Time series analysis of milk production in Uganda. A case study of Sameer Agriculture and livestock Limited.2014-2016

1.1Background of the study

Approximately 150 million households around the globe are engaged in milk production. In most developing countries, milk is produced by smallholders, and milk production contributes to household livelihoods, food security and nutrition. Milk provides relatively quick returns for small-scale producers and is an important source of cash income. There are over 264 million dairy cows’ worldwide, producing nearly 600 million tonnes of milk every year (FAOstat).
The global average for milk production is approximately 2,200 litres per cow (FAOstat 2012).
The largest producer of milk is the USA producing over 87 million tonnes per annum
( FAOstat 2012). India has the greatest number of dairy cows in the world with over 40 million cows.

Population growth, rising income and increased urbanization in the African countries as well as the subsidized prices of European beef and dairy exports have helped to stimulate the demand for livestock imports in sub-Saharan Africa. Africa has about 14% of the world bovine population but produces 16% and 3 % of the world beef and milk output respectively. In contrast, developed countries have about 30% of the world bovine population but produce 71 % and 77 % of the world beef and milk output. The number of sheep and goats in Africa constitutes 22% of the world population but contributes only 17% of mutton and goat meat output. The comparable figures for developed countries are 36% of population and 46% of output. The low yields have obviously contributed little to increases in output.

Currently, Uganda produces 1.3 billion litres of milk per year, of which 30 percent is consumed on the farm and 70 percent is marketed to consumers (Balikowa, 2006).There are five main milk producing regions or milk sheds in Uganda and 80 percent of the milk is produced in the southern (south-western milk shed) alone accounts for over 30 percent of the total milk production and therefore constitutes the major source of marketable milk in the country. The average milk production per cow per day is quite low (less than 10 litres) that account for 93.3 percent and only 0.5 percent cows produce 20 litres per day with Friesian cows being most productive. Elepu (2006) and Balikowa (2003) observed that milk collection in Uganda includes direct pick up from the producers by agents, co-operative assembly and individual supply (producers) deliver directly to pick up points. Majority of the milk is collected and distributed through Milk Collection Centers which are owned by private traders. Balikowa (2003) noted that there are two milk collection systems; the formal and informal channels. The informal milk collection channel is characterized by lack of milk collection infrastructure, limited quality control and selling of milk on credit but in some cases cash is paid. The common means of transport at farm level is the bicycles. In Uganda, milk processing is handled by over 10 private companies and over 100 small scale processors (Elepu, 2006). The processing companies include Sameer Agriculture and livestock limited, Jesa Farm Dairy, GBK Dairy products, White Nile Dairy, Birunga Dairy, Teso Fresh Dairy, Paramount Dairies Ltd, Alpha Dairy Products and MADDO Dairies Ltd (DDA, 2008). The products processed by companies are cheese, cream, ice cream, yoghurt, cultured milk, butter and ghee. Sikawa, & Mugisha, (2011). found that on farm processing of milk is done at limited scale and approximately 9 percent of farmers’ process milk into ghee mainly for home consumption while 2 percent make other products particularly yoghurt and ghee and 89 percent do not make any milk product.

1.2 Statement of the problem

The dairy industry remains a key livestock component with significant contribution to food security and income in pastoral communities of Uganda (FAO, 2008; ILRI, 2007). Dairy policies have been relaxed to allow market forces to determine farm level prices. This has exposed farmers to lower milk prices while downstream retail prices are higher (Artukoglu et.al, 2008, Tsougiannis et al, 2008). This has resulted into considerable mistrust among market chain actors in developing countries (Markus et al., 2008). Milk production in Uganda has been declining over the years, the Sameer agriculture and livestock has faced numerous challenges in the milk production of Uganda, this is due to the declining quantity of milk production in Uganda. According to Elepu, (2006), about 80 percent of marketed milk still passes through traditional informal marketing channels in spite of high profile given to formal milk marketing channel.

This challenge in the milk production of Uganda has led the researcher to investigate into the time series analysis of milk production in Uganda, a case study of sameer agriculture and livestock limited.

1.3 Objectives of the study.

1.3.1 General objective.

The general objective of the study was to determine the time series analysis of milk production in Uganda.

1.4 Specific objectives.

To determine the distribution/trend of milk production in Uganda.
To forecast the milk production in Uganda.

1.5 Research hypotheses.

Ho₁: There is no trend for milk production in Uganda.

1.5 Scope of the study

The study scope covered the following aspects; study scope, time scope and geographical scope.

1.5.1 Study scope

The study scope covered the distribution of Trend for milk production in Uganda, forecast milk production in Uganda over the next 5 years in Uganda and evaluate factors that determine milk production in Uganda.

1.5.3 Time scope

The period of data to be considered was from 2014-2016.

1.6 Significance of the study

Improved performance of the dairy industry will only be meaningful if farm level marketing strategies are efficient (MFPED, 2007). Therefore, the analysis of milk distribution is essential for dairy development at micro level and in formulating plans for improvement in the dairy sector through formulation of a proper marketing channel and increased employment generation in agriculture. The study is to act as a working document for both the government and other stakeholders in addressing the constraints faced by dairy farmers participating in formal milk marketing channel for them to benefit from current high demand of dairy products. For policy implementers like extension agents, study results put them in a better position to enhance formal milk marketing channel after being enlightened with factors that affect the channel participation.

CHAPTER TWO

LITERATURE REVIEW

2.0 Introduction

Cattle in Uganda is raised under different production systems, namely: pastoral (semi-nomadic) production, agro-pastoral (communal grazing) systems, beef ranching, dairy ranching, crop livestock mixed farming, semi-intensive dairying and intensive dairying, with various specialized features (Kasirye, 2003). Between the extensive and intensive management systems, there are a number of discrete systems that vary in objective, management strategies, attitude, feed and capital investment and level of productivity. Higher levels of investment in dairying are generally located near major urban or consumption centers that are associated with higher milk prices and stable demand for dairy products, (Mubiru et al, 2007).

In Uganda most of the cattle are found in the cattle corridor and milk is produced from cattle and goats (Matthewman, 1993). Dairy production systems in Uganda have been classified into three groups; pastoral, small-scale crop and livestock farms and specialized dairy farms (Okwenye, 1994). This classification is based on number of stock, feeding and grazing management and breeds reared. The Ministry of Agriculture, Animal Industry and Fisheries (MAAIF) jointly with the International Livestock Research Institute (ILRI) (MAAIF/ILRI, 1996) indicated that cattle production systems in Uganda form a continuum with semi-nomadic pastoralism at one end and zero grazing on the other. It also further categorizes dairying in the country into intensive, semi-intensive and extensive systems.

Small-scale crop and livestock farms may also occur and are located near urban centers using mixed dairy cow breeds (less than ten) (Okwenye, 1994). Milk produced under this system is handled in both plastic and metallic containers, and it is for sale to generate income and home consumption. Milk hygiene is considered vital since the production system is economically viable (Balikowa, 2004). Semi-intensive dairying systems predominate in mid-western, western, Central and parts of eastern Uganda. Farms are small, averaging about 1-2 ha in areas of high human population density and about 4-15 ha in relatively low-density locations. Large semi-intensive farms range from 20 ha to 40 ha of land. It is common to find animals herded, tethered or grazed on hillsides, valley bottoms, and roadsides and on inter-seasonal fallows (Matthewman, 1993).

2.1 The distribution of milk

A 2010 estimate of Ugandan milk production showed that around 1.2 billion liters had been produced by approximately 1.2 million smallholders and 8000 large farms with more than 100 cows. The demand is rising and the total market capacity has seen a remarkable increase over the last 15 years. New dairies with large capacities have been established; this has affected a significant increase in the amount of processed dairy in Uganda. Uganda is an open market where governmental companies are not present. On the other hand, the government does not provide beneficial subsidiary schemes. One of the actors on the dairy market is Uganda Crane Creameries Cooperative Union (UCCCU). It is based in Mbarara in the south western region and is a registered cooperative that is principally owned by 10 District cooperative unions. UCCCU has about 18,000 individual farmers as members, organized in 140 primary cooperative societies. Its major objective is to promote the mutual economic interests of its members in accordance with cooperative principles. Their vision is to be the leading farmer owned provider of dairy products and services in the entire East African region. Through the UCCCU affiliated unions, dairy farmers currently have the capacity to bulk and sale an average of 200,000 liters of fresh milk per day.

The current market, which is predominantly local, has an annual turnover of US$ 5 million. The current main purchaser of UCCCU Raw Milk is Sameer Agriculture and Livestock Limited (SALL), which is Uganda’s main processor. Sameer Agriculture & Livestock(SALL) is Uganda’s leading and the most diversified dairy company, producing extended shelf life and UHT liquid milk, yoghurt, butter, cream, milk powder while also distributing ice cream products from its Kenyan sister company. The dairy leased the former Dairy Corporation of Uganda plant in Kampala, following the liberalization of the sector in 1996 and has invested further in the milk powder and juice plants plus other facilities including cooling centers around the country.

In an effort to bring milk quality to accepted national and international standards, the specific needs farmers have that have been mentioned above require addressing the following: Milking system The milking methods at almost all the member farms are labour intensive and there is a danger that the milk gets contaminated. No milking machines are used due to the fact that the milking is done in various locations and the lack of electricity in the rural areas. Milk has to be transported to collection centres by means of a bicycle. They carry a maximum of 50 litres using a milk can, whereas most farm production is more than that amount.

Collecting centres to access the market, dairy farmers are part of a cold chain from the primary milk collection centres to the bulking centres, numbering 60 coolers and generators owned by SALL. Cooling requires energy, and farmers can only safely deliver quality milk if it is not degraded between the point of milking to the delivery at the collection centre. The equipment used for cooling is under a lease arrangement with unfavorable business terms for the individual farmer. All the collected and chilled milk in the network is currently sold to SALL at UGX 300 (about US$ 0.12). The same litre processed is sold by SALL at UGX 2000, which equals about USD 0.80. In situations when SALL cannot take all the milk, farmers are not supposed to use the collecting equipment to sell to other buyers, and farmers have to pay rent on the machinery and cost of maintenance determined by SALL. The equipment binds the farmer to sell to SALL even when there are other buyers offering better terms of trade. Thus, there is a demand for a better solution for the farmer in terms of new technologies as well as more favourable business models. Some Milk Collecting centres are not on the electric grid and those that are; suffer from an unstable electricity supply.

Driven largely by dairy, the livestock sector has maintained positive growth rates averaging 3% per annum compared to the declining growth rates registered in the food and cash crop sub-sectors.

Development of the value chain in the dairy sector has led to employment creation and income generation not only for about 700,000 dairy farming households, but also for farm input dealers and dairy equipment dealers. Other sections include dairy ingredients dealers, raw milk traders, milk transporters, mini-dairies, large-scale milk processors and distributors. As a result of value addition, there has been an increase in the milk farm-gate prices from an average of sh450 to sh800 per litre.

In 2013, the value and quantity of milk and dairy exports is expected to be $12.1m, a rise from $11.5m in 2012, and $3.4m in 2011.While milk production has improved, and the biggest percentage goes unprocessed. Only 20% of the country’s milk output is processed. Local farmers, however, are getting together in their groups to process the milk. With the increase of small and medium-size dairy farming, and the long-standing ban on importation of dairy animals, the demand for good quality dairy stock has greatly increased over the last decade.

Currently, the demand for high grade in-calf heifers is more than the supply and hence prices of quality breeding animals are high. Of the milk produced, 70% is marketed and 30% is consumed at the farm level. The country is among the few low-cost producers of milk in the world. Uganda’s dairy sector has registered commendable growth averaging eight to 10% since 1991.

According to state minister for animal husbandry, Bright Rwamirama, the country’s daily milk processing capacity has raised from 869,800 litres, to 1,329, 180 litres per day. There are 38 milk processing plants in the country, including the newest Pearl Dairy Farm located in Mbarara. Rwamirama says there are four other milk processing factories that are set to open up in the country with a total milk processing capacity of 855,000 litres.

Extensive systems include pastoralism in drier districts or regions of the country; milk is produced from cattle which are herded around the village on communal land. Pastoralism is an important way of life in dry areas, where cattle owners are often transhumant. Milk contributes to subsistence food supplies in this system (Matthewman, 1993). Pastoral farms have large numbers of indigenous stock (greater than 50), grazing in coarse pasture throughout the year and milked twice a day. No supplementary feeding is provided (Okwenye, 1994).

Pastoral farms are managed with large numbers of indigenous stock (greater than 50), grazing in coarse pasture throughout the year and milked twice a day also exist and have no supplementary feeding, (Matthewman, 1993). Pastoralism is an important way of life in dry areas, where cattle owners are often transhumant. This system is dying out in the cattle corridor of Uganda and milk contributes to subsistence food supplies, (Matthewman, 1993). The majority of the cattle population (65.4%) in this area is confined to a narrow area stretching from northeast (e.g., Kotido District), through central (e.g., Nakasongola District) to southwest Uganda (e.g., Rakai and Ntungamo Districts) (MAAIF, 2010). This area is semi-arid, experiences a low incidence of tsetse fly infestation and has suitable climatic conditions that make it conducive to cattle rearing. Milk under extensive (pastoral) systems in Uganda is produced under questionable hygienic conditions and is handled in plastic, metallic and wooden containers that compromise its quality (FAO, 1990). Also under these systems calves are allowed to suckle before milking to induce milk flow and calm down the animal (Kurwijila, 1989).

Milk production and the dairy industry

Dairy production is a major contributor towards national economies and household food security and incomes in SSA, in spite of contributing a mere 2% toward the global milk production (FAO, 1998). Milk production in the region is estimated at 1.27 million metric tons/year. However, this level of milk production is inadequate for the existing human population who would require 103 million metric tons/year (Mubiru et al, 2007). Milk production in the tropics is changing from subsistence level to market oriented supply in order to produce additional income for the household (Chamberlain, 1989).

Milk production in the country takes place in regions referred to as milk shades (regions with high concentration of dairy animals) and these areas extend from just below 1° latitude in the north to Kabale in the south and from Mbale in the east to Kabarole in the west (FAO, 1992; Okwenye, 1994). Uganda is divided into five milk regions/sheds; southwestern, central, western, northern, and eastern. There are differences in the milk sheds in terms of the economic importance of the dairy industry to the region, herd population and production levels, farm size, grazing systems, practices, and cattle breeds used for milk production (Vikas et al, 2011). Karamoja zone is sometimes referred to as a separate milk shade (UBOS, 2009; DDA (2011).

Uganda‟s annual milk production was estimated at 1.5billion litres in 2010 representing an increment of 3% from 2009, of the 1.5 billion litres produced annually 30% is retained at the farms and only 1.05bn litres is commercially traded and of which 90% is marketed unprocessed as raw milk (Kahuta, G. (2013). Yearly milk consumption has improved in Uganda up to 50lt per person, providing the 1.5 billion liter milk industry with new market heights (DDA, 2011). However, the milk produced only meets approximately 20% of the population’s nutritional requirements and as such, methods need to be sought to increase milk production in the region (DDA, 2011).

In Uganda there are a total of 11 unions and 378 dairy cooperatives in the five milk sheds increasing market access for smallholder and commercial dairy farmers (DDA, 2011). Milk coolers (628) with a total capacity of about 1,183,761 litres per day have been installed for milk bulking and milk retailing across the country (DDA, 2011). Raw milk is transported by insulated milk road tankers from the bulking centers to processing plants and other urban milk retailing outlets to ensure that the cold chain is maintained (DDA, 2009). There are 7 large scale milk processing plants with installed capacity above 5,000 litres per day and many small-scale milk processing plants. Uganda is producing and marketing a range of dairy products such as pasteurized milk, UHT milk, yoghurt, ice cream, sour butter, sweet cream, ghee and cheese (DDA, 2011). Only 10-20% of the milk produced in Uganda is processed; the rest is handled through the informal markets which deal in raw milk and this is prone to spoilage (DDA, 2009).

In Uganda, the raw milk market is organized into two steps; the first step traders get the milk from farms and sell it to second traders, processors or directly to consumers and in the second step, traders then sell it to big processors or cool it and sell to consumers directly (Mbabazi, 2005).

FAO (1996) indicates that in Uganda 27% of the milk produced is wasted or lost; with 10% lost to spoilage during transportation, 11% during handling and marketing, while 6% is lost at farm level which translates into significant loss to the industry. Ninety (90) percent of the milk produced in Uganda is marketed in its raw form, and this milk is handled by middlemen at different levels of the value chain (Twinamatsiko, 2001); it is, however, important that the consumer should eventually end up with a qualitative wholesome product.

Driven largely by dairy, the livestock sector has maintained positive growth rates averaging 3% per annum compared to the declining growth rates registered in the food and cash crop sub-sectors.

Uganda’s dairy production is largely dominated by small-scale farmers, who own over 90% of the national cattle population. These small-scale farmers are In rural areas, where 96% of the poor Ugandan live, about 60% of households keep mostly indigenous cattle, as seen in the ‘cattle corridor’ zone. National milk production stood at 1.8 billion in July 2012, according to the Dairy Development Authority (DDA).

METHODOLOGY.

3.1. Introduction

This chapter presents and discusses the methodology used in the study.

3.2. Data and its source.

The study utilized a secondary univariate time series data set from Sameer Dairy Company on litters of milk produced monthly from January 2015 to December 2016 in (000) litters.

3.3. Data analysis.

Trend Examination.

A time plot for the data was used to examine the trend of milk production in Uganda. It involved plotting the series against the time variable.

Stationarity test

Test for stationarity was conducted the Augmented Dickey Fuller unit root test and examination of the correlogram plot for the series.

ARIMA model estimation.

Model estimation and diagnostic testing were conducted to fit and select the best model to be used in the forecast of milk production in the country. The partial correlogram and the correlogram plots of the stationary series were used to estimate the p part for the Autoregressive (AR) process and the q part for the Moving Average (MA) process respectively.

Forecasting.

Using the selected model, a 12 months forecast for 2017 was made for milk to be produced in (000) litters.

Research consultancy