Blog Post

Transforming Ethiopia's Dairy Sector

By Sara Gustafson

Over the last decade, Ethiopia’s dairy sector has expanded rapidly. Urban consumers have significantly increased the amount of money they spend on dairy products, and the number of domestic dairy processing firms has tripled to meet the growing demand. All of these signs point to significant structural transformation, which plays an important role in reducing poverty and increasing welfare in developing countries. However, a new study finds that despite its recent strong growth, Ethiopia’s dairy sector still faces some important hurdles.

The study used administrative, quantitative, and qualitative data to analyze changes in the dairy value chain supplying Addis Ababa. The authors specifically examined market access as measured by farms’ remoteness from the city and farm size as measured by number of cows on the farm. The first variable has significant implications for input use and overall productivity, while the second variable helps researchers better analyze the inclusion of smallholder dairy farmers in the sector’s growth.

While overall dairy consumption in Addis Ababa remains low compared to global averages, the amount of dairy products consumed annually per adult increased by 31 percent between 2005 and 2016. Increases in the consumption of milk were particularly significant: the share of cow’s milk in households’ average dairy expenditures rose from 30 percent in 2005 to 44 percent in 2016. Powdered milk also became an increasingly important product in the dairy value chain, with the value of powdered milk imports growing from 5 million USD in 2005 to almost 20 million USD in 2015.

Much of this growth in dairy consumption in Addis Ababa can be attributed to increased incomes. As households achieve higher incomes, they tend to make changes in their dietary patterns, consuming fewer staple foods like maize and rice and more high-value foods, including dairy. The study found that in Addis Ababa, the richest segment of the population spent five times more on dairy products than the poorest segment.

The burgeoning demand for dairy products in Addis Ababa has spurred changes in how those products are supplied. Heavy investments have been made in formalizing dairy markets, and there have been huge jumps in the number of active dairy processing companies in the country – from 8 in 2007 to 25 in 2017. Three-quarters of pasteurized dairy products come from just four of these firms, representing significant concentration in the dairy market. This concentration has the potential to exclude smaller actors from profitable markets.

The study found that while smallholder farmers still supply the majority of the dairy products (specifically liquid milk) consumed in Addis Ababa, large farms – defined as 25 or more cows – are becoming more and more prevalent, particularly in suburban areas. This upscaling is likely to continue in the coming years, as larger farms are characterized by higher productivity both per cow and per unit.

In addition, urban farms are also becoming increasingly important players in Ethiopia’s dairy sector. The study found that there were as many as 29,000 cows in Addis Ababa itself in 2017 and that these urban farms supply 31 percent of the city’s liquid milk. Rural farms, on the other hand, supply between 37 and 44 percent.

Both large farms and urban farms consistently achieve higher yields than rural and suburban farms, giving these actors another advantage in the dairy market. While smallholder farms, both rural and suburban, produce an average of between 3.3 liters and 4.8 liters per cow per day, large farms, many of which are in urban areas, are able to produce as much as 18.6 liters per cow per day. These well-connected (i.e. large and urban) farms are able to obtain higher quality inputs, including commercial feeds, animal healthcare, extension services, and more productive cross-bed species of cow. Many smallholders, on the other hand, still rely on local cows, whose yields have remained generally stagnant or even declined over the past ten years.

The study’s findings highlight several important pathways to ensure that Ethiopia’s smallholder dairy farmers reap the benefits of the sector’s continued growth. First, cross-bred cows produce higher yields, but these cows are both more expensive and riskier, making them out of reach for many smallholders. Investments should be made in helping smallholder farmers adopt and successfully raise more cross-bred animals. Second, use of commercial feed mixes also appear to generate higher milk yields, highlighting the need to create a proper enabling environment for commercial feed firms to expand their reach. The study’s authors also point out that improving input use in these ways will not only better include remote and smallholder farmers in Ethiopia’s expanding dairy sector but will also help reduce the negative environmental impacts (namely, increased enteric methane emissions) associated with livestock production.

 

Sara Gustafson is a freelance writer.