Building “Win-Win” Relationships Between Smallholder Producers and Dairy Processors in Ethiopia
Ethiopia’s dairy sector has the potential to not only significantly increase the availability of nutritious milk and dairy products for consumers, but to also enable its smallholder livestock farms to be nationally and internationally competitive.
Ethiopia has 52 million head of cattle—the highest population in Africa—including 10.5 million dairy cattle. In 2011, the country produced 3.3 billion liters of milk—an extremely disappointing 1.5 liters per cow per day! Less than 5 percent of Ethiopia’s milk flows through “formal channels” to dairy processors who sell pasteurized milk and dairy products. These channels suffer from low dairy cow productivity due to a lack of knowledge among smallholders about dairy cow feeding management, poor access to genetically selected bulls for breeding, and inadequate handling of milk that results in post-milking losses of up to 35 percent. As a result of these shortfalls, cooperatively owned milk collection centers struggle to collect enough milk to fill their cooling tanks, which drives up raw milk procurement costs for their client milk processors.
But despite these challenges, the Feed the Future-financed USAID\Ethiopia Agricultural Growth Program-Livestock Market Development (AGP-LMD) Project, implemented by CNFA, sees the dairy sector as an opportunity to stimulate economic growth in rural Ethiopia and create a vibrant and competitive livestock industry driven by and built on both public and private investment.
The AGP-LMD Project intends to increase production by 200,000 liters per day through additional milk collection, processing and marketing, which in turn is expected to result in 10,000 off-farm jobs. One of the keys to the success of the Project’s dairy sector goals is the improvement of the business capacity of milk-processing entrepreneurs who are willing to engage with smallholder producers. Hiruth Yohannes, a Project client, is a dairy processor who has been able to improve the quantity and quality of her firm’s milk products while serving as the principal buyer of raw milk from approximately 2,000 smallholder dairy producers.
The AGP-LMD Project supports processors like Hiruth with grants to purchase equipment in order to increase daily processing capacity followed by the development of business-to-business (B2B) relationships that enable win-win opportunities for producers, processors and consumers. The approach builds on existing smallholder production systems, developing market-driven business relationships for these smallholder farmers, which provides further incentive to increase productivity and reduce spoilage, putting more quality raw milk into the cooling tanks of cooperatives and reducing procurement costs for processors. Hiruth established her business relationships with the smallholder farmers by supplying them with high quality animal feed on the basis of credit that is paid back through milk sales. As a result, producers now get two to three liters of additional milk per cow per day which results in an additional $4.00 per day in milk sales and netting $2.00 per day in additional household income.
The formalization of the milk value chain and the establishment of processing plants like Hiruth’s provide smallholder producers with a reliable, supply-based relationship, with processors providing them with opportunities to invest in their own productivity. Additionally, processors like Hiruth reduce the business risk of smallholder producers by consistently purchasing milk 365 days per year.
The case of Hiruth and the 2,000 smallholder producers from whom she buys is just one example among many that demonstrates the benefits of AGP-LMD’s unique dairy value chain development approach in Ethiopia. When smallholder producers are certain their milk will be purchased, they are subsequently more willing to increase investments in better feeds and in better cows, which raises the productivity of herds that supply Ethiopia’s dairy processors, and generates increased incomes for the smallholder families that supply them.
In summary, the AGP-LMD Project’s investments in formal dairy processing create win-win business relationships that benefit processors as well as smallholder farmers!
It won’t happen overnight, but we have already seen how our program has positively impacted Ethiopia’s dairy sector, thus strengthening the country’s dairy industry and helping it meet its full potential. Working at both ends of the dairy value chain in Ethiopia is creating “win-wins” for everyone!
For further information contact Marc Steen, USAID AGP-LMD Project chief-of-party at email@example.com.