Industrial Engineering Letters www.iiste.org ISSN 2224-6096 (Paper) ISSN 2225-0581 (online) Vol.6, No.3, 2016 106 Review of Dairy Value Chain in Ethiopia Benyam Tadesse Department of Agricultural Economics, Mizan- Tepi University, Ethiopia, P.O.Box 260 Mizan Teferi Abstract Ethiopia has a huge potential to be one of the key countries in dairy production for various reasons. It includes a large population of milk cows, a huge potential for production of high quality feeds under rain fed and irrigated conditions, existence of a relatively large human population with a long tradition of consumption of milk and milk products and hence a potentially large domestic market. Despite its potential for dairy development, productivity of indigenous livestock genetic resources in general is low, and the direct contribution it makes to the national economy is limited. the main source of milk production in Ethiopia is cattle but small quantities of milk are also obtained from goat and camel in pastoralist areas of the country. Based on the system of production, Milk production can be viewed at three different sources. These include: Pastoral milk Production, The highland smallholder milk production and Urban and peri-urban milk production. Milk and milk products are channeled to consumers through both formal and informal marketing systems. Ethiopia has a low level of milk consumption compared to other countries in the region (Kenya = 90 lt/cap; Uganda = 50 lt/cap). Challenges and problems for dairying vary from one production system to another and/or from one location to another. Underdevelopment and lack of market-oriented production, lack of adequate information on livestock resources, inadequate permanent trade routes and other facilities like feeds, water, holding grounds, lack or non-provision of transport, ineffectiveness and inadequate infrastructural and institutional set-ups, prevalence of diseases, illegal trade and inadequate market information (internal and external) are generally mentioned as some of the major reasons for the poor performance of this sector. Keywords: Dairy, Value chain, Market channel, Ethiopia Introduction Ethiopia has a huge potential to be one of the key countries in dairy production for various reasons (Prattet al., 2008). It includes a large population of milk cows in the country estimated at 9.9 million (CSA, 2008), a huge potential for production of high quality feeds under rain fed and irrigated conditions, existence of a relatively large human population with a long tradition of consumption of milk and milk products and hence a potentially large domestic market (Holloway et al., 2000). Ethiopia was home for an estimated 53.4 million cattle, 22.8 million goats, 25.5 million sheep, and 1.1 million camels (CSA, 2011). However, the Smallholder farmers and pastoralists together produce and supply 98% of the total annual milk production of the country (Abebe et al., 2013). In Ethiopia dairy production depends mainly on indigenous livestock genetic resources; more specifically on cattle, goats, camels and sheep. Cattle has the largest contribution (81.2%) of the total national annual milk output, followed by goats (7.9%), camels (6.3%) and sheep (4.6%) (CSA 2009). Despite its potential for dairy development, productivity of indigenous livestock genetic resources in general is low, and the direct contribution it makes to the national economy is limited. For example, in 2009 average cow milk production was estimated at only1.54 liters/cow per day (CSA 2009), and the per capita milk consumption was only about 16 kg/year, which is much lower than African and world per capita averages of 27 kg/year and 100 kg/year, respectively (FAOSTAT 2009). A recent report by CSA (2010/11) indicated that the total production of cow milk is about 4.06 billion liters, and this translates to an average daily milk production/cow of 1.86 liters/day. The MoA (2012) also reported some improvement in per capita consumption of milk and estimated it at 19.2 kg. According to CSA (2011), over 85% of the milk produced by rural households is consumed within the producer households with the proportion marketed being less than 7%. The small amount of milk produced by a large number of producers but the low marketable output in Ethiopia posses limitations on the possibilities of exploiting distant but rewarding markets due to high transaction costs arising from transportation and high opportunity costs of labor involved. As reported by Muriuki and Thorpe (2001) the vast majority `of milk produced outside urban centers in the country is processed into milk products at household level using traditional technologies. 2. Historical Development of Dairy Production in Ethiopia 2.1. The emergence of modern dairying in Ethiopia (1960 -1974) During the first half of the 20th century, dairying in Ethiopia was mostly traditional (Ahmed et al. 2003).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 Asmara (Ketema, 2000). Government intervened through the introduction of high-yielding dairy cattle in the highlands in and around major urban areas. The brought to you by CORE View metadata, citation and similar papers at core.ac.uk provided by International Institute for Science, Technology and Education (IISTE): E-Journals