ECONOMIC ANALYSIS OF COMMERCIAL DAIRY PRODUCTION, MARKETING, AND CONSUMPTION IN MAJOR URBAN AND PERI-URBAN AREAS OF ETHIOPIA

Despite Ethiopia’s large population of dairy cattle with a top rank in Africa, the dairy sector has been facing several challenges in the production, marketing and consumption segments along the cattle value chain. However, there is dearth of information on production efficiency of commercial dairy farms that guide policy makers and investors in the sector to design efficient dairy policy that could address the problems besetting the dairy cattle sector. Dairy cattle products marketing is the most important problem of the Ethiopian dairy sector - its demand is unstable, prices are low and fluctuating, value chains and marketing channels are underdeveloped, and the regulatory mechanisms are non-existent or weak. In the consumption segment, the country is ranked at the bottom of the world considering the need for dairy products to improve nutrition security. Investigating economic efficiency of the commercial dairy producers and market channel choice, and consumers behavior that guide the purchasing and consumption of dairy products are important research agenda. This study investigated the economic efficiency and marketing channel selection of the urban and peri-urban commercial dairy farms, and determinants of consumers’ choice of dairy products consumption decision in major urban and peri-urban areas of Ethiopia to contribute towards filling the existing information gaps in the dairy sector. Two types of cross-sectional data were used for this purpose. Data collected from 480 commercial dairy farms in nine cities were used to study economic efficiency and market channel selection decision of the commercial dairy producers whereas, data collected from 384 dairy products consumers of Addis Ababa dwellers were used to investigate the dairy products consumption decision of consumers. Both descriptive and econometric models were utilized to analyze the data. Stochastic frontier production (cost) model was used to investigate the technical (cost) efficiency whereas bivariate ordered probit model was utilized to analyze the determinants of fresh milk (raw and pasteurized) purchase frequency decision. Multivariate probit model was employed to analyze two objectives namely the determinants of market channel selection decision of the dairy producers, and dairy products consumption decision of the dairy consumers. Results of descriptive analysis showed that most of the dairy farms surveyed were owned and managed by private producers with an average age of 48 years and most of them are literate. Majority of the dairy farmers were male (75%) whereas the average farm experience was 14 years. Most of the farms (84%) were owned by private owners. The dairy producers mainly kept crossbred and exotic breeds with higher milk yield and mainly produced for sale. Cost of feed took the lion’s share of the total cost of dairy production in all study sites. The dominant raw milk market was the informal marketing channel. Results revealed that fresh milk namely raw and pasteurized milk were the two most frequently purchased and consumed in Addis Ababa. The stochastic frontier model result revealed that milking cows, concentrate feed, health and water expenses positively and significantly contributed to the production frontier while milk output, wage, roughage price and water cost had positive and significant impact on the stochastic cost frontier. The result further revealed farmers operating in Mekele city were less efficient both technically and economically while those in Gondar were technically inefficient as compared to the Hawassa ones. Larger farms were found to be economically inefficient as compared to the small farms. High proportion of crossbred cows, better access to credit and AI services had positive and significant impact on both technical and cost efficiencies of the dairy farms while optimum supply of water (twice a day) had a positive and significant impact on the technical efficiency of the farms. The result xix further indicated that dairy producers can increase milk production by 14% and reduce cost of production by about 22% if they remove technical and cost inefficiencies, respectively in running their dairy production business. Results of the multivariate probit model showed that milk marketing of the commercial dairy farms was dominated by an informal marketing system where the majority of the dairy farms used ‘direct sales to consumers’ (47%) followed by those who used ‘traders’ (29%) and ‘hotels/restaurants/cafes’ (14%), whereas less than 10% of the farms used milk processors as their marketing outlet. Factors significantly affecting dairy farmers’ decision when choosing market outlets to sell their milk were education, farm experience, volume of milk sold, distance to milk selling point, membership in local cooperatives, and farm site differences. The bivariate ordered probit model results showed that religion and education of head, availability of children in the household, income and consumption value variables such as functional value-price and functional value-test, social, emotional, and epistemic values had a significant impact on the fresh milk purchase frequency. Multivariate probit model result of dairy product consumption decision revealed that there was an interdependence of decisions to purchase different dairy products. Results further showed that household background, income, and consumption value variables such as taste, price, social values, emotional values, conditional values, and epistemic values had significant impact on dairy products purchase decision of the respondents. Therefore, addressing the demographic, socio-economic and consumption value variables, and acknowledging the interdependence of decisions consumers make while purchasing multiple dairy products are important factors to be considered when designing policies to improve the consumers’ nutritious food consumption and zoonotic diseases control. Based on the findings of this study, it can be recommended that there should be a means to create an awareness of the dairy producers to improve their efficiency of dairy production through arranging different experience sharing mechanisms. There is also a need to design policies that ensure improved access to sources of improved breed, credit and AI services. Furthermore, any attempt to set the direction of an achievable milk marketing strategy in Ethiopia should focus on modernizing the milk marketing which include strengthening the milk processing industries in all major cities so that they can be a feasible marketing option for dairy producers; strengthening existing dairy cooperatives so that they play role in milk collection; and organizing milk collecting points in cities by processing companies. From the consumption point of view, raising consumers’ awareness on the risk for transmission of zoonotic diseases by raw milk consumption, and by addressing demographic, socio-economic, and consumption value variables, as well as acknowledging the interdependence of decisions that consumers make while purchasing dairy products, would be important factors to consider when designing policies that target nutritional improvement based on dairy products, and public health-related policies that target zoonotic diseases.