Influence of Institutional Arrangements on the choice of vertical coordination strategic options in the sorghum supply chain in Kisumu County, Kenya

Abstract

Vertical coordination in agriculture has received popularity in recent years. They have emerged to transform farm enterprises from subsistence farming to commercial oriented sorghum production for industrial use. Drivers motivating farm enterprise owners to engage in the different vertical coordination strategic options were not clear in literature. Institutional arrangements were hypothesized to play a role alongside the socio-economic and institutional factors. The study bridged this gap by characterizing the institutional arrangements and determining the effects of institutional arrangements on the choice of vertical coordination strategic options. A stratified sampling technique was used to randomly select 266 sorghum farm enterprise owners in Nyando Sub-county, Kisumu County. Descriptive statistics and Multivariate probit model were used in data analysis.  Descriptive statistics revealed that majority of the sorghum producers targeted coordinated options especially contractors and processors. Moreover, results justified that sorghum experience, price close to expectations, bargaining power, distance to collection point in kilometres and grade certainty had a positive influence on choice of spot market while quality inspection, payment delay, bargaining power, transportation arrangement and distance to collection point had a positive influence on contractors. For processors, off farm income and land size influenced the sorghum producers positively. On the other hand, gender, age, off farm income, land size, payment delay and transportation arrangement had a negative influence on spot market whereas household size and technical services on contractors and payment delay, bargaining power and transportation arrangement on processors. The study recommended use of standardized quality grading systems, price premiums for producers due to delayed payments and reasonable ways of sharing risks between the actors in order for them to access and utilize the new, lucrative and emerging cereal markets.