On the road to Debre Berhan lies the small town of Chacha. Bordering the Oromia Regional State with the Amhara Regional States, Chacha is home to a couple of relatively large factories. One of them, incorporated in 2009 with an initial capital of 1.5 million Br, can process up to 25,000 litres of pasteurised milk a day. The plant rests on a 1,200sqm land 110Km northeast of Addis Abeba and operates with 25 permanent employees.

Last week, half of the workers were on duty, manning three separate production lines.

Shambel Zegaye, the company's production manager, stood quietly, supervising four employees assigned to the pasteurisation process. Dressed in layers and wearing leather boots with hard soles, these workers heated milk for no less than 15 seconds. The heat exchangers they use destroy harmful bacteria and microorganisms. They carried out their task in a relaxed manner, constantly chatting.

The Production Manager saw no reason to tell them off.

"The milk we receive is little," he told Fortune. "There's no need to hurry."

The company sources 90pc of the raw milk it processes from smallholder farmers and cooperative unions in the area. Things have gotten not so good lately. The days when it sourced a fifth of its demand are now considered good. It is an outcome the founders of Hirut & Ruth Milk Processing Plc did not envision when they borrowed 17 million Br from a commercial bank two years ago. Getting milk supplies from the surrounding areas, considered rich in cattle population, was their least worries when launching Tsega Milk.

"We're struggling to service our loans,” said Hirut Yohannes, a major shareholder of the company.

Like Hirut's company, almost all of the 40 milk processors face a crippling shortage in milk supply. Combined, these companies have a processing capacity of 200,000lt of milk a day. It was double the capacity recorded five years ago.

Lame Dairy is one of the 70 subsidiaries of MIDROC Ethiopia Investment Group. It acquired a milk processing plant, Dairy Products Development Enterprise, from the state in 2007 for 62 million Br, with its popular brand, Shola Milk. It doubled production capacity by expanding its facility in the Gurd Shola area, in recent years, to 10,000lt an hour. The processing plant it imported from Italy consumed a four million euros investment. It has proven to be an expansion in vain.

The volume of milk it can pack in an hour is done in three days. Not much can be sourced from areas the company depends on for supply in Debre Birhan, Fiche, Sendafa, Melke Turi and Holeta.

Milk is sold directly to processors or cooperatives. Except in a few areas where dairy producers are organised into milk marketing cooperatives, it is predominantly supplied through informal channels where raw milk is sold on a contractual basis. Unavailability of support services such as cooling facilities, transportation and erratic electric supplies is believed to have favoured the informal market, where milk is sold to neighbours or processed into butter and cheese.

Industry players note supply shortages are not uncommon, as demand has always exceeded supply. However, the issue has become more pressing in the last month, pushing prices upward.

In the past few weeks, retail prices for half a litre of pasteurised milk in the capital have jumped by at least 20 Br to 45 Br. Half a litre of yoghurt shot up by 12 Br to around 45 Br.

The authorities have observed the supply issues plaguing the industry, despite the growth in processing capacity. They saw plants forced to shut down one after the other due to severe shortages in supply.

“We don't know how many companies are actively operating at the moment,” said Asmelash Berhe, director of milk resource development at the Ministry of Agriculture.

Dairy production has been a subsistence smallholder-based industry with relatively few small and medium commercial dairy farms. Yet, Ethiopia boasts one of the highest livestock populations in Africa, estimated to be around 58 million cattle. Around a fifth are dairy cows. The latest survey conducted by the Ethiopian Statistics Service reveals last year's production stood at 4.1 billion litres of milk. It is a fifth lower than neighbouring Kenya, with a significantly lower cattle population.

Milk production has been growing by an estimated four percent annually, though consumption has dropped. It is down to 19lt per person annually, down from an average of 22lt over the past 25 years.

Dairy products can be categorised into mixed crop-livestock, pastoral, specialised urban, and peri-urban production systems. The pastoral system depends on indigenous breeds, managed under extensive rangeland grazing. Farmers predominantly keep indigenous breeds that are resilient but offer lower volume than foreign breeds.

The low productivity of domestic cow breeds and the city's ever-growing population have been compounding factors. Hirut & Ruth Milk Processing Plc used to buy a litre of milk at 28 Br a month ago. It has since jumped to 33 Br.

“Few farmers in this area are engaged in animal husbandry,” said Shambel.