Milk entrepreneurs believe they can change the fabric of staid old dairy.

Indian dairy’s young guns

By Richard Whitehead

- Last updated on GMT

New companies are starting to challenge the old guard in the Indian dairy industry. Pic: ©Gettty Images/RakeshPicholiya
New companies are starting to challenge the old guard in the Indian dairy industry. Pic: ©Gettty Images/RakeshPicholiya

Related tags: India, Dairy

There are few industries in India quite as established and dominated by big firms and cooperatives as dairy. But that hasn’t stopped a thrusting breed of startups delivering a new approach to the business.

Though tiny relative to the enormous names of Indian dairy—the likes of Amul, Mother Dairy and Kwality—these startups believe they can make a difference with their dairy, both socially and in terms of efficiency.

There is only a handful of businesses on the dairy startup scene. But there might well be more in the future, if these firms can continue to persuade investors that dairy is a viable domain.

Raising funds

Milk Mantra was the first of the three to emerge, in 2011. It had already taken the Odisha-based dairy company a painstaking 18 months to raise funding from 22 angel investors before it could establish operations. But it was worth all the effort. Whereas in its first year of operations it saw turnover of INR180m (US$2.5m), by last financial year that had grown to INR1.82bn.

The company is typical of the new dairy generation in that it professes a social conscience through its ethical sourcing. Its founder also claims that its Milky Moo brand of dairy products is the fastest-growing F&B line in India.

We are India’s first venture-venture-capital funded agri-food venture, and have been a pioneer in bringing an entrepreneurial revolution in the dairy sector in India and in addressing the widespread consumer trust deficit​,” said Srikumar Misra, a former Tata Tea executive.

Our differentiated conscious capital approach has demonstrated to investors that a new age transformational venture can be created in an age-old sector​.”

Cowboys

Equally positive about his venture is Aalekh Agarwal, founder of Cowboys, which launched in 2015 as a farm-to-home dairy brand to directly deliver milk and allied products from its 350-acre property in Rajasthan to customers in Delhi.

Having found that the milk he typically bought was a mixture of buffalo, cow and goat milk to maintain minimum fat standards, he “decided to bring about a change by stepping into the farmer’s shoes.​”

The reason for venturing into this totally unknown domain for me was that when it comes to milk, as consumers we have no choice other than what the giant cooperatives sell. You cannot walk into a supermarket in India and find 100 varieties of milk like you would do in a Tesco or a Walmart​,” he said.

Happy Cow

A third startup, Happy Cow, was launched by Sarad Garodia, a two-decade veteran of the milk industry and former head of Britannia’s dairy division. Launched in 2017, Happy Cow aggregates milk from dairy farmers by building technology-enabled milk collection centers in the western state of Maharashtra. Each center enables a collection of about 2,000 liters of milk per day.

With the technology we have available how, we can approach dairy collection differently, compared to how it is done by the cooperatives​,” he said.

We are able to procure milk from scattered communities of small farmers and avoid erratic pricing policies, cutting out the middlemen so that dairy farmers are able to grow their businesses​.”

Innovative approach

What unites these startup businesses is their innovative approach to trading in an age-old industry. Milk Mantra, for example, sources milk directly from farmers with marginal land holdings and a handful of cattle. On the one hand, its bright and airy offices resemble those of any funky startup elsewhere in the world; on the other, its collections in the dusty hinterland couldn’t be further away from all this entrepreneurial gloss. Yet its payments charts, which outline how much farmers should expect to receive for their milk, are nothing short of revolutionary in eastern India, where farmers struggle more years than they thrive at the hands of brokers.

Milk Mantra has also tied up with banks to provide low-interest loans to farmers to purchase cows, and it provides them with good feed at market rates. Misra claims that farmers supplying the company have seen a 40% increase in their income.

Undaunted by the scale of the established competition, its founder stresses that being a startup does not mean his business will forever play second-fiddle to the major players.

We have already disrupted the category and we are already amongst the top few players in our region, and the number two player in several of the categories we operate in, like probiotic dahi and fresh paneer​,” he retorted.

Dairy is a sector with a long value chain and can’t be disrupted overnight, however over a period of time startups that have their fundamentals right can gain substantial scale and become leaders. We have a vision to be the number one private dairy player in eastern India, and are well on track to achieve that​.”

Funding priority

For younger startups like Cowboys, however, securing funding is a priority ahead of all others. Compared to Milk Mantra, which has raised US$26m over four rounds of funding from both impact and mainstream global investors, Cowboys is having to work hard.

We did get a lot of interest around 2016 but it was extremely difficult to convince investors about a business which depends heavily on livestock. Investors are typically more interested in valuations doubling or quadrupling, which is not something they saw in this domain​,” said Agarwal, who has so far been funding expansion through Cowboys’ own revenue growth.

Though he believes that India needs more dairy entrepreneurs to put the industry under the spotlight for investors, there is a dearth of people willing to engage.

Dairy definitely needs more entrepreneurs but sadly no one is ready to get their hands dirty. The education system hardly encourages agriculture or dairy as a viable career opportunity. A little more focus on quality education in this field would do wonders,​” he added.

Industry background

Meanwhile, Happy Cow has hit the ground running, perhaps because its founder is so steeped in the dairy industry. It raised INR40m (US$544,000) in its seed round of funding from various angel investors, including former Citibank executive and serial entrepreneur Mahendra Mehta, who serves as the company’s chairman.

The gamble appears to have paid off, after the startup reported INR60m in revenues in just the first four months of operation, which Garodia says is being used to further expand its operations.

Like Agarwal, he believes the biggest problem holding back the startup scene is a lack of talent beyond the established executives who control the industry from the private companies and all-powerful cooperatives.

If we can access more skilled people, then things will change over time​,” he said. “In India we have a wealth of technology expertise that can help startups, but it is the people with serious dairy experience that we are lacking​.”

Entrepreneurs needed

Now what does the future have in store for startups in this realm, which also include Chennai-based dairy products maker Milky Mist Dairy Food, Sahayog Clean Milk in Madhya Pradesh, which has attracted several investors in recent years, Bihar’s Osam brand and Adinath Food Industries of Chennai?

According to Milk Mantra’s Misra, it needs entrepreneurs to stay in the game and persevere with their ambitions. By being mindful of their products and market, and finding the efficiencies and novel solutions that only startups can identify, together they can change the direction of the industry.

Dairy is an age old staid category that needs a full revamp and that involves longer gestation periods and an ability to create margins​,” he said.

However, this is not easy and only players who create strong brands are able to command higher margins. Getting venture-capital and private-equity investors aligned to these longer-time horizons becomes critical and challenging​,” he added.

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