AGRICULTURAL VALUe ChAIn FInAnCInG In KenYA

12 • AGRICULTURAL VALUE CHAIN FINANCING IN KENYA: ASSESSMENT OF POTENTIAL OPPORTUNITIES FOR GROWTH
Chapter 4
DAIRY VALUE CHAIN
4.1 BaCKGROUND
The dairy value chain is extensive, significant to both national and household
income and is growing. 5.7% of Kenyans are engaged to some degree in the
dairy value chain with the majority of the production coming from the Rift
Valley and Central provinces. However, to a lesser degree there are 11 other
“milk sheds” with significant production and processing in other parts of Kenya.
Dairy contributes USD 1.1B, the largest amount of any value chain reviewed
equating to 3.5% of GDP. On average it contributes USD 599 per household
involved. The production of milk increased from 2.6b to 3.1b litres between
2006 and 2008 and the price appreciated by 19.2%,
While the dairy value chain is well commercialised, trade is still dominated
by small scale, informal traders. While there are technical support and credit
relationships among value chain actors, these are far short of their potential.
This is probably not so negative for the time being and in time competition and
I
Functioning supply and
demand relationships
consolidation will increase economies of scale and strengthen relationships
between actors. The Government of Kenya has strategically supported dairy
and has wisely stepped away from any involvement in the buying and selling
of dairy products.
Adequate infrastructure and strong concentration of dairy production and,
especially, processing will facilitate the continued development of financing
strategies for dairy. Several financial institutions are already engaged but
there remains much room for improvement in the provision of savings and
credit services.
In terms of food security, dairy contributes a lot of cash to household incomes
but given that milk is highly perishable, it cannot be practically stored.
Nonetheless, milk and milk by-products are an important contributor to the
Kenyan diet.
Table 4: Key areas of interest and respective weighting – dairy value chain
Weight Explanation Score
34%
a Inputs 2%
b Commercialised production 10%
c Marketing competition 10%
d Number of wholesalers 2%
e
Diversification of value
addition
10%
II Economic relevance 10%
a Producers versus population 1%
1. Evidence that input supply is competitive = 2%
2. No evidence than input supply is constrained = 1%
3. Evidence that input supply is constrained = 0%
1. Evidence of high-input commercial yields and contract farming = 10%
2. Evidence of high-input commercial yields only = 5%
3. Evidence of contract farming only = 5%
4. Evidence of neither = 0%
For each value chain divide the farm-gate price over prevailing terminal market price or export
price. Allocate percent scores from 10% to 0% on the basis of this ratio with 10 % going to the
highest value and 0% going to the lowest value with results in between rounded to the nearest
whole number (1%, 2%, 3%…).
1. Evidence that wholesale marketing is competitive = 2%
2. No evidence that wholesale marketing is competitive = 1%
3. Evidence that wholesale marketing is not competitive = 0%
1. Evidence of many and diverse value adding processes = 10%
2. No evidence of many and diverse value adding processes = 5%
3. Evidence of no meaningful value addition = 0%
For each value chain, divide the number of producers over Kenya’s population (39,000,000).
Allocate percent scores from 1% to 0% on the basis of this ratio with 1% going to the highest
value and 0% going to the lowest value. Round to 1% or 0% to produce score.
2%
5%
2%
2%
10%
1%