Liberalization

process that begun in the late 1980s was only complete in 1993 with the elimination of movement and

price controls on maize trading, deregulation of maize and maize meal prices, elimination of direct

subsidies on maize sold to registered millers, NCPB becoming buyer and seller of last resort,

introduction and acceleration of private sector participation, government intervention through

imposition of variable import tariff and financing of NCPB operations to facilitate the governments

price stabilization policy through domestic purchasing of maize at support prices and maintaining

strategic grain reserve stocks.

The goal of liberalization was to streamline the role of government in the market sector while

offloading some of the critical roles to the private sector. This policy has had major effects on the maize

industry over the past 20 years. The expectation was to raise competition by encouraging more private

sector participation in the market and thereby reducing marketing cost along the maize value chain.

However over the years and depending on how the liberalization process was implemented risks and

costs in private investments have increased and in many cases the expectation that the private sector

would take up certain roles initiallyundertaken by the government did not happen.

After liberalization

In the period following liberalization of the maize subsector changes occasioned by the change in

operations have created mixed results. There appears to have evolved a very competitive, processing,

wholesaling, and retailing actors with large – scale milling sector emerging as outright winners albeit

retaining their concentration in major regions.

A complex marketing chain has also supplanted the basic marketing chain that existed prior to

liberalization. Karanja et al., posits that on average maize market reforms led to decrease in maize prices

and subsequent negative effect on input use and maize productivity. This impact on productivity is much

lower in lowlands that in highlands because the effect of price is transmitted mainly through the effect


37

on fertilizer use and the lowlands are relatively low users of fertilizers (Karanja et al.,).

Table 3-2 Summary Of Key Policy Issues In The Fertilizer Markets

Policy Description Effect

Regulation Fertilizer Bill drafted but not enacted. Kenya

Bureau of Standards (KEBS) to regulate quality

at all levels in the chain Regional

harmonization.

Weak quality control at retail and capacity of

KEBS limited, selling from open bags, some

underweight bags and mislabeling.

Subsidy.

Smart versus

distribution by

the state

Combination of smart (50% price at private

agro – dealer) and subsidized fertilizers

distributed directly to all farmers by Gok

(Emergency)

GoK imports are ad – hock and disruptive to

private sector sales. Late delivery to farmers.

Farmers in remote areas not accessed by limited

GoK retail Stores/depots.

Macroeconomic.

Exchange rate

and monetary

policy

Free Foreign Exchange regime since 1993. In

2011 to early 20102 increased devaluation of

currency against dollar.

Imports more expensive (fertilizer). However,

world prices transmitted well to local markets.

More difficult for smaller importers to access

foreign currency (large amounts and lack of

international links)

Trade.

Tarifs on imports

and/or exports.

Non-Tariff

Barriers (NTBs)

No. Tariffs on fertilizer. However, port costs are

high and there is a reimbursable value – added

tax (VAT) on services and transport. NTBs exist

across borders.

Recovery time of VAT on services significant

for importers (Hidden cost)

Price and market

controls

No price fixation by GoK. However, GoK tries

to influence price through pan – territorial price

subsidies. No restrictions on market entry.

Private sector is competitive. GoK direct

imports affect smaller players.

Credit/Finance Competitive banking sector. Collateral

requirements, GoK AGRA and Equity Bank

Created a risk – sharing partnership through

credit guarantee schemes.

Lower interest rates with credit guarantee.

General rates are high in market, and banks are

risk – averse to agriculture, limiting use of

credit by small – scale participants.

Extension and

training

Extension agents and farmers not well – versed

in different fertilizer technologies

Use less efficient fertilizer based on out – of –

date recommendations. Soil acidity increased

from overusing some N fertilizers in some areas

without liming. Low yields due to nutrient

imbalance and depletion.

Source. IFDC 2012

Inflation-adjusted prices, the margin between cost, insurance and freight (c.i.f) and wholesale fertilizer

prices in Nakuru, have been declining from 1990 to 2006 (Figure3-2) after which due to increases in

energy and raw material prices and growth in demand from emerging markets and the biofuel sector in

USA and Europe, global fertilizer prices increased rapidly in 2007 and skyrocketed in 2008.


38

Figure 3-2 Price of DAP in Mombasa and Nakuru (Constant 2007 KSh. per 50Kg bag)

Source. KNBS

3.1.4 Fertilizer demand and supply trends

Fertilizer supply for most African countries is driven by government policy, finance and

infrastructure while the demand has primarily been a function of the farmer‘s capacity to acquire

fertilizers, availability of water and farmers knowledge of fertilizer use (Minde et al., 2010)

Studies in this area have reported mixed result with countries like Benin recording insignificant

changes in fertilizer market structures, no improvements in access to and rising prices of fertilizer

leading in application rates lower than those recommended by extension agents (Kormawa et al., 2003)

their conclusions being that factors influencing fertilizer use comprised farm size, social capital,

frequency of extension contacts, and use of complementary inputs. The basic issue now remains

whether farmer demand alone can be expected to create sufficient fertilizer supply, or whether sufficient

supply is necessary to allow demand to be expressed in fertilizer purchases at the farm level (Larson and

Frisvold, 1996) however the authors agree that there is substantial evidence that the physical availability

of fertilizers to farmers, in the right quantities and at the right time of the year, remains a fundamental

constraint to increasing fertilizer use in Sub-Saharan Africa.


39

Figure 3-3 Fertilizer Consumption in Kg/Ha of arable land

Source. Authors compilation (Data from http://data.worldbank.org/)

Destabilizing factors prevalent in the fertilizer economy of most Sub – Saharan African countries

pose a major challenge to the development of the sector. First much of the sub – Saharan Africa suffers

from acute shortage of water and rain fed agriculture is not reliable. Second with variations in

production systems and agronomic environments synchronizing productivity to maximize output still

remains a challenge. Third although fertilizer prices may be well transmitted to regional markets price

variations remain due to frequent changes in the world market. Fourth, with infrastructure in many

developing African countries dilapidated, cost of fertilizer tends to rise from the port of entry increasing

distribution costs, reducing profitability and affordability.

Market access has also been found to increase a farmer‘s demand (Njehia, 1994) and there are

opportunities to reduce domestic marketing costs through reducing port fees, transport inconveniences,

road infrastructure limitations, high fuel taxes and uncertainties in the government input distribution

programs that impose additional marketing costs on traders (Jayne et al., 2003) the authors using the

willingness to pay approach believe that price reductions of 11 to 18% which could be achieved from

these reductions if passed on to farmers would increase farmers effective demand.

3.1.5 Fertilizer production and consumption

An analysis of the production and demands within the fertilizer distribution value chain can best be

illustrated by the double value chain.


40

Figure 3-4 Fertilizer “Double”Value chain

Source. IFDC 2012

First the input value chain, which includes production trade and consumption by farmers and

Second the output value chain spanning crop production by farmers, transformation, marketing and

consumption. Kenya is not endowed with mineral resources for fertilizer manufacture. Like most SSA

Countries, Kenya depends on the international markets for its fertilizers as local production is limited.

Studies in various parts of the country and regionally have shown availability of rock phosphate, natural

gas and guano which could be used in the manufacture of fertilizers, the regional fertilizer market is not

sufficient to justify investments in production facilities, in part because exports of locally produced

fertilizers cannot compete with cheaper Arab Gulf products at current prices. There is some local

blending by Mea Ltd, and Athi River Mining Ltd, which formulate blends for various crops and soils

(IFDC, 2012).


41

Figure 3-5 Trends in Consumption, Commercial Imports and Donor Imports of Fertilizers in Kenya 1990/91 -

2010/11

Source. Ariga and Jayne.

Fertilizer consumption has seen an upward growing trend in the years prior to 2008(Figure3-5).

Panel survey data on 1451 small – scale households covering 22 districts indicate a 16 percent increase

in consumption between 1996 and 2000(Gugerty and Cook, 2009). This increase mainly comes from

top dressing fertilizer use in sugarcane and tea growing regions. Fertilizer use is spread across various

agro ecological zones (Table 3-3)and consumption rangesfrom as low as 10 percent in drier lowland

areas to over 90 percent in high potential maize growing zones of central and Rift valley zones. In terms

of consistency only 44% of the farmers across the various agro ecological zones have been found to use

fertilizers consistently. A greater proportion of farmers 56% are either non – consistent users or

consistent non – users.

Table 3-3 Distribution Of Fertilizer Use Consistency By Agro Ecological Zones

Zone Consistent Users Non - Consistent Users Consistent non - users Total

Coastal Lowlands 0.0 21.3 78.7 100

Eastern Lowlands 26.2 44.1 29.7 100

Western Lowlands 2.6 37.9 59.5 100

Western Transitional 56.1 38.5 5.4 100

High Potential Maize zone 82.1 15.6 2.3 100

Western Highlands 80.6 18.6 0.8 100

Central Highlands 95.0 5.0 0.0 100

Marginal Rain Shadow 8.1 64.9 27.0 100

Total 43.8 30.7 25.4 100

Source. Mary K. Mathenge

The consumption figures and trends (Figure3-10) for specific fertilizer types with Diammonium

Phosphate (DAP) indicating the highest albeit dropping levels of consumption over the years. DAP is

used on Maize, MAP on wheat, NPK 25:5:5 is used on tea, NPK 17:17:17 and MOP (Muriate of Potash)


42

on coffee, and special fertilizers are used on horticultural crops particularly in the flower industry.

Cereals production consumes the bulk of the 150,000 tones closely followed by horticulture, which

takes up 65,000 tons. Coffee and tea take up to 40,000 and 30,000 tons respectively, while the

remainder is taken up by other small crops.

Figure 3-6 Trends in the consumption of various Fertilizer products.

Source. IFDC 2012.

Trends in the Usage of various fertilizer products (Figure 3-10) indicates a rising trend from 2006/07

that peaks in 2008/09 and then drops and levels out in the successive years of 2009 to 2011. The main

increase in use has been as a result of increased use of NPK 17:17:17 and NPK 25:5:5:5.

Table 3-4 Fertilizer Usage By Smallholder Farmers

Percent of farming households not using inorganic fertilizer and reasons 1997 2007 2010

Did not use Fertilizer (% of hh) 36.6 24.1 30.5

Reasons for not using (% of hh)

Unaffordable 47.6 44.8 51.5

Unavailable 0.0 0.0 0.8

No Need to use 10.6 21.0 32.8

Uses organic fertilizer 21.3 24.7 11.9

Other Reasons 20.5 9.6 3

Total 100 100 100

Source. Lillian Kirimi

The greatest constraint to fertilizer use remains the affordability (Table 3-4) indicating that with

increased low cost and subsidized fertilizers the rate of technology adoption is expected to rise. The

import prices of fertilizer at the port of Mombasa are 45% to 55% of the farm gate fertilizer price,

internal costs for fertilizer however include transportation and handling, storage and interest charges for

financing the fertilizer purchases, and charges for transit losses, and bagging (Nyoro, 2002). Rising

gradually over the years is the figure of those who see no need to use any fertilizer. This could be


43

attributed to the lack of knowledge on fertilizer use causing misuse and in many instances poor

performance of crops. Kenya‘s fertilizer Consumption fairly matches imports， with donor support

dwindling over the years.

3.1.6 Drivers of Fertilizer Supply and Demand

Fertilizer demand is closely related to cereal production. Global production was 866 million tonnes

in 1961 and rose to 2.2billion tonnes in 2010. Similarly, global fertilizer use increased almost six fold

during the same period from 3.2mt in 1961 to 170Mt in 2011. In the next five years, global fertilizer

consumption is projected to increase at the rate of 2.5% to reach 188Mt of nutrients in 2015

(Prud‘homme, Heffer and Olegario IFA).

Farmers demand for fertilizer in the world is influenced largely by the farmer‘s capacity to invest

in fertilizer use, commodity and fertilizer prices, profitability of fertilizer use, crop yield response to

fertilizer and availability of complementary inputs. Other factors include continued world population

growth, increased income, and resulting diet diversification,biofuel development, limited immediately

available additional land, increased recycling of organic nutrient sources, and improved nutrient use

efficiency among others (Prud‘homme, Heffer and Olegario IFA, Minde et al., 2010) Positive price

elasticities of supply, higher prices induce greater production, which further stimulates demand for

purchased inputs, including labour (Nyoro, 2002). The value of input volume and price indices

agricultural inputs (Table 3-5) across the period from 2009 to 2013. Whereas the overall agricultural

price index rose from 193.3 in 2012 to 215.5 in 2013(Economic Survey, 2014) both the quantum and

price indices for fertilizer dropped marginally due to government interventions in the supply of the

commodity to farmers through its National Cereals and Produce Board (NCPB) and the NAAIAP

programme. This benefit in lower input prices of fertilizer and purchased seeds is however counter

balanced with increased power and fuel prices with quantum indices rising from 68.7 to 84.1 between

2012 and 2013.

Table 3-5 Agricultural Input Indices, 2009 - 2013

Index Input 2009 2010 2011 2012 2013

Quantum

indices

Fertilizer 162.5 205.8 198.6 106.0 114.5

Fuel and

Power

49.3 61.6 67.8 68.7 84.1

Purchased

Seed

118.4 166.1 191.9 120.2 118.7

Price Indices Fertilizer 204.8 198.1 255.5 259.8 250.5

Fuel and

Power

135.9 147.5 179.2 230.9 232.0

Purchased

Seed

88.4 90.6 102.2 100.8 116.4



44

The fertilizer industry is in the center of agricultural productivity and is continuously challenged

with supplying the farmers enough quality fertilizers at the right time and at affordable prices. Fertilizer

supply is mainly influenced by government policy, energy prices, environmental concerns, human

capital, finance, market information, regulation and infrastructure. (Prud‘homme, Heffer and Olegario

IFA, Minde et al., 2010). The (Table 3-6) below indicates the value of agricultural inputs purchased

across the period from 2009 to 2013. The global picture indicates that the value of agricultural inputs

increased by 12.7 per cent from Ksh.. 36.1 Billion in 2012 to Ksh.. 40.7 billion in 2013 (Economic

Survey, 2014). This indicates that the value of purchased fertilizers(Table 3-6) has gradually increased

over the years by 56 per cent from 5,680.1 in 2009 to 8,898.2 in 2013 and increase attributed mainly to

the success of the government led input supply and access programmes. It is noteworthy that purchased

seeds did not rise during the same period commensurate with the rise in fertilizer use over the years a

factor that could be attributed to use of local seeds and application of fertilizer to other permanent crops.

Similarly, the value of fuel and power rising at 25 per cent during the same period is an indication that

the cost of transport and irrigation for small scale famers continues to eat into the advantages of

increased fertilizer application.

Table 3-6 Value Of Purchased Agricultural Inputs, 2009 - 2013 (Ksh.. Millions)

Inputs 2009 2010 2011 2012 2013

Fertilizers 5,680.1 6021.9 9397.4 7737.6 8898.2

Agric. Chem 3941.0 4307.0 3362.1 4514.3 4477.8

Fuel & Power 9770.0 9818.3 10,213.1 10607.9 12204.7

Seeds 3182.1 4227.0 3337.9 3573.8 3704.2


In Kenya some of the factors that have contributed to growth in fertilizer use include; stable

fertilizer marketing policy, increased private sector participation through increased competition and

accruing benefits, availability of fertilizer closer to the rural areas through private sector investments in

dense distribution networks that have served to reduce the distances traveled to the nearest fertilizer

seller, institutional innovations in fertilizer and seed technologies such as starter packs, credit guarantees,

and trainings by AGMARK, credit voucher schemes, and mini sized packaging. On the demand side

increased use has been as a result of improved information access and flow through improved farmer

and extension contact, intensive training on technical information targeting farmers, stockiest and

extension agents, increased food prices and food requirements at the household level and better market

access for inputs.

Other key factors include availability, affordability, resource endowments, returns to use and

effective implementation of recommended rates of application. In high potential areas like Trans –

Nzoia, large scale maize production systems use about 39 percent more intermediate inputs (fertilizer

and agrochemicals) than the small – scale systems (Nyoro, 2002).


45

Figure 3-7 Fertilizer Supply Chains in Kenya.

Source. IFDC 2012

Fertilizer Supply chain S-1 (Figure3-7)is the most common, with most fertilizer distributed through

its system; it‘s the supply chain that the government uses to implement its targeted subsidy program

using vouchers, which are redeemed by recipients at private retail/agro – dealer stores across the country.

The implementation of this subsidy through private sector channels is meant to minimize negative

effects on private sector investments (IFDC 2012).

3.1.7 Fertilizer types and cost

Fertilizer products applied at planting include Diammonium phosphate (DAP), Monoammonium

phosphate (MAP) and NPKs (mainly 23:23:0 and 20:20:0), while calcium ammonium nitrate (CAN)

and Urea are typically used for top dressing (IFDC 2012).

Table 3-7 Market Prices For Fertilizer – National Cereals Produce Board

Date CAN

Ksh./50Kg bag

UREA

Ksh./50Kg bag

DAP

Ksh./50Kg bag

1st November 2013 National Average 2,633.00 3,140.00 3,618.00

8th

November 2013 National Average 2,566.00 2,921.00 3,443.00

15th


22nd


29th


Source. NCPB http://www.ncpb.co.ke/ 28th

march 2014

Productivity levels for many crops in Kenya are below their potential. Major constraints to

production include high cost of inputs (such as fertilizers and seeds)(Table 3-7), dependence on rain fed

agriculture, inadequate market access, poor infrastructure, limited application of agricultural technology,

and exploitation by middlemen creating distortions in the market (MAFAP 2013). In Kenya the

determinants of input price are mostly explained by market forces and agro – ecological factors

indicating that fertilizer market works well (Yamano and Arai, 2010)

http://www.ncpb.co.ke/


46

3.1.8 Fertilizer subsidies Programs in African Countries

Fertilizer subsidies in African countries have been common since the early 1980s however during the

1990s under the vast structural adjustment initiatives implemented by many African countries, many of

these programs came to an end. The recent food crisis, high food prices, population growth and reduced

soil fertility have however seen a resurgence of interest in fertilizer subsidy programs.

Figure 3-8 World Fertilizer Consumption (Kg/Ha)

Source: http://www.indexmundi.com/

Unlike many parts of the developed world Sub Saharan Africa experiences the twin challenges of

low soil fertility and low fertilizer use. Fertilizer consumption varies by country (Figure3-8). The shade

of the country corresponds to the magnitude of the indicator. The darker the shade the higher the value.

The country with the highest value in the world is Qatar, with a value of 3,191.67Kg/Ha and that with

the lowest value is Niger, with a value of 0.39Kg/Ha. Kenya averages 32.5 Kg/Ha. When compared to

Asia which uses over 150Kg/Ha, SSA trails at a mere 7kg/ha and accounts for 3% of global fertilizer

consumption. This low fertilizer use partly a result of poor price incentives, lack of information on

fertilizer use, lack of credit facilities and in some cases poor rainfall and cultural practices inhibit

farmers from using fertilizers. On the supply side poor road networks which increase the cost of

transportation and distribution, lack of credit, underdeveloped supply networks and agro dealerships,

and poorly implemented subsidy programs hinder availability of fertilizers at critical times of demand.

http://www.indexmundi.com/


47

Table 3-8 Government Subsidized Fertilizer Distribution: Oct – Nov. 2012

REGION/

DEPOTS

QUANTITY TOTAL

COST

QUANTITY TOTAL

COST

QUANTITY TOTAL COST

NPK (23:23:0) Fertilizer

Distribution – 100,000 X 50Kgs

NPK (17:17:0) Fertilizer

Distribution – 100,000 X

50Kgs

DAP Fertilizer Distribution

18,000 MT – 360,000 X 50Kgs

NORTH RIFT 19,360 7,667,270 13,000 176,580 100,000 39,410,901

SOUTH RIFT 20,600 7,423,791 21,160 7,647,643 95,140 31,555,565

LAKE BASIN

AND

WESTERN

19,980 8,399,530 20,300 8,282,970 60,640 25,433,909

NAIROBI &

EASTERN

12,480 2,864,819 15,420 3,625,665 31,600 7,088,455

NORTHERN

REGIONS

26,700 8,221,212 29,560 9,215,318 70,820 21,966,183

COAST 880 89,751 560 89,751 1,800 133,480

TOTAL

GRANTS

100,000 34,666,373 100,000 34,037,926 360,000 125,588,493

Source. GoK 2013

Studies on this subject show that whereas there is limited information, subsidies have been

effective in raising fertilizer use, average yields and agricultural production (Druilhe, Z. and

Barreiro-Hurlé, J. 2012.). Farmers demand for fertilizers and the physical capacity to make fertilizers

available (Table 3-8) have been cited as the two key issues that determine improvements in fertilizer use

in SSA (Larson & Frisvold 1996) quoting Gunvant Desai (Deai and Gandhi, 1990; Heisey, P.W., and W.

Mwangi,1996). Emphasize the four processes that determine changes in fertilizer consumption as being

1) those that influence the agronomic potential for fertilizer use; 2) those that convert the potential into

farmers‘ effective demand for fertilizers; 3) those that determine the growth of aggregate fertilizer

supply; and 4) those that develop the fertilizer distribution system.

3.1.9 Smart Subsidies

Agricultural subsidies as defined by Wikipedia (www.wikipedia.org) are government subsidies paid

to farmers and agribusinesses to supplement their income, manage the supply of agricultural

commodities, and influence the cost and supply of such commodities. The samewebsite defines a

subsidy as a form of financial or in kind support extended to an economic sector (or institution, business,

or individual) generally with the aim of promoting economic and social policy. Fowler et al., (2010)

defines Subsidies as a mechanism for reducing cost for a market actor, through cost – sharing with a

development agency, in order to achieve a particular development objective. Subsidies are intended to

improve access to agro-inputs, raise farm incomes, improve household and national food security and

increase private sector participation in agro-input markets. Opinion literature is divided on the

http://www.wikipedia.org/


48

effectiveness of subsidies with two clear schools of thought emerging; whereas such interventions tend

to involve a lot of public investment and distort or markets to achieve desired political and social ends,

for those supporting pro – poor market and small holder development, the capacity of such initiatives to

promote greater inclusion and capacity for the most vulnerable is desirable.

Figure 3-9 The Concept of Access Gap

Source. De Silva and Tuladhar 2006

The market efficiency gap is the difference between what markets actually achieve under existing

conditions and what they can achieve if market barriers are removed (De Silva and Tuladhar, 2006) To

bridge this gap effective competition, private services, and market oriented policies and regulations are

necessary to create a level playing field particularly for new market entrants. The access gap on the

other hand refers to people and places that remainbeyond the limits of the market due to inadequate

income levels or its skewed distribution (De Silva and Tuladhar, 2006). In order to bridge the access gap

interventions in the form of subsidies are used by governments in developing countries to encourage

consumption and service providers to invest in these sectors.

Fertilizer subsidies can broadly fall into both production subsidy and consumer/consumption

subsidy categories. As a production subsidy it encourages suppliers to increase the output (or sale) of a

particular product by partially offsetting the production costs or losses. The objective of production

subsidies being to expand production (or sale) of a particular product more than the market would

promote, but without raising the final price to the consumer. As a consumption subsidy it subsidizes the

behavior of consumers allowing that no matter how impoverished, all should be allowed access to

certain (in most cases basic) commodities.

Agricultural subsidies can be considered narrow lump – sum transfers that are easily identifiable

and have a clear intent. They are monetary transfer from governments to individuals and institutions

with the intent of improving productivity and access to technology. Lump-sum subsidies implies that the


49

government takes away some fixed amount of money regardless of the individuals behavior and will

thus shift the budget line outward (Varian, 2005). Subsidies work by lowering the price of a good,

making national goods more competitive against foreign goods, thereby reducing foreign competition.

Competitive equilibrium is a state of balance between buyers and suppliers, in which the quantity

demanded of a good equals the quantity supplied at a specific price. When the quantity demanded

exceeds the equilibrium quantity, price falls; conversely, a reduction in the supply of a good beyond

equilibrium quantity implies an increase in the price.

Figure 3-10 Price and quantity effects of a subsidy.

The effect of a subsidy (Figure3-10)is to shift the supply and demand curve to the right (i.e.

increases the demand or supply) by the amount (Q*-Qs) of the subsidy. If a consumer is receiving the

subsidy, a lower price(P*-Ps) of a good resulting from the marginal subsidy on consumption increased

demand, shifting the demand curve to the right. If a supplier is receiving the subsidy, an increase in the

price (revenue) resulting from the marginal subsidy on production results increases supply, shifting the

supply curve to the right.


50

Figure 3-11 Deadweight loss and Inefficiencies of a Subsidy

Assuming a perfectly competitive equilibrium market, a subsidy increases the supply of the

good beyond the equilibrium competitive quantity. The imbalance creates ―deadweight loss‖(DWL)

(Figure 3-11), this is defined as the amount by which the cost of the subsidy exceeds the gains of the

subsidy. The magnitude of the deadweight loss is dependent on the size of the subsidy. This is

considered a market failure, or inefficiency.

Smart subsidies are designed with the objective of addressing the shortcomings of universal

subsidies. Baltzer and Hansen, (2012) observe that to be ―smart‖ subsidy programmes should adhere to

a number of design principles, which can be summarized as follows;

Targeting specific farmers. Smart subsidies should target specific farmers, who are not already

applying agricultural inputs and the poorest and most vulnerable households. This prevents the risk of

displacing commercial input sale and maximizes pro – poor access and growth.

Market – Based Solutions. Smart subsidies should utilize and support private input supply

networks rather than compete or supplant them. This ensures efficiency of input delivery as well as

increases the likelihood that the programme has a sustained impact after its termination.

Exit Strategy. Smart subsidies should be time bound with credible exit strategies to put a time

limit on the support. This not only prevents patronization by political interests but also facilitates long

term stability. Exit strategies also help to check cost of the programme and aid in evaluation.

Many authors agree that any justification for or evaluation of smart subsidies should be on the

basis of the economic principles of efficiency, equity and sustainability (Baltzer and Hansen,2012).

Efficiency: This compares the economic costs of delivering inputs to farmers to the benefits of

input use in terms of higher production and productivity. In many cases the high cost of inputs has failed

to match the low adoption of agricultural inputs for profitable investment. Market failures caused

mainly by credit constraints, imperfect competition and risks have also prevented farmers from

accessing inputs and therefore realizing the economic potential.


51

Equity: In cases where smallholder farmers cannot access inputs due to the high costs involved

smart subsidies can help in promoting equality through proper targeting of subsidies to specific

categories of people especially the poorest and most vulnerable. Smallholderfarmers are however not

only constrained by market failure factors but in most cases they lack complementary resources, skills,

scale of operation, productive assets, or the financial resources to pay even the subsidized prices, to

make effective use of the subsidized inputs (Baltzer and Hansen, 2012).

Sustainability. Smart subsidy programs involve a huge transfer of value from public resource to

smallholder farmers. This represents a foregone cost in offering other public goods by the government

to society. Subsidy programs remain sustainable if they can be run over a long period of time without

strain to public resources and without forgoing or diverting resources from other critical and basic

sectors of the economy.

Long term sustainability hinges greatly on efficiency and equity this will prevent cases of the

programs growing inefficient and less equitable and eventually becoming unsustainable. To prevent the

risk of smart subsidies becoming unsustainable they must be designed as a temporary measure with

clear exit strategies for termination of the programme. In the best case scenario smart subsidies should

essentially be to ―jump – start‖ resource poor farmers and stimulate the inputs market. For instance if

the programme helps farmers accumulate substantial productive and financial assets through a series of

surplus harvest, the farmer will be in a position to fully afford and finance full – priced inputs from their

own savings and production working capital. This will then stimulate the input supply chain to become

more competitive and thus lowering prices in the long run to make them more accessible to the

smallholder farmer.

3.2. The National Accelerated Agricultural Inputs Access Programme

(NAAIAP)

3.2.1 Overview Of The Programme

The NAAIAP programme was initiated in the year 2007 by the Government of Kenya through the

Ministry of Agriculture to address low farm productitivity by offering targeted subsidy in the form of

technical inputs to 2.5million resource poor farmers in order for them to incrase yield and production to

meet household food security and generate surpluses for increased household incomes.

The primary objective of NAAIAP is to improve farm inputs (fertilizera and seed) access and

affordability for smallholder farmers to increase usage and thus enhance foodsecurity/availabiltiy to the

household level and generate incomes from sales of surplus produce.

The programme aims at

i. Improving agricultural productivity and output at farm level for 2.5 million smallholder

farmers with one hectare or less of land.

ii. Mobilizing farmers resources and promote efficiency in their utilization and re-invest in

agriculture.


52

The programme also targets farmers with increased incomes to access affordable (subsidized)

credit to enable them access farm inputs. Since inception the proghramme has disbursed over 502,469

input vouchers to 521,515 beneficiaries to producer and average of 8.7 million bags of (90Kg) maize

valued at Ksh.. 18 billion in 40 Counties. In addition, a total of 15,743 beneficiaries (14,814 small

farmers; 746 agro dealers; and 183 other value chain players) have accessed Ksh.. 1.575 billion as credit

to boost their agricultural production activities.

3.2.2 Project Components

Kilimo Plus Kits (Inputs Grant)

This grant is administered using e-coupons/smart vouchers. The coupon enables the farmer to get

inputs from accredited stockists (trained for the purpose). Stockists will redeem the vouchers from the

project. A stakeholder forum will be held at the district level to vet and authorize grants to deserving

farmers and approve payment vouchers. After one season these farmers are expected to graduate to the

next category and participate in Kilimo Biashara(farming as a commercial entity).

Kilimo Biashara Package (Commercial Packs)

This package targets the somewhat better endowed farmers who are already involved in

economically viable enterprises but are constrained by lack of basic inputs such as fertilizer,

agrochemicals, animal feeds, etc. these farmers will access inputs at cost and have access to subsidized

credit from financial institutions. The government guarantees 10% of the amount to be loaned to the

farmers by the private financial institutions. They will also be trained and assisted to continue with

economically viable enterprises for re-investment purposes. The project will enhance the credit

guarantee available by Ksh.. 200million to increase loan fundsby upto Ksh.. 2 billion.

Agribusiness promotion and Kilimo Insurance

Agribusiness encompasses promotion of modern farming and refers to the commecialization of

farm producteio. Networking to enhance the use of appropriate innovation in agricultural machinery and

farming methods, and techniques for achieving economies of scale in production, diversification of

products and the creation of new markets for consumption and global trade. This is a key component in

helping farmers to commercialize and put in place sustainability and livelihood resilience mechanisms.

Under this component linkages with service providers on crop index based insurance that will

enable the beneficiaries of Kilimo Plus to access input in the event of adverse weather leading to crop

failure or significantly reduce yields will be initiated. The service will be pegged on a premium of 5%

value of inputs issued to beneficiaries as is the current practice. Total crop failure warants supply of a

full inputs package. The contracted service provider puts in place a simplified and transparednt

compensation scheme for the purpose.

Soil Testing

There is need to carry out soil testing to generate information on soil nutrient status andacidity to

enable development of soil specific fertilizer recommendation for crops. Thiscomponet undertakes

strategic soil testing in 100 districts to generate specifice fertilizer recommendation for maize, potatoes


53

and traditional crops.

3.3 The Status of The Maize Subsector In Kenya

Maize is the primary staple food crop in the Kenyan diet with an annual per capita consumption

rate of 98kilograms contributing about 35% of the daily dietary energy consumption (FAOSTAT).

Maize production increased by 16.3% to 40 million bags, resulting in a drop in maize imports valued at

Ksh.. 11.5 billion in 2011 to Ksh.. 6.5 billion in 2012(Deloitte, 2013).

Table 3-9 Reforms In The Maize Market 1979 to 2012

Time Period Reforms undertaken

1979-1986 Strict control of maize price, movement and storage under the NCPB

1986-1990 Limited relaxation of control of maize price, movement and storage under the NCPB

Government

First serious market reform under the Cereal Sector Reform Programme (CSRP) conditional to

EEC/WB aid.

1990-1995 Gradual reduction of control of maize price, movement and storage under the NCPB

Government

Market reform under the CSRP/KMDP conditional to aid.

1995-1999 Full liberalization

NCPB buyer and seller of last resort

Private sector participation increased

Government intervenes by imposing variable import tariff and financing NCPB operations

1999-2012 Maize price stabilization policy, NCPB purchasing domestically produced maize at support

price and maintains grain strategic reserve.

Variable import tariff on maize imports retained.

Source. Jayne

After liberalization of the grain market the National Cereals and Produce Board (NCPB) had its

functions reduced to the following:

Governments arm for grain price stabilization.

Procurement of strategic grain reserves (SGR) and Famine Relief Stocks (FRS).

Providing logistic support services for SGR and FRS.

A Commercial grain trading organization.

The NCPB faces challenges operating in a liberalized environment some of which include lack of

effective legal framework, weak support systems for stakeholders; frequent food shortages; stabilization

and/or intervention by the government; escalating costs of farm inputs and labour; unpredictable income

to producers; escalating unpredictable food prices leading to high inflation; and, uncertainty about the

role of NCPB as a service provider or commercial agent. Other vital constraints include exploitation

of the farmers by middlemen, setting up of prices that are not market driven, frequent losses by NCPB

compounded by a weak capital base; inadequate support institutions for grain farmers; uncertainty of

prices for millers; and, unavailability of grains to small millers. Other major institutional constraints


54

include disorganized storage facilities for farmers; lack of institutional mechanisms for price setting

(causing poor price signaling effects); inadequate credit to farmers (inadequate support from AFC);

under capitalization of NCPB to serve as buyer of last resort; de – institutionalization of regulation of

quality and standards in the grain sector; and, weak government monitoring system and regulatory

mechanism. The current prevailing situation has seen the NCPB purchase maize at prices that have been

much higher than the prevailing market prices (Nyoro, 2002) in many instances farmers fail to take

advantage of the free market prices and instead hold their produce to sell to NCPB. This has resulted in

cases of aflatoxin infected maize as a result of poor storage of maize in areas like Tana River County.

Lack of adequate research funding, poor research – extension – farmer linkage, low private

investments in maize research and development, and high human capital turn – over are sector problems

that must receive adequate attention and resolve (Karanja et al., ).

3.3.1 Maize production

Maize in Kenya is grown virtually in all altitudes from the sea level at the coastal area to over

16000 m above sea level in the Kenya highlands (Figure3-12); the major production regions are

concentrated around the South Western regions of the country. With two rainfall seasons most farmers

utilize the long rainy season in March to plant either late maturing varieties in the moist transitional and

high tropical climatic areas or early maturing varieties for farmers in the semi – arid and dry transitional

climatic zones.

Figure 3-12 Cropping zones of Kenya

Source. FAO 2011


55

The production of maize increased steadily from the early 1960s to 1976 rising gradually to peak at

2.5million tonnes. This production declined in the following years of 1976 to 1980 this decline peaked

during the drought of 1980. In the early 80s, the maize yields started to increase following adoption of

hybrid maize varieties and the accompanying high fertilizer use to the extent that by 1986, the average

national yields were over 2 tons per hectare (Nyoro, 2002). From 1980 to the current years there has

been great variability in the production of maize with these swings increasingly becoming and frequent

and severe. Production of maize has also been affected by frequent and cyclic periods of drought for

example in the subsequent years of 1984, 1993/94, 1996, 2000, and 2008/9 creating increasing

vulnerability to weather. Mbithi and Huylenbroeck, (2000) observes that the area planted with maize

seems to have reached a stagnation point due to population pressure and suggests that strategies to

increase maize production should include improvements of production per unit area through

technological development. Nyoro, (2002) found out that as maize production moves away from the

high maize potential zones, maize productivity decreases due to among other factors, changes in rainfall,

altitude and inputs use. Karanja et al., using a probit regression modelfound out that the value of farm

assets, favorable maize output price, higher human capital and extension contact positively influenced

the adoption of hybrid maize while adoption declined with distance to motorable roads.

Table 3-10 Variation Of Maize Productivity By Agro-Regional Zone

Productivity Quantiles (Ksh./Acre)

Agro - Regional Zone 25% 50% 75% 95% Mean

Productivity

(Ksh./Acre)

Coastal Lowlands 1680.27 3094.22 6073.15 22508.82 5735

Eastern Lowlands 1215.55 2264.94 4824.83 15341.67 5505

Western Lowlands 2101.64 3779.16 7020.14 13756.77 5996

Western Transitional 3628.12 5784.38 9330.15 18516.61 7015

Western Highlands 4127.46 6079.26 10350.75 23424.98 8173

Central Highlands 4284.8 8101.61 13476.96 31369.50 10946

High - Potential 7963.25 12318.68 16881.74 26533.88 13576

Source. Karanja et al.,

In Kenya variations exist in maize productivity (Table 3-10) across different agro ecological zones. As

expected the high potential zones and central highlands presents a higher mean productivity for maize

due to favorable climatic and soil quality conditions (Table 3-11). Considering that hybrids are targeted

for the highlands it is expected that productivity would be higher due to their advantage compared to

other types of seed.


56

Table 3-11 Average Maize Production From 2005 - 2009

Province Area Under Crop (Ha) Production (90Kg/bag) Yield (Bags/ha) Population

Rift Valley 644,895.00 13,225,039.00 20.50 10,066,805.00

Nyanza 262,453.00 3,711,215.00 14.10 5,442,711.00

Eastern 462,401.00 3,903,141.00 8.40 5,668,123.00

Western 225,302.00 4,163,878.00 18.50 4,334,282.00

Coast 129,379.00 1,079,383.00 8.30 3,325,307.00

Central 157,063.00 1,047,879.00 6.70 4,383,743.00

North Eastern 2,525.00 5,520.00 2.20 2,310,757.00

Nairobi 1,053.00 6,420.00 14.40 3,138,369.00

Source. Karanja et al.

In Kenya 90% of the rural population households grow maize in predominantly small-scale and

these smallholder farmers account for 75% of overall production (Table 3-12).

Table 3-12 Maize Production, Consumption And Domestic Values (2004 - 2010)

Maize Production, Consumption and Domestic Values

Year 2004 2005 2006 2007 2008 2009 2010

Area Planted (Ha Mil.) 1.8 1.7 1.8 1.6 1.7 1.8 2.0

Production (MT Mil.) 2.4 2.9 3.2 2.9 2.3 2.4 3.4

(Bags. Mil.) 27 32, 36 32 26 27 38

Value Ksh. Bil. 40 44 47 52 66 70 62

US$ Mil. 538 589 626 697 877 854 750

Consumption (MT Mil.) 2.8 2.8 2.9 3.0 3.2 3.2 3.2

Surplus/(Deficits)(MT) (0.4) 0.1 0.3 (0.1) (0.9) (0.8) 0.2

Source. Adapted from USAID. Staple food value chains. Kenya country report 2010 and Economic Review of Agriculture 2011.

Kenya has been self-sufficient in maize production with the 1.8 million hectares producing

2.4million tones against a national demand figure of 36million bags annually (FAO 2011). Maximum

crop production in a good season is about 34 million tonnes and drops to 18milllion tonnes during

drought years. The Food Security Assessment Report (GoK, March 2013) indicates that production in

terms of Ha increased from 2,131,887 Ha in 2011 to 2,266,196 Ha in 2012 while production increased

from 37, 529,694 bags of 90 Kg in 2011 to 40,037,090 bags of 90 Kg in 2012. In a report released on

24th October 2013 and reported in the Business Daily on the 27th October 2013 Tegemeo Institute

reported that Kenya‘s maize production fell one third during the harvesting season due to poor rains,

delay in planting and low use of fertilizers reducing the country‘s maize output by 33.4 per cent. This

shortfall the report indicated means consumers would suffer high food prices, the report said that

farmers produced 28.9 million bags of maize during the long rains season, against an initial projection

of 43.4 million bags for the 2013/14 crop season. This level of performance leaves the country with a

shortfall of 14 million bags, given an annual national consumption of between 40million and 43.5

million bags. This shortfall is further attributed to highly depressed rainfall during the June – August


57

2012 ―long – rains‖ in the North – Eastern and Coastal areas, however despite the lethal maize necrosis

disease which affected 60,000 hectares of maize nationally, with production losses ranging from 10 to

60 percent, a bumper harvest wasrealized in Trans Nzoia County, which produced 4.6 million bags of

maize valued at Ksh.. 13.8 billion (KIPPRA, 2013). Growth in maize production has been marginal

averaging about 2 percent. This is lower than the population growth that currently stands at 3% (AATF,

2010). If the country has to be self-sufficient in the long run the average growth in maize production has

to be above the population growth at 4% and above. On – farm yields (1.5 to 2.6tonnes/ha) are much

lower compared to on – station yields (of 5 to 8 tonnes /hectare). The table 3-13 below shows estimated

production, value of marketed production, national average retail market and average gross commodity

prices paid to farmers for maize from 2009 to 2013. Maize production has seen a gradual rise (Table

3-13) from 27 million bags in 2009 to 38.9 million bags in 2013 with unfavorable weather affecting

production between 2010 and 2011 and again between 2012 and 2013. The lower production coupled

with low international prices prevailing in 2013 also affected recorded marketed production and reduced

prices paid to farmers for the crop compared to 2012.

Table 3-13 .7Maize Production, Pricing And Marketing (2009 - 2013)

Index* Unit 2009 2010 2011 2012 2013

EP Million bags 27.1 35.8 34.4 39.7 38.9

RMP Ksh. Million 4566.4 5070.3 10145.5 13153.0 10121.1

ReMP Ksh per kg.

(Sept)

36.7 17.52 42.77 40.51 35.38

AGPF Ksh. Per 100Kg 2391.33 1721.35 2499.92 3396.00 3133.16 *EP– Estimated Production RMP– Recorded Marketed Production ReMP– Retai Market Price AGPF– Average gross price to farmer.


The last decade has seen the country experience years of heightened food insecurity, which has

occasioned dependence on imports from the years after 2008. Maize has also been imported to meet the

deficit in production, in the year 2009 Kenya imported 16.8 million bags of maize (FAO 2011).

Maize demand in the country has been on the increase outstripping supply. Kenya‘s population is

projected to rise to 43.1 million by the year 2020 and consequent demand for maize is likely to be

estimated at 5 million metric tonnes. To bridge this gap of 1.2millionmetric tonnes based on current

production levels, Kenya has to improve its productive technology to meet this demand or rely on

imports that will drain foreign exchange reserves and resources from the countries development coffers.

Inefficient maize production and marketing systems stand out as the main culprits, with increased

productivity, efficient markets and rational government policies these trend could be reversed.

3.3.2 Technical efficiency and allocative efficiency

Technical efficiency is the ration of observed output to the corresponding frontier output,

conditioned on the level of inputs used. Karanja et al., determined that the intensity of fertilizer use was

positively influenced by use of hybrid seed, proximity to fertilizer market, education, extension contact


58

and price of maize.

Allocative efficiency refers to using an input at the level where its marginal physical product

equals its input/output price ratio.

Kenya‘s smallholder technical efficiency is estimated at 49% (Kibaara, 2005). With low potential

zones reporting less than 40% while high potential zones at least 60%. Efficiency is also determined by

factors such as use of improved seed varieties, use of fertilizers, access to credit, and age of the farmer.

3.3.3 Maize marketing

Of the maize produced only 30% of producers sell part of their produce. The majority on the other

hand grow maize purely for subsistence purposes. The small – scale producer households retain on

average 30 -50% of total annual harvest for house consumption while the balance is marketed (USAID,

2010).

Table 3-14 Sale To Marketing Boards Of Selected Crops, 2009 - 2013

Crop Unit 2009 2010 2011 2012 2013

Maize ‗000 tonnes 191.0 294.6 405.8 387.3 316.4

Wheat ― 123.1 190.2 100.9 155.0 185.0

Rice paddy “ 22.6 44.0 48.7 40.3 43.6


Sale of agricultural produce (Table 3-14) to various marketing board. In the period underreview the sale

of maize decreased by 18.3 percent attributed to reduced production in the growing regions of the

country, while those of wheat and rice paddy increased by 19 percent and 8 percent respectively.

Figure 3-13 Fertilizer adoption and maize production costs in Kenya.

Source. Nyoro, 2002.

Nyoro (2002) found out that as a result of small changes in maize prices, production for

smallholder farmers are made completely unprofitable(Table 3-15). Profitability is also rare in drier


59

parts of the country such as Kitui, Mwingi and Siaya and in a few small-scale dominated production

systems such as Nakuru, Kisii and Bungoma that are traditional surplus maize production areas

(Figure3-13).Fertilizer adoption rates, quantities and types of fertilizer influence domestic maize

production costs and productivity (Nyoro, 2002).

Table 3-15 Production And Transport Cost Of Maize To Nairobi

Mbale Iganga Kapchorwa

Farm gate cost Ksh./Bag 765.00 675.00 675.00

Handling costs Ksh./Bag 225.00 247.00 372.00

Transport Cost Ksh./Bag 213.00 168.00 238.00

Total Cost to Kisumu 1,203.00 1,090.00 1,285.00

Distance to Nairobi Km 345 345 345

Transport Costs Ksh./Km 0.60 0.60 0.60

Transport Costs to Nairobi Ksh./Bag 207.00 207.00 207.00

Maize Costs in Nairobi Ksh./Bag 1,410.00 1,297.00 1,492.00

Average Costs 1,400.00

Source. Nyoro, 2002

The average cost of production per 90 kg bag of maize (Table 3-16) varies with location in Kenya.

However high adoption rates of fertilizers are necessary but not sufficient for maize productivity, they

need to be accompanied by use of reasonable quantities of the fertilizers (Nyoro, 2002).

Table 3-16 Comparison Of Yields, Costs And Returns For Maize In Kenya And Uganda

Bungoma

Kenya

Mbale

Uganda

Lugari

Kenya

Iganga

Uganda

Kitale

Kenya

Kapchorwa

Uganda

Yields in Bag/Acre 13 18 17 21 25 26

Price Ksh./Bag 1,000 765 1,000 675 1,100 649

Revenue 13,500 13,770 17,000 14,175 27,500 16,874

Fixed Costs 1,125 1,000 1,250 1,000 3,750 1,250

Labour Inputs 2,332 3,400 1,662 3,975 1,685 4,800

Non Labor Inputs Ksh. 8,150 5,696 10,655 6,250 14,285 8,838

Total Costs 11,607 10,096 13,567 11,225 19,720 14,888

Cost (Ksh. per Bag) 860 561 798 535 789 573

Profit(Ksh./bag) 140 204 202 140 311 76

Profit Margin 14% 27% 20% 21% 28% 12%

Source. Nyoro, 2002

The price of fertilizer is a key constraint to smallholder farmers with most farmers complaining of

high fertilizer prices, a factor they say is important to the adoption and use of fertilizers (Nyoro, 2002).

Value cost analysis indicates that one shilling invested in fertilizer use on maize raised 5.86 shillings

worth of maize output (Karanja et al.,)


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3.3.4 Maize consumption

Maize consumption in Kenya has been estimated to be 98 Kilograms per person per year, and this

figure has for many years served as the basis for the computation of food balance sheets and other

estimates of national cereal import requirements (Muyanga et al., citing Nyoro, 2004). In a survey done

on consumption of cereals in urban areas Maize products provided the greatest contribution to staple

diets in terms of kilograms consumed, however maize consumption has declined since 1995 from 41.8%

to 32.4% of staple carbohydrate expenditures between 1995 and 2003 (Muyanga et al.,undated). maize

products account foralmost half of the carbohydrate expenditures for all income groups in the urban

areas an amount estimated at Ksh.. 126 per month.

Figure 3-14 Maize value chain in Kenya.

Soure.Kirimi et al, 2011

Note: the shaded boxes signify the main channels in terms of volume during this phase of the marketing season. The thickness of the

arrow signifies the volume of flow. Dashed lines represent minor flows.


61

Studies by Mukumbu and Jayne, 1994 indicate that 1) consumer preferences and maize meal

consumption patterns largely reflect the influence of food policies. 2) Consumer subsidies on refined

maize meal in Kenyan have not necessarily promoted food security, because they have entrenched a

relatively high – cost marketing system and impeded the development oflower-cost channels from

developing. 3) Posho meal consumption in urban areas appears to be negatively related to household

income, while shifted meal is positively related to income. 4) The time requirement to process and

acquire posho meal appears to be an important factor influencing its consumption, highlighting the

importance of convenience and competing demands on household members time., and 5) Market

reforms that allow consumer preferences to be better articulated through the food distribution system

may improve access to food, productivity gains in agricultural systems and growth in employment and

income distribution from shifts in volumes.

These findings are in line with those of Munyaga et al., who find a significant shift in maize meal

consumption in urban areas. Their findings point to the fact that even though posho meal consumption

declined from 46 to 17 percent of maize meal consumption on average, it continues to constitute an

important commodity among the poor. This indicates that whole maize meal has inferior good attributes

(Mukumbu and Jayne 1994). The low – income group consume posho meal because it is relatively

cheaper compared to shifted maize meal, however with the narrowing of the price of shifted meal

between 1995 and 2003, this may account for why consumption of posho has declined over this period.

Large millers have also reduced the degree of refinement of their products in response to great

competition from the posho millers since the market liberalization process of the mid-1990s.

Figure 3-15 Trends in Kenya’s Maize production and consumption.

Source. Authors computation from various sources.

Studies done by Mukumbu and Jayne (1994) show that more than 30 per cent of households

consume whole meal. Over 50 percent of the maize meal is consumed by those households earning less

than Ksh.. 4,000 per month in the form of hammer milled posho meal contrasted to only 23% by


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households earning more than Ksh.. 12,000. In the same study price and convenience emerged as the

two most important factors that affected consumer choice for any given maize meal. More than 64

percent of households chose shifted maize meal because it was convenient and 60 percent of those who

consumed whole meal chose it because it was cheaper.


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Chapter 4 DATA ANALYSIS

4.1 Study Area

This study will be carried out in the major high potential maize growing areas of the country with a

major focus on Tana River county primarily because of the potential of the county in irrigated maize

production and its high levels of poverty provide a good basis for the study of the effectiveness of

subsidies in poverty alleviation and developing vulnerable smallholder farmers to participate in

markets.The study area is located in Tana River County which lies south west of Kenya in the former

coast province with the coordinates 1。 30‘ S 40

。 0‘ E and covers an area of 35,375.8 square kilometers

(13,658.7 sq mi) with a population of 240,075 according to the 2009 census. (www.wikipedia.org). The

major ethnic groups are the Pokomo, many of whom are farmers, and the Orma and Wardei, who are

predominantly nomadic. The country is generally dry and prone to drought with rainfall being eratic.

The county has two rainy seasons with the long rains occurring in March – May and the short rains

October – December.

Figure 4-1 Location of the Study Area

http://www.wikipedia.org/


64

4.2 Agriculture in Tana River County

4.2.1 Farming Systems in Tana River County.

The main crops produced in the county are mangoes, cowpeas, bananas and green grams. Farmers

in the county rely mainly on smallholder irrigation;rain fed and flood recession agriculture. Maize

production is mainly centered in the irrigation schemes within the county.

Food crop production covers 7,527ha while cash crop production lags behind slightly at 7,063 ha.

The arable land in the county measures 12,547 Km2 with the average farm size of 0.71Ha. The table

(Table 4-1) below indicates the levels of crop production for main crops in the County.

Table 4-1 Crop Statistics Tana River County.

Crop Ha Production (Bags)

Food Crops

1 Maize 6542 117,440

2 Sorghum 131 862

3 Rice 1576 2,840

4 Cowpeas 1955 16,664

5 Green grams 2153 13,954

6 Cassava 166 2500 tons

7 Sweet Potatoes 84 884 tons

Crop Ha Production (Tons)

Cash Crop

1 Mango 1276 22,968

2 Bananas 1550 24,800

3 Tomatoes 221 3,315

4 Onions 331 4,965

5 Water melons 243 4,860

6 Citrus 257 25,700

7 Pawpaw 317 31,700

8 peppers 58 1,044

Source. Gok Tana River County Brief March 2014

4.2.2 Sample frame

Individual small scale farmers involved in the NAAIAP programme were chosen for the study in

Tana River County and specifically from two (8) villages with a total of 400 farmers as shown in the

table (Table 4-2) below.


65

Table 4-2 .NAAIAP Inputs Distributed To Farmers In Galole Division

Village Number of Farmers

Mikinduni 88

Lenda 64

Malindi ya Ngwena 77

Wachakone 19

Bohoni 26

Donga 42

Ghorei 60

Laza 24

400 Source (GoK 2011)

Purposive sampling was then used to select three (3) villages with a total of 229 smallholder maize

farmers who were participating in the NAAIAP programme. This is because the tree villages accounted

for the bulk of the farmers within the programme.

Table 4-3 Sample Villages Selected Through Purposive Sampling

Village Number of Farmers

Mikinduni 88

Lenda 64

Malindi ya Ngwena 77

229

According to Fishers et al., (1991), the required sample size (n) is calculated using the formula

Where:

Z2∝∕2 is the confidence level at 95% (standard value of 1.96)

p is the Estimated Prevalence at 50% (Proportion)

Q is 1 – p

n = 2

= 384.16

Using a finite study population of 229 for the three villages, correction factor is applied. The actual

sample size is calculated as follows:


66

n=

Which is the reciprocal of

Where

n is the actual sample size.

N is the study population = 229

Therefore actual sample size n = = = 143

Sample factor = (1/229) x 143 = 0.624454

Table 4-4 Number Of Farmers Sampled Per Village

Village Number of Farmers Sample Factor Number of farmers sampled

Mikinduni 88 0.624454 54.95197

Lenda 64 0.624454 39.96507

Malindi ya Ngwena 77 0.624454 48.08297

229 143

4.3 Types and Sources of data

Data for this research was obtained from available cross sectional project data at the county level

and secondary information was derived from existing records held at the Agribusiness Market

Development and information and Environment and land development sections of the Ministry Of

Agriculture offices in Kenya and Tegemeo Institute of Egerton University Kenya.

4.4 Data analysis

In order to carry out data analysis, coding of questionnaire was done. Descriptive analysis using

STATA Version 12 was done. Quantitative analysis was also done using STATA Version 12 software.

STATA is a general – purpose statistical software package with capabilities including data management,

statistical analysis, graphics, simulations and custom programming.

4.5 Econometric Model

Under the assumption of perfect markets, market prices are exogenous to a household and all

products (output and inputs) are tradable. consequently, market prices reflects the true opportunity cost

of products and serve as the prices upon which household consumption and production decisions are

based. In such settings it does not matter whether a household consumes its own products or sells them

and buys it necessary consumption items with the resultant income; consequently, we can treat the


67

households‘ production and consumption decisions as solved sequentially. First the households

determine what to produce given output and input prices as well as household-specific characteristics,

determine the households income, which then serves as part of its budget constraint in its consumption

decisions. (Liverpool-Tasie S.L (IFPRI Discussion paper 01194) (2012). The analysis is based on a

simple static model of an agricultural household where a household seeks to maximize a utility function

of net revenue subject to a production constraint function .

4.6 Model 1: Estimating Fertilizer subsidy effects on Household income;

The Multinomial Approach

The assumption that each individual i is rational and chooses a set of goods from a consumption

bundle implies a multinomial model that can be estimated as follows. Let denote the indirect

utility that would be obtained by selecting the jth treatment where j = 0,1,2….J and * /

ij i j j ij ijIU z l (1)

Where is the exogenous covariates associated with parameters and which are the

independently and identically distributed error terms. This equation also incorporates a latent factor

for the unobserved characteristics and is assumed to be independent of the error term .

is a set of binary variables representing the observed treatments choice and = ………

and = . The probability distribution of the effects of a treatment can be summarized as / / /

1 1 1 2 2 2Pr( | , ) ( , ,...... )j i i i i i i i J J iJb z l g z l z l z l (2)

Where g is an appropriate multinomial probability distribution function defined as follows /

/

1

exp( )Pr( | , )

1 exp( )

i j j ij

j j i j

i k k ik

k

z lb z l

z l

(3)

The dependent variable of choice is household income. The multi-variate regression is estimated as

follows;

0 1 2 3 4 5 6i i i i i i i iI HH FC GR MK FS Q (4)

Where: is the household income per year (in Ksh..) given that the poor and vulnerable farmers

in Tana River rely on farming as their main source of livelihood, changes in income are better explained

by the impact of subsidies. The other reason being that because this is a household that had not before

received any form of support in terms of subsidies their baseline income would be a good measure of

their initial marginal livelihood state.

Explanatory variables include, Vector HH which represents household characteristics including age,

education, household size, and farm size. Farmers demand for fertilizer is influenced largely by the

farmer‘s capacity to invest in fertilizer use, commodity and fertilizer prices, profitability of fertilizer use,

crop yield response to fertilizer and availability of complementary inputs. These factors are largely


68

influenced by the decision making characteristics of the household. Studies find Age to be negatively

correlated with fertilizer use (Doss and Morris, 2001; Feder and Umali, 1993; Feder,Just and Ziberman,

1985) however in poor households their circumstances leave little options for choice and so we expect

that this would be different. The age of the household is measured in number of years while the sex of

the household head is represented by a dummy variable equal to 1 if the household is male, otherwise

equal to 0. Our hypothesis is that if targeting considers vulnerability then age will be a key indicator for

determining beneficiaries especially if the programme targets elderly-headed households. We predict

that since female headed households are more vulnerable than male headed households we expect that

female headed households will be preferred to male headed households in the targeting process.

FC represents the Farm Characteristics variable which includes area of land under maize cultivated

during the 2009/2010 agricultural season measured in hectares. Farmcharacteristics include land

registration, ownership, and size. Farmer‘s use of inputs in theprevious season, other crop enterprise

within the farm, livestock type and number, andextension service received. We hypothesize that larger

farm sizes provide incentives for farmers to maximize productivity and land ownership also provides

security of tenure thereby allowing the farmer to invest more capital into production.

MK represents Produce Marketing in which we allocate a dummy variable of 1 if the farmer sold

produce and 2 if otherwise, which captures data on sale of produce in the last season with. Studies have

shown that market orientation plays an essential role in assuring better incomes and welfare levels for

smallholder producers, and therefore contributes to poverty alleviation. In addition, by creating demand

for production inputs and investment goods, markets promote economic growth and providing better

market access is more likely to induce smallholder farmers to commercialize (Azam et al., 2012).

Produce marketing also captures the details of quantities used on the farm, sold, value and the marketing

channels used to sell which include farm gate, roadside or market sales. Studies have shown that

transaction costs determine the level of produce and marketing channels available to farmers which in

turn affects the cost of goods delivered to the market and the amount of sales returns accruing to the

farmer (Smale et al., 2003;Alene et al., 2008; Omiti et al., 2007). This variable also considers the status

of feeder roads in the area and assigns a dummy variable of 1 for all weather roads and 2 for roads that

are impassable during rainy seasons. Distance to agro – input stockists tests both for the access to inputs,

captures the cost of access and sustainability of the programme once the farmers are weaned into the

more commercially oriented Kilimo Biashara component of NAAIAP. Distance from the agro-dealer

also captures information on the overall impact of the programme in reducing the distance traveled by

farmers through making fertilizer available at a distance that is cost effective to the farmer. Distance to

the market employs a dummy variable of one to four for a distance of between less than three kilometers

to over ten kilometers. Market infrastructure and institutional aspects of market access are crucial for

improving opportunities of smallholders for increased market participation and in addition to

determining marketorientation; infrastructural and institutional conditions also have a significant

bearing on scale of smallholder production (Tung et al., 2007)

Financial services is captured by the FS variable and includes both formal and informal financial


69

services available and accessible to the farmer, distance to the nearest financial service provider, access

which is assigned a dummy variable value of 1 for access and 0 for otherwise. For those that have

accessed financial services this variable also captures the type of financial service preferred by the

farmer. Major constraints to production by smallholder farmers includes high cost of inputs, inadequate

market access, poor infrastructure and exploitation by middle men (MAFAP, 2013), financial services

therefore give farmers the requisite capacity to access inputs and capital to invest in production. We

hypothesize that farmers demand for fertilizer is closely correlated to the farmer‘s capacity to access

credit given the availability of these input services at the right time and affordable prices.

Q is a vector of other control variables. The model controls for households participation in the

labour market, ownership of household business, remittances, region and rainfall. Given that

participation in the labour market, ownership of household business, and remittances all affect the level

of a household‘s affordability of inputs. Region and rainfall are controlled for given that the farmers are

all from Tana River County and that rain fed agriculture is close to non-existent in this region.

The Multinomial Logit (MNL) model offers certain advantages in treatments where there are

unobserved products attributes, it is a preferred method where the dependent variable in question is

nominal and is made up of more than two categories.

In this study we use cross sectional data from the 2009/2010 agricultural season NAAIAP

programme beneficiaries collected from households in Tana River County, specifically Tana River

Sub-County covering a total of 1,000 beneficiary households. A sample of 200 households is used for

analysis.

4.6.1 Model 1Results

The table below (Table 4-5) gives a summary of the regression results for the Multinomial Logit

model to determine the effects of fertilizer subsidy on household income for various categories of small

scale farmers.

Table 4-5 Multinomial Logit Regression Results For Annual Household Income

Annual Household income

Ksh. Ksh. Ksh. Ksh.

<20,000 20,001–

30,000

30,001-

40,000 >40,001

Constant 19.093 -17.458 0.486 31.304

(-0.01) (-0.03) (-0.1) (-0.01)

Gender -0.099 -0.923 0.098 0.735

(-0.16) (-1.47) (-0.16) (-1.19)

Age 0.337 -0.427 0.333 0.395

(-1.14) (-1.54) (-1.1) (-1.46)

Marital Status 0.525 1.24* 1.636** -1.06*

(-0.99) (-2.05) (-2.64) (-1.81)

Educ. Level of H/hold -0.492* -0.169 -0.306 0.192


70


Ksh. Ksh. Ksh. Ksh.

<20,000 20,001–

30,000

30,001-

40,000 >40,001

(-1.81) (-0.7) (-1.25) (-0.81)

Household status -0.604 0.156 -2.064** -0.249

(-0.75) (-0.18) (-2.50) (-0.31)

Family income source 1.071 0.226 2.128 1.85

(-0.68) (-0.54) (-1.49) (-1.3)

Group Membership -0.11 0.69 -0.647 -0.749

(-0.17) (-1.05) (-0.99) (-1.17)

Training Received 2.627 15.206 4.139 -21.386

(-1.08) (-0.02) (-1.61) (0)

Land Size -0.158 0.038 -0.257** -0.077

(-1.39) (-0.35) (-2.34) (-0.72)

Land Ownership -0.493 0.113 -0.729* -0.294

(-1.25) (-0.31) (-1.87) (-0.8)

Feeder roads -0.699 0.376 0.381 -0.448

(-0.6) (-0.3) (-0.48) (-0.43)

Areas under cultivation -0.056 -0.002 0.048 -0.094

(-0.32) (-0.01) (-0.3) (-0.58)

Ext. services received -18.300*** 2.151 -2.582* -2.325

(-3.78) (-1.39) (-1.84) (-1.55)

Area under maize 0.294 -0.435 0.254 0.22

(-0.66) (-1.01) (-0.06) (-0.58)

Amount of Fertilizer used 0.004 0 -0.001 0.001

(-1.15) (-0.26) (-0.17) (-0.32)

Maize yield 0.002 -0.002 0.001 -0.002

(-0.77) (-0.26) (-0.59) (-0.45)

Season of yield 1.19 1.584 0.957 -3.444***

(-1.4) (-1.49) (-1.13) (-2.74)

Maize yield prev. season -0.139 -0.002 0.16 -0.059

(-1.09) (-0.02) (-1.53) (-0.46)

Sale of produce 1.25* -1.359* 0.406 1.026

(-1.91) (-1.99) (-0.62) (-1.63)

Market Channel -0.157 0.019 0.215 0.029

(-0.46) (-0.06) (-0.62) (-0.09)

Proof of Ownership -0.388 -0.202 0.305 -0.282

(-0.92) (-0.46) (-0.49) (-0.55)

Market Infrastructure -0.631* 0.027 -0.223 -0.142

(-1.77) (-0.07) (-0.61) (-0.4)

Use of Inputs last season -1.027 -2.406** - -3.305***

(-1.21) (-2.36) - (-3.19)

Grp Savings mobilization 2.397* -0.943 2.856*** 0.396

(-2.29) (-0.86) (-2.85) (-0.36)


71


Ksh. Ksh. Ksh. Ksh.

<20,000 20,001–

30,000

30,001-

40,000 >40,001

Access to Finl services -0.13 -0.405 -0.175 1.04

(-0.21) (0.64) (-0.3) (-1.61)

Presence of Ready market -0.752 -0.046 -1.473* 0.176

(-1.22) (-0.08) (-2.17) (-0.31)

N 179 179 179 179

LR Chi2(91) = 178.49 Prob>chi2 = 0.0000 Pseudo R2 = 0.3497

(t values in parenthesis)Log Likelihood = -165.9481

4.7 Model 2: Estimating Fertilizer subsidy effects on Commercialization;

The Probit Approach.

Participation in commercialization can be viewed as a binary choice decision problem by farm

households that try to maximize utility. Utility is determined by a set of variables that influence the

ability of the household to participate in a particular channel. This includes the ability to adjust costs to

meet specific market pathway requirements. To test the effect of commercialization econometrically, it

is necessary to develop a proxy which captures the variation in household behavior across the sample

(Govereh J., Jayne T.S, & Nyoro J., 1999). As such, we define the Household Commercialization

Index (HCI) as:

(5)

Where

HCI = Household Commercialization Index

gCSij = Gross Value of Crop Sales by Household in a given year

gCPij = Gross Value of Crop Production by Household in any given year

This index measures the extent to which household crop production is oriented toward the market.

A value of zero would signify a totally subsistence-oriented household; a household with an index value

of 100 is completely commercialized (Govereh J., Jayne T.S, &Nyoro J., 1999).

Given that the decision to commercialize is binary and is measured by the value that a famer

derives from market participation, we assume that commercialization can be modeled using a Probit

model which takes the form

Where,

Pr denotes probability, and Φ is the Cumulative Distribution Function (CDF) of the

standard normal distribution. The parameters βare typically estimated by maximum likelihood. The

same equation can take the form of

, (6)

Incorporating a latent Y into this function gives a latent variable function of the form.


72

, ~(0，σ²) Where, (7)

Y can be viewed as an indicator of whether the latent variable is positive or negative

=

Therefore, is the unobservable variable representing a farmer/households discrete decision to

or not to participate in the market. X is the vector of all independent variables hypothesized to affect this

decision and is a vector parameter to be estimated. The variable represents the response variable

for status of household commercialization which takes the value of 1 if the household sells and 0 if the

household makes no sales.

4.7.1 Model 2 Results

The table below (Table 4-6) gives the results of the Probit regression analysis for determinants of

commercialization.

Table 4-6 Probit Regression Results For Commercialization

Variable Coef. Std. Err. Z P > |z| Marginal

Effects

Gender -0.227 0.219 -1.04 0.300 -0.099

Age -0.039 0.094 -0.42 0.674 -0.016

Education Level -0.117 0.908 -1.29 0.196 -0.049

Annual Household Income 0.029 0.101 0.29 0.769 0.017

Group Membership -0.141 0.231 -0.61 0.540 -0.052

Training Received 1.167 0.945 1.24 0.217 0.303

Land Size -0.056 0.037 -1.51 0.131 -0.021

Land Ownership -0.240 0.133 -1.81 0.070* -0.083

Land Under Cultivation 0.086 0.579 1.48 0.138 0.034

Extension Services 0.554 0.493 1.12 0.261 0.209

Area Under Maize 0.199 0.143 1.40 0.163 0.080

Maize Yield -0.000 0.000 -0.22 0.822 0.000

Season of Yield .0653 0.313 2.08 0.037** 0.222

Marketing Channel 0.167 0.117 1.43 0.153 0.069

Status of Feeder roads -1.516 0.292 -1.76 0.078* -0.184

Distance to nearest Agro dealer -0.375 0.152 -2.48 0.013***

Use of Fertilizers -0.217 0.334 -0.65 0.515

Access to financial service -0.038 0.221 -0.17 0.862

Ready surplus market -0.169 0.194 -0.87 0.384

***，**，* implies statistically significant at 1%,5% and 10% level respectively. Log likelihood -109.149, Pseudo R2 = 0.12, Wald Chi Square (19)

= 29.99, Prob >chi2 = 0.052, Number of observations = 186

4.7.2 Determinants of Commercialization

There are a number of factors affecting the commercialization process in agriculture. Someof them

could be named as rapid growth of economies in the both developing anddeveloped countries,


73

introducing of new technologies, market expansion, marketliberalization, urbanization, rapid increase of

demand for food, decreasing of farmingpopulation, liberalized and open economic policies, bilateral and

multilateral economicagreements, developed infrastructure facilities in farming areas and

governmentagricultural policies. In the developing economies of South Asia where commercialization

has resulted into highly sophisticated value chains and ―supermarkets‖, drivers of agricultural

commercialization include rising incomes,changing dietary consumption patterns,urbanization, female

labor forceparticipation, changing demographicsand the growth in export opportunities.As smallholders

progress from subsistence towards market orientation, the success and failure of the process is

influenced by several environmental (like socio-economic factors), farm level (like farm resources) and

individual (like skills). Farmer-specific characteristics, household size, asset endowment, access to

non-farm income, and transaction cost related indicators such as distance to the nearest market town age

and gender significant in influencing commercialization. Among the farm specific variables the farm

level determinants of increasing commercialization are the rising opportunity costs of family labour and

increased market demand for food and other agricultural products, fertilizer and planting materials

distance to bank and the number of crop enterprisesgrown by the farmer are significant in influencing

commercialization. The study finds anegative significant effect of distance on market participation.

Results further show that, amongcapital endowment variables, education level, non-farm as well as total

farm incomepositively influence the commercialization process. Among the institutional factors,

access to credit, infrastructure, and input distributionare found to be most important, and most of these

determinants are in thepublic domain. Credit, infrastructure, extension, and education are all provided

by thestate. The driving forces generally behindcommercialization include population growth and

demographic change; urbanization; development ofinfrastructure and market institutions; development

of the non-farm sector and broader economy; risinglabor opportunity costs; and macroeconomic, trade,

and sectoral policies affecting these forces (vonBraun, Bouis, and Kennedy 1994; Pingali and Rosegrant

1995). At the local level, commercialization isalso affected by many factors, including agro-climatic

conditions and risks; access to markets andinfrastructure; community and household resource and asset

endowments; development of localcommodity, input, and factor markets; laws and institutions; and

cultural and social factors affectingconsumption preferences, production, and market opportunities and

constraints (Pender, Ehui, and Place2006). Similarly, improved access to roads, land areaand quality,

and livestock increase the likelihood of maize selling. Collective action (farmer groups) as well as use

of ICT tools (mobile phones)significantly and positively affected commercialization.Maize production

is the only factorsignificantly increasing maize sales. Overcoming the commercialization barrier

requires an upgrading process that includes investment in local infrastructure, strengthening of business

services, and improving farmer skills.Farm size and irrigation has positive implication on households‘

market participation of horticultural crops. The size of land allocated for horticultural crops affected the

smallholder commercialization of horticultural crops positively and significantly. There are also

exogenous forces that drivecommercialization and these include populationand demographic change,

urbanization,availability of new technologies, infrastructureand market creation, macroeconomic and


74

tradepolicies. These factors affect commercializationby altering the conditions of commodity supplyand

demand, output and input prices, transactioncosts and risks that farmers, traders and othersin the

agricultural production and marketingsystem have to cope with.

4.8 Definition of Variables

The Table below (Table 4-7) provides information on the variables that were used in this study.

Table 4-7 Description Of Variables

Variable Description Measurement Expected

Sign

Gender Gender of the household head 1 Male

2 Female

+

Age Age of the Household Head 1 < 20,

2= 21-30,

3=31-40,

4=41-50,

5 =51-60,

6= 60 >

+

Marital Status

Marital Status of Household 1=widowed

2=single

3=married

+/-

Household status

Household head 1=male

2=Female

+

Family income source Sources of family income 1=farming

2=employment

3=employment

4=business

+

Proof of Ownership

Availability of land title deed 1=yes

0=no

+

Amount of Fertilizer used

Quantity of fertilizer applied Kilograms +

Sale of produce Farmer sold produce 1=yes

0=no

+

Maize yield prev. season Maize production in previous season Kilograms +

Group Savings

mobilization

Group undertakes savings 1=yes

0=no

+

Education Level Education of the Household head 1 = None

2 = Incomplete

Primary

3 = Completed

Primary

4 = Incomplete

+


75


Sign

Secondary

5 = Completed

Secondary

6 = Village

Polytechnic

7 = Tertiary College

Annual Household Income Annual Income of the household 1 = <20000

2 = 20001-40000

3 = 40001-60000

4 = 60001-80000

5 = 80001-100000

6 = 100001>

+

Group Membership Group Membership of the household 1 = in group

0 = Otherwise

+

Training Received Training Received by the household 1 = in group

0 = Otherwise

+

Land Size Size of Land that is owned by the household Acres +

Land Ownership Type of land ownership held by the household 1 = Freehold with

Title

2 = Freehold without

Title

3 = Rented

4 = Communal

5 = Other

+

Land Under Cultivation Acreage of land under cultivation currently by

household

Acres +

Extension Services Extension services received or available to

household

1 = in group

0 = Otherwise

+

Area Under Maize Area of land used in Maize production. Acres +

Maize Yield Maize yields realized by the household in the

particular season.

90 Kg Bags +

Season of Yield Season when the maize was harvested. 1 = Long rains

0 = Short rains

+/-

Marketing Channel Available options through which the household

disposes its maize.

1 = Sold at home,

2 = Roadside/Farm

gate,

3 = Market

+

Status of Feeder roads Condition of roads in the study area. 1 = All-weather

0 = Otherwise

+

Distance to nearest Agro

dealer

Availability of agro dealers and support

structures.

1 = < 3km,

2 = 3 to 5km,

3 = 5 to 10 km,

4 = >10km

+


76


Sign

Use of Fertilizers The household‘s use of fertilizer in farming. 1 = yes

0 = otherwise

+

Access to financial service Ability of farmer to access formal financial

services

1 = yes

0 = Otherwise

+

Ready surplus market Availability of ready market for surplus produce. 1 = yes

0 = Otherwise

+


77

Chapter 5 FINDINGS AND DISCUSSION

5.1 Descriptive Statistics

The following section contains the descriptive statistics and results for the variables used in the study.

5.1.1 Background information

This section describes the personal information about the households in the survey.

Table 5-1 Descriptive Statistics For Farmers Personal Information

Variable Obs Category Unit % Mean Std. Dev.

< 20 8 6%

21-30 26 18%

31-40 42 29%

Age 144 41-50 36 25% 3.451389 1.261755

51-60 25 17%

60 > 7 5%

Gender 144 Male 91 63%

Female 53 37% 1.368056 0.4839599

Widowed 15 10%

Marital Status 144 Single 8 6% 2.736111 0.6367104

Married 121 84%

None 23 16%

Incomplete Primary 36 25%

Completed Primary 58 41%

Education 143 Incomplete Secondary 1 1% 2.895105 1.499828

Completed Secondary 15 10%

Village Polytechnic 4 3%

Tertiary College 6 4%

2to5 51 35%

6to10 73 51%

Household Membership 144 11to20 18 13% 7.145833 3.696471

21> 2 1%

Farming 129 93%

Farm Income 138 Employment 6 4% 1.086957 0.3518099

Business 3 2%

Casual 16 62%

Employment 26 Formal 10 38% 1.384615 0.4961389

<20000 42 47%

20001-40000 26 29%

Household Income 90 40001-60000 11 12% 38971.11 55497.02

60001-80000 1 1%

80001-100000 4 4%

100001> 6 7%


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The average age of the smallholder farmer in Kenya is estimated at 60years, this survey found out

that over 50% of the farmers interviewed and who benefited from the subsidy programme were between

the ages of 31 to 50 years comparing well to the national average age and indicating that the farmers in

Tana River are relatively younger that those in the other parts of the country. Of the 144 farmers

interviewed in this study 63% were males indicating that men were more involved in decision making in

the family and agriculture. These findings are also consistent with religious factors prevalent in the

study area that tend to put men in the forefront on matters involving contact with the outside world and

decision making especially where representation is required. Consistent with the age bracket a majority

of the farmers interviewed (84%) were married, and most being in their youthful stage of life revealed a

lot of eagerness to provide for their families and succeed in agriculture which is a major source of

income for the family.

The study found out that consistent with the low levels of education in the county

(http://www.crakenya.org/county/tana-river/) a majority of the farmers had only Completed Primary

education. A big proportion of the farmers is noted with concern did not have (16%) or had not

completed the initial basic level of education (25%) a fact that impinges heavily on the level of

information access and utilization of modern farming techniques among the smallholder farmer.

The study found out that the county has relatively big Household sizes averaging six (6) to ten (10)

persons per household (accounting for 51%), while this offers an advantage in terms of labour it also

presents a challenge in food security and nutrition given the many mouths to feed. This is further

confirmed by the fact that very few of the farms income is diversified, with the study finding out that

over 90% of the farms income depends on the products from the farm. This exposes the farmers‘

vulnerability to market conditions and weather and climate change effects. For the farmers who venture

out of the farm to seek for employment (and this is only a small proportion 26 out of 144) 62% engage

in casual jobs that do not provide the needed income security to the family and are not well paying

enough to be able to invest back to the farm for improved productivity and economies of scale.

Consistent with the level of poverty prevailing in the county (70.9%

http://www.crakenya.org/county/tana-river), the study found out that the mean annual Household

income was Ksh.. 38,000 (USD 457) or USD 1.20 per day, with a majority earning less that Ksh..

20,000(USD 240) or USD 0.70 per day.

Table 5-2 Descriptive Statistics Group Membership And Activity

Variable Obs Category Unit % Mean Std.

Dev.

Group Membership 144 Member 97 67% 0.4705281 1.326389

Non Member 47 33%

Willingness to join group 111 Willing 106 95% 0.2083436 1.045045

Not Willing 5 5%

Activities of the group 107 Savings 17 16% 0.7558623 2.457944

Credit 24 22%

Production &

Marketing 66 62%

http://www.crakenya.org/county/tana-river/


79

Common interest groups (CIGs) are farmer organizations established to promote special group

interests within the communities. Groups formed under the CIG format aim at alleviating poverty,

enhancing food security, and improving access to inputs and extension services. Farmers in Tana River

country recognize the need to belong (95%) and the essence of participating (67%) in groups and do so

mainly for improving production and marketing of produce (62%). Groups are important community

structures tor mobilizing savings and availing safe and affordable credit to group members. This aspect

of group membership has however not found much root in the county as the results indicate that only

16% and 22% join groups for savings and credit. Agricultural input subsidies therefore bridge the gap

that lack of savings and access to cheap credit tends to create. However for the long term CIGs need to

enhance savings and avail affordable credit to its members through cereal banks and small-scale table

banking projects. NAAIAP has within it a component of resource mobilization and savings through

cereal banking groups that help farmers save their produce during times of plenty and through the

warehouse receipting system avail credit to farmers with produce stock as collateral. This concept is

picking up with farmers finding out that they could borrow funds for use during critical periods like

planting when the farmer needs to purchase seeds and fertilizers.

Table 5-3 Descriptive Statistics Land Ownership And Production

Variable Obs Category Unit Per。 % Mean Std. Dev.

Freehold with Title 3 2%

Freehold without Title 59 41%

Land ownership 143 Rented 18 13% 3.006 1.003

Communal 60 42%

Other 3 2%

Whether farmer uses

inputs 144 Use Inputs 141 98% 1.020 0.143

Don‘t Use inputs 3 2%

Type of Inputs used in the

last 6 months 140 Fertilizer 22 16% 3.078571 1.303387

Manure 21 15%

Certified seed 47 34%

Own Seed 24 17%

Pesticides 26 19%

Landsize 144 4.102431 11.59358

Area Cultivated 143 2.984266 11.64919

Extension Services Rec. 144 1.118056 0.3238002

Area Under maize 144 1.277083 0.6633744

Amount of inputs used 144 45.97222 17.58414

Maizeyield 144 10.52455 9.675623

Maize Production 144 0.9472094 0.870806


80

Land is critical factor of production in agriculture. Land ownership in Tana River is therefore

critical for security of enterprise and for sustainability of production. Smallholder land sizes in Tana

River County were found to range averagely at 4 acres per household. This is due to the fact that the

county has huge tracts of land and a relatively sparse population averaging 6 persons per square

kilometer. However not all of this land is consistently put into good production use as the study found

out on average only one half to three quarters of the land (2.9acres) is cultivated with crops in any given

season. Land ownership also provides collateral with which to access credit and other related services.

The study found out that almost all of the land in the county is either held freehold without title (41%)

or is held in trust by the community as communal land (42%) consistent with the fact that almost all the

land in the county is either Trust land or communal land. Of great interest was the fact that almost all

the farmers interviewed for this study agreed that they use inputs (98%) consisting mainly of certified

seed (34%) this is interesting given the low levels of credit and savings within the farmer community

and low household incomes. One reason for this high use of inputs especially certified seed could be the

provision of the same through subsidy programmes run by Kenya Red Cross, National Irrigation Board

and the Ministry of Agriculture that provide seed at critical planting seasons to the poor and vulnerable

members of the community.

Extension service delivery is provided mainly by the Ministry of Agriculture, extension message

delivery enables the farmers to make informed decisions and to access relevant and current market and

production trend information for improved food production and food security. With limited education

levels within the county extension service delivery is constrained in its choice of delivery methods and

is in most cases limited to Training and Visit to farms by extension agents. In the recent past however

CIGs have been used to train farmers and deliver extension messages to groups of farmers who then

serve as model farmers to the other members of the community. Learning takes place through transfer of

practical knowledge among farmers who might not know how to read and write and these model

farmers can then use the knowledge obtained from CIGs to pass on the same to their siblings and

neighbors in a local language that is comprehensible to the illiterate farmers. The study found out that

most of the farmers reported that they had received extension services from the ministry of Agriculture

extension agents which is commendable given the low levels of staff in the county, the poor road

infrastructure and the sparsely spread villages.

The study found out that of the four (4) acres that were under cultivation at least one (1) acre was

put under maize production with some farmers putting as much as three (3) acres of the total area under

production under maize. These findings are consistent with the national statistics that indicate that most

farmers grow maize at least once in the two seasons in Kenya. Whereas it is important to note that the

county is hot and dry a large portion of the maize crop is grown under irrigation or flood recession along

the river.

Use of certified seed is seen to approach the recommended 10kgs per acre with the findings

showing that of the average use of certified maize seed was 46Kgs giving an average of 15kgs per acre

given the average available area under maize production. Given this high level of certified maize seed


81

application the corresponding maize yield which average at 10bags per acre or approximately 0.9tonnes

per acre is still way below the potential of 25bags per acre and most of this yield can be attributed to

low levels of pest, irrigation and planting more than two seeds per hole.

Table 5-4 Descriptive Statistics Type And Access To Financial Service

Variable Obs Category Unit % Mean Std.

Dev.

Accessed Financial Services 144 Accessed 17 12% 1.881944 0.3238

Not accessed 127 88%

Savings 2 12%

Credit 12 71%

Type of financial service 17 Payments 1 6% 2.235294 0.970143

Remittance 1 6%

Other 1 6%

Smallholder farmers are the world‘s largest group of the poor working class. Much of the world‘s

food supply continues to depend on their efforts, yet lack of financial services often stymies their

attempts to make productivity – enhancing investments and to smooth their consumption between

periods of plenty and scarcity. Capital – constrained farmers minimize risk instead of maximizing

returns for example by investing in high-quality seed and fertilizer or growing what is most profitable.

Tana River County is home to both formal and informal financial institutions which serve business,

farmers and employees within the district. The study found out that among the financial services

preferred by the farmers were commercial banks like Equity bank, Barclays Bank, Kenya Women

Finance Trust, Kenya Commercial Bank and Tana Teachers Cooperative Sacco. Among the informal

financial institutions that were preferred include the famous mPesa money transfer and saving facility

which is a mobile phone platform through which farmers can save and transfer funds and even make

small payments through agents. The study found out that there were also a host of micro financial

institutions operating within the county that were run by various groups and supported both by the

commercial banks, government and private Non-Governmental Organizations. Given the vast network

of banks, available money transfer platforms and micro financial institutions a majority of the farmers

still reported that they had not utilized these vast opportunity availed by commercial banks for savings

and credit to improve their businesses. Of the 144 respondents only 17 representing a meager 12% of

the entire farming community had accessed commercial services. This could be attributed to a lack of

collateral with most land being held as freehold without titles or communally, fear associated with

losing assets resulting from financial impropriety, lack of interest in expanding commercial endeavors,

dependency syndrome, religious limitations on borrowing and interest remittance and a general lack of

information due to low levels of education. Of the 17 who accessed financial institutions the majority

(71%) did so for credit support. This could account for the small but growing group of model farmers

within the county that have adequate information and training on financial education and who practice

farming as a business.


82

NAAIAP in recognition of this prevalent lack of financial literacy among farmers has taken a two

pronged solution profile to this problem. The programme has introduced farming as a business training

modules through its Agribusiness development officers at the State Department of Agriculture sub

county level and is also working with commercial banks to provide accessible and low interest credit to

farmers through its Kilimo biashara programs that seek to link farmers to credit. Kilimo biashara offers

collateral to farmers through offering banks credit guaranteed funds for any funds that will be loaned to

farmers though the facility. Kilimo biashara is a low interest capital package for better endowed

enterprise-oriented farmers who are constrained by capital.

Results for the MNL are presented in Table 4-5. Annual household income is used as a measure

of the level of poverty and vulnerability at the household level. Contrary to programme design and

objectives our results indicate that at lower levels of annual household income only sales and group

savings correlate positively to annual income. Education levels, market infrastructure and group

membership were significant but did not contribute positively to increased household incomes amongst

the very poor. In very low level income households what is sold at the farm gate contributed to a very

large extent to the family income and in most cases due to the formalities of credit availability and low

levels of education groups become an important and in many ways a sole source of credit for

reinvestment into agriculture，partly accounting for the highly negative but significant relationship

between extension services and household income. Studies done (Hahlbrock and Hockmann, 2011) in

Russia, support the fact that group affiliation has a positive effect on the performance of the farm.

Similar studies in Mali (Baden, 2014) find that group members were more empowered than

non-members in the realms of decision-making over agricultural income, access to credit, technology

transfer and freedom of movement. Farming households store, sell or consume on farm production. The

potential for and wisdom of storing, consuming or selling and saving the earnings from retail purchases

are determined primarily by the spread between farm gate and retail market prices, shifts in this

relationship between these prices from one season to the next affect farmers profoundly and group

saving not only provide financial security and a low cost form of insurance but provide a viable option

for smoothing out market volatility effects.

In the middle incomes category marital status and group savings were found to be significant and

positively affected annual household incomes with household status, land size, use of inputs, group

membership and having a ready outputs market remained significant but did not have a positive

influence on household incomes. Studies (Uneze, 2013) confirm that savings is important for

accumulation of capital required to generate future incomes and as such group savings have been shown

to be vital for securing credit and low interest loans. In a predominantly polygamist Islamic community

like the one in which this studies were carried out marital status is commensurate with larger families

and more labour and thus more income, given that women and children are known to be most active in

farm work. The study found out that in the middle income category land size is also a significant

At higher levels of household income only sales had a positive and significant effect on income


83

this could be attributed to the fact that at higher levels of income farmers are better linked to and

integrated into the market than lower income farmers and thus are already experiencing the benefits of

commercialization. Whereas season of yield and use of inputs were found to have a significant impact

on the incomes of this category of farmers this effect was found to be indirect. This could explain the

fact that most farmers at these levels of household incomes find fertilizer purchase and use extremely

unaffordable with each purchase having a direct negative effect and sometimes leaving a huge impact

on household income and this could account for the reasons why farmers at these levels of poverty and

vulnerability fail to use these inputs. This being a predominantly arid and semi-arid area commodity

markets are also prone to shocks (droughts and relief supplies) that cause crop prices to behave in

―contra-seasonal‖ manner.

When controlled for use of fertilizer in the last six months season of yield assumed positive

significance of the low income farmer group. For farming communities that depend on the fluctuating

commodity markets where the relationship between the seasonal production and prices greatly affect

household incomes, cyclical seasonal price quantity variations in the markets therefore determine to

what extent the farmer can recoup investments and derive benefits from market sales and farming.

Similar scenarios prevail for the middleincome category of farmers with sales becoming significant as

well. Thus the covariance of price and farm incomes, and the opportunities and ability to produce

inter-temporally at reasonable cost determines the extent of transitory benefits of fertilizer use.

The results of probit model estimation for the determinants of the probabilities of households

engaging in commercialized farming or not given participation in the NAAIAP programme are

presented in Table 4-6. Maximum likelihood method was used to determine the decision of the

household to commercialize. The marginal effects were used to explain the results due to the difficulty

in interpretation associated with unobserved y* variables. Model Chi square tests given appropriate

degrees of freedom indicate that the overall goodness of fit of the probit model are statistically

significant at 5% probability level. Pseudo R2 values indicate that the explanatory variables in the

regression explain 12% variations in the likelihood of farmers within the project to commercialize.

Results obtained from the probit estimation indicate that the probability of a farmer who

participates in the programme commercializing is influenced by Land Ownership, Season of Yield,

Status of Feeder roads, and Distance to nearest Market/Agro dealer. The study finds out that with

the exception of Land size and Land ownership all the other independent variables had the expected

signs.

Land Ownership was also significant with without the expected positive sign and effect on

commercialization at 10% level. Results indicate that commercialization is predicted to fall by 7% for

every land that is owned by the farmers in Tana River County. Land ownership in the county is

primarily public, meaning that most of the land in the county is government land with a very small

proportion of trust and private land holding. The effect of lack of title ownership is seen as a deterrent

for investments and a hindrance in accessing capital from financial institutions thus impacting


84

negatively on commercialization.

Season of yield is found to be significant at 5% and with the expected positive sign. Given the

unpredictable nature of the rains in the Arid and Semi-arid areas and with most farmers planting crops

along the river that is subject to seasonal flooding it makes sense for seasonality to affect productivity

through its impacts on flood recession agriculture. The study finds that a change in season results in a

4% change in the probability of farmers commercializing. Similar findings by (Pender J, & Alemu D.,

2007) citing Pender, Ehui, and Place2006) support the role of agro climatic conditions on the extent of

commercialization among smallholder farmers.

Status of feeder roads in the county was found to have the expected sign and significance at 1%

level. A kilometer of improved feeder roads would probably results in increased commercialization

within the county of up to 8%. Surplus production does not reach markets due to lack of reliable

infrastructure. Given the vital role of roads in enhancing access to markets and reducing transaction

costs, an increase in the investment of public funds in the improvement of roads and other market

enhancing structures and facilities will ensure that vulnerable farmers not only earn more from their

sales but access necessary inputs on time and at a reduced cost all of which impact positively on their

production and productivity. These findings are consistent with those of other studies (Jagwe JN, 2011;

Jha D., & Hojjati B., 1993) on the effect of transaction costs and infrastructure on agricultural

transformation.

Tana River County has centralized partly formal fresh produce market that are located in the major

towns. It is also very common to find Agro – dealers locating their stores in the market centers as well.

This study finds that distance to markets/Agro – dealers is found to negatively affect commercialization

as is expected and is highly significant at 1%. The study finds out that for every additional Kilometer

away from the market/Agro-dealer the farmer loses a 1% chance of accessing the markets and realizing

the benefits of commercial agriculture. Given that agricultural products are perishable any additional

increase in distance compromises quality and therefore price of the product. In addition to the effects of

and losses resulting from poor state of feeder roads, the farmer risks losing not just quality of produce

but also incurring additional transaction costs as well. These findings are consisted with those of

(Gebremedhin B., &Jaleta M., 2012; Jagwe JN, 2011) on the effects of transaction costs on the

participation of farmers in the market.

中国农业科学院硕士学位论文 CONCLUSION AND RECOMMENDATION

85

Chapter 6 CONCLUSION AND RECOMMENDATION

The National Accelerated Agricultural Inputs Access Program (NAAIAP) was designed by the

Kenyan government as safety net program for poor farmers who did not have adequate financial

resource to purchase farm inputs during every production cycle and to address the issues of extreme

hunger and poverty in line with the MDGs. This program was intended to benefit those households that

were before then using insufficient or no fertilizer and seeds for their production. However, results from

our analysis indicate that even within the poor and vulnerable farmers such a blanket program fails to

achieve its objectives given the disparities and resource endowments in the various groups of farmers

due to their productive capacity and income levels. Contrary to programme design and objectives our

results indicate that at lower levels of annual household income only sales and group savings correlate

positively to annual income In the middle incomes category marital status and group savings were

found to be significant and at higher levels of household income only sales had a positive and

significant effect on income. Market access plays an essential role in assuring better income and welfare

levels for smallholder producers, and thus contributes to poverty alleviation. The majority of the

smallholders in Kenya cultivate their farms for subsistence and very little of this production gets to the

market. These results are consistent with previous research studies (Azam et al., 2012; Omitiet al.,2007

and Tung and Costales, 2007) on smallholder market access who found out that by creating demand for

production inputs and investment goods, markets promote economic growth. In addition Market

linkages, support infrastructure and structures that are friendly to the poor and vulnerable. However at

village level, market participation is hampered by poor quality and high cost of inputs, high transaction

costs, high market charges and unreliable market information.However significant provision of inputs to

poor farmers may be to reduce their production costs market infrastructure and institutional aspects of

market access are crucial for improving opportunities of smallholders for increased market participation

and in addition to determining market orientation; infrastructural and institutional conditions have a

significant bearing on scale of small holder production.This study proposed the introduction and/or

strengthening of Farmer Saving groups (FSGs) which are self-managed community-based groups

composed of between 10 and 20 members that provide basic financial services to their members as a

key component of the NAAIAP program. These groups respond directly to felt needs within the

community through provision of secure saving platforms, basic loaning facilities with flexible terms and

some form of insurance against fluctuations in the market. These groups offer simple and cost effective

entry level financial services to people who are poor or isolated from mainstream financial service

providers.

Agricultural transformation in small holder agriculture takes the form of moving farmers from a

subsistence existence to a commercial oriented type of production. In order to do this governments must

put in place policies that enhance agricultural transformation and which create a more market friendly


86

environment to farmers both to access and participate in agricultural markets. NAAIAP is one such

programme that was initiated by the government of Kenya to help solve the twin problems of on farm

productivity and spur commercialized agriculture that would result in reinvestments in improved agro

production systems. These goals though noble have been difficult to achieve due to information

asymmetries existing between the desired and the actual situation affecting poor and vulnerable farmers

in the semi and arid areas of Kenya where this programme is also implemented. This study finds out that

key determinant of commercialization is distance to markets/Agro-dealer outlets was the most

significant factor that influences a farmer‘s ability to commercialize production. Distance affects not

only a farmer‘s physical access to the produce market but also hinders access to the inputs market as

well. Many farmers opt to sell their produce at lower than market prices due to disincentives to market

access like distance. Government policies should therefore aim to reduce this distance through policies

that enhance physical ability to access markets. In many parts of Kenya farmers through use of ICTs

like mobile phones have been able to access markets beyond their physical locations, policies that

support and enhance this type of capacity to farmers should also be pursued by the government. Land

was found to be one of the determinants of commercialization among farmers within the NAAIAP

programme. Land is a critical factor of production and therefore the size and quality of land are key to

productivity. Larger tracts of land under prudent management produce more relative to small pieces of

land under similar conditions. Land however is a finite resource that should be utilized well for

production, and this can be achieved through intensity and sustainable use. Policies that enhance

sustainable and maximum use of land potential should therefore be put in place to ensure smallholders

derive maximum benefits from their productive units. Land ownership as a major determinant of

commercialization confirms the need for security of tenure in smallholdings. Land being both a

productive and a capital resource enhances a farmer‘s assets and therefore ensures their credit worth.

Limited access to credits has ensured that many smallholder farmers remain small a major reason being

the inability to access loans from commercial entities and micro financial institutions due to lack of

collateral security. With secure land tenure systems farmers are given the confidence to enhance

production and invest in their production units. Policy interventions aimed at supporting farmers to

obtain titles for their pieces of land are necessary to provide security of tenure to smallholder farmers.

Land determines the quantity of output per unit of productive land a farmer can achieve. Productive

land is influences by a farmer‘s ability to put available land into productive use. A major constraint to

putting larger tracts of land to productive can be identified as lack of capital to invest in modern

technology or lack of adequate labour to till available land. Other factors include a lack of incentives

and mixed price signals from agricultural markets. Supported through relevant policies that enhance

market information access and capital to purchase or hire labour and equipment, it is expected that

farmers will put more land under production than is currently available. Land productivity should also

be encouraged through the use of modern inputs and irrigation to maximize available land potential.

Agro – climatic conditions affect productivity and are a major determinant of commercialization among

smallholder farmers. Season of production affects not just the quantity and quality of rainfall and


87

available moisture but crop pests and the prevailing market conditions. Farmers are greatly affected by

seasonality of production a factor that has been blamed for keeping smallholder farmers poor. Return to

investment remains cyclical therefore rendering farmers unable to plan their investments, save or

achieve credit worthy status in major financial institutions. Policy interventions that enhance seasonal

production planning, investments in storage, and produce banks are necessary to ensure that farmers

achieve a more stable returns to investment cycle and spur investment. Investments into small scale

value addition to improve keeping quality will also ensure that farmers can access higher level markets

and join the supermarket supply chain. Status of roads is a significant factor in determining

commercialization given that most small scale farmers are located in the rural areas that are far removed

from urban areas where infrastructure conditions are relatively better. This lack of proper all weather

roads subjects farmers to additional transaction costs when they seek markets that are mainly located in

urban areas. The poor road networks also ensures that even when buyers are capable of accessing the

farmers produce they may not have the incentive to do so preferring instead more accessible suppliers.

In Tana River it is not uncommon for huge sections of farms to be cut off due to floods or impassable

roads resulting from heavy rains that wash away roads that link the farmer to the market. Policy

interventions that ensure market access roads are established, maintained and improved are critical for

commercialization as they attract buyers and ensure easy access to produce markets.

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中国农业科学院硕士学位论文 ACKNOWLEDGEMENT

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ACKNOWLEDGEMENT

I am grateful to God for the good health and well-being that were necessary to complete this study.

I wish to express my sincere thanks to the Chinese Government through the Chinese Scholarship

Council for providing the necessary scholarship funding for my studies in China. I place on record my

sincere thanks to the Graduate School of the Chinese Academy of Agricultural Sciences led by Ms. Pan

Dong Fang and her able team of Ms. Grace, Ms. Sally and Ms. Oliver for admission into the Masters

Programme and for the continued support and encouragement. I am also grateful to Prof. Nie Fengying

and Prof. Fang Cheng (EST) my able supervisors to whomI will be extremely thankful and indebted for

sharing their expertise and sincere and valuable guidance and encouragement through my entire study. I

take this opportunity to express gratitude to all staff and students of the Institute of Agricultural

InformationMs. Jiaqi, Ms. Bi, Ms. Gure, Ms. Sun, Mr. Zhang, Mr. Liu, Mr. Zhou and Ms. Huang

Yangfang for their help and support. My sincere gratitude also go to my fellow international students Mr.

Nobeji, Mr. Eliamoni, Ms. Gbete, Mr. Samesh, Mr. Daninga and Mr. Charles from whom advice and

support was sort on numerous occasions than can be mentioned. I will forever be grateful to my

belovedwife Sofia, son Wise and daughter Precious for their perseverance, support and encouragement

through the dark and happy times that punctuatedmy entire study period. This effort will remain my gift

to you forever. Finally, I also place on record, my sense of gratitude to one and all, who directly or

indirectly, lent a hand in this study or other aspects of my stay and study in China, you will forever be

remembered and cherished for your kind heart and support.

FERTILIZER SUBSIDIES: A STUDY OF POLICY EFFECTS ON MAIZE IN KENYA.

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