Livestock Research for Rural Development 29 (12) 2017 Guide for preparation of papers LRRD Newsletter

Citation of this paper

Simulating the impact of innovations in smallholder dairying in Zimbabwe

P I Zvinorova, T E Halimani1, R T Mano2, N T Ngongoni1, S Katsande, S M Kagande1 and J Gusha

Department of Paraclinical Veterinary Science, P O M P167, Mt Pleasant, University of Zimbabwe, Zimbabwe
simbarashe46@gmail.com
1 Department of Animal Science, P O M P167, Mt Pleasant, University of Zimbabwe, Zimbabwe
2 Department of Agricultural Economics, P O M P167 Mt Pleasant, University of Zimbabwe, Zimbabwe

Abstract

Viability differences in smallholder dairy farming are a result of differences in access to markets and services. It is hypothesised that innovations that improve productivity and market linkages also improve returns and viability. A study was carried out in Zimbabwe to assess livelihoods implications of proposed innovations on the smallholder farmers of the rural household of Wedza. The viability of smallholder dairying was characterised by interviewing fifty-two households using semi-structured questionnaire. Information on demographics, production, marketing, livestock numbers, assets and constraints was obtained. Farmers were resource-constrained with differences in access to resources. The highly-resourced farmers had higher milk output and numbers of livestock. Almost 40% of the households were female-headed and these dominated the poor category. Household sizes ranged from 4 to 13 persons. Milk off-take was low (3.7 0.53 l/cow /day), due to various constraints. Only wealthy farmers had viable enterprises in purely financial terms. Per l cost of milk was more than selling price (US$0.96) for most farmers except the relatively wealthy. Operating ratios were 1.7, 0.6, 1.4, and 1.1 for the resource constrained, resource endowed, Sub-centre and Milk collection centre (MCC) farmers, respectively. This means incomes from the dairy activities did not cover costs. Sensitivity analysis indicated that increases in total variable costs (TVC) and labour reduced returns. Milk production and viability were influenced by access to resources and markets.

Keywords: mixed crop-livestock production, resource-driven farming systems, sensitivity analysis


Introduction

The livestock industry is challenged by increasing human population land resettlement and urbanisation. However, smallholder dairy production has become increasingly important and it contributes a lot to the improvement of the livelihoods of rural poor people, in terms of food security, income services and other social services. According to McDermott et al. (2010a) smallholders are often more efficient by virtue of being able to leverage household labour and low-cost inputs in production. In south Asia and sub-Saharan Africa, low quality crop residues form the bulk of the ration while in Latin America, grasses and forages are more important as feed sources. Feed scarcity results from the escalating demographic pressure on available land and the rising competition between forage production and other enterprises for land, hence restricting forage production to smaller portions of farmland (Mugerwa et al 2012).

Market oriented smallholder dairy development offers a great opportunity to improve food security and livelihood for the rural majority, for the poor and women. Nevertheless, the transformation of the subsistence oriented dairy production systems to that of productive, market oriented and dynamic systems calls for technological and institutional innovations (Tefera, 2008). Innovations have been reported by Bayemi et al. (2008) to provide positive impacts on farmers, and have spill-over effects to crop farmers as they are inclined to partially venture into dairy. Hence, strategies to improve the nutritional quality of roughages through linkages to strategic supplementation and improved ration formulation are needed. In addition to feed management, a combination of genetic improvement has led to productivity gains of up to 300 percent in smallholder systems in sub- Saharan Africa (McDermott et al 2010b). In order to enhance the market success of smallholder production, organisational farm-to-market links should be improved together with the infrastructure investment.

Despite the fact that many smallholder farming systems in developing countries revolve around the interactions of crop and livestock enterprises, the modeling of these systems using combinations of detailed crop-livestock models is comparatively under-developed. A wide variety of separate crop and livestock models exists, but the nature of crop-livestock interactions, and their importance in smallholder farming systems, makes their integration difficult. In the modeling activity, the most efficient way to proceed depends on the nature of the systems under study and the precise questions that have to be addressed. Profit maximization alone is an inappropriate behavioural assumption when the outcome of production decisions made ex-ante is unknown with certainty. The main objective of this work was to assess livelihoods implication of proposed innovations on the smallholder farmers of the rural household. Data on farm production figures, marketing figures, net income, savings, employment generation, and quality assessment on the wealth status were used to assess the livelihood implications of proposed technologies.


Materials and methods

The study was conducted in Wedza district smallholder area which is located Latitude 1830′00″S Longitude 3128′00″E and altitude of 1457m in Zimbabwe. The area is found is in Natural Region II, which is a prime area for dairy and maize production and is characterized by annual rainfall (600-1000 mm/annum) and a mean annual temperature of 29C. The study area was chosen because it is a prominent dairy farming area where agriculture is the main source of livelihood in the area, but farmers are engaged in other income generating activities. Farmers were involved in both livestock and crop production. The main livestock enterprises were cattle (mainly indigenous), goats, sheep and chickens. The main crops grown were maize, groundnuts, sunflower and soya bean and their residues were used as livestock feed.

Data used were based on both primary and secondary information. The sampling frames for the household surveys were the smallholder farmers from Wedza smallholder dairy scheme. Simple random sampling was used to select a total of fifty-two households, who were interviewed using structured questionnaire to gather cross-sectional input-output data covering the agricultural year. The questionnaire was pre-tested and adapted before use in the research area. Additional information was supplemented with time series data on yields and market price data for the year from the district. Technical coefficients with respect to traditional and proposed inter-crops were developed on the basis of farm survey results and experimental work conducted in Zimbabwe.

A linear programming (LP) model was constructed using LINGO version 12 (2009), to assess the impact of introducing innovations into the existing farming system. Linear programming was widely used for ex ante evaluation of technologies before costly testing on farmers’ fields. An increase in income can be considered as a major incentive to adopt a new technology and LP is an appropriate tool for maximization of income subject to resources and other constraints. To empirically estimate the model, one must know a priori the mean gross margins for each farm activity. A basic linear model was computed to determine a profit maximizing combination of farm enterprises that were feasible with a given set of resources and constraints. This model was then used for comparing results from a range of scenarios, introducing different innovations. The Basic LP model developed in this study was:

where INC is the value of the objective function (income) in net cash income from whole farm enterprises plans (obtained from LP iterations); ɑj Xi is the enterprise gross margins for farm enterprise j (j=1......n); ci ’s are land, labor, herd size and cash capital (budget) constraints; bij ’s are the respective input-output coefficients that capture the level of resource use in the production of enterprise j; and Xj is the jth farm activity level.

The following scenarios/ options were considered:

  1. Raising dairy herd using normal grazing area;
  2. Raising dairy herd supplementing normal grazing with a dairy meal (75% maize + 25% soya bean);
  3. Farmers produce own soya-beans for stock feeds because there is no local market in Wedza;
  4. Farmers have an option of buying soya-meal from the stock feeds stockists; and,
  5. Farmers can feed dairy cows 0 – 10 kg and realize a yield of 3 - 10 l per cow per day.

Basic assumptions that were used, apply for production technology options for smallholder farmers Wedza:

  1. 7 person household with 5 labour units = 5*20*5 = 500 man days;
  2. Family consumption requirement for maize per year = 120*5 = 600 kg;
  3. Average size of cow herd = 5, average total cattle herd size = 15 and,
  4. Farm activities: mixed farming enterprise, dairy, maize, soya bean.


Results

The base model analysed different scenarios where milk prices and level of feed intake were varied so as to assess their effect on production, income and the number of animals which were given the supplement. The objective of the smallholder farming system was to optimise income from both crop and dairy production using different production technologies. The model focused on impact of different supplement feeding rates on income and the effect of price changes on income.

Model specification for scenario 1 increasing daily concentrate feed intake rate per animal.

The current situation is whereby farmers are not providing supplement to their dairy animals, but they are growing soya bean, mainly as a cash crop. Their animals rely on natural grazing as the sole source of feed, with seasonal provision of crop residues, such as maize stover, sunflower, soya bean residues and groundnut tops. This system is flawed with an average smallholder farmer having problems in allocating his resources into different expenses such as household expenses and agricultural activities on his highly constrained budget. Dairy feed in this farming system accounted for 66 % of total input. This model presents a scenario in which a smallholder farmer provides concentrate feeding (soya bean) in varying intake rates per animal in addition to the already existing grazing system. The model shows output which includes the dairy and crop enterprise, how these interact and how the different intake rates affect income levels, and the number of animals which are put in supplementary feeding programmes by individual farmers.

From the base model, where the farmer is not providing supplementary feeding, the farmer realises a profit of US $3181.25 per year. The results from the varying combinations of feeding shows that milk yield and objective value increase with increase in feeding rate. An analysis on the dual prices of the model indicates the effect of a change in a variable on the objective value. In this scenario, a unit change in herd size and soya bean yields has positive effects on the objective value such as US $523.23 and US $989.90 for herd size and soya bean yields respectively, for farmers feeding 1 kg of concentrate. Increased soya bean yields imply that more feeds will be available for feeding and for sales. Results from the model were used to construct Figure 1. The study indicated that for any significant changes to be observed in the objective value, the feeding allowance had to be at least 5 kg.

Milk yield increases with increase in supplementation. A kilogram increase in the feeding rate increased milk yields by 1 l/cow/day and 1.25 reductions in number of animals that needed supplementation. Reduced number of cows in supplementation indicates that other factors other than feed costs were limiting, in this case an additional unit of labor for feeding was having a negative effect on the objective value. The opportunity cost of using additional labor in the dairy enterprise was higher, thus it is better utilised for other activities on-farm. The best feeding practice would be to feed at least 2 kg so as to realise an income of US $4500 per year. Given the existing herd sizes, the best technology would be to improve feed management.

Figure 1. Effect of different intake rates on income and number of cows on supplement feeding

Model specification for scenario 2 that is change in milk price. This model presents a scenario in which milk price changes relative to different market forces. The current situation is characterised by absence of proper quality and standard checks, this compromises the quality of milk and hence this affects the price at which the milk reaches the market. Lack of infrastructure and absence of proper quality checks limit the farmer from fetching premium price for their produce. Due to high transport cost to market, the farmer has no alternative but to sell to Dairiboard Zimbabwe Limited (DZL), at a lower price. The other alternative the farmer has is to sell in local area or nearby towns; this allows the farmer to bargain for slightly better prices. The model shows output which shows the effect of milk price changes on the objective value and number of cows which are put into supplementary feeding.

Milk price changes have both positive and negative effects on the income when the animals are not in supplemented (Table 1). Changes in milk price from US $1 to prices less i.e. US $0.75 per l causes reduction in the objective value to US $2456.25 and even lower when the price is reduced further. However, on increase in milk price, to US $1.50, objective value increases to US $4631.25 and even more when the prices are further increased. Income levels increase further when both feeding rates and milk price are increased. Number of cows put into supplementary feeding decrease with an increase in feeding rates/quantities despite increases in income. Analysis on the dual prices indicated that there is reduced crop production, due to under-utilization of available land due to competition for resources between the crop and dairy enterprise. The effects of opportunity cost of land can be seen in the typical urban to rural continuum and the associated variation in scale of production and level of intensification. Low opportunity cost of land in rural areas is associated with extensive grazing systems and larger herds where cheap land is substituted for labour (Staal et al 2008a). However a unit increase in the crop enterprise hectrage can lead to an increase in the crop enterprise gross margin and hence income. The analyses reveal that budget (cash) was in excess, whereas subsistence needs and small area under food crop cultivation were the most limiting constraints to optimal production at farm level. The other variables are binding and have no significant effect on the objective value.


Discussion

Improved animal feeding increased milk yields and as the feeding pattern was intensified, sustainable milk production was ensured. Feed supply, quality and price relationships are key issues and require sourcing of the main diet components as cheaply as possible, followed by balancing rations and adding supplements to improve performance (McDermott et al 2010a). More intensive cattle management through optimizing use of forages could help reduce the degradation of natural resources and lead to increased incomes for both smallholders and larger cattle farmers (Lentes et al 2010). This does not only guarantee faster and increased returns but can also activate further investment into the production system by the farmers (Olafadehan and Adewumi, 2010). Alternatives for smallholders in improving feed base to animals include use of high yielding grasses, by-products from cropping systems or agro-industries (McDermott et al 2010a); or in improvement of the farm by promoting adequate pasture management (rotational grazing and use of organic and chemical fertilizers), restoration of unproductive pasture and the improvement of maize stover with legume intercrops (Staal et al 2008b).

A unit change in the herd size caused the objective value to increase; this implies that the farmer at the current herd sizes can realize reasonable profit margins by increasing herd size within a given range and also reduce variable cost per animal as the overhead fixed costs will not change much. According to Otto et al. (2007), in countries where production resources are becoming increasingly scarce and global competition is pressing, dairy farms must increase efficiency of resource use and competitiveness. To achieve this, they need to increase ‘biological productivity’ and find economy of scale effects (increase herd size). Reduced number of cows in supplementation indicates that other factors other than feed costs were limiting, in this case an additional unit of labor for feeding was having a negative effect on the objective value. Improved management of a single cow would be better in terms of daily milk yields and income as opposed to having several cows that are managed the same way.

Table 1. Effect of milk price and number of cows kept in supplementary feeding

Feeding
rate/kg

No. of cows
in feed

Income realised per change in milk prices (US$)

$0.50

$0.75

$1.00*

$1.50

$2.00

0

0

1731

2456

3181

4631

6081

1

4.9

2007

3029

4051

6094

8138

2

3.3

2193

3310

4427

6661

8895

3

2.4

2284

3448

4612

6940

9268

4

1.9

2339

3531

4722

7106

9489

5

1.6

2375

3585

4795

7216

9636

*current milk price per l

A shift in the milk price upwards, indicated an increase in returns, however it might require extra investment in equipment which will affect value. Output levels remain tightly constrained by economic conditions, especially those affecting input and output prices and availability of credit. In addition, lack of services for both input access and milk transport to markets also provide less incentive for the farmer to invest in animal supplementation in the absence of milk markets. Proximity to urban centres and the state of physical infrastructure play a major role in successful exploitation of such opportunities. Infrastructure, such as roads, milk collection centre and handling facilities, can largely determine the opportunities for participation in milk production for sale; it partially sets the farm-gate milk price. According to Staal et al. (2008a) research has shown that poor roads can reduce milk prices paid to farmers by 3% for each additional kilometre separating farm and market. To enhance returns, selected smallholders close to likely markets should seek out value-added opportunities, such as processing, i.e. production of ready-to-drink milk and yoghurts, sweetened condensed milk, indigenous products and also processed cheese (Morgan, 2009). This has an effect of almost doubling the price of milk, as observed in countries like China, Mongolia and Philippines. The success of smallholder dairy operations and opportunities for scaling up are influenced by the reduction of transaction costs and high opportunity cost of labor relative to the farm gate price. In Sri Lanka, the break-even ratio of the farm gate price to wages in 2008 was 1:13, implying that the value of 1 l of milk sold at the farm gate equated to only one-thirteenth of local wage rates. However, this discourages intensive dairy farming (Morgan, 2009). Low incomes are experienced by smallholder farmers; this is due to higher production costs and relatively stable milk prices paid by the collusive behaviour of processors. The dispersed farm households have no bargaining power and are unable to negotiate higher prices, so they are obliged to receive the price offered by dairy processing enterprises (Chen et al 2008). Without pro-active policies and investments, smallholders will have much more difficulty in participating in more complex and demanding value chains (McDermott et al 2010b). High returns can be improved by diversification towards market-oriented production for both urban and international markets. Smallholders can be supported to be competitive when vertically integrated livestock food chains develop. In addition, economies of scale are more important for processing, distributing and marketing of livestock products, particularly with enhanced standards for quality and safety are demanded. Such activities often take advantage of new market opportunities created by changes in the socio-economic environment. The modelling technique (LP) can be used to a limited extent because it does not take into account a wider spectrum of biophysical processes including their interactions and feedbacks (Tittonell et al. 2007).

Dairy cattle farming has been cited as the most valued source of livelihood in terms of its profit, dependability and utility (Place et al 2009), with the highest ranked advantage as being milk for home consumption and daily income. In the study, supplementing with soya bean at an inclusion rate of 25 % in the ration (feeding 3 kg of ration per day) increased net returns by 27 %. This agrees with studies by Kiragu et al (2010) who reported that milk yields increased and substantial cash income following the adoption of forage legumes and concentrates to a range of 9 - 28 %. Increasing quantities of supplementary feed led to a 2 % increase in net returns and this reduction agreed with work done by Ameleke et al. (2007), in which further increase in cow pea quantities depressed the net returns. Studies on grain supplementation by Kamal et al. (2009); Herrero and Thornton (2010), indicated that an improved diet with grain concentrates of up to 2 kg DM per animal per day, led to an increase in milk yields of 4.9 l per animal per day. The difference in the returns with and without the new technology constituted the impact on farmers’ livelihoods, through increased incomes and reduction of variable cost, especially labor. Reduction of labor costs allows the farmer to allocate it to other activities on the farm. Any mechanism that reduces transactions costs will promote dairy development and increased commercialization. Increase in milk yields also increases sales to processing companies and MCC, and hence returns. Due to this, the farmers are able to hire labor, acquire inputs and more animals, thus increase herd sizes. A market-oriented approach in milk production helps generate income on a steady basis, which contributes to capital accumulation of resource-poor households, enabling them to invest in education or other productive activities and assets (Staal et al 2008a). In addition to this, increased milk production improves human nutrition and health in the community (consumption effect). These benefits are in agreement with Cabrera et al. (2008), who reported the direct, indirect and induced impacts of dairy farming on smallholder communities. Due to feed supplementation the farmer increases area under cultivation; this implies that there will be more maize for both home, animal consumption and for sales. With intensification, crop-livestock interactions become important as by-products from the livestock enterprise being used as manure in crops and the by-product from the crops (residues) being used as livestock feed. This relationship not only results in cost-savings, it also contributes to sustainable production because of the consequent nutrient cycling. Results from the study of the smallholders indicate that dairying is a profitable route out of poverty, but for this to be effective, technological interventions have to be accompanied by marketing and policy support (Kitalyi et al 2006).


Conclusions and recommendations


Acknowledgements

This study was conducted with the support of the Implementation and Coordination of Agricultural Research and Training (ICART) project financed by Southern Africa Development Committee (SADC)/ European Union (EU). The authors are grateful to the smallholder dairy farmers of the Wedza Dairy Development Scheme for their active participation in the study.


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Received 23 February 2017; Accepted 8 June 2017; Published 1 December 2017

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