A review of the dairy industry in Kenya
This article appeared in the October/November 2013 issue of Food Business Africa
The dairy industry in Kenya is one of the largest and sophisticated in Africa. With an estimated 5 billion litres of milk produced in the country, the dairy industry is an important player in the economic and nutritional aspects of the Kenyan population. Despite the huge opportunities ahead, the sector however, faces a number of challenges.
The hullabaloo that has been generated by the recent introduction of VAT on processed liquid milk products in Kenya is an indication of the importance of the dairy sector to Kenya’s economy.
Although the Government later retracted its intended imposition of VAT on this important item following the hue and cry from consumers, Kenya Dairy Board and other stakeholders, milk had already become the ‘poster product’ for all those who had raised objections to the VAT Act.
Rather than face a ‘milk revolution’ and have the Government’s well intended purpose to streamline the VAT tax muddled with controversy, the National Treasury removed liquid processed milk from its original list
The dairy industry in Kenya has been and continuously plays an important role in not only in the economy but also the general well-being of the Kenyan population. Nutritionally, many consumers appreciate that milk is a good source of nutrition.
According to a report, Consumer Milk Quality Perception, by USAID’s Kenya Dairy Sector Competitiveness Program released in 2010, a majority of Kenyans have a high degree of positive perception of milk, with 62% of respondents associating milk with high protein content. Many consumers like milk as a balanced snack and for its good taste
The positive perception and the fact that Kenya is one of the highest consumers of milk in developing countries provide the dairy industry with a huge opportunity to grow further.
The importance of the sector
The dairy industry accounts for 14% of agricultural GDP and 6-8% of the country’s GDP. According to USAID the industry generates an estimated 1 million jobs at farm level and an additional 500,000 in direct waged employment and another 750,000 jobs in support services.
Dairy sector is a vital sector in poverty alleviation in both the rural and urban areas as it contributes to food and nutritional security and increased household incomes.
Kenya’s 1 million stockholders keep the largest dairy herd in Africa (larger than South Africa) according to Jimmy Smith, Director of ILRI.
The industry contributes about USD 2 billion to the country’s GDP, according to USAID, considering the sector includes farmers, traders and vendors, collection centres, processors, and retailers.
Kenya’s dairy production sector is characterised by a huge number of small-scale farmers, who make up 70-80% of the total production. The co-operative system contributed significantly to the development of the dairy sector in the country with the emergence of the Kenya Co-operative Creameries.
The Rift Valley and Central regions produce the bulk of the milk in the country. However, other regions, including Eastern, Nyanza and Western regions also produce significant quantities of milk.
Kenya has an estimated herd of 3.5 million improved dairy animals, 9 million zebus, 12 million goats, and 900,000 camels. Cattle account for 88% of the milk produced whereas camels and goats account for the rest. The country is unique in Africa, producing enough milk for local consumption and exporting some products to a number of countries.
Of the total milk produced, about 60% is marketed through traders, cooperatives, hotels and kiosks. An estimated 84% of the milk produced is sold in raw form to consumers ranging from rural to urban dwellers, according to the Regional Dairy Centre of Excellence (RDCoE).
Kenya’s total milk production is estimated to be about 5 billion litres annually.
Table 1: Milk sold through the formal channels in Kenya
|Quantities, mln ltrs||197.3||274.1||339.5||360.2||423.1||398.5||406.5||515.7||549.0||495.2|
Kenya’s volume of milk processed per year through the formal channels has grown more than 150% in the decade to 2013. Source: KDB
Kenya exports substantial quantities milk products to the region and internationally into Asia and North Africa. These products include long life milk, milk powder and ghee. The quantity of milk and milk products exported rose from 100,000kg in 2001 to 10.9 million kilogrammes in 2008, according to KDB.
Dairy imports, specifically from New Zealand and the European Union have gone down over time as Kenya becomes increasingly more self-sufficient in milk and milk products. Imported products include butter, cheese, milk powder, ice cream and cream
Challenges in the sector
- Seasonal fluctuation of production – The yield per cow and by extension the amount of milk produced in Kenya fluctuates greatly during the year. This has a great effect on the processors’ ability to absorb all the milk availed to them at any time during the year, with a period of surplus followed shortly by that of low milk volumes.
The sector therefore has excess capacity during some months in the year that lie idle waiting for the flush period in times of drought.
The Feb/March to May/June months are usually periods of low production. During periods of excess, milk wastage is commonly reported, with farmers experiencing loss of incomes, with the processors sometimes being forced to turn away farmers who deliver their milk to them
Table 2: Monthly deliveries of milk to dairies in 2012
|Quantity, mln ltrs||45.5||32.9||28.9||26.0||37.3||46.2||43.5||45.5||45.2||47.8||48.6||48.0|
Milk production can fall by as much as half during the dry season, affecting milk available for sale. Source: KDB
- High costs of production – The very nature of the dairy industry in Kenya, which is 70% in the hands of small-scale producers, and a highly fragmented processing side, makes the cost of production at the farm and at the dairy plants to be higher than that in more formal markets.
The cost of production is affected by high prices for animal feeds, inputs and electricity and due to poor infrastructure, poor animal husbandry practices, lack of formal milk markets in some areas and lack of credit to farmers and processors
- Poor quality of milk – The quality of milk delivered to the dairies is a big challenge for the dairy processors. Poor milking practices, a fragmented small-scale dairy farming system and lack of cooling and storage facilities at the farm provide huge challenges to the farmers’ ability to meet the specifications of the dairies, resulting in poor quality milk to the dairies.
The poor quality milk reduces the acceptability, shelf life of the processed milk and has affected the ability of the dairies to export to some export markets. Tied to this is the problem of adulteration of milk by unscrupulous farmers and traders who add various chemicals and water to increase quantities delivered to dairies.
The cost of testing and associate quality control infrastructure is a costly undertaking taken by dairies to ensure they can receive milk they can process
- Poor infrastructure – Generally, milk producing areas tend to have poor infrastructure in terms of roads, electricity especially during the rainy season. The infrastructure challenge extends to the lack of milk handling and storage facilities at the farm level, leading to milk spoilage and loss at the farm. On the processing side, despite recent investments by the major dairies and co-operatives, infrastructural challenges remain, with limited capacities of dairies to convert excess milk into long life products and limited storage at the dairies
- Informal milk trade – According to RDCoE, 60% of the milk is marketed through traders, cooperatives, hotels and kiosks. An estimated 84% of the milk produced is sold in raw form to consumers, providing instant cash or higher prices to the farmer. This compromises product quality while offering direct competition to the dairy processing industry. Despite the Government actively discouraging selling of ‘hawked’ milk, the sector continues to grow with grave consequences to the processing sector
Despite these challenges the dairy industry in Kenya is the most sophisticated in sub-Sahara Africa, with a robust processing sector that continues to grow year by year, thereby providing a fertile ground for investors, consumers and the Kenyan economy
The dairy processing industry in Kenya is dominated by a few big processors and a high number of smaller and medium operators. Though the number of licensed dairies is higher, about 40 dairies are actively producing and availing their products through the normal retail channels in a significant manner.
Latest figures show that there are 4 big dairies processing above 100,000 litres per day. These dairies include Brookside, New KCC, Sameer Agriculture & Livestock and Githunguri Dairy Co-operative Society.
Other medium level dairies processing less than this amount but with a significant intake include Kinangop, Meru Dairy Cooperative Society, and Kabianga Dairy.
Smaller specialist dairies include Bio Food Products, Razco Ltd, Raka Cheese, Brown’s Cheese and Alpha Dairy.
Fresh liquid white milk is the predominant milk product produced in Kenya, accounting for the 60-70% of the total production. Ambient temperature long shelf life products are also widely produced by the big dairies, especially in their attempt to mop out excess milk during the flush periods.
High value products including flavoured milk, yoghurt, cultured milk (known locally as Maziwa lala), butter, ghee and cream are produced by a majority of the medium to large scale dairies. Most of the smaller specialist dairies produce yoghurt, cheese and ice cream, exclusively or with a few other products
The dairy sector in Kenya is increasingly moving towards consolidation, with Brookside Dairy leading the way with several buy-outs in the last few years.
The push towards consolidation is led by the increasing need for processors to own the process of milk sourcing from the farm to the factory and the challenge of procuring, distributing and accessing retail space in the major outlets.
It should also be mentioned that the dairy sector is progressively becoming a heavy investment industry, with the smaller players getting crowded out by the bigger players who have access to internal and external sources of funds.
Our projection is that the sector will, in the next 5 years, erect barriers to entry that new entrants will find hard to crack, and which will lead to more of the medium players being bought out as the sector consolidates further.
There is also the lurking possibility of one or two international brands coming into the sector through a buy-out of the existing dairies to tap into the Eastern African market.
Profile of the major dairies in Kenya
The dairy industry in Kenya is highly competitive, with a huge potential to grow even more. The following dairies are the most important players in the market, mostly by volume of milk processed but also for one of them, the pioneer with a history of innovation, though a small player in the sector.
An interesting angle is the focus on regional growth by Brookside and Sameer Agriculture, which leaves one with the question, “Who, between Brookside and Sameer Agriculture, will prevail in the regional expansion drive?”
The biggest dairy in the region by market share and volume of milk processed, the 20 year old dairy came into being following the liberalization of the dairy sector in the early 1990s.
It is fair to say that Brookside, and its Executive Chairman Muhoho Kenyatta, have played a huge role in getting the dairy sector in Kenya and by extension the East African region on its feet, after many years of state control.
The dairy can be appreciated for putting in place a milk extension and procurement system that showed farmers that dairy farming could be a source of income for them, reinvigorating the sector after the near collapse of KCC, and with it dairy farming in Kenya
Brookside is largely owned by the family of Kenya’s first president Jomo Kenyatta. With a daily processing capacity of 750,000 litres, Brookside has grown from a small dairy in 1993 through organic growth and by acquisition of Ilara Dairy, Delamere Dairy, Spin Knit Dairy and Buzeki Dairy over the years.
The company produces a range of products including fresh and UHT milk, flavoured milk, Maziwa lala, flavoured and fruit yoghurt, butter, cream and ghee
Brookside is currently building a milk powder plant at its Ruiru location, with further capacity increases in its fresh, UHT and fermented products. These projects are projected to enable the dairy process over 1 million litres of milk per day when finished.
It is the most aggressive dairy in this market, with intentions to establish or buy other dairies in the surrounding East African countries of Uganda, Tanzania, Ethiopia and Rwanda. Recent reports have it that the dairy is also interested in the Nigerian market in the near future.
New Kenya Co-operative Creameries
New KCC, a Government parastatal, is the oldest and biggest dairy by assets in Kenya, with operations in Nairobi, Kiganjo, Sotik, Nyahururu, Eldoret, Kitale, Mombasa and other parts of the country.
The dairy started as a creamery co-operative in 1925, growing to be one of the most iconic brands and companies before and after independence of Kenya.
The value of the New KCC assets was estimated at KSh5.7 billion in 2012, according to the Business Daily.
The Government has listed the company as one of the key parastatals that are meant to be sold off, either through the stock market or to a strategic investor. The details of this sale are under review by the Privatisation Commission.
The company produces a broad range of products including fresh and UHT milk, flavoured milk, Maziwa lala, flavoured yoghurt, butter, cheese, cream and ghee; it is also the only dairy that produces milk powder in Kenya.
New KCC has strong brand awareness due to its many years in the market. Some of the company’s products e.g. cheese and mala are well appreciated for their quality in the market
Sameer Agriculture & Livestock Ltd (SALL)
The latest big entrant in the Kenyan market, SALL is owned by the Sameer Group, one of Kenya’s conglomerates and RJ Corp, one of India’s largest investment groups. SALL bought out Adarsh Developers Ltd in 2009, and from then on significant investments in the factory and their brand has catapulted their DAIMA brand into one of the best known brands in Kenya
The Sameer Group’s partnership with RJ Corp extends into Uganda where they have a dairy. According to RJ Corp’s website, the group is aggressively working on an ambitious growth plan to set up factories in Tanzania, Rwanda, and has bottling rights for Zambia, Zimbabwe and Malawi
SALL has proved itself to be one of the most vibrant dairies in Kenya, introducing a range of products, including juices and fruit yoghurts in a fairly short time. The company has just launched its ice cream into the market
SALL presently produces fresh and UHT milk, yoghurts, Maziwa lala, cream, butter, ice cream, flavoured milk, juices and water
Githunguri Dairy Co-operative
Githunguri Dairy is one of the successful co-operative societies that came up after the liberalization of the sector. The co-operative is a stellar example to the co-operative movement in Kenya and the region, from its establishment in 1961.
The co-operative built a processing plant in 2004 and has grown to annual turnover of more than KSh 3 billion, processing 170,000 litres of milk per day, according to their website
Sold under their FRESHA brand, the company presently produces fresh and UHT milk, yoghurts, Maziwa lala, cream, butter and ghee
Bio Food Products
Bio Food Products is the pioneer in the premium yoghurt category in the Kenyan market. The company is associated with niche, high value products that target the high income earner, and therefore their products are only widely available in the up-market malls and supermarkets.
The company manufactures fruit yoghurt, and a range of unique products including lactose free milk, probiotic yoghurt drink, and skimmed flavoured milk, among others.
The recent introduction of its Refresh fortified drinking yoghurt, with a fairly affordable price, could be a sign the dairy is looking at getting a piece of the mass market
Trends and opportunities in the sector
Affordability – With a population that still has a majority living below the poverty line, but which appreciates the value of milk, the dairy sector in Kenya has aggressively embraced technologies and products that can deliver value to the customers.
In the liquid milk line, a majority of dairies have introduced lower priced packaging formats including plastic pouches, Extended Shelf Life (ESL) for fresh milk products, and Tetra Fino Aseptic from Tetra Pak instead of the normal Tetra Pak packaging to deliver lower cost to customers
The latest entrant, ESL, with 30 days shelf life, is an interesting addition to a market where cold chains are limited or not existent at all. The fact that the ESL packaged milk is priced at the same price as the plastic pouches is a reason to watch out for this format in future in this market
The affordability need is also being met by manufacturers reducing the pack size of high value products, below the 200 ml mark
Premiumisation & healthy indulgence – The middle class is projected to grow aggressively in the region. There has been an emergence of products targeting this demographic. These include low fat, probiotic, fruit yoghurts, yoghurts with cereals, and low fat ice creams.
The consumption of cheese, which has been a niche product in Kenya, is growing aggressively, boosted in part by the high number of expatriates in the country.
The Kenyan dairy market has been dominated by traditional flavours, strawberry and vanilla. However, there is an increasing appreciation for more flavours and fruits, including tropical mix, wild berry, chocolate, apricot, mango, peach, blends and many more.
Bio Food recently introduced a fortified yoghurt drink that adds to the healthy indulgence offering in the market.
An emerging trend in the market is the rise in imported high value products from Europe that fit in the premium category to serve the sophisticated palettes of the consumers, including butter, whipped cream and ice cream.
Convenience – The on-the-go market, in a market where out of the home consumption of milk products as a quick snack or lunch time drink is increasing, has provided the dairy sector with an opportunity to extend the formats available for their products.
The packaging of yoghurts and cultured milk in plastic bottles and carton packaging with screw-cap have ensured that yoghurt can be eaten or drunk anytime, anywhere.
School milk program – Widely responsible for improving the school attendance during the 1980s the school milk program was a huge volume mover for the only dairy then, KCC.
Figures from KDB show that in the late 1980s to about 1993, the volume of milk processed in the country was consistently above 350 million per annum, but falling drastically to about 150 million litres per annum at the end of the 1990s, when the program was discontinued
A major pillar of the Jubilee Government’s promise, the revival of the School Milk programme, if implemented as envisioned, shall change the face of the dairy industry in Kenya.