Higher prices lure farmers to informal dairy traders

Milk supply to licensed processors dropped by 9.4 per cent last year following a dip in production levels and increased infiltration by informal traders.

Data from the Kenya National Bureau of Statistics shows that 497.3 million litres of milk were delivered to the processors last year, compared to 549 million litres in 2011.

“The informal sector has penetrated the urban market, which was controlled by processors,” said John Wachira, the national secretary of the Dairy Traders Association that represents informal dealers.

Mr Wachira said in an interview on Tuesday that supermarkets such as Tuskys and Naivas had installed milk dispensers that are serviced by informal traders or hawkers.

Currently a litre at the dispensing machine costs Sh60, while a similar quantity of processed milk costs Sh90, making the un-processed product attractive to consumers.

Mr Wachira noted that traders in the informal sector were also selling milk products such as yoghurt in large quantities — such as five litres — and pricing them attractively.

The largest drop in supply to processors was between the months of March and April, a time that the country was experiencing dry weather conditions, which led to a milk shortage that saw milk prices touch a high of Sh50 for the half-litre pouch.

In a recent interview with the Business Daily, New KCC managing director Kipkirui Langat said after the dry spell, milk collections did not return to the previous levels, with the North Rift region being most affected.

This was the first drop in five years for the sector that has seen new investments and enhanced regulation mainly aimed at cutting out milk hawkers.

Brookside Dairy has launched a milk powder processing unit while Buzeki Dairies has just commissioned its UHT plant following the path of Githunguri Dairies, which launched its UHT plant in mid 2011.

Brookside, which processes an estimated 17 million litres of milk in a month, is the largest processor in the country ahead of government-owned New KCC.

Processors are now asking the government to zero-rate tax on packaging materials to reduce milk prices and encourage uptake of processed milk.

“Government has to zero-rate tax on packaging material. This will see the price of processed milk come down by about 10 per cent hence enabling poor households to access this commodity, which is of high quality,” said Zedekiah Bundotich, director of Buzeki Dairies.

Milk prices went up two weeks ago to retail at between Sh45 and Sh50 for a half-litre pouch, hitting low-income households hardest.

(Read: Milk prices rise for second time as shortage bites)

Failure to implement modern methods of preservation has made milk supply erratic, resulting in sharp price movements of the staple commodity.
Milk processors say they have been forced to increase farmers’ pay to ensure farmers do not divert delivery to hawkers.