Making the Most of Human Capital in the Tropics: Options in dairy processing and marketing

Given the important objective of providing livelihoods to resource-poor people in developing countries, International Livestock Research Institute (ILRI) and its partners measure the efficiency of dairy processing and marketing in both economic and employment terms.

In the Kenyan 'formal' dairy industry (pasteurised and packaged), it was found that about 0.2 to 0.4 jobs were generated per 100 litres handled daily. However, in the 'informal' sector in both Kenya and Tanzania (raw milk handled by small vendors), the figure ranges from two to three people employed full time for each 100 litres of milk handled daily. Further, the wages they are able to earn through milk vending are 50 to 100% higher than the national average, and well over the minimum wage.

In terms of economic efficiency, the informal sector still scores better, by imposing a much smaller margin between the producer and consumer prices. The informal sector in Kenya pays a price to farmers that is up to 65% more than that paid by processors, and consumers pay 20 to 50% less per litre for raw milk than they pay for pasteurised, packaged milk. These are, of course, different products: consumers boil milk before consumption to remove health risks and prolong shelf-life, the costs of which would have to be added to the price they pay.

Thus in areas where people are resource-poor and so cannot pay high prices for processed milk, where opportunity costs for labour and employment options are low, and where people traditionally prefer whole raw milk, policies towards milk marketing need to weigh the potential benefits to consumers of pasteurised milk channels against the potential benefits of employment through raw milk channels (among other costs and benefits), where more than 10 times the number of jobs can be created per unit of milk.