Food Science and Quality Management [Link].
org
ISSN 2224-6088 (Paper) ISSN 2225-0557 (Online)
Vol.103, 2020
Dairy Value Chain Upgrading in Bishoftu Town, East Shewa,
Oromia, Ethiopia
Gudeta Shanko Fikadu Mitiku (PhD) Tura Kaso
Department of Agribusiness and Value Chain Management, Ambo University, Ambo, Ethiopia
Abstract
Despite tremendous potential for dairy production in Ethiopia, the sector is not upgraded generally in the country
and specifically in Bishoftu town. Dairy value chain upgrading was analyzed with objectives of identifying
actors in dairy value chain upgrading and measuring their performances. Data were collected in the town at dairy
producers’ level, traders (retailers) level and expert level through structured questionnaire and key informant
interviews. Censuses of 141 dairy producers were conducted by dividing them into three different scale farm
producers. Accordingly producers who have 1-5 dairy cows were categorized as small scale producers, 6-10
medium scale producers and >11 dairy cows were taken as large scale dairy farms. Based on this classification
there were 100, 34, and 7 small, medium and large scale dairy respectively in the town. It was assumed that all
large scale were processors, but one producer was found to be non-processor and was omitted from census
survey. So, the survey was conducted with 140 dairy producers in the town. Data were analyzed by value chain
analysis. The results from the descriptive statistics shows that from total dairy producers 46% were processing
dairy /milk into yogurt, cheese and butter. Twenty four percent of the producers convert milk into yogurt, 11%
process into cheese and butter, and another 11% process dairy into yogurt, cheese and butter. Therefore,
producers’ socioeconomic factors and institutional factors needed to be strengthened by supportive activities like
training for capacity building of producers in order to upgrade dairy value chain in town.
Keywords: Upgrading, Value chain, performances, Dairy, Bishoftu town
DOI: 10.7176/FSQM/103-01
Publication date: December 31st 2020
1. INTRODUCTION
Background of the study
Value chain approach to livestock production is important to identify constraints and opportunities for upgrading
strategy of the sector and to compete with the world in rapid globalization era (Jonathan, et al., 2009). It can
provide the way to understand the need, scope of competitiveness and insights debates on how the poor should
participate in global economy (Rich, et al., 2010).
The dairy value chain comprise about 500,000 smallholder rural farmers who produce about 1,130 million
liters of milk of which 370 million liters of raw milk, 280 million liters of butter with cheese together, and 165
million liters is consumed by the calves. The remaining 315 million litres was marketed through both informal
and formal retailers through farmers‟ organizations (Mohammed, et al., 2009). Sustainable dairy value chain
development approach and dairy value adding activities are important in Ethiopia. Because, dairy producers‟
could not get fair share from milk value through sustainable milk producing and marketing (Girma and Marco,
2013).
The commercial transformation of dairying is also considered as an important pathway for the development
of dairy chain (World Bank, 2008), for reinforcing economic growth and macroeconomic development, and to
support household food security and welfare (Pingali and Timmer, 1997). However, dairy value chain face
shortage in the supply of dairy and its product because of informal marketing channels (Girma, 2012). There is
reduction in volume of dairy produced by dairy producers‟ on one hand due to low availability and high cost of
animals‟ feeds and on the other hand high bargaining power of private milk collectors, weak relationship of
dairy cooperative and its members are major factors affecting milk value chain in Bishoftu town (Girma and
Marco, 2013). Therefore this study intended to identify the actors in the dairy value chain and measure their
performances in the study area.
2. LITERATURE
Definitions and Basic Concepts of Value Chain Dairy: Dairy is the other name of cow’s milk. Whereas dairy
cow is the cow reared to produce cow milk.
Value chain: is the sequence of activities required to make a product or provide a service. Value chain included
actors like; producers (farmers), collectors, traders (retailers, supermarkets, cafés and restaurants), processors
and consumers (Gereffi and Luo, 2014). Value chain is a high-level model developed by Porter (1990) used to
describe the process by which businesses receive raw materials, add value to the raw materials through various
processes to create a finished product, and then sell that end product to customers. Companies conduct value-
chain analysis by looking at every production step required to create a product and identifying ways to increase
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the efficiency of the chain. The overall goal is to deliver maximum value for the least possible total cost and
create a competitive advantage. Porter (1990) also categorizes value chain into two activities. These are;
1. Primary Activities of the Value Chain: primary activities are essential in adding value and creating a
competitive advantage. The first activity in the value chain is inbound logistics, which includes all
receiving, warehousing and inventory management of raw materials ready for production. The second
activity is operations and encompasses all efforts needed to convert raw materials into a finished product or
service. Outbound logistics is the third activity in the value chain and occurs after all operations are
completed and the end product is ready for the customer. Activities required to deliver a product to the end
user are considered part of outbound logistics. Marketing and sales are the fourth part of the value chain
and include all strategies used to get potential customers to purchase a product, such as channel selection, 8
advertising and pricing. Service is the fifth and final step in a company's value chain and describes all
activities that create better consumer experiences, such as customer service and repair services (porter,
1990).
2. Support Activities of the Value Chain: Support activities facilitate the efficiency of the primary activities
in a value chain. The four support activities are procurement, technological development, human resource
management and company infrastructure. Increasing the efficiency of any of the four support activities
increases the benefit to at least one of the five primary activities.
Value chain analysis: examines the full range of activities required to bring a product or service from its
conception to its end use, actors that perform those activities in a vertical chain and final consumers for the
product or service (Kaplinsky and Morris, 2003). Upgrading: Refers to the acquisition of technological
capabilities and market linkages that enable firms to improve their competitiveness and move into higher-
value activities. Upgrading in firms can take place in the form of process upgrading, product upgrading,
functional upgrading and chain upgrading. Upgrading entails not only improvements in products, but also
investments in people, knowhow, processes, equipment and favorable work conditions (Kaplinsky and
Morris, 2003).
Value chain upgrading: different authors define upgrading in value chain differently. Gereffi and Luo
(2014) define upgrading as: “a process of improving the ability of a firm or an economy to move to more
profitable and/or technologically sophisticated capital and skill-intensive economic niches.” McCullough et
al. (2008) define the following upgrading options: Entering higher unit value market niches, entering new
sectors, undertaking new productive functions and in all cases enlarging the technological capabilities of
the firms. In general upgrading can be viewed as synonymous with positive value chain development.
Demand of Dairy and Dairy Products in Ethiopia
Higher incomes, larger urban populations and continued population growth will fuel higher demand for
dairy products (Feleke, 2010 and LMD, 2013). However, consumption during the last four decades ranged
from 16 to 19 liters per capita, about half of the average African consumption rates, and well below the
world average. The level of consumption has only increased slightly since 2000.
Ethiopia consumes approximately 17 kg/capita (LMP, 2007). Approximately 83% of the total milk
produced is consumed at the household level and only 7% is supplied to the formal and informal markets. The
remaining balance is distributed between inkind wages (0.43%), and used for processing local butter, yogurt, and
cheese (10.06%) primarily as a means of extending the shelf life during times of surplus.
In urban area specially, in the Addis Ababa market, 5,000 commercial producers (estimate in 2002) sold
73% of their production, 10% went to household consumption, 9.4% to calves, and 7.6% was processed (Azage,
et al., 2010). Whereas, the demand for milk in rural area is mainly for fresh whole milk, which is satisfied by
own production or purchased from neighbors. Processed milk is currently not sold in rural markets. In the rural
areas, producers will consume fresh milk and will convert their milk to butter. It is estimated that 40% of the
milk produced is converted to butter, while only 9% is converted to cheese (Livestock Master Plan - LMP, 2007).
In further pastoral milk consumption, vary according to season variation. In the wet season, milk consumed by
pastoral children can account for 67% of the mean daily energy they require and 100 % of their protein
requirements (Sadler, 2009). Lack of availability and access to milk in the dry season decreased daily
consumption amounts by almost 25% with milk contributing only 16% and 50% of energy and protein
requirements respectively.
3. RESEARCH METHODS
Description of the Study Area: This study was undertaken in south Eastern Part of Ethiopia in potential district
(namely of Oromia regional state) in dairy production. Description for the town is given below: Bishoftu is
located at 45 km distance from Addis Ababa in South East (Figure 2). The area is located at 9°N latitude and
40°E longitude at altitude of 1850 m with annual rain fall of 866 mm, of which 84% is in the long rainy season
June to September. The annual average temperature ranges from 12.3oC to 27.7oC with an overall average of
18.7oC. The soil and climate are similar to those in many highland areas in Ethiopia. It is an important town
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where most governmental institutions, national and international research centers are located. Cattle, small
ruminant, poultry and equines are the major livestock species kept with fast growing small scale dairy production
(NMSA, 2010).
Type and Sources of Data: This study depends on cross sectional study design in which both quantitative and
qualitative type of data were used. The data were collected from primary and secondary sources.
Sampling Procedure and Sample Size: This study used census of dairy producers in the town to collect data
from a total of 141 respondents. In Bishoftu town there are 100 small scale, 34 medium scale and 7 large scale
dairy producers. The necessary data were collected from these three categories of producers. In addition 5
collectors, 10 retailers and 8 consumers are randomly selected.
Methods of Data Collection: questionnaire were used to collect data from dairy producers, processors and other
actors who participate in dairy value chain in the town. Participatory research approach is believed as an efficient
way to jointly understand value chain constraints and jointly identify value chain upgrading strategies. It is
believed to generate policy relevant information that can provide guidance for development interventions and for
guiding formal survey. Thus, interview with key informants and value chain actors at various levels within the
town were conducted.
Methods of Data Analysis
Descriptive Analysis: Descriptive statistics were used to analyze the data. Value chain analysis approaches
mapping and calculating cost and margin, and share of dairy producers used in the dairy value addition process.
4. RESULTS AND DISCUSSIONS
The Participation of Dairy Producers’ in the Production of Dairy Products
According to the survey result 46% of dairy producers were participating in dairy processing. Among dairy
processors 24% were producing yogurt, 11% of processors were producing cheese and butter and the other 11%
of processors producing yogurt, cheese and butter.
Table1: Types dairy of products produced in the town by producers
Types of produced dairy product Frequency Percent
milk/dairy 75 53.6
Yogurt 34 24.3
cheese and butter 15 10.7
yogurt, cheese and butter 16 11.4
Total 140 100.0
Actors in Dairy Value Chain and Their Role
Value chain actors are classified as those individuals who take ownership of a product, through the exchange of
money or equivalent goods or services, during the transaction process of moving the product from conception to
the end user. Those individuals or firms providing a service without taking ownership of the product are
classified as service providers. The direct actors are those involved in commercial activities like input suppliers,
producers, traders, dairy cooperative (Adea dairy cooperative), private company (Holland and Mama dairy) and
consumers. In direct actors are those who provide financial and non-financial support services such as business
service providers, NGO’s, and Researchers. Actors in dairy value chain upgrading and their roles in the study
area are presented below.
Primary Actors
Input suppliers: for dairy value chain upgrading there were actors who are involved in dairy input supply. In
Bishoftu town, there were different individuals and private companies that were sources of input supply. These
were Genesis farm, Alfa alfa fodder and dairy production, Alema kaudijis plc and smallholders’ farmers who sell
crop residuals. Alfa alfa fodder and dairy production was private company who produce alfa alfa fodder which
is used as animal feed and it also produce dairy in commercial basis. Genesis farm also known in its production
of alfa alfa and raised dairy cow commercially like alfa alfa fodder and dairy farm Company which is owned by
investors from the Netherlands.
Dairy producers
These are primary actors for dairy and its products (yogurt, cheese and butter) both to produce and supply to the
market. Dairy producers are the main actors who perform most of the value chain function from right input
supply (preparation) on their farms. The major value chain functions of dairy producers include supply feeds,
producing dairy/milk, processing, postharvest handling, marketing and consumption of dairy and dairy products.
Milk/dairy producers dominated by small scale producers in the town who were 100 in number. They supply
dairy to neighbors, Adea cooperative, Holland dairy, Mama dairy and different hotels and restaurants. Similarly
cheese and butter producers supply to consumers.
Medium scale dairy producers were growing in number in Bishoftu town. They were 34 in number. They
produce dairy/milk, yogurt, cheese, and butter in commercial basis. They gave raw milk to cooperative (Adea),
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Private company (Holland dairy, Mama dairy and other hotel and restaurants), and to consumers. But, medium
scale dairy producers also process dairy into its product and acts as trader of milk and milk products. There were
only seven large scale dairy producers in Bishoftu town Buzuayew private dairy farm, Hora dairy farm, Elvera
dairy farm, Alfa alfa and fodder dairy farm, Genesis farm, G.G.K dairy farm and Doctor Tilahun Private dairy
farm. Except Alfa alfa and fodder dairy farm all large scale dairy producers were producing and processing dairy
into different product. But, alfa alfa and fodder dairy which is owned by Holland investors gave milk to Holland
dairy plc processing company which found in the town.
Traders (Retailers)
These were actors who collect dairy and its products from small scale dairy producers and change it into
different products and then sell to consumers. They had license and collect milk from producers to sell to
consumers. They also process dairy into its product. They are 5 in the town.
Dairy cooperative
There is one pillar dairy cooperative in Bishoftu town; that is Adea dairy cooperative. It was established in 1998
with 34 members with initial capital of 3400 ETB. Nowadays it has 300 members. But, active members are 100
dairy producers. This cooperative has modern complex centrifugal dairy processing machine which can process
15000 liters of milk at a time. It collects milk from its members and process in to different products. The
products that it produces were pasteurized milk, yogurt, cheese, food butter, cosmotic butter and ice cream. By
now its capital is about 12 billion ETB.
Private company/traders
These were actors who collect dairy product from producers and differentiate dairy into different product and
distribute to supermarkets of Bishoftu and Finfine (Addis Ababa). Holland and Mama dairy were private
companies who collect dairy from Bishoftu town dairy producers for processing. Holland dairy is owned by
Holland investors it established for dairy processing, But Mama dairy was found in sebata town and collect milk
in Bishoftu town on behave of its branch in the town. The price of dairy was determined by buyers. They bought
on average by 14 ETB and sold with 18 ETB per liter.
Consumers
Consumers were those who purchase dairy products for consumption. They were the last link in dairy marketing
chain. Household and individuals were major customers of dairy products. According to the study there was
uneven demand because of orthodox followers fasting period on the dairy product for certain consumer. But, the
supply was even and the producers who are selling their product directly to consumer suffer of this situation in
the town.
Supporting Actors
These actors were those who provide services like training, extension, information, financial and research
services. In addition to processing dairy, Adea dairy cooperative and Holland dairy gave training for dairy
producers. There were also government’s organizations that support the producers of the town such as Ethiopian
meat and dairy industry institute which gives training for produces in order to build their capacity, Ethiopian
research center and national veterinary institute were all found in the town.
Influencing Actors
These were actors including regulatory framework and policies town revenue authority and trade and market
development office of Bishoftu town. These actors suits environment for dairy producers by investigating
problems related to production, processing and marketing though formulating policies and encouraging and
doing researches on sector. In Bishoftu town there were problem of land for dairy production. Bishoftu town
dairy department grouped producers and provided them land for dairy production.
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Source: Constructed from survey result, 2018
Figure1: Functions, actors and activities of actors along dairy value chains in the study areas
5. CONCLUSION AND RECOMMENDATION
Conclusion
Actors in dairy value chain and their role in upgrading the chain were analyzed. The data were generated from
both primary and secondary sources. The primary data were collected from individual interview and structured
questionnaire. The primary data for this study were collected from 140 dairy producers, 5 collectors, 10 retailers
and 8 consumers. Value chain analysis is used for analysis.
Recommendation
Among dairy producers in Bishoftu town 46% were processing milk in to different product whereas 55% sold
fresh milk according to the survey result. In dairy value chain small scale dairy producers were a group who sold
fresh milk. Therefore, the focus needed to be given for small scale dairy producers from policy perspective and
training for capacity in order to upgrade the sector.
Acknowledgments
We would like to extend our sincerest acknowledgment to all administrative leaders, sample interviewees,
enumerators and other stakeholder.
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