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Emerging Markets in the Post-liberalization Period: Evidence from the Raw Milk Market in Rural Kenya

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Emerging Development of Agriculture in East Africa

Abstract

This chapter examines how the raw milk market in western and central Kenya has developed after the dairy sector liberalization in 1992 by using panel data of 862 rural households. From the late 1990s to 2004, the proportion of households that sold milk to traders more than doubled, while it declined from 29% to 12% for those who sold milk to dairy cooperatives. To examine this change in the milk market, we use the price differentials between the farm gate and retail prices as a proxy for the functioning of the market. Our empirical analyses clearly show that the functioning of the market improved between the late 1990s and 2004.

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Notes

  1. 1.

     Please find a detailed description of the market liberalization of the dairy market in Kenya in the next chapter (Chap. 6).

  2. 2.

     We define the “retail price” as the price that a milk producer receives at a retail shop after transporting the milk to the shop and the “farm-gate price” as the price that a milk producer receives at his or her farm gate. The “retail price” in an area should be uniform if the milk is sold at shops in a well-integrated market at the same time. However, our respondents sold milk at different dates even within a given season (rainy or dry season) and at different retail shops that may be located in different market centers. In addition, the price offered by the potential buyers could be different across milk producers because of negotiation skills and quantity supplied (Baltenweck and Staal 2007). Therefore, it is possible for the price variable to have subscript i. The transportation costs and other marketing costs are not included in the “farm-gate price.”

  3. 3.

     The RePEAT Project is a collaborative research project of Foundation for Advanced Studies on International Development, National Graduate Research Institute for Policy Studies, the World Agroforestry Center, and Tegemeo Institute in Kenya. More details on RePEAT are available in Yamano et al. (2005).

  4. 4.

     Out of the 1,000 targeted households, 914 households were successfully identified and 874 households were interviewed in 2004. The rest (40 households) were successfully found but not available for interview due to several reasons: noncontact (27 cases), moved away (6 cases), refusal (5 cases), nonavailable (1 case), and households dissolved (1 case). Among the 874 households, we do not use 12 households since some of the variables used in the analyses are missing.

  5. 5.

     All price levels are adjusted to the 2004 price level with the price index in the Statistical Bulletin (Central Bank of Kenya, June 2002, 2004, and 2005).

  6. 6.

     One of the reviewers argued that the disappearance of the formal distribution system resulted in lower “marketing costs” due to the deterioration of the quality of milk in the market since formal processors test for quality and take a higher margin. To our knowledge, however, many informal traders also test milk by using lactometers. A study by SDP (2004) shows that there is no significant difference in the quality of milk sold by formal and informal traders.

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Acknowledgment

Financial support was provided by the twenty-first Century Center of Excellence project at National Graduate Institute for Policy Studies for the collection of the data used in this paper. We would like to thank Tetsushi Sonobe, Keijiro Otsuka, Yasuyuki Sawada, Takashi Kurosaki, and the editor, Augustin Fosu, and two reviewers of the Journal for helpful comments, and Paul Kandasamy for editorial assistance.

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Correspondence to Yoko Kijima .

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Kijima, Y., Yamano, T., Baltenweck, I. (2011). Emerging Markets in the Post-liberalization Period: Evidence from the Raw Milk Market in Rural Kenya. In: Yamano, T., Otsuka, K., Place, F. (eds) Emerging Development of Agriculture in East Africa. Springer, Dordrecht. https://doi.org/10.1007/978-94-007-1201-0_5

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