Kenya’s dairy sector is the biggest in the region, accounting for 10% of national agricultural GDP. The sector is dominated by small-scale farmers supplying to a few large dairy processors. An industry review, completed earlier this year, helped identify a niche for IFDC’s Toward Sustainable Clusters in Agribusiness through Learning in Entrepreneurship (2SCALE) project, where we could focus our efforts to maximize impacts. 

 Kenya has more than 13 million cattle, of which about one-third are improved breeds and crossbreeds. Just under half of the milk produced is consumed on-farm. The rest is sold, mostly through informal channels. The formal market (licensed traders and processors) handles about 650 million liters per year, i.e., only 10-15% of total production.  

Analysis of cost structures along the value chain provides some interesting insights. Of the retail price paid by the consumer, more than half goes to large companies that process and package milk. Only one-fourth goes to the producers. At the farm level, cattle feed accounts for two-thirds of milk production costs. The typical smallholder dairy farmer makes a profit of about 10%. This suggests two areas of focus: linking more producers to formal markets (and perhaps increasing their share of the profits) and introducing technology innovations (particularly feed and forage technologies) to improve milk yields and quality. 

2SCALE interventions in Kenya have led to significant impacts. Dairy processor Feska has increased output by 50% and now collects more than 12,000 liters of milk per day. Farmer training programs have helped cut rejection rates by half and introduce new fodder crops such as lucerne and lupin. We’re also helping to create a fodder network, with ‘lead’ farmers connected to banks for financing and to retailers for marketing. We’ve helped smallholder farmers organize themselves into informal cooperatives, pooling their savings to buy cooling equipment – earning an extra KSh 2 per liter. The Kenyan experience is also being applied elsewhere – fodder production in Mozambique, new dairy products in Ethiopia, and IT tools for milk quality control in Uganda. 

2SCALE is an incubator program implemented by IFDC and the BoP Innovation Center (BoPInc) with funding from the Netherlands Directorate General for International Cooperation (DGIS) and private sector stakeholders. The program manages a portfolio of public-private partnerships (PPPs) for inclusive business in agri-food sectors and industries. 2SCALE offers a range of support services to its business champions (small and medium enterprises and farmer groups) and partners, enabling them to produce, transform and supply quality food products. These products go to local and regional markets, including to base of the pyramid consumers. See the project’s current results here.