Delivering milk to the masses
Moses Gichuru is a TruTrade franchisee and the Managing Director of Bonde Soko Services, based in Nakuru, Kenya. In 2015 Moses tested the market to source milk from small-scale dairy farmers and to supply hygienic quality milk to low-income urban consumers in the Base of the Pyramid Markets (BOP).
On average, dairy farmers in the Kangema region own two cows that produce roughly eight liters per day. These farmers sell their excess milk to brokers, who generally exploit them by providing minimal payment, as most farmers don’t have access to refrigeration, it gives the milk a shelf life of one day and leaves them with little choice. On average, farmers are paid $0.30/liter, giving them an average daily income of $1.50.
For low-income urban consumers, they only purchase what they can afford each day, which is usually ¼ liter in the morning and ¼ liter in the afternoon, due to lack of refrigeration and income. For these BOP consumers, the milk they buy is often filled in unhygienic containers and because of a lack of cold storage, is frequently mixed with preserving chemicals such as hydrogen peroxide, a practice which is both illegal and unsafe.
“My company, Bonde Soko, decided to target these dairy farmers and the urban BOP consumers in order to provide better prices for the farmers and higher quality milk for consumers. As a TruTrade franchisee we have trained dairy farmers in TSS (Transaction Security Services), which is our fair trade business model. With this partnership, TSS agents were stationed at collection areas near the farmers to purchase milk, transport it to be pasteurized, and then delivered it to vendors and outlets in BOP urban areas”.
After the two-month trial, it was apparent that there were challenges. One of the first challenges was gaining the trust of dairy farmers, since they were consistently being exploited. It took over a month for 150-200 farmers to sell to TSS agents. A few weeks into the trial, farmers saw how TSS agents were buying milk every day for higher prices than the brokers. Slowly, farmers began to realize the benefits of the TSS system – which offered both higher prices and certainty of off-take – and supplies began to become more reliable and predictable.
TruTrade found that Bonde Soko was not breaking even, because of the slow build-out of the farmer network and the costs of transportation and pasteurization. “We could sell the milk more cheaply than consumers could purchase it in supermarkets, but it was still too expensive for BOP consumers”. Bonde Soko then decided to work with James Weru, another TruTrade franchisee and the manager of Fair Trade Enterprises (FTE). The plan is that together we can procure enough milk, and scale-up our operation in pasteurization and distribution to markets.
With support from TruTrade’s business mentoring system, we know that the way to build this milk business is to attract investment to scale-up the number of farmers and volume of product to reach the BOP consumers. Bonde Soko plans on targeting 5,000 farmers and supplying 25,000 liters/day to markets through BOP vendors to meet this target.