In 1988, a team of agricultural economists from Egerton University, Stanford University and the University of Arizona initiated research and analysis in agricultural policy in Kenya with funding from USAID. This work focused on documenting the impacts of policy on incentives and efficiency in agricultural production, processing and marketing with particular reference to smallholder agriculture. The project was called Policy Analysis Matrix (PAM) after the budget-based analytical system that was the main methodology employed.

A major finding of those early studies was that farmers were not taking advantage of the income earning opportunities availed by cash crops because of fundamental problems and inefficiencies in agricultural marketing that was heavily regulated and dominated by monopolistic marketing parastatals covering both food and cash crops. The research output was disseminated widely through seminars, conferences and reports.

At the end of the PAM there was consensus that much had been achieved in revealing the important role of policy in influencing incentives in the agricultural sector. But much remained to be done, particularly in demonstrating the potential benefits of changes in agricultural marketing policy. A new phase of policy research and analysis under the USAID funded Kenya Market Development Programme (KMDP) was initiated with a special focus on the improvement of marketing systems. KMDP invested in upgrading of market infrastructure, particularly rural access roads and market information, and in improving the policy environment through market reform. PAM undertook studies that provided analytical input into the agricultural market reform debate, which has been the basis for market liberalization in the agricultural sector.

Over time PAM data and reports were increasingly being sought for reference by agricultural sector public officials, donors, the private sector, university academics and students. The demand for research output by a variety of stakeholders was increasing thus placing a lot of pressure on the limited resources and institutional constraints of project. The need to respond to a multiplicity of demands in a more responsive and flexible manner led to the transformation of the project into a research institute that is capable of housing several projects and donors at the same time.

A planning workshop organized by Egerton University in Mombasa in 1990 and attended by stakeholders in agriculture and the university sector had already made far-reaching recommendations for the University.  Among the important recommendations were that Egerton should embark as soon as possible on:-

• Establishing a strong research programme to complement teaching. The research programme was to be accompanied by an outreach and dissemination programme for research results to be implemented by the beneficiaries.
• Establishing strong linkages with relevant institutions in education and research for collaborative purposes and exchange of information.
• Establishing a strong relationship with agricultural and other industries in the economy for purposes of practical training of students, providing opportunities for research, outreach, and exchange of information.

In pursuit of these recommendations, the Research Division of the University recommended the establishment of Tegemeo Institute. Tegemeo’s mandate was to address the problems of management of agriculture and natural resources with specific reference to policy.  The institute was expected to be a self-financing referral center for the most comprehensive and authoritative data and information on agricultural policy. This explains the descriptive name, 'Tegemeo', meaning self reliant and dependable. With the institute established, a vehicle was created to transform the PAM project into the Tegemeo Institute of Agricultural Policy and Development.

Today Tegemeo is widely recognized as the center of excellence in agricultural policy research and analysis in Kenya. The institute has continued to undertake empirical research and analysis on the topical agricultural policy issues of the day, and wide dissemination of findings through conferences, seminars, stakeholder workshops, papers, policy briefs, and presentations in the print and electronic media. Tegemeo's consistently good quality empirically based analytical work, and its objective stance in reporting and disseminating those findings has over the past decade won the acceptance of government, the private sector, civil society, university academia and others interested in the performance of Kenya's agricultural sector.

The policy formulation arena has also been changing with new stakeholders - parliament, civil society, the private sector, lobby groups and the press - beginning to take keen interest in agricultural policy formulation and implementation. This has increased demand for Tegemeo’s work and time. Over the last 11 years, the institute has been funded consistently by the United States Agency for International Development (USAID), but seeks to diversify sources of funding. Recent partnerships have been with the World Bank, Rockefeller Foundation, Ford Foundation, DFID, KARI, FAO, IEA, Michigan State University, the State University of New York, Clark University, the University of Georgia and Makerere University.