Milk processors in Province 1 have so far not been able to introduce diversified quality milk products. While Nepal has seen a steady growth (4.1%) rate in milk production in the last few FY Province 1 in particular has witnessed an exponential growth (11.1%). However, dairy processors are yet to match this growth with increased processing capabilities or introducing diversified products. The reluctance of dairy processors to increase processing capacity or adding new products is high initial cost, in terms of procuring machineries, equipment, and technical knowhow. Producing quality milk products requires processors to adopt increased processing capacity, advanced technology (at different level of processing) and incur higher production costs as multiple levels of processing needs to be carried out (including branding, packaging, and labelling). This implies making relatively risky investments in additional processing capacity. The majority of dairy processors in P1 have limited their product line to conventional dairy products such as ghee, curd, paneer ignoring the need for product diversification. While this strategy works during the lean season when the production is low and procurement difficult however due to lack of product diversity, the processors must declare milk holidays to restricting the procurement of raw milk from producers during flush season, which risks their relationship with the producers and hampers their ability to procure during lean season.
Additionally, the cost of sourcing milk from distant areas is too high to be deemed sustainable. Nepal has also been importing many dairy products like powder milk & cream, flavoured milk, flavoured curd, cheese (mozzarella, cream, slice, soft cheese) and other products. In FY19/20, Nepal imported NPR 2.0 billion of milk products, whereas its exports (such as cheese (dog chew), butter) amounted to NPR
25Mn. Due to the constraints in domestic processing, the dairy sector of Nepal has not been able to play a significant role in import substitution.
Therefore, the programme has envisaged a CF to address above-mentioned systemic constraints by working with private sector. Through a CF mechanism, it seeks to encourage market driven innovative idea from eligible applicants (please refer section 4 for further details). The next section gives non-exhaustive innovation to the identified challenges but welcomes other market driven solutions from applicants that address the constraints.
SCF Round 2 is looking for Innovative Dairy Product Ideas to address the issue of product diversification in the Dairy Industry of Province 1. SCF round 2 will aim to address the existing problems and challenges of the dairy sector and bring ‘break-from-the-past’ type innovations in dairy products and packaging. In doing so contribute to a higher level of commercialisation and economic value-add in the dairy sector.
- Respond to market constraints
- Are innovative, and additional to what would have happened without Sahaj’s support.
- Are inclusive, target women, marginalized groups, and other disadvantaged groups (DAGs).
- Will be sustainable after Sahaj’s funding and have the potential to scale up.
- Will contribute costs/funds to the proposed solution.
- SCF round 2 intends to contribute to increasing employment and value-add in the dairy sector of province 1
- Solicit innovative ideas to address some of the most challenging problems and obstacles identified in case of dairy sector
- Address those challenges where disrupt,’break-from-the-past’ type innovations are considered key to move the needle in dairy sector which can solve persistent bottlenecks in the private sector functioning in Province 1
- Support commercialisation and economic value-add businesses in the selected dairy sectors
The SCF is guided by several principles. These are not specific procedures but present an approach that is adopted across the stages and phases of the fund and will also largely guide the assessment of applications
- Competitive process
- Cost sharing
The majority of the SCF Round 2 support is expected to be provided through grants. Where relevant, the Fund may consider providing technical assistance. In cases where established companies want to embark on a disruptive innovation, a conditional grant (risk-sharing) or co-investment (matching grant) may be considered as well.
Due to the nature of disruptive innovation, often done by new companies, no loan guarantees are expected to be provided, as these would imply repayment obligations soon after the disbursement (bank lending is generally considered less suitable for early-stage business initiatives).
While the nature of the SCF Round 2 grants are primarily to support disruptive innovation, it is expected that partners (grantees) contribute to the projects and innovations they propose. The overall rate of cost sharing is variable, and a function of the stage of the company or partner SCF chooses to work with. In general, the more established (and cash-positive) a company is, the higher the expectation of cost sharing.
Process and Timeline
Budget, Funding & Duration
The total budget for round 2 of CF is expected to be approx. NPR 20M. The largest fund awards are not expected to exceed NPR 5M, although exceptions are possible if approved by the SCF 2 Committee. No fund award shall be less than NPR 500K to manage the administrative workload involved in each individual engagement.
Awards and accompanying support for innovations are generally expected to last for one year. Where necessary, the SCF2 Committee may decide to continue support for subsequent periods; this will always be assessed on a case-by-case basis.
- Existing Nepali dairy companies (including dairy processors) with at least one year of operation in Province 1.
- Individual applications (start-ups, young SMEs) with a business idea for the dairy sector and intending to register as a business within 6 months of the application date.
Private sector, cooperatives, and associations (applicants) must:
- Start-ups that have minimum viable product, and solid business model and are looking to accelerate
- Be financially sustainable (i.e., cash flow positive) or demonstrate a credible business plan/projection towards financial sustainability over the next three to five years
- In case of an existing business, be registered at the company registrar office, tax office and up to date on their registrations and tax duties
- Be able to demonstrate internal procedures and systems to ensure that the grant can be used transparently and efficiently
- Be able to demonstrate their capacity to provide the funds budgeted for their own contribution.
- Operate in the selected or related field for at least 1 year, or have a credible business idea and plan to form a business