Economic Reforms and Cost Efficiency of Coffee Farmers in Central Kenya: A Stochastic-Translog Approach

Abstract

Work reported in this paper analyses the cost efficiency levels of small-holder coffee farmers in four districts in Central Province, Kenya. The level of efficiency is analysed using a stochastic cost frontier model based on household cross-sectional data collected in 1999 and 2000. The 200 surveyed households were selected through a two-stage
random sampling procedure. A second level, regression analysis, is also undertaken that relates the derived inefficiency index to farm, household, institutional as well as economic factors. Results indicate that the farmers in the region are cost efficient with a mean cost inefficiency level of 8%. There are, however, wide dispersions of the farm-specific
inefficiency levels, which range from 1% to 66% with 90% of the farm households having inefficiencies below 15%. Farm-specific cost inefficiencies are significantly influenced by farm size, amount of farm income and availability of credit. Other household demographic factors such as age, household size and education level as well as institutional and economic factors, such as availability of extension services and off-farm employment did not significantly affect the levels of inefficiency. We, therefore, conclude that small-holder-based agricultural development policy is still relevant and an efficient mode of organising production in Kenya, even after the major institutional and economic changes brought about market liberalisation. The pursuit of small-holder-based agricultural development, however, calls for strategies which can shift the production frontier upwards while emphasising institutional reforms that improve farmers\' access to credit.

Keywords: efficiency, reforms, small-holder farms, coffee, Kenya

Discovery and Innovation Vol. 19 (2) 2007: pp. 122-132