CURRENT SCENARIO OF RICE INDUSTRY

HYPOTHESIS:

To establish our initial hypothesis, we conducted a survey in LSR College with a

sample size of 26. The question was: What do you think is the current status of

Rice Industry? We presented everyone with three options: a) Growing b)

Stagnant c) Declining.

RESEARCH METHODOLOGY:

The last Diagnostic Report prepared for Rice Industry (Non-Basmati) by

Small Industries Service Institute of Haryana was in year 2003.

Therefore, due to unavailability of relevant data sources, we decided to

visit Rice Mills and talk to various stakeholders (Mill owner, managerial

staff and workers) in person. Additionally, we conducted a telephonic

interview of the Cluster Development Executive to better understand

the existing issues. All interviews (in person and telephonic) have been

recorded and are available if needed.

54%

46%

0%

Response

Growing

Stagnant

Declining

VALUE ADDITION:

COMPARISON BETWEEN 2004-05 AND 2014-15

2004-05 2014-15

Price of Rice per qtl 1400 2200

Price of Rice per 65 kg 910 1430

MSP of Paddy 590 1400

Margin 320 30

OBSERVATIONS IN DISTRICT PALWAL:

FOR THE FACTORY STUDIED:

MSP for Paddy: Rs 1400 per Qtl

Rice Production Process: 65%

output

Rice Market Rate: 2200 per

quintal

Or Rs 1430 for 65 kgs

Margin of Rupees 30 for

wages, transport, other

inputs etc

No. of Rice Mills

2004-05 11

2014 3

No. of people employed No. of hours in operation

2004-05 102 24

2014 48 10

IDENTIFIED PROBLEMS:

1. GOVERNMENT POLICY:

i) Minimum Support Price: The minimum support price offered to the

farmers as a part of the agriculture policy is currently Rupees 1400

per quintal for Paddy Mucchal for Non Basmati Variety. The existence

of Minimum Support Price does not leave any scope to negotiate the

input price for the mill owners.

ii) Affordability of food grains: To protect the consumers, the price of

non basmati rice is often regulated either directly or by releasing the

stock acquired through Food Corporation of India in the market (thus,

increasing the supply and reducing market price). The current market

price is Rupees 2200 per quintal for Rice. Post de-husking and

processing, 1 qtl of paddy yield 0.65 qtl of Rice. This essentially

implies only Rupees 30 margin for other inputs, transportation,

labour loading unloading etc leaving the industry with low or zero

profitability.

iii) Export Ban: The Government has banned export of non basmati

variety which essentially reduces the potential market. The export

was open till 2007-08 and the ban resulted in close down of various

rice units (40% to 75% units depending on the district under

consideration). The still in operation units have reduced their output

drastically and are operating for 10 hours instead of 24 hours a day.

This has also resulted in massive reduction in employment in these

factories (more than 50%) in addition to the lost market.

2) FINANCIAL SUPPORT:

i) Lack of subsidies: The 30% subsidy on capital investment which

existed a decade back has been removed leading to a fall in

investment in rice industry. Currently, there is no investment subsidy

in the sector.

ii) Bank Negative list: The Government has classified Rice Industry as a

negative borrower which has increased the hardships involved in

obtaining a loan. Leave alone a preferential rate of interest for

financing capital expenditures, classifying the rice industry in negative

list has further aggravated the problem.

3) SOCIAL SUPPORT:

Due to the above problems, many units were forced to shut down. Earlier,

each major rice producing district had a millers association. With decline in

number of mills, the associations have either been broken or at least

weakened.

4) TECHNOLOGICAL ADVANCEMENT:

Due to financial constraints and lack of appropriate government support,

the rice mills have not witnessed a major change in rice production process

even through there have been major breakthroughs in the technology

arena especially in terms of Sortex machines.

5) RAW MATERIAL:

Due to unstandardized and faulty design of harvesting machines, a

substantial proportion of rice grains in paddy crack under stress. This

combined with pre-mature harvesting brings down the percentage of rice

produced from a quintal of paddy and therefore the margin even more.

6) TAX STRUCTURE:

In Haryana, in addition to VAT, the units also pay Market Committee fees

(2%) and HRDF (2%) putting them at a disadvantage as compared to other

states. Also, a decade back, the fees were just 0.5%. A 300% rise in both the

fees has squeezed the margin further.

7) GOVERNMENT MILLING:

The Government procures paddy at MSP and supply paddy to mill owners in

exchange for rice with a margin of Rupees 18 per quintal which is too low to

finance the production process.

Additionally, it has been observed that the Government officials do not in

reality provide paddy but pay the MSP to the rice mills to buy and process

the rice. This entails further loading unloading labour charges,

transportation charges and commission charges.

8) SIX MONTHS OPERATION:

Rice Industry (Non Basmati variety) operates only for six months due to

seasonal nature of paddy availability. This stretches the requirement for

credit for the industry.

9) FALL IN DEMAND:

Migration from rural to urban, rise in income and consumerism has led to a

shift in consumer preference from non basmati to basmati quality in India.

Also, a complete ban on export of non basmati rice has reduced demand

more than the rise in demand due to population rise. Thus, the demand has

considerably fallen.

10) MISCELLANEOUS:

The water used for production process is only used for boiling of paddy and

is fit for agricultural use. However, it is listed under Polluting Industry.

PROPOSED SOLUTIONS:

1. Judicious mix of Price and non-price agriculture policy: MSP has

become more of a political issue. Providing non-price support to the

farmers will enhance the infrastructure and improve efficiency in

production. Just increasing MSP will have a detrimental effect on the rice

industry in absence of a rise in price.

2. Exports: Instead of banning exports completely for rice, a quantity

restriction or a policy involving a certain percentage of an industry

output should be permitted for exports. This will also ensure output

standardization.

3. Subsidies and low interest rates: Subsidies for capital investments

should be provided. West Bengal even provides subsidy on electricity for

rice mills. A national wide common subsidy policy will enhance

efficiency. Additionally, a low interest rate loan will on just capital

investments will improve technology.

4. Social Support: Rice Millers association should be promoted and

commissioned to prepare reports on the status of the industry and taken

seriously by the government.

5. Tax structure: A uniform tax policy should be adopted for the nation.

6. Government Milling: Proper vigilance is required to check the paddy

purchase and milling activity to avoid any discrepancies on part of the

officials.

Submitted by: Rashi Berlia (780), Shrishti Shree (877) and Shivani

Kejriwal (883)