Abstract:
The overall objective of the study was to analyse the institutions and cost efficiency along the formal and informal milk value chains in Bagamoyo district. The specific objectives were to: (i) identify the institutional constraints in the formal and informal milk value chains, (ii) analyse the cost added efficiency in the formal milk handling and processing, (iii) analyse the producer cost efficiency in the formal and informal milk value chains and, (iv) analyse the factors that affect farm cost inefficiency in the formal and informal milk chains. The data for the study were collected from 167 milk producers, 31 traders, 4 collection centres, 3 processors and 3 regulatory bodies. Institutional constraints were analysed from Transaction Cost Economics paradigm (TCE). Cost added efficiency was identified by comparing added cost per litre of milk handled across collection centres, processor, and retailers. Translog cost frontier was used for farm level efficiency analysis. Transaction costs were attributed by incomplete contracts, milk handling and market structure. Added costs along the formal chain significantly varied among collectors, processors and retailers (p < 0.10). Output elasticity and cost elasticities due to feeds and labour significantly affected the total cost of milk production (p < 0.05). Farmers in the formal and informal chain had efficiency level high above the frontier. The inefficiency of farmers in the formal and informal chain was significantly affected by household’s age, education, household size, number of cows in milk and breed type (p < 0.05). The study concludes that there are high transaction costs caused by spoilage and incomplete contracts and cost inefficiencies constraining dairy development in Bagamoyo. It is recommended to provide education to illiterate and young farmers on dairy best practices. Devising proper input use and formulate policies that will transform households from local to improved dairy cattle keeping.
