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Sustainable Growth of the Kenyan Dairy Sector

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Sustainable Growth of the Kenyan Dairy Sector Wageningen UR Livestock Research Together with our clients, we integrate scientific know-how and practical experience P.O. Box 65 to develop livestock concepts for the 21st century. With our expertise on innovative Sustainable growth of the Kenyan dairy sector 8200 AB Lelystad livestock systems, nutrition, welfare, genetics and environmental impact of livestock The Netherlands farming and our state-of-the art research facilities, such as Dairy Campus and Swine T +31 (0)320 23 82 38 Innovation Centre Sterksel, we support our customers to find solutions for current E [email protected] and future challenges. www.wageningenUR.nl/livestockresearch A quick scan of robustness, reliability and resilience The mission of Wageningen UR (University & Research centre) is ‘To explore Livestock Research Report 0000 the potential of nature to improve the quality of life’. Within Wageningen UR, ISSN 0000-000 nine specialised research institutes of the DLO Foundation have joined forces Corné J. Rademaker, Bockline Omedo Bebe, Jan van der Lee, Catherine with Wageningen University to help answer the most important questions in the Kilelu and Charles Tonui domain of healthy food and living environment. With approximately 30 locations, 6,000 members of staff and 9,000 students, Wageningen UR is one of the leading organisations in its domain worldwide. The integral approach to problems and Report 3R Kenya 979 the cooperation between the various disciplines are at the heart of the unique Wageningen Approach. Sustainable growth of the Kenyan dairy sector A quick scan of robustness, reliability and resilience Corné J. Rademaker, Bockline Omedo Bebe, Jan van der Lee, Catherine W. Kilelu and Charles Tonui This research was conducted by Wageningen University & Research, commissioned and funded by the Embassy of the Kingdom of the Netherlands in Nairobi, Kenya, within the framework of the Agriculture and Food & Nutrition Security programs Wageningen, October 2016 Report 3R Kenya/WLR 979 Corné J. Rademaker, Bockline Omedo Bebe, Jan van der Lee, Catherine Kilelu and Charles Tonui, 2016. Sustainable growth of the Kenyan dairy sector; A quick scan of robustness, reliability and resilience. Report 3R Kenya/WLR 979. Abstract This report provides an overview of how the Kenyan dairy sector performs in three analytical domains: the robustness of the supply chains, the reliability of institutional governance and the resilience of the innovation system. Analysis is by literature review, stakeholder interviews and a validation workshop guided by a SWOT framework to identify strengths, weaknesses, opportunities and threats. The findings inform the existing opportunities and challenges that potentially impede growth in the sector. The report is a first step towards documenting and sharing insights that support the move towards a more Robust, Reliable and Resilient (3R) dairy sector. The findings and recommendations presented will guide policy engagement and action in the transition of Dutch government bilateral engagement in Kenya from development aid–support to a trade approach in the agricultural sector, with a focus on partnering opportunities to drive competitive market-oriented dairy sector development that attracts investments. Work in progress This working paper aims to identify how the dairy sector in Kenya performs in terms of the robustness of supply chain, reliability of institutional governance and resilience of innovation systems, by analysing the opportunities and constraints with respect to the 3Rs. The working paper entails the first output of the 3R project and provides a first stepping stone in project implementation. Therefore this is work in progress and the authors welcome any feedback from stakeholders on this working paper. Download This working paper can be downloaded for free at http://dx.doi.org/10.18174/391018 or at www.wur.nl/livestock-research (under Wageningen Livestock Research publications). © 2016 Wageningen Livestock Research P.O. Box 338, 6700 AH Wageningen, The Netherlands, T +31 (0)317 48 39 53, E [email protected], www.wur.nl/livestock-research. Wageningen Livestock Research is part of Wageningen University & Research. All rights reserved. No part of this publication may be reproduced and/or made public, whether by print, photocopy, microfilm or any other means, without the prior permission of the publisher or author. The ISO 9001 certification by DNV underscores our quality level. All our research commissions are in line with the Terms and Conditions of the Animal Sciences Group. These are filed with the District Court of Zwolle. Report 3R Kenya/WLR 979 Table of contents Acknowledgements 5 Summary 7 Shortened forms and definitions 11 1 Background 13 1.1 Introduction 13 1.2 Overview of the dairy sector in Kenya 14 1.3 Methodology used 16 2 Robust value chains 17 2.1 Overview of the dairy value chain 17 2.2 Economic aspects of the value chain 18 2.2.1 Inputs, services and milk production 18 2.2.2 Milk marketing issues 25 2.3 Environmental aspects of the value chain 28 2.3.1 Erosion and water pollution 28 2.3.2 Packaging waste 28 2.3.3 Manure handling 29 2.3.4 Greenhouse gas emissions 29 2.3.5 Agrobiodiversity –loss of indigenous cattle breeds 29 2.4 Social aspects of the dairy value chain 29 2.4.1 Processor oligopoly and level playing field 29 2.4.2 Public health risks 30 2.4.3 Inclusive dairy value chain – youth, gender and resource-poor farmers 30 2.4.4 Animal welfare 31 3 Reliable institutional governance 32 3.1 Regulations and policies 32 3.1.1 DVC policies 34 3.1.2 DVC regulations 34 3.2 Economic instruments 35 3.2.1 Financial facilities for dairy enterprise development 35 3.2.2 Cess, levies and taxes 35 3.2.3 Import tariffs 35 3.2.4 Subsidies 36 3.3 Soft instruments 37 3.3.1 Public–private partnerships 37 3.3.2 Innovation platforms 37 3.3.3 Codes of conduct 38 4 Resilient innovation support system 39 4.1 Innovation support system actors and structures 39 4.2 Innovation support system interactions and institutional factors 41 4.3 Infrastructure supporting innovation 45 4.3.1 Research, extension, and training infrastructure 45 4.3.2 ICT infrastructure 45 5 Conclusions and recommendations 47 5.1 Conclusions 47 5.2 Recommendations for the sector 48 5.3 Recommended interventions for 3R 50 References 51 Appendix 1 Methodology 58 Appendix 2 Financial facilities for farming and microenterprise development 59 Appendix 3 Kenyan Acts that directly or indirectly regulate the DVC 60 Appendix 4 Summary of priority issues proposed in stakeholder workshop 64 Appendix 5 Work plans for priority issues 66 Acknowledgements This working paper was compiled by the 3R Dairy sector team partners in Wageningen and Kenya, including Wageningen Livestock Research, Egerton University and ACTS. We would like to express our thanks to the many stakeholders who contributed. These include the various projects funded by the EKN Agriculture and FNS programme that we consulted and interviewed, and who provided us with relevant reports and documents for reference. These also include all interviewees – input suppliers, dairy farmers, milk processors, national and county government officials, bank officials, consultants, and development partner representatives – who made time to discuss with us the many issues affecting growth of the dairy sector. We are also grateful to the diverse dairy sector stakeholders that participated in the inception workshop organized by 3R Kenya. All these inputs have been critical in compiling this comprehensive report. Finally, we acknowledge Dr Fedes van Rijn for the development of the methodology guidelines that were used in compiling this working paper; Dr Philliph Musyoka for providing technical support to the team in applying the methodology; and ir Joep van Mierlo for overall guidance. We also thank them for reviewing and providing critical comments on earlier versions of this document. It is our hope that this working paper will contribute to the further development of a robust, resilient and reliable Kenyan dairy sector and drive sustainable and inclusive trade, providing opportunities for different investors– to the benefit of all. The authors Report 3R Kenya/WLR 979| 5 6 |Report 3R Kenya/WLR 979 Summary This summary highlights findings of a scan of the Kenyan dairy sector conducted in the inception phase of the 3R project that aimed to understand: “How does the Kenyan dairy sector perform in terms of the robustness of the supply chains, the reliability of institutional governance and the resilience of the innovation system?”. A SWOT analysis combining a literature review, stakeholder interviews, and a validation workshop, identified existing opportunities as well as challenges that could potentially impede sustainable growth in the sector. This analysis is considered to be useful for actors in the Kenyan dairy sector as well as international private and public actors interested in investments in the industry. Overview of the dairy sector in Kenya Kenya has a vibrant dairy industry with an estimated value of 4% of gross domestic product (GDP). This vibrancy is anchored on the increasing domestic milk production (averaging 5.3% per year), processing capacity (averaging 7% per year), annual per capita milk consumption (averaging 5.8% per year, currently at 110 litres) and export potential (MoALF 2010ab; KDB 2015). The country is experiencing a growing demand for milk and dairy products driven by expanding urbanization and a rising middle class. This attracts both domestic and international investors who seek to seize opportunities in the domestic and export market (Business Daily 2016a). The expanding sector is characterized by an increasingly sophisticated supply chain. Chain actors include producers consisting of small-, medium- and large dairy farmers, with the majority consisting of about 1.8 million households who own one to three cows (KDB 2015, ILRI 2008). They are served by diverse public and private agro-input suppliers and service providers.
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