Will Small-Scale Dairy Producers in Kenya Disappear Due to Economies of Scale in Production?

Abstract

Dairy production is a major farm activity in Kenya, where it is regarded as a major smallholder success story, incorporating over 1.8 million smallholder farm households, who produce over 70% of all milk marketed (SDP, 2005). Dairy accounts for about 14% of agricultural GDP and contributes to the livelihoods of many small-scale farmers in Kenya through income, employment and food. Smallholder dairy production has thrived since independence in 1963 owing to supportive subsidized services, and guaranteed milk markets and prices for farmers. Liberalization of the industry in 1992 led to more competitive milk markets, but also reduced access to public livestock services. It also led to growth in informal milk marketing in urban areas, who now account for over 80% of marketed milk. On the demand side, local markets for milk and other dairy products continue to rise, fuelled by rapid population growth and the process of urbanization. . It is projected that by 2010 demand for milk in Kenya will rise to about 5.8 billion metric liters, 15% higher than the projected supply of about 5 billion liters (SDP, 1996). While the increased demand presents an opportu nity for farmers, there is concern among development agencies and policy-makers over the ability of the small-scale milk producers to survive the increasing competition with intensive large-scale livestock producers in the urban and peri-urban areas.. To gain insight on the prospects for continued viability of smallholder dairy production activities, a study of the effects of scale and policy factors on dairy production was conducted..