Is It Formal or Informal? Choice of Market Outlets for Unprocessed Tea in Nandi County, Kenya

Vincent Mittei ,Hillary K Bett ,Jackson Langat

doi:10.7176/jesd/11-22-10

Abstract

The tea industry plays a key role in the agriculture sector and the economy at large with tea output contributing about 11% of the agriculture sector’s contribution to Gross Domestic Product. Like many other crops in Kenya, tea is produced both on small and large-scale basis. Smallholder farmers in Kenya make a significant contribution to the industry producing 61% of the total national production and with 66% of tea acreage. Formal market outlets are more profitable than informal ones. However, small tea agri enterprises in Nandi County prefer selling their unprocessed tea to informal market outlets. Empirical evidence on what motivates these agri-enterprises to sell most of their tea to these outlets is scanty. The main objective of this study was to compare the profitability of formal and informal market outlets for unprocessed tea in Nandi County. Multistage sampling procedure was employed and 384 respondents interviewed using semi-structured questionnaire. Data were analysed using gross margin analysis. Formal market outlets are more beneficial because of higher gross margin rate of 12.71% compared to informal market outlets having the gross margin rate of 1.08%.The findings are helpful in guiding smallholder tea farmers in information on the most profitable and efficient market outlets and informing policy makers on how to improve the efficiency of market outlets. DOI: 10.7176/JESD/11-22-10 Publication date: November 30 th 2020

Highlights

IntroductionKenya has a dual economy comprising of formal and informal economy
Kenya has a dual economy comprising of formal and informal economy. It is an agricultural based economy with leading crops being tea, horticulture, cereals, sugarcane and livestock production contributing to rural employment, food production, foreign exchange earnings and rural incomes (Kiprono et al, 2011)
Informal markets outlets is being preferred by majority of farmers because they pay promptly for the unprocessed tea delivered as per demands of the farmer while KTDA and private companies pays on monthly basis (Kirui et al, 2014)

Summary

Introduction

Kenya has a dual economy comprising of formal and informal economy It is an agricultural based economy with leading crops being tea, horticulture, cereals (wheat and maize), sugarcane and livestock production contributing to rural employment, food production, foreign exchange earnings and rural incomes (Kiprono et al, 2011). Market liberalization has given farmers a choice of where to sell their unprocessed tea. The multinational firms have at least managed to access the smallholder tea farmers, which were not possible before market liberalization. Trends in industry provide a platform for emergence of unregulated businesses. In this case, liberalization of the tea sector is the key factor that influence the behaviour and production techniques of smallholder tea farmers in Kenya. Informal market outlets involves agri-preneur trading tea leaves among themselves (Muku and Mwaura, 2007)

Objectives

Methods

Results

Conclusion