A milk startup takes on 300 million cows

India's sprawling agriculture industry has the world's largest dairy herd. One startup aims to modernise it

When Srikumar Misra moved back home to this eastern Indian city from London in 2010 to launch a milk company, it was about as far from Silicon Valley as an ambitious entrepreneur could get.

Armed with social media, smartphone apps and big-data analytics, Mr. Misra's dairy business is among hundreds of startup companies leveraging the arrival of the internet in rural areas in India.

Technology is taking on one of India's biggest economic challenges: modernizing the country's massive informal economy. Tech is especially being put to the test by a tangle of millions of independent laborers, farmers and tiny companies that make up the lumbering farm sector.

Mr. Misra, a former executive with Tata Group, one of India's largest conglomerates, zeroed in on the huge but underdeveloped dairy industry, which is exceedingly fragmented.

India boasts the world's largest dairy herd-some 300 million buffalo and cows that produce 165 million metric tons of milk annually. Yet the average farmer owns just two cattle, and most live on one-family farms on tiny plots that lack roads and electricity. In the U.S., the second-largest producer globally, the average dairy farm has nearly 150 cows.

Milk in India is distributed through millions of tiny store fronts, roadside stalls and home delivery men who sell it in milky masala tea, baked into sweets or simply as raw milk. No sprawling U.S.-style grocery chains do business in India.

Between cow and consumer, milk quality has suffered. Middlemen in India often sneak water, sugar or powdered milk into raw milk, adding volume and lowering the quality. The milk that independent middlemen gather from farmers and deliver to towns and villages is often unpasteurized and not properly refrigerated.

That is why almost all Indians boil their milk-which is where Mr. Misra saw an opening.

"There was a huge problem with food products that people could trust. The opportunity was addressing this trust deficit," he said.

Mr. Misra and his wife, Rashima, a marketing executive who became a partner in the business, envisioned a brand with a snappy slogan that would define a premium milk product. They settled on Milky Moo. Motto: "No need to boil."

They believed India's emerging middle class would spend more on a high-quality, healthy product. Young parents were beginning to jump onto social media in meaningful numbers in India, opening a fresh path to building a new brand at warp speed.

Before that, their company, Milk Mantra, needed a factory and a supply network, both of which required capital. Mr. Misra tapped an emerging source of funds for Indian agricultural startups, venture capital, which was no easy task back in 2009.

Venture capitalists have been increasingly active in India, though until recently nearly all of them have been looking to invest in Silicon Valley-like dot-coms.

Odisha state, the heart of Mr. Misra's proposed new market, is one of India's least-developed regions, far off the radar screen even of investors based in the country.

It took Mr. Misra two years to convince a collection of 21 angel investors from England and India to put up $1.5 million, land an additional $1 million from a venture-capital firm, and $2 million borrowed from an Indian bank to back Milk Mantra.

A venture-capital arm of Fidelity, now known as Eight Roads Investment Advisors, was among other later investors, putting in $8 million.

Milk Mantra pays farmers more for milk than the informal collectors, and provides farmers with something those collectors never did: a small blue dairy diary where the quantity and the quality of the milk is recorded for them after they have their twice-daily milk collection tested for milk fat levels and contaminants at village collection points.

The information helps inform farmers what their milk is worth. Milk Mantra also provides veterinary support and information about feed to farmers. Raw milk from village farmers is trucked to regional collection points, then on to a factory where it is pasteurized and homogenized. 

The company labored to monitor and control the supply chain, challenging entrenched relationships that tie rural villages to cities through an opaque web of middlemen in the informal economy. Convincing farmers they were better off switching took work.

The startup took on the largest supplier of milk in the region-a politically powerful cooperative controlled by the state of Odisha-which responded to competition by improving its own operations and introducing premium products.

The toughest challenge, says Mr. Misra, is changing longstanding consumer habits and attitudes, to convince them to change the way they buy and consume milk, even if it costs a bit more.

His wife found new customers on Facebook, WhatsApp and Twitter and engaged them with dairy riddles, recipes and milk puns-"Have a Moo'velous great week ahead! #MondayMotivation.

The company invited customers to milk-tasting events geared toward children. They took orders online, and delivered direct to homes for the first year.

Milk Mantra also introduced products, such as flavored milks, probiotic yogurts and paneer, a kind of Indian cottage cheese.

In a working-class neighborhood of Bhubaneswar, about eight hours south of Kolkata in eastern India, the young family of Deeptiranjan Sahoo, 40 years old, and Snehajali Sahoo, 32 years old, consume milk differently now because of Milk Mantra.

Mr. and Ms. Sahoo drink milk delivered to their home by an independent middleman because it is cheaper; the milkman has been selling to the family for a generation. But the family started paying a few more rupees each day for another liter of Milky Moo from a local stand for their two children, ages 6 and 2, because they see it as healthier.

"We don't want to take a risk with the kids," says Ms. Sahoo.

The remote village of Odapainga, about an hour's drive outside of Bhubaneswar, is reaping some of the benefit from those extra rupees the Sahoo family spends on Milky Moo milk. 

Before Milk Mantra, Saketa Bhusav Dash lived and worked in another city nearly a dozen hours drive from his home in Odapainga to supplement the income from his family's village general store, which his wife, Bandita Dash, manages. Now the 37-year-old earns that income by organizing the collection and testing of 500 liters a day of milk from about 50 local farmers as Milk Mantra's representative.

On a recent morning, some of those farmers gathered at the tiny collection booth and testing point, chatting and gossiping while they waited in line. They poured raw milk from metal canisters into a large collection jug. A Milk Mantra technician took a small sample from each to test for milk fat levels, solids and contaminants.

Mr. Dash and Milk Mantra have veterinarians who work with many of the farmers to improve the diet and health of their animals. Some have used their record of consistently high-quality production to qualify for loans from banks that Milk Mantra partners with, enabling them to purchase more cows and buffalo. 

"We realize the value of our animals," said Hare Krishna, a 53-year-old farmer who now has a stable of four cows.

Using an application from Bangalore-based company StellApps Technologies, Milk Mantra uploads all of the farmers' test results into a cloud database. They plan to phase out the handwritten dairy diaries-and repurpose some two-dozen employees who currently input that data into computers by hand-to provide real-time feedback and analysis to farmers via their phones.

Milk Mantra has expanded relatively quickly and revenues have grown steadily at about 35% annually. Sales reached 1.8 billion rupees ($27 million) this fiscal year, while producing an average of 120,000 liters of milk daily. The company has 340 employees, with almost 900 other workers on contracts. 

Milk Mantra has run into obstacles along the way. Community leaders near its milk processing plant blocked access to the plant entrance for several days soon after it opened, complaining it might harm local water supplies. They relented when the company agreed to contribute to a fund that pays for community development.

Profits have come more slowly, with the company going into the black six months ago. That took years longer than Mr. Misra envisioned, he said, because of regulatory and legal hurdles that affect all manufacturers.

Milk Mantra is experimenting with a home-delivery service-this time with an online subscription plan for customers who want regular deliveries of its products. 

Source: The Wall Street Journal