Abstract:
Smallholder farmers produce the bulk of total milk marketed in the country. Despite this,
they face high transaction costs in marketing their milk. Theory and empirical evidence indicate that cooperatives can minimize transaction costs. This study assessed how effective cooperatives were in increasing smallholder dairy farmers’ incomes through the minimization of transaction costs. The objectives of this study were to determine socioeconomic factors influencing smallholder farmers to become cooperative members, how effective the cooperative was in minimizing transaction costs and the constraints and strategies for improving dairy cooperatives. Data for this study was collected through a cross-sectional survey in Embu County. Systematic random sampling was employed to select smallholder dairy farmers who are members of the dairy cooperative society while simple random sampling was used for non-cooperative members. The sampled farmers were interviewed using a structured questionnaire. Binomial logit model was used to analyze the socio-economic factors, descriptive statistics analyzed the transaction costs faced and two-stage Heckman model analyzed the effects of cooperatives in minimizing the transaction costs. Constraints affecting dairy cooperatives were analyzed using exploratory factor analysis. The results showed that gender, age, herd size, distance to the market and the cost of transportation influenced farmers decision to participate in dairy cooperatives. Herd size, market satisfaction, amount of milk sold, household income, market access, price information, credit access and extension significantly affected the income received from milk sales thereby reducing the transaction costs faced by smallholder farmers. The study found critical constraints included delayed payments, lack of management skills, stiff competition from hawkers, inadequate milk testing, milk losses due to rejection, lack of target setting, low capital base, general insecurity an limited partnership. The study also came up with possible strategies for improving the cooperative. These strategies were increased and stable milk prices, better management, adequate staff, and timely payments among other strategies. The study recommended increased support programs by the cooperative, local government and national government, and provision of credit facilities and technical inputs to reduce transaction costs faced by smallholder farmers
