Determinants of Coffee production in the Kenyan economy

Abstract

The study is an assessment of the determinants of coffee production in the Kenyan economy. The purpose of the study stems from the observation that there has been a decline in coffee production over time. The study adapted the Nerlovian model to estimate the supply response of coffee to various price and non price factors. Findings indicate that overall goodness of fit of the first model (Coffee Output model) is satisfactory as ref/ected by R-squared of 0.8059. It is clear that there is a positive relationship between price and coffee output. Results also indicate that coffee output has a positive and statistically significant relationship with hectarage planted. Therefore, an increase in hectarage leads to an increase in coffee output (Tonage).

There is a negative but statistically insignificant relationship between coffee output and rainfall (dummy) further implying that an increase in rainfall beyond the level of 2500mm and a drop in rainfall below 1000mm leads to a drop in coffee output (Tonage). Findings further reveal that there exist a positive and statistically significant relationship between coffee output and price of input (fertilizer). However, the relationship between coffee output and credit advanced is negative but statistically significant. The hectarage model also demonstrated an overall goodness of fit of 0.95713 which was satisfactory. From the study results it is clear that the relationship between the hectarage planted and coffee output is positive and statistically significant.

There exists a positive and statistically insignificant relationship between hectarage and coffee value. Results also reveal that there is a positive and statistically insignificant relationship between hectarage and coffee prices. Finally, there is a negative and statistically insignificant relationship between hectarage planted and rainfall (dummy). In the short run, the only variable that was significant and positively related to hectarage was coffee value. The results also indicated a negative error-correction term of negative 0.065. This meant that 6 % of the disequilibria in coffee production achieved in one period are corrected in the subsequent period. In conclusion, it was recommended that the government should address the credit constraints and look for ways in which farmers can direct credit resources towards coffee production in an effort to promote the increased production of the crop.