36. The rationale for the Asia SDD Strategy is summarised as follows:
37. The strategic vision elaborated by delegates to the Chiang Mai workshop is:
38. The mission statement for the Strategy, developed by delegates to the Chiang Mai workshop is:
39. The strategic objectives, also developed by delegates to the Chiang Mai workshop, are:
40. During the formulation of the SDD Strategy a wide-ranging set of issues were considered by the Chiang Mai workshop delegates. These include initiatives to:
41. The Strategy will address the challenges and objectives outlined above through strategic interventions under four mutually reinforcing pillars as prioritised and ranked by the Chiang Mai workshop delegates (figure 1). Spanning the duration of 2009 to 2018, the strategy will be practical, bankable and actionable at both regional and country levels and is summarised in the logframe in annex 3.
Figure 1: The strategic pillars of smallholder dairy development in Asia
42. People are the central building blocks of any sustainable development strategy. Considerable human resource development experience exists in the region, supported in many cases by a multiplicity of training institutions. A few countries have successful, hands-on, knowledge-based, vocational training facilities sustained, for example, by incentives provided by the public and private sectors (box 4). Others have developed outreach training systems, including farmer-to-farmer learning, that take training out to smallholders close to their homesteads and farms. This is particularly effective for disseminating improved technologies and promoting hygienic milk production, both vital elements of competitive market access. Taking training into the field also allows more farmers and their families, especially women, to participate.
43. Experience and information sharing will be a key element of strategic pillar 1. An electronic SDD information network, provisionally called Dairy Asia, will be set up as a repository of SDD and other dairy best practices, thus facilitating a transfer of knowledge between countries. Printed materials will be available for dairy operators in rural areas without access to the internet. There is already a wealth of information, advice and materials available for SDD. The focus will be on tailoring these resources to the local dairy chain situation.
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Box 4 Enterprise-oriented vocational dairy training in Mongolia* Like other food industries in Mongolia, the dairy industry collapsed during the rapid change form state-run to market economy in the 1990s. During this period the country went from self sufficiency to over 95 percent dependency on imported processed milk and dairy products. When the dairy revival programme started in 2004, there was no vocational training available for dairy operators (milk producers, service providers, technicians, milk traders, milk processors, service providers, food inspectors etc) in Mongolia. A permanent capacity building facility – the National Dairy Training Centre – was established within the campus of the Food Technology College, under the Ministry of Education. Six basic training modules were developed, one for each of the modules in the Mongolian dairy chain model. The Centre is equipped with: (i) state-of-the art adult learning and teaching aids, (ii) a commercial demonstration dairy plant, (iii) a mobile outreach training unit and (iv) a dairy product development facility, (v) a milk and dairy products quality control laboratory and (vi) a small technical library and course administration office. Existing staff from the College were re-trained as core vocational trainers to run short residential and outreach courses. Other specialists from the private and publics sectors were also trained as key trainer-members of the Dairy Training Team, led by the College Training Manager. They also act as advocates out in the field for the training programme, now part of the current ten year National Dairy Programme (2007-2016). The demonstration dairy is run on a semi-commercial basis and currently provides milk and dairy products to 600 school children in Ulaanbaatar under the Government’s School Lunch Programme. Outreach training focuses mainly on enhancing milk production, productivity, including milk producer Organization, feeding, breeding and clean milk production, and involves tailoring the training session to each location. Taking training out to dairy operators in the field enables more farmers and their families, especially women, to participate. By the end of 2007, more than 2 000 dairy operators and technicians had attended training courses. The business plan for the Centre for 2008 aims to increase income to sustain the programme from sponsored trainees, milk sales and small annual allocations from the College budget. Course sponsors to date include the State food regulatory and inspection agencies, the National Dairy Programme and other donor projects such as the USAID Gobi Initiative project. The key lessons for SDD are: (i) the importance of tailoring training to the local situation centred on practical demonstrations of innovative, modern technologies and equipment in a commercial setting; (ii) enterprise-oriented training provides incentives for trainers as well as trainees and (iii) the importance of outreach training for milk productivity enhancement. *Source: Dairy Food Security Project –GCSP/MON/001/JPN (FAO, 2007 |
44. The interventions and major activities under the human resource development and knowledge management pillar include, inter alia:
| (1) | Preparing an inventory of dairy training institutions and materials in the region, identifying those most suitable for SDD. |
| (2) | Developing state-of-the-art, vocational training courses for SDD best practices and models, including course materials and practicals, which are sustainable and provide incentives for trainers and trainees. |
| (3) | Establishing a regional SDD-focused capacity building programme at the vocational Dairy Training Centre in Chiang Mai, Thailand. |
| (4) | Setting up the DairyAsia Knowledge and Information Network hosted initially by APHCA. |
| (5) | Actioning SDD training programmes and information networks at country level. |
| (6) | Sponsoring enterprise-to-enterprise exchanges that would allow detailed comparison of practices and operating results among participants. |
| (7) | Developing a Coaching Program that would include a pool of successful smallholder dairy entrepreneurs and plant managers who can be tapped as trainers or visiting coaches for promising smallholder dairy enterprises. |
| (8) | Increasing the number of qualified plant managers, quality control and product development officers and AI technicians to be made available to growing enterprises. |
45. To gain profitable access to markets, smallholders must produce milk efficiently. In the past, most of the private sector smallholder business models focussed on the off-farm links in the dairy chain, thus neglecting farm level constraints. On the other hand, some successful SDD models, especially the cooperative model, incorporate elements such as input services, loans, animal insurance schemes, milk collection systems, remunerative pricing, daily or weekly milk payments etc to reduce risks for dairy operators (box 5). However, the investment needed to create a one or two cow (or buffalo) unit is beyond the capacity of most poor rural households.22 The regional strategy and country action plans will therefore incorporate innovative financing packages, including livestock insurance to mitigate risk, and recognize that strategies requiring on-going donor or direct Government recurrent expenditure beyond the initial start up period are not sustainable.
46. High prices in international markets and the need to establish linkages to local milk supplies are prompting the private sector to focus on the entire dairy chain, not just processing and distribution. The key constraints to improving productivity and profitability of milk production are common across the region, namely: (i) feed availability (ii) shortage of improved stock, (iii) insufficient knowledge for raising management skills, and (iv) access to affordable credit. Raising productivity also needs to be matched by initiatives facilitating entrepreneurial knowledge, business linkages, and know-how to ensure competitiveness.
47. The overriding success indicator for strategic Pillar 2 will be how many subsistence smallholder milk producers scale up to become small commercial dairy farmers. The target will be one million over the ten year strategy period. The strategy will focus on making animals more productive, not on increasing numbers. The major activities include, inter alia:
| (1) | Describing in detail and publishing a “menu of options” (catalogue) of the best SDD dairying practices and models focussed on improved returns for smallholders. |
| (2) | Selecting the dairy development models most appropriate for local conditions. |
| (3) | Advocacy for the smallholder dairy sector to sustainably compete for resources and finance. |
| (4) | Assisting the smallholder sector to compete in product markets, in particular through creative linkages with private sector which result in fair and renumerative returns. |
| (5) | Increasing milk yields, quality and profitability through making productivity enhancing input services (feed, stock, animal health, management skills) readily accessible and affordable and reducing milk chain losses. . |
| (6) | Facilitating the sourcing of appropriate technology, equipment and supplies among dairy enterprises in the region. (It was particularly useful for the Philippines to be able to access supplies from Thailand and to consult Thai dairy practitioners on various aspects of dairying. ) |
| (7) | Actioning pillar 2 at country level. |
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Box 5 The Indian Anand pattern dairy cooperative business model in transition The world-renowned Anand Pattern dairy cooperative model was developed over a number of years starting soon after the partition of India in the late-1940s. The model was supported by charismatic and visionary leaders who introduced three basic innovations. The model is village-based and bottom up. Smallholders are organized into primary village level dairy cooperatives which collect milk in the morning and evening. Payments are made on a dairy, weekly or monthly basic according to members’ wishes. Secondary, the model is three-tire and vertically integrated; the village dairy cooperatives are federated into district cooperatives which collect, process and market the milk. In turn, these are federated into State-level cooperatives that provide the interface with the State Government policy regulatory framework. The three-tiered dairy cooperative model provides competitive access to remunerative urban markets. By the late 1960s the model was sufficiently validated to introduce the third innovation, the setting up of the Operation (Milk) Flood Programme (OFP) under the National Dairy Development Board, founded in 1970. The OFP, was (and is) a single commodity programme aimed at monetizing food aid (mainly butter oil and skimmed milk powder) as a tool for socio-economic development. The EU and WFP provided the food aid, the World Bank the finance and FAO and the World Bank the technical assistance. Today, India is the largest milk producer in the world, having overtaken recently the USA, and is now self-sufficient in milk and dairy products. Nearly 13 million smallholders and their families were empowered through the OFP cooperatives which also spawned a vibrant dairy industry that not only market processed milk at affordable prices for urban consumers, but also manufactures and exports high-quality dairy equipment as well as dairy expertise. The model works best in India, Through parts the model have been successfully exported and adapted to other countries in the region. Dairy is currently the number one commodity in India, with an output value of US$ 30 billion (2004-05), almost equal to the joint output value of rice and wheat, the two key commodities of India.* The incredible success of the model encouraged the private sector to invest in dairying. The cooperative sector now faces stiff competition and is starting to loose ground to more nimble competitors that are not encumbered by restrictive cooperative legislation or the high overheads associated with providing milk production inputs services at village level. For the first time, cooperative membership is falling, down to 11.5 million, in 2001/2002 compared with 12.9 million in 1999/2000.** The cooperative sector is responding by adapting its business model and legislation to the New generation Dairy Cooperative model. Cooperative forms of enterprises can now be registered as producer companies under the Company laws and are thus not encumbered by government bureaucracy. The three key lessons for SDD are: (i) enabling State and national-level policies, (ii) the catalyzing role played by the international community which, under current conditions, would be limited by funding as well as lack of access to food aid; and (iii) the impact of liberalizing policies to encourage competition which leads to highly “successful” models needing to adapt to modern, fast moving market situations. *FAO (2008). Asia smallholder Dairy Strategy Project (CFC/FIGMDP/16FT). Strengthening dairy value Chains in India. ** Agro-industries characterization and appraisal: Dairy in India. Agricultural Management, Marketing and Finance Service, FAO (2007) |
48. Over 80 percent of the milk and dairy products sold in the region are marketed through informal channels, although processed (formal market) milk and dairy products are gaining ground rapidly in transforming countries such as China, India, Iran and Thailand. Informal channels generally keep transaction costs low, and service nearby lower-income consumers. Many countries in the region produce a wealth of traditional products, which often command very high prices. Some countries have turned traditional products into high added-value niche products (e.g. Bangladesh, India, and Mongolia). However, urban consumers invariably become more discerning in terms of quality and safely and aspire to western style products and quality standards, purchased from western style supermarkets.
49. Each link in the dairy chain must be profitable. The links in the chain will differ according to the model used and the location, but will usually include: (i) milk producer organizations, (ii) service providers (feeding, breeding, health, management, credit etc), (iii) milk collectors and transporters, (iv) milk processors, and (v) product distributors. Strengthening the linkages along the dairy chain means not only capacity building (pillar 1) and increasing profit per milk animal (pillar 2), but includes other factors such as improving and maintaining safety and quality and minimising milk losses. Although milk is highly perishable, there are well-tested technologies and systems for getting milk safely and affordably from farm to consumer. Box 6 illustrates an SDD model in China that has adapted collective dairying in a rapidly growing (product output estimated up 22.5 percent in 2007) but highly competitive market situation.
50. The key regional success indicator for strategic Pillar 3 will be the substitution of imports with quality domestic milk at affordable prices. The major activities include, inter alia:
| (1) | Improving farmer access to marketing channels, formal and informal. |
| (2) | Increasing opportunities for smallholders to access the formal sector. |
| (3) | Creating competitive supply chain conditions. |
| (4) | Creating fair and transparent pricing systems with incentives to deliver quality milk. |
| (5) | Diversifying the range of dairy products on offer. |
| (6) | Educating consumers on the nutritional benefits of local dairy produce. |
| (7) | Stimulating consumer demand in those countries with very low per capita milk consumption levels. |
| (8) | Reducing losses (qualitative and quantitative) in the dairy chain. |
| (9) | Designing and establishing common facilities and networks of resources at national and regional level that would enhance quality control and product development, with potential cost sharing by smallholder enterprises. |
| (10) | Actioning pillar 3 at country level. |
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Box 6 The Chinese Dairy Park Collective SDD Business Model – Investment Driven Growth China has one-fifth of the world’s population, but only 4.4 percent of total world output of milk. However, between 2000 and 2006, gross output of milk and dairy products quadrupled to 33.6 million tonnes. Over the past two decades per capita consumption of milk has grown from less than 2 kg to about 20 kg with urban consumption about eight times rural consumption, reflecting the widening income gap between town and country. 1.5 million smallholders (98 percent of milk producers) managing up to 20 cows produce two-thirds of domestic milk supplies with four-fifths of these having less than 5 cows. While the world market for milk grew by just 1.2 percent on average over the period 1991 to 2004, China’s dairy market grew by a massive 16 percent annually.* However, the gap between supply and demand is widening and is met by imports, which totalled some 2.4 million tonnes of LME in 2007, 7 percent of consumption. The phenomenal growth in milk production has largely taken place in the three northern provinces of Hebie, Heilongiang and Inner Mongolia, which by 2006 were producing 52 percent of national milk output, up from 18 percent in 1985. In these provinces smallholders are reported to earn more income from dairying than from growing crops as the profit-cost ratio of milk production by smallholders is nearly double that of maize and three times that of potatoes.** Starting out as very small companies in the late 1990s, it is not surprising that two dairy companies from the Inner Mongolian Autonomous Region, Yili and Mengniu, are now the largest in the country, each having grown their turnovers from a few million US dollars annually to well over one billion US dollars by 2007. Due to the huge recent investments in milk processing across China since the late 1990s, it is estimated that by 2003 processing capacity exceeded demand by about 30 percent. This tended to sharpen competition among the three leading processors and farmgate prices were, and still are, depressed. Since then most of the spare capacity is now better utilised as demand continues to accelerate (up 22.5 percent in 2007). But farmgate prices have hardly moved. The reasons are difficult to ascertain. However, it is understood that price collusion by the large dairy companies enables them to restrict prices. To keep costs low and improve milk quality, China’s processors have set up a number of community-based units or Dairy Parks where smallholders keep and milk their cows. Cow numbers in the Parks range between 300 to over 1 000, which are financed either by the processors, the local authority or smallholders themselves The key lessons for SDD are: (i) the availability of cheap land and labour in the Northern Province stimulated low cost milk production; (ii) the policy of supporting dairying from local taxation and allowing capital to be raised from the Hong Kong stock market enabled rapid expansion; (iii) the selection of capital intensive UHT milk by the processors (note, not the market) enabled rapid expansion without the usual expensive cold chain; (iv) price collusion and participants captive to the dairy park model enable restrictive producer milk pricing; (v) policies and investment have focused on the processing side with lending to producers generally focused on loans for breeding animals; and (vi) policies supporting producer investment further up the chains, such as in chilling systems, would allow smallholders to have a stronger negotiating power with the processors . * 3A Business Consulting / Shainwright Consulting & Research Group (February 2006) ** Price Department, National Development and Reform Commission, China (2007) |
51. Smallholder dairy development can be successful under a wide range of situations, but the approach and interventions need to be tailored to the local situation. It has to be recognized that in some cases certain systems, or in fact SDD systems in general, may not be feasible. Key success factors are linked to the nature of risk inherent to dairying. The risks and opportunities (differentiated by market demand, production practice, geography, and access to markets, inputs and services) are also influenced by more macro or broader issues such as trade regulations, government agriculture and investment policies, and institutional support.
52. The key elements of the enabling environment for the development of all agro-businesses are well known and expanded in more detail in annex 7. The main aims of Pillar 4 are to identify and promote institutions and policies that are critical to enhancing the bargaining power, market access, and incomes of small farmers. These necessary ingredients for “making markets work”, must be identified and clearly articulated in national and sub-national dairy development initiatives.
53. It is essential to strategically incorporate national and sub-national actions and interventions within the regional strategy. This requires a long-term vision based on a detailed awareness of the realities of each country. A few countries have introduced some of the legal and regulatory elements conducive to SDD under their overall agriculture development policy frameworks, with a few introducing specific dairy policy frameworks, e.g. India, Mongolia, Philippines (box 7). Others do not promote dairying specifically, e.g. Bangladesh, China.
54. The overarching success indicator for strategic pillar 4 will be explicit recognition by senior decision makers/governments of the role of SDD in agricultural development policies and programmes. The major activities include, inter alia:
| (1) | Articulating a smallholder inclusive policy framework. |
| (2) | Identifying and supporting condusive legal and regulatory frameworks. |
| (3) | Advocating for a favourable macro-economic framework. |
| (4) | Developing a plan of action and advocacy support for ensuring an enabling environment for SDD. |
| (5) | Creating a platform for identifying and mobilizing the necessary financial services and supportive infrastructure. |
| (6) | Linking government nutrition programs to smallholder dairy producers as suppliers. |
| (7) | Actioning pillar 4 at country level. |
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Box 7 Enhancing the SDD enabling environment – the Philippines Dairy Zone Model Public-private sector collaboration to enhance the enabling environment for smallholder dairy development in the Philippines was initially spurred by wavering government support for the local industry. This initiative is characterized by a strong enterprise orientation that focuses on reducing dairy groups’ dependence on government support. The one billion US dollar Philippines dairy market is dominated by importer-processors who import mainly milk powder and hold 99 percent of the market. The remaining one percent is handled by local producer-processors. Although Filipinos are generally considered non-milk drinkers, per capita milk consumption is growing and currently stands at 19 kg per annum. The local milk producer-processor sector is small, comprising 13 000 families and some 300 dairy enterprises. For many years development of the sector stagnated following the Government policy of the 1980s of importing all dairy requirements. More recently, the National Dairy Development Act of 1995 created the National Dairy Authority, which was given the responsibility of reversing earlier policy and promoting dairying. Pursuing its mandate, the NDA successfully introduced the Dairy Zone Model. Essentially it is an enterprise-driven model that transforms smallholders into dairy farming entrepreneurs. Zones consist of around 100 smallholders with about 300 dairy animals located in adjacent villages served by a processing plant located within a 30 km radius of an urban centre capable of absorbing 300 to 500 litres per day. This enables economies of scale for dairy input and output service providers. The model works well in peri-urban and in remote rural Island areas, providing good returns for all the participants who share in the value added in the dairy chain, e.g. producer (26%), collection centre (3%), processor (25%), wholesaler (8%) and retailer (39%).* Alongside the NDA is the Philippine Carabao Center (PCC)23 that focuses on the indigenous water buffalo as a source of high-value milk. The PCC, particularly at its National Impact Zone, assists smallholders to produce more milk and enhance their capacity to operate as dairy enterprises at farm and processing levels. The key SDD lessons are: (i) regular income from milk is the single biggest incentive for smallholder milk producers, (ii) a strong dairy enterprise is the most important requisite for farmer inclusion in the dairy market, boosted by collaboration among big and small milk producers, (iii) technical support along the entire dairy chain, especially related to milk quality, is vital for a stronger market share and (iv) indigenous dairy products provide the highest return. In addition, there are opportunities to promote south-south cooperation, particularly including farmer-to-farmer exchanges within Asia, to promote and validate dairy buffalo breeding and carabao milk product technologies which constitutes a potent tool for boosting productivity and returns from the indigenous carabao. These animals, being native in the tropics, happen to belong to millions of farmers who stand to benefit from improved technologies and better enterprise organization. * FAO ( 2008). Asia Smallholder Dairy Strategy Project (CFC/FIGMDP/16FT). Smallholder-based Enterprise Models in the Philippines Dairy Sector – a Value Chain Approach. |
55. The SDD strategy is designed with the explicit objective of transforming and scaling up smallholder milk producers in rural communities. Potential direct beneficiaries include some 200 million smallholder families, or nearly 1 billion people. Women dairy operators play a leading role in the sector in nearly all countries in the region. However, when scaling-up occurs and returns increase, men often take over and women are often left behind. Within the target group, special emphasis will be placed on the empowerment of women by ensuring they have equal opportunities under all the strategy pillars, but especially under strategic pillar 1. At least 50 percent of trainees participating in SDD training at country level will be women.
56. The majority of the actors in SDD dairy value chains are private entrepreneurs: milk producers, collectors, processors, service providers, finance and micro-finance institutions, regulatory institutions and industry associations etc. While the strategy is focussed on smallholder milk producers, urban consumers and specifically children will benefit through the availability of more and safer dairy products at affordable prices. The strategy will also target policy-makers and legislators, national dairy bodies and all the actors along the value chain, including larger scale milk producers and processors. The private sector is expressly targeted, partly because it was not sufficiently involved in earlier development efforts, but also for its crucial role in providing productivity-enhancing goods and services and market access. Daily contact with rural households through milk collection provides the opportunity for daily delivery of dairy input supplies as well as other basic daily household needs.
21 Self-reliance does not necessarily imply self-sufficiency.
22 While the pillars and SDD Strategy focus on cows and buffaloes, the most important milk animals for the majority of smallholder milk producers in Asia, it will also recognise in the national action plans the huge importance of other animals milked by smallholders in many countries such as yaks, camels, goats, sheep and horses, especially in the central Asian region and, for example, Bhutan, China (Tibet Autonomous Region), Mongolia, PDR Korea, Pakistan, Nepal etc
23 PCC is an internationally recognized lead institution in the genetic improvement of the dairy buffalo. It maintains a gene pool and a modern laboratory run by a team of experts that pursues experiments on breeding and fertilization to enhance the productive traits of the animal.
