Investment opportunities in Afghan Dairy & Livestock

Investment opportunities in Afghan Dairy & Livestock Research, Planning and Policy Directorate, August, 2013 Author: Abdul Samad Katawazy

The views expressed in this paper are those of the author and do not necessarily reflect the official position of AISA (Afghanistan Investment Support Agency) any content in this paper to be reproduced with the consent of AISA only. 2

Acknowledgement: The research paper reflects the work, ideas and generosity of many individuals and organizations both private and public and NGO s. I offer my special gratitude to Kandahar Dairy Association, Dairy Producers, and UN-FAO, Central Statistics Office, Ministry of Agriculture and AISA regional offices. I also would like to thank AISA s CEO his Excellency Wafiullah Iftikhar, Vice President on Investment Mr. Ibrahim Shams and Director of Research Plan and Policy Mr. Junaidullah Shahrani along with Mr. Abdullah Ludeen the Research Manager for their continuous support. In the meantime, I should express my appreciation to all colleagues in our directorate specially those who provided insightful comments and guidance throughout this study. Mr.Ahmad Zaki, Mr.Hanif Rostam, Dr.Fazal Rabi, who worked with me throughout this research in data collection, conducting surveys, on site and provincial visits. Last but not least, I am grateful of Syed Mabobuullah Rabani who also spent his valuable time proof reading this research paper. About the Author: Abdul Samad Katawazy is a Research Specialist in Afghanistan Investment Support Agency; His recent works include a comprehensive paper on Afghan Saffron, compilation of provincial profiles on all 34 provinces of Afghanistan. He has also assisted as Research officer in the following papers, Comprehensive study paper on Marble industry, Total fixed investment in Afghanistan, Developing a policy paper on tax free zones, Recommendation on Increasing tariffs on selected sectors, and many other works. If you may have any inquiries please do not hesitate to contact him at samad@aisa.org.af / katawazy@live.com. AISA: Afghanistan Investment Support Agency began as an agency that provides licenses to companies wishing to invest in Afghanistan. "AISA has now evolved into a pro-active institution on promoting and attracting investment to Afghanistan. Our Vision: is to become a world-class investment promotion and support agency by ensuring a business-friendly environment for private sector development and thereby robust and sustainable economic growth in Afghanistan. Our mission: is to create sustainable enterprise development particularly small and medium by providing quality services to investors, facilitating cross border partnerships, advocating business enabling measures & reforms and by promoting Afghanistan as an attractive business and investment destination proactively. 3

Table of Contents Abbreviations and Glossary... 5 Introduction... 6 Methodology... 7 Chapter 1:... 8 Trends in Dairy Supply Chain... 8 Production... 9 Graph: Estimate of total milk production in Afghanistan... 10 Collection... 11 Graph: Dairy Unions milk Collection data since 2005 Graph: Dairy Unions Processing (2012)... 12 Preserving Quality... 13 Processing... 13 Marketing... 13 Chapter 2: Livestock... 15 Cattle production through Artificial Insemination... 16 Improvement of animal health to ensure good milk production:... 17 Improvement of the feed base for dairy cows:... 17 Cattle Housing and management... 18 Cattle Origin... 18 Costs... 18 Production... 18 Chapter 3: Market Analysis... 19 Investment Opportunities... 20 SWOT Analysis... 25 Chapter 4: 28 Recommendation and Conclusions... 28 Recommendations... 29 Challenges... 30 Conclusions... 30 Appendix... 32 Appendix 1: Institutional Structure of Dairy Union... 32 4

Abbreviations and Glossary Abbreviations AI - Artificial Insemination FAO - Food and Agricultural Organization HLP - Horticulture and Livestock Project MAIL - Ministry of Agriculture, Irrigation and Livestock MCC - Milk Collection Centre CSO Central Statistics Office MCP - Milk Collection Point MPA - Milk Producers Association MPD - Mountain Pasture Dairy MPU - Milk Producers Union NGO - Non-Governmental Organization USAID - United States Agency for International Development UHTP - Ultra-high-temperature processing UHT - Ultra-High Temperature UMB - Urea-Molasses Bloc VFU - Veterinary Field Unit HF - Holstein Friesian Glossary Mast-Yoghurt Doogh - fermented milk drink Chhaka - Quarg Paneer - Soft Cheese Quroot - Dried product on the basis of sour yogurt and wheat flour Maska - Ghee 5

Introduction Afghanistan is traditionally agriculture based country and the country was self-sufficient of livestock and dairy in the past. However, with rapidly growing population, it now depends mostly on foreign imports. It is due to decades of war, limited industrialization and unorganized supply chain systems. The dairy products that afghan consumers prefer are mainly cream, yoghurt, fermented milk drink, quark and soft-cheese. Particularly milk and those products are consumed more for breakfast in winter season. This paper is based on the dairy production, processing and livestock in Afghanistan with main focus on the following areas: Increase consumable and saleable products from cattle production Increase levels in milk production and the potential to increase income for farmers by live stock and dairy development through an enhanced supply chain Developing processing and marketing structures for milk and dairy products with an integrated approach covering production, collection, processing and marketing of milk Assist with the development of policies and strategies by providing suggestions and recommendations for the dairy and live stock sectors While writing this paper, visits were paid to various organizations mostly involved in dairy development, including the United Nations Food and Agriculture Organization "UN-FAO", dairy processing plants, collection centers, processing and trading centers in Kabul, Herat, Kandahar, Mazar-I-Shariff and Kunduz; it provided us a very useful picture of general conditions and the needs of structural dairy development. Given this, it helped us assess the options for sustainable development and provide suggestions to increase local milk & live stock production. As well, it reduces the imports of dairy products by improving living standards of farming community and local business owners. Besides, other useful information and reports were received which formed the basis for an understanding of conditions and opportunities to develop milk production and processing facility in Afghanistan. 6

Methodology Throughout this research we have collected both qualitative and quantitative data; we mainly relied on primary research through field surveys, and on secondary research from previous studies and reports in areas mentioned below. For field surveys, we have visited milk processing units and milk production sites in Kabul, Mazar-e Sharif, Heart and Kunduz province. And the Data were gathered through face to face Interviews and discussions with milk traders, farmers, middlemen, wholesalers, retailers and Unions. Furthermore, Afghan government organizations were another main source of information. To find out how much further the Afghan milk industry has the potential for growth in terms of value addition and employment opportunities. We have gathered the required information and arranged them in conclusive manner by highlighting the key lessons learned and recommendations made. 7

Chapter 1 Trends in Dairy Supply Chain 8

Production The efficient production of milk under good hygienic condition is the key to successful dairying. The principal constraints in Afghanistan are small holder systems in which they have inadequate feeding, low genetic potential in animals and high levels of bacterial contamination leading to spoilage before reaching the market. 1 The first step to produce good quality milk from healthy animals is about giving advice and assistance to have a clean process of milk production which is essential for successful collection and marketing. To do so, the containers used must be suitable for effective cleaning and sanitizing. The emphasis in this stage is mainly on production of clean milk through hygienic practices at milking. These include: inspection, cleaning and stimulation of flow, effective milking by hand (or machine for larger herds) into properly sanitized containers for home consumption or sale; and organized transport of surpluses to point of sale or processing. Collection and transport must be short of duration to minimize spoilage. 1600 1400 1200 1000 800 600 400 200 0 Total Milk Production ( Thousand Tons) Cow Milk Goat Milk Camel Milk Sheep Milk Total Milk Production ( Thousand Tons) 2013-13 (1391) Total Milk Production ( Thousand Tons) 2011-12 (1390) Total Milk Production ( Thousand Tons) 2010-11 (1389) In the illustration provided below shows the growth trend in cow, goat, camel and sheep milk production, growth can clearly be noticed is last three years, according to Afghanistan statistical year book. As milk is a major source of protein in Afghanistan, the government has given it a high priority to the development of this sector in which the yield has increased significantly. An integrated approach will be followed in future which is already practiced by MAIL, UN FAO and other supporting NGO s to ensure long lasting achievements. 1 Afghanistan Statistical Year Book 9

Graph: Estimate of total milk production in Afghanistan 350000 300000 250000 200000 150000 100000 / 50000 0 Ewe Cow / / Goat Kabul /کا بل Parwan /پروان Logar /لوگر Balkh /بلخ Bamyan /باميان Badakhshan /بدخشا ن Takhar /تخار Baghlan /بغال ن Paktiya /پکتيا Paktika /پکتيکا Jawzi Jan /جوزجان Khost /خو ست Zabul /زابل Samangan /سمنگان Sar-e-Pul /سر پل Ghazni /غز نی Ghowre /غو ر Farah /فراه Faryab /فاريا ب Orozgan /ارزگا ن Kapisa /کا پيسا Kunar /کنر ھا Kunduz /کند ز Badghis /باغيس Laghman /لغما ن Nangarhar /ننگرھار Nimroaz /نميروز Noriistan /نورستا ن Wardak /وردک Kandahar /کند ھار Hirat /ھرا ت Hilmand /ھلمند Daikundi /دايکند ی Pajshir /پنجشير Axis Title The illustration above shows that estimates of milk production throughout Afghanistan, where most of the milk is produced in the rural areas and very limited in urban areas, this also shows how important it is to have proper supply chain within the rural areas so that we may have proper milk collection facilities in order to maximize consumptions of local milk produced through MCC s. Cow milk is found throughout Afghanistan with the greatest production, Eve milk has the second largest production while goat milk is also found in most areas. NOTE: There is 8000 (TON) of camel production in addition to the total milk produced in Afghanistan. i Afghanistan Central Statistics office (CSO) Based on estimates 10 گوسفند گاو بز Axis Title

Collection Most of the milk in Afghanistan is produced by smallholders with less than 5 animals, their production units are widely dispersed in rural areas while most markets are located in urban areas. The logistical challenge of linking these producers with the markets is compounded by the highly perishable nature of milk and its potential to transmit zoometric diseases. As well as trading milk in most areas is even considered shameful, and is known as a disgrace. The traditional way of processing surplus milk in remote areas is the production of Quroot a dried product on the basis of sour yogurt and wheat flour, and Maska (ghee) which are both non perishable products in distinct to the highly perishable nature of milk Collection systems vary according to the prevailing condition and the first step might be a simple collection point with shade provided to minimize temperature rise. In most villages there is some form of small scale milk processing by farmers and traders where the milk is brought, Figure A 1.1 provided above is an average module of a dairy collection scheme applied in Afghanistan. Taking into account the best cattle management, cattle owners increase milk production through breeding, keeping the cattle in good health, good housing and feeding. after milking the animals it will be taken to the Milk collection center, which is then carried to a local community dairy plant, and then the finalized products is taken to the retail store for sales purpose. Experience has proven that organization of producers' groups can facilitate improved milk collection and transportation. It s because the transport by individual producers of small quantities is not viable. Agreement must be reached on procedures for paying individual producers and ensuring that the quality of the bulk milk is not jeopardized by consignment which have deteriorated or have been adulterated. The illustrations provided below provides a detailed picture of both dairy unions processing and data on dairy unions milk collection centers, where positive trend is highly visible, thus such activities should be supported by MAIL and it further provide capacity bulling trainings to increase capacity. 11

Graph: Dairy Unions milk Collection data since 2005 Graph: Dairy Unions Processing (2012) 40000 2500 35000 2000 Axis Title 30000 25000 20000 15000 10000 مقدار جمع آوری شير به ليتر Milk Collected Milk قميت فی ليتر شير به افغانی Price/literAfs پرداخت قميت شير به مالداران Paid Price of milk to farmers Million Afs قميت پرداخت ساالنه شيرمازادفی مالداربه Annual Income Axis Title 1500 1000 500 0 Kabul Dairy Union Kabul Kunduz Dairy Union Balkh Dairy Union Herat Dairy Union Khatiz Dairy Union Nangarh ar province 5000 0 قميت پرداخت مالداربه income ساالنه شيرمازادفی دالر($) Annual 1 Total Members 950 450 650 2104 1500 Dairy processing plant (Mt/day) Animal Feed Processing plant (Mt/day) 5 2 3 4 5 2 5 5 10 20 20 20 25 15 Staff employed 75 60 78 36 23 Axis Title Primary Coops 12 District Unions 4 7 7 11 17 2 2 3 5 2 2 UN FAO, Statistics 12

Preserving Quality Milk, as it emerges from a healthy udder, contains very few bacteria. In addition, the natural inhibitory systems in milk prevent significant rises in counts for the first 3 or 4 hours at ambient temperatures. Cooling within this period to 4 o C, maintains the original quality of milk, as this is the method of choice for ensuring good quality milk for processing and consumption. This approach is not always feasible in Afghanistan due to unavailability of electricity in rural areas and a number of options have to be considered in order to lower temperature and/or retard growth of spoilage organisms. Partial immersion of milk containers in streams may be an option in some mountainous areas. Other methods applied are evaporative; cooling by placing a moist cloth over the metal milk container may also help to reduce temperature. Solar powered cooling systems and charcoal coolers have met with limited success, using evaporation from porous charcoal in an outer ring surrounding the milk container. Processing Primary objective of processing milk is to extend shelf life and eliminate the risk of pathogens. Heat treatment is the most common processing technique and pasteurization destroys the most heat resistant pathogen, M. tuberculosis. Other techniques such as fermentation, cheese making, concentration and dehydration, usually incorporate a heat treatment step. Most of the milk processed in developing countries is handled in small scale, processing units in pouch processing eliminates the risk of post pasteurization contamination and gives long shelf life. Adding value is another very important aspect of milk processing. It contributes to increase farmers' income and food security in rural community and marketing. Marketing The marketing of surplus milk to family and farm needs improves farm income, creates employment in processing, marketing and distribution. And it adds value and contributes to food security in rural communities. Marketing of milk is particularly difficult for small-scale producers scattered in rural areas throughout the developing world. The logistics of moving small quantities of a perishable commodity are covered in collection but the marketing aspects require organizational and technical skills and an understanding of quality and safety issues. The choice of product and 13

technologies must be suited to the scale and location of the operation, while the price, promotion and packaging must meet local requirements. In urban markets of developing countries, the sale of raw milk by informal traders is the most important outlet for milk but the associated health risks must be addressed and steps must be taken to minimize that risk. 14

Chapter 2 Livestock 15

Livestock Livestock keeping is an important element of the Afghanistan economy both for home consumption and for sale of products. Recent investigations by the FAO program have shown that for a large proportion of the rural population, cattle are the most important animal species that increased milk production both for sale and home consumption, As it can be seen an important development opportunity by many farmers. With increasing number of the population and growing percentages of income in cities, there is a rising demand for livestock products which offers a good od opportunity to invest into the sector to produce for the urban markets. This can primarily be achieved by increasing animal productivity through better feeding and management, improved genetic potential of the cattle and better animal health. The strong internal demand for the products provides a good basis for a viable commercial dairy sector. Crop production and animal husbandry are interdependent in the mixed farming systems of the country. Livestock are very important to the economy and perform multiple functions including provision of food, nutrition, income, savings, draft power, manure, transport and other social and cultural functions. Cattle production through Artificial Insemination Cattle production is mainly done for the improvement of the genetic potential of the dairy cows by the means of artificial insemination, as government and various other NGO s supports this procedure, some of the major achievements of Artificial insemination (AI) by MAIL are as following: Total 94,083 cows are inseminated of which 52,068 cows were followed up for pregnancy test; (37,045 pregnant and 15,023 non pregnant), thus the pregnancy rate stands at 71.15%. Inseminated Cows Pregnenet Non Pregnant 29% 71% 14,764 cows referred red to local VFUs for treatment, 13,361 inseminated cows returned which makes returned rate 12.84%. 16

Improvement of animal health to ensure good milk production: MAIL and various other NGO s regularly hold vaccination campaigns against infectious diseases. foot and mouth disease are specially carried out for all dairy cattle, preventive measures and training programs are organized in order to assist member farmers to reduce the impact of infectious and non-infectious disease in their dairy cattle herds. Monitoring activities and active control/surveillance of the dairy cattle of the member farmers for zoonosis have undertaken by the union veterinarians, according to sampling testing in dairy unions, the following results were found in which according to our survey 80% of the farmers said yes when asked, if they will get rid of the cattle and sell them when they get ill. While 60 percent also said they sell them when they get weak, and 50% said they sell them when their milk production is low, with 20% only responded yes if they would sell health and highly productive cows. Diseases Percentage of treated Cattle Average% Mastitis 3 Infectious Disease 4.07 Metabolic disease 0.67 Reproductive System disease 11.4 Internal parasite 23.33 Blood parasite 2.87 External parasite 31.53 Respiratory system diseases 3.08 Abortion 0.32 Surgical cases 2.27 Mineral Deficiency 6.14 Other diseases 11.32 Total 100 Diseases 35 30 25 20 15 10 5 0 Mastitis Infectious Disease Metabolic disease Reproductive System Internal parasite Blood parasite External parasite Respiratory system Abortion Surgical cases Mineral Deficiency Other diseases Average% Improvement of the feed base for dairy cows: Fodder crops seeds are given to farmers through MAIL, on regular basis in order to make sure that supply dairy farmers continued to be assisted through cultivation of improved fodder crops and supply of concentrate and mineral feeds. 17

Most of the farmers feed cattle with Konjara, Corns, as well as H2 formula which are widely distributed by NGOs. Also, fourteen different mixture of foodstuff can be found in the market which is well known among farmers. Cattle Housing and management Afghanistan having diverse seasons though out the country cattle housing which are found most suitable are semi-open barns. Animals are divided in most farms by their age in to the categories of months 3 and under, 3 to 5, 5 to 8 and 8 and over. Cattle Origin Cattle which have given positive results in Afghanistan like environment are cattle of Israel origin which are mostly preferred, Canadian, Irani and Pakistani. While locally Herat and Kandahar cattle are given high preference. Costs Average costs incurred per cattle on daily basis according to our survey is 132 AFS, these costs includes food costs Production An average cow produces 20 liters of milk per day, most of the farmers keep the milk in barrels of size 50 liters and then shipped in the same barrels to the destination. 18

Chapter 3 Market Analysis 19

Investment Opportunities Cattle industry remains a large industry. Since Afghanistan is Agriculture based country where larger proportion of the population lives in rural areas, do agriculture, raise cattle s for a living. The figures provided are an estimate and may not represent the true picture of the mentioned sectors; however it does provide a extensive idea on investment opportunities in both dairy and live stock sectors. Machinery / Plants Dairy sector in Afghanistan still applies the traditional methods with limited use of machinery. Those who are looking for investment opportunities in Afghanistan there is a huge investment chance in industrializing this sector. Installing and processing facilities in major cities such as Mazar-e-Sharif, heart, Kandahar, Nangarhar and Kabul could be a good example of those opportunities. Laboratories In order to maintain a superior quality and compete against imports there is also a need for standard laboratories where the products are to be tested. Also, in order to improve quality we have to have research and development. The research and development laboratories can be used for multipurpose however currently there are no such laboratories found in which the sector is highly demanding it. Packaging With industrialized processing facilities there also emerges an opportunity for standardized packaging, when filled with ultra-heat treated (UHT) foodstuffs like milk, the aseptic packages can be preserved without chilling for up to one year. The distribution and storage cost, as well as the environmental impact is greatly reduced and product shelf life expanded, which is highly recommended for Afghanistan like environment. 20

Cattle Production Live stock Production Looking at cattle production trend, we see an increase in the past four years. As it seems, the given trend remains the same and we will be self sufficient in somewhere in the future. as well as it is good news for the processing industries that they will have sufficient supply in order to meet the local demand. 3 Meat Production Total Estimate of Cattle Production (Units) 5673000 5524000 4745000 4721000 2008 2009 2010 2011 Year Total Meat Production ( Thousand Tons) 160 140 120 100 80 60 40 20 0 Beef and Baffalo Game Goat Mutton and Lamb Camel Chicken Total Meat Production ( Thousand Tons) 2013-13 (1391) Total Meat Production ( Thousand Tons) 2011-12 (1390) Total Meat Production ( Thousand Tons) 2010-11 (1389) According to the CSO estimate, meat industry has also been doing really well, main meats are found as beef and buffalo, Game, Goat, Mutton and Lamb, Camel and Chicken. Meats generally consumed are Mutton and Lamb, Beef and Buffalo, and Chicken. More to the point, we have not yet been self sufficient in our consumption and we are highly depending on imports from Pakistan. However, looking at the graph trend the total meat production for the mentions livestock has been increasing for the past 3 years In which means there is a good market for cattle farms in the country. 3 UN FAO STATS 21

Total Wool Production Qunatity( Tons) Total Wool Production Value ( Thousand $) Axis Title 1200 1000 800 600 400 200 0 Axis Title Sheep wool Kurk wool 14000 12000 10000 8000 6000 4000 2000 0 2011-12 (1390) 2010-11 (1389) 2009-10 ( 1388) Sheep wool Kurk wool Wool Production Meanwhile, Wool which is a also a sub product of the cattle and dairy industry has had a high export value. And its trend has tremendously increased in the past three years. If there is further investment in the local market, it could be processed locally and the value be added to the product which will increase the revenue generated from it. Skin Production Skin is a major industry which is a mother of many other industries such foot wears jackets etc. Afghanistan has large quantity of skin production of many different animal skins such as Goat, Sheep, Cow and Bull skins. Majority of them are exported to the regional countries. 2000 1500 1000 500 Skin is highly valued product; given that there stands a major opportunity for investment is in semi or full processing of skin. There is enough supply which will meet the demand if a local industry is build. 0 Total Skin Production ( Tons) Karakul Skin 8000 6000 4000 2000 0 Sheep Skin Goat Skin Cow and bull Skin Total Skin Production ( Tons) 2011-12 (1390) Total Skin Production ( Tons) 2010-11 (1389) Total Skin Production ( Tons) 2009-10 ( 1388) Total Skin Production Value ( Thousand $) Karakul skin Sheep skin Goat skin Cow and bull Total Skin Production Value ( Thousand $) 2011-12 (1390) Total Skin Production Value ( Thousand $) 2010-11 (1389) 22

after processing, this will then be used in local markets for making finished products and it can be exported as a processed good. Cow s Dung Cow dong which is currently collected and used for many different purposes, currently rently sold at 6000 AFS per ton. If it is processed, the value would rise much higher. With the above mentioned investment opportunities, not only will it increased exports, reduce imports, have positive impact on the balance of payment, it will create plenty of direct and indirect jobs and pave the way for investment to many large and small scale industries. Imports According to the data provided by CSO for the year 2010, 2011, 2012: there has been an Year / 1389 سال 2010 190892 extensive rise in imports of dairy products such as 112646 yogurt, Fresh Milk, Cheese and condensed way which it shows growing demand for dairy 43502 products. Fresh milk / شير تازه Yoghourt / ماست Cheese / پنير Condensed whey 1391 سال / 2012 Year Year / 1390 سال 2011 22614419 20888023 325546 1220270 139759 3036 164479 شير / milk Fresh تازه Yoghourt / ماست Cheese / پنير Condensed whey Fresh milk / شير تازه Yoghourt / ماست Cheese Condensed پنير / whey 23

However, there is limited local competition to fill the gap. We highly recommend the increase of tariff on importers of dairy in order to support local industries. Also, Afghanistan market has been penetrated by companies which have applied dumping policies, some companies are owned by Iran government who don t have profit means but they exercise other means to any extent in order to grab larger market share. Import from such companies should be banned. Pagga is Iran based public owned company who has been dumping afghan market, In order to support local companies and Afghan livestock and dairy sector we should adopt rules to minimize foreign imports which will have vice versa effect on local industries. Also, they have indirect effect on farmers and livestock. Quality wise afghan products are natural and organic and would be preffered by consumers given that they adopt international standards. 24

SWOT Analysis Strengths I. There are much strength in this sector. As most producers are business oriented, a good market for milk and adequate service provision will pull the milk production level. Also producers are used to work in groups; they are concern of their key advantages when placing ownership of organising the sub-sector. Also as most of the farmers are poor and they need daily cash so the good news for them is that dairying produces regular income; sold on daily basis provides daily/weekly/monthly cash flow. II. Marketing through cooperative channel provides high chance for women to receive and control the income they generate. As Afghanistan local investment is in search of investment opportunities, there are new cooperative law and by-laws in place. III. Last but not least, the locally produced milk and milk products are significantly cheaper than those imported since cost such as costume duty, and freight does not apply to them. Weaknesses I. Poor policy, lack of regulatory framework and low quality product can be major weakness in which particular quality control is needed to compete with imported products. As local produced products make lack of the same packing quality or value added to the final product. II. Limited land availability about 0.5 ha per land owning house hold which only through intercropping and crop rotation and there is scope for fodder production III. Animal husbandry remain poor with no balanced feed rations, major diseases, limited hygiene, etc., on the other side service provision remains in sufficient in particular to extension, veterinary care, and breeding. IV. Poor infrastructure of roads, transport and communication facilities also effects investment to a greater extent. Also, the traditional milk marketing channels male oriented and income remains with male house hold member which might discourage the female farmers to greater extent. 25

V. Dairy Cooperatives and traditional milk traders not yet able to obtain major market share due to the high levels of bacterial contamination leading to spoilage before reaching the market and preservation of milk Opportunities I. Government of Afghanistan, MAIL strategy provides priority to development of dairy sub-sectors: i.e. substitution of imported products; policy and regulatory frameworks have been drafted (opportunity to drive up quality standards); program to combat zones. II. The Demand for milk products increasing due to population growth and buying power affordability to pay it, as well there is high consumer preference for quality local products and taste. III. It is a national pride to produce own products, because first it helps Afghanistan in balance of payment, second it encourage local industry since we are a land locked nation as well as various donors / private players are highly willing to invest in the sub-sector. IV. Cooperative milk collection, processing and marketing can anticipate on fact that women are dairy care takers and with this the income flowing in hands of female house hold members V. Reliable outlet for raw milk implies less labour for women it saves time as home milk processing is labour intensive while cooperatives provide scope for service delivery, extension, vet and breeding services in which women can participate. VI. A reliable market for raw milk gives stimulus to increase productivity of dairying and thus strengthening livelihoods and both direct and indirect employment creation and dairy cooperative movement is also contributively to the local community unity VII. Untouched market, with limited local competition VIII. creates direct and indirect employments Threats I. Due to Animal diseases in particular zoonosis, the quality of milk and low hygiene, the milk products remain low in which reduces competiveness with imported products. 26

II. Milk production boost in summer but the demand will remain low, while in winter it is vice versa with high demand and lower production of milk. It is mainly due to limited availability of fruits and vegetables. III. Security remains a key problem which limits the transport and increase costs, IV. Import of dairy products; vest interest of certain business actors V. Improved production and marketing through cooperative development of higher incomes might imply that women can no longer control it, especially in a male dominated society. VI. Consistency of quality is key issue: e.g. Watani (UHT milk partly through reconstitution of imported milk powder) sets poor example VII. Tax regimes relatively low for imported milk and imported products VIII. Dumping of dairy products by neighbouring countries Iran and Pakistan is a major threat to dairy sector in Afghanistan. the logistical challenge of linking these producers with the markets is compounded by the highly perishable nature of milk and its potential to transmit zoonotic diseases. This has resulted in the rise of imports of milk, Yogurt, Cheese, as the figures have been provided in page 23. 27

Chapter 4 Recommendation and Conclusions 28

Recommendations I. We highly recommend building of standard large scale dairy plant with complete infrastructure which is mandatory for the success of this sector. Without it we will not be able to preserve our production for long term, and also we might not be able to compete with foreign importer without having proper packaging and marketing strategy. We also recommend that central dairy plant equipments be installed in provinces with large quantity of milk production. II. The transport infrastructure should be further developed to the rural side in order to interlink farmers and buyer for maximizing production. Companies should provide transportation facilities for collection and distribution of milk, and dairy products as the common farmer is not in position to do so. III. MAIL should train and provide incentives to dairy union staff and farmers for running their daily businesses activities in order to maximize proficiency. As such, supply-side policy helps them benefit from the economies of scale, decrease their total cost, sell at a competitive price, and finally increase their market share. IV. Agriculture ministry in coordination with AISA should develop agricultural industrial zones; incentives should be give so that this may encourage farming based activities; these parks should be equipped with 24 hours subsidised electricity. V. Ministry of MAIL should develop a dairy development policy for this country in order to streamline and gear up the dairy development and In order to strengthen Quality monitoring and a proper enforcement mechanism should be established and strengthened. VI. On-going success stories in place should be expanded and up scaled to a national level VII. Ministry of finance should increase tariffs on imports of dairy products. we suggest tariffs should be increased 100%, on finished goods, and also partially on raw materials in order to promote local production. Afghanistan is capable to meet demands to a greater extent, currently the major companies are face with loss due the dumping policy of neighbouring countries. More specifically Irani products imported to Afghanistan such as Pagga is a government run business that encourage dumping policy, and it should be banned in order to encourage domestic use of Afghan dairy. VIII. Existing Dairy cooperative societies and cooperative daily unions shall be supported from national dairy federation which will oversee the entire business of milk collection. 29

Challenges Processing and marketing and providing input services to the dairy farmers will help to reduce the import reliance, as well fresh and healthy dairy products will be available to the Afghan consumers. 1. The logistical challenge of linking these producers with markets is compounded by the highly perishable nature of milk and its potential to transmit zoonotic diseases. 2. Overcoming the concept that which is found in most areas that trading milk considered shameful and is known as a disgrace 3. Watani has set a bad example who could not meet the standard as a local brand it will be difficult to once again gain consumers trust on similar local product. 4. Need to expend market network, due to increased milk intake followed by increased plant capacity. 5. Facing to Environment change (drought and cold weather condition) 6. Security Conclusions The paper studied the Afghan dairy and livestock market in terms of market structure and performance. Looked at potential opportunities from an investor s prospective, it identified the constraints and factors of market failure, and finally suggested and recommended some measures and actions for the development of this industry. 30 Comparing with the global and regional markets, it found that there are plenty investment opportunities for afghan dairy and by comparing Afghan dairy with Iran and Pakistan who holds majority of the local afghan market. Milk imported from Iran and Pakistan mainly Pagga, and Nestle Milk-Pak has lower quality but because it is processed UHT compared to Afghanistan dairy it has much higher shelf life. However, Afghanistan milk on the other hand is highly organic. Therefore, with no doubt dairy industry in Afghanistan has great potential to grow further if packaging in designed, according to international standard and famers growing capacity is built, and UHT processing facilities

are built. there is limited local competition in the market, and this creates an environment in which Afghan firms adopt a behaviour that neither helps themselves nor the consumers price is high, quality of finished product in terms of packaging and finishing is grim, innovation lacks, market is started to be penetrated by foreign markets due to their lowered prices. The success of the dairy activities has encouraged other donors and NGOs to start similar initiatives, and thus dairy development has been one of the livestock priorities of the government of the republic of Afghanistan. In addition, the government and the private sector must focus on improving the management skills of firms managers which helps them increase their firms efficiency which will help in international market competition. As far as market completion is concerned, the paper argues that there is huge opportunity for Afghan dairy due to its high organic quality. However, looking at the factors of production, there are many challenges which hinders the foreseen opportunities; i.e. lack of access to land, lack of access to interest free capital, lack of standardized laboratory, lack of skilled labors, and lack of necessary infrastructure such as processing and preservation plant. The paper recommends market reforms to the government to tackle some of the existing challenges; including agriculture and development of a specialized industrial central processing and packaging unit, provision of long-term interest free financing solutions for farmers, technical and management skills trainings as well, forming of a national level association board which is not biased to any particular business man. 31

Appendix Appendix 1: Institutional Structure of Dairy Union iiii Source : UN FAO 32

Appendix 2 : Dairy unions processing (fresh pastured milk, yoghurt, cheese, butter, cream and butter milk) Union and province Kabul Dairy Union Kabul Kunduz Dairy Union Kunduz province Balkh Dairy Union Balkh province Herat Dairy Union Herat province Khatiz Dairy Union Nangarhar province Registr ation Date 30.11.2 006 13.1.20 07 7.5.200 7 4.3.200 8 3.1.201 2 Prim ary coop s # Distric t unions # Tot al Me mbe rs Dairy proce ssing plant (Mt/d ay) Animal Feed Processi ng plant (Mt/day ) Staff emplo yed # 12 4 950 5 20 75 7 2 450 2 20 60 7 2 650 5 20 78 11 3 17 5 Total 54 16 210 4 5 25 36 150 0 10 15 23 565 4 27 100 272 Email Address kabuldairyunion1@ gmail.com Chairman Phone # Gh. Zekria 0700677648 kunduzdairyunion@ yahoo.com M. Zaher 0799388352 balkldunion@gmail. com M. Musa 0799714557 heratdairyunion@g mail.com G. Nabi 0797930697 khatizunion@gmail. com G. Nabi 0774583802 Source : UN FAO 33

References: I. Study on Dairy Production and Processing in Afghanistan, For the Horticulture and Live stock / HLP, Ministry of Agriculture, irrigation and Livestock / MAIL, John J. M. Bonnier, June / 2007 II. Ministry of Agriculture, Irrigation and Live stock, terms of Reference 559, Project : Emergency Horticulture and Livestock, June /2007 III. United Nations Food Agriculture Organization, Afghanistan IV. Central Statistics Office, Afghanistan 34