PAAP’s Electronic Newsletter
13 March 2009 Volume 12 Number 05
INFORMAL DAIRY SECTOR: POLICY REFORMS IN KENYA AND USING INFORMATION TECHNOLOGY TO IMPROVE EFFICIENCY IN UGANDA
The liberalization of agricultural markets in the late 1980s and early 1990s introduced many new challenges for small-scale farmers, particularly in sub-Saharan Africa (SSA). As the government marketing boards closed, producers were left to deal with a range of middlemen who work much closer with the markets. This has forced countries to introduce sweeping policy changes in support of small-scale farmers. This issue of the newsletter captures some of the impacts of recent policy changes particularly in the dairy sector in Kenya and; how dairy farmers in Uganda have used information technology to make the supply system more efficient.
Introduction
T
HE Kenya dairy sector has changed significantly since the industry was liberalized in 1992. Informal milk trade, in which raw milk is sold to consumers by small-scale traders, now accounts for more than 80 percent of all milk marketed in the country. Until recently, however, the sale of raw milk in urban areas was not allowed and traders who sold raw milk were often arrested on account of regulations that existed at the time. The main dairy regulatory authority, the Kenya Dairy Board (KDB), appeared to favour and align itself with the formal large-scale milk processors.
Since 2000 an advocacy campaign, based on research evidence from the Smallholder Dairy Project (SDP) that ran from 1997 to 2005, has succeeded in changing the way the Kenyan informal milk sector is viewed. The government now recognizes the value of the informal milk sector in serving the needs of consumers (including but not confined to the poor) and in creating employment and small-scale business opportunities, whilst the main public health risks thought to be associated with the sector have been shown to be largely overstated. Additionally, the policy environment at the national level has transformed from being actively hostile to broadly supportive.
The key drivers in the process of KDB’s policy reform, which reached its peak in late 2003, are: robust research evidence from SDP; restructuring of KDB operations that involved staff rationalization, recruitment of qualified staff and capacity building; engagement in collaborative projects to improve small-scale milk marketing, mainly focusing on testing a quality assurance approach involving certification of small-scale milk traders after standardized training; development of a strategic plan with clear goals and activities; creation of dairy regulatory forums with key stakeholder representation; comprehensive review of dairy regulations and; engagement in a process of harmonizing regional dairy policies, regulations, and standards in training and quality assurance.
The change in national policy has been revealed mostly through shifts in rhetoric and in speeches made by regulators and politicians. Although there have been efforts to align these changes with written policy, this process has been slow; a revised dairy industry policy and bill currently await parliamentary approval. It is noteworthy, however, that previous efforts at revising and drafting a new dairy policy and bill failed to proceed even this far.
Local-level regulatory authorities
KDB is a parastatal under the Ministry of Livestock and Fisheries Development. Its regional offices are manned by an officer and a team of field inspectors who ensure that milk traders comply with the dairy regulations. The inspectors also provide training and professional advice on regulatory requirements, milk handling and marketing. The Department of Public Health (DPH) officials fall under the Ministry of Health and are responsible for ensuring that food handlers in food manufacturing or retail business premises comply with public health regulations. Municipal council officials issue trade licences and ensure that businesses are located in acceptable designated areas. Local authorities also employ their own public health officers who complement the Ministry of Health officers to inspect food premises and perform other public health activities within the municipality.
Dairy regulations that govern milk marketing in Kenya
The agents involved in milk production and marketing are subject to various regulations and are also required to obtain various licences to carry out their business operations. Medical certificates are issued biannually but other licences are issued annually. The cost of business licence varies among municipal councils. All milk handlers are required to wear clean personal protective clothing (gum boots, dustcoats/aprons).
Changes in behaviour and attitudes
Producer groups
Before the dairy industry was liberalized, small-scale producers – who typically keep one to five cows – usually sold their milk to The Kenya Cooperative Creameries (KCC), either directly or through local dairy cooperative societies. Producers and cooperative societies also carried out some local sales although hawking was rare. After KCC collapsed in 1999 and dairy cooperative societies disintegrated, sales of raw milk by farmers through hawkers increased dramatically. Because hawking of milk was illegal, hawkers risked having their milk confiscated by KDB officers and the police.
As a result of the poor performance of many cooperative societies and the risks associated with milk hawking, farmers started to seek more secure markets for their milk. Some formed self-help groups while others registered with the Department of Social Services and acquired premises which they operated as milk bars or mini dairies, depending on the scale of operation. The establishment of some of these groups was facilitated by the then Ministry of Agriculture and Livestock Development and later pursued by KDB.
Whereas previously individual producers rarely came into contact with the regulators, after the producers formed groups and obtained licences to run milk bars or mini dairies, DPH and KDB officials frequently visited them and organized training sessions on hygienic milk handling in collaboration with relevant government departments (e.g. livestock production, veterinary services and cooperatives) and non-governmental organizations (NGOs).
In addition to operating milk bars and mini dairies, some producer groups pooled their milk and sold it to processors, retaining only a small amount for sale to mobile traders and individual consumers. Producer groups tended to be very strict on testing milk for adulteration because of the high risk of milk from one producer spoiling the entire batch of pooled milk.
Mobile traders
Before 2000, all mobile traders operated illegally, delivering milk directly to customers or selling it on the streets. They often operated very early in the morning to avoid the regulators. However, they risked being caught by KDB officials on patrol with police who would confiscate their milk, containers and bicycles. To avoid arrest, they paid bribes to corrupt police officers and thus risked harassment from thugs who posed as policemen and ‘confiscated’ their milk or simply extorted money from them. As a result, traders handled small amounts of milk (often just five litres) to minimize the scale of any losses or to enable them run away from potential trouble.
As the option to legitimize their businesses became available after 2000, some mobile traders obtained business licences, especially in areas that KDB officials regularly patrolled. Once they were licensed, mobile traders handled more milk as they were free from the risk of having their milk or containers confiscated. Some traders handled up to 200 litres a day and others used hired transport or their own vehicles.
Whereas unlicensed milk traders previously relied on customer feedback for indications of problems with milk quality, many traders have now been trained on milk testing and use lactometers to test random milk samples for adulteration. As a result of increased testing of milk at collection centres, some traders reported fewer incidences of spoiled milk and a corresponding decrease in the number of customer complaints.
Most unlicensed mobile traders said that they wanted to obtain licences for their businesses but found the cost of doing so prohibitive. Because little or no capital investments (apart from licences) are needed for informal milk trade, many would-be traders with no access to capital initially operated without licences and avoided encounters with KDB and DPH officials until they accumulated enough money to pay for the licences.
As a way around the high cost of individual licensing, some traders organized themselves into groups and shared the cost of a milk bar or mini-dairy licence, a strategy encouraged by KDB. Typically, 20–60 registered mobile traders deliver milk to a fixed location from which the milk is distributed or supplied directly to customers. In addition, each group member is required to have a milk movement permit. Some groups have issued their members with identity cards which serve as proof of licensing. With time, some traders left the groups to seek individual licences.
Some licensed traders considered their unlicensed counterparts to be a threat because the latter operated at lower costs. However, the licensed traders were reluctant to report them to the regulatory authorities because in many cases they were friends, neighbours or relatives. KDB has encouraged self-regulation and consequently, the situation has changed with some traders reporting their colleagues who do not meet minimum milk quality requirements e.g. those who adulterate milk.
Milk transporters
Before 2002, milk transporters were regularly stopped by police at roadside checkpoints and often harassed into paying bribes to avoid arrest. This situation improved with the election of a new government in December 2002 on a platform of zero tolerance to corruption, although the change in police behaviour proved to be short-lived. The relationship between milk transporters and KDB officials has similarly improved. Some transporters had already switched to using aluminium containers and those who still used plastic containers planned to use metal ones in future.
Milk bar operators
Many milk bar operators started on a small scale without licences and later acquired licences as their businesses grew. Before 2000, the sampled milk bars had licences from the local authority and DPH but not from KDB; for this reason, the operators were often harassed by KDB officials. Attitudes have now changed and KDB officials are more supportive of the milk bar operators and give them advice on how to obtain licences. Although testing of milk was uncommon before 2003, most of the sampled milk bar operators have been trained and now carry out platform tests on raw milk that they receive. Milk bar operators stated that they were keen to receive training in milk handling and processing.
KDB officers
Since 2000, KDB has changed the way it implements current legislation, with more emphasis on licensing rather than arresting small-scale milk traders. The officers tend to work less with the police and more with a wide range of stakeholders such as government departments, NGOs and civil society organizations. The quality of services offered has also improved and officers carry out regular spot-checks on traders to ensure they are complying with the regulations and remitting the cess levy. Each KDB office now has a mobile mini laboratory to facilitate analysis of milk samples in the field. KDB also conducts training sessions on milk handling, processing and marketing. In Nyeri and Nairobi, milk producers reported that the KDB protects them from ‘rogue’ traders who default on payments.
KDB’s improved service delivery was influenced by corporate restructuring facilitated by FAO and the election of a new government in 2002. The introduction of improved performance-based work contracts made staff more accountable for their work and enabled them to take more personal initiatives in the interpretation of regulations at the local level. The new government’s zero tolerance to corruption helped to reduce incidents of bribery by senior officers.
DPH officers
Previously, the prevalent attitude of DPH officers was that small-scale, mobile milk traders should be arrested. However, attitudes have since changed and DPH officers are now more supportive, offering advice to traders on how to legalize their businesses and giving them time to comply with the legal requirements. DPH officers also support KDB’s move to encourage mobile traders to form groups and acquire fixed premises to enable them to legally sell milk directly to consumers. DPH officers now collaborate with their KDB counterparts to ensure trader compliance with licensing requirements and also participate in joint training sessions and seminars.
Municipal council officers
Formerly, council officers visited milk traders only at the start of the year to ensure they had the required business licences. Council officers were also responsible for checking that businesses were set up in accordance with the town plan and that the necessary utilities and services were available. More recently, council officers collaborate more closely with their colleagues from the DPH and carry out joint inspections of new premises before issuing licences for milk-related business.
Outstanding issues
Aluminium milk cans: Although public health and dairy regulations require milk to be transported in seamless metal containers, most small-scale traders continued to use cheaper plastic ones, arguing that they could access credit to buy the metal containers (Kenya Shillings (KSH) 3000 or KSH 6000, respectively for a 30-litre or 50-litre container). In some areas, the metal containers were not locally available. Plastic containers were generally preferred because the heavier metal ones limit the quantity of milk that can be transported by bicycle.
The Intermediate Technology Development Group (ITDG), a non governmental organisation, has developed specially adapted bicycles fitted with a rack to accommodate the approved metal cans for use on the steep, rough terrain in Nandi District. However, mobile traders reported that the racks made the bicycles too heavy to push uphill thus limiting further the amount of milk they could carry. Traders who relied on public transport reported that it was difficult and impractical to transport metal containers in matatus (commuter taxis). However, this mode of milk transportation is illegal and KDB instead encourages the use of ‘milk only’ vans and bulk sourcing of milk for retail, for example from farmer groups or processors, which makes it easy to monitor milk quality. KDB is promoting this approach because it facilitates the integration of formal and informal traders, allowing the latter to access supplies of safe milk while minimizing spoilage losses.
Payment of cess: All milk traders are required to pay cess of KSH 0.20 to KDB for every litre of milk sold. Since most informal traders do not keep accurate records of milk sales, the cess is usually based on average monthly estimates. To overcome these difficulties, traders have been encouraged to attend training on business skills and record keeping. Some cases were reported of KDB officers failing to issue receipts for cess payments, especially before officers were transferred to new posts. Informal traders said that the rate for cess was too high and were unaware what services KDB offered in return for the cess it collected. Although cess should be paid only once, double taxation on the same quantity of milk sometimes occurred, mainly due long supply chains, poor logistics, lack of records and ignorance on the part of the traders.