Challenges and opportunities of investment on dairy sector of Ethiopia. A Review

Term Paper (Advanced seminar), 2016

23 Pages






Objectives of the review
General objective
Specific objectives

Historical Development of Dairy Production in Ethiopia
Dairy Production Systems in Ethiopia
Consumption of Milk and Dairy Products
Milk and Dairy Products Exports and Imports
Challenges for investment in dairy sector in Ethiopia
Demand Side Constraints
Supply Side Constraints
Opportunities for investment in dairy sector in Ethiopia
Huge resource base and potential for development
Favorable conditions and potential for value chain development
Huge increasing consumer demand for milk and dairy products
Potential role in Import substitution
Conducive government policies, laws and regulations
Income Generation and Employment Opportunities
Indigenous Knowledge




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Ethiopia is one of the Sub-Saharan Africa’s developing countries with a large potential in livestock, being 1st among African countries and 9th in the world. Dairying is one of the livestock production systems practiced in almost all over Ethiopia. The cattle population was estimated at about 50.9 million of which indigenous breeds accounted for 99.19 % while the rest is hybrids and pure exotic breeds. The main objective of this seminar is to review the challenges and opportunities of investment in dairy sector in Ethiopia. Dairy production in Ethiopia was mostly traditional and formal dairy production started in the early 1950s. In Ethiopia the three major production systems are: traditional smallholder; privatized state; and urban and peri-urban. Ethiopians consume less dairy products than per capita milk consumption and the country is not known to export dairy product and spent more money on importing milk and milk products. The livestock sector in general and the dairy sub-sector in particular do not make a substantial contribution to the national income, despite its large size, due to different challenges. The challenges are those attributed to demand and supply sides. Demand side includes population growth, seasonality of demand, low per capita consumption, low demand and high transaction costs. Supply side challenges can be: livestock population, animal health problem, feed and nutrition, low productivity and genetics, limited access and high cost of dairy heifers/cows, quality problem, collection problems, institutional concern, lack of technical support, inadequate extension and training services, lack of infrastructures, lack of access to land and lack of credit. This challenge lowers the investment activity in the sector in Ethiopia. Dairy sector investments have also different opportunities like huge resource base and potential for development, favorable conditions and potential for value chain development, huge increasing consumer demand for milk and dairy products, potential role in import substitution, conducive government policies, laws and regulations, income generation and employment opportunities and indigenous knowledge.

Key words: livestock, dairy, challenges and opportunities, Ethiopia



The roles livestock play in developing countries, especially to rural livelihood improvement and augmenting livelihood of poor, are well recognized (Upton, 2004). Primarily, livestock provide draft power, food, income, transportation, alternative energy sources (dung cake for fuel and biogas), social prestige and status in communities. Livestock production creates income opportunities for landless poor who provide fodder, collect water to feed and engage in value addition and marketing. Livestock and their products are estimated to compose a third of total value of agricultural gross output in developing countries and this share is rising from time to time (ILRI, 2005).

Ethiopia is one of the Sub-Saharan Africa’s developing countries with a large potential in livestock, being 1st among African countries and 9th in the world. Livestock production accounts for 12-16% of national GDP, 30-35% of agricultural GDP, 15% of export earnings and 30% of agricultural employment. Livestock contribute to the livelihoods of 60-70% of the population (SNV, 2008).

According to the CSA (2010) report the cattle population was estimated at about 50.9 million. The indigenous breeds accounted for 99.19 percent, while the hybrids and pure exotic breeds were represented by 0.72 and 0.09 percent, respectively. From the total cattle population, 45.13 percent are males and 54.87 percent females. The total estimated goat population was about 22 million with indigenous breeds accounting for 99.98 percent and hybrid and pure exotic breeds for about 0.02 percent. The male and female goat population accounted for 30.83 and 69.17 percent, respectively. The total camel population was estimated to be 807581 with the proportion of male and female camels being 33.88 and 66.12 percent, respectively. In spite of such a substantial potential, the dairy sector is not developed to the expected level (CSA, 2010a).

Dairying is one of the livestock productions practiced almost all over Ethiopia, involving a vast number of small, medium, or large-sized, subsistence or market-oriented farms. The difference between large and smallholder farms is mainly determined by herd size. Large scale farms keep large herds of cross breed and involve high inputs in terms of land, labor, housing and feed and health management. Hence, from dairy development prospect, a careful planning is required for the generation of appropriate and demand driven technologies in order to attain sustainable dairy development.

However in spite of such a substantial potential, the dairy sector is not developed to the expected level. The annual growth rate in milk production of 1.2 percent falls behind the annual human population growth estimated at 3 percent (GRM International BV, 2007). The low productivity of the country’s livestock production system in general and the traditional sector in particular is mainly attributed to challenges of disease, shortage of crossbreed dairy cows, inadequate animal feed resources both in terms of quality and quantity, poor management, lack of finance and health problem, lack of infrastructure and lack of veterinary service provision. Dairy farm also creates different opportunity which includes; livestock genetic resources and production system, access services and land inputs, agricultural extension services and technologies, income generation and employment opportunities.

Objectives of the review

General objective

- To review the Challenges and opportunities of investment in dairy sector in Ethiopia

Specific objectives

To highlight dairy production systems in Ethiopia

To review the consumption level of dairy products in Ethiopia

To review the challenges of dairy sector development and

To know the opportunity of dairy sector


Historical Development of Dairy Production in Ethiopia

According to Ahmed et al. (2003), in the first half of 20th century, dairy production in Ethiopia was mostly traditional. Formal dairy production started in the early 1950s. With this, commercial fluid milk production started on large farms in Addis Ababa and Asmara. In addition, government intervened through introduction of high yielding dairy cattle in the highlands around major urban areas. In 1960, UNICEF established a public sector pilot milk processing plant at Shola on the outskirt of Addis Ababa. The plant used milk produced by large farms as raw material for processing. It significantly expanded within a short period and started collecting milk from dairy farmers. During the second half of 1960s, dairy production around Addis Ababa began to develop rapidly due to demand and large private dairy farms and collection of milk from dairy farmers. Distribution of exotic dairy cattle particularly Holstein Friesian was done through government owned large scale production such as WADU, ARDU and CADU. These units produced and distributed crossbred heifers, provided AI services and animal health service, in addition to forage production and marketing (Ahmed et al. 2003). Then a number of private commercial dairy enterprises has been established and engaged in production, processing and marketing of dairy products around the city and towns.

Dairy Production Systems in Ethiopia

Dairy production system is a biological efficient system that converts large quantities of roughage, the most abundant feed in the tropics, milk the most nutritious food to man. Dairy production is a critical issue in Ethiopia, a livestock-based society where livestock and its products are more important sources of food and income and dairying has not been fully exploited and promoted.

Based on market orientation, scale and production intensity, three major production systems can be identified: traditional smallholder; privatized state; and urban and peri-urban farms (Gebre Wold et al., 2000). The traditional smallholder system represents the rural milk production system and accounts for about 97 percent of the total national milk production and 75 percent of the commercialized milk. This sector is largely dependent on the indigenous zebu breeds of low productivity, which produce about 400–680 kg of milk/cow per lactation period.

Privatized state dairy farms use grade animals (>87.5 percent exotic blood) and are concentrated within a radius of 100 km from Addis Ababa. The urban and peri-urban milk production system includes small and large private farms located in urban and peri-urban areas concentrated in the central highlands (Felleke and Gedda, 2001). This sector is commercial and mainly based on the use of grade and crossbreed animals that have the potential to produce 1120–2500 liters over 279 days lactation period. This production system is expanding in the highlands among mixed crop/livestock farms, such as those found in Selale and Holetta, and serves as the major milk supplier to the urban market (Gebre Wold et al., 2000).

Consumption of Milk and Dairy Products

Ethiopians consume less dairy products than other African countries and far less than the world consumption. The national average capita consumption of milk is 19kg/year as compared to 27 kg for other African countries and 100kg to the world per capita consumption (FAO, 2003). The recommended per capita milk consumption is 200 liter/year. On the other hand, they regularly consume other dairy products such as butter, ayib (cottage cheese) and fermented milk.

According to the Central Statistics Authority (2005) only 15.4% of the milk produced is sold in the market where as 54.7% milk produced is consumed at home. The remaining, 29.5% of the milk produced, is converted into butter and cottage cheese or ayib using traditional processing technologies. It is to be expected that these proportions would start to change as collection infrastructures improve around the country.

Milk and Dairy Products Exports and Imports

Ethiopia is not known to export dairy products. However, some insignificant quantities of milk and butter are exported to a few countries. Butter is mainly exported to Djibouti and South Africa (targeting the Ethiopians in Diaspora), while milk is solely exported to Somalia from the South Eastern Region of the country. As indicated by SNV (2006), small quantities of cream are exported to Djibouti from Dire Dawa.

Table 1: Import and export of milk and milk products

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Source: International Trade Centre (

According to the International Trade Centre (ITC), although Ethiopia’s export values generally increased from about $73000 in 2005 to $123000 in 2009, the country spent more money on importing milk and milk products from different countries as compared to export values (Table 1). The import value, which was more than $5.6 million in 2005, also increased to $10.3million in 2009 (table 1). In the five reference years (2005 to 2009), Ethiopia exported dairy products particularly milk and butter worth 343 000 USD and imported different dairy products worth 38 682000 USD. This means that Ethiopia is a net importer with a net traded value worth negative 29034 000 USD. This implies that the demand for milk and milk products is increasing and the country has a long way to go in the development of its dairy sector to satisfy the domestic demand with domestic supply.

Challenges for investment in dairy sector in Ethiopia

The livestock sector in general and the dairy sub-sector in particular do not make a substantial contribution to the national income, despite its large size, due to numerous socio-environmental factors. The following socio-environmental factors represent underlying opportunities for increased trade that may be tapped by dairy businesses in Ethiopia and COMESA to expand trade and enhance their long term return on investment goals (Muriuki and Thorpe, 2001).

Demand Side Constraints

Population Growth: The high rate of population increase (about 3% per annum) is reckoned to influence livestock development. The demand for livestock products, particularly for dairy is directly related with the annual population growth. Notwithstanding, the rate of growth in dairy products production is not in par with the population growth rate in Ethiopia. There many reasons for this. High population growth has forced people to cultivate more and more lands, which used to be mostly grazing areas for livestock. This practice has stretched the carrying capacity of the land beyond its limits, and consequently resulted in low livestock production performance.

Seasonality of demand: The demand for milk and dairy products is very much affected by seasonal fall of demand among the Orthodox Christians (that comprise about half of Ethiopia’s population) during the fasting season and the fasting days. The majority of the Orthodox Christians practice fasting more than 200 days per year, during which time they abstain from consuming animal products. When dairy enterprises process only pasteurized milk with a short shelf-life, this means that processed volumes go down during the time when people (fast) consume less. Once UHT technology has been introduced, processing of milk can be more regular leading to a stable sourcing of raw milk for processing as well.

Low per capita consumption: Dairy per capita consumption is extremely lower (16 liters per year) and the recommended amount is 200 liters/ annum / capita. Marketing should include promotion of milk consumption. Training and public education including school milking could be considered as part of a milk promotion program.

Low demand and high transaction costs: Growth of the dairy sector is constrained by low demand and low prices and/or by high transaction costs, which reduce the actual price received by producers and their incentive to generate surpluses. Milk is mainly produced for household consumption and any surplus is taken to the market provided that the price received compensates the effort (the opportunity cost) to take that surplus to the market.

Supply Side Constraints

Livestock population: One of the serious constraints to the livestock development in Ethiopia rest on the importance attached to the economic functions of the livestock found in various agro ecological zones. Overall, livestock in Ethiopia are used as input function, asset and security function.

Farming methods in Ethiopia have remained unchanged for centuries; cultivation is carried out using oxen drawn traditional ploughs in the highlands which demand high dependency on animal power (as an input function). High population growth forces people to plough more land, which in turn demand more plugging capacity, and consequently the presence of a higher cattle herd. This has created pressure on grazing land and ultimately poor economies of smallholder farms in the rural areas. The other economic benefit of livestock, as a source of additional income, assets and security are also important, however due to low productivity of the indigenous stock these functions requires maintaining large herds which demand additional area of grazing land.

In the lowlands the pastoralists and agro-pastoralists derive maximum benefit from livestock through milk and meat (the output function). Similarly, in order to compensate for low livestock productivity and to offset risks due to recurring draught the pastoralists maintain large cattle stock for food as well as security functions

Animal health problem: Poor animal health and management are major constraints of dairy development in Ethiopia which cause poor performance across all dairy production systems. Many of these problems result from the interaction among constraints themselves e.g. poorly fed animals develop low disease resistance, fertility problem, partly because the animal health care system relies heavily on veterinary measure. Poor grazing management systems continue to cause high mortality and morbidity (e.g., internal parasites). Many of the disease constraints which affect supply are also a consequence of the non-technical constraints e.g. insufficient money to purchase drugs or vaccines.

The animal health services provided are inadequate, the costs of drugs is very high, while the diagnostic services are not readily available to the dairy farmer. This is partly attributed to the insufficient budget allocated to veterinary services. Experience in many countries, such as India and Kenya, shows that private veterinary services (also supplemented by public services for the "public goods" such as vaccination) are highly desirable, and can provide the flexible, dynamic services the smallholder dairy producer requires.

Feed and nutrition: Inadequate supply of quality feed is the major factors limiting dairy productivity in Ethiopia. Improved feeding is crucial to provide satisfactory environment for animal growth and feed supplements stimulate higher milk productivity. Feed, usually based on fodder and grass, are either not available in sufficient quantities due to fluctuating weather conditions or when available are of poor nutritional quality. These constraints result in low milk yields, high mortality of young stock, longer parturition intervals, and low animal weights.

Feed supply is a major issue for smallholder dairy systems, as most systems operate under conditions of extreme land pressure, feed conservation for dry season supplementation has been a major issue, as most technologies, such as silage, haymaking, and urea treatment are not suitable for smallholder. Fodder trees and mixed tree-legume protein banks can be a solution. Hence, improved nutrition through adoption of sown forage and better crop residue management can substantially raise livestock productivity. In highland zones, high population growth and density are causing the shortage of grazing land on which livestock production by smallholders depends. In the lowland areas, the shortage of feed and water during the dry season forces animals and livestock keepers to trek long distances in search of food. The quality of feed also deteriorates during the dry season in both the mixed farming and pastoral system. Apart from this, there is critical shortage and high cost of feed. Besides, there are only few companies that produces feed concentrates and therefore dairy processing firms depend on farmers‟ scanty produce.

Low Productivity and Genetics: The productivity of indigenous stock is a major constraint in dairy development. In the indigenous herds genetic potential for milk production is low. However, there is still a potential for increased production through improved management; selection of the best animals; improved reproduction; etc. Similarly, the potential for production of marketable milk is not fully exploited in the indigenous herd. The selection of efficient breeds specifically adapted to respond to those elements in the environment that are subject to man’s control is the necessary step to improve the dairy sector. The choice of dairy breed has been subject to much debate. Generally, a combination of selection in local breeds and cross-breeding with exotic genetics is more appropriate, leaving it to the skill of the individual smallholders to decide on the level of exotic germ-plasm they can manage.

Limited Access and High Cost of Dairy Heifers/cows: The improved cross breed, grade and pure exotic dairy cattle are usually in short supply and when available the high cost is a major problem. The feed governments cross breed heifers multiplication centers that used to distribute in calf cross breed heifers to producers at reasonable prices have been sold after the introduction of the privatization policy. Prices of cross breed cows and heifers are now unaffordable by the poor smallholder farmers that would have liked to engage in the dairy business.

Quality Problem: Adulteration is the major problem in processing and marketing. Milk adulteration is usually done by farmers and brokers. Both hygienic and nutritional aspects are important in milk quality. It is important to identify where adulteration in particular occur in the marketing chain:- farmer level, middlemen, distribution. In some modern companies such as Sebeta Agro-Industry (Dairy Processing Enterprise), quality control is made using physical and chemical laboratories though the company doesn’t have bacteriological laboratory.

Collection Problems: Delays in collecting milk from the farmers to the processing plants and in delivering from the processors to the distributors contribute to high incidences of spoilage. Poor customer care coupled with unreliable and unhygienic processing methods contributed to poor product quality which in turn suggests the need to strengthen management and investment in udder hygiene and cold chain technologies.

The use substandard milk collecting utensils and buckets for up lifting the milk from the supply centers, where many smallholders are doing their sells, may result in poor milk quality. Similarly, non-existence of chilling and cooling center at potential milk producing and supply area also cause a deterioration of milk quality. Moreover, faulty processing equipment that result in leakage of the processed products and keeping milk collected from over a 100km radius for long hours without refrigeration results in milk quality decline and high incidences of spoilage.

Institutional Concern: Development of dairy co-operatives is too slow and they are too weak. Due to problems with the leadership and competence in cooperatives a lot of a dairy cooperative do not concentrate on dairy and divert the limited resources into other activities. Transparency and accountability are important issues for survival and success. Co-operatives have to be business organizations that make profit for the members. The only objective of a dairy cooperative should be to make as good a profit as possible by handling milk delivered from the members. A dairy cooperative is not a social institution.

The Ethiopia Milk and Milk Producers and Processors Association (EMPPA), established in 2006 though the support of SVN-BOAM has technical and financial capacity limitations to assume its objectives. It is expected that the association would serve as voice for milk value chain actors in identifying policy issues and forwarding to the relevant regulatory body, facilitate market access and linkage among members, working towards improving dairy technology and techniques by sharing experiences and good practices, and developing culture of dialogue, conflict management and competitiveness.

Another area of institutional concern is that most extension staff has little experience with livestock and dairy farming. Key areas requiring additional extension training include fodder production and livestock feeding schemes, husbandry (in particular calf rising), and dairy hygiene. Health and breeding services can best be handled by specialized professional services. Extension staff must also help producers cope with social change, such as changing gender roles and issues of access and control over resources.

Lack of technical support: Milk suppliers need to have technical support on the process of production including feeding and nutrition, breeding, sanitation and milk hygiene, human and animal health, marketing and handling and transportation of milk towards collection centers. Through appropriate technical support and capacity improvement, the core problem of milk value chain (shortage of raw milk supply, access to reach the raw milk, and method and means of milk collection) could be tackled.

Inadequate Extension and Training Services: Effective and adequate extension services, advice on animal nutrition and feeding management, reproduction, hygiene, extension works to transfer new technologies, training in milk handling and marketing, farm management and dairy production efficiency are not always available to the dairy farmer. There is no extension to supply information about technologies to improve production and marketing to estimate certain development. A shift towards a developed dairy industry requires more support from advisory services and more effective links with research services.


Excerpt out of 23 pages


Challenges and opportunities of investment on dairy sector of Ethiopia. A Review
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dairy, Ethiopia, investment
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Abera Beyu (Author), 2016, Challenges and opportunities of investment on dairy sector of Ethiopia. A Review, Munich, GRIN Verlag,


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