Cost-price squeeze in export oriented crop production: welfare implication for commercialized smallholder tea producers in Kenya

Abstract

Tea production, a leading export crop in Kenya and produced largely by smallholders was analyzed to determine how the input and output prices adjust to both inflation and exchange rates. It was hypothesized that prices received and prices paid by farmers are not cointegrated and that a cost-price squeeze could not be rejected in the long-run. Based on cointegration analysis results, we could not reject the null hypothesis of no cointegration between prices paid and prices received in the long run. Macroeconomic variables impacts unevenly on the tea sector with probable negative effects on the welfare of smallholders. The livelihood of export oriented cash crop producers in less developed countries, therefore, becomes integrally vulnerable to market forces. Price volatility coupled with constant market shocks could impact negatively on the general livelihoods of the smallholder export farmers particularly food access at the household level.