Dairy

AMHARA NATIONAL REGIONAL STATE
HEAD OF GOVERNMENT OFFICE

AGRICULTURAL COMMODITY MARKETING
SYSTEM STUDY PROJECT

AN N E X 12

DAIRY MARKETING
SYSTEM STUDY
(FINAL REPORT)

By: AKLILU WOLDU
December 2004
Bahir Dar

ANRS – Agricultural Marketing Systems Study Project
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EXECUTIVE SUMMARY
Small-scale dairy production is an important avenue for income generation for mainly subsistence farmers in the Ethiopian highlands. Dairy products are a traditional urban consumption item, ensuring continued and growing demand. The temperate highland climate allows the use of crossbred dairy cows, raising farmer productivity (Halloway, et al., 2000).
Smallholders who are estimated to contribute approximately 98% and 97% of total and marketed milk production dominate dairy production in Amhara Region, Similar to other parts of Ethiopia, (CSA, 2003). These are farmers who, besides growing crops for subsistence and for sale, mostly keep 1 to 3 cows with their followers on land sizes typically of about 1 ha in the intensively farmed Dega and Woinadega AEZs and about 1.5 ha in the extensively farmed Kolla areas (Biomass, 2002). In 2002 milk production was estimated at
493 million litres of which below 1% was marketed, 41% was consumed at home and the rest
58% processed into butter and other derivative dairy products (CSA, 2003). Considering
Milk has no close substitute, the estimated total population of 3.5 million of dairy cows in approximately 3 million smallholdings (BOA, 2003; CSA, 2003) suggests that this sub-sector employs many poor farmers in the Region who derive a regular source of cash income and balanced nutrition. In like manner, some areas of the Region have traditionally been known as the land of “milk and honey”, showing how dairying was an important contributor to the village economy in ancient times.
Although smallholder dairy production accounts for most of the total milk production in the
Region, individual cow productivity is low (BOA, 2003; CSA, 2003), while the potential for increased productivity per animal is considered to be high. Moreover, given most of rural farmers live in smallholdings and are resource-poor with 45% of rural households in the
Region living below the poverty line (BOFED, 2003), there is a consensus that targeting smallholder dairy development efforts within the agricultural sector will have a good impact on poverty reduction.
In line with the above, the Regional government, in its recent comprehensive plan for agriculture (BOA, 2004), has given particular attention to the promotion of dairy development. The comprehensive development plan for crop and livestock is aimed at transforming the subsistence mode of agricultural production system into market oriented production system and its implementation has begun in 2004. The plan views improved livestock and products marketing as an important Regional development strategy to increase both rural incomes and foreign exchange. Dairy production and marketing has, therefore, been included as one of the intervention areas in the current commodity-based specialization and commercialization plan.
According to earlier reports (Debrah and Birhanu, 1991), however, market access poses a key bottleneck to the expansion of smallholder milk production and processing. Since the present dairy products marketing system in Ethiopia is young, not all market mechanisms are expected to be operational. Similarly, as Halloway, et. al. (2000) aptly put it, enhancing the ability of poor smallholder farmers to reach markets and actively engage in them, poses a pressing development challenge. Difficult market access restricts opportunities for income generation. Remoteness results in reduced farm-gate prices; increased input costs; and lower returns to labor and capital. The question of how to expand the market participation of

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smallholder livestock producers is still a major challenge facing many governmental and
NGOs development agendas.
Therefore, analyzing the channels of dairy products distribution and the functioning of the dairy products markets is an important issue. To achieve this, there is a need for adequate information on the market structure, conduct, and performance of the dairy market in the
Region, especially on dairy marketing channels, the traders’ behavior, and the process of competition in the market. In so doing the study aims to look for improvements in the existing dairy marketing channels and ways to make the distribution channels more efficient.
Accordingly, the specific objectives of the current study were set as follows:
1. To review the existing dairy production systems in the Region, identify their problems and suggest possible solutions
2. To review the Regional status of dairy products processing and improvements thereof; 3. To examine the domestic market structure, conduct and performance of dairy products marketing;
4. Finally, to identify the key policy issues related to the promotion of the dairy products industry and provide recommendations for developing feasible marketing strategies to improve the economic efficiency of the dairy marketing system.
In terms of production therefore, the majority of total milk production in the Region was found to take place in the cool Dega and Woinadega highland areas, where 76% of the total land area and the overwhelming majority of exotic and crossbred dairy cattle are found
(MOA, 2002). All these areas fall within Dega and Woinadega agro-ecology zones (AEZ) and the distribution of cattle populations, differs between Administrative and Ecological
Zones within the Region. Even though there are small ruminants and camels, the cow continues to be the only source of milk and milk products in the region. Indigenous zebu breeds of cattle virtually constitute the entire herd of cattle with exotic crosses or hybrids accounting for less than 1% of the existing herd base. In 2003 the Region had about 10.5 million cattle, of which around 3.5 million were cows (CSA, 2003). Out of this Regional herd of about 3.5 million cows, only about 33,000 are improved crossbred dairy animals.
Similar to national level, data on milk production in Amhara are scarce and often unreliable.
There is no dispute, however, that the most important production feature of adult cows to the smallholder farmer is milk production. What 's more, Cow productivity in such traditional production systems is primarily a function of herd calving rate, the calving interval and individual milk production (O 'Conner, 1992). In line with this, a general synthesis of key aspects of the compiled results, indicate that: (1) the ratio of females to males in the Regional cattle herd is on the order of 50:50; (2) annual calving rates average around 55%; (3) annual milk yield per cow ranges from 150 to 380 liters for lactations which vary from 5 to 11 months in duration; and (4) the Regional average milk yield per cow is about 256 liters over
240 days (or 1.22 lt/head/day).
Based on the above productivity parameters, total annual Regional milk production, that is milk sales plus domestic consumption but excluding suckled calf consumption, is estimated

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to be close to 493 million liters. Compared with the total annual National milk production of
2.59 billion liters, the share of the Regional production amounts close to 20%.
Allocation related data presented in the recent CSA household census further show that, of the total milk produced in the Region: 41 % is consumed at HH level; 0.75 % is used as wage payment; 57.5 % is processed into butter and other derivatives; and only the remaining 0.75
% is sold for cash. Moreover, the proportion sold ranged from as low as 0.27 % in Wag to
1.67% in S/Wollo Zone with the Regional average amounting to no more than 0.75%.
Compared to the National average proportion sold of 5 %, milk in the region is rarely sold as fluid milk. Thus, of the annual total 493 million liters of milk produced in the Region, only
3.7 million is sold as fresh milk. Of the remaining volume, close to 284 million is processed into butter and other derivative products. In turn, this volume of processed milk yields 16,
685 tons of butter and 45,050 tons of soft cheese (ayib). Similarly, of the processed butter and ayib, 38% and 0.24% are marketed respectively.
Following on this, results compiled show that the per capita supply of milk in the Region for the past 8 years ranged from about 24 to 30 liters per person per year. Hence, raw milk production has not yet satisfied domestic market demand, and such consumption levels at about 25 liters/person/year is very low compared with the World Health Organization’s recommendation of 200 liters/year. This per capita consumption of milk, however, varies between Zones and Woredas. Anyway, these figures clearly indicate that the per caput cow milk consumption levels of people in the Region compute to only 76, 65, and 20% of the national, continental, and world levels, respectively.
With regard to marketing, dairy products in the Region reach customers through one or a combination of close to 5 marketing channels. The relative importance of these channels also varies as per the type of participants and customer objectives. Accordingly, the major market participants of milk trade includes producers, mobile traders, cooperatives, DDE, and milk retailers; while collectors, itinerant traders, assemblers, wholesalers, and retailers carry out the various functions of the butter market. Generally, however, similar to results of other marketing studies, e.g., Elleni (2001), the marketing chain for dairy products in our Region remains relatively short, with the majority of consumer purchases made directly from producers, which in turn confirms the relatively unsophisticated nature of the market.
Likewise, considered across all visited Woredas, selling directly to individual consumers was by far the most preferred outlet by the majority of small producers. Further probed as to the reasons for the popularity of this outlet, respondents commonly noted that the slightly better price received from individual consumers in tandem with the contractual arrangement frequently used by customers gave them the safety of assured market for their daily milk output. Choice patterns of this kind also agree with results of similar studies carried in other parts of the country. Debrah and Birhanu (1991), for instance studying the Addis Ababa dairy market, found that almost all small producers (96%) sold their milk to individual consumers, who paid higher prices than either catering or governmental institutions.
Consequently, the above-mentioned factors, coupled with the absence of the formal packed milk market, are driving the direct sale of raw milk from producer to consumer to continue as the largest single market outlet in our Region. Obviously this would lead us to surmise as to the relatively unsophisticated nature of the dairy market. Furthermore, considering milk production being typically a year-round activity, and given the limited marketing options
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available for milk producers in remote areas, the existence of dairy cooperatives in the vicinity has been observed to change the product sold and the marketing chain used.
Therefore, we can tentatively conclude that, in the case of smallholder dairying in Amhara
Region, with the atomized nature of both production and consumption, marketing of small quantities is optimally conducted directly from producer to consumer. Nonetheless, similar to conclusions of other studies, the search for stable market outlets by rural milk producers in our Region seems to be complicated by significant variations in milk production and dairy product consumption patterns.
In terms of dairy traders, the type of investments they undertake for butter trade are at the rudimentary level and do not cost them large amounts of money in machines, storage facilities, and other fixed capital. Hence, there were almost no important barriers to enter the dairy business, especially in the case of butter traders and thus we conclude that entry barriers do not hamper the price formation process in the domestic market. Observations have also been made that lack of working capital is the most difficult barrier to entry for all traders. In the same vein, traders generally do not complain about the administrative procedures that have to be followed for market entry. We observed that the government is even facilitating the entry process.
With regard to marketing finance, the dairy trade sector in Amhara Region finances itself through a combination of self-financing, bank loans, and informal credit assistance from friends and relatives, suppliers, customers and moneylenders. Loans from banks seem to be important to bigger traders only; with small dairy traders unable to offer collateral, are insignificant users of loans from formal financial institutions. Traders rely mainly on own funds, advances from bigger traders or wholesalers, acceptance by farmers of deferred payments and, in times of peak financing requirements, moneylenders. Working capital finance requirements are greater for those dealing with fast butter trade. While traders dealing in perishable fluid milk turn over their capital in a matter of a few days, or can rely on farmer finance for that period (in contractual forms), those dealing in storable products such as butter require finance of a longer duration.
Quality of dairy products has further been found to be compromised at every stage of the supply chain. Accordingly, the problem starts with the absence of hygienic practices at the time of milking which has been found to be one of the first and most important barrier of clean milk production. The next main source of infection of dairy products concerns unsanitary milking equipment and the type of non-standardized containers used for storing and transporting them. Coupled to these, the other persistent problem repeatedly mentioned by urban consumers relates to adulteration of both milk and butter. Milk is usually mixed with water, while butter is adulterated with various foreign substances, of which, imported ghee varieties and banana are worthy of mention. Nationally, however, there are no regulations or directives issued to establish the hygienic requirements for the production and marketing of dairy products. Moreover, albeit the presence of a lot of G&S for dairy products promulgated by the QSAE, none of them seem to be applicable at the ground level.
Almost all butter traders store transitional stocks of butter, but the vast majority of these stocks are held in unimproved sites (e.g., a room within a trader’s house) and move within weeks. Market centers, used for dairy trade and which are administered and run by the local town municipalities or administrations; lack the necessary facilities for butter trading. Most
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of them are periodic open-air markets with no stalls, sanitation, or drainage. Some do not even have a perimeter fence.
Analysis of dairy market performance also shows that the price pattern of dairy products during a given year closely follow the seasonal pattern of feed availability and milk production. Demand fluctuations due to religious and cultural factors also have been found to have a strong bearing on product prices. Between year variability in milk prices, reveal that generally prices have been slightly falling down especially in towns such as B/Dar and
D/Birhan. Butter retail prices, on the other hand, were observed to have invariably been steadily increasing within the past 5-years. Retail margins and price spreads calculated for butter also tentatively show that the producer 's share to be declining over the years. Market integration tests using correlation matrix of price differences indicate positive but weak coefficients, signifying weak price transmission across different markets.
In conclusion, results of the study clearly show that the marketing system, to be beset by several shortcomings. For instance, Most of the markets in the Region have not shown any transformation from their early roots. These are still markets characterized by the involvement of too many intermediaries both licensed and unlicensed. There are no viable market information and quality grading and standard systems. Trading for the overwhelming majority of traders is based on personal trust rather than legal protection, and thus they have no recourse to courts. Besides too many small and informal traders who are plagued by lack of sufficient capital or credit resources dominate the markets. As a result, both producers and traders are forced to bear higher risks; market exchanges fulfilled at high transaction costs in turn increase consumer prices; urban and rural markets still remain unstable and weakly integrated. Finally the study presents a basic roadmap of recommendations for future interventions to improve dairy production and marketing in the region. First, with regard to achieving increased and sustainable dairy products supply, creating increased access to improved cows; promoting the availability of improved feeds; improving the delivery of vet, extension, and credit services to producers; and strengthening the capacity of producers have been recommended as strategic entry points. Similarly, proposals to achieve improved and efficient dairy marketing system calls for enhancing farmer to market linkages; improving the different market infrastructure; improving market competition; and building the capacity of all the participants in dairy markets.

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TABLE OF CONTENTS
EXECUTIVE SUMMARY ........................................................................................................................ I
TABLE OF CONTENTS .................................................................................................................................. VI
LIST OF TABLES .......................................................................................................................................... IX
LIST OF FIGURES .......................................................................................................................................... X
LIST OF ABBREVIATIONS ............................................................................................................................ XI
1.

INTRODUCTION ............................................................................................................................... 1
1.1.
BACKGROUND ............................................................................................................................... 1
1.2.
THE PROBLEM ............................................................................................................................... 2
1.3.
OBJECTIVES OF THE STUDY ........................................................................................................... 3
1.4.
SIGNIFICANCE OF THE STUDY ........................................................................................................ 5
1.5.
SCOPE AND COVERAGE ................................................................................................................. 5
1.6.
METHODOLOGY ....................................................................................................................... 5
1.6.1.
Conceptual Framework....................................................................................................... 5
1.6.2.
Method of Data Collection and Analysis ............................................................................ 8
1.7.
LIMITATIONS OF THE STUDY ........................................................................................................ 10
1.8.
ORGANIZATION OF THE PAPER .................................................................................................... 10

2.

OVERVIEW OF THE AGRICULTURAL SECTOR ................................................................... 12
2.1.
NATURAL FEATURES ................................................................................................................... 12
2.2.
ROLE OF AGRICULTURE ............................................................................................................... 13
2.3.
ROLE OF THE LIVESTOCK SECTOR ................................................................................... 13
2.3.1.
National and Regional livestock populations.................................................................... 14
2.3.2.
Livestock Production Systems ........................................................................................... 15
2.3.3.
Livestock Productivity ....................................................................................................... 16
2.3.4.
Contribution of Livestock to Regional GDP ..................................................................... 17
2.3.5.
Contribution of livestock to HH income ............................................................................ 18

3.

OVERVIEW OF DAIRY PRODUCTION...................................................................................... 19
3.1.
DAIRY PRODUCTION .................................................................................................................... 19
3.1.1.
REGIONAL DAIRY HERD And Production Systems........................................................ 19
3.1.2.
Types Of Dairy Products Produced .................................................................................. 22
3.1.3.
Historical Profile Of Dairy Production ............................................................................ 24
3.1.4.
Relative Importance Of The Dairy Industry ...................................................................... 27
3.1.5.
Trends In Regional Production ......................................................................................... 28
3.1.6.
Input Utilization ................................................................................................................ 32
3.1.7.
COOPERATIVES .............................................................................................................. 38
3.1.8.
Marketed Volume .............................................................................................................. 41
3.1.9.
Major Production Constraints And Suggestions ............................................................... 44
3.2.
DAIRY PROCESSING ..................................................................................................................... 50
3.2.1.
Traditional Milk Processing Systems ................................................................................ 50
3.2.2.
Extent Of Processing ......................................................................................................... 52
3.2.3.
Constraints And Improvements Needed ............................................................................ 53
3.3.
INTER-REGIONAL PRODUCT FLOW ............................................................................................... 58
3.3.1.
General ............................................................................................................................. 58
3.3.2.
Within Region Flow .......................................................................................................... 59
3.3.3.
Inter -Regional Flows ....................................................................................................... 59

4.

DAIRY MARKETING SYSTEM .................................................................................................... 61
4.1.
STRUCTURE AND CONDUCT OF THE DAIRY MARKET ................................................................. 61
4.1.1.
Marketing Functions ......................................................................................................... 62
4.1.2.
Milk Marketing Chain ....................................................................................................... 63
4.1.3.
Butter Marketing Channels ............................................................................................... 68
4.1.4.
Types And Roles Of Market Participants .......................................................................... 69

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4.1.5.
Market Entry And Collaboration ...................................................................................... 75
4.1.6.
Price Formation And Bargaining ..................................................................................... 78
4.1.7.
Product Homogeneity ....................................................................................................... 79
4.1.8.
State Intervention And Regulations ................................................................................... 79
4.1.9.
Degree Of Competition ..................................................................................................... 80
4.1.10.
Summary And Conclusion ................................................................................................. 82
4.2.
MARKETING FINANCE ................................................................................................................. 85
4.2.1.
Finance Sources ................................................................................................................ 85
4.2.2.
Formal Credit ................................................................................................................... 86
4.2.3.
Constraints ........................................................................................................................ 86
4.2.4.
Conclusions ....................................................................................................................... 87
4.3.
QUALITY, GRADES & STANDARDS ............................................................................................... 88
4.3.1.
Producer Care For Milk Quality ...................................................................................... 88
4.3.2.
Milk Quality In The Marketing Chain ............................................................................... 89
4.3.3.
Regulations At National Level .......................................................................................... 90
4.3.4.
Inspection And Grading .................................................................................................... 90
4.3.5.
Possible Options To Improve Quality ............................................................................... 91
4.4.
MARKET INFRASTRUCTURE ......................................................................................................... 95
4.4.1.
Transport........................................................................................................................... 95
4.4.2.
Storage .............................................................................................................................. 97
4.4.3.
Market Centers And Marketing Facilities ......................................................................... 97
4.5.
MARKET INFORMATION SYSTEM .................................................................................................. 98
4.5.1.
Current Status Of Dairy Market Information.................................................................... 98
4.5.2.
Formal Sources Of Mis ..................................................................................................... 99
4.5.3.
CONSTRAINTS ............................................................................................................... 101
4.5.4.
Possible Options ............................................................................................................. 102
4.6.
POLICIES ................................................................................................................................... 104
4.6.1.
Government Policy And Activities For Dairy Development ........................................... 104
4.6.2.
Laws And Regulations Affecting Trade ........................................................................... 105
4.6.3.
Taxation Policy ............................................................................................................... 107
4.6.4.
Policy Limitations Of Existing Dairy Marketing Systems ............................................... 107
4.6.5.
Future Policy Directions ................................................................................................. 108
5.

DAIRY MARKET PERFORMANCE........................................................................................... 111
5.1.
PRICE ANALYSIS .................................................................................................................... 111
5.1.1.
Intra-Year Price Variation Of Milk................................................................................. 112
5.1.2.
Inter Year Price Variation Of Milk ................................................................................. 114
5.1.3.
Intra-Year Price Variation Of Butter .............................................................................. 115
5.1.4.
Decomposition Of Nominal Prices.................................................................................. 118
5.1.5.
Inter-Year Price Variation Of Butter .............................................................................. 120
5.1.6.
Explaining The Observed Price Variations..................................................................... 120
5.1.7.
Government Pricing Policy ............................................................................................. 122
5.2.
MARKETING EFFICIENCY ........................................................................................................... 123
5.2.1.
Framework For Analysis................................................................................................. 123
5.2.2.
Price Spreads .................................................................................................................. 125
5.2.3.
Market Correlation ......................................................................................................... 127
5.2.4.
Constraints To Dairy Marketing And Possible Solution ................................................. 130

6.

COMMODITY EXPORT MARKETING .................................................................................... 133
6.1.
6.2.
6.3.
6.4.
6.5.

7.

DEMAND AND IMPORTS ............................................................................................................. 133
EFFECTS OF DAIRY IMPORTS ..................................................................................................... 134
EXPORTS ................................................................................................................................ 135
INTERNATIONAL TRENDS IN DAIRY INDUSTRY AND LESSONS FOR ETHIOPIA .............................. 135
THREATS AND OPPORTUNITIES OF THE COMMODITY TRADE ..................................................... 137

CAPACITY BUILDING ................................................................................................................. 139

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7.1.
CURRENT SITUATION ................................................................................................................. 139
7.2.
OBSERVED CAPACITY GAPS ....................................................................................................... 140
7.3.
CAPACITY DEVELOPMENT PROGRAM COMPONENTS ............................................... 142
7.4.
RECOMMENDED CAPACITY BUILDING FORMATS ...................................................................... 143
7.4.1.
Skill development ............................................................................................................ 143
7.4.2.
Training........................................................................................................................... 143
8.
BASIC ROADMAP FOR FUTURE INTERVENTIONS IN DAIRY PRODUCTION AND
MARKETING .......................................................................................................................................... 146
8.1.
SYNTHESIS OF ISSUES AND FINDINGS ........................................................................... 146
8.2.
MAJOR CONSTRAINTS ........................................................................................................ 147
8.2.1.
Production-Related ......................................................................................................... 147
8.2.2.
Market-Related................................................................................................................ 148
8.3.
RECOMMENDATIONS ......................................................................................................... 150
8.3.1.
Purpose (Objective) 1: Achieve Increased And Sustainable Dairy Production .............. 150
8.3.2.
Purpose (Objective) 2: Achieve Improved And Efficient Dairy Marketing ..................... 156
9.

REFERENCES ................................................................................................................................ 165

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LIST OF TABLES
TABLE 1: NO. OF CENTERS AND WOREDAS SELECTED FOR EACH COMMODITY SPECIALIZATION ................... 9
TABLE 2: DAIRY COMMODITY CENTERS FOR SPECIALIZATION AND DIVERSIFICATION IN AMHARA REGION. ... 9
TABLE 3: POPULATION SIZES OF LIVESTOCK SPECIES IN AMHARA REGION (2003). ....................................... 14
TABLE 4 : ZONAL DISTRIBUTION OF THE LIVESTOCK POPULATION (2003). .................................................. 15
TABLE 5 : DISTRIBUTION OF LAND AND LIVESTOCK HOLDINGS IN AMHARA, 2003. .................................... 15
TABLE 6: CONTRIBUTION OF LIVESTOCK TO HOUSEHOLD INCOME IN ETHIOPIAN HIGHLANDS. ..................... 18
TABLE 7: STRUCTURE OF DEMAND FOR MILK PRODUCTS IN ETHIOPIA, 2000 .............................................. 21
TABLE 8: TRENDS IN TOTAL AND PER CAPITA MILK PRODUCTION (1961-2000) ............................................. 26
TABLE 9: LEVELS OF MILK PRODUCTION IN AMHARA REGION (2003) BY ZONE .......................................... 29
TABLE 10: ANNUAL TREND IN PRODUCTION AND CONSUMPTION OF MILK FOR AMHARA REGION .............. 30
TABLE 11: ETHIOPIA: NATIONAL SET OF WEIGHTS (%) FOR ALL CONSUMER EXPENDITURES ........................ 30
TABLE 12:ETHIOPIA: NATIONAL SET OF WEIGHTS (%) FOR CONSUMER EXPENDITURES BY FOOD CATEGORY 31
TABLE 13: TOTAL PRODUCTION AND PER CAPUT CONSUMPTION OF MEAT, MILK AND FISH IN 2000 ............ 31
TABLE 14: BREED IMPROVEMENT ACTIVITIES CARRIED IN THE PAST TEN YEARS (1987 - 1996 EC) .............. 32
TABLE 15: CULTIVATED FORAGES IN THE PAST 3 YEARS IN AMHARA REGION.............................................. 35
TABLE 16: LIVESTOCK HEALTH SERVICES IN ETHIOPIA AS COMPARED WITH SELECTED COUNTRIES. ............ 36
TABLE 17: EXISTING DAIRY COOPERATIVES IN THE AMHARA REGION (1996 EC.) ....................................... 39
TABLE 18: PROPORTIONS OF MILK UTILILZATION % IN AMHARA REGION (2003) BY ZONE ........................ 43
TABLE 19: MARKETED VOLUMES OF MILK AND BUTTER IN AMHARA REGION (2003) BY ZONE .................. 43
TABLE 20: CHURNING EFFICIENCIES OBSERVED ON 25 FARMS IN THE ETHIOPIAN HIGHLANDS ..................... 51
TABLE 21: VILLAGE MILK SYSTEM - ESTIMATED COSTS (US$) ................................................................... 56
TABLE 22 : TYPES AND NATURE OF BUTTER SUPPLIED TO MARKET. .............................................................. 79
TABLE 23: BUYING AND SELLING STRATEGIES OF MILK BY MARKET INTERMEDIARY. ................................. 81
TABLE 24: VARIABLES THE DAIRY SECTOR NEEDS TO TAKE NOTE OF IN DAIRY PRODUCTION AND
MARKETING (JAFEE, 1995) .................................................................................................................. 91
TABLE 25: VARIATION IN 5-YEAR AVERAGE MONTHLY PRICES OF MILK (1991 - 95 EC.) ........................... 112
TABLE 26: MONTHS OF HIGHEST AND LOWEST PRICES OF MILK .............................................................. 113
TABLE 27: DIFFERENCE BETWEEN HIGHEST AND LOWEST MILK PRICES ................................................... 114
TABLE 28: AVERAGE YEARLY PRICES OF MILK (BR).................................................................................. 115
TABLE 29: INTER-ANNUAL DIFFERENCE IN MILK PRICES ............................................................................. 115
TABLE 30: VARIATIONS IN 5-YR (1991 - 1995 EC) AVERAGE MONTHLY RETAIL PRICE OF BUTTER ........ 115
TABLE 31: MONTHS OF HIGHEST AND LOWEST PRICES ............................................................................. 117
TABLE 32: DIFF. BETWEEN HIGHEST AND LOWEST BUTTER PRICES .......................................................... 117
TABLE 33: SEASONAL INDEX OF BUTTER PRICES BASED ON CMA12 ......................................................... 118
TABLE 34: AVERAGE YEARLY PRICES OF BUTTER (BR).............................................................................. 120
TABLE 35: INTER-ANNUAL DIFFERENCE IN BUTTER PRICES ........................................................................ 120
TABLE 36: 5-YR AVERAGE MONTHLY PRICE SPREAD FOR BUTTER (BIRR) ................................................ 125
TABLE 37: SEASONALITY IN RETAIL MARGINS FOR BUTTER (%), 1991-95. ............................................... 126
TABLE 38: PRODUCER SHARES OF THE RETAIL BUTTER PRICE (%) 1991-95. ............................................. 127
TABLE 39: SIMPLE CORRELATION MATRIX OF BUTTER PRICE LEVELS IN SELECTED MARKETS .................... 129
TABLE 40: CORRELATION MATRIX OF PRICE DIFFERENCES BUTTER IN SELECTED MARKETS ........................ 129
TABLE 41: CORRELATION MATRIX OF LOGARITHMIC PRICE DIFFERENCES OF BUTTER................................. 130
TABLE 42: MILK PRODUCTION AND AVAILABILITY IN ETHIOPIA. ............................................................... 133
TABLE 43: ANNUAL DAIRY IMPORTS OF ETHIOPIA FOR THE PAST TEN YEARS (1993 - 2002). ..................... 133
TABLE 44: TYPES OF DAIRY PRODUCTS IMPORTED INTO ETHIOPIA. (METRIC TONS) ................................... 134
TABLE 45: GLOBAL MILK PRODUCTION 1999-2001 (MILLION METRIC TONNES)........................................ 136

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LIST OF FIGURES
FIGURE 1: THE MODEL OF AGRICULTURAL COMMODITY MARKETING SYSTEM ..............................7
FIGURE 2: SMALLHOLDER MILK UTILIZATION ...........................................................................23
FIGURE 3: DAIRY MARKETING CHANNELS IN AMHARA REGION ..................................................64
FIGURE 4: VARIATION IN AVERAGE MONTHLY MILK PRICES (1991-95) ................................................. 112
FIGURE 5: 5-YEAR AVERAGE MONTHLY RETAIL PRICES FOR BUTTER (1991-1995 E.C.) ............116
FIGURE 6 : SEASONAL INDEX FOR BUTTER PRICE (1991-1995 E.C.) ..........................................119
FIGURE 7: 5 – YEAR AVERAGE MONTHLY PRICE SPREAD FOR BUTTER (BIRR)............................125

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LIST OF ABBREVIATIONS
ACSI
AI
ANRS
BoA
BoARD
BoCP
BoFED
BoTI
CMA12
CPI
CPR
CSA
DDE
DPPC
EB
FAO
FDRE
GDP
G&S
HH
ILRI
LPs
LN2
MIS
MOA
MOTI
NGO
QSAE
RA
WHO

Amhara Credit and Saving Institution
Artificial Insemination
Amhara National Regional State
Bureau of Agriculture
Bureau of Agriculture and Rural Development
Bureau of Cooperative Promotion
Bureau of Finance and Economic Development
Bureau of Trade and Industry
Centered Moving Average (12-months)
Consumer Price Index
Communal Property Resources
Central Statistics Authority
Dairy Development Enterprise
Disaster Prevention And Preparedness Commission
Ethiopian Birr
Food And Agricultural Organization
Federal Democratic Republic Of Ethiopia
Gross Domestic Product
Grades And Standards
Household
International Livestock Research Institute
Lacto Peroxidase System
Liquid Nitrogen
Market Information System
Ministry Of Agriculture
Ministry Of Trade And Industry
Non-Governmental Organization
Quality And Standards Authority Of Ethiopia
Rapid Appraisal
World Health Organization

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1.

INTRODUCTION

1.1. BACKGROUND
Similar to other parts of Ethiopia, dairy production in Amhara Region is dominated by smallholders who are estimated to contribute approximately 98% and 97% of total and marketed milk production, respectively (CSA, 2003). These are farmers who, besides growing crops for subsistence and for sale, mostly keep 1 to 3 cows with their followers on land sizes typically of about 1 ha in the intensively farmed Dega and Woinadega AEZs and about 1.5 ha in the extensively farmed Kolla areas (MOA, 2002). In 2002 milk production was estimated at 493 million liters of which below 1% was marketed, 41% was consumed at home and the rest 58% processed into butter and other derivative dairy products (CSA,
2003). Considering Milk has no close substitute, the estimated total population of 3.5 million of dairy cows in approximately 3 million smallholdings (BoARD, 2003; CSA, 2003) suggests that this sub-sector employs many Ethiopians who derive a regular source of cash income and balanced nutrition. In like manner, some areas of the Region have traditionally been known as the land of “milk and honey”, showing how dairying was an important contributor to the village economy in ancient times.
Although smallholder dairy production accounts for most of the total milk production in the
Region, individual cow productivity is low (BoARD, 2003; CSA, 2003), but the potential for increased productivity per animal is considered to be high. Moreover, given most of rural farmers live in smallholdings and are resource-poor with 45% of rural households in the
Region living below the poverty line (BoFED, 2003), there is consensus that targeting smallholder dairy development efforts within the agricultural sector will have a good impact on poverty reduction.
The main reasons cited by most researchers for such a scenario is on account of dairying representing a promising avenue for improving the welfare of resource-poor rural communities. Other justifications presented for concentrating development efforts on smallholder dairy production include: the potential for increasing demand for milk due to growing urbanisation; the high income elasticity of demand for milk; the predominance of smallholdings in the most suitable peri-urban dairy production areas; the central role that livestock play in nutrient cycling in mixed farms; and, increased income generation opportunities (Staal, 2001).
Such opportunities for enhancing milk yield and improving welfare are further being strengthened via the current market oriented policy pathway defined recently for the Regional agriculture as a whole. This is paving the way for increased private sector participation and reduced government involvement in both milk production and marketing of producing areas.
There is increasing private sector activity through various actors, including small traders, private dairy processors and farmer groups, each innovating mechanisms for collecting and retailing milk and for providing inputs and animal reproduction and health services. The changes have also shifted the patterns of incentives in the dairy sub-sector.
This Rapid Appraisal (RA) Report provides stakeholders in the sub-sector with an overview of the current situation and insights into the main issues that require urgent attention to further enhance the benefits of smallholder dairying especially with regard to marketing of dairy products. Successful alleviation of those constraints, which may currently impair the
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performance of the dairy sub-sector and further development, can enhance those benefits in addition to matching projected demand through increased productivity.

1.2. THE PROBLEM
The transition from a centrally controlled economy to a market economy in the dairy products sector has stimulated the farmers to produce more dairy products each year and to improve dairying practices by using proper inputs. In relation to this, Ahmed, et al., (2003), in their recent study conclude that, over the last decade following the political changes in
1993, the dairy sector in Ethiopia has shown considerable progress. Total milk production grew at an estimated rate of 3 percent as compared to 1.8 percent during the period of 19751992, thus ending the long-time trend of declining per capita milk production in the country.
The progress achieved is mainly due to technological intervention, policy reforms and cow population growth.
With strong support of the Ministry of Agriculture and Rural Development of Ethiopia, farmers have adopted many different technological packages that enhance dairy production.
Additionally, The dairy sector in Ethiopia is expected to continue growing over the next one to two decades given the large potential for dairy development in the country, the expected growth in income, increased urbanization, and improved policy environment (Ahmed, et al.,
2003). As the market liberalization process continues, Ethiopia faces the challenge of formulating and implementing an economic growth strategy, which is politically viable. Vital in this growth strategy is the role of agriculture and, within agriculture, the development of an efficient and flexible dairy products marketing system. The means by which these objectives are to be achieved relies on ‘transforming poor farmers, both men and women, from producing predominantly for their own households to producing for the market. The focus … is to reorient them towards commercial agriculture in order to have a significant impact on poverty eradication in the country’ (FDRE, 2002).
According to earlier reports (Debrah and Birhanu, 1991), market access poses a key bottleneck to the expansion of smallholder milk production and processing. Since the present dairy products marketing system in Ethiopia is young, not all market mechanisms are expected to be operational.
As Halloway, et. al. (2000) aptly put it, enhancing the ability of poor smallholder farmers to reach markets and actively engage in them, poses a pressing development challenge. Difficult market access restricts opportunities for income generation. Remoteness results in reduced farm-gate prices; increased input costs; and lower returns to labor and capital. This, in turn, reduces incentives to participate in economic transactions and results in subsistent rather than market-oriented production systems. Sparsely populated rural areas, remoteness from towns and high transport costs all pose physical barriers impeding market access. Transaction costs such as lack of information about markets, lack of negotiating skills, and lack of collective organization are other impediments to market access. The question of how to expand the market participation of smallholder livestock producers is a major challenge facing many governments and NGOs in developing countries.
Moreover, if and when the markets are available, their functioning is constrained by various problems and obstacles: imperfect market information for buying and selling dairy; lack of cash and credit availability to finance short-run inventories and processing operations;
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insufficient facilities for storage and transportation; no uniform system of common grade standards to facilitate trading at a distance; lack of management skills; and unsuitable legal codes to enforce contracts (Mbogoh, et.al, 1994).
Therefore, analyzing the channels of dairy products distribution and the functioning of the dairy products markets is an important issue.
Furthermore, in the coming years, at the macro level, some of the developmental goals of the
Amhara Regional government are:
To increase and stabilize the availability of food for the Region’s population;
To finalize the transition to more market-oriented systems by enhancing and quickening the current pace of liberalization and transformation;
To obtain an efficient method of food crop marketing at all times and at reasonable prices; To improve the channels of distribution at regional, interregional, and international levels; and
To look for a reasonable solution to increase the volume of agricultural exports as well as improve product quality and maintain stable food supply for domestic consumption. To achieve the above-mentioned goals, there is a need for adequate information on the market structure, conduct, and performance of the dairy market in the Region, especially on dairy marketing channels, the traders’ behavior, and the process of competition in the market.
This knowledge is considered useful especially for policy makers currently engaged in developing markets, and in particular its rules, regulations, and services. Moreover, the information may also facilitate the decision making process of private traders and farmers, as their initiatives will determine the success or failure of the privatization process. This study of the dairy marketing system is therefore believed to offer a unique opportunity to address several issues in the debate concerning strategies for the medium and long term, the role of government policies, and the role of the state and private sector in the market. In so doing the study aims to look for improvements in the existing dairy marketing channels and to make the distribution channels more efficient.

1.3. OBJECTIVES OF THE STUDY
This study examines the current dairy production and marketing system and the channels of dairy products distribution in Amhara Region. It focuses on the domestic market structure as well as the relationships between the different actors in the dairy products market and attempts to assess the effectiveness and efficiency of the market services supplied. Moreover, this study will also provide recommendations for future improvement of existing dairy production and marketing systems, and identify viable options to promote private and cooperative dairy products marketing. This will assist the Government and the private sector in achieving the transition from direct public interventions to more market-oriented

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interventions and stimulate a policy dialogue between the private dairy sector and the
Government.
Accordingly, the specific objectives of this study are as follows:
1. To review the existing dairy production systems in the Region, identify their problems and suggest possible solutions
2. To review the Regional status of thereof; dairy products processing and improvements

3. To examine the domestic market structure, conduct and performance of dairy products marketing;
4. To describe and analyze the organization of dairy products distribution channels from dairy products farmers to final consumers;
5. To estimate the marketing costs, profits, and dairy products margins of various intermediaries; 6. To evaluate the effectiveness and efficiency of dairy products marketing.
Effectiveness indicates how well the commercial channel meets the demand for services by its dairy products consumers and producers/farmers. Efficiency measures whether the services are supplied at reasonable marketing margins and assesses market integration across different locations (provinces) and for different time periods; 7. To analyze the market process and identify incentives that facilitate channel improvements in the future;
8. Finally, to identify the key policy issues related to the promotion of the dairy products industry and provide recommendations for developing feasible marketing strategies/trade policies to improve the economic efficiency of the dairy marketing system. In so doing, this study could make a contribution to the long-run process of transition toward a market led agricultural economy by assisting in:
(i) Identifying the main obstacles to the formation of competitive dairy products marketing systems; (ii) Finding strategies to eliminate these obstacles and to promote low-cost local marketing systems; (iii) Promoting policies to accelerate the process of transformation from the command-based and self-sufficiency oriented agricultural system to a competitive and commercially oriented agricultural sector;
(iv) Strengthening the local capacities to guide and monitor the process of transition from the state-run to competitive marketing systems.
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1.4. SIGNIFICANCE OF THE STUDY
The recently formulated Rural Development Policies and Strategies stress that; an efficient domestic agricultural commodity marketing system is fundamental to stimulating and sustaining growth and development in the food and agriculture sector. Moreover, the policy clearly states the prospects for economic recovery rest with the successful transformational development of the domestic commodity marketing system to provide greater market incentives for the millions of poor smallholder farmers to participate effectively and consistently in the domestic food and agriculture markets as commercially oriented and profit driven producers.
Realization of this vision presently requires the detail characterization and study of existing commodity marketing systems.
On the other hand, despite the significance of dairy products in the Regional economy, there has been a dearth of in-depth studies published on dairy products marketing. Even if there were, most of these studies have focused on production and management, and were limited to a specific area or subject matter. Systematic and adequate information on the process of market competition; on market structure, conduct, performance; on changes in market institutions; and on the existing dairy products marketing channels, are not available. In fact, this is the first study that attempts to examine carefully the efficiency and performance of the dairy market system as a whole; by analyzing in more detail the existing marketing channels, pinpointing their constraints, and identifying opportunities for improvement.

1.5. SCOPE AND COVERAGE
All commodities covered in this study were those commodities identified by BOARD of
Amhara region in its commodity development plan of commodity specialization and diversification of 2003/04 production year, namely cotton, sesame, check pea, Lentil, horse beans, teff, wheat, barley, rice, pepper, black cumin, white cumin, ginger, milk, honey/wax, live animals, sheep and goat, fish, and forest products.

1.6. METHODOLOGY
1.6.1. CONCEPTUAL FRAMEWORK
Marketing, according to Mendoza(1995), is usually seen as ‘‘a system’’ because it comprises several, usually stable , interrelated structures that, along with production, distribution, and consumption, underpin the economic process; and marketing studies adopts different view points and approaches such as functional approach, organizational/institutional, commodity sub-systems, post-harvest approach, and mixed system approach. The commodity sub-system approach compromises both the functional [physical distribution and economic activity] and organization/institutional approaches [analysis of marketing channel].
The term ‘commodity’, according to Crawford (1997), is commonly used in reference to basic agricultural products that are either in their original form or have under gone only primarily processing. Examples include cereals (grains), coffee beans, sugar, palm oil, eggs, honey, milk, fruits, vegetables, beef, forest product, cotton and rubber. A related characteristic is that the production methods, post harvest treatments and/ or primary
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processing to which they have been subjected, have not imparted any distinguishing characteristics or attributes.
Figure 1depicts the conceptual framework of agricultural commodity marketing system. A commodity marketing system encompasses, as Crawford (1997) also pointed out, all the participants in the production [producer], processing, and marketing of undifferentiated or un branded farm products (such as cereals), including farm input suppliers, farmers, storage operators, processors, wholesalers and retailers involved in the flow of the commodity from initial inputs to the final consumer. The commodity marketing system also includes the institutions and arrangements that effect and coordinate the successive stage of a commodity flow such as the government and its parasitatals, trade association, cooperatives, financial partners, transport groups and educational organizations related to the commodity. The commodity system framework includes the major linkages that hold the system together such as transportation, contractual coordination and vertical integration, join ventures, tripartite marketing arrangements, and financial arrangements. The system approaches emphasizes the interdependence and inter relatedness of all aspects of agribusiness, namely: from input supply to the growing, assembling, storage, processing, distribution and ultimate consumption of the product. While, Mendoza (1995) considered government institutions or agencies, producer and consumer associations, and other organizations as marketing agents including producers, rural assembler, wholesaler, retailers, food processing companies, exporters and importers, broker and consumer.
The marketing system of agricultural products differs widely according to the commodity, the system of production, the culture and traditions of the producers and traders, and the level of development of both the particular country and the particular sector with in the country
(Crawford (1997). Hence, studying agricultural marketing system with respect to each type of commodity calls for to understand the commodity peculiar marketing system and to make some measures in the way that improves its efficiency.
Therefore, among various approaches that can be used for marketing studies this study is analyzed on the basis of commodity sub-system i.e. the study has tried to discuss the marketing system of agricultural commodities in Amhara Region, identified on the basis of
BOARD commodity specialization and diversification plan(2003/04), such as teff, wheat, lentil, horse bean, check pea, rice, sesame, cotton, black cumin, white cumin, pepper, ginger, shoat, fishery, honey, milk, cattle (fattening), and forest product (eulycaptus).

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Figure 1: The model of agricultural commodity marketing system
Commodity Marketing System

Participants

Institutions and arrangemens

•

Government and its parasitatal Linkages

•
•

Transportation
Contractual
coordination

•
•

Joint venture

•
Wholesalers

•

Transport group

•

Tripartite marketing arrangements

•

Financial arrangements

Processors

•

Financial partner

Storage operators

•

Vertical integration

Farmers

•

•

Input suppliers

•

Cooperative

•

•

Trade association

•

Educational organization One important approach to the study of market performance is the Structure-ConductPerformance (SCP) framework. The SCP framework suggests that relationships exist between structural characteristics of a market and the behavior of market participants and that their behavior in turn influences the performance of the market (Scarborough and Kydd
1992; Scott 1995). Among the major structural characteristics of a market are the degree of concentration, that is, the number of market participants and their size distribution; and the relative ease or difficulty for market participants to secure entry into the market. Market conduct refers to the behavior of firms or the strategy they use with respect to pricing, buying, selling, etc., which may take the form of informal cooperation or collusion.
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In so doing, the SCP approach postulates that as market structure deviates away from the paradigm of perfect competition, the extent of competitiveness of the market will decrease, which is likely to impede market efficiency (Scarborough and Kydd 1992; Scott 1995).
Hence, the structure of the marketing system of each commodity is described by relaxing the approach explained in figure1.i.e., identified the actors in a commodity marketing system, the channel / stage of product distribution, describe the commodity production system, described the major marketing functions and tried to identify the constraints encountered by actors in a product movement from producers to consumers/ export markets, assessed the performance a commodity marketing system, and also tried to look the linkage of the commodity production and marketing with other sub-sectors in the supply chain.

1.6.2. METHOD OF DATA COLLECTION AND ANALYSIS
1.6.2.1. SAMPLE WOREDA SELECTION

As stated earlier, the sole reference and benchmark to the current study was the commodity based development plan of the Bureau of Agriculture and Rural Development of Amhara
Region. This plan, which was first put into practice in 2004, among others, envisaged improving agriculture through area specialization and commodity diversification systems.
Accordingly, the Region was sub-divided into10 commodity development centers, whereby
91 Woredas were allotted within these 10 centers to specialize in producing any one of the 18 agricultural commodities selected in advance. A list of these commodities and the number of centers and woredas to be involved in their development is presented in Table 1.
Moreover, as details of the plan (BoARD, 2004) clearly show, a number of criteria have been utilized to prepare the center-woreda-commodity matrix, which was used to place woredas within development centers, and in turn to select woredas for respective commodities. Some of these criteria thus include: agro-ecology, the current situation of infrastructure facilities in the area, market accessibility for domestic and foreign market, and comparative advantage of the commodity. Likewise, long-term data from CSA have been considered in detail for center delineation and commodity/woreda selection.
The study team, therefore in its TOR was instructed to take up all the commodities identified for the above-mentioned development plan in its system study. The TOR further stipulated the major objective of the study to be overall assessment of the production system and marketing practices of the commodities in question. To achieve this, 35 Woredas of the total
91 Woredas selected for commodity development plan were chosen to serve as sample woredas for the field study. In so doing, only one Woreda from each commodity development center was selected to serve as a sample for the field study of each respective commodity. In the case of fattening, for instance, 22 woredas were placed under 4 development centers (Table 2). This study has, therefore, chose one woreda from each center yielding a total of 4 sample woredas for the marketing field study on fattening. Besides, woreda selection within each development center was carried out on the basis of each woreda 's production potential using CSA’s 2001/02 agricultural sample enumeration data, in order to pick woredas with the highest potential.

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Table 1: No. of Centers and Woredas selected for each Commodity Specialization
No

Commodity

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18

Sesame
Cotton
Chickpea
Lentil
Horse-bean
Teff
Wheat
Rice
Pepper
Black Cumin
White Cumin
Ginger
Milk
Honey and Wax
Fattened animal
Sheep and Goat
Fish
Forest Products

No. of Woredas selected for commodity dev.
4
7
5
4
11
8
11
3
9
2
2
1
20
25
22
34
10
17

No. of
Development
Centers
1
2
2
1
1
3
5
1
2
1
1
1
3
2
4
6
2
4

Remark

Table 2: Dairy commodity centers for specialization and diversification in Amhara region.
No

Development
Centers

1

Bahirdar Milkshed

2

Desse Milkshed

3

D/Birhan Milkshed

Woredas Selected For
Specialization on Dairy

Sample Woreda Selected for the Field Study of this
Project
B/Dar, Y/Densa, Fogera, Dera, B/Dar Zuria
Farta, Mecha, Achefer, Dangila
Desse, Kalu, Kutaber, Habru, Desse Zuria
Tehuledere, Ambasel, Worebabo,
Dawachefa.
Basso Worana, Angolelana Tera, Basso Worana
Insarona Wayu

1.6.2.2. DATA COLLECTION

In the study, both primary and secondary data were collected. In general, primary information has been gathered from producers [small-holder farmers and private investors], commodity traders [assemblers, retailers/wholesalers], consumers, and farmers’ cooperatives.
Information was also collected from different government offices namely from office of agriculture, cooperatives promotion desk, municipality, rural development main office, and small and micro enterprise desk] in the Woreda selected for a commodity marketing study.

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Primary information has also been collected from manufacturing industries/ processors and exporters using the format/check list prepared for each market participant/ respondent. In addition, primary data has been gathered through personal observation and informal discussion. The data collection was focused on the marketing system of the commodity with respect to the market participant.
1.6.2.3. DATA ANALYSIS

The data collected from different areas and different actors were re- arranged with respect to the commodity in question, and the qualitative and quantitative data tabulated in the way that enable to understand/ capture the view of the actors in the commodity marketing process. The commodity marketing system was described or analyzed using structure-conductperformance paradigm, and followed commodity approach.
Here, the marketing system of these commodities were described separately by relaxing the approach explained in methodological frame work i.e. tried to identify the actors in a commodity marketing system and the channel, described the commodity production system, described the marketing function and identified the constraints encountered by actors in a product movement from producers to consumers, and tried to look in to the linkage of the commodity production and marketing system with other sub-sectors in the supply chain; and the performance of the commodity marketing system has been assessed using some market efficiency measures / techniques such as, temporal price analysis, net-benefit of the commodity business, gross margin analysis, share of producers from retail or export price, and correlation of market connectedness. Some descriptive and growth function were also employed to assess the growth rate and trend of some economic variables.

1.7. LIMITATIONS OF THE STUDY
The overriding methodology applied to study the marketing system of different agricultural commodities in ANRS was mainly Rapid Marketing Appraisal Method. Hence, the study relied mainly on qualitative field assessments and secondary data. Moreover, the main driving force to choose this methodology have been the inherent time shortage and financial constraints. Therefore, limitations to this study first and foremost emanate from the Rapid Appraisal methodology followed in the collection of field data. Hence, the entire negative attributes of
RA in terms of marketing studies as detailed in Holtzman (1995), and Kumar (1993), hold true in our case as well. What is more, the biggest limitation for the study apart from normal limitations related to use of secondary statistics and errors related to power of recall for some specific marketing details was the low response from private stakeholders. The other problem that needs mention also relates to the simple level of investigation used during analysis, which mostly never passed the levels of descriptive statistics.

1.8. ORGANIZATION OF THE PAPER
The report is divided into 8 sections. Section 1 holds the introduction and methodology used in the study while Section 2 presents overview of the Regional livestock sector. In similar vein, Section 3 highlights the existing regional dairy production system. In so doing, it portrays in detail the various components of the system and completes by identifying the
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major constraints within the system and pointing possible improvement modalities that can be taken in the short term.
Section 4 assesses the structure and behavior of various actors in the marketing system. It discusses how the market is organized and coordinated, degrees of concentration and relative ease or difficulty for the market participants to gain entry into the market. It discusses where private sector response has been greatest and weakest and the reasons for this. This section also examines the behavior of various dairy traders in the given market structure. Buying and selling strategies, as well as trader behavior in relation to storage, transport, financing, negotiation and information are dealt with. Marketing finance, infrastructure, information and quality and standards of dairy products marketed are also some of the issues presented in this section. Likewise, what problems and constraints are observed in transportation, storage, and financial credit and market information are discussed here.
Section 5 assesses the performance of the dairy marketing system by analyzing first the price volatility in three main urban cities of the Region, and then by looking at the level of price spreads and marketing margins. We also discuss the strengths and limitations of the existing market integration between the markets. We also discuss what has been the role of government in agricultural commodity pricing. How has private sector response to liberalization been affected by poor roads, government trade controls on dairy import and export (tariffs and bans), uncertain policy environment and quality specifications. Section 6 and 7 discuss dairy import and export situations and capacity building issues related to the commodity trade at hand. In the final Section some conclusions are made and some policy recommendations are derived.

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2.

OVERVIEW OF THE AGRICULTURAL SECTOR

2.1. NATURAL FEATURES
The following discussion on the features of the Amhara Region is taken from Lakew, et al.,
(2000).
Amhara National Regional State (ANRS) is located in the north-western part of Ethiopia.
Geographically, it is situated between latitude 9°–13°45’N and longtitude 36°–40°30’E. It is bounded by the Afar, Benishangul, Oromia and Tigray regions in the east, south-west, south and north, respectively, and by Sudan in the west. The total area of the region is estimated at
170,152 km2, which is about one-sixth of the country’s total area. The region covers about one-eighth of the total area of the country and is home to about 27% of the total human population, and 35% of the total livestock population. In the region, livestock and human populations are concentrated in the highland areas, which constitute about 66% of the total area (ibid.). Historically, human and livestock settlements have concentrated in the highland areas, especially in the 2300-3200 m.a.s.l. range (dega agroecological zone), because of the relatively good rainfall reliability, cool temperatures, and absence of diseases (e.g. malaria and trypanosomiasis).
The region ranges from 600 m above sea level (a.s.l.) at Metema, North Gonder, to 4520 m
a.s.l. at Ras Dashen, North Gonder, which is also Ethiopia’s highest point. The wide range of altitude is a major factor in determining the temperature range of the region. Generally, lowland areas (1500 m
a.s.l.) experience relatively cooler temperatures. For example, in the hot to warm submoist agro-ecological zone, where the altitude ranges from 600 to 1400 m a.s.l., the mean annual temperature range is 21–27°C while in the cold to very cold moist zone, where the altitude ranges from 2800 to 4200 m a.s.l., the mean annual temperature varies from 7.5°C to 16°C.
As agricultural production is mainly rainfed, the pattern and duration of rainfall determine the growing period. The mean annual rainfall varies from 300 mm in the east (Habru and Kobo weredas of North Wello) to over 2000 mm in the Awi zone in the west, specifically, the
Banja Shikudad, Sekela and Guangua weredas. Generally, the western parts of the region are characterised as high rainfall and high agricultural potential areas, with precipitation exceeding 1200 mm annually. Low rainfall and agricultural potential areas are found in the
North Wello and Wag Hemra zones. The region experiences both unimodal and bimodal rainfall patterns, generally, in the west and east, respectively. In the western part of the region, the growing period varies from a little under 120 days in the North Gonder zone to more than 270 days in the Awi zone. Contrarily, the growing period varies from 45 to 90 and from 60 to 210 days in the eastern and south-eastern parts of the region, respectively. Of the
4.64 million hectares of the region’s total land area that is suitable for cultivation (about 30% of the total land area), 97% is under cultivation, with cereal production taking up 75% of the total area under crops. Grazing land and pastures each make up 30% of the total land area, while forest, shrub, bush and woodland make up 17%. Wasteland and bodies of water account for 16% and 4% of the total land area, respectively, while the remaining 3% is taken up by settlement. Within the Amhara Region, the total irrigation potential is estimated at
500,000 ha.

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2.2. ROLE OF AGRICULTURE
The total population of Amhara in 1994 was 14.4 million, with close to 90% employed in agriculture and living in rural areas (Lakew, et al., 2000). About 50% of the population is male and the economically active population (people 15–64 years old) is 52%. The population growth rate is estimated at 2.9% per annum. The average farmland holding is 1.7 ha and varies from 0.7 ha in North and South Wello to 2.6 ha in West Gojam (Lakew, et al.,
2000).
Cereals, pulses, oil crops, spices, vegetables and fibre crops are cultivated annually in descending order of area coverage. Teff is the leading crop (37% of total cultivated area) followed by sorghum (14%), and, wheat barley and maize (10% each) (CSA, 2003).
Growing teff accelerates soil erosion, as it demands several ploughings for fine seedbed preparation. Rotation of cereals with legumes and other crops is practised in the region to improve soil fertility.
The mainstay of the population in the region being rain fed subsistence agriculture, about 73 percent of smallholders practice mixed farming, another 19% solely practice crop farming, while the remaining 8% undertake livestock raising only. According to BoFED 's report
(2004), the agricultural sector contributed nearly 64 percent to the regional GDP between the period 1994 to 2001. The crop sector takes the lion 's share (61 %) followed by the livestock
(27 %) and forestry covering 12 % of the total 3.2 million hectares cultivated area. The area under irrigation and improved seeds was 1.77 and 2.72 percent respectively while the area applied with fertilizer was 33 percent (CSA, 2003).
This shows that the agricultural sector in the region is characterized by low productivity due to traditional practices. The traditional practices followed to increase productivity were mainly fallowing, use of dung and crop residue and expanding cultivable area. However, these options are becoming non- practical due to population increase and deficit in fuel wood.

2.3. ROLE OF THE LIVESTOCK SECTOR
Livestock are an integral component of agriculture in the Amhara Region and make multifaceted contributions to the growth and development of the agricultural sector. As
Sansoucy et al, (1995) aptly put it, livestock are closely linked to the social and cultural lives of millions of resource-poor farmers for whom animal ownership ensures varying degrees of sustainable farming and economic stability. Livestock help improve food and nutritional security by providing nutrient-rich food products, generate income and employment and act as a cushion against crop failure, provide drought power and manure inputs to the crop subsector, and contribute to foreign exchange through exports.
This section, therefore, reviews and synthesizes secondary information that pertains on the contribution of livestock to the different facets of the Regional economy. In so doing, however, emphasis is put on cattle, as they are the main sources of dairy products in the
Region.

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2.3.1. NATIONAL AND REGIONAL LIVESTOCK POPULATIONS
Table 3 shows the National and Amhara Region population sizes of the Livestock species, both in numbers and in "tropical livestock units" (TLU). Calculated across 9 regions of the
Country, the Amhara Region has 25.3% of the cattle, 32% of the small ruminants, and 29% of the equine population (CSA, 2003). The Region thus has the second largest regional totals of these animals in Ethiopia. This is related to the Region 's large area (161,828 km2), high ecological diversity, large human population, and historical and cultural factors.
Hence, according to the CSA (2003) census, there were 10.5 million cattle, 5.3 million sheep,
3.8 million goats, 1.8 million horses, mules and donkeys, 19 thousand camels, close to 1 million beehives and 13.5 million poultry in the Region as a whole. There is a large genetic diversity as reflected by the different breeds of cattle, sheep, goats and the several breeds of other animals. Moreover, the Region has some of the country 's best dairy breeds, draft cattle, carpet-wool sheep, and the best skin goats.
Table 3: Population sizes of livestock species in Amhara Region (2003).
Species

(1000 Head)
Ethiopia

Cattle
Sheep
Goats
Horses
Asses
Mules
Camels
Chickens
Bee Hives

41,527,142
14,655,566
13,661,562
1,504,208
3,962,969
354,120
447,842
42,915,628
4,601,806

(1000 TLU)
Ethiopia

Amhara
10,512,777
5,320,330
3,815,859
306,443
1,465,021
105,514
28,475
13,434,878
917,460

29,068,999
1,465,557
1,366,156
1,203,366
2,377,781
247,884
447,842

Amhara
7,358,944
532,033
381,586
245,154
879,013
73,860
28,475

Proportion of
Amhara
(%) from National
25.3%
36.3%
27.9%
20.4%
37.0%
29.8%
6.4%
31.3%
19.9%

Ruminant species, excluding camels constitute 87% of the total TLU. They are by far the most important livestock species in the Region. Distribution and composition of animals, on the other hand, differs sharply with elevation, whereby the highlands have the higher proportion of the cattle and sheep, while the lowlands have more of the goat and camel population. Likewise, the subsistence character of the livestock contribution to rural economies of the
Region is illustrated by ratios of animals to people. Considering that the Regional human population is currently close to 18 million, and 87% in rural areas (BoFED, 2003), the rural areas support some 106 people/km2 on average and 0.55 TLUs per person. Similarly, the cattle per caput and the small ruminants per caput ratios are, respectively, 0.42 and 0.05 in
Amhara, and 0.43 and 0.04 in Ethiopia, (CSA, 2003).
The Region is further subdivided into ten Administrative Zones, and Table 4 indicates the
Zonal distribution of the livestock species. North Gondar Zone has by far the largest population, with 17.4% of the TLU, followed by the West and East Gojjam Zones with 12.1 and 11.8 %, respectively and by S/Gondar Zone with 11.1 %.

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Table 4 : Zonal Distribution of the livestock population (2003).
Zone

Cattle

Sheep

Head Number

Goats

Equines

Total
TLU

Share from TLU %

Rural
Popul.

Per
Caput
Ratio

N/ Gondar
S/ Gonder
N/ Wollo
S/ Wollo
N/ Shewa
E/ Gojam
W/ Gojam
Wag Ham.
Awi
Oromia
B/dar Spec.

1,936,543
1,182,912
910,763
1,469,751
1,021,040
1,263,726
1,399,492
355,055
638,869
326,825
7,801

524,087
486,212
610,341
888,095
591,329
372,879
86,328
248,566
20,969
2,277

682,264
438,975
429,284
720,544
517,431
215,761
181,795
417,737
91,959
119,590
518

274,618
209, 8 7 0
190, 794
332,025
285,980
239,575
184,411
47,124
105,802
34,399
537

1,650,197
1,053,507
865,932
1,462,769
1,035,855
1,120,471
1,152,761
327,635
557,737
265,845
6,093

17.4%
11.1%
9.1%
15.4%
10.9%
11.8%
12.1%
3.4%
5.9%
2.8%
0.1%

2,775,155
2,050,539
1,492,694
2,592,397
1,927,799
2,140,904
2,369,070
331,102
929,782
510,959
145,982

0.59
0.51
0.58
0.56
0.54
0.52
0.49
0.99
0.60
0.52
0.04

Amhara
Region

10,512,777

5,320,330

3,815,859

1,905,453

9,499,065

100.0%

17,266,383

0.55

1,489,247

Source: CSA, 2003.
Moreover, livestock are linked closely with crop production in the densely populated rural areas of the Region. A household sample survey carried out by the CSA (CSA, 1996) showed that average land holdings ranged from 0 to 10 ha, and HHs having between 1 and 2 hectares of land (Table 5) posses a larger share of livestock. All in all, however, the average size of livestock holding is small. The average number of animals per HH is around 3 cattle and 5 shoats. Table 5 : Distribution of Land and livestock Holdings in Amhara, 2003.
Land
Less
Proportion of HHs owning (%)
-Cattle
-Sheep
-Goat
-Poultry
Size of livestock holdings (No/HH)
-Cattle
-Shoat
-Sheep
-Goat

Marginal
(below
0.5 ha)

Small
(0.5-1.0
ha)

Medium
(1.0-2.0
ha)

Large
(> 2.0 ha)

All

5.8%
5.1%
6.2%
5.4%

24.0%
25.5%
21.1%
24.9%

22.6%
23.9%
2 0 .9 %
23.4%

29.6%
30.3%
31.9%
28.5%

18.0%
15.2%
19.9%
17.9%

100%
100%
100%
100%

3 .1 3
5.23
3.14
5.65

2 .7 6
4.60
3.40
4.73

3 .1 9
5.08
4.04
5.37

4 .0 5
5.27
4.61
6.25

6 .1 8
5.32
5.31
7.69

3 .8 8
5.06
4.28
5.89

Source: CSA (1996)

2.3.2. LIVESTOCK PRODUCTION SYSTEMS
On the basis of factors of production, Seré and Steinfeld (1996), classify livestock production systems into modern and traditional. Modern systems have large capital requirements and employ substantial amounts of hired labour, while traditional systems mainly rely on family labour and the extensive use of land. Accordingly, traditional livestock system is the predominant in Ethiopia as well as in the Region.

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Owing to such traditional systems, livestock production in the Region involves few cash expenses; animals are often fed on grasses from common grazing lands and homegrown crop residues. Crop residues account for more than 35%, and grazing for another 47% of the total dry matter intake of livestock in the Region (CSA, 2003). The same sources show that use of concentrate feed and agro-industrial byproducts such as oilcakes and cereal shorts is very low, accounting for less than 1% of the annual feed budget.
The most important contribution of livestock to agricultural production in the Ethiopian highlands is the use of oxen as draught animals. Paired oxen are used for all but a small percentage of highland cultivation, and are also used for threshing. Milk, meat and hides from cattle are relatively less important byproducts, but manure is collected dried and used as the major household fuel. If he can, each farmer maintains one or two cows to produce the two oxen needed for draught. Entire males to be used as draught oxen are castrated at 4 to 5 years of age, when they are physically mature. (Gryssels and Anderson, 1983)
The importance of draught power in the Ethiopian highlands is also illustrated by Otte and
Chilonda (2002), who citing different researches done in the area, state that oxen are used for ploughing and threshing for approximately 60 days in a year. When on-farm and off-farm transport is included, the figure rises to 180 days per year, the highest for all Africa.
Cows are milked, with the milk being consumed mostly by young children. Domestic butter making is common. Livestock products are often sold to finance the purchase of basic household commodities such as coffee, tea, salt, cooking oil and sugar. Sheep and goats are kept mainly as a secondary investment and a source of cash in times of need. Only occasionally they are slaughtered for home consumption. Small ruminants are not milked.
Riding horses are common, but seldom used as pack animals. Donkeys are widely used as transport animals. Poultry are widely kept, and are mainly used for egg production and home consumption. Livestock confer a certain degree of security in times of crop failure as they are a "near-cash" capital stock, important in areas where no institutional credit facilities exist.
(Gryssels and Anderson, 1983)
Sheep are economically important in the highlands. Farmers keep sheep for various reasons.
They are a significant source of investment, security end cash. They are easily sold off at times of economic difficulties. In normal years too, sheep are sold and purchased according to the needs of farmers. Two or three sheep are slaughtered per household per year on average in the Vertisol areas. They also provide manure. During the dry season manure collected from the pens is mixed with cattle manure and prepared into dung cakes to be used as household fuel. During the rainy season however, the sheep manure collected is often wet and mixed with mud, which makes it difficult to use as fuel. It is then used to fertilize cropland. 2.3.3. LIVESTOCK PRODUCTIVITY
The production parameters of ruminants in traditional production systems of the country as well as the Region reported in published and gray literature were reviewed. The literature survey confirmed that the production parameters of ruminants in the traditional systems are generally poor, without marked differences between Administrative Zones, AEZs or Woredas
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(CSA, 2003). The main sources of variability in output lie in livestock density rather than individual animal productivity. Average calf mortality risk is 22 percent, calving rates are low, at around 55 percent, and milk offtake per lactation is around 250 kg. The fertility rates and prolificacy of sheep (90 percent and 1.10) and goats (116 percent and 1.30) are relatively higher, but are countered by high mortality risks in all age groups, lamb and kid mortality risks being around 27 percent and 28 percent respectively (MOA, 1996).
Similarly, the mean offtake rate for cattle, sheep, and goats in traditional systems, is estimated at 7.8, 36.9, and 44 percent, respectively (FAO, 2003). The same sources further put the carcass weight for cattle, sheep, and goats at 109, 10, and 8.5 kg/animal, respectively.
Livestock in the non-traditional systems are achieving considerably higher productivity levels than in the traditional systems, a fact that demonstrates the benefits of improved nutrition, management and health.

2.3.4. CONTRIBUTION OF LIVESTOCK TO REGIONAL GDP
A first, rough approach to assess the economic significance of the livestock sector is to estimate its contribution to the Gross Domestic Product (GDP). As in most developing countries, the share of agriculture from the national GDP is important in Ethiopia, whose average for most years is 50 -55% (Befekadu and Berhanu 2000). Livestock wealth provides food through milk, meat and eggs and industrial raw materials such as fibre, skin, hides and farmyard manure. Accordingly, the value of output from livestock in Ethiopia was estimated at around Birr 12 billion in 2000 and accounted for about 45% of the value of all agricultural output excluding the contribution of animal draft power (FAO, 2003). The same sources note that, at constant prices (1995 US$) the value of output from livestock grew nearly by 22%, in the two decades between 1980 and 2000, the increase (1.1% pa) compares well with the growth of the value of agricultural output.
On the other hand, a study into livestock production in SSA, carried out by Winrock (1992), shows that, if non-monetized contributions (draught power and manure) were to be included, reflecting the importance of integrated crop-livestock farming systems, the contribution of livestock to agricultural GDP would increase by 50 percent. If this was considered, then the livestock component of agricultural GDP would grow to about 60 percent.
Similar Macroeconomic studies carried at Regional level (BOFED, 2003) also estimate the
Regional GDP or RGDP to be around close to Birr 13.3 billion, of which agriculture accounted for Birr 7.9 billion, or 60 % of the RGDP. Likewise, in 2002, the livestock subsector contributed an estimated Birr 2.2 billion, accounting for about 28 % of Regional agricultural GDP or 17 % of the total RGDP.
A consideration of how much the livestock subsector contributes to the national income
(GDP) attributable to agriculture is just one of the methods of assessing the importance of the livestock subsector to the national economy. However, it would be more enlightening to assess the importance of the livestock subsector in terms of its contribution to food production, especially when dealing with a situation such as exists in Ethiopia whereby production of food toward higher levels of self-sufficiency is of great concern.
According to a recent livestock brief prepared by the FAO (2003), Milk constitutes a significant proportion of the value of all livestock food products in Ethiopia (about 56%),
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while livestock food products also constitute an important proportion of the value of total food products in the Country. Similarly, the gross value of meat represents 47% of the total value of all edible livestock products of Amhara Region, while draught power is an intermediate product for which no valuation has been made (CSA, 2003; FAO, 2003).

2.3.5. CONTRIBUTION OF LIVESTOCK TO HH INCOME
The functions and contribution of livestock to HH income in the Ethiopian highlands has been a case of interest to many researchers. In view of that, Otte and Chilonda (2002), cite one such research, which was a detailed study for the Amhara Region done by Rodriguez and Anderson (1988), who worked in the Debre Berhan area. They summarized the main points of the research results as follows:
• livestock and livestock products account for some 80 percent of mean farm cash income (including the value of subsistence consumption);
• livestock provide draught power for cultivation, threshing and transport (900 hours of oxen time per farm per year);
• since the rural capital market is limited, livestock are farmers’ largest capital asset;
• some manure is used as fertilizer;
• about 2 000 kg (dry weight) of cattle manure are burned by a typical household as domestic fuel each year; and
• livestock products are an integral part of the diet of farm households: about 5 percent of the food energy intake and 14 percent of the protein intake are obtained from milk, mutton or beef, chicken meat and egg consumption.
Results of Similar studies on the contribution of livestock to household income in the
Ethiopian highlands, compiled by Otte and Chilonda (2002), is presented in Table 6. As can be seen from the Table, it is estimated that livestock contribute between 80 and 96 percent of income from farm sources only, and that even when off-farm income is included, this figure remains at between 61 and 70 percent.
Table 6: Contribution of livestock to household income in Ethiopian highlands.
Contribution to household income (%)
Livestock

Reference

1979-84

Ethiopia

Gryseels (1988)

Ethiopia

Rodriguez et al. (1988)

1979-81

Ethiopia

Gryseels (1988)

Other

82-96

4-18

80
61-70

Country

1981

Crops

Year

7-16

15 -31

1

3

Total cash income from crop and livestock production
2 Cash income from farm sources only
3 Income from crops and crop by-products, livestock production and off-farm income (off-farm work, gifts, other)
1

Source: Otte and Chilonda (2002).

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3.

OVERVIEW OF DAIRY PRODUCTION

Small-scale dairy production is an important avenue for income generation for mainly subsistence farmers in the Ethiopian highlands. Dairy products are a traditional urban consumption item, ensuring continued and growing demand. The temperate highland climate allows the use of crossbred dairy cows, raising farmer productivity (Halloway, et al., 2000).
Moreover, growth in dairy demand in sub-Saharan Africa (SSA) is projected to increase over the next 20 years due to expected population and income growth. Milk production and dairy product consumption are expected to grow in the region of 3.8% to 4% annually between
1993 and 2020 (Delgado et al. 1999). It has also been shown that (FAO/ILRI, 2001), increased domestic dairy production has the potential in much of SSA to generate additional income and employment and thereby improve the welfare of rural populations.
In line with the above, the Regional government, in its recent comprehensive plan for agriculture (BOA, 2004), has given particular attention to the promotion of dairy development. The comprehensive development plan for crop and livestock is aimed at transforming the subsistence mode of agricultural production system into market oriented production system and its implementation has begun in 2004. The plan views Improved livestock and products marketing as an important Regional development strategy to increase both rural incomes and foreign exchange. Dairy production and marketing has, therefore, been included as one of the intervention areas in the current commodity-based specialization and commercialization plan.
This Chapter therefore intends to describe the existing dairy production and marketing system in the Region, including the general trends observed so far. In so doing, attempt will be made to marshal and analyze salient evidence within the system in the coming sections.
The analysis is based on data drawn from the field study carried within this project in conjunction with secondary data obtained mainly from results of other similar studies and related literature. Finally, conclusions will be drawn where possible, and priorities for further action highlighted.
This Section provides an overview of dairying in Amhara Region, in terms of the herd composition, main products; trends in production volumes, principal constraints on development and experience with some earlier initiatives. It analyzes the principal biological, technical, economic and institutional issues and summarizes the opportunities and constraints in different areas. The main purpose of the Section, however, will still be to serve as a background for the coming chapters on dairy marketing.

3.1. DAIRY PRODUCTION
3.1.1. REGIONAL DAIRY HERD AND PRODUCTION SYSTEMS
Milk Sheds
The majority of total milk production in the Region takes place in the cool Dega and
Woinadega highland areas, where 76% of the total land area and the overwhelming majority of exotic and crossbred dairy cattle are found (MOA, 2002). All these areas fall within Dega and Woinadega agro-ecology zones (AEZ) and have fertile volcanic soils in most areas. Of
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these the main localities with significant dairy production include N/Gondar, East, and West
Gojjam, South Wollo, and N/Shoa Administrative Zones. Extensive cattle production from the indeginous Zebu contributes a large proportion of their milk offtake to local rural markets including direct sales to neighbors.
Production systems
The traditional small-scale dairy sector is dominant both in terms of the number of cattle and persons involved in milk production. Milk production is based on the local highland Zebu kept by traditional mixed farmers.
The distribution of cattle populations, the major resource in the production of dairy products, differs between Administrative and Ecological Zones within the Region. Even though there are small ruminants and camels, the cow continues to be the only source of milk and milk products in the region. Indigenous zebu breeds of cattle virtually constitute the entire herd of cattle with exotic crosses or hybrids accounting for less than 1% of the existing herd base. In
2003 the Region had about 10.5 million cattle, of which around 3.5 million were cows (CSA,
2003). Out of this Regional herd of about 3.5 million cows, only about 33,000 are improved crossbred dairy animals.
According to Redda (2001), based on location, three major milk production systems can be broadly recognized in Ethiopia: rural, peri-urban and urban milk production systems. Of these the first two are the predominant ones in the Region and are briefly described below:
Rural smallholder milk production :- is the predominant system and can be regarded as mixed farming in which crops and cattle are interdependent. The majority of the system 's cattle are composed of the local Zebu; very few of the nation 's crossbred cattle account for much of the milk produced in the mixed farming system.
Urban and peri-urban milk production :- both these systems have developed in and around major towns of the Region, and take the advantage of the existing high demand for milk in such towns. The system comprises small and medium sized dairy farms located in the highlands with native and grade dairy cattle.
Hence, this system controls most of the Region’s improved or crossbred dairy stock. The major distinction between the above systems, however, revolves around the proportion of milk utilized for different purposes. For instance, according to description by Redda
(2001), the rural dairy system being part of the subsistence farming system, is mainly nonmarket oriented and hence most of the milk produced in this system is retained for home consumption (Table 7). The level of milk surplus is determined by the demand for milk by the household and its neighbors, the potential to produce milk in terms of the herd size and production season, and access to a nearby market. The surplus is mainly processed using traditional technologies and the processed milk products such as butter, ghee, ayib and sour milk are usually marketed through the informal market after the households satisfy their needs (Ahmed et al, 2003).

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Table 7: Structure of Demand for Milk Products in Ethiopia, 2000
Milk Products
Raw milk consumed by calves
Raw milk consumed by humans
− farm households
− marketed
Butter
Cheese
Pasteurized milk
Total milk equivalent
− percent
− millions of litres

Rural
32%

Households
Peri-urban
Urban
13%
9%

Total
32%

15%
2%
41%
9%
1%

8%
59%
20% (+cheese)

10%
61%
8% (+cheese)

0%

12%

15%
4%
40%
9%
1%

100%
1115

100%
15

100%
20

100%
1135

Source: Ahmed et al, (2003)
A similar classification by Gebre Wold, et al., (2000) categorizes the dairy sector in Ethiopia based on market orientation, scale, and production intensity. In doing so, the study identifies three major dairy production systems: traditional smallholders, privatized state farms, and urban and peri urban systems. The traditional smallholder system, roughly corresponding to the rural milk production system described above, produces 97 percent of the total national milk production and 75 percent of the commercial milk production. This sector is largely dependent on indigenous breeds of low productivity native zebu cattle, which produce about
400-680 kg of milk /cow per lactation period. The state dairy farms, now being privatized or in the process of privatization, use grade animals (those with more than 87.5% exotic blood) and are concentrated within 100 km distance around Addis Ababa. The urban and peri-urban milk production system, the third production system, includes small and large private farms in urban and peri-urban areas concentrated in the central highland plateaus (Ahmed et al,
2003). This sector is commercial and mainly based on the use of grade and crossbred animals that have the potential to produce 1120-2500 liters over a 279-day lactation. This production system is now expanding in the highlands among mixed crop-livestock farmers, such as those found in Selale and D/Birhan, and serves as the major milk supplier to the urban market
(Gebre wold et al., 2000; Holloway et al., 2000).
Furthermore, a general synthesis of key aspects of productivity and management for mature cattle as cited by Getachew (1995) and CSA (2003), indicates that: (1) the ratio of females to males in the regional cattle herd is on the order of 71:29; (2) COWS have their first calf at 3 to 4 years of age and may produce 6 to 6.5 calves over a reproductive life of 8 to 8.5 years;
(3) the average calving interval is 14 to 15 months; (4) milk yield/cow ranges from 680 to
1000 kg for lactations which vary from 7 to 13 months in duration, respectively; (5) the median milk yield/cow is about 850 kg over 320 days (or 2.6 kg/head/day); (6) annual calving rates average around 70%; (7) mature weights for Boran bulls and cows are on the order of 400 and 225 kg, respectively; and (8) mortality rates for animals older than 2 years of age are less than 5% per annum in average rainfall to dry years.
The indigenous cattle breeds are characterized by low productivity. Lactating cows rarely achieve a milk yield in excess of 250 litres per lactation for human consumption. This yield performance is relatively poor when compared with typical yields of about 3000 litres of milk
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per lactation which are expected from imported exotic dairy cows, such as Friesian or Jersey breeds (ILCA Bulletin No. 4; June 1979).

3.1.2. TYPES OF DAIRY PRODUCTS PRODUCED
Descriptions of the different types of dairy products, produced in the Region are presented as follows. Fresh milk
Apart from boiling of milk before consumption there are no known traditional technologies for preservation of liquid milk through heat processing in the Regon. The technical possibilities, however, are there for applying conventional milk technology processing in rural milk processing. It is obvious therefore, that for technical and economic reasons, technologies involved in liquid milk processing (refrigeration, steam generation, pasteurization, sterilization/aseptic packing) are not immediately accessible to the small scale milk processor. It follows then that the small scale milk producer must undertake the processing of preserved dairy products with long shelf life at ambient temperatures such that marketing is done only once or twice a week.
Fermented / Sour milk (Ergo)
Similar to other parts of the country, production of fermented milk (locally called Ergo), is widely spread in Amhara Region. In most rural areas, milk is allowed to ferment naturally without addition of starter culture as the first step in processing. Milk is accumulated over a number of days in a clay pot vessel of 2 - 4 litres volumetric capacity or a bottle gourd
(O 'Mahony and Bekele, 1985) and allowed to develop acidity up to 1% lactic acid. In cold weather, the container is kept near the fire to keep it warm. Soured milk is consumed as a side dish. If not consumed, sour milk is churned into butter. The shelf life of naturally fermented or sour milk is only 72 hours at ambient temperature (Kurwijila, 1990). The disadvantage of this type of milk is that since it is not boiled there is always a danger of people getting TB or Brucellosis.
Butter
Traditionally, butter is made from the above-described sour milk using a gourd or earthnware jar (O 'Mahony and Bekele, 1985; Coppock, L. 1994). Sour milk is normally churned by shaking the vessel until the butter separates out. In some areas, however, the vessel with sour milk is hung on to the central pole of the house and women or children swing the vessel to and from until the butter separates. Churning is normally done in the morning or late evening when the temperatures are normally low.
Ayib (Soft Cheese)
Ghee
Ghee, which is also known as butter oil or dry butter fat, consists of fat which is almost completely free from water, protein, milk sugar and mineral substances (Coppock, L. 1994).
Most smallholder dairy farmers make ghee from butter. Butter is melted in a saucepan
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usually made of clay or stainless cooking pan, "Dist", heated over a slow fire until all the moisture .has evaporated. It is then left to cool and is packed in normal bottles. Most rural families also keep it in the gourds just at room temperature.
Figure 2: SMALLHOLDER MILK UTILIZATION
Milk from the cow

Calves

Family

Sales

Sour milk

Butter

Family

Family

Buttermilk

+

Sales

Cheese (Ayib)

Family

Sales

+

Family

Whey

Animals

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Figure 2 (taken from O’Conner, 1992), represents the various options and outlets for milk and milk products available to rural smallholder milk producers. There is constant competition between calves and members of the family for liquid milk and to a lesser extent there is competition between family requirements for liquid milk and liquid milk to be processed into butter and cheese for sale.

3.1.3. HISTORICAL PROFILE OF DAIRY PRODUCTION
Over the past two decades, Ethiopia experienced relatively low growth rates in the production of dairy products compared with the average for SSA. For instance, taking liquid milk as the major dairy product, it is found that the rate of growth in milk production of Ethiopia for the period 1993 to 2000 was about 2.1% per annum (FAO, 2003). During the same period, the annual growth rates in milk production in sub-Saharan Africa and developing countries were
2.9% and 1.6% respectively (ILRI, 2000)
Moreover, the production of such products as dried, evaporated and condensed milk is insignificant, generally reflecting production of insufficient amounts of liquid whole milk.
Available data also indicate a generally declining rate of growth in the production of milk products other than liquid whole milk in Ethiopia, a situation which reflects the increasing scarcity of liquid milk to satisfy the increased demand in most parts of the country during the past years. The production of liquid whole cow 's milk has made some significant but not adequate gains since the 1980s, the changes in absolute values over the period from 1980 to
2000 being 53% (FAO, 2003).
Ahmed et al., (2003), in their recent work give a detailed historical profile of the Dairy subsector in Ethiopia for the period 1960 to present. In so doing they identify three phases of dairy development policy:
•

The imperial regime, characterized by almost a free market economic system and the emergence of modern commercial dairying (1960-1974),

•

The socialist Derg regime that emphasized central economic system and state farms (1974-1991), and

•

The current phase under the structural adjustment program and market liberalization (1991to present).

They further cite the principal rationale for following the above political regimes in identifying phases of the dairy development is that during each of these three phases, the country followed a distinct political path and development policies that directly and indirectly influenced the dairy sector. Based on this, some of their conclusions are presented as follows.
The emergence of modern dairying in ethiopia (1960 -74). In the first half of the 20th century, dairying in Ethiopia was mostly traditional. Modern dairying started in the early
1950s when Ethiopia received the first batch of dairy cattle from United Nations Relief and
Rehabilitation Administration (UNRRA). With the introduction of these cattle in the country, commercial liquid milk production started on large farms in Addis Ababa and Asmera.
Government intervened through the introduction of high-yielding dairy cattle on the highlands in and around major urban areas. The Government also established modern milk
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processing and marketing facilities to complement these input oriented production effort.
Most interventions during this phase focused on urban-based production and marketing including the introduction of exotic dairy cattle, feeding with high ratio of dairy concentrated feed, modern dairy infrastructure and high management level.
Milk production in Ethiopia increased significantly during 1960s. Between 1961 and 1974, milk production from all species increased by 16.6 percent from 637,375 metric tons to
743,100 metric tons, an average annual growth rate of 1.63 percent. This growth was largely due to the economies of scale in production as well as marketing, subsidies in transport to the formal market, secured land tenure and an active free market for feed and other inputs. On a per capita basis, however, milk production declined during the 1961–1974 period at an average rate of 0.87 percent per annum. During this period, butter and cheese processed using the traditional methods grew only slowly by about 0.1 percent. Processed milk production has stagnated in the early 1960s but expanded significantly in the second half of 1960s and early 1970s.
Dairying during derge regime (1974-91). Following the 1974 revolution, economic policy in
Ethiopia shifted towards socialism. The DDA continued to operate until 1979 when it was merged with numerous other nationalized dairy farms to establish the Dairy Development
Enterprise (DDE). The DDE was established to operate the nationalized state farms, establish a milk collection network, process and market dairy products, provide advisory and limited technical service to farmers, and sell veterinary medicaments and feed to farmers. The enterprise had a capacity to process 60,000 liters of milk at its inception.
During this phase, the government shifted attention from urban producers to rural producers.
However, substantial resources remained devoted to establishing large-scale state farms to provide liquid milk for urban consumers. This phase was characterized by intensive effort by the government and donors towards developing the dairy sector through producers’ cooperatives. As a result of these promotional efforts, total milk production increased significantly during this phase with the exception of mid 1980s when the country experienced a debilitating threeyear drought. Despite the significant increase in aggregate milk production, per capita milk production was declining. This phase was characterized by low producer prices which discouraged production, emphasis on cooperatives in rural areas, and neglect of most important producers in urban areas. To bridge the gap between supply and demand, dairy imports increased significantly during second phase beginning from 1978. This was partly due to increased food aid, World Food Programme (WFP) milk powder imports, and a level of dairy production development that lagged far behind the demand (Reda, 20001). Imports reached a peak of 279,651 and 314,726 metric tons in 1985 and 1986 during the drought period. Reda (2001) also indicated that import dependency rose steadily during this phase.
For instance, dairy imports as a percent of total consumption increased from 4.1 percent to
12.8 percent between 1977 and 1989. Commercial imports grew rapidly at 24.18 percent per year. Further, it is estimated that imported milk powder accounted for 23 percent of Addis
Ababa market.
Dairying during the transition to a market-oriented economy (1991-present). With the downfall of the Derg regime in 1991, Ethiopia has embarked on policy reforms that aim to bring about a market-oriented economic system. Several macroeconomic policy changes
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were implemented. In addition to these major policy reforms, the new federal government launched a new national development strategy namely, Agricultural Development-Led
Industrialization (ADLI). The national strategy seeks to bring about an improvement in the livestock sector by enhancing the quality and quantity of feed, providing improved animal feed and improved extension services, increasing livestock health services and improving productivity of local cows by artificial insemination while preserving the indigenous breeds
(Benin et al., 2002). Currently, privately-held dairy agroindustries are competing with DDE in supplying milk to urban consumers. DDE remains, however, an important actor in the formal dairy market. In 1993, the producer price paid by DDE increased from Birr 0.65 per litter to Birr 1.00 per litter and later to Birr 1.25. Meanwhile, government privatized inefficient state farms, reducing the number of state farms from fourteen to only two.
Milk production grew faster in the post reform period, at an annual growth rate of 3.0 percent. Although per capita milk production stagnated during this period and grew at a positive but insignificant rate after the policy reform, this represents a reversal or termination of the negative trend in the growth of per capita production during the previous two phases.
However, production of butter and cheese stagnated in the post reform period.
Using rough estimates from the FAO data base and available information from DDE and the contribution of imports of milk to total consumption of milk declined from 24% in 1985 to less than 1 % in the year 2000. At the same time, the share of government-owned enterprises in total milk production decreased markedly. In contrast, the share of smallholder production in total consumption increased by 30 % from 71% to 96.6%. Of the total milk production from smallholders, only 1.2 percent comes from improved cattle. This is not surprising because the sector only contains 32,204 head or 25% of the total improved cattle. Similarly, the contribution of large private farms increased from 21,750 tons in 1985 to 33,182 tons in
2000. The increase in private sector production is mainly due to government policies such as privatization of state enterprises, removal of input market controls and increased use of improved livestock that were in the hands of producer cooperatives and state farms.
Table 8: Trends in total and per capita milk production (1961-2000)
Period
1961-1974
1975-1992
1993-2000
1961-2000
a)

Milk production
Annual average
Growth rate a)
698,555
1.63
869,181
1.66
1,100,831
3.00
862,997
1.55

Per capita production
Average
Growth rate
24.07
-0.87
20.62
-0.91
19.09
0.36
21.52
-0.84

Growth rates are estimated statistically with an exponential function.

Source: Ahmed, et al., (2003).
Summary. To sum up, total milk production in Ethiopia increased during the 1961-2000 period at an average annual rate of 1.55 percent, though per capita production declined as a result of the high population growth rate (Table 8). However, during the last decade production is growing at even higher rate (3.0 percent). The increased coverage of extension services (such as better management skills) and increased use of improved inputs (improved breeds and feed) and policy changes promoting dairy production have contributed to faster growth of output. Dairy product imports during this phase were relatively smaller than in the two earlier phases. Most of the growth during the third phase is concentrated in the peri___________________________________________________________________________________________________________________________
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urban and rural production systems. The emergence of private processing industries and marketing units is likely to stimulate producers in the peri urban areas and rural production systems as it offered producers a new market for their milk production.

3.1.4. RELATIVE IMPORTANCE OF THE DAIRY INDUSTRY
Dairying is nearly always a part of mixed farming systems in the Region. It has a direct impact on income generation, poverty alleviation and availability of animal protein.
Quantification of the contribution of livestock, including poultry, shows that dairying is the predominant source of income generation. In Africa as a whole, smallholder dairying generates more regular income than any other rural enterprise. (ILRI, 1997).
Results from and earlier research (ILRI, 1997) show that cash income from dairying increases dramatically in households with crossbred cows (71 birr per month, compared with only 11 birr per month in households with only local cows) and that both men and women benefit almost equally—men’s income from dairying was 39 birr per month, compared with
32 birr per month for women.
The output of the livestock sub-sector (excluding draught power and manure) accounts for about 38% of the agricultural GDP in Ethiopia (valued at 1.4 billion USD in 2000). Milk makes up 20%-25% of this, thus contributing around 350 million USD (FAO, 2004).
In Ethiopia as in other countries, dairying is recognized as an instrument for social and economic development. According to data from FAO (FAOSTAT,2004), the volume of imported milk products has increased from 8,383 to 12,742 metric tones during three years of
2000–2002 costing close to Birr 24 million. It is, therefore, urgent that local milk production is developed rapidly to reduce the cost of imports.
Moreover, as explained in a recent FAO/ILRI (2001) publication, In addition to the above income benefits, dairy markets offer good opportunities for non-farm rural and urban employment. The perishable nature of milk, as well as the wide range of products that it can be transformed into, presents opportunities for value addition through the use of labour. Its relatively high unit value makes the use of labour for handling and processing economically viable. This may particularly be true in informal milk markets, which rely less on modern milk processing equipment, and more on traditional labour-intensive technologies.
Accordingly, they found that the overall number of both direct and indirect jobs created totaled to 2.0 man days, for every 100 litres traded.
The demand for milk and dairy products from rapidly urbanizing populations in the tropics and the changing balances in world trade have created great opportunities for smallholders to produce more milk more profitably, if they are given the right technical, policy and institutional support.

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3.1.5. TRENDS IN REGIONAL PRODUCTION
3.1.5.1. REPRODUCTIVE PERFORMANCE OF COWS

As current literature (CSA, 2003) quotes and most respondents of this study confirm, the average age at first calving for the native cows in the Region is usually put at 3 to 4 years.
These figures also agree with the mean of 3.6 years for tropical cows found in a number of traditional systems reviewed by Mukasa-Mugerwa (1989). Farmers, however, strongly emphasize that Age at first calving is highly influenced by the nutritional environment.
Moreover, conservative calculations based on results of the recent CSA Survey for Amhara
Region (CSA, 2003), show that, 55% of all mature cows (age >3 years), calve in an average year. This calving percentage is nonetheless slightly lower than the National average of 60% reported in the same survey. On the other hand, considering the existing widespread norm of uncontrolled breeding and the variable nutritional environment, such a rate is consistent with that of Mukasa Mugerwa 's (1989) continental average for traditional production systems.
Similarly, farm households reported that the average calving interval may vary from 14 months for cows on a good plane of nutrition to as long as 20 months for poorer cows.
Therefore, Assuming a succession of average rainfall years, it can safely be concluded from the above discussions that, having reached 3 to 4 years of age a cow will likely produce 5 to 6 calves in a reproductive lifetime of 8 to 10 years. Anecdotal observations of respondent farmers further indicated that Culling commonly starts around 10 to 12 years of age, although some cows may continue beyond the 15-year mark.
3.1.5.2. REGIONAL MILK PRODUCTION

Similar to national level, data on milk production in Amhara are scarce and often unreliable.
Very little is in fact known about the quantity of milk produced, left for calf feeding and human consumption, processed into different types of dairy products, consumed at home or sold through formal and/or informal marketing channels.
There is no dispute, however, that the most important production feature of adult cows to the smallholder farmer is milk production. What 's more, Cow productivity in such traditional production systems is primarily a function of herd calving rate, the calving interval and individual milk production (O 'Conner, 1992). In line with this, the aforementioned CSA
Survey, has collected, among others, data on the number of milking cows in the reference period, lactation length, and average daily milk yield per cow at regional level.
Accordingly, a general synthesis of key aspects of the compiled results, indicate that: (1) the ratio of females to males in the Regional cattle herd is on the order of 50:50; (2) annual calving rates average around 55%; (3) annual milk yield per cow ranges from 150 to 380 liters for lactations which vary from 5 to 11 months in duration; and (4) the Regional average milk yield per cow is about 256 liters over 240 days (or 1.22 lt/head/day).
Based on the above productivity parameters, total annual Regional milk production, that is milk sales plus domestic consumption but excluding suckled calf consumption, is estimated to be close to 493 million liters. Compared with the total annual National milk production of

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2.59 billion liters, the share of the Regional production amounts close to 20%. Details of production on Zonal basis are presented in Table 9 below
Table 9: Levels of Milk Production in Amhara Region (2003) by Zone
Admin.
Zone

Total Cattle

N/Gonder
S/Gonder
N/Wollo
S/Wollo
N/Shewa
E/Gojam
W/Gojam
Wag
Awi
Oromia
B/dar Special
Amhara Region

1,936,543
1,182,912
910,763
1,469,751
1,021,040
1,263,726
1,399,492
355,055
638,869
326,825
7,801
10,512,777

Total Cows

626,633
352,369
285,071
449,423
267,781
368,730
422,924
132,235
220,898
108,617
3,000
3,237,972

Milking
Cows
346,275
213,332
197,473
321,372
160,348
152,466
245,383
80,260
126,195
82,183
2,575
1,927,861

Daily
Production
per Cow (Lt)
1.19
1.04
1.41
1.50
1.22
1.19
0.92
1.10
1.22
1.23
2.54
1.22

Lactation
Length
(Months)
9
8
7
7
8
8
9
7
9
8
8
8

Total Milk
Production
(Tons)
87,313
47,300
56,013
92,760
38,283
41,598
51,387
20,341
33,575
23,010
1,384
492,964

Source: CSA (2003).
Various sources including FAO (2003), and ILRI (2000), show that between 1993 and 2000, total annual milk production of the whole country has been growing by a mere 2.2% per annum. Gains in production, however, have been largely offset by the annual population growth, averaging 3.1% over the same period. Assuming the same holds true for the Region, trends in milk supply measured on per capita basis must be decreasing.
3.1.5.3. CONSUMPTION TREND OF DAIRY PRODUCTS

Regional Milk Supply and Consumption Trend
Human population growth, increasing urbanization and rising incomes are predicted to double the demand for, and production of, livestock and livestock products in the developing countries over the next 20 years (Delgado et al., 1999). Livestock production is growing faster than any other agricultural sub-sector and it is predicted that by 2020, livestock will produce more than half of the total global agricultural output in value terms. This process has been referred to as the ‘livestock revolution’ (Delgado et al., 1999).
Milk and milk products also form part of the diet for many Ethiopians. They consume dairy products either as fresh milk or in fermented or soured form. According to data cited by
Ahmed et al., (2001), close to 68% of the total milk produced in the country is used for human consumption in the form of fresh milk, butter, cheese and yogurt while the rest is given to calves and wasted in the process. Butter produced from whole milk is estimated to have 65% fat and is the most widely consumed milk product in Ethiopia
In view of the fact that milk availability in the Region is predominantly based on supplies from the traditional sector, regional distribution of milk supplies is closely linked with cattle population numbers of respective Zones and Woredas. As a result, milk production and consumption scenarios for the past 8 years were worked out for the Region based on assumptions drawn from results of the recent CSA (2003) household census.

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Based on data from Table 10 below, we can surmise that the per capita supply of milk in the
Region for the past 8 years ranged from about 24 to 30 litres per person per year. Hence, raw milk production has not yet satisfied domestic market demand, and such consumption levels at about 25 litres/person/year is very low compared with the World Health Organization’s recommendation of 200 litres/year. This per capita consumption of milk, however, varies between Zones and Woredas. Similarly, the above per caput milk supply figures, although low, cannot be interpreted pan territorial when being assessed in terms of the nutritional role and impact of milk in the household diet. This is because, short of accurate household food budget surveys, it is difficult to tell "by who" and "in what quantities" is the seemingly little milk that is available consumed in the Region.
Table 10: Annual Trend in Production and consumption of milk for Amhara Region
Year

Milking Cows

1987
1988
1989
1990
1991
1992
1993
1994

Annual Milk
Production (Tons)

1,648,566
1,522,565
1,625,856
1,538,060
1,609,562
1,523,979
1,677,346
1,927,862

Total Regional
Population (Milion)

421,547
389,328
415,740
393,290
411,574
389,690
428,906
492,965

14,128
14,552
14,980
15,412
15,850
16,295
16,748
17,266

Milk Per Caput per
Year (Lts)

29.8
26.8
27.8
25.5
26.0
23.9
25.6
28.6

Source: CSA (2003)
Consumer Expenditures on Milk and Milk Products
Consumers Price Index (CPI) is a tool for measuring trends in cost of living (inflation) by comparing cost of a basket of items purchased by individuals in the base year to that of any other year prices. In constructing CPI, Household Budget Surveys are used to identify goods and services commonly purchased by consumers. The percentage distribution of households expenditures on goods and services constitutes CPI weights (Scot, J. 1995).
Table 11, gives CPI set of weights for expenditures of a typical Ethiopian consumer on various goods and services. Large weights for food indicate that Ethiopian consumers spend more of their incomes in purchasing food than other goods and services. Food budget share is higher in the rural than urban area and has been increasing progressively through the years, thus suggesting reallocation of expenditures from other goods and services to purchase of food. This can be interpreted as a good news for food industry as far as demand is concerned.
Table 11: Ethiopia: National set of weights (%) for all consumer expenditures
Major Groups

1988 EC.
Urban

Rural
Food
Beverages
Clothing
Rent/Fuels/Water
Others
Total

54.2
0.4
9.6
15.8
20.0
100

1992 EC.
Urban

Rural
47.1
0.4
11.4
15.0
26.1
100

56.7
0.3
7.7
13.6
21.7
100

34.6
0.3
8.7
17
39.4
100

Source: CSA household income and expenditure surveys (HICES)
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Analysis by food category (Table 12) indicate that the budget share for milk and milk products in urban areas decreased from 1.16% in 1988 to 0.95% 1992 (average of urban and rural = 1.5%). The rural budget share for milk and milk products is higher than that of urban.
However, the difference in rural and urban shares is not likely to affect demand much since most of population (consumers) resides in the rural area.
Table 12:Ethiopia: National set of weights (%) for consumer expenditures by food category 1988 EC.
Major Food Groups
FOOD
Cereals
Meat and poultry
Fish and fish products
Milk and milk products

Rural
54.2
26.56
1.32
0.03
2.42

1995 EC.
Urban
47.1
16.80
3.93
0.02
1.16

Rural
56.69
27.05
2.19
0.03
2.01

Urban
34.59
11.77
3.50
0.04
0.95

Source: CSA household income and expenditure surveys (HICES)
Comparison With Other Areas
Table 13 shows total volume of annually produced livestock products and the per caput consumption levels of Amhara Region as compared to other parts of the globe. These figures clearly indicate that the per caput cow milk consumption levels of people in the Region compute to only 76, 65, and 20% of the national, continental, and world levels, respectively.
The average figures of 16.5 kg milk per caput per year hide great disparities between the different Zones of the Region, (CSA, 2003). The production of meat per caput per year varies from 2.6 to 16.9 kg and the milk production from 1.4 to 39.5. Apart from inadequate supply of milk and milk products to urban centres, there is also a marked seasonal variation in the supply of fresh milk
Table 13: Total Production and Per caput consumption of meat, milk and fish in 2000
Region

Cow Milk
Total Prodn
(Mill. tons)

World
Developed
Developing
Africa
Ethiopia
Amhara

495.8
341.9
154.0
20.5
1.5
0.3

Meat
Per caput
(kg/year)

Total Prodn
(Mill. tons)

80.6
258.8
31.9
25.1
21.6
16.5

253.5
108.3
145.2
11.6
0.6

Fish
Per caput
(kg/year)

41.2
82.0
30.1
14.3
9.4

Total Prodn
(Mill. tons)

129.9
31.7
98.0
7.3
0.02

Per caput
(kg/year)

21.1
24.0
20.3
9.0
0.2

Source: FAOSTAT (2004); CSA (2003).
Results of different surveys carried in various Ethiopian cities (LMA, 2004) clearly indicate that low household income is the leading constraint to increased consumption of dairy products. There is low purchasing power among the poor. There are also instances where increased milk production has also encouraged increased domestic consumption.
Sensitisation to the nutritional benefits of milk compared with other beverages, which are consumed by the poor, is thus required. Understandably, income becomes less binding as the
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financial status of the household improves. The second most frequently cited impediment, however, was product unavailability. Notably, the issue of product supply was of substantially greater concern to the high-income households in the larger urban centers of the
Region. The issue of product unavailability in turn forces consumers to look for imported dairy products or substitutes.

3.1.6. INPUT UTILIZATION
Smallholder dairy production is one of the development pathways needing a range of inputs and services of which, improved animals, AI, feed supply, clinical veterinary care, extension, marketing, and credit are worthy of mention. A brief discussion on current input supply situations and the perceptions held by smallholder dairy farmers with regard to the various services delivered to them will therefore be presented as follows.
3.1.6.1. IMPROVED ANIMALS

Crossbred Heifers
The vast majority of cattle used for milk production are indigenous zebu types, with crossbred cows not exceeding 1% of the milking herd or 33,000 heads (CSA, 2003). In some areas (e.g., parts of Fogera, where a potential of good milk yield already exists), the local breeds may have as much genetic potential as can be exploited under current or projected levels of nutrition and health care. Smallholders obtained foundation dairy stock mainly through direct purchase or through upgrading from Bos indicus cattle or gifts (e.g. from development projects or relatives). During interviews, we also found that the few farmers who had upgraded local zebu to dairy cattle were more experienced and started dairying a little bit earlier, about 5-8 years earlier than those who had purchased their foundation stock.
However, it has been long recognized that, if production is to be increased significantly, upgrading of the local genetic base will be one essential component of development programs. Often good quality Holstein–Friesian crossbreds are not available or their cost prohibits use by small farmers, unless the animals are made available by government schemes. Efforts have therefore embarked on massive crossbreeding of cows in government ranches dating back to 3 decades. The current government has also continued providing such crossbred dairy heifers and cows at subsidized prices for poor farmers since 1985 EC.
Accordingly, as can be seen from Table 14, close to 1,000 crossbred cows have been distributed regionally in the past ten years.
Table 14: Breed improvement activities carried in the past ten years (1987 - 1996 EC)
Activity
Desiminated XB cows
Artificial Inseminations
Bull service

Unit
No
No
No

1987

1988

1989

1990

1991

1992

1993

1994

1995

100

281

62

73

80

170

0

42

116

2545

2439

3158

3799

4379

7250

6041

5032

4827

125

538

1440

1482

1258

1200

927

947

1996

3247

As the data in the above table clearly show, even though the number of crossbred cows disseminated to farmers annually has shown a perceptible increase, the rate is still miniscule.
For instance, the level reached in 1996, amounts to no more than 100, which compares unfavorably against the existing huge demand of eligible farmers in the Region. Lack of

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crossbred dairy cows has thus been the major problem raised by respondent farmers contacted during the rapid appraisal fieldwork carried for this study.
In common with many areas of the country, results of our field surveys show that crossbreeding in the smallholder sector was seldom systematic. For example, farmers in
Angolela reported that after the introduction of dairy crosses, breeding has mainly been through repeated mating with cross bulls or bulls of native breeds. This has resulted in a population of dairy cows with a sub-optimal proportion of the improved Bos taurus genes.
The other related problem raised by respondents concerns the high purchase cost of such cows and the concurrent lack of credit for this purpose. A case in point is the situation in
N/Shoa, where presence of different channels of milk markets serves to drive farmers towards market-oriented dairy production but achievements are low due to the abovementioned problems. Recognition of these capacity problems, especially in terms of crossbred heifer distribution, has ultimately pushed the development efforts to skew more and more towards AI services.
Artificial insemination (AI)
Al service in the Region is almost young with no more than 20 to 25 years history. In this time period, the level of use of AI covers no more than 0.05% of the Regional cow population. Each Zone has at least one AI station, which can store and deliver viable semen to farms in the districts. Moreover, the service currently covers 63 of the total 106 Woredas in the Region. Close to 80 Artificial inseminators helped by 206 trained farmers are able to averagely inseminate around 4,500 cows a year. In order to expand the existing service, efforts have therefore embarked on massive production of frozen semen, towards which two
Nitrogen freeze plants have been set up recently in the Region. Nevertheless, sustainable breeding programs are necessary to ensure the continuing availability of dairy animals.
Even though, the relative cost per insemination of A.I. from the current service (3-4
Birr/round) is not considered prohibitive to the majority of farmers, the main concern referred to by producers is the unavailability of the service when required. At the same time, most of the A.I. services are concentrated around Woreda veterinary clinics, which make them distant to the local farmer with a cow in heat.
3.1.6.2. FEED RESOURCES

A major biological constraint to smallholder dairy development in Amhara Region is the inadequacy of the feed resources available on-farm to meet the year-round nutrient requirements for lactating dairy cows (Benin, et.al, (2002). Feed resources potentially available to livestock in the Region, including dairy cows, can be classified into 4 categories: vegetation available on non-arable grazing land; crop-residues and aftermaths from harvested fields; by-products of food processing; and finally weeds and excess plants from sown fields.
However, natural range vegetation from common property grazing lands (CPRs) and crop residues from cereals and pulses are the two most important feed sources. For instance, results of the CSA (2003) agricultural census of the Region, show that feed from grazing constituted 52% of the annual livestock feed, while crop residues covered the other 33%.

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Natural Pastures
According to data presented in the Woody Biomass Inventory and Strategic Planning Project
Report (MOA, 2002), of the Regional total land area, 36% is cultivated; 28% is shrubland; and 17% is grassland. Grazing areas therefore fall within the latter two land cover types.
These areas, however, are predominantly communal, albeit there being patches of grazing areas privately managed particularly in S/Wollo and N/Shoa Zones. Furthermore, Stocking rates calculated by the above sources based on Zonal landuse pattern (MOA, 2002), also indicate high rates in N/Shoa, S/Wollo and N/Wollo; intermediate ones in E/Gojjam and
Oromiya; and lowest in Awi and N/Gondar Zones. Moreover, assessments done by the same sources on grazing land conditions further show that almost half of the area is subject to overgrazing, primarily in the highlands.
Typically only a small part of the herd is kept close to the farm, the reminder being moved with the season. During the rainy season, livestock are moved out of the cultivated areas, typically onto upland areas of marginal grass and scrub. After harvest, animals will be moved onto the cropped land, to graze the stubble (aftermath grazing). Finding sufficient grazing, however, is becoming a constant challenge, especially as population pressure pushes cultivation onto more and more land, often of marginal quality, previously reserved for grazing (MOWR, 1998). This, in turn, leads to use and degradation of more marginal lands.
In the same vein, Alemayehu (2003), in his recent description of feed resources in the country, states that natural pastures in most of Ethiopia are inadequately nutritious, even under optimal management and stocking rates, to sustain satisfactory levels of milk production and health for most of the year. In order to survive, grasses grow rapidly during the rains, but within about two months growth become fibrous. This characteristic growth and development pattern, resulting in the rapid rise in lignin content with advancing age and the consequent decline in digestibility, makes it difficult to supply high-quality materials for grazing animals on a consistent basis. Consequently, milk yields of local cattle on natural pastures alone rarely exceed 1 to 2 kgs per cow per day.
Cultivated Forages
If justified by the milk price and rainfall pattern, cultivated forages can improve the quantity and quality of feed available to dairy animals substantially. These can include grass and legumes grown as a component of crop rotations or as permanent pastures, and also fodder trees and shrubs. The feeding value of cultivated forages is far superior to native pastures; in adequate quantity and under good management, they can sustain yields up to 8 to 10 kgs per cow per day (Walshe, et al., 1995). In like manner, farmer respondents we contacted during the fieldwork reported that cultivated forages are commonly grown for feeding dairy cattle.
Asked to list the common types of forages grown, Oat and Vetch mixtures, Elephant grass alone or in mixture with herbacious legumes, Siratro, Desmodium, Rhodus grass, Phalaris, hedgerows of tree forages such as Sesbania, Leucaena, and Tree lucern were mentioned as the common ones. Data obtained from recent Annual Reports of BOA also confirm the increasing trend in the production of cultivated forages (Table 15).

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Table 15: Cultivated forages in the past 3 years in Amhara Region.
New area under cultivated forages
Forage seed supplied
Participating farmers in Extension
Farmers trained in livestock dev.

Unit
Ha
Qt
No
No

1993
219
190

1994
868
144
40,380
1,560

1995
2,550
3,315
79,923
4,639

As can be seen from these data, the number of participating farmers as well as the area under cultivated forages have exhibited a phenomenal growth rate. Forage yields, although governed by a number of factors, are relatively higher than natural pastures. For instance, according to data presented in Alemayehu (2003), under smallholder conditions in Ethiopia, oat/vetch mixes typically yield about 8 to 10 tons per ha of dry matter, improved grasses (or similar type pastures) 6 to 8 tons per ha, forage legumes about 3 to 5 tons per ha and legume trees and shrubs about 10 to 12 tons per ha. Due to land scarcity and crop dominated farming, however, there has been limited spontaneous introduction of improved pastures and forages.
Agro-Industrial By-products (AIBP)
The main concentrate feeds in the Region mainly used for dairying are cereal brans, oilseed cakes, and byproducts from brewing. Eventhough these are potentially available in the
Region, interviewed farmer respondents cited the first two as the main ones. Thus, wheat and maize brans (locally called as furushka) and noug seed cake (locally called as fagullo) are the predominant concentrate feeds used as suppliment by the overwhelming majority. Compared to the number of dairy animals in the Region, however, the levels of produce are almost insignificant and due to this shortage their high unit prices are one of the points of complaint raised by milk producers.
To sum up, therefore, Feeding and nutrition have repeatedly been highlighted as the major constraints in animal production systems in Africa in general and in Ethiopia in particular
(Alemayehu, 2003). Improved animal nutrition in dairy production is thus a major consideration. Of the non-genetic factors affecting production, this is especially important since cost of feeding accounts for about 40–60% of the total cost of milk production in intensive systems. In smallholder systems, inadequate land and size of operation are further constraints on production.
As stated earlier, however, Urban and peri-urban agriculture has been gaining popularity recently. The availability of milk markets, high economic status of elite; availability of space near housing units, labour, concentrate feeds, extension services, and lastly the proximity of veterinary services in urban areas has facilitated the development of the dairy industry in almost all peri-urban and urban towns of the Region. These farmers show relatively improved levels of animal management and follow semi-intensive production systems. Results from our appraisal show that most such farmers used partial grazing to zero grazing system to rear their cattle. Asked as to reasons most such respondents mostly prefer the zero grazing concept as it reduces disease challenge especially. It was also observed in the study that all the respondents were supplementing their cattle. However while some of them only offered maize and wheat bran and minerals to their cattle the rest offered maize bran, oil seed cake and cottonseed cake.

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3.1.6.3. VETERINARY SERVICES

Generally speaking, the Regional Government has been taking extensive efforts to improve the existing veterinary infrastructure both in urban and rural areas. As a result, as of 2002, livestock healthcare is systematically overseen through the use of :
•

2 Regional Vet Labs,

•

112 Woreda Vet clinics, and

•

270 Station Vet clinics (BOPED, 2003).

Similarly the Regional veterinary manpower includes among others, 133 veterinarians, 237 animal health assistants and 772 animal health technicians. Such infrastructure expansion coupled with modern drugs and vaccine supply has brought about a sharp decline in the occurrence of serious outbreaks of ruminant livestock diseases, such as Rinderpest, Blackleg,
Anthrax, and CBPP, thereby significantly reducing mortality and production losses.
All said and done, however, the infrastructure and trained human power ratios per thousand animals is still quite inadequate and varies across Woredas. Using ratio calculation methods of Umali, et al., (1992), it was found that each veterinarian and trained auxillary in the country averagely cared for 117 thousand and 24 thousand veterinary livestock units
(VLUs1) respectively. As can be seen from Table 16 below, these ratios do not compare well with those of other developing and developed countries.
Table 16: Livestock health services in Ethiopia as compared with selected countries.
Country/Region
Ethiopia
Sudan
Egypt
Pakistan
Australia
Japan
UK
USA

Veterinary Livestock Units (VLUs) per:
Veterinarian
Trained auxillary
117,754
24,363
34,390
36,852
431
642
20,215
9,241
8,173
14,691
569
2,489
7,673
2,912
5,660

Source: Umali, et al., (1992).
The other significant issue with regard to this is that veterinary and auxillary staff numbers do not always translate into services. Compared to their counterparts in other countries, veterinary personnel in Ethiopia, often lack equipment, are underpaid, and do not have sufficient access to transport and communications. As a result, animal health problems still constitute a major constraint to smallholder farming in our Region. For example, trypanosomiasis is a serious problem for dairy animals of the Region, leading to high mortality, reduced productivity and high prophylaxis or treatment costs. Internal and external

1

One VLU is calculated as 1 cow/camel, 2 horses/donkeys, 10 sheep/goats, 100 chicken.
These differ from the Tropical Livestock Unit, TLU. Umalli, et.al. (1992).

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parasites still continue to be important causes of low productivity and high mortality, and there are often significant interactions between nutrition, disease and reproductive performance of milk cows. Technical solutions to some health problems are available (e.g., control of internal parasites) but at a relatively high cost. For other problems (e.g., streptothricosis), new technology may be the only way to improve productivity substantially.
Moreover, it is evident that, the investment in these potentially high-producing dairy cows will only be profitable if the cows remain healthy. Therefore a priority for smallholders are effective health management practises that are appropriate to the disease challenges faced by the dairy cattle and to the resource level of the smallholder. Farmer respondents with crossbred cows contacted during the field survey, however, observe that the veterinary service they receive and the drug supply are below what is needed. In almost all visited high dairy potential areas, the Woreda vet clinics are far from the farmers and each vet assistant is assigned to serve a lot of Kebeles, leaving them little time for dairy farmers. Consequently at the levels of disease diagnosis and treatment currently prevailing, smallholder dairy cattle contracting fatal diseases have a small chance of surviving the disease. The obvious conclusion from these farmer stated problems and official statistics was that current preventive and curative technologies for mitigating animal diseases and their delivery were ineffective in the majority of smallholder dairy units.
3.1.6.4. EXTENSION SERVICES

Agricultural extension still remains one of the services delivered as public good by the government. Extension on livestock development are hence part of this huge service delivery component run by the regional BOA. Using Morton and Wilson’s (2000) definition, the current extension service can further be characterized as information transmition with the aim of transfering livestock production techiniques to farmers. The structure of extension service shows that the Department of livestock and fisheries development under the BOA to be the core body for tailoring the informations to be dessiminated through Woreda and
Development centers under them.
The system of extension promoted earlier used to be the Training and Visit (T&V) system whereby the extension agents (DAs) dealt with contact farmers. This system, however, was later evaluated and found to be non-participatory and consequently ineffective in changing the day to day life of the poor smallholder farmer. It was therefore replaced by the
Participatory Agricultural Demonstration and Training Extension System ( PADETES) in
1987/88 EC. The main feature of this system is the preparation of a technology package for each commodity and the restructuring of the reciepent farmers into 5 successive layers of contact and copier farmers.
3.1.6.5. CREDIT SUPPLY

As described in section 3.5, demographic and income changes in the future are expected to lead to further rapid increases in demand for dairy products, which in turn will require domestic production to increase more rapidly than has been experienced in the past. This will require adoption of improved dairy technologies and management. Among other things, credit playes an important role in rapid expansion of improved technologies in the developing countries. Accordingly, as part of our investigations in this study we have tried to assess the access to credit for smallholder livestock producers in the Region.
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The demand side information from our field studies indicates that only a few farmers used credit for one or more component of improved dairy technologies such as crossbred cows, artificial insemination, improved forage and concentrate feeds. Even if there were any loans, few farmers in the Region borrowed from formal credit institutions for dairy technologies such as, to purchase crossbred cows, to purchase feeds, veterinary care, make barns or water supply systems for animals. As the majority were non-borrowers, they apparently used own funds to purchase cows and other inputs. Moreover, since borrowers spent their borrowed funds mainly to acquire improved cows, the primary impact of credit was to increase milk production through increased dairy herd size. Borrowers and non-borrowers alike spent very little to better feed and manage the cows.
Reasons cited also indicate few smallholder livestock farmers had access to this credit because of the small amounts of credit forwarded for these operations. In some areas, the method and criteria used by credit institutions to screen applicants have been also reported to be a matter for concern. For example, potential borrowers were required to show existing infrastructure for livestock operations before loan could be approved. Or as in the case of
ACSI, where revolving funds are used for dairy credit and collateral security was not demanded, the interest rates set at 18% are seen by farmers as exorbitant. Both the conditions are unfavourable to smallholders. Most of the loan was for short-term (3 years), not always suitable for livestock enterprise, which requires longer period than crops to generate income and repayment capacity.

3.1.7. COOPERATIVES
Determinants of milk market opportunities and group formation
According to Staal (2001), dairy cooperatives have typically been formed in response to a fundamental farmer problem: the inconvenience of small quantities of milk to market. Milk is perishable and requires special handling to insure quality and shelf life. He explains further that, unlike grain, which can be purchased in small quantities, and gradually bulked by a market agent over days or weeks before delivery to the next market point, milk must be collected and transported quickly. Holding milk, particularly in rural developing country settings where infrastructure may be lacking, can be costly and risky. On the other hand, the rapid delivery of small quantities of milk to market may not be practical or economic; some smallholder producers may market no more than 1-2 litres of milk on a given day. The practical collection and transport of milk to market therefore usually requires some bulking, and the need for speed and reliability requires good organisation of that bulking.
As a consequence, there is strong incentive for smallholder producers to try to form collective organisations to meet these needs: bulking and reliability. It may be noted that, in the case of milk, bargaining power to improve prices may not be as important a reason for group formation as these others - simply having a reliable market mechanism may be more important, and in many cases farmers are willing to accept lower prices in return. Market opportunities are thus central to dairy farmer group formation and the two issues share some basic underlying features. It may also be noted in our case that dairy needs of most urban towns are not supplied by the pasteurised milk or processed products; rather raw milk markets are generally large everywhere, and play an important role for dairy farmer groups.
The co-operative movement in Ethiopia is not new, and has initially been widely introduced during the Derg Regime based on the socialist principles. Nonetheless, as coercion was used
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in setting up such groups, the co-operative movement has undergone upheavals in the post libralization era of the current government. The most significant was the abolishment of all producer co-operative unions in the 1990-91-transition period. Co-operatives have resurfaced into the scene since 1995. They retained their traditional roles until when the new Cooperative Act of 1995 was put in force. The new law for the first time provided for formation of commodity related co-operatives. Since then livestock farmers in various parts of the
Region have strived to form primary co-operative societies related to dairy production and marketing. Most of them are still in their infancy if not formative stages.
In the emerging economic trends towards liberalization, privatization, and market orientation, the Federal and Regional governments in Ethiopia have reduced their direct involvement in assistance to agriculture and rural farmers are being given more responsibility for their own development. The Rural Development Policy and Strategies also envisage in future there will be greater emphasis on self-help groups and a participatory approach to development in order to mobilize local resources and knowledge for the benefit of rural communities. This environment will be much more conducive to the formation of bottom up dairy marketing organizations. Current status of Dairy co-operatives
According to BOCP (2004), recent data currently there are 21 Dairy co-operatives in the
Region (Table 17).
Table 17: Existing dairy cooperatives in the Amhara Region (1996 EC.)
Name Of
Cooperative

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21

Zone

Yetnora
Ghion
Lemlem
Mahb/ Birhan
Bogena
Lamebora
Addis Alem
Hiywot
Bahirdar
Gobeya
Bishanko
Kete
Bedido
Enat
Angolela K/Mihret
Genet
D/Birhan
Kokeb
Fajji
Andinet
Ensra Behibret

E/Gojjam
E/Gojjam
E/Gojjam
E/Gojjam
E/Gojjam
E/Gojjam
W/Gojjam
W/Gojjam
W/Gojjam
S/Wollo
S/Wollo
S/Wollo
S/Wollo
S/Wollo
N/Shoa
N/Shoa
N/Shoa
N/Shoa
N/Shoa
N/Gondar
N/Gondar

Location
Woreda

Dejen
Dejen
Dejen
Enemay
Awabel
Hulet Eju
B/Dar Zuria
Dangila
B/Dar City
Tehuledere
Tehuledere
Tehuledere
Tehuledere
Desse City
Basso
Basso
D/Birhan
Angolela
Basso
Dabat
Wogera

Year
Established

No of
Members

Daily Coll.
Milk

1993
1995
1995
1996
1996
1996
1996
1996
1996
1996
1996
1996
1996
1996
1993
1993
1993
1994
1994
1993
1993

56
36
43
55
27
39
27
31
32
35
27
28
29
41
92
54
47
33
35
49
37

300
230
90
50
30
80
NA
NA
NA
NA
NA
NA
NA
330
800
200
100
400
350
150
30

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The most important feature of these co-operatives is that they are run purely as farmers ' cooperatives, with all the major decisions being taken by the farmers themselves. The cooperatives are not 'run ' by a separate bureaucracy with vested interests of its own; the farmers are truly in charge of their own decisions. Any farmer can become a member by committing to supply a certain quantity of milk for a certain number of days in a year and shall continue to be a member only if he keeps up this commitment. Each day, the farmers (or actually, in most cases, their wives and daughters) bring their milk to the village collection centres where quantity of milk is checked by the assigned technician, and quality (milk fat content) is checked using a simple device, mostly lactometer. The farmers are paid every fortnight for the milk they supplied and this consistent twice monthly settlement in cash is a great attraction to the farmers who are usually cash starved. Thanks to the above system, there are no major disputes regarding quantity or quality of the milk supplied by each farmer.
Every milk producer can become a member of the co-operative society. At a general meeting of members, representatives are selected to form a managing committee, which frames the policies of the society to govern the day-to-day affairs relating to milk. Milk collection, the testing for milk fat content, processing and sale of dairy products etc. is handled by paid employees from the same village.
Members, however, nowadays seem to realise that it was not enough for the cooperative to merely serve as the collection and selling agents for the farmers. A variety of support services are also required to enable the farmers continue selling milk of adequate quality and to avoid disasters such as the death of their cattle (for a family owning just one or two cattle and depending on its/their milk for their income, death of a cow could indeed be a disaster). The farmers progressively need to be given new services such as veterinary care for their cattle, supply of good quality cattle feed, and facilities for artificial insemination of their cattle within their cooperative compounds. All these services are further expected strictly on payment basis; none of the farmers interviewed expected the services to be free.
Typically different types of marketing arrangements are currently used by dairy cooperatives.
By and large, there are 3 basic types of marketing arrangements that dairy farmer groups rely on to market milk. Some may employ a combination of these.
Cooperative to private processor.
In this case, a cooperative collects milk for a privately owned processor. The arrangement is thus contractual, and may be subject to market changes. It also reduces the management and investment demands on the cooperative, which serves principally as a milk collector. This is common in peri-urban areas surrounding Desse and D/Birhan, where town butter manufacturers buy milk from cooperatives.
Cooperative to private traders
Where the informal market is strong, some cooperatives sell bulked milk principally to private traders, who then market it in raw form to consumers. This is common in Gondar and
D/Markos, where the market infrastructure for packaged milk distribution and retailing is limited, and cooperatives do not have the means to retail raw milk themselves.

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Cooperative direct sales
Some cooperatives choose to sell milk and dairy products directly. In N/Shoa small farmer groups make butter and market it directly. In Desse and
Chacha, cooperatives sell raw milk in their own shops that are located in towns, and sell only the excess to processors.
Cooperatives such as Angolela K/Mihret formally process and market butter and other dairy products, such as skim milk from their rural shops in the vicinity. These arrangements require higher levels of management and investment.
Which of the above arrangements that cooperatives choose to pursue, or some combination thereof, seems to depend on the: relative demand locally for raw milk vs. processed products presence of large processors or of a functioning cooperative union density of milk producers locally level and quality of road infrastructure distance to main demand centres nature of regulations on raw milk marketing, and on governance of producer organisations In general, however, poor infrastructure, good local demand for liquid milk, and long distances to town supply points, seem to push the cooperative towards a marketing approach that targets the informal market, either for raw milk or traditional processed products, and maybe direct sales by the cooperative itself.
Value added?
Many dairy cooperative see “value-adding” through processing as one means of increasing revenue. Thus, if the right products are made using a manageable technology, even very small milk producer organisations can gain revenue from some processing. Small but successful hand-churned butter groups in N/Shoa illustrate that point. Angolela K/Mihret
Dairy Cooperative, for example, apparently generates nearly all their revenues through the daily milk throughput that is processed into butter.
However, value adding through processing generally is being approached too cautiously by cooperatives. Given the additional management and investment capacity required, to be successful, processed products produced need to diversify beyond the local butter.
Unfortunately, the dairy processing technologies used are still those suited for butter production only. This can sometimes result in stiff competition for their butter from any of the local producers of similar products.

3.1.8. MARKETED VOLUME
Historical anecdotes by producers and traders alike indicate that, in the near past, milk may not have been sold in many parts of the Region due to cultural taboos and other related reasons. In those settings, therefore, production was mainly aimed at subsistence consumption. Excess milk was traditionally fermented and processed into butter, or made
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into other products that allowed it to be stored for longer period. Later, however, with increasing population and urbanization, demand for marketed milk and dairy products, was created by households who did not have the time, land or inclination to produce himself or herself. Initially traded through barter exchange with other household necessities (like salt, eggs etc), milk and dairy products are now commonly sold. Although in some countries a large proportion is still sold directly to consumers, distance to major markets resulted in the need for middlemen to link producers and consumers. The demand for preserved dairy products spurred commercialization and processing of milk into higher value products like cheese, yoghurt and butter.
3.1.8.1. MILK ALLOCATION

In line with the above, producers in the Region as well produce milk for several reasons.
Data on household milk allocation and processing patterns were collected from sampled key informant producer groups using RA one-time questionnaire. Fresh milk was usually consumed and sold/gifted; short term fermented and processed to make butter; and buttermilk was consumed by family members or given to calves. Results of the interviews also confirmed that butter is used as hair and skin cosmetic for family members; used for direct consumption; or for sale.
Most respondents replied that of the total daily milk offtake, the proportion used for household consumption ranged from as low as 5% to no more than 25%. The remaining 75 to
95% of milk was either sold as raw milk or processed to butter for sale. The decision on whether to sell or process mainly depended on the distance of the household from nearest fresh milk market. Generally households within 7-10 km from town markets sold liquid milk at least once daily, whereas those beyond 10 km sold processed dairy products.
Similar figures are also presented in the recent CSA household census results for the Region.
According to the census, of the total milk produced in the Region (Table 18 ):
-

41 % is consumed at HH level;

-

0.75 % is used as wage payment;

-

57.5 % is processed into butter and other derivatives; and the remaining

-

0.75 % is sold for cash.
3.1.8.2. VOLUME OF MARKETED DAIRY PRODUCTS

Analysis of the above presented milk allocation patterns shows that excepting B/dar Special
Zone, which is fully urban, in 8 of the 10 Zones, the proportion of milk sold was generally below 1% of total annual production. The proportion sold ranged from as low as 0.27 % in
Wag to 1.67% in S/Wollo Zone with the Regional Average amounting to no more than
0.75%. Compared to the National average proportion sold of 5 %, milk in the region is rarely sold as fluid milk.

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Table 18: Proportions of Milk Utililzation % in Amhara Region (2003) by Zone
Admin.
Zone

Total

N/Gonder
S/Gonder
N/Wollo
S/Wollo
N/Shewa
E/Gojam
W/Gojam
Wag
Awi
Oromia
B/dar
Special
Amhara
Region

100
100
100
100
100
100
100
100
100
100
10 0

Allocation of milk in %
HH
Sale
Wage in Processed
Consump.
Kind
42.80
0.55
0.93
55.72
38.06
0.30
0.73
60.91
33.70
0.42
0.10
65.78
42.42
1.67
0.16
55.75
37.46
1.01
0.07
61.46
44.62
0.45
1.27
53.66
47.91
0.48
1.46
50.15
45.04
0.27
2.38
52.31
37.16
0.47
1.72
60.65
32.99
0.37
0.14
66.5
55.29
31.92
0.83
11.96

10 0

40.96

0.75

0.75

57.54

Source: CSA (2003).
In any case, of the annual total 493 million liters of milk produced in the Region, only 3.7 million liters of milk is sold as fresh milk. Of the remaining volume, close to 284 million liters of milk is processed into butter and other derivative products. In turn, this volume of processed milk yields 16, 685 tons of butter and 45,050 tons of soft cheese (ayib). Similarly, of the processed butter and ayib, 38% and 0.24% are marketed respectively, (Table 19 ).
Table 19: Marketed Volumes of Milk and Butter in Amhara Region (2003) by Zone
Admin.
Zone

Fluid Milk
Total Prdn./Yr
(Mill. litres)

N/Gonder
S/Gonder
N/Wollo
S/Wollo
N/Shewa
E/Gojam
W/Gojam
Wag
Awi
Oromia
B/dar Special
Amhara Region

87.31
47.30
56.01
92.76
38.28
41.60
51.39
20.34
33.58
23.01
1.38
492.96

% Sold

Butter
Volume Sold
(Mill. litres)

Total Prdn./Yr
(‘000 Tons)

0.48
0.14
0.24
1.55
0.39
0.19
0.25
0.05
0.16
0.09
0.44
3.70

2,861.8
1,694.7
2,167.4
3,042.0
1,384.1
1,313.0
1,515.9
625.9
1,197.9
900.1
9.7
16,685.4

0.55%
0.30%
0.42%
1.67%
1.01%
0.45%
0.48%
0.27%
0.47%
0.37%
31.92%
0.75%

% Sold

27.01%
31.31%
42.05%
46.79%
46.02%
29.39%
35.03%
38.65%
51.03%
45.16%
13.68%
37.92%

Volume Sold
(‘000 Tons)

773.0
530.6
911.4
1,423.3
636.9
385.9
531.0
241.9
611.3
406.5
1.3
6,327.1

Source: CSA (2003).

3.1.9.

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MAJOR PRODUCTION CONSTRAINTS AND SUGGESTIONS
There are a plethora of constraints impeding a flourishing dairy industry in the Region, of which those considered as major bottlenecks are presented briefly hereunder.
A) Scale of Operations
Except for limited enterprises, the Regional milk production and processing system to a large extent is presently based on millions of rudimentary small and very small holdings, both in terms of land and animals, scattered throughout both the rural and urban areas. Moreover, these small units are basically geared towards sustaining the farming system than marketoriented dairy production. Reaching out to such a scattered smallholder population for technology transfer and extension support is, to say the least, a difficult task. What 's more, the progressively shrinking size and fragmentation of land holdings, render them increasingly unviable, driving large numbers of the holders at the lower end of the smallholder spectrum below the poverty line and making the government commit increasing amounts of funds, year after year, for poverty alleviation.
Experiences detailed in Workd Bank documents (Walsh, et al., 1995) show that Cooperatives have played a major role in the development of dairy industries in many parts of the world, and they are frequently recommended as the appropriate institution for dairy development in
Africa. In general, cooperatives have shown themselves well suited to undertaking assembly of fairly standard, not very perishable, products for sale on pre-established markets where the price risk is small. They have also been in a good position in many cases to supply inputs, credit and other services. Within the dairy sector in other parts of the world, cooperatives have been more successful in processed products than in liquid milk, thus emphasizing their particular role in areas distant from the market. Management has been a recurrent weakness in cooperatives, not only because of technical shortcomings but also as a result of confused objectives (social vs. commercial). There are particular problems in raising sufficient capital, either from members or from wary financial institutions. Many so-called cooperatives have, in fact, been established by governments (local and donor) and continue to be tightly controlled; in effect, they are barely distinguishable from parastatals. In other cases, they are controlled, not by the members at large, but by dominant local figures and/or selfperpetuating boards. Although there are sound reasons for formalizing cooperatives and applying national legislation to them, it may be better in many cases to allow less formal communal institutions to evolve, as has happened in local food processing and brewing.
Setting-up dairy Cooperatives will serve as a springboard in the short-term for creating the necessary scale economies and subsequently leading towards industrialization and intensification of dairy production, processing and marketing as envisioned in the recent national Rural Development Policies and Strategies (FDRE, 2002).
B) Breeds of cattle
Cattle breeds available are mostly indigenous and crossbred cattle constitute no more than
1% of the Regional herd. These nondescript local cattle, regardless of the fact that they are well adapted to the local feed resources and production systems, their inherent late maturity, low reproductive performance, and low productivity, make them unfit for an enhanced market-oriented dairy production trajectory. The average level of milk produced by a local
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cow does not exceed 220 litres/lactation (CSA, 2003). In contrast, crossbred cows in some milk pocket areas (such as the D/Birhan milkshed) produce upto 2,000 litres/lactation.
Reinforcing current activities to improve milk production through crossbreeding therefore becomes of paramount importance.
The absence of effective breeding programs in the country as well as the Region is also a major constraint on dairy development. Such programs should take into consideration the following issues: the role and function of imported breeding stock and the means of importation; the respective roles of natural mating and/or artificial insemination and the design of an effective Al service; the role of heifer and bull production farms; the design of a selection/breed improvement program; the development or strengthening of institutions to undertake these tasks and a clear definition of each institution 's responsibility.
C) AI Services
Available evidence further suggests that existing A.I. delivery systems cannot efficiently offer breeding services at current structural and socio-economic conditions. This has serious technical and policy implications. First, all previous achievements in technology adoption and adaptation (e.g., high milk yields) will be reversed. Second, an increasing number of farmers who have been introduced to AI are resorting to inferior bulls. It is obvious that only a tiny fraction of the Region’s dairy herd uses A.I. in the late 1990s. Third, there will be serious shortfalls in milk and meat production in the medium term resulting from these adverse developments. From a public policy framework, this has critical implications on food security, malnutrition, commercial imports and foreign exchange portfolios.
Although experience to date with services in the Region has not been as fast, AI must continue to play a key role since upgrading would otherwise be very slow.
Policy action should create technical and entrepreneurial capacity to facilitate commercialisation of animal breeding services (Walsh, et al., 1995). Farmers and their organisations should engage in collective action to access A.I. since it involves lower relative costs per insemination. Policy support is required to facilitate the entry and active participation of private investors offering breeding services. Necessary mechanisms of enabling this policy alternative need to be considered in the broad context of sectoral development. It is necessary to have regulatory mechanisms to maintain the quality of semen, organise and monitor various breeding organisations to be efficiently and sustainably managed. D) Feed resources
Dairy farms face problems with the availability of feeds and fodder; there are problems with both quality and quantity and a lack of economical technology for optimum utilisation of local feed resources. Cereal straw is by far the most important crop residue, contributing close to 50% of feed energy available to ruminants (Alemayehu, M. 2003). However, animals fed on this diet fail to get adequate nutrients for maintenance and production. Moreover, in the absence of full-fledged animal feed production complexes, the existing production levels and prices of various agricultural and industrial by-products, such as bran, oilseed cake and molasses seem to be prohibitive for the smallholder farmer. Growing ruminant populations compel smallholder producers to practice livelihood strategies inimical to nature, leading to
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enormous environmental costs for the burgeoning dairy production. Lack of adequate fodder and fuel wood supplies have compelled livestock owners to allow overgrazing on common property resources and forestlands, leading to denudation of common property resources and deforestation of forestlands.
On the other hand, past research around the Globe has produced various simple technologies that can effectively overcome these problems. As an example, animal nutrition and crop breeding (straw/stover) research has yielded many new technologies that could augment feed production and thereby improve milk productivity. By way of illustration, studies at ILRI have suggested that, a 1% increase in digestibility of sorghum/millet straw increases cow milk yield by 5-6% (Kristjanson, et al., 1998). Similarly, technological interventions such as the biological/chemical treatment of feed have been shown to partly overcome the problem of underfeeding of dairy animals. Techniques such as urea treatment of straws, urea-molasses mineral blocks, and by-pass protein have also been shown to improve nutritional value of feed and its palatability. For instance, Birthal and Rao, (2002), report that urea treatment reduces green fodder requirement by about 20 to 40%, and increases cattle milk yield by 1020%. They, however, lament that, despite such benefits, the apparent application of such technologies is limited due to supply constraints and lack of concerted efforts to transfer the technologies and demonstrate their cost-benefit ratios.
Considering the above facts, therefore, we can safely conclude that as much as 10 to 15 per cent of the existing milk production can appreciably be increased through adequate feeding of present dairy herd. To this end, we propose the following technical and policy intervention areas, as accelerator factors for the development of the Regional feed supply with an eye on increasing milk production.
1. Immediate transfer of already proven technologies to the farmer should be at the forefront of the priority interventions. This step should first and foremost start with technologies that improve feeding value of various agricultural and industrial by-products.
2. Positive steps need to be taken to promote the installation and expansion of regional feed manufacturing industries. Increased concentrate and industrial byproduct feed use need to be encouraged so as to reduce the demand for fodder.
Formulating supportive mechanisms (such as initial matching grants and loans) in the case of farmers’ cooperatives or unions, and setting incentive mechanisms for the private sector so that they can be involved in the manufacture and marketing of various concentrate feeds.
3. Livestock Extension needs to be strengthened so as to scale-up the existing pace in the area of fodder legumes integration into the farming system. Increasing the integration of crop and livestock systems through forage development appears to be a crucial entry point in solving the feed problem.
4. Addressing the management of CPRs. There is a need for a comprehensive approach by government to establish and allow user groups to manage their common property grazing areas. Experiences from other countries (Birthal and
Rao, 2002), indicates that the user groups could then apply new management

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approaches, which may include cut-and -carry and stall-feeding, introduction of grazing fees, and rotational grazing.
More efforts than exists, therefore need to be made to examine the possibilities and economic feasibility of applying any of the above recommendations.
E) Processing
Liquid milk is usually the preferred, and most profitable, product, but the combination of hot, humid climates, poor hygiene on the farms and difficult transport conditions leads to rapid deterioration of milk quality in rural collection systems. The small milk quantities produced, seasonal supply and poor infrastructure in many parts of the Region make such collection systems difficult to operate and uneconomical. Thus the stimulation of efficient on-farm or village-level processing offers a better approach to dairy development in many areas.
Moreover, such stimulation of efficient on-farm or village-level processing appears to be a better strategy for dairy development in our Region than the development of large-scale collection/processing systems. The selection of products is influenced by market conditions, milk quantity, technology and consumer preferences. The choice between processing on the farm or at a local center depends on the quantity of milk produced in the area. Allowing milk to ferment naturally is a suitable option for on-farm processing where the quantities accumulated can be small, while the high acidities preserve the other milk solids and improve churnability (O 'Mahony and Peters 1987). The equipment used to make butter from sour whole milk is locally available but churning efficiency can be substantially improved by simple adaptations, as demonstrated at ILCA. The butter produced can be sold, salted and preserved, or converted to ghee.
Small-scale, centralized milk processing reduces labor requirements on the farm, provides a center for the sale of farm inputs and strengthens the marketing capability of individual producers. Depending on the products to be manufactured, plants based on relatively simple equipment can cope with a daily milk intake of 1, 500 to 3, 000 kgs per day. Cream separators and churns can be operated either manually or by electric motors. ILCA 's experience has shown that this equipment is quickly adopted in areas where milk volumes justify its use. Cheese-making is an appropriate option for rural communities that are far from the main roads and do not have sizable local markets for more perishable commodities. Apart perhaps from cheese-vats, most of the tools and equipment required can be made locally, and renewable energy resources can be used. Local communities usually can manage such operations. E) Disease
The Regional cattle population is ravaged by a plethora of diseases and epidemics. This in turn more than resulting in enormous losses in terms of lost production has precluded the country from joining the global markets for dairy products. In this regard, according to a
Ministry of Agriculture estimate (MOA, 1996), altogether, direct economic losses from animal diseases were in the range of Birr 1.5 to 2.5 billion per year, nearly 30 to 50% of the output value of the Ethiopian livestock sector. Moreover, as rural smallholders own close to
95% of milk cows (CSA, 2003), they are the ones who bear the brunt of the avoidable production losses and the investment risks. Coupled with the incapacitating disease overload,
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the thin and sparse distribution of veterinary service leaves the dairy industry in feeble state of production base.
Animal health services represent the principal share of the Regional budget for all livestock services. Because of externalities and economies of scale, governmental involvement in the funding, enforcement and supervision of mass vaccination campaigns is necessary and justified. Unlike preventive care, curative services are predominantly private goods. In other words, the value derived from a clinical or curative veterinary visit goes almost entirely to the owner of the livestock. Milk producers in particular will have the necessary income and the greatest incentive to avoid lost production from disease. The privatization of veterinary services can take place either through individual practice, farmers ' associations or formal cooperatives. Animal diseases limit market access and institutionalize poverty – The recent outbreaks of mad cow disease, classical swine fever and foot-and -mouth disease (FMD) in Europe have demonstrated the enormous economic losses that can occur from the re-introduction of such trans-boundary animal diseases. They also highlight the fact that most of these diseases still occur in developing countries, limiting productivity and continuing to pose a threat to livestock in the developed world. Thus, prevention of disease transmission and ensuring food safety has become a major priority of the developed world with resultant introduction of strict regulations to prevent introduction of diseases from poor countries. The costs of paying insufficient attention to rapidly escalating animal disease issues in poor countries are becoming urgently apparent. Traditional barriers to disease transmission are breaking down under globalization, and the poor stand the risk to be displaced from commercial animal source food production under the Livestock Revolution; the one livelihood sector they are involved in that is growing rapidly.
F) INPUTS AND SERVICES
Generally speaking, the inputs and services available for enhancing milk production more than satisfying a fraction of the need are exclusively in the domain of the state government.
For instance, with regard to veterinary service, this includes some 382 large and small veterinary clinics, 133 graduate veterinarians and over 237 assistant vets and a host of production support institutions. Except in limited areas covered by PA level veterinary clinics, vet drugs and services are uniformly of unsatisfactory quality and are delivered at stationary Woreda centers, requiring long distance trekking of animals to the centers for the services to be received. Furthermore, due to the ' 'fire-brigade ' ' approach, Public funds for the livestock sector are mostly squandered on services that are largely for generating private good (i.e. curative veterinary care, not preventive veterinary efforts).
Similar levels of gaps are also apparent in the current artificial insemination service (AI).
Presently, AI activities are carried out by the Bureau of Agriculture (BOA) from 10 Zonal centers, and employing 80 AI Technicians. Similarly, only 60 Woredas are covered, with the total number of AIs carried out not exceeding 5 thousand annually (BOA 2004). Hence, In line with the current service density, not even 0.5% of the estimated 3.5m breeding cows are bred by AI. In order to extend AI activities, a massive development project focusing on
Regional AI semen and frozen Nitrogen production is being undertaken. Worse still, farmers complain that even the available service is inefficient. The overwhelming presence of the

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state in AI services delivery further exacerbates the problem and delays the emergence of free markets for AI.
Institutional credit at the farm level for dairy production is another input in short supply.
Lack of good quality credit circumscribes the potential of the smallholders for dairy production. Even at the turn of the century, the majority of farm level credit for smallholder dairy production in the Region comes from traditional moneylenders.
It is a generally recognized that government intervention alone is not sufficient. However, as recommended by Henriksen (1995), there is a need for a political and economic atmosphere promoting the development of the domestic livestock and agro-industries, which means provision of reliable supplies of energy and clean water; access to trustworthy road and/ or rail services; appropriate commodity pricing policies influencing costs of production and competitiveness. Moreover, there is a need for farmers to organize and participate. To make this possible further development of the human resource is an urgent task. This can be done through tailor made training; promoting and enhancing producer organisations; and through exchange of people from different regions and countries to increase the utilization of the scarce resources.
The private industry should play an important role together with the farmers.
F) INADEQUATE DATA BASE
No one denies that availability of relevant information, both temporally and spatially, is very essential for sophisticated, empirical and rigorous analysis to arrive at the necessary conclusions for policy formulation. The situation with regard to livestock data in the region, however, seems to be helpless. For instance, the availability of livestock census data is not only untimely, but it lacks very important production and productivity information that leaves a huge gap for users. Similarly, the information on area and production of individual forage resources that are used as livestock feed, are not available at all levels.
Therefore, strenuous efforts need to be made especially:
•

First in exploring the entire gamut of database requirements for livestock development endeavors; and

•

Then, in streamlining the availability of necessary data on time.

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3.2. DAIRY PROCESSING
Aspects of traditional milk processing in the Ethiopian highlands, including Amhara Region, have been reviewed and discussed in detail by O 'Mahony and Bekele (1985), Bekele and
Kasaye (1987); Coppock, L. (1994); and O’Conner (1992). Data from our fieldwork in conjunction with some of the findings of the above mentioned research reports have therefore been used to describe the traditional milk processing sytems in our region as follows. 3.2.1. TRADITIONAL MILK PROCESSING SYSTEMS
According to most of our farmer respondents, the processing and marketing of dairy products is under the control of the women. Asked as to the traditional methods of processing, all respondents observed that traditional Ethiopian butter (kibe) is always made from soured milk (irgo); cream is not used. The process as depicted by our respondents and best described by O 'Mahony and Bekele (1985), starts with placing the sour milk in a clay churn or a bottle gourd (calabash). Churns are usually spherical, with a neck 10 cm in diameter at the narrowest point and a vent 0.5 cm in diameter near the neck. The churn may have previously been smoked with Olea africana. Besides imparting a distinct flavour to the butter, this practice has a bacteriostatic effect, and may reduce processing time by heating the churn.
After filling, the churn is stoppered with a plug, a false banana leaf, or a piece of skin or leather stretched over the mouth and securely tied. The churn is then agitated. Four different methods of agitation are generally used by rural women:
•

The churn is placed on the floor, on a soft pad of material such as sheep skin or straw, tilted at an angle of 75° to the horizontal, and rocked back and forth
(Figure 1).

•

The churn is hung on a tripod or door post and swung to and fro (Figure 2).

•

The churn is rocked on the lap.

•

The churn is shaken with both hands.

The latter three methods are used only with bottle gourds, and only when fewer than 10 litres of milk are churned.
The break point, i.e. the point when butter starts to form, can be detected by a change in the sound of the milk. Many dairy women also insert a straw into the churn through the vent: if there are small butter grains adhering to the surface of the straw, the break point has been reached. After churning for a few minutes more the straw is again inserted through the vent. If the straw is clean this indicates that the butter granules have coalesced into larger grains. The churn is then rotated on its base; the grains which collect in the centre form lumps of butter which are skimmed off. The butter is then kneaded in cold water and washed to remove visible residual buttermilk.

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Butter quality
Butter is important both as a cosmetic and for cooking. The storage stability of butter, while not comparable to ghee, is still on the order of four to six weeks. This gives butter a distinct advantage over fresh milk in terms of more temporal flexibility for household use and marketing. Butter collected in rural markets can even be taken by traders to bigger towns via the public transport system. Finally, even when slightly rancid, butter still has a market value in Ethiopia. Urban consumers of highland origin use butter for making traditional wots that are eaten with bread-like injera made from teff (Eragrostis tef). A degree of rancidity is actually desired to improve the flavour of wot. In sum, it is apparent that butter has outstanding features as a market commodity in all parts of Ethiopia (Coppock, L., 1994).
Butter is sold in rural markets and at public butter market in any urban town of the Region.
Type and quality of butter presented to buyers in these markets, however, shows variations.
For instance, samples of fresh butter taken from such markets by O 'Mahony and Bekele
(1985), exhibited texture defects, particularly loose moisture, and a distinct smoky flavour. In rural markets butter brought on Bisana or Gullo leaves is usually sold by volume, the weight of which can vary considerably. In the bigger town markets butter is sold by weight.
Moreover, the above researchers used samples of butter to analyse and determine the contents of moisture and free fatty acids (index of rancidity), and the serum pH (index of milk acidity). Results showed that, the serum pH of the samples ranged from 4.3 to 4.7, indicating that all the butter analysed was produced from sour milk. The moisture content varied from 2 to 43%, most samples having less than 16% moisture. The content of free fatty acids in the butter sold in rural markets varied from 0.23 to 1.20%. Older butter (locally called Bisil kibe) sold in the Addis Ababa market had free fatty acids content of as high as 23%.
For comparison, they also made similar study on the quality of butter made on farms around
Debre Zeit that use traditional methods and produce butter on a regular basis over a number of months. They report moisture content of the butter varied between 13 and 30% and content of free fatty acids was between 0.07 and 3.32%. On some farms there was little variation in the composition of butter produced in different months.
Churning efficiency
Further data presented by O 'Mahony and Bekele (1985), reveal that churning time was long on most of 25 farms they studied, while milk acidity was high on nearly all of them. As can be seen from Table 20 below, churns were usually either over- or underfilled, and in some farms the fat recovery rate can be as low as 56%.
Table 20: Churning efficiencies observed on 25 farms in the Ethiopian highlands
Factor
Quantity of milk
Acidity
Fat in whole milk
Milk temp.
Churning time
Fat in butter-milk
Fat recovery

unit
(litres)
(%)
(%)
(°C)
(min.)
(%)
(%)

Maximum
2
0.3
3.4
12
18
0.3
56

Minimum
19
1.15
6.0
25
303
2.0
93

Average
10
0.88
4.4
18
90
1.0
75

Source; O 'Mahony and Bekele (1985)
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In addition, commercial losses were considerable since much of the fat in the milk was not converted into butter––the product with the highest market value. The magnitude of these losses is indicated by the price differential between butter (average farm gate price of EB
9/kg or US$ 4.50/kg) and cottage cheese (EB 1/kg or US$ 0.50/kg). The butter produced also exhibited body defects in that it often had loose moisture and open texture.
The same sources also made additional field observations to study the existing churning practices of members of the Bakelo Service Cooperative in the Debre Berhan area, who expressed interest in cooperative dairy processing. These data, which were collected during a baseline study of 11 farms, also indicate considerable losses of butterfat and long churning times. Both surveys indicated that, in addition to being labour-intensive, traditional churning methods are inadequate to cope with a substantial increase in milk supply. Alternative methods to reduce churning time and increase the recovery of fat in churning were therefore investigated. 3.2.2. EXTENT OF PROCESSING
According to CSA (2003), of the total nationally produced milk in a given year, slightly higher than 5 % is sold, while the other 46.5 % is processed into butter and other dairy products. Similar figures cited by the same sources, however, indicate that the proportion of liquid milk sold in Amhara Region is below 1%, while around 58% of the milk produced is processed traditionally into butter. Nonetheless, as can be seen from Table 18, this average figure hides vast disparities between Zones and Woredas of the Region.
Moreover, farmers unanimously agree that the milk available for processing in rural households is seasonally influenced by the total milk supply. When milk supply exceeds daily household demand such as during and after extended rainy periods, the frequency of producing secondary products such as butter are most likely to increase. Based on anecdotal evidence, this principle also seems to apply when considering number of cows owned by
HHs. It follows that families having a higher ratio of lactating cows per person will commonly produce products like butter and ghee more frequently and for longer periods of time in a year than those with smaller number of cows.
The basic patterns of milk processing observed here such as churning soured milk to make butter, dehydrating butter to make ghee and removing whey to better regulate milk fermentation are all common traditional practices in the Region. In addition to these products, farmers in the Ethiopian highlands make a cottage cheese (ayib) by heating skimmed milk, which precipitates casein and some of the remaining fat (O’Mahony, 1988). Farmers, however, state that ayib has a short shelf-life owing to its high moisture content and this further precludes its storage and marketing.

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3.2.3. CONSTRAINTS AND IMPROVEMENTS NEEDED
3.2.3.1. LIMITATIONS OF TRADITIONAL PROCESSING SYSTEMS

Concerning small-scale milk processing, various studies on the dairy industry in Ethiopia cite the following to be major constraints for small-scale milk processing: level of technology; low fat recovery rates; short shelf life; and relatively higher bulk weight.
Moreover, It is obvious that for technical and economic reasons, technologies involved in liquid milk processing (refrigeration, steam generation, pasteurization, sterilization/aseptic packing) are not immediately accessible to the small scale milk processor. It follows then that the small scale manufacturer must undertake the processing of preserved dairy products with long shelf life at ambient temperatures such that marketing is done only once or twice a week. Adoption of ILCA ' clay pot churn with an internal agitator and a wooden churn could be best and most appropriate option for traditional small scale butter making provided at that the quantity of the milk to be processed is reasonably high (at least 50 - 100 litres/day). Also churning sour whole milk at low temperature resulted in increased fat recovery. Cooling to 3
- 4°C below ambient dry bulb temperature can be achieved by evaporative cooling in charcoal lined metal cabinets (O 'Connor, 1992). Salting butter with 2% salt increases its shelf life and yield. Salted
3.2.3.2. POSSIBLE OPTIONS

Small-scale processing is vital, for several reasons :
It improves the quality of milk and dairy products, thus protecting people’s health; It broadens the marketing radius, both socially and geographically.
Packaged milk and processed dairy products keep longer, and move further into towns and up the social scale;
It enables more milk to be sold, therefore providing more income for farmers ;
It gives farmers and entrepreneurs a start on the path towards a bigger modern dairy industry.
The conceptual factors taken into consideration, in forwarding the following processing options are:
It is important to find ways to help village farmers to start adding some value to their basic produce;
Simple technology is attractive;
Low-price products are needed;
There is a market for quality products in our Region; and

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Wherever there is a market for high-quality dairy products (such as major towns and cities) it is worth setting up a modern unit making up-market products, using only fresh milk collected from the villages.
Moreover, when choosing technologies, a lot of questions need to be answered. For instance, although villagers may receive more money if they do their own processing, how much will the processing cost? Will they end up with more income or with more problems? Who does the maintenance? Who procures the pouches? What about unsold milk? How much milk can they market? Do they trust each other and is their organization self-sustaining? Will the quality of their products be acceptable to available customers?
Therefore, after considering all the above facts, we propose the following milk processing systems as appropriate technologies for smallholder dairy production in rural areas of
Amhara Region.
A) Low-Cost Milk Pasteurizing
Conventional processing systems for pasteurizing and packaging up to 1 000 liters of milk daily are very expensive requiring an investment of up to US$50 000 for the equipment alone, depending on the system selected. Furthermore, conventional milk collecting systems require purpose-built facilities and specialized maintenance. Consequently, these drawbacks make them unsuitable for the poor smallholder farmers of our Region.
On the other hand, FAO has recently field-tested a low-cost, innovative milk pasteurising unit in Kenya (FAO, 2001). Built in South Africa the unit is called the MILKPRO. According to a brief background to the MILKPRO system, it was designed and developed in South
Africa with the smaller dairy farmer in mind, keeping cognizance of the difficulties facing the smaller dairy farmer who wishes to pasteurise, package, and market his own milk. It was deemed important to design a system which would;
- be inexpensive in terms of initial capital outlay;
- produce high-quality pasteurised milk in often difficult circumstances;
- be easy and inexpensive to operate, with low levels of required sophistication;
- be easily maintained and;
- be environmentally-friendly
With regard to its functioning, the MILKPRO, first fills raw milk into pre-formed polyethylene pouches. The pouches are immediately sealed, treated at 650 0C for 30 minutes in a batch pasteuriser, and cooled to 50 0C in a chiller. The heating process is automatically controlled. The unit can handle up to 100 litres of milk an hour and costs just under US$10
000. At a daily throughput of 750 litres the payback period can be as little as 12 months. The unit is operated simply by plugging into a standard single phase electrical power point, or by using a small diesel or petrol engine. It is especially designed for easy cleaning and maintenance and suitable for installation in existing basic buildings. Because the milk is pasteurised in the pouch, post-pasteurisation contamination - the main cause of spoilage - is virtually eliminated. A refrigerated shelf-life of up to 15 days is possible - a good sales plus
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in today’s highly competitive marketplace. The food grade polyethylene pouches can usually be manufactured in-country and printed with eye-catching designs. Though the MILKPRO system was developed only recently, more than 60 units are now in use across 11 countries in
Africa, both with small farmer groups and with individual farmers.
The concept has proved to be a huge success, and has successfully satisfied all the design criteria. Post-pasteurisation contamination is no longer possible as long as the packaging is not damaged prior to use. Plastic sachets or bottles can be used, and the milk pasteurised by the system consistently shows excellent quality-test results. Being manually operated, it is simple to run and maintain, with no moving parts. Keeping the system clean is also made very much easier since the only part which requires daily cleaning is the sachet/bottle filling unit. The water used to heat and chill the milk need only be replaced if a sachet or bottle is not properly sealed and leaks.
The system is flexible to the extent that a standard unit can profitably process between 100 and 1000 liters of milk per day. Its only potential drawback is the fact that it operates on electricity, which is not always available in far-flung rural areas. Work is currently being carried out to determine whether alternative energy sources like solar power and bio-gas are feasible options.
Having said that, the same sources mention that, there are some MILKPRO units in South
Africa which have been running successfully for 8 years now, with no problems. The system has also been evolving over time, with improvements being added to the system at every opportunity. B) The Village Milk System
The FAO, as part of its recent dairy related e-conference (FAO, 2001), has proposed the following system for consideration in developing countries. Description of the system has been directly taken from the proceedings and presented hereunder.
For the first time FAO is combining these two innovative technologies under its Village Milk
System - the provisional name for the initiative. The system is flexible and offers groups of small producers the opportunity to add extra value to their milk. FAO’s immediate aims are to increase producer returns by up to 50 percent, and to make increased volumes of attractively packaged, safe pasteurised milk available to consumers at competitive prices.
Initial indications are that the investment cost for the system - invariably the main risk for the small scale entrepreneur - can be cut substantially (indicative costs are listed below in Table
24). Another advantage of the system is its ability to handle very small quantities of milk (as little as 50 litres a day) efficiently and safely while local milk production and markets are being built up.
Yet a further benefit is the potential to reduce energy and water usage. Because the only plant items to come into contact with milk are the milk cans and the filler, the amounts of water and detergents used for rinsing and cleaning equipment are significantly reduced. This reduces the amount of waste water and the effluent loading, which in turn keeps costs down and is environmentally friendly.

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The Village Milk System meets many of the key requirements for efficient, low-cost, lowrisk milk collection and processing by smallholder marketing groups, whether they be cooperatives or private companies. FAO and UNDP have already started a project with the
Grameen Bank in Bangladesh where four small community-owned dairy enterprises will use the system to process small quantities of milk collected from thousands of very poor farmers.
Each small enterprise will provide full-time employment for 12 people, including milk collectors and milk distributors who will use insulated cycle rickshaw vans.
The preliminary financial analysis indicates the enterprises will breakeven at a throughput of about 210 litres of pasteurised milk daily, one third of targeted sales for each enterprise. At this level, producers will get 70 percent of the ex-factory processed milk price.
Table 21: Village Milk System - Estimated Costs (US$)
I) Basic Equipment
Item

Number
Unit

1) Milk Collection milk churns (50 litres) milk collection point kits a
2) Milk Processing milk reception/testing kit b milk filling/pasteurising/cooling unit miscellaneous furniture/fittings
Sub-total
3) Optional Equipment generator (8 kva) deep freezer (20 cu ft)
Sub-total
Contingency (5%)
Grand Total

Estimated Cost (US$)
Total

40
4

40
150

1,600
600

1
1

400
10,000

400
10,000

1

400

400
13,000

1
1

5,000
1,000

5,000
1,000
6,000
1,000
20,000

a

Measuring jugs or spring scale/tray/strainer/lactometer-thermometer/alcohol gun etc

b

Weigh scale/strainer/lactometer/alcohol gun/thermometer/wash tank/plunger etc

II) Basic start-up supplies a
Item
LPs chemicals packaging materials (500ml)

Quantity
Estimated cost (US$)
5,000 sachets b
1,000
110,000 pouches
3,250
c

cleaning/sanitising chemicals
68% alcohol (for milk screening)
Total

125 kg c
50 litres c

a

Average daily throughput of 600 litres (to allow for seasonal fluctuations in milk deliveries).

b

6 months supplies

c

150
100
4,500

3 months supplies

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C) The ISAAC Solar Icemaker
The following description of the icemaker is drawn from FAO (2001).
Preservation is an important aspect of post harvest processing of milk and cooling is one of the best preservation techniques. But cooling at collection centers that do not have electricity has been so costly that less desirable alternatives are frequently accepted.
Solar Ice Company is located in Annapolis, Maryland and it promotes, produces and supports the ISAAC Solar Icemaker. Immersing milk in cans into an ice bath is a good method of cooling milk at small-scale milk collection centers. The problem is that many small-scale collection centers do not have ice because they do not have electricity. Thus milk producers resort to alternative methods of preservation.
It would be a great benefit if an icemaking system could be developed for remote small-scale milk collection centers. The most important requirement for such a system is that the cost is low. More specifically, the amount of income it generates is able to pay for the system in a reasonably short time period. To meet this requirement for the rural off-grid application, the system should 1) not require electricity or fuel supply. 2) be very durable and low maintenance. One class of refrigeration systems, which are particularly good candidates for remote off-grid icemaking, are the intermittent absorption refrigeration (IAR) systems. IAR systems have a vessel of absorbent and refrigerant that is heated causing liquid refrigerant to be collected in a second vessel. As the vessel cools, the refrigerant is reabsorbed and a refrigeration effect is produced at the second vessel. These systems are composed generally of steel vessels, piping and valves. Since such components are low cost and very durable, part of the requirements of an appropriate system are satisfied. In addition, IAR systems can be powered by solar energy.
Thus IAR systems have great potential for rural off-grid icemaker market.
The ISAAC(tm) Solar Icemaker, which was developed by Energy Concepts Company of
Annapolis, Maryland, USA, takes full advantage of the features of IAR. This system meets the requirements of low cost and sufficiently high productivity to be cost effective. The solar collector is 12.1 square meters and it produces about 50 kg of ice per sunny day. With minimal low cost maintenance the ISAAC(tm) will function for at least twenty years. A photo of the ISAAC Solar Icemaker and a day’s production of ice can be seen at http://members.aol.com/SolarIceCo. The paper also presentd some more details on the Ice Maker,
•

Cost of the unit : Price is dependent upon the number of units and volume production. In widespread deployment, the price may be $4,000 to $5,000 per unit.

•

Weight (for shipping purposes) : The unit is shipped in components. The heaviest is about 350- lb. The total weight for the 16-foot unit is about 1000 lb. Smaller units are available. ___________________________________________________________________________________________________________________________
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•

Maintenance costs: There are no batteries. No filters or oil need to be replaced regularly.
Annual maintenance expenses should average $100 to $150. The system will last twenty years or more.

It is interesting to estimate the income that can be generated by 50 kg of ice per day. One kilogram of ice is able to cool nearly two liters of milk to 3 degrees centigrade. If the additional income of selling to a more lucrative market is10 cents per liter of milk, then the annual additional income is $3,000 (based on operating 300 days per year). This amount of money will cover the cost of an ISAAC(tm) in a reasonably short period and then provide money for other village projects.

3.3. INTER-REGIONAL PRODUCT FLOW
3.3.1. GENERAL
As described earlier in Sec.3.1.5.2, the supply of milk and other dairy products from the traditional sector in the Region is mainly season dependent. Accordingly, milk supply is strongly influenced by seasonal fodder availability and reliability of achieving minimum feed requirements of milking cows. Thus, there is normally surplus milk during the rain season, when pastures are plentiful and of reasonably good quality, and very little milk during the dry season when forage is scanty and of low nutritive value. Most of the milk produced by this sector is consumed at home. Where and when surpluses occur, particularly during the rain season, the milk is sold to urban centers.
Based on these rainfall variations, it generally seems Woredas falling within the two-rain season belt are more amply supplied with dairy products than those Woredas with a single rainy season and a protracted long dry season. The prevailing view of farmer respondents also indicates that production and thus the portion allocated for markets fully follows these rainfall/dry season demarcations. Marketed volumes, however, in addition to season, are subject to other governing factors such as distance to market and production volume of a given household.
Generally speaking, therefore, all rural markets of the Region are assumed to be amply supplied with dairy products in the rainy months. At the same time, following the seasonal variation modalities, local supplies are further assumed to progressively decrease towards the peak and end of the dry season. Hence, it can be safely assumed that the majority of rural markets experience a period of surplus at least once a year, although the length of this period will vary, depending on resource endowments of respective localities. Similarly all rural markets, albeit in different months of the year, will become temporarily net importers of dairy products, especially butter.
Yet still, local supply of dairy products to almost all urban caters of the Region seems to be never sufficient to cover the demand of the town populace, particularly those of the big towns such as B/Dar, Desse, Gonder etc. Supplies from the import market hence fill part of this demand. Supply form other neighboring regions towards filing the unmet demand of Amhara
Region, however, is rare. Dairy product flow therefore seems to be restricted mainly to within region exchanges and export of butter to other regions, especially towards Tigray from the NE areas of Amhara and toward A/Ababa from all directions.

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3.3.2. WITHIN REGION FLOW
The major assumption in descrilsing within region better flows is that local pdn is primarily whiled to satisfy local needs mite surpluses being directed to deficit areas. Bared on this and anecdotal reports of respondents, the prominent surplus butter producing areas in the region include place such as
The Awi highland supplying the Addis Kidam Market;
The Tis-Aby -Este Enclave supplying the B/Dar market
The Fogera plains supplying the B/Dar and Gondar market
The Alefa and Dembia plains supplying the B/Dar and Gondar market
The Metekel and surroundings supplying the B/Dar and Gondar market
The Kobo-Raya plains supplying N/ and S/Wollo towns
The Mersa- Girana plains supplying N/andS/Wollo towns
The Basso andWorana highlands supplying N/Shoa towns
The extent, intensity and flow direction of within region butter transfers are nevertheless more complicated as arbitrage over space plays a major role, in which transactions costs and price differentials determine the flow. For traders, the main factor governing decisions seems to be the price different between any given town markets. Thus, it is normal for renowned butter producing areas such as the D/Birhan area to export better to other regions in times of excess supply and import form as far as the Desse area in lean periods when local surpluses become dry and local prices show exorbitant and hikes.

3.3.3. INTER -REGIONAL FLOWS
Butter produced in the region flows to other regions especially in the following directing
From the N/Gondar areas to Tigray through the Tekeze route
From Kobo and environs to Tigray through Alamata
From Awi highlands to A/Ababa
From East and West Gojjam to A/Ababa
From N/Shoa areas to Oromiya towns such as Sheno
From N/Shoa areas to A/Ababa
In summary, results of the above discussion suggest that the flow direction for butter produced in the Region include markets both within and outside the region. Flow direction and pattern however, seems to be highly variable from year to year in light of the interseasonal production vitiations. Similarly arbitrage over space and price differentials are also important factors determine flow pattern. Currently, within region flows seem to have ascendancy over inter-region flows. A gradual increase in inter-region flows in future is expected as more attractive prices in markets outside the region pulls the flow towards such markets. ___________________________________________________________________________________________________________________________
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Moreover the chance of increasing butter flows to A/Ababa and other big towns is future is justified based on the excellent comparative advantage apparent in areas such as the Gojjam and N/Shoa highlands and the various dairy prone valleys such as the Fogera, Dembia ,
Kobo and etc well suited to improved dairy production.
Moreover, with concurrent efforts of improving the existing dairy system in the region, it is more likely that gradual increases in dairy marketing would be observed over the long term.
Besides as a result of higher amounts of per capita milk supplies in producing HHs increasing over the long term coupled with improvements in processing systems, butter will continue to make the larger proportion of total dairy sales. Dairy marketing is thus expected to become more complex given the expected urban growth and the existing trend of increasing prices for dairy products.
Given these conditions, maintaining an unhindered flow of butter from dairy farms in the
Amhara highlands to urban canters within and outside the region is crucial for reducing insecurities and maintaining favorable terms of trade for dairy products. Likewise, polices and procedures, that facilitate the movement of butter from producers to markets outside the
Region could also be useful because this would increase both demand and price. Enhanced quality regulation and application is also recommended so that adulterated products may not compete with Regional products.

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4.

DAIRY MARKETING SYSTEM

4.1. STRUCTURE AND CONDUCT OF THE DAIRY MARKET
According to FAO/ILRI (2001) dairy product markets typically differ in several key ways: a) by the types of products handled, and b) by the number of intermediaries involved, and the role each plays. These two aspects are often linked in that more processed and thus higher value products often involve more intermediaries, each of whom adds some delivery or transformation service to the product. Simple distance between source and sales areas, or the density and scale of the production system, even without product transformation, can however also increase the number of intermediaries, due to the need for assembling, bulking, transporting and distributing.
In line with this, some important terms related to characterization of a dairy marketing system are defined here.
Marketing system in our case follows the definition of Kaynak (1985) where he defines it as "the sequence of transactions and commodity movements between the producer and the ultimate consumer". Such a sequence includes bulking (or assembly) and distribution.
A dairy product is defined as milk or any product derived from milk. Within the general class of dairy foods, different products will be differentiated by their physical composition or form, or where the market or consumer differentiates them (Jabbar, et.al. 1997).
A dairy product is considered to be standardized when it meets a legally accepted minimum standard or quality (e.g. pasteurized, homogenized milk with 4% butter fat content) as opposed to a non-standardized dairy product which does not conform to any such standards e.g. raw milk (Jabbar, et.al. 1997).
Bain (1968) defines market structure as characteristics of a market, which seem to influence strategically the nature of competition and pricing behavior within the market. Wolday and
Eleni (2003) further state that, food-marketing systems should be evaluated in terms of the degree of market concentration, barriers to entry (licensing procedure, lack of capital and know-how, and policy barriers), and the degree of transparency.
Likewise, Gebremeskel D., and et,al.(1998), in describing elements of structure and conduct, emphasize that among the major structural characteristics of a market are the degree of concentration, that is, the number of market participants and their size distribution; and the relative ease or difficulty for market participants to secure an entry into the market. Market conduct refers to the behavior of firms or the strategy they use with respect to, for example, pricing, buying, selling, etc., which may take the form of informal cooperation or collusion.
Based on these and similar descriptions, the structure and conduct of the dairy market in the
Amhara region is discussed in detail in the following sub-sections.

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4.1.1. MARKETING FUNCTIONS
In reference to agricultural commodities, Kohls and Uhl (1985), describe marketing as involving the transformation of goods in space, time and form from producers to consumers at the lowest possible cost. In the same vein, Harris (1995), states that a marketing system can be regarded as a multi-layered sequence of physical and other activities, and of transfer of property rights from the farm-gate to the consumer. They further emphasize that marketing systems are inherently complex in structure arguably much more so than is agricultural production. Thus, although trading firms are assumed to buy and sell, in practice they perform many more activities in addition: brokerage, storage, processing, transport, the finance of trade and the finance of production.
In line with this, it was found that, seven distinct functions, grouped into 3 major classes, under grid dairy products marketing in Amhara Region. The identification of these functions is further believed to help us understand the role each participant has in the market chain and the services rendered by each with regard to these functions. A brief description of these functions is therefore presented below with the above intent.
A) EXCHANGE FUNCTIONS
i)

Collection/Assembly:- concerns the initial entry of a dairy product into the dairy marketing channel. The function is carried both at rural village level and in town markets. ii)

Distribution:- involves the sale of the product to the next level hierarchy until it reaches consumers.

B) PHYSICAL FUNCTIONS iii) Processing:- transforms the form of the commodity. This is an important function in dairy marketing, as farmers, and cooperatives need to process milk before selling it. iv) Transportation:- refers to spatial movement of a commodity. Thus, arbitrage over space is especially beneficial to producers or traders in surplus producing areas as it helps them gain better prices, while it as well helps consumers in deficit areas by reducing prices.

v)

Storage:- relates to maintenance of stocks for a certain period. This utility, in conjunction with capital, enables markets to function over time. Holding capacity of stores, coupled with periodicity and technology, thus becomes an important factor in this function.

C) FACILITATING FUNCTIONS vi) Financing:- refers to the financial investments made by participants in their trade functions listed above. This function, moreover, includes the risk bearing of trading.

vii) Grading:- includes the sorting, grading and sometimes packaging of products in term of both quality and quantity so as to satisfy consumer demands.
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4.1.2. MILK MARKETING CHAIN
In this study, a marketing system for milk involves all elements that influence, directly or indirectly, the movement, transformation and price of fresh milk once it leaves the point of production. These include: (a) collection of milk from dairy producers (b) the transformation system, if any, which processes and/or packages milk products for final consumption (c) the transportation system that moves milk and milk products between functions (a) and (b).
Thus, considering the above marketing functions to be performed by market intermediaries, four major market intermediaries were distinguished in the marketing system for dairy products in Amhara Region: Producers; Dairy Cooperatives; Small Dairy Traders; and Dairy
Development Enterprise (DDE).
4.1.2.1. IDENTIFICATION OF ALTERNATIVE MILK MARKETING SYSTEMS

The concept of alternative marketing systems for milk described here was based on similar dairy marketing studies undertaken in other parts of Ethiopia by Debrah and Anteneh (1991), and Mbogoh, et.al, (1994), which identified different marketing chains. Moreover, in this study, in addition to secondary sources, such chains were identified through the different types of buyers to whom the product was directly sold by producers. Hence it was through the survey of milk selling patterns of producing households in the sample Woredas that the alternative sales outlets of fresh liquid milk were established.
Fresh milk marketing is channeled through both formal and informal outlets, with informal markets supplying no less than 95% of the total fresh milk for the small and large towns of the Region. The sole formal outlet in the Region is the government enterprise in Addis Ababa called the Dairy Development Enterprise (DDE), which collects milk from D/Birhan and surrounding areas. The informal fresh milk market involves direct delivery of raw milk by producers to consumers through different marketing channels.
As a result, depending on the involvement of the market intermediaries in the marketing of milk from the producer to the consumer, the following were observed to be the major fresh milk marketing channels:
i) Producer - - >Consumer [system M1 ] ii) Producer - - > Retailer - - >Consumer [system M2 ] iii) Producer- - >Dairy Cooperative - - >Consumer [system M3 ] iv) Producer - - >Dairy Cooperative - - >Retailer- - >Consumer [system M4 ]
v) Producer - - Dairy Dev. Enterprise - ->Consumer [system M5 ]
The common feature among these marketing agents was that they all purchased fresh milk from dairy producers and the major product, which they distribute to consumers, was liquid milk. The pattern of the milk marketing channels and parts played by each marketing intermediary are further elaborated in the following paragraphs.
All milk that is sold through DDE (System M5) is said to pass through a formal market. The informal market consists of direct sales to ultimate consumers (System M1), milk sales through retailers (System M2) and milk sales through dairy cooperative (System M3 and
M4).
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Figure 3: DAIRY MARKETING CHANNELS IN AMHARA REGION
Raw Milk Producers

Cooperative s DDE

Private
Processing

Itinerant
Traders

Assemblers

Wholesalers

Catering
Institutions

Retailers

Consumer Households

4.1.2.2. RELATIVE IMPORTANCE OF ALTERNATIVE MILK SALES OUTLETS

Discussions held with producers during the field survey revealed several important features of the above mentioned milk sales outlets. Asked as to the reasons for choice of their preferred outlets, farmers’ responses were either: a) lack of other alternative channels; b) short distance to the outlet; c) the relatively good prices received from that particular outlet.
Likewise, considered across all visited Woredas, selling directly to individual consumers was by far the most preferred outlet by the majority of small producers. Further probed as to the
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reasons for the popularity of this outlet, respondents commonly noted that the slightly better price received from individual consumers in tandem with the contractual arrangement frequently used by customers gave them the safety of assured market for their daily milk output. By way of illustration, farmers selling their milk to hotels in Bahirdar obtain birr 1.60 to 1.80 per litre, while the unit price increases to birr 1.70 to 2.10 when sold to individual urban consumers. Producers near Desse town also indicate similar trends, whereby each litre fetches birr 1.50 when sold to hotels as compared to birr 2.00 when sold to individuals. Next in choice was selling to hotels and bars, as they had the capacity for buying relatively larger volumes of milk. The DDE outlet, however, seems to be seen as the last alternative by those who are near to collection centers.
Rough guess estimates as to the shares of fresh milk sold by producers through alternative outlets by season are hard to come by. Nonetheless, the majority of replies seem to indicate that: •

There was no significant difference in sales patterns between dry and wet seasons; •

In most visited Woredas, however, there was a marked decrease in demand during Christian long fasting seasons such as Lent. Farmers were thus unable to sell all the milk they intended to sell and received lower unit prices in such periods; and

•

Volume of milk sold and prices obtained vary seasonally, with relatively more volumes sold during the wet season while better prices obtained in the dry season.

Choice patterns of this kind also agree with results of similar studies carried in other parts of the country. Debrah and Birhanu (1991), for instance studying the Addis Ababa dairy market, found that almost all small producers (96%) sold their milk to individual consumers, who paid higher prices than either catering or governmental institutions. Large-scale producers in the same study, on the other hand, were found to by-pass the most profitable outlet of individual consumers and sell to institutions, due to the risk of non-sales and the high opportunity costs of labor in selling milk from door to door.
Consequently, the above-mentioned factors, coupled with the absence of the formal packed milk market, are driving the direct sale of raw milk from producer to consumer to continue as the largest single market outlet in our Region. Obviously this would lead us to surmise as to the relatively unsophisticated nature of the dairy market. Furthermore, considering milk production being typically a year-round activity, and given the limited marketing options available for milk producers in remote areas, the existence of dairy cooperatives in the vicinity has been observed to change the product sold and the marketing chain used.
Therefore, we can tentatively conclude that, in the case of smallholder dairying in Amhara
Region, with the atomized nature of both production and consumption, marketing of small quantities is optimally conducted directly from producer to consumer. Nonetheless, similar to
Debrah and Birhanu’s (1991) appropriate conclusion, the search for stable market outlets by rural milk producers in our Region seems to be complicated by significant variations in milk production and dairy product consumption patterns.

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4.1.2.3. THE ROLE OF MARKET OUTLET IN DETERMINING TERMS FOR MILK SALES

When we consider buyer-seller relationships in relation to milk markets, due consideration has to be given to the strategic roles that contractual arrangements can play in conveying non-monetary exchange values that are intrinsically important to exchange-partners. Equally significant is the notion that relational transactions are mainly founded on trust (Fafchamps,
1996) and safeguarded by contracts, which may either be in explicit or implicit forms.
The potential usefulness of such contractual arrangements during milk sales is especially apparent when examining the two peculiar aspects observed in the sale of milk by smallholder dairy farmers in the Region. First, prices differ widely within the same location and time, even though local milk markets otherwise seem to be relatively well integrated
(Staal, Delgado, and Nicholson, 1997). Second, as mentioned earlier by producers, spot sales for cash tend to be at a higher unit price than sales where the producer only gets paid a month later. In line with this, farmers declare that arrangements for direct sale to household consumers offered the widest range of contractual arrangements. This can partly be explained by the relative ease of negotiating customized contracts with neighbouring households and partly by geographical segmentation of household consumers. They note that the household consumer market is commonly geographically segmented, with sales to neighbouring households and acquaintances being more oriented to credit sales, while sale to unknown households in further away market centres may be more oriented to cash-sale contracts.
Similarly responses gathered suggest that the role of physical market accessibility, as measured by the distance to the nearest market centre, is very important in deciding the kind of market outlet and hence the mode of payment available to smallholder dairy farmers; a unit increase in the distance from nearest town or market centre increases the proportion of milk sold to cash-sale markets. This can be explained by the fact that the further away a household is from a major market centre, the less choice he has in selecting outlets. Thus farmers located far away from towns and main roads are likely to depend on on-the-spot cash sales to sell their marketed surplus. Other research results (Ahmed, et.al., 2003) likewise indicate that structure and size of producer family also play an important role in the marketing and choice of outlet for milk sales. For peri-urban farmers, the number of children preferably aged below 15 years of age a household has increases the chance of participating in milk markets.
4.1.2.4. SMALLHOLDER MARKETING CONSTRAINTS AND RISKS

Raw milk is a highly perishable (non-stock) commodity with a daily flow (once or twice-aday harvest) of marketable streams that extend for at least a full lactation period. The frequency of market transaction therefore tends to be very high (Staal, Delgado and
Nicholson, 1997). It is reasonable to presume that there is value in contractual forms designed to offer market assurance to producers that streams will be maintained, especially when milk is plentiful on the market during the rainy season and producers face the risk of not being able to sell a non-storable (for them) commodity (Nigigi, et al., 2000). It is therefore expected that the farmer does not search for market outlets one transaction at a time. Rather, the farmer is expected to engage in a purposive effort to secure transactions over the horizon of at least one full lactation period (about one year). This suggests that
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repeat transactions under a contractual arrangement are preferable to many farmers when compared to simple spot transactions.
Another feature of particular significance when discussing smallholder milk marketing is the typically small quantity of individual daily marketable surplus. This coupled with the usual practice of paying bills and wages at the month’s-end, place a great significance on the timepattern of milk payments.
As Nigigi, et al., (2000), rightly describes, lump-sum payments may be intrinsically valuable where liquidity flow is required in lumps to match lumpy expenditures e.g., school fees or farm production expenditures and there is little financial intermediation. Furthermore, receiving daily payments in coins for small transactions has obvious disadvantages in any society, especially without banks, over a reliable periodic settlement in larger amounts. It is therefore logical to presume that contractual arrangements that combine repeat transactions with the ability to accumulate daily payments (so as to hand the farmer a lump sum amount at weeks, fortnights’ or months-end) are preferable to the receipt of a daily stream of small amounts of money.
Volume unpredictability has also been raised as one more risk faced by producers. Farmer respondents mention that they are forced to change their outlets many times within a given time period. Further probing as to the reasons indicates that, the volume unpredictability inherent in milk supply from smallholders, to be one of the culpable factors causing the reliability-of-outlet constraint. Given, marketable surplus from a smallholder farmer is a residual of home consumption and the production of often only one or two cows; it therefore varies. This coupled with the fact that the farmer can sell in a number of different market outlets means that the aggregate volumes received by the buyer may fluctuate substantially on a daily basis. Added to this is the fact that production is mainly based on rain-fed pastures and crop residues, with little or no concentrate supplements.
The other significant risk mentioned by farmers is the non-collection and/or undue rejection of milk. Usually repeat transactions with large milk buyers such as hotels and bars are typically not volume-based. They only entail minimum quality related specifications, preferred time of delivery, and the mode of payment. Producers are not therefore forced to supply a fixed volume of milk daily. Due to this, farmers usually complain that such open contracts leave them vulnerable to the risks of losing entire marketable surplus to noncollection or, to loss from undue rejection of milk as unwholesome. In other words, hotels and cafeterias only pay for milk collected or received subject to the minimum specification of quality. Thus the farmer bears full loss if the buyer fails to collect or if milk is rejected as unwholesome. Finally, smallholder options for selling to large buyers are likely to be limited to implicit contracts on credit. Large buyers face adulteration risks in pooling milk daily from many small sellers, in addition to market risks of throughput shortfall, and therefore confine themselves to regular trusted sources (Staal, Delgado and Nicholson, 1997). This forces such buyers to periodic payment for cost minimization reasons.

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4.1.3. BUTTER MARKETING CHANNELS
4.1.3.1. CHANNELS

According to Jabbar, et.al. (1997), a marketing channel is composed of a set of separate but interdependent organizations involved in the process of making a product available to consumers. The use of a marketing channel is convenient particularly when the producer does not have the time or financial means to carry out direct marketing. Intermediaries are usually able to make the product widely available and accessible because they are specialized and have experience and contacts. They also have a better understanding of the butter market.
Intermediaries take the risks involved in marketing and also pay for the produce immediately.
Therefore, in keeping with the Mbogoh, et.al, (1994) system characterization methods, the following 5 major alternative butter-marketing channels were identified based on the final butter retail outlets for consumers:
i) Producer - - >Consumer [system B1 ] ii) Producer - - > Retailer - - >Consumer [system B2 ] iii) Producer- - > itinerant traders - - >Consumer [system B3 ] iv) Producer - - > shops, supermarkets - - > Consumer [system B4 ]
v) Producer - - >Dairy Cooperative - ->Consumer [system B5 ]
4.1.3.2. RELATIVE IMPORTANCE OF ALTERNATIVE BUTTER MARKETING SYSTEMS

Discussions with producers and various types of traders indicate that the first two (B1 and
B2) systems, depicted as, Producer → Consumer chain, or Producer → town trader →
Consumer chain, are the main channels through which the large proportion of total cooking butter flows from the producer to consumers. When using either of these two chains, farmers usually went to their nearest local markets, although cooking butter was also sold at the farm gate. In smaller towns, which are naturally markets of first sale, peasant producers usually prefer to sell direct to urban dwellers (individual customers, local hotels, etc) and in the absence of this, sell to their favorite regular traders in the butter berenda of local markets.
When asked to indicate why they preferred these outlets, most producers replied that they obtained higher prices from individual consumers than from other buyers.
After the above two, the next most important system is B3, i.e. sales by itinerant traders. This channel is especially the regular outlet for producers located far from urban centers. In some cases it may be possible for itinerant traders to sell directly to institutional consumers such as hotels, restaurants, and hospitals. This type of direct marketing, however, requires negotiation, which may result in a written contract of the duties and obligations of both parties. It also requires continual interaction over time between producer and buyer, a standard butter quality agreement and a constant supply. The producer must carefully evaluate the issues involved including the regular production and transport of large quantities of butter.
Finally, in areas where there are dairy cooperatives, either in rural areas or towns, member producers usually sold their milk to their respective cooperatives, who in turn process and sell butter to whichever buyer they get.

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4.1.4. TYPES AND ROLES OF MARKET PARTICIPANTS
The analysis of marketing channels for dairy is also intended, as stated by Mendoza (1995), to provide a systematic knowledge of the flow of the dairy products from their origin
(producer) to their final destination (consumer); and this is acquired by studying the participants in the process. For that reason, the movement of dairy products in the Region was studied and found to have spatial variations depending especially on proximity to urban consumption centers. Those farther to urban areas are least market-prone, in that producers are not much involved beyond production and farm-gate sale of the products. Peri-urban dairymen and their families, however, play a major role in the sale of milk and processed milk products. The other major difference is that whereas the dairy market in bigger urban areas includes both liquid milk retailing and product trade, processed products, primarily butter, play a major part in dairy marketing of smaller towns. Special cases of cooperative dairy marketing are also part of the system in N/Shoa, S/Wollo, E/Gojjam, and N/Gondar
Zones whereby they facilitate transactions of larger quantities of milk and other products.
In line with the above, given dairy trade is composed of milk and butter trading functions, and considering the apparent different channels used in their exchange, market participants of each are treated separately as follows.
4.1.4.1. MILK TRADE PARTICIPANTS

The list of major participants of milk trade in the Region includes mainly: Producers,
Mobile/itinerant traders, Cooperatives, DDE; and Milk retailers (hotels, shops/kiosks, etc.).
Further division of the above can be made between those who trade in milk as their main business (DDE, dairy cooperatives); and those who trade in milk as part of other retail activity mainly involving sale of other consumer items (hotels, shops/kiosks). In the latter case, the milk trade often consists of a little portion of total turnover.
Mobile milk traders
Mobile milk traders are characterized by the absence of fixed business premises. Such traders for the most part collect their milk from rural areas more often 10 to 20 km distant, and deliver to customers in urban areas. Their mode of transport is mainly by bicycle (e.g.,
Bahirdar area) or public transport (e.g., Dejen, D/Markos, Gondar areas) as well as on foot and horse carts (e.g., D/Brhan area). The majorities typically sell 5-20 litres of raw milk daily. Their favorite sales outlets are catering institutions such as hotels, bars cafeterias, and etc. Another feature of mobile traders is that they do not have the necessary trade licenses and therefore are neither regularly supervised nor taxed. Hence, compared to other traders, they enjoy the highest returns to labour per litre of milk sold, as they are free from fixed asset costs and tax and related operating costs. Nevertheless, a major current constraint in the case of such mobile milk trade is the lack of legal recognition and regulation as the need of fixed premises compromises milk quality.
Dairy Cooperatives
There are totally around 21 dairy cooperatives in the Region and can generally be grouped into two types, viz, urban and rural. The rural coops (18 in number) are obviously composed
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of farmers, while the urban coops are usually formed by cow owners of differing occupations but residing in towns. Similar to Halloway et al (1999) description, the milk cooperatives purchase raw milk from producers, and then use hand-operated equipment to process the milk into butter, local cottage type cheese, and yoghurt-like sour milk. In a strategy to corner part of urban milk market, most coops rent premises and establish milk shops in nearby towns.
Employees are then hired to retail the milk in the shop. Each member delivers milk to the shop daily at prices that are 10-20% less than the price paid by consumers.
Most coops mainly sell both unpasteurised raw milk and derivatives such as yogurt (Ergo), soft cheese (Ayib), and butter. They vary from those with a sitting arrangement for customers
(e.g., Kokeb Coop. in Chacha town) to those that act only as retail or whole-sale/distribution points (e.g., most of such shops in Desse). In the case of milk, either fresh milk only, or both fresh and fermented milk (yoghurt) as well are sold. Besides labour from members, wage employment is actively involved in running the milk shops. Typically, the value added from processing the fluid milk into products (less funds retained for maintenance of the group’s facilities) returned as a semi-annual lump-sum payment to cooperative members (Halloway, et al, 1999).
To highlight the above, mention should be made of at least two of the farmers dairy cooperatives visited during the fieldwork of this study. One is the Angolela dairy cooperative, located 7 kms from D/Birhan town, which was established in 1998 with the institutional support of the former SDDP Project of MOA. Now, 6 years later, the cooperative has 94 members and collects an average 600 to 700 litres of milk daily, which it processes and in turn sells as butter and skimmed milk to local consumers, and traders.
DDE (Dairy Development Enterprise)
DDE is a parastatal organization, which according to its organizational charter is charged with the responsibility of (i) collecting fresh milk from dairy producers especially those in rural areas far from dairy processing plants, (ii) processing fresh milk into standardized milk and milk products, and (iii) selling and distribution of high quality milk and milk products to consumers in urban areas. DDE owns and operates a milk processing plant located in Addis
Ababa, and this plant, which processes milk collected from D/Birhan and other areas in North
Shoa, is the relevant plant for the study. In North Shoa, DDE has -- milk collection centers located between D/Birhan and Sheno towns. It should be noted, however, that, although DDE collects milk in these areas, it does not sale its products to those towns.
Farmers selling their milk to DDE, however, seem to choose this outlet only if faced with lack of other alternatives. For instance farmers near Chacha town, who sell milk to DDE, cite the unreliability and inconsistency of milk collection time as one of the reasons. Farmers try to reach the collection point in the agreed time but the DDE van arrives 1-2 hours late, due to which milk from some farmers may be refused for quality reasons. The other aggravating reason cited against the Enterprise concerns the late monthly settlement of paychecks.

Retailers
Small-scale dairy retailers in the Region are mostly found in the larger urban centers, such as
Zonal capitals. They are usually individual dairy product sellers that deal with the sale of milk and processed dairy products. Mostly they are sedentary with little vending shops. They buy their supplies from farmers, processors or cooperatives. Though the smallest among the
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major agents in small-scale dairy marketing and processing, they are interspersed in many towns and offer employment mainly to family members.
4.1.4.2. BUTTER TRADE PARTICIPANTS

In fact, almost all butter retailers in all zones of the Region, purchase from farmers. Likewise, a very small proportion of butter traders also operate as buying or selling agent for other traders. This apparent lack of functional specialization makes it hazardous to categorize respondents by their function in the marketing chain. Be that as it may, a rough general description of the sub-groups is briefly attempted as follows.
Collectors
Collectors undertake the initial work of assembling butter from various producers or small rural markets. They operate either on a commission basis or by purchasing on their own account. Where the quantity of butter collected at each stop is small and frequent, this system is often the most economic. Collectors may be itinerant merchants, producers themselves, assembly merchants, wholesalers or their agents, or retailers.
Most traders in this position noted that butter assembly is mainly founded on personal relationships. They mention personal reputation and relations as the most essential element to profitable assembly operations. These qualities and relations extend both ways: down to the farmer from whom they collect and up to the next level trader to whom they sell their collections. With few exceptions of credit on forward sales, most of their butter purchases and sales involve cash.
Itinerant traders
By definition, itinerant traders are butter merchants who by occupation being farmers collect butter from nearby producers, and sell their products mostly direct to urban consumers. In other words they can be called as village level collectors or sub-collectors. Hence, they differ from the B2 town traders a) because they are unlicensed part-time traders, and b) they do not operate at any particular markets or business premises. They sell irregularly in open-air markets or hawk their butter moving from place to place. Moreover, itinerant traders seldom sell their butter to traders unless they lack buyers and are pressed for time or money.
Assembly merchants
Assembly merchants may be divided into the following two categories: local assembly market; and, cooperative processor-packer.
Local assembly market. All local assembly markets for butter in our Region are found in towns and are municipality provided enclosed spaces for the use of sellers. Sales mostly take place by private negotiation, subject to individual agreements on quality and payment arrangements. None of the local assembly markets, however, seem to be provided with cold storage facilities for the convenience of market users.
Cooperative processor. The same type of enterprise may be set up and run by a cooperative association of producers. The main advantage is that, the business is run by and for those who use it, rather than by those who own it. Cooperatives have the potential to obtain financing,
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provide extra competition to independent traders and provide an alternative to established wholesalers. Wholesale distributor
Wholesalers of butter usually have larger businesses, cover larger geographic areas by moving through various markets and are usually licensed traders. Wholesaling includes all the activities involved in selling goods to those who buy for resale or for business use. The main function of the wholesale distributor is to balance supplies against retail requirements and to take the initiative of bringing produce from areas where it is plentiful and cheap to those where it is relatively scare and expensive. Wholesalers usually have a good knowledge of the market, access to the best information on trends and prospects and working capital to carry business risks as required.
Wholesalers usually obtain butter from central wholesale markets, assembly merchants, collectors and local country markets; however, in some instances they go directly to the producers. Butter may be purchased directly or accepted for sale on a commission basis.
Many wholesalers have their own storage facilities. Wholesale distributors may engage specialized transport agencies to transport butter or operate such services on their own account. Retailer
In urban areas, butter sales are made through retailers. Four types of retailers usually carry butter in their shops:
•
•
•
•

Butter shops where only butter and usually honey as well are sold;
Food shops specializing in butter, poultry, cheese, egg, meat and fish;
General shops and supermarkets selling all kinds of foods and household goods; and meat markets where all types of meat are sold and butter are also offered for sale.

In some instances retailers buy butter directly from the producer and may have their own process-packing facilities.
As we have seen, marketing channels have different organizations that carry out different functions, or it may be possible that an organization carries out more than one function.
Vertical integration, where more than one of the stages of the marketing channel is carried out by a single organization, on the other hand seems rare in the butter markets of Amhara
Region.
4.1.4.3. GENERAL CHARACTERISTICS OF DAIRY TRADERS

BUSINESS EXPERIENCE
Private traders fully participate in the butter trade and have varying years of experience in the trade. As a result, there were traders with only one year of experience at one end, while there were those with more than 20 years on the other. However, of the interviewed traders, most had begun their butter business 5 to 10 years ago. Large traders are slightly more experienced than small traders, but the difference does not appear to be very wide. In terms of ownership,
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family-run, individually owned businesses predominate although, a spattering of partnerships also exist. Similarly, one of the common practices observed is that none of the butter traders sell under a trademark or business name. The business is always designated by the trader 's name, rather than by a trademark.
SPECIALIZATION BY ACTIVITY
The majorities of visited traders, especially large traders, operate all year round and focus most of their attention on trade. Some of the small traders, such as itinerant, on the other hand, declare agriculture as their main activity and trading as their secondary source of income. Considering specialization by activity, some traders sell products other than agricultural, but on average the majority of surveyed traders derive a huge portion of their trade revenue from butter trade. Traders are thus moderately specialized by sector. But they do not specialize by agricultural commodity: with more than half visited butter traders handling more than one agricultural product. Honey is usually the preferred complimentary product handled with butter. Sometimes, however, traders change their product mix based on the seasonal production and market conditions. For instance, some butter traders in B/Dar, expressed that reduction of volumes and profits from the spice trade has forced them to the lucrative butter trade.
Nearly all butter traders have a principal market from which they organize their activities. In that market, most of them have a place (which may be a stall, a store or a shed) for their exclusive usage. This does not, however, mean that they participate in only one market. Most of surveyed traders also operate in other markets, which can either be purchase markets or sales markets. For instance, a butter trader in D/Birhan uses 4 to 5 smaller markets as assembly markets whereas for his sales he may use the bigger D/Birhan market. This suggests that traders normally base their operation at their sales market and purchase from one or two other markets.
SPECIALIZATION BY TRADING FUNCTION
The type of butter traders operating in the Region varies depending on the scale of trading involved. Accordingly, based on the amount of capital invested, number of buying agents employed, and other related factors, there appear to be three subgroups in butter collection and trade: assemblers, wholesalers, and retailers. In most of the cases, however, traders are not fully specialized by function in the marketing chain. The distinction between these groups customarily becomes blurred as there are usual mixing of functions between them. Thus, most traders seem to act as retailers but some retailers also operate as assemblers or wholesalers. INITIAL INV CAITAL AND OPERATING CAPITAL REQ
Almost all sampled traders replied that they had started the business themselves, while a few have inherited it from their families. The majority had obtained at least part of their initial start-up capital from other sources, such as farming and other commodity business.
Working capital comes mostly from own sources, not from credit: majority of traders responded that they rely exclusively on their own funds for their business activities. The average working capital needed for butter trade ranged from Birr 5 thousand to almost Birr
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10 thousand, which amounts to roughly two thirds of average monthly sales. Not only do larger traders have more working capital than small ones, they also appear to rotate it faster.
Although most of the traders rely on own funds to finance their operations, more than half of interviewed traders estimates that these funds are not sufficient and they would like to see their funds increase threefold.
VOLUME OF TRADE
Given the semi-subsistence nature of the agricultural economy in Amahara Region, only 0.75
% of the total milk and 38 % of the butter produced annually is marketed (CSA, 2003). Thus, the relative low spatial density of marketable surplus and consumption in rural areas, which obviously are mostly below the minimum throughput required to cover transaction costs, sharply limits the number of external collectors able to service rural villages. Barriers such as the rudimentary level of infrastructure, information and financial access further reinforce these minimum efficient scale obstacles. As a consequence, farmers are driven to take their low volume dairy products, especially butter, to their nearest periodic market for sale.
Due to the above, more than half of interviewed traders seem to carry out their butter assembly in their respective sales markets. Thus, village level collection of butter seem limited to itinerant traders, who as explained earlier, are themselves farmers by occupation.
This in turn shows us that there are two distinct sub-groups in butter collection and assembly: collectors resident in villages who are usually farmers or petty merchants; and town collectors who buy butter for bulk resale to wholesalers or retailers, or retail it themselves in their shops.
One of the investigations carried out in our fieldwork was therefore, the volume of trade handled by each trader. It was found that, in general, the amounts handled were small. The range in volume of butter bought monthly by each trader ranged from the smallest 20 - 50 kg per month, to the biggest reporting an average 220 kg per month. The majority of traders, however, reported average purchase amounts of 50 to 90 kgs per month. All interviewed traders being in the same class of assembler/retailers, such significant difference is beleived to have a serious effect on competitiveness.
A trader’s reputation also seems to impact on the volume of trade he handles per given time.
When asked whether they prefer certain traders, farmer respondents replied that, a trader’s character or reputation, good standing or leadership, and status within the community are likewise weighed heavily by farmers. Through word of mouth or direct contact with a trader, a farmer forms his subjective assesement of a trader’s trustworthiness and good faith. Words about a trader’s involvement in unfair pricing, scale tampering, or other fraudulent practices are often sufficient to discourage farmers from dealing with the trader. As a point of illustration, farmers in Angolela stated that they never directly sell to the first come trader as they are not sure of the veracity of weight and price information recieved. They instead visit a number of traders to verify the accuracy of the actual weight of butter they brought before they settle to sell.
COCENTRATION OF TRADERS
During interviews, many butter traders expressed a concern that the number of people involved in the trade has been rapidly increasing and they cite the small amount of initial
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capital required to start butter trade to be the main driving force for such trend. Surveyed butter traders vary widely in the size of their operations. Based on figures from trader interviews, there was enormous variation in total monthly sales across traders. Size seems to be generally correlated with occupational category: assemblers and wholesalers have the largest monthly turnover; while retailers have the smallest. Most assembly takes place immediately after the rains during the Sept-Nov. season, which explains why the difference between annual averages and the above season sales is widest for assemblers. In contrast, retail where small traders dominate is less seasonal in nature since consumption takes place throughout the year.
The field data also confirm that butter trade, similar to trade in any other agricultural food products, is a highly seasonal activity. Traders report that monthly butter sales peak in the months around Easter and Christmas, while the months of January and February are considered by most to be the lean sale period, in which sale volumes amount to no more than
20% of average annual sales. Asked as to the reasons for such variation, the majority agreed that the peak is due to religious holidays, whereas lean sales were caused by dry periods.

4.1.5. MARKET ENTRY AND COLLABORATION
4.1.5.1. ENTRY

Most of visited traders agree that, albeit the absence of any market entry restrictions into any of the food market chains in the region, a new entrant first needs to have some type of contact with an experienced trader who can show him the ins and outs of that particular market.
Moreover, such contacts are either family members or friends, and their contribution includes not only introducing the newcomer to the subtlety of marketing but they also assist as a sort of trainer. Likewise, most of the butter or milk markets being sufficiently open to newcomers, it doesn’t take that much time to either become part of the scene or to get the primary skills for survival in such markets. Differences, however, seem to exist between large urban markets and smaller rural type markets in terms of their difficulty to entry. The latter seem easier of the two for entry as they lack the complexities of urban markets. Next after introduction to that market, each trader has to form a sort of relationship with other traders. Results of discussions show that relationships are by far the most important factor for the success of a trader. The majority of the respondents regard reputation and relationships as very important for the success of their business. When expressing this in their terms, they believe that any consumer satisfied with the good quality of butter bought from one of them, will nearly always refer other acquaintances to go to the same source. This chain of references they claim to be one of the bases of successful trade. Moreover, asked whether the importance given to relationships rises with business size, the usual response was that, if anything, larger, richer traders put more emphasis on relationships than the poor. In any case, given the quintessential role of market-related information exchange in the non-transparent rural markets of the Region, the importance of relationships cannot be underestimated.
Another important dimension of trade as a business is the relationships traders have with their suppliers and clients (Elleni and Wolday, 2003). The overwhelming majority of visited butter traders seem to have regular clients and suppliers. Customarily, most catering institutions, such as hotels and restaurants purchase from their regular butter traders. Likewise, butter
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traders also patronize selected suppliers. Respondents claim that they carry close to half of their butter trade with these few individuals. Nonetheless, the number of regulars whether on the supply or client side is fairly variable, depending on the business size. Butter trade, especially given the sensitive quality and adulteration variables, is thus very personalized.
Nevertheless, the ease of entrance to butter trading contrasts between the different stages of the marketing channel. As an example, the sunk costs to entry being small in both assembling and retailing stages, particularly so in the case of casual retailing, which requires little more than a few jute bags, plastic containers and measuring devices, it is easy to enter the assembly/collection stage. Thus, easy mobility into the assembly/retail part makes these segments of the channel, as aptly described by Barret (1997), an almost paradigmatic competitive market, wherein pricing and reputation are the key determinants of firm performance. On the contrary, entry is relatively harder when it comes to wholesaling. This has been easily confirmed by the low number of wholesale butter traders we met during the field visit. Moreover, the main reason cited for such low concentration of wholesale traders is that it requires higher investment capital. Respondents declared that the sunk costs to entry into this stage of the channel are relatively higher, and coupled with the existing problems of access to credit, and the low storage and transport capacities, it apparently becomes difficult to enter.
Traders also differ in the extent of associative life. Only a small proportion of traders seem to be member of their local Chamber of Commerce, which is the formal trader 's association in the Country. Even among those who responded to being members, most have been members for only one to two years on average, ranging from 1 to 7 years. Member traders agree to pay association fees amounting to Birr 15 a year. Asked as to what advantages they obtain for being members, collective actions towards respect of their rights are the usual incentives they get. Some of them, however, maintain that they achieve no gains out of their membership.
4.1.5.2. BARRIERS TO ENTRY

Interviewed traders have uniformly asserted that the number of new entrants to the butter trade has been increasing undeterred. Attempts have therefore been made to verify these consistent and repeated claims using statistical data from the Regional Bureau of Trade and
Industry (BOTI, 2003). Results confirm the above-mentioned trend. The data show that liberalization has brought massive entry: of the total licensed butter traders in the Region, which are close to 400, no less than 113, or 30% of the total, are new traders joining the butter market in the past 5 years. It has to be borne, however, that these figures represent the licensed entrants only. Yet a casual review of data on entrants reveals a striking variation in the type traders who entered since the reform. Most of the new entrants appear to be either small assemblers, or retailers. By contrast, the proportion of new entrants to the wholesale butter trade is smaller.
The question of barriers to entry was raised during field discussions with traders, and the majorities feel that, except for the critical barrier of capital access, there were no other problems. Further enquiries as to whether licensing was a factor; all replied that it had no effect as the lapse in regulation barred no one from entry. They further refer to the flooding of the business with so much legal and illegal traders to be a testament to the absence of barriers. Although hard evidence is lacking on the trend of participants, it appears that the number of butter traders is generally increasing. Most respondents further claim that, albeit
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the lately observed massive trader entry into the butter trade, enterprise expansion on the contrary has been difficult and rare. One of the butter traders interviewed in D/Birhan, for instance, went as far as to say he hasn’t changed even his shirt after ten years of trade in butter. It can be agreed that such trader influx is similar to the extensively confirmed assertion that there has been widespread post-liberalization entry into food marketing in Sub-Saharan
Africa (Barret, 1997), to hold true. Similarly, many researchers who studied postliberalization food marketing in Ethiopia (Elleni, 2001; Asfaw and Jayne, 1998; G/Meskel, et al, 1998), point to evidence of entry to show the presence of increased competitiveness. The evidence from the present Rapid Appraisal on dairy markets in Amhara Region also suggests there has been substantial post liberalization entry particularly into the butter marketing channel. Meanwhile, traders have also been persistent in their belief that reforms have not done away fully with the real bottlenecks impeding expansion and growth in their particular areas of trade. They claim there still remain important barriers to expansion such as credit, information, infrastructure and legislation and enforcement.
4.1.5.3. COLLABORATION

With regard to collaboration, on the other hand, traders’ response is almost equally divided with some replying that there is no significant collaboration, while the other half claim as to the existence of some sort of colluding especially between big traders. For instance, butter traders contacted in D/Birhan and Chacha claim that big traders coming from Sheno (one of the nationally renowned butter markets) are so strong that they dominate the market. Asked how this can be expressed, it seems that these dominant traders through their networks, jointly fix a higher assembly price and on the other end taking advantage of their closer position to the A/A lucrative market, sometimes lower retail prices, both improper practices affecting the local small traders. Butter traders in Desse, who accuse especially traders coming from Estayish, which is around 200 kms far, also made similar insinuations. These traders are accused, in addition to their illegal supply of huge amounts of Girlghee adulterated, bad quality butter, they unethically collude by fixing lower prices. Some
Bahirdar traders also mention collaboration between some traders causing price perturbations. On the other hand, the appraisal of the marketing system for milk in the selected sample
Woredas suggests the absence of collusive practices by the marketing agents. We have not found evidences of market cornering, illegal price setting, and unlawful hoarding to hike prices. The presence of a large number of small milk traders suggests that the market for dairy products in the local Woreda markets and nearby areas is competitive and not in the hands of few operators. As mentioned earlier, cooperatives are increasingly becoming involved in marketing of dairy products. In joining together to form more cooperatives to undertake milk-marketing functions, dairy producers are setting up alternative marketing channels to those already available and thus raising the level of competition. These cooperatives are contributing effectively to market efficiency, by providing competition needed to prevent other market intermediaries from paying the farmers too little.

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4.1.6. PRICE FORMATION AND BARGAINING
One of the characteristics of butter markets in our region is their lack of transparency, which in turn makes it hard to know the actual price of a unit of butter. This is especially manifested by the diverse price sets imposed on the same type of product by different vendors. In other words, there is no single market price for butter; rather there is a range of prices within the same market. Given such practices, bargaining becomes an important avenue of price setting.
Modalities of price setting were therefore one area of investigation in our fieldwork.
Generally, butter prices along the vertical channels of the market exchange are settled through private (individual), on-the-spot negotiations between farmers and traders. In negotiating prices, most of farmer respondents indicated that the traders set prices, although some others replied that they negotiated the price with the traders. The difference between the two is that, in the former situation, a trader tendered an offer price readily acceptable to the farmer, while the latter involved bargaining until a price acceptable to both parties was reached. In either case there are no formal rules governing the individual negotiation between farmers and traders.
Coupled with the absence of official butter price information system, the existing information exchange, which is based on personal relationships, leaves a huge gap in the case of market transparency. Moreover, the transparency issue is further compromised by other factors such as the difference in measuring systems, and the special relationships between some farmers and traders. According to our farmer respondents, ordinarily, from among the numerous traders, farmers sell to the trader who extends the highest price bid. However, there are also non-price factors that are equally considered by farmers in their choice of traders. Some farmers, for instance, reported that they sell their butter to only selected traders whom they call locally ‘’Dembegna’’. Difference in butter types supplied to the market is also another problem that pushes buyers to bargaining.
The above characterization of butter markets in our Region seems to be consistent with findings of other studies into agricultural markets elsewhere as well. For instance, Lutz
(1994), studying the agricultural market in Benin, and citing neo-classical economic theory, categorizes factors impeding the proper functioning of a market as follows:
•

Lack of information (transparency);

•

Lack of competition (atomicity); and

•

Lack of homogeneity and the existence of market barriers (Lack of mobility).

The other typical condition that shows the power of bargaining, which in other words means the malfunctioning of the market, is the different prices paid by different customers for the same type and unit of butter. Due to this, buyers to assure themselves of the right price have to move between different butter shops before they settle to buy. The bargaining process is usually carried out as negotiations on price per kg of butter so as to gain discount on the set price. The result of bargaining, however, depends on the skillfulness of both sides. On the seller side, evasive measurement techniques are usually used to swindle strangers and new arrival customers. Thus, the buyer has to bargain both on price and unit volume.

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4.1.7. PRODUCT HOMOGENEITY
The kinds of butter brought to market lack uniformity as they are of diverse types and these varieties are further sorted and graded according to customer predilections. The conventional means of sorting, grading or quality checking, also vary from place to place based on customary practice and preferences. However, the familiar and appropriate criteria employed to classify and grade butter can be grouped into: origin, color, age, moisture content, smell, method of processing, and cow type. The general nature of the different types of butter supplied to market, as classified by our respondents, is therefore summarized in the following table. Table 22 : Types and nature of butter supplied to market.
Parameter
Origin
Color
Maturity
Moisture
Content
Method Of
Processing
Cow Type

Good Quality
From Dega areas
Yellow is preferred
Fresh butter (locally called Lega)
Dry, usually checked by finger pressing Locally processed butter
Butter from local cows

Bad Quality
White
Mature (locally called Bisil) sometimes butter supplied to market contain up to 10% water
Machine processed butter contains more water and is tasteless
Butter from crossbred

4.1.8. STATE INTERVENTION AND REGULATIONS
Official policy has supported smallholder dairy production in the high potential, high to midaltitude areas of the Amhara highlands and in peri-urban areas near towns. In order to attain this, wide ranging development modalities and pathways related to breeding, feeding and veterinary measures have therefore been formulated and undertaken both by the Federal and
Regional governments. In a like manner, farmers have been encouraged to form dairy cooperative societies, which would then market their milk and derivatives through the cooperative. State intervention in terms of dairy marketing, however, is limited to those set, which can generally be termed as indirect interventions. For our purpose, these include regulations related to: licensing, taxes, and import export functions. Given the lack of specific laws and regulations promulgated solely for dairy marketing, those generally applied to agriculture trade are presented as follows.
A) Licensing
In Ethiopia, participation in agricultural trade is free for all citizens, but is regulated by law under provisions of the Commercial Registration and Business Licensing Proclamation No.
67/1997, which, among others, states:

• Definition of business person
The Proclamation in Article 2 (2) defines a business person as “...any person who professionally and for gain carries any of those activities specified under Article 5 of the
Commercial Code...”.
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• Necessity of license holding
In delimiting the scope of application of the Proclamation, Article 3 (1) strictly states that the provisions relating to business license shall apply to any person engaged in any commercial activity. In so doing, however, the next Article gives power to Regional governments to exempt small-scale business persons from the obligation to obtain a business license by setting a floor capital. Article 3 (3) further stipulates that any person exempted from licensing based on Article 3 (2) must register his business. This is more strongly stated in Article 5 (1) where it is specified that “No person shall engage in any commercial activity unless registered in a commercial register”. Moreover, according to Article 21 (1), the law requires anyone involved in business to either register or get a license before starting to carry on any commercial activity.

• Criteria to be fulfilled to get licenses
Laws provided under Article 20 specify the power to issue business licenses and the requirements to be satisfied for licenses to be issued.

• Conditions for renewal or rescinding of licenses
Similarly, pursuant to the above proclamation, the ANRS has issued a directive that governs any business activity in the Region. This directive is the Commercial Registration and
Business Licensing Regulation, which is the law issued in 1998, under the Regulation No.
3/1998. This Regulation is especially important as it sets the floor capital for obtaining business license at 3,000 Birr.
B) Regulation
As can be noted above, in law these agricultural markets are quite amply regulated. Little of the law, though, seems to be implemented as laid down. With respect to butter trade for example, all market intermediaries are regulated by license or registration. Now, however, a lot of licensed traders are heard reporting that they have detached themselves from their butter trade because unlicensed traders are proliferating and there has not been effective regulation to stop such illegitimate business.
Furthermore, such illegal traders are reported to jeopardize the playing field in two ways.
First, as they do not pay any taxes altogether, they have smaller costs of production which in turn allows them to sell at lower retail prices and so corner more of the trade than their licensed, tax-paying counterparts. Secondly, even if they are registered to pay taxes, since the amount of tax levied on them is relatively small, it again leaves the licensed traders at a huge disadvantage. It seems therefore that agents of state are unable or unwilling to implement its own laws and thereby allowing the creation and proliferation of illegal trade.

4.1.9. DEGREE OF COMPETITION
As detailed in previous sections, the main source of milk for the various market participants, are obviously the rural or urban milk producers. Table 23 below presents various strategies used by the market intermediaries in attracting fluid milk supplies and in selling their milk.
Milk traders in urban towns contacted during the field survey usually agreed that the strategies to attract milk supplies were more important during the dry than rainy season
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because of relatively low milk supply. Selling strategies, on the other hand, were more important during the rainy season when milk supply is generally higher than during the dry season. The other point to be gathered from the Table is that, DDE did not seem to have a strategy for attracting milk supplies. On the other hand, in some areas like Desse and
D/Birhan, Dairy cooperatives provide services like supply of dairy inputs as an incentive to members. Especially in the North Shoa towns such as D/Birhan and Chacha, where DDE has its operations, competition to attract suppliers is relatively stiff. Offering prices higher than what the next market intermediary or trader offers is a strategy mainly used by both town traders and cooperatives to attract milk supplies during the dry season. Most of the selling strategies shown below are common among market intermediaries.
Table 23: Buying and Selling Strategies of Milk by market Intermediary.
Market
Intermediary
DDE
Dairy
Cooperatives
Small Traders

Strategies of Attracting
Supplies
None
Provision of services other than milk marketing to members (i) Collect milk from homesteads; (ii) offering attractive prices

Selling Strategies
No selling outlets in the Region.
(i) Contractual arrangements with hotels, retails shops and institutions; and (ii) decreasing price.
(i) Contractual arrangements with hotels, shops and institutions; (ii) home delivery; and (iii) decreasing price.

Contractual arrangements with hotels, retails shops and institutions which provide food (i.e. hospitals and schools) was a common selling strategy among all the market intermediaries.
Charging consumers a price lower than the next market intermediary or retailer was a strategy used by small traders and cooperatives during flush times. Home delivery to individual consumers was usually practiced by small peri-urban milk producers, on-foot or using carts, bicycles, etc. for transporting their milk.
It can safely be concluded, therefore, that the presence of a large number of small milk traders who purchase milk from producers and sell milk to ultimate consumers indicates competitiveness at both the producer and retail end of the milk marketing system in the selected sample Woredas and similar urban towns. Moreover, in areas within the reach of formal milk markets, apart from competition among themselves, small milk traders compete with DDE and dairy cooperatives.
The other area investigated in this regard was how the traders themselves evaluated competition. Accordingly, trader 's response to questions related to the presence and the intensity of competition albeit being dissimilar, were mostly skewed towards the presence of fierce competition in both milk and butter trade. First traders were asked how they gauged the trend in the number of traders participating in their respective markets. Sampled milk traders in both Desse and D/Birhan felt that, although there hasn 't been much change in the number of legal traders (which incidentally was no more than 5-10 per town), the number of illegal traders and farmer traders involved is increasing in recent years. The huge majority of butter traders in all different sample towns likewise believed that the number of both legal and illegal entrants to the market has been increasing steadily.
However, considerable difference was observed in replies related to source and degree of competition. In the case of milk, based on location, the competition came from different
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directions. For instance, for Milk traders in Desse, the main thrust of the competition came from farmer traders who hawk their produce to urban dwellers. D/Birhan milk traders, on the other hand, considered the competition with the parastatal enterprise (DDE), to be of utmost value than that from farmer traders.
Similarly, butter traders in Desse and Bahirdar claimed that the butter market is being flooded with increasing number of participants and their intense competitors to be unlicensed traders and farmer traders from nearby areas. Asked as to whether rival traders came from other distant areas, the reply in both towns was negative, indicating the competition to be limited to local traders. In contrast, the main competition to butter traders in D/Birhan came from other areas, such as Sheno and Addis Ababa. The other aspect of competition mentioned by these traders was the situation whereby everyone has become farm-gate assembler, including consumers and caterers like restaurants.
Price competition between traders to gain market shares was apparent in the butter business, where major discounts were given to consumers. These discounts apparently reflect both seller saturation and the increasing awareness of competition. Non-price competition to differentiate the various butter types in the eyes of the consumer using advertisements and promotion, however, seem to be non-existent, leaving the marketing system in its traditional slot. Likewise, competition also seems to be low in getting dairy products on the shelves of the Nation’s grocery stores.
According to Fafchamps, et al (2003), the presence of a large number of traders suggests that competition is fierce. Given such facts, one can thus safely assume the degree of competition in the dairy market to be intense, and individual traders can be expected to be fairly efficient given the constraints they face. At the same time, size difference is sometimes extremely high, indicating the co-existence of a few very large enterprises with a large number of very small trading enterprises, which suggests that at least some trading enterprises benefit from increasing returns.

4.1.10.SUMMARY AND CONCLUSION
As presented in Section 1.3 (Conceptual framework), the analysis of competition and the discussion on Structure-Conduct- Performance (SCP) are used as a framework for analyzing the market process. This chapter will use all major findings of the previous discussions in order to assess the dynamics in the existing dairy marketing channels. It is expected that, through time, changes in competitive conditions, institutions, market structure, conduct and performance lead to new and more efficient channel formats.
To summarize, dairy products in the Region reach customers through one or a combination of close to 5 marketing channels. The relative importance of these channels also varies as per the type of participants and customer objectives. Accordingly, the major market participants of milk trade includes producers, mobile traders, cooperatives, DDE, and milk retailers; while collectors, itinerant traders, assemblers, wholesalers, and retailers carry out the various functions of the butter market. Generally, however, similar to results of other marketing studies, e.g., Elleni (2001), the marketing chain for dairy products in our Region remains relatively short, with the majority of consumer purchases made directly from producers, which in turn confirms the relatively unsophisticated nature of the market.

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As described earlier, the competitive process is determined by barriers to entry; trade concentration, assortment of product quality and market information.
ENTRY BARRIERS
In Section 4.1.5 we found that there were almost no important barriers to enter the dairy business, especially in the case of butter traders. We concluded that entry barriers do not hamper the price formation process in the domestic market. These circumstances force dairy traders to offer the best marketing services to final consumers. However, new traders may face some serious constraints as a result of business skills/experiences, and shortage of working capital (financial constraints). According to them, having experience in butter quality identification and appropriate preservation methods, are important factors that determine the success of the company. We have seen also that lack of working capital is the most difficult barrier to entry for all traders.
Similarly, it seems that larger traders do not face “exit barriers” due to the importance of socalled “sunk costs”. This is because, the type of investments they undertake for butter trade are at the rudimentary level and do not cost them large amounts of money in machines, storage facilities, and other fixed capital.
In the same vein, traders generally do not complain about the administrative procedures that have to be followed for market entry. We observed that the government is even facilitating the entry process. We have been informed that by the end of 2003, the formalities for business license applications have been simplified. Thus, in most visited Woredas, traders confidently replied that they can obtain their business license in their vicinites within one to two days.
Remarkably, at the retail level, fierce competition is perceived as the most important barrier to entry for retailers. In sum, the barriers to entry into the dairy market are not related to the traditional barriers discussed by Bain (1968); Gebremeskel, et al. (1998); and others. Steps taken after market reform, thus appear to have created vibrant competition among dairy traders in every Woreda, and in turn this avoids that established dairy traders take advantage of raising prices above competitive price levels. Hence, larger traders are forced to follow prices set by the market which mostly are based on competitive negotiations between market participants. Finally, the problem related to market power of resource owners, another entry barrier stressed by the above sources, is not observed in the market under study, as scale economies are almost non-existent.
PRODUCT HOMOGEINITY
With respect to the assortment of product quality we observed that the butter market is operating satisfactory. Nevertheless, we also found that the existing local grading system for butter qualities still has some deficiencies. At the rural household level, farmers produce many types of butter varieties. In almost all markets, however, butter retailers were found to classify the butter product only into two kinds based on maturity: Lega and Bisil quality (See
Section 4.1.7). This grading system facilitates the retail channel, but lacks the legal standards necessary either for the domestic or export markets. As long as supply of preferred qualities in the local market is abundant this can be accepted. However, in order to prevent shortages of specific butter types (such as the Sheno variety) in the future, it would be better if a
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national grading system that takes domestic preferences into account was made available in the short term. Besides, butter is currently marketed without standard package and brand names. This has negative effects to butter product quality and hampers the opportunities for butter traders to signal quality to the consumers.
ACCESS TO MARKET INFORMATION
As mentioned in Section 4.5, most butter traders have varied levels of access to information about supply, demand and price conditions in the domestic market. The types of market information sources that butter traders consult, however, are limited. Most of the farmers obtained market information from their neighbors and relatives; some of them listened to the radio and/or received information from middlemen. Assemblers obtained market information mainly through other traders (wholesalers or retailers) in the channel of distribution. Butter retailers and whole-salers obtain the information mostly from middlemen and relations in bigger markets. Particularly, larger butter traders have a strong relationship with each other.
Nonetheless, due to the variety of sources of market information, the available information is not always systematic and reliable.
In sum, our analysis on competitiveness revealed that.
•

no important entry barriers, except capital, were identified that hamper the price forma-tion process

•

buyer and seller concentration levels at various segments in the domestic butter market are low

•

the present situation with regard to the assortment of product quality is satisfactory but in the future an operational grading system should be de-veloped that reflects the preferences of domestic consumers

•

market information is available for all actors in the market but some ini-tiatives have to be taken to improve the quality of the information.

On the basis of these observations we conclude that the competitive forces of the existing dairy marketing system in Amhara Region are strong and provide incentives to the actors to look for more efficient organizational forms to co-ordinate transactions.

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4.2. MARKETING FINANCE
4.2.1. FINANCE SOURCES
Sources of investment capital. According to respondents, investment capital requirements of butter traders are largely met through a combination of the trader‘s own resources, friends and family and local moneylenders and bank loans. Some traders also report that they get credits from micro-finance organizations such as ACSI. Acquiring funds from moneylenders, however, were reported to be the last source of funds for capital investments, presumably because the interest rates are prohibitive. In any case, lack of investment capital does appear to constrain both entry of new participants and expansion by existing participants, particularly smaller traders such as village level butter assemblers.
Sources of finance for working capital. With regard to operating costs, the overwhelming majority costs for day-to-day operations in butter trade are reportedly financed from own sources, although Friends and relatives also seem to account for a higher proportion of loans.
On the other hand, financial institutions in the Region appear to account for a relatively small percentage of operating capital of butter trade. Smaller traders often resort to moneylenders and to friends and relatives, while larger traders rely on both commercial banks and moneylenders, albeit their own funds and those of relatives remain the dominant sources.
Traders further observe that, although borrowing from moneylenders, and sometimes from friends, relatives and farmers, can involve high explicit rates of interest, such loans are generally considered preferable to dealing with banks, because they are easier and quicker to obtain, involve lower transaction costs and offer greater flexibility in terms of repayment.
Reasons why finance for working capital is required. Traders require finance both for dayto-day operations and in order to build up stocks of butter. Asked their views with respect to speculation, respondents replied that while stockholding of butter can be speculative, in order to exploit seasonal price rises, and is often viewed as such, it generally has a more straightforward function. It can be seen as a defensive mechanism necessary to guarantee supplies at competitive prices rather than as an attempt to exploit temporal arbitrage possibilities. The other reason given by traders for needing working capital was that they have fixed costs and must cover those throughout the year and not just in the high butter sale season such as festivals. Similarly, others noted that they have obligations to their buyers and need to guarantee regular and sufficient supply in order to meet the needs of their longstanding customers throughout the year.
Are Trade loans viewed as exploitative? A further detailed inquiry into trader finance indicates that some traders note that the informal credit arrangement between traders is the
"pivot" of trade, whilst others do not see the various relationships as being mutually beneficial, but rather as a way in which the larger, more-powerful traders tie smaller traders to them. In some Woredas, an initial loan by a bigger trader to a smaller assembler requires that all subsequent trade be conducted with the lender until the loan is repaid.

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4.2.2. FORMAL CREDIT
Formal credit as a mean to finance trading activities is not that much widespread in the
Region: only the bigger traders interviewed mention it. The minor importance of formal financial institutions is further illustrated by the fact that only a proportion of the traders assented to have a bank account even where there are formal banks in their respective areas; and a further few seem to have a bank line of credit. Moreover, only few traders have ever asked for credit from a formal institution. When asked why they do not apply for formal credit, half of the traders respond either that they do not know how to apply; or that the application procedure is too cumbersome. The rest either consider the interest rate too high; or feel the collateral beyond them. Nevertheless, It can be suggested that, there seems to exist a positive relationship between firm size and reliance on formal financial institutions.
Likewise, only in few instances does informal credit appear to compensate for the limited use of formal credit. The generally accepted sources of informal credit mentioned included family members, fellow traders, and money lenders (loan sharks).
Regarding transaction methods, the majority of traders agree that payment in cash is the general norm on both sides of the trade function. Payment in kind never occurs. Similarly, payment by check is rarely practiced, indicating the lack of sophistication of banking methods by traders and also perhaps the lack of trust among traders.

4.2.3. CONSTRAINTS
Problems with institutional finance. Sources of working capital, apart from others in the marketing system, are own funds, friends and family and local moneylenders. Banks rarely offer a satisfactory alternative to these sources, even if interest rates are less than those of moneylenders. Lengthy procedures, corruption and high rates of interest have been identified by those involved in dairy marketing in most visited Woredas as the main constraints they face in dealing with banks. Most small traders in bigger towns such as B/dar, Desse and
D/Birhan, also identified lack of collateral, complicated banking procedures and lack of the
"right connections" as being their main constraints.
Without suitable collateral banks are generally reluctant to lend and, even when they would be prepared to make loans, their procedures are usually too cumbersome. Working capital needs especially for butter marketing in our Region are often unpredictable and loans are often required immediately. Most of trader respondents in this study, however, lament that banks do not presently appear organised to provide such a service. Small butter traders in need of investment and working capital are often unable to provide collateral in order to secure loans, and this appears to be the main constraint to increased loans by banks to the agricultural marketing sector. Banks should examine whether they can develop loan products more adapted to the needs of the agricultural sector, while still providing the safeguard of collateral. The perspective of banks. Bankers, on the other hand, while affirming they have heard the reported particular difficulties in obtaining loans, they believe the main reason seems clearly related to the bad repayment record of agricultural commodity traders. They further argue that the "Complicated" loan-disbursement procedures, which are seen by many borrowers as a constraint, are not as these may be no more than the prudent requirements of the banks.
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Moreover, although banks can and do seize collateral this can prove to be a cumbersome and costly procedure and something that they prefer not to be involved with, both for these reasons and because asset seizure does nothing to improve their image in the areas where assets are seized. Thus, in many cases the request for collateral seems to serve more as a preselection criterion. Banks do not want to become involved in loans to traders because of the risk, the small size of most loans and the cost of making them. Rather than examining each loan request on its merits, at great cost, banks avoid this by establishing collateral criteria that they know that most small traders will be unable or unwilling to meet.

4.2.4. CONCLUSIONS
Sources of finance. The dairy trade sector in Amhara Region finances itself through a combination of self-financing, bank loans, and informal credit assistance from friends and relatives, suppliers, customers and moneylenders. Loans from banks are important to bigger traders and are used both for investment and working capital purposes. With lower or, in some cases, non-existent financing requirements for operating capital, combined with an inability to offer collateral, dairy traders are insignificant users of loans from financial institutions. Traders rely mainly on own funds, advances from bigger traders or wholesalers, acceptance by farmers of deferred payments and, in times of peak financing requirements, moneylenders. Working capital finance requirements are greater for those dealing with fast butter trade. While traders dealing in perishable fluid milk turn over their capital in a matter of a few days, or can rely on farmer finance for that period (in contractual forms), those dealing in storable products such as butter require finance of a longer duration.
Complexity of financial linkages. Financial arrangements within the dairy marketing systems, and between those systems and farmers, are complex and funds seem to flow in both directions. They depend for their success on personal knowledge of and longstanding trade relations with the other party and, ultimately, on trust. Such arrangements can reduce the transaction costs involved with buying and selling produce and, by minimising the need for external finance, may serve to retain resources within the marketing system. Any proposals to address perceived problems within the production-marketing system through financial interventions need to recognise the complexity of existing financial relationships and consider the implication of changes, not just on those being targeted but on all stages of the marketing chain. An injection of resources into the marketing system is only likely to be successful as long as traders are able to utilise those resources within their own network of trusted trading partners.
Banks as providers of working capital. The existence of trader credit relationships and the fact that money can flow in both directions is perhaps one reason why only limited use is made of commercial bank finance for operational purposes. There is also strong evidence that many traders are able to fund most day-to-day purchases out of their own resources and only require loans for short periods. Other reasons are that banks are generally unwilling to lend to small-scale agricultural traders; that they impose stringent collateral requirements; that interest rates from sources such as ACSI are higher than they are for commercial banks; that loan-application procedures are complex and that small-scale traders, who often do not even have bank accounts, are reluctant or even frightened to approach banks for loans. It may, however, be the case that some loans made for investment purposes are, in part at least, diverted by the recipients to finance working capital purposes, thus providing us with an incomplete picture of bank funding of day-to-day trading operations.
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Lack of finance: a barrier to entry. A tentative conclusion is that lack of institutional finance is not so much a constraint for day-to-day operations within existing butter marketing systems as it is to entering those systems in the first place and to expanding businesses once in. For small-scale trading purposes, the combination of funding sources available to existing traders seems adequate, with the possible exception of small retailers, many of whom are unable to self-finance one month 's working capital. Only those able and willing to offer suitable collateral are in a position to make capital investments or obtain bank finance to start trading on a large scale and to provide loans to other traders. This may be one reason why so much butter marketing in Amhara Region is carried out by a large number of small-scale operators. A consequence of this is that scale economies are not available and that marketing costs may be higher than would otherwise be the case. On the other hand, initiatives to provide institutional finance for trading purposes would likely lead to the expansion of the businesses of those able to access the funds, to the detriment of those denied access. Whether the resulting loss of income-earning opportunities for traders would be balanced by increased marketing efficiency is debatable, although increased marketing efficiency would be likely to produce a net benefit for farmers.

4.3. QUALITY, GRADES & STANDARDS
Milk’s quality relates to its chemical, micro biological, physical, and organoleptic properties, as well as to its safety. Cow’s milk is among the most perishable of all foods, due to its fluid form and excellent nutritive composition. As it comes from the cow, milk provides an ideal medium for bacterial growth. To protect milk’s quality, this food is handled under rigid sanitary conditions in most developed countries, resulting in low bacterial count, good flavor and appearance, satisfactory keeping quality, high nutritive value, and freedom from diseaseproducing organisms and foreign constituents (IDF, 1995).

4.3.1. PRODUCER CARE FOR MILK QUALITY
‘Clean Milk’ is generally defined by Sinha (2001), as “milk drawn from the udder of healthy animals, which is collected in clean dry milking pails and free from extraneous matters like dust, dirt, flies, hay, manure etc. Clean milk has a normal composition, possesses a natural milk flavour with low bacterial count and is safe for human consumption”. Potential sources of contamination of milk are dung, water, utensils, soil, feed, air, milking equipment, the animal and the milker her/himself. Contamination of milk can occur at the following levels: animal shed and environment; the animal; milker and milking routine; milking equipment; and storage and transport.
Based on this definition the quality of milk produced and marketed by the rural farmer in our
Region is discussed as follows.
Hygine Milking : As is the case in most parts of the country, the biggest problems in milk quality originate from the squalid surroundings in which the milking process takes place. In the majority of farms, mud, urine, faeces, and feed residues are not regularly removed from the shed. The shed also lack proper drainage, sufficient light and ventilation. In very wet months, it becomes hard to quickly dry out the surface. The surrounding, in addition to being unclean, lack the necessary water supply for cleaning the area. The absence of hygienic practices at the time of milking is therefore one of the first and most important barrier of clean milk production.
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Milking Equipment and Containers : The next main sources of infection of milk is unsanitary milking equipment. With regard to this, farmer respondents were asked as to the type of containers they use and the sanitary measures they practice during milking. The common milking containers seem to be made of local materials such as chocho (woven from grass) and gourd. These days, however, plastic pails and jogs are replacing the traditional materials. The sole method of chemical rinsing practiced is that of using soap and water. The local containers are nonetheless smoked with a variety of wood and herbs. Dipping or rinsing with a sanitizing solution is not applied. The other problem in this regard, relates to utensils and equipment used during milking being of non-standard quality. They are not made up of acceptable, non-absorbent, corrosion-resistant material and are not easy to clean. Likewise, after cleaning and sanitation, the utensils and containers are not stored in such a manner and location to prevent contamination from flies, insects dust, dirt, rodents etc.
Adulteration : One of the problems repeatedly mentioned by urban consumers relates to adulteration of milk with water. Interviewed farmers also state that the problem exists as some producers sometimes mix water with their milk. As a result consumers mostly advice them to improve the situation. Milk consistency, however, seems to be affected by other factors such as type of feed, cow breed type, and environmental factors. For instance, farmers with crossbred cows in Desse and Chacha affirmed that during hot weather milk becomes thinner and more cases of quality deterioration occur in the hot season. Apparently, this may be due to high temperature, mainly in summer, making it complicated to preserve the milk bacteria at low level before transporting it to consumers. Others also mentioned that although milk from grass-fed cows was normal, milk of cows fed oil cakes usually becomes thinner in which case customers intimate it with adulteration.
Storage and Transport: Some farmers replied that they filter the milk with a clean cloth before storage in order to remove large particles that might have entered the milk.
The practice however, is not extensive. Heat, light and violent movement are known to cause breakdown of certain components in the milk. Peri-urban farmers usually market morning milk immediately but are forced to store their evening milk in cool corners within the house. Although such an arrangement seems possible in cooler areas like Desse and D/Birhan, it will be hard to employ in hot areas like B/Dar.
Moreover, refrigerated chilling is not feasible in almost all rural settings of the
Region. Milk is transported in the same containers, and this coupled with longer transport times and violent movement of the milk during travel lets milk fat to turn rancid in the presence of oxygen.

4.3.2. MILK QUALITY IN THE MARKETING CHAIN
Regarding milk, the usual tests taken by buyers are reported to be mainly based on smell, appearance and taste and thus rely mainly on rapid segregation of the poor milk by skilled persons with good senses of smell, sight and taste. These tests are mostly applied, but are not complemented by other tests, especially those for milk keeping quality.
The second method for milk quality testing used locally is more accurate and is based on the change in colour of the equivolumetric mixture of milk with alcohol. By way of illustration, in some towns like B/Dar, milk sellers told us that individual consumers test for milk quality
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and adulteration by mixing samples with araki, which makes it a local version of the standard alcohol test. The alcohol test is mainly used to detect the degree of acidity of the supplier 's milk: milk coagulates when mixed with an equal proportion of 68% alcohol if it is contaminated with lactic-acid producing microbes, or if it has increased albumen (colostrum) or salt (mastitis) concentration (IDF, 1995). The alcohol test is quick and objective, and any positive cases should be rejected.
The third quality testing method reported was Lactometer (an instrument) which is used by some cooperatives such as Angolela K/Mihret, and Kokeb, to detect milk adulteration, by determining the milk density-normal milk density is 1.028 – 1.034; skimmed milk density is
1.033 – 1.036; cream 20% density is 1.0230. Hence lactometer test can detect much more than milk adulteration with water: e.g. if there are some substandards in total solids content, or if fat is removed from the original milk, or if skim milk is added to the natural (normal) milk. However, lactometer tests are not conclusive, but they are advisory because they may not detect low levels of adulteration, and the results may be misleading at times.

4.3.3. REGULATIONS AT NATIONAL LEVEL
Nationally, however, there are no regulations or directives issued to establish the hygienic requirements for the production and marketing of raw milk, liquid milk for consumption, milk for the preparation of dairy products, and dairy products. In the absence of such directives, some chemical and physiochemical parameters, e.g. minimum protein content; minimum non-fat dry matter; minimum weight; and lowest freezing point, prerequisites that cow milk destined for consumption must comply with, are not defined.
Moreover, whether at national or regional levels there are no laboratories, designated to provide analytical methods, to organise comparative tests, to promote new methods, to improve personnel skill, etc. After the initial investment costs for equipment, milk quality analyses are quite inexpensive and do not request solvents or any other reagent which must be disposed of in a safe manner (IDF, 1995). Such procedures, more than facilitating the continuous monitoring of milk trade and the payment of milk by quality, are believed to result in the improvement of the relationship between sellers and buyers.
Therefore, a new Milk Grading System needs to be launched in view of changed processor and consumer needs as well as testing technologies and production methods. As of the next five years, processors need to be paying according to Total Bacterial Count, on hygienic quality of milk. Rolling means of the counts can be used so as to cater for the high degree of flactuation which takes place in counts. Somatic cell counts should be carried out to monitor milk hygiene. Compositional quality tests need to be carried on the infra-red analysers which expresses these as butterfat, protein, lactose and total solids. Milk ring testing be also carried out monthly to detect presence of antibodies to Brucellosis. A governmental institution of
Dairy Services is also required to inspect and register processing plants, monitor product quality and undertake proficiency test of various factory personnel, road tanker drivers etc.

4.3.4. INSPECTION AND GRADING
In Ethiopia, there are no Grades for any of the dairy products produced and sold in the different markets. Grades based on nationally uniform standards should have been developed by ESQA and MOA experts in cooperation with proucers. Lack of such important procedures
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have made it impossible for sellers to request grading services to assure that dairy products meet specific grade or contract requirements and have good keeping quality properties.
Similarly, buyers can not request grading services to assure that products have uniform high quality. Those wishing to use the services must request them, qualify for them, and pay a fee commensurate with the cost of providing them. There are no grade label program for butter or other dairy products, and there are no examinations by ESQA to certify that they meet specifications. For instance, almost all dairy products in the Developed countries are graded, with the service used most widely for butter, Cheddar cheese, instant nonfat dry milk, and regular nonfat dry milk. Inspectors also grade other cheeses, dry whey, dry buttermilk, and dried and condensed milk.
These factors are at most times determined at the downstream end of the production chain i.e. inputs into dairy could determine above factors. it important for breeders, processors and other dairy production marketing chain to know the preference of consumers in respect to these factors. No matter the packaging on distribution network and customer services offered if the basic preferences above are not met the product will not sell.
Table 24: Variables the Dairy Sector Needs to take Note of in Dairy Production and
Marketing (Jafee, 1995)
Variable
Food Safety

Convenience

Nutrition

Environmental
Safety
Consumer
Awareness

Source of the Issues That Needs Addressing
- Free of microbiological contaminants
- Additives and Preservatives
- Antibiotic residues
- Packaging (size, type of material)
- Suitability for use to target market
- Targeted product design i.e. fridge free margarine UHT milk, milk flavoured drinks
- Focus on health concerns by focusing on health concerns
i.e. low fat, salt free, fat free etc. and nutritionally modified food are becoming important.
- Critical for export market and high income groups and joint ventures with foreign dairy processors.
- Education on how food moves from paddock to the table and how to prepare and store certain foods.

Moreover, in order to ensure that the milk received at a collection center is of normal or good quality, it is important to carry out some tests before accepting the milk delivered to the collection center.

4.3.5. POSSIBLE OPTIONS TO IMPROVE QUALITY
a) Establish milk collection centers
In Ethiopia, the organizational notions of collection points for receiving raw milk is not regularly used in the rural areas. On the other hand, although few in number, succesful collection centers have been formed around dairy cooperatives in Desse, Yetnora, Chacha,
Gondar, and D/Birhan areas in our Region. Building on the success of these establishments
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and increasing their numbers so as to expand the collection of clean milk especially in periurban areas of the Region should be taken as one of the entry points of improving milk quality. So in each established area, after milking the farmers will bring the milk in small containers
(average 5 liter/farmer) to the milk collection point, where the milk is collected daily. At the collection center, the milk is checked for fat content and solid non fat, which is the base for payment in most developing countries. Moreover, in all collecting points, if and when milk supplied is suspected, the alcohol test should be performed. The recommended strength of the alcohol is 72% to ensure that the milk can be used for production of other dairy derivative products but in reality the used strength of alcohol is 68% and sometimes even down till
55%.
In this case, milk can be transported by light open truck, horse or donkey cart, tractor and bicycle to these collection points. Payment is determined by the volume of milk supplied by the farmer and is only accepted after it complies with the alcohol test.
It is further recommended that milk container washing facilities be provided at milk collection centres and also centers should concern themselves with the availability of appropriate plastic cans which are likely to be cheaper than metal cans, and easier to clean than recycled soft drink bottles or locally made containers such as girera (gourd). This is recommended because it is quite impractical to expect smallholders to effectively clean a delivery can (which has been emptied an hour or more earlier) at their home. In the dry season especially, water often has to be carried some distance by female members of the family and is of doubtful quality. Milk collection centres are often located near a source of water and the provision of hot and cold water with appropriate chemicals and guidance is likely to make a significant contribution to improving milk quality.
Organisation of milk collecting will largely vary depending on the center’s size and also in respect to geographical, climatic, seasonal, legal etc., constraints. Two options may be considered, depending on the size of the enterprise.
For small-sized enterprises, milk collecting will often be limited to milk collecting in optimal time conditions in order to conserve the milk’s qualities.
For centers collecting under 2,000 l/per day, near towns with dairy plants, such as Desse,
Bahirdar, several options are possible. In the best case, a four-wheel drive vehicle with a platform will make one or two rounds with churns that must be washed at the factory.
Therefore, milk-collecting costs will include the following items:
Fixed expenses, namely:
* amortisation of the vehicle, the churns and small equipment
* insurance and taxes concerning the vehicle
* garage and overhauling costs
* driver’s wages
* attribution of building costs
Variable costs

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* petrol, oil and tyres
* overhauling of the vehicle
* churn washing costs.
In the event of very dispersed collection areas, two or three primary collecting centres can be organised and managed by one of the plants. Milk brought to these centres will be by the producers themselves. In this case a supply premium will be added to the costs generated by the running of the collection centre.
B) The Lactoperoxidase System (LP-s) of milk preservation
Milk can usually be transported unrefrigerated for up to 20 km but after a certain period will begin to deteriorate. Souring sets in and the milk quickly becomes useless. In countries with an advanced dairy industry, cooling safeguards the bacterial quality of the raw milk and prevents spoilage. However cooling is rarely an applicable preservation technique for smallscale producers in developing countries due to the absence of reliable electrical supply or economic constraints. An opportunity now exists for the women smallholders, who have the responsibility for marketing of surplus milk.
Many research activities have therefore been going on to overcome this problem and according to Bennett (2001), since the 1980s FAO has been developing a low-cost alternative for collecting milk from such remote areas. Known as the LACTOPEROXIDASE (LP) system, two activators are used to reactivate a natural enzyme preservation mechanism present in milk. Developed in Sweden and extensively field tested, the technology is safe and inexpensive. It is already in use in a number of countries and has received WHO/FAO Codex
Alimentarius approval. Recent field trials in Bangladesh (April 2000) confirmed that treated milk can be preserved for up 10 hours after milking at an ambient temperature of 30°C before cooling or processing, whereas untreated milk started to sour within three hours or so of milking. The system
The following description of the system is mainly drawn from Bennet (2001).
Lactoperoxidase is an enzyme, which is naturally present in milk. One of its unique biological functions is an antibacterial effect in the presence of hydrogen peroxide and thiocyanate. Both of these substances are naturally present in milk in varying concentrations.
The method of activating LP-s in milk to add about 10 PPM of Thiocyanate (preferably in powder form) to the raw milk to increase the overall level to 15 PPM (Parts Per Million, 5
PPM naturally present). The solution is thoroughly mixed for 30 seconds and then an equimolar amount (8.5 PPM) of hydrogen peroxide is added (generally in the form of a granulated sodium carbonate peroxyhydrate). The activation of the Lactoperoxidase has a bacteriostatic effect on the raw milk and effectively extends the shelf-life of the raw milk under tropical conditions for 7-8 hrs. This means that producers can then transport the milk from the collection point to a processing centre and thereby significantly increase the income generated at farm and producer group level.
After 15 years of field experiments in developed and developing countries, a Code of
Practice for the use of an alternative milk preservation method based on the activation of the natural enzymatic antibacterial complex in milk (Lactoperoxidase system) was approved by
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the FAO/WHO Expert Committee on Food Additives in 1989 and by the Codex Alimentarius
Commission in 1991. The system is cheap, easy to use and readily applicable in developing countries with a minimum of training requirements.
The World Bank estimates that 20% of all milk produced is wasted in developing countries.
The use of LP-s in raw milk means that a larger quantity of milk can be collected and processed from areas where there is a lack of dairy infrastructure. Small scale producers,
(often women), will therefore have increased incomes through the sale of surplus production, there is a ‘liquid’ benefit to the consumer and milk production will be stimulated. They will have an increased opportunity to market their surplus milk to the urban centres and also to reduce milk losses. This will result in a substantial increase in cash income for the household.
Up to 40% of an increase in production of milk available for processing can result when the system is adopted. The penultimate beneficiaries will be the consumers who will have fast access to safe, quality milk.
One of the limiting factors is the availability of a safe, cheap and easy to use system of milk preservation. With a cheap, flexible method of preservation of milk from farm to the dairy many families can have their household income increase by a minimum of 50% within 6 months. LP-s does not function as an end product treatment. It is a processing aid, which enhances the naturally occurring antibacterial system in milk. It is therefore essential that the quality of the raw milk is good and thus training in clean milk production is complementary to the demonstration of the Lactoperoxidase system of milk preservation.
The inhibitory effect of the treatment is dependent on the temperature of the stored milk and has been found to act for the following periods of time in laboratory and field experiments carried out in different countries with raw milk of an initial good hygienic standard:
Temperature 0C
30
25
20
15

Time (h)
7-8
11-12
16-17
24-26

At present, the activators are produced commercially in Cuba, France and Sweden. Costs work out at just under one US cent per litre of milk treated (FAO, 2001). For instance, FAO cites Cuba as one of the pioneer countries widely using this system, whereby in that ocuntry more than 60 million liters of milk applying the LP-s were collected in 1999 (FAO, 2001).

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4.4. MARKET INFRASTRUCTURE
Infrastructure is generally defined as material, institutional, and personal facilities and arrangements that allow production and movement of goods and services (Thimm 1993). As
Jayne et al. (1997) note, food markets in Africa, are characterized by small-scale trader operations, limited trader investment in transport and storage, and the slow pace of private market development.
In relation to the above, various research results have repeatedly shown that lack of appropriate physical infrastructure is one of the major obstacles to the development of an efficient marketing system in Ethiopia. It is therefore important to identify the components of infrastructure that are necessary to encourage private trade in the dairy subsector to determine their potential contribution to the development of an efficient marketing system. Different infrastructure components are likely to affect the supply response of farmers and traders differently. The government should emphasize those components with the greatest impact on market access and marketing margins, for these factors can greatly influence incentives provided to the private sector. Achievement of this task, however, requires an understanding of the empirical interaction between infrastructure and dairy marketing, information that is currently lacking in Ethiopia. This section identifies the role of different infrastructure components in influencing the efficiency of the dairy marketing system in Ethiopia.
Specifically, the role of transport, storage, market centers, and other marketing facilities in promoting the participation of private traders in the dairy marketing system is considered.

4.4.1. TRANSPORT
Albeit the national transport for marketing of agricultural produces being composed of road and rail, the sole Regional transport means are the different types of roads and boats on lake
Tana. These roads, as justly described by Elleni (2001), have been built in a radial configuration with the National capital, Addis Ababa, at the center. Inter-Zonal road communication between administrative units of the Region, therefore, is relatively undeveloped. Although there are several traders among whom farmers may peddle their dairy products, a farmer’s choice of traders is narrowed by the accessibility of a trader’s buying station from his farm. Almost half of our interviewed farmers are within 3 to 12 kms of the closest market center; some of them are even situated farther than 15 kms away. Other studies also show similar results. For instance the recent socio-economic survey carried out on 56 Woredas of the Region (BORD, 2003), shows that around 24% of rural households travel for more than 3 hours to reach their nearest market place, while another 34% travel between 2 and 3 hours.
Although not studied in detail the average farm-to-market distance across Woredas of the
Region according to the above study can be estimated at 10 to 15 kms. Moreover, roads between farms and market outlets vary from dirt to asphalt. Transportation facilities are also reported to be poor and infrequent, which could further limit the number of a farmer’s market outlets. The following section of the report therefore will concentrate on these and other infrastructure issues.
The majority of interviewed traders used dry-weather roads, which are normally impassable during the wet season, to move butter from the farms to the markets. These dry-weather roads
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are mainly in the rural districts of all administrative Zones. A wide variety of transport modes used by private butter traders were identified. These include long-distance lorry haulers, bicycles, pickup trucks, donkeys, oxcarts, handcarts, and head loads. Further probed as to the relative importance of the various modes of transporting butter most agreed that donkeys, carts and hired lorries were selected in order of importance.
Likewise, almost all of the interviewed traders reported that the road network is not well developed for easy transportation of agricultural products. Butter traders encounter a number of problems when transporting their butter, including poorly maintained roads with potholes, high butter transport costs (always double of grains), insecurity, and impassable, dryweather-only roads. Asked as to ranking of these problems, most observed that the perception of the severity of each problem varied by type of trader. Opinions also were varied about how the transport problems could be solved. The majority of the interviewed traders wanted the road network improved through tarmacking of the dry-weather roads into asphalt roads and regular maintenance of the existing roads. Other mentioned solutions to current problems were : Increase rural public vehicles, Improve road network; Government built Stores; and
Removal unnecessary fees.
All in all transport constraints appear to be limiting long-distance butter trading. About half of the traders who responded to the question of the distance from farm gate to the market where they sell indicated that they sold butter within a radius of 20 - 60 kilometers. Poor transport network in the country not only restricts the access of households to available butter in the market, but also restricts the movement of butter by farmers or traders to market outlets owing to high transportation costs. It therefore hinders the efficient movement of butter under a free market regime. Efficient road networks should facilitate free and efficient movement of butter from surplus to deficit areas. Minten (1999), notes that in Madagascar, there is room to reduce transport costs with public investments in improved infrastructure. Other researchers have emphasized the central importance of physical infrastructure, especially the network of rural feeder roads (Shaffer etal. 1985; Jayne et al. 1997; Gabre-Madhin 1998; Fafchamps, et al, 2003; and Fafchamps 1999). A good infrastructure eases frictions in shipments between surplus and deficit areas, while an inefficient one impedes the rational marketing of commodities. Almost universally, private sector agents are constrained by limited access to credit and storage facilities, as well as problems in securing transport (Elleni, 1999).
Likewise, several studies show that transport deficiencies can act as a severe barrier to food, production in rural areas. Creightney (1993) identifies two major rural transport gaps facing
Sub-Saharan Africa:
"The rural and feeder roads connecting villages and farming areas to each other and to market centers are usually inadequate, poorly maintained, and costly to use"; and
"Poor and inadequate rural transport services, caused by the lack of intermediate means of transport (IMTs) and appropriate infrastructure for their use, has meant that the carrying of goods between and within villages and between fields, villages, roads and markets is dependent almost entirely on walking and head- or shoulder- carrying."

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4.4.2. STORAGE
Almost all butter traders store transitional stocks of butter, but the vast majority of these stocks are held in unimproved sites (e.g., a room within a trader’s house) and move within weeks. Asked as to the length of time butter is stored, albeit the fact that butter can be safely stored for up to a year’s time, most traders store it for no more than 3 months. Trader respondents who said they do not store butter, asked for the reasons, responded that due to capital shortage, the insignificant amount handled periodically warranted no storage. Thus, storage seems to be positively correlated to business size, with bigger traders storing more volumes for longer periods of time.
Furthermore, the explanation traders most commonly forward as the main reasons for storing butter is to await better prices, followed by the need to assemble larger volumes. Although few in number, other traders gave lack of enough buyers as the reason forcing them to store.
The other reason given by traders for storing was that they have fixed costs and must cover those throughout the year and not just in the high butter sale season such as festivals.
Similarly, others noted that they have obligations to their buyers and need to guarantee regular and sufficient supply in order to meet the needs of their longstanding customers throughout the year. Few retailers also seem to be in a position to make large advance purchases of butter and depend on their suppliers having stock at all times. This can be achieved either by having adequate stocks of butter throughout the year or by collecting large quantities in the bumper season and holding stocks of the product. Both approaches appear to be followed by almost all traders, although the general preference is not to store butter, as the risk of losses and quality deterioration is reputed to be high. Some traders in Desse and
D/Birhan also informed us that butter that has been stored for some time (locally called Bisil) commands a premium price. In general, however, it is far from the case that all traders store butter. In all visited Woredas almost half of traders contacted did not store for more than a few days. Likewise, the remaining replied that, as they tend to be concerned about sudden price fluctuations in response to increased supply of adulterated butter, they store very little.

4.4.3. MARKET CENTERS AND MARKETING FACILITIES
The existence of accessible market centers and adequate marketing facilities is a necessary prerequisite for the development and acceleration of private trade. The majority of the trader respondents reported that between one and six markets exist near the locations where they operate. Most of the respondents also reported that these marketplaces are easily accessible, whereas some of them felt otherwise. Asked about the facilities, there were opinion differences regarding even the same market. Most of the respondents said that these market centers have the necessary facilities for butter trading, whereas others said that these marketing facilities are inadequate. Market centers are administered and run by the local town municipalities or administrations, who are also supposed to provide and maintain the market facilities. The traders in turn pay a market fee to the local council. This fee varies from council to council depending on the market facilities provided, but it is usually about
Br. 10 to Br. 50 per trader per year. Apart from the market fee, those traders who rent stalls also pay a monthly rent fee and security fee.
On the other hand it is surprising to see the observed high level of satisfaction among the respondents with the market facilities, as the market centers lacked several appropriate
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marketing facilities. Most of them are periodic open-air markets with no stalls, sanitation, or drainage. Some do not even have a perimeter fence. They are usually muddy or flooded during the rainy season and dusty during the dry season. Most of the facilities were in a dilapidated state. Local council officials cited limited resources, inefficient council administration, and inadequate technical capacity as the reasons for lack of maintenance.
The majority of the interviewed traders wanted the markets improved through provision of water, sanitation, and proper drainage. Others believed that stalls should be provided as a way of improving the markets, whereas all wanted security to be improved. We also formed the opinion that provision of roofs over the facilities would go a long way toward improving the marketing conditions. The existence of hygienic and secure market centers and marketing facilities is important not only to increase participation in private trade, but also to increase efficiency in handling activities. Improvement of market structures and facilities is an immediate measure that would greatly support the development of private butter trading.

4.5. MARKET INFORMATION SYSTEM
4.5.1. CURRENT STATUS OF DAIRY MARKET INFORMATION
Efficient arbitrage depends fundamentally on farmers and/or traders having access to reliable information on market conditions, especially prices, prevailing at multiple locations (Barret,
1997). The same source further affirms to the existence of evidence that market information reduces market risk. In this regard, as in other parts of the country, market information in the
Amhara Region is commonly classified as underdeveloped and traditional. Dairy products are perishable and so information about them flows fast and may change quickly. Information about markets is typically relayed and transmitted across markets inexpensively, by word of mouth. News about price changes and relevant price-making forces in pertinent urban and terminal markets are generally obtained from informal sources.
As observed from the field discussions, the majority of farmer respondents relied on neighbors who went to market earlier, or from local itinerant traders or traders from adjacent towns for market news. Publicly available market-information services are rarely used.
Almost no farmer used the print or audio media available to him for price news.
In relation to market information, traders have imperfect access to modern means of communication. The great majority of small traders do not have a telephone for their business, and virtually none has a fax machine. Even among bigger traders, no more than a quarter declare having a phone. Most of the urban centers in the Region nevertheless have access to telephone systems, although few avail themselves of this opportunity in the conduct of their business. The use of fax machines for trade purposes is virtually non-existent.
Similarly, traders were also found to use fellow traders from their locality or those from out of town as sources of price information. Moreover, as indicated by results of the field interviews, due to their mobility, traders are able to easily conduct a search for markets with better prices. The majority of butter traders reported to conducting a price search before either buying or selling butter. Additionally, through their regular monitoring of prices, traders develop a sense of the prevailing conditions in the market and thereby are able to discern whether the market is active or slow.

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Correspondingly, according to interviewed traders, the wholesalers setting the daily prices incurs expenditures up to 10 birr per market day, or a sum of 40 birr per month per firm, on telecommunications. Other smaller assembler/retailers also reported an expenditure ranging from 10 birr to 20 birr per month on soliciting price information. This shows that there are differences in costs and flows of information between towns. Information seems costlier for smaller rural markets, where the poor quality of telecommunications means it cannot be circulated from long distance by phone. Instead price information is reported to be obtained by physical visits of concerned markets. Thus, we can tentatively infer that, lack of infrastructure increases the cost and decreases the velocity of diffusion of price information, with a deleterious impact on price integration.
As asserted by many previous researchers (Staatz, et al., 1992; Elleni, 1999), the heavy reliance on informal sources exposes farmers to possible price manipulation and exploitation.
There are other factors, however, that limit the possibility of price manipulation. The first is the access of farmers to multiple traders, as noted earlier. Second is the narrow and overlapping geographic boundaries faced by traders. These factors, coupled with the modest marketable butter available on-farm, reduce the chances for traders to manipulate prices.
Knowledge about the market, via regular consultation with other sources, also enables farmers and traders to validate the veracity of the price information they receive from one another. The efficiency of market information in the Region - most notably, as manifest in the efficiency of dairy products price transmission between markets - has not been quantified.
For several years different governmental institutions such as BOTI have carried out the funding as well as collection and dissemination of market information (of butter prices) for major urban centers in the Region. Such dissemination processes undertaken by the above bodies, however, were not extremely intensive and were limited to weekly broadcasts on
National and Regional radio networks and newspaper postings on the Bekur, a Regional circulated newspaper. Yet, these information sources, although available to most of farmer and trader respondents, were reported to be valueless, as especially traders did not use them extensively as main information sources. Further asked as to reasons why they were not important, the main answers revolved around their slowness in following the fast changing actual prices of the respective time periods.

4.5.2. FORMAL SOURCES OF MIS
Currently BOA, BOTI, CSA and DPPC can be taken as the sole formal source of livestock market information service.
BOA
The Bureau of Agriculture through its branch offices at Zonal and Woreda level collects market and price information for most of the agricultural commodities. Processing, analysis and dissemination of these data to concerned users, however, is minimal. Even organization of the data in formats that enhance immediate use has not yet been achieved.
BOTI
The Bureau of Trade and Industry similarly collects and disseminates market and price data of industrial and agricultural products. In so doing the data collection covers 25 urban
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markets in the Region. Moreover, the collected data is processed and broadcast through the local newspaper (Bekur), and the Ethiopian Radio.
CSA
The Central Statistics Authority collects data on livestock prices at both producer and retail levels. Other grain market-relevant information collected by CSA includes annual estimates of crop areas planted, yields, and total annual production. In the case of livestock sample census data on livestock numbers, estimated yields and total production are also printed annually. Average monthly producer prices are collected through surveys of farm households or cooperatives in selected areas who have sold output during the reported month. Cereal prices collected include; teff (white, red, and mixed), wheat (white and mixed), barley (white and mixed), maize, durrah, and sorghum (red and mixed). Also, producer prices on several varieties each of pulses, oilseeds, vegetables, fruits, spices, livestock, and dairy products are collected. However, as described in Tschirley, et al.,(1995), The CSA lacks a system for rapid dissemination of price information, and there is generally a long lag in the publication of data. Price data for September 1991 to July 1992, for example, were published in December,
1993.
DPPC Data Collection and Reporting
The Early Warning and Planning Service of DPPC is responsible for collecting information from a variety of sources for the purposes of alerting government and donor agencies of the location and need for famine relief. Price information on major food crops is among the more important data gathered by DPPC. Data on rainfall, crop condition, greenness, and nutrition are also incorporated into the early warning system.
Since 1978, DPPC has collected monthly price data on major food crops and livestock in the more vulnerable areas of Ethiopia (Tschirley, et al, 1995). The focus of attention is on retail prices in smaller as well as larger markets. Currently prices are collected from – Woredas of
Amhara Region. Prices are sent to the Regional DPPC Bureau in Bahirdar where they are edited and keyed into the database. At present, long delays in the system compromise the usefulness of the data either for early warning purposes or for use by private market participants. Only retail prices are collected by DPPC. Interviewers obtain prices from at least 5 retailers.
Though data collection guidelines indicate that prices should be obtained at different times of the day (morning, mid-day, and afternoon), this does not always occur; interviewers often do not live near the sampled markets or, because they are extension agents, they have other obligations which may interfere with the price collection. Under these conditions it is hard to motivate field agents to spend the time required (nearly a full day) to get the three different prices. ___________________________________________________________________________________________________________________________
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4.5.3. CONSTRAINTS
The above discussions have showed that dairy markets in the Region are characterized by chains of transactions between farm gate and consumers, and lack of competitiveness between traders and poor access to appropriate market information. Moreover, it has been observed that the lack of market information represents a significant impediment to market access to smallholders, substantially increases transaction costs and reduces the efficiency of agricultural sector. The major constraints causing such a poor state of market information systems of the Region can therefore be briefly presented as follows.
The inadequacy of current market information system
Currently, all market participants including both small and big dairy trades in the Region face inadequate access to dairy market information. Most butter market participants receive information about butter prices in selected markets through telephone or personal reports by friends or employees, or by visiting the markets themselves. According to Tschirley, et al.,(1995), such systems of obtaining information has at least three disadvantages: (1) the information is generally limited to a very small number of markets; (2) telephoning or visiting far away markets involves significant costs, and these costs are repeated over all participants; and (3) poor and remote farmers, traders, and consumers may be unable to access information in these ways, contributing to unequal and inequitable distribution of information. These individuals could benefit greatly from broader and timelier dissemination of information, improving both their negotiating power and their ability to make good production, investment, and marketing decisions.
Absence of a public market information system
Absence of a public system coupled with the above mentioned inadequacies leaves the flow of market information in a quandary. These deficiencies in turn force all market participants to either: (1) invest in gathering information themselves, thus duplicating costs many times over; or (2) accept the risks of uncertainty involved in going to market without a knowledge of prices. Both options are socially inefficient and inequitable.
Low density of communications infrastructure
Even though the majority of the Region’s population speak Amharic language and there is a wide ownership of radios, available market related broadcasts on the local Radio is not that much. For almost all of the producers and most of the traders, when available, access to telephone services is through telephone booths. Mobile phone networks cover parts of the
Region, but private ownership of telephones is extremely rare and confined to wealthy citizens and businesses. Two state-owned radio stations, one AM and the other FM, also serve the western part of the Region.
To recapitulate, some of the negative effects occurring due to such a weak market information system can be broadly summarized as;
Delays in making market-related decisions;
Wrong decisions occurring due to lack of adequate information;
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Decisions made by wrong people /or in wrong places; and
Lack of market transparency.
Moreover, the major causes of the foregoing negative effects are broadly due to:
Information sources/centers not accessible;
Unreliable information from accessible sources;
Difficulties obtaining appropriate information technology (i.e. expensive or unaffordable); Lack of knowledge of user requirements.

4.5.4. POSSIBLE OPTIONS
Paul Mundy and Jacques Sultan in a recent publication (2001) put the importance of information as follows:
Information is a basic element in any development activity. Information must be available and accessible to all, be it scientific, technical, economic, social, institutional, administrative, legal, historical or cultural in nature. Information is useful only if it is available, if the users have access to it, in the appropriate form and language – i.e., if it is communicated, if it circulates among the various users with appropriate facilities, if it is exchanged.
In view of that, the major role of a market information network is to collect, process and disseminate market data systematically and continuously and make it available timely to users for decision making purposes (Schubert, 1993). Such information must be collected at all levels ranging from producers, suppliers or traders to final consumers. More specifically, market-related data needs to be gathered on among others, prevailing prices, milk supply, milk quality and consumption patterns (i.e consumer elasticities). Meanwhile productionrelated data will focus on genetic potential, farm ownership and investment, nutrition and input supply.
As the economy develops, agriculture market information takes center stage. According to
Schubert (1993), as milk production for the market rises due to economic development, the need for a market information network becomes unavoidable. Before such a market information network can be established, it is also imperative that a concise empirical study of information needs of dairy farmers is conducted. This exercise should also inevitably involve the assessment of the performance of existing information systems and how they are servicing the dairy sector for instance.
What can we do in the Amhara Region to achieve this, especially in relation to dairy marketing information? And how can we improve the existing system?
a) Establish a pilot MIS project
Prior to a full-scale intervention, it is believed that a pilot project, designed to serve the market information needs of dairy farmers in a single Woreda of Amhara Region, would
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provide the experience and feedback data required to encourage the development of the service to other commodity sectors and other geographical locations.
Design details of the proposed component of the pilot project targeted at this area are as follows: Employees of the service will collect information about the dairy market on three days a week from all assembly markets of the Woreda in the marketing seasons. These information reporters will be employed on a part-time basis by the Project but their work will be expanded to collect not only price information on dairy products but also:
Information on the current transport situation (the state of roads, availability of vehicles, etc.).
An estimation of the market’s turnover in milk, butter and other dairy products.
Description of the quality of products being traded.
Τhe activity of visiting buyers, including traders from other Regions and agents for large-scale buyers.
Any changes in market fees, local taxes, etc.
Local availability of assistance including extension services and access to credit.
Other information or opinion of relevance to target beneficiaries.
These reporters will be equipped with small motorbikes and will make regular visits to farms within the area to gather information about the experience of dairy producers and traders and to report activity from village markets.
The reporters will also be using telephones and will report their findings to the Information
Processing Center (IPC) in B/Dar. The reporters will receive a period of specialist training in gathering accurate prices and other information and their work will be regularly crosschecked by Project staff members. The IPC will be responsible for analyzing information from reporters in the target areas. It will then combine this information with that gathered by
BOTI reporters from the other Woredas of the Region who are already working to provide information for the macro-information service including information from wholesale and retail markets in 25 bigger urban towns of the region.
The Center will also arrange for relevant non-price information to be produced as a 15minute radio program for broadcasting once a week. The program will be produced in as entertaining a format as possible. It will impart as much of the information as possible in the form of interviews (or transcripts of interviews if there are language problems) with traders, farmers and other actors and experts. Depending on the amount and importance of the information in each broadcast, time will also be allocated to inform about the experience of farmers elsewhere in the country with different marketing strategies.

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4.6. POLICIES
The Federal Government of Ethiopia, in its recent Rural Development Policies and Strategies document (FDRE, 2003), stresses that, given the predominant role of agriculture in the livelihoods of the largest part of Ethiopians, any strategy for slashing poverty and hunger in the country must center on rapid growth in the agricultural sector. Ethiopian farmers clearly need the Government and donors to make investments aimed at increasing agricultural productivity, but these investments could depress commodity prices and farm incomes if they are not linked to market opportunities for farmers. Poorly functioning markets, weak domestic demand, and lack of export possibilities are major constraints not only in Ethiopia’s but on Africa’s agricultural growth prospects as well.
Few countries in sub-Saharan Africa appear to have well documented, national dairy development and marketing policies, quite apart from overall food policies (Mbogoh, 1988).
However, an indication of what these policies are can often be derived from the broad statements in the national development plans and/or government sessional papers on development prospects and problems. Meaningful policy analysis is often hampered by lack of data or documentation.
The term 'policy ' can be defined in various ways. For analytical purposes one can consider policy as referring to any set of actions through which a given societal situation is to be changed to one that corresponds better to a society 's goal (Jahnke and Kirschke, 1983).
However, for the purposes of the discussions in this paper the term 'policy ' will be defined simply as a 'set of government decisions, often embodied in legislation, taken at a national level and which usually apply to a country as a whole rather than to one part of it '.

4.6.1. GOVERNMENT POLICY AND ACTIVITIES FOR DAIRY DEVELOPMENT
According to Benin, et. al., (2002), in 1991, when the present federal government came to power it launched, in addition to market liberalization, the Agricultural Development Led
Industrialization (ADLI) strategy to improve the productivity of the agricultural sector, within the framework of transforming the entire economy such that the relative contributions of agriculture, industry and services to economic growth would shift significantly in favor of the latter two over time. With respect to the livestock subsector, the development strategy seeks to: 1) enhance the quality and quantity of feed by allocating sites for grazing, providing improved animal feed and improving extension services to farmers; 2) increase livestock health service coverage and improve vaccination sites; and 3) improve productivity of local cows by artificial insemination, but also to preserve and improve indigenous breeds. From a survey conducted in 1999–2000 in northern Ethiopia to examine the development of the livestock subsector since 1991 when ADLI was launched, it was found that there have been significant changes in utilisation of feed resources: while use of communal grazing lands, private pastures, woodlots and forest areas as feed sources has declined, use of crop residues and purchased feed has increased.
Recent livestock development activities of the Ethiopian Government have attracted the attention of development partners, international organisations and NGOs. The livestock subsector has emerged as an important source of gainful employment and income for the vast majority of the rural poor for their poverty alleviation. Important features of government policies towards the livestock subsector include (i) the non-involvement of the government in
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production, processing and marketing activities, (ii) support of the private sector and NGOs in dairy development activities through research, extension, training, credit and the development of appropriate infrastructure, (iii) reduction of import tariffs on equipment, animals, raw materials and other inputs, and (iv) reduction and eventual elimination of subsidies on inputs, including veterinary drugs, vaccines and AI services.
With regard to dairy, Ethiopia 's dairy development policies are to be implemented through a combination of the promotion of increased rural production of milk and improvements in the dairy marketing system. With smallholder dairy farmers now being the main milk producers
(accounting for nearly 90% of total production) in the country, dairy development programmes aim to strengthen smallholder milk production through the provision of artificial insemination (AI) and veterinary and extension services.

4.6.2. LAWS AND REGULATIONS AFFECTING TRADE
Agricultural trade in Ethiopia is governed through a number of laws and regulations. Of these the principal ones affecting commodity trade as detailed by a recent report released by
Ministry of Trade and Industry (MOTI, 2003) are described as follows.
Legal Framework Issues
The legal framework to support a market economy appropriate to a country in transition like
Ethiopia requires reform in some specific areas of laws that are closely related to economic transactions, particularly commercial transactions. Basic texts in four areas of laws are needed for supporting a market economy:
a) Property laws to define property ownership, in particular, real property. This is the most important area, since market economy is based on private ownership of property; b) Laws to define rules of exchange of property, i.e., laws and regulations governing contractual arrangements;
c) To develop the market, a set of rules to regulate entry and exit of actors in the market: company laws, a bankruptcy law of kind to organize the market in an orderly manner; and
d) Finally, financial sector laws to facilitate banking activities which are necessary to facilitate trade and mobilize savings for investment.
Other supporting laws in addition to the above fundamental laws are also needed.
Substantive Laws
In general, it seems that the civil code and other codes, such as the commercial code, were promulgated in the 1960s. Although they are still in force, these codes have failed to take hold of Ethiopia because of factors related to the socio-cultural and economic milieu in which they were introduced. To resolve this issue, a thorough reexamination of the codes must be undertaken in due course. For the time being, efforts must be concentrated on areas
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intimately related to commercial transactions, including contract dispute resolution. In property law, the civil code did not work well because of the diversity of land holding in
Ethiopia and the need for gradual change from a socialist system of state ownership to one of private ownership. In contrast, the concept of “sales of goods,” for example, is not too relevant, as most transactions are just too small. An arbitration law has been put in place, but a proper implementation institution is lacking. Furthermore, the current arbitration system ased on Ethiopian laws may have worked well in disputes among local litigants but may not be suitable for disputes involving FDI. Over the longer run, sustained efforts to review the whole French law-inspired 1960 commercial code would be necessary, including contract law and related regulations, to make the code more adapted to current practices in Ethiopia and to international transactions.
Real Property Laws
A survey of the private sectors’ perceptions of impediments to their investments is not available, but interviews with a limited number of investors reveal that they feel the following three problems are most serious:
a) access to land;
b) access to finance ;
c) lack or inadequacy of infrastructure; in that priority ranking.
Dispute Resolution
Dispute Resolution is perhaps the most important area of pro-growth in the legal system.
Without an effective resolution system, investors, particularly FDI, would be reluctant to take risks in a country where commercial conflicts (unavoidable in business transactions) have no efficient and fair means to be resolved. In Ethiopia, as with other legal systems, when disputes arise between a foreign investor and the Ethiopian government, the dispute would be settled in accordance with the dispute settlement mechanism agreed upon by the parties.
However, disputes between FDI and local parties will need to be provided with an efficient mechanism for resolution. The court system seems to be overloaded with pending cases, while an arbitration system more suitable for this type of dispute is yet to be considered (see below). Arbitration
In Ethiopia, arbitration is performed according to Ethiopian laws. The president of the federal Supreme Court normally serves as the authority to appoint the arbitrators. This system may have worked well for resolving disputes among local litigants. A contract involving FDI should have a clause that allows the choice between arbitration laws of the host country or a different set of arbitration laws agreed by the parties concerned.
Licensing
Licensing is not the problem to enter into agricultural business as such. Rather the barriers observed are more of structural and/or infrastructural such as lack of access to working capital (or credit), poor trading practices, lack of appropriate physical facilities and poor (in some commodities absence of) market information service. Licensed traders seriously
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complain the existence of too many unlicensed traders in the region. This issue has been identified also in earlier studies (Gebremeskel et al, 1998; Wolday and Eleni (2002).

4.6.3. TAXATION POLICY
In each market the information on taxation was obtained by interviewing farmers and traders dealing at their respective markets. In the markets studied, the Woreda Office of Finance and
Planning (OFP) and the city municipality were the two most important regional government offices responsible for the administration and collection of butter sales taxes. For the purpose of tax collection the two offices have their own employees who monitor butter movements, truck arrivals, and departures. They also regularly visit traders’ store and monitor their activity for the purpose of determining butter turnover tax and annual fees. The butter turnover tax is levied on all traders and all types of butters.

4.6.4. POLICY LIMITATIONS OF EXISTING DAIRY MARKETING SYSTEMS
Concerning small-scale milk production, processing, and marketing, various studies on the dairy industry in Ethiopia (Getachew, 2003; Ahmed, 2003) show that the following major constraints need serious attention for future development.
1. The high risk of investment in the dairy processing:
* High investment cost of the dairy processing plants.
* Limited acquaintance of the available GOE legislations.
* Lack of information about the local and foreign market.
* Inconvenient pricing and taxes policies to the dairy processors.
2. Loss in raw milk produced from small and medium dairy farms:
* Small herd sizes.
* Weakness of milk collecting and marketing systems.
* Irregular supply of milk and dairy products.
* Incomplete acquaintance of milk supply legislations.
3. Low export competitiveness ability of dairy products:
* High cost of inputs.
* Lack of information on potential foreign markets.
* The use of low technologies in milk processing.
* Dairy products do not meet export standards.
* Inproper packing of dairy products.
* High the production cost.
4. Asbence producing high quality (clean) milk and dairy products:
* Poor traditional milking system.
* Absence of cooling tanks, and cold channel.
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* Weakness of milk handling tools and transportation systems.
Recommendations
1. Stimulate private sector investment in dairy processing:
* Develop financing mechanism for dairy plants.
* Revise legislations and rules, customs and taxes.
* Taxes codification for dairy plants (on the basis of the amount of processed milk).
* Protect local dairy products from unfair competition with imported products.
* Provision of efficient information about local and foreign market.
* Promate export campaigns.
2. Increase the contribution of small and medium farms in milk supply:
* Optimize herd size.
* Develop efficient milk collection, cooling and marketing systems.
* Move from marketing of raw milk to value added products:
* Establish financing mechanism for dairy plants.
* Establish financing mechanism for milk processing units in rural areas.
* Encourage rural women participation.
3. Produce new varieties and attain standards of production for export in view of WTO agreements and local market legislations:
* Strengthen the market information systems.
* Identify potential export products.
* Use better processing technologies.
* Revise tarrifs on inputs.
* Revise taxes and, fees on exports.
* Implement promotion campaigns.
4. Supervision and control on private dairy processing units.
* Improve milking systems and cooling channels.
* Improve milk handling tools and transportation systems.
5. Establishing and improving standards and regulations
* Set standards and specifications for dairy products.
* Revise rules, legislations, tarrifs and treaties.
* Promote exports of dairy products.

4.6.5. FUTURE POLICY DIRECTIONS
Policy objectives
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The choice of any specific measure will depend on the policy objectives being pursued and the targets of the objectives. Accordingly, (Mbogoh, 1988) lists the following as the possible ways in which governments can influence the dairy marketing system.
Policy objectives associated with dairy marketing are:
•

To provide higher prices to producers;

•

To provide more stable prices to producers;

•

To secure reliable milk supplies for urban areas at reasonable prices;

•

To reduce marketing costs;

•

To improve hygiene and quality of products;

•

To ensure minimum nutrition levels to certain groups of the population through the implementation of programmes for easy and cheap access to milk;

•

To raise and channel investment funds into dairy production by using profits made from the resale of concessional imports or food aid; and

•

To provide convenient services to the consumer at prices he can afford and is willing to pay.

Ways of achieving objectives are:
Setting up of private (e.g. cooperatives) or parastatal organisations in order to:
•

secure economies of scale;

•

achieve improvements in hygiene/quality of products by direct government action through controlled parastatal corporations.

•

Licensing and inspecting of competing traders to ensure minimum hygiene and quality standards as stipulated in law (or rules and regulations that govern trade in dairy products);

•

Provision of subsidies to producers and/or consumers;

•

Encouraging competition by easing access to information, skills and capital;

•

Provision of processing and storage facilities (e.g. for butter), constructed at government expense, to private traders at cost or at subsidised prices; and

•

Use of milk-buying chains to distribute dairy production inputs.

Moreover, at National and Regional levels persistent efforts must be made to design appropriate market development policies to address the above mentioned issues, tailored to country and regional needs. For instance recent studies (Elleni, 1999), show that in countries such as Ethiopia, where food staple markets dominate and small traders play an important role, priority should be given to promoting more formal trading through the creation of institutions to set and enforce grades and standards, provide market information, and enforce contracts. Similarly, in the case of dairy in Amhara, farmer cooperative organizations in some
Woredas have been found pivotal in helping small farmers enter into contractual arrangements to provide more reliable market outlets. These efforts, however, need to be pushed one step further so as member farmers can obtain extension advice and services such
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as AI, veterinary, and credit from these sources. The government’s recognition and encouragement of the development of a wide range of private marketing institutions, local producer associations, and self-help groups has been important, as has access to credit and other financial services, transport, and storage. Such institutional development, however, does not necessarily fully depend on government; the private sector and nongovernmental organizations have also made important contributions.
Commercial dairy production
The possible government incentives for investing in commercial dairy production and processing in Ethiopia include the ability to make widely available a low-cost source of animal protein, savings on foreign exchange spent on imports of milk and various dairy products, and the creation of a new source of demand for feed and feed grains. One could argue that all of these objectives could be satisfied by improved productivity of traditional systems of dairy production. Achieving these objectives through commercial systems, however, offers additional advantages: gains from specialization and exchange, increases in farm-level productivity through the use of new technologies and management practices, and, most important, benefits in the long-run process of change in productivity gains from expanded use of land and labor to increased use of knowledge from outside the farm (i.e. the integration of agriculture with other sectors of the domestic and international economies). In short, the transfer of commercial dairy production technology to Ethiopia can provide an important linkage in the process of structural transformation (Ahmed, et al., 2003).

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5.

DAIRY MARKET PERFORMANCE

The aim of the current chapter will be to present elements of the dairy market performance with an objective of assessing its efficiency. To achieve this, first, price analysis of three selected urban dairy markets will be carried out to check for the presence and strength of price volatility, and to understand the true dynamics that characterize movements in prices.
Next, we evaluate how efficiently the marketing system operates with regard to dairy products. This is accomplished using price spreads in the three selected markets and relating them with marketing margins and transportation costs. Price spreads are investigated, in the words of Mendoza (1995), to determine whether the existing marketing margins are excessive in relation to the services rendered by the intermediaries. Finally, spatial integration of markets will be investigated, in which case, we are assuming that the price of dairy products in two markets should vary no more than the costs of transportation and other transfer costs of moving the products between the two markets. If this is true, markets are generally considered to be efficient (Mendoza, 1995).

5.1. PRICE ANALYSIS
Prices contain information crucial to maximizing the returns to production and marketing investments. In this section, therefore, first results of the collected prices will be presented, which will be followed by analysis of temporal and spatial fluctuations. Hence, we will examine the fluctuations in annual and monthly prices of dairy products. In so doing, we intend to know whether temporal and spatial prices volatility of these commodities has increased over time, and if so, to what extent, or degree. Finally, attempt will be made to identify and describe major causative factors for such fluctuations.
Many researches show that price analysis, whenever possible, has to be based on long period time series data (Scott, 1995). In view of this, the current price analysis efforts have been based on secondary data especially generated from the Central statistics Authority retail and producer prices time series data for the years ranging from 1991 to 1995 (E.C.) inclusive.
These data, however, lack completeness in terms of covered markets and commodities. In such cases blending of similar data from other sources, such as BOA and DPPC, has been applied to boost data robustness. Results should nonetheless be interpreted cautiously given the limitations cited.
Moreover, the price analysis will concentrate on milk and butter, as complete data series can be found only for these two dairy products only. Similarly, three markets are considered in this analysis (B/Dar, Desse, and D/Birhan) based on the urban milkshed specialization work done by the Regional BOA. Ultimately, some of the questions that the analysis in the coming pages tries to answer when analyzing prices include the following:
1. Do dairy product prices follow the seasonal trend?
Agricultural products are rather predictably affected by seasonal fluctuations. In this study, therefore, we want to verify whether this holds true for milk and butter, and if so, what is the usual seasonal pattern, and to what extent does it fluctuate within a given year.
2. How do prices compare with those for the same period in a given year(s)?

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In addition to being interested in intra-annual price patterns, the study is also interested in price levels across years. Performing an analysis of price levels across years for the same market allows the analyst to contrast or draw similarities between the current year’s prices and those in any given year.
3. How do prices at one market compare with those at a different location?
Comparing price levels across markets (spatial analysis) allows to study price differences between surplus and deficit areas or between border prices and prices at interior markets.
Spatial analysis also helps identify if prices of a specific commodity in markets within a given geographic area behave in similar ways.

5.1.1. INTRA-YEAR PRICE VARIATION OF MILK
A) General Trend of Monthly Prices
Initially milk price data for the three selected towns were collected from CSA monthly retail price computer data and the average monthly prices for the five years ranging from 1991 to
1995 is presented in Table 25 and Fig. 4 below. It should be borne in mind, however, that these figures are averages and serve only as a point of reference to estimate the market prices for a particular period.
Table 25: Variation in 5-Year average monthly prices of milk (1991 - 95 EC.)
Town

Mes

Tik

Hid

Tah

Tir

Yek

Meg

Mia

Gin

Sene

Ham

Neh

Desse

1.75

1.69

1.69

1.67

1.66

1.70

2.13

1.81

1.81

1.74

1.92

1.80

B/Dar

1.75

1.75

1.85

1.89

1.94

1.95

1.90

1.91

2.02

1.90

1.80

1.74

D/Birhan

1.73

1.73

1.82

1.82

1.86

1.89

2.07

1.55

1.83

1.63

1.97

1.40

Source: CSA, Retail price data (several years)
V A R I A T IO N I N A V E R A G E M O N T H L Y M I L K P R IC E S ( 1 9 9 1 - 9 5 )
2 .5 0
2 .2 5
2 .0 0
BR
/L T 1 . 7 5
1 .5 0
1 .2 5
1 .0 0
MES

T IK

H ID

TAH

DESSE

T IR

B /D A R

YEK

MEG

M IA

G IN

SENE

HAM

NEH

D /B IR H A N

Figure 4: Variation In Average Monthly Milk Prices (1991-95)
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The general trend of price movements as depicted in the above graph show, among others, the commonality of monthly price fluctuations for all the three markets. Nevertheless, although these changes are common for all, they differ in their timing and depth of volatility.
Thus, separate analysis of fluctuations in each market shows that:
•

Milk prices in Desse are at their lowest during the Nehasse-Tir period, reaching the minimum treshold in Tir. Starting from Yekatit onwards prices start to rise, peaking in Megabit, level off in the next three months, and then show a second peak in
Hamle, to return to the low price of Nehasse.

•

In Bahirdar as well prices are at their lowest and most stable phase during the
Nehasse-Tikmt period, then start their steady rise begining from Hidar and peak in
Yekatit, level off in the next two months (Megabit-Miazia), and then show a second peak during Ginbot, and drop again starting from Sene to the low price of Nehasse.

•

Seasonal variations in D/Birhan, on the other hand, seem to be more volatile, with no less than three peaks occuring in a given average year. Prices are at their lowest in the month of Nehasse only. The first hike is immediately observed in Meskerem, at which level prices stay till Tahisas, and then start to rise begining from Tir and reach their peak in Megabit. Then prices zigzag monthly for the next four months to drop again in Nehasse.

In most cases,however, intra-year milk price variations seem to be moderate.
B) Variability of Monthly Prices
Examination of the divergence between High and low price months in the three markets show that, the peak and trough months, not only vary between towns, but also vary between years in each market. This can particularly be seen from data presented in Table 26, where the months change temporaly and spatially.
Table 26: Months Of Highest And Lowest Prices Of Milk
Town
B/Dar
1991
1992
1993
1994
1995

Ginbot
Miazia
Sene
Yekatit
Ginbot

Highest Price Month
Desse
D/Birhan
Hamle
Ginbot
Hamle
Hamle
Hamle

Hamle
Megabit
Yekatit
Megabit
Megabit

Lowest Price Month
B/Dar
Desse
D/Birha
n
Nehasse
Nehasse
Nehasse
Meskerem
Nehasse
Nehasse
Meskerem
Hidar
Nehasse
Nehasse
Tikimt
Nehasse
Nehasse
Nehasse
Nehasse

For practical purposes, similarities between markets can be deduced in terms of their lowest price months, which in 11 out of 15 cases falls in the month of Nehasse. Highest price months, on the other hand, show wide variation both between markets and years.
Notwithstanding these variations, General deductions were made based on the five year monthly averages, whereby, the months of Ginbot, Hamle, and Megabit were found to be months of top price for B/Dar, Desse and D/Birhan, respectively. Occurence of high prices likewise, seem to differ between years. For instance, over the 5 year period, there were 4 different months of top price in Bahirdar, 3 in D/Birhan, and 2 in Desse.
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The other parameter investigated for testing monthly variation was the extent of divergence in milk prices registered between the highest and lowest months, which is presented in Table
27, below.
Table 27: Difference Between Highest And Lowest Milk Prices

1991
1992
1993
1994
1995
5yr Av.

Difference in Birr
Dispersion Coeficient (%) CV (%) of Difference
B/Dar Desse D/Brh B/Dar Desse D/Brh.
B/Dar Desse D/Brh.
.
0.65
0.00
1.43
39%
0%
95%
10%
0%
16%
0.39
0.72
1.82
24%
48%
121%
7%
14%
27%
0.68
0.94
1.79
42%
71%
135%
12%
21%
27%
0.35
0.27
0.00
20%
16%
0%
5%
5%
0%
0.00
0.33
0.00
0%
17%
0%
0%
5%
0%
16%
16%
48%
0.28
0.26
0.67
5%
4%
10%

As can clearly be seen from data in the table, over the five years, the range of milk prices per litre varied from Birr 1.63 to 2.31 in Bahirdar; 1.33 to 3.12 in D/Birhan; and 1.33 to 2.33 in
Desse. Using price dispersion as a yardstick, further analysis of the observed intra-year fluctuations were carried out. The results show that;
•

Price differences between the high and low months of a given year were generally small but can vary from nil to 1.79 birr per litre. Higher levels of fluctuations were observed to occur in D/Birhan.

•

Dispersion coeficients (the difference between the two extremes expressed as a percentage of the lowest price), averaged over the 5 years, were found to have been higher in D/Birhan (48%) showing that prices were more volatile.

•

Moreover and importantly, price fluctuations seem to have been declining over the years in all three markets. For instance, dispersion coeficients for D/Birhan which were as high as 135% in 1993, dropped to 0% in the next two years. Similarly, it declined from 42% to 0% in B/Dar; and from 71% to 17% in Desse. Therefore, it can safely be assumed that Monthly milk prices, have stabilized over the years to the point of no difference in intra-annual payments.

•

The above trend is further reflected in the coeficient of variation around the mean, which has been declining over the years.

Prices used to calculate the above stated level of dispersions were, however, nominal prices, which being uncorrected for inflation may have slightly overestimated the observed price volatility. 5.1.2. INTER YEAR PRICE VARIATION OF MILK
Between year variability in milk prices for the three selected towns are presented in the next two tables. Variations in the prices of milk reveal that generally prices have been slightly falling down through the years especially in D/Birhan and B/Dar. In Desse, however, prices have been invariably rising with the exception of a slight dip in 1993. On an average the
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inter-year variability in the prices of milk between 1995 and 1991 has been the highest in
D/Birhan with prices dropping by 35%. In the case of Bahirdar, although the drop not being as dramatic, there has been an aggregate 7% drop in prices between 1995 and 1991.
Moreover, the highest inter-year variability registered has been in Desse between the years
1993 and 1994, where there was a price hike by no less than 28%. Similarly, among years, the coefficients of variation were relatively higher in Desse, with the exception of the high price fall coefficient registered in D/Birhan between 1994 and 1993.
Table 28: Average Yearly Prices of Milk (Br)
Year
1991
1992
1993
1994
1995

Average annual prices (Br)
Desse
B/dar
D/birhan
Desse
1.50
1.93
2.03
1.71
1.82
2.03
1.52
1.97
2.15
1.95
1.82
1.33
2.04
1.80
1.33

Coeficient of variation %
B/dar
D/birhan
9%
8%
18%
3%

4%
6%
6%
1%

0%
4%
33%

Table 29: inter-annual difference in Milk prices
Consecutive
Difference in annual prices (Br)
Difference in %
Year
Desse
B/dar
D/birhan
Desse
B/dar
D/birhan
92-91
0.21
-0.12
0.00
14%
-6%
0%
93-92
-0.19
0.16
0.12
-11%
9%
6%
94-93
0.43
-0.15
-0.82
28%
-8%
-38%
95-94
0.09
-0.02
5%
-1%
95-91
0.54
-0.13
-0.70
36%
-7%
-35%

5.1.3. INTRA-YEAR PRICE VARIATION OF BUTTER
A) General Trend Of Monthly Prices
Table 30, below presents monthly retail price data (average of 5 years) of butter for the three selected milk shed towns of the Region. Likewise, Fig.5 also presents the same monthly fluctuation data in a graph form.
Table 30: Variations In 5-Yr (1991 - 1995 EC) Average Monthly Retail Price Of Butter
Town

Mes

Tik

Hid

Tah

Tir

Yek

Meg

Mia

Gin

Sene

Ham

Neh

Desse

16.85

16.18

16.62

16.85

17.88

18. 99

19.72

20.53

20.82

21.78

23.59

21.47

B/Dar

16.44

14.73

15.56

16.91

18.99

19. 22

20.08

21.38

21.79

20.62

17.56

15.79

D/Birhan

20.12

18.37

20.22

19.87

20.03

21.20

23.60

25.53

24.79

23.37

24.71

21.56

Source: CSA, Retail price data (several years)
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30
28
26
24
22
20
18
16
14
12
10
MES

TIK

HID

TAH
DESSE

TIR

YEK
B/DAR

MEG

MIA

GIN

SENE

HAM

NEH

D/BIRHAN

Figure 5: 5-Year Average Monthly Retail Prices for Butter (1991-1995 E.C.)
Generally speaking, however, both data in the table and figure clearly show that, Intra-annual prices follow a seasonal pattern that roughly breaks itself into 3 periods (figure 5):
Lowest and most stable prices between August and December (high forage period);
Rising prices between January and March/April (reduced feed period);
Very high (peak) prices between April and July (Easter-season and low feed period).
Difference between the three towns, however, exists as to the intensity (sharpness) of peaks and falls and the months in which they occur. For instance there is only a single top price period for B/Dar (Apr - May) and Desse (June - July); while in D/Birhan there are two peak periods, the first in Apr - May, and the second occurring in July. The other observed dissimilarity related to the month of highest price levels, and this came about in July for
Desse, for B/Dar in May, and for D/Birhan in April. The first drop in prices as well was different, whereby for Desse and D/Birhan it happened during August, while for B/Dar prices start to fall early in July.
In any case we can conclude that the price pattern during a given year closely follows the seasonal pattern of feed availability and milk production. There is evidence to support such a dramatic price fluctuation to be strongly related to seasonal supply patterns, for which, feed supply can be forwarded as the main explanatory factor overall. It is important to note that dry months and drought have obvious implications for animal productivity, and hence, the total supply of butter to the market.
B) VARIABILITY IN MONTHLY PRICES
Tschirley (1995), in his discussion on price analysis states that variability in monthly prices can be analyzed, among others, by examining the extent of deviation between the highest and lowest prices, as well as by decomposing prices into trend, seasonal and cyclical components.
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Accordingly, we have applied both these methods on monthly nominal retail prices of butter for the three selected towns, and the results are summarized as follows. Table 31 presented below, shows the months of highest and lowest prices, for butter in the past five years (199195).
Table 31: Months Of Highest And Lowest Prices
Town
1991
1992
1993
1994
1995

B/Dar
Miazia
Miazia
Megabit
Sene
Sene

Highest Price Month
Desse
D/Birhan
Hamle
Hamle
Hamle
Miazia
Hamle
Megabit
Nehasse
Sene
Hamle
Miazia

B/Dar
Tikimt
Tahisas
Tikimt
Hidar
Tikimt

Lowest Price Month
Desse
D/Birhan
Hidar
Tikimt
Meskerem Tikimt
Meskerem Tikimt
Tikimt
Tahisas
Tahisas
Tikimt

C) EXTENT OF DEVIATION
Results of the price analysis show that, averaged over the five years, the range of butter price
(Br/Kg) varied from 16.2 to 23.6 in Desse, from 14.7 to 21.8 in B/Dar, and from 18.4 to 25.5 in D/Birhan. However, given that average monthly prices over a period of 5 years being able to conceal extremes, the amount of dispersion and the extent of divergence between the two extremes was calculated as presented in Table 32.
What can clearly be seen from the table data is that:
•

Averaged over 5 years, the difference was strikingly uniform for the three markets, with the extent of divergence of the lowest price from the highest being 30 to 31%.

•

There is a high variation in average monthly prices, the difference between the highest and lowest months varying from as low as birr 4.30 to birr 13.00 per kg.

Table 32: Diff. Between Highest And Lowest Butter Prices

1991
1992
1993
1994
1995
5yr Av.
•

Difference in Birr
Difference in (%)
CV (%) of Difference
B/Dar Desse D/Brh B/Dar Desse D/Birha B/Dar Desse D/Birha
.
n n 8.26 10.10
8.44
39%
45%
33%
14%
21%
16%
12.62
8.55 12.98
45%
38%
42%
20%
14%
15%
4.32
4.92
6.65
21%
26%
27%
10%
8%
13%
10.17
9.33
7.67
46%
37%
31%
19%
20%
14%
11.83 10.33
9.34
42%
34%
30%
20%
13%
13%
6.65
7.40
7.90
31%
31%
30%
13%
13%
12%
Important differences exist between markets and years. Taking the Bahirdar market for example, the dispersion coeficient (calculated as the difference between the two extremes in %), for 1992 stood at 21%, which immediately after a year soared to
46%. Similarly the Desse butter market saw divergence levels dip from 45 to 26%

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between 1991 and 1993. The D/Birhan market on the other hand seems to be less volatile with the divergence ranging from 27 to 33%, except for 1992, when there was a 42% (13 br/kg) difference between the highest and lowest monthly prices.
•

The difference is further reflected in the coeficient of variation around the mean, which is presented in the same table. Compared to the CV of the 5-year average,
(which was 26% for B/Dar and Desse; and 24% for D/Birhan), most of the years had higher CVs.

To examine the causative factors leading to the above mentioned intra-year price volatilities, however, requires, among others, the separation of changes in prices into random elements present in any price series and the systematic factors (Tschirley, 1995).

5.1.4. DECOMPOSITION OF NOMINAL PRICES
In their manual on price analysis, IFPRI (1999), state that verification as to the existence of repetitive seasonal or intra-annual variations within price series data is of high importance, especially, in developing countries where there is no active government price policy imposed on the market. thus, an attempt has been made in this section, to decompose the collected nominal price data into three components, viz., trend (T), seasonality (S) and cyclical irregular (CI) elements.
Procedurally, we first make a preliminary separation of the seasonality from the actual series to arrive at a de-seasonalized series. During the first iteration, the procedure applies least square trend analysis to separate and eliminate the trend factor from the de-seasonalized series. Next, a seasonal index (SI), is generated which shows the typical intra-year movements of butter retail prices. This is arrived at, first by calculating a 12-month centered moving average (CMA12), and then dividing the nominal prices by the respective CMA12, to obtain the SI ratio. Finally, after getting the cyclical factor by dividing the CMA12 by the trend element, the remaining residual series is assumed to contain the irregular factor. The results are discussed below.
A) SEASONALITY
The estimates of purely seasonal factors in the nominal prices of butter for the three selected markets are presented in Table 33 and Fig 6 below.
Table 33: Seasonal Index Of Butter Prices Based On CMA12
Town

Mes

Tik

Hid

Tah

Tir

Yek

Me g

Mia

Gin

Sen

Ha

Neh

Band

CV%

Desse

92

84

87

93

106

107

108

118

117

107

97

91

34

11%

B/Dar

91

88

92

91

93

99

99

108

105

115

116

108

28

10%

D/Birhan

95

86

90

92

94

100

104

119

111

103

109

98

33

9%

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130

120

110

100

90

80

70
MES

TIK

HID

TAH

B/DAR

TIR

DESSE

YEK

MEG

MIA

GIN

SENE

HAM

NEH

D/BIRHAN

Figure 6 : Seasonal Index for Butter Price (1991-1995 E.C.)
Considering the use of 5 year price series for deriving the components of all three markets, it is not surprising to see that the average seasonal price pattern corresponds to the general price view deicted earlier for nominal prices. Further comparison of the seasonal factors for the three towns shows that the band of seasonality (the difference between the highest and lowest seasonality factor) is almost similar for all, although that of B/Dar is slightly lower than the two. This implies that, with regard to butter prices in urban markets of Amhara Region, seasonal fluctuations are influenced by similar underlying causes and hence result in identical monthly price dispersions.
Likewise, comparing the months in which the highest and lowest seasonality factors occurred, shows that there is no change from the results achieved for nominal monthly price perturbations reflected in earlier sections. Finally, indices of instability were investigated using the CV (%) estimate. As can be seen from results in the table, it seems that slight butter price oscillations occur within a given year, with the fluctuations peaking only during certain high demand seasons.
Moreover, the sharp differences in band of seasonality observed for each market may be ascribed to the lack of experience in internal storage of butter at the farm level and the unavailability of adequate storage services at the small trader level. Thus, without access to storage, farmers and small traders are compelled to immediately dispose their butter, resulting in a market glut and consequently triggering farm and retail prices to drop dramatically. The relative flexibility of the producer price in relation to retail prices can also be taken as a case in point showing the inadequacy of storage facilities.
B) TREND
An analysis of the trend component of butter nominal monthly prices of the past 5 years reveals that there was slight acceleration in average unit price during 1995 as compared to
1991 E.C. in all three markets.

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5.1.5. INTER-YEAR PRICE VARIATION OF BUTTER
Annual average prices of the three urban markets for the 5 consecutive years is presented in
Table 34 below. What is generally descernible from the data is that, prices have been steadily increasing over the years except for the slight dip observed in 1993. Moreover, in addition to this fact holding true for all markets, the annual increment seems to have been strickingly similar between markets. Similarly, the difference in price between two consecutive years, measured in Birr, has also been in the range of birr 2.00 to 2.50, which evidently has increased to birr 4.00 and above between 1994 and 1995. Thus, when compared to 1991, the
1995 butter price is higher by birr 6.22, 4.86, and birr 3.68 for Desse, D/Birhan and Bahirdar, respectively. In other terms, prices have increased by 22 - 36% between the years 1991 and
1995.
Table 34: Average Yearly Prices of Butter (Br)
Year
1991
1992
1993
1994
1995

Average annual prices (Br)
Desse
B/dar
D/birhan
Desse
17.27
17.05
20.75
19.30
19.29
23.42
17.01
17.03
19.22
19.31
17.22
21.13
23.49
20.73
25.61

Coeficient of variation %
B/dar
D/birhan
8%
9%
9%
14%

9%
9%
1%
13%

9%
14%
7%
14%

Table 35: inter-annual difference in butter prices
Consecutive
Difference in annual prices (Br)
Difference in %
Year
Desse
B/dar
D/birhan
Desse
B/dar
D/birhan
92-91
2.03
2.24
2.67
+12%
+13%
+13%
93-92
-2.29
-2.26
-4.20
-12%
-12%
-18%
94-93
2.30
0.19
1.90
+14%
+1%
+10%
95-94
4.18
3.51
4.49
+22%
+20%
+21%
95-91
6.22
3.68
4.86
+36%
+22%
+23%
The annual variation is further reflected in the coeficient of variation around the mean, which is presented in the same table. The CV of the difference in price between two consecutive years, generally ranged between 7 and 8%, except for the 1994 - 1995 difference; which grew to 14% for for all markets. All in all, the CV for annual price differences within the 5 years ranged between 9 and 13%, indicating inter-year butter price volatility in urban markets of
Amhara Region to be not highly pronounced.

5.1.6. EXPLAINING THE OBSERVED PRICE VARIATIONS
Before detailing the assumed causative factors, the broad conclusions drawn from the above discussions have been summarized as follows.
•

Between year price fluctuations for butter in three of the big urban centers of the
Region seem to be low indicating the existence of stable supply and demand conditions. Retail prices on the other hand seem to be invariably increasing through time in all three markets.

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•

Monthly price fluctuations in the prices of milk have progressively become flat in all markets and significant inter-year price drops are being registered in both
D/Birhan and B/dar markets.

•

Monthly price fluctuations within a given year, however, seem to be pronounced, especially in butter prices with the average seasonal price dispersion steadily increasing through the years.

•

When price changes are further analyzed by decomposing nominal prices, it is apparent that seasonal factors seem to play a key role in the fluctuation of butter prices. What then are the major factors contributing towards such inter- and intra-year butter price variations? the following discussion is forwarded, therefore, as an answer to this.
A) Supply related factors :- A consistent body of emperical evidence from different settings indicate that, commodity prices are mostly determined by factors such as supply, demand, marketing cost, time and place of sale. In line with this, ILRI (1995), citing experiences in much of Africa, state that prices of dairy products fluctuate in the same way as food crop prices - moving inversely with supply on the market as supply diminishes in the dry season.
As described in section 3.1.4. of this report, milk production per cow or per unit area in the
Region is dramatically affected by the seasonal cycle of feed availability. The general observed trend of milk production per cow shows that daily production roughly doubles in rainy seasons, compared to dry seasons, and fewer cows lactate during dry seasons. furtheremore, inter-year rainfall variations also have equal repercussions on milk production.
Accordingly, simulations carried out by superimposing seasonal milk production graphs with price levels of dairy products showed that both followed similar trends.
Similarly, Debrah and Berhanu (1991), studying dairy marketing in Ethiopia, found that the search for stable market outlets by producers and the price obtained thereof, are complicated by significant seasonal variation in milk production. In sum, given the effect season has on feed availability and milk production, decrease in supply can be part of the justification for seasonal and inter-year price fluctuations.
B)Demand related factors :MARKET ACCESS
Market density in any given area has a bearing on prices. For instance, Fafchamps (1992), describing food price and rural market integration in the third world, observes that because of high transport costs and low agricultural productivity, rural food markets are thin and isolated. Consequently, farmers are confronted with food prices that are highly volatile.
The effect of market access (in terms of infrastructure) as one of the factors that influence price levels, has been consistently proven. The variability in the quality of road infrastructure, over time and space, is presumably an important explanatory variable of price levels and seasonal spreads of agricultural product prices in the Region.

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We can thus, conclude from the responses forwarded that butter market price in
Amhara Region are influenced, among others, by factors such as:
•

Market throughput - the quantity of butter supplied, which in turn was affected by seasonal production patterns;

•

Product quality - with serious adulteration problems having significant impact on prices;

•

Market location - proximity to big urban centers affects nearby supplies and prices;

•

Season of purchase or sale - affecting both sides of the supply and demand situations.

5.1.7. GOVERNMENT PRICING POLICY
The Ethiopian Government nowadays follows a Free Market system which, according to the
World Bank (2003), is a system in which the producer price is determined by the prevailing domestic market price. There is no government involvement in either pricing or physical handling of the commodity at any stage of the marketing chain. The use of the term free market does not imply a completely laissez-faire approach. The government may reserve the right to intervene if it perceives a need to coordinate actions of agents in the system. In practice, however, the government 's involvement is limited to quality control, grading, taxation and general supervision.
The pricing and marketing policies used for the agricultural commodities in Ethiopia have shifted over the years. While policies emphasised direct government controls on prices and marketing for the main food commodities and the main export crops during the past military regime and its limited reform period up to 1991, the current government has gradually liberalised pricing and marketing since 1991.
Moreover, as detailed by RESAL (2001), public intervention in agricultural markets may have among others, the following objectives: to stimulate and encourage agricultural production, by limiting price fluctuations and by protecting the domestic market from fluctuations in international markets whose instability is often considerable. to reduce the impact of price fluctuations on consumers, particularly in an urban context, as the latter may be confronted by substantial price increases, either due to restricted supplies or caused by speculative behavior. to manage the supply of basic foodstuffs, particularly in deficit countries or zones, in order to ensure the permanent availability of foodstuffs at all population levels. In Ethiopia’s case, however, within a context of economic liberalization, the State is retiring from its role as an economic player (privatization of public companies marketing agricultural products, prices deregulated to a greater or lesser extent, etc.) in order to focus on its function in regulating the national economy.

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Market reforms in Africa are seen to have been necessary, but they have not gone far enough to generate greater supply response and competitiveness in export markets (Kherallah et al.,
2002). As can be seen from our case, the recent market liberalization efforts may have removed price distortions, but they seem to have done little to benefit most small-scale farmers, especially those living away from roads and markets. Indeed, high transaction costs and the limited development of private trade coupled with the presence of both licensed and unlicensed traders in the same market place are forcing many small-scale producers back towards subsistence modes of farming. In the case of dairy products, what we observed is that without opportunities for either acceptable level of agribusiness processing or export, successes in expanding production frequently result in large price drops.

5.2. MARKETING EFFICIENCY
Poor market knowledge, lack of appropriate infrastructure, and other structural imperfections have been asserted to cause inefficiency in Ethiopian agricultural markets (Asfaw and Jayne,
1998). Similarly, Goletti and Elleni (1995) in their work on analyzing market integration, state that, the success of market reform in developing countries in promoting equity and efficiency is constrained by numerous structural deficiencies in local markets. They further contend that, one of the main consequences of these structural deficiencies is poor market integration, the difficulty with which information and trade flows among spatially separated markets. With this in mind, this section of the report presents results of the investigations carried out to assess marketing efficiency of the three selected urban markets. Three broad approaches have been used to measure marketing efficiency : (a) price spreads; (b) marketing costs and margins; and (c) price correlation between markets.

5.2.1. FRAMEWORK FOR ANALYSIS
A) framework
The following framework largely adopts methodologies from similar dairy market analysis, among others, those of Mdoe, and Nyange (1995); Achuonjei and Debrah (1992); and
Debrah and Birhanu (1991).
Given the perishable nature of fresh milk, high ambient temperatures, inadequate refrigeration facilities and poor infrastructure, perhaps the major constraint to increased domestic dairy production and consumption in the Amhara region is the inefficiency with which dairy products are moved from producing points to high demand areas. Efficient marketing is of benefit to both producers and consumers. If the marketing systems function efficiently, operations will be undertaken at lower costs, which may, through lower marketing margins, result in both higher prices for the producers and lower costs for consumers. Given the foregoing, the framework for comparing the performance of the milk marketing channels consists of: (i) specifying general objectives which combines the expectations of objectives of the market participants and the aims of the FDRE Rural Development Policies and Strategies; (ii) defining a set of performance indicators that represent the various general

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objectives specified in (i); and (iii) specifying a set of quantifiable measures that represent each of the indicators and provides the basis for the analysis.
The following are the specified overall objectives, indicators of performance and their quantifiable measures:
Objective 1: To stimulate and facilitate the efficient production, collection and distribution of high quality dairy products to consumers.
Indicator 1: Level and stability of producer prices. measures: Level, trend, variation in producer prices.
Indicator 2: Price spreads and marketing costs.
Measures: Price spreads, marketing costs and margins.
Indicator 3: Quality of dairy products sold to consumers.
Measures: Number and type of product forms and grades and buyer preferences compared to available grades or forms of dairy products.
Objective 2: To ensure adequate supply of dairy products to consumers at economical prices. Indicator 1: Market share
Measure: Volume of milk passing through channels.
Indicator 2: Level and stability of prices of dairy products paid by consumers.
Measures: Level, trend and variation in prices of dairy products paid by consumers. The first objective contains three concepts. The first, emanating from the desire to stimulate production, relates to the level, stability and adequacy of producer returns. The second, price spreads and marketing costs is concerned with the operational and pricing efficiency of the marketing intermediaries. The third, high quality dairy products to consumers is concerned with consumers ' preferences compared to the available product forms and quality standards.
The second objective concerns consumers of dairy products in the Region. Again, this was done through trend analysis carried out on time series data of milk prices paid by consumers.
B) Analytical technique
The flow of milk and butter from dairy producers to ultimate consumers in the various dairy marketing channels has been described in detail through collection of both secondary and primary data (Refer Chapter 4 of this report). Secondary data were gathered from CSA,
BOA, BOTI, etc., and dairy cooperatives. Primary data were collected through rapid appraisal surveys conducted in 2004, in which case dairy producers, dairy consumers, milk

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and butter traders, DDE management and members of four well established dairy cooperatives: Angolela K/Mihret, Kokeb, Yetnora and Gondar dairy cooperatives.
Moreover, the analysis concentrates on the efficiency of butter marketing in B/Dar, Desse, and D/Birhan towns. Our major hypothesis is that butter marketing in these towns is inefficient. Efficiency is measured from the viewpoints of (i) the equality of butter prices over the various outlets, except for transfer costs between supply areas and points of sale, (ii) equality of prices among different categories of consumer and (iii) normal trade margins.
The results of the analysis are presented and discussed in the following sections, according to the performance indicators presented in the framework for analysis.

5.2.2. PRICE SPREADS
5.2.2.1. SPREADS IN BIRR

Using the definition of Goletti and Elleni (1995), price spread is defined here, as the difference between the price received by the producer and the price paid by the consumer for a given commodity in the market at a given point of time. The 5-year average per unit
(absolute) margins calculated between producer price and retail price for butter are presented in Table 36 and illustrated in Fig 7 below.
Table 36: 5-Yr Average Monthly Price Spread For Butter (Birr)
Town

Mes

Tik

Hid

Tah

Tir

Yek

Me g

Mia

Gin

Sen

Ha

Neh

Avrge

CV%

B/Dar

2.69

0.93

0.88

2.74

4.59

4.43

2.74

2.33

3.59

4.25

2.82

2.01

2.83

43%

Desse

3.48

2.15

2.33

1.63

2.64

3.23

1.83

1.69

2.45

3.47

3.87

3.52

2.69

30%

D/Birhan

4.04

1.81

1.95

2.37

3.10

3.20

2.27

3.87

2.99

0.29

3.59

2.14

2.64

40%

Fig. 7: 5-YR AVERAGE MONTHLY PRICE SPREAD FOR BUTTER (BIRR)

5.00
4.50
4.00
3.50

BIRR

3.00
2.50
2.00
1.50
1.00
0.50
0.00
MES

TIK

HID

TAH

TIR

B/DAR

YEK

MEG

DESSE

MIA

GIN

SENE

HAM

NEH

D/BRHAN

Figure 7: 5 – Year Average Monthly Price Spread for Butter (Birr).
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As can be seen from the Table data and the above figure, per unit (absolute) margins of butter price revealed high seasonality patterns for all three markets. The months of high and low margins also occured in different months for the different markets. For instance the narrowest per unit price spread was obtained in Hidar for B/Dar; in Tahisas for Desse; and in Sene for
D/Birhan. Likewise, wide spreads were observed during Tir for B/Dar; in Hamle for Desse; and in Meskerem for D/Birhan. Comparison of seasonal movements of producer and retail prices further show that the narrowest spreads were obtained when producer prices were highest. We can surmise therefore, that when butter becomes costly for the trader to obtain, traders tend to operate on a squeeze margin due to cost increases.
5.2.2.2. RETAIL MARGINS

Seasonal variation in margins was also investigated by calculating retail margins as the percentage share of the farm-to-retail margin to retail price. Details of the results, which are presented in Table 37, clearly show that margins display a systematic pattern of movement, which vary from one month to another.
Table 37: Seasonality In Retail Margins For Butter (%), 1991-95.
Town

Mes

Tik

Hid

Tah

Ti r

Yek

Meg

Mia

Gin

Ham

Sen

Neh

Avrge

CV%

B/Dar

16

6

6

17

24

23

17

11

16

21

16

13

16

38

Desse

20

13

14

9

15

17

30

8

12

16

16

16

16

35

D/Birhan

20

10

10

13

15

15

15

15

12

1

15

10

13

37

Accordingly the tightening of margins is apparent from the data which shows retail margins to be smallest in Hidar, Miazia, and Sene for B/dar, Desse, and D/Birhan, respectively. These narrow margins, if compared on percentage basis, amount to as low as 1% for D/Birhan; 6% for B/dar; and 9% for Desse. The range however goes from
During ample supply when butter is the cheapest, marketing margins tend to be wideswt as manifested by the large share of margins to retail price.
5.2.2.3. FARMER’S SHARE OF THE RETAIL COST

An issue of great public interest concerns the share of the rural farmer in the consumer Birr.
Considered as a measure of welfare (Goletti and Elleni, 1995), any increase in the farmer’s share of the retail price has been found to increase proportionate welfare gains. This is because, narrowing the gap between producer and purchaser prices spreads the gains across the economy.
Based on the usual methods used to calculate producer shares the annual average producer spreads from 1991 through 1995 for the three selected markets are shown below. As can be seen from the data, the aggregate producer’s share of retail value has declined in all towns with the rate of decline being highest in Desse and lowest in B/Dar. Taking the average of the three towns, however, it was observed that the farmer’s share has declined from 89 percent in
1991 to 83 percent in 1995. This “producer spread” actually is gross receipts and says nothing about how much if any “profit’ the farmer made on his oxen because the price of feed and fattened cattle and other costs of production are not included, but it will serve as the basis for calculating the producer’s share of retail value.

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Table 38: Producer Shares of the Retail Butter Price (%) 1991-95.
YEAR
1991
1992
1993
1994
1995

B/Dar
85%
84%
90%
83%
84%

Desse
91%
90%
96%
77%
80%

D/Birhan
90%
91%
88%
83%
86%

As can be seen from above, butter producers in the Region have in the past years received a high share of the domestic retail price of butter. One reason that can be alluded to in this regard may be the absence of government intervention in the sector. In other countries, for instance, Kenya, Tanzania, and others (FAO, 2003b), government owned parastatal organizations have a good role in setting competitive dairy prices. In our case, however, the only parastatal in the field, DDE, is not involved in dairy marketing except in D/Birhan area.
PRODUCER 'S SHARE OF RETAIL PRICE (%)
100%
95%
90%
85%
80%
75%
70%
1991

1992

1993
B/DAR

DESSE

1994

1995

D/BIRHAN

Figure 8 : Producer’s Share of Butter Retail Prices.
In general, however, Producer price shares vary substantially across markets in the Region, reflecting the intrinsic endowments and efficiency levels of each market. Taking the widely accepted thinking that the higher the share of the producer gets the better the efficiency of a given market, we can tentatively conclude that the dairy market in the Region is relatively efficient with producers recouping 80-86 percent of the retail price of butter. Consideration should, however, be given to the reliability of the data source.
Thinking of future directions, on the other hand, regardless of which price series are used, analysis will show that the trends towards decreasing producer shares of the retail value of butter and increasing wholesaler and retailer shares would still prevail. However, the magnitude of the change in spreads would be smaller.

5.2.3. MARKET CORRELATION
As per the definition of Golleti, et al., (1995), Spatial market integration refers to comovements of prices, and, more generally, to the smooth transmission of price signals and information across spatially separated markets. Following such definition, in our case, the
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topic of spatial market integration, as opposed to inter-temporal price integration and vertical price integration, will be generically referred to as market integration. The above sources further put several reasons for studying market integration. Such study makes it possible to identify groups of integrated markets, so as to avoid duplication of intervention. If locations
A, B, and C are well integrated, then the government may think of withdrawing from, or at least reduce, its effort to influence the price process in those locations. A scarcity in A will be quickly transmitted to B and C, making it redundant to duplicate the same program (for example, an open market sale operation or a procurement activity) in all three locations.
Moreover, by giving a more detailed picture of the process of transmission of incentives across the marketing chain, knowledge of market integration is relevant to the success of policies such as market liberalization or price stabilization. Market integration ensures that a regional balance occurs among food-deficit and food-surplus regions, and regions producing nonfood cash crops. If price transmission does not occur, the localized scarcities and abundances may result in excessive strain on the population. Finally, the identification of the structural factors responsible for the integration of markets may improve policy oriented toward market development.
Moreover, if two markets are integrated, a shock to the price in one market should be manifest in the other market price as well. Among perfectly segmented markets, price series should be independent. Co-movement of prices has thus become synonymous with market integration (Barret 1996). This observation underscores the usefulness of market integration studies in evaluating the efficiency of markets. As Barret (1996) observes, however, market analysis depends on available data. Advances in economists’ toolkits for market analysis, though dramatic in the last two decades, have not been accompanied by concomitant emphasis on the collection of relevant data in developing countries. Often, analysts must use the more easily accessible price data to carry out market analysis studies. Although models requiring transaction cost and trade flow data (Barrett 1996) hold promise, they are not easily implemented because of a lack of this kind of data.
This holds true in our case. In the current study, market integration was analyzed by considering whether butter prices from geographically different locations move together in systematic ways over time. Simple correlations, which are discussed later, were employed to study market integration between our three markets, B/Dar, Desse and D/Birhan, and the national capital market, Addis Ababa. Monthly price data of the above four markets were used for the integration tests. The data set covered the period between Meskerem 1991 and
August 1995 (EC) inclusive.
Based on Goletti, et al., (1993), the correlation coefficient between two series x, and y, denoted by p(x,y) is computed as follows:

p ( x, y ) =

Cov( x, y ) stdv( x) * stdv ( y )

The results of correlation analysis of price levels are presented in Table 39. The simple correlation coefficients for pairs of price series, showed results ranging between 0.30 and
0.79.

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Table 39: Simple Correlation matrix of butter price levels in selected markets
B/Dar

D/Birhan

A/Ababa

0.54

0.78

0.49

0.79

B/Dar

Desse

0.30

Desse
D/Birhan

0.58

An interesting observation is that all the correlation coefficients seem to be distant dependent.
Markets close to each other, such as Desse and D/Birhan, show higher correlation coefficients, as do markets that are connected by better transport infrastructure, such as between D/Birhan and A/Ababa. The results seem to support the generally accepted notion that shorter distances and improved infrastructure among markets lead to lower transaction costs, making arbitrage profitable and thereby enhancing integration of such markets.
As mentioned earlier, prices were studied using simple correlation techniques. Price-series correlations are convenient measures of market integration since they rely only on price data, which are more readily available than the cost data required to evaluate inter-market price differentials. Many researchers, however, have argued against the use of the correlation coefficients to measure market integration, as it is fraught with problems. Goletti, et al.,
(1993), for instance, have noted that correlation coefficients mask the presence of other synchronous factors, such as general price inflation, seasonality, population growth, and procurement policy. This shortcoming has led to a proliferation of other methods for testing market integration. In this study, therefore, we considered a second measure of integration, the bivariate correlation of price differences. The use of price differences is based on the observation that market integration could be interpreted as interdependence of price changes.
Using price differences removes the non-stationarity and common time trends present in price levels and solves the problem of spurious correlation.
As noted, the use of the correlation coefficients approach to measure market integration is fraught with problems. The current study therefore considered, as a second measure of integration, the bivariate correlation of price differences. This approach addresses the problem of spurious correlation that is associated with correlation analysis. The correlation coefficients of price differences are reported in Table 40.
Table 40: Correlation matrix of price differences butter in selected markets
B/Dar
B/Dar

Desse

D/Birhan

A/Ababa

0.17

0.48

0.24

0.38

0.09

Desse
D/Birhan

0.46

As can be seen from the above result table, the coefficients for price differences are much lower than those of the price levels. The results suggest that the degree of integration is much lower than can be deduced from the simple correlation matrix of price levels. Note that markets that appear to have high degrees of integration on the basis of one measure appear not to be integrated when another measure is employed. This observation highlights the

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pitfalls of relying on one measure to evaluate market integration and underscores the need to consider alternative approaches to studying various aspects of the price transmission process.
Finally, the third widely used method of testing integration between markets will be running correlation coefficients of the logarithmic differences of price changes. This is believed to gives us a better grasp of the dynamics involved in the two price series (Goletti, et al., 1993).
In other words, given a price series Pt, instead of considering the first difference series: Pt =
Pt – P t-1, we are interested in the series of logarithmic differences given by: log Pt = log Pt – log P t-1.
Table 41: Correlation matrix of logarithmic price differences of butter.
B/Dar

Desse

B/Dar

D/Birhan
0.19

A/Ababa
0.16

0.32

Desse

0.43

0.07

D/Birhan
0.50
As can be seen from the above result table, the correlations coefficients of logarithmic price differences are much smaller than those calculated using the former two methods. The correlations, however, are still positive, signifying that the price transmission across different markets moves prices in the same direction. A relatively higher correlation is still observed between D/Birhan and A/baba.

5.2.4. CONSTRAINTS TO DAIRY MARKETING AND POSSIBLE SOLUTION
Discussions in the above Sections on the structure, conduct and performance of the dairy marketing system has briefly presented the general picture with regard to the existing situation in the dairy marketing system of Amhara Region. We conclude that competition and the new institutional environment have created many incentives to improve existing channel formats. However, some problems were identified that need further attention from policy makers, which are presented as follows.
QUALITY OF DAIRY PRODUCTS
These days dairy product quality is becoming the overriding problem of dairy marketing in both the Region and the country as a whole. Various factors combine to compromise the hygienic quality of milk products in Ethiopia: lack of awareness in the producing families; the organization of milk supply system themselves, dysfunction of the regulatory systems and the quality control structures. The problem is compounded by local climatic conditions, where both heat and, at times, humidity do not favor the preservation of the product in optimal conditions due to lack of necessary cold storage facilities. Results of this study also show that all the potential hazards linked to poor quality milk are present.
Especially, the problem of butter adulteration with low quality cheap imports is jeopardizing consumer confidence. The problem goes beyond the marketing spectrum and can not be rectified by merely establishing dairy product standards. As Wolday (2002), clearly states it for grains, it is a structural problem. Improving the quality of dairy products should start from production, processing, and storing of dairy products by small farmers. Controls on input

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supply and extension education are also critical to improve the quality of produce. The awareness of traders and their storage facilities significantly affects the quality of dairy product. The establishment of national grades for dairy product and their dissemination or enforcement in society also improves the quality of dairy product. Education and training on standards and grading are major additional instruments for improving the quality of dairy products. Although large dairy product traders own somewhat better storage systems for their dairy products, most butter warehouses used by traders are poorly equipped and in need of upgrading. PRODUCT HOMOGEINITY
With respect to the assortment of product quality we observed that the butter market is operating satisfactory. Nevertheless, we also found that the existing local grading system for butter qualities still has some deficiencies. At the rural household level, farmers produce many types of butter varieties. In almost all markets, however, butter retailers were found to classify the butter product only into two kinds based on maturity: Lega and Bisil quality (See
Section 4.1.7). This grading system facilitates the retail channel, but lacks the legal standards necessary either for the domestic or export markets. As long as supply of preferred qualities in the local market is abundant this can be accepted. However, in order to prevent shortages of specific butter types (such as the Sheno variety) in the future, it would be better if a national grading system that takes domestic preferences into account was made available in the short term. Besides, butter is currently marketed without standard package and brand names. This has negative effects to butter product quality and hampers the opportunities for butter traders to signal quality to the consumers.
PROBLEMS WITH ACCESS TO MARKETING FINANCE.
The situation of credit constraints and financial relationships in butter trading that was presented in Chapter 4 shows that all marketing agents recognized that access to credit is one of the most important constraints to their businesses. Section 4.2.3 indicated that rather than lack of investment capital shortages in working capital are the most difficult problem to butter traders. Moreover, the state banks offer 6, or 12 month borrowing (flexible credit is not available), while butter traders regularly need only “hot borrowing”. They look for additional working capital for short periods of time - one or two weeks only. Therefore, in practice many butter traders prefer to obtain money from moneylenders and or private banks. Other reasons are that banks are generally unwilling to lend to small-scale agricultural traders; that they impose stringent collateral requirements; that interest rates from sources such as ACSI are higher than they are for commercial banks; that loan-application procedures are complex and that small-scale traders, who often do not even have bank accounts, are reluctant or even frightened to approach banks for loans.
The private trade sector provides a partial solution for the credit constraints traders are facing and in particular for the need of “hot borrowing”. The vertically integrated trading networks of butter traders offer credit to their members: advanced or deferred payment. However, the major solution for long-term credit is to be found outside the butter sector. The banking system should offer trade credit on more flexible conditions (short and long-term) in order to satisfy the credit needs of the butter traders. In other words, Banks should examine whether they can develop loan products more adapted to the needs of the agricultural sector, while still providing the safeguard of collateral.
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ACCESS TO MARKET INFORMATION
As mentioned in Section 4.5, most butter traders have varied levels of access to information about supply, demand and price conditions in the domestic market. The types of market information sources that butter traders consult, however, are limited. Most of the farmers obtained market information from their neighbors and relatives; some of them listened to the radio and/or received information from middlemen. Assemblers obtained market information mainly through other traders (wholesalers or retailers) in the channel of distribution. Majority of small traders know very little about butter prices prevailing in markets other than the nearby market. Butter retailers and wholesalers obtain the information mostly from middlemen and relations in bigger markets. Particularly, larger butter traders have a strong relationship with each other. Nonetheless, due to the variety of sources of market information, the available information is not always systematic and reliable. Notably, the price information traders obtain from such secondary sources is not timely, accurate, and comprehensive PRESENCE OF TOO MANY UNLICENSED BUTTER TRADERS
This problem gets prominence, as it was a unanimously reported grievance by traders in every market. Thus, wherever one goes, one of the major problems indicated by the licensed butter traders is the existence of too many unlicensed butter traders in the market. For example, in one town we visited for this study, one key informant told us that, out of an estimated 25 butter traders in that particular town, only 5 were licensed. Similar anecdotal evidence is given in every market, where for each registered and licensed trader, there are double or triple unlicensed ones working together. Consequently, some butter traders reported having returned their license while continuing to operate in order to avoid various types of taxes, and levies which increases their costs. Therefore as Wolday (2002), concludes in a recent paper, although increasing the number of unlicensed traders will improve competition, there must be consistency and a level playing field, that is, either all should have license or all should not be required license to operate in the butter markets.

HIGH LEVELS OF TAXATION AND LEVIES
The methods of assessing profit tax on the private sector have been subjective, based on guesses and at the discretion of tax assessors. This has resulted in rent seeking practices such as bribing officials to get a tax rebate or reduce tax liabilities (Elleni, 1999). Some have returned their licenses and started trading informally. Moreover, traders indicated that they are charged different levies for the same type of transactions by local authorities. Traders also reported that the existing levels of income tax they are forced to pay is very high affecting the efficiency of small butter traders. Solutions to this problem especially by harmonizing taxation and levy imposition systems by the Regional government therefore needs to be taken timely. ___________________________________________________________________________________________________________________________
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6.

COMMODITY EXPORT MARKETING

6.1. DEMAND AND IMPORTS
The total world milk production of about 600 million tonnes for a population of about 6 billion people amounts to an average annual per capita milk consumption of 100 kg.
Compared to other countries in Africa, Ethiopians consume less dairy products. Per capita consumption of milk in Ethiopia is as low as 17 kg per head while the average figure for
Africa is 26 kg per head (Gebre wold et al., 1998). Some 2% of milk consumed in Ethiopia is imported, with local milk production accounting for 98% of the milk consumption.
Table 42: Milk Production and Availability in Ethiopia.
YEAR

Milk Imports
Milk
(000 tons)
Production
(million tons)

Total Milk availability (million tons)

1980

797,900

29,708

827,608

1990

969,600

14,986

984,586

2000

1,197,500

8,290

1,205,790

In spite of the lack of actual demand and supply data, it has been observed that the supply of milk and milk products is inadequate to meet demand particularly in urban areas. In an attempt to meet the demand for milk the country has had to import considerable quantities of dairy products notably Dry Skimmed Milk Powder (DSMP) and Butter Oil (BO). In the ten years between 1993 and 2002 total dairy imports into Ethiopia amounted to 109,834 metric tons (FAOSTAT, 2004) at an average annual rate of 11,000 metric tons (Table 43).
Table 43: Annual Dairy Imports of Ethiopia for the past ten years (1993 - 2002).
YEAR
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002

IMPORTS (MT)
14,986
8,682
10,898
11,742
11,742
13,941
12,960
8,290
3,851
12,742

VALUE (‘000 USD)
2,511
1,925
1,954
2,662
2,662
3,358
2,959
2,518
1,524
2,674

Source: FAOSTAT (2004)
Dairy imports to the country fall to either of two categories: Food aid and commercial imports. As a result, part of the imports have been donations from institutions such as World
Food Programme (WFP) and the European Economic Community (EEC). Partly also, large volumes of milk and milk products have been imported commercially by private traders.
Food aid in dairy products differs from commercial dairy imports in three major aspects (von
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Massow, 1989). First, the food aid commodities are supplied free of charge, so there is no burden on the foreign exchange account of the recipient country. Second, the offer of and the request for food aid are the result of a political decision, not only of market prices and milk supply and demand forces. The availability of dairy food aid, however, may well affect the market price and the demand for commercial imports. Finally, dairy food aid has the potential to contribute to dairy development.
Similarly, Table 44 below shows the types and volumes of dairy products imported to the country. Massive imports of dried skimmed milk and other dairy products into the country during the past ten years can be taken as reflections of the growing demand for dairy products in the nation. Dried skimmed milk is normally recombined with appropriate amounts of butter oil in order to produce liquid milk; and such milk has primarily been distributed by the parastatal DDE through Addis Ababa fluid-milk markets. Similarly, the consumption of butter and ghee (which includes imported butter oil) also showed a significant growth in the past years for most parts of the country. With regard to the consumption of cheese and curd in the country there seems to be a significant growth in the consumption of these dairy products. Table 44: Types of dairy products imported into Ethiopia. (Metric Tons)
YEAR Whole Fresh

Milk

Dried Skim
Milk

Dried Whole
Milk

Butter Others Total
Imports

1980

34

15,998

2,038

5,280

6,358

29,708

1990

8

60,542

10,324

91 7

29,049

100,840

2000

7

2,820

5,214

40

303

8,383

2002

80

1,436

10,959

46

220

12,742

Source: FAOSTAT (2004)

6.2. EFFECTS OF DAIRY IMPORTS
As shown above, Ethiopia still imports milk and milk products to fill the demand–supply gap.
Some big agro-enterprises and investors complain bitterly against competition from milk imports, which they see to be unfair in view of allegations of tax evasion by importers and use of export subsidies in the countries of origin especially the EU (von Massow, 1989). 10year Data from FAOSTAT (2004) show that about 1.6 million kgs of dairy products or
11million litres of liquid milk equivalent (LME) is being imported into Ethiopia averagely each year. The FAOSTAT Data unfortunately did not reveal how much of the 11 million litres LME was actually taxed and how much was exempted from applicable taxes under the guise of religious/relief organisations. Nevertheless it is important to examine the impact of imports on the local market: is it significant enough to stifle development of the domestic dairy industry?
If one considers the estimated level of milk imports of 11 million litres/annum against the estimated total production of 1,205 million litres/annum in 2000 (FAO, 2003), the 0.7 - 3.7% share of imports may seem insignificant. However, the real impact on the market should be compared with the volume of milk that is marketed in Ethiopia’s urban centers. Recent data indicate that, only an estimated 5.06% (CSA, 2003), of the total 1,205 million litres of milk
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produced nationally (FAO, 2003), is marketed. The rest is consumed by the family or processed into other dairy derivatives. This means that the 11 million litres of imported milk is competing against approximately 61 million litres of locally produced milk (total market =
72 million litres/annum). The real impact of imports is, therefore, 15% share of the total local urban milk market.
It is arguable as to how significant the impact of this level of imports is on the local dairy industry. While the effect on milk producers depends largely on the relative cost (parity price) of imported milk, which has been shown to be no cheaper (if properly taxed) than locally produced milk. Furthermore, according to responses gathered from traders contacted for this Rapid Appraisal Study, the impact of imported butter and ghee on local butter trade is significant as imported products compete directly with locally processed butter. Their negative effect is nonetheless more pronounced especially when we consider the observed practice of adulterating imported ghee with local butter, which significantly affect local processors. Other factors, such as low price of imported ghee, high processing costs (e.g. labor costs and taxes on processed products) all have a bearing on the competitiveness of the local milk processing industry and should be given due consideration.
Previous researches have shown that domestic milk production and dairy imports
(aggregated) have an inverse relationship - i.e. an increase in one has a depressing effect on the other (Nwoko, 1986). Although the magnitudes in both cases are low, this relationship indicated prima facie that a policy of encouraging domestic milk production would seem to be an appropriate one. The government is under pressure from the processing subsector to limit imports. However, the official government policy is to provide a level playing field by ensuring that imports are properly taxed and to take measures against dumping of substandard products. A review of the domestic tax regime is another avenue for consideration. 6.3. EXPORTS
As regards exports of dairy products, Ethiopia has not still made its presence felt in world markets. It regularly exports milk products and long-life milk to Djibouti and countries in
Middle East. In 2002, it exported about 5 thousand kgs of butter valued at 18 thousand USD.
This constituted a meager 0.001% of all national exports in that year. During the same year, imports of dairy products into the country amounted to some 12.7 million kgs of dairy products valued at 2.7 million USD.

6.4. INTERNATIONAL TRENDS IN DAIRY INDUSTRY AND
LESSONS FOR ETHIOPIA
According to FAO, world dairy production approaches 6 billion tones of milk per annum (see
Table 14) of which 10-12 % is traded internationally. The growth in worlds milk production has been around 2% per annum (FAO, 2001; Griffin, 1999). A number of reasons could explain this slow growth. Firstly, most of the milk production is concentrated in the developed countries, which in 2001 accounted for about 65% of total global production
(Table 45). In most of these countries (EU, Canada, Norway, Switzerland, Japan) milk production is limited through quotas and other output restrictive policies. Secondly, milk output in USA, the second largest single milk producing country, has been increasing by slightly more than one percent per year. Thus, these growth trends have acted as a significant
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restraint on the growth in global milk production. As a counterbalance, substantial growth in milk output has occurred in the recent past in Asia, Latin America and Oceania while production in Eastern Europe and the Former USSR has declined. If these treads continue, expectations are that there will be a shift of the balance in favour of developing countries.
Table 45: Global milk production 1999-2001 (Million Metric Tonnes).
EU
India
USA
Russian Federation
Pakistan
Brazil
New Zealand
Ukraine
Poland
Australia
Argentina
Kenya
Zimbabwe
South Africa
Uganda
Tanzania
Ethiopia
World

1999
1 26
77
74
32
23
22
13
13
12
11
10
2.3
0.3
2.7
0.5
0.6
1.0
566

2000
125
79
76
32
24
22
13
12
12
11
9.0
2.2
0.3
2.7
0.5
0.6
1.3
576

2001
126
82
75
32
25
23
14
12
12
12
9.0
2.1
0.3
2.7
0.5
0.6
1.45
585

Source: FAOSTAT (2004)
Future global demand is expected to marginally outstrip supply. Producers with net exportable surplus include USA, EU, New Zealand, Australia, Argentina, Uruguay and
Zimbabwe. Those with historical net deficit include Brazil, Mexico, Japan, Middle East countries, China, Russia, the Commonwealth of Independent States (CIS) while EU and USA are also important quota-restricted importers. In the COMESA region, apart from Ethiopia itself, important milk importers are Burundi, Botswana, DRC, Malawi, Mozambique,
Rwanda, Somalia, Sudan, Uganda and Zambia. According to FAO estimates the named
COMESA countries imported a total of 30,000 metric tones of dry milk powder worth over
US $ 57 million in 1998. The market for milk powder is even greater in Western and
Northern Africa with Nigeria alone importing more than 120,000 tones a year. It is therefore apparent that Ethiopian dairy products can easily find markets in the region and in the wider world so long as they remain competitive.
The international trade in dairy products is, however, heavily distorted by tariff and protection mechanisms of the major consuming nations in North America and Europe.
Indeed, these issues feature prominently in WTO and Agenda 2000 agreement. Progress in resolving these issues is slow and is unlikely to have a major impact within the next 5-10 years. This is especially the case after the sighing of the USA farm security and rural investments Act 2002 in May last year.

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6.5. THREATS AND OPPORTUNITIES OF THE
COMMODITY TRADE
The dairy sector in the Region has many strengths and weaknesses. The new era characterised by privatisation and globalisation has opened up many opportunities but also poses many threats to the smallholders. This section attempts a brief Strength, Weaknesses,
Opportunities, Threats (SWOT) analysis of the dairy sub-sector based on the information presented in this report and other published sources.
Strengths: Sizeable population of local cows and a good stock of indigenous cattle breeds adapted to the local feed resources and environment; Plenty of surface (river) water available for seasonal fodder cultivation on common lands; very high rate of growth of cattle population; huge domestic market for milk and milk products; the recently established nitrogen production plant and the network of artificial insemination (AI) centres in the
Region; the good start of farmer managed dairy co-operatives; and the existing good scope for establishing feed manufacturing plants.
Weaknesses: Small and scattered animal holdings; low milk yields; shortage of feed and fodder; lack of organised marketing of dairy products; low non-remunerative producer prices, leaving no incentive for producers to increase milk production; import of milk powder at low prices, which discourages indigenous production; high incidence of animal diseases; insufficient number of crossbred cows within the dairy herd; low density of AI coverage; inadequate institutional and infrastructural facilities; poor quality of animal health care and breeding services; lack of professional management; and lack of a well-defined national policy for dairy development.
Opportunities: Substantial scope for increasing domestic milk production through improvements in the genetic potential of local milk animals; and better animal feeding, disease control and management; considerable scope for adoption of modern production, processing and marketing technologies; abundant leeway for restructuring existing dairy production towards market-oriented pattern through improvement in the marketing system; scope for increasing farmer income and reducing poverty through a producer-oriented price policy; huge unfulfilled demand for milk and milk products; and good scope for problemsolving and action-oriented research.
Threats: prevalence of traditional raw milk marketing systems; poor quality of dairy products unfit for export markets; absence of grades and standards; Heavy dependence on imports of dairy products; exposure of domestic milk producers to unfair competition from cheap imported dairy products; lack of incentives for increasing domestic production; and inadequate public and private investment for modernising the sector.
In summary, the dairy sector in Amhara Region has only a few strengths but many constraints and weaknesses. The major weaknesses include low productivity, low nonremunerative producer prices for milk and a lack of basic supporting infrastructure. In rural areas, milk is mainly produced by small and marginal farmers. In many instances, the producer price does not even cover the out-of-pocket cash costs of milk and butter production. This is mainly because of unregulated competition from heavily subsidized cheap imports of milk powder and butter oil from developed countries. Decisions related to import prices and tariffs, need therefore give due attention to producers’ interests. The producer
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price should at least cover the long-run average cost of milk and butter production and provide a reasonable mark-up. Studies on cost of milk production and its financial viability need to be initiated by concerned Departments of BOA, BOCP or Dairy Development projects in the Region. Such studies should be carried out in all major agro-climatic zones and be repeated at regular intervals of three years or so to determine whether milk production is profitable and to furnish an objective basis for improving the producer price of milk and derivatives. The studies can further be entrusted to reputed universities or research organizations operating in the region.

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7.

CAPACITY BUILDING

7.1. CURRENT SITUATION
In most Woredas of the Region where the environment is suitable for dairy production, there are large numbers of smallholder farmers who have the potential to engage in dairy production. Many of these farmers already operate mixed crop–livestock farms in which cattle are used mainly to provide draught power and manure. The development of dairy production at the smallholder level requires some change in the management methods of the farmer, which calls for training in new techniques. Higher yielding cows require higher standards of management, the provision of adequate feeding and watering regimes, disease control, profitable calf rearing, simple housing and the maintenance of an acceptable breeding cycle. Husbandry standards adequate for local stock usually lead to failure if applied to improved stock. Any dairy development strategy must therefore involve improvements in the knowledge and management skills of smallholder producers. Simple and low-cost training techniques can be readily established, as experiences from other countries amply demonstrates. Moreover, as detailed in earlier parts of this study, attention needs to be focused on smallholder farm productivity as well as on private sector trade enterprises and agribusiness as engines of economic vitality. Among others, it has been the consistent view of this study that, the output and productivity of existing smallholder dairy systems must be improved in order to make a difference in rural incomes. With 85% of the population of the Region dependent on agriculture for a living, improving the prospects for emerging commercial agriculture must include increasing the current dairy production and marketing capability of the smallholder, expanding the coverage of rural financial services, and enhancing the capacity to move products from the farm to markets. Rural income growth also depends on the development of small rural inputs, market outlets and other service enterprises as well as an increase in medium and large-scale agribusinesses. Moreover, we believe the skilled people to start these enterprises and manage them successfully are part of the very population group in short supply throughout the rural economy of the Region.
We noted, for example, that in spite of the available cow population and potential for large milk yield improvements in the mid and highland areas of the Region, dairy products are still imported in large quantities to the country. We have further stressed that the existing lack of access to markets and the poor condition of the farm to market road system contributes to this anomaly. A profound problem not lesser in effect, however, is the capacity gap in all the stakeholders involved in the sector. Another fundamental issue that remained a constant undercurrent is the low literacy rate in the country, which increases among women, and in rural areas.
The private sector has a pivotal role in increasing rural incomes both at the smallholder farmer and rural enterprise levels. As well as employment a thriving agribusiness sector would support and promote improved farm productivity. Thus, it becomes important to identify the constraints associated with the weak agribusiness sector in the Region and to promote the commercial sector of agriculture.

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7.2. OBSERVED CAPACITY GAPS
The following section details the current situation organized under the greatest and most common constraints to growth.
Lack Of Skills In The Vocational/Technical Areas Important To Farming
Though agriculture is the predominant economic activity in the Region, the typical smallholder farmer in the Region averagely owns no more than one hectare. Typically, cultivation is manual; yields are low yet diversified having both crops and small animals. A portrait of the smallholder highlights a lack of information and expertise relative to production methods, information on the importance of applicable animal management, estimation of market demands, appropriate use of nutrients, dietary needs and health of animals. Beyond the family farm itself, the agriculture sector as a whole is characterized by lack of basic skills in areas important to dairy farming: artificial insemination, low cost and efficient processing, cultivated forage production, hygiene and quality management, seem to be areas of huge gaps. As described by Ahmed, et al., (2003), the lack of ‘know-how ’ in the
Ethiopian farmer limits his ability to grow and improve. A comparison with the Kenyan dairy farmers who enter the market with a variety of dairy products completes a picture of the lack of capacity or ‘know-how ’ in the Ethiopian small farmer.
NEED FOR SOUND TECHNICAL EXTENSION SPECIALISTS WITH UNDERSTANDING OF THE
ENTIRE PRODUCTION CHAIN
The logical response to such specific need for information and technical assistance on the part of the farmer is to provide direct technical assistance through extension workers. The main body of extension workers is part of BOA, though extension services are sometimes provided by various NGO groups working in the rural areas. The extension service under
BOA faces a number of obstacles to effective coverage of the rural areas. First the extension system is small, the majority of whom have a low technical education level. Most extension workers come from the agricultural technical schools which, while they may provide sound basic instruction, offer very little practical experience. Working and living conditions for extensionists are not structured to induce them to relocate from bigger towns to rural and isolated areas; they are not provided with appropriate transportation to visit farms; and they are heard frequently complaining of low government pay scales. The government recognizes the many constraints to effective service and, as a partial solution, has recently begun to enhance the capacity of development agents through improved levels of training and specialization. Yet still, extension remains an area where capacity building activities, especially as short-term knowledge building and methods courses, could make a significant difference. Lack Of Basic Entrepreneurial And Business Management Skills Across Traders
A common refrain echoed by most market researchers and officials alike was the need for the most basic business skills at all agricultural trading levels. The absence of an entrepreneurial tradition due to the feudal and socialist past is frequently cited as an explanation for the weak private sector in the country as well as the Region. Educated people have generally been groomed in professional areas and are not oriented to the notion that business ownership or self-employment is a real and viable option. The uneducated or poorly educated population
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that represents the vast majority of Ethiopians has little exposure to a model of successful business ownership and thus does not aspire to ownership and, even less, to entrepreneurship.
The idea that surfaced repeatedly in discussions was that of incorporating into the educational system courses in business development. As the idea seems to have wide currency, it should be explored further.
Similarly, lack of basic knowledge and experience with credit, loan analysis, and general business and management skills were observed as substantial problems with visited butter traders. It is apparent that such Loan recipient traders need training in the basics: for example calculating interest, obligation to repay loans, fiscal responsibility, and growth-oriented, commercial business precepts. Small dairy processors and butter business owners need to improve quality of service. Associations and schools can be the conduit for training programs and orientation in preparing people to start businesses, provide quality service, understand the obligation to repay loans and basically develop the approach that will make them a sound risk for creditors.
According to trader respondents, a first-line training response is to focus on the potential beneficiaries of credit. Training would cover credit management and the importance of timely repayment of loans. Seminars and roundtables relating to credit issues could be provided through the farmer associations or trader associations like Trade Councils. Training options are discussed in next part.
Capacity Gaps In The Public Sector: Research, Extension And Education
The structure and human resources of BOA itself require some attention as they affect operations throughout the agricultural sector. With regard to Dairy development and marketing, training appears to be needed in many technical skill areas, e.g., modern animal breeding systems, efficient processing systems, feed cultivation and manufacture, farmer marketing options. Besides good farm management and market creation and promotion skills are reported to be woefully lacking at all levels. Thus, focus areas for training interventions include decision making, team building, organizational and communication skills, and promotion approaches.
In addition to the above, an institutional assessment of BOA, needs to be undertaken with the aim of identifying the numbers of employees, their distribution and responsibilities throughout the Region, the organizational constraints and recommendations for capacity building. The data and recommendations of the such an assessment are deemed useful to understanding the structure of BOA as well as seeing the priority training recommendations.
Similarly, the need for upgrading the skills and the professional levels of the research personnel at ARARI was emphasized in different fora and discussions. The needs of ARARI can be summarized under two headings: the need for an increase in the numbers of trained scientists and technicians followed by the need to direct the research focus to areas not currently covered. However, the overriding concern related to agricultural research is the insufficient number of scientists who can formulate and carry out agricultural research relevant to Ethiopian needs. Additionally, a review of the numbers of trained researchers argues for placing capacity building resources here. However new programs for researchers should be coordinated with recent or existing activities targeting this group.

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7.3. CAPACITY DEVELOPMENT PROGRAM COMPONENTS
Terminology Defined
The following terms are defined as per World Bank, (2002), when used in this report:
Capacity Development (also Human Capacity Development): refers broadly to the comprehensive program of education, skills training, professional development activities, conferences and other systemic approaches used to improve or enhance the performance of personnel within an institution or sector.
Capacity Building: the application of education and training interventions to enhance knowledge and skills, i.e., the human capacity of an individual or institution. Capacity development and capacity building replace training, still commonly used as a generic term to discuss diverse learning activities.
Short-term training: approach to capacity building that is built on focused objectives that can be accomplished in a defined period of time. Such programs can be a few days in length or four to eight weeks or even longer. They may be technical or academic in nature. Short-term training includes skills-based programs exemplified by instruction in how to use tools or software as well as seminars, workshops and short courses. In this report all recommendations for short-term or technical training form part of the comprehensive capacity development recommendations.
Priority Target Groups
The following major target groups where training can produce greatest measurable results:
Dairy products producers
Dairy related cooperatives
Extension workers as the direct link to the smallholder;
The Livestock research division of ARARI;
Dairy related traders, businessmen;
Priority Capacity Development Objectives
Based on the constraints to growth in the agricultural public and private sectors, the following development objectives emerge as priorities. These objectives lend themselves to the following capacity development interventions, which are suggested as useful elements of a comprehensive capacity development program:
Successively enhancing the ability of poor smallholder farmers to reach markets and actively engage in them.
Improve the knowledge and skills of extension agents in target areas;

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Increase number and breadth of ‘directed ’ research activities immediately applicable to the regional dairy development needs;
Strengthen the capacity and credibility of researchers in ARARI;
Contribute to private sector growth through business and vocational training skills.

7.4. RECOMMENDED CAPACITY BUILDING FORMATS
7.4.1. SKILL DEVELOPMENT
The main purpose of such skill development activity is to enhance knowledge/skills of the farmers and the extension workers in dairy production, processing and marketing.
Training that can be organized include;
•

Farmers training in: dairy animal feeding, management, health and breeding, hygienic milk collection and cultivated forage production;

•

Dairy entrepreneurs training in dairy processing; and

•

Publication of field manuals on each of the above subjects for the use of the farmers, dairy entrepreneurs, dairy technicians and the extension workers.

7.4.2. TRAINING
7.4.2.1. FARM LEVEL TRAINING

At the farm level, the issues include: “forced consumption”; introduction of anti-microbial residues to milk; presence of Brucellosis; adulteration; and consumption of fermented raw milk (unpasteurised or not boiled).
As a result, training for the dairy farmers should cover:
Feed production and feeding systems
Improved breeding and milk production systems
Potential milk borne hazards;
Potential milk contaminants and how to avoid them;
Proper milking and clean milk production;
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7.4.2.2. CO-OPERATIVES/GROUPS AND LARGE SCALE TRADERS

In the case of cooperatives the main concern should be on milk quality. In this regard, the critical quality control issues with this category of dairy industry stakeholders include: milk bulking; bacterial load build-up; potential for contamination with coliforms due to handling; presence of anti-microbial residues; and Brucellosis.
Training for this group should include:
Hygienic milk collection, transportation and handling;
Quality control and assurance of milk received including minimum tests before accepting deliveries;
Best and sustainable milk preservation methods including cooling and storage alternatives; Potential sources of contamination; and
General cleanliness of the premises.

7.4.2.3. MILK BARS, KIOSKS AND SHOPS

Some of the issues for this group include: milk adulteration; fermentation of unpasteurised left over milk; holding of raw milk for long time; and high bacterial load

Recommended training:
Simple quality tests of incoming milk;
General cleanliness and proper milk handling;
Milk preservation and storage, pasteurisation (boiling) and cooling; and
Processing of various dairy products.
7.4.2.4. MOBILE TRADERS

The milk quality issues with the mobile traders or hawkers include: adulteration, addition of fats and solids non fat, use of Hydrogen peroxide, bacterial load, potential contamination with coliforms, presence of anti-microbial residues, inappropriate containers
Recommended training:
General information on milk and dairy products including good quality assurance practices;

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Simple milk quality tests;
General cleanliness;
Personal hygiene and hygienic milk handling practices;
Use of proper milk containers; and
Keeping and storage options to maintain milk quality.

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8.

BASIC ROADMAP FOR FUTURE INTERVENTIONS IN
DAIRY PRODUCTION AND MARKETING

8.1. SYNTHESIS OF ISSUES AND FINDINGS
A number of production- and market- related issues and facts emerge from the preceding analysis. The traditional small-scale dairy sector is dominant both in terms of the number of cattle and persons involved in milk production and accounts for no less than 98 percent of the total annual regional milk production. This sector is largely dependent on indigenous breeds of low productivity native zebu cattle, which produce about 200-250 kg of milk /cow per lactation period. Obviously, This yield performance is relatively poor when compared with typical yields of about 3,000 liters of milk per lactation, which are expected from exotic dairy cows and their crosses.
Various sources including FAO (2003), and ILRI (2000), show that between 1993 and 2000, total annual milk production of the whole country has been growing by a mere 2.2% per annum. Gains in production, however, have been largely offset by the annual population growth, averaging 3.1% over the same period. Assuming the same holds true for the Region, trends in milk supply measured on per capita basis must be decreasing.
It has further been observed that the per capita supply of milk in the Region for the past 8 years ranged from about 24 to 30 liters per person per year. For this reason, raw milk production has not yet satisfied domestic market demand, and such consumption levels at about 25 liters/person/year is very low compared with the World Health Organization’s recommendation of 200 liters/year.
While around 58% of the milk produced is processed traditionally into butter, small-scale milk processing is beset by major constraints such as level of technology, low fat recovery rates, short shelf life, and relatively higher bulk weight. Similarly, The different types of dairy products produced in the Region, more than being within the traditional scope, are deficient in value-addition and there is a general lack of product diversification.
The scope of milk production in the Region, however, is immense considering especially the fast growing urban population demand, the already recovered awareness towards improved human nutrition and the acquisition of modern technology in dairy production system. These factors in turn are believed to justify deliberate policies and an increase in resources allocation to promote milk production and marketing.
In terms of marketing, dairy products reach customers in the Region through one or a combination of close to 5 marketing channels. The relative importance of these channels also varies as per the type of participants and customer objectives. Accordingly, the major market participants of milk trade includes producers, mobile traders, cooperatives, DDE, and milk retailers; while collectors, itinerant traders, assemblers, wholesalers, and retailers carry out the various functions of the butter market. Generally, the marketing chain for dairy products in our Region remains relatively short, with the majority of consumer purchases made directly from producers, which in turn confirms the relatively unsophisticated nature of the market. ___________________________________________________________________________________________________________________________
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Results of the fieldwork in different Woredas of the region, also suggest that there are few or no barriers to entering the dairy assembly and retail market and thus the business is flooded with large numbers of legal and illegal traders. Initial capital requirements are low, price information is usually gained from other traders, transport costs are the larger part of marketing costs, managerial requirements are limited because of the technical simplicity, and no long-term outlays are invested by market intermediaries.
Besides, the absence of a system of G&S for the various dairy products results in higher transaction costs due to the repeated inspections required. Similarly, none of the traders interviewed either owned means of transport or held stocks for longer than one or two months. All things considered, the existing dairy marketing system in Amhara Region can tentatively be concluded to be a traditional and unwieldy market.

8.2. MAJOR CONSTRAINTS
As the detail discussions presented in the past chapters of this report clearly show constraints to a well functioning dairy system emanate both from the production and marketing side of the system. The major ones of these numerous problems can therefore be encapsulated as follows. 8.2.1. PRODUCTION-RELATED
Breeds of cattle
Cattle breeds available for dairying are mostly indigenous and crossbred cattle constitute no more than 1% of the Regional herd. The available local cattle, regardless of the fact that they are well adapted to the local feed resources and production systems, their inherent late maturity, low reproductive performance, and low productivity, make them unfit for an enhanced market-oriented dairy production trajectory. Moreover, huge gaps are also apparent in the current artificial insemination service (AI), whereby with the existing service density, not even 1% of the estimated 3.5 million breeding cows are bred by artificial means.
Feed resources
Dairy farms face problems with the availability of feeds and fodder; there are problems with both quality and quantity and a lack of economical technology for optimum utilization of local feed resources. Cereal straw is by far the most important crop residue, contributing close to 50% of feed energy available to ruminants (Alemayehu, M. 2003). However, animals fed on this diet fail to get adequate nutrients for maintenance and production. Moreover, in the absence of full-fledged animal feed production complexes, the existing production levels and prices of various agricultural and industrial by-products, such as bran, oilseed cake and molasses seem to be prohibitive for the smallholder farmer. Growing ruminant populations compel smallholder producers to practice livelihood strategies inimical to nature, leading to enormous environmental costs for the burgeoning dairy production.
Lack of appropriate processing technologies
The basic patterns of milk processing observed here such as churning soured milk to make butter, dehydrating butter to make ghee and removing whey to better regulate milk
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fermentation are all common traditional practices in the Region. Such traditional systems, however, are constrained mainly by the level of technology; low fat recovery rates; short shelf life; and relatively higher bulk weights. Moreover, It is obvious that for technical and economic reasons, technologies involved in liquid milk processing (refrigeration, steam generation, pasteurization, sterilization/aseptic packing) are not immediately accessible to the small-scale milk processor.
Disease
The Regional cattle population is ravaged by a plethora of diseases and epidemics. This in turn more than resulting in enormous losses in terms of lost production has precluded the country from joining the global markets for dairy products. Coupled with the incapacitating disease overload, the thin and sparse distribution of veterinary service leaves the dairy industry in feeble state of production base.
Credit
Institutional credit at the farm level for dairy production is another input in short supply.
Lack of good quality credit circumscribes the potential of the smallholders for dairy production. Even in these modern days, the majority of farm level credit for smallholder dairy production in the Region comes from traditional moneylenders.

8.2.2. MARKET-RELATED
Scale of Operations
Except for limited enterprises, the Regional milk production and processing system to a large extent is presently based on millions of rudimentary small and very small holdings, both in terms of land and animals, scattered throughout both the rural and urban areas. Moreover, these small units are basically geared towards sustaining the farming system than marketoriented dairy production. This in turn causes a fundamental farmer problem: the inconvenience of small quantities of milk to market. Such farmers therefore face diseconomies of scale in marketing. Milk, unlike grain, cannot be purchased in small quantities, and gradually bulked by a market agent over days or weeks before delivery to the next market point. Milk must be collected and transported quickly. Holding milk, particularly in rural Amhara settings where infrastructure is severely lacking, is costly and risky. On the other hand, the rapid delivery of small quantities of milk to market may not be practical or economic; some smallholder producers may market no more than 1-2 liters of milk on a given day. The practical collection and transport of milk to market therefore usually requires some bulking, and the need for speed and reliability requires good organization of that bulking. Quality Issues and Absence Of G&S For Dairy Products
These days dairy product quality is becoming the overriding problem of dairy marketing in both the Region and the country as a whole. Various factors combine to compromise the hygienic quality of milk products in Ethiopia: lack of awareness in the producing families; the organization of milk supply system themselves, dysfunction of the regulatory systems and the quality control structures. The problem is compounded by local climatic conditions,
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where both heat and, at times, humidity do not favor the preservation of the product in optimal conditions due to lack of necessary cold storage facilities. Results of this study also show that all the potential hazards linked to poor quality milk are present. Especially, the problem of butter adulteration with low quality cheap imports is jeopardizing consumer confidence. Moreover, albeit the presence of a number of G&S prepared by the QSAE, none of them seem to be applicable at ground level.
The study also points out that in almost all areas incentives/penalties for producers to comply with standards are non-existent or weak. Demand for product quality appears to be generally applied on traditional means, and firms and farmers do not perceive quality issues as critical to domestic sales. Enforcement of standards is also found to be weak, and non-existent in all stages of domestic dairy production and distribution chains. There is limited awareness of the nature and existence of standards (at varying levels) among producers, particularly international standards. Compliance to standards requirements is largely being spearheaded by producers mainly for export markets. Therefore, compliance applies to only a small portion of production. This limits producers from taking advantage of standards development and compliance, which would not be so if standards requirements were uniformly applied to output irrespective of the market. The major constraints in implementation of standards are a lack of technical knowledge and limited funding to enable farmers, particularly small farmers, to maintain required standards.
Access To Market Information
As mentioned in Section 4.5, most butter traders lack uniform access to information about supply, demand and price conditions in the domestic market. Majority of small traders know very little about butter prices prevailing in markets other than the nearby market. Butter retailers and wholesalers obtain the information mostly from middlemen and relations in bigger markets. Particularly, larger butter traders have a strong relationship with each other.
Nonetheless, due to the variety of sources of market information, the available information is not always systematic and reliable. Notably, the price information traders obtain from such secondary sources is not timely, accurate, and comprehensive. What is more, the already existing public MIS are not benefiting either farmers or other operators in the marketing chain and no use is being made of the new technologies to empower small farmers and traders. Problems With Access To Marketing Finance
The situation of credit constraints and financial relationships in dairy trading that was presented in this report shows that all marketing agents recognized that access to credit is one of the most important constraints to their businesses. Moreover, one of the reasons is that banks are generally unwilling to lend to small-scale agricultural traders; that they impose stringent collateral requirements; that interest rates from sources such as ACSI are higher than they are for commercial banks; that loan-application procedures are complex and that small-scale traders, who often do not even have bank accounts, are reluctant or even frightened to approach banks for loans.
Presence Of Too Many Unlicensed Dairy Traders
This problem gets prominence, as it was a unanimously reported grievance by traders in every market. Thus, wherever one goes, one of the major problems indicated by the licensed
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butter traders is the existence of too many unlicensed butter traders in the market. Similar anecdotal evidence is given in every market, where for each registered and licensed trader, there are double or triple unlicensed ones working together. Consequently, some butter traders reported having returned their license while continuing to operate in order to avoid various types of taxes, and levies, which increases their costs.
Absence Of Necessary Market Infrastructure
Market infrastructure development in the Region is low as only a small percent of rural communities have access to a paved road and to a local market. It is shown that there are significant seasonal movements in food marketing as butter prices in rural areas are more than twice as high during the lean period than during the peak season. Moreover, significant price variation observed in the region reflects high transportation costs, due to deficient road infrastructure and other reasons.

8.3. RECOMMENDATIONS
Given the poor prospects for growth in per animal productivity of available local cows, projections indicate that average milk consumption levels will remain within the current range of around 25 kgs per person per year. However, the annual increase of 0.5 million in the human population of the Region will generate a demand for an extra 13.5 million kgs of milk each year. Any improvement in per capita incomes, especially of the high-income groups who consume the most dairy products, would obviously add to this demand. Thus, demand is projected to grow by at least 1.4 million tons per year, from the current level of 49 to 50 million tons (i.e. by around 2% per annum).
The development of milk production, usually within mixed farming systems, is a natural step in the intensification of agricultural production on an integrated and sustainable basis.
Moreover, the available evidence shows complementarities between livestock and food grain production. In line with existing rural development strategies, dairying is labor-intensive, but the labor demands can be met at least in part by household members whose opportunity costs are low.
The following proposal for strategic improvement of the dairy sub-sector has therefore, two major themes – production and marketing.

8.3.1. PURPOSE (OBJECTIVE) 1: ACHIEVE INCREASED AND SUSTAINABLE
DAIRY PRODUCTION
There are few areas in the Region where an Operation Flood approach to dairy development could be successfully applied since milk volume is generally too low to support an elaborate marketing and processing structure. The main focus initially must therefore be on increasing production and on improving small-scale processing of fresh milk. In order to stimulate this growth, the initial efforts will need to concentrate on harnessing new technologies in dairy development, building capacities and producing enough inputs to sustain the preferred production increments. In other words, measures to enhance productivity and competitiveness of dairy production, which include supply of the genetic input, costs and quality of animal feeds and adoption of better management practices become mandatory. The following outputs are hence proposed to achieve this objective.
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OUTPUT 1. Increased Access To Improved Animals Created
The shift in Ethiopia’s policy towards market liberalization has profoundly affected the environment for innovation at the farm level. In this regard, results of a comparative research on the central highlands of Ethiopia by ILRI in 1998 show that, a crossbred cow earns a gross margin of 937 EB/cow/year which was more than seven times the gross margin of a local cow in that area (Ahmed, et. al., 2003). Similar research results (Halloway, et. al., 1999), also show that the addition of one crossbred cow raises surpluses by 4.4 liters of milk per day, while the addition of one local cow increases surplus by only 1.8 liters - a clear and obvious difference between the modern and traditional production techniques. Genetic improvement has thus been recognized in the design and implementation of the development projects in the country during the last four decades. Moreover, production and distribution of crossbreed heifers, provision and distribution of dairy stocks, provision and strengthening of AI services, and/or bull service were major components of the development projects implemented in the time period. In this program, however, technology generation and dissemination towards increased productivity per animal will mainly focus on artificial insemination. The achievements of the output therefore need to be spearheaded initially through the following activities. INCREASE AND STRENGTHEN WOREDAS WITH AI

CENTERS

In the course of time, smallholder farmers, especially in peri-urban areas of the region, have gradually increased their participation in market-oriented milk production through upgrading of their local zebu cattle. In so doing, A.I. service has been government-provided to such farmers for the past 2 to 3 decades. Besides, the coverage of A.I services has improved gradually, currently covering 63 of the 106 woredas in the Region and reaching a peak of 70-80,000 inseminations in the past two years. Resulting from these efforts, crossbreeds now constitute about 1% of the dairy herd. The number of woreda A.I. centers, however, has to increase and cover all woredas in the coming few years. The program has therefore to gradually schedule the establishment of 43 such centers within the next 3 to 5 years.
In addition to setting new woreda A.I. centers, strengthening existing centers so as to boost their effective operational capacities is another activity to be undertaken within this framework. In so doing, improving and maintaining A.I. equipments, insemination crushes, satellite offices, record keeping systems, appropriate staffing, and etc., are some of the functions expected.
ESTABLISH GRASSROOTS AI

CENTERS AT COOPERATIVE LEVEL

In many developed and developing countries (e.g., India, Kenya) the supply of inputs, the marketing of milk an milk products, and the provisioning of support services are handled by farmers ' organizations. The absence of such specialized dairy cooperatives in our region, however, leaves many of the inputs and services to be still provided by government institutions. In terms of A.I., the current practice is for technicians stationed at respective woreda towns to serve the scattered farmers of all kebeles. This in turn is causing innumerable problems and lowering the efficiency and effectiveness of the service.

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Valid inferences can thus be drawn that the presence of unsatisfied demand and new market opportunities, will create new incentives for dairy cooperatives to take a more active role in providing A.I. services. The program can therefore phase by phase enroll existing and future dairy cooperatives to engage in such services as the initial requirements are small. The major activities to be undertaken will include training of farmer A.I. technicians, construction of small office and cattle crushes, and equipping them with the necessary fixed and consumable A.I. facilities.
PROMOTE EXPANDED AI

PERSONNEL AND FARMER

AI

TECHNICIAN TRAINING

Establishment of the above woreda A.I. centers requires, among others, proper staffing with appropriate field level technicians. These therefore have to be trained within the region and their numbers will have to be in tandem with the number of centers to be established each year.
STRENGTHEN REGIONAL SEMEN AND NITROGEN PRODUCTION AND DISSEMINATION
Proper decentralization of Regional A.I. services first and foremost requires a well functioning semen and nitrogen production and distribution center at regional level.
Currently, this is being done by 2 centers under BoARD, one in Desse and the other in B/Dar. As these two LN2 centers have each the capacity to annually produce --thousand doses (straws) of semen and ---- thousand liters of LN2 at full potential, this makes it possible to achieve an average ---- thousand inseminations in the region as a whole each year. This in turn is no less than --- times what is currently being achieved yearly region wide.
Gradual decentralization of service delivery towards cooperative level and grassroots veterinary stations is further assumed to increase the A.I. service density and thus requires the well functioning of the above mentioned two centers. Adequate provisioning of the centers with necessary manpower, raw materials, spare parts, and etc., therefore becomes of paramount importance. The intended program should thus, give priority to this activity as it underpins the success of the other three activities listed and discussed above.
Moreover, even though it may be possible to meet LN2 and semen requirements of all woredas for the coming 2-3 years, expansion of plant capacity to overcome expected supply gaps, especially in the eastern zones of the region, needs to be considered during program development.
OUTPUT 2. Availability Of Improved Feeds Promoted
The Regional dairy sector must make major reforms to achieve sufficient levels of the necessary nutritious feeds and nowhere is this need for change more apparent than in the traditional smallholder dairy farms. Estimates of feed availability against requirements calculated for this region repeatedly indicate the fact that there exists a large gap both quantitatively and qualitatively. On the other hand, research has conclusively confirmed that as much as 10 to 15 percent of the existing milk production can appreciably be increased through adequate feeding of present dairy cows (Chaterjee and Archaya, 1992). The

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overarching objective of the following development activities within this output will therefore be to increase the amount and type of feeds available to small dairy producers.
EXPAND EXISTING FORAGE SEED MULTIPLICATION AND DISSEMINATION
Taking for granted the program would be massively increasing the number of crossbred dairy cows, and further assuming the amount of additional feed requirements for the incremental herd, current levels of forage seed production levels will not be adequate enough to meet this. Expanding our seed multiplication efforts by building on the successful contractual seed multiplication schemes and other available means would therefore be mandatory.
EXPAND GRASS/LEGUME FEED PLOTS IN DAIRY FARMS
The focus of this activity obviously will be to improve the capabilities of milk producing households to manage and produce their own cultivated forages intentionally on part of their individual cultivated lands. From such a perspective, the range of possible measures would include: growing of grass/legume mixes as permanent pasture, grass lays alone or interspaced with napier grass, planting of fodder trees and shrubs in available spaces, alfa alfa plots under irrigation at higher elevations, and under sowing of legume forages in maize and sorghum fields.
Although forage yields are governed by a number of factors, such grass-legume plots typically yield 8 to 16 tons of under smallholder conditions. Hence, every participating household with crossbred dairy farming must be obliged to give explicit attention to the inclusion of forage cultivation.
INTRODUCE CROP RESIDUE UPGRADING TECHNIQUES
Given that crop residues, account for around 50% of the annual feed supply of cattle
(Alemayehu, M. 2003), and accepting that a 1% increase in digestibility of such feeds increases cow milk yield by 5-6% (Kristjanson, et al., 1998), introducing technological interventions that exploit this improvement will be crucial to partly overcome the persistent problem of underfeeding of dairy cows. With this in mind, it is proposed that techniques such as urea treatment of straws, urea-molasses mineral blocks, and by-pass protein be massively introduced to dairy farmers with no loss of time. PROMOTE COOPERATIVE LEVEL FEED MIXING PLANTS
It is a general assumption that, there is an upward trend in concentrate feed supply as a result of increasing numbers of grain and oil milling agro-industries being functional in recent years. Feed is relatively more accessible in most areas. However, there are a number of issues regarding the feeds sub-sector. First, on most farms, there is inadequate fodder production not only due to supply-side problems with regard to seeds, and etc., but also due to decreasing smallholder farm sizes and increasing competition for land between enterprises. Second, there are generally severe seasonal fluctuations in feed quality and quantity especially on most smallholder farms. Third, there is inadequate technical and market information

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among millers, traders, extension agents and farmers in the production, stocking, selling and utilization of feeds.
This calls for farmers and their organizations to engage in collective action to access feed since it involves lower relative costs per unit and more success in quality control and timely distribution. The best way to achieve this would be to set up small feed mixing plants in already established dairy cooperatives so that they can serve as points of distribution for their members and farmers in their vicinity.
ATTRACT INVESTORS TO SETUP FEED COMPLEXES AT LARGER URBAN CENTERS
Given that the economics of concentrate feeding (milk/concentrate price ratio) governs the choice of feeds, concentrate feeding will be attractive only if the cows possess adequate dairy merit and the price of milk is good enough to justify feeding.
For e.g., the results of this study show that the ratio is around --- for D/Birhan and --for Desse. However, farmers report they were often unable to purchase adequate amounts of concentrates because supply services are weak or absent.
An important lesson from recent efforts to liberalize input markets is that manufacture and provision of concentrate feeds essentially is a private sector activity.
Cognizant of this fact and considering the important catalytic and facilitative role such investments can play in modernizing existing dairy systems, policy support is required to facilitate the entry and active participation of private investors offering such services. Necessary mechanisms of enabling this policy alternative need to be considered in the broad context of sectoral development.
OUTPUT 3. Delivery Of Veterinary, Extension And Credit Services
Improved
Against a backdrop of declining public funding, the most pressing challenge facing policymakers is to improve the infrastructure and institutions in the more remote districts and those less well endowed with natural resources, where there are few alternative service providers. This must happen if these areas are not to be virtually excluded from the processes of innovation and development. In the case of dairy development, improved delivery of extension and veterinary services is of paramount importance. Because in future the majority of cattle kept for dairying in our Region are assumed to be cross-breeds, susceptible to a wide variety of disease and parasitism, this investment must be protected by high quality husbandry and preventive animal health care. Major activities proposed in order to achieve this output are therefore discussed hereunder.
IMPROVE DELIVERY OF VETERINARY SERVICES
To realize dairy 's full potential, effective and efficient delivery of veterinary services, among others, is a prerequisite. Currently, virtually all veterinary service consists of public provision which is characterized by thin spreading, low coverage, and a very low supply of trained personnel. Hence, as modern livestock production expands, the capacity of the current system to provide animal-specific diagnosis and treatment may be limited. Increasing the number of veterinary clinics, especially at the Kebeles and Cooperatives level, and staffing these with appropriate manpower and
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equipments must therefore continue to increase the vet coverage. Moreover, while the public goods aspect of service delivery such as the control of epidemic diseases would still be handled by the state, it is imperative to explore ways and means of providing efficient and cost-effective veterinary services by the private sector. To this end, one of the activities to be carried should concern an assessment of the effectiveness and efficiency of the current system and derive implications for the feasibility of the private sector 's participation in the private component of service delivery. STRENGTHEN EXISTING EXTENSION SYSTEM
Extension services seem to have borne mixed results. Individual farmer extension with regard to dairy, seems to have had limited impact due to (i) the low level of input supply (animals, feed, A.I., etc.,), (ii) high investment requirements and (iii) narrower farmer coverage. Subsequent revision of extension approaches has faced government budgetary constraints to be effective or timely especially with regard to transport and operational costs. There are weak extension linkages to research and policy-making organs, meaning that some extension messages are irrelevant or misdirected. Cultural and gender barriers to extension have not been adequately addressed to make extension more effective.
These problems illustrate the need for a more coherent national extension policy to better serve dairy development needs such as organizational linkages, education and training. ENHANCE CREDIT DELIVERY
Within the context of recent development of the sector, there is a great need for credit for smallholder dairy development. Rural finance and credit is necessary for production, marketing, long-term farm investment and rural micro-enterprises development, which are expected to create off-farm employment. Many of smallholders lack adequate finances to invest in dairy development to various constraints. An analysis of the agricultural credit situation further indicates (i) an overall decline in total advances to the dairy sector, (ii) bias towards crop-related enterprises, cash enterprises, and short-term lending, (iii) bias towards fattening and sheep and goat raising, rather than dairy.
In this regard, where cash is a serious constraint, designing appropriate institutional mechanisms of availing credit, and bearing in mind the special difficulties that subsistence-oriented farmers experience in repaying loans, would help to solve the cash liquidity problem(s). Moreover, system improvement is required to encourage farmers raise group funds and savings accounts that can be used as collateral for loans. Innovative and progressive institutional mechanisms are required to encourage formation of rural savings and credit co-operative organizations to supplement the facilities offered by other financial institutions, especially in rural areas. Benefits can also accrue from establishment of accessible credit and information institutions for investment in dairy processing to encourage competition.
OUTPUT 4. Capacity Building Activities Strengthened
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Building capacities is a need that runs through all levels to produce better-trained dairy planners, extension agents and farmers and to strengthen rural institutions (such as farmers ' associations, cooperatives and women 's groups) especially by training managers. These basic principles apply more to dairying than to other parts of the agricultural sector.

8.3.2. PURPOSE (OBJECTIVE) 2: ACHIEVE IMPROVED AND EFFICIENT
DAIRY MARKETING
Too much of the dairy development effort in the past has been supply-driven (and heavily geared towards food self-sufficiency), rather than demand-driven and determined by the needs of the market. These days, however, the new rural development policy clearly puts market orientation as a precedent to production. The need is therefore for creating the necessary linkages and developing the nascent dairy markets into better working outlets for farmers ' produce. This will require the strengthening of the existing dairy marketing system.
OUTPUT 5. Farmer To Market Linkage Enhanced
Access to rapidly expanding urban markets for milk and other dairy products provides farmers with opportunities to intensify their production (Roseboom 1998) by taking advantage of new technologies and services, such as artificial insemination (AI), veterinary health care, and milk collection. Such efforts, however, requires farmer groups—become more market-oriented and evolve, for example, into organized cooperatives. The achievement of this output is thus planned to come through the actualization of the following activities.
ESTABLISH AND SUPPORT DAIRY MARKETING COOPERATIVES
This needs special attention as the results of this study clearly indicated the farmers felt need for such organizations. The cooperatives would enhance farmers’ capacity to exploit economies of scale in acquiring marketing inputs, access to credit, and capacity to negotiate for better prices with the more organized traders and large buyers, who often possess more market information. All said and done, however, the core function around which dairy farmers cooperatives have developed in the region is the marketing of milk purchased from their members. With small farmers facing huge risks in terms of lacking guaranteed markets for their daily milk supplies and price instability, it is obvious that dairy marketing cooperatives offer the best solutions. Therefore, given the current limited number of dairy cooperatives in the region
(which stands at around 20), and the vary large number of rural households with milking cows, fast paced establishment of milk groups can be seen as a simple straight forward intervention in line with the new rural development strategies. Such an action is further believed to advance the recent trend in the commercialization of subsistence agriculture with a good potential to catalyze market participation
(Halloway, et. al., 1999) and enhancing the velocity of market transactions.
In these regard, the government and nongovernmental organizations have a clear role to play in catalyzing the formation of functional farmers’ dairy marketing cooperatives. ___________________________________________________________________________________________________________________________
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D EVELOP AND DISSEMINATE MODEL DAIRY PROCESSING CENTERS AT COOP.

LEVEL

Although the presence of dairy marketing cooperatives in a given area reduces the relatively high marketing costs for fluid milk, the ultimate benefits of participation in fluid milk sales - and the survival of the milk cooperatives themselves - will depend on their continued ability to capture value-added in dairy processing and return that value-added to their members (Halloway, et. al., 1999). Moreover, as the major part of the demand for dairy products in Ethiopia is mainly for processed milk such as butter and cheese (Ahmed, et.al., 2003), smallholder, labor-intensive processing technologies should be encouraged.
Therefore, with regard to milk processing it is recommended that a stepwise approach to milk processing ranging from household technologies to small scale, medium and large scale be applied where appropriate. Examples of such hierarchical processing options are set as follows.
1) Traditional milk processing of less than < 100 l/day.
Use of improved Indigenous butter making technology: Traditional butter making should be improved to minimize losses of fat in the whey and increase the efficiency of the processor especially the women by minimizing the time required to recover the butter. The Internal Agitator developed by ILCA may be considered as an applicable technology. Other technologies should be sought from countries with similar traditions.
Extension workers are urged to ensure and promote more hygienic and economic processing in the interest of the public. This implies proper sanitation, using cheap soda ash or sodium hypochlorite, hot water must be available for cleaning.
2) Processing 100 - 500 l/day
Milk preservation technology : Preservation methods of milk should be employed such as improving the traditional technology and introduction of natural preservation such as the Lactoperoxidase system (LPS) for the milk destined for liquid milk sale or for further processing in specific locations with a pre determined time schedule.
It is further recommended to use a cheap system, which enables heating of milk in water bath making it possible to heat milk in 45 liter cans up to boiling temperature. Cold water tanks must be available to enable subsequent cooling, such a system is ideally suited to manufacture of cultured milk using mesophillic lactic starter cultures. This milk has a keeping quality of 2-4 days at ambient temperature. If refrigeration facility is available its storage life can be extended to 2-3 weeks.

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Availability of small hand operated separators will make it possible to obtain cream, which can be converted into butter and ghee. At this scale of operation it is also recommended to avail of simple milk testing equipment such as a Brick 's refractometer, facilities for alcohol test. Manual centrifuge with supplementary equipment for butterfat can be introduced.
A simple small scale processing operation that packages milk and distributes it can be expected to roughly double the value of the milk. Packaging provides an assurance that the milk has not been adulterated.
Manufacture of pasteurized milk implies, the availability of refrigeration and cold storage. Consumers should be made aware of the risk of consuming raw milk without prior boiling.
3) For processing milk > 500 l/day.
Refrigeration facilities must be available.
Availability of low pressure steam is necessary.
Processing quantities - milk intake > 500 litres per day heating by plate heat exchangers could be applicable.
Solar energy should be looked into as a possible energy source.
Basic training be given to small holder farmers producing milk for processing.

LINK COOPERATIVES WITH AGRO-PROCESSORS AND URBAN MARKETS
The efforts to restructure and improve market linkage for farmers will through time be tuned to take advantage of all accessible markets. Dairy cooperatives will therefore be trained and structured to test and refine new solutions and products for each link in the dairy supply chain. New dairy retail formats, new fast food outlets
(franchises), new modes of value-added dairy products, new processing systems, improved traditional brands, extension of distribution channels and other similar innovations will be some of the changes that will be implemented. Moreover, creating and strengthening cooperative links with nearby institutional customers (i.e., hospitals, educational institutes, military camps, etc.,) to supply higher volumes will be undertaken. Similarly, the advent of dairy processing factories in the larger urban centers of the region, such as B/Dar and Desse, will be taken as the major market outlets for cooperatives in the vicinity.
EXPAND MARKET DEMAND
A number of viable options can be used to expand the market demand for the increased amounts of dairy products expected to come due to improved production.
1. School feeding

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Some countries in Africa and Asia have been able to increase their consumption levels by introducing milk in their school feeding systems. 2. Lower prices by reducing cost of production
The majority of consumers in the region are relatively poor and the relative price of milk compared to incomes and purchasing power is low. Consumers therefore tend to place greater weight on price considerations than on quality and most are not prepared (or able) to pay extra for higher quality or more healthy milk. The competitiveness of any dairy industry depends on the efficiency with which milk is produced. This may be measured in biological terms such as calving intervals, feed conversion efficiency and milk production/cow per day, which translate into cost of production per litre. Efforts to reduce per unit costs of milk production are thus one of the methods proposed to overcome this barrier.
3. Promote new dairy based commodities
European type of milk products such as cheese and yoghurt can be prepared and packaged within cooperative dairy processing centers.
In future, new products with short shelf-life, such as creams and soft cheeses can be marketed by cooperatives located on the fringe of urban centers.
4. Undertake market promotion to improve consumption of milk products
OUTPUT 6. Market Infrastructure Improved

IMPROVE DAIRY MARKET CENTERS AT COOPERATIVES AND URBAN MARKETS
Dairy marketing centers should be developed at every dairy cooperative and these in turn can establish marketing sites at major regional nodes, and market facilities and assembly points should be created in the rural areas near the major transport routes.
Local administrations and municipalities need supply adequate marketplaces and marketing facilities as a service, by using revenues from fees usually collected from the traders.
IMPROVE QUALITY AND SAFETY OF DAIRY PRODUCTS ACROSS THE CHAIN
Serious gaps with regard to milk hygiene through the whole production and marketing chains have been shown to be one of the outstanding problems of the dairy system of the region. The effect of these shortcomings on human health is also crucial as cow diseases of zoonotic importance such as tuberclosis, brucelosis, and mastitis have serious consequences on milk users. besides, the incidence of such transmitted diseases are known to increase with the widespread use of crossbred or exotic cows.
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Spoilage of milk and dairy products due to lack of preventive measures against the various possible contamination sources is another critical hazard point.
Absolute care and preventive steps thus need to be taken during the various stages from production through consumption. Achievement of quality and safe dairy products delivery further requires a three-tiered approach. The first step will be to create awareness as to the ways and means of improving quality deterioration and reducing post-harvest losses through extension and trainings. Then, dissemination of appropriate utensils and technologies that help mitigate such losses need to be introduced. Finally, setting up effective quality control and assurance measures need to be implemented. The above three components further include several activities within each that are thought to minimize safety hazards. Adulteration of dairy products is also considered as one of the worst types of hazards.
ESTABLISH AND IMPLEMENT DAIRY GRADING AND INSPECTION
The revival of economic growth in Ethiopia and market integration as a result of free goods movement is leading to increased demand for locally produced and processed dairy products. This growing demand has consecutively fostered increased competition among different suppliers, which in turn badly needs appropriate G&S to insure high and reliable product quality and safety, and to make existing dairy markets efficient. Results of the current study, however, clearly show that the absence of a formal system of dairy G&S is causing higher transaction costs throughout the marketing chain, reduced quality based pricing, higher risks of quality default, and customer dissatisfaction. Moreover, there is also the felt need for standardization of the metrology (measuring and weighing scales) so as to make pricing representative for the different containers, grades and varieties of dairy products.
With this in mind, the following strategic activities are proposed for implementation.
1. Assessment: - collect existing dairy G&S issued by QSAE and assess their validity in relation to the specific needs of the different stakeholders. Such assessments need to answer questions such as how long and how difficult is the process? what factors are the standards based on; are they appropriate? are they clear?
2. Diffusion: - If all or parts of the existing G&S are found to be valid, then the nest step will be to diffuse these to all stakeholders. In so doing, however, care should be taken to develop detailed guidelines concerning:
The basis and purpose for respective product G&S;
Established regulations and inspection requirements;
Details of required procedures during application;
Roles and responsibilities of the various stakeholders during implementation; Incentives and penalties

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3. Implement and Control: - The next step would be to introduce and implement appropriate dairy G&S and then commence quality control functions. Establish and prioritize applicable G&S;
Carry out massive awareness creation and training on the above;
Prepare, approve, and sanction standard containers and measures for the different dairy products and testing methods;
Provide information to all stakeholders so as to make it easier for all to identify and reward quality and safe products;
Conduct training on dairy grading and product classing for cooperatives, traders, and public and private institutions;
Facilitate collective action among smallholders and cooperatives for certification. 4. Amend and Update: - For G&S that have been assessed either inapplicable, absent, or outdated, refer them to QSAE either for amendment, updating or developing new G&S.
5. Enforcement: - although many G&S can be voluntary, it will be mandatory to establish legal and regulatory frameworks, especially for G&S related to safety, so that their application is enforced and their misrepresentations, fraud and violations are exposed and penalized.
6. Infrastructure: - undertake targeted infrastructure investments that develop and facilitate better handling, processing, packaging, and quality control functions in cooperative marketing centers and other rural and urban dairy marketing centers.
ESTABLISH DAIRY MARKET INFORMATION COLLECTION AND DISSEMINATION
Given that there is no organized MIS for dairy products either regionally or nationally, being able to consistently produce accurate, reliable information and disseminate this to demanding clients will be the sine qua non of an efficient and competitive dairy marketing system. However, such a regional and national dairy
MIS can not be stand alone, and hence, needs to be conceptualized and built as part and parcel of the bigger agricultural MIS.
Taking the above as accepted, however, some of the activities that need priority attention are set as follows.
1. First, the MIS to be established needs to select the ranges of dairy commodities and determine the types of information to be gathered.
Undertaking sector, stakeholder, and location - specific data needs assessments will thus be the initial program activity.

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2. Building the technical expertise needed for the successful operation of such an MIS through appropriate trainings and skill development of participants needs to be implemented as the second step.
3. Third, the sustainable operation of such an MIS will significantly depend upon the extent to which the institutions for the task will innovatively evolve.
Careful analysis and forging reliable and mutually supportive institutional linkages between all participants up and down the dairy marketing chain to arrive at the best information delivery modalities and timing schedules will therefore be a major activity to be worked out in detail.
4. Finally, appropriate M&E procedures to check responsiveness to user needs, financial sustainability of the operation, and etc., need to be properly incorporated within the system.
Note should, however, be taken that market information systems are a means to an end not an end in themselves. Hence, such an improved public market information systems is believed to accelerate both private and public response to supply gluts and shortages, and to identify potential regional export/import opportunities.
PROMOTE IMPROVED STORAGE AND TRANSPORT
Improvements in infrastructure bear immediate implications of marketing costs and farm incomes. Farmers will incur less travel time to and from markets and reduce human drudgery in marketing farm produce, improve leisure and labour productivity.
Better infrastructure has implications for profitability of time-sensitive enterprises such as dairy. For vehicle operators, improvements in infrastructure will lead to lower vehicle operating costs, leading to higher incomes in the transportation and distribution sectors. Reduced transportation costs for farmers will also lead to direct income gains because of lower transport expenses, reduced transportation losses and may result in general improvement in rural incomes. Greater policy support is required to strengthen inter-sectoral linkages with the ministries in charge of infrastructure towards rehabilitation and maintenance of rural access roads (especially feeder roads) in order to assist in the timely and efficient delivery of inputs and marketing of farm produce.
Moreover, improved transportation has allowed urban markets for liquid milk to be satisfied by more distant dairy regions. For example, areas like D/Birhan and its environs, which are no less than 130 kms far, cater for part of the Addis Ababa milk demand. For that reason, improving access roads and finding appropriate or intermediate types of transport systems to collect, transport and distribute dairy products to farther located urban markets must be one of the activities to be undertaken. Similarly, increasing the long life shelf capacity of dairy products through storage facilitates greater distances between sites of milk production and places of milk consumption. Increased duration of milk storage could help to cope with supply instability. Moreover, investments in storage, processing and other forms of infrastructure such as rural electrification; (i) saves on wood fuel and improves the
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environment, (ii) improves the storage of especially perishable commodities through cold storage and (iii) is utilized for processing and manufacturing micro-enterprises at farms and market centers.
OUTPUT 7. Market Competition improved

IMPROVE TRADER LICENSING
The liberalization of agricultural markets in the region has been a mixed experience.
Although, it has been successful in relaxing easier entries, it also has allowed the massive entry of illegal traders, which has led to making the playing field uneven for all. Licensing has therefore be mandatory to all who participate in the trade with no difference in floor capital or other conditions.
Moreover, marketing of raw milk (by private milk vendors) provides a cheap means to consumers but in order to guarantee quality, efforts should be made to integrate private milk vendors in the formal marketing system through licensing and quality control at the entry point.
IMPROVE AND EXPAND TRADER FINANCE
As described in the report, informal lenders (friends, relatives, neighbors, informal groups, or moneylenders) provide the bulk of the loans dairy traders use in their marketing operations. Accordingly, formal lenders, which consist of state and agricultural development banks and new micro-finance institutions, cover the smallest portion of trader finance. The problem is, however, that the main suppliers of credit, informal lenders, are generally ill-equipped to finance substantial, long-term investments since they rely on their personal funds. The average duration of informal loan periods do no pass more than a few months. On the other hand, access to credit and savings options are thought to enhance their capacity to bear risks and therefore indirectly foster technology adoption and asset accumulation. Therefore, formal loans, which are larger in amount and longer in duration, should be supplied for financing more supplies and investments.
DEVELOP AND EXECUTE TRADER CAPACITY BUILDING
Details in this report show that business practices of the majority of dairy traders still remain quite rudimentary, and such practices can be blamed on serious knowledge and skill gaps. Thus, building the capacity of individual traders needs to be taken as an essential component of the larger goal of improving market efficiency. Initial interventions will focus on strengthening existing opportunities, i.e. strengthening skills and organizational capital. Moreover, such capacity building efforts for skill enhancement may range from functional literacy and innumeracy skills to specific skills in dairy products marketing, and to management administrative skills for enterprise development, including market assessments and detection of business opportunities. Trader associations will be encouraged and supported to be able to

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perform economic and social advocacy, information sharing, capacity building and coordinating functions and to develop market and negotiating power.

OUTPUT 8. Capacity building activities strengthened
The supply side capacity to aggregate and offer quality products for sale: Significant volumes of clean produce, suitable for trading, have not been commonly found outside the large periurban dairy production system, which had its own marketing arrangements. Most informal market milk handlers and small scale processors lack adequate training in dairy hygiene and in processing skills which are essential to addressing issues of product quality and safety. The
BoARD, with the support of the BOTI, needs to hold a series of seminars and training workshops designed to sensitize smallholder farmers to the advantages of forming associations for aggregating supplies and improving the quality and quantity of produce available for marketing.
Moreover, concerted efforts are needed to develop the leadership and business operational efficiencies of dairy cooperatives so that they can have sustainable and long lives.
That trade-related capacity in poor countries is extremely weak is widely acknowledged.
Moreover , it is inadequate to consider capacity needs as merely a sum of information and know-how which are lacking, but alsos the way to manage them.
The private sector is poorly organised and its formal end is limited in size; governmental institutions are weak; and civil society organisations capable of being a genuine interface with small producers and consumers are few.

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9.

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