How dairy processors are milking farmers dry
By Dominic Omondi
| Dec 27th 2019 | 6 min read
Ten years ago, for every litre that a farmer sold to milk processors, they were paid Sh28.
The firms would refine the milk and extract cream, butter, ghee and cheese. All these valued by-products would then find their way to supermarket shelves.
In the case of the consumers, for every half-litre packet of milk sold at various retail stores across the country, they paid an average of Sh33 or Sh66 for a litre in 2009.
However, last year, milk processors paid farmers on average Sh35 per litre of raw milk, Sh7 more than the Sh28 they paid in 2009.
Meanwhile, consumers forked out an additional Sh38 for the same quantity of processed milk, according to official data.
While retail prices for milk went up by 57 per cent in the nine years to 2018, farmers who delivered milk to processors during this period saw their earnings increase by a slower rate of 26 per cent.
Everyone else in the dairy supply chain has been having a party except farmers and consumers, with the former receiving little for their sweat and the latter paying through the nose for a pint of milk.
Prices of many goods and services did change during the nine years to 2018, including dairy products, however, the farmers’ share in the increase has been limited.
The high cost of living might have hurt Kenyans, but it has devastated dairy farmers whose produce has continued to fetch very little from processors.
It was even better for milk processors and other market intermediaries during the dry season.
After a crippling drought in 2017, non-producers benefited from a 79 per cent price increase, while farmers only managed a 39 per cent increase despite digging deeper into their pockets to ensure supply of the critical commodity.
But with the cost of living - measured by tracking the changes in prices of certain essential consumer products - increasing by more than 60 per cent, farmers have seen the little they might have gained from the price increase wiped out.
Data from the Kenya National Bureau of Statistics (KNBS) has also confirmed what has since turned into a crisis, with milk farmers in some parts of the country struggling to make ends meet after some leading milk processors decided to reduce prices they paid farmers citing an oversupply of the produce.
Following the milk glut, some farmers are reported to have poured thousands of litres down the drain, even as consumers around the country continue to pay higher prices amid the unusual rise in supply.
Currently, a half-litre packet of milk is going for around Sh50.
Some MPs have called for the import of milk particularly from Uganda, to be stopped. However, given that the two countries are in the East African Community, it is difficult to bar the free flow of products across the borders.
Even as some dairy farmers have suffered a decline in farm-gate prices, the cost of animal feeds, which is their largest overhead cost, has increased by 73 per cent during the nine years.
The cost of 100 kilogrammes of animal feeds rose from Sh842 in 2011 to Sh1,454 in 2018, ravenously eating into farmers’ earnings.
Timothy Njagi, a research fellow at Tegemeo Institute, a policy think-tank, said that although there has been over-production of the milk due to good rains, the structure of the dairy industry and market is also “killing farmers.”
The industry is dominated by a few processors who absorb over 90 per cent of the total milk that is available for sale. These processors include Brookside, New KCC, Githunguri and Kinangop.
This generally means that the processors have the bargaining power when determining prices to be paid to farmers.
As a result, there is a possibility of abuse of buyer power, with an Economics lecturer at Maseno University, Scholastica Odhiambo, noting that there is a need to encourage more producers to form cooperatives to negotiate prices on their behalf.
One such cooperative that has since become the yardstick for success in the sector is Githunguri Dairy.
Dr Odhiambo said that as more milk is produced with less market access, prices become depressed.
“As we stand, an individual farmer’s power of bargaining is dismal,” she said.
In some areas such as Nyandarua, leading milk processors have been buying raw milk at Sh17 a litre, down from Sh30 two months ago. However, in other regions such as Kitale in Nzoia County, farmers have been receiving as high as Sh33 for a litre.
Earlier in the year, regulations were mooted that sought to prohibit smallholder farmers from hawking milk, a move that would have played into the hands of huge processors who have been pushing for factory-processed milk.
The regulations have since been shelved following an outcry from the public.
Farmers might also be suffering from the effects of the defective 2017 subsidy programme, which saw 15,312 tonnes of cheap powdered milk valued at Sh4.9 billion brought into the country duty-free.
In Nyandarua, for instance, farmers told The Standard that their milk business had declined substantially over the past year.
One of them, Joseph Gitau, said the move to liberalise the market had made it impossible for them to sell their milk at a better price.
The farmer at Milangine village, who has been in the dairy business for more than 10 years, says the venture is no longer sustainable.
“Feeding my family is now a struggle. I don’t know how I will pay school fees for my children beginning January. It is tough,” said Gitau, one of the prominent dairy farmers in the area.
Two months ago, things changed for the worse after milk processors dropped the purchase price of the commodity by almost Sh20.
The processors among them New KCC, Brookside Dairy, Nyala and Kinangop dairy factories dropped the price from Sh35 to Sh17 per litre.
Before this, the milk prices had dropped to Sh23.
Nyala Dairy Cooperative Society director James Njuguna said there was a milk glut in the region and no market.
“We have been forced to reduce the buying price as there is a lot of milk in the region and yet we have no place to sell our produce. This is our last option,” he said.
Officials from the New KCC Nyahururu region and Kinangop Dairy declined to comment on the matter.
Another farmer, Jane Muthoni, said they have incurred heavy losses as a result of the price drop.
“There was no explanation given by the management of the dairy processing plants where we deliver the milk. It took effect simultaneously in all dairy plants,” she said.
“We need help from the government as prices of hay prices and other food for our animals keep on increasing. We do not understand why they dropped the milk prices.”
John Njenga, a farmer in Shauri village wondered why the milk prices reduced and yet the commodity was in high demand.
“It is common sense that when the commodity is in high demand, the price goes up. We are experiencing the opposite in Nyandarua,” he said.
Local leaders led by Nyandarua Women Rep Faith Gitau have now called for the government’s intervention. The MP blamed middlemen for exploiting farmers.
“They are taking advantage since not all farmers are able to drop their milk to the local dairies. The government must come to the rescue of the farmers and control the dairy sector,” she said.
(Additional reporting by James Munyeki)
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