ANALYSIS OF MARKETING PERFORMANCE OF THE DAIRY VALUE CHAIN IN
TANGA CITY, TANZANIA
Introduction
This study was conducted in Tanga City with the aim of analyzing market performance of milk value chain. The
study aimed to quantify and assess production costs of raw milk and to characterize the market structure, conduct
and performance of the milk market.
Why this study?
The Tanzanian cattle population ranks third in Africa after Ethiopia and Sudan (Match Maker Associates [MMA],
2008:34). The country’s cattle population is about 18.8 million out of which 560 000 (2.98%) are dairy stocks
which mainly consist of Friesian, Jersey, Ayrshire breeds and their crosses with the East African Zebu (Ministry of
Livestock and Fisheries Development [MLFD] 2011; Njombe et al., 2011:78). Notwithstanding its high ranking
position in terms of cattle population, Tanzania is still very low in production, processing and marketing of milk
and milk products, compared to other African countries.
This study derived its justification from the fact that marketing is a very important aspect of the dairy chain.
Presence of close-by markets for milk and dairy products is a key motivating factor for milk producers. Milk
marketing entails gathering of milk from several producers, transforming it to an acceptable marketable product
and delivering it to consumers at the desirable time and at an affordable price (Ndambi et al., 2007:1–10).
Tanga City being well established as compared to other cities/urban areas in Tanzania, limited research has
been done on quantifying production costs and profit margins respectively incurred and received by actors along
the chain, so little is known on ‘who gets what’ among the chain actors (Schooman and Swai, 2011). There is
insufficient knowledge on the marketing performance of the dairy value chain to ascertain whether the chain
operates profitably and efficiently (Wikedzi et al. 2012:76). Therefore, understanding the role of each actor and
their profit margins is the foremost essential contributing factor towards development of a viable dairy industry in
the study area.
Milk Production
Milk production in Tanzania is carried out under two major production systems.
1. The subsistence traditional – milk is mainly produced by indigenous cattle raised as dual purpose animals
that are for both milk and meat production
2. Within the commercial dairy production system, improved dairy cattle of exotic dairy breeds are kept.
This system is characterized by commercialized large, medium and small holder dairy farms.
Generally, in Tanzania, dairy farms with cows ranging from 1– 5 cows per household are considered to be small
dairy farms (MLFD) 2010.
There are few companies (e.g. Tanga Fresh Ltd, Musoma Dairy and ASAS Dairies–Iringa) in the market that are
slowly expanding but at the same time facing many obstacles in the process of selling milk and milk products.
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Such as (i) strong competition from attractively packaged and cheap imported milk products, (ii) small domestic
market, (iii) lack of financial credit and difficulties in sourcing large amounts of milk of stable quality
(Quaedackers, 2010:102).
The specific objectives of the study within the scope of this paper were therefore twofold; viz:
(i) To quantify the per unit cost of production of raw milk for dairy farmers in the Tanga city, and;
(ii) To assess marketing performance of the dairy market in the Tanga City and its implications for policy
advice and strategies for improvement.
Methodology
Quantification procedures
Accounting method was used to quantify milk dairy farmers’ production costs whereas dairy market performance
was descriptively analyzed within the framework of the Structure –Conduct-Performance (S–C–P) market model.
Quantitative analysis entailed calculation of gross profit margins for the major players (producers, traders and
processors) at their specific nodes along the dairy value chain in the city.
Gross Profit Margin Analysis
Gross profit margin is the difference between revenues, (quantities X prices the customer pay) and the sum of costs
incurred in the production and delivery of the product/service including variable and fixed costs.
The gross profit margin was calculated at each node. According to FAO (2011), a marketing node is
defined as any point in the marketing chain where an exchange and/or transformation of a dairy product takes
place. At each node of the dairy value chain, gross profit margin was obtained or calculated by subtracting the
estimated total costs (variable and fixed costs of production, processing and marketing) from total revenue as
shown in the following formula (i):
…………………………………………………..(i)
Where;
GPMi= Profit margin of producer/milk trader/processor
TRi= Total revenue of producer/milk trader/processor
TVCi= Total variable cost of producer/milk trader/processor
TFCi= Total fixed cost of producer/milk trader/processor
i= 1–nth producer/milk traders/processors
The Importance of Gross Profit Margins for Each Actor
One of the aims of the study was to characterize the structure, conduct and performance of the milk value
chain. Gross profit margin was used as proxy for measuring the performance. This was so because it was important
to know who gets what among the actors (producers, milk traders and processors) along the milk chain in the city.
According to Purcell et al. (2008), the gross profit margin analysis for each actor enables the researcher to
determine how the value chain really operates. Therefore, gross profit margins are considered when a researcher
aimed to find out whether a value chain is accessible to new entrants and has potential to grow in the future.
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Results and Discussion
Quantification of Production Cost for Smallholder Dairy Farmers
Production cost is one of the important components in any production system that helps in the evaluation of
the performance of the value chain. Findings on annual production cost per dairy cow* are presented in Table 1.
These results show that the average annual production cost was TZS 458 869 per cow-equivalent mostly accounted
for by contribution from labour charges and feeds. Labour charges accounted for 45.7% of the total production
cost and the feeds cost was 19.4% of total production cost. The remaining dairying activities accounted for
34.9% of the total cost.
The findings are in line with the study carried out by Sayeed et al. (2005:49 – 55) on economics of dairy farms
in Bangladesh. They reported that labour was the major cost followed by feeds. However, the cost of feeds was
lower when compared with finding reported by Alam et al. (2007:39 – 47), where feeds cost alone accounted for
more than 50% of the total production cost in Bangladesh. This could explain the low productivity in the study area
(6 litres per day per cow) as most producers feed maize bran only as supplement due to high cost of feeds (price
ranging between TZS 150–200 per kilogram of maize bran).
Table 1: Annual production cost per dairy cow*
Cost for various dairy activities
Variable cost
Feeds
Commercial minerals
Labour charges
Utensils
Transport
Veterinary/breeding services
Utilities
Miscellaneous
Fixed cost
Depreciation of cow
Depreciation of cow sheds
Own capital
Grand total cost
Average cost of production/cow/year (TZS)
89 063
11 117
209 556
3 581
10 048
20 907
20 433
9 538
33 457
20 652
30 517
458 869
*Cow equivalent is stipulated as 1 heifer = 0.8 cows; 1 calf= 0.4 cows and 1 bull = 1 cow (Alam et al., 2007)
It was observed that, on average in each household there were 5 cow-equivalent. About 50% of the herds were
milking cows equivalent to 2.4–5 cows per household. Average lactation length was observed to be 290 days and
average milk price was TZS 580 per litre in formal market channel. Quantity of milk produced per cow stood at 6
litres per day. It was also found that the production cost per litre was TZS 550 against revenue of TZS 5801 per
litre of milk.
Smallholder dairy farmers received gross profit margins of 5.2% and 21.4% in the formal and informal channels
respectively while processors and traders received gross profit margins of 18.8% and 36.1% per litre of milk
respectively.
Therefore, the GPM findings indicate market inefficiency. However, it is evident that smallholder dairy farmers
in Tanga City have not captured the full potential benefits of dairy keeping since the price of the milk is determined
by processors/buyers.
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Average selling price per litre in the formal channel
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Conclusions and Policy implications
The findings of this study demonstrate that the dairy sector in Tanga City has very high potential to bring
economic development as it provide employment and benefits to several thousand producers, traders and
processors. Traders and producers are among the poor residents of Tanga City, who have no other sources of
income. Therefore, improving marketing performance can increase benefits to communities as well as improving
productivity of the dairy sector.
Policy makers should re-visit country’s policies on importation and tax exemption in the product related to milk.
The indication is that some of the actors (traders and processors) benefit more as compared to producers’ due to
existing of loosely integrated market as well as monopolistic tendency shown by processor(s). This situation has
made the market non–competitive and unprofitable to majority of milk farmers/producers.
Recommendation
Based on the findings of this study, the following policy measures/implications are recommended in order to
promote dairy product(s) marketing in the study area:
(i) Capacity building through sharing of knowledge on dairy keeping practices, storage and marketing
activities to farmers and traders.
(ii) Efficient market information system should be established in providing reliable and timely information
about price.
(iii) Based on S–C–P analysis results, The GPM as a measure of market performance indicated the oligopolistic
nature of milk market especially along the formal channel in Tanga City.
(iv) The study recommends liberalized marketing system in price setting strategy and producers' training on
production techniques that will improve their productivity.
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