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Ethiopia has a large and diverse population of small ruminants, which contribute substantially to the livelihood and income of the rural poor and the country at large. However, the sector faces a number of challenges. Productivity per animal and flock offtake are both very low. Reasons attributed for the apparent low productivity are as follows: absence of appropriate breeding programmes, lack of technical capacity, inadequate and poor‐quality feeds, diseases leading to high lamb mortality, and underdeveloped markets in terms of infrastructure and information. Historically, sheep and goats have received little policy or investment attention. Genetic improvement of small ruminants could contribute to bridging the productivity gap. In the past, the government of Ethiopia has placed much emphasis on importing exotic genetics and cross‐breeding with local stock as a strategy for genetic improvement. However, this has not led to a significant productivity improvement and the programmes have generally been unsustainable. Currently, there is a change in approach and a recognition of the need to focus genetic improvement efforts on the local genetic resources that are well adapted to the diverse agro‐ecologies and production environments in the country. Community‐based breeding programmes (CBBPs), which focus on indigenous stock and consider farmers' needs, views, decisions and active participation, from inception through to implementation, have been identified as programmes of choice. The Ethiopian government and the private sector need to invest in strategic areas around CBBPs to make the programme work for the poor and be sustainable in low‐input systems. [ABSTRACT FROM AUTHOR]