Department of Agricultural, Food, and Resource Economics Food Security Group

IDWP 119. David Mather and T.S. Jayne. 2011. The Impact of State Marketing Board Operations on Smallholder Behavior and Incomes: The Case of Kenya

EXECUTIVE SUMMARY:
Despite the resurgence of parastatal marketing boards and strategic grain reserves over the
last decade in eastern and southern Africa, there is little empirical evidence about how their
activities affect smallholder input use and cropping decisions. This paper uses panel survey
data from 1997-2007 on Kenyan smallholders to investigate the effect of Kenya’s National
Cereal Produce Board (NCPB) activities on farm-gate maize price expectations, output
supply, and factor demand.

Results show that the NCPB pan-territorial maize purchase price has a strong, positive effect
on smallholders’ maize price expectations, and that smallholders respond to higher expected
maize prices by increasing maize production via intensification – through increased fertilizer
use as well as higher maize seeding rates within intercrops. Specifically, we find that a 10%
increase in the NCPB purchase leads to: a 1.4% increase in the expected farm-gate maize sale
price; a 2.5% increase in household maize production; a 0.6% increase in the probability of
fertilizer use on maize; increases of 1.4% and 2.9% in conditional and unconditional
quantities of fertilizer applied to maize; and a 2.6% increase in household total net crop
income, on average. Increases in maize production do not appear to be coming at the expense
of production of other crops, as we find no evidence to suggest that higher expected maize
prices lead to reductions in either area planted to non-maize crops or non-maize crop
production.

We also find that a 1% increase in the expected maize price increases total household net
crop income by 1.9%. However, our ability to infer changes in the welfare of rural
households from changes in total net crop income is limited, as this variable only measures
the total value of crops produced by a rural household – not household total income, which
also includes income from livestock and non-farm activities. More importantly, for the
majority of rural Kenyan smallholders that are net buyers of maize, higher household farm
income may not translate into higher expenditure (i.e., welfare) if the costs of meeting the
household’s food consumption needs are also higher. A study that takes this into
consideration found that higher maize prices (due to NCPB price support policies) lead to
increased poverty headcounts and/or lower household income in every region except for the
high potential zone (Mghenyi, Myers, and Jayne 2011).

This study has shown that, at least in the case of Kenya, the NCPB is largely achieving its
narrowly defined mandate, i.e., increasing maize prices and maize production, as well as
contributing in a small way to overall agricultural growth. Thus, our findings corroborate the
widely held view in Kenya that the NCPB is a powerful tool for supporting maize production
specifically, and Kenyan agriculture more generally. The NCPB’s activities have also been
found to have a generally stabilizing effect on maize market prices in Kenya (Jayne, Myers,
and Nyoro 2008). However, these benefits are being achieved at a cost that is unknown to
the general public. Unfortunately, little analysis is available to assess the opportunity costs of
NCPB operations and the potential impacts that could have been achieved had decades of
NCPB expenditures been reallocated, partially or fully, to alternative public investments.
Such analysis is impeded by restricted access to data on NCPB operating costs. Should such
data become publically available, an important question for further research would be to
assess the social benefits of NCPB activities in relation to their costs. It will be important for
further research to be able to assess whether other marketing boards in the region are having
similar effects, given major cross-country variations in their objectives and operations, as
well as a better notion of the benefits relative to their costs.