Engaging Private Sector for Green Growth in the Lake Victoria Basin (EPSGG) Greening Value Chain Study Technical Report No. 2

Greening of Value Chains through Resource Efficiency and Cleaner Production in the Lake Victoria Basin: Analysis and Options for the Dairy Value Chain

The World Bank First Draft June 2019 Final Draft March 2020

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Table of Contents

Table of Contents ...... 2

Acknowledgements ...... 4

Abbreviations and Acronyms ...... 5

Executive Summary ...... 6 Key recommendations ...... 9

1. Introduction ...... 11

2. Development Context ...... 14 2.1 General observations of the dairy sector in the LVB countries ...... 14 2.2 Country-specific information ...... 18 Burundi ...... 19 Kenya ...... 19 Rwanda ...... 20 Tanzania ...... 20 Uganda...... 21

3. Climate change and the dairy value chain ...... 22 3.1 The dairy value chain and GHG emissions ...... 22 3.2 Grassland management ...... 25

4. Analysis of the Dairy Value Chain ...... 26 4.1 General overview of the dairy value chain ...... 26 4.2 Input supply and service provision...... 30 4.2.1 Grassland / pasture ...... 30 4.2.2 Feed and Fodder ...... 31 4.2.3 Water ...... 33 4.2.4 Genetics and reproduction ...... 36 4.2.5 Animal healthcare ...... 38 4.2.6 Equipment and infrastructure ...... 38 4.2.7 Farm advice ...... 39 4.2.8 Financial services ...... 40 4.3 Milk production ...... 40 4.4 Bulking and chilling...... 42 4.5 Transportation and trading ...... 43 4.6 Milk processing ...... 44 4.6.1 Overview of milk processing ...... 44 4.6.2 Environmental Impact of Milk Processing ...... 46 4.7 Marketing and distribution...... 48 4.8 Export ...... 52

5. Potential RECP interventions in the production of milk ...... 54

6. Potential RECP interventions in dairy logistics ...... 62

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7. Potential RECP interventions in milk processing ...... 67

8. Proposed interventions in the marketing of dairy products...... 70

9. Policy recommendations ...... 72

10. Concluding remarks and next steps ...... 74

References ...... 76

Annex 1: The dairy sector profiles of the LVB countries ...... 78 Overview dairy sector Uganda ...... 78 Overview dairy sector Kenya ...... 80 Overview dairy sector Tanzania...... 82 Overview dairy sector Rwanda ...... 85 Overview dairy sector Burundi ...... 87

Annex 2: Export of dairy products in the LVB countries ...... 90

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Acknowledgements

This report is one of the three Greening Value Chains sectoral study outputs under the World Bank project “Engaging Private Sector for Green Growth in the Lake Victoria Basin Project (EPSGG-LVB)”

The report was written by Bob van der Bijl and Kelvin Khisa (Consultant), under the guidance of Jian Xie (Task Team Leader and Senior Environmental Specialist) and Nicholas Zmijewski (Co-Task Team Leader and Environmental Specialist) of the World Bank. Valuable input and comments were provided by Silver Ssebagala and James Ludigo from the Uganda Cleaner Production Centre. The authors also like to acknowledge the technical assistance and review of Jane Nyakang'o and Steve Nyamori of Kenya National Cleaner Production Center and the administrative assistance of Paul Kariuki, Regional Project Coordinator, the Lake Victoria Basin Commission (LVBC).

The EPSGG Project was funded by the Nordic Development Fund (NDF) and executed through the World Bank. The project has benefited from the general guidance of Iain Shuker, Practice Manager in Environment, Natural Resources and Blue Economy (ENB) Global Practice at the World Bank, and Ali Said Matano, Executive Secretary of LVBC.

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Abbreviations and Acronyms

3R Recharge, Retention and Reuse AI artificial insemination ATM automated teller machines CBPP Contagious Bovine Plural Pneumonia CFCs chlorofluorocarbons CFU colony-forming unit CWU consumptive water use EAC East African Community ECF East Coast Fever ECM Energy-Corrected Milk EPSGG Engaging the Private Sector in Green Growth FAO Food and Agriculture Organisation of the United Nations FIT Feed-in Tariff FMD Foot and Mouth Disease FMNR Farmer-Managed Natural Regeneration GDP Gross Domestic Product GHG Greenhouse gas HFO Heavy Fuel Oil HVAC Heating Ventilation Air Conditioning ISIC The International Standard Industrial Classification of All Economic Activities KALRO Kenya Agriculture and Livestock Research Organisation kg kilogram KWh Kilowatt hour LVB Lake Victoria Basin LVBC Lake Victoria Basin Committee MCC milk collection centre ml mililitre MT Metric Ton MT metric Ton MW Megawatt MWh Megawatt hour NCPC National Cleaner Production Centre NGO Non-governmental Organisation PPA Power Purchase Agreement PPP Public-Private Partnership PV Photovoltaic RECP Resource Efficient and Cleaner Production SPS silvo-pastoral system TIDE The Inclusive Dairy Enterprise UHT Ultra-High Temperature processing USD US Dollar WPP whey permeate powder

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Executive Summary

The Lake Victoria Basin (LVB) is a major population and poverty center in the Africa Region – as well as a trans-boundary natural asset of global importance. Jointly shared by Burundi, Kenya, Rwanda, Tanzania and Uganda, the basin is the home of about 45 million people, about half of which live below the poverty line. Over the last four decades, the LVB has undergone substantial and alarming environmental degradation, with increases in water pollution and lake eutrophication, massive water hyacinth and algal blooms, and the depletion of fish stocks. Water pollution problems, caused by soil erosion and the municipal and industrial wastewater discharges, negatively affect almost all economic activities - navigation, fishing, water supply, tourism - on the Lake.

Industries face increased pressure to uphold environmental standards from regulatory authorities, consumers, and NGOs. Regulatory agencies are improving their enforcement capabilities. Consumers are becoming more aware of the impact of their choices as well as their power to mobilize industries to improve production practices.

Greening of the value chain presents an important opportunity to improve performance and market competitiveness while also limiting environmental impact. In addition to overall sustainability of the value chain, green value chain interventions include an enabling environment for green investment, skills training and upgrading in green technologies, green entrepreneurship and business development, as well as greening of the workplace.

What is a green value chain: Promotes efficient use of natural resources and increased use of renewable resources, maximizes efficiency – material and energy – at each stage of the value chain, and reduces negative environmental impacts across the value chain

This study analyzes the dairy value chain in the LVB and presents key recommendations for greening the value chain.

Opportunities

Dairy products are an important source of nutrition, and dairy production provides an income to millions of farmers and their families as well as to many other individuals and companies. Over than 80 percent of the world’s population regularly consumes liquid milk or other dairy products1. The consumption of dairy products is an important source of proteins and micronutrients. The consumption of dairy products in the LBV countries is the highest in Africa on a per capita level.

1 Climate change and the global dairy cattle sector: The role of the dairy sector in a low-carbon future, FAO, 2019. 6

Kenya, Uganda and Tanzania are among the biggest dairy producers in Africa2, and the dairy sector is one of the fastest growing agricultural sub-sectors in the LVB countries. In recent years Uganda has surpassed Tanzania with a rise in total milk production from 1.2 billion litres in 2011 to 2.5 billion in 2018. In Rwanda, total milk production has grown even faster. The high growth in milk production has been attributed to favourable government policies and improved infrastructure (leading to improved accessibility of dairy producing regions). Governments and development partners have invested heavily into the development of the dairy sector and dairy production has been backed by a strong growth in consumer demand. Promoting total dairy production and dairy productivity have been the most important objectives for stakeholders in the dairy value chain, and the negative environmental impact has up to now barely been playing any role.

With the strong growth in milk demand in the LVB countries, it will be difficult to reduce absolute emission levels, but productivity (milk production per cow) can be made to rise significantly, thereby reducing emission intensity significantly. Not only will increased productivity lead to a reduction in emission intensity, but also the consumption of inputs (e.g. water) per unit of milk produced will go down. Improved pasture management and improved soil management will increase the productivity of fodder production, especially when combined with more efficient fodder production and improved fodder preservation.

With LVB countries’ population sizes that are expected to double within the coming 30 years, and GDP per capita expected to increase, the pressure to change dairy policies towards plant-based alternatives for dairy products may increase. Consumer preferences may also change in the LVB countries towards more sustainable products – a trend that is gaining traction rapidly in higher income countries3. Besides plant-based milk, also “lab- grown” milk protein (dairy protein grown from real milk cells) is rapidly being developed. Animal-free protein seems the only long-term solution to arrive at a sustainable production of dairy products for an increasing population that is spending more and more on dairy. Needless to say, this development would eventually mean the demise of the traditional dairy sector, but as is the case with beef, dairy processors and farmers might be able to change their business model and start supplying alternatives to cow milk. This is also relevant to the LVB countries that might be able to produce important ingredients for alternatives to animal- based dairy products.

Challenges

4 The dairy sector is an important contributor to global GHG emissions . Besides CO2, the dairy sector is emitting even larger quantities of more potent greenhouse gases, notably methane

2 Eastern Africa (including Ethiopia) is the leading milk- producing region in Africa, representing 68% of the continent’s milk output. From: S. Bingi and F. Tondel: Recent developments in the dairy sector in Eastern Africa: Towards a regional policy framework for value chain development, EDCPM, 2015 3 https://www.livekindly.co/major-nz-dairy-company-loses-millions-dollars-plant-milk-rises/

4 The global livestock food chain contributes 18% of total global anthropogenic GHG emissions. Of the total livestock emissions, the global dairy sector accounts for 22% (or 4% of total anthropogenic GHG emissions). Within the global livestock food chain, cattle milk is after beef meat (3.0 gigaton CO2-eq) the commodity with 4 the highest total emissions, accounting for 1.6 gigaton CO2-eq . (FAO, 2019) 7

and nitrous oxide. Methane emissions are particularly linked to livestock, via enteric fermentation and the production of manure. After beef production, dairy is the second largest in terms of GHG emissions. Emission estimates are contested by vested interests in the dairy value chain, but there is a broad consensus that emission levels in dairy are at an unsustainable level and that the increasing emissions need to be curbed.

Besides GHG emissions, the dairy value chain also has an additional impact on climate change, as the expansion of dairy pastures and dairy herds have led to habitat conversion (e.g. deforestation, erosion, soil degradation). The dairy value chain uses a large amount of natural resources (e.g. water, feed- and fodder production) in a rather inefficient way, as the amount of inputs per litre of milk produced are high (e.g. water use per litre of milk produced) and animals are fed proteins that could also be consumed by humans (e.g. soybean), or for which land is used that could have been deployed for human feed production.

Besides being a cause of climate change, the dairy sector is also harmed by climate change. Increasing mean air temperatures and erratic rainfall patterns lead to droughts and erosion. This affects the availability of drinking water for cattle, the productivity of fodder production and the prevalence of pests and diseases. It is therefore in the interest of the sector to invest in climate change mitigation and – adaptation.

Sub-Saharan Africa (SSA) is the region with the highest dairy emission intensity in the world. Most milk is produced by smallholder farmers and SSA has a very low productivity (milk production) per cow per year. Between 2005 and 2015, the number of milking cows in SSA increased at 3.8% per annum, while the milk production per cow decreased by 2.5%5. The relatively low milk yields lead to a high emission intensity, which has increased in SSA due to the decrease in productivity.

The consumer demand for dairy products is likely to increase considerably due to the combined effect of increasing populations and increasing incomes per capita, dairy being one of the products that has a high positive income elasticity in the LVB. Given the rapidly growing population and gradually increasing incomes per capita, the demand for dairy products in the LVB countries may have tripled by 2050. This means that in absolute terms, GHG emissions caused by the dairy sector are going to increase significantly in the coming decades. Given the generally low purchasing power of the population and the high prices of processed milk, it is estimated that over three quarters of all milk produced in the LVB countries is not processed and sold in the informal market or consumed by the farmers and their families. This is mainly caused by the relatively high prices of processed milk and the relatively low milk prices paid to farmers by the dairy processors.

As a result of the highly fragmented primary production of milk, there are serious challenges in terms of milk quality across the LBV countries. As food safety regulations will become stricter (also as a result of increasing formal food retail market penetration), we can expect a gradual increase in the average dairy farm size in the LVB countries, as small producers are unable to produce the quality of milk that is required by the off-takers. Increasing farm sizes will allow for more RECP investments and lead to higher milk quality.

5 Ibid. 8

Key recommendations

In terms of prioritizing RECP activities, the primary production of milk is where the highest gains are to be made in terms of RECP and in terms of the reduction of GHG emissions. Current RECP activities in the dairy value chain were mainly focusing on dairy processing and dairy logistics. Within primary production, the highest gains are to be made with the small- scale producers that have the highest emission intensity due to their relatively inefficient operations. Given the fact that over 80% of the milk in the LVB countries is produced by smallholders, increasing their productivity is an arduous task that can only be successful with strong government interventions and an active role of the cooperatives and/or the dairy processing companies.

In most cases, the measures to increase productivity will also lead to a reduction of GHG emissions and contribute to climate change adaptation and -mitigation. Increasing productivity per cow at the dairy farm level can take place via various mechanisms, that are often low-cost: 1. Improving the quality of feed and fodder, including using nutritious by-products from other value chains; 2. Improving pasture management through the introduction of rotational grazing and improved grass varieties; 3. Improving fodder preservation (silage, hay) to ensure sufficient feed and fodder availability per cow per day; 4. Ensuring sufficient drinking water per cow per day through (rain)water harvesting and rational water use; 5. Improving farm management by promoting farm staff training, better operational procedures and the introduction of milk payments based on milk quality; 6. Improving the genetics of the dairy herd via artificial insemination and appropriate breeding strategies; 7. Reducing the spoilage of milk via improved logistics: improved accessibility to cold storage and more efficient transportation.

Given the current low productivity levels, there is scope to simultaneously reduce emission intensity through increased productivity and to increase farmer incomes. Greening of the dairy value chain will not necessarily lead to lower incomes for farmers or for higher prices for consumers, but should aim to achieve the opposite. The challenge is to decrease the environmental impact simultaneously with an increase in productivity and value addition. Measures to increase productivity can go hand in hand with a reduction of the environmental impact of the dairy sector. E.g. improved pasture management will lead to a higher productivity, but also to increased carbon storage in the soil. Improved pasture management will also reduce the incentive to increase acreage for fodder production at the expense of nature resources. By processing the waste6 into biogas and compost, large reductions in GHG emissions can be achieved and the application of compost will increase agricultural productivity and incomes.

6 Waste from animal husbandry comprises fecal and urinary output, and production of fermentation and respiration gases, such as carbon dioxide (CO2) and methane (CH4). In the waste usually high amounts of water, nitrogen (N), and other inorganic molecules are found. 9

Besides productivity increases at the primary production of milk, there are certainly other opportunities in the dairy value chain for RECP measures: in milk logistics, milk processing and milk marketing. All of the interventions that are proposed in this report will lead to a positive impact in terms of RECP. Most of the interventions are relatively low-cost and they are all highly scalable and universally applicable to all LVB countries.

In this report, we propose the following pilot options:

Primary production of milk 1. Climate-smart grassland management 2. Composting at farm level 3. Farmer Managed Natural Regeneration 4. Farm ponds construction 5. Affordable sexed semen

Milk logistics 6. Small-scale milk cooling 7. Expanding opening hours of milk collection centres 8. Financing aluminium milk cans

Milk processing 9. Boiler condensate recovery 10. Solar power at processing plants 11. Replacing boiler capacity by solar walls

Milk marketing 12. Improved milk packaging 13. Solar “milk ATM’s”

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1. Introduction

The project “Engaging the Private Sector in Green Growth” (EPSGG), which is financed by Nordic Development Fund and implemented by the World Bank and East Africa Community through its Lake Victoria Basin Commission (LVBC) in collaboration with the National Clean Production Centres (NCPC) of five LVB countries, aims at accelerating the participation of the private sector in the green growth agenda, promoting the adoption of renewable energy and cleaner production (RECP) technologies and practices in the Lake Victoria Basin (LVB). The focus is on enabling the private sector within the Lake Victoria basin to make investments in resource efficiency and cleaner production, such as energy saving, water use efficiency, waste minimization and management, accelerated adoption of renewable energy solutions, waste and by-product exchange through industrial symbiosis, as well as preserving biodiversity and avoiding land degradation and erosion. Such green investments will definitely boost the productivity and competitiveness of the dairy sub-sector.

The EPSGG project aims to assess and demonstrate that investments in green solutions do make good business and environmental sense. This public-private partnership will help to overcome perceived risks and fears associated with investing in new and emerging green technologies. Most East African Community (EAC) countries have an enabling legal and regulatory framework for public-private-partnerships (PPPs). It is hoped that the evidence and feedback gathered from this project will be used in the development and/or review of policies that will be specifically designed to address regulatory, institutional, financial, and technological barriers to the country’s low carbon and resource efficient development pathway.

Within the EPSGG project, there are various components, whereby this report is included under project component 3: “Piloting Green Growth Instruments”. Component 3 consists of: Subcomponent 3.1 “Analysis of opportunities for greening supply chains in agribusiness sectors” and Subcomponent 3.2 “Green supply chain pilots”. The underlying report is part of subcomponent 3.1. The National Cleaner Production Centres (NCPCs) in the Lake Victoria Basin have contributed to the formulation of the assignment, that aims to engage the private sector on sustainability issues beyond the factories themselves, and to promote private sector investment in sustainable land and watershed management.

As a significant part of the private sector in Lake Victoria Basin is involved in some form of natural resource-based or agro-processing industries, the focus of Component 3 is on more sustainable agricultural supply chains, particularly targeting important local agricultural commodities. Increased adoption of “greening” of supply chains which have intrinsic land and water management benefits and will also be beneficial in terms of improved resource efficiency and reduction of pollution (including greenhouse gases). The expected outcome of this component is a number of successful pilots of through collaboration with the private sector, by giving the NCPCs a clear overview of potential pilots across selected supply chains7.

7 As the terms of reference indicate that the analyses have to cover the entire value chain, we are using the term “greening of value chains” mostly, rather than greening of supply chains. 11

In consultation with the NCPC’s a number of agribusiness supply chains (value chains) have been selected that are in line with the terms of reference and its focus on RECP investments. This study has taken previous RECP interventions by NCPC/LVBC into consideration, as well as current initiatives by other organizations. Several value chains have been selected for further study, based on the following criteria: • a high economic importance; • a high employment potential; • a high pollution loading; • good future prospects in terms of productivity and competitiveness; • sufficiently large private sector actors active in the value chain; • the potential for making headway in terms of RECP, industrial symbiosis and circular economy; • strong and pro-active business associations.

In the selection of the value chains, the potential to scale-up and the possibilities to leverage activities with new partners (including small and medium-sized enterprises) are also important selection criteria as well. As a result, three value chains have been selected based on the above-mentioned criteria: tea, dairy, and distillery (sugar). This report on the greening of the dairy value chain is the second report of three that will be produced.

The methodology has been to initially do desk research and identify which activities the NCPCs have already carried out in the dairy value chain. Besides desk research, interviews were held with experts and with the management of dairy processing companies and their suppliers. As investments require funding, there has also been interaction with financial institutions. In this study the current structure and performance of the dairy value chain is summarized, and suggestions for greening are provided across the entire value chain.

Climate change is a significant threat to the very existence of dairy production in many areas due to the impact of climate change. At the same time, the dairy sector is itself an important contributor to climate change, as an estimated two thirds of agricultural GHG emissions in East Africa come from smallholder livestock systems. The challenge for the dairy sector is to reduce the environmental impact while at the same time meeting society’s needs8. This means that greening of the dairy value chain and the mitigation of climate change in general are of the utmost importance to all stakeholders in the dairy value chain.

Given the need to reduce GHG emissions, mitigation strategies in the dairy sector are also very important for other value chains that are affected by climate change. Hopefully this report will contribute to an increased awareness of stakeholders that rapid actions need to be taken to reduce the environmental impact and to increase its production in a sustainable way. The vision and awareness of the NCPCs to commission studies that go beyond their “traditional” activities (that are mainly focusing on RECP within factories) is therefore very much in line with the need to look at sustainability issues with a much wider scope. This wider scope could

8 FAO and GDP: Climate change and the global dairy cattle sector – The role of the dairy sector in a low-carbon future, Rome, 2018.

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lead to a wider range of activities undertaken by the NCPCs and their partners. As resources are limited, the NCPCs will have to focus on the most pressing RECP measures: the impact of the activities will be highest in those parts of the value chain where the environmental costs are the highest and where the NCPCs are able to convince stakeholders (and especially private sector actors) that investments have to be made.

After this introduction chapter, Chapter 2 presents the background and development context related to the dairy value chain. Chapter 3 provides insight in the relationship between the dairy value chain and climate change. Chapter 4 provides a description and analysis of the various segments of the dairy value chain. Potential interventions for greening of the dairy value chain are identified and presented in chapters 5-8, including pilot options. Chapter 9 offers a set of policy recommendations, followed by a final chapter 10 on suggested next steps.

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2. Development Context

2.1 General observations of the dairy sector in the LVB countries The dairy sector in the Lake Victoria Basin (LVB) countries is a key contributor to the national economies, household incomes and employment, food security and nutrition. The sector has been experiencing growth – both at production levels and consumption demand and is a significant contributor to the respective countries’ livestock GDP and the agricultural GDP.

The rapidly increasing demand for milk and milk products in the region’s developing economies, is now leading to more private sector investor interest in the sector. The increasing demand is a result of population growth and a gradually rising income per capita. In terms of consumption per capita, the East African region dairy consumption levels are the highest in Africa.

However, the oligopolistic market structure with a small number of dairy processors dominating the market in most LVB countries is leading to rent-seeking behaviour on the part of the dairy processors: consumer prices for processed milk have risen considerably faster than the consumer price index over the past decade, and milk prices for farmers tend to be on a decreasing trajectory as a result of the increasing market power of the processors within the dairy value chain.

In table 1, a summary is given of the dairy sector in the LVB countries. Figures on a more regional (i.e. the regions close to Lake Victoria) are not available. Generally speaking, it is assumed that around 80% of the milk production is traded in the informal sector and only 20% is processed.

It is very difficult to estimate the total milk production for this reason, as there are no reliable statistics available. On farm level, farmers usually also do not keep records of their operations (inputs and milk output).

The high prices of processed milk in as compared to average incomes of consumers provide an incentive for consumers to purchase unprocessed milk in the informal sector. Besides that, farmers also produce for their own family’s consumption.

In the light of the aforementioned, we may estimate that actual milk production and milk consumption in the LVB countries is much higher than is recorded in the national statistics.

Even though data is not abundantly available, it is clear that in the LVB countries, dairy production and dairy consumption has increased enormously over the past 15 years.

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Table 1: LVB countries’ dairy sector in figures (2018) Country Annual Milk National Processed local milk Milk Farm gate Production Cattle (dairy market) consumption price - per (Ltrs) Population per capita Litre (Million) (estimate) Uganda 2.50 billion 13 660 million Ltrs (26%) 62 Ltrs $ 0.23 Kenya 5.28 billion 18 600 million Ltrs (12%) 115 Ltrs $ 0.25 Tanzania 2.40 billion 21 61 million Ltrs (2.5%) 49 Ltrs $ 0.18 Rwanda 0.817 billion 1.5 81 million Ltrs (10%) 40 Ltrs $ 0.22 Burundi 0.073 billion 0.7 1.83 million (2.5%) 20 Ltrs $ 0.36 Sources: Compilation of various sources by the author. For Kenya production data is from the dairy board website -http://www.kdb.go.ke/ and production of milk per cow: The National Dairy Development Policy (2013), State Department of Livestock. Milk production per Capita is from Feed the Future (USAID) - Policy Brief 2018: - Enhancing Investment Attractiveness in Kenya's Dairy Sector. Updates about Kenya seem to be more pronounced and regularly done - unlike statistics/info about the other four countries. For the other countries, the data was mainly in the - 2014 WP White Gold Report -Dairy East Africa (2014).

In Kenya and Tanzania, the vast majority of cattle is not used for milk production. This is why the average production of milk per cow seems low. In the course of 2019, Kenyan dairy farmers experienced a sharp drop in milk prices. This drop was caused by the increasing price- setting power of some leading dairy processing companies, imports milk from neighbouring Uganda and by increasing milk production as a result of high rainfall in 2019, which increased the availability of fodder for the dairy cattle. Milk prices dropped to below 0.20 USD per litre in some parts of Kenya. Free trade of dairy products within the EAC will lead to a gradual concentration of dairy production in those regions where the cost price of milk production is the lowest.

Despite the commercial opportunities that are clearly there, the dairy sector in the LVB countries is largely informal and poorly developed. Key challenges slowing down dairy sector development in these countries are mainly; low rainfall, poor breeds, cattle diseases, low- quality/costly feeds, post-production losses and low and unstable off-taker prices. Milk production in the LVB countries is predominantly with the small-scale farmers – responsible for approximately 80% of total production. Most of these farmers are organized into regional/local cooperatives. The cooperatives, where farmers are attached to, normally deduct between 5% and 10% from farmers as administrative fee and transport cost usually charged by the processors.

The informal market (raw-milk marketing) is the dominant segment, as compared to the formal market that involves processing of milk and production of assorted dairy products. The informal market accounts for between 75% and 90% of the respective countries dairy segment, making the both regulation and development more difficult. Preference for the informal markets can be attributed to; higher milk prices for farmers and traders (i.e. processors are perceived not to be paying good prices), flexible supply quantities and more accessible outlets (including home delivery). The informal markets do not exclude collective bulking of raw milk, e.g. in Uganda about 50-60% of the milk collected in the milk collection centres is marketed directly (without processing) to the end consumer9.

9 Ajmal Abdulsamad,Gary Gereff, Dairy value chains in East Africa, International Growth Centre (IGC), Policy brief 38202, February 2017, p. 4

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Retail market prices for processed fresh milk vary from country to country, but are generally standard within the each of the LVB countries. The average supermarket/shop fresh-milk prices are (Data courtesy of: Numbeo.com):

• Uganda - Ush. 2,600 (USD 0.70) per litre • Kenya - Ksh. 110 (USD 1.06) per litre • Tanzania - Tsh. 2,530 (USD 1.10) per litre • Rwanda - RF. 750 (USD 0.82) per litre • Burundi - FBu 1,250 (USD 0.68) per litre

As a result of gradually rising income per capital and population growth, the demand for processed milk and milk products has reflected in a growth of the formal dairy sector (i.e. processed milk). However, as mentioned before, the oligopolistic nature of the sector has led to a sharp increase of the margins of the dairy processors. In Kenya, the margin per litre of milk was approximately 35 KSh per litre, but has more than doubled over the past 10 years. In general, we can say that the more oligopolistic the sector is, the higher the consumer prices will be (rent-seeking behaviour of processors). In this sense, the concentration of market power at the milk processors is leading to higher prices for consumers and lower prices for farmers. We estimate that milk prices in the informal sector are approximately 40 to 50% lower than processed milk prices.

Rising prices of processed milk and decreasing milk prices for farmers are a disincentive to formalisation of the dairy sector: consumers are forced to buy more affordable milk in the informal sector and farmers are incentivized to sell their raw milk themselves instead of supplying to the milk processors. The absence of strong cooperative milk processing companies is the main reason for this development – in contract to for instance the European dairy market, the formal dairy market in the LVB countries is dominated by commercial dairy processing companies that seek to maximize their profits instead of the farmers’ incomes.

For feeds, the main dairy cattle feeding system in for small scale farmers in east Africa is zero- grazing and mainly based on cut-and-carry of planted fodder like napier grass, maize stalk, grass and crop residues such as banana trunks and banana leaves. Some of the small-scale farmers also use improved or preserved fodder such as hay and silage. In a moderate number of cases, these farmers supplement the fodder with grain millings or compounded dairy feeds.

Large scale as well as medium scale commercial dairy farmers, mainly in Kenya, Uganda, Tanzania and Rwanda, have been using animal feeds (dairy meal), for their cattle. This is mostly on a mixed model with fodder. In turn, such farmers record higher production per cow, compared to those not using dairy feed. However, cost of the processed feeds remains a challenge among farmers in these east Africa countries. Production cost of feeds is high, with manufacturers passing the cost to farmers through inflated product pricing. The enterprise is also largely unregulated, leading to unfair pricing, besides lack of quality adherence.

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A smallholder farmer milking cows in Rwanda (Photo credit: New Times Rwanda)

An estimated 80-90% of milk production in the region is produced by smallholder farmers10. Most of these smallholders are producing milk in a mixed farming setting, whereby they also produce food crops and cash crops such as tea. Generally speaking the dairy production is characterized by a low productivity, high fluctuations of production due to seasonal weather patterns and a low quality of milk.

Climate change is affecting the dairy sector’s productivity: droughts limit the water availability that is needed to water the animals and are also causing shortages of fodder. At the same time, inadequate pasture management, inadequate manure management, a lack of dairy husbandry skills, and an underdeveloped logistics system lead to a low productivity per animal, significant food loss and a high carbon footprint (GHG emissions) per litre of milk produced.

Climatological predictions indicate that some parts of the regions close to the Lake (e.g. in Western Kenya) will receive more rain as a result of climate change. This would make those regions more competitive in terms of dairy as fodder production and grasslands would benefit from this increase in precipitation.

This report would not be complete without mentioning that the global livestock sector is likely to be disrupted by technological innovations that will result in the ability to produce animal- free proteins, both from plants (plant-based), but also from animal proteins that are grown through precision fermentation, a process that allows for the programming of microorganisms to produce almost any complex organic molecule, including dairy proteins without animals being involved in the production process. This could mean the end of the cow-based dairy

10 CIAT, Climate Smart Dairy Systems in East-Africa, https://ciat.cgiar.org/ciat-projects/climate-smart-dairy- systems-in-east-africa/

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industry. As the LVB countries promote the sector, technological advancements could already within 20 years be able to lead to a much more efficient production of proteins11.

“The cow milk industry, will start to collapse once modern food technologies have replaced the proteins in a bottle of milk – just 3.3% of its content. (….) Product after product that we extract from the cow will be replaced by superior, cheaper, modern alternatives, triggering a death spiral of increasing prices, decreasing demand, and reversing economies of scale for the industrial cattle farming industry, which will collapse long before we see modern technologies produce the perfect, cellular steak.”

Given the highly inefficient dairy production systems in the LVB, with an associated high level of emission intensity, and high consumer prices in relation to the incomes per capita, the introduction of such new technologies would make proteins available in sufficient quantities, whereas at this moment large numbers of the population are not able to afford a nutritious diet. At the same time, this will threaten the livelihoods of many millions of farmers and their families. This means that the dairy sector (and the other livestock subsectors) will have to brace themselves if the above scenario would become a reality. This would mean that, whereas many efforts are still being made to increase dairy production and dairy productivity, these resources may be ending up in “stranded assets”. Besides precision fermentation, there are other alternatives to cow milk-based proteins being developed, e.g. plant-based milk and proteins produced from insects.

The dairy sector may have an inherent charm to many, but the reality is that the production of milk is inherently inefficient (as cows consume large quantities of plant-based proteins and water) to produce a small quantity of proteins and milk fat and a number of other micronutrients. The global dairy sector is also contributing to deforestation (e.g. tropical rainforests being felled in order to have more land available for the production of soybean for animal feed) and many fragile ecosystems in the LVB are directly or indirectly being degraded as a result of livestock, of which the production of milk and beef are by and large making the biggest negative impact. Alternative proteins such as plant-based milk can also be produced in the LVB countries and insects for protein production even more so (as they require a high ambient temperature).

Given the expected doubling of the population of the LVB countries up to the year 2050, maybe the end of milk and meat production through cows could also be a blessing in disguise, as the millions of inhabitants require healthy food and a healthy environment that is enabling them to bridge the gap with the higher-income countries.

2.2 Country-specific information In Annex 1, we present an overview of the dairy sector in the five LBV countries. In addition to paragraph 2.1 where we presented overall trends in the dairy sector in the LVB countries, we now present the most salient aspects of the dairy sector in the five LVB countries. Even

11 “Rethinking Food and Agriculture 2020-2030: The Second Domestication of Plants and Animals, the Disruption of the Cow, and the Collapse of Industrial Livestock Farming”, A RethinkX Sector Disruption Report September 2019 Catherine Tubb & Tony Seba.

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though the five LVB countries have many things in common, there are also some important differences that will be reflected here.

Burundi Out of the five LBV countries, Burundi’s livestock sector is the smallest as a percentage of agricultural GDP, at approximately 5-10%. The installed capacity for milk processing is still limited, but milk production has been rising steadily, partly because of the increase in improved dairy breeds. With the capital city Bujumbura being the main market for processed milk, there are interesting possibilities to increase dairy production to serve the urban consumers. Around Bujumbura, there are no challenges with tsetse flies and the climate is very suitable for dairy production. The Burundi government is actively supporting the development of the dairy sector, including support of AI services and the formation of a wider network of milk collection centres (MCC’s). Extension services, veterinary support, the reinforcement of cooperatives and farmer groups as well as introducing cooling and processing facilities, will enable Burundi to scale up its dairy production. Given the oftentimes hilly landscape, erosion caused by cattle operations (especially due to habitat conversion) have to be avoided. But all in all, we can expect Burundi to further close the gap with the other LVB countries in terms of production and consumption.

Kenya In terms of total milk production and milk consumption, Kenya is the most prominent dairy country in the LVB region. The dairy sector is very prominent and is believed to contribute approximately 8% of GDP. Milk production is largely concentrated in the central part of the country and in the Rift Valley. Dairy processing is in the hands of a small number of major companies, although an increasing number of smaller processors has entered the market in the past decades.

Milk production in the Western part of the country bordering Lake Victoria is still very limited. Milk production near the urban centres in the central part of Kenya (especially near Nairobi) is gradually crowded out because of the ever-expanding urban areas, whereby farmers sell their land to property developers or develop their own real estate projects. Traditionally, many farmers near the main cities were producing milk based on zero-grazing methods. Because of the poor roads network, it was crucial to be close to the main consumer markets and within the reach of milk processing companies. Over the past 15 years the roads network has greatly improved and this makes it possible to produce milk much further away from the urban centres. Improved accessibility makes milk production in the Western part of Kenya a more interesting venture, whereby even in the Western part of Kenya more and more processing capacity is being installed. The installed capacity of milk processors has increased a lot and many processors are operating well below 50% of full capacity.

In terms of competitive advantage, Kenya has a rising urban population that consumes a relatively large amount of milk per capita. Competitive disadvantages are the relatively high labour costs compared to the other LVB countries (and subsequent unavailability of farm labour), a large percentage of the land being arid or semi-arid (leading to high fodder prices) and relatively weak cooperative structures, making dairy farmers’ negotiating power weak. There are also cultural obstacles, with a large part of the population in Western Kenya not traditionally used to livestock keeping. It would certainly be interesting – also in the light of

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the relatively high rainfall in Western Kenya – to incentivize dairy production in this region, which has the capability of producing milk at relatively low cost prices and thus able to have a comparative advantage.

Rwanda The Rwandan government has been instrumental in reinvigorating the dairy sector over the past two decades. The dairy sector contributes around 33% to agricultural GDP and around 6% to the national GDP. The dairy sector has grown the fastest of all LVB countries over the past decade. Improved dairy breeds form a large percentage of the total cattle herd and most of the processed milk is produces by these exotic breeds. This has been the result of an ongoing subsidized AI campaign by the Rwandan government. There is believed to be informal exports of milk to Burundi and the DRC.

The company Ingyange Industries (which is effectively a parastatal company) has a very high market share in the formal dairy sector (approximately 60%). The further development of the Rwandan dairy sector would be supported by means of supporting private processors to enter the market. The Rwandan government sees milk consumption as an important way to improve the nutritional status of the population and is striving to increase milk consumption from 40 to 80 litres per capita. With the Rwandan government being quite effective in implementing and enforcing policies, we can expect that Rwanda will become the country with the highest proportion of milk that is processed in the coming decade. This would however require that competition on the processing side increases in order to dampen excessive increases in milk prices.

With relatively small land assets, it is in the interest of Rwanda to ensure that dairy production per cow is increased, in order not to put too much pressure on the natural resources. In terms of climate and animal husbandry traditions, as well as a very determined government, it is very likely that Rwanda will be able to keep increasing its production, even when the number of cattle would be reduced. Partly through donor-funded programmes, the Rwandan government is keen to make the sector more competitive. At the moment, the cost price of milk is higher than Uganda (which is the LVB’s most competitive dairy producer with the lowest cost prices).

The government is also seeing the ownership of cattle as a way to empower its citizens: via a large national program (“One Cow per Poor Family”) a total of 133,000 cows have been distributed. Even though this will in general lead to a lower productivity per cow (given the fact that this reduces the average scale of dairy operations), it will have the effect of improved nutrition and there will also be an expansion of the number of farmers that will end up producing surpluses for the market.

Tanzania With agriculture accounting for 28% of GDP and the total contribution of the dairy sector is relatively low at approximately 1.5%. With a rapidly growing population and a huge total land area, Tanzania holds a very large promise in terms of dairy development. In contrast to Kenya, the Lake Region in Tanzania is one of the main milk-producing regions, together with the Northern part of the country. Milk consumption is estimated to be lower than in Uganda, and

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much lower than in Kenya. Approximately 95% of milk production is small-scale and most milk is for own consumption and for the informal sector.

Several milk processing companies had to close down because of insufficient milk supply. Especially the low genetic base (with many zebu-type cows used to produce milk) and a relatively high mortality rate of calves are limitations to the increase of total milk production and to a relatively low productivity (milk production per cow). With an increasing penetration of financial institutions, we can expect improved access to necessary inputs and services. There is a need for the government to support programmes to improve the genetic composition of the dairy herd and to direct resources that contribute to making the sector become more competitive (e.g. AI programmes, extension services, supporting cooperative structures). Besides employment- and income-generation, improving the performance of the dairy sector will also contribute to the nutritional status of the population. With relatively low labour costs and a population growth that will make Tanzania the most populated country in the region by far, there are good opportunities for the sector.

Uganda Of all LVB countries, the Ugandan dairy sector stands out as being currently the most competitive. There have been a lot of government incentives to increase production and productivity (e.g. free AI services). In the LVB region, Uganda has the highest production of powdered milk. As a result of the favourable climate with adequate rainfall, most dairy production is pasture-based, which is the explanation of the relatively low cost price of milk produced in Uganda (i.e. low cost of fodder inputs). Rapid deforestation is to an important degree caused by habitat conversion in favour of pastures for dairy cattle. The effects of deforestation are already being felt (erratic rainfall, less rainfall). This is a direct threat to the sector’s further development.

Despite many government incentives and NGO contributions, the productivity in the dairy sector is still low and offers a lot of scope for improvement. With improved farm management, pasture management, more stringent promotion of genetic improvements of dairy cattle and improved extension services, Uganda would be able to significantly increase its production through increased productivity, even with a rationalisation of the dairy herd (“less cattle, more milk”). Like in Kenya, the uptake of processed milk is relatively low as a result of high prices that probably stem from an oligopolistic market structure and related weak cooperative structures. Uganda is exporting milk to neighbouring Kenya, but is not (yet) competitive in the international dairy market because of its low productivity.

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3. Climate change and the dairy value chain

3.1 The dairy value chain and GHG emissions Agriculture accounts for 12% of global GHG emissions12. Of the total emissions from the agricultural sector, the following categories can be linked to livestock and dairy production:

• On-farm livestock rearing: o Enteric fermentation13 o Manure left on pasture o Manure management o Application of manure on agricultural land

• Fodder and feed production: o Application of mineral (chemical) fertilizer o Cultivation of organic soils and crop residue decomposition o Related upstream industrial processes o Transportation of fertilizer and feed o land use changes for the production of feed

• Dairy production: o Indirect energy related to the construction of animal housing and farm equipment o Post-farm gate: transportation, processing, retail

Enteric fermentation is the single biggest contributor to GHG emissions in the dairy value chain. The dairy sector is distinct in the sense that dairy production systems are complex sources of greenhouse gas (GHG) emissions, notably of methane (CH4), carbon dioxide (CO2) and nitrous oxide (N2O). CH4 emissions are inherently produced by cattle as a by-product of the conversion of feed into milk14. In Sub-Sahara Africa, the CH4 emissions per animal per year are around half of the global average, but they are very high in relation to the average milk yield. Besides the emissions produced by the cattle, the production of feed and fodder is an important source of emissions, mainly in the form of CO2.

Methane represents lost energy in the digestion process15. It is estimated that 7–10% of a ruminant’s energy intake is lost to enteric fermentation, although it can be closer to 4% for feedlot cattle. Although non-ruminant herbivorous livestock, such as horses, do not have a rumen, significant fermentation does takes place in their large intestine, allowing the digestion of coarse plant material as well as producing a significant amount of methane.

12 CDP, 2015, https://www.cdp.net/en/investor/ghg-emissions-dataset 13 Enteric fermentation is a digestive process by which carbohydrates are broken down by microorganisms into simple molecules for absorption into the bloodstream of an animal. 14 Cows release methane (CH4) and nitrous oxide (N2O) as a result of the digestion of feed materials in the rumen. Fermentation in the rumen – one of the four stomach chambers of ruminant livestock – generates hydrogen as a result of the feed degradation by microorganisms. The animals must remove the produced hydrogen. One of the ways to reduce hydrogen in the rumen is the production of methane which is released by respiration and eructation into the atmosphere. These emissions are called enteric emissions. 15 https://www.agric.wa.gov.au/climate-change/reducing-livestock-greenhouse-gas-emissions

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Measures to change enteric fermentation to reduce emissions may also increase animal productivity by increasing digestive efficiency.

Although on a global scale, greenhouse gas emissions have declined per unit of product, this decline has been more than offset by the increased overall growth in milk production. With the relatively low productivity of cattle in the LVB region, we can assume that the greenhouse gas emissions per unit of product are very high in comparison with higher- income countries. Increasing the average productivity per animal (milk production per animal per year) will lead to a lower emission intensity of dairy production16.

This is in itself a mitigation strategy, but the absolute emissions of greenhouse gases are still expected to rise: with rapidly increasing populations, gradually increasing incomes per capita and a high-income elasticity of the demand for dairy products, we can assume that dairy production in the LVB countries will grow at 3-5% per year, which means it will double every 12-20 years.

If the average productivity increases less than the increase in total dairy production, this would lead to total greenhouse gas emissions to increase, rather than decrease. Given the supplier base with many smallholder farmers that have a low productivity, and the fact that consumers are likely to consume more rather than less milk products, this is a likely scenario for the LVB countries.

If we look at the period 2005-2015, we see for sub-Sahara Africa the highest growth in milking cows, the lowest growth in productivity (actually a slight decrease from 465 to 457 kg per animal per year), and the lowest productivity across world regions. The decrease in productivity in the Sub-Saharan region is most probably caused by the effects of climate change: cattle tends to be less productive at higher temperatures, reducing availability of fresh water, less constant supply of feed and fodder.

As methane from enteric fermentation accounts for 58.5 % of total emissions17 from global milk production, we can assume that this percentage will even be higher in the LVB countries – given the much lower productivity per animal. Improving the feed conversion (i.e. the amount of feed input for a given quantity of milk) will lead to a reduced emission intensity (emission per kg of milk produced), but also to an improved farm profitability. With the very low productivity levels in milk production, large steps in productivity can be made, leading to much lower emission intensity levels.

A much higher production per cow will make it easier for farmers to remove animals with a low productivity from the herd, as profitability will increase when more productive animals receive good inputs. Providing high quality feed and fodder to animals with a low productivity is in most cases leading to a net loss.

There is a number of complimentary pathways to mitigate greenhouse gas emissions and to adapt to the effects of climate change at the same time:

16 FAO and GDP, 2019 17 FAO, 2019, CDP (2015) gives an estimate of 40%

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1. Improved animal feeding practices: • Increase feed efficiency (improve feed conversion) by optimizing the energy and protein content in feed • Improved forage quality with lower fibre and higher soluble carbohydrates can reduce methane production in livestock. Methane emissions are commonly lower with more forage legumes in the diet, mainly because of the lower fibre content (faster rate of digestion). Use of by-products from other food processing industries can also be considered, when they lead to lower methane emissions. • Dietary supplements and feed alternatives can reduce methane emissions from livestock. Supplements include oils, fats, tannins, probiotics, nitrates, enzymes, marine algae

2. Improve animal fertility and reproduction and improving the genetic potential: • Animal breeding could achieve a 10–20% reduction in methane emissions, as methane production per unit of milk produced differs per breed • Rationalize herds by incentivizing the replacement of low-productive cattle by smaller numbers of high-productive cattle • Reducing the prevalence of diseases by incentivizing disease resistant (cross- breeds)

3. Improved grassland management: Enhancing carbon capture and storage in soils through improved grassland management (globally, grasslands are holding 20 percent of the world’s carbon), leading to a net accumulation of carbon in grassland soils and thus a positive impact. Pasture quality can be improved in several ways including by plant breeding, changing from tropical (C4) to temperate (C3) grasses that use different pathways to capture carbon dioxide, or grazing on less mature pastures.

This would include soil improvement, introduction of drought resistant pasture grasses, adoption of silvo-pastoral methods such as planting of (shade) trees in pastures and to prevent natural resources to be converted into grassland.

4. Making the dairy sector more circular: minimizing wastage of resources (including the significant food losses as a result of inadequate storage, logistics and milking practices), closing of nutrient loops (e.g. improved manure management through composting manure and using this to replace chemical fertilizers and the application of raw manure); this can be combined with the production of biogas (i.e destruction of methane generated from dairy manure in covered anaerobic ponds in which the methane is captured and burnt)

5. Adopting a “landscape” approach: large-scale “holistic” mitigation programmes: ecosystem restoration including watershed management (integrated water resources management), reforestation, grassland management and the protection of natural zones.

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3.2 Grassland management The importance of grassland management was already mentioned in the previous paragraph. In this paragraph we give some additional background on this topic. Grassland management is not only important for the storage of carbon, but is also an important instrument to reduce run-off (erosion) and to absorb and maintain water resources in the soil. Grasslands, including rangelands, shrublands, pastureland, and cropland sown with pasture and fodder crops, covered approximately 3.5 billion ha in 2000, representing 26 percent of the world land area and 70 percent of the world agricultural area, and containing about 20 percent of the world’s soil carbon stocks (FAOSTAT, 2009; Ramankutty et al., 2008; Schlesinger, 1977).

People rely heavily upon grasslands for food and forage production. Around 20 percent of the world’s native grasslands have been converted to cultivated crops (Figure 1) (Ramankutty et al., 2008) and significant portions of world milk (27 percent) and beef (23 percent) production occur on grasslands managed solely for those purposes. The livestock industry – largely based on grasslands – provides livelihoods for about 1 billion of the world’s poorest people and one- third of global protein intake (Steinfeld et al., FAO, 2006).

A large part of the world’s grasslands is under pressure to produce more livestock by grazing more intensively, particularly in Africa’s rangelands, which are vulnerable to climate change and are expected nonetheless to supply most of the beef and milk requirements in Africa (Reid et al., 2004). One of the reasons for the intensive use of grasslands is the high natural soil fertility18. Removal of large amounts of aboveground biomass, continuous heavy stocking rates and other poor grazing management practices are important human-controlled factors that influence grassland production and have led to the depletion of soil carbon stocks (Conant and Paustian, 2002a; Ojima et al., 1993). However, good grassland management can potentially reverse historical soil carbon losses and sequester substantial amounts of carbon in soils.

Primary production in overgrazed grasslands can decrease if herbivory reduces plant growth or regeneration capacity, vegetation density and community biomass, or if community composition changes (Chapman and Lemaire, 1993). If carbon inputs to the soil in these systems decrease because of decreased net primary production or direct carbon removal by livestock, soil carbon stocks will decline. Like carbon sequestration in forests or agricultural land, sequestration in grassland systems – primarily, but not entirely in the soils – is brought about by increasing carbon inputs. It is widely accepted that continuous excessive grazing is detrimental to plant communities (Milchunas and Lauenroth, 1993) and soil carbon stocks (Conant and Paustian, 2002a). When management practices that deplete soil carbon stocks are reversed, grassland ecosystem carbon stocks can be rebuilt, sequestering atmospheric CO2 (Follett, Kimble and Lal, 2001). An important argument in favour of grassland carbon sequestration is that implementation of practices to sequester carbon often lead to increased production and greater economic returns. Forage removal practices that disturb the system and prompt carbon losses usually reflect attempts to enhance forage utilization, but the complement is not necessarily true: practices that sequester carbon do not necessarily result in reduced forage utilization.

18 FAO, Challenges and opportunities for carbon sequestration in grassland systems, 2010

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Box 1: Grassland practices

Which grassland management practices increase carbon stocks?

1. Grazing management can be improved to reverse grazing practices that continually remove a very large proportion of aboveground biomass. Implementing a grazing management system that maximizes production, rather than offtake, can increase carbon inputs and sequester carbon.

2. Sowing improved species can lead to increased production through species that are better adapted to local climate, more resilient to grazing, more resistant to drought and able to enhance soil fertility (i.e. N-fixing crops). Enhancing production leads to greater carbon inputs and carbon sequestration.

3. Direct inputs of water, fertilizer or organic matter can enhance water and N balances, increasing plant productivity and carbon inputs, potentially sequestering carbon. Inputs of water, N and organic matter all tend to require energy and can each enhance fluxes of N2 O, which are likely to offset carbon sequestration gains.

4. Restoring degraded lands enhances production in areas with low productivity, increasing carbon inputs and sequestering carbon.

5. Including grass in the rotation cycle on arable lands can increase production return organic matter (when grazed as a forage crop), and reduce disturbance to the soil through tillage. Thus, integrating grasses into crop rotations can enhance carbon inputs and reduce decomposition losses of carbon, each of which leads to 4. Analysis ofcarbon the Dairy sequestration. Value Chain

4.1 General overview of the dairy value chain

The dairy value chain is dominated by cattle producing milk (milk from goats, sheep and camels is also produced, but at a very small scale). In this chapter we will present a general analysis of the dairy value chain. There are obviously differences between the five LVB countries, but generally speaking the stages in the value chain where value is created are quite similar. In figure 1 below, the different stages are indicated.

Figure 1: Overview of the dairy value chain in the LVB

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Source: 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, with limited additions by the author

In table 2 below, we give an estimate of how production and marketing is divided across the various producers and processors19 in the dairy value chain, mainly based on figures from Kenya. These figures are an estimate, and vary per country. But it gives a broad picture of the origination of milk production. Smallholder farmers have one to four cattle, medium-sized farmers have five to 50 cattle, and there is a limited number of entrepreneurs that have established a modern dairy farm with over 50 cattle. Clearly, the average dairy herd size has increased over the past decades, with a lot of efforts from the side of dairy processors, governments as well as NGO’s to stimulate milk production volumes. Most of the medium sized farmers still use manual labour to milk their cattle. The productivity per cow (kg of milk per cow per day) is in general very low for the smallholders, and they use approximately 50 per cent of the milk produced for their own consumption. The medium sized farms usually have invested in improved genetics and herd management and are producing much higher amounts, though usually still with manual labour and low infrastructure investments. The large-scale farms are small in number, but produce up to international productivity standards and have made investments in cattle housing, fodder production and milking parlours.

Clearly, the trend is that the average producer size is increasing. Given the increasing requirements of milk quality and the high cost of collection, the smallholder production is likely to gradually disappear in the coming decades. One of the factors contributing to the demise of the smallholder farmers are the land inheritance laws: whereas in other parts of the world the farm is often handed over to one of the children, in the East-African region the land is usually evenly divided among the children, leading to a dramatic decrease in farm size over the generations. This eventually makes is difficult to build a successful farm, especially when

19 Author’s estimates on production, partly based on SNV, Status Report Kenya Market Led Dairy Programme, 2015

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one cannot access feed and fodder at competitive prices. Larger farmers with more access to capital can gradually purchase additional land that is offered by people that are exiting agricultural activities or have no interest in starting them on the land that they inherited.

Table 2: Estimation of production of milk across farm sizes

Sources: Corné J. Rademaker et al., 2016, SNV, 2015, with additional estimates by the author

The dairy sector is a source of revenues for many people, the highest number of them being smallholder farmers that use their cattle both as a source of nutrition for their own family as well as an opportunity to have a daily income. Although many incentives have been put into place, approximately 70% of the milk is not processed but consumed as raw milk (this includes the milk that is consumed by the farmer’s family.

As the dairy sector has good potential of both improving the livelihood of millions of people in the LVB countries as well as contributing to their nutritional status, there have been many programmes implemented to promote an increase in the production of dairy. Since the year 2000, these efforts have been increasingly aiming at promoting dairy as a business and facilitating smallholder farmers to increase their total production and the productivity per animal and an improved functioning of the dairy value chain.

Only relatively recently, the policy makers and dairy programme developers have started to realize that the growth of the dairy sector has a serious impact on the environment. Several value chain programmes are now being implemented and developed that have environmental sustainability as an important element. By means of the promotion of climate smart farming techniques and through a more holistic “landscape” approach, this latest generation of programmes is trying to reduce the carbon footprint of the dairy sector as well as the degradation of the ecosystem that is caused by the dairy sector. Besides climate change mitigation efforts, there are also several initiatives that are focusing on climate change adaptation, e.g. the promotion of drought resistant grass varieties.

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A farmer feeds his dairy cows with grass in central Kenya (Photo credits – Nation Media Group)

The TIDE (The Inclusive Dairy Enterprise20) programme that is managed by SNV in Uganda is an example of a dairy programme that incorporates some environmental considerations: “The key focus of the TIDE approach is the intensification of dairy production (productivity). In moving from a low input – low output farming system to a more intensive one, with higher inputs creating higher outputs, the emission of greenhouse gas emissions per litre of milk produced, is likely to be reduced. Within this broad framework, additional environmental and climate smart practices are being promoted by the TIDE project.”

Especially the reduced availability of water is cause for concern and environmental considerations will start to become more important in the design of development programmes in the dairy value chain. Given global trends we can assume that development programmes will increasingly prioritize sustainability in their dairy programmes.

Dairy processing is to a large extent driven by the larger processing companies, that are trying to buy smaller processors to increase their market power. In many of the LBV countries, there are strong linkages to political leaders who see the dairy sector not only as a source of income, but also as a channel to secure their political power, as so many voters are involved in the dairy value chain. East Africa has not only the highest dairy production in Africa, the consumption of milk and milk products is also the highest in Africa on a per capita basis.

As the demand for milk products is rising and much of the milk produced is not processed (i.e. sold as raw milk), there is a strong business case for increasing milk production. It is expected that the regulatory framework will gradually force farmers to stop selling raw milk in order to increase food safety. This will increase the milk that is available for processing and we can expect that the percentage of milk that is processed will increase. The processed milk will be processed by a decreasing number of milk processing companies.

The position of most cooperatives that process their own milk becomes precarious when milk processors with strong political affiliations wield their market power. The expectation is that

20 http://www.snv.org/project/inclusive-dairy-enterprise-tide

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cooperatives can only survive as a milk processor when they join forces with other cooperatives, forming cooperative dairy unions.

The global trend in most food value chains is that within the value chain the retail companies are gradually becoming the most powerful player in the value chain. Although supermarkets in the LVB are still serving a relatively small part of the consumers, we can expect the same trend to take place here.

4.2 Input supply and service provision

4.2.1 Grassland / pasture Field grazing systems make use of natural grasslands or fenced paddocks. Smallholder farmers can also make use of roadsides. In a communal land system, the cattle grazes in grasslands that are not fenced. Creating fenced paddocks by the landowner creates the possibility of managing the pastures, both in terms of grazing regime as well as improving the grass and soil. Generally speaking fenced paddocks are still not commonly used in the rural areas, but the trend is that more and more grassland for dairy cattle is being fenced.

Generally speaking, zero-grazing is still more usual, but larger dairy farms will tend to opt for field grazing systems. As infrastructure (main roads, feeder roads) is improving in most countries, and urbanisation makes land prices increasingly high, this would from an economic standpoint make it more profitable to establish dairy farms in areas with good pastures, moderate temperatures and adequate rainfall – instead of keeping cattle near the urban centres. In field grazing systems, animals feed freely on growing pasture in a designated area. There are various systems a farmer can adopt21: a. Set Stocking • Cows are kept in one paddock continuously. This is the system that is most used in dairy farms in the LVB that graze their cattle. b. Rotational grazing • Cows are moved from one paddock to the next in a predetermined order • Fields is divided into paddocks and calves are grazed ahead of mature cows This would be the next step for dairy farms in the LVB in order to raise productivity. This will improve grass density and soil and thus the quality and quantity of the fodder. c. Strip Grazing • Animals are confined in an area with enough grazing for one day. This method has very intensive utilization of pastures and is used frequently in New Zealand and leads to high productivity and optimal grass production and soil health.

Pasture management is of key importance in a field grazing system. When fencing off grassland into paddocks, the key parameters are:

21 http://www.nafis.go.ke/livestock/dairy-cattle-management/grazing-systems/

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a. Size of paddocks • In large farms a partitioning into several plots is preferred. The paddock depends on the size of the herd and on the rotational interval. • Allowable stocking rate is a quarter acre to three tenth of an acre per cow, per week, in good pastures. b. Rotation Frequency • Animals should not be allowed in a paddock for a period exceeding one week to avoid worm build up and infestation. • After the rotation, the grassland will need to recover for sufficient time, before the next rotation. This recovery period depends on the climate and on the season.

Milking can take place in the paddock, but in the larger-scale farms the cattle will be brought to the paddock for milking. The moving of cattle cannot be too far removed from the milking area, and the milking area is ideally placed nearby the paddocks. If there is a cow barn, the cattle can stay overnight in the barn. After milking in the morning, the cattle are brought back to the paddocks.

KALRO and the International Centre of Insect Physiology and Ecology have developed a drought resistant Napier variety called Ouma. Four semi-arid grass species, Cenchrus ciliaris, Chloris roxburghiana, Eragrostis superba and Enteropogon macrostachyus were identified by KALRO as good grasses for forage production and have been promoted in Kenya for hay production and rehabilitation of degraded rangelands. Increased planting of rangeland grasses will increase the acreage under range rehabilitation, which will generally contribute to a decrease in erosion, the sequestration of carbon in the soil and a general improvement of the soil health. Both the production of grass seed as well as the production of hay are interesting business opportunities. Especially in combination with rotational grazing, the grass density will increase and the soil quality will improve.

In areas where grassland is abundantly available, regenerative grazing methods such as adaptive multi-paddock grazing (AMP) can reduce emissions from cattle dramatically. AMP is akin to rotational grazing and it means that cattle are stocked at relatively high density, but graze on a plot of land for a shorter period. This practice allows grasses to recover, put down stronger root systems and store more carbon in soils.

4.2.2 Feed and Fodder A healthy cow will produce more milk when fed sufficiently and with sufficient available drinking water. Fodder is ideally produced or collected by the farmer, only giving some complimentary feed when necessary. Given the seasonal rainfall patterns in the LVB countries, only relying on field grazing is usually not feasible. This is why farmers are encouraged to plant fodder crops, such as napier grass and maize. After the rainy season, also hay can be produced by cutting dry grass. The production of silage is the best way to build up stocks of nutritious fodder, but also hay is a feedstock that can be stored for a longer period. Additional feed is usually given in the form of dairy meal, which is produced from maize, soybean and other protein sources.

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Animal feeds processing plant in Uganda (Photo credits – Daily Monitor)

An emerging concern is presence of Aflatoxin fungi in animal feeds22. This can be attributed to poor handling of post-harvest cereals used in the production of animal feeds, mainly by not drying the harvested cereals properly. This leads to mycotoxins in animal feed, but also in the processed milk. Aflatoxin is affecting both the health of the animals as well of that of the consumers, and is typically found in high levels in marketed milk (products) in LVB countries.

In Kenya, a number of commercial fodder producers have emerged. Their business model is to harvest maize for animal fodder with a mechanized harvester. Farmers with their own land can outsource the entire production of fodder maize to the commercial fodder producer, or only hire the commercial fodder producer for the harvesting of the maize. When harvested, the maize is chopped in small pieces that can easily be packaged or put into silage. Many farmers also lease land for fodder production.

The price of feed and fodder is quite high (especially in Kenya) and the quality of feed is often substandard. Hay prices in Kenya can be as high as USD 3-4 during the dry season for a bale of 15 kg. In itself producing animal feed and fodder is therefore an attractive business opportunity for those with access to capital (feed) or land (fodder).

Making use of by-products and other readily available inputs can also be a win-win; even the water hyacinth can be an animal feed ingredient, see box 2 below.

22 Prevalence of aflatoxins is high in latitudes between 40º N and 40º S, although the biggest health risks are in tropical developing countries where typical staple foods are affected by aflatoxins. Aflatoxin contamination can occur along the production value chain starting from the field, during storage, and transportation and processing. Among the staple foods affected by aflatoxins are cereals (wheat and maize), groundnuts, cassava, oilseeds (cotton, sunflower), fruits, wines, legumes, milk and milk products. Major sources of human exposure to aflatoxins are groundnuts and maize because they are more susceptible to contamination and are frequently consumed worldwide. Aflatoxin can affect various organs and systems of animals. Source: Irene Kagera, Peter Kahenya, Florence Mutua, Gladys Anyango, Florence Kyallo, Delia Grace & Johanna Lindahl (2019) Status of aflatoxin contamination in cow milk produced in smallholder dairy farms in urban and peri-urban areas of Nairobi County: a case study of Kasarani sub county, Kenya, Infection Ecology & Epidemiology

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Box 2: Producing animal feed using water hyacinth

Biofit: water hyacinth processing into animal feed

Animal feed company Biofit was launched in August 2017 in Homa Bay County, Kenya. Biofit uses water hyacinth to produce highly nutritious animal feed products. After a rigorous series of research and prove of concept, Biofit was able to come up with a variety of products made out of water hyacinth: • hyacinth cake for livestock which is a protein rich animal feed supplement; • hyacinth dairy meal; • hyacinth poultry mash; • hyacinth fish pellets and • hyacinth pig mash.

Biofit’s products have gone through several laboratory analysis locally and international (NL) and they have been accredited to be safe for animal consumption. Biofit has also managed to register a patent for the technology. Biofit is currently producing relatively small quantities (1200 kg per week). The protein content of water hyacinth is around 22% (as compared to 30% in sunflower seed cake), yet the cost price and selling price is significantly lower than other sources of protein for animal feed. The products have different formulas, the dairy meal contains approximately 20% of water hyacinth. The other ingredients are locally sourced at milling companies and farmers.

The manufacturing process includes three phases; The Cleaning phase, where harvested water hyacinth is cleaned three times with plain water and chopped into one-inch pieces for steam treatment. Steaming phase involves water hyacinth is heated for 15-20 minutes at temperatures not exceeding 100˚C. Value addition phase involves additions of filler materials to strengthen the hyacinth to solidify back where it is then cooled rapidly and dried to moisture of 12%. Hammering phase Involves grinding/milling hyacinth dried coagulant and packaged.

4.2.3 Water Water for production, i.e. drinking water for the cattle, is extremely important for the milk production. A good system of water distribution in the farm will reduce the need for animals to walk long distances to drink, thus increasing productivity (higher water intake plus less energy spend on drinking), but also reducing environmental damage (gully formation due to cattle paths to watering points). Depending on the genetics of the cattle and the air temperature, water intake per cattle can go up to 150 litres per day. Based on the genetic composition, local breeds or interbreeds that do not produce high quantities of milk can be kept at 50-70 liters per day. However, it is important to note that by far the biggest chunk of water used to produce milk is for the production of feed and fodder23.

A comparative study showed that the consumptive water use (CWU) per kg of Energy- Corrected Milk (ECM) differs hugely per country and region with a global average of 1,833 litres:

“When looking at averages per region, the CWU was lowest in Europe (913 L) and highest in Africa (3384 L) with large intra- and inter-regional differences. Compared with grazing and intensive production system, low yielding cows on small-scale farms have the highest CWU/kg

23 Benchmarking consumptive water use of bovine milk production systems for 60 geographical regions: An implication for Global Food Security, from Global Food Security, Volume 4, March 2015, Pages 56-68, Sultana, Mohiuddin, Ridoutt, Hemme and Peters.

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ECM. The key driver for variation in CWU/kg ECM is feed, accounting for 94–99% of the total CWU. Increasing milk productivity might be one of the promising ways to reduce CWU/kg ECM. However, this might also lead to the negative impact into water supply systems if this increase is dependent on land irrigation in water scarce areas.” (Sultana et al., 2015)

The relatively low milk yield in Africa as compared to the rest of the world is not translated into a similarly low consumption of feed and fodder – leading to this high level of water consumption per litre of milk produced in Africa (3,384 lt. CWU/ kg ECM. The benchmarking study (Sultana et al.) came to 5,622 lt. CWU/ kg ECM for a farm in Uganda, the highest in the study that was covering typical milk production systems in 60 dairy regions from 49 countries, representing 85% of the world's milk production. We can assume that in terms of water efficiency in milk production, the LVB region is one of the lowest scoring areas on a global level.

The higher the milk production per cow per day, the higher the requirements of daily water intake per cow and the higher the requirements for feed and fodder. A greater efficiency of milk production can still lead to a higher water use in absolute terms when fodder production is irrigated. However, in the LVB region this is almost never the case, so improving water efficiency (lowering the CWU/kg ECM will lead to a lower CWU for the overall sector. However, with milk demand rising the increasing production – even at more efficient water usage levels – can still lead to an overall increase of CWU. The requirement of having sufficient drinking water for the dairy cattle means that this can easily become a bottleneck if water resources diminish, e.g. drying up of rivers, reduced rainfall, longer spells of drought.

Of all countries in the LVB region, Uganda seems to have a comparative advantage in terms of cost price of milk. Part of the explanation for this is the abundant water resources24 which are not used. Farmers with highly productive breeds are advised to invest in water harvesting, e.g. by means of creating reservoirs (mostly referred to as “farm ponds”) in which rainwater is harvested or in pumps that ensure that fresh water is distributed to the location where the cattle is kept. The most common approach to rainwater harvesting is water buffering: i.e. to store water when it is plentiful and in turn, to make it available when it is scarce; storage is thus the central element25. By integrating small water storage structures across the landscape in a planned and systematized manner, it is possible to create a water buffer that helps dealing with water seasonality and drought.

Three categories of water storage can be distinguished: 1. Groundwater storage 2. Soil moisture storage

24 “The total renewable water resources in Uganda are estimated to be 66 km3 per year, however, only 0.5 percent of the total renewable water resource is used; this translates into an opportunity to develop water sources for agricultural production. Uganda is endowed with abundant surface water resources totalling up to 43.3 km3 per year, yet a high spatial difference exists in runoff. The strong variations in seasonal rainfall cause varying stream flow, and the occurrences of moisture shortage in the areas near Lake Victoria are generally in the form of dry spells between December and February and between June and September.” FAO, 2016

25 Strengthening agricultural water efficiency and productivity on the African and global level Status, performance and scope assessment of water harvesting in Uganda, Burkina Faso and Morocco. FAO, Rome, 2016

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3. Surface storage

The primary influence of most water harvesting techniques is to increase levels of water retention and hence soil moisture at a landscape level (FAO, 2016). As more moisture is available in a landscape, the microclimate is changing and temperature peaks and lows begin to even out – both in the air and the soil at various depths. Improved soil moisture also enhances the ability of soil bacteria to stimulate nitrogen fixation, which augments the overall fertility of the landscape. Water harvesting can also help to control water runoff and avoid excessive soil erosion, ensuring that nutrient rich sediments are not flushed out from the farming system.

All water harvesting solutions can be used as stand-alone measures, but to create an improved water buffer they work at best when integrated with each other with high density and at landscape scale. Such an approach, known as 3R solutions, can be applied in diverse environments: 3R26 stands for "Recharge, Retention and Reuse" of groundwater and rainwater (see Box 3). The Upper Tana-Nairobi Water Fund27 is an example of such an integrated approach, where government, private sector, community organizations and NGO’s work hand in hand to create a system whereby upstream investments in water management are funded and supported by downstream water users.

26 3R is an initiative of four Dutch entities (RAIN, Acacia Water, MetaMeta and Aqua for all) that emphasizes the benefit of collecting water, extending the chain of water use and reusing water as much as possible within a basin. 27 TNC, 2015. Upper Tana-Nairobi Water Fund Business Case. Version 2. The Nature Conservancy: Nairobi, Kenya

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Box 3: Recharge, Retention and Reuse (3R)

With 3R the water buffer is managed through recharge, retention and reuse. The idea is to create 1 strong buffers and extend the chain of water uses :

Recharge

Recharge adds water to the buffer and as such it adds water to the circulation. Recharge can be natural – the infiltration of rain and run-off water across the landscape - or it can be managed (artificial recharge) through special structures or by the considerate planning of roads and paved surfaces.

Recharge can also be a welcome by-product of for instance inefficient irrigation or leakage in existing water systems.

Retention Retention is the process in which the speed of the natural water cycle is reduced in order to create large wet buffers. This process can be increased artificially, for example by slowing down the (ground)water flow or by hindering the surface water runoff with dams and reservoirs. Therefore, retention extends the chain of water uses and can have a large impact on agricultural productivity.

Reuse Reuse is the third element in buffer management. The big challenge of 3R is to make water circulate as much as possible. Scarcity is resolved not only by managing demand through reduction in use, but also by keeping water in active circulation. In managing reuse two processes are important. The first is to manage non-beneficial evaporation to the atmosphere. Water that evaporates ‘leaves’ the system and can no longer circulate in it. One should rather try the opposite and capture air moisture, such as dew where possible. The second process is the management of water quality – to make sure that water can move from one use to another, even as water quality changes along the chain of uses.

Source: Profit From Storage, 3R Secretariat

4.2.4 Genetics and reproduction In Africa there are two main races of Cattle: Bos indicus (cattle with humps) including the Boran, Sahiwal and Zebu cows (indigenous) and the Bos taurus (exotic or imported breeds). The two races can cross breed, and the crosses can be very productive both in terms of growth rates for beef, improved milk production as well as disease resistance. Whether indigenous breeds or exotic breeds or crossbreeds will perform best depend amongst others on the climate, the occurring diseases, the available feed resources and the availability of fresh water.

The indigenous cattle breeds (e.g. Ankole in Uganda) often have a low milk production per day (even though the quality can be outstanding). This is why many dairy farmers are investing in exotic breeds28. One can choose between milk breeds and dual-purpose breeds (the latter also have meat producing properties). Most popular exotic milk breeds are Friesian-Holstein,

28 https://www.infonet-biovision.org/AnimalHealth/Cattle-breeds

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Ayrshire, Guernsey and Jersey. Popular dual-purpose breeds are Simmental, Fleckvieh, Boran, Sahiwal, and the East-African Zebu.

Within the East and Central Africa region, Kenya has the highest number of exotic dairy cattle. Generally speaking, the choice for a certain breed is determined by the climate, the occurring diseases and the availability of feed resources as well as the availability of fresh water. Milk breeds do well in moderate climates (relatively low temperatures) with a low disease pressure and a good availability of feed and fresh water. The more constant and sufficient the feeding regime, the higher the productivity will be.

In many cases, some form of interbreeding is advised where local breeds are interbred with milk breeds to arrive at a herd that is able to withstand pests and diseases as well as lower quality of feed and lower quantities of drinking water. Generally speaking milk breeds prefer a moderate climate (tending towards cool) and this is often not the case in the LVB region. In the higher altitude zones with lower temperatures and higher rainfall the circumstances are most suitable for the milk breeds.

Exotic Friesian cows in a dairy farm in Kenya (Photo credits – livestockkenya.com)

In terms of reproduction, artificial insemination (AI) has made important inroads into the region. There is however a very limited local semen production and a significant amount of semen is imported. The AI is administered mostly by private AI service providers. As the knowledge level of these AI service providers is not always up to adequate standards, and the cold chain not always well-organized, farmers often incur additional costs when several servings are necessary. The longer it takes for the cow to become pregnant, the higher the opportunity cost. However, inadequate animal husbandry practices also lead to lower fertility: when a cow does not receive the necessary feeding requirements, the fertility will go down.

As most farmers need cows instead of bulls, there is a rise in sexed semen usage and a small number of farmers are using embryo implants. Farmers need a breeding strategy and good record keeping. The former is not obvious as every climatic zone and market may lead to different choices; the latter is quite achievable for all literate farmers, yet often we see that the cattle is not managed by the farmer, but by workers that often may be illiterate.

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In terms of carbon footprint reduction, it would be preferable to have a smaller herd that is highly productive, instead of a large herd with limited milk production. This would require an effort to increasingly reduce the number of cattle with a low productivity and replace them with more productive breeds or cross-breeds thereof. An increased use of sexed semen will also reduce the herd, as less “unwanted” bull calves will be born.

Lastly, many government agencies are keen to increase dairy production. In Kenya, several county governments are providing AI services for free for that reason. In Uganda AI services are also often offered for free to farmers by government agencies, NGO’s or dairy processing companies.

4.2.5 Animal healthcare The extensive and unregulated use of veterinary drugs for both treatment and prevention limits productivity increase, affects the quality of milk (residues) and local biodiversity, but also effects downstream pollution (with chemicals leaching into rivers and streams, and ultimately Lake Victoria).

Important diseases are tick born29 and these can be prevented by regular use of cattle dips containing a chemical agent, or by spraying the cattle with chemicals against ticks. Efforts are made to develop herbal alternatives for the chemical agents, but given the increasing resistance of ticks to the chemical agents, it is becoming more and more difficult to do field grazing and farmers may have to opt for zero grazing systems in a more controlled environment.

Another important disease is mastitis. This is an udder infection caused mainly by incomplete milking and a lack of hygiene in the milking process30. A cow with mastitis has to be put on antibiotics and its milk cannot be processed. In general, keeping the cattle herd healthy by means of good animal husbandry practices is the key to a successful dairy operation. This requires competent management that can guide farm workers on a daily basis. Other diseases, such as Foot and Mouth Disease (FMD), Contagious Bovine Plural Pneumonia (CBPP) and East Coast Fever (ECF) are also threats that can lead to the loss of livestock.

4.2.6 Equipment and infrastructure Given the climatic conditions, cattle barns do not need to be a huge capital outlay. But especially for zero grazing systems, a well-designed barn can increase productivity and reduce costs31. More often than not, farmers have put in place structures that are leading to unhygienic production circumstances. As mean air temperatures are increasing, it is important that the cattle have sufficient shade to protect them from direct sunlight and heat. The roofs could be used for solar PV.

29 http://www.fao.org/3/x6538e/X6538E02.htm 30 https://www.nation.co.ke/business/seedsofgold/Briefly-on-farming-and-agribusiness/2301238-5192320- j1addt/index.html 31 http://www.snv.org/public/cms/sites/default/files/explore/download/kmdp_- _handbook_modular_cow_barn_design_for_smallholder_dairy_entrepreneurs_0.pdf

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Milking equipment is still not widely used, whereas there are low cost milking machines available that can also run off-grid. Potentially the use of milking machines can increase the amount of milk produced, reduce labour costs and improve the hygiene of the milking process.

On farm milk cooling is still very rare in the LVB region, yet the risk of milk spoilage is high as most of the evening milk is stored overnight without cooling. There are several small-scale and low-cost cooling solutions available in the market. However, there are no readily available solutions that are able to cool the milk within two hours to 4 degrees Celsius (which is the international standard) without the use of grid power. In other words, grid power is necessary to be able to produce high quality milk. Presumably due to insufficient quality control by customers or at milk intake points farmers are not incentivized to invest in on-farm cooling equipment. Large quantities of spoilt milk have led to a traditional product that is still popular with consumers: sour milk32.

Many farmers are still using plastic containers to store the milk, whereas aluminium cans are much more hygienic. Companies such as JESA Farm Dairy in Uganda are supplying some of the farmers with aluminium milk cans, of which the cost is subtracted over a longer period from the milk payments. According to dairy industry experts, the use of plastic containers is one of the key factors that makes the average milk quality in the LVB region rather low.

In terms of equipment, many farmers have equipment to cut fodder into small pieces for it to be digested more easily by the cattle. Farmers with their own fodder production are gradually shifting towards the use of tractors and mechanized ploughing and seeding, or outsource this to a commercial fodder producer or agricultural service provider. The latter can often make use of asset finance arrangements such as financial or operational leasing.

4.2.7 Farm advice Extension services have generally suffered from budget cuts over the past decades. There are many NGO’s that have invested a lot in knowledge transfer to farmers, filling up the vacuum left by governments (e.g. Heifer International, SNV, Land’o Lakes, etc.). Although there is a general increase in the interest in farming, most smallholders that mainly produce milk as a side activity do not have the resources or the commitment to take their dairy production to a higher level. Many of the medium-scale dairy operations are owned by people with the ambition to grow to a higher level, yet they often lack the necessary skills and are often not managing their farms themselves. Through social media there is quite a bit of knowledge sharing and via the internet a lot of information can be gathered. However, there is often a lack of willingness to pay for a well-qualified farm manager or for external advice.

Many NGO’s offer free advice and therefore limit the possibilities for commercial farm advisors. Some observers inside the dairy industry even lament the abundance of free services to famers (e.g. in Uganda): according to them, the free of charge assistance is reducing the commitment on the part of farmers as they do not commit financial resources to make the interventions into a success. Even the fact that with AI services being provided free of charge many farmers not making use of that offer is showing that there is still a world of improvements to be made. The large-scale farms have hired professional farm managers (or

32 http://www.fao.org/ag/againfo/resources/documents/MPGuide/mpguide4.htm

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have owners that have a suitable background) and operate according to international standards when privately held.

4.2.8 Financial services For many farmers in the LVB region, cooperatives are the cornerstone of their dairy business. The cooperative is owned by the dairy farmers and can be affiliated to a cooperative union. However, at the same time the cooperatives are facing a formidable competition from commercial dairy processors which generally speaking have a bigger market share in processing. The cooperatives ensure that the farmer is regularly paid and can provide inputs to the farmer at reduced rates – the cost of the inputs is mostly subtracted from the milk money that is paid to the farmer.

In terms of financial services, there are also the micro-finance institutions and the commercial banks. In most cases the farmer can get a loan based on the livestock that he or she owns, or on other collateral. Larger dairy operations can enter into asset finance agreements, where they can for instance purchase a tractor under a lease-to-own agreement.

In Kenya, the Movable Property Security Rights Act 2017 that has enabled banks to diversify collateral from the tradition of using immovable assets — primarily land and buildings — to movable assets such as stocks and livestock. This means that farmers can borrow money based on the value of their livestock. This has purportedly led to a significant uptake in farmer loans.33

4.3 Milk production There are in principle two main milk production systems: zero grazing and field grazing. Field grazing can be combined with the production of perennial and other crops in silvo-pastoral systems (SPS) which is a type of agroforestry that allows the intensification of cattle production based on natural processes that are recognized as an integrated approach to sustainable land use (Nair et al., 2009). Generally speaking, zero grazing is mostly practiced by smallholder farmers (who often do not own sufficient land), whereas larger dairy operations tend to work more with a field grazing system (as they mostly own their own land). Generally speaking, large scale fodder production and preservation are not yet commonplace, with the exception of hay making and the chopping of long grasses such as Napier grass. Sustainable grassland management (e.g. rotational grazing) practices are even less often implemented; even if the farm has ample grassland, the land is not subdivided and the cattle is grazing at will. Often the grassland is of poor quality in terms of grass density and variety.

As the productivity of the cattle increases, there is an intensification of milk production with increasing milk production per cow. The use of pure breeds or cross-breeds, that is replacing the climate resilient indigenous breeds, is increasing the vulnerability of the farmers as their cattle requires a higher level of inputs and are more sensitive to climatic conditions. At the same time, as mentioned before, the carbon footprint per unit of milk produced is decreasing.

33 https://www.businessdailyafrica.com/datahub/chairs-collateral-unlock-183000-bank-loans/3815418- 5181086-gjb4kcz/index.html

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However, this decreasing of the carbon footprint is partly offset by the increasing total dairy production34.

The dairy sector is in a transition phase from smallholder subsistence farming with on average 3-4 crossbreed cows for home consumption and sales of small quantities of excess milk (5-10 liters per day), to medium- and large-scale dairy entrepreneurs with dairy as their core business. The smallholder dairy farmers are still an important group in the dairy value chain, but their contribution to total milk production is gradually decreasing and they are characterized by a low level of investment and very limited production volumes. The medium- and large-scale dairy farmers invest in amongst others exotic breeds, improved dairy barns and fodder production and fodder preservation (silage). This commercializing segment of farmers is categorized in three groups by SNV Uganda35:

1. Smallholders who invest in dairy as (core) business and have been able to grow their dairy business and have become medium-scale dairy farmers. They are fully commercial, however limited in their growth by lack of capital and land and – therefore – also inability to grow and preserve own fodder in sufficient quantities. Often the household has various sources of income from on-farm and off-farm activities/employment, and part of this is invested in the dairy enterprise. These farms have 5 up to 15 lactating cows and produce over a 100 liters of milk per day on landholdings ranging from 1-5 acres (zero-grazing) to 5-10 acres (semi-zero grazing). Often land is leased for fodder production. 2. Medium and large-scale farmers who have “(re-) discovered” dairy farming as a profitable business undertaking. Some are farm owner-manager. This segment of land- or farm owners employ farm managers. The level of mechanization is much higher as compared to the former segment of farmers, especially fodder production and preservation is fully mechanized. Farm sizes and herds may go up from 20 to 500 acres and 20-100 cows respectively. A good number of these farm owners are landowners with formal jobs outside agriculture, also referred to as “telephone farmers”, and they often invest quite heavily in dairy but – like their farm managers – often lack sufficient skills to make the dairy farm profitable. 3. Corporate business and investors who see dairy as an attractive business opportunity have set up several large-scale dairy operations. In some cases, they have a long-term supply contract with a processing company, and in other cases they are part of a dairy processing company. Given the fact that the milk prices in the region are almost as high as in Europe at a much lower cost price (e.g. less animal housing facilities are necessary because of the climate, much lower labour costs, etc.), investing in milk production can be very profitable. Some dairy processing companies (e.g. Bio Foods in Kenya) are willing to pay a premium for milk with a high quality, making such investments even more profitable. A large-scale dairy operation will require a lot of land in order to be able to produce its own feed and fodder. This might be a constraining factor for investors; buying land often requires a local partner and will expose the investment to a higher political risk.

34 FAO and GDP. 2018. Climate change and the global dairy cattle sector – The role of the dairy sector in a low- carbon future. Rome. 36 pp. Licence: CC BY-NC-SA- 3.0 IGO 35 SNV, Status Report KMDP’s MSF/CFP Agenda (incl. PUM Evaluation) – Frans Ettema/Landfort Adviesbureau – 2015

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4.4 Bulking and chilling According some dairy experts, as much as 40% of in-country collected milk spoils in Kenya every year. This is due to a lack of hygiene at the farm during the milking, a lack of cold storage at the farm and long transfer time between the farm and the milk collection centre. Most milk that is supplied for the market (either for selling as raw milk or for processing) is brought by smallholder and medium-scale farmers to milk collection centres. Most small farmers hire motorcycles to collect the milk and bring it to the collection centres. The milk coolers at milk collection centres (including those owned by cooperatives) require high energy inputs, as a short time between delivery and cooling down to 4 degrees is critical.

Quality control at the milk collection centres is often rudimentary and not very strict. As the milk processors are often competing for milk, they tend to close an eye to quality issues. Virtually no processor is willing to implement a “payment for quality”-system, most probably for fear of having to deal with disgruntled farmers or for fear of not being able to source enough milk volumes.

The cold storage of milk is energy-intensive. The milk has to be chilled in a short period to 4 degrees Celsius and this requires a lot of electrical power. Holding the 4 degrees Celsius is much less energy consuming. Given the unreliability of grid power, milk collection centres are mostly using diesel generators. Usually the milk collection centres have cooling tanks of 3,000 litres and above. However, some new solutions are coming onto the market with a smaller capacity, so that milk collection centres could be more finely spread in a dairy producing area. Especially with the gradual improvement of feeder roads this is likely to happen. For the typical 3,000 – 5,000 litre coolers, there is still no technology in the market which would allow for the use of renewable energy sources for milk cooling; even though the dairy processing companies are actively looking out for such a sustainable energy solution for their milk collection centres.

On-farm milk cooling is still very rare in the LVB region, yet dairy operations with a production of at least 250 litres of milk should consider to invest in a low-cost cold storage. Especially when there is grid power readily available, the cost of such a solution is limited when compared to the value of the yearly milk revenues. Renewable energy options have been pursued, but are limited. Besides small-scale solutions that make use of grid power, there is also a fairly large amount of used cooling tanks from Europe available at attractive prices (as smaller farms in Europe often discontinue due to disadvantages of scale). However, the introduction of a “payment for quality” system is a precondition to create a strong business case for farmers or farmer groups to invest in their own milk cooling equipment.

Medium-scale milk producers are often arranging their own transportation to the milk processors, depending on the distance between them and the milk processing plant. Milk collection centres can be owned by farmer groups, cooperatives, private entrepreneurs (milk traders) and milk processors. In quite a number of cases, the lack of a proper governance structure is leading to non-functioning milk collection centres. Often the milk collection centres are only open in the morning, sometimes in the afternoon. However, opening them in the evening could be a way to reduce spoilage of milk, as the evening milk (usually milking

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takes place in the morning and in the evening, although some farmers milk once or three times per day).

A dairy farmer delivering milk to a collection centre in Tanga, Tanzania (Photo credit: ILRI/Paul Karaimu).

4.5 Transportation and trading Milk traders buy milk directly from the farms, or via collection centres. Most of the milk bought from smallholder farmers is sold directly as raw milk, but milk traders also supply to milk processing companies. From the milk collection centres the collected milk is forwarded by truck to the processing company. The trucks can be owned by the milk traders, but in some cases, they will also hire third party transporters. Most trucks (if not all) used in the LVB region for the transportation of milk are second hand with relatively high pollution levels.

Milk processing companies usually hire transporters to bring the collected milk to their dairy factories. In some cases, the processing companies have their own trucks. Given the high seasonality of milk production and the high cost of transportation services, the most economical would be to have one’s own fleet and hire extra trucks in peak periods.

It is important to note that the transportation of raw milk (usually up to 30,000 liters per truck) in tanks is more efficient than transporting the packaged product, which is bulkier per MT. That is why processors are usually located close to the main consumer markets. However, in Uganda we see that most processors are located in the “dairy belt” which may have to do with the importance of local presence in the competitive process of sourcing the raw milk, with the quality of the feeder roads or with a lack of cold storage which causes milk to be already of poor quality when it arrives at the milk collection centres.

A very specific “pre-processing” method is practiced by Brookside Uganda (former Sameer): thermization. Thermization is a generic description of a range of subpasteurization heat treatments (57 to 68°C × 10 to 20 s) that markedly reduce the number of spoilage bacteria in milk with minimal heat damage.36 Brookside Uganda is mainly sourcing from the Eastern part

36 Hickey, D.K.; Kilcawley, K.N.; Beresford, T.P.; Wilkinson, M.G. (2007). "Lipolysis in Cheddar Cheese Made from Raw, Thermized, and Pasteurized Milks". Journal of Dairy Science. 90 (1): 47–56. [Wikipedia]

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of Uganda and exports the “thermized” milk by refrigerated milk trucks to its processing facilities in Kenya where the milk is processed further for the Kenyan market. Thermization is in this case used to prevent the milk from getting spoilt during transportation.

4.6 Milk processing

4.6.1 Overview of milk processing Most processed milk is processed in larger processing plants. Some medium-size farmers are pasteurizing their own milk and sell directly to end customers. Typical products besides milk are yoghurt and sour milk. Small-scale production of butter and cheese is limited.

Brookside milk processing plant in Ruiru, Kenya (Photo credit – Nation Media Group)

The milk processing landscape in the LVB region is very dynamic. On the one hand, many new processors are being established, on the other hand the processing landscape is becoming more and more concentrated, with a relatively small number of processors processing most of the milk. In Kenya, 4 processing companies are believed to produce 85% of processed milk and in other LVB countries the situation seems similar. Brookside Dairy from Kenya has taken over Samir in Uganda and several smaller dairy processors in Kenya. An increasing monopsony power of the processors will eventually lead to a weaker bargaining position of dairy farmers.

The only way for dairy farmers to protect themselves against the increasing power of the milk processors is to reinforce cooperatives (or less formalized farmer groups) and/or to market their milk (products) directly. The flip side of the increasing dominance of a small number of dairy processors is that many smaller dairy processors are facing difficult times. Generally speaking most dairy processors are producing on a very low capacity; this is partly caused by optimism about the demand for dairy products (leading to investments in increased capacity) and by the cumbersome process to increase the sourcing of milk. Even when farmers are starting to produce more milk, they often try to market their own milk, in order to optimize their revenues. This has led to processing capacity growing faster than milk supplies to milk processing companies.

Besides the milk cooling at milk collection centres, the milk processing plants are the most energy intensive part of the dairy value chain. Processing companies produce predominantly

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fresh (pasteurized) milk, UHT milk (which can be kept without refrigeration with a long shelf life), yoghurt, sour milk and flavoured milk. Butter, ghee and cheese are not produced by most of the processing companies – these are not mass-market products. Some of the larger milk processors are producing milk powder. In Uganda, Amos Dairies is most probably the only dairy processor in the LVB region that is producing a range of specialized high-value products derived from milk: acid casein, why protein concentrate and whey permeate powder (WPP). All these specialized products are exported.

In the diagram below, a simplified overview is given of a typical dairy processing factory.

Figure 2: Schematic overview of a dairy processing factory

Milk receipt, filtration & clarification

Storage

Separation & standardization

Whole milk Cream

Pasteurization of skimmed milk

Homogenization Homogenization

Deodorizations

Storage Butter churning

Packaging & cold

storage

Packaging & freezing Distribution

• Whole milk • Cream • Butter milk • Butter

• Semi skilled milk • Skimmed milk

Source: Resource Efficient and Cleaner Production Guidance Manual for the Dairy Processing Industry (Jointly prepared by KNCPC, UCPC & CPCT, LVEMP II)

The processing of milk to produce dairy products is a significant contributor to the overall environmental load produced over the life cycle of milk production and consumption. Therefore, the application of Resource Efficiency and Cleaner Production in this phase of the life cycle is important. As in many food processing industries, the key environmental issues associated with dairy processing are the high consumption of water, the generation of high- strength effluent streams, the consumption of energy and the generation of by-products. For some sites, noise and odour may also be concerns.37

The processes taking place at a typical milk plant include: • Receipt and filtration/clarification of the raw milk; • Separation of all or part of the milk fat; • Pasteurization; • Homogenization (if required);

37 From: Resource Efficient and Cleaner Production Guidance Manual for the Dairy Processing Industry, Jointly prepared by KNCPC, UCPC & CPCT, LVEMP II

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• Deodorization (if required); • Further product-specific processing; • Packaging and storage, including cold storage for perishable products.

The butter-making process, whether by batch or continuous methods, consists of the following steps: • Preparation of the cream; • Destabilization and breakdown of the fat and water emulsion; • Aggregation and concentration of the fat particles; • Formation of a stable emulsion; • Packaging and storage; • Distribution

4.6.2 Environmental Impact of Milk Processing As for many other food processing operations, the main environmental impacts associated with all dairy processing activities are the high consumption of water, the discharge of effluent with high organic loads, the high use of electricity and the production of steam. Noise, odour and solid wastes may also be concerns for some plants. Below we list the main environmental impacts (source: Resource Efficient and Cleaner Production Guidance Manual for the Dairy Processing Industry):

Water Consumption Dairy processing characteristically requires large quantities of fresh water. Water is used primarily for cleaning process equipment and work areas to maintain hygiene standards. There are numerous possibilities to capture and re-use water within the processing plants, e.g. water from the cooling towers, as UNCPC has demonstrated at Jesa Farm Dairy.

Effluent Discharge An important environmental problem caused by dairy processing is the discharge of large quantities of effluent.

Dairy processing effluents generally exhibit the following properties: • High organic load due to the presence of milk components; • Fluctuations in PH due to the presence of caustic and acidic cleaning agents and other chemicals; • High levels of nitrogen and phosphorus; • Fluctuations in temperature.

If whey from the cheese-making process is not used as a by-product and discharged along with other wastewaters, the organic load of the resulting effluent is further increased, exacerbating the environmental problems that can result. In principle, by-products from cheese are very suitable for the production of biogas, especially when combined with other

For plants located near urban areas, effluent is often discharged to municipal sewage treatment systems. For some municipalities, the effluent from local dairy processing plants can represent a significant load on sewage treatment plants. In extreme cases, the organic load of waste milk solids entering a sewage system may well exceed that of the locality’s

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domestic waste, overloading the system. In rural areas, dairy processing effluent may also be irrigated to land. If not managed correctly, dissolved salts contained in the effluent can adversely affect soil structure and cause salinity. Contaminants in the effluent can also leach into underlying groundwater and affect its quality. In some locations, effluent may be discharged directly into water bodies. However, this is generally discouraged as it can have a very negative impact on water quality due to the high levels of organic matter and resultant depletion of oxygen levels.

Energy Consumption Electricity is used for the operation of machinery, refrigeration, ventilation, lighting and the production of compressed air. Like water consumption, the use of energy for cooling and refrigeration is important for ensuring the quality of dairy products and storage temperatures are often specified by regulation.

Thermal energy, in the form of steam, is used for heating and cleaning. The generation of steam is one of the main contributors of the carbon footprint of dairy processing. In most dairy processing factories HFO (Heavy Fuel Oil) is used to fire the process boilers.

Fossil fuel resources are also used in transportation of dairy products while in other instances fossil fuel may be used in generating thermal energy. The use of fossil fuel resources leads to the generation of emissions including greenhouse gas, which have been linked to global warming.

Solid Waste Dairy products such as milk, cream and yogurt are typically packed in plastic-lined paperboard cartons, plastic bottles and cups, plastic bags or reusable glass bottles. Other products, such as butter and cheese, are wrapped in foil, plastic film or small plastic containers. Milk powders are commonly packaged in multi-layer Kraft paper sacs or tinned steel cans, and some other products, such as condensed milks, are commonly packed in cans. Breakages and packaging mistakes cannot be totally avoided. Improperly packaged dairy product can often be returned for reprocessing; however, the packaging material is generally discarded, hence leading to generation of solid waste.

Emissions to Air Emissions to air from dairy processing plants are caused by the high levels of energy consumption necessary for production. Steam, which is used for heat treatment processes (pasteurization, sterilization, drying etc.), is generally produced in on-site boilers, and electricity used for cooling and equipment operation is purchased from the grid.

Air pollutants, including oxides of nitrogen and Sulphur, and suspended particulate matter, are formed from the combustion of fossil fuels.

In addition, discharges of milk powder from the exhausts of spray drying equipment can be deposited on surrounding surfaces. When wet these deposits become acidic and can, in extreme cases, cause corrosion.

Refrigerants

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For operations that use refrigeration systems based on chlorofluorocarbons (CFCs), the fugitive loss of these gases to the atmosphere is of environmental concern, since CFCs are recognized to cause ozone depletion in the atmosphere. For such operations, the replacement of CFC-based systems with non- or reduced-CFC systems is thus an important issue.

Noise Some processes, such as the production of dried casein, require the use of hammer mills to grind the product. The constant noise generated by this equipment has been known to be a nuisance in surrounding residential areas. The use of steam injection for heat treatment of milk and for the creation of reduced pressure in evaporation processes also causes high noise levels. A substantial traffic load in the immediate vicinity of a dairy plant is generally unavoidable due to the regular delivery of milk (which may be on a 24-hour basis), deliveries of packaging and the regular shipment of products. Noise problems, therefore, should be taken into consideration when determining plant location.

Hazardous Wastes Hazardous wastes consist of oily sludge from gearboxes of moving machines, laboratory waste, cooling agents, oily paper filters, batteries, paint cans, etc. These need to be addressed using Best Available Cleaner Production Practices.

Health risks As a result of the oftentimes insufficiently hygienic production of milk, the uncontrolled administration of animal medicines, the high prevalence of aflatoxins in animal feed and the weak cold chain, milk in the LVB countries has very serious quality issues. Bacterial counts in raw milk samples contain ≥100000 CFU/ml of total bacteria count and >50000 CFU/ ml coliform bacteria. When compared to Southern African countries like Zambia these counts are a factor 10 higher. Mycotoxins are mostly aflatoxins that are caused by poor handling and drying of fodder (especially maize). The combination of high bacteria counts and high levels of mycotoxins result in health hazards in most of both unprocessed as well as processed milk that is consumed in the LVB countries. The presence of harmful bacteria and mycotoxines is an urgent public health issue that can be categorized under cleaner production.

4.7 Marketing and distribution

Milk consumption patterns Consumption in Kenya is one of the highest in Sub-Sahara Africa and stands at 115 litres per person. However, according to statistics, Burundi only has a consumption per capita of 6 litres.

The LVB countries dairy market broadly has three products; a) Raw/unprocessed milk b) Processed/pasteurized milk – including UHT milk and fermented milk (mala/lala) c) Value added dairy products – e.g.; yoghurt, flavoured milk, skimmed milk, milk shake, ice-cream, butter, cheese and ghee

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Azam Dairy products, Tanzania (Photo credit – The Citizen, Nation Media Group)

Most of the consumption is in raw or unprocessed milk, which is sold in informal markets in the rural and peri-urban areas. Milk bars are also becoming a common route to market, either as stand-alone retail points or milk dispensing units being introduced inside supermarkets. Processed/pasteurized milk is what is accounted for in terms of data for formal milk sales. In formal dairy markets, milk is sold in paper-packs or plastic-bottles with common unit packs being 500 ml and 1 litre. Other sizes include paper-packs of 250ml, as well as plastic bottles of 2 litres and 3 litres. The most popular pack-size is 500 ml and this is sold in small shops and supermarkets. Value added dairy products are also gaining popularity with consumers in the LVB region, but these are mostly sold in the urban areas.

Direct sales: This is the route to market that commands the biggest share of milk distribution in the LVB region. The main source here is from small scale farmers who sell raw milk directly to consumers – either in home deliveries, or farm gate sales. This route is preferred by most small farmers and consumers as it has little, if any, regulation and thus has the capacity to sell milk at low prices profitably. The key driver is that the prices that the farmer obtains are higher in comparison to what milk processors pay and especially for the lower income bracket consumers, the price difference between raw milk and processed milk is significant. Direct sales also do not have minimum-quantity nor rigid contracting restrictions for delivery.

Small mobile milk sellers: This is another route to market for raw/unprocessed milk and involves informal traders buying milk from farmers, for delivery or resale to markets and homesteads. The mobile milk sellers normally have definite customers to whom they deliver milk to on a daily basis and at an agreed time of day. The trader usually does the deliveries using a bicycle, or a motor cycle. Preference for this mode is mainly on price and flexibility of delivery point and delivery time (see under direct sales). The small mobile sellers are also a key point of sale for value added dairy products such as ice-creams – where they use refrigerated mobile units.

Hotels, restaurants and institutions: These form a significant market for both raw, as well as for processed milk. In the rural and peri-urban areas, raw milk is bought by hotels, restaurants and institutions mainly for making white tea or -coffee. These establishments mostly purchase the raw milk directly from farmers, or from small mobile milk sellers. The big hotels and restaurants, as well as institutions in the urban areas normally buy renowned brands of

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processed milk. Such is purchased from milk distributors and wholesalers, or from supermarkets, in the case of fewer quantities.

A key concern for the established urban hotels, restaurants and institutions is food-safety for their consumers, thus prefer to use processed milk from renowned dairy companies. Besides selling white tea and -coffee, hotels and restaurants in the LVB countries are also a key point of sale for value added milk products such as; milk shake, yoghurt and ice-cream, as well as butter and cheese.

Other institutions in this category of retailers include; hospitals and big corporate organizations offering meals to their staff.

Cappucino serving at a Java restaurant in Nairobi, Kenya (Photo credit – QuartzAfrica)

School milk: the introduction of school milk as part of a broader school feeding process is also leading to increasing demand for energy, as schools now cook porridge (milk plus maize) and/or school lunch. The usual source of energy is firewood. Typical firewood needs for schools providing school feeding are between 1 and 3 lorries per term (or 3 - 15 tonnes per year). The support TIDE provides to the introduction of large energy-saving cooking stoves has reached 30 schools so far (with an estimated reduction of 300 tonnes of firewood per year). The aim will be to reach an additional 100 schools in 2019. Water filters reduce also need for boiling.

Supermarkets: These are the predominant point of sale for domestic consumers of milk and other dairy products in the advanced countries in the LVB. Supermarkets sell processed milk, with a few of the retail brands now also selling raw milk in milk dispensing/automated teller machines (ATMs). Established supermarkets in the region have refrigeration units, where they stock chilled milk and milk products for customers to pick from. Convenient stores normally located at petrol stations in the more advanced towns in the LVB region, such as Nairobi, Kigali, Kampala, Dar salaam, Moshi, Arusha, Mombasa, Nakuru and Kisumu, are also considered ‘supermarkets’ and are a key point of sale for milk consumers. The supermarkets are also the key point of sale for value added dairy products such as; yoghurt, flavoured milk, milk shake, ice-cream, butter, cheese and ghee. Customers for plain milk here are households and use it for making tea or other breakfast/leisure time hot beverages.

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Supermarket retailers consider dairy a key product line and market a range of dairy products manufactured by local and regional dairy processors: pasteurized milk, UHT milk, powdered milk, yogurt, and cheese. The importance of grocery retailers and supermarkets will gradually gain importance. As for dairy processors, their products are relatively expensive in relation to the average consumer purchasing power and are mostly bought by the middle class and upper class that constitute the client base of the supermarkets. The global trend is that the “power” in food value chains is gradually shifting towards supermarkets and we can expect the same to happen in the LVB countries. Supermarkets will also increase their influence on the quality of the products supplied to them: we can expect their quality criteria to become much stricter in the coming years, especially now that foreign supermarket chains are gaining a stronger presence in the region.

Small shops: in the lower income countries in the LVB, as well as outside the main urban centres in the LVB, almost all processed milk consumers purchase milk from small shops. Small shops in the urban centres also stock and sell processed milk, although purchase trends now indicate preference by consumers for supermarkets and convenient stores – as the retail price is normally the same for a given locality. The main milk products sold in small shops are the small packs (500 ml and 250 ml) of processed milk and maziwa mala / lala (‘fermented milk’). In occasional cases, these traders also stock yoghurt and butter, depending on location. Small shops in the rural areas and around informal settlements in towns also stock raw milk and these are usually sold in polythene paper bags, or in returnable (recycle) bottles.

A small retail shop in Uganda (Photo credit - skyscrapercity.com)

Milk bars / Milk ATM’s: These are becoming a popular point of sale for raw milk, but with a bleak future – noting heightened concern for milk safety and inclination to milk value addition across the various countries in the LVB region. The milk bars and milk automated teller machines (ATMs) are more common in the peri-urban and urban areas and normally operate either as independent/stand-alone units, or as units within other establishments such as supermarkets and convenient stores. Customers at these points of sale are mainly households and consumers on the move.

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A Customer buying from a milk vendor machine (ATM) in Kenya (Photo credit - Milkatmskenya.com)

4.8 Export With smallholder milk producers and traders dominating the industry, the vision of it becoming globally competitive will be difficult to attain without fostering the cooperative movement, good pasture management to overcome challenges in economies of scale in production and low productivity, and mobilizing sufficient resources to invest in modernizing and expanding the dairy enterprises. However, especially Uganda has managed to export an increasing volume of dairy products over the past years.

The main exports of Uganda are milk and cream (ISIC38 codes 0401 and 040239). Total exports of these two product categories was almost 70 million USD in 2018. Other exports (e.g. ghee and butter) are much lower in financial terms. As a percentage of total EAC exports of dairy products, Uganda is exporting well over 95% of the total. That means that the other LVB countries are virtually not exporting dairy products (see Annex 2 for more details with respect to trade within the EAC and with other countries).

Due to increased demand in Kenya, relatively low production costs in Uganda, and the takeover of Samir Dairy by Kenya’s Brookside Dairy, milk imports in Kenya have increased significantly40 over the past years, with Uganda as its main supplier (i.e. Brookside Uganda supplying Brookside Kenya). Dairy imports from outside the EAC are very limited as they are limited to specialized dairy products; the largest categories such as milk and yoghurt cannot be imported due to EAC import restrictions. The importation of bulk products such as milk powder are only allowing in times of shortages. Within the EAC trade in dairy products is liberalized. If the EAC would allow for the importation of milk powder, especially most of the Kenyan milk producers would not survive, given their high cost price. Although it is understandable that the EAC wants to protect its farmers, the other side of the coin is that

38 The International Standard Industrial Classification of All Economic Activities (ISIC) is the international reference classification of productive activities. Its main purpose is to provide a set of activity categories that can be utilized for the collection and reporting of statistics according to such activities. 39 0401: Milk and cream, not concentrated nor containing added sugar or other sweetening matter 0402: Milk and cream, concentrated or containing added sugar or other sweetening matter 40 https://www.nation.co.ke/news/Kenya-buy-200m-litres-milk-from-EAC/1056-5079698-bw8lifz/index.html

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consumers in the EAC are paying a high price for milk and milk products that is often of sub- standard quality in international comparison.

With domestic demand likely to surge in the coming decades, the export of dairy products will remain low; however intra-EAC trade is likely to increase – especially Kenya importing more milk and milk products from Uganda.

In Annex 2 export statistics are presented in more detail.

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5. Potential RECP interventions in the production of milk

This chapter provides options for piloting the greening of milk production aiming for a “win- win”, where investments lead to an improvement of the financial results. This study proposes pilot options that can be implemented in the coming years, however does not consider structural measures that require an extensive policy change or the development of new policies. Projects that require an extensive and complex stakeholder management are also not considered feasible to be implemented in a short time-frame. The suitability of a ‘pilot’ has been based on the following criteria: (i) proven technology; (ii) clear positive business case; (iii) high impact in terms of RECP; and (iv) high scalability. Within the framework of EPSGG, we will select pilot options that can be implemented by the NCPC’s in the course of 2020 in a relatively short period and with relatively small investments.

Within the framework of EPSGG, increasing the use of locally produce feed and the sourcing of low-emission feeds such as by-products from other food processing industries will reduce the carbon footprint of the milk production. When the locally produced feed is leading to soil improvements, the carbon sequestration that is the result of that will further improve the carbon footprint. Another interesting opportunity in the Lake Victoria Basin would be the use of water hyacinth and other lakeweeds that are invasive species and a threat to the water quality and economic activities on the lake.

Pilot option 1: Introduction of new grass varieties and improved grassland management

Four grass species, Cenchrus ciliaris, Chloris roxburghiana, Eragrostis superba and Enteropogon macrostachyus were identified by KALRO as grass varieties for forage production in semi-arid regions and are been promoted for hay production and for the rehabilitation of degraded rangelands. As in many dairy producing areas in the LVB there are prolonged periods of drought, the planting of semi-arid grass varieties will be increasing the availability of fodder during the dry spells. Grass seed can be bought, but can also be produced by farmers. Besides growing grass for their own use, farmers can also decide to produce hay for the market. Especially during dry periods, the price of hay is very high – in Kenya up to 4 USD per bale of hay of 15 kg. Below the business case for grass seed production and hay production is further elaborated upon:

1. Grass seed production a. Production is 50 – 100 kg per acre b. Price of grass seeds: USD 5 – USD 10 per kg of seeds c. Typically seeding a field would (besides clearing, ploughing, harrowing, fencing) require 4 kg of grass seed per acre d. Labour costs are estimated at 1 USD per kg for harvesting and about 50 USD for weeding during the production cycle. e. Once planted, the grass can produce seeds for up to 5 years, after which replanting is necessary

At 50 kg seed harvest per acre, the total seed revenues are at a minimum 350 USD per acre.

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2. Hay production a. 4kg seed per acre b. Harvest: between 5 and 22 MT per acre, mainly depending on climate and management c. Total revenues are 1.50 – 3 USD per bail of 15kg. At 10MT per acre at 3 USD, this is 2000 USD total revenues. d. Cost of harvesting and bailing is 100 KSh per bail of 15 Kg, so approximately 67,000 KSh for 10MT harvested hay.

The most ideal entities to coordinate such a pilot is a farmer group, a cooperative of a milk processing company. As for the pilot, it is necessary to show farmers in practice how grass seed production and hay production for semi-arid grasses is done. In the Mbarara region (the Ugandan “dairy hub”) there is a need for semi-arid grasses, now that periods of drought are more prevalent. The pilot size is a minimum of 2 acres for grass seed production and a minimum of 10 acres for hay production. Ideally this pilot would be combined with a pilot in rotational grazing, whereby the pastures are seeded with the aforementioned semi-arid grass varieties.

In Kenya a newly established cooperative (Kangema), has bought a 400-acre piece of land in Laikipia on which they plan to grow hay to be distributed to its members to complement the dairy farming.41 This type of joint effort would allow groups of farmers to attract professional staff and equipment to produce hay at a low cost-price, directly benefitting the farmers that are members of the cooperative.

There is a growing interest in bana grass, a hybrid variety that is both interesting as a source of animal feed as well as it being a source of non-wood biomass. Bana grass is a very robust and drought resistant improved grass that has vast potential to improve animal production in the tropics. Bana grass is a hybrid derived from the annual Babala (Pennisetum americanum) and the perennial Napier grass (Pennisetum purpureum) and was developed in South Africa as food for livestock. The name Bana is derived from the acronym ba in Babala and na from Napier. The grass is widely used in South Africa and Zimbabwe as livestock feed42. Bana grass can also be used for biomasss (harvesting after every 3 months with a maximum total production of 400MT per hectare), but when harvested after every 8 weeks, bana grass is also a good animal fodder, especially for cattle. Because bana grass has a highly efficient mechanism to minimize photorespiration it can grow on marginal land that is not suitable for food production. With its roots going as deep as 12 meters, bana grass is able to bring soil nutrients back to the crops and grasses that had been leached into the deeper soil layers. As a perennial crop, bana grass only needs to be planted once every 25-30 years. Bana grass can of course also be planted around pastures and crops.

41 https://www.businessdailyafrica.com/news/counties/Sh300m-Kangema-milk-plant-set-to-start- operations/4003142-5306584- 7yrtygz/index.html?utm_source=traqli&utm_medium=email&utm_campaign=bdafrica_newsletter&tqid=l_ewY yY1AEsBcfVWU8J82tx131S_ExX0rH34oSuw_w 42 Bana Grass Growing in Sub Saharan Africa, Zivanayi Matore, 2019

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Given the high potential of bana grass, and its relatively easy growing, we would advise to do a pilot at 10 different farmer groups (minimum half acre). Besides the limited cost of the bana grass cuttings, the main cost of the pilot is training and extension.

Assessment: Investment amount for pilot < 5,000 USD Payback period < 1 year Implementation period < 1 year Scalability High Potential partners Dairy processing companies, cooperative societies Suitability EPSGG pilot High

Pilot option 2: promoting composting at farm level Compost consists of organic matter, notably including manure, which has been decomposed through the process of composting. Increasing soil organic carbon via organic inputs is a key strategy for increasing long‐term soil carbon storage and improving the climate change mitigation and adaptation potential of agricultural systems43. When both compost and cover crops were added in the organic-certified system, soil carbon content increased 12.6 percent over the length of the 19-year study done by Tautges et al.44 Besides the beneficial effects on production of crops, processing of manure into compost also leads to a reduction in the emission of methane45. Substituting chemical fertilizers with natural fertilizers leads to a reduction in CO2.

Most livestock farmers (especially the smallholder farmers) are combining food crops with livestock. This means they have manure available to use for fertilization of their crops. In grazing systems, with cattle virtually out in the pasture the entire time, the cow manure serves to improve the soil of the pasture (especially when rotational grazing is practiced). The farmers that practice zero-grazing can produce compost from their manure to apply on their fields that are planted with food crops or to sell to third parties. There seems to be a lack of knowledge on the part of the farmers and their staff on how to produce compost and how to apply it. Besides that, farmers often cite that producing compost or drying the manure is In the LVB region, most farmers (90%) apply manure in its solid form (raw manure), while one third also applies the urine of cattle46. In Kenya, the government is discouraging the use of raw manure citing food safety considerations. Besides that, processing the raw manure into compost will give much higher productivity gains and more carbon sequestration in the soil when applied as compared to spreading out raw manure. Combining biogas production at farm level with the use of bio slurry for crops is a good alternative to compost production; the use of bio slurry will on average increase the crop yield by 20-25%47.

43 Tautges et al., Deep soil inventories reveal that impacts of cover crops and compost on soil carbon sequestration differ in surface and subsurface soils, Global Change Biology, 2019 44 Ibid. 45 The role of non-CO2 mitigation options within the dairy industry for pursuing climate change targets, K A Rolph, C E Forest and M D Ruark, Environmental Research Letters, IOP Publishing, 2019 46 Journal of Agriculture and Environment for International Development - 2014, “Utilisation of cattle manure and inorganic fertiliser for food production in central Uganda”, Muhereza, Pritchard and Murray 47 Warnars and Oppenoorth, Bioslurry: a supreme fertilizer, 2014

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Besides a lack of knowledge, probably the key factor responsible for not producing and applying compost is the cost of labour or the lack of available labour in combination with the (often) subsidized chemical fertilizers for farmers. The main cost of composting for a farmer is time, unless there is insufficient material and manure or other organic materials have to be purchased. As we have seen in the tea sector, the actual farm work is often done by casual labour or uneducated and low-cost employees that are not very motivated. It will require a long-term vision on the part of the farmer to invest in producing and applying compost: “But, to make and use compost properly farmers, either individually or working in groups, have to work hard”48. The short-term cost of additional labour is often too big a hurdle for the farm owner and composting is often not done, even though the costs are quite minimal for any mixed farming operation. In box 4 the advantages of compost application are summarized.

48 How to make and use compost, Sue Edwards and Hailu Araya, FAO, 2011

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Box 4: The advantages of the use of compost

The beneficial effects of compost application: 1. It provides plant nutrients that are released throughout the growing season. The plant nutrients are released when organic matter decomposes and is changed into humus. The plant nutrients dissolve in the water in the soil and are taken in by the roots of the crops.

2. It improves soil structure so that plant roots can easily reach down into the soil. In sandy soil the humus makes the sand particles stick together. This reduces the size of the spaces (pores) so that water stays longer in the soil. In clay soils, the humus surrounds the clay particles making more spaces (pores) in the soil so the root systems of plants can reach the water and nutrients that they need, and air can also move through the soil.

3. It improves the moisture-holding capacity of soil. The humus is a dark brown or black soft spongy or jelly- like substance that holds water and plant nutrients. One kilogram of humus can hold up to six litres of water. In dry times, soil with good humus in it can hold water longer than soil with little humus. When it rains, water easily gets into the soil instead of running off over the surface. Water gets into the subsoil and down to the water table, runoff and thus flooding is reduced, and springs do not dry up in the dry season.

4. It helps to control weeds, pests and diseases. When weeds are used to make compost, the high temperature of the compost-making process kills many, but not all, of the weed seeds. Fertile soil produces strong plants able to resist pests and diseases. When crop residues are used to make compost, many pests and diseases cannot survive to infect the next season’s crops.

5. It helps the soil resist erosion by wind and water. This is because: Water can enter the soil better and this can stop showers building up into a flood. This also reduces splash and sheet erosion. Soil held together with humus cannot be blown away so easily by wind.

6. Compost helps farmers improve the productivity of their land and their income. It is made without having to pay cash or borrow money, i.e. farmers do not have to take credit and get into debt like they do for taking chemical fertilizer.

(Source: HOW TO MAKE AND USE COMPOST, Sue Edwards and Hailu Araya, FAO, 2011)

The basic formula for compost production consists ideally of the following basic ingredients: • Plant material, both dry and green; organic material that can be collected on or around the farm (e.g. leaves, stems, twigs, etc.); • Animal manure and urine, organic matter which is derived from animal faeces. Manure contains nutrients which can contribute to soil amendment. Manure is best used in combination with other organic materials such as compost or green manure. Manure will increase soil carbon levels, and in sandy soils it will benefit with moisture retainment;

To these basic ingredients can be added: • Biochar, this is a very carbon-rich material which contributes to carbon sequestration in soils to improve its fertility; it also increases the water holding capacity of the soil. Biochar is produced through pyrolysis of organic material. In practice, small granules of charcoal can be used. Ideally the biochar is first mixed with (chicken) manure, so as to saturate the granules in order to avoid absorption of valuable minerals by the biochar.

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• Ash, wood ash can be a valuable source of lime, potassium, and other trace elements; it can mostly be collected for free from companies using wood fired process boilers.

Depending on the soil characteristics, other ingredients can be added, such as wood chips, ground clay bricks. Organic household waste can also be put into the compost mix. At a larger scale, organic household waste can be processed by waste companies into compost. Instead of compost, farmers could also opt for the use of “compost tea” which is made by letting water absorb the nutrients from compost material and which can be applied by spraying. This requires plastic tanks and this is often cited as the reason that this method is not often used; farmers cannot or do not want to invest in such tanks.

For the pilot, ideally a number of farmers is selected that is doing mixed farming. As the cost of producing compost is low, those with access to the “key ingredients” only have to dedicate their time (or their labour).

Assessment: Investment amount for pilot < 1,000 USD Payback period < 1 year Implementation period < 1 year Scalability High Potential partners Dairy processors, cooperative societies Suitability EPSGG pilot High

Pilot option 3: Farmer-Managed Natural Regeneration (FMNR)

Intensification of dairy operations have led to bush-clearing and de-wilding. Erratic rainfall patterns have led to increasingly long periods of drought. Incorporating tree-planting into grazing improvements, will lead to soil improvement and carbon sequestration, a higher soil humidity which prolongs the availability of grass and will also provide shade (to deal with increasing temperatures) and live fences (reducing investment and maintenance of costly fences). The planted trees can also provide the farmers with an additional income (e.g. fodder, firewood, fruit, timber).

In Baringo (Kenya), there has been a successful pilot (World Vision Australia): Farmer- Managed Natural Regeneration (FMNR) in silvo-pastoral systems where trees are planted in and around grazing areas. The project was designed by FarmTree Services49. FMNR is depending on the willingness of farmers to make the effort and therefore a good extension service is needed. Farmers first have to be convinced that less grass surface can still mean more fodder.

Jesa Farm Dairy in Uganda has already started to a small tree nursery that can be scaled up and they can increase the tree distribution in order to increase the water availability in the dairy producing areas. When the trees are distributed for free or at a minimum cost, the main

49 https://fmnrhub.com.au/farmtreetool-explains-less-grass-means-cows-farms-kenya/#.XZYC4ZMzZp8

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costs boil down to the management of the nursery and the distribution, and on the training cost: • Planting of trees at low density will cost approximately USD 20 – USD 100 per acre (depending on the type of tree and the seller of the tree saplings). • Further costs are labour costs for watering, pruning, etc. Particularly pruning gives fuel wood and fodder, so it pays back its costs. If farm staff (or farmers) are trained they the additional cost can be zero. • Revenues depend on the types of trees planted, climate, and prices. In semi-arid systems (without irrigation, fodder / fuel trees), typical average incremental returns per year are USD 7 – USD 23 per acre per year. If you add fruit trees (with some irrigation), or timber trees, incremental returns can go up to USD 500 – USD 1300 per acre per year. • In agro-pastoral smallholder (non-mechanised) systems, trees protect soil humidity and thus extend the grass production into the dry periods. Shorter fodder shortage periods increase the chance cows survive the dry period; and allow for changing from local low-performance cows to cross-breeds that produce more. • In mechanised systems, the no-tree scenario allows for producing hay in the rainy season, and one can feed cows with collected hay during dry periods. In that case, agroforestry trees are probably not economic • As part of the tree planting, fodder trees (e.g. leucaena, calliandra) can be planted. Acacia can also be planted or protected, whose seeds (pods) are utilized as goats feed.

Assessment: Investment amount for pilot < 5,000 USD Payback period < 5 years Implementation period < 1 year Scalability High Potential partners Dairy processing companies, NGO’s Suitability EPSGG pilot High

Pilot option 4: Farm ponds construction

Farm ponds are usually constructed by digging a hole and putting in a plastic lining. The cost of a farm pond is fairly limited, between USD 4 and USD 5 per cubic meter. With two rainy seasons per year and water shortages of 60 days between the two rainy seasons, the required capacity is approximately 60 * 65 liters = 4 cubic metres per cattle. A farmer with 10 cows would require a farm pond of 40 cubic metres which would cost between 150 and 200 USD. When compared to water trucking, as is now the case in the region where JESA’s factory is, the payback period will be very short.

For the pilot, a dairy processor can select a few of their dairy farmers to construct a farm pond that can serve as a demonstration; ideally in combination with a FMNR pilot.

Assessment: Investment amount for pilot < 1,000 USD Payback period > 5 years Implementation period > 1 year

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Scalability High Potential partners Dairy processing companies, cooperatives, NGO’s Suitability EPSGG pilot Low

Pilot option 5: Affordable sexed semen

Improving genetics in combination with improved livestock husbandry practices is an important tool to arrive at higher productivity. By introducing improved genetics, the existing herd will be replaced by cattle that has a higher milk producing potential. Usually the farmer decides on a breeding strategy, that is executed by means of AI (artificial insemination) services. However, besides the AI success rate often not being very high due to poor animal husbandry and poor AI practices, half of the calves that are born are steers. For any farmer to increase the productive dairy herd, it is very attractive to increase the chance of a heifer (female calf) to be born out of the cows’ pregnancy. Sexed semen is available in the market, but is relatively expensive (over 60 USD) as compared to a regular insemination.

The company Emlab Genetics has developed a more affordable product (Heiferplus) that will both increase the calving rate (10% increase in successful insemination) and a 20% increase in heifer numbers. Tests in Kenya have shown an even higher increase to approximately 80% heifers – instead of the chance on a heifer being 50%, it is now 70-80% when Heiferplus is used50. With the product costing approximately 15USD (excluding semen and AI services), the much higher value of the heifer calf as compared to the steer calf makes this a good investment for the farmer and much more affordable than sexed semen or embryo transfer.

It is in the interest of both the farmer and the processor that milk productivity at farm level is increased. The introduction of Heiferplus would speed up the herd improvement. We can calculate the effect for a farmer with 10 dairy cows. 10 pregnancies would lead to 7 heifers using Heiferplus. When a heifer is between 15 and 18 months of age, it can be inseminated. The pregnancy period is on average 283 days. Inseminating the 7 heifers after 15 months will – using Heiferplus – result in 5 heifer calves in year 3. The initial 10 cows will have another 7 heifers in year 2 and year 3. This means that the total herd will be at 36, excluding 7 in calf heifers. Without Heiferplus, the herd would have grown to 27 or 28. So with a relatively small investment, the herd size has increased by over 30% as compared to using normal semen. As improved genetics are used, the milk production of the additional cattle will lead to an increase in milk production. With a dairy production worth 3,000 – 4,000 USD per cow, the 9 extra cows would increase the farmers’ revenues significantly.

Assessment: Investment amount for pilot < 2,000 USD Payback period < 1 year Implementation period > 1 year Scalability High Potential partners Cooperatives, individual farmers, dairy processors Suitability EPSGG pilot High

50 https://www.emlabgenetics.com/cattle

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6. Potential RECP interventions in dairy logistics

This study proposes pilot options that can be implemented in the coming years, however does not consider structural measures that require an extensive policy change or the development of new policies. Projects that require an extensive and complex stakeholder management are also not considered feasible to be implemented in a short time-frame. The suitability of a ‘pilot’ has been based on the following criteria: (i) proven technology; (ii) clear positive business case; (iii) high impact in terms of RECP; and (iv) high scalability.

Pilot option 6: Provision of small-scale milk cooling equipment for remote areas

The pilot intends to demonstrate that farmers in remote, far flung areas can keep and chill their milk harvest so that it can be delivered to the processor in a condition that is suitable for consumption, especially the evening milk. While this works well for morning harvest, the evening harvest is either wasted or consumed forcibly. Given that 80% of all milk suppliers or more are small-scale milk producers that are struggling to preserve their evening milk, it goes without saying that there is a huge market for an affordable solution that can solve this issue. The milk cooling equipment should be able to cool milk to 8oC within 3 hours and down to 4oC within 5 hours. A simple bacterial test like boiling the milk can also be done in the morning to assess bacterial load.

There is a limited number of suppliers of small-scale milk cooling equipment with a proven track record. The most tested solution is from Promethean, a US owned company with its main production and marketing in India. The main principle of the technology is that with only 4 to 5 hours of grid power per day, the milk cooler is able to keep the milk at 4oC, thus reducing the multiplication of bacteria that spoil the milk overnight. Promethean has solved the problem of intermittent grid power by designing a system with an oversized cooling element. Promethean’s Rapid Milk Chiller is a modular milk chilling system that instantly cools milk from 35o to 4o C without a diesel generator. The milk cooling capacity is 1000 liters; the milk cans have to be emptied into the equipment. The French company Serap has developed a milk can cooler for six to eight milk cans (i.e. approximately 300 liters). This equipment has the disadvantage that it can only cool to a temperature of 8oC, which is on the high side given the fact that the international standard is 4oC.

For this pilot, we therefore suggest Promethean’s Rapid Milk Chiller. The implementation of this solution will enable farmers in remote locations to keep their evening milk, with the result of increasing the amounts of milk sold by affected farmers by enabling them to sell both morning and evening harvests. It is using a novel technology to create a new business model.

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Figure 3: A small-scale milk cooling solution

1 000 Litres/Day Bulk Milk Cooler

C hilling of Milk using the Thermal Storage System

The fact that the affected farmers will now deliver more milk to the processor will not only result in more milk money for farmers, but also to an increased supply of milk products of good quality, hence improving nutrition. As it is chilled at appropriate temperatures, the milk will be in good condition for human consumption and for use in value addition.

The business model proposed is where the farmers participate in the purchasing of the equipment over a period of three years. Small scale farmers are already organized in groups, supplying milk to the processors through cooperative Societies. The cooperative societies collect milk in the morning from designated points and deliver it to the processors chilling stations. The farmers are charged all services offered, including any inputs given to the farmers. All the costs are deducted by a check- off system by the cooperative at the end of the month when they are paid for their milk deliveries.

The farmers are also linked to banks where farmers can be given loans using milk deliveries as their collateral. Our design is to tap on this existing arrangement for equipment financing. An identified group of farmers would be organized into a unit to purchase one equipment, the

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number of farmers being between 20-50. This entity would form a cooperative society and have a company registered formally. It is this entity that would be encouraged to apply for a Bank loan to purchase one chiller and pay back in 36 months by, each member donating e.g. 2 litres of milk per day.

We suggest that the total cost of installing one cooler be as follows 1. Unit buying price including installation and training: 12,000 – 15,000 USD 2. A down payment by the farmer group / cooperative of 30% 3. The remaining 70% to be financed, either directly via a bank or via a credit line from the milk processor 4. The farmers to contribute e.g. 2 litres of milk per day toward servicing the loan for the equipment

At farm level, a farmer with a 10-liter evening milk production, will sell 8 more litres @ 0.30 USD to give an extra 2.40 USD per day. The farmer will not spend more time on transport to delivery centre, estimated at 0.80 USD on motorbike. The additional income per farmer per day is thus 3.40 USD per day. This is way above 0.60 USD the farmer would pay per day for the facility (2 litres of milk). Depending on the size of the farmer group (cooperative), each participating farmer will pay for the equipment daily for a limited period of 3 years, excluding his or her contribution to the down payment of 30%. Now that the evening milk is collected, the same group of farmers will be able to supply an additional 40% of milk from the same number of animals. The transport cost for raw milk in all locations will come down if the routing of the collector is planned accordingly, this benefit can also be passed on to the farmer.

Table 3: Financing of a small-scale milk cooler

A reduction in milk spoilage as a result of improved milk cooling, will reduce the emission intensity, as more milk is produced by the same amount of cattle. In theory the Promethean system could also operate on alternative power sources (e.g. solar), but given the cost of solar power this can only work when the solar system is financed by the supplier – otherwise the payback period would be much longer than 5 years.

The site for milk pooling and cooling can be converted to a resource center for livestock farmers. Apart from keeping the milk overnight it can be used for availing farm inputs at a negotiated price. The cooperative can use the site to build a small store around the plant to

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leverage on supplying farmers with other essential dairy farming input like technical advice, feeds, and mineral supplements.

Lastly, the milk cooling solution of Promethean is also interesting for larger farmers, for whom it would make sense to have their on-farm cooling. Promethean is also able to supply systems with a 500-litre cooling capacity.

Assessment: Investment amount for pilot > 10.000 USD Payback period < 3 years Implementation period < 1 year Scalability High Potential partners Milk processors, commercial banks, NGO’s Suitability EPSGG pilot High

Pilot option 7: Extending opening hours of the milk collection centre

In order to capture a larger amount of milk, the opening hours of the milk collection centre (MCC) could be adjusted. Most MCC’s are open between 7AM-10AM, with some also opening for a few hours in the early afternoon. As milking usually takes place early morning and early evening, the farmers cannot deliver their milk in the evening, thereby risking their evening milk to get spoilt. With milk processing companies being able to receive milk 24 hours per day, it would be worth-while to investigate the opening of MCC’s in the evening.

As there is power available at the MCC, there is a possibility for lighting and the amount of staff involved is limited. The extra costs would be offset by the extra revenues as more milk of a higher quality would be collected. Furthermore, the cooling will take place in two steps (as compared to delivering the morning and the evening milk together). However, the main obstacle could be that the additional transportation cost of the evening milk would be difficult to handle.

Especially in combination with a payment for quality system (where farmers are paid based on the quality of the milk they supply) this pilot option could be interesting.

Assessment: Investment amount for pilot < 2,000 USD Payback period < 1 year Implementation period < 1 year Scalability High Potential partners Cooperatives, Milk processing companies Suitability EPSGG pilot High

Pilot option 8: financing of aluminium cans As one of the main, if not the main, cause of bacteriological milk contamination is the use of plastic containers (re-used cooking oil containers) that cannot be properly cleaned due to the

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small opening. The solution to solve this issue is a fundamental shift towards aluminium milk cans. Milk cans are sold at very high prices in the LVB region (over 100 USD per milk can) and this is the reason why farmers often do not invest in them.

Some milk processing companies supply aluminium milk containers to farmers which are then paid off by means of deducting a small amount from the milk money. It would make sense to purchase a large amount of milk cans on the level of the cooperative or via the milk processing company. Especially when the regulations on food safety become stricter and the introduction of quality-based payments will take place, such a “milk can – programme” can be very effective in terms of improving the milk quality. The easiest way to shift to 100% milk can use would be for a cooperative to ban the use of plastic containers; they would be interested to do so when the price of milk would be increased.

When purchased in large quantities, it must be possible to source milk cans for less than 60 USD, when ordered in large quantities. A 40-foot container will hold approximately 900 milk containers. By asking farmers to pay 0.30 USD per day per milk can, this would mean that within 6 months a milk can is paid back (excluding interest). This would also be a good fit for a micro-finance institution or an NGO.

Assessment: Investment amount for pilot < 50,000 USD Payback period < 2 years Implementation period < 1 year Scalability High Potential partners Cooperatives, Milk processing companies, banks, MFI’s Suitability EPSGG pilot Medium

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7. Potential RECP interventions in milk processing

This study proposes pilot options that can be implemented in the coming years, however does not consider structural measures that require an extensive policy change or the development of new policies. Projects that require an extensive and complex stakeholder management are also not considered feasible to be implemented in a short time-frame. The suitability of a ‘pilot’ has been based on the following criteria: (i) proven technology; (ii) clear positive business case; (iii) high impact in terms of RECP; and (iv) high scalability.

In terms of RECP in milk processing, KNCPC, UCPC and CPCT have produced a manual for dairy processing companies within the context of LVEMP II: “Resource Efficient and Cleaner Production Guidance Manual for the Dairy Processing Industry”. All measures that are proposed in this manual are still relevant for dairy processors and many of these measures have been successfully implemented at various dairy processors in the LVB countries. In this report we have selected a small number of potential pilots that are in line with the manual. But other pilots (such as the recovery of water from cooling towers) are also still relevant.

Pilot option 9: Promoting Boiler Condensate Recovery Condensate recovery for use as boiler feed water is an energy efficiency measure that leads to lower operational boiler fuel costs. This is due to the fact that the condensate is at a higher temperature that requires minimal heating to convert it into steam again. All dairy processing factories should therefore be encouraged to invest in boiler condensate recovery infrastructure. The alternative is to use a solar water heating system to pre-heat the boiler feed water to appreciably higher temperatures before injecting it into the boiler for steam generation. This way again, fuel consumption is reduced.

Assessment: Investment amount for pilot < 100,000 USD Payback period < 5 years Implementation period < 1 year Scalability High Potential partners Dairy processing companies Suitability EPSGG pilot Medium

Pilot option 10: Solar power at the milk processing plants Although solar power has not been widely adopted by the dairy sector, the solar energy solutions are becoming more and more an “off the shelve” product with numerous suppliers offering these solutions in combination with a financial solution. Solar power can be used to generate electricity (e.g. solar photovoltaic) or as an alternative to steam production (“solar walls”). In this paragraph a number of pilot options using solar power are further described.

Table 4 gives a calculation of the payback period of a solar photovoltaic (PV) system without electricity storage. Depending on the operations of each plant, the payback period can differ considerably. However, with solar PV systems having a life span of 30 years or more, installing

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solar power can be qualified as a “no regret”-option in virtually all circumstances in Kenya, when the usage is below 1 MW/h.

Table 4: Solar PV payback calculation

There are several solar power suppliers that offer the solar PV solutions in combination with financing options. In terms of finance, the most used instrument is asset finance, whereby the supplier offers to finance the entire project with only the solar PV system as collateral. The energy savings are then used to pay back the loan. In Kenya, there is an important tax advantage, as companies are allowed to write off (depreciation) the entire investment in one year, instead of 4 to 5 years. With corporate tax at 30%, this means that 30% of the total investment is thus offset by tax deductions (provided the company is making adequate profits).

Besides the asset finance option, suppliers also offer Power Purchase Agreements (PPA), whereby the customer does not invest in the system, but pays the supplier an agreed electricity rate. This will lead to less savings for the customer, as the supplier has to offer a reasonable IRR to its investors. Also, PPA’s come with a “take or pay” condition: when the electricity is not used, the customer still has to pay for it. This is disadvantageous for companies that do not operate seven days per week. Unfortunately, there is no “net metering” possible yet in the LVB countries (whereby excess electricity can be channelled into the grid) and Feed-In Tariffs are low. In the chapter on the regulatory framework we will further expand on the regulatory framework: quite clearly this has been one of the main reasons for the low penetration of solar power and this is the reason that most companies choose to install a relatively small system that does not produce excess electricity (i.e. beyond their own usage).

Assessment: Investment amount for pilot < 10,000 USD Payback period < 11 years

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Implementation period < 1 year Scalability High Potential partners Dairy processing companies, cooperative dairy societies Suitability EPSGG pilot Medium

Pilot option 11: Solar walls (substituting boiler steam by solar heat) Solar walls are different solar power application that can be implemented in dairy processing factories. Solar walls are a technology used to passively heat a building. These walls combine exterior construction with interior devices to use solar energy to heat and ventilate indoor spaces. The solar walls can be installed on new buildings or can be retrofitted. The solar wall is constructed first by placing metal solar cladding on the exterior wall of a building; this cladding is perforated and built in front of an already present building wall. The system must be hooked up to the buildings HVAC (Heating Ventilation Air Conditioning) system, as ventilation fans are used to create negative pressure in the air channel between the walls. This negative pressure pulls the air warmed by the sun into the building. Cool air is expelled from inside the building into the air channel through a vent located at the bottom of the wall. Once this air is warmed it begins to rise and is then fed into the HVAC system through a vent located at the top of the wall. The warm air is supplied to and distributed in the building via the HVAC system intakes. The use of solar walls provides hot air that can partly replace the steam that is produced by the boiler(s). This leads to a decrease of the use of biomass and thus to a reduced cost price and improved resource efficiency.

Assessment: Investment amount for pilot < 500,000 USD Payback period < 10 years Implementation period > 1 year Scalability High Potential partners Dairy processing companies Suitability EPSGG pilot Low

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8. Proposed interventions in the marketing of dairy products

This study proposes pilot options that can be implemented in the coming years, however does not consider structural measures that require an extensive policy change or the development of new policies. Projects that require an extensive and complex stakeholder management are also not considered feasible to be implemented in a short time-frame. The suitability of a ‘pilot’ has been based on the following criteria: (i) proven technology; (ii) clear positive business case; (iii) high impact in terms of RECP; and (iv) high scalability.

Pilot option 12: Improved packaging Considerable work has been undertaken to determine the most suitable form of packaging in terms of overall environmental impacts. Although glass bottles can be cleaned and recycled (thereby creating minimal solid waste), cleaning them consumes water and energy. Glass recycling systems require large capital investments and involve high running costs since the bottles must be collected, then transported and cleaned. Glass bottles can also be inconvenient for consumers because they are heavier and more fragile than cartons.

Cartons, on the other hand, create solid waste that must be transported and disposed of. Solid waste can be disposed of in a landfill, incinerated, or composted. All of these disposal alternatives have environmental impacts, including the generation of leachate from landfills and air pollution from incineration.

Especially the milk pouches (plastic bags containing 500 ml. of milk) tend to have leakages before they can be consumed. The challenge for the dairy processing companies is to seal the pouches well without the sealing process to increase the temperature of the milk. Increasing the quality of the packaging and reducing milk spoilage caused by inadequate sealing would require an investment into improved packaging machines. This is a major investment that would not be suitable for a pilot in the context of EPSGG.

Changing the plastic packaging into bioplastics (bio degradable) would increase the cost price of the product significantly. Although this would by far be the most impactful intervention, it would only be possible when backed up by government policies.

Assessment: Investment amount for pilot > 300,000 USD Payback period > 5 years Implementation period > 2 years Scalability High Potential partners Dairy processing companies Suitability EPSGG pilot Low

Pilot option 13: Solar Milk Vending Machines (Milk ATM’s)

One alternative to packaged dairy products (notably milk) would be to promote the use of “self-service” milk vending machines (also called “milk-ATM’s”). Especially for the smaller

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dairy processors this could be an interesting option, as they have invested much less in product branding as compared to the larger milk processing companies.

The milk ATM is an existing milk marketing channel, whereby the consumer brings his or her own bottle or other storage form to the outlet and can pay for a certain quantity of milk. This saves a lot of plastic packaging material and subsequently a lot of environmental pollution (as packaging material often ends up in the public space or is not properly processed).

The milk is delivered chilled, in large pouches or in bulk. The vending machines store between 150 and 1,000 litres. The vending machines have a refrigeration unit that keeps the milk chilled at 4 degrees Celsius.

When we would power the vending machines with solar power, we would require 4 solar panels to chill the milk at 4 degrees. For a vending machine with a capacity of 500 litres, the total investment for the solar panels, batteries, inverter and casing material would be around 2,000 USD. At 0.19 USD per KWh, the electricity saved would be USD 1.36 when operated 24 hours. That would give a payback period of 4 years, excluding the cost of financing.

Excess power generated by the solar panels can be used to provide additional services, such as phone charging. Also, additional lighting could be done via the solar system. This would reduce the payback period. If we account for milk spoilage due to grid power interruptions, the payback period would also be shorter. However, when the high interest rates would push the payback period well over 5 years

Assessment: Investment amount for pilot < 10,000 USD Payback period > 5 years Implementation period < 1 year Scalability High Potential partners Dairy cooperatives with own processing facility Suitability EPSGG pilot Medium

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9. Policy recommendations

The dairy sector in the LVB depends on a high level of market protection by EAC regulations. Intra-EAC trade in dairy products is currently limited to Ugandan exports to Kenya. In the future we will see dairy production take place more and more in those regions where the cost price per litre of milk is the lowest. Milk production near the urban centres will diminish as a result of other activities that bring a higher return on investment. As the regions bordering Lake Victoria are often witnessing an increasing amount of rainfall, we may expect that the cost price of milk production in the Lake Victoria area will decrease in some areas (e.g. Western Kenya, Eastern Uganda). However, other areas such as the South-West of Uganda and Central Uganda are experiencing more droughts, which leads to constraints for dairy farmers.

Governments should change the current blanket recommendation that is targeted on maximizing milk production in all regions to more specific policies that target those regions with a comparative advantage in milk production and incentivize higher milk yields. Stricter regulation in terms of milk quality will rationalize the supply side, which is now highly fragmented. Instead of focusing on very small producers, the focus should be on more productive medium-size dairy farms with a good growth perspective and higher productivity.

From the side of the processors, rationalizing the supply side will entail that payment for quality systems are implemented, whereby the quality of the milk supplied determines the milk price. Processors can also consider to implement payment for quantity, whereby farmers will receive a higher price when they supply larger quantities. Currently most processors follow a “divide and rule” policy whereby farmers are kept in a relatively weak position. The processors need to shift towards policies that empower farmers to make a good living out of their dairy activities. Increasing the scale of the average farmer will lead to more professional farm management and a higher production per cow per year.

Governments should integrate climate change mitigation and climate change adaptation measures into their dairy sector policies. These include catchment protection, integrated water resources management and reforestation (including promoting silvo-pastoral practices). Increases in land under pasture should be discouraged, improved pasture management should be encouraged. As the knowledge level of farmers is on average still having shortcomings, an investment in extension services is highly recommended. The knowledge is available in the LVB countries, but does not reach the level of the farm workers and the farm owners are often not fully committed to their dairy activities and see it as a side activity.

Emission intensity can be reduced by supporting farmers to reach higher productivity. Potential productivity gains are still enormous, yet providing free inputs and services and many interventions by NGO’s and donor agencies still have not led to close the gap with global productivity standards. Given the high environmental impact of the dairy sector, governments and development partners should integrate RECP into their programmes much more prominently. Extension services should include the transfer of knowledge to farmers when it comes to climate change mitigation and climate change adaptation.

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Given the farmers’ often limited capacity to invest, new and innovative approaches are needed to improve access to finance and financial management tools, including insurance. Increasingly strict rules and regulation with respect to food safety, in combination with a gradually increasing power of formal retail (supermarkets) will prove to be an important driver for a more efficient and less fragmented dairy production. Larger dairy farms will be in the formal sector, have more access to finance and will be able to produce a higher quality milk as opposed to smallholder dairy farmers. For the smaller dairy farmers, it is crucial that cooperative societies receive full government support.

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10. Concluding remarks and next steps

The National Cleaner Production Centres in the five LVB countries have a huge experience and knowledge of introducing RECP measures and investments in a wide array of sectors. The interventions that are promoted by the NCPC’s are to a large extent focused on processing and logistics. These areas are also the parts of the dairy value chain where the most concrete environmental cost savings can be realized. However, in primary production there is certainly a lot of scope to increase productivity while at the same time reducing environmental costs. In terms of marketing and local value addition, the context is more complicated, especially due to vested interests and a weak policy framework.

As for the concluding remarks, these are made with the role of the NCPC’s in mind. They have the ability to introduce new methods, technologies and policies that can make the dairy value chain more sustainable.

1. Focus on highest environmental gains The NCPCs should refocus their activities in the dairy sectors from the processing plants to the primary production of milk and towards advocating a regulatory environment that includes the environmental aspects associated with the dairy sector. The NCPC’s can also play a role as a linking pin between government, development partners, farmer organisations and dairy processors and convince all stakeholders that action is needed to achieve a more sustainable model for the dairy sector in the LVB.

2. Centre of Excellence The NCPC’s should combine their knowledge by sharing their best practices and by benchmarking the operational and environmental performance of the companies that they have assisted. Every NCPC can easily claim to be a centre of excellence in terms of RECP measures in the dairy value chain when they can make use of the combined knowledge of the five NCPCs in the Lake Victoria Basin.

Knowledge sharing also means that the technology that NCPCs propose to companies should remain available to other companies in the region. Benchmarking data can be shared with companies on an anonymized basis – this will be the best argument to invest, in combination with a clear indication of the cost savings. NCPCs can monitor soil quality and soil carbon levels across the region and report these to the key stakeholders.

NCPC’s can also embark on joint research projects and pilots, when there is no ready-made solution available in the region. Good examples would be fencing systems that facilitate rotational grazing and improving the (independent) monitoring of milk quantity at the milk collection centres.

3. Policy dialogue Structural solutions to environmental problems and the upgrading of value chains cannot be achieved without a regulatory framework that is in line with these objectives. In fact, improvements in the regulatory framework including the enforcement of rules and regulations are most likely to be the single most effective tool to contribute to RECP. NCPCs

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have to be important actors in the policy dialogue. They can bring knowledge to the table on various levels ranging from international and value chain to regional and company level. A good example are the current disincentives to investments in solar energy (where net metering is not allowed) and the lack of compliance with food safety rules and regulations which is hampering the professionalisation of dairy production. NCPC can make suggestions for incentives both in terms of promoting good practices as well as in terms of discouraging practices that have a negative impact on the environment.

4. Strategic partnerships Many commercial suppliers of RECP technology (e.g. solar) are offering their solutions in combination with financial solutions (“staple finance”). There are also quite a number of suppliers that are working in partnership with donor agencies, or that are performing operations activities in a donor-funded programme. NCPCs can accelerate their impact by linking suppliers of RECP technology and financial institutions to the companies that have been assisted by the NCPCs. This can entail (pre-)selecting suppliers that are providing products and services according to NCPC’s quality standards. Partnerships with banks and micro-credit organisations can also lead to a more rapid implementation and scaling up of the NCPC’s advices. Given the need for investments into primary production, the NCPCs can seek partnerships with private services providers, government agencies and NGO’s that are active in agricultural production; NCPC’s can enter such partnerships with important technical and regulatory knowledge.

5. Landscape approach Most NGO’s that have been supporting value chains in agribusiness are coming to realize that a focus on particular value chains is not bringing them sustainable results. For the Lake Victoria Basin, there is a lot of scope for a landscape approach, whereby in a holistic way all key stakeholders are participating in an effort to restore the ecosystem and to unlock new economic possibilities to support the investments in the ecosystem. Especially because of the wide experience of the NCPC’s across many different value chains, they will be able to play an important role by approaching their company network and to ensure their buy-in.

6. Approaching private companies Especially in dairy processing it is possible to present companies (factories) a clear picture of returns on investments for the large array of potential RECP measures; including programmes that aim to increase the productivity of dairy farmers. As for the production of milk, the most promising approach would be to establish demonstration farms (preferably at an existing dairy farm) in which a coherent set of measures are put into place and where monitoring of the results can be done on a long term (3-5 year) basis. For the dairy value chain as a whole, improvements in local value addition and green marketing would ideally be done with large cooperative dairy producers.

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Rolph, Forest and Ruark, The role of non-CO2 mitigation options within the dairy industry for pursuing climate change targets, Environmental Research Letters, IOP Publishing, 2019

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Sultana, Mohiuddin, Ridoutt, Hemme and Peters, Benchmarking consumptive water use of bovine milk production systems for 60 geographical regions: An implication for Global Food Security, from Global Food Security, Volume 4, March 2015, Pages 56-68

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Warnars and Oppenoorth, Bioslurry: a supreme fertilizer, 2014

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Annex 1: The dairy sector profiles of the LVB countries

Overview dairy sector Uganda

Key figures Uganda’s Dairy sector is the fastest growing within the LVB region, growing at an annual rate of 10% (White Gold: Opportunities for Dairy Sector Development Collaboration in – CDI, Wageningen University). The country has also proven to have the most efficient milk production systems in the region with farm gate prices being only USD 0.14 per litre. Of the country’s annual production of 2.5 billion litres of milk, over 33% undergoes value addition while 67% is marketed raw. The country exports dairy products worth over USD 130 million a year (2017), or 10% of total milk produced – a sharp increase from only USD 30 in year 2014. Farm gate prices of milk have also improved over the last three years from Ush600 (USD 0.16) per litre in 2016 to Ush850 (USD 0.23) per litre in 2018. (Source: The Independent Magazine, Kampala)

According to Uganda National Livestock Census (2008), cattle population stood at 12.8 million, of which 11.98 million (93.6%) were indigenous cattle and 1.52 million dairy cows producing an average 1.2 litres of milk per cow per day, or an approximate total of 1.85 million litres of milk per day. Small holder farmers produce 90% of the country’s total volumes.

According to Uganda Dairy Development Authority, the per capita consumption of milk in Uganda has increased from 25 litres in 1986 to 62 litres in 2017.

Key players The Dairy Development Authority (DDA) was created by the Uganda Dairy Industry Act in the year 2000 and is the dairy industry regulator. The National Dairy Corporation was the government owned monopoly in the dairy business in Uganda, but the corporation was however privatized in 2006, with Kenya’s leading dairy processor – Brookside – buying up majority shares, leaving government with a minority interest.

Besides Brookside Dairy, other notable processors include; Pearl Dairy Farms, Amos Dairy and JESA Farm Dairy.

Feed and fodder To cut on costs, dairy farmers in Uganda have adopted the ‘extensive grazing’ system as opposed to the popular ‘zero grazing’. This has helped push milk production from about 500 million litres in 2015 to 2.5 billion litres (Source: Netherlands-funded Inclusive Dairy Enterprise Project, SNV, Uganda). This has also given the country’s dairy sector a competitive edge within the LVB region, with regard to favourable input costs for Uganda based dairy processors.

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Dairy cattle grazing in Uganda (Photo credit – SNV)

Relevant programmes and initiatives The country has dedicated the month of June as the ‘Dairy Month of Uganda’, where a new theme is picked every year to help position the industry’s objectives. The themes are targeted at milk production (farmers and feed producers), value addition (processors) and dairy products (consumers).

Opportunities and challenges The dairy sector is vibrant in the southwest, central and northern Uganda. Central and Western regions account for 50% of dairy production, and are a predictable source, due to a consistent rain pattern, thus have milk supplies year-round. Northern Uganda has an erratic milk production pattern, with drastic reductions during the dry seasons.

In the LVB region, only Uganda boasts of having dairy products export capacity, as the country’s dairy production has been growing faster than the local demand. With this, Uganda’s dairy processing companies have a good measure of preservation (‘long-life’) features for their dairy products. Notably, Ugandan has been exporting milk products to Kenya, mainly as a result of favourable pricing that is as a result of lower cost of milk production in Uganda. Penetrating the neighbouring Tanzania and Rwanda markets has been difficult, partly because of low demand in the two counties, purchasing power, as well as tariff restrictions, especially from Tanzania.

Uganda has also been exporting milk powder and other dairy products to other countries, including the Arabian Gulf, Nigeria and Japan (The Inclusive Dairy Enterprise Project – SNV). With this, Uganda has the potential of being among the leading dairy exporters in Africa – after South Africa.

One of the key concerns for Uganda dairy industry is the low consumption per capita of 62 litres, or a third of the Food and Agricultural Organization (FAO) recommended 200 litres. Also, value addition of raw milk is required to not only raise the uptake of quality milk among the population, but will also help the sub-sector contribute more to the agricultural sector and the national GDP.

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Overview dairy sector Kenya

Key figures Valued at over $1.7 billion, Kenya’s dairy industry is the largest and most advanced within the east Africa region, representing almost half of the total milk production across the region. The industry is also fastest growing agricultural sub-sector in Kenya and has a significant contribution to the country: ➢ Is the single largest sub-sector of agriculture in Kenya ➢ Has a current annual production of over 5.28 billion litres ➢ Has 4.5 million dairy cattle, with 3.5 million improved dairy breeds ➢ Contributes 44% to the livestock GDP ➢ Contributes 14% to the Agricultural GDP ➢ Contributes 4.5% to Kenya’s overall GDP ➢ provides employment to 700,000 households, mainly in the rural areas

Small scale farming contributes 80% of the national milk production from over 1.8 million dairy farmers, while large scale farming contributes only 20%. The country’s milk production is growing at an average of 5.3%, while the quantity of milk proceeding to value addition in dairy processing is increasing at an average of 7% per year.

With milk consumption per capita of 115 litres, Kenya is the only country in the LVB region with the highest milk consumption.

Key players The Kenya Cooperative Creameries (KCC) was started in the colonial days as a cooperative for milk farmers. The cooperative operated as a government owned monopoly in milk processing and packaging, until the 2000s when it was sold to private investors – after years of mismanagement. The new entity was renamed ‘New KCC’ and has continued to operate profitably to date, with a market share of over 23%.

Privatization of the dairy sector in Kenya also saw the emergence and growth of new players. Brookside Dairies is one of the entrants and has managed to oust New KCC to be the biggest dairy company in Kenya, as well as the region. Brookside Dairy’s growth can be attributed to; acquisition of other smaller players – both in Kenya and the region, and other market development and product development strategies.

Other players besides Brookside Dairy and The New KCC, that take a sizeable pie of the market include; ▪ Githunguri dairy – a dairy farmers cooperative in Kiambu County, marketing the leading dairy products brand – Fresha ▪ Sameer Agricultural – marketing a renowned milk brand – Daima ▪ Soysambu Ranch – the local franchise marketer for international brand, Delamere

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Customers sample dairy products at a supermarket in Kenya (Photo credit – Getty images)

Feed and fodder Dairy feed remains one of the biggest challenges in developing Kenya’s dairy sector. Unscrupulous traders are known to sell poor quality feeds, leading to stunted growth and low production of milk. This coupled with high cost of the feeds, with one 90kg bag going for over Ksh 3,500/- (USD 35) is the main cause of high farm gate prices for milk.

It is estimated that over 90% of the 200 animal feed manufacturers do not use appropriate raw material for processing of animal feed.

Government policies Kenya’s Dairy sector is private-sector driven and is bi-sectoral - with a mix of both formal and informal market segments, with the informal markets taking the lion’s share. With this scenario, the Kenya government has put in place policies and industry regulation guidelines, especially for public health reasons.

Kenya’s Ministry of Health is largely mandated to secure and maintain Public Health (Cap 242 – Kenya Constitution), while the Kenya Dairy Board (KDB) has the mandate of promoting compliance to milk quality and safety standards. Animal health is regulated under the Veterinary and Surgeons Act (Cap 366).

The KDB has also been at the forefront of urging the Kenya government encourage milk processing, through tax exemptions for various inputs/equipment and processes in the value chain – processing, packaging and distribution. To this extent, fresh milk is not considered ‘processed commodity’ for purposes of taxation, thus is exempt from value added tax (VAT). However, flavoured milk is considered ‘processed commodity’ due to inclusion of other additives, thus is subject to VAT.

In an effort to tame the escalating feed prices, the government of Kenya removed VAT on raw materials used for manufacture of animal feeds, in the year 2016.

Relevant programmes and initiatives

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Most of the dairy sector programmes and projects in Kenya are driven by international development partners, some of which include; ▪ The East Africa Dairy Development (EADD) project - a regional industry development program designed to boost the milk yields and incomes of small-scale farmers. It is led by Heifer International in partnership with ILRI, TechnoServe and other partners ▪ The Kenya Crops and Dairy Market Systems Activity (KCDMS) – a USAID funded program looking to raise capacity of farmers and agribusinesses in select Kenya counties ▪ The Kenya Market-led Dairy Programme (KMDP) – a Dutch funded capacity building programme promoting professionalism and competitiveness of the Kenyan dairy sector. The programme is being managed by SNV. ▪ Smallholder Dairy Commercialization Programme (SDCP) – an IFAD funded initiative working with poor smallholder dairy producers and traders in Kenya to strengthen their capacity to respond to market opportunities.

Opportunities and challenges Despite the advanced level of Kenya’s dairy industry, the country has been slow in adapting new technology and farming methods to boost production and also reduce farmer production costs. To this extent, neighbouring Uganda defeats Kenya, where Uganda farmers are able to profitably deliver raw milk to the markets at almost a half of the price charged by their Kenyan counterparts. This gives Uganda a competitive edge for milk production, on cheaper factory inputs.

The demand for dairy and dairy products in Kenya is big, with the country’s growing population also having the biggest consumption per capita in the region. The country’ growing middle- class and upper-class is a market for a variety of processed milk products.

Challenges slowing down the growth of Kenya’s dairy sector include: ▪ Low productivity per cow – 7 litres per cow/day, compared to South Africa’s 20 litres ▪ Inadequate extension services ▪ Fluctuating milk production – affected by rainfall and climate pattern ▪ Low quality feeds ▪ Milk quality concerns ▪ High cost of production – especially from zero-grazing ▪ Inefficiencies along the value chain – e.g.; only 12% of milk produced is processed ▪ Inadequate legal and regulatory framework ▪ Cheap imports – especially from Uganda.

Overview dairy sector Tanzania

Key figures Livestock accounts for 4.4% of Tanzania GDP, with Dairy contributing 30% to the livestock GDP. The country produced 2.4 billion litres of milk in the year 2017, up from 1.65 billion litres in the year 2012. It is however estimated that less than 3% of the milk produced proceeds to processing, with over 66% being consumed in the informal markets as raw milk (Source: The Tanzania Livestock Modernization Initiative – Ministry of Ministry of Livestock and Fisheries Development, Tanzania).

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Despite being ranked second (after South Africa) in cattle population in Africa at 30.5 million cattle, Tanzania remains a net importer of dairy and dairy products, spending over USD 13 million on milk imports annually. The country’s 2.4 billion litres produced annually is far below the national demand of about 11 billion litres of milk. (Source: The Citizen, 26/February/2019).

Tanzania total milk production has increased at a rate of 2.8% per year over the past 20 years as a result of the growth in the cattle population, rather than an increase in productivity per cow, reflecting a rather inefficient milk production system (FAO 2010; Nell et al. 2014; URT 2016).

Tanzania milk consumption per capita is a paltry 47 litres. This could however improve, as annual milk production is currently on an upward trend, growing at 7% per annum. The sector may however suffer from increasing imports from the European Union leading milk producers, that is Germany (19%), France (16%), Poland (7.9%), Netherlands (7.8%), Italy (7.4%) which together with the UK (9%) account for almost 70% of the bloc’s consumption (Food Business Africa, June 2018)

Key players 1) Tanga Fresh Ltd – a leading milk processing company that also produces cheese and yoghurt and working with over 5,000 farmers 2) Azam Dairy Products Limited – leading milk processor and marketer. Also importer of dairy-related products into Tanzania market 3) Asas Dairy Ltd - 18-year old private dairy processing firm 4) KCC – marketer of imported milk brand from Kenya 5) First Choice – marketer of imported milk brand from South Africa

Feed and fodder The extensive grazing lands and crop residues of the arid and semi-arid areas are the main feeds resource for the millions of cattle owned by pastoralists and agro-pastoralists. Here, the livestock do not get any supplementary feed resulting in nutrient shortages and low yields of milk during the dry seasons.

In the highlands, where most of the dairy cattle at smallholder level are found, feeding is based on crop residues, roadside grazing and occasionally on fodder crops. If available and considered profitable by the farmers they will purchase concentrates ingredients (maize bran, cottonseed cake, sunflower cake,) or mixtures.

Small holder farmers in Tanzania use by-products and fodder crops, feed supplements and concentrates. The urban and peri-urban supply roughage, hay, feed supplements, by-products and concentrates. The medium to large scale dairy farmers feed their dairy cattle on proper pre-mixes and complete feeds for use with low quality roughages.

Government policies The Ministry for Livestock and Fisheries Development has the mandate for overall management and development of the livestock and fisheries resources for sustainable growth, reduction of poverty, improved livelihood of communities dependent on livestock and

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fisheries, and food safety and security without compromising animal welfare and environment conservation.

For dairy, the Tanzania Dairy Board (TDB), Livestock Training Agency (LITA) and the Tanzania Veterinary Laboratory Agency (TVLA), are the ministry agencies providing technical support to the sector. The government is also running the five-year old TLMI programme, to develop several livestock sub-sector value chains, including dairy.

Government is responsible for veterinary services outreach and breed improvement services. Prevalent diseases are East Coast Fever and other trans-boundary diseases

Relevant programmes and initiatives A government initiative - Tanzania Livestock Modernization Initiatives (TLMI) for the period 2015/2016 to 2020/2021, is a programme to support the progressive and adaptive development of a vibrant and sustainable livestock sector, through improvements along the various value chains, including dairy.

International development partners too have been running initiatives aimed at strengthening the dairy sector value chain in Tanzania. These include; ▪ The East Africa Dairy Development (EADD) project - a regional industry development program designed to boost the milk yields and incomes of small-scale farmers. It is led by Heifer International in partnership with ILRI, TechnoServe and other partners ▪ Smallholder Dairy Support Project (SDSP) – funded by the Dutch government to facilitate the establishment and development of the stakeholder organizations; TAMPA (Tanzania Milk Processors Association) and the TAMPRODA (Tanzania Milk producers Association)

Opportunities and challenges Tanzania’s dairy sector relies on a mixture of the traditional zebu cattle and cross-breeds between exotic and zebu cattle, with the traditional cattle accounting for over 70% of the country’s total milk production. (White Gold: Opportunities for Dairy Sector Development Collaboration in – CDI, Wageningen University).

It is estimated that less than 3% of the milk produced proceeds to processing, with over 66% being consumed in the informal markets as raw milk. (The Tanzania Livestock Modernization Initiative – Ministry of Ministry of Livestock and Fisheries Development, Tanzania)

The main challenges affecting Tanzania’s dairy sector include; ▪ Milk production is low due to shortage of dairy cattle ▪ There is seasonal milk production, especially during the dry seasons due to reliance on rain-fed farming ▪ Tanzania mostly relies on traditional herds (e.g. Zebu) for milk production. This is not attractive to potential milk processing investors, as output from search herbs is low ▪ Livestock diseases continue to kill up to 40% of calves ▪ Unorganised farmers and scattered production units has led to very little milk being collected for processing

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▪ Low milk production, high costs and poor marketing have led to low local demand and low per capita milk consumption ▪ There is shortage of value-added products for milk processing

That aside, there are indicators that the private sector advocacy is beginning to yield results. Government is now involving the private sector especially for policy reforms in the sector, with the Tanzania Dairy Board (TDB) emerging as an active facilitator of sector development. A private sector driven dairy sector has the potential to effectively and efficiently develop the industry.

Overview dairy sector Rwanda

Key figures Rwanda has an annual production of milk of over 800 million litres per annum, with this figure expected to hit 1.2 billion litres by the year 2022 (Ministry of Agriculture, Rwanda). The dairy subsector contributes 33% to agricultural GDP and 6% to the national GDP, from a livestock count of about 1.4 million dairy cattle. This is made up of; ▪ Cross breeds (54%) ▪ Local breeds (40%) ▪ Pure breeds (6%)

The average production of milk per cow in Rwanda is 8 litres per day, with the best in the range of 25 to 35 litres of milk per day and the lowest (local breeds) giving 5 litres. There are over 100,000 households in Rwanda keeping dairy cattle, and much of the labour input on these farms is family-based self-employment, mainly by women (Pilot Project Design of QBMPs for Blessed Dairies Ltd, by SNV and The Friesian).

Key players 1) Ingabo Dairy Ltd – based in Nyabihu district, use over 3,000 litres of milk per day to make over 10 dairy products, including cheese and yoghurt 2) Gishwati Farms Ltd – based in Rubavu district, processing between 800 litres and 1,000 litres of milk per day, to make about 80 and 100 kilogrammes of cheese pieces 3) Muhe farm Ltd – leading cheese producer and marketer

Farmers deliver milk at one of the milk collection centres in Rwanda (Photo credits – Land O’Lakes)

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Feed and fodder In Rwanda, grazing lands are shrinking sharply because crop cultivation is progressively encroaching on grazing areas with increasing human pressure. This competition for land is slowly making livestock farmers take up non-traditional feeding systems and sources for their animals. This is use of animal feeds. However, cost of animal feeds in this LVB country remains a hindrance to full adoption of this feeding method.

In a study of animal feed resources in Rwanda (Mutimura and Everson 2011), thirty feed types were indicated as feed resources produced on farm. These included; grasses, legumes, crop residues, brewers’ and home wastes, and non-conventional feeds. The major feeds used during the rainy season were; ▪ Napier grass accounting for 20% of the feeds ▪ roadside grass (10.5%) ▪ maize stover (8%) ▪ groundnut haulms (1.1%) ▪ home wastes (0.1%)

Government Policies The Government of Rwanda’s Vision 2020 aims for Rwanda to be a middle income country by 2020 and over last decade, the government of Rwanda has made a major push for investment and diversification of the economy by making it investor friendly. One of the key documents developed here is the National Dairy Strategy (NDS).

The country developed a Livestock Master Plan (LMP) in 2017, this being a five-year plan to grow the sector and increase contribution to Rwanda’s GDP, targets to; ✓ Increase Cross breed population from 0.8 million, to 1.2 million by 2022 ✓ Increase milk production from 0.8 billion litres to 1.2 billion by 2022

Relevant programmes and initiatives ▪ Rwanda Dairy Development Project (RDDP) - a joint project between IFAD and the Rwanda’s Ministry of agriculture, for the purchase of milk handling processing equipment to be distributed to dairy farmers ▪ Rwanda Diary Competitiveness Program (RCDP) – a USAID funded programme to assist private sector across the country position themselves in collaborating with different stakeholders working in the dairy sector. These include financial institutions.

Opportunities and challenges The Rwanda NDS seeks to increase per capita milk consumption from 40 litres per year to 80 litres through promotion of consumption by current milk consumers and the one third of the Rwanda population that does not consume milk (White Gold: Opportunities for Dairy Sector Development Collaboration in – CDI, Wageningen University). The NDS further envisions, improved value addition (e.g., through product diversification) that is expected to use the anticipated milk surplus.

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The country also aims to increase the number of improved breed cows and improve their productivity, for example, through improved feeding across seasons. The country also seeks to expand the milk collection logistics by establishing more collection centres.

The improved productivity and efficiency along the dairy value chain is expected to reduce costs, and hence make Rwanda dairy products more competitively priced in the region.

Rwanda imports over 40 tonnes of cheese annually.

Overview dairy sector Burundi

Key figures Annual milk production in Burundi stands at of over 73 million litres, an increase from 20.5 million litres in year 2005. Less than 3% of the total milk produced goes to processing. In a 2013 Report, livestock count in Burundi stood at 645,000, of which only 10,000 cattle were of improved breeds. (White Gold: Opportunities for Dairy Sector Development Collaboration in – CDI, Wageningen University)

Burundi’s livestock sector contributes 5% to agricultural GDP. The country’s economy is however largely under-developed, with the 2016 UN Human Development Index ranking Burundi as one of the least developed countries in the world - 184th of 188 countries. The country’s GDP growth is at a negative (-3.9% in 2016).

Key players ▪ Modern Dairy Burundi (MDB) – started in 2014 and is the leading company on the Burundian dairy market ▪ Tetra Pak – international milk and dairy products packaging company with operations in Burundi

Modern Dairy Burundi (MDB) offices in Bujumbura

Feed and fodder According to a 2017 Institut des Sciences Agronomiques du Burundi (ISABU) study on animal feeds in Burundi, over 25% of ruminant livestock is fed in extensive grazing systems and 75% kept under zero-grazing. As such, livestock farmers generally cultivate feed crops for their

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livestock. The feed crops are fortified with supplements such as; maize, rice bran, cotton seed cake, palm seed cake, sunflower cake, soya beans, iodine salt and molasses.

Key players in Burundi animal feeds business include; • Minolacs Flour Mill – a private flour milling company in Burundi that imports wheat from Australia, the United States and Canada for milling. • Azam Bakhresa Grain Milling (Burundi) Ltd – a private milling company with a wheat milling capacity of 360 tonnes per day • Brarudi Brewery – a South African brewery that sells a brewing by-product - Spent brewery grains – used for feeding livestock

Government Policies The dairy value chain in Burundi is largely informal. A key challenge to growth and value addition has been unreliable electricity and poor road networks51. The government, with the help of donor agencies, has been running programmes aimed at increasing the population of improved breeds through importation and artificial insemination (AI). Exotic dairy breeds that have been introduced and bred to the local Ankole cattle include; the Sahiwal, Friesian, Montbéliarde, Brown Swiss, Ayrshire and Jersey. In the year 2014, the country formulated the National Agricultural Strategy with the intention of: i. Sustaining the growth of production and agricultural productivity; ii. promoting industry and agribusiness; iii. Supporting the professionalization of producers and the development of private initiatives; iv. Strengthening the management capabilities and develop the agricultural sector.

Relevant programmes and initiatives ▪ Vision Burundi 2025 - a government planning instrument for ensuring long-term development which will guide the policies and strategies as regards sustainable development across the sectors ▪ ‘Send a Cow’ initiative – a United Kingdom NGO operating in Burundi since 2013 and is involved in donating cows to homesteads in the country and training farmers on animal husbandry to generate income ▪ WFP School Feeding Programme – supports the use of UHT milk in their school feeding operations to help boost the nutrition of 20,000 children in central Burundi and contribute to a positive spiral of health, development and school attendance

Opportunities and challenges A key challenge to the growth of Burundi’s dairy sector, as well as other sectors, are the socio- political tensions. This has stalled many development ideals and also slowed down players from both the private sector as well as development partners, for investment in Burundi. According to a World Bank report on the Great Lakes Regional Integrated Agriculture Development Project, key challenges affecting Burundi’s include; ▪ Re-current socio‐political tensions, erupting into violent conflict, have led to high food insecurity, poverty, and inequality in Burundi since the early 1990s

51 White Gold: Opportunities for Dairy Sector Development Collaboration in – CDI, Wageningen University

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▪ Public debt has expanded dramatically and the fiscal space to improve public service delivery has contracted. GDP growth has been at a negative (-3.9%) ▪ Slow growth of agricultural production, as compared to population growth. Burundi’s population grew by 3% yearly over the past decade, yet agricultural production grew by 2%. ▪ Agriculture in Burundi relies on subsistence producers (about 1.2 million households) who use traditional technology that is unreliable and inefficient. Farming systems are organized around weather cycles and multiple crops to mitigate climate‐related risks. ▪ Institutional constraints - difficulties of implementing structural reforms and other changes required by the agricultural development strategy, of organizing value chains, and of delivering extension and advisory services to rural communities. ▪ Natural resource, input, and disease constraints - include declining soil fertility, degraded ecosystems, low use of improved agricultural inputs, and rising disease and pest pressure on livestock. ▪ Technology constraints - reflect inadequacies in traditional technology for managing natural resources, raising crops and livestock, and processing agricultural products.

Better organization and integration of high‐potential agricultural value chains into local and regional markets, bolstered by the development of irrigation schemes and intensification, will increase agricultural productivity including dairy, limit pressure on scarce resources (particularly land), reduce vulnerability to shocks, create industrial value addition and jobs in the dairy processing and marketing, and develop livelihood opportunities.

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Annex 2: Export of dairy products in the LVB countries

The table below shows Exports of unprocessed milk and cream by the LVB countries (Product52: 0401 Milk and cream, not concentrated nor containing added sugar or other sweetening matter). One can see that Uganda’s exports of unprocessed milk and cream stood at almost 49M USD in 2018. This represented 91% of total EAC exports.

Unit: US Dollar thousand Exported Exported Exported Exported Exporters value in 2015 value in 2016 value in 2017 value in 2018

World 7,471,407 7,593,519 9,401,133 9,655,120

East African Community 17,094 26,094 50,205 53,706

Uganda 11,350 22,909 46,803 48,893

Rwanda 1,228 950 1,798 4,245

Kenya 4,047 2,210 1,604 560

Burundi 0 0 0 8

Tanzania 469 25 0 0 Sources: ITC calculations based on UN COMTRADE and ITC statistics.

The table below lists importing markets for milk and cream exported by Uganda (product code 0401). It shows that 92% of Uganda’s exports of unprocessed milk and cream were imported by Kenya.

Unit: US Dollar thousand Exported Exported Exported Exported Exported Importers value in 2014 value in 2015 value in 2016 value in 2017 value in 2018

World 6,623 11,350 22,909 46,803 48,893

Kenya 3,398 8,501 20,064 43,046 44,954

Sudan 1 0 0 0 2,034

Rwanda 581 617 1,153 1,509 1,570

Tanzania 192 267 522 520 265

Burundi 281 252 97 26 65

South Sudan 1,858 1,676 884 1,673 0 Sources: ITC calculations based on UN COMTRADE and ITC statistics.

52 The International Standard Industrial Classification of All Economic Activities (ISIC) is the international reference classification of productive activities. Its main purpose is to provide a set of activity categories that can be utilized for the collection and reporting of statistics according to such activities.

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Exports of processed milk and cream (Product 0402: Milk and cream, concentrated or containing added sugar or other sweetening matter) are presented in the table below. As for processed milk and cream, Uganda’s exports represented 91% of the EAC’s exports.

Unit: US Dollar thousand Exported Exported Exported Exported Exporters value in 2015 value in 2016 value in 2017 value in 2018

World 18,037,870 15,945,770 18,815,583 19,014,422

East African Community (EAC) Aggregation 26,520 27,891 30,790 22,741

Uganda 23,925 26,047 28,807 20,676

Rwanda 2,168 1,730 1,919 1,828

Kenya 427 104 64 183

Burundi 0 0 0 49

Tanzania 0 10 0 5 Sources: ITC calculations based on UN COMTRADE and ITC statistics.

The list of importing markets for processed milk and cream exported by Uganda (Product: 0402) is provided in the table below. Kenya imported 76% of the total processed milk and cream exports of Uganda.

Unit: US Dollar thousand Exported Exported Exported Exported Exported Importers value in 2014 value in 2015 value in 2016 value in 2017 value in 2018

World 15,919 23,925 26,047 28,807 20,676

Kenya 10,054 21,736 18,131 19,544 15,629

Tanzania, United Republic of 403 266 1,299 1,953 2,602

Congo, Democratic Republic of 298 151 2,972 3,684 821 the

Japan 4 447 88 1,910 697

Rwanda 236 252 344 148 437

Malawi 0 0 0 89 228

Sudan 185 111 0 0 186

Burundi 1 11 74 32 77

South Sudan 306 858 694 568 0 Sources: ITC calculations based on UN COMTRADE and ITC statistics.

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