ECONOMIC EFFICIENCY OF SMALLHOLDER COFFEE PRODUCTION IN MATHIRA DISTRICT, KENYA
Printer-friendly versionPDF version

ABSTRACT

Coffee is the third most important agricultural commodity to the Kenyan economy after
horticulture and tea in terms of contribution to Gross Domestic Product (GDP) and employment
creation in the agricultural sector. The enterprise contributes about 10 percent of the total
agricultural export earnings, and up to 30 percent of the total labor force employed in agriculture.
It is an agricultural export commodity that employs about 250,000 people directly and an
estimated 6 million people indirectly. The performance of the industry has been falling in the
past two decades mainly due to deterioration of the world market. When the producer prices
become consistently low, farmers uproot their coffee and replace it with other enterprises such as
maize, beans, Irish potatoes and bananas or intercrop with the various crops. Since the small-
scale farmers have small pieces of land, they usually intercrop coffee with the various
subsistence crops as a strategic measure against food insecurity and reduced farm incomes.

Effects of other crops on the overall economic efficiency of coffee in the intercropping system
are not known. The overall economic efficiency is a combination of the technical and allocative
efficiency. Mathira district which has an area of about 254 square kilometers was purposefully
selected for the research since no similar study had been carried out there in the past. Data was
collected through structured questionnaires which were administered to farmers sampled through
systematic sampling procedure. The Data Envelopment Approach model which computes
economic efficiency indices was used in the first stage of the analysis while Tobit regression
model was used in the second stage to analyze the factors that influence the level of economic
efficiency.

The study established that overall mean technical efficiency for coffee farmers in Mathira district
was 89 percent implying that farmers could reduce the current physical input use by about 11
percent on average and still realize the same output levels. The average allocative efficiency was
50 percent meaning that farmers could reduce input costs by about 50 percent without affecting
the current production levels. Combination of technical and allocative efficiencies resulted in a
mean overall economic efficiency of 45 percent for coffee production in the study area. This
implies that there was potential for farmers to improve their economic gains by about 55 percent.
The study also established that economic efficiency was significantly and positively influenced
by the level of education, access to extension services and the age of the household head. This
was consistent with the expectation since formal education improves the capacity to learn and

implement ideas. On the other hand, contact with extension services improves skills and
information on good crop husbandry practices thereby influencing economic efficiency
positively.

Age was observed to have a positive and significant influence on economic efficiency though the
turning point was not established. To address this observation, the government may formulate
policies that motivate the younger generation to be more actively involved in coffee production
through selective strategies such as input subsidies for the youthful and middle aged farmers.
The scenario of age influencing economic efficiency positively may however not be expected to
continue indefinitely. To counter the tendency of the elderly generation holding on to coffee
even when they are too old, the government may motivate them to progressively hand over
coffee production enterprise to the younger generation through establishment of social schemes
such as retirement benefits from farm enterprises.

The study also established that economic efficiency was significantly and negatively influenced
by the household head attending off-farm activities. This implies that the forgone labor was not
replaced by equivalent skills that would at least sustain economic efficiency at a level formerly
realized by the household head. As a way of addressing this issue, the government through
institutions that provide extension services may enhance provision of commercial agriculture so
that farmers with opportunities for going for off-farm activities may make informed decision
about whether to continue working as farmer managers in their farms or go for off-farm work.
Farmers with knowledge on commercial agriculture are also more likely able to guide those who
succeed them as farm managers when they go for off-farm activities thereby preventing decline
in economic efficiency. Access to credit facilities from cooperative societies also significantly
influenced economic efficiency negatively. This was an indication that credit funds acquired
from the societies might have been diverted to other uses which were not promoting coffee
production. Proper mechanisms for monitoring and evaluation of agricultural activities including
utilization of credit may be institutionalized in extension services so as to address this problem.
Intercropping coffee with other crops was also shown to have a significant negative influence on
economic efficiency. This implies that economic viability of intercropped coffee was less than
for non-intercropped coffee.