Edgar E. Twine

Uncertainty in milk production by smallholders in Tanzania and its implications for investment

The study evaluates the impact of risk on enterprises of male, female and young farmers operating in the formal and informal smallholder dairy value chains in Tanzania. It also examines the effect of uncertainty on the decision to invest in milk production in the two value chains. Results indicate that youths in the informal dairy value chain face the greatest level of risk followed by men in the formal value chain, and then men in the informal value chain. Women in both value chains and youths in the formal value chain face relatively low risk. Overall, milk production in the informal value chain is found to be substantially riskier than production in the formal chain. Optimal investment triggers are found to be much larger than the conventional triggers and are sensitive to volatility of returns. The results’ managerial and policy implications for inclusive dairy industry development in Tanzania are highlighted.

Farmers’ preference for bundled input-output markets and implications for adapted dairy hubs in Tanzania – a choice experiment

Dairy business hubs present opportunities for efficiently linking farmers to input and output markets. Yet participation by smallholder dairy farmers in these hubs will only be realized if the hub options are adapted to fit the needs of farmers. In this study we have analyzed preference for dairy business hubs in Tanzania where ILRI is currently implementing adapted hub options. Using survey data from smallholder dairy producers from Tanga and Morogoro and applying the choice experiment method we find significant preference for hub options with higher milk prices and payment for milk on a fortnight rather than cash basis. Farmers also prefer hub options that bundle milk marketing with input provision. For bundled inputs, smallholder dairy farmers prefer hub options that allow payment for such inputs via credit or check-off rather than cash. Our analyses also reveal significant heterogeneity in preference among farmers hence the need for advanced analytical approaches that can handle such heterogeneity. Emerging dairy hubs in Tanzania should be supported to either establish in-house input provision arrangements or to enter into contracts with major agro-input dealers in their environs.

Evaluating Alberta cattle feeders’ loan guarantee program

Purpose - – The purpose of this paper is to evaluate Alberta’s cattle loan guarantee program. It measures the risk premiums on lending that would accrue to banks participating in the program, estimates the value (price) of the loan guarantee, and estimates the interest subsidy provided by the program. Design/methodology/approach - – A cash flow model of cattle feeding is used. The model estimates a measure of risk that is applied to option pricing models to estimate the value of the guarantee. Findings - – Insurance premiums for the credit risk to lenders are 0.20 percent of the value of the loan for the entire feeding period, and 0.41 percent for backgrounding but negligible for finishing. The price of the loan guarantee estimated by the Black-Scholes model is 4.43 percent of the value of the loan and is comparable to prices estimated by the binomial model. The program provides a subsidy rate of 4.58 percent. Research limitations/implications - – Charging a guarantee fee can potentially eliminate the interest subsidy inherent in the program. But this would necessitate determining the impact of the guarantee fee on the additional access to credit that has been achieved through the program. Practical implications - – Different levels of risk for backgrounding and finishing imply different risk premiums on cattle loans. Therefore interest on cattle loans should reflect not only the individual farmer’s risk profile but also the nature of the feeding operation. Originality/value - – This is the first paper to simultaneously estimate risk premiums on cattle feeding loans, the value of the loan guarantee provided by the Alberta Feeder Association Loan Guarantee Program, and the inherent interest subsidy.

Production and Consumption Responses to Policy Interventions in Tanzania's Dairy Industry

ABSTRACT The study uses a partial equilibrium model of Tanzania’s informal dairy value chain to determine the benefits to milk producers and consumers from three policy interventions proposed in the Tanzania Livestock Modernization Initiative (TLMI). Using aggregate time series data to simulate the model, the study finds that from an individual policy perspective, expanding the national herd would produce the largest benefits for producers and consumers; producers would gain over 550 million shillings annually and consumers would gain about 35 shillings per capita. Comparing the other two interventions, consumers would benefit more from a better regulatory environment than from a reduction in cow prices, while producers would benefit more from a reduction in cow prices than from better regulations. If all policies are implemented simultaneously, even greater benefits would be realised; consumer surplus would increase by 85 shillings annually and producer surplus would increase by over one billion shillings in real terms. The results suggest that policy interventions outlined in the TLMI that address supply constraints are critical to developing the country’s dairy industry.