container plants complete concept

Joint BP-Land O’LakesSmall-Scale Dairy Processing Project

C O N C E P T O V E R V I E W

February 19, 2003

Land O Lakes, Inc. 2003. Not for public disclosure 1

Executive Summary

On November 18, 2002, BP and Land O’Lakes, whose activities in Azerbaijan are funded bythe United States Agency for International Development, agreed to initiate a public-privatepartnership to collaboratively assist selected agricultural communities in rural Azerbaijan.This project was achieved through the combined expertise of various stakeholders. Throughthe contributions of Land O’Lakes’ coordination and assistance, BP’s funding, and matchinginvestments from Azerbaijani beneficiaries, USAID funds and resources were leveraged tomaximize impact on the targeted rural communities.

The project entailed the refurbishment of eight surplus shipping containers by USAID, theirconversion into 4 modular, small-scale dairy processing units, and the award of facilities andprovision of training to community leaders who had successfully applied to receive thefacilities. These facilities are specially designed to facilitate the production of high-quality,standardized cheese in a modular, hygienic setting. The enterprises create jobs, provide anew market for the milk produced by local farmers’ livestock, and produce safe and nutritiousdairy products for the local market. As a result, this partnership has helped Land O’Lakes’USAID-funded project to make a tangible lasting impact on the communities assisted.

Project BackgroundFrom October 2000 until June 3003, The Land O’Lakes Participatory Project in Azerbaijan(PAPA), which was funded by the United States Agency for International Development,assisted in the formation and development of regional livestock associations in Guba,Ismailly and Zagatala. These producers associations are industry organizations involved inaddressing educational, technical training and marketing needs of their local farmingcommunities. Membership in the organizations has doubled over the course of the projectand individual farmers from the associations have received extensive technical assistancefrom the project over the period mentioned.

On November 18, 2002, Land O’Lakes received a grant from BP to leverage activities aimedat assisting agricultural communities in selected Azerbaijani regions. BP’s desire to supporteconomic and community development in rural Azerbaijan, Land O’Lakes’ presence andexperience in assisting dairy farmers’ associations in Guba and Ismailly regions, investmentfrom Azerbaijani beneficiaries, and the availability of free shipping containers, which werepreviously used to transport relief items from USAID, served as the foundation for thiscollaboration.

The joint Land O’Lakes-BP project entailed the establishment of four community-based dairyprocessing plants in Guba and Ismailly regions. Land O’Lakes had previously developedtechnology solutions for refurbishing and adapting containers for use as modular facilities forvalue-added milk products production. Such modular plants were created by renovatingUSAID-provided surplus shipping containers and converting them to cheese-making,packaging and aging facilities capable of processing up to 800 liters of milk per day intovarious cheeses. The equipment and technology provided was designed specially for usebased on local conditions, including raw material availability, domestic market demand, andavailable on-site infrastructure. These facilities were produced using best productionpractices to meet health and environment protection requirements.


This activity addressed some of the most important needs of farming communitiesthroughout Azerbaijan: providing a market for and adding value to raw products, increasingshelf life, facilitating safe and hygienic production of nutritious food products, and providingsustainable employment. In these ways, the project has already achieved the overreachinggoals of supporting the viability of rural economies and communities.

Project implementation began in late November 2002, as an application process wasdeveloped to define the terms by which applicants interested in taking ownership of thesmall-scale dairy processing facilities were expected to compete. Basic training in improvedcheese-making techniques was provided to interested parties to give them a better sense ofwhat would be entailed by managing such a facility. Once Land O’Lakes receivedapplications, project staff reviewed them and then made site visits to evaluate localconditions and appropriateness for hosting the processing facilities. Meanwhile, containerswere being renovated in order to weatherize them, paint the container exteriors, and toinstall interior electrical wiring, heating and cooling, plumbing, hygienic flooring, ceilings andwalls. Work also commenced on procurement of basic cheese-making equipment, such asbatch pasteurizers, cheese vats, and milk analysis laboratory equipment.

In January 2003, beneficiaries were selected to receive the container-based processingunits. Two farmers in Guba and two farmers in Ismailly were selected as finalists. LandO’Lakes collaborated with beneficiaries to design the foundations for the facilities and toarrange for the delivery and installation of the containers. After delivering and installation ofthe facilities, Land O’Lakes continued providing training to the future staff of these facilitiesin milk purchasing, handling, milk testing, hygiene and sanitation, cheese making and aging,and packaging. Commercial production started in May 2003. Over May and June 2003 LandO’Lakes’ Marketing Team assisted the newly established enterprises to design marketingstrategies and establish sales links.

This activity involves the expansion of an existing project that Land O’Lakes had beenimplementing with the local farmers associations to establish revolving equipment funds tofinance the purchases of dairy processing equipment for their members. The activity,implemented by the associations with technical assistance support from Land O’Lakes staff,as well as by regional and US consultants, has proven to be a successful vehicle forupgrading the quality and the quantity of consumer food products produced and marketed bythe targeted communities and for increasing incomes in communities deprived from othermarket opportunities for the milk produced by their livestock.


Description of ActivitiesIn Fall 2002 Land O’Lakes secured eight shipping containers from USAID to be used inconjunction with this project. During Fall 2002 Winter and Spring 2003, Land O’Lakesconducted the bulk of the activities on the organizational and technical side of the project, soas of February 17, 2003 all facilities were on the respective sites and undergoing installationwhich was completed by April 30, 2003.Individual steps completed to date are outlined below:

1. November – December 2002: Association-based application process forassociation members to receive a cheese-making plant through the EquipmentRevolving Fund developed and communicated;A transparent bidding process as an extension of the already existing equipmentrevolving funds, operated by the regional livestock associations, was designed andcommunicated to the regional associations in Guba, Ismailly and Zagatala.

2. November 2002: Bidding process conducted for container refurbishingvendors;Two local vendors were located and requested to bid on a contract to refurbish the20’ freight containers to required specifications. The lower and better offer wasselected.

3. December 2002 – January 2003: Container refurbishing contracted withCaspian Modular Buildings Co.

4. January 2003: Bidding process for equipment purchase (cheese vats, batchpasteurizers, heaters and small scale equipment) conducted;A number of companies entered the bidding process. Offers were obtained fromboth domestic and foreign vendors

5. January 2003: Equipment ordering and production;All of the equipment was ordered from local vendors. Some of the equipment wasproduced locally (cheese vats) and some imported (Turkey, Russia)

6. December 2002: Training seminars for interested association membersconducted;Informational seminars on the proposed project, obligations of the successfulbidders, technological solutions and cost analysis of the proposed plant wereconducted in Guba, Ismailly and Zagatala.

7. December 2002: Competitive application process initiated and completed formembers of regional livestock associations in Guba, Ismailly and Zagatala;

8. January 2003: Finalists selected to be awarded the dairy facilities through atransparent process according to the application criteria;In accordance with the outlined process, and upon receiving commitments from theapplicants’ association members to support the selection, recipients were selected.The finalists were:

- Ruslan 6 Livestock Company Ltd., Ismailly

- Temp Livestock Company Ltd., Ismailly

- Dogru Yol Livestock Company Ltd., Guba

- Elvin Livestock Company Ltd., Guba

9. January - February 2003: Installation of containers and equipment on sites;


Installation of the cheese plants commenced and is currently in progress. Severeweather conditions have slowed down the process of installation

10. January – February 2003: Technical assistance is offered to beneficiaries inlaying foundations and related installation issues.

11. February –April 2003: Technical assistance in new product development andcheese plant operation. Installation completed and test production commencedStart up of the milk-processing/cheese production plants. New product developmentand product standardization as well as comprehensive and complete training to theoperational staff will be offered.

12. May – June 2003: Technical assistance in cheese sales and marketing.


Implementation ChartNov.2002

December 2002

January2003

February2003

March –April2003

18-30 1-10 11-20 21-31 1-10 11-20 21-31 1-10 11-20 21-28 1-10 11-20Organizational IssuesDevelop and communicate application proceduresConduct training seminars for interested beneficiariesStart and end competitive application procedureDetermine sites and beneficiariesAssist in installationAssist in production startupTechnical issuesContainer refurbishing bidContainer refurbishingEquipment purchasing bidsEquipment ordering and productionOn-site installation of containers and equipmentProduction training and marketing assistance

This Activity chart represents the activities completed to date and activities to be completed to end of project. All activities remaining are to beconducted on the respective sites in Guba and Ismailly.


Project Goals and DeliverablesThe goals of the project are the following:

1. Establish four community-based milk processing plants in the rural areas of northern Azerbaijan toserve as a market outlet for the locally produced milk;

2. Launch on-farm, value-added production and utilize competitive marketing positioning of regionallybranded cheeses;

3. Offer direct, permanent employment through the processing facilities to at least 16 individuals inmilk collection, milk processing and product marketing;

4. Establish a sustainable milk market outlet for at least 220 rural households in Guba and Ismaillyregions;

5. Develop at least 8 new standardized dairy products to increase demand, diversify product linesand increase sustainability of dairy farming by increasing milk productivity on the community level;

6. Increase year-round rural household income by at least $700 per year in the target communities;

7. Strengthen visibility and capacity of the regional livestock producers’ associations as industryassociations providing services to members;

8. The cheese plants will have total capacity of processing 3,000 kg milk per day, operated in twoshifts. This accounts for production of 500 kg white soft and other cheeses (Feta, Quark, Cottage)from pasteurized milk or 330 kg semi-hard cheeses (such as Cheddar, Gouda, Edam, Kashkaval,and Kashar);

The technology solutions applied offer flexibility and the opportunity for increasing processingcapacity by at least 50% with minimal modifications. The capability is also provided for processingother agriculture commodities, such as vegetables and fruits.


Project BudgetThis budget illustrates spending to date on this activity.

Item Unit Quantity Price perpiece

Donor Total to dateexpenditure

1. SalariesProject management Months 1 2,600 Land O’Lakes - USAID 2,600Local salary Months 3 720 Land O’Lakes - USAID 3,160Subtotal 5,7602. Local Travel and Per DiemLocal staff Days 45 10 Land O’Lakes - USAID 450Regional volunteer Days 20 50 Land O’Lakes - USAID 1,000Subtotal 1,4503. Communications transportation and supportAccounting andcommunication costs

Months 3 300 Land O’Lakes - USAID 900

Transportation –containers

Amount 1 308 Land O’Lakes - USAID 308

Container handling Units 8 15 Caspian ModularBuildings

120

Subtotal 1,3284. Equipment and suppliesFreight containers Units 8 700 USAID 5,600Refurbishing ofcontainers

Units 8 2,540 BP 20,320

Heaters (70%) Units 4 1125 BP 4,500Cheese vats Units 4 628 Land O’Lakes - USAID 2,512*Batch Pasteurizers Units 4 1,393 BP 5,572Installation Per site 4 477 BP 1,908Plaques Units 4 25 BP 100Laboratories Units 4 100 Land O’Lakes - USAID 400Discount on containerrefurbishing

Units 8 200 Caspian ModularBuildings

1,600

Improvements on site Per site 4 4,500 Beneficiaries 18,000Subtotal 60,512TOTAL 69,050* - The amount of $2,512 is to be reimbursed by the beneficiaries to the given association’s equipmentrevolving fund and to be reused for an ongoing revolving, no-interest credit line for association membersdesiring to purchase additional processing equipment.

The cost sharing arrangement is presented in the table below:

Participant Type of Contribution Contribution Value Percentage contribution

BP – Azerbaijan Financial 32,400 46.9%

Land O’Lakes –USAID

Technical Assistanceand Financial

10,93015.8%

USAID In kind 5,600 8,1%Other Private In kind 2,120 3.1%

Beneficiaries Financial and In kind 18,000 26.1%

TOTAL 69,050 100%


Photo Gallery

20 freight container-based modular cheeseproduction facility jointly developed by IRC andLand O Lakes in Azerbaijan

Initial design of the 2X20 transportationcontainer-based cheese-making facilitydeveloped for the BP-supported project

Discussing project implementation with theGuba Livestock Producers Association

Training in cheese production in Ismailly

Refurbishing 20 containers (initial phase) Refurbishing 20 freight containers ( initialphase)

Refurbished container - exterior Refurbished 20 container - interior


Discussing site selection with Ismailly applicant Four sets of containers prepared fortransportation

Loading of container aboard a truck Transporting containers

Installing the containers in Bergov village inQuba region

Installing the containers in Tallish village inIsmailly region

Installing the containers in Amsarpalasa villagein Quba region

Technical application of the container-based,modular cheese facility

CheeseProductionUnit

Cheese AgingUnit


Installed containers in Bergov village in Gubaregion

Installed container in Bergov village in the Gubaregion with a detail of the boiler

Installed containers in Tallish village in Ismaillyregion

Installed containers in Amsarpalasa village inGuba region

Installed containers in Garameyrem village inIsmilly region

Interior of the milk processing room inAmsarpalasa village in Guba region

Finished product Bieno cheese inAmsarpalasa village ii Guba region

Finished product White Soft Cheese frompasteurized milk in Bergov village in Gubaregion

container plants complete concept

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