PROCESSED & PACKAGED MILK INDUSTRY IN PAKISTAN (IN THE CONTEXT OF ENGRO FOODS)IntroductionPakistan is the fourth largest milk producer in the world. Pakistan produces 45 billion liters of milk annually. However, only 36.2 billion liters of milk are usable, as 20 % of this milk goes waste owing to inappropriate methods of storage and lack of timely transportation.

Engro Foods is asubsidiaryof Engro Corporation.In 2005,Engro decided to diversify their business by venturing into the food business by establishing Engro Foods Limited. Engro Foods offers a number of products namely, Olpers, Tarang, Olwell, Omore, Owsum, Olfrute, etc., with representative market share of 33% in Pakistan.

Engro Foods has two production plants situated at Sukkur and Sahiwal with different combination of products manufactured at each plant.

Dairy Milk Industry in PakistanMilk is amongst the most important consumable and marketable commodities of the world with enormous demand in domestic and international markets. Buffalo is the main source of milk in domestic dairy industry, whereas cow is the main source of milk in international market. Pakistan is the fourth largest milk producing country in the world. 80% percent of milk is produced by farming families from small herds of buffaloes using locally produced feed. They account for 11 % share in the Gross Domestic Product, employ 30-35 million rural people, and constitute 30-40 % of their income. Almost all rural families, especially women, keep some buffaloes to provide milk for the family, the basic staple diet next to wheat.

Family consumption is around a liter per person per day, one of the highest levels of milk consumption in the world. Middlemen buy what farmers are willing to sell, either due to surplus or to a dire need of cash. In the cities, milkmen known as gawalas keep animals within the urban area and supply fresh milk directly to urban families, usually on contract. The central platform mobilized and structured for the effort is Pakistan Dairy Development Company registered as a limited company, generally known as Dairy Pakistan. This platform consists of representation and policy support from the Government, Industry and the farmer groups whereby core leadership is provided by the private sector by virtue of their expertise.

The White RevolutionThe White Revolution is at hand! Traditionally symbolized as the Doodh Darya meaning the river of milk, this is a vision to re-engineer Pakistans dairy sector, transforming it to become one of the worlds most competitive dairy sectors with a possibility of becoming an exporter in the long run. It envisions the dairy sector as serving an engine of economic growth for the country and taking the responsibility to drive the development of the socio-economic landscape of rural Pakistan.

It is also geared to introduce improved technological methods in dairy farming industry to increase per animal milk production and attain economies of scales. This provides huge opportunities with minimal competition for farmers to invest in dairy farming and milk processing sectors of the economy.

According to Tetra Pak index, global consumption of milk and other liquid dairy products (excluding soy and dairy alternatives) reached an all-time high of 258 billion liters in 2008 whereas including soy milk and other dairy alternatives, such as rice, nut and seed-based milks, consumption becomes 280 billion liters. Projected dairy consumption in 2012 is 282 billion liters.

Currently, there are more than 25 dairy processing plants operating in the country. Some major market players are as follows: Nestle Pakistan Tetra Pak Engro Foods Millac Foods Noon Pakistan Limited Prime Dairies ShakarGunj Foods Royal Dairy

A Brief Look at Engro CorporationEngro Corporation is one of the leading Pakistani business conglomerates with stakes in the fertilizer, food, power generation, petrochemicals, automation and terminal storage industries. Having undergone an employee led buyout in 1992, it has expanded phenomenally in the past two decades. As a holding company its subsidiaries include: Engro Fertilizers Limited Engro Foods Limited EngroPowerGen Limited Engro Polymers and Chemicals Limited EngroVopak Limited Engro Coal Mining Engro Foods

Engro FoodsIn 2005 Engro decided to diversify their business more by venturing into the food business by establishing Engro Foods Limited, which is now considered a great success and is competing with international brands like Nestl and Wall's/The plant located at Sukkuron 23 acre land has raw milk reception capability of 300,000 liters per day and UHT milk capacity of 200,000 liters per day. The plant was established at a cost of Rs. 1 billion which provides direct employment to 750 people.Engro has a strong bond and long term relationship with the farmers who are willing to supply milk to the company. A third-generation UHT milk plant in the country, using Bactofugetechnology, was established in Central Punjab (Sahiwal) with an investment of Rs. 2 billion (US $ 33 million).Engro Foods Limited is a producer and marketer of dairy products. The companys brands include Olpers Milk, Omore ice cream,OmoreLassi,Tarang, Olwell, and Olperscream. Headquartered in Karachi(Pakistan), it has offices in seven cities across the country, as well as processing plants at Sukkur and Sahiwal. Engro Foods has entered the Food business through milk processing and sale, consistent with the companys vision to pursue growth opportunities based on Pakistans indigenous resources. It also positions the company to leverage its corporate social responsibility initiatives and work closely with rural communities to promote integrated farming and livestock development. This effort is expected to play a pivotal role in poverty alleviation and improving livelihoods of the poor in the milk collection areas. Dairy HubEngro Foods Limited, in collaboration with Tetra Pak Pakistan, one of the worlds leading food processing and packaging solutions company, launched Pakistans first Dairy Hub which is located at Kassowal, in District Sahiwal. The basic objective of this pioneering initiative is to help the farmers improve productivity and efficiency.Dairy Hub a Community Dairy Development Program (CDDP) is a one-herd concept that organizes and develops smallholder-farmers milk production. Dairy hub is one viable solution to meet the growing demands of the dairy industry besides providing agri-services and trainingto help farmers by educating them on animals feeding and diseases.This would lead to improved quality and quantity of raw milk, increased market access, an efficient value chain, enhanced smallholder competitiveness, improved livelihoods in subsistence agriculture, increased employment in agriculture and enhanced skills of farmers.

Engros Mission StatementTo help farmers maximize their farm produce by providing quality plant nutrients and technical services upon which they can depend. To create wealth by building new businesses based on company and country strengths in Petrochemicals, Information Technology, Infrastructure and other Agricultural sectors. In pursuing this mission we shall at all times be guided in our conduct and decision making by our Core Values. Core Values

Leadership Innovation Diversity and international focus Quality and continuous improvement Candid and open communication Individual growth and development Enthusiastic pursuit of profit Ethics and integrity Safety, health and environment

Vision Statement

To be a Premier Pakistani Enterprise with a global reach, passionately pursuing value creation for all stake holders

Market Position and Bottom Line PerformanceTotal sales of Dairy and Juices segment during the firstquarter of 2012 were Rs. 9.3 billion vs. Rs. 5.9 billion duringthe same period in 2011, growth of 58%. Profit after taxincreased by 129% to Rs. 620 million from profit of Rs. 271million in the same period last year. Profit after tax to salesratio also improved from 5% to 7% during the first quarter,Dairy volume grew by 39% over the corresponding periodlast year which translates into a revenue growth of 54%.Company continues to remain the market leader in AmbientUHT milk segment.During the first quarter of 2012, Omore experienced 19%volumetric decline over the corresponding period andrevenue declined by 7% to Rs. 409 million. This wasprimarily due to extended winter season in most parts ofthe country.Ice Cream segment incurred a loss during the firstquarter primarily due to continued investment in itsbrands and the cold chain infrastructure. The loss aftertax was Rs. 135 million during the first quarter of 2012 ascompared to Rs. 128 million during the same period last year.During the first quarter of 2012, Dairy Farm produced26,979 liters (March 2011: 21,106) of milk per day. At March 31, 2012, Dairy Farm herd was 3,204 animals(December 2011: 2,918). Profit after tax stood atRs. 5 million vs. loss of Rs. 19 million in March 2011,primarily due to higher yield and production.

QUESTIONS:1. Evaluate the Dominant Economic Traits of the Processed & Packaged Milk Industry in Pakistan.2. Apply the Five Forces Model of Competition to analyze the overall attractiveness of the Processed & Packaged Milk Industry in Pakistan.3. What are the Drivers of Change in the Processed & Packaged MilkIndustry of Pakistan? How are these Drivers likely to affect the Industry in the future?4. Create an EFAS for Engro Foods.

DATES FOR SUBMISSION & PRESENTATION:For Friday Section: 7th March 2014For Saturday Section: 8th March 2014For Sunday Section: 2nd March 2014

NOTE: The information provided in the case serves as a basic frame of reference. The students are encouraged to carry out their own research to update and upgrade this information base.