Uganda's Quality-Based Milk Payment System: A Lesson in Cross-Learning for East Africa

In East Africa, consumers place a high premium on the quality and safety of milk and dairy products. Unfortunately, in the past, incidents relating to milk quality, including hygiene, food safety, and the competitiveness of Kenyan dairy products, have been reported. This has made it necessary to adopt innovative and successful market-driven approaches to address these issues and ensure that the dairy industry meets consumer expectations. To address this issue in Kenya, the Netherlands East Africa Dairy Partnership (NEADAP) and its partners are implementing a Quality-Based Milk Payment System (QBMPS) solution to improve the quality of milk and dairy products in the country. This activity is led by Dr Catherine Kilelu, the QBMPS solution lead for NEADAP. It is a follow-up of a QBMPS pilot in Uganda in 2021, as you can read in this report.

So, an exchange visit to Southern Uganda was organised to learn from the Ugandan Dairy industry about the implementation of a quality-based milk payment system. The exchange visit, which included teams from Kenya and Rwanda, aimed to learn from Uganda's local quality-based milk payment system and share lessons that could be replicated in Kenya.

The exchange visit was hosted and co-organized by SNV’s The Inclusive Dairy Enterprise (TIDE) project implemented in Southwestern Uganda. The TIDE project has supported the farmers and service providers with the necessary knowledge and skills to transform the dairy sector in Uganda since 2015. The partnership has created opportunities for milk and milk product exports, farm management consultancy, training, and livestock trading in East Africa.

The exchange trip included visits to various stakeholders in Uganda to gain insights into the payment systems. These included the Ntungamu Dairy Farmers Cooperative Union (NDAFCO) to learn about the governance of the Union and its role in QBMPS, and the Pearl model farm for fodder and animal nutrition, Pearl Dairy, and SANATOS for QBMPS parameters. The team also visited the Dairy Development Authority for regulations, Rubyerwa Dairy Investment Ltd for on-farm training, and the National Agricultural Research Organization (NARO) for research and fodder technologies.

Key learnings and opportunities

One advantage that Ugandan dairy farmers have is the availability of grazing land, which makes the cost of production per litre of milk lower than the cost per litre of production in Kenya. Additionally, the semi-intensive system that farmers practice in Uganda results in a lower cost of milk production per litre than in Kenya. Farmers in Uganda graze in the fields during the day and give silage or concentrate during milking time.

Uganda's quality-based milk payment system is processor-led, where different processors have their parameters. For instance, SANATOS is keen on butter fat above 3.5% and pays farmers a flat rate based on that, unlike Pearl Dairies, which uses many parameters. With QBMPS, SANATOS has already reduced costs and increased quality, according to SANATOS’ Odhiambo. The implementation of QBMPS at SANATOS resulted in reduced costs for cheese processing, as the processor now utilizes 8 litres of milk to produce 1 kg of cheese, in contrast to the previous method that required 12 litres. This change has led to a saving of 4 litres per kg of cheese.

In a bid to improve milk quality and production, Pearl Dairy, one of the largest milk processors in Southwestern Uganda, successfully piloted the Quality Based Milk Payment System (QBMPS) with four cooperatives. The QBMPS parameters include an alcohol test of 80%, density of ‹0.28, the water content of 0.01, zero plastic, a Rhesuzurin test of ‹4, the fat content of 3.8, and SNF of ›8.5. This pilot project has led to a significant increment in average milk production per farmer, from 4.5 litres per day in 2018 to 5.8 litres per day in 2022. Additionally, there has been a reduction in tick-borne diseases, a decrease in milk rejects due to adulteration, and an increase in the land under fodder from 300 acres in 2018 to 1095 acres in 2022. Finally, the QBMPS has resulted in an increase in milk butter fat and SNF content percentage, making it a successful intervention for improving the livelihoods of dairy farmers in Southwestern Uganda.

Challenges

However, some challenges were identified during the visit, such as handling individual farmers' payments since milk is bulked at the collection centres, making it difficult to separate payments. Another challenge is the compensation of farmers with local versus exotic breeds. Ankole cows, for instance, produce milk with higher butter-fat content compared to Friesian cows, making it unbalanced where farmers with indigenous cows are paid better prices than those with exotic breeds. This is a major challenge to the cooperatives as farmers with exotic cows are the majority. This calls for a payment system that does not disadvantage other farmers.

Competition between cooperatives is also a key concern. At NDAFUCO, for instance, some farmers left the union and started supplying their competitors immediately after the union started segregating payments.

The visit to Uganda demonstrated the value of regional cross-learning, in line with NEADAP's mission of knowledge and experience exchange to tackle current challenges and leverage further development in the East African dairy sector. Focusing on the quality of milk and value chain collaboration with a quality-based milk payment system is important for the development of sustainable dairy farming in East Africa.