Ethiopia’s economy is based on subsistence agriculture accounting for 40% of the gross domestic product (GDP). Livestock production contributes 30-35% of the gross domestic product and more than 85% of farm cash income. In this respect, milk production plays a major role in the livelihoods of Ethiopians and it accounts for 19% of the export earnings in the country. In relation to this, Oromia region contributes 40% of the country’s milk production. Despite this importance, milk is not adequately market-oriented and competitiveness of smallholder farmers is limited by low market participation. The objectives of this study were to; characterize milk producers and traders, determine the structure conduct and performance of milk market and identify the determinants of participation decision of milk producers and volume of milk marketed in the study area. A total of 150 milk producers and 40 traders from four Kebeles of the Woreda were interviewed to obtain data using multistage and proportionate sampling respectively. The data was analyzed using descriptive statistics, structure conduct performance approach and Heckman two-step econometric method. The results of the market concentration ratio of the top four milk traders was 87.16% of the total milk purchased per year. This revealed the existence of a strong oligopoly milk market in Sululta Woreda. Findings revealed that the marketing channel that had the highest (54.55%) marketing margin was channel III (producer-dairy cooperative union- processor- retailer – consumer). The results of Heckman two step econometric estimation showed that years of education, experience, number of cross-bred milking cows, non-dairy income, extension services, number of children under age of five years and membership to dairy cooperatives had a significant effect on participation of households. Furthermore, volume of milk market supply was also affected by education, gender, cross bred milking cows, non-dairy income and family size. Based on the findings, it was recommended that there is need for policies that promote collective organizations which could play a major role in reducing the level of oligopolistic market structure and market inefficiency in Sululta Woreda. Moreover, policies that promote inclusion of smallholder farmers in dairy value chain should be enacted. This include investment in adult education, improving access to extension and promoting new technology which replaces human labor should be applied to increase milk market participation and for better functioning of marketing systems.

Background of the study 
Ethiopia’s economy is based on subsistence agriculture accounting for 40% of the gross domestic product (GDP), 60% of exports, and 80% of total employment (LMD, 2013). Livestock production contributes 30-35% of the GDP and more than 85% of farm cash income. In this respect, milk production is playing a major role in the livelihoods of the people of Ethiopia (Anteneh, 2006). The sub-sector also accounts for 19% to the export earnings (BoFED, 2006). Given the considerable potential for increasing smallholder income and employment generation from high- value milk products, development of the milk sector in Ethiopia can contribute significantly to poverty alleviation and improved nutrition in the country (Kebede, 2009). 

There are about10 million dairy cows in Ethiopia producing 3.2 billion liters of milk per year. The production per cow is estimated at approximately 1.54 liters per day for an average lactation period of six months. In fact, national milk production for the period of 1966 to 2001 increased by only 1.6% per year and per capita production declined by 0.8% per year (Staal et al 2008). Despite this large number of dairy cows, the milk marketing system is not yet well developed. There are only limited formal marketing and grading systems that are geared towards matching the quality of milk and milk products to market prices. 

Although currently milk and milk products are channeled to consumers through both formal and informal marketing systems, above 95% of the national marketed milk volume is channeled through the informal system. The term informal is often used to describe marketing systems in which the government does not intervene substantially in marketing. Such marketing systems are also referred to as parallel markets where as the term formal is thus used to describe government; the marketing system which is dominated by the government; government controlled dairy development enterprises or official marketing system and the share of milk sold in the formal market is only about 2%. In informal marketing system, milk and milk products may pass from producers to consumers directly or through one or more market agents. Producers sell the surplus milk to their neighbors and/or in the local markets, either as liquid milk or in the form of butter or cheese. This system is characterized by no license to operate, low cost of operation, high producer prices as compared with formal market and no regulation of operation (Yilma and Inger, 2011). 

However, in the formal marketing system milk is distributed by cooperatives and unions and the private sector. Milk collected at collection centers is supplied directly to consumers in the urban towns and the surplus is collected by large dairy enterprises (Yilma and Inger, 2011). There are a few milk processing plants mainly owned and operated by the government and others by private companies. These are concentrated around Addis Ababa (the capital city), and process products such as pasteurized milk, table butter, hard cheese, yoghurt and ayib (cottage cheese) (Yigezu, 2003). In the case of this study both formal and informal milk marketing were included. 

Lack of access to markets reduces incentives to participate in market-oriented production and perpetuates subsistence production systems. Fresh milk by small holder farmers is important only when close to formal milk marketing facilities such as government enterprises or dairy cooperatives in the country (Holloway et al., 2000). Farmers far from such formal marketing outlets instead prefer to produce other milk products such as traditional cooking butter and cottage cheese. In fact, the largest quantity of milk produced outside urban centers in Ethiopia is processed by the farm household into products and sold to traders or other households in local markets. In most rural areas of the region, the produced milk is transported to the market by locally available means that may include transport on foot, by donkey or public transport. Milk can be collected either by the buyers or taken by the producers to the sales point, but generally, with the exception of a few commercial farms, farmers are responsible for the delivery of their milk into the market chain. Few farmers would travel longer distances to supply milk to urban markets or to earn higher prices (LMD, 2013). 

Therefore, improving the position of smallholders to actively engage in the dairy market is one of the most important development challenges of the country (Holloway et al., 2002). Putting in place a functional quality control system is an important tool to bring about improvement in the dairy sector. Milk marketing is an incentive for farmers to improve production. It stimulates production, raise milk farmers’ income and living standards and create employment in rural areas (Tassew, 2007). Provision of improved and sustainable milk marketing arrangement in villages is therefore important in the aspiration for advancement of the sector. 

Statement of the problem 
Although Sululta woreda contributes the highest amount of milk in Oromia region as well as for the country, there is low participation of milk producers in the market. The milk and milk products are not adequately market-oriented and the competitiveness of smallholder milk producers is limited. This could be the result of a poorly developed marketing system. While there are a number of both formal and informal milk channels in the region, neither the number of buyers and sellers of milk nor the relationship between them had been evaluated if indeed they significantly contribute to milk marketing. Additionally, multiple factors which could affect the participation decision of producers in milk market and volume of milk marketed had not been determined. Furthermore, costs and profits of these channels had not been analyzed. This study therefore attempted to contribute to filling the information gap by investigating the structure, conduct and performance of cow milk market in Sululta Woreda special zone surrounding Addis Ababa, Ethiopia. 

Objectives of the study 
General Objective 
The general objective of the study was to contribute to improved livelihoods in Sululta woreda, Oromia region special zone surrounding Addis Ababa, Ethiopia 

Specific objectives 
To characterize the milk producers and marketing agents 
To determine structure conduct and performance of milk markets 
To identify determinants of milk market participation and volume of milk marketed 

Research questions 
What are the socio-economic characteristics of milk suppliers and marketing agents? 
What is the structure, conduct and performance of milk markets? 
What are the determinants of market participation and volume of milk marketed? 

Justification of the Study 
The knowledge of structure, conduct and performance of cow milk marketing and factors affecting marketed volume of milk is crucial because milk sector is the main creator of employment and affects the GDP and development of the country’s economy. The main justification for this study was that it would expose the weaknesses that contribute to inefficiencies in milk marketing. The study would generate useful information that would be used to formulate policies and guidelines for interventions that would improve the efficiency of milk marketing system. The results will be available to any interested dairy stakeholder in Ethiopia. 

Scope and limitation of the study 
This study would analyze the structure conduct and performance of cow milk market in Sululta woreda, which is regarded as the area of major milk producer in the zone, by using both primary and secondary data from the specified areas of study. More specifically, the study would focus on milk markets and would not generalize on markets of other agricultural products. The study was limited by poor infrastructures, political instability and poor record keeping by organizations. 

Definition of Terms 
Formal marketing system: refers to official milk marketing system in which the market is controlled by the government. 

Informal marketing system: refers to milk marketing system in which the government does not intervene in marketing. 

Kebele- the lower administrative level in Ethiopia 

Market- A physical place that brings buyers and sellers of milk together 

Market actor- someone who is active in the milk market such as collectors, wholesalers, cooperatives, unions and retailers which is the same as market participant 

Market channel- Group of people or organizations that direct the flow of milk and milk products from production areas to consumers 

Market conduct- it refers to the strategies, the behaviors and policies used by the firms in the industry 

Market performance- The economic outcomes that the structure of the market and the firms’ conduct. The affordable the prices of the market against higher return to the traders the better the market performance. 

Market participation- refers to farmers who are selling any amount of milk in the market. 

Market structure- it refers to the set of characteristics and conditions that define and describe the market type 

Marketing system- it includes all activities involved in the flow of milk from the point of initial production to the ultimate consumer 

Producers: refers to the farmers who are owning the cows for milk production 

Woreda- District or the third administrative level next to regional and zonal level in Ethiopia

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Item Type: Kenyan Topic  |  Size: 77 pages  |  Chapters: 1-5
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