Dairy hubs
Dairy hubs
Business Model Description
Establish and operate dairy hub facilities to aggregate and process milk, where either (i) a dairy processing company builds a dairy hub in collaboration with milk farmers, or (ii) farmers or cooperatives invest, own and operate a dairy hub.
Expected Impact
Lower waste, reduced costs and higher qualities of milk and dairy products benefit the industry and support farmers and other value chain actors.
How is this information gathered?
Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.
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Country & Regions
- Armenia: Gegharkunik
- Armenia: Shirak
- Armenia: Aragatsotn
- Armenia: Lori
Sector Classification
Food and Beverage
In 2018, agriculture was 13.7% of GDP, 28% of export and 32.2% of labor (9). Key challenges in the sector include inefficient water use and pollution (water stress of 57.43% (4)), inefficient soil use and soil damage (32% agri-land utilized) (7, 8, 13), high food waste and loss (15% in cereals; 19% in roots and tubers; 20% in fish, and 23% in eggs subsector (8)) as well as low farmer incomes.
The Government Plan 2019-2023 promotes the efficient use of agricultural resources and improved access of irrigation water for all. Pillars of the Plan are to enhance the productivity and food security, expand exports, promote effective farming technologies (intensive orchards, drip irrigation, anti-hail systems, modern storage and machinery), and increase income from agricultural activities (1).
In 2018, 48% of labor in agriculture were women. They are more engaged in informal (and less secure) low skill field work, e.g. harvesting, sorting, and packaging. Women have low access to land, technologies, knowledge and finance, and are less likely to run their own farm. They are paid 35% less than men for their work (10). The Ministry of Agriculture was dominated by men, i.e. 62% men and 38% women (14).
Government support tools in agriculture include low interest rate leasing or lending programmes for farmers to invest in agri-machinery and equipment, technologies (intensive orchards, drip irrigation) and hail protection systems and greenhouses. The Government also leads a programme on promoting agricultural insurance systems (1, 3).
Key bottlenecks in agri-food include prevalence of fragmented smallholders (330,000, with less than 1.5ha each) and low cooperation, low productivity due to low investment in and inefficient farming and marketing technologies and practices, underdeveloped market infrastructure (e.g. low storage capacity), and low use of sustainable practices (21, 23, 25, 26).
Food and Agriculture
Dairy farming is important in mountainous areas with cheese export constituting 1% of total export (25, 26). Key issues in the subsector are a shortage of milk supply (0.5M l/year), insufficient milk collection capacity, low feed supply, unsustainable grazing and pasture management. This leads to low productivity of 1.5t / year / cow (26, 27) and low milk quality and price.
The Agriculture Development Strategy 2020-2030 aims at enhancing productivity and market operation in agriculture, development of agriculture data and forecasting systems. One of the key priorities is the promotion of modern facilities and technologies, including farming and post-harvest technologies (e.g. cold storage), modern greenhouses and irrigation, and disaster protection systems (14).
The Government provides subsidies (interest rate subsidy) for financing investment in modern dairy farms, milk collection points, and high quality animals. Investment in pastures is also promoted (3).
Meat, Poultry and Dairy
Pipeline Opportunity
Dairy hubs
Establish and operate dairy hub facilities to aggregate and process milk, where either (i) a dairy processing company builds a dairy hub in collaboration with milk farmers, or (ii) farmers or cooperatives invest, own and operate a dairy hub.
Business Case
Market Size and Environment
20% - 25%
Current milk processing volume of 450,000 tons with three times higher potential.
Armenia currently has a milk processing volume of 450,000 tons per year, but the potential is at least three times more. Additionally, informal milk and cheese production is significant as 40% of milk is processed informally in Armenia. The dairy processing industry employs around 1,900 Armenians (26).
Armenia's cheese export has been increasing at about 25% compound annual growth rate (CAGR) during 2012-2018 (26).
A significant market for cheese export to the Eurasian Economic Union (EAEU) market, primarily Russia with over 266,000 tons of imported cheese and curd in 2018 (26).
Indicative Return
20% - 25%
For a medium-size dairy hub, which processes up to 10,000 tons of milk per year, achieved an IRR of 25% (21, 22, 26).
Investment Timeframe
Short Term (0–5 years)
A medium-size dairy hub, which processes up to 10,000 tons of milk per year, has a pay-back period of 3-4 years (21, 22, 26).
According to stakeholder information, commercializing a dairy hub facility typically takes 6-12 months, while commercialising silage production and pasture typically break even after 6 and 12-18 months, respectively (1).
Ticket Size
< USD 500,000
Market Risks & Scale Obstacles
Capital - Limited Investor Interest
Business - Supply Chain Constraints
Business - Supply Chain Constraints
Impact Case
Sustainable Development Need
Lack of milk collection and storage capacity leads to inefficient market, low productivity, and low price and quality of milk. Armenia's productivity in dairy, with 1.5-2 t/cow/year, lags behind the productivity of many peer countries (26).
Low productivity leads to higher levels of greenhouse gas emission by the dairy industry. Agriculture accounts for 19.6% of Armenia's GHG emissions, of which the lion's share is from animal husbandry (12, 13).
Gender & Marginalisation
Women have less job opportunities and lower wages compared to men in agriculture.
Expected Development Outcome
Reduced food loss and waste, as proper milk collection reduces agricultural product spoilage.
Reduced transport and storage costs and improved marketing enhances the productivity of milk and dairy. This in turn enhances the performance of milk/cheese processing industry and the agri-food supply chain, and increases income of farmers and other value chain actors.
Higher quality of milk and processed dairy products enhances competitiveness and income. This contributes to the promotion of sustainable farming, feed production and grazing practices.
Gender & Marginalisation
More and better job opportunities for women in dairy hubs.
Primary SDGs addressed
2.3.1 Volume of production per labour unit by classes of farming/pastoral/forestry enterprise size
2.3.2 Average income of small-scale food producers, by sex and indigenous status
Secondary SDGs addressed
Directly impacted stakeholders
People
Planet
Corporates
Public sector
Indirectly impacted stakeholders
Corporates
Outcome Risks
Milk collecting and storage units require the use of ozone depleting substances, such as ammonia, chlorofluorocarbon (CFC) and hydrochlorofluorocarbon (HCFC).
Impact Risks
Smallholder farmers may have difficulties in following good farming and grazing practices, and, thus, increase GHG and pasture degradation, and in turn diminish the positive effect of dairy hubs.
Impact Classification
What
The enhanced dairy hub infrastructure will improve the well-being of farmers, and address market imperfections in dairy supply chain via low waste, costs and high quality.
Risk
The model is proven and technology for dairy hubs is readily available and affordable, pending the adoption of farmers and milk processers.
Impact Thesis
Lower waste, reduced costs and higher qualities of milk and dairy products benefit the industry and support farmers and other value chain actors.
Enabling Environment
Policy Environment
The Government Plan 2019-2023 promotes the efficient use of and access to agricultural resources to improve food security and increase income from agriculture (1).
The Agriculture Development Strategy 2020-2030 prioritizes the enhancement of productivity and agri-market operations. It does not address dairy hubs directly but priorities include the promotion of investments in modern technologies, including for cattle breeding (14).
Financial Environment
Financial incentives: The Government offers a programme for subsidizing the lending and leasing of agri-foods equipment with an interest rate of 4% (6).
Fiscal incentives: Armenia extends VAT payments deferral of up to three years for imported agricultural equipment and goods within the scope of investment projects approved by the Government, including for the dairy industry (22).
Regulatory Environment
The Government Decision No 336-A of 22 March 2007 on the Promotion of Cattle Breeding sets measures for importing high quality cattle breeds and supporting private farmers for the required investments (28).
Safety requirements in relation to milk and dairy products are defined in the technical regulation approved by the Government Decision No 1925-N of 21 December 2006 (29).
Marketplace Participants
Private Sector
Dairy producers such as Borisovka, Marianna, Dustr Melanya, Biokat, Bonilat that apply elements of such a collaboration with farmer; supermarket chains such as Yerevan City, SAS, Carrefour and Nor Zovq.
Government
Ministry of Economy, Ministry of Environment, State Food Safety Agency.
Multilaterals
World Bank, European Bank for Reconstruction and Development (EBRD), United Nations Development Programme (UNDP), USAID, European Union (EU).
Non-Profit
Cheese producer associations where the 10 largest producers account for approximately 90% of total formal dairy production; pasture users associations.
Public-Private Partnership
Community-Business Cooperation for Pasture Use and Management.
Target Locations
Armenia: Gegharkunik
Armenia: Shirak
Armenia: Aragatsotn
Armenia: Lori
References
- (1) Government action program 2019-2023, https://www.gov.am/am/Five-Year-Action-Program.
- (2) National strategy and action program to combat desertification in the Republic of Armenia, Ministry of Nature Protection of Armenia, http://www.mnp.am/uploads/1/1551885091anapat_eng-1.pdf.
- (3) Ministry of Agriculture, www.minagro.am/պետական-օժանդակության-ծրագրեր.
- (4) FAO AQUASTAT, ges/pg_4062968307_22.pdf.
- (5) 5. Agro-investment Guide Armenia, https://www.eda.admin.ch/dam/countries/countries-content/armenia/en/Investment%20Guide.pdf.
- (6) How can farming intensification affect the environmental impact of milk production, L. Bava , A. Sandrucci, 2014, Journal of Dairy Science, https://www.journalofdairyscience.org/article/S0022-0302(14)00316-6/fulltext.
- (7) State Cadaster Committee, Armenia, https://www.cadastre.am.
- (8) FAO, Food Waste and Loss in Armenia, http://www.fao.org/3/a-au842e.pdf.
- (9) World Bank, Development Indicators, https://data.worldbank.org/indicator/NV.AGR.TOTL.ZS?locations=AM&view=chart.
- (10) Statistical Committee of Armenia, Labor Market in Armenia, 2019.
- (11) Statistical Committee of Armenia, Food Security and Poverty in Armenia, 2019, https://www.armstat.am/am/?nid=82&id=2125.
- (12) Intended Nationally Determined Contributions of the Republic of Armenia under the UN Framework Convention on Climate Change (UNFCCC), https://www4.unfccc.int/sites/ndcstaging/PublishedDocuments/Armenia%20First/INDC-Armenia.pdf.
- (13) Statistical Committee of Armenia, 2018, https://www.armstat.am/file/article/eco_booklet_2018.pdf.
- (14) The Strategy of Main Directions of the Development of Agriculture of Armenia 2020-2030, https://mineconomy.am/en/page/1467.
- (15) Tax Code, https://www.arlis.am.
- (21) UNDP interviews with stakeholders, 2019.
- (22) Investment Guide Armenia, Ministry of Economic Development and Investment, 2017, http://uk.mfa.am/u_files/file/invest/investinarm.pdf."
- (23) Voluntary National Report (VNR) of Armenia, for the UN High-level Political Forum on Sustainable Development, 2018.
- (24) Sustainable Development Report, 2019, https://www.sdgindex.org/reports/sustainable-development-report-2019.
- (25) Tackling the Challenge of Smallness in Agricultural Market, 2016, G. Gabrielyan et al, Center of Agribusiness and Rural Development (CARD), Armenia.
- (26) Cheese Production and Export Supply Chain: Armenia, Gagik Gabrielyan, International Finance Corporation, 2017, https://openknowledge.worldbank.org/handle/10986/29328.
- (27) Statistical Committee of Armenia. Annual Reports on Foreign Trade.
- (28) Government Decision No 336-A of 22 March 2007 on the Promotion of Cattle Breeding. https://www.arlis.am.
- (29) Government Decision No 1925-N of 21 December 2006. https://www.arlis.am.