Enact Policies to Guide Milk Trade

The agriculture sector is generally facing declining production, institutional failure, poor prices, weak infrastructure and inadequate policy support. In spite of this, the dairy sector has been identified as being crucial for economic recovery as more than 800,000 households and 350,000 wage earners depend on it. To raise productivity, the sector has to resolve the various policy changes that have affected milk producer prices, cost and quality of veterinary drugs and services, quality and cost of feed prices, and unpredictable policy and technology environment.

The current debate about the merits and demerits of consuming either processed or raw whole milk presents some of the pertinent issues on the milk supply chain that warrant in-depth policy attention. Milk is a perishable commodity that has no close substitute. It is produced from about 3.6 million grade cattle. Yearly production is about 2.8 billion litres with a demand of 2.5 billion litres. Demand is projected to outpace supply from about 2005. To meet the increased future demand, supportive policy and technology options are required.

Since the Kenya Cooperative Creameries collapsed, the importance and roles of various milk marketing channels and players has greatly changed. Processed milk accounts for only 14% of all milk sold in Kenya. The remaining milk is sold raw through the informal market, which comprises direct farm sales to consumers (42%), 'hawked' milk (23%), milk bars (15%) and cooperatives (6%).This market structure is rather similar to that found in other developing nations, including India, the world's largest milk producer, where the informal market controls about 85%.

We should expect frequent and serious milk shortfalls from 2005. This has critical implications on food security, rural incomes and social welfare. Corrective policy action is required to create technical and entrepreneurial capacity to revive animal breeding services. Farmers and their organisations should be strengthened to engage in collective action to access artificial insemination as well as encourage the entry and participation of private investors.

Seasonal availability of natural forages influences milk production in addition to animal feeds. With more private feed manufacturers in the market, there is an upward trend in feed supply in most rural areas.

However, a number of policy issues still exist, including fluctuations in feed quality as well as inadequate technical and market information between farmers and traders. This calls for remedial policy to enable stakeholders to set rules for feed standards, transactions and their enforcement. Dairy cooperatives have significantly contributed to the development of the smallholder dairy through milk marketing and provision of other services at relatively lower cost. They assist farmers to acquire credit, farm inputs and sell agricultural surpluses due to economies of scale embedded in bulk transactions. The performance of many cooperatives has declined considerably due to political wrangles, management problems and stakeholder conflicts.

These and other related governance problems, transparency and accountability should be addressed in the draft Cooperatives Bill. Better infrastructure has implications for profitability of time-sensitive enterprises such as dairy. However, the poor state of rural access roads, lack of electricity and clean water still plague the industry. Any improvements in infrastructure bear immediate implications of marketing costs, farm incomes and rural employment, especially for highly perishable agricultural products like milk.

Producer pricing, perhaps, has been the most emotive issue affecting milk production in Kenya. At the consumer level, the use of cheaper packaging materials would be necessary to reduce consumer prices. There are perceptions that hawking of raw whole milk is the major industry problem. Hence, the Kenya Dairy Board concentrates its time on chasing and confiscating milk from hawkers instead of offering advisory services on better handling and transportation requirements.

Contemporary research suggests that hawking offers considerable employment and income-earning opportunities if accompanied with appropriate training and supportive policy. The Dairy Act has not been reviewed to reflect the required changes to the industry to enhance efficiency and remove loopholes that impede sectoral development. Critical issues in the revision include the stakeholder ownership of the regulatory framework, the composition of dairy board directors including how they are elected and the powers of the minister in the appointment and management of the board as contained in the current Act.

Due to lack of broad appreciation of policy research, there is an apparent tendency to repeat policy statements without an indication of the success or failures of the preceding policies.

However, it has been encouraging to observe an increasing partnership between private and public research institutes [in the late 1990s] on policy dialogue, design and implementation.

Such research institutes need to be supported to continue to offer authentic policy recommendations on various aspects of agricultural transformation. Political will is a major requirement for the success of many of the policy reforms. Political commitment to various policy and institutional reforms in the agricultural sector will be necessary to improve rural employment, income generation and social welfare.