Economic analysis of milk quality certification in Rwanda

Abstract

Despite the recent increase in milk production, the quality of the milk along the dairy value chain is still a concern mostly in Sab-Saharan Africa. The Government of Rwanda initiated the “dairy best practices” (DBP) scheme that lays out a set of practices and standards for proper handling of raw milk. The DBP acts as an instrument to enhance the quality and quantity of milk consumed through formal marketing channels, however, it is unclear why, over 60% of milk is still sold through informal marketing channels. Furthermore, the profitability and acceptability of DBP standards among milk producers remain unknown. In addition, there is no evidence of consumers‟ willingness to pay (WTP) for quality milk and this may be a hindrance to producers and other value chain actors who want to comply with quality-related standards. This study sought to fill these gaps by contributing towards the improvement of the formal milk marketing and milk quality certification in Rwanda. The cross-sectional data collected from 384 milk producers and experimental auction data from 386 milk consumers was analysed using various econometric approaches such as translog production frontier, endogenous switching probit model, and random effect Tobit model. The findings showed that milk production was profitable, although, farmers were producing at 13% below the production frontier. Adhering to DBP standards increased the profit efficiency significantly (p<0.05) and it generated higher gross margin (p<0.01) while feed supplement was the key input that significantly increased the profit efficiency. Moreover, the results showed that cooperative membership increased the probability of selling to milk traders and milk collection centres (MCCs) by 3 and 18 percentage points respectively for members of cooperatives along with a negative effect on the choice of other buyers (direct consumers and restaurants) as marketing channel. Finally, the results showed that consumers were willing to pay higher price premiums (22% more) for safe and quality milk and providing safety and quality related information increased consumers‟ WTP by 77% (p<0.05). Based on these results, the government is recommended to introduce measures that would enhance farmers‟ access to quality inputs together with formulation of policies that promote the adoption of DBP standards among smallholder dairy farmers. Furthermore, policies that support easy access to MCCs and enhancement of dairy cooperatives‟ governance will increase cooperative membership rate and access to a better marketing channel that safeguards the quality of milk. These policies should as well promote private sector to invest in upscaling of milk zones and establishment of the milk dispensing machines so that safe and quality milk is easily accessible to consumers.