Bahir Dar University

College of Agriculture and Environmental Sciences

Department of Agricultural Economics

Individual Assignment

Program: M.Sc.

Course Title: Agricultural Marketing and Value Chain Management

Course Code: AgEc6022

Name: Badmaw Minuye

ID: 1401288

A Review on Dairy Commercialization in Ethiopia: The Case in Amhara Region

Bahir Dar University, Ethiopia

 Abstract
Milk is an important cash diary product for its contribution to income generating, employment
opportunity and improvement of food security to majority of the rural household.

The purpose of this study is to present Ethiopia's dairy commercialization status, its
determinants, and to offer future insight into the difficulties so that the recommendations can be
implemented: Ethiopia, as we all know, has a huge livestock population, a relatively good
climate for enhanced, high-yielding dairy cattle breeds, and regions with lower animal illness
burden, all of which contribute to the country's significant dairy growth potential.

Taking this into mind, the purpose of this article is to examine the status, determinants, and
problems of Ethiopian dairy commercialization.

As a result, Ethiopian dairy commercialization requires intervention. Efforts should be made to

close technological gaps and handle marketing issues. Finally, options for improving
commercialization are identified. Strengthening dairy cooperatives with a focus on their business
orientation.
Table of Contents
1. Summary.............................................................................................................................................4
1.1. Background..................................................................................................................................6
1.2. Objectives....................................................................................................................................7
2. Methodology...........................................................................................................................................7
3. Result and discussion...............................................................................................................................7
3.1. Major factors of Dairy commercialization in Ethiopia.......................................................................7
3.2. Trends of the Dairy commercialization in Ethiopia.........................................................................10
4. Conclusion and Recommendations.......................................................................................................11
4.1. Conclusions.....................................................................................................................................11
4.2. Recommendations..........................................................................................................................12
5.References..............................................................................................................................................12
 1. Summary
For the majority of rural households, milk is a significant cash diary product since it contributes
to money generation, job opportunities, and improved food security (Worku, 2018).

Ethiopia is thought to have Africa's greatest livestock population. The Ethiopian government has
chosen dairy as a priority issue, with the goal of increasing Ethiopian milk output by 15.5 percent
per year throughout the GTP II period (2015-2020), from 5,304 million litters to 9,418 million
litters (DI, 2018).

The amount of livestock to be estimated in Ethiopia is 45,054,969 cattle, 20,562,832 sheep,

20,191,099 goats (MOARD, 2007) and 2.4 million camels (FAOSTAT, 2009). Recent figures
indicate that the livestock sector contributes about 12-16% of national GDP, 30-35% of
agricultural GDP (MORD, 2007), 15% of export earnings and 30% of agricultural employment
(SNV, 2008). Livestock contributes to the livelihoods of 60-70% of the population (Worku,
2018).

The milk marketing system is underdeveloped, limiting the market access of the vast majority of
smallholder milk producers. In 2010, it was predicted that less than 7% of yearly milk output was
marketed at a national basis. Only 2% of the total number of agro-based cooperatives operating
in various parts of the country was active in milk production and marketing in 2009.

Existing dairy cooperatives, for the most part, operate in areas with easy access to transportation
and markets. As a result, a significant amount of milk does not reach the markets, and a number
of producers continue to produce at a subsistence level (Yilma, Guernbableich and Sebsibe,
2011).

In Ethiopia, the milk marketing system is characterized by an informal marketing system in

which the majority of raw milk produced is sold directly to consumers or through middlemen
who sell raw milk to consumers without passing through processing plants, and in the absence of
legal processes such as government tax and trade regulations (Mamo et al., 2021)
Milk can move directly from farmers to consumers or through two or more market agents in the
informal market. The informal system is characterized by a lack of operating licenses, low
operational costs, a high producer price compared to the formal market, and little operational
regulation. The Ethiopian dairy industry is dominated by traditional dairy processing and
commerce, particularly traditional soured butter (Ahmed, Ehui and Assefa, 2004).

Despite decades of research and development (R&D) efforts, Ethiopia's dairy subsector has
failed to take off (Yilma, Guernbableich and Sebsibe, 2011).

Dairy farming is one of the important segments of the urban and peri-urban agriculture that deals
with the production, processing and marketing of milk and milk products in the urban centers. In
Ethiopia, dairy production system is broadly classified into three as rural, urban and peri-urban
dairy production systems based on location of operation. One of the marketing problems is price
instability especially during the Orthodox Christian fasting seasons .Milk and other dairy product
demand decrease during the fasting season which results in drop of prices (Mamo et al., 2021).

Amhara National Regional State, along with Oromia Region, is one of Ethiopia's most promising
milk producing regions. The Region has roughly 23.1 percent of the milking cow population and
produces more than 597 million liters of milk per year, accounting for 19.1 percent of the
national milk volume (CSA, 2017), although less than 10% of the milk is sold (LMD, 2013).
Small-scale milk producers produce and market traditional milk products such as butter, ghee,
ayib, and metata-ayib, according to national statistics (Tilahun, 2020).

1.1. Background
In order to increase Ethiopia's dairy commercialization, the dairy supply and marketing system
must undergo significant adjustments. First and foremost, dairy farming must evolve away from
its traditional subsistence mindset and toward a more market-oriented approach (Consult, 2008).

In developing nations, market-oriented growth of smallholder dairy is a vital gateway out of rural
poverty and might be a significant tool for long-term rural livelihood improvement (Tefera et al.,
2010). With the current trend of transitioning to a market-oriented economy, the dairy industry
appears to be on the verge of taking off. The primary aspects of this stage include liberalized
markets, private sector involvement, and encouragement of smallholder dairy (Yilma,
Guernbableich and Sebsibe, 2011)
The Ethiopian highland mixed Crop–livestock systems, in particular, are thought to be suitable
and disease-free environments for Crossbred dairy cattle (Ahmed et al. 2004).

Despite its enormous potential, the dairy industry has not evolved to its full potential. The 1.2
percent yearly growth rate in milk output has slowed. About 97 percent of the country's total
annual milk production is produced via the traditional milk production system, which is
dominated by indigenous breeds with little genetic potential for milk production (Impact et al.,
2011).

Setting up an effective quality control system is a crucial step in improving the dairy industry.
However, there is no adequately functioning statutory marketing and grading system in place in
the country to match the quality of milk and milk products to market prices. The identification of
formal markets that demand standard and high quality products will aid in the determination of
market prices based on quality, allowing the smallholder dairy sector to commercialize more
effectively (Yilma, Guernbableich and Sebsibe, 2011).

Hence, Identification of formal markets that demand standard and high quality products will help
to determine market prices based on the quality and thereby enhance commercialization of the
dairy sector.

1.2. Objectives
The overall objective of this paper is to assess the dairy commercialization circumstance in
Ethiopia, and specifically to review:

 To overview the major determinants of dairy commercialization in Ethiopia.

 To highlight the trend/status of dairy commercialization.
 To forward future recommendation on dairy commercialization.

2. Methodology
A search and study of the literature has been carried out. As a result, secondary sources were
used to gather, organize, analyze, interpret, and evaluate the data. Various authors and scholars
have written on this topic, and all relevant sources have been examined to assess the current
dairy commercialization trend/status in Ethiopia, particularly in the Amhara region.
3. Result and discussion
3.1. Major Determinants of Dairy commercialization in Ethiopia
Local and International Development Partners: Various national and international
development partners have contributed to the growth of the country's dairy sector by giving
material and technical assistance to smallholder farmers, dairy cooperatives and unions, as well
as the commercial sector. SNV, Land O'Lakes, FAO, Heifers International Organization, and
Non-Governmental Organizations (NGOs) such as Self Help and Hunde, which operate in the
central highlands, are among the major development partners currently involved in dairy
development at various levels and in various dairy potential areas of the country (Yilma,
Guernbableich and Sebsibe, 2011)

Quantity of milk output: Beyond consumption, production is either sold as fluid milk or
processed into various dairy byproducts for various reasons. The product's processed portion can
be consumed at home or sold. The number of lactating dairy cows has a direct effect on
production. As the number of dairy cows grows, so does production, and the ratio of
consumption falls as sales rise (Rahmawati and Dewi, 2020).

Dairy farm experience: When dairy farm experience improves by one year, the likelihood of
household participation in the milk market increases by 1.4 percent (Tilahun, 2020).The findings
of Zenebe (2014) and Berhanu et al.(2014) contradict this conclusion, however Selman et al.
(2015) revealed a direct link between farm experience and milk maker engagement in Nageria.
Farmers' production skills and expertise may improve as a result of their dairy farming
experience, resulting in increased productivity. Milk farmers are compelled to sell large
quantities of milk.

Market: Agriculture, particularly livestock development, is increasingly driven by markets

rather than output. Recent empirical research reveals that demand-side variables, rather than
technology solutions to address supply-side constraints including nutrition, breeding, and animal
health, have mostly influenced Ethiopian dairy subsector development (Tefera et al., 2010).

Due to economic and cultural factors, Ethiopia's national per capita consumption of milk and
milk products is around 17 kg, one of the lowest in Sub-Saharan Africa. Ethiopian households
spend only 4% of their overall food budget on milk and products on average. Even among
middle-income urban households with greater purchasing power, the habit of drinking milk and
milk products has yet to develop (Tefera et al., 2010).

The small quantity of milk produced coupled with high transaction cost results in lower prices
for smallholder unorganized producers, and high product price for poor urban consumers leading
to low effective demand.

While the perceived contributing factors such as increased urbanization and population growth
are similar across PLWs, others like the establishment of new processing plants Amhara region)
and increased number of dairy enterprises (Hawassa in SNNP, and Adigrat and Mekele in Tigray
regions) are region or PLW specific. A limited number of respondents (producers, researchers,
experts etc.) had mentioned increasing productivity as factor leading to increased milk and butter
supply. Urban and peri-urban producers held different views on whether increasing demand or
increasing cost of production was more responsible for higher product prices (Tefera et al.,
2010).

Dairy Cooperatives and Unions: Cooperatives serve an important role in guaranteeing a long-
term supply of raw milk to the dairy sector by organizing the flow of milk from their members
and aiding them with the necessary dairy farm inputs.

According to the same source, there are four milk production and marketing cooperative unions
(two each in Amhara and Oromia Regions) founded by cooperatives for better marketing
capabilities and bargaining power (Yilma, Guernbableich and Sebsibe, 2011

Research Institutions: Genetics, husbandry, feed-resource management, animal nutrition,

physiology, animal health, dairy processing technology, social economics, and technology
transfer have all been areas of research in the dairy development field. On-station research was
carried out, with on-farm verifications carried out where appropriate.

The Ethiopian Institute of Agricultural Research's Holetta Agricultural Research Centre (HARC)
is a dairy research center of excellence (Yilma, Guernbableich and Sebsibe, 2011).

3.2. Trends of the Dairy commercialization in Ethiopia

Milk output climbed by 16.6% from 637,400 to 743,100 metric tons between 1961and 1974,
with an average yearly growth rate of 1.6 percent. Economies of scale in production and selling,
transportation subsidies to the formal market, stable land tenure, and an active free market for
feed and other inputs all contributed to this rise. Milk production, on the other hand, fell by 0.87
percent each year on a per capita basis during this time. In the early 1960s, processed milk output
remained stagnant, but it grew dramatically in the second half of the decade and the early 1970s.
2008 (Consult).
Beginning in 1978, dairy imports expanded dramatically to close the gap between production and
demand. This was largely owing to the World Food Program’s (WFP) increasing milk powder
imports for food aid, as well as a level of dairy production development that lagged significantly
behind demand. During the drought of 1986, imports peaked at 314,700 metric tons. Between
1977 and 1989, dairy imports climbed from 4.1 percent to 12.8 percent of overall consumption.
Commercial imports increased at a high rate of 24.2 percent per year.

Furthermore, imported milk powder is expected to account for 23% of the Addis Ababa market.
To summarize, total milk production in Ethiopia increased at an average yearly rate of 1.55
percent from 1961 to 2000, however per capita output decreased due to the high population
growth rate. However, production increased at a faster pace of 3% over the prior decade.

Private sector involvement in milk marketing was rising alongside co-operative marketing
groups within the current market-oriented economic structure.

Only 15.4 percent of milk produced is sold in the market, while 54.7 percent is consumed at
home, according to the Central Statistics Authority (2005). Traditional processing processes are
used to transform the remaining 29.5 percent of the milk produced into butter, cottage cheese, or
ayib. As collecting infrastructure improves across the country, these numbers are likely to shift
(Consult, 2008).

4. Conclusion and Recommendations

4.1. Conclusions
The dairy sector in Ethiopia is not developed to the expected level, though the country has the
largest livestock population in Africa.

Dairy production systems are traditional and the cattle breeds used in the system have poor
genetic potential that yield low amount of milk per lactation. In addition, the dairy marketing
system of the country is mainly informal; milk consumption habit is low even in African
standard, dairy production inputs such as, feeds, veterinary services and AI services are poor.
Moreover, the quality of milk and milk products is below the international standard. The sector is
challenged by different factors that can be categorized as technical, institutional, policy and
socio-economic.
But the sector still plays a great role for the national economy (GDP), for employment, for
income generation and house hold nutrition even if its contribution is low as compared with the
potential of the country.

The problems associated with market information seem lead to low awareness of production.
Hence, market information is the important component for improving the whole production
system. The availability of timely information to farmers can increase farmers’ bargaining
capacity and participation.

Therefore, market information service has to keep on aiming to provide information for all
farmers involving in dairy production and has to inform them how to reduce cost of production
and marketing.

4.2. Recommendations
 Productivity of local animals should be improved through selection and use of
appropriate management.
 Strengthening dairy cooperatives, so that they can play an increased role in milk
collection and processing, and supplying processed dairy products to consumers, would
help to modernize the milk marketing system.
 Developing marketing channels which can be used to promote the milk producers and
dairy value chain actors, aware of the potential for increased production and marketing of
specific products.
 Encourage licensed traders and qualitybased payments, strengthen the coordination
between union, primary cooperatives and farmers and improve the effectiveness.

5. References
Ahmed, M. A. M., Ehui, S. and Assefa, Y. (2004) ‘EPTD Discussion Paper No . 123 DAIRY
DEVELOPMENT IN ETHIOPIA’, (123).

Consult, T. a M. (2008) ‘Dairy Investment Opportunities in Ethiopia’, Study on Dairy Investment

Opportunities in Ethiopia, (July), p. 59. Available at:
http://www.bibalex.org/search4dev/files/337939/171402.pdf%5Cn%5Cn.

DI, G. (2018) ‘Determinants of Dairy Product Market Participation of the Rural Households: The
Case of Adaberga District in West Shewa Zone of Oromia National Regional State, Ethiopia’,
Journal of Business & Financial Affairs, 07(04). doi: 10.4172/2167-0234.1000362.

Impact, T. H. E. et al. (2011) ‘School of Graduate Studies’, Book.

Mamo, T. et al. (2021) ‘Determinants of Milk Marketing Channel Selection by Urban and Peri-
Urban Commercial Dairy Producers in Ethiopia’, 31(3), pp. 69–100.

Rahmawati, A. S. and Dewi, R. P. (2020) ‘View metadata, citation and similar papers at
core.ac.uk’, PENGARUH PENGGUNAAN PASTA LABU KUNING (Cucurbita Moschata)
UNTUK SUBSTITUSI TEPUNG TERIGU DENGAN PENAMBAHAN TEPUNG ANGKAK
DALAM PEMBUATAN MIE KERING, pp. 274–282.

Tefera, T. L. et al. (2010) ‘Commercializing dairy and forage systems in Ethiopia: An innovation
systems perspective’, Working Paper 17. ILRI (International Livestock Research Institute),
Nairobi, Kenya., (17), p. 57. Available at:
http://cgspace.cgiar.org/bitstream/handle/10568/1487/WP 17-web.pdf?sequence=1.

Tilahun, Y. (2020) ‘Determinants of Raw Milk Supply and Value Addition Participation in
Mecha Woreda, Amhara National Regional State, Western Ethiopia’, Journal of Marketing and
Consumer Research, 65, pp. 1–20. doi: 10.7176/jmcr/65-01.

Worku, C. (2018) ‘Analysis of Milk Value Chain: In Case of Burie Town West Gojjam Zone of
Amhara National Regional Stat, Ethiopia’, Core.Ac.Uk, 80, pp. 16–25. Available at:
www.iiste.org.

Yilma, Z., Guernbableich, E. and Sebsibe, A. (2011) ‘A Review of the Ethiopian Dairy Sector’.
Available at: http://www.fao.org/docrep/017/aq291e/aq291e00.pdf.