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Chapter 4

Policy measures to enhance rural employment through small-scale dairy processing and marketing

4.1 Policy interventions

The capacity for small-scale dairy processing and marketing to generate jobs in rural communities, as well as in peri-urban and urban areas, is demonstrated in this study. However, employment generation is shown to be affected by the structure of the market, particularly the distances in market channels and the types of products demanded by consumers. Greater distances generally require more intermediaries and more labour, as do additional processing and handling for derived products. Seasonality also plays a role in affecting the stability of employment through the year. The policy environment, however, interacts with all of these factors and can either ameliorate or exaggerate their effects. Helpful policies can potentially enhance the employment opportunities and stability.

Job stability in dairy marketing and processing is to a considerable extent affected by seasonality in supply of and demand for milk and milk products. These seasonal shocks contribute to the volatility of the jobs in small-scale dairy marketing and processing. For instance milk supply is generally hampered during the dry seasons in the three country cases, potentially reducing the need for labour simply because quantities handled are lower. In other cases, because demand can exceed supply during the dry season, opportunities are actually greater during that period. In Tanzania, for example, some milk collection agents collect in pastoral areas only during the dry period, when the higher retail price justifies the additional effort and transport costs[2].

Demand can also be seasonal - the demand for milk sweets in Bangladesh is low in monsoon and summer because of the presence of cheaper substitutes, such as home-made cakes and fruit. Regardless of the cause of the seasonality, the result can be the same: small enterprises may have to lay off some employees to reduce labour input to match the labour demand imposed by the quantities or activities seasonally affected. In the more formal dairy industry, milk powder may be used to replace reduced supplies of fresh milk, particularly for processed products such as yoghurt, thus insuring continued employment. The informal sector may thus be more vulnerable to seasonal changes. Policy interventions may be limited in their ability to affect these factors. The same strategies for reducing fluctuations in milk supply may apply: promotion of technologies for feed preservation during dry seasons.

Although the relationship is difficult to quantify, the Kenya case suggests that policies to ban or police informal milk markets impede those markets from performing efficiently, and constrain successful entrepreneurs from scaling up and growing. Employment opportunities are likely to be adversely affected. The huge success of the Indian informal and traditional dairy market, now ranked among the largest dairy industries in the world, makes the same case: Indian authorities have consistently taken a hands-off approach to their informal milk markets, which has allowed them to grow and diversify.

If formal milk markets are perceived to offer more stable employment, policies could be aimed to strengthen them. Although many countries have attempted to do that through policing and regulating the informal milk markets, those efforts have systematically failed. Informal markets will only diminish when consumers decide that they are willing to pay the higher costs for formal market products, in return for higher quality products. Consumer campaigns to raise awareness of the value of formal market products may thus be the best way to strengthen them. However, it should be kept in mind that formal milk markets generally substitute capital inputs for labour, by using processing and transport machinery to handle larger quantities of milk. Although this report does not provide employment figures for formal milk markets, it is very likely that due to that substitution, employment generation within formal milk markets will be lower per unit of milk handled than in informal markets. While there may be some trade-offs between levels of employment and stability of employment, policy makers who consider employment generation to be a key priority may want to consider carefully before promoting industrialized market systems at the expense of smaller-scale and more labour-intensive mechanisms.

4.2 Institutional and programmatic interventions by FAO and others

Countries like Kenya, where policy impacts on dairy marketing and processing are more pronounced because of the large role the dairy industry plays in the economy, should have a strong and well understood institutional framework governing the operations of the industry. This will reduce uncertainty in the trade for a large number of traders and thus reduce transaction costs involved in the businesses. To ensure the greater benefit to small farmers and small market agents, the structures and roles of regulatory bodies like the Kenya Dairy Board should be made more relevant for a greater proportion of stakeholders. The FAO-funded Kenya Dairy Board restructuring project which started in late 2001 will focus on building an effective framework for all traders, small and large, formal and informal, to provide the public with safe milk and dairy products while sustaining regular jobs. Research findings by ILRI and collaborators in Kenya in these areas will be utilized during project implementation.

A mechanism for exchanging information between countries and shared training facilities would also accelerate the process of sustaining small-scale dairying. FAO and ILRI plan to set up such a pilot information exchange network starting in early 2002. Provisionally called DairyNet-Africa, the project will operate in five selected countries in Eastern and Southern Africa, including Kenya. A small secretariat will be established in one of the countries along with a database to enhance the flow of information to and from member countries. The emphasis will be very much on smallholder milk production and small-scale milk processing and marketing systems.

It is evident from this study that traditional knowledge plays a major role in smallholder dairy processing. Ways to enhance this traditional knowledge, including training in modern dairy technology and entrepreneurship need to be considered to improve the efficiency of dairy processing. Training should however be practical and tailored to the particular needs of the small-scale sector. The sort of self-financed short-term in-service and outreach training programme developed recently with FAO assistance at the Naivasha Dairy Training Institute could be better utilized for this purpose.

A similar FAO-funded project will also start in Ghana in early 2002. Called "The Training Programme for the Small-scale Dairy Sector", this project will focus on creating a conducive environment where small-sale dairy enterprises can prosper and, as a result, sustain jobs. The findings and recommendations of the recently completed British Department of International Development-funded, ILRI-implemented "Peri-urban Dairy Research Project" will be incorporated into the training programme. The project will also need to develop campaigns for raising consumer awareness and confidence about locally produced milk and dairy products as almost 50 percent of total consumption is currently imported.

In many regions of the world, transporting milk from its production site to the transformation unit or consumption zone has remained a challenge to the development of dairy marketing and processing. Improved collection and reduction in milk wastage requires good road infrastructures and means to reduce spoilage. The Ghana project and activities planned under a DFID (British Department of for International Development) bilaterally funded Smallholder Dairy Project in Kenya will also demonstrate many of the low cost technologies that FAO is currently promoting for improved small-scale milk collection, preservation and processing.

Ways to promote associations among small traders would allow some economies of scale and more efficient transportation of milk. Easier access to microcredit facilities was considered in each country as one option to address the need for more investments by individual traders. Another recently started FAO project financed by the United Nations Development Programme, "The Community Livestock and Dairy Development Project", is currently working with the Grameen Bank in Bangladesh to develop sustainable community managed systems for delivering microcredit and input/output supply services to groups of very poor milk producers. The project is also setting up community owned and managed small-scale dairy enterprises.

4.3 Conclusions

Although the evidence presented here is based on simple case studies and should be taken as only indicative, it nevertheless demonstrates the strong potential for even small quantities of milk to generate employment in rural and peri-urban areas. The complexity of dairy market mechanisms and the diversity of products results in a wide range of employment needs, from transporting, delivering and processing to indirect services such as equipment repair. While the wages paid to employees are shown to be often quite low, employees appear generally to be young, and the dairy employment appears to fill an interim need for many until longer term jobs can be secured. For the dairy enterprise proprietors themselves, however, the returns generated appear to be at least on a par to other income possibilities they may have. Although seasonal changes may cause incomes to fluctuate, small dairy marketing and processing enterprises appear to represent good long-term employment sources for entrepreneurs.

[2] Information obtained from the Milk Marketing, Processing and Public Health Project in Tanzania, ILRI and Sokoine Univ. of Agriculture

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