e dairy sector is vital in poverty alleviation in both the rural and urban areas as it contributes to food production and nutritional security and increased household incomes (USAID, 2010). USAID (2010) argued that Kenya is the largest producer of dairy products in Africa; with an estimated herd of 3.5 million improved dairy animals, 9 million zebus, 12 million goats and 900,000 camels. Cattle account for 88% of the milk produced while camels and goats account for the rest. In terms of milk consumption, Kenya also ranks as the top producer and consumer in Africa (USAID, 2010). These reports have also indicated that, with a per capita consumption of more than four times the average (25kg/yr) for Sub-Saharan Africa; Kenya ranks amongst the highest in the world. Dairy contributes about 8% of the national GDP. An estimated 625,000 smallholder producer households, supplying 70% of the milk, earn their income from dairy production (FAO, 2011). The significance of dairy enterprise in supporting livelihoods in rural areas among smallholders, therefore, cannot be over emphasized. The government in assisting farmers started KCC which bought milk from farmers over the years but was unable to serve the farmers adequately and at times did not pay the farmers. Thus the farmers stopped their supply to KCC, and a lot of milk went to waste. In 1992 the dairy sector was liberalized and other processors moved in to fill the gap in the dairy industry in Kenya. A good example is Brookside Dairy Ltd which has been consistent in buying Farmers milk. Prior to policy change in 2004, informal vendors (mobile milk traders bar vendors, transporters) were not officially recognized and were frequently harassed, as powerful milk players sought to protect their interests and share. The dairy policy now clearly recognizes the Small Scale Milk Vendors (SSMVs) and contains specific measures to promote them including development of low cost technologies. Liberalization also created the middlemen who bought raw milk from farmers in rural areas and then transported it to towns to sell to consumers. Thus the farmers’ access to the market has been curtailed and milk prices are dictated by the sellers, leading to low profits to farmers. Actually 70% of the total milk market is controlled by the informal sector with the balance handled by the formal market channels. Thus the level of value addition of milk is low since the informal market is characterized by direct sale of raw milk to consumersAccording to East Africa Dairy Development (EADD,2007), smallholder families; owning up to 6 dairy cows, are unable to generate sustainable income from dairy business endeavors for numerous reasons, primarily due to deficits in knowledge, lack of finances for investment, production and business-skills which prevent their profitable participation in the dairy value chain. Based on a definition from Porter (2008), “profitability in this study is defined as the ability of a milk producer to achieve sustainable business growth while earning at least the opportunity cost of management.” According to report survey on milk production and marketing (2013) milk production had dropped significantly from 6million tones in 2010 to 5million in 2012 and recommends efforts to be put in place to increase production. The survey conducted in four districts, one being the then Sotik district currently Sotik Sub-county. The findings of this survey further indicated that the region and the entire Bomet County has more capacity to produce more milk considering the favorable condition for dairy production. In comply with findings; the farmers have implemented part of the recommendation in assistance with the county government. The county Government of Bomet through CEC for agriculture established marketing cooling plant in each ward where farmers can sell their milk formally to county Government which is mandated to market it both locally and internationally. However, this efforts have not yet yield fruits since the County Government purchase milk at a prices lower than expected; sh 25 per litre, which force farmers stick to their previous informal channels. In the other hand, the policy of establishing extension service in every ward and provision of credits to dairy farmers have positive but not sufficient influence on dairy production according to County Government of Bomet Agriculture , Livestock and Fisheries report (2015). Therefore, findings to this study will be of much important to rectify unfavorable trends of low profitability and hence decreasing production of milk especially by small-scale farmers.