The move comes as FrieslandCampina CEO Roelof Joosten met with Pakistan’s Prime Minister, Nawaz Sharif, to discuss dairy opportunities in the country.
The financing will help FrieslandCampina acquire 51% of Engro Foods, Pakistan’s leading dairy processor.
According to IFC, more than 200,000 farmers and 270,000 distributors are expected to benefit from the company's acquisition of Engro Foods, which will also create more than 1,000 new jobs in the dairy supply chain.
‘Key emerging market’
The financing package for FrieslandCampina includes equity investments of $45m and a senior loan of $100m. Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden, the Dutch development bank, will also provide up to $45m to support the acquisition.
“Pakistan is a key emerging market and is backed by one of the world’s largest and fastest-growing middle classes,” said Roelof Joosten, CEO Royal FrieslandCampina.
“Together with Engro Foods, FrieslandCampina can contribute to food security, the more sustainable production of dairy, and raising living standards for Pakistani dairy farmers. I am convinced that this partnership will create long-term value for everyone.”
Mouayed Makhlouf, IFC regional director for the Middle East and North Africa said the financial package should underline the potential of Pakistan's private sector for foreign investors.
Pakistan is the third-largest milk consumer in the world and its dairy industry produces 38bn liters of milk annually.
Meeting with Prime Minister
Prime Minister Sharif said the transaction will be instrumental in positioning Pakistan as an attractive investment destination for global companies and encourage others to follow.
“I am hopeful that this partnership will allow the Pakistani population to enjoy a wider array of affordable, high-quality dairy products for a healthier Pakistan,” Sharif said.
“Improving the well-being of millions of our farmers is a cause that Pakistan has been focused on since its inception. I am convinced that this partnership will create tremendous long-term value for our dairy farmers.”
Partnership with Engro Foods Pakistan
Joosten said the partnership with Engro Foods will accelerate FrieslandCampina’s route2020 strategy.
He noted in the company’s route2020 strategy, Central Asia is one of the markets FrieslandCampina would like to get access to.
“The expected growth of the market in combination with FrieslandCampina's ability to grow in this market is an important factor and, of course, also a possibility to gain profit in the product market combination,” Joosten said.
He said he expected to take advantage of the conversion of the market from loose to packaged dairy products, which is expected to accelerate in the near future as a result of a growing middle income class as well as increasing urbanization.
Joosten said FrieslandCampina would transfer knowledge to the industry and the FrieslandCampina Dairy Development Programme.
Last month Engro Foods Limited (EFL) was one of three companies fined by Pakistan’s Competition Commission for deceptive marketing practices.
The other companies fined were Noon Pakistan Limited, and Shakarganj Food Pakistan Limited.
Court documents show that in 2015, concerns were raised that the companies were “marketing ‘dairy drinks’ or ‘dairy liquids’ and liquid/powered ‘tea whiteners’ as milk or as milk substitutes, while using various proportions of milk extracts/reconstitutes in their products, which cannot be considered, marketed, advertised, and sold as milk and/or as milk substitutes.”
The enquiry report said that EFL’s product, Dairy Omung, and its associated marketing campaign gives ‘a firm impression that Omung is milk and not a Dairy Drink.’
Commitment to advertising
In November 2016, EFL filed a commitment before the Commission that it has removed the comparison with loose milk in its new advertising/marketing material, and that appropriate changes had been made to its website content.
EFL further undertook that it would comply with all directions of the Commission.
The Commission accepted the commitment on the condition that EFL ensures that existing and future marketing materials – in printed or electronic form – make no comparison of Dairy Omung to milk; ensure that packaging will carry the term ‘Dairy Drink’ in Urdu and English; and shall clearly and conspicuously print an express disclaimer that the product is Dairy Drink and not ‘milk’.
EFL was fined $595,000, Noon Pakistan was fined $19,000, and Shakarganj was fined $4,770.
EFL did not reply to DairyReporter’s requests for comment on the case.