Transaction Costs and Market Participation Among Avocado Smallholders in Murang’a County

Abstract

Access to market plays a vital role in poverty alleviation among smallholder farmers in Sub-Saharan Africa. Agricultural markets provide income generating opportunities for farmers in rural areas hence improving their livelihoods. Avocado fruit has a high demand in both local and export markets due to its nutritional value and industrial use. However, smallholder avocado farmers have not benefited from this increased demand. The purpose of the study was to assess the effects of transaction costs on market participation among smallholder avocado farmers in Murang’a County. Stratified random sampling was applied to obtain a sample of 384 farmers. Murang’a County was selected because it is one of the leading producers of avocados in Kenya. Findings showed that sales through farmer market organizations had the highest gross margins while sales through local traders had the lowest gross margin. Heckman first stage regression results showed that cost of information search negatively affects the probability of export market participation. Further the results indicated that factors such as years in avocado marketing, membership to farmer organizations and trainings on avocado farming positively affected participation in export market. The second stage OLS regression results revealed that harvesting costs negatively affects the extent of market participation, while factors such as farm size and farm income positively affect participation in export markets. Results of Multinomial regression analysis showed that the probability of choosing brokers was significantly affected by farm size, household head’s gender, education level of household head, time taken to collect avocado, access to extension, farm income and intercropping avocado with coffee. On the other hand off-farm income, dairy cattle kept by the farmer, intercropping avocado with coffee, growing organic avocado, travelling costs to buyer locations, farmer organization membership fees and subscriptions affected farmers’ decision on direct sales to market. Trainings on avocado farming methods, time taken to collect avocados, delayed buying of avocados and off-farm income were among the factors that significantly affected the probability of choosing to market through local traders. Farm gate price reduced the likelihood of choosing brokers and direct sales. This study therefore recommends that strengthening farmer marketing organizations is vital in increasing the number of farmers engaging in export marketing chain. Also there is a need for provision of market information especially on avocado collection dates by the exporters.