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 1 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 2 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 3 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 4 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 5 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 6 Projections since last census and appraisal of Tanz. dairy sub-sector (‘97) 1500 1300 M illio n 1100 L itre s M ilk / Y r 900 700 1999 1997 1998 2001 2000 2003 2002 2005 2004 2007 2006 2009 2008 2010 Year 2 % G D P g ro w th 1 % G D P G ro w th M ilk P ro d u c tio n 7 Source: MOAC/SUA ILRI, 1998 Urban dairying Nairobi Dar-es-Salaam • Probably 80,000 heads • Small scale • Urban regulations not enforced • More public land • Low peri-urban prod. & poor infrastructure • • • • 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 8 reach its limits 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 9 Source: A. Msangi, SUA, 2001 Cost of Production Cost of Production in Kenya (1999 prices) 24 20 16 KShs Market price Cost per litre Revenue per lt 12 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 10 Source: ILRI Collaborative research in Kenya (2001) 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) 11 Dairy cattle population in eastern and southern Africa (‘000) Tanzania (300) 7% Uganda 3% Ethiopia 1% Kenya 3,000 70% 830 Zimbabwe & S Africa 19% 12 Current trends in dairy marketing % of domestically produced milk sold informally SSA Kenya Tanzania Uganda L. America Mexico Nicaragua Costa Rica Brazil S. Asia India Sri Lanka Informal % 88 98 90 33 86 44 44 83 40 Coops % 4 4 54 6 7 Sources: ILRI Collaborative Research & FAO E-Conference Most consumers are reluctant to pay for “value-adding” 13 Liquid milk traders in East Africa Unlicensed mobile milk trader In Nairobi, Kenya Group of licensed milk traders in Mwanza, Tanzania 14 Soft Cheese ‘Wagashie’ in Kumasi, Ghana 15 Fermented and sweetened milk sales in Bangladesh Making and sale of curd 16 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 400 M. 300 MT200 391 200 100 0 SSA 31 16 2000 Year 2020 Production to double: share from 36% to 52%. 17 Future trends in dairy marketing To be mainly driven by “Dairy Revolution” Per Capita Kg LME Region % Ann. Growth 1983 1997 Est. 2020 ’97 to ‘20 Developed 195 194 203 0.4 Developing 35 43 61 2.7 - L. America 93 112 127 1.8 - S Asia 46 62 78 (104) 3.0 (3.2) - S S Africa 32 30 37 3.3 - S E Asia 10 12 18 2.9 - China 3 8 16 3.5 Increased production is expected to occur in same areas of increased demand. % imported to dev. countries will 18 fall Source Delgado et al., 2001 80 70 60 50 40 30 20 10 0 India Australia Netherlands New Zealand USA 19 61 19 64 19 67 19 70 19 73 19 76 19 79 19 82 19 85 19 88 19 91 19 94 19 97 Million MT per annum Comparing production trends in India (a dev. country) with other developed countries Years 19 Source: India NDDB and FAOStats % Sources of Change in Cow’s Milk Production by Region, 1985 and 1998 % of Change in Cow's milk Prod. Herd % Milking Productivity Interaction 70 60 50 40 30 20 10 0 -10 China OE Asia India OS Asia SE Asia L. Amer WANA SS Africa Region • Milk production growth in SSA is predominantly from increase in herd size and not productivity 20 Source: Nicholson et al., ILRI MOSD Working Document No. 7 Competitiveness: Comparison of rural wage rates 120 250 200 80 150 60 100 40 $ per month Cattle numbers 100 50 20 N Herd s iz e (c attle per farm ) Bo liv ia C ol um bi a Bo li C os via ta R ic C a os ta R ic a 0 ep al Ta nz an M ad i ag a as ca r Ke ny a Ta nz an ia Ta nz an ia Ke ny Th a ai la n Th d ai la nd 0 Rural wage ($/m onth) • Smallholder dairying is labour-intensive • Local smallholder competitiveness partially dependent on low labour costs 21 Source: ILRI collaborative research on Trans-regional analysis of crop-livestock systems (2000) 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 22 Source: ILRI collaborative research in Kenya (1999) and Hall and Ehui (2000). 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 23 Source: Staal (2000), using FAOStats 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. 24 Source: Staal (2000) Comparison of % of domestic milk availability that is imported • Countries with strong traditions mainly demand fresh liquid milk thereby giving advantage to local producers 25 Source: Nicholson et al., 2001, using FAOStats 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 26 sector Thank you 27