The structure and conduct of the animal feeds industry in kenya: the case of the situation in Kiambu district and Nairobi province

Abstract

The animal feeds industry has been characterized by shortages, erratic price fluctuations and low quality animal feeds. In an attempt to examine the cause (s) of these undesirable performance outcomes, this study analysed the structure and conduct of the marketing system for animal feeds using the structure-Conduct-Performance Model. The structure was assessed using concentration ratio and degree of inequality. The conduct of the manufacturers and traders in setting prices, selling practices and presence or absence of collusive activities was examined. The price levels were assessed at the different channel levels in an attempt to compare the marketing margins and costs. The existence of any distribution and or procurement constraints within the marketing system was examined. Primary data obtained by interviewing animal feeds manufacturers, traders and livestock farmers in Nairobi and Kiambu District were utilized. The results indicated that the animal feeds industry was characterized by a high degree of concentration and inequality, with one firm, Unga Feeds Limited controlling over 75 percent of the market share. Market penetration, capital requirements were some of the barriers into the industry that existed . Despite these barriers, several firms had emerged the previous five years. Within the distribution, no such inequality and concentration existed. However collusive activities appeared to be rampant. Unga Feeds Limited acted as the dominant price leader. It used cost-plus basis for pricing the feeds. The ex-factory prices varied from one manufacturer to another due to price undercutting. The traders' marketing margins were significantly different from their marketing costs at 95% confidence interval. The degree of vertical integration was low, with only one manufacturer distributing pig feeds to the farmers directly. seventy one percent of the manufacturers indicated that high cost of production was a major problem. Marketing of animal feeds was indicated to be a problem by 50% of the manufacturers. Inadequate foreign exchange allocations and delay in processing of import licences to enable the manufacturers to purchase ingredients had 43% and 29% percent response respectively. Acquisition of raw materials, lack of adequate credit facilities, high transport charges and poor transport infrastructure were also cited. It is recommended that the nutrients which are imported should be locally produced to avoid the foreign exchange and the import licensing problem. The transport infrastructure and necessary amenities could be improved. This requires repairing the existing road networks. In addition, fuel prices should be reduced so as to reduce the production and transportation costs. The manufacturers could be allowed to buy the amounts of grains that they require without restrictions from the National Cereals and Produce Board.