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SNV RWANDA

THE RWANDA DAIRY SECTOR

VALUE CHAIN ANALYSIS

STUDY REPORT OCTOBER 2011

CARRIED OUT BY:

MR. ANYONA S. GICHURU – LEAD CONSULTANT DR. JEAN RUBONEKA

COMMUNITY AND ORGANIZATIONAL DEVELOPMENT INSTITUTE (CODIT INSTITUTE) P.O. BOX 41670 – 00100

NAIROBI, KENYA

E-MAIL: office@codit.org

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THE RWANDA DAIRY SECTOR VALUE CHAIN ANALYSIS

STUDY REPORT

STUDY CARRIED OUT BY:

ANYONA S. GICHURU (LEAD CONSULTANT) DR. JEAN RUBONEKA (ASSISTING CONSULTANT)

FOR SNV RWANDA (OCTOBER 2010)

Citation/Reference:

Anyona S Gichuru., Rubokena J; SNV Rwanda Dairy Sector Value Chain Analysis 2010, by

Anyona S. Gichuru, Dr. Jean Ruboneka

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TABLE OF CONTENTS:

ACKNOWLEDGEMENTS: .................................................................................................... 4

ABBREVIATIONS: .......................................................................................................... 5

EXECUTIVE SUMMARY: .................................................................................................... 6

1. INTRODUCTION AND BACKGROUND: ...................................... Error! Bookmark not defined.

1.1 Introduction and background of SNV Rwanda: ...................................................... 9

1.2 Involvement of SNV Rwanda in Dairy: ................................................................. 9

1.3 Background of this study: .................................................................................. 9

2.0 AGRICULTURE, LIVESTOCK AND CATTLE KEEPING IN RWANDA: ............................................... 10

2.1 Country context and background: ...................................................................... 10

2.2 Agriculture in Rwanda: ..................................................................................... 10

2.3 Cattle keeping in Rwanda: ................................................................................ 11

3.0 THE DAIRY SECTOR IN RWANDA .................................................................................. 12

3.1 Background of the dairy sector: ......................................................................... 12

3.2 Livestock statistics and trends: .......................................................................... 12

3.3 Milk production trends and statistics: ................................................................. 13

3.4 Demand and Supply Dynamics, Trends and Statistics: .......................................... 16

4.0 DAIRY SUB-SECTOR VALUE CHAIN ANALYSIS ................................................................... 19

4.1 The Dairy Sub-Sector and Value Chain Maps: ...................................................... 19

4.2 Functions and Actors the Dairy Value Chain: ....................................................... 21

4.2.1 Input Supply: ............................................................................................ 21

4.2.2 Production: ............................................................................................... 22

4.2.3 Primary collection bulking and transportation: ............................................... 26

4.2.4 Secondary bulking and semi-processing:....................................................... 27

4.2.5 Milk Processing and Value Addition: .............................................................. 29

4.2.6 Regulation, Quality Control and Sector Co-ordination: .................................... 32

4.2.7 Wholesale and retail: .................................................................................. 33

4.2.8 Consumption: ............................................................................................ 33

4.3 Revenue Distribution along the Value Chain: ....................................................... 35

4.4 Dynamics and Support Functions of the Dairy Value Chain: ................................... 36

4.4.1 Milk Supply Channels and Subsequent Chains: .............................................. 36

4.4.2 Vertical and Horizontal Linkages: ................................................................. 38

4.4.3 Governance Arrangements within the Value Chain: ........................................ 39

4.4.4 Dairy Value Chain Upgrading Opportunities: .................................................. 40

4.5 Challenges within the Value Chain: .................................................................... 42

4.5.1 Firm Specific Challenges: ............................................................................ 42

4.5.2 Sector Specific Challenges: ......................................................................... 43

5. INSTITUTIONAL FRAMEWORK IN THE DAIRY SECTOR: ........................................................... 46

6. ANNEXES: .............................................................................................................. 47

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ACKNOWLEDGEMENTS:

We would like to acknowledge the contribution of the many persons who made the execution of

this task a success. Kindly accept our sincere gratitude. Special mention goes to all dairy sector

actors in Rwanda who participated and shared their candid views and experiences as well as

offered great support throughout this exercise. Special mention goes to the Director General

(RARDA) Dr. Theogene Rutagwenda, the Director General (RBS) Dr. Mark Cyubahiro Bagabe, The

Dairy Industry Development Program Co-ordinator (DIDP) Dr. Mitchel Ngarambe, The Country

Director USAID Land-O-Lakes Dr. Rodger Steincamp and the Rwanda National Dairy Board

(RNDP) for their outstanding support to this process.

The bulk of the information forming the basis of this report was collected from primary sources.

Even on short notice, we were able to meet dairy farmers, transporters, processors, milk

collection centres, dairy co-operatives and support actors and institutions who showed great

enthusiasm in the task and accorded us their full co-operation. On this account, we are

extremely grateful to those who spared time to meet and share with us valuable information

that led to the formulation of this report. It may not be possible to mention all those who

supported us by name and title – but it is a fact that your input, support and availability was

invaluable to us. We are deeply indebted to all who participated in one way or the other; your

individual and collective input was a strong pillar to the successful finalization of this task.

Anyona Simon Gichuru

Lead Value Chains Consultant

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ABBREVIATIONS:

ABS - African Breeding Services

AI - Artificial Insemination

BRD - Banque Development du Rwanda

COMESA - Common Market for Eastern and Central Africa

DIDP - Dairy Industry Development Program

EADD - East Africa Dairy Development

FAO - Food and Agriculture Organization

Rwanda Development Bank

HA - Hectare

HH - House holds

HPI - Heifer Project International

GDP - Gross Domestic product

IFAD - International Fund for Agriculture Development

Rwanda Agriculture Research Institute

ILRI - International Livestock Research Institute

ISAR - Institut des Sciences Agronomiques du Rwanda

KG - Kilogram

KM - Kilometer

KWAMP - Kirehe Water

LOL - land O Lakes

Lts - Litres

MCC - Milk Collection Centres

MPP - Milk Processing Plant

NRDB - National Rwanda Dairy Board

RWF - Rwandan Franc

RARDA - Rwanda Animal Resources Development Authority

RCA - Rwanda Co-operative Agency

MINAGRI - Ministry of Agriculture

WaSH - Water Sanitation and Health

UHT - Ultra High Treated

RDB - Rwanda Dairy Board

PADEBL - Projet d'appui au developpement bovin laitier

Dairy Cattle Development Support Project

RSSP - Rural Sector Support Project

USAID - United States of Agency for International Development

RBS - Rwanda Bureau of Standards

RDB - Rwanda Development Board

WAC - World Agro-forestry Centre

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EXECUTIVE SUMMARY:

Background of SNV Rwanda:

SNV is an international development organization of Dutch origin with activities in Africa,

Asia, Latin America and the Balkans. In its countries of operation, SNV supports actors

within government, civil society and the private sector to identify and implement local

solutions to social and economic development challenges. Having started operations in

Rwanda in 1980, SNV has been active in the Renewable Energy/Biogas, Non-timber forest

products/Beekeeping, Water Sanitation and Hygiene (WaSH), Education, Tourism and

Coffee sectors. However, based on its country strategy, SNV plans to exit the beekeeping

and coffee sectors by end of 2012 after which it will focus on other value chains. After

extensive internal and external stakeholder consultations, dairy emerged as an attractive

value chain especially due to its underlying enormous potential to contribute to improving

livelihoods of the poor through increasing incomes thus in the long term reducing poverty

levels especially in the rural areas of Rwanda. It is with this in mind that SNV commissioned

a study as the starting point to understand the functional dynamics of the dairy sub-sector

as well as to identify critical areas of weakness in which it may intervene to enhance its

performance.

Objectives of this study:

This study was guided by five objectives which are summarised as one, identifying actors

along the value chain; two, carrying out an economic analysis of the value chain to inform

decisions on development objectives and value chain upgrading strategies (or intervention

strategies) as well as identify determinants; three, ascertaining the value added at every

level of the value chain; four, analysing the institutional framework and its influence on the

value chain and five, identifying the challenges at every function of the value chain as well

as potential solutions to address.

Study findings:

Cattle statistics and trends:

Size of the dairy sector in relation to the national herd has been on the increase since 1994

when it was on the brink of collapse. In 2009 the national herd had grown from 162,683 in

1994 to an estimated 1,334,820 thus representing a growth of more than 1,000%. This is

mainly attributed to accelerated importation of heifers by government and development

partners, adoption of enhanced breeding techniques (especially use of AI) and the growing

enthusiasm of dairy farmers to increase and improve the size and quality of their herds to

increase productivity. However, despite recording impressive growth in the national herd

size, the number of productive cows (pure and cross breed) remains alarmingly low at

74,847 (7%) for pure breed cows and 198,570 (17%) for cross breeds. More than 76% of

the national herd is comprised of the indigenous Ankole cows which are universally low

yielding and unsuitable for dairy production.

However, efforts by the government through the Dairy Industry Development program

(DIDP) in MINAGRI have seen the rapid increase in number of cross and pure breed cattle

with positive projections that by 2020 the population of pure breed will be in excess of

250,00 while that of cross breed cows will be 450,000. The efforts engaged are to ensure

that Rwanda not only becomes self sufficient in milk production but also seek to position the

country as a major actor in the trade of dairy products within the region.

Milk Production:

Milk production per cow remains relatively low at averages of 5.8lts for pure breed cows

while that of the cross breed and indigenous is at 4 and 1.2litres/cow/day respectively.

These averages are significantly low compared to the local optimal of 22.5, 7 and 3 litres

per day per cow for the pure, cross and indigenous cows respectively. As a result of this the

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national production is low currently estimated at 1,570,000 litres per day against a growing

demand for milk and other dairy products. Eastern Province produces the most milk

(approximately 580,981 litres/day) while Kigali produces the lowest consolidated quantity of

approximately 93,630 litres of milk per day. However, productivity per cow is highest in

Kigali mainly due to the production system employed which is intensive dairy farming.

Western Province is the second largest producer with approximately 420,950 litres of milk

per day while northern and southern (Nyanza) provinces produce approximately 279,562

and 201,618 litres of milk per day respectively.

Collectively local breed produce 45% of the daily milk production while the cross and pure

breeds produce approximately 31% and 24% of the daily milk production. Milk production is

mainly through three systems which comprise the extensive, semi intensive and intensive.

Extensive farming has the lowest production costs of milk but it has low yields as well while

intensive farming though the most efficient in production has the highest costs. Production

costs for intensive farming are extremely high due to the fact that over 60% of the feeds

given to cattle have to be purchased or cultivated on the farm and for higher yields the diet

has to be supplemented with concentrate feeds.

Demand and supply dynamics of the dairy sector:

The demand of milk in Rwanda (even though not yet quantified) is known to be extremely

high actually exceeding the current supply. Milk is in high demand for three main purposes;

one, for domestic consumption at the household level across the country (more so within

the urban centres), two, for processing and value addition by the 4 milk processing plants

which process approximately 1% of the average daily production and 22 cheese making

enterprises. As such, the current supply of milk and other dairy products does not meet the

existing demand thus compelling importation from other East and South African countries

and Europe. However, the percentage of imports compared to the local production has been

on the decrease over the last five years indicating sharp increases in local production.

Value chain functions and actors:

The study identified seven major functions along the dairy sector value chain which

comprised input supply, production, primary bulking and transportation, secondary bulking

and semi processing, value addition (processing), quality control and certification and

consumption. Of the seven functions, production remains as the weakest link whose impact

is felt upwards at all subsequent hierarchies of the value chain. Input supply and poor cattle

management practices emerged as critical factors that undermine productivity while poor

quality of milk received by processing plants was also cited as an issue for of concern.

Supply and demand led challenges identified:

The main supply led challenges identified included among others, poor cattle management

techniques by farmers (thus leading to low production), inefficient milk supply systems

where the cold chain1 is too far away, transportation remains highly inefficient, the quality

of milk delivered to MPPS and consumers is below the prescribed standards as per the

COMESA guidelines and the supply processes are mostly artisanal.

On the demand side, majority of consumers prefer taking raw/boiled milk as compared to

processed milk mainly due to the price differences and as a matter of perception that raw

milk is fresh and imported products were found to have a diversity especially for those

products that are not being produced locally thus giving them a niche and growing market.

Emerging trends:

1 Cold chain refers to the point at which milk is chilled to below 50 C after milking to stabilize it and stunt the growth of bacteria.