1 Could you walk us through Promethean’s journey and how its business model is meeting the requirements of India’s dairy industry?

Promethean first entered India and set up its operations in Maharashtra in 2012 to address the problem of enabling access to milk refrigeration in rural villages with poor power conditions. Our initial go-to-market model was B2B with a market focus on the dairy industry in India. We started our commercial operations in 2014 with the first sale to Kaira, Gujarat, based Amul. Since then we have developed an array of cold chain solutions from the farm to the consumer : Instant Milk Chillers, Bulk Milk Coolers, Cold Rooms, Reefer Trucks and Mobile Milk Chillers. Our initial core product and business model had served as our foundation and helped us reach overall profitability in three years.

It has also helped us demonstrate and prove our technology to customers in a cost-effective manner and gain widespread acceptance of our platform thermal storage technology. We have installed over 2500 units across India, Bangladesh, Sri Lanka, Tanzania and Mexico. Our major customers include : Hatsun Agro Products, ITC, Akshayakalpa, Licious, Parag, Heritage, Chitale, Lactalis, Dodla and Cavinkare.

After building a track record and collecting sufficient performance data and understanding the market needs, along with adding IOT/remote monitoring capability, we were able to add a new subscription / pay-as-you-go offering in 2018 to enable future growth from various segments, including smaller/medium enterprises and emerging startups. The subscription model has helped us expand to new verticals, including meat/fish, fruits/vegetables, and new product applications for dairy and food customers, including cold storages and refrigerated transport solutions.

In 2020 we launched our B2F2B platform model that we believe has an even greater potential for scale. Our objective is to expand our reach and impact to as many villages and farmers as possible with various forms of decentralized sustainable cold chain solutions that we believe are a win-win-win for farmers, processors and consumers, and better for the environment. We are now working with some customers to preserve food throughout the supply chain as a preferred cold chain solutions provider from farm to processing to consumer, and we will continuously evolve our business model as required to achieve our mission of reducing food loss in the world’s most challenging conditions by enabling access to sustainable cold chain solutions from farm to fork.

2 As someone with a specific focus on the dairy industry, what have been some of the challenges or constraints that you encountered while deploying and scaling up your solution?

It will help our readers understand the technical and social nuances associated with the sector, especially given the Indian context.

The biggest challenge to implementing Cold Chain in rural areas is the cost. The cost includes both Capital Expenditure as well as Operational Expenses. The chilling infrastructure has to be replicated and distributed across multiple farms in multiple villages. Very few individual farmers have the capability, skills and scale to invest in and operate chilling equipment. The unreliable electric grid supply means that the chilling equipment has to be operated using diesel generator back-up more than half the time. At the current rates of diesel and electricity, chilling costs using a diesel generator is 5 times that of using grid electricity. Moreover, management of diesel fuel (procuring, storing and filling) to run the diesel generators adds additional costs and hassles. The twin challenges of who will bear the capital expenditure of the chilling equipment and high operating costs involved due to an unreliable grid power are obstacles to penetration of Cold Chain in rural India.

The second major challenge is in operations. Even if the chilling equipment is installed across thousands of farms and villages, the chilled produce still has to be taken to processing/aggregation centers for value addition. This involves regular lifting and transport of the produce while at the same time ensuring that temperature rise during this process is minimal. Here the challenge is of scale and infrastructure. We also need feet on the ground to ensure that the whole system works effectively.

And finally there is the challenge of no visibility to the produce being chilled. Most of the village level chilling equipment are operated by agents or third parties. The produce is lifted only once a day and it has to be stored hygienically and maintained constantly at a low temperature. This entire process has to be managed by agents and the processor has to be sure that the cleaning protocols are being maintained, there is no adulteration or pilferage and the temperature integrity is being maintained at all times.

3 We understand that even as ‘agri-tech’ advances, smallholders still remain constrained by a key challenge - ‘access to finance’, which limits their ability to utilize the maturing technological solutions.

In this context, what has been your observation on the demand from farmers for cold chain solutions? What are their key requirements, which if met, will help build scale for such startups?

Farmers do not need to invest in cold chain solutions….what they need is fair and transparent pricing, access to finance and capacity building. To improve farmer livelihoods the first thing required would be to invest in community level collection and chilling infrastructure. Today we have subsidies being offered to individual farmers to install cold rooms which do not really help due to the low utilization. Chilling infrastructure has to be common given that a huge percentage of our farmers are small holders. Next, we would need to have anchor tenants as buyers at these community level chilling centers. These buyers should not only give the transparent rates to the farmers but they should also invest in or subsidize the chilling equipment.

Once the cold chain equipment and the markets are sorted we need to ensure the viability of the equipment through high capacity utilization. This means that the farmers have to deliver more produce per day to the chilling center and must grow both organically and inorganically. Organic growth can be achieved through training, extension support and best practice sharing. To achieve inorganic growth the farmers must have access to low cost finance in order to increase their output through investments in more cattle, technology or parallel value chains.

Partnerships with grant agencies and social organizations have helped us test solutions and run pilots without increasing our cash burn. However sustainable scaling will require a combination of capital investment by the technology companies, continuous capacity building of the community and access to low cost finance for the farmers.

4 We have observed that many agri-solution providers are building added functionalities in their offering stack. Services such as advisory, facilitation of market linkages and even financing are being provided by many tech-solutions providers.

How do you view this approach, both - from the lens of operational complexity as well as economical viability for the solution provider? What are the product innovations that Promethean intends to focus upon?

It is our learning that merely depending on a single commodity, or a single value chain makes achieving break even very difficult…especially given that dairy is an extremely low margin industry. We will need to work with our farmers across multiple inputs and outputs for it to be a sustainable business. Our investment in the Rural Chilling Hubs must become a platform which not only buys from the farmers but also supplies inputs to them. This will not only ensure them access to a curated set of inputs in a cashless manner (payments can be adjusted against the output) but also ensure quality and quantity of the output.

We started with providing veterinary services to our farmers and followed it up with sale of basic inputs like feed and fodder seeds. We followed it up by tying up with NBFCs for providing cattle loans. We also help the community process and sell a part of the output to local markets. In the next phase we are working on building complementary value chains like poultry, vermicompost etc.

All of these adds a huge amount of complexity to our operations and hence it is critical to have a close clustering of geographies as well as work in additional areas which go well with the core commodity (in our case milk). Trying to do too many things is a sure way to fail as it will stretch the bandwidth of the team and will take away focus from the core goal. It is also important to decide which services to charge for and which to provide free.

5 Increasingly we observe a focus from investors, on their investees not just achieving revenue growth, but also creating profits and achieving tangible social impact.

In your opinion, what are the critical success factors which can lead to a path of profitability for startups in the dairy industry?

Contribution Margin and Unit Economics are critical at any stage. The days of spending your way to growth with the hope of achieving profitability at scale are gone. From Day 1 we ensure that we do not sell at a lower price than at what we buy so our margins have always been positive. Then you have to figure out what is the unit you need to consider… is it a farmer, a village or a region. In our case we consider a cluster to be a unit (a group of 30-40 villages) as this from where we sell to our customers. As the cluster has a combination of fixed and variable costs in order to achieve cluster level unit economics, we need both positive margins as well as a certain scale. The scale required reduces as we add complementary services but that also adds complexity and costs to our operations. The challenge is to find the sweet spot of margins, scale and added services which will ensure a sustainable growth of the business.

For start-ups in the Dairy Industry there are 3 critical things they will need to consider:

1. Geography and Dense Clustering: Though India is the largest producer of milk in the world, the productivity, quality and volumes of milk varies widely across different areas and any start-up will need to choose the geography carefully basis what is their unique proposition. E.g. If you focus on alternative energy then you will need to focus on areas which have highly unreliable grids or if your focus is on cow milk then avoid the high buffalo milk producing areas. You also need to keep your operations very densely clustered as transportation is the biggest cost. Dense clustering is needed both on the supply side as well as the sale side and tightly mapped close routes will also help smoothen the operations.
2. Strong Value Proposition: Milk is almost like cash with the farmer having various avenues for sales….local agents, sweet shops organized dairy etc. Both farmers and dairy bulk buyers are very fickle and can switch immediately on price. It is important that you have a very strong value proposition on both sides of the value chain. Else the volumes will keep moving up and down depending on market forces and the cost of operations will become high.
3. Limit the Activities: Dairy is extremely operationally intensive with work happening twice a day for 365 days a year. There is no break so do not attempt to do too many things at the same time as it can cause both mistakes as well as team burn out. As a rule, we do not drive more than 3 things at any point of time.

6 Impact measurement is emerging as a critical area of focus by most impact investors, especially in sectors such as agriculture and climate-tech. Given the high social impact lens associated with your solution, how do you consistently measure and monitor impact on-ground?

We are working towards 3 Sustainable Development Goals.

1. Reduction of Carbon Footprint: By design our technology eliminates diesel from the chilling process and reduces diesel from the transportations process. In addition, our work in improving productivity and other interventions drive reduction of carbon at the farm level. We have tied up with third party agencies to baseline and measure our impact. This can potentially be used to deliver additional income in the form of carbon credits to our farmers in the future.
2. Transform Lives of Farming Households: Our goal is to double the income of our farmers within 6 months through a combination of better market rates, improved productivity and growing the herd through loans. Measuring income improvement is straightforward as we have all the data with us on milk poured and payments made. We track the prevalent milk prices being offered by the milk traders and agents to the farmers. We have learnt that organized market prices that we offer are on an average Rs.2-3 per litre higher. In addition we test every litre of milk delivered to us and pay the farmers the quality of their individual milk in a transparent manner. There is no scope for the farmer to be underpaid or cheated at the village center. Our vets train the farmers to manage their herd better and loans are facilitated only for high yield cattle.
3. Economic Empowerment of Women: Within the farming household most of the heavy lifting for managing the cattle falls on the women – feeding, washing, gathering fodder and milking. Even though the dairy business of a farming household largely involves women participation, milk sales and money collection is almost exclusively handled by the men in the household. All the income from the dairy business is controlled by men which we wanted to break. As a policy we make the payment only into the bank account of the women of the household. Dairy farming focus and payment directly to the women farmer has huge potential to transform lives of smallholder farmers of the rural society. Over a longer period of time we have seen this resulting in economic, social and political empowerment of the women in the village. We are working with an agency on a methodology to measure this impact.

7 Could you share with our readers Promethean's growth plans and near-term capital requirements?

What are some of the areas that will be your key areas of focus, in the coming year?

We have already established our core business model and are now operating in 125 villages serving nearly 2000 women farmers. In the coming year we are looking at the following:

• Doubling the number of our centers to 250 villages and tripling the volume of milk being procured from farmers
• B2B processing of 40-50 % of the milk we procure for sales in local markets by our Farmer Producer Organizations (FPOs)
• Piloting 2 additional value chains with our existing farmers: Poultry and Vermicompost. Both of these value chains are closely allied with the Dairy Value Chain and can provide additional income for our farmers and improve stickiness.

We would like to fund the above through a combination of equity and debt and we are looking to raise USD 2 Million this year.