Lotte Test Article about the Dairy Sector

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What you need to know:

  • Kenya’s dairy industry has an estimated value of four per cent of the gross domestic product .
  • Farmers continue to receive payments despite the impact of Covid-19.

While many economic sectors are losing millions of shillings in the wake of Covid-19, the dairy industry is shaking off the turmoil, with milk prices remaining firm.
Stakeholders and economists have attributed the sector’s success to interventions put in place even before the outbreak of coronavirus.

Unlike sectors such as floriculture, tea and coffee, which depend on exports to survive, the dairy sector business is almost normal.

Industry experts said  availability of local demand and elaborate plans laid down to empower farmers on best practices and adoption of modern farming practices are keeping the sector robust.

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Although dairy farming is known to contribute to food security, it is the sub-sector’s role in incomes that is coming to the fore at this time, as farmers strive to maintain cash-flows necessary for financing family needs amidst the coronavirus pandemic.

Kenya’s dairy industry has an estimated value of four per cent of the gross domestic product (GDP).

It’s “one of the few enterprises that guarantee income for our families at this time when the other value chains are experiencing depressed performance especially when it comes to returns for farmers,” said Mr Edwin Sing’oei, who sells his raw milk to leading processor in the country Brookside Dairy through the Elburgon Progressive Dairy society in Nakuru county.

“Marketing of raw milk through the formal channels, such as those facilitated by Brookside Dairy assures farmers of payments for their produce, unlike in other sub-sectors of the agriculture economy,” added Mr Sing’oei, who supplies 350 litres of milk to the processor daily.

Farmers continue to receive payments despite the impact of Covid-19.
“Major processors like Brookside have continued to make regular payments for deliveries in spite of the unique challenges in the supply chain brought about by the pandemic. However, farmers who were selling their milk through hawkers in the informal market have not been as lucky,” revealed Mr Sing’oei.

In April, just after the announcement of coronavirus containment measures in the country, Brookside Dairy, which controls 40 per cent of the country’s raw milk market, adjusted farm-gate prices upwards, with an incentive of an extra shilling per kilogramme of raw milk to cushion farmers from the effects of the Covid-19 disease.

The increase has seen the processor’s 160,000 farmers benefit from a price of over Sh36 per kilo of raw milk.
 The move was a big relief for farmers at a time businesses are re-evaluating their strategies to survive the virus.

 “As the country implements far-reaching measures to contain the coronavirus and its threats onto the economy, and especially agriculture, we decided to increase farm-gate prices of milk in order to minimise the financial impacts of the current situation on our farmers,” said Mr John Gethi, Brookside’s director of milk procurement and manufacturing.

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The New Kenya Cooperative Creameries (New KCC) Nixon Sigey said the favourable weather condition at the beginning of the year coupled with intensive training on feeding regime has helped thousands of New KCC farmers reap maximum benefits.

The MD revealed that before the Covid-19 outbreak, the processor was planning to launch a pilot on quality-based payment system.

He said all their farmers had been paid, which motivated them to boost their production.
However, he noted, all the processors have been affected as the purchasing power of their customers has gone down due to many job cuts. “Our big sales in schools and hotels have been affected as these two outlets have been closed down and it is hurting many processors,” Mr Sigey said.

Mr Gethi said Brookside, which pioneered the use of milk supply contracts with farmers, buys all contractual volumes of milk from its suppliers, even in times of difficulty and uncertainty such as the current crisis.

“Our contracts are unique in that they guarantee to buy 100 per cent of all produce from our farmers. During this difficult time due to Covid-19 on the economy, we have remained true to this promise,” Mr Gethi told Smart Company.