The Dairy Sector & Poverty Reduction: A FAO Perspective

A Living from LivestockPro-Poor Livestock Policy Initiative

The Dairy Sector & PovertyReduction: A FAO Perspective

Joachim Otte & Simon Mack

7th IFCN Dairy ConferenceSzczecin, Poland, 24 May 2006


Outline

• Incidence of extreme poverty & the role of livestock

• Global dairy developments

• Characteristics of smallholder dairy production

• FAO’s smallholder dairy development work


The Extent of Extreme Poverty

• Globally 1.2 billion extreme poor (<1USD/day)

• 800 million extremepoor in agriculture

• 600 million extremely poor livestock keepers

Glo

bal P

over

ty


Regional Incidence of Extreme Poverty

25 - 50

>7550 - 75

10 -25< 10

No data

Proportion of peopleliving in extremepoverty (<1$/day)

Source: World Bank 2003

Glo

bal P

over

ty


Number of Poor (Millions) by Region

0

200

400

600

800

1,000Ea

st /

Sout

h A

frica

Cen

tral /

Wes

t Afri

ca

Nor

th A

frica

/ N

ear E

ast

Chi

na

East

Asi

a ex

cl. C

hina

Indi

a

Sout

h A

sia

excl

. Ind

ia

Cen

tral A

sia

Cen

tral A

mer

ica

Car

ibbe

an

Sout

h A

mer

ica

People below US$1 a day People below US$2 a day

Source: World Bank 2003

Glo

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over

ty


Average Incomes by Region

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

0 20 40 60 80 100

IndustLACNENAS.AsiaSE&E.AsiaSSATran

Annual per capita income in USD ppp

Proportion of population in agriculture (%)

ChinaIndia

26,000 Richest quintile (Q1)

7,000 Q2

4,000 Q32,000 Q4

Glo

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ty


The Role of Livestock

• Agricultural populations are still growing

• Little scope for expansion of agricultural land

• The value of produce per area needs to increase

0

10

20

30

40

50

LAC

SSA

NENA

S.Asia

E&SEAsia

1970198019902000

Agricultural GDP from livestock

Sour

ce: F

AOST

AT

Percent

Glo

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ty


Value of Livestock Products 2000

Milk cow24%

Milk other7%

Cattle meat21%

SR meat4%

Pig meat17%

Poultry meat15%

Other meat2%

Eggs9% Other

1%

538 billion Int$Source: FAOSTAT

Glo

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airy


Dairy Production Trends

0

100

200

300

400

500

600

700

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

Top 6 developing countriesDeveloping without top 6Developed Countries

Million MT

Glo

bal D

airy

50

70

90

110

130

150

170

190

210

230

250

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

Developing CountriesDeveloped CountriesDeveloping without top 6Top 6 developing countries

Index 1980 = 100

Sour

ce: F

AOST

AT 2

005


Dairy Farm Trends

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.619

91

1992

1993

1994

1995

1996

1997

1998

1999

2000

IndiaPakistanNZUSAGermany

Farm numbers (1991 = 1)

0.0

0.5

1.0

1.5

2.0

2.5

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

IndiaPakistanNZUSAGermany

Herd size (1991 = 1)

Sour

ce: I

FCN

200

3

Glo

bal D

airy


India: Dairy Stock by Herd Size (2001)

1 to 2 3 to 4 5 to 20 >20

73 %

23 %

Herd size class (nr of cows)

Sm

allh

olde

r Dai

ry

85 million dairy households

Sour

ce: I

FCN

200

3


India: Dairy ‘Farm’ Income Structure

Source: PPLPI Working Papers

0%

20%

40%

60%

80%

100%

1 2 3 4 5 6 7 8 9 10 11 12 13 14

Net cash farm Non-cash farm Off-farm

Farm numberLandless =< 1 ha > 1ha

Sm

allh

olde

r Dai

ry


India: ‘Dairy’ Return to Labour

• Landless and marginal smallholders gain most income from off-farm sources

• Return to labour for landless and marginal rural smallholders is often below local wage rate

• Larger farms make a profit from dairying and often generate employment for non-family members

Sour

ce: P

PLPI

Wor

king

Pap

ers

-10

-5

0

5

10

15

20

25

1 2 3 4 5 6 7 8 9 10 11 12 13 14

USD

cen

ts /

hour

Landless =< 1 ha > 1ha

Farm number

Return to labour minus local wage rate

Sm

allh

olde

r Dai

ry


Milk: Cost/Unit and Prices Received

Source: PPLPI Working Papers

Int. Milk Price

Sm

allh

olde

r Dai

ry


India: Dairy MarketS

mal

lhol

der D

airy

Sour

ce: S

taal

et a

l. (in

pre

p)


India: Milk Price by Market Channel

Source: Saha and Hemme, 2003

Producer price Consumer price

US-

$ / k

g ra

w m

ilk (4

% fa

t)

US-

$ / k

g m

ilkFormal Informal InformalFormal

Sm

allh

olde

r Dai

ry


Dairy Development ‘Ladder’ for AP

• MN3: 3 local buffaloes in Mahboobnagar district

• Top MN3: Productivity increase through improved management

• 3-Grade: Productivity increase through genetic improvement

• 3-Murrah: Productivity increase (milk yield) by further genetic improvement

• 5-Murrah: Economies of scale (in labour use) through herd expansion

Sm

allh

olde

r Dai

ry

Return to labour (USD/hour)

Sour

ce: G

arci

a et

al.

(in p

rep)


Production CostsS

mal

lhol

der D

airy

1 minus non-milk returns

USD/100 kg milk Probability of cost being:

Sour

ce: G

arci

a et

al.

(in p

rep)


Conclusions

• Almost 1 in 3 farmers lives in extreme poverty

• Livestock offer the potential for farmers to increase returns to shrinking land

• Milk is a highly valued livestock commodity

• Growth in demand for and production of milk is high in most developingcountries

• Increasing demand from low-income households met largely by increasing production of small-holder farmers

• ‘Median’ smallholders are cost competitive(produce at or below international price)

• Ample scope for low-cost productivity increases and welfare improvement

Sm

allh

olde

r Dai

ry


FAO’s Roles

• Field projects (production / processing)• Short term (FAO TCP

funded)• Long(er) term (Extra-

budgetary)

• ‘Normative’ actions• Lessons learned• Information dissemination

(technical, production & processing)

• Lactoperoxidase network

FAO

& S

mal

lhol

der D

airy


Pre-requisites for Engagement

• Stable demand• Market access • Local feed resources• Support services• Institutional capacity

• Communal• Private sector

• Processing tradition

FAO

& S

mal

lhol

der D

airy Employment generation

along value chain


References & Further Reading

For more information please visit the PPLPI website:www.fao.org/ag/pplpi.html www.fao.org/ag/againfo/projects/en/pplpi/publications.html

Links to PPLPI Working Papers

#2 A Review of Milk Production in India with Particular Emphasis on Small-scale Producers

#3 A Review of Milk Production in Pakistan with Particular Emphasis on Small-scale Producers

#7 A Review of Milk Production in Bangladesh with Particular Emphasis on Small-scale Producers

#16 The Economics of Milk Production in Orissa, India, with Particular Emphasis on Small-scale Producers

#20 The Economics of Milk Production in Chiang Mai, Thailand, with Particular Emphasis on Small-scale Producers

#33 The Economics of Milk Production in Hanoi, Vietnam, with Particular Emphasis on Small-scale Producers

#34 The Economics of Milk Production in Cajamarca, Peru, with Particular Emphasis on Small-scale Producers

http://www.fao.org/ag/againfo/projects/en/pplpi/home.html

http://www.fao.org/ag/againfo/projects/en/pplpi/publications.html

http://www.fao.org/ag/againfo/projects/en/pplpi/docarc/wp2.pdf








The Dairy Sector & Poverty Reduction: A FAO Perspective

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