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ECONOMICS RESEARCH PAPER TOPIC: TAXES, FARM SIZE, LABOUR AND TEA AMOUNT ON TEA EARNINGS IN LIMURU TOWN.

PURPOSE: A ECONOMICS RESEARCH PAPER  SUBMITTED IN PARTIAL FULFILLMENT OF THE DEGREE OF BACHELOR OF ECONOMICS AND STATISTICS

ECONOMICS RESEARCH PAPER: DECLARATION

I declare that this proposal is my original work and has never been presented by any person in Any institution.

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This research proposal has been submitted for examination purpose with approval from our university supervisor

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ECONOMICS RESEARCH PAPER: DEDICATION

I would like to dedicate this project to my elder brother 444 for all his support in my education and for being the most supportive friend I have had.

ECONOMICS RESEARCH PAPER: ACKNOWLEDGEMENT

I am grateful to the almighty God for the gift of life and strength to complete this project. I am also grateful to my parents Mr. and Mrs. 444    for their support in my education. I am also grateful to my friends 444 and to my supervisor for his guidance. God bless you all.

ECONOMICS RESEARCH PAPER: ABSTRACT [Should be one Continuous Paragraph]

Tea is one of the leading foreign exchange earners in Kenya. There are several areas in the country that produce tea. These areas are such as Nandi, Kericho and Limuru. Over the past few years, there has been fluctuations in the levels of tea earnings in the country.

Economics Research Paper

This study aimed at investigating the factors that led to fluctuations in the level of tea earnings. This study was conducted in one of the major tea producing areas which is Limuru town. The study was based on the classical growth theory, which incorporates the concept of variable proportions, whereby the researcher investigated the factors that would lead to an increase in tea earnings, which also led to growth of the tea sector.

The objectives of this study was to determine how size of the farm, taxes, number of workers and the amount of tea produced affected the level of tea earnings in Limuru town. The target population was three hundred people and the sample size was sixty. However only forty five people responded to the questionnaires. Data was collected using structured questionnaires.

The collected data was then analyzed using descriptive statistics and multiple regression analysis. The statistical package for social sciences was used as a software tool for data entry, statistical analysis and presentation. Using SPSS, correlation analysis was conducted and since the variables were not strongly correlated, regression analysis was conducted.

From the regression, 70.3% of the dependent variable was explained by the independent variables. The study revealed that there was a positive relationship between size of the farm, number of workers and amount of tea produced, with the level of tea earnings.

The study also revealed that there was a negative relationship between taxes imposed by the government and the level of tea earnings. The study was significant at the 1% level of confidence.

LIST OF TABLES AND FIGURES [ECONOMICS RESEARCH PAPER]

Fig 1.1 –tea prices 1995 to 2003

Table 2.3.8 – total exports of tea marketed, production at current prices.

Table 2.3.9 – tea production in the large estates in kilograms

Fig 3.3.1 – conceptual framework.

Table 3.4.1 – definition and measurement of variables

Table 3.7 – sample size.

Table 4.1 – response rate.

Table 4.2.1 – age of the respondents.

Table 4.2.2 – gender of the respondents.

Table 4.2.3 – education level of the respondents.

Table 4.3 – correlation analysis table.

Table 4.4.1 – model summary of the regression analysis.

Table 4.4.2 – ANOVA table of the regression analysis.

Table 4.4.3 – coefficients of the regression analysis table.

ABBREVIATIONS [ECONOMICS RESEARCH PAPER]

KTDA- Kenya tea development agency

KTGA- Kenya tea growers association

TRFK- Tea research foundation of Kenya

EATTA- East African Tea Trade Association.

OPERATIONAL DEFINITION OF TERMS [ECONOMICS RESEARCH PAPER]

Small scale farming- growing of tea in small farms for subsistence gain

Large scale farming – growing of tea in large farms for sale.

Tea earnings – income as a result of tea sale.

1.0 INTRODUCTION [ECONOMICS RESEARCH PAPER]

1.1 BACKGROUND INFORMATION

Limuru town is popular for tea production and exports. There are three factories which process and exported tea which are the Mabrouke tea factory, Karirana tea factory and Maramba tea factory. Limuru is made up images of large tea plantations producing among the finest tea in the world.

Economics Research Paper

Limuru tea was first produced by GW Claine in 1903 when the first seedlings which were from India were planted. Seventeen years later, that is between 1925 and 1930.two brothers from the Turns tall family in the United Kingdom planted the first tea in the Karirana estates. The Karirana tea estates were later managed by George Williamson.

At the same time, in Kiambethu tea farms, a different tea culture, in 1910 was developed courtesy of Mc Donnels, where they were combining tea farming with traditional dancing. This grew to be a major tourist attraction site. In Kiambe today, not only does one get to see the tea growing heritage of the early settlers of Kenya but they also get a taste of what it feels like to live like a settler family.

The Limuru tea company is an organization in Kenya which engages in the growing of green leaf tea. The company owns approximately 275 hectares of land. The Limuru tea company is an out grower to Unilever tea Kenya limited. Unilever acts as the company’s managing agent in the growing, production, sales and manufacturing of its tea.

The tea estate green leaf is manufactured in the Unilever tea Kenya Mabrouke factory, from where it is mainly sold for export.

Kenya is the third producer and exporter of tea, ranked behind china and India. Limuru tea exports contribute 21% of Kenya’s tea exports ranked behind Kericho tea and Nandi tea. It contributes about 70% of the town’s revenue and it employed most of the residents of the town.

Tea in Limuru contributes to development in infrastructure, employment opportunities and has been a source of revenue to the owners, residents, company shareholders and the government. Tea exports lead to broadening of the tea industry and contribute to the majority of the informal sector employment. It also holds about 27% of the formally employed workforce.

Tea is sold through automated public auction in Mombasa. In October 2011, the average price of tea at the auction was 3.22$ per kilogram.

In 2011, the Tea board of Kenya and Egerton University entered into a partnership to strengthen the tea industry in Kenya. This offered undergraduate, post graduate and, certificates and diplomas in tea production and marketing and tea processing technology and management.

Commercialization of tea started in 1924 (Owuor 1999). Africans were initially prevented from the crop but in the mid-1950, growing of tea by the Africans was allowed. After Kenya attained independence in 1963, the legislation preventing Africans from planting tea was therefore repealed. The native Kenyans initially took up the initiative and started massive tea planting programmes which led to rapid growth of the tea industry in Kenya as shown below.

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The Limuru tea industry comprises of the estate and shareholder sectors. The small holders are indigenous farmers whose average tea enterprise is approximately 0.27 hectares. Up to 2000 smallholders were licensed to grow tea by the Kenya tea development agency. They were also allowed to operate as three entities with the Kenya tea development agency as their commercial managing agent. The smallholder sector is usually the largest and one of the most successful smallholder schemes in the world. The Kenya tea development agency was acknowledged a successful institution in rural development, small holder and a public sector enterprise, both of which Africa encountered difficulties and disappointing performance(Lamb and Muller 1982)

The key players in the tea sector are:

  1. The tea board of Kenya- it was established in 1950. The tea board of Kenya operates through an act of parliament. Its purpose is to regulate tea growing, manufacture and trade and it also carries out research and promotion of tea.
  2. The Kenya Tea Development Agency (KTDA) – it was established in 1963. Its aim was to carry out research on crop husbandry and tea processing. It was established to provide services to small holder tea farmers. These services are such as planting materials, fertilizers and extension services, inspecting and collecting green leaf from respective buying centers, processing and marketing of tea. It is therefore in charge of the small scale farmers.
  3. Tea Research Foundation of Kenya (TRFK) -it was the successor of the tea research institute of East Africa and it was established in 1980. The main aim of its establishment was to promote research and investigate problems related to tea and such other crops and systems of husbandry as associated with tea throughout Kenya.
  4. The Kenya Tea Growers association (KTGA) – It was established in 1931 and it is voluntary organization of large scale tea growers. Its principal aim was to address common interests of and among large scale tea growers.
  5. The East African Tea Trade Association (EATTA) – it was a voluntary organization that brought together tea producers brokers, tea packers, buyers and warehouse people together.
  6. The Mombasa Tea Auction- it was initiated by EATTA in Nairobi and most of the tea produced was exported to the United Kingdom.
  7. Ministry of Agriculture, Livestock and Fisheries- it bore responsibility to the government on agriculture related concerns.
  8. Agriculture, Fisheries and Food Authority- it was a tea directorate which managed the tea industry in Kenya on behalf of the government. It also bore a responsibility to the government.

The tea sector in went through three phases of successful development in Kenya. The first phase recorded phenomenal growth. It was followed by a phase 2 of rapid expansion and diversification into processing and marketing. Phase 3 consolidated the technical achievements by striving to achieve economic optimum and high returns when expansion would be much slower and the external environment would be less certain. The uncertain and continued low prices of tea and increased population costs simply suggested that the future relied on tea quality product diversification or value addition. It was more promising to get more returns by improving economic efficiency in production.

The development of the tea sector in Limuru, especially the small holder tea sector resulted in the redistribution of wealth by the creation of new productive capacity in the town. However, rural tea factories collection and transport network was injecting millions of cash flow into the area, where alternative opportunities were minimal. Sustaining the tea sector in Limuru, therefore topped the government’s development agenda.

Small scale farmers continue to play a vital role in the cultivation of tea in Kenya. Small scale farmers contribute up to 60% of the total crop in the town whereas the large scale tea sector contributes about 40%.

1.2 STATEMENT OF THE PROBLEM

The tea sector was the largest sector in the town, employing about 1/3 of the residents. Some were temporarily employed whereas others were permanent. This sector constituted the informal and the formals sector, with the informal sector having the most employees. The government took up measures to improve the tea sector. This was through the introduction of reforms and policies in growth, production, marketing and exporting of tea. Turning to the domestic front, the former president Mwai Kibaki noted the important role of the tea industry in the attainment of the Kenyan economic vision 2030 economic blueprint which was expected to drive the country towards industrial status. The Kenya vision 2030 economic blueprint incorporated an innovative and commercially oriented agriculture by improving the value gained in the production and supply chain through branding and agro-processing. The former president said that the tea industry had taken the right step by introducing the Kenya tea mark of origin for delivery of 100% Kenya tea to the global.

Tea promoted rural industrialization and contributed positively to gender empowerment with about 50% of all labour being women. The sector was faced with more than 40 taxes, levies and charges along its value chain. This had retarded the robust sector ranked among the three leading foreign exchange earners.

The tea sector was a booming sector but there had been a fluctuation in earnings.

The main aim of this study therefore was to investigate the factors that affect the level of tea earnings in the area, a case study in Limuru town, following that tea was the leading foreign exchange earner and the town was well known for tea growth and production. These factors were taxes, the size of the farm, the number of workers and the amount of tea produced.

1.3 RESEARCH QUESTIONS

1. How do taxes affect the level of tea earnings in Limuru town?

2. How does size of the farm influence the level of tea earnings received in Limuru town?

3. What is the effect of number of workers on the level of tea earnings?

4. What is the relationship between the amount of tea produced and the level of tea earnings from tea?

1.4 RESEARCH OBJECTIVES

General objective

The aim of this research was to explore the factors that lead to variations in the level of tea earnings in Limuru town, and how these factors have been used to make sure that the tea earnings are maximized.

Specific objectives

  1. To assess the effect of taxes on the level of tea earnings.
  2. To establish how size of the farm influences the level of tea earnings.
  3. To determine the effect of number of workers on the level of tea earnings in Limuru town
  4. To identify the relationship between the amount of tea produced and the level of tea earnings.

1.5 SIGNIFICANCE OF THE STUDY

The findings of this study were likely to help the government to determine the factors affecting the level of tea earnings. This is because tea is one of the leading foreign exchange earners in the country. It also gauged the best possible incentives that boosted tea earnings.

Tea regulatory institutions such as the Tea Board of Kenya would get the findings useful in that they would use the findings to strategize on new tea policies. They would then advise the farmers on how best to apply new production techniques in tea farming. They would also find new markets from abroad for tea. Several tea cooperatives and organizations at the constituency level would use the findings to know how best to relate well with the farmers in a bid to promote and boost tea farming.

This study was an exploration of the impact of tea in the economy of Limuru town. This is because tea is the largest sector in the town and contributes income revenue to the town.

1.6 ORGANISATION AND LIMITATION OF THE STUDY

1.6.1 ORGANISATION OF THE STUDY.

The study area focused was Limuru town. Chapter 1 included the background of the study, statement of the problem, research questions, and research objectives, significance of the study, and organization and limitations of the study.

Chapter 2 entailed the introduction to literature review, the theoretical literature, the empirical literature and the overview of the literature.

Chapter three outlined the introduction to research methodology, research design, and the conceptual framework, the target population, sampling techniques, sample size, data type, and source, research instruments, pilot study, data collection, coding, refinement, data analysis and ethical issues.

Chapter four entailed data analysis and presentation. It included introduction to data analysis, descriptive statistics, correlation analysis, regression analysis and conclusion of data analysis and presentation.

Chapter five entailed the introduction to the chapter, the summary of the findings, the conclusion of the findings, the recommendations and the suggestions for further research.

1.6.2 LIMITATIONS OF THE STUDY

The limitations to this study were;

  1. Tea is a seasonal crop. Therefore it was not possible to get the best results when the crop was not in season. It was also not possible to access most workers when it was out of season because the temporal workers were retrenched during these seasons
  2. Cost- the cost of travelling to different tea estates was quite high.
  3. Inaccurate results- residents who worked in tea estates were unwilling to disclose what they earned from tea.
  4. Time consuming- movement around the town to interview residents was time consuming.

CHAPTER 2: LITERATURE REVIEW

2.1 INTRODUCTION.

The literature review of this study was divided into the theoretical literature and the empirical literature.

The theoretical literature of this study was based on some theories which were the theories of income distribution, theories of growth and a theory on labour value.

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The theory on income distribution helped in relating how wealth was distributed between the farmers, residents and the administration of the tea estates it also helped in determining the factors that affected this income, such as taxes and transportation costs. This theory was the Neo classical distribution theory.

The growth theories which were the classical theory and the endogenous growth theory enabled one to understand the relationship the factors of production and productivity. It also gave ways of how the factors of production were improved in order to increase productivity and earnings.

The empirical literature contained written articles about tea, from newspapers, magazines and individual articles

2.2 THEORETICAL LITERATURE

2.2.1 THE CLASSICAL GROWTH THEORY

ASSUMPTIONS OF THE THEORY

In classical economics, the theory of production and the theory of growth are based on the law of variable proportions. This means that, increasing either the factors of production, while holding the other constant and assuming no technology change, will increase output at a diminishing rate and eventually approach zero. This theory was propagated by three economists, which are David Ricardo, Adam smith and Robert Malthus. They came up with a production function.

Y= (F, L, K, S) where K is the sock of capital,

L is the labour force,

N is the land,

S is the level of technology.

Land however is restricted to cultivatable land only. In addition, the supply of the labour force was the main determinant of the level of profits.

economics research paper

Through employing more labour in the tea sector while holding capital constant and assuming no technology change, will increase output at a diminishing rate and eventually approach zero.

CRITICISMS OF THIS THEORY

Technology, the most important factor in economic growth, is held constant and that economies of scale are ignored.

2.2.2 THE NEO CLASSICAL THEORY OF INCOME DISTRIBUTION.

Distribution in economics refers to the manner in which total output of income or wealth is distributed among individuals or among the factors of production.

In relation to the study of the factors that affect tea earnings in the town, adjustments to the national accounts or other sources of data were frequently used. The interest was always on the fraction of income going to the top of households and the next percent on the other factors that affected them such as globalization and tax policy.

ASSUMPTIONS OF THE THEORY

The supply and demand of the factors of production interacted in factor markets to determine the equilibrium output, income and the income distribution. In relation to the study, this theory was applicable to determine how labour and capital interacted to determine equilibrium output of tea and the equilibrium income from tea sales.

Factor demand in turn incorporated the marginal productivity relationship of that factor (labour) in the output market. Analysis applied not only to capital and land, but also the distribution of income in labour markets, among the workers.

CRITICISMS OF THIS THEORY

Many sociologists, political economists and heterodox economists tend to often lose sight of the complexity of an individual’s employment decisions. These decisions, particularly on the supply side are often loaded with a considerable emotion baggage. They are also a purely numerical analysis which can miss important dimensions of the process.

2.2.3 THE ENDOGENOUS GROWTH THEORY

ASSUMPTIONS OF THE THEORY

This theory incorporated a new concept of human capital which are the skills and knowledge that make workers productive. Unlike physical capital, and economies which don’t reach a steady state. Growth does not slow as capital accumulates, but the rates of growth depends on the type of capital a firm has invested in. Research done in this area has focused on what increases human capital such as education, skills or technology change.

To increase earnings and output in the tea sector, the government had to focus on ways that improved human capital. This could be through educating the farmers on the best methods of growth, the types of fertilizers to use and the best variety of crop to plant. This improved the productivity of the tea sector.

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2.3 EMPIRICAL LITERATURE

2.3.1 (Owuor Kavoi Siele, 2001 of TRFK) To investigate some of the factors contributing to low tea productivity in the small holder tea sub sector, showed that different zones required different level of farm and labour inputs.

2.3.2 (KTDA annual report, 2006) The Kenya Tea Development Agency managed 57 operational factories where the small scale tea suppliers were the shareholders.

2.3.3 (The Star, 2014). Tea farmers in Limuru and Lari Kiambu county switched to a new variety of tea that earned them three to four times if the green tea. Farmers uprooted the green tea, which they claimed was old, low yielding and replaced it with the high yielding purple variety. Farmers said that this type of tea sold between Ksh.100 and 150, compared to green tea which sold between Ksh.13 and 18 per kilo. The tea variety was developed by the Kenya Tea Research Institute and it contained supplements which were widely marketed for their health and enhanced properties which were used as food preservatives in the food industry.

2.3.4 (The Standard, 2014). Directors of the Kenya Tea Development Agency assured tea farmers that the agency was making tea efforts to address falling tea prices. The directors appeared before the national assembly committee on agriculture and sought to clarify concerns that the agency had been sleeping on the job as farmers in tea growing areas suffered economic losses due to stump prices. The agency said that it was involved in multiple initiatives to address the crisis in the sector. Mr. Tiampati of the agency explained that the contributing factors to the crisis were the economic meltdown affecting some of the traditional tea markets abroad. They also blamed taxes charged on tea farmers in the country for the falling competitiveness of Kenyan tea in the international market

2.3.5 (The star newspaper 2014) Agriculture cabinet secretary Felix Koskei blamed the Kenya Tea Development Authority for the crisis in the sector. He said that the KTDA had unilaterally and without consultation with the farmers veered from its core of marketing and managing tea to engage in unethical issues.

The cabinet secretary said that the 1% tax charged on made tea would be scrapped by the government as one of the steps to restitute the sector. He disclosed that the government would open the marketing of tea to individual counties and factories to find market for tea directly.

2.3.6 (Joseph Burite 2014) Kenya’s tea industry, the country’s largest foreign exchange earner was being stymied by tax levies and a failure to develop foreign markets, the east African Tea trade Association said. The average auction price of Kenya tea has declined 40% this year amid a steep rise in production and stagnant growth in new markets, the Mombasa based association said that emailed by its office that was presented to Kenyan senate the previous week. Value Added Tax had reduced domestic consumption while a levy on tea imports and exports equal to 1% of customs value had imposed extra expenses and bureaucracy. Removing Value Added Tax on tea would increase local consumption which had dwindled to about 5% of total exports and increased sales to Kenyan exporters by producers.

2.3.7(Standard Newspaper 2014) Kenya’s tea sector the largest foreign exchange earner was reeling from heavy taxation and failure to develop foreign markets. The EATTA singled out positive tax regimes as responsible for the dwindling tax returns with calls made for urgent reviews to revive the promising sector. With more than 40 taxes, levies and charges placed on the tea sector, along its value chain, this had blogged down the once robust sector ranked as among the three foreign exchange earners. The average auction price had declined by 40% amid a steep rise in production and stagnant growth in new markets. Due to Kenya’s high taxation and production costs, Kenya’s tea was the most expensive as compared to the rest of the east African nations.

2.3.8 Francis Mwaura and Ogise Muku.

According to two farmers Susan Kabui and Robert Barua, a trip to Limuru would be incomplete without a visit to the tea farm. They said that nature’s first gold is green. This was depicted by the picturesque highlands in Limuru, which had rolling hills carpeted in rich vast expanse of green fields that stretches to the horizon. Robert Barua who owned vast 60 acres tea plantations pointed out that tea growing had been central to Kenya’s economy for a long time. He would earn 3 shillings before utilization of his whole 60 acres but after utilization he earned 10 times that amount.

2.3.9(Tea Board of Kenya)

TOTAL EXPORTS OF TEA MARKETED PRODUCTION AT CURRENT PRICES.

YEAR TOTAL EXPORTS TOTAL REVENUE

( KSH IN MILLIONS)

1999 263023210 39138.0
2000 241739293 31087.6
2001 216989625 35564.5
2002 270151810 33414.7
2003 272458768 34631.1
2004 323802071 42212.2
2005 349738362 38829.9
2006 313720495 45162.0

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Table 2.3.9

2.3.10(Tea Research Foundation of Kenya)

TEA PRODUCTION IN THE LARGE TEA ESTATES IN KILOGRAMS

COMPANY FACTORIES 1998 1999 2000 2001 2002
Unilever tea 20 33M 26M 26M 32M 32M
James F. 15 28M 17M 17M 21M 26M
Eastern tea 7 19M 14M 12M 17M 16M
Williamson tea 3 10M 8M 8M 10M 19M

Table 2.3.10

2.4OVERVIEW OF THE LITERATURE

The neo-classical distribution theory was used to determine how labour and capital interacted to determine the equilibrium output of tea and the equilibrium income.

The classical theory was used to explain that increasing the number of labourers in the tea sector increased output up to an optimum point. A further increase led to a decrease in output.

The endogenous growth theory was used in determining how an improvement in human capital through education, training and improvement in technology improved productivity in tea sales.

The empirical literature contained articles written on tea which were from newspapers and journals.

CHAPTER THREE: RESEARCH METHODOLOGY

3.1 INTRODUCTION

This chapter contained the research design, the model specification, definition and measurement of variables, the study area, the target population, and the sampling techniques and sample size. It also contained the data types and sources, the research instruments, data collection and ethical issues. In addition, there was data cleaning, coding refining and inputting, and data analysis.

3.2 THE RESEARCH DESIGN

The researcher used the sampling research design. A case study in Limuru town. This was because of the large number of residents and for accuracy of results. Residents were selected from different parts of the town whose results predicted the characteristics of all the residents.

3.3 CONCEPTUAL FRAMEWORK

In order to identify the effects of tea earnings on the people of Limuru town, there were a number of independent variables whose interplay affected the tea earnings, which was the dependent variable, as shown in figure 3.3.1. An independent variable is a variable whose value determines the value of other variables (dependent variable). In order to find the factors that affected the tea earnings, the independent variables to be considered must have been in line with the dependent variables

Y=f(X1, X2, X3 and X4)

Where

Y = Tea earnings,

X1= Government policies (taxes)

X2=size of the farm

X3= number of workers

X4=amount of tea produced

FIG 3.3.1

government policies and support policies
size of the farm
Number of workers
Amount of tea produced

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Tea earnings

Independent variables Dependent variable

The dependent variables have an effect on the tea earnings which is the dependent variable in the study.

3.4 DEFINITION AND MEASUREMENT OF VARIABLES

The dependent variable in this study was the tea earnings. Tea earnings were affected by a number of factors which are the independent variables in this study. They were government policies (taxes), size of the farm, number of workers and the amount of tea produced.

VARIABLE VARIABLE NAME DESCRIPTION MEASUREMENT
Y Tea Earnings Total annual income from tea sales and exports Kenyan shillings or US dollars
X1 Government policies and support services Participation of government in the tea sector in form of taxation and subsidies Kenyan shillings or US dollars
X2 Size of the farm The size of the land on which tea has been planted Acres
X3 Labour The number of employees in the tea sector Number of workers
X4 Amount of tea produced Amount of tea produced in Limuru town annually Kilograms or tones

Table 3.4.1

3.5 THE STUDY AREA

The study area was Limuru town, a town in central Kenya. It is located on the eastern edge of the Great Rift Valley and about thirty miles from Nairobi. Limuru residents relied mostly on farming and Bata Shoe Company for employment. Limuru serves as the capital for Kiambu west district. The town has a population of about five thousand six hundred people.

3.6 TARGET POPULATION.

The target population in this study was three hundred people. These were mainly the residents who worked in the tea plantations areas, the tea sellers and workers from the administration offices of the town.

3.7 SAMPLING TECHNIQUES AND SAMPLE SIZE.

3.7.1 SAMPLING TECHNIQUES.

In this case we will use probability sampling. The type to be used is the stratified random sampling. This is because it was possible to divide the town into strata, according to the residents’ proximity to the three tea factories. These were the Mabrouke tea factory, Karirana tea factory and Maramba tea factory.

3.7.2 SAMPLE SIZE.

The sample size will be 60, 20 from residents near each factory.

FACTORY TARGET POPULATION SAMPLE SIZE
MABROUKE 100 20
KARIRANA 100 20
MARAMBA 100 20
TOTALS 300 60

Table 3.7

3.8 DATA TYPE AND SOURCE

3.8.1 PRIMARY DATA

This referred to raw data collected from residents, using structured questionnaires. This information included the socio-economic factors, such as age, gender, education level, size of land and the amount of tea produced

3.8.2 SECONDARY DATA.

The secondary data was collected from journals, books, reports from bodies such as the Kenya Tea Development Agency and The Tea Research Foundation of Kenya. This information was such as the trend of tea production in Kenya over the past years, export sales over the past years and the relationship between tea earnings and economic growth.

3.9 RESEARCH INSTRUMENTS.

(Ochola, 2002) that the results of either a questionnaire or face to face interviews have similar accuracy rates. In this study, we will use self-structured questionnaires. This is because they are free from bias and the respondents will have adequate time to give well thought answers which are to the best of their ability. Face to face interviews were also used because of the respondents who were illiterate and the answers recorded.

3.10 DATA COLLECTION.

The structured were distributed to different residents by the researcher’s team. Residents were also given pens to fill and adequate time to fill them. As this continued, the illiterate respondents were interviewed and their interviews recorded.

3.11 ETICAL ISSUES.

The ethical issues such as politeness to the respondents was ensured. The researcher was friendly to the respondents so that they freely and truly answered the questions without bias.

3.12 DATA CLEANING, CODING AND REFINEMENT.

The data collected in form of questionnaires and interviews was adopted, then transformed into quantitative form for analysis. It was then coded for identification and accuracy using the normal scale. This applied for the quantitative data. This information was edited to obtain relevant information.

3.13 DATA ANALYSIS.

The data was analyzed using econometric models. It was analyzed using descriptive statistics which included frequency tables. Consequently, inferential statistics which were correlation and linear regression. Multiple linear regression was used to determine the magnitude and direction of the relationship between the independent variables and the dependent variable.

CHAPTER 4: DATA ANALYSIS AND PREENTATION

4.1 INTRODUCTION

This chapter presents the empirical results including descriptive statistics the multiple regression analysis and key findings of the investigation. The study established the factors that influence the level of tea earnings in Limuru town. The study was able to get a response from 45 respondents out of the approximated 60 respondents. The reasons cited in the case of non-response were illiteracy and the unwillingness of some residents to disclose information about themselves. This is a response rate of 75%. This section constitutes the presentation and interpretation arising from the data analysis.

Table 4.1 Response Rate Return.

Respondent factory Target number of questionnaires Number of questionnaires returned Response rate
Mabrouke 20 18 90%
Karirana 20 11 55%
Maramba 20 16 80%
totals 60 45 75%

4.2 Descriptive Analysis

In this section, findings in respect to the demographic characteristics of the respondents and other general characteristics are presented.

4.2.1 Gender of the Respondents

The gender of the respondents as established in the study were presented in table 4.2.1

Table 4.2.1

Gender
Frequency Percent Valid Percent Cumulative Percent
Valid male 29 64.4 64.4 64.4
female 16 35.6 35.6 100.0
Total 45 100.0 100.0

The table above shows that majority of the respondents were male representing 64.4% of the total respondents. Female respondents were lesser and composed of 35.6% of the total respondents. This shows that the population of Limuru were more males than females.

4.2.2 Age of the Respondents

The age of the study as established in the study were presented in table 4.2.2

Table 4.2.2

Age
Frequency Percent Valid Percent Cumulative Percent
Valid 20-30 years 13 28.9 28.9 28.9
30-40 years 19 42.2 42.2 71.1
40 years and above 13 28.9 28.9 100.0
Total 45 100.0 100.0

Table 4.2.2 shows that majority of the respondents were between 30-40 years which corresponds to 19 respondents, and 42.2%. This was followed by the residents between the age of 20 and 30 years and those of 40 years and above which was 28.9% corresponding to 13 residents each.

4.2.3 Education level of the Respondents

The education of the respondents as indicated by the residents is as shown in the table below.

TABLE 4.2.3

Education

Frequency Percent Valid Percent Cumulative Percent
Valid secondary level 13 28.9 28.9 28.9
graduate level 16 35.6 35.6 64.4
post graduate level 16 35.6 35.6 100.0
Total 45 100.0 100.0

Most of the respondents were either in the graduate level and the post graduate level. This is because most of those who were interviewed were workers in the tea factory and the residents. Those in the secondary level were mainly workers in the tea plantations.

4.3 Correlation Analysis

Correlation analysis is useful in testing linear relationship between explanatory variables. A correlation matrix helps us in determining the strengths of the variables in the model. If the correlation is greater than 0.8, this shows a high correlation among the variables. The correlation matrix shows the relationship between the level of tea earnings and the independent variables which are taxes, size of the farm, number of workers and the amount of tea produced. The correlation of these variables was recorded in the table 4.3 as shown.

Table 4.3

Correlations
How much taxes do you pay to the government? What is the level of tea earnings in Limuru annually? What amount of tea do you produce annually? How many people work in the tea factories? What is the size of your farm?
How much taxes do you pay to the government? 1
What is the level of tea earnings in Limuru annually? .038** 1
What amount of tea do you produce annually? .057** .789** 1
How many people work in the tea factories? .254** .004** .069** 1
What is the size of your farm? .177** .164** .276** .306** 1
**. Correlation is significant at the 0.01 level (2-tailed).

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The correlations table above shows that the variables are not strongly correlated. This therefore shows that the variables can be regressed.

4.4 Regression analysis.

Regression analysis was also carried out on the variables after having passed all the statistical tests. Regression analysis is useful in showing how the independent variables affect the dependent variable. In the study, regression analysis was used to show how size of the farm, amount of tea produced, number of workers and taxes affected the tea earnings in Limuru town. TABLE 4.4.1

Model Summary
Model R R Square Adjusted R Square Std. Error of the Estimate
1 .855a .731 .703 .417
  1. Predictors: (Constant), what amount of tea do you produce annually? How much taxes do you pay to the government? What is the size of your farm? How many people work in the tea factories?

Table 4.4.2

ANOVAa
Model Sum of Squares Df Mean Square F Sig.
1 Regression 18.386 4 4.596 26.467 .000b
Residual 6.773 39 .174
Total 25.159 43
a. Dependent Variable: what is the level of tea earnings in Limuru annually?
  1. Predictors: (Constant), what amount of tea do you produce annually? How much taxes do you pay to the government? What is the size of your farm? how many people work in the tea factories?

Table 4.4.3

Coefficientsa
Model Unstandardized Coefficients Standardized Coefficients t Sig.
B Std. Error Beta
1 (Constant) .226 .416 5.068 .008
How much taxes do you pay to the government? -.035 .082 -.038 6.612 .000
What is the size of your farm? .023 .085 .025 5.250 .003
How many people work in the tea factories? .034 .092 .035 8.818 .000
What amount of tea do you produce annually? .871 .087 .848 10.007 .000
  1. Dependent Variable: what is the level of tea earnings in Limuru annually?

From the overall regression tables above, the overall regression fit as estimated by the adjusted R2 indicates a good fit. The adjusted R2 is 70.3% which implies that 70.3% of the dependent variable has been explained by the independent variables. From the table 4.4.3 the signs of the coefficients are as expected and significant.

4.5 The influence of independent variables on the dependent variable.

According to the regression analysis conducted in the study, the regression can be estimated as follows.

Y=0.226-0.35X1+0.023X2+0.034X3+0.871X4

Where Y is the level of tea earnings, X1 is taxes, X2 is the size of the farm, X3 is the number of workers and X4 is the amount of tea produced. The coefficients of the independent variables were obtained from the coefficients of beta in the regression analysis.

4.5.1 Influence of taxes on the level of tea earnings.

The influence of taxes on the level of tea earnings was the first objective of the study. A unit change in taxes leads to a 0.35 decrease in the level of tea earnings. In Limuru town, the more the government imposed taxes on tea farmers and the tea factories in Limuru, the level of tea earnings decrease. This showed a negative relationship between tea earnings and taxes by the government. (The star 2014) the agriculture cabinet secretary Felix Koskei that the 1% unit tax that had been levied on tea would be scrapped as one of the steps to restitute the tea sector, and this proved that an increase in taxes led to a decrease in tea earnings. This conclusion also concurred with the study by Joseph Burite, who claimed that value added tax had reduced domestic consumption.

4.5.2 The influence of size of the farm on the level of tea earnings.

The second objective of the study was to determine the effect of size of the farm on the level of tea earnings. From the regression analysis it was found that a unit change in the size of the farm led to an increase in tea earnings by 0.023. According (star newspaper 2014) a study conducted by the Tea Research Foundation of Kenya, concurred with this study. Tea farmers in Limuru and Lari in Kiambu County planted a purple variety of tea that sold between 100 and 150 shillings compared to the green tea which sold between 13 and 18 shillings per kilo. Farmers who planted on a large scale basis were able to achieve significant profits from the tea earnings. . A study conducted by Francis Mwaura and Ogise Muku confirmed this conclusion. Two farmers, on who was Susan Kabui in Limuru said that natures first gold is green. This was depicted by the picturesque highlands in Limuru, with the countryside having rolling hills carpeted in rich vast expanse of green fields that stretched to the horizon. This means that very large farms had been used to plant tea because the larger the size of the farm one had, the more the tea earnings. The other farmer who was referred to as Robert Barua, owned 60 acres of land. He pointed out that tea growing had been central to Kenya’s economy for a long time. He said that before he utilized all his 60 acres in growth of tea he earned 3 shillings per kilogram, but after utilization, he earned ten times that.

4.5.3 The influence of the number of workers on the level of tea earnings.

The third objective of this study was determined by the number of workers. A unit change in the number of workers led to an increase in the level of tea earnings by 0.034. This study was as expected and agreed with the assumptions of the classical growth theory, where employing more labour and assuming no change in technology would increase output at a diminishing rate and eventually approach zero. Increasing the number of workers in the tea sector increases output but a further increase in the number of workers would stagnate the amount of output. The Mabrouke tea factory, the Karirana tea factory and the Maramba tea factory each employed a maximum of 100 workers. This study was also in line with a study conducted by Owuor Kavoi of the tea research foundation of Kenya who stated that different zones required different levels of farms and labour inputs, where the more workers there were, the more output there was, leading to an increase in the level of tea earnings.

4.5.2 The influence of amount of tea produced on the level of tea earnings.

The fourth and last objective of this study was to determine the influence of the amount of tea produced on the level of tea earnings. According to the regression analysis in the study, a unit change in the amount of tea produced led to an increase in the level of tea earnings by 0.871. This study concurred with the assumptions of the endogenous growth theory which incorporated a new concept of human capital, the skills and knowledge that make workers productive. The more productive the workers are, the more the output of a firm. According to the study, if workers were productive the level of tea earnings increased significantly

4.6 Conclusion

From the study, it can be concluded that the independent variables have a great effect on the dependent variables. This is because 70.2% of the dependent variable has been explained by the independent variables. It was also concluded that a unit change in size of the farm, amount of tea produced and the number of workers led to an increase in the dependent variable. A unit change in taxes however led to a decrease in the level of tea earnings.

CHAPTER FIVE: SUMMARY CONCLUSIONS AND RECOMMENDATIONS.

5.1 INTRODUCTION

This chapter contains a summary of the findings, the conclusions drawn from these findings and the recommendations.

5.2 SUMMARY OF THE FINDINGS.

The study investigate the factors that affect the level of tea earnings in Limuru town. The objectives of the study were to find out how taxes, the size of the farm, the number of workers and the amount of tea produced affected the level of tea earnings in Limuru town. This is because Limuru is one of the main producers of tea in the country. These factors were analyzed using SPSS, where correlation analysis and regression analysis was conducted. All the four variables were found to affect the level of tea earnings. Out of the four variables, only taxes from the government affected the level of tea earnings negatively. The results of the study were significant at the p<0.01 level of accuracy.

The study therefore answered the questions: what is the effect of taxes on the level of tea earnings in Limuru town? How does size of the firm affect the level of tea earnings? What is the influence of number of workers on the level of tea earnings and what is the relationship between amount of tea produced and the level of tea earnings?

In conducting the study, a total of 60 people were interviewed, but only 45 of them responded, which indicated a 75% response. Those who were interviewed mainly lived near the three tea factories in Limuru which are the Maramba, Mabrouke and Karirana tea factory. This study was conducted using the stratified sampling method, where twenty people were selected living near the three tea factories. The method of data collection was mainly questionnaires because most people could fill them as the level of illiteracy is the area was quite low. From the study most of the respondents were male and based on age, most of the respondents were between 30 and 40 years.

5.3 CONCLUSION.

From the study, 70.3% of the dependent variable was explained by the independent variable. This was obtained from the regression analysis. From the correlation analysis, the independent variables and the dependent variable were not strongly correlated and therefore the variables were regressed. The size of the farm, the number of workers and the amount of tea earnings produced were found to affect the tea earnings positively. However, the taxes imposed on the tea sector had a negative relationship with the level of tea earnings. This results matched the results from previous studied that had been conducted. The coefficients of the independent variables were significant at the 1% confidence level and this justified them to be included in the regression model.

This study was based on the classical growth theory. The findings also matched the assumptions of the classical growth theory which is based on the law of variable proportions. Increasing labour while holding capital constant increased the level of tea earnings. Land was restricted to cultivatable land only and the larger the size of land one had, the more tea earnings there were.

5.4 RECOMMENDATION

Tea being one of the leading exports in the country, the residents of the town should utilize their land in planting of tea. This is because the larger the size of the farm, the more the tear earnings. The tea farmers should also plant the variety of the tea that is better paying. Workers of the tea factories should also be motivated through increasing their pays, educating them on the best methods of planting, harvesting and production methods of tea. Motivation of the workers increases the productivity of the workers and this in turn will increase the tea earnings.

The government should provide subsidies to tea farmers and those who work in the factories. The government should also not overtax the tea sector to ensure that it does not collapse and also to ensure that tea earnings are maximized.

5.5 SUGGESTIONS FOR FURTHER RESEARCH.

This study was only based on the factors affecting the level of tea earnings in Limuru. There are many tea producing areas in the country and therefore studies can be conducted in other areas such as Kericho and Nandi. This will help the government in devising policies to improve the tea sector which is one of the leading foreign exchange earners.

economics research paper

REFERENCES

Andrew M (2002):” Tea prices and Regulation and Their Impact on livelihoods of rural community in Kenya” Journal of African cultural studies. Volume 15, page 100-103, Brill E-books: Meru

Daniele, G.(2001): Tea markets: New Paradigms. Mac Graw Hill, New York.

Hezron, o and Nyangito, h(2001): Policy and legal framework for the tea sub-sector and the impact of liberalization in Kenya, Bishops gardens, Nairobi

Kothari, C.R. (2007). Research Methodology: Methods and Techniques. Age International Publishers: New Delhi

Mugenda, O.M. & Mugenda, A.G. (2003). Research Methods: Quantitative and Qualitative Approach. Acts Press: Nairobi.

Mugweru, E. (2011): Determinants of tea production in the Kenyan economy. Longhorn publishers, Nairobi

Nyangito, h (2003): Agricultural trade reforms in kenya, kippra, bishops garden, Nairobi.

Renarto, G.(2001): Government actions in tea production. PGA publishers, Rio de Janeiro.

Theuri, B.( 2012), “ Factors affecting tea revitalization programmes in Kiambu County, Kenya

APPENDIX 1: WORK PLAN

No: Research Task Time period
September-November 2014 September-November 2015
1 Research Proposal
2 Pilot Study
3 Data collection
4 Data Analysis
5 Summary and report writing
6 Presentation of the findings

APPENDIX 2 BUDGET.

ITEM COST (KSHS)
Stationery 3000
Printing, photocopy and binding 1500
Miscellaneous 1000
Internet 1500
Total 7000

APPENDIX 3 QUESTIONNAIRE

Dear respondent,

I am an undergraduate student in University in the school of economics. The questionnaire aims at collecting data that will be useful to investigate the factors affecting the level of tea earnings in Limuru town. It is purely for academic purposes. Your contribution will be highly appreciated.

Yours faithfully,

444.

QUESTIONNAIRE

Instructions, tick appropriately.

  1. What is your gender?

Male ( ) Female ( )

  1. What is your age bracket?

20 – 30 years ( ) 30 – 40 years ( ) 40 years and above ( )

  1. What is your level of education?

Primary school ( ) Secondary school ( ) Tertiary level ( )

  1. What is the size of your farm?

0 – 5 acres ( ) 5 – 20 acres ( ) 20 acres and above ( )

  1. How many people work in the tea factories?

0 – 50 workers ( ) 50 – 100 workers ( ) 100 workers and above ( )

  1. How much taxes do you pay to the government annually?

0 – 10000 shillings ( ) 10000 – 500000 shillings ( ) 500000 shillings and above ( )

  1. What amount of tea do you produce annually?

0 – 1000 tones ( ) 1000 – 10000 tones ( ) 10000 tones and above ( )