Banking to Dairy Farming | Interview Part 2 – Vigyan Gadodia

Part 2 of the Interview with Vigyan Gadodia of Sahaj Group. See part 1 here.
Explain in more detail, why dairy farming? Also, why the need to be in production? Why not just milk-distribution?

 Vigyan: Dairy farming offers the following key advantages:

  1. On standalone basis it is a profitable activity for a farmer. It is the most cash-flow friendly business activity for farmers (if planned properly) , which can provide a regular income to meet their expenses.
  2. Farmers understand the fundamental activity of rearing cattle. So the learning curve is already there.

The reason for us (Sahaj Group) to get involved were

  • There is a scope for significant enhancement in management practices. This can lead to an  overall improvement in the business profitability. Lemme give you some specifics.The most fundamental error we make in cow management is to discount cow intelligence. In India we generally keep our cows tied down all the time and feed, and milk her as per our schedule at the same place. Some of the key parameters of improvements that Sahaj is working upon are:Labor Efficiencies – This makes the process very labor intensive. Open housing allows the cows to roam freely, be less aggressive (and hence easier to manage), and cows can eat and drink whenever they like and they can come to common milking place. Average cows handled/person in Indiais 8-10 Vs 20-30 in organized farms internationally.Yield improvement – India average milk production (even in crossbreed cows) is around 2500 ltrs/year, vs the average of 8000 – 12000 ltrs/year production done by farmers in US / Israel / Holland / Australia. Some progressive Punjab farmers have reached a herd level production of 6000 ltrs/year by using the above mentioned good management practices.Quality of Milk – The bacterial content in the raw milk in India exceed 10mln CFU/ml, Vs internationally accepted standard of 2 lac CFU/ml. Large part of this quality gap is due to the unhygienic milk handling (hands / buckets / open to shed air etc) and delay in chilling. Milk quality can be significantly improved by providing cows with good quality drinking water and using efficient cleaning methods.
  • The overall purity of milk is a serious concern creating an opportunity for quality premium producers supply chain.  We feel this is a significant enough opportunity. A farmer gets Rs 18-20/ltr for cow milk if he supplies to a  dairy, whereas a village level consumer is happy to buy the same milk at anywhere between Rs. 23-26 / ltr on a regular basis.  This is because of a quality concern (more like insider knowledge) at rural consumer level and they prefer to pay a premium for getting un-adulterated milk from neighborhood farmer. Supply-chain/logistics  constraints like late chilling, mixing of water, synthetic milk etc becomes more pronounced for the cooperative milk collection and hence entering the urban consumer level. So, local consumer (village level) gets the best quality milk, and urban consumer gets mixed and sub-premium quality milk.

cattle-shed1

Can you give us a feel of where Sahaj is right now

Vigyan: We have 23 cows under management as on date and a team size of 12 people gearing to scale up the operations to 500 cows. We are in the process of fund raising for our expansion activity. If the funding comes through in time, we shall be targeting 1000 ltrs/ day by Dec 2012, and upto 5000 lrs/day by March 2013.

Why do/should clients buy your products. Who are these customers? What experiments have you done on product-market fit. Is it a challenge to identify & reach out to clients ?

Vigyan: Customers buy our product because of Purity and Quality. Some of the customers have already started commenting on better digestion of cow milk . They can easily draw a contrast with the regular pasteurized milk in the market.

Our current consumers are in Jaipur city. We started with milk sampling and these families/individuals started with switching a part of their requirement to our milk. Gradually many have switched 100% cow’s milk.

We are yet to design our marketing plans, so it will be difficult to comment on expected marketing expenditure as yet. However, yes, there will be a bleeding on operational basis as well, till we hit a threshold volume of at least 700 ltrs/day of supply in the city.

We have started pouching much early in our evolution to address the concerns of contamination / adulteration in the transit. Because of pouching it is easier and faster to reach out to a larger audience and explore different distribution models like retail counters as well. We intend to leverage this strongly in our marketing efforts.

Your 5 key learnings in the first 12 months of the venture ?

  • Doing business in India is tough and working in rural India is even tougher. Well I asked for it 🙂
  • Financial markets (equity & debt) are averse to exploring new (un-heard) ideas and do not like startup ideas that are not following a hockey stick projection.Most VCs have never evaluated such a model, and the existing large farms are typically backward integration by large scale diary processors, who do not need venture funding.Also, this is a capital intensive model to begin with, and the idea of extending the good management practices amongst farmers is yet to be proven. Most VCs are used to looking at technology based hockey stick growth models, and are hesitant to look at an operationally intensive model like Organized Dairy farming.
  • It is difficult to cultivate a long-term view in rural youth (Vs a very shortsighted approach), but if you can do it you can change India.
  • Most of the quality management services can be implemented at a farmer level, provided a basic minimum scale is achieved.
  • Cows milk is actually quite good to drink 🙂

Your goal for the next 3 years.

Vigyan: Create a model dairy farm (200 – 500 cows).

Extend dairy farming services and become a significant milk producer in the state.

Expand the product basket to include fruits and vegetables.

 

 Are you looking for additional talent to join ur team? What opportunities exist in your team for our readers.

Vigyan: Yes we are. In our team, we look for people fascinated by the rural India challenge (Opportunity) and willing to commit themselves to working out of rural setting for 70% of their working week.

We are also open to partnerships with other ventures in similar areas, to exchange best practices etc. I sincerely feel we still need more people coming into Rural space.

We are also exploring the crowd sourcing model now in terms of the actual payout (economics) we can offer to investors under this model. I hope to launch the model very soon. So maybe then all of you could own a small part in Sahaj.

 

Vigyan Gadodia From Banking to Dairy Farming

What prompts a graduate from IIT/IIM , excelling at a banking career to move base to rural India. To start his business studies afresh in some really challenging circumstances ? What challenges does one face in the drastic transition from a city based-corporate-salaried role to a rural-startup-entrepenurial one ?

Get some insights into these questions as Vigyan Gadodia shares his story and that of his venture – Sahaj. Vigyan is a MBA from IIM Calcutta and an engineer from IIT Delhi. He joined Rabo and then got deputed to YES Bank, where he was part of their early team. He was the first EIR at YES Bank when he started off his current journey. You can see his LinkedIn Profile here.


Tell us a little about your venture. What is Sahaj all about?

Vigyan: Our business is about creating sustainable and scalable businesses out of rural India. Key focus areas include

  • Agri & Dairy – We are starting with Dairy business and this will be the key focus area for the group to create a commercially viable business.
  • Tourism – This is a supplementary income source and a surrogate marketing tool to connect customers to agri producers.
  • Education – We have started with Primary education and this will be a sustainable business and a capacity building exercise in rural India. Rural Indians are willing to pay a premium for quality education.

That’s an interesting mix, can you tell us the story behind these verticals? Why did you choose these as your focus areas?

vigyan

Vigyan: For the first 5 years of our venture, we did anything and everything under the sun. Really, anything that came our way. For instance, we did agri-procurement, organic farming extension services, CSR services, agri BPO and a whole lot of other activities.

We also studied the technology and economics of different agri activities practiced by farmers. Based on all this learning, we felt (and still do) that integrated farming is the best way to create sustainable growth in Rural India. We started going into further depth of this and to model the specific individual business components like

  1. Cereals/ pulses & Vegetable growing pattern, market price fluctuations etc)
  2. Commercial tree plantations
  3. Dairy farming activity (to support natural inputs and provide daily cash flow to farmers etc)

We undertook a detailed SWOT analysis, identified the financials, and the set of competencies needed for each of the businesses.

In doing so, we realized that Dairy on stand alone is more compelling than any other business and can be the best starting point for the larger rural dream. Once dairy farming becomes the “cash cow” for a farmer, we can start extending the other components of integrated farming at individual household level.

Tourism came about because of our eco-system. We got a query from our NGO partner (Morarka Foundation) for help in hosting a student group from US in 2007. It was good fun, and we realized that it earned a very good return for the host farmer families as a supplementary income. We (Sahaj and Morarka) together decided to float an independent company to focus on developing products in Rural Tourism space.

 

Education is key to address many issues in the rural set-up. Around 2008, I was getting frustrated witnessing the callousness with which the rural youth treated their careers. A friend called from Mumbai and I was discussing the same with him and he suggested me to start a training school. I started researching the subject , trying to assess the rural education sector specifically and felt that the education system needed a more fundamental solution. The conditioning & basic learning abilities start at the primary school level and there is a significant quality (not Supply) gap in that area. So we started the school with a clear intention to make it a self sustainable school and are very close to achieving the target.

 

How did you move from banking to dairy farming? What really prompted this?

Vigyan: Somewhere in 2004, I felt that I had experienced the good parts of banking life. The comfortable life was not satisfying enough at a personal front and I wanted to challenge myself into something tougher (at an intellectual / operational level) . Hence I started reading up on social ventures and related areas. From then on, one thing led to another. I started microfinance in the bank in 2005 and in 2006 took the entrepreneurial plunge.

You spent a lot of time in Ringus in your early days of the venture, why so?

Vigyan: When I quit YES Bank, I only knew that I want to be in Rural India and develop businesses that can help me explore the “Demographic Dividend” offered by rural India. The first step was to find out where I can settle down. I started with doing a research on Hindi speaking states. Amongst them I liked Rajasthan the best to start.

I wanted to start from a place close to the major city. Ringus was (and is) a relatively prosperous belt close to Jaipur, so it offered a chance to experiment on new business models with farmers.


Watch out for the remaining part(s) of this interview with Vigyan Gadodia of Sahaj Group.

Rural telecom users price insensitive?

Read an interesting report in the ET today, based on some survey conducted by Credit Suisse. They survey found that the rural consumers are more quality consicous and less price sensitive. Hardly any of the polled users had switched operators basis call-rates.

Mobile operatorsThis is very interesting coz most of us (self included) had believed that this is a market where ARPUs would be low and constant reacquiring would mean that the telco’s hardly make any money.

Also the report says that the rural consumers would constitute almost 40% of the total users by 2012.These two findings have some serious ramifications:

– Infrastructure needs to be first priority when moving into a new market. Typically we had seen that most telco’s went to these markets with a promise of “cheaper” service

– The first mover will have advantage over others, everything else being same. This is evident from the lower switch rate seen in rural consumers.

– The marketing spends promos highlighting reduced rates etc will now have to be substituted with better distribution/session-experience.

But the most interesting this is that the rural consumers remain price sensitive inspite of having a clear priority for better service. This would make them a tough market for telco’s- providing high quality services at competitive price where ARPUs are anyways lower 🙂

Rural mobile telephony: Show me the money !

Remember the famous lines from “Jerry Maguire”-” Show me the money”

With the next battles for telecom shifting to the countryside- I guess most of the telco honcho’s are rattling along the same lines…Coz exciting as it may seem, rural cellular telephony doesnt seem “profitable” enough in all its entirety- or maybe I am missing something.

Now, from what I understand of this business- the two major costs are infrastructure (read that as towers etc)  bandwidth- both of which are semi-fixed costs. I say semi-fixed coz- these can be acquired only in batches- you cannot buy tower or bandwidth capacity for one incremental user. Even if the government subsidises the bandwidth in thr rural circles, the tower cost is not expected to come down.

Basic economic principles say that one should aim for demand maximisation in such conditions to ensure maximum utilisation of the installed capacity- assuming the Variable Revenue is more than the Variable Cost. Now given the population density in most of rural India, I can safely assume that there will never be (atleast in the next 5-7 years) enough # of concurrent calls to utilise the tower amp; bandwidth 100%. This is coz most villages do not have enough households (or househlds that can afford a cellphone connection).

Most rural users would not also relate to the “value-added-services” which currently account for a healthy 40% of revenues (in urban circles) and have been the key reason for rising ARPU in a market with reducing call-rates. The uneducated cell user will not really use the SMS/MMS functionality- which is 60% of the VAS revenues. They would infact need voice-activated services where content is also delivered as voice, unless the cell co’s decide to make the rural youth addicted to porn on the handset 🙂

Rural telephony

Add to this the govt’s keen involvement in tarriffs in this sector and one can safely assume that the cell co’s cannot experiment with higher tariffs in the rural circles. So how would these cellular operators make money in the rural circles?

There have been talks about shared infrastructure but even then the shared entity would not break even on its tower cost.I read somewhere that the govt. had experimented with giving a cell connection to the local postman in the villages- to be used by the village residents – something like a truly mobile STD booth. There were clear commissions demarcated for the telco amp; the postman- BUT the service never took off too well. So why are most telco biggies so excited about the rural circle. Well, to be honest- am not sure, but had I been a decision maker at Vodafone, I would have looked at it thus:- Most co’s want to get access to bandwidth at low rates- under the disguise of rural telephony. I would want to hoard on to this bandwidth for future or for roll-out in non-rural areas (see below) – The roll-out would be viable only in the villages of Punjab, Haryana,UP (W) etc ; not really the poorer states of the country.

– The villages that will see the roll-out (in other states) will be the ones close to some decent sized town amp; not the really interior villages. This is coz- in these villages one can expect substantial migratory population with enough disposable income. It could also lead to shared infrastructure between the town amp; the village at a much lower average cost (given that the bandwidth was acquired at the rural circle rate).

– The next lot of villages would be the ones closer to a busy highway or railway line- coz then I could provide roaming connectivity to my existing users and also look at some local customers in the circle.

So there’s some logic in getting to the village first amp; having that critical bandwidth( the only supply-constrained resource in this industry) and wait for the demand to pick up. But what beats me is why is the govt so keen on getting connectivity to the villages?I have been to many a villages during my road-trips and I can confidently say that this will only lead to an additional expense item for the rural households- something which is best avoided. What our villages need are low-cost, efficient and maybe shared resources of more basic kinds- irrigation, sanitation, healthcare,education,microfinance.