Growing Export-Oriented Crops in Kenya: An Evaluation of DrumNet Services
This paper evaluates a program in Kenya that encourages the production of export oriented crops by providing smallholder farmers with credit linked to agricultural extension and marketing services. While over 90 percent of smallholder farmers in all but the arid regions of Kenya produce horticultural products, fewer than 2 percent do so directly for export. The few Kenyan smallholders who have succeeded in producing for the export market have faced a new set of challenges since January 2005 under the EUREPGAP requirements. These requirements are driven by increasing consumer demand for quality and food safety in the UK and continental Europe, and by an increased emphasis on the need for traceability of horticultural production.
Apart from this the lack of information flows among producers, financial institutions, and marketers of agricultural produce is a major problem in Kenya. The lack of means of transportation among smallholders and poor road infrastructure are also factors that prevent markets from functioning properly. DrumNet, a Pride Africa project, tries to overcome the lack of information flows by directly linking commercial banks, smallholder farmers, and retail providers of farm inputs through a cashless microcredit program that encourages the production of export-oriented crops. Its model tries to overcome the constraints to technology adoption that farmers typically face.
To assess the effectiveness of the project, the researchers use an experimental design in which farmer self-help groups are randomly assigned to either a control group, a group receiving all DrumNet services, or a group receiving all services except credit. We find among the services offered by DrumNet, credit is the most important. Since the production of export crops requires a significant investment in capital and inputs, without credit farmers are less likely to plant the suggested crops.
Initially, DrumNet focused on passion fruit, a profitable but challenging crop sold both in export and local markets. The favourable climate and small farms in Kirinyaga favours this fruit crop, and DrumNet farmers have seen strong results. Beginning in 2004, the DrumNet team began to also support the production of two other crops in high demand with Kenyan exporters, French beans and baby corn. These crops have additional advantages over passion fruit — they are less capital intensive, simpler to grow, and have shorter growing periods leading to faster economic returns.
The results of the evaluation show that DrumNet is an effective model for encouraging the production of export-oriented crops. More and more farmers are planting these crops, invest more in inputs and as a result are seeing higher net margins and higher gross prices for their produce. In addition, clients seem satisfied with the institution. A key to profit and long-term sustainability of DrumNet is the volume of farmers, volume of farm produce, and a successful portfolio of credit products. The main challenge in the implementation and expansion is the need to establish a close relationship with farmers through transaction agents while minimizing costs.
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- Resource type Paper
- Author Ashraf, N.; Giné, X.; Karlan, D.
- Year of Publication2006
- Number of pages36 pp.
- Keywords Supply Chain Finance, Market Information, Contract Farming
- Contract farming and out-grower schemes Appropriate development models to tackle poverty and hunger?