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293 01051 7757

This is to certify that the

dissertation entitled

The Economics of Smallholder Flower and
French Bean Production and Marketing
in Kenya

presented by

Lydia Neema Kimenye

has been accepted towards fulfillment
of the requirements for

Ph.D. Agricultural Economics

degree in

 

 

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Major professor

Date November 5, 1993

 

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THE ECONOMICS OF SMALLHOLDER FLOWER AND FRENCH BEAN PRODUCTION AND
MARKETING IN KENYA

By

Lydia Neema Kimenye

A DISSERTATION

Submitted to
.Michigan State University
in partial fulfillment of the requirements
for the degree of

DOCTOR OF PHILOSOPHY

Department of Agricultural economics

1993

 

 

 

ABSTRACT

THE ECONOMICS OF SMALLHOLDER FLOWER AND FRENCH BEAN

PRODUCTION AND MARKETING IN KENYA

By

Lydia Neema Kimenye

Kenya has been praised for its success in smallholder production of
traditional exports such as coffee and tea. However, because of the declining
world prices of these commodities in the 19805, Kenya and other African
countries are diversifying their agricultural export base. Kenya is giving priority to
the development of nontraditional exports, such as horticultural commodities.
Currently, flowers and beans account for 70 percent of the value of horticultural
exports. However, there is little available information on the economics of
smallholder production and marketing of nontraditional exports.

A farm survey was carried out in 1992 to study the economics of flower
production in Nyandarua and Kiambu districts and french beans in Kirinyaga
district. The information was used to develop farm budgets, identify production
and marketing constraints, and suggest strategies for expanding smallholder
production. The farm budgets revealed that flowers were capital intensive, risky

but more profitable than beans. However, because of the lack of credit and

 

market information, small growers in Nyandarua district produce low value
flowers that are often left unharvested because of the failure to match local supply
with European demand. In 1991, half of the flowers produced in Nyandarua were
unharvested. The large growers earn higher returns and lower losses because they
developed effective market arrangements with European buyers.

Forward marketing contracts used in the bean industry helped match local
production with exporters’ demand and reduced the losses from unharvested
beans. However, contracts were primarily used by the larger and older growers
because small growers had a reputation of breaking oral contracts.

In order to expand smallholder flower production for export, the
government should encourage flower growers’ associations to coordinate local
production with the changing European demand. Growers should be required to
supply flowers on contract to the associations in exchange for access to credit and
planting materials. The government should encourage bean growers and
exporters to adopt written contracts. Market news coverage should be expanded
to include weekly information on local and international prices, quality, and

supply of flowers and beans.

 

ACKNOWLEDGEMENTS

The successful completion of this dissertation, and my graduate studies in general,
would have been impossible without the contribution of many people and organizations. I
would like to extend my special appreciation to Professor Carl K. Eicher, the Head of my
Dissertation Committee and Chairman of my Guidance Committee, for his leadership and
intellectual inspiration throughout the period of my graduate program. Also, the timely
encouragement he offered at critical stages in my program was invaluable. I’m grateful to
the members of my Guidance Committee--Dr. James D. Shaffer, Dr. Tom Reardon, Dr.
Carl Liedholm, and Dr. Eric Crawford--for their constructive criticism and guidance during
the research and preparation of the dissertation. The visits and suggestions made by both
Dr. Crawford and Dr. Reardon during the field research are commendable. I’m also grateful
to my local supervisor, Professor O.L.E. Mbatia of the University of Nairobi, for his helpful
suggestions, and to Dr. Marilyn Brower for her editorial contribution.

I’m very grateful to the USAID/KENYA Government Training for Development
Project for financing my graduate studies. Special thanks to Caroline Curtis, the coordinator
of my training program, and all the Home and Field office staff at the Pragma Corporation
for efficiently and warmly administrating my scholarship.

I would also wish to express my gratitude to the Rockefellor Foundation for funding
the field research for this dissertation. Also, I am grateful for the cooperation I received
during the field work from the officers of the Horticultural Crops Development Authority,
especially, the Technical Services Division Manager, Mrs L. Waithaka and the Marketing
Division Manager, Mr Ng’eno; the Horticultural Division of the Ministry of Agriculture; the
Ministry of Agriculture’s field officers in Nynadarua, Kiambu and Kirinyaga districts; and

the officers at KARI’s Tigoni research station. Above all, special appreciation to the

 

 

enumerators and all the growers and exporters of flowers and beans for their contribution
in this study.

Special thanks to the faculty, staff and students in the Department of Agricultural
Economics and the Kenyan student community for enriching my stay at Michigan State
University. The moral support from DrJoshua Bagaka and his family, especially, was
invaluable.

Finally, I remain indebted to my family, especially my husband Dr. David Kimenye,
and our children--Speciosa Mbula, Steve Mutuku, and John Kyalo--for supporting my studies

with their love and patience.

 

TABLE OF CONTENTS

LIST OF TABLES ............................................. ix
LIST OF FIGURES ............................................ xii
ABBREVIATIONS ........................................... xiii
CHAPTER ONE .............................................. 1
INTRODUCTION ........................................ 1
1.1. The Background ...................................... 1
1.2. Problem Statement .................................... 3
1.3. Research Questions .................................... 8
1.4. Objectives ........................................... 8
1.5. Data Sources ......................................... 9
1.5.1. The field Survey ................................ 9
1.5.1.1. Survey of Flower Growers ................. 10
1.5.1.2. Sampling of Flower Growers ............... 12
1.5.1.3. Survey of Bean Growers .................. 14
1.5.1.4 ...................................... 14
1.5.1.5. Questionnaire Design .................... 15
1.5.1.6. The Survey of Exporters .................. 15
CHAPTER TWO ............................................. 17
LITERATURE REVIEW AND CONCEPTUAL FRAMEWORK . . . 17
2.1. Agricultural Diversification ............................. 17
2.1.1. The Role of Nontraditional Exports in Agricultural
Diversification ................................ 17
2.1.2. Agricultural Export Performance of sub-Saharan African
Countries ................................... 18
2.1.3. Experiences in Agricultural Diversification ........... 21
2.1.4. The Role of the Government in Diversification ........ 27
2.2. Conceptual Framework ................................ 28
2.2.1. Subsector Analysis ............................. 28
2.2.2. Marketing Coordination: Definition and How it is
Achieved. ................................... 30
2.2.3. Vertical Coordination Mechanisms ................. 31
A. Contract Coordination ....................... 32
B. Vertical Integration ......................... 33
C. Cooperatives .............................. 33
2.2.4. Market Coordination in Horticultural Industries ....... 34
2.2.5. The Regression Model .......................... 37
CHAPTER THREE .......................................... 38

 

 

AN OVERVIEW OF THE FLOWER AND BEAN SUBSECTORS . 38

3. Horticulture in Kenya .................................. 38
3.1. Public Sector Support ................................. 38
3.2. Private Sector Activities ................................ 42
3.3. The Position of Flowers and Beans in Horticultural Exports ..... 44
3.4. Major Horticultural Producing Areas ...................... 46
3.4.1. Flower Producing Areas ......................... 50
3.4.2. Type of Flowers ............................... 51
3.4.3. Bean Producing Areas .......................... 54
3.5. Evolution of the Flower Export Industry ................... 55
3.6. Evolution of the Bean Export Industry ..................... 58
3.7. The Structure of Flower and Bean Marketing ............... 60
3.7.1. Flower marketing .............................. 60
3.7.2. Bean Marketing ............................... 61
3.8. The European Flower Market ........................... 62
3.8.1. Flower Exports to European Markets .............. 63
3.8.2. The Geographic Destination of Bean Exports ......... 65
3.9. Summary ........................................... 66
CHAPTER FOUR ............................................ 68
THE ECONOMICS OF FLOWER AND BEAN PRODUCTION . . . 68
4.1. The Economics of Flower Production ..................... 68
4.1.1. The Structure of Production ...................... 69
4.1.2. Varieties of Alstroemeria ........................ 77
4.1.3. Sources of Planting Materials ..................... 79
4.1.4. The Returns to Flower Production ................. 81
4.1.4.1. Returns to Marina Production .............. 84
4.1.4.2. Returns on Other Types of Flowers .......... 93
4.1.5. Major Production Constraints ..................... 100
4.2. Economics of Bean Production .......................... 102
4.2.1. Enterprise Budgets ............................. 105
4.2.2. Production Constraints on Bean Growers ............ 113
4.3. The Returns on Alternative Crops ........................ 114
4.4. Summary ........................................... 115
CHAPTER FIVE ............................................. 118
MARKETING OF FLOWERS AND BEANS .................. 118
5.1. Flower Marketing .................................... 118
5.1.2. Marketing Channels for Flowers ............. ~ ...... 119

5.1.3. Market Coordination of Flower Production and
Marketing ................................... 130
5.1.3.1. Horizontal Coordination .................. 130
5.1.3.2. Vertical Coordination .................... 131
5.1.4. Principal Marketing Constraints ................... 138

5.2. Smallholder Bean Marketing ............................ 141

5.2.1. Bean Marketing Channels ........................ 142
5.2.2. Market Coordination for Beans .................... 146
5.2.3.1. Horizontal Coordination .................. 147
5.2.2.2. Vertical Coordination .................... 147
5.2.2.3. Payment Terms and Net Prices Received, by
Market Channel ......................... 148
5.2.2.4. The Impact of Contracting on Growers Income . 152
5.2.3. Summary ......................................... 154
CHAPTER SIX .............................................. 157
COMPARATIVE ASSESSMENT OF FLOWER AND BEAN
SUBSECTORS .................................... 157
6.1. Introduction ........................................ 157
6.2. Performance Issues ................................... 158
6.3. Flower Production and Marketing ........................ 159
A. Access to Technical Information and Planting Material . . . . 159
B. Access to Capital ................................ 160
C. Access to Reliable Market Information ................ 161
D. Performance by Size .............................. 164
E. Needed Policy, Technical, and Institutional Innovations . . . . 165
6.4. Bean Production and Marketing ......................... 167
A Access to Technical Information and Planting Material . . . . 167
B. Access to Credit ................................. 168
C. Access to Reliable Market Information ................ 168
D. Performance by Size of Grower and Use of Forward
Contracts ................................... 169
E. Needed Policy, Technical and Institutional Innovations . . . . 171
6.5. Synthesis ........................................... 173
CHAPTER SEVEN ........................................... 175
CONCLUSIONS, POLICY IMPLICATIONS, AND FURTHER
RESEARCH ...................................... 175
7.1. Summary and Conclusions .............................. 175
7.2. Policy Implications ................................... 180
7.2.1. Policy Options for the Flower and Bean subsectors ..... 180
7.2.2. Policy Issues for the Development of the Flower
Subsector ................................... 183
. 7.2.3. Policy Issues for the Development of the Bean Sector . . . 184
7.3. Further Research .................................... 185
APPENDICIES .............................................. 186
APPENDIX A .......................................... 186
QUESTIONNAIRE FOR CUT FLOWER GROWERS ...... 186

vii

APPENDIX B .......................................... 202

QUESTIONNAIRE FOR FRENCH BEAN GROWERS ..... 202
APPENDIX C .......................................... 214
QUESTIONNAIRE FOR FLOWER AND BEAN

EXPORTERS ................................ 214
APPENDIX D .......................................... 230
The VBA Auction Market ............................ 230

BIBLIOGRAPHY ............................................ 232

 

viii

 

 

Table 4.6. Sources of Planting Material ............................ 81
Table 4.7. Kenya: Enterprise Budgets for Marina variety of Alstroemeria,
1991/92 ............................................... 85
Table 4.7a: Operating Costs ..................................... 86
Table 4.7b: Fixed Costs ........................................ 86
Table 4.7c. Notes on Fixed Costs ................................. 87
Table 4.8: Kenya: Enterprise Budgets for Four Common Types of Flowers,
1991/92 ............................................... 94
Table 4.8a: Operating Costs ..................................... 95
Table 4.8szixed Costs ......................................... 95
Table 4.8c:Notes on fixed Costs .................................. 96

Table 4.9. Production Constraints Facing Smallholders in Flower
Production ............................................. 100

Table 4.10. Kenya: Structure of Smallholder Bean Growers: Farm Size and
Area of Farm Under Bean Cultivation, 1991 / 92 ................. 103

Table 4.11. KenyazTypologies of Bean Growers: Education Level and Number
of Years Growing Beans .................................. 104

Table 4.12 Kenya: Enterprise Budgets for Bean Growers, Mwea Division,
1991—92 Season ......................................... 106

Table 4.13. Kenya: Enterprize Budgets for Contract and Noncontract Bean
Growers, 1991 .......................................... 110

Table 4.14. Kenya: Enterprize Budgets for Small, Medium, and Large Bean
Growers, Under Contract and Noncontract, 1991 ................ 111

Table 4.15. Kenya: Production Constraints on Bean Growers, 1991/92
Season ................................................ 114

Table 4.16. Kenya: Costs and Returns for Competing Crops in Kirinyaga
District, 1991/92 Season .................................. 115

 

CHAPTER FIVE ............................................. 118
Table 5.1.Kenya: Flower Marketing Channels, by Category of Growers,
1991-92 .................................................... 121
Table 5.2. Kenya: Flower Marketing Channels by District, 1991-92 ........ 124
Table 5.3. Kenya: Average Price of Marina (Quantity Sold) by Market
Channel and District”, 1991 ................................ 125
Table 5.4.Kenya: Average Price of Marina (Quantity Produced) by Market
Channel and District, 1991 ................................. 127
Table 5.5.Kenya: Average Price Received for Quantity of Yellow Queen Sold,
by Market Channel and by District,1991-92 .................... 128
Table 5.6. Kenya: Average Price Per Yellow Queen Flower Produced, by
Market Channel and by District,1991-92 ....................... 128
Table 5.7.Kenya: Loss in Potential Revenue from Unsold Flowers, by Market
Arrangement; 1990-91 and 1991-92 Export Seasons .............. 136
Table 5.8.Kenya: Constraints on Smallholder Participation in Export Flower
Production, 1991-92 Season ................................ 139
Table 5.9.Kenya: Bean Marketing Channels, by Farmer Size, 1991 ........ 145
Table 5.10. The Mean Deviation of Prices Received, by Sales Channel ..... 150
Table 5.11.Kenya: Bean Prices Received by Contract and Noncontract
Growers, 1991-92 Season .................................. 151
Table 5.12. The Proportion of Beans Not Harvested for Contract and
Noncontract Farmers, 1991 ...................................... 152
CHAPTER SIX .............................................. 157

Table 6.1. Flower Subsector: A Matrix of the Problems and Needed Policy,
Technical, and Institutional Innovations ....................... 166

Table 6.2. Bean subsector: A Matrix of the Problems and Needed Policy,
Technical, and Institutional Innovations ....................... 172

xi

- ’ ‘--~— .r - ... .. .- — - 'eTa—u. .
‘ Mr -n-'.._-_.. A- n. M

LIST OF FIGURES

Figure 3.1. Kenya: Smallholder Flower and Bean Producing Areas ........ 47
Figure 4.1. Kenya2Potential and Realized Gross Margins per Acre of Marina,
1991/92 Season ......................................... 92
Figure 4.2. Kenya: Potential and Realized Gross Margins per Acre, by Type
of Flower, 1991/92 Season ................................. 99
Figure 4.3. Kenya: Net Margins for Contract and Noncontract Bean Growers,
1991/92 Season ......................................... 112
Figure 5.1. Kenya: Bean Marketing Channels ........................ 144

 

ABBREVIATIONS
ACP = Africa, Caribbean, and Pacific states
DCK = Dansk Chrysanthemum Kurtur
EEC = European Economic Community
FAO = Food and Agricultural Organization of the United Nations
GGFGA = Githunguri, Gitiha, Flower Growers Association
HCDA = Horticultural Crops Development Authority
HCU = Horticultural Cooperative Union
ITC = International Trade Ceter
JKIA = Jommo Kenyatta International Airport
KARI = Kenya Agricultural Research Institute
KETA = Kenya External Trade Authority
KHE = Kenya Horticultural Exporters
KFGA = Kinangop Flower Growers Association
MOA = Ministry of Agriculture

NAL = National Agricultural Laboratories

xiii

 

CHAPTER ONE

INTRODUCTION

1.1. The Background

The primary goal of Kenya’s economic policy is to achieve a 5.6 percent
annual growth of Gross Domestic Product (GDP) between 1989 and the turn of
the century through job creation, increased productivity and higher foreign
exchange earnings (Kenya, 1986; Kenya, 1989). Agriculture is the largest sector in
the nation’s economy providing for slightly over 30 percent of the country’s gross
domestic product (GDP), 75 percent of the total employment, and nearly all the
country’s food needs (Kenya, 1988; 1990). Agriculture accounts for about 70
percent of net foreign exchange earnings, mainly through coffee, and tea exports
(Schulter, 1984; Kenya, 1986). In recent years, horticultural exports have emerged
as an important nontraditional agricultural export, representing 12 to 15 percent
of the total domestic exports (MIAC/KARI, 1991). Therefore, because of
agriculture’s dominant role in the national economy, higher productivity within
agriculture remains the key factor in achieving rapid economic growth and higher
incomes for the majority of the people who live in rural areas.

Seven commodities--maize, wheat, milk, coffee, tea, meat, and
horticultural crops--are critical to Kenya’s agricultural development strategy

(Kenya, 1986). Coffee and tea, the traditional export crops, are important sources

2

of smallholder income. Maize, wheat, and milk production contribute to food
security, while horticultural crops are multi-purpose, providing family nutrition,
employment, income and foreign exchange earnings. Of the seven commodities,
horticulture has increased the fastest over the last decade, averaging 20 percent
per year. Horticultural exports have expanded ten-fold, thus making Kenya one of
a very few countries in sub-Saharan Africa to emerge as a major participant in
international horticultural trade. By 1991, Kenya was exporting almost 50,000
metric tons of fresh horticultural produce to various West European markets,
which was valued at over 2 billion shillings (approximately US$ 71 million)
(Horticultural Crops Development Authority, Annual Statistics). Nationally,
horticulture has emerged as the fourth largest foreign exchange earner after
tourism, coffee and tea. Given the continued adverse conditions in the
international markets for tea and coffee, horticulture may become the major
foreign exchange earner in Kenya.

Floriculture is Kenya’s most dynamic horticultural export. Between 1990
and 1991, the volume of flower exports increased by more than 19 percent from
14,442 to 16,405 metric tons. By 1991, flower exports accounted for over half of
the value of all fresh horticultural exports. The bulk of the flower exports are
accounted for by foreign owned companies or firms owned and managed by
Europeans who have secured Kenyan citizenship. However, several successful
medium scale farmers have emerged and there is a growing number of

smallholders engaged in flower production. While large firms with, vertically

3

coordinated production-marketing programs play an important role in introducing
technological and management innovations, it is essential to understand the role
of smallholders in the horticultural industry and how their position can be
enhanced. Because of the potential employment and income benefits of expanded
smallholder production, the government is eager to find ways of promoting greater
smallholder participation in the industry (MIAC/KARI, 1991).

French beans constitute the dominant non-flower export, accounting for
one third of the total volume of nontraditional exports. In 1991, Kenya exported
over 14,000 metric tons of beans valued at'0.5 billion shillings. Like flowers,
beans have a large potential for on-farm job creation and for smallholder income
generation, both consistent with Kenya’s agricultural development policy.

Improving food security is a primary goal set for the agricultural sector.
Since many rural households in Africa are net food buyers, it is important to
analyze what can be done to increase smallholder flower cultivation and food

buying power for net food buyers (Weber et al, 1988; Eicher, 1991).
1.2. Problem Statement

Kenya’s favorable climatic conditions facilitate year-round production of
high value products, such as flowers and beans. However, because flowers and
beans are more fragile and perishable than coffee and tea, they require greater

technical and managerial skills in production, handling, and marketing. Until

4

recently, research in the flower industry was carried out exclusively by the private
sector. Public research and extension for flowers is young and deficient in both
technology and technical assistance (Schapiro, and Wainaina, 1989; MIAC/KARI,
1991). The large firmsobtain the technology and management skills through their
foreign links. Small-scale farms without a foreign connection are excluded from
this source of information and technology. Yet for smallholders to compete with
large growers in international flower markets it is imperative that they have access
to technology and information.

- An efficient marketing system is required to guarantee both an outlet for
the new products and prompt payment to farmers at competitive prices. The
marketing system should also be efficient in the collection, storage, and
distribution of commodities in order to reduce losses and preserve the quality of
the products. High marketing costs and uncertain transaction channels can
quickly erode the incentives of farmers to produce nontraditional export crops.

As more small-scale growers produce flowers for export, Mututionsandii
institutional arrangements may be needed to assist them to becomemore efficient

4/ —; —— a,

suppliers in the global (trade.1

.—--f

 

1 North (1990), distinguishes between institutions and organizations. He defines

institutions as formal and informal "rules of the game", and organizations as social,
political, educational, and economic bodies such as churches, government’s agencies,
and firms. Like the rules of the game, organizations also shape the structure of
human interactions and influence the economic performance of a system. in this
study, institutions are used to refer to both rules of the game and organizations.

 

 

 

5

Kenya has developed a wide range of mechanisms and institutions for the .
marketing and distribution of agricultural produce. Many of these institutions
existed prior to independence in 1963. The majority of these institutions are
involved in the marketing of food crops, traditional cash crops, and livestock. The
horticultural marketing institutions mainly market fresh and processed fruits and
vegetable products. Moreover, the majority of horticultural institutions involved .
in export marketing, are components of large private firms.

Whereas the large-scale firms use their own export networks to coordinate
the sale of flowers, smallholders must rely on other ways of selling their produce.
Given their small scale of production and their geographic dispersion, the
marketing arrangements between the smallholders and the market intermediaries
can be inherently unreliable, especially where there is no binding contract
between the two. In such situations, export agents have no obligation to collect.
all the produce from the farmers. The. lack of a reliable market outlet can
increase marketing costs for small growers and substantially reduce their returns
to their investment in flower or bean cultivation.

The highly perishable nature of flowers demands tight coordination of
production, harvesting, post-harvest handling and shipment. Coordination is also
critical in ensuring that supply matches demand, in a timely way and in terms of
product characteristics that consumers want (Harrison et a1, 1974). Such tight

coordination can be achieved by the large-scale firms, given their vertically

6

integrated networks. But individual small-scale growers may find it difficult to
achieve the desired coordination of their production and marketing activities.

Studies of production and marketing of horticultural products reveal that
vertical coordination arrangements such as contract farming, cooperatives, and
vertical integration among others, can successfully overcome the constraints
mentioned above. Nearly all vegetable used in the processing industries in the
US. are produced under contracts (Kauffman and Shaffer, 1983). In Honduras
and Guatemala, for example, forward marketing contracts and cooperatives were
used to enhance the access of small-scale farms to technology, information,
market outlets, and other specialized services in banana and nontraditional
vegetable export production (Glover, 1983; Von Braun et al, 1989).

In Kenya, contract farming and cooperatives have been instrumental in
facilitating smallholder production and marketing of highly perishable products
such as beans for the processing industry and tea ( J affee, 1987; Glover and
Kusterer, 1990). Over 4000 small-scale farmers cultivate beans for both the fresh
export market and the processing industry under various forms of marketing
arrangements with exporters and processors. Over the last two years, there has
been a dramatic increase in the number of farmers producing nontraditional
exports. especially, flowers.

Jaffee (1991) describes the evolution of marketing institutions for the
horticultural industry and uses transaction cost analysis to explain their

emergence. He does not, however, examine how well the institutions coordinate

 

7

the production and sale of horticultural products and the farm level institutional
arrangements for the smallholder flower subsector. Given the difficulty many
small-scale growers have experienced over the past two years in flower marketing,
an investigation of smallholder flower marketing is needed

Given the government’s objective of promoting smallholder flowers for
export, several critical questions arise. How effectively do the present
organizational forms address smallholder production and marketing constraints?
How effective are the various organizational models in the bean industry relative
to those in the flower subsector? What types of organizational arrangements
would both increase smallholder production and export?

This study utilized a subsector approach to determine the major production
and marketing constraints facing smallholder flower and bean growers and assess
the effectiveness of market coordination in the two subsectors. A diagnostic
survey was carried out to identify the organizational structure at the grower and
exporter levels in the smallholder flower subsector. The survey also identified the
major sources of both technical and market information available to smallholders.
Information from the survey was used to construct enterprise budgets for small,
medium and large sized farms and farms producing under contract and other
market coordination arrangements. A comparative assessment of production and
marketing of beans and flowers was carried out to indicate how market
coordination is achieved in the two industries. The results of the analysis were

used to draw insights for expanding smallholder flower and bean production.

 

 

 

1.3. Research Questions

Three strategic research questions guide this study: a) What are the major
constraints on smallholder flower and bean production? b) How do forward
marketing contracts affect the performance of the bean industry and c) what

needs to be done to increase smallholder flower and bean production?

1.4. Objectives

The general objective of this study is to analyze the economics of the
production and marketing of flowers and beans in Kenya and suggest strategies

for expanding smallholder production and exports in the 19905.

The specific objectives are to
1) Describe the evolution of the Kenyan flower subsector, including
the changes that have occurred in production, marketing and
institutional innovations such as vertical integration and forward
marketing contracts.
2) Carry out a diagnostic survey of the flower subsector, identify the
market coordination mechanisms used in flower and bean

production, and identify the major constraints facing growers.

9

3) Assess the relative profitability of smallholder flower and bean
production.

4) Determine the impact of forward market contracts on the income
earned by smallholder bean growers.

5) Compare the production-marketing arrangements and the
performance of flower and bean growers.

6) Discuss the policy implications to guide the expansion of

smallholder flower and bean production and exports in the 19905.

1.5. Data Sources

The data for the descriptive profiles and empirical analysis were obtained
from unpublished and published government statistics and records, publications
from local and international institutions, discussions with government officers, and
a field survey of growers and exporters in 1992. Secondary data, from
publications and records provide the basis for much of the descriptive profiles of

the two subsectors.

1.5.1. The field Survey

A diagnostic survey of the flower and the bean sectors was carried out

from May to December 1992. The survey consist of two farm surveys and two

10

trade surveys. The farm surveys were used to conduct interviews with small-to-
medium scale flower growers and small-to-medium scale bean growers,
respectively. The trade surveys focused on flower and bean exporters. Information

from the trade survey supplements the farm level data.

1.5.1.1. Survey of Flower Growers

Two districts, Kiambu and Nyandarua, were the focus of the flower survey.
Kiambu district was selected because it has a concentration of both small and
medium scale flower producers. Besides its proximity to the city of Nairobi
(approximately 45 km) and the Nairobi international airport, Kiambu is also the
origin of commercial flower production for export. Currently, many of the
indigenous medium-scale producers are located in this area.

Kiambu district has a total land area of 2448 square kilometers, 78 % of
which is high potential agricultural landz. It is the most densely populated area
of the five districts in the Province, having an average population density of over
400 persons per square kilometer in 1989. Horticultural production is an
important cash enterprise along with coffee and tea. Within horticulture, flower

cultivation has become a highly rewarding enterprise for many small-scale farmers

 

2 Three categories of agricultural land are defined as follows.

High potential: annual rainfall of 8575mm or more (over 980m in coast
province); Medium potential: annual rainfall of 735-857.5mm (735-980mm in Coast
Province and 612.5-857.5mm in Eastern Province); Low potential: annual rainfall of
612.5 mm or less. Source: Central Bureau of Statistics, Statistical Abstract 1985)

 

11

who supply high quality flowers to the nearby Nairobi market and to various
flower exporters. Today, many farmers in Kabete, Tigoni and Limuru divisions in
the district have shifted from maize and beans to flower production.

Nyandarua district, situated approximately 160 Km northwest of Nairobi,
was also selected as one of the study areas for flower production for several
reason. First, starting in the mid-1980s smallholder flower production expanded
rapidly because it was viewed as a promising alternative cash crop. Moreover,
endowed with abundant rainfall and cool climate, the Kinangop division of
Nyandarua district is one of the few places in Kenya where flowers for export can
be grown profitably without investment in irrigation and shade houses. By the
beginning of 1991, officials of the Kinangop Flower Growers Association (KFGA)
reported that there were one hundred growers, most of whom were members of
the association.

Second, Nyandarua was selected for the study because many growers have
become disillusioned with flower production because of difficulties in marketing
their crop. In 1991 for example, flower growers were featured in the national
agricultural news because some of their crop was going to waste due to a lack of a
market outlet.3 As result, several community leaders and pioneer growers in the

area, appealed to the Horticultural Crops Development Authority (HCDA), the

3 By the end of 1991, about 200 acres under flowers in the Nyandarua
district, capable of producing up to 32 million stems of flowers per season, were left
unharvested (Daily Nation, 1992a).

 

 

 

12

Kenya External Trade Authority (KETA) and the Ministry of Agriculture (MOA)
to assist farmers in marketing their flowers.

Nyandarua is one of the five districts in Central Province. With a
favorable climate and fertile soils, the district is one of the high potential
agricultural areas in Kenya. Compared to other districts in the province,
Nyandarua has a fairly low population density, which averages 102 persons per
square kilometer. Horticulture is the most important agricultural cash enterprise
in the district, followed by dairy. Commercial horticultural production is carried
out in an area covering approximately two-thirds of the district and supports over
70 percent of Nyandarua’s rural residents. In 1990 horticultural production
accounted for over 50 percent of the net farm income (Dijkstra and Magori,

1991).

1.5.1.2. Sampling of Flower Growers

A basic problem encountered in selecting the sampling frame for the
flower survey was the absence of a comprehensive list of flower growers. The
available information was insufficient to select a representative sample of
smallholders producing flowers for several reasons. First the HCDA list included
some exporting firms who were also growers. Second, the available record of
growers included primarily large and technologically-advanced and medium-scale

growers who responded to HCDA’s annual production mail survey. The

 

13

Kinangop Flower Growers Association (KF GA) prepared a list of small-scale
growers in the Kinangop area who were members of the association. There was
no record of small-scale growers in the Kiambu district or any other flower
growing area in the country. Given the lack of a comprehensive record of
smallholders, the survey did not rely on random sampling techniques. Target
sampling procedure was used to locate flower growers in both Nyandarua and
Kiambu district for the farmer interviews. For this reason, it is not known how
many and what type of smallholders were excluded from the sample. Therefore,
the results drawn from the data, especially on the Kiambu area may not be
generalized without reservations.

A total of 37 flower growers were interviewed. Of these, 17 growers were
from Kiambu district and the remaining 20 were located in Nyandarua district.
Of the 17 growers from Kiambu, 10 were from the Limuru division and the
remaining 7 from the Githunguri division. All growers sampled from Githunguri
were members of a now defunct Githunguri/Gitiha Flower Growers Association
(GGFGA). Flower cultivation in the Githunguri division started about three
years ago.

All the 20 growers from Nyandarua were located in the South Kinangop
division. Five growers were interviewed from each of four sub-locations:
Karuanga, Sasimua dam ridge, Kinamba and Kiamweri. One of the respondents
from Sasimua darn ridge was dropped from the analysis because of incomplete

information.

 

 

 

 

14

1.5.1.3. Survey of Bean Growers

Because smallholder bean production is not carried out in the major small-
scale flower growing area (Nyandarua, and Limuru division of Kiambu district),
the bean survey was conducted in Kirinyaga district which is located
approximately 170 kilometers north-east of Nairobi. Kirinyaga occupies a total
area of 1437 square kilometers (approximately 355,945 acres), of which 72 percent
can be used for agricultural purposes. In 1991, Kirinyaga had a population
density of 313 persons per square kilometer. There were 81,950 farms, each with
an average farm size of 3.15 acres. Approximately 43 percent of the district can
be classified as high potential. Kirinyaga district is one of the major smallholder
bean producing regions in the country. Irrigation is the main mode of production.
During the 1991-92 export season, the district had 2,477 acres (1,000 ha.) under

bean cultivation.

1.5.1.4. Sampling of Bean Growers

The Ministry of Agriculture did not have a comprehensive and up to date
list of all the bean growers in the area because farmers frequently drop in and out
of bean cultivation. They can switch between bean and other horticultural crops

such as tomatoes even within the export season because of the short growing

 

15

period. In the absence of a list of bean growers, 60 farms were randomly selected
from the Mwea division and, 34 who cultivated beans in the 1991-92 season were
interviewed. However, information from four growers was not used in the analysis
because three of these growers cultivated beans exclusively for the processing

industry and the one had incomplete data.

1.5.1.5. Questionnaire Design

The questionnaires was designed largely for the purpose of carrying out a
diagnostic survey of the smallholder flower and bean subsectors. Information was
collected on grower characteristics, production technology, the kinds of flowers
grown, the sources of technical and marketing information, and the nature of
horizontal and vertical coordination mechanisms.4 Public and private supporting
institutions were also investigated. The questionnaires are attached in appendix A

and B.

1.5.1.6. The Survey of Exporters

Two surveys of flower and bean exporters were carried out to collect

additional information on the marketing arrangements at the grower-exporter

 

Grower characteristics in both the flower and bean farm survey focused on
education level and age of farmer, how many years the farmer has been producing
flowers or beans, and off-farm income.

 

 

16

levels. To obtain the samples for flower and bean exporters, a list of all licensed
exporters of fresh fruits, vegetables and flowers was compiled from the HCDA’s
list of all licensed horticultural exporters. However, because the industry is new,
there was a general unwillingness among exporters to disclose information about
their business. Only 12 of the 30 registered flower exporters for the 1991-92
export year, agreed to be interviewed.

From a list of 135 registered exporters of fresh and processed fruit and
vegetables for the 1991-92 export year, only 21 bean exporters agreed to be
interviewed. Also it was especially difficult to locate the small-scale and part-time
exporters who did not have fixed business premises. The majority of the small and
part-time exporters were found at the produce inspection unit at the Nairobi
International Airport, where because of time pressure they were unwilling to
answer questions. The questionnaires for flower and bean exporters are attached

in Appendix C.

CHAPTER TWO

LITERATURE REVIEW AND CONCEPTUAL FRAMEWORK

2.1. Agricultural Diversification

2.1.1. The Role of Nontraditional Exports in Agricultural Diversification

Over the past decades, policymakers, analysts, and development specialists
have expressed a strong interest in agricultural diversification as a strategy to
promote agricultural development. Agricultural diversification, incorporating new
products and markets, offers a broad range of opportunities for reducing risks,
increasing flexibility, employment, export earnings, and growth. As a development
strategy, diversification does not advocate the abandonment of traditional crops.
Rather, diversification is demand-driven, and it encourages countries to produce a
broader array of products and find new markets for these products (Petit and
Barghouti, 1992).

Diversification is influenced by numerous factors including the availability
and accessibility of technology, information, and capital, and agricultural support
systems. Also important is the adequacy and flexibility of basic infrastructural
facilities such as irrigation systems and market opportunities. A review of

diversification efforts across many developing countries indicates that major

17

18

constraints often include limited technologies for the new crops, poorly developed
agricultural marketing systems to handle nontraditional crops and weak research

and extension support systems (Timmer, 1992).
2.1.2. Agricultural Export Performance of sub-Saharan African Countries

Total export earnings of sub-Saharan Africa fell by 35 percent from 1980 to
1990.5 Table 2.1. shows decline in Africa’s exports relative to other developing

countries.

Table 2.1. Comparative Export Earnings: Africa Versus Developing Countries,

 

 

 

 

1980-90.
Regions 1980 1982 1985 1988 1990
( in billion U.S.dollars)
Africa 49 32 33 33 40
Developing countries 568 499 482 634 793
(in percent)
Africa’s exports as a share 8.5 6.4 6.9 4.8 5.0

of Developing countries

 

Notes:
a: Excludes Bulgaria, Czechoslovakia, Hungary, Poland, Romania,
Yugoslavia, and the former USSR.

Source: IMF, 1992.

 

5 Africa will be used to mean the 47 countries in sub-Saharan Africa.

19

Three main factors contribute to Africa’s weak export performance. These
include poor performance of the region’s traditional non-fuel primary exports,
limited success in developing major nontraditional exports and an inability to
penetrate new export markets. Unlike other developing countries in Asia, African
countries have continued to depend heavily on coffee, tea, cocoa, cotton, and
tobacco as sources of export earnings (Svedberg, 1991). Unfortunately, the bulk
of the primary commodities have experienced very slow demand growth, reflecting
low income and price elasticitiesf‘ The world demand for coffee, which accounts
for a quarter of all Africa’s non-fuel exports, grew by only 1 percent in the 19705
and by only 2 percent in the 19805. Similarly, the total consumption of cocoa in
industrial countries, which comprises 70 percent of world demand, declined in the
19705 and grew by only 4 percent in the 19805 (Duncan, 1993).

Further, world market prices for Africa’s commodity exports have declined
since the late 19705. Both cereal and beverage prices have been declining since
the mid-19805 in both nominal and real terms (Duncan, 1992). Also, no
significant long-term improvement in prices is expected because of the potential
for a large increase in world supply from current stocks. For these reasons,
Africa’s best chance for export growth lies in its nontraditional exports such as

flowers and off-season fruits and vegetables.

 

Income elasticities in major European and North American markets range
from -0.2 to -0.4 and are expected to rise only marginally in the future.

 

 

20

Market studies in the 19805 indicate considerable untapped demand for
flowers, off-season fruits and vegetables, tropical and sub-tropical fruits, in the
region’s traditional Western European markets, North America, and Japan.

Given the rising living standards in Europe and North America, consumers in
these countries tend to demand high quality fresh fruits and vegetables even
during periods when these are not available from domestic production. This trend
has opened doors for off-season suppliers. For example, FAO (1988), reports that
off-season imports of green beans in the European Community increased by 40
percent between 1982-85. In Japan, the fifth largest importer of fruits and
vegetables in the world, imports from developing countries currently stand at 39
percent of all Japanese horticultural imports (Honma, 1991).

Despite such exciting market opportunities, however, Africa has lagged
behind other developing regions in nontraditional exports. Since the 19705, only a
few countries of the region have been successful in nontraditional export products.
Fruit juice concentrate and light manufactures have surpassed sugar as the major
export in Swaziland and Mauritius, respectively. In Kenya, where the most
significant efforts to develop nontraditional exports have been made, the scale of
the success falls far short of what is needed to counter both the effects of
declining export revenues from coffee and tea. Market analyses indicate that the
African, Caribbean, and Pacific states’ (ACP) share of exports of fresh
horticultural products to the BBC has declined in recent years. Only 10 percent

of the fresh fruit and vegetable imported by the BBC in 1990 came from the ACP

 

21

states (Courier, 1992). The success of diversification for the ACP states and
African countries in general will to a large extent depend on the ability of
producers to penetrate existing export markets and become reliable suppliers of

high quality competitively priced products (Stevens, 1990).

2.1.3. Experiences in Agricultural Diversification

Recent developments in South East Asia and Latin America, support the
argument that demand-driven diversification can play a crucial role in promoting
agricultural growth in developing countries. The ASEAN-4 countries-Indonesia,
Thailand, Malaysia, and the Philippines--achieved remarkable growth in export
earnings over a period characterized by adverse market conditions for primary
commodities. For many years, the ASEAN-4 countries pursued a policy of food-
self sufficiency based on rice production and a heavy emphasis on tree crops such
as rubber and sugar cane for earning foreign exchange. But, from the late 19705
through the mid-19805, large and mounting grain stocks and declining world
market prices led policymakers to diversify their agricultural sectors. Diversifying
agriculture meant developing a farming system that was more flexible and
responsive to changes in market conditions. As a result, previously unknown or
less important crops such as fruits and vegetables have gained significant shares of

the agricultural export earnings in these countries.

 

 

 

22

Thailand’s and Malaysia’s success in diversifying agricultural exports
illustrates the potential contribution of nontraditional commodities. In 1970, 85
percent of Thailand’s agricultural exports came from four crops: rice, rubber,
corn, and cassava. By 1985, the share of these crops had declined to 65 percent
as producers had diversified into production of a wide variety of newer export
products such as natural orchids, canned pineapples, canned fish and dried
cuttlefish (Timmer, 1992). Until the early 19705, Malaysian agriculture was
entirely based on production of rubber, paddy rice, and coconuts, with palm oil
and cocoa virtually unknown. As the decline in world market price for rubber
and rubber exports continued into the 19705, Malaysian producers substituted
palm oil for rubber. This substitution resulted in high productivity, rising export
earnings and per capita farm incomes, despite continued decline in the rubber
export industry. Malaysia has now become the largest producer and exporter of
palm oil and accounts for about 70 percent of the world supply (World Bank,
1988).

Guatemala, Costa Rica, Honduras, and Chile have made remarkable
progress in promoting smallholder cultivation of nontraditional export crops.
Guatemala presents one of the most successful cases where smallholders have
made substantial progress in crop diversification. From the late 19705,
Guatemala’s agriculture has continuously and significantly shifted from a
predominance of food crops to an expansion of agro-industrial crops, especially

export vegetables. The motivating factor for the shift was a growing concern to

 

23

alleviate poverty and improve living standards in rural areas, and to reduce
instability in foreign exchange earnings due to price fluctuations for major crops
such as coffee. As a result, the share of traditional agricultural exports dropped
from 92 percent in 1975 to 76 percent in 1984 (Von Braun, et al., 1989).

At the farm level, export vegetable production proved to be more
profitable to Guatemalan farmers than traditional crops. The gross margins per
unit of land on snow peas, for example, were, on average 15 times higher than
maize--the main traditional crop (Von Braun, et al., 1989). Returns per unit of
family labor were twice as high as for maize and about 60 percent higher than for
traditional vegetables produced for the local market during 1985. Production of
the new crops also resulted in employment generation, directly on farms, and
indirectly through forward and backward linkages and multiplier effects due to the
increased income spent locally. In aggregate, introduction of export vegetable
production resulted in a 21 percent increase in agricultural employment within the
area.

Generally, the agrarian structure in many developing countries dictates that
crop diversification be carried out by millions of smallholders. Given their
limited resources, especially capital, smallholders are usually keenly aware of the
risks they take in producing a nontraditional crop for which market demand is
uncertain. Therefore, for smallholders to successfully diversify into nontraditional
crops, access to a reliable market for the new products is a critical element of a

diversification process.

 

24

In many developing countries, government support of marketing and
infrastructure has historically concentrated on primary export commodities and
food grains designed specifically to ensure domestic food-self-sufficiency. In Asia,
for example, rice is the dominant food crop with a well established market
network. In Africa, similar market networks are available for coffee, tea, cocoa,
and tobacco. Well-organized marketing channels for nontraditional exports must
be developed to encourage smallholders’ to add nontraditional exports to their
portfolio of production choices.

A fundamental principal of all diversification programs is that they are
driven by market demand. The European importer of fruit, off-season vegetables,
and flowers, for example, needs a regular supply of pre-determined quantities of
consistently high quality produce at reasonable and stable prices. Consumers are
becoming increasingly concerned about quality and the levels of pesticide
residues. Extreme care is critical to avoid any contamination of the produce, even
in transit, because the presence of an unfamiliar insect, even a dead one, in the
package, for example, is likely to dismay the consumer and damage the reputation
of the country of origin. Where production is carried out by many and dispersed
smallholders, coordination of production and marketing activities is critical to
ensuring quality.

Export markets have been lost for lack of an effective mechanism of

transmitting quality-based price differentials all the way down the marketing

25

chain--from the exporter and processor to the growers.7 For that reason, the
producer must keep abreast of the quality standards dictated by the market in
order to maintain credibility as reliable suppliers of high quality products.
Information flow is a crucial part of the establishment of an efficient private
marketing system, because it ensures that growers are constantly aware of
movements in the market (Stiglitz, 1989; Klitgaard, 1991). Because markets for
nontraditional products are usually thin, significant and sudden increases in supply

are heavily discounted by traders. Strong coordination of production and

 

marketing is therefore critical. An efficient marketing system ensures low average
marketing costs. If marketing costs can be reduced, the average return to farmers
can be increased.

Various institutional arrangements have been used to promote production
and marketing of nontraditional exports. Vertical integration has been found
most effective in coordinating the production and marketing of highly perishable
nontraditional exports such as horticultural products. The advantage of a
vertically integrated arrangement is that all the activities of production and
marketing are carried out in one firm or very closely related firms which enhances

coordination. In some countries, notably, Columbia, Guatemala, Israel, and to

 

7 Before the Israeli government and the country’s orange growers together
established an effective quality control system, each grower received the average
price obtained by fruit of that size irrespective of the differences in quality between
growers. To the growers, bad oranges were as profitable as good, and as a result, the
quality of Israel’s oranges in the export market declined and threatened the country’s
export market (Klitgaard, 1991).

 

26

some extent Kenya, this system has proved essential in achieving the high
standards required in international export markets (Courier, 1992; International
Floricultural Seminar, 1992). Other mechanisms such as contract farming and
producer associations have been instrumental in developing smallholder
production of nontraditional exports.

In Kenya, both vertical integration and contract farming have been used in
the production of vegetables for the European market (J affee, 1990). Vertical
integration has been the dominant coordination mechanism used in the large scale
horticultural enterprises, where exporters and processors have integrated the
production of fruits and vegetables into their operations.

In Asia, contract farming has been mutually profitable for farmers and
processors in the pineapple industry in Thailand and the Philippines, and oil palm
in Malaysia (Timmer, 1992). In Guatemala, vegetable production by small-scale
growers is carried out in the context of various institutional arrangements, ranging
from contract farming to cooperatives. A substantial part of the export vegetables
is from members of the Cuatro Pinos Cooperative, which organizes the
production, provides field-level extension, input supply, produce collection,
selection and storage. Market stability in the Guatemalan vegetable industry is
further enhanced by the existence of numerous market middlemen called Coyote,
to whom growers can independently sell their produce (Von Braun, et al., 1989).

In Mauritius, an integrated system was established to coordinate the

production and marketing of vegetables by many small-scale growers. However,

27

the growers could not, by themselves, establish the infrastructure necessary to
achieve consistently high quality export produce. Therefore, individual growers,
even those whose fruits and vegetables were destined for the local market,
organized themselves into produce groups. Together they decide who will
produce what, and in what quantities. The agricultural marketing board then
organizes distribution of seed, offers a guaranteed market at a floor price, and
provides cold storage facilities. Produce destined for the export market is moved
in a completely cold chain from the exporters’ cold rooms at the packing houses
in temperature-controlled trucks to the cold storage facilities at the international
airport (Spore, 1992a). In this way, fruits and vegetables from various small-scale

growers reaches export markets in a fresh condition.

2.1.4. The Role of the Government in Diversification

Structural adjustment policies advocate less government, freer trade, and
more private sector involvement. However, given the imperfections of both the
market and the state in many developing countries, development analysists are
realizing the need to go beyond the state versus market debate and determine
why governments or markets are inefficient and seek the appropriate balance of
public and private involvement in economic development (Klitgaard, 1991). For
example, Klitgaard shows that a lack of information and institutional development

are key factors to the poor performance of the markets in developing countries.

 

28

Given the nonexcludability and cost of information, the public sector has, in many
cases, a'major role to play in the generation and dissemination of information.

The review of agricultural diversification indicates that success is
contingent upon an effective institutional support. The support services are
needed to improve the responsiveness of the private sector--farmers and traders--
to changing market conditions and technologies (Petit and barghouti, 1992).
Thus, diversification requires the government to expand its scope of research,
extension, marketing and credit to provide adequate assistance to both farmers
and traders. For example, governments could encourage investment in the
modernization of marketing facilities: they can improve agricultural marketing in
general by investing in improved rural roads, communication systems, and storage.
More specifically,

" ..Market information services and access to international markets

should be expanded. Governments should aim at improving the

quality and availability of market information for export crops;

radio broadcasts, for example, can provide market information on

traditional and nontraditional commodities. ..[they] should fiance

market research and information dissemination, especially for small-

scale farmers, and also encourage the establishment of growers’
organizations." (Petit and Barghouti, 1992:10).

2.2. Conceptual Framework
2.2.1. Subsector Analysis

The subsector approach of marketing analysis differs from the standard

industrial organization (I/O) framework in both scope and emphasis. The 1/0

29

studies focus on one stage of the production-marketing process, such as
wholesaling or retailing. They measure the degree of concentration and its
relationship to indicators of conduct such as pricing policy, and industry
performance in terms of efficiency, progressiveness, employment and profitability
(Scherer, 1980). But, the I/O approach has several shortcomings. First, although
the performance of any particular industry depends on the vertical linkages
between firms at different levels in the production-marketing chain, standard I/O
models do not address these interrelationships. Second, it does not address how
firms handle uncertainty. Shaffer observes that, "...the pervading problem of
coordinating economic activity, investing, and producing in one period to meet
demand in the future periods, is generally external to the model" (Shaffer, 1980
(62):311).

In dealing with highly perishable commodities such as horticultural
products, firms have great difficulty in coordinating the production and the sale of
such commodities under conditions of uncertainty. The subsector approach
integrates all the stages in the production-marketing channel, including input
distribution, the relevant factors and systemic interaction that influence the
subsector performance (Shaffer, 1973). A commodity subsector is conceptualized
as a "vertical cut of the food system organized around the production and
marketing of a commodity or group of commodities (e.g., grains, horticultural
products)" (Holtzman, 1990:71). A key issue in subsector analysis is how are

various activities such as production, assembly, transportation, etc., organized and

 

30

coordinated temporally and spatially (Harrison et al, 1974). A well-coordinated
subsector also stimulates production and ensures a reliable supply which is

necessary for maintaining access to international markets.

2.2.2. Marketing Coordination: Definition and How it is Achieved.

Marketing coordination refers to the matching of a commodity with the
demand for it at every step of the vertical production-distribution sequence and at
prices consistent with the opportunity cost of resources (Marion et al, 1986). By
assuming perfect competition, economic theory tell us that when the supply of the
commodity is matched with its demand at prices equal to the marginal cost of
production, then resources are efficiently allocated. But in reality perfect
competition does not exist because uncertainty is pervasive in many commodity
subsectors. Also, the perishability of a commodity adds to the complexity of
market coordination. Both vertical and horizontal coordination are critical to the
overall process of coordination in a subsector. Prices perform only a part of the
process of coordination. The matching of supply with the demand of a commodity
depends heavily on the extent to which the two are controllable and on the
decisions made by economic agents concerning supply or demand. Horizontal
coordination at one or more stages in the subsector ensures the control over
aggregate supply, whereas effective means of vertical coordination will minimize

the effects of the dispersion of decision control.

 

31

Horizontal coordination is concerned with the control of economic
functions at one stage in the production-distribution channel, such as at the
primary production level. The aggregate supply control of a commodity depends
more heavily on horizontal coordination than vertical. Well organized and
managed farmer cooperatives furnish a good example of a mechanism for

horizontal control.

2.2.3. Vertical Coordination Mechanisms

Marion et a1 (1986), define vertical coordination as alternative mechanisms
for coordinating supply and demand, both spatially and temporally. It includes the
set of institutions and arrangements that are used to harmonize the functions of
adjacent stages of a commodity system. A given subsector may employ one or
several coordination mechanisms. Vertical coordination mechanisms span a
continuum ranging from the spot market where coordination relies on separate
decisions by firms to integration where coordination is internalized by the firm.
Other forms of coordination include the following: contracts, bargaining,
cooperative integration, government marketing boards and marketing orders,

market information, and formal and informal "rules of the game".

p-r

32
A Contract Coordination.

Contract coordination between independent firms in the subsector covers a
variety of arrangements involving commitments to deliver or receive commodities
at a certain time, such as producer first handler contracts that are common in the
food system. Marketing contracts can help small-scale growers capture some of
the benefits of integration while retaining the advantages of separate entities
(Kauffman and Shaffer, 1983). Well formulated and appropriately used contracts
can reduce risks associated with availability of markets or supplies and those
involving quality variation. The existence of a contract may also contribute to the
stability of the subsector involved. However, contracts may restrict short-run
access to market opportunities. In agriculture, contracts include forward market
specification contracts, production management contracts, and resource-providing
contracts.

Forward market contracts generally include the quantity, time and place for
future delivery of a product, and often with a predetermined price. While the
producers absorbs all the production risk, the major advantage of forward
contracts over the spot market coordination is that the seller is assured of an
outlet and the buyer of a supply. Moreover, if the price is negotiated before
hand, the price risk may be reduced. For example, appropriately-applied forward
market contracts between small-scale flower or bean growers and exporters would
assure the growers of an outlet for their produce and a reliable supply for the

exporters.

 

33

Under production management contracts, the contractor accepts part of the
production risk. Resource-providing contracts are similar to vertical integration in
that much of the production, price risk, and the coordination control is assumed

by the buyer.

B. Vertical Integration

Under vertical integration, all the stages along the production-marketing
channel are managed by a single firm. Williamson (1975) argues that, in a
competitive market, the desire to minimize transaction costs provides the
rationale behind vertical integration. Uncertainty is a major cause of transaction
costs. In the highly perishable flower and bean export subsectors there is
uncertainty over whether the growers will supply the desired type, quality, and
quantity of the product and at the right time. On the other hand, growers who do
not sell directly to the auction markets are concerned about whether buyers will
be available exactly when needed. Under these conditions, vertical integration

represents another approach to market coordination.

C. Cooperatives
Cooperative coordination in agriculture is common at the farm and first-

handler levels. Bargaining in cooperative coordination is used to establish the

 

 

34

terms of trade where there is an unequal number of buyers and sellers.
Coordination under bargaining cooperatives is similar in process to contracting.
The common goals pursued in bargaining associations include higher and stable
incomes for members, assured markets, higher and stable prices, and reliable

market information (Marion et al., 1986).

2.2.4. Market Coordination in Horticultural Industries

There is a growing body of literature discussing the array of institutional
arrangements that have been used to coordinate the production and marketing of
agricultural products. Because of uncertainty, complexity, and perishability
associated with most horticultural commodities, many of the studies have focused
on the horticultural industry.

The most commonly cited example where perishability has played an
important role in the evolution of organizational arrangements is the U.S.-
Caribbean banana trade. According to Glover (1983), contract farming has
played a crucial role in the industry since the nineteenth century, and in recent

years, the "associate producers“

have contributed an increasing share of world
exports. Once cut, bananas have to be delivered to port, loaded, transported

(often great distances), and distributed promptly. To mitigate problems of

 

8 "Associate producers" consist of either individual farmers or grower

cooperatives who supply bananas under contract to the multinational exporting firms.

 

35

uncertainty about the availability of produce at a given port or of buyers for the
product, forward contracts evolved between growers and the highly integrated
multinational firms.

In Guatemala, Von Braun et a1 (1989) found that a substantial part of
vegetable production for export came from small scale farmers who were
members of a cooperative. The study team found that growth of vegetable
exports by small scale farmers was facilitated by the institutional support and
technical knowledge provided by cooperatives. A regression model found that
probability of a subsistence farmer adopting vegetable production increased with
farm size. They also found that exporting firms first negotiated contracts with
medium-sized farms and, after a time lag, with small-scale farms. A major
conclusion drawn from the study was that forward contracts played a crucial role
in improving the coordination of both production and marketing activities.
Reliable market outlets were found to be crucial in sustaining export crop
production by subsistence farmers.

Most recent studies of Kenya’s horticultural export industry have focused
on its historical evolution and factors responsible for its rapid growth. In a study
on fruits and vegetable exports from Kenya, Jaffee (1986) hypothesized that
transaction costs will increase with the degree of uncertainty about demand at
each level in the marketing chain, complexity, and lack of familiarity about foreign

market conditions. In a follow-up study on bean exports, Jaffee (1987), found

36

high levels of smallholder participation in bean production when farmers had
explicit contracts with exporters.

Jaffee (1990), traced the origins and structural characteristics of the
existing array of institutional arrangements in horticulture and observed that new
institutional forms evolved primarily to mitigate against uncertainty and asset
specificity. Although Jaffee verified the dominance of vertically integrated large
firms in flower exports, he found a growing number of small- to- medium scale
farmers in export flower production. But it is unclear how these smallholders
dealt with the pervasive problems of uncertainty and access to technology and to
the highly oligopolistic export market.

This study extends Jaffee’s analysis by using a diagnostic approach to
determine whether the existing institutional arrangements address the production
and marketing problems of flower and bean growers. Farm level enterprise
budgets were constructed to estimate the returns to smallholders producing
flowers and beans. The results were used to carry out a comparative assessment
of the income earned by small, medium, and large-sized growers and between
contract and non-contract growers.9 A regression analysis was carried out to
assess the impact of forward marketing contracts on smallholder production and

marketing of beans.

 

9 The analysis between contract and non-contract growers will be carried out

for the bean industry only because none of the smallholder flower growers
interviewed produced flowers under contract.

37
2.2.5. The Regression Model

A stepwise regression equation was estimated to analyze the impact of
forward marketing contracts on the performance of smallholders in the bean
subsector where these arrangements exist. In a general form, the regression
equation can be expressed as:

PRFV = a + BIYSTG + BZFSZ + B3HED + B4CTR

Where,
PRFV = gross margin per acre
FSZ = proportion of bean area on the farm

HED = household head’s education (years of schooling)

YSTG = Years bean growing beans
CTR = forward contract between grower and immediate buyer( =1, 0
otherwise)

The hypothesis to be tested is that forward marketing contract increases
the income earned by smallholder bean growers and the estimated coefficient for

forward market contract be positive and significant.

CHAPTER THREE

AN OVERVIEW OF THE FLOWER AND BEAN SUBSECTORS

3. Horticulture in Kenya

Kenya’s climate and soils are ideally suited for the cultivation of temperate
and tropical fruits, vegetables, and flowers. The common temperate fruits include
strawberries, apples, and pears. Avocadoes, pineapples, mangoes, and passion
fruit are the major fruits grown for export. Vegetables for export include French
and bobby beans, and a variety of Asian vegetables: okra, chilies, and karela.
Roses, carnations, alstroemeria, arabicum, tuberose and solidaster are important
export flowers. Flowers and beans are the two largest fresh horticultural export

products.

3.1. Public Sector Support

Although horticultural production for started in the 19505, the government
became actively engaged in the development of the industry in 1967, when the
Horticultural Crops Development Authority (HCDA) was established by
parliamentary legislation. The HCDA was given the authority to control and

regulate the cultivation, picking, transportation, and marketing of horticultural

38

 

39

crops. All horticultural exporters were required to obtain export licenses from the
HCDA and report the type and quantity of produce exported on an official form.

Besides the regulatory functions, the HCDA was given the authority to
engage in direct marketing and export of certain products in order to generate
funds for promoting the industry. For example, the Authority was the main
distributor of onions in the country and it exported small quantities of pineapples,
avocados and passion fruits. Through its production and technical services
division, the HCDA has helped many smallholders produce and market crops such
as macadamia nuts, avocadoes, vegetables and flowers. In the early 19705, the
HCDA established packing stations in different areas of the country to help
smallholders assemble and market their produce. In 1975, the HCDA, in
collaboration with the Ministry of Agriculture, FAO and a Danish flower-
exporting firm (DCK), launched a project to help smallholders produce flowers
for export. Although the project collapsed after a short period of time because of
a lack of funds for marketing the flowers, this effort served as a learning
experience for many growers who latter continued to produce flowers for both the
local and export market.

The HCDA is also an important source of both technical and market
information on horticultural products. In 1992, the technical services division of
the HCDA had three technical staff at its headquarters in Nairobi who visit and
advice flower growers on a regular basis. A few small- and medium-scale growers

visit the HCDA and obtain some technical advice. The Authority has developed a

 

40

market information service in cooperation with the International Trade Center
(ITC). The HCDA receives weekly market information on various fresh
horticultural produce from European markets by telex. However, growers and
exporters have to visit the HCDA’s offices to gain access to this information.

Other government agencies such as the Ministry of Agriculture (MOA),
and the Kenya Agricultural Research Institute (KARI) have promoted the
development of the sub-sector“). The MOA also provides technical advice to
farmers through the ministry’s field staff, and inspects all fresh horticultural
exports at the Nairobi international airport. Once the produce has been inspected
and certified, the exporter is issued with phytosanitary certificates and
documentation for the produce to gain entry into the EEC.

However, unlike traditional exports such as tea and coffee, horticultural
crops have received only limited public research attention.11 KARI’s national
horticultural research station at Thika, is the main public horticultural research
center. Scientists at Thika are carrying out breeding research on vegetables,
citrus, avocados and other important fruits. Researchers at Thika are also
assessing the potential for new improved fruit tree varieties and new strawberry

cultivars in order to meet expanding domestic and export demand. But public

 

’0 The Kenya External Trade Authority (KETA), and the National Chamber of
Commerce participate in trade fairs and other promotional activities for non
traditional exports.

11 Most of the limited research on horticultural crops was in cultivar evaluations,
spacing, fertilizer, and management studies for the purpose of expanding the area
under cultivation.

 

41

research programs in floriculture have not kept pace with the demands of a
rapidly expanding subsector and dynamic industry. As a result, many of the
successful growers rely on information from other countries or conduct their own
trials on the new crops, fertilizers and chemicals. Small growers and the
newcomers to the industry, look to the government for technical information.
Public research on floriculture was initiated in 1981 when the government, in
collaboration with FAO, launched flower cultivation trials at KARI’s potato
research station at Tigoni in Kiambu district. However, this work was terminated
upon the expiration of the FAO project in the mid-19805. In 1991, the project
was jointly revived by both KARI and the FAO. Today there is one research
specialist with a doctorate degree in plant breeding, a research assistant with a
bachelor’s degree in agriculture, and two technical assistants assigned to the work
on flowers. The researchers also conduct farm trials in collaboration with small-
to-medium—scale growers in the area. The flowers on trial at the research station
include alstroemeria, ornithogalum, gladiolus, tuberose, arabicum, enthurium,
dendrobium and carnations, KARI also does tissue culture and soil analyses at
the National Agricultural Laboratories (NAL) for several large-scale growers.
The faculty of Agriculture at the University of Nairobi also does tissue culture
and field trials for a limited number of flowers.

Without question, the government has played a strategic role in creating an
environment that has induced massive private sector investment in the

horticultural industry. Rather than control or interfere with marketing as is often

42
the case with public institutions, the HCDA functioned more as a facilitator of the
private sector. Two observers report that:

"--it is what the government did not do--create a large bureaucratic

structure and interfere to a significant extent with the market

mechanism--that is the most impressive. Without this combination of
government assistance and government restraint, it is highly unlikely

that the expansion in horticultural exports would have been rapid or

as large" (Schapiro and Wainaina, 1989).

However, despite this unusual public-private sector cooperation, the
industry faces a number of problems including a shortage of air cargo space and
escalating freight charges. As the main public institution responsible for the
development of the industry, the HCDA is a member of the committee
responsible for the allocation of cargo space when there is a severe shortage. The
HCDA has been instrumental in the standardization of containers for sea freight.

Shipping produce by sea is an attractive mode of transport, especially for the

bulky and less perishable products such as mangoes, pineapples, and avocadoes.

3.2. Private Sector Activities

Despite broad government’s support for the subsector, the production and
export of horticultural products has, to a large extent, remained a private
enterprise. Many private firms, both local and foreign, have invested heavily in
the subsector. The private sector has been the main source of technology and

information for many growers. However, it was not possible during the field work

43

in 1992 to gain access to information from the wide range of private firms
engaged in the horticultural industry.12

Joint ventures, involving local and foreign entrepreneurs, were the main
sources of the capital, technology, and managerial skills for the development of
the flower subsector. Sulmac Co. Ltd., the oldest and largest flower grower and
exporter in Kenya was established through a joint venture between a foreign firm
and several high profile people in the country.13 This relationship had the
advantages of attracting financial resources, imported technology and skills, and
the support and goodwill from the government. For example, Suhnac Co. Ltd.
has at least 300 or more new varieties from Europe on trial at any one time. All
the field managers, breeders, and quality controllers undergo training and
mangers keep up-to-date through overseas travel. Sulmac’s training program has
trained most of the managers of the flower enterprises in the Lake Naivasha area.

Investments by multinational foreign firms and local exporters also
contributed to the development of the fruit and vegetable export subsectors. For
example, the growth of fresh pineapple exports from Kenya is closely connected to
the establishment of the Kenya Canners Ltd., a subsidiary of the Del Monte

group. The Kenya Horticultural Exporters (KHE Ltd.), one of the pioneer fresh

 

12 The limited information on the role of the private sector in the horticultural
industry draws heavily on informal interviews with managers of Sulmac Ltd. about
the development of its flower farm, the Kenya Horticultural Exporters (KHE) Ltd.,
and secondary information sources.

13 The current shareholders of Sulmac Co. Ltd., are Unilever and local share
holders (12 percent).

44

fruit and vegetable exporters helped train many smallholders how to grow high
quality beans and Asian vegetables. For many years, fruits and vegetable
exporters, the majority of whom were of Asian origin, were the main source of

planting material and technical information for the Asian vegetables.
3.3. The Position of Flowers and Beans in Horticultural Exports

Both flower and bean production contribute substantially to national
economic development through rural income and employment generation and
foreign exchange earnings. Flowers and beans account for three-fourths of the
value of horticultural exports in 1991. Table 3.1 shows the composition of fresh
horticultural exports in 1990 and 1991.

Both flowers and beans are alternatives to the traditional smallholder cash
crops-~tea and coffee. Bean production is a major source of income for
smallholders in the Machakos, Kiambu, and Kirinyaga districts (Ministry of
Agriculture, 1992). Hormann (1981) reports that bean cultivation contributes
about half of the average farm income of smallholders in both the Machakos and
Kiambu areas.

Flower and bean production are labor intensive activities. For example,
one of the large scale flower farms employs 3,500 people. Hormann found that

half the bean growers employed between five and 20 seasonal workers.

 

 

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45

 

 

 

 

 

 

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46

3.4. Major Horticultural Producing Areas

The production of horticultural commodities is spread throughout the
country except in the arid northern region (see Figure 3.1). The cultivation tends
to be concentrated in areas of high rainfall or where there is ample water for
irrigation. Flowers, however, require access to a good road network and the
international airport because of their perishability. Many of the fruits and
vegetables destined for the local market are grown under rainfed conditions,
whereas flowers and most vegetables for export, require supplemental irrigation.

The structure of horticultural production in Kenya is dualistic. Eighty
percent of the production is by medium— and large-scale growers who produce
mainly for the processing and export markets. The remaining 20 percent is
produced by smallholders. Irrigation is used by medium- and large-scale growers
in areas such as around lake Naivasha and along the Athi river and the Yatta
Furrow. Many small-scale farms producing flowers, beans, and Asian vegetables
use irrigation. Table 3.2 presents the geographic distribution of the major
horticultural crops grown for export.

Approximately 250,000 hectares of fruits and vegetables are currently under

Cultivation (Dijkstra, and Magori, 1991). It is estimated that about 650 hectares
were devoted to flowers and 10,000 hectares to bean production in 1990 (HCDA

Statistics, Ministry of Agriculture, Annual Reports, 1991).

47

 

  
    
 
 
    
    
      
  

NYANDARUA
(flowers)

KIRINYAGA
(beans)

Central Province

KIAM BU
(flowers)

 

District boundaries
— Provincial boundaries

 

 

 

 

Figure 3.1. Kenya: Smallholder Flower and Bean Producing Areas

Table 3.2. Kenya: Production Location for the Major Horticultural Crops Grown

for Export

 

Crops

Flowers

Production Area

Lake Naivasha
Nyandarua
Kiambu, Nairobi
Embu

Rainfall (mm p.a.) or irrigation

400-600; Irrigated
1200-1800
600—1000; Irrigated
1200-2500; irrigated

 

 

 

 

 

 

 

 

Nyeri 1000-2000; irrigated
French Beans Lake Naivasha 400—600; irrigated
Muranga 1000-2000; irrigated
Embu, Meru 1200-2500 and irrigated
Kirinyaga 400-800; irrigated
Machakos 600-1000; irrigated
Kiambu 1500-2000
Canned beans Lake Naivasha 400-600; irrigated
Kakamega 1100-2000
Asian Vegetables Machakos 600-1000; irrigated
Other vegetables Machakos 600-1000; irrigated
Kiambu 1500-2000
Baringo 400—600; irrigated
Embu/Meru 1200-2500 and irrigated
Nyeri 1000-2000; irrigated
Avocado Trans Nzoia 900-1400 and irrigated
Kiambu 1500-2000
Machakos 600-1000; irrigated
Pineapple Muranga 1000-2000; irrigated
Thika/Kiambu 1500-2000
Passion Fruit Machakos 600-1000; irrigated
Kisii 1200-2100
Kiambu 1500-2000
Kakamega 1100-2000
Mango Kilifi, Kwale 400-1400
Kiambu 1500-2000

 

Source: Dijkstra and Magori, 1991.

49

The total output of flowers in 1990 was about 700 million stems. Table 3.3 shows
the estimated acreage and productionof flowers from 1988 to 1990. Although the
total flower area has averaged around 645 hectares per year, total production has
more than doubled in the last three years. However, the actual flower area and
production may be significantly larger since these estimates do not include

smallholder production. Table 3.4. shows the total bean area, yield and

Table 3.3. Kenya: Area and Production of Flowers, 1988-90“

 

 

Crop 1988 1989 1990
Area Production Area Production Area Production
(ha) (mil. (ha) (mil. (ha) (mil.
stems) stems) stems)
Flowers 642 486 658 579 363 749

 

Notes: a/: An aggregate estimate of yield per ha would be misleading because
yield markedly varies with the type of flower.

Sourcezl992 Farm Survey

Table 3.4. Kenya: Area, Yield and Production of Beans, 1988-89”

 

 

 

Crop 1988 1989
Area Yield Production Area Yield Production
(Ha) (metric (metric (Ha) (metric (metric
tons / ha) tons) tons / ha) tons)
Beans 6,530 3.5 22,853 9,330 4.5 41,984

 

Notes: b/: The 1990 estimated bean area was 10,000 hectares. However, yield
and output data are not available.

Source: Ministry of Agriculture, Annual Reports

50

production. The area under bean cultivation increased by 7 percent from 9,330 in

1988 to 10,000 hectares in’1990.

3.4.1. Flower Producing Areas

There are five main commercial flower producing locations: Nairobi,
Kibwezi, Naivasha and Nakuru area, and parts of the Coast Province. The
Naivasha and Nakuru zone is the largest flower producing area in the country. It
is located approximately 100 kilometers north-west of Nairobi and it contains
many large scale flower firms. Naivasha has ideal conditions for the cultivation of
spray carnation in the open.14 Other flowers grown in this area include statices,
solidaster, roses, delphiniums, gypsophilla and alstroemeria.

An area about 30 kilometers north of Nairobi is the second largest
commercial flower producing region. Cultivation is concentrated in Kiambu
district on a ridge of approximately 2000 to 2300 meters covering Tigoni, Limuru
and Ngecha locations. Most of the smallholders supplying the Nairobi flower

market, as well as a large number of small-to-medium-scale export growers are

 

1" The combination of altitude which is approximately 1800 meters, moderate
temperatures, access to irrigation water from lake Naivasha, and the good road to
Nairobi, make N aivasha an ideal area for flower production. Sulmac’s 1782 hectare
farm at Naivasha is reputed to be the world’s largest producer of carnations in the
open.

51

located on this ridge. It is ideal for the cultivation of a wide range of flowers such
as alstroemeria, asters, solidaster, statices, carnations, gladiolus, arabicum,
tuberose, and ornithagolum. A sample of the smallholder flower growers for the
study came from this area.15

South Kinangop is the largest smallholder flower growing area in the
country. It is located about 160 kilometers north-west of Nairobi and because of
almost temperate climatic conditions, it is an ideal area for the cultivation of
carnations and alstroemeria in the open. HCDA estimates that there are about
300 smallholders in South Kinangop with a total of approximately 100 acres under

alstroemeria cultivation“.

3.4.2. Type of Flowers.

Kenya produces a wide variety of flowers and ornamental plants ranging
from highland flowers favoring cooler temperatures to those suited to lowland
warmer climatic conditions. Statice, carnations, roses and alstroemeria are the
most popular flowers grown for export. The first three are predominantly grown
by large-scale farms. Table 3.5 presents a list of the most important flowers, their

acreage and production for 1988 and 1990.

’5 Kibwezi is the third most important flower growing area, specializing in
Chrysanthemum cuttings, and asparagus plumosis. Embu district grows similar
flowers as those in the Kibwezi area. In 1990/91 Embu produced 143 million
Chrysanthemum cuttings from 8.7 hectares.

1" A few large-scale exporters have established carnation farms in this region
which in 1990/ 91 produced 20 million stems from approximately 50 hectares.

 

52

 

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53

The total area under flowers, especially alstroemeria has grown rapidly as small-,
medium-, and large-scale growers have joined the industry. Alstroemeria was
introduced in the early 19705 and is currently the most popular flower among
smallholders mainly because it requires little capital to produce. The area under
alstroemeria nearly doubled from 48 to 82 hectares and output increased from 24
to 32 million stems. The focus of this study is on alstroemeria production by
small-scale growers.

Roses are the most common flower grown by medium-scale farmers with
an average of one to two hectares of roses grown in green houses. The majority
of the well-to-do African medium-scale flower growers cultivate roses.17 Rose
production has expanded rapidly, especially over the last five years when the total
area under cultivation rose from about 16 hectares in 1987 to 27 in 1990.
Smallholders generally do not cultivate roses for export because it costs
approximately Ksh.4.5 million, (US$ 150,000) to establish one hectare. Over 70

percent of the cost, approximately US. $116,129) is for planting material.

 

17 Flower marketing specialists in a recent seminar in floriculture in Harare,
Zimbabwe, contended that there is an oversupply of roses grown in Africa. For
example, Zimbabwe has about 100 growers of between two to four hectares under
rose cultivation. Alternatives recommended include "summer flowers"-statice perez,
Ammi majus, and delphiniums-which are relatively newer and have not reached
market saturation (International Floricultural Seminar, 1992).

 

 

 

54

3.4.3. Bean Producing Areas

Bean production for export is concentrated in Central and Eastern
provinces, Nairobi, and around lake Naivasha. The major bean areas in Central
province are located in Muranga, Kirinyaga, and Kiambu districts. Muranga and
Kirinyaga districts are located approximately 150 kilometers to the north-west and
170 kilometers to the north-east of Nairobi, respectively. Both small-scale and
large-scale production systems are common. The majority of the growers in
Muranga tend to be large-scale, while growers in Kiambu are both large- and
small-scale. By contrast, bean production in Kirinyaga district is predominantly
carried out by small-scale growers who sell beans to exporters. Many
smallholders use canals of the Mwea Rice Irrigation Scheme to irrigated their
bean crop. In 1991, smallholders in the Kirinyaga district produced 3000 tones of
beans on approximately 1000 hectares.

The area around lake Naivasha represents the largest cluster of large-scale
bean production. Virtually all the beans from this area are produced under
irrigation. While most of the beans are produced for the export market, a
significant proportion also goes to the canning industry. Kakamega, located about

300 kilometers from Nairobi, produces beans for the canning industry.18

 

18 Other important bean growing areas include Machakos district in Eastern
province, and the Nairobi area. Embu and Meru districts, located about 200
kilometers from Nairobi are emerging sources of high quality beans.

 

 

 

55
3.5. Evolution of the Flower Export Industry

Flower production for export began as early as the late 19405 when a
retired British Army Officer started growing flowers for export on a small scale in
Limuru, a few kilometers north of Nairobi. Soon thereafter, several European
settlers began to send small shipments to Europe by air during the European
winter months. MAC Ltd., one of the prominent flower exporting firms in Kenya,
began exporting flowers in 1964 but export sales remained relatively small and
fairly constant in volume until the early 19705. Kenya’s flower exports was
sparked off by a large foreign investment in flower production in 1971 by the
Dansk Chrysanthemum Kurtur Ltd. (DCK) from Denmark. The Kenya
government agreed to provide a favorable investment climate for the foreign firm
and the DCK subsequently established two large scale flower farms at Naivasha
and Masongalemi, and a nursery/trial station at Updown in Limuru.19 Within a
period of five years, the company had over 50 hectares under carnation cultivation
and employed about 3,000 people at the Naivasha farm. By 1975, the farm at
Masongalemi had about 45 hectares under asparagus plumosis and 18 hectares of
chrysanthemum. The Updown nursery remained an experimental station for the

cultivation of carnations, alstroemeria and other flowers until 1975 when it

 

 

19 The DCK Ltd. secured a 25-year contract with the Kenyan government which
exeInpted the company from effects of any changes in laws with regard to transfer
0f profits and taxation of foreign investments during that period. The DCK was also
granted exclusive export production rights for eight years (Hormann, 1981).

 

56

became the nucleus for training smallholders in flower production. With the
impetus of the DCK investment, other foreign investors started export flower
production either singly or jointly with prominent Kenyans. By 1983, flowers
accounted for 41 percent of the value of all fresh horticultural export (Table 3.6).
The flower subsector is still dominated by a few large firms with holdings
ranging from 10 to 100 acres or more. DCK, the largest flower export producer,
dominated flower production from the mid-19705 to the mid-19805. In 1975, DCK
exported 90 million carnations and 2.2 million bunches of asparagus plumosis
from its 50 ha Naivasha farm and 45 ha Masongalemi farm, respectively. In
1978/79 the DCK ran into liquidity problems and was bought by Brooke Bond
Kenya Ltd., a subsidiary of the multinational Unilever Plantation Group.
Throughout the 19805, Brooke Bond Ltd. expanded and diversified into other
flowers in its production at the Naivasha farm currently known as Sulmac Co.
Ltd.20 By 1991, Sulmac Co. Ltd. was the oldest and the largest flower producer
in Kenya and one of the largest worldwide with a turnover in excess of 20 million
pound sterling. The other major growers (over 10 hectares) in order of size
include Oserian Development Company and Shalimar at Naivasha, Tropiflora at

Kiambu, Bobs Harries at Thika, and GK Brothers at Naivasha.21 Cut flower

\

2° The company closed its Chrysanthemum and plumosis projects at
Masongalemi in 1980/81 and 1984, respectively. In 1982, Sulmac Ltd. started
standard carnation and alstroemeria production in South Kinangop. In 1990, rose and
standard carnation cultivation was started at Kibubuti in the Kiambu district.

21 There are seven growers who have over 10 hectares under flower cultivation.
Three of the large growers have insulated trucks, and their own handling facilities

 

57

production on small holdings for export remained insignificant for many years.
Most small-scale commercial firms produced for the local market supplying their

flowers to street vendors and florists in urban centers such as Nairobi.

Table 3.6. Kenya: Flowers Exports by Volume and Value, 1981-91

 

YEAR VOLUME OF F.O.B.VALUE OF EXPORTS

 

 

EXPORTS (current Ksh.)
(kg)
1981 3,981,166 103,506,000
1982 4,319,162 112,294,000
1983 5,208,956 145,852,000
1984 6,960,460 174,025,000
1985 7,473,999 209,271,972
1986 8,264,912 247,947,366
1987 8,612,948 502,379,287
1988 10,946,051 634,870,958
1989 13,245,204 728,486,220
1990 14,430,691 865,360,000
1991 16,405,012 984,300,720

*

Source: Horticultural Crops Development Authority, Export Statistics (1981-1991)

In 1975, the FAO/HCDA/DCK launched a project in the Limuru-Njecha
area to help smallholders grow cut flowers. Under this scheme, a group of 19

farrners were selected and taught how to grow high quality carnations for export.

\

(001d store, etc.,) at the Jomo Kenyatta International (JKI) Airport in Nairobi.

_——_

 

 

 

58

This project provided an excellent training ground for many of the future small-
scale and medium-scale flower growers. By 1976, the scheme had over 400
smallholder out-growers in the Limuru area supplying carnations and statices to
DCK. However, when DCK run into a liquidity crisis in 1978, the project
collapsed and many of the out-growers shifted to producing flowers for the

Nairobi market.

3.6. Evolution of the Bean Export Industry

Two main types of phasflwgariLL are grown in Kenya: French and
bobby beans. French beans are also known as filet beans, needle beans, and
kidney beans (FAO, 1988). These are fine, tender, and usually seedless and
turgescent. Bobby beans are stringless. French and bobby beans are very
susceptible to bruising and withering and, hence, are highly perishable. As soon
as they loose their freshness, the market value falls sharply. This explains why
generally a large part of the crop is preserved through canning or freezing. The
beans are grown extensively in all temperate zone countries during the summer
months. But the major source of fresh beans in Europe during the winter is from
nontemperate zone countries such as Kenya. Also, because of high wage rates in
Europe, many major canning companies have re-located their operations to third

world countries to take advantage of low labor costs.

 

59

The cultivation and export of beans began in the late 19505 when a small
number of European and Asian entrepreneurs started to export both fresh and
processed fruits and vegetables, mainly to the UK. and some gulf countries.
However, because of a shortage of both air-freight to Europe and a ready supply
of high quality produce, the export trade remained fairly small through the 19605.
For example, in 1963 only 389 tons of beans were produced, and by 1970 the total
production was about 800 tons. In fact, it was not until the mid-19705 that Kenya
emerged as one of the leading suppliers high quality fresh beans to Europe.

Several factors contributed to the expansion of the industry during the mid
seventies. First, rising incomes in Europe generated a demand for fresh beans.
Second, the addition of wide-bodied aircraft on the Kenyan-European route
stimulated the expansion of the industry. Finally, the bean production capacity in
Kenya was enhanced by large capital investments by private firms. Joint ventures,
involving local entrepreneurs especially those of Asian ethnicity, and foreign
investors, were instrumental in raising the large capital investment and developing
access to global markets. As a result of these interlocking activities, fresh bean
production and export expanded in the late 19705 and throughout the 19805.
Today, beans are the most important non-flower fresh horticultural export.
Foreign exchange earnings from bean exports jumped from 60 million shillings in

1981 to over 500 million shillings in 1991.22

 

22 Kenya has also exported canned French beans to Europe from local canning
factories at Kabazi Canners, Corner Shop, and Njoro Canners. These firms use
marketing contracts with out-growers who supply raw material for processing. Some

 

60

3.7. The Structure of Flower and Bean Marketing

Internationally, Kenya has succeeded in marketing itself as a producer of
high quality products. The success is attributed to both the private nature of
horticultural marketing and the government managed quality control measures
that ensure that produce exported meets the international standards for

packaging, quality, and grading.

3.7.1. Flower marketing

The local flower market absorbs a small proportion of the total crop
produced in the country. The local flower market is concentrated in urban
centers such Nairobi and luxury hotels. Various species of flowers purchased
from small-scale growers and large-scale growers are sold by florists and street
vendors in Nairobi.

In 1991 there were over 30 licensed flower exporters in the country. The
majority export flowers exclusively from their farms. A small number of exporters
trade in flowers procured solely from small-scale growers. The large growers
usually make advance market contracts with overseas clients. For example, over

70 percent of the Sulmac’s production is under contract. While this ensures

 

local firms are involved in joint ventures with foreign firms to process and export
beans.

 

 

61

stability, it also makes the company less flexible in taking advantage of changing

market opportunities.

3.7.2. Bean Marketing

There are three market outlets for beans--the local fresh market, the
canning industry, and the fresh export market. The fresh export market absorbs
around 60 percent of the total production. In 1992, there were 135 fruit and
vegetable exporters some of whom traded in fresh beans. Unlike flower
exporters, only a few of the bean exporters are also growers. There are about
eight large-scale bean exporters who are also growers.23 There is also a growing
number of small and part-time exporters who do not have fixed business premises.
Part-time exporters buy beans from smallholders when they have an order for a

shipment.24

 

23 Among the largest bean grower/exporters include KHE Ltd. located near
Thika, Indu F arm, Vegpro in N aivasha, East African Growers, and East African
Gardens. The first four have their own handling facilities including a cold store near
the JKI Airport in Nairobi.

2" Part-time exporters have minimum overhead costs. The beans are picked
from the farms and transported in a small truck to the JKI Airport for shipment.
When necessary, they use the Kenya Airways rental cold storage facility at the
airport. Because they rarely have business premises, they communicate with clients
using the telex services at the Kenya Posts and Telecommunication building in
Nairobi.

62
3.8. The European Flower Market

Europe is the largest flower market in the world with a total import value
of approximately US S 1.7 billion in 1987. During the late 19805, Europe’s flower
imports grew about 3 percent annually. Germany is the largest importer of
flowers in the world and in 1987, it accounted for 47 percent of all the flower
imports into Europe, followed by France and the UK. with 12 and 10 percent,
respectively.

Europe imports a large array of flowers from many counties. Carnations,
statices, alstroemeria, and roses are the most important flowers in this market.
Although the market is becoming more competitive, seven countries have
remained the major suppliers over the years, accounting for about 94 percent of
the market (World Bank, 1989). Netherlands and Israel are the largest suppliers,
controlling almost 80 percent of the market. Table 3.7. shows the market shares
of Europe’s major flower suppliers. Kenya, the sixth largest supplier has increased
the value of its exports to Europe from USS 500,000 in 1977 to about USS 30
million in 1987, and doubled its market share from 1 to 2 percent over the same
period. The value of Kenya’s flower exports to Europe was approximately USS 37

million in 1991 (HCDA Export Statistics).

63
Table 3.7. Europe: Flower Imports from Major Suppliers

 

 

Supplier 1981 1982 1983 1984 1985 1986 1987
Netherlands 67 68 68 68 71 72 72
Israel 10 9 8 9 8 8 7
Italy 7 8 8 8 5 5 5
Spain 2 2 2 3 3 4 4
Columbia 5 4 4 4 4 3 3
Kenya 1 1 1 2 2 2 2
Thailand 2 2 2 2 2 1 1
Other 6 6 6 6 6 6 6
Total 100 100 100 100 100 100 100

 

Source: World Bank, 1989.

3.8.1. Flower Exports to European Markets

Europe is the largest export market for Kenyan flowers partly because of
Kenya’s proximity to Europe which has permitted rapid shipment of the highly
perishable products. The major European markets for Kenyan flowers are the
Netherlands,25 followed by West Germany, the U.K., and Switzerland. Table 3.8.
shows the volume and percent of the flower exports to these markets. Over half
of all the flower exports go to the Netherlands followed by Germany with 28

percent.

 

25 The Netherlands appeals to many suppliers because of its excellent facilities
for receiving flowers from all over the world. The Netherlands re-exports most of the
flowers it imports.

64

Table 3.8. Kenya: Flower Exports to Major European Markets: Volume and
Percent of the Total exports, 1990 and 1991:

 

 

 

 

Country 1990 1991
(million (percent) (million (percent)
Kg) Kg)
Netherlands 8.59 59.00 9.46 58.00
Germany 3.99 28.00 4.68 28.00
UK. 1.06 7.00 1.22 7 .00
Switzerland 0.39 3.00 0.41 3.00
Other 0.40 3.00 0.62 4.00
countries
Total 14.43 100.00 16.40 100.00

 

Source: Horticultural Crops Development Authority, Export Statistics.

Among develOping countries, Kenya is the most important exporter of
flowers to the Netherlands. As the third largest supplier of flowers to the
Netherlands after Israel and Spain, Kenya commanded close to 10 percent of the
Dutch flower market by the end of the 19805.26 In 1991, Kenya exported 280.7
million stems of flowers to the Netherlands.

Kenya controls approximately 2 percent of the flower import market in
Germany where it is the 4th largest supplier after the Netherlands, Italy, and

Israel. Roses, carnations, and Chrysanthemums are the most popular Kenyan

 

26 Important African suppliers include Zimbabwe, Ethiopia, and Morocco which
supplied 7, 1.3, and 0.4 percent, of the total imports, respectively in 1991.

65

flowers in this market. In recent years, Alstroemeria has grown in importance in

Germany, exceeding roses.

3.8.2. The Geographic Destination of Bean Exports

Kenya exports fresh beans to more than 30 countries in the world
(Schapiro and Wainaina, 1989; HCDA, Export Statistics). Western Europe is the
major importer of Kenya’s produce. Most of the beans shipped to Europe are
targeted to the "off-season" months from October to June. The major suppliers of
fresh beans to the EEC "off-season" market include Egypt, Kenya, Burkina Faso,
Senegal, Cameroon, Mali, Niger, and Morocco among others. Volume-wise,
Egypt is the most important supplier, exporting mainly bobby beans to Dutch
market. Senegal is the most important West African exporter of beans to the
EEC. Kenya ships beans throughout the year, mainly to the high class restaurant
trade and specialty shops, especially in France and the UK. The Canary Islands
are also regular "off-season" suppliers to the Dutch and the UK. markets.

Until the first half of the 19705, Kenya exported beans primarily to the
UK. During the 19805 and the early 19905, France increased in importance as an
importer of Kenya’s beans. Currently, France purchases over 45 percent of
Kenya’s fresh beans exports. In 1991, Kenya exported 6.7 thousand tons of beans

to France and earned over 230 million shillings in foreign currency.

66
3.9. Summary

This chapter has demonstrated the vital importance of flowers and beans to
national economic development and to small-scale growers in various parts of the
country. Because of declining world prices for Kenya’s traditional export crops
such as tea and coffee, in the 19805, many smallholders view flower cultivation as
an alternative new income stream for their families.

Commercial bean production began in the 19505 but started to expand
rapidly in the late 19605 through the 19805. The initial seed and technology were
provided by foreign investors seeking cheap labor in developing countries. Bean
cultivation has spread to both small- and large-scale growers. Small-scale growers
depend on exporters and processors to purchase their crop, whereas the large
growers are often exporters themselves.

The flower export subsector was started in the early 19705 as a result of a
joint venture between a Danish flower firm and the government. Since then
several foreign and local private companies have invested heavily in terms of
capital, infrastructure, and technology in the development of a highly successful
industry. Because of the lack of adequate public technical and market
information in floriculture, private firms have served as the main source of both
the technology and the technical manpower for many years. However, the

subsector is still dominated by a few large growers.

 

67

Although Kenya has emerged as the largest supplier of flowers from the
third world, smallholder flower production has lagged behind smallholder tea and
vegetable production. Virtually all the small-scale growers and some of the
medium-scale growers depend on the government for both technical and market
information. Yet the public floricultural research has not kept pace with the rapid
developments in the industry. The large amount of capital used by the private
firms, was to a large extent, drawn from foreign sources through vertical

integrated arrangements.

 

CHAPTER FOUR

THE ECONOMICS OF FLOWER AND BEAN PRODUCTION

This chapter will analyze the economics of smallholder flower and bean
production. The first part will discuss the economics of smallholder flower

production followed by a similar analysis of smallholder bean production.
4.1. The Economics of Flower Production

This section is based on data collected from 36 growers in a field survey
carried out between June and October 1992. Production and marketing
information for the 1991-92 export season were collected from growers in the
Kiambu and Nyandarua districts where flower cultivation by small-scale growers is
concentrated.27 On average, 25 percent of the land in each of the surveyed
farms was dedicated to flower production in 1991. The major alternative
commercial enterprises include dairying and potatoes in Nyandarua, and coffee
and tea in Kiambu. Four types of flowers are included in the survey:

Alstroemeria, arabicum, tuberose, and solidaster.

¥

27 Technologically advanced rose growers and the large-scale firms in the
Nairobi and the Lake Naivasha areas are beyond the scope of this study.

68

69

4.1.1. The Structure of Production

Table 4.1 presents information on the structure of smallholder flower
cultivation in the two districts surveyed. The growers are classified into-—small,
medium, and large--on the basis of the total area of flower cultivation.28
Because of the variation among growers, this classification will be useful in the
diagnosis and discussion of production and marketing constraints. The small
farms have less than one acre under flowers, the medium cultivate between one
and seven acres, and the large have eight to twenty acres. Because flower area is
a limited indicator of farm size and capitalization on the farm, Table 4.1 also
shows the average farm size for each of the three grower categories. In general, it
is assumed that large farms would have more resources and enterprises than
small. The results in Table 4.1, however, show that the farms with a large flower
area also have significantly bigger farms than the other two categories of farms.
The large growers are generally more technologically advanced than small and
medium growers. These differences have implications for the nature and severity

of the production and marketing constraints facing growers.

2” Experts consider a large-scale grower as one who can supply a pallet
(approximately 2000 kg.) of one type of plant. For example, a farmer with about 15
hectares of roses would be considered as a large grower (de Kerpel, 1992).

70
Table 4.1. Kenya: The Structure of Flower Growers; 1991.

 

 

 

Size of Number Farm Size Area Under Flowers
grower of
growers
(acres) (cv)a (acres) (percent of (cv)“‘
farm size)

Small 19 9.09 1.57 0.54 6.00 0.85
Medium 12 10.65 0.87 2.24 21.03 0.85
Large 5 16.24 0.87 11.65 71.80 0.55
All 36 10.61 1.23 2.60 25.00 1.06

 

Notes: a: cv refers to the coefficient of variation.

Source: 1992 Farm Survey.

 

 

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72

The average flower area of farms in the two districts is 2.6 acres (Table
4.2.) However, 54 percent of the farms are small, with an average of 0.54 acres
under flower cultivation. About 30 percent of the farms interviewed are medium
size, with an average flower area of 2.2 acres, whereas only 14 percent were large
farms growing eight to 20 acres of flowers. The latter had an average of 70
percent of their farm under flower cultivation. The survey also revealed that the
average area under flower cultivation in 1991 in Kiambu was 3.67 and 2.67 acres
in Nyandarua.

Table 4.3. presents typologies of three sizes of flower growers. The
average small growers had 9 acres of land but only 6 percent under flower
cultivation. The average farm size for medium and large growers was about 10
and 16 acres, respectively. However, large growers devoted most of their land to
flower cultivation (70 percent), while the medium grew flowers on 21 percent of
the farm. The results indicate that both small and medium growers are not
constrained by land but decide to devote only a small fraction of their farm on
flower cultivation.

A good education is vital in flower production for export not only for
development technical and managerial skills but also financial management of the
business and in communication. Flower growers also vary significantly by their

level of education. Sixty percent of the large growers have secondary school

education compared to 33 and 15 percent for the medium and small growers.

 

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74

A majority of the flower growers started flower production only recently
and have yet to build up experience in the industry. Seventy percent of the
smallholder began to grow flowers less than five years ago. A comparison among
the three category of growers reveals that 60 percent of the large growers, 75
percent of the medium and 73 percent of the small growers have grown flowers
for less than five years.

Table 4.4. shows the distribution of the most important flowers and the
mean acreage of flowers on the surveyed farms during the 1992 survey.29 None
of the surveyed farms in Nyandarua grew molucella, tuberose, ornithogalum, and
solidaster in 1991. Production and marketing data were collected during the
1991/92 season for alstroemeria, arabicum, tuberose, and solidaster and for the
gross margin analysis. Approximately 97 percent of all smallholders surveyed
cultivate alstroemeria, with a mean of 1.6 acres.

The results in Table’s 4.2. and 4.4. together indicate that most growers in
Nyandarua specialize in alstroemeria and grow a few carnations for the local

market.30

 

29 Capital intensive growers around Nairobi and Lake Naivasha specialize in
roses. Approximately Ksh.4.5 million (U.S.S 150,000 in 1992) is required to establish
one hectare of roses.(Source: Ministry of Agriculture, Horticulture Division, personal
communication).

30 One of the flower exporters has supplied a few growers in the area with ammi
majus seed. Three of the surveyed growers cultivated small plots of molucella in
1992. If these growers succeed and other growers adopt ammi majus, it is reasonable
to expect more diversity in flowers produced by Nyandarua smallholder in the future.

 

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75

 

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76

Ample rainfall and cool temperatures allow Nyandarua growers to cultivate
alstroemeria without the capital investment needed for irrigation or shade houses.
Also, many smallholder specialize in alstroemeria because planting materials,
especially for the older varieties, are available from local growers. The planting
material for new varieties is both imported and costly. Few growers have access to
imported plating material.31 The limited product mix of small growers in general
and those in Nyandarua in particular undermines their marketing efforts. Chapter
five addresses the problems that growers face in finding new niches locally and in
global markets for flowers.

Arabicum is the second most widely cultivated flower. About 44 percent of
the growers cultivate arabicum, with an average of 0.53 acres. Seventy-five
percent of the surveyed growers who cultivate arabicum are found in the Kiambu
area. Only 25 percent of growers in Nyandarua cultivate arabicum.

Only growers in the Kiambu area cultivate tuberose. Most Nyandarua
growers considered the area too cold for the cultivation of tuberose. Unlike those
in Nyandarua, Kiambu growers cultivate a wider variety of flowers, a factor that

attracts exporters to the area.

 

3’1 Large growers have organized themselves into positions where they have
access to both credit and foreign exchange to import planting materials. Small
growers are generally unwilling to apply for credit because of fear of loosing their
land--the usual acceptable form of collateral for agricultural credit.

77

4.1.2. Varieties of Alstroemeria

This study distinguishes new from old varieties of alstroemeria because the
average sale price is substantially higher for the new varieties.32 However, older
varieties have been in Kenya for one to two decades and growers generally find it

33 Most planting

easer to get planting materials for them, usually from neighbors.
material for new varieties is imported and costly. Table 4.5 presents survey data
on both old and new varieties. Marina is the most widely planted alstroemeria
variety. In Kiambu and Nyandarua, 97 percent of the surveyed growers cultivate
marina, with an average of 0.88 acres.

About half of the sample growers are cultivating the new alstroemeria
varieties. The mean acreage of new varieties in the study area was about 0.84
acres. However, the area grown by large growers is significantly higher, averaging
2.38 acres. Moreover, all large growers (about 14 percent of the sample) cultivate

new varieties. The concentration of new varieties on the larger farms has

significant implications for the profitability among growers because new varieties

 

32 In the Nyandarua district, the 1991 average farm gate price (nominal) per
stem of a new variety of alstroemeria such as Yellow King was Ksh.2.50, and Ksh.1.5.
for Yellow Queen. For an old variety such as Marina, the price was Ksh.1.06.

33 Marina and Pink Perfection, the most common old varieties, were introduced
in the mid-19705. Most new varieties such as Yellow Queen and Yellow King were
introduced in the 19805. A few smallholder started to grow new varieties such as
Apollo, Sangria, and Serena, in the 19905.

78

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79

yield higher prices than old. The acreage planted to new varieties on flower
holdings of less than one acre was 0.27 acres. Yellow Queen and Yellow King
are the most common new varieties. Their combined average area on the sample
farms was 0.53 acres. The three small growers cultivating these two varieties
constitute only eight percent of the sample.

In summary, the data from Table 4.5 reveal that Marina, the old variety of
alstroemeria, is the most widely planted flower by small growers in Kenya. Most
small and medium growers cultivated marina because they lack the capital
necessary to grow the new varieties and the institutional linkages that can ensure
access to seeds of the new flower types. Since most exporters prefer to buy more
than one type of flower for their shipments, they tend to favor the Kiambu area.
Therefore, the excessive dependence of the Nyandarua growers on the Marina
type of alstroemeria constitutes an important marketing problem for smallholder

in the area.

4.1.3. Sources of Planting Materials

Planting materials usually consist of seeds, root and stem cuttings, young

plants, or splits.34 Large-scale growers and exporters obtain their propagation

materials from Europe, usually from the Netherlands. Imported propagation

 

34 Throughout the report, the term "seed" refers to any form of planting material
(seeds, roots or rhizomes, young seedlings, or plant splits) unless otherwise stated.

80

material is often costly because of royalties, freight, and insurance. Royalties
must be paid by Kenyan growers on all flower seed for at least three years after
purchase. If royalties are not paid, the grower cannot sell flowers at the Dutch
auctions--a major outlet for Kenyan flowers. Since Dutch growers also control the
flower auctions, they can restrict seed multiplication and area under flowers.
Many smallholder, therefore, depend on local sources of seed.

Table 4.6. shows the main sources of seed reported by growers. The most
common alternative sources of seed include pioneer growers, supplies retained
from a previous crop, and exporters. The survey revealed that fifty-six percent of
all growers obtained their seed from other growers in the area. Many purchased
seed from pioneer growers in the area. The practice of buying seed from other
growers is common among growers of alstroemeria, arabicum, tuberose, and
ornithogalum because seed can be easily multiplied on local farms.

About one third of the farmers used seed retained from a previous crop.
These have grown flowers for a long period and obtained the initial seed either
through import or from pioneer growers. Only 8 percent of the growers imported
their seed. The practice whereby exporters supply growers with seed is

uncommon.

81

Table 4.6. Sources of Planting Material

 

 

Number of growers Percent of sample
Source of seed in sample growers
Pioneer grower 20 56
Retained seed 12 33
Imported 3 8
An Exportera 1 3
Total 36 100

 

Notes:
a: Mac Ltd., a flower exporter sometimes sells seed to smallholder.

Source: 1992 Farm Survey

4.1.4. The Returns to Flower Production

In this section, enterprise budgets are used to evaluate the economics of
smallholder flower production. Enterprise budgets are constructed for each of the
three size categories of smallholder. Since there is a marked variation in returns
to different flower types and old and new varieties of alstroemeria, separate
budgets prepared for each of these categories. Since marina is the most widely
grown old variety of alstroemeria, it has been selected to represent the old
varieties. Because of the small number of sample farms the results cannot be
generalized.

The components of enterprise budgets analyzed in this section include a)

output, b) production costs, both operating and fixed costs attributable to

82

equipment and specialized structures used in flower production, c) potential gross
and net margins, and d) the realized gross and net margins. Output is defined as
the total number of saleable flower stems harvested during the 1991/92 export
season”.

Harvesting coincides with the export season, which begins in early October
and ends in March. During this period, flowers are harvested two or three times
a week, depending on the demand from exporters. Because they lack cold storage
facilities, most smallholder harvest on the day that exporters are expected.36 The
flowers are then sorted into the three recognized gradesuwhite, blue, and yellow--
representing 80, 70, and 60 cm of stem length, before they are sold to exporters.
The longer the stem length, the higher the grade. Because of a concern to supply
high quality flowers to the export market, several exporters regrade flowers that
they purchase from smallholder. Flowers which have either crooked stems, or
fully opened or immature flowers are unacceptable”. Payment is generally

made after two weeks. A few exporters remunerate growers on the spot.

 

35 The study has adopted KARI’s procedure which assumes that 80 percent of all
the harvested flowers are saleable.

3’6 Beginning 1991, members of the Kinangop Flower Growers Association
(KFGA) in Nyandarua can store their flowers overnight at a cold store constructed
with the help of MAC Ltd., one of the flower exporters. Growers in Kiambu
currently can rent cold storage space at the Agricultural Development Corporation
(ADC) Updown Farm at a rate of 40 cents per kilogram per night.

37 The desired stage to harvest a flower is called the cut stage. It is defined as
the minimum stage of development at which if cut, the flower will be able to survive
the physiological shock of harvesting, but be sufficiently mature to open fully once
it is in the vase (Ford, 1992).

83

However, many of the smallholder complained of nonpayment for flowers by
some of the exporters. In 1991, many growers, especially those from Nyandarua,
incurred substantial losses in revenue due to this problem.

The production costs per acre include both operating and fixed costs
involved in growing, harvesting, and preparing flowers for the stage of initial sale.
The components of operating costs vary depending on the type of flower.
Solidaster and asters require artificial lighting, whereas alstroemeria,
ornithogalum, arabicum, and tuberose normally do not. The fixed costs represent
annual depreciation of equipment, including irrigation facilities and structures
used in flower production.

This study distinguishes potential from realized gross and net margins for
two reasons. First, a substantial portion of flowers produced by the relatively
smaller growers are often unharvested or unsold. Second, in some cases,
unscrupulous exporters do not remunerate growers for their flowers. The
realized revenue, from which realized gross and net margins are derived, is the
value of the output which the grower sold and received payment. Potential

revenue is the value of output. The prices used are weighted average sales prices

for the 1991/92 season.

84

4.1.4.1. Returns to Marina Production

Table 4.7. presents enterprise budgets for Marina for the three farm
categories defined in the previous section. The budgets show that the output per
acre increases with the size of flower area. The growers with the smallest flower
area have an output of 122,035 stems per acre, whereas the largest growers
produce almost double that, 225,000 stems. The large growers also produce 85
percent grade one and 15 percent grade two flowers. The small and medium
growers tend to produce all three grades.

A comparison of small and medium growers yields some surprising results.
The small farms produce a higher percentage of both grade one and two flowers.
Seventy-eight percent of the yield from small farms is grade one as compared with
58 percent of medium scale farms. Grade two flowers constitute 18 and 12

percent of the yield from small and medium farms, respectively.

85

Table 4.7. Kenya: Enterprise Budgets for Marina variety of Alstroemeria, 1991/92.

 

 

Item Small Growers Medium Growers Large Growers
Number of farms 19 11 5
Farm Size (acres) 6.00 8.00 8.00
Flower Area (acres) 0.38 1.50 8.00
Area with marina (acres) 0.38 1.50 5.00
Output (number of stems)

Grade 1 95,850 78,648 191,250

Grade 2 21,820 16,272 33,750

Grade 3 4,365 40,580 0
Yield (stems lacre) 122,035 135,600 225,000
Average prices (Sh/stem)

Grade 1 0.95 1.00 2.50“

Grade 2 0.75 0.80 2.00“

Grade 3 0.60 0.60 1.50"
Potential revenue (Sh/acre) 110,641 116,072 545,625
Realized revenue (Sh/acre) 33,690 37,944 545,625
Total Operating costs (Sh/acre)” 14,102 12,146 202,906
Total Fixed costs“ 1,077 2,630 257,291
Potential Gross Margin (sh/acre) 96,539 103,926 342,719
Realized Gross Margin (Sh/acre) 19,588 25,798 342,719
Potential Net Margin (Sh/acre) 95,462 101,296 85,428
Realized Net Margin (Sh/acre) 18,260 23,168 85,428
Opportunity cost of capital" 1,427 1,389 43,258
Net Income/acre 16,833 21,779 42,170

 

Notes: a/zTable 4.7a gives a detailed breakdown of the operating costs.
b/zTable 4.7b shows the breakdown of the fixed costs.

c/:These extremely high prices are obtained for flowers exported directly. They represent
the minimum export prices reported to the Central Bank for foreign exchange remittance.
Auction market prices in Amsterdam for 1991/92 were between 3.60 and 6.80 shillings per
stem.

d/: Estimated return on invested capital (operating plus fixed cost) using the 9.4 percent
real interest rate charged by commercial banks on loans in 1991 (Kenya Republic of, 1992).

Source: 1992 Farm Survey.

Table 4.7a: Operating Costs.

86

Size of Grower

 

 

 

 

 

Operating Costs (Sh/acre) Small Medium Large
Preparation/planting 4,60 680 1,250
Weeding 2,620 4,480 3,125
Fertilizer/manure 4,08 628 6,250
Chemicals 770 113 3,125
Irrigation 150 400 15,125
Harvesting 1,398 5,760 9,375
Pre-treatment chemical 0 32 6,250
Packaging:
Cartons 0 0 54,000
Rubber bands 0 52 4,800
Sleeves O 0 57,600
Pre-cooling O 0 1,500
Local Transport 480 0 1,800
Communication (Fax) 0 0 3,125
Air freight 0 0 35,581
TOTAL 14,102 12,146 202,906
Source: 1992 Farm Survey
Table 4.7b: Fixed Costs.
Size of Grower
Fixed cost (shillings) Small Medium Large
Planting Material 540 460 17,000
Irrigation system 0 2,000 129,600
Coldstore O 0 22,500
Grading Shed 57 64 6,429
Net House 0 0 7,000
Support Structures 0 0 32,000
Water Tank 0 0 6,500
Truck 401 0 32,143
Bicycle 49 0 O
Sprayers 29 106 800
Wheelbarrow 0 0 320
Consultancy Fee 0 0 3,000
TOTAL 1,077 2,630 257,291

 

gurce: 1992 Farm Survey

87

Table 4.7c. Notes on Fixed Costs: Straight-line depreciation schedule
for equipment and structures that are used in flower (Marina) production
for the three farm categories:

 

1991 Approx. Salvage Annual Annual

Price Working ‘Value Depreciation. Depr.‘/
Item (Ksh.) Life (Ksh.) (Ksh.) (Ksh.)

(Yrs)
(1) (2) (3) (4) (5)

Seed (local) 8,700 5 2,500 1,240 _
Seed (imported) 95,000 5 10,000 17,000 _
Irrigation Pump 900,000 7 200,000 100,000 _
Irrig. Pipes 150,000 5 20,000 26,000 _
Accessories 20,000 5 2,000 3,600 _
Hosepipe/pail 2,500 3 500 667 -
Cold store 300,000 10 75,000 22,500 _
Grade Shade 50,000 7 5,000 6,428 _
(own)
Grade Shade 425 7 _ 61 -
(group)
Net House 45,000 5 10,000 7,000 -
Supports 200,000 5 40,000 32,000 _
Water Tank 75,000 10 10,000 6,500 _
Truck (used) 90,000 7 45,000 6,428 402
Truck (new) 300,000 7 75,000 32,143 _
Bicycle 6,000 7 500 786 24
Sprayers 2,000 3 100 633 79
Wheel barrow 1,200 5 50 320 -
Consultancy 3,000 — 3,000 -

 

a/: The annual depreciation estimate in column (4) was further weighted
by the proportion of the farm area under flower cultivation and the
result is recorded in column (5). This includes situations where flower
production utilizes only a fraction of the services from the equipment.

88

The results are surprising because growers with a larger area under flowers are
generally the most technologically advanced. They are also expected to apply
better management, and therefore produce higher quality flowers than small-scale
growers.38

Small growers produce high quality flowers than the medium growers
because high quality alstroemeria can be grown in the open in the favorable
climate of Nyandarua without shade houses. Majority of the small growers are
located in Nyandarua. By contrast, most medium growers are located in the
Kiambu area, which has a warmer climate than Nyandarua. As a result, Marina
produced in Kiambu without irrigation, or the protection of a net house or
support structures are generally of lower quality than flowers grown in
Nyandarua.39

Also, growers from the Nyandarua area (who constitute the majority of the
small growers) apply more manure than farmers in Kiambu.40 Small-scale

growers also generally tend to be more labor intensive than medium growers.

 

38 Whereas the small, medium and large categories were based on the area on
flower cultivation, the average farm size was not significantly different between these
three groups (see Table 6). However, in terms of the area flowers, the results reveal
a marked difference between large and the small medium farms.

39 Net houses, also called shade houses, protect flowers from direct sunlight and
heat, thereby allowing the flowers to have longer and healthier stems. The net houses
used in Kenya are made from a fish net type of material and they differ from green
houses (which are made of plastic material) commonly used in the production of
roses.

4° Dairying is a major agricultural enterprize in Nyandarua and many of the
flower growers obtain manure from their farms.

89

Table 4.7a. shows that small growers spent more on land preparation, planting
and weeding than medium growers. These factors help explain the high
percentage of grade one flowers from the smallest holdings even though they do
not use specialized structures.

Large growers have highest production costs per acre because they use
more inputs--inorganic fertilizers, chemicals, and post-harvest materials--than the
small and medium growers. Operating expenses for large growers were 202,906
shillings per acre. Post-harvest expenses--pre-treatment and pre-cooling,
packaging materials, and local transport--accounted for 57 percent of the
operating costs. The most expensive post-harvest items are sleeves and
cartons.41 The cost of sleeves and cartons per acre of marina was 57,600
shillings and 54,000 shillings, respectively. Because large growers export their own
flowers to European markets, they incur air freight expenses of 35,581 shillings.

Small growers do not incur major post-harvest expenses because flowers
are generally bought in bulk by the exporter or the marketing intermediary, and
later re-graded and packed for export.42 A few exporters buying small quantities

of flowers from these growers provide free rubber bands. Medium class growers

 

41 After grading, the flowers are tied in bundles of ten stems by a rubber band.
The cut end of each bundle is wrapped in a sleeve-shaped cellophane sheath for
protection. Up to 25 such bundles are arranged in layers in cardboard boxes (carton)
ready for shipment and export.

42 Growers sort the flowers into the three grades and use sisal ropes or plant
vines to tie them into bundles.

 

90

in the Kiambu area receive packaging materials, usually cartons from the
exporters. Neither small nor medium growers use sleeves.

The need for shade houses consisting of plastic or screen nets; drip or
sprinkler irrigation systems; cold storage; propagation materials; artificial lighting
systems; and intensive fertilization and pest control makes flower cultivation
capital intensive. The amount of fixed costs per farm varies depending on the
type of flowers grown. For example, on farms where only alstroemeria is
produced, artificial lighting systems are not requiredfl‘he annual fixed costs for
small and medium growers are 1,077 and 2,630 shillings, respectively. Half of the
fixed costs on small and medium is the cost of seed. Fixed costs on large farms
are about 250 thousand shillings.

Because flower cultivation by the large growers is more capital intensive
than production by the medium and small growers, the opportunity cost of capital
charged on large farm was substantially higher. The opportunity cost of capital
was 1,427 shillings per acre of marina for the small farms, 1,389 shillings, and
43,258 shillings per acre for medium and large farms.

Large growers obtained 60 percent higher prices than small and medium
growers because they sold their flowers directly on the European markets while
small and medium growers sold their flowers to local exporters. Because large
growers achieve both higher yields per acre and higher prices, they have a higher

potential revenue than small and medium growers.

91

Figure 4.1 illustrates the difference between potential and realized gross
margins in the production of Marina. On average, small growers earned less than
20 thousand shillings gross margin per acre as compared with 26 thousand for
medium growers and over 300 thousand shillings for the large growers. Moreover,
despite the high capital investment in Marina production by the large growers, the
net farm income per acre was about 60 percent higher on the large farms than on
the medium and small farms.43 Large growers achieved their full potential gross
margins because their direct links with the export market enables them to
ascertain the requirements of the market and plan their production accordingly.
Small and medium growers obtained only a fraction of their potential revenue
because of their inability to grow high value flower types and gain access to
efficient marketing arrangements. Chapter five examines the marketing

arrangements used by flower growers.

 

43 Net farm income per acre is net margin per acre less the opportunity cost of
capital and it represents the return to the farmer and his or her land (Harsh, et al,
1981).

92

 

Potential - Realized

 

b
O
O

----------------

 

60
O
O

 

200 .................

 

 

................

 

 

..L
O
O

 

Gross Margin, Keh./acre ('OOO)

 

 

 

\\\\

 

 

7
/ 2.

O l 1 ”n

Small Medlum Large
Flower Grower Category (by flower area)

 

 

 

 

FIGURE 4.1. Kenya: Potential and Realized Gross Margins per
Acre of Marina, 1991/92 Season.

Source: 1992 Farm Survey

93
4.1.4.2. Returns on Other Types of Flowers

With the exception of the information on Yellow Queen and arabicum, the
data are derived from case studies of specific survey farms with reliable
production data. These case studies identify high value alternative flower types
and varieties that smallholder could grow to diversify their production. Table 4.8.
presents enterprise budgets for arabicum, tuberose, solidaster, and two new
varieties of alstroemeria: The production costs, and gross and net margins, were
significantly higher for Apollo than for Yellow Queen because of higher rates of
application of production inputs such as inorganic fertilizers, pre-treatment
chemicals. Also, because Apollo is a higher value variety than Yellow Queen,
growers invest more in its production inputs than for lower value flowers“. For
example, the operating costs per acre are 80 perCent more for Apollo than for
Yellow Queen. The expenditure on pre-treatment chemicals is ten times higher
for Apollo than Yellow Queen.

Similarly, growers invest heavily in specialized structures in order to
produce better quality flowers and gain higher prices. Approximately 28 percent
of the fixed costs in the production of Apollo are accounted for by shade houses
compared with only 2 percent for Yellow Queen. Also the share of seed in fixed

costs is 32 and 10 percent for Apollo and Yellow Queen, respectively.

 

44 Newer flower types and varieties have higher average sales prices than older
flowers. In Kenya, the demand for the new varieties among exporters is normally
high.

94

Table 4.82 Kenya: Enterprise Budgets for Four Corrmon Types of Flowers, 1991/92.

 

 

 

Item Yetlow Queen Apollo Solidaster Arabicum Tuberose
Number of farms 9 1 1 4 1
Farm Size (acres) 12.95 20.00 12.00 5.30 3.00
Flower Area (acres) 5.50 20.00 12.00 3.00 3.00
Acres of flower type
1.75 1.00 4.00 1.00 1.00
Output (in stems):
Grade 1 225,000 468,000 874,800 81,000 57,375
Grade 2 45,000 87,750 97,200 9,000 19,125
Grade 3 0 29,250 0 O 0
Yield (stems lacre) 270,000 585,000 972,000 90,000 76,500
Prices (Sh/stem):
Grade 1 1.50 2.50 2.50 3.00 2.50
Grade 2 1.20 2.00 2.00 2.50 1.50
Grade 3 0.90 1.50 1.50 1.50 1.00
Potential revenue
(Sh/acre) 391,500 1,389,375 2,381,400 265,500 172,125
Realized revenue
(Sh/acre) 172,069 1,314,375 2,256,400 236,000 154,912
Total Operating
costs (Sh/acre)‘ 59,800 429,677 516,033 62,550 69,232
Total Fixed costsb 67,491 335,605 208,082 12,403 25,869
Potential Gm/acre 331,699 959,698 1,865,367 202,950 102,893
Realized (Gm/acre) 112,268 884,698 1,740,367 173,450 85,680
Potential (Mm/acre) 264,208 624,093 1,657,285 190,547 77,024
Realized (Mm/acre) 44,777 549,093 1,532,285 161,047 59,811
Opportunity cost of
capitalc 12,259 71,936 84,490 7,045 8,939
Net income per acre 32,518 477,157 1,273,075 154,002 50,872
Notes:
a:Table 4.8a. shows the breakdown of the operating costs.
b:Table 4.8b. shows the breakdown of the fixed costs.
c: Estimated return on invested capital (Operating plus fixed cost) using the 9.4
percent real interest rate charged by commercial banks on loans in 1991 (Kenya
Republic of, 1992).
Source: 1992 Farm Survey

Table 4.83: Operating Costs.

95

 

 

 

 

 

 

Op. Costs Yellow Queen Apollo Solidaster Arabicum Tuberose
(Sh/acre)
Preparation/
planting 3,260 600 3,900 480 2,160
Needing 9,720 5,400 12,600 1,080 15,768
Fertilizer]
manure 6,750 17,000 14,350 815 600
Chemicals 1,528 2,220 845 165 880
Irrigation 112 30,400 35,833 0 4,944
Light/ season 0 0 25,000 0 O
Harvesting 9,000 43,200 41,400 5,760 5,184
Pre-treatment
chemical 3,250 25,920 38,000 0 0
Cartons 21,870 43,200 192,780 54,000 18,360
Rubber bands 250 720 2,400 250 720
Sleeves 2,430 78,000 64,800 0 11,016
Pre-cooling 0 6,240 16,200 0 0
Local Transport 1,630 57,600 64,800 0 9,600
Cormuni cat i on
(Fax) 0 3,125 3,125 0 0
Air freight and
handling costs 0 116,052 174,720 0 0
TOTAL 59,800 429,677 690,753 62,550 69,232
Source: 1992 Farm Survey.
Table 4.8b:Fixed Costs.
Fixed Costs Yellow Queen Apollo Solidaster Arabicum Tuberose
Planting material 6,933 104,952 62,000 8,000 8,000
Irrigation system 2,912 35,999 44,286 0 6,857
Coldstore 0 15,000 0 O 0
Grade shed 6,486 15,000 7,500 3,600 3,600
Net house 7,000 92,857 0 0 0
Supports 35,670 35,670 35,670 0 0
Light System 0 0 16,000 0 O
Hater Tank 0 0 6,500 0 0
Truck 7,887 32,143 32,143 0 6,428
Bicycle O O O 445 O
Sprayers 269 633 633 358 633
Nheelbarrow 0 350 350 0 350
Consultancy 333 3,000 3,000 0 0
TOTAL 67,491 335,605 208,082 12,403 25,869

 

Source: 1992 Farm Survey.

9(3

Table 4.8c. Notes on fixed Costs: Depreciation Schedule for equipment and specialized structures
used in flower production.

 

 

 

1991 price Approx. Salvage Annual
(Ksh.) Working Life Value Depreciation
Item (Yrs) (Ksh.) Estimate (Ksh.)
Seed (local) 48,000 5 8,000 8,000
Seed (Y/queen, imported) 68,500 5 10,000 11,700
Seed (Apollo, imported) 834,667 7 100,000 104,952
Seed (Solidaster, imported) 211,200 3 25,200 62,000
Irrig. (Sprinkler/other),Pump 25,000 7 5,000 2,857
Pipes:sprinkler system 25,000 5 5,000 4,000
Irrig. (Drip/ sprinkler), Pump 900,000 7 200,000 100,000
Pipes (Drip/ sprinkler system) 150,000 5 20,000 26,000
Irrig. accessories 37,500 5 5,000 6,500
Coldstore 300,000 10 75,000 22,500
Grading shed (permanent) 150,000 10 10,000 14,000
Grading shed (semi-permanent) 50,000 5 5,000 6,428
Grading shed (temporary) 20,000 3 2,000 3,600
Net House (local) 45,000 5 10,000 7,000
Net House (imported) 750,000 7 100,000 92,857
Support Structures 258,350 5 50,000 35,670
Lighting System 100,000 5 10,000 16,000
water Tank 75,000 10 10,500 6,500
Truck (used) 90,000 7 45,000 6,429
Truck (new) 300,000 7 75,000 32,143
Bicycle 6,000 7 500 786
Sprayers 2,000 3 100 633
Nheelbarrow 1,200 5 50 320
Consultancyd’ 3,000 - - 3,000
Notes}

where there are other farm activities which use the equipment, the depreciation
rate is weighted by the proportion of flower acreage.

a/:Three medium-scale growers in the Kiambu area jointly hire a consultant to
advice them on technical problems.

Source: 1992 Farm Survey.

97

Among the four types of flowers, solidaster has the highest gross and net
margins per acre, followed by Apollo. Solidaster is a high value flower and costly
to produce. Solidaster requires approximately half a million shillings in operating
costs per acre. Because of the high production cost, many small-scale growers do
not have the resources to finance the cost of cultivating Apollo or solidaster,
despite the prospects of high returns.

Arabicum and tuberose are the least expensive flowers to produce. They
can be grown successfully under warmer climatic conditions without shade houses,
which reduces fixed costs. Because planting materials for both flowers are
obtainable locally, their seed costs are also low. Although the output per acre of
arabicum and tuberose is less than half the yield for other flowers, they are
inexpensive to produce and command high prices. This explains why both
arabicum and tuberose are widely cultivated by smallholder in the Kiambu area,
where the climate is ideal for their cultivation.

The cost of planting material is a significant part of total fixed costs,
especially for high value flowers. The annual seed costs for Apollo and solidaster
were 104,952 shillings and 62,000 shillings, respectively. Solidaster also requires
artificial lighting which has an annual fixed cost of 16,000 shillings.

Despite the capital intensiveness of flower production, none of the small
and medium growers reported using credit to finance their production. Large
growers generally secured credit fromEuropean flower importers to finance the

planting material and imported inputs, such as materials for net houses and pre-

98

treatment chemicals. Another source of financing flower production is off-farm
income. About 23 percent of the growers received off-farm income, usually from
an off-farm job or business. Large farms are frequently owned by families with
high-ranking representatives in the civil service or business.

The farm survey revealed that none of the smallholder achieved the full
potential gross and net margins for the four main types of flowers in the 1991-92
season. Figure 4.2 illustrates the difference between potential and realized gross
margins. Yellow Queen has the largest disparity between potential and realized
gross margins, mainly because of overproduction. Although it is a new variety,
Yellow Queen is more widely grown than Apollo. Unlike Apollo and solidaster,
Yellow Queen is also grown by a small number of medium and small growers who
generally experience serious problems of selling their flowers to local exporters.
Therefore Yellow Queen is likely to be more affected by such marketing problems
as lack of buyers which was a common problem in the Nyandarua area. During
the 1991/92 season, small growers achieved only 34 percent of the potential gross

margins per acre of Yellow Queen.

99

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Potential - Realized

A2000

0

O

9

m1500

LI

0

IO

\

r;

x1000

E

2

3

g 500

In

'8

a Z M

Yellow Queen Apollo Solidaster Arablcum Tuberose
Type of Flower

FIGURE 4.2. Kenya: Potential and Realized Gross Margins per

Acre, by Type of Flower,

Source:

1992 Farm Survey

1991/92 Season

100

4.1.5. Major Production Constraints

The farm survey revealed the following three major problems confronting
smallholder producing flowers for export:

1. Lack of technical information,

2. Lack of access to appropriate planting materials, and

3. Lack of credit to finance production.

Growers were asked to rank the constraints on a scale of one to three
according to the degree of severity, and each score was normalized on a scale of
zero, for least severe, to one, for most severe. The normalized scores were
averaged across all growers and across those in each of the three farm categories.

The results are reported in Table 4.9.

Table 4.9. Production Constraints Facing Smallholders in Flower Production

Category of Growers

 

 

Production Constraints Small Medium Large All
growers growers growers growers

Lack of production credit 0.87 0.87 1.00 0.89

Lack of access to appropriate

planting materials 0.86 1.00 0.60 0.85

Lack of technical information 0.81 0.58 0.80 0.73

 

Notes: The sample size was 36 growers. The small, medium and large farm
categories had 19, 12, and 5 growers each. The figures are mean normalized
scores along a zero to one scale, in which scores close to zero are least severe and
those close to one are most restricting.

Source: 1992 Farm Survey.

101

Lack of technical information about the aspects of flower production is a
serious problem for many smallholder. In general, the Ministry of Agriculture
and other public agricultural related agencies are the main sources of information
for farmers. Because the government agencies have not kept pace with the
required research in floriculture, they have very limited technical advice to
provide to farmers. Thirty-five out of the 36 growers expressed a lack of
agronomic information about flower production available to smallholder. About a
third of the growers interviewed relied on experienced growers for technical
information and about 30 percent consulted the Ministry of Agriculture and
HCDA for advice. Three of the large growers jointly hire a consultant from the
Netherlands each season to advice them on the types of flowers they should grow.

Lack of access to appropriate planting materials was cited as one of the
severe constraints, especially by small and medium growers. However, to be able
to purchase the planting materials, access to credit is crucial because of the high
cost of seed. Thirty-two of the 36 growers identified the lack of credit as a
problem and gave it the highest absolute score (0.89) relative to the other
constraints. However, although the large growers obtained credit through their
vertical links with the market, they gave a lack of access to credit an absolute
score of one, whereas medium and small growers who did not secure credit, gave
it a score of 0.87. Because small and medium growers currently cultivate low—cost
types of flowers, they do not perceive a lack of access to credit as serious a

constraint as do the large growers. However, the results of the enterprise budgets

102

analysis indicate that for small and medium growers to be able to grow the high

value flower types, greater access to credit will be crucial.

4.2. Economics of Bean Production

The economics of smallholder bean production is presented in this section.
Enterprise budgets for three farm categories--small, medium, and large--were
constructed using farm level survey data from 30 growers for the 1991-92 export
season”. The results will be compared with those for flower production. The 30
growers in the sample were located in the Mwea division of the Kirinyaga district,
where smallholder bean production for export is prevalent. This area is 170
kilometers to the north-east of Nairobi. The average farm size in the sample was
7.4 acres, of which approximately 49 percent was under bean production (Table
4.10). The large, medium, and small growers cultivate 48 percent, 51 and 48
percent of their farm with beans. Growers with less than one acre of beans also
have small farms. The mean farm size for medium growers is six acres and they
cultivate about 1.8 acres of beans. Large growers have over 15 acres of farm land
and they grow about seven acres of beans. The principal alternative cash crops in

the area include tomatoes, onions, and maize. Tenants cultivating rice, under the

 

45 The three categories of farms are defined according to the area under bean
cultivation by the farm: small, refers to holdings with less than one acre of beans;
medium, 1.0 to 3.5 acres; and large, over 3.5 acres.

103

auspices of the National Irrigation Board (NIB), are not permitted to grow any

other crop.

Table 4.10. Kenya: Structure of Smallholder Bean Growers: Farm Size and Area
of Farm Under Bean Cultivation, 1991 / 92

 

 

Grower Number Farm Size Bean Area Bean Area as
sizeaa/ of percent of farm
farms
(acres) (CV)"/ (acres) (CV)b/ (percent) (Cv)b/

Small 9 1.69 0.81 0.52 0.31 48.00 0.69
Mediu 13 6.12 1.25 1.81 0.50 51.00 0.63
m

Large 8 15.94 0.21 7.25 0.33 48.00 0.44
TOTAL 30 7.41 1.03 2.87 1.06 49.00 0.59

 

Notes: a/: Small Farms cultivate less than one acre of beans, medium farms
between 1.0 and 3.5 acres, and large growers grow over 3.5 acres of
beans.

b/: CV is the coefficient of variation.

Source: 1992 Farm Survey

Table 4.11 presents the typologies of bean growers. Eleven of the 30
growers interviewed produced beans under forward marketing contracts with bean
exporters. Fourty-six percent of all contract growers had grown beans for more

than 10 years, compared with only five percent of the noncontract growers.

mm>usm 52mm N002 ”oopsom

 

104

 

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04 AN AN 0 mm C 22 082980
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0 0m 20 mm 4m mm 02 E52Uoz
0 mm 00 mm 00 22 0 22mEm
2020mm Amped» Amwmox
02 cwcu 0 cu m m cmnu Axumccooom
muoEv Cmmaumbv mmm2v vsomoav Akumwcooomv Amwme2uav
Amumo%
20 wanes: oSu wom wagon wc23oww
Coon mwosoww mo ucoowoav mason 2:02uwosvo mo 2o>m2 voc2muum muosoum mwozouu uoaouw
w:23owo comm mummy mo wonadz mo ucoowom V 2o>o2 a02umosvm mo wmnEdz mo 60%9

 

mcmom ws23ouo muse? mo quEdz can 2o>o2 c02umosvm nmwozouo comm mo m02w0200092m05o¥ .22.4 m2an

105

Also, 75 percent of the large growers have grown beans for more than 10 years.
A large proportion of the small and medium growers have cultivated beans for
less than five years and none of them has grown beans for over 10 years.

Although beans are grown throughout the year, smallholder production is
between October and June, during the winter months in Europe. Because beans
take a shorter period of time to mature than flowers, two crops are generally
produced, one from October to December and the other between January and
May. Beans have two market outlets: local canning industry, and the fresh export
market.Most smallholder in the surveyed area, however, cultivate beans primarily
for the fresh export market and only a few have contracts with the canning

industry.46

4.2.1. Enterprise Budgets

Table 4.12. presents enterprise budgets for beans on small, medium, and
large growers. The average area under beans is 0.5, 1.8, and 7.25 acres for the
small, medium, and large growers, respectively. The components of the budgets
include a) output, from which revenue is derived, b) operating and fixed costs, and

c) gross and net margins.

 

46 Highland Canners (HCL, ltd.), a bean processing factory based at Thika near
Nairobi, has recruited small-scale bean growers from Kirinyaga and supplied them
with seed for a new type of bean suitable for canning. The new type of bean differs
from Monel, the variety grown for the fresh market, in both color and texture.

 

106

Table 4.12 Kenya: Enterprise Budgets for Bean Growers, Mwea Division, 1991-92 Season.

 

Farm Category _§mgLL_ Medium Large
Number of Farms 9 13 8
Farm Size (acres) 1.69 6.12 15.94
Bean Area (acres) 0.50 1.81 7.25

Output (cartons/ac)

Extra fine 315 386 522
Fine 420 382 511
Yield (cartons/ac) 735 768 1,033

Av. Price (sh./ctn)

Extra Fine 35.58 41.38 47.19
Fine 26.67 31.48 34.37
Revenue (sh./ac.) 23,015 28,994 42,552

Operating cost/ac

 

Rental 500 500 500
Land prep. 671 624 735
Planting 287 216 171
Seed 945 956 1,259
Needing 682 580 1,012
Fertilizer 1,034 1,192 1,151
Manure 111 104 . 989
Pesticides 2,575 2,588 3,250
Irrigation 1,238 1,700 1,995
Harvesting 5,286 5,441 7,175
Total costs 11,977 13,670 17,927
Fixed Costs
Irrigation 826 1,607 3,185
Packing shade O 44 407
Sprayers 262 408 525
Total 1,088 2,059 4,117
Gross margin (sh./ac) 11,938 15,323 24,625
Net margin (sh./ac) 9,949 13,264 20,508
Opportunity cost of capital” 1,228 1,478 2,072
Net income per acre 8,721 11,786 18,436

 

Notes: a/: Estimated return on invested capital (operating plus fixed cost) using the 9.4 percent
real interest rate charged by commercial banks on loans in 1991 (Kenya Republic of, 1992).

Source: 1992 Farm Survey.

107

In general, beans are sold in extra fine and fine grades which are
determined by the maximum width of the pod. Extra fine beans are the thinner
of the two and should not exceed nine millimeters in diameter. The preferred
length for beans is between eight and 12 centimeters. After grading, beans are
packed in fibre board cartons of three kilograms net weight. Both output per acre
and ratio of the two grades vary depending on the frequency of harvest.
Harvesting more than three times a week yields a higher percentage of the extra
fine beans. Most growers pick beans three times a week which normally yields an
equal ratio of the fine and extra fine grades". Output per acre is higher for the
larger farms than for the smaller. The average was 735, 768, and 1033 cartons per
acre for small, medium, and large farms, respectively. The weighted average farm
gate prices for the 1991-92 season were used to calculate the revenue per acre for
each the three farm categories. Weighted average prices were used because fresh
bean prices vary markedly within the season. Only the prices received by growers
under forward market contract remain stable throughout the season. For
example, the 1991-92 farm gate prices for extra fine beans sold through forward
contracts range between 50 and 60 shillings per carton, whereas non-contract

prices fluctuated between 40 and 70 shillings. The prices for fine beans fluctuated

 

47 Exporters sometimes indicate in advance, especially to contract growers, the
proportions of the two grades they want to buy. Exporters shipping beans to the UK.
often prefer the fine beans, whereas, those exporting to France prefer the extra fine
grade.

 

108

between 35 and 50 shillings per carton of beans sold under contract and 20 to 50
shillings for noncontract beans 48.

The revenue per acre was 23,000 shillings, 29,000, and 42,000 shillings for
small, medium, and large growers. The small farms generate lower revenues per
acre because they achieve lower yields and average prices than the medium and
large growers. The revenue is higher for large growers because a majority of
them produce under contract. Contracts enable growers to realize higher and
stable prices.

Harvesting labor and pesticides are the most costly inputs in smallholder
bean cultivation. Harvesting labor ranges between five and seven thousand
shillings per acre, whereas the expenditure on pesticides is about 2,000 for the
small and medium farms and 3,000 shillings for the large. Unlike smallholder
flower production, bean cultivation does not involve major post-harvest expenses.
After harvest, the beans are graded and packed in cartons provided for free by
the buyers. The harvesting expenses also cover the cost of both grading and
packing. Overall, operating costs in bean production the small, medium, and
large farms are about 11,000, 13,000, 17,000 shillings per acre, respectively.

The major fixed cost item in bean production is the depreciation of the

irrigation system. Nearly all beans for export are produced under irrigation. The

 

48 Whenever the price dropped to about five shillings, many growers did not
harvest their crop that day. The wage rate for bean pickers ranges between 8.50 and
five shillings per carton depending on the farm gate price for the day. A price of five
shillings per carton only covers the harvesting cost.

 

109

most common irrigation system is the furrow, using water from either canals of
the Mwea rice irrigation scheme, or nearby rivers. The average fixed cost for
irrigation equipment ranges from 800 to about 3,000 shillings, depending on the
area under bean cultivation. Unlike flower production, smallholder bean
cultivation does not require investments in specialized structures and equipment.
The net income to the farmer and land, after deducting the opportunity cost of
capital, was 18,436, 11,786, and 8,721 shillings for the large, medium, and small
farms, respectively.

The gross margins per acre of beans in the Kirinyaga district were
approximately 24,000 shillings for large growers, 15,000 for medium and 12,000 for
small growers.49 The net margins were 20,000 shillings per acre for large farms,
13,000 for the medium, and 10,000 for small farms. However, growers cultivating
beans under forward contracts with exporters realized significantly higher gross
and net margins per acre than noncontract growers. Eleven of the 30 growers had
contracts with exporters. Table 4.13. illustrates the differences in costs and
returns for contract and noncontract growers. The 11 growers under contracts
realized 37 percent higher yields and 80 percent higher net margins per acre than

the 29 noncontract farmers.

 

49 The Ministry of Agriculture’s Farm Management Guidelines estimates of

gross margin per hectare for growers in Kirinyaga in 1991-92 were 40,014.20,
31,895.40, and 22,4290 for the high, medium, and low levels of input use,
respectively. The corresponding operating costs per hectare were 34,984.20,
28,104.60, and 7,545.30 (Ministry of Agriculture, 1992).

110

Table 4.13. Kenya: Enterprize Budgets for Contract and Noncontract Bean
Growers, 1991

 

 

Contract Growers Non-contract
Growers

Number of farms 11 29
Bean Area (acres) 4.98 1.53
Output (cartons/ acre)

Extra fine 498 354

Fine 532 393
Yield (cartons/ acre) 1,025
Price (Ksh./carton)

Extra fine ' 55.00 47.50

Fine 44.09 35.26
Revenue (Ksh./ acre) 50,5571 30,672
Operating costs (Ksh./ 18,194 12,802
acre)
Fixed costs (Ksh./acre) 2,117 1,165
Gross margin (Ksh./ acre) 32,377 17,870
Net margin (Ksh./acre) 30,260 16,705
Opportunity cost of 1,909 1,313
capitala/
Net Income per acre 28,351 15,392

 

Notes: a/: Estimated return on invested capital (operating plus fixed cost)
using the 9.4 percent real interest rate charged by commercial banks
on loans in 1991 (Kenya Republic of, 1992).

Source: 1992 Farm Survey

111

'Table 4.14. Kenya: Enterprize Budgets for Small, Medium, and Large Bean
Growers, Under Contract and Noncontract, 1991.

W

SMALL GROWERS MEDIUM GROWERS

Contract Non-
contract

Contract Non-
contr

Contract Non-
contract

Number of
farms

Bean area
(acres)

Yield
(cartons/
acre)

Prices
(sh/ctn)

Extra
fine

Fine

Revenue
(sh/acre)

Op. costs
(sh/acre)

Fixed
costs
(sh/acre)

Gross
margin
(sh/acre)

Net
margin
(sh/are)

Opport.
cost of
capital8

Net
Income
per acre

0.4

903

42.5

30.0

31,860

16,216

366

15,643

15,257

1,559

13,698

0.5

695

37.3

28.3

22,972

11,637

673

11,334

8,004

1,157

6,847

920

46.3

37.5

38,325

15,630

1,271

22,695

21,424

1,589

19,835

11

760

39.3

28.8

27,061

13,287

1,368

13,774

12,406

1,377

11,029

7.5

1103

55.6

44.2

54,962

19,707

2,984

29,291

26,308

2,133

24,175

950

37.5

26.1

29,625

14,933

2,095

14,692

12,694

1,600

11,094

 

Notes: a: Estimated return on invested capital (operating plus fixed

cost) using the 9.4 percent real interest rate charged by

commercial banks on loans in 1991 (Kenya Republic of, 1992).

Source: 1992, Farm Survey

 

112

 

contract - noncontract

 

(0
0|

 

 

 

(O
O

 

 

 

 

IO
0|

 

 

 

 

 

M
O

 

 

 

 

 

 

 

 

 

 

 

.a
C)

 

 

 

 

 

 

Net Margin, Ksh./acre ('000)
.5
0|

 

 

 

 

 

OOI

 

 

Small Medium Large All Farms
Bean Grower Category

 

 

 

FIGURE 4.3. Kenya: Net Margins for Contract and Noncontract
Bean Growers, 1991/92

Source: 1992 Farm Survey

 

113

Contract growers are able to obtain higher yields because they use more inputs
such as fertilizers, which they receive as credit under the contract agreements.
However, not many small growers can secure contracts with exporters
because of a problem of enforcing contracts.50 The 1992 farm survey included
two small and two medium growers producing beans under contracts. Under
contract arrangements, small growers can spend 39 percent more on inputs than

non-contract growers and earn 90 percent higher net margins per acre.

4.2.2. Production Constraints on Bean Growers

Table 4.15 presents a summary of the constraints identified in bean
production. The data shows the normalized scores along a scale of zero for least
severe to one for most severe, according to growers perceptions. Overall, bean
growers did not perceive lack of technical information, credit, and lack of seed as
severe constraints as did flower growers. Among bean growers, contract farmers
experience less problems in obtaining technical information, seed, and credit than
noncontract farmers because the former have a better access through the

contractual arrangements.

 

5° Small-scale bean growers have a bad reputation of violating contracts,
especially when market prices are higher than the contract price range. Therefore,
exporters are reluctant to enter into contracts with small growers.

114

Table 4.15. Kenya: Production Constraints on Bean Growers, 1991/92 Season

 

 

Constraint Contract N oncontract growers All growers
growers

Lack of Agronomic

information 0.50 0.59 0.55

Lack of access to

seed 0.14 0.37 0.28

Lack os access to

credit 0.43 0.54 0.50

 

Notes: The sample size was 30 growers. The number of growers under
contract was 11 and noncontract growers were 19. The figures are mean
normalized scores along a zero to one scale, in which scores close to zero
are least severe and those close to one are most restricting.

Source: 1992 Farm Survey

4.3. The Returns on Alternative Crops

Table 4.16 reports a summary of the costs and returns for major
agricultural enterprises common in the Kirinyaga district of Central Province.
Tomatoes appear to be the most profitable of the five alternative crops grown in
the area but on average, they are less profitable than beans, particularly beans
grown under contract. The gross margin of tomatoes in 1991/92 was 28,962
shillings per acre, whereas the gross margin of beans grown under contract was
32,377 shillings per acre. However, tomato production is less costly than bean

production.

115

Table 4.16. Kenya: Costs and Returns for Competing Crops in Kirinyaga District,
1991/92 Season

 

Costs / Returns Beans Tomatoa/ Tea” Coffee”

 

Contract Noncontract

Revenue

(Sh/acre) 50,571 30,672 40,371 27,263 19,330
Operating Costs

(Sh/acre) 19,194 12,802 11,409 6,198 6,889
Gross Margin

(Sh/acre) 32,377 17,870 28,962 21,065 12,440

 

Notes: a/: Values shown are based on the medium level of input use and
management.

Source: 1992 Farm Survey; Ministry of Agriculture, 1992.

4.4. Summary

This chapter presented the major findings of an analysis of the economics
of smallholder flower and bean cultivation in Kenya. Two farm surveys-- covering
36 flower growers and 30 bean growers--were carried out in 1992 in order to
determine the principal constraints on flower and bean production and to
generate information for the preparation of enterprise budgets. The results show
that flower cultivation is more capital intensive and more profitable but more
risky than bean production. Larger growers in both subsectors achieved
significantly higher gross and net margins per acre than small and medium

growers.

 

116

Growers cultivating the new and high value flowers earned significantly
higher incomes than growers with old varieties. Because new varieties are costly
to produce, only large growers who had access to credit and connections with the
export markets were able to grow them. Production by small growers, especially
growers from Nyandarua, was restricted to the old varieties such as Marina
because of a lack of access to credit, planting material, and technical information.
Because small and medium growers could not diversify their flower production
they faced marketing difficulties and could not harvest and sell all of their crop.
It was demonstrated that small and medium flower growers achieved only 20 and
25 percent of their potential gross margin per acre because of large losses from
unharvested and unsold flowers. However, small growers, especially in Nyandarua
district, produce high quality alstroemeria because of the favorable climatic
conditions. For small growers to benefit by participating in flower production for
export, it is vital for them to have greater access to credit and technical
information.

Bean production is less capital intensive, and less risky but yield lower net
margins per acre than flower production. Large bean growers earn higher gross
and net margins than small and medium growers, because a majority of the large
growers have forward marketing contracts with exporters. Forward contracts
enabled large growers to have greater access to agronomic information and to
credit and seed in kind. Also, both large and contract growers have grown beans

for a longer period than small and noncontract growers. Over 70 percent of the

 

117

small bean growers and a third of the medium growers, have grown beans for a
period of less than five years. Only 4 of the 22 small and medium growers had
contracts with exporters because they have a reputation of breaking contracts.

Given the potential benefits for growers under contract arrangements, it is vital

that production under contract is expanded to many small growers.

 

CHAPTER FIVE

MARKETING OF FLOWERS AND BEANS

This chapter will present the results of a diagnostic survey of flower and
bean marketing at the farmer and exporter levels. The first part will identify the
marketing channels used by flower growers and assess the effectiveness of the
information flow and the coordination mechanisms at the grower-exporter level.
The section also documents poor coordination in the marketing of flowers from
smallholders. The results of similar analysis on smallholder bean marketing are
presented in the second part of the chapter. The final section presents a
comparative assessment of marketing coordination in the flower and the bean

industries.
5 .1. Flower Marketing

The major marketing questions facing producers generally include the types
of flowers to grow to fill niches in international markets and the choice of
distribution channels and overseas markets. Chapter three reported that the

Netherlands is the major market for Kenya’s flowers, followed by Germany.51

 

51 About 1 percent of Kenya’s flower production is sold locally to street vendors,
florists, and hotels. The most common flowers found in the local market include
carnation, roses, statice, gladiolus, and lilies. The source of this supply includes
small-scale growers and nurseries near Nairobi and large scale farms.

118

 

119

Because the flower industry is dynamic and new flower types are being
continuously introduced in the market, growers need reliable information on
market opportunities for an array of old and new types of flowers. This requires
an efficient flow of information from overseas markets back to the producers.
Chapter four reported that most smallholders are producing old flower varieties
even though a small number of growers are receiving higher incomes by
cultivating new varieties. The analysis will examine the types of marketing
channels, the mechanisms used to coordinate smallholder flower marketing and

the flow of information.

5.1.2. Marketing Channels for Flowers

The 1992 survey of smallholders revealed that virtually all smallholders are
growing flowers specifically for the export market. None of the smallholders
reported selling alstroemeria in the local market. Unlike the marketing of
traditional export crops such as coffee and tea that are sold through government
commodity boards, the marketing of flowers is generally an individualistic affair,
with growers selling either to a local exporter or an overseas importer.

Sixty percent of Kenyan flowers are sold through the Dutch flower
auctions. Dutch flower auctions are owned and operated by Dutch flower
growers’ cooperatives. The Verenigde Bloemenveilingen Aalsmeer (VBA), in

Amsterdam is the largest flower auction in the world (appendix D provides

 

120

information about the flower auctions). Kenyan exporters who sell directly
through the Dutch auctions normally ship flowers to a dispatcher (a clearing
agent) at the import department of the flower auction. The dispatcher handles all
the financial and administrative aspects of the sell on behalf of the grower or
exporter, at a fee”.

In the main flower producing areas of Kenya, there is no organized
assembly of flowers before they are sold to exporters. In Kiambu district, growers
frequently deliver flowers individually to the exporters’ premises. In both the
Nyandarua district and the Githunguri division of Kiambu district, exporters travel
to some locations where growers gather with their produce. In these areas, the
farmers had organized themselves into grower associations--the Kinangop Flower
Growers Association (KFGA) in Nyandarua, and the Githunguri Gitiha flower
Growers Association (GGFGA) in Githunguri. More than 70 percent of the
growers interviewed were members of a grower association and collectively sought
exporters to buy their flowers. Grower associations are a relatively new
institutional arrangement in export flower production and at the time of the
survey none of them were engaged in export. Growers formed associations, to

bargain for higher prices and reduce the incidence of nonpayment by exporters for

 

52 At the Verenigde Bloemenveilingen Aalsmeer (VBA) auction, the dispatcher
also arranges for transport from Schipol Airport to the VBA and performs other
handling activities. In 1992, the fee charged by the VBA for the services to the
supplier included an auction commission of approximately 8 %; a lot levy of Dfl.2
per lot; a PVS levy (for promotion) of 0.4 %; and unpacking costs at approximately
2 cents per flower (Interview, 1992).

121'

 

flowers delivered. However, even members of the associations frequently opted
to sell flowers directly to buyers because of a lack of exporters, especially in
Nyandarua.

The survey results show that flower marketing channels differ markedly by
farmer size. Specifically, larger growers have a higher probability of selling their
flowers directly to Europe than the smaller ones. The latter rely predominantly
on exporters who are not growers themselves and occasionally on larger growers
who want to supplement their own production. Table 5.1. illustrates the three
channels used by growers from the Nyandarua and Kiambu districts during the

1991-92 export season.

Table 5.1.Kenya: Flower Marketing Channels, by Category of Growers,

1991-92
rower Cate o b Size of Flower Area
< 1,0 Acre 1-7 acres 8-20 acres All Growers
Channel Number (%) Number (%) Number (%) Number (%)
Sell Directly to
Europe 0 0.0 0 0.0 3 8.6 3 8.6
Farmer to
Exporter w/o 3 8.6 3 8.6 1 2.9 7 20.1
Association
Farmer to
Exporter with 17 45.5 8 22.9 1 2.9 26 71.3
Association
Total 20 54.1 11 31.5 5 14.4 36 100.0

 

Source: 1992 Farm Survey.

122

The data in Table 5.1 shows the percentage of growers using each channel
rather than the percentage of flowers passing through them because of the lack of
information on the volume of flowers produced and marketed by smallholders in
the two districts in 1991. The results, however, show that over 90 percent of
growers in Kiambu and Nyandarua rely entirely on market intermediaries, usually
exporters, for the sale of their flowers. Seventy percent of these were selling
flowers to exporters with assistance of grower associations, and 30 percent sold
flowers directly to exporters. None of the two associations identified during the
survey exports flowers because they are young and lack capital to finance flower
exports. In fact, the associations do not buy flowers from members. Besides
assisting growers bargain for higher prices, the associations also look for and
encourage exporters to come into the area to buy flowers from members.

Among the possible barriers to entry to direct exporting include high air
freight costs, production of the mix of flowers needed in the markets, and
managerial skills. Kenya has high freight rates for air cargo mainly because of the
high cost of the government regulated jet fuel prices. During the 1991/92 export
season, air freight charges ranged from US$ 1.75 to 2.00 per kilogram."3 The

VBA Auction market receives imported flowers only on the basis of pre-paid

 

53 At the 28 sh/US$ official exchange rate the freight charges are approximately
49.00 to 56.00 shillings per kilogram of flowers.

 

 

123

freight costs.S4 Access to credit could open the way for grower associations to
enter the export market.

The VBA auction accepts imported flowers if they are of high quality and
form an "interesting supplement" to what domestic growers supply. Therefore, to
gain entry to the auctions, the growers or grower associations should be able to
provide the right type of flower needed in the market. However, the associations
do not have access to reliable export market information that would enable them
to ascertain the array of flowers to provide. Currently, members of the KFGA
primarily cultivate, Marina. As the results in Table 5.1. indicate, most growers
sell their flowers to exporters. Only 8.6 percent of the growers surveyed export
directly to Europe, shipping their flowers to either an importer or an agent at the
Dutch auctions.

Table 5.2 shows the farm level marketing channels by district. The
important conclusion to be drawn from this information is that none of the
producers from the Nyandarua district sells flowers directly to Europe. This
finding has important implications for smallholder participation in flower
production for export given that the majority of such growers are located in this
district which has ideal climatic conditions for low cost flower cultivation. Over
50 percent of the smallholders surveyed come from the Nyandarua district and

none of them exports flowers directly. Even in Kiambu district where there is

 

5’4 Some exporters shipping flowers directly to European importers may have
arrangements with the clients to deliver flower on c.i.f. basis.

 

 

 

124

evidence of growers exporting directly to Europe, a vast majority of smallholders
in that area also rely on exporters. Fourteen of the 17 growers surveyed from the

Kiambu district sold flowers to exporters.

Table 5.2. Kenya: Flower Marketing Channels by District, 1991-92
Number and Pgrgent of Smallholders in Each Channgl

Direct Export Farmer to Exporters Total
District Number ( Zo) Nu_mbg__(%)_ w
Kiambu 3 8.6 14 39.3 17 47.9
Nyandarua 0 0.0 19 52.1 19 52.1
Total 3 8.6 33 91.4 36 100.0

 

Source: 1992 Farm Survey.

Table 5.3 shows the average farm gate sales prices for flowers sold through
each marketing channel. The prices shown for growers who sell directly on the
European market were not the actual prices received from the export market.
Rather, farmers who exported their own flowers, reported prices approximately
equal to the official minimum export prices that they are required by the
government to declare to the Central Bank. During the 1991-92 export season,
the minimum average export price was 60 shilling per kilogram (approximately
2.50 shillings per stem). The average Alstroemeria price at the VBA flower
auction near Amsterdam for 1991 / 92 was 38, 35, and 20 Dutch fl. cents per stem
for grade one, two, and three. At the 1992 official exchange rate (18.00 Ksh/Dfl.)

the average auction price was 6.80, 6.30, and 3.60 shillings per stem. The relevant

 

 

125

prices for the export grower would depend on the quantities sold and the prices
received during the days flowers were supplied to the market. However, based on
the data on average export prices, growers who sold flowers directly on the
European market obtained higher marketing margins than suggested by the prices

they reported.

Table 5.3. Kenya: Average Price of Marina (Quantity Sold) by Market Channel
and District”, 1991

Average Price Alstroemeria (Marina) By Gradeb/

 

 

Grade 1 Grade 2 Grade 3

_____Channel ILL—1.0 stem 1m filament
Direct Export 2.50 2.00 1.50
Farmer-to-Exporters 1.06 0.81 0.62
District

Kiambu 1.15 0.85 0.60
Nyandarua 0.99 0.79 0.63

Notes:

a: The results do not include information about statistical significance because the
sample of growers who use the direct export channel was too small to allow for
statistical inferences.

b: The prices reported for flowers sold through the direct export channel differ
from the average auction prices for imported flowers reported by the auction. The
average alstroemeria prices for 1991 were 38, 35, 20 Dutch fl. per stern for grade
one, two, and three. The growers reported prices (approximately 2.50 Ksh. per
stem) in accordance to the official minimum F.O.B. price of 60.00 ksh. per
kilogram.

Source: 1992 Farm and Exporter Surveys

 

 

126

Table 5.3 reports prices received by growers for Marina based on the
amount of flowers the grower sold, whereas Table 5.4 presents average prices per
Marina flowers produced (based upon the revenue received divided by the
quantity produced). Although the income earned from the sale of flowers is
determined by the price per flower sold, the prices per flowers produced are the
most relevant to the growers and are a better indicator for the system’s
performance than prices per flower sold.

Because some of the flowers harvested are not sold, the prices per flower
produced are lower than for those base on flowers sold. A comparison of Table
5.3 and Table 5.4 shows that the latter reports lower prices for all grades and in
all the channels. However, the difference is more pronounced for the prices
received by growers who sell flowers to exporters than prices obtained by growers
who export directly to Europe. The data in Table 5.4 indicates that growers who
export directly also obtained prices three times higher than those received by
other grow‘ers. One of the reasons why the prices per flower produced for
growers selling to exporters are substantially lower than for those who sell directly
on the European markets was the large quantity of unsold flowers for the former
category of growers.

Nyandarua growers on average earned about 40 percent lower prices than

Kiambu growers who do not export flowers directly.

 

 

127

Table 5.4.Kenya: Average Price of Marina (Quantity Produced) by Market
Channel and District, 1991

Avr Pri frAlsromri Mrin B rd

Grade 1 Grade 2 Grade 3
maul. 1511250111). 15125101 15115101
Direct Export 2.00 1.57 1.46
Farmer-to-Exporters 0.60 0.45 0.35
District
Kiambu 0.82 0.61 0.41
Nyandarua 0.49 0.38 0.32

 

 

Source: 1992 Farm and Exporter Survey.

Table 5.5 and Table 5.6 report the prices received for flowers sold and
flowers produced, respectively, for a new alstroemeria variety, Yellow Queen.
Again, growers who export flowers directly obtained significantly higher average
prices than growers selling flowers to local exporters, both per Yellow Queen
flowers sold and per total Yellow Queen produced. The average prices for all
grades of Yellow Queen sold through the direct export channel were found to be
at least 60 percent higher than for those sold through the farmer-to-exporter
channel. Since the smaller growers sell all their flowers to exporters, the results
further support the conclusion that there is a systematic positive relation between
the price received and size of grower.

Given that 90 percent of the growers are small, it means that the vast
majority of the smallholders receive lower prices for their flowers compared to

what they would earn if they exported directly. However, selling flowers

128

Table 5.5.Kenya: Average Price Received for Quantity of Yellow Queen Sold, by
Market Channel and by District,1991-92

Average Price for Alstroemeria (Yellew Queen) By firede

Grade 1 Grade 2 Grade 3
mm 1501.51:sz 135mm). (salami
Direct Export 2.50 2.00 1.50
Farmer-to-Exporter 1.50 1.20 0.92
Distriet
Kiambu 1.50 1.30 1.00
Nyandarua 1.50 1.20 0.90

 

Source: 1992 Farm and Exporter Surveys

Table 5.6. Kenya: Average Price Per Yellow Queen Flower Produced, by Market
Channel and by District,1991-92

Channel Av ra e Pric for Als oemeri Yellow e n Gr de
Grade 1 Grade 2 Grade 3
MM.) Mm) 012mm

Direct Export 2.25 1.78 1.35

Farmer-Exporter 0.84 0.67 0.51

District

Kiambu 1.07 0.92 0.65

Nyandarua 0.74 0.59 0.42

 

Source: 1992 Farm and Exporter Surveys

directly on the European auction markets is risky and individual small growers are
unlikely to able to absorb such risks. But, assuming that the minimum export
prices reported by the large growers are sufficient to cover their risks and

marketing costs, the establishment of an institution, such as a grower association,

129

to pool the smaller growers, should be encouraged to enable them to export
flowers directly. The KFGA is an example of such an institution. However,

KF GA would require a more reliable source of market information to minimize
the transaction costs associated with uncertainty, and credit to pay for the initial
marketing costs. Currently, information about the European flower markets is
available at the Horticultural Crops Development Authority office in Nairobi, but
only a few smallholder from Nyandarua travel to Nairobi for the information.

The results also suggest a spatial price differential between the two flower
producing regions. The difference in the prices for flowers produced was
observed for both Marina and Yellow Queen. The observed difference in prices
between Kiambu and Nyandarua can be explained neither by transportation costs
nor by differences in quality. Although Nyandarua is about 100 kilometers further
from the Nairobi airport than Kiambu, the difference in transportation costs is
only about 4 cents per stem.” Since Nyandarua growers produce high quality
flowers, the price differential cannot reflect quality differences.

The price difference between the two districts is partly due to an
oversupply of alstroemeria in Nyandarua relative to Kiambu and to larger number
of exporters in the Kiambu area. The problem of over production of

alstroemeria, especially Marina, in Nyandarua is a result of a sudden increase in

 

55 Nyandarua and Kiambu are approximately 165 and 60 kilometers away from
the Nairobi International Airport, respectively. The difference in transportation costs
to the airport between the two regions is about sh.10.00 per carton. Since there are
250 stems per carton, this works out to 4 cents per stem.

 

130

production by new smallholders in 1990 and 1991. This rapid increase in the
number of growers and flower production led to an oversupply of flowers and a
large proportion of the 1991-92 crop was left unharvested. There are additional
risks to exporters who buy flowers from Nyandarua because of the distance and
poor roads in the area. Besides the risk of damage to the flowers due to the

distance, the produce might not arrive at the airport on time.

5.1.3. Market Coordination of Flower Production and Marketing

Market coordination mechanisms include the set of institutions and
arrangements that are used to harmonize supply and demand at various stages of
a commodity subsector. The smallholder flower subsector is characterized by a
lack of strong market coordination. With the exception of seven vertically
integrated large-scale firms and a few growers and exporters who have established
direct links with flower importers in Europe flower importers in Europe, the rest
of the participants in the industry rely on the local market for the coordination of

their production and marketing activities.

5.1.3.1. Horizontal Coordination

The Horticultural Cooperative Union (H.C.U.) is the only horizontal

coordination mechanism that has played an important role in Kenya’s fresh

 

131

horticultural produce marketing. The H.C.U. was created in 1952 by the colonial
government in order to provide marketing services to European horticultural
growers. For many years the H.C.U. was the largest wholesaler and exporter of
fresh horticultural products. After independence, African producers joined the
Union and it emerged as a national broad-based organization of vegetable and
fruit growers aimed at creating a more advantageous marketing arrangement with
strong bargaining powers for the producers. But the H.C.U. did not fulfill the
growers’ expectations. Throughout the 19705, the Union experienced financial
and managerial problems and it eventually collapsed (Ministry of Cooperative
Development, 1980). Since then, farmers producing products such as beans, and
recently flowers, have tried to set up similar coordination arrangements with very
limited success. Where this form of coordination exits, it is mostly limited to
loose institutionalized groupings of small-scale growers for purposes of reaching
collective agreement on prices with exporters or processors and to collect

produce.

5.1.3.2. Vertical Coordination

Vertical coordination refers to the coordination of marketing functions
between two or more stages in the marketing chain. Again, because of the weak
links between the members of informal grower associations and exporters, the

coordination of marketing activities for the smallholder flower subsector is left to

132

highly variable market prices, and unsold flowers. Contracting arrangements
between the farmer and the exporter stages might reduce the uncertainty.

One of the two small-scale flower grower associations identified in Kiambu
during the survey discontinued its operations at the end of 1991 because its
members became disillusioned with export flower cultivation. The Githunguri
Gitiha Flower Growers Association (GGFGA) was formed in 1990 by a group of
farmers in order to improve the marketing of flowers from the area. Virtually all
the flower growers in this area were cultivating Marina and were experiencing
difficulties in getting buyers for their crop. By forming an association, the
members expected to be in a better position to attract exporters to the area and
to seek assistance from the HCDA. Members contributed 450 shillings per season
to rent a shed from where they could grade and sell the flowers to exporters.
Although the area was frequented by exporters, they could not absorb all the
flowers produced. As a result, many growers have uprooted their crop.

At the time of the 1992 survey, all export flower growers in Nyandarua
were members of the Kinangop Flower Growers Association (KFGA). The
KFGA was established in 1991 by growers to assist members to recover their
money from exporters who had taken flowers on credit, and attract reliable buyers
to the area. According to the leaders of the group, other goals of the association
include assured market, higher prices, and access to market information.

While most of the money owed to growers has yet to be recovered, the

KFGA has succeeded in making arrangements with a major flower exporter to

 

133

buy flowers from Nyandarua on a regular basis. With the assistance of the
exporter, KFGA has also constructed a grading shed and a charcoal-based cooling
store for overnight storage. Under this arrangement, the exporter will provide
four graders and purchase flowers from the area twice a week at an agreed upon
price. At the beginning of the 1992/93 season, the exporter offered to pay 1.40,
1.20, and 1.00 shillings per stem, respectively, for each grade of Marina purchased.
From the gross price, the exporter would deduct 40 cents per stem for transport,
grading, and other marketing expenses. Remuneration for the flowers purchased
would be made every two weeks.

Besides a 100 shillings membership fee, each grower is charged one
percent commission on the gross sales of flowers sold through the association.
The commission pays for running the association and administrative costs. Each
member also contributed 400 shillings to finance the construction of the grading
shed and cold storage facility. Members are required to sell flowers to exporters
involved with the association. But the association has attracted only one exporter
to the area who is unable to absorb all of the flowers. Currently, the association
does not have a means of controlling the supply of flowers from the area.

The advantages to growers of selling flowers through the association
include a reduction of marketing risks in terms of price, grades and quality of the
flowers when they arrive at the market, and an outlet for flowers. Moreover, the
prices for flowers sold to the exporter under the arrangement with the association

are negotiated prior to the onset of the export season and therefore the growers

 

134

know what prices to expect. All flowers sold through this arrangement are graded
at the group’s grading shed and both the grower and exporter receive a voucher
stating the amount and grades of the flowers from the grower. Exporters who buy
flowers directly from farmers without involving the association often regrade the
flowers in Nairobi and report the grades back to growers at the time of payment.
Because growers generally do not trust the exporters local report on grades, by
channeling the sale of flowers through the association, this problem is reduced.
At the time of the field research, the arrangement between the association
and the exporter had just started and there was not sufficient data for measuring
its impact. Further research is needed to examine the effects of the association,
on the prices received by growers before and after the formation of the
association and the relationship between member prices and non-member prices.
Several weaknesses limit the KFGA’s effectiveness in vertically
coordinating the production and marketing of flowers. First, KFGA does not
engage in the buying or selling of flowers and, unlike members of a cooperative,
members of KFGA are not obligated to deliver all their produce to the
association. This factor together with poor market information flow from the
market to growers in this area, limit the ability of the organization to coordinate
the supply with exporters’ demand for flowers. Second, the arrangements between
KFGA and the exporter are verbal agreements. Because flowers are highly
perishable, if the exporter does not collect flowers as agreed, it could result in

serious losses for members. Similarly, the exporter runs the risk of growers selling

135

their flowers elsewhere. Moreover, given the large number of growers in the
area, and the fact that a single exporter cannot absorb all the flowers produced,
marketing still remains a major problem for farmers in the area.

The problem of uncertainty about the market outlet is more severe for
growers than for exporters, since the latter are usually growers themselves and
have direct links to the export market. During the 1991 / 92 season over 90
percent of the smallholders did not have any prior arrangements for marketing
their flowers. Even growers who sell through the KFGA are not guaranteed an
outlet for all of their produce. As a result, many growers have been unable to sell
significant proportions of their crop over the past two years. Unsold flowers,
especially alstroemeria are destroyed since the local market, mainly Nairobi,
consumes an insignificant amount of this product. Table 5.7. illustrates the
proportion of losses incurred by growers from unsold flowers. The data shows the
value of unsold flowers as a percentage of total possible revenue. On average,
smallholders incurred a 42 percent loss in potential revenue from unsold flowers
in 1991. The 19 growers from Nyandarua district lost 51 percent of their potential

revenue from unsold flowers in 1991.

 

136

Table 5.7.Kenya: Loss in Potential Revenue from Unsold Flowers, by Market
Arrangement; 1990-91 and 1991-92 Export Seasons.

 

 

 

 

1990 1991

Market Number of Percent of Number of Percent of

arrangement growers growers growers growers

Direct Export 4 6.67 4 20.33

Farmer-to- 32 8.93 32 44.08

Exporter

All Growers 36 8.68 36 41.78
Notes:

The main cause for losses to the vertically integrated growers who export
flowers directly was flower spoilage due to delays on transit and inadequate air
cargo space for in time shipment.

Source: 1992 Farm Survey.

A major weakness identified in flower marketing was poor access to
market information. Growers who export directly have internalized information
systems and receive feed-back from clients and agents about the condition of the
flowers reaching the market, current prices and the types of flowers in short
supply. The small and medium sized growers who do not export directly can get
information about the European markets only if they travel to HCDA’s offices in
Nairobi. This lack of timely and reliable information leaves them with inadequate

knowledge about the demand in both the local and the export markets.

For flowers exported directly by the growers and sold through the Dutch

auctions, the terms of sale are specified by the relevant auction market. At the

 

 

137

VBA auction, each grower (or exporter) designated as the seller in the auction is
responsible for any apparent quality deterioration in the flowers. The flowers are
inspected immediately before the sale and prices are determined through biding.

The terms of sale for flowers sold locally to exporters vary depending on
whether a grower association was involved in the arrangements of the sale.
Under the KFGA-exporter arrangement, the prices were agreed upon at the time
of sale and the exporter assumed the responsibility for the condition of the
flowers after the initial exchange. However, payment was effected two weeks
after the exchange. In situations where the transaction was between an individual
grower and exporter, the price was frequently determined after the exporter sold
the flowers in Europe. Under these situations, growers bore the full risk of
quality deterioration.

The poorly developed vertical coordination between the smallholders and
flower exporters has contributed to a lack of confidence in the market. The lack
of confidence arises because of the loose nature of the sales agreements and the
absence of predictable standard operating procedures. For example, although
most exporters promise to remunerate growers after selling the flowers in Europe,
the agreements are seldom in writing. Thirty-one percent of the growers
interviewed complained of nonpayment following delays in transit which reduced
the quality of the flowers. Overall, 77 percent of all growers expressed

dissatisfaction with the existing marketing organization.

 

138

Historical evidence reveals that the ability to export directly is critical to
maintaining viable flower enterprises. Capitalization and trading arrangements
between the large growers or exporters and the destination market in Europe are
crucial. Currently the KFGA does not have the capacity to export flowers directly

to Europe.

5.1.4. Principal Marketing Constraints

Based on an analysis of flower marketing at the farmer level and informal
discussions with growers and exporters, the major marketing constraints facing
smallholders are a lack of market information and a lack of reliable marketing
arrangements. Table 5.8. reports the mean scores for the marketing constraints as
perceived by the interviewed growers. Growers were asked to rank each
constraint on a scale of one to three according to the degree of severity. The
individual scores for each constraint were normalized along a scale of zero, for
least severe, to one, for most severe. The normalized scores were averaged first,
across all growers surveyed and across those in each of the three farm categories
identified previously. The normalizing and averaging of the scores provided
cardinal estimates indicating the severity of each constraint in relation to another,
for smallholders in general and between growers in the three farm categories. An
average score of zero indicates that the constraint was perceived as least binding,

that of one, most binding. For a better understanding of the results, especially in

 

139

relation to the role of market coordination mechanisms in harmonizing production
and marketing, the table includes scores for the production constraints identified
in chapter four. Though based primarily on growers’ perceptions, the conclusions
drawn from these results are crucial inasmuch as they confirm the production
constraints diagnosed in chapter four and the market coordination deficiencies

discussed above.

Table 5.8.Kenya: Constraints on Smallholder Participation in Export Flower
Production, 1991-92 Season.
Constraints Category of growers

Large Medium Small All
grewers grewers growers growers

 

mamas

Lack of access to reliable 0.50 1.00 1.00 0.97
market outlet

Lack of relevant market 0.83 0.91 0.83 0.87
information

Predeetion Constraints

Lack of access to planting

 

materials 0.60 1.00 0.86 0.85

Lack of access to finance 1.00 0.87 0.87 0.89

lack of technical information 0.80 0.58 0.81 0.73
Notes:

The sample size was 36 growers. In the large, medium, and small grower
categories, the number of respondents was 5, 12, and 19, respectively. The
figures are mean normalized scores along a zero to one scale, in which
constraints ranked close to zero are least severe and those close to one are

most severe.

Source: 1992 Farm Survey.

 

140

The results recorded in Table 5.8 reveal that the lack of access to a
reliable market outlet was the most important constraint facing smallholder flower
growers in 1991. Both the smaller and the medium class of growers have a
significantly higher absolute score than do the large, indicating that the constraint
was more severe for the former two types of farmers. This finding reinforces the
conclusions drawn from the results on marketing channels and vertical
coordination mechanisms adopted by flower growers. Lack of access to a reliable
market was identified as the most severe constraint by 32 out of all 36 growers
interviewed, giving a mean score of 0.97. A comparison of the severity of this
problem between the three categories shows all 19 small growers identifying this
constraint as the most severe. Eleven out of the 12 medium and two out of the
five large identified it as such. Earlier results from the production analysis
demonstrated the large losses incurred by growers from unsold flowers. Therefore,
these combined findings stress the need for addressing the absence of a reliable
market and market information for smallholders and a means to harmonize local
production with market opportunities if they are to compete in flower cultivation
for export.

Lack of market information is a serious problem, with a mean score of
0.87. Twenty-six out of the 36 growers felt that they had very poor knowledge of
what the demand was in the market, and therefore could neither effectively plan
their production nor bargain for better prices from the exporters. Lack of access

to planting materials was also cited as one of the severe constraints. Again, the

141

majority of those who perceived this as a serious constraint were the medium and
smaller growers. Lack of technical information about the aspects of flower
production was also an important problem facing the growers, although it was

ranked lowest among the constraints.

5.2. Smallholder Bean Marketing

This section describes the marketing organization of the smallholder bean
subsector and contrasts it with the flower subsector. The analysis focuses on the
role of forward contracts in affecting the bean growers’ incomes. The principal
smallholder bean producing areas, such as the Kirinyaga and Kiambu districts in
the Central Province and the Machakos district in the Eastern Province, are well
served by a good road system which allows exporters easy and timely access to the
area and from the production area to the Nairobi airport. This analysis is focused
on the Kirinyaga district, where the average farm size for the farmers interviewed
was 7.4 acres, approximately 49 percent of which was dedicated to bean
production. The principal alternative cash crops in the area are tomatoes, onions,

and maize.56

 

56 Rice, grown in the Mwea irrigation scheme under the auspices of the National
Irrigation Board (NIB) and an important cash crop in the area, is technically not an
alternative crop because the tenants cultivating it are not permitted to grow any
other crop.

142

Although beans are grown throughout the year, smallholder production
between October and June is targeted to the off-season market in Europe. Two
crops of beans are generally produced each year, one from October to December
and the other between January and May. Beside producing beans for the fresh
export market, smallholders also sell beans to processing factories. Most
smallholders in the survey area, however, cultivate beans destined primarily for
the fresh export market and only a few have contracts with the canning

industry.57

5.2.1. Bean Marketing Channels

Smallholders have two alternative marketing channels:
1. Grower to an exporter using forward contracting arrangements,
"58

2. Grower to the exporter through "Brokers ,

3. Grower to exporter through an exporter’s agent,

 

57 High Land Canners (HCL, ltd.), a French bean processing factory based at
Thika near Nairobi, has recruited small-scale bean growers from Kirinyaga and
supplied them with seed for a new type of bean suitable for canning. The new type
of bean differs from Monel, the variety grown for the fresh market, in both color and
texture and is produced specifically for canning.

58 The term "brokers" as used by bean growers and exporters differs from its
normal usage of " one hired for a fee to negotiate purchases, contracts, or sales".
Bean brokers buy and deliver beans to the agents and make their margin from the
difference between what the agents are willing to pay and the price brOkers offer to
the growers. According to bean growers, brokers do not negotiate prices with them.

143

Since no smallholder in the survey was exporting beans directly, the
discussion is focused on the first two channels. The third channel, although
common in other bean producing ares, is rarely used in the Kirinyaga area.
Figure 4. shows the breakdown of the marketing channels used by bean growers.
Whereas the volume of beans produced annually by smallholders is known, it was
impossible to gain information on the volume of beans moving through each
channel.

About one third of the growers interviewed market their beans through
forward contracts with exporters and about two thirds sold their beans to
exporters through market intermediaries. In channel two, the beans pass through
a "broker" before they get to the exporter’s agent.59 The "brokers" are generally
from the area, some of whom are growers, who offer to buy and gather beans in a
central location on behalf of the agents at a commission. The commission is
determined by the "brokers" and it is the discount they place on the price offered
to growers. This procedure saves the agents the time and transport necessary to
gather beans from small and dispersed growers. A majority of the growers
interviewed, although they did not like this arrangement, they have no practical

alternatives to this. Growers do not like selling through this channel because they

 

59 Informal discussions with exporters indicates that it is nearly impossible for
exporters who do not have forward contracts with growers to purchase beans in the
Kirinyaga area without passing through the "brokers." Brokers are surprisingly
uncommon in other smallholder bean producing areas.

144

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXPORTERS
/\ /\
(A) comer (a) NON-CONTRACI'
CHANNEL (113 CHANNEL (213 or
OP GROWERS) GROWERS)
EXPORTERS
AGENTS
/\
BROKERS
/\
BEAN GROWERS

 

 

 

 

FIGURE 5.1. Kenya: Bean Marketing Channels

Source: 1992 Farm Survey

 

145

report receiving lower prices from "brokers." Exporters using this arrangement
complain about the commission as an extra cost.

Bean marketing channels differ by farmer size. Larger growers, with an
average of 7 acres under bean cultivation have a higher probability of selling
through forward contract with an exporter, than do smaller growers. Smaller
growers channel their beans mainly through the so-called "brokers." Besides bean
acreage, farmers who have cultivated beans for a long period--five years and over-
-also stand a higher chance to produce beans under contracting arrangements.

Table 5.9 presents information about the distribution of growers according

to the type of marketing channels used during the 1991/92 export season.

Table 5.9.Kenya: Bean Marketing Channels, by Farmer Size, 1991.

Percent of Growers Using Channel

 

 

 

Bean area Growers selling Growers selling
(acres)a through contracts through Brokers Total
number percent number percent number percent

< 1.0 acres 2 6.67 6 20.00 8 26.67

1 -3.5 acres 2 6.67 11 36.66 13 43.33

> 3.5 acres 7 23.33 2 6.67 9 30.00
Total 11 36.67 19 63.33 30 100.00

Notes: a: refers to the bean area categories: < 1.0 acres is

small, 1-3.5, medium, and over 3.5 large.

Source: 1992 Farm Survey.

146

The major conclusion to be drawn from the table is that selling beans
through "brokers" is the most common marketing channel used by smallholders in
the Kirinyaga area. One of the reasons for the unpopularity of this marketing
channel among exporters was the tendency for smaller growers to break the
contract when prices were higher outside the contract. For this reason, most
exporters were reluctant to make contracts with the smaller growers. As Table
5.9 shows, two thirds of the growers interviewed are small and medium producers.
Less than half of those selling under contract belonged to the small and medium

category of growers.

5.2.2. Market Coordination for Beans

Market coordination for smallholders in the bean subsector is more
effective than in the flower industry because there is a more effective mechanism
to match supply with demand in the bean industry. For example, bean growers
lost 11 percent of their production from unsold beans compared to a 40 percent
for flower growers. Large bean growers have developed vertical integration
coordination mechanisms similar to those found for large-scale flower firms.
However, unlike smallholder flower growers, bean growers have an option of
producing and marketing their crop through forward contracts with exporters.

Agricultural economists have identified forward contracts as an effective

147

mechanism of coordinating production and marketing of highly perishable

horticultural products (Kauffman, and Shaffer, 1983; Glover, 1990).

5.2.3.1. Horizontal Coordination

Discussions with officials of the Horticultural Division of the Ministry of
Agriculture (MOA) revealed that horizontal coordination of the bean growers was
poorly developed. The limited horizontal coordination consists of informal groups
of growers for purposes of securing collective agreement on prices with exporters.
However, because they lack a means of enforcing such agreements, these
organizations are inherently unstable. The survey did not identify any formal or

informal organizations of bean growers in Kirinyaga district.

5.2.2.2. Vertical Coordination

Vertical coordination mechanisms span a continuum from spot markets to
intermediate forms such as market contracts, grower associations and cooperative,
to vertical integration where decisions are internalized in a single firm. The 1992
survey of growers and discussions with exporters revealed that forward marketing
contacts and the use of "brokers" were the most common mechanisms used by
smallholder bean producers. Vertical integration was predominantly used by

large-scale growers. Only a third of the growers interviewed coordinate their

148

production and sale of beans through the system of forward marketing contracts,
whereas two thirds depended on "brokers."

Bean growers who had contracting arrangements with exporters received
regular technical advice on bean production, and production credit. Virtually all
the exporters who had contracts with growers had field officers who regularly visit
farmers to give advice, monitor the growth of the crop, and ascertain the expected
output. The majority of exporters are experienced growers who provide advice to
the contract growers. Production credit provided by the exporters is given in kind,
usually in the form of seed or fertilizers and pesticides, with the agreement that
the grower will sell all of the crop to the exporter, who will deduct the value of
the credit from the sale of the crop. However, given that these agreements are
seldom in writing and difficult to enforce, growers frequently sell part of the crop
in the spot market if the price is higher there. This is one of the primary

problems cited by exporters regarding the use of forward contracts.

5.2.2.3. Payment Terms and Net Prices Received, by Market Channel

A major concern to the bean growers was the fluctuation in farm gate
prices during the season. In general, the prices that growers receive vary
according to the period in the export season. Bean prices are generally higher at
the beginning of the export season when exporter compete for the early crop and

drive up prices. As the season progresses, more beans enter the market, which

149

forces the price downwards. Towards the end of the off-season, imported beans
compete with locally produced beans in Europe, which reduces the export price
and, in turn, the price to growers.

However, beside these normal market fluctuations other local factors
contribute substantially to price fluctuations. First, the number of bean growers
has increased over the years causing an oversupply, especially during the middle
of the season. Compounding this is the problem of air freight limitations, which
sometimes causes exporters to suspend procurement of beans until sufficient cargo
space is available. Second, the absence of active horizontal coordination at the
farm level limits the bargaining power of growers. Smallholders interviewed
complained that marketing intermediaries, especially the "brokers," capitalize on
their weak position and obtain considerable price concessions from them. The
survey results showed that although the buying price for beans was determined by
"brokers" and exporters’ agents, there was no evidence of monopoly power by
"brokers". Moreover, the survey did not establish any significant barriers to the
brokerage business. The majority of the "brokers" were young men prepared to
devote their time and energy to gather beans for exporters. With data available
for only one season it was not determine the fluctuation of the brokerage income.
It was apparent, however, that "brokers" provided an important service to both
exporters and growers.

Table 5.10 presents results from an analysis of variance to determine

whether the use of a forward contracting system significantly reduces the

 

150

fluctuations in farm gate prices for bean growers. The results show that the
system of forward marketing contracts used by bean growers in the Kirinyaga area
was not significant at the conventional 95 percent level of statistical significance in

minimizingprice fluctuation.

Table 5.10. The Mean Deviation of Prices Received, by Sales Channel

 

 

Extra Fine Bean Fine beans
Mean Level of Mean Level of
Sales deviation Statistical deviation Statistical
Channel (sh / carton) Significance (sh / carton) Significance
Contract 19.32 0.3651 17.72 0.5734
Brokers 23.00 19.83
All 21.60 19.03

 

Notes: The sample size was 30 bean growers of which 10 were under
contracts with exporters. The prices used in the analysis were
averages for the beans harvested and sold. When bean prices offered
fell below 5.00 shillings per carton, growers stopped harvesting the crop.

Source: 1992 Farm Survey

The mean deviation of prices faced by growers who used forward contracts
with exporters was 19.32 and 17.72 shillings per carton, respectively for extra fine
and fine beans. By contrast, farmers selling through brokers experienced an
average fluctuation of 23 and 19.83 shillings per carton for extra fine and fine
beans, respectively. Since the difference between the effects of the two sales

channels on prices is not statistically significant, the hypothesis that the system of

151

forward contracting used by bean growers results in stable prices for growers is
not confirmed.

Table 5.11 reports the mean and range of prices received by bean growers
who produced under forward contracts and noncontract bean growers. These
results show that contract bean growers obtained on average higher and less
variable prices than noncontract growers. The coefficient of variation for the
prices of the two grades indicates less dispersion for the contract prices than

noncontract grower prices.

Table 5.11.Kenya: Bean Prices Received by Contract and Noncontract Growers,
1991-92 Season.

 

 

Grade Mean Price Coefficient Mean Price Coefficient of
of price range of price range variation
bean (Ksh./ (Ksh./ variation (Ksh./ (Ksh./ Extra fine
carton carton carton carton

Extra 55.00 50.00 0.04 47.50 40.00 0.15
fine to to

60.00 70.00
Fine 44.09 35.00 0.09 35.26 20.00 0.18

to to

50.00 50.00

 

Source: 1992 farm and exporter survey

Table 5.12. provides some information about the proportion of beans that
was not harvested for both growers who sell under contract and those who do not.

These estimates are based on growers’ own approximations and the researchers

152

impressions during the farm survey. The results indicate that about 11 percent of
the 1991 / 92 bean crop from the study area was not harvested, primarily because
the price was too low to cover the harvesting costs. Only about 5 percent of the
crop from contract farmers was not sold, whereas approximately 14 percent of the
beans from noncontract growers was not harvested. This implies that the overall
prices received by noncontract growers for the amount of beans produced was

significantly lower than that for contract farmers.

Table 5.12. The Proportion of Beans Not Harvested for Contract and
Noncontract Farmers, 1991.

 

Unharvested beans

 

Type of grower Number of growers (percent)
Contract grower 11 5 .0
Noncontract

Grower 29 14.2
All growers 30 11.1

 

Source: 1992 Farm Survey

5.2.2.4. The Impact of Contracting on Growers Income

A stepwise multiple regression was estimated and the results were used to
test the hypothesis that forward marketing contracts increase the income earned
by growers. The dependent variable used in the estimation was the growers’ gross

margin per acre. The variable of immediate interest in the regression analysis,

 

153

contracting, was entered as a dummy variable taking the values zero or one for
"brokers" or contract. Only contracting as a variable entered the equation and the
results are shown below.

The other independent variables--farm size, number of years in bean
production, age of grower--were insignificant and did not enter the estimated
equation. The correlation matrix indicated that these variables were highly
correlated with one another (over 0.7) suggesting a problem of multicolinearity.
Also the correlation coefficient between farm size, age of grower, and years in
bean production with contracting was 0.52, 0.64, and 0.50. However, because all
of the other independent variables besides contracting were lowly correlated with
the dependent variable they were considered insignificant in explaining the

variation in gross margin per acre.

Variable Est. Ceeffieient StdError Significant level
Contracting 9223.8397 4410.3169 0.0457
Constant 15542.9421 2670.5795 0.0000

R2 = 0.13511, Adj. R2 = 0.10422

The coefficients for the variable in the equation have the expected sign and
are both significantly different from zero. The results indicate that the growers
who do not use contracting arrangements earn an average of 15543 shillings per
acre of beans, whereas the use of contracting increases gross margins per acre by

9224 shillings. However, since the values of R2 and Adj. R2 are low, much of the

154

variation in gross margins cannot be explained exclusively by contracting alone.
The main conclusion to be drawn from these results, however, is that forward
marketing contracts significantly improve the income earned by smallholder bean
growers.

The results from the analysis of the impact of contracting on price
variability showed that the variability was not significant by the 95 criterion. The
data, however implies that the variability was significant at the 65 percent level.
The coefficient of variation observed for contract prices and noncontract prices
reveal that prices received by noncontract growers were more variable than
contract prices. Besides stability in prices, contracting provides grower with other
advantages that can results in higher incomes. Because of the guaranteed market,
growers under contract invest more in the care and management of their crop.
The results in chapter four reported that yields were significantly higher for larger
growers (most of whom had contracts) than was for the small noncontract farmers.
The availability of credit for inputs and advice from exporters also contributes to

the higher incomes for contract farmers.

5 2.3. Summary

A large percentage of smallholders in both bean and flower industries do

not have effective mechanisms to coordinate their production and marketing. The

results of the flower and bean marketing analysis revealed that the smaller

 

155

growers in the two subsectors rely heavily on the market price to coordinate their
activities. However, because of a serious lack of widely distributed marketing
information on both the local and export bean and flower markets, virtually all of
the small growers operate under great uncertainty. As a result, the small and
medium growers earned substantially lower prices and income than the large
growers. A majority of the large growers in both flower and beans had more
effective coordination arrangements.

However, the results have also revealed that, on average, production and
marketing by smallholders is more effectively coordinated in the bean than the
flower subsector. Bean growers who are unable to export directly to Europe, have
an option of producing under forward contracts with exporters. Eleven of the 30
bean growers interviewed (37 percent of growers), had contracts with exporters
and earned higher gross margins per acre than noncontract growers. A
comparison of mean prices received by contract and noncontract growers revealed
that the former obtained higher and less variable prices than the non-contract
growers. Contract growers also received support services from the exporters,
including market information, which enhanced their performance. However,
because of a problem of enforcing of the contracts, it is not widely used in bean
production.

Coordination of production and marketing in the flower subsector is
stronger for the larger growers who also export flowers directly to Europe. Small

and medium growers who sold their flowers to exporters in the country do not

 

156

have an effective mechanism to match their production and market demand and
therefore, they incurred large losses in potential revenue from unsold flowers.
However, the study identified the KFGA-~an association of Nyandarua flower
growers-«as an institution that could improve the production and marketing of

small growers in the area if credit and information constraints were reduced.

 

 

 

CHAPTER SIX

COMPARATIVE ASSESSMENT OF FLOWER AND BEAN SUBSECTORS

6.1. Introduction

This chapter presents a comparative evaluation of the flower and bean
subsectors and an analysis of policy and institutional reforms to increase
smallholder production of nontraditional exports. This assessment is based on
enterprise budgets for flower and bean growers and findings from the marketing
analysis. Vertical coordination mechanisms will be highlighted because the nature
of these arrangements will determine, to a large extent, both the production and
marketing outcomes of a subsector. For example, the way in which flower
growers, exporters, and the European markets are coordinated along the vertical
production-distribution chain, is a critical determinant of growers’ access to
agronomic information, inputs, and marketing opportunities. Likewise, the array
of flowers produced in a region will influence the number of exporters in the and
nature of flower market available to growers.

It is clear from the analysis that good vertical coordination, access to credit
and information enabled some farmers to become large and diversified flower
growers. What is unclear is how these growers were able to build the vertical
integration that leads to their good performance. Further research on the

evolution of large growers could provide insights on this. But the focus of this

157

 

158

study is how small growers individually and collectively can establish effective
vertical coordination arrangements and attract capital in order to improve their

performance.

6.2. Performance Issues

The specific performance issues to be addressed are the vertical
coordination of production and marketing in the two subsectors. In terms of
coordinating production, the major issues include the effectiveness of vertical
coordination in ensuring access to technical information, credit, technology, and
reliable market outlets. Vertical coordination is especially critical in the flower
subsector because new technologies and flower types are constantly being
introduced in the market. The comparison of the coordination of flower and bean
marketing will focus on the degree of market uncertainty and the availability of
production inputs and market information for different groups of participants.
Enterprise budgets will be used to compare the economics of production for

small, medium and large growers.

 

159

6.3. Flower Production and Marketing

A. Access to Technical Information and Planting Material

Chapter four revealed that vertical integrated producers (about a fifth of
those interviewed) cultivated a diverse mix of high value flowers because they
have better access to the high value planting materials. On the other hand three-
quarters of the smallholders were locked into producing low value marina flowers.
However, improving the availability of high value planting materials to non
vertically integrated smallholders is insufficient to induce these farmers to adOpt
new varieties because they lack access to credit. Therefore, a strategy to increases
access to new varieties of flowers must also address the credit constraint.

One solution to this problem is for small growers to acquire credit and
imported planting materials through the recently formed grower associations.
With support from the government, The Kinangop Flower Growers Association
(KFGA), for example, could be used to purchase seed and pay a royalty on behalf
of small growers.60 Research trials should be carried out on flowers with less
costly planting materials such as arabicum, tuberose, and ornithogalum in the

Nyandarua area.

 

6° The grower associations would require access to government credit for the
purchase of seed.

160

Access to technical information was also a primary concern of all
interviewed growers. Growers were unable to obtain local agronomic
recommendations for plant spacing, type and level of fertilizer, type and level of
pesticide and fungicide application for each of the diverse flowers currently in the
market."’1 A group of large growers in the Kiambu area paid a consultant US$
300 per visit (normally lasting three days) for technical advice, but small growers
were unable to afford to pay consultancy fees. Finally, growers who have access
to technical information often conduct their own on-farm trials in order to
develop local agronomic recommendations for each type of flower. Without
question, public floricultural research has lagged behind the expansion of the
industry. Increased public research and extension are needed on floriculture and

extension in order to ensure continued grth of the subsector.

B. Access to Capital

The analysis in chapter four revealed that flower cultivation for export has

a large potential for income and employment generation even for small farms

with less than one acre of flowers. However, flower production is capital intensive

 

61 Because agronomic information from foreign experts and production manuals
is based on overseas production conditions, it requires adaptation to local conditions.
Sulmac Co. Ltd. for example, currently has more than 300 flower varieties under trial
on a separate section of their Naivasha farm. According to the technical manager
of the research trials, the company does not initiate commercial production of any
flower variety until it has undergone trials under local growing conditions for at least
two years.

161

and small growers face a serious credit constraint. The survey revealed that only
the larger growers cultivating high value flowers obtained credit. None of the
small and medium growers applied for credit for flower cultivation. The reasons
for this are unclear but two possibilities arise. First, flower cultivation is a risky
activity because of both the perishability of the product and market uncertainty.
For example, chapters four and five showed that small and medium growers lost
between 40 and 50 percent of their potential revenue from unsold and
unharvested flowers in 1991. The farmers’ level of risk aversion is unknown, but
since the majority of them are relative newcomers to flower production, risk
aversion is expected to be high. Second, because the title to land is frequently
required as a form of collateral for agricultural loans, many farmers are unwilling
to risk loosing their land because of unsold flowers or a sharp decline in market

prices.

C. Access to Reliable Market Information

The lack of access to reliable market information is undoubtedly a major
factor influencing the performance of a subsector. For example, Stiglitz (1989:
209) observes that: "Imperfect information impedes entry into markets...[and]
because consumers may be concerned about the quality of the good produced,
new entrants may have difficulty in establishing themselves in the new market...".

Market institutions, either for products or factors of production, cannot function

162

efficiently without timely and reliable information about market prices, quantities,
quality, and grades. However, the analysis in chapter five revealed that small
growers are ignorant about market prices, and quantities and quality of flowers
sold in local and European markets. The critical question that emerges is the
following: how can Kenyan smallholders compete in global markets when they
lack basic information about prices, the kind and quantity of flowers needed, and
market opportunities?

The marketing analysis in chapter five revealed that only four large grower
exporters were receiving up to date information through telex and fax about the
flower markets in Europe. Twenty-six of the 36 surveyed growers (18 of them
from Nyandarua) depended on other growers and exporters for market news.
Surprisingly, none of the 26 growers were aware that they could obtain
information about European flower markets from the Nairobi office of the
Horticultural Crops Development Authority (HCDA). The HCDA receives
weekly information about major European markets by telex from the International
Trade Center (ITC), Geneva, and makes this available to growers and exporters
who visit their Nairobi office. While this is an important service to the industry, it
is infeasible for hundreds of small growers to travel 100 to 150 kilometers to
Nairobi for market information. Therefore, there is an urgent need to disseminate
this information to farmers throughout Kenya.

The survey also revealed that small growers were poorly-informed about

local market prices for flowers traded and the type , quality and quantities of

163

flowers demanded by local exporters. Currently there is no market information
system reporting on local trade in flowers.62 This lack of information subjects
farmers to possible exploitation by middlemen and exporters. More specifically,
"when no widely known market prices exists, each transaction is attended by
bargaining, which imposes costs and in general reduces the amount of trade from
the economically optimal level" (Klitgaard, 1991: 35). Therefore, a local market
information system would also create transparency in the sale of flowers from
growers to exporters and improve efficiency in the subsector. Exporters would
also be in a better position to make strategic plans in the sale for flowers abroad.
Spatial coordination of the flower market within Kenya at the first handler
level was found to be weak. Lack of information about the market for flowers in
the two major smallholder producing areas could be one of the reasons for this
problem. The prices received for flowers produced in Nyandarua and sold to
exporters are about half of those received for the same flower in the Kiambu
area. In addition, it was found that around 50 percent of Nyandarua grown flowers

were unsold, whereas in Kiambu only 29 percent were unsold. The survey results

 

62 The Marketing Division of the Ministry of Agriculture (MOA) collects and
disseminates daily information on prices and quantities of agricultural products sold
in local markets. This information does not include nontraditional exports, such as
flowers and beans even though there is substantial local exchange at the first handler
level.

 

164

suggest that improving market information for growers could enhance spatial

integration of the two areas.63

D. Performance by Size

Larger growers achieved more effective coordination of the production and
sale of flowers than the small and medium growers. Vertical integration provided
significant benefits for the large growers and accounts for much of their success in
flower production. The survey results also reveal that growers with 8 to 20 acres
of flowers have better access to technical information, appropriate planting
materials, the capital needed to import seed and other production inputs, and
have direct access to European markets. Because they have access to the high
value flower planting material and are able to sell directly on the European
market, they received higher prices than small and medium growers. In fact, the
large growers earned about 90 percent higher net margins per acre of flowers than

small and medium sized growers. Also because large growers had better

 

‘53 Although the survey did not reveal significant differences in the transportation
costs from Kiambu and Nyandarua to the Nairobi Airport, the latter is more
physically isolated from Nairobi. Moreover, the roads in Nyandarua are often
impassible, especially in the rainy season. Both of these factors discourage exporters
from buying flowers in Nyandarua. This is likely to be a problem for the Kinangop
Flower Growers Association (KFGA) when it starts to market flowers for members
in the near future. A better road network in Nyandarua will improve the evacuation
of flowers and other horticultural and dairy products from the area.

 

165

knowledge of the types of flowers desired by European firms, they incurred less
loss of potential income from unmarketed flowers.64

Small growers, especially in the Nyandarua were producing high quality
flowers without investing in shade houses because of the favorable climate. The
vertical coordination of flower production and marketing by the smaller and non-
vertically integrated growers may be improved by grower association. However,
because the grower associations are new, it was not possible to ascertain how
efficient they will be in the two flower areas. Follow-up research is needed on

grower associations.

E. Needed Policy, Technical, and Institutional Innovations

This comparative institutional assessment has pointed out the inability of
indigenous flower growers in the Nyandarua area to match their production with
the changing European demand for flowers. This failure of individual growers to
match supply with demand is dramatically illustrated by the 40 percent average
loss of potential income from unharvested flowers relative to the bean sector
where the use of forward marketing contracts resulted in an 11 percent loss from
unharvested beans. Table 6.1. presents a summary of the major problems
identified in the flower industry and the needed policy, technical and institutional

innovations.

 

64 In the 1991/92 season, large-sized growers who sold flowers directly on the
European market lost approximately 20 percent of potential revenue from unsold
flowers. The small and medium growers lost about 44 percent of potential revenue.

 

 

166

 

 

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167

6.4. Bean Production and Marketing

A. Access to Technical Information and Planting Material

Access to planting materials does not appear to be as critical a problem for
bean growers as flower growers. The monel bean variety used in bean production
is available locally. The 11 growers under contracts received bean seed on credit
from exporters. However, agronomic information about types and application
rates for fertilizer, insecticides, and fungicides was not readily available. It is not
clear why there is a lack of agronomic information on beans. Research on beans
has been carried out at KARI’s horticultural research center at Thika for a longer
period of time than for flowers. A possible explanation for this problem,
particularly on the lack of information on the level of application of chemicals, is
that most pests have become resistant to the recommended chemicals. As a
result, the recommendations from the Ministry of Agriculture field staff are
quickly outdated. This problem was found to be more severe for the non-contract
growers.

Growers under contracts with exporters generally receive both seed and
other inputs (fertilizers and chemicals) on credit along with agronomic advice and
supervision from exporters. A majority of the exporters who contract with farmers

also grow beans and carry out their own trials on chemical and fertilizer use.

 

168

B. Access to Credit

Bean production is less capital intensive than flower production. In fact,
the seed requirements for an acre of beans are 60 percent cheaper than for
marina flowers.“ The major production inputs for beans include fertilizer and
chemicals. But surprisingly none of the 19 surveyed non-contract bean growers
applied for credit in 1991. It appears that credit and capital are not major
constraints on bean production because growers with contracts can obtain

fertilizer, seed, and chemicals in kind.

C. Access to Reliable Market Information

Access to credible information about market prices, and the quantity and
quality desired in the market is vital to both growers and buyers because it
enables them to make strategic production and marketing plans. The HCDA
receives ITC weekly horticultural market information from the major European
markets and makes it available in their Nairobi office to anyone who requests for
it. The information includes prices and quantities and quality of beans from all
the major suppliers in all the main European markets. However, none of the

interviewed growers has ever used this source of information. Currently, there is

 

‘55 There was a tendency among a few small growers to retain seed from the
bean crop. However, after a season the seeds lost their vigor and yield low quality
beans.

169

no system of gathering and reporting market prices, quantities and quality of
beans at the first handler level of marketing in Kenya. Instead, bean exporters
and brokers are the major source of information about market prices for growers.

Studies have shown that a lack of transparency in markets often exposes
one party in the exchange to possible exploitation (Klitgaard, 1991).66 The
present study found that the 19 non-contract growers depended on brokers for
information about market prices. However, despite growers complaints about
unfair prices offered by brokers, the data did not confirm these complaints or
identify significant barriers to participation in the bean trade.

The 11 contract growers depended on exporters for market information.
The contract growers were found to be better informed about the market than
noncontract growers because they received information about quantities, grades,

and prices of beans needed the exporters.

D. Performance by Size of Grower and Use of Forward Contracts

Bean production was found to be profitable for small, medium, and large

growers.‘57 Infact, a comparison of the results of farm budgets with MOA’s farm

 

66 Klitgaard (1991) observed that auctioneers in a mango market in Karachi
routinely passed lower prices on to growers than those actually received at the
auction because the information about market prices was not available to growers.

67 Economists have argued that contracts between farmers and exporters or
processors improve coordination and reduce uncertainty for the participants

 

170

management data revealed that bean production was the most profitable farm
enterprise in the Kirinyaga area. In 1991, smallholders in the area earned 160
and 54 percent higher gross margin per acre from beans (grown under contract)
than from coffee and tea, respectively. The study revealed that 11 of the 30
interviewed bean growers were using forward market contracts. Contracts in bean
production were found to help reduce market uncertainty and increase the income
of contract growers relative to noncontract growers. The analyses revealed that
growers under contracts had greater access to technical information, received
production credit in kind, and earned 93 percent higher gross margins per acre of
bean than non-contract growers. Since contract growers know in advance whether
the buyer wants fine or extra fine beans, they are able to plan a production and
harvesting schedule accordingly?8 The study revealed that growers under
contract on average lost about 5 percent of their crop from unharvested beans
compared with over 14 percent for non-contract growers.69

The regression results and enterprise budgets revealed that contract
growers received significantly higher incomes than non-contract ones. The

average gross margin per acre of beans produced by growers under contract was

 

(Kauffman and Shaffer, 1983).

68 Harvesting more than three times a week yields a higher percentage of extra
fine beans. Some exporters prefer fine beans (usually destined for the UK. market)
to the tiny extra fine beans (for the French market). Some non-contract growers
harvested extra fine beans and then realized that the exporters wanted fine beans on
that particular day.

69 In general, when the price of beans falls below a certain level (5.00 shillings
per carton in 1991/92 season), farmers allow the beans to go unharvested.

 

171

81 percent higher than that earned by noncontract farmers. The large growers
earned higher gross and net margins per acre than the small and medium growers
because a majority of large growers had forward contracts. Within the medium
class of growers, the two contract growers received approximately 70 percent
higher net margins per acre than non-contract growers. The small growers under
contract earned about 90 percent higher net margins per acre than non-contract
growers.

Finally, discussions with exporters revealed that oral contracts are
inherently unstable because of a lack of means to enforce them. The tendency for
the smaller growers to break contracts when higher prices can be secured outside
the contract has forced exporters to allocate most contracts to larger and more
established growers. Because a majority of the bean growers are small and
medium in size, a critical policy issue is to find ways to design enforceable

contracts for small growers.
E. Needed Policy, Technical and Institutional Innovations
Table 6.2. summarizes the problems facing smallholder bean production

and marketing and outlines what each of the major participants can do to improve

the performance of the subsector.

 

1(72

 

 

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00~.F.5000 000 500.0000
00.000000 000.50000550000
0500-05-00 50 000.

 

 

00 000 >0000< 5005000>00 5003

 

on
000 .0005000x0 .0.0. 000000 5003

 

. 00 000 0003000 5003

 

00.0000

 

000.50>000. .000.5:5.500. 000 ..00.00005

.30..00 000002 000 000.0000 005 .0 x.050z < ”005000000 0000 .0.0 0.005

 

173

6.5 . Synthesis

This comparative assessment of the flower and bean subsectors has
revealed that although flowers are more profitable, they are more capital intensive
and more risky than beans. Small growers in the flower subsector experienced
serious constraints because of a lack of agronomic and marketing information and
poor coordination of their production and marketing activities. Because small
flower growers in Nyandarua produce high value alstroemeria without the use of
expensive shade houses, the government should encourage them to develop more
effective market coordination arrangements. The flower growers’ associations
could provide an effective means of alleviating some of the constraints of small
growers if the associations receive credit and technical support from government
agencies.70

Bean production under contracts was more profitable and contract growers
had greater access to agronomic and market information than noncontract
growers. Contracts helped match the supply of beans with exporters’ demand and
reduced potential losses from unharvested beans for the contract growers than for

noncontract farmers. However, few small bean growers had contracts because of

 

7° Grower Associations are used to coordinate small-scale production and
marketing of flowers in Israel and fruits and vegetables in Latin America (Glover
and Kusterer, 1990). However, growers’ commitment to the association is crucial for
the benefit of all members.

 

174

their reputation of breaking oral contracts. Because of the potential benefits to
growers and exporters, the government should, encourage exporters and growers

to examine the potential of written contracts.

 

CHAPTER SEVEN

CONCLUSIONS, POLICY IMPLICATIONS, AND FURTHER RESEARCH,

7.1. Summary and Conclusions

Kenya has been frequently praised by international observers for its success
in articulating and implementing a smallholder model of agricultural development.
Kenya’s decision to emphasize smallholder development started with the
Swynnerton plan that was introduced in 1954, nine years before independence.
The Swynnerton plan gave priority to helping smallholders increase the
production of traditional exports such as tea and coffee that had been previously
grown on plantations and by large scale commercial farmers. The removal of the
racial barriers to credit and other inputs and the establishment of smallholder
support institutions, such as the Kenya Tea Development Authority (KTDA), led
to a surge in smallholder output. However, because of declining world prices of
traditional export commodities in the 19805, many African countries are faced
with the need to diversify their agricultural export base and to look for new global
market opportunities.

Kenya has taken the lead in the development of nontraditional exports
such as flowers and fresh beans. In fact, flower and bean exports account for over
70 percent of the value of all fresh horticultural exports. Horticulture has

emerged as the fourth largest foreign exchange earner after tourism, coffee, and

175

 

176

tea. Moreover, since horticultural production is labor intensive, it has excellent
potential for rural employment generation. However, although both small and
large scale growers are producing flower and beans for export, a few large firms
dominate the industry, particularly the flower subsector. For example, seven
farms with more than 10 hectares (24.77 acres) under flower cultivation dominate
flower production and exports. Given that most Kenyan farmers are smallholders,
diversification of agricultural exports cannot be successful unless special attention
is given to these firms.

Several studies have been carried out on the production and marketing of
traditional agricultural exports. However, there is a lack of solid economic data
on smallholders’ production and marketing of nontraditional exports. Therefore,
a diagnostic farm survey was carried out on flower and bean growers in 1992 to
try to close this gap. Since smallholder flower and bean production are carried
out in separate ares of Kenya, Kiambu and Nyandarua districts were selected for
the flower survey and Kirinyaga for beans. The general objective of the study was
to collect information to analyze the economics of the production and marketing
of flowers and suggest strategies for expanding smallholder production and exports
in the 19905. Because smallholder bean production has been under way for about
two decades longer than flower cultivation, the bean subsector study is designed to
provide insights into alternative production, and marketing arrangements for

flowers.

 

177

The concept of commodity subsector was used to organize the research. A

 

commodity subsector can be viewed as an interdependent array of organizations
(e.g. input suppliers, growers, exporters, etc.) involved in the production,
processing and distribution of a commodity or group of commodities, such as,
horticultural products. In addition to collecting base line farm management data
on the cost and returns of flower and bean production, information was also
collected on the impact of market coordination mechanisms on the performance

of growers in the two subsectors. Special emphasis was given to identifying

 

production and marketing constraints in each subsector and how the various
market coordination arrangements affected growers’ access to agronomic and
marketing information, credit, and production inputs, especially planting materials.
The study found that flower cultivation was more capital intensive and
risky but more profitable than bean production. As a result, smallholders
experience greater difficulty in producing and marketing flowers than beans.
Although small growers in the Nyandarua district produce high quality flowers
because of the favorable climate, virtually all of them were locked into the
production of low value, old varieties.71 The inability to add high value flowers
to the production portfolio of small farmers was caused by a lack of access to
appropriate planting materials, credit, technical information. These problems were

compounded by a lack of reliable market information. The survey revealed that a

 

71 The growers were classified into small, medium, and large depending on
whether they had less than one acre, one to seven, or eight to 20 acres under flower
cultivation. Only five of the 36 growers interviewed were large.

178

majority of the smallholders were ill-informed about quantity and quality of
flowers demanded and about market prices. As a result, small and medium
growers incurred losses of between 40 and 50 percent of potential revenue from
unsold marina flowers in 1991.

The study also revealed that the large growers who exported flowers
directly to Europe had better access than small and medium growers to capital,
technical and market information, planting materials. The larger flower growers
also earned significantly higher gross margins per acre than the smaller growers.
It is clear from the analysis that the high returns achieved by large growers were
partially attributed to effective coordination of their production and marketing
activities.

The study also found that small growers in the Nyandarua area recently
formed a growers’ association to deal with the problems of flower marketing.
Although the association could help promote smallholder flower production and
marketing, it is hampered by a lack of capital, information, and managerial skills.
With proper support from the government, the Kinangop Flower Growers’
Association (KFGA) in Nyandarua could be used to assist smallholders to
produce and market high quality flowers. In the long run, this collective action by
smallholders could help small growers become more competitive players in global
flower markets.

The survey revealed that bean production was the most profitable farm

activity for smallholders in Kirinyaga district. In the 1991-92 season, smallholders

 

179

earned 160 and 54 percent higher gross margin per acre from beans than from
coffee and tea, respectively. Although beans are profitable for small, medium,
and large growers, they earn lower gross and net margins per acre than flowers.
However, as noted earlier, beans were found to be less risky and require less
capital than flowers. Bean seed was also readily available to all growers. The
study revealed that large growers achieved significantly higher gross and net
margins than smaller growers because a majority of the large growers produced
beans under forward marketing contracts. The study revealed that marketing
contracts helped reduce market uncertainty and increased the income for contract
growers. However, only an eighth of surveyed bean growers had production
contracts with bean exporters. Wider application of contract production is
currently hindered by a problem of enforcement of oral contracts, especially
among the smaller growers.

Both smallholder production of flowers and beans are constrained by a
lack of locally available agronomic information on the production of these
commodities. The public research institutions have been unable to keep up with
the rapid developments of the horticultural industry, especially, the flower

subsector.

180
7.3. Policy Implications

Both the private sector, consisting of growers, exporters, and other
interested parties, as well as the public sector have important complementary
roles to play in order to assist in the expansion of flower and bean production and
exports. Indeed collaboration between the public and private sectors has been
instrumental for the observed rapid grth of the horticultural export industry
over the past two decades. The range of policy options for the government include
generic issues for the development of the flower and bean, and specific issues for

the flower and bean subsectors.

7.3.1. Policy Options for the Flower and Bean subsectors.

The range of direct activities which the government should urgently

consider include the following:

1)Tp ansprg effeptivg matphing pf lpgal supply of flowers and beans with
tha changing European damand. The failure to match local supply of flowers
especially from the Nyandarua area with the changing European demand dictates
the need for institutional innovations to improve the coordination of flower
production from many small growers. The establishment of grower associations
and a requirement that small growers supply flowers to the associations on

contract is an alternative institutional arrangement to coordinate production of

181

flowers by the non vertically integrated growers. The government should consider
assisting grower associations established in remote areas such as Nyandarua with
the establish more efficient communication infrastructure such as telephones and
fax.

2) W; The current practice of
assuming that smallholder flower and bean producers can travel hundreds of
kilometers to the HCDA’s office in Nairobi for market information needs to be
reexamined. In order to make the flower and bean subsectors more transparent
and competitive, the Ministry of Agriculture (MOA) should expand its current
market information system (radio broadcast and daily newspaper reports) to
include timely information about flowers and beans. The expanded information
system should go beyond market price reports and also include information on the
quality and quantities traded in both local and export market. The weekly
horticultural information that the HCDA receives from Europe should be
summarized and widely distributed through the MOA’s market information system
in all the major producing areas.

3) Ensarg aaatgr acggss to cradit for smallholdars and grpwer assogiations.
Small-scale growers are generally reluctant to surrender their land titles as
collateral for credit because of the risk associated with the production and
marketing of perishable crops such as flowers and beans. The government should
consider making more credit available to individual growers or through grower

associations. Credit can be extended by the government in kind and repaid from

 

182

the proceeds of flower and bean exports. Because of the transaction costs
involved in dealing with many small growers, one approach would be for growers
to have contracts with a growers’ association and the association to have the
responsibility of issuing and recovering the credit.

4) hablip raggarph, Increased applied research on both flowers and beans is
urgently needed in order to generate effective agronomic recommendations to
assist growers keep pace with the rapid changes taking place in these
nontraditional export industries. For example, specific adaptive research is
required on every type of flower in the country. The public research base is
lagging behind the expansion of the flower industry. A special study should be
carried out of the R & D requirements of the horticultural industry over the next
10 to 20 years.

5) Cpntripptipn frpm 1h; privatg sgctor. Farmers, exporters, and input
manufacturing and distribution firms also have important roles to play in
furthering the development of the flower and bean industries. Without question,
the quality of highly perishable horticultural exports is influenced by what
transpires on at each stage in the production-marketing chain. The initial
production and handling activities by the growers are crucial in maintaining
quality. Small growers need help in learning about the required quality standards
and voluntarily adhere to them. The maintenance of acceptable quality standards
will help smallholders generate a reputation as reliable suppliers of quality

products in international markets.

 

183

Continued cooperation between exporters, small-scale growers and the
government should be sought. In particular, exporters should cooperate with the
government in learning how to design more enforceable contracts. However,
exporters should be willing to provide information to aid in research for the
development of the industries. Studies have shown that, by providing information,
especially about market prices and requirements, traders will also benefit in the
long run. They are able to learn more about the market, and their plans and

actions could become more efficient.

7.3.2. Policy Issues for the Development of the Flower Subsector

The following policy issue are needed for improving production and
marketing of flowers by smallholders.

1) Prpmptipn pf farmar asspgiatipns, The study has shown that small-scale
growers are unable individually to compete with large growers in supplying
flowers to the international market. However, with government assistance in
areas such as access to credit, the recently formed Kinangop Flower Growers
Association (KFGA) and other grower associations in other flower producing

areas could provide the institutional arrangement and incentives for small

184

growers. The government has an important role in investigating the feasibility of
associations and assisting in their development.

2) Planting materials. To address the problem of inadequate access to
planting materials for new types of flowers and payment of royalties by small-scale
growers, the HCDA in collaboration with the Kenya Agricultural Research
Institute (KARI), should study the feasibility of acquiring these materials,

multiplying them, and selling them to small growers.

7.3.3. Policy Issues for the Development of the Bean Sector

The major policy issue urgently needed for promotion of smallholder bean
production and marketing relates to the problem of broken contracts. The lack of
enforceable oral contracts has emerged from the survey of bean production and
marketing as a major problem. Broken contracts have undermined the important
role of forward contracts in coordinating small-scale bean production and
marketing. The government has an important role to play in facilitating the
design and implementation of enforceable contracts either by providing technical
assistance in drawing up written contracts and by strengthening the legal system to

uphold contracts.

 

185
7.4. Further Research

A major contribution of this study has been the generation of baseline
information which has identified research gaps on smallholder cultivation of high
value nontraditional exports, such as flowers and beans. The following were
identified as priority areas for further research:

1) Breeding and applied research on flowers and beans should be given F
more emphasis by KARI and the public universities. The input processing firms

can assist in carrying out some of the agronomic research needed to establish

 

effective recommendations for chemical and fertilizer use for each specific type of
flower present and new bean varieties.

2) Research is urgently needed to generate information about the
economics of new types of high value flowers that have high potential for income
and employment generation on small-scale farms.

3) Follow-up research is needed on the grth pattern of successful large
farms. Case studies will reveal whether they were launched as subsidiaries of
European firms or whether they started producing flowers as small growers and
moved up the size ladder.

4) Research is also required on the effectiveness of the recently formed
grower associations in coordinating flower production and marketing by
smallholders.

5) Research is needed to determine how to assist smallholders gain access

to credit.

APPENDICIES
APPENDIX A
QUESTIONNAIRE FOR CUT FLOWER GROWERS

1. Introduction
1.1.Date:

 

2.1nterviewer:

3.District:

 

4.Village:

 

2. Grower characteristics
2.1.Farmer’s Name:

 

2.2.Age of household head:

 

2.3.Level of formal education:
0.Uneducated
1. Primary
2. Secondary
3. Beyond secondary

 

2.4.Family members: Adults ; Children under 14
2.5.Farm size: Area under flowers:

2.6.Would you characterize your farm as Small, Medium, or large scale in relation.
to other flower growers in your area ?

2.7.Nature of ownership of the farm: Fill in the apprppriate cpde number in the
spagg prpvidgd,

 

1. Individually owned
2. Rented
3. Other (specify )

 

2.8.If rented, what is the monthly rent per acre ?
3. OFF-FARM INCOME &REMITTANCES

3.1. Do you have a job off- your farm ?

186

 

187
N o = 1 Yes = 2

3.2. If yes, type of work

 

3.3.Annual income from job

 

3.4.Does anyone else in family living with you have a job off-farm?
No = 1 Yes = 2

3.5. If yes, type of work

 

 

3.6. Annual income from the off-farm job

4. FLOWER PRODUCTION

4.1.In which year did you begin to grow flowers ?
4.2.How did you learn about growing flowers ?

 

 

1.Shown by another farmer

2.Used to work for a flower grower/ company

3.Shown by extension officers (HCDA; KARI; MOA)

4.0ther (Specify )
4.3. What types of flowers do you grow? (insert 1, 2, 3, etc., against each type in
order of importance, and the total acreage of each).

acrages

Alstromeria

Ornithogalum

Tube rose

Statice

Solidaster

Aster

Arabicum

Molucella

 

Rose

188

Carnations

Other(specify)
4.4.If you grow alstromeria, list the varieties you have and their respective acrages
below:
Variety Acreage

 

 

 

 

 

 

 

 

 

 

 

 

4.5. For you most important type of flower, please give a rough estimate of the
establishment cost (Planting to first harvest)

Type of flower:

 

Establishment cost:

 

ON IRRIGATION
4.6. Do you use irrigation? ___; N0 = 1 Yes = 2
4.7.If yes, what type of irrigation? (Sprinkler, Drip,
Flooding, Other(specify)

4.8.What is the cost of your irrigation equipment ? (Indicate the cost and the year
of purchase in the respective spaces below):

purchase price year of purghase
or age

Pump and engine

 

Pipes

 

Sprinklers

 

 

189

Other components

 

4.9.How often from planting through the export season(september to may) do you

irrigate your flowers ?(e.g. ongp a week etc.,)

 

SPECIALIZED STRUCTURES

4.10. Which of the following structures or facilities do you use in the flower
operation ? (For each of them indicate the capacity i.e., number of flowers
cartons or flowers pails or flower stems it can contain or the area it can cover
etc.; the cost and year bought or construction)

C A P A C I T Y m
YEAR
$000309
cartons Pails Area Own/ price
Rented or rental
Cold
storage

 

Grading/packing

 

Shade Houses:
Polythene

 

Net
Lighting
system:

 

 

 

 

 

 

Support structures:

 

 

Water Tank _

 

 

Pickup/truck

Other

(Specify)
EQUIPMENT/ OTHER SPECIALIZED INPUTS(e.g. Spray pumps etc)

 

 

 

Type price Rental Year bought/
of input bought charges constructed

190

5.EMPLOYMENT AND LABOR USE

5.1. How many people are employed on the farm?
Full time (in the year) Wage rate/month

 

5.2. Of these, how many are female ?

5.3. How many people are employed during the main export season (Oct. to May)

 

5.4. Of these, how many female?

 

5.5. What problems if any, do you have, with regard to labor ?

1.Primary problem

 

2.Secondary problem

 

6. PLANTING MATERIALS AVAILABILITY (Seed, Bulbs and Cuttings Etc.)

6.1.For two of your most important types of flower/variety, what was the source of

your planting material? Fill in tha spagp prpvidad with tha apprppriatp gpdp
npmber for thp rpsppnsp:

1. Imported
2. Got from another farmer
3.Retained from previous crop

 

4. From other sources (specify )
If ratainpd from previpus crop
Flower type source original source year

 

 

 

6.2.P1ease give the breakdown of the cost you incurred in obtaining these planting
materials:

 

191

flower Type Price Royalty Trans- other Total
&Variety -port expense

 

 

 

 

 

 

 

6.3. Do you have any of the following arrangements with the source of your
planting materials?

1.Sell the flowers to them
2.Provides technical information
3.Provides credit/ other inputs
4.0ther (specify)

6.4.What are your primary and secondary problems if any, regarding planting
materials?
Primary

 

Secondary

 

6.5.How much planting material (seed) do you use per acre?

Quantity Unit

 

 

6.6. If you grow alstromeria, are there any varieties among those on your farm
which you feel were not very popular in the export market in the last export
season ?

N0 = 1 Yes = 2

6.7.If yes, which are they ?

1.

 

2.

 

3.

 

6.8. Why do you still grow these unpopular varieties?

1.Can not get other varieties to replace these
2.Bound by contract to supply these

3.Price might improve next season

4.0ther (specify)

 

192

6.9. What problems if any, do you have regarding chemicals and fertilizers?
1.

 

 

 

2.
3.
4.None.
8. OTHER MAJOR COMPETING CROPS
Qutput
Market Pricelanit
Name of Crop Acreage Yield/ acre high medium low

 

 

 

 

 

 

 

9. Activity Expenditures and output/acre (estimates for enterprise budgets)
9: Type of flower:

 

Number Hrs / day Cost Days
Total
/ day total
9.1.Land
preparation:Labor:
machinery:

 

 

 

 

 

 

Fuel
9.2.Planting:
Labor:
Planting material:
Quantity
Cost
9.3.Transplanting:
Labor:
9.4.Weeding: How many times do you weed the crop ?
Labor :
9.5.Fert.Application: How many times do you apply fertilizer?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Labor:

First application:
Type
Amount
Cost of fertilizer

Second application:
Type
Amount

 

 

 

 

 

 

 

193

Cost of fertilizer
9.6.Chemic.Application: how many times do spray ?

 

 

Labor:

First spraying:
Type
Amount:
Cost of chemical

Second spraying:
Type
Amount
Cost of chemical

9.7.Irrigation: On average, how many times do you irrigate ?

 

 

 

 

 

 

 

 

 

Labor:

Fuel or electricity:

Amount/ day

Cost

Other irrigation inputs:

Type

Quantity/day

Cost
9.8.Harvesting:

Labor:

other:

 

9.9.Post-harvest(i.e grading & packing):
Labor:

 

 

 

 

 

 

 

Chemicals for pre-treatment:
Type
Quantity/Day
Cost
Cartons:
Quantity/ day
Cost
Rubber bands:
Quantity/day
Cost
Sleaves:
Quantity/ day
Cost
Cooling:

 

 

other:

 

194

9.10.Yield/unit of land (e.g.acre)/day of harvest: (indicate unit i.e. if cartons or

no. of stems)
9.11.Total output (i.e yield times number of days):

 

 

9.12.Price for which sold: Indipata thp pnit pf sala, La. per parton pr par stem
etc., and the gtade:

 

 

 

 

Grade 1 Grade 2 Grade 3
9.13.Transport/unit(specify unit)

local :

Air freight:

 

9.14.0ther expenditures:
Cold room at local airport
Handling charges at local airport

 

 

 

HCDA charges
Other charges(specify --------------- )
10.CREDIT/LOANS
10.1. If needed, is credit available ? N0 = 1 Yes = 2
10.2.During the last export season, have you taken any credit ?_ N0 =
1 Yes = 2

11.POST-HARVEST,MARKETING AND INSTITUTIONAL ARRANGEMENTS:
11.1.Do you grow flowers for export or local market ?
Local = 1 Export = 2
(If grow for local market, skip to section No.14)

11.2. Have you had any problems from your buyer(s) regarding the quality of any
of your flowers you have sold in the past ? _ N0 = 1 2 =
Yes = 2

11.3.If yes, how often in the current season (1992)?
1 = once; 2 = twice; 3 = more than twice

11.4. Approximately what proportion of your total production has been thus
affected in: 1991 ; 1992
Special exporting Arrangements:

 

11.5. Do you belong to any farm organization that is involved in flower
production/export such as a coop.?__
N0 = 1 Yes = 2

195

11.6.If yes, skip to question no. 12.7; If no, have you ever been a member in the
past? N0 = 1 Yes = 2

11.7.If you have been, why aren’t you a member now?

 

 

11.8. If you’re currently a member of a flower organization, What is its name ?

 

11.9.What services does this organization provide ?
1.Looks for a buyer on behalf of members
2.provides pool transport for group
3.Assists in obtaining credit
4.provides technical advice
5.Provides cold storage
6.0ther(specify)

 

11.10.Are there any charges or fees, or other conditions on the members?
N0 = 1 Yes = 2

11.11.1f yes, Indicate the charges in Ksh
and list the conditions of membership.

 

 

 

1.
2.
3

 

11.12. Generally how satisfied are you with the services provided by your group ?
1.Very satisfied
2.Somewhat satisfied
3.Neutral
4.Dissatisfied
5.Very dissatisfied.

11.13.If dissatisfied, list the reasons
1.Primary reason
2.Secondary reason

 

 

11.14.Have you had any relationship with such large exporters (e.g., Oserian,
ADC,Su1mac, etc.,)in the past?
No = 1 Yes = 2

 

11.15. If yes, what was the nature of the relationship ?

1.sold them flowers

196

2.Used their aircraft charters
3. Used to be outgrower
4.0ther (specify)

 

11.16.Currently, what relationship if any, do you have with the large flower

 

growers/exporters such as Oserian, ADC, Sulmac, etc.,?

 

 

11.17. If you do have a relationship with these large firms, generally how satisfied
are you with this relationship ?
Fill in thg above space thp appropriatg pods namber suitable for tha response:

1. Very satisfied

2. Somewhat satisfied

3. Neutral

4. Dissatisfied

5. Very dissatisfied

11.18. If 4 or 5, what are the reasons?
1.Primary reason:
2.Secondary reason

 

 

11.19.What relationship if any, do you have with any other flower medium-to-
small scale(for those in a grower organization, consider others outside the group)?
1.They buy my flowers
2.1 buy planting material from them
3. Other (specify)

 

11.20. If you have some relationship with other flower growers (medium-to-small),
how satisfied are you with that relationship ?

Chppse the appropriate pode npmppr fpr tha response.
1. Very satisfied

2. Satisfied
3.Neutral
4.dissatisfied

5. Very dissatisfied

 

11.21. If 4 or 5, Give reason why

 

 

11.22. How do you sell your Flowers ?

Chaps; the appropriata gpda nambar and fill in the above space.

1.Export directly

 

197

2.Through Coop/ group

3.Through an exporter on contract

4.Sell to any middleman who comes by

5.0ther (specify )

 

11.23. If export through a contract, please state the terms, indicating whether the
contract is with a local exporter/middleman or not

 

 

 

11.24.1f you export directly, to which country(ies) do you send most of your
flowers? (List in order of importance and proportions of produce sent to each
destination)
Name of flower Destination Quantity % of total

(in volume)

 

 

 

 

11.25. When you export your flowers, do you send them to a specific importer(s)/
commissioned agent(s) ? No =1 Yes = 2

11.26.If yes, what is (are) the name(s) of the importer(s)? (If no, skip to questions
no.12.29-30.)

 

 

11.27.If you always send flowers to a specific buyer, give reasons:

Pick the choices that is closest to your reason and fill its appropriate code number

in the space provided:
1. Best terms available (state terms

 

 

 

2. Only reliable buyer
3. Have a contract
4. Other (specify )

 

11.28. If you do not sell flowers to a specific/ regular importer, why not?

 

 

11.29.(To all growers for export) Do you have any problems with payment for
your flowers? N0 = 1 Yes = 2

198

11.30. if yes, explain

 

 

11.31.What other major problem(s) if any, do you face in dealing with your main
buyers ?

 

 

 

11.32. Are there any specific periods when you can not sell all of your flowers ? _
_ No = 1 Yes = 2
11.33.1f yes, which months?
11.34.What do you do with the surplus?
12.AIR CARGO SPACE AND FREIGHTS
12.1.How many months in the year do you export flowers ?
1.Twelve months
2.Between six and twelve months
3.Six months or less

 

 

12.2. How frequent do you ship your flowers ? _
Fill in thg apprppriate coda number far the rasppnse:
1.0nce a month
2.Twice a month
3. Once a week
4. twice a week
5. more than twice a week

12.3.What is the average weight of each shipment you make ?

 

12.4. Is there any specific carrier you prefer ?

12.5.If yes, give name and reason

 

 

12.6. What is the freight rate you pay per unit of your shipment ?

 

12.7.Have you had any problems with getting enough cargo space for your
produce ? N0 = 1 Yes = 2

12.8.If yes, what proportion of your total production was affected by this problem
and resulted in either produce deterioration due to delayed shipment and
subsequently sold in salvage market, or thrown away ? in:

1992 : 1991

 

199

12.9. Pleases give an estimate of the loss in revenue or profits which resulted from
this problem ?

 

12.10.Generally, what steps do you normally take to make sure you have secured
adequate space for your flowers ?
Fill tha appropriatp npmpar in thp abpva spagp:
1.Charter special flight
2.Give some "chai" (bribe)
3.0ffer to pay higher freight than the official one
4. Other (specify)

 

 

13. EXTENSION SERVICE,TECHNICAL & MARKET INFORMATION

13.1. If you have a technical question regarding flower production whom do you
ask first? Fill in h s a he ro ri te co n m r f r he res onse in the

spaca prpvided

1.Extension agent (HCDA; KARI; MOA)
2.Contacting firm/ agent (i.e.the buyer)
3.Hired expatriate or private consultant
3.0ther(specify )

 

 

13.2.If extension agent, how often are the visits ?

 

13.3. If consultant, what are the charges?

 

13.4. Briefly describe the nature of the technical services you obtain from each of
the sources

 

 

13.5. Do you carry out your own breeding/multiplication of planting materials ?
N0 = 1 Yes = 2

13.6.Do you get any technical assistance from the government research stations
(KARI) ? N0 = 1 Yes = 2

13.7. If you have a problem regarding marketing of your flowers, whom do you
ask first for assistance ?

1.Extension agent (HCDA;KARI;MOA)

2.Another grower

3.1-Lire consultant

4.0ther (specify )

 

200

13.8. If consultant, give an estimate of the charges

13.9. Generally, how satisfied are you with the services that the Ministry of
Agriculture extension (MOA) or Horticultural Crops Dev. Authority (HCDA)
field staff or other private sources are providing to educate farmers in the

production and export of flowers ? Fill in h ro ri
resppnsg in tha spacps prpvidgd:

1.Very satisfied

2.Somewhat satisfied

3.Neutral

4.Dissatisfied.

5.Very dissatisfied

HCDA MOA KARI

OTHER

names)
On Production:
On Exporting:

13.9.What major deficiencies do you note in the supply of the
technical service ?

 

 

13.10.Do you receive market information? _
N0 = 1 Yes = 2

13.11.1f yes, what is the nature of this information?

 

 

rfrthe

Consultant

(Give

13.12.What is the source of this information ? Fill in the appropriate code

npmpar in tha spas; prpvidag;

1.From the auction book

2.From the International Trade Center (ITC)
3.Prom HCDA

4.0ther (specify )

 

13.13. Generally, how satisfied are you with the access to market information?

Tipk tha apprppriate rpsponsg ampng thp patpgprias prpviggd below;

1.Very satisfied
2.Satisfied

 

201

3.Neutra1
4.Dissatisfied
5.Very dissatisfied

 

13.14.If dissatisfied, what deficiencies or problems do you have regarding market
information ?

 

 

14. CONSTRAINT AND POTENTIAL FOR SMALLHOLDER PARTICIPATION:

14.1. How important are the following factors in reduping the potential for
increasing the produgtion and amort of flpwers from yppr farm ? Fill in the

spaces provided with the appropriate number against the category of responses:
1 = Very important
2 = Somewhat important
3 = Not important
4 = Not applicable
Lack of readily available technical information
Unfamiliarity with quality standards
Unreliable middleman / exporter
Difficult to get reliable contact in foreign market
Inadequate airport facilities(for cooling)
Lack of information on demand in Europe
Foreign exchange shortages/uncertainty to import inputs
Cumbersome regulation/procedures at Central Bank
Patent rights associated with getting new varieties
Shortage of cargo airspace
Complicated payment procedures

credit availability for the investment

High freight rates for flowers
15.2.Are there any comments you would like to make?

 

APPENDIX B
QUESTIONNAIRE FOR FRENCH BEAN GROWERS

1. Introduction

1.1.Date:

 

2.1nterviewer:

 

1.3.District:

 

1.4.Village:

 

2. GROWER CHARACTERISTICS

2.1.Farmer’s Name:

 

2.2.Age of household head:

 

2.3.Level of formal education:

 

0. Uneducated

1. Primary

2. Secondary

3. Beyond secondary
2.4.Family members: Adults ; Children under 14
2.5.Farm sizezAll area Under French beans

2.6.Would you characterize your farm as small, medium or large scale in relation
to other french bean growers in your area ?

 

2.7.Nature of ownership of the farm:

 

1. Individually owned
2. Rented
3. Other (specify )

 

3. Off-farm income & Remittances

3.1.Do you have another job off-farm ?

202

 

203
No = 1 Yes = 2

3.2. If yes, type of job ?

 

3.3. Annual income from job?

 

3.4. Does anyone else in your family living with you have a job ?

 

N0 = 1 Yes = 2

3.5.If yes, type of job?

 

3.6.Annual income from the off-farm job

 

4.FRENCH BEAN PRODUCTION
4.1. When did you begin to grow French beans?

4.2. How did you learn about growing French beans
1.Shown by another farmer
2.Shown by extension officers
3.Shown by agent of exporter
4.0ther (specify )

 

4.3.Which variety of French bean do you grow ?:

 

4.4.How do you decide when to plant?
1.Told by exporter (or buyer)
2.Told by extension officer
3.1 know season
4.0ther (specify )

 

 

4.5. How do you decide how many acres to plant?

1.Told by exporter (or buyer)
2.Told by extension officer

 

 

3.1 Just guess

4.0ther (specify )
4.6.How many acres of French beans did you plant in:

1991:

1992:

 

4.7. Why didn’t you plant more?

 

 

204

1. Don’t have more land

2.Lack of seed

3.No reliable market (difficult to sell)

4.Labor shortage

5.0ther crops more profitable (which crops -------------- )
6.0ther (specify )

 

5.1RRIGATION

5.1. Do you irrigate your crop?
N0 = 1 Yes = 2

5.2. If yes, what type of irrigation?
1.Sprinkler
2.Drip
3.Flooding
4.0ther (specify )

 

 

5.3.What is the cost of your irrigation equipment ? (indicate cost or price and year
of purchase):

Pprghasa price Year of
purphase
Pump &engine
Underground pipes
surface pipes
Sprinklers
Other components

 

 

 

 

 

6.POST-HARVEST HANDLING STRUCTURES

6.1.Do you own a packing/ grading house ?

 

N0 = 1 Yes = 2
6.2.If yes, give an estimate of the construction cost and the year constructed:
Cpnstpggtipn ppst Yaar ppnstgtgted

 

 

6.3.If you do not have own packing house, where do you sort and pack your
french beans ?
1.In a rented packing house
2.Under a tree
3.At collection Center
4.0ther (Specify )
6.4. if you grade and pack at collection center, who owns this center ?
1.Belongs to buyer

 

 

205

2.Belongs to growers’ group
3.0ther (specify )

 

6.5.If grading and packing is done outside the farm, how far is it from the farm ? _

 

7.LABOR USE

7.1.How many people are employed on the farm?
Full time(throughout the year) Wage rate/ month

 

7.2.0f these, how many work in the French beans?

 

7.3.0f these how many are female?

7.4.How many people are employed during the peak season ?
Wage rate/ day

7.5.What primary and secondary problems if any do you have regarding labor?
1.Primary
2.Secondary

 

 

8. PLANTING MATERIALS AVAILABILITY

 

8.1. What variety of French bean do you prefer?

8.2. Was this variety readily available to you in the immediate past year 1991/92
(season)?
1. Readily available locally
2. Somewhat availab1e(Not at nearest shop)
3. Other (specify )

 

 

8.3. How far do you have to travel to obtain the seed?
8.4. Who is your source of the seed?
1.My buyer provides the seed
2.Buy from shop
3.0ther (specify )

 

 

8.5.Please give a breakdown of the cost you incurred in obtaining your seed ?
Price par unit Transport char cost Total

 

 

 

8.6. How much seed do you use per acre?

 

206

8.7. What special arrangement if any do you have with the seed supplier ?

1.Sell the produce to him
2.0ther (specify )

 

8.8.What primary and secondary problems do you have regarding seeds for
planting?

1.Primary

 

2.Secondary

 

9. Chemicals/Fertilizers

9.1.How far do you have to go to obtain the chemicals you use?

 

9.2. What types of chemicals do you use and what is the cost ? :

 

Type total amount source price/unit transport
9.3. What primary and secondary problems do you have if any regarding the
chemicals? 1.Primary

2.Secondary

 

9.4.How far do you have to go to obtain your fertilizers ?

9.5.What types of fertilizers do you use and there costs?
Type Total amount Source Price /unit Transport

9.6.What primary and secondary problems do have regarding fertilizers?
1.Primary
2.Secondary

 

 

9.7.Do you use manure ? _
N0 = 1 Yes = 2

9.8.If yes, How much do you use per acre and its cost?
Ampttnt Unit pf land Pripplanit Tptal post

 

 

10.0THER INPUTS (e.g.fuel, spray pumps. etc.)

207
10.1

Type pf inppt Pris; mm Other costs Tptal gpst

 

 

 

11.0THER MAJOR COMPETING CROPS
Markpt Pripaanit

Crop Acreage Yield / acre high medium low

 

 

 

 

12. ACTIVITY EXPENDITURES/ACRE (costing for enterprise budgets)
Number Hrs / day Cost Days
Total
/day total cost
12.1.Land
preparation:Labor:
Machinery:
Fuel:
12.2.Planting:
Labor: _ _ _ _
12.3.Seed:
amount:
cost:
12.4.Weeding:
Number of weeding:
Labor:

 

 

 

 

 

12.5.Fertilizer:
Labor:

First application:
Type:
Amount:
Cost:

 

 

 

Second application:
Type:
Amount:
cost:

12.6.Chemicals:
Labor:

First spraying:

 

 

208

Type:
amount:
cost:

Second spraying:
Type:
amount:
cost:

12.7.Irrigation:
Labor:
fuel / day:
price:
Electricity / month:—

 

12.8.Harvesting:

How many weeks:—

# of times/week:__
Labor:
yield/day:
total output (yield * Days):

 

12.9.Grading/ Packing:

 

Labor:
Number of cartons obtained for each grade/ day:
Extra fine Fine Bobby

 

 

 

12.10.Price for which sold:
Extra fine Fine Bobby

 

 

 

12.11.Transport to market:
Average distance to buyer:
Cost/ carton:

12.12.0ther expenditures:

 

13.CREDIT AND LOANS

13.1. If needed, is credit available ? __
N0 = 1 Yes = 2
13.2.During the past year, have you taken any credit ?
N0 = 1 Yes = 2

209

13.3. If yes, what is the name of the lender?
1.Bank
2.My buyer of the beans
3.0ther(specify )

 

 

13.4.How satisfied are you with the terms of the credit ?
1.Very satisfied
2.Somewhat satisfied
3.Neutra1
4.Dissatisfied

l4.POST—HARVEST, MARKETING AND INSTITUTIONAL ARRANGEMENTS

14.1. Has any of your french beans ever been returned by the buyer due to poor
quality ? _
N0 = 1 Yes = 2

14.2.If yes, how often in the 1991/92 season ?
Once = 1 ; Twice = 2; More than twice = 3

14.3.Approximately what proportion of yourproduce has been returned by the
buyer due to poor quality in the 1991/92 season ?

 

14.4. Do you belong to any farm organization that is involved in French beans
such as a cooperative or a growers’ association?
N0 = 1 Yes = 2

14.5.If no, have you ever been a member in the past?
N0 = 1 Yes = 2
14.6.If yes, why aren’t you a member now?

 

 

 

 

14.7.If you are a member of a French bean group, What is its name?

 

14.8.What services does this group provide ?
1.Looks for buyer on behalf of members
2.Provides pool transport for group
3.Pool produce to have sufficient quantity to bring buyers
4.0ther (specify

 

 

14.9.Are there any charges or fees on members ?
N0 = 1 Yes = 2
14.10.1f yes, indicate the charges Ksh:

 

210

and any conditions on members?
1
2.

 

 

14.11.Generally how satisfied are you with the services provided by your group ? _

 

1.Very satisfied
2.Somewhat satisfied
3.Neutral
4.Dissatisfied

5.Very dissatisfied

14.12.1f dissatisfied list the reasons
1.Primary reason
2.Secondary reason

 

 

14.13.To whom or how do you sell your French beans ?

1.Individually on contract to specific buyer on agreed price

2.As a group

3.Sell on spot to middlemen or their agent

4.Sell in local market

5.Export directly

6.0ther (specify )
14.14.If you have on contract with an exporter, please state the terms
1.
2.
3.
14.15. If you always sell to a specific buyer, what are the reasons for doing so ? _

 

 

 

 

 

1.Best terms available

2.Best price available

3.Cash on spot

4.0nly buyer who comes to the area
5.Provides inputs

6.0ther (specify )

 

14.16. Are there any specific periods when you can not sell all of your French
beans ?
No = 1 Yes = 2

 

14.17. If yes, in which months ?

 

14.18.What primary and secondary problems do you have in dealing with your
buyers ?

 

211

1.Primary problem

 

 

2.Secondary problem

14.19. How far is the market/ collection center from your farm ?

 

15. EXTENSION SERVICE/TECHNICAL AND MARKET INFORMATION

15.1.If you have a technical question regarding French bean production, whom do

you ask first ?
1.Extension agent(HCDA;MOA;KARI)
2.The buyer (e.g.,Contacting firm/agent)
3.0ther (specify )

 

 

15.2.If extension agent, how often does he/ she visit the farm?

 

15.3. If contracting firm / agent or the buyer, how often do they visit the farm for
this purpose?
15.4. Generally, how satisfied are you with the services that the Ministry of

Agriculture extension field staff on the one hand and the buyer on the other, are
providing to educate farmers in the production of French beans? Fill in the code

that elosely represents yoa answer regarding each source of the extension service

1.Very satisfied
2.Somewhat satisfied
3.Neutral
4.Dissatisfied

5.Very dissatisfied
HCDA MOA OTHER SOURCE

 

15.5.What primary and secondary deficiencies do you note in the supply of the
technical service ?

1.Primary

 

2.Secondary

 

15.6.Do you receive market information?
N0 = 1 Yes = 2

 

212

15.7.If yes, what is the nature of this information ?

1.
2.
15.8.What is the source of this information ?

1.From buyer (contractor/ agent)

2.HCDA

3.0ther (specify )
15.9. Generally, how satisfied are you with the access to market information?

 

 

 

1.Very satisfied
2..Satisfied
3.Neutral
4.Dissatisfied
5.Very dissatisfied

15.10.If you are dissatisfied with the access to market information, what primary
and secondary deficiencies or problems do you see?

1.Primary

 

2.Secondary

 

16. CONSTRAINTS AND POTENTIAL FOR SMALLHOLDER PARTICIPATION
IN FRENCH BEAN SECTOR:

16.1.How important are the following factors in reducing the potential fer
m 11h 1 rs’ rii i nin h Fr nh e ne or 5 se r? Fillinthespace
provided with the appropriate number against the category of responses:
1.Very important
2.Somewhat important
3.Not important
4.Not applicable
1.Lack of readily available technical information
2.Unfami1iarity with quality standards
3.Unre1iable middleman or exporter

4.Lacl< of information on what the foreign market wants

5.1nadequate airport facilities for handling

213

6.Uncertainty foreign exchange/ importation of inputs
7.Problerns of obtaining planting materials
8.Shortage of aircargo space for shipping exports
9.Credit availability for smallholders

10.High freight rates for French beans
6.2. Are there any other problems or comments you would like to make?

 

 

APPENDIX C
QUESTIONNAIRE FOR FLOWER AND BEAN EXPORTERS
QUESTIONNAIRE FOR CUT FLOWER EXPORTERS

1.1NTRODUCTION

1.1.Date:

 

1.2.Interviewer:

 

1.3.District:

1.4.Village:
2.EXPORTER CHARACTERISTICS

2.1.Name of export firm:

 

2.2.Name of Principal owner:

 

2.3.Educational level of principal owner/manager:__
(choose from the responses given bellow)

0.Uneducated
1.Primary
2.Secondary
3.Beyond Secondary

2.4. Nature of ownership of firm:
(choose from among the choises given below)

1.Sole Proprietor
2.Partnership
3.Limited company
4.Cooperative

5 Other(specify):

 

2.5.In which year was the firm established?

2.6.In which year did the firm begin to export flowers?

214

 

215

2.7.How far from the J omo Kenyatta airport is the business premises located ?

 

 

2.8.What kind of transportation do you use to get flowers to the airport? (choose
from among the choises given below)

1.Refrigerated trucks

2.Insulated trucks
3. Other (specify )

2.9. If firm owns the trucks, what is the estimated value each?

 

2.10. What is the running cost per trip ?
2.11. If the firm uses rented trucks, what is the rental cost per month ?

 

 

 

Cold Storage Facilities
2.12.Do you have cold storage facilities at the airport? __
Yes = 2 N0 = 1 (circle the appropriate answer)
2.13. What is the estimated cost of the facility?

If owned give estimated value in Ksh.

 

If rented, what is the monthly rent?
2.14.Does the firm own cold storage facilities at the firm’s premises or central
collection point ?

 

 

Yes =2 No =1

2.15. If yes, give estimated value

 

2.16. If firm rents cold storage in the field, what is the rental charges per month ? _

 

3.PROCUREMENT OF FLOWERS FOR EXPORT

3.1.What type of flowers do you export ?(insert 1,2, 3, etc.,against each type in the
order of importance to the firm)

216
Alstromeria
Arabicum
Aster
Carnations
Mollucella
Rose
Tube rose
Solidaster
Statice __

Ornithogalum__

Other(specify)

 

3.2.If you export Alstromeria, What proportion of the annual sales came from
alstromeria in:

The 1990/1991 export season ?
The 1991/1992 export season?

3.3.In the current season (1992/1993), is this proportion likely to increase or
decrease ? (choose from the choises below)

Decrease
Increase
Constant

II II II
ONv—k

3.4.If proportion is to decrease, what is the reason ?

 

217
3.5me which of the following areas do you obtain flowers ?{for each area state
the proportion(%)of flowers obtained and average distance from the firms
premises or central point}
Area Proportion (%) Average distance(km)
Njabini
Ngecha
Tigoni
Redhill
Kibubuti
Githunguri
Naivasha

Other(specify)

 

3.6.What is the source of the flowers you export ?
Source - proportion of total export
1.0wn farm
2.0utgrowers on contract
3.Buy from farmers w/o contract

4.0ther(specify below)
3.7.For each of the above sources of flower procurement that you use, what is the
approximate cost of procurement per stem per type of flower ?(estimate
includes,purchase price, transport, production cost and other relevant costs).

Type of flower source of supply Average cost per stem

 

 

 

 

 

 

 

 

 

218

 

 

 

3.8. Generally, how satisfied are you with each of the sources of produce supply ?
For each source select the rating that closely describes your satisfaction and
insert in the space against each of the sources you use.

1.Very satisfied
2.Somewhat satisfied
3.dissatisfied

Source of supply Rating

 

 

 

 

3.9.If some of your flowers come from small scale growers, what primary and
secondary problems to face if any in dealing with these farmers ?
1.Primary

 

2.Secondary

 

4.TC ASSOCIATED WITH AIR CARGO SPACE LIMITATIONS

4.1.In the last two export seasons did your firm experience problems with
obtaining air cargo space when you needed to ship flowers ?

 

N0 = 1 Yes = 2
4.2. If yes, has your firm incurred losses from spoilage, delays etc., due to
problems of air cargo space availability ? N0 = 1
Yes = 2

4.3.If yes, in which months has it been most difficult to get adequate space ?

 

 

 

4.4.If you had problems with cargo space, what pr0portion of your annual produce
was thus affected and its estimated value ?

Season Proportion of the loss Approx. value in Ksh.

219

(%)
1990/91

1991/92

4.5.What steps do you take to ensure you get adequate space to airlift your
flowers on schedule ?

Steps Taken Approx. cost involved per unit(e.g.carton)

 

1.Use own charter flight

2.0ther exporter’s charter

 

3.0ther arrangements (specify)

 

 

S.QUANTITY EXPORTED AND DESTINATIONS

5.1.During the peak of the export season how frequent do you ship flowers ?
Fill in the average weight for the frequency you choose from the choises given

below
Average weight of shipment

(in kg.)
1.Daily

 

2.Three times a week

 

3.Twice a week

 

4.0nce a week

 

5.2.To which countries do you send your flowers ?

Name of flower Destination % of total volume of sales
Alstromeria
Solidaster

Other

 

220

5.3.When you export flowers, do you send them to specific importers or sell
directly in the auction markets? give the proportion of sales to each type of buyer
in the spaces below

Destination Importers customers Auction market

 

 

 

 

5.4. Does the firm have representative in the importing country for receiving and
handling of the flowers when they arrive ?

N0 = 1 Yes = 2

5.5.If yes, what proportion of the total transportation and handling costs does the
foreign handling and marketing costs represent ? %. and an
estimated average handling cost per shipment

 

5.6.If the firm has no representative, who receives and handles the flowers ?

 

5.7.If there is no representative, what is proportion of the foreign cost in the total
transport and marketing costs ? 20

5.8.During the past two export seasons, has any of your shipment of flowers been
rejected by buyer due to poor quality ?

N0 = 1 Yes = 2
5.9.If yes, what was the approximate loss in value of sales?

Export season Approx.value of the loss % of total sales
1990/91

 

1991/92

5.10.1n general, what proportion of the loss associated with poor quality or
deterioration during transit is to borne by the grower (where exporter is not the
grower) ?

 

221

5.11.Generally which period in the main export season do your sales peak in each
of the destination countries?
Destination Peak period

5.12.What are the primary and secondary problems if any does your firm face in
the destination markets ?
Primary

 

Secondary

 

6.MARKET INTELLIGENCE
6.1.Do you get up—to-date information about the market for flowers?

N0 = 1 Yes = 2

6.2.If yes, what is the nature of the information ?
(choose the appropriate answer from the choises below)

 

1.Current prices for various flower types

2.Future demand situation

3.Prospective importers

4.0ther type of information (specify in space below)

 

6.3.From where do you obtain the market information ?(select from the choises
below)

1.Auction book
2.From International Trade Center (ITC)
3.0ther (specify)

 

6.9. For each information source, what is an approximate cost of getting the
information for your firm annually ?

Information Source Estimated cost (Ksh)

 

222

 

6.10.What primary and secondary problems beside the limitation on air cargo
space would you say constrain expansion of your flower exporting business ?(fill in
the spaces below)

1.Primary

 

2.Secondary

7.ANY COMMENTS BY THE EXPORT
7.0.Are there any comments you would like to make?

 

 

QUESTIONNAIRE FOR FRENCH BEAN EXPORTERS
1.INTRODUCTION

1.1.Date:

 

1.2.Interviewer:

 

1.3.District:
1.4.Village:
2.EXPORTER CHARACTERISTICS

2.1.Name of export firm:

 

2.2.Name of Principal owner:

 

2.3.Educational level of principal owner/manager:_

0.Uneducated
1.Primary
2.Secondary
3.Beyond Secondary

 

223

2.4. Nature of ownership of firm:

1.Sole Proprietor
2.Partnership
3.Limited company
4.Cooperative
5.0ther(specify):

 

2.5.In which year was the firm established?
2.6.In which year did the firm begin to export French beans?—
Mode of transporting French beans to airport

2.7.How far from the Jomo Kenyatta airport is the business premises located ?

 

2.8.What kind of transportation do you use to get the beans to the airport?

1.Refrigerated trucks
2.1nsu1ated trucks
3. Other (specify )

2.9. If firm owns the trucks, what is the estimated value each?
Number

 

Value

 

2.10. What is the running cost per trip ?

 

 

2.11. If the firm uses rented trucks, what is the rental cost per month ?

 

 

 

Cold Storage Facilities

2.12.Do you have cold storage facilities at the airport?
Yes = 2 N0 = 1

2.13. What is the estimated cost of the facility?

If owned give estimated value in Ksh.

 

224

If rented, what is the monthly rent?
2.14.Does the firm own cold storage facilities at the firm’s premises or central
collection point ?

Yes = 2 N0 = 1
2.15. If yes, give estimated value

 

 

 

2.16. If firm rents cold storage in the field, what is the rental charges per month ? _

 

3.PROCUREMENT OF FRENCH BEANS FOR EXPORT
3.1 What proportion of the firm’s annual sales came from French beans in:
The 1990/1991 export season ?
The 1991/1992 export season?

3.2.In the current season (1992/1993), is this proportion likely to increase or
decrease ?

 

Decrease

Increase

Constant
3.3.If proportion is to decrease, what is the reason ?

1
2
O

 

3.4.From which areas in the country do you obtain your French Beans? {for each
area state the proportion(%)of beans obtained and average distance from the
firms premises or central point}

Area(Division/district) Proportion (%) Average

distance(km)

3.5.What is the source of the French beans you export ?

Source proportion of total export

1.0wn farm

 

225

2.0utgrowers on contract
3.Buy from farmers w/o contract

4.0ther(specify below)

 

3.6.For each of the above sources of bean procurement that you use, what is the
approximate cost of procurement carton per grade ? (estimate includes,purchase
price, transport, or production cost and other relevant costs).

ra e source of supply Average cost per carton

Extra fine

 

Fine

 

Extra fine

 

Fine

 

Extra Fine

 

Fine

 

3.7. Generally, how satisfied are you with each of the sources of produce supply ?
For each source select the rating that closely describes your satisfaction.

1.Very satisfied
2.Somewhat satisfied
3.dissatisfied

Source of supply Rating

 

 

3.8.If some of your French beans come from small scale growers, what primary
and secondary problems do you face if any in dealing with these farmers ?

1.Primary

 

 

226

2.Secondary

 

3.9.If some of your French beans come from small scale growers, what special
arrangements or relationships do you have with them ?

1.Supply them with seed on credit

 

2.Supply other form of credit (specify )
3.Provide technical information

4. Other (specify )

 

4.TC ASSOCIATED WITH AIR CARGO SPACE LIMITATIONS

4.1.In the last two export seasons did your firm experience problems with
obtaining air cargo space when you needed to ship French beans ?

N0 = 1 Yes = 2
4.2. If yes, has your firm incurred losses from spoilage, delays etc., due to

problems of air cargo space availability ?
N0 = 1 Yes = 2

 

4.3.If yes, in which months has it been most difficult to get adequate space ?

 

 

 

 

4.4.If you have incurred losses due to problems of air cargo space, what
proportion of your annual produce was thus affected and its estimated value ?

Season Proportion of the loss Approx. value in Ksh.
(%)

1990/91

1991/92

4.5.What steps do you take to ensure that you get adequate space to airlift your
beans on schedule ?

227

Steps Taken Approx. cost involved per unit(e.g.carton)

1.Use own charter flight

 

2.0ther exporter’s charter

 

3.0ther arrangements (specify)

 

5.QUANTITY EXPORTED AND DESTINATIONS

5.1.During the peak of the export season, how frequent do you ship French beans
?
Average weight of shipment
(in kg.)
1.Dai1y

 

2.Three times a week

 

3.Twice a week

 

4.0nce a week

 

5.2.To which countries do you send your French beans ?
Type of beans Destination % of total volume of sales
Extra fine
Fine
Bobby
5.3. Does the firm have representative in the importing country for receiving and
handling of the French beans when they arrive ?_

N0 = 1 Yes = 2
5.5.If yes, what proportion of the total transportation and handling costs does the

foreign handling and marketing costs represent ? %. and what is an
estimated average handling cost per shipment

 

5.6.If the firm has no representative, who receives and handles the Produce ?

 

228

5.7.If there is no representative, what is proportion of the foreign cost in the total
transport and marketing costs ? 20

5.8.During the past two export seasons, has any of your shipment of French beans
been rejected by a buyer due to poor quality ?

N0 = 1 Yes = 2
5.9.Lf yes, what was the approximate loss in value of sales in each season ?

Export season Approx.value of the loss % of total sales
1990/91

1991/92 _

5.10.1n general, what proportion of the loss due to poor quality or produce

deterioration is borne by your firm and by the grower (if any) ?
Proportion (%) of the loss

Firm (exporter)

 

Grower(where not exporter)

 

5.11.Generally which period in the main export season do your sales peak in each
of the destination countries?
Destination Peak period

5.11.What primary and secondary problems if any, does your firm face in the
destination markets ?
Primary

 

Secondary

 

6.MARKET INTELLIGENCE

6.1.Do you get up-to-date information about the market for French beans?

N0 = 1 Yes = 2
6.2.If yes, what is the nature of the information ?

1.Current prices for various Grades of French beans

229

2.Future demand situation
3.Prospective importers
4.0ther type of information (specify in space below)

 

6.3.From where do you obtain the market information ?
1.Colleacap
2.From International Trade Center (ITC)
3.0ther (specify)

 

6.9. For each information source, what is an approximate cost of getting the
information for your firm annually ?

Information Source Estimated cost (Ksh)

 

 

6.10.What primary and secondary problems beside the limitation on air cargo
space would you say constrain expansion of your French bean exporting business ?

1.Primary

 

2.Secondary

7.ANY COMMENTS BY THE EXPORT
7.0.Are there any comments you would like to make?

 

 

 

APPENDIX D
The VBA Auction Market
Facts and Figures about the Verenigde Bloeme-nveilingen Aalsmeer (VBA), a

Cooperative Association.

1.Some 5000 growers and suppliers of flowers are the members and are obligated

to sell all their flowers at the auction.

2.Near1y 14 million flowers and 1.5 million plants are sold daily--3.5 billion flowers
and 370 million plants per year. Because of compurerization, 50,000 transactions
can be handled per day.

4.The most important products at the VBA are:

Roses (in 200 varieties) 1,162 million stems
Tulips 374 million
Carnations 322 million
Chrysanthemums 217 million
Freesians 151 million
Gerberas 150 million

More than 80 percent of the flowers sold at the VBA is exported, mainly to

America, other European countries, and the Far East.

230

Q?

AALsNEER
HOLLAND

 

231

How to become a supplier of imported cut flowers to the VBA

General information

1.

2.

Apply to the Management for a permit
Conditions a.The products to be supplied must form an
interesting supplement to the VBA package
b.The supplier must ensure regular supply, so
that auction can take place four times a
week
c.The products should be of good quality
d.The VBA imports on consignment basis only
e.The VBA imports only on the basis of
pre-paid freight costs.

An application for the auction of imported flowers should be
submitted to: The Management of the VBA
Attn Import Department
Postbus 1000
1430 BA AALSMEBR
The Netherlands
tel.: 02977-34567 telex: 15484 vba nl fax: 02977-32791

Dispatcher (clearance agent)
The dispatcher deals with the financial and administrative

aspects of import duties and Customs facilities. He also
takes care of any transport from Schiphol to the VBA.
The VBA dispatcher is:
J. v.d. Put'
Postbus 63
2370 AB ROELOFARENDSVEEN
The Netherlands .
Telex 39314 jput nl tel.: 01713-19113 fax 01713-16220

Bank account
The supplier will inform the VBA in writing as to his bank

(address in full) and his account number.
The result will automatically be transferred to your account
once a week, after the costs have been deducted.

Costs
The VBA charges the following costs:
a) Auction commission of approx. 81
b) Lot levy of Dfl. 2 per lot
c) PVS levy (for promotion). 0.451
d) Any unpacking costs. approx. 2 cents per flower
e) Any other costs

A detailed summary of all costs will be provided on request.

 

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