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Farmer Relationship in Dairy Value Chains an Assessment Study in Borabu and Kiambu Districts, Kenya

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Farmer Relationship in Dairy Value Chains an Assessment Study in Borabu and Kiambu Districts, Kenya Strategies to improve firm- farmer relationship in dairy value chains An assessment study in Borabu and Kiambu Districts, Kenya By DOMINIC SIMBE ONG’ARO SUPERVISOR VHL: MARCO VERSCHUUR Wageningen, September, 2012 Research Project submitted to Van Hall Larenstein University of Applied Sciences In partial fulfilment of the requirements for the awards of Master degree in Agricultural Production Chain Management specializing in Livestock Chains By Dominic Simbe September 2012. University of Applied Science part of Wageningen University, The Netherlands © Copyright Dominic Simbe. 2012. All rights reserved. i ACKNOWLEDGEMENT This thesis is written as a partial fulfilment for the degree of Master in Agricultural Production Chain Management with specialization in Livestock Chains. I convey my gratitude to the Royal Dutch Government for providing me the Nuffic scholarship and the Kenyan Government for granting me permission to pursue this master degree at Van Hall Larenstein University of Applied Sciences, part of Wageningen University and Research Centre. First of all, I would like to thank my supervisor, Marco Verschuur who doubles as my course coordinator for his dedicated guidance and supervision. His highly valued advice, positive criticism and invaluable motivation during my thesis write up encouraged me through. I would also like to express my appreciation to my the WUR-CDI/ APF team of Ted Schrader, Annemarrie Groot Kormelinck and Inger Jansen and Cees van Rij of Agriterra Kenya for their support during the support I received during my thesis. My other sincere gratitude goes to all the lecturers at the Van Hall Larenstein University of Applied Sciences for the competencies they built in me during the course. Further, my sincere thanks go to all other staffs and class colleagues, for making my stay pleasant in Wageningen. I thank all my colleagues in the ministry of Livestock Development for the support they gave me to accomplish my study. In the same way, I am very much grateful to the respondents of Kiambaa Dairy Farmers’ Cooperative Society, Borabu Farmers’ Cooperative Union, New KCC Sotik and Eldoville Farm and all stakeholders interviewed during the study as mentioned in this thesis report I am deeply indebted to my beloved wife Jackline Simbe, my lovely children and my siblings for their great patience, encouragement and understanding during in my long absence. It is not easy to mention everyone here but I appreciate and thank all who directly or indirectly contributed in the completion of my study in Netherlands May our Almighty God bless you all. Amen! Thanks September, 2012 Wageningen, the Netherlands ii Dedication This research work is dedicated Almighty God for divinely enabling me to complete my study and to my beloved family for their endurance during in my study. I love you all. iii Table of Contents ACKNOWLEDGEMENT .......................................................................................................... ii Dedication ........................................................................................................................ iii List of Tables ..................................................................................................................... vii List of Figures .................................................................................................................. viii List of Abbreviations ........................................................................................................... ix ABSTRACT ......................................................................................................................... x CHAPTER ONE: INTRODUCTION ............................................................................................ 1 1.1 Background of the Study ................................................................................................... 1 1.2 Problem description ........................................................................................................... 1 1.3 Justification of the study .................................................................................................... 2 1.4 Research Objective: .......................................................................................................... 2 1.5 Research questions: .......................................................................................................... 2 1.5.1 Research Question 1: ...................................................................................................... 2 1.5.2 Research Question 2: ...................................................................................................... 2 1.6 Significance of the study:................................................................................................... 3 1.7 Definition of terms ............................................................................................................ 3 1.8 Organization of the Proposal ............................................................................................. 3 CHAPTER TWO: FIRM-FARM RELATIONS CONCEPTS: ................................................................ 4 2.1 Value Chain Development ................................................................................................ 4 The Rural Innovative Systems and Entrepreneurship (RISE) ................................................... 4 2.2 Market Access .................................................................................................................... 5 2.3 Value Chain Upgrading Strategies: ................................................................................. 5 2.4 Competition and Coordination.......................................................................................... 6 2.5 Strengthening Chain Relations: ....................................................................................... 7 2.6 Building Market Institutions ‘The rules of the game’: .................................................... 8 2.7 Contracts ........................................................................................................................... 10 2.8 Contract farming and producer organizations: ............................................................ 11 2.9 Dairy production systems in Kenya ............................................................................... 11 2.10 Dairy Value Chain: ......................................................................................................... 12 2.10.1 Value Chain Stakeholders: Actors, Supporters and Influencers ................................. 12 2.10.2 Information and cash flow ......................................................................................... 15 iv 2.10.3 Cost structure for farm level milk production: ........................................................... 15 2.10.3 Fresh milk cost structure of the Kenya Dairy Value Chain ......................................... 16 2.11 Quality Standards: ......................................................................................................... 16 CHAPTER THREE: RESEARCH METHODOLOGY .................................................................... 17 3.1 Study Areas ....................................................................................................................... 17 3.1.1 Borabu district: ............................................................................................................. 18 3.1.2 Kiambu district .............................................................................................................. 18 3.2 Research Strategy ........................................................................................................... 19 3.3 Desk study: ....................................................................................................................... 19 3.4 Field study: ........................................................................................................................ 19 3.5 Sample selection and size .............................................................................................. 20 3.6 Data processing and analysis ........................................................................................ 21 CHAPTER FOUR: BORABU FCU AND KIAMBAA DFCS BUSINESS CASES ................................. 22 4.1 Borabu Farmers’ Cooperative Union (BFCU) - Sotik New KCC Case .................... 22 ............................................................................................................................................... 22 4.1.1 Dairy Production in Borabu District. ............................................................................. 22 4.1.2 New KCC Ltd ................................................................................................................. 23 4.1.3: Borabu Milk Supply Chain. .......................................................................................... 24 4.1.4 Functioning of the Farmer group ................................................................................. 24 4.1.5 Firm – farmer Agreement/ Contracts ........................................................................... 25 4.1.6 Market and Prices ......................................................................................................... 26 4.1.7 Quality standards and record keeping ......................................................................... 26 4.1.8 Costs/ benefits
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