INCENTIVE PAYMENT SCHEMES

FOR DAIRY SMALLHOLDERS

A COOPERATION BETWEEN
VINAMILK & VIETNAM BELGIUM DAIRY PROJECT
2008
“ NORMALLY,
NORMALLY THE PRICE OF A PRODUCT SHOULD
BE COMMENSURATE WITH ITS QUALITY”

But in the North

RAW MILK PAYMENT FOR DAIRY FARMERS IS NOT

ALWAYS MADE ON THIS BASIS.
 Contents

1. Raw milk collection of processing companies in

tthe
e North
ot
2. Contents & significance of milk payment
scheme
h to
t farmers
f
3. Advantages
g & Disadvantages
g
4. Q & A
 1. R
Raw milk collection in the North

Processing
ocess g
Milk collection
ll ti
Farmers Point (MCP) companies
(PC)
This approach shows that PC work directly only
with
ith MCP –middlemen
iddl :
ƒ Signing purchasing contracts with MCP only
ƒ Providing feedback on bulk tank milk quality at the
end of p
payment
y period
p
ƒ Group payment (bulk tank quality)
ƒ Paying directly to the MCP only
 1. Raw milk collection in the North

Comments on the model:

- Good points:
ƒ Minimizing management costs for raw milk
collection of factories
ƒ Reducing investment cost for milk collection
ƒ Enabling processors to compete in raw milk
collection
ƒ Reducing cost for MCP as collection fee and milk
payment are not separate (MCP do not have to
pay
p y tax for collection service))
 1. Raw milk collection in the North

- Weak points:
ƒ Milk collectors is just middlemen (not producers)
but have too much power/privilege from the
contract with processors
p
ƒ Milk collectors are not trained in quality control
Æ risks
ƒ One milk payment for all farmers or the payment
made based on unreliable quality tests (density
(density...))
ƒ Group milk quality feedback is not valid for
individual farmers
 1. Raw milk collection in the North

ƒ Farmers sell milk to processors without any contract

by delivering milk to MCP. In case of difficult output,
processors refuse to buy milk Æ Farmers will be
sufferers.
sufferers
ƒ Farmers depend on MCP Æ cannot choose what
processor they
th can sell
ll milk
ilk to.
to
t .
 2. Incentive milk payment scheme:
Contents & Significance

Target

- Transparent

- Stricter milk quality control

- More good farmers

 2. Incentive milk payment scheme:
Contents & Significance

Farmers
Processing
g
companies

MCP
This approach
Thi h makes
k a fundamental
f d t l change
h in
i
previous relationships in the milk collection matrix
Adapting this approach has brought about the
uniformity in milk collection of VINAMILK both in the
north and in the south
 2. Incentive milk payment scheme:
Contents & Significance
Change in structure:
• Raw milk purchasing contract – Farmers sign
contracts to sell fresh milk to the processor
p
Price of 1kg of fresh milk = Basic price + %FAT x 17,000VND/kg + %SNF x
8,500VND/kg

• Service contract – Milk collector signs contracts of

milk collection service with processors and has
commission:
Commission = Service fee + bonus
 2. Incentive payment scheme: Contents

Change in milk quality

control
- One
O quality
lit control
t l staff
t ff
(processor): do daily milk
quality control test at the MCP
Æ base for milk payment
(Take 2 milk samples: One to check certain
on--site qualities and the other to analyse
on
at the factory’s lab with FT2 (FOSS-
(FOSS-
DENMASK)) which can do 180
analyses/shift)
 2. Nội dung của chương trình thanh
toán tiền sữa tới hộ chăn nuôi

Change in information exchanging:

-Quality control staff: Give feedback on daily milk

quality to farmers Æ Orient individual farmers in dairy
farming

With the three changes,

changes quality-based milk payment will
be applicable. Good dairy farming-> High milk price->
encouraging dairy farming development
 3. Incentive milk payment scheme:
Advantages & disadvantages

Advantages:
d a tages
ƒ Supported by the leaders of the company as it
matches sustainable outlook of quality,
quality safe and
sustainable dairy development. Create a uniformity
in milk collection in the North and South
ƒ Supported and partly sponsored by Vietnam
Belgium
e g u Dairy
a y Project
oject when
e implementing
p e e t g tthe
e
scheme

Disadvantages:
ƒ No standard government legislation on raw milk
Æ loop-hole for cheating & unsound businesses
 3. Incentive milk payment scheme:
Advantages & disadvantages

ƒ No support from animal health offices in herd

management and disease control
ƒ Strong opposition from MCP (Middlemen): lose
privileges and benefits
ƒ Take time to convince farmers because many do
not meet the requirements of professional
farming.
ƒ Funding: a big concern (Most in the north are
small holders)
small-holders)
4. Questions & Answers

Q-A