integrating informal actors into the formal dairy industry in kenya through training and...
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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
OutlineRole of informal businesses in pro-poor
development Dairy policy change as a means of
addressing poverty: example of Smallholder Dairy Project (SDP) in Kenya
The training & certification intervention BDSHighlights of SPIA-led Policy-oriented
research impact assessment (PORIA) of the intervention (Kaitibie et al, 2008)
Extensions beyond KenyaChallenges
Poverty and Agricultural Development
Started with UN’s declaration of 1996-2007 as the Decade of Eradication of Poverty
Quickly followed by PRSP’s as basis for multilateral lending
Poverty and hunger eradication central in MDGs agreed in 2000
Causality from agriculture-led economic growth to poverty reduction has been widely questioned
2008 World Development Report has evidence Few livestock dev projects before MDGs were
designed to impact the poor Many agencies now look at livestock-mediated
poverty alleviation favourably
Role of informal businesses in pro-poor development
They dominate production, processing and delivery and employs many
The majority poor (& many not-so-poor) depend on them
Policy has historically focussed on their displacement by formal capital intensive production & marketing
Vested interests often re-enforce their displacement
Available services have not tailored to them Basis for more widespread agro-industrial
development has thus been stultified
Integrating informal into formal value chains?
Formal
•legal•richer•highly capitalized •highly organized •well-connected •higher-priced products•In dairy: cold chain, pasteurization, packaging
Informal
•legal status?•poor, small-scale•myriad, often part-time •haphazardly organized•voice-less •discouraged / no policy support •Lower priced products•In dairy: raw milk sales
Informal actorsFormal industry
How?
The dairy sector in Kenya Predominantly based on smallholder production
with and informal milk marketing– >86% of all marketed milk is sold as raw milk to
consumers 1.8M dairy-cow owning households 350,000 full time employees Majority of all dairy marketing jobs (over 40,000)
are in the informal sector Poor consumers access affordable milk through
informal market, and it is almost invariably boiled before use
Milk channels
Policy environment – pre 2004
Dairy policy based on industrial cold-chain model– 1958 Kenya Dairy Act– Sales of raw milk effectively criminalized in urban areas
Kenya Dairy Board (KDB) main regulators– But does not reflect range of dairy sector stakeholders– Harassed and arrested informal traders– Informal traders unlicensed and unable to access training on milk
handling– Perceived concerns about poor milk quality and public health risks
Powerful private sector actors put pressure on KDB to stamp out informal trade
Smallholder Dairy Project
Collaborative research and development project (1997-2004), funded by DFID, implemented by– Ministry of Livestock and Fisheries Development– Kenya Agricultural Research Institute– International Livestock Research Institute
Objectives:– Characterise dairy sector and develop appropriate technologies to
overcome constraints affecting dairy-related livelihoods– Influence policy and institutional reform in support of dairy-related
livelihoods Policy Analysis and Advocacy:
– from 1999 increased emphasis on policy outcomes, with focus on informal milk market issues
– With stakeholders, developed explicit policy advocacy strategy– DFID assigned full time Junior Professional for policy advocacy
Informal market issues SDP Research showed that:
– Informal markets critical for access for poor producers and consumers
– Important employment: 1.7 full time jobs for every 100l milk handled daily
– High transactions costs due to rent seeking, milk spoilage, confiscation, small scale
– Disincentives for entrepreneurial activity, and for scaling up– Variable milk quality, although risk assessment showed low risk to
human health due to boiling– Licensing alone not associated with better milk quality– Training of market agents could improve quality, reduced losses
and costs, provide standards Evidence implied a different model for dairy marketing
policy in Kenya, with a key role for informal sector
Milk Traders
Training Service Providers (BDS)
Regulatory Authority
Certific
ation/Lice
nsing
Training & certificates of
participation in training
Accreditation & monitoring
Reporting
Cess f
ee
Training guides
Piloting policy-related interventions: Training & Certification using a BDS
Approach
Policy environment - now Positive engagement by KDB with small-scale milk vendors
– Training and certification, with incentive system– Subsidiary legislation changed to allow changed approach– Establishing and accrediting NGO and private business development
services (training) to informal sector actors– KDB field officers: check for licenses; conduct inspection of premises
(hygiene and handling); provide advice on how to get licensed; issue movement permits; assist with paperwork on licensing
KDB has signed East Africa Dairy Regulators Authorities Council (EADRAC), which recognizes and harmonizes approach to SSMVs
New Dairy Act in parliamentary process– Explicitly recognises role of SSMVs– Commits to engaging with informal sector for training and quality
improvement
Small Scale Milk Vendors Now
Nearly all encountered now licensed, with milk bars (49%) and milk movement (44%) permits most common
85% now trained on milk handling and quality control
90% believe it is now easier to obtain licenses than before policy change
Significant compliance generally allows one to operate, hence unlicensed SSMVs are not so much harassed anymore
Source: ILRI/PORIA survey
SDP Advocacy Strategy
ILRI
KARI
MoLFD
SDP
ITDG ActionAid
IPAR
Advocacy partners
SITEPolicy influencing
targets
Other researchers
Research partners and collaboratorsUniversities; NGOs;
farmers; traders; KDB
Farmers & farmer groups
PublicMPs
DFID
Ministries
KDB
Processors
Partners and Linkages:
ILRI
KARI
MoLFD
SDP
ITDG ActionAid
IPAR
Advocacy partners
SITEPolicy influencing
targets
Other researchers
Research partners and collaboratorsUniversities; NGOs;
farmers; traders; KDB
Farmers & farmer groups
PublicMPs
DFID
Ministries
KDB
Processors
ILRI
KARI
MoLFD
SDP
ILRI
KARI
MoLFD
ILRIILRI
KARIKARI
MoLFDMoLFD
SDP
ITDG ActionAid
IPAR
Advocacy partners
SITE
ITDGITDG ActionAidActionAid
IPARIPAR
Advocacy partners
SITESITEPolicy influencing
targets
Other researchers
Other researchers
Research partners and collaboratorsUniversities; NGOs;
farmers; traders; KDB
Research partners and collaboratorsUniversities; NGOs;
farmers; traders; KDB
Farmers & farmer groups
Public
Farmers & farmer groups
Farmers & farmer groups
PublicPublicMPsMPs
DFIDDFID
Ministries
KDB
Processors
Ministries
KDB
Processors
Partners and Linkages:Partners and Linkages:
Elements:- Steering committee of key industry stakeholders- Partnering with key NGO and other advocacy organisation- Regular presentation of evidence at stakeholder meetings- Field visits by decision makers- Pro-active use of public media- High level Policy Forum
Policy change process
Source: Leksmono et al, ODI Working Paper 266, 2006
Simplified representation of policy change process
SDP Research and communication activities
KBD dominated by processors
Harassment of informal traders
SDP Policy Focus
Policy change
NGOs work at grass roots with farmer groups
Milk War
SDP Dairy Policy Forum
NGOs become SDP partners
Attitude & behaviour
change
New GovernmentIncreased Citizen Voice
DFID Snapshot review of SDP
Safe milk campaign
2000 to 2003 2004 2005
SDP Research and communication activities
KBD dominated by processors
Harassment of informal traders
SDP Policy Focus
Policy change
NGOs work at grass roots with farmer groups
Milk War
SDP Dairy Policy Forum
NGOs become SDP partners
Attitude & behaviour
change
New GovernmentIncreased Citizen Voice
DFID Snapshot review of SDP
Safe milk campaign
2000 to 2003 2004 20052000 to 2003 2004 2005
Source: Leksmono et al, ODI Working Paper 266, 2006
Applied impact pathway in an ex-poste analysis Used an equilibrium displacement model to evaluate the
distribution of gains from policy change (e.g. Freebairn et al. 1982)
Reduction in transaction costs or market margin drives increased farmgate prices, reduced retail prices, increase in quantity of milk supplied to the market
Data: surveys of small scale milk market agents and KDB field officials in Aug 2007, and elasticity estimates by Selasya et al, 2006.
IA: Method
Changes in milk quantities handled
100.792.8
55 48.3
78.1 71.9
450.9 447.1
67.7 66.7
252.1 249.9
0
50
100
150
200
250
300
350
400
450
500
Purchased Sold Purchased Sold Purchased Sold
Nairobi/Thika Nakuru All locations
Qu
anti
ty o
f m
ilk (
litre
s)
Before policychange
After policychange
Average daily quantities of milk purchased and sold by SSMVs before and after the policy change.
Estimates of market margins
Type of businessNairobi/Thika price (KSh/litre) Nakuru price (KSh/litre)
Purchase Sale Margin Purchase Sale Margin
Before policy change
Average for all SSMVs
15.35 21.48 6.13 14.42 20.85 6.42
After policy change
Average for all SSMVs
16.60 21.93 5.33 15.81 21.96 6.15
Margin reduction attributed to policy change 0.80 0.27
Average margin over all locations and trader types, before policy change; 6.26
Average margin over all locations and trader types, after policy change; 5.72
Reduction in margin attributed to policy change; 0.54
Due to reduced: spoilage, rent-seeking, confiscation
Estimates of welfare benefits
Annual change in benefits (with 2005 as year when benefits start accruing)
Scenario
Economy-wide(Million US $)
Nairobi area gross benefits
(Million US $)
Benefits to consumers 8.01 1.46
Benefits to producers 16.04 2.98
Benefits to SSMVs 4.32 0.75
Benefits to input suppliers 5.09 0.90
Total benefits 33.46 6.09
Less annual SDP expenditure (1997-2004)
0.63
Less annual costs of training and licensing by SSMVs (2005-2039)
0.58
Less annual cess fees (2005-2039) and municipal, council costs
12.72
Annual Benefits minus costs (2005-2039) 19.53
Net Present Value (@5.00%) (to 2039) 230
Impact Analysis: Distribution of benefits
Reduction in margin due to reduced spoilage, rent-seeking 10+%Annual benefits to Kenya economy
To consumers: $8MTo producers: $16MTo traders: $4MTo input suppliers: $5MTotal gains: $33M
Incremental gain at individual level, but substantial at aggregate level
Beyond Kenya Under a Regional Project on Rationalisation and Harmonisation
of Dairy Policies, Regulations and Standards in Eastern and Central Africa (led by ASARECA)
– Standardization of curriculum for training of informal milk traders for 5 countries in EA, harmonized generic training guides for traders and their trainers for 5 countries in EA
– Formation of East Africa Dairy Regulators Authorities Council (EADRAC): MoU agreed in 2006 and Signed in Jul 2007
– MoU between EADRAC and EAC for wider political support being negotiated.
– The highest Uganda Government officials recently issued a letter to relevant authorities to consider implementing it
India– Approach being adapted and piloted in Assam NE India
(97% informal market)
Lessons Research evidence must be robust, reliable,
relevant to interests– both socio-economic and technical– communicated repeatedly, through multiple channels
Partnerships with credible advocacy voices– civil society – same agenda but different capacity
May use the public media Support politician’s own agendas Ground-level policy implications need to be tested
– Community level research is relevant to national and wider policy
Challenges Improved definition and characterisation of informal sector
beyond dairy– Linkages between informal sector and poverty reduction esp.
amongst vulnerable groups in relation to market participation Re-examination of Charmes’ (2000) exploratory work on
informal sector is timely – Risk management, sales, employment, emigration orientations,
effective use of pro-poor development resources– Tracking impacts over time, comparing and contrasting formal and
informal sector’s persistence, performance and synergy, Improved methodologies for analysis of informal value
chains Means by which formal and informal sectors can co-exist
– Incentives surrounding the efficient functioning of these linkages and their effect on welfare
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
SDP findings and SDP costs – SDP reports and files, ODI/ILRI study on SDP learning processes
SDP outputs – SDP reports and other outputs
Policy influence, policy and behavioural changes – SDP reports and other outputs, interviews with policy makers,
regulators and SSMVs
Economic impacts – SDP reports; Equilibrium displacement model (see Freebairn, Davis,
and Edwards, 1982; Wohlgenant, 1993); NPV
Attribution of impacts/counterfactual – Interviews with SDP actors; NPV with SDP compared NPV without
SDP
Appendix 2:ODI Study
Informal Traders Lock Horns with the Formal Dairy Industry: The role of research in dairy policy shift in Kenya. ODI Working Paper 266, Leksmono et al, 2006
RAPID Outcome Assessment (Research and Policy in Development Assessment)– Tracking back from policy change: Episode Studies of
specific policy change– Tracking forward from research: case study analysis– Outcome mapping: observing behaviour change
among policy-makers and stakeholders
Appendix 3: Values for estimating welfare changes attributed to new dairy policy
Variable description Value (Nairobi area)
Value (Kenya-wide)
Source of information
Raw milk production 493 million liters
4016 million litres
SDP, updated (SDP Policy Brief #10, September 2006)
Retail price Ksh 21.70/liter
Ksh 21.57/litre Study survey (averaged over all locations and SSMV sales
Farm price Ksh 15.97/liter
Ksh 15.58/litre Study survey (averaged over all locations and SSMV purchases
Non-market input cost per unit of output
Ksh 6.90/liter Ksh 7.06/litre Estimated using data from Salasya et al. (2006) and updated SDP milk production data
Elasticity of milk demand at retail
-0.97 -0.97 Salasya et al. (2006)
Elasticity of milk supply at farm
0.35 0.35 Salasya et al. (2006)
Elasticity of marketing services supply
2 2 Freebairn et al. (1982)
Cost reduction due to changes in transaction costs and elimination of NTB
Ksh 0.80 KSh 0.54/litre Study survey, decrease in retail farm price margin (comparing before and after policy change)
Appendix 4: Counterfactual- NPV with/without SDP
Time delay Real interest rate (%)
NPV without SDP
(US$ million)
NPV (with SDP minus without SDP)
(US$ million)
Legalization occurs 10 years later
5 124.01 106.43
IRR(%) 108
Legalization occurs 20 years later
5 56.07 174.37
IRR(%) 62
Based on NPV with SDP of $230M
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