After more than a decade seeking a properly regulated dairy industry, the Ministry of Agriculture reached a major milestone with the launch of a set of regulations expected to streamline operations in the sector.
According to Peter Munya, the Agriculture Cabinet Secretary, the eight regulations are set to bring the diary sector that had been poorly regulated, under more government scrutiny.
The industry has recorded poor growth year after year. This is seen in the fluctuating milk prices that farmers have to grapple with while on the other end, consumers pay high prices.
The poor state of affairs has also seen the influx of imports of processed milk from neighbouring countries, where farmers have an easier time sourcing for animal feeds that are not subject to high tax regimes.
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Some of the local milk producers have set up operations in Uganda, for instance, where they process milk and export to Kenya. New dairy regulations will turn around limping sector
“The dairy sector is source of livelihood, employment, and income for many households,” Munya said when he launched the Dairy Industry Regulations (2021) last week.
“The sector, however, continues to face several challenges including seasonality of production, low productivity, poor quality, costly and inaccessible animal feeds and lack of adequate regulatory framework.”
More action, less talk
Of the eight regulations, the one that has stirred excitement among dairy farmers is on pricing, which has set the minimum price that farmers will be paid for milk delivered.
The Dairy Industry (Pricing of Dairy Produce) Regulations, 2021 has set the minimum price that the farmers earn per litre of milk at Sh33 for unchilled raw milk.
Buyers will pay a farm gate price of Sh35 per litre of chilled milk and Sh37 for a litre of pasteurised milk.
The Ministry said the prices will be subject to review twice every year. “Going forward, the Ministry through the Kenya Dairy Board will conduct frequent studies and consultations on the cost of milk production to inform biannual milk pricing reviews,” said Munya.
Though better than the Sh19 that they have received in the past for non-chilled raw milk especially when supply is high, analysts noted that the government needs to do more to change the fortunes of farmers.
Nixon Kipng’eno, the farm manager at Rift Valley Institute of Science and Technology (RVIST) says there was need to pay farmers better since the proposed figure is still relatively low.
“The minimum price is still low. The cost of producing milk is still high and at Sh33 per litre, you will still be running at a loss especially if you are zero grazing,” he says. “To sustain themselves and their families, a farmer needs at least Sh40 per litre to get a good return.”
Dr Timothy Njagi a research fellow at Tegemeo Institute – Egerton University’s think tank – said the move to regulate the industry was good but there were are aspects that would be difficult to oversee including the minimum farm gate prices for milk.
This, he noted, would work if the sector was highly formal which the Kenyan one is not.
Challenge of tracing milk sources
Setting minimum prices might deny farmers the benefit of higher prices when supply is low, which is currently the case with some of the processors offering farmers upwards of Sh40 a litre.
It could hurt them when supply is high, especially during rainy seasons, and the dairy businesses might be unable to absorb the quantity of milk produced. During such seasons of glut, consumers also benefit from lower prices, which may not be the case when prices are regulated.
Njagi also notes that the other regulation that may be difficult to implement is the one on traceability of dairy products.
One of the regulations provides for product traceability and recall in a bid to enhance consumer protection. It requires dairy businesses to keep records of their suppliers as well as labelling of their produce for easy follow up should there be need to recall dairy products from the market.
“The regulations recognise the informal sector, a good move because much of the milk consumed in the country is sold in the informal segment of the dairy industry,” Njagi said.
It is estimated that 80 per cent of milk consumed in Kenyan homes is sold informally. This is seen in how milk is consumed in rural Kenya as well as the proliferation of milk dispensing ‘ATMs’ in urban areas.
The regulations also set minimum requirements on contracts that buyers sign with farmers. According to Munya this will deal with exploitative nature of contracts that dairy farmers currently have with buyers, which he described as weak and inadequate.
Problem of weak contracts
To address such gaps, the Dairy Industry (Milk Sales Contract) Regulations, 2021 prohibits businesses buying milk from farmers without having in place a written contract. According to the regulation, the move intends for fair trade in the sale of milk and to protect the investment interests of buyers and sellers of milk.
Farid Wangara, Principal Officer at Acre Africa, which works with farmers in mitigating risks, said the regulations are a move in the right direction for all players across the dairy value chain.
He noted that a well regulated industry should improve earnings for players as well as increase quality of products for consumers and generally lead to a more sustainable industry.
“The move to set minimum prices for farmers is welcome. Many a time, private contracts that are not regulated always favour the extremely large scale farmers, leaving the small scale farmers vulnerable. Setting the minimum prices will help protect the small holder farmers from exploitation,” he explains.
“In a well regulated industry, all sector players are always left in a better position. More importantly, the focus should then shift from personal benefits to quality production and sustainability. More often, unregulated sectors give rise to poor management, exploitation and too many middlemen that eventually push prices up. It is important then that the government should put more emphasis on long term sustainability and increase self-sufficiency.”
He also noted that kicking out middlemen would stabilise prices and empower farmers. This could also help deal with the challenge of fluctuating prices.
“The importance of regulation is to reduce exploitation and variation in prices of goods and services,” said Wangara. “This would give fair play for all sector players. Sometimes, forces of demand and supply often result in unfair prices and the end person that feels the pinch is the small scale producers. A good policy framework should leave everyone in the value chain happy.”
The regulations have also made an attempt to restrict the importation of dairy products from the neighbouring countries.
The Agriculture Ministry, through the Dairy Industry (Imports and Exports) Regulations, 2021, said the regulations are aimed at protecting Kenya’s dairy industry against unfair trade practices, competition and dumping (diversion of re-export) of dairy products in the country.
The industry regulator, Kenya Dairy Board will only grant an import licence in instances where it is evident that the local production cannot meet demand.
Imports will attract an import levy of 10 per cent, which might bring the prices of imports at par with locally produced milk.
As part of the regulations, illegally importing milk will attract “stiff penalties that include forfeiture to the Board or the destruction of the imported dairy produce material, additives, or equipment”. The regulations, prescribe a fine of Sh10 000 or a jail term of one year for offenders.
The government has also changed the way it computes cess paid by dairy farmers, which will now be paid to county governments that choose to charge the levy. The regulations however limit payment of the cess to the county where the milk is produced to avoid double taxation.
“A county government may impose cess not exceeding 0.5 per cent of the farm gate price payable by a primary producer,” reads the regulation. “A county government shall not impose or charge cess on dairy produce emanating from another county.”
In the 2004 Legal notice on cess on dairy products, which is now revoked following the coming into the force of the regulations, a dairy farmer, paid 20 cents per litre.
At the current set price of Sh33 per litre of raw milk, a 0.5 per cent cess means farmers will pay 6.5 cents per litre to the county.
