Buyers turn to cheaper milk from vendors and supermarket dispensers as prices of basic goods rise.
It will be a long time before the ‘Milky Way’ becomes clear. Not the 13 billion-year-old galaxy, but the country’s milk industry which has in the last few months been in turmoil.
Abraham Kaigwa has been a dairy farmer for longer than he can remember. He joined the Githunguri Dairy Cooperative in the early 1990s and has been supplying milk on a daily ever since.
The income supplemented his salary as civil servant and helped see all his four children through school. At the moment, he only produces 16 litres of milk a day after one of his cows fell sick, though he plans to buy two additional cows to boost production to 50 litres.
The milk industry, he says, rather than become better has worsened over the years.
“The best times for the dairy farmer were when former President Moi introduced the Maziwa ya Nyayo (school milk) programme in public schools,” he says. “We were assured of good milk prices because there was constant demand through the programme.”
While several dairy processors have joined the industry signalling a considerable expansion, the dairy farmer, he notes, continues to be short-changed.
“Price of processed milk keeps rising, especially with the increased inflation, but farmers continue to suffer from the low gate prices. At the end of the day, farmers also want to make a living and they look for other ways to make ends meet,” he laments.
Hawking of milk
This has led to the increased hawking of milk not only in Kiambu and Githunguri but also in other milk producing areas as well.
Though farmers continue to contribute milk to processors and cooperatives, some have learned to spare a few litres which they sell directly to consumers.
A litre of fresh milk costs between Sh35 and Sh65, depending on the region and supply, although the price more often than not is higher than most processors pay farmers.
“It was well known for years that the milk produced in Kiambu, Ndumberi and Githunguri areas all went to the cooperative, even the big processors like Brookside knew not to seek farmers here but now it is not strange to see vehicles that do not belong to the cooperatives coming to collect directly from the farmers,” says Mr Kaigwa.
High demand
Last month, the Kenya Dairy Board (KDB) announced a ban on milk hawking citing compromised quality and the need to ensure consumers are protected from health risks associated with handling of the commodity by the vendors.
Small-scale farmers objected to the ban of the unlicensed vending by the regulator, saying that it stopped them from fetching a fair price for their produce, but KDB is yet to change its position.
Mr Kaigwa expressed fears that the new VAT would only make matters worse for the industry.
“Dairy farmers will end up being demoralised like coffee farmers if the increased tax does not reflect positively in the gate prices,” he says.
The dairy farmer noted that the implementation of the ban with the new law will only serve to relegate farmers into poverty.
“People will find ways of circumvent the ban one way or another because there is an increased demand for fresh milk by customers and if the prices go up they might just end up coming to the farms for their daily supplies,” he says
At the moment the 16 per cent levy charged on processed milk has seen the price of a half-litre packet of milk increase by an average of Sh7, which many processors fear will make them lose out to hawkers.
Value addition
Firms like Buzeki which produces Molo milk had increased their gate prices from Sh31 to Sh35 during the cold season when milk volumes had dropped in a bid to attract farmers.
Last week, Brookside which controls a 38 per cent market share of the industry also announced an increase of Sh5 to their gate prices to pay farmers Sh40 a litre of milk as a result of the reduced supplies.
There are fears, however, that if an increase in gate prices to attract more farmers is to be factored in and processors maintain their current profit margins then the prices of half-litre packet of milk are likely to rise higher than the average Sh52 that it now is.
The VAT has also caused a stir among milk traders who have lamented that they have nothing to gain from the increased retail prices with the Dairy Traders Association disclosing plans to set up factories in Naivasha and Nakuru to from value addition.
Speaking to the Business Daily, New Kenya Cooperative Creameries managing director Kipkirui Langat said that the inclusion of processed milk among additional items to be levied VAT was a wrong move.
“Unprocessed milk has no value addition in itself so saying that it is exempted from the 16 per cent VAT was not positioning it well because it basically not a traded product,” he said.
“Milk is important for many middle and low income earners and much more consideration should have been made in exempting processed milk.”
This, he added, would inhibit value addition in the dairy sector as the tax affects pasteurised, fermented and long-life milk as well as products like cheese, butter and yoghurt.
“The situation is apprehensive at the moment, every processor has to implement the law but we will know for certain in a week or so the impact of the new tax on the industry,” he explained.
But it is not all gloom in the milky equation. Vendors and supermarkets with milk dispensers are reaping big, from the increased sales.
More and more customers are abandoning the processed fresh milk on the shelves for queues at the cheaper dispensers of the commodity in supermarkets. A majority of the retail outlets visited by the Business Daily sell milk at between Sh55 and Sh60 per litre.
Adulterated milk
Edna Osoro, a mother of three and resident of Kiambu, says that milk sold on the streets is fresher than the processed commodity even though at times some vendors adulterate it with water.
She buys her milk from Cleanshelf Supermarket where a litre of milk is sold at Sh60, where Ms Osoro says she is assured of the quality of milk and the price is pocket-friendly.
“Milk is not what it used to be. The prices have generally gone up all over even on the streets and the supermarket where I normally buy,” she lamented.
“The increased prices mean that many people who can’t afford it will take porridge or black tea in the morning.”
Francis Masuili, Naivas Supermarkets general manager, observes that since the milk bars were introduced in their outlets a little over a year ago, consumers have taken to them forcing the outlet to increase the volumes of their milk supplies.
“They have gained a lot of popularity, especially from the middle and low-income earners that we target in the eight branches,” he said.
“There is a general demand for cheaper milk and that is why you see even smaller supermarkets are going for milk dispensers.”
Imposing VAT on processed milk, he holds, may not really affect the sales as the product is a necessity which may not cause a major shift in demand. However, he adds, this may not be true for other non-perishable products being levied the tax.
Naivas Supermarket currently sells a litre of dispensed milk at Sh55 in its Eastgate, Kasarani, Kitengela, Nakuru, Utawala and Machakos branches.
“We buy the milk directly from producers at the Githunguri Dairy Farmers and Mount Kinagop.
The sector regulator, consumer lobby groups and taxation experts have called on the government to stagger the implementation of VAT law to cushion buyers against adverse effects of sudden increase in prices of basic goods.
The Kenya Dairy Board expressed concerns that the new law would see an increase in milk hawking which they had tried to control by imposing the ban a month ago.
Managing director Maina Gichohi argued that processed milk would be ignored by consumers as a result of high prices, adding that the board would seek audience with the parliamentary Committee on Agriculture and Budget to have the Act amended and exclude processed milk from the levy.
