How Danone makes milk producers part of its development strategy in emerging countries

Summary

A good milk supply chain is very demanding, in economic, environmental, social and quality terms. This is why Danone partners with farmers at a global scale to create initiatives that benefit all: the Group, the producers, their cows, the environment and consumers. These initiatives are local and depend on the maturity of the dairy industry. In emerging countries, Danone targets specific actions and projects towards smallholders and family farms.

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Milk is a major raw material for Danone and its Dairy division. The quality of milk and the conditions under which it is produced are crucial to food safety, farmers’ profitability, the environment and social responsibility. The Group has been working on the traceability of its milk supply chain: since the 1990s, it has been relying on FaRMS (Farmer Relationship Management Software), a programme that uses 70 criteria to assess the farming practices that can affect food safety and milk quality as well as environmental impacts and conditions for workers. Danone has thus defined internal standards, which are often stricter than local regulations. These standards, alongside other initiatives, strive to bring Danone and the producers together to guarantee the quality and stability of the milk supply chain. As Michel Crouillère, Farm Sourcing Director, explains,

the goal is to achieve win-win partnerships with farmers.

In emerging countries, the Group has thus been developing new approaches to make the suppliers part of the development strategy, and to ensure that the business is beneficial to all. Michel Crouillère, Pierre Bou and Anne-Laure with Danone Ecosystem Fund, gave us details of these initiatives.

Danone’s subsidiaries work closely with milk producers…

Danone sources most of its milk directly from producers: the Dairy division uses no intermediaries when working with 120,000 suppliers, whose production makes up 85% of the milk used. A large portion (80%) of these suppliers run what are called “subsistence farms”, i.e. they have less than 10 cows. They represent 10% of the volumes purchased by Danone. “Family farms” (less than 300 cows) represent 18% of suppliers and account for 55% of the milk. Danone has developed specific initiatives with these family farms and smallholders to help strengthen their activity. The Group is active in three ways:

• Firstly, by giving the farmers access to technical resources. In Algeria, Tunisia, Morocco, Turkey and Indonesia farmers are given refrigerated milk tanks to ensure milk is conserved and maintain its quality, and also cleaning products for the tanks and milking tools to provide optimal sanitary conditions for the milking and collecting processes.
In Algeria and Morocco, Danone also offers the farmers the opportunity to buy concentrate packs (of cereal and corn) to supplement the cows’ daily ration. This system guarantees price stability and milk quality. Through this scheme, Danone dedicates several million euros to animal feed each year.
Finally, in Brazil, the subsidiary is implementing a system of pooled purchasing with a “central de compras” which works as an intermediary, securing high quality suppliers and below-market prices.

• Secondly, by collaborating with its suppliers and making development resources available to them (competencies, training and teaching). One example of this is the “Educampo” programme in Brazil (developed in partnership with Sebrae). It aims to have a qualified agricultural technician accompany 15 to 20 farmers. This expert is paid by Danone and by the farmers involved in the programme. Each month, the technician visits the farmers to advise them on animal health, milk production, best practices for livestock farming, growing feed, etc. This system has already enabled some farmers to increase their milk production by 40% in four years. Almost half of the farmers who work with Danone are involved in the scheme, and the economic and social impacts are visible: the farms generate higher revenues, the children can go to school and the women can free up time for other activities.

• Another way for Danone to help its suppliers is by developing milk pricing models, as Paul Gardner explained to Down to Earth a few months ago. This system sets milk prices that take into account changes in raw materials prices (soy, corn, etc.). If those prices increase, Danone adjusts the price of the milk; in exchange farmers ensure their farms are efficient and reliable. By protecting farmers from price volatility and supporting a development programme, Danone allows them to focus on milk production. Similar schemes are being tested on family farms in Brazil right now.

… and the Danone Ecosystem Fund goes a step further by supporting inclusive projects

These are the actions that Danone is leading inside its business units and through its subsidiaries and divisions. But to go further, and support the economic and social development of small farmers even more effectively, the Danone Ecosystem Fund endorses certain projects initiated by subsidiaries. The aim is also to maximise the creation of added social value for these populations.
Through co-creation between non-profit partners and the subsidiaries, the Ecosystem Fund aims to go beyond “business as usual”. The projects initiated by the Fund innovate with models that are inclusive and that create social value; through job creation, strengthening competencies, women’s empowerment, etc. They all strive to include stakeholders whose expertise and prerogatives are complementary, in order to maximise impacts.

Almost one third of the projects supported by the Ecosystem Fund focus on the agriculture upstream and aim to help small farms make their activity durable.

Three different models are being experimented:

• Firstly, the cooperative model aims to support farmers in four areas: agricultural services, training in agricultural practices, milk collection investments, and financial and legal support for their businesses. The cooperative model provides the farmers with, for instance, access to veterinary services, training programs on feeding, hygiene and animal husbandry and also centralises the milk collection, storage, cooling and quality process. The Milk collection communities project in Egypt, resulting from a partnership between Danone and CARE, has already empowered about 1200 farmers, producing 320 tons of additional milk each month. It creates cooperatives with the aim of developing and securing small producers’ milk production. The cooperative model was first initiated in Ukraine and has since been replicated in several countries. It can take slightly different forms. For example in Romania, on the Chance for All project (co-created by Danone Romania and Heifer Romania), the cooperative is reinforced by transportable milk parlours (TMP) for the farming community: with this innovative scheme, farmers can milk cows in the pastures where they spend the summertime.

• The second model is built around demo or training farms and referent farmers’ networks. The training farm is an actual operating farm which generates a revenue, partially reinvested in training activities through which local farmers can build their skills. Farmers improve their milk quality and productivity, increasing revenue. The model was developed in Ukraine and Russia. Basic utilities on existing farms are upgraded (light, water, ventilation, etc.) to increase productivity. In return for these investments, the farmers agree to open their premises to local colleagues. Additionally, the exchange of best practices through a network of referent farmers (visits and interaction) is another way to reinforce the farmers’ milk production competencies and expertise. Such networks have been developed in France and Indonesia.

The final model supported by the Fund is the transition from subsistence farming to family farming.

Here, the Fund supports motivated farmers to increase their herds, upgrade their barns and later obtain equipment like small milk tanks and milking machines, as well as providing technical advice and access to credit.

This model is suited to farmers who need to sustain their businesses in a changing world and has been deployed in Ukraine and Tunisia.

These best practices are thus tested, and replicated as appropriate: the exchanges between the Fund’s projects and Danone’s other schemes serve to improve and consolidate the models. With these initiatives, Danone endeavours to co-create the solutions to the challenges inherent to a high-quality milk supply chain. And because all the links in the chain are connected, a holistic approach – taking into account everyone’s interests, short and long-term – seems like the right way to go.

(Photo from Danone: cows in Turkey)