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3. Aim and Methodological Approach of the Second Kenya Study

Concerned about the deteriorating financial situation of agricultural co-operatives in the sub-region caused by declines in Government budgets and market reforms that were partly an outgrowth of the structural adjustment reforms of the 1980s, FAO launched a series of studies on the capital formation issue in Guatemala, India and Kenya during the 1993-1995 period. Given the limitations of the quantitative first Kenya study by Jämsén (1995), FAO decided to conduct a second Kenya study in 1995 with the aim of identifying more effective strategies for mobilising co-operative capital in sub-Saharan African farmer co-operatives, which encounter market liberalisation. This second study was based on a more in-depth quantitative and qualitative analysis of co-operative capital formation and investment behaviour in a smaller number of Kenyan dairy and coffee co-operatives. This objective was divided into three major questions: 1) Are co-operative business investment and income opportunities adequate to encourage farmer members to invest in their cooperative? 2) How can the capital formation process in co-operatives be improved? and 3) How does co-operative capital formation affect women and the poor member categories?

In order to answer these research questions, FAO approached the Turku School of Economics and Business Administration (TSEBA) to assist it in examining the market environment, level of competition and organisational culture of Kenyan cooperatives and private companies operating within the milk and coffee sectors, with generous funding support provided by the Government of Finland.

Since the milk sector in Kenya has just recently entered market liberalisation and the coffee sector is poised to enter a similar liberalisation process, the research team had to collect additional information on how this market liberalisation has impacted on co-operative capital formation. First, general statistics on the coffee and milk business were collected. Second, information on the regulation and current state-of-art prevailing in coffee and dairy business and in their finance was gathered. Third, one well-managed and one fairly well-managed co-operative within both coffee and dairy sectors operating in Central Province in Kenya were selected in order to compare the differences in management. Additionally, one partly-privatised dairy co-operative was selected plus two private coffee estates and one private dairy plant for the purposes of comparison.

In-depth interviews were conducted in all the above mentioned organisations. A total of 59 persons were interviewed, of whom 17 were women. All interviews were recorded and typed in verbatim. The financial statements for the past 8-10 years of the selected co-operatives were analysed to assess each co-operative’s profitability, financial leverage, liquidity, growth and efficiency, either on an accrual accounting or cash flow basis. Finally, a large number of interviews were carried out with the officials in Ministries, the Co-operative Bank of Kenya, the Coffee Board, the Nordic Project, SCIP (Second Coffee Improvement Project), the FAO and the University of Nairobi who provided the study team with additional statistical material.

The study team consisted of three Kenyan researchers (Ms Faith Muchoki, Ms Brenda Kariuki, and Mr Patrick Musyimi representing the Co-operative Bank of Kenya, the University of Nairobi, and the Ministry of Co-operative Development, respectively) and three Finnish researchers (authors of this paper).

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