Processor Linkages and Farm Household Productivity: Evidence from Dairy Hubs in East Africa

Linking smallholder farmers to large enterprises could be a powerful mechanism to improve input and output markets as well as other productivity‐enhancing services for liquidity constrained smallholders. Dairy hubs promoted by East African Dairy Development project are collective farmer‐owned milk bulking and/or chilling plants through which farmers get access to output markets and inputs as well as other services necessary for their dairy enterprises. The hubs act as a linkage between large processors and smallholder dairy farmers. They enable farmers to supply milk to large dairy processors who are emerging key players in the East African dairy industry. In addition to the different forms of linkages with large processors, these hubs also differ in their level of growth toward sustainability. In light of this background, this work aims to provide evidence on the effects, at farm level, of different types of linkages between smallholder dairy farmers and large processors through dairy hubs. The study uses cross‐sectional survey data collected from 993 smallholder livestock keeping households living within the dairy hubs’ catchment areas in Kenya and Uganda. Statistical tests on technical efficiency estimates from dairy farm enterprises were conducted in order to provide evidence of the effects of the types of processor linkages on the performance of the dairy farm enterprises. The results provide evidence of no strong influence at farm levels that can be attributed to different forms of linkages with processor that dairy hubs adopt. Moreover, though hub sustainability is directly linked to the producer organization's efficiency level, our results show that it does not sufficiently translate to more productive farmers. These findings call for concerted efforts by development agents in the dairy sector, policy makers, and even large processors to intervene in order to support improved farm performance. As evident from the study, one direct policy tool at the disposal of these agents is extension messages. [EconLit citations D24; L25; Q12].