Impact of exchange rate policy shifts on coffee profitability in the smallholder sector in Kenya
1994
Gitonga, K.T.K. | Ndirangu, L.K.
Analysis of impact of foreign exchange policy changes on smallholder profitability and simulation of profitable levels after appreciation of the Kenya shilling against the dollar, showed that profitability improved by 320% upon introduction of foreign exchange retention at 50% for producers under fixed exchange regime. Further improvement by 76% occurred after deregulation of exchange rate. Revision of the retention level to 100% did not have an impact on profitability but it conferred producers with increased capacity to participate in an international trade. In the short-run, after waiver of presumptive income tax, imposition of new milling charges at Ksh.2800 per tonne of parchment and with no charges in other profitability factors, producers will still record positive profitability of Ksh.5600 if the exchange rate stabilises at Ksh.55. But profitability becomes negative in the event of the exchange rate falling to below Ksh.44.80. It is concluded that since other profitability factors are likely to change in the long-run, there is need to continually update the model variables to capture the impact of these changes
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