Cost of milk production in East Africa Isabelle Baltenweck, Emmanuel Kinuthia, Bernard Lukuyu, Dominic Menjo, Susan Atyang and Elisée Kamanzi

International Livestock Research Institute (ILRI), Nairobi, Kenya

Presented at the 13th KARI Biennial Scientific Conference, 22-26 October 2012, Nairobi, Kenya

Introduction In East Africa, millions of smallholder farmers live below the poverty line despite the potential to earn well-above subsistence income of USD 2 a day. In this region, keeping dairy cattle and selling milk is common, though not always profitable. Many development partners, including the East Africa Dairy Development (EADD) project, are intervening in the dairy sector to support producers to enhance the profitability of smallholder dairy production. However, there is inadequate information regarding profitability of the dairy enterprise.

Objectives To compute the cost of producing one litre of milk in Kenya, Rwanda

and Uganda and compare the costs according to scale of operation and production system

To identify the cost components that should be targeted to enhance profitability

Methods Data were collected from a random sample of 148 farmers drawn

from the EADD project sites. In Rwanda and Uganda, three hubs in each country were selected

from intensive and extensive systems. In Kenya, three hubs each were selected from extensive and semi-

extensive systems. An estimate of total milk production in the last three months

preceding the survey was obtained by regression analysis Partial budget analysis was used to compute revenue, costs and

profits and the comparison made using t-test Two approaches were considered

• Revenues from milk only • Revenues from milk and cattle sales

Selected small-scale farmers owned at most three cows in intensive systems while those in the extensive systems owned 8 to 15 cows.

Conclusions Uganda had the highest cost of milk per litre followed by Rwanda

then Kenya. The most significant costs of production in Uganda were cattle

deaths, hired labour, calf milk and purchased feeds. In Rwanda, these were purchased feeds, hired labour, animal health and transport, while in Kenya these were cattle deaths, purchased feeds and calf milk.

In all countries, interventions should focus on reducing feed costs. In Kenya and Uganda, focus should be on reducing cattle deaths and cost of feeding calves. In Rwanda, focus should be on reducing transport costs.

Results

Farmers in extensive systems in Kenya realised higher revenue from cattle sales than those in semi-extensive production systems.

Intensive systems in Rwanda incurred higher production costs and made lower profits than extensive production systems.

Intensive systems in Uganda earned higher revenue from milk sales while extensive systems earned higher revenues from cattle sales and overall revenue.

Extensive systems in Uganda incurred higher production costs than intensive systems (mostly due to cattle deaths) and made lower profits from milk sales.

Item Kenya Rwanda Uganda

Extensive Semi extensive

Sign Intensive Extensive Sign Intensive Extensive Sign

Milk revenue 0.27 0.28 ns 0.31 0.3 ns 0.25 0.24 ***

Cattle revenue 0.12 0.04 * 0.05 0.08 ns 0.08 0.33 **

Total revenue 0.4 0.32 ns 0.35 0.38 ns 0.33 0.57 *

Total cost 0.16 0.12 ns 0.31 0.13 *** 0.21 0.73 **

Milk profit only 0.12 0.17 ns -0.01 0.17 *** 0.04 -0.21 ***

Total profit 0.24 0.21 ns 0.04 0.25 *** 0.12 0.13 ns

Item Kenya Rwanda Uganda

Small scale

Medium Sign Small scale

Medium Sign Small scale

Medium Sign

Milk revenue 0.29 0.27 ** 0.3 0.3 ns 0.21 0.17 **

Cattle revenue 0.12 0.04 * 0.03 0.18 ** 0.17 0.35 *

Total revenue 0.4 0.31 ** 0.33 0.48 * 0.38 0.52 ns

Total cost 0.13 0.16 ns 0.24 0.19 ns 0.19 0.52 **

Milk profit only 0.15 0.11 ns 0.06 0.11 ns 0.03 -0.35 ***

Total profit 0.22 0.15 ** 0.09 0.3 ** 0.2 -0.002 *

Table 1: Comparison of costs and profits by production system

Cost distribution by scale of operation in Uganda

Important costs among smallholders and medium-scale farmers in Kenya were feeds, cattle deaths and calf milk

Important costs among extensive and semi-extensive farmers were cattle deaths, feeds and calf milk

Significant costs among small- and medium-scale farmers include feeds, transport and hired labour although animal health was also high among medium-scale farmers

Purchased feeds, hired labour and transport were significant among farmers practising intensive system

Purchased feeds, hired labour, and animal health were highest cost components among in the extensive system

Significant costs among small-scale were include feeds, mortalities and calf milk while among medium scale was mortalities

Calf milk, purchased feeds, hired labour, mortalities and animal health were significant among farmers practicing intensive system

Mortalities and purchased feeds were the highest cost components among farmers practising extensive system

In Kenya, small-scale farmers earned higher revenue from milk and cattle sales than medium-scale farmers and thus higher profits.

In Rwanda, medium-scale farmers earned higher revenue from cattle sales than small-scale farmers and thus higher total profit.

In Uganda, small-scale farmers earned higher revenue from milk sales while medium-scale farmers earned higher revenue from cattle sales.

Total production cost was high among medium-scale farmers in Uganda resulting in lower profits. This was mainly driven by high incidences of cattle deaths.

Table 2: Comparison of costs and profits by scale of operation

Cost distribution by production system in Rwanda Cost distribution by production system in Kenya

Cost distribution by scale of operation in Kenya Cost distribution by scale of operation in Rwanda

Cost distribution by production system in Uganda

***, ** and * significant at 1%, 5% and 10%, respectively; costs in USD ***, ** and * significant at 1%, 5% and 10%, respectively; costs in USD