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The competitiveness of smallholder dairy production in developing countries

with specific reference to Tanzania

Tanzania Dairy Development Conference.

Arusha. 5-7 June 2002.

A. Omore and S. Staal

International Livestock Research Institute, Nairobi

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• Dairy production and market trends in Tanzania

(since last dairy sub-sector appraisal by MOAC/SUA/ILRI)

and regionally

• Production costs

• Non marketable values

• Global competitiveness

Presentation Covers:

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• Good returns compared to most traditional agricultural commodities

• In come generation for poor producers and market intermediaries through participation in processing and marketing

• Food security, good nutrition, poverty reduction and environmental protection

Acknowledged benefits of smallholder dairying

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• Traditional consumption habits

• Agro-climate/milk production potential

• Proximity to consumers

• Output and Input Market Infrastructures

• Access to Vet Services

Factors determining adoption of dairying in developing countries

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Current trends of dairying in Tanzania

• Traditional consumption is mainly low-cost liquid or soured milk

• Two-thirds of dairy cattle found in Arusha & Kilimanjaro (good agro-climate)

• Significant numbers in (or near) Dar and other urban centres (proximity to consumers)

• Market dominated by small scale informal traders• Increasing contribution of marketed milk from zebu• Increasing local production and decreasing imports

since 1980

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Dairy Supply and demand projections in Tanzania

Basis/assumptions• Annual milk supply growth rate of 2.6% (1.7% for

traditional herd and 6% for the dairy herd), decreasing at 0.1%

• Demand growth of 4% annually – estimated from • population growth rate of 2.8% (2.6% for rural

and 5% for urban), decreasing at 0.05%; • Real GDP growth rate scenarios of 1% and 2%;• Urban/rural consumption ratios of 0.05• Income elasticity of demand for milk 0f 0.08

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700

900

1100

1300

1500

Year

1997 1998

1999 2000

2001 2002

2003 2004

2005 2006

2007 2008

2009 2010

2% GDP growth 1% GDP Growth Milk Production

Million

Litres

Milk/ Yr

Projections since last census and appraisal of Tanz. dairy sub-sector (‘97)

Source: MOAC/SUA ILRI, 1998

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Urban dairying

Dar-es-Salaam• Probably 80,000 heads• Small scale• Urban regulations not

enforced• More public land• Low peri-urban prod. &

poor infrastructure

Nairobi• Fewer farms & cattle• (10% of hh)• Relatively large scale• Mostly private land

• High peri-urban prod. & good infrastructure

Urban dairying likely to increase but will quickly reach its limits

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Cost of Production in Morogoro (2000 prices)

0

50

100

150

200

250

300

SURUDE HPI Non-Project

TShs Market price

Cost per litre

Revenue/lt

Profit

Cost of Production

Source: A. Msangi, SUA, 2001

Cost components: Family & hired labour, drugs, vet services, repair & maintenance, conc. feeds and fixed costs

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Cost of Production

0

4

8

12

16

20

24

Kiambu Nakuru Nyandarua

Market price

Cost per litre

Profit

KShs

Cost of Production in Kenya (1999 prices)

Revenue per lt

Cost components: Family & hired labour, drugs, vet services, repair & maintenance, conc. feeds & fodder, home consumed milk and fixed costs

Source: ILRI Collaborative research in Kenya (2001)

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Non-marketable smallholder production and value often not considered

• Manure – May equal up to 30% the value of milk produced

• Home consumption• Display of status• Insurance & financing

Non-cash income can be as high as 78% of annual income where local market linkages are weak and opportunities for labour are limited (Moll et al., 2001)

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Uganda3%

Ethiopia1%

Kenya70%

Tanzania7%

Zimbabwe & S Africa

19%

Dairy cattle population in eastern and southern Africa (‘000)

3,000 830

(300)

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Informal % Coops %SSA Kenya 88

Tanzania 98 4Uganda 90

L. America Mexico 33Nicaragua 86 4Costa Rica 44 54Brazil 44

S. Asia India 83 6Sri Lanka 40 7

Sources: ILRI Collaborative Research & FAO E-Conference

Current trends in dairy marketing % of domestically produced milk sold informally

Most consumers are reluctant to pay for “value-adding”

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Unlicensed mobile milk trader In Nairobi, Kenya

Group of licensed milk traders in Mwanza, Tanzania

Liquid milk traders in East Africa

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Soft Cheese ‘Wagashie’ in Kumasi, Ghana

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Fermented and sweetened milk sales in Bangladesh

Making and sale of curd

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Growing demand for milk and dairy products in developing countries due to more, richer people esp. in urban areas

200

391

0

100

200

300

400

500

2000 2020Year

M. MT

Production to double: share from 36% to 52%.

Future trends in dairy marketing - To be mainly driven by “Dairy Revolution”

Source Delgado et al., 2001

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Developing countries SSA

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Per Capita Kg LME % Ann. Growth

Region 1983 1997 Est. 2020 ’97 to ‘20Developed 195 194 203 0.4

Developing 35 43 61 2.7

- L. America 93 112 127 1.8

- S Asia 46 62 78 (104) 3.0 (3.2)

- S S Africa 32 30 37 3.3

- S E Asia 10 12 18 2.9

- China 3 8 16 3.5

Source Delgado et al., 2001

Future trends in dairy marketing - To be mainly driven by “Dairy Revolution”

Increased production is expected to occur in same areas of increased demand. % imported to dev. countries will fall

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01020304050607080

1961

1964

1967

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

Years

Mil

lion

MT

per

an

num

IndiaAustraliaNetherlandsNew ZealandUSA

Comparing production trends in India (a dev. country) with other developed

countries

Source: India NDDB and FAOStats

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-10

0

10

20

30

40

50

60

70

China OE Asia India OS Asia SE Asia L. Amer WANA SS Africa

Region

% of Change inCow's milk Prod. Herd % Milking Productivity Interaction

% Sources of Change in Cow’s Milk Production by Region, 1985 and 1998

Source: Nicholson et al., ILRI MOSD Working Document No. 7

• Milk production growth in SSA is predominantly from increase in herd size and not productivity

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0

20

40

60

80

100

120

Catt

le n

um

bers

0

50

100

150

200

250

$ p

er

mo

nth

Herd size (cattle per farm) Rural wage ($/month)

Competitiveness: Comparison of rural wage rates

Source: ILRI collaborative research on Trans-regional analysis of crop-livestock systems (2000)

• Smallholder dairying is labour-intensive• Local smallholder competitiveness partially dependent on

low labour costs

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Competitiveness: Comparison of costs & returns to dairy producers

Source: ILRI collaborative research in Kenya (1999) and Hall and Ehui (2000).

• Super-normal profits in small dairy farms in E. Africa indicate they’re more competitive than larger farms in Thailand

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Competitiveness: % of world milk & wheat production traded, by volume, 1975-1998

Source: Staal (2000), using FAOStats

• The need to transform and preserve animal products before they are traded presents an obstacle to increased trade in such products

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Comparison of farm-gate milk prices and approx. import parity prices

Source: Staal (2000)

• Local competitiveness with imports may vary considerably but generally indicate that local smallholders can compete effectively.

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Comparison of % of domestic milk availability that is imported

• Countries with strong traditions mainly demand fresh liquid milk thereby giving advantage to local producers

Source: Nicholson et al., 2001, using FAOStats

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Smallholder dairy producers in Tanzania and elsewhere in developing countries can effectively compete, mainly due to strong local demand. This can further be be enhanced by:

• Improving economies of scale (e.g., through collective action)

• Access to services and appropriate technologies

• Improving infrastructure

• Creating an overall enabling policy and institutional environment for all participants in the sector

Conclusion

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Thank you