A Fresh Start for Pakistan’s Dairy Industry
An IFC financing package to FrieslandCampina will help the dairy sector in Pakistan reduce waste and raise productivity. © FrieslandCampina
“Untapped potential.” “At a crossroads.” “Bright prospects.”
Those are just some of the phrases used to describe Pakistan’s dairy industry—and each euphemism hints at a decades-long, sector-wide challenge. Although Pakistan is the fourth-largest milk-producing country in the world, supply hasn’t been able to keep up with demand, and so for many years the dairy sector has fallen short of its promise.
Poor infrastructure is one culprit: more than 80 percent of the dairy production is still accounted for by subsistence farmers with limited resources and difficulties accessing markets. An outdated supply chain also interferes with distribution, and therefore informal milk collectors capture a disproportionate share of the dairy value—mostly at the expense of farmers. The combined result is that productivity is low and losses are high.
IFC’s $145 million financing package to FrieslandCampina, one of the largest dairy producers in the world, will help Pakistan's crucial dairy industry course-correct. The financing will enable the company to acquire 51 percent of Engro Foods, Pakistan’s leading dairy processor. FrieslandCampina, a Dutch cooperative, will share its global experience and international best practices with the smallholder farmers who supply Engro Foods and most dairy processors in Pakistan, helping them boost productivity and cut down on waste.
More than 200,000 farmers and 270,000 distributors are expected to benefit from the company's acquisition of Engro Foods, which will also create more than 1,000 new jobs in the dairy supply chain.
Nourishing Pakistan’s Economy
In Pakistan, the market opportunity presented by the conversion of raw milk consumption into processed milk is estimated at $10 billion. But in a country with the potential to be a top producer and help establish regional food security, that number only begins to tell the story of how a more robust dairy sector could impact Pakistan’s citizens.
The rollout of global best practices in dairy farming is expected to increase yields, boost output quality, and, ultimately, raise incomes for milk farmers who are currently part of the company's supply chain—as well as for an estimated 50,000 additional farmers needed to support the company's projected growth.
FrieslandCampina’s integrated approach is expected to increase transparency and efficiency in the milk collection supply chain. In addition, the introduction of the company's specialized dairy infant nutrition products will help catalyze the growth of the quality-controlled packaged dairy market.
Part of a Broader Strategy
Pakistan is a key emerging market—and it is backed by one of the world’s largest and fastest-growing middle classes. This financing package demonstrates to foreign investors the potential of Pakistan's private sector, which is growing quickly.
IFC’s involvement with FrieslandCampina is part of our broader strategy in Pakistan to support local producers, drive inclusive growth, and create jobs. In the fiscal year 2016, IFC committed $117 million in long-term financing to Pakistan, including $52.5 million in mobilization. IFC’s current committed portfolio in the country totals $1.3 billion.
IFC's investment and advisory work is part of the World Bank Group’s Country Partnership Strategy that aims to support farmers and small business owners in sectors with the potential to create jobs and combat poverty. In this case, its goal is also to transform an industry that’s long been “at a crossroads” to one with a clearly marked path forward.
To read more about IFC’s work in agribusiness, visit www.ifc.org/agribusiness
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Published in February 2018.