Case A: a feasibility study for a dairy processing plant in Kenya

[Joitske Hulsebosch]

The first case is from Kenya. The case is presented by Ynze van der Valk from the Dutch company Farmco, Farmco is the consultancy department of Schaap Agro Holland (SAH). The title of the case is dairy production, processing and marketing in Mumias. You can download the case by clicking on this link or by going to the Cybrary.

The case itself is an example of the fact that decision-making processes can delay progress. Therefore Ynze would like to put up the following question to be discussed: "Farmers’ participation and control is valuable and should be cherished. However, it also has the risk of inadequate, delayed and even wrong decision making, especially when large groups of farmers are involved, which differ in opinion not only in respect of the subject matter, but also on other (political) issues. The question is, what are the conditions and what can and should be done to keep decision making on the right track?"

How are your experiences with farmers participation and decision making?

[William (Bill) Thorpe]

Dear Ynze,

It's good to catch up with you after all these years.

Regarding the Mumias case, if the feasibility study estimates are realistic, why hasn’t a private sector investor taken up this promising opportunity?

Best regards, Bill

[Ynze van der Valk]

Dear Bill,
Nice to have contact with you again! Your question is very right. In case (model) calculations show results, which do not seem to correspond with the initiatives from the ‘real world’, then it is high time for the researcher to scratch the head, as most likely there may be something wrong with the calculations. We did and so far we did not find big mistakes in our assumptions and calculations.
Mumias is known for sugar production. Livestock and dairy production are still at ‘emerging’ level. This situation probably partly explains the meagre interest from potential investors in dairy processing for the area. However, some initiatives were there. These included the Kitinda Dairy Plant in Bungoma Town (established in late 80’s, although not as private sector initiative), the attempt in 2005 to revive this plant and the attempt (also in 2005) to establish a medium scale dairy plant in Trans Nzoia District. As far as I know both have not succeeded till now. Concerning investments in dairy processing the Kenya Dairy Board plays a co-ordinating role (once an investor is in an advanced stage of establishment, a competitor investor may have to wait).
Kind regards,
Ynze

[Alex Kirui]

I have read the case study on Kenya and I have the following comments on the case:

1. I am not sure if the farmers were extensively engaged in this case study. I know some of the times we assume that farmers require a service and we proceed to plan for delivery of that service only to realize that farmers were not properly prepared. The case for Mumias farmers is a clear point. The farmers are also sugarcane growers and they have some issues on management of MOCCO, their coopertaive society. That was one of the reasons the managers and the promoter left the organization before the study was released.
2.There is a small milk processing plant in Bungoma, 30 km away from Mumias, which was supported by the Finnish government through the Ministry of Cooperatives in late 1980s. The plant, KITINDA DAIRY PLANT, operates on and off due to its inherent management and technical problems. The dairy plant relies on milk from outside the district, whose supply is erratic. It has had mangement problems and some political interferences. The people who live in Bungoma are the same as those in Mumias. The problem experienced by Kitinda should have provided a basis for designing the proposed Mumias dairy plant.
3. The number of dairy cows in the catchment area of the proposed Mumias dairy plant is not known. Heifer Project International has distributed several cows in the area but milk production is still low. The consultant should have met with Heifer staff in Kakamega for livestock and production data.

4. It is fair to say that before investing in such rural enterprises, farmers need to be full participants in their designs, need full government acknowledgement and participation of private sector who will provide marketing, technology, finance and other services.

[Ynze van der Valk]

Dear Mr. Kirui,
Many thanks for your response. I reply point by point.

Ad 1)
The initiative for the study came from MOCO (1998) Ltd. MOCO is a limited company with around 70,000 shareholder farmers organised in zones. Each zone has got elected farmer representatives. The representatives are Director of the MOCO board. In this way farmers are indirectly represented and involved in the activities and initiatives of MOCO. When MOCO takes the initiative for a study into the feasibility of dairy processing, then it may be assumed that this decision has the support of the majority of its shareholder-farmers. The decision of MOCO to go for a feasibility study concerning dairy processing should therefore not be considered as something without any relevance to the farmers.
Apparently you are right that a part of the farmers had some issues on the management of MOCO. However the CEO and project officer left after the final draft of the study had been completed, presented and approved by the MOCO Board. In fact the CEO and project officer left at the time when it came to the further implementation.

Ad 2)
The Kitinda Dairy Plant in Bungoma town has been visited by visiting experts and is well known to the MOCO members of the study team. At that time processing activities at the Kitinda plant had stopped and attempts were made to source funds for its revival. In a way the example and experience of the Kitinda plant was used to plan Mumias Dairy Limited (MDL).

For the feasibility study we considered a catchment area with a radius of around 75 km around Mumias town, including parts of Kakamega, Nandi, Uasin Gishu, Trans Nzoia, Bungoma and Busia districts. The local study team visited milk collection points and large-scale farms in the catchment area to discuss the purchase of milk. Based on these discussions we got the assurance that MDL would get an important part of the required milk. Crucial for this assurance is that Mumias Dairy Limited (MDL) would be reliable in milk collection and payment and would pay a decent price. Besides this MDL would have a few ‘own’ milk collection points.

Ad 3)
You are right concerning livestock numbers. Accurate statistics are not available and the need for a livestock census has been felt in Kenya already for many years. So concerning livestock numbers we used the estimates of the Ministry of Livestock Development and the Veterinary Offices.

We also had discussions with staff at milk collection centres and staff from relevant organisations, including staff of the Western Kenya Dairy Development Project (assisted by TechnoServe, possibly among others) and Mrs. Ruth Masha, HPI co-ordinator for the Western region of Kenya.

Ad 4)
During the feasibility study we had regular meetings with Mr. Machira Gichohi, managing director of the Kenya Dairy Board (KDB) and on some occasions with Mr. Kiptarus, Director of Livestock Production of the Ministry of Livestock Development. We really tried to avoid to work in isolation.

Kind regards,
Ynze

[Alex Kirui]

Thanks, Ynze for this clarification. I can now see that alot of considerations went into planning and execution of the feasibility.
There are several other new entrants who may disorganize milk processing enterprises. As I see now, the milk trade in Kenya is very vibrant. Many informal players are playing smart to outdo the formal marketing channels. Farmer payments are regular and on average all buyers are paying similar prices.
The only way new entrants can create farmer loyalty is through additional services offered to farmers besides buying milk. Such services include breeding through artificial insemination, supply of feeds, credits and linakges to financial services and other dairy anciliary services.
All these combined will make farmers see the dairy as one shop where they get all their needs.

Warm regards

Alex

[Ynze van der Valk]

Dear Alex,
The development mentioned by you is very good. It will benefit the farmers and therefore in the long run also the processors and the sector in general.
Kind regards again,
Ynze

[willem van weperen]

Hallo Ynze, Like Bill I also enjoy catching up with old (NDDP) friends...
After reading the case, I wondered whether by introducing a rather large scale plant, organic growth was respected. From the time I worked in Kericho and Nyanza, I learned that farmers need (lots of) time to exercise doing business together. Informal farmer groups often performed better than the formal societies. Taking the appropriate speed, going through a long learning curve, seemed an important element to succes. What can you say about this regarding the Mumias case?

Warm regards,
Willem

[Ynze van der Valk]

Dear Willem,
The pleasure is the same to me!!
Concerning your remarks. In our calculations we assumed a plant with a standard capacity of 30,000 L per 8-hour shift. The calculation further assumed that the intake of raw milk would gradually increase from 65% to 100% of the standard capacity in year 5.
Availability of raw milk, marketing possibilities, the range of products and economics of scale have been guiding principles concerning the decision on the standard capacity.
I agree with the importance of ‘organic growth’, (first good and big comes after that). Among others it is also for that reason that the study recommended the participation of a ‘strategic partner’. Besides funding, the strategic partner was expected to bring in relevant knowledge on dairy processing, management of a dairy plant and marketing of dairy products.
I realize that the above has more to do with the learning process in the dairy plant. I will still think about what to say concerning the farmers. So, till another time!!

Kind regards,
Ynze

[Lucy Maarse]

Dear Ynze,
Another one from the erstwhile NDDP/zero grazing community is greeting you. I am wondering whether the common characteristics with regard to marketing of milk by fe/male smallholders have been taken into account. Namely, "1/3 milk sold through back door, 1/3 to middle men, 1/3 to cooperative/company of which concerned household is a member/shareholder" plus 'when market is down, the formal channel will be given all the milk'. In addition, why was investing in strengthening traditional milk marketing systems of which Kenya has successful examples not considered?

[Ynze van der Valk]

Dear Lucy,
Nice to receive a comment from you Lucy!
The information on the potential amount of raw milk available to MDL has for an important part been based on discussions with large-scale farmers and existing (independent) milk collection centres. We further took into account that only a part of the milk produced will be sold and that MDL will be in competition with other potential buyers and only get a share.

Concerning your second point i kindly ask you to be more specific on what you define as ’the traditional milk marketing system’. The reasons we did it the way we did is that 1) MOCO had observed that the marketing of milk was felt as a constraint by its farmers for the further development of the dairy activity and 2) that MOCO (as commercial company) had an interest to operate a dairy processing plant as an income generating activity.
Kind regards and I look forward to meet you on the 2nd July,
Ynze

[Lucy Maarse]

Dear Ynze,

With 'traditional marketing system' reference is made to 'informal' milk marketing but since these markets are actually well organised the word 'informal' is not appreciated.
Enclosed a BRIEF on some work done in India on TMS, while the website of ILRI provides details on pretty succesful work done on strenghtening TMS in Kenia.
Your answer otherwise clarifies a lot, while I pick up other details from your answers to Alex, Bill etc. TKs.
Lucy

- http://www.ilri.org/ILRIPubAware/ShowDetail.asp?CategoryID=TS&P... provide Info on work conducted in Kenia. Please visit ILRI site for more information.

[JULIUS CHEGE MUIRURI]

First the farmers need to be involved in decision making, however before the discussion one should know what he/she want first. do your home work, carry out a feasibility study and gather as much information and data as possible. This should therefore guide your discussion with the farmers and should therefore be for adding gaps and adding extra information that farmers may provide as well us enhancing inclusion and building ownership with the farmers in whatever project you want them to participate on. There are decisions that oviously you wont let the farmers make for themselves. The object of the farmers participation should aim at creating a sense of ownership.