SMALLHOLDER DAIRYING IN KENYA: THE ASSESSMENT OF THE TECHNICAL EFFICIENCY USING THE STOCHASTIC PRODUCTION FRONTIER MODEL

Abstract

Dairying  in  Kenya  remains  a  multi-purpose  cattle  system  providing  milk,  manure and capital assets to the farmer. Dairy activities in Kenya are predominantly run by smallholders  and  are  concentrated  in  the  high  and  medium  potential  areas. Smallholders operating 1-3 dairy cows  on small farms are predominant in Kenya. They  produce  56%  of  the  total  milk  in  the  country  and  supply  80%  of  Kenya’s marketed milk. Estimated growth in the consumption of milk and dairy products in developing  countries  is  3.3%,  which  is  in  line  with  Kenya’s  3%  per  year.  National statistics show that  milk production continues to decline. For example, since 2000 milk  annual  growth  rate  has  been  1.4%  compared  to  9.2%  experienced  between 1980  and  1990.  The  main  challenge  of  Kenya’s  dairy  industry  is  how  to  confront growing milk demand and a highly competitive export environment when yields are as  low  as  195  litres  per  lactation.  One  of  the  key  options  is  to  develop  a  vibrant competitive dairy sector in Kenya by increasing the efficiency of production. Thus, this study examined the technical efficiency of smallholder dairy farms of rural Kenya. Data  from  a  2005  survey  of  smallholder  farms  in  five  provinces  was  utilized  to examine the technical efficiency of smallholder farms. The Cobb-Douglas stochastic production  frontier  model  was  used  to  identify  the  determinants  of  technical inefficiency. The findings revealed that the mean efficiency was 79 percent, which suggested that 21 percent of production was lost due to technical inefficiency. The technical  efficiency  also  varied  across  regions  ranging  from  a  mean  of  83.9%  in Central region and 72.5% in Nyanza region. Land size, access to extension service, infrastructure and the level of schooling were found to reduce inefficiency.