Effects of choice of milk marketing outlet on smallholder Dairy farmers’ credit market participation and incomes in Western Kenya

Abstract

Cooperative societies play a crucial role in bringing people together from diverse backgrounds to achieve common goals. These societies are key to Africa's economic development, particularly through improving food security, providing inputs, financial services and influencing policies. By acting collectively, smallholder farmers benefit from reduced transaction costs, increased access to better markets, and enhanced bargaining power. Despite efforts by the County Governments of Homa Bay and Nyamira to enhance milk production and marketing through registered dairy cooperatives, some smallholder dairy farmers still choose to sell their surplus milk to alternative outlets rather than cooperatives. This results in the underutilization of cooling plants, negatively impacting the cooperatives' viability and their SACCOs. The specific objectives of this study were to: (1) determine the factors that influence smallholder dairy farmers' choice of milk marketing outlets; (2) analyze the effects of selling to cooperatives on farmers’ credit market participation; and (3) assess the effect of the choice of fresh milk marketing outlets on smallholder dairy farmers’ incomes. Primary data was collected in Borabu and Rachuonyo South Sub-Counties using semi-structured questionnaires. Yamane's (1967) formula for sample size determination was used to obtain a sample size of 277 households, comprising 153 respondents from Borabu and 124 from Rachuonyo South. Data analysis was conducted using a combination of descriptive statistics, Multivariate Probit, Binary Logit, and Endogenous Switching Regression models. The Multivariate Probit analysis indicated that variables such as age, farming experience, distance to nearest market centers, number of lactating cows and price per litre significantly influenced the choice of milk marketing outlets. The Binary Logit model highlighted that gender, access to extension services, farm size and association membership were significantly influenced the probability of credit market participation. The final analysis demonstrated that off-farm income, years of schooling and herd size positively affected farmers' income. The Average Treatment Effect on the Treated (ATT) showed that cooperative participation increased farmers' income by 9%. The study recommended improving access to milk collection centers, stabilizing pricing and ensuring timely payment to farmers. In addition, strengthening cooperatives' roles in providing financial services, particularly for women and supporting income diversification initiatives would further enhance credit market participation and household incomes.