Three doctors in Azerbaijan hit on a novel way to get supplies when, after the Soviet Union collapsed in 1991, local economies and markets imploded. With just US$112 in share capital, they set up their own small factory, next to the hospital where they worked in the capital, Baku, to produce infant food supplements.
Today Milk-Pro is Azerbaijan’s leading dairy company, and the only one using industrial quantities of fresh milk to manufacture fresh dairy products such as yoghurt and cheese. Now the EBRD is investing US$5.7mn of debt and equity in the fast growing company, which needs room to expand. It is one of the Bank’s first direct agribusiness projects in Azerbaijan and part of an effort to help businesses develop outside the country’s dominant oil sector.
The finance, through which the EBRD will acquire 25% of Milk-Pro, will enable the company build a larger dairy factory in Baku, modernise its existing factory in GoyShay Town, 200km west of Baku, and improve milk collection. The company expects sales to double by 2007 as a result.
The project is important not only in supporting Milk-Pro’s expansion, but also because it 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, says Hans Christian Jacobsen, EBRD director of agribusiness. This is a rare investment in a fragmented sector dominated by family businesses in rural areas, he added. With oil investments helping average incomes to rise, an increasing proportion of the population is able to buy more sophisticated – typically imported – fresh dairy products. Expanding will help Milk-Pro compete successfully with imported products, adds M Shikhiyev, Milk-Pro’s general director and one of its founders.
This project is in line with the Bank’s Early Transition Countries initiative, launched in 2004 to stimulate market activity in the bank’s poorest countries of operations, particularly outside the oil and gas sectors, through smaller transactions supporting the local private sector, rural development and diversification.
The EBRD signed its first deal in Azerbaijan in 1994 and has invested €
480mn in the country, mobilising a further €
4.92bn from partners. The EBRD has invested €
3.5bn in more than 217 agribusiness projects across central and eastern Europe and the CIS.