High-Nutrient Organic Milk and Dairy Products Processing
High-Nutrient Organic Milk and Dairy Products Processing
Business Model Description
Invest in B2B/B2C milk processing plants focused on goat and camel milk and dairy products (i.e., formula milk, milk products for kids, powdered milk, cheese, butter, ice cream), sourced from nomadic herder families and cooperatives. Examples of companies active in this space are:
Suu JSC, established in 1958, is one of the first milk producers in Mongolia. It has been producing and delivering over 70 different types of dairy products. It represents 30 percent of the total market. Suu JSC has received USD 4.8 mn loan from EBRD and XacBank LLC for the expansion of its production capacity and renewal of its transport fleet.
APU Dairy has a production capacity of 150 tons of milk and dairy products per day and 45 mn litres of milk products per year. APU Dairy contributes 30 percent to the total milk and dairy processing market. The shareholding in the group company, APU JSC comprises Shunkhlai Holding LLC at 56 percent, Heineken Asia Pacific Pte Ltd at 25 percent, and Steppe Beverage KFT at 13.4 percent.
Milko LLC, established by Teso Corporation in 2009, operates to produce and trade milk and milk products, including high nutritious goat and camel milk products. Its powdered milk factory has an annual production capacity of 4000-7000 tons to cater to the domestic market. It also exports its products to China, Kazakhstan and Japan. Milko received USD 7.5 mn loan from ADB. (16)
Mongolian Artisan Cheesemakers Union LLC (MACU), formed in 2015, operates to develop, produce, sell and distribute fine cheeses made in Mongolia. It brings a new approach to the commercial utilization of Mongolia's nomadic pastoral milk resources, wherein 6 small cheesemakers have joined to produce over 15 products. It also built a small model cheese plant on the outskirts of the capital city.
Expected Impact
Increase production and export of milk and dairy products, thereby growing the workforce and improving nutrition levels in the country.
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
- Mongolia: Ulaanbaatar
- Mongolia: Arkhangai
- Mongolia: Khuvsgul
- Mongolia: Khentii
- Mongolia: Tuv
Sector Classification
Food and Beverage
Development need
Mongolia has achieved significant progress in reducing the level of hunger, but a large proportion continues to face varying levels of food insecurity and malnutrition. (1) For example, around 25 percent of the population experience moderate to severe food insecurity (SDG 1.2.2). (2) Also, 61percent of children under 5-year-old and 75 percent of pregnant women were deficient in vitamin D. (3)
Policy priority
Mongolia's Long-Term Development Plan 'Vision 2050' and Five-Year Development Guidelines indicate the agriculture sector as one of the priority sectors for economic diversification. (4) The relevant objectives include improving people's standard of living through a healthy and safe food supply and building an economy that focuses on exports. (5)
Gender inequalities and marginalization issues
Rural migrant families in peri-urban informal settlements (ger districts), vulnerable communities, and those affected by the pandemic are most vulnerable to food insecurity. (1) Workforce in the agriculture sector, particularly livestock production, comprises approximately 56 percent females. (6)
Farmers and herder households have low and seasonal incomes, with over 160,000 households relying on agriculture and livestock for their livelihood. The income of herder households falls below the national minimum standard of living per year of USD 816. (7)
Investment opportunities introduction
In 2021, the agriculture sector contributed 13 percent towards Mongolia's GDP and employed one-third of the country's workforce (8). The milk and dairy sub-sector is Mongolia’s oldest industry and has remained integral to the country’s long-term development strategy.
Key bottlenecks introduction
The majority of the sector suffers from low productivity and low climate resilience, and would benefit from advanced technologies with processing equipment to support it. (9) Infrastructure and services for processing and exporting food products are inadequate, thus resulting in outsourcing of the majority food-processing to neighbouring countries.
Food and Agriculture
Development need
The livestock and animal husbandry sector contribute to 80 percent of agricultural production through a range of food and livestock products, including milk and dairy - one of the most nutritious products. Lack of dairy products contributes to under-nutrition among 25 percent of the country’s children and leads to a drop in nutrition among the vulnerable and low-income population. (10)
Policy priority
Despite a significant quantity of milk and dairy products being produced from herder households, 27 percent of dairy products are still imported (11). "National movement on ensuring food supply and security 2022-2027" aims to fully supply domestic needs with 19 main types of food products. For dairy, it is targeted to reduce imported products by up to 3 percent by 2030. (11)
Gender inequalities and marginalization issues
Herders in Mongolia face challenges due to a weak supply chain, causing low prices for their produce and negatively impacting their income. COVID-19 restrictions have further affected food security and the milk and dairy supply chain. (11) Women play a traditional role in preserving dairy products, including yoghurt, cheese, and fermented milk. (12)
Investment opportunities introduction
Milk and dairy products, especially camel and goat milk are a source of essential nutrients, which are necessary for the growth and development of the body. There is huge potential to scale up production as the installed capacity of the milk processing industry is 400,000 tons per year, and currently, 51 percent of it is used. (13)
Key bottlenecks introduction
The milk and dairy processing sector faces challenges, including a lack of structured value chains, prevalence of subsistence livestock, high logistics costs, and lack of equipment and skills. (14) In addition, the price of milk in Mongolia is still high, higher than in Russia for instance.
Meat, Poultry and Dairy
Pipeline Opportunity
High-Nutrient Organic Milk and Dairy Products Processing
Invest in B2B/B2C milk processing plants focused on goat and camel milk and dairy products (i.e., formula milk, milk products for kids, powdered milk, cheese, butter, ice cream), sourced from nomadic herder families and cooperatives. Examples of companies active in this space are:
Suu JSC, established in 1958, is one of the first milk producers in Mongolia. It has been producing and delivering over 70 different types of dairy products. It represents 30 percent of the total market. Suu JSC has received USD 4.8 mn loan from EBRD and XacBank LLC for the expansion of its production capacity and renewal of its transport fleet.
APU Dairy has a production capacity of 150 tons of milk and dairy products per day and 45 mn litres of milk products per year. APU Dairy contributes 30 percent to the total milk and dairy processing market. The shareholding in the group company, APU JSC comprises Shunkhlai Holding LLC at 56 percent, Heineken Asia Pacific Pte Ltd at 25 percent, and Steppe Beverage KFT at 13.4 percent.
Milko LLC, established by Teso Corporation in 2009, operates to produce and trade milk and milk products, including high nutritious goat and camel milk products. Its powdered milk factory has an annual production capacity of 4000-7000 tons to cater to the domestic market. It also exports its products to China, Kazakhstan and Japan. Milko received USD 7.5 mn loan from ADB. (16)
Mongolian Artisan Cheesemakers Union LLC (MACU), formed in 2015, operates to develop, produce, sell and distribute fine cheeses made in Mongolia. It brings a new approach to the commercial utilization of Mongolia's nomadic pastoral milk resources, wherein 6 small cheesemakers have joined to produce over 15 products. It also built a small model cheese plant on the outskirts of the capital city.
Business Case
Market Size and Environment
USD 50 million - USD 100 million
20% - 25%
400,000 tons of installed capacity in milk processing market. (13)
The agriculture market represents 13 percent of the GDP in Mongolia. For milk and dairy processing, the total market size is about USD 70 mn based on Suu JSC's market value (USD 21 mn) which represents 1/3 of the market. (17) The country has over 70 mn livestock animals, consisting of horses (6 percent), cattle (7 percent), camels (1 percent), sheep (46 percent), and goats (40 percent). (18)
Indicative Return
> 25%
Suu JSC's ROI was estimated at 25.4% and 29.7% in 2022 and 2021, respectively. (17)
Investment Timeframe
Short Term (0–5 years)
As per expert consultations, the expected investment period is about 5 years or less. For instance, ADB provided USD 7.5 mn loan to Milko LLC to support its gender-inclusive dairy value project with a 5-year tenure. (16)
Ticket Size
USD 1 million - USD 10 million
Market Risks & Scale Obstacles
Capital - CapEx Intensive
Business - Supply Chain Constraints
Business - Supply Chain Constraints
Impact Case
Sustainable Development Need
Investing in processing plants can help increase productivity and ensure a sufficient food supply. The majority of the livestock products are exported raw which reduces the potential opportunities for farmers and herders.
Sustainable production techniques can help reduce climate-related disasters such as floods, droughts, pests and the spread of livestock diseases which hamper agricultural productivity and damage milk extraction extensively, thereby impacting farmers' income.
Integrating herders' / farmers' / cooperatives' operations into milk production systems can help in the process of transition to an environmentally friendly production system that can provide solutions to the issue of land degradation and climate change.
Gender & Marginalisation
As animal husbandry is particularly vulnerable to climate change and vice versa. As of 2021, 56.5 percent of workers in the agriculture sector were women. (6) Appropriate and sustainable agricultural and pasture practices, incorporating principles of gender equality, are needed among herders, farmers, and female and male employees of the factories. (21)
Gender policy in the food and agriculture sector aims to increase gender-equal participation and equal responsibility at all levels by supporting the development of human resources. (21)
Expected Development Outcome
Investment in this area can help meet domestic needs and increase the revenue/GDP from exported milk and dairy products.
Furthermore, it will help increase level of employment in milk and dairy processing, and increase income opportunities across the whole value chain, including herder households, farmers and cooperatives. For example, Milko collaborates with 120 female milk suppliers (40 percent of total) for its milk-collection centers.
Gender & Marginalisation
An increase in milk and dairy product processing will ultimately benefit female and male smallholder farmers and herders. Milk is an important source of income for herder households, contributing about 10% of their income (22).
Investments in the food processing sector, especially for the milk and dairy supply chain, can enable smallholder farmers and cooperatives to deliver high-quality products to domestic and international markets, improve food security, increase income, and reduce reliance on imports.
Primary SDGs addressed
2.2.2 Prevalence of malnutrition (weight for height >+2 or <-2 standard deviation from the median of the WHO Child Growth Standards) among children under 5 years of age, by type (wasting and overweight)
2020: Overweight- 10.5, Wasting - 0.9 2018: Overweight - 9.4, Wasting - 0.9
By 2030, end all forms of malnutrition; By 2025, achieve internationally agreed targets on stunting and wasting in children under 5 years of age and address the nutritional needs of adolescent girls, pregnant and lactating women and older persons.
8.1.1 Annual growth rate of real GDP per capita
Annual growth of GDP per capita in 2020 was -0.1 percent. (8)
As part of the Five Year Development Guideline, Vision 2050, the Government aims to keep the economic growth (annual GDP growth) at 6 percent by 2025. (4)
Secondary SDGs addressed
Directly impacted stakeholders
People
Gender inequality and/or marginalization
Planet
Corporates
Public sector
Indirectly impacted stakeholders
People
Gender inequality and/or marginalization
Planet
Corporates
Public sector
Outcome Risks
Small farmers may be dominated by large producers. There could be storage shortage and unstable supply of milk due to infrastructure contraints which often occur during cold season.
Increased supply would increase price competition in the market, impacting the producers of dairy products, including low income farmers.
If the processing of dairy products is not efficiently managed, leaving wasted untreated, may lead to land pollution and contamination of local water resources.
Impact Risks
Underdeveloped infrastructure (road) and higher costs of logistics would impact the operations of processing factories located farther from the raw-materials.
Unaddressed malnutrition issues can have an adverse effect on other metrics, including those related to health and the economy at a macro level.
Other negative impacts may include animal and human health issues due to insufficient food safety and quality control across the value chain.
Impact Classification
What
Create an efficient value chain for processing goat and camel milk and dairy products
Who
Population benefits from food security; herders and cooperatives benefit from supply chain and improved income; milk and dairy processors benefit from increased domestic consumption and export income.
Risk
The lack of a structured value chain and high logistics costs may hinder the supply chain and thereby, meet the food safety standards.
Contribution
The share of industrially processed milk in total milk production is expected to reach 50 percent by 2025, thereby increasing nutritional level and employment (currently 1680 workers). (13)
How Much
Increased capacity of milk and dairy processing will help reduce imported dairy products by up to 3 percent and increase the agriculture production share in exports.
Impact Thesis
Increase production and export of milk and dairy products, thereby growing the workforce and improving nutrition levels in the country.
Enabling Environment
Policy Environment
Vision 2050 (1.5.11) aims to develop best-selling food and nutritional products, that are suitable for year-round consumption, using the traditional Mongolian five-coloured foods including milk and provide state support to the creation of the Mongolian food chain. (4)
National Movement on Ensuring Food Supply and Security 2022-2027 has a focus area of food processing: Internal processing of food raw materials supplied from animal husbandry and agriculture, and production of finished products. (11)
Financial Environment
Financial incentives: Commercial banks designed specific financial products for herders, i.e. herder loans up to USD 10,000 within 24 months. (26) In addition, there are concessional green loans offered to SMEs to support funding sustainable business activities.
Fiscal incentives: Tax exemption in the VAT law: 13.1.17 is applicable to the production of food milk and dairy products processed and sold domestically in the territory of Mongolia using domestic raw materials. (27)
Other incentives: According to Law on Investment, non-tax incentive 12.1 will be provided to support the financing of innovation projects and to guarantee the financing to produce export-oriented innovation products. (28)
Regulatory Environment
Law on Food, clauses 8.3 and 8: Provide cash incentives (USD 0.15 per litre) to farmers and intensive livestock farmers who supply raw milk from animals that meet the requirements including veterinary certification, registered livestock, registration of sales tax. (13)
MNS CAC RCP 57: Code of Hygienic Practice for Milk and Milk Products. International standards include: ISO 9001 - Quality Management, ISO 45001 - Ooccupational health and safety management system FSSC 22000, ISO 22000, ISO 22002-1 - Food Safety (23)
In March 2020, Mongolia has adopted standard MNS 6891:2020 for Responsible Nomads Code of Practices for sustainable nomadic livestock. (24)
National Security Concept, the Food Law and the Food Safety Law of Mongolia instituted a new legal environment along with providing security of food and understandings of food safety are reflected conspicuously within the concept and the laws. (25)
Technical regulation for production and sales of milk and dairy products adopted by Government of Mongolian resolution No. 304, dated October 26, 2011.
Marketplace Participants
Private Sector
Corporates: Suu JSC, APU Dairy LLC, Milko LLC (Teso Corporation), Vitafit LLC, Mongolian Artisan Cheesemakers Union LLC. Investors: The European Bank for Reconstruction and Development, Commercial Banks including XacBank and Khan Bank.
Government
Ministry of Food, Agriculture and Light Industry
Multilaterals
Food and Agriculture Organization, European Union, United States Agency for International Development, Asian Development Bank
Public-Private Partnership
SME Agency - Milk Clusters, Mongolian National Chamber Of Commerce And Industry
Target Locations
Mongolia: Ulaanbaatar
Mongolia: Arkhangai
Mongolia: Khuvsgul
Mongolia: Khentii
Mongolia: Tuv
References
- (1) United Nations Mongolia. (2022). United Nations Sustainable Development Cooperation Framework 2023-2027. https://mongolia.un.org/sites/default/files/2022-07/SF%20Eng%20last%20version7-14.pdf
- (2) Food and Agriculture Organization (FAO). (2022). Food Security and Nutrition Around the World in 2022. https://www.fao.org/3/ca9692en/online/ca9692en.html
- (3) United Nations Children's Fund (UNICEF). (2017). Nutrition Status of the Population of Mongolia - Fifth National Nutrition Survey Report. https://www.unicef.org/mongolia/media/1116/file/NNS_V_undsen_tailan_EN.pdf
- (4) The Government of Mongolia. (2020). Vision 2050 - Mongolia's Long Term Development Plan. https://legalinfo.mn/mn/detail/15406
- (5) The Government of Mongolia. (2020). Five-Year Development Guidelines 2021-2025. https://legalinfo.mn/mn/detail/15584
- (6) National Statistics Office of Mongolia (NSO). (2022). Mongolian Statistical Information Service. Employment. https://www.1212.mn/mn/statistic/statcate/573055/table-view/DT_NSO_0400_035V7
- (7) Mongolian Marketing Consulting Group & Swiss Agency for Development and Cooperation. (2017). Herder households income, P-76. https://www.slideshare.net/GreengoldMongolia/socio-economic-baseline-study-of-h-hs-reportmgl-103926582
- (8) National Statistics Office of Mongolia (NSO). (2022). Gross Domestic Production.https://www.1212.mn/mn/statistic/statcate/573052/table-view/DT_NSO_0500_001V1
- (9) International Finance Corporation (IFC). (2018). Mongolia Investment Reform. https://www.ifc.org/wps/wcm/connect/8fbd4a65-c979-4cbc-858f-ca27677d30e7/Mongolia+Investment+Reform+Map+2018.pdf?MOD=AJPERES&CVID=mnSnUQT
- (10) Food and Agriculture Organization (FAO). (2016). Story on Mongolian milk for health and wealth. https://www.fao.org/mongolia/programmes-and-projects/success-stories/milk-for-health/en/
- (11) The Parliament of Mongolia. (2022) National movement on ensuring food supply and security. https://lawforum.parliament.mn/project/185/
- (12) Food and Agriculture Organization (FAO). (2019) Support to Income Creation in Mongolia (SECIM): Improving Local Dairy Processing Through Promoting Women. https://www.fao.org/3/ca8770en/ca8770en.pdf
- (13) Ministry of Food, Agriculture and Light Industry (MOFALI). Milk production. https://mofa.gov.mn/branch/huns/616fa74f73bc4a5fc70f2227
- (14) Rapid capacity needs survey conducted by the Public Sector Consultant on Mongolia SDG Investor Map.
- (15) European Bank for Reconstruction and Development (EBRD). (2021). EBRD and XacBank support Mongolia’s dairy producer Suu Milk. https://www.ebrd.com/news/2021/ebrd-and-xacbank-support-mongolias-dairy-producer-suu-milk.html
- (16) Asian Development Bank. (2019). https://www.adb.org/sites/default/files/project-documents/53306/53306-001-rrp-en.pdf
- (17) Suu JSC. (2022). Financial and Operational Report 2022. https://www.mse.mn/issuers/activityreport/135_20220503002539report.pdf
- (18) National Stastics Office (NSO). (2022). Livestock statistics.https://www.1212.mn/tables.aspx?tbl_id=DT_NSO_1001_021V1&BAG_select_all=0&BAGSingleSelect=_0&TYPE_OF_LIVESTOCK_select_all=1&TYPE_OF_LIVESTOCKSingleSelect=&YearY_select_all=0&YearYSingleSelect=_2021&viewtype=table
- (19) National Development Agency of Mongolia. (2021). Invest in Mongolia. Agribusiness https://investmongolia.gov.mn/agribusiness/
- (20) European Bank for Reconstruction and Development (EBRD). (2021). https://www.ebrd.com/news/2017/ebrd-highlights-opportunities-in-mongolias-dairy-sector.html
- (21) National Committee on Gender Equality. (2018). Gender policy in food, agriculture and light industry.
- (22) National Committee on Gender Equality. (2021). Gender assessment on male and female young herders livelihood. https://www.ncge.gov.mn/research
- (23) Mongolian Agency for Standardization and Metrology (MASM). MNS CAC RCP 57: Code of Hygienic Practice for Milk and Milk Products. https://estandard.gov.mn/standard?tech_id=25&per_page=2
- (24) Mongolian Agency for Standardization and Metrology (MASM). Mongolian National Standard. MNS 6891:2020 for Responsible Nomads Code of Practices for sustainable nomadic livestock
- (25) National Statistics Office (NSO). (2021). Indicators for Food Security Statistics 2020 https://www2.1212.mn/BookLibraryDownload.ashx?url=Food_security_eng.pdf&ln=Mn
- (26) State Bank of Mongolia. Herder Loan. https://www.statebank.mn/product/766
- (27) The Parliament of Mongolia. Law on Value-Added Tax (VAT). https://legalinfo.mn/mn/detail/11227
- (28) The Parliament of Mongolia. Law on Investment. https://legalinfo.mn/mn/detail/9491