* Drought in some areas eclipses that of 1984
* Donors struggle to keep pace with relief needs
* Government's rural projects help contain crisis
* Ethiopia's ambitions challenged, at least in short term
By Aaron Maasho and Edmund Blair
FEDETO/ADDIS ABABA, Ethiopia, Jan 31 (Reuters) - On a treeless plain in eastern Ethiopia, thousands of destitute pastoralists have set up camp outside the tiny village of Fedeto. Over the past six months the camp has swelled as one of the worst droughts in decades has decimated herds, dried up pasture and made even drinking water scarce.
"We wandered for three months, losing every single animal apart from two donkeys," said Saido Ahmed Keyat, a 29-year-old mother of five, whose family had boasted 200 sheep and goats, 15 cattle, eight camels and seven donkeys. "All my children are malnourished. They need milk, they need many things."
Ethiopia's failed rains, which meteorologists blame on the El Nino weather phenomenon, have created a drought in some areas of the country worse than the 1984 crisis. Back then, water shortages and conflict combined to cause a famine that killed an estimated one million people.
In the years since, Ethiopia has transformed under a government that promotes rapid economic development, although it is criticised for limiting many political freedoms. One of its signature schemes is a rural support programme designed to keep Ethiopians from starvation.
The new drought is putting that model to the test.
More than 10 million people are now critically short of food, according to figures compiled by the government with its humanitarian partners. That is putting a strain on the government as well as the budgets of international aid groups and donors.
"The scale of the need is really huge and has outstripped the Ethiopian government's ability to do this on their own," Carolyn Wilson, chief executive of charity Save the Children told Reuters after touring some of the afflicted regions in the country's north and east.
In all, an estimated $1.4 billion is needed for food and other resources in 2016, according to the government and aid partners. The government said about 30 percent of that had been raised from donors so far. The WFP said last week about $500 million was needed by the end of February to extend the aid effort beyond April.
In a world facing the demands of the migrant crisis and conflicts in Syria, Iraq and Yemen, that won't be easy.
"It's not that donors have not responded," said WFP Country Director John Aylieff. "But they have not managed to keep pace."
Today's needs would be far greater were it not for the massive changes in Ethiopia over the past three decades.
In 1984, the then-communist government known as the Derg tried to hide the famine, while conflict and social engineering projects like farm collectivisation exacerbated the scale of hunger.
Rebels toppled the Derg in 1991 and the government that followed has delivered stellar economic growth rates, hitting double digits in some years, visible from endless construction in the capital and new highways crossing the nation.
In 2005, Ethiopia started the Productive Safety Net Programme, which was helping 7.9 million people facing chronic food insecurity even before the latest drought. Those people receive food or cash transfers in return for community work.
To deal with the drought, the government allocated $272 million extra spending in 2015 and a further $109 million this year, Mikitu Kassa, head of the National Disaster Risk Management Commission, told Reuters. To put that extra spending in perspective, it is roughly equivalent to Ethiopia's entire state budget two decades ago, he said.
The government says no one has so far died from starvation. Some of those in the worst affected area contradict this. One woman in Fedeto said 20 had died in the past two months, though it was not possible to verify this.
Mikitu said the government would spend what it takes if aid did not flow, although he said it could mean cutbacks on other projects. But he said the government's "mega projects" - new national railways, roads and dams - would go ahead.
Those projects are part of plans to industrialise Ethiopia. Eighty percent of the nation still relies on agriculture, mostly rain-fed pastures or subsistence smallholdings. The better transport links have already proved vital, allowing easier access for relief workers.
"The nature of the government that we had in 1984 is quite different from the current government," Mikitu said in Addis Ababa, where Sub-Saharan Africa's first metro system opened last year and now snakes its way above traffic-clogged streets.
The architect of modern Ethiopia, rebel leader-turned-prime minister Meles Zenawi, told a 1991 news conference in Addis Ababa that his gauge of success would be "if Ethiopians were able to eat three meals a day."
Ethiopia has not yet achieved that goal. Critics of the government - Meles died in 2012 but many of his policies continue under successor Hailemariam Desalegn - say it is authoritarian and stifles opponents. No opposition party won a seat in last year's parliamentary election.
The U.S. State Department said then that it remained "deeply concerned by continued restrictions on civil society, media, opposition parties, and independent voices and views." Ethiopian officials deny restricting freedoms.
But in their determination not to let fresh images of hunger overshadow the government's development credentials, some ministers sent conflicting signals early in the crisis about how bad it was and how much help was needed, aid workers say.
"We have to walk on egg shells in terms of what we can say," said one international aid worker, who has followed Ethiopia's progress since the 1980s.
Disaster management chief Mikitu blamed any confusion on the speed at which numbers of those facing critical food shortages grew. In January 2015 it was 2.9 million but swiftly rose - often in increments of several million - to 10.2 million by December.
But even the government's ability to gather such figures is testament to the way Ethiopia has changed.
Fedeto, in a remote area of the hard-hit Sitti region, has benefited from that change. A tiny clinic, one of thousands built around the country over the past two decades, doles out rations and treats the malnourished. The village also has a water tower and a school.
That helps, though only up to a point. The administrator of the village of 600 people said he was struggling to meet the needs of 7,500 exhausted arrivals who are now camped nearby. "There is a lot of pressure on us," Dahir Omar Hosh said. "People are still coming." (Aaron Maasho reported from Fedeto, Edmund Blair reported from Addis Ababa; Writing by Edmund Blair; Editing by Simon Robinson and Janet McBride)