Last week we pipped into the first M, Maize. This week we move on to the second M, Milk.
Kenya’s Milk industry is controlled by the Dairy Industry Act that establishes the Kenya Dairy Board (KDB). This is a 1958 Act which has not been updated substantially.
Under Section 17, KDB has the mandate to organise, regulate and develop the efficient production, marketing, distribution and supply of the various types of dairy produce required by different classes of consumers. This Board is also tasked with improving the quality of dairy produce and securing reasonable and stable prices to producers of dairy produce.
KDB also promotes market research in relation to dairy produce and is supposed to permit the greatest possible degree of private enterprise in the production, processing and sale of dairy produce, consistent with the efficiency of the producer and the interests of other producers and of consumers.
Additionally, the Board should also ensure, either by itself or in association with any government department or local authority, that relevant measures and practices are designed and adopted to promote greater efficiency in the dairy industry.
The Milky Way
In Kenya, milk liberalisation happened in 1992. This enabled the creation of other dairy companies that could now compete with the Kenya Cooperative Creameries (KCC).
Over the years, several dairy processors have emerged in Kenya. The main ones are Brookside, which controls most of the production and has been on an acquisition spree, Sameer Agriculture & Livestock Ltd (SALL), Githunguri Dairy Co-operative and Bio Food Products.
In addition, liberalisation also led farmers to explore innovative ways of selling their milk through other channels, including hawkers, brokers, self-help groups as well as neighbours.
A study conducted in 2012, showed that 60 percent of the milk is marketed through traders, cooperatives, hotels and kiosks. An estimated 84 percent of the milk produced is sold in raw form to consumers, providing instant cash and higher revenues to the farmer.
In 2018, Kenya produced 648 million litres of milk. Recently the KDB announced that there were plans to import milk from Kenya’s neighbours citing insufficient production to cope with the growing demand for milk in Kenya. KDB claims the reason for the low production of milk in this year is due to the recent drought.
The KDB recently drafted a raft of regulations that are meant to streamline how milk is acquired and sold in Kenya. However, the regulations are very punitive to the small-scale farmer. They require them to sell their milk in bulk. Small-scale farmers cannot sell unpasteurised milk. So, a farmer in Karatina, with two cows, cannot sell milk unless he or she sells it to a large corporation for the price this new monopolistic monster will establish unilaterally.
The regulations favour dairy milk processors as they will now be the only channel the milk farmers can use. Milk processors will buy the milk at whatever price they feel like thus leaving the small-scale farmer at the mercy of the dairy processor. This is exactly how the coffee business was killed.
Confusing 'curtail' with 'cartel'
More recently, the KDB rescinded the enforcement of these new regulations and have engaged the farmers in wider consultations. This is unbelievable, as consultations with stakeholders should have been the first course of action had they read the Constitution.
Milk farmers have also complained that they are being paid less for the price of their raw milk yet the cost of production has not changed. The price has gone down from Sh35 to Sh26 a litre. The farmers cite the importation of powdered milk from neighbouring countries and the lack of regulations to protect and cushion the Kenyan farmer from the effects of East African milk liberalisation.
Whatever the case, no regulation should help create cartels and ‘curtail’ the growth of our small and medium enterprises.
Brookside recently announced that they would pay their farmers 36 Kenya shillings per litre to allow them to benefit from the increase in milk prices. This announcement was welcomed but it is still insufficient from the market point of view. Unless proper regulations are put in place, the market will be distorted and left at the mercy of powerful cartels, whether public (like the Maize Board) or private (like our three big dairy corporations).
The dairy industry in Kenya grew in leaps and bounds since 1992 because it was truly liberalised. The job of a good government is not to restrict growth, disincentivise production and create structures that will jeopardise the sustainability of small and medium enterprises, which in Kenya equals to food security.
A good government creates a level playing field, where the game is fair, and fosters growth within clear, understandable and transparent rules. Any regulation that pushes small farmers through the strainer of big monopolies will undermine production, kill the farmers and result in hunger.
Dr Luis Franceschi is Dean – Strathmore Law School. [email protected]