Quality-based milk payment in Kenya November 2025 Brief Contents | Page 1 of 10 CGIAR Contents SUMMARY 3 WHAT IS QUALITY-BASED MILK PAYMENT? 3 HOW TO INCENTIVISE FARMERS TO PRODUCE QUALITY MILK? 3 HOW COMMON IS QUALITY-BASED MILK PAYMENT IN KENYA 4 WHAT ARE THE ECONOMIC BENEFITS OF A QUALITY-BASED MILK PAYMENT SYSTEM (QBMP) SYSTEM? 6 PREREQUISITES TO IMPLEMENT A QUALITY-BASED PAYMENT 7 ROLE OF THE DIFFERENT ACTORS AND STAKEHOLDERS 8 REFERENCES 9 CGIAR Contents | Page 2 of 10 Authors: Isabelle Baltenweck1, Alice Murage2, Francis Wanyoike1, George Kibet3, Enoch Kiptoo3, Deborah Muricho1, and Joseph Karugia1 1. International Livestock Research Institute 2. Kenya Agricultural and Livestock Research Institute 3. Kenya Dairy Board Suggested citation: Baltenweck, I., Murage, A., Wanyoike, F., Kibet, G., Kiptoo, E., Muricho, D. and Karugia, J. 2025. Quality-based milk payment in Kenya. Nairobi, Kenya: International Livestock Research Institute (ILRI). Cover photo: Milk quality testing demonstration during a visit to LUULI Cooperative in Kakamega. Credit. Charlotte Kirui/KCDMS/ILRI. Copyright: © 2025. ILRI. This publication is licensed for use under a Creative Commons Attribution 4.0 International License (CC BY 4.0). To view this license, visit https://creativecommons.org/licenses/by/4.0. Disclaimers: This publication has been prepared as an output of the CGIAR Policy Innovations Science Programs. Any views and opinions expressed in this publication are those of the author(s) and are not necessarily representative of or endorsed by the CGIAR System Organization. Acknowledgements: This work was conducted as part of the CGIAR Policy Innovations Science Programs. CGIAR research is supported by contributions to the CGIAR Trust Fund. CGIAR is a global research partnership for a food-secure future dedicated to transforming food, land, and water systems in a climate crisis. https://creativecommons.org/licenses/by/4.0. https://www.cgiar.org/funders/ Contents | Page 3 of 10 CGIAR Summary • Quality-based milk payment (QBMP) is a system where milk is paid for not just by volume, but also by specific quality attributes. The main goals are to give producers a fair price for higher-quality milk and to incentivize them to produce better milk. • In Kenya, while milk has to meet minimum quality standards set by the Kenya Dairy Board, the practice of quality-based payment is not widespread. Most processors use quality parameters, such as water adulteration, to accept or reject milk, rather than as a basis for payment. • Farmers tend to benefit from a QBMP system while cooperatives and processors incur higher costs that may not fully be recovered through higher sale prices of milk. • To successfully implement a QBMP system, several measures are needed: stakeholder agreement, monitoring and data systems, capacity building, and government support. • Kenya's ambition to export about 1 billion liters/year by 2030 (Kenya Government, 2024) or 12% of the projected production should be an impetus to support the design and implementation of a QBMP system. What is quality-based milk payment? Milk quality is a broad term referring to both safety and other attributes that consumers and dairy value chain actors value. Safety attributes include bacterial load, antibiotic residues, and aflatoxin contamination. Other ‘quality’ attributes include milk composition (i.e., fat content), non-adulteration, taste, color (it should not deviate from normal), and flavor. A quality-based payment system means that the milk is paid not only based on volume, but also on other characteristics. It has two primary purposes: paying producers a fair price (higher-quality milk being more expensive) and incentivising them to produce milk matching the desired quality (Ekman, 1962). In terms of safety, minimum standards for bacterial counts and other food safety indicators are established. In Kenya, the Kenya Dairy Board is responsible for regulating and ensuring compliance with dairy standards and safety requirements, as outlined in the Dairy Industry Act, CAP 336 (https://www.kdb.go.ke/index.php/dairy- regulatory-services/). In terms of other quality attributes, payment based on butterfat content is most relevant in markets where milk products, such as cheese and butter, are common, like in India. All milk sold in Kenya should meet a minimum standard, although it is well documented that the quality is generally low. According to Xu (2024), unmet quality criteria include high bacterial load, antibiotic residues, water adulteration, and aflatoxin contamination. The primary quality parameters used to determine payment include: • Fat content: Higher fat content is typically rewarded, as it contributes to milk's value, especially in the production of dairy products like cheese and butter. • Protein content: Like fat, higher protein levels are valued in the dairy industry. • Somatic cell count (SCC): A higher SCC indicates poor milk quality, often associated with mastitis. Milk with lower SCC receives a premium. • Total bacterial count (TBC): High bacterial levels indicate poor handling, hygiene, or health issues in cows. Low TBC is rewarded. • Additives: The presence of contaminants like water, antibiotics, or detergents results in lower payments or rejection of the milk. How to incentivize farmers to produce quality milk? Subject to the milk meeting minimum standards, there are broadly two options to incentivize producers to produce high-quality milk: pay less for lower-quality milk or pay more for higher-quality milk. In Kenya, the reality is that numerous milk buyers, including traders, cooperatives, and processors, offer lower prices for lower-quality milk. https://www.kdb.go.ke/index.php/dairy-regulatory-services/ https://www.kdb.go.ke/index.php/dairy-regulatory-services/ CGIAR Contents | Page 4 of 10 However, this may not be a viable option for buyers, as producers will often find another market. For this reason, rewarding will work better with a minimum price for milk meeting minimum standards. Smallholders play a crucial role in the Kenyan dairy sector, accounting for 80% of all dairy producers and contributing 56% to the country’s total milk production. Such smallholder dominated chains present unique challenges: milk from smallholders is more likely to be contaminated than from larger producers, the high number of intermediaries along the chain exposes the milk to a higher risk of contamination, high costs for testing individual milk samples and quality assurance of milk collected from smallholder farmers is particularly expensive due to the high transaction costs associated with small volumes collected from many sources. Therefore, the design of milk quality assurance systems for smallholders needs special consideration to keep transaction costs low enough to ensure a final product of good quality that is affordable to consumers and offers suppliers a competitive price. A farmer milking a dairy cow. Credit: Charlotte Kirui/KCDMS/ILRI. How common is quality-based milk payment in Kenya Formal processors adhere to quality standards prescribed by the Kenya Dairy Board. In addition, some processors reward farmers for supplying milk of higher quality. For most milk processors in Kenya, quality standards like water adulteration are used to accept or reject milk, but not as a basis for payment. Large processors test ‘important parameters’ and reject milk that is below standard, but don’t pay based on milk quality. Payment systems are either fixed or quality premiums. Some processors offer a base price for milk and add premiums based on the quality of milk delivered. For instance, milk with a higher fat content or lower bacterial count may earn extra payments. In addition, some processors impose penalties on farmers in the form of deductions from their payment if their milk fails to meet the set quality standards, especially concerning TBC, SCC, and adulteration. There are instances of processors that are implementing a form of QBMP system. These include Happy Cow Ltd, which provided financial incentives to farmers who met specific quality standards, offering a bonus of up to Ksh 740 per month. Other examples include Brookside Dairy, which compensates farmer cooperatives for high butterfat content through an annual bonus and a bonus of KSh 1 per liter for delivering chilled milk to the chilling plant. Another example is Kenya Cooperative Creameries, which has facilities in regions with high fat, such as Sotik and Trans-Nzoia, for cheese and butter production. However, it only pays a premium for chilling, not for the high butterfat content. See Table 1 for details. Contents | Page 5 of 10 CGIAR Table 1: Quality-based milk payment systems in Kenya Processor Characteristics Brookside Dairy Butterfat, milk free from antibiotics and added water. Acceptable quality parameters 1. Fresh cow milk 2. Free of any flavors and odors 3. Free of any impurities and physical dirt 4. pH between 6.6 and 6.7 is maximum 5. Minimum butterfat content 3.7% 6. Low microbial count resazurin reducing dye test grade 5-6 7. Acidity 0.13% - 0.14% 8. Free from antibiotics, preservatives, or any additives 9. The milk shall be negative for alcohol and clots on the boiling test 10. The milk shall be rejected if, in the opinion of the grader, it is unfit for processing for whatever reason. https://www.brookside.co.ke/sustainable_farming.php Started in 2018 Happy Cow Limited Happy Cow developed its own standards, which were less stringent than those of the Kenya Bureau of Standards (KEBS) but were considered more realistic and attainable by smallholder farmers and CBEs (Table 1). In the QBMPS, bulk milk is analyzed daily for all parameters listed in Table 1. To reduce the costs of testing individual milk samples, approximately 5–10 farmers are grouped so that their supplied volumes collectively fill a 50 kg can. These farmers are maintained in the same groups to ensure continuity and consistency in the payment system. Sampling is done randomly to ensure that each can is tested twice a month for the parameters listed above. The payment module is based on the sum of the scores from the last column of Table 1, as shown in Table 2. https://edepot.wur.nl/455004 Started in 2015 Bio Foods Limited Quality premium paid, but no details provided Bio Way – Bio Foods Ltd https://www.brookside.co.ke/sustainable_farming.php https://edepot.wur.nl/455004 https://biofoods.co.ke/bio-way/ CGIAR Contents | Page 6 of 10 What are the economic benefits of a Quality-Based Milk Payment system (QBMP) system? The implementation of a Quality-Based Milk Payment system (QBMP) in Kenya has significant economic implications for various stakeholders in the dairy sector. For farmers 1. Increased income for high-quality producers. Farmers who produce milk meeting higher quality standards (e.g., low microbial content, high protein, and fat levels) receive premium payments, incentivising better practices. This could motivate investments in better feeding, hygiene, and milking practices. 2. However, the system also means higher production costs. To meet quality standards, farmers may need to invest in infrastructure (e.g., cooling tanks, clean milking equipment), veterinary care, and high-quality feed, which can increase operational costs. Smaller-scale farmers in particular may struggle to afford these investments, potentially marginalizing them. 3. Market differentiation. Farmers producing lower-quality milk may face reduced payments or exclusion from premium markets, creating income disparities within the farming community. Overall, Oghaiki et al. (2023) report that farmers implementing the QBMP system had a net profit of about 0.02 USD/kg. For dairy processors 1. Improved efficiency: high-quality milk reduces the costs associated with processing, such as extended shelf-life and fewer losses due to contamination. This may enhance profitability for processors. 2. Capital investment: processors may need to invest in technology for milk testing and grading, which could initially strain financial resources. 3. Market competitiveness: processors offering quality-based payments can attract better-quality milk, improving their competitive edge in both domestic and export markets. This is particularly the case for those producing butter, cheese, and other products. Oghaiki et al. report that cooperatives and processors implementing the QBMP system reported a net loss of USD 0.025 USD/kg of milk due to testing and initial investment costs. For consumers 1. Better product quality: consumers benefit from safer and higher-quality dairy products due to improved raw milk standards. 2. Potential price increases: enhanced milk quality and increased production costs may result in higher retail prices for dairy products. 3. Safer milk. For the economy 1. Export market growth: higher milk quality standards can improve Kenya's competitiveness in international markets, potentially increasing export revenues. 2. Boost to dairy industry reputation: a robust QBMP system positions Kenya as a producer of premium dairy products, attracting investment and fostering economic growth in the sector. Processors are concerned that paying for a QBMP system would affect their margin if the consumer prices are maintained. If consumer prices increase, purchasing power will be low, and many will shift to informal sources. Emerging niche markets for high-, medium-, and low-fat milk in Kenya offer opportunities across various segments, driven by changing consumer preferences, health trends, and demographics. High-fat milk typically contains higher levels of fat, resulting in a richer taste and a creamier texture. There are still emerging niche markets for high-fat milk in Kenya. These include premium yoghurts, creams, and cheeses, which can be marketed to affluent urban consumers. There is also growing interest in niche products, such as lactose-free, low- fat milk, in Kenya, especially among individuals with lactose intolerance. This taps into Kenya's growing health Contents | Page 7 of 10 CGIAR and wellness market, where consumers are seeking nutritional products that support fitness goals without excessive fats. These niche markets offer an opportunity for implementing a QBMP system. Prerequisites to implement a quality-based payment Below are some measures required to implement such a system. • Capacity building targeted to farmers on the importance of meeting minimum standards, and when relevant, milk quality attributes • Agree on quality attributes and develop grading systems; develop a monitoring system: To successfully implement a QBMP system, it is essential for all key stakeholders—farmers, processors, and regulators—to collectively agree on the specific milk quality attributes that will determine pricing. These attributes may include fat content, protein content, total bacterial count (TBC), and somatic cell count (SCC), all of which reflect the milk's overall quality and suitability for processing. This system allows processors to offer price incentives based on quality, motivating farmers to adopt improved production and handling practices. Premium prices act as a reward for farmers who meet or exceed the quality thresholds • Once agreed, grading systems can be developed to classify milk based on quality and set corresponding price incentives. For example, butterfat content-based grading, where farmers are paid higher prices for milk with higher butterfat content. Milk can be graded into categories based on butterfat percentage, such as: Grade A: Milk with butterfat ≥ 3.5%, Grade B: Milk with butterfat between 3.0% and 3.49%, Grade C: Milk with butterfat below 3.0%. This system encourages farmers to improve cattle feeding practices to increase butterfat levels. Another example is somatic cell count (SCC)-based grading, in which milk is graded by SCC, a key indicator of udder health and milk hygiene. Payment incentives are provided for milk with low SCC values: Premium Grade: SCC ≤ 200,000 cells/ml, Standard Grade: SCC between 200,000–400,000 cells/ml, Below Standard: SCC > 400,000 cells/ml. This system motivates farmers to adopt proper mastitis management practices • It is essential to establish a robust monitoring system to ensure compliance, transparency, and consistency in the grading process. This system should include regular milk testing, clear documentation, and feedback mechanisms that enable farmers to understand their milk quality results and identify areas for improvement. For example, Brookside Dairy in Kenya successfully implemented a grading system based on butterfat content. The monitoring process involved routine testing of milk at collection points and providing farmers with clear reports on the butterfat percentage of their milk. Farmers supplying milk with higher butterfat levels received premium prices, which created a direct incentive to adopt better feeding practices, such as improved forage quality and nutrient supplementation, to enhance milk fat content. This approach not only improved milk quality but also fostered trust between farmers and processors by ensuring transparency in payments and grading standards. • Data systems—at the collection center and/or cooperative level, to monitor individual farmers’ milk intake, acceptance/ rejection, and now adding quality parameters. Beyond minimum standards, quality-based payment will be best achieved by creating a greater demand for high- quality products and export markets. This aligns with Vision 2030, which supports the export of milk and dairy products. Domestically, demand for cheese remains relatively low, likely due to price and consumers’ tastes. As in other countries, Kenya sees an increase in the consumption of fast food, such as pizza and burgers. One option is to support the processing of ‘cheap’ soft cheeses for such products, rather than using imported products. The quality-based milk payment system varies by processor, depending on the dairy products produced, which affect the main milk quality attributes of interest to processing firms. A review of cases where the QBMP system has been adopted helps illustrate this. In India, where the production and consumption of products such as cheese, yoghurt, and milk sweets are very popular, a QBMP system piloted with dairy farmers' cooperative societies in Karnataka (Shenoy et al., 2015) focused solely on bacterial contamination levels in milk. A report on the pilot observes that production of cheese, yoghurt, and milk sweets, which generate higher profits, requires cleaner / less contaminated raw milk. In contrast, milk with a relatively high microbial load is only suitable for sale as liquid milk (which is less profitable). At the same time, pasteurisation methods can be varied to address the higher microbial load. In contrast, in Brazil, a QBMP system reported by Busanello et. al. (2020) renumerated milk supplier farmers based on numerous milk characteristics, including protein and fat content, together with somatic cell count [SCC] and the total bacterial count (TBC). CGIAR Contents | Page 8 of 10 These characteristics are of great importance to dairy processing firms in Brazil because they directly affect milk product yields (Busanello et al., 2020). The production and consumption of processed dairy products, including cheese, yoghurt, and butter, are quite popular in Brazil (FGV Projectos and Anu Food Brazil, 2018). The Kenyan dairy industry also includes camel and goat milk production and marketing, which are increasingly gaining popularity (Majiwa et al., 2022; Oselu et al., 2022). Formal value chains for camel and goat milk are emerging. The introduction of the QBMP system should also cover the two value chains. Role of the different actors and stakeholders KDB’s role will be to monitor the systems implemented by the processors (in line with the criteria), lobby the government to cover some of the system's costs to support the development of the dairy industry (through levies), and conserve breeds/biodiversity. Kenya is a liquid milk market, and therefore, incentives for quality-based payments are not as high as those in India, for example. Having targets helps in planning the activities and resources needed to achieve them. Data from KDB (2024) show that between 2001 and 2021, total milk production increased at a rate of 3.7% per annum, suggesting it may reach 8.35 billion liters/year in 2030. The country targets to export about 1 billion liters/year by 2030 (Kenya Government, 2024). Similarly, if the country were to target the procurement of approximately 1 billion liters of milk marketed through formal channels by processors, to be done under the QBMP system by 2030, this would represent about 12% of the projected production. Cooperatives play a pivotal role in implementing quality-based milk payment (QBMP) systems by serving as critical linkages between farmers and processors. Additionally, cooperatives can implement centralized milk testing and data systems, ensuring that quality attributes such as butterfat content, somatic cell count, and bacterial count are consistently monitored and communicated to farmers. Strengthening the management and leadership of cooperatives is essential to ensure they function effectively and deliver value to their members. A well-structured cooperative model enhances farmers' bargaining power, ensures economies of scale, and provides collective incentives to meet agreed quality standards, ultimately making QBMPS a sustainable and scalable solution. The government has a vital role in facilitating these linkages by promoting partnerships among farmers, cooperatives, and processors. For instance, governments can support the QBMP system by: 1. Establishing clear policies and regulations defining milk quality standards, grading, and pricing mechanisms. 2. Supporting the availability of quality testing equipment to reduce financial burden on cooperatives and farmers. 3. Investing in farmer training through extension services on best practices for hygiene, milk handling, and quality production. 4. Improving milk collection centers, processing facilities, cold storage, and rural roads to maintain milk quality. 5. Creating platforms to connect farmers, cooperatives, processors, and other stakeholders in the dairy value chain. 6. Implementing regulatory bodies to monitor compliance with milk quality standards and enforce penalties for non-compliance. 7. Supporting research into innovative dairy production and milk quality improvement technologies. 8. Ensuring price premiums for high-quality milk and protecting farmers’ incomes through fair competition. 9. Promoting public awareness of milk quality standards and the benefits of the QBMP system for both farmers and consumers. Research organizations would assess the costs and benefits of the systems for different actors, economically, socially, and environmentally, and propose adjustments. They will also be key in developing and evaluating the innovations necessary for an effective QBMP system, including testing and payment methodologies, as well as institutional arrangements for benefits to be fairly shared among all stakeholders. In conclusion, while the quality-based milk payment system in Kenya offers great potential to improve the dairy sector, its full impact depends on addressing challenges such as infrastructure, farmer education, and consistency in quality testing across the country. Contents | Page 9 of 10 CGIAR References Busanello M.I. Maria Pereira, H., Velho, M., André Piuco, V., Isabel Heck, M., Stürmer, L., Carlos Cosmam and J. Pedro Velho. 2020. Relationship between seasonal variation in the composition of bulk tank milk and payment based on milk quality. Slovak Journal of Animal Science, 53, 2020 (3): 132–144. FGV Projectos and Anu food Brazil. 2018. The Brazilian dairy sector and their interactions with international trade. FGV Projectos. Kenya Government. 2024. 3rd quarter report of the first annual progress report (2023/2024) on the implementation of the fourth medium-term plan (2023 – 2027). Kenya Government. Majiwa, E., G. Otieno, and C. Ngugi. 2022. Marketing of dairy goat products in Kenya: A survey of the dairy products in selected supermarkets in Nyeri, Meru, and Kiambu counties. Journal of Agricultural Extension and Rural Development, Vol . 14(2), pp. 73-78, April-June 2022. Oghaiki, Asaah Ndambi, Catherine Kilelu, Camee van Knippenberg and Jan van der Lee. 2023. Estimating public and private costs and benefits of implementing a milk quality assurance system in Kenya: A case study. NJAS: Impact in Agricultural and Life Sciences, 95:1, 2194258, DOI: 10.1080/27685241.2023.2194258. Oselu, S., R. Ebere, and J. Arimi. 2022. Camels, camel milk, and camel milk product situation in Kenya in relation to the world. International Journal of Food Science 1237423, 15 pages Shenoy A., R. Manaswini, B. Abhijit, C. Arun, and B. Emily. 2015. Group incentives, hygiene, and milk quality among dairy cooperatives in Karnataka, India. Agricultural Technology Adoption Initiative (ATAI) https://pubmed.ncbi.nlm.nih.gov/?term=%22Oselu%20S%22%5BAuthor%5D CGIAR Contents | Page 10 of 10 Contact: I.Baltenweck@cgiar.org CGIAR is a global research partnership for a food-secure future. CGIAR science is dedicated to transforming food, land, and water systems in a climate crisis. Its research is carried out by 13 CGIAR Centers/Alliances in close collaboration with hundreds of partners, including national and regional research institutes, civil society organizations, academia, development organizations and the private sector. www.cgiar.org We would like to thank all funders who support this research through their contributions to the CGIAR Trust Fund: www.cgiar.org/funders. To learn more about the Policy Innovations Program, please visit this webpage. To learn more about this and other Science Programs and Accelerators in the CGIAR Research Portfolio 2025–2030, please visit www.cgiar.org/cgiar-research-porfolio-2025-2030/ Copyright: © 2025. International Livestock Research Institute. This publication is licensed for use under a Creative Commons Attribution 4.0 International License (CC BY 4.0). To view this license, visit https://creativecommons.org/licenses/by/4.0. | | | mailto:I.Baltenweck@cgiar.org http://www.cgiar.org/funders https://www.cgiar.org/cgiar-research-portfolio-2025-2030/policy-innovations https://creativecommons.org/licenses/by/4.0.