Economic analysis of production and marketing of paddy in Tamil Nadu

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1 Visit us - DOI : /HAS/IRJAES/6.2/ International Research Journal of Agricultural Economics and Statistics Volume 6 Issue 2 September, e ISSN Research Paper Economic analysis of production and marketing of paddy in Tamil Nadu V. SARAVANAKUMAR AND N. KIRUTHIKA See end of the paper for authors affiliations Correspondence to : V. SARAVANAKUMAR Directorate of Planning and Monitoring, Tamil Nadu Agricultural University, COIMBATORE (T.N.) INDIA sharanu2k@ gmail.com Paper History : Received : ; Revised : ; Accepted : ABSTRACT : The study examines the profitability of rice production and marketing to evaluate the performance of different marketing channels in Tamil Nadu. Primary data were collected randomly from 120 farmers and 30 market intermediaries who comprise wholesalers, processors and retailers. Three different marketing channels were identified in the study area, of which, marketing through Direct Purchase Centre (DPC) of Tamil Nadu Civil Supplies Corporation found to be the most efficient channel since it provides higher net income to farmers. The problems such as high cost involved in different marketing functions, distant location of government procurement centers, delayed payment and lack of market information and intelligence services are hindering farmers to realize their higher returns. The study suggests that reducing post harvest losses at farm level, developing adequate market infrastructures and prompt delivery of payments at the procurement centers would be helpful to farmers realize higher net income. KEY WORDS : Paddy marketing, Post harvest losses, Price spread, Marketing efficiency, Marketing constraints HOW TO CITE THIS PAPER : Saravanakumar, V. and Kiruthika, N. (2015). Economic analysis of production and marketing of paddy in Tamil Nadu. Internat. Res. J. Agric. Eco. & Stat., 6 (2) : INTRODUCTION : Rice is a staple food for over half of the world s population. Over 90 per cent of the world s rice is produced and consumed in the Asian region comprising 80 per cent of the world s production and consumption. Growth in Asian population (1.8 % per annum) in this region means an increase on demand for rice. Although the net availability of foodgrains has increased in 2013 at 229 million tonnes, but there will be a shortage of rice due to increased domestic needs coupled with export demand for rice in future. The experience of the last two decades shows that growth rates of food grain production in India have declined to 2 per cent during the period as compared (Mahendra Dev and Sharma, 2010) and rice production in India is questionable on economic and ecological grounds (Shergill, 2007). It was projected that India will face a shortage of food in the future where prevalence of undernourishment of 12.7 per cent in Asia (FAO, 2014). Under these circumstances, increasing rice production is an imperative to sustain self sufficiency and food security in India. Agricultural marketing has its greatest and most enduring role to play in increasing food production. The most significant characteristic of a sound marketing system lies in the distribution channel which determines the paddy producers share and profit (William and Elizabeth, 1999). Using the efficient channel reduces the distance between the farmer and the final consumer thereby increasing the farmers share and their standard of living (Rahmanet al.,

2 V. SARAVANAKUMAR AND N. KIRUTHIKA 2005). The marketing problems such as superfluous middlemen, multiplicity of market charges, malpractices, lack of market information, and inadequate marketing infrastructure such as storage, transport and processing facilities create obstacles against the use of efficient channels thereby discouraging the rice production (Ramesh and Vijayan, 2012). Therefore, it is imperative to identify the efficient marketing channels and constraints to formulate suitable policies thereby increasing the production. This paper aims to (i) analyze the economics of paddy production (ii) examine the existing marketing channels as well as estimate the price spread (iii) identify the constraints faced by the farmers in marketing of rice which are useful to address the marketing problems and to encourage the rice farmers to produce more. MATERIALS AND METHODS : Study area and data : Multi-stage stratified random sampling method was used. At the first stage, two districts of Tamil Nadu namely, Thanjavur and Erode were selected by considering the variations in agro-climatic features. In the next stage, two blocks from each of the two districts, then, two villages of each block were selected randomly. Lastly, fifteen farm households from each village have chosen, thus, formed a total sample size of 120. Besides, 30 market intermediaries who comprise commission agents, wholesale traders, processors and retailers were also selected to estimate the price spread. The primary data on production and marketing of rice were collected during the year Cost and returns analysis : The different items of variable costs such as, labour cost, seed cost, fertilizer cost, plant protection cost, and irrigation cost; and fixed cost items viz., rental value land, land revenue, and interest and depreciation on farm buildings and implements were worked out as per the methodology defined by Government of India (1990) in order to analyze the profitability of rice production. Price spread analysis : In the process of marketing of paddy, the difference between price paid by the consumer and that received by the producer for an equivalent quantity of paddy was defined as price spread (Acharya and Agarwal, 2004). In this study, sum-of-average gross margin method i.e., average gross margins of all the intermediaries were added to obtain the total marketing margin as well as the breakup of the consumer s rupee. n S P i i MT = { } i=1 Qi where, MT = Total Marketing Margin, S i = Sale value of a product for i th intermediary; P i = Purchase value paid by the i th intermediary; Q i = Quantity of the product handled by the i th intermediary; i = 1, 2, 3 N (Number of intermediaries) Marketing efficiency : Composite Index was used to calculate the marketing efficiency. In this method, marketing efficiency in the different marketing channels was compared by ranking different performance indicators viz., price spread, and share of consumer s rupee received by the farmers, total marketing cost per rupee of consumer s price and total marketing margin per rupee of consumers price (Kohls and Uhl, 1980). Ranks were attached to each performance indicator and by pooling all the ranks, composite index was calculated by the following formula: R=R i /N i, where, R= Composite Index R i = Sum of ranks in each channel ;N i = Number of performance indicators G arrett s ranking technique : To identify the major marketing constraints faced by the farmers, Garrett s ranking technique was used. According to this, the respondents were asked to assign rank to different problems by using the following formula (Garrett and Woodsworth, 1969): Per cent position = [100(R ij 0.5)] / N j where,r ij = rank given for i th problem by j th individual; N j = number of problems ranked by the j th individual. RESULTS AND DATA ANALYSIS : The findings of the present study as well as relevant discussion have been presented under following heads : Economics of paddy cultivation : The analysis of cost and returns is also important for policy makers to ensure that the farmers get a remunerative price for their produce for continuing the cultivation. The components and details of various cost items are furnished in Table

3 ECONOMIC ANALYSIS OF PRODUCTION & MARKETING OF PADDY The average total cost of cultivation of paddy was Rs The average total variable cost Rs which accounts 75 per cent to the total cost. Similarly, Basavaraja et al. (2008) also calculated the share of variable cost was 70 per cent in traditional rice cultivation. Among the variable costs, human labour cost for crop production activities shared around 70 per cent followed by fertilizer cost (18 %) and remaining 12 per cent incurred for seed, pesticide and farm machinery. Sita Devi and Ponnarasi (2009) and Dewasish (2011) also reported that human labour cost has the highest share in paddy cultivation. The average fixed cost was estimated to be Rs.9555 which shared 25 per cent of the total cost. Among the fixed cost, rental value accounted per cent followed by interest on fixed costs (5.37 %) and depreciation (4.43 %). The cost of cultivation of paddy was estimated to be Rs and Rs per ha in Tanjore and Erode districts, respectively with an average of Rs per ha. The average price of paddy was Rs per kg. The average gross and net returns were estimated to be Rs and Rs per ha, respectively. The benefit cost ratio was greater than one i.e., 1.45 which implies that every one rupee investment would provide Rs as gross returns. It indicates that the cultivation of paddy is a profitable enterprise in the study area. P ost-harvest losses at producer s level : Farm produce like paddy produced at fields of farmers have to undergo a series of operations such as Table 1 : Cost and returns of paddy cultivation Sr. No. Fixed costs Particulars (Rs. per ha) Tanjore Erode Overall Cost Share Cost Share Cost Share 1. Rental value Depreciation Interest Variable costs TFC Seeds Seed treatment Fertilizer Herbicide Pesticide Human labour utilization 6. Bed preparation Seed sowing Bunding Transplanting Fertilizer application Weeding Pesticide application Irrigation Harvesting and threshing Machine labour TVC Total cost Yield (kg / ha) Price (Rs. / kg) Gross returns (Rs. / ha) (Including straw) Net returns (Rs. / ha) Benefit cost ratio Percentage share to the total cost 251

4 V. SARAVANAKUMAR AND N. KIRUTHIKA harvesting, threshing, winnowing, packing, transportation, storage, processing and exchange before they reach consumer. The estimated post harvest losses of paddy are presented in Table 2. The average farm size of rice growing area was 1.52 ha for rice growers and the average yield was kg per ha of rice. The average post-harvest loss of paddy at farm level was estimated to be Rs kg per ha which accounted 2.83 per cent to the total production. Basavaraja et al. (2007) also reported that the post harvest losses in paddy were 3.82 kg per quintal and Government of India (2002) reported that it was around 2.81 per cent. Prasanna et al. (2004) reported that these losses were less while machine threshing (4 %) as compared to animal drawn implements Table 2 : Post-harvest losses at producer s level (kg per ha) Sr. No. Post-harvest losses Quantity loss Per cent to total production 1. Harvest losses Threshing losses Winnowing losses Drying losses Total Table 3 : Price spread for paddy Sr. No. Producer Particulars (in Rs.) Channel I Channel II Channel III Value Share Value Share Value 1. Gross price received Marketing cost Net price received Paddy wholesaler 1. Price paid Marketing cost Net marketing margin Gross marketing margin Price received Rice miller 1. Price paid Marketing cost Net marketing margin Gross marketing margin Price received Rice wholesaler 1. Price paid Marketing cost Net marketing margin Gross marketing margin Price received Retailer (Rice) 1. Price paid Marketing cost Net marketing margin Gross marketing margin Price received Consumer Percentage share to the consumer price; Rs. per 100 kg of paddy; 100 kg of paddy processed and converted into 65 kg of rice, 2.5 kg of broken rice, 20 kg of bran and 12.5 kg of husk; Rs. per 65 kg of rice 252

5 ECONOMIC ANALYSIS OF PRODUCTION & MARKETING OF PADDY threshing (6 %). Marketing channel for paddy : The marketing channel starts with a farmer and ends with the ultimate consumer involving a number of intermediaries in between. Stern et al. (1998) explained marketing channel as a set of inter-dependent organization involved in the process of making a product or service available for consumption or use. There were three major channels of marketing established and the market intermediaries involved in the different channels are as follows: Channel I : Producer-Wholesaler-Rice miller-wholesaler (rice)-retailer-consumer Channel II: Producer-Broker-Wholesaler-Rice miller- Wholesaler (rice)-retailer-consumer Channel III* : Producer-Direct Procurement Centers (DPC) of Tamil Nadu Civil Supplies Corporation (TNCSC)-Rice mills-public Distribution System (PDS) Consumer Price spread for paddy : Price spread of a commodity would be the magnitude of difference between the price received by the primary producer and the price paid by the ultimate consumer (Bhatia, 1996). The details of costs incurred and margins retained by different market intermediaries and the price spread of paddy are presented in Table 3. In the channel I, the farmers sold their produce directly to wholesalers of paddy and it was observed that the producer received the gross price of Rs. 933 per quintal. The net price was estimated to be Rs after deducting the marketing cost of Rs per quintal of paddy at farmer s level. In this case, the producer s share in the consumer rupee was estimated to be per cent which was lower than other channels. Baba et al. (2010) also found out that if number of intermediaries is high the producers share would be less. In the channel II, the farmer sold their produce to wholesaler (paddy) through broker. The gross price received by the farmer was Rs. 933 per quintal of paddy and the net price was estimated to be Rs after deducting the marketing cost of Rs per quintal of paddy at farmer s level. The producer s share in the consumer s rupee was worked out to be per cent which was comparatively lower than the previous channel. In the channel III, farmers sold paddy to direct purchase centers of TNCSC under the decentralized system of paddy procurement. It was observed that TNCSC adopted government support price of Rs which includes State Government s incentive price per quintal for Grade A variety paddy and Rs per quintal for common variety with moisture content upto 17 per cent. The marketing cost incurred by the farmers towards drying, packing, weighing, transport, loading and 253 Table 4 : Marketing efficiency in different marketing channels of paddy Sr. No. Particulars Channel I Channel II Channel III 1. Consumer price Total marketing cost Rank Net price received by the farmers Rank Mean score Rank only two channels were considered for estimation of the marketing cost and price spread. Channel III, (Producer- DPC) was not traced up the consumer due to time and institutional constraints Table 5 : Marketing constraints faced by the farmers Sr. No. Constraints Rank Percentage 1. Higher marketing cost I Distant location of DPCs II Delay in weighing and payment at the DPCs III Lack of awareness on market information and market intelligence services IV Lack of awareness of credit facilities after harvesting V Lack of market led production VI Lack of knowledge on grading and standards VII 35.00

6 V. SARAVANAKUMAR AND N. KIRUTHIKA unloading was estimated as Rs per quintal of paddy. The net price received by the farmer was higher than the channels I and II. Hence, it was concluded that the producer s share in the consumer rupee in this channel was also higher than the other channel identified in this study. This channel was limited upto DPCs of TNCSC and the further lines were not traced due to the institutional and time constraints. Similarly in this study the producers share was less in the channel II where the number of intermediaries is high. Marketing efficiency of rice : The different measures of marketing efficiency were worked out and are presented in Table 4. To study the marketing efficiency of different marketing channels of paddy, the channel I and channel II were considered and compared in terms of producers share in the consumer rupee and different ratio measures. But channel III was compared with the channel I and II only with the net price received by the farmers due to the reasons explained earlier. Abbot and Makeham (1981) referred that efficiency can be measured by analyzing the price received by the farmers and service provided by three intermediaries. The net prices realized are Rs , Rs and Rs in channel I, channel II and channel III in order. Hence, channel III is adjudged as the efficient one. Marketing constraints faced by the farmers : The problems faced by the farmers in marketing of paddy based on the rank are presented in Table 5. In the opinion of farmers, the high cost of market functions i.e., packing, transportation and brokerage was ranked as the first major constraint and it was reported by per cent of the farmers followed by the distant location of direct purchase centers (66.67 %), delay in weighing and payment at the DPCs (60 %), lack of awareness on market information and market intelligence services (53.33 %), lack of awareness of credit facilities (48.33 %), lack of knowledge on market led production (45.83 %) and lack of knowledge on grading and standardization practices (35 %) (Hile et al., 2014; Shelke et al., 2009 and Virdia and Mehta, 2010). Conclusion and policy implications : The study reveals that cultivation of paddy is a profitable enterprise in the study area. Around three per cent of the harvested paddy was being lost at farm itself. Farmers realized higher profits when they sold their paddy produce through Governments direct procurement centers; hence, this channel was more efficient than other channels. The major marketing constraints faced by the producers (or farmers) in the study area were higher marketing cost, the distant location of DPCs and lack of awareness on market information and market intelligence services. Farmers should be educated and trained on post harvest operations that would greatly help them to reduce the post-harvest losses in rice. Further, delay in weighing and payment are to be avoided in the Direct Procurement Centers (DPCs) so as to encourage famers to take up efficient production decisions for the next season. Authors affiliations: N. KIRUTHIKA, Oilseeds Research Station (T.N.A.U.) Tindivanam, VILUPPURAM (T.N.) INDIA LITERATURE CITED : Abbot, J.C. and Makeham, J.P. (1981). Agricultural economics and marketing in the tropics. Wing Tai Cheung Printing Co. Ltd., ROME, ITALY. Acharya, S.S. and Agarwal, N.L. (2004).Agricultural marketing in India. Oxford and IBH Publishing Co. Pvt. Ltd., NEW DELHI, INDIA. Baba, S.H., Wani, M.H., Wani, S.A. and Shahid, Y. (2010). Marketed surplus and price spread of vegetables in Kashmir valley. Agric. Econ. Res. Rev., 23(1) : 221. Basavaraja, H., Mahajanashetti, S.B. and Naveen, C.U. (2007). Economic analysis of post harvest losses in food grains in India: A case study of Karnataka. Agric. Econ. Res. Rev., 20 : Basavaraja, H. Mahajanashetti, S.B. and Sivanagaraju, P. (2008). Technological change in paddy production: A comparative analysis of traditional and SRI methods of cultivation. Indian J. Agric. Econ., 63(4) : Bhatia, G.R. (1996). Marketing cost and margins of agricultural commodities. Agric. Mktg., 39(1) : Dewasish, G. (2011). Value chain analysis of paddy in Andhra Pradesh, Post Graduate Diplomo in Management (Agriculture) Thesis, National Academy of Agricultural Research Management, Hyderabad, A.P. (INDIA). Economic Survey ( ). Ministry of Finance, Government of India. Garrett, H.E. and Woodworth, R.S. (1969). Statistics in psychology and education, Bombay, Vakils, Feffer and Simons Pvt. Ltd., p

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