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To reach a milk collection centre, Venkatesha no longer has to push his bicycle loaded with a can of milk for a few kilometres. Now, he merely has to transport the milk to a MokshaYug Access (MYA) milk collection centre 400 metres away.
MYA was founded by Harsha Moily, son of Union minister Veerappa Moily, in 2005. It was started as a microfinance institution (MFI) and later transformed into a rural supply chain solutions provider.
The venture was set up when the MFI model was seen as a platform to enter various verticals in villages. From 2006 to 2008, MYA considered handicraft, healthcare and other business models. In 2009, the company "transitioned", says Moily. "We looked at handicraft - aggregating artisans and giving them market linkages." However, he soon realised the MFI concept did not recognise villagers as producers but as consumers. He, therefore, began to consider other options.
For Moily, the increase in milk consumption by rural households in the company's network is a social metric. "This has a direct bearing on their health," he says. "I've always believed the fundamental reason why the poor remain poor is because they lack access to income-generating opportunities."
MYA procures milk at about the same price or slightly more than the prices at which milk co-operatives (in this case, the Karnataka Milk Federation) buys from farmers. So far, the company's core business has been buying and selling milk to a couple of dairies. During the collection process, the milk is tested for quality. Every MYA household has a card, in which the amount of milk sold and the lactometer readings are noted. The farmers are paid on a weekly basis. MYA collection centres also sell MYA-formulated cattle feed. MYA holds camps for farmers on good dairy practices, etc.
It claims it is in the business of guaranteeing income for rural producers by participating in every component of the rural supply chain. Today, MYA today has about 1,200 milk collection centres across 23 rural clusters and 1,100 villages in Karnataka. The company procures about 100,000 litres of milk every day from about 15,000 farmers.
Most MYA milk collection centres are run by women.
Last year, MYA forayed into the fruit and vegetables segment. As 80 per cent of dairy farmers grow fruit and vegetables, it was a logical move, claims Moily. "It ensures better income certainty for the farmer and better loyalty for us," he says. MYA sells the fruit and vegetables to institutional buyers. The company is also considering the retail format in this segment. In partnership with The Good Chain, it has set up a pilot store in Bangalore.
Many avatars
Initially, MYA tried its hand at different business models, before settling on the current one three years ago. It started as a microfinance company and later sought to set up primary healthcare centres and dairy farming units to provide services and entrepreneurial opportunities to the rural poor. Its microfinance business continues as a separate firm.
Moily says MYA could provide greater support to the rural economy as a supply chain solutions provider, with a focus on the dairy space, as this segment has greater impact on rural household incomes.
A big leap
To increase its margins, MYA was looking at the retail segment and eyeing margins of 4-20 per cent, as it could reach consumers directly, said a senior official of a fast-moving consumer goods company. Entering the retail space entails building a proper supply chain to reach cities, as well as marketing among retail chains. However, the company is reluctant to spend on these activities.
Earlier, the company operated in the business-to-business space, supplying milk to other dairy firms. Here, the average net margin was three per cent. Recently, MYA launched its own dairy brand, Milk Route. Just 10 per cent of the milk procured is used for the brand. It is expected by the end of the year, nearly the entire procurement would be used for the Milk Route brand.
MYA's entry into the retail segment benefits farmers in more ways than one. First, as there are no intermediaries, farmers receive a higher share of the retail price. Second, the high margins from this segment would be used in research and development and value-added services for farmers. "This would help increase yield and improve quality," says Moily.
Today, MYA is investing in "procurement needs". As milk has to be chilled within one to two hours of being extracted, the company has set up infrastructure at the village level. So far, it has set up 23 units of 5,000-litre capacity each and set up at an investment of Rs 20 lakh each.
The competitive milk segment includes various milk cooperatives, their brands, private companies such as Nilgiris & Heritage and many small companies. Multinational companies such as Nestle and Danone have also launched milk variants.
So far, MYA has invested Rs 30 crore as equity, while Rs 12 crore came through debt. The last time it raised equity was in 2011 - from Unitus Equity Fund, Unitus Impact and Vinod Khosla. In 2008, Elevar Equity had invested in the company.
MILK ROUTE’S JOURNEY SO FAR...
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Chinks
Harsha Moily's rise, however, hasn't been without its share of controversies. In March this year, a news report alleged his father, M Veerappa Moily's family trust, which ran schools in Karnataka, received donations from ITC's corporate social responsibility fund in September 2012, when Veerappa Moily was corporate affairs minister. The report also stated Harsha Moily is/was promoter and director of four companies whose business flourished only after Veerappa Moily became Cabinet minister in May 2009.
Responding to the report, Harsha Moily had, in a statement, said, "It is important to note MYA received funding from professional investors in 2008, much before my father joined the government. MYA's investors did due diligence on MYA through the majority of 2007, and the funding from venture capital funds came in March 2008." He added his family trust had received only Rs 42 lakh as donation from a company, not Rs 6 crore, as the news report had alleged.
"The one weakness MYA has today is it does not have a known brand of its own. It's a tough model, though it's a good business to be in," says a senior official of a company involved in the dairy business. "It's difficult to win the trust of farmers. First, you have to inform them of the benefits they would get…Then you build trust and have good relations with farmers. Word of mouth also helps. Once that's done, 90 per cent of the job is done."
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EXPERT TAKE Milk farmers always expect the one (the co-operative or the company) collecting the milk from them to provide value-added services. You can’t win their trust so easily. To do so, a company would have to provide value-added services. This would help increase milk productivity and it helps farmers increase their incomes, too. For milk, just as for any agricultural produce that is perishable, sustaining the quality of the produce is the most important factor. A milk collection company would also have to ensure the quality of service is sustained over a period. Therefore, to keep milk farmers on its side, Moksha Yug Access has to ensure it sustains the services it provides, including veterinary services such as health check-ups, and insemination services. Also, you need a good brand while ensuring the product is of good quality. All this would take time.
R S Sodhi |
Planning ahead
Improving the milk's yield and quality is a key component of MYA's model. While India is the world's largest producer of milk, accounting for 17 per cent of the global production, productivity of Indian cattle is extremely low. In India, the yield could be as low as two to three litres per day; in countries such as the US, Canada and Israel, it is about 40 litres a day. The reasons for this are apparent - dairy farmers are unable to feed the cattle well through the year, the quality of cattle is very poor and artificial insemination services aren't easily available. The focus is more on addressing diseases, not on preventing these. Also, dairy farmers do not follow the necessary hygiene practices.
The company plans to raise $10 million by the second half of this year and utilise the funds to expand its network in the southern and western regions. It is targeting revenues of Rs 500 crore in about five years. MYA aims to reach 1,00,000 farmers, while raising the average milk yield per cow from four litres a day to 15 litres a day in three years.
Currently, the company is focusing on establishing a sales and distribution network for its business in Bangalore.
