Smallholder Dairy Development: Implications for Livelihoods

Steven J. Staal

International Livestock Research Institute

Symposium on Dairy Production in Difficult Environments World Congress on Animal Production, Cape Town26 th Nov, 2008

Outline

Overview of milk market and consumption patterns in key dairy countries Evidence towards driving factors in dairy developmentCompetitiveness of smallholders dairy producersEmployment/livelihood implications Comparing poor/smallholder with rich/large dairy systems

Dairy growth in key regions

Region Period

Annual growth rate (%) in Total Production

Annual growth rate (%) in Total Consumptio

n

Annual growth rate (%) in Human Population

Annual growth rate (%) in Income

Annual growth rate (%) in

Urbanisation

Central Africa 2000-2003 0.3 0.3 2.7 6.7 3.81990-1999 1.5 1.5 2.9 1.8 4

East Africa 2000-2003 9.2 2.8 2.7 7.5 5.41990-1999 2.4 2.3 2.5 5.9 5.7

Southern Africa 2000-2003 -0.6 0.9 2 5.9 2.9

1990-1999 1 2.3 2.5 4.3 3.9West Africa 2000-2003 2 1.7 2.7 6 4.4

1990-1999 2.2 2.4 2.9 5.5 5India 2000-2003 1.8 2.4 1.6 7.9 2.4

1990-1999 4.1 4.3 1.8 8.1 2.7Bangladesh 2000-2003 0.8 -0.6 1.9 7.8 3.6

1990-1999 0.3 -1.9 2.1 7 4

Key Dairy Markets mostly Informal

Informal market share %SSA Kenya 88

Tanzania 98Uganda 90

L. America Mexico 33Nicaragua 86Costa Rica 44Brazil 44

S. Asia India 85Sri Lanka 40Pakistan 98

Sources: ILRI Collaborative Research & FAO E-ConferencePrimary market for both small producers and poor consumers

Comparison of % imports in countries with strong vs. weak dairy traditions

0%20%40%60%80%

100%

India

Kenya

Pakist

anSom

alia

Ethiop

iaUga

nda

Korea,

Rep.

Indon

esia

Sri Lan

kaNige

riaTh

ailan

dViet

Nam% o

f dai

ry im

porte

d

% of dairy imports

Countries with strongdairy traditions

Countries with weakdairy traditions

Implication: imports cannot easily compete with traditional products

Source: FAO data

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 countriesE&S Africa: 10 countries

Associated milk production trends since 1970 with indicators of

Economic growthPoliciesAg growth

Source: StaaI et al, PPLPI Working Paper, 2008

Determinants of change in milk production: parameter estimates for East Africa

Variable CoefficientsMilk producer's price/import price NS

Openness (Trade as %) of GDP -0.24***GDP growth 0.23*Domestic demand (Mt) NS

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

GDP per capita (2000 US $) 0.40***Number of TV sets per capita 0.03**Life expectancy (years) 1.03***R&D in agriculture per hectare ($) NSYield (lt/milking animal) 0.36**Milking animals, cows and buffalos (heads) NS

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

Variable CoefficientsMilk producer's price/import price NS

Openness (Trade as % of GDP) NSGDP growth (%) 0.733**Domestic demand (litres) 0.21**

GDP per capita (2000 US$) NSNumber of tractors per hectare 0.23***Telephone mainlines (per 1,000 people) -0.16**Share of formally processed milk in total output (%) NSMilking animals, cows and buffalos (heads) 0.19**Yield (lt/milking animal) 0.23**

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

No apparent relationship between main market channel and dairy development

India: district level analysis of dairy development

Index hybrid cows-milking buffalos per worker

Estimated coefficientFertilizer per hectare of crops (kgs) 0.07**Road density (km per hectare) -0.07*Population density -0.02Crop area under irrigation (%) 0.15**GDP per capita 0.19Urbanization (%) 0.93Annual growth of GDP per capita -0.01Rural workers/population -0.44**Literacy rate (%) -0.03Milking cows/total cattle 0.06Rain (mm per year) 0.06*

1982, 1987, and 1992, 250 districts across India

India: cooperatives and dairy development

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

Punjab Haryana Uttar Pradesh Maharashtra Gujarat Karnataka Andhra Pradesh Rajasthan0

100

200

300

400

500

600

Liters of milk to coops per milking cow Number of hybrid cows and milking buffalos per worker

The results suggest that there is a small but positive relationship between milk procured by cooperatives and the indicator of dairydevelopment.

However, not consistent – key dairy states of Punjab, Haryana and Uttar Pradesh have relatively low levels of dairy cooperative activity.

Economies of scale in dairy

production

Can smallholder farmers compete against larger neighbors?Several studies (IFPRI, ILRI) using stochastic frontier analysis to examine economies of scale (Bangladesh, India, Kenya, Thailand, Brazil)

Yield gaps in dairy cattle in SSA

B. Crossbred Cattle

0

1000

2000

3000

4000

5000

6000

Milk

Yiel

d pe

r Lac

tatio

n (K

g)Southern Africa West and Central

AfricaEast Africa

132.0% 65.1% 312.6%

A. Exotic Cattle

1000

2000

3000

4000

5000

6000

Milk

Yiel

d pe

r Lac

tatio

n (K

g)

Southern Africa West and Central Africa

East Africa

208.5% 90.2% 157.0%

Grade cattle Crossbred cattle

Costs and Revenues - Kenya

All forms of production profitable: zero grazing to extensive grazin

India (Punjab, Haryana, Gujarat) Average Yield Per Animal

Source: Sharma and Delgado, 2003

6.2

7.6

6.3

7.6 7.4 7.8

9.78.4

0

2

4

6

8

10

Rs.

/Lit.

Small Medium Large Commercial

North West

India: Average profit per liter of milk (with family labor)

-0.1

0.1

0.3

0.5

0.7

Rs/

litre

<=20 20-40 40-80 80-150 >150 Avg.Farm scale - liters of milk/day

Source: Sharma and Delgado, 2003

India: Mean Farm Efficiency by Size group

0.800.87

0.940.86 0.83 0.85

0.1

0.3

0.5

0.7

0.9

Inde

x

<=20 21-40 41-80 81-150 >150 Average

Farm scale - liters of milk/day

Source: Sharma and Delgado, 2003

Key distinguishing factors: information** and credit*Does not include most non-market benefits

Opportunity costs of labor and herd size: comparison of typical herd size and rural wage rates, 12 selected countries in SSA, Asia and LA

Source: Project on Transregonal Analysis of Crop-Livestock intensification, ILRI 2002

0

20

40

60

80

100

120

Nepal

Tanza

niaMad

agas

car

Kenya

Tanza

niaTan

zania

Kenya

Thaila

ndTha

iland

Bolivia

ColumbiaBoli

viaCos

ta Rica

Costa

Rica

Cat

tle n

umbe

rs

0

50

100

150

200

250

$ pe

r mon

th

Herd size (cattle per farm) Rural wage ($/month)

Major source of rural employment

In Kenya, about 50% of smallholder farmers (1-3) cows employ a full time laborer

Not just farmers: employment in indigenous markets

Number of jobs created per 100 litres milk handled daily

More than 5 times the no. employed in formal sectorMost 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

Capital costs? - financing and insurance roles of livestock

Limited or no smallholder access to formal insurance (health, household) nor to formal credit. Dairy cattle can provide both.

E.g forced savings - lower milk price to accumulate payment

Opportunity costs of capital - Smallholders may also have few alternative inflation-proof savings/investment opportunities.Financing

Sale of animals to meet planned lumpy expendituresValue accrues at sale

InsuranceKeeping of animals to meet emergency expendituresValue accrues daily

Tested using tobit analysis of age of sale of culled cowWhat is competitiveness?

0

200

400

600

800

1000

1200

1400

Without With

US$/yr

Total revenue Total costs Profits

Returns to cattle production with and without non-market benefits – Western Kenya

Benefits of finance and insurance are based on contingent valuation of Willingness To Pay

Source: Ouma 2003

18% 15% 14%

Extensive dairy Semi-intensive dairy Intensive dairyWithout With Without With

Increase in “profit” due to finance and insurance benefits

Scarce nutrients – farm and family

Farm nutrients – problem is nutrient deficits, not surpluses

West Kenya – only farms with cattle had positive (small) nutrient balancesCentral Kenya - more than 40% of fodder materials gathered from off-farm – nutrient channel

Family nutrition – problem is under nutrition, not over nutrition

Coastal and Central Kenya – hhs with cattle have significantly lower % of children exhibiting stunting (height for age) a measure of long-term under nutrition (Nicholson et al 2002)

Large/formal/rich vs small/ informal/poor dairy systems

Large/formal/rich Small/informal/poor

Production profile

Nutrient and nutrition profile

Human over-nutrition, threat to human health (?)

Human under-nutrition, sustaining human health

System nutrient surpluses, threat to environment

System nutrient deficits, sustaining natural resources

Few outputs/objectives, enterprise model

Multiple outputs/objectives, farm-household model

Capital intensive Labor intensive

Strong economies of scale Weak economies of scale

Often subsidized Few subsidies, may be taxed indirectly

Large/formal/rich vs small/ informal/poor dairy systems (cont)

Demand and product profile

Value added products, highly processed

Low cost products, traditional processing

High relative demand for food safety/quality

Low relative demand for food safety/quality

Large/formal/rich Small/informal/poor

Policy profile

Highly regulated and monitored

Largely unregulated, unrecorded

Over-represented: loud voice in domestic and international policy

Invisible: little voice in domestic or international policy

Growth and opportunity profile

Stagnant future prospects (??) Growing future prospects (??

Aims of smallholder dairy production?

It’s about MilkCompetitiveness, even in very difficult environsBest use of underutilized local resources – connected to crops

ButIt’s also about People (in difficult environments)

EmploymentBoth on farm and along supply chain

LivelihoodsAssets and nutrients