Financing of fruit and vegetable processing industry in Thrissur district

Abstract

The study entitled “Financing of Fruit and Vegetable Processing Industry in Thrissur District” was conducted with the following objectives: 1) to examine the extent and pattern of institutional finance to the fruit and vegetable processing units and 2) to identify the factors influencing the repayment behaviour of the selected units. The study was conducted among ten fruit and vegetable processing units out of the 32 units in Thrissur District for a period of five years from 1998 to 2002 using mainly primary data collected with a pre-tested structured schedule. Secondary data were also used from the books and accounts of the units and banks. The study revealed that a substantial percent of the sample units are tiny or small which are organized in the form of sole proprietorship. Majority of the sample firms were established after 1960 because of the increased demand for processed products that too by Christian entrepreneurs. Even though all the units are registered as per the norms of Food Products Order, 1955, majority of the units in fruits and vegetable processing industry in Kerala are outside the purview of Factories Act, 1948. The study also revealed that most of the small-scale units were started with a low fixed capital investment. The share of owned funds in the total capital at the time of establishment was high compared to borrowings, as the units were small and started by the entrepreneurs with sound financial status. The units mainly depend on Public Sector Commercial Banks for their working capital. Study also revealed that the major problem faced by the units is the inadequacy of working capital during the season. More than 50 percent of the working capital requirement of the units is financed by the public sector commercial banks and the rest are met with their own funds. The share of fixed capital in the total capital is higher when compared with working capital. The large-scale units are capital intensive as the share of fixed capital is more. The analysis of the financing pattern revealed that the highest share of finance was from borrowed funds. Building, plant and machinery contribute major share of the fixed capital while the stock of raw materials occupy highest share in working capital. The lower share of sundry debtors of the units denotes that credit sale is less in the industry. The analysis of the cost structure revealed that all the major cost items like cost of fresh fruits, fruit juice concentrates, chemicals and cost of other inputs have increased during the study period. The share of vegetable cost is high in units producing only pickles. The percentage increase in sales is less compared to cost, which adversely affected the profit of the units. The value added of the industry has increased by 27 percent during the study period. The industry depends heavily on local market for the sales of their product, as their promotional activities and marketing are not adequate. To supplement the analysis with the absolute values, ratios are worked out classified into three categories namely structural ratios, activity ratios and financial ratios. Structural ratios reassured the earlier arguments. Activity ratios and profitability ratios established that the dependence on debt is minimum and institutional finance has nothing to do only little. The potential for institutional finance depends on to what extent the industry can diversify and also to what extent the banking agencies can come forward to provide financial assistance for venture financing.