SMALLHOLDER DAIRY BUSINESS MODEL

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					A SMALLHOLDER DAIRY FARM BUSINESS CASE IN A DEVELOPING COUNTRY - THE CASE OF SWAZILAND

Sabelo V Nkambule (MSc. Agric Economics)

EXECUTIVE SUMMARY The initial hypothesis was that smallholder farmers sell all milk produced in the farm to the informal market. If the hypothesis were true, then TechnoServe would focus on improving efficiency of existing marketing system and farm productivity. If false, however, TechnoServe would have to primarily concentrate on establishing a milk marketing model.

Before accepting or rejecting the hypothesis, we studied the current status of 10 smallholder dairy farming in Shiselweni region - where there are up to 80 diary farmers who could benefit from TechnoServe’s assistance.

The major finding is that in order for farmers to fully exploit the informal market, milk and sour milk have to be hauled from surplus areas in small communities to deficit areas in other locations within the Shiselweni region. Furthermore, excess milk would have to be sold to Parmalat through a collection center if quality and volume requirements are met.

If a farmer with the potential to manage a milk distribution system could be identified, it is recommended that TechnoServe should immediately implement the informal market milk distribution model with the farmer prior to advocating investment in a full-scale cooling center.

If this condition is not met, TechnoServe’s involvement in smallholder dairy farming should be reconsidered, otherwise it would be like ‘building a house on a weak foundation’.

PURPOSE OF OUR WORK IN DAIRY FARMING •To improve milk production at all levels; from smallholder farms to commercial farms PURPOSE OF TECHNOSERVE’S WORK IN DAIRY •Increase the number of smallholder and medium scale farms •Demonstrate the financial viability of milk production to financial institutions

KEY ACTIVITIES

•Interviewed 10 smallholder milk producers in the Shiselweni region farms •Visited smallholder milk producers at farms to understand current production and marketing processes •Discussed the current and futures state of Shiselweni milk producers with Dairy Board extension officer •Read Kenyan and Swazi Dairy industry strategic plans

ON-GOING QUESTIONS

•Which would be the most effective market coordination model between the distribution model and cooling center model? •Or should the be both pursed simultaneously or at different time periods?

OUR THOUGHT PROCESS
Breed Herd size Productivity Infrastructure Management Other

Production & production process

Shiselweni

Revenues Potential profitability

What is the status of small-scale dairy farming in SD and what can TNS do?

Manzini

Costs Demand/day

Lubombo Informal market Market coordination Hhohho Formal market

Milk wastage Point of sale Distance to market

Other

THE SHISELWENI REGION HAS ABOUT 80 ACTIVE SMALLHOLDER DAIRY FARMERS WITH UP TO 5 COWS
Info about Smallholder Dairy in Shiselweni Area Population Number of commercial small holder farmers Number of title deed dairy farms Number of smallholders visited Potential amount of excess milk Nearest Parmalat collection point Estimated distance between potential cluster of smallholder farms Estimated distance from cluster to urban center 3,790 km2 217,000 80 (2008 est.) 19 (2008 est.) 10 100 liters 40 to 50 km 15 km

30 km 30 km

Legend Smallholder farmers visited

Estimated route from farm to local consumer points Average herd size

1 to 5

JERSEY BREED PRODUCES AN AVERAGE OF 10 LITERS PER DAY ON UNIRRIGATED OR NATURAL PASTURE

Location

Number of farmers

Number of cows per farmer

Estimated Land (ha)

Average liters/cow/day

Breed

Irrigated pasture

Nxuthu Mthonjeni Hluthi Mpakeni Lulakeni Mpatheni Khubuta Total

1 2 2 2 1 1 1 10

1 3 1 2 3 5 5 20

1 0.5 1 1 1 1 1 6.5

5 12 5 10 10 12 15 10

Jersey Jersey Jersey Jersey Jersey Jersey Jersey

No No No No No No Yes

Source: interview with 10 smallholder farmers in Shiselweni

SMALLHOLDER DAIRY FARMING IS FACING 3 MAJOR CONSTRAINTS: POOR FEED REGIME, LIMITED WATER, AND SMALL SIZED LOCAL MARKET End goal Status Expected Outcome Variance •Fodder imported from RSA •Farms should grow at least • Erratic rainfall or Buy or grow • Secure fodder •Difficult to grow fodder 50% of its feed needs lack of irrigation feed, cut veld supply •Farmers ‘scout’ for grass grass Feeding Collect or buy water Milking
• To sustain cows • To produce milk • Cows grazing on veld • Supplement with dairy meal • Balanced ration: energy, protein, and roughage • Drinking water should be readily available to cows • No silage • Limited hay

• To sustain cows • To produce milk

• Watering cows a major limitation

• Many farmers are facing a water crises • Poor feeding regime

• To extract milk

• 8 liters of milk/cow/day

• 10 liters/day

Vet care Consumers buy milk at farm gate Sell milk to other areas Milk wastage

• To treat disease

• At least 10 cows died in since 2007

• Economic life of cow to be X years

• Relatively poor work ethic

• Farmer seeks revenue • Limited local market • Consumers prefer sour milk to milk • Earn revenue • Expand market size • Largely unexploited

• Sell to regional markets

• Limitations due to transport, bulking, and cooling • Limitations due to transport, bulking, and cooling • Limitations due to transport, bulking, and cooling

• Cooling tank model

• Discard spoilt sour milk • Remove whey

• Low demand for raw milk in local informal market

• Haul milk from surplus to deficit areas

FEED IS THE MAJOR COST DRIVER AND MIGHT BE EXPECTED TO INCREASE WITH AN IMPROVED FEEDING REGIME
•Feed is the major cost driver

Total

720

• Feed cost is driven by dairy meal purchases • Feed costs could be higher if silage or hay were used • Water is the second biggest cost driver

Feed

400

Transport

100 •Dairy meal •Cut grass •Standing hay – mainly rye grass of veld grass •No silage •Hay is used mainly under severe drought conditions

• Drinking water is either purchased or own transport used to fetch it • Based on observation during the farm visits, feed and water availability seem to be the major constraints in smallholder dairy production in the region • Since improved feeding and water systems would increase costs, increased milk productivity would have to be achieved

Water

180

Vet care

40

MILK FROM THE TRADITIONAL HERD DOMINATES THE INFORMAL MARKETING CHAIN…

100% =55m litres
Dairy Herd (Informal) 5% •Rural people obtain milk from their dual purpose breeds •Milk competes with other food sources • Commercial smallholder farmers in the region could be producing up to 400 liters of milk per day Import (Formal) 49% • Demand for milk increases in winter since production from traditional herd is at its lowest point • Rural farmers generally rely on milk from own traditional herd rather than purchased milk

Traditional Herd (Informal) 40%

Primarily onfarm consumption

Dairy Herd (Formal) 6%

Source: TechnoServe Analysis, 2008

…AS A RESULT, FARMERS OFTEN DUMP MILK LITERALLY OR THROUGH A WASTEFULL SOUR MILK PROCESSING METHOD
Input Suppliers Milk Production Milk & sour milk purchases Local Household

Milk purchases

Local Shop

Domestic consumption Dumping milk or whey

THE PROPOSED SOLUTION IS TO FIRST HAUL MILK FROM SURPLUS AREAS TO DEFICIT AREAS OF THE INFORMAL MARKET THROUGH A BULKING & COOLING HUB, THEN SELL EXCESSES TO FORMAL MARKETS

Farm

Local consumer points for milk & sour milk Excess milk

Urban consumer points

Bulking/cooling

Regional consumer points

Milk processor

Excess milk

ALTHOUGH SEVERAL CONSTRAINTS ARE FACING SMALLHOLDERS, THE PRIORITY IS TO DESIGN AND IMPLEMENT A PROVEN INFORMAL MILK MARKETING MODEL

Constraints Identified in ISP Value Chain Coordination

Major Bottleneck

Proven Smallholder Case

Infrastructure

Training

• Lack of an effective milk marketing system

Organization & Management

Financing

IN CONCLUSION, THE CURRENT SMALLHOLDER DAIRY MODEL HAS TO BE REMODELLED WITH

BULKING AND COOLING PROCESSES AS THE FOUNDATION
Maintain Structure
• Improve breeding • Improve feeding regime • Improve nutrition • Timely culling • Better vet care • Implement quality assurance system

TechnoServe would focus on market coordination

Put Roof
• Training • Build accountability • Encourage ownership of milk distribution system • Pitch smallholder model to financiers • Develop efficient feed regime

Build Walls
• Coordinate inbound farm logistics • Build milk distribution model • Sell milk through or to bulking & cooling center

Lay Foundation

• Identify distribution entity • Map the distribution process • Show the business case to the distribution entity & farmers

THE OVERALL RECOMMENDATION IS THAT TECHNOSERVE SHOULD DESIGN AND IMPLEMENT A MODEL TO SELL MILK OR SOUR MILK TO THE INFORMAL MARKET AND EXCESS MILK TO THE FORMAL MARKET

1. TechnoServe must identify a farmer who has the means and contacts to distribute up to 150 liters of milk and cultured sour milk per day to the informal market within a 15 km radius

2. TechnoServe and the Dairy Board should pilot the distribution of milk and cultured sour milk with entrepreneur with his own milk production for a 1 month period

3. TechnoServe should asses the cost and operational implications of selling at least 150 liters excess milk per day to a Parmalat collection point within a 40 to 50 km radius through a bulking and cooling center


				
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Description: The publication shows how cutting edge agribusiness strategy improves the lives of smallholder farmers developing countries - the case of Swaziland