PAAP’s Electronic Newsletter

13 March 2009 Volume 12 Number 05

INFORMAL DAIRY SECTOR: POLICY REFORMS IN KENYA AND USING INFORMATION TECHNOLOGY TO IMPROVE EFFICIENCY IN UGANDA

The liberalization of agricultural markets in the late 1980s and early 1990s introduced many new challenges for small-scale farmers, particularly in sub-Saharan Africa (SSA). As the government marketing boards closed, producers were left to deal with a range of middlemen who work much closer with the markets. This has forced countries to introduce sweeping policy changes in support of small-scale farmers. This issue of the newsletter captures some of the impacts of recent policy changes particularly in the dairy sector in Kenya and; how dairy farmers in Uganda have used information technology to make the supply system more efficient.

Introduction

HE Kenya dairy sector has changed significantly since the industry was liberalized in 1992. Informal milk trade, in which raw milk is sold to consumers by small-scale traders, now

accounts for more than 80 percent of all milk marketed in the country. Until recently, however, the sale of raw milk in urban areas was not allowed and traders who sold raw milk were often arrested on account of regulations that existed at the time. The main dairy regulatory authority, the Kenya Dairy Board (KDB), appeared to favour and align itself with the formal large-scale milk processors.

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Since 2000 an advocacy campaign, based on research evidence from the Smallholder Dairy Project (SDP) that ran from 1997 to 2005, has succeeded in changing the way the Kenyan informal milk sector is viewed. The government now recognizes the value of the informal milk sector in serving the needs of consumers (including but not confined to the poor) and in creating employment and small-scale business opportunities, whilst the main public health risks thought to be associated with the sector have been shown to be largely overstated. Additionally, the policy environment at the national level has transformed from being actively hostile to broadly supportive.

The key drivers in the process of KDB’s policy reform, which reached its peak in late 2003, are: robust research evidence from SDP; restructuring of KDB operations that involved staff rationalization, recruitment of qualified staff and capacity building; engagement in collaborative

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projects to improve small-scale milk marketing, mainly focusing on testing a quality assurance approach involving certification of small-scale milk traders after standardized training; development of a strategic plan with clear goals and activities; creation of dairy regulatory forums with key stakeholder representation; comprehensive review of dairy regulations and; engagement in a process of harmonizing regional dairy policies, regulations, and standards in training and quality assurance.

The change in national policy has been revealed mostly through shifts in rhetoric and in speeches made by regulators and politicians. Although there have been efforts to align these changes with written policy, this process has been slow; a revised dairy industry policy and bill currently await parliamentary approval. It is noteworthy, however, that previous efforts at revising and drafting a new dairy policy and bill failed to proceed even this far.

Local-level regulatory authorities

KDB is a parastatal under the Ministry of Livestock and Fisheries Development. Its regional offices are manned by an officer and a team of field inspectors who ensure that milk traders comply with the dairy regulations. The inspectors also provide training and professional advice on regulatory requirements, milk handling and marketing. The Department of Public Health (DPH) officials fall under the Ministry of Health and are responsible for ensuring that food handlers in food manufacturing or retail business premises comply with public health regulations. Municipal council officials issue trade licences and ensure that businesses are located in acceptable designated areas. Local authorities also employ their own public health officers who complement the Ministry of Health officers to inspect food premises and perform other public health activities within the municipality.

Dairy regulations that govern milk marketing in Kenya

The agents involved in milk production and marketing are subject to various regulations and are also required to obtain various licences to carry out their business operations. Medical certificates are issued biannually but other licences are issued annually. The cost of business licence varies among municipal councils. All milk handlers are required to wear clean personal protective clothing (gum boots, dustcoats/aprons).

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Changes in behaviour and attitudes

Producer groups

Before the dairy industry was liberalized, small-scale producers – who typically keep one to five cows – usually sold their milk to The Kenya Cooperative Creameries (KCC), either directly or through local dairy cooperative societies. Producers and cooperative societies also carried out some local sales although hawking was rare. After KCC collapsed in 1999 and dairy cooperative societies disintegrated, sales of raw milk by farmers through hawkers increased dramatically. Because hawking of milk was illegal, hawkers risked having their milk confiscated by KDB officers and the police.

As a result of the poor performance of many cooperative societies and the risks associated with milk hawking, farmers started to seek more secure markets for their milk. Some formed self-help groups while others registered with the Department of Social Services and acquired premises which they operated as milk bars or mini dairies, depending on the scale of operation. The establishment of some of these groups was facilitated by the then Ministry of Agriculture and Livestock Development and later pursued by KDB.

Whereas previously individual producers rarely came into contact with the regulators, after the producers formed groups and obtained licences to run milk bars or mini dairies, DPH and KDB officials frequently visited them and organized training sessions on hygienic milk handling in collaboration with relevant government departments (e.g. livestock production, veterinary services and cooperatives) and non-governmental organizations (NGOs).

In addition to operating milk bars and mini dairies, some producer groups pooled their milk and sold it to processors, retaining only a small amount for sale to mobile traders and individual consumers. Producer groups tended to be very strict on testing milk for adulteration because of the high risk of milk from one producer spoiling the entire batch of pooled milk.

Mobile tradersBefore 2000, all mobile traders operated illegally, delivering milk directly to customers or selling it on the streets. They often operated very early in the morning to avoid the regulators. However, they risked being caught by KDB officials on patrol with police who would confiscate their milk, containers and bicycles. To avoid arrest, they paid bribes to corrupt police officers and thus risked harassment from thugs who posed as policemen and ‘confiscated’ their milk or simply extorted money from them. As a result, traders handled small amounts of milk (often just five litres) to minimize the scale of any losses or to enable them run away from potential trouble.

As the option to legitimize their businesses became available after 2000, some mobile traders obtained business licences, especially in areas that KDB officials regularly patrolled. Once they

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were licensed, mobile traders handled more milk as they were free from the risk of having their milk or containers confiscated. Some traders handled up to 200 litres a day and others used hired transport or their own vehicles.

Whereas unlicensed milk traders previously relied on customer feedback for indications of problems with milk quality, many traders have now been trained on milk testing and use lactometers to test random milk samples for adulteration. As a result of increased testing of milk at collection centres, some traders reported fewer incidences of spoiled milk and a corresponding decrease in the number of customer complaints.

Most unlicensed mobile traders said that they wanted to obtain licences for their businesses but found the cost of doing so prohibitive. Because little or no capital investments (apart from licences) are needed for informal milk trade, many would-be traders with no access to capital initially operated without licences and avoided encounters with KDB and DPH officials until they accumulated enough money to pay for the licences.

As a way around the high cost of individual licensing, some traders organized themselves into groups and shared the cost of a milk bar or mini-dairy licence, a strategy encouraged by KDB. Typically, 20–60 registered mobile traders deliver milk to a fixed location from which the milk is distributed or supplied directly to customers. In addition, each group member is required to have a milk movement permit. Some groups have issued their members with identity cards which serve as proof of licensing. With time, some traders left the groups to seek individual licences.

Some licensed traders considered their unlicensed counterparts to be a threat because the latter operated at lower costs. However, the licensed traders were reluctant to report them to the regulatory authorities because in many cases they were friends, neighbours or relatives. KDB has encouraged self-regulation and consequently, the situation has changed with some traders reporting their colleagues who do not meet minimum milk quality requirements e.g. those who adulterate milk.

Milk transportersBefore 2002, milk transporters were regularly stopped by police at roadside checkpoints and often harassed into paying bribes to avoid arrest. This situation improved with the election of a new government in December 2002 on a platform of zero tolerance to corruption, although the change in police behaviour proved to be short-lived. The relationship between milk transporters and KDB officials has similarly improved. Some transporters had already switched to using aluminium containers and those who still used plastic containers planned to use metal ones in future.

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Milk bar operatorsMany milk bar operators started on a small scale without licences and later acquired licences as their businesses grew. Before 2000, the sampled milk bars had licences from the local authority and DPH but not from KDB; for this reason, the operators were often harassed by KDB officials. Attitudes have now changed and KDB officials are more supportive of the milk bar operators and give them advice on how to obtain licences. Although testing of milk was uncommon before 2003, most of the sampled milk bar operators have been trained and now carry out platform tests on raw milk that they receive. Milk bar operators stated that they were keen to receive training in milk handling and processing.

KDB officersSince 2000, KDB has changed the way it implements current legislation, with more emphasis on licensing rather than arresting small-scale milk traders. The officers tend to work less with the police and more with a wide range of stakeholders such as government departments, NGOs and civil society organizations. The quality of services offered has also improved and officers carry out regular spot-checks on traders to ensure they are complying with the regulations and remitting the cess levy. Each KDB office now has a mobile mini laboratory to facilitate analysis of milk samples in the field. KDB also conducts training sessions on milk handling, processing and marketing. In Nyeri and Nairobi, milk producers reported that the KDB protects them from ‘rogue’ traders who default on payments.

KDB’s improved service delivery was influenced by corporate restructuring facilitated by FAO and the election of a new government in 2002. The introduction of improved performance-based work contracts made staff more accountable for their work and enabled them to take more personal initiatives in the interpretation of regulations at the local level. The new government’s zero tolerance to corruption helped to reduce incidents of bribery by senior officers.

DPH officersPreviously, the prevalent attitude of DPH officers was that small-scale, mobile milk traders should be arrested. However, attitudes have since changed and DPH officers are now more supportive, offering advice to traders on how to legalize their businesses and giving them time to comply with the legal requirements. DPH officers also support KDB’s move to encourage mobile traders to form groups and acquire fixed premises to enable them to legally sell milk directly to consumers. DPH officers now collaborate with their KDB counterparts to ensure trader compliance with licensing requirements and also participate in joint training sessions and seminars.

Municipal council officersFormerly, council officers visited milk traders only at the start of the year to ensure they had the required business licences. Council officers were also responsible for checking that businesses were set up in accordance with the town plan and that the necessary utilities and services were

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available. More recently, council officers collaborate more closely with their colleagues from the DPH and carry out joint inspections of new premises before issuing licences for milk-related business.

Outstanding issuesAluminium milk cans: Although public health and dairy regulations require milk to be transported in seamless metal containers, most small-scale traders continued to use cheaper plastic ones, arguing that they could access credit to buy the metal containers (Kenya Shillings (KSH) 3000 or KSH 6000, respectively for a 30-litre or 50-litre container). In some areas, the metal containers were not locally available. Plastic containers were generally preferred because the heavier metal ones limit the quantity of milk that can be transported by bicycle.

The Intermediate Technology Development Group (ITDG), a non governmental organisation, has developed specially adapted bicycles fitted with a rack to accommodate the approved metal cans for use on the steep, rough terrain in Nandi District. However, mobile traders reported that the racks made the bicycles too heavy to push uphill thus limiting further the amount of milk they could carry. Traders who relied on public transport reported that it was difficult and impractical to transport metal containers in matatus (commuter taxis). However, this mode of milk transportation is illegal and KDB instead encourages the use of ‘milk only’ vans and bulk sourcing of milk for retail, for example from farmer groups or processors, which makes it easy to monitor milk quality. KDB is promoting this approach because it facilitates the integration of formal and informal traders, allowing the latter to access supplies of safe milk while minimizing spoilage losses.

Payment of cess: All milk traders are required to pay cess of KSH 0.20 to KDB for every litre of milk sold. Since most informal traders do not keep accurate records of milk sales, the cess is usually based on average monthly estimates. To overcome these difficulties, traders have been encouraged to attend training on business skills and record keeping. Some cases were reported of KDB officers failing to issue receipts for cess payments, especially before officers were transferred to new posts. Informal traders said that the rate for cess was too high and were unaware what services KDB offered in return for the cess it collected. Although cess should be paid only once, double taxation on the same quantity of milk sometimes occurred, mainly due long supply chains, poor logistics, lack of records and ignorance on the part of the traders.

Payment for initial licences: School leavers and prospective small-scale milk traders with little or no money or access to credit found it difficult to pay for their initial licences. As a result, they often operated illegally until they could save the necessary money to pay for the licences.

Capacity building and training: With mobile milk traders and producers being encouraged to form groups by KDB and Department of Public Health (DPH) officers, there is a growing need for training in business skills and group and financial management. Milk transporters and milk

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bar operators need training in financial and business management. Milk bar operators need training in milk processing to enable them to produce high-quality, added-value products. With more organizations becoming involved in training and other support for the informal milk sector, it was sometimes difficult for milk producers and traders to know what the various BDS providers are offering and whom to approach. Coverage was also reported to be patchy.

Few KDB officers: While the number of informal milk traders has increased, the ratio of regulatory officers to traders continues to decrease. As a result, many informal traders still operate illegally, especially in areas where they cannot readily access the local KDB offices.

Stakeholder participation in decision-making: Although KDB aims to ‘give full control of the industry to the stakeholders through election of directors’, small-scale traders are currently unable to take part in the board’s decision-making processes because the revised dairy policy and bill – which allow for representation of the informal dairy sector – still await parliamentary approval.

Lack of clear guidelines: Interpretation of dairy policy and regulations currently varies among regulatory officers. Whilst the policy change at the national level has been evidenced largely through rhetoric, this has left KDB and DPH officers in the difficult situation of having to respond to the new policy environment without the benefit of clear guidelines. Until the revised dairy industry bill is enacted, this situation will persist.

Experiences from Uganda: No more spilt milk

A group of dairy farmers in rural Uganda now use mobile phones to deal directly with buyers, to negotiate prices and organize delivery. Improved access to market information has reformed the way the farmers do business and has led to increased profits. By using technology to make the supply process more efficient the farmers no longer waste as much milk as they used to and are branching out to produce more dairy products and enter new markets.

Dairy farmers in the Bugerere district in central Uganda used to drive 120 kilometres to the main market in the capital, Kampala. They carried thousands of litres of milk in their trucks in the hope of finding a buyer there. Leaving business to chance often meant farmers were left with thousands of litres of unsold milk.

Even though this method of doing business cost the farmers a lot of time and money, they had very few alternatives and continued taking the same risks for many years. But, in 2005, the farmers of the Bugerere Dairy Cooperative Society, an organization representing 170 members, changed their strategy when they started working with the Farmers Information Communication Management (FICOM) project. FICOM helped to show the farmers how to use communication technology to find buyers and market prices before they set off on their long journey to market.

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Business contactsFICOM worked closely with the two main farmers’ associations in the area, Uganda National Farmers Federation (UNFFE) and Kayunga District Farmers Association (KDFA), who identified the Bugerere cooperative as an ideal partner in the early stages of the project. Although the area around Bugerere was not connected to the national electricity supply grid and had no mobile phone coverage, the dairy farmers had already proven to be an enterprising group. They were already engaged in a variety of initiatives to bring extra income to the region and improve the general living standard, in spite of the challenges. The farmers were, for example, growing fruit and vegetable for sale at the market and had collaborated to rent a maize mill to produce their own flour.

The Bugerere Cooperative is based in an area where cattle is the main source of income. Almost every family owns their own cow and most people are small-scale dairy farmers. The cooperative is also a milk collection centre that has a cooler with a 5000 litre capacity. The cooperative buys milk from the farmers depending on the current market prices and stores it for sale later to bulk buyers that the small producers would otherwise be unable to supply.

The first step in the FICOM project was to improve communication between farmers and their trade organizations as this would make sure that price and crop information got to the farmers quickly and efficiently. FICOM therefore, connected the headquarters of the farmers’ union in Kampala to three district offices throughout the country. A major priority for the farmers was to have reliable, current weather information. The Ugandan Meteorology Department uses a program which collects and analyzes weather information then sends out the data at regular intervals to anyone connected to the system.

The project linked the UNFFE website to the meteorology data and connected the computers in the three district offices to free, specialized modem-ready radios and antennae. This system allowed district office staff to visit the UNFFE website via Worldspace, a one-directional satellite driven channel that provides limited internet access to computers through a specially adapted modem. When connected, the district office computer automatically downloads the weather details plus any other crop and market information from the farmer’s union website. Next, FICOM introduced the Bugerere dairy farmers to using mobile phones as a marketing and business improvement tool. At the time, mobile phones were widely available to Uganda’s urban population but rural communities still had poor coverage from the networks and phones were often too expensive for many people. To extend the mobile phone network to the Bugerere area, FICOM decided to work with another project, called Village Phone, which is run by the mobile phone network provider, MTN.

MTN supplied two village phone systems to the Bugerere Cooperative which came complete with a car battery to provide electricity, a solar-powered charger to recharge the battery and a booster antenna to amplify the mobile phone signal and carry it over the distance required to

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reach the nearest network connection. A local microfinance company provided the farmers with the money to pay for those first two village phone systems, which cost US$ 350 each, and FICOM trained two representatives of the farmers’ group on how to operate and maintain the village phone services.

The Bugerere farmers now use the phones to connect to price information services such as FoodNet, an East and central African initiative which supplies up to date price information for a wide range of commodities via SMS (short message service). The service tells farmers which trader in their region is offering the best price for milk and gives the contact details of the buyer. With a broader overview of all the prices and market information the farmers can decide on the best buyer for their milk and make arrangements for delivery before setting off on the long trip with their product.

Also, as the farmer can make delivery arrangements directly with the buyer the supply of goods to the market becomes more efficient; the milk is ready to go only when the buyer needs it and even if the truck driver experiences problems on the road he can phone ahead to report delays. The result is that a lot less milk is wasted. Everyone involved in the supply chain, from the farmers, buyers and transporters to the traders, retailers and customers, all benefit from the savings made from these efficiencies as prices are more stable and profit margins rise. The farmers use their savings in a number of ways, with many investing their extra income back into their business or paying for their children to go to school. The village phone service also brings money into the community as it creates employment opportunities by providing operator jobs. Plus the service brings in its own capital as the operators charge for each call made on the system.

Farmers now consider the mobile phone an asset that saves them time and money that was previously lost when doing business without a marketing strategy. The FICOM project ended in Bugerere in 2007 but all the dairy farmers have since seen the benefits of having a mobile phone and now all have one for personal and business purposes. The farmers continue to use their phones to market their products to new customers, maintain existing customers, receive orders and track deliveries, gain timely market price information and keep linked to everyone along the entire supply chain.

Independence

The benefits from an improved supply chain are also trickling down into other parts of the community. Education has improved as a result of the new working methods, as have living standards, savings and capital investment in other local businesses. Bugerere dairy farmers now have 75 regular customers and are easily accessible to new ones who can reach them on their mobile phones. The cooperative has now seen the benefits of increased access to technology and are now looking to develop a computer training centre and internet café in the area. At the moment, the farmers have to travel 46 km if they want to browse the web, but

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having access to the internet locally would not only equip the farmers and the community with information and communication technologies (ICT) skills, but would also be a source of extra income for the cooperative.

Conclusion

Since 2000 there have been gradual changes in grassroots attitudes and behaviour in the informal dairy sector in Kenya, reflecting the change in policy at the national level. This process has been accompanied by a significant increase in the number of informal milk traders and consequent creation of employment opportunities.

In general, KDB, DPH and municipal councils have switched from heavy-handed enforcement of regulations to placing more emphasis on training of informal milk traders and improved service provision through BDS providers. Informal milk traders have become more willing to formalize their businesses by obtaining the requisite licences and testing the quality of raw milk. However, where KDB offices are inaccessible, most informal traders still remain unlicensed and untrained.

Challenges remain in licensing and training the rapidly growing number of informal milk traders. Fortunately, several institutions have become actively involved in training and technology development to address the needs of the informal milk sector and as example of Bugerere Dairy Cooperative Society farmers has ably demonstrated, intensified use of modern technologies would go a long way in breaking the barriers that affect small-scale farmers, particularly in sub-Saharan Africa.

This article has been compiled from two different sources. The section on Kenya’s diary sector is drawn from a research report, “Dairy Policy in Practice: Changes in Grassroots Attitudes and Behaviour after Policy Reforms in Kenya’s Informal Dairy Sector. The research was conducted by Isabelle Baltenweck, Philip Cherono, Margaret Wambugu, Robert Ouma, Amos Omore and Steve Staal, of the International Livestock Research Institute (ILRI; while the section on Uganda is an extract from the Technical Center for Agriculture and Rural Cooperation (CTA) Bulletin No. 47 of February 2009.

COMMUNICATION

Request for proposals

The African Farm Radio Research Initiative (AFRRI) is accepting proposals for the mid-term evaluation of its activities. The evaluation will cover programme management systems, research design and methodology, and capacity building activities. It is hoped that the evaluation will provide recommendations on how specific project areas should be replicated and scaled out with other radio stations and in other countries in Africa. For details about the project and scope of work, contact: shrao@farmradio.org or visit: http://www.farmradio.org The deadline is 20th March 2009.

PAAP received this information from Catherine Kilelu, Wageningen University. She is gratefully acknowledged.

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Two open PhD positions in Communication Strategies The Chairgroups ‘Communication Strategies’ and ‘Communication and Innovation Studies’ conduct research on the role of communication in individual and collective change processes in four life science domains, namely: Food and health; Nature, water and environment; Agriculture and land-use; and International development.

MSc graduates are invited to submit self-developed proposals for PhD research in any of the above fields but only two candidates will be selected to carry out their research as members of the sub-department Communication Science at Wageningen University. Applications can be sent to: Wageningen University, dep. Maatschappijwetenschappen, afd. HRM, F. Toxopeus, Hollandseweg 1, 6706 KN Wageningen, The Netherlands or via e-mail: fineke.toxopeus@wur.nl Additional information can be obtained from: Vera Mentzel, Tel: +31 (0)317483537, e-mail address: vera.mentzel@wur.nl

PAAP received this information from Catherine Kilelu, Wageningen University. She is gratefully acknowledged.

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Opportunities The following opportunities have been posted at the Association for African Agricultural Economists’ website: www.aaae-africa.org

2009 African Women in Agricultural Research and development (AWARD) fellowships: AWARD fellowships are open to women agricultural scientists from ten African countries. Details and application forms can be downloaded via: http://www.genderdiversity.cgiar.org/resource/award.asp. Alternatively, interested candidates may write to: awardfellows@cgiar.org to request a copy of the application forms. The deadline for all applications is 30th March 2009.

DSA Annual Conference: Contemporary Crises and New Opportunities, University of Ulster (Coleraine Campus), 2nd – 4th September 2009. The Call for Panel Concepts and Paper Abstracts for the DSA Annual Conference 2009 is now available at: http://www.devstud.org.uk/Conference_09/DSA-09-FinalCall.doc Deadline for receiving abstracts is 17 March, 2009. Email contact: conference@devstud.org.uk

PAAP received this information from Musa Omare, FORMAT . He is gratefully acknowledged.

Second call for papers

The organizers of the 2009 Conference of the African Econometric Society (AES) invite economists, econometricians, statisticians and other scientists to submit abstracts for presentation at the AES conference which will be held in Abuja, Nigeria, from 8-10 July, 2009. The abstract should be less than 400 words (approximately one page). Preceding the abstract, clearly state the title of the research paper, JEL classification numbers matching the research, the author(s) and corresponding author contact information (mailing address, phone, fax and email address). In the abstract, briefly describe the theoretical, statistical or econometric nature of the research question, the methodology and expected results and conclusions. Abstracts must be prepared in standard MS Word or Adobe Acrobat PDF format. At least one author of an accepted paper must pay the registration fee and attend the conference. The abstract is due March 31, 2009, and can be submitted electronically to aesprogramme@up.ac.za. Authors will be notified of the status of their paper by April 11, 2009. Authors whose abstracts are accepted must submit their full-length papers before June 12, 2009. For further enquiries regarding the 2009 Conference, kindly contact the Chairman of the Local Organizing Committee, Prof. Sam Olofin at director@cear-ng.org or soolofin@cear-ng.org (Tel: +234 802 346 3272).

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