The structure and nature of vertical co-ordination and regulation systems in the Kenyan fresh fruits and vegetables export value chain : transaction cost approach

This thesis was inspired and guided by the question; how have Kenyan smallholder farmers managed to enter and stay in the Kenyan fresh fruits and vegetables export value chain that has high entry and stay barriers? From this question, the study aimed to analyse the structure and nature of vertical coordination and the corresponding regulatory systems in the value chain. Three research questions were then raised in line with the research aim. To explore these questions, Oliver Williamson transaction costs economics and John Braithwaite and Valerie Braithwaite motivational postures theory were applied to respectively analyse the structure and nature of vertical coordination and the regulatory and compliance systems in the value chain. A mixed methods approach was adopted for the study with fieldwork carried out in six counties in Kenya. The study participants included smallholder farmers, non-governmental organisations and public and private organisations. The study found that the structure of vertical coordination of the value chain was nodal whereby two nodes of contracted coordination were identified. The two nodes comprised of European retailers-Kenyan exporters' node and the exporters-smallholder farmer's nodes. The retailers-exporters node was found to have stable long-term contracts which allowed for transactional relationship to age and mature. Conversely, the exporters-farmers node was found to have unstable and volatile short-termed transactions which inhibited maturity of exchange relationships. Importantly, the study found that the absence of property rights, forced the parties' to rely on relational contracting anchored on supply reliability. It was for supply reliability reason that the exporters were willing to bear high transaction costs of contracting smallholders, hence enabling smallholders' entry and stay in the value chain. Regulation was found to be through three pathways including; exporters-farmers, state regulatory and network regulation pathways. Importantly, the study found that responsive regulation was central to exporters and farmers compliance with regulation.