Triple Hurdle Model of Smallholder Production and Market Participation in Kenya ’ S Dairy Sector

In Kenya, strong demand and the fact that most of the nation's 3 million dairy cattle are in the hands of smallholders provides a tremendous opportunity for households to participate in the dairy market and increase rural incomes. Unfortunately, recent output has not kept pace with increasing demand, suggesting that barriers prevent rural farmers from tapping dairy's underexploited potential. Using 11-year panel data from 1275 smallholders, this study develops a model to determine the factors enabling smallholder participation in Kenya's dairy market, and uses the findings to identify strategies to improve dairy productivity and promote successful smallholder commercialization. Traditional double-hurdle market participation models are not adequate for addressing these objectives, primarily because they require the implicit assumption that all farmers are producers, whereas roughly 1/3 of rural Kenyan households do not produce milk in a given year. This study thus develops a " triple-hurdle " model, which allows for both non-producers and autarkic producers. Results suggest a bi-modal policy response to enable producers as well as the formal and informal purchasing enterprises to which they sell. important to provide an enabling environment for producers. Along with the recent initiative to revive the parastatal dairy purchaser, evidence indicates that a more stable policy environment for small-scale traders, who are largely tolerated although currently operating illegally, would promote significant farmer response. v ACKNOWLEDGMENTS I am extremely grateful to my major professor and advisor, Dr. Thom Jayne, for the amazing opportunity to work on the Kenya project, and for his guidance, insight, and encouragement throughout my work on this and many other projects. Without his support and attentive efforts this paper would not have been possible. I am also grateful to my committee members Dr. Robert Myers and Dr. Lisa Cook, whose efforts and suggestions have greatly improved my experience and the quality of this work. I would like to thank Margaret Beaver for her support and training. This study would not have been possible without funding from USAID and the TAPRA project. My thanks go to the Tegemeo institute for use of the data and to its staff for the dedication to excellence in collecting survey data. I would like to thank all of my fellow students at MSU, especially Joshua Ariga and Joleen Hadrich for their comments and advice, as well as Elliot Mghenyi for taking a considerable amount of time to introduce me to the data used in this study. …