We Left Ten Years Ago and Business Is Still Thriving!

In this blog post, we share the experience of the Indo Swiss Project Sikkim (ISPS) in India which was funded by the Swiss Agency for Development and Cooperation (SDC) and implemented by then Intercooperation from 1993-2006. The project had initially struggled to generate concrete results despite its substantial investment. Ten years after the end of the project, business among the 1,000 dairy farmers is thriving.

Poverty amidst plenty

Agriculture in Sikkim on the first slopes of the Himalayas has potential, but it has mostly been for subsistence. Livestock production, combined with the cultivation of crops like millet and paddy, is the main source of livelihoods for most farmers. Hilly terrains and remoteness of the area hinder establishing industries, thereby making it very difficult for the rural people in Sikkim to generate income and secure off-farm employment. The cooperative dairy system set up and supported by the government was incurring huge losses due to low volumes of milk, high transaction costs and poor management by the government.

The milk produced and collected in the villages in the West Sikkim District was transported daily on narrow, bad roads to a dairy processing unit located 50 kilometres away. By the time the milk reached the processing unit, its quality was either low or it was curdled. The monsoon season was the most difficult period for transporting milk to the processing unit due to frequent landslides blocking the roads. This has resulted in low handling at processing levels, and producers were demotivated from producing milk.

Identifying the transport of a perishable product such as milk as major obstacle, the project together with the farmers looked for a product that would not need to be transported daily, but would have longer shelf life and high value addition with less complex technology. The project assessed the idea and then provided support to the farmers in West Sikkim to produce cheese.

The Sikkim Dairy Products Private Limited

The extensive discussion between farmers and the project led to the conclusion that farmers would need a good business plan. This was not just to produce milk and process it into cheese, but to do it in a sustainable way. Mindful of the unsustainable and project-driven establishment of associations and private enterprises, the Sikkim Dairy Products Private Limited (SDPPL) was set up in 1996. The organisational form of a private company was chosen to guarantee operational autonomy and to ensure a professional management. The shareholders of the company were two milk-producing cooperative (2%), the Government of Sikkim (32%) and the ISPS Trust (66%), a public charitable trust set up to channel Swiss funds to the company.

Administrative setting

Since the planning stage of SDPPL, the project together with the farmers developed a system for an eventual takeover of all shares, i.e.to transfer the shares held by the ISPS Trust and the State Government to the farmers.

Infrastructure

The project substantially provided the infrastructure and the technical knowhow to the company for producing Gouda cheese and carry out the required test of products and raw material. The capacity of the plant was to process 2,000 litres of milk/day, enough to produce 200 kilograms of cheese per day. SDPPL placed considerable emphasis on milk quality. Milk received from the farmers was expected to react negatively to alcohol test and pass the methylene blue reduction test. Considering high involvement of women in the milk production, the company also started a women promoter programme that focused on clean milk production, hygienic processing and a quality-based pricing system.

Marketing

Producing Gouda cheese aimed at achieving a stable product for better transport over long distance in order to facilitate marketing of the product in India. There was an initial market assessment of Gouda cheese, which indicated considerable potential in the metros as well in the local areas.

Market promotion for the product was limited from the onset of production; this led to a slow uptake of the product in urban areas. In 2001, the company realised that additional promotional efforts were required, something that a relatively small company could hardly afford. SDPPL proposed to the Gujarat Cooperative Milk Marketing Federation (GCMMF) to market its cheese to strengthen its position in the market and enable SDPPL to establish a secure product outlet. SDPPL signed a marketing contract with GCMMF, which now distributes the Sikkim Gouda cheese since 2004.

Ensuring ownership by farmers

The project ended in 2006. The donor (SDC) and the implementing agency, Intercooperation, decided to transfer the shares to GCMMF, so that all initiatives of the project would be sustained. Farmers were involved in the discussions and agreed to the transfer of the shares held by ISPS Trust and the Government of Sikkim to GCMMF under the condition that GCMMF would transfer the shares to the farmers’ cooperatives once the company reaches cash breakeven. The share transfer process was completed in November 2006 within five months from the closure of the project.

The company crossed breakeven in 2012. It pays a high milk price to farmers, who now own the company jointly with GCMMF. They take decisions and run the company without any external donor support. More than 1,000 farmers supply high quality milk. Gouda Cheese is widely available as AMUL Gouda cheese brand in many areas of India. The plant reached 100 percent capacity utilisation and collects 2,000 litres of milk daily to produce 200 kilograms of cheese. Currently the company is running successfully and its annual turnover crossed 25 million Indian Rupee (370,000 USD) without any external support. The company is planning to increase its capacity to 500 kilograms of cheese per day.

Key takeaways

This case does not claim to have applied a systemic approach, but successfully achieved sustainability – ownership by actors and durable impacts. The project’s roles from the start were temporary and facilitative. ISPS also understood the main causes for the underperformance/failure of the dairy sector and not just symptoms. It sends a powerful message on the importance of having a feasible and relevant vision – we all need to take stock of our current work and develop a realistic picture of how this will translate in the future, once our projects are over.

The scale of this initiative comes from not only in reaching all the households in a hilly terrain with scattered households, but also from sale of the product nationally in India.

To conclude, the main success factors for cheese processing in West Sikkim were:

• Selection of the right partner was very important. GCMMF was chosen mainly because of its match with the vision of SDPPL, its incentives and capacities.
• Building demand-driven farmers capacities on management, production and technology resulted in easy handover of the company.
• Quality was highly crucial in the process; GCMMF collaborated with a small company (SDPPL) due to its consistency in the quality of the raw material and the product (milk and cheese). The choice of the product was based on a systematic assessment, and adequate international technical support (from commercial cheese makers) ensured that this remote, small unit produces high quality cheese.
• Finance, production, transparency and human resource systems developed during the support period were properly followed up even after the withdrawal of support.
• Last, but not least, the entire idea would not have started rolling without the vision and mission of SDC and Intercooperation who put their financial and human resources into this project, provided it with the required time, though in the end not shying away from handing the project over to the local stakeholders.

Additional sources:

• Sikkim cheese going global!
• Capitalisation of Experiences in Livestock Production and Dairying (LPD) in India
• Systemic approach
• Indo Swiss Project – Sikkim (ISPS)