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Evolution of input supply and service hubs in dairy development at Ada'a milk
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DOI: 10.1080/09614524.2013.772119

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Evolution of input supply and service

hubs in dairy development at Ada'a
milk shed in Ethiopia
Moti Jaleta , Berhanu Gebremedhin , Azage Tegegne , Samson
Jemaneh , Tesfaye Lemma & Dirk Hoekstra
Version of record first published: 18 Apr 2013.

To cite this article: Moti Jaleta , Berhanu Gebremedhin , Azage Tegegne , Samson Jemaneh ,
Tesfaye Lemma & Dirk Hoekstra (2013): Evolution of input supply and service hubs in dairy
development at Ada'a milk shed in Ethiopia, Development in Practice, 23:2, 249-263

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 Development in Practice, 2013
Vol. 23, No. 2, 249– 263, http://dx.doi.org/10.1080/09614524.2013.772119

Evolution of input supply and service

hubs in dairy development at Ada’a milk
shed in Ethiopia

Moti Jaleta, Berhanu Gebremedhin, Azage Tegegne,

Samson Jemaneh, Tesfaye Lemma, and
Downloaded by [INASP - Kenya] at 22:21 18 April 2013

Dirk Hoekstra

Efficient input supply and service delivery may call for a hub approach where all the necessary
inputs and services are supplied in a coordinated manner, either by a single supplier or by
several and separate entities in a given geographical location accessible to beneficiaries.
Based on experience from Ada’a milk shed in central Ethiopia, this paper assesses the evolution
of input supply and service provision in the dairy sub-sector, focusing on coordination and the
degree of competition among different actors at different levels in the value chain over time.
Data were collected from key value chain actors engaged in provision of input supply and
output marketing services in Ada’a milk shed. The major lesson is that the development of coor-
dinated input supply and service delivery by different business entities or under a single
business entity may not emerge at once, but through a gradual evolution. This depends on
the level of demand for the inputs and services as determined by the degree of demand for
milk and milk products, and the economies of scale input suppliers and service providers
could attain from the expansion of demands for these inputs and services. Moreover, at the
early stage of a hub development, collective actions and integration of services and marketing
within a business organisation could be the main strategy to attain efficiency. But, once the
demand for inputs and services has grown, competition among different entities will lead to
more efficient input supply and service delivery. In general, where there is an increasing
demand for inputs and services, there is a faster development of input supply and service pro-
vision by private actors and collective actions in a more competitive way. Role of the public
sector could change gradually from provision of inputs and services to coordination, capacity
building, quality control, and regulation.

Évolution des plateformes d’approvisionnement en intrants et de services dans le développe-

ment du secteur de la production laitière dans la laiterie d’Ada’a, en Éthiopie
Pour une fourniture d’intrants et une prestation de services efficaces, il peut se révéler néces-
saire de mettre en œuvre une approche axée sur une plateforme dans le cadre de laquelle tous
les intrants et services nécessaires sont fournis de manière coordonnée, soit par un fournisseur
unique soit par plusieurs entités séparées, dans un lieu donné accessible aux bénéficiaires.

# 2013 Taylor & Francis 249

 Moti Jaleta et al.

Sur la base de l’expérience de la laiterie d’Ada’a, en Éthiopie, cet article évalue l’évolution de
la fourniture d’intrants et de la prestation de services dans le sous-secteur laitier, en se con-
centrant sur la coordination et sur le degré de concurrence entre différents acteurs et à dif-
férents niveaux de la chaı̂ne de valeur au fil du temps. Des données ont été recueillies
auprès d’acteurs clés de la chaı̂ne de valeur actifs dans la fourniture d’intrants et dans la pre-
station de services de commercialisation de la production dans la laiterie d’Ada’a. Le princi-
pal enseignement est que le développement d’une fourniture d’intrants et d’une prestation de
services coordonnées par différentes entreprises ou dans le cadre d’une entité commerciale
unique peut ne pas avoir lieu tout d’un coup, mais au fil d’une évolution progressive. Cela
dépend du degré de demande concernant les intrants et les services, tel que déterminé par
le degré de demande de lait et produits laitiers, et par les économies d’échelle que les four-
nisseurs d’intrants et les prestataires de services pourraient obtenir grâce à l’expansion de la
demande de ces intrants et services. De plus, au stade initial de la mise en œuvre d’une pla-
teforme, les actions collectives et l’intégration des services et de la commercialisation dans
une organisation commerciale pourraient constituer la principale stratégie pour arriver à
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l’efficacité. Mais, une fois que la demande en intrants et en services s’est accrue, la concur-
rence entre différentes entités engendrera une fourniture d’intrants et une prestation de ser-
vices plus efficaces. En général, lorsqu’il y a une demande croissante d’intrants et de
services, il se produit un développement plus rapide de la fourniture d’intrants et de la pre-
station de services par des acteurs privés dans une optique plus concurrentielle. Le rôle du
secteur public pourrait évoluer progressivement, de la fourniture d’intrants et de services
à un rôle de coordination, de renforcement des capacités, de contrôle de la qualité et de
réglementation.

Evolución de la oferta de insumos y de los centros de servicios en el desarrollo de lácteos en

la cuenca lechera de Ada en Etiopı́a
Para llevar a cabo de manera eficiente la oferta de insumos y la entrega de servicios puede
requerirse un centro de servicios cuya ubicación sea accesible a los beneficiarios, a partir del
cual los mismos sean suministrados de manera coordinada, ya sea a través de un proveedor
único, o bien, a través de varios entes separados. Apoyándose en la experiencia de la cuenca
lechera de Ada, localizada en el centro de Etiopı́a, el presente artı́culo valora la evolución de
la oferta de insumos y de la entrega de servicios en el subsector de lácteos, centrándose en la
coordinación y en el grado de competitividad mostrado durante varios años por distintos
actores ubicados en diferentes estratos de la cadena de valor. La información fue recopilada
de actores clave de la cadena de valor en la cuenca lechera de Ada, quienes proveen insumos
y servicios de comercialización de productos. El aprendizaje más importante que ha dejado
esta experiencia es que: el desarrollo de la oferta de insumos y de la entrega de servicios
– realizadas de manera coordinada por distintas empresas o por una sola – puede no
surgir inmediatamente, sino después de una lenta evolución. Ello depende del nivel de
demanda de insumos o servicios que, a su vez, depende tanto de la demanda de leche y de
productos lácteos como de las economı́as de escala que pudieran obtener sus proveedores
a partir de la expansión de la demanda de estos productos. Asimismo, durante las etapas ini-
ciales del desarrollo de un centro de servicios, las acciones colectivas, la integración de ser-
vicios y la comercialización centradas en una sola empresa, podrı́an constituir la estrategia
más importante para mejorar la eficiencia. Sin embargo, una vez que la demanda de
insumos y servicios haya crecido, la competencia entre distintas entidades producirá una
oferta y una entrega de los mismos más eficiente. En general, en aquellos lugares en que
exista una demanda creciente, habrá un desarrollo más rápido de la oferta de insumos y
de la entrega de servicios por parte de los actores privados, además de acciones colectivas

250 Development in Practice, Volume 23, Number 2, April 2013

 Evolution of input supply and service hubs in dairy development at Ada’a milk shed in Ethiopia

más competitivas. En consecuencia, el rol del sector público podrı́a modificarse gradual-
mente, pasando de ser proveedor de insumos y servicios a ser la instancia que coordine, for-
talezca capacidades y vigile el control de calidad y las normas.

Evolução dos centros de abastecimento de insumos e serviços no desenvolvimento do setor de

laticı́nio da região produtora de leite de Ada’a, na Etiópia
Uma oferta eficiente de insumos e de serviços pode demandar um centro em que todos os
insumos e serviços necessários sejam ofertados de maneira coordenada, seja através de um
único fornecedor ou de várias entidades separadas em uma dada área geográfica acessı́vel
aos beneficiários. Com base na experiência da região produtora de leite de Ada’a situada
na região central da Etiópia, este artigo avalia a evolução da oferta de insumos e de serviços
no sub-setor de laticı́nios, concentrando-se na coordenação e grau de competição entre difer-
entes agentes em nı́veis diferentes da cadeia de valores no decorrer do tempo. Os dados foram
coletados a partir de agentes-chave da cadeia de valores engajados na oferta de insumos e ser-
viços de marketing na região produtora de leite de Ada’a. A principal lição é que o desenvol-
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vimento da oferta coordenada de insumos e de serviços através de diferentes entidades

empresariais ou através de uma única entidade empresarial pode não surgir de uma só vez,
mas sim ter uma evolução gradual. Isto depende do nı́vel de demanda dos insumos e serviços,
que é determinado pelo grau de demanda de leite e de produtos lácteos, e as economias de
escala que os fornecedores de insumos e de serviços podem obter a partir da expansão de
demandas por estes insumos e serviços. Além disto, na fase inicial do desenvolvimento de
um centro, ações coletivas e integração de serviços e marketing dentro de uma organização
empresarial podem ser a estratégia principal para se obter eficiência. Porém, após a
demanda por insumos e serviços ter crescido, a competição entre entidades diferentes levará
a uma oferta de insumos e de serviço mais eficiente. Em geral, quando há uma demanda cres-
cente por insumos e serviços, há um desenvolvimento mais rápido na oferta de insumos e ser-
viços por agentes privados e ações coletivas mais competitivas. O papel do setor público
poderia mudar gradualmente da oferta de insumos e serviços para a coordenação, capacitação,
controle de qualidade e regulação.

KEY WORDS : Environment (built and natural) – Agriculture; Aid – Developmental policies; Aid –
Capacity development; Civil society – Partnership; Civil society – Participation; Sub-Saharan Africa

Introduction
Ethiopia has a large population of livestock (CSA 2010) and studies show increasing demand
for milk and milk products in the country (Staal, Pratt, and Jabbar 2008). Despite the huge and
untapped potential of the dairy sector of Ethiopia, the current performance is very low. For
instance, in 2010, the total milk production in the country was 1.7 billion kg, with average pro-
ductivity of 269 kg per cow per year (FAOSTAT 2010). Data from FAO (2009), cited in
Anteneh et al. (2010), show that the per capita milk consumption in Ethiopia is 19kg per
year, which is lower than that of Sudan (160kg), Kenya (80kg), Africa (27kg), and the world
average (100kg).
The poor performance of the dairy sector in the country is a result of various factors. Major
factors include inadequate input supply (particularly feed) and service provision (veterinary
service and Artificial Insemination (AI) or breed) (Gebremedhin, Hirpa, and Berhe 2009;
Tegegne, Gebremedhin, and Hoekstra 2010). Privately owned service provision in the dairy

Development in Practice, Volume 23, Number 2, April 2013 251

 Moti Jaleta et al.

sector is very scant, seasonal, and limited to peri-urban areas where dairy producers are
concentrated. In most cases, services like animal health and AI are provided by the government
(Tegegne, Gebremedhin, and Hoekstra 2010).
In commodities like dairy, where the output marketing is a day-to-day business of producers,
securing reliable marketing outlets is crucial. Where producers are concentrated geographically
and produce relatively homogeneous outputs like milk, farmer organisations such as marketing
groups, cooperatives, or unions for collective action could help in reducing marketing costs and
attracting buyers demanding bulk purchase at a lower average unit cost.
The intensity and frequency at which inputs and services are demanded varies depending on
their nature. Some inputs and services like AI are demanded less frequently by each producer,
whilst others such as feed, milk collection, and marketing are required on a daily basis. Thus, for
a single business, starting the provision of all services at once may not be economical as it
requires high capital investment and management skills that most entities may not afford at
their inception stage. This may call for a step-by-step approach that starts from the supply of
inputs or services that are required on a daily basis and works towards adding services that
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are required less frequently over time under the same umbrella. These services may not be
necessarily provided by a single entity: various business entities operating in a given geographi-
cal area could help in ensuring reliability, availability, accessibility, efficiency, sustainability,
and cost effectiveness of the input supply and service provision. Having a number of business
entities supplying inputs and/or providing services in a given location may foster competition
and efficiency in service delivery.
The objective of this paper, therefore, is to assess the evolutionary development processes
of dairy-related input supply and service provision business entities towards a geographical
hub in Ada’a milk shed in central Ethiopia. The paper explains the emergence and gradual
expansion of input supply and service provision within the businesses and how the demand
for these inputs and services fostered competition among the different entities for a more effi-
cient and cost effective input supply and service provision to the beneficiaries. It also high-
lights the changing role of different actors in supplying inputs and/or providing services
over time.
Data used in this study was collected through a fieldwork conducted at Ada’a milk shed in
2010 – 11. Information was gathered using group and one-to-one discussion at various levels,
including smallholder dairy farmers, Ada’a Dairy Cooperative executive committee
members, dairy experts at the Ada’a District Office of Agriculture, managers of the private
dairy farms in the vicinity, mangers of feed processing and supplying companies in Bishoftu
town, private AI and veterinary service providers, etc.
The paper then discusses definition and rationale of the hub approach and its elements in
relation to the development of dairy sector. The following section looks at the experience of
the Ada’a Dairy Cooperative in evolving towards an input supplying and service providing
hub. The fourth section presents how the increased demand for inputs and services in the
dairy sector has helped the development of input supply and service provision in the Ada’a
milk shed as a geographical hub. The final section presents lessons learnt and challenges in
the evolution of a small hub within a business entity and a geographical hub that comprises
different entities providing inputs and services in the dairy sector.

Definition and rationale for a hub approach

A business hub could be defined broadly either as a single business entity supplying inputs and
providing services, or the existence of several business entities supplying inputs and/or provid-
ing services in a specific geographic area serving beneficiaries’ needs. These different entities

252 Development in Practice, Volume 23, Number 2, April 2013

 Evolution of input supply and service hubs in dairy development at Ada’a milk shed in Ethiopia

could be private, cooperative, or public owned. They may or may not coordinate with each other
in running their business.
Input supply, service delivery, and output marketing are core elements in dairy development.
These inputs and services may need to be provided in an integrated way due to the fact that effi-
cient production requires all of them. Inputs and services in dairy production comprise feed
(both roughage and concentrate), AI or bull service, breed supply, farm tools, farm equipment,
drugs, vaccines, and veterinary services. In addition to making these inputs and services avail-
able, it is also important to secure their accessibility and convenience to all producers in need.
Input supply and services may also require the provision of credit services.
Once the output is produced, it needs to be marketed. Producers may also need some techni-
cal knowledge in production, management, and marketing. All these inputs and services may
not be provided by the same organisation and at the same place. This increases producers’
total marketing costs (that include physical handling costs, transaction costs, etc.) and makes
them incur much higher unit costs for the service delivered. However, marketing costs could
be much lower if these inputs are supplied and services are provided in an integrated way, as
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implied in the hub model. The existence of interlinked/interlocked transactions in an integrated

input supply, service provision, output marketing, and processing (the hub model) could also
help cash-constrained producers to acquire inputs and services on a credit basis, where the
input suppliers and/or service providers are paid back through the hub via deductions from
the returns of the producers.
Although there is scant literature explaining when the hub approach was adapted from the
industrial sector to the dairy business, nowadays, the dairy hub approach is gaining in popularity
through putting a cluster of dairy services around chilling plants where dairy farmers sell their
milk, buy inputs, and get services at a shorter distance and usually in an integrated manner. A
practical example could be the dairy hub development initiatives in Kenya, Uganda, and
Rwanda under the East African Dairy Development (EADD) project funded by the Bill &
Melinda Gates Foundation, and implemented by Heifer International and a consortium of part-
ners, including International Livestock Research Institute (ILRI), Technoserve, Africa Breeders
Services – Total Cattle Management (ABS-TCM), and World Agroforestry Center (ICRAF).
Generally, the concept of business hub development in dairy sector is only recently evolving
and limitedly documented. The work of van der Valk (2010) on dairy business hub development
in Ethiopia, and project reports by EADD in Eastern Africa (EADD 2012), and the USAID
report in Kenya (USAID 2012) are among the few publications available in relation to a hub
model in the dairy sector.

Ada’a Dairy Cooperative hub in a geographical hub

During the mid-1990s the level of milk production and demand for dairy related inputs and ser-
vices in Ada’a milk shed was limited. Apart from veterinary and AI services provided by the
District Office of Agriculture, there were only a few privately owned feed retailers and drug
stores in Bishoftu town. Milk was privately supplied to small restaurants, sold to neighbours,
and collected mainly by the state-owned Ethiopian Dairy Development Enterprise (EDDE).
Lower demand for milk during fasting periods and the limited number of milk collectors for
processing purposes put milk marketing as the major problem in the milk shed.
It was with this understanding that the Ada’a Dairy Cooperative was established in 1997 by
34 dairy producers in Bishoftu/Debrezeit town (Tegegne 2003; Francesconi 2009), located
some 45km southeast of Addis Ababa (see Figure 1). Like other cooperatives, the establishment
of Ada’a Dairy Cooperative was a challenge. The initial challenges faced by the organising
committee of the cooperative include building trust among the potential members, convincing

Development in Practice, Volume 23, Number 2, April 2013 253

 Moti Jaleta et al.
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Figure 1: Map of Ada’a District and Peasant Associations (PAs)

members on the common goal of the new Cooperative (milk marketing with better prices),
housing the first Office of the Cooperative, and the pre-occupation of dairy cow owners in
other agricultural activities (such as poultry farming and horticulture). Despite these challenges,
the organisers managed to register a large number of interested dairy producers willing to be
members of the cooperative. However, only 34 dairy producers committed to pay the
100Birr registration fee required to be a founding member.1 This helped to collect an initial
capital of 3,400Birr.
During the first few years of its establishment, the Cooperative mainly focused on milk col-
lection and marketing, since selling milk by each dairy producer was difficult due to fluctuating
demands and unreliable market outlets. Moreover, most dairy farmers were producing a low
quantity of milk per day which could not attract large volume processors to collect milk at
the farm-gate due to higher total marketing costs. To make it economical, the collectors
offered lower prices. Due to this and other problems, the 34 dairy producers organised them-
selves into milk marketing cooperative and started collecting and selling their milk to bulk
buyers.
Once the milk collection problem was successfully solved through collective action, the
Cooperative members opted to boost the volume of production by easing the constraint of
feed and supply of improved dairy animals. Most dairy producers in Ada’a milk shed were
depending on cereal farmers for roughage supply (hay and crop residue such as straw of
teff,2 wheat, barley, and other cereals), feed mixers for concentrate, wheat millers for wheat
bran, and oil refiners for oil-seed cakes. Among these feed types, the increasing price, and
decreasing quality and volume of balanced concentrate was a challenge to dairy producers in
the milk shed.
To address the feed challenge, members arranged feed supply (particularly concentrate)
through their cooperative. Since feed is required on a daily basis in dairy production and is

254 Development in Practice, Volume 23, Number 2, April 2013

 Evolution of input supply and service hubs in dairy development at Ada’a milk shed in Ethiopia

bulky, with higher transportation costs per value and with high seasonal availability, farmers
preferred to purchase the supply collectively so that the average cost per unit volume
becomes lower and supply is reliable. In 2006, the Cooperative also established a concentrate
feed processing plant and has been producing concentrate feed and selling to its members and
non-member dairy farmers. Producing its own concentrate and supplying to members solved the
seasonality problem in feed supply, quality problems faced earlier at concentrate retailer shops,
and liquidity constraints as members could get feed from the Cooperative on credit basis, often
deductible from milk income.
Hiller (2007) reported the satisfaction of Ada’a Dairy Cooperative members in getting quality
and balanced concentrate feed after the cooperative started the feed processing and supply
service. This also contributed to the enhanced milk quality supplied to the Cooperative.
However, occasionally, even after building the feed processing machine, there are shortages
of balanced concentrate supply from the Cooperative due to lack of ingredients to make the con-
centrate. This sometimes forced members to buy concentrates from private feed suppliers at a
higher price, but lower quality.
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Later, members also realised that breed is another binding constraint in their dairy develop-
ment. Shortening the period between two successive lactations through effective breeding could
increase the overall milk production at farm and milk-shed levels. More importantly, it also
enhances the possibility of increasing the number of dairy cows over time due to the birth of
female calves. With this understanding, the Cooperative arranged for the provision of AI
service to its members, a better option to the less effective service from the District Office of
Agriculture and Rural Development (OoARD).
In 2003, the Cooperative hired an AI technician, and purchased a motor bike and the necess-
ary AI equipment. The technician provides the AI service at any time of the day on an on-call
basis. In 2008, a private AI technician (who used to work for the District OoARD) also started
providing the service in the town and its vicinities privately. For the AI service provided by the
Cooperative, members could pay on the same day or later, and the Cooperative deducts the cost
from their returns on milk supplied to the Cooperative during that month. Thus, loss of heat
period was minimised as the service became available at off-hours of the day, holidays, and
weekends. This arrangement contributed towards increased numbers of lactating cows and lac-
tating frequency per cow. Animal health/veterinary services were provided by the District
Office of Agriculture and Rural Development and private veterinary service providers in the
vicinity. There were also few private drug stores in the town.
In 2006, the Cooperative hired a veterinarian to provide animal health service to its members.
This was successful for two years (2006– 08), until the veterinarian resigned. Following the res-
ignation of the veterinarian, the Cooperative made an arrangement with another voluntary
veterinarian who owns a drug shop in Bishoftu town to provide veterinary service to Coopera-
tive members at a reduced rate, i.e., 15Birr per animal, against 20Birr per animal for non-
members.
The Cooperative supplied raw milk for about ten years to private dairy processing plants in
Addis Ababa. Most of these processing plants are producing pasteurised milk. Although the
Cooperative secured all the necessary input supply and services, members envisaged the impor-
tance of establishing a dairy processing plant that could add value to their product, increase the
shelf-life of raw milk, and increase returns to the Cooperative members. Accordingly, in 2007,
the Cooperative established a modern pasteurising plant with a capacity of 15,000 litres of milk
per day. The idea to establish the plant was initiated when the Cooperative was not able to sell
all the collected fluid milk from Cooperative members. Thus, the establishment of the proces-
sing plant did not receive much protest from the members as some part of the cost was also
covered through external financial support. However, some members had foreseen the

Development in Practice, Volume 23, Number 2, April 2013 255

 Moti Jaleta et al.

problem of capacity to run the plant and its impact in absorbing most of the profits generated,
which would have been distributed to members as dividend.
Establishment of the processing plant substantially reduced milk marketing problems
observed during the fasting periods of Orthodox Christian Church followers and the ever-
increasing supply of milk due to incoming new members, alongside enhanced productivity
due to the improved input supply and service delivery system. Figure 2 gives details of the devel-
opment of input supply and service provision by the Ada’a Dairy Cooperative to its members.
In recent years, Ada’a Dairy Cooperative has expanded its services to small dairy coopera-
tives in the vicinity of Bishoftu town, supporting them in milk collection and feed supply.
During the fieldwork for this study (2010 – 11), the Cooperative was collecting and marketing
milk supplied from smallholder dairy producers in rural areas of the Ada’a District up to a 5km
radius from Bishoftu town. The cooperative uses its own transportation to bring milk from these
collection centres to the processing plant in the town. There are other small dairy producers in
the District demanding similar service from the Ada’a Dairy Cooperative.
The gradual expansion and development of the Cooperative in addressing members’ chal-
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lenges in dairy production and marketing contributed to attracting more new members and
retaining existing members. The input and output marketing problem they had, and would
have had at the absence of the Cooperative, the direct economic incentives obtained from the
Cooperative, and indirect benefits through reduction in transaction costs are the major
reasons why the cooperative members stayed within the Cooperative.
Usually collective actions do not go smoothly. When conflicting ideas arise in the Ada’a
Dairy Cooperative, issues are brought to the attention of the executive managing committee.
If it cannot be solved at the management level, the committee calls a general assembly,
where decisions are taken based on one-vote-one-member principles.
The cooperative has received technical support (mainly capacity building)3 from various
government and NGOs such as ILRI (Debre Zeit Research Station), Ethiopian Institute of

Figure 2: Evolution of input supply and services provision at the Ada’a Dairy Cooperative
Notes: Services introduced are highlighted in bold.
The Cooperative also provided animal health service during 2005 –06.

256 Development in Practice, Volume 23, Number 2, April 2013

 Evolution of input supply and service hubs in dairy development at Ada’a milk shed in Ethiopia

Agricultural Research (Debre Zeit Center), Volunteers in Overseas Cooperative Assistance

(VOCA), Oromia Cooperatives Commission, Land O’Lakes, Netherlands Development Organ-
ization (SNV), and IPMS project.4 Through these organisations, the Cooperative members have
received training on quality control, milk collection systems, cooperative management, dairy
management (for women), dairy cattle management, milk processing technology, milk
hygiene, dairy cattle health management, feeds and feeding systems, milk marketing, and others.

The development of a geographical hub in the Ada’a milk shed

After the introduction of dairy hub approach by Ada’a Dairy Cooperative, private milk proces-
sing enterprises like Lema Limat PLC (LEMA), Sebeta Agro Industry (MAMA), Yadene
Ayana Integrated Farm (BORA), Genesis Farms, Holland Dairy, Family Dairy PLC, and
others entered into milk collection and occasional input supply business in the milk shed.
The existence of these milk collectors fostered competition and better milk prices milk for
farmers. These facilities caused a significant number of Cooperative members to partly shift
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their milk supply to the private enterprises. In addition to the private enterprises and the
Ada’a Dairy Cooperative, public organisations such as ILRI-Debrezeit Station, Debrezeit Agri-
cultural Research Center, Debrezeit Faculty of Veterinary Medicine under Addis Ababa Uni-
versity, and the District Office of Agriculture are also providing dairy related inputs and
services to the dairy producers in the milk shed.
Table 1 summarises the evolution of input supply and service provision by private, public,
and cooperative in the Ada’a milk shed since 1996. The role of private enterprises and coopera-
tives in inputs supply and service provision has increased over time, to the point where recently
they are providing almost all services to dairy producers. Table 2 lists cooperative, private, and

Table 1: Evolution of input supply and service provision in Ada’a milk shed by supplier/provider type (private,
cooperative, public)

Year
1996 2000 2004 2008 2011
Milk collection and † Private † Private † Private † Private † Private
Marketing † Cooperative † Cooperative † Cooperative † Cooperative † Cooperative
† Private † Private † Private † Private † Private
Concentrated feed supply † Cooperative † Cooperative † Cooperative † Cooperative
† Private † Private † Private † Private † Private
Feed processing † Cooperative † Cooperative
† Private † Private † Private
Hay/roughage/ wheat † State- † State- † State-
bran supply owned factories owned factories owned factories † Private † Private
† Public † Public
Veterinary services † Public † Public † Public † Private † Private
† Cooperative † Cooperative
Milk processing † Private † Private † Private
Drug stores † Private † Private † Private † Private † Private
† Public † Public
Artificial Insemination † Public † Cooperative † Cooperative
(AI) † Public † Public † Cooperative † Private † Private
Source: Author’s survey, 2011.
Note: Public includes Office of Agriculture, Ethiopian Dairy and Meat Development Institute (EMDTI),
and Faculty of Veterinary Medicine, whereas Cooperative refers to the Ada’a Dairy Cooperatives.

Development in Practice, Volume 23, Number 2, April 2013 257

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258
Table 2: Year’s production, inputs supply, and services provision started by different entities in Ada’a milk shed
Moti Jaleta et al.

Year of Milk Milk Milk Feed mixing Feed Veterinary AI

No. Entities/Organisations establishment production collection processing /production supply service service
1 Genesis Farms 2001 2001 2004 2002 2006 2008 2007∗
2 Holland Dairy Farm PLC 2008 2008
Yadene Ayana Integrated Farm 2008 2008 2008 2011
3 (BORA Milk)
4 Lema Limat PLC (LEMA Milk) 2003 2003-06 2003
5 Sebeta Agro-industry (MAMA Milk) 2006 2008
6 Alema Koudijis feed PLC (Alema) 2011 2011
7 Ada’a Flour Pasta and Macaroni Factory 1966 1966
8 Awash Flour and Biscuit Factory 1997 1997
9 Alfa Fodder and Dairy Farm 2011 2011 2011
Ethiopian Meat and Dairy Technology Institute 2008 2008
10 (EMDTI)
11 Debrezeit Faculty of Veterinary 1979 Some staff on 2011
Medicine (Addis Ababa University) voluntary basis
12 Ada’a Dairy Cooperative 1997 1997 2006 2004 2004 2005-06 2003
13 Ada’a Office of Agriculture 1992
14 Tilahun Kopesa Drug Store 2008 2008 2008
Source: Author’s field survey, 2011.
Note: ∗ For own farm.

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 Evolution of input supply and service hubs in dairy development at Ada’a milk shed in Ethiopia

public entities directly engaged in inputs supply and service provision in Ada’a milk shed. The
table also shows the years when these entities started providing these inputs and service.
These business entities in the geographical hub, listed in Table 2, interact in one way or
another. Their interaction could be either competitive or complementary.

Competition
When there is a supply shortage and higher demand for dairy products, milk collectors (including
the Ada’a Dairy Cooperative) fiercely compete to secure the volume of milk required for effective
use of their dairy processing plants. To cope up with this competition, Ada’a Dairy Cooperative
revises its fluid milk collecting prices from time to time to encourage members keep their com-
mitment to supply fluid milk to the Cooperative rather than selling to its competitors.
Milk buyers compete not only by providing better prices for milk but also through providing
other services to their clients like supplying concentrate feed, usually on credit to be deducted
latter on the payment for the delivered milk. Inability to withstand such severe competition
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among the private milk processors put pressure on some milk collectors like the Ada’a Dairy
Cooperative where its members are attracted by others and tempted to practice side-selling.
In such cases, members are supplying some milk to their Cooperative with the aim of retaining
their membership, but supply larger quantities to private collectors to fetch better prices. The
competition among service providers is not only giving better prices for milk, but also reducing
the price of feed they supply to milk suppliers. Such fierce competition was observed between
Genesis Farms and Holland Dairy Farms, which are located next door to each other.
The competition between Genesis Farms and Holland Dairy in attracting milk suppliers
through supplying feed compelled other milk collectors such as Sebeta Agro Industry
(MAMA) to incorporate a feed supply service to retain their milk suppliers and improve
milk quality. The Sebeta Agro Industry has an clear advantage due to its processing size and
ability to process Ultra High-Temperature (UHT) treated milk that could have a shelf-life of
up to six months. Thus, larger volume milk suppliers tend to sell to Sebeta Agro Industry to
make use of the consistent demand for milk, even during the two-month fasting period when
other milk collectors limit the volume of milk they collect.
Unlike integrating feed supply service to milk collection, which is steadily increasing, milk
collectors made very limited attempts to incorporate other services such as AI, veterinary, and
drug supply services to their milk suppliers. For these services, dairy farmers either solely
depend on the public sector (District Office of Agriculture) or few service providers that are
recently emerging in the milk shed.
Another area of competition was observed among the AI technicians (private, cooperative,
and public). In total there are five AI technicians in the vicinity: one from the District Office
of Agriculture, two technicians trained by the IPMS project to serve dairy producers in rural
and peri-urban peasant associations, one private, and one working for the Ada’a Dairy Coop-
erative. The competition is based both on the competence to have higher success rates of con-
ception per number of inseminations and the quality of semen used. Generally, all technicians
get semen from the National Artificial Insemination Center (NAIC) located at Kality in the
outskirts of Addis Ababa: but the private AI technician has semen imported from the USA
through a private company known as Addis Livestock Production and Productivity Improve-
ment Service (ALPPIS). In addition to the five AI technicians, during the field survey in early
2011, a technical assistant at the Faculty of Veterinary Medicine was giving AI services as
part of his graduate thesis research on identifying the causes of infertility in dairy cows.
Table 3 shows the number of dairy cows inseminated by different AI service providers.
The table clearly shows the big shift from the public to private AI technician when the

Development in Practice, Volume 23, Number 2, April 2013 259

 Moti Jaleta et al.

Table 3: Number of dairy cows inseminated by different AI service providers in Ada’a milk shed (by year)

Public Sector Private AI Ada’a Dairy Farmer AI

(District OoARD) Technician Cooperative Technician
Location (town or PA) 2006 2007 2008 2009 2010 2009 2010 2010 2010
Bishoftu town 452 555 449 44 5 512 454 NA 10
GendeGorba 2 3 16 17 0 53 61 30 15
Godino 0 0 3 11 0 3 5 0 30
Kurkura 17 25 88 8 5 31 51 30 0
Ude/Denkaka 25 23 17 0 4 16 17 8 0
Wajitu 3 5 12 8 3 3 8 0 0
Yatu 12 21 11 0 0 32 59 0 0
Total 511 632 596 88 17 650 685 68 55
Source: Alemayehu, Hoekstra, and Tegegne 2010.
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currently private technician quit his job at the District OoARD and started his own private
business at the end of 2008.
Currently, there are several feed retailers in the town. Most feed in stock is wheat bran (both
coarse and fine) purchased from Ada’a Flour, Pasta, and Macaroni factory and Awash Flour and
Biscuit factory (formerly known as Anias). In addition to wheat bran, some feed retail shops
also sell nigger-seed cake, cotton-seed cake, and poultry litter. Private farms like Genesis
Farm, Alema Koudijs Feed PLC, Alfa Fodder and Dairy Farm, Bora Integrated Commercial
Farms, and Sebeta Agro Industry (Mama Milk) produce mixed feed and/or green fodder.
Some of these farms which are engaged in milk processing and have milk collection centres
in Bishoftu town, occasionally supply concentrate feed and bales of hay to their milk-supplying
small-scale dairy farmers on credit basis and at a relatively lower prices, as a means of attracting
and retaining their clients for a longer period.

Complementary
Apart from the competition in milk collection and provision of inputs and services, there is a
record of complementarities among the dairy related entities operating in the milk shed. For
instance, Yadene Ayana Integrated Farm (BORA Milk) used to collect milk from ILRI-Debre-
zeit Station. More recently, BORA buys raw milk from Ada’a Dairy Cooperative and collects
from small-scale dairy farms in the town. During the two months fasting period, LEMA LIMAT
PLC buys milk from EMDTI for processing.5 Thus, entities that do not have a milk processing
plant or have lower processing capacity than their milk supply depend on other entities as their
milk marketing outlet.
The Debrezeit Faculty of Veterinary Medicine provides advisory services to dairy farmers on
housing, feeding, and other relevant husbandry practices. In addition, it also gives veterinary ser-
vices and pregnancy tests, and treats sick animals brought to the faculty premises. Graduate students
are usually linked to some of these dairy farms for practical learning and their thesis research work.

Lessons and challenges

The gradually developed strong linkage of milk supply from Ada’a milk shed to the huge
demand for dairy products in Addis Ababa market contributed to the expansion of dairy

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 Evolution of input supply and service hubs in dairy development at Ada’a milk shed in Ethiopia

production and derived demand for inputs and services in the milk shed. Through this evolution-
ary development process in the milk shed, some businesses have developed into input supplying
and/or service providing hubs. Moreover, the whole dairy related input suppliers and service
providers in the milk shed contributed towards the development of a geographical hub in the
area. Analysis made of the evolutionary process of these developments offers insightful
lessons and challenges to scale out or up the experiences.

Lessons
The major lesson from this assessment is that the emergence and development of integrated
input supply and service delivery is likely to be a gradual evolution, that takes place based
on the level of demand for the inputs and services as determined by the degree of demand
for milk and milk products, and the economies of scale input suppliers and service providers
could attain from the expansion of demands for these inputs and services.
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Once the demand for milk has reached the level where it is no longer a constraint for pro-
duction, collective actions and integration of services within a business organisation could be
seen as a starting strategy to attain efficiency in the input supply and service delivery system.
In developing a single dairy service hub that secures inputs supply and service provision, one
could start by tackling a single or few of the most binding constraints in the production and mar-
keting system. Gradually, more inputs and services could be included depending on the severity
of problems in getting access to these. Once the access issue is solved and the demand for inputs
and services reaches a high level, spontaneous or facilitated entry of multiple service providers
could help to attain a more efficient and cost-effective input supply and service delivery system.
Based on the study, it is noted that more frequently used inputs such as animal feed are more
likely to be incorporated sooner in a business entity developing into a hub as compared to
less frequently used ones such as veterinary and AI services.
For hubs to develop internally through the collective actions of dairy producers, the number
and type of inputs supplied and services provided could vary depending on the specific circum-
stances that the hubs are operating in. These circumstances include the availability and acces-
sibility of inputs and services from other sources, volume of inputs and services demanded by
the members, and capital endowments of the collective group.
Some inputs supplied or services provided by private enterprises at a better quality, closer dis-
tance to the users, and lower prices could beat inputs supplied or services provided through col-
lective action. This might happen due to the difference in management practices of private
companies and cooperatives and their degree of flexibility in decision-making. Thus, input
supply or service provision by collective action should focus on where it has comparative advan-
tages in terms of effectiveness and efficiency, quality, location, ease of access, volume, and prices.
The existence of academic and research institutes related to the dairy industry in Bishoftu
town strongly contributed to knowledge spillover in dairy development in the milk shed.
ILRI-Debrezeit Station, which was handed to the Ministry of Agriculture in 2008 and is cur-
rently operating as Ethiopian Meat and Dairy Technology Institute (EMDTI), Debrezeit Agri-
cultural Research Center, and Debrezeit Faculty of Veterinary Medicine under Addis Ababa
University contributed towards dairy development in the milk shed. Knowledge spillover
effects from these institutes through community services, employment, and technology transfer
(forage, breed, etc.) is substantial.
Moreover, proximity of the milk shed to the huge demand for dairy products in Addis Ababa
market and easy transport facilities to the large milk processing plants like Sebeta Agro Industry
contributed to the overall dairy development in the milk shed.

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 Moti Jaleta et al.

In general, where there is an increasing demand for inputs and services, there is a faster devel-
opment of input supply and service provision by private companies and collective actions in a
more competitive way. The role of the government could change gradually from provision of
inputs and services to coordination, capacity building, quality control, and regulation.

Challenges
The development of input supplying and service providing hubs, be it a hub as a business entity
or as a geographical hub with a number of entities complementing or competing, has its own
challenges. First, in a service cooperative, users (cooperative members) could be heterogeneous
in scale of operation and may have different interests in the type of inputs supplied and services
provided by a hub. Though heterogeneity in a cooperative may help in addressing problems
such as covariate risks that could affect members with the same features, diversity of interest
and scale of operation could cause conflicts of interest between the long-term vision of
growth and the short-term benefits. Second, although some of the business entities in a geo-
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graphical hub are competing with each other, there could be a room to facilitate platforms
where producers, input suppliers, service providers, and other dairy related stakeholders meet
and discuss long-term strategic issues that could enhance the overall production of and benefits
to all participants in the sector. In facilitating such a platform, private-private and private-public
partnerships should be strengthened. Initially, such a platform could be organised by the public
organisations. Once the advantages of information and knowledge share through such a plat-
form are recognised by the stakeholders, the lead could gradually be taken over by a private
entity. However, developing a sound platform is always a challenge.

Notes
1. Birr is the Ethiopian Currency. During this study, US$1 was equivalent to 16.50Birr.
2. Teff is a fine-seed cereal crop endemic to Ethiopia. It is a grass type crop and the residue is used as
animal feed.
3. The Cooperative also received some financial support from overseas for the establishment of milk pro-
cessing plant.
4. IPMS (Improving Productivity and Market Success) of Ethiopian Farmers project is financed by CIDA
and implemented by ILRI on behalf of the Ministry of Agriculture and Rural Development in ten pilot
learning districts in the major four Regional States of Ethiopia.
5. In 2008, ILRI closed the station and handed it and its assets to the Ministry of Agriculture. The Ministry
established the Ethiopian Meat and Dairy Technology Institute (EMDTI) with the aim of using the insti-
tute as a centre of excellence that provides training and capacity building to public and private enter-
prises working on meat and milk production and marketing.

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The authors
Moti Jaleta is a member of the Improving Productivity and Market Success (IPMS) of Ethiopian Farmers
Project; International Livestock Research Institute (ILRI), Addis Ababa, Ethiopia; and the International
Maize and Wheat Improvement Center (CIMMYT), Addis Ababa, Ethiopia. ,m.jaleta@cgiar.org.
Berhanu Gebremedhin, Azage Tegegne, Samson Jemaneh, Tesfaye Lemma, and Dirk Hoekstra are
members of the Improving Productivity and Market Success (IPMS) of Ethiopian Farmers Project, Inter-
national Livestock Research Institute (ILRI), Addis Ababa, Ethiopia. Samson Jemaneh is also a member of
the International Food Policy Research Institute (IFPRI), Addis Ababa, Ethiopia.

Development in Practice, Volume 23, Number 2, April 2013 263

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