Hirut - Ethiopia

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Ruth and Hirut Milk Production and Milk Processing Plc

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Agribusiness Entrepreneurship

ruth and hirut milk production and milk processing plc

CONTACT INFORMATION Chacha, Ethiopia

Adding value and market opportunities in dairy for the rural poor

+ 251 011 551 9154

haderare@yahoo.com

Hirut Yohannes Darare, General Manager, Rut & Hirut

THE BUSINESS Rut & Hirut Milk Cow Breeding is a dairy production and processing company located in Chacha, 109 km from the Ethiopian capital city Addis Ababa that has developed a business model to maximize the inclusion of rural farmers in high-value dairy production. The enterprise is the result of the vision and hard work of Mrs. Hirut Yohannes Darare, the founder and current general manager.

Mrs. Darare was looking for alternative solutions to feed her family and began selling vegetables to women working in offices. This activity eventually generated enough earnings for her to buy two cows. In 2003, she began to produce and sell milk in addition to vegetables. However, she soon realized that her earnings failed to cover the cost of production, and she felt that this must be the case for many of the other farmers in the area. As a proactive entrepreneur, she sought out training to learn new techniques that would increase the quality of the milk and the productivity of the cows, which she received from the Dutch NGO SNV that also covered financial support for the training. With this guidance, she learned how to take care of the animals and what feed to give them in order to increase their milk production and quality. She felt the need to share the knowledge and trained 75 farmers on her own with the idea of using them as her suppliers. Seeing that applying Mrs. Darare‘s recommendations improved their output, the farmers began selling their milk to her on credit in hopes of expanding their profits by working in collaboration with her. If they could sell more milk of a higher quality milk, they could earn more than they currently were on their own. However, Mrs. Darare still lacked the much needed business background to ensure success for a processing company.

In order to address this lack of skills, in a second phase, SNV provided Mrs. Darare with business and technical capacity building. Successfully applying the lessons she learned, the business started growing up to the point that in 2009, she was purchasing 1.500 liters of milk per day. At that time, she moved from Suluta to Chacha, near Debre, and officially set up the company Rut & Hirut Milk Production & Milk Processing PLC. The next step was to buy a machine to process the milk. She struggled to obtain the necessary funds and not being able to secure a loan from a bank, had to finance it herself. She eventually managed to buy a broken down machine and fix it.

Then, with the support of NGOs, she again trained local farmers on how to increase the productivity and quality of their milk. In addition, she was sponsored by SNV to travel to the Netherlands, Israel and Kenya to share her experience, as well as for receiving capacity building for leadership development, entrepreneurship and dairy product development. Currently, Rut & Hirut sources raw materials from 450 farmers, over half of which

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are women who also benefit from the training activities for local farmers.

After collecting the milk from the farmers, it is processed in Chacha, and turned into cheese or packed milk and distributed to clients in Addis Ababa.

Mrs. Darare is the only intermediary between the farmers and the retailers, which contributes to the efficiency and competitiveness of her business.

The company has been successful in generating employment, as 31 people are currently employed for the processing activity, 12 people for sales and four family members support Mrs. Darare in running the business.

She produces 16 different types of cheese and sells almost exclusively in Addis Ababa. She has even managed to successfully diversify her activity by opening a fast food restaurant where she serves sandwiches of her own production. Her competitive advantage rests on offering high quality products at adjusted prices. Most of the milk produced is organic, though not certified, and Mrs. Hirut has a deep commitment to improving the lives of farmers. She can manage to pay higher prices for the milk and offer competitive prices thanks to the short channel she has implemented.

ECONOMIC IMPACT CURRENT IMPACT

43 full time employees in sales and processing Products sourced from 450 farmers, over which half are women

Annual turnover: USD260,000 POTENTIAL IMPACT

(within three years)

60 full time employees Sourcing products from a total of more than 700 farmers 100% increase of daily production 50% increase of current client base

THE MARKET OPPORTUNITY On the supply side, Ethiopia is a country with over 30 million livestock where many families earn a living as micro farmers and most of them produce dairy for their own consumption. In fact, the per capita consumption of red meat and dairy products is in the top tier for African countries. However, people lack the awareness, the technical skills and the infrastructure to be able to bring this capacity beyond family consumption and turn these assets into extra income. Small scale farmers also often lack proper access to feed and training and generally have extremely low yields. As a result, it is estimated that only 2% of the milk produced is done so on farms with market access, the remaining 98% is produced by smallholder farmers in rural areas. However, as proven by Mrs. Darare, with proper training and support, there is high potential to professionalize smallholder farmers in order to convert them into reliable suppliers. Local production is too low to cover the lower tier demand whereas imported dairies are too expensive for the mass population.

large pizza houses and 40 small retailers. There are still many issues to solve for the business related to sales, marketing, and distribution. However, customers are satisfied and word of mouth has increased her customer base to the point that she cannot fully satisfy the demand. There is still a huge potential and long way to go to be able to supply all supermarkets, restaurants and retailers in Addis Ababa.

The demand for dairy products is very high, as milk and cheese are widely consumed amongst the population. However, the average intake of 17 liters of milk per year per person has strongly decreased in past years in Ethiopia and is below the recommended intake levels. This decrease of consumption has two main reasons; the high price of such products and the diseases channeled through low-quality milk. There is a very high demand for products like the ones offered by Mrs. Darare: healthy, organic, and wellpriced.

Mrs. Darare also has a clear vision on where she wants to go and how to get there. She knows that to increase her sales, she first needs to increase production volumes and quality. For doing so, she needs certain pieces of equipment such as solar systems for cooling, cooling tankers, an additional cold and insulation room, packing machines and small distribution vehicles. Additionally she plans to expand the outgrower program and to replicate primary processing in other regions in order to expand her supplier base and her production capacity. If Mrs. Darare could raise the money to make the needed investments, she estimates that within three years, the number of jobs generated would increase from 42 to 60 full-time employees and the number of sourcing farmers would increase by 60% to over 700.

To reach the market, the products of Rut & Hirut are distributed through 3 channels: supermarkets, restaurants and small retailers. Currently, the business sells to five supermarkets, three

The potential for increased demand has been clearly grasped, as two main factors coexist: On one side is the huge unmet demand for milk products, particularly for children, in Addis Ababa. On the other side, the company has opened its own retail shop and has seen huge demand there as well. Two more macro-economic trends support this. Firstly, the increase of the middle class and the general trend of people turning evermore towards locally and ecologically produced items for food products.

THE CHALLENGES ACCESS TO MARKETS

Mrs. Darare has a number of logistics issues that are a challenge yet to be surpassed. She has trouble finding high quality and affordable packaging as well as a lack of cold chain solutions and operators. Given the lack of mass distribution companies and supermarket chains, and the weight of the informal sector, these issues are complex to overcome. However, with better access to markets, Mrs. Darare would be able to find partners to address these issues and as a result, would be able to purchase more milk from the farmers and to expand her geographic sales reach. Distribution issues affect small businesses all over Ethiopia given the small number of wholesalers and the granularity of the target market. With the help of the AIC, the company should get access to Etfruit, the one distribution company that exists. A partnership with them would solve in part the distribution challenge faced.

ACCESS TO FINANCE

Access to finance is a recurrent issue for entrepreneurs, and is one of the main challenges faced by Mrs. Darare. She owned no collateral and at first, this prevented her from accessing much-needed loans to buy machinery.

Eventually, as her business grew, she was able to obtain a loan from a microfinance institution to cover her working capital needs, but not enough to capture all the growth potential available.

Furthermore, the banks ask for interest to be paid in advance, something that Mrs. Darare cannot afford.

This is why getting the right kind of financial support and identifying alternative financial solutions would be of great benefit.

ACCESS TO TECHNOLOGY AND KNOW-HOW Aware of the positive impact that technical assistance has provided her and the outgrowers in the past years, Mrs. Darare is convinced that the continuous access to it will be a key factor in growing sales, improving quality, expanding supply, hence ensuring the sustainable growth of her business.

The access to know-how refers to all skills that are necessary in the value chain, from solutions to increase productivity for farmers, to finance, marketing and strategic support for the management.

POTENTIAL BENEFITS OF AN AIC Mrs. Darare is convinced of the positive effect that an AIC would have on Ethiopia. She notes that in general terms, setting up an AIC would be all the more relevant in a country with favourable climatic conditions and land. Particularly given the fact that the majority of products are imported and could be substituted with local production. However, for this to take place, the existing value chains need the right level of support for farmers and processors. On a personal note, she also considers that an AIC would be of great support in helping her to overcome key challenges for growing her business and making it more professional.

MRS. DARARE CONSIDERS THAT AN AIC WOULD HELP HER TO: Support her efforts in accessing financial services Professionalise the training she gives to farmers and upscale this initiative Access business services and IT solutions to be ever more professional in her activity Enhance access to markets through networking with distribution companies To help her access suppliers’ networks for packaging and cold chain through market linkages To increase the sales skills of her staff in areas such as pricing or branding

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