The Impact of State Marketing Board Operations on Smallholder Behavior and Incomes: The Case of Kenya

Abstract

Despite the resurgence of parastatal marketing boards and strategic grain reserves over the last decade in eastern and southern Africa, there is little empirical evidence about how their activities affect smallholder input use and cropping decisions. This paper uses panel survey data from 1997-2007 on Kenyan smallholders to investigate the effect of Kenya’s National Cereal Produce Board activities on farm-gate maize price expectations, output supply, and factor demand. Results show that the NCPB pan-territorial maize purchase price has a strong, positive effect on smallholders’ maize price expectations, and that smallholders respond to higher expected maize prices by increasing maize production via intensification through increased fertilizer use as well as higher maize seeding rates within intercrops. Specifically, we find that a 10% increase in the NCPB purchase leads to: a 1.4% increase in the expected farm-gate maize sale price; a 2.5% increase in household maize production; a 0.6% increase in the probability of fertilizer use on maize; increases of 1.4% and 2.9% in conditional and unconditional quantities of fertilizer applied to maize; and a 2.6% increase in household total net crop income, on average. Increases in maize production do not appear to be coming at the expense of production of other crops, as we find no evidence to suggest that higher expected maize prices lead to reductions in either area planted to non-maize crops or non-maize crop production.