The Effects Of Market Reforms On Irish Potato Price Volatility In Nyandarua District, Kenya

ABSTRACT

In the early 1990’s, the Kenyan government implemented reforms in the agricultural sector that

affected the volatility of agricultural product prices. However, there is lack of empirical evidence

on the effects of these reforms on the level and volatility of Irish potato prices. This study

evaluates the effects of market reform policies involving the decontrol of input and output prices

on the evolution and volatility of Irish potato prices in Nyandarua district. The purpose of this

study is to examine the effect of market reforms on Irish potato price variability. By using an

Autoregressive Conditional Heteroscedasticity in Mean model, a monthly time series data set for

the period 1986-2005 was utilized to identify the effects of the market reforms on the volatility

of Irish potato prices.

Results indicate that the implementation of market reform policies led to higher prices and

reduction of price volatility. An increase in price level coupled with a decrease in price volatility

after the implementation of market reform policies implies that with the reforms the Irish potato

producers were better off than without the reforms. The high prices and low price volatility

served as an incentive for the Irish potato farmers to boost production during the post reforms

period. The study recommends development of storage and communication infrastructure, use of

commodity exchange markets, improvement in productivity, and provision of an efficient market

information system as necessary measures to enable the farmers to realize maximum benefits

from the effects of the implementation of market reform policies.