Dairy entry.Looking for unicorns among livestock

Investors are rushing to milk the projected ₹49.95-lakh-crore opportunity in the Indian dairy sector, on the back of a compounded annual growth rate of 13 per cent during 2023-32. After attracting $154 million funding in 2022, the dairy sector briefly saw a dip in interest before it revived again this year, pulling in $109 million to date.

In India, the dairy sector accounts for about 5 per cent of gross domestic product or GDP. It enjoys a global market too.

“India is a major contributor to the world’s total milk production and this directly aids the growth of the country’s economy, as a major source of employment and income for rural households,” points out Neha Singh, co-founder of data platform Tracxn.

Interestingly, of the estimated 901 dairy ventures in India, more than 31 per cent were founded in the past five years.

Dairy startups differentiate themselves from many legacy units by controlling the entire supply chain, focusing on sustainable farming practices, and offering premium products. Also, unlike traditional dairy players who trade products from farmers, the startups actively manage production at every stage, from farm to market. Much of the funds raised in this segment went to Country Delight — $199 million across 10 successive rounds. Epigamia followed with $44.1 million across six successive rounds; Walko QSR secured $53.4 million in four consecutive rounds.

Major internet-first brands in this space include Akshayakalpa and NOTO.

“With stro ng growth projections for the Indian dairy sector, the funding trend is anticipated to rise steadily in the coming years. The market is expected to expand significantly, driven by increasing disposable incomes and shifting consumer preferences towards healthier and more diverse dairy products,” says Singh.

Business model

A growing number of consumers scouting for quality, organic, unadulterated, and healthier food options appear willing to pay a premium for them. “In the next 10 to 15 years, clean food brands will probably take 20-25 per cent of the market,” says Shashi Kumar, founder of Akshayakalpa Farms and Foods.

The company is associated with 1,200 farmers and produces 1.2 lakh litres of milk a day. The focus is on sustainability, avoiding antibiotics, and managing soil health, the company says. It works with dairy farmers in three clusters — Tiptur, Tumkur district, Karnataka; Chengalpattu district, Tamil Nadu; and Gadwal district, Telangana.

While milk is its main product, the company also processes it into value-added products such as paneer, cheese, buttermilk, and curd.

“We are currently marketing our milk in three cities: Bengaluru, Chennai, and Hyderabad. Nearly 50 per cent of revenue comes from direct distribution, 40 per cent from e-commerce, 5-7 per cent from retail, and 3-4 per cent from unorganised agents,” Kumar says.

The company targets ₹400 crore annual revenue and profitability by FY25. “Our turnover is around ₹30 crore per month. In the last financial year, it was ₹286 crore. Bengaluru is a very profitable market for us, while Chennai and Hyderabad are newer markets,” Kumar says.

On a similar note, Kishore Indukuri, founder and CEO of the direct-to-consumer dairy brand Sid’s Farm, observes that the dairy segment in India is experiencing significant growth largely due to the conscious consumption of more protein, leading to bigger demand for dairy products.

“Products like paneer, cheese, and ice cream are seeing a strong growth in demand. This is driven by India’s predominantly lacto-vegetarian population, for whom dairy serves as a primary source of protein,” Indukuri says.

His company runs three dairy farms — one with cows, and two with buffaloes as the milch animals. Additionally, it collaborates with a network of 4,000-plus farmers.

“We deliver directly to around 25,000 households and, overall, serve about 50,000 customers across cities like Hyderabad and Bengaluru,” he says.

The company offers a subscription model, and the average ticket size is ₹2,500.

It intends to grow its market in Hyderabad and Bengaluru with sales of about 1.5 lakh litres of milk a dayin each city within three to five years.

“Our goal is to collaborate with 200 farms next year and produce about 20,000 litres of milk a day from this model,” Indukuri says.

Bengaluru-based dairy supply chain Stellapps uses IoT for streamlining milk production, milk procurement, and cold chain management. It assimilates data on a cloud platform, analyses it, and provides real-time, actionable intelligence to all its stakeholders — dairy farmers, milk collection agents, and distributors, among others — via mobile devices.

“We work with over 60,000 registered farmers across 1,600 villages, eliminating middlemen and guaranteeing fair payment to farmers,” says Ranjith Mukundan, CEO and co-founder of Stellapps Technologies.

Challenges

While the dairy industry has evolved significantly in terms of production, procurement, storage and supply chain operations, it continues to face numerous challenges. These range from the climate change impact of methane emissions from livestock, the need for nutritious animal feed and improved cattle management, and optimising the supply chain.

The biggest headache of all for the dairy sector is the need to ensure milk quality.

“Operational challenges are significant, particularly because it’s an operationally intensive field. The direct-to-consumer model adds another layer of complexity. Convincing customers to invest in a premium product is a critical hurdle, and demand generation is just as vital as managing the other operational aspects,” says Indukuri.

Investors are all too aware of these roadblocks and the need for them to step up with financial muscle.

“Dairy industry in India involves 100 million stakeholders, mostly smallholder farmers. The surge in demand for value-added dairy products necessitates significant capital and innovation for supply to keep up. Addressing concerns around safety, adulteration, and wastage will require the private sector to do its part in modernising the supply chain and incentivising all stakeholders involved,” says Reihem Roy, Partner at venture capital firm Omnivore.