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«Recent developments in the dairy sector in Eastern Africa Towards a regional policy framework for value chain development Susan Bingi and Fabien ...»

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No. 78 – September 2015

Recent developments in the dairy

sector in Eastern Africa

Towards a regional policy framework for value chain

development

Susan Bingi and Fabien Tondel

Key messages

In Eastern Africa, the dairy sector East African countries face This note shows that there are

is crucial for rural development, similar issues, notably low dairy opportunities to strengthen or

poverty reduction and food and farm productivity and inadequate build upon existing regional nutrition security. Yet, its milk quality. These challenges structures and market potential remains underexploited. stem from various constraints, complementarities, so to activate Despite a strong interest from including technological, capacity, stronger regional levers and policymakers and investors and organisational and policy ones. coordinate actions across the on-going re-structuring of Removing some of these countries around a regional dairy value chains, a number of bottlenecks may require strategy. Various stakeholders production, marketing and trade regional-level interventions, have indicated that the related constraints hinder their especially to remove barriers to priority areas should be creating development. trade products as well as inputs. a regional regulatory framework and developing capacities.

Introduction Regional economic integration is progressing steadily in Eastern Africa and contributing to economic growth and development in that region. In Eastern Africa alone three Regional Economic Communities (the EAC, IGAD, and COMESA) are establishing common policy and regulatory frameworks providing for the integration of regional markets. East African countries in particular have accomplished much in terms of market integration as shown by the rapid increase in intra-regional trade in recent years, thanks in part to better transport infrastructure, more efficient customs and inspection procedures at border crossing points and lower behind-the-border barriers to trade (notably import licensing). These increasing trade linkages are allowing domestic sectors to expand and exploit complementarities.

Regional markets for agricultural and food products constitute an important dimension of regional economic integration for East African countries, because of the importance of the agricultural sector to their economies and its potential to contribute to economic growth and poverty reduction. Understanding how progress is being made in the integration of agricultural and food markets and broader regional cooperation in agricultural development and agro-food value chain development, and how these can have positive impacts on the livelih

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This Briefing Note considers the case of the dairy sector in Eastern Africa, to understand dynamics within a specific agro-food sub-sector and the interactions with other agricultural and non-agricultural sectors.

Eastern African countries have in common the importance of the livestock and dairy sectors as major sectors for agricultural development, and they have already made some progress in developing a common approach and a common market for these sectors. Regional initiatives have emerged in support of national processes such as the Comprehensive Africa Agriculture Development Programme (CAADP), but this process is far from complete. The dairy sector is one of the few sectors where the concept of value addition has been successfully adopted along the supply chain and the benefits transcend beyond the households that depend on dairy directly, to also the other value chain actors (farm input dealers, dairy equipment, dairy ingredients dealers, raw milk traders, milk transporters, small/ medium/ large scale milk processors, distributors etc.).

The Briefing Note looks at the various actors and factors that have contributed that process, including public institutions, the private sector and external actors at national and regional levels, production issues, market and business trends, as well as the inherent political drivers. It provides some insights to policymakers, private actors and development partners on how to move that regional integration process forward, building on the positive strategic and business partnerships, innovative business case stories and accomplishments to further inform policy and support private sector development in that sector in Eastern Africa.

1. Trends, bottlenecks and opportunities in Eastern African dairy farming and marketing Milk production Eastern Africa is the leading first milk-producing region in Africa, representing 68% of the continent’s milk output. Ethiopia, Kenya and Tanzania are among the biggest dairy producers in Africa. As in Sub-Saharan Africa (SSA) in general, cow milk production is predominant in Eastern Africa, followed by goat milk, sheep milk and camel milk. The dairy sector is one of the fastest growing agricultural sub-sectors in Eastern African countries, which has generated significant economic returns and employment opportunities along dairy value chains. In Rwanda, according to the 2013 National Dairy Strategy (NDS), milk production has been rising rapidly, from 51.5 million (m) litres (l) in 2000 to 445 m l in 2012 and continued rapid growth is expected. This rapid rise in milk production has been attributed to a favourable policy and institutional environment and important investments by the Government and development partners.





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EPRC, 2012, Dairy Sector Reforms and Transformation.

Eastern Africa has the highest concentration of indigenous and exotic cattle, with indigenous breeds being predominant. Ethiopia hosts the largest cattle population in Africa, estimated at 50.9 m (ILRI, 2013). Tanzania, Kenya, Uganda and Rwanda have cattle populations of 18.2, 12.9, 12.8, and 1.1 m, respectively (FAO, 2011; SNV 2008; and UBOS, 2013).

At the SSA level, the proportion are roughly 80, 10, 5 and 5%, respectively.

www.ecdpm.org/bn78 Recent developments in the East African dairy sector Demand and supply of dairy products East Africans are relatively important consumers of milk and dairy products compared to other African countries. Generally, milk consumption is rising although there are disparities among eastern African countries. Population growth, urbanisation, rising incomes and changing lifestyles are the main drivers of this trend. In Kenya, annual per capita milk consumption estimates vary between 80 and 100 l, which is the highest in Africa. Furthermore, milk consumption by Kenyans is growing at 2 to 3% per year. Due to this rapid growth, demand is outstripping supply in Kenya (according to the Kenya Dairy Board), which is creating tensions in the raw milk market. According to the 2010 Kenya Dairy Master Plan, domestic demand was expected to more than double by 2030, increasing from 110 to 220 m l, given population growth projections and current trends in milk utilisation (total utilisation projected to rise to 12.8 bn l). In contrast, in Rwanda, per capita milk consumption is relatively low, estimated at 40 l per year. According to the 2013 NDS, consumer demand for both raw and processed milk is not increasing fast enough to clear projected raw milk supplies. In Tanzania and Uganda, milk consumption is also lower than in Kenya, with people consuming 40 and 45 l of milk per capita and per year (FAO, 2011).

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0.7 FAO, 2011; Rwanda NDS, 2013; and IMPS, 2013.

On the supply side, the production of dairy products is increasing but trends differ among countries in the region. From a heavily state-managed industry, with the objective of satisfying domestic food consumption and nutrition needs, to the reforms that led to a private-sector-driven industry, especially in the processing sector, the eastern African dairy production and marketing has gone through a broad-ranging transformation, especially over the past decade. During that period, there has been an increase in private investment in dairy processing and intensive dairy cattle systems, around which improved husbandry, improved breeds, and feed systems were developed, adopted and disseminated, with many dairy farmers settling in and around urban areas through a process of sedentarisation. This led to an increase in productivity and production. At the same time, the range of products offered in the market has expanded.

While dairy products used to be limited essentially to raw milk and pasteurised milk, consumers can now access a range of processed products, including UHT milk, fermented milk (or traditional sour milk), butter, cheese, yoghurt, milk powder and so forth.

Trade dynamics Dairying in Eastern Africa essentially remains a domestic, or even localised, business. In the Eastern Africa Community (EAC), only 10 to 20% of the raw milk supply, depending on the country and sources, is marketed and distributed through formal channels, whereas less then one per cent of dairy products are exporters within or outside the region. To a large extent, this is explained by the fact that milk and dairy products are difficult to trade due to their perishability, tropical temperatures that exacerbate the perishability issue and also to the relatively high costs of trading across borders in the region. Yet, recent data show that intra-regional trade in dairy products is slowly rising. In recent years, Uganda has become the first exporter of dairy products in the region, with its dairy exports valued at USD24.6 in 2013 (including both the regional and overseas markets). About four-fifths of Ugandan dairy exports were destined to Kenya. The other markets were the Democratic Republic of Congo (DRC), South Sudan and Sudan.

Uganda also exported some dairy products to the United Arab Emirates, Egypt, Syria and India, mainly UHT milk, milk powder, butter, ghee and other butterfat-based products.

World Bank. 2010. NTBs and Regional Standards in the EAC Dairy Sector, Africa Trade Policy Notes Note #2.

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Kenya in contrast imports dairy products to meet an expanding domestic demand. Recently, imports of milk powder have jumped as the Government is replenishing the national milk reserve, which was depleted in early 2014 following a long dry spelt that depressed milk production. Rwanda is also an importer of dairy products, mainly UHT milk, butter and milk powder coming from Uganda. It exports small quantities of dairy products (UHT milk and sour milk) mostly to Burundi, the DRC, and South Sudan. Rwanda has also started to export cheese to Europe, Russia and the UAE, and ghee to India. Actors in Rwanda are also getting ready exploit dairy export opportunities in Burundi and the DRC where the gap between demand and supply is growing.

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Overall in the EAC area, there is a gap between supply and demand for dairy products that is met by imports from outside the region. Imports come from Europe, Australia, New Zealand, South Africa and the USA. However, there are signs that the movement of dairy products from surplus-producing areas to deficit areas within Eastern Africa is on the rise. Furthermore, as local dairy processors have become more competitive over time, local products are increasingly competitive with imported products, as the downward trends in Kenya’s imports of milk and cream from extra-regional origins (EAC, 2013).

Structure and performance of dairy supply chains Dairy farming in Eastern Africa Dairy production systems are generally categorised into three types, pastoral, agro-pastoral and sedentary systems. Difference among these systems include differences in terms of agro-climatic conditions, the objectives of milk production, resources used, the scale of production, market orientation and the use of equipment, inputs and services (ILRI, 2013). Nonetheless, in different systems, livestock has a particular economic utility and cultural significance in Eastern Africa as in other parts of the continent. Households use animals, especially cows, as stores of value, as well as a symbol of wealth. Livestock is also an asset used in cultural traditions such as those related to marriage. Thus, livestock ownership is widespread in Eastern African countries.

In Ethiopia, Kenya and Rwanda, dairy farming is most common in highland areas because of the favourable agro-climatic conditions characterised by a cool and humid climate, which entails small fluctuation in milk production during the year. In these areas, the agro-pastoral (crops and livestock) production system is predominant. This production system allows households to generate income from milk sales, have access to a diversified diet, improving their food and nutrition security conditions, have access to manure, which raises agricultural productivity, and store their income in animals (Kenya Dairy Master Plan, 2010).

The sedentary production system, usually without grazing, with cows kept in stalls and fed with forage, produces a large fraction of the milk output. This system is adapted to the constraints of smallholder farmers with limited land area and to the management by women who usually keep one to three cows in a stall, who account for a large share of sedentary production (World Bank, 2009). The sedentary system is becoming more preponderant, especially in and around urban areas, where producers take advantage of the proximity to input and output markets.

In rural dry lands in Ethiopia, Kenya, Tanzania and Uganda, the predominant modes of dairy production are the pastoral and agro-pastoral systems. In the dry lands of Kenya and Tanzania, the Masai people, who account for most of the population in those areas, depend mainly on livestock for their livelihoods.

ESADA 2014 Dairy Conference - Opening remarks Rwanda NDS 2013 Report Women tending cows do not usually own them. To “empower” women, Rwanda’s Girinka programme ‘One Cow, One Family’ has made gender a key criterion in the allocation of cows, targeting women specifically.

www.ecdpm.org/bn78 Recent developments in the East African dairy sector They have a nomadic lifestyle, moving from one place to another in search of pasture and water between these two countries. The milk output from the dry lands makes up to 30% of domestic output in Kenya. In Ethiopia, milk production in the dry lands represents 65% of domestic output (FAO, 2011; ILRI, 2013).

An economic valuation of dairy-based livestock production systems in the dry land in Eastern Africa showed that it is more productive (per hectare) than meat-based production systems (ASARECA 2011).



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