Analysis of marketing performance of the dairy value chain in Tanga city, Tanzania

Tanzania Journal of Agricultural Sciences (2018) Vol. 17 No. 2, 60-67This study was conducted in Tanga city with the general purpose of analyzing market performance of dairy value chain and specifically to quantify and assess production costs of raw milk and to characterize the market structure, conduct and performance of the milk market. A formal survey was carried out to a random sample of 80 smallholder farmers and 30 milk traders using a questionnaire. Two processors were interviewed using a checklist. Accounting method was used to quantify milk dairy farmers’ production costs whereas dairy market performance was descriptively analyzed within the framework of the Structure-Conduct-Performance (S-C-P) market model. Gross profit margins for the major players (producers, traders and processors) at specific nodes along the dairy value chain were calculated. The average unit cost of production was found to be TSh 550 per litre of raw milk with contributions from labour (45.7%), feeds (19.4%) and dairy operations (e.g. veterinary services) (34.9%). The average production cost per litre (TSh 550) and farm gate price per litre (TSh 580) of raw milk were found to be statistically different at p≤ 0.05 level of significance indicating cost effectiveness of going producer price. Smallholder dairy farmers received gross profit margins of 5.2% and 21.4% in the formal and informal channels respectively while processors and vendors received gross profit margins of 18.8% and 36.1% per litre of milk respectively. Milk traders received higher Gross Profit Margin (GPM) because they sold their milk in informal chains which offer relatively higher prices. Low price for raw milk and limited bargaining power of Tanga Dairy Cooperative Union (TDCU) were revealed as barriers to dairy development in the City. It is recommended that a liberalized marketing system in price setting strategy and producers’ training on production techniques that will improve dairy productivity in the study area