Private and public costs & benefits of implementing a quality based milk payment system in Kenya

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1 Private and public costs & benefits of implementing a quality based milk payment system in Kenya Asaah Ndambi Wageningen Livestock Research, Netherlands

2 Milk is intended to be an asset! but we can make it a liability

3 Where does the problem come from? Feed production, storage and transportation Processing and distribution Cow housing and management Milk bulking Antibiotics Milk transportation, use of preservatives, adulteration Milking hygiene 3

4 What the media says

5 Will price incentives to farmers be a solution? Price Price Poor hygiene during milking Poor transportation High bacterial load Contaminants in milk Lower milk price or rejection Good hygiene during milking Clean transportation Low bacterial load Good quality milk Higher milk price or bonus Grade Payment Amount (KES) A Premium +2 B Standard +1 C Penalty 0 Bacterial count No antibiotics Freezing point Total solids 5

6 What we did! In order to assess the feasibility of a Quality Based Milk Payment System (QBMPS) to improve milk quality in a smallholder dominated milk chain, we focused on answering two questions: 1. What are the private costs & benefits of key players in a QBMPS? 2. What are the public health costs/benefits of a QBMPS? 6

7 Who is involved and how? Feed production, storage and transportation Processing and distribution Cow housing and management Milk bulking Farmer Coops Antibiotics (CBE) Milk transportation, use of preservatives Milking hygiene 7

8 Case 1: Farmer Farmer Costs Feed costs Milk equipment costs Water costs Housing costs Additional time for cleaning & attending trainings Benefits Bonus payment Revenue from forgone milk rejection A net profit of 700 KES/month for a farmer selling 10 litres a day Costs Benefits

9 Case 2: Cooperatives and processor Costs Consumables - lab analysis Farmers training Software development Project management/staffing Bonus payments Hardware CBE (cooperative) Benefits Less milk rejection higher revenues Higher product yield Reduced mis-production Long term perspective No further investment costs (established systems) More milk per farmer Cheaper & faster tests Reduced costs for QBMPS Processor Costs Benefits

10 What about public health? 10

11 Public health costs how did we calculate? Bad practices Good practices Diseases Loss of time and money Poor quality milk

12 Milk related diseases and public health indicators Infectious diseases Salmonellosis Tuberculosis E.coli infections Brucellosis Campylo-bacter Listeriosis Coxiella burnetti Non-infectious hazards Antibiotics Aflatoxins Hydrogen peroxide Public health indicators DALYs - DALYs (Disability Adjusted Life Years) indicate the burden of disease: shorter life, loss of time Direct costs - Direct costs of being ill such as for diagnosis, treatment, continuing care, transportation, etc. Indirect costs - Economic indirect costs reduced productivity due to illness e.g. absence from work or school. 12

13 Burden of milk related infectious diseases (DALYs) Disability Adjusted Life Years (DALYS) of milk related infectious diseases in Kenya 25,000 DALY (years) 20,000 19,259 15,000 16,045 10,000 10,694 5, , , X An equivalent 60 fatal Matatu crashes a year in Kenya due to milk related infectious diseases Total DALYs = 53,093 years lost in Kenya per year, An equivalent 850 full lives lost per year in Kenya due to milk related illnesses 13

14 Public health benefits Total annual (direct and indirect) costs of milk related health hazards in Kenya (1,000,000 KES) 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Total costs (million KES) 355,000 One good serving of ugali per week KES/Kenyan/week The health sector would save 284 billion KES per year by reducing incidence of milk related diseases by 50% Reducing disease incidence by 50% leads to annual savings from the health sector which could pay 110 KES = one ugali serving per Kenyan per week 1 USD = 100 KES 14

15 Summary of costs and benefits per kg milk Farmer Costs 1.55 Benefits 3.86 Profit/loss 2.31 CBE (cooperatives) Costs 0.56 Benefits 0.32 Profit/loss Processor Costs 3.05 Benefits 0.93 Profit/loss Public Costs Public health costs Benefits Profit/loss

16 My views on milk quality challenges in Kenya We all have a role to play in order to address milk quality issues in the region Milk quality in Kenya (like other countries in the region) is like a football match, but: Farmers: Antibiotics, hygiene, plastics 1. There is no referee Transporters: peroxide, water Applying quality based Feed milk producers: payment Aflatoxin Processors: QA systems could greatly improve Vendors: Hygiene on milk 2. There is no level playing field Processors: Accept milk rejected by others Informal sector: takes all forms of milk All players: Innovation comes at a cost; who bears it? However, the system needs to be adapted 3. We are always playing a defensive match Policy: Very high tariff on milk imports low efficiency All players: My business first; safety is not my thing? 4. Spectators have no idea about the rules of the game Finally, someone has to pay the bill. Who? Consumers: Not aware about quality and hazards quality and safety to fit the local context Not willing to pay for more expensive/ better quality milk 16

17 Thank you Research Team: Wageningen University Asaah Ndambi, Camee van Knippenberg, Jan van der Lee Egerton University Ruth Njiru, Margaret Ngigi Contacts: 3R Kenya Catherine Kilelu 17