Every morning in South India, over 320,000 dairy farmers visit one of Hatsun Agro Product’s 10,000 milk banks (HMBs) in 13,000 villages to deposit fresh milk. Building this elaborate supply chain is its moat – as it runs 1100+ milk procurement routes, hundreds of chilling centers and dozens of procurement centers. But most of this runs on largely traditional systems – what can it do to usher in the new era?
Supply chain complexity in Indian Dairy:
While, India is the largest milk-producing nation in the world with 18.5%  of the milk production, this is entirely due to the sheer number of milch animals in India (yields per animal are among the lowest). This large animal population is extremely scattered in 80,000 of villages and owned by low-income dairy farmers in very small herds – resulting in a very unique and complex dairy supply chain in India.
Table: The #1 and #2 milk producers in the world are starkly different
Key challenges across the supply chain:
Production challenges – low and poor quality yield: Yield days for Indian cows are fewer because (1) farmers are unable to identify leading indicators of sickness and treat them promptly (2) low success of insemination (1/5th of that in developed countries) due to inability to accurately estimate ovulation– resulting in fewer pregnancies.
Collection and distribution troubles – milk of diseased cows, poor infrastructure: At the milk banks, milk can only be measured for fat and SNF parameters and not for disease agents. This milk then gets mixed with healthy milk and contaminates the batch only to be identified 1-2 days later when the milk is tested before processing it at the hub milk processing centre – resulting in wastage. Additionally, it becomes impossible to identify the source of the contamination and the cycle continues. Currently, this wastage is being viewed as a cost of doing business.
Electricity outages across the supply chain in rural areas result in spoilage. Often, the operators of the milk banks themselves switch off electricity to save costs. It is impossible for Hatsun to currently track this remotely impacting the quality of milk it receives.
Limited current efforts:
1) Farmer database: Hatsun tracks each of its farmers, however currently uses this only for sales and payment tracking.
2) Piloting IOT: Hatsun has rolled-out a limited pilot of using IOT in partnership with an India-focused agri-tech startup. At its milk banks, IOT sensors measure milk conductivity to test for diseased cow milk before accepting it from farmers. Additionally, sensors in chillers track regular cleaning. All these devices are designed to suit the infrastructure challenges of India.
It is also the first company in India to implement low-cost RFID tagging for cows in its network – eventually hoping to use this data to track cow health and educate farmers, get cluster-wide data on cow health, implement veterinarian schemes, etc.
Recommendation – Digital disruption. Its time to mooo-ve: While the company has taken a few initial steps, some of these pilots have been on for a long time and there is a strong business case for a full-scale roll-out.
1) Since it completely owns the supply chain from collection to distribution, it should implement IOT sensors in its all its storage and transportation components to track quality, cleaning and refrigeration.
2) However, the real gold lies in yield and insemination improvement. It should roll-out the milk screening, ovulation tracking and movement tracking for each cow in its network. These sensors track cow temperature and movement to identify milk quality, onset of illness and ovulation. This will also enable them to effectively conduct programs to educate farmers, maintain cow health, cross-sell insurance schemes,etc.
Additionally, there is a massive untapped opportunity for Hatsun to run big-data analytics on all the data that it currently collects and will potentially collect from its initiative.
Risk: As Hatsun does not own these animals, it has limited control on the implementation. Additionally, farmer is not bound to Hatsun and there is a risk of them not getting the full benefit of their investments. Any attempts to contractually bind poor dairy farmers would incite government intervention thus Hatsun will have to rely on creating farmer loyalty.
How should Hatsun roll-out this digitization endeavor? Across the value-chain or on part of it? Immediately or in phases?
Should Hatsun involve the government in its efforts to improve the livelihood of the farmers in order to de-risk itself?
Word count: 798
 Govt. of India, Ministry of Finance http://pib.nic.in/newsite/PrintRelease.aspx?relid=136849
 World Bank Blog https://blogs.worldbank.org/taxonomy/term/15970
 Hatsun Annual Report http://hap.in/pdf/annualreport/2017.pdf
 Stellapps (one of Hatsun’s IOT vendors) http://www.stellapps.com/
 Food and Agriculture Organization of the UN http://www.fao.org/docrep/012/i1522e/i1522e02.pdf
 USDA Dairy industry report http://usda.mannlib.cornell.edu/usda/current/USDairyIndus/USDairyIndus-09-22-2010.pdf