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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
16 31
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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20
-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