Global Economics

Danone Innovates to Help Feed the Poor


Along with Grameen Group and Nobel Prize winner Muhammad Yunus, the French food company has created a nutritious and inexpensive yogurt for Bangladesh

At an ultra-modern research center in the Paris suburbs, scientists employed by French food group Danone search relentlessly for new products—from immunity-enhancing yogurt (BusinessWeek.com, 11/15/07) to energy-boosting drinks—that will entice consumers to dig a little deeper into their pocketbooks.

But Danone (DANO.PA) faced a different kind of innovation challenge when it teamed up in 2005 with Grameen Group of Bangladesh to develop a yogurt for some of the poorest consumers in the world. The goal: to create a product that would retail for less than 10¢ per serving yet provide 30% of the minimum daily requirement of iron and other key nutrients.

What's more, it would have to be manufactured in a small, environmentally friendly factory, with a low-tech, labor-intensive supply and distribution network—the kind of small-scale "social business enterprise" championed by Grameen's founder, Nobel Peace Prize winner Muhammad Yunus.

Slashing Manufacturing Costs

Danone had never done anything like that before. Indeed, the project ran counter to the strategy Danone had used successfully in developing economies such as Indonesia and South Africa, where it built large, super-efficient factories and used refrigerated truck fleets for quick delivery. "We had never before found a model for really poor populations," says Emmanuel Marchant, managing director of Danone Communities, a fund the company established to invest in the project.

Per capita income in Bangladesh is under $4 a day, less than half the average in Indonesia. To operate profitably, the Grameen Danone Foods joint venture would have to slash manufacturing costs to one-third the average cost-per-ton in other countries.

But Grameen Danone met the innovation challenge, which proved to be as much about management and processes as it was about technology. Last year its first factory opened—in the northern Bangladeshi city of Bogra. The plant now produces more than 10,000 containers daily of a fortified yogurt called Shoktidoi that Danone researchers developed for the Bangladeshi market. The operation isn't profitable yet but is expected to break even within two years. "We're still in the pilot phase," Marchant says.

Local Labor and Ingredients

Shoktidoi is made from milk produced by local farmers, who bring it to the company on foot or on bicycle rickshaws. The finished product is delivered to small shops within about a 20-mile radius of the plant or is sold door-to-door by local women called "Grameen Ladies," who receive a commission of a little over a penny on each container sold.

Sounds pretty simple—but getting there wasn't easy. Scientists at Danone's research and design center struggled to find a recipe that would be inexpensive to produce and meet basic nutritional requirements, but still have a pleasant flavor and texture. Some early Shoktidoi prototypes were too runny or grainy, or had a faint taste of iron. The final version has a consistency resembling other Danone yogurts sold worldwide and is sweetened with sugar and syrup from locally grown date palms.

Removing the Stigma of Door-to-Door Sales

Developing a reliable milk supply also was a challenge. Most local farmers were too poor to buy feed that could boost their cows' milk production, so Grameen Danone has helped them obtain microloans from Yunus' Grameen Bank. The company also has helped farmers organize cooperatives to set up refrigerated collection centers where they can deliver milk.

Even recruiting Grameen Ladies proved difficult, because Bangladeshis traditionally assume people who go door to door are beggars. To remove the stigma against Grameen Ladies, the company launched a public-information campaign in neighboring villages.

A Model for Feeding the World's Poor

The job of designing the Bogra factory fell to Guy Gavelle, a longtime Danone production specialist. Besides keeping costs low, he had to develop non-polluting technologies. For example, the factory boasts a "bio-gas" system that transforms manufacturing wastes into gas that powers some of the plant's lighting and heating systems. Although it is only about 1% the size of most Danone plants, the Bogra facility "is more advanced than the huge plants I have designed in Brazil, Indonesia, China, and India," Gavelle says.

It's pleased with the project so far, but Danone says plenty of challenges remain before the company proceeds with its next step: building similar factories in other poor communities. Among other things, rising costs for basic agricultural goods are forcing Danone to raise prices on Shoktidoi by about one-third. But if Grameen Danone stays on track, it could become a model for an effective—yet profitable—solution to the problem of feeding the world's poor.

Matlack is BusinessWeek's Paris bureau chief.

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