Competition and efficiency in beef retailing in a Metropolitan area: the case of Tile City of Nairobi

Abstract

Competition and efficiency in beef retailing were The study was conf i ned to Na I rob i , a mnj or beef consumption area. The genera I object i ve was to assess the degree of competition and efficiency in beef retailing. Competition and efficiency are important prerequisites for markets to perform effectively the role of guiding production and consumption for maximum benefit to a I I market participants. Primary data were collected from a sample of 5/t butchers who are licenced to sell beef within the City of Nairobi. The data were collected during the months of March to May, 1989. Competition was assessed by investigating retai l e rconcentration, market transparency, vertical and horizontal integration and barriers to entry. On the other hand, efficiency was assessed by investigating technical and pricing efficiencies separately. Cost data were subjected to a descriptive analysis to obtain averages of unit costs of labour, capital and rent plus other fixed costs. Cobb-Douglas Production functions were also estimated for two butchery classes: low and high. The production functions were used to determine differences in butcheries as wel technical efficiency between groups as to test for pricing efficiency. of Pricing efficiency was also investigated by determining whether tr<:l!ifHFi were r e a p t n g excess profits, Empirical analysis showed that conditions for compet it ion were lack ing ma in Iy due to low mar ket transparency and high barriers to entry. Some butchers were found to be technical- and pricing- inefficient. It was concluded that butchers were reaping excess profits and at the same time operating at fairly high levels of unit costs. To enhance competition, it is recommended that the Nairobi City authorities put up more retail shops to ensure their availability as well as at affordable rents to potential competitors. It is also recommended that an information system be established to supply information on prices, supply and demand at various levels of the beef marketing channel. This could reduce the level of uncertainity faced by beef traders and market participants. Uniform grading, of beef is currently not being observed. Uniform grades should be established and enforced so as to enhance market transparency. Efficiency on the other hand could be improved by encouraging and supporting butchers to increase their volume of sales as well as adopting better labour utilization techniques, such as prepackaging of beef