THE INAUGURAL INTERNATIONAL INVESTMENT FORUM KWALE COUNTY 24 th – 26 th August 2014 – Leisure Lodge Beach Hotel - DIANI INVESTMENTS IN LIVESTOCK VALUE.

THE INAUGURAL INTERNATIONAL INVESTMENT FORUM KWALE COUNTY

24th – 26th August 2014 – Leisure Lodge Beach Hotel - DIANI

INVESTMENTS IN LIVESTOCK VALUE CHAINSBY: SALIM ABDILLAHI

STATE DEPARTMENT OF LIVESTOCK

Specific objectivesof the presentation

•To understand the core functions and major actors involved various livestock value chains.•To identify major constraints and Challenges•To identity opportunities in value chain.

INTRODUCTIONLivestock Sub-sector contributes over 30% of the farm gate value of Agricultural commodities. About 10% of National GDP and at least 50% of agricultural labour force.accounts for 30% of the total marketed agricultural products. Contributes to household food security& nutrition, draught animal power and manure 70% of livestock is in the ASAL(80% of the country is ASALSupports over 10 million people

Livestock Sub – Sector Expectations 10% p.a. economic growth target envisaged by Vision

2030 through;increased access to local & external marketsimproved livestock productivityvalue addition & streamlining of supply chain

MDG (1) of halving poverty by 2015 However, the supply and demand for livestock products

is affected by increasing population, urbanization, policy environment and the import/export markets among other factors.

Estimated National Livestock Population

(against Kwale)Cattle-13.5million(225483)Zebu- 10million (221,923)Dairy Exotic- 3.5million (3,560)Sheep- 10 Million (77,254) 14.5 million goats(297,612)1.1 million camels(14)800,000 donkeys(1,225)30 million poultry (24.5m indigenous(430,986), 4.5 m exotic(57000), 1 million others(38507)454,000 rabbits(1,604)19,000 domesticated ostriches (0)Crocodiles Bees

VALUE & VALUE ADDITION

VALUE; Anything that materially improves or positively affects

the quality of a person, family, community or a nation in

general.

VALUE ADDITION; It is defined by the manufacturer as the

increase in value of raw material after it becomes a finished

product. It represents the effect of manufacturing in terms of money

VALUE CHAIN CONCEPT

VALUE CHAIN

A chain of activities/players that transforms raw materials into product/service that can be purchased by a final consumer. A value chain has to be commodity specific.

The goal of the activities/players in a value chain is to create or add value that exceeds the cost of producing the product or service thus generating a reasonable profit margin.

VALUE CHAIN CONCEPT

The production idea or thinking that focuses on the market value of the product and generation of a chain of products from an initial product/commodity constitutes the value chain concept.

VALUE CHAIN DEVELOPMENT

Focuses on increasing the competitiveness of the value chain, increasing the gains or returns to each operator and hence improvement of the overall returns from the chain. Clear understanding of each VC system is important since its performance will be determined by the performance of all the players within the VC system.

Agriculture (Rural development)

Globalisationof trade

negotiation power of international trade

international trade agreements (WTO)

advances in technologies

retreat of the public sector/ More privatization

international standards

liberalisation of agricultural trade

changing consumer preferences and behaviour

National International

Value Chain Concept.Introduction- Challenges In Agricultural Sector

.-Globalization (i.e. Competition)

-soaring population-Unemployment-low incomes( wealth) etc.Efforts to fight these Challenges .Need for a change of production perspective-To a business

orientation. -questions of production value focused.-production to go beyond primary level -Need to create chains of production from one commodity I.e. Product chain hence the value chain concept.

Further Definition of Value Chain

The Value Chain (VC) can also be defined asthe chain of activities-(Players), which transform raw materials into something that can be purchased by a final consumer.

Stages of Value Chain

The Value Chain (VC) is characterised by

from the provision of inputs to primary production,to intermediary trade, to processing, to marketing and up to final consumption.

Farmers Middlemen Processors Exporters Retailers Consumers

Input suppliers

the sequence of production processes

and the quality of linkages and coordination

between business partners in the VC.

Value Chains – Value Addition – what is it all about?

For producers it is the expectation of better income through improved market access (marketing) improved/ wider product offer (value addition)

For consumers it is better value for money through wider choice of better products healthier food at affordable prices

For processors/ exporters it is the expectation of access to more reliable and improved raw materials (supply) improved/ wider product offer (value addition) access to more reliable distribution channels (marketing)

Summary.

mic

ro Input provision Production Trans-

formation Distribution, sales Consumption

mac

rom

eso

Technical Agencies, Research, Extension

BDS providers, NGOs, Development Partners

Groups, Associations, Organisations

Local Government, Providers of Utilities / Infrastructure

National Government (Line Ministries) & Public Administration

socio-cultural factors influencing business attitudes, trust and hence the effectiveness and efficiency of cooperation within the VC System m

eta

The VC System for increased competitiveness

Basic Questions Investors Need to Ask themselves before they get into Investing in Livestock value Chain

Do I have the resources to do this?Do I have the experience, people skills and information to do this?How much profit potential is there with this investment?How will I market the product and what is the customer base available?Do I have the financial resources needed to support this investment

during the start-up period?Do I really want to do this?

TYPES LIVESTOCK VALUE CHAINS

•Dairy value chain (Milk, dairy products eg Mala, cheese, butter, yoghurt, milk balls, beef) •Red meat value chain(beef, sheep/meat goats, camel, hides and skins, wool)•Poultry value chain(Indigenous chicken, Meat bird/broilers, Eggs)•Beekeeping value chain (Honey, wax, pollen)

Actors in the Livestock Value ChainsProducers;•These are farmers/Livestock keepers/pastorarist who breed and rear the livestock for sale and consumption. •They include individual small scale farmers, large scale producers and ranchers•In Kwale, the majority are small scale producers ranging from the intensive poultry and dairy farmers to extensive keepers of indigenous chicken and red meat livestock of sheep, goats and cattle

Actors in the Livestock Value Chains cont…

Input suppliers•Consists of the actors in the value chain that provides the starting materials for the proper functioning of the subsequent value chain. •These are Breeding and multiplication farms, Feed manufacturers, AI seed producers, veterinary service providers, agrovets

Traders; •Producers in the area sell their animals and produce to traders in the nearby markets or even at farm gate•The traders buy the animals and produce from primary or secondary markets, assemble and transport them to the terminal markets. •In this processes, animals pass-through up to four traders’ hands before reaching the final marketing agent or the consumer

Types of traders• Small traders: These market agents usually operate in the

primary markets. These traders have detailed knowledge of the production system and related environs.

• Most of the small traders favor trade ties with the large traders for three important reasons

make use of the large traders’ capital which they take in advance without any bureaucratic arrangement and free of interest

to benefit from quick transactions of product benefit from receiving prior market information from large

traders that enables them to be safe from unforeseen bankruptcy and to have confidence in their transactions

Types of traders cont..• Large traders: These market agents usually operate in the

secondary and tertiary livestock markets. They mostly procure animals and produce from small traders

• In most cases they have their own holding/collection grounds to collect animals and produce from small traders as well as manage them for a few days at their destination markets.

• They also have financial power to deal with their customers (butchers, hotels, supermarkets) on a credit basis. Thus, they are not unduly affected by a fall in demand for animals in the market.

Actors in the Livestock Value Chains cont…• Brokers: These market agents serve as mediators between

buyers and sellers in the livestock market. They are usually expected to link buyers with sellers and facilitate the terms of exchange. Traders at the markets basically have their own affiliated brokers who facilitate the transactions. The brokerage charge is paid per head of livestock bought.

• Animal transporters: Animals can be transported either by trekking or trucking. Smallholder farmers usually trek their animals to the market. The distance varies according to their location from the market. However, transporting animals using such trucks has several negative impacts, especially regarding the welfare of the animals.

Actors in the Livestock Value Chains cont…

• Domestic abattoirs: Domestic slaughter houses that are administered by the county governments as well as private ones provide formal slaughter services to butchers and the general public. The number of slaughter houses and their capacity varies from town to town. Any animal slaughter outside these premises is illegal. However, except the butchers, the majority of the people use backyard slaughter especially for special occasions.

Actors in the Livestock Value Chains cont…

Export abattoirs: The export abattoirs involved in the processing component of the value chain are located in towns (Mombasa – KMC and Mariakani- Private). They buy beef cattle mostly at their factory gate and slaughter them for their domestic consumer markets based on the agreed price between these abattoirs and their consumer markets.

Butchers and supermarkets: Butcher’s shops sell on a retail basis but also serve meat on their premises as raw meat as well as roasted products. Supermarkets mainly sell raw as well as processed livestock products and by-products directly to consumers for home consumption. Supermarkets undertake further processing and packing activities at their premises.

Actors in the Livestock Value Chains cont…

• Hotels and individual consumers: These are the final actors in the value chain. Hotels are supplied with carcasses as per their specific requirements by butchers, while individual consumers buy directly from any butcher shop that satisfies their needs. During certain holidays of the year groups of individual consumers come together and buy beef cattle to slaughter and to share the meat.

Mode of Transaction

• Beef cattle transactions for domestic markets are carried out by judging the attributes of each individual animal.

• The transaction of a fattened animal for market is very difficult to undertake by inexperienced buyers.

• The marketing system in both primary and secondary markets is based on visual assessment rather than established grades and live weight. Therefore, such transactions need skills based on experience, which is most often gained through rigorous work in the domestic abattoir or livestock markets.

• On the dairy and commercial poultry products, transactions are on pre-determined measurements like volumes of milk and egg trays respectively

Costs and margins for the different marketing channels

• The livestock marketing system in Kenya is very complex, linking a number of different types of market actors as the marketed animals move from producers to the end users. The different links in the process of such market chains indicate the different services that are provided to deliver the animal or product (e.g. meat) to the various consumers.

• For dairy and commercial poultry products, the marketing channels are well defined.

Constraints along the livestock value chains

Input Supply• Practically the various livestock value chains are constrained by

shortage of feed supply in terms of quantity and quality during most seasons of the year. Moreover, the producers of the animals lack awareness about balancing the available feed resources.

• The veterinary service and supply of drugs is inefficient and producers resort to private services which are very expensive and distant from the production site.

• Insufficient provision of credit and problematic collateral arrangements are also impediments to the efficient production of the beef cattle.

Constraints along the livestock value chains cont…

Production• The continuous rise of feed prices in recent years has discouraged

smallholder producers. The existing feed price coupled with the use of older and poor quality animals which biologically have low feed conversion efficiency lowers the marginal profit from the commodity.

• The prices of breeding materials is high for the poor capital communities

• The producers also lack skills and knowledge with regard to profitable livestock production .

• Due to population growth, grazing lands are being rapidly given over to crop production and this has now reached the level at which land for animal feed production is very scarce

Constraints along the livestock value chains cont…

Processing• The Livestock processing industries employ low level

technologies. The majority of the butchers and supermarkets process the meat using age-old technology.

• The processing activities are done under poor sanitary conditions. For the majority of the festive dates, slaughtering and processing are undertaken at the roadside and in backyards with unsanitary practices.

• The staff of the butchers and some of the supermarkets lack technical skill and knowledge with regard to consideration given to the livestock commodities

Constraints along the livestock value chains cont…

Marketing•The brokerage activities supposed to assist the transaction in the market places operate mostly based on fraudulent conditions. Buyers and sellers are compelled to pay without obtaining the necessary brokerage services.•Many inexperienced buyers are affected greatly by fraudulent brokerage. •Uncoordinated marketing of produce especially poultry and dairy produce. These are perishables and need immediate sale and utilization ( most cooperatives are dead or have managerial problems •Individual production is quite low to command a market

Constraints along the livestock value chains cont…

Consumption• The pattern of livestock products demand and

consumption is seasonal in nature. This has a direct impact on the activities of all the value chain actors. In Kwale, the tourist seasons determine production levels.

RECOMMENDATIONS

•Exert more effort in scaling-up of packages of improved forage production, processing, conservation and utilization technologies. •Seasonality of feed availability can be solved by employing fodder collection and conservation techniques•There is a need to establish a proper land-use program that is locally applicable, economically feasible and environmentally friendly.

RECOMMENDATIONS

• Currently livestock farmers have other reasons for keeping livestock other than just to sell.

• Interventions should target encouraging a business attitude to livestock farming.

• Project activities geared at funding and guaranteeing reward on livestock farming should be designed to improve their grades for market. These activities will improve livestock and produce supply to the market.

RECOMMENDATIONS

• Farmers should form competent marketing groups (cooperatives) which can be used as bargaining blocks. These entities would ensure better prices for inputs for the livestock suppliers and would also ensure continuity in the supply of the product.

• There is a need to train the actors at various levels to create a harmoniously operating system along the entire value chain from primary production to consumption. Particularly at the farm level, there is need for training in management of livestock producers as business enterprises. This will enable farmers take farming seriously in order to be able to reap more from the enterprise.

RECOMMENDATIONS

•The need for investment funding can never be over emphasized. Investment funds could also assist the value chain actors to access adequate inputs, equipment and technology to undertake the activities profitably. •There is a need to conduct periodic market surveys in this regard. Such options should be further explored and the information generated should be readily availed to farmers and other livestock players. •Regulate marketing channels in order to have a level playing field for all participants. •Respective Government bodies should identify the livestock sector as a very important and take lead in its promotion, offering a supportive infrastructure and incentive regime.

CONCLUSION

Investment opportunities in Livestock Value Chains are immense.Requirements- Entrepreneurial spirit- Agribusiness skills- Partnerships, collaboration and linkages - Enabling environment for investment (Policy and

friendly regulations)

Thank you!