What can Uganda do with her milk surplus?

In the early 1980’s, Kenya implemented a successful school milk programme that spanned 20 years started by former President Arap Moi. According to the Kenya Dairy Board, it was dubbbed the Nyayo school milk programme which covered the whole country and provided milk to over 4.3 million pupils in 11,000 public primary schools thrice a week.

Kenya Co-operative Creameries, then, a monopoly in milk processing and distribution, was contracted by the government to process and pack milk for the programme.

Some of the benefits realised from this programme were; it instituted a culture of milk drinking leading to a high per capita consumption, guaranteed market for Kenyan milk which benefited dairy farmers and improved school attendance and the children’s health.

With two decades gone since the programme stopped, it created and left behind a generation of milk consumers. Today, Kenya enjoys a large domestic market; and has, until recently, extended an olive branch to neighbouring East African countries such as Uganda to export its dairy products to the country.
Can Uganda learn from Kenya and create a generation of milk consumers? This could be Uganda’s strategy to deal with the milk surplus in the country.

President Museveni stated in early June this year, that Uganda produces 2.6 billion litres of milk per annum. However, domestic demand stands at only 800 million litres, creating a huge surplus.

The president in his address downplayed the surplus saying it was ‘artificial’ compared to current population of 42 million Ugandans. He noted that with such a population, the country needs 9 billion litres of milk per annum.
However, he admitted the surplus presented a reality we must face.

“Ugandans are still under-consuming when it comes to the milk the human body requires,” he said. While quoting the World Health Organisation (WHO), he said a human being needs 210 litres of milk per annum to get all the calcium and phosphorous the body needs.

According to the Dairy Development Authority (DDA), in terms of milk production, Uganda is divided into six milk sheds based on the differences in geographical agro-ecological characteristics, market dynamics and cattle population.

Contribution of the milk sheds (regions) to the national milk production indicates that South- western contributes 25 per cent, Mid-western at 12 per cent, Central at 24 per cent, Eastern at 21 per cent, and Northern at 11 per cent while Karamoja contributes 7 per cent.

Information from DDA further indicates that Central and South western milk sheds together contribute 50 per cent of the total national production. The other milk sheds or regions particularly Eastern and Northern experience a deficit of marketable milk almost throughout the year and are referred to as milk deficit areas while South-Western and Central regions continue experiencing a surplus of marketable milk particularly in the wet season. Milk surplus and deficit milk sheds present differences in market opportunities for most poor dairy farmers.

Uganda has achieved and maintained national self-sufficiency in milk and dairy products which was a key objective according to the Dairy Master Plan. Milk processing and packing by local and foreign companies is taking route as a way of improving on quality for domestic consumption and export.

These companies have also offered extension services to dairy farmers to bolster milk production and allow factories operate at full production capacity.
Scaling down operations
However, a combination of factors such as the Covid-19 pandemic, a sluggish domestic market with fewer Ugandans consuming milk and a volatile East African market have put Uganda’s dairy sector to a resilience test; forcing some producers to scale down production to avoid losses incurred from producing surplus milk.

Last week, members of parliament tasked Speaker Rebecca Kadaga to summon the Trade Minister Amelia Kyambadde to explain why some dairy companies are closing down while others are scaling down production, causing massive losses in income, tax and employment.

One particular dairy company that raised dust in parliament was Birunga Dairy Limited situated in Kisoro district, which is planning to close at the end of this month as it contemplates its next move.

Speaker Kadaga later told Parliament that Trade Minister would brief the country about the implementation of the Common Market Protocol, and in particular, the impasse between Uganda and Kenya in regard to milk exports.

However, on June 30th, Capital F.M in Kenya reported that a section of members of the Kenyan Parliament have continued to call for the ban on importation of powdered milk and raw milk into the country in a move to protect the local industries from cheap imports diluting the market.

Innocent Bisangwa, the managing director at Birunga Dairy who spoke to Daily Monitor confirmed that the company could or, partially close since production has dropped below 50 per cent. During peak production, the company could process between 50,000 to 80,000 litres per day.

Bisangwa says the company’s working capital has run down.
“I may close completely because our working capital has run down. We are incurring debts yet we can’t pay them,” he says.
He adds: “Covid-19 has worsened the situation of domestic milk consumption by dropping it further yet it was already low.”

Bisangwa says Birunga Dairy started in 2004 but lost its business steam at the beginning of 2019 when Rwanda closed its borders with Uganda. The company used to export 70 per cent of its dairy products to Rwanda and Burundi before the border closure. He says even Ugandan products transiting through Rwanda to Burundi are not allowed.

For Kenya’s case, the company’s applications for import permits to Kenya have gone unanswered since the beginning of the year.

Another producer is Pearl Dairy (producers of Lato Milk) which, of recent, resumed operations in early May after a four-month shutdown.

However, according to Mr Bijoy Varghese, the general manager, says the company’s production has hit a low end processing below 25 per cent of the capacity to produce milk powder which has a two year life span for the domestic market.

The company’s total operating capacity stands at 800,000 litres per day.
Mr Bijoy says supporting dairy farmers has boosted milk production by a double fold.

Similarly, according Mr Srihari Reddy, the general manager at Lakeside Dairy operating in Ruti, Mbarara district in western Uganda has an installed processing capacity of 300,000 litres per day. However, with major hindering factors highlighted, it has scaled down operations to produce only 50,000 litres per day. Last year, milk processing stood 125,000 litres per day and was expected to increase this year.

Market issues
Uganda has for long hinged on the East African market and other countries to export dairy products. In East Africa, the common market has been in force since 2010 following the signing the East African Market Protocol to allow free movement of goods across the East African borders. However, this has not been adhered to strictly.

This has hindered dairy companies to successfully penetrate the East African market and operate at full capacity. Most are facing similar predicaments.

Mr Bijoy says the East African Community Common Market Protocol is losing meaning because member countries are practising unfair trade terms. He notes that apart from Kenya blocking milk imports and offering import volume restrictions through import permits, and Rwanda closing its borders to trade with Uganda.

Tanzania also slapped a heavy import duty of Tshs 2,000 (Shs3,200) per litre of milk from Uganda in 2017 making business prohibitively expensive, and which is against the common market framework.

Lakeside Dairy, a dairy company operating in Uganda has its main foreign market in Kenya and South Sudan. However, since the outbreak of Covid-19, the company halted export to South Sudan, and concentrated on Kenya.

The company segmented its market supplying the domestic market with at 10 percent while South Sudan and Kenya at 90 percent.
Mr Reddy says still the Kenyan market is not stable with import volume restrictions.
The impact on scaling down operations is enormous. Mr Bijoy says it has heavily affected Uganda’s dairy sector with financial loss estimates of $100 million (Shs378 billion) across the sector this year.

This has also had a trickle-down negative effect in the value chain especially with the dairy farmers selling milk domestically at give-away price ranging between Shs300 to Shs 500.

“If you compare the farm gate milk price patterns for the first five months of 2019 and 2020. There’s a huge difference of Shs 300 to 400. This price difference is because dairy producers are running at a very low capacity,” he explains.

For GBK Dairy Limited which has been in operation since 1996, Godwin Tumwebaze, the operations manager explains that it has scaled down production from 60,000 litres per day to 25,000 litres after being denied import permits by the Kenya government to export its dairy products.

The company has hinged its hopes on the local market which, he says, is unstable.
Tumwebaze says this is affecting the whole value chain from the farm gate to the consumer.

Lessons and Remedy
President Museveni noted in his State of the Nation Address that the global demand for milk products is worth $718 billion.
“Our farmers and processors, however, need to know that to sell internationally, we must have good quality milk cheaper than that of New-Zealand, Ireland, and other countries. The market, however, is there,” he said.

The president says Ugandan dairy producers can tap into the global market to offset the surplus milk.

Mr Bijoy says the president’s idea is good but can be achievable if government helps dairy producers venture into other foreign markets through bilateral trade pacts as a long term solution to sustain profitability in the dairy sector.

“Dealing in trade with a volatile neighbouring country is difficult,” he says. “It is inevitable that we need to look for other foreign markets but government has to take a lead and go to other countries for trade negotiations to a strike a deal. Otherwise, we are heading for big losses,” Mr Bijoy says.

He says in the short term, government should work towards mending its trade relationship with East African common market member countries for dairy producers to continue with better export trade.

He notes that Uganda can also adopt former President Moi’s idea and encourage more Ugandans to consume milk. This, he says, will create positive behavioural changes toward milk consumption.

Christopher Burke at WMC Africa explains that East Africa’s population is still a substantial market which currently stands at approximately 185 million people for people in Uganda, Kenya, Tanzania, Rwanda, Burundi and South Sudan.

This, if added with the 17.6 million people living in the four provinces of eastern Democratic Republic of Congo (DRC) comprising Haut-Uele, Orientale, Maniema, North Kivu and South Kivu contributes almost 20 per cent of the total population of the African continent.

Mr Reddy says the scrapping of Value Added Tax (VAT) on processed milk starting effective July will boost local consumption since producers will have to reduce on prices on the final product.

He adds that this will help producers compete internationally since VAT has been a hindrance to them.

“When you charge VAT, the price goes directly to the consumer and the product becomes more expensive,” he says.
He says Uganda can also leverage on some African countries which are not major producers of milk such as in the West and North Africa to help producers establish market in such countries.

Compared to New Zealand and Ireland where machinery and automation has taken root at a farmer level, Amon Oyanga, a dairy farmer, says to compete internationally, there’s need by Dairy Authority to sensitise farmers on issues pertaining hygiene and create by-laws to push farmers to operate at a certain standard.

“The Dairy Authority should train farmers on the value of co-operative societies and how they can develop bargaining power on the market,” Oyanga says.

“If government wants to export milk globally, then, we have to play a big game,” Bisangwa says, but rhetorically asks, “At what scale are we operating?”

DDA position
Jolly Zaribwenda, the executive director at Dairy Development Authority (DDA) says the Authority is compiling data on how to deal with the surplus which will be presented to the cabinet.