Analysis of Dairy Value Chain in West Shewa Zone of Oromia Region of Ethiopia: A System Dynamics Approach

Dairy value chains in Ethiopia face a series of challenges. Stakeholders in the participatory model-building approach of this research and prior studies noted that feed and market related challenges are among the critical factors impeding development of dairy value chains. Increased production and reliable supply of dairy products were hampered by availability and fluctuation of feeds. Traditional system dairy producers also lack market outlets or connection to remunerating ones. On the other hand, dairy value chains are dynamic and subject to feedback relations which make them complex to fully understand and tackle the challenges using the traditional value chain analysis paradigm. For the purpose of finding and assessing ways to improve the smallholder-based dairy value chain in West Shewa zone, system dynamics (SD) modelling was integrated with a participatory model-building approach. The main objective of the research was to develop a system dynamics model for the West Shewa dairy value chain and use it to analyze the impacts of various policy and investment interventions. Two intervention sets, each targeting the challenges at the production and marketing nodes of the dairy value chain, were identified through the study. For the production node three interventions (1) enhance urea treatment of crops residue, (2) increase production of improved feed, (3) invest in more dairy cows, and two interventions for market improvement (4) dairy cooperatives invest in milk collection capacity, and (5) Cooperatives invest in milk collection capacity while also raising milk price for producers. These interventions were assessed ex-ante for impacts mainly on milk production, market supply and financial performances for the key actors. Analyses results show that policies targeting feed development can increase milk production as well as household profit but with higher seasonal fluctuation. Long-term milk output gains over the baseline ranges from 32% through improved feed development policy to 70% through urea treatment of crops residue. Household profit increases by 287% through improved feed production policy and by 737% through the crops residue treatment, compared to the baseline. The crops residue treatment policy will increase seasonal fluctuation in milk production rate by 38% compared to the baseline. It is also revealed that improvement in cow productivity is the main source of milk output gains. With the feed resources and their potential explored in the study, increasing herd size is not profitable for xviii smallholder producers. Furthermore, it is found that policy of improved feed production in drought event will not significantly reduce dairy cattle losses, causing the herd size to fall below the scenario without drought. However, the same policy results in higher milk production and household profit compared to the baseline. Hence, increasing herd size is not a recommended course of action for improving the West Shewa dairy value chain. Instead, dairy value chain development initiatives in the study area should focus on feeds development. However, the improved feed policy still leaves a gap in the average feed protein requirement of a dairy cattle in the study area. Therefore, in order to further increase milk production by the smallholder dairy producers, future work should focus on further enhancing supply as well as quality of feed resources and exploring the potential of investment in improved breeds. The study also found that improving the market through cooperatives investing in milk collection capacity improves performances at both nodes of the value chain. In the long-run milk production rate rises by 57% under market access policy and by 56% under market access policy with increased milk price for producers. Dairy households’ average monthly profit under both policies increases by about 11-fold of the baseline. The market improvement policies lead to more gains in output than the production improvement polices except for urea treatment of crops residue. Simultaneous improvement in production and market access for producers leads to even higher gains in both milk output and profit than individual polices at either nodes. In comparison to the baseline, average monthly household profit gains range from 10-fold (when increasing cowherd is combined with market access) to 14-fold (when urea treatment of crops residue is combined with improved market access while raising producer price). Long-run production impact ranges from a 58% increase when improved feed production is combined with improving market access while increasing price to 76% when crops residue treatment is combined with improving market access. In conclusion, efforts to increase production are needed to realize the full potential of West Shewa zone's smallholder-based dairy value chain. However, the (economic) benefits of increased milk production is conditional on producers having better market access. This suggests that efforts to improve the market should be prioritized for better development of traditional system-based dairy value chain in the West Shewa zone of Oromia region of Ethiopia.