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INTERVIEW

“Science behind A2 is very weak, needs regulation”
Friday, 27 December, 2019, 08 : 00 AM [IST]
Indian dairy industry is acknowledged to be the world's largest producer of milk. The industry is estimated to be close to Rs 9,500 crore and is on a growth path. Despite the positive scenario, the country’s dairy farmers are challenged. It is reported that at least 45% of dairy herd lacks nutrients in the feed. Over and above farmers are putting up with unpredictable weather, volatile markets, whimsical policies, among others. Over the years, the surmounting losses are making dairy farming inevitable. In this scenario, Akshayakalpa, an organic dairy products producer, is aggressively working to transform the scene to encourage farmers integrate technology, provide mentorship and financial assistance. The company is of the view that science behind A2 organic milk is very weak. Consumers do not research properly and hence fall for marketing
messages. This is very unfortunate, and there needs to be a regulation on this front. Shashi Kumar, co-founder and CEO, Akshayakalpa, reveals details on A2 milk and more to Nandita Vijay in an email interview. Excerpts:

How would you describe the current scene for dairy startups and the dairy sector in the country?
Dairy sector needs an upstream focus, which does not exist. The dairy startup ecosystem is focussing on collecting the milk, not producing the milk with controls. Dairy sector has a huge potential, with booming middle class, and people looking for good products, it is on the rise.

What are the efforts to be undertaken to overcome issues of erratic climate, unpredictable markets and inconsistent policies to succeed in the dairy sector?
Success of dairy sector will depend on whether the farmer is profitable or not. There needs to be a huge effort to change that. Unfortunately, the market does not really pay the farmer the actual price. Akshayakalpa’s belief is that the success of the dairy sector really depends on the family farms. Our approach has been to put money in the hands of value creators and build a market afresh made up of customers who are willing to pay the true price to the value creator. It is very important that the farmer families are protected from the vagaries of erratic climate and inconsistent policies. We employ the Closed Loop Soil Management System where the farmer family does not have to rely on outside support, not even electricity. Here the cows give fresh milk which is our core product and goes to the market. The cow dung is used to create methane gas to generate electricity required to power the entire operation for the farmer family, including the irrigation system which results in the crops that become part of the cow’s fodder.

Indian milk production has overshot the demand, now what needs to be done to balance the supply-demand inconsistencies?
Not entirely true. For example, this year there is a substantial milk glut. We need to be producing more milk every year to meet the demand. The demand for quality milk is rising, and this one more segment that needs a lot of focus.
 
In your opinion how has the organic milk farms taken off in India on a profitable note?
Organic milk production at farm level succeeds only if we can pay the farmer better Rs 36 per litre of cow milk at the dairy farm gate. We see customers are willing to pay the actual price of producing organic fresh milk. Now we need to increase the value for our farmer, which results in better quality product, results in better value for the
enterprise.

There is an issue of pricing when it comes to organic produce, how has the sector been able to offset the bane of affordability to the masses?
Organic production has not taken off as expected in the country. This sector is plagued by supply chain issues. Organic sector will be seen as premium priced next five years to come. The true cost of the produce at the farm gate is much higher than what the mass market has been willing to pay. In case of our organic milk, we have managed to grow steadily reaching more than 30,000 customers in Bengaluru as of now, while we reached out to about 10,000 customers in FY 17-18. The trend suggests that our efforts at building a market for our fresh milk from our family farms are moving in a positive direction.

Give us a peek into your business model where it enables farming community access to finance.
One of the problems with farmer financing for a while now is creation of performing assets, where both farmer and banker can be comfortable.
Our company, in the last nine years, has demonstrated successful cash flow models to the bankers and our farmers have not defaulted payments to banks and hence are comfortable in lending because of the prompt repayments.

We purchase fresh milk from our family farms designed by us and built with our assistance. We pay 69% of what the customer pays for our fresh milk in the market to the farmer family. This fresh milk is then sold in Bengaluru, and now recently entered the Chennai market as well.

What is the investment that has gone in to the Tiptur unit? Would you be able to tell us on the funding aspects of this project and going forward any more would be raised for expansion?
Initially, we did not foresee the need of capital.

But as the business grew, we realised that we have undercapitalised, and it was compromising the growth. So far we have invested about Rs 10 crore at the Tiptur unit. We will invest another Rs 30 crore in the next five years to build the processing capacity.

Which are the fastest growing products?
Organic fresh milk continues to be our fastest growing segment. A growing number of younger urban families are slowly coming to terms with the fact that the food they eat may not be the best for the health of all. They see value in consuming fresh organic milk from us based on the concept of community farmer families that the customers can themselves visit and check on Sundays.

How do you compete in the market and be engaged in stiff competition for survival?
This market needs lot of staying power. We have stayed in the market for nine years. Therefore whoever stays longer is going to win at the end.
Our growth is built on the very strong foundation comprising over 200 family farms. This ensures that the quality of our fresh milk is top notch. We then communicate the same to our consumers who try us out and understand what we mean.

How has the concept of A2 milk been accepted in India?
A2 milk generally refers to a variety of cow's milk that mostly lacks a form of ß-casein protein called A1. Now the science behind A2 is very weak. Consumers do not research properly and hence fall for marketing messages. This is very unfortunate, and there needs to be a regulation on this front. Most controversies have originated from studies that were not conducted properly. The latest studies have concluded that the links between A1 milk and health issues is speculative and unsubstantiated.
Our milk is from Hallikar and Amruth Mahal cows which are rich in A2 protein for consumers who prefer indigenous cows. But our farm fresh organic milk continues to grow robustly.

How do you see the future of milk processing and value additions for the Indian market?
There is a huge scope for value addition in the Indian context. Market is still very nascent. There is a lot of innovation possible with organic dairy products like yogurts, ice creams, etc.

How do you look at the international markets to expand the product reach?
No plans for global market entry. Our company was created with the idea of putting money in the hands of Indian farmers and changing the outlook of the consumers locally so that they pay the right price to the farmer family which produced that glass of milk. At the moment, we aim to do that by selling fresh milk from our family farms to consumers in Bengaluru, Chennai, and some more cities in the coming years.

What are the technologies that are used in a typical dairy farm business and how much would this enable supply chain visibility?
In our context, we have digitised the farm level data, be in cow productivity, milk quality, monitoring of chillers, monitoring of milking machines etc. This has enabled us to control and monitor the supply chain.

What are the visible trends in dairy that you sight?
Government is trying to do too many things in the sector with a focus on cooperatives. This has led to a series of innovations in private sector, be it clean milk production or new products or marketing push.

How receptive are the VCs and PEs looking to fund the sector?
PE sector will continue to be very bullish on dairy segment in India. VCs will be more focussed on front-end distribution than the back-end focussed companies.

What are the challenges faced in dairy farms and what are the solutions to obviate these?
In India, dairy farms/farmers are not profitable. Their needs to be extremely focussed farm extension support to make daily farmers profitable.
 
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