East Africa Dairy Development Project (EADD) Uganda Dairy Market Study Presentation of Findings February 2015 Tig Marketing Consults

East Africa Dairy Development Project (EADD) Uganda Dairy Market Study Presentation of Findings February 2015 Tig Marketing Consults

Introduction Market Study Overview EADD focuses on helping smallholder dairy farmers in East Africa to: Enhance dairy production and market access Double their dairy-related incomes by increasing ownership of improved breeds, increasing milk production and improving access to markets EADD carried out a market study to: Assist in the developing strategies to increase milk consumption and expand dairy markets in Uganda

Objectives Market Study Overview Identify and quantify types of milk and milk products consumed in Uganda Identify the different market segments and describe the key factors that drive the consumption of dairy products Assess each consumer segment s perception and understanding of various milk products Determine the availability and prevalence of processed dairy products by competitive brand in Uganda retail outlets Assess the current marketing and distribution strategies employed by milk processors, traders, and producer organizations Identify the challenges affecting milk collection, processing, and marketing, and make recommendations

Scope Market Study Overview The scope of the market study assignment entailed the following five main components: Milk collection and processing and marketing Milk consumer segmentation Household milk consumption Milk retail study Social impact on milk consumption

Methodology Market Study Overview Both qualitative and quantitative approaches (the majority of the data was qualitative) Review of secondary data Milk production volumes Number of milk collection centers Meetings with stakeholders/key informants Regional level National level Focus group discussions District Veterinary Officers (DVOs) Dairy farmers Processed and raw milk dealers Dairy processors Household survey interviews on milk consumption

Milk Value Chain Findings: Milk Collection and Marketing Milk Production (1.9 billion litres per year) Milk Marketed Milk Processing (into liquid milk & milk products) 70% 20% 90% Milk Marketing (distributed to consumers) 30% 80% Consumed on Farm Sold as Raw Milk 10% Exported

Collection centers: Rural vs. Urban Milk Collection and Marketing The number of urban installed coolers and outlets is more than the number of rural collection centers. The trend for milk chilling is now shifting from rural to urban areas. Milk Collection Centers (MCCs) Milk Outlets Milk Capacity per Day (Litres) Rural 308 Not Applicable 1,009,934 Urban/Peri- Urban 929 657 1,234,478 Note: MCCs are used by farmers to bulk milk, while milk outlets are used by traders to sell raw milk mostly in urban centers - both use milk coolers.

Rural Milk Collection Centers by region Milk Collection and Marketing There are 308 rural milk collection centers countrywide The South- western region is leading with 67%, the central region has 21%, mid-western has 7%, northern region has 4% and eastern has the least with 1% There is a large imbalance in the rural milk collection regional infrastructure

Milk Processing Milk Collection and Marketing 1,353,700 litres Installed Capacity Currently there are about 45 large, medium and small scale processing plants registered with DDA, producing mainly pasteurized milk, UHT milk, 720,190 yoghurt, powdered milk, litres Utilization Capacity cheese, ghee and icecream. (53%) Their utilization processing capacity was at 53% in 2014. This is mainly due to 47% Level of Inefficiency inadequate marketing strategies and low milk supply during dry season. Source: DDA Reporting, 2014

Milk consumer Segmentation Segmentation Unprocessed Milk Segment Milk sold in cups, bottles, polythene bags Processed Liquid Milk Segment Pasteurized milk, UHT milk and flavored milk Processed Milk Products Segment Yoghurt, Ghee, Ice cream, Butter Cheese, Powdered Milk, Bongo, etc The initial segments identified were: Unprocessed & Processed milk Processed milk is further sub-divided into: liquid milk & milk products Note: Attempts were made to profile milk consumer segments based on geographic, demographic, socio economic and psychographic profiles because the initial two segments did not present significant differences in consumption behavior.

G E O G R A P H I C A L Geographic & Demographic Profiles Segmentation Unprocessed Milk Processed Liquid Milk Processed Products Rural areas (especially cattle keeping regions), urban areas, towns and town suburbs Buy directly from farmers, bicycle sellers, coolers and shops that have fridges and stock milk in cans, buckets and other containers Urban areas, towns and city suburbs Buy from supermarkets and shops High end parts of town and urban dwellers Buy from supermarkets and shops D E M O G R A P H I C Large families, children, expectant mothers, elderly and the sick All ages but specifically for young, youth and the elderly All ages for ghee, butter and cheese Ice cream and yoghurt is mainly for the young and the youth

S O C I O E C O N O M I C Socioeconomic & Psychographic Profiles Segmentation Unprocessed Milk Processed Liquid Milk Processed Products Low, middle income earners and farmers themselves Most consume milk as a tradition Taken as liquid plain milk, in tea/coffee or added in porridge and sometimes in food Spend less on milk and buy fewer quantities Working class, middle and high income earners and expatriate community Spend more money on milk purchases and buy larger quantities High income families for: cheese and butter People with high disposable income Have travelled and lived in the western world Expatriate families For bongo, they are rural traditional families P S Y C H O G R A P H I C Raw milk is believed to be nutritious, fresh, pure and better in quality than processed milk The taste attribute is considered more in this profile Quality as a major attribute to milk consumption Processing of the milk increases milk quality High quality, luxurious consumers For bongo they are rural and traditional families

JM52 Influencing Factors Segmentation Unprocessed Milk 1. Affordability 2. Availability and convenience 3. Traditions and occasions 4. Perceptions (+ and -) Processed Liquid Milk 1. Quality 2. Promotion/branding 3. Convenience Processed Milk Products Yoghurt: Health Ice cream: Indulgence Ghee: Flavor 4. Occasions Butter: With bread Cheese: Food Influencing factors affecting buying of unprocessed and processed liquid milk were analyzed and later ranked based on the most mentioned For milk products, the factors indicated are the most mentioned on each product

Slide 13 JM52 Are there any main insights / takeaways for this slide from the data? Jennifer Mok, 2/8/2015

Consumer Needs Segmentation Nutrition Refreshment Luxury Consumer Breakdown Unprocessed Milk Processed Liquid Milk ü ü ü ü Consumed by all ages in all regions of Uganda Elite & high income: nutrition Low income: refreshment (e.g. drinking directly from pack) Processed Milk Products ü ü Yoghurt, Cheese, & Butter: Nutrition Ice Cream: Luxury (e.g. an outing)

Household penetration Milk Consumption per Capita 250 200 150 100 50 0 Per Capita Consumption WHO Recommendation: 200 L 100 54 40 43 Kenya Uganda Tanzania Rwanda Uganda s per capita milk consumption is growing at an estimated average rate of 7% per annum In Uganda, approximately 30% of the milk produced annually is consumed on farm while 70% is marketed (DDA Databases, 2013) Of the 70% marketed milk, only 20% is processed The household study shows that majority households (54.7%) consumed unprocessed milk compared to processed liquid milk in Kampala city

Consumption by Volume Household Penetration Type of Dairy Product Unprocessed milk (N=1047) Pasteurized liquid milk (N=721) UHT milk (N=321) Flavored milk ((N=136) Bongo (N=193) Average Monthly Consumption 25.2 litres 20.6 litres 14.9 litres 14.5 litres 9.6 litres For milk products the averages seem to be on a higher side if you look at it from the national average The majority of the respondents were from Kampala (85%); therefore it reflects more of Kampala city consumers Yoghurt (N=821) Ice cream (N=592) Powdered milk (N=218) Cheese (N=53) Butter (N=138) 6.7 litres 4.3 litres 3.8 kg 2.2 kg 2.0 kg Ghee (N=591) 1.8 kg Note: Average consumption is per month for a household of about 6 people.

Purchasing Frequency Household Penetration Percentages of Respondents (%) 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 Daily Weekly Once in 2 weeks Monthly Unprocessed milk (N=1034) 68.7 23.8 6.4 1.2 Processed liquid milk (N=397) 49.6 37.0 10.3 3.0 Processed Milk products (N=329) 12.8 29.8 26.7 30.7 Most households purchase both unprocessed (68.7%) and processed liquid (49.6%) milk daily Processed milk products were the least purchased on a daily (12.8%) or weekly (29.8%) basis but mostly purchased on a monthly basis (30.7%)

Point of Purchase Household Penetration Percentage of Respondents (%) 60.0 50.0 40.0 30.0 20.0 10.0 0.0 Dairy Farmer Bicycle seller Milk Cooler Grocery market Shop/ Super Kiosk Others Unprocessed milk(n=1065) 22.5 30.8 33.1 7.7 0.0 2.3 3.7 Processed liquid milk (N=401) 0.0 0.0 0.0 53.4 45.4 1.2 0.0 Processed milk products (N=455) 18.0 3.1 6.8 24.2 43.3 2.0 2.6 Majority respondents get unprocessed milk from coolers (33.1%), followed by persons on bicycles with cans (30.8%), and dairy farmers (22.5%) Note: The processed milk products under dairy farmers, bicycle sellers and milk coolers are mainly ghee and locally processed yoghurt

Dairy Expenditures (Absolute) Household Penetration Percentage of Respondents (%) 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 <15,000 Amount Spent on Dairy 15,000-30,001-75,001- Above 30,000 75,000 150,000 150,000 Unprocessed milk (N=1023) 27.4 32.4 32.6 6.8 0.8 Processed liquid milk (N=393) 28.8 23.9 36.6 8.9 1.8 Processed milk products (N=436) 37.6 27.5 26.4 6.2 2.3 About the same proportion of households (32.4% and 32.6%) spend 15,000 30,000 UGX and 30,000 75,000 UGX per month on unprocessed milk Most households (36.6%) spend 30,000 75,000 UGX per month on processed liquid milk Expenditure on milk products is less than 15,000 UGX per month

Dairy Expenditures (Relative) Household Penetration 60.0 50.0 40.0 30.0 20.0 10.0 0.0 Percentage of Respondents (%) Unprocessed milk (N=1011) Processed liquid milk (N=390) Proportion of Income Spent on Dairy 1 5% 5 10% 10 20% Above 20% 53.4 35.8 8.5 2.3 55.1 30.8 9.2 4.9 Majority of respondents spend less than 5% of their income on milk in all product segments.

Influencing Factors Household Penetration 1 2 3 4 5 6 Level of income / economic class Availability of milk & milk products Lack of effective marketing Cultural & traditions Nutritional value Health reasons Factors affecting milk consumption at household level were ranked based on most mentioned.

Distribution Network: Raw Milk Milk Retail market dynamics Neighbours Dairy Farmer Milk Collection Centre (MCC) Bicycle Traders who mount milk cans on bicycles /motorcycles Traders who have coolers in rural areas Traders in urban centres who wholesale or retail to final consumers Milk Processors Final consumer The raw milk distribution network is more complex as seen in the chart compared to the processed milk network The raw milk operations are expanding more in the urban areas with more milk outlets and coolers in urban areas

Distribution Network: Processed Milk Milk Retail Market dynamics Milk processors Distributors Milk Agent Milk Agent Retailer Retailer Retailer Final Consumer The processors use this type of distribution system of three levels, which brings in efficiency in distribution.

Market Share by Processed Milk Packs Milk Retail Dynamics Product Pasteurized Milk UHT Milk Yoghurt Market Share 1000ml 25% 500ml 75% 500ml 33% 250ml 67% (Sachets) 400ml 70% (Cups) 250ml 30% The data suggests that smaller packs are preferred in the market.

Shelf Space Share of Primary Products Milk Retail Market Dynamics Product Shelf Space Share (%) Pasteurised milk 64% UHT Milk 26% Yoghurt 10% TOTAL 100% The assessment is for pasteurized milk, UHT and yoghurt - the main products on the market - for the main brands i.e. Fresh Dairy, Jesa, GBK, Highland, Hillside, Rainbow, Mama Omulungi, Mega, Brookside (Dairy Fresh).

Milk ATM - New Retailing Trends Milk Retail Market Dynamics Case of Moo Milky Bar Wandegeya, Kampala Moo Milk Bar uses a milk vending machine (Milk ATM) to dispense milk using coins or cards Customers load money on their cards, which they use whenever they come to buy milk from Moo Milk Bar The milk bar receives pasteurised milk from milk processor The plan of the proprietor is to have more milk vending machines in Kampala and other urban centres in Uganda

Social Trends Social Factors Study Consumption of yoghurt as a form of food in all regions of Uganda. Parents taking their children out for ice cream mostly in urban centres. Bongo (local yoghurt) is coming up as a serious item on local restaurants in urban centres. Increasing consumption of cheese in first foods restaurants e.g. pizzas, sandwiches and buggers mostly in Kampala Ghee (eshabwe) consumption of ghee is no longer a cultural issue, it has become a serious business especially in the Southwest, Mid-west and Kampala city. This call for regulation and offering extension services to ensabwe micro processors.

Beliefs and Perceptions Social Factors Study Milk and milk products cause weight problems Drinking too much milk causes laziness Milk mixed with cow urine cures skin and stomach diseases e.g. in Karamoja Processed milk has less nutrients (losses them during processing) has chemicals and has a funny tastes Taking yoghurt or bongo gives a good skin Yoghurt and ice cream are a healthy snacks and better than carbonated drinks Yoghurt helps people with stomach ulcers Yoghurt is believed to be a complete meal, easily digested Yoghurt boosts immunity in patients and fighting genital- urinary infections Women take milk and yoghurt to boost their sexual health and treat candida Ghee is a medication for fractured limbs and also used in massages when mixed with local herbs. It believed to give one a smooth skin

Challenges Milk Markets Challenges Milk Collection Lack of strong and organised milk marketing structures and bulking centres Low milk collections during dry season Inadequate chilling facilities and milk tankers for transportation Low quality milk Undeveloped road infrastructure and unstable power Milk Processing Low utilization capacity by processors 18% VAT on processed milk and milk products Milk Marketing and Retailing Limited milk markets during the wet season Lack of adequate milk consumer education and campaign to increase milk consumption

Recommendations Market Study Recommendations Milk Collection Organizing, Forming and Strengthening Dairy Farmers Cooperatives Formation of a dairy cooperative at each district level Dairy farmers should belong to a dairy cooperative society Cooperatives should address quantity, quality and hygiene of milk Government and development partners to champion dairy cooperatives Address the imbalance and increase the milk collection and cooling infrastructure in regions with less collection capabilities Undertake a campaign for households to own cows General Recommendations Organizing a National Dairy Conference Creating and updating dairy sector data Milk Processing Encouraging Business Partnerships Milk Processors to Undertake Product diversification Promoting a cheese eating segment Promoting yoghurt processing at local level Financial support Milk Marketing & Retailing Farmers cooperatives should be used as vehicle to promoting milk drinking in rural areas Promoting a strong school milk campaign in the country Consumer education on the usefulness of milk and campaigns to increase milk consumption

Strategy Direction & Outcomes O u t c o m e s G O A L To increase consumption of milk / milk products among groups, areas, institutio ns, markets, or peoples who currently exhibit stagnant or nonexistent dairy consumption patterns. ü Increased Affordability / Lower price of milk/milk products ü Create Awareness of Health Benefits from milk/milk products ü Change peoples perceptions / Attitudes towards milk/milk products ü Increased Availability of milk/milk products ü Increased access to milk/milk products ü Improved Quality of milk/milk products ü Milk / Marketing Structures Strengthened ü Policy / Governance systems in the dairy industry Strengthened

W1 Outcome Indicators Overview S T R AT E G I C P R I O R I T I E S Outcome Indicators Affordability / Lower Price Awareness of Health Benefits / Usage Increased Promotions / Campaigns Positive Perceptions / Attitudes Increased Availability Higher & Trusted Quality Strengthened Milk / Marketing Structures Strengthened Policy / Governance Description / Rationale According to 2015 dairy market study, affordability / price was the highest driver of household milk consumption Majority of Ugandans spend less than 5% of their income on milk / milk products In relation to other drinks (soda, juice, etc.), milk / milk products are one of the highest prices Prices are driven by a milieu of factors, including high production costs and availability Due to the lack of education, most people do not understand fully the nutritional benefits of milk / milk products, especially in comparison with alternative drinks Most Ugandans take milk in the same forms and do not practice other milk usages, such as milk products, cooking / baking with milk, eating with cereal, etc. In the past, not much emphasis and resources have been devoted to the marketing of milk and milk products, on all levels of the value chain Children grow up seeing advertisements and campaigns on alternatives (sodas, juice, etc.) There are little / no campaigns that promote milk drinking, especially among leaders Many think milk is only for the young or elderly, or that processed milk is unclean Negative perceptions of milk start at the household level and are pervasive in many communities Poor infrastructure, lack of distribution / retail outlets, and high transportation costs for the cold chain are factors that limit the availability of milk, especially in rural areas Most consumers buy milk from wherever is most convenient and / or closest Milk is adulterated at all levels of the value chain, including farmers, traders, processors, retailers, and consumers due to poor milk handling Many Ugandans trust imported milk and certain brands only due to the quality perceptions There are currently many potential marketing structures that are not built or utilized to its capacity (e.g. producer organizations or member associations marketing their own milk) Poor governance, mistrust, and informal trade all contribute to inefficient structures Policy and standards are often not implemented (e.g. quality) due to lack of resources Poor governance often causes marketing structures and milk quality to crumble

Slide 32 W1 I think we should end our presentation on Slide 20 WALEKHWA, 4/14/2015

Strategic Priorities S T R AT E G I C P R I O R I T I E S A B CONSUMPTION STRENGTHEN VALUE CHAIN GRASSROOT/APEX ASSOCIATIONS PROMOTE THE OF MILK & MILK PRODUCTS C CREATE A SUSTAINABLE & INFORMAL PLATFORM FOR DECISION MAKING, DISCUSSIONS, A ND COOPERATION Increased consumption of milk / milk products among groups, areas, institutio ns, markets, or peoples who currently exhibit stagnant or nonexistent dairy consumption patterns.