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 upgrades were needed to help the firm compete with the higher quality of imported dairy products from multinationals such as Russia's Wimm-Bill-Dann, France's Danone, and the Dutch corporation 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.
To do this, the company must improve 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.
Milk-Pro said part of the EBRD funding would go towards setting up more milk collection points, which it is hoped will encourage farmers to improve milk quality. Domestic milk production is extremely fragmented and as many as 75 per cent of domestic dairy farmers have fewer than five cows. Only 5 per cent have more than 20 cows.
But Milk-Pro also needs to improve its distribution system in a very localised retail sector if it is to achieve its target of doubling sales by 2007. 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 community and small dairy companies considering how to improve the quality and quantity of their own output," he said.