Commercialising and Professionalising the Management of Dairy Hubs

KMT Livestock Case Study

Commercialising and Professionalising the Management of Dairy Hubs

The value of Kenya’s dairy industry is estimated at USD 1.4 billion, with more than two million households believed to be involved at the production level of the value chain, many of whom are rural poor. For these households, dairy is the leading source of agricultural income contributing to over 20 per cent of household income.

Despite 80 per cent of all milk sold coming from the informal dairy value chain, working with the formal sector offers the greatest opportunities for sustainable value-creating enterprise development.

However, there remain systemic constraints related to the interconnectivity of various service markets feeding into dairy as well as how the process of formalisation is evolving. With this, there is a need to work with dairy hubs to improve their effectiveness and efficiency in business operations. The major focus is on business practices that have particular implications for farmers.

Constraints facing market actors along the dairy value chain:

high cost of production
low adoption of appropriate dairy production technologies
lack of access to markets
poor infrastructure
poor milk quality
inconsistent production

Systemic constraints at the cooperatives and dairy hubs level:

poor governance
lack of customer loyalty
lack of proper management tools for efficient service delivery to farmers

Smallholder farmers face limited access to correct and reliable animal farm inputs.

This lowers their production capacity and subsequently their income.

Our Intervention

In 2016, KMT and PKF entered a partnership aimed at developing Kenya’s dairy sector through commercialising and professionalising the management of dairy hubs.

The aim of the project was to unlock dairy hubs potential by transforming them into thriving businesses that offer affordable quality services and better prices to farmers. PKF developed a hub management package that sought to unlock the potential of dairy hubs and eventually that of smallholder dairy farmers.

When PKF started implementation, three business models were developed and adopted. Six dairy hubs were engaged after taking them through a rigorous selection criterion.

Farmer-led model

Under this model, farmers were to invest in all milk handling equipment and infrastructure and market their milk to the final consumer

Investor-led model

In this model, an independent business entrepreneur was to invest in processing equipment, and then enter into a contract with farmers for supply of milk.

Mixed / Co-ownership Model

This model entailed farmers and entrepreneurs developing a business model where both are shareholders, depending on capital contributions.

Results

Miharati Dairy Hub, Nyandarua County (Farmer-led model)

Increase in production capacity

The hub has increased milk production capacity from 8,000 litres per day in 2016 to 22,000 litres per day by August 2019

Increase in farmer membership

The hub mobilised farmers and increased its membership from 3,000 farmers in 2016 to 5,800 farmers as of August 2019

Attracting diversified financing options

As a result of improved governance and the existence of management tools like a strategic plan, the hub attracted funding from GIZ and partnered with Safaricom to developed a mobile-based application to manage milk collection and payment.

Gakundu Dairy Hub, Embu County (Investor-led model)

Better milk prices

Smallholder dairy farmers enjoyed better prices per litre, KES 34 up from the initial KES 28

Increase in number of registered farmers

The hub registered an increase of 1,800 new dairy farmers from the initial 200 farmers

Increase in daily milk production

On average, daily productivity increased from 8 litres per cow to 15 litres per cow

Kibugu Dairy Hub, Embu County (Mixed/Co-ownership model)

Functional management and Board of Directors

Facilitated the installation of functional hub leadership through continuous capacity building and checks. The new management took over in June 2018.

Increase in number of registered farmers

The hub registered an increase in farmers from 20 in 2017 to 300 farmers by August 2019

Mobile-based app to manage milk handling

The mobile app records the volume and weight of collected milk and issues a receipt to each farmer on a daily and monthly basis. It is also linked to farmer’s telephone numbers where they receive payment information.