ABSTRACT

This study sought to provide empirical evidence on technical efficiency levels and trend of the Kenya Agro-processing industry. The major problem of the agro-processing industry is that it has been inefficient in terms of value addition to the agricultural produce and Kenya is known to be a net exporter of raw agricultural produce instead of high-quality value-added products. This study sought to determine the efficiency estimates of the agro-processing industry and analyzed the trend in efficiency changes during the period under consideration. Panel data covering three years (2011, 2012, and 2013) for 41 firms in the agro-processing industry was collected from the Ministry of industrialization, Kenya Daily Board, Kenya Sugar Board, KTDA, KNBS and EPZ departments for the said periods. Econometric production frontiers were estimated for the agro-processing industry in each period. The findings showed that the agroprocessing industry had an overall efficiency score of 44 percent. The efficiency score was distributed as 53 percent, 60 percent and 57 percent for the food, beverage, and non-food subsectors. This study concluded that an average 56 percent technical potentiality was not achieved by the agro-processing industry in the period 2011, 2012 and 2013. This study recommends that the policy export promotion of locally processed products of the Kenyan government should be complemented with an industrial policy that enhances the technical efficiency of local exporting firms to increase international competition of Kenyan manufacturers.