IJERD – International Journal of Environmental and Rural Development (2022) 13-1

Research article
erd

Product and Market Diversification Trends: The Case of
Horticulture Exports in Kenya
JANE GITHIGA*
Graduate School of Sustainability Science, Tottori University, Tottori City, Japan
Email: githigajane@gmail.com

ASRES ELIAS
Faculty of Agriculture, Tottori University, Tottori City, JapanKUMI YASUNOBUFaculty of Agriculture, Tottori University, Tottori City, Japan
Received 31 January 2022

Accepted 22 April 2022(*Corresponding Author)

Abstract One of the major successes of trade liberalization in Kenya was promotion ofhorticultural exports. This was aimed at reducing export earnings instability that resulted
from declining commodity prices of tea and coffee. The export promotion programs put inplace in the 90s paid off and horticultural exports was able to record its strongest period of
growth in the 2000s. In this period the major horticulture export product was French beansin which the EU was the primarily market. However, the global markets have beenchanging posing new challenges of increased competition and regulatory standards which
could threaten the survival and sustained participation of Kenyan horticultural exports. At
the same time creating opportunities to increase export products and expand market accessthrough transfer of knowledge, skills, and technology. For many developing countries
diversification into new products and markets has been encouraged by development
platforms to deal with trade related shocks that emanates from reliance of one market and anarrow range of products. Therefore, the objective of this study was to analyze the trends ofproduct and market diversification of horticulture exports in the periods 2002 to 2019 in
Kenya using UNComtrade data. We employed the Hirschman-Herfindahl index to measureproduct and market diversification. The study finds that the horticultural products are lessdiversified while the index for the market diversification showed are more diversified
markets access. This shows that horticultural products have not increased instead
concentrated into the same products while widening market access to other regions despite
the EU markets controlling the largest share of exports. The results highlight the need toincrease the export products and take advantage of untapped potential markets.
Keywords diversification, horticulture, exports, Hirschman-Herfindahl index

INTRODUCTION
Dependence on the EU market has been a striking feature for Kenyan horticultural exports sector
since the 1990’s when it became a major supplier of French beans and other Asian vegetables(Jaffee, 2003). Despite the stiff competition, the exports have continued to grow both in volume
and value. In 2019 the sector gained over 1.07 billion USD by exporting over 328.3 thousand
metric tonnes of cut flowers, vegetables, and fruits. It is the second largest foreign exchange earner
after tea contributing 19% of total exports in 2019, and a major employer providing 350,000 jobs
directly and supporting over 6 million livelihoods (KNBS, 2020). Horticulture exports are critical
for rural development because of the commercialization of small-scale farming opportunities it
provides through contract farming. (Jaffee, 2003) found that 50% of the vegetables and 85% offruits total exports were supplied by small scale farmers while Kazimierczuk (2018) found that 5%of cut flowers were from small-scale farmers.
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From trade-led development perspective, participation in global export markets over a period
often initiate innovation and expansion in terms of market access and products exported. This canhappen in two ways; first, from market related challenges resulting from competition, changes in
consumer needs, instability in the partner markets among others. This manifested in the rapidtransformations of the EU markets in the last two decades resulting to changes in governance of the
supply chain and the way of doing business (Jaffee, 2003). It started with the evolution of Sanitaryand Phyto sanitary (SPS) standards that aimed at enhancing product safety and food quality (Jaffeeand Henson, 2004). This was extensively debated by researchers who raised concern on the market
entry barriers and threatened participation of exporters particularly from developing countries wholack infrastructure, technology and other trade related costs required to meet these standards (Jaffe
and Masakure, 2005). Consequently, in response to changing regulatory environment, the EU
market supply chain changed from previously wholesale markets to tightly integrated buyer-driven
supermarkets. (Jaffee, 2003). These supermarkets enforced their own standards too, posing further
challenges especially for small-scale farmers.
Secondly, there is opportunity by developing countries in participating in high value global
markets. Studies have found that through knowledge and skills transfer farmers develop capacity to
produce and export different varieties and use this knowledge to produce for different markets
therefore increasing market access (Jaffe and Masakure, 2005). Nevertheless, literature tend toagree that participants of horticultural exports must reorient towards meeting the changing global
markets and embracing opportunities through product and market diversification (Shepherd andWilson, 2013). Samen (2010) defines diversification as increasing the number of export products
and partner markets. Through diversifications commodity exporters can navigate through changing
market environments and market externalities resulting from dependence on a single market. The
welfare of millions the sector support depends on its ability to adapt to a highly dynamic market
and seek ways of spreading risks through diversification.
Two decades later, Kenyan horticultural exports have been increasing both in volume andvalue in a highly dynamic global market. We therefore seek to determine to what extent has the
Kenyan horticultural exports diversification trends changed over time in terms of product exported
and market access.
METHODOLOGY
The data use in the study was obtained from UNComtrade Data, aggregated in World Tradeorganisation (WTO) harmonised system (HS). The horticulture products in this study will bedefined as cut flowers, vegetables and fruits categorised by WTO HS codes. HS 06, HS 07, and HS
08 respectively. There are different methods used different studies to measure export diversification.
These methods include the Hirschman- Herfindahl index, entropy index, concentration ratio and theogive index (Samen, 2010). For our study based on available data we use the HerfindahlHirschman Index (HHI), a commonly used measure by policy makers to give summary ofdiversification. The HHI is the sum of squared export product or markets shares of country i at agiven time t. HHI index ranges from 0 to 1 and the closer the index to 0 (=diversified) while thecloser the index to 1 (= less diversified). If the HHI index is 1, it means either a country i isexporting only one product or it is the only exporter in that market.
The HHI index for product diversification was calculated by following equation.

(1)
While market diversification HHI was calculated by Eq. (2).
(2)
Where is the Si is the Share of the country i in the market, and N is the number of countries.
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(3)
RESULTS AND DISCUSSION
General Trends of Horticultural Exports Growth
Farmers are likely to venture into new products and market when there’s growth in income which isevident of increasing growth in value of horticultural exports over the period as shown in Fig. 1.

Fig. 1 Trends in value for horticulture exports
Source: Own calculations using UNComtrade

The highest growth being experienced between 2002 and 2007, a period of strong
macroeconomic stability owing to President Kibaki acceded to power in 2002. The growth howeverslows down after 2008 which can be attributed to both domestic and market factors. Domestically,
the major horticulture producing areas were affected by 2007 post-election violence followed by awidespread drought in 2009 which affected production (Tyce, 2020). As for market factors, theglobal economic crisis in 2008 affected major export markets (Heher and Steenberg, 2021). Further,delays and cancellation of flights to Europe due to Icelandic ash in April 2010 and heavy snow in
December the same year. The exchange rate volatility especially in 2016 when the Euro/USD
exchange rate dropped from 120 to 100, or delays in the signing of EPA agreement between East
African community and EU in 2015. Vegetables exports have shown more erratic in growthcompared to fruits and cut flowers. Moran (2018) found that vegetables are losing popularity due toa stringent market and some exporters are moving to cut flowers which contributes to the highest
share of horticulture exports.
Market Access General Trends
The EU market still controls the largest share of total horticulture exports although other markets
have showed potential as shown in Fig. 2. The EU controlled over 90% of total exports in 2000
which has reduced to 71% by 2019. The market with the highest potential is the Middle East which
can be attributed to the proximity it is from Nairobi as found by Irandu (2019), the closer thepartner market the higher the likelihood of trade. Although the EU controls the larger share of theexports, other markets have experienced higher average growth (Table 1).

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Fig. 2 Share of total horticulture exports according to markets
Source: Own calculations using UNComtrade data

Table 1 Average growth in % of major horticulture markets
Average growth 2001-2010

Average growth 2010-2019

EU

Market15%

3%

Middle East

29%

28%

USA

37%

4%

East Asia

21%

155%

Southeast Asia

175%

79%

Sub-Saharan Africa

61%

26%

Source: author calculation based on UNComtrade data.
Average growth was calculated using the average yearly change in percentage of total exports value. The
markets were defined used the United Nations defined regions. The United Kingdom is still included in the
EU in this analysis.

Product Diversification Trends
The objective of the study is to determine to what extent have horticultural products havediversified. This was achieved by the change in the HHI index between 2002 to 2018, if the trend
tends towards 1 (=less diversified) and if the trend tends towards 0 (= more diversified).
The study found that in all three categories of horticulture exports, the index is less than 1,
meaning that the farmers are already exporting a number of products. As shown in Fig. 3, HHI
index for combined horticulture products were 0.28 in 2002 has since rose to 0.31 meaning that thehorticultural products are less diversified and there’s no evidence of increase in additional productsin the specified period. However, if we consider the different products individually, we observed achange of pattern in vegetable category after 2012. At first the Index rises from 0.34 in 2002 to
0.38 in 2012. Then falls to 0.21 in 2018. The HHI index in the flowers category was 0.71 in 2002
and rose to 0.81 in 2018. The high index in indicates that there were only a few products exported
in this category which have continued to intensify over time while fruits HHI index rise from 0.31
in 2002 and 0.39 in 2018.
The evolution of SPS standards had a higher impact on vegetable exports compared to fruits
and flowers. This came as a challenge and opportunity, with Global GAP (formally EUREPGAP)
being rolled out in 2007, many farmers were in the process of compliance. However, there was awidespread product interception and banning of some vegetable products by the EU for failure tomeet maximum residue limits (MRL) in 2012. Farmers took this opportunity to add value to thepreviously bulk unprocessed vegetable exports and diversified into semi-processed vegetables
prepack Asian vegetables (karella, chillies, aubergines and okra) (Herher and Steenbergen, 2021).
Which could explain the HHI index for vegetable categories started falling after 2012 as anindication of additional products in the export baskets.
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Fig. 3 Product diversification trends
Source: Own calculations using UNComtrade data

The role of governance of the horticultural supply chain as a possible explanation of lessdiversified products. The “buyer -driven” supply chain where supermarkets in the EU dictate what
products to produce, the packaging characteristics and quality of products (Jaffe, 2003) is likely toaffect innovation and addition of new products. Similarly, small scale farmers on contract can only
produce what is provided the contractors. This unbalanced power dynamic observed in the export
business could hinder diversification. The same phenomenon is observed in cut flowers which has
the highest HHI index, where breeders and propagators determine what, when and how the planting
materials are distributed (Kazimierczuk et al., 2018; Tyce, 2020).
Finally, an increasing HHI index could be explained by difficulty in access to approved
planting materials especially in cut flowers exports which is associated with high cost ofinvestment that is why 95% of the farms are owned by large scale farmers and multinational
companies. High cost of royalty’s payments for the planting materials, propagating, research, anddevelopment of new varieties often locks out resource poor farmers who only produce low value
summer flowers (Kazimierczuk et al., 2018).
Market Diversification Trends
HHI index for market diversification in horticulture dropped (Fig. 4) from 0.27 in 2002 to 0.18 in2019, with vegetables showing higher market diversification where the index dropped from 0.49 in
2002 to 0.18 in 2019. Fruits HHI index dropped from 0.18 in 2002 to 0.13 in 2019 while flowers
index dropped from 0.37 in 2002 to 0.27 in 2019. The index has a slight increase between 2008 and2012, which can be explained by market factors discussed in Fig. 1 above i.e the global economiccrisis in 2008, the flight cancellations in EU markets due to weather.
The EU markets still controls the largest share of exports (Fig. 2) as discussed above which
can be explained. First, the evolution of SPS standards did not deter exporters from the EU markets,
instead most farmers embraced the compliance (Jaffee and Henson 2004). Second, the presence theforeign direct investment (FDI) coming from the EU along the supply chain such as exporters,
breeders & propagators and cool chain management and inputs (Irandu, 2019). Third, theestablished ties in the EU supermarkets could hinder further market diversification, highly
perishable products rely on trusted relationships and cost of diversion of products from one market
to another is high (Dennis and Shepherd, 2007). Fourth, availability of flights to EU that candeliver the highly perishable products in short time. Fifth, growth and advancement in Kenyan
airfreight and tourism has also aided delivery of highly perishable products in multiple destination
within a limited time. Finally Kenyan export’s ability to meet year-round demand that can
supplement their production in winter.

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Fig. 4 Market diversification trends
Source: Own calculations using UNComtrade data

There is opportunity in participation in the EU market, Kenyan horticultural exports havewidened their market access as indicated by falling HHI index both regionally and beyond (Fig. 3).
Krishna (2018) found that emergence of regional value chains has provided exporters a venue tochannel excess spillovers that don’t make it to the main markets. The experience gained from theEU markets has equipped farmers in supplying horticultural products in multiple markets governedby different regimes. However, there is still potential in untapped markets.
CONCLUSION
The aim of the study was to determine the diversification trends of Kenyan horticultural exports
this was based on the hypothesis that continued participation of farmers in a highly dynamic global
markets is likely to initiate diversification. Our results confirmed that horticultural exports are morediversified in terms of markets access as evidenced by a falling HHI index. On the other hand, we
found that the products to be less diversified meaning there is no evidence of any significant
change in number of products exported over time as evidenced by an increasing HHI index. We
further found that the EU still controls the largest share of horticulture exports. Finally, we foundthat other markets have shown great potential in terms of growth despite controlling a small shareof exports. Trade facilitation by the government could help farmers tap into those markets andincrease new products.
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