L & Z Integrated Farms Limited: Integrated distribution of dairy products
This venture aims to grow L & Z’s dairy business through a three-pronged approach. It aims to increase smallholder milk sourcing at premium prices, implement an out-grower scheme making dairy cows available to local families on credit, and set up a plant to produce sweetened milk products to sell to poor consumers through a distribution network of independent Entrepreneurs.
The inclusive business initiative
L & Z is an agricultural operation with investments in husbandry (poultry and dairy), cultivation (fruits) and food production. The company’s inclusive business venture is three-pronged. Firstly, the dairy arm of the business sources milk from its own small Friesian herd, as well as from nomadic herding communities located nearby in Kano state. The company has close links with the local community, partly thanks to the nomadic cattle-rearing background of its CEO, and offers these milk producers a premium on their milk, well above market prices. This premium secures a steady supply for milk for L & Z, and comes with a condition that the female children of local producers benefiting from it attend local schools.
Alongside this, L & Z has developed an out-growers scheme, in which it provides a hybrid dairy calf to the wife of each of its ten employees. Cows are provided on credit terms, that see deductions in the husband’s wages, but L & Z provides booster supplements to encourage milk production and a ready market for the milk produced.
Thirdly, the company aims to set up a packaging plant to produce mini packets of process, sweetened and flavoured milk at an affordable price for low-income consumers. L & Z plans to sell these through a network of distributors who can purchase the products on credit and sell them at a premium through bicycle-based chilled bins. L & Z expects to start a production run based on 3,000 litres of fresh milk per day. With each sachet containing 200mls of content, and to sell approximately 15,000 sachets a day, although most will initially be sold though other retail distribution arrangements until the localised distribution is grown to scale.
Strategic drivers for this venture are based on a corporate social responsibility and enhanced supply chain management. The venture aims to expand the company’s distribution range and enable them to penetrate new consumer markets. By combining sustainable upstream procurement strategies and innovative downstream distribution channels, L & Z aims to develop a sustainable supply of dairy products as well as a new consumer base. The new product introduced into the market by this venture aims to provide low-income people with access to their favourite drinks,
without the health hazards they would otherwise risk, without the cumbersome production process, and all at an affordable price.
In addition to sourcing milk from five commercial farms, L & Z receives fresh milk supplies from over 100 cattle rearing households, all of them in the base of the pyramid segment. These suppliers would benefit from the venture directly given the ready market for their milk, while their wives (approximately 200) and children (an estimated 600) would benefit indirectly from increased incomes and access to education. The proportion of women beneficiaries is projected to reach 66%. L & Z aims to increase the out-grower scheme to 500 farming households, which would
reach an estimated 5,000 individuals within the first three years of the venture.
With the introduction of the pilot calf ownership scheme, an additional ten women are expected to benefit. Meanwhile, in the distribution element of the business model, the company aims to purchase 80 bicycles, of which 20 were secured in January 2013. Hand-pushed carts are also planned as another method for distributors to reach consumers. Low-income people are projected to benefit as producers, workers (entrepreneurs) and consumers of low cost nutritious milk drinks.
Innovation and scale
The venture has several important innovative elements. Firstly, the premium on milk procured from smallholders acts as an incentive to send local girls to school, as well as securing a market for the milk produced and reducing the need to remain nomadic. In addition, the company aims to deploy and innovative, bike-based sales force that can take ownership of small, enterprising businesses and reach rural consumers with milk-based products. To facilitate this, L & Z intend to provide distributors with credit and bicycles for hire at affordable rates.
Objectives of Facility engagement
Support from the Facility aims to:
- Develop a detailed analysis of milk and dairy product consumption patterns in Nigeria and West Africa
- Map out routes to grow market share through marketing and distribution channels (a marketing and distribution strategy).
- Facilitate distribution partnerships with major midstream distributors and retailers (Distribution contacts).
- Build upstream capacity by creating farmer associations through which L & Z can coordinate collection and communication.