Economic analysis of rice milling industry in central Kerala

Abstract

Rice milling is the oldest and the largest agro processing industry of the country. At present it has a turnover of more than Rs. 25,500/- crore per annum. It processes about 85 million tonnes of paddy per year and provides staple food grain and other valuable products required by over 60 per cent of the population. As demand for food grain increases with the growth of population, the need for efficient paddy processing units is felt in the country. Main challenges encountered by the rice processors are to find appropriate solutions for quality rice processing and meeting the demand of current population growth rate. This work provides the basic information about the economics of rice mills in Kerala, factors affecting the milling efficiency and also will study the stakeholder responses (farmers, traders, and millers) on the rice milling industry. The study was based on both Primary and secondary data. The primary was collected from stakeholders in milling industry in Palakkad and Ernakulam districts of Kerala. This includes millers, farmers and traders of Palakkad and Ernakulum districts. Data was collected from 40 mills (20 from each district), farmers and traders. The year 2016-17 is considered as the year of reference. Capital investment pattern of rice mills in Palakkad and Ernakulam districts were calculated and analysed. The results showed that from 1980 to 2017 investment on rice mills had increased from Rs. 30 lakh to 300 lakh. Capitallabour ratio of 40 rice mills were also calculated and showed an inverse relation between the ratio and capacity of rice mills. Low capital- labour ratio indicated a higher profitability and employment generation in rice mills. Response of the rice millers to the processing industry was analyzed. Millers purchase paddy from farmers in weekly, monthly seasonally and irregular time intervals. Major varieties preferred by the rice millers were Uma, Jaya, Jyothi and TK-9. They mainly procure the paddy varieties from Tamil Nadu and Karnataka farmers compared to the farmers in Palakkad and Alappuzha districts due to the low price. Milling, polishing, supply to the exporters, local trading and by product trading are the major processing activities in rice mills. Major buyers of rice from the rice mills were Traders, consumers, restaurants and public agencies with varying number. Efficiency analysis of rice mills was done using three tools such as percentage analysis, financial ratio and Data Envelopment Technique. Capacity utilization of rice mills were calculated using percentage analysis and found to be higher for large capacity rice mills followed by medium and small capacity rice mills. Financial ratios used were B:C ratio, Gross margin and Operating expense ratio and proved that all the rice mills in Palakkad and Ernakulam were running on a profitable basis. Data envelopment analysis showed the efficiency of rice mills with a mean technical efficiency of 0.95 in Palakkad and 0.96 in Ernakulam. Mean scale efficiency value of 0.91 and 0.93 was obtained from Palakkad and Ernakulam districts respectively. Peer count and input targets of both districts were also obtained from DEA analysis. Major constraints in the rice milling industry were identified using Garret ranking technique. Maintenance cost, labour shortage and irregularity in paddy supply were the main three hindrances to the smooth functioning of rice mills. With the increase in demand for processed rice in India and Kerala there is great need to improve the quality of rice and installed capacity of processing