Changing milk production trends in Peru: Small-scale highland farming versus coastal agrobusiness

In Peru, strong growth in urban demand for industrially processed dairy pro ducts has induced a rapid increase in milk production along the coast but n ot so much in the Andean highlands, where an increase in milk production wo uld create the greatest benefits. A farm-household optimization model was u sed to assess the current and changing competitiveness of milk production o n the coast (Arequipa and Lima) and in the highlands (Cajamarca). Results s how that large farms on the coast, particularly near Lima, are currently th e most profitable. However, the high milk prices in Lima are likely to fall because of local market saturation and reduced competition among regional milk buyers. In contrast, milk prices in Arequipa and Cajamarca are expecte d to rise as a result of increased milk collection by milk processors since milk production costs in these regions are lower and there is a strong inc entive to increasingly substitute expensive imported milk powder with local ly produced evaporated milk. Improvements in the rural road system and the promotion of agricultural export crops along the coast, particularly in Are quipa, would accelerate the expansion of milk production in the highlands. To improve highland farmers' access to the market, policy makers and develo pment agencies should target their interventions in close collaboration wit h milk processors. Because they have a strong interest in increasing milk p roduction in their own region, milk processors are also important partners when designing measures to improve farmers' fodder and herd management prac tices in order to further increase the competitiveness of milk production i n the highlands relative to the coast.