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Fluid Milk Value Chain Analysis of Small Holder Farmers in Central Highlands of Ethiopia

Abiro Tigabie Mersha Amsalu Abie Kebede Beneberu Tefera Kasa
Vol 8(5), 57-68

The study was conducted to analyses the fluid milk value chain of cow milk produced by small holder farmers with the objectives of identifying the key value chain actors, evaluate the amount of milk distribution and importance in the livelihood improvement of small holder farmers and identifying the major production and marketing constraints of milk along the value chain in the local market. A total of 132 sample small holder dairy farmer households and value chain actors were selected randomly to collect both primary and secondary data. Descriptive statistics and qualitative data analysis was used to analyze the data. The study revealed that the major actors of milk value chain were primary producers, semi-wholesalers, dairy cooperatives, milk processing private organizations and retailers. The study found that 97% of milk produced in the area supplied to milk markets through value chain actors. Smallholder farmers generate large proportion of house income and covered nearly half of house hold expenses from the milk market. The major constraints identified in this study were lack of enough market for milk during the fast seasons, market information, feed cost and in adequate veterinary services.

Keywords : Bassonawerana and Angolelanatera Fluid Value Chain


Livestock production is the principal source of income and food to the rural farmers. It has been contributing considerable portion to the economic development of the country. Supply of livestock products and by-products provide the needed animal protein contributed to the improvement of the nutritional status of the people. This sub-sector is estimated to contribute about 12-16 percent of the total Gross Domestic Product (GDP) and 60-70% livelihoods of the Ethiopia population (Halderman, 2004). According to (Behanke and Metaferia, 2011) the sub-sector accounts nearly 47 percent of total agricultural GDP, 20 percent of the value of all earnings combining official and informal livestock export trade and 30 percent of agricultural employment (Staal et al., 2008). The cattle population of Ethiopia is estimated to be about 56.71 million. Out of this, the female cattle constituted about 55.45% and the balance accounted male cattle. In terms of breeds 98.66%, 1.19% and 0.14% of cattle were local, hybrid and exotic breeds, respectively. The dairy animals accounted about 20.07% from the total cattle population. From 56 million cattle, over 11 million are dairy cows with   the largest number of milking cows in Africa (CSA, 2015). 98% of the total milk production in Ethiopia is produced by small holder farmers and very small proportion of it can be marketed as raw milk (SNV, 2008). Of the total milk produced, only five percent is marketed as liquid milk due to under development of infrastructure in rural areas (Mohamed et al., 2004).

Ethiopia’s highlands well suited for dairy production represent 50% of the total highland regions in Sub-Saharan Africa. The domestic milk consumption is only 19 liters per person this is 10% of Sudan’s and 20% of Kenya’s. This is below the world and African averages of about 105 and 40 liters, respectively (Rich et al., 2011). Households that produce milk such a small amount are consumed entirely by the households. However, Ethiopian families are very conscious of the nutritional importance of milk, particularly for children (Amandajayaskeram and Gebiremedhin, 2009). Cattle milk constitutes the larger proportion (83%) of the milk produced nationally (MoARD, 2007). The sub-sector is facing on constraints of lack of pure and cross-bred dairy cattle and inadequate quantity and quality of feed resources contributed for low productivity (Tolera, 2010).

Dairy is identified as a priority area aimed to increase milk production at an average annual growth rate of 15.5% during the GTP II period. Market-orientation of the sub-sector was due among others, to high transaction costs (Tesfaye et al., 2010). Market actors of farmers, cooperatives, processors, public and private organizations, semi-wholesalers and retailers participated in collecting, selling and processing of milk along marketing chain (Rey et al., 1993). The system has evolved in response to increasing demand for milk induced by expanding urbanization, rising per capita income and increasing cost of imported milk and milk products (Staal and Shapiro, 1996).

Value chain in the present context is used to refer a range actors and activities from production to consumption and disposal with the dynamic relationship between actors (Rich et al., 2011 and Seife et al., 2012). Considering the smallholder income generation and employment opportunities from the dairy products, the development of the sector can contribute immensely to poverty alleviation and improved nutrition in the country. The milk market is still present with little market actors on production and processing sides.

A problem is to know why the smallholder farmers do not increase to the extent of bridging the demand for milk. As there was limited research work done in the study areas, it is necessary to evaluate and identify the present production and marketing problems, formulate recommendations, advise, and implement a strategy, which enables the establishment of an efficient production and marketing system. Based on this ground, the study was focused for progressive development of the dairy sector for households’ income generation and transformation of the small-scale and subsistence producers to commercial operators, investigation of milk value chain needs to be carried out in line with the market-oriented production strategy of the policy and intended at bridging the information gap with regard to milk production and marketing improvement along the value chain development in the area. The main objective of the study was to estimate the potential production and marketing volume of cow milk in the study area with interrelated sub objectives to identify the major value chain actors participated on the production and marketing of cow milk and to identify the constraints on production and marketing of milk.

Material and Method

Study Area

The study was conducted in Bassona werana and Anegolelana Tera districts of North Shewa Zone, Amhara Region. These districts are characterized as having high livestock population with potential milk producer farmers and having great market potential.

Sampling Methods

Two-stage random sampling technique was employed to select sample households. The districts were selected purposively.  In the first stage, five kebeles were selected randomly and in the second stage, a total of 89 small holder farmers and 43 other value chain actors of sample respondents were randomly selected from the sampling frame of milk producers by using simple random sampling technique. The sample size of respondents was allocated based on probability of proportional to size.

Data Collection and Analysis

Both primary and secondary data were used. Primary data were collected form dairy producer farmers and different value chain actors. Secondary data were obtained from different sources of reports of Agricultural offices at different levels and Dairy Cooperative in the study districts. Other sources of secondary data were previous research findings, journals, books, websites and other published and unpublished materials, which were relevant to the study. Questionnaire was developed, pretested and modified accordingly and then interview was conducted and the data were collected the study used for this research was both quantitative and qualitative especially on field interview methods both producers and intermediate value chain practitioners. Data were analyzed using descriptive statistics such as means, frequency, test statistics and percentages in tabular and graphical forms by using Statistical Package for Social Sciences (SPSS version20). Value chain analysis of milk was done using different chain diagrams/value chain maps.

Results and Discussion

In the study area, dairy agribusiness value chain actors such as small holder farmers, serv, milk processors, marketing cooperatives, hotels and restaurants, dairy shops, small scale dairy processors, public and private sectors practitioners were involved in the production marketing, collecting, processing and using of dairy products during the survey time.

Household and Farm Characteristics

Household Characteristics

The sex categories of small holder farmers and other value chain actors of milk and milk products were both male and female headed households. The majorities (92%) of producer’s farmers were male and females have small share (8%) in proportion where as in the processing and marketing activities female participations were higher (54%) than the male (46%) participants.  The average age and family size per household of the dairy farmers were 48 years and 6, respectively. The level of education in percentage for value chain actors were 32, 18 and 50 primary, secondary and diploma and above, respectively.

Farming systems and Dairy Cow Holdings per Household

The farming system was mixed farming of crop production and livestock rearing. The livestock sector is benefited from crop sector on feed access and the livestock sector is also important for crop sector on provision of power services and manure. The biproducts of crops grown in the areas are important sources of animal feed. Some (13.3%) of the farmers produce livestock feeds crops commonly oat and vetch. Barley and wheat are mainly grown for home consumption while, faba bean is grown for market purposes as cash crop.

In this study milk is produced from about local 59492 and cross 17024 breed dairy cows. Most cross breed cows kept by farmers in peri-urban areas where as local cows are found in rural areas and used to produce fresh milk for urban consumers and other value chain actors. Farmers kept both local and cross dairy cows mainly for milk production and calf rearing needs.  64% of the farmers had both local and cross dairy cows, whereas their balances (36%) hold only cross dairy cows. Majority (65%) of the respondents have 2-3 numbers of dairy cows. The mean of cross and local cows per household are 1.2 and 2, respectively. Furthermore, the means of total dairy cow and heifer per household are higher in Angolelatera than Bassowerana districts. There is significant difference of dairy cow holdings among districts at 1% level of significance (Table 1).

Table 1: Total dairy cow holdings per district

Dairy Animals Bassowerana Angolelatera F-value
Mean Std. Mean Std.
Cow 1.97 0.13 2.98 0.2 12.97***
Heifer 1.03 0.16 1.4 0.15 1.6

Source: Own data manipulation

Social Capital and Networking

Almost all small holder dairy farmers participated in dairy production and marketing cooperatives and other socially available institutions of government team, funeral associations, religious congregations and production and marketing cooperatives. They got many advantages via participation on those institutions. The main advantages were access to market information, improve market bargaining power, access to market for produce and inputs, access to trainings and extension services, better price, legal protection, saving and share of dividends. The main problems were lack of adequate market information and market infrastructure.

Production Practices and Knowledge Management of Small Holder Farmers

They are experienced in production improvement management practices resulted from access of trainings, and other capacity development interventions. 57% of dairy farmers have the experience of providing supplementary feed for dairy animals, they also practiced in weaning of calf for the purpose of getting more milk and preparing the cow for the next calving, most of the small holder farmers doing culling of  animals because of disease, age and infertility. 73% were preparing relatively better housing for dairy animals than others. Farmers are also experienced on detection of puberty and estrus conditions they tried to select better dairy animals using different selection criteria for the improvement of production and productivity of dairy animals. The reproduction method practiced by the majority (58%) of them was natural mating.

Milk Production, Value Chain Actors and Their Functional Relationships

Milk Production 

The average milk yield and lactation length of cross and local dairy cows varied milk yield per day of local and cross dairy cows was 5.79 and 24.27, litters per cow, respectively (Table 2). This is high production for both local and cross breed dairy cows as compared to previous study of 1.5 (LMD, 2012) and 11.9 liters by EIAR and ILRI (2012). The lactation length in month of local and cross dairy cows was 10.4 and 10, respectively. There is significant difference among the breeds in total milk yield per day at 10% level of significance but no significance per lactation lengths.

Table 2: Milk production per day and lactation length from local and cross dairy cows

Milk yield in litters Local Dairy Cows Cross dairy Cows F-value
Mean Ste. mean Mean Ste. mean.
Milk yield /day 5.97 1.22 24.27 4.58 3.91*
Milk yield in/LL 57.64 11.73 292.58 55.68 4.02

Source: Own data manipulated

The demand and supply of milk was varied due to many reasons. The factors for the seasonal mismatches between demand and supply of dairy products are the Ethiopian fasting periods and feed scarcity in the dry period. The average milk sold per day per household from local and cross dairy cows were 87.1% and 75.8% of the produce, respectively. On average 89% of the milk produced by small holder dairy farmers were sold in the milk market. This is very high market contribution and made farmers benefited from the dairy sector as compared to the study conducted by (Berhanu, 2012) which revealed that out of the milk produced per year in rural Ethiopia, 6.55% was sold in the market, 48.48% was consumed at home, 0.41% was used for wages in kind and 44.56 % was processed into butter and cottage cheese. As (Table3) indicated in both dairy cow breeds, there is significant different at 5% level of significance in milk yield per day from local dairy cows among the districts. There is no significant different in milk yield of cross dairy cows per day and per lactation lengths (LL).

Table 3: Total Milk production per lactation period from dairy cows

Average yield in ls Districts F-value
Basoonaweran Angolelatera
Local dairy cow/day 5.06 9.54 3.02**
Cross dairy cow/day 19.41 20.58 0.02
Local dairy cow/lp 53.38 96.93 2.3
Cross dairy cow /lp 220 209. 0.04

Sources: own data process

Milk Value Chain and Main Actor

The milk value chain  actors and the core function of their relationship tells  who is doing what and which actors are participated in which functions of milk production, marketing and consumption from the available actors and functions (Fig. 1). Every value chain actor can act in different value addition activities depending up on the interest and capacity of the actors. Different value chain actors are participated in one or more value chain activities for the purpose of value addition, market facilitation, product distribution, delivery of production inputs, margin share and job creation in the dairy production and marketing activities. The possible value chain processes doing by different value chain actors are also indicated that each actor had its own specific activities in the value chain. Inputs are supplied by many actors of farmers, traders and cooperatives. Farmers provide locally available feed and pastures, while traders and cooperatives are providing industrial byproducts. Milk processing companies and farmers participated in milk value addition activities by processing milk into milk products. Farmers are the sole producer of milk from their herd and selling it to other value chain actors. Cooperatives are participated in milk collection, transportation, buying, selling and processing activities.

The major core functions of value chain of dairy business are input supply, production, marketing and consumptions the produces in different forms from different suppliers. The core functions in the study indicated different activities are done by specific value chain actors. Private sectors provide agro-processed byproduct feeds and veterinary drugs.  While the public sectors help the small holder farmers in the provision of breeds in the form of dairy bull service, artificial insemination (AI) and training while Non-Governmental Organizations (NGOs) provided credit, breeds and training services.

Dairy Value Chain Actors and Activities Map

Fig. 1: Fluid milk value chain actor’s role and functional maps

Small holder farmers were the central element in the value chain in which everyone was acted up on it. They were responsible to produce and supply fresh milk to different actors. Dairy cooperatives were act on feed supply to small holder farmers, collect fresh milk from individual farmers and transferred the collected fresh milk to other actors. Milk processing companies and small scale processors were acted on milk marketing to purchase and transport fresh milk from dairy cooperatives and individual farmers on contractual agreement bases (Fig. 2).

Fig. 2:  Functions of value chain actors

Credit Services

Though credit is not the big concern for the study area in the production and marketing of milk, farmers get access to credit service from different sources.  Credit providers for dairy farmers are cooperatives, micro finance institutions and NGOs. The NGOs provide cash for the dairy farmers in terms of aid or revolving funds.

Milk Marketing and Financial Services

Milk Marketing and Its Potential Buyers in the Value Chain

Farmers produce fresh milk primarily for sale and some for home consumption purposes. Cooperatives collect   major proportion of milk from individual farmers where as private dairy business companies and small scale processors collect milk from individual farmers and cooperatives to produce fermented milk, boiled milk, cheese and butter. Fig. 3 indicated the distribution and the most common potential milk buyers produced by small holder farmers and their market share. It is noted that the bulk of the milk produced and sold through the commercial system is channeled to Addis Ababa milk value chain actors for further processing. Part of the local demand for fresh milk is met by the dairy businesses, including producer farmers, dairy shops, cafes and hotel/restaurants. However, most urban consumers purchased milk for consumption directly from small holder farmers. The main potential buyers of milk and milk are cooperatives, milk processing companies, traders (small dairy shops, cafes, hotels and restaurants) and individual consumers.  Among them cooperatives are the most powerful buyers of row milk.

Fig. 3: Milk marketing share

The domestic end market analysis suggests that reasons for low milk consumption in the study area are due to fluctuation in the demand of milk and milk products in line with the various fasting periods observed by Orthodox Christians. Milk is traditionally considered in many parts of Ethiopia to be a food item that is essential only for children and convalescent persons. Its nutritional benefits for normal adults tend to be overlooked.   Producers and processors have trouble responding to uneven demand and lower prices during the fasting periods.

Milk Distribution Map and Marketing Channel

Fresh milk was consumed in the form of fermented milk (Yogurt), and boiled milk with varying degree of utilization in dairy cafes and shops. Dairy value chain actors include farmers, commercial companies,’ cooperatives, and small scale urban businesses owned privately or cooperatively involved in selling, processing and using of dairy products. From the total, 71%, 18%, 3% and 8% of milk was distributed through cooperatives, companies, consumers and retailers of dairy cafes and shops, respectively. Milk production and marketing cooperatives have large share on milk collection and marketing activities. The collected milk was also distributed to companies, small scale processors and hotels.

Some (3%) of milk was utilized in home into other products and consumption. Out of this 1.7% was consumed by the household, 0.7% retained for processing to butter using local churning technologies and then cheese, after removal of butter and 0.6% used for calf feeding. Majority (73%) of row milk produced by the small holder farmers was transferred to Addis Ababa market through cooperatives (55%) and direct collection (18%) from the farmers for milk processing companies. The remaining 3% was sold as fresh milk for urban consumers, dairy cafes and small scale processors. Some part of the milk is also sold as fresh milk for urban consumers especially during peak demand periods. Retailors of dairy shops and cafes redistribute the milk share 2% to hotels and 6% direct urban consumers as boiled and fermented milk. 6% of the milk collected by dairy cooperatives was processed by the cooperative in other milk products (Fig. 4).  

Fig. 4: Milk marketing and share of buyers

Revenue and Expenses of Milk Production and Marketing

The amount of revenue generated from milk production was higher than the expenses incurred for dairy production. The average annual value of income generated from milk production per house hold was 27431 Birr per annum. The cost farmers incurred was mainly for the purchase of feed. Because of feed shortages and farmers desire to feed supplementary feed to the dairy cows they bought feed mostly concentrates and hay. The average annual costs for concentrates and hay were 5955 and 1368 birr per household, respectively. The average net income earned from dairy sector was estimated to 20108 Birr per annum per household.

Table 3: Income and expenditure of milk production activities

Components Bassonawerana Angolelanatera Over all


F- value
Mean Mean
% of share of income 39.46 44.12 42.16 1.84
% of share of expenses 37.57 40.06 39.01 3
Net income in Birr from milk 18965 20960 20108 0.4

Source: Own data manipulation

Small holder farmers generated 42% household income and covered 39% of the overall household living expenses by the income generated from milk production and marketing activities. There is no significant different in income and expenses from and to dairy production and marketing activities among the areas (Table 4).

Milk Production and Marketing Constraints

Small holder farmers faced different production and productivity improvement challenges of limited access for breed improvement. They are using natural mating system on the available bulls without knowledge of pie degree. In addition to breeds enhancing of feed cost of industrial byproducts and concentrates are the main focus area to be considered. Dairy farmers exposed for many livestock disease in one side and in availability of animal health service and in availability of effective veterinary drugs in the market are the critical limiting factors limited dairy production improvement. Market distance was also among the problem in the study area that hinders the supply of milk produced in the rural area. Most of the small holder farmers complain on the campaign of hormone assisted Artificial Insemination (AI) or mass synchronization breeding program.

Conclusion and Recommendations

The number of households participating in milk marketing and the volume of marketed milk has been very low as compared to the existing potential product. Different livestock species were found, of which cattle composed the highest livestock population (70%).   Improving productivity of the dairy animals is crucial for increased output and family welfare. Surplus amount of milk could be supplied to the market resulted good source of income for the producers.

The main functions of livestock rearing were as a source of milk and milk Products (60%), income (6%) and draft power (34%). On the other hand, the role of cattle to provide manure, meat, hide was considered as secondary functions. Improved efficiency in milk collection & reduction in loss of wastage & spoilage significantly contribute to increased income from increased volumes of milk sell. Out of the total volume of whole milk produced, low proportion (3%) was consumed by the household for home consumption, processing and calf feeding. Lack of improved breed, shortage of enough locally available feed sources and disease were the major constraints hindered the production and productivity of dairy animals. Dairy farmers suffered in the constraints of low market price of milk, high cost feed and inadequate veterinary services. Diseases prevalence and related problems were rendered because of shortage of veterinary expertise and related facilities. Working with dairy farmers and processors is essential to identify appropriate control measures at the most effective part of the value chain.

There is a need to strengthen extension activities to change the attitude of farmers towards increasing milk production and thereby fresh milk sale. Support must be given to improve the attitude of inhabitants through training of farmers on improved management of dairy farming for boosting milk yields and quality, and processing efficiencies and lowering the cost of production. Work toward systemic change in the dairy industry via producer groups such as Milk Producers Association and other milk related organization through establishment of organized milk collection and marketing infrastructures to encourage and change the current trends. Furthermore efforts should be made to establish adequate veterinary services at the center areas and make the availability of effective veterinary drugs.


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