Integrating informal actors into the formal dairy industry in Kenya through training and certification

Integrating informal actors into the formal dairy industry in Kenya through training and certification Towards Priority Actions for Market Development for African Farmers. AGRA Conference. 13-15 May 2009, Nairobi, Kenya Amos Omore and Derek Baker, ILRI, Nairobi, Kenya

Outline ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Poverty and Agricultural Development ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Role of informal businesses in pro-poor development ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Integrating informal into formal value chains? ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Informal actors Formal industry How?

The dairy sector in Kenya ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Policy environment – pre 2004 ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Smallholder Dairy Project ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Informal market issues ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Piloting policy-related interventions: Training & Certification using a BDS Approach Milk Traders Training Service Providers (BDS) Regulatory Authority Certification/Licensing Training & certificates of participation in training Accreditation & monitoring Reporting Cess fee Training guides

Policy environment - now ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Small Scale Milk Vendors Now ,[object Object],[object Object],[object Object],[object Object],Source: ILRI/PORIA survey

SDP Advocacy Strategy ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Policy change process Source: Leksmono et al, ODI Working Paper 266, 2006

Simplified representation of policy change process Source: Leksmono et al, ODI Working Paper 266, 2006

[object Object],[object Object],[object Object],[object Object],IA: Method

Changes in milk quantities handled Average daily quantities of milk purchased and sold by SSMVs before and after the policy change.

Estimates of market margins Due to reduced: spoilage, rent-seeking, confiscation Average margin over all locations and trader types, before policy change ; 6.26 Reduction in margin attributed to policy change; 0.54 Average margin over all locations and trader types, after policy change ; 5.72 0.27 0.80 Margin reduction attributed to policy change 6.15 21.96 15.81 5.33 21.93 16.60 Average for all SSMVs After policy change 6.42 20.85 14.42 6.13 21.48 15.35 Average for all SSMVs Before policy change Margin Sale Purchase Margin Sale Purchase Nakuru price (KSh/litre) Nairobi/Thika price (KSh/litre) Type of business

Estimates of welfare benefits 19.53 Annual Benefits minus costs (2005-2039) 0.58 Less annual costs of training and licensing by SSMVs (2005-2039) 0.63 Less annual SDP expenditure (1997-2004) 230 Net Present Value (@5.00%) (to 2039) 12.72 Less annual cess fees (2005-2039) and municipal, council costs 6.09 33.46 Total benefits 0.90 5.09 Benefits to input suppliers 0.75 4.32 Benefits to SSMVs 2.98 16.04 Benefits to producers 1.46 8.01 Benefits to consumers Nairobi area gross benefits (Million US $) Economy-wide (Million US $) Scenario Annual change in benefits (with 2005 as year when benefits start accruing)

Impact Analysis: Distribution of benefits ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Beyond Kenya ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Lessons ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Challenges ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Thank you Authors: Simeon Kaitibie, Amos Omore, Karl Rich, Beatrice Salasya, Nicholas Hooton, Daniel Mwero and Patti Kristjanson www.ilri.org and http//: impact.cgiar.org

Appendix 1. PORIA data sources and methods ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Appendix 2: ODI Study ,[object Object],[object Object],[object Object],[object Object],[object Object]

Appendix 3: Values for estimating welfare changes attributed to new dairy policy Study survey, decrease in retail farm price margin (comparing before and after policy change) KSh 0.54/litre Ksh 0.80 Cost reduction due to changes in transaction costs and elimination of NTB Freebairn et al. (1982) 2 2 Elasticity of marketing services supply Salasya et al. (2006) 0.35 0.35 Elasticity of milk supply at farm Salasya et al. (2006) -0.97 -0.97 Elasticity of milk demand at retail Estimated using data from Salasya et al. (2006) and updated SDP milk production data Ksh 7.06/litre Ksh 6.90/liter Non-market input cost per unit of output Study survey (averaged over all locations and SSMV purchases Ksh 15.58/litre Ksh 15.97/liter Farm price Study survey (averaged over all locations and SSMV sales Ksh 21.57/litre Ksh 21.70/liter Retail price SDP, updated (SDP Policy Brief #10, September 2006) 4016 million litres 493 million liters Raw milk production Source of information Value (Kenya-wide) Value (Nairobi area) Variable description

Appendix 4: Counterfactual- NPV with/without SDP Based on NPV with SDP of $230M 62 IRR(%) 174.37 56.07 5 Legalization occurs 20 years later 108 IRR(%) 106.43 124.01 5 Legalization occurs 10 years later NPV (with SDP minus without SDP) (US$ million) NPV without SDP (US$ million) Real interest rate (%) Time delay

Integrating informal actors into the formal dairy industry in Kenya through training and certification

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Integrating informal actors into the formal dairy industry in Kenya through training and certification