ENGRO Foods: Bringing information technology to milk farmers in Pakistan

Engro Corporation:

Established in 1965, Engro is one of the biggest multinational companies originating from Pakistan. With annual revenues of $2Bn, the company has been growing at a 25% CAGR over the past six years. Initially a urea (fertilizer) and chemicals producing company, Engro diversified into Foods business in 2004. The company channeled its high margins in fertilizer business to invest massively into setting up local plants and promoting the food brands competing with international companies like Nestle, Unilever, etc.

Dairy industry is the stepping stone for Engro Foods to launch household brands. Currently, their portfolio consists of packaged milk (whole/low fat), tea whitener, fruit juices and ice creams. The company has built a strong supply chain from milk collection to processing and plans to invest into other foods’ businesses going forward.

 

Pakistani Milk Industry:

Pakistan is the fourth biggest milk producer in the world. With an annual production of 36 million tons from 8 million farming households, the country has an annual per capita milk consumption of 200 liters. This $1.5Bn industry supplies milk both in packaged and open form.

Some of the biggest challenges in this industry are livestock management, milk yield improvement and value loss for farmers. Only 4% of cows in Pakistan are vaccinated and only 5% receive complete diet. Experts believe that if yield is improved, Pakistan could export milk and gain higher value from global economies.

Under packaged milk, Engro has recently gained market leadership position after a tough share battle with global giant Nestle. The company started procuring milk directly from farmers through milk collection centers and quickly realized the challenges in the situation. With the existing setup, farmers were exposed to fraud in terms of milk payments and often fell victim to the treacheries of middlemen. Payments came to the farmers 2-3 weeks after they sold the milk which limited their working capital to invest on the well-being of their cattle.

A typical liter of milk travels an average of 250 kms before reaching the milk processing facilities. High quality procurement was a major focus for Engro as it directly impacted the productivity of their processing operations. This required improvements in milk yield by reducing payment fraud for farmers.

Engro Milk Automation Network (EMAN):

In 2009, the company launched an automated value chain project called EMAN (translation “Faith” in Urdu). Inspired from similar initiatives in other developing countries like Nepali E-Haat Bazaar and E-Choupal India, Engro reverse engineered Point-of-sale systems into Procurement stations and issued unique magnetic-strip-cards to farmers who could visit the milk collection cards, swipe their cards and enter attributes of the milk. In case the farmer was sick or busy with work, a family member could also use the card to deliver milk at the collection center. While the milk is physically transferred to processing facilities over a few days, the farmer data is processed in real time and payment for milk is transferred to the farmers’ bank account automatically within the same day – less cash involved means less fraud.

Engro partnered with local telecom companies to install data sims in distant POS stations in the villages. They chose specific telecom partners based on the telecom company’s strength in particular regions. Farmers could also use EMAN cards to seek support for unwell cattle, mobile top-ups, and seek loans from government and USAID. This initiative helped farmers increase their share of the value chain by eliminating the middlemen and improved their quality of life. The farmers now prefer to do business with Engro over other competing companies. Engro employees also got involved in the lives of these farmers. Through various touchpoints, they promoted education in these communities and persuaded them to send their children to school who would then become sources of better income for the family in the future.

Going Forward:

After a successful local launch of the plan, Engro is keen on taking the project further The company has already run a pilot and will be launching the following updates to EMAN system in 2016:

1. Connecting EMAN cards with EasyPaisa and MobiCash systems through which farmers may collect cash from any small store and will not have to go to the banks
2. Replacing POS machines with Tablets through which they can share more knowledge on yield improvement and also interact more frequently with the farmers
3. Offering medical and life insurance to farmers to help them stay healthy and efficient in the process
4. Utilizing social platforms in the villages to promote constructive discussions to drive focus on cattle health and productivity.

Engro is also looking at reapplying EMAN setup on its bigger fertilizer and wheat export business. Since the same farmers may also be their customer for fertilizers, Engro could potentially achieve a huge synergy benefit by integrating the two systems in future.

 

 

Sources:

Bilal Ahmed – Information Systems Manager, Engro Foods Pakistan (Pvt.) Ltd.

http://www.ifc.org/wps/wcm/connect/560c0a0040600d2583529382455ae521/Engro.pdf?MOD=AJPERES

http://www.engro.com/

http://www.fao.org/3/a-al750e.pdf

http://www.dawn.com/news/1218281

http://www.app.com.pk/en_/index.php?option=com_content&task=view&id=95257

http://www.bloomberg.com/news/articles/2015-02-26/nestle-pakistan-sells-pasteurized-milk-in-23-billion-market