With second largest population of 110 million people, one of the fastest growing economies and the largest livestock population – 70 million cattle, 40 million sheep, 51 million goats and 8 million camels – in Africa, it is paradoxical that Ethiopia’s dairy sector is still at its infancy stage.
A stroll through some of Ethiopia’s towns, one can quickly take note of traders hawking milk along the roads. This is the norm as day in day out milk and money exchange hands until the stock runs out, waiting for the next day of trade.
From this practice it is evident that Ethiopia’s dairy industry is predominantly traditional, with 85% of the milk traded through the informal channels, while only 7% is sold through formal market systems, according to a recent report by TRAIDE Ethiopia (2021) on Investment Opportunities in the Ethiopian Dairy Sector. Just like any other sector in the county’s agriculture industry, the dairy sector is also dominated by smallholders.
These dynamics paint a picture of a sector that is still at its development stage, needless to say that it is shadowed by significant gaps. Dauting as it seems, both the public and private sector have identified the challenges facing the sector at each and every stage of the value chain, and are dedicated to addressing them and grow it into a multi-million-dollar sector.
This is key, as despite the challenges facing the sector, it is a significant contributor to the country’s GDP. According to the report, the livestock sector is responsible for a considerable portion of the national and agricultural GDP, 12% – 16% and 35%, respectively, and accounts for about 30% of total agricultural employment.
Milk production level a cry for help
The Eastern African country produces about 4.69 billion litres of milk annually, with 90% coming from cattle, even though camels, goats, and to a lesser extent sheep, are used as milk animals as well. The annual milk yield from the cows is typically 300/275 litres per head. This is significantly lower as compared to productivity in neighbouring countries such as Kenya with a yield of 2,021 litres per annum. This is no comparison to production levels from one of the world’s leading dairy producers – The Netherlands – as its output skyrockets to 8,800 litres per annum. Looking at the compound annual growth rate (CAGR) calculated over a decade, the cattle population in Ethiopia has grown by 3.8%, while milk production has lagged behind at 3.4%.
The low milk productivity is attributed to limited adoption of breeds with high milk production capacity – around 97.4% of the total cattle population in the country are indigenous breeds; the remainder are hybrid (2.29%) and exotic breeds (0.31%). This is coupled by fodder and feed shortage, high prevalence of diseases, limited use of modern production methods, among others.
To avert the situation, the Ethiopian government through its 10-year growth plan, launched by the Ministry of Agriculture in 2020, seeks to increase the proportion of improved breeds in the country from to 17%. Also, the government seeks to reduce the quantity of smallholders’ milk cows from 11.5 million to 9 million, and increase the use and adoption of more commercialised production systems.
This will be achieved through boosting access to breeding services such as Artificial Insemination (AI). Provision of AI services, requires the right equipment and infrastructure. Currently, Ethiopia has 14 liquid nitrogen plants for the storage and transportation of semen and genetic material, calling for more investment in these kinds of facilities. As of 2020 there were 551 private, medium-scale, specialised dairy cattle breeding centres in the country, and the government plans to attract a further 500 in the next decade.
Despite the government pushing for adoption of improved breeds, many local farmers are reported to be resistant to the idea, as other inputs such as feed, vaccines and medication are not readily available to complement the investment.
In rural Ethiopia, livestock are largely reared in an extensive range-based system that depends on the availability of pasture and water. This production system is constantly challenged by climate variability, grassland degradation, overgrazing, inadequate supply of highly productive fodder and water stress.
To supplement the unreliable supply of pasture, there are eight fodder producers in the country and over 75 animal feed (pre-mix and formulated) importers, producers and distributors, most of whom are located in the capital, Addis Ababa. The production capacity of these feed processors is not enough to meet local demand.
The Ethiopian Meat and Dairy Industry Development Institute estimates a supply gap of 190,000 metric tonnes of concentrate mix per year attributed to the increase in price of the two main ingredients, soybean and maize, as well as a shortage in foreign currency to import premixes. The MoA’s 10-year plan has spelt out an ambitious plan to support investors interested in investing in the fodder and feed supply chain. To entice private investors, land and other facilities will be made available by the government for investment that address the prevailing shortage and low productivity of the livestock sector.
Compounding the sector’s challenges is the lack of adequate veterinary medicines and providers of health services in the country, while animal diagnostic and lab equipment, including necessary reagents, are barely available and accessible. According to the TRAIDE Ethiopia report, veterinary services are mostly provided by the MoA and its bureaus, with only a limited number of private veterinarians and assistants.
There is only one private veterinary drug producer, East African Pharmaceuticals Plc, and only one livestock vaccine producer, National Veterinary Institute (NVI)). The capacity of the two organisations is very low when looking at their product quality, quantity and diversity. However, recently NVI cut the ribbon to its newly built 100-million Birr (US$2.3m) veterinary drug manufacturing plant, with a production capacity of 91.5 million veterinary tablets annually. The plant will enhance livestock productivity and accelerate the sector’s growth by availing cheaper and readily accessible remedies for the herds.
Aside from the two local providers, there is one international company, EVA Tant which supplies locally registered vaccines and drugs, and provides technical support. Zoetis (USA) and MSD Animal Health (USA) have recently started providing animal health products and services for cattle, as well.
Tackling these and many other challenges facing the sector at the primary level will enable the government to realize its set target of increasing milk production from 4.69 billion litres to 11.8 billion litres by 2030, with 10.4 billion litres from cows exclusively.
Local processors rally investment
Offsetting the tons of challenges facing the sector in the production level is just the first step to redeeming the growing sector.
As earlier mentioned, the market system is majorly informal where milk may pass from producers directly to consumers or through a few market agents. On the flip side, the formal supply chain, which encompasses players who are formally registered/licensed such as cooperative unions, processors and retailers, accounts for 2.5% to 7.5% of the total national dairy market.
Despite the latter offering direct link to market, quality and quantity control systems, and supportive services, informal channels are more popular as most of the formal players are located around Addis Ababa and other regional urban centres, and with Ethiopia’s poor infrastructure, majority of milk produced in remote areas does not make it to the formal market system.
Due to these challenges, most processors in the country, who are key players along the dairy value chain as they add value to raw milk to avail products with superior quality, are reported to operate at only 28% of their maximum production capacity. They process a mere 2.6% of the annual milk production of 4.69 billion litres. Other than shortage in supply, they battle with poor quality of the supplied milk caused by poor handling, absence of cooling facilities and unstable power supply.
However, despite of this, the volume of processed milk is reported to have more than doubled since 2010 from 150,000 litres to 350,000 litres, attributed to the rise in number of processors from 18 to 40, with a total production capacity of 1.2 million litres per day.
Some of the notable investments that have recently been undertaken in the industry include Dutch dairy cooperative FrieslandCampina’s investment in Holland Dairy in 2018 alongside Veris Investments, introducing its world class processing expertise in the Ethiopian market.
In 2019, Tiret Corporate, a private equity firm, injected US$1.65 million in TZA Dairy & Processing Plc, facilitating establishment of a new plant with a processing capacity of 20,000 litres of pasteurised milk per day and a designated dairy cattle rearing farm.
The following year, MB Plc, one of the leading dairy processors in the country trading under the name Family Milk undertook installation of an automatic UHT milk processing plant in Addis Ababa. The new plant, with a processing capacity of 40,000 litres per day enables the dairy processor to produce long-life milk with up to six months shelf life.
Further boosting the country’s processing capacity, Lame Dairy, a subsidiary of Midroc Ethiopia Technology Group opened a new dairy facility in 2021, constructed at a cost of US$14.5m. The new factory more than doubles the dairy processor’s capacity from 70,000 litres of milk a day to 160,000 litres and produces the long-life Shola Milk brand that can stay fresh for three weeks under refrigeration. The new bottled product has enabled the dairy to distribute its products to far-off and remote areas, as well as reduce wastage. Meanwhile, Bobo Agro Processing and JoJo Milk have recently started to produce flavoured milk, which has become very popular among children.
Ethiopian milk processors have further diversified their operations and ventured into camel milk production. Mid-2021, Khelif Milk Processing Industry (KMPI), announced an investment of US$1.6m in the establishment of a camel processing plant. The facility, which is set to soon commence operations, has a processing capacity of 16,000 litres a day but the company will begin its production with 10,000 litres. KMPI is not limited to camel milk processing, as they plan to bottle pasteurized cow milk and yoghurt, and process cheese and butter.
Other than driving economic development in the country through their investments, processors ensure regular availability of a wide range of dairy products in the market. For instance, Holland Dairy is currently constructing a new cooler warehouse in Addis Ababa to be finalized by the second quarter. This will heavily minimize its trucks’ commuting for replenishment, enabling them to do more drops on a daily basis and instantly double its distribution capacity.
Sector pursues alternative markets
Despite the processors enticing consumers with exciting new products at the reach of their hands, per capita consumption of milk in the country, including unprocessed dairy is only 19 litres per year. This is very low compared to neighbouring countries such as Kenya with 115 litres and Uganda standing at 65 litres. The recommended per capita milk consumption according to the World Health Organization is 200 liters/year.
This low consumption pattern can partly be ascribed to the religious fasting practices of the country’s Ethiopian Orthodox Church, who constitute 43% of the total population. A significant proportion of Ethiopian Orthodox Christians do not consume animal products (dairy, meat and eggs) for almost 200 days per year. Dairy consumption is also impeded by the high cost, insufficient supply, and limited promotion of nutritious diets.
Projections do indicate significant growth opportunities associated with the growth in per capita income and change in consumer behaviour, with average per capita consumption expected to grow to 27.9 litres per annum in the next ten years.
It is important to note that currently demand for dairy products is currently met mainly through domestic production and supplemented by imports of processed dairy products as the local processors continue beefing up their capacity. Between 2015 and 2019, dairy imports averaged around US$8.28 million per year. Milk and cream including powdered milk and UHT made up about 70% of dairy import volume. A distant second was whey and modified whey (16%) and the third largest import segment was cheese. All these products came mainly from European counties such as Netherlands, Spain, France and Germany, New Zealand and Switzerland; while cheese was imported from Egypt, France and the Netherlands.
Other than being reliant on the local market, the sector is looking into tapping the lucrative export market. Somalia, Kenya, Sudan, Djibouti, Eritrea and South Sudan import on average US$382 million worth of powdered milk per annum from countries such as India, the Netherlands and New Zealand. Leveraging on the present trade ties with the neighbouring countries, Ethiopia can export the products at a competitive price range, with potential earning of foreign currency. This is still an untapped segment, as formal exports of dairy products from Ethiopia are insignificant. The average annual export value between 2014 and 2018 was US$150,000, almost all of which was exported to Somalia and Djibouti.
With over 114 million people, Ethiopia is the second most populous nation in Africa. The country has experienced double-digit economic growth over the past decade, and is one of the fastest growing economies in the region. Despite the harmful impacts of COVID-19, the country still had an impressive GDP growth per annum averaging 9.4% between 2010 and 2020. This growth has led to increased household spending as the Government of Ethiopia (GoE) strives to reach lower-middle-income status by 2025. The fast growth of Ethiopia will lead to an increased demand for consumer goods, including dairy products and thus the sector is set to bloom.