Building a Profit Pipeline

Building a Profit Pipeline

How Alqueria harnesses the potential of small dairy farmers and retailers in Colombia
© Edwin Hullman, World Bank

Juan Gonzalo Flores

Senior Agribusiness Officer,
Investment Services, Latin America and the Caribbean, IFC

Some of the world’s greatest innovations emerge from the simplest of ideas. For Colombian physician Jorge Cavelier, that innovation was a belief in the magical health and nutritional benefits of pasteurized milk.

Cavelier’s conviction that all Colombians should have access to safe milk led him to buy a pasteurization plant in the city of Medellin, nestled in the shade of the Andes, in 1959. Now, fifty-five years later, Alqueria S.A, is the country’s third-largest dairy company and second in fluid milk, with revenues of $354 million, 4,500 direct and indirect employees, a 16% share of the Colombian milk market (in liters) and 25% of the Ultra High Temperature milk (UHT) market.

Alqueria's Revenues $354 MillionThe patriarch of the Cavelier empire may have revolutionized the processing of raw milk in Colombia but his family successors have been equally bold, pursuing a unique and inclusive business model that has been the driving force behind their continuing growth.

Under the direction of Jorge’s son, Enrique, and now his grandson, Carlos Enrique, Alqueria has built an innovative business model that relies on low-income populations (dairy farmers on the supply side and retailers on the distribution side).

It is estimated that, on a daily basis, Alqueria visits more than 150,000 small scale retailers.  Critical to the process has been sourcing milk from over 5,500 independent farmers – most of whom produce less than 200 liters of milk a day and some of them, remarkably, as little as 10 liters a day. The company engages these farmers through a strong network of intermediaries including cooperatives and independent milk tanks belonging to Alqueria, who help with the collection and payment processes, particularly in more remote areas.

Foregoing the secure safety net of long-term supply contracts, Alqueria has decided to ground its business model on forming personal, rock-solid relationships with farmers and establishing a reputation for paying farmers on time.

The company has also maintained a generous financing and technical assistance program, offering microcredit financing, advice on appropriate feed rations, and buying fodder and fertilizer in bulk to keep production costs down.

Through an innovative distribution network known as pre-sales, Alqueria accounts for over half of its revenue by having company staff visit small-scale retailers nationwide, taking orders to be delivered the following day. A mobile application allows orders to be uploaded and transmitted through cellular phones.

Maintaining trust with their suppliers, payment is made directly to delivery personnel on a purely cash basis. In more remote areas, a creative system known as micro-sales, allows one person to serve as an independent distributor to small retailers in that area. That distributor uses their home as a mini-warehouse and Alqueria sometimes provides financing for a small truck or motorcycle.

Alqueria’s model has improved the lives of thousands of low-income farmers across Colombia while reaping an impressive profit margin for the family held company. This, according to Carlos Enrique Cavelier, is a fitting tribute to the legacy his great grandfather Jorge left behind.

“Now I can go out to the communities ….and see how the flow of income helps people, as opposed to alternatives with the informal market that do not pay consistently,” Cavelier said. “These communities now have real access to the modern economy.”

About Alqueria and IFC
Alqueria has been an IFC client since 2010. IFC has provided the company with long-term financing in the form of $5 million in equity and $15 million in debt, enabling the company to increase milk sourcing by bringing additional dairy farmers into the supply base, helping new farmers to emerge, and increasing volumes from current suppliers. In 2012, IFC also conducted a resource efficiency assessment of Alqueria’s plant in Cajica, leading to significant energy and water savings.

Alqueria was recognized at the 2013 FT/IFC Sustainable Finance Awards, the world’s leading awards for environmentally and socially responsible banking and investment, in London, in June 2013. It was shortlisted for the ‘Achievement in Inclusive Business‘ award.

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