The determinants of export performance of the Kenyan horticultural industry

Abstract

Kenya's horticultural industry earns the country much foreign exchange and horticultural products are set to overtake coffee and tea as the country's leading agricultural export commodities. The industry, however, is beset by a number of constraints and challenges that may hinder the full realization of its potential. Literature on the industry identifies these as including limited air-cargo space; high cost of packaging; lack of proper handling, pre-cooling and cold storage facilities; high cost of production; strong competition from other horticultural producers; and seasonality of foreign demand. Despite the identification of the factors that influence exports of horticultural products from Kenya by various researchers, no study has attempted an empirical analysis of their impact. In recognition of the strategic importance of this industry, particularly in its foreign exchange earning potential, and the limitations of the existing literature on the export performance of the industry, this study does this by specifying a semi-log-linear econometric model and estimates it using Ordinary Least Squares (OLS). This is aimed at identifying the statistically significant determinants of the export performance of Kenya's horticultural industry. Diagnostic tests have been carried out on the estimated model verify the reliability of the estimated model. Results of the empirical analysis indicate that foreign income, air-cargo space availability, the real exchange rate and the concessions under Lome Conventions all positively influence the volume of horticultural exports from Kenya. However, the Lome Conventions' variable was not statistically significant at the 5% level of significance. As Kenya's policy makers have no way of influencing foreign incomes, policies aimed at increasing the volume of horticultural exports from the country should be those that increase the real exchange rate and air-cargo space availability. Due to -da t a limitations a number of important variables such as packaging cost and quality; handling, precooling, and cold storage facilities; processing ; and so on, were not incorporated in the model used in the study. For this reason, further work on horticultural exports should attempt to incorporate some of these variables.