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This study was initiated with the purpose to assess the dairy value chain in Lemu-Bilbilo district of Arsi zone, Ethiopia. This study made use of both qualitative and quantitative data collected from primary and secondary sources. Different Participatory Rural Appraisal (PRA) techniques were utilized to collect primary data in July 2012. The dairy value chain in Lemu-Bilbilo district involves six distinct value adding activities including input supply, production, gathering, processing, transportation and retail trading. The proportion of milk off-take rate by dairy producers was only 15%. Some of the challenges for dairy production at input, production, processing and marketing stage include low quality and poor timeliness of Artificial Insemination (AI) service, information gap on credit services, feed shortage, lack of awareness and knowledge regarding improved feed formulation, unavailability of government and private ranches and multiplication centers for the supply of improved dairy animals. Therefore, to create knowledge based commercial dairy development in the area, there is an urgent need to encourage the introduction and development of improved forage seed, organize recurrent training for dairy producers on improved forages, feed conservation, formulation and feed preservation techniques.   Key words: Dairy; market channel; gross margin; forage; artificial insemination.

Improving the competitiveness of dairy production via value chain approach: The case of Lemu-Bilbilo district in Arsi highlands of Ethiopia