Dairy: Uganda’s un-milked sector
SNV's Rinus van Klinken examines the rise of Dairy in Uganda and why more attention needs to be paid to the sector that is rapidly overtaking the traditional export commodities.
As the world celebrates June dairy month, Uganda has more reason than most countries to put the dairy sector in the limelight. A quiet revolution has drastically changed the face of the sector, making it one of the outstanding agricultural success stories. The dairy value chain ticks the boxes of the government of Uganda's policy to promote commercial farming, encourage rural agro-processing and stimulate export. Surprisingly, policy makers do not seem to be aware of their own success, ignoring opportunities for further growth.
One of the reasons that dairy has not yet been profiled by government as a growth sector in agriculture is the lack of data. Who is aware that dairy has developed into the third agricultural export commodity, after coffee and fish? And well ahead of such established export commodities as tea, tobacco and cotton? The Bank of Uganda website that records exports on a monthly basis, classifies dairy under ‘other commodities’, therefore masking its ‘steady progress’.
The emergence of dairy as a vibrant export sector is the outcome of a deliberate government effort; first by liberalising the sector and then by promoting foreign investment. The privatisation of the Uganda Dairy Corporation in 2004 brought initially little change as the government monopoly in processing was replaced by dominance by one processor, Sameer (SALL). As recently as 2010, the Sameer factory with a processing capacity of 400,000 ltr/day still represented 90 % of the processed milk market in the country. This has changed drastically in recent years. Two large processing factories have opened for business in southwest Uganda. Amos dairies, processes up to 300,000 litres of milk per day to make casein for the export market (mainly America), while Pearl Dairy with a capacity of 400,000 litre per day, exports 90 % of its produce in the form of milk powder, ghee and UHT to Kenya, the Gulf and the Asian market. This explains the sudden surge in dairy exports.
Uganda has always been a net importer of dairy, with high end products (butter, cheese) in the supermarkets in Kampala imported from Kenya and Europe. With the two processors in southwest Uganda entering the market, as well as some local dairy processors also expanding, Uganda has become one of the few African countries that are net exporters of dairy products. The export growth has been exponential, from a zero base as recently as 2007 to US$ 25 million in 2014 and US$ 50 million worth of dairy products in 2015. Although there are no reliable figures yet for 2016, dairy exports in 2016 are estimated at US$ 80 million, with 2017 on course for further growth. If the government is indeed serious with its objective of moving the country to middle income income status, then it would do well to focus on the dairy sector, in addition to the usual suspects (oil, coffee, tourism). When the Ministry of Trade, Industry and Cooperatives recently launched its strategy for increasing export it mentioned the traditional sectors (coffee, fish, tobacco, sugar, flowers and tea), but ruefully omitted dairy, even amongst its ‘medium priorities’ for export promotion.
There are more reasons than just export performance to look at in the dairy sector. Changes have also taken place at farm level. The so much desired commercialisation of farming is slowly taking shape in dairy, but with the pace differing across the country. The trend was initially more prominent in the peri-urban areas of central Uganda, spurred by proximity to the Kampala market. In southwest Uganda it manifested itself in two contradictory ways. On the one hand, farmers intensified production through cross-breeding the traditional Ankole cow with (mainly) Holstein-Friesian exotics and shifting from communal management practices to individual farming (fencing and developing water on the farm), as many farmers have done in Mbarara and Kiruhura Districts. On the other hand, commercialisation also meant farmers critically assessing the contribution of dairy to their livelihoods, and exiting the sector when faced with better-earning alternatives, as farmers have done in (greater) Bushenyi, selling their animals to Rwanda and instead taking up coffee and tea production. The two trends explain that whereas 20 years ago Bushenyi was the main milk producer in Uganda, milk surplus in the area is now minimal, and Kiruhura District has taken over as the area with the greatest milk surplus for sale to the market.
While low milk prices made it easy for Bushenyi farmers to exit the dairy sector, for Kiruhura farmers, the price was less of a constraint, as the financial inputs into their farming system were fairly limited, and they could rely on continuing extensive grazing with their relatively large landholdings. It was these low prices that attracted the foreign investors to set up processing factories in the area in the first place. Farm gate prices until recently often hovered around 500 UGX per litre of milk in the rainy season, or 25 % of the prevailing world market prices. Over the last one year that price trend has changed, due to increased competition at home and improved prices globally, with prices currently closer to 1,000 UGX per litre, or just two-third of the world market prices! Although the room to increase the price further is limited, it seems likely that farm gate prices will in the future more likely track global prices, rather than fall back to the dismal prices of previous years.
Stimulants of further growth
From the processors’ perspective, two conditions can stimulate further growth. The first is strengthening of the domestic market, as the Dairy Development Authority (DDA) is trying to do, but without associated political support. Currently, less than one third of the milk reaching the (urban) market is in processed form. Most milk is sold raw in small shops with consumers unsure of quality and left to boil their own milk at home. The export orientation of the dairy sector would actually be strengthened if it comes from a strong, domestic base. More importantly, processors would better be able to serve the market (and maintain attractive prices), if the difference in production levels between wet and dry season reduced. Currently, volumes reaching processors during the dry season are on average 60 % of the volumes during the rainy season, mainly because feed and water is more easily available for the cows during the rainy season. Reducing this gap between wet and dry season production requires commercialisation, with farmers investing in conserving feed during the dry season (silage, hay) and harvesting and distributing water on the farm.
The current price trends and competition in the market present an enticing opportunity for commercialisation of the dairy farming. But for it to take place successfully, two factors need to be supportive. Firstly, farmers need a strong service sector which delivers reliable, affordable, relevant and quality services. Take the example of Artificial Insemination: many farmers express interest but are discouraged due to the poor quality of the service and hence AI services only reach 10 % of its potential. Another example is financial services, where no bank at present has developed a specific dairy product, and with loan officers lacking insight into the sector, access to loans by dairy farmers is very difficult.
A second factor that can enhance commercialisation is the entrepreneurial spirit and attitude that requires nurturing. For farmers used to dealing with the vagaries of the season and focused on reducing risks, this is a difficult transition. The experiences in southwest Uganda show that collaboration in dairy cooperative societies, organised under the umbrella of the Uganda Crane Creameries Cooperative Union (UCCCU), has been a game changer in that respect. Cooperatives are not only an effective tool to help farmers market their milk collectively, they are also crucial in facilitating the commercialisation of the diary sector; a factor that seems so far to have been lost on government. Support to these cooperatives in their growth and service provision to members may be a better way of developing the sector than through the provision of handouts, as currently practised by Operation Wealth Creation.
Equally important is that efforts be made to support an emerging crop of new entrants. There is a small, but growing group of entrepreneurs, who see dairy farming as a business. With many of them holding on to jobs or investment in Kampala, if they can be encouraged to take up full-time farming on a commercial basis, they could well form the vanguard of change, that can propel the sector to the foreground in the push to make agriculture a leading contributor in the growth to a middle income economy.
This article originally appeared in The Independent.