The new Kenya Dairy Industry Regulations 2021 represent a major milestone in the ongoing agriculture sector reforms, aimed at boosting farm productivity, increasing returns for farmers, and enhancing value addition and innovation across the production and marketing chain.
The comprehensive raft of regulations seeks to address the challenges milk producers in the country have been grappling with for decades while streamlining dairy industry operations. A notable aspect is that the minimum farm gate price of Ksh33 which will introduce certainty into the market and guarantee decent returns.
The rules, now collectively known as the Dairy Industry Regulations 2021 comprise the Dairy Industry (Registration, Licensing, Cess and Levy) Regulations, the Dairy Industry (Returns, Reports and Estimates) Regulations, the Dairy Industry (Compliance Officer) Regulations and the Dairy Industry (Produce Traceability and Recall) Regulations.
Others are the Dairy Industry (Milk Sales Contracts) Regulations, the Dairy Industry (Pricing of Dairy Produce) Regulations, the Dairy Industry (Imports and Exports) Regulations, and the Dairy Industry (Dairy Produce Safety) Regulations.
While the State may appear to be over-regulating the dairy industry, triggering concerns about increased cost of production, it is important to note that each set of regulations addresses a specific industry issue.
In other words, the comprehensive nature of the rules signals a pent up need to anchor long-drawn policy reforms on a detailed legal framework covering all the salient issues facing dairy farmers.
The regulations are also the culmination of a long process to craft policy and rules to steer the sub-sector, that has been going on since 2009. Even with the launch of Sessional Paper no. 5 of 2013 on the National Dairy Development Policy, the requisite laws to give impetus to policy innovations in the industry have been lacking.
The Cabinet Secretary for Agriculture has always had the powers to develop rules governing the industry. So, the extensive rules are nothing out of the ordinary and are merely in complying with the powers are conferred by Section 19 of the Dairy Industry Act Cap 336 (the parent legislation).
Section 19 gives the cabinet secretary powers to make regulations governing minimum standards of dairy produce; pricing; handling, transporting and storing dairy produce; regulating and controlling manufacture of dairy produce; imposing levy or cess; prescribing terms of contract for sale of milk; controlling sale, purchase and delivery of dairy produce; and registration and licensing of distributors of dairy produce.
The new regulations seek to address the following issues affecting the industry: seasonality of production; low productivity; poor quality; costly, inaccessible feeds; and lack of an adequate regulatory framework.
It is important to understand the policy context within which the new rules were developed. The regulation of the dairy industry dates back to 1958 with the creation of the Kenya Dairy Board by the colonial government. Commercial dairy farming was introduced in Kenya by colonial settlers in 1900 but it was not until the Swynnerton Plan of 1954, that Africans were allowed to engage in the milk business.
After Independence, reforms introduced following the Dairy Industry Development Commission of 1964 chaired by then Assistant Minister Mwai Kibaki, saw small-scale dairy production grow in leaps and bounds. The State expanded the Kenya Cooperative Creameries (KCC) and opened milk cooling plants across the country. Significant investments were made in extension services, tick control and artificial insemination to ensure quality breeding stock and increased milk production.
However, come 1992 with the liberalization of the agriculture sector, things took a turn for the worse. Government support for the milk sub-sector dwindled leading to declining productivity and returns for producers. The eventual collapse of KCC due to mismanagement was the last straw for an industry already struggling with rampant sale of raw milk, low prices and poor incentives for value addition.
An exhaustive analysis of the regulations is not possible here but suffice to briefly highlight examples of how the new rules address the plight of milk farmers.
The regulations on Registration and Licensing provide for registration by the counties of primary producers, that is, persons producing milk for sale. This will help create a database of farmers, dairy herd and other valuable data that will inform future policy formulation. It will also assist in weeding out rogue milk hawkers and middlemen exploiting poor farmers and by mapping out where farmers are, facilitate coordinated extension support services by the counties.
Primary producers are allowed to join cooperative societies, producer groups or aggregators who collect milk from farmers for bulking, processing or resale. Any person who obtains registration through fraudulent means commits a criminal offence and is liable to be fined or jailed. Dairy business operators, defined as persons handling dairy produce for business, must also be registered by a county. This will help track movement of the commodity in the market.
The regulations on Returns, Reports and Estimates require dairy business operators to submit monthly returns to the county or Kenya Dairy Board on production, distribution and retail of dairy produce, to facilitate collection of data and information for planning purposes.
The new rules provide for appointment of compliance officers who shall be appointed by the dairy board to monitor primary dairy products and dairy business operators. They may also test dairy products to ensure they meet the stipulated standards.
The rules on produce traceability and recall ensure consumer protection and safety of dairy produce and provide mechanisms for tracing and recall of dairy products to safeguard public health. Dairy produce will be traceable through all stages of production, collection, processing, storage and distribution using documentation to ensure it is safe for human consumption.
This will help address safety concerns around the sale of raw milk which in some cases has been found to be contaminated thus posing serious health risks to the public. These rules should be read with the Dairy Produce Safety Regulations 2020 which provide for an elaborate public health safeguards on handling of milk products, and self-regulation of the industry to promote global best standards.
For many years, small-scale milk producers have received a raw deal literally from middlemen and even some processors offering low prices for the commodity. The Dairy Industry (Milk Sales Contracts) Regulations, the Dairy Industry (Pricing of Dairy Produce) Regulations address weak contracts favoring buyers by setting minimum standards for such contracts.
The minimum contents of the contract for sale of milk shall include name of the parties, milk price per kilogram, quantity sold or bought, agreed quality, duration of contract, payments terms, penalties for default of either party, and dispute resolution mechanism.
The pricing rules allow the cabinet secretary, acting on the advice of the dairy board, to determine the minimum farm gate price using a formula that takes into account cost of production, profit margin, transport cost, chilling (cooling) cost, premium paid for quality and the relevant statutory deductions. The price has already been set at Ksh 33 as from February which could be reviewed in future.
It is clear that the comprehensive new regulations adequately respond to various issues and challenges facing the dairy sub-sector and especially small-scale milk farmers in Kenya. They also inject rigorous standards to protect consumers from health risks while curbing the continued proliferation of raw and sub-standard milk in the market. Producers will also enjoy better returns.
Proper regulation of aggregation, processing, distribution and sale of milk will attract investors and promote fair competition. Also, counties will play an increasingly vital role in the growth and development of the local dairy industry, agriculture being a devolved function under the Constitution.
However, there is still need to reduce the high cost of inputs,leverage Information Technology in the proposed interventions, improve transport infrastructure and enhance access to affordable credit to farmers. Counties should also ramp up extension services especially in the rural areas.
Mr Choto is a lawyer and policy analyst. kingorichoto@gmail.com
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