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I. Background and justification of the study

1.1. Background
1.2. Justification of the study

1.1. Background

Dairying as a component of livestock production is an important economic activity in sub-Saharan Africa. For instance, the share of the value of the locally produced milk in the value of all locally produced livestock food products in sub-Saharan Africa has averaged well over 50 percent since the beginning of the 1970s (Mbogoh, 1984). However, sub-Saharan Africa as a region has not performed satisfactorily in terms of achieving self-sufficiency in dairy products over the last two or so decades. As a result, the level of dairy imports into the region, either on commercial terms or as food aid, has continued to increase relatively fast since the 1960s (Mbogoh, 1984; Von Massow, 1984). Given this situation, there is a dire need to intensify efforts and improve dairy production in sub-Saharan Africa.

Any effort to improve dairy production should also be accompanied by improvements in the marketing system in order to ensure that:

(i) there are sufficient outlets to cater for increased output of dairy products;

(ii) the marketing system provides the right incentives to the producers so that they are able to provide the goods and services required by the consumers at prices they are willing to pay.

The above account of events suggests that the marketing system should be efficient, in a manner to be defined hereafter, in order to facilitate increased production.

1.2. Justification of the study

One may expect alternative organisational structures of different marketing systems to differ in their efficacy in achieving different goals of marketing policies. Yet many dairy development projects in sub-Saharan Africa in the past have been accompanied by the establishment of government marketing organizations without any evaluation of whether these would be the appropriate types of marketing systems under all sets of circumstances. Government dairy marketing organisations have usually taken the form of large-scale enterprises, normally charged with the responsibility over the collection, processing and distribution of milk and milk products. In some countries, the government dairy marketing organisations are also expected to have responsibility over the distribution of production inputs, especially animal feedstuffs.

The establishment of government marketing organizations to accompany various development projects in sub-Saharan Africa in the past has usually been regarded as the best means of ensuring that the interests of both the producers and the consumers will be safeguarded. However, economic theory suggests that it is not necessary for governments to intervene in the marketing systems as traders in order to achieve the objective of maximizing the welfare of both the producers and the consumers. The theory basically suggests that governments should provide an economic environment that enhances the operation of the marketing systems. The basic premise is that the welfare of all the market participants will be ensured automatically if the marketing systems are operating efficiently. This line of argument draws on the classical laissez-faire policy which prescribes that the role of governments in marketing should be to provide those services and the infrastructure that the private sector cannot reasonably be expected to provide adequately and efficiently.

Dairy marketing in many countries in sub-Saharan Africa is characterized by the existence of both formal (i.e. official or government) and informal (i.e. private or non-government) marketing systems. The informal marketing systems are sometimes referred to as traditional or parallel marketing systems in contemporary literature in order to emphasize the fact that these are the marketing systems in which governments do not substantially intervene, either directly through trading or indirectly through regulation.

Informal marketing systems may be either individually or cooperatively owned, but their most important feature is that they are non-government marketing organizations. Many countries in sub-Saharan Africa have granted monopoly and/or monopsony power to government marketing organizations for certain key commodities, e.g. in the case of dairy marketing in major urban areas in Kenya and Ethiopia. However, such moves have not, in practice, completely eliminated private domestic trade in such key commodities. In those cases where both government and non-government marketing organizations exist in the same country, the non-government marketing organisations may occupy different sections of the marketing chain relative to the government marketing organisations. However, there are some cases where the private marketing organisations sometimes operate in direct and often illegal competition with the government marketing organisations in the same area, in the same section or level of the marketing channel, and at the same time.

An important policy question that arises from the above discussion or observation is whether it would be advisable to encourage the development of either only government marketing organisations, or only private marketing organisations or a combination of both in a given country if the objective is to achieve efficiency in marketing. The concept of efficiency in marketing is discussed later in the report.

Earlier inferences about economic performance (as measured through the marketing efficiency criterion) of informal or traditional marketing systems tended to suggest that such systems perform relatively poorly and that the only way to improve their performance was through increased government intervention. However, such inferences were largely based on casual impressions of activities in traditional market places. Recent detailed studies of marketing systems for live animals in sub-Saharan Africa give somewhat conflicting results (see, for instance, Ariza-Nino et al, 1980; Herman, 1979; Staatz, 1979; Hillman and Mariam, 1975 and Bekure et al, 1982). Whereas the studies in West Africa, Madagascar and Ethiopia suggest that the performance of traditional livestock marketing systems is more satisfactory than that of the systems in which governments actively intervene, either directly through trading or indirectly through regulation, the study by Bekure et al. (1982) in Kenya suggests that there is no uniform picture. That study also gives a less favourable impression of the efficiency of traditional marketing systems.

Available literature on the performance of government dairy marketing organisations does not give a precise and uniform picture either. Some of these organisations appear to have been relatively successful, while others have had some serious difficulties in fulfilling the objectives for which they were established, and this picture has varied between countries (Mbogoh, 1984). The review of available literature also does not give a precise arid uniform picture about the performance of private (non-government) dairy marketing systems relative to the ones owned by the governments (Mbogoh, 1984; Kakunze, 1983; Kaluba, 1983; Mbogoh and Buteyo, 1981; ILCA, 1979). The current state of knowledge about the structure and performance of alternative forms of dairy marketing systems in sub-Saharan Africa thus clearly warrants further investigations, and it was against this background that the present study was undertaken.

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