THE UNIVERSITY OF NAIROBI
THE ROLE OF COFFEE PRODUCER CO-OPERATIVES SOCIETY ON SMALL
SCALE COFFEE PRODUCTION
NJURU PERIS WAIRIMU
A87/3560/2010
A SPECIAL PROJECT SUBMITTED IN PARTIAL FULFILMENT OF THE
REQUIREMENTS FOR THE BACHELOR OF SCIENCE DEGREE IN
AGRIBUSINESS MANAGEMENT
SUBMITTED TO: KENNEDY PAMBO
APRIL, 2013
Acknowledgment
I wish to thank the Almighty God for the good health, strength and knowledge he has
bestowed upon me.
I would also like to sincerely extend my gratitude to my family, especially my parents for
their support both financial support and moral support, words cannot explain my gratitude.
May God bless you.
I wish to acknowledge Mr. Kennedy Pambo, my supervisor for his endless guidance. Finally,
my heartfelt gratitude goes to my colleagues for their moral and academic support.
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Table of Contents
Acknowledgment ............................................................................................................................... i
List of Tables .................................................................................................................................... iii
List of Acronyms ............................................................................................................................... iii
1.0 INTRODUCTION ........................................................................................................................... 1
1.1 Background information .......................................................................................................... 1
1.2 Problem Statement .................................................................................................................. 3
1.3 Objectives ................................................................................................................................ 4
1.4 Hypothesis ............................................................................................................................... 4
1.5 Justification of the study .......................................................................................................... 4
1.6 Study area: .............................................................................................................................. 5
1.7 Organisation of the project ...................................................................................................... 5
2.0 LITERATURE REVIEW .................................................................................................................... 6
3.0 METHODOLOGY ........................................................................................................................... 8
3.1 Data and sampling procedure .................................................................................................. 8
3.2 Model specification.................................................................................................................. 8
3.3 Variables included in the model ............................................................................................... 9
4.0 RESULTS AND DISCUSSION ......................................................................................................... 11
5.0 CONCLUSION ............................................................................................................................. 13
References ...................................................................................................................................... 14
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List of Tables
Table 1: A table showing the average value of exports, 2005-2009
Table 2: Description of the factors affecting role of producer co-operatives in smallholder
coffee production
Table 3: Indicates the various characteristics of the farmers who were interviewed
Table 4: Analysis of factors affecting the role of producer co-operative societies on coffee
productivity
List of Figures
Figure 1: a graph showing coffee production and exports, 1961-2011
List of Acronyms
EPZA
Export Processing Zone Authority
GDP
Gross Domestic Product
IEA
Institute of Economic Affairs
DFC
Dairy Co-operatives Farmers
LEDC
Least Economically Developed Countries
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iv
1.0 INTRODUCTION
1.1 Background information
Kenya is among the developing countries in Africa that largely depends on Agriculture as the
main productive sector of the economy contributing to the country’s GDP to the tune of 24%
as at 2003.75% of Kenya’s national population is either directly or indirectly employed in the
agricultural sector (EPZA,2005).
The main agricultural crops, Horticulture, tea, coffee and cotton, are mainly grown by small
scale farmers.
Table 1:A table showing the average value of exports, 2005-2009
CATEGORY
VALUE (B KSH)
SHARE
TOTAL
168.5
100%
TEA
53.8
32%
HORTICULTURE
56.7
34%
COFFEE
10.8
6%
SOURCE: MAFAP, 2013
Cleary from the table above coffee does contribute to the total of cash crops shown.
According to (EPZA, 2005) 10% of tea produced worldwide is sourced from Kenya and the
sector provides jobs for 3million Kenyans. The tea sector as an agricultural production sector
is also dominated by small scale farmers being 60% and estates being 40% (EPZA, 2005).
Coffee as a cash crop brings foreign exchange of 6% of the total agricultural exports
(MAFAP, 2013). Although foreign earnings from coffee have been decreasing, there is still a
large population of people who depend on coffee for their livelihoods and thus its production
cannot simply be pushed away (Kegode, 2005).
The decline in coffee exports is attributed to decreased coffee production, declining world
market prices and insufficient credit available to producers (EPZA, 2005).
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Source: MAFAP. 2013
There has been increase in production since independence -1992 before liberalization of the
coffee in Kenya after liberalization production started declining. Questions have been asked
if this is an effect of liberalization (Bichanga and Kabaka, 2013).According to Kegode
(2005), liberalization effects in 1996, lead to a reduction in the payments made to farmers and
unlike other sectors example dairy, liberalization does not allow the Kenyan coffee farmer to
directly access the market, this access can only be gained through co-operatives.
This decline in coffee production has been attributed to fluctuations in world prices, however
this cannot be the full cause since production in some countries has continued to increase,
production practices used by farmers, pests and diseases (CBD and CLR), lack of credit to
purchase inputs like fertilizers(EPZA, 2005).
For Kenya to achieve its vision 2030 goal of agriculture maintaining and sustaining a 10%
GDP contribution in the country, all sectors must grow to ensure this contribution is achieved
(GoK, 2007).
Coffee production was initially on large scale farms. The introduction of the Swynnerton plan
in 1954 allowing Africans to grow coffee on small scale brought about small scale production
of coffee (Bichanga and Kabaka, 2013).
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The coffee production industry is composed of two streams of producers: smallholders who
are serviced by co-operative societies and medium – large coffee estates (IEA, 2000).
Smallholders are over 600,000 who belong to about 550 co-operative unions and operate on
land that spreads to 120,000 hectares while the coffee estate farms are 3300 large scale coffee
farms (MAFAP, 2013).
In the 1960- 1970 a government policy to encourage formation of coffee co-operative
societies was introduced by the government (Kegode, 2005).
A co-operative society is defined as an association of members who seek to achieve similar
objectives within the members. Small scale farmers are said according to EPZA (2005), to
produce the highest quality of coffee despite the increasing costs of production coupled with
decreasing prices and lack of credit for their production. The purpose of forming agricultural
co-operatives by the government was to facilitate collection of farmers produce, its storage
and transportation to buyers and brokers (Gamba and Komo).This was to reduce the costs of
production, processing and marketing by embracing economies of scale the co-operatives.
They were also expected to provide subsidized inputs for farmers’ including fertilizers,
pesticides, fungicides etc and finally receive payments on behalf of the farmers and distribute
to farmers (Gamba and Komo). In the 1970-1980 there was a major boom by smallholders
forming co-operatives following failure of the Brazilian crop (Kegode, 2005).
1.2 Problem Statement
Failure of co-operative societies especially those affiliated with the coffee industry has been
attributed to the cause in reduction of production and small holders abandoning production of
the crop (IEA, 2000). The failure is seen to be as a result of mismanagement of co-operatives,
inefficiencies and lack of transparency of the services provided to farmers and massive
corruption within the organizations (IEA 2000), Nyoro, (2002) attributed the failure of cooperatives to carry out these activities to political interference, lack of government support,
mismanagement of co-operatives and lack of funds.
According to Kegode (2005), a number of studies have concentrated on the economic
importance of coffee in the Kenyan economy. This studies concur that ignoring coffee sector
will have a negative impact on the economy. Co-operative societies play a vital role in
ensuring achievement of these impacts that economic stability specifically in production and
marketing of agricultural products (Chambo,2009).For example co-operative societies
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provided subsidized inputs before liberalization of the sector, marketing of products and
providing a competitive bargaining power for the farmers or producer (Nyoro, 2002).
However the available literature provides little empirical evidence on the role of co-operative
in improving the production of coffee by small holder farmers.
1.3 Objectives
The purpose of this study is to study the role producer co-operatives in smallholder coffee
production in Kiambu County.
The specific objectives of the study are:
i.
To access the roles of producer co-operatives in Kiambu County for small scale
coffee farmers.
ii.
To examine the factors that affect services ((inputs, training, credit, marketing)
provided by co-operative societies affect coffee production.
1.4 Hypothesis
The first objective of this study will be analysed using descriptive statistics therefore no
hypothesis will be formulated for it. Therefore, the study seeks to test only one hypothesis
corresponding to the second objective. That is:
Factors such as poor management and poor infrastructure do not affect service provision by
co-operative societies.
1.5 Justification of the study
This study will clearly show the importance of co-operative societies in improving small
scale production of coffee. This will help improve the farmers’ economic levels through
probable increased earnings and also improve its contribution to the agricultural G.D.P that
contributes greatly to the Kenyan economy. The main stakeholders set to benefit from this
study include: First, small holder farmers whose production levels will increase due to better
services by co-operative societies. Second, the co-operative societies will gain knowledge on
the factors affecting provision of services to small holder farmers and improve on those with
gap provisions. Third, the regulating body of co-operatives including the co-operative Act
can be reviewed to ensure that co-operatives fulfil their roles. Finally, the government could
use this report to formulate or enhance enactment of laws that ensure good governance of cooperative societies.
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1.6 Study area:
The choice of Kiambu County as the area of study is based on a fact that most of the coffee
production takes place in Central Province and Eastern province. Central province that
includes several counties including Kiambu, Muranga, Nyeri is characterized by co-operative
societies that service smallholder coffee producers (Kegode, 2005).
The county has also been affected by the upcoming set up of real estate in once productive
coffee farms decreasing the total coffee production from the county. This may lead to a
decrease in funds of co-operatives from decreased member contribution or may be a source of
de motivation to the existing co-operative management society.
1.7 Organisation of the project
The rest of the proposal is organised as follows: chapter two is on literature review, chapter
three covers the data methodology of the study, and chapter four is on results and discussion
finally chapter five is on conclusions and finally references.
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2.0 LITERATURE REVIEW
Owango and Lukuyu, (1998) did a study on dairy co-operatives and the policy reforms in
Kenya that sought to offer an explanation to the factors that have led to participation of local
organisation in a liberalized industry. The study area was Central Province comprising of
three districts; Kiambu, Muranga and Thika through questionnaires and key informant
interviews of dairy farmers co-operatives (DFCs) and self-help groups. The journal explains
how the government pulled away from provision of certain services to the livestock industry
including provision of feeds and Artificial Insemination (A.I) services. The co-operatives
then came in to provide such services on cost recover basis up to and including credit services
to the farmers thus giving the farmers a market oriented perspective. The DFCs have led to
expansion of market outlets and increased or encouraged entry of other traders to the market
who carry out semi-value addition of the milk. The prices of milk have been seen to increase
and in general a positive impact has been felt in the industry due to the roles of DFCs brought
about by policy changes. The paper does not show how production of farmers has increased
due to the services offered by the DFCs including feed provision, AI services and credit
provision.
Simmons and Birchall, (2006a) have written arguments to justify the importance of cooperatives in reduction of poverty especially in less economically developed countries
(LEDC).They argue that earlier co-operatives were defined as separate and independent
organisations but due to government and political involvement they actually operated as state
corporations. Though there were failures of co-operatives due to several reasons that are not
identified in this arguments, they cited success co-operative cases such as dairy co-operatives
in India, coffee co-operatives in Kenya and credit co-operatives throughout the world. They
argue that for co-operatives to be successful there is need for; providing information on cooperative enterprises, provision of cheap finance, competent persons to train, recruit and
develop co-operatives and finally development of a public policy that favours co-operatives.
They recognize there are strengths and weaknesses of the co-operative model especially in
LECD but do not address this issues and wonder how the current co-operatives can be
strengthened to impact on poverty reduction in LECDs.
Okibo and Kabaka (2013) carried out a research on “The effects of liberalization on coffee
production in Kenya”. The research used both primary and secondary sources of data. The
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primary data was collected from a case study of new Weithaga farmers’ co-operative society
at Kiharu, Muranga that is composed of four co-operative societies and 3232 members. The
sample composed of 18 members of the management committee and 50 members.
Liberalization was the independent variable while production was the dependent variable in
this paper. Among one of their objectives was to find out the effects of deregulation on coffee
production. Their findings show that deregulation lead to a decrease in coffee production.
Their second objective to find out if the take-over by management by farmers committee
affected production of coffee; their findings showed that that affected production negatively.
This study is similar to my study since it seeks to find out the effect of an aspect of cooperatives on production.it however differ with my study because my independent variable
are the factors affecting service provision by co-operatives.
The role of co-operative societies in production and marketing of beef cattle and the part
played by speculators in marketing of beef was analysed by Azikiwe (2013).Through analysis
of data gathered from a sample of 89 beef co-operative farmers using well sampled
questionnaires and a focus group discussion of the co-operative farmers, the study concluded
that co-operatives are an important and successful avenue for poverty reduction. The study
was carried out in Ga-kibi, Norma and Mogalakwena in Blouberg, South Africa.
The
variables considered included pests and diseases, water stress, market access among others
and their effect on production and marketing of the beef. The farmers’ co-operatives help the
farmers to overcome these challenges. This study however recognised the need for farmers’
education about the roles and responsibility of co-operatives and spelt out that despite the
existence of such organisations farmers are still facing several challenges. The paper however
does not stipulate or direct how co-operatives can effectively help eliminate these challenges.
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3.0 METHODOLOGY
3.1 Data and sampling procedure
The sample population was Githunguri division and Gatamaiyu divisions, which are both in
Kiambu County and composed of all coffee farmers who are members of producer’s cooperatives. One village from each division was selected randomly. Coffee farmers were then
selected from these villages to form the sample for the study using simple random sampling.
This method of sampling was chosen because the total population of coffee farmers could not
be determined with accuracy. A farmer was selected at random which gave each member of
the population an equal chance of being selected. The sample was selected up to the 31st
element, justified by the Central Limit Theorem, which requires a sample size of 30 or
greater than elements.
Data was collected using semi-structured questionnaires that were administered through face
to face interviews of the farmers. The face to face interviews are seen as an appropriate way
of collecting data because it helps reduces cases of non-response and gives the interviewee
with an opportunity to clarify their response and the interviewer is able to observe non-verbal
cues.
The data collected from the farmers was of two types: demographic information and data on
the socioeconomic characteristics of the farmers. The demographic data included the age,
gender and education levels of the farmers. The socioeconomic characteristics were: the
challenges faced in farming potatoes, years of farming experience, size of farms, quantity of
potatoes produced per season, distance from farm to market and their various uses of mobile
phones.
3.2 Model specification
Ordinary Least Squares regression wasemployed analysis model to show the relationship
between independent variables and their impact on a single dependent variable(y).The
regression analysis is also used to determine which independent variables are related to the
dependent variable and possibly explain the form of these relationships.
The dependent variable is coffee production while the independent variables include the
factor that influence services provided by co-operatives including infrastructure, availability
of funds, management of co- operatives and availability of adequate and trained personnel.
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Ordinary Least Squares regression was used to analyse the factors that influence the role of
producer co-operative societies on small scale coffee producers. The regression equation is as
follows:
Y i= αi+ βxi+ µi
Where:
Yi - the use of mobile phones in agriculture (dependent variable)
αi - the y-intercept of the regression line - parameter to be estimated
βi- the slope of the regression line - parameter to be estimated
xi- represents the various factors that affect the use of mobile phone technology
µi - error term, that is, errors which occur in the sampling procedure, data collection and
others
3.3 Variables included in the model
Table 2: Description of the factors affecting role of producer co-operatives in smallholder
coffee production
Variable
Description of variable
Expected sign
INFRAS
Infrastructure
±
MGMTCO-OP
Management of co-operatives
±
EXTSERV
Extension services
AVAILF
Availability of funds
AVAILPERS
Availability of adequate and ±
±
trained personnel
Infrastructure in this case includes modern machinery used to process coffee that reduces or
eliminates waste reducing the output from the factory and therefore the returns to members
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and also includes roads that lead to the processing factories. This relationship cannot be
predicted with accuracy because the education level of the farmers maybe too low to
understand the effect of infrastructure on their income.
Management of co-operatives will have a positive of the productivity of farmers. With good
governance, the farmers see their production well processed, marketed through the right
channels and their produce income remitted on time and in good faith.
Availability of funds to invest in the farms in terms of inputs such as fertilizer, pesticides and
labour will have a positive impact on the productivity of coffee.
Lack of extension services may negatively affect farmer’s productivity but the farmers may
also access information from other sources. Therefore lack of extension services may also fail
to have an impact on farmer’s productivity.
Availability of trained and adequate personnel in the co-operatives will have a positive
impact on coffee production since the output is handled professionally thus quality is not lost
when in the co-operatives processing and offer quality advice to farmers to increase
productivity. The personnel will also ensure only quality produce is delivered through
appropriate quality checks. The analysis of the data was done using Statistical Package for
Social Sciences (SPSS) software, version 16.0.
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4.0 RESULTS AND DISCUSSION
The average age is 55 years. This shows that majority of the farmers are old and are therefore
expected to mostly use traditional farming techniques. This is supported by the data that
shows only31.1% of the farmers have accessed secondary education.
Table 3: Indicates the various characteristics of the farmers who were interviewed.
VARIABLE
DESCRIPTIVE STATISTICS
Average age of farmers (years)
55
Gender of farmers (%)
Male
38.7
Female
61.3
Average farm size (acres)
0.9
Education level (%)
Above primary school level
31.1
Up to primary school level
68.9
Method of coffee processing (%)
Co-operatives
Personal (private)
Mean production of coffee per year in
93.5
6.5
1214.52
kilograms
More female were interviewed than male farmers were interviewed in the study as more
females are engaged in farming business in the area compared to males. The average farm
size under coffee was approximately 0.9 acres. Most farmers have cut down coffee bushes
and left only small proportion under coffee the majority of the farm being under fodder crops.
The study was on small-scale farmers who practice intensive mixed farming. The farmers
produce about 1214kilograms of coffee per year from their coffee bushes.
Majority of the small scale farmers process their coffee through co-operatives (93.5%) while
the rest (6.5%) process their own coffee and market it to private organizations such as Sasini
Limited.
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Table 4: Analysis of factors affecting the role of producer co-operative societies on coffee
productivity
VARIABLE
COEFFICIENT
STD ERROR
SIGNIFICANCE
INFRAS
-0.037
0.908
0.003
MGMTCO-OP
-0.005
0.066
0.000
EXTSERV
-0.334
1.023
0.789
AVAILF
-0.209
0.702
0.399
AVAILPERS
- 0.056
0.507
0.065
The poor infrastructure that in this case included lack of education by co-operatives, poor
roads and inefficient machinery inco-operatives negative affects the productivity of coffee
farmers. Because machineries used to process the coffee are old and out dated thus have low
efficiency causing huge during processing thus .such losses discourage production.
Mismanagement of co-operatives negatively affects productivity of coffee. There is probably
in-transparent and misuse of co-operative resources leading to poor services provided to the
farmers. This is witnessed by the negative effect of the non- existence services supposed to be
provided to the farmers by co-operatives.
The lack of trained and adequate personnel has a negative impact on production of coffee due
to lack of relevant and adequate information to the farmers. Farmers who are mostly the old
require education on ways of increasing productivity that includes use of fertilizers to
increase fertility, high yielding varieties like Ruiru 11 but this is not provided by the cooperatives who are seen to lack knowledge on such issues.
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5.0 CONCLUSION
The role played by co-operatives in assisting small-scale farmers to increase productivity is
vital especially for the coffee sub-sector whose productivity has been declining over the
years. The study was carried out using semi structured questionnaires to determine the role of
coffee producer co-operative societies on productivity of coffee in Kiambu County. The
study shows that the services provided by co-operatives include inputs (fertilizer), credit,
extension services, processing and marketing of coffee. The study of the factors affecting the
role of these co-operatives showed that poor infrastructure in terms of roads and lack of funds
by co-operatives, poor management of co-operatives, insufficient trained personnel and lack
of extension services initiative to the farmers by the co-operatives affect the ability of cooperatives to assist farmers increase their productivity.
Co-operative societies need to be empowered through employment of trained and
professionally qualified employees who have adequate knowledge on ways of improving
coffee productivity. There is need to enhance governance and sufficient funding while at the
same time instituting guidelines on requirements to carry out extension services to the
farmers.
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References
Bichanga Walter Okibo and Kabaka John 2013, “Effects of liberalization on coffee
production in Kenya” European Journal of business and management, vol. 5,No. 3
Bulletin of institute of economic affairs 2005, “The coffee industry in Kenya” THE POINT
issue no. 36
Export processing zones authority (EPZA) 2005, “Tea and coffee industry in Kenya”
Azikiwe Isaac Agholor 2013, “Analysis of constraints of rural beef cattle co-operatives
farmers” A case studies of Ga-kibi, Norma and Mogalakwena in blouberg. Journal of
Agricultural Science, vol.5, No. 8
K. James Nyoro 2002,”Agriculture and Rural Growth in Kenya”
MAFAP (Monitoring African Food and Agricultural Policies) 2013, “Analysis of incentives
and disincentives for coffee in Kenya”
Gamba Paul and Komo Isaac, “Evolution, Growth and Decline of the co-operative sector”
Peter Kegode 2005, “Economic Governance of coffee-sector –focus Central province”
Owango M., Lukuyu B., S. J. Staal, Kenyanjui M., Njubi D. and Thorpe W., 1998, “Dairy cooperatives and policy reform in Kenya” Effects of livestock service and milk market
liberalisation
Chambo Suleman Adam 2009, “Agricultural co-operatives” Role in Food Security And rural
Development
Republic of Kenya 2007b, “Kenya vision 2030” A Globally Competitive and prosperous
Kenya, Nairobi, Government of the republic of Kenya
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