RESEARCH PROJECT PROPOSAL
ASSESSMENT OF MARKETING EFFICIENCY IN SAMBURU COUNTY CATTLE MARKET; THE CASE OF MARALAL CATTLE MARKET
ABSTRACT
Cattle production and marketing is the main economic activity in Samburu County, about 98% of the residents are dependent on livestock and livestock products. Livestock products are considerably of high value and cattle production and marketing enterprises are thus expected to fetch good incomes for the producers and marketers. This
is not the case for Kenyan herders (pastoralists). It is thus relevant and objective to assess the efficiency of the cattle marketing system in Samburu County by assessing pricing efficiency, analyzing the cattle marketing channel, the market margins, and market power of the various market participants and more importantly determining the various factors influencing cattle pricing. The above-mentioned parameters can indicate areas for marketing improvement for the benefit of both the producers (farmers) and consumers and provide a basis for marketing policies formulations that will facilitate development of an efficient cattle market in Samburu County.
Livestock production and marketing is significant to the economy of Samburu County both as a source of revenue and for the livelihood systems of the area residents. Research based information on the performance of the livestock markets established in Samburu County will not only bring into light the existing condition of these markets but will also guide the county government of Samburu in implementing the various projects aimed at improving the livelihood of the herders.
The study is to be carried out in Maralal livestock market, Maralal slaughterhouse and butcheries in Maralal town of samburu county, Kenya. After collecting both primary and secondary data on the Maralal Cattle market covering the entire cattle-marketing channel, the assessment of marketing system efficiency will be based on the analysis of market margins of traders and farmers in addition to pricing efficiency analysis of the entire marketing system.
DECLEARATION
I, LOKUPAK LOKINE THOMAS declare that this research proposal is my own work and has not been formerly or simultaneously submitted to any institution of learning for any academic award. I also declare that this work has not appeared anywhere in any other form other than for the reference made from published works.
Student Signature………………………………………
Date………………………………………………
APPROVAL
This research proposal was submitted for examination under my supervision as the University Lecturer.
Supervisor Signature……………………………….
Date………………………………………………...
Ms. LUCY NGARE
KENYATTA UNIVERSITY
SCHOOL OF AGRICULTURE AND ENTERPRISE DEVELOPMENT
DEPARTMENT OF AGRIBUSINESS MANAGEMENT AND TRADE
ACKNOWLEDGEMENTS
I would like to thank God for making it possible for me to undertake this research proposal. I wish also to thank my supervisor Ms Lucy Ngare who willingly dedicated her energy and time for me to develop this research proposal.
CHAPTER ONE: INTRODUCTION
1.1 BACKGROUND
Kenya is a country characterized by various land uses, which are based on the prevalent climatic conditions of the country. The Arid and Semi-Arid Lands (ASAL) cover almost 80% of the country’s total land mass and are characterized by harsh and unpredictable climatic conditions. Samburu County is one of the ASAL regions of Kenya and the predominant land use practice is pastoralism. 98% of the local Samburu community depends on livestock for livelihood through direct use of livestock products (Meat and Milk) and income derived from the sale of livestock and livestock products (Barrett et al, 2003).
Access to livestock markets is severe challenge facing the pastoral communities in Africa (Holtzman, &Kulibaba, 1995). This has been a late down in improving the livelihoods of Samburu pastoralists. The County Government of Samburu and the Kenya Livestock Market Council through Livestock Market Associations have collaboratively established and currently managing 10 livestock markets in the entire county. Recent studies view pastoral society as a closed system based on the communal systems of pastoralism. However, communal systems associated with pastoralism are in the collapse and there is therefore need to incorporate pastoralism into the national system of market economy. Development of livestock markets in ASAL like Samburu is thus a vital consideration especially in achieving developmental plans like the Kenya Vision 2030.
The Samburu livestock marketing system involves a varied number of players who participate in the actual exchange of livestock and livestock products. The main key players for cattle are the producers (Farmers) who are the primary sellers and sometimes the primary buyers, the butchers (both primary and secondary buyers), traders (primary buyers, secondary sellers). Historically, the Samburu livestock markets operated in auction system but currently the adapted system is “willing-buyer willing seller”. In this system, the buyers and sellers interact and engage in secret negotiations and make agreements on the price of the animal on sale. After the parties seal the deal, the exchange takes place and the parties depart. The secretive nature of livestock price negotiation exposes the producers to exploitation by market proxies like brokers.
The producers have limited access to market information and are more dependent on the intermediaries and this makes them more vulnerable to exploitation. The various established livestock markets will only prove useful if the producers realize good prices for their livestock and livestock products. This is only possible if the particular market is both technical, operational and price efficient.
Table 1: Livestock market channel
Despite the establishment of these livestock markets, the common Samburu livestock producers are yet to realize maximum benefits from livestock trade due to reasons emanating from inefficiencies of the livestock value chain (Lesorogol&Ansong, 2011). It is therefore, necessary to assess the efficiency of the livestock market in Samburu to understand and identify areas for improvement in livestock marketing in Samburu County.
Table 2: Samburu County livestock markets
Table 3: Neighboring livestock markets
1.2 PROBLEM STATEMENT
There is an evidence of increasing stability and economic growth in Kenya but the populations dwelling in the rural areas especially the pastoralists remain economically vulnerable. This is partly because of the fact that the vast majority of the rural populations (over 80%) engage in small-scale agriculture. However, the underlying reason might be the poor performance of the agricultural sector coupled with low rural incomes caused by limited market access (Lesorogolet al, 2011).
A case study on Lolkuniyani livestock market in Samburu East showed that the livestock market has not reached its potential in terms of bringing producers better prices for their livestock and livestock products. The highest recorded sale for a bull was Kshs 22,000. The samburu producers do not show any marketing efforts or aggressive sales since sellers simply bring their stock to the market and wait for someone to come and buy (Enterprise Development, n.d).
Livestock production and marketing is significant to the economy of Samburu County both as a source of revenue and for the livelihood systems of the area residents. Research based information on the performance of the livestock markets established in Samburu County will not only bring into light the existing condition of these markets but will
also guide the county government of Samburu in implementing the various projects aimed at improving the livelihood of the herders. An efficient market exists when there are no arbitrage opportunities (Solomon, 2003).
Livestock marketing happens to be the African governments’ favorite sector for interventions when aiming to improve the livelihoods of smallholder livestock farmers. Marketing information and data is vital to successful insemination of intervention policies in the smallholder livestock sector. Absence of information and data on the magnitude and seasonality in supply and demand for instance can frustrate implementation of some well thought projects. The closure of the Kotsi meat packing plant in Sudan after few months of operation is an outright case in point (Abbot, 1979). Marketing is an import aspect of any economic system, addressing marketing inefficiencies will lead to producers realizing just prices for their products meaning increased incomes and eventually improved livelihoods and living standards. This is particularly vital in Kenya as a milestone in achieving Vision 2030.
1.3 RESEARCH OBJECTIVES
1.3.1 General research objectives
The objective of this study is to assess the marketing efficiency of the Maralal livestock market for cattle. It thus aims to identify information gaps and give recommendations that may help to reduce inefficiencies in the domestic livestock markets and identify opportunities in such markets. It also aims at providing updated information that will form a basis for market improvement policies formulation.
1.3.2 Specific objectives
The research to be undertaken will be significant to the residents of Samburu County and the general livestock sector in Kenya, as it will provide research based information on marketing efficiency of the County’s livestock market and will identify the areas for improvement and opportunities. The study will also make theoretical contribution to the body of knowledge on livestock production in the ASAL with the emphasis on livestock marketing efficiency.
1.5 STUDY AREA
Samburu County is located in the former Rift valley province of Kenya. The county covers an area of 21,022.27 square kilometres. Samburu county borders four other livestock based counties;Marsabit to the North East, Isiolo to the South East, Turkana to the North West and Laikipia and Baringo to the South West. According to the 2009 national Census, Samburu County is home to 223,947 People.
Samburu is among the driest countries in Kenya with temperatures ranging from 25 during the coldest months (June and July) and 35 during the hottest months (January and March). Rainfall received ranger between 200mm and 250mm annually. The rainfall patterns are unpredictable contributing to the migratory nature of pastoralist.
Maralal livestock market is located in Maralal town, which is the Samburu county headquarters, and it is located about 350km north of Nairobi. Maralal town is a thriving trade Centre and serves as a major livestock market in Samburu Central. Cattle, goats, sheep and camels are usually traded; with buyers coming from as far as Nairobi.
CHAPTER TWO: LITERATURE REVIEW
2.1.1 Overview of livestock market
The livestock sector is among the major sub-sectors of the agricultural sector. According to Kenya National Bureau of Statistics (KNBS) statistical Abstract 2002, livestock production amounted to Kshs. 15.5 billion. 20% of this nearly represented the total value for agricultural, permanent crops (tea, coffee etc) and industrial crop production. Livestock production for this period was larger than that of cereals and coffee sub-sectors, but lesser than that for tea sub-sector. Cattle, goats, sheep, hides, and skins represented nearly 72% of the total value of livestock production, and 14% of total agricultural sector production. Pastoral producers dominate the livestock sector with ranches and high quality meat traders represent only 3% of the total red meat consumed. It is estimated that the red meat marketing chains employ over 100,000 people and red meat constitutes a major component of the diet of most Kenyans (KNBS, n.d).
Kenya has in the past been locked out of the lucrative European livestock market and the government is focusing to reverse this through control of animal movements and the ongoing plan of creation of Disease Free Zones (DFZs) (Vision 2030). The advantages of these interventions and controls will trickle down to the interior markets through the better prices and better animal production practices. The local economy of Samburu County is heavily reliant on livestock and livestock products. Efforts to develop livestock markets and market infrastructure have been put in place by the Samburu County Council (SCC) allocating resource for this purpose. Despite these efforts, the Samburu herders find it difficult to access these markets usually trekking longer distances.
Furthermore, these farmers experience unfair pricing from traders. Limited access to market information and the high dependence on intermediaries makes these herders vulnerable to exploitation. The smallholder farmers’ livelihood is highly dependent on the income gained from livestock production. Improving livestock products, improving marketing information, alleviating marketing constraints and upgrading marketing infrastructure will potentially increase the welfare of smallholder livestock producers and urban consumers and improve the national balance of payments (Wiggins, 2005).
The more farmers are aware of the market demand and price, the higher will be their bargaining power that could improve their income through getting a larger share of the consumer spending. Market infrastructure and institutional set-ups will improve the access of producers to potential market whereby they could supply more volume with higher share of the end market price. These improvement measures will raise the household income and purchasing power of producers and local traders, which in turn will create positive impacts on the local economy (Aklilu, 2002). On the other hand, when income of the producers increases through better access to information, market and infrastructure, they could improve production, in terms of both quantity and quality, thereby benefiting consumers.
Structure: Refers to the set of variables affecting behavior of buyers or sellers but are relatively stable over time. Market structure depicts that, the way markets fail to follow the conditions of perfect competition depends on the degree of demand concentration, supply concentration, product differentiation and market entry barriers.
Conduct: It refers to the way market actors behave amongst themselves and between each other. Firms chose individual behavioral strategies like collusion, investment in research, advertising or development etc.
Performance: It is the accomplishment of the firm’s obligation and it is measured by comparing the outcomes of the firm in terms of efficiency along the industry.
2.3 EMPIRICAL REVIEWS
2.3.1 Marketing margin, costs and the concept of marketing efficiency
Marketing margin is defined as the difference between the price the consumer pays and the price received by the producers. Marketing margin is a commonly used measure of the performance of a marketing system (Abbott and Makehan, 1990). It is a useful descriptive statistics if used to show how the consumer’s expenditure (price) is distributed among the common market participants at different levels of marketing system.
Marketing costs are incurred when products or commodities are moved from the point of production to the final point of consumption. As the commodity moves over longer distances, and through more intermediaries, marketing costs increases. Pricing efficiency focuses on the need for commodity prices in a market to relate to values in exchange (Crowford 1997). In an efficiently operating market, prices of a commodity are deemed to be related over time and space, and between forms. A commodity’s market is thus considered efficient when there is no possibility of earning profit by simply buying a commodity from one market and selling it in another market. The difference in prices of the commodity between the two markets must be accounted for by transportation and other handlings costs and provide a reasonable return to marketers. In existence of marketing efficiency, marketing margin should reflect the values being delivered. Marketing margin in this case is the difference in prices at two different points in livestock marketing chain, commonly the farm-to-broker spread (Simpson, 1984).
It is assumed that an efficient marketing system is a vital means of raising income levels to both farmers and traders engaging in production and trading. If the market is efficient it will increase market surplus, and induce regional and inter-regional trade, which increase the profitability of farming and trading in a short as well as long-term period. The efficiency of a marketing system is measured in terms of the level quantification of the inputs or resources employed in obtaining a certain level of output. Efficient marketing optimize the ratio between these resources (inputs) and outputs. Generally, marketing efficiency is measured in three ways:
Operation efficiency is measured in terms of marketing margins and costs. The evidence of improved efficiency is reduction in costs whereas outputs are actually increased or maintained. Technology can be viewed as the only avenue to improved operation efficiency but also an organization can improve its operation efficiency by reaping the economies of scale in its operations. In a particular marketing system, the higher the losses involved, the lower the level of operation efficiency.
2.3.1.2 Pricing efficiency
Pricing efficiency is a vital component in measuring marketing efficiency of a marketing system. It is measured in terms of correlation of price movements of a particular product between pairs of markets. Price correlation movement is an indicator of the degree of markets integration. The concern of pricing efficiency in this case is the ability of a marketing system to allocate resources and be in a position to coordinate the entire marketing process in accordance with the directives of the consumers. The evidence for pricing efficiency is thus efficient allocation of resources and maximum economic customer’s willingness to pay in the market place for the product in question. It is accepted that, the higher the correlation of prices in paired markets for a product in question, the better integrated the markets are for the product therefore the higher the efficiency they are operating in terms of price. Competition is the role player in determining pricing efficiency.
2.3.1.3 Technical efficiency
It refers to the various ways that resources are utilized in marketing. This is in terms of input and output ratios. Technical efficiency in a production unit refers to the achievement of the maximum possible output out of a given amount of inputs, considering physical production relationships.
2.3.1.4 Market power
Market power can be defined as the ability of a firm to alter the market price of a good or service. In a perfect competitive market; the participants have no market power. Perfect competitive market model is usually used as a benchmark while assessing market power of a buyers and sellers in a market of concern. In a competitive market, price equals to marginal costs for each participant in a market. The degree of market power can be determined by measuring the gap between the price and marginal cost. In markets that sellers have market power, firms charge prices above the marginal costs (Gruen, 1997). Market power in buying is the ability of a market participant to set prices below marginal costs.
2.4 CONCEPTUAL FRAMEWORKS
In this research, several components will be considered in analyzing market efficiency as in line with the Structure-Conduct-Performance model used in the study. The first component considers pricing efficiency followed by operation efficiency. Pricing efficiency will be examined in terms of variables such as margins, prices, and factors influencing cattle pricing. The other factors constitute how the various market participants are differentiated from one another and the existing competition and market barriers.
It will be considered that the higher the correlation of prices between pairs of markets for a particular product, the better the integrated the markets for the product and hence more efficient the market is in terms of price. Operation efficiency will be analyzed using market margins after the marketing costs incurred. The higher the market margins the more efficient the market operation. Information transparency and market chain are other aspects considered in tracing the movement of the product from the producer to the consumer and utilization by determining the market barriers and concentration index.
The relationship among these factors was based on the Structure-Conduct-Performance model which considers that structural characteristics of a market tend to influence market behavior and hence performance. This implies that, the number and shares of market participants influence pricing aspects. Market entry barriers can also reduce potential entrance to the market hence affecting market share by increasing market share to few participants, which in turn increase their market power, and eventually affecting performance as well as efficiency of a competitive market.
2.4.1 Conceptual frameworks
Figure 1: Conceptual frameworks
2.5 ANALYTICAL TECHNIQUES
Market margin analysis and Concentration ratio analysis are the commonly used in analysis of marketing efficiency. Regression analysis is also used in analyzing factors in contribution to marketing efficiency in consideration to price (Price efficiency).
2.5.1 Regression Analysis
Regression analysis is a statistical forecasting model that is concerned with the evaluation and description of relationship between given variables (the dependent variable and the independent variables). It can be used in forecasting the outcome of a given dependent variable based on the interaction of other associated explanatory variables. In this study, regression analysis will be used in in determining whether the buying price at a particular point reflect the marketing costs (Pricing efficiency analysis). The following regression equation will be used in this analysis;
MC = f (Pi+μ)
Where:
MC = Market Costs,
Pi = Buying price at a specified market,
μ = Error term
2.5.2 Market Margin Analysis
TGMM = (End buyer price – First seller price) X100
End buyer price
Where:
TGMM = Total gross market margin.
2.5.3 Concentration ratio CR
CR is analytical tool useful in identification of the market structure and power, which is a determinant of the degree of competition in existence in a particular market segment (Hervan, 2005).CR of the various market participants can be calculated as the ratio of the total quantity of the products bought/sold by the selected buyers/sellers to the total quantity of the products bought/sold in the marketing period. Concentration ratio is important in determining market behavior within a market because it affects the interdependence action of market participants. CR can guide in indicating the most likely type of market structure.
Market concentration ratio of 50% is an indication of strong monopolistic firm, CR of below 50% to 33% indicates weak monopolistic firm. CR of below 33% indicates unconcentrated firm (Khols and Uhl 1990). It is generally considered that a higher market concentration is an indicator of non-competitive behavior and thus market inefficiency. Market concentration, market behavior and market performance relationships need not be interpreted in isolation. According to Scherer (1980), Factors vital to understanding of market structure like firm’s objectives, economies of scale, barriers to entry and exit, and the underlying assumptions of rival firm’s behavior are relevant in determination of the degree of concentration and relationship between concentration and market behavior and market efficiency.
CR=CP/IP x 100
Where;
CR = Concentration ratio
CP = Total number of cattle bought/sold by selected traders/sellers in the market
IP = Total number of cattle in the market during the period
CHAPTER THREE: METHODOLOGY
3.1.1 Research design
The research is cross-sectional survey to be carried out in a single point in time. Cross-sectional survey is useful for descriptive purposes and in determining relationship between variables as well as for purposes of obtaining qualitative information. It also allows for efficient utilization of resources on the side of the researcher (Bailey, 1998).
3.1.2 Sampling design
The target population consist of heterogeneous groupings (Farmers, traders and butchers) served by the Maralal livestock market. The selection of samples will be done using stratified sampling technique.
3.1.3 Data collection
The study will start with an investigation on the existing market structure, conduct and performance. The data will be collected through observation and interviews at the market place, abattoir and butcheries. Key informant interviews with the producers, County Council officials, local traders and butcheries will be conducted. Structured questionnaires will also be administered and the records sought will include county council charges and receipts of cattle sales in the Maralal market.
3.1.3.1The data to be collected;
Microsoft excel and Statistical Package for Social Science (SPSS) will be used in both qualitative and quantitative data analysis in order to attain the research stated objectives. Respondents’ response will be coded and summarized and analyzed. Descriptive analysis will be utilized for means, percentages, graphs, frequencies and ranges. Quantitative analysis will involve regression analysis, market margin analysis and market concentration analysis and price. The results will be presented in form of line charts, pie charts and histograms.
The analysis of the efficiency of the marketing system will be based on the evaluation and comparison of costs and marketing margins of traders. This will employ the pricing interface model, which will determine the degree of interface pricing for the farmers and traders. The degree of interface pricing efficiency will test the correlation between prices i.e to determine whether the prevailing prices at particular marketing points reflect marketing costs. This will be executed using a simple regression model;
MC = f (Pi+μ)
Where:
MC = Market Costs,
Pi = Buying price at a specified market,
μ = Error term
Analysis of market margin
This will be used in assessing the difference between prices at the various market levels (Farmers and traders). This will be calculated using the formula below;
TGMM = (End buyer price – First seller price) X100
End buyer price
Where:
TGMM = Total gross market margin.
Market share held by each market participant will be used in assessing the market structure and market share will be based on concentration ratio analysis. Market actors conduct themselves in order to acquire market power. Market conduct will thus be evaluated using the analysis of the market power of various market participants. This will be assessed using market concentration ratio analysis using the formula below;
CR=CP/IP x 100
Where;
CR = Concentration ratio
CP = Total number of cattle bought/sold by selected traders/sellers in the market
IP = Total number of cattle in the market during the period
Annex 1: CHECKLIST
Annex 2: QUESTIONNAIRES
Questionnaire for farmers
General Data
Questionnaire No………………………Date of Interview……………………………
Interviewer’s Name………………………Farmer’s Name……………………………
Division…………………………………..Ward……………………………………….
Village……………………………………
PART 1: FARMER’S CHARACTERISTICS (Fill the gap or Tick one)
What is the grade of the cattle you are selling? Grade 1………………… Grade 2………… Grade 3……………..
TRADERS AND BUTCHERS QUESTINNAIRE
How do you access market information? i) By physical visit to the market ii) By using telephone …….. iii) By asking traders who come to buy…… iv) Others (Specify)………
Annex 3: WORK PLAN
Annex 4: RESERCH BUDGET
ASSESSMENT OF MARKETING EFFICIENCY IN SAMBURU COUNTY CATTLE MARKET; THE CASE OF MARALAL CATTLE MARKET
By
THOMAS LOKINE LOKUPAK
A112/1856/2011
A RESEARCH PROPOSAL SUBMITTED TO KENYATTA UNIVESITY SCHOOL OF AGRICULTURE, DEPARTMENT OF AGRIBUSINESS MANAGEMENT AND TRADE IN PARTIAL FULFILLMENT OF THE REQUIREMENT OF THE AWARD OF DEGREE OF BACHELOR OF SCIENCE (AGRIBUSINESS MANAGEMENT & TRADE).ABSTRACT
Cattle production and marketing is the main economic activity in Samburu County, about 98% of the residents are dependent on livestock and livestock products. Livestock products are considerably of high value and cattle production and marketing enterprises are thus expected to fetch good incomes for the producers and marketers. This
is not the case for Kenyan herders (pastoralists). It is thus relevant and objective to assess the efficiency of the cattle marketing system in Samburu County by assessing pricing efficiency, analyzing the cattle marketing channel, the market margins, and market power of the various market participants and more importantly determining the various factors influencing cattle pricing. The above-mentioned parameters can indicate areas for marketing improvement for the benefit of both the producers (farmers) and consumers and provide a basis for marketing policies formulations that will facilitate development of an efficient cattle market in Samburu County.Livestock production and marketing is significant to the economy of Samburu County both as a source of revenue and for the livelihood systems of the area residents. Research based information on the performance of the livestock markets established in Samburu County will not only bring into light the existing condition of these markets but will also guide the county government of Samburu in implementing the various projects aimed at improving the livelihood of the herders.
The study is to be carried out in Maralal livestock market, Maralal slaughterhouse and butcheries in Maralal town of samburu county, Kenya. After collecting both primary and secondary data on the Maralal Cattle market covering the entire cattle-marketing channel, the assessment of marketing system efficiency will be based on the analysis of market margins of traders and farmers in addition to pricing efficiency analysis of the entire marketing system.
DECLEARATION
I, LOKUPAK LOKINE THOMAS declare that this research proposal is my own work and has not been formerly or simultaneously submitted to any institution of learning for any academic award. I also declare that this work has not appeared anywhere in any other form other than for the reference made from published works.
Student Signature………………………………………
Date………………………………………………
APPROVAL
This research proposal was submitted for examination under my supervision as the University Lecturer.
Supervisor Signature……………………………….
Date………………………………………………...
Ms. LUCY NGARE
KENYATTA UNIVERSITY
SCHOOL OF AGRICULTURE AND ENTERPRISE DEVELOPMENT
DEPARTMENT OF AGRIBUSINESS MANAGEMENT AND TRADE
ACKNOWLEDGEMENTS
I would like to thank God for making it possible for me to undertake this research proposal. I wish also to thank my supervisor Ms Lucy Ngare who willingly dedicated her energy and time for me to develop this research proposal.
CHAPTER ONE: INTRODUCTION
1.1 BACKGROUND
Kenya is a country characterized by various land uses, which are based on the prevalent climatic conditions of the country. The Arid and Semi-Arid Lands (ASAL) cover almost 80% of the country’s total land mass and are characterized by harsh and unpredictable climatic conditions. Samburu County is one of the ASAL regions of Kenya and the predominant land use practice is pastoralism. 98% of the local Samburu community depends on livestock for livelihood through direct use of livestock products (Meat and Milk) and income derived from the sale of livestock and livestock products (Barrett et al, 2003).
Access to livestock markets is severe challenge facing the pastoral communities in Africa (Holtzman, &Kulibaba, 1995). This has been a late down in improving the livelihoods of Samburu pastoralists. The County Government of Samburu and the Kenya Livestock Market Council through Livestock Market Associations have collaboratively established and currently managing 10 livestock markets in the entire county. Recent studies view pastoral society as a closed system based on the communal systems of pastoralism. However, communal systems associated with pastoralism are in the collapse and there is therefore need to incorporate pastoralism into the national system of market economy. Development of livestock markets in ASAL like Samburu is thus a vital consideration especially in achieving developmental plans like the Kenya Vision 2030.
The Samburu livestock marketing system involves a varied number of players who participate in the actual exchange of livestock and livestock products. The main key players for cattle are the producers (Farmers) who are the primary sellers and sometimes the primary buyers, the butchers (both primary and secondary buyers), traders (primary buyers, secondary sellers). Historically, the Samburu livestock markets operated in auction system but currently the adapted system is “willing-buyer willing seller”. In this system, the buyers and sellers interact and engage in secret negotiations and make agreements on the price of the animal on sale. After the parties seal the deal, the exchange takes place and the parties depart. The secretive nature of livestock price negotiation exposes the producers to exploitation by market proxies like brokers.
The producers have limited access to market information and are more dependent on the intermediaries and this makes them more vulnerable to exploitation. The various established livestock markets will only prove useful if the producers realize good prices for their livestock and livestock products. This is only possible if the particular market is both technical, operational and price efficient.
|
Despite the establishment of these livestock markets, the common Samburu livestock producers are yet to realize maximum benefits from livestock trade due to reasons emanating from inefficiencies of the livestock value chain (Lesorogol&Ansong, 2011). It is therefore, necessary to assess the efficiency of the livestock market in Samburu to understand and identify areas for improvement in livestock marketing in Samburu County.
Table 2: Samburu County livestock markets
| Samburu Livestock Markets | |
| Division | Market Name |
| Wamba |
|
| Lorroki |
|
| Kirisia |
|
| Baragoi |
|
| Nyiro |
|
| County | Market Name |
| Isiolo | Oldonyiro |
| Laikipia | Rumuruti |
There is an evidence of increasing stability and economic growth in Kenya but the populations dwelling in the rural areas especially the pastoralists remain economically vulnerable. This is partly because of the fact that the vast majority of the rural populations (over 80%) engage in small-scale agriculture. However, the underlying reason might be the poor performance of the agricultural sector coupled with low rural incomes caused by limited market access (Lesorogolet al, 2011).
A case study on Lolkuniyani livestock market in Samburu East showed that the livestock market has not reached its potential in terms of bringing producers better prices for their livestock and livestock products. The highest recorded sale for a bull was Kshs 22,000. The samburu producers do not show any marketing efforts or aggressive sales since sellers simply bring their stock to the market and wait for someone to come and buy (Enterprise Development, n.d).
Livestock production and marketing is significant to the economy of Samburu County both as a source of revenue and for the livelihood systems of the area residents. Research based information on the performance of the livestock markets established in Samburu County will not only bring into light the existing condition of these markets but will
also guide the county government of Samburu in implementing the various projects aimed at improving the livelihood of the herders. An efficient market exists when there are no arbitrage opportunities (Solomon, 2003).Livestock marketing happens to be the African governments’ favorite sector for interventions when aiming to improve the livelihoods of smallholder livestock farmers. Marketing information and data is vital to successful insemination of intervention policies in the smallholder livestock sector. Absence of information and data on the magnitude and seasonality in supply and demand for instance can frustrate implementation of some well thought projects. The closure of the Kotsi meat packing plant in Sudan after few months of operation is an outright case in point (Abbot, 1979). Marketing is an import aspect of any economic system, addressing marketing inefficiencies will lead to producers realizing just prices for their products meaning increased incomes and eventually improved livelihoods and living standards. This is particularly vital in Kenya as a milestone in achieving Vision 2030.
1.3 RESEARCH OBJECTIVES
1.3.1 General research objectives
The objective of this study is to assess the marketing efficiency of the Maralal livestock market for cattle. It thus aims to identify information gaps and give recommendations that may help to reduce inefficiencies in the domestic livestock markets and identify opportunities in such markets. It also aims at providing updated information that will form a basis for market improvement policies formulation.
1.3.2 Specific objectives
- To determine the marketing efficiency of the Maralal cattle marketing system in terms of pricing
- To determine the factors influencing livestock pricing in Maralal cattle market
- To analyze the degree of competition in Maralal cattle market participants
- How efficient is the Maralal cattle marketing system in terms of pricing?
- What are the factors influencing livestock pricing in Maralal cattle market?
- What are the specific market share and market power of the Maralal cattle market participants?
The research to be undertaken will be significant to the residents of Samburu County and the general livestock sector in Kenya, as it will provide research based information on marketing efficiency of the County’s livestock market and will identify the areas for improvement and opportunities. The study will also make theoretical contribution to the body of knowledge on livestock production in the ASAL with the emphasis on livestock marketing efficiency.
1.5 STUDY AREA
Samburu County is located in the former Rift valley province of Kenya. The county covers an area of 21,022.27 square kilometres. Samburu county borders four other livestock based counties;Marsabit to the North East, Isiolo to the South East, Turkana to the North West and Laikipia and Baringo to the South West. According to the 2009 national Census, Samburu County is home to 223,947 People.
Samburu is among the driest countries in Kenya with temperatures ranging from 25 during the coldest months (June and July) and 35 during the hottest months (January and March). Rainfall received ranger between 200mm and 250mm annually. The rainfall patterns are unpredictable contributing to the migratory nature of pastoralist.
Maralal livestock market is located in Maralal town, which is the Samburu county headquarters, and it is located about 350km north of Nairobi. Maralal town is a thriving trade Centre and serves as a major livestock market in Samburu Central. Cattle, goats, sheep and camels are usually traded; with buyers coming from as far as Nairobi.
CHAPTER TWO: LITERATURE REVIEW
2.1.1 Overview of livestock market
The livestock sector is among the major sub-sectors of the agricultural sector. According to Kenya National Bureau of Statistics (KNBS) statistical Abstract 2002, livestock production amounted to Kshs. 15.5 billion. 20% of this nearly represented the total value for agricultural, permanent crops (tea, coffee etc) and industrial crop production. Livestock production for this period was larger than that of cereals and coffee sub-sectors, but lesser than that for tea sub-sector. Cattle, goats, sheep, hides, and skins represented nearly 72% of the total value of livestock production, and 14% of total agricultural sector production. Pastoral producers dominate the livestock sector with ranches and high quality meat traders represent only 3% of the total red meat consumed. It is estimated that the red meat marketing chains employ over 100,000 people and red meat constitutes a major component of the diet of most Kenyans (KNBS, n.d).
Kenya has in the past been locked out of the lucrative European livestock market and the government is focusing to reverse this through control of animal movements and the ongoing plan of creation of Disease Free Zones (DFZs) (Vision 2030). The advantages of these interventions and controls will trickle down to the interior markets through the better prices and better animal production practices. The local economy of Samburu County is heavily reliant on livestock and livestock products. Efforts to develop livestock markets and market infrastructure have been put in place by the Samburu County Council (SCC) allocating resource for this purpose. Despite these efforts, the Samburu herders find it difficult to access these markets usually trekking longer distances.
Furthermore, these farmers experience unfair pricing from traders. Limited access to market information and the high dependence on intermediaries makes these herders vulnerable to exploitation. The smallholder farmers’ livelihood is highly dependent on the income gained from livestock production. Improving livestock products, improving marketing information, alleviating marketing constraints and upgrading marketing infrastructure will potentially increase the welfare of smallholder livestock producers and urban consumers and improve the national balance of payments (Wiggins, 2005).
The more farmers are aware of the market demand and price, the higher will be their bargaining power that could improve their income through getting a larger share of the consumer spending. Market infrastructure and institutional set-ups will improve the access of producers to potential market whereby they could supply more volume with higher share of the end market price. These improvement measures will raise the household income and purchasing power of producers and local traders, which in turn will create positive impacts on the local economy (Aklilu, 2002). On the other hand, when income of the producers increases through better access to information, market and infrastructure, they could improve production, in terms of both quantity and quality, thereby benefiting consumers.
- THEORITICAL FRAMEWORKS
Structure: Refers to the set of variables affecting behavior of buyers or sellers but are relatively stable over time. Market structure depicts that, the way markets fail to follow the conditions of perfect competition depends on the degree of demand concentration, supply concentration, product differentiation and market entry barriers.
Conduct: It refers to the way market actors behave amongst themselves and between each other. Firms chose individual behavioral strategies like collusion, investment in research, advertising or development etc.
Performance: It is the accomplishment of the firm’s obligation and it is measured by comparing the outcomes of the firm in terms of efficiency along the industry.
2.3 EMPIRICAL REVIEWS
2.3.1 Marketing margin, costs and the concept of marketing efficiency
Marketing margin is defined as the difference between the price the consumer pays and the price received by the producers. Marketing margin is a commonly used measure of the performance of a marketing system (Abbott and Makehan, 1990). It is a useful descriptive statistics if used to show how the consumer’s expenditure (price) is distributed among the common market participants at different levels of marketing system.
Marketing costs are incurred when products or commodities are moved from the point of production to the final point of consumption. As the commodity moves over longer distances, and through more intermediaries, marketing costs increases. Pricing efficiency focuses on the need for commodity prices in a market to relate to values in exchange (Crowford 1997). In an efficiently operating market, prices of a commodity are deemed to be related over time and space, and between forms. A commodity’s market is thus considered efficient when there is no possibility of earning profit by simply buying a commodity from one market and selling it in another market. The difference in prices of the commodity between the two markets must be accounted for by transportation and other handlings costs and provide a reasonable return to marketers. In existence of marketing efficiency, marketing margin should reflect the values being delivered. Marketing margin in this case is the difference in prices at two different points in livestock marketing chain, commonly the farm-to-broker spread (Simpson, 1984).
It is assumed that an efficient marketing system is a vital means of raising income levels to both farmers and traders engaging in production and trading. If the market is efficient it will increase market surplus, and induce regional and inter-regional trade, which increase the profitability of farming and trading in a short as well as long-term period. The efficiency of a marketing system is measured in terms of the level quantification of the inputs or resources employed in obtaining a certain level of output. Efficient marketing optimize the ratio between these resources (inputs) and outputs. Generally, marketing efficiency is measured in three ways:
- a) Operational efficiency
- b) Pricing efficiency and,
- c) Technical efficiency
Operation efficiency is measured in terms of marketing margins and costs. The evidence of improved efficiency is reduction in costs whereas outputs are actually increased or maintained. Technology can be viewed as the only avenue to improved operation efficiency but also an organization can improve its operation efficiency by reaping the economies of scale in its operations. In a particular marketing system, the higher the losses involved, the lower the level of operation efficiency.
2.3.1.2 Pricing efficiency
Pricing efficiency is a vital component in measuring marketing efficiency of a marketing system. It is measured in terms of correlation of price movements of a particular product between pairs of markets. Price correlation movement is an indicator of the degree of markets integration. The concern of pricing efficiency in this case is the ability of a marketing system to allocate resources and be in a position to coordinate the entire marketing process in accordance with the directives of the consumers. The evidence for pricing efficiency is thus efficient allocation of resources and maximum economic customer’s willingness to pay in the market place for the product in question. It is accepted that, the higher the correlation of prices in paired markets for a product in question, the better integrated the markets are for the product therefore the higher the efficiency they are operating in terms of price. Competition is the role player in determining pricing efficiency.
2.3.1.3 Technical efficiency
It refers to the various ways that resources are utilized in marketing. This is in terms of input and output ratios. Technical efficiency in a production unit refers to the achievement of the maximum possible output out of a given amount of inputs, considering physical production relationships.
2.3.1.4 Market power
Market power can be defined as the ability of a firm to alter the market price of a good or service. In a perfect competitive market; the participants have no market power. Perfect competitive market model is usually used as a benchmark while assessing market power of a buyers and sellers in a market of concern. In a competitive market, price equals to marginal costs for each participant in a market. The degree of market power can be determined by measuring the gap between the price and marginal cost. In markets that sellers have market power, firms charge prices above the marginal costs (Gruen, 1997). Market power in buying is the ability of a market participant to set prices below marginal costs.
2.4 CONCEPTUAL FRAMEWORKS
In this research, several components will be considered in analyzing market efficiency as in line with the Structure-Conduct-Performance model used in the study. The first component considers pricing efficiency followed by operation efficiency. Pricing efficiency will be examined in terms of variables such as margins, prices, and factors influencing cattle pricing. The other factors constitute how the various market participants are differentiated from one another and the existing competition and market barriers.
It will be considered that the higher the correlation of prices between pairs of markets for a particular product, the better the integrated the markets for the product and hence more efficient the market is in terms of price. Operation efficiency will be analyzed using market margins after the marketing costs incurred. The higher the market margins the more efficient the market operation. Information transparency and market chain are other aspects considered in tracing the movement of the product from the producer to the consumer and utilization by determining the market barriers and concentration index.
The relationship among these factors was based on the Structure-Conduct-Performance model which considers that structural characteristics of a market tend to influence market behavior and hence performance. This implies that, the number and shares of market participants influence pricing aspects. Market entry barriers can also reduce potential entrance to the market hence affecting market share by increasing market share to few participants, which in turn increase their market power, and eventually affecting performance as well as efficiency of a competitive market.
2.4.1 Conceptual frameworks
| Marketing costs I. Transport costs II. County council cess III. Physical losses IV. Arbiter costs V. Slaughter costs VI. Assembling costs |
| Marketing margins |
| Pricing efficiency I. Product differentiation II. Barriers to entry/leave market III. Price relation to form, space and time IV. Marketing costs |
| Technical efficiency I. Input used II. Output produced III. Technology innovation used |
| Marketing efficiency |
| Operational efficiency |
2.5 ANALYTICAL TECHNIQUES
Market margin analysis and Concentration ratio analysis are the commonly used in analysis of marketing efficiency. Regression analysis is also used in analyzing factors in contribution to marketing efficiency in consideration to price (Price efficiency).
2.5.1 Regression Analysis
Regression analysis is a statistical forecasting model that is concerned with the evaluation and description of relationship between given variables (the dependent variable and the independent variables). It can be used in forecasting the outcome of a given dependent variable based on the interaction of other associated explanatory variables. In this study, regression analysis will be used in in determining whether the buying price at a particular point reflect the marketing costs (Pricing efficiency analysis). The following regression equation will be used in this analysis;
MC = f (Pi+μ)
Where:
MC = Market Costs,
Pi = Buying price at a specified market,
μ = Error term
2.5.2 Market Margin Analysis
TGMM = (End buyer price – First seller price) X100
End buyer price
Where:
TGMM = Total gross market margin.
2.5.3 Concentration ratio CR
CR is analytical tool useful in identification of the market structure and power, which is a determinant of the degree of competition in existence in a particular market segment (Hervan, 2005).CR of the various market participants can be calculated as the ratio of the total quantity of the products bought/sold by the selected buyers/sellers to the total quantity of the products bought/sold in the marketing period. Concentration ratio is important in determining market behavior within a market because it affects the interdependence action of market participants. CR can guide in indicating the most likely type of market structure.
Market concentration ratio of 50% is an indication of strong monopolistic firm, CR of below 50% to 33% indicates weak monopolistic firm. CR of below 33% indicates unconcentrated firm (Khols and Uhl 1990). It is generally considered that a higher market concentration is an indicator of non-competitive behavior and thus market inefficiency. Market concentration, market behavior and market performance relationships need not be interpreted in isolation. According to Scherer (1980), Factors vital to understanding of market structure like firm’s objectives, economies of scale, barriers to entry and exit, and the underlying assumptions of rival firm’s behavior are relevant in determination of the degree of concentration and relationship between concentration and market behavior and market efficiency.
CR=CP/IP x 100
Where;
CR = Concentration ratio
CP = Total number of cattle bought/sold by selected traders/sellers in the market
IP = Total number of cattle in the market during the period
CHAPTER THREE: METHODOLOGY
3.1.1 Research design
The research is cross-sectional survey to be carried out in a single point in time. Cross-sectional survey is useful for descriptive purposes and in determining relationship between variables as well as for purposes of obtaining qualitative information. It also allows for efficient utilization of resources on the side of the researcher (Bailey, 1998).
3.1.2 Sampling design
The target population consist of heterogeneous groupings (Farmers, traders and butchers) served by the Maralal livestock market. The selection of samples will be done using stratified sampling technique.
3.1.3 Data collection
The study will start with an investigation on the existing market structure, conduct and performance. The data will be collected through observation and interviews at the market place, abattoir and butcheries. Key informant interviews with the producers, County Council officials, local traders and butcheries will be conducted. Structured questionnaires will also be administered and the records sought will include county council charges and receipts of cattle sales in the Maralal market.
3.1.3.1The data to be collected;
- Price of cattle through various market outlet
- Market decision in respect to sex, age, and size of cattle sold or bought
- Number of cattle bought or sold by various market actors
- Sources of market related information
- Marketing costs involved in cattle trade
Microsoft excel and Statistical Package for Social Science (SPSS) will be used in both qualitative and quantitative data analysis in order to attain the research stated objectives. Respondents’ response will be coded and summarized and analyzed. Descriptive analysis will be utilized for means, percentages, graphs, frequencies and ranges. Quantitative analysis will involve regression analysis, market margin analysis and market concentration analysis and price. The results will be presented in form of line charts, pie charts and histograms.
The analysis of the efficiency of the marketing system will be based on the evaluation and comparison of costs and marketing margins of traders. This will employ the pricing interface model, which will determine the degree of interface pricing for the farmers and traders. The degree of interface pricing efficiency will test the correlation between prices i.e to determine whether the prevailing prices at particular marketing points reflect marketing costs. This will be executed using a simple regression model;
MC = f (Pi+μ)
Where:
MC = Market Costs,
Pi = Buying price at a specified market,
μ = Error term
Analysis of market margin
This will be used in assessing the difference between prices at the various market levels (Farmers and traders). This will be calculated using the formula below;
TGMM = (End buyer price – First seller price) X100
End buyer price
Where:
TGMM = Total gross market margin.
Market share held by each market participant will be used in assessing the market structure and market share will be based on concentration ratio analysis. Market actors conduct themselves in order to acquire market power. Market conduct will thus be evaluated using the analysis of the market power of various market participants. This will be assessed using market concentration ratio analysis using the formula below;
CR=CP/IP x 100
Where;
CR = Concentration ratio
CP = Total number of cattle bought/sold by selected traders/sellers in the market
IP = Total number of cattle in the market during the period
Annex 1: CHECKLIST
| Number of Cattle bought by each participant | |||||||
| Dates | Total No. of Farmers in the market | Total No. of Butchers in the market | Total No. of Traders in the market | Total No of cattle in the market | Farmers | Butchers | Traders |
| Total | |||||||
Questionnaire for farmers
General Data
Questionnaire No………………………Date of Interview……………………………
Interviewer’s Name………………………Farmer’s Name……………………………
Division…………………………………..Ward……………………………………….
Village……………………………………
PART 1: FARMER’S CHARACTERISTICS (Fill the gap or Tick one)
- Gender i) Male ii) Female
- Age Bracket i) Under 18 years ii) Between 18-35 years iii) Between 36-65 years iv) Above 66 years
- Marital status i) Single ii) Married iii) Widow(er) iv) Separated/Divorced
- Education level i) No formal schooling ii) Adult literacy classes iii) Primary iv) Secondary v) Certificate vi) Degree
- List your main sources of income i)………………………………ii)…………………….. iii)……………………….. iv) ………………………..v)…………………………………
- List your main occupation i)…………………… ii)………………… iii)………………
- Who are the buyers of your cattle i) Other producers……… ii) Traders ……. Iii) Local butchers……….
- Why sell at them? i) Better price …….. ii) Only buyer available…….. iii) Market convenient……. Iv) Others(Specify)……..
- How do you access market information? i) By physical visit to the market ii) By using telephone …….. iii) By asking traders who come to buy…… iv) Others (Specify)………
- How much does it cost you to acquire market information? Kshs……….
- Marketing Costs
| Type of Costs | Unit | Kshs/Unit |
| Transportation | ||
| Taxes | ||
| Labor charges | ||
| Others | ||
| TOTAL |
- What is the price of the cattle? That you are selling? ………………….
- What factors most influence the price of the animal? I) Age………… ii) Size…………. iii) Seasonality……….
- What do you think should be done to improve cattle marketing in this market?
TRADERS AND BUTCHERS QUESTINNAIRE
- Gender i) Male ii) Female
- Age Bracket i) Under 18 years ii) Between 18-35 years iii) Between 36-65 years iv) Above 66 years
- Marital status i) Single ii) Married iii) Widow(er) iv) Separated/Divorced
- Education level i) No formal schooling ii) Adult literacy classes iii) Primary iv) Secondary v) Certificate vi) Degree
- List your main sources of income i)………………………………ii)…………………….. iii)……………………….. iv) ………………………..v)…………………………………
- List your main occupation i)…………………… ii)………………… iii)………………
- What factors most influence the price of the animal? I) Age………… ii) Size…………. ……iii) Seasonality……….
- Did you faced any problem(s) or barrier(s) before you entered/doing this kind of business? i) Yes…… ii) No…….
- If yes to question 9, what were the main barriers to entry?
- How many cattle do you sell in one month? ………………….
- Is the volume of animals traded throughout the year relatively stable? Yes ………. No ………
- If it varies, what is the season when you have the highest volume of trade?...............
- What is the period when you have the lowest volume of trade? ……………..
- For the period of high volume of trade, how many cattle do you sell in 1 month?.............
- Marketing Costs
| Type of Costs | Unit | Kshs/Unit |
| Transportation | ||
| Taxes | ||
| Labor charges | ||
| Processing | ||
| Others | ||
| TOTAL |
- How much does it cost you to acquire market information? Kshs……….
- Marketing Margins
| Buying price | |
| Selling price | |
| Marketing Margin (MM) |
- What do you think should be done to improve cattle marketing in this market?
Annex 3: WORK PLAN
| TIME ACTIVITY | 10th-24th Sep. 2014 | 24th Sep- 17th Nov 2014 | 17th -21st Nov 2014 | 10th Dec 2014-1st Feb 2015 | 2nd Feb-29th Feb | 1st Mar-30th Apr 2015 |
| Title development | ||||||
| Generation of project proposal | ||||||
| Proposal presentation | ||||||
| Data collection | ||||||
| Data handling and analysis | ||||||
| Generation of project report |
| STAGES OF THE STUDY | TIME | MATERIALS | AMOUNT |
| Proposal development | Oct 2014-17th Nov 2014 | Stationery ;
Cyber costs Binding | 150 150 300 600 50 |
| Data collection and Data handling | 10th Dec 2014-29th Feb 2015 | Transport | 3000 |
| Stationery | 500 | ||
| Photocopy | 200 | ||
| Meals | 3000 | ||
| Data analysis | 1st Mar-30th Apr 2015 | Editing report | 400 |
| Printing | 100 | ||
| Binding | 50 | ||
| Total | 8500 |
No comments:
Post a Comment