The benefits of business with a large food company

Published: May 14, 2012
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SUPPLIERS: 15,000 is the number of small farmers from whom Engro
buys milk daily.

SUPPLIERS: 15,000 is the number of small farmers from whom Engro buys milk daily.

KARACHI: Have you ever wondered where the milk in packaged dairy products comes from? In case you assumed that big food companies maintained their own dairy farms that generated thousands of litres of milk daily and remained insulated from fluctuations in open market rates, you are wide of the mark.

In fact, only 5% of about 1.2 million litres of milk that Engro Foods collects every day for its dairy segment during the flush season – from January to April each year when fodder is available in abundance and milk production is high – comes from its own corporate farm located in Sukkur.

The rest of the milk supplies during the flush season and the summer, when milk production drops by roughly 50%, comes from about 15,000 small farmers scattered between Sanghar and Jhang districts, an area of 135,000 square kilometres.

Streamlined under Engro Milk Automation Network (EMAN), Engro Foods maintains a sales force of 1,500 people across 1,200 villages in Sindh and Punjab. They collect milk, mostly in small quantities, from farmers between 6:00am and 9:30am every day, which is then transported for further processing.

But why would a villager with just a few cattle sell the excess quantity of milk to Engro Foods instead of the traditional milk contractors known as dodhis?

According to Aamir Khawas, who works as head of milk procurement and agri services at Engro Foods, doing business with a large food company offers small farmers a number of benefits. “Animals are susceptible to diseases. Our network of veterinarians ensures sick animals receive immediate treatment. That’s a benefit no traditional milk contractor can offer,” he said.

Moreover, the moment a farmer sells milk to an Engro representative, in whatever small quantity, the transaction is recorded electronically in a centralised database by swiping the EMAN card that each of the 15,000 suppliers carries.

The availability of real-time data ensures that money is transferred to the farmer the day the transaction takes place. This is in contrast to the past practice of issuing receipts on paper that took at least a week before a transaction was recorded and payment processed.

In addition, Engro’s advisory service helps farmers increase milk production. “There’re two ways for a farmer to increase his revenue. If he gets Rs41 instead of Rs40 per litre, his revenue increases by Re1. But if the milk output increases by one litre, his revenue increases by Rs40. We help him do the latter,” Khawas said.

So how does Engro ensure that the milk is pure? “It’s very easy. We pay farmers not on the litres of milk they bring to us. Rather, the basis of payment is total solid contents of the milk,” he said, explaining that milk consists of three things – water, fat and solid non-fat (SNF). Total solid contents are the sum of fat and SNF.

“It’s hard to adulterate when the quantity is low. So no matter how much water you add, the solid contents can easily be determined by running a few tests,” he said.

A total of 13 tests are carried out when a farmer hands over milk to an Engro representative. It is picked up from there by an Engro van that carries out another 20 tests on the collected milk. It then reaches the regional office where 30 more tests are done to check its quality. Eventually, milk is taken to the Engro plant where the final 40 tests take place before it is processed, packaged and dispatched to the retail market.

With the demand of milk increasing by 15% annually and supply rising by just 2% a year in Pakistan, the dairy sector looks like a heaven for investment. The Sukkur farm of Engro Foods has already grown 10 times since its inception with about 3,000 cows. “Yet we’re looking for a major expansion in the near future.”

Published in The Express Tribune, May 14th, 2012.

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Reader Comments (10)

  • Irtiza
    May 14, 2012 - 9:00AM

    Very informative article.

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  • Jojo
    May 14, 2012 - 9:52AM

    Nestle has even a more impressive track record in dairy

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  • Ali
    May 14, 2012 - 11:44AM

    The reporter missed the important factor of when the farmers get paid. I know that Nestle delays the payment by sometimes as long as a few months. One of the advantages of milk production is a quick payment cycle. The big players slow that down.

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  • Hussain
    May 14, 2012 - 12:13PM

    and what was this …. free publicity

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  • Zamir Malik
    May 14, 2012 - 2:12PM

    Well if they think that farmers of Pakistan dont know how to Con these companies then they are utterly false. I belong from Punjab and i know every tit bit of Milk Farming. You know the most common method now a days is to mix 70 percent milk with 30 percent water and then add 1 percent of Qalaf made by rice and in the end milk will be thicker more than ordinary milk and in fact adding Qalf is so much common in making Curd or Yogurt commercially that you cannot even imagine. Until recently now Gawalas are adding Choona and Paint in the milk to increase its density. Also in addition to that another way is to add some soluble fat with powdered milk and add as less as 30 percent milk and milk companies could be pawned as well.

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  • ismail
    May 14, 2012 - 2:57PM

    It is a good article especially for the people those are ready to invest in the dairy sector. The analysis given in this article about demand and supply of milk shows a big difference, so the GOVT should take special initiatives to bring it to balance.

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  • Interconnect Partners
    May 14, 2012 - 6:51PM

    As we all know this year is of animal health. Livestock health is rapidly deteriorating, as they’re sold to the butcher for meat, and not recycled for another milk cycle. Marketing sales of all processed milk industry dominated by PR, Advertising, marketing which absorbs 70% of the selling price of standard milk. Product labeled does not say which mammal milk is it. Whether camel, cow, sheep, or donkey. Just milk. Whatever is white is milk. Tarang a popular brand tea whitener is brisk selling product, with zero calorie, chemical, and nutritional value. In a country where infant, mothers, old, sick cannot afford milk, they are driven by sales of Tarang considering it as milk. There is much, much, more demand of milk to say as no body can afford to buy milk one glass a day. We need extensive research for low cost livestock feed to give us quality milk and meat. Livestock should have enough clean water to drink, to give production. They don’t have access to clean drinking water. World organisations are watching us as a market for sale. We have enough animals to be at the stage where New Zealand and Australia are. We should avoid showing off, PR, media, and advertising. Pass the low cost to the consumer. Why we are not promoting pasturised milk in PET bottles. Why are we promoting UHT imported Tetra Pak which takes chunk of the milk cost in the packaging.

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  • May 14, 2012 - 9:09PM

    FAO data shows that Pakistanis’ per capita consumption of milk and dairy products is about 2.5 times higher than in India. Engro’s competitor Nestle’s CEO recently said that per capita consumption of Nestle products in Pakistan is twice as much in China and India and growing faster. All of this represents an opportunity for small rural entrepreneurs to become part of the supply chain and ride the wave of rising FMCG consumption and reduce poverty in Pakistan.

    http://www.riazhaq.com/2011/10/fmcg-companies-profit-from-rural.html

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  • May 14, 2012 - 10:30PM

    A piece of joke. 100 tests on milk yet the milk tastes like fertiliser.

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  • Interconnect Partners
    May 16, 2012 - 1:15PM

    Mr. Hussain’s comments are valued reference to opportunity thru these columns for free publicity.

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