Kenya’s dairy sector is the biggest in the region, accounting for 10% of national agricultural GDP. The sector is dominated by small-scale farmers supplying to a few large dairy processors. An industry review, completed earlier this year, helped identify a niche for 2SCALE, where we could focus our efforts to maximize impacts.
Kenya has more than 13 million cattle, of which about one-third are improved breeds and crossbreeds. Just under half of the milk produced is consumed on-farm. The rest is sold, mostly through informal channels. The formal market (licensed traders and processors) handles about 650 million liter per year, i.e. only 10-15% of total production.
Analysis of cost structures along the value chain provide some interesting insights. Of the retail price paid by the consumer, more than half goes to large companies that process and package milk. Only one-fourth goes to the producers. At farm level, cattle feed accounts for two-thirds of milk production cost. The typical smallholder dairy farmer makes a profit of about 10%. This suggests two areas where we could focus:
2SCALE interventions in Kenya have led to significant impacts. Dairy processor Feska has increased output by 50%, and now collects more than 12,000 liters of milk per day. Farmer training programs have helped cut rejection rates by half, and introduce new fodder crops such as Lucerne and Lupin. We’re also helping to create a fodder network, with ‘lead’ farmers connected to banks for financing and to retailers for marketing. We’ve helped smallholder farmers organize themselves into informal cooperatives, pooling their savings to buy cooling equipment – earning an extra Ksh 2 per liter. The Kenyan experience is also being applied elsewhere – fodder production in Mozambique, new dairy products in Ethiopia, IT tools for milk quality control in Uganda.