Agencies for Paddy Marketing

• Food corporation of India (FCI),
• State Agricultural Marketing Federation (Market yards),
• State co-operative societies,
• Whole sale dealers i.e. Rice millers,
• Retail merchants.

Classification of Paddy varieties as per Central Government norms

The central Government Of India has earlier classified the paddy varieties into 3 grades, namely

• Common variety which gives raise short bold and long bold rice
• Fine variety which gives raise to medium slender rice
• Super fine variety which gives raise to long slender and short slender rice.
• Common variety - Rice grain measures less than 6 mm length. Ratio of length and thickness is less than 2.5.
• Fine variety - Rice grain measures less than 6 mm length. Ratio of length and thickness is in between 2.5 to 3.0 or Rice grain length 4.5mm with ratio of length and thickness as 2.0 to 2.5.
• Super fine variety - Length of rice grain is less than 6 mm and ratio of length and thickness is more than 3.0.
• But off-late the government has clubbed fine variety and super fine variety into one grade, namely fine variety. As such now only two grades exist in the marketing,
• In Haryana high yielding fine varieties and Basmati (scented) are grown in 30-40% area. They have been classified on the basis of mainly length of rice.

Grain Size Shape & Appearance

Scale	Size	Length	Shape	L/W Ratio
1	Extra long	> 7.5 mm	slender	over 3.0
2	Long	6.61-7.5 mm	Medium	2.1 - 3.0
3	Medium	5.51-6.6 mm	Bold	1.1 - 2.0
4	Short	5.50 mm or less	Round	1.0 or less

The grading of rice depends on percentage of full grain with no of brokens.

• Premium grade - 95 % full grain,
• 1st grade - 85 % full grain,
• 2nd grade - 75 % full grain,
• 3rd grade - 65 % full grain.

The marketing prices of different grades are as follows

	Support price	Millers price
Fine "A" grade	Rs. 520/quintal	Rs. 570 to 575/quintal
Common variety	Rs. 490/quintal	Rs. 540/quintal.

• Bulk of paddy is purchased by millers. FCI is purchasing rice from millers after milling.

Milling

• Till the beginning of the century, hand-pounding was the main technique adopted for getting edible rice form paddy.
• A very small portion not exceeding 10 per cent can be said to be hand- pounded now.
• Huller mills started replacing hand-pounding and presently paddy is milled in huller, disc-sheller and rubber- roll- sheller mills.
• From nutritional point of view, boiled rice and less polished rice are relatively better.
• Boiled rice is in demand only in West Bengal, Orissa, Bihar, Tamil Nadu and Kerala.
• The capacity of production of boiled rice, therefore, is limited.

Parboiling

• Parboiling is a process of steeping paddy in cold water and then into hot water (or in steam at low pressure).
• Which is probably originated in India some 2000 years ago and is now practiced in many countries. Nearly 57% of the rice produced in India is parboiled.

Traditional method of parboiling

• Paddy is steeped in large brick tanks for a period of one to three days, the longer period being necessary for the bolder types of paddy, which are also subjected to higher initial temperature of water.
• The initial temperature of water may therefore very from 60 ° to 82 °C. The period of steeping also varies with the season.
• Instead of steeping for one to three days, paddy may be boiled for twenty minutes. It is then transferred to steel containers where it is subjected to low pressure steam (15 lb(or) 6.8 Kg) for ten to twenty minutes.
• The bolder types of grain demanding the longer period. The grain will become completely gelatinized after parboiling.
• In the more modern plants paddy is steeped and boiled in the same steel or concrete container and by using higher average steeping water temperatures, the whole process is reduced to a period varying from eight to sixteen hours.
• The paddy, then removed to drying floors, either sun-dried or placed on steam heated floors.
• The keeping qualities of parboiled rice are considerably superior to those of raw milled rice, even if they are not so good as polished rice, because the process of parboiling removes the greater part of the oil in the grain.
• The steam process is likely to sterilize the grain and thus destroy enzymes and moulds that might subsequently damage to grains.
• Parboiled rice when cooked for eating has better keeping qualities than ordinary white rice and does not readily turn sour.

Advantages of parboiling

1. 1. Parboiling makes it possible to produce from a given amount of paddy more rice with less breakage in milling.
2. 2. To use of lower grade of paddy.
3. 3. To obtain a rice with superior keeping qualities.
4. 4. To retain more of the nutrients of the grain during milling, washing and cooking.
5. 5. Conserve the vitamins and minerals in the grain.

Marketing Channels For Paddy Distribution

Marketing Channels

Channel I: Producer- Middle Men - Rice Miller- Whole Saler- Retailer - Consumer

Channel II: Producer- Commission Agent- Rice Miller- Govt. Procurement - Fair Price shop- Consumer. To fix price of middle man, miller, retailer, etc. and consumer price the factors responsible in different channels are given below:

Price Spread Of Paddy Through Channel I. (one quintal of rice = 1.5 q of paddy)

Particulars	Percentage contribution
Net price received by the producer	75.06
The purchasing price for Middle men	75.06
Costs incurred by Middle men
Weighing and Loading	1.08
Transport charges	2.42
Unloading	1.42
Cost of Gunny bag	2.42
Middle men total cost	5.90
Middle men Margin	2.42
Millers purchase price	84.38
Cost incurred by rice millers
Weighing & Unloading charges	1.08
Processing charge	4.48
Rice miller total cost	5.93
Income from by products	2.42
Millers total margin	1.21
Purchasing price for wholesaler	89.10
Costs incurred by wholesaler
Transport charges	1.93
Unloading	1.42
Wholesaler margin	1.45
Retailers purchase price	93.46
Cost incurred by retailers
Transport charges	2.90
Retailers Margin	3.63
Consumer price	100.00
Price spread	24.93

Price Spread Of Paddy Through Channel II

Particulars	Percentage contribution
Net price received by producer	83.08
Costs incurred by producer
Transport & handling	2.51
Weighing	0.12
Market fee (1%)	0.85
Commission Charges(2%)	1.71
Cost of gunny bags	2.51
Cutting of bags and taking sample for verification	0.25
Total cost incurred by producer	7.98
Price paid by commission agent	91.06
Cost incurred by commission agent
Transport	2.01
Loading	1.00
Total cost incurred by commission agent	3.02
Commission agent margin	1.00
Commission agent selling price	95.09
Costs incurred by miller
Weighing and Unloading	1.13
Processing charge	5.03
Rice miller total cost	6.16
Income from by product(deduct from millers cost including processing & others)	2.51
Millers margin	1.25
Purchasing price of Govt	100.00
Price in fair price shop	88.11
Subsidy by Govt.	11.88

Warehousing

• Warehouses are scientific storage structures especially constructed for the protection of the quantity and quality of stored products.
• Warehousing may be defined as the assumption of responsibility for the storage of goods.
• It may be called the protector of national wealth.
• The produce stored in warehouses is preserved and protected against rodents, insects and pests, and against the ill effect of moisture and dampness.
• The warehousing scheme in India is an integrated scheme of scientific storage, rural credit, price stabilization and market intelligence and is intended to supplement the efforts of co-operative institutions.

The important functions of warehouses are

• Scientific Storage: Here, a large bulk of agricultural commodities may be stored. The product is protected against quantitative and qualitative losses by the use of such methods of preservation as are necessary.
• Financing: Warehouses meet the financial needs of the person who stores the product. Nationalized banks advance credit on the security of the warehouse receipt issued for the stored products to the extent of 75 to 80 percent of their value.
• Price Stabilization: Warehouses help in price stabilization of agricultural commodities by checking the tendency to make post-harvest sales among the farmers. Farmers or traders can store their products during the post harvest season, when prices are low because of the glut in the market. Warehouse helps in staggering the supplies throughout the year. They thus help in the stabilization of agricultural prices.
• Market Intelligence: Warehouses also offer the facility of market information to persons who hold their produce in them. They inform them about the prices prevailing in the period, and advise them on when to market their products.
• This facility helps in preventing distress sales for immediate money needs or because of lack of proper storage facilities. It gives the producer holding power; he can wait for the emergence of favourable market conditions and get the best value for his product.

Types of Warehouses

Ware houses may be classified on two basis

1) On the Basis of Ownership

a). Private Warehouses

• These are owned by individuals, large business houses or wholesalers for the storage of their own stocks.
• They also store the stocks of the individual farmers, group of farmers and charge for the storage.

b). Public Warehouses

• These are the warehouses which are owned by the government and are meant for the storage of goods of any member of the public against a prescribed storage charge.
• The method of operation and the charges for storage are regulated by the government.

c). Bonded Warehouses

• These warehouses are specially constructed at a seaport or an airport and accept imported goods for storage till the payment of customs by the importer of goods.
• These warehouses are licensed by the government for this purpose.
• The owner of the warehouse gives an undertaking to the government that customs duty will be collected from the person before he is allowed to remove the goods from the warehouse.
• In other words, the goods stored in this warehouse are bonded goods.
• They may be owned by the dock authorities or privately-owned; but they have to work under the close supervision and control of the customs authorities.

The following services are rendered by bonded warehouses:

• The importer of goods is saved from the botheration of paying customs duty all at one time because he can take delivery of the goods in parts.
• The operation necessary for the maintenance of the quality of goods spraying and dusting, are done regularly.
• Entrepot trade(re-export of imported goods) becomes possible.
• The importer may take delivery of the goods without paying the customs duty if they are to be re-exported.
• He is thus saved from the botheration of first making the payment of customs duties on imported goods and then getting a refund on re-exported goods.

2) On the basis of Type of Commodities Stored.

a). General Warehouses

• These are ordinary warehouses used for storage of most of foodgrains, fertilisers etc.
• In construction of such warehouses no commodity-specific requirements are kept in view.

b). Special Commodity Warehouses

• These are warehouses which are specially constructed for the storage of specific commodities like cotton, tobacco, wool and petroleum products.
• They are constructed on the basis of the specific requirements of the commodity.

Refrigerated Warehouses

• These are warehouses in which temperature is maintained as per requirements and are meant for such perishable commodities as vegetables, fruits, fish, eggs and meat.
• The temperature in these warehouses is maintained below 3 ° C to 5 ° C f or even less, so that the product may not get spoiled by high atmospheric temperature.

Costs And Return Of A Warehousing Enterprise

• The costs incurred in storage and warehousing can be divided into two groups.

Fixed costs

• These costs are permanent nature and remain the same irrespective of the quantity stored in the warehouse.

The main components are

1. a). Insurance premium paid to the insurance company;
2. b). Taxes, license fees etc;
3. c). Repair and maintenance cost of the warehouse;
4. d). Interest on the investment in construction of the warehouse;
5. e). Salary of the permanent staff;
6. f). Cost of records and book-keeping;
7. g). Fixed part of the electricity charges (meter rent and minimum fixed charges).

Variable Costs:

• These costs are of varying nature i.e., they vary with the quantity stored in the ware house.
• The main components are: Cost of protective material used viz. Insecticides, pesticides, rodenticides, gunny bags, polythene cover, wooden slabs etc.,

1. a). Cost of electric power;
2. b). Wages of temporary labour.

• A young entrepreneur has constructed a warehouse with a storage capacity of 3000 quintals at a cost of Rs. 5.60 lakhs.
• The owner has to incur following expenditure on the operation of the warehouse:
  • Interest on capital @ 15% per annum;
  • Repair and maintenance cost - Rs.4000 per annum;
  • Cost of records and book-keeping - Rs 2000 Per annum;
  • Taxes and insurance premium -Rs.5000 per annum;
  • Wages of the manager and permanent labour - Rs. 60,000 per annum;
  • Electricity bill - Rs.24,000 per annum;
  • Cost of protective material - Rs.8,000 per annum;
  • Wages of temporary labour - 20,000 per annum.

Assuming 50 years as the life of the warehouse and 90 percent capacity utilization, the cost structure of the warehouse emerges as follows:

Particulars	Rate	Rs. per annum
Fixed Cost
Depreciation of the building	2 percent of Rs. 5.60 lakhs	11,200
Interest on the capital	15 per cent of Rs. 5.60 lakhs	84,000
Repairs and maintenance		4,000
Cost of account books & records		2,000
Taxes and insurance premium		5,000
Wags of manager and permanent labour		6,000
	Total fixed costs	1,66,200
Variable costs
Electricity bill		24,000
Cost of protective material		8,000
Wages of temporary labour		20,000
	Total variable costs	52,000

• Assuming a capacity utilization of 90 percent, the cost of warehousing for a month works out to Rs.6.74 per quintal.
• This cost includes the return on capital investment.
• In case the entrepreneur has borrowed the capital, the interest that has been charged on the capital investment has to be repaid to the lender.
• He will able to repay six-monthly installment of Rs. 28,000 and retain a sum of about Rs. 6,000 a month as his profit, only if he is able to charge the users a rate of Rs. 10.70 per quintal per month.

Ware housing in India

• In 1928, the Royal Commission on agriculture under stood the need for a warehousing system in India.
• The Central Banking Enquiry Committee, 1931, too, drew attention to this need.
• The reserve Bank of India emphasized the need for warehouses as early as in 1944, and proposed that every State Government should enact legislation to regulate the functioning of warehouses.
• The All-India Rural Credit Survey Committee of the Reserve Bank of India(was set up in 1951 and submitted its report in 1954) also made comprehensive recommendations for the development of warehousing as an integrated scheme of rural credit and marketing.
• As a result of the recommendations of the Committee, the government of India enacted the agricultural Produce (Development and Warehousing) Corporations Act, 1956.

The Act provided for

1. 1. The establishment of a National Co-operative Development and Warehousing board (which was set up on 1st September 1956);
2. 2. The establishment of the Central Warehousing Corporation (which was established at Delhi on 2nd March, 1957); and
3. 3. The establishment of State Warehousing corporations in all the States in the country (which were established in various states between July 1957 and August 1958).
4. 4. In 1962, the Government of India decided to break up the act of 1956 into two separate Acts-the National Co-operative Development Corporation Act, 1962, and the warehousing Corporations Act, 1962.
5. 5. The warehousing Corporation act came into operation on 18th March, 1962.
6. 6. The Act defines the specific functions and the area of operations of Central and state Warehousing Corporations.
7. 7. It enlarged the list of the number of commodities meant for storage.

National Co-operative Development and Warehousing Board

This was set up on 1st September 1956 to perform the following functions

1. 1. To advance loans and grants to State Governments for financing Co-operative societies engaged in the marketing, processing or storage of agricultural produce, including contributions to the share capital of these institutions;
2. 2. To provide funds to warehousing corporations and the State governments for financing co-operative societies for the purchase of agricultural produce on behalf of the Central Government
3. 3. To subscribe to the share capital of the Central warehousing Corporation and advance loans to State Warehousing Corporations and central Warehousing Corporation;
4. 4. To plan and promote programmes through co-operative societies for the supply of inputs for the development of agriculture, and
5. 5. To administer the National warehousing development Fund.
6. 6. In March 1963, the Board was converted into the National Co-operative Development Corporation (NCDC), and its functions were limited to co-operative development.

Central Warehousing Corporation (CWC)

• This Corporation was established as a statutory body in New Delhi on 2nd March, 1957.
• Under the new Act, the Central Warehousing Corporation was formally re-established on March 18, 1963.

The functions of the Central Ware housing Corporation are

1. i). To acquire and build godowns and warehouses at suitable places in India;
2. ii). To run warehouses for the storage of agricultural produce, seeds, fertilizers and notified commodities for individuals, co-operatives and other institutions;
3. iii). To act as an agent of the government for the purchase, sale, storage and distribution of the above commodities;
4. iv). To arrange facilities for the transport of above commodities;
5. v). To subscribe to the share capital of State Warehousing corporations; and
6. vi). To carry out such other functions as may be prescribed under the Act. While foodgrains, sugar and fertilizers occupy 78 percent of the total utilized storage capacity, in the remaining 22 percent are stored cement, chemicals and other commodities.
7. vii). Warehouses of the corporation are fairly full all through the year.
8. viii). The Corporation has introduced a scheme, called the Farmers Extension Service at selected centres to educate the farmers in the benefits of a scientific storage and use of public warehouses.
9. xi). The Central Warehousing corporation also provides a package of services , such as handling and transport; safety and security of goods; insurance, standardization, documentation; and other connected service facilities.

State Warehousing Corporations(SWCs)

• State warehousing corporations were also set up in different States of the India Union.
• The first warehouse was set up in Bihar in 1956.
• At the end of March 1994, State Warehousing Corporations were operating 1364 warehouses with a total capacity of over 98 lakh tonnes.
• The area of operation of the State Warehousing Corporations are centres of district importance.
• The total share capital of the State Warehousing Corporations is contributed equally by the concerned State Governments and the Central Warehousing Corporation.
• The SWCs are under the dual control of the State Government and the Central Warehousing Corporation.

Working of Warehouses

Acts

• The warehouses (CWC and SWCs) work under the respective Warehousing Acts passed by the Central or State Governments.
• They are licensed under the provisions of the Act.
• Eligibility: Any person may store notified commodities in a warehouse on agreeing to pay the specified charges. The person is required to bring his produce to the warehouse for storage. The commodity is inspected, and the quality of the product is determined.
• Warehouse Receipt (Warrant): This is receipt/warrant issued by the warehouse manager/owner to the person storing his produce with them. This receipt mentions the name and location of the warehouse, the date of issue, a description of the commodities, including the grade, weight and approximate value of the produce based on the present price.
• The Warehouse warranty is a negotiable instrument and can be transferred by a simple endorsement and delivery. A delivery of part of the goods may be taken through this warrant by the depositor. Sometimes, the warrant may be non negotiable.
• Use of Chemicals: The produce accepted at the warehouse is preserved scientifically and protected against rodents, insects and pests and other infestations. Periodical dusting and fumigation are done at the cost of the warehouse in order to preserve the goods.
• Financing: The Warehouse receipt serves as a collateral security for the purpose of getting credit. Commercial banks advance up to 75 percent of the value of the produce stored in the warehouse.
• Delivery of produce: The warehouse receipt has to be surrendered to the warehouse owner before the withdrawal of the goods. The holder may take delivery of a part of the total produce stored after paying the storage charges.

license For Running Warehouse

The main provisions of the Act governing the grant of a license to run warehouses are:

1. 1. Any person, including a company, association or corporate body may apply to the State Government for the grant of a license to carry on the business of warehousing.
2. 2. The government grants the license after examining the warehouse building and the financial soundness of the party, and after the realization of the prescribed fees.
3. 3. The license has to be renewed periodically on payment of prescribed fees.
4. 4. The warehouse owner is authorized to receive only notified commodities for storage in his warehouse and issue receipts in a prescribed form.
5. 5. It is the responsibility of the warehouse owner to keep the premises clean, keep different lots of goods separately in the warehouse, and carry on such operations as are necessary to protect the goods against losses from damage and pilferage.

Number And Capacity Of Warehouse

• The Government, the food Corporation of India, Co-operative Marketing Societies and Central and State Warehousing Corporations have taken important measures for the creation of warehousing facilities in the country.
• As a result, a large number of warehouses/godowns have been built throughout the country in all important rural and urban centres, metropolitan cities, ports and railway stations.

Year (end)	Number			Capacity in Lakh Tonnes
	CWC	SWC	TOTAL	CWC	SWC	TOTAL
1957-58	7		7	0.07		0.07
1960-61	40	266	306	0.79	2.78	3.57
1670-71	102	601	703	8.36	18.11	26.47
1980-81	330	1050	1380	37.89	50.00	87.89
1990-91	495	1331	1826	66.48	93.54	160.02
1992-93	465	1350	1815	64.61	90.74	155.15
1993-94	458	1364	1822	63.73	95.58	159.31
1994-95	457	1370	1827	64.31	101.72	166.03
1995-96	458	1371	1829	69.24	114.71	183.95

Utilization Of Warehousing Capacity

• The utilization of warehousing capacity of the Central Warehousing Croporation was only 42 percent in 1959-60, which increased over time to 96 percent in 1970-71.
• The utilization of the capacity of State Warehousing corporations increased from 64 percent in 1960-61 to 75 percent in 1968-69.
• At present, about 85 per cent of their storage capacity is being utilized.
• But the available storage capacity is mostly utilized by traders and public agencies.

The main reasons for the very low utilization of warehouses by farmers are

• Lack of knowledge about the facility of warehousing available for the farmers;
• Locational disadvantages for ware houses to most of the cultivators located in villages;
• Complicated and time-consuming procedure of depositing and withdrawing the produce from the warehouses;
• Non-existence of nationalized banks in villages and the problem of arranging finance at the time of taking delivery of the receipt from the bank; and
• Small quantity of surplus produce available with most farmers, and the pressing need for finance.
• These apart, there are some fundamental factors responsible for lower use of warehouses and consequent slow progress in rural areas.

Causes for slow progress of warehouses in India

1. 1. Indian farmers are small landowners. Obviously, the marketed surplus available with them is small. Often, it is not worth while for them to store the produce in a warehouse;
2. 2. Indian agriculture is largely dependent on the monsoon and occasional failures of crops in one or another part of the country are common resulting in lack of regular business for the warehousing;
3. 3. Agricultural products are more perishable than industrial products;
4. 4. Agricultural commodities are heterogeneous. Their grading is, therefore, essential before placing them in a warehouse. This facility is not available in most of the markets;
5. 5. The warehouses are located in urban centres, near railway stations and big cities. The transport facility from the villages to these centres is not easily available.
6. 6. The cost of warehousing per unit of the produce is high;
7. 7. Warehouse receipts are papers having no intrinsic value, unless the lenders are sure that these receipts are backed by tangible assets. Often, the lenders are not interested in lending against this collateral security.

Suggestions

• The projected availability of food grains and the currently available storage capacity in India show that there is big gap in storage capacity.
• This gap has to be bridged as early as possible if advantage is to be taken of the benefits of increased foodgrains production.
• The Union government, therefore, constituted a Working Group on Warehousing to go into this question.
• The working Group, in its report submitted to the Ministry of Agriculture and Irrigation, made the following recommendations:
  • A network of rural storage centres should be built on a priority basis in order to prevent distress sales, wastage and loss arising out of inadequate and defective storage facilities; These storage centres may be constructed and managed by panchayats, co-operatives and other suitable agencies selected by the State Government.
  • These centres may have a storage capacity of 100 to 250 tones, mainly for food grains and other agricultural produce.
  • The cost of construction of these structures, may be met by a 50 per cent subsidy and 50 percent bank loans.
  • Out of the subsidy part, 35 percent may be borne by the Central Government and 15 percent by the State Government.
  • Each rural storage centre should have a manager, preferably from the area served by the centre.
  • The manager should be trained in the basic essentials of warehousing by attaching him to a warehouse of the CWC or SWC;

1. 1. Technical guidance, supervision and assistance in the design, construction and management of the centres should be provided by the CWC/SWC free of charge or at nominal rates.
2. 2. Farmers should be provided with receipts for the commodities stored by them. Each receipt should be a check instrument to enable them to obtain credit from banks;
3. 3. The banks should provide credit to the extent of 90 percent of the value of the stocks stored by the farmers; and the credit should be provided at concessional rates of interest.
4. 4. The scheme of rural storage centres should be linked with the procurement machinery for food grains and also with the public distribution system; and
5. 5. The programme should be co-ordinated by a state level co-ordination committee, of which representatives of State governments, the Department of agriculture, rural development, co-operation and panchayats, the SCS, FCI and nationalized banks, should be the serving members.

Rural Godowns

• The Government of India launched a scheme for the establishment of National Grid of Rural Godowns (NGRG) in July, 1979.
• The scheme aims at the creation of a network of rural godowns in the States and Union Territories, primarily to take care of the storage requirements of the small and marginal farmers.
• The scheme is intended to achieve the following specific objectives:

1. i). Prevention of distress sale of food grains and other agricultural commodities immediately after harvest;
2. ii). Reduction in quantity and quality looses arising at present by storage in sub-standard places;
3. iii). Reduction in pressure on transport system in the post-harvest period;
4. iv). Creation of employment opportunities in rural areas;
5. v). Helping the farmers in getting loans against the stored products; and
6. vi). Helping in easy procurement of foodgrains by Food Corporation of India.

• The cost of construction of rural godowns is subsidises to the extent of 50 percent to be shared equally by Central and State Governments.
• The remaining 50 percent capital is arranged by the implementing agency such as co-operative marketing society in the form of a loan from the commercial banks.
• The godowns are constructed according to the specifications and designs approved by the State Warehousing Corporation.
• The size of godowns varies from a capacity of 200 tonnes to 1000 tonnes depending upon the produce expected for storage in the village.
• The godowns are constructed and managed by co-operative marketing societies, market committees and State Warehousing Corporations.
• The State warehousing corporations provide technical guidance and supervision to the implementing agencies in the maintenance and management of rural godowns.
• The receipts issued by the managers of rural godowns on the basis of stocks are a negotiable instrument.
• On the basis of the receipt farmers can get loan up to 80 percent of the value of the produce stored from the commercial bank.

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