Research Journal of Finance and Accounting www.iiste.org ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol.5, No.24, 2014 148 Socio-Economic Effects of Liberalization of Small Scale Tea Sector in Kenya: Evidence from Tea Farmers in Konoin District Joseph Kiprono Kirui 1 Hellen Chepkorir Tirop 2 Joseph K. Rotich 3 1. * Phd Scholar,Moi University Andlecturer, University of Kabianga 2.Graduate and Scholar, Kenya Institute Of Management 3.Phd Scholar, Jomo Kenyatta of Agriculture and Technology and Lecturer University of Kabianga Abstract Liberalization in Kenya started in 1990’s and continued ro date with far reaching effects on various sectors of Kenyan economy. The aim of this study was to investigate socio-economic effect of liberalization of small scale tea sector. The study sought to: Determine how liberalization has affected the living standard of the farmers, to investigate the impact of liberalization of tea sector on the competitiveness of small scale tea farmers and analyze the effect of liberalization on the performances of KTDA managed tea factories. A case study design was used in the study. The target population was 380 from which a sample of 38 was selected. In collecting data , a questionnaires was used. Descriptive statistics were computed. The findings revealed that Liberalization has exposed the smallholder and factories stiff competition due to entrants of new firms into the tea business. Factories have been ‘forced’ to streamline their operations to cope with completion. Effects of liberalization to farmers is mixed: On the positive farmers have been relieved of monopolistic tendencies of KTDA such as unilateral price determination and farmers have had a much bigger say in the management of tea factories. Negative effects include: Declining bonuses that farmers used to earn. Keywords: Liberalistaion, Tea secor, small-scale tea farmers 1. Background of the Study According to Chumba (2004), liberalization entails the removal of rules which governments have traditionally put in place to regulate the activities of state owned firms. Chumba further argues that liberalization, more commonly known as the „ free trade' agenda, sounds reasonable in itself. Much of the language used to describe it portrays the removal of restrictions, barriers and obstacles to free trade as a positive trend Drucker, (2006),observes that liberalization could be compared to “putting a flyweight in the ring with an experienced boxer (the multinational corporations), and then removing the gloves”. The results often leave the weaker participant reeling. The removal of regulations governing the activities of the strong multinationals exposes weak domestic industries to abuse and exploitation in the hands of the multinationals. Though hailed as the common trend in modern times, liberalization takes jobs out of local hands. In the name of liberalization, Kenyan institutions have instead been broken up as foreign players enter into the scene to compete with each other. In many cases, they import their own workforce and then sack Kenyans who occupied technical positions in their firms, argued a Kenyan news columnist (Baumann, 2004). Mukras (2004) on the other hand argues that the common result of liberalization is the collapse of local enterprises as indigenous industries find it impossible to compete in markets that are flooded with inexpensive imports. Simultaneously the government, whose stated intention is to nurture these industries suddenly adheres to the international economic policies of non-protectionism and abandons local industry The smallholder tea industry is one of the greatest success stories in the Kenyan agriculture sector. It is the leading foreign exchange earner accounting for about twenty per cent (20%) of the total agricultural export earnings in Kenya (Drucker, 2006). The crop also contributes immensely towards employment directly to farm owners and workers on farms and to industry and service sectors as Drucker further argue. The crop constitutes about 60% of the total tea production in Kenya, the balance coming from the large tea estates. Tea production in Kenya is carried out in small and large scale (estate) farms. The smallholder tea production, processing and marketing, was until 1997 subject to government controls. The controls were implemented by the Kenya Tea Development Authority (KTDA) which was established under the agricultural Act, Cap 318 as a parastatal and given he mandate to control and regulate the small holder tea sub-sector in Kenya (Drucker, 2006). The Tea Act (Cap. 343 , laws of Kenya, gave KTDA exclusive management control over the provision of planting material and extension services to the smallholder, provision of inputs and services collection and processing of the green leaf, management of the factories and marketing of the processed leaf. KTDA organized the sale of the processed tea through its contracted agents at Mombasa and London auctions, received the sale proceeds and arranged the payments to farmers on a monthly basis. KTDA did all these tasks through its various divisions and departments at the headquarters in Nairobi. The above functions and activities were under the leadership and guidance of the Managing director. KTDA Board of Directors had the overall responsibility of policy formulation. The board consisted of farmers ‟