Firm Size Distribution and Performance of Maize and Fertilizer Traders After Market Liberalisation: Evidence from Kenya

Improvement in the performance of agricultural markets was the ultimate goal of market liberalisation. In this paper, firm (trader) size distribution as a factor influencing market performance is analyzed using maize and fertilizer traders from Kenya. Firm size distribution was assessed by analyzing the normality of the distribution on volume traded. Performance was assessed by the level of competition (using Hirschman-Herfindahl index), marketing margins and marketing costs. Results show that firm size distribution for both commodities is log-normally distributed but positively skewed indicating a tendency towards smaller than larger firms. A plausible explanation is that faced with inadequate financial resources and inadequate business experience, new entrants opt to start small. These younger traders relative to time of market liberalisation still trade in small quantities compared to preliberalisation entrants, possibly implying difficulties still faced in firm expansion. The Hirschman-Herfindahl index of 0.11 for fertilizer traders and 0.20 for maize traders shows that there is fair competition among traders, implying increased market performance. This is further supported by low marketing margins and low marketing costs for marketing maize and fertilizer, as envisaged by proponents of market liberalisation. Both marketing margins and costs decrease with increasing trader size signifying economies of scale enjoyed by large traders. Place of purchase, pack size and distance from fertilizer-purchasing centres explain the observed spatial fertilizer prices.