An overflow of milk good but there is a need to mitigate losses

Monday May 1 2017




A common dilemma in developing economies, is one of discordant growth. So it is not unusual to find that positive developments actually manifest as new “problems.”

For instance an expansion of the industrial sector will pop up as an acute shortage of electrical power while stability in the supply of basic commodities will reflect as job losses for speculators.

A similar scenario is playing out right now in the country’s diary sector. Distraught herders are suffering losses from unsold milk stock because there are not enough processors to absorb the surplus production. The Ministry of Agriculture blames it on slow investment by the private sector.

Thanks to a variety of interventions, Rwanda has become a milk surplus country at the farm gate. Daily milk production in the country is now a whopping 1.8 million litres daily.

That is not a big number for a population of 11 million and reflects unresolved challenges in terms of farm-to-market infrastructure.

It also shows the problem of equity since many people may still not afford milk. Were the market well streamlined, and milk affordable for the majority of the population, current production would actually be a drop in the ocean.

The immediate reaction by processors has been to be choosy, rejecting grade B raw milk, thus sending farmers into losses. This is the wrong move since it sends negative signals to producers. If farmers react by giving up on cattle rearing, everybody will be a loser. The farmers will lose income, milk will become even more expensive, and processors will work below capacity.

That is hardly the outcome anybody desires and it is necessary to seek convergence on a viable way forward. That would require processors to think beyond the “big fish,” while lenders need to come up with products that support further investment in the sector and farmers need to pool their resources to support communal storage.

As Theogene Rutagwenda suggests, investment needs to come in two forms — increased storage capacity at processor premises so that they can work more shifts, and diversification into more products including powdered milk that could be reconstituted to stabilise supply during low season.

Processors should also position themselves for new markets.

President Paul Kagame has been busy in recent times pushing for opportunities for Rwandan producers in strategic markets. But, even the internal market is growing and is going to need more stable and predictable prices for this basic but essential commodity.