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Samridhi business plan
1. BUSINESS PLAN
Samridhi Agri Products Pvt Ltd
5/82 , Vipul Khand, Gomtinagar,
Lucknow 226010, Uttar Pradesh, India
http://samridhiindia.com/
Confidentiality
This business plan is confidential and is the property of Samridhi Agri-Products Pvt. Ltd.
Any reproduction or divulgence of its contents without prior written consent of the
organization is strictly prohibited.
1
2. Table of contents
Executive Summary.............................................................................................................................................. 3
Background ............................................................................................................................................................. 5
Genesis of Samridhi .............................................................................................................................................. 7
Target Villages ........................................................................................................................................................ 9
About Uttar Pradesh ......................................................................................................................................... 10
Current Operations............................................................................................................................................ 10
The Model ............................................................................................................................................................. 11
Employee Benefits ............................................................................................................................................. 14
Evaluating Qualification & Selection .......................................................................................................... 16
DownstreamMarketing…………………………………………………………………………………………………17
Samridhi Value Chain……………………………………………………………………………………………………18
Support Services................................................................................................................................................. 18
Consumers ............................................................................................................................................................ 19
Competitive Landscape.................................................................................................................................... 19
Financial Analysis .............................................................................................................................................. 21
Capital Requirement ......................................................................................................................................... 23
Risk Mitigation .................................................................................................................................................... 25
Key Values ............................................................................................................................................................. 30
Partnerships: ....................................................................................................................................................... 31
Management Profiles:....................................................................................................................................... 32
Board Members .................................................................................................................................................. 33
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3. Executive Summary
With huge production potential and an insatiable demand for milk unmatched anywhere in
the world, India’s dairy industry holds the potential to create large-scale employment,
provide stable and sustainable incomes, and build a bridge out of poverty for millions of
households in rural communities across the country. Recognizing this, Samridhi Agri-
Products Pvt. Ltd. was established in 2009 to create many of those dependable and
dignified jobs by filling the gaps in Uttar Pradesh’s rural dairy supply chain.
Through its distributed model, Samridhi procures milk from two distinct producer
segments – “ultra poor” households rearing Samridhi-owned livestock, and households
who already own dairy animals. By serving both groups, Samridhi can create the largest
possible social benefit for asset-less households while ensuring that its facilities are
operating at their full capacity.
Women who qualify as “ultra poor” (commonly understood as households earning less
than $1.25 a day) are given the option of rearing Samridhi-owned cattle or goats, and
personally select the animal(s) that will be kept at the family home. Each woman receives a
steady salary of Rs. 600 per month that will cover the cost of rearing the animal in
exchange for producing a pre-determined quantity of milk (approximately 50% of potential
production for cows and goats). She is also able to either sell the remaining milk to
Samridhi at market rates, or keep the milk for her own family’s consumption. For the
average ultra poor household, these milk sales can increase their household income by as
much as 400%. Furthermore, as the dairy animals reproduce, Samridhi only claims one
female calf or twelve calves, leaving the remaining offspring – up to two cows or 12 goats -
as the property of the employee. This allows the woman to build a foundation of productive
assets over the course of her employment, and positions Samridhi as a trusted buyer of
milk as animals produce milk over their lifetimes.
Samridhi also purchases milk from middle or upper poor households, (commonly
understood as those earning more than $2 a day) who already own productive dairy
animals, at the rates used to purchase surplus milk from ultra poor women. Not only does
this ensure that Samridhi facilities are maximizing their capacity, but it also reinforces
Samridhi’s position as a trustworthy, beneficial partner in the development of the whole
community.
In addition to income security and access to productive assets, Samridhi also makes a
series of high quality and affordable services available to both employees and non-
employees including skill-building trainings, linkages to high-yielding varieties of livestock,
nutritional feed, veterinary services, artificial insemination support, and access to livestock
insurance.
3
4. For pricing milk, Samridhi uses industry standard calculations for measuring the quantity
milk fat content (FAT) and nonfat milk solids (SNF) to determine its value. Testing is done
twice in the collection process, first in the presence of the woman at her village collection
center to establish her variable income, and again at a central Bulk Milk Chiller (BMC)
facility to verify measures, control quality, and identifies any possible fraud. This ensures
transparent pricing at the village level and builds Samridhi’s reputation as a dependable
supplier for wholesale buyers.
Samridhi draws its revenues from the margin between the procurement price of milk in
rural areas and the selling price to wholesale buyers. Through a single BMC, Samridhi can
provide employment to 288 ultra poor households and procures milk from an additional
432 farmers by selling 2400 LPD to urban wholesale buyers. A single BMC can service
approximately 24 villages, employing 12 ultra poor women per village and purchasing
from an additional 18 farmers per village. This translates to 72,000 litres of milk procured
each month, generating revenues over Rs. 17 Lakhs. Against those revenues, Samridhi
bears the costs of the BMC’s capital investment, salaries for Samridhi management BMC
staff, and salaries to ultra poor employees, payments to non-employee producers, and the
cost of maintaining its herd.
Samridhi has also committed itself to rigorously benchmarking and evaluating the progress
made out of poverty by its ultra poor employees. Collecting information quarterly,
Samridhi evaluates the social impact that increased income is having on employees in areas
such as quality of housing, value of household assets, nutritional quality of the family diet,
and the children’s access to education. This information will be used by Samridhi to
optimize for both social and financial performance, and will ensure that the company’s
profitability is in lockstep with social gains made by its employees.
Leading this effort is a core management team that brings together valuable insights and
experience from both India’s dairy industry and social sector. Pairing veterans of Amul, the
world’s largest milk cooperative, with experienced leaders from India’s microfinance
industry, the Samridhi team collectively brings a diverse set of skills and specialized
knowledge to the design and management of the organization. Furthermore, each member
of the team holds graduate degrees from India’s premier institutes for economic
development.
4
5. Background
As urbanization continues to dominate India’s current development agenda, stagnation in
the agricultural sector has left many rural poor households struggling to earn enough to
meet their most basic needs. Between 1991 and 2001, over 7 million1 farmers quit farming,
meaning over 2,000 farmers every day were left suddenly looking for alternative ways to
earn a living. Some of the reasons for the slowdown in agriculture include under-developed
irrigation, severe weather (floods in some years and drought in others), increased
incidence of crop disease, land disputes that have left farmers with small parcels of land on
which it is difficult to cultivate crops, and volatility in market pricing. Another growing
challenge is the problem of agents or middlemen that are extracting a greater proportion of
the profit margins in the rural-to-urban supply chain. Most farmers sell their produce to a
middleman in the village or have to deal with brokers in government-authorized markets
in cities and towns. Because of their dependence on these delivery channels, they are often
exploited and are given low prices for their produce. For the rural poor to avoid being left
further behind, new, localized, and sustainable employment opportunities must be made
available for those who are otherwise unemployed or underemployed.
For India’s rural economy, dairy is a critically important industry. In the wake of uncertain
income from agriculture, small scale farmers and agricultural laborers can earn more
reliable income from dairy farming. Dairy is the largest agricultural contributor to India’s
economy and adds Rs 1.179 billon2 to its GDP. From acute shortage of milk until the 1960s,
India has become the largest producer of milk in the world. In 2006, India reported over
100 million tonnes of milk produced. India’s dairy industry relies heavily on a “crop-
livestock production system,” in which the feed provided to dairy cows is a mixture
comprised of residual output from the crops grown by small-holder farms. These farm
labourers also split their time between tending to crops in the field and managing the care
and feeding of the dairy livestock. The large and growing rural labour force, combined with
the large number of livestock, has helped India’s dairy industry grow to its current size.
1 Online article - http://www.thehindu.com/opinion/columns/sainath/article2484996.ece accessed online:
January 2012
2
Meeta Punjabi, “India: Increasing demand challenges the dairy sector”, part of Smallholder dairy
development - Lessons learned in Asia, Food and Agriculture Organization (FAO) of the United Nations.
Accessed online: January 2012: page 44 ftp://ftp.fao.org/docrep/fao/011/i0588e/i0588e00.pdf
5
6. Despite current production levels, however, India’s dairy industry can and should be far
more productive. One of the industry’s biggest challenges is the weak productivity of its
livestock. India’s cattle produce 987 kg per lactation, compared to the global average of
2084 kgs per lactation2. Some of the prevailing factors that lead to low productivity are
poor quality of domestic cattle breeds, lack of accessible veterinary services, inadequately
trained caretakers, and poor quality feed. Any intervention that addresses one or more of
these challenges can positively impact rural households by increasing milk yields and
therefore, increasing the incomes of dairy farmers.
Goat milk production, too, represents a reservoir of untapped potential. Goat milk is
extremely nutritious and has anti-fungal and anti-bacterial properties, and is commonly
administered in hospitals across India for recuperating patients as goat milk is easier than
cow’s milk to digest. As the marketing of goat milk slowly overcomes common prejudices,
the nascent market for this high value commodity is growing. For herders, goats are low
cost, are easier to care for, do not require expensive fodder, are more compact and easier to
house – all benefits that make goat rearing a more viable and attractive livelihood activity
for poorer households. Finally, goat meat is in high demand in the country and there are no
social taboos associated with goat slaughtering, as there are with the slaughtering of cows
in India. As goats are valued for both their milk and meat, they can potentially contribute a
great deal towards the creation of new livelihoods for rural households.
As per the 2007 livestock census, India has over 140 million goats. Over the past 10 years,
the goat population has increased by 15%. This growth rate is in spite of an annual
slaughter rate of 38%. In terms of total volume of goat milk production, India is the world
leader producing 4 million metric tonnes in 20083.
Even though India is the largest producer of milk, it could soon face a shortage of milk to
feed its burgeoning population. According to the National Dairy Development Board
(NDDB), India has to grow its milk production by five million tonnes each year (current
rate is 2.5 million tonnes/annum) to meet the demand of 180 million tonnes by 20214. The
only way India can accomplish this is if more of its farmers are able to own cattle, and
increase the productivity of that cattle through effective training of farmers, access to
quality feed and availability of veterinary services when critically necessary.
3Dr. D. Swarup, Annual report 2010-2011, Central institute for research on goats (CIRG). Accessed online:
February 2012: Page 1 http://www.cirg.res.in/downloads/ar1011.pdf
4Online article - http://articles.timesofindia.indiatimes.com/2010-02-17/vadodara/28149024_1_milk-
production-milk-shortage-higher-import accessed online: February 2012
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7. Genesis of Samridhi
Sanchetna Financial Services Pvt. Ltd. was founded in 2008 to offer financial services – such
as small, working capital loans to promote livelihoods – to a predominantly rural section of
society that was not being served by the traditional banking sector. After working closely
with rural populations, Sanchetna’s promoters realized that financial services alone could
not sufficiently and sustainably improve livelihoods unless they were combined with other
business support services.
Thus, to create a supportive economic ecosystem in rural areas, Sanchetna’s promoters set
up Samridhi Agri-Products Pvt. Ltd. in 2009. Equipped with the valuable insights gained
from their experience with Sanchetna, combined with prior professional experience in the
dairy sector, milk production was identified as the activity through which Samridhi could
dramatically improve livelihoods in poor areas. As an industry, dairy requires several
support services such as linkages to high-yielding varieties of dairy cattle, nutritional cattle
feed, institutionalization of village milk procurement, timely payments to producers,
artificial insemination support, veterinary training services, livestock insurance, and retail
milk processing, packaging and marketing. Samridhi seeks to build up these various links in
order to effect a well-functioning supply chain – from farmer to retail outlet – for the dairy
industry. In a short span of time, Samridhi’s work as already resulted in greater benefit to
poor, rural households.
Addressing the market need
The dairy industry currently is fragmented on the production end. It is largely driven by
small-holder farmers located in different parts of the country, who together account for a
significant portion of the total milk production, but have little collective bargaining power
over pricing and market value.
A large number of these dairy farmers face numerous challenges in milk production, such
as intermittent electricity to run the cooling system for milk before it is sold. This leads to a
lot of wastage. In order to save the milk, the farmer is forced to sell it to middlemen at
lower than market rates. For most of these farmers, daily milk sale from the few cows they
own is their only source of income. Yet the entire value chain from taking the milk to
market to collecting payments is fraught with inefficiency and unfairness.
While individual farmers struggled to find even some of these support services locally, the
founding team believed that a new enterprise would be well placed to best manage these
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8. activities and allow farmers to focus on simply producing milk. Samridhi’s goal is to build a
formal supply chain to connect the dairy farmers with the milk processing units, cooling
facilities, and delivery channels to retail outlets. This will increase the predictability of an
assured income for the farmers. Samridhi will also train one woman in each village to be a
para-vet. This will ensure access to a trained professional in case of any health concerns.
The team will also train farmers on effective ways to milk and manage the livestock.
Another critical gap in the industry is access to quality feed for the livestock. Samridhi will
source livestock feed from reputed organizations and make it accessible to the farmers. A
formal market linkage, access to a para-vet, training, and availability of quality feed will
ensure that the livestock is productive and generates stable income for the farmer.
Commitment to the “ultra poor”
Most dairy models across India currently work with farmers who already have some
livestock. Even Gujarat’s cooperative milk marketing federation limited (Amul), the largest
milk producer in the world, provides market linkages only to farmers who already have
cattle. However the poorest of the poor, or the “ultra poor,” can’t afford their own livestock
and are left out of these programs. Samridhi is committed specifically to working with this
segment, and will also ensure its infrastructure is open to other milk producing households.
The ultra poor are typically the poorest households in a village, and cannot to afford to
purchase cows and/or goats as other households can. They live in makeshift housing –
commonly made of mud and thatch – and cobble together odd jobs, such as manual labour,
waste-picking, or begging, to earn an income each day. Samridhi intends to provide these
households with livestock (cow or goat), training on how to take care of the assets and
produce milk on a daily basis, and give them a combination of a fixed and a variable salary to
ensure a steady, predictable income for their efforts.
The team feels strongly that dairy activities not only improve the economic aspects of life in
rural communities, but also promoting gender and social equity. 58% of the total workers
engaged in the dairy sector are women, a much higher rate than the rest of the regional
agricultural sector. Furthermore, the majority of dairy workers belong to socially and
economically disadvantaged communities: Scheduled Tribes (STs), Scheduled Castes
(SCs) and Other Backward Castes (OBCs) constitute 69% of the dairy sector. Increasing the
income from dairy activities would directly benefit those most commonly among the
poorest in any community.
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9. Target Villages
Samridhi first piloted the dairy model in the Deva block of the Barabanki district of Uttar
Pradesh, and is eyeing future expansion through neighboring blocks. By 2016, Samridhi’s
goal is to reach 28,000 households in over 1100 villages spread across three districts of
Uttar Pradesh. The team hopes to have 48 BMCs installed with a total capacity of over
1,00,000 litres of milk/day.
Deva block is a rural part of Uttar Pradesh, where agriculture, animal husbandry, and bee-
keeping are the main income-generating activities. The primary crops are wheat, paddy
(rice) and maize, and menthol oil is also a widely grown cash crop in the region. The
average income for farmers and dairy producers is very low and, as a result, the district is
home to large numbers of households falling below the national poverty line.
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10. About Uttar Pradesh
Uttar Pradesh, located in North India, is the most populous state in the country, accounts
for 16.4% of the country’s population, and is the world’s most populous sub-national
entity5. Lucknow, where Samridhi is based, is the capital city. The per capita income of the
state is among the lowest in India and, along with Bihar and Orissa, it lags behind in many
social indicators such as medical facilities, birth rate, death rate, infant mortality rate,
literacy, unemployment, etc.6
The majority of the population is dependent on farming as its main occupation. Poverty
estimates provided by the Planning Commission reveal that Uttar Pradesh has 59 million
people who are below the national poverty line. Government schemes and market reforms
have failed to reach the rural economy in Uttar Pradesh, and the state is home to over 134
million people (21% of India’s poor) who qualify as multi-dimensionally poor on the multi-
dimensional poverty index (MPI)7.
Current Operations
Samridhi began piloting milk procurement in April 2010. The firm currently collects nearly
1,000 litres of cow milk per day from 13 villages. In these areas, Samridhi is purchasing
from a population that did not previously have any control over pricing or reliability of
payments, and consequently did not view dairy as a viable business.
As a way of differentiating from other dairy players and ensuring fair pricing for its
farmers, Samridhi has developed a differential pricing strategy that gives weight to Milk-
Fat content (FAT) and “Solids-Non Fat” (SNF). With testing done on-site, the consideration
and inclusion of these measurements increases pricing transparency for both the
individual farmers and the company, and allows the company to pay higher rates for
individuals producing better quality milk.
Samridhi has set up one model unit that currently serves 12 villages and has the capacity to
collect approximately 2,000 litres per day. Each of these units includes one bulk milk chiller
(BMC), is staffed by a single manager, and employs up to four individuals to administer
5 http://www.tourismofindia.info/uttar-pradesh-tourism/
6Website of the Govt. of UP - http://upgov.nic.in/upinfo/up_eco.html accessed online - December 2011
7 The Multidimensional Poverty Index (MPI), an Oxford poverty and human development initiative,
complements income poverty measures by reflecting the deprivations that a poor person faces all at once
with respect to education, health and living standard
10
11. village-level milk collection. Currently, Samridhi procures milk from 150 women across 12
villages and pays top of the market rates.
For the individual producers, regular milk sales allow their households to move from
subsistence activities to earning a stable income. Typically, the household already owns 1-3
cows and sells milk daily to a middleman despite habitually delayed and below-market
payments. By selling instead to Samridhi, they receive fair and timely payments that not
only surpass those of the middlemen, but also those provided by Parag, the state dairy
cooperative.
The Model
Samridhi purchases milk from two distinct client segments: Qualifying Ultra Poor
Employees and Private Livestock Producers.
Qualifying Ultra Poor Employees Private Livestock Producers
> Livestock owned by Samridhi (cow or goat) > Owns dairy animal (cow or goat)
> Salaried employee > Not a salaried employee
> Produces a set quantity for Samridhi > Sells milk to Samridhi at will
> Sells excess to Samridhi or another buyer
1. Qualifying Ultra Poor Employees (under $1.25 / day)
In these villages, the ultra poor are those who have little to no productive assets and are
among the poorest groups in the country. These are households that are too poor even to
own cows or goats of their own. At present, they cobble together odd jobs such as manual
labour or field work to earn an income. Without a steady income, they live in a state of
constant volatility and are unable to consistently address their most basic food, housing,
health, and education needs. Samridhi has developed a robust selection process to ensure
that it can identify the poorest households in these villages and help them earn a stable
income in an area where they have no other options.
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12. Under this model, each qualifying household rears one-to-two Samridhi-owned cows with
total productivity expectation of eight litres of milk per day, or three-to-five Samridhi-
owned goats with total productive expectation of three-to-five litres of milk per day. As
employees of Samridhi, they receive a guaranteed salary of Rs. 600 per month and are
eligible for bonuses based on the quantity and quality of milk produced.
In addition to this salary, the model also gives families an opportunity to build a stable base
of productive assets: after the contract period initial dairy animal is owned by employee,
the majority of offspring become the property of the individual employee. Not only does
this create social benefits through steady income and a chance to own productive assets for
the individual employees, but it also expands the pool of Private Livestock Producers from
whom Samridhi can purchase milk.
Cow Milk
Women from qualifying households employed by Samridhi rear the Samridhi-owned
cow(s) on their own and pay all related expenses. As long as she provides milk worth Rs.
18,840 each year, she gets a fixed wage of Rs. 7,200 per year. On an average, it costs about
Rs 10,000 per year to maintain a cow. Any milk above this minimum requirement belongs
to the employee and she can decide whom to sell this milk to, though she is strongly
encouraged to sell the milk to Samridhi.
Based on the eight liter productivity expectation, the woman can end up making Rs. 600 /
month as fixed wage and an additional Rs. 1250 / month by selling the milk to the Samridhi
collection center. Furthermore, Samridhi will only take back one female cow calf born to a
Samridhi cow. The original livestock and other offspring will be entirely owned by the ultra
poor employee. Even when a Samridhi livestock is between lactation cycles, and not giving
milk, the company still pays employees Rs. 600 each month, provided the employee is
taking good care of the cow.
The table below shows a year-over-year timeline for expected milk generation from a two-
year-old cow (all amounts in Rs.):
Total
Total Fixed
revenue
Value of Total Samridhi’s Employee’s Samridhi's revenue/co Employ
Month that
Production Share Share Margin w for ee
employee
Samridhi Wages
receives
Year 1 33,180 18,840 14,340 4,977 16,617 7,200 21,540
Year 2 33,180 18,840 14,340 4,977 16,617 7,200 21,540
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13. Assumptions
1. Total Samridhi benefit includes revenue (Rs 23/litre) that Samridhi receives by
selling the mandatory milk (2.75 litres/day) that employees have to give and the
margin (Rs 3/litre) that Samridhi receives from the additional milk (2.09 litres/day)
that Samridhi receives from employees.
2. Total production starts from eight litres per day, and goes on decreasing gradually
with time. A cow typically gives eight litres milk for three months of the year and
gradually reduces over the next six months. During lactation (which lasts three
months), the cow is unproductive. Samridhi continues to pay the fixed salary of Rs
600/month to the employee throughout the year.
3. The figures taken here are an average over a year. However, as cow productivity
declines, Samridhi’s share also declines with it.
4. The table given here assumes a very conservative, worst-case scenario with respect
to reproduction. In the first year, we assume a male calf, and in the second year a
female calf that will hold a value only in the third year. Each employee receives a
cow and a female calf at the beginning. At the end of two years, the calf belongs to
Samridhi while the original cow and remaining calves are owned by the employee.
Goat Milk
As a livelihood option, goat rearing holds tremendous potential to provide a quality income
for the ultra poor. The reproductive cycle of goats is shorter (five months), and goats
generally give birth to multiple kids (two-to-three per gestation). And from a nutritional
perspective, goat milk is the only dairy product that contains beneficial anti-bacterial and
anti-fungal minerals. However, due to social stigma, many have been reluctant to rear goats
as livelihoods and the market for dairy goats is less developed than the market for cattle.
Seeing both the economic and nutritional benefits of goat milk, several organizations are
working to market the virtues of goat milk and increase demand. It is in this work that
Samridhi sees a tremendous opportunity, leading Samridhi to enter into an agreement with
Lucknow-based The Goat Trust to source the necessary livestock and provide critical
support services to its employees.
Under this programme, Samridhi provides three goats to each employee with a total
productivity expectation of 3-5 litres per day. In the first batch, Samridhi is procuring goats
of the Sirohi breed (a large breed that hails from the state of Rajasthan) and the local
breeds from within Uttar Pradesh through The Goat Trust. Given that a goat reproduces
twice in a year, Samridhi leaves the original goat with the employee and takes one offspring
per goat per lactation over a span of two years.
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14. For goats, the annual expected productivity is shown below:
Revenue Total Total
Value of Total
by Fixed Employe Samridhi
Total Samridhi’ Employee’s Samridhi's revenue
Month selling Employe e Benefit
Productio s Share Share Margin /goat for
goat/Em e Wages benefits
n Samridhi
ployee
Year 1 16,425 11,220 5,205 2,463 9,000 18,000 7,200 23,205 15,666
Year 2 16,425 11,220 5,205 2,463 9,000 18,000 7,200 23,205 15,666
Assumptions
1. Total Samridhi benefit includes revenue (Rs 23/litre) that Samridhi receives by
selling the mandatory milk (0.6 litre/day) that employees have to give and the
margin (Rs 3/litre) that Samridhi receives from the additional milk (0.2 litre/day)
that Samridhi receives from employees.
2. Average total production stands at 3 litres per day.
3. A goat is assumed to be in lactation for eight months in a year. For the four months
when the goat is not producing milk, Samridhi still pays an amount of Rs. 600 per
month to each employee.
4. This is a conservative estimate of the goat’s reproductive capacity. Each goat gives
birth to at least two kids in each lactation. Out of these, Samridhi takes back one kid.
Employee Benefits
The main advantage to the client is that the employee quickly comes to own her own milk-
producing livestock. In case of a cow, the employee owns a milk producing livestock in two
years, and in the case of goats, the woman owns her own dairy animal within one year. The
average cost of rearing one cow or three goats should average out to be around Rs. 600 per
month. The employee gets a fixed payment of Rs. 600/month to cover these costs, and
receives a good market rate for the milk produced over and above the agreed upon limit.
Below is a graphical representation of the value chain:
Once the dairy animal is with the employee, she immediately becomes solely responsible
for rearing the livestock including feed and maintaining its health and ensuring that the
14
15. animal remains productive. When returning the calf, Samridhi expects it to be in the same
condition as it were at the time of assigning to the employee (expecting a certain degree of
natural aging).
Samridhi’s support, however, does not end once the dairy animal is assigned and
transferred to the employee. The grid below explains the division of responsibilities
between different players of Samridhi’s value chain:
Activity Samridhi Employee
Livestock Purchases and transfers the animal
Purchase to the employee Receives livestock from Samridhi
Livestock Feeds and maintains livestock
Maintenance No involvement health
Milk Collects milk from the employees
Procurement and sells it ahead Transfers milk to Samridhi
Risk Mitigation Holds insurance No involvement
Keeps the original animal after
Calving – Cows offspring starts giving milk Owns the offspring
Owns the original goats and all
Calving – Goats Takes one offspring per lactation remaining offspring
Trains one person/village to be a
para-vet. Para-vet charges the
Veterinary women for services other than Has access to Samridhi trained
Services vaccination and de-worming para-vet on pay for service basis
Since rearing of the livestock is a low-skilled job requiring roughly 1-2 hours of work daily,
the Samridhi program allows the household to supplement its income without having a
dramatic impact on lifestyle. This is a home-based activity designed to be minimally
disruptive to households’ current routines. Most of Samridhi’s dairymaid positions are
filled by women; the women, then, can bring in as much income as the male members of the
household. In many cases, this supplemental income will double current income levels. In
addition, the predictability and regularity of the Samridhi income could conceivably help
households quickly move out of extreme poverty and meet its most basic needs.
15
16. The below table summarizes the key features of both the cow and goat dairy models:
Snapshot of cow and goat model
Model Cost/animal Employee Assets owned by Pros Cons
(US $) pay-out employee at the
end of two years
Cow 400 Fixed pay: Original cow and at • Asset ownership – • Zero value of male
Rs 600 least one female calf Original cow belongs to calves
the member • Higher maintenance
Variable pay: • Social empowerment: costs
Rs 1250 higher status
associated with cow
ownership
Goat 100 Fixed pay: Original three goats • Asset ownership – • Nascent retail market
Rs 600 and 12-24 calves Original goats belong for goat milk
to the member. She • Limited insurers
Variable pay: also receives 8-10 • High mortality rate
Rs 500 calves over two years among goats
• Easy to maintain
• High reproductive rate
• Potential market for
goat milk in cities
Targeting and Selection
To measure the income levels and suitability for the programme, Samridhi visits the home
of potential employees to evaluate each household using estimates of incomes and
expenditures, a proprietary housing index, education levels, utilization of government
programmes,8 and the Grameen Foundation’s Progress Out of Poverty Index™ (PPI).
Generally, qualifying households:
• Have an average monthly income of Rs. 1500 to 2000 (among all members)
• Work in manual or farm labour
• Reside in ‘kachha’ houses made of mud or thatch, seldom have access to private
source of water, and have no access to sanitary facilities
• Have on an average between four and six children who are enrolled but not
attending school regularly
• Are enrolled in ration or housing subsidy schemes
• Have a PPI™ score less than 18, indicating insufficient productive and household
assets to meet a family’s needs
8 The PPI™ is used for internal operational purposes only.
16
17. 2. Private Livestock Producers (earning between $2 - $3 / day)
More than 40% of Indian farming households fall in this income band, with roughly two-
thirds owning less than one hectare of land. It is quite common for these households to be
engaged in milk production as regular milk sales allow them to move from subsistence
farming to earning a commodity-based income. Typically, these households own one-to-
three cows and sell milk to a middleman every day, but as described earlier, they are
constantly subject to delayed and below-the-market payments for their work. Some of
these households also own a few goats, however, the lack of a market means that these
people are unable to generate an income from goat milk production.
Samridhi provides these households with an alternative, offering accurate and timely
payments for their product. They are paid predictable amounts on a weekly schedule and
at transparent prices consistent with Samridhi’s FAT/ SNF pricing scheme.
The Downstream market – Milk processing and retailing
Samridhi sells the milk collected from both ultra poor employees and private livestock
producers to Devashish dairy, which in turn sells milk and milk products in retail outlets
under the brand of ‘Shuddha’.
Devashish has a plant capacity of around 40,000 litres per day. Devashish does not itself
collect milk from the villages and depends on aggregators in villages for procurement.
Samridhi is the only permanent customer that they have. This gives Samridhi the leverage
to bargain prices with Devashish. Currently Samridhi delivers the milk on a daily basis to
Devashish’s processing plant in Lucknow. Devashish pays Samridhi a commission of Rs
3/litre for the milk that Samridhi procures. Going forward, Samridhi would prefer to work
with organizations that collect milk directly from Samridhi’s BMC. This would eliminate the
transportation costs and the risk of milk getting spoilt in transit.
To be attractive to other milk processors, Samridhi needs to consistently deliver 2,000
litres/day. At capacity, each BMC can store up to 3,200 litres of milk every day. At that
scale, Samridhi can also demand a better commission for the milk. Given Devashish’s
capacity, Samridhi can deliver milk from up to eight BMCs before the capacity at Devashish
gets saturated. At that scale, Samridhi will need to partner with other dairies.
Samridhi is currently negotiating with other dairies and is hopeful of establishing a series
of purchasing partnerships by the early fall of 2012. Some of these brands include Gyaan,
Mother Dairy, and Namaste India: all with a plant capacity of over 1, 00,000 litres per day.
17
18. Snapshot of Samridhi’s value chain
In a nutshell, after ultra poor and non-ultra poor producers supply milk to Samridhi’s field
officers, the following diagram illustrates the process of how the milk reaches the
downstream market:
Support Services
Samridhi also provides extension services to its ultra poor and non-ultra poor dairy
producers, working with organizations to make available professional veterinary services
such as artificial insemination, vaccination and de-worming of livestock. Samridhi has
already partnered with Indian Immunological Ltd., a wholly owned subsidiary of National
Dairy Development Board, for extension services.
1. Cattle Insurance - The cattle will be insured before being transferred to the
employee. For this purpose, Samridhi has contracted with TATA AIG, to provide
cattle insurance for its herd. In case of an animal death, the employee does not bear
any additional expenses or responsibility, and the claim will be given to the
company. There are very few organizations providing goat insurance. Given the low
cost of goats, it is not sustainable for commercial insurance companies. Samridhi is
talking to organizations that provide community based insurance for goats.
18
19. 2. Network of “Pashu Sakhi” - For regular check-ups on the animal, Samridhi will train a
woman from each village as a para-veterinarian (Pashu Sakhi in the local dialect) to
provide basic veterinary services in that particular village. The Pashu Sakhi will be
trained and given access to basic medicines at low costs to heal basic ailments. She
can charge a fixed fee on these medicines while selling them as needed, providing an
additional channel of income to the Pashu Sakhi.
3. Cattle Feed - Samridhi also sells cattle feed to employees at competitive rates. The
cattle feed is delivered at their doorstep, saving travel and time costs. Given the
dietary needs of goats, specialty feed is not required.
4. De-Worming Tablets and Vaccination for livestock - Samridhi provides de-worming
tablets and vaccinations for all livestock owned by the company, and makes these
same services available to Private Livestock Producers. Samridhi educates all
producers about the importance of these tablets, and how they are supposed to be
consumed by the livestock
5. Artificial Insemination - Samridhi will assist the employees with reproductive
services for their livestock. Although the expenses will be borne by the employee,
veterinary services will be provided to facilitate the breeding process. A safe and
healthy practice of artificial insemination is important in part to ensure a steady
supply of quality milk and in part to ensure ultra poor households are recipients of
healthy and productive calves.
Consumers
Competitive Landscape
The following is a snapshot of the Samridhi’s positioning vis-a-vis other market players:
Parag (State Milk Private Retail Informal Middle Samridhi
Co-Operative) Milk Companies Men
Outreach Villages on the Towns Interior Villages Interior Villages
connecting roads
Milk Rate Basis FAT and CLR FAT Only (Favours No Scientific Basis FAT and CLR
Buffalo Milk) (about Rs. 1/Ltr
more than that of
Parag)
Payment Monthly Basis Monthly Basis Erratic Weekly
Point of Contact for Co-ordinator Milk Middleman Farmer Farmer
the farmer
Financial Not Available Not Available Available Available
19
20. Assistance for
cattle/feed
Livestock Not Available Not Available Not Available Available
Insurance
Veterinary Services Available but Not Available Not Available Available
erratic
Competitive Advantage
Steady Production and Purchasing
Regional milk production currently follows a seasonal pattern with many small dairies
operating only during the flush period. Since none of these dairies currently pay
competitive rates to producers or provide any support services to improve cattle
productivity, farmers have very little incentive to produce more milk. Furthermore, the
long marriage season during periods of lower production guarantees a volatile market for
producers and buyers. In this market, Samridhi’s professional approach will distinguish the
organization as the preferred purchaser.
Cows reach their maximum productivity in the winter season. Ideally, productivity begins
to rise from July-August and goes on to reach its peak level in December-January. Milk
production fluctuates as much as 40% between peak and dry seasons.
For goats, the seasonal pattern is relatively less variable. They produce maximum in the
summer season, and stay dry for approximately a month before delivering a kid, which
could be at a regular gap of seven months.
The biggest advantage with Samridhi is the steady and predictable rates that farmers will
receive. Even during the lactation period when the cow is unproductive, Samridhi will
continue to pay the fixed salary of Rs 600/month to its employees.
Few Competitors
The state dairy cooperative (Parag) is the only player in the market with a reasonable
presence in areas surrounding Lucknow, covering villages which are situated on the main
roads but leaving out large swaths of surrounding areas and the poorest, interior villages.
Samridhi is currently establishing trusted relationships with villages that have been
overlooked by other players and is setting pricing at more favourable levels.
Brand Familiarity
20
21. Having a symbiotic relationship with Sanchetna - which is already providing the farmers
with capital and insurance services - Samridhi is able to provide complementary services
where the microfinance institution already has a presence. A large number of Sanchetna
clients have cattle. When Samridhi started providing cattle feed, it was very well received
by the clients of Sanchetna for their cattle. Through research and discussion with multiple
players, Samridhi ensures that it only procures cattle from quality organizations. Samridhi
provides the feed at the doorstep of the farmer. Otherwise these farmers have to travel to
Barabanki to procure the feed. This saves them the time, cost of transportation, and the
opportunity cost of a day’s labour. Another advantage is that Samridhi gets feed at a lower
price due to larger scale and passes those benefits onto the farmer.
Professionalism
The promoters have put a lot of emphasis on direct and regular touch with the milk
producers, economic empowerment of milk producers, transparency in pricing, respectful
customer service and high standards of professionalism. Through this professionalism,
Samridhi is building a strong brand reputation and is increasingly viewed by individual
producers as the preferred purchaser.
Financial Analysis
The Samridhi model is based on the margin between the procurement price of milk in rural
areas and the selling price to wholesale buyers.
Samridhi will procure milk from two sets of village-level producers:
1. Private Livestock Producers: Population already owning one or more dairy animals
with variable rates paid based on milk volume and quality.
2. Qualifying Ultra Poor Employees: Population living below poverty line that own no
productive assets and have been furnished with a Samridhi dairy animal through
their employment. These employees will be paid a set salary of Rs. 600 per month
plus variable rates paid based on milk volume and quality.
Other assumptions are as follows:
1. Price of milk will be determined on the basis of FAT and SNF
2. Margin between procurement and selling price is Rs. 3 per litre. This is same for
both cows and goats
3. Fixed cost of maintaining Bulk Milk Cooler for one month including salaries,
transportation and utilities is Rs. 86,000 In case of Samridhi’s cattle being reared by
21
22. employees, 2.75 litres per day per employee will be transferred to Samridhi to
satisfy production requirements including in conditions of employment. Variable
pricing will be in effect for every milliliter beyond the 2.75 litres per day
requirement.
Benefits of scale
As Samridhi continues to scale and adds new BMC’s, there are certain costs whose per unit
cost decreases with the increase in the number of units. Some of these include:
• Cost of cattle – Once Samridhi assures a steady supply of orders for livestock, the
organization can demand a better rate from the agents and/or cattle farms
• Cattle feed – Even at one BMC level, Samridhi will work with over 700 farmers. A
majority of these people would require feed for their livestock. At this scale,
Samridhi can get better rates from the manufacturers
• Head office overheads – Samridhi does not anticipate needing to add staff at the
head office level as it increases the capacity of one BMC and continues to add BMCs
to its operations. As such, the cost of existing staff can be spread across the
expanding capacity.
22
23. 5-Year Financial Projections9
Income Statement 2012-13 2013-14 2014-15 2015-16 2016-17
Total Revenue from Cow Milk 34831591 114053136 276917148 556733952 975250968
Total Revenue from Goat Milk 7013160 23448960 56933280 114462720 200508480
Non-operating Income 432200 1416000 3438000 6912000 12108000
Total Income 42276951 138918096 337288428 678108672 1187867448
Milk Price Paid to UP Women 5468232 18283392 44391456 89247744 156338496
Milk price paid to Non-UP Women 18921600 61171200 148521600 298598400 523065600
Field Staff Salary 5549600 18325600 44098800 88615200 154360800
BMC Cost 812000 2920000 6702000 13584000 22512000
Head Office Overheads 1913850 2348600 2592600 3036600 3612678
Interest Expenses 123750 0 0 0 0
Depreciation 192000 600000 1332000 2664000 4392000
Total Expenses 32981032 103648792 247638456 495745944 864281574
Surplus 9295919 35269304 89649972 182362728 323585874
Tax Payable 3101119 11765840 29907231 60836206 107948248
Reatined Earnings 6194800 23503464 59742741 121526522 215637626
Balance Sheet 2012-13 2013-14 2014-15 2015-16 2015-17
Assets
Cash and
Equivalent 18854,68 10783,33 194746,74 463083,96 1496404,22
Fixed Assets 56000,00 153600,00 300000,00 592800,00 872400,00
Accumulated
Deprec. 1920,00 7920,00 21240,00 47880,00 91800,00
Net Fixed Assets 54080,00 145680,00 278760,00 544920,00 780600,00
Livestock 153096,00 473352,00 953736,00 1914504,00 2801880,00
Total Assets 226030,68 629815,33 1427242,74 2922507,96 5078884,22
Liability - - - - -
Term Loan 1250,00 - - - -
Equity 213456,81 592404,48 1350720,19 2767761,99 4852598,92
9
Details in accompanying Excel financial model
23
25. Capital Requirement
In addition to the seed funding of roughly Rs. 32 lakhs provided by Upaya Social Ventures,
Samridhi is looking to raise roughly Rs. 2,40,00,000 in coming two years in order to reach
further 260 odd villages. We shall be able to reach scale with access to additional capital.
Risk Mitigation
Currently, insurance companies do not have an extensive network in rural areas of North
India. Organizations in this area commonly rely on NGOs or insurance agents to meet their
regulatory requirement of rural portfolios. Furthermore, lack of awareness among the rural
people makes it difficult for them to access insurance products. As it is our goal to enable
producers to maximise profits from dairy activities, they could just as easily be pushed
back to below-poverty levels if their cattle are not properly insured. Thus, like any other
business, risk mitigation has to be provided. Currently, Samridhi is purchasing cattle
insurance for its own herd through TATA-AIG, a general insurance company.
Private Livestock Producers of Samridhi are also offered this service, albeit at a slightly
higher price. Veterinary services at affordable prices and other business-support services
are also valued by Samridhi as they will reduce business risk for the producers and ensure
a steady milk supply.
25
26. Risk/ Source Impact Way to Mitigate
Challenge
Factor
Procurement It is difficult to procure This could be slow the • Samridhi
Risk livestock in large numbers, scalability of the project. will partner with the necessary service
especially higher yield breeds. providers to provide Artificial
Insemination for the livestock
Quality Risk – Since we are procuring the The result could be low • Goats are purchased on agreement
Goats goats from Rajasthan, it is productivity of goats. with the supplier, which will clearly
possible that the supplier does state that the payment to the supplier
not provide genuine breed. will be made only after the goat
delivers the pre-stated amount of milk.
• Identify high yielding local breeds and
their suppliers
Upkeep of the Since the cost of the original The result could be • The formation of Village Committees to
livestock animal is not borne by the deteriorating health of the ensure continuous monitoring.
employee, they might not take animal, as well as low
proper care of the animal. productivity. • Village supervisor to make daily visits
to each household and record the
health status of the animal with a
camera. The body weight of the animal
will be measured at regular intervals
and if it falls below a particular level,
26
27. the cattle to be taken back by the
company. All of this will be
communicated to the employee
beforehand in the agreement. Also,
since a major part of the milk will be
owned by the employee, s/he has a
positive incentive to maintain the
cattle.
Competition The employee might report The result could be a • The initial agreement will stipulate the
from other lesser milk, and sell it substantial decrease in amount of milk expected by Samridhi.
milk buyers elsewhere to other parties in Samridhi’s revenues. In case the shortfall reaches a
milk business. particular amount, Samridhi will take
the livestock back from the employee.
• Day-to-day monitoring done by the
Village Supervisor.
Reproductive Time distortions in the Slower scalability. • Samridhi will arrange for Artificial
Risk - Goats delivery of goat kids resulting Insemination for the goats, improving
from external factors beyond the likelihood of consistent
the control of the goat rearer. reproduction. Also the Pashu Sakhi will
record regularly track the time of
goat’s heat period to time the artificial
insemination appropriately.
Copycat Another organization could The potential employee may • As the incumbent purchaser in the
imitate the model in the same shift to the competitor, thus target area, it is difficult to another
27
28. Competitors geography, and become a causing a decline in our party to enter the same geographical
direct competitor. revenues. area. Furthermore, Samridhi has
established an expertise in its
management personnel and
partnerships.
Livestock Cows and goats are both being Adaptability to the extreme • Each village will have a Pashu Sakhi
Mortality procured from another state. winter climate in UP (para-vet) trained in basic veterinary
services, and livestock management.
• Village supervisor will make weekly
visits to the livestock rearers’ houses
to ensure that livestock is being fed
properly
Milk Supply Women diverting their milk to Decline in Samridhi’s • Samridhi will form a village committee
other channels specially revenues consisting of one Samridhi field staff,
during festivals or local events two ultra poor members and one
opinion leader in each village. The
committee meets regularly and
ensures that there is peer pressure
maintained to discourage women from
diverting the milk
28
30. Samridhi’s Key Values
• Transparency:
Quality standards and pricing information are shared with producers without
restriction. Additionally, producers witness quality tests being done on the milk
right in their villages, and are given clear tools on how price is determined along
with test results. This guarantees fair treatment for all individuals who Samridhi
purchases milk from.
• Direct & Regular Touch with Producers:
Due to their inability to procure sufficient quantities of milk, many dairy facilities
have no option but to run below capacity. This inability to maintain regular milk
supplies can be attributed in part to their negligible presence in producing villages.
Most private companies normally tend to ignore this crucial part of dairy business
and have to depend on middlemen for procurement. Samridhi’s promoters hold
degrees in rural management from premier institutes, but also have worked in the
rural areas alongside milk producers. Under their leadership, Samridhi’s systems
have been developed to ensure regular contact with the milk producers.
• Professional Management
As a highly perishable commodity, milk handling, processing & marketing requires a
great deal of domain knowledge. Samridhi places a lot of emphasis on
professionalism in its operations, regularly collecting and analyzing data on both the
milk it is purchasing and the individuals who are collecting it. Information on
production levels and quality is reviewed daily by management to identify any
potential issues in the process. And a series of social metrics are systemically
gathered and evaluated to ensure all Samridhi employees are meeting their most
basic needs and making continued progress out of poverty.
• Expected Outcomes
Each Samridhi BMC is expected to create 1500 jobs at full capacity. Many of these
jobs are filled by women without any other predictable income stream. These
employees are expected, after receiving steady and increasing incomes, to meet
their critical needs and benefit from a better quality of life. Samridhi is diligent
about collecting and reporting on social metrics to ensure the salaried positions are
generating a tangible improvement in the lives of employees.
30
31. Based on initial lessons from pilot activity, below are the key metrics and expected
outcomes over a period of one to two years:
Metric Pre-intervention Post-intervention Measured via
Residence Live in a “kaccha”9 house Live in a “pucca”10 house Household Index
Household Assets Household asset value less Household asset value of Household Asset Index
than $100 over $300 including cots
and other furniture,
refrigerator, electric fans,
etc…
Grameen PPI ™ Average score less than 25 Average score 35 or above Grameen PPI™11
Score
Children’s Children not enrolled in 75% of school-age children Household Cash Flow
Education school because parents are enrolled in either
cannot afford school fees government or private
schools
Financial Don’t have bank accounts Active bank accounts with Samridhi metrics
Inclusion and don’t save regular savings
Number of Meals Average 1.5 meals/day Eat 2.5 meals/day on Samridhi metrics
average
Customers note increase in
variety of food
Current Partnerships
Partner Services Offered Arrangement
Sanchetna 1. Providing customized loan products to Identical set of promoters
Financial meet the requirements of the clientele
Services in the area of operation
Private 2. Information sharing about the possible
Limited areas of intervention
9 Temporary made of natural materials such as mud, grass, bamboo, thatch or sticks
10 A more stable house that has fixed walls constructed of stones, cement/ concrete, timber, etc. but roof is made up of the material like
un-burnt bricks, bamboo, grass, thatch, etc.
11 The Grameen Foundation Progress out of Poverty Index™ (PPI) is designed to measure the poverty levels of households and to track
changes in poverty levels over time.
31
32. Upaya Social 1. Bridge capital investment Capital Investment
Ventures 2. Technical support on the business
planning and inclusion of ultra poor
households
The Goat 1. Sourcing of milk cattle Memorandum of
Trust 2. Training of Pashu Sakhi Understanding
3. Breed enhancement of goat population
in the area of intervention
Devashish 1. Purchasing milk from Samridhi Memorandum of
Milk Foods 2. Providing support in chilling milk Understanding
Pvt. Ltd.
Management Profiles:
Lokesh Kumar Singh
Lokesh is a Chemical Engineer from HBTI, Kanpur and holds a diploma in rural
management from IRMA. He has over seven years of experience in different fields. He
worked in SKS Microfinance Pvt. Ltd. (India’s largest NBFC-MFI) for over 3 years where he
headed the expansion between 2004 and 2007 in 12 states including UP, MP, Rajasthan &
Bihar. During this time, he built and managed a loan portfolio of over Rs. 200 Crores with
100% repayment rate. During this period he recruited and managed over 1200 employees.
Having been associated with Samridhi since inception gives him insights into managing the
overall operations of Samridhi. He looks after the functions of procurement as well as new
initiatives which has mandate to enhance the procurement as well as other interventions to
meet the requirements of customers of Samridhi.
Niraj Pareek
Niraj is an alumnus of the Accenture-XLRI HR Academy (first batch) and has over five years
of experience. He worked in the Accenture India Delivery Centre at Bangalore for over two
years in the HR Team. As part of their recruitment team, he was involved in recruiting over
24,000 employees in two years. Prior to Sanchetna, he had a stint with a UP based MFI,
where he managed their Varanasi and Dehradun regions.
Niraj was instrumental in spreading the operations of Samridhi to different geographies.
Currently he looks after the function of procurement which includes starting new centers,
32
33. maintaining chilling facilities, looking for prospective buyers of the chilled milk as well as
co-ordination with Business Development team so as to enhance the procurement.
Board Members
Member Qualification Current Occupation Prior Experience
Lokesh Kumar Singh B.Tech. Founder – Samridhi Over 7 years in social sector including
PGDRM (IRMA) Agri Products 3 years with SKS handling operations
in 11 states. Promoted Sanchetna
NBFC-MFI based in Lucknow
Niraj Pareek PG Certificate from Director – Samridhi Over 5 years including 2 years with
XLRI Agri Products Accenture in HR Team. He is co
promoter of Sanchetna as well as
Samridhi Agri Products Private Limited
Sachita Shenoy MBA - University of Executive Director Capital Markets – JP Morgan Chase
Chicago Upaya Social Ventures Global Programs Director – Unitus
In charge of new initiatives for the ultra
poor, social performance, and livelihood
promotion activities.
Chris Turillo MBA – University of Co- Founder – Medha Director – SKS Foundation USA
Chicago Intern – Sequoia India
Has co-founded Medha which is
organization in the field of skill
enhancement for graduate students
Prabhat Singh Bisht B. Tech. – Pantnagar Management Sr. Manager - NDDB
Agriculture Consultant Has worked with village communities
University in order to enhance the milk
33
