Tanzania Dairy Development Conference. Arusha. 5-7 June 2002.

1. The competitiveness of smallholder dairy production in developing countries with specific reference to Tanzania A. Omore and S. Staal International Livestock Research Institute, Nairobi Tanzania Dairy Development Conference. Arusha. 5-7 June 2002.

2. Presentation Covers: • Dairy production and market trends in Tanzania(since last dairy sub-sector appraisal by MOAC/SUA/ILRI)and regionally • Production costs • Non marketable values • Global competitiveness

3. Acknowledged benefits of smallholder dairying • Good returns compared to most traditional agricultural commodities • In come generation for poor producers and market intermediaries through participation in processing and marketing • Food security, good nutrition, poverty reduction and environmental protection

4. Factors determining adoption of dairying in developing countries • Traditional consumption habits • Agro-climate/milk production potential • Proximity to consumers • Output and Input Market Infrastructures • Access to Vet Services

5. Current trends of dairying in Tanzania • Traditional consumption is mainly low-cost liquid or soured milk • Two-thirds of dairy cattle found in Arusha & Kilimanjaro (good agro-climate) • Significant numbers in (or near) Dar and other urban centres (proximity to consumers) • Market dominated by small scale informal traders • Increasing contribution of marketed milk from zebu • Increasing local production and decreasing imports since 1980

6. Dairy Supply and demand projections in Tanzania • Basis/assumptions • Annual milk supply growth rate of 2.6% (1.7% for traditional herd and 6% for the dairy herd), decreasing at 0.1% • Demand growth of  4% annually – estimated from • population growth rate of 2.8% (2.6% for rural and 5% for urban), decreasing at 0.05%; • Real GDP growth rate scenarios of 1% and 2%; • Urban/rural consumption ratios of 0.05 • Income elasticity of demand for milk 0f 0.08

7. Projections since last census and appraisal of Tanz. dairy sub-sector (‘97) Source: MOAC/SUA ILRI, 1998

8. Urban dairying • Dar-es-Salaam • Probably 80,000 heads • Small scale • Urban regulations not enforced • More public land • Low peri-urban prod. & poor infrastructure • Nairobi • Fewer farms & cattle • (10% of hh) • Relatively large scale • Mostly private land • High peri-urban prod. & good infrastructure Urban dairying likely to increase but will quickly reach its limits

9. Cost of Production Cost of Production in Morogoro (2000 prices) 300 250 200 Market price TShs 150 Cost per litre 100 Revenue/lt 50 Profit 0 SURUDE HPI Non-Project Cost components: Family & hired labour, drugs, vet services, repair & maintenance, conc. feeds and fixed costs Source: A. Msangi, SUA, 2001

10. Cost of Production Cost of Production in Kenya(1999 prices) 24 20 16 Market price KShs Cost per litre 12 Revenue per lt 8 Profit 4 0 Kiambu Nakuru Nyandarua Cost components: Family & hired labour, drugs, vet services, repair & maintenance, conc. feeds & fodder, home consumed milk and fixed costs Source: ILRI Collaborative research in Kenya (2001)

11. Non-marketable smallholder production and value often not considered • Manure – May equal up to 30% the value of milk produced • Home consumption • Display of status • Insurance & financing • Non-cash income can be as high as 78% of annual income where local market linkages are weak and opportunities for labour are limited (Moll et al., 2001)

12. Dairy cattle population in eastern and southern Africa (‘000) (300) Tanzania 7% Uganda 3% Ethiopia 1% Zimbabwe & S Africa 830 3,000 Kenya 19% 70%

13. Current trends in dairy marketing % of domestically produced milk sold informally Informal % Coops % SSA Kenya 88 Tanzania 98 4 Uganda 90 L. America Mexico 33 Nicaragua 86 4 Costa Rica 44 54 Brazil 44 S. Asia India 83 6 Sri Lanka 40 7 Sources: ILRI Collaborative Research & FAO E-Conference Most consumers are reluctant to pay for “value-adding”

14. Liquid milk traders in East Africa Unlicensed mobile milk trader In Nairobi, Kenya Group of licensed milk traders in Mwanza, Tanzania

15. Soft Cheese ‘Wagashie’ in Kumasi, Ghana

16. Fermented and sweetened milk sales in Bangladesh Making and sale of curd

17. Future trends in dairy marketing - To be mainly driven by “Dairy Revolution” Source Delgado et al., 2001 Growing demand for milk and dairy products in developing countries due to more, richer people esp. in urban areas 500 Developing countries SSA 400 391 300 M. MT 200 200 31 100 16 0 2000 2020 Year Production to double: share from 36% to 52%.

18. Future trends in dairy marketing - To be mainly driven by “Dairy Revolution” Increased production is expected to occur in same areas of increased demand. % imported to dev. countries will fall Source Delgado et al., 2001

19. Comparing production trends in India (a dev. country) with other developed countries 80 70 60 India 50 Australia Million MT per annum Netherlands 40 New Zealand 30 USA 20 10 0 1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 Years Source: India NDDB and FAOStats

20. % Sources of Change in Cow’s Milk Production by Region, 1985 and 1998 % of Change in Herd % Milking Productivity Interaction Cow's milk Prod. 70 60 50 40 30 20 10 0 China OE Asia India OS Asia SE Asia L. Amer WANA SS Africa -10 Region • Milk production growth in SSA is predominantly from increase in herd size and not productivity Source: Nicholson et al., ILRI MOSD Working Document No. 7

21. Competitiveness: Comparison of rural wage rates • Smallholder dairying is labour-intensive • Local smallholder competitiveness partially dependent on low labour costs Source: ILRI collaborative research on Trans-regional analysis of crop-livestock systems (2000)

22. Competitiveness: Comparison of costs & returns to dairy producers • Super-normal profits in small dairy farms in E. Africa indicate they’re more competitive than larger farms in Thailand Source: ILRI collaborative research in Kenya (1999) and Hall and Ehui (2000).

23. Competitiveness: % of world milk & wheat production traded, by volume, 1975-1998 • The need to transform and preserve animal products before they are traded presents an obstacle to increased trade in such products Source: Staal (2000), using FAOStats

24. Comparison of farm-gate milk prices and approx. import parity prices • Local competitiveness with imports may vary considerably but generally indicate that local smallholders can compete effectively. Source: Staal (2000)

25. Comparison of % of domestic milk availability that is imported • Countries with strong traditions mainly demand fresh liquid milk thereby giving advantage to local producers Source: Nicholson et al., 2001, using FAOStats

26. Conclusion • Smallholder dairy producers in Tanzania and elsewhere in developing countries can effectively compete, mainly due to strong local demand. This can further be be enhanced by: • Improving economies of scale (e.g., through collective action) • Access to services and appropriate technologies • Improving infrastructure • Creating an overall enabling policy and institutional environment for all participants in the sector

27. Thank you