Dairy processing
Dairy processing
Business Model Description
Establish and operate dairy processing plants to produce UHT (ultra-high-temperature) milk and milk powder.
Expected Impact
Add value to the dairy industry, enable improved child nutrition and reduce food loss.
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
- Rwanda: Eastern Province
- Rwanda: Southern Province
Sector Classification
Food and Beverage
Development need
According to latest data, half of Rwanda's working age population (49.3%) is employed in the agriculture sector.(1) Additionally the sector provides 91% of the food supply, 70% of export revenues and contributes to 32.7% of the country's gross domestic product (GDP).(2)
Policy priority
Rwanda's Strategic Plan for Agriculture Transformation 4 (PSTA 4) 2018-2024 identifies agriculture to be the backbone for sustained economic growth and a major factor in transforming Rwanda from a low income to a knowledge‐based, middle income economy.(3)
Gender inequalities and marginalization issues
Two-thirds (67.7%) of all professionally active females and less than half (43.2%) of men work in agriculture in Rwanda. 61% of men and women working in agricultural sector are engaged in subsistence agriculture. Only 39% of this group is engaged in market-oriented agriculture; fewer women (34.5%) than men (45.1%) are involved in market-oriented agriculture.(1)
Investment opportunities introduction
According to sectoral studies, cold storage can provide a return on investment in a short period. The studies suggest the probabilities of making profits are high in first four years (50%, 75%, 90%, 97% each year respectively).(4)
Key bottlenecks introduction
Rwanda’s agricultural land expansion is limited by severe constraints, and the growing population adds pressure on agricultural incomes and increases the risk of accelerating land fragmentation and soil degradation. It is crucial to accelerate industrialization and commercialization of agriculture, as well as improve land use.(5)
Food and Agriculture
Policy priority
Agricultural products processing remains one of the key priorities for the Rwandan government, including the meat, poultry and dairy industry. The government has set a target to increase dairy consumption from the current 40 liters per capita to 80 liters per capita, while putting an emphasis on processed dairy products.(9)
Meat, Poultry and Dairy
Pipeline Opportunity
Dairy processing
Establish and operate dairy processing plants to produce UHT (ultra-high-temperature) milk and milk powder.
Business Case
Market Size and Environment
< USD 50 million
In 2019, Rwanda imported dairy products worth USD 11 million.(12) The total demand for dairy products equals to USD 15.4 million.(13) This creates a supply demand gap, which could be bridged by domestic production.
Rwanda's fresh milk production amounts to approximately 160 million liters annually.An estimated 35% of the raw milk produced in Rwanda spoils before reaching the market e.g. by turning rancid while exposed to sunlight or shaken on corrugated roads.(14)
In 2018-19, almost 69 million liters of milk were supplied to dairy processing plants.(15) In 2016, only 20% of all milk produced reached formal processing facilities (16), compared with the international standard of 50%.(9)
Indicative Return
> 25%
15% - 20%
Based on a similar investment in a greenfield UHT (ultra-high-temperature) milk processing plant in another emerging African market, the internal rate of return is estimated to be 25% - 35%.(11)
The benchmark return on equity, based on cost of equity data for the subsector including country risk premium, is 14.8% -18.8%.(17)
Investment Timeframe
Medium Term (5–10 years)
Depending on the investment scale, construction is estimated to take 1 - 3 years, based on a similar investment model of a factory producing 52,000 kg of powder milk per month.(18)
According to sectoral statistics, the earliest payback time is 5 years from the project deployment.(17), (11)
Ticket Size
USD 1 million - USD 10 million
Market Risks & Scale Obstacles
Business - Supply Chain Constraints
Business - Supply Chain Constraints
Business - Supply Chain Constraints
Impact Case
Sustainable Development Need
Currently, 35.6% of Rwanda's population is undernourished.(6) This arises from insufficient protein intake in the diet.(7) Including or increasing milk consumption among children can decrease these numbers. Milk can provide up to 25% - 33% of the protein needed every day and positively contribute to weight gain and growth of malnourished children.(8)
It is estimated that undernutrition among children caused a loss of approximately USD 500 million in 2012, which reflected 11.5% of the country’s gross domestic product (GDP).(19)
Production in the dairy subsector has increased by almost 400% over the past decade and the domestic demand for dairy has outgrown the local production.(10)
Gender & Marginalisation
Two-thirds (67.7%) of all professionally active females and less than half (43.2%) of men work in agriculture in Rwanda.(1) 61% of men and women working in agricultural sector are engaged in subsistence agriculture. Only 39% of this group is engaged in market-oriented agriculture, where fewer women (34.5%) than men (45.1) are involved in market-oriented agriculture.(1)
Expected Development Outcome
Reduced food waste, malnutrition and food insecurity
Improved productivity
Increased foreign cash inflow due to increased exports and increased income for milk producers
Gender & Marginalisation
Investments in value added agricultural productivity can help improve livelihoods for female farmers by increasing their revenues.
Primary SDGs addressed
2.2.1 Prevalence of stunting (height for age <-2 standard deviation from the median of the World Health Organization (WHO) Child Growth Standards) among children under 5 years of age
2.4.1 Proportion of agricultural area under productive and sustainable agriculture
40.38% (29)
N/A
0 (29)
N/A
9.2.1 Manufacturing value added as a proportion of GDP and per capita
6% (29)
N/A
12.2.1 Material footprint, material footprint per capita, and material footprint per GDP
N/A
N/A
Secondary SDGs addressed
Directly impacted stakeholders
People
Gender inequality and/or marginalization
Corporates
Public sector
Outcome Risks
Dairy farming requires larger amounts of water than other agricultural activities to maintain the quality and quantity of pasture.
Risk of surface and/or groundwater water contamination with direct or indirect effluent discharge or by the stock entering the water way
Higher greenhouse gas emissions (methane from enteric fermentation and manure management, nitrous oxide from lagoons applied to soil, urine deposited on the soil and fertilizer emissions etc.)
Damage to human health (e.g. pathogen-related illnesses) (20)
Impact Risks
Unexpected impact risk on biodiversity given increased water use and greenhouse gas emissions
Execution risk in case facilities are not constructed as planned
Impact Classification
What
Dairy processing is likely to have a positive impact because it reduces the milk food loss and increases value adding in the dairy value chain.
Risk
The model is proven, but there can be constraints resulting from poor quality of raw milk supplied.
Impact Thesis
Add value to the dairy industry, enable improved child nutrition and reduce food loss.
Enabling Environment
Policy Environment
Strategic Plan for Agriculture Transformation 2018-24: This plan recognizes dairy products as one of the priority goods for value adding through pre-processing and processing. The plan addresses key sub-sectoral bottlenecks such as feed and storage availability.(10)
Industrial Master Plan for the Agro-processing Subsector (2014 - 2020): This plan aims to upgrade the milk value chain by promoting domestic and foreign direct investments in the dairy subsector. It also describes the Ministry of Trade and Industry's (MINICOM's) approach and projects necessary for dairy subsector development.(14)
National Dairy Strategy 2013: This strategy identifies key sector challenges and provides strategies for implementing solutions within a public-private partnership (PPP) environment. It determines the scope of government support to sector actors.(21)
National Dairy Strategy 2013: This strategy outlines competencies of agencies and institutions responsible for industry development. It provides a sectoral analysis and outlines key financial and regulatory information for investors.(21)
Financial Environment
Financial incentives: The government provides an investment allowance of 40% of the investment amount in new/used assets if the amount invested is at least USD 44,000, and business assets are held for at least 3 tax periods. The government also offers grants and special access to capital for investors who promote rural areas.
Fiscal incentives: Incentives include duty free importation of all inputs; tax exemption on agricultural equipment; and a 50% reduction in corporate income tax, provided the investor is registered and exports 50% of the turnover of production. There is also a 7-year tax holiday for export-oriented registered investments.(26)
Other incentives: Investors demonstrating capacity to add value and invest in priority sectors, such as agriculture, are offered greater incentives.(27)
Regulatory Environment
Ministerial Order N° 001/11.30 OF 10/02/2016 Regulating the Collection, Transportation and Selling of Milk: This order defines processes and products along the dairy value chain and regulates all value chain processes.(22)
Official Gazette n° Special of 17/01/2013, 2013: This order prohibits manufacturing, preparing, storing, packaging or keeping food products for sale without compliance with hygiene requirements.(23)
Guidelines for application for registration of processed food: These guidelines outline requirements for labelling and application, and the registration process.(24)
Guidelines for good food manufacturing practices: These guidelines outline requirements for locating and designing manufacturing premises and equipment, and regulate manufacturing and packaging processes. They also focus on quality and staff management.(25)
Law on Investment Promotion and Facilitation: This Act outlines government services and incentives provided to investors, including but not limited to access to logistics resources (e.g. trucks, packhouses), support to acquire land and capital, and access to a dedicated support team.
Marketplace Participants
Private Sector
Inyange Industries, Nyanza Milk Industries Ltd, Haji Dairy Products Private Ltd, Blessed Dairies Ltd, Ingabo Dairy Ltd
Government
Ministry of Agriculture and Animal Resources, Rwanda Development Board
Multilaterals
World Bank, European Investment Bank, African Development Bank, United Nations Development Programme, Food and Agriculture Organization of the United Nations, World Food Programme
Non-Profit
IRKIB Cooperative Society, Acumen, VestedWorld
Target Locations
Rwanda: Eastern Province
Rwanda: Southern Province
References
- (1) National Institute of Statistics of Rwanda (2020). Labour Force Survey Trends August 2020 (Q3). http://www.statistics.gov.rw/publication/labour-force-survey-trends-august-2020q3
- (2) International Fund for Agricultural Development (2019). Country Strategic Opportunities Programme 2019 – 2024 for the Republic of Rwanda. https://www.gtai.de/resource/blob/45938/fe1c62c39e821a638471d69ef0ee5261/pro201904175029-data.pdf
- (3) Ministry of Agriculture and Animal Resources (2018). Strategic Plan For Agriculture Transformation 2018-2024. Republic of Rwanda. http://extwprlegs1.fao.org/docs/pdf/rwa180543.pdf
- (4) Yilmaz, D.and Yilmaz, I.C. (2020). 'Comparative Cost Assessment of Cold Storage Plants and Natural Storage Structures for Potatoes', Potato Resources. https://doi.org/10.1007/s11540-020-09454-0
- (5) Ministry of Agriculture and Animal Resources (2018). Strategic Plan For Agriculture Transformation 2018-2024. Republic of Rwanda. http://extwprlegs1.fao.org/docs/pdf/rwa180543.pdf
- (6) World Bank. Rwanda Food Smart Country Diagnostic. http://documents1.worldbank.org/curated/en/288911601302842762/pdf/Rwanda-Food-Smart-Country-Diagnostic.pdf
- (7) Morley, J.E. Undernutrition. https://www.msdmanuals.com/home/disorders-of-nutrition/undernutrition/undernutrition
- (8) Michaelsen, K.F. (2013). 'Cow’s Milk in the Prevention and Treatment of Stunting and Wasting', Food and Nutrition Policy 34(2), 249–51. https://doi.org/10.1177/156482651303400219
- (9) Programme Management Unit (FTF-ITT) of National Institute of Agricultural Extension Management. Demand Analysis Report- Republic of Rwanda. https://www.manage.gov.in/ftf-itt/demand/Rwanda.pdf
- (10) Ministry of Agriculture and Animal Resources (2018). Strategic Plan For Agriculture Transformation 2018-2024. Republic of Rwanda. http://extwprlegs1.fao.org/docs/pdf/rwa180543.pdf
- (11) World Economic Forum Grow Africa (2016). Promising Investment Opportunities In Ethiopian Agribusiness. https://www.growafrica.com/sites/default/files/Ethiopia%20Country%20Session.pdf
- (12) UN Comtrade database. https://comtrade.un.org/data/
- (13) Global Research and Data Services (2020). Dairy Product Market in Rwanda to 2024.
- (14) Ministry of Trade and Industry. Industrial Master Plan for the Agro-Processing Subsector (2014 - 2020). https://rwandatrade.rw/media/2014-20%20MINICOM%20Agro-Processing%20Industrial%20Masterplan.pdf
- (15) Ministry of Agriculture and Animal Resources (2019). Annual Report 2018-2019. https://www.minagri.gov.rw/fileadmin/user_upload/documents/AnnualReports/Minagri_Annual_Report_2018-19.pdf
- (16) TrAIDe (2019). Investment Opportunities in the Rwandan Dairy Sector. https://www.agroberichtenbuitenland.nl/binaries/agroberichtenbuitenland/documenten/rapporten/2020/05/20/business-opportunity-report-dairy-rwanda/BORDairy_Rwanda2019_ver4.pdf
- (17) PwC analysis based on Prof. A. Damodaran data, 2020.
- (18) Uganda Investment Authority (2016). Compendium of investment and business opportunities. https://www.ugandainvest.go.ug/wp-content/uploads/2016/02/Compendium-of-Investment-and-Business-Opportunities-Vol-2.pdf
- (19) World Food Programme (2019). Fill the Nutrient Gap. https://docs.wfp.org/api/documents/WFP-0000115861/download/
- (20) Tait, P. and Cullen, R. (2006). External Costs Of Dairy Farming In Canterbury. Sydney: Commerce Division, Lincoln University. https://agris.fao.org/agris-search/search.do?recordID=US2016212407
- (21) Ministry of Agriculture and Animal Resources. National Dairy Strategy. https://www.minagri.gov.rw/fileadmin/user_upload/documents/STRAT.PLC/2013_National_Dairy_Stratey.pdf
- (22) Republic of Rwanda. Official Gazette nᵒ 07 of 15/02/2016. https://www.minagri.gov.rw/fileadmin/user_upload/documents/Law_and_Regulations/OFFICIAL_GAZETTE_ON_MILK__1_.pdf
- (23) Republic of Rwanda. Official Gazette n° Special of 17/01/2013. http://extwprlegs1.fao.org/docs/pdf/RWA131821.pdf
- (24) Republic of Rwanda. Guidelines for application for registration of processed food. http://www.rwandafda.gov.rw/web/fileadmin/guideline_for_application_and_registration_of_processed_food.pdf
- (25) Republic of Rwanda. Guidelines for good food manufacturing practices. http://www.rwandafda.gov.rw/web/fileadmin/guideline_for_good_manufacturing_practices_of_food.pdf
- (26) Rwanda Investment Authority. Investment Opportunities. https://www.visitrwanda.com/investment-opportunities/agriculture/
- (27) Africa Legal Network (2015). Investment Guide - Rwanda. https://www.africalegalnetwork.com/wp-content/uploads/2015/12/Rwanda-Investment-Guide-2015.pdf
- (28) Mazimpaka, E. Characterization of Cattle Production Systems in Nyagatare District of Eastern Province, Rwanda. https://www.omicsonline.org/open-access/characterization-of-cattle-production-systems-in-nyagatare-district-ofeastern-province-rwanda.php?aid=91895
- (29) Sachs, J., Schmidt-Traub, G., Kroll, C., Lafortune, G., Fuller, G., Woelm, F. (2020). The Sustainable Development Goals and COVID-19. Sustainable Development Report 2020. Cambridge: Cambridge University Press. https://dashboards.sdgindex.org/profiles/RWA
- (30) United Nations. Sustainable Development Goals. https://unstats.un.org/sdgs/indicators/database/