Problem:
Smallholder dairy farmers in Kenya face low and unstable returns due to inefficiencies and structural challenges across the value chain, with limited evidence to guide pricing and policy decisions.
Solution/Outcome:
We supported the regulator to design and implement a bi-annual monitoring framework using a digital data collection platform, generating evidence to inform a Minimum Guaranteed Pricing model for the dairy sector. The policy intervention contributed to a significant increase in farmgate returns per litre of milk, with over 4,000 smallholder farmers and 300 stakeholders engaged over the project period.
Suppose that the government sets a minimum price PM1, this will be above the equilibrium price PM. At PM1, reading over the demand curve, the quantity of milk that the buyers will be willing and able to buy is QM1. Reading over the supply curve, the sellers offer QM2 of milk at the minimum price of PM1. Since PM1 is above the equilibrium price PM, there is a surplus of milk equal to (QM2-QM1). This surplus is due to the fact that the government, through gazette notices, does not allow the price to fall below PM1. Clearly, setting a minimum price above the equilibrium price has the potential to create a glut in the market. Excerpt of the report, further details contact our client @ Kenya Dairy Board.
