Efficiency Cashewnut

8/3/2019 Efficiency Cashewnut

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EFFICIENCY ANALYSIS OF CASHEW NUT

MARKETING IN BAHARI DIVISION, KILIFI

DISTRICT.

AMBANI KEVIN A.

AGE/082/07

ARE 453: RESEARCH PROJECT

Research report submitted in partial fulfillment of the requirement for Bsc.

Degree in Agriculture Economics and Resource Management at the

Department of Economics and Resource Management in the School ofBusiness and Economics.

MOI UNIVERSITY, KENYA.

MARCH 2011.


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DECLARATION

Except for the references to other peoples work that have been duly cited, this project report is

my original work and has not been presented for a degree in any university.No one should

make any attempt to plagiarize or use any part without my prior permission and that of Moi

University.

Sign Date .

Name: Ambani Kevin A.

AGE/082/07.

This project report has been submitted with my approval.

Sign Date

Name: Mr. Ngeno,

Supervisor.


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Dedication

This work is dedicated to my motherBranice Bidinyu, who, when I was in my teens,

encouraged me to read to gain wisdom for life. I remember following this advice as I

embarked upon her challenge some twenty-one years ago. It was like opening a chest of

glowing treasure that was hidden within the pages of books. It still glows! Also my late

brotherCollins Ambani and my girlfriendRahab N. John and all those who made this work a

success, thanks, for your prayers, direction and love.

Thanks

I would like to express my gratitude to a few of my lecturers at Moi University who helped

me in my studies and life development and my appreciation of the department of economics

and agriculture resource management. Thanks to Mr. Ngeno for his invaluable support,Dr.

Korir,Mr. Nyangweso and Mr. Lagatfor their pastoral tutorship and counsel.

Then to my allies Stanslus Mwangi and Martha Waringa for their encouragement, steadfast

support, reading, re-reading, listening, and most of all for their knowledge.

Last, but no means least, thanks to the Lord and his Spirit of wisdom and mercy.


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Abstract

Marketing is an integral part in the development of an industry. Production benefits cannot be

realized unless such production is backed by appropriate and efficient marketing system for

the product.

This study was undertaken to provide an insight into the functioning of the cashew nut

marketing environment. Limited work has been done on this product and much less on its

marketing.

The study was carried out in Bahari division, Kilifi district where the product is largely

produced. The broad objective was to examine the market efficiency of cashew nut, its

efficiency with emphasis on commodity trade and ultimately provide suggestions for

formulating more effective marketing policy.

The research design used in the study took the form of an explanatory field survey that was

conducted between June and August on all traders dealing in cashew nut in Bahari division.

Primary data was generated from interviews using pretested set of questionnaires on samples

of cashew nut traders. Systematic sampling method was used to select respondents. The

analysis adopted involved the use of descriptive and inferential statistics, regression and

correlation analysis.


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Table of Contents

Table of Contents ........................................................................................................................ 51.3 RESEARCH QUESTIONS .............................................................................................10

3.0 RESEARCH METHODOLOGY ........................................................................................185.0 SUMMARY AND DISCUSSION. ....................................................................................28REFERENCES .........................................................................................................................30APPENDICES ..........................................................................................................................33

1.0 INTRODUCTION

The economic development of the Coast Province has been relatively slow compared to other

regions of Kenya. Rural poverty stands at 57% among the estimated 2.5 million people in the

province, despite its high agricultural potential, particularly in (cashew growing ecological

zones) CGEZ I and in some parts of the CGEZ III.

More than 56% of the inhabitants derive their income from tree crops, of which cashew is

among the most important. Cashew nuts grow along the Coastal belt from Lunga Lunga in the

south, to Lamu in the North East of the Province, covering Kwale, Kilifi, Malindi and Lamu

Districts. The total area under cashew nut cultivation is estimated at 30,921 hectares (M' Rabu

2001).

Cashew is among the oldest cash crops in Kenya. The tree, yielding even in poor soils, has

excellent cash crop prospects for areas where other productive crops cannot grow well. The

tree is indigenous to Central and South America and was introduced into

East Africa during the sixteenth Century by the Portuguese. Its Swahili name is Kanju, a

recognizable variation of Acaju, name given by the Tupi of South America.

Cashew nut farming in Kenya is a smallholder activity and there are no large plantations.

Individual holdings vary from a few trees to a few acres per farmer. According to a recent

survey, growing of cashew nuts is confined to the agro ecological zones I, II, III of the Coast


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Province of Kenya. The districts are Kwale, Kilifi, and Lamu. A few patches within Mombasa

District contain some cashew nut trees that are not really cared for. The definition of zones is

based on distance from the Indian Ocean Coast line. Zone I lies 0 to 15 km from the Coast

Line, zone II at 15 to 35 km, and zone III at 35 km and beyond.

Although cashew represents only one percent of the total Kenyan agricultural production in

value, it is an important crop because it is grown in an areas with few alternative cash crops.

There is room for establishment of new plantations and improvement of existing orchards

through a proper management. CGEZ III covers the area beyond 35km that includes Ganze,

Vitengeni and Bamba in Kilifi district; Samburu and Navaya in Kwale; Lango Mbaya, Marafa

and Chakama in Malindi. There is a big potential for expansion of cashew plantations. People

are moving into these areas because land is still cheap. This is an area where natural

vegetation is being destroyed and cashew could serve as an agro forestry species.

This study seeks to analyze the performance of the cashew nut market under liberalization

with emphasis on marketing channels, value addition, and pricing efficiency.

1.1BACKGROUND OF STUDY

The story of cashew nuts is one of the most depressing in the Coast province. The collapse of

the cashew nut industry in Kenya is a strong indictment on liberalization policies pushed on

African countries by the World Bank and the International Monetary Fund (IMF).

It is a story of policies gone wrong and local failure to support an industry that could have

become the lifeline of many coast province residents. The marketing of the nuts was, until

1998, in the hands of the government and it was falsely hoped that the industry would be

strong if the government stopped subsidizing the sector as recommended by the Bretton

Woods institutions. That was not the case. Instead the liberalization pushed the industry to its

deathbed and today there is little to write home about. (bdafrica.com)


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The liberalization exposed the farmers to a global market that they could not wade through

since most of the cooperatives were poorly run and unprepared for the open market economy.

Before liberalization of the marketing of raw cashew nuts, the crop was marketed through

farmers cooperative societies, agents and traders' agents and finally purchased by Kilifi

Cashew Limited, the only major processor in the country.

Stakeholders, thus considered the closure of the Kenya Cashew Nut Ltd. a denied guaranteed

market outlet for the produce, emphasized by declining and unstable prices of the commodity

and the excessive exploitation of farmers by middlemen.

The farmers have always considered the prices offered for their crop too low compared to

their expectations. The fluctuating nature of prices resulted in the discouragement of

smallholders and the consequent neglect of their cashew orchards.

The liberalization of cashew nut marketing coincided more or less with the closure of the

main processing factory, Kenya Cashew Nuts Limited, in 1998. It was expected that the

liberalization of cashew nut marketing would allow competition in a buyers' market.

But the scenario pertaining since 1998 has made the farmers even more perplexed.

The main stakeholders of the sector are the farmers themselves, some small scale traders who

buy the unprocessed nuts at the farm gate or rural markets and resell them to exporters, and

the exporters who ship the nuts to India for processing.

Pricing is a big issue in the cashew sector because of the prevalence of exploitation of

farmers, farm prices being set by external forces. Because of the disorganized nature of

marketing, most of the crop is bought at farm gate. While there may be market days, raw

cashews are not the main commodity on sale.

This indicates that an increased return to farmers relies on the better management of the

cashew nut marketing system by stakeholders, thus sparking the need to undertake the study.


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1.2 PROBLEM STATEMENT

Market information plays a major role in guiding planning, production and providing

feedback on the performance of products in the market place. This is fundamental in the

production and marketing of raw cashew nuts. Smallholders are usually the most uninformed

in the chain of activities related to the disposal of their crop. Price levels are determined

elsewhere, without their involvement. The cooperative societies, traders or agents announce

the new prices at the beginning of the harvesting season, but farmers do not dispose of a

mechanism ascertaining the genuineness of the price levels set. This problem is complicated

by the lack of an accurate and acceptable method of determining the correct farm- gate price

for the producer (Waithaka 2002).

The liberalization of cashew nut marketing was expected to result in increased business

confidence among the various stakeholders, including the small holders, traders and small

processors, which should have led to dynamic changes in the sector.

This was, however not the case. Prices have continued to be unpredictable and unsatisfactory.

The farmer thus marketing problems have been made worse by the collapse of the marketing

system after liberalization. Liberalization has exposed the farmers to a marketing environment

with completely unpredictable prices, which led them to neglect their trees and the crop as a

whole.The area under the crop has hence declined from 36,000 hectares in the late 1980's to

27,000 hectares presently. The main causes of the decline is related to low prices, pests and

disease, limited research and other market constraints. This led to yield decline to below

optimum.


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The cashew industry plummeted from a high production of 24,000 tonnes in the 1970s to an

estimated 10,000 tonnes two years ago (F.K Muniu 2001).

Moreover, since the closure of the sole cashew nut processing factory in 1996, small scale

farmers have been left at the mercy of brokers who sell the raw nuts to India and Tanzania

who add value and export the nuts as their own.

That the pricing of raw cashew nuts is not organized is a big minus for the farmers since there

is no set price. This has allowed brokers to determine prices, an issue which should be looked

at. The current cashew nut deficit in the country thus indicates an apparent problem of local

market failure to stimulate production, thereby making it necessary to analyze in detail the

aspects of cashew nut which bring about the prevailing scenario. For as long as the situation

persists, it wound hinder the growth of an efficient marketing system for this commodity.

Other problems facing cashew nuts industry include price fluctuation, and lack of sufficient

statistical data on marketing. Based on these generalizations the knowledge of the market

structure, conduct and performance is vital if the necessary changes are to be affected in order

to cope up with the ever-increasing demand for cashew nut in the economy.


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1.3 RESEARCH QUESTIONS

Is the marketing system of cashew nut in Bahari division efficient?

1.4 GENERAL OBJECTIVE

To assess the efficiency of the marketing system of cashew nut in Bahari division,

Kilifi district. This is done with a view of formulating suggestions and

recommendations aimed at facilitating the full recovery of the cashew nut sector.

To achieve this general objective, the following specific objectives are to be pursued:

To assess the market performance.

To evaluate the efficiency of the market performance with respect to price

differentials between farm gate prices and consumer prices.

1.5 HYPOTHESIS OF THE STUDY

Null hypothesis


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The markets for cashew nut are not competitive.

Theres no difference between marketing margins and the marketing costs (i.e. the two

means are the same) in cashew nut market.

1.6 JUSTIFICATION/ SIGNIFICANCE OF THE STUDY

The economic development of the coast province has been relatively slow compared to other

regions of Kenya and since most of the inhabitants derive most of their income from tree

crops and theres room for establishment of new plantations and improvements of existing

orchards through a proper management, this has not been the case. Then it means theres noperfect flow of market information which plays a major role in guiding planning, production

and providing feedback on the performance of the product in the market. This has been the

main reason for the negligence of the trees by farmers.

Moreover it is today used in chocolate factories and should be an instant hit. But we can only

have it as an industry if we add value and stop selling raw products to other countries.

1.7 CONCEPTUAL FRAMEWORK

S-C-P Framework

One important approach to the study of market performance is the Structure-Conduct-

Performance (SCP) framework. The SCP framework suggests that relationships exist betweenstructural characteristics of a market and the behavior of market participants and that their

behavior in turn influences the performance of the market (Scarborough and Kydd 1992; Scott

1995). Among the major structural characteristics of a market is the degree of concentration,

that is, the number of market participants and their size distribution; and the relative ease or

difficulty for market participants to secure entry into the market. Market conduct refers to the


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behavior of firms or the strategy they use with respect to pricing, buying, selling, etc., which

may take the form of informal cooperation or collusion.

Typical structure-conduct-performance (SCP) analysis tends to assess market performance

largely in terms of:

(i) Whether marketing margins charged by various actors in the marketing system

are consistent with costs; and

(ii) Whether the degree of market concentration is low enough (and the number of

firms operating in a market is large enough) to ensure competition, 1 which is

in turn assumed to drive down costs to their lowest level.

The SCP approach postulates that as market structure deviates away from the paradigm of

perfect competition, the extent of competitiveness of the market will decrease, which is likely

to impede market efficiency (Scarborough and Kydd 1992; Scott 1995).

However, there are several shortcomings with these criteria for assessing market performance,

which should be kept in mind when reviewing the findings contained in this report. First, the

criterion that observed marketing margins should be consistent with costs does in no way

indicate that the marketing system is performing adequately. Schultzs efficient but poor

observation of low-resource farmers also characterizes the functioning of marketing systems

in many developing areas (Shaffer et al. 1985). Marketing margins may approximate costs,

but these costs may be too high and unstable to encourage rapid investment in the marketing

system to promote on-farm productivity growth.

Therefore, assessments of market performance based on whether costs approximate marketing

margins must be viewed as very static snapshots at a particular point in time that fail to

incorporate the longer-run dynamic issues of how incentives can be structured within the rules

of economic exchange to reduce costs at the various stages of the production/marketing

system (Jayne 1997).


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The second criterion (establishing whether competition exists based the number of firms in

the market) is also problematic in the presence of scale economies. The high costs of

transportation between a production region and a major regional market may result in very

low producer prices in the remote production region. Low prices in turn depress the

marketable surplus available for purchase by assemblers. And the existence of small surpluses

in turn limits the number of traders that can profitably operate in an area, particularly in the

presence of scale economies in marketing activities (e.g., transportation).

Therefore, the existence of few traders (high market concentration among buyers) would not

necessarily point to lack of competition or artificial barriers to entry, nor would a large

number of traders each handling very small volumes indicate that per unit marketing costs are

being minimized.

1.8 STUDY LIMITATIONS

Traveling funds.

Some correspondents were not willing to give out the information about their business.


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2.0 LITERATURE REVIEW

2.1 Introduction

There are few studies on marketing efficiency of cashew nut in Kenya. Most of the

publications about these markets are descriptive analyses with emphases on legislative and/or

other developing issues. Such examples include papers written byF.K. Muniuand D. Wanjala

and J.H.G. Waithaka (2002).

Marketing is an integral part in the development of an industry. Production benefits cannot be

realized unless such production is backed by appropriate and efficient marketing system for

the product. The study is undertaken to provide an insight into the functioning of the cashew

nut marketing system. Limited work has been done on this crop and much less on its

marketing.

The cashew nut is an important cash crop for Coast Province with a total plant population of

over two million trees, the potential of the crop in improving the peoples livelihood is thus

great.

However, of late this objective has not been realized due to the challenges in production,

processing and marketing strategies.

Production of the crop has recently been on the decline from 14000 tonnes three years ago to

10,000 tonnes last year. The cashew sector met its waterloo following Government policydecision to allow the export of raw cashew nuts, in effect leading to the closure of then

vibrant kilifi Cashew Nut factory in Coast Province with others following suit.

The sector has currently two million trees producing 10,200 tonnes of cashew nuts this

translates into 5.1 kilograms /tree, compared to 30 kilograms/tree if well managed. Over 80%

of the trees are said to be suffering from powdery mildew a fungal disease that affects a


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wide range of plants. Other challenges include lack of policy for the sub-sector. (Oyuke John

2010)

2.2 Nature of research-based evidence.

A feasibility study on cashew nut production in the coastal region conducted by Outremere in

1982 suggested a project aimed at improving cashew production in the Coast Province.

In participatory rural appraisals carried out in 1994, Kilifi and Kwale District farmers ranked

cashew first among the cash crops while Lamu farmers ranked it second after cotton (Otieno

et al, 1994; Kega et al, 1994; Islam et al, 1994). In a priority setting exercise conducted to

identify priority areas for research and extension in the coastal region, it was recommended

that a diagnostic study be conducted to establish the cause(s) of the decline (Anon, 1994). The

study conducted in Kilifi and Kwale districts showed that diseases and pests, poor

management practices, low producer prices and wildlife were the main causes of decline in

cashew nut production in the region (Muniu et al, 1995, Muniu, 1997).

A baseline study conducted by F.K Muniu and Enoch Mrabu in 2001 found out that cashew

production in Kenya has been declining due to:

Diseases mainly powdery mildew

Disorganized marketing environment

Loss of local processing capacity due to closure of the only processing plant.

The study further noted that there were very few farmer organizations dealing with cashew

nuts thus no bargaining power over their crop. There is a need for farmers to form

associations that would enable them to air their views on the industry.


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The baseline and case studies proved essential in the process due to their linkage with the

practical events obtaining in the communities. As explained above, Dr. Mrabu and Mr. Muniu

made reference not only on the studies they conducted but also other studies.

2.3 CURRENT Market structure and performance.

Marketing aspects comprise outlets, mode of transport, pricing, the effects of the closure of

the processing factory and the value adding/processing aspects. Existing market outlets

include neighborhood shopkeepers and agents/middlemen. Agents

/middlemen are the most common buyers of nuts in Kenya, undertaking about 95.2% of thetrade in Kilifi, some 83.5% in Kwale and 64.6% in Malindi. (Waithaka 2002)

Market Structure and Conduct:

This refers to those characteristic of the organization of a market which seem to influence

strategically the nature of competition and pricing in the market. While market conduct is

concerned with behavioral patterns that market participants adopt in order to compete in the

market environment.

The significance of conduct will depend on the type of market which varies from perfect

competitive, oligopoly to monopolistic types of market structures. Thus market conduct deals

with: policies towards price setting, product quality setting and or policies towards coercive.

Market structure defines and describes mainly the degree of sellers and buyers concentration,

and explains the conditions to entry in the market. If the sellers and buyers concentration ratio

is small, then the market is said to be efficient and competitive, but if the ratio is high (>75)

then the market is said to be inefficient and possibility of monopoly power existence.

Market Performance:


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This is concerned with the appraisal of how far economic results of an industrys behavior

falls short of the best possible contribution it could make to achieve its goals (Clodius et al,

1961). Performance may be analyzed through various parameters, Sandiford and Miller

(1996) gave four efficiency criteria for performance assessment; pricing, allocative, technical

and operational efficiency. Others include progressiveness or innovation, equity of resource

distribution and creation of employment (Marion and Mueller, 1983).

Pricing efficiency is concerned with the accuracy, precision and speed with which prices

reflect consumer demand and are passed through the market channels to producers (Crammer

and Jensen, 1985). Pricing efficiency is enhanced by improvements in markets news,

information and competition.

Preston et al (1973) says that market structure is said to be efficient when cost changes are

reflected in volume changes. Schubert (1973) adds that performance can be assessed

according to how far the market mechanism has succeeded in limiting seasonal fluctuations to

storage costs and avoiding erratic price fluctuations.


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3.0 RESEARCH METHODOLOGY

3.1 Introduction

This chapter discusses the research methods that were used to achieve the objectives of the

study. It includes the research design, the study area, study population, the sample size and the

sampling method and the research instruments that were used. The data collection method,

procedures and the data analysis procedures that were used in the study.

3.2 Research Design

Descriptive research design was used in the study. Data was collected at one point at a time.

This type of design was selected because there was no manipulation of any variables by the

researcher therefore there was no influence on them. The study aimed at analyzing,

interpreting and reporting on the market situation of the traders and vendors of cashew nuts in

Bahari area of Kilifi District.

3.3 Study population

The target population for the research was the traders and or the vendors of cashew nuts in

Bahari Division.

3.4 The study area

The study area was Kikambala, Chonyi, Mtwapa and Vipingo of Bahari division of Kilifi

District in Coast province of Kenya which lies between latitude 2o20 & 4o South and

between longitudes 39o & 40o14 East.

The district borders Taita Taveta to the West, Tana River to the North and North West,

Mombasa and Kwale to the South.

It has an area of 12483 sq km which excludes 109 sq km of the Indian Ocean water surface.


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The position of the district puts it in a strategic location for industrial growth in the Coast. It

borders Mombasa which is the 2nd largest town in Kenya and is only about 10kms from the

Kenyas main sea port of kilindini.

3.5 Study sample and sampling procedures.

A sample of 34 respondents was picked using Systematic Sampling method that was done in

the clustered areas of Kikambala, Chonyi, Mtwapa and Vipingo centers.This sampling is a

part of simple random sampling in ascending or descending orders. In systematic sampling a

sample is drawn according to some predetermined object. Thus after every 3

rd

trader, aquestionnaire was administered to the fourth trader. This method is very easy and economical.

It also saves a lot of time

3.6 Data collection Instruments.

The instruments that were used for data collection were an interviews, questionnaires and

observation on non-verbal behaviors. These were picked because the level of knowledge of

the cashew nut vendors was not known and it was easier to do the interview and get first-hand

information. Also during interviewing observations were done to support the answers. The

questions that were used were both open ended and closed ended and the interviews were

personal interviews, one interviewer to one respondent.

The questionnaires was pre-tested on 4 vendors in Mtwapa centre which has the same settings

as other centers where the data was collected amendments were made on the questionnaires

before data collection was done.

3.7 Data collection procedures.

After pre-testing and amending the questionnaires, the researcher seeked for permission from

the District Agricultural Officer (Kilifi) before embarking on the exercise of collecting data.


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The data collection exercise was done by interviewing and distributing questionnaires to a

target of 10 respondents per day. The exercise started from Vipingo the centre at the main

road, followed by Kikambala, Chonyi and the last centre from which data was collected was

Mtwapa and this took a total of 6 days in the first two weeks of July.

3.8 Data analysis

Data analysis for the research study was done using the data with the help of descriptive

statistical analysis of the various variables. A statistical inference was also used to draw

conclusions about attributes of the population based upon information contained in the sample(taken from the population). From the data generated discussions were made and conclusions

drawn.


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4.0 RESEARCH FINDINGS.

No. Of

Traders

Volume

Handled

Consumer

price

Producer

price

Total

costs

1 90 40 20 17.772 400 39 20 18.893 1500 61 40 21.124 40 34 25 10.05 100 50 25 25.06 135 43 30 13.347 4 68 40 28.348 12 36 20 17.569 10 37 25 13.2210 10 31 20 12.5611 10 36 20 17.1112 10 49 30 19.4513 30 47 30 17.6714 18 31 20 15.1115 20 40 25 15.9916 40 39 25 15.917 10 38 25 14.7718 8 39 25 14.919 20 46 30 16.1120 30 59 40 19.4521 40 32 20 12.6722 20 59 40 19.4423 10 58 40 15.6724 20 37 20 16.6725 10 29 15 14.4526 30 33 15 15.3327 30 43 25 15.7828 40 42 25 16.6729 20 32 15 16.2230 50 34 20 11.4431 100 57 40 16.6732 90 43 30 12.78

33 30 40 29 11.034 100 41 25 16.11Source: Authors survey

Data collected from the questionnaires given to a sample of 34 traders in Bahari division was

edited and summarized as shown in the table above which was then used in the analysis;


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4.1 The Cashew nut Marketing Channels

According to Schubert (1973, p.39), the marketing system is asocial network of elements

involved in the transaction and transformation of goods and services in space, time and form.

In this context, the cashew nut marketing systems elements include the farmers, consumers

and cashew nut traders as one side, cashew nut markets, marketing organization on the other

side. Transactions refer to the economic interactions involved in the movement of cashew nut

through the system which results in the transfer of ownership.

In the primary markets, there are primary buyers who visit farm holdings and collect the

produce or intercept the farm produce to local markets and buy by the roadside. These are

either middlemen or commission agents buying on behalf of their clients or the wholesalers

themselves.

Some of these primary buyers sell to sedentary market traders in the primary markets.

Farmers also sell directly to the consumers and those that the cashew nut traders procure.

The study indicated most of the farmers sell directly to traders. This represented the shortest

marketing channel and is common only in the primary markets.


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FARMERS

Bicycle traders

Kiosks

Brokers

Big traders

Export

(Raw nuts)

Local processors

& Blenders

Domestic

consumer

Export

(Kernels)


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4.2 Structure and Performance of the Marketing system of cashew

nut.

Market structure includes all those organizational characteristics of a market that establish

interrelationships between the marketing firms of a particular product in an industry (Caves,

1977, p.17).

Economic theory classifies markets into four market models based largely on the number of

firms in the industry that supplies the product (perfect competition, monopoly, monopolistic

competition and oligopoly).

Further economic theory tells us that each market form influences the market performance of

the product.

According to traditional theory, market performance of business enterprises has a strong link

with the structure of market in which they operate. The structure of the market influences the

behavior of firms (that is the nature of competition and pricing within product markets) which

determines the various aspects of performance.

These issues are discussed in subsequent sections of this chapter.

4.2.1 The Cashew nut Market Concentration.

Test of Hypothesis 1:Ho: The markets for cashew nut are not competitive.

Economic theory uses the number of firms to classify markets from perfect competition to

pure monopoly. Thus the need for a measurement tool which takes account of both the

number and the size of firms in a market yet presents the results in a form simple enough that

is easy to interpret.

The most used device is the concentration ratio. Market concentration ratio (CR) is the

proportion of the total industry sales (or physical output) contributed by the n largest firms

ranked in order of their market share.


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To compute the CR, the firms/ traders were first ranked in order of the volume of cashew nuts

handled from the largest to the smallest handlers in the market place.

Equation 1

Volume handled by ith traders

Sellers CR= 100

Volume handled by the n traders

Where ith 1st 3 (largest, medium and smallest) volume handled

n total volume handled by the 34 traders

4+8+10+30+40+50+400+135+1500

100

3,087

=70.52%

4.2.1.1 Summary Findings.

Sellers concentration ratio was determined. The result (70.52%) is < 75% showed that the

market was not highly concentrated indicating the non-existence of potential monopoly

power.

The ratio was not satisfactory for a freely competitive market. This indicated that few sellers

controlled a large share of the total market sales though were not the price determiners. This

also indicated the possibility of less than satisfactory performance of the marketing system.

Thus the null hypothesis is rejected and concludes that the cashew nut market is competitive.


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4.2.2 Pricing Efficiency.

Test of Hypothesis 2:Ho:Theres no difference between marketing margins and the

marketing costs (i.e. the two means are the same) in cashew nut

market.

The general procedure of this hypothesis testing requires that the standard error be calculated

as under;

Standard error of the difference between means:

(12) = 21/n1+22/n2

= 12 / (12)

Where 1, 2 is the means of the sample(s)

At 5% level of confidence, the critical value offor two-tailed = 1.96. If the computed

value ofis greater than + 1.96 or less than 1.96, then reject the Ho.

Thus;

= 12/ S21/n1+S22/n2

=16.1471-16.2594/ (3.96295)2/34 + (3.91953)2/34

= -0.123

Marketing margins,

1

Marketing costs,

2Sample size, n 34 34

Mean 16.1471 16.2594

Standard deviation 3.96295 3.91953


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4.2.2.1 Summary Findings.

Since our computed value of = -0.123 is smaller than critical value of = 1.96 (5% level).

Drawing upon these results, our hypothesis is accepted in favor of the alternative. Therefore,the difference is insignificant and the null hypothesis is accepted. Hence the difference

between sample mean of marketing margins and the marketing costs is insignificant. This

means the pricing of cashew nut marketing system is efficient, as the total costs are truly

reflected in the marketing margins.


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5.0 SUMMARY AND DISCUSSION.

5.1 Summary of research results.

These section attempts to present the major results of this study. These include:a) The study identified the major or dormant marketing channel that cashew nut traded

passes through. Hence expresses the existing marketing opportunities for the cashew

nut product.

b) Marketing transparency is limited among farmers and primary level traders. The

farmers prices are discovered in the market place and they arrive at their selling

points after observing what others are charging in the market. And the prevailing

cashew nut prices being largely unknown, they do not stimulate sales among

producers which in turn leads to negligence of the product as a whole.

5.2 Implications.

5.2.1 Conclusion.

The cashew nut marketing system in the study area primary markets located in the production

zones though efficient; it is characterized by a poor market transparency and thus exploitation

by middlemen. The result of 70.52% was just 4.48% short of the 75% for it to be a monopoly

market. Thus the ratio was not satisfactory for a freely competitive market. This indicated that

a few sellers controlled a large share of the total market sales though were not the price

determiners may have influenced the market in one way or another. This also indicated the

possibility of less than satisfactory performance of the marketing system.

A perfect competitive market is not always favorable to the producer, since it provides the

lowest prices possible (just enough to cover the production costs). It is for this reason that

most farmers neglect their trees and seek other off-farm activities to supplement their source

of income.


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Most of the buyers who happen to be brokers sell or deal in raw nuts. This makes it difficult

to realize benefits from value addition since theres no processing done in the country. Thus

this translates to lower prices to the producers, but if we could just process and export the

product then the benefits realized could also trickle down to the producer and hence entice

him to take care of his production.But we can only have it as an industry if we add value and

stop selling raw products to other countries.

The paper concludes with suggestions on what is required for government to truly embraced

research as the starting point in the endeavour to realise development in the cashew nut

industry.

5.2.2 Recommendations.

1) In the recent past, cost of crop production has risen considerably due to the rising

cost of inputs (fertilizers, pesticides, seeds etc.). Interest rates though coming down

are still beyond the reach of many farmers and commercial banks require securities

that most farmers do not have. The above limits small-scale farmers ability to

expand production.

2) Establishment of the Kenya Cashew nut Promotion Council (KCPC).The Council

should in addition to its functions recommend intervention strategies for

improving the marketing of Cashew nut and its by-products by adopting measures

aimed at achieving premium and incentive prices; encouraging transfer and

adoption of modern technologies for research, increased productivity of Cashew

nut and its by-products; promoting the local consumption and utilization of

Cashew nut and its by-products; forming of stakeholder groups that will spearhead

issues of mutual interest and initiating mechanisms for self-sustenance.

3) Additional cashew nut supplies will have to come from increases in yields through

input intensification programs and improved production technologies in addition


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to efficient marketing operations. The production potential that exists has been

demonstrated by experimental results from KARI research station Mtwapa. Other

research centres that develop new commercial varieties of cashew are in Matuga

and Msabaha. They include A41, A47, A81, A82, A90, A100.

Improved cashew tree varieties and their characteristics.

Source: Annual Reports, Kenya Agricultural Research Centre, Coast Province,Mtwapa.

4) Further studies are suggested in the cashew nut sub sector in Kenya to cover:

i. The production of cashew nuts in Kenya with the special emphasis on the factors

which influence the current production patterns.

ii. Market performance of both raw and processed cashew nuts products that would cover

the whole of coast province and operations for longer time spans.

REFERENCES

Bain, J.S (1968), Industrial organization. John Wiley and sons, New York

Variety

Nut characteristics

Weight(g) Length (mm) Width (mm)

Kernel

weight (g)

Yield

(kg/tree)A75/83

A100

5.25

5.07

28.27

29.14

20.91

22.53

1.25

1.46

34.71

78.55


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Caves, S.R.E, (1977), American industry, structure, conduct and

performance. Prentice hall international inc. London

Crammer, G.L and Jensen, C.W (1985),Agricultural economics. John

Wiley and sons, New York.

F.K Muniu and E Mrabu (2001) Cashew nut Baseline Study (unpublished)

Jayne, T.S., and Gem Argwings-Kodhek., Consumer Response to Maize

Market Liberalization in Urban Kenya. ," Food Policy, Vol. 22, No. 5 (1997),

pp.447-457.

Kilifi district development plan and Kilifi district Wikipedia.

Nyoro K. James, Kiiru W. Mary and JayneS.T., Evolution of Kenya maize

marketing systems in the post liberalization era.

Oyuke John, Renewed hope for cahew nut farmers.article in the Standard

published 14/04/09

Ojiambo Elphias, Can the poor influence policy? Lessons from the cashew

nut revitalization campaign in Kenya coast.

Sandiford, (1983), Management of pastoral development in the third

world. New York

Scarborough, V. And Kydd, J. 1992. Economic Analysis of Agricultural

Markets: A Manual. Chatham, U.K. Natural Resources Institute.

Schimdt J G (1979), Maize and beans marketing in Kenya, marketing

development project working paper

Schubert, B. 1973, some considerations on the methods for Evaluating

Marketing System for Agricultural products. In East African journal of Rural

Development vol.6 no. 1 &2.E.A society and Makerere University, Kampala

Uganda 1973.


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Shaffer, James D., Michael Weber, Harold Riley, and John Staatz,

"Influencing the Design of Marketing Systems to Promote Development in

Third World Countries." inAg. Markets in the Semi-Arid Tropics:

Proceedings of the Intl. Workshop

Waithaka G. H. J., Assessment of the situation and development

prospects for the cashew nut sector

Waringa Martha, Analysis of efficiency of beans marketing system in Ol

Moran division,Laikipia West district. (Unpublished)


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APPENDICES

Appendix 1: BUDGET AND TIME SCHEDULE

Table1. Time frame of study

Task March/Ap

ril

June July Augu

st

Februa

ry

March

Proposal writing and

Presenting

Reconnaissance survey

Field data collection

Data analysis

Report compilation

Report submission

Table2. Budget of study


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Item Quantity

required

Cost /

piece(Ksh)

Total cost(Ksh)

Questionnaire

production

40 2 80

Notebooks 1 20 20Biro pens 4 20 80Casuals 1 200 per day

each for 20

days

4,000

Bus fair to the

locations

1 trip to and

from each

location( 4

trips)

100 400

Accommodation

and meals

10 days in the

field

150 1,500

Sub-

total

6,080

Miscellaneous amount (5%

x 6,080)

304

Gr

and total

6,384


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Appendix 2: QUESTIONNAIRE TO RESPONDENTS

Dear Respondent,

I am a student at Moi University undertaking a Bachelor degree in

Agricultural Economics and Resource Management. I am carrying out a

research survey on cashew nut marketing system and humbly requests for

your assistance in data collection by filling this questionnaire to the best of

your knowledge.

All information submitted through this study will be treated as

confidential and will only be used for the purpose of this study and related

academic purposes.

Thanks in advance.

Yours sincerely,

Ambani Kevin A.

NB: Please tick where appropriate.

Questionnaire No. :

Date :

Name :

1. Gender M [ ]

F [ ]

2. Whats your role in marketing of cashew nut?

a. Farmer [ ] Trader [ ]


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2. Where do you market your produce?

a. Traders [ ] Consumers [ ] Middlemen [ ]

3. According to question 3, who are your major buyers?

a. .

If a trader, are there any value additions to the product before it is

finally sold?

Y [ ] N [ ]

If a farmer, did the closure of the only cashew nut factory had an

impact on your production and how?

4. Whats the selling price for a kg of cashew nut?

a. .

Buying price

5. Has the cashew nut prices been increasing for the last 5 years?

a. ..

6. According to question 6, how do you rate the selling prices according

to the cost of production?


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a. Poor [ ] Fair [ ] Good [ ] Very good [ ]

7. Do you depend entirely on cashew nut marketing for your living?

a. Y [ ] N [ ]

b. Specify

..

If No. what other economic or market activity do you engage in?

8. How much do you spend as?

a. Handling cost .

b. Storage cost .

c. Transport cost .

9. Whats your maximum capacity of cashew nut do you handle in the

market?

a.

.

10.What are some of the problems and or challenges that you face in

the market? Specify


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a.

..

11. Where do you see the cashew nut market in the future?

a.

..

Efficiency Cashewnut

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