The business hopes to take advantage of increased milk consumption in Ethiopia
They are owned by a British entrepreneur and his Ethiopian partners, who have created a new dairy company called AJGG Dairy Products, based in Ethiopia’s Tigray region bordering Eritrea.
It is early days for the business, which still has to use a horse-drawn cart for the daily milk run from the 2.5 hectare (6.2 acre) farm to the local bus station, from where its product is then driven 35km (22 miles) to be sold in Makelle, Tigray’s capital.
Hence you might ask John Crisp, the Brit behind the joint venture: why on earth open a dairy farm in Ethiopia?
“Start Quote
Locals understand the culture and have communication skills to deal with bureaucracy, while a foreigner often has better access to capital and technology”
Girmay KahsayAJGG partner
“It is a little complicated,” says the 57-year-old.
Mr Crisp originally met his four AJGG partners through an organisation working with the mentally ill in Mekelle. This led to the idea of how a dairy farm could offer occupational therapy to patients recovering from mental health problems.
Twenty cows later and Mr Crisp has an 80% stake in an operational small business, with last month’s move into new facilities an important step toward establishing the first dairy processing facility in northern Ethiopia.
The creation of the company comes as milk is increasingly popular in Ethiopia, especially as the country’s middle class grows, people’s disposable incomes increase, and more homes purchase refrigerators.
Shared strengths
Girmay Kahsay, one of Mr Crisp’s partners, says that establishing the dairy as a joint venture has provided a number of advantages.
“Locals understand the culture and have communication skills to deal with bureaucracy, while a foreigner often has better access to capital and technology,” he says.
Mr Crisp, second left, and his four business partners have big ambitions for the dairy
And it is not just the business’ management which is benefiting from mixing Ethiopian and foreign inputs.
The herd is a hybrid breed, bred from European Holsteins and local cows. The European genes provide the high milk production, while the Ethiopian ones give more disease resistance.
Challenges foreign investors can face in Ethiopia
- Difficulties in getting work permits for foreign technical personnel
- High banking commissions
- Lengthy land acquisition processes
- High freight costs – ocean and inland
- Customs problems and delays
- Inadequate telecommunication infrastructure
Currently AJGG sells raw milk locally, but once processing and packaging equipment is installed it will produce pasteurised milk, butter, cheese and yoghurt.
“This will require much more milk than the herd can produce, so we will take milk from small local dairy farmers,” says Micheale Abrha, a fellow partner and AJGG general manager.
Good news for farmers, Mr Micheale says, especially as the local dairy market collapses for months during religious fasting, when Ethiopian Orthodox Christians do not consume animal products.
In addition to the processed dairy products adding value and being storable for sale after fasting periods, their transportability will open up new markets to further offset fasting-related slumps.
No easy solutions
Yet much needs to be done if AJGG is to expand and reach supermarket shelves in Addis Ababa 720km to the south.
The all important processing equipment still needs to be imported, most likely from Israel. The plan is to install it in late August when the rainy season ends.
Difficulties with importing a van has meant transporting the milk the old-fashioned way
“That gives us a couple of months to get processing activities running, and iron out glitches, before the Advent fast begins,” Mr Crisp notes.
Another problem is accessing groundwater needed for irrigation to grow animal feed.
A geological survey indicated ample water accessible at 80m (262 ft). But a neighbouring dairy farmer sunk a bore hole to 115m that produced little water.
As a result, AJGG may need to apply for a new lot of land in which to sink a bore hole from where it can pipe water to the farm.
Beyond natural challenges are those man-made at governmental level.
For a foreigner to gain an investment licence for a joint venture in Ethiopia, a minimum initial investment of $150,000 (£93,750) is required. This is less than the $200,000 required from a foreigner going it alone, but still a lot of money.
The business currently only sells milk, but the aim is to expand to other dairy products
Previously this could be paid gradually during the course of establishing a company. But when AJGG tried to renew its investment licence in March, it found the government had decided the whole amount must be transferred before granting or renewing licences.
“This was symptomatic of the difficulties of doing business here,” Mr Crisp says. “The rules change constantly.”
Mr Crisp, in another instance, was told he could import a vehicle free of customs duty, which can reach 300% of the value of the item imported.
But the rule changed to apply only to companies investing in excess of 10m birr ($526,315; £310,000), Mr Crisp says.
This left AJGG without a vehicle and unable to get its product to market – hence the horse-drawn cart to the bus station while management considers its options.
Free market?
Changes in regulation is a common complaint among foreign investors in Ethiopia, with the government appearing to beckon private investment while at the same time remaining concerned about any possible negative impact on domestic businesses.
“[It is] concerned that if foreign investors are allowed in certain sectors, local businesses might not be able to compete,” says Manaye Ewunetu, managing director of London-based ME Consulting Engineers, which specialises in Africa and the Middle East.
The cows have been bred both to produce a good quality of milk and to be resistant to local diseases
He adds: “I think there is a safety net mechanism to control exploitations experienced in the past.”
In addition, since the overthrow of Emperor Haile Selassie in 1974, many policies of Ethiopia’s leaders and governments have had a strong socialist hue – which has left a mark.
“The public sector dominates investment,” says Dani Rodrik, an economist with US-based Institute for Advanced Study. “Private investment in modern industries… remains too low to sustain structural transformation.”
However, Mr Rodrik does note encouraging signs for manufacturing investment.
And Nick Woodall-Mason, operations manager in Ethiopia for the UK’s Tullow Oil, says that the Ethiopian government is more often happy to see foreign investment in business areas which are not seen as strategic, such as telecoms and banking.
He adds: “It provides very good tax breaks to Ethiopian or foreigner alike to start a business.”
Despite any lingering reservations the Ethiopian government may still have about the private sector, there is one advantage to an entrepreneurial endeavour that includes calf-bearing cows.
“The business literally grows naturally,” Mr Crisp says.
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