Factors Affecting Profitability of Agribusiness Activities: A Case Study of Smallholder Pig Farming in Tharaka-Nithi County, Kenya

Abstract

Aims: There have been concerted efforts to commercialize the pig sub-sector so as to make it more profitable to farmers, especially smallholder farmers. Despite the development, the profitability in the sector has not been consistent among the smallholder farmers. Smallholder farmers have been earning varying and dismal profits. The causes of the varying profits have not been empirically established with the influence of institutional arrangements from a transaction cost perspective and management factors contributing to this inconsistency not fully established. The study examined the influence of institutional arrangements and management factors on profit efficiency of smallholder pig farming in Tharaka-Nithi County, Kenya.
 Research Methods: A two-stage sampling technique was employed in selection of 80 smallholder pig farmers. Semi-structured interview guides were administered and data was analyzed using descriptive statistics and stochastic frontier production function.
 Findings: The study revealed that male (75%) respondents dominated were within the active age, had 6 years pig farming experience with basic education. The results of Stochastic frontier production revealed that feed costs (p<0.01) and breed type (p<0.05) negatively reduced profit efficiency of the respondents while herd size (p<0.05) and veterinary and drug costs (p<0.01) positively influenced profit efficiency. Inefficiency was increased by Gender (p<0.1) and Debt Asset Ratio (p<0.01) while information trust (p<0.05) and experience reduced.
 Conclusion: The mean profit efficiency was 0.40 exhibiting low profit efficiency in the study area, efficiency level could be increased by 60% through better use of available resources, adoption of modern technology and transaction costs reduction. This would be acquired if good management practices and marketing channels are adopted. The gamma parameter (γ) was 0.63 meaning 63% net revenue variation is due to profit inefficiencies. The study contributes to Agribusiness field and would improve policies associated with agribusiness development in Kenya.

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“…The profitability of small-holder pig farming enterprises, however, is often based upon narrow margins and demonstrates a significant influence from the cost of feeds, with a study in Kenya indicating that a 1% increase in feed costs had the potential to reduce pig enterprise profitability by 25% ( 52 ). This demonstrates a potential risk to farmer livelihoods when previously low-input enterprises are moved into a confined system which becomes highly reliant on this one key input.…”