Dairy Industry Development Assessment - 0 PDF

The NEXT STAGE IN DAIRY DEVELOPMENT
FOR ETHIOPIA
Dairy Value Chains, End Markets and Food Security
Cooperative Agreement 663-A-00-05-00431-00
Submitted by
Land O'Lakes, Inc.
P.O. Box 3099 code 1250,
Addis Ababa, Ethiopia
November 2010
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TABLE OF CONTENT
Pages
ACRONYMNS…………………………………………………………………………………. 5
EXECUTIVE SUMMARY …………………………………………………………………... 6
1. OVERVIEW OF THE DAIRY SUB-SECTOR STUDY………………………………….10
1.1. The Role of the Dairy Sub-Sector in the Economy of Ethiopia

1.1.1. Milk Production and its Allocation
1.1.2 Livestock and Milk in the household economy
1.2. The Challenges
1.3. A Value Chain Approach
1.4. The Tasks and the Study Team
2. DEMAND FOR MILK AND MILK PRODUCTS…………………………………….…. 15

2.1. Milk Consumption
2.1.1. Milk and Milk Product Consumption in Urban Areas
2.1.2. Milk and Milk Product Consumption in Rural Areas
2.1.3. Milk and Milk Product Consumption in Pastoral Areas
2.2. Milk Consumption Compared to Other Countries
2.3. Milk’s Role for Food Security and Household Nutrition
2.4. Consumption of Imported Milk Products by Areas and Product Categories – domestic
and imported
2.5. Milk Consumption in 2020
2.5.1.. High Estimate
2.5.2. Middle of the Range Estimate
2.5.3. Low Estimate
2.6. Assessment

3. DAIRY PRODUCTION……………………………………………………………..…… 30
3.1. Current Situation
3.2. Milk Production Areas (waiting on the maps)
3.3. Production systems and Milk Sheds (see zonal data in annex
3.3.1. Commercial Production
3.3.2. Peri-Urban and Urban Production
3.3.3. Rural Smallholder Production
3.3.4. Pastoral and Agro-Pastoral
3.4. Inputs by Production System by Milk Shed
3.4.1. Feeds and Feeding
3.4.1.1. Agro-Industrial Byproducts
3.4.1.2. Institutions in the Feed Sub-Sector
3.4.2. Genetics
3.4.2.1. National Artificial Insemination Center (NAIC)
3.4.2.2. Private Companies for Genetics
Ethiopia Dairy Value Chains, USAID CA No. 663‐A‐00‐05‐00431‐00 Land O’Lakes, Inc. IDD.
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3.4.3. Animal Health Services

3.4.4. Extension Service
3.4.5 Credit and Financial Services
3.4.6 Land
3.4.7. Minerals, salts, etc
3.5. Performance Measures for each milk shed visited (field data)
3.6 Summary Assessment
4. BEYOND THE FARM GATE–DISTRIBUTION, PROCESSING, MARKETING……32

4.1. Formal and Information Distribution Channels
4.2. Distribution of Raw Milk
4.2.1. Collectors
4.2.2. Primary Cooperatives and Union Cooperatives
4.2.2.1. Primary Cooperatives
4.2.2.2 Cooperative Unions
4.2.3. Transporters
4.3. Processors of milk and milk products (interviews from last week.)
4.4. Domestic market – Retail, Hotel, Milk Shops, etc.
4.4.1. Household Purchase
4.4.2. Retail
4.4.3. Institutional – hotel, restaurants, hospitals
4.5. Exports
4.6. Employment Creation in Value Chain from Increased Dairy Production
5. DAIRY VALUE CHAIN………………………………………………………………..….. 38

5.1. Overview
5.2. Formal Dairy value Chain
5.2.1. Input supply
5.2.2. Milk production
5.2.3. Raw milk transporters
5.2.4. Bulking and chilling centers
5.2.5. Commercial milk processors
5.2.6. Retailers
5.2.7. Consumers
5.2.7. Service providers
5.3. Informal dairy value chain
6. POLICY ENVIRONMENT……………………………………………………………… 49
6.1. Market Distortion Policies
6.2. Participatory Institutions for Collective Action
6.2.1. Cooperatives
6.2.2. Ethiopia Dairy Development Council
6.3.1. Gates Investment in the Extension service and FTC
6.3.2. Credit
6.3.3. Improve Animal Genetics
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6.3.4. Foreign Direct Investment

6.3.5. International Donor Programs
6.4. Regulatory Institutions for Markets, Public Health and the Environmental
7. CONCLUSIONS, RECOMMENDATIONS AND INTERVENTIONS……………… 53

7.1. Conclusion on Key Limiting Factors
7.1.1. Key constraints in the development of the sub-sector to achieve self- sufficiency
in milk by 2020
7.1.2. key opportunities for the dairy sub-sector
7.2. Strategy for the Improvement of the Dairy
7.3. Key interventions
8. ANNEX…………………………………………………………………………………… 62
8.1. Bibliography
8.2. Maps of Milk Sheds
8.3. Tables of data
Annex Table 1-EDDP/LOL Milk shed, Region, Site and woredas
Annex Table 2; list of primary dairy cooperatives and Unions
Annex Table 3.-. Performance of Primary Cooperatives in
Milk Sheds in Ethiopia, 2008 and 2009
Annex Table 4 – Value of Imported Dairy Products by Ethiopia in (Birr)
Charts
Figure 1. Allocation of milk produced in Ethiopia
Figure 2. Schematic of the Functions in the Value Chain
Figure 3.1. Total Milk Production and Average Daily Milk Production
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ACRONYMNS
AGDP Agricultural Gross Domestic Product
AGP Agricultural Growth Program
ATVET Agricultural Technical Vocational Education Training colleges.
AI Artificial Inseminations
ALPPIS Addis Livestock Production & Productivity Improvement Services, PLC
APHRD Animal and Plant Health Regulatory Department
NAIC: Artificial Insemination Center
BDS Business Development Services
CBO Community Based Organization
CAHW Community Animal Health Workers
CSA Central Statistics Agency
DDE Dairy Development Enterprise
DIGA Dairy Income Generating Activity
EDDC Ethiopia Dairy Development Council
EDDP Ethiopia Dairy Development Project
EMPPA Ethiopia Milk Processors and Producer Association
NNP Ethiopia’s National Nutrition Program
FAO Food and Agricultural Organization of the United Nations
FTC Farmers received training at the Farmer Training Center
GOE Government of Ethiopia
LOL Land O’ Lakes
LMP Livestock Master Plan
MOA Ministry of Agriculture
MoARD Ministry of Agriculture and Rural Development
MOFED Ministry of Finance and Economic Development
NAHIDL The National Animal Health and Investigation and Diagnostic Laboratory
NAIC National Artificial Insemination Center
NGO Non Governmental organizations
NVI The National Veterinary Institute
OIE World Organization of Animal Health
PADETES Participatory Demonstration and Training Extension System
PPP public- private- partnership
RUTF Ready to Use Thereputic Food
SCMB Corn-Soy-Milk blend
SDDP Smallholder Dairy Development Project
SNV Netherlands Development Organization
UAE: United Arab Emirates
USAID United States Agency for International Development
WWS World Wide Sires
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EXECUTIVE SUMMARY
A vibrant dairy sub-sector is important for the economic development of Ethiopia. Dairy offers a
pathway out of poverty for a large number of households keeping livestock. USAID support for
the commercialization of the dairy industry over the next five years (2011 – 2016) can increase
the sales of approximately 100,000 households to US$ 10.0 million per year by October, 2016.
At the same time, the dairy industry can provide needed food products to meet the increasing
food security and nutritional requirements of an expanding population. The study finds that the
growth in the dairy sub-sector could also create up to 73,000 new dairy related jobs by the year
2020.
Estimates place Ethiopia far below recommended daily milk intake at 17 lt per capita, and even
below the African-wide average in per capita consumption. Recent research found that on
average only four percent of the average Ethiopian household’s food expenditures are spent on
dairy products. However, tremendous potential exists to increase production and consumption of
dairy products
Though Ethiopia has the largest inventory of livestock in Africa, its productivity and
commercialization remain low. This is after decades of interventions by the government and
international donor agencies to improve the sub-sector. Recent research found that the
Government of Ethiopia (GOE) has undervalued the contribution of ruminant livestock
production to gross value of ruminant’s contribution to agriculture. The dairy sub-sector
contributes 63% to total value of ruminant output. By underestimating livestock’s contribution,
the GOE has underfunded the development of this sub-sector vis-à-vis general agriculture.
There are, however, positive signs of a take-off of the formal dairy sub-sector as the current
government has chosen a market-oriented policy with liberalized markets and encouraging
private sector investments in the dairy industry. However, the dairy sub-sector faces challenges
to secure and sustain these initial gains for future generations, and development assistance can
play a significant role in overcoming these challenges.
This potential take-off comes at a time when the demand for animal products is increasing due to
growing population and urbanization, rising disposal incomes, and changes in demographic
structure of the population. Our projection is for demand for milk and milk products to increase
from its present level of 17 lt per capita to approximately 27 lt per capita in 2020. To fill this
gap, the domestic industry will need to expand, dairy cows will have to be more productive
(cross-bred cows) and better managed, and producers will have to become more market-oriented
and commercialized; otherwise, dairy imports will continue to increase and will drain scarce
foreign exchange. Ethiopian producers can provide milk to meet the increasing national demand.
At current rates of population, urbanization, and income growth, USAID investment over the
next five years can help achieve 27 lt per capita and substantially improve the food security and
nutrition of approximately 13.5 million consumers by 2020.
These challenges, which are not new, create opportunities for producers and investors who are
innovative and risk-takers. The GOE has a clear mandate to support the development of the
dairy sub-sector with policies in the areas of land allocation and tax holidays for participants in
the value chain. However, market distorting policies of the past continue to hamper progress,
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and they need modification if the dairy sub-sector is going to take-off on a sustained growth
path.
This study takes a value chain approach to identify the constraints, opportunities, interventions
and possible impact for the dairy sub-sector from input supply to final consumption of milk and
milk products. The report identifies areas where USAID/Ethiopia funds can be leveraged to gain
maximum impact for the largest number of beneficiaries. These innovative solutions are
recommended to have sustained impact over the next decade to meet our targets set for meeting
demand projection in the year 2020. The priority areas for USAID/Ethiopia funding are:
1. Articulate and share with the GOE a vision for and strategy for a vibrant and progressive
dairy sub-sector that supports the efficient and safe production, processing and marketing
of milk and milk products.
2. The recommended strategy is for USAID/Ethiopia to support the GOE’s market-driven

approach that places priority on meeting the increasing market demand for convenient,
quality (hygienic) and affordable milk and milk products in targeted geographic areas
focus based on market access and conducive agro-ecological conditions for dairy,
consistent with the GOE (MOA) and World Bank’s Agricultural Growth Program (AGP)
regions.
3. Strengthen the capacity of PDC and dairy unions to collect milk for sales and processing,
and provide input services to its members
4. Focus on formal and informal milk channels with the goal of moving actors in milk and
dairy value chains from the informal to the formal channels.
5. Focus on and strengthen existing small and medium-scale processing units along with
expansion of SME processing into other growing urban centers
6. Building on the successful proof of concept of DIGAs involving PLHIVs, expand the
support for the creation of DIGAs involving women, women’s groups, youth and farmers
to enhance the marketing (feed, concentrates, mineral blocks, etc.) and retailing dairy
products in urban areas
7. Provide knowledge-based skill sets to SMEs (individuals, coops, and private firms) to
better adopt innovative solutions to filling technological gaps and removing constraints
for delivery of inputs for the producing, processing and marketing of milk and milk
products
a. To all participants in the value chain
b. Providing training, technology backstopping, and business services
8. Strengthen existing producer groups and the formation of new market-oriented producer
associations/cooperatives and build up the professional capacity of existing primary
cooperatives and cooperative unions through business development services (BDS) to
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provide services that benefit the members in the procurement of inputs, collection of bulk
milk, and the sale of their milk and dairy products
a. Technical support
b. Business Development Services
c. Access to credit
9. For inputs and input services, expand existing services and foster market incentives for
new entrants that reward risk-takers who invest their time and resources in new business
ventures to provide quality inputs and services to dairy producers and processors:
a. Focus on artificial insemination (AI) and health services using business models
b. Contracting for services between groups of producers and input suppliers – forage
seed, fodder, genetics and animal health
c. Development of private rural farm stores linking input suppliers and input
services with farmers, coops, and producer groups
d. Availability of micro-credit to support SMEs
e. Provision of matching grants, loan guarantees, etc.
10. Expand the proven model of dairy “lead” farmers who will be the catalyst for the testing
of innovative “good dairy management practices” which will lead to their contact famers
to adopt improved practices for increased productivity and expansion of dairy herds:
a. Smallholders (one to three heads) to become medium-size producers (four to 6
heads
b. Medium-size producers (4 to 6 heads) to become larger producers (7 head and
over)
c. Large producers (7 to 10 heads) to expand their dairy herd by at least 50 percent
11. Promote leadership skills for women in all types of employment in the dairy value chain
with training, business planning and facilitating the access to credit.
12. Provide targeted support to women and unemployed youths to engage in all business
activities in the dairy sub-sector (even as lead farmers) , recognizing that they have
primary responsibility for the majority of milk and milk products that are produced,
collected, processed, and marketed, with the result to create employment in rural and
urban areas
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13. Support the strengthening of a public sector adaptive research program targeted to
specific high potential agro-ecological areas for improved dairy production systems and
link the results of the research to lead farmers and their contact farmers, as well as, to
FTCs
a. Forage varietal trials
b. Dairy rations using local agricultural by-products
c. Pasture management and zero grazing systems
d. Nutrient recycling of organic materials for pasture and crop development
e. Production of feed grains for animal production
f. Optimizing cross-bred animal management systems for different agro-ecological
zones
14. Roll-out an extension model involving input suppliers, rural farm stores, coops,
processors in on-farm demonstrations and training of collectors and primary dairy
cooperatives (PDC). This can be done with close linkage to the MOA’s farmer training
centers (FTC), NGOs, and rural agro-dealers
a. Link “lead” and “contact” farmers to the MOA’s training activities at the FTCs
b. Provide technical packages training and manuals (e.g. forage seed production,
silage making, etc.) for improved dairy production to the FTCs in high producing
dairy production areas
15. Support the relocation and commercialization of urban dairies by municipal governments
in set-aside agricultural zoned areas in the peri-urban areas to avoid liquidation of dairies,
environmental degradation, and pollution, through creation and support of producer
groups and cooperatives.
16. Support the Ethiopian Meat and Dairy Technology Institute (EMDTI) and other
vocational training centers with technical support in training people for jobs in milk
handling, testing, processing and merchandising of milk and milk products
17. Support the creation and functioning of the Ethiopian Dairy Council/Board to foster
public-private dialogue at both the national and regional levels to create a dynamic,
private sector-led dairy forum to address industry needs with government agencies so as
to provide a regular supply of quality milk for the marketplace. Topics for public-private
dialogue include:
a. Access to land for forage and dairy production
b. Milk quality industry standards
c. Enforcement of contracts for delivery of products and services
d. Land zoned for dairy production
e. Government programs on subsidized AI and animal health services
f. Harmonize regulations on live animal, and animal and plant genetics with
international standards
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1. OVERVIEW OF THE DAIRY SUB-SECTOR STUDY

1.1. The Role of the Dairy Sub-Sector in the Economy of Ethiopia
Ethiopia has one of the largest livestock inventories in Africa with a national herd estimated at
49.2 million cattle, 46.8 million sheep and goats, and 9 million pack animals. All livestock
currently support and sustain livelihoods for 80% of all rural poor. Of the total population, 35 –
40 % of all livestock are located in the pastoral areas.(MoARD 2007) Female cattle constitute
about 55.48% of the national herd.. Of the total female cattle population, dairy and milking cows
total 16,941,361, 14.24% dairy1 cows and 20.12% milking2 cows (CSA 2008). Eighty-three
percent of all milk produced in Ethiopia comes from cattle with the remainder coming from
goats and camels. (MoARD 2007) Sheep’s milk is not commonly collected or consumed in
Ethiopia. The Central Statistics Agency (CSA, 2008) estimates 2.76 billion liters of cow milk
produced by sedentary populations annually while camel milk is estimated at 16.2 million liters
annually.
The Ministry of Finance and Economic Development (MOFED) estimated the gross value of
ruminant livestock production in 2008/09 at Birr 32.64 billion. The estimate includes the values
of: livestock off-take (Birr 9.653 billion), milk and milk products (Birr 19.471 billion) and other
products, e.g. wool, dung and change in stock investory. Very recent recalculation of values by
Behnke et al. estimated the contribution to the economy at Birr 48.07 billion, an increase of 47%.
(This figure does not include the value of animal traction.) Milk and milk products contributes 63
percent to gross value of ruminant livestock production. The GOE has been underestimating the
contribution of livestock and especially milk to the agriculture gross domestic product (AGDP)
of the country.
1.1.1. Milk Production and its Allocation
Ethiopia produces approximately 3.2 billion litres from 10 million milking cows – an average of
1.54 litres per cow per day over a lactation period of 180 days (CSA quoted by Tefera). (See
Figure 1.1) The farm-level value of the milk is an estimated Birr 16 billion. The value of other
important animal products and services include blood, traction, transport, and manure for organic
fertilizers and fuel. Estimated calf consumption and wastage of milk is 32% of the milk
produced (Getachew and Gashaw). Households consume approximately 85% of the milk
collected, 8% of the milk is processed into products with longer shelf life, and 7% is sold
(MoARD, 2007). During peak production in the wet seasons, rural farmers, not part of formal
cooperatives, face challenges marketing their milk as most regions experience a surplus. More
surplus milk may be processed at the home into local cheese or butter. For most subsistence
farmers in all cultures in Ethiopia, the daily decision on how to allocate milk is decided by the
head female in the household and is dependent upon season, number of children in the
household, presence of sick family members, and daily financial needs.

1
Cow of any breed kept primarily for milking purposes
2
Cow of any breed which has been milked
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Figure 1.1. Allocation of milk produced in Ethiopia
National Production of Milk – – 3.2 billion
liters, with a farm value – Birr 16 billion:
Calf consumption and
wastage ‐‐ 32% =
1.024 billion lt Human Consumption of Milk (68%); Amount for human
utilization = 2.176 billion lt (milk,butter, cheese, & yogurt)
Producers’ Consumption of Fluid Household Processing into Household Milk Sales

milk (85%) butter, ayib, cheese, ghee, off farm (7%)
(8%)
Household Household Sales Collectors into Cooperatives

consumption of of processed informal milk and Coop
processed milk sales Unions
Milk Processing
–pasteurizing,
butter, yogurt,
cheese
Sales of loose Urban Sales Urban Sales of milk =

milk to rural HH of loose milk 150,000 l/d in Addis
Ababa
1.1.2 Livestock and Milk in the household economy

Livestock performs multiple functions in the Ethiopian household economy by providing food,
input for crop production and soil fertility management, cash income as well as in promoting
savings, fuel, social functions, and employments. With these multiple functions, livestock can
serve as a vehicle for improving food security and better livelihood of the rural population.
As listed in Figure 1.1., a majority of the dairy households in Ethiopia directly consume most of
their animals’ milk production, 85%. This is compared to only 62%, 66%, and 62% of
production of grains, cereals, and pulses respectively being consumed. (CSA 2010) An increase
in HH income through the adoption of improved dairy technology has been found to lead to
improving the household’s nutrient intake which contributes to better health and nutrition.
Smallholder producer will trade milk for in-kind payment for casual on-farm labor or for barter
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with shops, although this is more common in the highlands. This practice may have stemmed
with the high farm labor needs during peak milk production periods.
Despite the contribution of livestock to the economy and to smallholders’ livelihood, most
livestock production systems in Ethiopia are not adequately market oriented. Livestock in either
the highlands or lowlands are not kept for commercial purposes (sales of livestock is estimated at
only 10 – 12%). The primary reason for selling an animal is to generate income to meet
unforeseen expenses. Milk, because of its consistent albeit season contribution, is more market
oriented although 98% of all milk marketed in Ethiopia is through the informal market channels.
In Addis Ababa, the informal market channel handles 90% of milk and milk products sold to
consumers (personal communication with processors and Jabbar et al.).
Apart from its contribution as a source of food and income, it is the only source of traction power
in traditional peasant farms. In the arid and semi-arid extensive grazing areas of the Eastern,
Western and Southern lowlands, livestock are managed in migratory pastoral production system.
1.2. The Challenges
In spite of the enormous livestock resource and great potential for increased livestock
production, the productivity is disproportional lower due to a number of dynamic economic,
technical, policy and institutional challenges (Tefera, et al.) Livestock producers encounter
various livestock management problems, prevalence of major endemic diseases, poor feeding
and high stocking rate on grazing lands.
Thus, the contribution of this sector in the agricultural economy of the country remains lower.
Indeed, it accounts for merely 30-35% of the national agricultural output and 40% of the
agricultural export.(MOFED, 2008). Studies indicate that the livestock sector contributes about
12-16% of national Gross Domestic Product (GDP) Moreover llivestock also contribute to the
livelihoods of 60-70% of the population, 15% of export earnings and 30% of agricultural
employment.
The smallholder farmers and pastoralists produce and supply 98% of the total milk production of
the country (YONAD 2009). The economic prospects for dairy industry performance and
development are rather good both at the smallholder level and on the more commercial level.
During the last decade the dependency of Ethiopia on imports of milk and milk products has
increased. To bridge the gap between supply and demand, dairy imports increased significantly
partly due to increased food aid (WFP), primarily milk powder. Imports reached a peak of
994,657 kg in 2008. (Customs) Furthermore, the sales of imported milk powder are the highest in
the Addis Ababa market.
Rapidly increasing population with a growing rate of urbanization is resulting in a shift in
demand for dairy products. Dairy development can lead to income generating activities in the
rural areas increasing farm incomes and employment opportunities. However, the available high
potential land is intensively cultivated, and fodder supply is insufficient leading to often serious
environmental consequences as inappropriate husbandry measures are applied in non-suitable
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areas. Besides low milk production levels, milk collection, processing and marketing are not
developed. A chain approach aimed at a sustainable development of the dairy sector is lacking3.
Milk is important for food security impacting both income and nutrition. An increase in HH
income through the adoption of improved dairy technology has been found to lead to improving
the household’s nutrient intake which contributes to better health and nutrition.
The dairy sub-sector faces a number of problems that have persisted for decades. Productivity of
the dairy herd is low with average milk yield of 1.3 lt – 1.54 lt per day for an average lactation
period of 180 – 210 days. Cross-bred cattle have a higher level of production estimated at an
average of 10 lt/hd/day (EDDP). Dairy producers face high transaction costs from poor
infrastructure The cost to collect milk which is in small amounts spread over a wide area can be
high which limits access to improved inputs, e.g. better cattle genetics and animal health
services. Feed production and distribution is not coordinated. High mortality rates occur to poor
nutrition which makes cattle vulnerable to disease. Producers in the rural areas lack access to
markets which reduces their incentives to market fresh products and rather process lower value
products.
There is a general lack of information on technologies because of limited access to extension
services which reduces the ability of smallholder producers to be competitive. Dairy becomes a
subsistence activity. This lack of access to information spills over into a lack of awareness about
the market prices for their milk or the sale of their animals. Collectors can exploit this situation.
For over forty year, the GOE has played different roles in administering government services.
The GOE has moved from an autocratic system, to a socialist regime, and now to a market
oriented approach for the past two decades. The sub-sector lacks coherent national and regional
dairy policies. Because of these factors, dairy production has not become commercialized as in
other neighboring countries. However, the sub-sector seems poised for a take-off.
1.3. A Value Chain Approach
Our approach to understanding the dairy sub-sector is to examine the companies and individuals
that interact in forming the supply of all goods and services in the value chain for the dairy sub-
sector. We describe the complex interactions of firms and processes that create and deliver
products to end-users (Figure 2). We start at the final consumer market recognizing that this
segment in the value chain sets the conditions and the prices under which products are produced,
processed and distributed. We also identify constraints in the value chain to productivity, and the
opportunities to overcome these constraints.
The study segments the various activities along the value chain from inputs into production to
product transformation and finally to the end-users. (See Figure 1.2.). We consider local,
regional, national and international markets. Based on the best data available, we estimate the
value addition to dairy products along the value chain.

3
SNV Netherlands Development Organization Study on Dairy Investment Opportunities in Ethiopia, 2008
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Figure 1.2. Schematic of the Functions in the Value Chain
Consumers Markets Processing Distribution Production Inputs

*local *value *Transport *agro‐ *husbandry
*regional addition *aggregate enterprises * health
*national * Nutrition
1.4. The Tasks and the Study Team

The GOE’s MOA with assistance of the World Bank (WB) developed an Agricultural Growth
Program (AGP) which targets over 84 woredas. USAID has pledged to support the AGP. Land
O’Lakes conducted the value chain (VC) study at the request of USAID to provide information
in the planning of new livestock initiatives in the AGP.
Land O’Lakes conducted a rapid assessment of the dairy value chain in October and November,
2010. The team was composed of experts in production, technology transfer, processing,
distribution and marketing. Some of the team are current LOL staff located in various key milk
markets.
The team reviewed a number of documents on the dairy sub-sector in Ethiopia and the East
Africa region (see references in annex). The value chain study commissioned by SNV and
conducted by TechnoServ Kenya in 2006 served as a baseline from which to examine changes in
the value chain.
The LOL team developed an interview guide for the purpose of data collection from various
stakeholder groups. Interviews were conducted in Addis Ababa, Bahir Dar, Mekele, Debre
Birhan, Fiche/Chanchos, Jimma Hawassa, Debre Zeit, Assela, and Dire Dawa. The study team
members interviewed input dealers, producers (commercial, urban and peri-urban, smallholders),
market agents, processors, transporters and retailers. The team held a one day workshop to
present the findings from the stakeholder interviews in the different milk sheds. Findings from
the field reconnaissance were compiled into tables for ease of comparison. This information is
found in a separate report. The final report with a companion PowerPoint presentation (separate
document) was presented to USAID on November 8, 2010.
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2. DEMAND FOR MILK AND MILK PRODUCTS

2.1. Milk Consumption
Ethiopia consumes approximately 17 kg/capita. (GOE, LMP, 2007). Approximately 83% of the
total milk produced is consumed at the household level and only 7% is supplied to the formal
and informal markets. The remaining balance is distributed between in-kind wages (0.43%), and
used for processing local butter, yogurt, and cheese (10.06%) primarily as a means of extending
the shelf life during times of surplus. Oromia region supplies more milk to the market as
compared to the other three large dairy producing regions of the country.
2.1.1. Milk and Milk Product Consumption in Urban Areas

Income will be a key driver of levels of milk consumption. As individual’s income rises there is
a greater proportional rise in their expenditures on dairy products. The highest expenditure
group, which makes up around 10% of the Addis Ababa market, consumes 38% of the milk. On
the other hand, 61% of the population who are in the lowest expenditure group, consumed only
23% of the milk. Based on 2005 data, workers in the lowest income class would have to work
2.71 hours for one kg of milk, 27 hours for one kg of butter, and five hours for 1 kg of ayib
(MOA, 2005). In the Addis Ababa market, 5,000 commercial producers (estimate in 2002) sold
73% of their production, 10% went to household consumption, 10% to calves, and 8% was
processed (Azage, et al, 2002.) The other source of milk serving Addis Ababa is primarily dairy
enterprises processing and selling milk. Addis Ababa is the dominant market with other towns
like Bahir Dar, Jimma, Awassa and Dire Dawa offering opportunities for milk marketing.
The primary outlet for processed milk is Ethiopia’s urban centers, namely Addis Ababa, Bahir
Dar, Debre Zeit, and Awassa. However, the majority of the milk consumed by most urban and
semi-urban homes is supplied through the informal sector: smallholder milk producers and
traders directly supplying households, kiosks, hotels, coffee shops and the like. The impact of
fasting days on milk demand is more evident in urban markets. With over 200 days of fasting,
the milk processing companies will be more negatively impacted than small milk collectors. The
tradition of fasting within the Ethiopian Orthodox community creates a double-induced excess
supply of milk; Ethiopian Orthodox households producing milk will not keep milk for household
consumption, instead seeking a market to sell all milk, while the demand for milk within rural,
urban, and semi-urban communities is less as people observe the Fast. On the flip-side, demand
for dairy products within Muslim communities increases during fasting periods, approximately
30 days/year. Table 2.1 displays the population of these two religions. Exact figures of the
portion of people who observe their respective fasts give and indication of the real impacts the
fasting period has on milk demand.
16
Figure 2.1. Population size by religious affiliation
Religion Total % of Total Urban % Urban Rural % Rural

Population Population Population Population Population Population
Orthodox 32,138,126 43.5 7,070,932 59.1 25,067,194 40.5
Muslim/Islam 25,045,550 33.9 3,098,275 25.9 21,947,275 35.4
Source: CSA, 2007
2.1.2. Milk and Milk Product Consumption in Rural Areas

In the rural areas, the consumption of milk will be determined by livestock ownership and
season. The demand for milk is mainly for fresh whole milk which is satisfied by own
production or purchased from neighbors. Processed milk is currently not sold in rural markets. In
the rural areas producers will consume fresh milk and will convert their milk to butter. It is
estimated that 40% of the milk produced is converted to butter, while only 9% is converted to
cheese (GOE’s Livestock Master Plan - LMP, 2007) Traditional butter ferments slowly at room
temperature and can be kept for a year or longer, offering rural consumers a readily storable and
durable dairy product (GOE, LMP, 2007). Milk consumption in a region will depend on its herd
size and the volume of milk produced.
2.1.3. Milk and Milk Product Consumption in Pastoral Areas

Pastoral communities are acutely aware of the nutritional value of milk. Women in Somali
Region perceive milk from camels and goats to be the most beneficial for children’s overall
health, strength, and growth. In the wet season, milk consumed by pastoral children can account
for 67% of the mean daily energy they require and 100 % of their protein requirements. (Sadler
and Catley 2009) Lack of availability and access to milk in the dry season decreased daily
consumption amounts by almost 25% with milk contributing only 16% and 50% of energy and
protein requirements respectively. In drought years, children’s milk consumption will drop an
average of 50% in surveyed communities.
Consumption of milk within households decreases during the dry season due primarily to lack of
feed and fodder resources and general decline in the nutritional health of lactating animals.
Herders will often try to time cattle pregnancies and calving periods so that the natural drying off
period for a lactating animal coincides with the dry season. For women and children, the
shortage of dry season milk availability in pastoral communities is exacerbated because herds are
moved far from settled family members as boys and men seek out water and grazing lands for
their animals.
2.2. Milk Consumption Compared to Other Countries
Ethiopia has a low level of milk consumption compared to other countries in the region (Kenya =
90 lt/cap; Uganda = 50 lt/cap). Even though Ethiopia has the largest inventory of milk producing
animals,(cattle, sheep, goats and camels), per capita consumption of milk is low compared to
Kenya with fewer livestock and Sudan. The national per capita consumption of milk and milk
products is estimated at 17 kg (Ahmed). Per capita income levels in Ethiopia place it in the range
with Tanzania and Rwanda with annual per capita consumption of milk at less than 20 kg.
17
Average expenditures by households on milk and milk products is only four percent of the total
household food budget (Staal, et al, 2008). Ethiopia is unique from other countries in the region
because of the number of fasting days, over 200, and the cultural attitude that milk is mainly for
children and the sick (SNV).
2.3. Milk’s Role for Food Security and Household Nutrition
Livestock, milk, and milk products play an important role in the food security status in both
highland and pastoral communities. In pastoralist regions, livestock are owned by a large
percentage of the population. Women play a large role in decision-making regarding the
processing and marketing of milk.
Highland areas of the country contain over 65 - 75% of the livestock population; cattle provide
traction power for 95% of grain production and also provide food, manure, cast income as well
as serve as insurance during times of drought or a household emergency. In highland areas,
income earned from daily milk production is used to purchase agriculture inputs or hire labor and
land, effectively increasing a household’s food production potential. Although the daily income
earned is marginal, especially from low milk producing local breed animals, milk sales and
livestock ownership is necessary for food security. For example, farmers without access or
unwilling to join a cooperative will often contract to sell their milk to a neighbour, kiosk, or a
local café. The buyer pays monthly while receiving milk daily. This monthly cash/barter
transaction enables farmers to save small amounts of daily income for re-investment into
household livelihoods or the purchase of other livestock.
Highland farmers with local cattle will use the sale of offspring to ‘upgrade’ to a better
producing cross-bred animal. A female head of household interviewed during this assessment
discussed her plan to save all her milk money. One liter of milk would be saved for the four
children while the remainder (anticipated 3 liters per day) would be saved and used to purchase
an improved cow. Given the high price of cross-bred dairy cows, the likelihood she will be able
to purchase such an animal will be years away. The introduction of a cow into her household (the
cow was received as part of a pass-on scheme implemented by an NGO) has provided her the
opportunity to plan for the additional income and her family’s future.
In addition to the positive impact that dairy and livestock can have on household income, assets,
and food security, the nutritional significance of dairy products has also been well documented.
Dairy provides importance sources of vitamins and minerals, particularly zinc, potassium,
calcium, riboflavin, and B12. (Murphy and Allan, 2003, Sadler et al, 2009) These
micronutrients, particularly important for infants and young children, are largely insufficient,
absent, or poorly bio-available in plant-based diets, making dairy an important and essential
source of nutrition. (Randolph et al, 2007, PAHO and WHO, n.d.) Milk is also highly energy-
dense, which is important for young children or chronically ill with lack of appetite. Importantly,
milk comprises all eight essential amino acids, thus constituting high quality protein. Research
has demonstrated the positive nutritional impacts of dairy, including an association between
increased consumption of milk and improved child growth (Zhu et al, 2004 and Hoppe et al,
2004), as well as an association between consumption of fermented milk products (including
those containing probiotics) and the prevention of diarrhea (Szajewska et al, 2001). Thus, the
18
consumption of even small quantities of milk can markedly improve the nutritional quality and
diversity of the diet.
Due to the important nutritional value of milk, increasing consumption of milk either directly or
through fortified foods is often a priority of national health and nutrition programs. Ethiopia’s
National Nutrition Program (NNP) includes provision of Ready to Use Thereputic Food (RUTF),
Corn-Soy-Milk blend (CSMB) to health centers serving mothers and infants, children, and HIV
affected Ethiopians. The NNP Implementation Guide recommends local procurement of these
fortified foods, specifically citing Hilina Enriched Food Processing Center located in Addis
Ababa. Currently, Hilina imports all milk products due to lack of consistent quality supply
within Ethiopia.
2.4. Consumption of Imported Milk Products by Areas and Product Categories
The value of imports of milk products increased from Birr 48 billion in 2005 to over Birr 114
billion in 2010 (partial year) (See Annex Tables). The value of imports doubled during this five
year period. The imports of milk products are a drain on the foreign exchange reserves which
could be replaced with domestic production. The major import item is powdered milk and
cream.Without improvements in domestic production and marketing of milk, the amount and
value of dairy imports will continue to rise.
2.5. Milk Consumption in 2020
Population growth and urbanization are two important drivers of milk demand. Other factors are
personal disposable income, taste and preference, and the price of substitute products. Based on a
population at 85.2 million people for 2010, the population of urban areas would be 14.4 million
people, 17% of the general population. Based solely on urban population and a conservative
estimate of 17 kg per person, the annual total consumption of milk in urban areas is estimated at
244.8 million liters. Three estimates (high, medium and low) present a range in which milk
consumption may reach in 2020.
2.5.1. High Estimate
Based on population growth projections, if per capita consumption of milk and milk products
increases 5% per year until 2020, the national consumption of milk would be 3.2 billion liters
and the urban and peri-urban consumption would be 611 million liters. Per capita consumption
in 2020 would increase to over 27 liters per capita. (This level of consumption matches FAO’s
estimate in 2003 for average consumption in Africa.) Urban consumers would require an
additional 364 million liters of milk or an increase of an increase of 148% over current
consumption. This estimate is not unrealistic if the GOE and its donors continue to advertize to
the younger population the importance of drinking milk. The preferences of the younger
population are more malleable, especially on cultural, social and religious norms. The impact of
the fasting days on the younger population milk consumption habits could be much less than at
the present time.
19
2.5.2. Middle of the Range Estimate

Assuming that urbanization continues to grow at 4.3% per year until 2020, but per capita
consumption of milk remains the same at 17 kg per capita, the consumption in peri-urban and
urban areas in 2020 would be 375 million liters. Urban areas would need an additional 128
million liters or an increase of 52% over the current estimated level of urban consumption.
2.5.3. Low Estimate
For the low estimate of the range, the rate of urbanization remains the same and per capita
consumption of milk and milk products remains the same as in 2010 with no income effect, no
effect from relative prices of substitutes for milk and milk products, or a change in the preference
for milk. Then the annual consumption of milk would be 337 million liters in peri-urban and
urban area. An additional 91 million liters would be needed or an increase of 37 percent over the
current estimated level of consumption.
2.6. Assessment
The projection for demand for milk and milk products to 2020 is for a steady increase based on
growth in urban population, increased in disposable income and change in tastes and preferences.
The question is whether producers can respond with the adoption of improved technologies and
management practices to increase their supply to meet the expected rise in demand for quality
milk and milk products, or if the government will have to expend scarce foreign exchange on the
importation of increasing amounts of foreign exchange for dairy products.
20
3. DAIRY PRODUCTION
3.1. Current Situation
There are 10 million dairy cows in Ethiopia producing 3.2 billion lt per year. The production per
cow is estimated at approximately 1.54 lt per day for an average lactation period of six months.
In fact, national milk production for the period of 1966 to 2001 increased by only 1.6% per year
and per capita production declined by 0.8% per year (Staal, 2008).
The Ethiopian cattle herd is mainly for milk production. Commercial offtake rates can be low,
estimated at 10 – 12 percent of the national herd. The national herd is composed of mainly cows,
and they are held in the herd beyond the period of maximum milk production. In the highlands
of Ethiopia, cattle for draft power is important in crop production systems.
Milk production can vary by regions of Ethiopia. Figure 3.1 depicts that Oromia region produces
1.3 Billion liter per year making it the leading milk producing region. SNNP is the second largest
milk producing region with an estimated total of 572 million liter and followed by Amhara
region 506 million liters and Tigray with 136.7 million liters. The least milk producing region is
Dire Dawa producing 3.1 million litters annually. Average milk production is below the national
average in those regions with the most dairy cattle: Oromia, Amhara, Tigray and SNNPRS
regions is 1.2 liter (Figure 3.2). Oromia region’s average is even less at 0.6 lt per cow per day.
(CSA, 2008).
Figure 3.1. Total Milk Production and Average Daily Milk Production
21
Figure 3.2. Average Daily Milk Production per Cow

According to recent studies the total milk production is increased significantly (300%) from what
it has been the year 2000 (Haile). The milk per capita, based on the 2008/09 survey is 37.62 liter
(CSA 2009). According to the forecast of FAO, the annual production is far below the survey
made by CSA. During the period from 2001 to 2007, based on FAO forecast, cow milk
production is growing at an average rate of 2.6%, which is equivalent to the Ethiopia’s
population growth rate but below the rate of urbanization which is over 4% (2007 census).
3.2. Milk Production Areas
Market oriented milk production is located in the highlands where rainfall, temperature, and soil
types are conducive to forage production. There are three main milk producing areas in the
highlands; Greater Addis, Lake Tana, and Mekele / Humera. Of the 516 million liters produced
in these areas 65% comes from the Greater Addis milk shed.
3.3. Production systems and Milk Sheds
Ethiopia’s dairy production systems can be broken down into four main systems: (1)
commercial, (2) peri-urban and urban, (3) rural dairy smallholder, and (4) pastoral and agro-
pastoral. The rural dairy small-holder system produces the largest share of total milk produced,
contributing 98% of the milk supply. (See the maps of milk sheds and road networks in Annex
Table 8.2).
3.3.1. Commercial Production
Ethiopia’s population of improved-breed dairy cattle (pure and quality crosses) is small, 300,428
cross-bred and 52,992 pure bred animals. A majority of the pure bred animals reside on
commercial or government farms, although the number of farms housing these animals was
unknown at the time of this assessment. Within the Greater Addis milk shed (there are 269
commercial dairy farms with 10 or more mature cows. Producers would rely almost
22
exclusively on AI for good semen and would keep breeding records. These producers would be
willing to pay for the more expensive imported genetics and breeding supplies (SNV).
The number of exotic dairy cattle (pure breeds) in Ethiopia is small. The output per cow can
can range from 1120 – 2500 lt per lactation. Producers would rely almost exclusively on AI for
good semen and would keep breeding records. These producers would be willing to pay for the
more expensive imported genetics and breeding supplies (SNV). In the Addis Ababa vicinity
there are an estimated 5,000 dairy producers with grade and cross-bred cows producing 34
million lt per year (Azage, 2002).
3.3.2. Peri-Urban and Urban Production

Dairy farmers in the peri-urban and urban areas are specifically targeting consumer in the nearby
town and city. Producers would have a better understanding of dairy management. Producers
will sell to processors or direct to consumers. These producers have better genetics with greater
dependence on AI services. The preferred cross-bred cow have 50 – 62.5 percent improved
genetics. Some of these producers would likely keep breeding records. A quality cross-bred
animals sells for approximately Birr 18,000 to Birr 25,000 per head.
Because of the scarcity of land, cattle are maintained under confined systems where feed is
provided directly to cattle. Producers would rely mainly on cut and carry fodder (44%), brewers
waste (35%), oilseed cakes (16%), commercial feeds (3%) and others (2%).
The value chain study conducted in 2006 by Technoserve for SNV was mostly of peri-urban
producers. These field data found that feeding and animal health accounted for 51% of the cost
of production. Feeding was 29% and animal health was 22% of the sales revenue. The margin
(return) from the sale was 14% of the sales price.
3.3.3. Rural Smallholder Production
Approximately 75% of the livestock population are held by smallholders in the Highlands.
Cattle are used for milk production and animal tractioin. The manure is used for fertilizer on
cropland or for household fuel. The fragmentation of landholdings makes it difficult to maintain
livestock in adequate condition. In the rural areas of the Highlands, producers keep mosly zebu
cattle which have lower milk production. The average milk production can range from 400 to
600 lt for a two hundred day lactation period (2 – 3 lt/day/head). The zebu breed is better suited
to the environment and the disease vectors of Ethiopia. Livestock graze on communal pastures
although fodder production for both on-farm use and sale is becoming more common. Bulls are
with the cows year round, AI use is more common by producers near NAIC centers. Producers
do not practice the use of breeding records so there is the possibility of in-breeding. The
government provides semen and AI services at a subsidized cost.
Small-holder producers sell their milk and milk products to urban areas (primarily through
informal market) when transport is available and affordable. At some distances, the cost to
transport raw milk prohibits selling to distant markets, or any market for more rural producers.
23
Producers convert surplus milk to butter or ergo (fermented milk) and consume in the household
or sell to their neighbors. Some butter or local cheese will be supplied to urban areas.
3.3.4. Pastoral and Agro-Pastoral

Livestock and milk production in pastoral systems is primarily dependent on natural pasture
located on non-arable rainfed lands. Households will hold a mixture of cattle, sheep, and goats,
and camels. Seasonally, a majority of the stock is moved to follow water and pasture resources.
When animals are close to home, crop residues (sorghum and maize thinnings and stover), and
household waste are important feed resources for livestock. Mineral soil salt is also fed in both
the wet and dry seasons (Hussen et al, 2008). Households are estimated to collect 5 liters (wet
season) and 2.5 liters (dry season) of cattle milk and 13 liters (wet season) and 8 liters (dry
season) under this production system. (Hussen et al, 2008) These figures are dependent on herd
size and make-up. Camel milk is cited as being more important for household food security
because the lactation period extends longer into the dry season with a total average lactation
period of 9 months. (Sadler and Catley, 2009) However, in most pastoralist cultures, camels are
not an asset commonly held by the poorer households.
In the Borana pastoral ]area, there are approximately 200,000 pastoral households of which
90,000 are poor (1 – 3 heads), 40,182 middle income producers, 11,000 rich farmers and 2,000
very rich. Poor households would have less than five head, while middle class would have15
head. The rich have an average of 37 head and the very rich have 250 head of cattle (YONAD)
For pastoralist whose herd sizes fall below a certain level because of drought, then household
livelihood is in jeopardy, and it will be harder for household to meet minimum subsistence level.
Within Ethiopia, 25% of pastoralist households are destitute. The recovery time for restocking
the herd is longer, and the risk of any drought decimating the herd increases.
The cost of production varies depending on herd size. Poor household with less than five head
had an estimated cost of Birr 0.79 per liter of milk. The gross margin was Birr 1.41 per liter and
the gross profit margin was 64% (YONAD). Households with a medium size herd have an
average herd size of 15 animals and an estimated cost of Birr 0.59/lt with a gross profit of Birr
1.41/lt and a gross margin of 73 percent. Rich households had a cost of Birr 0.61/lt and a gross
profit of 1.61 per liter and a gross margin of 72 percent. Very rich households with 250 head of
cattle had had cost of production of Birr .41/lt, and a gross profit of Birr 1.79/lt and a gross
margin of 81 percent.
3.4. Inputs by Production System by Milk Shed
3.4.1. Feeds and Feeding
Forage production is a major constraint for improvement of the dairy sub-sector. The
Government of Ethiopia states that “for
 Fodder: any crop residue which is generally their nutrition, most livestock of the
high in fiber and low in protein and energy. country depend almost entirely on the
 Forage: primarily grass species which can be herbage that grows on non-arable,
of high quality if harvested in the early natural, grazing lands” (MoARD, 2007
flower stages for dry storage pg 48). Insufficient feeding of livestock
24
has been attributed to 40% of low productivity. Feed and feeding problems facing the dairy
sector are insufficient quantity of forage produced on the farm, insufficient inputs for
commercial feeds, a lack of quality feed formulation, and the absence of feed testing for analysis.
The feed sub-sector can be comprised of on-farm supply, communal grazing of government land,
purchased feed/forage, and manufactured commercial feed. The feeds, fodder/forages and agro-
industrial byproducts, available to small holder and commercial dairy farmers in Ethiopia can
increase productivity by: increasing milk yields, lowering age of first calving, and shortering
calving intervals. (See Appendix for a summary of forage and fodder nutritional values)
Common crop residues available to dairy farmers are straw made from teff, wheat, barley, mixed
finger millet, rice straw, and sorghum and maize stovers. Farmers prefer wheat and barley straw
which has a higher crude protein level, although teff straw is desired because of its high
palatability and digestibility. Forages are the basis of dairy nutrition. Quality depends upon
early harvest, proper drying and storing. Crude protein levels of 15% are possible. Improper
and under-managed forage producing lands limit Ethiopia’s production potential, even in
commercial systems. Suluta, for example, has a reputation for productive hay land, but annual
production is commonly 3,600 kg per hectare.
Cultivated forages available to producers include napier grass, alfalfa, Rhodes grass, guinea
grass, desmodium, lablab, cowpeas, and vetch and oat/vetch mixtures. Forage trees are also
effective forages; leucanenas, sesbania and tagasaste. Less than 1% of rural livestock producers
reported on-farm production of improved forages such as Napier grass and alfalfa (Tefera). Only
60% of the smallholders use feed from own holdings. (CSA, 2008) This problem is exacerbated
on the smallholders who have small land size. Fourteen percent of the smallholders use
communal / government grazing and agriculture lands. Without appropriate management quality
forage production, targeted to dairy, is low.
Additional nutrients are not available during all periods of the year. It is estimated that
smallholders use green fodder grazing followed by crop residue (34%) and hay (13%).
Producers’ utilization of industrial by-products, e.g. oil cake, bran, and brewery waste is non-
existent (approximately 0.8% of all dairy smallholders). Small holders and commercial farmers
normally purchase some percentage of their fodder and forage needs. Competing demands for
fodder and forage beyond feeding livestock include; on-farm: household use in construction of
mud houses and mattresses, and off-farm: re-distribution to Ethiopian finishing farms and export
to Djibouti to supply quarantine stations. Seasonally, demand is highest in November and
December. Prices is heavily dependent upon the effect of weather upon supplies, but the general
perception is that prices have been on the rise since 2006.
Forage production is a major constraint for improvement of the dairy sub-sector. Feeding of
livestock has been identified as contributing to 40%t of low productivity. The feed sub-sector
can be comprised of on-farm supply, communal grazing of government land, purchases of
feed/forage, and manufactured commercial feed. Fodder refers to crop residue, which is
generally high in fiber and low in protein and energy. Forages are primarily grass species which
can be of high quality if harvested in the early flower stages. A particular problem in pastoral
areas has been the encroachment of unpalatable, invasive species, like Prosopis, reducing quality
pasturelands.
25
The feeds, fodder/forages and agro-industrial byproducts, available to small holder and
commercial dairy farmers in Ethiopia can contribute to increases in milk yield, a lower age to
first calving and shorter calving intervals. (See appendix tables for a summary of nutritional
values.) The problems facing the dairy sector are insufficient quantity of forage produced on the
farm, insufficient inputs for commercial feeds, a lack of quality feed formulation, and the
absence of feed testing for analysis.
Common crop residues available to dairy farmers are straw of teff, wheat and barley and mixed,
finger millet, an rice straw, and sorghum and maize stovers. There is a preference for wheat and
barley straw which has a higher crude protein level than other fodders but teff straw is also in
demand as it is highly palatable and digestible. Forages are fed as dry grass hay. Forages are the
basis of dairy nutrition. Quality depends upon early harvest, proper drying and storing. Crude
protein levels of 15% are possible. Ethiopia has some excellent forage production lands, which
are under managed. For example Suluta has a reputation for productive hay land, but annual
production is commonly 3,600 kg per hectare.
Cultivated forages available to producers include napier grass, alfalfa, Rhodes grass, guinea
grass, desmodium, lablab, cowpeas, and vetch and oat/vetch mixtures. Forage trees are also
effective forages; leucanenas, sesbania and tagasaste.
Less than one percent of rural livestock producers reported on-farm production of improved
forages such as Napier grass and alfalfa (Tefera). Even producers’ utilization of industrial by-
products, e.g. oil cake, bran, and brewery waste is non-existent (approximately 0.8% of all dairy
smallholders). The 2008/09 CSA survey pointed out that about 60% of the smallholders use feed
from own holdings. This problem is exacerbated on the smallholders who have small land size.
Moreover 14% of the smallholders use the communal/ government sources. The quality of feed
can be low for dairy cattle which require a minimum nutritional level for maintenance and then
additional energy for calf rearing and lactation. These additional nutrients are not available
during periods of the year. It is estimated that smallholders use green fodder grazing followed by
crop residue (34%) and hay (13%). Dairy feed management practices, among other factors,
contribute to the low level of milk productivity.
The demand for fodder and forage is high. Small holders and commercial farmers normally
purchase some percentage of their fodder and forage needs (do we have an data). There are
competing demands for fodder and forage beyond feeding livestock; household use in
construction of mud houses and mattresses and export to Djibouti for the quarantine station.
Seasonally the highest demand is in November and December. Prices is heavily dependent upon
the effect of weather upon supplies, but the general perception is that prices have been on the rise
since 2006. (We should have some data as hay is being harvested and sold now).
3.4.1.1. Agro-Industrial Byproducts
Small holder and commercial dairy producers also have access to agro-industrial byproducts;
wheat bran and oilseed cake. Oilseed cakes include noug, linseed, sesame, cotton, and safflower.
Cakes prepared from seed that is mechanically extracted has a higher nutritional value. Cakes
are purchased from suppliers in 25 kg or 50 kg sacks. The current volumes of wheat bran and
26
oilseed cake available do not meet demand. There has been substantial growth in sales. Sales of
oilseed cake in Adama increased by 500% between 2003
to 2007.
There are 15 commercial livestock feed manufacturers Mojo Animal Mixer and
in Ethiopia. However, 10 of these manufacturers Miller. This plant has a
produce feed primarily for their own use such as feedlots capacity of 40 quintals per
and may sell to farmers when there is excess production. hour and produces 3,000
The five commercial manufacturers supply feed directly quintals per month. It
to livestock and poultry farmers or groups of farmers produces a ration for beef,
including cooperatives. They all report a shortage of dairy, poultry, and exports
ingredients for feed formulation. Common ingredients feed to Djibouti. The plant
are corn, wheat screenings, wheat bran, linseed cake, has the capacity to produce
noug, limestone, salt, and premixes. A profile of two of pellets.
the dairy feed manufacturers follows:
3.4.1.2. Institutions in the Feed Sub-Sector

There are few market institutions in the dairy feed sector. The Ethiopian Animal Feed
Processors Association was established in 2006 and has 15 members who pay ETB 500 per
year in membership. Their activities are devoted to policy advocacy and training services
provided to membership The Lalisa Feed Traders Cooperative is a small group of traders who
buy and sell teff and wheat/barley straw. Primary cooperatives, such as , purchase feed in bulk
as a member service. Purchasing feed is a cash transaction, credit is not available from the seller
and there is no evidence of buyers borrowing money to buy feed.
The animal feed sector is not regulated. The government does no feed quality testing or offering
guaranteed analysis of mixed commercial feeds. Quality is measured by visual inspection of
fodder and forages.
3.4.2. Genetics
With regard to breed type, out of the total 27.1 million cows about 99.2 % are indigenous breeds
and the remaining are cross and exotic breeds that accounted for about 0.61 % and 0.11%
respectively. Less than 1 percent of cattle are exotic or cross-bred. 128,745 grade cattle and pure
dairy cattle. Of this amount 32,204 are with small holders. The improved breeds are distributed
only in Tigray, Amhara, Oromia and SNNP regions. With regard to regional distribution
improved breeds are distributed only in the four big regions of the country. Accordingly Oromia
constitutes the largest share of improved breeds of cows followed by Amhara and SNNPRRS
having 135.6, 38.5 and 37 thousand cows respectively. The small numbers of improved breed in
the country is an indication of the low level of the usage of modern technological packages like
artificial insemination and bull services.
Change in milk production in herd size explains 60% of the increase, but only 20% from
technology change. This is why there needs to be increased numbers of cross-bred cows.
27
3.4.2.1. National Artificial Insemination Center (NAIC)

The National Artificial Insemination Center (NAIC) is the government source of improved dairy
breed genetics, bull semen. The center produces 300,000 units of bull semen per year with a
goal of increasing that level to 600,000 within five years. The current 1,700 AI technicians, who
are employees of the regional governments, are located at the kebele level. The plan to coincide
with the increase in bull semen is to increase the number of AI technician by 60 each year for the
next five years. In addition to producing bull semen, NAIC serves as a training center and
provider of liquid nitrogen for freezing bull semen. There are 10 liquid nitrogen centers
throughout Ethiopia, these centers also serve as the distribution point of bull semen.
NAIC recognizes the need to improve the current genetic base and plans to import bull semen
and Holstein and Jersey heifers. However, the delivery system of getting the genetics to the cow
has been a problem for years. NAIC estimates that 50% of the bull semen produced never gets
to the cow. There are problems with distribution from the NAIC to the regional centers and from
the regional centers to the technicians at the kebele level. Much of the distribution problem is
related to inadequate or no transportation. Regional state governments have been asked to
budget for a sufficient number of vehicles and fuel to overcome this problem. The Tigray
regional state AI distribution system appears to serve as a good model. Rather than having the
AI technicians travel to the AI center in Mekelle, the center has a vehicle that delivers bull semen
and liquid nitrogen to the kebele. This system has resulted in 30 AI technicians servicing 10,000
cows with 7,000 conceptions.
The government AI system is heavily subsidized with the AI service and semen costing 4 ETB.
The actual cost of the service and semen is 22 ETB.
The availability of liquid nitrogen to freeze the bull semen was a major constraint in recent years
but through assistance of USAID and EDDP, the liquid nitrogen centers are functioning well.
Constraints that the private AI sector face include:
 The shortage of hard currency makes the import transaction difficult. Waiting at the bank
for the release of foreign currency can be lengthy.
 Lack of a protocol to import animal genetics; bull semen and embryos.
 The cost of equipment is expensive, all of which is imported, semen tanks are currently
18,000 ETB. Gloves, insemination guns, motor bikes, and hormones are all in short
supply.
 AI technicians are government employees. They lack motivation and perform poorly in
part due to a lack of transport to get to the farms to inseminate cows. There are very few
examples of a successful private sector AI technician, one in Debre Zeyt where there is a
concentration of commercial farms. The issue is that although the government salary is
low, it is secure. The concept of working on a commission basis is not well accepted or
understood.
28
3.4.2.2. Private Companies for Genetics

The advent of the private sector to dairy genetics is quite recent. World Wide Sires (WWS) was
a subcontractor to the Ethiopian Dairy Development Project (EDDP) with USAID funding from
2005 - 2008. Upon the completion of the subcontract a locally owned firm, ALPPIS was
registered as an importer and distributor of dairy bull semen, sourced fromm WWS in the US.
The first bull semen imports from the US were ?. One of the obstacles encountered by WWS
was that Ethiopia has no protocol for importing genetic material; bull semen and embryos. The
lack of a protocol has prevented another company, American Breeders Service (ABS), from
exporting bull semen from its regional headquarters in Kenya.
ALPPIS has four employees, Dr. Emiru Zewdie is the general manager. All employees work in
sales and are compensated on a commission basis. They serve large dairy farms such as the
NAIC farm in Holetta and Sebeta Agro Enterprise (MAMA Dairy) as well as small holder
farmers. Alppis currently carries 12 US bulls with a price range of 85 to 110 ETB. The largest
market for Alppis is the Amhara region because farmers in Gondar lobbied the Amhara Regional
State government to permit government AI technicians to carry Alppis bull semen and
inseminate cows. The Oromo Regional State government will soon institute the same measure.
Dr. Emiru states that demand is very high and the provision that government AI technicians can
participate in the distribution chain will result in a rapid improvement in the genetic base. Since
June 2009 Alppis has imported 10,300 units and sold 8,000 units. The demand is driven by the
genetic improvement but also the US bulls have a higher conception rate, 1.2 conceptions per
service. This is due in part by the evaluation of US bulls on fertility and also that the AI
technician and the farmer take greater care in handling and inseminating in consideration to the
value of the US bull semen, 100 ETB for US bull semen as opposed to 4 ETB for local bull
semen.
3.4.3. Animal Health Services
An effective animal health system requires four components that work together; a quality
education system, a laboratory system of international standards, a delivery system that provides
market driven services to the farm, and the availability of quality pharmaceuticals at an
affordable price.
The National Veterinary Institute (NVI) as an educational facility has long been recognized as
producing quality veterinarians. In the past offered degrees and diplomas, the diploma
curriculum as been dropped. There have also developed an additional 8 universities offering
veterinary degrees. The general consensus is that there is a lack of confidence in the quality of
education and field training compared to the NVI program. NVI is also a internationally
recognized manufacturer of animal vaccines, exporting within Africa and to the Middle East. To
some extent the success of NVI may be attributed to their “para-statal” status. Although a
government institution, NVI is autonomous in the ability to generate income to support its state
allocation.
The National Animal Health and Investigation and Diagnostic Laboratory (NAHIDL) in Sebeta
is on track to reach the goal of being internationally certified for animal diseases that effect live
animal and carcass export from Ethiopia by the end of 2011. This market driven development
29
has also presented an opportunity for the laboratory to supplement government allocations with
income generation as fee for services paid by exporters. NVI is also benefitting from the
exporters willingness to pay for services.
Aside from the two national laboratories, regional laboratories are weak, primarily due to the
lack of funds. The budget short falls have resulted in a lack of materials for diagnostic testing,
there is a high turnover of personnel, and the skill level, particularly microbiology skills are
weak. There is also no clearly defined role between regional and local veterinarians and the
regional laboratories and this is a major constraint in resolving issues in milk quality / udder
health.
The delivery system of animal health services to dairy farmers is considered inadequate. The
organizational structure of the veterinary system is unclear. There are regional veterinarians who
supervise woreda veterinarians. The lack of budget at the woreda level results in lack of
transportation, supplies, and low morale, resulting in high turnover. The private sector
veterinarian has emerged as a competitive model in urban and peri-urban areas. Those with
clinics in urban areas prosper from mixed practices of livestock and household pets.
One solution to the inadequate service delivery system is the development of community animal
health workers (CAHW) or para-vets who would be localized members of the community
thereby the trust factor may not be a critical component. The role of the para-vet would be to
maintain vaccination programs, provide herd health services and respond to ambulatory cases in
the community. Para-vets as business model or DIGA would require business skill training and
likely a grant or no-interest loan for the start costs in equipment and materials such as drugs.
3.4.4. Extension Service
The GOE is responsible for transfer of technical information on commercialization of dairy
smallholders, as well as, enhanced growth in the rural areas (GOE, Master Plan, 2007) . The
GOE has a new extension service known as the Participatory Demonstration and Training
Extension System (PADETES). The extension service provides technology packages, for
example a dairy package, based on different agro-ecological conditions. The GOE is training a
number of extension workers at the Agricultural Technical Vocational Education Training
(ATVET) colleges. Farmers received training at the Farmer Training Center (FTC) in their
kavella. The GOE plans to open 18,000 FTCs. Each FTC will be staffed by three specialists
(Development Agents – DA) in crops, livestock and natural resources. However, dairy extension
services are inadequate in the milk sheds to deliver necessary on-farm advice to producers (GOE,
Master Plan, 2007). GOE faces budgetary constraints to carry out extension at the farmer level.
Development Agents lack the resources to visit farms
Some international donors, NGOs and CBOs engage in rural development programs that include
extension activities. These projects are short term lasting only until funding ends. Private input
supply companies do not provide technical education services in dairy production (e.g. feeding,
genetics and animal health). Only urban and peri-urban commercial dairy producers likely
engage private consultants on production issues.
30
3.4.5 Credit and Financial Services

Lack of access to credit, especially for small-holder farmers and pastoralist herders, has been
routinely stated barrier to production (LOL, personal interviews). Lending institutions claim to
be willing to lend to farmers as long as the loan application requirements are met. It was
acknowledged that loans to pastoralists is not a desired endeavor primarily because of the mobile
lifestyle. (LOL, personal interviews) Loan application
requirements are straightforward and consistent: 1) “Farmer Friendly”
business plan and 2) collateral of equal value of the loan Financial Institutions &
amount. Although official rules require 1:1 collateral Development Agencies
 Amhara Development
value, bank practices often require a 1:1.5 value. For
Agency
small-holder farmers, title deeds to land or buildings is
 Amhara Credit & Savings
not always available. Livestock are not routinely Institution
accepted as collateral. Few small-holder farmers have  Awash National Bank
enough recognized asset wealth to acquire a loan to  Oromyia National Bank
purchase and improved dairy cow (quality cross-bred
animals are Birr 18,000 to Birr 25,000 per head). For rural farmers, lack of market access may
prevent sufficient sale of milk to pay back a loan. Private bank loans average 10%. Micro-
financed institutions, typically offering short-term loans at 18%, have focused on peer lending as
a way of addressing lack of small-holder collateral. Whether working through a guaranteed loan
program or using peer-lending circles, overcoming the issue of insufficient collateral will
directly impact female dairy farmers access to credit. Although there are no policy barriers to
women accessing credit, culturally most women do not hold title deeds or own assets. With
personal assets, women are required to ask their husbands, fathers or brothers to sign for their
loans. Women risk losing that loan to the control of the male family member who signed.
Working with financial institutions to offer no/low collateral loans (i.e. support for business
plans for enterprises with earning potential) or utilizing peer-lending and guaranteed loan
programs are a few ways to address this issue.
Several Ethiopian financial institutions (see text box above) have made themselves more
accessible to small-holder farmers. Most of these institutions are supported by the State, NGO’s,
or international donors. Training of credit staff and development of guaranteed loan programs
have loosened collateral requirements.
3.4.6 Land
In the rural areas of the milk sheds in the Highlands, average land parcels are small (less than 1
ha/household), and parcels are getting smaller as a family continues to sub-divide their land
among their off-spring. In peri-urban areas, demand for land is high for both residential and
industrial purposes. Communal grazing areas are targets for investors to purchase these tracts
reducing available grazing for livestock. Livestock are forced onto smaller and smaller areas of
open space.
In the lowland areas, pastoralists face similar threats as in the Highlands. The government’s plan
is to have pastoralist settle, restricting their movements both within and across the border. The
government plans large-scale agricultural projects supported by irrigation schemes. The mobility
of pastoralist would be restricted and encouraged to settle and become mixed crop-livestock
31
farmers. In addition, recurrent droughts have impact the resiliency of pastoralist to recover and
rebuild herds before the on-set of another drought. A number of pastoralist become dependent
on food aid.
3.4.7. Minerals, salts, etc
Vitamin and mineral mixes are items that are imported. Land O’Lakes under the PEPFAR
project has funded the creation of private enterprises to manufacture molasses blocks. In certain
areas, this business activity is succeeding where there is a concentration of dairy producers in
urban and peri-urban areas.
3.5 Summary Assessment
The productivity of the dairy herd is low, and costs of production are high. In additional the
smallholder producers are not commercialized. There is a large potential to address both of these
constraints and achieve greater production of milk to meet increasing demand projections.
32
4. BEYOND THE FARM GATE – DISTRIBUTION, PROCESSING AND MARKETING
4.1. Formal and Information Distribution Channels
There are two distribution channels for milk leaving the farm: the formal and the informal
channel. The formal distribution channel can be defined as the flow of milk that falls within the
local business regulatory net including registered business, payment of taxes, etc. The informal
sector is everything outside of the formal handling of milk. The main player in the informal
sector is the "milk traders" who buys directly from farmers and sell directly to an end market
such as small milk bars, cafés, and milk shops . In many cases the milk trader is the dairy
farmer, particularly if the farm is urban or per-urban The informal channel is totally under the
regulatory radar. Consumer studies state that many consumers prefer the informal channel
product because it is full fat, exceeding 3.5% butter fat, and there is a trusted relationship
between consumer and seller, (Research International 2006)
There is no hard data relative to the percentage of milk that enters the formal versus informal
distribution channels. A commonly accepted figure is less than 10% enters the formal channel.
This would be consistent with Kenya where the formal channel accounts for 20% of the formal
channel. An estimate for the volume of milk that each channel represents was provided by the
dairy company with the largest market share; the formal market channel accounts for 150,000
liters per day. If this is 10% of the milk, then the informal market channel accounts for 1.5
Liters per day or more. Although these figures may not be precise, they can serve as a reference
point.
4.2. Distribution of Raw Milk
Allocation of milk produced in Ethiopia, milk leaves the farm in three channels; collector or
farmer who enters the informal channel, sale to cooperatives or collector into the formal channel,
or sales within the community. With the exception of a very few commercial farms, farmers are
responsible for the delivery of their milk into the distribution chain. Small holder farmers
exclusively assume this transportation cost themselves and one popular model in rural areas is
for children to deliver the milk on the way to school and collect the milk containers upon return
home. By far the most overreaching constraint for milk, and the potential for income generation
from the sale of milk, to enter the distribution channel other than the local community is access
to roads. Milk sold into the formal or informal distribution channels of the highlands milk shed
is collected within a distance of less than 10 kilometers from a paved road. Milk is transporter
from the farm in plastic “jerry” cans and in lesser cases aluminum milk cans. Commercial
farmers, particularly those located in peri-urban areas, will have milk collected in bulk from the
farm by a milk processor.
33
4.2.1. Collectors
Milk is delivered to collection points along a main road or collection centers. There are a large
number of rudimentary collection centers in the highlands milk shed. These are either owned or
operated by a primary cooperative, cooperative union, or a milk processing company. To date
ownership of a collection center by a private investor has not attracted attention but it could be a
good investment opportunity for an individual who is skilled at building relationships with
buyers and sellers.
4.2.2. Primary Cooperatives and Union Cooperatives
The organization of dairy farmers into formal producer groups has been important to the
development of the dairy sector. Cooperatives have struggled with producer acceptance of this
business model after the socialist efforts, which forced producers into communal villages during
the period of the Derg. Farmer associations and cooperatives have been of special importance to
dairy smallholders who can participate in the agro-industrial sector and even the regional export
market. (Holloway, et al). Dairy smallholders can face high transaction costs in selling their
milk, and cooperatives can help to reduce these costs for the individual producer (Staal et al.,
1997). Work done in 2006 concluded that dairy cooperatives could reduce a farmer’s transaction
costs by 45% (Francesconi et al 2006) There was reported to be eight dairy cooperatives in 2002
(Tsehay). In 2006, there were approximately 100 cooperatives according to the SNV study. In
2010, with the work of Land O’Lakes there are approximately 114 cooperatives with7534
members. Most of the milk sold to the cooperatives is processed into butter and ayib and sold
locally or to traders. Though the milk volume is not large compared to the total of milk sold,
cooperatives are an avenue for rural smallholders to participate in the dairy value chain and sell
their fluid milk (GOE, LMP, 2007).
4.2.2.1. Primary Cooperatives
Land O’Lakes provides technical assistance to cooperatives and monitors their activities. The
number of cooperatives in the EDDP target areas increased from 82 at the start of the project in
2005 to 120 in 2010. (See data in Appendix Tables). Data from a select number of cooperates for
the years 2008 and 2009 and for the month of October, 2010 are presented in Table XX. The
average value of milk purchased in 2009 by cooperatives was highest in Addis Ababa milk and
lowest in Bahir Dar milk catchment areas. The value of the milk purchased increased 8% from
2008 to 2009.
The average value of the milk sold by the cooperatives reporting information from the milk shed
increased 21% from 2008 to 2009. Average revenues for 33 cooperatives reporting data indicate
an increase of 77% with an average value of milk of Birr 339,000 per year per cooperative.
Annual revenues exceeded expenses so that the average profit for coops reporting was Birr
92,000 with an increase of 120% over 2008 profits. The cooperatives paid annual dividends to
its members totaling Birr 45,000 in 2009, which was an increase of 26% over the amount paid
out in 2008.
The general financial performance of the cooperatives was positive with smallholders able to sell
fluid milk at a price that exceeded the price if the milk were processed into butter or ayib. In
34
August, 2010, the average purchase price by cooperatives of milk from their members was Birr
3.89/lt and the average selling price by cooperatives was Birr 4.93/lt. The highest price paid for
producers’ milk was in Bahir Dar (Birr 5.70/lt) and the lowest was in Fitche and Asela at Birr
4.10/lt.
4.2.2.2 Cooperative Unions
There are eight cooperative unions servicing the needs of their primary cooperative. These
unions negotiate selling prices on behalf of their primary cooperatives and provide services such
as training, financial audits and other business services. The number of unions has increased
from 1in 2006 to 4 in 2010. The unions and their primary cooperatives hold the best opportunity
for delivery of needed services and products to their members and have the potential to have an
even greater impact over the next ten years.
4.2.3. Transporters
SNV data reports that milk transporters operate under very strong margins of 51% generated
from buying from farmers and selling into the formal and informal markets. It is difficult to
estimate the number of people generating income from the milk transport business because
although a license to transport milk is required, apparently few transporters acquire a license.
One transporter interviewed collects milk up to 90 kilometers north of Addis Ababa. Currently
he is collecting 6,000 liters per day for Family Milk. In 2009 he collected 15,000 liters per day
and sold the milk into the formal and informal market channels in Addis Ababa. The potential to
collect milk in the Debre Tsige exceeds 100,000 liters per day. The transporter felt there were
another 7 transporters collecting milk in the area. Other clients buying from the collectors are
Shola Dairy and the informal market channel.
As a reflection of the job multiplier effect of the dairy Chacha near Debre Birhane. Hirut
sector, the transporter rents a truck for 500 ETB per Yohannes started her company to
day, and his labor force consists of 1 driver, 1 collector, collect and process milk in the Addis
and 1 employee at each of the 10 collection sites. He Ababa milk shed. Processing is done
negotiates price at each of the collection sites, currently at the production site in Chacah.
Mainly women from 166 households
he is buying from farmers at ETB 5.50 per liter (ETB
sell their milk. Average herd size is
4.25 during fasting) and sells to Family Milk at ETB
less than five head. Ten people work
6.00 per liter. The trader will make payment in kind to
at the collection center. The center
farmers at their request in the form of feed and
has a milk tank with a capacity of 600
veterinary medicine. In more developed economies
lt. An enzyme is added to the milk to
transporting of milk, bulk milk hauling, is contracted release the solids which are sent by
out to transportation companies specialized in this local transport to Addis to make
function of the value chain. Considering the relatively cheese. The liquid whey is given to
low investment required and the job multiplier effect, the members of the group.
transporting under license is very promising.
35
4.3. Processors of milk and milk products

There are 18 registered milk processors in the greater Addis milk shed. The capacities range
from less than 1,000 liters per day to 60,000 liters per day. (See data in Annex Tables.) Current
milk processed is estimated to be 150,000 liters per day. In very few cases are the milk plants
operating at full capacity. With the exception of the former state owned enterprise, Lame/Shola
Dairy, and Mama Dairy, all of the other dairy processing facilities are less than 10 years in
operation and many of those competing for market share in Addis Ababa are less than 5 years
old. This period of 2005 – 2010 has been a time of subtle transition for the Ethiopian dairy
sector. There has been an increase in processing capacity which has also been accompanied by
an increase in dairy product lines. In 2000 the Ethiopian dairy product line consisted of
pasteurized milk and butter. In 2010 consumers can find a wider variety of domestic dairy
products including yogurt, fruit flavored yogurt, UHT milk, ice cream, cultured milk, and
cheeses such as mozzarella, provolone, and gouda. MAMA Dairy offers 32 dairy products to its
customers in 2010 compared to a product line of 12 products in 2006. This reflects a dairy sector
that can and will adjust to consumer and market demands.
The dairy processors are quite competitive in their purchasing practices of raw milk. Prices
generally range from ETB 4.50 to 5.00 per liter. The further the farm or collection center is
located from the point of processing, the price decreases to account for additional transportation
costs. Fasting periods are a challenge as processors report a decline in processing capacity of
25% during the August and March/April fasting periods. However, some processors are
managing around fasting periods by building inventories of UHT milk and cheese, although this
can create cash flow problems.
One of the interesting characteristics of Ethiopian dairy processing is that the operations tend to
be quite vertically integrated. Some processors have their own dairy farms, collection centers,
transport, and retail shops as well as out sourcing these services. The key expenses for the dairy
processors are purchase of milk, labor, and transport. One processor of 33,000 liters per day and
fully integrated from farm to retail has a total work force of 380 people. In detailed surveys of
six milk processors, five processors held their work force fixed regardless of the amount of milk
being processed. During periods of milk shortages and fasting periods, this increases the price
per liter rather dramatically when milk supplies decrease by 25%. All firms do some portion of
milk collection and transport along with out sourcing collection and distribution to “specialized”
firms. There has been no detailed analysis by any of the surveyed firms into the cost
effectiveness of collection and distribution systems.
As the buyer and seller of milk the dairy processor is the key relationship link in the dairy value
chain. The relationships with sellers (farmers and cooperatives) and buyers (retailers and
consumers) require trust. In order to build trust each party needs to know what is demanded of
them and there has to be a transparent flow of information along the value chain; the processor
needs quality raw milk and the retailer needs an adequate supply. The relationships also require
that each party has some level of power in price negotiation and volumes of milk collected
reflected in contracts. Finally the relationships require that everyone has benefit in terms of
getting paid on time with incentives to increase price. Currently there is no industry forum or
association within which the processors can collectively discuss common interests, seek training,
and conduct market or business assessments.
36
4.4. Domestic market

4.4.1. Household Purchase
The primary shopper of dairy products is the 30 year old female and the shopping list includes
milk on a daily basis and butter. These shoppers tend to shop in the formal market for milk,
cheese, and table butter and the informal market for traditional butter.
Consumer research conducted in 2006 by EDDP and tested against qualitative opinions of food
retailers recently indicated that the primary barriers to increasing consumption are availability,
price, and a lack of trust in quality. The optimum price point for milk as reported by consumers
is in the range of ETB 2.50 – 3.00, about 50% of current retail prices. The principle age of
consumers who consumer milk and milk products is 25 – 34. There is little or no difference in
gender or religion. There are significant opportunities to introduce new, convenient packaging
and new products to the youth category of consumers. Driving this increased consumption is
positioning dairy products as nutritious, “home grown” and fashionable.
4.4.2. Retail
The survey team collected market prices for milk and dairy products to compare prices
differences across the various milk sheds. (See data in Annex Tables). Raw milk price was the
highest in Humera because of the income from cash crops, e.g. sesame, etc. UHT is imported and
the average price was Birr 52 per lt. Mama Dairy produces UHT, and the product sells for an
average price of Birr 20 per lt. Powdered milk is available in all markets, and the average price
for 900 g is Birr 180. Only ghee is available in Humera because of the high temperature and
people do not use butter. (See Annex Tables). The price for local cheese (ayib) in Dire Dawa is
the highest of all the reported areas.
Fluid milk is not widely consumed by the general population on a regular basis. Most people use
the majority of milk in tea/coffee, feeding infants, or the elderly and/or infirmed (GOE, LMP,
2007). Dairy products are more widely consumed such as butter, ayib and fermented milk.
Only 15.43% of the milk produced is sold in the market (CSA, 2005).
In July 2006 EDDP surveyed 25 food retailers in Addis Ababa to identify activity that could
drive dairy product sales. Respondents referred to their primary issue as lack of supply,
indicating in some cases that sales could increase by 300% if the supply was available. October
2010 interviews conducted with a sample of the 2006 retailers confirm that supply continues to
be the major problem in dairy sales. The dairy case is a valuable part of the retail shop and sales
are increasing as a result of greater product selection. Fluid milk continues to lead the dairy case
in sales, followed surprisingly by flavored yogurt, a relatively new product to Addis Ababa
consumers. Retailers identified growth categories as cheese, flavored yogurt and table butter. A
portion of the demand for cheese and flavored yogurt is currently being met by imports but
expanded production presents a strong opportunity for Ethiopian dairy processors.
The margins on fluid milk are 10-15% and on cheese and yogurt the range is 25-35%. The retail
price for a half liter of fluid milk ranges from ETB 4.90 to ETB 5.50. Milk powder has
apparently lost market share, as some retailers no longer stock it as they did in 2006. The
perception is that milk powder is for infants. Consumers still voice quality concerns at the retail
37
level and continue to boil fluid milk prior to consumption. Relative to competing with imports,
retailers feel that Ethiopian products need to improve quality and improve packaging.
Clearly Fasting periods of the Ethiopian Orthodox Church have a significant impact. However,
there is evidence that the impact is not as large as perceived 10 years ago. Processors of milk
report that the decline in consumer demand is seen most predominantly during the 15 day fasting
period in August, accounting for a 25-27% decrease, followed by the 55 day Great Lent period in
March/April with a 25% decrease. The fasting period preceding Christmas in December
accounts for less than a 15% decrease. Processor report that during fasting periods they are
more likely to produce cheese and butter which can be inventoried until the end of the fasting
period or ship these products, which have a longer shelf life than fluid milk, the regions of
Ethiopia where fasting is less of a factor.In the Addis Ababa market there were approximately 25
locally processed branded products sold by different manufacturers in 2006 (SNV).
4.4.3. Hotel, Restaurant and Institutional (HRI)
HRI is an important market segment for milk. Both milk traders and the processors are
supplying this end-use market. There are clear opportunities to develop a marketing plan to
increase the share of pasteurized milk and dairy products to these customers. Data are lacking on
the size of the segment and what are the needs of the customers.
4.5. Milk and Dairy Product Exports
Farm gate prices for fluid milk in neighboring countries are reported in the following table.
Country Wet Season Dry Season Currency Exchange Rate US$ Values
Price Price
(national avg) (national avg)
Kenya 14 35 KSh Kshs 77 = US$1 0.18 – 0.45
Uganda 250 500 UShs USh 2,250 = US$1 0.11 – 0.22
Rwanda 150 200 RFr RFr 580 = US$1 0.26 – 0.34
Ethiopia 3.50 4.50 ETB ETB 16 = US $1 0.22 – 0.28
Ethiopia is not the lowest cost producer of milk. During the surplus (flush season) period,
Ethiopia’s price to producers is higher than in the other countries. Only for a few niche markets
will Ethiopia’s milk be competitive in neighboring countries. It is estimated that Ethiopia
exported less than US$100,000 in dairy products to Somalia and Djibouti (Woulters).
4.6. Employment Creation in Value Chain from Increased Dairy Production.
According to FAO, every 5,000 lt of additional new milk produced and marketed will create one
new job in the value chain. Based on our estimates for demand for milk in 2020, we project an
increase in employment of up to 73,000 new jobs in the dairy sub-sectors.
38
5. DAIRY VALUE CHAIN

5.1. Overview
This section of the paper describes the value chain actors involved in each of these segments of
the formal and informal chain and their interrelationships with other players and the constraints
and opportunities they face. This analysis will enable to pinpoint the leverage points where an
intervention is needed at each dairy chain functions.
If this is addressed well, it will create an opportunity for a smooth flow of information and
products along the chains and ultimately enhances the competitiveness of the overall chain actors
in general and the smallholder milk producers in particular. To this end, the formal and informal
dairy chain will be analyzed. Each of the segments of the activities in both channel will be
discussed separately and gets into the analysis of the actors, the process through which the chain
functions are embarked on, and finalizing with a presentation of constraints, opportunities the
overall Ethiopian dairy sector (formal and informal) faces, leverage points and interventions
required to upgrade the dairy value chains.
5.2. Formal Dairy value Chain
The formal dairy chain involves seven distinct value adding activities from production of the
milk through reaching to the final consumer in the market. These activities include input supply,
milk production; Raw milk transportation, bulking and cooling, processing and packing,
transporting processed milk and milk products and retailing gathering (bulking); processing;
transportation; and retail trading .
5.2.1. Input supply
This category of segment includes the supply of all inputs that are required by smallholder milk
producers and dairy commercial farms. Different dairy value chain actors are engaged in
supplying feed, artificial insemination, veterinary services, equipments and machinery, and
packaging materials.
5.2.1.1. Feed suppliers
The Ethiopian Animal Feed Industry Association (EAFIA) has got 46 members (14 in Addis
Ababa , 21 in Oromya, 4 in SNNP, 3 in Amhara region and 4 in Tgray region 4) (EAFIA,
2010). Besides, there are about 40 feed retailing private businesses in the urban and pre-urban
milk shade areas of the country. Along with the feed supplied from these companies milk
producers also use crop residues, hay and other by products from wheat flour and brewery
factories. From the year 2003 to 2008 the feed processors at national level supplied an annual
average of 8,335 tons of mixed feed to the users. However the supply in the given years shows a
declining trend (See Table 5.1). In 2005 the industry supplied a total of 13,218 tons and steadily
decrease to 5533 tons in the year 2008(see figure below)
39
Figure 5.1. Annual mixed animal feed supply
Source: EAFIA, ,2010
According to the Association the price of different feed ration has substantially increased in the
past seven year (2004-09). For example the dairy ratio price per quintal was Birr 79 in 2004 and
in 2008 it reached 302 increased by (382%) and in 2009 was Birr 230 (increased by 291%. The
main cause for the price increment was shortages of ingredients. The following table 5.2 shows
the price per quintal for different rations.
Table 5.2. Price for different formulated feed mix
Type Birr per quintal
2004 2005 2006 2007 2008 2009
Dairy ratio 79 86 108 128 302 230
Calves ratio 87 94 107 136 312 340
Sheep ratio 76 84 105 125 301 240
Bull ratio 78 88 106 127 301 310
Heifer ratio 85 92 114 134 308 320
Source : EAFIA,2010
40
5.2.1.2. AI service providers

There are seven AI service providers in the country and out of which one is owned by the
government and the rest six are run by private businesses. The National Artificial Insemination
Center (NAIC) is owned by the government and has seven4 branches in different parts of the
country that distribute semen and liquid nitrogen to the milk producers. Out of the private sector
actors Addis Livestock Production and Productivity Improvement services (ALPPIS) is the main
supplier of genetic material. Among others it import and distribute genetic material and Ai
equipments to the private AI service providers in one hand and give the service directly to the
milk producers. ALPPIS is operating in most of the urban and pre- urban milk shades of the
country. The other five AI service providers are located in different small-town and provide the
service directly to the producers on a demand basis.
5.2.1.3. Veterinary services
There are five veterinary medicine importing companies and about 39 actors that provide
veterinary services in urban and pre-urban milk shade areas. In addition to these private service
providers the government’s agricultural extension system based at wereda level also providing
vet services to the smallholder milk producers.
5.2.1.4. Machinery Equipment and packaging
There are three big machinery and equipment (milk processing and cool chain) importing
companies in the country from all parts of the world and supply to potential investors who want
to invest in dairy sector. These are Packo Ethiopia, Ture Import and Pladot Ethiopia. But there
are also two small-scale equipment (churner, like aluminum jars, churner, acid tester and lacto
meter etc) supplying companies (selam vocational training center and Nile star) , that supply
directly to the milk producing smallholders and small-scale commercial dairy farms. The
packing material (plastic pouch) is also imported from UAE, Kenya and Israel.
5.2.1.5. Financial institutions
The service of the financial institution for the development of dairy sector in Ethiopia is of
paramount importance. However the different business operators in the value chain are
complaining on the commercial banks particularly in terms of flexibility and speedy decision..
For any loan, all types of banks are demanding marketable collaterals to secure the loan. Based
on the interviewed made with some dairy sector managers, some banks do not consider
machinery and livestock as collateral for the dairy processors.
For urban and pre-urban milk producing smallholders, microfinance institutions are the most
suitable source of finance. Because of size and single borrower limit issues, the amount of loan
to be granted to a single borrower is often too small for further investment at small scale level.
Value chain specific financing and developing new financial products which addresses a specific
need is often the MFI are lacking. Most of them lend based on conventional way of doing
business. There is also gap from the smallholders’ side. They are lacking business and financial
management skills to utilize the borrowed money efficiently and effectively such in a way it

4
Nekempt, assela ,Bahirdar, Dessie, wolaita, wolkite , Mekele and Harari
41
brings a positive change on their livelihood.. among others Amhara Credit and Saving institute
which is operating in Amhara region, Dedebit Credit and saving Sh co, operating in Tigray
region, Oromia Credit and saving share company operating in Oromia and Omo micro finance is
operating in SNNP. These four MFIs are government affiliated and there also NGO affiliated
MFIs like wisdom (World Vison Ethiopia, PEACE Mf (Agriservice Ethiopia) that also provide
financial services to smallholder milk producers.
5.2.2. Milk production

In formal dairy chain the main milk producers are commercial dairy farmers and smallholders
located on urban and pre urban areas of the milk shades. The smallholder milk producers and the
commercial dairy farmers are distributed in Addis Ababa, Oromia, Amhara and Tigray regions,
11 zones, 48 woredas, three main milk sheds (the greater Addis, Lake Tana and Mekele and
Humera),and in 20 sites. There are currently 33,500 smallholding milk producer s out of which
80% of them own 1-3 Dairy cows, 15% 4-6 and the remaining balance own 7-10 dairy cows. in
urban and pre-urban milk shed production systems . out of the total producers about 7,535
smallholders(household heads) are organized in 114 primary dairy cooperatives and 8 dairy
unions (the list of milk sheds, PDC and union are annexed) and the remaining balance are non
cooperative members. Out of the total PDC members about 23 % are female smallholders.
Besides these smallholders, there are also a total of 269 commercial dairy farmers that own
more than 10 dairy cows each. The total milk produce in the three main sheds is estimated at
515,994,660 liters, out of which 65.2% comes from the greater Addis Milk shed, 21.9% from
Lake Tana and 12.9% from the Mekele and Humera milk sheds. ( idonot have of the milk
production disaggregated by production system.
5.2.3. Raw milk transporters
Two milk processors, one dairy union are engaged in this function. They transport the raw milk
from the milk producers to their bulking /chilling centers. There are also Individuals who
engaged in milk business collect milk from the producers, transport to their bulking sites and
finally supply to the processors.
5.2.4. Bulking and chilling centers
Five actors established a total of seven milk bulking and chilling centers in the milk shed. It is
only the three centers which are owned by owned by milk processors are the one which giving
chilling services. This means they collect milk from the producers and put in the chilling
facilities until they transport it to their processing unit. The other four which are owned by the
Addaa primary cooperatives and Selale dairy union do not have chilling facilities but only
aluminum and plastic buckets used for collect milk from the producers
5.2.5. Commercial milk processors
This category of actors are those adopting modern technology with a majority of their output is
pasteurized packed milk with the size of 500ml.except mama also producers UHT milk.
Currently there are about seven main (Lame, Sebeta, MB Plc, Adaa, Genesis, Lema and Bora.
These companies have a daily processing capacity of 107,500 liters per day but they only
attained only about their 60% capacity i.e. 64,000 liters per day. In the year 2008, the first three
42
big processing companies produced about 14 million liters of milk, 120,000 Kg of butter and
20,000 kg of cheese and 90,000kg of soft cheese (UNIDO 2009).Besides these big companies
there are also about ten small scale milk processing companies that produce about 25-30
thousand liters per day. The processed dairy products are distributed to the different outlets
through the milk transporting trucks and vans owned by the processors themselves (see annex
table for processor survey results.)
5.2.6. Retailers
5.2.6.1. Supermarkets
Ethiopia’s supermarket revolution began in the late 1990s, especially in bigger cities such as
Addis Ababa, Bahir Dar, Mekele and Hawassa although the pace remains slow in comparison
with other African countries (e.g. Kenya). The growth in supermarkets has been triggered by the
urban population increase, income growth of relatively wealthier Ethiopians and by the increase
in expatriates in Addis Ababa who prefer to shop in supermarkets. Currently in Addis Ababa
there are 25 bigger supermarkets owned by 15 companies and out of which 12 are owned by
Ethiopian and the other 3 by foreigners. Moreover other supermarkets also exist in major towns
of the country which distribute milk and milk products processed by milk processing companies
based in Addis.
5.2.6.2. Dairy Income Generating Activities (DIGA) Kiosks
DIGA groups are established with the support of Land O lakes’ dairy development program.
Currently, they are given technical and business development services. There are a total of 32
DIGA groups engaged in selling milk through their milk kiosks in Debrezeit (3), Debrebirhan
(1), Addis Ababa (22) ,Hawassa (3) and Mekele (3). These groups have a total numbers of 617
beneficiaries
5.2.7. Consumers
5.2.7.1 Household and Institutional buyers

In almost all urban households buy raw unpasteurized milk on a daily basis from collectors or
urban small holders mainly for their kids. It is common to substitute mother breast feed with cow
milk when the breast dried up and mothers are back to work. Because of price, sustainable
supply and the perception that pasteurized milk is something that certain fats are extracted, most
household buyers are inclined to unpasteurized raw milk.
Institutional buyers are big institutions like universities, training centers, hospitals etc found in
major cities and towns in the country. Café and restaurants of big enterprises are also categorized
under institutional buyers. The majority of these institutions are sourcing from collectors,
retailing shops and processors.
5.2.7.2. Cafes , Restaurants and shops
There are large number of cafe’s, kiosks and restaurants in all towns. Hot milk and macchiato
(mix of coffee and milk) are the famous drinks which triggers the demand for milk by cafes and
restaurants. Kiosks and retailing shops are selling packed milks to household buyers. Butter,
43
cheese and yoghurts are solely sold at supermarkets. During eve of holidays Ayib are often sold
at shops. Some cafes and restaurants are using powder milk for hot milk and macchiato, which
are not often chosen by consumers.
5.3. Development Organizations
Like Land O’Lakes, SNV-Ethiopia, ILRI and others are currently providing technical and business
development support to the dairy sub-sector at all level in the value chain. They are strengthening the
organizational and technical capacity of producer groups, business associations. They work on
developing the market and improving the quality of the milk and milk products.
44

Input
Suppliers
Milk Transporters Bulking &cooling Processing& Transport& Retailing Consumers
Producers Distribution
(2-3%) (11-13%) Packaging (3%)
(35-47%) (6%)

Big milk
Commercial
Processers’ Processors
Feed(46) processors Big
chillers &
dairy farmers own Milk (7) Processing Supermar
tanks (7)
tanks companies kets Household

Value chain Business Operators
AI(7) Consumpti

Cooperative
Cooperative Union (1) Small scale Small DIGA
Vet / milk Processing
Serv.(39) Union processors companies Institutional
Urban &Pre‐ /trucks Consumers
Owned by
urban Primary Dairy

Equt smallholders Cooperative (3) Small
milk producers Individual
&Machiner retailing
Individual Household Café,
Individual/ shops
transporter processors hotels
Packaging s DIGA (136) &restaur

&others
VC Supporters

IDMT, BOARD, Business associations, cooperative unions, MFIs, Commercial Banks, Chamber of commerce, NGOs, NAIC

Enablers
MOA, MOTI, QSAE, Professional associations, Cooperative Agency,

45
46
5.3. The Informal Dairy Value Chain

The informal market involves direct delivery of fresh milk by producers to consumer in the immediate
neighborhood and sale to itinerant traders or individuals in nearby towns. In the informal market, milk
may pass from producers to consumers directly or it may pass through two or more market agents to
local consumers and neighboring countries (Somaliland and Kenya) consumers. The informal system is
characterized by no licensing requirement to operate, low cost of operations, high producer price
compared to formal market and no regulation of operations. The informal (traditional) milk channel has
remained dominant in Ethiopia. Moreover this channel provides substantial amounts of milk which
goes into traditional dairy processing and then traded, especially traditional soured butter. The main
milk producers in this channel are sedentary rural smallholders and pastoralists.
The main feed sources for these milk producers are pasture land, green fodder from their own land and
crop residues. Besides this, in some rural areas local brewery residue and hay also used. In pastoral
areas particularly in dry season feed multi-nutrients block, hay and concentrates are supplied with the
support of different development organizations and some pastoralists purchase supplies from Nazareth
area. The government extension system takes assumes most of the responsibility for supplying AI,
veterinary services and drugs. However there are individuals’ drug ventures in some areas of the
pastoralists and sedentary rural areas.
Milk and milk products in sedentary rural Ethiopia are often used for household consumption and/or
sold to finance the purchase of basic household commodities such as coffee, salt, cooking oil, sugar,
etc. The products are also sometimes used as payments and gifts to others. According to UNIDO
2009, out of the total milk produced about 68.4% is retained at household level, about 14.6 % is sold,
17% utilized by calves. The smallholders use the milk retained at household level for consumption
(50.8%) and traditional processing two purposes (49.2%). More over the total milk supplied to the
market is geographically goes to the urban (69.2%) and the rural neighborhood (30.8%) market.
Through these structure reaches to different market out lets and consumers.(see the map below)
However, in pastoral areas there is an export channel that cow milk is exported to Kenya on a daily
basis in this channel a daily average of 3025 liters in wet season and 1500 liters in dry season is
entering to the export market (YONAD 2009).
47
Informal dairy sector value chain Map.

Consumption Rural Periurban
50.8% Consumers Small shops
Pasture,
green Milk
Rural
Business Operators
fodder, crop Household Collectors Periurban

sedentary Traditional consumers
residue retained
farmers processing
49.2%
Retailers
AI from Sales
government 14.6% Rural
(NAIC) 30.8%
Consumers
Pastorali Small
st and
Vet Services agro Calf Urban Milk/collect h
and drugs pastorali feeding 69.2% ors retailers
(Government Hotels
sts (17%) restaurants
& venders
Small milk
processors
Supporters
Consumers
BOARD, COOPERATIVE UNIONS, MFIs, NGOs, NAIC, Pastoral Development Program

Enablers
MOA, QSAE, MOTI, Federal Affairs, Livestock Agency, Federal Cooperative agency, EARO
48
49
6. THE POLICY ENVIRONMENT

Government policies are important if the dairy sub-sector is going to advance to meet the targets
projected for 2020. Policies are necessary to create an environment conducive for innovation
and risk taking on the part of investors. Four policy pillars for commercialization of smallholder
dairying were identified by Delgado: (1) remove market distortions; (2) building participatory
institutions of collective actions by small producers to facilitate their vertical integration; (3)
increasing investment to improve productivity; and (4) promoting effective regulatory
institutions to deal with public health and environmental concerns of livestock intensification.
6.1. Market Distortion Policies
The GOE has chosen a path of market liberalization (Wouters et al). Input and market prices are
free to move with market forces. There are no published price controls on milk and milk
products. The GOE privatized the large milk processor, Shola Dairy, which was a positive
development for the industry. New investors are free to invest in the dairy industry.
There are still areas where government policies distort the dairy sub-sector. The GOE has a
restrictive foreign exchange policy which can make it a difficult process for firms to obtain
foreign currency for the purchase of equipment.
The GOE and the regional government authorities have a lengthy process for obtaining land for
dairy farming. The access to land is a difficult process. Investors in commercial dairy farms
have also been unable to get access to land for forage production.
The current genetic improvement and health policies are to provide subsidized services in
artificial insemination (AI) and animal health services. Both services are underperforming and
hampering dairy productivity, though the GOE is investing in new veterinary schools and capital
equipment. One positive step is that the Amhara Regional State allows government AI
technicians to provide insemination services using private sector bull semen. This could be
coupled with allowing government AI technicians to charge a commission fee for bull semen
sales. The Trade Practices Commission allows exemptions to enterprises that have “significant
impact upon development and are designed by the Government to fasten growth and facilitate
development”. If the government AI system is producing 300,000 units of bull semen but only
100,000 units reach cows, it is questionably facilitating development currently. Furthermore by
fostering the private sector with increased imports, costs will be driven downward and
efficiencies in the system will develop. The government policy in Kenya, Uganda and Tanzania
is to move many animal health services to the private sector.
The value added tax (VAT) can add to the cost of dairy products. Fluid milk is exempt from
VAT while other dairy products are not. The country is deficit in milk production and VAT adds
to the lack of competitiveness in meeting consumer demand.
Ethiopian Dairy Value Chain

50
6.2. Participatory Institutions for Collective Action

6.2.1. Cooperatives
Cooperatives are a vehicle for improving the market power of dairy smallholders. The GOE
policy on cooperatives is mixed. The GOE policy is to encourage the formation of cooperatives,
yet the government can inject politics into these organizations. The cooperative law needs to be
reviewed. In the case of a cooperative union, the GOE appoints the manager rather than a
professional manager being hired by the board of directors. More work is needed to strengthen
the management of existing and new cooperatives as they are created.
6.2.2. Other Business Models
There are other business models besides cooperative that could be considered for the dairy sub-
sector. Farmer group/organization and limited liability share company would allow dairy
producers or private individuals to start businesses and apply for loans without starting a
cooperative. The GOE could examine these alternative simplified business models.
6.2.3. Ethiopia Dairy Development Council (EDDC)
Stakeholders in the dairy sub-sector plan to establish the EDDC. A steering committee has been
formed to address issues facing the industry and to engage all direct stakeholders and allied
industries supporting the dairy sub-sector. The EDDC is a worthwhile organization to create a
forum for addressing constraints to market liberalization with the GOE, and to reconcile
differences between members such as coops and processors. It will be important that the private
sector to take the lead role in the formation and operation of the EDDC.
6.3. Investments to Increase Productivity
6.3.1. Farmer Training Centers (FTC)
The MOA is planning to expand its network of FTCs to deliver extension information to
smallholders. A FTC will be in every kebele. The USAID/Ethiopia dairy initiative can link to
the MOA’s FTCs working at the national, regional, woreda and kebele level to share knowledge
and where feasible link lead and contact farmers to the FTC for training.
The Bill and Melinda Gates Foundation (BMGF) plans to support dairy development in Ethiopia
in its second phase of its East Africa regional program. USAID/Ethiopia will want to carefully
examine how its investment in the dairy sub-sector can be leveraged with the BMGF funds.
6.3.2. Credit
Farmer access to sufficient credit is required for milk production to keep pace with demand. The
primary issue identified is secured transactions with collateral. Collateral is part of a well
structured lending system. Ethiopia’s lending system has gaps that limit its effectiveness in
agricultural development, particularly dairy supply expansion. The use of collateral presently
requires that the property being pledged as collateral be registered to a third party to avoid fraud

51
and misunderstanding. There is no central location in Ethiopia to register collateral. Vehicles

can be used as collateral since they are registered with the Motor Vehicles Office, equipment is
used as collateral as it is registered with the Ministry of Trade and Industry, and a business itself
could be used as collateral with its registration within the Company Registry. Under Civil Code
2820 livestock, future crops, warehouse receipts, and accounts receivable are eligible to be used
as collateral, but there have been no cases where a lending institution has secured a loan with any
of these chattel or claims. Finally financial institutions, banks and micro-lending institutions
have a tendency to over-collateralize to 150% to 200%. Acceptance of agricultural assets as
collateral by lending institutions needs to be clarified and supported by the Ethiopian
government.
Micro-finance institutions have adopted “peer pressure” methods such as group lending or
securing repayment of a loan by a group. The repayment rates on “peer pressure” lending is very
good, exceeding 90%. Ethiopian finance law allows leasing of equipment, machinery, and some
vehicles, ideal for agriculture, but to date no financial institution has developed a leasing
product. Outside of financial institutions there is no lending between buyers and sellers. In other
words, if a dairy processor needed more milk, it would be in the processor’s interest to finance
new technology or more cows or assist a farmer to secure credit. This has not been the case in
Ethiopia so far, but needs to be pursued to make these accepted practices or dairy development
will be slow to take off.
6.3.3. Foreign Direct Investment
Relative to the dairy sector Ethiopia has very attractive foreign direct investment policy.
Investors are exempt from tariffs and duties on all capital equipment and up to 15% on spare
parts. Exemption from export taxes are also provided. Tax holidays range from 1 to 5 years and
investors can carry initial operating losses forward and use any depreciation method.
Investments are protected against nationalization and expropriation. It is a sound and non-
discriminatory policy. However, the landholding rights issue clouds the investment
opportunities for commercial dairy farming and for dairy processing since potential processing
investors have expressed an interest in also having a dairy herd to assure milk supply and quality.
Opportunities do exist in milk collection and assembly and transportation.
6.4. Regulatory Institutions for Markets, Public Health and the Environmental
USAID/Ethiopia supported the development of the Animal and Plant Health Regulatory
Department (APHRD) to improve the regulatory functions of the GOE and to be in compliance
with international standards. This agency is a positive step for recognition by OIE and other
international bodies, but its functional effectiveness needs to be improved dramatically.
Livestock presents public health and environmental issues which require attention by the public
sector. Food safety is a key function of the GOE and the sales of raw milk to consumers could
be an issue of concern though most consumers know to boil their raw milk after purchase. The
processors in the formal sector have to comply with certain regulations which adds costs to their
products. These disparities will need to be addressed through public-private forums.
If the current Ethiopian dairy market is demand driven and the production levels do not keep
pace with demand, then it is logical that dairy farmers, smallholders and commercial firm alike,

52
will seek to expand their production. In order to expand production, farmers will need to
increase their land holdings to produce more feed whether it is cultivated forages or pasture land.
Although the Federal Proclamation (1/1995), State Ownership with Private Landholding Rights
prohibits private land ownership, the Rural Land Administration and Use Law (456/2005)
provides for rural land holding rights free of charge to farmers already on the land, for the
issuance to them of a title certificate, identifying the concerned plot and for survey and cadastral
registration of the title. For a farmer “farming for a living” this right has no time limit and a
farmer’s holding size should be a minimum size to provide for the family’s food security. The
holding may be transferred by inheritance to members of the family also engaged in farming, but
it may not be freely sold. Fortunately for farmers the decisions on land acquisition are made at
the kebele and woreda levels and there is much anecdotal evidence of farm expansion through
renting of additional holdings of 2 to 4 hecatares, albeit not contiguous with current holdings. If
a commercial dairy farm model is 15 to 20 hectare to support 80 cows is accepted, then the land
issue becomes more problematic and it is doubtful that the land acquisition would be available in
the high land milk sheds.
To safeguard against private and public impediments to free competition the Ethiopian
Parliament passed the Trade Practices Proclamation (329/2003) for “regulating anti-competitive
practices”. In the dairy sector the Ethiopian government has done a laudable job in privatizing
the Dairy Development Enterprise, Shola Dairy, state farms, the Kaliti Animal Feed Mixer and
Poultry Feed and most recently providing permission, although informal, to allow Alppis to
import bull semen from the US. Still more can be done.

53
7. CONCLUSIONS, RECOMMENDATIONS AND INTERVENTIONS

7.1. Conclusion
This rapid assessment of the dairy sub-sector for USAID/Ethiopia revealed some significant
findings. These can be summed up in the following points.
 The consumption of milk is low in Ethiopia compared to neighboring countries and

below recommended dietary intake levels;
 The demand for milk and milk products will continue to rise due to population,
urbanization and rising incomes in spite of the large number of religious fasting days,
and imports will have to increase to meet the domestic shortfalls (requiring scarce
foreign exchange);
 Large quantities of milk does not reach the consumer as fluid milk, and the formal sector
handles a small fraction of the fluid milk market in urban areas;
 Increase the supply and quality of milk and milk products;
 A very high percent is sold as raw milk which poses problems of adulteration and
hygienic concerns;
 The cost of milk production is high because of low productivity and transaction costs to
bulk and transport fluid milk from a large number of smallholders
 Notwithstanding these constraints the dairy sub-sector is at a stage of take-off because of

the emergence of diary cooperatives, private sector processors, and consumer awareness
about the importance of consuming milk.
7.2. A Vision
The GOE and the industries in the dairy sub-sector realize that an opportunity is present to move
the whole sub-sector forward. A vision is required that all stakeholders can support. The vision
put forward to USAID/Ethiopia is: “Domestic production of quality Ethiopian milk and milk
products that improves the livelihood of a large number of dairy households, creates additional
jobs, and protects the natural resources of the country”
7.3. A Strategy
The proposed strategy for USAID/Ethiopia is to support and strengthen the private sector (small,
medium and large firms) to engage in a progressive and liberalized market for dairy and dairy
products. The priority needs to be on the transfer of entrepreneurial skills. USAID/Ethiopia will
want to collaborate closely with the various GOE agencies in the areas of banking, investment,
regulatory and government services. The private sector in partnership with the public sector sets
its target for meeting demand projections set forth for the year 2020.
7.4. Key Constraints, Interventions, Actors and Expected Outputs - Impacts

54
Table 7.1.a. Constraints, Interventions, Actors and Impacts for the Dairy Sub‐Sector – Input Suppliers
CONSTRAINTS: INTERVENTIONS ACTORS OUTPUT‐IMPACT
1.Feed: Supply shortage of feeds, 1. Private sector input Producers 1. Quantity of feed
Knowledge of feed formulation, suppliers work with groups of Feed mgf grains and oilseed
Poor forage management dairy farmers to conduct on‐ Feed dealers cakes purchased on
2. Land: Land Shortage for farm demonstrations for AI inseminators contracts
ingredient & fodder production,
their products, seeds, MoA researchers 2. Contract signed for
access to land, parcel sizes
decreasing; decisions between
fertilizers, genetics. MoA AI insemination of
food, forage and grazing land 2. Institute contracts extensionists quality semen
3. Breeding Services / Improve between feed manufacturers MFIs and banking 3. Number of private
genetic stock; shortage of Poor and maize and oilseed institutions firms providing
Quality semen; few business producers for delivery to the imported semen
operators factory at negotiated prices increases
4. Veterinary Services / Drugs: and quantities 4. Improved quality of
Subsidized and inefficient ; Lack 3. Support SMEs on forage forages produced for
of quality drugs / presence of seed production, e.g. Rhodes dairy cattle
contraband in markets; grass 5. Number of kg of
Shortage / inconsistent supply; 4. Project set‐up improved forage seed
Lack of veterinarians with dairy demonstration sites for silage sold by SMEs
technical focus; Lack of pits 6. Milk production in
diagnostic services 5. Contracts between groups project herds
5. High cost of production: VAT + of farmers and a veterinarian increases by 25% by
raw materials costs; equipment / and the CAHW for preventive the second year of
Machines / Materials: High cost / care and treatment of dairy project
devaluation; Lack of local supplies; cows 7. Introduce rural
electricity shortages
6. Contract between groups farm stores near to
6. Business Services: Few business
actors (Commercial); Lack of
and an AI inseminator farmers in the milk
innovative / entrepreneurial skills; 7. Contracts between feed sheds
Lack of marketing capacity manufacturers and groups of 7. Field research trials
7. Subsidized government system dairy farmers for delivery of on new forage seeds
undermining private sector feed rations established in three
 Un‐harmonized 7. Ag input dealers and MOA locations
government policies to researchers have field days 8. Farmer field days
international standards on selected forage plots conducted
 Inadequate extension


55
Table 7.1.b Constraints, Interventions, Actors and Impact for the Dairy Sub‐Sector ‐ Production
Pastoral System. Pastoral System. Pastoral System. Pastoral Systems.
Low milk production 1. Sale of camel milk SMEs Quantity of products
Lack of market access 2. Small scale processing of Pastoral assoc. sold in domestic and
butter NGOs export markets

3. Milk marketing to Somalia CAHW ‐ Improve food

and Northern Kenya of fluid MFI security
milk

Rural Smallholder (Crop‐Livestock) Rural Smallholder Rural Rural Smallholders
‐Low productivity 1. Road access Smallholder Formation of groups
‐High cost of milk production 2. Increase market access FTC Increase sales of fluid
‐ Low management knowledge 3. New farm organizations to Farm groups milk
‐ Distance from market place access fluid markets Milk collectors
‐ Poor quality (Management, Processors
handling etc…) from milking to
selling
‐ Inadequate knowledge transfer
system
‐ Poor value chain/ vertical/
linkages (low trust among the
actors)
‐ Lack of i
‐ Low level of integrated dairy
management practice and
knowledge

Urban and Peri‐Urban Urban and Peri‐Urban Urban and Peri‐ Urban and Peri‐Urban
80% of producers have 1 – 3 1. Strengthen coops Urban ‐ Expand number of
head 2. Create new coops Cooperatives cross‐bred cows
Lack of chilling centers 3. Contracts with input SME ‐ Profitable coops
High cost to produce milk deliver providers Lead Farmers ‐ Fluid milk purchased
Lack of feed and land 4. Processors FTC by formal sector
Lack of chilling centers
Low trust
Poor vertical linkages Commercial Producers
Pressure to move out of urban Commercial ‐ expand herds
Commercial Producers Producers ‐ contracts signed with
Commercial Producers ‐ pilot tests on production of ‐ producers feed mgf.
Cost of feed feed rations ‐ govt. agencies ‐ feed exchange
Availability of land ‐ feed supply contracts ‐ processors ‐ marketing contracts
‐ land use on relocation of with processors
commercial dairies

56
Table 7.1.c. Constraints, Interventions, Actors and Impact for the Dairy Sub‐Sector – Bulkers and
Transporters ‐‐ Cooperatives, Collectors and Transporters
Cooperatives: Cooperatives: Cooperatives: Cooperatives:
‐ training in business skills ‐ business trainers ‐ publication of
‐ high cost of operations (cooling) ‐ education on governance ‐ laboratories financial statements
‐ training on testing of milk ‐ processors ‐ financial ratios
‐ weak management
‐ use of contracts ‐ lending improve
‐ lack of working capital
organizations ‐ cost of collecting
‐ governance weak
and selling milk
‐ auditing of operations
decreases
‐ lack of transparency

Collectors – Milk Hawkers: Collectors – Milk Collectors – Milk

‐ training in milk handling Hawkers: Hawkers:
Collectors – Milk Hawkers:
‐ organization of milk ‐ business trainers ‐ reduction in
‐ lack of knowledge on proper
collectors ‐ MFI adulterated milk
care of milk – lack of skills
‐testing of milk ‐Labs ‐ more milk collected
‐ lack of access to credit to invest
‐Implement a pricing from villages not on
in handling equipment
scheme based on quality the collection route
‐ poor rural roads

‐ low level of integration (up and

downstream)
Transporters: Transporters: Transporters:

‐ Assessment of supply of ‐ Transporters ‐ Reduction in
Transporters:
transport available during ‐ MFI collection costs for
‐ poor rural roads
times of the year milk sold by
‐ High cost of transportation
‐ Detailed costs on cooperatives
‐ Availability of trucks on regular
transportation ‐ reduction in costs
basis.
by processors
‐ not milk tankers in use
collecting milk


57
Table 7.1.d. Constraints, Interventions, Actors and Impact for the Dairy Sub‐Sector ‐ Processors
Processors: Processors: Processors: Processors:
‐ Shortage of milk supply and milk ‐ STTA (Short term technical ‐ Small, medium ‐ increased volume of
quality problem assistance) for business and large milk and milk
skill, marketing, quality processors in Addis products sold in
‐ Technical skills to process value improvement for Ababa and the urban area by
added products such as cheese processors regional urban processors (formal
centers sector)
‐ Low level of market linkage with ‐ Promotion investment,
producers and collectors identify processing ‐ business ‐ establishment of
opportunities for SMEs in development new processing
‐ Marketing skills (Labeling, regional centers providers facilities, especially in
branding, distribution…) regional urban
‐Support new product ‐ Ethiopian Meat centers
‐ High cost of packaging development and Dairy
Technology
‐ encourage industry to set Institute
and adhere to milk
standards

‐ contract facilitation
between PDCs and
processors and promote
quality‐based payment
strategie

‐ grant or guaranteed loans
for start‐up processing
facilities


58
Table 7.1.e. Constraints, Interventions, Actors and Impact for the Dairy Sub‐Sector – Retailing:
Supermarkets, Grocery Stores and Milk Kiosks
CONSTRAINTS: INTERVENTIONS: ACTORS: OUTPUTS – IMPACTS:
Retailing: Retailing: Retailing: Retailing:
‐ Unhygienic milk ‐ Use of BDS services to ‐Supermarket ‐ Increase the volume
‐ Shortage of shelf stable milk improve the merchandising chains of milk sold through
‐ Timeliness of milk and milk products outlets
‐ Short shelf life ‐Grocery stores
‐ Limited product categories ‐ Retailers involved with in‐ ‐ Consumers
‐ Improper milk handling store demonstrations of ‐ Technical training perceptions improve
milk and milk products by specialist in about consuming
retailing milk
‐ Use of coffin cases and
other types of display cases
in stores to sell milk
products

‐ access to loans to update
display cases in retail
outlets

59
Table 7.1.f. Constraints, Interventions, Actors and Impact for the Dairy Sub‐Sector – Hotel, Restaurant, and
Institutional (HRI)
‐ Inadequate packaging and sizes ‐ Business service providers ‐ Business service ‐ Increase purchases
for training on retailing providers for of milk products by
‐ Low level of quantities required training schools and other
on regular basis ‐ New bulk package designs institutions with
for institutional buyers ‐ Package design cafeterias
‐ inventory control and chilling of for institutional
products ‐ Promotion of the use of buyers ‐ changes in menus
milk products in menu to increase the usage
planning ‐ College food of dairy products
nutritionists on
meal planning to
use dairy products

60
Table 7.1.g. Constraints, Interventions, Actors and Impact for the Dairy Sub‐Sector – Ethiopian Consumers
 More fasting days Consumer‐targeted ‐ Ethiopian Dairy ‐Targeted
 Adults consume less milk awareness campaigns Development promotions to key
 4% of the expenditure Council demographic groups
goes to dairy products ‐ Use recognizable public
 Lack of knowledge on milk figures to speak on ‐Market research ‐Increase milk
quality ( Pasteurized vs. importance of milk firm consumption
raw milk) consumption
 From raw to
pasteurized???


61
Table 7.1.h. Constraints, Interventions, Actors and Impact for the Dairy Sub‐Sector – Export Markets
 Low level of export quality  Market research ( ‐ SMEs ‐ Increase the
for milk and milk products Regional markets) number and volume
 Inadequate or no law  Identify niche ‐ Processors of milk and milk
enforcement on keeping markets (Diaspora) products exported to
milk quality standards  Support on product ‐ Women groups neighboring
 Lack of market development countries
information on export,  IESC/ VEGA+
both formal and informal. project… Link with ‐ Increase in foreign
(They elaborated on diasporas exchange
informal… Somaliland‐ investment
camel, Kenya‐ cow) ‐Increase income for
 Suit case marketing households
(support to ) processing milk


62
8. ANNEX
8.1. Bibliography
Ahmed, M. S. Ehui, and A. Yemesrach. “Dairy Development in Ethiopia.” EPTD Discussion
Paper. No. 123. IFPRI, Washington, D.C., USA. 2004.
Azage, T., Z. Sileshi, M. Tadesse and M. Alemayehu. “Scoping Study on Urban and Peri-Urban
livestock keeping practices in Addis Abba”. Part I. Literature review on Dairy Production
Management and Marketing – ILRI and EARO. 2002
Behnke, Roy. “The Contribution of Livestock to the Economies of IGAD Member States – Study
Findings, Application of the Methodology in Ethiopia and Recommendations for Further Work.”
Odessa Centre, Great Wolford, United Kingdom, October, 2010.
CSA (Central Statistical Agency). “Agricultural Sample Survey 2007/08. Volume II. Report on
livestock and livestock characteristics (private peasant holdings). CSA, Addis Ababa, Ethiopia.
Delgado, C., Rosengrant, M., Steinfeld, H. and Ehui, S. “Livestock to 2020: The Next Food
Revolution.” Food, Agriculture, and the Environment Discussion Paper 28, IFPRI, FAO, and
ILRI, 1999.
Du, X., Zhu, K., Trube, A., Zhang, Q., Ma, G., Hu, X., Fraser, D.,Getachew, F. and H.
Greenfield. School-milk intervention trial enhances growth and bone mineral accretion in
Chinese girls aged 10-12 in Beijing. British Journal of Nutrition 2004, 92(1)159-168
EAFIA, Over view of Ethiopian Animal feed Industry Association and Feed Production and constraint in
Ethiopia .Ethiopian Animal feed Industry Association, April 2010
Geda, G. “The Ethiopian Dairy Development Policy: A Draft Policy Document.” Ministry of
Agriculture/AFRDRD/AFRDT. Food and Agriculture Organization SSFF. Addis Ababa,
Ethiopia. 2001.
Getachew, F. and G. Geda. “The Ethiopian Dairy Development Policy: A Draft Policy
Document.” Ministry of Agriculture/AFRDRD/AFRDT. Food and Agriculture Organization
SSFF. Addis Ababa, Ethiopia. 2001.
Getnet Haile (2009).Impact of global economic crisis on LDC’s Economic productive capacities
and trade prospects: case study the dairy sector in Ethiopia: UNIDO.
Government of Ethiopia. The Livestock Master Plan Study Report. Addis Ababa. 2007.
Government of Ethiopia. Population Census Commission. Summary and statistical report of the
2007 population and housing census, population size by age and sex. 2008
Government of Ethiopia. Central Statistics Agency Agriculture Sample Survey: report on crop
and livestock production utilization, 2010

63
Hoppe, C., Udam, T., Lauritzen, L., Molgaard, C., Juul, A. and K. Michaelsen. Animal protein
intake, serum insulin-like growth factor I, and growth in healthy 2.5-y-old Danish children.
American Journal of Clinical Nutrition. 2004, 80(2):447-452.
Holloway, G. C. Nicholson, C. Delgado, S. Staal, and S. Ehui. “How to Make a Milk Market: A
Case Study from the Ethiopian Highlands.” Socio-economics and Policy Research Working
Paper 28. ILRI. 2000.
Hussen, K., A. Tegegne, M.Y. Kurtu, and B. Gebremedhin. Traditional cow and camel milk
production and marketing in agro-pastoral and mixed crop-livestock systems: The case of Mieso
Diestice, Oromia Regional State, Ethiopia. Improving Productivity and Maket Success (IPMS) of
Ethiopian Farmers Project, ILRI. Addis Ababa. Ethiopia. 2008
Jabbar, M. and S. Benin. “Trade Behavior and Transaction Costs in Live Animal Marketing.” in
Ethiopian Highlands and Markets. J. Pender and R. Reuben. 2005.
Land O’Lakes Annual reports, several issues.
MoARD Livestock Master Plan Study Phase I Report Volume T – Sociological Aspects, 2007
Murphy, S. P. and L. H. Allen. Nutritional importance of animal source foods. Journal of
Nutrition 2003, 133:3932S-3935S.Sadler and Catley Milk Matters: the role and value of milk in
the diets of Somali pastoralist children in Liben and Shinile, Ethiopia, 2009
Pan American Health Organization and World Health Organization. Guiding Principles for
Complementary Feeding of the Breastfed Child. Washington, D. C.
Randolph, T. F., Schelling, E., Grace, D., Nicholson, C. F., Leroy, J. L., Cole, D. C., Demment
M. W., Omore, A., Zinsstag, J., and M. Ruel. Invited Review: Role of livestock in human
nutrition and health for poverty reduction in developing countries. Journal of Animal Science
2007, 85:2788-2800.
Sadler and Catley Milk Matters: the role and value of milk in the diets of Somali pastoralist
children in Liben and Shinile, Ethiopia, 2009
Sadler, K., Kerven, C., Calo, M., Manske, M., and A. Catley. Milk Matters: A literature review
of pastoralist nutrition and programming responses. Feinstein International Center, Tufts
University and Save the Children, 2009.
SNV Netherlands Development Organization Study on Dairy Investment Opportunities in
Ethiopia, 2008
Staal, S.J., Delgado C. and Nicholson, C. “Smallholder Dairying Under Transaction Costs in
East Africa.” World Development. 25: 779-794. 1997.
Staal, S.J., A.N. Pratt, and M. Jabbar. Dairy Development for the Resource Poor, Part II. Kenya
and Ethiopia – dairy development studies. PPLPI (Pro-Poor Livestock Policy Initiative).
Working Paper No. 44-2. ILRI. Nairobi, Kenya. 2008.

64
Tefera, T.L. et al. “Commercializing dairy and forage systems in Ethiopia: An Innovation
Systems Perspective.” ILRI – IPMS. Working Paper No. 17. 2010.
Tsehay, R. “Smallholder Dairy Development Project (SDDP) Experiences on Rural Milk
Collection and Processing.” in “The Role of Village Dairy Co-operatives in Dairy Development:
Prospects for Improving Dairy in Ethiopia. Proceedings of a workshop, SDDP. (Smallholder
Dairy Development Project). Ministry of Agriculture, Addis Ababa, Ethiopia: p. 59 – 72. 2002.
UNIDO The impact of Global Economic & Financial Crises on the Ethiopian Dairy Industry.
2009.
Webber, C. Martin and P. Labaste. “Building Competitiveness in Africa’s Agriculture – A Guide
to Value Chain Concepts and Applications”. No date.
Wouters, B. and J. v.d. Lee. “Background Paper Dairy Development Ethiopia”. For National
Dairy Forum Organizing Committee. Wageningen University. No date.
YONAD 2009. Value chain Analysis of Milk and Milk products in Borana pastoralist area, unpublished
manuscript. 2009.

65
8.2. Maps of Milk Sheds (Insert Map 1.)

66
8.2. Insert map #2.

67
8.3. Tables of data
Annex Table 8.3.1. ZERO GRAZE DAIRY (15 cow herd)
ETB/herd USD/herd
Model Model
MILK PRODUCTION
Average litres per animal per day 12 12
Lactation period (days per year) 305 305

Total milk produced (litres per
year) 43,920 43,920
Milk sold for cash (litres per year) 37,586 37,586
Average price per litre 4.5 0.36
Gross milk revenue (per year) 169,136 13,531

ADDITIONAL REVENUE
Calf and heifer sales (annual equiv) 37,336 2,987
Manure sales 13,688 1,095
Total gross revenue (all sources) 220,159 17,613

PRODUCTION COSTS (per
herd)
Total variable costs 112,407 8,993
Depreciation 35,011 2,801
Total production costs 147,418 11,793
Total cost per litre produced 3.4 0.27
Total cost per litre sold 3.9 0.31

FARMER PROFIT (per herd)
Gross profit 107,752 8,620
Gross profit per litre produced 2.5 0.20
Gross profit per litre sold 2.9 0.23
Net profit 110,077 8,806
Net profit per litre produced 2.5 0.20

Net profit per litre sold

68
2.9 0.23
RATES OF RETURN
Return to variable costs 0.96 0.96
Return to total costs 0.75 0.75

LABOUR
Hired labour (days/ha) 3 3
Family labour (days/ha) - -
Total labour (days/ha) 3 3
Gr. return per Year total labour 35,917 2,873.39

69
Annex Table 8.3.2 Nutrient value of common feeds available to small holder and
commercial dairy farmers in the respective milk sheds.
Forage
Feed type Dry Matter % Crude Protein (CP) Energy (ME)
Native grass hay 92.3 6.4 1.98
Rhodes grass hay 92.3 8.3 2.0
Oat hay 96.0 8.8 1.91
Alfalfa hay 88.0 19.2 2.37
Vetch hay 89.3 20.8 2.46
Lablab hay 91.1 18.2 2.26
Cow pea hay 92.0 14.4 2.38
Fodder
Barley straw 91.4 4.4 1.82
Wheat straw 91.8 3.1 1.74
Tef straw 92.2 4.8 1.97
Oat straw 92.2 5.7 2.12
Finger millet straw 91.2 3.3 1.97
Maize stover 91.0 4.0 2.10
Sorghum stover 91.3 5.6 2.02
Lentil straw 92.4 7.7 2.0

70
Concentrates – Protein sources
Noug cake 92.3 31.7 2.14
Cottonseed cake 92.1 38.5 2.52
Linseed cake 92.5 29.3 2.56
Sesame cake 93.1 30.7 2.55
Sunflower cake 93.1 25.5 2.18
Brewer’s grain 92.2 24.4
Concentrates – Energy sources
Wheat bran 89.7 16.8 2.11
Wheat middling 92.7 17.8 2.82
Maize grain 90.3 9.9 3.21
Oat grain 93.3 8.7 2.60
Barley grain 91.4 9.9 2.60
Sorghum grain 89.6 10.2 2.50

71
Annex Table 8.3.3 EDDP/LOL Milk shed, Region, Site and woredas
# Milk Shed # Site # Woreda # Zone # Region
1 Addis Ababa 1 Akaki Kaliti 1 Akaki Kaliti 1 Addis Ababa

1 Greater Addis
2 Kolfe 2 Kolfe
3 Yekka 3 Yekka
4 Bole 4 Bole
5 Wolmera 5 West Shewa 2 Oromia
6 Ejere
7 Alem Gena
8 Dandi
9 Jeldu
2 Debre Zeit
10 Akaki 6 East Shewa
11 Ada’a Liben
12 Lume
13 Adama
3 Assela
14 Tiyo 7 Arsi
15 Digalu & Tijo
16 Lemu &
Bilbilo
17 Assela Town
18 Lode Hetosa
19 Dixis
20 Robe
4 Chancho
21 Wuchale 8
North
Shewa
22 Sululta

72
23 Mulo
24 Debre
Libanos
5 Fiche
25 Girar Jarso
26 Degem
27 Kuyu
28 Wara Jarso
29 Yaya Gulale
30 Fiche Town

Addis Ababa 31 Bereh
32 Aleltu
6 Debre Birhan
33 Abichu Nge’a
34 Kimbibit
35 Angolola 9 North Shewa 3 Amhara

Tera
36 Basona
Worena
37 Debre Birhan
Town
38 Ensaro and
Wayo
8 Bahir Dar
2 Lake Tana
39 Bahir Dar 10 West Gojam
Town
40 Bahir Dar
Zuria
41 Dera
42 Fogera
43 Mecha

73
44 Achefer
9 Debre Markos
45 Gozamen 11 East Gojam
46 Awabel
47 Dejen
48 Mechekel
2 9 48 11 3
1 Ganta Afeshum Tigrai
1 Mekele
2 Tseisi Tsamba
3 Enderta
4 Mekele area
5 Adegrat
1 Maikadra
2 Humera
2 Adobay
3 Berker
4 Berhet
5 Rawiyan
6 Setit Humera
11

74
Annex Table 8.3.4. List of primary dairy cooperatives and Unions
Lists of PDC, Unions, Processors

I. Primary Dairy Cooperatives
1. Bahir Dar Site
# Cooperative Name
1 Tis Abay
2 Alember
3 Adis Alem
4 Adis Alem
5 M & Zemana
6 Yalemgenet
7 Tadele Dibabo
8 Edget
9 Meseret
10 Bachima
11 Dhansit

2. Fiche Site
12 Hawene
13 Lalistu
14 Abdi Loonii
15 Dubar
16 Goro Haro
17 Chefa Kersa
18 Echo Kidus
19 Bikiltu
20 Chancho
21 Edoro
22 Edigat
23 Kasim
24 Torban Ashe
25 Kare Kura
26 Anaso Sago
27 Jate
28 Sale
29 Abdi Waka
30 Ano Kare
31 Dega Borso
32 Muka Turi


75
3. Assela
33 Gora Fana
34 Limu Dima
35 Limu Bubisa
36 Abdi Waka
37 Asela
38 Waji Bilalo
39 Watera
40 Dosha
41 Dhankaka
42 Lemu Mikael
43 Lemu Araya
44 Bokoji Akababi
45 Gonde Makaro
46 Huruta
47 Robe
48 Meraro
49 Meditu Danisa
50 Goba Lencho

4. Addis Ababa
51 Gelgel
52 Birhu Tesfa
53 Biiftu Bekaka
54 Telila Berga
55 Kusaye
56 Abdi Gudina
57 Jitu
58 Dandi Gudina
59 Hibirat
60 Meta Abo
61 Sebeta Enat

5. Debre Zeit
62 Lume
63 Melka Jitu
64 Gogecha
65 Hortu Gudina


76
6. Debre Markos
66 Yetnora
67 Gion
68 Lemlem
69 Enbie
70 Bogena
71 Zeba
72 Wonka
73 Findika
74 Yewula
75 Amanuel
76 Embule
77 Wojel
78 Adare Mandida
79 Sokoru
80 Kayit
81 Angolola
82 Keble 02
83 Kebele 06
84 Jisa
85 Aba Moti
86 Kokeb
87 Boran
88 Chafana
89 Chaki
90 Adare Mendida
91 Medida Moye
92 Kogne
93 Abaya
94 Shano
95 Addis Birhan
96 Gebez Amba
97 Genet
98 Biruh Tesfa
99 Edget Behbret
100 Fito


77
7. Mekele and Humera
101 Kidus Yohanis

102 Miwttae Warki
103 Selam
104 Adimesekel
105 Ferawn
106 Zelalem
107 Adigudem
108 Hiwet
109 Azemera
110 Shewit
111 Frekals
112 Tiebe
112 Mekele and around

II. Unions/Associations
# Name Project site No. of Coop
1 Selale Dairy Union Fitche 19
2 Assela Dairy Union Asela 7
3 Hiwot Dairy Union Debre Berhan 5
4 Biftu Berga Dairy Union Addis 13
5 Zemen Dairy Union Mekele 12
6 Humera Dairy Union Humera 5
61

78
III. Processors
Company Name
1 Adaa Cooperative
2 Aywa Agro Industry (Safi Milk)
3 Berta
4 D.Markos Dairy
5 Enat Milk
6 Genesis Farm
7 Hirut
8 Holland Dairy
9 Icecream Producers
10 Lame Dairy (Shola Milk)
11 Lema Milk
12 Life Milk
13 MB Plc (Family Milk)
14 Simret Agriculture and Industry
15 Fikadu Silasie Taddesse
16 Jantekel Dairy Union (Fassil Milk )
17 Nardelli Dairy farm
18 Prime Milk(Sululta)
19 Sebeta Agro Industry (Mama Dairy)
20 Sheno Agro Industry (Beral)
21 Yadeni Dairy Farm (Bora Milk)

79
Annex Table 8.3.5. Characteristics of Selected Processing Plants in Addis Ababa, Nov, 2010
Gebre Hirut Berta & Family Mama Lame
Life Milk Yohannes Family Dairy Sabeta Shola
Plant 1 Plant 2 Plant 3 Plant 4 Plant 5 Plant 6
Year plant built 2008 2005 1998 2007 1995 1947
Plant Built Capacity 7000 20000 50,000 60,000
Utilization (l/d) 2000 3300 7000 11000 33,000 31,000
% Utilization 100% 55% 66% 52%
Labor ‐ total 20 18 30 69 380 239
Labor ‐ permanent 20 18 20 65 9
labor ‐ contract ‐
temp 10 4 182
Men 9 51 66
Women 21 14
Milk purchase increasing 20%/yr
Source of milk
own farm 230l/d 350 kg 3
individual farmers 74 + 166 3 2218
cooperative 1
union 1 w. 6 k ‐ 7k 1 1
Collection Centers 15
traders 4 13 11
B 4.25 ‐
Price paid at farm Birr 4.50 Birr 6.00 B4.5‐ B5/l 4.75
B 4.50 ‐
5.00
Price paid at dock Birr 8.00 B 6.50/l B. 6.00/l
Chilling Center Yes
Trained any farmers yes no yes no
How many trained 4 collector 0 120 0
74
farmers
Proc. Cost per lt B 2.60
Product Line ‐ 2006 NA 2 12 6
Product line ‐ 2010 5 6 12 32 7
UHT No No Yes No
Price for Past. Milk
(B/L) Birr 9.00
Outlets
own shops 1 1 1 (4)‐7000 lt
supermarket yes ‐ DNK 80 (54)‐1615 lt

80
Hotels yes ‐ DNK 10 (26)‐1235 lt

(79) ‐ 3791
Institutions yes ‐ DNK lt
Restaurants yes yes ‐ DNK (36) 866 lt
(249) ‐
Kiosks and wholesale 5 yes ‐ DNK 700 16493
Challenges for Industry? Machinery Production feed
finances good cows
maintenance vet drugs
management manpower
Marketign
Challenges for plant? testing AI equipment quality milk
feed for
equipment cows electricity
products machinery
more cows
Needed Land for
improvements dairy Expansion good milk
for industry? more milk commercial
Source: Land O’Lakes survey of selected dairy plants in Addis Ababa, November, 2010

81

82
Annex Table 8.3.6. Milk production and productivity by regions
Geographic Number of Number of Total number Percentage Average Average Total Milk Percentage
area dairy cows Milking of cows Share of share of milk
cows Daily Lactation Production production
Cows (Lt)
Milk Period
Production
(Months)
Ethiopia 7,022,004 9,919,360 16,941,364 100 1.301 6 2,764,797,144 100
Tigray 150,483 602,977 753,460 4 1.247 6 169,956,074 6
Amhara 464,088 2,128,570 2,592,658 15 1.227 6 506,006,904 18
Oromia 3,366,601 4,560,153 7,926,754 47 1.365 7 1,346,825,590 49
SNNPRS 2,749,522 2,194,332 4,943,854 29 1.221 6 572,015,306 21
Harari( 6,658 11,695 18,353 0.11 1.832 6 4,259,369 0.15

Hundene)
Dire dawa 10,250 12,446 22,696 0.13 1.437 5 3,170,535 0.11
Gambella 30,774 32,815 63,589 0.38 1.932 7 16,944,336 0.61
Afar 90,993 125,046 216,039 1.28 2.229 6 63,600,980 2.30
Somale 110,924 164,216 275,140 1.62 1.741 6 55,209,717 2.00
Benshangul 41,711 87,110 128,821 0.76 1.329 7 26,808,333 0.97

Gumuz
83
Total 7,022,004 9,919,360 16,941,364 100 2,764,797,144 100
Annex Table 8.3.7. Cattle Inventories in Ethiopia
Indigenous Cross Exotic National Improved

Breed Female
Region Male Female Male Female Male Female Population (%)
Tigray 1,462,000 1,629,000 4,168 6,425 1 1,934 4
Afar 96,093 377,023 0 1 0 0 0
Amhara 6,501,000 6,178,000 26,365 38,573 1 1 18
Oromia 9,973,000 12,263,000 65,279 112,590 * 23,094 62
Somaliland 199,932 420,651 0 0 0 0 0
Benshangul-
181,058 230,866 1 0 1 0 0
Gumuz
SNNP 3,333,165 5,878,000 13,952 31,794 1,011 5,261 17
Gambela 37,062 92,413 0 0 0 0 0
Harari 15,481 27,358 326 1 1 1 0
Dire Dawa 17,402 31,411 0 0 0 0 0
Total 21,816,193 27,127,722 110,091 189,384 1,015 30,291 100

84
Annex Table 8.3.8. Performance of Primary Cooperatives in Milk Sheds in Ethiopia, 2008 and 2009
Milk Shed Average Cost of all Average Value of Average Average Average profit Average dividend

milk bought by Milk Sold by Revenue per Expenses per per coop per coop
coops coops coop coop
Year 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009
Coops (#) 42 42 12 13 32 33 31 32 32 32 21 22
Fitche (Birr) ‐ GA 1294001 1550613
460549 540339 524706 778479 482321 405786 31967 54248 72831 116911
Debre Birhan (B) ‐ GA 521511 367562 555171 643083 186922 572896 72492 423591 25697 41067 25491 39905
Bahir Dar (Birr)‐ LT 110999 174489 NA NA 57627 181557 6571 31022 16369 48174 11500 33641
Debre Markos ‐ LT 155285 204154 NA NA 133197 178579 109174 104263 24024 34112 9815 12040
Asella (Birr) ‐ GA 139063 194781 74961 138198 236697 273242 251436 253103 45079 284680 27231 18497
Addis Ababa (B) ‐ GA 1593252 1618090 NA NA 9214 50511 6422 12025 76152 92619 66446 47757
Average (Birr) 635685 684948 181780 220270 191394 339210 154736 204965 36548 92483 35552 44792
Avg % chg Yr ‘08‐09 8% 21% 77% 32% 153% 26%
Note: NA = data was not available. Data is for cooperatives in two milk sheds – Greater Addis milk shed (GA) and the Lake Tana
milk shed (LT)

85
Annex Table 8.3.9. Value of Imported Dairy Products by Ethiopia, (Birr)

Product Years
2005 2006 2007 2008 2009 2010
Cheese 1,717,567 2,015,762 2,806,279 3,345,196 2088.0 2562465
Butter 101,677 302,830 503,183 819,724 193,716 1427421
Yoghurt and other 308,643 4,432,118 1,016,963 1,512,661 303,559 226,742

butter milk
Milk and cream 46,823,409 63,035,855 48,546,567 77,191,210 99,852,788 114,343,334
Total 48,951,297 69,786,566 52,872,991 82,868,790 100,352,151 118,559,962
Source Ethiopian customs authority

86
Annex Table 8.3.10. Market Prices for Dairy Products from Field Survey, October 2010
Items Volume Addis Assela Hawassa B/Dar D.Birhan D.Markos D.Dawa Fitche Gondar Humera Mekelle
Products in informal Market
Raw milk 1 liter 8.00 5.30 7.00 7.00 5.00 6.00 8.50 5.31 6.74 12.00 7.00
Traditional Yogurt 1 Liter 8.50 8.00 10.00 7.65 8.70 9.09 12.00 10.00 9.79 25.00 20.91
Cooking Butter 1kg 85.00 70.00 75.00 60.00 75.00 70.00 90.00 75.00 65.00 - 100.00
Ghee 1 liter - - - - - - - - 75.00 120.00 110.00
Cottage Cheese (Ayib) 1 kg 20.75 11.00 12.00 16.33 15.00 13.86 30.00 9.50 15.00 - 15.00
Products in formal Market
Pasteurized milk 1 liter 11.30 - 11.00 - - - - - 8.66 - 11.00
Plain yogurt (Pasteurized) 500ml 12.00 - 9.00 12.00 - - - 3.25 - -
Flavored Yogurt , 250ml 250ml 12.00 - - - - - - - - -
Drinking Yogurt, 390ml 390ml 9.50 - - - - - - - - - -
Cottage Cheese (Pasteurized
Ayib) 1 kg 37.00 - 36.00 - - - - - - -
Imported Cream Cheese 120gm 34.00
Table Butter (local) 200gm 25.00 - 25.00 25.00 - 15.00 - - 14.00 - 25.00
Table Butter (Imported) 200gm 99.40 - - - - - - - -
Provolone Cheese 1 kg 100.00 - 95.00 95.00 - - 100.00 - 100.00
Gouda Cheese 1 kg 135 - - - - - - - - - -
Cream 1 liter 62.00 - - - - - - - - - -
Local UHT Milk (MAMA Safari) 1 liter 17.20 - - 20.00 - - 24.00 - - 18.00 22.00
Imported UHT Milk
(in cartoon or bottle) 1 liter 52.00 - - 40.00 - - 35.00 - - 35.00
Powdered Milk, 2500gm (Nido) 2,500gm 390.00 - 399.00 320.00 390.00 -
Powdered Milk, 900gm (Nido) 900gm 180.00 180.00 185.00 160.00 170.00 185.00 175.00 - 180.00 152.50 160.00
Powdered Milk, 400gm (Nido) 400gm 85.00 70.00 80.00 60.00 80.00 80.00 80.00 75.00
* The raw milk price was the lowest in Debre Birhan and Fitche and the highest in Humera
* Butter price is the highest price in Mekelle
* Traditional cottage cheese (Ayib) has the highest price in Dire Dawa
* Pasteurized milk is only available in Addis Ababa, Gondar and Mekelle
* Imported powdered milk is widely available in the country
* Ghee is more widely used in Humera than Butter

87
Annex Figure 8.3.11. Value Chain Map of Actors.


88
Annex Table and Figures 8.3.12.Average monthly Price trend

- 2005/2006 - 2009/2010

Sum of
Price/Liter
months
Month
Sept 5.75 28.75 5.75

Oct 5.7 28.53 5.71
Nov 5.84 29.21 5.84
Dec 5.69 28.44 5.69

Jan 5.71 28.56 5.71
Feb 5.70 28.52 5.70

Mar 5.76 28.80 5.76
Apr 5.96 29.80 5.96
May 6.33 31.67 6.33
Jun 6.71 33.56 6.71
Jul 6.98 34.91 6.98
Aug 6.76 33.79 6.76
Average = 6.07
Source: CSA

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The NEXT STAGE IN DAIRY DEVELOPMENT

Dairy Value Chains, End Markets and Food Security

Cooperative Agreement 663-A-00-05-00431-00

1.1. The Role of the Dairy Sub-Sector in the Economy of Ethiopia

2. DEMAND FOR MILK AND MILK PRODUCTS…………………………………….…. 15

3.4.3. Animal Health Services

4. BEYOND THE FARM GATE–DISTRIBUTION, PROCESSING, MARKETING……32

5. DAIRY VALUE CHAIN………………………………………………………………..….. 38

6.3.4. Foreign Direct Investment

7. CONCLUSIONS, RECOMMENDATIONS AND INTERVENTIONS……………… 53

2. The recommended strategy is for USAID/Ethiopia to support the GOE’s market-driven

1. OVERVIEW OF THE DAIRY SUB-SECTOR STUDY

Figure 1.1. Allocation of milk produced in Ethiopia

Producers’ Consumption of Fluid Household Processing into Household Milk Sales

Household Household Sales Collectors into Cooperatives

Sales of loose Urban Sales Urban Sales of milk =

1.1.2 Livestock and Milk in the household economy

Figure 1.2. Schematic of the Functions in the Value Chain

Consumers Markets Processing Distribution Production Inputs

1.4. The Tasks and the Study Team

2. DEMAND FOR MILK AND MILK PRODUCTS

2.1.1. Milk and Milk Product Consumption in Urban Areas

Figure 2.1. Population size by religious affiliation

Religion Total % of Total Urban % Urban Rural % Rural

Source: CSA, 2007

2.1.2. Milk and Milk Product Consumption in Rural Areas

2.1.3. Milk and Milk Product Consumption in Pastoral Areas

2.5.2. Middle of the Range Estimate

Figure 3.2. Average Daily Milk Production per Cow

3.3.2. Peri-Urban and Urban Production

3.3.4. Pastoral and Agro-Pastoral

3.4.1.2. Institutions in the Feed Sub-Sector

3.4.2.1. National Artificial Insemination Center (NAIC)

3.4.2.2. Private Companies for Genetics

3.4.5 Credit and Financial Services

4. BEYOND THE FARM GATE – DISTRIBUTION, PROCESSING AND MARKETING

4.1. Formal and Information Distribution Channels

4.2. Distribution of Raw Milk

4.2.2. Primary Cooperatives and Union Cooperatives

4.3. Processors of milk and milk products

4.4. Domestic market

4.4.3. Hotel, Restaurant and Institutional (HRI)

4.5. Milk and Dairy Product Exports

4.6. Employment Creation in Value Chain from Increased Dairy Production.

5. DAIRY VALUE CHAIN

5.2. Formal Dairy value Chain

Figure 5.1. Annual mixed animal feed supply

Source: EAFIA, ,2010

2004 2005 2006 2007 2008 2009

Dairy ratio 79 86 108 128 302 230

Calves ratio 87 94 107 136 312 340

Sheep ratio 76 84 105 125 301 240

Bull ratio 78 88 106 127 301 310

Heifer ratio 85 92 114 134 308 320

5.2.1.2. AI service providers

5.2.2. Milk production

5.2.7.1 Household and Institutional buyers

5.3. The Informal Dairy Value Chain

Informal dairy sector value chain Map.