Competitiveness of smallholder dairy farmers in East Africa

ESADA Conference, Kigali, 19th May 2010

Isabelle BaltenweckInternational Livestock Research Institute

Issues

Small scale dairy farms dominate production in most developing countries, including in East Africa Can they compete internationally? What factors influence competitiveness? What is competitiveness?

Outline

Increasing demand for milk and smallholders’ opportunities to meet the demand

Importance of smallholders in total livestock (milk) production

Dairy: milk.. and other benefits Competitiveness: prices and costs of

production Conclusions

3

The near future: the Livestock Revolution

Expanding populations, incomes and urban households across developing countries particularly in Asia

This is driving increased demand for livestock products, including milk

Much greater demand growth than for most crop products

Percentage Increase in Total Demand for Livestock Products 1993 – 2020

-10

0

10

20

30

40

50

60

Meat Milk

-10

0

10

20

30

40

50

60

Meat Milk

-10

0

10

20

30

40

50

60

Meat Milk

Developing countries

Developed countries

% in

crease

in

dem

an

d

Implications of the Livestock Revolution for milk production in Developing Countries

Model predicts that deficit countries will generally import feed rather than livestock products

Increase in production will thus occur mostly near where increase in demand occurs

As a consequence, Developing Countries will produce 52% of global milk in 2020, up from 32% in 1993

Presents huge apparent opportunities for milk producers in Developing Countries (if they can compete)

Smallholders contribution to livestock production and market orientation7

Region % of Production by Small-holder / poor farmers

(definition of ‘small-holder’ in brackets) Beef Chicken (meat)

Milk (cow)

Small Rum. (meat) Eggs

Eastern Africa (≤ 6 milking animals) 60 90 60-90 56 87

Bangladesh (< 3 ha of land) 65 77 65 78 77

India (< 2 ha of land) 75 92 69 92 71

Smallholders dominate the production of livestock products

However, only about half sell milk regularly (60% Kenya and 40 % Rwanda and Uganda)

Dairy production’s role in sustaining mixed small farming

INPUTSFertiliserSeedsEtc..

OUTPUTSHarvest

Losses

Field

INTERNAL FLOWSFeed / Fodder

Organic fertiliser (Manure)

System boundaries

OUTPUTSMilk

BW gainManureLosses

INPUTSFeedFodder

- -

Cattle

Non-marketable smallholder production value often not considered

• Manure – May equal up to 30% the value of milk produced

• Home consumption• Display of status• Insurance & financing

Non-cash income can be as high as 78% of annual income where local market linkages are weak and opportunities for labour are limited (Moll et al., 2001)

Key Dairy Markets mostly Informal

10

Traditional market share %SSA Kenya 88

Tanzania 98Uganda 90

L. America Mexico 33Nicaragua 86 Costa Rica 44Brazil 44

S. Asia India 85Sri Lanka 40Pakistan 98

Comparison of % imports in countries with strong vs. weak dairy traditions

11

Implication: imports cannot easily compete with traditional products

Source: FAO data

Geographic distribution of surveyed households

Some survey data

Competitiveness: farm- gate prices

13

26

16

2018

0

3028 29

3235

28

24 25 26 25

0

5

10

15

20

25

30

35

Cent

s per

litr

e

Uganda Rwanda Kenya

Individualcustomers

Private MilkTraders

Dairy Co-operatives

Chilling Plants

other

Average milk prices by buyer ($ cent per litre)- 2008 data

Competitiveness: costs of producing milk (US$)

14

Milk produced

per hh(Lts)

Total Revenue

($)

With family labour Without family labour

Totalcost($)

Gross margin

($)

Costper litre

($)

TotalCost($)

Gross margin

($)

Cost perlitre ($)

A B C D=B-C E=C/A F G=B-F H=F/A

Uganda 2,552 685 470 214 0.18 214 471 0.10

Rwanda 4,083 1,462 1,262 200 0.31 947 515 0.25

Kenya 2,849 846 455 391 0.16 262 584 0.11

IFCN data: globally, average cost of milk production ranges from $0.14 to $0.60, with weighted average of $0.28. Africa has the lowest and Western Europe the highest costs.

Breakdown of various costs

Uganda Rwanda Kenya 0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

0.45

GROSS MARGIN

GROSSMARGIN

GROSS MARGIN

Cost ($ per litre) of milk production by country

Gross margin

Breeding cost

Extension services cost

Animal health cost

Water cost

Concentrates cost

Fodder cost

Hired labour

Housinng cost

Dollars

($

)

Labour constitutes the highest cost of production in Uganda & Rwanda, while animal health cost takes the largest share in Kenya

Aims of smallholder dairy production?

It’s about Milk Competitiveness, even in very difficult

environs Best use of underutilized local resources –

connected to crops But it’s also about People

Employment Both on farm and along supply chain

Livelihoods Assets and nutrients

Conclusions

Smallholder dairy producers in East Africa and elsewhere in developing countries can effectively compete, mainly due to strong local demand. This can further be enhanced by:

• Improving economies of scale (e.g. through collective action)

• Access to services and appropriate technologies• Improving infrastructure • Creating an overall enabling policy and

institutional environment for all participants in the sector

Thank you

18