/Pricing under the Dairy Value-Chain

Pricing under the Dairy Value-Chain

Over the years, milk production has been decreasing and has continued to decline in the country due to a combination of policy and operational constraints affecting the dairy value chain. Production fell from 260 million litres in 1990 to the current estimate of 75 million litres per annum, which is way below the estimated local milk demand of 130 million litres per annum.
The excess demand is being met through powdered milk imports mainly from South Africa by processors under a duty-free quota system to approved importers.

This has adverse effects on milk production and has been worsened by the cartelist producer pricing practices adopted by processors, leading to a vicious cycle of low milk prices, low profit margins, low milk production and high demand for imported milk powder against a background of high domestic production costs.
In the mid-1980s, milk producer prices were determined by the commercial farming sector using the cost-plus model followed by a cabinet review. Currently, the prices are determined by negotiations between the Dairy Processors Association and the Dairy Farmers’ Association, being guided by the Dairy Act.

The cost-plus model, that is, producer input costs plus a profit margin forms the base price paid by all processors. An additional premium is paid for quality milk under a scheme by the Dairy Services.
According to the Transforming Zimbabwe’s Dairy Value Chain for the Future (TranZDVC) Policy Paper on Sustainable and Standardised Milk Pricing Policy (2021), the gross margin per animal for small-scale dairy farmers of two lactating cows is unprofitable.
From the current scenario, the average milk producer price is only 23% of the final consumer price of US$1.60 per litre. Such a scenario seems to imply that vertically integrated processors get a larger share of the profit margins compared to milk producers.

Consequently, the performance and sustainability of the Zimbabwean dairy value chain (DVC) is compromised and growth is inhibited. As much as duty-free powders cover the shortage gap in raw milk supply and demand, there has not been a supply and demand matching aspect considering optimality to promote sectoral growth and since such a challenge has been noted there is no stable and sustained growth until such areas are managed at policy level.

for more please contact:

Technical Assistance to the Zimbabwe Agricultural Growth Programme (TA – ZAGP)
18 Borrowdale Road, Harare, Zimbabwe | Tel: +263 242 790 904 | Mobile: +263 718 243 243
E-mail: tnyathi@zagp.co.zw; admin@zagp.co.zw; projects@zagp.co.zw