by David Neven, Hikuepi Katjiuongua, Ingrid Adjosoediro, Thomas Reardon, Pia Chuzu, Gelson Tembo, and Mukelabai Ndiyoi
Michigan State University Department of Agricultural Economics Staff Paper 2006-18
Market liberalization in Zambia has led to a rapid and fundamental transformation of its dairy sector. Mainly through foreign direct investment and international partnerships, a new formal dairy sector, characterized by institutional, organizational and technological innovation, emerged from the ashes of abandoned government projects. Sensing the development opportunity that arose from an untapped milk supply potential in Zambia's traditional smallholder livestock production and a growing milk demand from the newly emerging formal dairy processing sector, numerous donor-funded smallholder dairy farmer support programs emerged. At the same time, in order to protect its domestic market as well as to be in a better position to enter demanding export markets, stakeholders from the private, public and NGO sector have recently joined forces to develop technical dairy product standards for Zambia based on the CODEX.
Our survey of smallholder dairy farmers in Zambia's Southern Province focused on how this new formal dairy sector impacted these farmers in terms if their participation and growth. In terms of participation, we found that even within the smallholder farmer population under study, it is the larger, higher-income and technologically more advanced farmers who have entered the modern dairy channel. Although this is partially the direct result of assistance models targeting clusters of higher capacity smallholder farms in the initial stages, the persistence of this capacity difference for the more established milk collection centers investigated in this research indicates that there exists a threshold capital vector at the entry of the modern dairy channel. In terms of growth, we found that farmers in the modern dairy channel, relative to farmers in the traditional dairy channel, grew faster in terms of milk output volume as well as in terms of upgrading with respect to improved breeds, tools and operational management practices. However, we also found that within the modern dairy channel, relative growth in terms of upgrading outstripped relative growth in output volume. This appears to indicate that while participation in the modern channel does have a positive effect on growth it does so below the apparent potential as the efficient and effective use of new technologies and management practices lags their introduction.
Three key implications for development programs follow from these findings. First, the modern processors' use of quality-based premiums for rewarding producers who deliver higher quality milk spurred the farmer's interest in expanding their production capacity through investment and technology adoption. This illustrates how small holder producers in some of Africa's more difficult production environments still have the capacity to respond to economic incentives in their livelihood decisions. It underscores the importance of designing and integrating suitable price incentive schemes in assistance programs. Second, even if specifically focused on smallholder producers, economic development programs are unlikely to assist all targeted farmers in entering modern supply chains. Hence, development programs must be clear from the start on which farmers to include in the business model. Farmers not making the grade will either (1) benefit from the spill-over effects of the growth of the included producers (whose increased incomes are likely to stimulate the local economy) or (2) need to be targeted by social development programs. Third, the integration of smallholder farmers into modern, dynamic markets requires a balanced approach in which numerous complementary program elements need to be implemented with great synchronicity. In turn this requires that development programs involve all relevant stakeholders (private-public-NGO) and coordinate their activities carefully.
Full paper available for download at http://agecon.lib.umn.edu/cgi-bin/pdf_view.pl?paperid=21706&ftype=.pdf