Dairy Investor Expands Businesses through USAID Loan Facility
When Fessaha G/Hiwot, founder and owner of Life Agro Industry, started his milk processing company in Oromia, he approached multiple banks for a loan but was unable to get the capital he needed. “Banks showed little or no interest in investing in agriculture,” he said. “They believed the risk outweighed the return and the collateral they demanded was beyond what most of us could provide.”
Without the full amount he’d hoped for, Fessaha started small but kept looking for an opportunity to grow his company. In 2015, Life Agro was one of the companies to co-invest with AGP-LMD, a USAID-funded program that supported the dairy sector with milk pasteurizing and processing machines. Fessaha received three tanks with the capacity to chill, process and store 7,000 liters of milk; which immediately boosted processing capacity from 250 liters of milk per day to 1,500 liters. He also expanded his network of smallholder suppliers from 50 to 230.
“The chiller and processor helped us to grow in both quantity and quality. As a result, we won the Africa Livestock Exhibition and Congress Best Dairy Product Award. We were overjoyed by the award. But we were still limited in capacity. The demand from our customers was growing, but we were not,” he said. Fessaha developed and presented a new business plan to several banks. Despite the growth and using equipment as collateral, the banks once again refused his proposal.
To address this lack of available financing, USAID offers a 50 percent loan guarantees to banks willing to invest in agribusiness through its Development Credit Authority (DCA) loan portfolio. The Feed the Future Ethiopia Value Chain Activity (VCA) supported Life Agro in developing technical and financial proposals based on a pragmatic market-led business plan.
Life Agro’s application to Oromia International Bank was successful in December 2018, and the company received an ETB 8 million loan ($285,000). Within two months of loan disbursement, Life Agro expanded its processing capacity from 1,500 to 3,000 liters per day, and the number of smallholder milk suppliers from 230 to 480. With continuing technical support from VCA; the company also established four additional milk collection centers, renovated its dairy processing facility, trained smallholder suppliers on milk hygiene and quality control, and hired 13 full-time staff.
The smallholder suppliers are also directly benefiting from Life Agro’s increasing capacity. The company pays 25 percent above the general market price for the right quality of milk, and provides productivity and quality control trainings.
“We pay similar price regardless of the season. Milk producers face market challenges, especially during fasting season. Once they meet our standard, we provide a constant market to them. The additional capital we received through DCA guarantees that our capacity to collect milk only grows from here,” he said.
In addition to pasteurized milk, Life Agro expanded its cheese production and is now a regular supplier to supermarkets and restaurants in Addis Ababa, including Fresh Corner and Pizza Hut.