Economic Analysis of Agro-food Value Chains and Effect on Household Food Security and Poverty Alleviation- the Case of Wheat, Dairy and Beef in North West Mt. Kenya

Abstract

Agricultural activities have become increasingly organized along value chains that constitute actors and activities that cause the flow of food from production to consumption. This change has been necessitated by among other things, globalization, the need to efficiently meet rising and changing consumer demand and preferences, emergence of niche markets and the need to meet quality standards. However, major concerns still persist as to the performance of agro-food value chains, particularly in developing economies. Evidence has shown that a significant share of the population involved in agro-food value chains remain food insecure and poor. Profound changes of our current agro-food value chains are needed if they are to meet current and future demands. This study sought to assess the contribution of three agro-food value chains to participating actors by establishing the value added and its distribution among the actors. The study analysed the structure of the agro-food value chains in terms of economic activities, actors, product flows and governance. Furthermore, constraints to efficiency and growth were assessed at every level of the agro-food value chains. Moreover, the study sought to examine the status and determinants of household food security and poverty of smallholder producers in the agro-food value chains. Therefore, the main objective of the study was not only to analyze the structure and nature of the agro-food value chains and the economic returns derived by participants of the value chains but also their contribution to household welfare in terms of food security and poverty alleviation. To achieve the objectives, three agro-food value chains of wheat, dairy and beef in North West Mt. Kenya were selected for study. Five value chain activities of production, trade, processing, distribution and retailing for each of the agro-food value chain were considered. Using multistage stratified random sampling, a sample of 312 respondents including producers, traders, processors, distributors, retailers and key informants were selected for the study. The study used value chain analysis to examine the structure, value addition, governance and constraints in the agro-food value chains. The Household Food Insecurity Access Scale (HFIAS) and Foster- Greer-Thorbecke Poverty (FGT) Indices were used to examine the food security and poverty status of smallholder producer households. Multinomial logit, poisson and logit regression models were utilized to assess the determinants of food security and poverty among smallholder producer households. Results showed that the agro-food value chains constitute five main economic activities of input supply and production, trade and transportation, processing, wholesale and retail that are interlinked; and through which wheat, milk and beef products flow and are transformed for final consumption. The actors involved in these activities are input suppliers, farmers, traders and brokers, processors, distributors, wholesalers and retailers. Results also revealed that some actors add more value than others. Actors such as large-scale farmers and ranchers, processors and traders obtain higher gross margins compared to other actors. The governance structure of the agro-food value chains is heavily influenced by the marketing structure of the value chains. Results revealed weak vertical linkages in the wheat and beef value chains compared to the dairy value chain and strong horizontal linkages at the production level of the agro-food value chains. Moreover, there exists multiple power centers within the value chains with large-scale farmers and ranchers, traders and processors being dominant in the agro-food value chains. Constraints to value chain efficiency and growth exist at every stage of the agro-food value chains. However, smallholder producers and pastoralists seemed to face multiple constraints compared to other actors in the value chains. Furthermore, results revealed that 61% of the smallholder producer households were either severely, mildly or moderately food insecure. Higher incidences of food insecurity and poverty rates were found in households in the beef value chain. Income and income-related variables, household size, membership in farmers’ groups, transport assets, household energy, number of cattle and access to extension services were significant in determining household food security and poverty. Strategies focused on value chain upgrading should consider constraints facing each actor along the value chain to achieve improved coordination and holistic growth of the value chains. However, innovations and interventions should target actors where the greatest impact on food security and poverty reduction can be achieved. Policies that are geared toward enhancing smallholder farmers’ incomes, increasing productivity, building strong farmer groups have the possibility of getting smallholders out of persistent poverty and recurrent food insecurity. Moreover, such intervention strategies should be differentiated according to the food security and poverty status of different producers and an understanding of the aspects that contribute most to their vulnerability to food insecurity and poverty.