Effect of maize sourcing strategies on firm income in Kenya's milling sector

Abstract

Maize is a staple food in Kenya, and the maize milling industry plays a critical role in ensur- ing national food security. However, fluctuations in local maize supply and prices have led to increased reliance on imported maize, raising concerns about the operational sustainability and income of milling firms. This study examines the effect of maize sourcing strategies, lo- cal versus combined (local and imported), on the income of maize milling firms in Kenya. The research aimed to characterize the structure of maize milling firms, identify factors influ- encing their sourcing decisions, and analyse the income implications of these sourcing strate- gies. Data was collected from 106 firms using semi-structured questionnaires, analysed with descriptive statistics, a bivariate probit model, and two-stage least squares (ZSLS) regression to assess determinants of sourcing decisions and their impact on firm income. Findings re- vealed that 6O.38% used only locally produced maize, While 39.62% used a combination of both locally produced and imported maize. Additionally, large firms prefer a balanced ap- proach of both local (50%) and combined (50%) sourcing, While medium and small finrrs predominantly rely on local maize. Micro firms mostly source locally (84%) but exhibit slight variability, with some (16%) adopting combined sourcing. Larger firms invest in ad- vanced milling technologies and skilled labour, while smaller firms generally use simpler, cost-effective technologies and semi-skilled employees. Key factors influencing sourcing de- cisions include employee skill levels at 5% significance level for both the sourcing strategies, monthly sales (5%), government subsidies (10%), import licenses (1%) and access to maize from the National Cereals and Produce Board (NCPB) (5%). Firms using both local and im- ported maize report higher sales at 1% significance level, higher revenue (at 5%), and higher gross margins (5%), than those relying solely on local sources, While financial constraints and firm location also influence sourcing choices at 5% significance level, with financially con- strained firms more likely to source locally. The study concludes that, despite higher associ- ated costs, combined sourcing provides financial benefits, particularly for smaller firms. Rec- ommendations include supporting technology upgrades for smaller firms to improve produc- tion efficiency, assessing the impact of subsidies and NCPB purchases to balance local and combined sourcing, and providing targeted subsidies to reduce transport and procurement costs for micro and small finns, ultimately enhancing the economic stability of the maize milling sector and contributing to Kenya's food security.