Horticulture Literature Review

This section is a review of literature related to the horticultural export subsector. The section 2.2 is a theoretical review which discusses the major factors influencing the exports of agricultural products. Section 2.3 is an empirical review of literature while section 2.4 is an overview of the entire literature.

2.2 Theoretical Review

Diversification of production in agriculture sector could be a viable solution taking into account volatility and decline of commodity prices. Diversification is a way of reducing a country’s dependence on a restricted range of primary products that are generally exported before processing. In this respect horticulture provides a good opportunity for export diversification for many developing countries which

(2002) acknowledge that there are many factors that affect the supply of primary commodities but most studies tend to narrow these factors to price variables. This is because many factors affecting supply are unquantifiable or there is difficulty in obtaining reliable and complete set of data. The authors argue that the factors that determine the supply of primary export commodities include cost and accessibility of consumer goods, research and extension, farm subsidies and taxes, infrastructure, availability of credit, among others. The variables used in most international trade studies are; the exchange rate which is used as a proxy for relative prices, and the foreign income which is actually a demand side variable. The price of agricultural inputs also affects the agricultural productivity. Nyairo and Backman (2009) argue that a rise in price of agricultural inputs has negatively affected agricultural output in East African region. The authors explain that there should be adequate use of seeds, pesticides, fertilizers, and other inputs in order to realize high

This implies that the exports from these countries are sensitive to income level changes in the developed countries. The developed countries are the major export destinations for these countries. Typical demand functions of exports tend to yield biased estimates of the parameters if the supply side variables are not incorporated in the model (Riedel 1988, cited in Roy 1991). The models used to estimate the export flow should therefore incorporate both the demand and the supply side variables. Roy (1991) argued that such export functions cannot be referred to as export demand functions or export supply