Value chain risk analysis for small holder tea farmers in Kiambu county-Kenya

Abstract

Agriculture, especially small holder farming is characterized by a high variability and unpredictability of many factors. Small holder tea farmer’s risk is associated with unpredictable circumstances which determine the final output, value and cost of tea production process. The study aimed to investigate the influence of risk management on effectiveness of value chain financing in Kiambu County, Kenya. For this, a cross-sectional study of 384 smallholder farmers who supplied tea to 6 KTDA factories was conducted. A total of 354 respondents were interviewed: 234 (66%) males and 120 (34%) females. The mean number of years the respondents had been planting tea was 12.5 years (SD 6.3 years).The median amount of loan taken was 114746.38(IQR KES 0 – KES 5,000,000). The most preferred lenders by the respondents were SACCOs (64%) and banks (57%) followed by chamas (45%). A third (33%) of the study participants cited friends and relatives as their preferred source of seeking financial support. Very few respondents (5%) had received financial support from NGOs while shylocks (7%) were also not a preferred source of cash from farmers 79% cited high interest rates as a stand-out factor that impeded the respondents to access credit facilities, 64% reported lack of collateral, 63% reported lack of information on credit facilities and 62% said the scale of their farming operations limited their access to credit facilities. The factor that least deterred farmers from accessing credit facilities was high transaction costs and risk of defaulting-both cited by 59% of the respondents. Intervention measures cited as possible risk mitigating mechanisms for farming operations were: combining tea farming with other agricultural activities like livestock or mixed farming was cited as the best risk mitigating factor by 83% of the respondents while 80% felt that better infrastructure like roads, utilities and storage facilities would cushion them against their operational costs. 75% and 74% of the respondents rated personal savings and credit facilities respectively as the best coping mechanisms. The least preferred coping mechanisms were sale of assets (49%) and production contracts (47%). The study concludes that more access to insurance should be prioritized to help smallholder farmers to manage risk, enhance investment, and foster the growth in farm productivity. The study shows that despite the various operational risks facing farmers, there is a serious lack of tailored formal and informal insurance mechanisms to help them mitigate against the many risks that face them