What impacts are EU supermarket standards having on developing countries' export of high-value horticultural products? Evidence from Kenya

Abstract

European Union retailers are setting global benchmarks for the production of fresh food and are asking their suppliers for produce to be certified according to food safety and quality standards. Compliance with these standards for developing countries' small-scale producers entails costly investment in variable inputs and long- term structures. Limited empirical evidence exists either to refute or confirm the concern that the proliferation and enhanced stringency of these standards marginalize smallholders from the global market. This paper therefore explores the costs of compliance, factors explaining the smallholder decision to adopt EU private quality standards, and the impacts of the standards on farm financial performance. We develop a 2-stage standard treatment effect model to account for self-selection as a source of endogeneity. Analysis is based on a random cross section sample of 439 small-scale export vegetable producers in Kenya whose production was monitored in 2005-2006. We demonstrate that adopters and nonadopters are distinguishable by their asset holding and household wealth, access to services, labor endowment, and level of education. Once we control for the endogeneity problem, we find that small-scale producers can benefit substantially from adopting the standards at the farm level