Some small-holders are able to generate reliable and substantial income flows through small-scale dairy production for the local market; for others, a set of unique transaction costs hinders participation. Cooperative selling institutions are potential catalysts for mitigating these costs, stimulating entry into the market, and promoting growth in rural communities. Trends in cooperative organization in east-African dairy are evaluated. Empirical work focuses on alternative techniques for effecting participation among a representative sample of peri-urban milk producers in the Ethiopian highlands. The variables considered are a modern production practice (cross-bred cow use), a traditional production practice (indigenous-cow use), three intellectual-capital-forming variables (experience, education, and extension), and the provision of infrastructure (as measured by time to transport milk to market). A Tobit analysis of marketable surplus generates precise estimates of non-participants' 'distances' to market and their reservation levels of the covariates--measures of the inputs necessary to sustain and enhance the market. Policy implications focus on the availability of cross-bred stock and the level of market infrastructure, both of which have marked effects on participation, the velocity of transactions in the local community and, inevitably, the social returns to agroindustrialization.

Agriculture is the largest contributor to Kenya's GDP, and it employs 61 per cent of the country's workforce, mainly represented by smallholder farmers living in rural settings (Muriuki, 2011; FAO, 2014). Within agriculture, the country's livestock dairy sector has special importance. Kenya is one of the largest milk-producing countries in Africa - it currently has more than 5.6 million dairy cattle, accounting for about 15 per cent of East Africa's dairy livestock (FAO, 2017). Investing in smallholder dairy farming is an effective way to improve farmers' production and commercialization, which in turn can help alleviate poverty and increase food security (Burke et al., 2007; Muriuki, 2011; Olwande et al., 2015; Randolph et al., 2007; Smith et al., 2013). The need to invest in and improve Kenya's dairy industry was especially strong after the collapse of the monopolistic dairy cooperative structure in the 1990s (Muriuki, 2011), when farmers faced high transaction costs for production and marketing (Staal, Delgado and Nicholson, 1997), and dairy groups and cooperatives were unable to address these issues (Holloway et al., 2000). Smallholder dairy farmers faced additional barriers to improving their dairy production, including poor and unreliable quality of feed, lack of access to animal health and breeding services, loss of milk production, and inadequate access.