factors influencing south-western uganda dairy farmers' choice of

Research Report Series

ISSN 0856-9681 Vol. I Issue No.

FACTORS INFLUENCING SOUTH-WESTERN UGANDA DAIRY FARMERS’ CHOICEOF THE MILK MARKETING CHANNEL: A CASE STUDY OF KIRIHURA DISTRICT-

SOUTH WESTERN UGANDA.By G. Y. Sikawa1 and J. Mugisha2

AbstractThis research investigated factors influencing dairy farmers’ choice of milk

marketing channel in Kirihura District, South-Western Uganda. It is an attempt toestablish factors which influence dairy farmers’ choice of the milk marketing channel inthe District. A structured questionnaire was used to collect data from dairy farmers. Thequestionnaire contained questions that brought out answers to milk prices, farm size,volume of milk produced, number of milking animals, marketing channels, andhousehold demographic characteristics. Also focus group discussions were used tocapture on activities in the milk chain.

Research findings indicate that, there was a significant difference in channelparticipation where informal marketing channel had more participants (73.3 percent)and formal marketing channel participants were fewer. The Heckman Probit Model wasused to identify the factors which influence dairy farmers’ choice of milk marketingchannel. The results from the model show that age of the dairy farmer (P≤0.05),membership in cooperative (P≤0.01), form of payment (P≤0.01), volume of milkproduced (P≤0.05), level of education of the dairy farmer (P≤0.1) and marketing costs(P≤0.01) greatly influenced the choice of milk marketing channel.

It is recommended to provide education to the dairy farmers on the importance ofselling milk to the formal channel; DDA should assure farmers of market for the milkespecially during the rainy season when milk volumes are huge. Ensure accessibility todairy farms by the means of roads construction and maintenance. Establishment of areacooperatives is highly recommended. It is from these associations where farmers learnnew ways of farming.

=======Key Words: milk marketing channel, The Heckman Probit Model, Dairy chain.

1. Introduction1.1 Background of the study

Dairying is one of the investment areas farmers can make to improve theirstandards of living. It is a developmental tool as it widens and sustains three major

1 Gideon. Y. Sikawa is a Lecturer in the Department of Management and Law at MoshiUniversity College of Co-operative and Business Studies (MUCCoBS). He was the 2011 FKParticipant hosted by Makerere University, Uganda.2 Prof. Mugisha was the Host Supervisor for the FK Participant (first author). Prof. Mugisha iscurrently Dean, School of Agricultural Sciences, Makerere University.



pathways out of poverty; securing the assets of the poor, improving smallholder andpastoral productivity, and increasing market participation by poor, contributes up to 80percent of agricultural gross domestic product in developing countries (InternationalLivestock Research Institute (ILRI, 2007), World Bank classifies livestock as a highvalue market that is fastest and its importance is expected to increase growingagricultural market in most developing countries (World Bank, 2008). In Uganda, thelivestock sector contributes 13.7 percent of agricultural GDP and 4 percent of thenational GDP (Ministry of Finance Planning and Economic Development (MFPED),2000). Dairy production plays a vital role in improving on people’s nutritional status,generating income to farmers and improving soil fertility through manure application(Nakiganda et al, 2006). It is also an important source of employment with manytraders, processors and retailers intervening in the market.

The dairy sector contributes about 50 percent of total output from the livestocksector, 20 percent of the food processing industry and 4.3 percent of the National GDP,and therefore acts as a source of food, income and employment (Ndambi et al., 2006).Milk provides relatively quick returns for small-scale livestock keepers (Polak et al,2008) and is a balanced nutritious food, (a key element in household food security)(ILRI, 2003).The national cattle population has experienced steady growth with about 34percent being dairy cattle. This has been attributed to the increasing demand byconsumers and milk processing plants, better herd management, adoption of improvedbreeds and improved animal health and support services (UBOS, 2006). Dairyproduction is based on two contrasting systems; wetter parts of the country especially inwestern Uganda with commercial dairy farms and, drier Eastern and Northern partswhere local Zebu cattle under traditional extensive management (Baltenweck et al.,2007). Exotic breeds kept include the Jersey, Holstein, Friesian, Guernsey, Ashyire andBrown Swiss (MAAIF, 2000).

1.2 Dairy chain in UgandaCurrently, Uganda produces 1.3 billion litres of milk per year, of which 30 percent

is consumed on the farm and 70 percent is marketed to consumers (Balikowa,2006).There are five main milk producing regions or milk sheds in Uganda and 80percent of the milk is produced in the southern (south-western milk shed) aloneaccounts for over 30 percent of the total milk production and therefore constitutes themajor source of marketable milk in the country. The average milk production per cowper day is quite low (less than 10 litres) that account for 93.3 percent and only 0.5percent cows produce 20 litres per day with Friesian cows being most productive.

Elepu (2006) and Balikowa (2003) observed that milk collection in Ugandaincludes direct pick up from the producers by agents, co-operative assembly andindividual supply (producers) deliver directly to pick up points. Majority of the milk iscollected and distributed through Milk Collection Centres which are owned by privatetraders. Balikowa (2003) noted that there are two milk collection systems; the formaland informal channels. The informal milk collection channel is characterized by lack ofmilk collection infrastructure, limited quality control and selling of milk on credit but insome cases cash is paid. The common means of transport at farm level is the bicycles.

In Uganda, milk processing is handled by over 10 private companies and over100 small scale processors (Elepu, 2006). The processing companies include Sameer



Agriculture and livestock limited, Jesa Farm Dairy, GBK Dairy products, White NileDairy, Birunga Dairy, Teso Fresh Dairy, Paramount Dairies Ltd, Alpha Dairy Productsand MADDO Dairies Ltd (DDA, 2008). The products processed by companies arecheese, cream, ice cream, yoghurt, cultured milk, butter and ghee. Balikowa (2003)found that on farm processing of milk is done at limited scale and approximately 9percent of farmers’ process milk into ghee mainly for home consumption while 2 percentmake other products particularly yoghurt and ghee and 89 percent do not make any milkproduct.

1.3 Problem StatementThe dairy industry remains a key livestock component with significant

contribution to food security and income in pastoral communities of Uganda (FAO,2008; ILRI, 2007). Dairy policies have been relaxed to allow market forces to determinefarm level prices. This has exposed farmers to lower milk prices while downstream retailprices are higher (Huff, 2003, Artukoglu et.al, 2008, Tsougiannis et al, 2008). This hasresulted into considerable mistrust among market chain actors in developing countries(Markus et al., 2008).

The noted significant increase in milk production and the growing demand islikely to drive productivity at farm level (Elepu, 2006). However, about 80 percent ofmarketed milk still passes through traditional informal marketing channels in spite ofhigh profile given to formal milk marketing channel (DDA, 2010). The growing middleclass income earners are likely to increase the demand for more formally processedproducts, which the informal market generally cannot deliver (Henriksen, 2009),because of this, the government of Uganda is advocating for formal milk marketingdirectly from farm level ( Dairy Development Authority (DDA, 2010).

With the establishment of the Dairy Development Authority (DDA) in 2000, thereare concerted efforts to integrate the informal sector with the formal sector in order toimprove on milk quality and safety. Following its mandate, DDA is involved inregistering, training, and licensing of milk traders nationwide. Milk traders are trained onnew milk marketing requirements such as maintenance of proper hygiene, milk cooling,cleanliness of the premise, and so forth. In order to enforce these new regulations, milktraders are regularly monitored by DDA in conjunction with Uganda National TradersAssociation (UNDATA). While the formal milk marketing has been advocated for, it hasemerged that only 20 percent of milk is sold to formal milk marketing channel. Thisaction by these farmers suggests that there are some more reasons why dairy farmersare not participating in the formal milk marketing rather they have continued servingtraditional informal marketing channels which include selling of raw milk through MilkCollection Centers, consumers and itinerate traders. Therefore, this study investigatedthe factors which influenced South-Western Uganda dairy farmers’ choice of the milkmarketing channel.

1.4 Objectives of the study1. To characterise dairy farmers participating in formal and informal milk

marketing channels.2. To determine factors that influence dairy farmers’ choice of milk marketing

channel.



3. To find out the constraints dairy farmers face when supplying milk toformal marketing channel.

1.5 Research Questions1. Why do some farmers sell milk in the formal market while others continue

to sell in the informal market?2. Which factors influence the choice of informal milk marketing channel?3. Which constraints farmers face when supplying milk to formal marketing

channel?

1.6 Justification of the StudyImproved performance of the dairy industry will only be meaningful if farm level

marketing strategies are efficient (MFPED, 2007). Therefore, the analysis of milkmarketing channel is essential for dairy development at micro level and in formulatingplans for improvement in the dairy sector through formulation of a proper marketingchannel and increased employment generation in agriculture, based on soundeconomic principles at macro level (Debnarayan and Bikash (2010). The study addressthe future directions in the streamlining the adoption of formal milk marketing channel byfarmers. The study results act as a working document for both the government andother stakeholders in addressing the constraints faced by dairy farmers participating informal milk marketing channel for them to benefit from current high demand of dairyproducts. For policy implementers like extension agents, study results put them in abetter position to enhance formal milk marketing channel after being enlightened withfactors that affect the channel participation. It therefore contributes towards design ofappropriate policies enabling development of dairy sector. The study also acts as asource of information to future researchers in the dairy industry.

2. Literature Review2.1 Milk Production in Uganda

Ugandan milk production is largely dominated by small-scale farmers who ownover 90 percent of the national cattle population (FAO 2004). In rural areas, where 96percent of poor Ugandans live (Okidi et al, 2004), up to about 60 percent of thehouseholds keep mostly indigenous cattle (NADDS; King 2002). By far, the majority ofmilk production systems in Uganda are characterized by (a) a ‘low input–low output’approach, (b) livestock is not an important source of cash, but a source of food, store ofwealth and status symbol, and (c) milk demand is increasing and driving more and moreof these dairy farms to intensify and often to diversify as to increase household returns.(Salasya et al, 2006).

The dairy sector is considered to be the most organized livestock sub-sector inUganda. Currently, the Dairy Development Authority (DDA) is charged with promotingproduction, competition and monitoring the markets for milk and dairy products. Toachieve this, DDA collaborates closely with multiple private sector organizationsoperating in Uganda (DDA. “Annual Report: 2003/2004)

Dairy farming is concentrated in 42 districts found in the cattle corridor, whichstretches from the south-western region through the central to the north-east. On



average 60 percent of the households in the cattle-producing region keep livestock.National milk production has experienced increase over the years, from an estimated655 million in 2010 to the current 1.9 billion litres. The national herd size is about 24million cattle of indigenous, exotic and crossbreeds (Salasya et al, 2006).

The growth in milk production has been attributed mainly to the growth in cattlepopulation rather than increased milk productivity per cow that is still being hindered bylow adoption of improved technologies and management practices (Elepu, 2006). Alarge proportion (over 80 percent) of the total milk produced comes from the local cattlebreeds which form a great majority (over 95 percent) of the national herd. On the otherhand, improved cattle breeds whose size is estimated to be less than 5 percent of thenational herd contributes about 16 percent of the total milk output.

The country’s total cost of milk production is dropping with increasing herd size,while dairy returns vary among farms from US$18 to $35 per 100 kg of milk. The dairyindustry contributes about 50 percent of total output from the livestock sector and playsan important role as a source of food, income and employment. Dairy farming is on theincrease in Uganda. In the last decade the number of smallholder dairy farms hasgreatly increased (Balikowa 2004). Scarcity of dietary animal protein, improvement inthe standard of living in the country as well as the first growing human population favourexpansion of the industry. Commercial dairy farming is a capital and labour intensivebusiness. Success requires a sound combination of business management, animalhusbandry knowledge and skills. In Uganda, the bulk of the milk produced is consumedwithin the country in form of loose milk and various dairy products and the surplusexported to neighbouring countries. However, Uganda still imports milk in various formsfrom neighbouring countries particularly Kenya and beyond.

2.2 Production of milk productsDomestic production of dairy products has also steadily increased overtime.

Dairy products include pasteurized milk, UHT milk, yoghurt, cream and ice-cream,cheese, cultured milk, butter and ghee. Of these dairy products, pasteurized milk formsthe bulk (about 80 percent) of processed milk. Key players in milk processing are ofdifferent sizes: small, medium, and large-scale (Dobson, W.D. and D.K. Combs, 2005).Currently, there are over ten major dairy processing plants operating in Uganda asshown in Table 1.

Table 1: Dairy Processing Companies in UgandaCompany Location Capacity

(‘000 litres/day)

Sameer Kampala 130GBK Mbarara 90Jesa Farm Dairy Busunju 20



Kaisa Fresh Milk Kamuli 10White Nile Dairies Jinja 10Birunga Dairy Kisoro 8Alpha Dairies Mbarara 50Gouda Gold Kampala 5MADDO Dairies Masaka 2Paramount Dairy Mbarara 3Teso Dairies Soroti 3

Source: DDA, 2004

There are over 100 small-scale dairy processors that process between 100 and500 litres of milk per day into yoghurt, ice-cream, cheese, ghee, boiled and cooled milk,and fermented or sour milk popularly known as “Bongo.” Further, there are over tenmedium and large-scale dairy processing plants operating in Uganda. However, alldairy processing plants are operating below their installed capacities (i.e. about 35percent of installed capacity), perhaps due the fact that most of the milk is sold in raw orunprocessed form (Salasya et al, 2006).

2.3 Milk marketing in UgandaThe current per capita consumption of milk is about 40 litres. This level of

consumption is far below the recommended rate by Food and Agriculture Organization(FAO) and World Health Organization (WHO) of 200 litres. Various reasons account forlow milk consumption in Uganda, namely: economic, social, and cultural factors(Thomson, 2006). The major market for milk is the urban population, which is only 12percent of the total population. Even among the urban dwellers, only a small fraction ofhouseholds can afford to buy milk regularly.

In a survey of 374 households in various parts of the country, over 70 percent ofthem said that low household income was the main reason for the limited consumptionof milk (LOL, 2001). Furthermore, the culture of milk consumption in Uganda isgenerally very poor. For example, there is a general consumer preference for wholemilk over dairy products. A number of initiatives are being implemented to increaseconsumption of milk and dairy products and build a strong local market. The DairyDevelopment Authority is liaising with the Ministries of Health, and of Education andSports to promote milk consumption in schools. Similar initiatives are being supportedby the private sector, particularly Non-governmental organizations such as Land O'Lakes (Marenya, P. and Barret. 2006).

Of the total milk produced annually, it is estimated that only 70 percent of it ismarketed and the other 30 percent is consumed on the farm. There are two marketingchannels for milk: informal and formal marketing channels. While 80-90 percent of themarketed milk is sold through the informal marketing channel as raw milk, the remaining10-20 percent is sold through the formal marketing channel as processed milk. In termsof market, all the milk passing through the informal marketing channel is sold to thedomestic market. On the other hand, 10 percent of the processed milk is exported to theregional markets such as Kenya, Democratic Republic of Congo and Rwanda (Salasyaet al, 2006).



Since the 1960s one of the most critical problems facing dairy farmers in Ugandahas been recognized as that of marketing their milk. This problem has been recognizedin the overall context of the importance of marketing considerations not only instimulating increased milk production but also in raising dairy farm incomes and livingstandards and improving the nutritional well-being of the population in rural as well asurban areas. Hence, in Uganda the development of milk marketing infrastructure hasbeen inextricably linked with the development of the dairy industry (Voors and Haese.M,2011)

Although Government dominated the early initiatives in organized milk marketingin Uganda, a few independent producer marketing groups were established. Notableamong the early groups established in the 1960s were Toro and Kigezi dairy co-operative societies. However, all the development initiatives in the dairy sector got asetback in the 1970s on account of civil disturbances and political instability. It was notuntil 1987 that a serious programme to reconstruct the national economy was put inplace. Accordingly, the Uganda Government prepared the National Rehabilitation andDevelopment Plan for the period 1986 - 1990 which was later extended to 1992(Tsourgiannis et al, 2008)

The Government programme was the basis for co-operation with manymultilateral external donor agencies in the development of the dairy sector in Uganda.To a very large extent, implementation of the programme was co-ordinated by theUNDP funded and FAO executed technical assistance project, UNDP/FAO DairyIndustry Development Project UGA/84/023 and follow-on UNDP/FAO Rural CommunityDairy Production and Marketing Project UGA/92/010.

Elepu (2006) and Balikowa (2003) noted informal channel accounts for 80percent -90 percent of the total milk trade in Uganda today. The trade in unprocessedmilk has had a tremendous impact in mopping surplus milk from dairy farmers and it isreported to have eliminated the outcry that used to be associated with the rainy season(MAAIF, 2004). Informal channel has become an important source of income to manypeople and a serious competitor to the formal milk channel (DDA, 2010), Marenya et.al,(2006), Mburu et al, (2007).

However, this channel has a lot of weaknesses which include: lack of facilities forpasteurization and hygienic handling of milk, adulteration of milk with water and otherchemicals, use of poor quality vessels in transportation of milk (for example jerry cans),boiling of milk in very unhygienic environments, lack credit, and difficult to monitor andsupervise quality standards. Formal milk marketing channel, on the other hand,operates an organized system of milk collection, using well-established bulking andtransport infrastructure (Fuller et al, 2004).

Milk coolers are set up in the countryside for milk collection by farmers, co-operative societies, or agents. Thereafter, chilled milk is transported in insulated milktankers to the factory where it is processed and packaged before marketing.

According to Elepu (2006), formal marketing channel has a lot of strengths thatinclude production and marketing of high quality milk and dairy products, increasedshelf life of milk and dairy products, credit development, easy monitoring, absorptionhuge amounts of milk and supervision of quality standards, supporting an organizedand elaborate nation-wide milk collection Tsougiannis et al. (2008) in the study ofmarketing strategies of agricultural producers in objective one Greek regions noted that



the choice of milk marketing channel especially processing plants channel waspositively influence by the volume of milk produced by the farmer per day. However,formal milk marketing channel also has some weaknesses which include large initialcapital outlay, few/ inadequate bulking centres, high processing, transport andpackaging costs, high prices of processed milk, low prices of raw milk, Vijay et al,(2009) and dairy product, obtaining milk from farmers on credit and delayed paymentsand credit transactions with consumers are absent. Steal et al, (2006), farmers’ choiceof the marketing channel is positively influenced by form of payments that is cash ormonthly payments.

2.4 Marketing channels for milk and dairy productsAccording to Gundlack (2006), the very earliest formal conceptions of marketing

channels focusing on the functions performed by a distribution system and theassociated utility of these functions and the overall system. Reflecting their presence inindustrial and transitional economies, marketing channels gradually came to be viewedas a set of interdependent organizations involved in the process of making a product orservice available for use or consumption (Coughlin et al, 2001). This institutionaloriented perspective draws attention to those members (e.g. wholesalers, distributors,retailers, etc.) comprising the distribution system and engaged in the delivery of goodsand services from the point of conception to the point of consumption (Anderson andCoughlan, 2002).

Leigh et al. (2003) noted that dairy farmers market their milk in raw or processedform. Profit potentials exist for producers serving niche markets via small scaleprocessing ventures. Mburu et al .(2007) in their study of determinants of smallholderfarmers’ adoption of various milk marketing channels in Kenya found out that farmersmarket their milk through itinerant traders(hawkers, neighbours and hotels) and dairyco-operatives. However, the majority farmers adopted co-operatives. This was becauseco-operatives acted as source of production information, and credit services to farmers.Otieno et al, (2009), the use of market information generated by certain marketing,increases the output sales of the farmer in market and therefore more willingness toparticipate in a channel.

Tsougiannis et al. (2008), in the study of marketing strategies of agriculturalproducers in objective one Greek regions whose aim was to examine the factorsaffecting the selection of marketing channels of sheep and goat producers in the regionof east Macedonia and Thrace in Greece relative to the distribution of their livestock andmilk produce. The survey concluded that farmers sold milk through local privateprocessing plants, co-operative processing plants, national or regional dairies and ownconsumption.

Artukoglu, and Olgum (2008), in their study of co-operative tendencies andalternative milk marketing channels whose aim were to determine the cooperation ofmilk producers and to analyze the milk marketing structure in Turkey. It was noted thatdairy farmers marketed their milk through five channels; milk processing factories, smallscale milk processing plants, milk processing co-operatives, milk collection cooperativesand street sellers.

2.5 Determinants of market channel choice.



Since 1990s, milk and dairy products’ markets in Uganda have been liberalised,this has put the product market price into hands of market forces and therefore freeparticipation of private sector and also increased marketing standards and regulationsof dairy products (Wozemba and Nsanja, 2008).Milk marketing in Uganda is to folded,that is the formal and informal milk marketing (Elepiu, 2003). The formal milk marketingis characterised by organised distribution structure, established infrastructures andhygienic handling practices where milk reaches the final consumer in processed form(Ghee, ice cream. UHT, Yoghurt) while informal milk marketing channels (sell raw milkto consumers directly, co. operative milk marketing and itinerate traders) whichinvolving selling raw milk to consumers that is inefficiently handled by dirty handlingmaterials such as plastic containers, adulterations and poor quality preservationpractices(Elepu,2006). However irrespective of high profile given to the formal milkmarketing channel, majority farmers have ignored participating in the formal marketsdue to demographic, economical and dairy farm characteristic factors as they areexplained below.

2.5.1 Educational levelEducation has a significant positive influence on market participation (Fuller

et.al,2004) Education level is measured in numbers years a person spends in the formaleducational institution ( Ndinomupya.M, 2008).Education enhances managerialcompetencies and successful implementation of improved production, processing andmarketing practices(Marenya and Barret,2006, this makes it possible for farmers to takenew agricultural innovations. This because, the more the education level achieved thehigher the chances of adopting a new marketing channel due to new knowledgeexposure. Therefore education is statistically significant in the choice of modern milkchannels (Cooperative and private dairy plants) (Vijay et al.2009).

2.5.2 Sales’ priceNdinomupya. M (2008) in the study of determinants of sustainable coffee

marketing channel choice and supply response and UTZ certified smaller holderfarmers: Evidence from Uganda, defined Price as a reward offered by the market to thesupplier of the goods and services. Artukoglu et.al. (2008),Tsougiannis et al.(2008)noted that the choice of the marketing channel by dairy farmers heavily depended onthe price offered by that channel. Marketing channels that offered price premiums tofarmers received lot milk compared to those channels which were offering low prices.This is because additional Ugandan shillings will increase farmers’ propensity toparticipate in the marketing channel (Qi Wen’e and Tang Wenshan, 2009).Price is animportant impediment to market entry as well as adoption of improvedtechnologies(Vijay et al,2009).The lower the price, the greater price risk. This tend toincrease farmers shift to channels which are transparent and offer stable price(co-operatives and organised private dairies) compared to traditional channel were playersoffer prices depending on the production season that is high price during lean and lowin flush seasons or sometimes disappear from the market.



2.5.3 Marketing costsAccording to Manyong et al,(2008) in the study of effects of transaction costs on

market participation which included marketing costs like transport, market fees andlicense indeed had significant negative effect on farmers’ market participations of maizesupply and fertilizer demand. More so Artukoglu et al. (2008) in the study of cooperativetendencies and alternative milk marketing channels noted that the higher the transportcost incurred by dairy farmers, the less the interest of participation in the channel. Hightransport costs are associated with long distance that significantly reduces thepercentage of milk supplied to the marketing channel (Otieno et al. 2009) because theyreduce farmers’ gross margins earned. However institutional innovations such as groupmarketing can mitigate the costs of accessing markets (Manyong et al, (2008).

2.5.4 Source of market informationThe intensity of advertisements and the extent of farmer exposure to market

information positively influence market participation. Marketing channel that havestreamlined structure of market information flow encourage customer participation(Fuller et al, 2004). Awudu et al., (2009) in his study of milk marketing channel choicefound that dairy farmers sold their milk depending on the source of market information.This is due to the fact that use of market information generated by certain marketingincreases the output sales of the farmer in market and therefore more willingness toparticipate in a such channel (Otieno et al, (2009).

2.5.5 Volume of milk producedAccording to Vijay et al, (2009) noted that both modern private dairy plants and

traditional channels prefer suppliers from large farmers who can supply large quantitiesof milk. Tsougiannis et al. (2008) in the study of marketing strategies of agriculturalproducers in objective one Greek regions noted that the choice of milk marketing thechannel especially processing plants channel was positively influenced by the volume ofmilk produced by the farmer per day. This is because of reduced costs on the sides ofprocessors particularly transport and quality milk production since large volumes of milkare produced by big farmers that have access to veterinary services (Vijay et al. 2009).

2.5.6 Number of animals keptVijay et al. (2009) and Tsougiannis et al. (2008) noted herd size as a significant

determinant in market channel participation in modern market channels. In case oforganized private market channel, there is appositive impact of herd size on marketparticipation as the herd size increases, farmers’ shift suppliers to organized privatedairy channels. This is because large producers get price incentives/ high price becauseof high bargaining power as well as lower transaction costs. The number of animalskept by the farmer determines the total production costs and therefore influencing theamount of working capital needed on the farm this forces farmers with a large herd sizeto prefer supplying their milk to channels that handle big volumes and pay the wholelump sum milk revenues for continuity running of dairying operations. However Vijay etal, (2009) noted for the case of cooperative channel choice, herd size hard a negativeimpact. This because increase in the herd size which eventually leads to an increase in



milk volumes that cause to farmers’ shift from cooperative to other channels. This isbecause farmers in cooperatives receive the same price (no price incentive) irrespectiveof quantity of milk supplied by individual farmers.

2.5.7 Non-dairying farmers’ incomeThis represents income accruing to the household from the sale of other

enterprises (other sources) other than dariying. Income from other sources acts as asource of capital for farmers to purchase the necessary inputs to meet the channelrequirements through production good quality and large quantity of marketable products(Marenya et.al, 2006). Mburu et al,(2007), in their study of determinants of smallholderfarmers’ adoption of various milk marketing channels in Kenya noted revealed thatfarmers’ choice of cooperatives channel was positively influenced by farmers’ income.

2.5.8 Membership in farmer marketing organizationMburu et al.,(2007), in their study of determinants of smallholder farmers’

adoption of various milk marketing channels in Kenya noted that groups are seen asconceptualized and framed to operate as profitable milk market units where smallfarmers organize themselves in collecting, processing, marketing of milk and valueadded products. The study results revealed that farmers’ choice of the marketingchannel was influenced by presence of dairy cooperatives and membership to farmers’organization. Vijay et al. (2009) noted that membership of farmers’ group significantlydetermines smallholder dairy producers’ participation in modern markets. This becauseof strong relationship known that collective action enables small farmers to attainbargaining power, economies of scale and reduced transaction costs. Furthermorefarmer organizations such as cooperatives are very vital in market adoption andparticipation because they enable farmers to make necessary investments in order toquality of produce, access financial resources, farming practice education andmarketing information that enable to venture into new innovations(Ndinomupya.M,2008).

2.5.9 Household sizeKassie et al, (2008) noted that, big household size is an indicator of labour

availability that positively influence adoption given the costs attached to newtechnologies that the resource poor households cannot afford. Ndinomupya.M. (2010)underlines the importance of labour in the availability of farm households to increase theamount of produce. Staal et al., (2006) found out that farmers’ choice of the marketingchannel was positively influenced by household size. The study results revealed thathigher the number of adults in the household, the more the likely that private traderchannel or co-operative/private processor channel will be selected than individualcustomers. Given that sales to individual customers may require high transaction costs,the rationale behind may reflect the scale of production.

2.5.10 Form of paymentsAccording to Steal et al, (2006), dairy farmers sell their milk on cash or credit

payment arrangements. In the study of analysis of determinant farmers’ choice of milkmarketing channel, it was found out that farmers’ choice of the marketing channel was



positively influenced by form of payments that is cash or monthly payments. The studyrevealed that households were less likely to select channels that paid cash or took milkon informal credit compared to channels that offered monthly payments or providedformalized credit terms (written contracts) which were more likely to be selected.

3. Methodology3.1 Description of the study area

The study was carried out in Kiruhura district, south western Uganda. The districtis located in the cattle corridor of Uganda and experiences two different seasons everyyear that is wet and dry season. Kiruhura is bordered by Rakai district in East,Sembabule district in northeast, Kyenjojo in North, Mbarara district in west and Isingirodistrict in East. Its population is estimated at 271200 people. The vegetation cover issavannah grassland with shrubs. The economic activity in the district is cattle rearingwith mainly Ankole cattle, Hybrid (mixture of exotic and Ankole) and Boer goats. Thedistrict produces approximately 100,000 litres of milk per day. The reason for theselection of Kiruhura district is because of being a major supplier of milk in Uganda withthe highest number of farmers depending on dairying as their economic activity.

3.2 Research designA formal cross-sectional survey was carried to collect primary data from dairy

farmers in four sub counties involved in dairy farming in the study area. A structuredquestionnaire was used after being pre-tested and was administered through directinterviews among selected sample farmers.

3.3 Sampling methodA multi-stage sampling technique based on sub-counties and parish was

adopted. A list of possible dairy farmers was compiled with the assistance of districtcouncilor supported by his assistants. The list comprised of dairy farmers from foursub-counties namely; Kenshonga, Kinoni, Kikatsi and Rwemikoma. These four sub-counties were purposively selected because they had many farmers dealing with dairyactivities. From four selected sub counties, lists of dairy farmers who sold milk to formaland informal channels were obtained. In Kenshonga, 36 dairy farmers were randomlyselected, out of these, 34 were selling milk in the formal channel. In Kinoni, 96 dairyfarmers were randomly selected, 12 famers were selling milk to formal channel whilethe rest were selling to informal channel. In Kikatsi, 62 dairy farmers were randomlyselected; only 9 farmers were selling milk to formal channel. In Rwemikoma, 38 dairyfarmers were selected, 7 farmers were selling milk to formal channel and the rest ininformal marketing channel. Thus, 62 dairy farmers were selling milk to formalmarketing channel while 170 farmers were selling in the informal channel; making atotal sample size used in the study 232 dairy farmers.

3.4 Methods of data collectionStructured questionnaire was used to collect data from dairy farmers. This tool

was pre-tested to improve on its validity and reliability. The questionnaire borequestions that brought out answers to milk prices, farm size, volume of milk produced,number of milking animals, marketing channels, and household demographic



characteristics. Also focus group discussion was used to capture on activities in the milkchain.

3.5 Data analysisData were edited, coded, entered in the computer and cleaned to ensure

accuracy, consistency, uniformity and completeness. Heckman Probit model was usedto determine farmers’ milk marketing channel choice. Statistical Package for SocialSciences (SPSS) was used to generate descriptive statistics. STATA was used forregression analysis. Results were presented by the use of means, percentages, P-values, tables and figures.

4. Results and Discussion4.1 Overview

This chapter presents findings obtained through various research data collectiontechniques. A detailed presentation of Socio-economic characteristics of dairy farmers,discussion of factors influencing dairy farmers’ choice of milk marketing channel,elucidation of formal marketing constraints facing dairy farmers and level of dairyfarmers’ participation in each channel are presented here. In this chapter, researchfindings are presented by the use of tables, pie charts, drawings and other datapresentation methods.

4.1.1 Socio-Economic Characteristics of Respondents.The intention here was to show the background information of the dairy farmers.

Factor analysis was used to categorize dairy farmers into formal and informal channels.The background of the respondents was obtained through questionnaires. Dairy farmerswere categorized into formal and informal participants of the two channels. Thecharacteristics considered include age, education, house hold size, annual dairyincome, annual non diary income, volume of milk produced per month, total herd size,total land in hectares as shown in Table 4.1.

Table 4.1: Socio-Economic Characteristics of Dairy Farmers in Kirihura.

Characteristics

of farmer

OverallSamplen=198

Formal Channeln= 62

Informal Channeln=170

Mean SD Mean SD

Age 47 48.5 13.8 47.0 11.9Education 6.0 7.4 2.9 4.4 4. 8Household size 8.6 8.6 4.6 8.6 4.5Annual diaryincome(000UShs) 13219 10659 12471.3 14155 456.787Annual non diaryincome(000UShs) 3032.4 3855.1 13115.9 2729.600 112.084



Total land size(heaters) 108.8 113.9 162.1 106.9 224.5Herd size 96.1 132.0 277.8 83.0 79.8Total milk produceper month (litres) 3353.9394 3810.566 4028.045 3187.034 2528.554SD Refers to Standard Deviation.

Study findings showed that on average, age of the farmer was 47 years. Thoughnot significant, dairy farmers who were selling milk in formal channel were slightly older(48 years of age) than informal participants (47 years of age) Table 4.2. This maymean that, the older farmers had a long term experience in dealing with both channelsand had found out that formal marketing channel is more profitable to them. This maybe true as far as experience is concerned. A farmer might had participated in bothchannels at different times and decided to resort on a certain channel after having madecomparative analysis based on benefits and losses associated with each channel. Thisstudy commensurate with the findings of Boughton, 2007 who reported an increase inthe proportion of formal milk marketing channel participants with age

There was a significant difference in the level of education among the dairyfarmers. The average number of years of formal education of the household headacross the sample was 6 years. The formal marketing channel participants had moreyears of formal education (7 years) compared to the informal marketing channelparticipants (4) years. Education was seen a vital component in assisting farmers tomake more informed decisions like joining the Cooperatives where they could get goodprices for their produce. Formal marketing farmers seemed to be very connected withCooperatives in the sample area. Though the payment for their milk was delayed for 15days, they supplied milk in large quantities and this is an indication that the formalmarketing channel is more reliable than informal. This study is consistent withDebnarayan and Bikash 2010 who found out that the more educated dairy farmerswere, the more they joined cooperative Societies in West Bangel.

With respect to household size, the study findings indicated that there was nodifference between dairy farmers in formal marketing channel and those in informalmarketing channel (Table 4.2). The average household size was 8 members, with aboutan average of 65 percent of adult members. This number is an indication that pastoralsocieties almost share the similar family planning characteristics and they (pastoralsocieties) are equally characterized with extended families.

Household size comprised of family members and 20 percent of hired labourwhich is used to supplement family labour. Hired labour was more common in theformal marketing channel families. In their study findings, Elepu (2006); Balikowa (2003)observed that household size could be a good determinant of the volume of milkconsumed at home but cannot determine the choice of a marketing channel.

The research results also showed that, the average of 108.8 ha land size wascommitted to dairy farming with farmers in formal channel accessing significantly largedairy farming land size (113.9 hectares) compared to the informal marketing channelfarmers (106.9 hectares). About 78 percent of total land belonging to formal marketingchannel participants was committed to dairy farming while informal marketing channelparticipants committed about 45 percent of land to dairy farming and the rest percent



was committed to Matooke and Cassava. The formal marketing channel participantsallocated the big land (about 42 percent) to modern dairy farming (cross breeding) andthe rest percent was dedicated to traditional Ankole cattle. This may be attributed to thebenefits these farmers have been accruing from dairy activities. In their study findingson factors influencing southern Uganda Dairy Farmers’ choice of the milk marketingchannel, Misra, Carley, and Fletcher,1993 reported that formal marketing channelparticipants dedicated a big land to dairy activities.

In terms of herd size, on average the number of herd was 96. There washowever, a significant difference in the herd size among formal and informal dairyfarmers. Formal dairy farmers had more cattle (132 herd size) compared to theircounterparts (83 herd size). This difference may also be a reflection of land size ownedby the two groups (formal and informal) because it is very likely to keep more cows if afarmer has more land and vice versa. This difference in herd size could also beattributed to the size of land committed to non dairy activities.

Moreover, study findings indicated that dairy farmers who participated in informalmarketing channel significantly had more annual income on average (Ushs.14155)compared to dairy farmers who participated in formal marketing channel (Ushs.10659).This income difference may be attributed to the price of milk per litre offered by informalmilk marketing channel. Also there is a possibility that dairy farmers in informal channelobtained more income from selling cows and this can be evidenced by the low numberof herd size they had during the study when compared to the dairy farmers in formalmarketing channel. This finding is consistent with the results of Misra et al, (1993) whoreported significant difference in income between dairy farmers who sold milk in formaland informal marketing channels with informal participants having more income thantheir counterparts.

Research results indicated that on average, the total amount of milk producedper month was 3353.9 liters. It further indicated the significant difference in the amountof milk produced by the two groups with formal marketing channel farmers producingmore milk (3810.6 liters) compared to their counterparts (3187.0 liters) per month. Thisdifference may be attributed to not only the size of herd but also the practice of moderndairy farming system by formal marketing channel farmers. This may be a convincingargument based on the fact that, modern dairy farming system in which farmers keepbreeds like Friesian and Jersey could lead to production of more liters per cowcompared to the traditional dairy farming system in which local cattle are kept andproduce very fewer litres of milk per cow.

Most of the dairy farmers were male (92.2 percent). This may indicate that, eithermale engage in dairy farming than female or in many visited households, men were theones who responded to the questions and thus reducing the number of femalerespondents. Out of the total population (n=232), 214 respondents were male only 18respondents were female (Table 4.2).

4.2 Level of participation of dairy farmers in each marketing channelResearch findings showed that, there was a significant difference in channel

participation where informal marketing channel had more participants (73.3 percent)and formal marketing channel participants were fewer (26.7 percent) Fig. 4.1.



This difference in channel choice was attributed to a number of factors such asprice level of each channel, transport cost, payment period and volume of milkproduced. All these factors greatly affected farmers choice of a milk marketing channelas a farmer would wish to maximise profit for his/her produce. Also research findingsindicated that, many farmers prefered informal channel because no transport costs wereinvolved as buyer collected milk right from the farm gate. They moreover reported that,it was possible for dairy farmers to get advance payments in informal milk marketingchannel contrary to the formal marketing channel where there were no advancepayments and milk was bought on credit. This finding is consistent with the results ofElepu (2006); Balikowa (2003) who reported that only 20 percent of the sampled dairyfarmers sold milk to the formal channel whereas 80 percent sold to informal marketingchannel.

4.3: Constraints dairy farmers face when supplying milk to formal marketingchannelResearch findings indicated that delayed payments was the biggest constraint

faced farmers among others (Table 4.3). Out of 162 respondents who made an accounton constraints associated with formal channel, 29.6 percent reported that formalmarketing channel buys milk on credit and it delays payments for 15 days to one month(Table 4.3). They added that, sometimes it can even take a credit period of two months.Farmers reported that delayed payments are intolerable to them as they need cash onsale so as to meet daily financial obligations. Moreover, farmers submitted that nointerest is provided to compensate theses payment delays. They argued formal channelto reckon the period in which their payments are delayed and look for the possibilities ofinterest. This research finding is consistent with the results of Steal et al (2006) whoreported that households were likely to select channels that paid cash.

According to the research findings, low prices for the milk seemed to be anotherserious constraint of formal marketing channel. About 22.2 percent of respondentssubmitted that, prices offered by formal channel are very low. Farmers further presented



that, this level of price places them in a difficult situation because revenues they get aspayments for their milk cannot cater for the production costs incurred. It seems formalmilk marketing channel is not well prepared to offer dairy farmers prices that areproportion to the quality and quantity of milk they are supplied with. This situation putsdairy farmers in a market place where only prevailing marketing forces decide the pricesfor their (farmers) milk. This research finding is in line with the results of Artukoglu et.al(2008), Tsougiannis et al (2008) who noted that the choice of the marketing channel bydairy farmers heavily depended on the price offered by that channel.

It was also found that formal marketing channel was incapable of absorbing hugeamounts of milk especially during rainy season. Out of 162 respondents who made anaccount on constraints associated with formal channel, about 12.3 percent of dairyfarmers reported that farmers produce huge volumes of milk during the rainy seasondue to the availability of animal feeds but they suffer from lack of market for the milk asformal marketing channel fails to absorb all the milk. They added that, absorption failureby formal marketing channel led to spoilage of many litres of milk, hence loss to thefarmers. This situation suggests that formal marketing channel lacks enough equipmentto handle huge volumes of milk at a certain period in time and hence unreliability of thechannel. Lack of advance payments was reported to be another constraint of formalmilk marketing channel. 13 percent of farmers said that formal milk marketing channeldid not provide advance payments whenever they sold milk to. Farmers viewed this as aserious constraint because they failed to meet emergent problems that called forimmediate finances. Some farmers said they had to sell their milk to informal channelwhere they were assured of getting cash money and sometimes advance paymentswhenever a need arose. This again symbolises formal marketing channelunpreparedness to meet dairy farmers’ emergent needs. The fact that life is neverstraight forward, formal channel has to be well concerned with farmers’ needs wheneverpossible. This could attract many farmers into formal marketing channel participation.

Furthermore, research findings indicated that transport costs constrained farmersfrom sufficiently and effectively supplying milk to formal marketing channel. It wasfound that (10.5 percent) respondents faced a serious transport problem. These farmersrelied heavily on bicycles which they hired. They moreover reported that, this kind oftransport was not reliable and could only carry few liters at a time. Farmers added that,the bicycle transport suffered from lack of integrity as drivers stole milk on their way tothe market. They also presented that, bicycle transport led to high level of dilution ofmilk by bicycle drivers. The other forms of transport like vehicles were very expensive.This study is in line with Artukoglu et al. (2008) in the study of cooperative tendenciesand alternative milk marketing channels noted that the higher the transport cost incurredby dairy farmers, the less the interest of participation in the channel.

Other reported constraint of formal milk marketing channel was price fluctuationswhere 5.5 percent of dairy farmers said milk prices were not constant over a period oftime. They reported that during rainy season when there were huge volumes of milk,price per litre of milk ranged from UGX 250 to300 whereas prices increased from UGX400 to 600 during the dry season due to low volumes of milk. This shows that formalmilk marketing channel is not consistent in prices and its prices decisions aredetermined by milk volumes at a particular point in time. Artukoglu et.al.



(2008),Tsougiannis et al.(2008) noted that the choice of the marketing channel by dairyfarmers heavily depended on the price offered by that channel.

Other dairy farmers (3.1 percent) said that they experienced mistreatment byprocessors. They presented that they were not cared for as suppliers. This means that,there was no good supplier-customer relationship and this could easily make farmersshift to informal marketing channel. Reporters added that processors refused their milkarguing that it was of low quality. Some respondents (1.2 percent) presented that theywere constrained by the lack of manpower to transport milk to the market. They saidthat formal marketing channels were located far away from the dairy farms and they didnot come for milk collection at the farm. The table below shows the percentage forconstraint.

Table 4.3: Constraints associated with formal marketing channel.

Constraints percentage of farmers (n=162)Mistreatment of farmers by processors 3.1Lack of manpower to transport milk 1.2High transport costs 10.5Milk adulteration 2.5No advance payments 13Failure to buy all the milk during rainy season leading to spoilage 12.3Price fluctuations 5.5Delayed payments 29.6Low prices 22.2Total 100

4.4: Factors influencing farmers’ choice/participation in milk marketing channelThe Heckman Probit Model was used to identify the factors which influenced

dairy farmers’ choice of milk marketing channel. The results from the model showed thatthe age of the farmer, mode of payment, membership in cooperatives, amount of milksold, education of the farmer and marketing costs significantly influenced farmers’choice of milk marketing channel. (Table 4.3).

4.4.1: Age of household headHousehold age had a significant influence (P≤0.05) on the choice of the

marketing channel. This implies that, the older the household head become, the morethe chances of shifting from modern marketing channel to traditional channel than theircounterparts. The reasons for this shift may be inability by old farmers to cope withmodernized methods of keeping and transporting milk, inability to understandtransactions, inability to physically reach the formal channel and lack of trust to milktransporting manpower. These reasons can render the selling of milk at the farm gateby old farmers imperative. The younger farmers are more inclined with the formalmarketing channel as they are able to cope with its demands. This research findingsupports the results of Vijay et al, (2009) who noted that, household head age is



negatively related to participation of an old farmer in modern channels and statisticallysignificant in private dairy channels. This is because a one year increase in age ispredicted to raise the probability of being in the traditional channel and reduces thechances of being in other channels.

Table 4.4 Factors which influence farmers’ choice of the milk marketing channelCharacteristic of the farmer Coefficient P-valueAge of the farmer* -0.016 0.055Education of the farmer* -0.0427 0.098Total land owned by farmer -0.0005 0.361Source of market information -0.0503 0.440Annual non-dairy income 0.1853 0.349Mode of Payment *** -1.981 0.000If farmer belongs to a cooperative*** 1.1552 0.000Amount of milk sold** 0.00008 0.036

Number of Observations= 232; Pseudo R2 =0.246; Prob>chi2 = 0.0000;Log Likelihood = -118.70Note: *, ** and *** denote significance at 10 percent, 5 percent and 1 percent respectively.

4.4.2 Marketing costsMarketing costs significantly influenced the choice of milk marketing channel

(P≤0.01) and were higher with formal channel [UGX 78097 (118063)] than informal[UGX 35086 (96023)]. Due to these variations, transport is one of the deciding factors inchoosing the market channel as reported by the sampled farmers. Transport costs areassociated with the distance that a farmer has to take his/her milk through. The longerthe distance, the higher the transportation costs. This situation therefore renderedfarmers’ consideration of distance to the market imperative when choosing milkmarketing channel. The channel which is associated with higher transport costs is notpreferred as it reduces farmers’ gross margins. This research finding is consistent withthe results of Otieno et al, (2009) who reported that high transport costs wereassociated with long distance that significantly reduced the percentage of milk suppliedto the marketing channel because they reduced farmers’ gross margins earned. Moreso Artukoglu et al. (2008) in the study of cooperative tendencies and alternative milkmarketing channels noted that the higher the transport cost incurred by dairy farmers,the less the interest of participation in the channel. This finding is not in line with theresults of Manyong et al, (2008) who reported that marketing costs like transport,market fees and license indeed had significant negative effect on farmers’ marketparticipations of maize supply and fertilizer demand.

4.4.3 Volume of milk producedThe amount of milk produced by the farmer significantly influenced the choice of

milk marketing channel (P≤0.05). This implies that farmers who produce huge volumesof milk prefer selling their milk to the channel which is capable of absorbing the allamounts of milk at a go and this was reported to be common with formal marketingchannel. Contrarily, dairy farmers who produce fewer liters of milk could simply sell to



vendors at the gate to avoid transport costs, sampled farmers reported. Huge volumesof milk can also justify the transport costs incurred by the farmer because it is rational totransport 1000 liters of milk to processors at a ago than transporting 12 liters. Thisresearch finding corresponds to the results of Vijay et al, (2009) who noted that bothmodern private dairy plants and traditional channels prefer suppliers from large farmerswho can supply large quantities of milk. Similarly, Tsougiannis et al, (2008) in the studyof marketing strategies of agricultural producers in objective one Greek regions notedthat, the choice of milk marketing channel especially processing plants channel waspositively influenced by the volume of milk produced by the farmer per day.

4.4.4 Form of paymentsFarmers’ choice of the milk marketing channel was positively influenced by the

form of payments (P≤0.01) (that is cash or monthly payments). Cash payment isimportant to the farmers as it helps them meet urgent financial obligations. Availability ofmarket for the milk in the evening was reported to be important to the farmers as theycould milk their cows twice a day and increase revenues. These two market featureswere found common in informal marketing channel. Credit arrangements make farmersfeel financially unsecure particularly when the channel does not provide them withadvanced payments. This research finding does not support the results of Steal et al,(2006) who revealed that households were less likely to select channels that paid cashor took milk on informal credit compared to channels that offered monthly payments orprovided formalized credit terms (written contracts) which were more likely to beselected.

4.4.5 Membership in farmer marketing organizationFarmers’ membership in cooperatives had a positive and significant (P≤0.01)

influence on the farmer’s choice of milk marketing channel. Group membershippromotes unity and a sense of belongingness. It also enables members of the group toshare information and collectively cope with market related constraints. Also collectiveaction enables them attain bargaining power, economies of scale and reducedtransaction costs. This research finding relates to the results of Mburu et al, (2007) intheir study of determinants of smallholder farmers’ adoption of various milk marketingchannels in Kenya noted that, groups were seen as conceptualized and framed tooperate as profitable milk market units where small farmers organize themselves incollecting, processing, marketing of milk and value added products. As such, Vijay etal. (2009) noted that membership of farmers’ group significantly determines smallholderdairy producers’ participation in modern markets. Similarly, Ndinomupya. M, (2008)found that farmer organizations such as cooperatives are very vital in market adoptionand participation because they enable farmers to make necessary investments in orderto attain quality of produce, access financial resources, farming practice education andmarketing information that enable to venture into new innovations.

4.4.6 Educational levelEducation had an influence (P≤0.1) on the choice of milk marketing channel. The

more the education level achieved, the higher the chances of adopting a new marketingchannel due to new knowledge exposure. The formal marketing channel participants



had more years of formal education (7 years) compared to the informal marketingchannel participants (4) years. This shows that education plays an important role in thechannel choice. Educated farmers are likely to be more inclined to formal milk marketingchannel in which formal marketing procedures are practised. The less educated farmersare likely to associate with informal marketing channel. This may mean that lesseducated farmers are not well informed of the benefits they could possibly accrue fromthe formal milk marketing channel. This research finding is consistent with Vijay et al,(2009) who reported that education was statistically significant in the choice of modernmilk channels (Cooperative and private dairy plants).

Sales price had no influenced on the choice of milk marketing channel. Therewas no difference in price between formal marketing channel (UGX 367/litre withstandard deviation of 63.47) and informal marketing channel (UGX 365/litre withstandard deviation of 240.36). The choice of the milk marketing channel was ratherinfluenced by model of payment particularly cash payment for the milk sold by thefarmers, an ability for the market to buy milk twice a day (in the morning and evening)because this assured farmers of market for their milk and thus being able to milk theircows twice a day. This kind of milk marketing was common with informal channel.

Sampled farmers reported that, market for the milk was available only in themorning as in the evening they could close the factory until the next day. This situationdid not provide the market for the evening milk and it followed that, those who wereselling milk to formal channel did not milk their cows in the evening as they could neithersell nor store it. This again led to the loss of revenue by these farmers which couldaccrue from evening volumes of milk. Therefore, no matter the price a channel couldoffer, farmers could not entirely rely on it but on other crucial factors. This researchfinding is opposite with Artukoglu et al, (2008) and Tsougiannis et al, (2008) who notedthat the choice of the marketing channel by dairy farmers heavily depended on the priceoffered by that channel. Also Vijay et al, 2009 found that, price is an importantimpediment to market entry as well as adoption of improved technologies. Other factorsthat had no influence on the choice of milk marketing channel were source ofinformation, non-diary income, household size, total land owned by the farmer, numberof animals kept and farm size.

5. Summary, Conclusions and Recommendations5.1 Summary and Conclusions

The study was carried out in Kiruhura district, south western Uganda. The districtis located in the cattle corridor of Uganda and experiences two different seasons everyyear that is wet and dry. Kiruhura is bordered by Rakai district in East, Sembabuledistrict in northeast, Kyenjojo in North, Mbarara district in west and Isingiro district inEast. Its population is estimated at 271200 people. The district produces approximately100,000 litres of milk per day. The reason for the selection of Kiruhura district wasbecause of being a major supplier of milk in Uganda with the highest number of farmersdepending on dairying as their economic activity.

The objectives of the study were to characterise dairy farmers participating informal and informal milk marketing channels, determine factors that influence dairyfarmers’ choice of milk marketing channel and find out the constraints dairy farmers facewhen supplying milk to formal marketing channel. Random sampling method was used



to select dairy farmers who participated in the study. A formal cross-sectional surveywas carried to collect primary data from dairy farmers in four sub counties involved indairy farming in the study area. A structured questionnaire was used after being pre-tested and was administered through direct interviews among selected 232 samplefarmers. Descriptive statistics were generated and used to compare socio-economiccharacteristics of dairy farmers in formal and informal channels.

Study findings showed that dairy farmers were mainly male (92.9 percent). Onaverage, dairy farmers who were participating in formal milk marketing channel wereslightly older (48.5 years of age) than those who were in informal channel (47 years).Research findings showed that, there was a significant difference in channelparticipation where informal marketing channel had more participants (73.2 percent)and formal marketing channel participants were fewer (26.8 percent). Research resultsrevealed a number of constraints faced dairy farmers who participated in formalmarketing channel namely; mistreatment of farmers by processors, lack of manpower totransport milk, high transport costs, milk adulteration, lack of advance payments, failureto buy all the milk during rainy season leading to spoilage, price fluctuations, delayedpayments and low prices.

The Heckman probit analysis model results showed that age of the dairy farmer(P≤0.05), membership in cooperative (P≤0.01), form of payment (P≤0.01), volume ofmilk produced (P≤0.05), level of education of the dairy farmer (P≤0.1) and marketingcosts (P≤0.01) greatly influenced the choice of milk marketing channel. Price of milk perlitre, household size, number of animals kept, size of farm and source of informationnegatively affected the choice of the marketing channel.

It can be concluded that there was a significant difference in the socio-economiccharacteristics between dairy farmers in formal marketing and those in informalmarketing channel. The choice of marketing channel was influenced by this difference.Dairy annual income and education were the major different characteristics.Furthermore, many farmers still practice informal/traditional milk marketing channel.This is because of the benefits (advance payments, efficient transport costs and cashpayments) this channel offers. It can also be concluded that, education level of the dairyfarmer, form of payments for the milk sold, Membership in farmer marketingorganization, and Volume of milk produced greatly influence farmers choice of amarketing channel. Transport costs seem to create a burden too many dairy farmers.Many farmers resort themselves to informal milk marketing channel because oftransport barriers they face.

5.2 RecommendationsAs research findings indicated, the choice of a milk marketing channel was

influenced by many factors some of which are within the control of an authority in place.If the government wishes all the milk to pass through a proper channel (formal channel),the following recommendations may be helpful:

Provision of education and services to the farmers. Dairy farmers, andparticularly the aged, need to be educated on the importance of sellingmilk to the formal channel.

The concerned authority should ensure that farmers’ perception ofincentives associated with formal channel is clear. There are a number of



incentives that a co-operative could give to its members such as vaccinesand drugs sold at a favourable price or on credit, advance payments tocater for farmers’ argent needs, provision of modern milk cans on credit,training on the best dairy farming practices and a basic knowledge onhandling financial transactions among others. All these incentives have amotivational impact to farmers.

Farmers should be assured of market for the milk especially during therainy season when milk volumes are huge.

Further, roads construction and maintenance should be given dueattention to ensure accessibility to dairy farms. During the field work, somefarms were not accessible at all. Farms in these areas were completelyunable to transport milk to the market, and whenever they manage, costsare very high such that they experienced no returns. These areas are onlyaccessible by bicycles which only carry fewer litres of milk.

Establishment of area co-operative enterprises is highly recommended. Itis from these associations where farmers learn new ways of farming.Cooperatives are a strong tool towards poverty reduction as participantsare brought together to mobilize and utilize the resources. Cooperative isviewed as organizational response to the demands of the developmentand widespread use of productive forces.

ReferencesAwudu, A and Eliud, A, 2010 .Choice of coordination mechanisms in the Kenya fresh

milk supply chain. Journal of Agricultural and Applied Economics Association,Vol. 31 Pp 103 121.

Artukoglu,M. and Olun, A 2008.Cooperative tendencies and alternative milk marketingchannels of dairy producers in Turkey.A case of Meneme.

Balagtas, V. J, Coulibaly, M. Jabbar, and A. Negassa. 2007. “Dairy Market Participation withEndogenous Livestock Ownership: Evidence from Cote d’Ivoire. Selected Paper forPresentation at the American Agricultural Economics Association Annual Meeting,Portland, OR, July 29-August 1, 2007

Balsevich, F., P. Schuetz and E. Perez. 2006. “Cattle Producers’ Participation in theMarketChannels in Central America: Supermarkets, Processors, and Auctions”.Staff Paper2006-01. Michigan State University.

Bekele, W. 2004. “Farmers’ Preferences for Development Intervention Programs: A Case ofSubsistence Farmers from East Ethiopian Highlands.” Ethiopia.

Bellemare, F. M., C. B. Barrett. 2006. “ An Ordered Tobit Model of Market Participation:Evidence from Kenya and Ethiopia”. American Journal of Agricultural Economics, 88

(2), pp. 324 – 337.Baltenweck, I.; Mubiru, S.; Nanyeenya, W.; Njororge, L.; Hilbert, N. and Romney, D., 2007.

Dairy farming in Uganda. Production Efficiency and Soil Nutrients under DifferentFarming Systems. Department of soil science, Makerere University.

Banda, J.W. 2002. Dairy Herd projections in Mzuzu,Lilongwe and Blantyre Milk shed areas.Balikowa, 2006.” Personal communication”. Research officer, Dairy Development Authority.

DDA, 2003. Dairy Development Authority, Organisation Brochure.Debnarayan.S and Bikash.K 2010.Milk marketing under co.operative and Non-co.operative

channels.Evidence from West Bengal.Vol LV.No.187.UDC.



Elepu .G, 2006.Value chain analysis for Dairy subsector in Uganda. Department of AgriculturalEconomics and Agribusiness, Makerere University.

Escobal, J. and M. Torero. 2006. “Access to Dynamic Markets for Small Commercial Farmers:The Case of Potato Production in the Peruvian Andes”. International Food PolicyResearch Institute.

Ground, M. 2007. “Hurdle Models of Alcohol and Tobacco Expenditure in South AfricanHouseholds”. Department of Economics Working Paper Series. University of Pretoria.

Giroh.Y, Umar.H.Y and Yakub.W, 2010. Structure, conduct and performance of farmgate marketing of natural rubber in Edo and Delta States, Nigeria

Isengildina.O. Hudson.M.D, 2001.Factors affecting hedging decisions using evidence fromcotton industry, Conference paper, preccedings NCK-134.Confferenc on Applied

commodity Price Analysis, Forecasting and Market Risk Management2001.St.Louis.M. USA, 23-24, Appril 2001, pp.1-2011.

Staal, S.J, Baltenweck, I. Njoroge.L,Pati,.B.R,Ibrahim .M.N.M, and Kariuki.E (2006).Smallholder Dairy Farmers Access to Alternative Milk Market channels inGujarat.IAA Conference, Brisbaner Australia.

Mburu.L.M, Wakhungu.J.W, and Gatu.K.W, 2007.Determinants of small scaleholderdairy farmers’ adoption of variuos maketing channels in Kenyahighlands.Livestock research for rural development 19(9)2007.

Misra, S. K., Carley, D. H, and Fletcher, S. M, 1993. Factors influencing southern DairyFarmers’ choice of the milk handlers.

Ministry of Agriculture, Animal Husbandry and Fisheries, Entebbe, Uganda, 1992,Master Plan for the Dairy Sector, The Dairy Industry, Vol. 5.

Nkonya.E, 2002, Uganda crop trader characteristics, and their marketing constraints.East Africa Journal of Development 18(1);23-37

Omanya, H. D. Mignouna, M. Bokanga and G.Odhiambo. 2008. “Smallholder MarketParticipation Under Transacction Costs: Maize Supply and Fertilizer Demand inKenya”. Food Policy, 33 (4).pp318 – 328.

Polak,P., Kuhlman, K., and Covarrubias.C. 2008. Feasibility trip for the affordablesmall farm UV Milk sterilizer.Un published Report .D.Rev

Turha.S.B, Ozbag.C and Certin, 2007. Factors affecting location of food processingplants.J.Applied sci 17:1737-1740

Marenya, P. P., and B. Barret. 2006. “Household-Level Determinants of Adoption of ImprovedNatural Resources Management Practices Among Smallholder FarmersIn WesternKenya”. Food Policy, 32 (1), p151-536.

Management Practices by Smallholder Farmers in the Central Highlands of Kenya”. ExplAgric., 45(2009), pp61-75.

Ministry of Agriculture, Animal Industry and Fisheries, Uganda, 1992. White papergovernment ,Dairy sector policy memorandum by the Ministry of Agriculture,AnimalIndustryand Fisheries.

Musinguzi .J, 2000. Factors affecting Dairy productivity in Uganda. Case study of Mpigiand Mukono.Unpublished.

Ndami, O.S.,Hoffmann,V.,Baymi,H.,2006.Stimulating milk production in Cameroon-meeting the challenges, prosperity and poverty in a Glabolised world-Challenges for Agricultural Research”Troprent, October 11-13,2006.Bonn.



Land O’lake. 2004. Results of the qualitative study on Dairy products Usage andattitudes. Dairy Business Development programme with support from USAID/Malawi.

Twimukye .E , 2003. Competitiveness of milk processing firms in Uganda .UnpublishedThe World Bank, Food and Agriculture Organisation and International Fund for

Agriculture Development, 2008. Gender in Agriculture.Voors.M.J.,and Haese.M,2011.Small holder dairy sheep production and market

channel development. An institutional perspective of rural farmer, YugoslavRepublic of Macedonia. Journal of American Dairy Sources Association, vol93(8):3869-3879.Elsevier Inc.

Qi Wen’e and Tang Wenshan 2009.The analysis of Agricultural product marketingchannel’s selection and evaluation: Taking the lychee planters of Guangdong asexample.China rural survey.

Kirangwa .J, 1993. Aquatitative analysis of the marketing margins of processed fluidmilk and its implications for dairy policy in Uganda. Unpublished.

Scott R.Jeffrey, Timothy j.Richars, 1996. Factors influencing costs milk production in Alberta,Department of Rural Economics, University of Alberta, Edmonton, AB.

Kassie, M., P. Zikhali, K. Manjur, and S. Edwards. 2008. “Adoption of Organic FarmingTechnologies: Evidence From Semi-Arid Regions of Ethiopia. Working Papers in Economics, No.

335. School of Business Economics and Law, University of Gothenburg.Tsourgiannis, L., J. Edison and M. Warren. 2008. “Factors Affecting the MarketingChannel Choice of Sheep and Goat Farmers in the Region of East Macedonia in Greece.

Regarding the Distribution of Their Milk Production”. Small Ruminant Research. 79(1), p87-97. Canada and Centre for Agribusiness Policy studies, Arizona StateUniversity.

factors influencing south-western uganda dairy farmers' choice of

Documents