Commercialised supply of training & certification to

improve quality and safety of animal products and exploit

market demand

Conference on Climate Change Adaptation Strategies, Capacity Building and Agricultural Innovations to Improve

Livelihoods in Eastern and Central Africa: Post-Copenhagen (UNFCCC/COP15), Addis Ababa, Ethiopia, 7 – 9 June 2010

Amos Omore, ILRI, Nairobi, Kenya

OutlineOverview

– Role of informal businesses in pro-poor development

– Can they be integrated into formal value chains?Description of the innovationUsersCritical factors for promotionChallenges in disseminationOvercoming the challengesLessons learntGender considerations

Overview Small-scale & informality dominate the supply

animal products and employs many (e.g., >80% in dairy). Informal dairy traders in Kenya alone estimated at >40,000

But they often operate without official support due to policies addressing quality and safety concerns

Consumers are also concerned and willing to pay for improved quality and safety

The policies and concerns are important barriers to market access, esp for livestock products

Training & certification (T&C) thro’ BDS providers has been demonstrated as a high impact mechanism for addressing the concerns and improving market access

Role of informal businesses in pro-poor development

Because they dominate, the majority poor (& many not-so-poor) depend on them

Policy has historically focussed on their displacement by formal capital intensive production & marketing

Protection of public health is often the excuse, but rules are often unrealistic and not based on locally derived information, which is usually lacking

Vested interests often re-enforce their displacement

Available services have not tailored to them Basis for more widespread agro-industrial

development has thus been stultified

Integrating informal into formal value chains?

Formal

•legal•richer•highly capitalized •highly organized •well-connected •higher-priced products•In dairy: cold chain, pasteurization, packaging

Informal

•legal status?•poor, small-scale•myriad, often part-time •haphazardly organized•voice-less •discouraged / no policy support •Lower priced products•In dairy: raw milk sales

Informal actorsFormal industry

How?

The problem being addressed Informal markets, small volumes, and largely

generic products make product differentiation difficult

This stifles innovation toward value addition in response to market signals

Certification, for which training is a pre-requisite, provides a differentiation mechanism in such market settings, and upon which further marketing innovation can be built

Policy makers also require well-documented justification for departures from prevailing procedures toward the informal sector

Training & certification T&C provides an appropriate level of justification

in this context by addressing two key problems: a) the need to bridge the gap between

regulated and unregulated markets, and b) the need to overcome food safety concerns

by consumers and health regulators. The approach been shown to address safety

concerns and bridge the regulatory gap, while creating employment and providing greater access to quality nutrition for the poor.

Traders

Training Service Providers (BDS)

Certification Authority

Certific

ation/lic

ensin

gTraining & certificates of

participation in training

Accreditation / monitoring

Reporting

Cess f

ee

Training guides

Commercialised supply of training and certification using a BDS Approach

Training fees

Justification Livestock offers the main opportunity in ASALs Overcoming market barriers in these areas is one

way to adapt under climate change. Available evidence:

– Milk- and meat – borne health risks are often over-played and are largely eliminated through cooking.

– Consumers are willing to pay price premiums for improved product image e.g., 2x for Nyirinyiri

– T&C allows a balance between strict implementation of regulations, which creates strong incentives for markets to avoid them due to the costs of compliance, and market access.

Where promoted T&C has been piloted in Kenya (now with over 200

accredited BDS providers) and initiated in Tanzania and India. Uganda and Rwanda appear convinced through EADRAC

Recent impact analysis of the T&C pilot by the Kenya Dairy Board (KDB) in Kenya showed significant benefits to the economy amounting to USD 33 million annually

A version involving training, packaging and branding of camel meat (Nyirinyiri) has also been tried among women groups in Garissa, Kenya.

Key partners ASARECA East Africa Dairy Regulatory Authorities Council members Kenya Agricultural Research Institute Ministry of Livestock Development Kenya Camel Association

Users

Certification authorities including regulators, standards bureaus, BDS providers, associations representing market chain actors and development agencies

The innovation relies on application of BDS to bridge the gap through building capacity, assuring product quality, labelling and branding

The BDS approach extends the reach of the certification authorities while providing employment and income opportunities

 The market chain actors benefit through increased knowledge, reduced post-harvest losses, official recognition and increased consumer confidence in the products they sell.

Critical factors for promotion Recognition that:

– most consumers are poor and have few affordable alternatives, hence their dependence on informal markets

– movement along the continuum between informality and formality is a gradual process that does not simply involve moving from one fixed state to another

– informal actors require some of the protective benefits that formality can offer to overcome the constraint of low investment into business often related to low education, awareness, information and lack of capital

– livestock-mediated livelihoods improvement backed by, increasing demand for livestock products (e.g., growth in dairy ranked by ASARECA as the most important sub-sector in the ECA region in terms of potential GDP gains

Challenges and how to overcome them

Overcoming mind-sets against the role of informal agribusiness in development

Tendency to adopt international food-quality-assurance standards without considering local contexts and consumer health protection

– Need effective dialogue based on robust evidence

Promotion of investment by value chain actors in the T&C (besides other businesses) upon which further marketing innovations can be built– Public investment initially then work on appropriate split

between public and private responsibility

Lessons learnt

The combination of practical demonstration with generation and dissemination of robust evidence

Collaborative and participatory approaches in both the generation of evidence and engagement of beneficiaries

Commercializing the supply of the innovation and reducing public responsibility as it catches on

Documentation and dissemination of the impacts to stakeholders and the economy at large

Involvement and leadership by a mandated government agency

Gender considerations Women control of income derived from dairy, even

though men may own the production assets Direct participation of women in marketing declines

relative to that of men as marketed output increases Women are more likely to receive money from milk

sold informally No evidence that any specific gender is unduly

disadvantaged in as far as BDS provision is concerned

Thank you

Authors: Simeon Kaitibie, Amos Omore, Karl Rich, Beatrice Salasya, Nicholas Hooton, Daniel Mwero and Patti Kristjanson www.ilri.org and http//:impact.cgiar.org

Estimates of welfare benefits

Annual change in benefits (with 2005 as year when benefits start accruing)

Scenario

Economy-wide(Million US $)

Nairobi area gross benefits

(Million US $)

Benefits to consumers 8.01 1.46

Benefits to producers 16.04 2.98

Benefits to SSMVs 4.32 0.75

Benefits to input suppliers 5.09 0.90

Total benefits 33.46 6.09

Less annual SDP expenditure (1997-2004)

0.63

Less annual costs of training and licensing by SSMVs (2005-2039)

0.58

Less annual cess fees (2005-2039) and municipal, council costs

12.72

Annual Benefits minus costs (2005-2039) 19.53

Net Present Value (@5.00%) (to 2039) 230

Impact Analysis: Distribution of benefits

Reduction in margin due to reduced spoilage, rent-seeking 10+%Annual benefits to Kenya economy

To consumers: $8MTo producers: $16MTo traders: $4MTo input suppliers: $5MTotal gains: $33M

Incremental gain at individual level, but substantial at aggregate level

Appendix 1. PORIA data sources and methods

SDP findings and SDP costs – SDP reports and files, ODI/ILRI study on SDP learning processes

SDP outputs – SDP reports and other outputs

Policy influence, policy and behavioural changes – SDP reports and other outputs, interviews with policy makers,

regulators and SSMVs

Economic impacts – SDP reports; Equilibrium displacement model (see Freebairn, Davis,

and Edwards, 1982; Wohlgenant, 1993); NPV

Attribution of impacts/counterfactual – Interviews with SDP actors; NPV with SDP compared NPV without

SDP

Appendix 2:ODI Study

Informal Traders Lock Horns with the Formal Dairy Industry: The role of research in dairy policy shift in Kenya. ODI Working Paper 266, Leksmono et al, 2006

RAPID Outcome Assessment (Research and Policy in Development Assessment)– Tracking back from policy change: Episode Studies of

specific policy change– Tracking forward from research: case study analysis– Outcome mapping: observing behaviour change

among policy-makers and stakeholders

Appendix 3: Values for estimating welfare changes attributed to new dairy policy

Variable description Value (Nairobi area)

Value (Kenya-wide)

Source of information

Raw milk production 493 million liters

4016 million litres

SDP, updated (SDP Policy Brief #10, September 2006)

Retail price Ksh 21.70/liter

Ksh 21.57/litre Study survey (averaged over all locations and SSMV sales

Farm price Ksh 15.97/liter

Ksh 15.58/litre Study survey (averaged over all locations and SSMV purchases

Non-market input cost per unit of output

Ksh 6.90/liter Ksh 7.06/litre Estimated using data from Salasya et al. (2006) and updated SDP milk production data

Elasticity of milk demand at retail

-0.97 -0.97 Salasya et al. (2006)

Elasticity of milk supply at farm

0.35 0.35 Salasya et al. (2006)

Elasticity of marketing services supply

2 2 Freebairn et al. (1982)

Cost reduction due to changes in transaction costs and elimination of NTB

Ksh 0.80 KSh 0.54/litre Study survey, decrease in retail farm price margin (comparing before and after policy change)

Appendix 4: Counterfactual- NPV with/without SDP

Time delay Real interest rate (%)

NPV without SDP

(US$ million)

NPV (with SDP minus without SDP)

(US$ million)

Legalization occurs 10 years later

5 124.01 106.43

IRR(%) 108

Legalization occurs 20 years later

5 56.07 174.37

IRR(%) 62

Based on NPV with SDP of $230M