To sell or store? Assessing smallholder farmers' willingness to pay for potato cold storage in Kenya

Abstract

Storage of food commodities for some time after harvest can play an important role in alleviating the downside of price fluctuations in developing countries.While storage can offer smallholder farmers substantial inter-temporal arbitrage opportunities, existing evidence shows that many farmers in developing countries store little of their harvest. Using a cross sectional survey of 502 households in Nyandarua and Bomet Counties of Kenya, this paper assessed smallholder farmers' willingness to pay (WTP) for cold storage and compares their WTP with the arbitrage opportunities. Our results reveal that the storage of potato was generally limited with only 26% storing in the season preceding the study. Using a hypothetical scenario with double-bounded contingent valuation formats, our findings show that a considerable proportion of households (70.7%) were willing to rent cold storage facilities. The WTP for storing a 90 kg bag of Shangi, a common variety with a short shelf life (1 month) was Kenya shillings (KES) 104 (1.16/ kg/month) compared KES 96.4 (1.07/kg/month) for the Unica variety (slightly longer shelf life). The probit model results show that gender (being female), and transaction costs associated with access to markets (e.g., geographical location and distance to the road) were positively associated with WTP. Furthermore, household endowment, reflected in household expenditure, income and level of potato commercialization had a positive influence on WTP to store. In addition, institutional characteristics of collective action, previous experience with storage and use of certified seed (often associated with extension) enhanced households WTP for potato storage. The results on potato prices over a 5-year period (2014)(2015)(2016)(2017)(2018)(2019) show that seasonal price gaps were higher than the estimated WTP, suggesting that potato storage could be economically viable. These findings have significant policy implications not only for commodities whose harvest is perishable and season bound (e.g., vegetables, fruits) where arbitrage may offer price stabilization.