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The Smallholder Dairy Revolution or Smallholders and the Livestock Revolution?

The Smallholder Dairy Revolution or Smallholders and the Livestock Revolution?. Steven J. Staal International Livestock Research Institute IFCN Dairy Conference, May 2003. Research Centers of the Consultative Group on International Agricultural Research (CGIAR). Issues.

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The Smallholder Dairy Revolution or Smallholders and the Livestock Revolution?

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  1. The Smallholder Dairy RevolutionorSmallholders and the Livestock Revolution? Steven J. StaalInternational Livestock Research Institute IFCN Dairy Conference, May 2003

  2. Research Centers of the Consultative Group on International Agricultural Research (CGIAR)

  3. Issues • Small scale dairy farms dominate production in most developing countries • Why? • Can they compete internationally? • Can they compete with that larger farm down the road? • What factors influence competitiveness? • (What is competitiveness??!)

  4. Outline of presentation • The Livestock Revolution • Milk markets and consumption in developing countries • Characteristics of smallholder dairy production • Nutrients for the land • Nutrition for the family • Competitiveness • Economies of scale • Non-market benefits • Opportunity costs of labor • Comparing large vs small scale systems

  5. The near future: the Livestock Revolution • Expanding populations, incomes and urban households across developing countries particularly in Asia • This is driving greatly increased demand for livestock products, including milk • Much greater demand growth than for most crop products

  6. Predicting the Livestock Revolution • Recent study by C. Delgado et al, IFPRI/FAO/ILRI (1999, 2001) examined the trends for livestock demand and production to 2020 • Uses IMPACT model, global food model of 18 commodities including 7 livestock, 37 regions/countries, and annual iterations to 2020 • Market clearing prices, and levels of production, consumption, and trade

  7. Percentage Increase in Total Demand for Livestock Products 1993 – 2020 Developed countries Developing countries % increase in demand

  8. %/yr 3.3 3.5 3.2 2.7 0.4 The continuing Livestock Revolution: projected growth in milk demand Million MT/yr Kg/capita/yr 1997 2020 1997 2020 SSA 17 35 30 37 China 10 23 8 16 India 60 132 62 104 Developing C 194 372 43 61 Developed C 251 276 194 203 Adapted from Delgado et al., 2001

  9. Implications of the Livestock Revolution for milk production in DC’s • Model predicts that deficit countries will generally import feed rather than livestock products • Increase in production will thus occur mostly near where increase in demand occurs • As a consequence, Developing Countries will produce 52% of global milk in 2020, up from 32% in 1993 • Presents huge apparent opportunities for milk producers in Developing Countries (if they can compete)

  10. Sources of change in cow milk production, 1985-1998 % of change in cow's milk production 70 60 50 40 30 20 10 0 China India SE Asia SS Africa -10 Herd % Milking Productivity Interaction Herd growth likely to mean growth in numbers of farms, in absence of major structural change Source: ILRI using FAO statistics

  11. Informal dairy markets and actors • Informal/unorganised • Liquid, often raw, milk and traditional products • Sometimes formal – may pay taxes, licenses • Wide variety of actors • Direct sales • Small-scale traders • Traditional processors • Small-scale retailers • Generation rural/urban employment • 2-5 jobs per 100 L daily

  12. Informal dairy markets globally Informal market share % SSA Kenya 88 Tanzania 98 Uganda 90 L. America Mexico 33 Nicaragua 86 Costa Rica 44 Brazil 44 S. Asia India 85 Sri Lanka 40 Pakistan 98 • Primary market for both small producers and poor consumers Sources: ILRI Collaborative Research & FAO E-Conference

  13. Demand factors driving informal markets: elasticities of demand (Kenya) Income (expenditure) elasticity of demand • Largely driven by low cost and traditional preferences • Partially driven by relative demand for food safety and quality Raw milk 0.13 Pasteurised milk 0.50 Household income level Price elasticity of demand Low Medium High Raw milk 0.12 0.26 0.93 Pasteurised milk 0.70 0.12 0.21 Source: ILRI 2002

  14. Markets and scale of milk production • Spatial and household analysis of farm-gate milk price formation in Kenya • Informal markets charge penalty on higher volume • Formal market pay premium to higher volume • Market outlet options condition farmers incentives for scaling up Source: Staal et al, 2000

  15. System boundaries INPUTS Fertiliser Seeds Natural Inputs Field Cattle INPUTS Feed Fodder INTERNAL FLOWS Feed / Fodder Organic fertiliser (Manure) OUTPUTS Milk BW gain Manure Losses OUTPUTS Harvest Losses Dairy production’s role in sustaining mixed small farming

  16. Scarce nutrients – farm and family • Farm nutrients – problem is nutrient deficits, not surpluses • West Kenya – only farms with cattle had positive (small) nutrient balances • Central Kenya - more than 40% of fodder materials gathered from off-farm – nutrient channel • Family nutrition – problem is under nutrition, not over nutrition • Coastal and Central Kenya – hhs with cattle have significantly lower % of children exhibiting stunting (height for age) a measure of long-term under nutrition (Nicholson et al 2002)

  17. Economies of scale in dairy production • Can smallholder farmers compete against larger neighbors? • Several new studies (IFPRI, ILRI) using stochastic frontier analysis to examine economies of scale (Bangladesh, India, Kenya, Thailand, Brazil) • Qualifier: uses enterprise approach, excluding some non-market benefits

  18. India (Punjab, Haryana, Gujarat) Average Yield Per Animal 10 9.7 8.4 7.8 7.6 7.6 7.4 8 6.2 6.3 6 Rs./Lit. 4 2 0 Small Medium Large Commercial North West Source: Sharma and Delgado, 2003

  19. India: Average profit per liter of milk (with family labor) 0.7 0.5 Rs/litre 0.3 0.1 -0.1 <=20 20-40 40-80 80-150 >150 Avg. Farm scale - liters of milk/day Source: Sharma and Delgado, 2003

  20. India: Mean Farm Efficiency by Size group 0.94 0.85 0.87 0.86 0.83 0.9 0.80 0.7 Index 0.5 0.3 0.1 <=20 21-40 41-80 81-150 >150 Average Farm scale - liters of milk/day Key distinguishing factors: information** and credit* Does not include most non-market benefits Source: Sharma and Delgado, 2003

  21. Capital costs? - financing and insurance roles of livestock • Limited or no smallholder access to formal insurance (health, household) nor to formal credit. Dairy cattle can provide both. • E.g forced savings - lower milk price to accumulate payment • Opportunity costs of capital - Smallholders may also have few alternative inflation-proof savings/investment opportunities. • Financing • Sale of animals to meet planned lumpy expenditures • Value accrues at sale • Insurance • Keeping of animals to meet emergency expenditures • Value accrues daily

  22. Comparisons with and without non-market benefits – Western Kenya Benefits of finance and insurance are based on contingent valuation of WTP US$/yr 1400 1200 • Tested using tobit analysis of age of sale of culled cow • What is competitiveness? Increase in “profit” due to finance and insurance benefits 1000 18%  15%  14%  800 600 400 200 0 Intensive dairy Extensive dairy Semi-intensive dairy Source: Ouma 2003 Without With Without With Without With Total revenue Total costs Profits

  23. Opportunity costs of labor and herd size: comparison of typical herd size and rural wage rates, 12 selected countries in SSA, Asia and LA Source: Project on Transregonal Analysis of Crop-Livestock intensification, ILRI 2002

  24. Few outputs/objectives, enterprise model Multiple outputs/objectives, farm-household model Often subsidized Few subsidies, may be taxed indirectly Capital intensive Labor intensive Strong economies of scale Weak economies of scale Human over-nutrition, threat to human health (?) Human under-nutrition, sustaining human health System nutrient surpluses, threat to environment System nutrient deficits, sustaining natural resources Large/formal/rich vs small/ informal/poor dairy systems Large/formal/rich Small/informal/poor Production profile Nutrient and nutrition profile

  25. Value added products, highly processed Low cost products, traditional processing High relative demand for food safety/quality Low relative demand for food safety/quality Highly regulated and monitored Largely unregulated, unrecorded Over-represented: loud voice in domestic and international policy Invisible: little voice in domestic or international policy Stagnant future prospects (??) Growing future prospects (??) Large/formal/rich vs small/ informal/poor dairy systems (cont) Large/formal/rich Small/informal/poor Demand and product profile Policy profile Growth and opportunity profile

  26. Thank you

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