Earnings dip for farmers as KCC cuts milk prices

Milk processor KCC has cut its producer prices by Sh2 per litre, dampening the earnings outlook for millions of farmers whose output got a lift from heavy rains in December last year.

Consumers however stand to gain from a Sh4 drop for ever half litre packed of processed milk or a Sh2 price cut for the 250 litres packet.

The new producer pricing structure means farmers will take home between Sh21-Sh22 for every litre of milk delivered down from the current Sh23 per litre.

The variation in price is linked to bulk or small scale production.

KCC said the adjustments are meant to tackle a heavy glut in the milk market and falling demand from export markets in the region.

“The price reviews should encourage consumption and help us manage daily intakes,” said Mr Matu Wamae, New KCC chairman.

The company said it had gone into a rationing mode because its installed processing capacity of over 700 000 litres/per day has been overstretched.

The firm is also struggling to regain its foothold in the lucrative export markets that it lost at the peak of last year’s drought, when it beat all odds to post an impressive Sh500 million profit before tax, helped by increased sales to export markets.

Industry regulator, the Kenya Dairy Board (KDB), says a surge in milk production following the onset of rains last December has overstretched the capacity of all the 33 registered processors.

The situation worsened last week after some of the processors temporarily closed their plants for servicing.

New KCC has been forced to close its plants, in turns, for up to two days each week.

Farmers fear that the pricing outlook for their product could become even more subdued with the onset of the March-May long rains season.

With 40 per cent share of the market, New KCC has been the processor of last resort that has been taking in all the milk its competitors are unable to handle.

The company has an installed capacity of 700,000 litres but on average collects up to 670,000 litres every day.

“Milk output has doubled in the past few weeks from a combined uptake of 700,000 litres per day to over 1.4 million litres for all the processors,” said KDB managing director, Machira Gichohi.