OPERATIONS RISKS MANAGEMENT AND WHEAT FARMING PRODUCTIVITY IN NAROK NORTH CONSTITUENCY BY BORE JOSHUA KIPSANG A RESEARCH PROJECT SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENT FOR THE AWARD OF A DEGREE IN MASTER OF BUSINESS ADMINISTRATION (MBA), SCHOOL OF BUSINESS, UNIVERSITY OF NAIROBI. OCTOBER, 2014 DECLARATION This project is my original work and has not been presented for a degree in any other University. Signed……………………..………… Date………………………... Bore Joshua Kipsang’ Reg. No: D61/68858/2013 This Project has been presented for examination with our approval as University Supervisor. Signed ……………………………Date …………………………… Dr. X. N. Iraki University of Nairobi, Kenya ii ACKNOWLEDGEMENT I am gratefully indebted to all those who have contributed to the success of this dissertation. First and foremost I recognize and uphold my Almighty Lord whose power has made me come this far. My sincere gratitude goes to my supervisor, Dr. X N. Iraki for tirelessly and willingly sharing his scholarly experience and for making this dissertation a success undertaking. He has been available for consultation, his professional guidance and supervision added value to this work. iii DEDICATION This project is dedicated to my family, for the support and encouragement during the project. iv ABSTRACT The objective of this study was to establish the relationship between operation risk management and farm productivity in the agricultural industry in Kenya and the effectiveness of this relationship. Theoretically it is assumed that operation risk management leads to high farm productivity through risk identification and matching with appropriate risk management approach. Inferential statistics (correlations) with farm productivity as the dependent variable and operation risk management as the independent variable was used. These variables were used to establish whether there is a relationship between operation risk management and farm productivity. Thus know their effectiveness with respect to this relationship. Primary data was collected through questionnaires with regard to 2014 wheat farming season and analyzed using statistical tools. The population of 650 wheat farmers in Narok North Constituency was used. The means and standard deviation were calculated for the descriptive data and Karl Peerson was used to answer the research question. The study results indicated that there was weak negative relationship between operation risk management and wheat farm productivity. One of the limitations of the study was high cost of finding a respondent due to expansiveness of the area and poor road network especially during rainy season, thus low response rate. Also the overall rating of operation risk management was not fully captured since some wheat farmers belong to other counties and were not found. The study recommends for a formal operation risk management firm which can sample farmers and rate farm productivity based on various management approaches. This would help improve farm productivity to farmers in Narok Sub County. v TABLE OF CONTENTS DECLARATION.......................................................................................................... ii ACKNOWLEDGEMENT ..........................................................................................iii DEDICATION............................................................................................................. iv ABSTRACT .................................................................................................................. v TABLE OF CONTENTS ........................................................................................... vi CHAPTER ONE: INTRODUCTION ........................................................................ 1 1.1 Background to the Study .......................................................................................... 1 1.1.1 Operation Risk Management ............................................................................. 2 1.1.2 Farm Productivity ................................................................................................. 3 1.1.3 KenyaAgriculture Sector ...................................................................................... 5 1.2 Statement of the Problem ......................................................................................... 7 1.3 Research Objectives ................................................................................................. 8 1.4 Value of the Study ................................................................................................... 9 CHAPTER TWO: LITERATURE REVIEW ......................................................... 10 2.1 Introduction ............................................................................................................ 10 2.2 Farm Production..................................................................................................... 10 2.3 Operations in Farming ........................................................................................... 11 2.4 Operational Risks in Farming ................................................................................ 13 2.5 Risks in farming ..................................................................................................... 14 2.6 Risks Management approaches .............................................................................. 16 2.6.1 Product diversification Risk Management approach ...................................... 16 2.6.2 Maintenance of Excess Production Risks Management approach .................. 17 2.6.3 Utilisation of Lease Arrangements Risk Management approach .................... 18 2.6.4 Effectiveness of Information Sourcing Risk Management approach .............. 20 vi 2.6.5 Utilization Insurance Policies Risk Management approach ............................ 21 2.7 Outcomes of Effective risk management on farm productivity ............................. 23 2.8 Conceptual Framework .......................................................................................... 24 CHAPTER THREE: RESEARCH METHODOLOGY ........................................ 25 3.1 Introduction ............................................................................................................ 25 3.2 Research Design..................................................................................................... 25 3.3 Population .............................................................................................................. 25 3.4 Sample Design ....................................................................................................... 26 3.4.1 Sample Size ..................................................................................................... 26 3.4.2 Sampling Procedure ........................................................................................ 26 3.5 Data collection ....................................................................................................... 27 CHAPTER FOUR: DATA PRESENTATION, INTERPRETATION AND DISCUSSION ............................................................................................................. 29 4.0 Introduction ............................................................................................................ 29 4.1 Demographic information of respondents ............................................................. 29 4.2 Agricultural Risks Experienced by Wheat Farmers in Narok North Constituency ...................................................................................................................................... 32 4.2.1 Relationship between Risks and Wheat production in Narok North Constituency ............................................................................................................. 35 4.3 Operation Risk Management Methods in Wheat Farming in Narok North Constituency ................................................................................................................ 36 4.3.1 Relationship between Operational Risk Management Method and wheat productivity .............................................................................................................. 38 4.4 Effectiveness of Operation Risks Management Methods in Wheat farming ......... 39 vii 4.4.1 Farmers’ responses on how risks associated with crop farming can be managed ................................................................................................................... 43 CHAPTER FIVE: SUMMARY, CONCLUSIONS AND RECOMMENDATIONS ........................................................................................... 45 5.0 Introduction ............................................................................................................ 45 5.1 Summary ................................................................................................................ 45 5.2 Conclusion ............................................................................................................. 46 5.3 Recommendations .................................................................................................. 48 5.4 Suggestions for Further Studies ............................................................................. 49 REFERENCES ........................................................................................................... 50 APPENDIX 1: QUESTIONNAIRE FOR FARMERS ........................................... 53 APPENDIX II: INTERVIEW GUIDE FOR COUNTY AGRICULTURAL