ASSESSMENT OF TECHNICAL EFFICIENCY OF SMALLHOLDER COFFEE FARMING ENTERPRISES IN MURANGA, KENYA

Abstract

The Kenyan coffee industry is a major contributor to Kenya’s economy. The industry is a top foreign exchange earner coming fourth after tourism, tea and horticulture. The sector directly and indirectly supports over 6 million people, making it one of the leading sources of livelihood in the country. Despite the immense contribution, the production of coffee in Kenya has declined significantly over the past decades – associated with inefficiencies – resulting in increased poverty in coffee-dependent communities. This paper explores the determinants of technical efficiency in Murang’a County; a leading coffee producing region in Kenya. The analysis of the data followed a two-step approach following Helfand and Levine (2004). In the first step, technical efficiency measures were calculated using the non-parametric data envelopment analysis (DEA) model. In the second step, the estimated technical efficiency scores were regressed on a set of explanatory variables which included farm size, household characteristics and various indicators for institutional arrangements and adoption of technology. Results showed that the average technical efficiency was low at 54%. The findings show that farm size, coffee variety, access to credit, farmers’ age and household size are critical determinants of technical efficiency in coffee farming. It is therefore concluded that adoption of improved varieties especially by youthful farmers and increased access to credit facilities which help farmers to purchase market inputs for coffee enterprise would increase TE and ultimately coffee productivity.