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Rehabilitation of the dairy industry in Uganda

Rehabilitation of the Ugandan dairy industry 1987-1992
Implementation and achievements
Macroeconomic environment
Current dairy sector policy

A.A. Okwenye

The author is Marketing Adviser of the Government of Uganda/UNDP/FAO Rural Community Dairy Production and Marketing Project, c/o FAO Representation, PO Box 521, Kampala, Uganda.

Uganda has some of the best agricultural land in sub-Saharan Africa, with good rainfall and low temperature variability. It is therefore not surprising that agriculture dominates the country's economy, contributing over 60 percent of gross domestic product (GDP). More than 80 percent of the working population is engaged in agriculture. The livestock subsector contributes about 20 percent of agricultural GDP. The national cattle population totals approximately 4.2 million head and it is estimated that 3.4 percent of these are improved dairy breed types, both exotic and crossbred. The milkshed areas extend from just below 1° latitude in the north to Kabale in the south, and from Mbale in the east to Kabarole in the west. There are some 3.5 million cattle within this area.

In terms of feeding/management practices, three major production systems can be identified:

· Pastoral farms with large numbers of indigenous stock (greater than 50), grazing in coarse pasture throughout the year and milked twice a day. No supplementary feeding is provided.

· Small-scale crop and livestock farms near urban centres using mixed dairy cow breeds (less than ten).

· Specialized dairy farms keeping grade or pure dairy breeds (20 to 100) largely on planted pastures, supplemented with commercial feedstuffs.

The constraints to increased milk production include:

· shortage of forage and drinking-water during the dry season;

· limited availability of seeds and other planting materials for improved production of grasses and legumes;

· increased incidence of disease because of decline in control measures and the rapidly rising cost of drugs and chemicals;

· poor genetic potential of indigenous breeds;

· irregular and unreliable access to markets for many producers;

· inadequate levels of institutional credit for small-scale dairy farm enterprises.

Despite the above constraints, the current total national annual production of milk is estimated at 365 million litres. This is lower than that in 1972, when total production was estimated at over 400 million litres. The decrease in milk production is the result of a decline in the cattle population and deterioration in support services caused by civil strife and war between 1972 and 1986. It is estimated that about 50 percent of all milk produced is marketed through informal and formal channels. Of all the fresh milk marketed, the Dairy Corporation handles over 10 percent and the balance is sold through informal channels.

Organized milk collection and processing began in the 1960s. Milk processing and distribution in Kampala was operated by a private company, Uganda Milk Processing Limited, which imported fresh milk from Kenya. With the establishment of the parastatal Dairy Corporation by an Act of Parliament in 1967, emphasis was placed on procuring local milk for processing at the country's two milk plants in Kampala and Mbale.

At the time of its establishment in 1967, the Dairy Corporation also took over responsibilities for developing and regulating the dairy sector. With subsidies from the government, the corporation expanded milk collection. By 1972, almost 20 million litres were being collected through a network of about 90 milk-collecting centres. After achieving this peak in a remarkably short time, however, milk collection rapidly declined and became virtually non-existent after 1977 as a result of the prevailing civil disturbances and widespread looting.

An attempt to rehabilitate the dairy industry in Uganda was made in 1983, but this was short-lived, abruptly terminating in 1984/85 because of continuing civil strife. In 1986, however, when the present government assumed office and restored peace and stability, it immediately embarked on a programme to reconstruct the economy. Accordingly, the Ugandan Government prepared the National Rehabilitation and Development Plan for the period 1987 to 1990, which was later extended to 1992. The plan clearly identified the rehabilitation of the dairy industry as a priority programme whose overall goal was to regain self-sufficiency in milk through restoring production on dairy farms, improving milk collection, processing and marketing, and strengthening dairy extension services.

Rehabilitation of the Ugandan dairy industry 1987-1992

Donor assistance

The core projects of the programme were funded through loans and grants from several multilateral external donor agencies including the United Nations Development

Programmer World Food Programmer Food and Agriculture Organization of the United Nations; Danish International Development Agency and the African Development Bank. The Ugandan Government and the Dairy Corporation also contributed in kind and cash towards the programme. There were also other related livestock projects that were funded by the World Bank, United States Agency for International Development (USAID), European Economic Community (EEC) and other donors. By the end of 1992, up to US$25.94 million out of a total external donor commitment of US$55.1 million had been disbursed (Table 1).

1 Core projects of the rehabilitation of the dairy industry

Principaux projets de redressement de l'industrie laitière

Principales proyectos de renovación de la industria lechera




Disbursement* (million US$)

Dairy rehabilitation


1987 - 1993



Dairy rehabilitation


1988 - 1993



Support to dairy industry


1989 - 1993



Dairy industry development


1987 - 1992




25.94 Total

* As at 31 December 1992.
Source: FAO, 1992.

Cooperation among donors on the one hand and between government agencies on the other was an outstanding feature in the implementation of the rehabilitation programme. Each donor agency was aware of what the other was doing and all adopted a coordinated implementation strategy, thus avoiding duplications and gaps in funding. This led to better use and control of the available funds and contributed to the success of the programme.

World Food Programme (WFP). WFP funding was provided in the form of dried skim milk and butter oil. These were recombined by the Dairy Corporation to cover the shortfall in fresh milk supply in order to meet demand and to generate counterpart funds used to promote dairy development. The counterpart funds, which were channelled through the Dairy Development Committee (DDC), were used, inter alia, to support dairy extension and farmer training; importation of farm inputs for sale to farmers; purchase of milk collection vehicles and construction of milk-collecting centres for the Dairy Corporation; renovation of the Entebbe Dairy Training School buildings; and the maintenance of a small DDC secretariat in Kampala.

Danish International Development Agency (DANIDA). DANIDA's main contributions were the rehabilitation of the Dairy Corporation's main processing plant in Kampala and the upgrading of milk collection facilities in Mbarara. DANIDA also provided funds for equipment and machinery used to rehabilitate the Entebbe Dairy Training School and plant. The agency financed a dairy sector study - the Dairy Master Plan Study - as well.

African Development Bank (ADB). By the end of 1992, the loan extended by the ADB to the Ugandan Government had been partly utilized to procure insulated road tankers, refrigerated milk distribution trucks, coolers and laboratory equipment for the Dairy Corporation. It was also used to restock and improve infrastructure on government farms.

United Nations Development Programme/Food and Agriculture Organization (UNDP/FAO). UNDP funding was used to support an FAO-executed technical assistance project - the Dairy Industry Development Project -whose role was to coordinate and implement the overall programme, together with the Ministry of Agriculture, Animal Industry and Fisheries (MAAIF), the Dairy Corporation, the DDC and farmers' groups. FAO fielded several international and national dairy specialists in development, management and accounting, technology and engineering, production and veterinary science, extension and training, and marketing.

Implementation and achievements

The rehabilitation of the Ugandan dairy industry focused on priority areas that needed quick intervention in order to give the much needed kick-start to sector development. Accordingly, three priority areas were selected: dairy sector planning and coordination, milk production enhancement, and milk collection, processing and marketing. Key progress indicators are shown in Table 2.

Dairy sector planning and coordination

The coordination of short-term plans with externally funded development activities in the dairy sector was undertaken by the UNDP/FAO Dairy Development Project, in collaboration with the MAAIF, the Ministry of Finance and Economic Planning and the Dairy Corporation. From the outset, a flexible decentralized regional approach was adopted to enable the plans to be adapted to actual conditions. In the short term, priority was given to shifting milk from the surplus areas in the southwest to deficit areas in the lake crescent areas, particularly Kampala. This necessitated rehabilitating the existing milk collecting, processing and marketing infrastructure.

Two immediate problems had to be confronted when preparing the short-term dairy sector plans: one was the absence of reliable data and the other was posed by the rapidly changing macroeconomic policy environment. This meant that plans had to be very flexible in order to ensure proper utilization of committed funds.

Milk production enhancement

The enhancement of milk production was identified as another priority area requiring immediate attention. To this end, a specific programme was prepared-and implemented by the UNDP/FAO Dairy Industry Development Project, working with WFP, DDC and farmers' groups.

The primary objective of the programme was to implement activities that would lead to increased milk production per animal and per unit area at selected farms. Through the provision of appropriate technical interventions, training and demonstration, farmers would be able to increase farm incomes through increased sales of surplus milk. A secondary objective of the programme was to build a system (module) upon which future dairy development programmes could be based.

As a result of the vast area defined for project activities and because of limited availability of personnel and financial resources, the programme used the "pilot scheme" approach - the most logical and cost-effective method to employ - to achieve the above two objectives. Eight "pilot advisory/pilot groups" representing different agro-ecological and farming systems throughout the various milksheds of the country and involving about 800 farms were established.

Activities in the programme were designed to identify and remove farm-level and institutional constraints that stood in the way of increased milk production. Each group was provided with specific technical packages that included on-farm extension, herd recording, training and demonstration, artificial-insemination service and a revolving fund for farm inputs and credit. More important, each group was encouraged to form a legal association, for example, as a dairy cooperative society.

The strategy adopted by the milk production enhancement programme achieved great success. By the end of 1992, eight coherent milk producer groups were functional. Since then, all have been registered as cooperative societies, and two are already directly involved in collective milk marketing. The pilot group strategy has been adopted by the Ugandan Government in the new dairy sector policy and a UNDP/FAO follow-up project is currently working to strengthen and consolidate the existing groups. Plans are also under way for the formation of more groups.

Milk collection

Collection of milk from farmers by the Dairy Corporation recorded a tremendous increase, as shown in the Figure. In 1986, the corporation collected only 200000 litres of milk from 390 farmers from two operating milk-collecting centres. In 1991, milk- collection reached 19.3 million litres from 7300 farmers from 48 operating milk-collecting centres. Total payments to farmers amounted to an equivalent of US$3 million in 1991. The great increase in milk collection within such a short time was the result of several factors, the main ones being:

· Improved milk collection infrastructure. Roads were improved by the government, more collecting centres were made operational through the installation of more coolers and more milk road tankers were purchased.

· Increased milk farmgate prices. In 1988 alone, farmgate prices increased four times.

· Increase in milk production, especially in those areas where pilot groups were located.

Milk processing

In 1986, the Dairy Corporation owned only one old and dilapidated processing plant, which was operating at below 40 percent capacity. By 1992, three processing plants were operational in Mbale, Kampala and Entebbe, with a total installed capacity of 166000 litres of pasteurized milk per day. In 1991, the Entebbe plant, which was rehabilitated with completely new equipment through DDC/WFP/DANIDA funding, started limited production of dairy products including butter, cheese, ice-cream, yoghurt and cream. The adjoining Dairy- Training School was also renovated at the same time. The Kampala plant has since been extensively overhauled.

2 Key progress indicators in the dairy industry development project - Principaux indicateurs des progrès des projets de développement de l'industrie laitière - Principales indicadores de los progresos realizados en el proyecto de fomento de la industria lechera

1 Average official exchange rate.
2 Chilled milk.
3 Pasteurized milk production (shortfall between supply and demand met by recombining milk from butter oil and dried sum milk powder provided by WFP dairy project).
4 In pasteurized milk.
Source: FAO, 1992.

Fresh milk supplied to the Dairy Corporation, 1986-1992 - Approvisionnement en fait frais de l'industrie laitière, 1986-1992 - Abastecimiento de leche fresca a la empresa lechera, 1986-1992

Milk marketing

Although sales of processed milk increased from 12.9 million litres to 21.3 million litres in 1991, average per caput milk consumption in Uganda has remained relatively low. In 1991, national per caput milk consumption was 22 litres per annum, although in Kampala it was a little higher at 39 litres per annum.

During the first phase of the rehabilitation of the dairy industry, efforts were made to improve milk quality and to streamline milk distribution, especially in the four main urban areas of Kampala, Entebbe, Jinja and Mbale. A formal market survey was conducted in 1991.

Macroeconomic environment

The success of the dairy industry rehabilitation effort was made possible by an increasingly enabling macroeconomic policy environment. In 1987, the government spelled out the three main objectives of its overall economic strategy: promotion of rehabilitation and growth; restoration of internal financial stability and achievement of lower inflation; and the reduction of the current account deficit through increasing and diversifying exports.

As a consequence of the economic measures adopted, the GDP growth rate rose from 2 percent in the 1985 financial year and 0.6 percent in 1986 to 7.6 percent in 1988 and 7.3 percent in the 1989 financial year. Annual inflation was reduced from over 200 percent in 1986 to less that 30 percent in 1991.

With increasing liberalization, the overall economic growth pattern is expected to be not only maintained but improved.

Current dairy sector policy

After the completion of the first phase of the rehabilitation of the dairy industry in 1992, the main thrust of the development effort shifted to a total dairy sector approach as opposed to interventions in limited areas. The current overall objective is to achieve sustainable development in the sector by the year 2000.

In 1991, the government, through the MAAIF, initiated a complete review of dairy sector policy through a Dairy Master Plan Study. The study was to address and analyse a wide range of issues, some of which were:

· the substantial increase in the supply of fresh milk as a result of measures adopted during the first phase of the rehabilitation process and how this increase could be maintained and improved upon;

· milk pricing;

· the pivotal role of the Dairy Corporation in the development of the dairy industry and the shifting of that role once the Dairy Corporation starts operating on a commercial basis;

· the role of the government vis-à-vis the private sector in the development of the sector;

· an assessment of the investment needs of the dairy sector up to the year 2000.

The Dairy Master Plan Study has now been completed and the government has adopted most of the recommendations. The following major policy decisions have been taken.

· The government's objectives for dairy sector development are:

- to achieve and maintain national self-sufficiency in milk and dairy products;

- to raise incomes and living standards of small- and medium-scale farmers through increasing their returns from farming;

- to ensure that the increase in production is environmentally sustainable - improved productivity rather than increased cattle population is the strategy;

- to establish liberal dairy markets and promote competition in processing and marketing.

· The government's role in the dairy sector will be gradually reduced from one of direct participation in production, processing and trade to that of facilitator and provider of support services, including research, training and extension.

· The Dairy Corporation will be commercialized and privatized. The corporation's developmental and regulatory functions will be transferred to a yet-to-be-established Dairy Board and to the dairy development section of the MAAIF. Privatization will be undertaken gradually from the top as well as from the bottom of the Dairy Corporation structure. From the bottom, farmers' associations and cooperatives have already begun the process of purchasing or leasing its cooling and collection centres. From the top, private investors and farmers and their organizations will be invited to buy shares in the commercialized Dairy Corporation Ltd and to participate in the management of operations.

· A Dairy Board will be established to regulate, coordinate and promote development in the dairy sector. Farmers will be strongly represented on the board.

· A Dairy Development Fund will be established to finance the activities of the Dairy Board and to support dairy development activities such as dairy research training, product development and general market promotion.

· Government support services will be rehabilitated and concentrated in milkshed areas selected on the basis of comparative advantage. Where the service benefits the dairy sector and the nation in general, the government will fund the service. Where the service directly benefits individuals or groups and where they are willing and able to pay, for example, for artificial-insemination services, the users will fund the service through user charges.

· Dairy farmers' organizations, cooperatives or limited-liability companies will be encouraged to take an active part in milk processing and marketing.

· With regard to research, emphasis will be on applied dairy cattle research, particularly that which addresses practical problems faced by dairy farmers in Uganda. Research priorities therefore will be established in close cooperation with farmers and their organizations, the Dairy Board and the extension services.

· A unified extension service is already being established by the government with backing from the World Bank. With a unified extension service it becomes increasingly important to provide specialized support and training within dairy production to extension officers working in priority milkshed areas.

· With regard to animal health services, the government will encourage privatization of veterinary services and, as much as possible, the full-cost recovery concept will be applied.

· As to animal breeding, the government will no longer import improved dairy cattle since 3.4 percent of the cattle in milkshed areas are improved dairy breed types (exotics and cross-breeds). The main role of the government will be to provide efficient artificial-insemination services on a full-cost recovery basis, assist with implementing a selection programme and develop a national breeding policy.

· Human resource development remains one of the government's main responsibilities. Implementation of the Dairy Master Plan will require an adequate supply of well-trained staff in government services and in the private sector.

· Finally, the government is in the process of amending the 1967 Dairy Industry Act in order to give legal effect to the new dairy sector policy.

Implementation of the Dairy Master Plan will be achieved through a number of identified projects estimated to cost about US$67 million up to the year 2000. Prominent among these projects is the establishment of a milk powder plant in Mbarara in the southwest.


What has been achieved so far in the rehabilitation of the Ugandan dairy industry is only a beginning, adequate to serve as a basis for future sustainable development in the sector. The opening up of the sector to private participation is a welcome move but much remains to be done to strengthen farmers' initiatives in milk production and marketing and to relate extension, training, breeding policies, veterinary services and research to farmers' needs. New proposed institutions such as the Dairy Board and a restructured Dairy Corporation are yet to emerge and, in order to give legal effect to the institutional changes, the old 1967 Dairy Industry Act still needs to be amended.


FAO. 1992. Terminal report: project findings and recommendations. Dairy Industry Development Project AG:DP/UGA/84/023. Rome.

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