Presentation by Steven J. Staal at the National dairy forum, Addis Ababa, Ethiopia, 23-24 November 2010.

1. A comparison of dairy policy and development in South Asia and East Africa: lessons for a pro-poor dairy policy agenda Steven J. StaalInternational Livestock Research Institute Ethiopian National Dairy Forum, Addis Ababa, 23-24 Nov. 2010

2. Outline of presentation Alternative models of dairy development Trend analysis to compare E Africa and S Asia dairy development and policy Results and implications An agenda for pro-poor dairy development

3. Single objective enterprise model Multiple objectives, farm-household model Often subsidized Few subsidies, may be taxed indirectly Capital intensive Labor intensive Strong economies of scale Weak economies of scale Human over-nutrition, threat to human health Human under-nutrition, sustaining human health System nutrient surpluses, threat to environment System nutrient deficits, sustaining natural resources Alternative models of dairy development Commercial/modernSmallholder/informal Production profile Nutrient and nutrition profile

4. Value added products, highly processed Low cost products, traditional processing High relative demand for food safety/quality Low relative demand for food safety/quality Highly regulated and monitored Largely unregulated, unrecorded Over-represented: loud voice in domestic and international policy Invisible: little voice in domestic or international policy Stagnant future prospects? Growing future prospects? Alternative models of dairy development(cont) Commercial/modern Smallholder/informal Demand and product profile Policy profile Growth and opportunity profile

5. An analysis of dairy development trends Staal, S. J., Nin Pratt, A., and Jabbar, M.2008. Dairy Development for the Resource Poor: A Comparison of Dairy Policies and Development in South Asia and East Africa. PPLPI Working Paper No. 44. (3 part series), FAO, Rome Data used from five South Asian countries and ten East African countries, based on FAOSTAT and the World Bank’s World Development Indicators database. A reduced form of the model relating milk supply (in litres) and its key determinants in the long run was estimated for five countries in South Asia (Bangladesh, India, Nepal, Pakistan and Sri Lanka) and 10 East and Southern African Countries (Kenya, Ethiopia, Sudan, Uganda, Tanzania, Malawi, Zambia, Mozambique, Zimbabwe, Madagascar) over 30 years (1970-1999)

6. Modeling dairy development – main variables Indicator of dairy development Annual growth rate of milk production 1970-1999 Dairy policy Milk producer's price/import price Macro policy Openness (Trade as % of GDP) GDP growth Domestic credit to private sector (% of GDP) Demand GDP per capita (US$, Yr 2000) Share of formally processed milk in total output (%) Urbanisation

7. Main variables (cont) Input markets and labour Feed supplied to livestock (kgs of maize equivalent per animal) Mechanisation - number of tractors Manufacture Value Added per worker in agriculture ($) Technology and human capital Yield (lt/milking animal) R&D in agriculture per hectare ($) Life expectancy (years) Milking animals (number of heads)

8. Dairy production trends – East Africa

9. Dairy production trends – Southern - East Africa

10. Dairy production trends – South Asia

11. Results – East Africa Positive determinants of dairy trends in East Africa GDP growth and GDP per capita (2000 US $) Urbanisation Life expectancy (years) Yield (lt/milking animal) Negative factors include: Openness (Trade as % of GDP) Domestic credit to private sector (% of GDP) Share of formally processed milk in total output (%) Manufacture value added per worker in agriculture

12. Results – East Africa (cont) Variables with no significant association: Milk producer's price/import price Feed supplied to livestock (tons of maize eq. Per head) Domestic demand (Mt) R&D in agriculture per hectare ($) Milking animals (heads)

13. Results – South Asia Positive determinants of dairy trends in South Asia: GDP growth (%) Domestic demand (litres) Yield (lt/milking animal) Feed supplied to livestock (tons of maize equivalent) Number of tractors per hectare Milking animals, cows and buffalos (heads) Negative factors include: R&D in agriculture per hectare ($)

14. Results – South Asia (cont) Variables with no significant association: Milk producer's price/import price Openness (Trade as % of GDP) Domestic credit to private sector (% of GDP) GDP per capita (2000 US$) Illiteracy rate (%) Share of formally processed milk in total output (%)

15. Summary of dairy development comparisons – East Africa Demand-related factors play a key role, as seen in countries with the fastest growth in milk production (Sudan, Kenya and Uganda). Formal milk markets, input markets, technology and policy do not explain the differences between fast growing countries and the rest. This suggests that adjusting supply to type and quality of products demanded, expanding demand by reducing consumer prices and reducing transaction costs should be a necessary condition to expand the dairy sector in East Africa.

16. Summary of dairy development comparisons – South Asia Consumption of dairy products higher than in EA, and demand has driven growth for the past 30 years in all countries. Unlike the rest, India and Pakistan linked the Green Revolution to successfully expand production which is reflected in the contribution of input markets and technology to growth in milk production.

17. Key lessons for dairy development and policy - Markets Demand side change is key The analyses highlight the importance of demand, brought about either through growth in GDP/capita or exports, or through increased urbanization. Supply side interventions can be over-credited with bringing about growth The Indian milk revolution, for example, may be largely a result of demand side forces, plus links to technology trends in crop production Knowing the real markets, rather than assuming Demand is based on local perceptions and traditions Market understanding should be based on local realities, not based on assumed duplication of the trends observed elsewhere. Where poor people are the main consumers, interventions to provide low-cost products are likely to simulate dairy development.

18. Key lessons for dairy development and policy - Technology Improved dairy animals and technology. Nearly all strong dairy development growth scenarios are associated with increased yield per animal and genetic improvement. Use of exotic cattle genes is a rapid and potentially sustainable path to higher productivity, even among resource poor farmers, and in warm climates Feed and fodder – mixed results overall Only India and Pakistan were able to link dairy development with crop sector growth Kenya case study showed that planted fodder technology played a key role India case study showed that crop residues played main role. Avenue for increased productivity may be through improved breed of “food-fodder” crop varieties, bred to produce higher crop residues with better feed characteristics

19. Key lessons for dairy development and policy – Traditional markets One key finding Traditional/informal milk markets played a key role in dairy development in both regions and in most countries. Strongest growth - Pakistan, India, Sudan, Kenya, and Uganda, traditional markets control over 80% of marketed milk Evidence suggests traditional market dominance is due to continued strong demand for the products they offer. Strong demand for traditional products by some high income consumers suggests traditional markets will continue. No evidence that formal market structures are required to stimulate dairy development, in fact negative role in E Africa and no role in Pakistan. than have the traditional, informal market. Policies that tolerate such markets, but also support increased quality and food safety are likely to be both pro-poor and pro-growth in nature. Policies that simply oppose and attempt to police such markets, are likely to impact negatively on both small farmers, consumers and of course small scale market agents.

20. Key lessons for dairy development and policy – Dairy coop development Mixed message on dairy coop development. In Kenya, evidence that dairy coops played role in providing a stable market environment and delivering farmer services. In India no empirical evidence that coop development was associated locally with dairy development as measured, found to be associated with genetic improvement in dairy animals. No evidence that dairy coops are more effective than other market channels in linking poor farmers to output markets. The mixed experience suggests that dairy cooperative development is dependent on good cooperative management, on honest and effective investment of resources, and on accountability to the interests of the farmer members.

21. Key lessons for dairy development and policy – Smallholder competitiveness Smallholders are competitive. Ample evidence that smallholder dairy producers are competitive generally, and are likely to endure for some time to come Particularly where the opportunity costs of family labour and wages remain low. Continued dominance of role of smallholders in all the countries studied, even in the context in some cases of steady economic growth. Policy-makers and investors should resist the assumption that larger scale production will “more efficiently” meet growing consumer demand. Instead, that growing demand should be used as a mechanism to help continue and sustain smallholder dairy enterprises.

22. An Agenda for Pro-Poor Dairy Policy and Development Objectives of pro-poor dairy development Employment creation in rural and periurban areas both on farm and along market distribution and value chains. Reliable income generation and asset accumulation for resource-poor farmers. The provision of low-cost and safe dairy products to resource-poor consumers. Improved natural resource management and sustained farming systems through dairy cattle-mediated nutrient cycling. Improved child nutrition and cognitive development in resource-poor households.

23. Elements of a model for pro-poor dairy development Build on traditional dairy product consumption habits and preferences, at the same time as promoting demand for new products. Support development and evolution of traditional domestic markets for milk and dairy products, at the same time as promoting appropriate formal and export market development. Emphasize and support the role of smallholder dairy production as primary means of rural income generation and sustaining the intensification of mixed crop-livestock systems. Appropriate, improved animals and the systems required to deliver those to smallholders Fodder technologies and exchange mechanisms for fodder and crop residues Institutional mechanisms for enhancing smallholder participation in growing local markets – cooperatives but also contract farming, other forms of farmer groups.

24. Thank you