Integrating informal actors into the formal dairy industry in Kenya through training and certification Towards Priority Actions for Market Development for African Farmers. AGRA Conference. 13-15 May 2009, Nairobi, Kenya Amos Omore and Derek Baker, ILRI, Nairobi, Kenya

Milk channels

Piloting policy-related interventions: Training & Certification using a BDS Approach Milk Traders Training Service Providers (BDS) Regulatory Authority Certification/Licensing Training & certificates of participation in training Accreditation & monitoring Reporting Cess fee Training guides

Policy change process Source: Leksmono et al, ODI Working Paper 266, 2006

Simplified representation of policy change process Source: Leksmono et al, ODI Working Paper 266, 2006

Changes in milk quantities handled Average daily quantities of milk purchased and sold by SSMVs before and after the policy change.

Estimates of market margins Due to reduced: spoilage, rent-seeking, confiscation Average margin over all locations and trader types, before policy change ; 6.26 Reduction in margin attributed to policy change; 0.54 Average margin over all locations and trader types, after policy change ; 5.72 0.27 0.80 Margin reduction attributed to policy change 6.15 21.96 15.81 5.33 21.93 16.60 Average for all SSMVs After policy change 6.42 20.85 14.42 6.13 21.48 15.35 Average for all SSMVs Before policy change Margin Sale Purchase Margin Sale Purchase Nakuru price (KSh/litre) Nairobi/Thika price (KSh/litre) Type of business

Estimates of welfare benefits 19.53 Annual Benefits minus costs (2005-2039) 0.58 Less annual costs of training and licensing by SSMVs (2005-2039) 0.63 Less annual SDP expenditure (1997-2004) 230 Net Present Value (@5.00%) (to 2039) 12.72 Less annual cess fees (2005-2039) and municipal, council costs 6.09 33.46 Total benefits 0.90 5.09 Benefits to input suppliers 0.75 4.32 Benefits to SSMVs 2.98 16.04 Benefits to producers 1.46 8.01 Benefits to consumers Nairobi area gross benefits (Million US $) Economy-wide (Million US $) Scenario Annual change in benefits (with 2005 as year when benefits start accruing)

Thank you Authors: Simeon Kaitibie, Amos Omore, Karl Rich, Beatrice Salasya, Nicholas Hooton, Daniel Mwero and Patti Kristjanson www.ilri.org and http//: impact.cgiar.org

Appendix 3: Values for estimating welfare changes attributed to new dairy policy Study survey, decrease in retail farm price margin (comparing before and after policy change) KSh 0.54/litre Ksh 0.80 Cost reduction due to changes in transaction costs and elimination of NTB Freebairn et al. (1982) 2 2 Elasticity of marketing services supply Salasya et al. (2006) 0.35 0.35 Elasticity of milk supply at farm Salasya et al. (2006) -0.97 -0.97 Elasticity of milk demand at retail Estimated using data from Salasya et al. (2006) and updated SDP milk production data Ksh 7.06/litre Ksh 6.90/liter Non-market input cost per unit of output Study survey (averaged over all locations and SSMV purchases Ksh 15.58/litre Ksh 15.97/liter Farm price Study survey (averaged over all locations and SSMV sales Ksh 21.57/litre Ksh 21.70/liter Retail price SDP, updated (SDP Policy Brief #10, September 2006) 4016 million litres 493 million liters Raw milk production Source of information Value (Kenya-wide) Value (Nairobi area) Variable description

Appendix 4: Counterfactual- NPV with/without SDP Based on NPV with SDP of $230M 62 IRR(%) 174.37 56.07 5 Legalization occurs 20 years later 108 IRR(%) 106.43 124.01 5 Legalization occurs 10 years later NPV (with SDP minus without SDP) (US$ million) NPV without SDP (US$ million) Real interest rate (%) Time delay