County plan to control milk sales throws dairy sector into panic

The prolonged tranquility the country’s dairy sector has enjoyed could soon be interrupted by a major storm after the Murang’a County government sought to take over the county’s milk value chain.

The government, under the banner of the Murang’a County Creameries, put up a request for expression of interest (REOI) notice in local dailies a couple of weeks ago, revealing its intention to engage milk buyers and processors in the purchase of fresh, chilled and pasteurised milk from dairy farmers.

In a move that has set milk processors, particularly leading companies Brookside Dairy and New KCC, on edge, the county government wants to control milk collection, storage and selling. In the notice, the government said it had invested in cooling and bulking facilities and organised farmers into co-operatives. Buyers were invited to submit their REOIs to procure the milk in bulk.

NEW SYSTEM

The system, however, appears to have run into hurdles already, with the county government holding day-long meetings with stakeholders to address the growing disquiet.

The move, which Governor Mwangi wa Iria says seeks to ensure the county’s farmers earn more from their milk, has processors worried.

They fear it will dismantle well-established value chains in the county, render useless investments running into millions of shillings and cause milk retail prices to increase.

And if other counties replicate the precedent Murang’a has set, the processors say, this would jeopardise the stability dairy farmers have enjoyed since the sector was liberalised.

“We welcome any support extended to farmers by county governments, but it is important to understand the dairy industry is complicated,” said New KCC Managing Director Kipkirui Langat.

He added that his firm regards Murang’a an important source of milk and has invested in it, “and we would not want to see our investment threatened or destabilised”.

Huge potential

Brookside Dairy, on the other hand, said it had not seen the details of the arrangement the county was pursuing.

“We cannot offer a comment for now. We will obtain more information before giving our take,” said John Gethi, the firm’s general manager in charge of milk procurement and extension services.

He did, however, add that Brookside, which has huge investments in Murang’a and processes most of the milk produced in the county, would continue to work with all stakeholders, including farmers’ groups, to grow dairy enterprise.

Last year, Mr Gethi said, Brookside paid farmers in the county Sh184 million for raw milk, up from Sh180 million the previous year.

“This payment is a pointer to the huge potential for dairy in the county. It is also a pointer that the various interventions Brookside has put in place to enable its contracted farmers increase milk production in the area are bearing fruit.”

But even as the processors wait to see what will come of the county government’s move, there are those who feel the timing may undermine uptake.

This is because it comes just when coffee farmers in neighbouring Nyeri County are up in arms against Governor Nderitu Gachagua.

They accuse him of duping them into a pooled coffee marketing system with the promise of better returns, only for the system to fall apart.

Mr Gachagua had allegedly promised coffee farmers they would get Sh67 per kilo of berry, but they are now being told they can only get Sh41 per kilo because they are obligated to pay factory overheads, marketing charges, inputs and other miscellaneous charges.

Many farmers are now threatening to walk away from the pooling system and revert to selling their coffee in a free market.

There are fears the same situation could befall Muranga’s dairy farmers.

Over the past few months, the county government has invested close to Sh500 million to acquire milk cooling and bulking facilities after identifying the sector as key to its growth and development. Governor Iria is a former New KCC managing director and rode to his position on the back of the dairy sector.

The county has procured 35 milk coolers with the capacity to hold 175,000 litres. The coolers have been installed in each ward in milk-producing regions.

The coolers, according to the county government, will improve the quality and quantity of milk produced, and ultimately the amount of money that goes to farmers.

They will also enhance milking and delivery timelines, reducing wastage, it added.

Farmers have also been organised into co-operatives, which will be responsible for milk collection and cooler management.

The county government will help in marketing, which is why it has made the call for milk processors to submit REOIs.

Farmers’ interests

The strategy appears watertight in safeguarding farmers’ interests on the face of it, but looking deeper, there is likely to be trouble ahead.

First, the cooling capacity installed by the government is ambitious. Murang’a produces an average of 120,000 litres of milk a day. The coolers can hold much more milk than what is produced, which may see some lie idle or run below capacity.

Further, Brookside Dairy and New KCC have already invested in cooling and chilling facilities. Brookside, for instance, has set up the county’s largest cooling facility in Maragwa, with a capacity of 10,000 litres. New KCC has two facilities.

This means Murang’a has overinvested in these facilities. And because running them is not cheap, farmers will be required to bear the overheads, such as electricity and water bills, and maintenance and hygiene costs.

“It is very expensive to maintain a cooler. In fact, less than 40 per cent of the coolers in the country are running successfully,” said Dr Langat.

He added that farmers would likely be resistant to the idea of shouldering the costs of the facilities, which may lead to an increase in milk retail prices as the costs are passed on to consumers.

Farmers currently get an average of Sh30 per litre of raw milk from processors; this retails at Sh90 in supermarkets.

There are also concerns over the county government creating a ‘middleman’ by being a go-between for farmers and processors.

“The owner of the milk should remain as the farmer through the co-operative, which has been negotiating with each processor individually on the right price for the farmer,” said Langat.

Processors also have running contracts with farmers, which are now in limbo as the county moves to implement its new system.