The dairy sub-sector
constitutes that largest share of livestock contribution to Kenya’s
GDP, that is, 3.5per cent of the total GDP, with the country having the
largest dairy herd of 70 per cent, in Eastern and Southern Africa. The
sector is the most developed within the livestock sub-sector yet faces
various challenges key among them being very little value addition
especially with regard to the variety of dairy products produced, low
quality of dairy products produced and high costs of production
incurred. This has robbed the country of the opportunity to increase the
shelf life of dairy products as the excess milk produced especially
during the high rainfall seasons goes to waste leading to loss of
income. Product diversification is one of the best strategies for
increasing profitability, reducing risk, achieving high growth and
ensuring more efficient resource allocation in businesses. In the
informal dairy sector which is smallholder dominated, product
diversification can go a long way in helping to improve food security
and increase incomes hence reducing poverty. Questions have however been
raised on whether a smallholder dominated economy can diversify and
whether smallholders participate significantly in product
diversification towards high value products. This study seeks to answer
this question by providing an empirical model of three variables:
inputs, technological innovation and markets, moderated by value
addition, that influence the performance of dairy enterprises in Kenya.
Descriptive research study design was employed based on a target
population of approximately 696 milk bars/milk traders in Kiambu County.
Cluster and simple random sampling were used to select a sample size of
252 dairy enterprises in the county. Semi-structured questionnaires
were used to collect data and t-test, Pearson correlation as well as
multiple regression analysis used to analyze the data. The F-test was
used to test the hypothesis of the study. SPSS Version 16 aided in the
data analysis. The findings of the study show a significant positive
linear correlation between access to inputs, level of technological
innovation, access to markets and dairy enterprise performance. The
results however revealed that value addition does not moderate the
combined relationship between access to inputs, level of technological
innovation, access to markets and dairy enterprise performance in Kiambu
County, Kenya. Value addition to dairy products has positive
implications on the profitability of the dairy enterprises and more
dairy enterprises should be encouraged to add value to milk. The excess
milk generated during the rainy season can therefore be used for value
addition, hence reducing its wastage by transforming it into profitable
products. Recommendation is made to the dairy industry players and the
government take a more proactive approach especially in training the
SSMVs on value addition of milk into higher value added dairy products.
Lending institutions should be open to financing the informal dairy
sector to enable them venture into vale addition activities. Assistance
should be given to the milk bars to enable them procure technology like
yoghurt dispensers and simple equipment for processing products like
cheese and the government should assist the SSMVs in getting markets for
their value added dairy products. The study proposes that other
counties known to be large producers of milk should be investigated in
order to have a holistic picture of the entire country as well as a
study done on total product diversification strategy by the milk bars
with regard to performance.

A thesis Submitted
in Partial Fulfillment for the Degree of Doctor of Philosophy in
Business Administration in the Jomo Kenyatta University of Agriculture
and Technology 2016