The European Bank for Reconstruction and Development (EBRD) has promised the funding to Azerbaijan's Milk-Pro in exchange for a 25 per cent stake in the company. The money will be used to build a new dairy factory in the city of Baku and modernise existing facilities in GoyShay town, 200km to the west.
Milk-Pro's general director, Movsum Shikhiyev, said the up-grades were needed to help the firm compete with the higher quality of imported dairy products from multi-nationals such as Russia's Wimm-Bill-Dann, France's Danone, and the Dutch dairy co-operative Campina.
International firms control three quarters of Azerbaijan's premium dairy market, almost exclusively focused on city dwellers who generally have more disposable incomes. But Milk-Pro wants a piece of this lucrative premium sector, worth around 10 per cent of the whole market volume, and says it is also keen to fight off the growing number of dairy imports.
In order to do this the company must begin to focus on improving quality. A recent statistic from the United Nations' Food and Agricultural Organisation claims only 30 per cent of Azerbaijan's domestic dairy produce meets European Union standards.
Part of the EBRD funding will go towards a better collection network which it is hoped will encourage farmers to improve milk quality. But Milk-Pro also needs to improve its distribution system in an extremely fragmented industry if it is to achieve its target of doubling sales by 2007.
As many as 75 per cent of domestic dairy farmers have less than five cows and only five per cent have more than 20, whereas Azerbaijan's predominantly rural population means that around 90 per cent of dairy produce is sold either on farmers' markets or door-to-door, said EBRD spokesperson Vanora Bennett.
Hans Christian Jacobsen, EBRD director of Agribusiness, said the funding to Milk-Pro would also help secure domestic farmers' incomes due to the company's position as number one purchaser of domestic milk.
"This project should provide a clear example to the Azeri farming commmunity and small dairy companies considering how to improve the quality and quantity of their own output," he said.
The project is part of the EBRD's Early Transition Countries initiative which was launched earlier this year to stimulate markets in some of the poorest countries the bank operates in. Since 1994 EBRD has invested €480 million in Azerbaijan though the deal with Milk-Pro is one of its first agribusiness projects.