Presentation by Dr Steve Staal, Director of ILRI's Market Opportunities research theme, at the 10th World Conference of Animal Production held in Cape Town, South Africa, 23-28 November 2008.

1. 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 Town
26 th Nov, 2008

2. Outline
Overview of milk market and consumption
patterns in key dairy countries
Evidence towards driving factors in dairy
development
Competitiveness of smallholders dairy
producers
Employment/livelihood implications
Comparing poor/smallholder with rich/large dairy
systems

3. Dairy growth in key regions
Annual growth rate
Annual growth rate (%) in Total Annual growth rate (%) Annual growth rate
(%) in Total Consumptio in Human Annual growth rate (%) in
Region Period Production n Population (%) in Income Urbanisation
Central Africa 2000-2003 0.3 0.3 2.7 6.7 3.8
1990-1999 1.5 1.5 2.9 1.8 4
East Africa 2000-2003 9.2 2.8 2.7 7.5 5.4
1990-1999 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 3.9
West Africa 2000-2003 2 1.7 2.7 6 4.4
1990-1999 2.2 2.4 2.9 5.5 5
India 2000-2003 1.8 2.4 1.6 7.9 2.4
1990-1999 4.1 4.3 1.8 8.1 2.7
Bangladesh 2000-2003 0.8 -0.6 1.9 7.8 3.6
1990-1999 0.3 -1.9 2.1 7 4

4. Key Dairy Markets mostly
Informal
Informal market share %
SSA Kenya 88
Tanzania 98
Uganda 90
L. America Mexico 33
Nicaragua 86
Costa Rica 44
Brazil 44
S. Asia India 85
Sri Lanka 40
Pakistan 98
Primary market for both small producers and poor consumers
Sources: ILRI Collaborative Research & FAO E-Conference

5. Comparison of % imports in countries
with strong vs. weak dairy traditions
% of dairy imported
100% Countries with strong Countries with weak
80% dairy traditions dairy traditions
60%
40%
20%
0%
So n
a
m
Pa a
Th ia
Et i a
Ug a
re da
p.
Vi nd
ka
ia
ny
a
i
i
al
r
Ind
op
Na
es
Re
st
an
K o an
la
ge
Ke
m
ki
ai
on
hi
iL
Ni
et
a,
Ind
Sr
Source: FAO data
% of dairy imports
Implication: imports cannot easily compete with traditional
products

6. 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 countries
E&S Africa: 10 countries
Associated milk production trends since 1970
with indicators of
Economic growth
Policies
Ag growth
Source: StaaI et al, PPLPI Working Paper, 2008

7. Determinants of change in milk
production: parameter estimates for East
Africa
Variable Coefficients
Milk 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 $) 0.40***
Number of TV sets per capita 0.03**
Life expectancy (years) 1.03***
R&D in agriculture per hectare ($) NS
Yield (lt/milking animal) 0.36**
Milking animals, cows and buffalos (heads) NS
Formal market associated with lower dairy development
Note: a/ (*), (**) and (***) statistically significant at the 10%, 5% and 1% respectively.

8. Determinants of change in milk
production: parameter estimates for
South Asia
Variable Coefficients
Milk producer's price/import price NS
Openness (Trade as % of GDP) NS
GDP growth (%) 0.733**
Domestic demand (litres) 0.21**
GDP per capita (2000 US$) NS
Number of tractors per hectare 0.23***
Telephone mainlines (per 1,000 people) -0.16**
Share of formally processed milk in total output (%) NS
Milking animals, cows and buffalos (heads) 0.19**
Yield (lt/milking animal) 0.23**
No apparent relationship between main market channel
and dairy development
Note: a/ (*), (**) and (***) statistically significant at the 10%, 5% and 1% respectively.

9. India: district level analysis of
dairy development
Index hybrid cows-milking
buffalos per worker
Estimated coefficient
Fertilizer per hectare of crops (kgs) 0.07**
Road density (km per hectare) -0.07*
Population density -0.02
Crop area under irrigation (%) 0.15**
GDP per capita 0.19
Urbanization (%) 0.93
Annual growth of GDP per capita -0.01
Rural workers/population -0.44**
Literacy rate (%) -0.03
Milking cows/total cattle 0.06
Rain (mm per year) 0.06*
1982, 1987, and 1992, 250 districts across India

10. India: cooperatives and dairy
development
Liters of milk to coops per milking cow Number of hybrid cows and milking buffalos per worker
0.8 600
0.7
500
0.6
400
0.5
0.4 300
0.3
200
0.2
100
0.1
0 0
Punjab Haryana Uttar Pradesh Maharashtra Gujarat Karnataka Andhra Pradesh Rajasthan
The results suggest that there is a small but positive relationship
between milk procured by cooperatives and the indicator of dairy
development.
However, not consistent – key dairy states of Punjab, Haryana
and Uttar Pradesh have relatively low levels of dairy cooperative
activity.

11. 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)

12. Yield gaps in dairy cattle in SSA
A. Exotic Cattle B. Crossbred Cattle
6000 6000
Milk Yield per Lactation (Kg)
Milk Yield per Lactation (Kg)
5000 5000
4000 4000
208.5% 90.2% 157.0%
3000
3000
2000
2000
312.6%
1000 132.0% 65.1%
1000
0
Southern Africa West and Central East Africa
Africa Southern Africa West and Central East Africa
Africa
Grade cattle Crossbred cattle

13. Costs and Revenues - Kenya
All forms of production profitable: zero grazing to extensive grazin

14. India (Punjab, Haryana, Gujarat)
Average Yield Per Animal
10 9.7
8.4
7.6 7.6 7.4 7.8
8
6.2 6.3
6
Rs./Lit.
4
2
0
Small Medium Large Commercial
North West
Source: Sharma and Delgado, 2003

15. India: Average profit per liter of milk
(with family labor)
0.7
0.5
Rs/litre
0.3
0.1
-0.1
<=20 20-40 40-80 80-150 >150 Avg.
Farm scale - liters of milk/day
Source: Sharma and Delgado, 2003

16. India: Mean Farm
Efficiency by Size group
0.94
0.9 0.87 0.86 0.83 0.85
0.80
0.7
Index
0.5
0.3
0.1
<=20 21-40 41-80 81-150 >150 Average
Farm scale - liters of milk/day
Key distinguishing factors: information** and credit*
Does not include most non-market benefits
Source: Sharma and Delgado, 2003

17. Opportunity costs of labor and herd size:
comparison of typical herd size and rural wage rates,
12 selected countries in SSA, Asia and LA
120 250
100
200
Cattle numbers
80
$ per month
150
60
100
40
50
20
0 0
Th nd
nd
C ivia
os ivia
Ta pal
ag a
Ta nia
ia
a
r
Ta ya
Th a
os ica
a
ca
bi
ad ani
ny
ic
an
la
la
n
e
a
um
R
R
as
l
l
Ke
Ke
Bo
Bo
ai
ai
N
nz
nz
nz
ta
ta
ol
C
C
M
Herd size (cattle per farm) Rural wage ($/month)
Source: Project on Transregonal Analysis of Crop-Livestock intensification, ILRI 2002

18. Major source of rural employment
In Kenya, about 50% of smallholder farmers (1-3) cows
employ a full time laborer

19. Not just farmers: employment in
indigenous markets
Number of jobs created per 100 litres milk handled daily
No. of direct Main milk
full-time jobs product
Kenya mobile traders 1.7 Liquid
Bangladesh sweet makers 5.6 Trad. sweets
Ghana milk/snack retailer 10.0 Milk snacks
More than 5 times the no. employed in
formal sector
Most pay higher than minimum wage

20. 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 expenditures
Value accrues at sale
Insurance
Keeping of animals to meet emergency expenditures
Value accrues daily

21. Returns to cattle production with and without
non-market benefits – Western Kenya
US$/yr Benefits of finance and insurance are based on
1400
contingent valuation of Willingness To Pay
1200
Increase in
1000 “profit” due
18% 15% 14%
800 to finance
600 and
insurance
400
benefits
200
0
Extensive dairy Semi-intensive dairy Intensive dairy Source:
Without With Without With Without With Ouma 2003
Total revenue Total costs Profits
Tested using tobit analysis of age of sale of culled cow
What is competitiveness?

22. Scarce nutrients – farm
and family
Farm nutrients – problem is nutrient deficits, not
surpluses
West Kenya – only farms with cattle had positive (small)
nutrient balances
Central 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)

23. Large/formal/rich vs small/
informal/poor dairy systems
Large/formal/rich Small/informal/poor
Few outputs/objectives, Multiple outputs/objectives,
enterprise model farm-household model
Production Often subsidized Few subsidies, may be taxed
profile indirectly
Capital intensive Labor intensive
Strong economies of scale Weak economies of scale
Human over-nutrition, Human under-nutrition,
Nutrient and threat to human health (?) sustaining human health
nutrition profile
System nutrient surpluses, System nutrient deficits,
threat to environment sustaining natural resources

24. Large/formal/rich vs small/
informal/poor dairy systems (cont)
Large/formal/rich Small/informal/poor
Value added products, Low cost products,
highly processed traditional processing
Demand and
product profile High relative demand for Low relative demand for
food safety/quality food safety/quality
Highly regulated and Largely unregulated,
monitored unrecorded
Policy profile
Over-represented: loud voice Invisible: little voice in
in domestic and international domestic or international
policy policy
Growth and Stagnant future prospects (??) Growing future prospects (??
opportunity
profile

25. Aims of smallholder dairy
production?
It’s about Milk
Competitiveness, even in very difficult environs
Best use of underutilized local resources – connected to
crops
But
It’s also about People (in difficult environments)
Employment
Both on farm and along supply chain
Livelihoods
Assets and nutrients