Small-scale dairy production: a way out of poverty

New study assesses global perspectives for smallholder milk production

29 September 2010, Rome - Making smallholder dairy production more competitive could be a powerful tool for reducing poverty, raising nutrition levels and improving the livelihoods of rural people in many developing countries, FAO said in a new report on smallholder milk production published today.

"Global milk demand is growing by 15 million tons per year, mostly in developing countries. Production of this increased volume of milk by small-scale dairy farmers would create approximately three million jobs per year in primary production alone," said Samuel Jutzi, Director of FAO's Animal Production and Health Division.

"This presents a unique opportunity for establishing sustainable dairy chains that can meet the demands of local consumers and the world market. Judicious development of the dairy sector could thus make a substantial contribution to achieving the Millennium Development Goal of eradicating hunger and poverty," Jutzi said.

Dairy matters

It is estimated that around 150 million small-scale dairy farming households, around 750 million people, are engaged in milk production, the majority of them in developing countries, according to the study The Status and Prospects for Smallholder Milk Production - A global Perspective, jointly published with the International Farm Comparison Network (IFCN). Globally, the mean dairy herd size is around two cows providing an average milk yield of 11 litres per farm per day.

Throughout the world, there are around six billion consumers of milk and milk products, the majority of them in developing countries.

Competitive and resilient

Across the countries analyzed in the FAO/IFCN study, small-scale milk producers have very competitive production costs and thus, if organized, have the potential to compete with large-scale, capital-intensive, ‘high-tech' dairy farming systems in developed and developing countries. With very few exceptions, smallholders achieve relatively high incomes per litre of milk. They are also comparatively resilient to rising feed prices as they usually only use small amounts of purchased feed.

Growing consumer demand for dairy products in developing countries, driven by population growth and rising incomes, offers important market opportunities for smallholders, the FAO/IFCN report said. The latter could also benefit from expected higher world market prices for dairy products.

Better farm management practices, expanding dairy herd sizes and increasing milk yields could easily improve smallholder labour productivity, which currently is rather low. "Dairy sector development can therefore be a potent tool for poverty reduction," the report said.

Exposed and penalized

But smallholder dairy production will only be able to reach its full potential if some of the threats and challenges the sector is currently facing are addressed. In many developing countries, smallholders lack the skills to manage their farms as ‘enterprises'; have poor access to support services like production and marketing advice; have little or no capital to reinvest with limited access to credit; and are handicapped by small herd sizes, low milk yields and poor milk quality.

Massive policy interventions (price support, milk quotas, direct payments, investment support programmes, export subsidies) in developed countries create a competitive advantage for the OECD dairy sector and penalize dairy farmers in developing countries, the report noted.

Smallholders are also affected by trade liberalization which increasingly exposes them to competition from large-scale corporate dairy enterprises that are able to respond more rapidly to changes in the market environment.

Environmental concerns are another threat to smallholder production. Low-yield dairy systems in Africa and South Asia are estimated to have higher carbon footprints per 100 kilogram of milk produced than high-yield systems in the United States and Western Europe. This carbon footprint could be significantly reduced through improved animal feeding.

Creating value

Any dairy development strategy, the FAO/IFCN study recommends, must not exclusively focus on dairy producers but improve competitiveness throughout the entire dairy production chain, targeting farmers, input suppliers, milk traders, processors, retailers and others.

Creating value in every part of the chain ultimately also benefits consumers who are then able to obtain more dairy products for the same amount of money or need to spend less for the dairy products they consume.

"Smallholders are generally very resource-efficient," said Joachim Otte, one of the co-editors of the report. "Access to credit, improved animal genetic resources and animal health services, together with supportive political measures enabling them to participate in changing markets, are crucial."

Photo: ©FAO/Ami Vitale
Nearly 150 million farm households are engaged in milk production.