EFFICIENCY ANALYSIS OF CASHEW NUT MARKETING IN BAHARI DIVISION, KILIFI DISTRICT.

AMBANI KEVIN A. AGE/082/07

ARE 453: RESEARCH PROJECT

Research report submitted in partial fulfillment of the requirement for Bsc. Degree in Agriculture Economics and Resource Management at the Department of Economics and Resource Management in the School of Business and Economics.

MOI UNIVERSITY, KENYA.

MARCH 2011.

DECLARATION
Except for the references to other peoples work that have been duly cited, this project report is my original work and has not been presented for a degree in any university. No one should make any attempt to plagiarize or use any part without my prior permission and that of Moi University.

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Date .

Name: Ambani Kevin A. AGE/082/07.

This project report has been submitted with my approval.

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Date

Name: Mr. Ngeno, Supervisor.

Dedication
This work is dedicated to my mother Branice Bidinyu, who, when I was in my teens, encouraged me to read to gain wisdom for life. I remember following this advice as I embarked upon her challenge some twenty-one years ago. It was like opening a chest of glowing treasure that was hidden within the pages of books. It still glows! Also my late brother Collins Ambani and my girlfriend Rahab N. John and all those who made this work a success, thanks, for your prayers, direction and love.

Thanks
I would like to express my gratitude to a few of my lecturers at Moi University who helped me in my studies and life development and my appreciation of the department of economics and agriculture resource management. Thanks to Mr. Ngeno for his invaluable support, Dr. Korir, Mr. Nyangweso and Mr. Lagat for their pastoral tutorship and counsel. Then to my allies Stanslus Mwangi and Martha Waringa for their encouragement, steadfast support, reading, re-reading, listening, and most of all for their knowledge. Last, but no means least, thanks to the Lord and his Spirit of wisdom and mercy.

Abstract
Marketing is an integral part in the development of an industry. Production benefits cannot be realized unless such production is backed by appropriate and efficient marketing system for the product. This study was undertaken to provide an insight into the functioning of the cashew nut marketing environment. Limited work has been done on this product and much less on its marketing. The study was carried out in Bahari division, Kilifi district where the product is largely produced. The broad objective was to examine the market efficiency of cashew nut, its efficiency with emphasis on commodity trade and ultimately provide suggestions for formulating more effective marketing policy. The research design used in the study took the form of an explanatory field survey that was conducted between June and August on all traders dealing in cashew nut in Bahari division. Primary data was generated from interviews using pretested set of questionnaires on samples of cashew nut traders. Systematic sampling method was used to select respondents. The analysis adopted involved the use of descriptive and inferential statistics, regression and correlation analysis.

Table of Contents
Table of Contents........................................................................................................................5 1.3 RESEARCH QUESTIONS.............................................................................................10 3.0 RESEARCH METHODOLOGY........................................................................................18 5.0 SUMMARY AND DISCUSSION. ....................................................................................28 REFERENCES .........................................................................................................................30 APPENDICES..........................................................................................................................33

1.0 INTRODUCTION
The economic development of the Coast Province has been relatively slow compared to other regions of Kenya. Rural poverty stands at 57% among the estimated 2.5 million people in the province, despite its high agricultural potential, particularly in (cashew growing ecological zones) CGEZ I and in some parts of the CGEZ III. More than 56% of the inhabitants derive their income from tree crops, of which cashew is among the most important. Cashew nuts grow along the Coastal belt from Lunga Lunga in the south, to Lamu in the North East of the Province, covering Kwale, Kilifi, Malindi and Lamu Districts. The total area under cashew nut cultivation is estimated at 30,921 hectares (M' Rabu 2001). Cashew is among the oldest cash crops in Kenya. The tree, yielding even in poor soils, has excellent cash crop prospects for areas where other productive crops cannot grow well. The tree is indigenous to Central and South America and was introduced into East Africa during the sixteenth Century by the Portuguese. Its Swahili name is Kanju, a recognizable variation of Acaju, name given by the Tupi of South America. Cashew nut farming in Kenya is a smallholder activity and there are no large plantations. Individual holdings vary from a few trees to a few acres per farmer. According to a recent survey, growing of cashew nuts is confined to the agro ecological zones I, II, III of the Coast

Province of Kenya. The districts are Kwale, Kilifi, and Lamu. A few patches within Mombasa District contain some cashew nut trees that are not really cared for. The definition of zones is based on distance from the Indian Ocean Coast line. Zone I lies 0 to 15 km from the Coast Line, zone II at 15 to 35 km, and zone III at 35 km and beyond. Although cashew represents only one percent of the total Kenyan agricultural production in value, it is an important crop because it is grown in an areas with few alternative cash crops. There is room for establishment of new plantations and improvement of existing orchards through a proper management. CGEZ III covers the area beyond 35km that includes Ganze, Vitengeni and Bamba in Kilifi district; Samburu and Navaya in Kwale; Lango Mbaya, Marafa and Chakama in Malindi. There is a big potential for expansion of cashew plantations. People are moving into these areas because land is still cheap. This is an area where natural vegetation is being destroyed and cashew could serve as an agro forestry species. This study seeks to analyze the performance of the cashew nut market under liberalization with emphasis on marketing channels, value addition, and pricing efficiency.

1.1BACKGROUND OF STUDY
The story of cashew nuts is one of the most depressing in the Coast province. The collapse of the cashew nut industry in Kenya is a strong indictment on liberalization policies pushed on African countries by the World Bank and the International Monetary Fund (IMF). It is a story of policies gone wrong and local failure to support an industry that could have become the lifeline of many coast province residents. The marketing of the nuts was, until 1998, in the hands of the government and it was falsely hoped that the industry would be strong if the government stopped subsidizing the sector as recommended by the Bretton Woods institutions. That was not the case. Instead the liberalization pushed the industry to its deathbed and today there is little to write home about. (bdafrica.com)

The liberalization exposed the farmers to a global market that they could not wade through since most of the cooperatives were poorly run and unprepared for the open market economy. Before liberalization of the marketing of raw cashew nuts, the crop was marketed through farmers cooperative societies, agents and traders' agents and finally purchased by Kilifi Cashew Limited, the only major processor in the country. Stakeholders, thus considered the closure of the Kenya Cashew Nut Ltd. a denied guaranteed market outlet for the produce, emphasized by declining and unstable prices of the commodity and the excessive exploitation of farmers by middlemen. The farmers have always considered the prices offered for their crop too low compared to their expectations. The fluctuating nature of prices resulted in the discouragement of smallholders and the consequent neglect of their cashew orchards. The liberalization of cashew nut marketing coincided more or less with the closure of the main processing factory, Kenya Cashew Nuts Limited, in 1998. It was expected that the liberalization of cashew nut marketing would allow competition in a buyers' market. But the scenario pertaining since 1998 has made the farmers even more perplexed. The main stakeholders of the sector are the farmers themselves, some small scale traders who buy the unprocessed nuts at the farm gate or rural markets and resell them to exporters, and the exporters who ship the nuts to India for processing. Pricing is a big issue in the cashew sector because of the prevalence of exploitation of farmers, farm prices being set by external forces. Because of the disorganized nature of marketing, most of the crop is bought at farm gate. While there may be market days, raw cashews are not the main commodity on sale. This indicates that an increased return to farmers relies on the better management of the cashew nut marketing system by stakeholders, thus sparking the need to undertake the study.

1.2 PROBLEM STATEMENT

Market information plays a major role in guiding planning, production and providing feedback on the performance of products in the market place. This is fundamental in the production and marketing of raw cashew nuts. Smallholders are usually the most uninformed in the chain of activities related to the disposal of their crop. Price levels are determined elsewhere, without their involvement. The cooperative societies, traders or agents announce the new prices at the beginning of the harvesting season, but farmers do not dispose of a mechanism ascertaining the genuineness of the price levels set. This problem is complicated by the lack of an accurate and acceptable method of determining the correct farm- gate price for the producer (Waithaka 2002). The liberalization of cashew nut marketing was expected to result in increased business confidence among the various stakeholders, including the small holders, traders and small processors, which should have led to dynamic changes in the sector. This was, however not the case. Prices have continued to be unpredictable and unsatisfactory. The farmer thus marketing problems have been made worse by the collapse of the marketing system after liberalization. Liberalization has exposed the farmers to a marketing environment with completely unpredictable prices, which led them to neglect their trees and the crop as a whole. The area under the crop has hence declined from 36,000 hectares in the late 1980's to 27,000 hectares presently. The main causes of the decline is related to low prices, pests and disease, limited research and other market constraints. This led to yield decline to below optimum.

The cashew industry plummeted from a high production of 24,000 tonnes in the 1970s to an estimated 10,000 tonnes two years ago (F.K Muniu 2001). Moreover, since the closure of the sole cashew nut processing factory in 1996, small scale farmers have been left at the mercy of brokers who sell the raw nuts to India and Tanzania who add value and export the nuts as their own. That the pricing of raw cashew nuts is not organized is a big minus for the farmers since there is no set price. This has allowed brokers to determine prices, an issue which should be looked at. The current cashew nut deficit in the country thus indicates an apparent problem of local market failure to stimulate production, thereby making it necessary to analyze in detail the aspects of cashew nut which bring about the prevailing scenario. For as long as the situation persists, it wound hinder the growth of an efficient marketing system for this commodity. Other problems facing cashew nuts industry include price fluctuation, and lack of sufficient statistical data on marketing. Based on these generalizations the knowledge of the market structure, conduct and performance is vital if the necessary changes are to be affected in order to cope up with the ever-increasing demand for cashew nut in the economy.

1.3 RESEARCH QUESTIONS

Is the marketing system of cashew nut in Bahari division efficient?

1.4 GENERAL OBJECTIVE

To assess the efficiency of the marketing system of cashew nut in Bahari division, Kilifi district. This is done with a view of formulating suggestions and recommendations aimed at facilitating the full recovery of the cashew nut sector. To achieve this general objective, the following specific objectives are to be pursued: To assess the market performance. To evaluate the efficiency of the market performance with respect to price differentials between farm gate prices and consumer prices.

1.5 HYPOTHESIS OF THE STUDY

Null hypothesis

 The markets for cashew nut are not competitive.

Theres no difference between marketing margins and the marketing costs (i.e. the two means are the same) in cashew nut market.

1.6 JUSTIFICATION/ SIGNIFICANCE OF THE STUDY

The economic development of the coast province has been relatively slow compared to other regions of Kenya and since most of the inhabitants derive most of their income from tree crops and theres room for establishment of new plantations and improvements of existing orchards through a proper management, this has not been the case. Then it means theres no perfect flow of market information which plays a major role in guiding planning, production and providing feedback on the performance of the product in the market. This has been the main reason for the negligence of the trees by farmers. Moreover it is today used in chocolate factories and should be an instant hit. But we can only have it as an industry if we add value and stop selling raw products to other countries.

1.7 CONCEPTUAL FRAMEWORK

S-C-P Framework One important approach to the study of market performance is the Structure-ConductPerformance (SCP) framework. The SCP framework suggests that relationships exist between structural characteristics of a market and the behavior of market participants and that their behavior in turn influences the performance of the market (Scarborough and Kydd 1992; Scott 1995). Among the major structural characteristics of a market is the degree of concentration, that is, the number of market participants and their size distribution; and the relative ease or difficulty for market participants to secure entry into the market. Market conduct refers to the

behavior of firms or the strategy they use with respect to pricing, buying, selling, etc., which may take the form of informal cooperation or collusion. Typical structure-conduct-performance (SCP) analysis tends to assess market performance largely in terms of: (i) Whether marketing margins charged by various actors in the marketing system are consistent with costs; and (ii) Whether the degree of market concentration is low enough (and the number of firms operating in a market is large enough) to ensure competition, 1 which is in turn assumed to drive down costs to their lowest level. The SCP approach postulates that as market structure deviates away from the paradigm of perfect competition, the extent of competitiveness of the market will decrease, which is likely to impede market efficiency (Scarborough and Kydd 1992; Scott 1995). However, there are several shortcomings with these criteria for assessing market performance, which should be kept in mind when reviewing the findings contained in this report. First, the criterion that observed marketing margins should be consistent with costs does in no way indicate that the marketing system is performing adequately. Schultzs efficient but poor observation of low-resource farmers also characterizes the functioning of marketing systems in many developing areas (Shaffer et al. 1985). Marketing margins may approximate costs, but these costs may be too high and unstable to encourage rapid investment in the marketing system to promote on-farm productivity growth. Therefore, assessments of market performance based on whether costs approximate marketing margins must be viewed as very static snapshots at a particular point in time that fail to incorporate the longer-run dynamic issues of how incentives can be structured within the rules of economic exchange to reduce costs at the various stages of the production/marketing system (Jayne 1997).

The second criterion (establishing whether competition exists based the number of firms in the market) is also problematic in the presence of scale economies. The high costs of transportation between a production region and a major regional market may result in very low producer prices in the remote production region. Low prices in turn depress the marketable surplus available for purchase by assemblers. And the existence of small surpluses in turn limits the number of traders that can profitably operate in an area, particularly in the presence of scale economies in marketing activities (e.g., transportation). Therefore, the existence of few traders (high market concentration among buyers) would not necessarily point to lack of competition or artificial barriers to entry, nor would a large number of traders each handling very small volumes indicate that per unit marketing costs are being minimized.

1.8 STUDY LIMITATIONS

Traveling funds.

Some correspondents were not willing to give out the information about their business.

2.0 LITERATURE REVIEW

2.1 Introduction
There are few studies on marketing efficiency of cashew nut in Kenya. Most of the publications about these markets are descriptive analyses with emphases on legislative and/or other developing issues. Such examples include papers written by F.K. Muniu and D. Wanjala and J.H.G. Waithaka (2002). Marketing is an integral part in the development of an industry. Production benefits cannot be realized unless such production is backed by appropriate and efficient marketing system for the product. The study is undertaken to provide an insight into the functioning of the cashew nut marketing system. Limited work has been done on this crop and much less on its marketing. The cashew nut is an important cash crop for Coast Province with a total plant population of over two million trees, the potential of the crop in improving the peoples livelihood is thus great. However, of late this objective has not been realized due to the challenges in production, processing and marketing strategies. Production of the crop has recently been on the decline from 14000 tonnes three years ago to 10,000 tonnes last year. The cashew sector met its waterloo following Government policy decision to allow the export of raw cashew nuts, in effect leading to the closure of then vibrant kilifi Cashew Nut factory in Coast Province with others following suit. The sector has currently two million trees producing 10,200 tonnes of cashew nuts this translates into 5.1 kilograms /tree, compared to 30 kilograms/tree if well managed. Over 80% of the trees are said to be suffering from powdery mildew a fungal disease that affects a

wide range of plants. Other challenges include lack of policy for the sub-sector. (Oyuke John 2010)

2.2 Nature of research-based evidence.

A feasibility study on cashew nut production in the coastal region conducted by Outremere in 1982 suggested a project aimed at improving cashew production in the Coast Province. In participatory rural appraisals carried out in 1994, Kilifi and Kwale District farmers ranked cashew first among the cash crops while Lamu farmers ranked it second after cotton (Otieno et al, 1994; Kega et al, 1994; Islam et al, 1994). In a priority setting exercise conducted to identify priority areas for research and extension in the coastal region, it was recommended that a diagnostic study be conducted to establish the cause(s) of the decline (Anon, 1994). The study conducted in Kilifi and Kwale districts showed that diseases and pests, poor management practices, low producer prices and wildlife were the main causes of decline in cashew nut production in the region (Muniu et al, 1995, Muniu, 1997). A baseline study conducted by F.K Muniu and Enoch Mrabu in 2001 found out that cashew production in Kenya has been declining due to: Diseases mainly powdery mildew Disorganized marketing environment Loss of local processing capacity due to closure of the only processing plant.

The study further noted that there were very few farmer organizations dealing with cashew nuts thus no bargaining power over their crop. There is a need for farmers to form associations that would enable them to air their views on the industry.

The baseline and case studies proved essential in the process due to their linkage with the practical events obtaining in the communities. As explained above, Dr. Mrabu and Mr. Muniu made reference not only on the studies they conducted but also other studies.

2.3 CURRENT Market structure and performance.

Marketing aspects comprise outlets, mode of transport, pricing, the effects of the closure of the processing factory and the value adding/processing aspects. Existing market outlets include neighborhood shopkeepers and agents/middlemen. Agents /middlemen are the most common buyers of nuts in Kenya, undertaking about 95.2% of the trade in Kilifi, some 83.5% in Kwale and 64.6% in Malindi. (Waithaka 2002)

Market Structure and Conduct: This refers to those characteristic of the organization of a market which seem to influence strategically the nature of competition and pricing in the market. While market conduct is concerned with behavioral patterns that market participants adopt in order to compete in the market environment. The significance of conduct will depend on the type of market which varies from perfect competitive, oligopoly to monopolistic types of market structures. Thus market conduct deals with: policies towards price setting, product quality setting and or policies towards coercive. Market structure defines and describes mainly the degree of sellers and buyers concentration, and explains the conditions to entry in the market. If the sellers and buyers concentration ratio is small, then the market is said to be efficient and competitive, but if the ratio is high (>75) then the market is said to be inefficient and possibility of monopoly power existence.

Market Performance:

This is concerned with the appraisal of how far economic results of an industrys behavior falls short of the best possible contribution it could make to achieve its goals (Clodius et al, 1961). Performance may be analyzed through various parameters, Sandiford and Miller (1996) gave four efficiency criteria for performance assessment; pricing, allocative, technical and operational efficiency. Others include progressiveness or innovation, equity of resource distribution and creation of employment (Marion and Mueller, 1983). Pricing efficiency is concerned with the accuracy, precision and speed with which prices reflect consumer demand and are passed through the market channels to producers (Crammer and Jensen, 1985). Pricing efficiency is enhanced by improvements in markets news, information and competition. Preston et al (1973) says that market structure is said to be efficient when cost changes are reflected in volume changes. Schubert (1973) adds that performance can be assessed according to how far the market mechanism has succeeded in limiting seasonal fluctuations to storage costs and avoiding erratic price fluctuations.

3.0 RESEARCH METHODOLOGY

3.1 Introduction
This chapter discusses the research methods that were used to achieve the objectives of the study. It includes the research design, the study area, study population, the sample size and the sampling method and the research instruments that were used. The data collection method, procedures and the data analysis procedures that were used in the study.

3.2 Research Design

Descriptive research design was used in the study. Data was collected at one point at a time. This type of design was selected because there was no manipulation of any variables by the researcher therefore there was no influence on them. The study aimed at analyzing, interpreting and reporting on the market situation of the traders and vendors of cashew nuts in Bahari area of Kilifi District.

3.3 Study population

The target population for the research was the traders and or the vendors of cashew nuts in Bahari Division.

3.4 The study area

The study area was Kikambala, Chonyi, Mtwapa and Vipingo of Bahari division of Kilifi District in Coast province of Kenya which lies between latitude 2o20 & 4o South and between longitudes 39o & 40o14 East. The district borders Taita Taveta to the West, Tana River to the North and North West, Mombasa and Kwale to the South. It has an area of 12483 sq km which excludes 109 sq km of the Indian Ocean water surface.

The position of the district puts it in a strategic location for industrial growth in the Coast. It borders Mombasa which is the 2nd largest town in Kenya and is only about 10kms from the Kenyas main sea port of kilindini.

3.5 Study sample and sampling procedures.

A sample of 34 respondents was picked using Systematic Sampling method that was done in the clustered areas of Kikambala, Chonyi, Mtwapa and Vipingo centers. This sampling is a part of simple random sampling in ascending or descending orders. In systematic sampling a sample is drawn according to some predetermined object. Thus after every 3 rd trader, a questionnaire was administered to the fourth trader. This method is very easy and economical. It also saves a lot of time

3.6 Data collection Instruments.

The instruments that were used for data collection were an interviews, questionnaires and observation on non-verbal behaviors. These were picked because the level of knowledge of the cashew nut vendors was not known and it was easier to do the interview and get first-hand information. Also during interviewing observations were done to support the answers. The questions that were used were both open ended and closed ended and the interviews were personal interviews, one interviewer to one respondent. The questionnaires was pre-tested on 4 vendors in Mtwapa centre which has the same settings as other centers where the data was collected amendments were made on the questionnaires before data collection was done.

3.7 Data collection procedures.

After pre-testing and amending the questionnaires, the researcher seeked for permission from the District Agricultural Officer (Kilifi) before embarking on the exercise of collecting data.

The data collection exercise was done by interviewing and distributing questionnaires to a target of 10 respondents per day. The exercise started from Vipingo the centre at the main road, followed by Kikambala, Chonyi and the last centre from which data was collected was Mtwapa and this took a total of 6 days in the first two weeks of July.

3.8 Data analysis

Data analysis for the research study was done using the data with the help of descriptive statistical analysis of the various variables. A statistical inference was also used to draw conclusions about attributes of the population based upon information contained in the sample (taken from the population). From the data generated discussions were made and conclusions drawn.

4.0 RESEARCH FINDINGS.

No. Of Traders 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 Volume Handled 90 400 1500 40 100 135 4 12 10 10 10 10 30 18 20 40 10 8 20 30 40 20 10 20 10 30 30 40 20 50 100 90 30 100 Consumer price 40 39 61 34 50 43 68 36 37 31 36 49 47 31 40 39 38 39 46 59 32 59 58 37 29 33 43 42 32 34 57 43 40 41 Producer price 20 20 40 25 25 30 40 20 25 20 20 30 30 20 25 25 25 25 30 40 20 40 40 20 15 15 25 25 15 20 40 30 29 25 Total costs 17.77 18.89 21.12 10.0 25.0 13.34 28.34 17.56 13.22 12.56 17.11 19.45 17.67 15.11 15.99 15.9 14.77 14.9 16.11 19.45 12.67 19.44 15.67 16.67 14.45 15.33 15.78 16.67 16.22 11.44 16.67 12.78 11.0 16.11

Source: Authors survey

Data collected from the questionnaires given to a sample of 34 traders in Bahari division was edited and summarized as shown in the table above which was then used in the analysis;

4.1 The Cashew nut Marketing Channels

According to Schubert (1973, p.39), the marketing system is asocial network of elements involved in the transaction and transformation of goods and services in space, time and form. In this context, the cashew nut marketing systems elements include the farmers, consumers and cashew nut traders as one side, cashew nut markets, marketing organization on the other side. Transactions refer to the economic interactions involved in the movement of cashew nut through the system which results in the transfer of ownership. In the primary markets, there are primary buyers who visit farm holdings and collect the produce or intercept the farm produce to local markets and buy by the roadside. These are either middlemen or commission agents buying on behalf of their clients or the wholesalers themselves. Some of these primary buyers sell to sedentary market traders in the primary markets. Farmers also sell directly to the consumers and those that the cashew nut traders procure. The study indicated most of the farmers sell directly to traders. This represented the shortest marketing channel and is common only in the primary markets.

FARMERS

Bicycle traders

Kiosks

Brokers

Local processors & Blenders

Big traders

Export (Raw nuts)

Domestic consumer

Export (Kernels)

4.2 Structure and Performance of the Marketing system of cashew nut.

Market structure includes all those organizational characteristics of a market that establish interrelationships between the marketing firms of a particular product in an industry (Caves, 1977, p.17). Economic theory classifies markets into four market models based largely on the number of firms in the industry that supplies the product (perfect competition, monopoly, monopolistic competition and oligopoly). Further economic theory tells us that each market form influences the market performance of the product. According to traditional theory, market performance of business enterprises has a strong link with the structure of market in which they operate. The structure of the market influences the behavior of firms (that is the nature of competition and pricing within product markets) which determines the various aspects of performance. These issues are discussed in subsequent sections of this chapter.

4.2.1 The Cashew nut Market Concentration.

Test of Hypothesis 1: Ho: The markets for cashew nut are not competitive. Economic theory uses the number of firms to classify markets from perfect competition to pure monopoly. Thus the need for a measurement tool which takes account of both the number and the size of firms in a market yet presents the results in a form simple enough that is easy to interpret. The most used device is the concentration ratio. Market concentration ratio (CR) is the proportion of the total industry sales (or physical output) contributed by the n largest firms ranked in order of their market share.

To compute the CR, the firms/ traders were first ranked in order of the volume of cashew nuts handled from the largest to the smallest handlers in the market place.

Equation 1 Volume handled by ith traders Sellers CR= Volume handled by the n traders 100

Where ith 1st 3 (largest, medium and smallest) volume handled n total volume handled by the 34 traders

4+8+10+30+40+50+400+135+1500 100 3,087

=70.52%

4.2.1.1 Summary Findings.

Sellers concentration ratio was determined. The result (70.52%) is < 75% showed that the market was not highly concentrated indicating the non-existence of potential monopoly power. The ratio was not satisfactory for a freely competitive market. This indicated that few sellers controlled a large share of the total market sales though were not the price determiners. This also indicated the possibility of less than satisfactory performance of the marketing system. Thus the null hypothesis is rejected and concludes that the cashew nut market is competitive.

4.2.2 Pricing Efficiency.

Test of Hypothesis 2: Ho: Theres no difference between marketing margins and the marketing costs (i.e. the two means are the same) in cashew nut market. The general procedure of this hypothesis testing requires that the standard error be calculated as under; Standard error of the difference between means:

(12) = 21/n1+22/n2
= 12 / (12)
Where 1,

2 is the means of the sample(s)

At 5% level of confidence, the critical value of for two-tailed = 1.96. If the computed value of is greater than + 1.96 or less than 1.96, then reject the Ho. Thus; Marketing margins, Marketing costs,

1
Sample size, n Mean Standard deviation 34 16.1471 3.96295

2
34 16.2594 3.91953

= 12/ S21/n1+S22/n2
=16.1471-16.2594/ (3.96295)2/34 + (3.91953)2/34 = -0.123

4.2.2.1 Summary Findings.

Since our computed value of = -0.123 is smaller than critical value of = 1.96 (5% level). Drawing upon these results, our hypothesis is accepted in favor of the alternative. Therefore, the difference is insignificant and the null hypothesis is accepted. Hence the difference between sample mean of marketing margins and the marketing costs is insignificant. This means the pricing of cashew nut marketing system is efficient, as the total costs are truly reflected in the marketing margins.

5.0 SUMMARY AND DISCUSSION.

5.1 Summary of research results.
These section attempts to present the major results of this study. These include: a) The study identified the major or dormant marketing channel that cashew nut traded passes through. Hence expresses the existing marketing opportunities for the cashew nut product. b) Marketing transparency is limited among farmers and primary level traders. The farmers prices are discovered in the market place and they arrive at their selling points after observing what others are charging in the market. And the prevailing cashew nut prices being largely unknown, they do not stimulate sales among producers which in turn leads to negligence of the product as a whole.

5.2 Implications.
5.2.1 Conclusion.
The cashew nut marketing system in the study area primary markets located in the production zones though efficient; it is characterized by a poor market transparency and thus exploitation by middlemen. The result of 70.52% was just 4.48% short of the 75% for it to be a monopoly market. Thus the ratio was not satisfactory for a freely competitive market. This indicated that a few sellers controlled a large share of the total market sales though were not the price determiners may have influenced the market in one way or another. This also indicated the possibility of less than satisfactory performance of the marketing system. A perfect competitive market is not always favorable to the producer, since it provides the lowest prices possible (just enough to cover the production costs). It is for this reason that most farmers neglect their trees and seek other off-farm activities to supplement their source of income.

Most of the buyers who happen to be brokers sell or deal in raw nuts. This makes it difficult to realize benefits from value addition since theres no processing done in the country. Thus this translates to lower prices to the producers, but if we could just process and export the product then the benefits realized could also trickle down to the producer and hence entice him to take care of his production. But we can only have it as an industry if we add value and stop selling raw products to other countries. The paper concludes with suggestions on what is required for government to truly embraced research as the starting point in the endeavour to realise development in the cashew nut industry.

5.2.2

Recommendations.

1) In the recent past, cost of crop production has risen considerably due to the rising cost of inputs (fertilizers, pesticides, seeds etc.). Interest rates though coming down are still beyond the reach of many farmers and commercial banks require securities that most farmers do not have. The above limits small-scale farmers ability to expand production.
2) Establishment of the Kenya Cashew nut Promotion Council (KCPC). The Council

should in addition to its functions recommend intervention strategies for improving the marketing of Cashew nut and its by-products by adopting measures aimed at achieving premium and incentive prices; encouraging transfer and adoption of modern technologies for research, increased productivity of Cashew nut and its by-products; promoting the local consumption and utilization of Cashew nut and its by-products; forming of stakeholder groups that will spearhead issues of mutual interest and initiating mechanisms for self-sustenance.
3) Additional cashew nut supplies will have to come from increases in yields through

input intensification programs and improved production technologies in addition

to efficient marketing operations. The production potential that exists has been demonstrated by experimental results from KARI research station Mtwapa. Other research centres that develop new commercial varieties of cashew are in Matuga and Msabaha. They include A41, A47, A81, A82, A90, A100.

Improved cashew tree varieties and their characteristics. Nut characteristics Variety A75/83 A100 Weight(g) 5.25 5.07 Kernel Yield

Length (mm) Width (mm) weight (g) (kg/tree) 28.27 20.91 1.25 34.71 29.14 22.53 1.46 78.55

Source: Annual Reports, Kenya Agricultural Research Centre, Coast Province,Mtwapa.

4) Further studies are suggested in the cashew nut sub sector in Kenya to cover: i. The production of cashew nuts in Kenya with the special emphasis on the factors which influence the current production patterns. ii. Market performance of both raw and processed cashew nuts products that would cover the whole of coast province and operations for longer time spans.

REFERENCES
Bain, J.S (1968), Industrial organization. John Wiley and sons, New York

Caves, S.R.E, (1977), American industry, structure, conduct and performance. Prentice hall international inc. London

Crammer, G.L and Jensen, C.W (1985),Agricultural economics. John Wiley and sons, New York. F.K Muniu and E Mrabu (2001) Cashew nut Baseline Study (unpublished) Jayne, T.S., and Gem Argwings-Kodhek., Consumer Response to Maize Market Liberalization in Urban Kenya. ," Food Policy, Vol. 22, No. 5 (1997), pp.447-457. Kilifi district development plan and Kilifi district Wikipedia. Nyoro K. James, Kiiru W. Mary and JayneS.T., Evolution of Kenya maize marketing systems in the post liberalization era. Oyuke John, Renewed hope for cahew nut farmers.article in the Standard published 14/04/09 Ojiambo Elphias, Can the poor influence policy? Lessons from the cashew nut revitalization campaign in Kenya coast. Sandiford, (1983), Management of pastoral development in the third world. New York Scarborough, V. And Kydd, J. 1992. Economic Analysis of Agricultural Markets: A Manual. Chatham, U.K. Natural Resources Institute. Schimdt J G (1979), Maize and beans marketing in Kenya, marketing development project working paper Schubert, B. 1973, some considerations on the methods for Evaluating Marketing System for Agricultural products. In East African journal of Rural Development vol.6 no. 1 &2.E.A society and Makerere University, Kampala Uganda 1973.

Shaffer, James D., Michael Weber, Harold Riley, and John Staatz, "Influencing the Design of Marketing Systems to Promote Development in Third World Countries." in Ag. Markets in the Semi-Arid Tropics: Proceedings of the Intl. Workshop Waithaka G. H. J., Assessment of the situation and development prospects for the cashew nut sector Waringa Martha, Analysis of efficiency of beans marketing system in Ol Moran division,Laikipia West district. (Unpublished)

APPENDICES
Appendix 1: BUDGET AND TIME SCHEDULE Table1. Time frame of study

Task Proposal writing and Presenting Reconnaissance survey Field data collection Data analysis Report compilation Report submission

March/Ap ril

June

July

Augu st

Februa ry

March

Table2. Budget of study

Item Questionnaire production Notebooks Biro pens Casuals

Quantity required 40 1 4 1

Cost / piece(Ksh) 2 20 20 200 per day each for 20 days

Total cost(Ksh) 80 20 80 4,000

Bus fair to the locations

1 trip to and from each location( 4

100

400

Accommodation and meals total

trips) 10 days in the field

150 Sub-

1,500 6,080 304 6,384

Miscellaneous amount x 6,080)

(5% Gr

and total

Appendix 2: QUESTIONNAIRE TO RESPONDENTS

Dear Respondent, I am a student at Moi University undertaking a Bachelor degree in Agricultural Economics and Resource Management. I am carrying out a research survey on cashew nut marketing system and humbly requests for your assistance in data collection by filling this questionnaire to the best of your knowledge. All information submitted through this study will be treated as confidential and will only be used for the purpose of this study and related academic purposes. Thanks in advance. Yours sincerely,

Ambani Kevin A. NB: Please tick where appropriate. Questionnaire No. : Date Name

: :

1. Gender

M F

[ [

] ]

2. Whats your role in marketing of cashew nut? a. Farmer [ ] Trader [ ]

2. Where do you market your produce? a. Traders [ ] Consumers [ ] Middlemen [ ]

3. According to question 3, who are your major buyers? a. . If a trader, are there any value additions to the product before it is finally sold? Y [ ] N [ ]

If a farmer, did the closure of the only cashew nut factory had an impact on your production and how?

4. Whats the selling price for a kg of cashew nut? a. .

Buying price

5. Has the cashew nut prices been increasing for the last 5 years? a. ..

6. According to question 6, how do you rate the selling prices according to the cost of production?

a. Poor [

] Fair

] Good [

] Very good [

7. Do you depend entirely on cashew nut marketing for your living? a. Y [ ] N [ ]

b. Specify .. If No. what other economic or market activity do you engage in?

8. How much do you spend as? a. Handling cost b. Storage cost . .

c. Transport cost .

9. Whats your maximum capacity of cashew nut do you handle in the market? a. .

10. What are some of the problems and or challenges that you face in

the market? Specify

a. ..

11.

Where do you see the cashew nut market in the future? a. ..