1

The role and future of informal & traditional dairy markets in

Developing Countries

Steve Staal

International Livestock Research Institute

IGGM&D Dairy Symposium, Rome. 15th Nov, 2006

Outline

� Identifying traditional and informal dairy markets

� Scale of traditional and informal dairy markets

� Determinants of traditional dairy markets – are they going away soon?

� Role and contribution of traditional dairy markets

� Milk quality

� Bridging the Gap; policy approaches to traditional

dairy markets

2

Informal and traditional

dairy markets

� Informal and traditional dairy markets� Liquid, often raw or soured milk and

traditionally processed products

� Direct sales, small traders, small artisanal processors

� Small, atomized market (often <100l/day)

� Distinction between traditional and informal is blurred

� Traditional markets are often legal, pay licenses etc

� Key features are the “traditional” products and processing, and lack of “modern” standards

Traditional dairy markets globally

Traditional market share %

SSA Kenya 86

Tanzania 98

Uganda 90

L. America Mexico 33

Nicaragua 86

Costa Rica 44

Brazil 44

S. Asia India 76

Sri Lanka 40

Pakistan 98

Sources: ILRI Collaborative Research

�Primary market for both small producers and poor consumers

3

Traditional markets are not small

Comparions of some major dairy markets

(Annual LME's)

India

Traditional

Total

global

dairy

product

trade

UK,

Germany,

France &

Netherland

s

USA

30

40

50

60

70

80

90

Millio

n M

TS

(2004)

Source: FAOSTATS

Determinants of traditional

markets

� Low purchasing power

� Traditional tastes

� Price incentives to both producers and consumer

� Urbanization

Why are most traditional markets also informal?

� Mis-match between low demand for food safety

and public standards and regulations

4

Higher income households also

buy raw milk

Similar results emerging in Andhra Pradesh (CALPI, 2006)

Due to tastes and preferences – price is not the only determinant

SDP/ILRI 2004

Urbanisation favours formal

markets

Vijayawada, AP

Pop. 1.5 Mill

Formal38%

Traditional62%

Formal Traditional

Khammam, APPop. 170,000

Formal12%

Traditional

88%

Formal Traditional

NairobiPop. 4 Mill

Formal65%

Traditional

35%

Formal Traditional

NakuruPop. 300,000

Formal24%

Traditional76%

Formal Traditional

Raw vs Pasteurized Milk Prices in

Kenya

32

20

40 40

0

5

10

15

20

25

30

35

40

45

Nairobi Nakuru

Ksh

per

Lit

re

Raw Pasteurized

Driving force is relative

prices, which are generally higher in

urban areas

5

Traditional market mechanisms provide price incentives for farmers and consumers

� Higher prices to farmers in informal

� 17 Ksh vs 13.5 (Central Kenya)

� Lower prices to consumers in informal

� 25 Ksh vs 41 (Nakuru, Kenya)

� Same sorts of results seen in many other

countries

Traditional markets still expanding

in some cases - Kenya

0.2

.4.6

.8P

roport

ion o

f fa

rmers

nyanza western rift valley central eastern

2000 2004 2000 2004 2000 2004 2000 2004 2000 2004

Individuals Traders

Private processors KCC

Cooperatives Shops/hotels/institutions

-% farmers selling to traders increased 16.5% to 34%-sales to coops/groups declined from 24% to 7%- direct sales to individuals declined 40.2% to 29.8%

Changes 2000-2004

Baltenweck 2006

6

Summary – determinants of

traditional markets

� Traditional tastes – even wealthier people will pay� Low cost – associated with low demand for food

safety, compared to other needs� Price incentives to farmers – higher prices due to

lower cost margins� Urbanisation will reduce traditional market role due

to higher costs of mass supply� No evidence that increased policing will significantly

affect market share

� No evidence they will disappear any time soon –driven by demand

Role of traditional markets

� May stimulate dairy development – no

evidence to the contrary yet

� May provide a buffer to trade competition

� Provide market access in areas with poor

infrastructure, long distances

� Employment generation among urban and

peri-urban poor

� However, formal markets may provide greater

reliability, and opportunity to scale up

7

Milk marketing in Gujarat

� 800 HHS surveyed in nine districts of Gujarat (home of Operation Flood)

� Sales:coops/processors-41%, traders-14%, direct-14%, rest home-consumed

� Results:� Poor, marginalized farmers more likely to sell to coops

� Distant farmers more likely to sell to traders – appears they can best serve remote areas

� No evidence found that informal markets will diminish with scaling-up of production

Source: Staal et al, 2006

Analysis of trends in dairy

development in S Asia and E Africa

� Statistical analysis of dairy development trends in these two key dairy regions

� S Asia: 5 countries

� E&S Africa: 10 countries

� Associated milk production trends since 1970 with indicators of

� Economic growth

� Policies

� Ag growth

ILRI/PPLPI 2006

8

Determinants of change in milk

production: parameter estimates for East

Africa

NSMilking animals, cows and buffalos (heads)

0.36**Yield (lt/milking animal)

NSR&D in agriculture per hectare ($)

1.03***Life expectancy (years)

0.03**Number of TV sets per capita

0.40***GDP per capita (2000 US $)

-0.30***Share of formally processed milk in total output (%)

NSDomestic demand (Mt)

0.23*GDP growth

-0.24***Openness (Trade as %) of GDP

NSMilk producer's price/import price

CoefficientsVariable

Note: a/ (*), (**) and (***) statistically significant at the 10%, 5% and 1% respectively.

Formal market associated with lower dairy development

Determinants of change in milk

production: parameter estimates for

South Asia

0.23**Yield (lt/milking animal)

0.19**Milking animals, cows and buffalos (heads)

NSShare of formally processed milk in total output (%)

-0.16**Telephone mainlines (per 1,000 people)

0.23***Number of tractors per hectare

NSGDP per capita (2000 US$)

0.21**Domestic demand (litres)

0.733**GDP growth (%)

NSOpenness (Trade as % of GDP)

NSMilk producer's price/import price

CoefficientsVariable

Note: a/ (*), (**) and (***) statistically significant at the 10%, 5% and 1% respectively.

No apparent relationship between main market channel and dairy development

9

Comparison of % imports in countries

with strong vs. weak dairy traditions

0%

20%40%

60%80%

100%

Indi

a

Ken

ya

Pak

ista

n

Som

alia

Ethio

pia

Uga

nda

Kor

ea, R

ep.

Indo

nesia

Sri

Lank

a

Nig

eria

Thai

land

Vie

t Nam

% o

f d

air

y im

po

rte

d

% of dairy imports

Countries with strongdairy traditions

Countries with weakdairy traditions

Implication: imports cannot easily compete with traditional products

Source: FAO data

Employment in traditional markets

Number of jobs created per 100 litres milk handled daily

�More than 5 times the no. employed in formal sector

�Most pay higher than minimum wage

Kenya mobile traders

Bangladesh sweet makers

Ghana milk/snack retailer

No. of directfull-time jobs

Main milkproduct

1.7 Liquid

5.6 Trad. sweets

10.0 Milk snacks

FAO/ILRI 2003

10

Impact on farm-level milk

price of formal vs informal

Significant effects on milk price

VariableFormalmarket

# of cows (milk volume)

Distance - Nairobi (Type 1)

Distance - collect center (Type 1)

Informalmarket

+

-

- - -

- -

Distance - Nairobi (Type 2)

Distance - Nairobi (Type 3)

-

- - -

not sig - -

not sig

not sig

GIS analysis of milk price formation

Staal et al 2000

Implications – role of

traditional markets

� Provide apparently efficient market mechanisms for dairy development over time

� May serve isolated, remote farmers

� Because traditional products not easily substituted by processed dairy products –buffer to imports

� Large employment generation among poor, including urban

� However, may not provide as reliable outlets as formal in some cases – mixed results

11

Milk quality in traditional markets-

Andhra Pradesh

CALPI 2006

- General non-compliance with official standards, even in formal- Significant correlation between price and total solids

Milk quality in traditional markets-

Kenya

-Adulteration maybe lower than expected or perceived-Bacterial counts exceed standards-Clearly, milk must be boiled before consumptionSDP/ILRI 2004

12

Cluster Large scale Low High SCALE

Freq. /Experience quality margin

214 -0.31 -0.07 0.13 Small: 98 l/d

81 -0.08 0.09 -0.70 Small: 108 l/d

24 0.15 0.41 0.88 Medium: 840 l/d

27 2.47 -0.39 0.14 Large: 4,400 l/d

Policies for licensing small market traders: no Policies for licensing small market traders: no

apparent link between policy and outcomesapparent link between policy and outcomes

Summary of cluster analysis comparing milk quality and scale of operation (principal component and cluster analysis)

� Quality is not a problem for small traders (relatively)

� Medium-size traders show poorer quality milk, although many

are licensed

� Without training and monitoring, unlikley to increase quality

Source: SDP

Trader associations can provide forum for increased quality, efficiency

� Study of role of raw milk trader associations in Kenya (Sinja/ILRI 2006)� Reduced spoilage, increased quality

� Increased share of value added products� Group participation increases scale of market

participation.

� Associations can provide a mechanism for market interventions

� Similar results in Andhra Pradesh

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Bridging the Gap

� Clearly there is continued important role for traditional markets, which are unlikely to disappear soon

� Issue: quality and public health concerns continue

� Question: how to induce traditional markets to improve quality, and “formalize”

� Aim: no more “informal markets”, only traditional and modern

Milk Traders

Training

Service

Providers (BDS)

Regulatory

Authority

Certification/Licensing

Training & certificates of

participation in training

Accreditation & monitoring

Reporting

Cess fee

Training guides

Improving Milk Quality and Market

Opportunities through Training &

Certification: BDS Approach

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E Africa region: scaling out and

up lessons from Kenya

� East and Central Africa Program on Agricultural Policy Analysis (ECAPAPA, a network of ASARECA).� Produced a series of six harmonized training guides

to facilitate certification of small scale milk traders in Eastern Africa.

� Sept 2006 - Dairy sector regulators in Rwanda, Kenya, Tanzania and Uganda signed MoU to apply these in regulating and facilitating cross-border recognition of certified traders

Extending the paradigm to South

Asia

� Assam� Traditional market share is 97% (Operation

Flood efforts there failed in 1980s)

� Dairy Dept of Gov of Assam is developing strategy to certify and train local market agents

� Andhra Pradesh� CALPI Dairy Action Research project is also

developing training of market agents

15

Conclusions

� Here to stay for a long time� Evidence is that traditional markets will continue to play large role

� Because they are driven by demand

� Benefits to the resource poor and developing countries� Can facilitate dairy production growth, and buffer import competition

� Provides market alternatives to remote, small scale producers and poor consumers

� Generates rural and urban employment

� Can complement the formal processing market

� Approach� Address quality and efficiency issues through training and

certification, working with trader groups

� May apply only in setting where milk is universally boiled