Swiss food giant Nestlé is set to start buying powdered milk from Kenya and Uganda.

According to the firm, this will cut import costs for its Kenya factory as it positions Nairobi as its regional hub

Nestlé had delayed its local purchases due to what it termed the poor quality of milk produced in the region and lack of a quality processor of powdered milk.

The shift will offer a fresh income stream for milk farmers in the region.

The company said it is in talks with a local processor in Uganda to begin buying fresh milk and process it on its behalf.

“Our aim is to provide market access to the farmers in the region through the purchase of powdered milk,” said Pierre Trouilhat, chief executive officer for Nestlé Equatorial Africa region.

Nestlé Kenya mainly buys milk from New Zealand despite an ample supply in the region, especially Kenya’s Rift Valley, where communities keep cattle on a large scale.

Kenya is the third-largest milk producer in Africa, behind Sudan and Egypt with the sector providing income to an estimated 625,000 rural households.

According to the Food and Agricultural Organisation, milk production increased from 2.4 million litres in 2000 to 4.1 million litres in 2008.

The New Kenya Co-operative Creameries’ recent commitment to process milk on behalf of Nestlé implies the initial purchase will kick off soon, reviving hopes of the dairy’s capacity to absorb excess milk.

Instant processors

New KCC said it had installed instant processors in its Kiganjo and Eldoret plants to meet the rising demands for quality powdered milk by companies including CocaCola and recently Nestlé.

The Eldoret plant will be used to process Nestlé’s powdered milk with supply of fresh milk from one of Rift Valley’s dairies.

Nestlé has agreed to take Kabiyet dairy for a pilot project and enhance production of milk to its standards, guaranteeing farmers a ready market.

The dairy’s average production capacity per month stands at 1.4 million litres.

Nestlé said the success of this initiative would be spread to other parts of the country.

Heavy rain at the end of 2009 caused a milk glut in 2010 that put pressure on milk processors in the country including New KCC and Brookside Dairy Ltd.

New KCC was receiving an average of 680,000 litres of milk per day, up from 400,000 litres, against a processing capacity of 550,000 litres.

The producer price over the glut period dropped from Ksh24 (US cents 28) per litre to Ksh20 (US cents 23). The price has currently stabilised at Ksh21 (US cents 25).

The Kenya factory is expected to supply products to Uganda, Tanzania, Rwanda, Burundi, Eastern DRC, Malawi and Zambia.

Nestlé earlier this year announced it would invest $32.4 million in expanding its Nairobi-based factory and setting up a new production line to support its newly launched food service division, Nestlé Professional.

Quality concern

The quality of fresh milk from Kenya and Uganda remains a concern but to prepare for a final quality product, Nestlé is supporting Kabiyet farmers with cow selection, quality feed, breeding practices, disease prevention, milking, housekeeping, storage, processes and transportation.

Through this model, dairy farmers will also gain skills in reduction of bacterial count in milk, and hift from plastic bottles to metal cans.

Nestlé has also deployed its experts at the dairy for one year to train the 4,000 farmers ahead of projected rains that are expected to increase milk production.

“We are in discussions with the government for a major investment,” New KCC managing director Kipkirui Arap Lang’at said.

New KCC daily capacity is currently 300,000 litres according to Mr Lang’at.

However, the volume of processed milk this year is anticipated to rise against the backdrop of new demand and capacity indicating that the government might be in a position to absorb larger volumes.

In 2010, milk sales increased by 26 per cent due to expanded production and processing capacities.

According to the Kenyan National Bureau of Statistics, 511 million litres of milk were processed in 2010 compared with 407 million litres in 2009.

As Nestlé strengthens its presence, other food and beverage companies like Colgate Palmolive and Unilever have closed down their factories in Kenya and relocated most of their manufacturing plants to other countries, citing the high costs of doing business.

Other consumer goods manufacturers who have left are Procter & Gamble, Johnson & Johnson and Reckitt & Benckiser.

Nestlé however said the level of competition had not changed even with the exit as the companies continued exporting their products to Kenya.

“We are here to stay and we are expanding the company using local raw materials to create identity with the region,” explained Mr Trouilhat.