Milk Processing Guide Series
Training Programme for Small Scale Dairy Sector and Dairy Training Institute - Naivasha
TABLES OF CONTENTS
Milk and Milk Products Marketing *
1. Introduction *
2 Marketing *
2.1 What is marketing? *
2.2 The milk marketing channel *
3. Marketing and Pricing of Milk and Milk Products *
4 Marketing Information System and Research *
5 Feasibility Study for Milk Marketing and Processing *
5.1 The essential elements of a feasibility study *
5.2 Guidelines for business plan preparation *
1. Description of the business. *
2. Marketing plan. *
3. Organisation plan *
4. Financial plan *
Appendix 1: A suggested schedule of accounts (Technoserve) *
Until recently the dairy industry in Kenya was characterised by one major processor, the Kenya Co-operative Creameries (KCC). Before liberalisation of the dairy industry in 1992, KCC enjoyed a near monopoly of the Kenya Dairy market. With the emergence of numerous small scale to medium scale dairy processors, the market has become more competitive. In this competitive market, KCC is facing a challenge from the new manufacturers while the new manufactures have to compete first against a well established and large processor like KCC and secondly between themselves for a slice of the same market: the Kenya consumer.
The survival of individual dairy processors will very much depend on how successfully they can win consumer confidence in their products. this calls for knowledge and skills in marketing techniques Most of the newly established small to medium scale dairy processors have very little or no experience in milk marketing.
In order to assist them improve their marketing skills, the training programme for small scale dairy sector under project GOK/FAO/TCP/KEN/6611, has prepared this guide on Milk and Milk products marketing to be used for training and by the private small scale dairy processors. The emphasis is on practical approaches to marketing taking into account the real situation existing in Kenya at the present moment.
Marketing may be defined as "the performance of all business activities involved in the flow of goods and services from the producer to the consumer".
This implies that there are several categories of key players in the marketing chain each with its own vested interests. Consumers want to get what they need at the lowest price possible. producers on the other hand are interested in getting the highest possible return for their milk. Between them, there are market intermediaries or middlemen who perform various marketing functions such as transportation or retailing. Their interest is to make the highest profit possible from their particular business operation.
A study of the milk marketing system in Kenya has shown that there are at least 8 different marketing channels as shown below:
The number of intermediaries involved will have a bearing on both producer and consumer milk prices. The shorter the channel the more likely that the consumer prices will be low and the producer will get a higher return.
A notable omission in the milk marketing channel obtaining in Kenya is the absence of wholesalers. Retailers obtain their dairy products directly from processors.
From the consumer point of view, the shorter the marketing chain, the more likely is the retail price going to be low and affordable. This explains why, following the liberalisation of the dairy industry, direct sales of raw milk from producers to consumers (channel 1) or through hawkers (channel 2) has been on the increase despite the public health risks associated with the consumption of untreated milk and milk products. Milk producers may not necessarily benefit from a short marketing chain i.e. milk processors in channels 5 - 6 may be paying farmers the same price as hawkers. However, farmers sometimes prefer selling milk to hawkers because other factors such as prompt payments and inaccessibility to formal market outlets such as producer co-operatives or lack of near by milk processing factory. The biggest disadvantage of direct milk sales to consumers by hawkers is the total lack of quality control and the frequent rate of adulteration of milk with (dirty) water, which is illegal. An efficient milk marketing chain is one which enable farmers to receive at least 50% of the retail price of milk.
3. Marketing and Pricing of Milk and Milk Products
The price of a product in the market is an important factor influencing consumer demand. Hence to be marketable, a dairy product must be competitively priced. This implies that the costs involved in raw material procurement, processing, packaging, storage, marketing and distribution must be kept as low as possible. generally the price of a dairy product will involve the following costs:
In order to arrive at a realistic costing of a product, all those elements involved at each stage must be carefully calculated on a unit basis. This is known as Cost Accounting. The table below shows some of the essential cost elements:
The cost can be broadly categorised as fixed costs and variable costs. Fixed costs include things like depreciation of equipment and buildings while variable cost include direct expenses such as raw material; marketing expenses; overhead costs [labour and personnel expenses (see Appendix 1 for complete list of expenses1)].
It is important that all the cost elements are included in the calculation of the market value of the product. Overpricing can lead to uncompetitiveness of the product while under pricing can cause financial loss and eventual collapse of the business.
1 Technoserve, 1995. Mala Manual: A Guide for Establishing and Operating Small Scale Enterprises for the Production of Cultured Milk.
4. Marketing Information System and Research
Information is required at all levels in the marketing channel. Before you decided to process and market any dairy product, it is important to know the potential market for each particular product. This is important to enable the processor to know which types and when, where and how much of each product to manufacture and market. It is very crucial because unless goods can be supplied in the right form, place and times, consumers may not be able to buy. This then requires securing and utilising market information.
Marketing information should address the following:
In the absence of comprehensive marketing information system such as is the case in many developing countries it may be necessary for each individual processor or through their organisation to organise the gathering and dissemination of such information. Short market survey and/or Consumer studies are useful tool for gathering such information.
5. Feasibility Study for Milk Marketing and Processing
Before one decides to invest in the business of milk marketing and/or processing one should carry out a feasibility study to establish the economic viability of the planned business. this should include a realistic business plan.
The essential elements of a feasibility study should include:
In planning your business, you must examine four major areas:
Appendix 1: A suggested schedule of accounts (Technoserve)