DETERMINING SMALLHOLDER MILK MARKETING CHANNEL CHOICES FOR ENHANCED COMPETITIVENESS IN THE DAIRY SUPPLY CHAIN IN KENYA: A CASE STUDY OF NYANDARUA COUNTY

ABSTRACT 
The dairy industry in Kenya has faced and continues to face challenges in the inefficiency of linkages among supply chain actors. Despite this, the industry still plays an important nutrition and economic role in the lives of many people ranging from farmers to milk hawkers, consumers and processors. Since liberalization of the sector in 1992, a vast array of dairy marketing channels has sprung up, presenting smallholder farmers with multiple marketing channel options. Any choice of the marketing channel options is likely to be entwined to key farm, farmer and market channel characteristics that vary between farmers. However it is unclear how access to these multiple marketing channels influence farm household income and dairy technology choices. The overall objective of this study therefore, was to contribute to the enhancement of competitiveness in the dairy supply chain in Nyandarua County. This was achieved through the determination of the factors that influences the choice of a milk marketing channel, and the evaluation of the effect of these channel choice factors on the net dairy income and technology of smallholder farmers. In addition, the dominant milk marketing channel amongst the existing channels was established. A random sample of 184 dairy households from Mutanga and Ndaragwa divisions in Nyandarua County was used. Data were analysed using Multinomial Logit (MNL) and Two Stage Least Squares (2SLS). A Cumulative density function (CDF) was used to compare the likely effects of different marketing channels on net returns. MNL results showed that, number of cows owned by the household and membership of the household head to an agricultural group/organization significantly influenced the type of channel chosen (at a p-value of 0.01 for cooperative, and 0.1 and 0.05, respectively for the private channel). The 2SLS results showed that the household head’s gender, occupation and age plus distance from major market and number of cows owned by the household had significant effects on both technology and income across all channels. CDF estimation results showed that, the private channel’s net returns dominated over the traditional and cooperative channels (at 0.5, 0.6, 0.7 and 0.9 probability levels). Based on these results there is need for private channel players to focus on tapping the production potential of farmers with small herd sizes by encouraging group formation and joining already established groups to have collective bargaining power and increase their social capital.

CHAPTER ONE 
INTRODUCTION 
Background information 
Beneficiaries of nutritional and economic incentives of the dairy industry in Kenya range from informal milk vendors, consumers to processors. The industry is ranked among the largest dairy sectors in East, Central and South African regions. Production is majorly from cattle (3.5 million head of exotic breeds and their crosses, and 9.3 million indigenous cattle) goats (13.9 million) and camels (1 million). Approximately 70 percent of the milk produced (more than 3 billion litres) is from cattle (FAO, 2011). Other surveys from organizations such as Smallholder Dairy Project place the number at approximately 6.7 million dairy cattle in Kenya (SDP, 2005) while Technoserve estimates a figure of 5.5 million milking animals (Technoserve, 2008). In fact, Kenya and South Africa are the only countries in Africa that produce enough milk for both domestic consumption and export (Wambugu et al., 2011). 

Since 1992 when the industry was liberalized, dairying in Kenya has experienced enormous growth in the informal milk trade that mainly consists of small-scale milk operators dealing in marketing of raw milk. Its contribution to GDP is 3.5% of total GDP and 14% of Agricultural GDP (GoK, 2008). Furthermore, by 2006 the informal milk market controlled 70% of the total milk marketed in Kenya (GoK, 2006). The traditional preference for fresh raw milk and its relatively lower cost drives the informal sector (Wambugu et al., 2011) which had faced several challenges before it was officially recognized in the 2004 dairy policy change. Informal vendors, including mobile milk traders and milk transporters were frequently harassed as powerful dairy market players sought to protect their interests and increase market share. Concerns over food safety and quality of milk sold by informal sector players were also key challenges. Since 2004 though, there has been a major change in policy and practice towards the informal milk market (Leksimono et al., 2006). In fact, there is a clear acknowledgement by policy of the role played by small scale milk vendors which contains specific measures to support them. Although the government is and has been doing much as pertains to the development of the dairy industry through the above, milk marketing still possess challenges that need candid evaluation and solving. 

Milk production and market opportunities present challenges for smallholders and other supply chain actors in the current state of the dairy industry. Technology advancement in dairying and clear-cut distribution systems has aided countries like the Netherlands realize production potentials and profit gain respectively (Audrey et al., 2011). However, the two milestone achievements have been a puzzle to the Kenyan dairy sector as indicated by Omore et al. (2005). The challenges have been widespread in the high milk production areas like Nyandarua County, which has experienced the presence of few operational and publicly funded milk collection infrastructural facilities. Subsequently, the lack of sustainability of government led dairy projects has led to smallholder dairy farmers shifting supply to the private sector which is on the verge of establishing a larger market share in the area. 

The above notwithstanding, Kenya’s development blueprint Vision 2030 puts a lot of emphasis on uplifting the economic status of the country through commercialized agriculture, which is expected to contribute KES 80-90 billion to GDP and towards realization of the Millennium Development Goal on alleviation of extreme poverty and hunger (GoK, 2008). For dairy development to aid in achieving this, recommendations for dairy development must therefore be based on prevailing dairy marketing circumstances, opportunities and challenges in the region. 

Raw milk is perishable and requires transportation to consumption centers or for processing into less perishable forms. This may be dependent upon farm, farmer and market channel characteristics (Tsourgiannis et al., 2008). From a consumer’s standpoint, the shorter the marketing chain the more likely the retail price would be low and affordable. The above explains why, following the liberalization of the dairy industry, direct sales of raw milk from producers to consumers and producer to milk hawker to consumer is on the rise despite the public health issues associated with it (Wambugu et al., 2011). Milk producers may not necessarily benefit from a short marketing chain but farmers sometimes prefer selling milk to hawkers because other factors such as prompt payments and accessibility to formal market outlets are hard to deal with for them (Ouma et al., 2010). The biggest disadvantage of direct milk sales from hawkers to consumers is the total lack of quality control and adulteration of milk with water which is frequent, and illegal. Faster delivery of milk may be achieved through efficient marketing channels that ensures transaction cost minimization and profit maximization. Doing contrary to this will limit marketing options for small and remote dairy producers, raise transaction costs, and imply greater losses due to spoilage than for commodities such as grain (Omore et al., 2006).

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Item Type: Kenyan Postgraduate Material  |  Attribute: 86 pages  |  Chapters: 1-5
Format: MS Word  |  Price: KSh900  |  Delivery: Within 30Mins.
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