Milk prices drop further as dairies fight for market turf
Fresh milk at a supermarket on June 8, 2012. Milk price has reduced by five shillings thanks to the rains consumers can now afford a packet from Sh38 - Sh40. Photo/Jennifer Muiruri
Consumers are in line to benefit from a price war in the milk market as processors offer substantial discounts to boost consumption and manage increased supplies.
Just days after New KCC announced a Sh5 reduction in the retail price of a half-litre packet, Brookside Dairies has slashed its prices by up to Sh10 for a half-litre packet.
The firm is also giving away 250 grammes for every half-litre pouch of its Ilara and Tuzo brands.
“We have dropped prices by Sh10 per pouch,” said John Gethi, Brookside’s general manager for milk procurement.
While retail outlets are expected to pass the benefits to consumers, increased intake by processors will likely dampen producer prices which currently range between Sh35 and Sh40 for every litre delivered.
At Sh35 for a half-litre pouch, Brookside’s Tuzo and Ilara brands are now the cheapest while Githunguri Dairy’s Fresha is the second cheapest at Sh38.
New KCC fresh is retailing at Sh40 while its premium product, Gold Crown, retails at Sh41. Limuru Dairy and Buzeki — the makers of Molo milk — are expected to respond to the price cuts by similarly slashing their prices.
Most fresh milk brands were selling at between Sh45 and Sh48 for the half litre packet before the price cuts that started last weekend.
At Uchumi’s Koinange Street branch, Brookside’s half-litre Tuzo and fresh milk were retailing at Sh35, down from Sh45 last week while New KCC’s Gold Crown brand sold for Sh41, down from Sh46.
Other brands Molo, Tuzo, Ilara and Limuru fresh and Daima fresh were each selling at Sh45.
Mr Gethi said the price cuts were a market correction. Before the dry spell, between January and March this year, milk prices ranged between Sh27 and Sh31 for a half litre pouch.
“We are reacting to the market and moves by our competitors,” said Mr Gethi.
Industry regulator Kenya Dairy Board said it expects prices to fall further because of competition between processors and a possible ‘glut’ in the market arising from huge deliveries in Central Kenya.
“We expected prices to drop because of improved supply mainly around Mt Kenya region and serious competition. Producer prices will also drop,” said Machira Gichohi, the dairy board’s managing director. Prompt payments to farmers by some processors also helped to encourage deliveries.
Every year, the industry grapples with milk shortage during the dry season and a glut that leads to losses when rains resume. Plans to build a strategic reserve for milk is yet to be realised.
On Friday last week, New KCC announced that it would drop prices by up to Sh5 per half-litre but would retain farmers’ prices at Sh35 a litre.
Last month, Brookside invited farmers to sign up delivery contracts at improved prices of Sh40 per litre.
New KCC pays farmers between Sh30 and Sh35 per litre depending on quality. Chilled milk, from which more premium products can be made, attracts higher prices.
"The prices are good compared to the production cost per litre of Sh20 per litre” said Joseph Ng’era, a Nakuru-based large scale farmer who is also an official of the Kenya National Federation of Agricultural Producers ( Kenfap).
John Omiti, an agriculture policy analyst at the Kenya Institute for Public Policy research and Analysis said the price cuts were necessary to check the growth of milk in the informal sector.
“There is a lot of milk in the informal sector due to reduced intake by processors who demand high quality standards. Surplus production could, however, spark price fixing by a few major processors.
“We are moving towards a duopoly at the national level and regional monopolies. About five firms dominate the market and dictate prices,” he said.
Brookside and New KCC compete nationally while Githunguri Dairy, Limuru Dairy and Buzeki Dairy have carved leadership for themselves in their respective regions.
A drop in producer prices is likely to hurt farmers who are grappling with the high cost of animal feeds that has forced some from the business.
A 90 kilogramme bag of bran or dairy meal now retails at Sh2,500, nearly two times the Sh1,300 per bag that prevailed one year ago.
This led some processors to develop their own herds and forage to enable them stay afloat during the lean times.
Farmers are also combining fodder with dairy meal in order to get the best output.
Among the country’s top three processors, Brookside has a capacity of about 650,000 litres a day, followed by New KCC’s 500,000 litres and Githunguri Dairy’s 180,000 litres. Other significant players are Buzeki and Limuru Dairy.
An acute shortage of raw milk forced processors to shift from production to fresh milk for domestic consumers at a time when demand for long life milk is growing in the international market.
Now, production volumes are said to be normalising.
"We expect the cows to fully recover at the end of June,” said Mr Ng’era.
