In a recent field visit to Ejere district, one of LIVES sites in West Shoa, Dirk Hoekstra came across the Biruh Tesfa Dairy Cooperative, about 4 km from Addis Alem town.
Although it is difficult to draw lessons, let alone a conclusion from interviewing one person – remember my rule “ask a minimum of five persons the same question and divide the sum of the answers by five”- it seems that the cooperative had followed a familiar pattern obtaining lots of material (free) inputs from well-meaning donor organizations but little sense of how to run an agri-business. What seemed to be the “facts”?
The cooperative has 69 members who deliver around 800 liters of milk daily – not bad! Farmers are paid ETB 8.25/ltr and the cooperative sells the bulk of the milk to the Biftu Berga dairy union based in Holetta town at ETB 8.50/ltr. Tee margin of ETB 0.25/ltr, sufficient to cover operational costs, goes into the account of the dairy cooperative. A small amount of milk is also sold to nearby town dwellers at ETB 10/ltr; however the cooperative does not have many customers because it is located outside the town. In Addis Alem town itself, individual farmers sel raw milk for ETB 10/ltr to restaurants and individuals. Perhaps, a possibility for the cooperative to penetrate this market by offering its milk to these town customers at a price somewhere between ETB 8.25 and 10 might be competitive?
Such competitive behavior is normal business practice by private sector entrepreneurs who are penetrating lucrative milk sheds, initially developed by cooperatives. So why not reverse this process, by establishing a small milk shop in town and enter into contract arrangements with restaurants? Another piece of business advice would be to explore ways to increase the supply of milk to the cooperative by enlarging the milk collection area. Presently, most milk is purchased from nearby farmers who deliver the milk, on foot, to the cooperative once a day. Farmers, who live further away, may be “lured” into the milk market if transportation could be made available. Since the cost of collecting milk from each individual farmer would be too high as daily supplies are too small, milk needs to be “bulked” in collection points. So how can transportation be organized? Should the farmers or the cooperative arrange it – should transport be rented or purchased? Discussions on these options should be held to come to an economically viable option which is not dependent on another gift from a well-meaning donor.
Contributed by Dirk Hoekstra, LIVES Senior Advisor