FACTORS INFLUENCING SOUTH-WESTERN UGANDA DAIRY FARMERS’ CHOICE OF THE MILK MARKETING CHANNEL: A CASE STUDY OF KIRIHURA
DISTRICT-SOUTH WESTERN UGANDA. By G. Y. Sikawa1and J. Mugisha2
Abstract
This research investigated factors influencing dairy farmers’ choice of milk marketing channel in Kirihura District, South-Western Uganda. It is an attempt to establish factors which influence dairy farmers’ choice of the milk marketing channel in the District. A structured questionnaire was used to collect data from dairy farmers. The questionnaire contained questions that brought out answers to milk prices, farm size, volume of milk produced, number of milking animals, marketing channels, and household demographic characteristics. Also focus group discussions were used to capture on activities in the milk chain.
Research findings indicate that, there was a significant difference in channel participation where informal marketing channel had more participants (73.3 percent) and formal marketing channel participants were fewer. The Heckman Probit Model was used to identify the factors which influence dairy farmers’ choice of milk marketing channel. The results from the model show that age of the dairy farmer (P≤0.05), membership in cooperative (P≤0.01), form of payment (P≤0.01), volume of milk produced (P≤0.05), level of education of the dairy farmer (P≤0.1) and marketing costs (P≤0.01) greatly influenced the choice of milk marketing channel.
It is recommended to provide education to the dairy farmers on the importance of selling milk to the formal channel; DDA should assure farmers of market for the milk especially during the rainy season when milk volumes are huge. Ensure accessibility to dairy farms by the means of roads construction and maintenance. Establishment of area cooperatives is highly recommended. It is from these associations where farmers learn new ways of farming.
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Key Words: milk marketing channel, The Heckman Probit Model, Dairy chain.
1. Introduction
1.1 Background of the study
Dairying is one of the investment areas farmers can make to improve their standards of living. It is a developmental tool as it widens and sustains three major
1Gideon. Y. Sikawa is a Lecturer in the Department of Management and Law at Moshi University College of Co-operative and Business Studies (MUCCoBS). He was the 2011 FK Participant hosted by Makerere University, Uganda.
2Prof. Mugisha was the Host Supervisor for the FK Participant (first author). Prof. Mugisha is currently Dean, School of Agricultural Sciences, Makerere University.
pathways out of poverty; securing the assets of the poor, improving smallholder and pastoral productivity, and increasing market participation by poor, contributes up to 80 percent of agricultural gross domestic product in developing countries (International Livestock Research Institute (ILRI, 2007), World Bank classifies livestock as a high value market that is fastest and its importance is expected to increase growing agricultural market in most developing countries (World Bank, 2008). In Uganda, the livestock sector contributes 13.7 percent of agricultural GDP and 4 percent of the national GDP (Ministry of Finance Planning and Economic Development (MFPED), 2000). Dairy production plays a vital role in improving on people’s nutritional status, generating income to farmers and improving soil fertility through manure application (Nakiganda et al, 2006). It is also an important source of employment with many traders, processors and retailers intervening in the market.
The dairy sector contributes about 50 percent of total output from the livestock sector, 20 percent of the food processing industry and 4.3 percent of the National GDP, and therefore acts as a source of food, income and employment (Ndambi et al., 2006). Milk provides relatively quick returns for small-scale livestock keepers (Polak et al, 2008) and is a balanced nutritious food, (a key element in household food security) (ILRI, 2003).The national cattle population has experienced steady growth with about 34 percent being dairy cattle. This has been attributed to the increasing demand by consumers and milk processing plants, better herd management, adoption of improved breeds and improved animal health and support services (UBOS, 2006). Dairy production is based on two contrasting systems; wetter parts of the country especially in western Uganda with commercial dairy farms and, drier Eastern and Northern parts where local Zebu cattle under traditional extensive management (Baltenweck et al., 2007). Exotic breeds kept include the Jersey, Holstein, Friesian, Guernsey, Ashyire and Brown Swiss (MAAIF, 2000).
1.2 Dairy chain in Uganda
Currently, Uganda produces 1.3 billion litres of milk per year, of which 30 percent is consumed on the farm and 70 percent is marketed to consumers (Balikowa, 2006).There are five main milk producing regions or milk sheds in Uganda and 80 percent of the milk is produced in the southern (south-western milk shed) alone accounts for over 30 percent of the total milk production and therefore constitutes the major source of marketable milk in the country. The average milk production per cow per day is quite low (less than 10 litres) that account for 93.3 percent and only 0.5 percent cows produce 20 litres per day with Friesian cows being most productive.
Elepu (2006) and Balikowa (2003) observed that milk collection in Uganda includes direct pick up from the producers by agents, co-operative assembly and individual supply (producers) deliver directly to pick up points. Majority of the milk is collected and distributed through Milk Collection Centres which are owned by private traders. Balikowa (2003) noted that there are two milk collection systems; the formal and informal channels. The informal milk collection channel is characterized by lack of milk collection infrastructure, limited quality control and selling of milk on credit but in some cases cash is paid. The common means of transport at farm level is the bicycles.
In Uganda, milk processing is handled by over 10 private companies and over 100 small scale processors (Elepu, 2006). The processing companies include Sameer
Agriculture and livestock limited, Jesa Farm Dairy, GBK Dairy products, White Nile Dairy, Birunga Dairy, Teso Fresh Dairy, Paramount Dairies Ltd, Alpha Dairy Products and MADDO Dairies Ltd (DDA, 2008). The products processed by companies are cheese, cream, ice cream, yoghurt, cultured milk, butter and ghee. Balikowa (2003) found that on farm processing of milk is done at limited scale and approximately 9 percent of farmers’ process milk into ghee mainly for home consumption while 2 percent make other products particularly yoghurt and ghee and 89 percent do not make any milk product.
1.3 Problem Statement
The dairy industry remains a key livestock component with significant contribution to food security and income in pastoral communities of Uganda (FAO, 2008; ILRI, 2007). Dairy policies have been relaxed to allow market forces to determine farm level prices. This has exposed farmers to lower milk prices while downstream retail prices are higher (Huff, 2003, Artukoglu et.al, 2008, Tsougiannis et al, 2008). This has resulted into considerable mistrust among market chain actors in developing countries (Markuset al.,2008).
The noted significant increase in milk production and the growing demand is likely to drive productivity at farm level (Elepu, 2006). However, about 80 percent of marketed milk still passes through traditional informal marketing channels in spite of high profile given to formal milk marketing channel (DDA, 2010). The growing middle class income earners are likely to increase the demand for more formally processed products, which the informal market generally cannot deliver (Henriksen, 2009), because of this, the government of Uganda is advocating for formal milk marketing directly from farm level ( Dairy Development Authority (DDA, 2010).
With the establishment of the Dairy Development Authority (DDA) in 2000, there are concerted efforts to integrate the informal sector with the formal sector in order to improve on milk quality and safety. Following its mandate, DDA is involved in registering, training, and licensing of milk traders nationwide. Milk traders are trained on new milk marketing requirements such as maintenance of proper hygiene, milk cooling, cleanliness of the premise, and so forth. In order to enforce these new regulations, milk traders are regularly monitored by DDA in conjunction with Uganda National Traders Association (UNDATA). While the formal milk marketing has been advocated for, it has emerged that only 20 percent of milk is sold to formal milk marketing channel. This action by these farmers suggests that there are some more reasons why dairy farmers are not participating in the formal milk marketing rather they have continued serving traditional informal marketing channels which include selling of raw milk through Milk Collection Centers, consumers and itinerate traders. Therefore, this study investigated the factors which influenced South-Western Uganda dairy farmers’ choice of the milk marketing channel.
1.4 Objectives of the study
1. To characterise dairy farmers participating in formal and informal milk marketing channels.
2. To determine factors that influence dairy farmers’ choice of milk marketing channel.
3. To find out the constraints dairy farmers face when supplying milk to formal marketing channel.
1.5 Research Questions
1. Why do some farmers sell milk in the formal market while others continue to sell in the informal market?
2. Which factors influence the choice of informal milk marketing channel? 3. Which constraints farmers face when supplying milk to formal marketing
channel?
1.6 Justification of the Study
Improved performance of the dairy industry will only be meaningful if farm level marketing strategies are efficient (MFPED, 2007). Therefore, the analysis of milk marketing channel is essential for dairy development at micro level and in formulating plans for improvement in the dairy sector through formulation of a proper marketing channel and increased employment generation in agriculture, based on sound economic principles at macro level (Debnarayan and Bikash (2010). The study address the future directions in the streamlining the adoption of formal milk marketing channel by farmers. The study results act as a working document for both the government and other stakeholders in addressing the constraints faced by dairy farmers participating in formal milk marketing channel for them to benefit from current high demand of dairy products. For policy implementers like extension agents, study results put them in a better position to enhance formal milk marketing channel after being enlightened with factors that affect the channel participation. It therefore contributes towards design of appropriate policies enabling development of dairy sector. The study also acts as a source of information to future researchers in the dairy industry.
2. Literature Review
2.1 Milk Production in Uganda
Ugandan milk production is largely dominated by small-scale farmers who own over 90 percent of the national cattle population (FAO 2004). In rural areas, where 96 percent of poor Ugandans live (Okidi et al, 2004), up to about 60 percent of the households keep mostly indigenous cattle (NADDS; King 2002). By far, the majority of milk production systems in Uganda are characterized by (a) a ‘low input–low output’ approach, (b) livestock is not an important source of cash, but a source of food, store of wealth and status symbol, and (c) milk demand is increasing and driving more and more of these dairy farms to intensify and often to diversify as to increase household returns. (Salasya et al, 2006).
The dairy sector is considered to be the most organized livestock sub-sector in Uganda. Currently, the Dairy Development Authority (DDA) is charged with promoting production, competition and monitoring the markets for milk and dairy products. To achieve this, DDA collaborates closely with multiple private sector organizations operating in Uganda (DDA. “Annual Report: 2003/2004)
Dairy farming is concentrated in 42 districts found in the cattle corridor, which stretches from the south-western region through the central to the north-east. On
average 60 percent of the households in the cattle-producing region keep livestock. National milk production has experienced increase over the years, from an estimated 655 million in 2010 to the current 1.9 billion litres. The national herd size is about 24 million cattle of indigenous, exotic and crossbreeds (Salasya et al, 2006).
The growth in milk production has been attributed mainly to the growth in cattle population rather than increased milk productivity per cow that is still being hindered by low adoption of improved technologies and management practices (Elepu, 2006). A large proportion (over 80 percent) of the total milk produced comes from the local cattle breeds which form a great majority (over 95 percent) of the national herd. On the other hand, improved cattle breeds whose size is estimated to be less than 5 percent of the national herd contributes about 16 percent of the total milk output.
The country’s total cost of milk production is dropping with increasing herd size, while dairy returns vary among farms from US$18 to $35 per 100 kg of milk. The dairy industry contributes about 50 percent of total output from the livestock sector and plays an important role as a source of food, income and employment. Dairy farming is on the increase in Uganda. In the last decade the number of smallholder dairy farms has greatly increased (Balikowa 2004). Scarcity of dietary animal protein, improvement in the standard of living in the country as well as the first growing human population favour expansion of the industry. Commercial dairy farming is a capital and labour intensive business. Success requires a sound combination of business management, animal husbandry knowledge and skills. In Uganda, the bulk of the milk produced is consumed within the country in form of loose milk and various dairy products and the surplus exported to neighbouring countries. However, Uganda still imports milk in various forms from neighbouring countries particularly Kenya and beyond.
2.2 Production of milk products
Domestic production of dairy products has also steadily increased overtime. Dairy products include pasteurized milk, UHT milk, yoghurt, cream and ice-cream, cheese, cultured milk, butter and ghee. Of these dairy products, pasteurized milk forms the bulk (about 80 percent) of processed milk. Key players in milk processing are of different sizes: small, medium, and large-scale (Dobson, W.D. and D.K. Combs, 2005). Currently, there are over ten major dairy processing plants operating in Uganda as shown inTable 1.
Table 1: Dairy Processing Companies in Uganda
Company Location Capacity
(‘000 litres/day)
Sameer Kampala 130
GBK Mbarara 90
Kaisa Fresh Milk Kamuli 10
White Nile Dairies Jinja 10
Birunga Dairy Kisoro 8
Alpha Dairies Mbarara 50
Gouda Gold Kampala 5
MADDO Dairies Masaka 2
Paramount Dairy Mbarara 3
Teso Dairies Soroti 3
Source: DDA, 2004
There are over 100 small-scale dairy processors that process between 100 and 500 litres of milk per day into yoghurt, ice-cream, cheese, ghee, boiled and cooled milk, and fermented or sour milk popularly known as “Bongo.” Further, there are over ten medium and large-scale dairy processing plants operating in Uganda. However, all dairy processing plants are operating below their installed capacities (i.e. about 35 percent of installed capacity), perhaps due the fact that most of the milk is sold in raw or unprocessed form (Salasya et al, 2006).
2.3 Milk marketing in Uganda
The current per capita consumption of milk is about 40 litres. This level of consumption is far below the recommended rate by Food and Agriculture Organization (FAO) and World Health Organization (WHO) of 200 litres. Various reasons account for low milk consumption in Uganda, namely: economic, social, and cultural factors (Thomson, 2006). The major market for milk is the urban population, which is only 12 percent of the total population. Even among the urban dwellers, only a small fraction of households can afford to buy milk regularly.
In a survey of 374 households in various parts of the country, over 70 percent of them said that low household income was the main reason for the limited consumption of milk (LOL, 2001). Furthermore, the culture of milk consumption in Uganda is generally very poor. For example, there is a general consumer preference for whole milk over dairy products. A number of initiatives are being implemented to increase consumption of milk and dairy products and build a strong local market. The Dairy Development Authority is liaising with the Ministries of Health, and of Education and Sports to promote milk consumption in schools. Similar initiatives are being supported by the private sector, particularly Non-governmental organizations such as Land O' Lakes (Marenya, P. and Barret. 2006).
Of the total milk produced annually, it is estimated that only 70 percent of it is marketed and the other 30 percent is consumed on the farm. There are two marketing channels for milk: informal and formal marketing channels. While 80-90 percent of the marketed milk is sold through the informal marketing channel as raw milk, the remaining 10-20 percent is sold through the formal marketing channel as processed milk. In terms of market, all the milk passing through the informal marketing channel is sold to the domestic market. On the other hand, 10 percent of the processed milk is exported to the regional markets such as Kenya, Democratic Republic of Congo and Rwanda (Salasya et al, 2006).
Since the 1960s one of the most critical problems facing dairy farmers in Uganda has been recognized as that of marketing their milk. This problem has been recognized in the overall context of the importance of marketing considerations not only in stimulating increased milk production but also in raising dairy farm incomes and living standards and improving the nutritional well-being of the population in rural as well as urban areas. Hence, in Uganda the development of milk marketing infrastructure has been inextricably linked with the development of the dairy industry (Voors and Haese.M, 2011)
Although Government dominated the early initiatives in organized milk marketing in Uganda, a few independent producer marketing groups were established. Notable among the early groups established in the 1960s were Toro and Kigezi dairy co-operative societies. However, all the development initiatives in the dairy sector got a setback in the 1970s on account of civil disturbances and political instability. It was not until 1987 that a serious programme to reconstruct the national economy was put in place. Accordingly, the Uganda Government prepared the National Rehabilitation and Development Plan for the period 1986 - 1990 which was later extended to 1992 (Tsourgiannis et al, 2008)
The Government programme was the basis for co-operation with many multilateral external donor agencies in the development of the dairy sector in Uganda. To a very large extent, implementation of the programme was co-ordinated by the UNDP funded and FAO executed technical assistance project, UNDP/FAO Dairy Industry Development Project UGA/84/023 and follow-on UNDP/FAO Rural Community Dairy Production and Marketing Project UGA/92/010.
Elepu (2006) and Balikowa (2003) noted informal channel accounts for 80 percent -90 percent of the total milk trade in Uganda today. The trade in unprocessed milk has had a tremendous impact in mopping surplus milk from dairy farmers and it is reported to have eliminated the outcry that used to be associated with the rainy season (MAAIF, 2004). Informal channel has become an important source of income to many people and a serious competitor to the formal milk channel (DDA, 2010), Marenya et.al, (2006), Mburuet al,(2007).
However, this channel has a lot of weaknesses which include: lack of facilities for pasteurization and hygienic handling of milk, adulteration of milk with water and other chemicals, use of poor quality vessels in transportation of milk (for example jerry cans), boiling of milk in very unhygienic environments, lack credit, and difficult to monitor and supervise quality standards. Formal milk marketing channel, on the other hand, operates an organized system of milk collection, using well-established bulking and transport infrastructure (Fulleret al, 2004).
Milk coolers are set up in the countryside for milk collection by farmers, co-operative societies, or agents. Thereafter, chilled milk is transported in insulated milk tankers to the factory where it is processed and packaged before marketing.
According to Elepu (2006), formal marketing channel has a lot of strengths that include production and marketing of high quality milk and dairy products, increased shelf life of milk and dairy products, credit development, easy monitoring, absorption huge amounts of milk and supervision of quality standards, supporting an organized and elaborate nation-wide milk collection Tsougiannis et al. (2008) in the study of marketing strategies of agricultural producers in objective one Greek regions noted that
the choice of milk marketing channel especially processing plants channel was positively influence by the volume of milk produced by the farmer per day. However, formal milk marketing channel also has some weaknesses which include large initial capital outlay, few/ inadequate bulking centres, high processing, transport and packaging costs, high prices of processed milk, low prices of raw milk, Vijay et al, (2009) and dairy product, obtaining milk from farmers on credit and delayed payments and credit transactions with consumers are absent. Steal et al, (2006), farmers’ choice of the marketing channel is positively influenced by form of payments that is cash or monthly payments.
2.4 Marketing channels for milk and dairy products
According to Gundlack (2006), the very earliest formal conceptions of marketing channels focusing on the functions performed by a distribution system and the associated utility of these functions and the overall system. Reflecting their presence in industrial and transitional economies, marketing channels gradually came to be viewed as a set of interdependent organizations involved in the process of making a product or service available for use or consumption (Coughlin et al, 2001). This institutional oriented perspective draws attention to those members (e.g. wholesalers, distributors, retailers, etc.) comprising the distribution system and engaged in the delivery of goods and services from the point of conception to the point of consumption (Anderson and Coughlan, 2002).
Leighet al. (2003) noted that dairy farmers market their milk in raw or processed form. Profit potentials exist for producers serving niche markets via small scale processing ventures. Mburu et al .(2007) in their study of determinants of smallholder farmers’ adoption of various milk marketing channels in Kenya found out that farmers market their milk through itinerant traders(hawkers, neighbours and hotels) and dairy co-operatives. However, the majority farmers adopted co-operatives. This was because co-operatives acted as source of production information, and credit services to farmers. Otieno et al, (2009), the use of market information generated by certain marketing, increases the output sales of the farmer in market and therefore more willingness to participate in a channel.
Tsougiannis et al. (2008), in the study of marketing strategies of agricultural producers in objective one Greek regions whose aim was to examine the factors affecting the selection of marketing channels of sheep and goat producers in the region of east Macedonia and Thrace in Greece relative to the distribution of their livestock and milk produce. The survey concluded that farmers sold milk through local private processing plants, co-operative processing plants, national or regional dairies and own consumption.
Artukoglu, and Olgum (2008), in their study of co-operative tendencies and alternative milk marketing channels whose aim were to determine the cooperation of milk producers and to analyze the milk marketing structure in Turkey. It was noted that dairy farmers marketed their milk through five channels; milk processing factories, small scale milk processing plants, milk processing co-operatives, milk collection cooperatives and street sellers.
Since 1990s, milk and dairy products’ markets in Uganda have been liberalised, this has put the product market price into hands of market forces and therefore free participation of private sector and also increased marketing standards and regulations of dairy products (Wozemba and Nsanja, 2008).Milk marketing in Uganda is to folded, that is the formal and informal milk marketing (Elepiu, 2003). The formal milk marketing is characterised by organised distribution structure, established infrastructures and hygienic handling practices where milk reaches the final consumer in processed form (Ghee, ice cream. UHT, Yoghurt) while informal milk marketing channels (sell raw milk to consumers directly, co. operative milk marketing and itinerate traders) which involving selling raw milk to consumers that is inefficiently handled by dirty handling materials such as plastic containers, adulterations and poor quality preservation practices(Elepu,2006). However irrespective of high profile given to the formal milk marketing channel, majority farmers have ignored participating in the formal markets due to demographic, economical and dairy farm characteristic factors as they are explained below.
2.5.1 Educational level
Education has a significant positive influence on market participation (Fuller et.al,2004) Education level is measured in numbers years a person spends in the formal educational institution ( Ndinomupya.M, 2008).Education enhances managerial competencies and successful implementation of improved production, processing and marketing practices(Marenya and Barret,2006, this makes it possible for farmers to take new agricultural innovations. This because, the more the education level achieved the higher the chances of adopting a new marketing channel due to new knowledge exposure. Therefore education is statistically significant in the choice of modern milk channels (Cooperative and private dairy plants) (Vijayet al.2009).
2.5.2 Sales’ price
Ndinomupya. M (2008) in the study of determinants of sustainable coffee marketing channel choice and supply response and UTZ certified smaller holder farmers: Evidence from Uganda, defined Price as a reward offered by the market to the supplier of the goods and services. Artukoglu et.al. (2008),Tsougiannis et al.(2008) noted that the choice of the marketing channel by dairy farmers heavily depended on the price offered by that channel. Marketing channels that offered price premiums to farmers received lot milk compared to those channels which were offering low prices. This is because additional Ugandan shillings will increase farmers’ propensity to participate in the marketing channel (Qi Wen’e and Tang Wenshan, 2009).Price is an important impediment to market entry as well as adoption of improved technologies(Vijay et al,2009).The lower the price, the greater price risk. This tend to increase farmers shift to channels which are transparent and offer stable price(co-operatives and organised private dairies) compared to traditional channel were players offer prices depending on the production season that is high price during lean and low in flush seasons or sometimes disappear from the market.
2.5.3 Marketing costs
According to Manyong et al,(2008) in the study of effects of transaction costs on market participation which included marketing costs like transport, market fees and license indeed had significant negative effect on farmers’ market participations of maize supply and fertilizer demand. More so Artukoglu et al. (2008) in the study of cooperative tendencies and alternative milk marketing channels noted that the higher the transport cost incurred by dairy farmers, the less the interest of participation in the channel. High transport costs are associated with long distance that significantly reduces the percentage of milk supplied to the marketing channel (Otieno et al.2009) because they reduce farmers’ gross margins earned. However institutional innovations such as group marketing can mitigate the costs of accessing markets (Manyonget al, (2008).
2.5.4 Source of market information
The intensity of advertisements and the extent of farmer exposure to market information positively influence market participation. Marketing channel that have streamlined structure of market information flow encourage customer participation (Fuller et al, 2004). Awudu et al., (2009) in his study of milk marketing channel choice found that dairy farmers sold their milk depending on the source of market information. This is due to the fact that use of market information generated by certain marketing increases the output sales of the farmer in market and therefore more willingness to participate in a such channel (Otienoet al, (2009).
2.5.5 Volume of milk produced
According to Vijay et al, (2009) noted that both modern private dairy plants and traditional channels prefer suppliers from large farmers who can supply large quantities of milk. Tsougiannis et al. (2008) in the study of marketing strategies of agricultural producers in objective one Greek regions noted that the choice of milk marketing the channel especially processing plants channel was positively influenced by the volume of milk produced by the farmer per day. This is because of reduced costs on the sides of processors particularly transport and quality milk production since large volumes of milk are produced by big farmers that have access to veterinary services (Vijayet al. 2009). 2.5.6 Number of animals kept
Vijay et al. (2009) and Tsougiannis et al. (2008) noted herd size as a significant determinant in market channel participation in modern market channels. In case of organized private market channel, there is appositive impact of herd size on market participation as the herd size increases, farmers’ shift suppliers to organized private dairy channels. This is because large producers get price incentives/ high price because of high bargaining power as well as lower transaction costs. The number of animals kept by the farmer determines the total production costs and therefore influencing the amount of working capital needed on the farm this forces farmers with a large herd size to prefer supplying their milk to channels that handle big volumes and pay the whole lump sum milk revenues for continuity running of dairying operations. However Vijay et al, (2009) noted for the case of cooperative channel choice, herd size hard a negative impact. This because increase in the herd size which eventually leads to an increase in
milk volumes that cause to farmers’ shift from cooperative to other channels. This is because farmers in cooperatives receive the same price (no price incentive) irrespective of quantity of milk supplied by individual farmers.
2.5.7 Non-dairying farmers’ income
This represents income accruing to the household from the sale of other enterprises (other sources) other than dariying. Income from other sources acts as a source of capital for farmers to purchase the necessary inputs to meet the channel requirements through production good quality and large quantity of marketable products (Marenya et.al, 2006). Mburuet al,(2007), in their study of determinants of smallholder farmers’ adoption of various milk marketing channels in Kenya noted revealed that farmers’ choice of cooperatives channel was positively influenced by farmers’ income. 2.5.8 Membership in farmer marketing organization
Mburu et al.,(2007), in their study of determinants of smallholder farmers’ adoption of various milk marketing channels in Kenya noted that groups are seen as conceptualized and framed to operate as profitable milk market units where small farmers organize themselves in collecting, processing, marketing of milk and value added products. The study results revealed that farmers’ choice of the marketing channel was influenced by presence of dairy cooperatives and membership to farmers’ organization. Vijay et al. (2009) noted that membership of farmers’ group significantly determines smallholder dairy producers’ participation in modern markets. This because of strong relationship known that collective action enables small farmers to attain bargaining power, economies of scale and reduced transaction costs. Furthermore farmer organizations such as cooperatives are very vital in market adoption and participation because they enable farmers to make necessary investments in order to quality of produce, access financial resources, farming practice education and marketing information that enable to venture into new innovations (Ndinomupya.M,2008).
2.5.9 Household size
Kassie et al, (2008) noted that, big household size is an indicator of labour availability that positively influence adoption given the costs attached to new technologies that the resource poor households cannot afford. Ndinomupya.M. (2010) underlines the importance of labour in the availability of farm households to increase the amount of produce. Staal et al., (2006) found out that farmers’ choice of the marketing channel was positively influenced by household size. The study results revealed that higher the number of adults in the household, the more the likely that private trader channel or co-operative/private processor channel will be selected than individual customers. Given that sales to individual customers may require high transaction costs, the rationale behind may reflect the scale of production.
2.5.10 Form of payments
According to Steal et al, (2006), dairy farmers sell their milk on cash or credit payment arrangements. In the study of analysis of determinant farmers’ choice of milk marketing channel, it was found out that farmers’ choice of the marketing channel was
positively influenced by form of payments that is cash or monthly payments. The study revealed that households were less likely to select channels that paid cash or took milk on informal credit compared to channels that offered monthly payments or provided formalized credit terms (written contracts) which were more likely to be selected.
3. Methodology
3.1 Description of the study area
The study was carried out in Kiruhura district, south western Uganda. The district is located in the cattle corridor of Uganda and experiences two different seasons every year that is wet and dry season. Kiruhura is bordered by Rakai district in East, Sembabule district in northeast, Kyenjojo in North, Mbarara district in west and Isingiro district in East. Its population is estimated at 271200 people. The vegetation cover is savannah grassland with shrubs. The economic activity in the district is cattle rearing with mainly Ankole cattle, Hybrid (mixture of exotic and Ankole) and Boer goats. The district produces approximately 100,000 litres of milk per day. The reason for the selection of Kiruhura district is because of being a major supplier of milk in Uganda with the highest number of farmers depending on dairying as their economic activity.
3.2 Research design
A formal cross-sectional survey was carried to collect primary data from dairy farmers in four sub counties involved in dairy farming in the study area. A structured questionnaire was used after being pre-tested and was administered through direct interviews among selected sample farmers.
3.3 Sampling method
A multi-stage sampling technique based on sub-counties and parish was adopted. A list of possible dairy farmers was compiled with the assistance of district councilor supported by his assistants. The list comprised of dairy farmers from four counties namely; Kenshonga, Kinoni, Kikatsi and Rwemikoma. These four sub-counties were purposively selected because they had many farmers dealing with dairy activities. From four selected sub counties, lists of dairy farmers who sold milk to formal and informal channels were obtained. In Kenshonga, 36 dairy farmers were randomly selected, out of these, 34 were selling milk in the formal channel. In Kinoni, 96 dairy farmers were randomly selected, 12 famers were selling milk to formal channel while the rest were selling to informal channel. In Kikatsi, 62 dairy farmers were randomly selected; only 9 farmers were selling milk to formal channel. In Rwemikoma, 38 dairy farmers were selected, 7 farmers were selling milk to formal channel and the rest in informal marketing channel. Thus, 62 dairy farmers were selling milk to formal marketing channel while 170 farmers were selling in the informal channel; making a total sample size used in the study 232 dairy farmers.
3.4 Methods of data collection
Structured questionnaire was used to collect data from dairy farmers. This tool was pre-tested to improve on its validity and reliability. The questionnaire bore questions that brought out answers to milk prices, farm size, volume of milk produced, number of milking animals, marketing channels, and household demographic
characteristics. Also focus group discussion was used to capture on activities in the milk chain.
3.5 Data analysis
Data were edited, coded, entered in the computer and cleaned to ensure accuracy, consistency, uniformity and completeness. Heckman Probit model was used to determine farmers’ milk marketing channel choice. Statistical Package for Social Sciences (SPSS) was used to generate descriptive statistics. STATA was used for regression analysis. Results were presented by the use of means, percentages, P-values, tables and figures.
4. Results and Discussion 4.1 Overview
This chapter presents findings obtained through various research data collection techniques. A detailed presentation of Socio-economic characteristics of dairy farmers, discussion of factors influencing dairy farmers’ choice of milk marketing channel, elucidation of formal marketing constraints facing dairy farmers and level of dairy farmers’ participation in each channel are presented here. In this chapter, research findings are presented by the use of tables, pie charts, drawings and other data presentation methods.
4.1.1 Socio-Economic Characteristics of Respondents.
The intention here was to show the background information of the dairy farmers. Factor analysis was used to categorize dairy farmers into formal and informal channels. The background of the respondents was obtained through questionnaires. Dairy farmers were categorized into formal and informal participants of the two channels. The characteristics considered include age, education, house hold size, annual dairy income, annual non diary income, volume of milk produced per month, total herd size, total land in hectares as shown in Table 4.1.
Table 4.1: Socio-Economic Characteristics of Dairy Farmers in Kirihura. Characteristics of farmer Overall Sample n=198 Formal Channel n= 62 Informal Channel n=170 Mean SD Mean SD Age 47 48.5 13.8 47.0 11.9 Education 6.0 7.4 2.9 4.4 4. 8 Household size 8.6 8.6 4.6 8.6 4.5 Annual diary income (000UShs) 13219 10659 12471.3 14155 456.787
Annual non diary income
Total land size
(heaters) 108.8 113.9 162.1 106.9 224.5
Herd size 96.1 132.0 277.8 83.0 79.8
Total milk produce
per month (litres) 3353.9394 3810.566 4028.045 3187.034 2528.554 SD Refers to Standard Deviation.
Study findings showed that on average, age of the farmer was 47 years. Though not significant, dairy farmers who were selling milk in formal channel were slightly older (48 years of age) than informal participants (47 years of age) Table 4.2. This may mean that, the older farmers had a long term experience in dealing with both channels and had found out that formal marketing channel is more profitable to them. This may be true as far as experience is concerned. A farmer might had participated in both channels at different times and decided to resort on a certain channel after having made comparative analysis based on benefits and losses associated with each channel. This study commensurate with the findings of Boughton, 2007 who reported an increase in the proportion of formal milk marketing channel participants with age
There was a significant difference in the level of education among the dairy farmers. The average number of years of formal education of the household head across the sample was 6 years. The formal marketing channel participants had more years of formal education (7 years) compared to the informal marketing channel participants (4) years. Education was seen a vital component in assisting farmers to make more informed decisions like joining the Cooperatives where they could get good prices for their produce. Formal marketing farmers seemed to be very connected with Cooperatives in the sample area. Though the payment for their milk was delayed for 15 days, they supplied milk in large quantities and this is an indication that the formal marketing channel is more reliable than informal. This study is consistent with Debnarayan and Bikash 2010 who found out that the more educated dairy farmers were, the more they joined cooperative Societies in West Bangel.
With respect to household size, the study findings indicated that there was no difference between dairy farmers in formal marketing channel and those in informal marketing channel (Table 4.2). The average household size was 8 members, with about an average of 65 percent of adult members. This number is an indication that pastoral societies almost share the similar family planning characteristics and they (pastoral societies) are equally characterized with extended families.
Household size comprised of family members and 20 percent of hired labour which is used to supplement family labour. Hired labour was more common in the formal marketing channel families. In their study findings, Elepu (2006); Balikowa (2003) observed that household size could be a good determinant of the volume of milk consumed at home but cannot determine the choice of a marketing channel.
The research results also showed that, the average of 108.8 ha land size was committed to dairy farming with farmers in formal channel accessing significantly large dairy farming land size (113.9 hectares) compared to the informal marketing channel farmers (106.9 hectares). About 78 percent of total land belonging to formal marketing channel participants was committed to dairy farming while informal marketing channel participants committed about 45 percent of land to dairy farming and the rest percent
was committed to Matooke and Cassava. The formal marketing channel participants allocated the big land (about 42 percent) to modern dairy farming (cross breeding) and the rest percent was dedicated to traditional Ankole cattle. This may be attributed to the benefits these farmers have been accruing from dairy activities. In their study findings on factors influencing southern Uganda Dairy Farmers’ choice of the milk marketing channel, Misra, Carley, and Fletcher,1993 reported that formal marketing channel participants dedicated a big land to dairy activities.
In terms of herd size, on average the number of herd was 96. There was however, a significant difference in the herd size among formal and informal dairy farmers. Formal dairy farmers had more cattle (132 herd size) compared to their counterparts (83 herd size). This difference may also be a reflection of land size owned by the two groups (formal and informal) because it is very likely to keep more cows if a farmer has more land and vice versa. This difference in herd size could also be attributed to the size of land committed to non dairy activities.
Moreover, study findings indicated that dairy farmers who participated in informal marketing channel significantly had more annual income on average (Ushs.14155) compared to dairy farmers who participated in formal marketing channel (Ushs.10659). This income difference may be attributed to the price of milk per litre offered by informal milk marketing channel. Also there is a possibility that dairy farmers in informal channel obtained more income from selling cows and this can be evidenced by the low number of herd size they had during the study when compared to the dairy farmers in formal marketing channel. This finding is consistent with the results of Misra et al, (1993) who reported significant difference in income between dairy farmers who sold milk in formal and informal marketing channels with informal participants having more income than their counterparts.
Research results indicated that on average, the total amount of milk produced per month was 3353.9 liters. It further indicated the significant difference in the amount of milk produced by the two groups with formal marketing channel farmers producing more milk (3810.6 liters) compared to their counterparts (3187.0 liters) per month. This difference may be attributed to not only the size of herd but also the practice of modern dairy farming system by formal marketing channel farmers. This may be a convincing argument based on the fact that, modern dairy farming system in which farmers keep breeds like Friesian and Jersey could lead to production of more liters per cow compared to the traditional dairy farming system in which local cattle are kept and produce very fewer litres of milk per cow.
Most of the dairy farmers were male (92.2 percent). This may indicate that, either male engage in dairy farming than female or in many visited households, men were the ones who responded to the questions and thus reducing the number of female respondents. Out of the total population (n=232), 214 respondents were male only 18 respondents were female (Table 4.2).
4.2 Level of participation of dairy farmers in each marketing channel
Research findings showed that, there was a significant difference in channel participation where informal marketing channel had more participants (73.3 percent) and formal marketing channel participants were fewer (26.7 percent) Fig. 4.1.
This difference in channel choice was attributed to a number of factors such as price level of each channel, transport cost, payment period and volume of milk produced. All these factors greatly affected farmers choice of a milk marketing channel as a farmer would wish to maximise profit for his/her produce. Also research findings indicated that, many farmers prefered informal channel because no transport costs were involved as buyer collected milk right from the farm gate. They moreover reported that, it was possible for dairy farmers to get advance payments in informal milk marketing channel contrary to the formal marketing channel where there were no advance payments and milk was bought on credit. This finding is consistent with the results of Elepu (2006); Balikowa (2003) who reported that only 20 percent of the sampled dairy farmers sold milk to the formal channel whereas 80 percent sold to informal marketing channel.
4.3: Constraints dairy farmers face when supplying milk to formal marketing channel
Research findings indicated that delayed payments was the biggest constraint faced farmers among others (Table 4.3). Out of 162 respondents who made an account on constraints associated with formal channel, 29.6 percent reported that formal marketing channel buys milk on credit and it delays payments for 15 days to one month (Table 4.3). They added that, sometimes it can even take a credit period of two months. Farmers reported that delayed payments are intolerable to them as they need cash on sale so as to meet daily financial obligations. Moreover, farmers submitted that no interest is provided to compensate theses payment delays. They argued formal channel to reckon the period in which their payments are delayed and look for the possibilities of interest. This research finding is consistent with the results of Steal et al (2006) who reported that households were likely to select channels that paid cash.
According to the research findings, low prices for the milk seemed to be another serious constraint of formal marketing channel. About 22.2 percent of respondents submitted that, prices offered by formal channel are very low. Farmers further presented
that, this level of price places them in a difficult situation because revenues they get as payments for their milk cannot cater for the production costs incurred. It seems formal milk marketing channel is not well prepared to offer dairy farmers prices that are proportion to the quality and quantity of milk they are supplied with. This situation puts dairy farmers in a market place where only prevailing marketing forces decide the prices for their (farmers) milk. This research finding is in line with the results of Artukoglu et.al (2008), Tsougiannis et al(2008) who noted that the choice of the marketing channel by dairy farmers heavily depended on the price offered by that channel.
It was also found that formal marketing channel was incapable of absorbing huge amounts of milk especially during rainy season. Out of 162 respondents who made an account on constraints associated with formal channel, about 12.3 percent of dairy farmers reported that farmers produce huge volumes of milk during the rainy season due to the availability of animal feeds but they suffer from lack of market for the milk as formal marketing channel fails to absorb all the milk. They added that, absorption failure by formal marketing channel led to spoilage of many litres of milk, hence loss to the farmers. This situation suggests that formal marketing channel lacks enough equipment to handle huge volumes of milk at a certain period in time and hence unreliability of the channel. Lack of advance payments was reported to be another constraint of formal milk marketing channel. 13 percent of farmers said that formal milk marketing channel did not provide advance payments whenever they sold milk to. Farmers viewed this as a serious constraint because they failed to meet emergent problems that called for immediate finances. Some farmers said they had to sell their milk to informal channel where they were assured of getting cash money and sometimes advance payments whenever a need arose. This again symbolises formal marketing channel unpreparedness to meet dairy farmers’ emergent needs. The fact that life is never straight forward, formal channel has to be well concerned with farmers’ needs whenever possible. This could attract many farmers into formal marketing channel participation.
Furthermore, research findings indicated that transport costs constrained farmers from sufficiently and effectively supplying milk to formal marketing channel. It was found that (10.5 percent) respondents faced a serious transport problem. These farmers relied heavily on bicycles which they hired. They moreover reported that, this kind of transport was not reliable and could only carry few liters at a time. Farmers added that, the bicycle transport suffered from lack of integrity as drivers stole milk on their way to the market. They also presented that, bicycle transport led to high level of dilution of milk by bicycle drivers. The other forms of transport like vehicles were very expensive. This study is in line with Artukoglu et al. (2008) in the study of cooperative tendencies and alternative milk marketing channels noted that the higher the transport cost incurred by dairy farmers, the less the interest of participation in the channel.
Other reported constraint of formal milk marketing channel was price fluctuations where 5.5 percent of dairy farmers said milk prices were not constant over a period of time. They reported that during rainy season when there were huge volumes of milk, price per litre of milk ranged from UGX 250 to300 whereas prices increased from UGX 400 to 600 during the dry season due to low volumes of milk. This shows that formal milk marketing channel is not consistent in prices and its prices decisions are determined by milk volumes at a particular point in time. Artukoglu et.al.
(2008),Tsougiannis et al.(2008) noted that the choice of the marketing channel by dairy farmers heavily depended on the price offered by that channel.
Other dairy farmers (3.1 percent) said that they experienced mistreatment by processors. They presented that they were not cared for as suppliers. This means that, there was no good supplier-customer relationship and this could easily make farmers shift to informal marketing channel. Reporters added that processors refused their milk arguing that it was of low quality. Some respondents (1.2 percent) presented that they were constrained by the lack of manpower to transport milk to the market. They said that formal marketing channels were located far away from the dairy farms and they did not come for milk collection at the farm. The table below shows the percentage for constraint.
Table 4.3: Constraints associated with formal marketing channel.
Constraints percentage of farmers (n=162)
Mistreatment of farmers by processors 3.1
Lack of manpower to transport milk 1.2
High transport costs 10.5
Milk adulteration 2.5
No advance payments 13
Failure to buy all the milk during rainy season leading to spoilage 12.3
Price fluctuations 5.5
Delayed payments 29.6
Low prices 22.2
Total 100
4.4: Factors influencing farmers’ choice/participation in milk marketing channel The Heckman Probit Model was used to identify the factors which influenced dairy farmers’ choice of milk marketing channel. The results from the model showed that the age of the farmer, mode of payment, membership in cooperatives, amount of milk sold, education of the farmer and marketing costs significantly influenced farmers’ choice of milk marketing channel. (Table 4.3).
4.4.1: Age of household head
Household age had a significant influence (P≤0.05) on the choice of the marketing channel. This implies that, the older the household head become, the more the chances of shifting from modern marketing channel to traditional channel than their counterparts. The reasons for this shift may be inability by old farmers to cope with modernized methods of keeping and transporting milk, inability to understand transactions, inability to physically reach the formal channel and lack of trust to milk transporting manpower. These reasons can render the selling of milk at the farm gate by old farmers imperative. The younger farmers are more inclined with the formal marketing channel as they are able to cope with its demands. This research finding supports the results of Vijay et al, (2009) who noted that, household head age is
negatively related to participation of an old farmer in modern channels and statistically significant in private dairy channels. This is because a one year increase in age is predicted to raise the probability of being in the traditional channel and reduces the chances of being in other channels.
Table 4.4 Factors which influence farmers’ choice of the milk marketing channel
Characteristic of the farmer Coefficient P-value
Age of the farmer* -0.016 0.055
Education of the farmer* -0.0427 0.098
Total land owned by farmer -0.0005 0.361
Source of market information -0.0503 0.440
Annual non-dairy income 0.1853 0.349
Mode of Payment *** -1.981 0.000
If farmer belongs to a cooperative*** 1.1552 0.000
Amount of milk sold** 0.00008 0.036
Number of Observations= 232; Pseudo R2 =0.246; Prob>chi2 = 0.0000; Log Likelihood = -118.70
Note: *, ** and *** denote significance at 10 percent, 5 percent and 1 percent respectively. 4.4.2 Marketing costs
Marketing costs significantly influenced the choice of milk marketing channel (P≤0.01) and were higher with formal channel [UGX 78097 (118063)] than informal [UGX 35086 (96023)]. Due to these variations, transport is one of the deciding factors in choosing the market channel as reported by the sampled farmers. Transport costs are associated with the distance that a farmer has to take his/her milk through. The longer the distance, the higher the transportation costs. This situation therefore rendered farmers’ consideration of distance to the market imperative when choosing milk marketing channel. The channel which is associated with higher transport costs is not preferred as it reduces farmers’ gross margins. This research finding is consistent with the results of Otieno et al, (2009) who reported that high transport costs were associated with long distance that significantly reduced the percentage of milk supplied to the marketing channel because they reduced farmers’ gross margins earned. More so Artukoglu et al. (2008) in the study of cooperative tendencies and alternative milk marketing channels noted that the higher the transport cost incurred by dairy farmers, the less the interest of participation in the channel. This finding is not in line with the results of Manyong et al, (2008) who reported that marketing costs like transport, market fees and license indeed had significant negative effect on farmers’ market participations of maize supply and fertilizer demand.
4.4.3 Volume of milk produced
The amount of milk produced by the farmer significantly influenced the choice of milk marketing channel (P≤0.05). This implies that farmers who produce huge volumes of milk prefer selling their milk to the channel which is capable of absorbing the all amounts of milk at a go and this was reported to be common with formal marketing channel. Contrarily, dairy farmers who produce fewer liters of milk could simply sell to
vendors at the gate to avoid transport costs, sampled farmers reported. Huge volumes of milk can also justify the transport costs incurred by the farmer because it is rational to transport 1000 liters of milk to processors at a ago than transporting 12 liters. This research finding corresponds to the results of Vijay et al, (2009) who noted that both modern private dairy plants and traditional channels prefer suppliers from large farmers who can supply large quantities of milk. Similarly, Tsougiannis et al, (2008) in the study of marketing strategies of agricultural producers in objective one Greek regions noted that, the choice of milk marketing channel especially processing plants channel was positively influenced by the volume of milk produced by the farmer per day.
4.4.4 Form of payments
Farmers’ choice of the milk marketing channel was positively influenced by the form of payments (P≤0.01) (that is cash or monthly payments). Cash payment is important to the farmers as it helps them meet urgent financial obligations.Availability of market for the milk in the evening was reported to be important to the farmers as they could milk their cows twice a day and increase revenues. These two market features were found common in informal marketing channel. Credit arrangements make farmers feel financially unsecure particularly when the channel does not provide them with advanced payments. This research finding does not support the results of Steal et al, (2006) who revealed that households were less likely to select channels that paid cash or took milk on informal credit compared to channels that offered monthly payments or provided formalized credit terms (written contracts) which were more likely to be selected.
4.4.5 Membership in farmer marketing organization
Farmers’ membership in cooperatives had a positive and significant (P≤0.01) influence on the farmer’s choice of milk marketing channel. Group membership promotes unity and a sense of belongingness. It also enables members of the group to share information and collectively cope with market related constraints. Also collective action enables them attain bargaining power, economies of scale and reduced transaction costs. This research finding relates to the results of Mburu et al, (2007) in their study of determinants of smallholder farmers’ adoption of various milk marketing channels in Kenya noted that, groups were seen as conceptualized and framed to operate as profitable milk market units where small farmers organize themselves in collecting, processing, marketing of milk and value added products. As such, Vijay et al. (2009) noted that membership of farmers’ group significantly determines smallholder dairy producers’ participation in modern markets. Similarly, Ndinomupya. M, (2008) found that farmer organizations such as cooperatives are very vital in market adoption and participation because they enable farmers to make necessary investments in order to attain quality of produce, access financial resources, farming practice education and marketing information that enable to venture into new innovations.
4.4.6 Educational level
Education had an influence (P≤0.1) on the choice of milk marketing channel. The more the education level achieved, the higher the chances of adopting a new marketing channel due to new knowledge exposure. The formal marketing channel participants
had more years of formal education (7 years) compared to the informal marketing channel participants (4) years. This shows that education plays an important role in the channel choice. Educated farmers are likely to be more inclined to formal milk marketing channel in which formal marketing procedures are practised. The less educated farmers are likely to associate with informal marketing channel. This may mean that less educated farmers are not well informed of the benefits they could possibly accrue from the formal milk marketing channel. This research finding is consistent with Vijay et al, (2009) who reported that education was statistically significant in the choice of modern milk channels (Cooperative and private dairy plants).
Sales price had no influenced on the choice of milk marketing channel. There was no difference in price between formal marketing channel (UGX 367/litre with standard deviation of 63.47) and informal marketing channel (UGX 365/litre with standard deviation of 240.36). The choice of the milk marketing channel was rather influenced by model of payment particularly cash payment for the milk sold by the farmers, an ability for the market to buy milk twice a day (in the morning and evening) because this assured farmers of market for their milk and thus being able to milk their cows twice a day. This kind of milk marketing was common with informal channel.
Sampled farmers reported that, market for the milk was available only in the morning as in the evening they could close the factory until the next day. This situation did not provide the market for the evening milk and it followed that, those who were selling milk to formal channel did not milk their cows in the evening as they could neither sell nor store it. This again led to the loss of revenue by these farmers which could accrue from evening volumes of milk. Therefore, no matter the price a channel could offer, farmers could not entirely rely on it but on other crucial factors. This research finding is opposite with Artukoglu et al, (2008) and Tsougiannis et al, (2008) who noted that the choice of the marketing channel by dairy farmers heavily depended on the price offered by that channel. Also Vijay et al, 2009 found that, price is an important impediment to market entry as well as adoption of improved technologies. Other factors that had no influence on the choice of milk marketing channel were source of information, non-diary income, household size, total land owned by the farmer, number of animals kept and farm size.
5. Summary, Conclusions and Recommendations 5.1 Summary and Conclusions
The study was carried out in Kiruhura district, south western Uganda. The district is located in the cattle corridor of Uganda and experiences two different seasons every year that is wet and dry. Kiruhura is bordered by Rakai district in East, Sembabule district in northeast, Kyenjojo in North, Mbarara district in west and Isingiro district in East. Its population is estimated at 271200 people. The district produces approximately 100,000 litres of milk per day. The reason for the selection of Kiruhura district was because of being a major supplier of milk in Uganda with the highest number of farmers depending on dairying as their economic activity.
The objectives of the study were to characterise dairy farmers participating in formal and informal milk marketing channels, determine factors that influence dairy farmers’ choice of milk marketing channel and find out the constraints dairy farmers face when supplying milk to formal marketing channel. Random sampling method was used
to select dairy farmers who participated in the study. A formal cross-sectional survey was carried to collect primary data from dairy farmers in four sub counties involved in dairy farming in the study area. A structured questionnaire was used after being pre-tested and was administered through direct interviews among selected 232 sample farmers. Descriptive statistics were generated and used to compare socio-economic characteristics of dairy farmers in formal and informal channels.
Study findings showed that dairy farmers were mainly male (92.9 percent). On average, dairy farmers who were participating in formal milk marketing channel were slightly older (48.5 years of age) than those who were in informal channel (47 years). Research findings showed that, there was a significant difference in channel participation where informal marketing channel had more participants (73.2 percent) and formal marketing channel participants were fewer (26.8 percent). Research results revealed a number of constraints faced dairy farmers who participated in formal marketing channel namely; mistreatment of farmers by processors, lack of manpower to transport milk, high transport costs, milk adulteration, lack of advance payments, failure to buy all the milk during rainy season leading to spoilage, price fluctuations, delayed payments and low prices.
The Heckman probit analysis model results showed that age of the dairy farmer (P≤0.05), membership in cooperative (P≤0.01), form of payment (P≤0.01), volume of milk produced (P≤0.05), level of education of the dairy farmer (P≤0.1) and marketing costs (P≤0.01) greatly influenced the choice of milk marketing channel. Price of milk per litre, household size, number of animals kept, size of farm and source of information negatively affected the choice of the marketing channel.
It can be concluded that there was a significant difference in the socio-economic characteristics between dairy farmers in formal marketing and those in informal marketing channel. The choice of marketing channel was influenced by this difference. Dairy annual income and education were the major different characteristics. Furthermore, many farmers still practice informal/traditional milk marketing channel. This is because of the benefits (advance payments, efficient transport costs and cash payments) this channel offers. It can also be concluded that, education level of the dairy farmer, form of payments for the milk sold, Membership in farmer marketing organization, and Volume of milk produced greatly influence farmers choice of a marketing channel. Transport costs seem to create a burden too many dairy farmers. Many farmers resort themselves to informal milk marketing channel because of transport barriers they face.
5.2 Recommendations
As research findings indicated, the choice of a milk marketing channel was influenced by many factors some of which are within the control of an authority in place. If the government wishes all the milk to pass through a proper channel (formal channel), the following recommendations may be helpful:
Provision of education and services to the farmers. Dairy farmers, and particularly the aged, need to be educated on the importance of selling milk to the formal channel.
The concerned authority should ensure that farmers’ perception of incentives associated with formal channel is clear. There are a number of
incentives that a co-operative could give to its members such as vaccines and drugs sold at a favourable price or on credit, advance payments to cater for farmers’ argent needs, provision of modern milk cans on credit, training on the best dairy farming practices and a basic knowledge on handling financial transactions among others. All these incentives have a motivational impact to farmers.
Farmers should be assured of market for the milk especially during the rainy season when milk volumes are huge.
Further, roads construction and maintenance should be given due attention to ensure accessibility to dairy farms. During the field work, some farms were not accessible at all. Farms in these areas were completely unable to transport milk to the market, and whenever they manage, costs are very high such that they experienced no returns. These areas are only accessible by bicycles which only carry fewer litres of milk.
Establishment of area co-operative enterprises is highly recommended. It is from these associations where farmers learn new ways of farming. Cooperatives are a strong tool towards poverty reduction as participants are brought together to mobilize and utilize the resources. Cooperative is viewed as organizational response to the demands of the development and widespread use of productive forces.
References
Awudu, A and Eliud, A, 2010 .Choice of coordination mechanisms in the Kenya fresh milk supply chain. Journal of Agricultural and Applied Economics Association, Vol. 31 Pp 103