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Costs and benefits of a quality-based milk payment system (QBMPS) pilot in Kenya: A private good perspective

Ruth D Njiru 3R Kenya Research report 002

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Costs and benefits of a quality-based milk payment system (QBMPS) pilot in Kenya: A private good perspective

May 2018

Ruth D NjiruEgerton University

3R Kenya Research report 002

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Ruth D Njiru. 2018. Costs and benefits of a quality-based milk payment system (QBMPS) pilot in Kenya: A private good perspective. 3R Research Report RP 002. 3R Kenya Project.

Egerton University

This report can be downloaded for free at http://www.3r-kenya.org/research-reports/.

All rights reserved. No part of this publication may be reproduced and/or made public, whether by print, photocopy, microfilm or any other means, without the prior permission of the publisher or author.

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AcknowledgementsI wish to acknowledge the contributions of Dr Asaah Ndambi and Prof Margaret Ngigi in accomplishing this work.

I am grateful to Gerard Oosterwijk, Teresiah Ndungu and the staff of Happy Cow Ltd, and to members of the two collection and bulking enterprises in New Ngorika and Olenguruone for their immense support during this study. I also acknowledge support from Anton Jansen and the team from SNV, Dirk Harting of Bles Dairies, Bio Foods Dairy, Gogar Farm, and all the milk transporters and laboratory technicians who were interviewed.

This research report was developed under the 3R Kenya Project. The 3R Kenya Project is funded by the Embassy of the Kingdom of the Netherlands in Nairobi, Kenya, within the framework of the Agriculture and Food and Nutrition Security program.

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ContentsAcknowledgements 3Illustrations 5Executive summary 61 Introduction 8 1.1 Research questions 92 Literature review 103 Methodology 14 3.1 Area of study 14 3.2 Sampling 14 3.3 Data collection methods 14 3.3.1 Interactive and semi-structured questionnaire for primary producers/farmers 14 3.3.2 Interviews with representatives of cooperatives 14 3.3.3 Survey and telephone conversations with processors 15 3.4 Data analysis 154 Results and discussion 18 4.1 Introduction to the QBMPS 18 4.2 Costs and benefits of the QBMPS at the farm level 19 4.2.1 General characteristics of smallholder farmers 19 4.2.2 Milk production and marketing 19 4.2.3 Milk production, consumption and sale patterns 19 4.2.4 Farmers’ benefits in QBMPS 20 4.2.5 Additional benefits to the farmer 21 4.2.6 Farmers’ costs in the QBMPS 23 4.2.7 Other costs farmers incurred 27 4.3 Costs and benefits of the QBMPS for cooperatives and processors 30 4.3.1 Benefits for CBE and processor 30 4.3.2 CBE and processor costs 30 4.3.3 Cost of project management and organization 31 4.3.4 Cost of training 32 4.3.5 Cost of hardware 32 4.3.6 Consumables in laboratory analysis 33 4.3.7 Software development 34 4.3.8 Bonus payments 345 Conclusion 356 Recommendations 37 6.1 Farm level 37 6.2 Cooperative (CBE) 37 6.3 Processor 38 6.4 Regulatory 38References 39Annex 1: List of interviewees 40Annex 2: Producer questionnaire 41Annex 3: Questionnaire for Milk transporters and Milk graders 48Annex 4: Questionnaire for the cooperative 49

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IllustrationsTable 1. Sample size ............................................................................................... 14

Table 2: Milk value chain actors and the QBMPS ............................................. 17

Table 3: QBMPS and KEBS standards ................................................................. 18

Table 4: Payment module ...................................................................................... 18

Table 5: Demographics of sampled farmers ....................................................... 19

Table 6: Herd composition and size .................................................................... 20

Table 7: Milk quantities per day .......................................................................... 20

Table 8: Variation in benefits for farmers involved in the QBMPS ................. 21

Table 9: Extract from QBMPS payment for January–August 2017 ................. 22

Table 10: Variations in farmers’ costs with the QBMPS ................................... 23

Table 11: Review of milk equipment in the market .......................................... 24

Table 12: Cost of housing ...................................................................................... 25

Table 13: Monthly cost of fodder and feed ......................................................... 26

Table 14: Milk hygiene and handling practices on the farm ........................... 27

Table 15: Transportation costs .............................................................................. 29

Table 16: Cost of labour ......................................................................................... 29

Table 17: Credit accessed in the past one year ................................................... 29

Table 18: Benefits to the CBE due to reduced rates of milk rejection ............. 30

Table 19: Benefits to the processor ....................................................................... 31

Table 20: CBE and processor costs in the QBMPS ............................................. 31

Table 21: Summary of costs and benefits per kg of milk (KES) ....................... 36

Figure 1: Conceptual framework ......................................................................... 13

Plate 1: Appropriate milk containers .................................................................. 23

Plate 2: 10-litre mazzi can ..................................................................................... 23

Plate 3: A dirty cow shed ...................................................................................... 24

Plate 4: A clean cow shed ...................................................................................... 24

Plate 5: Tractor offloading milk cans at CBE ...................................................... 28

Plate 6: Motorcycle with a detachable rack for transporting milk .................. 28

Plate 7: Milk collection point ................................................................................. 32

Plate 8: Water bath inside a milk collection point .............................................. 32

Plate 9: Can-washing facility ................................................................................ 33

Plate 10: Drying rack ............................................................................................. 33

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Executive summaryIn a quality-based milk payment system (QBMPS), payment for milk delivered is not only based on volume but also on a number of quality standards. A QBMPS aims to provide premium quality milk to the benefit of all players. Farmers are rewarded with bonuses for producing quality milk while the cooperative receives produce of agreed quality, resulting in efficiencies in processing and marketing. For the processor, milk quality affects product yield and consistency. If the quality of milk marketed does not meet set standards, public health, market access, shelf life and profitability are compromised.

This research quantifies the costs and benefits of a quality-based milk payment system from a private good perspective, based on the Happy Cow pilot program. The study quantified the cost implications and benefits for the producers/farmers, cooperatives and the processor, using a value chain approach. Methods used to collect data were interviews using interactive and semi-structured questionnaires to generate quantitative and qualitative information, and focus group discussions with select farmers to get in-depth information on their perceptions of milk quality.

Based on grade A milk, a farmer would get additional revenue of KES 3.86/kg from the QBMPS payment and revenue from foregone milk rejection, after incurring a cost of KES 1.55/kg from feed, milk equipment, water, housing and additional time for cleaning and attending training. This results in a profit of KES 2.31/kg of milk. For the CBE, the benefits amount to KES 0.32/kg from lower rate of milk rejection after incurring an additional cost of KES 0.56/kg of milk, leaving them with a net loss of KES –0.24/kg. For the processor, the system required equipping a laboratory, employing quality control personnel, acquiring software, etc., at the cost of KES 3.05/kg; processors accrued a benefit of KES 0.93/kg from higher product yields and less mis-production, leading to a loss of KES –2.12 /kg of milk. These results show that the QBMPS is in the right direction towards improving milk quality in Kenya. The processor and the CBEs incurred large costs in setting up the system and both made cash losses (if subsidies given were not taken into account). From the cost–benefit analysis, it is evident that the QBMPS is not yet viable to finance itself under the current circumstances in Kenya. As this was a pilot phase, some funding was received from the Embassy of the Kingdom of The Netherlands in Kenya to cover part of the processor and CBE costs, which compensated for the losses.

To fully integrate and replicate the system, the study makes the following recommendations for the different players based on the pilot program and a review of other quality systems in the world.

Farm level: Farmers should embrace proper hygiene practices, adopt use of aluminium cans and ensure timely delivery of milk to the milk collection points. Farmers producing grade B and grade C milk should be encouraged to produce grade A milk, as they will invest only slightly more to get significantly more profit.

Cooperatives (CBEs): The CBEs should make stringent checks on the quality of milk delivered either at the milk collection point or at the CBE for farmers

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delivering to the CBE directly. All employees handling and transporting milk must be trained in hygiene practices. This calls for development and enforcement of strict standard operating procedures. Much as its main objective is finding a market for its members’ produce, the CBE must reject poor quality milk to ensure quality of milk supplied. CBEs should employ dependable transporters to assure optimal quality of milk; outsourcing of milk collection and transportation increases the risk of receiving poor quality milk. CBEs should organize faster collection to ensure that milk is cooled within 3 hours of milking, and also switch to a two-times-a-day milk collection scheme, that is, for morning and evening milk. CBEs should also invest in cooling tanks that are equipped with an instant cooling device, and in potable water and can-washing stations. They should use only aluminium cans for milk collection and transportation.

Processors: Like the CBE, processors must not accept poor quality milk. They should strictly and continuously monitor the milk collection process of CBEs and implement a robust milk quality tracking and tracing system. Processors also incur losses at this stage, and we recommend that they are provided with support during the first years of implementation of the QBMPS until it can finance itself.

Government/regulatory: The regulatory authority should ban the use of plastic cans for transporting milk. It must phase out the raw milk market and implement entry barriers for CBEs wishing to get into the business of milk collection and marketing but are not prepared to adhere to milk quality and safety. For example, CBEs need to have a proper water supply, cleaning and cooling infrastructure, an equiped laboratory with a qualified food technologist and dedicated quality assurance staff. Policies and standard operating procedures for clean milk handling need to be in place.

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1 IntroductionThe Kenyan dairy value chain is broadly divided into informal and formal market channels. This division is based on compliance with regulatory frameworks for quality and safety standards, and payment of statutory revenues. The bulk of marketed milk is raw fresh milk sold to consumers through informal market channels. In the formal sector, just 4 out of 27 active processors control 85% of the milk intake. In 2015, 616 million kg of milk were processed (KDB, 2015).

Milk quality is important in dairy production since it affects milk processing, shelf life and overall profitability (Barbano & Santos, 2006). In Kenya, the quality of milk marketed both formally and informally does not meet the national quality standards set by the Kenya Dairy Board. In the formal sector, milk delivered to processors is often adulterated with water and is contaminated with microbes, antibiotics and aflatoxin. The indicators for assessing quality include total bacteria count (TBC), coliform count, somatic cell count (SCC), presence of antibiotics residue and adulteration.

Some countries have already instituted premiums and penalties to provide incentives for dairy producers to improve the quality of milk. In Kenya however, farmers are paid based on the quantity of milk produced rather than on its quality. Because most consumers in East Africa prefer low-cost raw milk, a major challenge for value chain projects has been to make formal sector dairying more attractive. Most dairy processors in Kenya have so far been unable, or perhaps unwilling, to pay a price premium for superior quality that would reward a farmer’s investment in quality practices.

The quality-based milk payment system (QBMPS) is a concept still under development and is being implemented in only a small portion of the dairy sector. Happy Cow Ltd., a processor supported by the Netherlands government and SNV, has implemented a pilot QBMPS in Kenya where smallholder farmers are paid bonuses for delivering high-quality milk to the collection and bulking enterprises (CBE) owned by the two cooperatives in the project: New Ngorika Milk Producers Ltd and Olenguruone Dairy Farmers Cooperative.

The dairy sector is largely privately owned and controlled, and any incentive to introduce a QBMPS should be built on providing private goods. Private goods are excludable, that is, they give the milk seller the chance to make a profit and buyers can be excluded from enjoying the milk products if they suffer from dairy intolerance or are not willing and able to pay for it. Another feature of a private good is rivalry in consumption, that is, one person’s consumption of a milk product reduces the amount left for others to consume and benefit from because scarce resources are used to supply the good or service. The last feature is that a private good is rejectable, that is, the consumer can reject the milk products if their needs and preferences change. Based on these characteristics, the study tried to quantify the costs and benefits of a quality-based milk payment system on private actors in the dairy value chain.

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1.1 Research questionsIn the adoption of a QBMPS, costs and benefits are looked at from the production and consumption sides and should therefore answer the following questions.

Main research questionWhat are the costs and benefits of a quality-based milk payment system from a private good perspective, based on the Happy Cow pilot program?

Specific research questions1 Who are the key players in the milk value chain and how are they involved

in the quality-based milk payment system?2 What are the cost implications and associated benefits of improving the

quality of milk to the producers/farmers?3 What is the cost of implementing a QBMPS for the processor? And what

are the benefits to the processor?4 What investments (both cash and non-cash) should cooperatives make in

a quality-based milk payment system? What are the benefits of a QBMPS to the cooperative?

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2 Literature review The provision of premium quality milk is in the interests of all players in the dairy value chain. The dairy producer must apply good dairy farming practices to positively influence returns on their milk price; it is becoming increasingly common to introduce penalty and /or bonus payments based on a range of parameters for milk quality. The cooperative has an interest in receiving products of agreed quality as that directly relates to efficiencies in processing and marketing. Milk quality is also important to the processor as it impacts on product yields and consistency, thus affecting profit margins and market access. Milk quality is important to the consumer because of the taste and flavour attributes and its potential impact on health (Bernadette, 2008).

Botaro et al. (2013) evaluated the association between a milk quality payment program and four indicative variables of milk quality over three years in four dairy cooperatives in Southern Brazil. They used a multiple regression econometric model estimated from market data of milk delivered by farmers to the cooperatives. The dataset was analyzed for the effects of seasonality, average daily volume of milk, award/penalty, producer, and cooperatives on SCC, TBC, FAT and PROT. Results show an association between the adoption of a payment program based on milk quality and the reduction of SCC and TBC. Nevertheless, the program appears not to have contributed to increased percentages of fat and protein in milk. This information may help the dairy industry in developing countries to conceive strategies to enhance overall milk quality but it does not give information on the cost.

Lejars et al. (2010) used a decision support tool called PEMPA to investigate the impacts of different payment schemes and quality incentives on growers’ income in the sugarcane sector. PEMPA was developed specifically for the sugarcane supply chain to calculate the income of stakeholders for different payment formulas, thereby clarifying their individual effect and facilitating their understanding. They also looked at value sharing between growers and millers, and value sharing among growers. They assessed new cane payment systems while increasing the transparency of revenue sharing and the effects of quality incentives on income. Their results showed that both individual incomes and collective revenue could be increased by adopting a new payment system based on a relative formula. The simulation approach could facilitate understanding and implementation of the payment formula. Although there are no studies on the use of PEMPA in a QBMPS, the model can be adopted for milk quality payment studies.

Navarro (2014) focused on analysing the interaction of the upstream part of the dairy supply chain (farmers and dairies) in the Mantaro Valley (Peruvian central Andes) to understand possible constraints both stakeholders face in implementing milk quality controls and practices, and evaluate ex-ante how different strategies proposed to improve milk quality could affect farmers and processors’ profits. A simulation tool was designed with formal small-scale dairy processors within the framework of the European Erasmus Mundus Programme “Agricultural Transformation by Innovation (AGTRAIN)” to show prospective scenarios, in which they could select their best product

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portfolio but also design milk payment systems to reward farmers with high milk quality performances.

Rademaker et al. (2016) looked at the social aspects of the value chain in Kenya and found that four processors hold a majority share of the processed market. This concentration of power may prove problematic as there is a temptation to undercut producers. Under public health risks, dairy farming and milk consumption pose several disease threats for humans, mainly brucellosis, tuberculosis, cryptosporidiosis and aflatoxicosis. This study also identified the main constraints preventing youth from participating in dairy farming: lack of access to capital and resources such as land, lack of skills and inadequate financial services.

Cruthfield et al. (1997) evaluated the benefits and costs of reducing microbial pathogens and preventing food-borne illness by adopting the Hazard Analysis and Critical Control Points (HACCP) system to identify potential sources of pathogen contamination and establish procedures to prevent contamination in meat and poultry enterprises. Reducing pathogens resulted in lower medical costs of illness, lower productivity losses and fewer premature deaths. Though smaller processing firms had higher costs under the new regulations, implementing HACCP had great benefits. The study also recommended the use of other non-regulation alternatives to make food safer such as education, labeling, and market-based incentives for reducing pathogens.

More (2009) presented a review of the global and Irish dairy industries, which considered the impact of milk quality on farm profitability, food processing and human health, and examined global trends in quality. They found that milk quality has an impact on human health, milk processing and on-farm profitability.

A study by SNV showed that for any QBMPS to succeed, it needs to be embedded and informed by supportive structures put in place by participants. SNV proposed an inclusive system with cooperation within the dairy chain, and an operational training and extension service to provide participants with sufficient technical knowledge and capacity to improve the results of the quality parameters. It also proposed individual milk payment based on individual milk tests and regular payment for milk in order to motivate the farmers and intermediaries. From their analyses of different countries, it is apparent that countries have set their own quality parameters and different pricing mechanisms based on the structure of the dairy industry. Kenya will need to develop a milk quality incentive program that reflects the Kenyan market and current milk supply.

Hibma (2016) in his article analyzing the value of milk components in a California pricing system, points out that it is important that dairy farmers know the percentages of butterfat, protein and other solids produced by the herd. Knowing these values allows farmers to calculate the associated pounds of fat, protein and other solids in a given amount of milk. Once producers become familiar with the math and the calculations, they can easily determine how much more revenue can be gained by increasing the components by 1 or 2 percentage points.

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If the market drives quality then it is not surprising that a dairy processor in Kenya pays a quality incentive. Bio Foods Dairy has a strong position on the Kenyan market with a reputation as a producer of high-quality dairy products. The raw milk quality incentive payment program is market driven. The program rewards farmers for low bacterial counts, absence of antibiotics, aflatoxin free milk, among other parameters needed to market quality dairy products under the Bio brand. Bio Foods has been successful in implementing a raw milk quality payment program because the company is selective in the farms from which it procures milk: there are 10 farms and 4 of these farms provide 75% of the raw milk. This small number of farmers allows the program to be manageable and fosters a productive buyer–seller relationship. Bio Foods products are also sold to a niche market. But the main question is whether such a program could work with smallholder farmers who are the majority in Kenya.

In a study conducted in Ethiopia, Hiruth, a private processor, adopted a quality-based system based on two grades: bacterial count and fat content. The better graded producers are compensated with 9,00 birr while the ‘other grade’ suppliers get 8,60 birr/kg. This progressive incentive mechanism motivates milk producers to focus on quality and carry out investments such as purchasing better quality feed, lower adulteration and better storage conditions for milk. Consequently, the rejection rate of milk decreased from 7.5% to almost 0% soon after introduction. Hiruth also supplies high-quality animal feeds to its suppliers on credit to increase the volume of milk produced. Due to better feed availability, producers now get 2–3 kg of additional milk per cow per day (Steen & Maijers, 2014).

Fadiga & Makokha (2014) assessed the importance of the quality and safety attributes of dairy and meat products in Nairobi and Eldoret to identify strategies for value addition. The results show the respondents’ willingness to pay (WTP) more for improved safety and quality attributes for meat and milk products, and also show that consumers value hygiene more than packaging and colour and are willing to pay a higher premium for clean milk than for sealed and creamy milk. These results differ from a study conducted in Argentina. Using contingency valuation method, Berges & Karin (2009) evaluated the willingness of consumers to pay for quality attributes using fluid milk as a case study. The results suggest a low willingness to pay in spite of consumers’ concerns about food quality. WTP rose with the level of information they process and with quality and food safety priorities rather than with price at purchasing food. Therefore, consumers should be provided with information so that they understand their priorities when it comes to food quality.

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Improved milk quality at

production level

Improved milk quality in

cooperatives

Improved milk quality at the

Processor

Improved milk quality at the distribution/

retail levels

Benefits • Higher milk prices for quality • Bonuses for quality • Increased milk yield from

improved feed quality • Minimal antibiotic residue • Faster milk collection • Lower milk rejection • Safer milk for HH consumption • Lower animal health costs

Costs • Training and extension • Proper milk handling and hygiene • Sourcing for Impoved feed quality • Use of suitable milk containers for

storage and transport • Mastitis prevention and proper

treatment

Benefits • Increased milk volumes from

better farm management practices by the farmers

• Better quality milk from the farmers

• Higher revenue from milk • Faster milk collection • Less milk rejection

Costs • Investment in bulking and cooling

facilities • Investment in a suitable collection

centers and milk quality monitoring • Training and hiring of quality

assurance officers • Cost of MQT&T System • Investment in a water treatment

plant • Investment in training and extension

Benefits • Higher quality of the processed

products and premium prices • Longer shelf life of products • Increased product volumes due to

higher milk solid content • Less misproduction/ rejected

batches • Lower processing costs • shorter pasteurization time • Increased access to export

markets and higher prices

Costs • Investment in an elaborate cold

system • Proper packaging which

eliminates milk contamination

Costs • Investment in a quality tracking and

tracing system • Investment in recruiting new and

training old staff • Investment in better storage and

cold chain management • Control and coordination of milk

collection • definition and close supervision of

standard operation procedures

Benefits • Longer shelf life products • Higher product safety • Possibilty to export or sell in

niche markets • Possibility to increase margins

Figure 1: Conceptual framework

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3 MethodologyThis study followed a value chain approach. A value chain is defined as “the full range of activities that are required to bring a product or service from conception, through the different phases of production (involving a combination of physical transformation and the input of various producer services), delivery to final customers, and final disposal after use. The chain actors who actually transact a particular product as it moves through the value chain include inputs” (Kaplinsky & Morris, 2002). Value chain analysis is essential to understanding markets, their relationships, the participation of different actors, and the effects of the implementation of a quality-based payment system. Implementation of a quality-based payment system should involve everyone’s efforts in the dairy value chain (farmers, transporters, CBE and processors) (Ndungu, 2016).

3.1 Area of studyThe study was undertaken in Nakuru and Nyandarua counties in the locations of the different stakeholders who form part of the dairy value chain.

3.2 SamplingSampling was purposively done to permit an in-depth analysis of the costs and benefits. Table 1 provides the sample of value chain actors and the size.

Table 1. Sample sizeRespondents n Farmers/producers 75Cooperatives 2Milk transporters 6Focus group discussions 2Processors 2

3.3 Data collection methodsWe carried out field research with the key actors at different levels of the dairy value chain, using the following methods.

3.3.1 Interactive and semi-structured questionnaire for primary producers/farmers Individual farmers were interviewed using an interactive and semi-structured questionnaire to generate both quantitative and qualitative information. Focus group discussions were held with select farmers to generate in-depth information on how they perceived milk quality, their dairy operations to achieve quality management, and their opinions about a QBMPS.

3.3.2 Interviews with representatives of cooperativesThe study sampled two cooperatives already in the QBMPS project, two cooperatives not in the project but were producing quality milk, and two other cooperatives that had not attained the required milk quality.

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Representatives from the cooperatives were interviewed using an interactive and semi-structured questionnaire to generate quantitative and qualitative information on the investments they needed to make for milk quality, their recurrent costs and the benefits of improved milk quality.

3.3.3 Survey and telephone conversations with processorsAn interactive and semi-structured questionnaire survey was conducted with representatives of the processing company for information on their milk quality testing facilities, and the costs and benefits. Telephone conversations with some actors generated data.

3.4 Data analysisThe study used descriptive and econometric tools to analyze the empirical data collected. Descriptive statistics such as mean, standard deviation, range, frequency, and percentage were used to describe the characteristics of the respondents. For the costs and benefits, a partial analysis was conducted focusing on the additional costs and benefits that would be incurred in a QBMPS system.

Profit and loss was calculated as follows:

PROFIT/LOSS = TOTAL BENEFITS/REVENUE – TOTAL COSTS (1)

Empirically this model can be specified below:

(2)

Where = profit or loss

yP = Price of milk sold by the player (for the processer, this will be the quantity of cheese and yoghurt sold)

Y = Quantity of milk sold

= Total benefit from the sale of milk and milk products

xP = Price of inputs (1, 2, 3…..n)

X = Quantity of inputs (1, 2, 3……n)

= Total costs incurred by the player

The above illustrates the situation the players faced every day. To find out the costs and benefits within the QBMPS pilot, the study considered the additional costs and benefits that would yield additional profit/loss to the player.

(3)

Where = Additional profit/loss made from participation in the QBMPS

= Additional revenue made by the player in the QBMPS

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= Additional costs incurred by the player in the QBMPS

The partial cost and benefit analysis is further broken down

(4)

Where

= Additional profit/loss per kg of milk made from participation in the QBMPS

= Additional revenue per kg of milk made by the player in the QBMPS

= Additional costs per kg of milk incurred by the player in the QBMPS

For the farmer, the model can be specified as follows:

p = (BONUSPAYMENT + LESSMILKREJECTION) – (DFEEDCOST + DMILKEQUIPMENTCOST + DWATERCOST + DHOUSINGCOST + DCLEANING + DTRAIN) (5)

For the CBE:

p = (LESSMILKREJECTION) – (STAFFCOST + SOFTWARECOST + CONSUMABLES) (6)

For the processer:

p = (YIELDGAINSINCOME + LESSRETURNS + LESSMISPRODUCTION) – (STAFF + TRAINING + SOFTWARE + CONSUMABLES + CONSUMABLES + BONUSPAY + HARDWARE) (7)

Table 2 summarises the costs and benefits for the different milk value chain actors.

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Table 2: Milk value chain actors and the QBMPS

Player / FunctionCosts incurred in a QBMPS Benefits of a QBMPS Variables of interest

ProducerMain source of raw milkResponsible for the quality of feedingProper milking and handling of milk

FeedingBreedingStorageHandlingInfrastructure

Increased revenuesGreater incentive to invest in infrastructureMove from informal to formal sector

Sociological factors, distance to MCC, access to market information, access to extension Number of cows, milk quantity, milk prices, milk handling and hygiene, milk losses, animal healthcare, animal breeding, etc.

CooperativeCollection and bulking of farmers’ produceMaintenance of cold storage facilitiesMilk testingSupply animal feedsProvide artificial insemination services

Teaching and extensionTraining and supervisionEffective sampling plan and a tracking and tracing systemTransportation costsCooling plants

Milk-testing facilities Training provision, input provision, bargaining power, financial services, payment modalities, quality requirements Transport costs, milk collection and bulking etc.

ProcessorProcess raw milk into long-life milk, yoghurt, cheese, butter, etc.Bridge the gap between the producer and consumerMilk testingDistribution and sales

Teaching and extensionTraining and supervisionProviding adequate milk testing facilitiesCost of setting up a QBMPS Marketing costs

Increased revenuesDecrease in cost of production due to greater efficienciesImproved shelf life of the product, reducing distribution costExpansion of the export marketHigher milk to manufactured product ratios and yieldImproved sensory appeal such as flavour, odour and appearance

Raw milk quantities to finished products, chilling facilities, processing capacity

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4 Results and discussion

4.1 Introduction to the QBMPSHappy Cow Ltd., a dairy processor based in Nakuru, introduced a QBMPS through the Milk Quality Tracking and Tracing System project. The processor works with two milk collection and bulking enterprises (CBEs): New Ngorika Milk Producers Limited in Ngorika, Nyandarua County and Olenguruone Dairy Farmers Cooperative in Olenguruone, Nakuru County. The QBMPS aims at improving the quality of raw milk produced. Improved raw milk quality is linked to improved incomes for farmers, lower milk rejection, better processed product quality, lower processing costs, improved product shelf life and increased export opportunities.

The QBMPS gives smallholder farmers an opportunity to earn more for producing milk that meets set standards. Under the system, farmers who produce milk that meets the set standards earn bonuses on top of the normal milk prices. Parameters used are total plate count, presence of antibiotics residues, adulteration, total solids (including fat and protein). The project came up with its own standards that favour the farmers, which were lower than the industry standards, as shown in Table 3.

Table 3: QBMPS and KEBS standardsTest Grade QBMPS standard KEBS standards % pass markTotal plate count (cfu/mL) A 0–2,000,000 <200,000 50

B 2,000,001–10,000,000 200,000–1,000,000 0C >10,000,001 >2,000,000 –50

Antibiotic residues – Negative Negative 15Freezing point depression – > –0.500 –0.525 to –0.565 20Total solids – >11 >11.75 15

The results of the test are then analyzed and the following payment module used (Table 4).

Table 4: Payment module Grade % payment range Payment Bonus (KES/kg)

A 70–100 Premium +2B 40–69 Standard +1C <40 Penalty 0

For the QBMPS to work, all players made investments, some of which have a financial implication. Some of the investments included constructing laboratories in the cooperatives for acceptance tests; organizing farmers into groups at collection centers and constructing milk collection points to facilitate faster milk collection and grading; using aluminum cans instead of plastic containers; training farmers, graders and milk handlers on raw milk hygiene; separating morning and evening milk; labeling cans; establishing can ownership and can-washing system; using plate heat exchanger for fast cooling; and a cost-effective and sustainable sampling regime. Farmers had

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to adhere to good farming practices such as acquiring the right milking equipment, milking techniques, hygiene milking, adhering to milk collection time, transporting and delivering morning and evening milk separately.

4.2 Costs and benefits of the QBMPS at the farm levelCurrently the project has 1400 farmers who sell their milk through New Ngorika Milk Producers Ltd and Olenguruone Dairy Farmers Cooperative. The study interviewed 75 farmers in the two areas: 38 farmers (50.7%) in Olenguruone and 37 (49.3%) in New Ngorika.

In analyzing the costs and benefits, it was assumed that different farmers make dissimilar levels of investments into the QBMPS, which reflect in their benefits. Four milk quality levels were considered: grades A, B, C and mixed milk. Mixed milk is a scenario illustrating the situation of hesitating farmers who are 50% committed and who venture into, but are never fully dedicated, to implementing the changes required for the QBMPS. The revenue from forgone milk rejection considers the farmers’ benefits due to reduced rejection of milk by the processor.

4.2.1 General characteristics of smallholder farmersThe select farmers were questioned about their age, total years of education, and dairy farming characteristics because these variables can affect farmers’ practices, their approaches and preferences for raw milk quality and safety. Table 5 shows the demographics of the farmers.

Table 5: Demographics of sampled farmersVariable Minimum Maximum Mean Std. deviationAge (years) 21 80 48.20 14.329No. of years of schooling 0 16 9.29 4.236Dairy farming experience (years) 1 53 17.61 14.757

Education: The average period of schooling was 9 years, showing that most milk producers are sufficiently informed of their dairy activities. 41% had a primary school education, 32% secondary education, 16% tertiary education, and 11% of the respondents had no education.

Gender: 32% of the respondents were female and 68% were male.

4.2.2 Milk production and marketingLivestock production system. The production systems observed were open grazing (41.3%) paddocks (36%) and zero grazing (22.7%). Some of the respondents who used paddocks had started making smaller paddocks and planting high-yielding fodder.

Herd size. During the survey period, the farmers had an average of 3 dairy cows (Table 6).

4.2.3 Milk production, consumption and sale patternsOn average, a smallholder farmer in the QBMPS produces about 14.2 kg of milk per day from their dairy cows (Table 7), translating to 6.08 kg/cow. Of this daily production, about 11.2 kg was sold to different channels while

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Table 6: Herd composition and sizeHerd composition n Mean Std. deviationDairy cows 75 3.34 2.070Cows being milked 75 2.48 1.700Calves 60 2.65 1.990Dry cows 38 1.71 1.063Heifers 14 2.14 1.406Mature bulls 12 1.58 1.240

Table 7: Milk quantities per day

High season Low season Quantity/farmer Quantity/cowMilk yield per day (kg) 17.3 11.00 14.17 6.08Milk sold (kg) 14.1 8.4 11.19 4.63Milk consumption (kg) 3.3 2.8 3.00 1.50

3 kg was consumed in the household. Most farmers sold their morning milk while evening milk was consumed at home and some fed to calves.

Only 24% of the farmers sold their milk to other channels, especially evening milk; this is because the cooperatives collect morning milk only.

4.2.4 Farmers’ benefits in QBMPSThe average price paid per kilogram of milk sold to the cooperative was KES 35. Only 24% of the farmers sold their milk to other channels at an average price of KES 37/kg. Despite this difference in pricing, more milk in the study area was channeled through the collection and bulking enterprises. Cooperatives enable farmers to sell more milk because there are no restrictions on the amount of milk farmers deliver to the cooperative. Farmers also benefited from other services the cooperatives offered such as access to extension services, credit, artificial insemination, feeds and veterinary services. At the current market price of KES 35, an average farmer incurs an additional cost of KES 1.55/kg of milk to continuously meet the standards for a premium payment of KES +2 (grade A milk). The same farmer also gets an additional KES 1.86 as revenue from forgone milk rejection, giving the farmer a profit of KES 2.41/kg of milk. A farmer who continuously meets the standard for grade B milk incurs an additional cost of KES 1.25 and gets a benefit of KES 2.09, which is the sum of KES 1 for quality payment and KES 1.09 from forgone loss of income from milk rejection. This gives him a net profit of KES 0.92/kg of milk. Because farmers with grade C milk do not receive extra payment, they made a net loss (difference between additional revenue and additional cost) of KES –0.20/kg due to the inevitable costs they incur to be paid under the QBMPS scheme. Therefore, being part of a QBMPS without being committed led to a net loss.

Most farmers were not consistent in their investments in the QBMPS and had a fluctuating milk quality that ranged between grade A and grade C, represented by a “Mixed” quality (Table 8). They tended to limit investing in the QBMPS and did not always get the premium price. This negligence by farmers is prompted arises because the cooperative does not reject the milk

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that does not meet quality standards, instead it sells it to other processors who are relaxed on milk quality standards. Such farmers had a net profit of KES 0.27/kg of milk, which was less attractive than the profits made by farmers constantly supplying grade A and grade B milk. Because the amount of KES 0.27/kg is small, these farmers may not notice it and this could lead to dissatisfaction with the system. A farmer producing an average of 10.71 kg per day would make additional revenue of KES 41.29 from supplying grade A milk (Table 9).

There was no consistency in the QBMPS bonus payments. For example, a farmer would get a bonus for grade A in one month and get no bonus in the subsequent month. Table 9 is a summary of QBMPS payments for four farmers over eight months (January–August 2017).

Table 8: Variation in benefits for farmers involved in the QBMPS

Additional costs and revenue per kg for different milk grades (based on interviews with 75 farmers)

Per farmer per kg of milk

Grade A Grade B Grade C Mixed Grade A

Milk quantity considered (kg) 1 1 1 1 10.71

QBMPS (KES) 2 1 0 0.5 21.42Revenue from forgone milk rejection (KES) 1.86 1.09 0 0.6 19.87

Additional revenue (KES) 3.86 2.09 0 1.1 41.29

4.2.5 Additional benefits to the farmerSocial/business inclusion. Another benefit of this form of QBMPS designed for smallholders is the opportunity to enhance their inclusion into higher value (more profitable) dairy supply chains. Due to their small milk quantities and quality issues, they are likely to be excluded from a formal dairy chain. The QBMPS provides smallholder farmers a chance to improve production and sell their milk at a competitive price through a reliable market channel, as opposed to the informal market where prices are highly volatile and milk collection irregular and might be absent altogether during peak production periods, leading to possible loss of revenue for the farmer.

Chain integration. The QBMPS encourages grouping of farmers and the organization of the system strengthens both horizontal and vertical integration along the dairy chain, making it more robust. These aspects also give farmers the advantage of becoming more trustful business partners attractive to other actors such as input suppliers, financial institutions.

Productivity gains. Farmers in the QBMPS receive training in animal husbandry and feeding and in other good farming practices. These good practices contribute to improved milk quality, and may lead to higher production volumes.

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Tabl

e 9:

Ext

ract

from

QBM

PS p

aym

ent f

or J

anua

ry–A

ugus

t 201

7Ja

nuar

yFe

brua

ryM

arch

Ap

ril

May

Ju

ne

July

Au

gust

Farm

er A

Qua

ntity

(L)

–60

1.80

– 5

53.0

0–

––

–

Bon

us (K

ES)

–60

1.80

–11

06.0

0–

––

–

Typ

ePe

nalty

Stan

dard

Pena

ltyPr

emiu

mPe

nalty

Pena

ltyPe

nalty

Pena

lty

Farm

er B

Qua

ntity

(L)

65.3

0–

––

–16

5.60

138.

2013

0.80

Bon

us (K

ES)

65.3

0–

––

–33

1.20

276.

4026

1.60

Typ

eSt

anda

rdPe

nalty

Pena

ltyPe

nalty

Pena

ltyPr

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mPr

emiu

mPr

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Farm

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Qua

ntity

(L)

54.0

0–

20.0

0–

– 7

0.00

63.

0018

5.60

Bon

us (K

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54.0

0–

40.0

0–

–14

0.00

126.

0037

1.20

Typ

eSt

anda

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nalty

Prem

ium

Pena

ltyPe

nalty

Prem

ium

Prem

ium

Prem

ium

Farm

er D

Qua

ntity

(L)

–74

.00

––

–64

.80

––

Bon

us (K

ES)

–74

.00

––

–12

9.60

––

Typ

ePe

nalty

Stan

dard

Pena

ltyPe

nalty

Pena

lty12

9.60

Pena

ltyPe

nalty

23

4.2.6 Farmers’ costs in the QBMPSThe survey also sought to find out if farmers had made any changes on their farms to improve milk quality (Table 10).

Table 10: Variations in farmers’ costs with the QBMPS

Farmers investments

Additional costs and revenue (KES) per kg for different milk grades (based on interviews with 90 farmers)

Additional costs and revenue (KES) per farmer per day1

Grade A Grade B Grade C Mixed Grade AFeed2 0.15 0.15 0 0.07 1.56Milk equipment 0.08 0.08 0.08 0.08 0.85Water 0.17 0.08 0.08 0.08 1.80Housing 0.53 0.53 0 0.35 5.71Additional time for cleaning & attending training

0.62 0.33 0.04 0.25 6.64

Additional cost 1.55 1.17 0.20 0.83 16.561 The analysis uses the average of 10.71 kg of milk sold per day2 Costs include a mycotoxin binder in the feed

These costs are discussed in detail in the following sub-sections.

Cost of milking equipment. All the farmers practized hand milking. The containers recommended for use are wide-neck aluminum/steel containers that are smooth with no dents because they are easy to clean and sanitize. Residual milk in equipment leads to growth of micro-organisms that contaminate milk. Farmers are also encouraged to use the mazzi can that is cheaper and easier to carry. Using the mazzi can has been a challenge because initially it had no handles and it was hard to carry. With time farmers improvized the mazzi can and can now comfortably use it. There are still some concerns in cleaning the lid of the mazzi can because some parts are hard to reach.

For milking, 71% of the farmers used wide-neck aluminum containers while 29% used wide-neck plastic containers. For milk storage, 60% used wide-neck aluminum/steel containers, 24% wide-neck plastic containers, 8% narrow-neck plastic containers and 5% a sufuria. For milk delivery, 56% used wide-neck aluminum/steel containers, 36% wide-neck plastic containers while 8% used narrow-neck plastic containers.

Plate 1: Appropriate milk containers (Source: Happy Cow)

Plate 2: 10-litre mazzi can (Source: mazzican.com)

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Farmers who did not have the requisite containers had an additional cost of KES 1,544 to buy the containers. Olenguruone cooperative had a provision allowing the farmer to buy a container and pay for it in installments, reducing the burden for farmers to make a one-off payment when buying the containers.

The additional cost of purchasing milk equipment per kilogram of milk sold through the cooperative, with the estimated useful life of 5 years, would be KES 0.08/kg across all milk grades (Table 11).

Table 11: Review of milk equipment in the marketContainer type Capacity (L) Price (KES) Capacity (L) Price (KES)

Aluminum can 50 9,500–10,900 15 4,500–520040 8,000–9,000 10 3,000–4,000

30 7,500–8,000 5 2,500–3100

25 7,000–7,500 2 2,000

20 5,400–6,800

Milking pail 5 2,000–2,500

Mazzi can 10 850–1,200

Some farmers had used the containers for many years, and to account for inflation we reviewed the current market prices of milking containers (Table 14). A farmer producing an average of 10 kg of milk would spend between KES 3,000 and 4,000 to buy an aluminum can.

Cost of water. Respondents got their water from private ground well (46.7%), rainwater (33.3%), river (12%) and piped source (8%). The source of water can also contribute to bacterial contamination in milk. Most respondents washed their containers with hot water and soap after use and hang them to dry on a utensil rack. This practice leads to the destruction of harmful bacteria and contributes to the good quality of milk (Kurwijila, 2016). Only 7% of the respondents had incurred an additional water cost of KES 3,280 to build wells. This was to prevent animals from walking long distances to the river to drink water, thereby increasing milk production.

Based on the information collected from the respondents, it would cost the farmer KES 0.17/kg of grade A milk, KES 0.08 of grade B milk, KES 0.08 of grade C milk and KES 0.08 of mixed milk, to build wells (Table 12).

Cost of housing. Only 39% of the farmers had cattle housing: the rest did not house their cattle. The cow shed is a sources of contamination. It should be kept clean, dry, protected from flies and insects, and have proper drainage, sufficient ventilation and lighting. Materials used for the wall include wood, stones and bricks. For the roof, the most common material was iron sheets. For the floor, concrete/cement/earthen and stones were used. The most common bedding material used was soil, grass and saw dust.

The average initial cost of housing is about KES 42,000. Only 11% of the respondents had incurred an additional cost of housing at an average cost of KES 31,250. Based on information collected from respondents, the additional cost of housing for a farmer is KES 0.53/kg of grade A milk, KES 0.53/kg of grade B and KES 0.35/kg of mixed milk, to build a cow shed.

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Table 12: Cost of housingMean Std. deviation

Initial cost of housing (KES) 41,818.18 30,818.42Additional cost of housing incurred due to the QBMPS

31,250.00 11,572.75

Current value of housing 60,000.00 42,289.48Annual cost of repair and maintenance

9,750.00 10,881.30

Cost of feeding. The project trains farmers in producing adequate and good quality fodder for cows for production of quality milk. Napier grass (29.8%) was the most common fodder with the farmers in the area, next was oats (14.9%), Boma Rhodes (10.1%), kikuyu grass (8.3%), forage sorghum and green maize at (6.5%). Other fodder crops include Nandi setaria, lucerne and hay. Most respondent planted their own fodder. Farmers also used commercial feeds and minerals to supplement fodder crops. Most farmers (42.5%) used dairy meal. Most farmers (51.5%) preferred to buy mineral premix instead of mixing the different ingredients. Fodder costs the farmer an average of KES 816 per month (Table 13). Some farmers (45%) had also spent KES 524 to plant the different fodder types.

Plate 3: A dirty cow shed

Plate 4: A clean cow shed

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Table 13: Monthly cost of fodder and feed

% of respondents Mean cost per month (KES) Std. deviationTotal cost of fodder 58 815.98 993.42Additional cost of fodder 45 523.87 579.37Total cost of feed 97 3221.33 4912.12Additional cost of feed 27 2651.5 2243.90

Farmers also spent an average of KES 3,221 to buy commercial feeds; 27% had incurred an additional KES 2,652 to buy commercial feeds that they previously hadn’t use. This cost can be accounted for by increased milk production thereby increased sales; the additional costs was not factored into the cost calculation

There are concerns with contamination of feeds with aflatoxin. Aflatoxins are mycotoxins produced by certain species of mould, and can be transmitted to humans through consuming agricultural products. Aflatoxins could be responsible for Hepatocellular carcinoma in humans; stunting in children; acute aflatoxin poisoning from consuming contaminated food, causing death; chronic aflatoxin poisoning in dairy cattle, reducing milk yield; and decreases in feed efficiency, reducing reproduction efficiency (Walke et al., 2014). The effects can be countered using mycotoxin binders (sequestering agents) that bind aflatoxin and reduce absorption in an animal’s gastrointestinal tract. As a result, they protect animals from toxic effects and reduce the transfer of the metabolite, aflatoxin, into milk. Based on the information from the respondents, it would cost the farmer KES 0.15/kg of grade A milk, KES 0.15 of grade B, KES 0 of grade C and KES 0.07 of the mixed milk (Table 9) to prevent feed contamination.

Additional time for cleaning and attending training. Only 8% of the farmers cleaned the sheds and disposed of dung away from the shed before milking. Most farmers who had cowsheds and milking parlours admitted to cleaning the shed after milking in the morning. Some of the farmers had also sealed off the milking parlour to prevent animals from getting into the parlour during the day. Most farmers (98.7%) washed the milking vessels with clean water and dried them; 96% washed their hands with soap and dried them before milking. However, some were unsure whether their farmhand did the same when milking.

All the farmers interviewed washed the udder with clean water before milking. This is a notable improvement because some of the farmers admitted that before they received training in the QBMPS, they would let the calves suckle first to stimulate milk production and would then start milking without washing the udder. Only 62.7% wiped and dried the udder with a clean towel. Unfortunately, most of the farmers used the same towel for all the animals, putting them at risk of diseases transmitted from one cow to the next. Only 21.3% of the farmers fore-stripped and observed for mastitis. Fore-stripped milk normally contains a lot of bacteria and it is recommended one disposes of it after milking. The farmer who normally did so had had a previous mastitis attack. Those who had not observed a mastitis attack did not bother checking for it.

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80% of the farmers applied milking jelly after milking. After milking, teats should be dipped in antiseptic solution to minimize the risk of infection but only 5.3% of farmers disinfected the teats with teat dip.

Most farmers (97.3%) milked their animals twice a day; only two farmers (2.7%) milked their animals three times. All the farmers (100%) milked their cows in the morning: 29% milked between 4 am and 6 am and 71% between 6 am and 8 am. In the afternoon 43% milked their animals; of these 20% milked in the early afternoon between 12.00 and 2.20 pm and 23% milked in late afternoon from 2.30 to 3.30 pm. 57% milked in the evening; of these 48% milked between 4 and 6 pm and 9% between 6 and 8 pm. The general observation was that the milking interval was still too long. Some farmers who used to milk at whatever time (inconsistent times) admitted that the training they had attended enlightened them on the advantages of keeping time and maintaining routine.

The QBMPS calls for continuous training to help farmers improve their milk quality and production and therefore get higher earnings. Only 41.3% of the interviewed farmers had attended dairy training in the past one year; of these, 25.3% had acquired knowledge on proper milking and clean milk handling, 17.3% on dairy health, 21.3% on pasture establishment, 33.3% dairy cattle feeding. Although Happy Cow and the CBEs offered training for free and voluntary, farmers did not seem to purpose to attend the training. During the survey period, Happy Cow was conducting training but only 7 farmers attended.

The additional time for cleaning and attending training was estimated to cost KES 0.62/kg of grade A milk, KES 0.33/kg of grade B, KES 0.04/kg of grade C and KES 0.25 of mixed milk (Table 14).

Table 14: Milk hygiene and handling practices on the farm

Practice Frequency PercentageClean the shed and dispose the dung away from the shed 6 8Wash the milking vessels with clean water and dry them 74 98.7Wash hands with soap and dry the hands with a towel 72 96Wash the udder with clean warm water before milking 75 100Fore-strip each quarter and observe signs of mastitis 16 21.3Wipe and dry the udder after washing, using clean dry towel 47 62.7Apply milking jelly/lubricant after milking 60 80Disinfect the teats with teat dip 4 5.3

4.2.7 Other costs farmers incurredThe survey also captured other costs which, though not necessarily covered by the QBMPS, had an indirect effect on the QBMPS.

Cost of transportation. Farmers used different modes of transport to deliver milk either directly to the CBE or to the collection point. At Ngorika, the CBE used a tractor to collect milk from the project routes. There were designated milk collection points, but farmers preferred to wait for the tractor at their homestead instead of using the designated points.

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In Olenguruone, transporters have a contract with farmers; the transporters collect milk at designated collection points and deliver it to the platform at the CBE. The cooperative then deducts on average KES 4/kg from the farmer for the transporter.

The most common mode of transportation was on foot (81%) while 14% of the respondents used own transport, i.e. a car or motorcycle; 4% used public transport while 1% used ox/donkey.

The average distance to a milk collection point was 0.9 km with an average of 10 minutes to reach the collection point. In some places, roads were impassable and farmers had to walk long distances to get to the collection point. The time taken from the time the farmer finished milking to milk delivery and collection at the milk collection point was 62 minutes, or approximately an hour. This was within the recommended time interval because milk has the ability to resist bacterial growth in the first 2 hours. It is good practice to deliver milk within 2 hours of milking before bacterial multiplication starts.

Only 6 farmers incurred transportation costs of approximately KES 55 per day (Table 15). One farmer in the QBMPS project in Olenguruone incurred an extra cost of KES 50 per day to transport their milk, because the farmer had stopped using the milk transporters and personally delivered milk to the CBE.

Plate 5: Tractor offloading milk cans at CBE

Plate 6: Motorcycle with a detachable rack for transporting milk

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Table 15: Transportation costs

n Mean Std. deviation

Distance to the milk collection centre (m) 75 940.20 2,025.89Time taken to the collection centre (minutes) 75 9.60 9.20Time taken between milking and delivery to the collection centre (minutes)

75 62.63 44.17

Additional transportation cost from participating in QBMPS project (KES)

1 50.0

Total cost of transportation (KES) 6 55.67 24.14

Cost of labour. Labour is a vital factor of production. On average, farmers spent KES 4,655 per month on hired labour. Only 4% of the respondents incurred an additional cost of KES 3,400 per month each for labour production. Most of this cost went to pasture establishment and feeding. The average cost of family labour was KES 4,733 per month (Table 16).

Table 16: Cost of labour% of responses Mean (KES) Std. deviation

Cost of hired labour 29 4,654.55 2,942.10Additional cost of hired labour 4 3,400.00 848.53Monthly cost of family labour 52 4,733.33 2,456.15

Cost of credit. Only 24% of the respondents had accessed credit in the past one year; of these, 10.7% accessed it from a bank while 13.3% from the cooperative. Access to credit is important as it helps the farmer to make long-term investments that would boost milk quality and production. Only 17.3% of the credit accessed was channeled back to dairy production. Table 17 shows the amount of credit accessed.

Table 17: Credit accessed in the past one year

% of responses Mean (KES) Std. deviation

Average amount of credit accessed in the past one year

23 52,333.33 41,070.96

Average amount of credit repaid/to be repaid 23 61,265.41 57,841.29Average total interest payable 23 11,736.00 18,806.21

Access to extension. The main aim of extension is to disseminate information and improve production capabilities. In the QBMPS sites, extension served to create awareness about the system. The number of visits by the extension officers in a year reflects the level and speed of adoption of new technologies by smallholder farmers. Only 48% of farmers in the project had accessed extension, showing that extension provision was still low. The extension providers were Olenguruone (47%), New Ngorika (42%) and government (11%). The extension officer visited the farmer on average 3.58 times in a year. This is evidence of the low level of extension services provided to farmers. The project is in the process of employing two extension officers who will be based at the CBEs to train farmers and follow up on milk quality. SNV’s Kenya Market-led Dairy Program (KMDP) also supports training and extension activities in the two CBEs. Farmers did not incur any costs to access extension services.

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4.3 Costs and benefits of the QBMPS for cooperatives and processorsThe project is a collaboration and is co-financed between SNV, through its market development project, the processor and the two CBEs at an agreed percentage. In this section, we assume 100% financing, based on the data collected during the survey.

4.3.1 Benefits for CBE and processorThis section elaborates on the benefits of buying milk from the farmers and how the benefits change once the quality of milk improves. The average milk intake of 9,000 kg per day was used for the calculation.

The processor pays the CBEs an average of KES 41/kg of (bulk) milk collected of grades A, B and C. The CBE charges a fixed amount of KES 6/kg to the farmer’s milk price, independent of the milk quality. From discussions with the CBEs, it was evident that the QBMPS brought about huge reductions in the proportion of milk rejected by the processor. Milk rejected by the processor is not paid for, leading to a loss of KES 35/kg to the farmer and KES 6/kg to the CBE. Meanwhile, milk that is rejected at the CBE is returned to the farmer. Milk rejection levels for different grades of milk were estimated using information from the CBEs. Table 18 shows the losses the CBE would make, assuming that all the day’s milk collected was of a target grade (for example grade A) compared with a situation where all the day’s milk was grade C. If the CBE farmers provide only grade A milk instead of grade C milk, the CBE would make an extra profit of KES 0.32/kg of milk.

Table 18: Benefits to the CBE due to reduced rates of milk rejection

Cost per kg of milk (KES) Grade A Grade B Grade C MixedTotal CBE cost 0.56 0.56 0.56 0.56CBE benefit as forgone milk rejection (compared with grade C milk) 0.32 0.19 0.00 0.10Profit/loss of CBE –0.24 –0.37 –0.56 –0.46

In the same way, the CBE will make a profit of KES 0.19/kg were all farmers to deliver grade B milk, and of KES 0.10 /kg for mixed milk. Increased milk production from productivity gains will also translate to higher milk intake by the CBE, leading to a higher total daily margin to the CBE.

When poor quality milk is processed, chances of losing batches of the product are high. For example, fermentation of yogurt and cheese may be hindered by the presence of antibiotics in milk. Also, products from milk of poor quality might spoil before their envisaged shelf life and will be returned to the processor. The QBMPS has the potential to reduce such occurrences, thus giving the processor an average benefit of KES 0.93/kg of received milk (Table 19).

4.3.2 CBE and processor costsTable 20 shows the costs per kilogram of milk for various investments made by the processor and CBEs in the QBMPS (without considering subsidies).

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Table 19: Benefits to the processor Per kg of milk (KES)

Grade A Grade B Grade C MixedTotal processor cost 3.05 3.05 3.05 3.05

Processor benefit per kg of milk as forgone mis-production and milk returns* (KES)

0.93 0.74 0.00 0.30

Profit/loss for processor –2.12 –2.31 –3.05 –0.75

*Calculated as additional revenue from sales of finished products the processor will get from forgone product returns and mis-production when using the target grade of milk compared with grade C milk.

Annual depreciation was used as a cost for fixed investments. All total annual costs were divided by an average daily milk intake of 9,000 kg to get the cost per kilogram. The processor spent on average KES 3.05/kg and the CBE KES 0.56/kg of milk that goes through the QBMPS (Table 20).

Table 20: CBE and processor costs in the QBMPS

Investment

Cost per kg of milk (KES)Pilot Up-scaling

Processor CBE Total Processor CBE TotalProject management/ staffing 0.42 0.51 0.93 0.42 0.51 0.93Farmer training 0.45 0.00 0.45 0.00 0.23 0.23Software development 0.05 0.02 0.07 0.014 0.007 0.02Consumables – lab analysis 1.27 0.03 1.30 0.25 0.03 0.28Bonus payments 0.24 0.00 0.24 1.00 0.00 1.00Hardware 0.61 0.00 0.61 0.08 0.04 0.12Total 3.05 0.56 3.61 1.77 0.81 2.58

Some initial investments were made to meet the basic infrastructure required for any good milk collection system to function according to the Kenyan regulations, irrespective of whether there is a QBMPS implemented or not. Using the current case, we calculated an additional cost of KES 1.73/kg of milk to put basic systems in place. This includes simple laboratories, clean water and can-cleaning facilities, cooling tanks and using aluminium cans in all milk collection centres.

Costs are expected to reduce for the processor and CBEs during the scaling-up phase compared with the pilot phase. The costs incurred by the CBEs and processor are discussed in detail below.

4.3.3 Cost of project management and organization For the QBMPS to run efficiently, the project employed staff to coordinate day-to-day activities in the project. The project manager is in charge of overseeing the project at both sites and is based at Happy Cow. The project also employs two quality controllers and two extension staff. Indirectly, milk graders and transporters are part of the project because they are the link between farmers and the cooperative. Standard operating procedures are needed for milk handling at the farm, milk handling and grading,

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transportation, milk reception and cleaning of milk cans and equipment, testing and control, and milk payments.

On average, the total cost of project management/staffing was KES 0.93/kg of milk during the pilot and up-scaling stages. The cooperative absorbs KES 0.51 and the CBE KES 0.42 of these costs.

4.3.4 Cost of trainingThe project organizes training for farmers, milk graders, milk transporters, and staff. As noted earlier, the farmers do not pay for the training offered by the project. Emphasis has been on clean milk production. On average, the processor spent KES 0.45/kg of milk for training during the pilot stage. In the up-scaling stage, the cost was transferred to the CBE at a cost of KES 0.23/kg.

4.3.5 Cost of hardwareThe project routes have designated milk collection points (MCPs). The milk collection point enables farmers to temporarily store their milk produce before it is graded and collected. Farmers no longer have to place their cans on the roadside and under the sun waiting for the transporter to collect the cans. The structure is also equipped with a water bath to cool the milk. The average cost of building an MCP is KES 30,000. Some of the MCPs have appointed a milk prefect to oversee milk collection.

Milk is collected at designated collection points. Usage rates of the MCPs differ: farmers in Olenguruone were using their milk collection point, but most MCPs in Ngorika were not in use and some had even been vandalized. The usage rate is further hampered by milk hawkers who collect milk at the farm gate, depending on the farms’ proximity to the major town.

Once milk is delivered to the CBE platform and has passed all the acceptance tests, it is poured into the dump tank and pumped into the cooler. The project has installed a cooler at Ngorika and was in the process of installing icebergs to improve cooling capacity at the CBE during the survey period.

Plate 7: Milk collection point

Plate 8: Water bath inside a milk collection point

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Milk from the project routes was mixed with milk from the non-project routes in the same cooler. The project was in the process of establishing parallel milk reception and storage systems at Ngorika.

During the pilot stages, the cost of hardware—laboratories, collection centers, equipment, cooling tank—was borne by the processor at a cost of KES 0.61/kg of milk. Repairs and maintenance are estimated to cost the processor KES 0.08/kg of milk and the CBE KES 0.04/kg of milk during the up-scaling stage.

Initial investments were made to meet the basic infrastructure that is required of any milk collection system to function according to the Kenyan regulations, irrespective of whether there was a QBMPS implemented or not. We calculated an additional cost of KES 1.73 /kg of milk for putting in place basic systems. This includes the cost of infrastructure and advisory services.

An operational can washing facility has been installed at Ngorika with a hot water facility and drying racks. This is because the CBE owns the milk containers that are used to transport the milk from the milk collection point to the platform. The CBE has also installed a water purifying system because the water supply in the area is untreated river water. In Olenguruone, transporters own the containers and are responsible for cleaning them; Olenguruone does not have facilities for can washing.

4.3.6 Consumables in laboratory analysisOnce collected, the milk grader/transporter carries out acceptance tests before bulking the milk into farmers’ respective milk cans. In Ngorika, milk is transported to the CBE using a tractor and a trailer which belong to the cooperative; in Olenguruone milk transporters collect the milk and deliver it to the CBE.

Once the milk has reached the platforms at the CBEs, milk quality controllers carry out acceptance tests, i.e. organoleptic, alcohol and density tests. The

Plate 10: Drying rack (bottom)

Plate 9: Can washing facility

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project has seen the setup of two laboratories at the CBEs that are designed to facilitate milk testing at this level. The milk quality controllers further take samples to the laboratory where titratable acidity, the 10-minute resazurin test and yoghurt culture test are carried out. The results are then shared with the main laboratory located at Happy Cow.

The average cost of milk testing, that is, use of consumables in the laboratory, is KES 1.30/kg with the CBEs absorbing KES 0.03 and the processor KES 1.27. Compared with the pilot phase, costs of laboratory consumables during the up-scaling phase are expected to reduce. It is assumed that when scaling up, sampling will be from larger units, such as 150 kg collected by a motor bike transporter or 500 kg collected per route by a tractor/lorry, instead of the 50-kg cans of milk currently sampled. Scaling-up the sampling unit will substantially reduce the costs to KES 0.25/kg of milk for the processor and KES 0.03/kg for the CBEs.

4.3.7 Software developmentThere was need to develop a tracking and tracing software for the QBMPS project. The software enables the project to monitor the quality of project milk during collection, storage and transportation. The software also helps to organize a database of all milk analysis results, and in the payment of bonuses. The cost of software development was KES 0.07/kg during the pilot stage. During the up-scaling stage, the cost upgrading and regular maintenance of software will reduce significantly to KES 0.02/kg of milk.

4.3.8 Bonus paymentsProcessors pay farmers their bonus payments through the CBE. The cost of bonus payments during the pilot stage was KES 0.24/kg of milk for grade A and grade B milk. Most importantly, bonus payments will increase during the up-scaling phase because it is envisaged more farmers will comply with better milk standards, justifying a bonus payment. The costs are expected to go up to KES 1.00/kg of milk.

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5 ConclusionThe dairy sector in Kenya is an important sector. Over the last 20 years, the country has seen the quality of milk deteriorate. The regulatory body has relaxed on the implementation and strict enforcement of milk quality standards. There has also been a lack of discipline and ethical behavior among value chain players. The current milk payment structure emphasizes quantity rather than quality in both the formal and informal sectors. In this structure, no one has the motivation to improve milk quality because it is still possible to get the same payment regardless of the investments made to improve the quality of milk.

A QBMPS provides incentives to all players to improve the quality of milk. In the pilot program implemented by Happy Cow, farmers delivering grade A milk earned an additional KES 3.86 for every kg of milk delivered to the CBE. This required farmers to acquire the right milking equipment, practice hygienic milking, observe withdrawal periods for antibiotics, separate morning and evening milk, and attend regular training. The farmer’s costs amounted to KES 1.55 /kg, resulting in a profit of KES 2.31/kg. The CBE incurred a cost of KES 0.56/kg of milk and made additional revenue of KES 0.32 /kg, leaving them with a net loss of KES –0.24/kg. For the processor, the system required equipping a laboratory, employing quality control personnel, acquiring good software, etc., at the cost of KES 3.05/kg; processors accrued additional revenue of KES 0.93 /kg, leading to a loss of KES –2.12 /kg of milk. Next to the private benefits to value chain actors (farmers, CBEs and processor), these actions would result in public health benefits amounting to KES 44.1/kg for grade A milk, KES 18.17/kg for grade B milk and KES 9.52 /kg for mixed milk. These are substantial benefits which should justify public investment in the QBMPS.

First, for business to be suitable for processors and CBEs, it is advisable that the government or other public parties financially support their investments in QBMPS. This support can be progressively decreased until the system can stand on its own. Second, once the system runs effectively, it is expected that processor costs per kilogram will significantly reduce due to lower expenses for capacity building. Third, if consumers are made aware of the differences in quality of milk that goes through the QBMPS, they may accept a higher price for products it generates, which in turn could (partly or entirely) compensate the processor’s costs. Implementing a QBMPS provides potential to address milk quality issues and at the same time improve farmers’ revenues and multiple benefits for other dairy chain actors in Kenya (Table 21).

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Table 21: Summary of costs and benefits per kg of milk (KES) Grade A Grade B Grade C MixedFarmer

Costs 1.55 1.17 0.20 0.83 Benefits 3.86 2.09 0 1.1 Profit/loss 2.31 0.92 –0.20 0.27CBE

Costs 0.56 0.56 0.56 0.56 Benefits 0.32 0.19 0.00 0.10 Profit/loss –0.24 –0.37 –0.56 –0.46Processor

Costs 3.05 3.05 3.05 3.05 Benefits 0.93 0.54 0.00 0.30 Profit/loss –2.12 –2.51 –3.05 –2.75

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6 RecommendationsTo fully integrate and replicate the system, this study makes the following recommendations for the different players based on information from the pilot program and from reviewing other quality systems globally.

6.1 Farm levelFarmers should attend training to enhance their knowledge and skills levels of the dairy sector. The project provides training for free but some farmers did not attend any training sessions. Farmers should be made aware of the importance of being trained through media communication and extension.

At the farm level we recommend proper hygiene, adoption of aluminum cans, separation of morning and evening milk, and timely delivery of milk to milk collection points.

Farmers should also undertake good feeding practices and feed preservation to increase the quantity of milk produced by their animals because higher volumes also mean higher bonuses. This will also serve as an incentive to continue improving the quality of milk.

The project should also work with lead farmers. These are farmers who have a business mindset and have already made the necessary changes and are earning bonuses from the QBMPS. These farms will support the training of the other farmers.

Misuse of antibiotics is rampant in the dairy sector. Farmers should minimize antibiotics misuse by using them only on the recommendation of a veterinarian. Farmers should also aim to adhere to the recommended withdrawal period for antibiotics.

In cases where milk testing is conducted with groups of farmers, the project should ensure that these farmers are responsible for the quality of the group’s milk. Doing so makes it easier to identify the culprits who compromise milk quality and helps target corrective action for the farmers, and also helps build ownership and inclusion.

6.2 Cooperative (CBE)The cooperative should be rigorous in checking the quality of milk delivered at all collection points. This means that all employees handling milk must be trained in hygiene practices. This calls for the development and enforcement of strict standard operating procedures. The CBE must also undertake a comprehensive and strict testing regime to ensure consistent and good quality milk. This requires all CBEs to invest in a well-equipped laboratory and in staff.

Much as their main objective is finding a market for their members’ produce, the CBE must be ready to incur milk losses for quality. The cooperative should dispose of the rejected milk instead of giving it back to farmers, to minimize the situation where rejected milk finds its way into the market. The cooperative should also check to find out which farmer and/or transporter deteriorates milk quality and focus attention to further testing training and extension provision.

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The cooperative should also provide continuous training and extension to farmers, targeting improving milk quality, and facilitate farmers to acquire the necessary inputs such as aluminum cans and aflatoxin-free feeds and to access veterinarians.

A study is needed on the feasibility and sustainability of collecting milk twice a day, i.e. morning and evening milk.

6.3 ProcessorLike the CBE, the processor must not accept rejected milk and should enforce the quality standards and continuously monitor the quality of milk collected from the CBEs. The processor should invest in a comprehensive, continuous and strict testing regime.

The processor should invest in a collaborative initiative with the CBE and farmers to improve milk quality throughout the value chain, e.g. through training and extension and provision of inputs and credit. The processor should build relationships with the farmers as they are the focal points of milk quality in the chain through stable milk prices, training, extension provision and credit provision. It is also advisable for the processor to collect milk directly from the farmers where it is possible to do so as milk quality deteriorates as the number of milk handlers increases within the chain.

There is also need for self-regulation within the processor association; processors should formulate their own uniform standards and enforcement mechanisms.

6.4 RegulatoryThe regulatory authority’s main priority should be the strict enactment, enforcement and monitoring of quality standards. It should also carry out the following activities:

• ban the use of plastic cans • streamline the dairy sector towards a formal sector since a QBMPS can

only be successfully implemented in streamlined dairy sector• build the sector’s capacity with incentives and an enabling environment• build industrial relations with other stakeholders such as feed

manufacturers to ensure only aflatoxin-free feed is manufactured• devise a model for regulating use of antibiotics to prevent their rampant

misuse and the sale of sub-standard antibiotics• provide public information and awareness through various media to

promote milk quality• establish its own accredited laboratories in the counties and expand its

staff to cover all counties to enable it to easily and continuously monitor the quality of milk in the country.

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ReferencesBarbano, D. M., & Santos, M. V. (2006). Influence of raw milk quality on fluid milk shelf life.

Journal of Dairy Science, 89(1), 15–19.Berges, M., & Karin, C. (2009). Consumers’ willingness to pay for milk quality attributes. Inter-

national Association of Agricultural Economists Conference. Beijing.Bernadette, O. (2008). Practical steps to improve milk quality, milk quality handbook. Teagasc:

Moorepark Dairy Production Research Centre.Botaro, B. G., Gameiro, A. H., & Santos, M. V. (2013). Quality-based payment program and milk

quality in dairy cooperatives of Southern Brazil: An econometric analysis based payment program, 70(1), 21–26.

Cruthfield, S. R., Buzby, J. C., Roberts, T., Ollinger, M., & Jordan, C. T. (1997). An economic as-sessment of food safety regulations: The new approach to meat and poultry inspection. Washington: Food Safety Branch, Food and Consumer Economics Division, Economic Re-search Service, United States, Department of Agriculture.

Fadiga, M., & Makokha, S. (2014). Consumer valuations of the quality and safety attributes of milk and meat in Kenya. African Journal of Agricultural and Resource Economics, 9(2), 91–105.

Hibma, J. (2016, April 18). Analyze-the-value-of-milk-components. Retrieved 24 May 2017, from http://www.progressivedairy.com/topics/management/analyze-the-value-of-milk-compo-nents

Kaplinsky, R., & Morris, M. (2002). A handbook for value chain research. Brighton: Institute of Development Studies.

[KDB] Kenya Dairy Board. (2015). Kenya Dairy Board Annual Report and Financial Statements for the year ended 30 June 2014. Nairobi: KDB.

Kurwijila, L. R. (2016). Hygienic milk handling, processing and marketing: Reference guide for training and certification of small-scale milk traders in East Africa. Tanzania: Sokoine Uni-versity of Agriculture.

Lejars, C., Auzoux, S., Siegmund, B., & Letourmy, P. (2010). Implementing sugarcane quality-based payment systems using a decision support system. Computers and Electronics in Agriculture, 70, 225–233.

More, S. J. (2009). Global trends in milk quality: implications for the Irish dairy industry. Irish Veterinary Journal, Supplement 5–12.

Navarro, E. F. (2014). Exploring alternatives for milk quality improvement and more efficient dairy production in a smallholder farming context – case study: Mantaro Valley (Peru). PhD Thesis, University College Cork, Montpellier Supagro.

Ndungu, T. (2016). Milk Quality Tracking and Tracing System as a basis for quality based milk payment system: A review of the project milestones and proposed interventions. Happy Cow Ltd.

Rademaker, C. J., Bebe, B. O., Lee, J. v., Kilelu, C., & Tonui, C. (2016). Sustainable growth of the Kenyan dairy sector; A quick scan of robustness, reliability and resilience. Nairobi: 3R Ke-nya Project.

Steen, M., & Maijers, W. (2014). Inclusiveness of the small-holder farmer key success: Factors for Ethiopian Agribusiness Development. International Food and Agribusiness Management Review, 17(Special Issue B), 83–88.

Unnevehr, L., & Roberts, T. (1997). Improving Cost/Benefit Analysis for HACCP and Microbial Food Safety: An Economist’s Overview. University of Connecticut. Food Marketing Policy Center.

Bio Foods Jasper van den Brink

Egerton University Aggrey Tshombe – Medical doctor

Gogar Farm Hamish Grant – Managing director

Happy Cow Alex Oosterwijk – Marketing managerTheresia Ndungu – Project manager Victor – Production manager Wachira – Finance managerGerard Oosterwijk

ILRI (International Livestock Research Institute), Kenya Silvia Alonso - EpidemiologistDelia Grace – Epidemiologist

Kenya Bureau of Standards (KEBS)Zipporah Maimba Clarkson Agembo

Kenya Dairy Board Kituto KitelePaul NdunguRobert Kilonzo – Food quality and safety expert

Kenya Medical Research Institute (KEMRI) Robert Onsare Sam Kariuki John Njeru

Kenyatta Hospital Beatrice Museve – MicrobiologistCarolyne Mbogori

Kinoro Dairy Cooperative Nicholas Mugambi – Manager

Kitiri Dairy Cooperative John Mugo – Manager Kelvin Kabui – PhD candidate working on QBMPS

Kithirune Dairy Cooperative Jane – Manager

Medical doctors John Jananga Jacqueline Kaptuya Ken Kebaso

Meru Dairy Cooperative Union Kenneth Ndegwa – Manager Ministry of Livestock (Vetlabs) Jane LweyaloJoyce Thaiya

New Ngorika Producers Ltd John Ndegwa – Director

Olenguruone Dairy Cooperative Wesley Langat – Manager

SNV Anton Jansen

The Friesian, The Netherlands Dirk Harting – Consultant

Tuberculosis Centre Samuel Gitau Richard Muthoko

University of Nairobi, Department of Public HealthJackson Ombui

University of Nairobi, College of Agriculture and Veterinary Sciences Erastus Kang’etheJohn Mburu

Wageningen University Hein van Valenberg – Food technology

Zoonotic Disease Unit Mathew Muturi

NB List excludes the names of the farmers, consumers and transporters/graders interviewed

Annex 1: List of interviewees

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Annex 2: Producer questionnaire

Questionnaire Code_________________

SECTION A: GENERAL INFORMATION

Date of survey (dd/mm/yyyy)

Head of household name

County Sub-county Village

Name of survey respondent

Relationship of respondent to household head (Code b)

Contact/phone number of respondent

Name of the cooperative society

Milk collection route

Milk can number

Gender of household head 1=Male 0=Female

Age of the household head (years)

Highest education level attained (years)

Dairy farming experience (years)

Primary occupation

Land size (acres)

Land size used for dairy purposes

Sources of income (Code b)

If other, specify

1.20 What livestock production system do you use? (Code d)

Code a1= Hh2= Spouse3=Other family member4=Other non-family member

Code bDairyOther agricultural activitiesOff-farm employmentPensionSelf-employedOther (Specify)

Code cExoticCrossbreedIndigenous

Code dZero grazingOpen grazingPaddocksOther

SECTION B: QUALITY-BASED MILK PAYMENT INFORMATIONHerd detail

Details Number Type of breed (Code c)

Cows being milked

Cows (dry)

Heifers

Calves

Mature bulls

TOTAL

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Milk production

No. of cows

No. of lactating cows

Average milk yield (kg) Average milk sold (kg) Average milk consumed (kg)

High season Low season High season Low season High season Low season

Per day

Per month

Per day

Per month

Per day

Per month

Per day

Per month

Per day

Per month

Per day

Per month

Revenue from milk salesHas there been an increase in milk production since joining the QBMPS Project (0=No, 1=Yes) _____Quantity of milk sold (1=Cooperative, 2= Farm gate, 3=Don’t sell, 4=Other)

Receiving agents Increase in milk quantity due to QBMPS

Average milk sale Daily income (KES)

Monthly income (KES)High season Low season High season Low season

Quantity (kg) Quantity (kg)

Quantity (kg)

Price/kg (KES)

Quantity (kg)

Price/kg (KES)

Have you received any bonus payment relating to milk quality? _____________ (0=No, 1=Yes)Quality based milk payments for the past one year

Aug. 2016 Sept. 2016

Oct. 2016

Nov. 2016

Dec 2016

Jan 2017

Feb 2017

Mar 2017

Apr. 2017

May 2017

June 2017

July 2017

Aug. 2017

kg

Payment (KES)Type

1=Premium, 2=Standard, 3=penalty 4=rejected

Has your milk ever been rejected by the cooperative? _______________________ (0=No, 1=Yes)

If yes, why _______________________________________________________________________________________________________________________________________________________________________

Quantity of milk rejected since introduction of the QBMPS ______________Have you made any changes to improve milk quality on the farm? _______________ (0=No, 1=Yes)List the changes ________________________________________________________________If no, would you be willing to make the changes? _________________ (0=No, 1=Yes)

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Milk marketing through the cooperativeTransport mode

Distance to the milk collection/ delivery center

Time taken to the collection centre

How long after milking does it take to deliver the milk?

Any additional transportation cost from participating in QBMPS Project (KES)

Total cost of transportation (KES)

Constraints in milk transportation

Public transportOwn transportOn foot

Ox/Donkey cartCar hiresOther (Specify)

Cattle housingDo you house your animals (0=No, 1=Yes) ____________

Wall Roof material

Floor material

Bedding Do you clean the floor

What do you use to clean the floor

How often do you clean the floor

Initial cost of housing

Additional cost incurred in the QBMPS

Current value of housing

Annual cost of repair and maintenance

ThatchedBlocks/ bricksStonesWoodIron sheets

ThatchedBlocks/ bricksStonesWoodIron sheets

Concrete/ cementMud/earthStonesWoodSpecify

Plastic coverSawdustSandSoilOther (specify)

NoYes

WaterWater with soapWater with disinfectant

Milk hygiene and handling practices at the farm level

Sanitary measures during milking (Tick as appropriate)Clean the shed before milking and dispose the dung away from the shed

Wash the milking vessels with clean water and dry them

Wash the udder with clean warm water before milking

Fore-strip each quarter and observe for signs of mastitis

Wipe and dry the udder after washing using clean dry towel

Wash hands with soap and dry the hands with towel

Apply milking jelly/lubricant after milking

Disinfect the teats by teat dip

How many times do you milk? _______________________________

What time of the day do you milk? __________________________

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Containers used

How often do you clean containers

Cost of milking equipment

Additional cost due to QBMPS

Source of water With what do you clean

Monthly cost of water

Additional cost of water

During milking

Milk storage

Milk delivery/ distribution

Container usedWide-neck aluminium containerWide-neck plastic containerNarrow-neck aluminium containerNarrow-neck plastic containerSufuriaOther (Specify)

Before every useAfter every useBefore and after every use

Piped/ tapRiver/ streamCommunity ground pumpRoof catchment (rain water)Private ground pump/wellOther (specify)

With cold water aloneWith hot water aloneWith cold water and soapWith hot water and soapWith detergent and waterOthers (specify)

Feeding

Source of fodder

Type of fodder Units Cost per unit Additional cost due to QBMPSHigh Season Low season High season Low season

Public landPlanted fodderPurchased fodderRoadside fodderOther (specify)

GrassesNapierBoma RhodesBana grass Sudan grassNandi setaria Columbus grass

Herbaceous legumeLucerneDesmodiumLupinPurple vetchLablab

Fodder shrubsCalliandraSesbaniaLeucaena trichandria

Other fodder cropsSweet potato vinesForage sorghumCrop residuesMaize stover dryMaize stover green

Bean husks Other crop residuesSilageHay

Source of feed, mineral supplements and/or concentrates

Type of feed, mineral supplements and/or concentrates

Units Cost per unit Additional cost due to QBMPSHigh season Low season High

seasonLow season

Dairy mealMaize germWheat pollardMolassesMaize bran

Wheat branCotton seed cakeSoya bean mealSunflower seed cake

Fish mealDicalcium PhosphateLimestoneRock phosphate

Mineral Premix

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Labor

Units Cost per unit Additional cost due to QBMPSHigh Season Low season High season Low season

Hired labor

Family labour

Animal healthHave your cattle experienced any disease/conditions related to milk for the past one year? _______________ (0=Yes, 1=No)

Type of disease

Frequency of occurrence/ control

Who administer the treatment

Cost of treatment/ control per occurrence

Total cost of treatment/ control

Have you used antibiotics to treat your animals?

Did you observe the withdrawal period?

Duration of the withdrawal period

If not, why?

kg of milk lost during the period of treatment

Mastitis controlTick-borne diseasesBovine Tuberculosis

TrypanasomosisWormsBrucellosisTick control

AnthraxFoot and mouth diseasesEast coast fever

DiarrhoeaAnaemiaAbortionQ. feverOther (Specify)

0= No1=Yes

0= No1=Yes

Other costs

Units Cost per unit Additional cost due to QBMPSHigh

SeasonLow season

High season

Low season

PROVISION OF SERVICESTrainingHave you ever participated in dairy production training for the past one years? _______ ( 1= yes, 0= no)

If yes, specify the type of training and the organization responsible for the training

Type of training Duration Organization Was the training useful ( 1= yes, 0= no)

Cost of the training

1. Proper milking and clean milk handling2. Record keeping3. Milk marketing4. General farm management5. Dairy health6. Pasture establishment and management7. Dairy cattle feeding8. Other

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Extension

Access to extension

If yes, Extension service provider

No. of visits in last one year

Cost of the extension

NoYes

1=Government2=New Ngorika3= Olenguruone4= NGO5= Other (Specify)

Credit access

Access to credit for dairy enterprise

If yes, Source of the loan

Purpose of the loan How much credit have you accessed in the last one year

How much did/will you repay in total?

NoYes

BankCooperativeNGOFriends and familyOther (Specify)

Transaction cost information

Access to Information

Access to market information

Source of market information

Type of information Cost of market information

NoYes

NoYes

Extension officerNGORadioNewspaperCooperativeOther

Household income

Source of income Amount per month (KES) Total amount per year (KES)Milk sales

Livestock sales

Off-farm employment

Other farming activities

Other

Total household income

Farmer perception about milk quality

Please indicate your agreement with the following statements on a scale of 1-5, where 1=Strongly disagree, 2=disagree, 3=Neutral 4=agree and 5 = Strongly agree

1 2 3 4 5

Milk quality is important to me as a producer

Milk quality is important to me as a consumer

Milk quality is important to be able to sell my milk

I take pride in producing high-quality milk

I get a price premium for high quality milk

I try to produce higher quality milk because of the bonus payment

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Farmers producing high-quality milk receive recognition among their peers

I try to produce higher quality milk because I know poor quality can pose risks to human health

Changes to improve quality of milk produced on your farm 1 = Very Difficult 2= Difficult 3=Neutral 4=Easy and 5 = Very Easy

Cost

Activity 1 2 3 4 5

Improving the milking procedures

Taking proper care of the milk after milking

Taking proper care of the milk during transportation

Recording the temperature of milk before sending it to the collection centerTreating mastitis as soon as it is discovered

Procuring mastitis testing equipment, e.g., California Mastitis Test, Testing individual cows for somatic cellSeparation of morning and evening milk

Getting knowledge about how to improve milk quality

Improving the knowledge of my staff and family about milk handling to ensure quality

Do you have any suggestions on how to improve the quality-based payment system?________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________Do you think that the quality-based system is replicable in other parts of the country?____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________Additional information________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

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Annex 3: Questionnaire for Milk transporters and Milk graders

Name

Telephone no.

Location

Milk collection route

Institution

For how long have you worked in the dairy industry (Years)? ______________________

What milk tests do you carry out at the different milk collection points?Alcohol test Lactometer

testPeroxide test Organoleptic

testOther (Specify)

Recommended rangeActual observed rangeCost of testing (KES)

What is the acceptance/rejection percentage in general?

Information on the milk collection exerciseTime start

Duration Time ends

Is the time taken different between the rainy and the dry seasons

If different, additional hours

kg of milk collected Distance covered in the milk collection route

Mode of trans-portation

Containers used for trans-portation

Cost of trans-portation

High Season

Low season

What are your general perceptions of the quality of milk collected from farmers?______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________Do you have any suggestions on how to improve milk quality? ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________From your interaction with the farmers, do you think they have the necessary capacity to make improvements on their farms in order to receive higher payments based on the quality of their milk?____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

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Annex 4: Questionnaire for the cooperative

SECTION A: GENERAL INFORMATION

Name of the cooperative

Location

Date of interview

Name of the respondent

Contact info

Number of members in the cooperative

Number of members who are part of the quality-based milk payment systemNo. of employees Male________

Female___________

SECTION B: COSTS AND BENEFITS OF THE QUALITY-BASED SYSTEMWhat is the perception of the cooperative on the QBMPS?_________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________How has the project benefited the cooperative? Can you also quantify it? What changes did the coop make with the quality-based milk system? And what was the cost the changes?

Category Items/areasInitial investment

Recurrent cost per month Benefits

Quantify the benefits

Farm level TrainingProvision of feedAI and animal health supportExtensionProvision of milk containersOther (specify)Other (specify)

Milk collection and Milk testing at the farm level

Milk collection containersMilk collection points Milk grader Milk transporter (If different from grader)Transportation costAlcohol testDensity testDigital balanceOther (specify)Other (specify)

CBE Milk quality controllerAlcohol testDensity testDigital displayMilk coolerCost of platform

50

Dump tankFloorCeilingRoofLight and electricityCost of water and water treatmentCan washing facilityDetergentsLaboratoryOther (specify)Other (specify)

(Other useful information provided will be covered at the end of the questionnaire)

How many milk collection routes do you have? ______________________

Collection routes

kg of milk from each route

Type of containers

What parameter do you use to accept or reject the milk

How long does it take to transport milk to the collection centre

Mode of transportation

High Low

(Include those who deliver own milk to the collection centre as one collection route)

Do you think the quality-based milk payment system is working? Elaborate__________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________What challenges have you faced with the use of the quality-based system? __________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________Do you think the quality-based system is replicable and sustainable in Kenya?______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________What do you think the following players in the dairy industry need to do to improve the quality of milk in the milk value chain?Farmers______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

51

Cooperatives ___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________Kenya Dairy Board___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________Processors___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________Consumers__________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________Support services providers _______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________