1. Introduction
2. Urbanisation and economic growth
3. Demand and market - the link between producer and consumer
5. How to promote a market oriented development - of the very complex dairy sector?
Jørgen Henriksen
Dairy Officer
Meat and Dairy Service (AGAM)
Animal Production and Health Division
FAO, Rome1.
[¹Graphics produced by Giorgis Beccaloni (AGA)]
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VIEWS EXPRESSED IN SUBSEQUENT ARTICLES ARE THOSE OF THE AUTHORS: Although every effort has been made to correct typographical errors, a few that may still remain, are not intentional- Editors |
In subsistence agriculture the producer is also the consumer. There is no transport or processing involved and the consumers preference and taste is well known by the very same producer. In "rural economies" more than 50 % of the population is involved directly in farming and the primary production of food and agricultural outputs. In the more expanding and diversifying economies the ratio of consumer to producer increases tremendously. The scenario here is that the employment in the food chain after farm gate is 5- 10 times that in the primary production. This development can be demonstrated with an example from Canada: in 1900, 45 % of Canada's population were employed on farm, whereas in 1990 only 3 % were still directly involved in food production, but now 25 % had found employment in various elements of the food chain. This is the general development seen in most industrialized countries, and it is rapidly under way in the developing countries, with a large variation in the scenarios seen. This change in the food supply system might even be more dramatic in the developing countries than during the industrialization of the now developed countries because of a more rapid urbanisation. The balance is different and so are many of the problems and solutions.
The cities and towns of Africa are growing rapidly (see figure 1), and more rapidly than the rural populations. It is well known that the urban per capita demand for dairy products is higher than rural demand. Predictions for future demand for livestock products are staggering. Winrock (1992) estimate an increased demand from 1990 to 2010 for meat to 120 % and for milk to 70 %. Therefore, the near future will show a growing demand for dairy products and present both a challenge and an opportunity for development of the dairy sector in most developing countries as indicated in figure 2; most -if not all- East African countries have the potential to produce enough milk to satisfy the domestic demand. Many countries have seen a peri-urban sector develop very fast around or in the largest urban centres, responding immediately to the market demand and profiting from the lack of links between the rural producer and the urban consumer. Parallel to this development Tanzania has also seen private entrepreneurs initiate milk collection from Maasai pastoralists living in the vicinity of Dar es Salaam.
The peri-urban farming is not seen as a sustainable farming system but as result of insufficient infra-structure and lack of regulations or control/enforcement of legislation on health, standards and environmental issues. Most European countries have had a similar development. The capital of Denmark, Copenhagen, had in the 1840's a population of dairy cows housed on second or third floor stables in the centre of town in connection to the numerous small scale breweries (Glamann, 1990). The cows were fed on brewers' waste and other waste products available in town. In fact, half of the milk supply to Copenhagen originated from this urban production system. Around the year 1900 these cows all disappeared from the city because of the increasing population, regulations to reduce health risks and environmental hazards and increasing costs of transporting fodder in and waste/manure out of town. Another important reason was that milk was now available from rural farming areas through improved infrastructure, organisation and market orientation of the farming community. More strict regulations and enforcement of sanitary conditions promoted this development.
Figure 1: Growth of urban centres in Sub-Saharan Africa
Figure 2: Milk production and demand in developing countries
Future interventions in the dairy sector should consequently be market or demand driven and thus promoting a general economic development; FAO's emphasis is to enhance rural development through assistance to small scale dairy development within a mixed farming system with the objective to improve food security and to achieve sustainable development of agriculture. Development of the dairy sector is an efficient tool in this context as it generates a continuous flow of income, diversifies risk, improves utilization of resources, and generates employment also outside the farming community because of the need for collection, transport, processing and marketing. Emphasis should be on the mixed farming system, where the animal component also increases the crop production. However, the pastoral production system also has potential for delivery of livestock products to urban centres depending on the distance to these centres but even more on the market orientation of the pastoral population. Two of the major general constraints should be mentioned here. The first is the lack of organisation and infrastructure. With the small amount of milk from each individual farmer some kind of common action has to be taken for the farmers to achieve the highest possible price for their milk. The more distant the market the more difficult and demanding is the marketing. The second major constraint for developing marketing based on small scale processing is the shortage of personnel trained and able to operate and manage these small units. The major issues in supplying the urban market and their relation to distance to the market are schematically illustrated in figure 3.
Why market orientation? For the farmer, it is a question of generation of income and utilization of surplus and the available resources for the development of the family. Income is necessary to take part and advantage of progress that would otherwise pass by - like for example schools; doctors; roads; water etc. etc. For the society a market oriented agricultural production would secure food supply to the rapidly growing non-farming community; create employment and promote an economic development and provide import substitution or even products for export. Marketing services are critical to rural as well as urban food security. In the past we have seen many interventions for increasing the production, much less, however, in processing (except for investment projects) and minimal in marketing, transport and other supporting services essential for linking the producer and the consumer.
Figure 3
The objective of this paper is to set the scene by demonstrating the importance of the market orientation in outlining the global issues of the rapidly increasing market demand for livestock products, particularly milk; and document the need for farmers to organize themselves to participate with a stronger bargaining power in supplying consumers. Access to market for small scale producers' surplus milk is the key factor for a successful and sustained development of the dairy sector in rural areas. Interventions must be market-driven to promote a sustained development through adoption of appropriate technologies.
The next question is HOW to do it? This question is much more complicated, as indicated in Figure 4 and includes identification of constraints and opportunities in the chain from farmer to consumer at the 4 different levels: on-farm; off-farm; National; and International. Hopefully, by the end of our Workshop we will have prepared a strategy and prioritized the needed interventions at all four levels.
Figure 4: LINKING PRODUCER AND CONSUMER
Urban populations in developing countries are expanding and expected to more than double by 2025 (see figure 5). Moreover, by 2025 it is expected that more than 50 % of the world's population will be living in cities of more than one million people. The exodus from rural to urban areas is most prominent in developing countries, as the industrialized countries have already reached this level of urbanization through a continuous development over the last century.
Figure 5: URBAN POPULATION IN DEVELOPING COUNTRIES
The effects of this urbanization are multiple. Rapidly-growing urban demand will be the major factor in shaping development of livestock production and marketing in the coming years. A significant increase in production, processing and marketing efficiency will be required to meet this rising demand from domestic resources. In the past, livestock development had not adequately taken the urban market into account and the interventions had not been market or demand driven but largely focused on production technology only. No major studies have been carried out to ascertain what opportunities, challenges or negative impacts urbanisation presents for animal agriculture and associated milk and meat marketing nor for the possibility of food security and food self-sufficiency, which is a priority for most developing countries. Food production is already insufficient to satisfy the needs of most parts of the developing world. For example in Africa, projections indicate a deficit widening from 14 million tonnes of food in 1990 to 125 million tonnes in 2025 (IFPRI, 1992).
Urban markets for food generally require a wide range of products, from expensive value-added foods to low cost commodities for lower income groups - see also figure 6. Livestock products fit into the upper end of the spectrum and consumption of these products rises with income. However, the high nutritive value of animal products should not be overlooked as they constitute an important source of vitamin, minerals and amino acids. Animal products should be seen as an important supplement to complement the diet of poor people, which is frequently based on one or two food crops.
Only in few developing countries have the meat and dairy industries reached a state of development to respond to the enormous challenge of providing safe, nutritious and regular supplies of livestock products to their rapidly expanding urban populations. Many developing countries have not been able to set up handling and processing facilities to cope with the fast pace of development at the urban level. Because they have not been able to convert local agricultural products into suitable foods for distribution in the cities, the food industry has depended increasingly on imported materials or products. Independent small-scale producers lack the economic strength to negotiate favourable terms for their business. Therefore, the means and ways to support farmer's organizations (societies, associations, cooperatives and unions as well as traditional community organizations) will have to be carefully addressed for the future benefit of farmers and the domestic livestock production.
Figure 6
In recent years we have, however, seen a reduced role of imports of dairy commodities; the outlook is that this reduction will continue in the future. There are a number of reasons for the change in the role of dairy imports. Most importantly, there is a reduction in surplus dairy products in Western Europe and USA which, because of a change in policy and prices have increased. Food aid in the form of dairy commodities will not be as common and "dumping" of dairy products will occur more infrequently than in the past. A normalized exchange rate and the removal of subsidises in many developing countries has also increased the price on imported goods and made them relatively expensive. A growing interest in local milk production and to supply the market has become evident, although there is still a substantial import of dairy products in many African countries to satisfy the demand, mainly from the rapidly growing urban centres.
The high import has in the past encouraged governments (and donors) to invest in large scale milk production and industrial dairy plants around the major cities to supply the urban population with modem dairy products - Western style . These plants have, however, continued to depend on imported commodities for recombination and in most cases only a small part (in Tanzania less than 1 %) of the total dairy output was marketed through the large commercial processing plants operated by government parastatals. The provision of modem equipment to developing countries (without secured supply of spare parts and other services) has been a most wasteful feature of many development programmes. The system made little effort to promote an increased milk supply from rural small holders to the industrial plants. The traditional sector provided most of the total production. However, virtually nothing was channelled through the commercial factories but marketed and consumed within the local community. The traditional sector has, notwithstanding its major contribution to total milk production, been neglected. The rapidly growing demand in the expanding urban populations presents a great potential for development of the local dairy sector also because increased output will be absorbed by the market and not have a negative influence on the price
The rapidly growing urban populations in developing countries represent a strong demand for meat and milk now and in the future - a demand which could be met by developing the domestic resources in the majority of countries. This would benefit rural development and poverty alleviation through the creation of employment and income within the livestock sector and the service industry. Such an improvement of rural living conditions could possibly prevent, or at least reduce, migration of rural people to already overcrowded cities.
As already mentioned, it is the rapid urban growth and the even more rapidly growing demand for meat and milk that presents a particular challenge to the livestock sector and the dairy farmers, particularly in preservation and processing of the livestock food products. The future will therefore show a fast growing food industry, which will present the best - and so much needed - opportunity for employment in developing countries. As shown in figure 7, the demand for meat and milk increases dramatically more than is the case for cereals when income is increased by 10 % (from Jahnke, 1982).
Figure 7: DEMAND RESPONSE WHEN INCOMES IN SUB-SAHARAN AFRICA RISE 10%
The agro-industry has in the past been located close to or even in urban areas. But the importance of efficient and reliable links out to the production areas have too often been overlooked. An alternative would of course be to locate the industry in a rural setting. This would again require a good infrastructure, however, it would also provide a number of advantages such as: early preservation (perishability); integration of production and processing; employment in rural areas (discourage urbanisation); diversification - serving rural communities is much less complex than also serving urban centres. The location, however, is critical to viability and efficiency and should be based on the availability of necessary infra structure and on economic reasons rather than political preferences.
The benefits of well developed agro-industries can be listed as follows:
- Protect and preserve food for safe storage and transport from areas and seasons with surplus to those with a deficit;- Transform animal raw materials into food products of a quality and quantity adequate to satisfy demand and nutritional needs; and into products which are acceptable, accessible and affordable;
- Transport and market fresh and processed products efficiently and economically
The more distance in time and space between producer, processor and consumer the more critical is the need for safe and sound process and product control; for reliable systems of packaging and for a distribution network. There are serious hazards to human health from food which is inadequately preserved and processed. On the other hand the processing has also to be adapted to the need and requirements of the consumers. To present UHT milk to consumers who by custom boil the milk before consumption is not appropriate, but a result of central processing units prepared for supplying the urban centres and based on experiences from the industrialized countries.
There is now an urgent need for efficient and appropriate food and related agro-industries and distribution network more than ever before to link the domestic production with the dominating markets in the urban areas.
It is a generally recognized that government intervention alone is not sufficient. However, there is a need for a political and economic atmosphere promoting the development of the domestic livestock and agro-industries, which means provision of reliable supplies of energy and clean water; access to trustworthy road and/ or rail services; appropriate commodity pricing policies influencing costs of production and competitiveness.
There is a need for farmers to organize and participate. To make this possible further development of the human resource is an urgent task. This can be done through tailor made training; promoting and enhancing producer organisations; and through exchange of people from different regions and countries to increase the utilization of the scarce resources. The private industry should play an important role together with the farmers. The main features and factors influencing the dairy sector is schematically illustrated in figure 8. All of these components should be taken into account when preparing a policy for a sustainable, market oriented development of the dairy sector.
Figure 8
Future interventions would have to encourage a systematic approach to ensure farmers produce what will satisfy market demand. This includes consideration of transporting fresh produce from-rural to urban markets to be delivered at a price and in a condition that is acceptable, accessible and affordable by urban consumers - with low and high incomes. It is important to integrate effectively production systems and the farmers with the industrial system that embody collection, preservation, processing, marketing and distribution together with the diversity of supplying services. Higher productivity in the primary production must be complemented and sustained by logistically and technologically efficient systems throughout the chain from farmer to consumer.
The strategies that we are preparing by the end of this workshop would have to relate to:
- The logistics of collection, transportation and distribution networks from rural producer to urban markets;- Dispersion and location of facilities and centres for reception, processing and distribution; it is particularly important to prepare clear conclusions and recommendations concerning the differences between rural and urban located facilities;
- The need and opportunities for farmers to empower and organize themselves for participating in the food chain also outside or after the farm gate. It is important to recognize that value added through processing and marketing is more than double the value of the primary product;
- Cooperation between farmers organisation and the private entrepreneurs providing or offering input supply and support services.
Marketing provides many social and economic benefits, and only by participating will the producers fully utilize the opportunity for economic growth that is accessible in dairying.
