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

2. 2 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 Presentation Covers:

3. 3 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 Acknowledged benefits of smallholder dairying

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

5. 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. 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. 7 Projections since last census and appraisal of Tanz. dairy sub-sector (‘97) Source: MOAC/SUA ILRI, 1998

8. 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. 9 Cost of Production in Morogoro (2000 prices) 0 50 100 150 200 250 300 SURUDEHPINon-Project TShs Market price Cost per litre Revenue/lt Profit Cost of Production Source: A. Msangi, SUA, 2001 Cost components: Family & hired labour, drugs, vet services, repair & maintenance, conc. feeds and fixed costs

10. 10 Cost of Production 0 4 8 12 16 20 24 KiambuNakuruNyandarua Market price Cost per litre Profit KShs Cost of Production in Kenya (1999 prices) Revenue per lt 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. 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. 12 Uganda 3% Ethiopia 1% Kenya 70%70% Tanzania 7%7% Zimbabwe & S Africa 19% Dairy cattle population in eastern and southern Africa (‘000) 3,000 830 (300)

13. 13 Informal % Coops % SSAKenya88 Tanzania98 4 Uganda 90 L. America Mexico33 Nicaragua86 4 Costa Rica4454 Brazil44 S. AsiaIndia836 Sri Lanka407 Sources: ILRI Collaborative Research & FAO E-Conference Current trends in dairy marketing % of domestically produced milk sold informally Most consumers are reluctant to pay for “value-adding”

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

15. 15 Soft Cheese ‘Wagashie’ in Kumasi, Ghana

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

17. 17 Growing demand for milk and dairy products in developing countries due to more, richer people esp. in urban areas 200 391 0 100 200 300 400 500 20002020 Year M. MT Production to double: share from 36% to 52%. Future trends in dairy marketing - To be mainly driven by “Dairy Revolution” Source Delgado et al., 2001 16 31 Developing countriesSSA

18. 18 Per CapitaKg LME% Ann. Growth Region19831997Est. 2020’97 to ‘20 Developed1951942030.4 Developing3543612.7 - L. America931121271.8 - S Asia466278 (104)3.0 (3.2) - S S Africa3230373.3 - S E Asia1012182.9 - China38163.5 Source Delgado et al., 2001 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

19. 19 0 10 20 30 40 50 60 70 80 1961196419671970197319761979198219851988199119941997 Years Million MT per annum India Australia Netherlands New Zealand USA Comparing production trends in India (a dev. country) with other developed countries Source: India NDDB and FAOStats

20. 20 -10 0 10 20 30 40 50 60 70 ChinaOE AsiaIndiaOS AsiaSE AsiaL. AmerWANASS Africa Region % of Change in Cow's milk Prod. Herd% MilkingProductivityInteraction % Sources of Change in Cow’s Milk Production by Region, 1985 and 1998 Source: Nicholson et al., ILRI MOSD Working Document No. 7 Milk production growth in SSA is predominantly from increase in herd size and not productivity

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

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

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

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

25. 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. 26 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 Conclusion

27. 27 Thank you