Abstract:
As market exchange increases, there should be institutional set-ups that facilitate transaction of products especially products like milk and milk products that need immediate exchange due to their nature of being easily exposed to spoilage. Despite this importance of institutional environments and arrangements in dairy marketing, studies focusing on institutional analysis of dairy marketing have not been done in the study area. Thus, the study was conducted in Bahir Dar milk shed area in West Gojam of the ANRS aiming at analyzing the institutional environments and arrangements in dairy marketing. Three sample districts namely Bahir Dar Zuria, Bahir Dar City and Mecha districts were selected with two kebeles per each hence a total of six kebeles for the study purpose. Multistage sampling technique was used for the study. In the 1st stage, three districts within Bahir Dar Milk Shed area were selected purposively based on their milk production potential. Based on this, Bahir Dar Zuria, Bahir Dar City, and Mecha districts were selected for the study purpose. In the 2nd stage, 2 kebeles were randomly selected from the purposely selected potential kebeles in each district and a total of 6 kebeles were selected. In the 3rd stage, households who have dairy cows were listed from each kebele and were randomly and proportionally selected for the study. A total of 160 dairy producers, 30 traders, 27 consumers, 20 cafes/restaurants/ hotels, 3 milk cooperatives, and 3 private milk processors were used for the study purpose. In addition to these, discussions were also made with dairy producers and trader focus groups, organizations/institutions, and key informants. Both primary and secondary data were used for the study. Primary data was collected directly from dairy cow producer households, milk and butter traders, milk cooperatives, private milk processors, cafes/restaurants/ hotels, and individual consumers. Data was also collected from key informants and focus group discussions. Secondary data was collected from different organizations and published and unpublished documents. Descriptive statistics, and econometric methods including, Heckman two-stage, Probit Model and Multinomial Logit Models (MNL) were used to analyze the data. In the first step of Heckman two-stage, Milk Market Participation (MMP) of dairy producers was estimated. Among the fourteen explanatory variables used, price of milk in kebele, access of the respondent to marketing information, total land holding size, and membership to dairy cooperatives positively and significantly affected the milk marketing participation of the dairy producers whereas sex of the respondent negatively and significantly affected the MMP decision. Determinants of volume of milk marketed (VMM) was estimated in the Second-Stage Heckman selection estimation procedure and education level of the household head, experience in dairy farming, and livestock size excluding dairy cows affected positively and significantly the VMM whereas sex of the respondent, household size, total land holding size and access to credit affected negatively and significantly the VMM. In the Contract or Non-Contract (CONC) use of dairy producers for selling milk using Probit model, experience in dairy farming and membership to milk cooperative affected positively and significantly whereas non/off farm income and access to credit affected negatively and significantly the CONC use of the dairy producers. Probability of default in contractual agreement was estimated using Probit model and experience in dairy farming, price of milk in kebele and contact with livestock extension agent positively xviii affected the probability of default whereas sex of the respondent, volume of milk marketed, membership to other collective action group, and access to credit negatively affected the probability of default in contractual agreement. Among the explanatory variables used in the formal, informal, or non-contractual arrangement (FINC) choice decisions using MNL model, two variables affected the choice of formal agreement and two variables affected the choice of informal agreement while two variable affected both formal and informal contractual agreements as compared to the non-contract which was used as the base category. In the Milk Market Outlet Choices at point of first sale, MNL model estimated that one variable was found to affect the choice for consumers and two variables affected the choice for dairy cooperatives/milk processors while two variables affected both choices for consumers and dairy cooperatives/milk processors as compared to the other market which was used as the base category. The study has also revealed that due to lack and weak functioning of formal institutions, the informal institution, that is, trust was found to be dominant in the dairy marketing in the study area. Moreover, the study has revealed that there were weak linkages among the different actors in milk marketing. It was also found that among the transaction costs, the transaction cost related with searching trading partners, screening trading partners and searching price information were the highest both for dairy producers and traders indicating the lack of market linkages. Institutional, production and marketing challenges for dairy marketing were identified in the study area among them absence or shortage of legal enforcement mechanisms, cultural/religious influence, incomplete property rights on land, lack of standard quality and weighting measures, shortage of feed and improved dairy cross breed cows, shortage of grazing lands, lack of market linkages, market/demand and price uncertainty, and shortage of milk processing plants/milk cooperatives were the major ones. Expansion of infrastructures; availability of dry fodders and expansion of flour factories; and increasing urban population are among the opportunities in dairy marketing. Thus, besides focusing on important significant variables in the econometric model results, policy makers should focus on devising appropriate dairy marketing policies, regulations, and rules. In addition to this, efforts should be given to improve the market linkages in the study area.