Capital- labour substitution, returns to scale and farm size in the Kenyan sugar industry
Abstract
The backwardness of rural areas of developing countries is the subject of popular concern of both the governments of these countries as well as the internatlonal community as a whole. This concern is reflected in current development thinking and practical efforts to bring about the desirable socio economic transformations of these areas. Various strategies have been formulated towards this end but of particular interest to this study is the strategy that involves locating industries with backward linkages to the resource bases within those areas as a means of bringing about their development. An ideal concrete case is provided by an agro-industrial development in a rural setting which forms the base on which this study has been set. This study has four important objectives: Firstly, it analyses the contribution of the Kenyan sugar industry to income generation and takes a critical look at the production organizations that result from the present sugar manufacturing technology in Kenya. It then draws the conclusion that the desirable objectives of rural development are not optimally being achieved in the sugar industry because price of sugar care to farmers has often been fixed by the government at such low levels ift relation to product ion costs that lead to very low income generation at the farm level and also because the present sugar manufacturing technology in Kenya tends to be associated with large-scale farming which does not benefit a large number of rural population. The study reconunends that the price paid to sugar cane producers oe based on actual production C.O.3~:; and makes a strong case for medium-sized sugar factories well distributed
in the potential cane growing areas as a means of achieving desirable decentralization of the industry.
Secondly the study estimates the elasticity of substitution between capital and labour in four major sugar cane producing zones in Kenya namely, Chemelil, Miwani, Muhoroni and r'1umiasand draws the conclusion that "factor proportions!' problem is not a major stumbling ~ock in the sugar industry;
employment and the distributive share of labour in total sugar industry out~~t depends to a large extent on relative factor prices. This suggests that there is a need for appropriate factor pricing in the industry. Thirdly, the study estimates the degree of returns to scale and sugar cane production cost structure for each of the four zones and the estimates indicate that while sugar cane production in all the four zones is characterised by increasing long-run average cost which is indicative of existence of internal diseconomies of scale, the typical large-sca1c farm zones are already encountering so severe diseconomies of scale that there is a need to re-examine the appropriateness of the present size distribution of the cane farm unit in these zones.
Lastly , the study analyses sugar cane supply structure for each of the four zones and draws the conclusion that sugar cane farmers are so highly responsive to changes in price of sugar cane
that sustenance of selt-sufficiency in sugar production will largely depend on how sugar cane farmers view the profitability of the sugar cane crop enterprise in relation to profitability of the other possible crop enterprises.
Various production function models have been designed to analyse characteristics of underlying technologies. However, most of the models are merely variations of three important standard
production functions namely, the Cobb-Douglas, the Constant Elasticity of Substitution and the Variable Elasticity of Substitution. This study has fitted these three standard production function
models to cross-section sugar cane data with a view to identifying the underlying production function in cane production on the basis of their "goodness of fit". Conclusion is drawn that the Cobb-
Douglas assumption of "unitary elastcity of substitution" does not hold true in cane production.
Cross-section data generated at the farm level over the crop period 1975-1977 on sugar cane output, capital input, labour input, average money wage rate paid to sugar cane farm workers, intermediate and raw material inputs have beer.used in analysing production, cost and supply structures
sugar industry to farm-level income generation has been analysed on the basis of primary as well as secondary data on cane yield cane price and production and marketing costs.
Chapter I of this study presents the research problem and f!~setting, objectives and working hypotheses of the study, followed by a general discussion of production organization and performance of the Kenyan sugar industry in Chapter II.
In Chapter III we present a review of literature on Econometric models that have been used in related studies and a discussion of the models that are used in the present study. In Chapter. IV, empirical results of the study are analysed. The study concludes with a discussion of conclusions and policy recommendations in Chapter V.
Citation
Ph.D ThesisSponsorhip
University of NairobiPublisher
Depatment of Economics, University of Nairobi
Description
Ph.D Thesis