Market participation among poor rural households in Kenya

Abstract

Abstract About 80% of Kenya’s population live in rural areas, with half of this proportion being poor. The rural population mainly depends on small scale agriculture for food and income, suggesting that smallholder agriculture remains the major engine of rural growth and livelihood improvement for any pathway that can lift large numbers of the rural poor out of poverty. Meeting the challenge of reducing poverty and improving rural incomes will require some form of transformation out of the semi-subsistence production systems that currently characterize much of rural Africa, Kenya included, to a more commercialized agriculture. Increased market participation by the poor rural people has been found to be important as a means of breaking from the traditional semi-subsistence farming. It has been argued that market-oriented production can achieve welfare gains through specialization and comparative advantage, economies of scale and regular interaction and exchange of ideas. Unfortunately, poor farmers who need this kind of welfare boost may be constrained by several factors in their quest to participate in the market for their goods and services. This study assesses the extent of market participation among poor smallholder farmers in Kenya with a view to identifying constraints to market participation among and potential market opportunities for the poor. We use a three-year panel data set collected in 2000, 2004 and 2007 and across various agro-ecological zones of Kenya under the Tegemeo Agricultural Policy Research and Analysis (TAPRA) project. The data analysis mainly focuses on the characteristics of the poor households and their participation in different input and output markets. Critical questions under the study relate to the levels of participation in markets by the poor, key constraints to output market participation by the poor and the relationship between market participation and transition out of poverty. The study also looks at the factors that affect the likelihood and intensity of participation in different output markets among the poor. The study defines poor households as those whose monthly income per adult equivalent fell below the poverty lines: Ksh 1,347 in 2000; Ksh 1,490 in 2004; and Ksh 1,598 in 2007. The poverty lines were computed by linear extrapolation of the Kenya rural poverty lines for 1997 (Ksh 1,239) and 2006 (Ksh 1,562) as provided by the Kenya National Bureau of Statistics (KNBS). Descriptive results show that the proportion of poor households in the panel data iv decreased from 42% to 37% between 2000 and 2007, a scenario that is well consistent with the general reduction in the national poverty figures reported across that period. The study further reveals that the proportion of poor households is highest in the Western and Coastal Lowlands and Western Highlands and lowest in the Central Highlands, and that 47% of the poor are in the agriculturally low potential areas, mainly the Lowlands. In terms of socio-economic characteristics, the study reveals that the poor households are headed by persons with low literacy levels and are larger in size than the non-poor households. The percent of female headed households is higher among the poor than nonpoor households. Dependency level is also higher in the poor relative to the non-poor households. The poor’s income levels are about five times lower than those of the non-poor households. Combined, the farm (both crops and livestock) is the most important livelihood source for the households, contributing over 68% and over 66% to the income of poor and non-poor households, respectively. After agriculture, poor households rely more on businesses and informal labour activities, which is essentially the informal rural sector, while their non-poor counterparts rely more on income from formal employment sector. Developing agriculture and the informal rural sector would be key intervention areas for helping the poor out of poverty. Poor households own smaller land sizes and are less endowed with assets, suggesting that their agricultural productive capacity is lower. A higher proportion of non-poor than poor households used credit; about 68% versus 41% in 2007, suggesting more limited access to credit by the poor households. Also, a higher proportion of non-poor than poor households had membership in groups, indicating less social capital and/or collective action among the poor than non-poor households. Results concerning market participation across selected commodity groups (maize, vegetables, fruits and dairy) show that poor households have significantly lower production volumes and less market participation compared to their non-poor counterparts. The poor also lag behind in use of productivity enhancing inputs such as fertilizers and improved seeds. Low use of these inputs, coupled with low literacy levels, small land sizes, few assets, and constrained access to credit limit the capacity of the poor to produce surpluses for the market. Yet, among the households that exited poverty during the survey period there are tremendous increases in market participation for various commodities. Among the households that descended into poverty, market participation either declined or increased marginally. These results point to a strong relationship between market participation and exiting poverty, and v indicate the role that access to productive assets, which improves a household’s capacity to produce marketable surplus, can play in poverty reduction. In terms of market concentration, results show that the top 20% of the selling households account for over 70% of the marketed volume for maize, vegetables and fruits and about 60% of the marketed volume of milk, suggesting that the commodity markets are generally very highly concentrated and majority of the smallholders are essentially subsistent. Improving productivity among subsistence-oriented households is therefore critical, and needs to be considered alongside any measures aimed at reducing transaction costs that hinder access to markets. In terms of factors that could enhance market participation for the poor, we find that land size plays a significant role. This suggests that any hope for the poor to make any meaningful gains from agriculture lies in improving productivity of their land as well as improving their access to land. The results also show that membership in farmer organizations/groups is positively associated with increased market participation. Collective action is important in facilitating access to information and, in some instances, credit. Both credit and information are critical in accessing market opportunities. Therefore, increasing social capital among the poor can be of great value in enhancing the households’ access to markets.