DAIRY SECTOR REFORMS AND TRANSFORMATION IN UGANDA SINCE THE 1990S Swaibu Mbowa, Isaac Shinyekwa and Musa Mayanja Lwanga Economic Policy Research Centre (EPRC) Research Report No. 4 July 2012 DAIRY SecTOR REFORMS AND TRANSFORMATION IN UGANDA SINce THE 1990S Swaibu Mbowa, Isaac Shinyekwa and Musa Mayanja Lwanga Economic Policy Research Centre (EPRC) Research Report No. 4 July 2012 Copyright © Economic Policy Research Centre (EPRC) The Economic Policy Research Centre (EPRC) is an autonomous not-for-profit organization established in 1993 with a mission to foster sustainable growth and development in Uganda through advancement of research –based knowledge and policy analysis. Since its inception, the EPRC has made significant contributions to national and regional policy formulation and implementation in the Republic of Uganda and throughout East Africa. The Centre has also contributed to national and international development processes through intellectual policy discourse and capacity strengthening for policy analysis, design and management. The EPRC envisions itself as a Centre of excellence that is capable of maintaining a competitive edge in providing national leadership in intellectual economic policy discourse, through timely research-based contribution to policy processes. Disclaimer: The views expressed in this publication are those of the authors and do not necessarily represent the views of the Economic Policy Research Centre (EPRC) or its management. Any enquiries can be addressed in writing to the Executive Director on the following address: Economic Policy Research Centre Plot 51, Pool Road, Makerere University Campus P.O. Box 7841, Kampala, Uganda Tel: +256-414-541023/4 Fax: +256-414-541022 Email: [email protected] Web: www.eprc.or.ug Dairy Sector Reforms and Transformation in Uganda since the 1990s Acknowledgement Many institutions and individuals contributed to the development of this report on Dairy Sector Reforms and Transformation in Uganda since the 1990s. EPRC is particularly thankful to African Growth Initiative (AGI) Brookings Institute for co-funding the project activities. In addition, AGI played a significant role in reviewing this report. The authors of this report are particularly grateful to dairy farmers who provided valuable information, and officials from the private and government institutions that helped in the mobilization of dairy farmers in particular: the District Veterinary Officers (DVOs) of Mbarara(Dr. Lewis Barigye), Kamuli (Dr. Kiiza Waako), Mbale (Dr. G.H. Were), Bududa (Dr. Susan Kibone), Soroti (Dr. P. Eyudu), Gulu (Dr. OkidiOutora), Nebbi (Dr. Robert Canpara), and Apac (Dr. Anthony Okwir); the leadership and staff of Dairy Development Authority (DDA) for the invaluable insights in focusing the study. The staff of the Uganda Crane Creameries Cooperative Union (UCCCU) chairman (Mr. George Nuwagira), project manager (Mr. Clayton Arinanye) and Supply Chain Coordinator (Mr. Daniel Mugura); the executive of the various primary dairy cooperative societies interviewed in regions covered during the study. The authors are indebted to the Uganda Bureau of Statistics (UBoS) for the provision of the National Services Delivery Survey (NSDS) data, and both the Uganda National Household Survey (UNHS) and Uganda National Panel Survey (UNPS) data, without which the quantitative analysis of changes in the dairy sector would have been impossible. Finally the EPRC would like to thank key private sector players in the dairy sector that provided information on the inputs markets and milk processing in Uganda (mangers of GBK dairy; Parmount Dairies, Eastern Dairies, Gulu Women Dairy, White dairy, Dutch Farm, Shumuk Dairy Ltd, and Soroti Dairy Ltd). Economic Policy Research Centre i Dairy Sector Reforms and Transformation in Uganda since the 1990s List of Abbreviations and Acronyms ADB African Development Bank AGI Africa Growth Initiative AI Artificial Insemination ASERECA Association for Strengthening Agricultural Research in Eastern and Central Africa ASPS Agricultural Support Programme Services BoU Bank of Uganda DB Data Bank DC Dairy Corporation DCL Dairy Corporation Limited DDA Dairy Development Authority DSIP Agricultural Sector Development Strategy and Investment Plan EAC East African Community EADD East Africa Dairy Development ECAPAPA Eastern and Central Africa Programme for Agricultural Policy Analysis ERP Economic Recovery Programme EPRC Economic Policy Research Centre FAO Food and Agriculture Organisation FGD Focus Group Discussion GDP Gross Domestic Product ILRI International Livestock Research Institute MAAIF Ministry of Agriculture, Animal Industry and Fisheries MoFPED Ministry of Finance Planning and Economic Development MoH Ministry of Health NAADS National Agricultural Advisory Services NAGRIC National Animal Genetic Resource Centre NARO National Agricultural Research Organisation NDA National Drug Authority NDAFCU Ntungamo Dairy Farmers Co-operative Union NDP National Development Plan NGO Non-Government Organisation NSDS National Service Delivery Surveys PE Public Enterprise PERD Public Enterprise Reform and Divesture PMA Plan for Modernization of Agriculture SALL Sameer Agricultural Livestock Limited UBoS Uganda Bureau of Statistics UCCCU Uganda Crane Creameries Cooperative Union UDPA Uganda Dairy Processors’ Association UHT Ultra High Temperature UNBS Uganda National Bureau of Standards UNDFA Uganda National Dairy Farmers Association UNDTA Uganda National Dairy Traders Association UNHS Uganda National Household Survey UNPS Uganda National Panel Survey USAID United States Agency for International Development UVA Uganda Veterinary Association WHO World Health Organisation ii Economic Policy Research Centre Dairy Sector Reforms and Transformation in Uganda since the 1990s Executive Summary Transformation The Dairy sector in Uganda has responded positively to agricultural sector liberalisation policies that took effect in the 1990s. Total national milk production has grown from 460 million litres in 1990 to 1.6 billion litres in 2011, with per capita milk consumption growing from 16 litres in 1986to 58 litres by 2010. A variety of dairy products that were previously imported are now being produced locally in the country. Driven largely by dairy, the livestock sector has maintained positive growth rates averaging 3 percent per annum compared to the declining (and often negative) growth rates registered in the food and cash crop sub sectors. Milk production increased primarily from growth in cattle population, and secondarily from adoption of higher milk yielding cattle. While milk production remains concentrated in the Western milk shed, there is evidence of dairy activities spreading to other non-traditional milk producing regions of the country especially in the Central and Eastern regions of Uganda. Development of the value chain in the dairy sector has led to employment creation and income generation not only for about 700,000 dairy farming households, but also for farm input dealers, dairy equipment dealers, dairy ingredients dealers, raw milk traders, milk transporters, mini-dairies, large scale milk processors, and distributors. Enablers The raw milk market has gradually undergone transformation from a government controlled marketing system to a more competitive sector in which private traders and processors play an increasingly active role. Private sector businesses, cooperative societies and non-government organisation (NGOs) such as Send a Cow, Land O’Lakes and Heifer international have become active players in the supply of essential inputs, crossbreeding and veterinary extension services. These players complemented the limited role of government in those activities and ushered in new services. Farmer-to-farmer consultations enabled the flow of market information on essential inputs and product markets as well as adoption of technology. In addition to expanding milk processing plants, private milk processing companies that entered the industry after the reforms have invested in the milk collection and marketing infrastructure. Remaining Challenges Despite the progress, a few challenges remain. 1. Regional milk markets are not well integrated. Consequently, farm gate milk prices are perpetually low in the milk surplus Western region and high in the milk deficit regions (Eastern and Northern). 2. The near-monopolistic structure of the milk collection and processing market – where Sameer Agricultural Livestock Limited (SALL) inherited existing networks created by the government owned Dairy Corporation (DC) after privatization and as a result controls 78 percent of the formal raw milk marketing channel – leaves major processing companies such as GBK and SHUMUK with little incentive to invest in infrastructure. 3. SALL sets periodic raw milk prices and milk purchase quotas during peak season, a practice widely construed as monopoly tendencies by dairy farmers in the Western region. The low farm gate price offered to farmers especially during the peak season in relation to the increasing prices of imported inputs (e.g. veterinary drugs and acaricides) is a big source of instability in the milk surplus south-Western region, and dairy farmers in this part of the country are Economic Policy Research Centre iii Dairy Sector Reforms and Transformation in Uganda since the 1990s switching enterprises from dairying to crop farming. For instance dairy farmers in Bushenyi district (south Western region) have diversified to tea and banana farming. Recommendations 1. Public investment in infrastructure