New micro-cheese processing plant reinvigorates dairy value chain in Nepal

Inconsistency in market chains had left some smallholder farmers in Nepal unsure about investing in dairy farming. With CASA-led technical assistance, dairies were able to produce more cheese, driving up the demand for raw milk and providing a reason for local farmers to increase milk production.

With no formal dairies in Terathum District of Province 1 in Nepal, smallholder dairy farmers like Ms Kamala Raya and Ms Nirmala Kafle were always unsure about the markets. Even when they were able to sell their milk, payments were often late, making it difficult to cover their cost of living. These uncertainties were a disincentive to invest in dairy farming.

Nepal Dairy, one the of the leading dairies in the country, approached CASA to develop a decentralized dairy processing model. Instead of a central milk collection and processing model, they were keen to establish micro-milk processing plants in rural areas of Nepal. Through this model, they planned to reduce production costs, enable skill and technology transfer and ultimately increase profits. Furthermore, by providing market connectivity to smallholder dairy farmers and establishing a timely payment system, Nepal Dairy hoped to incentivize local farmers to increase milk production.

CASA provided technical assistance to Nepal Dairy to scope out ideal locations to pilot decentralized dairy processing. Sidhuwa in Terathum District was identified as a suitable location to produce cheese as it is situated in the hills of Nepal and has a cool climate throughout the year.

CASA also supported Nepal Dairy to develop a concrete business plan to identify the investment needs and profitability of the business model in the area. Through CASA’s support, Nepal Dairy was able to leverage £10,000 to implement the new business model and develop the capacity of its existing dairy plant. In addition, CASA also helped Nepal Dairy to identify local partners that would be interested to invest in the cheese processing centre and manage the centre. Nepal Dairy, along with two local partners, invested about £5,000 each in the cheese processing centre.

The cheese processing plant operationalised in February 2022, it now produces Kanchan cheese (cow’s milk cheese) and chhurpi (aged-hard cheese). To support their current production, they collect 600 litres of raw milk from around 80 smallholder farmers, producing about 50 kilos of Kanchan cheese daily.

By gradually increasing their production, they plan to collect up to 2,000 litres of milk per day. The cheese processing centre has been generating profit after 2 months of operation. This has motivated Nepal Dairy and other local partners to invest more in the Terathum area to increase milk collection and ultimately increase cheese production. Likewise, the success of this business model has incentivized Nepal Dairy to replicate the same model in other areas of Nepal.

The investment by Nepal Dairy to establish the factory, is seen as evidence that the company is committed to the long-term milk collection from the area. This is encouraging farmers like Ms Kafle towards commercialization. With the new cheese processing centre established in the area, she now supplies milk to the processing centre and receives regular monthly payments.

£10,000 Investment secured for Nepal Dairy

80 Smallholder farmers with increased income

50 kg/day Current cheese production

Nepal Dairy and its local partners pay each farmer an additional £0.66 for every litre of milk produced in comparison to the market price. Timely payments and higher prices have strengthened their relationship and built trust amongst the farmers.

Ms Kafle used to supply milk to a local cooperative, but their erratic collection and payment made it difficult for her. The situation got worse during the Covid crisis and the subsequent lockdowns. After establishment of the cheese processing centre, she is now highly motivated to increase her milk production. As she lives close to the processing centre, she is able to deliver the milk herself, daily.

CASA’s support to Nepal Dairy helped in increasing investment in the sector and enabling skill and technology transfer by developing the capacity of the local dairy micro-processors to produce cheese. In addition, by providing assured markets for the processed products, the income of the micro-processors will increase – driving up the demand for raw milk and provide an incentive to local farmers to increase milk production.

The success in producing cheese in a rural area like Terathum has encouraged Nepal Dairy to replicate the same business model to establish a Khoa processing centre in Province 2 of Nepal. Khoa are concentrated milk solids commonly used as a base to produce sweets.

It hopes to continue expanding its production by decentralizing the dairy processing in different rural areas, increase milk aggregation and ultimately increase the overall milk productivity of Nepal.