Influence of Product Diversification Drivers on Performance of Dairy Enterprises in Kenya

Abstract

The dairy sub-sector constitutes that largest share of livestock contribution to Kenya’s GDP, that is, 3.5per cent of the total GDP, with the country having the largest dairy herd of 70 per cent, in Eastern and Southern Africa. The sector is the most developed within the livestock sub-sector yet faces various challenges key among them being very little value addition especially with regard to the variety of dairy products produced, low quality of dairy products produced and high costs of production incurred. This has robbed the country of the opportunity to increase the shelf life of dairy products as the excess milk produced especially during the high rainfall seasons goes to waste leading to loss of income. Product diversification is one of the best strategies for increasing profitability, reducing risk, achieving high growth and ensuring more efficient resource allocation in businesses. In the informal dairy sector which is smallholder dominated, product diversification can go a long way in helping to improve food security and increase incomes hence reducing poverty. Questions have however been raised on whether a smallholder dominated economy can diversify and whether smallholders participate significantly in product diversification towards high value products. This study seeks to answer this question by providing an empirical model of three variables: inputs, technological innovation and markets, moderated by value addition, that influence the performance of dairy enterprises in Kenya. Descriptive research study design was employed based on a target population of approximately 696 milk bars/milk traders in Kiambu County. Cluster and simple random sampling were used to select a sample size of 252 dairy enterprises in the county. Semi-structured questionnaires were used to collect data and t-test, Pearson correlation as well as multiple regression analysis used to analyze the data. The F-test was used to test the hypothesis of the study. SPSS Version 16 aided in the data analysis. The findings of the study show a significant positive linear correlation between access to inputs, level of technological innovation, access to markets and dairy enterprise performance. The results however revealed that value addition does not moderate the combined relationship between access to inputs, level of technological innovation, access to markets and dairy enterprise performance in Kiambu County, Kenya. Value addition to dairy products has positive implications on the profitability of the dairy enterprises and more dairy enterprises should be encouraged to add value to milk. The excess milk generated during the rainy season can therefore be used for value addition, hence reducing its wastage by transforming it into profitable products. Recommendation is made to the dairy industry players and the government take a more proactive approach especially in training the SSMVs on value addition of milk into higher value added dairy products. Lending institutions should be open to financing the informal dairy sector to enable them venture into vale addition activities. Assistance should be given to the milk bars to enable them procure technology like yoghurt dispensers and simple equipment for processing products like cheese and the government should assist the SSMVs in getting markets for their value added dairy products. The study proposes that other counties known to be large producers of milk should be investigated in order to have a holistic picture of the entire country as well as a study done on total product diversification strategy by the milk bars with regard to performance.