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RICE MARKET IN INDIA

ST. XAVIERS COLLEGE (AUTONOMOUS) UNDER THE UNIVERSITY OF CALCUTTA

ANALYSIS OF RICE MARKET IN INDIA


A PROJECT REPORT (Under the guidance of Prof. VIJAY ANAND SAH) SUBMITTED BY

TUSHAR KHANDELWAL
IN PARTIAL FULFILMENT FOR THE AWARD OF THE DEGREE IN

BACHELOR OF COMMERCE (HONOURS) MARCH 2012 ROLL NUMBER: 314 ROOM NUMBER: 14

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ACKNOWLEDGEMENT
A project cannot be completed alone. It requires the effort of many individuals. I take this opportunity to thank all those people who helped me to complete this project.

I express my sincere and deep gratitude to Rev. Fr. Felix Raj, Principal (St. Xaviers College, Kolkata) Rev. Fr. Dominic Savio, Vice Principal (St. Xaviers College, Kolkata) for giving me the privilege of being part of the Project in partial fulfillment of the requirement in regard to B.com 3rd year degree course.

I express my sincere gratitude to Prof. Vijay Anand Sah and other faculty members of the Marketing and Management Department for giving us the opportunity to undergo this project. I further thank him for lending a helping hand when it came to solving my problems related to this project. This project would not have been possible without his valuable time and support.

This project is an attempt to talk about the prospects of Rice Market in India

Last but not the least I am very much thankful to all those people whom I have approached and collected data from.

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Table of contents
Serial no. 1. 2. 2.1 2.2 2.3 2.4 3. 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10 4. 5. 6. 7. 8. TITLE ABSTRACT Chapter 1 - INTRODUCTION Brief Idea Of Proposed Study Literature Review Research Methodology and Collection Of Data Objective of this Study Chapter 2 THEORETICAL ASPECT ON PROPOSED STUDY Global Rice Industry Indian Rice Industry Basmati Rice Industry Farmer To Processor Supply Chain Rice Industry Drivers SWOT Analysis Future Outlook of Rice Industry Branding Marketing Value Chain Chapter 3 COLLECTION OF DATA & DATA PRESENTATION Chapter 4 DATA ANALYSIS & INTERPRETATION Chapter 5 RESEARCH FINDINGS & CONCLUSION LIMITATION OF RESEARCH APPENDIX Page 4 5 6 7 8 9 10 12 14 19 21 26 27 28 29 32 33 35 42 44 45

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ABSTRACT

The following research report relates to the rice industry of India. India is the second largest producer of rice in the world. But the contribution of rice in the overall rice production is very minute. Rice is known for its aroma and nutlike flavor. When cooked, it swells only lengthwise, resulting in long slender grains that are dry, separate and fluffy. The production process of Rice is the most critical part because if the rice gets broken it will not command premium price in the export market. Therefore, utmost care has to be taken while producing it so that the grain is long enough to command premium price. For this a company needs to have state of the art production facilities in place. The maturity period also plays a key role because if the maturity period is long the rice produced will be of a superior quality.

The research starts from the International market as to how India finds it challenging in marketing its rice produce and evolves out how branding and packaging of rice products has intensified completion in the domestic market. It also attempts to study the taste and consumer preferences regarding their choice of brands and how well they have accepted rice in the new Branded Avatar. Today, the need of the hour is bypassing the mandi and thus avoiding extra logistics and tax based costs resulting in the strengthening of the supply chain. The Green Revolution was a golden era in Indian agriculture. Today, the sector requires another similar upheaval. The present scenario looks grim; cereal yields are rising slowly, ground water tables are plunging, and agricultural growth is also very low. Therefore, Indian agriculture needs to change over to better methods in production, sales of rice and on the intermediate supply chain to help ride the wave of the rising global food demand.

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INTRODUCTION
Rice is one of the most important food crop of India and 2nd of the world. It feeds more than 50 % of the world population. Agriculture is the main source of income for families in India. Farms cover over half the land and almost 1/3rd is used to grow the two major grains i.e. Rice and Wheat. India is the second leading producer of rice in the entire world, preceded only by China.

Current production of Rice in India is 87.5 mn tones. In2010, the total area under rice in India was 43mn hectares. Rice Production has increased at a CAGR of 2.9% from 71mn tones in 2003 to 87.5mn tones in 2010. It is expected to grow at 99mn/t in 2011(Source: USDA). With an ever increasing population, demand of rice has been increasing in the country. Thereafter, various efforts such as use of High Yielding Varieties of rice, Hybrid rice, System of Rice Intensification (SRI) method, responsive to high dose of fertilizers coupled with improved package of practices have been made to increase the production & productivity in the country through various centrally sponsored schemes.

India is the home for the aromatic rice. The foot hills of Himalayas in the states of UP, Bihar and Terai Region of Nepal are considered to be the centre of diversity for aromatic rice. A large number of aromatic rice is still grown in these areas. From this region, aromatic rice spread east wards to Orissa, Bengal, Assam, Manipur and Myanmar, west ward to Rajasthan, Madhya Pradesh, Maharashtra and Gujarat and towards north-west through Punjab in India to Pakistan, Afghanistan, Iran and Iraq (Khush-2000).

Brief Idea of the Proposed Study: The main approach of the whole study is to study the present global scenario in rice market and then break it down to domestic market. Later on Research Studies are also carried out to know the retailers and consumers preferences and choices for various rice types and brands also trying to identify various factors which influence their purchase making decisions.

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Figure 1. Structural Overview of Proposed Study.

Figure 2. Global Rice Structure

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Literature Review: A major change is being witnessed in the Indian consumer market in terms of brands. The importance of brands are increasing by the day be it in the case of cosmetics, apparels, consumer durables or food products. The rice market in India has evolved over the years and today branded rice has become the order of the day. Basmati Rice also known as King of Rice because of its umpteen characteristics rules the rice industry in India. India is home to thousands of varieties of basmati rice.

Rice is not only popular in India rather it is in great demand in most of the countries across the globe. This global demand for basmati rice has lead to a substantial increase in traditional Basmati growing areas. Currently the total area under cultivation of Basmati rice in India is about 7,76,000 hectares and the total estimated production is about 11,96,000 tones. The largest Rice producing state is Haryana which accounts for almost 60% of the total long grained rice produced in India.

The branded Rice market In India currently valued between 600-700 crore. The Indian rice producers are going by market trend of producing branded rice which in turn is resulting in stiff competition. The total consumption of branded rice in India is 3.5 lakh metric tones which is quite a significant figure and considering market consumption patterns industry experts are expecting a rise in the figure by another 20%. Most of the Top Rice Brands in India are famous worldwide and are exported to countries like USA, Denmark, Iran etc.

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Below is a list of the Top Rice Brands in India Lal Qilla Double Diamond Brand Rice Hanuman Brand Rice Resham brand Tilda rice Pari Rice Dawat Brand Kohinoor Brand Blue Label Brand Doon Brand

Research Methodology and Collection Of Data:


The process of research is divided into THREE stages. Firstly, an overview analysis of rice market in global and national scenario. Secondly, identifying and reviewing various challenges and opportunities that await the rice industry. Thirdly, a comprehensive analysis of consumer and dealer behavior in terms of their brand preferences and choices with regards to procuring and consuming rice. This will be done by survey method where respondents were asked to fill up the questionnaire and give their opinions regarding the matter addressed to them. Thus, the findings of the research are to explain the causes and reasons behind the growing demand of packaged and branded rice in the market and the challenges that lays ahead as it competes with the huge unsegmented rice market. While preparing the project, I had to check many authentic websites and study each topic properly to get a reliable data for my project. I have consulted many books and recapitulated the knowledge gained from the lectures of my esteemed teachers in college CONSUMER BEHAVIOUR AND MARKET RESEARCH. Facts and figures for primary data are extracted from authentic sources and its reliability can be assured.

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Objective of this study:

To highlight upon the growing demand and opportunities of Indian Rice Industry both Globally and in Domestic Markets

To familiarize the readers about the importance of branding and packaging of Rice products and positioning it in the retail market.

To study and inform as to how consumers look upon the concept of branding in rice market and tracking their tastes and preferences.

To explore and identify new areas of business opportunities whereby rice is used as raw input in various processed foods and other eatables.

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THEORETICAL ASPECT ON PROPOSED STUDY


Global Rice Industry:
Global paddy production over the 2009 season has been lifted by nearly 10 million tones to 678 million tones (454 mn/t on milled basis), the second highest production on record. World rice production is expected to increase by 4% to 710 million tons (474 mn/t on milled basis) in 2010 (Source: FAO).

Source : FAO

Global Rice Price: Global rice price have increased at a CAGR of 16% from $173/t in 2001 to $570/t in 2009. The major reasons behind increase in global rice price during 2007 to 2009 were: 1. Temporary export bans and restriction implemented by several major and mid-level Rice exporters. 2. Weather related problem in specific growing areas. 3. A sharp decline in the value of dollar in fall 2007 and winter 2008. 4. A shift of fund into commodities from stocks and real estate in 2007 and early 2008
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that added to price volatility and may have temporarily boosted price. International Trade of Rice : The current forecast for international rice trade in the calendar year 2010, at 31.2 million tonnes, points to a 2.7 percent, or 800 000 tonnes, increase from the 2009 estimate and much higher than forecast last June. The revision reflects larger import requirements by those countries that faced important crop losses in recent months. If confirmed, trade next year would be the second largest after 2007.

World Rice Trade and FAO Rice Export Price Index

Rice Imports by Region

Much of the expected growth is expected to be driven by larger imports by Asian countries, which are foreseen to reach 14.8 million tonnes on aggregate, almost 7 percent more than last year. Part of the increase would stem from increased purchases by Near East Asian countries, in particular Iraq, Saudi Arabia and the United Arab Emirates, while rice flows into the Islamic Republic of Iran may be depressed by large domestic availabilities and a recent increase in the basmati rice tariff. Among countries in the Far East, imports by Bangladesh, Nepal and especially the Philippines are forecast to rise to offset recent losses from natural disasters.

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Indian Rice Industry:


India is the second largest rice producer in the world with a 20% share in world rice production. The total rice market in India is estimated to be worth around Rs 1,00,000 crores (growing at 3-4% annually) of which only 10% of the rice is branded. The branded Rice sales have taken off in recent years and have been growing at around 15% in the domestic market compared to 5% for unbranded rice. The branded rice sales growth is an impressive 25% in the international market as compared to stagnant sales of unbranded rice. Added to this, of the Rs 3,500 crores worth of basmati rice produced, only around Rs 500 crores worth is sold in branded form.

While the total rice market is growing at 3-4% per annum, the basmati rice category is growing at 6%, indicating a latent robustness in the countrys consumption. India is the largest producer and exporter of basmati rice accounting for around 74% of the global production. Indian basmati rice commands premium over its traditional rivals in terms of prices and quality. India produces around 2 million tones of basmati per annum; around 50% of Indias total basmati production is consumed within, while the rest is exported. India exports around one million tones of basmati rice every year. Saudi Arabia comprises 60% of the exports. Pakistan is Indias sole basmati competitor in the international market. The country wise breakup of exports is given in the figure below.

Source: Rice India, January 2012.

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Outlook Ahead : The demand for basmati rice is expected to grow for the following reasons: Growth in world population from 6.2 billion in 2002 to more than 8 billion in 2030; growth in the Indian population from 1.1 billion in 2005 at 1.7% per annum.

Growing per capita incomes, rising disposable surpluses, increasing consumerism and increase in the share of organized retail. The Indian retail space is also experiencing enormous growth in retail chains and malls.

Rising disposable incomes are growing branded volumes. Demand for branded rice is likely to grow at around 15% .

Basmati accounts for only 2% of Indias Rs 1,000 billion rice market by volume and about 5% by value, signifying a huge growth potential.

The median age of the Indian population is one of the youngest in the world, averaging around 24, complemented by an increase in income levels, which could translate into encouraging spending patterns.

A rising number of Indian expatriates as well as a growing preference for basmati in the Middle East are likely to keep demand on the boil.

Recent projections made by the IMPACT model developed at the International Food Policy Research Institute (IFPRI) indicate that the demand for rice will increase by 1.1% annually over the next three decades.

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Branded rice is becoming popular in both the domestic as well as the export market. Indian Basmati rice commands a premium in the international market. This segment thus offers opportunities in marketing of branded grains, as well as grains processing.

The global rice trade is expected to grow at 2-3% p.a over the next 10 years, strengthening production to around 34 million tones by 2014. Basmati is expected to maintain a robust growth of over 6% in the medium-to-long term. Basmati Rice: The name Basmati comes from the Hindi language, meaning 'Queen of Fragrance'. Basmati Rice has been grown in the foothills of the Himalayas for thousands of years. Its perfume, nutlike flavor and aroma can be attributed to the fact that the grain is aged to decrease its moisture content. When cooked, it swells only lengthwise, resulting in long slender grains that are dry, separate and fluffy. Due to the high amount of starch clinging to the rice grains, Basmati rice should always be washed before being cooked. Basmati rice is known as the queen of rice. It is long grained, non glutinous and particularly good for formal rice cooking. Basmati Rice is a simple grain yet throughout history it has been on royal menus of various cultures as the main dish.

The Basmati Rice Patent

Basmati rice was developed by Indian farmers over hundreds of years, but in September 1997 a Texas-based company, Rice Tec Inc., won a controversial US patent for a crossbreed with American long-grain rice. This company was granted a patent to call the aromatic rice grown outside India `Basmati'. Rice Tec was granted the patent on the basis of aroma, elongation of the grain on cooking and chalkiness. Many have felt that the patent should not be granted since basmati is Indian property. India contested the patent for Basmati rice acquired by Rice Tec Inc, which had been challenged by the Agriculture and Processed Food Products Export Development Authority (APEDA). The US Patent and Trademarks office accepted the petition and had re-examined its legitimacy.
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Basmati Rice Industry: As mentioned above India and Pakistan are the only producers of Basmati rice in the world. The total production in the year 2009-10 was around 4 million metric tones (mmt) of which India produced 75% and the rest 25% was produced by Pakistan. Out of the production of 3 mmt in India, around 1.8 mmt was exported and 1.2 mmt was consumed domestically. Trade in coarse rice is spread in several countries, mainly located in Asia, with first five Importers making 25% of overall rice trade in 2007. Basmati rice trade is rather concentrated. In 2007, the first five clients of India had a share of 84.9% and those of Pakistan 68.5% of respective Basmati export (India: 616.7 million USD; Pakistan: 556 million USD). India mainly exports Basmati to Saudi Arabia, European Union, Kuwait, UAE and USA, whereas Pakistan does the same with UAE, Iran, Oman, European Union and Yemen. Basmati trade is also concentrated by demand side. The first five importers made 44.5% of overall market in 2007. Main importers are almost located in Middle East, although European Union is the third importer. Market Share in 2011-2012 (% of total share)

Source: APEDA

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How is Basmati Rice produced? The first and foremost step for the industry player to produce good quality Basmati rice is to procure the best quality of paddy from the mandis. In India there are a total number of 220 mandis, which are highly diversified. Therefore the procurement skills of the industry players play a significant role and make a vital difference among the counterparts. There is a particular process by which paddy is purchased from the mandis. It consists of the farmers (sellers) commission agent (Kaccha aratya) and the companys (buyers) commission agent (Pakka aratya).

The companys agent goes and buys paddy from the farmers agent. The companys agent needs to possess the required skills to determine whether the quality of paddy is good or not. If he has a fair idea of the quality of paddy he will quote his price to the farmers agent and the trade will take place. To develop good procurement skills one needs a learning curve which comes through a lot of experience.

Maturing: The key ingredient to produce full grain Basmati rice is the maturing period of the rice. To have good quality Basmati rice it needs to be properly matured. A good maturing period is generally from 12-14 months. For maturing of the rice proper infrastructure and maintenance is required throughout the maturing process. There are a number of risks involved in the maturing process of Basmati rice. The biggest challenge of maturing Basmati rice is the money involved in it. As the companies are operating at very high inventory days of almost a year the working

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capital needs of a company is very high. Therefore a lot of capital is required in this business. Besides the challenge of working capital there are a lot of risks associated with the insects that can hamper Basmati rice when it is stored in the godowns for about ayear. Insects, rodents, mites and fungi cause considerable damage to stored rice. There are a total of 18 species of insects that infest stored rice in India. Some of them are lesser grain borer, rice weevil and rice moth. To overcome the challenges in maturing Basmati rice one can go to the intermediaries who keep the rice for a particular period of time. But it increases the cost of funding for the company. This will also result in increase in the price of Basmati rice and lower margins to the companies as the intermediaries would eat out the margins of the companies. Milling: The processing and milling of rice is another important aspect of producing good quality Basmati rice. The process of milling involves De-husking and grading which are the most critical processes.

De-husking: This is one of the most critical processes of Basmati rice production because it decides the price and the length of the Basmati rice. The full grain Basmati rice commands the best price in the export and domestic market which is the ultimate focus of every company.

Grading: When the paddy is processed we get various sizes of Basmati rice. Full grain, half grain, Three-fourth grain and so on. But the number of varieties of Basmati rice that we get from the processing depends on the processing facilities used by the company. If the company has a good processing facility it will get more varieties of rice, while if the
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company has a sub standard processing facility the quality of rice will also be substandard.

One can also outsource the milling process but the disadvantage of it is the handling. But then one does not have any control on the milling process. Moreover, the person to whom one has outsourced might not have the facilities which grade rice in a number of different varieties and this will result in less realization for the company. Selling and Distribution: All the processes become irrelevant if the product does not reach the ultimate consumer. Therefore like every business the distribution channels play a vital role in this business. Different companies follow different types of distribution channels to reach their customers. The paddy is bought from various Mandies across the State of Punjab, Haryana, Uttar Pradesh, Delhi etc. The rice produced out of such paddy is sold at different times and different years due to ageing requirements. Backward traceability is not practical and also non-achievable. Rice is sold for export through the following means: Direct Export out of India by Rice Miller. Export of Rice indirectly through recognized Export House, Trading House, Star Trading Houses etc. Export of Rice indirectly through registered Exporters traders. Export of Rice indirectly through other Rice Millers Exporters.

90% of the crop is sold by farmers with small holdings to traders, who act as purchasing agents for buyers at a local, government-mandated marketplace, called a mandi. Farmers have only an approximate idea of price trends and have to accept the price offered them at auctions on the day that they bring their grain to the mandi. As a result, traders are well positioned to exploit both farmers and buyers through practices that sustain system-wide inefficiencies. REI Agro mainly supplies its products through wholesalers and its retail arm Six Ten
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domestically. While on the other hand when we talk about the export market it supplies its products through its owned brand and also through the brands of the companies located in the foreign markets.

On the other hand the other companies such as Kohinoor Ltd., KRBL and LT Foods supply their products through the branded route domestically as well as internationally. Domestically they supply their products through kirana shops, wholesalers, retail chains 13 such as Reliance retail, Big Bazaar etc. These three companies are more into the branding business as compared to REI Agro which is more into the private labeling segment.

In this regard Kohinoor Ltd., KRBL and LT Foods have an advantage that they have an established brand which commands higher price in the markets as compared to REI Agro. But due to the higher working capital cost and higher procurement costs, the margins of these three companies are lower as compared to REI Agro.

Farmer to Processor Supply Chain Agriculture is vital to India. It produces 23% of GDP, feeds a billion people, and employs 66% of the workforce. Because of the Green Revolution, Indias agricultural productivity has improved to the point that it is both self-sufficient and a net exporter of a variety of food grains. Yet most Indian farmers have remained quite poor. The causes include remnants of scarcity-era regulation and an agricultural system based on small, inefficient landholdings. The agricultural system has traditionally been unfair to primary producers.

Ninety per cent of the crop is sold by farmers with small holdings to traders, who act as purchasing agents for buyers at a local, government-mandated marketplace, called a mandi. Farmers have only an approximate idea of price trends and have to accept the price offered them at auctions on the day that they bring their grain to the mandi. As a

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result, traders are well positioned to exploit both farmers and buyers through practices that sustain system-wide inefficiencies. Indian potential farmers who have been trapped in a vicious cycle of low risk taking ability > low investment > low productivity > weak market orientation > low value addition > low margin > low risk taking ability. This has made him and Indian agribusiness sector globally uncompetitive, despite rich & abundant natural resources. Such a market-led business model can enhance the competitiveness of Indian agriculture and trigger a virtuous cycle of higher productivity, higher incomes, and enlarged capacity for farmer risk management, larger investments and higher quality and productivity.

Further, a growth in rural incomes will also unleash the latent demand for industrial goods so necessary for the continued growth of the Indian economy. This will create another virtuous cycle propelling the economy into a higher growth trajectory. A schematic representation of farmer to processor supply chain and processor activities, Basmati are indicated below:

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Source: ITC Ltd.

Rice Industry Drivers:

India is one of the fastest growing economies of the world. With the advantage of the demographics, India is poised to become one of the developed economies in the next 2 decades. The following are the reasons which will drive the growth of Basmati rice industry in India: 1. Increasing affordability India is the fifth largest country in purchasing power parity and the tenth largest in sheer quantum terms. In year 2008-09 Indias per capita income was estimated to be

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more than $653 and is expected to rise to $2000 by the year 2016-17 (Source CSO). The average household disposable income would reach Rs 3, 18,869 by the year 2025 at a CAGR of 5.3% resulting in an increased demand for Basmati. The average Indian is earning higher than ever before. The estimated cumulative liquid wealth of the Indian affluent class is poised to grow at 50% over the next three years. 2. Rising consumerism India is expected to graduate from the 12th largest in the year 2007 to worlds fifth largest by the year 2025 among consumer markets. There is a subtle shift occurring in the Indian spending habit. Expenditure in life style and premium goods, rather than spending on necessities, is projected to account for 70% of all consumers spending by the year 2025. By 2020, urban consumers are likely to represent 37% of the population and still account for 62% of consumption. 3. Change in taste & preference The rise in per capita income has also resulted in increase in the demand for Basmati rice. This is because more people can now afford to buy Basmati rice. The domestic consumption of Basmati rice has increased from 0.35mn/t in 2003 to 0.78mn/t in 2009 at a CAGR of 14.3%. The expansion of retail stores and hyper markets has significantly

contributed to the increase in the demand for Basmati rice. The share of branded Basmati rice in total basmati consumption has seen an exceptional rise. With the increase in the standard of living, consumers are shifting towards packaged rice and becoming brand selective. Some brands of Basmati rice which have become household names are Kohinoor, Daawat, Lal Quila and Charminar etc. The branded rice category is expected to grow significantly over the next few years. 4. Increasing availability The production of Basmati rice has more than doubled from around 1 mn/t in 2003 to 2.3 mn/t in 2009 respectively. This will continue to grow as the demand from both domestic and international markets is constantly increasing. Moreover, the farmers are
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increasing the production of Basmati rice, because the production cost of Basmati rice is marginally higher compared to production cost of non-Basmati rice. But the realization from Basmati rice is higher compared to non-Basmati rice. Moreover, it is a premium variety of rice, which generally sells at premium prices in the domestic as well as international markets. Basmati rice paddy sells at around Rs 28-32 per kg, while the normal rice paddy sells at around Rs 10-13 per kg. But there is a huge difference in the selling price of Basmati rice (average Rs.70-75/Kg) and normal rice (Average Rs.2530/Kg), which is forcing the farmers to increase the production of Basmati rice. The Middle East accounts for 75% of exports of Basmati rice from India. Due to the better quality of rice, aroma, flavor and taste there is a huge demand of Basmati rice globally. These countries are developed and cash rich, therefore they are able to pay the premium for Basmati rice over the non basmati rice. The realization on exports of Basmati rice is more than the domestic sales, so it is incentive to export Basmati rice. Moreover India and Pakistan enjoy a kind of monopoly in this business which further helps them to command a greater price from the global market.

Supply side of Rice: 1. Increasing farmer awareness Nowadays, with the help of the various social campaigns and advertisements from the fertilizer and seed companies, farmers are shifting towards high yielding production methods. Some of the techniques like High yielding variety (HYV) of seeds, hybrid rice and various new methods such as system of rice intensification (SRI) are being used by the farmers to produce high yielding rice. The production cost of Basmati rice is marginally higher compared to non-Basmati rice. But there is a huge difference in the selling price (average Rs.70-75/Kg) of Basmati rice and normal rice (Average Rs.2530/Kg), which is forcing the farmers to increase the production of Basmati rice. Due to the awareness of the various production techniques farmers will make more profits by producing it. So a farmer is shifting his focus from the production of non-Basmati rice to the production of Basmati rice.

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2. Assured off take of Basmati rice The demand for Basmati rice is constantly increasing in both domestic as well as international markets. On YoY basis the exports of Basmati rice have increased tremendously. It is evident from the fact that in the last 10 years the exports of Basmati rice have never reduced. The export market of Basmati rice has increased tremendously over the last few years. Similarly the domestic consumption is also increasing because more and more people are shifting towards Basmati rice due to its quality, aroma, flavor and taste. Players in both organized and unorganized market are increasing the procurement of Basmati rice, as the demand in both domestic and international markets is increasing. Indian basmati rice will shortly enter the kitchens in China and Mexico. At present, basmati is exported to over 130 countries, and the government hopes to tap the huge markets of China and Mexico in a couple of years. Therefore the farmers are assured that whatever they will produce will be consumed either domestically or internationally.

Positives for the Rice Industry:

The major paddy growing states of Punjab, Haryana and Uttar Pradesh, are likely to see 20-25 percent decline in non-basmati rice production this kharif season on account of decrease in the crop sowing area due to low rain and shift towards basmati rice, an Assocham survey said.

In 2008-09 - Basmati Rice Production 35 lacs Tons and In 2009 - There was 50 percent increase in the basmati rice area in Punjab and Haryana, the study said. Moreover, it was observed that a large proportion of cultivation area has been shifted from non-basmati rice sowing to basmati rice sowing (PUSA 1121 variety of basmati rice) in Punjab and Haryana.

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It is the inclusion of the PUSA 1121 variety in basmati rice category which gives better returns as it yields about Rs 65,000 per acre against Rs 30,000-35,000 per acre that one garners from the non-basmati varieties.

A tremendous demand for basmati rice in the international markets has seen the country's basmati rice exports increased from about USD 470 million in 2000-2001 to about USD 1900 million during 2008-09.

Owing to the government of India's decision to reduce the minimum export price (MEP) of basmati rice, the country's basmati rice exports are expected to surge by a whooping 33% during the season starting October. India's Food and Agriculture Minister Sharad Pawar had announced lowering of MEP of basmati to $ 900 PMT from the level of $ 1,100 PMT.

In the new season starting October, almost half of the 2.5 million tonnes labeled

basmati leaving India will reach Iran. When 50% of your eggs are in one basket, you tend to watch it rather carefully. That is what Indian industry is doing.

Iran also pays top-notch prices for Indias Pusa Rice 1121. Who ever imagined that the variety Pusa 1121, fetching around $200/t.

Saudi Arabia still buys up to 750,000 tonnes basmati from India, it is a tough bargainer.

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SWOT ANALYSIS

Future outlook of the industry According to industry estimates, export of Basmati rice this fiscal is likely to touch 20 lakh tonne against 16-17 lakh tonne last fiscal. Export of Basmati rice from India has been growing at a rate of 50-60%, according to estimates. Production of Basmati rice in the country is likely to go up to 50 lakh tonne this year from 40 lakh tonne last year, pulling down procurement price of the crop. Faced with competition from the Super variety of rice from Pakistan, Indian Basmati

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prices in the international market have also come down. The prices of Pusa 1121 this year is between $1,100 and $1,300 per tonne. Super variety of Basmati, which tastes similar to Pusa (a lower variety) from India, has a price of $1000 per tonne.

Last year, India exported 8 lakh tonne of Basmati rice to the country after which Iran suddenly put restrictions on Indian exports on alleged presence of heavy metals in the Indian crop. Earlier, Iran used to buy rice from Thailand and Pakistan before shifting to the Indian crop a few years ago after 1121 was introduced in the country.

Moreover India will get the advantage of its demographic changes. Presently the Basmati rice consumption domestically is very low because of the premium prices. But with the addition of the low price Pusa 1121 variety to the Basmati rice family the consumption of Basmati rice will increase in the domestic market.

As the working population of the country will grow, changes are bound to occur in the standard of living and taste and preferences of the people. Therefore, the demand for Basmati rice is poised to increase in the next few years.

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Branding:

Rice is sold more as a commodity than as a product. This makes it difficult for a consumer to differentiate between rice of company from rice of another company and also rice of one type from another type, except for difference in price. Absence of branding in the rice industry also leads to short charging the consumers who may be palmed off a cheaper variety as a superior variety because consumer goes by the physical parameters which are smaller in many cases. The need to promote brands is even more to get better realization for export. More than 90% of Indian rice is sold in the world under private label of the foreign companies who get the rice packed of their own brand and enjoy the premium by such branding. In addition to generic Indian name of Basmati , it is necessary for companies to promote the individual brands. Unfortunately Indian rice companies lack the understanding between branding and packaging. Some companies like Kohinoor, Daawat, KRBL Ltd, India Gate, Lal Mahal, Lal Quila, etc., have made a foray in branding rice with considerable good results but the effort is too little and is almost negligible when it comes to exports. None of the Indian brand, not even in the countries which are our predominant buyers like Iran, Saudi Arabia and UAE, Indian rice is not sold under an Indian brand but in the brand of the importer.

Basmati rice is exported to over 100 countries in the world major markets being UAE, Saudi Arabia, Iran, Yemen AR, and European Union & USA. APEDA is continuously working for exploring new markets. Recently Mexico has permitted import of Basmati rice from India. The approval from Plant Quarantine Authority in China is expected soon. During the preceding decade Basmati rice exports have increased from 0.852 to 2.18 mt. with a corresponding increase in forex from Rs. 2166 to 10,582 crore .

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Marketing: Efficient marketing is crucial for the future growth of agriculture. Issues facing this sector of low productivity, high wastage, low value addition and absence of linkages in the markets could be effectively dealt with by encouraging private sector investments in infrastructure projects followed by reforms in the market. While several steps have been taken by the Government to introduce a more liberalized market regime such as liberalization of the Essential Commodities Act, introduction of the negotiable warehouse receipt system, opening up of future markets, risk management, formulation of integrated food laws and a Model Act on Agricultural Marketing. The agriculture sector has to be transformed from supply driven to demand driven to make it cost competitive. Soft infrastructure to facilitate flow of market information and agri knowledge to farmers need developing alongside physical infrastructure.

Representatives from the private sector expressed the opinion that the market place was not always the most efficient way of handling trade in foodgrains. In several instances farm gate procurement was a better option and eliminated the need for double handling. Market yards function without any forward and backward linkages and ware causing obstacles to establishing value addition.

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Five steps of the Marketing Process: The marketing process comprises of five steps which marketers have to take as part of their integrated marketing effort: 1. Analyzing marketing opportunities to identify unfulfilled or under fulfilled needs that a marketer may satisfy through its products or services. This analysis can be done through information seeking and analysis or through market research (secondary or primary data collection and analysis). A marketer may have a product or service concept developed first and looks for the needs in the market that can be satisfied by these products or services. The marketer may also

first identify unfulfilled or under fulfilled needs in the market and then develop a suitable product or service offer to satisfy these identified needs.

2. Once the marketer has identified the potential opportunities in the first step now is the time to select the groups of potential international customers (target markets) to whom to sell the products or services. This step also involves identifying the potential buyers, demand measurement & forecasting, market segmentation, market targeting & market positioning. Segmentation involved identifying groups of potential customers from the total potential market that are homogeneous on certain aspects of identity and behavior and are heterogeneous on the same aspects from others in the target population. The aspects on which the segments are based must be relevant for the marketer to develop its products and services and the marketing programs. This step also requires the marketers to decide what key benefits in a product or service to offer to the selected target customers and on what aspects to differentiate from the competition.

3. Since a firm needs to offer best value to the potential customers to makes its products and services more salable compared with competitors, firms have to adopt appropriate business and marketing strategies. Many activities are to be

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undertaken in a firm by many people and in a number of departments to produce and deliver final products and services to its customers, this requires aligning and coordinating numerous activities and efforts. At the same time to achieve best value for the buyer and bet profits for the firms, the firm needs to optimize all the activities, efforts undertaken and resource utilization. This requires the firm to adopt a coherent and appropriate logic or strategy to direct and control the alignment, coordination and optimization of its business and marketing effort. Various researchers have studied successful companies around the world and attempted to identify how these firms have aligned and coordinated their activities and efforts. Porter has concluded that successful firms have adopted one of the three strategies, i.e., cost leadership, differentiation or focus. Other scholars have identified that successful firms adopted strategies that were aligned with their market position, i.e., a market leader, challenger, follower & nicher strategies. Other researchers have asserted that firms have achieved success in markets through adopting on of the three value discipline strategies, i.e., operational excellence, customer intimacy or product leadership. Details on these strategies may be found in strategy subject and books. 4. The fourth step in the marketing process is developing the international marketing mix, product, place, price & promotion. Marketing mix identifies four key areas for developing a well coordinated marketing strategy. To create a strong marketing impact a firm needs to develop appropriate programs in these four key areas and also need to ensure that all these four aspects of a firms marketing program are well coordinated and in conformity with each other to give a clear image to the target market of the firms brands and its products. 5. Developing a good marketing program is not good enough for success. A firm also needs to manage the international marketing effort properly. Quite often firms fail not because they did not have a viable marketing program, but that they failed in properly implementing their well designed plans. Firms also need proper analysis, planning, implementation and control of their marketing programs.

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Value Chain: The value chain of the Rice industry is being summarized in the following diagram. The Pucca Artiyas or the agents of the companies purchase raw paddy from the farmers and keep it with themselves for 2 months. The stockists or the company if in case the company is fully integrated it keeps the paddy for 4 months before the raw paddy is properly milled and graded. The milled rice is again kept by stockists for 4 months before it is disbursed to the distributors. Before distributing to the wholesalers and exporters the distributor matures the rice for 2 more months. Finally fully matured rice reaches the retailers who sell it to the ultimate consumers.

Since it is a very long value chain a player can enter and exit at any point. But the entry or the exit of a player is very important as it will determine the margin and the working capital requirements for that particular player. A company who is a fully integrated player from purchase of raw paddy to finally selling it to the ultimate consumer will have a higher margin. It will also have the highest working capital requirement in the industry as it will perform each and every function from procuring of raw material to finally selling the finished product. As we can infer from the diagram the money will be blocked for around 18 months, so the fully integrated player will have the maximum requirement of working capital.

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COLLECTION OF DATA & DATA PRESENTATION


INTRODUCTION TO RESEARCH METHODOLOGY: Research is defined as human activity based on intellectual application in the investigation of matter. The primary aim for applied research is discovering, interpreting, and the development of methods and systems for the advancement of human knowledge on a wide variety of scientific matters of our world and the universe. Research can use the scientific method, but need not do so. The term research is also used to describe an entire collection of information about a particular subject. QUALITATIVE AND QUANTITATIVE RESEARCH AND DATA GATHERING: The design of any study begins with the selection of a topic and a research methodology. These initial decisions reflect assumptions about the social world, how science should be conducted, and what constitutes legitimate problems, solutions, and criteria of "proof." Different approaches to research encompass both theory and method. Two general approaches are widely recognized: quantitative research and qualitative research. Quantitative research is an inquiry into an identified problem, based on testing a theory, measured with numbers, and analyzed using statistical techniques. The goal of quantitative methods is to determine whether the predictive generalizations of a theory hold true. By contrast, a study based upon a Qualitative process of inquiry has the goal of understanding a social or human problem from multiple perspectives. Qualitative research is conducted in a natural setting and involves a process of building a complex and holistic picture of the phenomenon of interest. To accomplish research objectives both primary and secondary data is collected.

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DATA SOURCES: a) Primary Data: Primary data is the specific information collected by the person who is doing the research. Primary data is accumulated by the researcher particularly to meet up the research objective of the subsisting project. Primary data is more accommodating as it shows latest information. Primary data takes a lot of time and the unit cost of such data is relatively high. For completing this project Ive taken the help of questionnaires and have conducted a factor analysis test to accomplish the research objectives. Questionnaire- Questionnaires are a popular means of collecting data, but are difficult to design and often require many rewrites before an acceptable questionnaire is produced. b) Secondary Data: Secondary data is the data that have been already collected by and readily available from other sources. Such data are cheaper and more quickly obtainable than the primary data and also may be available when primary data cannot be obtained at all. Secondary data has been used because gathering data from websites and books is much easier than collecting it firsthand. This was also a requirement due to the paucity of time. The statistical tools used for data crunching are: Line diagram - It is a ladder diagram because the diagram appears as individual lines or "rungs" connected between two vertical lines. Pie chart -A diagram which is used when it is desired to emphasize the proportions of a set of data when data items are grouped into classes according to the value of some variable.

Bar diagram - A diagram for showing the frequencies of a variable that is categorical or discrete. The lengths of the bars are proportional to the frequencies. The widths of the bars should be equal.

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DATA ANALYSIS & INTERPRETATION


Response To Question 1. Consumption Pattern
Options Twice Daily Once a day Weekly Rarely Total Responses 15 22 11 2 50 Percentage 30 44 22 4 100

Analysis : The response to above question was quite on the predicted lines as in Bengal rice tops the list in terms of choice of staple item. We could see that as many as 30% of the respondents consume rice twice daily in their meals. Also there were 44% respondents having rice once a day in their meal. Thus it is quite evident that rice in this region has a huge demand throughout seasons as its a compulsory diet in daily meals. Very few, 4%, of the respondents opined that they rarely have rice as a part of their regular diet. They mainly consume it in some festive occasions and dining.

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Response To Question 3.
Options Basmati Gobindo Bhog Miniket Basskaati Ratna (Boiled rice) Total Responses 11 23 7 5 4 50 Percentage 22 46 14 10 8 100

Analysis: This question was of great importance in the survey questionnaire as it highlighted the consumer taste and preferences among various varieties of rice. Govind Bhog was a clear favorite (46%) among the opinion leaders in households (mainly the female head). The aromatic smell and superior quality is what most respondents liked about Govind Bhog. This was followed by respondents liking Basmati Rice the most. These respondents also chose pulaos and biryani as their favorite rice dish in one of the questions asked in the questionnaire.

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Other varieties like Miniket, Ratna and Basskaati are also gaining popularity in some households after reckoning their prices and ease of availability. Response To Question 4.

Options 0-3 kgs 4-7 kgs 8-10 kgs More than 10 kgs Total

Responses 8 16 21 5 50

Percentage 16 32 42 10 100

Analysis: Family size is an important determinant for the above observation. It was clearly seen that family with large number of family members have greater demand for rice in their monthly basket of consumption as compared to small and single families which had moderate demand and consumption.

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Response To Question 6.
Options Kirana Stores Retail Outlets Wholesale Market Ration Shops Total Responses 21 16 7 6 50 Percentage 42 32 14 12 100

Analysis: From a marketers point of view this question holds of great importance as to how and where to position the products in the market place so as to attract the target audience. Many respondents preferred kirana stores (42%) over the others. The main reason for such choice was ease of availability (nearer to house) and confidence in the seller. There was near about equal number of respondents (32%) preferring purchase from retail outlets like Food Baazar, Reliance Fresh, Spencers etc. This category of respondents mainly belongs to middle and upper income class who purchase their monthly grocery items from retail malls in packaged form. Lower income group respondents purchased rice mainly from ration shops (12%) in loose form.

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Response To Question 7.
Options India Gate Kohinoor Daawat Lal Qilla Tilda Unbranded/Loose Packages TOTAL Rank 1 Rank 2 Rank3 Rank 4 Rank 5 Rank 6 TOTAL 28 9 2 10 1 0 50 7 8 13 20 0 2 50 5 10 8 7 14 6 50 1 8 15 4 6 16 50 1 9 12 2 14 12 50 8 6 0 7 15 14 50 50 50 50 50 50 50

Analysis: The results here were quite startling as it was seen that India Gate was a clear dominant brand (Ranked 1 by 28 respondent) in the rice market. Respondents confirmed that the advertising of India Gate in and around various media has benefitted the brand a lot as it has successfully created an impact in the whole competition. Other brands were far trailing behind India Gate. Leaving behind Kohinoor no other brand made any significant in the minds of the consumers.

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However it was also noticed that the wholesale market also has a great influence among the consumers as they tend to believe that the quality of rice in this market is far superior and fresh than any other purchase outlets. Response To Question 8.
Options Low Prices Freshness Of Stock Credit Availability Nearer to House Different Varieties Available Confidence in Seller Servicing Rank 1 (V. Imp) 49% 61% 24% 28% 45% 50% 15% Rank 2 (Imp) 19% 21% 4% 7% 16% 25% 0% Rank 3 (Average) 20% 16% 11% 18% 14% 9% 0% Rank 4 (Not So Imp) 5% 0% 13% 19% 7% 7% 13% Rank 5 (Not Imp at all) 7% 2% 48% 28% 18% 9% 72%

Figure 3 : Various factors Influencing Consumer Decision Making in rice Market

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Analysis: Consumer Behavior towards rice products and brands could be very well studied from the above question. Here the respondents were asked to rank various factors on their choice of purchase from a scale of 1 to 5 (where rank 1 meant the most important factor and rank 5 meant least important). Price has always been an important determinant in consumer decision making process as many consumers relate premium price to good and superior quality. The result shows us how freshness of stock is an important function as most respondents felt that the rice which they are purchasing should be fresh and of good quality. Also locations having different varieties of rice in display with them attracted a lot of consumers as it enjoyed trust and reliability of the respondents.

Brands Aroma Fields Lal Qilla India Gate Kohinoor Daawat Tilda

Target Market High High High & Mid High & Mid Mid Mid

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RESEARCH FINDINGS & CONCLUSIONS


One of the most highlighting features in this research report is the vast opportunities that the whole rice industry has, not only in domestic markets but also in global markets. India being a critical player in this industry will dictate terms in years to come by as it is backed by a huge potential of providing quality rice in comparison to other rice exporting nations. The domestic rice market too is full of potentials and promises to be a major player in food processing industry. Over the last five years quite a few brands have come up and this industry too is getting segmented according to the needs and demands of its consumers. Domestic brands like India Gate and Kohinoor are performing well in overseas market too. The Urban population also is quite well adapted to shopping in retail outlets where all the items are displayed under one roof. Hence this raises an important issue in marketing and positioning the rice brands in a manner which would hold the customers to the brands and uplift brand loyalty. The competition is intensifying in this segment which in long run is quite a healthy scenario for the industry.

Proposed Operational Model for Procurement of Paddy: Setting up facilitation centre at the production centers will go a long way in providing good quality produce to the millers / consumers; this will also enable the producer to get a fair share of the price. Today, the need of the hour is bypassing the Mandi and

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thus avoiding extra logistics and tax based costs resulting in the strengthening of the supply chain. The model proposed is as under:

It is proposed that a Facilitation Center should be set up by a farmer co-operative at various rice producing districts of the country. The facilitation can include individuals, group of farmers / growers / consumer, partnership/ proprietary firms, companies etc. This will link the farmers to the markets/ millers/other stake holders by shortening the supply chain. This facilitation will drive reforms in the agriculture marketing sector and will also bring transparency in the market transactions. The facilitation centre will establish a backward linkage with farmers and a forward linkage through other interested exporters including millers. This will provide real time prices which can be quoted for buying through a transparent system, while at the same time providing a complete back up of traceability.

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LIMITATION OF RESEARCH:
Limitations are conditions that restricts the scope of the study period or may affect the results of the research. It cannot be comtrolled by the researchers and can even affect the analysis of reseach adversely.

One of the limiting factor of my project was that I have taken sample respondents only from urban area, mainly in Kolkata and Howrah region, due to time and resource constraints. Since the sample size is small (50) so the results can be different from actual facts and may not give a appropriate judgement and findings. The age group chosen for the questionnaire survey was between 25-55 years which includes respondent from upper class, middle class and also from lower income group. Best care has been taken to keep the survey results free from any bias and undue influence.

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APPENDIX
List of Abbreviations:
Sl. No List Of Abbreviations 1 CAGR - Compounded Annual Growth Rate

Questionnaire:

Name : Age : Gender : Occupation : Contact No. : Email Id:

.. .. ................ .. .

1. How often do you consume rice in your meals? a. Twice Daily b. Once a day c. Weekly d. Rarely 2. Number of family members a. 0-3 b. 4-8 c. More Than 8 3. The variety of rice you mostly prefer to eat a. Basmati b. Gobindobhog c. Miniket d. Basskaati e. Ratna (Boiled Rice) f. Your Combination: .. (Specify)

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4. Monthly Consumption of Rice in your Family (Qty) a. 0-3 Kgs b. 4-7 kgs c. 8-10 kgs d. More Than 10 kgs 5. Rice Dishes mostly prepared at your Home a. Plain Rice b. Fried Rice c. Pulao d. Biryani e. Your Combination . (Specify) 6. Your most preferable mode of buying Rice a. Kirana Stores b. Retail Outlets c. Wholesale Market d. Ration Shops 7. Which of the following mentioned brands you prefer purchasing? a. India Gate b. Kohinoor c. Daawat d. Lal Qilla e. Tilda f. Unbranded/ loose packages g. Any Other . (Specify) 8. Your reasons for the above BEST choice a. Low prices b. Freshness Of Stock c. Credit Availability d. Nearer to house/ Door Delivery e. Different Varieties of Rice Available f. Confidence that the Shop does not cheat g. Servicing of mixing Oil/Preservative (Rank each from a scale of 1-5)
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Sample Information: Sample Size of the Survey: 50 respondents Age Group: 25-55 years. Mode of Data Collection: Form fill-ups, Email responses, personal interaction. Population: Urban Demography: Middle Class, Upper Middle Class and Lower Income Group.

References & Bibliography: 1. Singh V.P. (2000). The Basmati rice of India in Aromatic Rices Eds. R.K. Singh. Oxford & IBH Publishing Co. Pvt. Ltd., New Delhi 135-154. 2. Shobha Rani N, Prasad GSV and Viraktamath BC (2009) National System for Evaluation of Basmati rices for yield and quality traits, Indian Farming Special Issue Basmati Rice, Vol 59(1): 7-11. 3. Websites: www.agmarknet.nic.in www.agricoop.nic.in www.fciweb.nic.in www.ncdc.nic.in www.apeda.gov.in www.icar.org.in www.fao.org www.codexalimentarius.net www.nabard.org

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