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The milk industry in Kenya has significantly contributed to the national economy, household incomes and food security. The industry has undergone tremendous growth over the last 15 years.

This growth has been majorly due to the revival of the previously defunct cooperative movement. Dairy cooperatives dominate the marketing of milk in Kenya on behalf of their members who are mainly small – scale farmers. These cooperatives serve farmers by collecting milk from them, bulking it and then distributing it as raw or pasteurized to various places or as dairy products such as yoghurt, ghee, butter and cheese.

It’s worth noting that post-colonial successes in the dairy sector in Kenya were centered around a cooperative monopoly; the Kenya Cooperative Creameries(KCC). This in a way denied the smallholder dairy farmer a value based model fully owned by farmers and only practiced in the developed world.

The unfortunate events that followed liberalization and government dominated farmers support structure drowned the then leading regional cooperative owned milk processing unit that had a market footprint across the globe, notably renown Safariland brand, and Golden crown UHT.

More value from traders locking over 70% of the milk in the informal segment

When KCC collapsed with farmers’ money, milk producers needed an immediate alternative market. The initial “over-the-fence” marketing model became the only alternative for them to sell their daily produce. This later evolved into the informal milk trade, which currently claims a market share of over 70%. The initial cooperative movement had banned the sale of unprocessed milk and capped it to over the fence sales.

After entry, the informal trade developed various models of value delivery to both producers and consumers. This gave informal traders an assured supply and demand, undermining efforts of re-formalizing the dairy industry even with entry of privately owned dairy processing businesses.

In the best scenarios where there’s abundance of milk (wet season), both market segments – formal and informal – get their daily minimum volume sufficient to run their businesses. Milk production and sourcing difficulties have however been apparent especially during the dry season when the volumes are low. Few processors with capacity have resorted to powdering milk in the wet season to cover the deficits during the dry season. However, this is a time when farmers’ loyalty could play a significant role.

Farmers supply and loyalty is key to increased processors investments

Notably, if there was constant production and supply in both seasons, excess milk would provide an opportunity to explore export markets. Inversely though, cyclical fluctuations in production and supply has made processors to limit their processing capacities. They now manage only 32% of the total production, which is proportional to the available supply during the dry season. Some processors though still operate below capacity. Farmer loyalty seems to be a key driver to future investments both at farm and end market.

The need for a win-win supply chain model to cultivate farmer loyalty

KMT, through PKF Consulting, has developed and rolled out a farmer-value based model to enhance farmer loyalty, joint investments and long term farmer support system. The program is being implemented through processors and farmer producer organizations/cooperatives. PKF has identified middle–level processors to pilot this innovation and are currently working with Lattana Dairy Ltd in Thika.

To Lattana Dairy Ltd, this innovation could not have come at a better time as they currently face huge shortages owing to the prolonged drought coupled with disloyal farmer groups. Lattana has gone ahead to invest over KES. 1.2 Million in Kibugu CBO in Embu to solidify its stable milk sourcing model.

On the other hand, Kibugu CBO members have seen a lot of value in increasing on-farm investments and mobilizing more producers to join them.

To date, Kibugu have registered over 50% growth in the last two months.  The membership has since grown from 270 to 402 benefitting about 30% of women. Through PKF intervention, Embu county government has allocated Kibugu CBO a 5,000 liters’ capacity milk chilling tank that will go a long way in supporting their milk mobilization efforts.

Moving forward, PKF aims to grow Lattana dairy business anchored on a loyal supply base to guide future planning and projections & a win-win structure for both farmers and the processor. PKF has also rolled out the same model with Green Valley Dairy(Nyandarua) and Onesmus Dairy (Uasin Gishu).