Tanzania Journal of Agricultural Sciences (2018) Vol. 17 No. 2, 60-67
This study was conducted in Tanga city with the general purpose of analyzing market performance
of dairy value chain and specifically to quantify and assess production costs of raw milk and
to characterize the market structure, conduct and performance of the milk market. A formal
survey was carried out to a random sample of 80 smallholder farmers and 30 milk traders using a
questionnaire. Two processors were interviewed using a checklist. Accounting method was used to
quantify milk dairy farmers’ production costs whereas dairy market performance was descriptively
analyzed within the framework of the Structure-Conduct-Performance (S-C-P) market model.
Gross profit margins for the major players (producers, traders and processors) at specific nodes
along the dairy value chain were calculated. The average unit cost of production was found to be
TSh 550 per litre of raw milk with contributions from labour (45.7%), feeds (19.4%) and dairy
operations (e.g. veterinary services) (34.9%). The average production cost per litre (TSh 550)
and farm gate price per litre (TSh 580) of raw milk were found to be statistically different at p≤
0.05 level of significance indicating cost effectiveness of going producer price. Smallholder dairy
farmers received gross profit margins of 5.2% and 21.4% in the formal and informal channels
respectively while processors and vendors received gross profit margins of 18.8% and 36.1%
per litre of milk respectively. Milk traders received higher Gross Profit Margin (GPM) because
they sold their milk in informal chains which offer relatively higher prices. Low price for raw
milk and limited bargaining power of Tanga Dairy Cooperative Union (TDCU) were revealed as
barriers to dairy development in the City. It is recommended that a liberalized marketing system
in price setting strategy and producers’ training on production techniques that will improve dairy
productivity in the study area.