Case B: the smallholder dairy development approach towards commercialization

[Joitske Hulsebosch]

This case is about the experiences in Zambia and Lesotho and is presented by Kees van 't Klooster. The Zambian research organisation the Golden Valley Agricultural Research Trust (GART) is working to improve smallholder dairy production and encounters the technical dilemmas related to quantity, quality and continuity of the milk flow. You can download the case here or in the cybrary. You can also read the case in full below. Feel free to ask questions or contribute your own expertise.

[Kees van 't Klooster]

SMALLHOLDER DAIRY DEVELOPMENT APPROACH TOWARDS ITS COMMERCIALIZATION IN ZAMBIA AND LESOTHO - A LEARNING EVENT

G. S. Pandey, C. E. van’t Klooster* and Stephen W. Muliokela
Golden Valley Agricultural Research Trust (GART) PO Box 50834, Lusaka, Zambia

The production of milk for the market in Eastern, Southern and Central Africa is now dominated by smallholder farmers. The smallholder dairy recently has received momentum and now is seen becoming an important source of income and livelihood for many resource poor families in Southern, Central and Eastern African countries. As a result of privatization and liberalization of milk production and marketing, many players have emerged which has resulted in good competition and increased and hygienic milk production, marketing and consumption of milk. Governments are also showing positive support towards smallholder agriculture being the highest employing sector.
Market oriented smallholder dairy can generate multiple benefits:
- improve employment generation of youths and women,
- food security,
- HIV/AIDS mitigation as it contributes to an increased per capita income thereby
enhanced per capita expenditure on food and non-food items,
- nutritious food consumption
- increased revenues for the Government.

For an effective development of the dairy sector two barriers must be taken away:

Producers have control over processing
With a perishable product like milk the buyer is always in a price advantage as the value of the product goes down over time. The dependency of dairy farmers on commercial buyers of the raw milk must be reduced. When the dairy farmers have control over the processing and can convert the milk in products that can be stored their negotiation position is strongly improved and a higher share of the value created can remain in the pockets of the dairy farmers.

Minimize transportation
In places where the distance between dairy production and dairy processing is large, there are high transportation costs and risks in quality reduction of the raw milk. By creating local processing capacity in the region of the dairy farmers, the transportations costs can be reduced and the quality of the milk prior to processing can increase, resulting in higher prices for the dairy farmers.

In addition to accruing wealth, dairy generated jobs such as waged labour and mobile trading of dairy and dairy related business in urban and rural areas. Women comprise about 34 % of the beneficiaries and a good number of them are widows. The per capita annual milk consumption in Zambia has increased to about 25 litres. This paper will also discuss the success story of a widow looking after 10 orphans in Monze district of Zambia through support received from Heifer International and GART in form of dairy services and conservation agriculture, an excellent example of HIV/AIDS mitigation and nutritional household food security. The paper will also present failure cases of MCC’s as a learning event due to inappropriate selection of project and lack of follow-up.
Zambia is a landlocked country in Southern Africa with a tropical climate consisting of mostly high plateau with an area of 752,614 Km2 and population of about 11.5 million. Zambian climate favors agricultural production and livestock with abundant arable land receiving an average of 650 mm rain in the project area that is southern part of Zambia and about 1200 mm in the north part of the country each year. The country has three agro-ecological zones suitable for the production of a wide range of crops, livestock and fish. Tropical climate modified by elevation, the two main seasons the rainy season (November - April) corresponding to summer and dry season (May - November) corresponding to winter. Dry season is subdivided into cool dry season (May – August) and hot dry season (September-November). About 68 % of the Zambians live below the recognized national poverty line with rural poverty rate standing at about 78% and urban 53%. Per capita annual income is at about US$ 395 and Zambia is among world poorest nations. Economy depends on copper but now with copper prices going record time down and mines facing severe difficulties and job losses, the Zambian Government has diversified its activities towards agriculture. In addition Zambia is experiencing a generalized HIV/AIDS epidemic with 15 % prevalence and effects are seen in the agricultural sector, hampering household food security. Zambian agriculture policy is aimed primarily at food security, poverty reduction and promoting cash crops, food crops, conservation agriculture, dairy and poultry.

By 1964 almost all marketed milk production in Zambia was in the hands of the European farmers who were supported by the dairy produce board in marketing and processing of milk. After independence many such dairy farmers left or abandoned dairy farming. The country became increasingly deficient in milk production and import of milk grew. The Governments response then was to establish parastatal dairy farms and later introduced rural milk schemes. Despite the considerable expenditure on these initiatives the results have been disappointing. The number of small scale indigenous farmers who were engaged in commercial milk production was minute; their contribution to output was negligible unlike this time. The major problem was lack of farmer lead dairy business, poor tenant selection, their scattered position, unsuitable dairy cattle, inadequate training, extension and veterinary services, dependence upon expensive feed supplement from commercial manufacturers.

In Zambia and Lesotho the Golden Valley Agricultural Research Trust (GART), a rural based Agricultural Research and Development Institution, has introduced the smallholder dairy development programme. This is through support received from Dutch government in 2001 as a starter and recently from SIDA and Common Fund for Commodities (CFC). The smallholder dairy development activities are taking roots in Southern and Lusaka provinces in Zambia and Lesotho (Maseru and Mafeteng district) emphasizing on productivity, household food security, HIV/AIDS mitigation and competitiveness of smallholder dairy. The current programme is demand driven run by farmers and in most support programmes the contribution of farmers in cash or kind is sought. The management of milk collection centre’s (MCC) and the marketing negotiations are done by farmers. GART facilitates or provides linkages, training, dialogue with stakeholders, dairy extension services, knowledge transfer and establishment of MCC as a public good activity which farmers group can not afford.

GART is providing dairy animal cross breeding and sale and supply of suitable dairy stock, training of farmers and extension workers with provision of dairy extension, linking potential milk producers group with milk processors and consumers and micro-financing institutions and innovative local production of feed and fodder. This has resulted in a short time in an appreciable increase in income and improved health status of smallholder farmers and family members including HIV/AIDS affected through marketed milk, per capita increased milk consumption in the country. Challenges faced are lack of availability of suitable dairy animals at affordable price as demand is high, training, poor marketing, lack of infrastructure and extension and poor genetic material service in smallholder dairy development.

GART is working closely with about 1300 smallholder dairy farmers who are organized in groups of dairy farmers cooperatives or associations in Zambia and Lesotho. Issues on the quality of milk to fetch better price, value addition through cold chain and challenges in its marketing are studied. An example of the commercialization of a smallholder dairy in Zambia is that from almost a few liters in 2000 to currently 12,000 liters per day in a short time through the multifacial efforts and interventions by GART is being presented.

It would be worthwhile to mention that during 2007/2008 smallholder farmers sold through MCC’s 24.5 % of milk locally and 75.5 % was delivered to three different processors in Zambia.

Composite Milk Delivery and Income within the Project area (Mapepe, Magoye, Monze, Choma and Kalomo MCC) in Zambia

Year Average number of farmers delivering Milk
♂ ♀ Total HIV/AIDS affected farmers Milk in liters ‘000 Income (Kwacha)
‘000 Equivalent
Income
(US$)
2005 365 118 483 3 1,463 1,699 370,000
2006 391 169 560 6 1,535 2,035 485,000
2007 410 195 605 10 1,626 2,399 632,000
2008 473 238 711 72 2,219 3,977 994,000

The milk is produced by smallholder farmers from mostly local and graded cows and delivered to MCC’s daily by 68 % of the farmers whereas 32 % deliver twice a day. 96 % farmers use bicycle, some covering 35 Km distance one way. From the MCC milk is collected by processors or delivered to a cooperative. All the dairy cooperatives have been provided a milk van and a stand by generator by GART. Regularly monitored quality milk is marketed to three different processors by 5 small holder dairy cooperatives on behalf of farmers. The milk is produced by an estimated 2800 local and grade cows. About 15-30% of the milk produced is kept at home for local sale in the community, family needs and calf.

The scope of dairy development and milk availability lies in the hands of smallholder dairy farmers particularly in developing countries. Far scaling up the smallholder dairy there is need for a multifacial approach and interventions based on felt needs with total involvement of farmers at each level in a market oriented environment and through value addition as demonstrated by GART









*Wageningen University and Research Centre, Alterra b.v.
PO Box 47, 6700 AA Wageningen
The Netherlands
[e-mail]

[William (Bill) Thorpe]

It's interesting hearing about current efforts to support smallholder dairy development in Zambia but worrying that after investments during more that 40 years more progress hasn't been achieved. To help clarify the issues, could we have the answers to the following questions

• What is the demand for fresh milk in the consumption areas being targeted? Has it changed over the last 5-10 years?
• Is there any supply from traditional herds to the markets being served by GART-supported smallholder dairy producers?
• If so, what is the structure of the traditional marketing chain?
• The paper mentions the supply by the project of a milk van and a stand-by generator (to each cluster?): are the volumes of milk collected by each cluster approaching the levels required to make the investments profitable and if not, when is that projected to happen?
• The paper highlights the shortage of dairy crossbreds: how are replacements currently procured for existing and for new dairy producers?
• What’s the current price ratio between farm-gate milk price and maize bran? Has that ratio changed much over the last 5-10 years and is it projected to change during the next 2-3 years?

Best regards, Bill Thorpe

[Kees van 't Klooster]

Hi Bill,
The situation before the project started was that some scale farmers who had dairy cows shipped their milk basically to the capital of Zambia, Lusaka. There the Parmalat dairy processes the milk and the products are sold in the capital and some is transported back to the same region where the milk was produced to start with. It therefore makes sense to process whatever is currently available in terms of fresh milk locally, as this can be marketed locally, saving transport cost and reducing risk of quality deterioration of the raw milk prior to processing.

The size of the equipment is based on the local needs of the cooperatives and seems to be appropriate. When milk production expands in the future, expansing of capacity will be considered.

One of the suppliers of dairy corssbreds is in fact GART as they have a large farm producing these animals and GART is also the supplier of dairy Crossbreds for Heifer Zambia.

I will ask my colleagues in Zambia to provide me with the latest price information and hope to discuss this with you on July 2nd.

Cheers,
Kees

[willem van weperen]

Dear Case holders,
A few questions arose while reading the case. Are we talking here about milk as a cashcrop?
Would like to know more about the integration of livestock keeping into the farming system.
E.g. is manure used to grow the fodder? Do farmers use crop waste....
Do you you have figures on the feasibility of dairy as an enterprise, compared with the crops they grow? With the numbers expressed in the paper production level is rather low (800 ltrs/cow/year) Is that really feasable, considering the inputs required? How many cows do smallholders have and what is the size of a holding. How doe this relate to the costs for services rendered (vet, input supply, transport of milk). Or is there a lot of milk concentrated in a small geographic area.

What is the prospect for scaling up the GART approach to other areas ....

Too many questions I realise, but would be interesting to learn more.
warm regards,
Willem

[Kees van 't Klooster]

Dear Willem,
Good to learn your questions. While preparing the powerpoint presentation for the July 2 seminar we will take your questions in account and inform the public accordingly. One of the bottlenecks is that milk production is uneven over the year as it tends to drop during the dry season. This problem is fairly common in major parts of Africa and the solutions implemented are therefore appicable to a wider area.

Best regards,
Kees

[Joep van Mierlo]

Dear William and Willem, we just allerted Kees that he has two interesting reactions and comments on his case. So we are sure he will be reacting sooner or later. Keep in touch, Joep

[Gerard van Rootselaar]

Dear Kees and colleagues,
I read your paper with much interest. In the mid 1980'ties we worked in partly the same region for the then 'Cattle Development Areas' programme. At that time we did not (yet) give attention to dairy marketing. The focus was on communal cattle dipping. However I remember one lady in Mazabuka who marketed naturally acidified milk. To us that seemed at the time a good intermediate solution for the use of surplus milk. It is gratifying to learn that now openings are created for farmers to tap addtional sources of income. The issue is whether the new venture can get over the hurdle of achieving economic sustainability. This was also reffered to in the questions of Bill Thorpe. The main problem seems to be the low density of producers in the area and the resulting high costs of transportation and servicing. By contrast in for examle Egypt there are about 100 producing cows per square kilometer of land, almost a similar density as in the Netherlands. I guess in your area you may not have more than say 10 milked cows per square kilometer? Do you have data about his and or a concept how this number might grow?

[Inge Jansen]

The case reporter has prepared a summary of the online discussion up till now:

The discussion is dominated by questions on (the structure of the traditional ) marketing (chain), commercialization, whether scaling up in a vast and spread-out country such as Zambia is feasible at all.

Can the appropriate economies of scale be achieved as there is such a low density of dairy farmers in Zambia, with a low productivity, and high costs of transportation and servicing?

These factors seem to make commercialization of small holder farmers’ activities near to impossible.
In addition, questions are asked about whether dairy activities are/ can be integrated with other agricultural activities (mixed farming or ‘gemengd bedrijf’ in the Netherlands), thereby using cow manure, crop waste as fodder, etc. while closely studying which activity (farming or dairy) is most profitable (to continue or expand).