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

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