Case C: The Tanga dairy sector in Tanzania

[Joitske Hulsebosch]

The third case is from Tanzania and is presented by Eelke Boonstra. You can download this case from the cybrary or directly by clicking here. The d.o.b. foundation, a Dutch organisation and Tanga Dairy Cooperative Union are co-owners of this growing dairy plant. The classic dilemma here is to balance social and economical sustainability with the interests of individual dairy farmers.

[Jan Ovinge]

Dear Eelke,

I was very surprised during my last visit about the development of the dairy sector in Tanga Region. Farmers are organised, the plant is running well, the produce find its way.

In your paper the priceshart touched me. The small holders receives only a small part of the consumer price. It looks like the European conditions where plant and traders take their part first. The farmer is at the end of the chain.
I prefer for Development countries more the pricing system of Canada where the producer is paid for its costs. The consumers are paying the real price.
At this moment the producers reveive there 55 eurocents per kg.
If the small holders have to produce for worldmarketprices I doubt about their future.
Es-special when the Europa is entering the freemarketsystem as well.

[Eelke Boonstra]

The gap between farm gate price and consumer price will always be a hot issue. We go for a maximum consumer price, but of course we are limited by the market.
We try to pay the farmers the maximum price for the milk, but at the same time we have to take into account the profitability of the processing plant. How to find a way out of this dilemma might be a nice discusion point.
A guaranteed price for the farmer based on costprice would be nice, but only can be implemented if linked to a quota system. And that is impossible to apply in Tanzania. But also the cost price calculations will vary very much per farm and per region.

[Joep van Mierlo]

Just got a newsletter from DOB foundation with extra background info on the new Tanga Fresh Factory

[Jan Ovinge]

Joep,

Thanks

[William (Bill) Thorpe]

The Tanga example is proving durable, which is excellent news. Can you add some details by answering a few questions?

• Seasonal prices of milling by-products and their ratio to farm-gate milk price?
• Seasonality of milk production and prices?
• Prices of dairy replacements and trends and of milk over last ten years (corrected for inflation)?
• Retail price of TF milk in Dar and of competing milk from peri-urban dairy and rural local cattle?
• Basis for the “growing discrepancy between grass-root farmers and their ( professional) organizations”?

Thanks, Bill Thorpe

[Eelke Boonstra]

Dear Bill,

Let me try to reply to youyr questions:
- the price of the concentrate used ( maize bran or a simple mixture) has a price of 35% to 50% of the milk price. At our farm we use about 60kg/100 kg of milk, sometimes more.
- milk delivery to Tanga Fresh may vary 30% or even more during the season. ( lowest intake 65% of highest intake or highest intake 50% higher than lowest intake). TFL milk price fluctuates little with seasonality
- Dairy replacements cost about 375 Euro at the moment, the equivalent of about 1500 litres of milk.
- the ( official) retail price of our milk in DSM is about Tsh 1100, or 0,65 Euro. Imported UHT milk fetches a much higher price. Milk from farmers may get the same or a higher price, depending very much on the season. Non pasteurized full cream milk is used by the Indian po;ulation for special products.
- Discrepancy farmers and their ( professional organizations: The farmers'organization ( TDCU, the cooperative) must grow mentally very quickly. In Holland the coops had over 100 years to grow from small village coops to professional organizations. This has cost many years/generations of schooling/training of farmers/ boardmembers.
In Tanzania we want this to take place in a couple of years!. How can we explain the farmers the needs for investments in marketing. processing, management, problems that are far beyond the scope of their daily activities? And without a professinal agriacultural press etc.

[Gerrit Holtland]

Dear Eelke,

the last issue that you raise (of 'educating farmers' on the need to invest in a coop) is indeed as complicated as it is essential. I have very good experiences with developing an 'economic simulation model' of the cooperative in Excel, and using it as a tool to 'run' different scenario's for the coop and (most importantly) to train the board members (and later farmers) in it. It does need some time to train people on what the 'simulation model' can do, but after a while farmers really started to get a feel for the underlying fundamentals and they liked it. It made the decisions process more clear and more strategic (so less depending on the individuals and less directly related to the prices and the mood of the day).

Regards, Gerrit Holtland

[Joitske Hulsebosch]

Hi Gerrit, that sounds really interesting. Is it something you can share here as an attachment or during the meeting?

[Joep van Mierlo]

Dear Jan and William , It appears Eelke is very busy at the moment. I will let him know that there are reactions to his case, and that you are craving for an answer. Keep in touch, Joep[

[Joep Houterman]

Dear all,

Interesting to read the story of Tanga Fresh after having visited the Tanga Small Holder Dairy Development Project in the early nineties. Good to see the dairy sector is progressing and new models of (international) cooperation are emerging.

Reading the paper two issues pop-up: there is, some have already mentioned this, a fairly big difference between the price paid to the farmers and the price charged to the customers. One of the key factors for succsess is the presence of a coordinator, overseeing the whole sector and trusted by all stakeholders.

This leads to the following question: Wouldn't the farmers be better off with an enlightened private entrepreneur running his/her private milk collection scheme cutting out the coops inefficiencies? In other words, is a price being paid for the cooperative approach?

Anyone who can share a proper comparison either in Tanzania or elsewhere?

Joep Houterman

[Gerard van Rootselaar]

Indeed it is gratifying to learn about the success of smallholder dairy farming in the Tanga region. The previous state farms, at the time of their evaluation in 1983, did not offer adequate perspectives for continued development investment.

I endorse the call of Joep Houterman for a discussion on the theme 'cooperative - private'. I also refer to the experience in Egypt.

Further, I wonder, in view of the experience with milk marketing in Tanga and in Zambia, whether it would be good to make development investments in cycle track infrastructure?

[Inge Jansen]

Here you can read a summary of the online discussion up till now, prepared by the case reporter:

This case is well known, has an interesting history and is now expanding the plant capacity.

The ning discussion here started to identify a dilemma on farmer milk price vs consumer milk price. Farmer income is both an objective of dairy development and a cost for the dairy plant.

A second dilemma relating to farmer income is in so defined by his (her?) production costs, mainly fodder. As these costs are higher in dry seasion, the dairy plant suffers from 30% variation in milk supply.

Third, a dilemma was identified in the relation between Tanga dairy cooperative (partly owner of the plant) and its member base. The sense of ownership (key to dutch dairy coops) is not easily enhanced, although a simulation games might be helpful in training farmerleaders.

A discussion is proposed whether both farmers and consumers are better off with an “efficient and enlightened” privately run plant as compared to the coop model approach.