/Recommendations on Production, Productivity and Viability of the Dairy Sector

Recommendations on Production, Productivity and Viability of the Dairy Sector

Milk producer prices must be maintained or increased slightly by not more than 3% while are the same intensifying adoption of cost cutting measures by dairy farmers.
The regional average of the milk producer price per as a proportion of the retail Ultra-High Temperature (UHT) milk price is 44% (standard deviation= 14 percent). In Zimbabwe, the milk producer price as a proportion of the retail UHT price is 35%.
TranZDVC recommends that the country matches the regional average without increasing the retail price of a litre of UHT milk. Based on the current retail price of UHT of ZWL$173.88, farmers will be paid ZWL$76.51 per litre or US$0.89 per litre (using the official exchange rate). The recommendation, which serves as a price increase incentive to farmers while matching the regional prices, has the following implications: a) Short-term: “Stepping Up” strategy. Current dairy farmers will invest in expanding or scaling-up their production units (new and productive breeds, more milking cows and adequately fed cows).
An increase in the producer price while the retail price is maintained, implies that processors’ margins will be reduced in the short run. Several processors who rely on dairy farmers will enter the “Hanging-in” phase or “Stepping-out” phase at the worst. This is the current phase in which the dairy farmers are.
b) Medium-to- long term: National milk productivity and production will increase significantly. In a free market economy, a significant increase in supply with minimum fluctuations in the aggregate demand for milk, the producer price will adjust downwards. What does this mean for processors and farmers?
For processors, their margins will increase and surpass the current status quo. more milk intake means an increase in production/ processing capacity, which is currently way below 100%; and production/ processing costs will reduce significantly due to economies of scale.
For farmers, although the price will adjust downwards, they will still operate above cost due to economies of scale. This scenario will result in a win-win situation.
A combination of selected features of Option 1 and the entirety of Option 2. For Option 1, the emphasis is on cutting costs. The anticipated outcome is again a win-win situation that will increase the profit margins for both farmers and processors more than in Option 2.
Optimum quantities of imported powders
Regarding milk powder imports, TranZDVC recommends a tariff rate quota (TRQ), a two-tier policy which combines a tariff and a quota and is more flexible in the event of exhaustion of the quota while there is still a local supply gap.

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