CHAPTER TWO

LITERATURE REVIEW

INTRODUCTION

Present Milk marketing Channels

Marketing channels forms a fundamental basis on distribution system and its associated utility functions and the overall system. Focusing on the developing of economies such as the Kenya economy, marketing channels evolved gradually and was viewed as set of interdependent organizations that its main aim was to ensure that milk saws available to the final consumers who are the customers (Coughlin et al., 2001). The marketing channel normally comprises of institutionally oriented groups such as a farmer, distributor, seller, and the consumer of the product, of course, milk (Anderson and Coughlan, 2002).

In Kenya, dairy farmers market their milk through small-scale milk processors. In their study of examining the determinants of smallholder farmers’ adoption of various marketing channels, Mburu et al. (2007) observed that Kenya distributes its milk through small-scale traders and local trade cooperatives. It was found that majority of farmers were selling their milk to cooperatives because they acted as a source of production information and credit services to farmers. Otieno et al., (2009) observed that marketing channels where farmers adopted cooperative brought about market information that greatly increased the output of the milk production in farmers who were involved in such a channel.

Ortukoglu and Olgum (2008) in their study of determining the market strategies in the Turkey, farmers choose a marketing channel that will enhance their relation with the producer since they assumed that they were to benefit through educational and financial help provided by the producer. Besides most of the farmers argued that, they wished to join a marketing channel that was to enable to form their cooperative society aimed to benefit its members later. According to this study farmers preferred to use six beneficial marketing channels: milk processing cooperatives, small-scale milk processing plants, national and regional dairies, local private processing plants and the milk processing factories and milk collection cooperatives and the street sellers.

In his study of investigating the determinants of smallholder farmers’ adoption of various milk-marketing channels in Kenya, Mburu et al. (2007) observed that most farmers prefer to use marketing channels that operate to benefit them in that they organize themselves to form small-scale cooperatives where they are involved in collecting, processing, marketing of milk and value addition. Collective action enables small-scale farmers to attain the bargaining power, economies of scale and transaction costs. Marketing cooperatives are very vital in market adoption because they enable farmers to produce quality, access financial resources, marketing information and educational farming practices (Ndinomupya, 2008).

Peeler and Omore (1997) estimated that the production is 2.5million MT from the dairy, (69%) representing 1.72 million of dairy is from smallholder farmers. Of the amount produced by smallholder farmers, 36% are non-marketed milk is not marked, and the remaining 64% is marked. About 20% of the marked milk is sold to the KCC and private processors, and the remaining milk is sold to non-processors. The farmers channel the non-processed milk direct to consumers and the other is a channel and collects either to the dairy cooperatives which can sell them directly or to other processors.

In Nyeri, Nyandarua, Transnzoia, Koibatek and Nandi, KCC and still dominates in buying milk from the farmers 50%, of course, passing through their factories. It is mainly done to enable Kenyans a chance to grow through giving the opportunities that will enable them flourish well in the daily sector. The rest of the milk is majorly sold to the cooperatives or local retailers of milk.

Small-scale markets in Kenya sprung up in 1992 soon after the liberalization of the Kenya dairy sector in 1992 and the subsequent collapse of Kenya cooperative creameries. According to Omore et al.(2004) in Nakuru there are small milk retailers who buy milk from farmers by use of bicycles at evenings at around 6:00 pm and preserve the milk in cold water later they sell the milk to the in Nakuru Town to other milk broker who finally sell it to the milk processors. In the course of buying and selling such milk, they meet so many obstacles such as harassment because of competition from the public officials. The mobile milk traders in Nakuru have formed an association called Gatemano self-help group, and it sells milk in Nakuru town. The association has employed a young lady who sells the milk on their behalf. This is in line with the Kenya Dairy Board (KDB). Any retailer with fixed premises can be allowed to receive a Licence.

In Muranga County, it was observed that many farmers were transporting milk through matatus, and there was no harassment as the farmers were doing their businesses without any problem. It shows that regions matter in terms of the membership in the cooperative societies.

Sinja et al. (2006) argued that there are so many factors that contribute to the farmers joining cooperative societies in Kenya. These factors will enable us to expound more on our subject of study. As early mentioned in Omore et al. (2004), farmers in Nakuru faced a lot of harassment due to competition while those in Nakuru had no any problem. It means that regions do affect membership to cooperative; Murang’a will record the highest number farmers in cooperative societies while in Nakuru the number will be minimal due to harassment. Central region is more favorable coming up with many cooperative societies unlike many parts of the country

Many farmers in Nyeri are in cooperatives, and others are selling their milk directly to the consumers. Farmers prefer to be on cooperatives unlike selling directly to the customers. In cooperatives, farmers do benefit a lot because of some beneficial incentives given. A farmer can process a loan in a cooperative whenever he or she is in need of it (Sinja et al., 2006). Registered members in farmers’ cooperative enjoy so many benefits unlike their counterparts who are not registered. Farmer’s cooperatives prefer selling their milk to the national cooperatives hence development of cooperatives in Nyeri county and Kenya at large.

Debt Recovery

Cooperatives society aims to improve the lives of its members by supporting them financially through loans and educational support such as workshops and seminars. One of the objectives of cooperatives id to poverty alleviation and the development of the society (World Summit for Social Development, 1995). Therefore, this means that the cooperatives give loans to the small-scale dairy farmers with reason to improve their production in terms of quality and quantity.

Arene (1992) argues that the debt repayment should have been a major problem in many parts of the world. Debt recovery is a function of many factors that include among other; the size of the debt in question, income of the debtor, age of the debtor, the size of the farm,/firm, the distance between home and the source of the loan, the level of education of the debtor, household size among others. Close analysis of these factors, for example, the size of the enterprise that one owns affects the debt recovery by a great margin. Members with huge amounts of loans are bound not to pay up the debt in time or as required (Von, 1980). It means, therefore that farmers should be able to pay up their loans in time to enable to cooperatives plan develop.

Von Pischke (1980) argues that there are two problems associated with loan recovery that is credit project problems and the credit project implementation problems. Credit project problem is whereby the farmer must have to consider all the factors that can hinder enable debt repayment. In his study on how to improve the member of cooperatives debt repayment terms, he discovered that farmers should have a debt repayment plan such as the collective mechanism, institutional scope, bookkeeping convenience, expected the value versus dispersion among others.

Bhaskanran and Josh (2000) debt recovery help a lot in the development of cooperatives in different parts of the world. He further argued that cooperative society needs to have well and elaborate terms of loans to avoid debt unworthiness among the customers of the cooperatives. The study was done in India and discovered that many cooperatives did not suffer from bad debts. The resources recovered from the debtors help a great deal in the development of the cooperative societies.

Rabin, Chandrasekhar & Amit (2014) argued that the performance of the loan recovery is considered as the index of evaluating the operational efficiency and the organizational proficiency of financial institutions. Recovery of loans in the time reinforces the resource position of the cooperatives. This boosts up the morale and awareness of among the members. Conversely poor recovery of increases the numbers of defaulters and overdue which in turn reduces borrowing power consequently.

Velayudham and Sankarnarayanan (1990) found that debt recovery is very poor because many members do not have adequate resources to enable them repay the loans. It was also found that most of the rural local cooperative members are never advanced academically. It was attributed to situations such as internal and external factors of the cooperatives. Internal factors include defective loaning policies, apathy towards recovery, weak monitoring and supervision and failure of the members and cooperatives to link lending with development. Among the external factors comprises of political interference, willful default, drought and floods, state government rules on loan recovery.

Misra (2009) found that cooperatives that have less numb of member have high chances of debt recovery. Members are easily mobilized with reason alert them on issues regarding debt recovery, therefore, making it possible for almost all them repaying those debts. It means that there is a relationship between the higher proportion of non-borrowing members and recovery performance.

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