1.0 Introduction
2.0 History of the dairy industry in Tanzania
3.0 Present demand of supply of milk and milk products.
4.0 Policy on milk marketing
5.0 The performance of TDL
6.0 Current milk marketing systems in Tanzania
7.0 Recommended alternative to monopoly milk marketing
8.0 The role of ministry of agriculture
9.0 Conclusion
G.A.K. Mwakatundu
Ministry of Agriculture, Tanzania
Abstract
Monopoly in milk marketing through TDL has been on for the last twenty years. However due to inefficiency on the side of TDL together with trade liberalization taking place in Tanzania other milk marketing systems have developed alongside with TDL.
The policy of the country now is for the. government to get detached from activities well managed by the private sector including milk marketing. Alternative milk marketing systems are recommended together with role of the government role in ensuring the development and success of their systems.
Smallholder fairy farming was emphasized following the failure of the large scale farms. Since the middle of 1980s The interest is raising dairy cattle among smallholder farmers in both urban and rural areas rose after noticing remarkable improvement in milk production of the exotic dairy cattle and their crosses. This group of dairy farmers is increasing quite steadily and there are indications that the bulk of future milk production will come from this sector.
Total milk produced in 1994 is estimated at 555 million litres. The traditional sector contributed about 70 percent of the total production, while 25 percent come from the smallholder dairy sector and the remaining 5 percent from the large scale dairy farms.
In donors funded dairy project areas of Tanga, Kagera, Iringa, and Mbeya the problem of surplus milk is relatively pronounced, this follows that there will be a marketing problem in future. Surplus milk in this context is defined as milk which cannot be sold within the area of production because or either low purchasing power or low demand caused by eating/food habits of the inhabitants. Milk marketing is an important component in sustaining dairy development. With an organized marketing channel farmers will be encouraged to invest more into their animals and subsequently increase milk production.
This paper will analyze different available options in milk marketing in Tanzania and recommend those) which can be adapted taking into account the Level of infrastructure development in Tanzania.
Before the year 1961, the dairy sector including dairy farms and processing plants were dominated by large estate owner. Between 1961 and 1965 the sector was under three Zonal Dairy Boards. Namely Northern Dairies for Kilimanjaro and Arusha, Coastal Dairies for Dar es Salaam and Coast and Mara Creameries for Mara Region. These Boards were charged with among other duties, the task of collecting milk and milk products from farmers, producing processing and marketing milk and its products, opening and running dairy farms and milk processing plants and grading milk and its products. In 1965 through a parliament Act No. 32 (Cap. 590) the National Dairy Board was enacted, which scrapped off Act No. 61 of 1961 (Cap 456). This new Board had wider objectives and responsibilities than the former ones. For example, it became the advisor to the government on all issues related to the diary sector. It had the authority to resister milk producer, processors, importers and vendors and to license their activities and to set regional milk prices. Moreover, it was authorized to enact by law to govern the smooth running of the sector.
In 1974 the Government through an Act of Parliament established the now defunct Tanzania Livestock Development Authority (LIDA) which was given the duty of supervising livestock development in general. This act however did not remove the previous Act on the dairy industry. It was under LIDA in 1975 that Tanzania Dairies Limited (TDL) was formed as its subsidiary company. All the milk processing companies hitherto formed under the Companies Ordinance (Cap. 212) before LIDA's formation were dissolved by a Government order and their assets and liabilities were put under the holding company - LIDA.
Tanzania is far from self sufficient in milk and milk products. In most parts of the country supplies of liquid milk and manufactured dairy products are insufficient to meet consumers demand. This shortfall is most significant in the urban areas, where there is a growing demand from rising populations for dairy products. However, per capital consumption differ from region to region as shown in Table 1.
Data on milk consumption in the rural and urban markets are inadequate and so accurate demand projections have been difficult to establish. Therefore current consumption levels and the potentials for market expansion of milk and milk products can only be estimated. However, it is clear from past experience and from various house-hold budget surveys of 1984 and 1993; that her is a large unsatisfied demand for dairy products both in urban and parts of rural areas. Despite the large number of cattle in Tanzania, production of milk and milk products has not satisfied the demand. Particularly in the urban market. By 1970 the traditional livestock sector commercial sector produced 22.9 million litres of milk (Shayo et at 1982). Estimated national milk consumption levels of milk 1981 litres by 1990 after the World Bank supported dairy project - IDA Credit 580 TA completion. This could have raised the per capital consumption of milk from 22.4 to 25 litres. The general performance of the dairy industry has been not encouraging despite the Government efforts to be self sufficiency in milk supply.
Milk production, collection and marketing
Milk production trend
The livestock development sub-division and the dairy parastatal companies in Tanzania responsible for milk production, processing and marketing have experienced serious problems in conducting their business leading to decline in their performance and finally ending into liquidity problems.
Despite the large number of cattle in Tanzania, production of milk and milk products has not satisfied the demand, particularly in the urban market. Estimated national milk production and consumption levels for the past 20 years in Tanzania is as shown by the Table 2 below.
Several studies by the Household Budget Survey have indicated that milk and milk products were not sufficient to meet the local demand and the Government has been spending a great proportion of the scarce foreign exchange in importing dairy products to bridge the gap between demand and supply.
Table 2: Milk production and consumption trend in Tanzania
|
YEAR |
POPULATION (MILLION) |
MILK PRODUCTION (MILL. LITRES) |
PER CAPITA CONSUMPTION (LITRES) |
|
1970/71 |
13.3 |
303 |
22.9 |
|
1977/78 |
16.3 |
334 |
20.5 |
|
1981/82 |
17.5 |
391 |
22.4 |
|
1985/86 |
21.7 |
442 |
20.4 |
|
1988/89 |
23.4 |
258 |
20.5 |
|
1989/90 |
24.2 |
490 |
20.4 |
|
1990/91 |
25.2 |
500 |
19.8 |
|
1991/92 |
25.9 |
525 |
20.3 |
|
1992/93 |
26.6 |
585 |
21.0 |
|
1993/94 |
27.3 |
555 |
21.3 |
Source:
1. Livestock Development Program 1989
2. MALD - Budget Speech 1987/86 - 1993/94
3. National Food Strategy 1985.
3.2. Milk collection
Most of the milk produced in the country is consumed at the farm level or sold to neighbors. The government's policy is however, to attempt to channel surplus milk to dairy plants for commercial processing with a view to supply urban markets with hygienic milk and milk products, at the required standard.Rural Milk collection had been organized by the TDL. A network of collection routes on the village feeder roads has been established by each plant, these routes on the village feeder roads has been established by each plant, these routes had collection centers equipped with cooling facilities which were provided and operated by Tanzania Dairy Limited (TDL). In addition, a number of producers deliver their milk directly to the processing plants, earning a collection margin.
Milk collection and processing is carried out by seven processing plants with total installed capacity of 309,000 litres per day. However, other small processing plants are undertaken by other parastatals and private companies. The rural performance of milk collection has been poor as indicated on table below.
4.1 The 1983 Livestock Policy
According to the 1983 Livestock Policy, TDL had the primary responsibility for the construction and operation of milk processing plants, construction of collection/centers where milk surplus exist, promotion of small scale processing plants there transport and market access in a problem.
4.2 Revised Policy
According to the revised policy, (1993), the Government is no longer going to be involved in marketing of agricultural products including milk. This sector will be handled by the private sectors.
Ministry of Agriculture (MOA) role will be to ensure that commercial milk and processed dairy products will be required to comply with standards of quality laid down by the Tanzania Bureau of Standards, and with relevant public health regulations.
TDL is undergoing restructuring at the moment, as a step towards privatization. Even without the restructuring process its capability to handle local milk collection and marketing has proved to be efficient due to the following problems.
5.1 Low Milk Supply
The company has been operating in an environment where milk production is extremely low in comparison with the capacity of the milk processing plants. Low milk intake from local dairy farmers has declined from 14.3 million litre in 1978 to 10.1 million litres in 1992 (a decline of 71% (. This has often been caused by drought, poor feeding and management of dairy cattle, breed characteristics of local zebu, reluctancy of some farmers to sell their milk to TDL plants due to delayed payments, disagreements in milk prices and unreliable milk collection and transportation. The supply of BSMP and BO has not been adequate to cope with market requirements the company requirements for DSMP and BO is approximately 2,700 metric tonnes/year and 1,080 metric tonnes/year respectively.
5.2 Inconsistent Supply of Packing Materials,
It has been difficult for TDL to get the required packing materials on time for its processing operation due to shortage of foreign currency, as the result TDL setting their milk using plastic pails is disliked by consumers because milk is plastic pails can easily be adulterated with water etc. TDL needs approximately 4,000 rolls of Tetra packing materials and 12,000 kg of plastic film per year for packing milk, but was only able to produce one third of the required packing material.
5.3 Transport, and Plant Machinery Operations:
The few trucks available, majority of the are old and broken down. By 1993, the company required at least 36 new trucks for its plants to operate normal but the company failed to purchase the required number of trucks because its volume of sales was very low and most of the plants are making losses.
The company was affected by breakdown of plant machinery and outdated models of plant machinery which spare parts are no longer available in the market.
5.4 Water and Power Interruption
The intermittent water and power supply has affected milk processing and often leads to spoilage of milk products causing big loss. Although some plants have stand by generators, these are expensive to run.
5.5 Competition with Milk Producers in the market
Following the Government policy on trade liberalization, a number of large scale and small scale farmers who used to sell their milk to TDL milk plants have developed their own market outlets for the milk they produce (i.e are now selling the milk directly to the consumers) thus getting higher prices then TDL buying prices the milk plants which have been affected more are those which are near urban centers.
5.6 Processing Technology
The milk processing plants have been designed to make pasteurized milk with a maximum shelf life of 3 days. This was not different to what farmers ,were selling to local consumers.
5.7 Inflation and Devaluation
TDL like any other parastatals in tanzania has been hit seriously by inflation and devaluation of the Tanzania shilling affecting the operations of the company from 1984 up to this moment.
The control of Retail Milk prices by Government until 1991 made TDL to operate at losses as such its capital structure was eroded. This made the Company fail to operate profitably. On the part of Milk Marketing: TDL had to compete with vendors who were selling fresh milk - whole quality was not well controlled by Government, made TDL lose its milk market.
Inefficient performance of TDL caused by the already mentioned problems and trade liberalization policy has prompted other forms of marketing systems to develop, which are now competing favorably with TDL. There marketing systems are discussed briefly.
6.1 Informal system
It is a marketing system whereby commodities are marketed without an organized channel i.e. laws and legislation stated in the Dairy Industry Act are not followed. There are several informal systems.
6.1.1 Producer - Consumer
This system exist in all rural areas where cattle are kept. Its existence may date back to the introduction of cattle in Tanganyika. Milk and Milk products mainly sour milk and ghee is sold to neighbors in a close vicinity or in weekly markets for cash on for exchange of other food commodities. This form of milk marketing have expanded to the towns and cities where by diary farming has become a major economic activity. In some few cases transport cost is involved inform of fare for the producer on the way to the market. This system has advantages and disadvantages.ADVANTAGES
· Prompts payment, payment is cash on delivery.
· Minimum costs if any are involved between the producer and consumer.
· The price of milk under this system are determined by supply and demand forces.DISADVANTAGES
· Adulteration of milk by the producer as the consumer normally have no means of testing the milk before purchase.· Risks of diseases such as Tuberculosis and brucellosis incase milk is not boiled before consumption or being made to milk products.
6.1.2 Producer - Milk Vendor - consumer
Milk vendor is the one who buys milk from producer and sells whole or retail price. Some sell door to door, or in kiosks. Mode of transport used is bicycles, buses, hire vehicles or own vehicles. The determining factor for the milk vendor is the profit margin, which depends on the difference between price of produces and that of the consumer. Transportation cost and the volume of milk involved are important factors. Long distances from producer to consumers, poor road conditions, may discourage milk vendors from the operation.ADVANTAGES
· No processing cost involved.DISADVANTAGES
· adulteration cost involved.
· heavily dependent on transport.
6.2 Formal milk marketing system
This a form of marketing whereby, laws and regulations regarding sale of milk and milk products are stated under the Dairy Industry Act are observed are.
6.2.1 Producer - Private Milk Processor - Consumer
TDL is an example of this system. This system also applies to private milk processors as individual or a cooperative. There are about four private processing plants in Tanzania. Highland in Iringa, West Lake in Mwanza, Bakhressa, Dar es Salaam and Bukoba in Kagera. At the moment only two ie. Kagera and Bakhressa are still operating. The rest are no longer working due various reasons.ADVANTAGES
· Poor roads limit transportation of milk to a certain distance.
· Taste and preference of consumers varies greatly, as there is limited market for other diary product e.g. ice cream, cheese.
· Cost of processing fluctuates with devaluation of our currency.
· Competition between various actor due to laxed regulations of Dairy Industry.
7.1 Producer - consumer system
A great percentage of milk produced in the country is marketed using this system, and it likely to continue near future until such time in which the country will attain a developed stage. Therefore, sell of fresh clean milk is recommended so long as the milk is boiled before consumption due to health reasons.
7.2 Producer - processing plant - Consumer
This is a system whereby milk is collected and processed by a plant owned by a cooperative society or private entrepreneur. The size of the plant depends on the amount of milk produced and collected within a particular locality. The problem of milk marketing has prompted farmers to group themselves together to form associations. So far several cooperatives have been established in Tanga, Kagera, Iringa and Mbeya regions. However, these organization still face problems of limited markets, inexperience management, limited capital and an enlightened membership. According to cooperative Act 1992, cooperatives are commercial viable organizations and therefore are in position to get loans from financial institutions. Cooperatives have had considerable success in India, Philippines, Sir-Lank, Bangladesh, Thailand etc.
7.3 Producer cum Processor
Farmer who produce over 150 litres of milk per day and are financial sound or qualify a loans from the banking institutions can purchase min processing plants. The limiting factors for this group are land and capital for further expansion of their dairy enterprise. The government is obligated to support this group through deliberate effort to allocate land for dairy development outside towns and cities.
7.4 Producer cum local milk processor
Farmers who are in remote areas, far away from the markets, and poor roads, are encouraged to process milk locally into products, such as ghee and butter which have a long shelf life.
The Ministry of Agriculture will be responsible for overall policy formulation, supervision and coordination on matters affecting the development of the dairy sector. Through Agricultural extension and cooperative service dairy farmer will be encouraged to establish cooperative organization for the purpose of collection, processing and marketing their milk. Laws and Legislation established under the Dairy Act regarding sell of milk to urban will be reinforced to remove unnecessary market competition between cooperatives and individual farmers. Training and Research to improve locally processed milk, packaging method will develop.
There is a gap between supply and demand of milk and milk products in Tanzania and will continue as the pace for dairy development does not match the rapid growing population. However, due to Low purchasing power and food habits in some parts of the country where dairy farming has taken shape milk marketing has emerged as a constraint.
This superficial surplus milk need to be marketed if the diary farmers are to continue investing in dairy farming.
Monopoly milk marketing system organized by TDL have been overtaken by events. Milk marketing therefore is to be organized by the producers themselves through their organizations.
Private entrepreneurs who are in a position to collect, process and market milk within the stated laws and regulations will be given opportunity to do so. As the bulk of milk is still produced in rural area where market for milk is far, the producers have to organize themselves into Associations/Co-operatives in order to be able to sell their surplus milk to consumers who are mostly found in Urban areas. The farmer groups can be allowed to own collecting and cooling centers in order to keep the Quality of milk before transporting to the market.
DISCUSSION
Q. BY DR. RUGAMBWA
What precautions are being taken to handle the vacuum that is likely to eventuate during transition from parastatal (govt) milk processing and private milk processors?
Response: Dr. Mwakatundu
The Government is not letting TDL to collapse, neither is it selling it outright. It has been classified as a specified public organisation which will continue running without its debtors attaching TDL's property until a proper take over can be arrived at.
Q. Dr. J. Henricksen:
What is your opinion about the peri-urban and urban milk production system?
Response:
I think I will agree with the comment which was given the other day, that urban milk production has no future but it is a transitional system. May be the government should encourage these farmers to settle their cows on farm land in potential areas not too far from the city.
Q. Dr. S.G. Mbogoh:
Mode of privatization of public (government) enterprises must be based on floatation of shares or open tendering for the sale of business. How can such a system be used here when there are no stock markets.
Response
Modalities of privatization are still being worked out.
Q. R.I. Kurwijila
I see a problem between the lack of regulatory mechanisms that require milk to be processed and the consumer preference for raw milk. Unless the emerging producer cooperatives enact by-laws which will bind their members to channel milk through the formal marketing they are going to face the same problems as what TDL has been through.
Response
Merely enforcing regulations is not going to help. The solution should be for the farmers to acquire shares in these plants and elevate the milk prices to match those of the unregulated market. Then the plants will automatically get milk from the producer members.
Q. Dr. G. Sudi
One of the reasons given for failure of TDL factories was low milk intake to the factories. Is it real or imagined because there has not been reduction in milk producers. We have heard of the case of Tanga where TDL closed its factory and the next day there was TDCU collecting & processing milk which was supposed to go to TDL
Response:
Milk prices contributed to low intake eg. milk prices in town range between Tshs. 300 and 350 compared to 170/= offered by TDL. So producers would go for attractive prices.
Q. A.A. Okwenye
What will be the mode of privatization of TDL? Will Maasai farmers from Chalinze be allowed to buy shares?
Response:
Yes, farmers will participate in the privatization of TDL. They will be allowed to buy shares.
Q. G. Burrel
What is the likely future of TDL? If it is to be privatized when will this happen and how?
Response:
There will be a slow transition period as TDL is privatized. The preference and likelihood is that it will be owned by local people.
