Africa / Dairying / East Africa / Innovation Systems / Kenya / LIVESTOCK-FISH / Markets / Opinion Piece / PIL / PIM / Value Chains / Women

Linking small dairy producers to dynamic markets: Three business models from Kenya

In November last year, the Livestock and Fish CGIAR Research Program commissioned an external evaluation of its value chain approach. One of the evaluators’ main concerns was that Livestock and Fish researchers had spent their time analysing how the livestock and fish value chains were working from an economics perspective but little work had been done on characterizing successful business models for farmer’s group organization and value chain governance, which are more likely to lead to more meat, milk and fish by and for the poor.

Livestock and Fish has started taking this business development angle with research on existing dairy hubs in the Tanzania value chains. This post aims to keep the ball rolling on this topic of business models for linking smallholder livestock farmers to dynamic markets by an overview of three dairy marketing business models that I visited last year in Kenya.

There was a flurry of dairy knowledge sharing events in Kenya late last year. The International Livestock Research Institute (ILRI) and the Technical Centre for Agriculture and Rural Cooperation ACP-EU (CTA) organized the African Dairy Value Chain Seminar from 21 to 23 September. This was followed by the Annual dairy conference of the East and Southern Africa Dairy Association (ESADA) from 24 to 26 September. And from 27 to 29 October, more dairy experiences were shared at the 6th All Africa Conference on Animal Agriculture.

All three events also involved field trips to meet stakeholders in the Kenyan dairy value chains. So in the course of one month, I was able to hear about three different dairy business models linking smallholder dairy farmers to dynamic markets. I felt all three were successful to foster market access. This blog post summarizes the lessons I have learned from these three quick field visits in terms of 1) models for smallholder inclusion into value chains, 2) encouraging investment into dairy value chains, and 3) gender roles and empowerment in African dairy value chains.

Lower Eastern Dairy Association

Youth milking on a dairy farm in Machakos, Kenya

Youth milking on a dairy farm in Machakos, Kenya (photo credit: ILRI/Brad Collis)

This is an alliance of 18 dairy cooperatives and farmers’ associations covering the three Southeastern Kenyan counties of Machakos, Kitui and Makueni. The alliance was initiated in 2013 and represents around 2500 individual dairy farmers in Machakos and Makueni counties. They wanted to develop a network of milk collection and processing centres closer to their farms and a market outlet which they could control, rather than relying only on the collection networks of the large dairies to distribute the 10000 litres of milk they currently produce every day. The County Government of Machakos is supporting this initiative and helping the farmers to organize themselves, get trained on technical and managerial skills, and facilitating a multi-stakeholder dairy innovation platform to connect them with input suppliers and other interested parties of the dairy value chains. By recruiting more producers in the three counties, the Association has the potential to supply 40000 litres of milk per day, thus becoming an important institutional player in the region’s dairy market.

Eldoville Dairies Ltd

African Dairy Value Chain Seminar field visit

Lucy Karuga (left) the proprietor of Eldoville farm (photo credit: ILRI/Dorine Odongo)

Founded in 1985 in the Karen District of Nairobi by Mrs Lucy Karuga to add value to the milk produced on the family farm, Eldoville Dairies Ltd has now focused its business on the processing of milk. It transforms up to 5000 litres of milk per day into high-value individual-portion size butter, cheese and yoghurts for international-standard hotels and airline catering service providers. The fresh milk is sourced from 1000 smallholder dairy farmers rearing three to four Friesian or Ayrshire cows per farm, mainly located in Nyandarua, 160 km from Nairobi. At the time of the field visit, the farmers deliver the milk to the Ol Joro Orok collection centre where it is chilled before being transported to the Karen processing plant. Because the focus of the company is on processed products, it takes great care to make sure its suppliers deliver milk with above-average protein and fat content.

Ol Kalou Dairy Public Limited Company

Global Agenda Visit to Ol Kalou: Ol Kalou Dairy Plant

The main building at the Ol Kalou Dairy Plant (photo credit: ILRI/Paul Karaimu)

After an initial investment in 2005 by Heifer International, this dairy collection enterprise located in Nyandarua District has been funded by the investments of private shareholders. The Ol Kalou dairy currently operates two collection centres (capacities 27000 and 35000L/day) and chills the milk of 6000 suppliers, mosty smallholders. The dairy also provides technical support and services to its farmer-suppliers to maintain milk quality. Its main customer is the large-scale Daima dairy located 150 km away in Nairobi. Milk prices paid to suppliers vary with market rate but are on average 38 Kenyan shillings per litre. Farmers pay milk transporters KES 3/L for the transport service to the dairy.

Lessons learned linking Kenyan smallholder dairy farmers to dynamic markets

  Lower Eastern Dairy Association Eldoville Dairies Ltd Ol Kalou Dairy PLC
Smallholder inclusion Members of the Association are 18 primary dairy cooperatives and farmers’ associations, thus including smallholder dairy farmers who are the majority of the 2 500 individual cooperative members. Supplies milk from a network of 1 000 carefully selected farmers who raise their dairy cows on pastures, thus increasing the fat and protein content of the milk.Pays premium price of KES 43/L of milk.Provides training on feed and farm management to maintain suppliers’ milk quality. Majority of 6 000 suppliers are smallholder farmers.Provides technical support and training to suppliers to help maintain milk quality.The company is investing into more collection centres so as to source milk from more smallholders.
Encouraging investment The Association’s business plan has attracted funding from the Machakos County Government who has bought a pasteurizer for the Association and is encouraging farmers to invest collectively with the help of private banks to materialize their business plan. Continued demand in the niche market of high-value processed milk products for hotels and catering services has led Eldoville Dairies Ltd to invest in a processing factory located in the dairy production area 160 km away from Nairobi and due to start operating in 2015. Some shareholders of the company are suppliers but there are also non-farming investors who come from the local community around Ol Kalou. Although the latter now live in Nairobi or even abroad, they have invested in the dairy to help develop their local community.The customer Daima Dairy has helped the Ol Kalou dairy invest in refrigeration tanks.
Gender roles and empowerment 1/3 of the seats on the Association’s executive committee are reserved for women. The company’s general manager is a woman who pays specific attention to the gender balance in her workforce. At the start of the venture, men were the official suppliers of the dairy although women were tending to the cows on the farms.Now half of suppliers are women, four board members out of 13 are women and many women in the community are self-employed as milk collectors.
Contact for further information Mr Joshua Wambua, Manager, Lower Eastern Dairy Cooperative Association jshwambua [a] yahoo.com Mrs Lucy Karuga, Founder and General Manager, Eldoville Dairies Ltd lucy [a] eldoville.co.ke Mr John Kamau, Extension Manager, Ol Kalou Dairy kimkamaa [a] yahoo.com

I constructed this table from the information gathered from very rapid field visits. Further research is needed to gather more evidence of the performance of these three models.

Which model is best adapted to which configuration of farmers’ groups, distance to market, agro-ecological zone? Which model would be the strongest in the face of possible fluctuations in fodder availability and market prices? Which model is easier to set up and operate for the smallholders and their value chain partners? How can women and other marginalized groups be given a more prominent role in decision making in these models?

This is the type of research that scientists involved in the Livestock and Fish dairy value chains of India and Tanzania could be implementing to address the recommendation from the external evaluation on its value chain approach. Collaboration on this with researchers working in the CGIAR Research Program on Policies, Institutions, and Markets is likely to be fruitful to help groups of dairy farmers and their value chain partners choose the most appropriate business model for their operations.

Jo Cadilhon, Senior Agricultural Economist, Policy, Trade and Value Chains Program, ILRI

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