A dairy farmers’ cash in hand

Josephine has a farm in the highlands near Eldoret, Kenya. Every morning, she wakes up early, milks the cows and takes the milk to the cooperative meeting point. From there, someone takes it to the cooperative, while Josephine returns to continue with her other chores at the farm and at home. Each month, around the 10th, the cooperative pays her for the previous month’s milk; she sets this money aside to pay for school fees, fertilizer and other lump-sum or irregular expenditures. Money is tight, so she commits herself to delivering milk to the cooperative every day, saving bit by bit.

One morning, she wakes up and her daughter is sick. The fever is so high that she has no choice but to take her to the doctor. Unfortunately, there is not enough money in the house to pay the doctor—last week, she paid the school fees, and she does not want to knock on her parents’ door again, begging for money. So she skips her morning routine at the meeting point with the cooperative. Instead, while her daughter is in the hospital, she takes the milk to the market center and sells it there. The market vendors give her cash—not at a price as high as the cooperative’s, but at least she now has some cash to pay the doctor’s bill.

Like Josephine, many dairy farmers in Kenya sell their milk to cooperatives, which in turn sell to milk processing companies. To reduce transaction costs, most cooperatives defer payments until the next month. But what if the farmer needs the money immediately? How does this common predicament affect farmer deliveries to cooperatives? What should cooperatives do to attract more milk: Would it help to pay farmers more frequently, or to provide other services to help them manage their often-complicated financial lives?

Original Article by IFPRI here…