SECURING SUSTAINABLE INCOMES AND FOOD SECURITY

THROUGH DAIRY FARM ASSOCIATIONS

Funding Proposal for

East Africa Dairy Development

Project Funding Request: $2.5M

Primary Contact:
Vicki Clarke, Ph.D.
Director of Philanthropy
vicki.clarke@heifer.org
312.401.6754
www.heifer.org
 SECURING SUSTAINABLE INCOMES AND FOOD SECURITY
THROUGH DAIRY FARM ASSOCIATIONS

EXECUTIVE SUMMARY

East Africa Dairy Development (EADD) is an ambitious five-year program designed to help 136,000
smallholder farm families achieve sustainable, improved livelihoods in Tanzania, Uganda and Kenya. The
vision is to transform the lives of resource-poor farming families with improved market access to a robust,
wealth-creating dairy value chain that benefits all industry stakeholders.

Specifically within Tanzania, EADD will work with smallholder farmers in the Southern Highlands and Eastern
milksheds of Tanzania, focusing on the areas with the greatest industry opportunities for dairy farmers.

Approximately 30 percent of the projects farmers will be subsistence level farmers, with a further 75 percent
of farmers more actively engaged in the dairy business, but who require significant training and inputs to
reach higher income levels. Working with large and medium size processors, Tanzanias strategy will be to
increase both demand and supply, increase efficiencies at production level, and smooth out fluctuations
caused by seasonality which affect price and profitability along the dairy value chain. It will also seek
proactively to include women and youth more dynamically in the value chain. The project will stimulate
farmer access to crucial services to increase production and realize benefits through business development
services and other extension services (e.g. financial services and animal health resources).

EADD will strengthen existing relationships with industry associations to create and enforce industry
standards, as well as work with government sectors to encourage the removal of limiting policies. EADD will
work with producer organizations or Dairy Farmer Business Associations, building both on the informal
market and on the formal market driven by processors. Ultimately, this project will assist 35,000 smallholder
dairy farmers in Tanzania to achieve increased income and improved food security, leading to enhanced and
sustainable livelihoods for their families.

The project builds previous program work and will be implemented over five years (FY13-FY18). The total
budget is $41.5 million, with $25.5 million provided through a grant from the Bill & Melinda Gates
Foundation. Heifer International is responsible for the remaining $16 million. We invite the Board, donors,
and U.S. Treasury to consider an investment of $2.5M toward East Africa Dairy Development.
 Heifer International
Proposal for East Africa Dairy Development

SECURING SUSTAINABLE INCOMES AND FOOD SECURITY

THROUGH DAIRY FARM ASSOCIATIONS

As part of the East Africa Dairy Development (EADD) project, Heifer International will work with 136,000
smallholder dairy farmers to achieve increased income and improved food security, leading to enhanced and
sustainable livelihoods for farmers and their families.

At its core, EADD is a value chain project aimed at reducing poverty for smallholder farmers through market-
access based solutions. These interventions include organizing and mobilizing farmers around a dairy hub as
an access point for inputs and services, including extension, as well as offering farmer education and training
on animal health and nutrition to realize greater production levels. Dairying offers opportunities for rural
livelihoods and nutritional security, particularly in societies already having a tradition of cattle-keeping.
Perhaps uniquely amongst agricultural pathways out of poverty, it offers many pro-poor benefits from small-
scale production and marketing. Unlike most crop enterprises, its benefits are generated daily rather than
seasonally, so there are immediate and ongoing nutritional improvements, and a clear path to a growing,
profitable enterprise. This is particularly important for youth and young adults.

Building on the success and lessons learned from Phase I, EADD

II is an ambitious five-year program designed to help 136,000
smallholder farm families achieve sustainable, improved
livelihoods1 and stimulate income growth for an additional
400,000 secondary beneficiaries2 in Tanzania, Uganda, and
Kenya. The vision is to transform the lives of resource-poor
smallholder farming families in rural areas with improved
market access to a robust, wealth-creating dairy value chain
that benefits all industry stakeholders.

The multiple, beneficial effects of initiating smallholder dairying

in rural villages are well documented3:

Stems urban migration

Improves income generation
Develops rural employment
Improves family nutrition
Improves school attendance
Protects the environment
Increases agricultural production

1Heifer International views sustainable livelihoods as those whereby farmers have adequate opportunities to create wealth for themselves, their families
and communities, extending well beyond the accumulation of financial capital to include social and human capital. More concretely, sustainable livelihoods
provide adequate and sustainable access to the resources necessary to meet basic household needs (access to nutritious food and clean water, housing,
access to health services, opportunities for employment or income generation, access to education and opportunities for community participation).

2 Heifer International employs a set of multipliers to calculate the number of people it assists directly. Based on Heifers 2004 Rapid Evaluation Assessment,
the project is employing a conservative 1:4 ratio. Thus, the project posits that it will positively impact a total of about three million people by 2018. The
calculation is based on the assumption that a series of benefits flows from the original inputs to all family members. This can include training, mobilization,
income and increased access to services.

3
Independent evaluations conducted by Western Michigan University over five years in 20 countries, http://www.heifer.org/ourwork/measure-of-success
and http://www.wmich.edu/evalctr/wp-content/uploads/2010/05/chianca_handout.pdf
 EADD II will act as a facilitator for a network of profitable, farmer-managed, milk aggregation hubs that offer
essential inputs, extension and business services to draw smallholder farmers into commercial sectors. By
collaborating in hubs, farmers can begin to cost-effectively produce higher volumes of milk, and thereby
achieve higher income levels. Hubs will coordinate with a critical mass of dairy processors4 operating
profitably at greater than break even capacity by project end.

Consumers will then receive benefits both from a more efficient and moderately self-regulated informal milk
market, and from a growing formal market offering increasingly affordable and higher quality processed milk
and other dairy products.

Nutritional improvements and higher income levels will enable a large number of families to move out of the
cycle of poverty. Thousands more will indirectly benefit through access to improved livestock, training and
availability of milk. Agricultural extension services to these families will be significantly enhanced, thus
creating another level of indirect impact.

EADD will further refine and improve the hub approach, partly through focusing more on building social
capital5, and partly through actively pursuing partnerships with and investments from local processors and
other private sector players to increase hub sustainability, thereby readying this approach for scale by other
public and private entities. EADD II will act as a catalyst by bringing interventions that create innovative,
scalable market-based solutions to improve smallholder farmer livelihoods, in response to their desires and
goals, and not only their needs.

This Heifer International project seeks to improve the livelihoods of thousands of families in East Africa
through long-term and sustainable value chain development. The first phase is livestock and training, and
developing production and processing growth, as appropriate in accordance with halal requirements. The
goal is for families to have productive livelihoods as smallholder rural farmers and business owners,
mitigating rural-urban migration.

FUNDING REQUEST

The estimated total cost of EADD II is $41,510,466. The Bill & Melinda Gates Foundation has provided a
$25,562,737 grant. Heifer International is responsible for the remaining $15,947,729. We invite the Board,
donors, and U.S. Treasury to consider an investment of $2.5M toward East Africa Dairy Development.

PROJECT PROFILE

EADD II will be implemented over five years (FY13-FY18) in Uganda, Kenya and Tanzania. Heifer International
will work with project partners and will collaborate with relevant community-based organizations (CBOs),
nongovernmental organizations, government agencies and the private sector to bring and add value to the
areas of milk production, access to credit, milk processing, value addition, breed improvement, sustainable
feed systems, water management, milk storage, packaging and product transportation.

4
Different processors are currently being engaged to actively invest in the project, encourage open communication and co-plan where possible, as well as
to ensure competitiveness and minimize monopolies.

5 Social capital refers to the institutions, relationships, and norms that shape the quality and quantity of a society's social interactions. Increasing evidence
shows that social cohesion is critical for societies to prosper economically and for development to be sustainable. Social capital is not just the sum of the
institutions which underpin a society it is the glue that holds them together (World Bank).
 The goal of EADD II is to raise the income of smallholder dairy farmers by
providing them the opportunity to bulk their milk and receive training
and services through Dairy Farmer Business Associations or producer
organizations. EADD II aims to achieve this goal through four inter-
related objectives: 1) Farmer Sustainability; 2) Hub Sustainability; 3)
Gender Equity; and 4) Replication.

EADD Project Area The project will benefit 136,000 smallholder dairy farmers in East Africa:
43,000 farmers in Uganda; 58,000 farmers in Kenya; and 35,000 farmers
in Tanzania. Through Heifers practice of Passing on the Gift (POG), the
project aims to reach an additional 400,000 smallholder farmers.
Training and capacity building interventions will provide smallholder
dairy farmers with a central place to bulk milk and access veterinary
supplies, livestock breeding services, nutrition supplements for cattle,
and advisory and extension services.

This project will emphasize building social capital and entrepreneurship. The stability and sustainability of
the value chain depends on how the balance of power is distributed, and how profits are shared across
stakeholders. In order for farmers to benefit fully, they must have a direct stake in the system and a strong,
unified voice in the dairy industry. As farmers move from the initial phase of building social capital and
increasing self-determination toward an ever-increasing role in market development, smallholder farmers
risk losing out on potential gains. The project will empower farmers to move beyond subsistence, to gain a
greater share of the total market value, and become increasingly entrepreneurial with access to financing,
market activities and innovative business opportunities.

EADD II aims to improve farmers overall production levels and access to affordable milk, while also creating
employment along the value chain (e.g. milk transporters, Business Development Service (BDS) providers,
etc.). The long-term intention of the project is to catalyze this growth, so farmers can begin to meet
increasing market demand. Then, smallholder farmers can contribute to the growth and prosperity not only
of their own families, but also of an entire industry and, as a result, of their own countries.

Heifer International is based upon 12 Cornerstones for Just and Sustainable Development. These principles
guide our work in the field and are fundamental to our ongoing success, especially our practice of Passing on
the Gift. This approach makes Heifer unique and its projects sustainable: along with the education and
trainings our participants receive, they agree to pass on their animals offspring to another member of the
community. This creates an ever-widening network of dignity and self-reliance, transforming recipients into
donors and ensuring a greater impact level for each gift received.

PROJECT OBJECTIVES

1. Farmer Sustainability After project end, EADD II expects to see resource-poor farmers having achieved
notable gains, at minimum, in on-farm production (better productivity levels per cow/household) and
improved net dairy income. Farmer sustainability will be measured by a set of indicators, with a primary
target of reaching less than or equal to six liters per household per day6 and at least 100 percent
increase in income by project end.

6 Evaluation of Phase I indicates that the threshold for farmers to sell to hubs is six liters/day. While there are possible income gains from selling in the
informal market (and farmers will likely continue to sell some portion on the informal market in the medium-term), EADD is a holistic project that brings
together farmer and hub sustainability; the premise here is that for hubs to achieve profitability, volumes must increase. As farmers production volumes
increase, in combination with improved market access, they will achieve greater market shares at the hubs and eventually a substantial rise in income.
 2. Hub Sustainability EADD hubs are the driver for farmers to connect to markets and translate increased
productivity into income. To ensure post-project impact, EADD will place all hubs on a path toward
sustainability in both economic terms (profitability, cash flow positive, etc.) and social terms
(governance, leadership, technical capacity). This outcome will be measured in terms of projected
graduation in 19 of 21 Phase II hubs by 2018. Hubs will graduate due to strong performance measures
including governance, leadership, financial profitability and increased value proposition to farmers.

3. Gender Equity Women can measurably increase project impact by: a) actively supplying milk at hub
level (improving hub volumes and profitability); b) taking on active leadership roles; c) accessing
financial services to jump-start business opportunities; and d) increasing savings to contribute to
household well-being. Starting with staff, gender equity will be prioritized. Progress will be measured
against increased involvement at hub level (leadership, milk supply), and access to credit and savings.
There will be several important targets around gender, but two of the most crucial will be a 30 percent
increase in women actively supplying the milk at hub level7, and at least 30 percent of women suppliers
with access to and control over productive assets.

4. Replication Ultimately, national or regional scale will neither be funded by nor achieved directly
through this project. However, replication and syndication of its successful hub approach in each of the
EADD countries is possible, and will be measured primarily by adoption of hub approach by a minimum
of one other organization (each country) and inclusion in relevant government policy at the national
level.

Other project components include, but are not limited to:

Hub Governance and Leadership: Through this approach, fragmented small-scale producers can bulk their
milk and access markets and/or access services. Key input services are offered to farmers, as well as collective
activities such as training and marketing. Given that leadership and governance have been identified as
prerequisites for hub success, Values-Based Holistic Community Development (VBHCD) training will also help
community groups self-identify leaders for the Dairy Farmer Business Association (DFBA) and help them co-
create their business plans. EADD posits that development of business and leadership skills amongst
community members will increase accountability, improve sustainability and bolster farmer loyalty to the
hub.

Increased Water Access, Security and Utilization: EADD will explore and (where appropriate) partner with
other organizations to provide investments or interventions to address water availability, access, security and
utilization. The approach will be to equip communities to adopt increasingly complex water supply systems.
EADD will identify existing and potential water sources for livestock. Project sites and households will
undergo an analysis of the quality and quantity available at different seasons in the year, as well as
assessment of the feasibility, profitability, and acceptability of rainwater harvesting and storage techniques
(along with other techniques). EADD will also analyze household water usage for farming households (using
the Bill &Melinda Gates Foundation Environmental Assessment), including gender considerations.

Improved Animal Health and Feed Supply Chain: Strategies to identify, monitor and treat cattle diseases,
deliver appropriate training, connect to existing early warning systems, and ensure access to trained
veterinarians will all be included in Phase II. The health and welfare of livestock is ideally promoted primarily

7 Increasing the number of women actively supplying milk to the hubs will further contribute to hub sustainability; the business case is outlined in further
detail in the gender section of the Hub Approach 2.0. Increasing womens access to and control over productive assets will also mitigate some of the issues
from Phase I where women were often at risk of losing control over their dairy income.
through preventive measures, using appropriate breeds, feeds and husbandry techniques for the species in
question, and by implementing stable conditions for breeding animals. In smallholder dairy systems,
prophylactic drugs and conventional medicine use needs to be closely monitored, hence the need for a
systems-based approach for health and welfare management on farms.

Additionally, EADD will create linkages with the concentrate feed supply chain, pasture/fodder seed supply
and system management, as well as networking with and capacity building of agro-input suppliers, agrovet
shops, milk processors, and information and communication technology service providers. Based on climate
characteristics and farmers current practices, appropriate feed technologies will be identified and promoted,
while also exploring feeds based on locally available inputs.

Improved Milk Quality and Production Methods: EADD will focus on three approaches around milk quality
improvement: (1) Improve training in proper milk handling, washing hands, washing udders and sanitizing
equipment. The project will also pilot new strategies such as mechanized milking to improve milk quality (i.e.
Kenya milk sheds where Tetra Pak has a vested interest); (2) Build on the processor-led approach. On the
processor side, EADD will promote differentiation of milk with lactometer tests at Milk Cooling Centers
(MCCs), separating low-count milk from high-bacteria milk into different cooling tanks; and (3) EADD will also
work with processors to pilot a quality-based pricing system in Kenya.

Scale will be different in each of the EADD countries, due to the variance in industry starting points:

Increase both demand and supply and smooth seasonal fluctuations (smoothing price and profitability
in formal and informal markets).
Increase efficiencies at production level by stimulating access to BDS and extension, financial services
and animal health resources.
Include women and youth (targeted trainings, etc.).
Strengthen existing relationships with industry actors (e.g. Tanzania Dairy Board, Tanzania Association
for Milk Producers (TAMPA) and Tanzania Milk Producers Association (TAMPRODA) to support them in
creating and enforcing industry standards and influencing government policies.
Engage with academic institutions to build the capacity of future skills needed to sustain the industry.

Heifer Internationals Mission and Program

Heifer Internationals mission is to end hunger and poverty, while caring for the Earth. Heifer International
works in countries throughout the world providing income-producing livestock, education, and training to
impoverished families, to help end hunger and promote sustainable economic development at the family and
community level. Since 1944, Heifer has helped more than 22.6 million families become more self-reliant
through the gift of livestock and environmentally sound training.

Heifers program emphasizes long-term results. Livestock such as cows, chickens, sheep and goats serve as
sources for milk, eggs, wool and meat that are used by recipient families to improve their nutrition, health
and family income. The additional family income leads to improved housing, health care, entrepreneurism,
and often provides a family with their first opportunity to send their children to school. Heifer educates
families in best practices around animal management, sustainable farming techniques, micro-enterprise,
business development, and marketing, while caring for the Earth.

Passing on the Gift (POG), part of our 12 Cornerstones for Just and Sustainable Development, is fundamental
to Heifer International's approach to sustainable development. As people share the offspring of their animals,
their knowledge, resources, and skills with others, an expanding network of hope, dignity, and self-reliance is
created that reaches around the globe. As a requirement of every project, POG creates a sustainability cycle
that fosters community building and enhances self-esteem by allowing project recipients to become donors.

With a focus on grassroots community development, Heifer has a strong record of performance and is
recognized as a leader in international development. Through Phase I of EADD, 1 million people, mostly poor
rural farmers, have doubled their incomes.

Investing in this critical project in East Africa, and coming to the aid of those who are less fortunate, will
transform the lives of thousands of people, providing the tools for communities to move themselves from
poverty and despair to lives of hope and opportunity.

BUDGET

FY13 FY14 FY15 FY16 FY17 FY18 Total

Personnel 410,008 2,273,449 2,069,241 1,949,497 1,669,740 1,169,077 9,541,013

Travel 54,725 240,700 260,341 243,421 203,438 164,400 1,167,025

Sub-grants* 936,426 3,393,738 3,544,365 3,283,089 2,861,987 2,245,444 16,265,048

Capital
282,100 - - - - - 282,100
Equipment

Consulting 591,806 691,583 909,067 417,147 473,327 919,165 4,002,096

Other Direct
602,812 1,218,360 1,389,641 1,114,127 820,211 661,853 5,807,005
Costs
Direct Costs,
2,877,876 7,817,830 8,172,656 7,007,281 6,028,704 5,159,940 37,064,287
Total
Indirect Costs,
144,558 437,097 449,848 373,140 294,420 222,245 1,921,307
Others**

Indirect Costs,
Gates 231,023 510,596 540,182 450,180 393,741 399,152 2,524,873
Foundation***

Indirect Costs,
375,581 947,693 990,030 823,319 688,160 621,396 4,446,180
Total
Total Project
3,253,457 8,765,523 9,162,686 7,830,600 6,716,864 5,781,336 41,510,466
Cost

*Sub-grants line in this summary includes sub-grants to major consortium partners (ILRI, ICRAF, & TNS).
**Indirect Costs, Others reported on this summary is expected recovery from HPI co-funded portion of the EADD program.
***Indirect Costs, Gates Foundation reported on this summary is HPI recovery only.