Dairy industry’s prospects look up

By Luke Mulunda

Dairy farmers are clearly a busy lot these days – and the cows just as generous. Milk processing plants across the country are recording a steady increase in deliveries and the industry regulator is optimistic the trend will hold in the long-term.

"This year looks good," said Mr Machira Gichohi, the managing director of the Kenya Dairy Board. "Although there was a drought towards the end of last year, it didn’t adversely affect production."

Milk deliveries to the formal dairy sub-sector increased by 36.6 per cent to 226,246 million litres during the first 10 months of 2004 alone, from 163,228 million litres delivered in the same period the previous year, according to statistics from the board.

The dairy industry in the country has about 1.2 million cattle, mainly grade and zebu. It produces about 70 per cent of the total milk consumed by Kenyans.

Milk production is in excess of 2.5 billion litres per year, a quantity the board believes makes Kenya self-reliant in the production of milk and milk products, except in cases of drought. Indeed, last year’s improved performance has been attributed to the "fairly favourable weather conditions" experienced particularly during the first 10 months of 2004.

"Kenya has always been a strong milk producer," said Gichohi in an interview.

Since the sector was liberalised in May 1992, competition in milk processing and marketing has increased significantly and the Board has so far licensed over 40 private and dairy co-operative processors to process and market the produce.

The revival of the new Kenya Co-operative Creameries (KCC) also contributed to the sub-sector’s improved performance, the board says in a report by the Central Bank of Kenya. Milk purchases by KCC increased from 40,000 litres per day in mid 2003 to 350,000 litres per day by May 2004, a pale comparison to the 1.2 million litres it used to buy daily in the late 1990s before it was privatised in 2000. But the government is working on a plan to revert the ownership of the company, renamed KCC 2000, to farmers by refunding the investments of its current owners.

Gichohi said morale among dairy farmers has been improved by the payment of outstanding monies owed by milk processing plants. The increased production has stabilised prices at Sh18 per litre, enabling processors to purchase more.

"Right now," said Gichohi, "processors are fighting for milk. All farmers have been paid their dues and are increasing output." The processors paid up towards the end of last year after the board threatened to withdraw the licences of plants that were unable to clear farmers’ dues.

Liberalisation of the sub-sector created an informal milk market where itinerant traders supply nearly 70 per cent of country’s total marketed milk. This overstretched board’s resources in its efforts to bring order to the sector. It was forced to ban hawking of milk to increase deliveries to the formal industries.

It also opened an avenue for imports to flood the market, almost destabilising the sub-sector. "Imports have reduced over the past few years and in the 2003-04 period, we recorded minimal figures," Gichohi said, adding that the Kenya Revenue Authority had tightened the noose on unlicensed importers.

Last year, Gichohi strongly opposed the removal of controls on exports of powder milk, saying it would hurt the local industry.

Like food crops, milk deliveries dropped to 19,058 million litres in October 2004, from 26,717 million litres delivered in June 2004 as a result of the June-September 2004 drought. "It is expected that this scenario will change in the coming months due to adequate rains countrywide," the Central Bank report said.

Kenya has one of the largest dairy sectors in sub-Saharan Africa, based mostly on smallholder milk production.

This sub-sector, which accounts for about 10 per cent of Gross Domestic Product (GDP) and creates employment to more than one million small-scale farmers and their families, is currently bracing itself for competition from duty-free milk products from Tanzania and Uganda.

In a skewed arrangement that is expected to level in five years’ time, Kenyan milk products will attract a 25 per cent duty in the Ugandan and Tanzanian markets under the recently launched East African Customs Union.

"We think we are strong and will be able to compete,’ said the KDB boss. "Our production is more than that of the two countries combined and this is an advantage."

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