Firm Level Performance Factors Of Coffee Cooperative Societies In Kenya And The Mediating Role Of Entrepreneurial Orientation

Abstract

Coffee is the most traded agricultural commodity globally. It is produced within the tropics by countries in South and Central America, Africa and Asia and consumed mainly by countries in the Northern hemisphere. In Kenya coffee is mainly produced by small scale farmers’ cooperative societies. In the past years these cooperatives performed so well and were producing a lot of high quality coffee until 1988 when the International Coffee Organization’s quota system collapsed which made the global coffee prices to become extremely unstable. This coincided with introduction of structural adjustment programmes championed by the International Monetary Fund and the World Bank. These adjustments affected the coffee cooperatives negatively – the country’s average annual coffee production decreased from 130, 000 tonnes to about 40,000 tonnes. The coffee cooperatives performance has declined since that time. Various interventions by development agencies and the government have not helped much. A study is therefore necessary to come up with solutions to this problem as the coffee cooperatives support over 700 000 families. This study sought ways of improving the performance of the coffee cooperatives in Kenya. This study was carried out in 283 factories coffee factories selected randomly through a combination of stratified and simple random sampling. Structured questionnaires were administered for data collection. The study used descriptive research design to investigate the firm–level factors (coffee production level, coffee quality, diversification into non-coffee business, intergration along coffee value chain and entry into non-traditional coffee markets) that influence the performance of coffee cooperatives. The mediating effect of the entrepreneurial orientation on the association between the performance of the cooperatives and the factors was evaluated. The performance was measured in terms of the income to the cooperative society, number of active members and proportion of income spent on community projects. The entrepreneurial orientation was measured using five dimensions;- risk taking, proactiveness, innovativeness, autonomy and competitive aggressiveness. Analysis of data was done using descriptive statistics, inferential statistic and regression analysis. The study found out that the level of coffee production had the greatest influence on the performance with a coefficient of correlation of (r=0.991), coffee quality (r=0.1048), diversification to non-coffee businesses (r=0.9042) and entry into non-traditional coffee markets had (r = 0.98). The level of integration along the coffee value chain had a positive but insignificant effect on performance of cooperative societies. In addition, the study revealed that entrepreneurial orientation mediates the association between firm level factors and performance. This was evident by the coefficient of determination (R2) of 45.29 before mediation which increased to 60.60 after mediation. The hypothesis testing was done using F-values and all calculated values were above 3.84 leading to the rejection of null hypothesis that each of the four factors named above had no effect on the performance of a coffee cooperative. The study concluded that increasing production of quality coffee and engaging in diversification to non-coffee businesses as well as exploring and exploiting non-traditional markets would make a coffee cooperative perform better. The study recommends that cooperatives produce more coffee of high quality and target the nontraditional markets so as to improve their performance. The cooperatives should diversify into non-coffee businesses to cushion themselves from effects of poor weather and unstable and unfavourable global prices.