Nestlé Pakistan MD discusses challenges in dairy sector

LAHORE: Bruno Olierhoek, managing director and chief executive officer of Nestlé Pakistan in an exclusive conversation with The News talked in length about the company’s working, especially challenges being faced in the dairy sector. Here are excerpts of his interview.

Q. How do you see calendar year 2016 for Nestlé Pakistan?

A. We are happy that we not only hit the sales growth numbers but have also been able to contribute in the national economy. We have been continuously growing over the years. In 2013, our annual turnover was Rs86 billion; in 2014, it grew to Rs96.5 billion with a growth of 11.9 percent and in 2015; we crossed the Rs100 billion mark.

In 2016, we have been able to meet our targets. In the first nine months of the outgoing year, Nestlé Pakistan’s revenue already touched the mark of Rs84.3 billion, which was 9.27 percent higher compared to the same period of the preceding year. We are expecting even better overall gains in 2016 and optimistically looking forward to 2017.

Q. Please throw some light on achievements and challenges associated with the dairy sector, with particular reference to milk supply chain.

A. A big part of our portfolio is indeed in the dairy sector. We have a strong presence in the shape of dairy products as well as maintaining an extensive supply chain. Nestlé Pakistan is very proud to work closely with a huge network of 140,000 plus dairy farmers of the country. We annually collect about 450 million litres of fresh milk from farmers, injecting roughly Rs22 billion into the rural economy in a systematic way. We are continuously trying to increase the capacity of farmers to produce more milk.

One of the key challenges is high seasonality associated with the dairy industry in Pakistan. There are two main seasons; the flush season and the lean season that create impact on supply side. Cows give a lot of milk in the flush season when more fodder is available. Then we have the summer months when there is less fodder so that is the lean period. Managing too much and too little milk has been a main challenge for our company.

We have been investing in production facilities that allow us to buy a lot of milk in the flush season. So instead of the milk being wasted, the farmers can sell the extra milk to Nestlé and then we convert it into powdered milk to use it in a variety of products, including infant baby formulas, growing up milks, and tea creamers. We have powdered businesses to use up all that milk.

We have also a team of agronomists, working with farmers, them in best dairy practices for establishing a productive set up with good keeping and feeding of the animals. The aim of this elaborative exercise has been to have quality milk in the quantities that we need.

With close association with the farming community, this is one of the things that we are proud of. We are touching good numbers of farmers every day across Punjab and Sindh, giving them a lot of advice on good farm practices; improving their yield, making operations more efficient by earning more money with better treatment of cows and improving the feeding practices. This is really something that Nestlé has been contributing to Pakistan.

Before, it was only a practice of having a couple of cows and not necessarily treating them up to the mark. There has been a big change in the dairy sector over the last couple of decades, partly due to practices propagated by Nestlé. It has yielded positive results. However, the processes of involving farmers and improving things take time. That is why we feel that there is still a long way to go in increasing productivity of the dairy sector.

Q. Dairy supply chain and milk processing are energy-intensive operations. How does your company deal with the challenge of energy shortage?

A. Energy plays an important role in running dairy business. Maintaining stability of our operation is key for running a successful business. We need to collect fresh milk from farmers through cold supply chain and keeping it below five degree centigrade all the way to the factory. The whole transportation of milk from the farm to our factories is very critical.

In our factories, we have all the backup generators to work uninterruptedly to make sure that we never have an energy problem, though it is very expensive to maintain.

We are also working on solar energy for meeting some of needs of dairy farmers and development of cold supply chain. We are also using biogas and this is something that we are spreading to our farmers to meet their energy needs. We are upbeat on government’s plan of increasing power generation and hope that the gap between demand and supply of electricity would be bridged in near future.

Q. What other measures have you been taking to strengthen milk supply?

A. Nestlé Pakistan is in the process of helping farmers import high yielding animals in large quantities. As a company, we are not importing cows ourselves but we are facilitating the farmers. In the meantime, we make sure that we give them training that when you get the cow, what you need to do to make sure that the cow remains productive and adapts to local weather. With our experienced team of agronomists, we are trying to make sure that the farmers can quickly benefit from the cows that are being imported.  

In Pakistan, the majority of the herd comprises of buffaloes, but these animals are not the very productive. They eat a lot and give relatively lesser amount of milk with a high percentage of fat. But overall, cow is much more productive, because those cows have been bred for years to become more and more productive. If a buffalo gives 5-7 litres milk per day, a cow with good genetics can go up to 30/35 litres a day, requires less food and is much more efficient for the farmer. Despite having lower fat content, cows make more economic sense for the farmers and therefore it is a good thing if we have more cows that are coming in.