This study of the dairy value chain in the Oromia region of Ethiopia was conducted as part of the AgrInvest-Food Systems Project, a collaboration between the Food and Agriculture Organization of the United Nations (FAO) and the European Centre for Development Policy Management (ECDPM) to promote private investments in African food systems that contribute to local economic, social and environmental sustainability.

This study aims to inform the implementation in Ethiopia of the AgrInvest-Food Systems Project, a collaboration between the Food and Agricultural Organization of the United Nations (FAO) and the European Centre for Development Policy Management (ECDPM) to promote private investment in African food systems that contributes to sustainable development objectives. The study analyses the Ethiopian food system, identifying and explaining notable trends, important socio-economic, food security and nutrition and environmental outcomes generated by the food system, as well as the structural factors, institutions, and actors that shape food system outcomes in Ethiopia.

This policy note aims at providing practical and evidence-based recommendations to improve the enabling environment and subsequently increase sustainable investments in the whole dairy value chain (VC) in Ethiopia. The relevance of this policy note relies on the fact that to date, there are multiple assessment and studies that have been conducted on the VC but – to the authors' knowledge – no study has yet attempted to study the linkages between the challenges as well as to determine which challenges faced by VC actors are effectively enabling environment factors. In other words, building from these multiple studies and some specific studies, this note aims at going one step further by mapping the different challenges found in the VC assessments, as several of them are closely intertwined (like land size affecting both feeding and effective cattle management), as well as determining at what scale the challenges impact the VC. For instance, some factors have a national level impact (i.e. they are a national enabling environment factor, affecting most or all VC actors), others have a regional level impact (i.e. a regional enabling environmental factor, affecting only the VC actors of a specific region), while others heavily depend on the individual characteristics of the VC actors.

This technical note was written by the European Centre for Development Policy Management (ECDPM) as part of the project “AgrInvest-Food Systems: Enabling inclusive and efficient private sector investment in agri-food systems”, implemented by the Food and Agriculture Organization of the United Nations (FAO) in partnership with the ECDPM. The AgrInvest-Food Systems Project (AgrInvest-FS) aims at attracting private investment into agrifood systems aligned with the Sustainable Development Goals (SDGs) by leveraging public funds. The note applies a systematic approach to the five agrivalue chains over the four countries covered in the AgrInvest-FS project, to identify relevant financing instruments and relevant types of financing institutions, which could potentially be interested in financing a segment of the value chain.

In the transformation of agri-food systems in developing countries, we usually see rapid changes in the livestock sector. However, good data for clearly understanding this transformation are often lacking, especially so in Africa. Relying on a combination of diverse large-scale datasets and methods, we analyze transformation patterns in the dairy value chain supplying Addis Ababa, the capital and biggest city of Ethiopia. Over the last decade, we note a rapid increase in expenditures on dairy products by urban consumers, especially among the better-off. Relatedly, the number of dairy processing firms in Ethiopia tripled over the same period, supplying a significant part of these dairy products, especially pasteurized milk, to the city’s residents. The number of dairy traders increased rapidly as well, with competition between them becoming more intense over time. Upstream at the production level, we find improved access to livestock services, higher adoption of cross-bred cows, a shift from grazing to commercial feeds, an increase in milk yields, expanding liquid milk markets, a sizable urban farm sector supplying almost one-third of all liquid milk consumed in the city, and an upscaling process with larger commercial dairy farms becoming more prevalent. However, average milk yields are still low and not all dairy farmers are included in this transformation process. Small farms with dairy animals as well as those in more remote areas benefit less from access to services and adopt less these modern practices. For these more disadvantaged farmers, stagnation in milk yields and even declines – depending on the data source used – are observed.

These guidelines have been drawn up as part of the AgrInvest-Food Systems Project (AgrInvest-FS), a collaboration between the Food and Agriculture Organization of the United Nations (FAO) and the European Centre for Development Policy Management (ECDPM) to promote private investments in African food systems that contribute to sustainable development objectives. The purpose of these guidelines is to serve as a reference and provide practical country-customized guidance to foster sustainable investments in agrifood systems in the four African countries covered by the AgrInvest-FS project of FAO-ECDPM.

The FAO partnered with the Ethiopian Society of Animal Production (ESAP) to understand and document the various business models along the cattle dairy value chain nodes in Ada’a and Sululta districts. Dairy businesses are highly heterogeneous in Ethiopia and, even though most are profitable, milk production, marketing, service, input and other support are not well organized and integrated. Investments to make the dairy value chain more effective should target more institutional than the technical dimensions, which entails a novel approach for veterinary and animal production services.