Dairy processing

Dairy processing
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Dairy processing
SectorMost major industry classification systems use sources of revenue as their basis for classifying companies into specific sectors, subsectors and industries. In order to group like companies based on their sustainability-related risks and opportunities, SASB created the Sustainable Industry Classification System® (SICS®) and the classification of sectors, subsectors and industries in the SDG Investor Platform is based on SICS.
Food and Beverage
Food and Agriculture
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.

Indicative ReturnDescribes the rate of growth an investment is expected to generate within the IOA. The indicative return is identified for the IOA by establishing its Internal Rate of Return (IRR), Return of Investment (ROI) or Gross Profit Margin (GPM).
> 25% (in IRR)
Investment TimeframeDescribes the time period in which the IOA will pay-back the invested resources. The estimate is based on asset expected lifetime as the IOA will start generating accumulated positive cash-flows.
Medium Term (5–10 years)
Market SizeDescribes the value of potential addressable market of the IOA. The market size is identified for the IOA by establishing the value in USD, identifying the Compound Annual Growth Rate (CAGR) or providing a numeric unit critical to the IOA.
< USD 50 million
Average Ticket Size (USD)Describes the USD amount for a typical investment required in the IOA.
USD 1 million - USD 10 million
Direct ImpactDescribes the primary SDG(s) the IOA addresses.
Zero Hunger (SDG 2) Industry, Innovation and Infrastructure (SDG 9) Responsible Consumption and Production (SDG 12)
Indirect ImpactDescribes the secondary SDG(s) the IOA addresses.
No Poverty (SDG 1) Good health and well-being (SDG 3) Decent Work and Economic Growth (SDG 8)
Country
Regions
  • Rwanda: Eastern Province
  • Rwanda: Southern Province
SectorMost major industry classification systems use sources of revenue as their basis for classifying companies into specific sectors, subsectors and industries. In order to group like companies based on their sustainability-related risks and opportunities, SASB created the Sustainable Industry Classification System® (SICS®) and the classification of sectors, subsectors and industries in the SDG Investor Platform is based on SICS.
Food and Beverage
FB

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)

SubsectorMost major industry classification systems use sources of revenue as their basis for classifying companies into specific sectors, subsectors and industries. In order to group like companies based on their sustainability-related risks and opportunities, SASB created the Sustainable Industry Classification System® (SICS®) and the classification of sectors, subsectors and industries in the SDG Investor Platform is based on SICS.
Food and Agriculture
FB.1

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)

IndustriesMost major industry classification systems use sources of revenue as their basis for classifying companies into specific sectors, subsectors and industries. In order to group like companies based on their sustainability-related risks and opportunities, SASB created the Sustainable Industry Classification System® (SICS®) and the classification of sectors, subsectors and industries in the SDG Investor Platform is based on SICS.
Meat, Poultry and Dairy
FB-MP
Investment Opportunity Area

Dairy processing

Business Model

Establish and operate dairy processing plants to produce UHT (ultra-high-temperature) milk and milk powder.

Market Size (USD)Describes the value in USD of a potential addressable market of the IOA.
< 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)

IRRDescribes an expected annual rate of growth of the IOA investment.
> 25%
ROIDescribes an expected return from the IOA investment over its lifetime.
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)

TimeframeDescribes the time period in which the IOA will pay-back the invested resources. The estimate is based on asset expected lifetime as the IOA will start generating accumulated positive cash-flows.
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)

Average Ticket Size (USD)Describes the USD amount for a typical investment required in the IOA.
USD 1 million - USD 10 million
Business - Supply Chain Constraints
Low livestock productivity at a farm level (16), and lack of proper infrastructure for milk collection and transportation (14)
Business - Supply Chain Constraints
It is estimated that only 30% of dairy-producing households have access to extension services. Even fewer have access to those services in dairy-related farming, which are necessary to maintain and ameliorate the health and productivity of cattle.(16)
Business - Supply Chain Constraints
The quality of the milk supplied is often poor.(16)
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 - Zero Hunger
Zero Hunger (SDG 2)

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

Current Level

40.38% (29)

N/A

Target Level

0 (29)

N/A

9 - Industry, Innovation and Infrastructure
Industry, Innovation and Infrastructure (SDG 9)

9.2.1 Manufacturing value added as a proportion of GDP and per capita

Current Level

6% (29)

Target Level

N/A

12 - Responsible Consumption and Production
Responsible Consumption and Production (SDG 12)

12.2.1 Material footprint, material footprint per capita, and material footprint per GDP

Current Level

N/A

Target Level

N/A

Secondary SDGs addressed
1 - No Poverty
No Poverty (SDG 1)
3 - Good Health and Well-Being
Good health and well-being (SDG 3)
8 - Decent Work and Economic Growth
Decent Work and Economic Growth (SDG 8)
Directly impacted stakeholders
People
Farmers with greater and more stable income generation opportunities, consumers with better access to nutritional dairy products
Gender inequality and/or marginalization
Women with greater access to nutritional foods for children
Corporates
Food producers, food processors, retailers, wholesalers with reduced food losses and greater opportunities for value adding
Public sector
Government with better trade balance due to value adding activities
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

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.

Who

Smallholder milk producers and dairy consumers who are aggrieved due to lack of processing facilities, which limits value adding and increases food loss.

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.

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.

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

country static map
semi-urban
Rwanda: Eastern Province
The majority of cattle can be found in the Eastern and Southern regions of Rwanda. Hence, these are the most suitable areas providing immediate access within farm proximity to raw milk for processing.(28)
rural
Rwanda: Southern Province
The majority of cattle can be found in the Eastern and Southern regions of Rwanda. Hence, these are the most suitable areas providing immediate access within farm proximity to raw milk for processing.(28)
Sector Sources
  • 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
IOA Sources
  • 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/