An evaluation of the economic performance of the national dairy development project: the case of Meru rural dairy processing plant

Abstract

This study was undertak en to evaluate the Economic Performance of the Meru Rural Dairy Development Project. The main objectives of this study were: (i) to evaluate the capacity utilization rates by Meru Rural Dairy Plant and determine the cost-output behaviour of the plant and the optimal plant capacity (ii) to assess the producer prices for milk paid by the Meru Union and compare these prices with the KCC producer prices, and (i i i ) to determ in e the pricing efficiency of the Meru Rural Dairy Plant. Both primary and seconnary data were collected from relevant sources and used in this study. Econometric techniques and statistical methods were used to determine the cost-output behaviour and capacity utilization rates of the dairy plant. Producer price comparisons between those paid by the KCC and those paid by the Meru Union were done and the milk marketing problems experienced by the sample farmers were also analysed. The results of the study showed that the Hern Dairy plant having been operating at excess capacity between 1983 and 19QO, the averaqe capac i t y utilization rate being 41.51%. The prices paid to the Project farmers by the Meru Central Farmers Cooperative Union (MCFCU) were found to be competitive to those paid by the Kenya Cooperative Creameries Limited (Kee) to farmers at the national Level. The pricing efficiency of the dairy plant was found to be low. The plant was found to be operating at a constant marginal cost curve and at an average cost curve which was continuously declining but reaching the marginal cost curve. It was thus Hot possible to determine the theoretical optimal capacity of the plant. This study concludes that the management of the MCFCU dairy plant, should address itself to the serious problems that face the plant, i .e. low capacity utiIization and pricing inefficiency, and those that face the farmers in an effort to improve marketing services. The study thus recommends an improvement of the capacity utilization rate by the Meru dairy plant so that more of the farmers' milk is processed and the output of the plant enhanced.