Why do smallholders sell grain through intermediaries while governments promote direct–to–consumer channels? A framework of grain marketing impacts in Kenya

With the rise in direct–to–consumer market channels, smallholder farmers continue to sell their grain through intermediaries, implying that policies supporting direct sales channels may be misguided. Using a three–wave unbalanced panel data of 342 smallholders in Kenya, I analyse four marketing channels: rural consumers, rural assemblers, rural traders, and urban traders. Market channel choice is examined using a conditional logit model, while welfare effects are evaluated using multinomial endogenous treatment effect (METE) framework. The results indicate that household size, positively influenced participation in rural–assembler and rural–trader channels, while income and relative customer proximity reduce their use. Customer relationships increase participation in rural–assembler and urban–trader channels, whereas idiosyncratic shocks and longer storage duration reduce their likelihood. Rural–traders handle larger sales volumes, while rural–assemblers offer the highest prices and revenues. Storage duration positively affect prices received, while social network, and income reduce prices. Similarly, social network, quantity produced, and transaction costs increase revenue. Results emphasizes that access to scale economies in marketing, particularly through reduced per–unit transportation, search, and transaction costs relative to revenues earned from small sales volumes, plays a crucial role in channel selection. Likewise, reliability of buying smallholders’ output immediately after harvest particularly for poorer household relying on grain sales helps to curb liquidity constrains. These results suggest that policies focused solely on promoting direct–to–consumer channels may be less effective than those that reduce marketing costs, improve rural infrastructure and storage, and strengthen intermediary efficiency, underscoring the importance of convenience, liquidity, and scale economies in smallholder cereal market participation.