Why sharing economic growth with the community is good business

The world’s 550 million small farmers are some of the world’s poorest people, eking out a living on farms of less than 10 hectares. With minimal financial resources, they face endless challenges from weather, diseases, pests, weeds, uncertain prices, and harsh seasonal growing conditions.

Helping these people seems like an unlikely business prospect for a large multinational like Bayer, a world leader in life sciences. However, as detailed in a previous article on HBR.org, Bayer has successfully partnered with private and public sector organizations to provide smallholder farmers in India, Indonesia and Bangladesh with access to markets, finance, quality agricultural inputs and education about contemporary agriculture – and business practices. The system is based on a network of independently managed Better Life Farming Centers, each connecting up to 500 smallholders with the skills, products and services of Bayer and partner companies and NGOs. This new inclusive ecosystem is already lifting one million farmers out of poverty while expanding the company’s market reach.

Bayer has embarked on a similar path to address the plight of hundreds of thousands of marginalized dairy farmers with more than 24 million cattle in Southeast Mexico and Central America, and are achieving similar results.

The problem

The typical small dairy farmer has around 25-30 cattle grazing on as many acres. They sell their daily milk production to local dairy processors and artisan cheesemakers, and generate bi-weekly cash payments that they use to pay workers, pay off some debts, and cover the farm’s operating costs. During the rainy and wet months from April to mid-November, ranchers ensure a reliable supply of grass to feed their animals. Although difficult to operate and requires many hours, it is generally smooth.

Problems arise during the dry season when grass growth is insufficient to feed the herd. The ranchers keep their animals alive by feeding them stubble from other crops, supplemented with minimal amounts of expensive grass bales. During the dry months, the animals lose up to 90 kg (approx. 20-25% of their weight) and give 50% less milk. They are also more likely to get sick and breed less often.

The solution

Bayer, which already sells seeds to field farmers in the region, saw an opportunity to expand sales while alleviating the plight of dairy farmers. The solution: Have ranchers plant corn on part of their rangeland during the rainy season and train them to silage corn at the right harvest time, a proven conservation technique in harsh climates. The ranchers could then use the preserved corn silage to feed their animals during the dry season.

Bayer has set up its own organization, DKsilos, made up of agronomists and veterinarians to help dairy farmers implement the new business model. The DKsilos team integrated existing local suppliers, such as veterinarians and machinery sales people, into a new distribution network that provided the ranchers with high-quality seeds and other agricultural inputs. The new network also funded the ranchers and distributed their production to local and regional customers.

Master the challenges

DKsilos had to overcome several challenges. First he had to ensure that ranchers were willing to consider the new model, which was not a given given that arable farming had a lower social status. Through a series of focus groups, DKsilos quickly found that increased income and peace of mind during the dry season could overcome any perceived loss of status, especially if farming enabled them to become more successful ranchers.

The next challenge was the ranchers’ lack of technical know-how in corn cultivation and silage, particularly in a tropical region where corn silage was not a common practice. Ranchers initially believed that only large ranchers with large infrastructure and technically skilled personnel could successfully grow and ensile corn. By setting up pilot plots in different conditions and locations, DKsilos was able to demonstrate the technical feasibility of local maize production and silage and how this resulted in healthier livestock and more profit for the ranchers.

A third challenge was the undercapitalization of the ranchers who would need machinery to plant, harvest and ensile the corn. DKsilos worked with local banks to develop a leasing model that gave ranchers access to machinery with no upfront investment. Some ranchers also used the available finance to buy the equipment and rent it to neighbors when not in use. These options expanded the market for local gear dealers.

Finally, DKsilos needed to create a robust knowledge transfer process to train the region’s tens of thousands of widely dispersed smallholder ranchers. Bayer used its operating expenses budget to subsidize local dealers in hiring a technical consultant, who became part of the package they offered ranchers. The technical adviser helped the ranchers choose the right land for growing corn, gave them timely advice on harvesting, and trained them on how to prepare the silage.

A win-win payout

Ranchers quickly benefited from their new business model. The production and storage of the maize silage costs 50-75% less than feeding the animals with grass bales during the dry season. The silage also had a higher nutrient content as the starch concentration on corn kernels provided more energy per kilogram than grass bales.

With silage-fed cows, ranchers have now been able to sustain milk production during the drought and avoid the 50% drop previously seen. They also benefited from a slightly higher price per liter as the milk from silage-fed cows had a higher fat content. They were even able to increase their herds as the healthier animals had higher birth rates, and the same farmland could now support 2-3 grazing animals per hectare.

The economy was convincing. For the typical rancher with 25 cows, feed costs fell from about 76,000 pesos (US$3,800) to about 54,000 pesos (US$2,700) during the five-month dry season, while revenue from higher milk productivity fell from 120,000 pesos (US$6,000 ) to 200,000 (US$10,000), resulting in an operating margin increase of about 100,000 pesos (US$5,000) — or about 20,000 pesos (US$1,000) more per month.

As the smallholder ranchers are now producing more milk, using technical support from DKsilos, corn seed and crop protection products from Bayer, and machine services from partner organizations, they could now become reliable suppliers to large regional processing companies such as Sula (Lacthosa) in Honduras, Dos Pinos in Costa Rica and Nestlé in Mexico.

DKsilos connected its participating ranchers to these producers, who benefited from access to locally sourced milk, rather than having to transport milk or milk powder from suppliers 1,000 kilometers away at the expense of the environment. At the same time, Bayer increased sales of corn seed and crop protection products. The win-win-win cycle also included the regional dairy industry, which now had access to larger volumes of cheaper, higher quality milk. And many new local jobs have been created to support the expanded dairy operations.

. . .

The new practice quickly took off. Corn silage planting grew at an average growth rate of 152% from 10,000 hectares to over 120,000 hectares between 2016 and 2022 and now includes 42,000 participating ranchers in eight states in southeastern Mexico and in Guatemala, Honduras, Nicaragua, Costa Rica, Panama, and Dominican Republic Republic. Since 2016, participating ranchers have collectively saved over $550 million by using their locally produced forage instead of purchasing grass bales, and realized more than $200 million in additional profits from their higher quantity and quality milk production. DKsilos is now preparing to roll out the same model on a larger scale to small dairy farmers in Latin America and potentially Africa and Asia.

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