New Kenya Cooperative Creameries (New KCC) will be allocated Sh400 million in the financial year starting July to establish its first powder milk plant.

The Budget committee has directed the Treasury to allocate the state-owned firm the cash to set up a plant which will absorb excess milk from farmers, sparing them the losses such as those witnessed in 2010 when processors poured milk worth millions of shillings for lack of market.

The powder milk machine will be installed at the New KCC Eldoret plant.

“New KCC should be allocated Sh400 million to be used in standardising its instant powder milk processing plant in Eldoret,” Treasury secretary Henry Rotich told the Budget committee last week.

This comes in the wake of rising competition from market leader Brookside which has already set up the facility.

Instant powder milk dissolves immediately when put in water. New KCC chairman Matu Wamae said the funds will also be used to acquire new state-of-the-art equipment to replace outdated machines.

“We are currently running on old machines which cannot make instant powder milk for our market,” said Mr Wamae. “The market is changing and we need to meet consumer preferences.”

The new plant, said Mr Wamae, will also increase New KCC’s processing capacity and create room for the absorption of more milk from farmers.

“The plant will enable us to come up with products that will be competitive in the world as we target to expand our sales beyond the east African region,” he said.

Industry stakeholders have been fighting for the establishment of a milk reserve to store surpluses for future use.

Last year, the Department of Livestock requested the Treasury to set aside funds for building a milk reserve to store long-life products for use in times of overproduction.

However, holding a huge stock of unsold UHT and powder milk can interfere with the cash flow of processors, making it hard for them to meet their financial obligations.

In 2014, the Kenya Dairy Board indicated that the processors were grappling with huge stocks of unsold long-life milk products estimated at Sh3 billion, locking in their finances and hampering activities.

Milk powder has a shelf life of two years and processors with dry plants use it to supplement their stocks by reconstituting it in times of shortages.

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