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1.2.6 Conclusions Most of the farmers and processors involved in dairy production in Mantaro Valley already have good opportunities to improve the quantity of their production, since the demand for dairy products is high, especially in urban areas. These improvements would help farmers, especially smallholders, to resist economic shocks. Nevertheless quantity cannot be the only parameter taken into account in an agrofood supply chain based on a perishable and rather chemically complex raw material such as milk.
Improving milk quality represents an important issue that also needs to be tackled, considering the fact that (i) part of the raw milk produced in the area is oriented to urban retailers demanding safe products; (ii) local people involved in dairy production depend on provide good raw milk to ensure a constant income; and (iii) milk quality supplied to processing units affects the quantity of dairy products obtained, processors’ profitability and thereby their viability in the future.
Currently, there is poor milk quality management in the area and little concern in the way smallholders supply raw milk. There is a lack of strict quality controls or payment systems including a quality component except for one collection center from a multinational company which measures acidity, density, and addition of water (cryoscopy test) of milk samples every day for every supplier (farmers and collectors) and includes bonuses and / or penalties according to the result of three quality analyzes of milk total solids, hygienic status and use of a cold chain every 15 days. In this context, alternatives for improving milk quality adapted to the characteristics of dairy production in Mantaro Valley are necessary to avoid possible future exclusions of the stakeholders from more demanding dairy supply chains.
1.3.1. Research questions The simultaneous presence of formal and informal markets in the Peruvian dairy sector has facilitated the inclusion of small-scale farmers in remunerative supply chains and has favored an increase in the demand of raw milk in rural areas. Despite informal and formal markets differing in terms of application of official quality standards, especially sanitary standards, contracts between stakeholders along the supply chain, or public tax charges on transactions, both markets participate in terms of milk quantities processed. This particular situation of the Peruvian dairy sector compared to other countries where the informal sector is predominant or is almost non-existent is also reflected in Mantaro Valley.
Nevertheless due to its originality, little information is available about its complexity and the way smallscale farmer-processor relationships affect the performance of both formal and informal processors when a diversity of markets co-exists. Moreover, improving milk quality can provide higher incomes to small-scale farmers, avoid milk adulteration and poor hygienic management of the milk collected, and give better raw material to dairy processors. There is a need to clearly understand how small-scale farmers and dairy processors may include better management of milk quality on their production
systems. Thus, our study addressed the present research questions:
What are the constraints small-scale farmers and dairy processors face for improving milk quality and the efficiency of a dairy sector, based on a production system with co-existence of formal and informal value chains?
In order to meet this research question, we should answer some sub-questions. The first subquestions attempt to understand the structure of the dairy supply chain and the role of milk quality in the production system. Consequently, it is essential to determine how the dairy supply chain is currently constituted and managed, what are the interactions between small-scale farmers and dairy processors at Mantaro Valley?, and how do the relationships between small farmers and the formal and informal dairy companies influence stakeholders’ decisions to include milk quality controls?.
determine if stakeholders need to improve their production and collecting practices. Hence, it is important to know what is the current status of milk quality in the area and how current stakeholders’ practices regarding milk quality management affect its composition and hygienic quality?
Lastly, supporting small-scale dairy processors interested in improving milk quality could enhance a general improvement of the whole dairy supply chain by developing high value markets but also by rewarding small-scale dairy farmers according to their milk quality. Therefore, it is necessary to recognize what sort of support could help both farmers and processors in improving milk quality management and more generally efficiency of the dairy sector and what is the role of simulation tools in this support process?
1.3.2. Research objectives This PhD dissertation intends to develop an in-depth analysis of the constraints small-scale farmers and dairy processors face in Mantaro Valley, in order to identify potential alternatives for improving milk quality and the efficiency of the dairy sector. The first specific objective of the study is to analyze the characteristics of milk production, milk collection and milk manufacturing in the study area; and identify interactions among stakeholders in a context of a simultaneous presence of formal and informal markets. Clear understanding of these relationships will provide key information about the organization of the dairy supply chain. The second aim is to establish the average values of milk
husbandry/manufactory practices that stakeholders follow during their milk production and collection process. This will generate a deeper knowledge of the factors which prevent stakeholders from achieving high milk quality standards. The third objective is to design and test a simulation tool as an alternative way to support small-scale dairies in improving their economic profitability. This will empower dairy processors to select relevant market orientations and design milk quality payment systems.
located within the provincial parameters of Concepción, were the focal locations of this research because they concentrate the largest number of dairy farmers and processors in the area and because of their increased level of milk production in the last decades (Figure 3).
Figure 3. Location of the three districts included in the present study Source: Google 2014
1.4. Dissertation outline This dissertation document is presented in the form of a publication-based thesis. It includes two volumes (Figure 4): The first volume provides a synthesis of the results obtained during the thesis and is structured in two parts. The first part concerns the results obtained during the present study.
Specific materials and methods sections were included in each result chapter, because of the diversity of methods used. It comprises three chapters: Chapter 2 focused on the interactions between
husbandry/manufacturing practices on milk quality and the effects of introducing milk quality controls based on the use of an ultrasound milk analyzer machine; and Chapter 4 is a comprehensive study of
orientations and milk payment systems. The second part of the manuscript concerns analytical aspects and is structured in two chapters: Chapter 5 deals with the general discussion; and finally Chapter 6 provides a summary of major findings, conclusion and some recommendations.
Figure 4: Diagram showing the structure of the PhD dissertation document presented in the form of a Publicationbased thesis The second volume consists of three scientific articles elaborated from the results of the present study.
They targeted different peer-reviewed academic journals: The first one titled “The impacts of differentiated markets on the relationship between dairy processors and smallholder farmers in the Peruvian Andes” submitted to Agricultural Systems in September 2013 is now definitively published in volume 132, page 145-156, http://link.springer.com/article/10.1007%2Fs11250-014-0658-6#. The second one titled: “Effects of dairy husbandry practices and farm types on raw milk quality collected by different categories of dairy processors in the Peruvian Andes” submitted to Tropical Animal Health
http://www.sciencedirect.com/science/article/pii/S0308521X14001358. The third one titled: “Supporting small-scale dairy plants in selecting market orientations and milk payment systems: A simulation approach” is in the process of being submitted to Computer and Electronics in Agriculture, but a complete draft is already available in this document.
informal dairy companies at Mantaro Valley In the present chapter, we analyze the role of the different stakeholders and their relationships under a context of scarcity of resources, a dual market and high milk demand. Results highlight the fact that the co-existence of formal and informal markets reduces the implementation of formal contracts and favors other types of strategies to ensure a constant supply of raw milk. Milk flows between actors based on a mix of competition and complementarity process. This organization allows smallholder farmers to be included in the dairy sector without making big investments. But this co-existence provides fragility to the whole sector. The formal sector faces difficulties to achieve high milk quality standards and the informal sector has high profits per liter of milk but remains sensitive to State controls. More detail information is available in volume 2 of the present document.
2.1 Materials and methods Data collection was performed between March and July 2012. A preliminary survey assessing the diversity of stakeholders’ businesses and identifying the variables of milk production was conducted in March 2012. Informative questions were posed to three public organizations (Sierra Exportadora, Gobierno Regional de Junín and Pronamach) and 25 dairy processors in order to collect general data related to (i) the average amount of milk produced or collected per day, (ii) the average payment per liter of milk (iii) general perception about milk quality, and (iv) relationships among stakeholders within the supply chain in the area. Then in-depth interviews were conducted over the course of four months from April to July 2012 with three dairy processors (one large, one medium and one small); one milk collection center belonging to a multinational company; one independent milk collector; one farmer association; and at least 5 small-scale dairy farmers per processor from 3 districts of the Mantaro Valley (Concepción, Matahuasi and Apata) in order to collect data regarding interactions between actors along the supply chain, milk quality, milk prices, product quality and current state participation (Annex 1 and Annex 2). Data from two studies conducted in the Mantaro Valley between 2009 and 2011 were used to complement our analysis. The first study, conducted over four months in 2009, aimed to investigate the degree of involvement of small-scale dairy farms in local dairy supply chains.
dairy farms, 12 dairy processors, and support institutions). Data related to the characterization of dairy supply chains were extracted from this analysis. The second study, carried out in 2011, intended to get an overview of the Mantaro dairy sector and determine how the commercialization system involving small-scale producers operates. For this purpose, 146 farmers and 26 dairy processors (including milk collectors) were interviewed using structured questionnaires. This study provides key information about differences in markets in which dairy processors are involved.
Descriptive statistical analyses were performed in SPSS for Windows (version 14.02, © 1989 – 2005) to perform the data analysis. Farms were aggregated qualitatively in homogeneous clusters to classify small, medium and large-scale dairy producers. Using the same process, different types of processors and their channels of commercialization were distinguished. Results of the three studies allowed the completion of cluster descriptions by including interaction characteristics between farmers and processors. A budget simulation tool was developed with Excel 2010 (Microsoft) in order to compare profits per liter of milk between producer and processor clusters. Calculations were performed by taking into account (i) the kind of market which affects the General Sale Tax (GST) recovery (yes for formal; no for informal), (ii) two specialized farm types (small and large farm) targeting both formal or informal markets, (iii) two types of processors (formal and informal, each collecting 700 l/day), (iv) average production costs based on stakeholders’ practices, labor costs, the kind of equipment they
use, (v) milk prices and (vi) GST rate. Calculations were made for one day of activity in two seasons:
rainy (December-April) and dry (May-November). The exercise considered average production costs of dairy farmers for each type of farm, based on the 2009 farm survey. Dairy processors costs were calculated from the average costs of different formal and informal diary processors interviewed in
2012. Milk production at farm level was reduced by 20% during the dry season to simulate the effect of decreases in forage. Costs and products were reduced to one liter of milk and per day, according to the farmers’ daily production of milk, or the processor’s daily production of cheese by using a cheese yield coefficient (based on an average of observations made in 3 dairy plants). These indicators were chosen to allow comparison of economic efficiency between the different types of farmers/processors in the area irrespective of their sizes.
2.2.1. Large diversity of dairy supply chains Milk produced at Mantaro Valley is mainly sold to different types of dairy processors rather than used for self-consumption. Thirteen channels of distribution were identified at Mantaro Valley based on the kind of processor, the kind of product marketed and the kind of market involved (Table 4).