Selling at the farmgate? Role of liquidity constraints and implications for agricultural productivity

ABSTRACT Market trends in many developing countries indicate that selling agricultural produce to itinerant traders at the farmgate has been rising, despite criticism that the practice preys on and exploits farmers. Using a cross-sectional data set of 525 households, we investigate the factors influencing participation in farmgate trading and its effects on agricultural productivity in western Kenya. We specifically consider the role of liquidity–related variables within a context of the perennial export crops, a contribution that has received less attention in literature. Our analysis reveals that variables related to demand for liquidity at the household level are strongly correlated with the selling of tea at the farmgate by smallholder tea farmers in the study area. The results also show that the household context (farmer's age, education and residence), farm characteristics (volume of output and age of tea plantation) and institutional variables (group membership and extension) are key determinants of household selling decisions. In addition, we find evidence that farmgate selling has a positive influence on crop productivity. We recommend strengthening of mechanisms that enable farmers to engage better with the existing market channels and encourage greater competition, in place of policies seeking to curtail the operations of farmgate traders.