Colloquial with Shashi Kumar, Akshayakalpa

Raising capital, building and scaling sustainable agri-tech businesses

Lok Capital invested in Akshayakalpa to build a conscious consumer brand that supplies high quality organic dairy products to consumers, and enable better incomes for dairy farmers. We spent significant time to understand the level of care with which the company had developed a detailed blueprint for a viable decentralised organic dairy model, and worked closely with the founder to help prepare the company for funding from financial investors. Akshayakalpa is a great example of a model that has natural synergies between commercial viability and impact generation capacity, both of which are cornerstones of Lok’s investment approach.

Lok’s key focus in choosing founders is our alignment of vision and ability to work together. Shashi came with functional experience as an engineer at Wipro, which has helped him design technology-enabled quality monitoring frameworks at Akshayakalpa, but also with a lifetime of seeing farming at close quarters growing up. Seeing the challenges faced by farmers had ignited a powerful ambition to reclaim traditional organic farming methods that respect the soil, using best in class protocols to ensure the highest standards for customers seeking nutritious food for their families, and improving income generation for farmers, keeping the village economy thriving.

Lok has exited its investment in Akshayakalpa in 2024, after a nearly 5 year holding period. During this time, the company has scaled from INR 29 cr to INR 300 cr annual sales and has been able to grow its base of farmers from 220 to 1,200. We sat down with Shashi to reflect on the journey so far, and pick his brain on the agri space in India.

Tell us about the inception of Akshayakalpa. Has the company’s journey stayed true to its core mission?

Our initial mission was somewhat altruistic, aimed at providing dignified economic prospects for farmers and moving people, especially those who are young and ambitious, back to the farm. While we didn't fully understand the market side of things, we were clear about the problems in farming such as lack of profitability, diversity, and soil management. We knew these were interlinked issues that needed addressing and our focus was on making farming profitable, ensuring diverse and ecologically sound practices. The first nine years were a struggle because we didn't recognize the importance of market access in solving these problems. If we had continued without this realization, we might have become a grant-dependent organization rather than a sustainable business.

To scale this vision, substantial business development was necessary. With the investment from Lok Capital, we could expand from working with only 100 farmers in the early days to reaching a larger market, allowing us to experiment and diversify our product portfolio. We were able to take calculated and well-guided risks and introduce new products like honey, coconut, bananas among others, which we couldn't have done otherwise. The initial capital was crucial in proving our model on a larger scale. For the first time, we could spend significantly on marketing, leading to increased market demand and the addition of more farmers to our network. This expansion allowed us to validate our mission and make farming more market-oriented and resilient. The core idea of supporting farmers has remained intact and has even strengthened over time, with more products and opportunities now available for our farmers.

Can you explain the 'Value Compass' you often refer to in your business philosophy?

The 'Value Compass' is a set of core principles that guide our decision-making process. It includes a zero-tolerance policy towards bribery, uncompromising product integrity, and a strict no-sugar-addition policy in our consumer products. These principles sometimes slow down our progress, but they ensure that we maintain the highest ethical standards. For example, we have always remained above board in our dealings, even if it means delays in approvals. We have also disqualified farmers who we have found to be abusive to their families.

It is not easy to convince farmers to implement changes to their methods. How did Akshayakalpa expand its farmer base from 100 to 1,500?

Expanding our farmer base was a significant challenge, especially convincing the first 100 farmers to adopt our methods. The breakthrough came when one of the first farms we invested into, began showing tangible results. The success of this farm, which now generates a monthly income of Rs. 7,00,000 with a herd size of 23 animals, became a model for others. Seeing the economic benefits and improved productivity first hand convinced other farmers to join our initiative. We focused on demonstrating success rather than theoretical explanations.

We also don't sell anything to farmers. Instead, we provide interventions that help them manage their soil better, reduce external inputs, diversify their farms, and sustain their cash flows. Our approach involves convincing farmers to alter their existing practices and adopt new, more sustainable methods. This requires a lot of effort, as we essentially change the blueprint of their farms. The ultimate goal is to ensure that farmers can see tangible improvements in their profitability and farm health.

Today, we have around 1,500 onboarded farmers and about 2,000 more in the pipeline waiting to join. This growth is driven by the visible success and improved livelihoods of the initial farmers, creating a ripple effect. Our approach of providing better service and economic returns has been key in gaining farmer trust and expanding our network.

A hundred things can go wrong in dairy operations. How do you minimize risk?

Managing daily operations and macro risks in dairy farming involves a combination of quality control, technology and a robust service ecosystem. We take a preventive rather than curative approach for our cows. For instance, during the lumpy skin disease outbreak in 2022, we managed 14,000 animals with zero incidents due to timely vaccinations and booster shots. Similarly, during COVID-19, our production didn't fall because we maintained adequate feed stock for cows. Proper service ecosystems and adequate capital at our disposal allowed us to provide better service and mitigate economic losses for farmers.

Predictive analytics play a crucial role in our operations. We can forecast production levels, identify potential issues, and implement preventive measures. This technology-driven approach helps us match procurement with market demand, avoiding surplus and ensuring efficiency. Our front-end technologies, such as subscription-based models and e-commerce, provide predictability in demand, allowing us to plan backend operations effectively.

Organic products are more expensive that the alternatives. How have you navigated commanding the price premium?

Transparency and direct engagement with consumers are crucial in convincing them to pay a premium for organic products. We invite our consumers to visit our farms, providing them with first hand experience of our organic practices and traceability systems. Last year, we had 13,000 consumers visit our farms, and this year, we are aiming for 25,000. This direct interaction helps build trust and credibility, and convinces consumers that they’re getting their money’s worth. We maintain an extremely transparent system where consumers can look into any part of our operations, from farm-level traceability to plant operations. While marketing plays a role, the real difference comes from allowing consumers to see and experience the quality and integrity of our products themselves. This approach creates a positive word-of-mouth effect, with visitors sharing their experiences with friends and family, further building our reputation and consumer base.

There is a growing awareness and need for supply chain traceability in agriculture and food systems. How do you see this evolving?

Traceability in the food system is critical to ensure consumers get what they pay for. Whether it's organic or conventional, consumers should know what has been sprayed on their vegetables, what chemicals were used, and the residues present. In India, traceability is currently lacking, but organic production systems like ours are pioneering this effort. We started in 2010, and today we can trace each litre of milk back to its farm of origin, identifying any issues that may have occurred along the way. This level of detail is essential for maintaining supply chain integrity and delivering on our promises to consumers. We perform numerous checks at various stages, from soil testing to antibiotic and aflatoxin tests at the farm level and repeated tests at the plant. Improving traceability systems across the industry is crucial for the future of sustainable agriculture.

What challenges and opportunities do you see in the dairy industry?

The dairy industry faces significant challenges, particularly in maintaining the quality of milk production. While India is the largest milk producer in the world, the focus has been on quantity rather than quality. The current system, where milk from unorganized sectors is collected and sold as a commodity, is not sustainable. There is little control over how milk is produced, affecting its quality and profitability for farmers. To address this, we need to focus on controlling the upstream processes, ensuring farms are managed sustainably and productively. The next 20 to 25 years will see those who control upstream production also dominating the downstream market. The opportunities lie in creating more efficient and sustainable farming systems, integrating technology, and focusing on soil management and ecological diversity. By addressing these areas, we can significantly improve the dairy industry's sustainability and profitability.

How do you view the role of credit in Indian agriculture?

Credit availability in Indian agriculture is a significant challenge due to the perceived risks in farming. Farmers are exposed to various risks, including weather, pests, and market fluctuations, making lenders hesitant. Most financing happens post-harvest, with very little input financing available. High-interest rates further burden farmers. However, our model, which ensures regular cash flows and integrates commercial banks, has shown low default rates, suggesting a viable path forward. By focusing on cash flow models rather than input models, we have successfully secured financing for our farmers. Our default rates are extremely low, less than 0.5%, proving that with proper management and support, lending to farmers can be sustainable. The key is building a system that reduces risks for farmers, ensuring they have the resources and support needed to succeed. By addressing these challenges, we can create a more supportive and sustainable credit system for Indian agriculture.

What is the next big opportunity in agri-tech?

Soil management presents the biggest opportunity in agri-tech. While technology can enable better farming systems, the real challenge is using this data to make informed decisions that benefit farmers. We need to move from an input-driven agriculture system, where farmers are bombarded with the best seeds, chemicals, and machinery, to an ecology and diversity-driven system. This means focusing on the overall health of the farm, including soil, trees, and human ecology, and ensuring diversity in the crops produced. For example, Akshayakalpa farms produce multiple commodities, not only providing resilience but better economic returns.

Imagine a kite with four corners: technology, economics, ecology, and diversity. Commercial farming practices overemphasize technology and economics, stretching these corners and causing an imbalance. We believe that for a farm to be truly sustainable and profitable, there must be a balance. Ecology and diversity are critical; they drive the farm's economics while technology provides objective inputs. By focusing on these elements, we can create a resilient farming system that supports the farmer's profitability without overwhelming the farm with excessive inputs. Over the long term, only a holistic approach, supported by technology, will drive future innovations in agriculture.

What has your experience with investors been?

Initially, it was challenging to explain our deep farming model to investors, as it wasn't a typical FMCG approach. We faced difficulties in communicating our mission of transforming traditional farming practices.

One of the key learnings was that to prove our impact, it was essential to display commercial viability. Even though we focused on cattle farming, soil management, and income generation for farmers, the end goal of achieving sustainability could only be achieved with market traction. We had to learn to effectively communicate our impact and work, which was crucial in gaining investor confidence.

Lok was one of the earliest investors who showed interest, and engaged with us from 2016 onwards, and invested in 2019 when they saw the timing being right for them. With Lok, we had to jointly put together the business plan, as we did not even have a pitch deck at the time! Over subsequent rounds of funding raised, we have learnt the importance of market proof in validating our work.

How has Lok Capital added value to Akshayakalpa?

Lok Capital's investment was transformational, providing the necessary capital to scale and proving our business model. Their support during critical times, such as during the pandemic when we faced cash flow issues, was instrumental. Lok's ability to facilitate additional investments from other investors, helped us navigate these challenges. We learned valuable lessons, such as the importance of managing someone else's money responsibly and focusing on cash flow management. Lok's rigorous approach brought a discipline that has been crucial in making Akshayakalpa EBITDA positive after 14 years. Their combination of commercial acumen and impact focus has been invaluable, helping us balance growth with our mission of supporting farmers. This blend of support and discipline has significantly shaped our journey and contributed to our success.

As with our farmers, even with investors, transparent and honest communication about our business potential and challenges is key. Lok Capital's investment, despite us not being a proven commercial entity at the time, was based on a clear understanding of our model and potential. Across all parts of our business relationships are built on demonstrating reliability, delivering on promises, and maintaining open, honest communication.

What advice do you have for entrepreneurs in agriculture?

Focus on core competencies and let your work speak for itself. It's crucial to prove the unit economics at every level – farm, company, distribution, and consumer. Our learning has been that focusing on delivering quality and sustainable results attracts investment naturally. While I lack extensive knowledge in fundraising, our experience proved that doing our work well along with maintaining transparency was key to gaining investor confidence. It's important to understand that agriculture as a space is complex and requires breaking down problems into manageable pieces. Focus on solving cash flow problems for farmers and adapt your model by listening to their needs instead of replicating models proven in other geographies or industries. By demonstrating success in these areas, you build a sustainable model that can attract support and investment. The core advice is to stay true to your mission, prove your model's effectiveness, and maintain transparent communication with stakeholders.

What is the way forward for Akshayakalpa?

The future for Akshayakalpa lies in optimising the number of farmers we work with while making each farm highly productive. We aim to create a scalable model that others can replicate, focusing on quality and sustainable practices. Over the next 10 years, we plan to work with around 5,000 farmers, significantly impacting their productivity and livelihoods.

We envision a future where farming is a sustainable and profitable occupation for all farmers. By continuing to focus on soil health, farm diversity, and direct market interventions, we aim to create a robust agricultural ecosystem. Our goal is to expand our reach and impact, helping more farmers achieve financial independence and ecological sustainability. Ultimately, we hope to transform the agricultural landscape in India and serve as a model for sustainable farming globally.

‍