Clear your illusions, before starting a Dairy Business
Often, we come across that someone started a dairy business, which failed. And we put a sticker that “dairy business” is not profitable. You will agree that any business has technicality & risks, similarly dairy business also has some technicality & risk.
The objective of this article is to save the new dairy entrepreneurs, incurring huge losses, if they start a dairy business with illusions in their mind. We also want to remove the wrong sticker that “the dairy business is not profitable”. Let me repeat, that the dairy business in India (in any form) is an assured perpetually profitable business, compared to any other Agri- business. However, it must start with proper planning, distributing resources according to the plan, taking support of an able dairy business consultant.
The irony is, while the dairy business requires technical hand, has high initial capital investment and its commodity (milk) is a perishable commodity, even then the new dairy entrepreneurs /start-ups do not check with “Dairy Business Consultants”, before starting their business. Further, most of the new entrepreneurs start dairy business having some illusions in their mind. Let us examine the followings:
Can any flight takes-off without checking its all the security points?
Will you learn driving from the information provided in the vehicle booklet or info available at google, without taking actual driving training through a coach?
Will you start a high investment business, without taking practical tips about the business?
Will you start a restaurant business without a “Cook”, that you will learn cooking from U-tube?
When you are sick, will you take medicines reading google pages or actually visit a doctor and take medicines as per his prescription?
Will you enter into deep water without knowing its depth? Or without taking support from an expert swimmer?
A person does his forefather’s business, just like that or he/she devotes years in learning the business and then start its own?
With the above, you might have understood, what illusions we are going to discuss about;
One gets only “information” about some subject on Google or U-tube or any other social media. The social media does not provide “skill” to run an actual business. Google can give map to reach your destination; however, you have to drive yourself to reach. If there are pot-holes on the road, you have to do careful driving for safe arrival, google will not save you.
We are lucky that now a days lots of useful information is available on social media (which were not available earlier). One can make use of these info to make his/her business journey easy; essentially, with the support of some business expert. If you are starting a dairy business only based on the information available on social media, then rest assured incurring losses is inevitable, for which you should be held responsible, not the “Dairy Business”.
In view of above, it is clear that unless one learns the “trick-of-the-trade” from an able Dairy Business Consultant, (s)he should not invest in it. If someone starts dairy business based on the info available on social media, (s)he may be putting foundation for heavy losses. Yes, many a times people get learning experience after burning their fingers in dairy business, however, that becomes a costly affair. Further, if the dairy business consultant is not “able”, he would not know about all the domains of dairy business like; technical, physical, financial, ethical, social angles of the business.
Many a time people avoid consulting a dairy Business Consultant, just to void fees. Most of the time we get calls for free advisory. It is possible to advise free of cost on a particular query, however, it not possible to plan entire business free of cost. Most people want just a project-report thinking that they would be able to start a dairy business based on the info available on the social media. Believe me, able dairy consultants are capable of saving your money multi-times, what you pay to them.
In India dairy business has got several types, but main are (1) Dairy farm Business, where the milk is produced by keeping milch animals at farm and marketed to consumers.
(2) Pooling & processing business, where milk is pooled from milk producers in villages, transported to processing plant and marketed to consumers.
Source: Picture from India Mart
Let us discuss the illusions, which are found in the minds of new dairy entrepreneurs, about these two businesses;
The illusions found in the minds of new dairy entrepreneurs are listed below:
1) I know the dairy business, as I have seen it since my childhood: this illusion in the mind of an entrepreneur is enough to sink him into dairy business. Just by seeing how animals are tied, fed, milked, etc. is not sufficient to run the dairy business into profit. Moreover, what you saw was a fringe activity of Agriculture, it was not a dairy business at all. Plus, the belief that you have gained the knowledge from the social media and now you will be able to run the business, is further more dangerous to sink you and earn losses.
2) I know how to rear cows-buffaloes: you might have seen the badly reared cows and buffaloes in “Khatals” in cities of India. Believe me, it is not a dairy business, it’s more a cruelty on milk animals. Even if you saw milch-animals reared in villages and believed that it was a dairy business, then also you are not correct, as here animals are reared on the “Agri-residues” with own labor. In a dairy business all costs and liabilities are to be considered besides earning profit.
3) I have gained knowledge from Google, u-tube and WhatsApp: The info available at Google mostly contains info about dairying in foreign countries, which is completely different from Indian dairying. The info available on u-tube or WhatsApp are mostly half cooked. The business planning can only be done based on the info like; size, location, local preferences, local customary, market costs, existing competitions, customer demands, etc. These specific data would not be known to Google or any social media, only a business consultant can suggest a suitable business plan and design the module, based on your basic data.
4) I would take land on lease and run my dairy farm: if you do not have land in your name, please do not enter into Dairy Business. Minimum 1 acre land is needed to hold about 80-100 animals. For fodder cultivation land required would be @ 10 animals per acre. On leased or rented land only a “Khatal” can be established, not a technical dairy farm. Land in owner’s name is a prerequisite to get loan and earn profit in dairy business. The land location essentially should be in a village, not in the city. To cultivate fodder land could be taken on lease/rent or even the fodder cultivation could be arranged on hired basis, through local farmers. However, without fodder cultivation, no farm can run into profit.
5) I believe, first I should have the shed and then bring the animals: wrong, first arrange the loyal person who will look-after the farm, then arrange fodder and feed for the animals, land for animal holding and fodder cultivation, treat the land, then go for temporary shed, procure good productive animals in batches of 10-15, procure only the essential machines. Generally, people do not know how to prioritize their investments. Many people first invest funds on construction of sheds, stores and buildings, later they fall short of funds to procure milch-animals. or run day-to-day activities. They forget that animal will produce milk, not the shed & buildings.
One of my NDDB colleagues, invested his retirement funds in construction of shed & buildings, fell short of funds to buy animal and manage day to day activities (working capital). He informed me only after the construction of shed & buildings were done. Nothing was to be done at this stage, his shed & land were sold out to recover some funds, rest went into losses. How to help such enthusiastic persons, entering into dairy business with lots of illusions?
6) I will keep high yielding animals (30-40 liter milk per day): mostly the new dairy entrepreneurs meet me with this idea that they will have animals giving milk 30-40 liters per day. I ask them, if they have seen such animals? They are generally living into illusions, mainly due to the knowledge gained from social media. The fact is that even established farms in India have their herd average ranging from 8 to 12 liters per day. How a new entrepreneur will afford to feed 30-40 liter per day yielding animals at their farm? Even such animals are not seen at established Govt farms, where funds & technical hands are easily available. It is advisable to start with 12-15 liters per day yielding animals (maintain herd average at 10-12 liters per day) and reach at 20-25 liter per day yielding animals. Don’t live under illusion.
A lady contacted me from Gwalior and wanted help to turn-around her loss-making dairy farm, where she invested 2.5 Crore rupees, mostly on construction of shed, buildings, less on animals and their feedings. The animals reduced from 80 to 40 and milk was getting reduced day-by-day. She depended on contract labourers for managing the farm. After 3 years she contacted me for help, when she was not able to pay my fees. She was not having enough money to feed the animals and hence the reduction in milk and increase in sick animals. To my surprize, she also got consultancy from someone. These are the results we get if the entrepreneur depends on un-trained labourers, takes ideas from social media and avail consultancy from any in-experience dairy consultant.
Similarly, a 35-animal farm in Cuttack, where animals were not coming in heat or were repeating. On knowing the facts, I found that the main reason was “improper-feeding & management”. The owner of the farm lived 30 Km away from the farm, left management on untrained farm laborers, had no green fodder, local cattle feed was pumped into the animals, it caused acidosis. These all together ruined the physiology of animals. Milk reduced, diarrhea set (dung became liquid), animals did not come in heat, they repeated, farm was sinking. That time I was in Imphal, requested the owner to bear my air travel from Imphal to Cuttack & back. How to help such people, if they can’t bear even the travel cost to a consultant.
7) I am aware that the project report has every information: many people come to me and request to prepare a project report, where the cost should be kept high. They say, rest they will manage. Such people are also under illusion that just a project report with manipulated costs will be sufficient for running a dairy business. They sometimes get 3-4 pages project report prepared from a CA, who does not even know about fat, S.N.F. or how much % of water milk contains.
Detail Project report (DPR) is a detailed technical document, which is project specific. The entrepreneurs must read this document. To my experience, majority (about 90%) of new entrepreneurs did not read their DPR, rather they keep it as tool for submitting to bank and getting loan. They do not know that each bank will first examine the DPR and work on it only after finding it technically sound. DPR is an essential document to get loan or subsidy, but it should not have the manipulated figures of cost & revenue.
8) I am aware what machines are needed for a dairy business: this entrepreneur is loaded with knowledge from media, (s)he has small piece of land in his name and has 4-5 paged Project Report prepared, however, does not have land for fodder cultivation. (S)he is ready to jump into dairy farm business. Suddenly (s)he comes in contact of a representative from a dairy machinery manufacturing company. The sales person is ready to sell the machines and (s)he is loaded with illusion that machines are needed for the dairy business. The company representative convinces him/her. (S)he buys the machines, which might be required after 2nd or 3rd years of dairy farm operation. A confidence based on illusion is very dangerous. After the machines arrive, (s)he realizes that it was a mistake, (s)he should have first arranged other basic assets like animals, sheds, stores, fodder & feed for animals, instead of buying the machines.
Even for a pooling & processing business, machines are required at 2nd stage, first the establishing procurement system is essential. Without this how milk would be pooled? Forget about its processing. In fact, for any of the dairy businesses, machines come later. First there has to be basic structure and milk. Now this person’s pocket is empty. Means his/her dairy business sank before it started. I have seen sealed boxes of machines at the door of new dairy entrepreneurs, which did not sell even at 1/4th of its cost.
9) BMC is a must to start a dairy business: The company representatives convince the new dairy entrepreneurs that BMC (bulk Milk Cooler) is must to start a dairy business. They say, where will you store the milk, once procured or produced at the farm? Actually, BMC is a milk cooling vessel, which is not much useful unless it is connected either with a processing plant or a market where milk would be sold in bulk. In the beginning of a dairy business, neither the plant nor the market is ready, as such, the BMC should not be procured in the beginning. It should be procured once the milk pooling or milk production starts and the complete milk travel plan is ready.
I know a person, who was a supervisor in a dairy, he resigned and got associated with another farmer, procured a 2 KL BMC plus its accessories, milk cans, printed all registers, slips, truck-sheets, purchase, passbooks, etc to start a dairy pooling & processing business with a bank loan of Rs 7 lakhs. By the time he reached me, his loan was defaulted, pressure and interest of bank was increasing. There was no other way, but to sell the BMC, cans and accessories. It was sold for Rs 3.5 lakhs and the balance was paid by selling their land. These are the result we get, if one starts a dairy business with illusive mind.
10) I know, pooling and selling milk is an easy job: this person was full of illusions by seeing Doodhiyas pooling and selling milk on motorcycle every morning. (S)he feels this business is very easy, 2 hours labor in morning and whole day relaxing, gives good margin. Many people think that selling farm milk at cooperative is easy, it gives a good margin. In both the cases, they are wrong. Pooling business is not easy, while selling pooled milk at a margin is double the difficult task. Selling farm’s milk to cooperative is very easy; however, it makes you a milk supplier, while you wanted to become a dairy entrepreneur. Unless you sell the milk to the end-user (consumer), you would only earn the cost or a little profit, you would never become a dairy entrepreneur.
11) I will sell milk-products and earn more profit: such super enthusiasts are generally the new entrepreneurs, who is loaded with the knowledge from media that value-added-dairy-products (VADP) gives more profit compared to the liquid milk. It is true; however, one has to look at the cost of manufacturing VADP (the demand of such products, machines to manufacture VADP, holding period, cold stores for VADP, etc.). To sell VADP, one has to have a brand and also calculate the ROI (return on investment) on the cost of machines, cold store, marketing, etc. One must study the feasibility before investing into VADP marketing.
Selling liquid milk is more lucrative, compared to the products, because the product consumption is comparatively less, it requires holding of stock, products are market specific and require established brands, etc. So please do not jump into the VADP marketing in the beginning, wait for your dairy business to mature.
12) I will sell “Kefir”, fruit yogurt, cheese, deserts, etc.: at small scale, regular milk products, like; ghee, curd, paneer, khova, etc. generally gives good margin and sells easily, however, maintaining quality of western products becomes difficult for a new entrepreneur as it requires lot of precision, quality standard to fulfill and machines to manufacture. Please do not raise your illusions, keep your imaginations normal while entering into the dairy business in India. Doing experiments with dairy-products is not your “cup-of-tea”, one can do it after 3-4 years of successful dairying. VADP and liquid milk marketing is highly technical subject, which needs thorough & cost-effective marketing plan, for which an able dairy consultant can only provide the know-how.
13) I have purchased an old dairy plant and I need to run it: this person is loaded with illusion, that is why (s)he has bought the old plant without checking with a dairy consultant about its worth? Even when a person buys an old car, he checks with mechanics or known person about its worth. It sounds awkward that a person has procured old dairy plant and now a dairy consultant should advise how to run it? When a person has already taken a dive into the deep water, now he has to drown. Such decisions are only an over enthusiastic person can take. Please void taking such decisions, as it may not help much.
14) I will pay more to the milk-producers and by their milk: the new entrepreneurs do not understand that there is a limit in price elasticity, be it buying or selling. Dairy business is less margin-high volume business, where paying more than the existing rate creates financial imbalance resulting into a sick business. One can procure the milk from producers only when (s)he is having some local antecedents, as many milk producers got cheated by pooling persons, as they ran-away after some time without paying the milk price to the producers. In milk pooling business, preparing field for procurement is a technically planned machine-oriented activity, which can only be planned by an able dairy business consultant. Please do not be in illusion, rest assured you will not be able to pay more and attract the producers. Rather a transparent procurement system works well.
15) My dairy business will be run by the laborers and loyal employees: many people come to me saying that my dairy business would run by my loyal persons. It is a wrong belief. Rest assured, no one will do business for you, they will eat-up your business and run away. A few may stand loyal, but they also will be wooed by others or they would be poached. You have to run your business yourself. Like the farm business can’t be run by the contact labor, which are untrained. Similarly, the pooling & processing business can’t be run by group of loyal person or employee, as there are multiple checks required. One has to devote time in the dairy business, as it can’t be handled remotely.
If you are not vigilant during milking & selling time at farm or at the pooling, transporting or bulk trading time in pooling & processing business, you are going to earn huge losses. The milk would be adulterated, spilled or spoiled, it would fetch losses at the end of the day, you may simply label that a “dairy Business is not profitable”.
16) I know how to invest my money: people come with an idea that they know how to invest their funds, as they run 4-5 different business house. Believe me, running a business having milk as a perishable commodity, which gives only 2 hrs to reach its destination, you can’t manage the funds, unless systemic planning is done by an able dairy business consultant. Remember, milk can’t be put into gunny bags to be sold at a later date, like other Agri- products.
Someone comes with an idea that I want to establish fully automated dairy farm or milk pooling business, while they actually do not know what automation is needed at which stage in both types of the dairy businesses. What will be the ROI, if they have totally automated plant or a dairy farm. What will be per liter cost of milk if it is done in fully automated plant, which runs at 20-30% capacity (initially). Dairy business can’t run with a magic stick. It has its own gestation period. It takes minimum about 3-4 years to stabilize a dairy business (farm or plant). Give that much time, have patience, till you learn the “trick-of-the-trade”. Don’t do dairy business in haste. The dairy brands you see now a days, started about 78-35 years ago.
17) I know how to control my dairy business: if you are new dairy entrepreneur, not trained from any institute or have not burnt your fingers into dairy business, rest assured you don’t know how to monitor your dairy business (farm or plat). I repeat no one will do the business for you, they will eat-up your business and run away. A dairy entrepreneur must devote sufficient time with animals, machines, producers, laborers, consumers, billing and payment system, etc. Dairy business can’t be done as “work from home”, being done in IT. It is a brown-collar job, not a white- collar, at least in its beginning.
18) I know how to feed dairy animals: you are again suffering with illusion; good farm owners struggle to feed their animals as the Agri-residue/products, which are used for cattle feed vary seasonally and need to be stocked at its peak season. Feeding animals is the main challenge the farm owners face. Feeding on DMI basis is actually a technical process, with lots of calculations involved in it.
HR head of a company in Bangalore, met me and requested to prepare a DPR and layout for his dairy farm, which has 2.0 acres of land for 50-60 cows. I suggested him that please be in touch, I would guide you from time to time, so that you do run the farm in profit. He got the DPR and farm layout from us, paid money and eloped for 6-7 months. He was also loaded with the knowledge from media and showed confident that he will run the farm, without any support from a dairy business consultant. After 7 months he visited and requested me to visit his farm as some animals are sick. What I saw at the farm;
He procured 20 aged cows from a closing farm in Tamil Nadu
Many cows had symptoms of tuberculosis
The dung of cows was loose with full size maize seeds (whole maize was fed to the cows)
Had no green fodder, animals were being fed with dried maize shoots
He assigned the management of the farm to the Sarpanch of the village
He lived about 50 km away from the farm, visited the farm once in a week time (during weekends)
One can think, who was at fault and what was the short-comings at this Dairy Farm? What would have been the fate of this farm?
On U-tube, I saw a video, detailing formulae for 25% & 30% protein cattle feed to be manufactured at farm. Please check with any expert animal nutritionist, if the dairy animals are fed with such high protein feed, what will be the ill effect on them?
These examples tell us that if a person starts a dairy business after acquiring knowledge from social media, what would be the results. Please refrain taking such decisions.
19) I know what type of funds are required for a dairy business: how a new dairy entrepreneur will know, what type of capitals and costs are needed to run a dairy business. I would rather like to educate such persons about this. There are 4 types of costs, needed for any business; (a) capital cost (b) fixed cost (c) recurring costs and (d) working capital. In farm business feeding & managing the animals accounts about 80% of the recurring cost. For both types of the dairy businesses, minimum 3 months working capital is needed besides all other three (a, b, c) costs.
Dairy business can easily be established taking loan; however, the net margin after serving liabilities (interest, tax and depreciation) is to be assessed. This can be calculated by an able dairy business consultant, well before the start of the investment. It is called “feasibility report”.
20) I am aware what all is required to start a dairy business: A person, who dipped his hand in milk business, might know; however, a new entrepreneur do not know about all these. If you are a new dairy entrepreneur and you feel that you know, I believe you are in an illusion. To establish a Farm Business; proper land, funds, loyal person to look-after the business, trained and skilled labour, sheds & stores, elementary machines, milch-animals, close by market to sell the milk, etc. are needed. To establish a pooling & dairy plant business; sufficient funds, land at better location, producers’ support, local influential person’s support, large number of machines & plants, cold store, proper dairy building, quality lab, account & admin sections, strict management, marketing, etc, are required. However, suitable budget, business module and marketing plan would be suggested only by a competent dairy business consultant, based on your basic data.
I also met several knowledgeable persons during my 12 years of consultancy; however, most of these were bitten by the wrongly planned dairy businesses, which failed. Obviously, the sick comes to the doctor. The new entrepreneurs always found unaware about process of establishing a technical and profitable dairy business; however, almost all had some or the other illusions in their minds. I firmly believe that a new entrepreneur must contact an able dairy business consultant, may be for part time or only for a job work, take her/his advises after paying his fees, before putting hands into dairy business. Whenever your illusion confuses you, please read this article or talk to some of the dairy consultant and clarify your illusions. You can call or mail us @ M/s Dairy Consultancy, Bangalore, India, any time, if you have any illusion or confusion, while starting a dairy business (Farm or plant), we will be happy to help you out.
Dr PK Shrivastava
Dairy Business Consultant
M/s Dairy Consultancy, Bangalore, India
Ph: +91 8073147467