Rural Field Visit

Agricultural Cooperative for

Paddy Processing in Natham

An outline of the project and the future Plan of

Action

We selected Paddy Processing cooperative in Natham as the first

stage of our venture. We plan to unite few farmers and process
their paddy at a nearby mill. We are avoiding the option of
outright purchase of machines due to high initial capital costs and
uncertainties associated with this project. Once the first stage is
executed smoothly, we will go for purchase of machines.

Shivraj Singh Negi

Sneha Raj Ramdaspalli
Thirumalai
Chetan Kumar

Agricultural Cooperative for Paddy Processing in Natham

Contents
Introduction .................................................................................................................................................. 3
The Path to the Project ................................................................................................................................. 4
The Project .................................................................................................................................................... 7
The Economics .............................................................................................................................................. 8
The Social Dimension .................................................................................................................................... 9
Summary and Suggestions .......................................................................................................................... 10

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Agricultural Cooperative for Paddy Processing in Natham

Introduction
In the first phase of the project, we plan to aggregate paddy from few farmers. This paddy will be processed in
the nearby rice mills. The processed paddy after being cleaned will be packed and sold back to the villagers as
rice. This rice will be same variety that the villagers usually consume. Currently, they purchase rice for their
consumption from Red Hills, which is 7 kilometers away from the village or from local retail shop. Local
processing of paddy will not only save them the transportation costs (both for the farmers and for the
consumers), will also give opportunities for the villagers to be part of the process and earn some money. This
is because unprocessed paddy is sold at about 12-14 rupees per kg, but people purchase rice at 25-30 rupees
per kg. The cost of local processing of paddy is around 1 rupee per kilogram. Even after incurring
transportation costs & processing, there is a decent margin which can be channelized to giving better prices
for farmers and consumers. This will result in significant savings for consumers over a period of one year, as
each of the family consumes more than 0.4 tons of rice. This is significant as for many families the average
monthly income is around five thousand rupees only. This will also provide few employments in the village as
some people will be needed for collection, processing and redistribution.

While interacting with the farmers we were quite surprised to know that they are forced to sell their entire
produce to the middlemen due to the structural reasons. Then for their own domestic consumption they end
up buying rice from the market at a higher price. The rest of the village does not even have a choice. Most of
them are labors and workers, and they purchase their total requirement from the market. This is ironic as
they being the producers of rice, are purchasing rice from outside. The type of rice that they eat is not very
different from the rice that they produce, except one season in a year. What they lack are aggregating skills,
management, knowledge on pricing, risk taking capacity and the drive required to execute such a task.
Besides, the village also has to deal with the problem of caste, which precludes any possibility of land owning
farmers coming together with the consumers (which are dominantly labors) to set up self sustaining local
processing unit. As of now, we are focusing only on processing the amount which will readily find buyers

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Agricultural Cooperative for Paddy Processing in Natham

among villagers. The problem of storage, processing and handling increases as we increase our processing
capacity and hence we consider only the capacity that can be handled for local consumption for now.
Nathams consumption, as revealed by our survey, is about 25-30% of its production. This is a significant
amount and a self sustaining model can be built upon this.

The Path to the Project

We visited Natham as part of the field visit in September 2010. On our first visit, we interacted with a lot of
farmers. They told us about the problems they face and the pressures on the land due to expanding limits of
the Chennai city. We enquired about the input costs, the procedures, methods of farming, help that they get
from the government, problems faced by them, the supply chain from the field to consumer and also specific
kind of help they would want from us.

Rice is the dominant crop grown in the village. Our survey reveals that more than 2/3rd of the cultivable land
in the village is under paddy cultivation. To cultivate paddy, farmers need Inputs, fertilizers, water,
insecticides, pesticides and labor. The total cost of all these comes to about fifteen thousand rupees per acre.
An acre of land usually yields 22-26 bags of paddy each weighing 77 kgs. This paddy is directly sold to the
middlemen at the rate of 600-800 rupees per bag. On an average, after harvest, farmers earn rupees five
thousand per acre per season at the maximum. Some farmers lend their land to others for farming and take
up some different occupation themselves. They charge 8-10 thousand rupees per acre per year as rent.

Due to its proximity to the industrial areas of north Chennai, excellent power and road infrastructure the land
prices have zoomed in Natham although the income from agriculture has stayed constant. Land prices have
grown almost a hundred times in just 10-15 years, while income has grown by only two times. This means
decreasing returns and hard work on the piece of land. Most of the farmers want to sell the land away in
within next 10 years. They feel that will become inevitable. They want their own children to take up industrial
and service jobs. They are sitting and waiting for the right opportunity to come so that they get an optimum
price for the land. Agriculture is only seen as a stop-gap arrangement to earn livelihood till then.

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Agricultural Cooperative for Paddy Processing in Natham

They also told us about how different agricultural equipments are not well suited for Natham soil, that they
dont get any substantial help from the agricultural extension officer who has never bothered to visit the
village and that they face rapidly falling ground water levels and this year some of them lost substantial
amount of crops to rains and their losses ranged in several lakhs. But what clearly caught our attention was
the process through which paddy reaches the final customer and how much value is added in between. We
were also astonished by the fact that they do not consume their own produce, and instead depend upon the
market to purchase final polished rice. One of the farmers suggested that we look up at the prospect of setting
a paddy processing unit in Natham.

Once back in the campus we started looking at different sources to get some idea. Prof.
John Bosco Lourdusamy gave us a four part Directory of Rural Technologies in which details about the
designs and the manufacturers of the basic rice huller was given. When our enquiries to the manufacturer did
not result in anything concrete we started looking for local manufacturer of similar equipments. We also
learnt a little about the entire process and economics of the processing part. Farmers in Natham had already
told us the major facts about the processing and supply. In addition, various manufacturers, especially the
catalogues of the equipment offered by them gave us more details. We also looked at some literature related
to the economics of rice processing and different methods of processing paddy. We also learnt how
technology has evolved from old metal hullers to modern day rubber shellers and how & why people have
now moved towards the modern rice mill.

One of the enthusiastic machine suppliers actually showed us his own plan of setting up a similar industry. He
showed us the financial plan that he had drawn up for the project and told us about the various practical
difficulties related to power, transport, storage, farmers reluctance etc which might hamper our progress. His
plan targeted a processing capacity of about 100 ton paddy per season and needed an investment of
minimum 6 lakhs in all kinds of equipment necessary. We would also need a cleaner, sheller, polisher and
packaging at minimum. Power requirement was about 20 kW and a space of at least 400 sq. ft. was needed.
When we told him about our idea, capacity and the conditions at Natham, he suggested that instead of going
about the project directly we should break the project into two parts. Similar views were echoed by other

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Agricultural Cooperative for Paddy Processing in Natham

equipment suppliers as well as some Natham farmers who were concerned about the high initial costs of
investment.

We too noticed large number of rice millers in and around the Red Hills area (more than 50 in number) and
the boom in the rice milling industry due to complete removal of any kind of licenses required in setting up
rice milling plant and government given subsidies which finance half of the costs of the machinery. Hence we
changed the plan in the following manner. We wanted to remove uncertainties, reduce the risk, and reduce
the amount of initial capital required.

Since middlemen and mandi charges formed a major portion of final rice price, we wanted to focus on them in
priority. We planned to process the required amount of paddy at the local rice mill located within Natham
itself. With respect to investment, we wanted to work with the local SHGs to inform people about our scheme.
We also planned to tap them to raise initial minimum amount of capital and manpower.

With this plan in mind, we set out for second field visit to Natham. This time we visited a local Rice Mill
situated just 2 kilometers from Natham and talked to the owner of the mill. We saw different machines and
the process of milling. We also surveyed potential sites for temporary storage where we can store harvested
paddy bags before it is sent out processing and the storing rice bags before final sale. We again talked to the
farmers about this idea. They were very enthusiastic and some of them said that they did think of such an
initiative but could not take it up due to time constraints, lack of knowledge, risk averseness, lack of capital,
social tensions and other factors.

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Agricultural Cooperative for Paddy Processing in Natham

The Project
Our initial survey indicated that Natham produces about 183 tons of paddy per season (about four months). But
the total consumption by the whole village is only about 55 tons every season. Thus, this part of the production,
instead of harvesting and selling to moneylenders can be harvested, stored and sold to villagers. We plan to start
with few farmers and target to handle 9 tons of paddy in the next harvesting season. We will raise the capital
required, which is around one lakh and forty thousand rupees (including the money required to purchase 10 tons
of paddy at existing prices, transport, labor and manpower charges) as a loan from the SHGs. We organized
meetings with SHGs and spread the word about this project. After the harvest we will keep the paddy in the two
storage locations identified, and slowly take it for processing. This way we will avoid exposing the entire harvested
paddy to any danger, as paddy is easier to store than rice.

After processing, the rice is bought back to the village and then distributed as per the orders taken earlier.
Whatever is not sold can be stored at the two locations (one near the community centre and the other in the
community centre itself). Community centre gives us a storage space of about half of the capacity needed. We
can employ local youth on a part time basis to carry out the order collection and the rice distribution. At the
end of the season, loan will be repaid back to the SHGs. We hope to make a marginal profit after paying the
salaries, transportation, and the interest on the loan.

The rice will be distributed in bags of 25 kilograms each and will be home delivered by the recruited youth.
We want to use the local transport medium available. There are a couple of tractor trolley owners in the
village and we will use their services.

The mills identified are existing mills within the village (1-2 km). People will get the same quality rice that
they are now purchasing from the market. SHGs have given money for starting this project.

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Agricultural Cooperative for Paddy Processing in Natham

The Economics
Item

Usage

The cost of 9 tons of rice

Unit Cost
850 rupees per
bag

The cost of processing

Rupees 50 per bag

Total Transport Cost

1500 per trip

12% for four
months

120 bags (80 kg each)

4 trips with 60 bag each
time

Interest Charges
Labor Charges

15 rupees per bag

Total Cost

120 bags (76 kg each)

102000
6000
6000
4080

4 times including drying of

paddy & drying costs

7200

Salaries

2000

Storage

Sale of Rice

1000 rupees
Rs. 28 per kg
(Market rate is
Rs.30/kg)

Two Facilites
4950 kgs of rice after
processing 9 tonnes of
paddy

2000

138600

Total Profit

9320
per
season

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Agricultural Cooperative for Paddy Processing in Natham

The Social Dimension

The following were the intentions behind the starting/choosing of this project.

From our ground work we realized that there was a large untapped potential to run a local economy
in Natham and move towards self sufficiency in terms of Paddy (Rice).

Natham having an arable land of more than 200 acres, has a potential to produce more than 180 tons
of rice which is more than 3 times of their own consumption. People are purchasing rice for their
consumption from outside the village. This project will change that.

The project will give better price to farmers (other than giving them relief from middle men
exploitation & marketability uncertainty), will provide employment to few youth and an opportunity
to SHGSs to engage in a profitable business. In extension to this, the SHGs will also have an
opportunity to experiment on food processing from this rice.

The scope of the project is not limited to the aforementioned only. We intend to add value to the
domestic produce by introducing packaging and marketing so that the final product could directly hit
the supermarkets in varied forms (various flours). This will be taken up in the next phase of the
project once we have practical measure of success.

All of the operations are village centric and they require little external intervention. Once villagers see the
profitability, they will take this project themselves with little supervision on management. We can then focus
on the value addition and extended business opportunities.
The project employs only resources available in the village. It uses community hall, employs village youth and
uses village rice mill for processing.

Once this system starts running, we hope that the farmers are not exploited by the middlemen and bulk
purchasers. This system cuts down unnecessary transportation costs and the middlemen commissions. This
project as a whole provides a win-win situation for the farmer and the customer and also creating a better
local economy.

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Agricultural Cooperative for Paddy Processing in Natham

Summary and Suggestions

In short, we are trying to make villagers self sufficient in addressing local demand & consumption. The money
will circulate within the village instead of going into nearby urban markets. This will create some additional
jobs as well, fostering a spirit of unity among the villagers, who will see the potential benefits of cooperation.
We hope to capitalize on these gains in the next stage of the project when we will move towards making more
value added products within the village and sell some of the produce in the urban markets of Chennai.

There are some potential problems that might crop up. We are relying upon SHGs for funding who already
have a small savings base. They might be able to fund us in the initial stages but wont be able to do so in the
later stages when we will need more money. Also, some studies indicate that the credit and the product
market are interlinked in the rural Tamil Nadu. We have studied that here and came to know that about
1/3rd of the farmers are dependent on the moneylenders for their credit needs. We have estimated that even
for the further stages the 2/3rd of the farmers should be able to do support us. Considering the potential
saving for each family and the rising food prices, we think that economic incentives are strong enough to
make people cooperate.

In the long run, we will expand both backwards and forwards on the value chain. Natham farmers lack
adequate marketing skills and as a result sell most of the paddy in the raw form without any processing. They
do not have any value addition infrastructures/procedures in place. We plan to establish equipment in order
to process paddy and related products to produce rice flour, rice starch, rice straw, rice cakes, and other rice
based food products. This will help in greater value addition and will help increase the farm incomes. In the
later stages, we plan to increase the productivity of the land as well. Natham farmers use modern inputs, but
have very little knowledge about their appropriate usage. This reduces the efficiency and the outcome of
these inputs. Once we have sufficient cash flow from the operations we will bring in expertise to educate
farmers in modern farming and help them with mechanization also. This increase in productivity combined
with better value realization from the final product, will increase the farm incomes several times.

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