THE dairy sector contributes to the economy through milk production, the manufacture of dairy products, trade and employment.
The dairy value chain starts from pre-production, production of fresh milk as well as processing and distribution of milk and milk products. Global milk production has risen from 497 million metric tonnes in 2015 to 532 million metric tonnes in 2020, according to statista.com.
The European Union (EU) dominates the global scene in milk production, producing over 157 million metric tonnes of cow milk in 2020. The EU has over 22 million dairy cows, second only to India with 56 million dairy cows. Cow milk is often consumed in its liquid form as well as processed products, which include cheese, butter, and yoghurt among other dairy products.
On the local scene, data from Dairy Services shows that Zimbabwe’s dairy herd totalled 38 000 in 2018, compared to 123 721 in 1990. The lowest dairy herd was recorded in 2008 at 22 000. Currently, the local dairy herd is estimated at 37 000, which implies that the dairy herd is too small to satisfy the local market. At its lowest ebb, milk production was 37 million litres in 2009. Presently, milk production averages 77 million litres annually.
This is against national demand of 130 million litres annually. In 2021, milk production is expected to be lower at 70 million litres. The country is currently experiencing a shortage of milk and milk output is projected to decline due to the following challenges:
While the rains were good for crop farming, animal husbandry was affected as the above normal rains experienced in the country triggered animal diseases, which subsequently caused reduction in milk production and yields;
A skills gap in the dairy sector is also causing low yields in the sector;
Supply chains have been disrupted by the Covid-19 pandemic, more especially the efficient supply of stock feed on the local market. The Covid-19 pandemic and subsequent economic lockdown resulted in excess production of milk globally resulting lower milk prices;
Uncompetitive stock feed prices on the domestic market, which cause Zimbabwe to have the highest cost of raw milk at US$0,66 per litre compared to regional counterparts. The price of raw milk in South Africa ranges from US$0,35/l to US$0,37/l, while that of Zambia costs US$0,33/l to US$0,35/l. In Zimbabwe, 87% of raw milk production cost is stock feed, which makes milk production uncompetitive. Uncompetitive pricing behaviour is caused by the market structure in the supply of stock feed, which is monopolistic and the inefficiencies around stock feed production in the country in general. The uncompetitive prices of stock feed have resulted in low milk yields per cow as farmers compromise on feed mixes in an effort to become viable;
The absence of key economic enablers such as water and electricity is affecting the smooth and efficient operations of the dairy sector. Sometimes production is run on water from bulk water bowsers, which is more expensive than local authority water. Water charges are escalating due to price adjustments by Zimbabwe National Water Authority (Zinwa) for borehole water;
Dairy operations are affected by unreliable electricity supply as milk is a perishable commodity which requires dependable refrigeration facilities;
The corporate world cannot freely engage in contract farming arrangements with dairy farmers as they are limited by the risks involved in contract farming;
Developments in the currency market are affecting dairy sector operations as the shortage of foreign currency affects supply since the discrepancy between demand and supply of milk is met by imports. Delays in foreign exchange settlements at the Foreign Exchange Auction System are affecting milk imports that normally augment local supplies. Currently, it is taking six to nine weeks to settle foreign exchange at the Currency Auction and this results in lags in the procurement of inputs;
Due to competitiveness issues experienced in dairy farming, farmers are substituting milk production with more viable options. In Chipinge, farmers are moving from milk production to macadamia nuts farming, which is a more viable business option. Lack of competitiveness also implies that local players in the dairy value chain cannot compete with counterparts on the international market. A sad development indeed with the operationalisation of the African Continental Free Trade Area.
In view of the foregoing, it is important to examine success factors in countries that have a thriving dairy sector. This includes an expose of the dairy industry in Australia and New Zealand. The Indian case will help illustrate the power of aggregation, though the country’s productivity levels are very low.
Since 1979 to 1980, the number of dairy farms in Australia has fallen by almost three quarters, to 5 055 in 2019–2020 and the trend in farm numbers has followed changes in farmgate milk prices from season to season according to Dairy Australia. Changing business practices have encouraged a shift towards larger, more intensive farming systems with greater economies of scale.
The number of farms in Australia is declining, while the average herd size is increasing. Average herd size has risen from 93 in 1985 to 279 in 2019-2020. Large farm operations have more than 700 dairy cattle, (Dairy Australia, 2020).
The Australian Department of Agriculture reported that dairy farming in Australia produced about 8,8 billion litres of milk in 2018-2019 and directly employ approximately 46 200 people. It is the fourth-largest rural industry in Australia generating US$4,4 billion in farm gate value in 2018-2019. About 41% of manufactured milk products are exported and the balance is sold on the domestic market.
Almost all dairy farmers supplement their feeding regime with 60 to 65% of cattle feed coming from grazing, which results in cost-efficient high quality milk production. Farmers rely on both irrigation and rain water for their operations.
In Australia, the dairy sector is of a liberalised nature, which places it in a favourable position compared to many of its competitors. This has led to the development of efficient production techniques and strong herd genetics. Efficient production methods have meant that the sector is highly competitive, which has resulted in strong export growth.
The New Zealand dairy sector thrives on favourable endowment of natural resources for grass production. Zimbabwe compares well on this factor because it has comparative advantage in agricultural production. Therefore, it is encouraged that farmers grow grass as a substitute for other expensive stock feeds.
Dendairy in Midlands has taken the initiative to grow lucerne grass. In New Zealand, there is an on-going pursuit for innovation and technological improvement by farmers, input suppliers, public research and education institutions, manufacturing, and marketing companies throughout the entire dairy value chain to boost productivity levels.
Technological advances are becoming increasingly rapid and the industry is moving to be at the forefront in terms of international adoption of new technology. The continuing ambition for higher productivity levels and quality assurance has resulted in advances in veterinary technology, innovations in milking, transport and processing.
Technology innovation has also enabled the reliable supply of sustainable energy. Technology is also being developed to mitigate potential global warming effects. Small farms are consolidated to facilitate economies of scale in production. The fast uptake of labour replacement technologies allows individuals to manage large herds and multiple herds of cattle in boosting milk output in New Zealand.
Fertilisers are used to boost pasture growth. Improved animal health strategies have resulted in less animal diseases, which include leptospirosis, brucellosis and tuberculosis.
Farmers in New Zealand have a strong ideology towards control and ownership of downstream manufacturing and marketing activities and this led to vertical integration and continuous institutional and organisational changes. The challenge by other countries in traditional markets drove the search for new markets and market diversification and ongoing development of global networks by the New Zealand dairy value chain.
Despite the above factors contributing to competitiveness, the New Zealand dairy sector also faces some challenges as indicated below:
Increasing animal welfare demands;
Enhancing animal health;
Meeting environmental challenges;
Achieving sustainable and efficient industry structures; and
Sustaining effective international marketing strategies.
As highlighted earlier, India is the largest producer of milk globally. India harnesses its aggregating power to combine milk from small cooperative producers to the market. While India’s dairy sector takes advantage of many small-scale milk producers, the current low productivity per animal hinders development of the dairy sector to full throttle. In spite of being the world’s largest milk producer, India’s productivity per animal is very low, at 987 kg per lactation, compared with the global average of 2 038 kg per lactation. This is mainly due to poor dairy breeds and use of low nutrition stock feed.
In view of the foregoing expose of dairy sector experiences in other countries, there are opportunities that exist along the local dairy sector value chain. Opportunities exist in the following:
Production of cheap and highly nutritious stock feeds in order to improve yields through appropriate feed mixes.
The farming of dairy pastures e.g. lucerne grass.
Dairy farming to boost the dairy herd, which is still to surpass the 1990s levels.
Investment in new technology to breed animals with higher productivity levels.
Investments in vaccine developments so that foreign currency is not spent on importation of such.
When milk output increases, new investments will be required along the entire value-chain to support higher milk production levels.
Zimbabwe needs to implement a raft of measures to achieve competitiveness in order to boost dairy exports to increase foreign currency generation and to save on imports.
There is a need to reduce local production costs and accelerate raw milk production to close the gap between supply and demand. Irrigation development is key to ensuring adequate pastures for the cattle throughout the year. Long term funding is also key to resuscitate dairy farming.
The policy process should incentivise the production of crops that are used to produce stockfeed. The benefits will also accrue to other animal husbandry sub sectors to include piggery, poultry, goat and beef cattle rearing. In order to grow the dairy herd, new technology should be adopted to breed locally.
Use of artificial insemination should be enhanced and agricultural colleges should be on the forefront of championing these new technologies. Currently, Chinhoyi University is implementing such a programme. Local authorities should provide water that is suitable for industrial processes. Extension services and other capacity building initiatives should be enhanced to improve productivity in the dairy sector.
As outlined above, current shortage of milk does not only illustrate challenges in the dairy sector, but also investment opportunities along the value chain.
Bandama is an economist by profession and training. She possesses an in-depth knowledge and understanding of macroeconomics and real sector economics, which skills she obtained while working for public and private entities. Her portfolio brief includes economic research, data analytics, policy formulation, analysis and advocacy. She writes in her own capacity.