An Analysis Of The Efficiency Of Rural Food Markets In The Eastern Central Highlands Of Kenya

ABSTRACT

Agricultural markets offer opportunities for households to access incomes and food. Efficient food marketing systems assume a competitive structure thus enabling food distribution from surplus to deficit areas. Liberalization of agricultural markets in developing countries, Kenya included in the late 1980‟s and early 1990‟s aimed at achieving a market oriented economy. Earlier studies on agricultural market reforms have reported varied impacts on market efficiency, thus the need to analyze efficiency of rural markets in the eastern central highlands of Kenya so as to inform policy makers. This study analyzes the efficiency of maize and beans markets in the central highlands of Kenya by examining causality, market integration, asymmetric price transmission, structure and performance of the markets. The study used both primary and secondary data. Secondary data consisted of monthly retail prices for maize and beans for a period of fifteen years from nine markets. The results from time series price data analysis was used to determine whether price movements between the maize and beans markets exhibit integration which was used as an indicator of market efficiency. Primary data was from a survey of 252 traders in Mbeere and Tharaka-nithi sub counties who were selected using multistage sampling. These traders were interviewed using a semi-structured questionnaire in august 2009. Information from the survey was used to evaluate the activity of traders and unearth the factors that promote or inhibit efficiency of the markets. Data processing and analysis used the following techniques: Survey data was analysed using SPSS 16 while time series data was analysed using Eviews 7. The results from price analysis showed that there is a long run relationship between the markets in the study area. Causality between markets revealed that Siakago and Ishiara were the central markets for maize and beans respectively. The markets were cointegrated with stronger cointegration relationships observed between markets closer to each other and between markets located in different production potential areas. However, short run price adjustments were found to be very slow for all the markets, ranging between 8 and 39 months for maize and between 2 and 59 months for beans. There are asymmetries in price transmission, with markets far apart recording higher asymmetries. An analysis of the structure and performance of traders showed that the markets are efficient, as evidenced by the low trader concentration levels for retailers and medium concentration for the wholesalers. Although there was no collusive behavior among retailers, some wholesaler reported that they set prices collusively. The study concluded that although the markets are integrated, efficiency was still low. There was a clear indication of lack of improved market infrastructure, market information and credit facilities which may have contributed to low efficiency. A more organized market infrastructure and provision of market information may improve price transmission and encourage efficiency of the supply chain thereby raise rural income and food supply.