By Chris Silali and Chris Shimba
The dairy industry in Kenya is a significant agricultural sub-sector contributing to the national economy, household incomes and food security. It contributes 40 per cent to the agricultural GDP and 4 per cent to the overall Kenya GDP. Therefore, a developed dairy industry would meaningfully respond to the current food crisis, occasioned by high consumer prices of key daily consumables. Kenya’s milk market is bi-sectoral, that is, formal and informal. However, data shows that in Kenya, Uganda, Rwanda and India, informal dairy market dominates. For example, about 86 per cent of Kenya’s milk estimated at 5.2 billion litres annually is sold by unorganised, small-scale businesses in informal markets or consumed directly at home. The sector generates 70 per cent of over 40,000 jobs in dairy marketing and processing.
Despite this important contribution of both the formal and the informal sectors, the current processing capacities are estimated at about 4.5 million litres per day, which is below the average daily production- estimated at 14.2 million litres. A key issue that affects the consistent supply of milk throughout the year is the production seasonality. Data showing the improvement of milk production in Kenya tells half the story.
A further scrutiny will reveal that much of the milk is delivered in the rain season months. Despite the general growth of the sector, Kenya continues to struggle with seasonal supply and demand imbalances of milk and milk products. This inefficiency is expensive to both the producer and the consumer.
While there have been many arguments about how to deal with this situation, certain challenges make it difficult to rationally address the situation. One of these challenges is the difficulty in knowing the actual data of the total milk production in Kenya, as both the regulator and the processors do not have consistent and up-to-date milk production data. This does not contradict the scanty information provided by the little known Dairy Traders’ Association (DTA), which only controls 12 per cent of milk traders. Subsequently, there is no way to establish credible information about dairy milk productivity unlike in other agribusiness sub-sectors like Tea, Coffee and Horticulture.
With the current installed milk processing capacities and a continually growing dairy industry, the informal sector cannot be underestimated unless we are comfortable making farmers miss out on the market. Rightly stated, farmers’ loyalty is even more important to industry investments at the processing level as they guarantee milk supply. This loyalty cannot be achieved without a model that allows growth within the informal sector for scale up to cottage, thereby decentralizing processing units, which will ensure farmers’ access to markets. This will also foster industry growth due to milk value addition.
For more enhanced product traceability, increased productivity at farm level, and provision of credible information for planning, there is need to formalize the informal sector. Therefore, the government’s focus should be on working out a plan to provide an enabling environment to facilitate growth and advancement of the informal trade in all agro-produce sub-sectors rather than exalting a stagnant ship that hold economic planning at ransom with uncertainty and shortages. Similarly, fundamental elements that aid the government in proper planning to address milk seasonality should be aligned around data on volume of milk produced. These will include credible data on where, when and how the produce gets to the market.
A majority of Kenya’s agricultural value chains are underdeveloped and formal markets that essentially capture important data have been missing since independence. As a result, it is only through a better data set that robust economic planning can be anchored on. Without this, we will continue having an autopilot model that depicts agribusiness successes, which can be assumed to be driven by sheer luck. Also needed is a deliberate deviation from farmers and processors trying to feed the growing demand due to an increasing population, to more strategic government driven economic planning for sectoral development of the micro-enterprises in the industry.
For Kenya to sustainably address key challenges in the dairy sector, there is need for collaboration between private sector, the public sector and development organizations like Kenya Markets Trust to tailor interventions around production seasonality through commercializing and conservation of fodder; reduction of cost of production through effective input supply; herd pooling and better management; improving milk hygiene through milk traceability innovations including gradient pricing and, optimization of the current installed milk processing capacities through farmer loyalty programs.
This proposed collaboration is critical in ensuring a suitable business environment for all players to foster inclusiveness, competitiveness and sustained growth.
Mr Silali and Mr Shimba work at Kenya Markets Trust, an organisation funded by UK’s DFID and Gatsby Africa