1. Two-thirds of the world’s undernourished people live in the Asia-Pacific region. In some densely populated countries almost half of all children are under-nourished.3 Milk is nature’s most complete food providing protein, energy, vitamins and other micro-nutrients, especially calcium for bone building for children and pregnant and lactating women. One daily glass of milk would contribute significantly to raising the nutrition of children in the region, with all the attendant benefits related to health and education. Boosting the productivity of the nearly 300 million milking cows and buffaloes in the region by 20 percent could provide the 50 billion litres of milk required annually for the provision of a daily 200 ml glass for every child between the ages of one and ten.4 Fortification with strategic micro-nutrients, tailored to local needs – a well-tried, and tested, cost effective technology – could boost the nutritional benefits still further.
2. In the countries of the region, dairying is practised by tens of millions of dairy operators – smallholders, traders and dairy entrepreneurs, small and large. With production gains over the last decade double that of global averages, it is estimated that 80 percent of the region’s total annual milk production of 240 billion litres is supplied by smallholders with 1-5 cows. Dairying represents one of the fastest returns for livestock keepers in the developing world by providing regular cash to farmers, especially to women.5 It enhances household nutrition and food security, fulfils important cultural and social functions as well as creating off-farm employment – as many as one job for each 10 to 20 litres per day of milk processed and marketed (FAO/ ILRI, 2003). Most importantly, smallholder dairying provides a regular source of income and spreads income risk, whereas income from agriculture is seasonal. In countries like India livestock development, in general, and dairy development in particular, are considered key components of pro-poor development strategies. This is mainly because livestock distribution is much more equitable than land distribution. Most rural families in Asia own livestock, including 40 percent of the poorest households.
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3. The highest growth in demand for milk and dairy products is in the Asia-Pacific region where consumption has doubled since 1980, contributing more than 60 percent of global consumption gains. Growing demand, prompted by higher incomes and increasing urbanisation, has combined with economic reforms and market liberalisation policies to heighten the import dependency of many countries in the region. Heavy farm and export subsidies and high tariffs in the industrialized countries have discouraged dairy development in countries with more open trading regimes. Consequently developing countries in Asia, where imports have nearly doubled over the past decade to an estimated 24 billion litres of liquid milk equivalent in 2007, have become increasingly dependent on highly competitive, but ever more volatile, global dairy commodity markets. These imports were valued at US$ 14 billion in 2007 and are estimated to supply as much as half the formal or processed dairy market across the region. |
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4. With the price of internationally traded food staples increasing by over 40 percent in 2007, food price inflation is raising global concerns about food security in many developing countries (FAO, 2008). Of all the staple foods, dairy prices grew the most in 2007 with full cream milk powder and skimmed milk powder more than doubling to over US$ 5 000 per metric tonne by mid-2007, or over 60 US cents per litre of liquid milk equivalent. While prices have gradually eased in 2008, it is likely that increased prices for dairy products are here to stay. Commodity projections by the Food and Agriculture Policy Research Institute indicate that milk prices over the next decade will remain 50 percent higher than historical averages.6
5. While higher prices portend unprecedented opportunities for dairy development in many Asian countries, it is not clear how dairy operators in the region, and smallholders in particular, are responding to the prospect of better milk prices. Innovative strategies and conducive policies are needed to enhance the competitiveness and market access of smallholder milk producers to take advantage of the new market opportunities.
6. Smallholder milk producers almost always have the capacity to respond quickly to economic signals, received through regular payments for their milk. This is because they feed their animals well below potential, so there is ample scope for rapid increases in milk productivity simply by improving feeding of locally available crop by-products. In so-doing smallholders can contribute towards making the region more food-secure, stimulating economic development through creating jobs, and helping to achieve the Millennium Development Goals of halving poverty and under-nutrition by the year 2015 (box 1).
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Box 1 The multiple benefits of enterprise-driven smallholder dairying Helping to achieve the nutrition, poverty and environmental Millennium Development Goals
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7. There are many successful models, businesses and institutional arrangements where smallholder milk producers have gained sustainable access to markets, and some that are less successful. Given the current opportunities for dairying in Asia, APHCA7 asked FAO to develop a Smallholder Dairy Development (SDD) Strategy for the Asia-Pacific region to enhance the involvement of smallholder dairy farmers in the rapidly evolving Asian market. The Common Fund for Commodities (CFC) and FAO agreed to fund a fast track project to develop the strategy, which is critical to improving market opportunities for smallholders in the region. The challenge is to ensure that smallholders participate in the opportunities for sector development afforded by the increasing demand for milk and dairy products, ongoing high commodity prices due to low global dairy stocks. There is increasing concern that high consumer prices are not being passed down back down the value chain to producers.
8. A structured, participatory and market-oriented approach was adopted to develop the strategy. Rapid lessons learned studies from nine countries provided generic characterisation5 and identified models and factors that have influenced smallholder participation in dairy food chains – both good and bad. The countries represented three broad categories of smallholder market access: (i) good access (e.g. China, India, and Thailand), (ii) limited access (e.g. Bangladesh, Mongolia, Pakistan), and (iii) marginal access (e.g. Philippines, Sri Lanka, Viet Nam). Three more detailed value chain analyses of selected business models were undertaken in India, Philippines and Viet Nam, incorporating an innovative, structured analytical framework approach to assess the competitiveness of the models. A series of country-level stakeholder validation meetings were also organised.
9. The basic SDD strategy was developed at a workshop held in Chiang Mai, Thailand from 25 to 29 February 2008. Fifty-three delegates participated from the public, private and NGO sectors of 18 countries8 across the region, including representatives of some of the largest cooperative and private sector dairy companies from the most populous countries.9 Worksop delegates reached a strong regional consensus on the way forward. During group sessions the vision, mission statement and framework of the regional strategy were first developed; second, relevant thematic areas were elaborated and ranked; and third, the thematic areas were then shaped by delegates as pillars for the strategy. In a final plenary session strategic interventions were identified and prioritised. A list of the workshop delegates and SDD study authors is given in annex 4.
10. The Strategy presented here reflects the outcomes of the workshop.10 It includes an indicative investment plan, which aims to promote the competitive and profitable involvement of smallholder milk producers in the dairy industries of the Asia-Pacific region. The strategy has been endorsed by delegates to the workshop, APHCA, CFC and FAO. More information about the project, the opportunities and challenges for SDD in the region and the process used to develop the strategy may be found in Annexes 5 and 6. Documents produced by the project are listed in annex 8. Full versions of the studies, workshop papers and presentations, and the workshop proceedings may be found at:
http://www.aphca.org/reference/dairy/chiangmai_workshop_feb08.htm
3 UN Human Development Report (2007/2008)
4 It is estimated by the UN Population Division that there are approximately 700 million children in Asia under 10 years of age.
5 In China the profit-cost ratio of milk production by smallholders is nearly double that of maize and three times that of potatoes (Price Department, National Development and Reform Commission, China 2007).
6 FAPRI projections for agricultural and bio-fuel markets (March 2008). Skimmed milk powder prices, averaging below USD 2 000/tonne over the start of the decade, will remain above USD 3 000/tonne over the 2008-2017 projection period.
7 APHCA, the Animal Production and Health Commission for Asia and the Pacific, works with local governments, institutions and farmers to develop strategies to tackle livestock problems. Member countries include: Australia, Bangladesh, The countries represented at the workshop were: Afghanistan, Bangladesh, Belgium, Bhutan, China, India, Indonesia, Iran, Lao PDR, Malaysia, Mongolia, Myanmar, Nepal, Pakistan, Papua New Guinea, Philippines, Sri Lanka, Thailand.
8 The countries presented at the workshop were: Afghanistan, Australia, Bangladesh, Belgium, Bhutan, China, Germany, India, Indonesia, Iran, Malaysia, Mongolia, Myanmar, Nepal, Pakistan, Philippines, Samoa, Sri Lanka, Thailand, Viet Nam, United Kingdom and United States of America.
9 A full list of the workshop delegates and the country study consultants is contained in annex 4.
10 Main contributors:
Brian Dugdill, Lead Consultant/Dairy Development Specialist [email protected]
Nancy Morgan, Livestock Policy Officer, FAO RAP Bangkok, (Project Coordinator) [email protected]
David Young, Private Sector Management Consultant [email protected]
Anthony Bennett, Dairy and Meat Officer, FAO-AGAP, Rome [email protected]
Hans Wagner, Senior Animal Production Officer, FAO RAP, Bangkok [email protected]
Phil Psilos, Value Chain Analysis Consultant [email protected]
