ISLAMI BANK BANGLADESH LIMITED

CORPORATE INVESTMENT DIVISION-II

CORPORATE INVESTMENT WING
HEAD OFFICE, DHAKA.

MC. Memo No. 2014/ Date: 23.09.2014

Sub: Present Scenario of Rice Mills and Investment of Islami Bank Bangladesh Limited
in this Sector.

The Management Committee (MC) of the Bank has desired to place a Memo containing detail
information on the present scenario of investment in Rice Mill Sectors of IBBL. Accordingly we
have prepared a memo of Investment in Rice Mill Sectors by IBBL which are given below:

Sl. Particulars Page No.

No.
1 Introduction
2 Rice Milling systems
3 Different types of Rice Mill in Bangladesh
4 Flow diagram of a Modern Rice Mills
5 Year wise performance of Milled Rice in Bangladesh
6 Characteristics & productivity of different types of mills
7 Government Policy on Modernization of Rice Mills
8 Problems of Rice Mills
9 Demand of Investment for Rice Mill Sectors
10 Present exposure of IBBL in Rice Mills
11 Market share of IBBL in Rice Mill Sectors
12 Opportunity of Investment of IBBL in Rice Mill Sectors
13 Conclusion

The Memo is placed herewith the above information for kind perusal, comments and
suggestions, if any, please.

(MUHAMMAD ABUL BASHAR)

DEPUTY MANAGING DIRECTOR
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Investment in Rice Mill Sectors

1. Introduction

Food, clothing and shelter are three essential needs for human life. Food is consumed by human
life as pulse, grains, etc. Rice is most important staple food in Bangladesh. Bangladesh is the 4 th
biggest rice producing country in the world, contributing about 7% of the world’s Rice
production. 77% areas in Bangladesh are cultivated rice where the northern region produces
more rice.

77.07%
2.50%
1.70%
2.49%
1.45%
0.78%
4.74%
0.38%
0.94%
2.45%
3.07%
2.43%

Rice is the end product of paddy after various

production operations. In the past, the
conversion of paddy to rice was a house hold
job, a tasking proposition for the women folk.
But due to high demand for rice the household
job was transformed to mills operations. Milling
is a crucial step in post-production of rice. The
basic objective of a rice milling system is to
remove the husk and the bran layers, and
produce an edible, white rice kernel that is
sufficiently milled and free of impurities. This is
initially done in mills by manual operation. Due
to the innovation of machineries, the new
technology, has been adopting for converting
paddy to rice in the name modernization.

2. Rice Milling Systems

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Steps of recovery:

A rice milling system can be a simple one or two step process, or a multi stage process.
a. One step milling process: Husk and bran removal are done in one pass and milled or white
rice is produced directly out of paddy.
b. Two step process: Removing husk and removing bran are done separately, and brown rice is
produced as an intermediate product.
c. Multistage milling: Rice will undergo a number of different processing steps.
Depending on whether the paddy is milled in the village for local consumption or for the
marketing. Rice milling systems can be classified into 02 (two) categories:
a. Village rice mills (for home & commercial use); and
b. Modern mills (commercial use).

Dheki’ Traditional milling Traditional boiling process ‘ Single pass, single stage rice mill
(for home use) (for home use)
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Manual processing Single pass, two stage rice mill Drying process at Chattal
(commercial use) (commercial use) (commercial use)
a. Village Rice Mills
Bucket & belt type conveyor are used. Paddy filled in storage and conveyor pick up paddy
a. Conveyor :
from storage & reached in handy.
Handy is a local word used which is hopper type contained. Steam comes from boiled
b. Handy :
through piping system in handy and paddy is boiled in handy at 120 C.
c. Dryer : It dries boiled paddy by steam. Dryers are fitted with super heater.
The steam used for boiling is later condensed in condenser and fed into boiler by
d. Condenser :
centrifugal pump.
There are two ways to convert water into steam. It may be passed through of small diameter
e. Boiler :
tubes the outside of which is exposed to the hot gases produced by combustion.
f. Furnace : It behaves as insulator and protects more heat loss.
g. FD Fan : To supply air to furnace for burning. This fan protect dust go to furnace.
ID Fan : Removes flue gases from furnace and to send to chimney.
i. Chimney : It is made with brick concretes and cement. Its height is 30m to 40m.
It is crushing type device and we get rice, bran and husk used in furnace, producing steam
j. Mill :
in boiler for boiling rice.
b. Commercial /Auto Rice Mill
Mill the paddy in multi-stages, and hence are called multi-stage or multi-pass rice mills. The
objective of commercial rice milling is to reduce mechanical stresses and heat buildup in the
grain, thereby minimizing grain breakage and producing uniformly polished grain. Compared to
village-level systems, the commercial milling system is a more sophisticated system configured
to maximize the process of producing well-milled, whole grains.

3. Different types of rice mill in Bangladesh:

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Rice mills can be defined in many ways. In broad terms, 04 (four) major groups of rice mills can
be differentiated in Bangladesh.
a. The “auto mills” are mostly dependent on automated machineries, where the presence of
automatic drier, polisher and color sorter can be found.
b. The ‘semi-auto mills’ use rubber rollers like the auto mills but they might not have automatic
drier; rather they opt for sun-drying.
c. The third group is the most widely used traditional mills, popularly known as “chatal” which
uses the steel roller processing.
d. Finally, the stationary and mobile hullers are used for small scale paddy processing.

Number of licensed Rice Mills in different Divisions at Bangladesh:

Divisions Husking Major* Auto Total
Rajshahi 5,242 2 48 5,292
Rangpur 6,361 20 110 6,491
Dhaka 2,430 64 105 2,599
Khulna 1,932 21 14 1,967
Chittagong 307 11 74 392
Sylhet 51 0 10 61
Barisal 24 13 0 37
Total 16,347 131 361 16,839
Source: Ministry of Food, 2011
* Major means big size of rice mill but not like as auto mill.

4. Flow diagram of a Modern Rice Mill

The flow diagram below represents the configuration and flow in a typical modern rice mill.

1 - paddy is dumped in the intake pit feeding the pre-cleaner

2 - pre-cleaned paddy moves to the rubber roll husker:
3 - mixture of brown rice and unhusked paddy moves to the
separator
4 - unhusked paddy is separated and returned to the rubber roll
husker
5 – brown rice moves to the destoner
6 - de-stoned, brown rice moves to the 1st stage (abrasive)
whitener
7 - partially milled rice moves to the 2nd stage (friction)
whitener
8 – milled rice moves to the sifter
9a - (for simple rice mill) ungraded, milled rice moves to
bagging station
9b – (for more sophisticated mill) milled rice moves to the
polisher1
10 - Polished rice, will move to length grader
11 - Head rice moves to head rice bin
12 – Brokens moves to brokens bin
13 – Pre-selected amount of head rice and brokens move to
blending station
14 – Custom-made blend of head rice and brokens moves to
bagging station
15 – Bagged Rice moves to the market
A – straw, chaff and empty grains are removed
B - husk removed by the aspirator
C – small stones, mudd balls etc. removed by de-stoner
D - Coarse (from 1st whitener) and fine (from 2nd whitener)
bran removed from the rice grain during the whitening process
E - Small brokens/brewer’s rice removed by the sifter
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5. Year wise performance of Milled Rice in Bangladesh

Sl. Domestic Domestic

Imports
No. Year Production Consumption Export (MT)
(MT)
(MT) (MT)
1 2 3 4 5 6
1 2001 24,310,000 25,553,000 243,000
2 2002 25,187,000 26,100,000 955,000 The government first banned
3 2003 26,152,000 26,700,000 850,000 non-fragrant rice exports
4 2004 25,600,000 26,900,000 725,000 during the global food crisis
5 2005 28,758,000 29,000,000 514,000 in 2008 & has extended the
6 2006 29,000,000 29,764,000 769,000 ongoing ban to the fiscal year
2014-15 (July 1, 2014 – June
7 2007 28,800,000 30,747,000 2,047,000 30, 2015). Bangladesh has so
8 2008 31,200,000 31,200,000 732,000 far exported only aromatic
9 2009 31,000,000 31,600,000 92,000 rice in small quantities. In the
10 2010 31,700,000 32,400,000 1,308,000 last two fiscal years, export of
11 2011 33,700,000 34,300,000 563,000 aromatic rice 10,000 MT
12 2012 33,820,000 34,474,000 35,000 (approx.).
13 2013 34,400,000 34,600,000 250,000
Source: Index Mundi

6. Characteristics & productivity of different types of rice mills:

 Significant structural changes are taking place in rice milling in the country. The
traditional dheki milling system has increasingly been replaced by modern and
mechanized mills, some of which are fully automatic.
 About 60 percent of the rice mills are licensed by the local government authority. Only a
few auto mills are operating under the Company Law. Most of the other mills operate
without any formal license.
 Most of the auto rice mill is established after 2000 i.e. the auto mills technology is a
more recent phenomenon.

Fig: Year of establishment of Rice Mills

 The rice mills mostly process parboiled rice which ranges from 75 percent to 97 percent
of the total rice processed by different mills.
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 Auto rice mills use different types of machineries, some of which are costly. The rubber
sheller, the hall mark of auto rice mills, on average cost five times more than the steel
sheller (used in Engelberg plants or chatals). As such, the auto mills have to incur an
initial investment which is nearly 13 times higher than similar investments in semi auto
mills and 127 times of that of an average mill (chatal).

Fig: Average value of capital machinery used in rice mill: (In Taka)

 Although the initial investment for an auto mill is much higher than similar investments
in other rice milling technologies, the gross revenue is also higher in these mills. As the
auto mills are less dependent on weather for drying and other operations, their operations
are less risky and the related process is less prone to stoppage. On the other hand, as the
drying space (or land) needed in semi auto or traditional mills involve opportunity cost
of land, inclusion of its opportunity cost narrows the gaps between the investments in
traditional and auto mills.

Capital, output and gross revenue of rice mills: (Annual average)

Mill Category Current value of machines Output of rice Gross revenue
(000 Tk.) (Maund) (000 Tk.)
Auto 20,724 205,559 121,788
Semi Auto 1,494 47,981 24,635
Chatal 163 17,715 9,334
Huller 40 5,500 …
 As the auto mills are less dependent on natural weather for drying and other operations
of the mill, their operations are less risky. They can operate even during the rainy season.
In addition to the sophisticated machines used in auto mills, the fact that they can operate
round the year, result in higher productivity in auto mills compared with the productivity
in traditional mills. In a running week, an auto mill can mill 6,394 mounds (256 metric
tons) of rice. In comparison, a semi auto mill can mill up to 1,516 mounds of rice, which
is less than one-fourth of the capacity in auto mills.
 The employment structure of auto mills differs significantly from traditional mills. The
number of permanent staff in automatic mills is nearly twice that in chatals and 60
percent more than in semi-auto mills. The difference is also reflected in the capital-labor
ratio (value of capital/cost of labor). The ratio is 4.4 for auto rice mills, which is 3 times
that in semi-auto mills and more than 17 times that for chatals.
 8

 About 38 percent of the labor force in rice mills is women. They are employed mostly in
drying and cleaning part of the process. But they are also, though in a limited way,
involved in the milling and polishing part of the process which are generally thought to
be men’s jobs.
 Regarding the stock of the mills, auto mills account for an estimated 18 percent of paddy
and 30 percent of total rice stocks, while the chatals account for 80 percent and 67
percent of the stocks of paddy and rice respectively.
This indicates very limited price leadership behavior, if any, by the auto mills. But the average
stock of chatals is only one-tenth and one-twentieth for paddy and rice respectively compared
with the auto mills.
Fig: Average stocks required of paddy and rice by different types of rice mill:

 The auto rice mills have only limited monopolistic power, at any given point in time their
average stocks are relatively high probably giving them a price leadership role. But given
that the processing capacity of a chatal is only one-twelfth of that of an auto mill, auto mills
need to keep adequate stocks of paddy for ensuring the smooth running of the mills.
 The volume of paddy milled is a major factor in the case of value addition. In this respect,
the auto mills have an advantage over semi auto mills and traditional mills;
 For all categories of mills, labor has positive relationship with overall output. Capital also
has a positive relationship except in the case of semi auto mills;
 While average productivity is higher in auto rice mills, the relative efficiency shows that
traditional chatals and semi auto mills are doing better than the auto mills. Given the cost
structure of the auto mills, not all auto mills can run the production process efficiently from
the very beginning. It usually takes a good amount of time for them to increase the average
score of efficiency. On the other hand, semi auto and traditional mills which are less capital
intensive can optimize the production process within a short time even with limited
resources.
 The increase in the number of auto rice mills probably ensures a better supply of rice
throughout the year covering different parts of the country. However, the shift from
traditional milling system to auto mills implies increased demand for formal loans,
permanent workers, and large-sized land requirement.
 The use of color sorter machine by the auto mills to weed out discolored kernels and
polisher used to make rice whiter. As the white rice thus produced has less nutritional value,
one implication of increase in the number of auto mills is to promote the use of less
nutritional types of rice.
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Return of paddy processing between Conventional and Auto Rice Mills

Conventional unit Auto unit
Particulars *Quantity Price Value Quantity Price Value
produced (kg) (Tk/kg) (Tk) produced (kg) (Tk/kg) (Tk)
Rice making process
Head rice 66.00 30.00 1,980.00 65.00 40.00 2,600.00
Broken rice 12.00 18.00 216.00 12.00 20.00 240.00
Bran - 18.00 - 8.00 18.00 144.00
Husk 22.00 1.00 22.00 15.00 1.00 15.00
Total 2,218.00 2,999.00
* Quantity produced by processing one quintal (100 kg) of paddy.

7. Government Policy for Modernization of Rice Mills

The government has, therefore, attached special importance to agricultural mechanization. To

encourage the use of machines in agriculture, restrictions have already been withdrawn in the
free market distribution system. As a result, the use of agricultural machinery has increased
significantly and immense potential is created for further increase. In order to accelerate the
current trend of agricultural mechanization, various facilities including exemption
of import duties on agricultural machinery have been provided and the same will continue.

The following steps will be taken to promote agricultural mechanization:

 To speed up the process of agricultural mechanization both producers and users of machines
will be provided with necessary credit supports.
 Production and import of agricultural machines will be specially encouraged so that they
can procure machines from the market according to their choice and convenience.
Machinery workshops and industries engaged in agricultural mechanization activities will be
provided with appropriate taxes/duties facilities for the import of necessary raw materials.
This is expected to keep the machine prices within the purchasing capacity.
 In order to gradually reduce dependence on draft power, efforts will be made to grow their
interest on mechanization as well as to provide credit facilities. To achieve this goal,
information relating to increasing potential demand for and profitable investment in
agricultural machinery will be publicized through the mass media so that the private sector
can play an active role in creating a competitive market.
 The type of agricultural machines or the level of mechanization needed in any region
depends on the socio-economic condition of the people and availability of agricultural labor
in that region. Measures will be taken to collect and publicize this information through the
mass media in order to attract private investment in this sector.
 Despite increasing use of mechanical power in agriculture, the use of animal power will
continue in future depending on the socio-economic conditions of the farmers in different
regions. Therefore, improved ‘power delivery system’ (meaning delivery of energy from the
shoulder of the draft power to the agricultural implement) will be evolved through research
so that the scarce draft power can be utilized more efficiently.
 Use of machines, which are usually expensive, is not often affordable by the individual. In
order to popularize mechanization in addition to the use of draft power, farmers will be
motivated in purchasing or taking lease of agricultural machines through the cooperatives.
Formation of such self-motivated cooperatives will be encouraged and necessary supports
will be extended to mechanized cultivation based on cooperatives.
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8. Problems of Rice Mills in Bangladesh

i) Raw material procurement and its cost etc.

Paddy is the basic raw materials for rice mills. Ministry of agriculture Govt. of Bangladesh fixes
up the minimum support price of different crops including paddy by way of policy to protect the
farmers from exploitations. It is observed that no farmer is able to supply standard quality paddy.
As such they are not getting minimum support price. This is one of the major problems.

ii) Production process related problems

In the process of parboiling water affluent is generated and is harmful. The rice millers are
getting problem to store it. Rice husk is the cheapest fuel for generating steam but the waste
product fly-ash is another headache for disposal for the millers.

iii) Design related problems

The rice mills working in some cluster are of old technology. Electrical consumption is very
high. Here in this technology electricity consumption is very high compared to modern rice
mills.

iv) Technology related problems:

Technology is changing day by day. The technology adopted by the rice millers here in this state
is occupying more space, consuming more energy polluting air and water and it is time
consuming. As a whole the cost of production is high for the technology.

v) Marketing Issues
At present marketing of rice is all a problem because of free rice by government policy is also
affect domestic market. Open market has the demand for consuming of the production. If the
levy system will be out then marketing will be the major problem.

vi) Entrepreneurs Issues

Inadequate Capital, Political unrest, Price inflation, Inadequacy of information, inadequate
infrastructural facilities & Inadequate of Government support or motivations

9. Demand of Investment (loans) for Rice Mill Sectors (Source: The Daily Star, Friday, August 08, 2014):
Regarding requirement of fund for rice mill and government support for dissemination of
modern rice mill technology, a discussion meeting was organized by German aid agency GIZ
and local rice millers association at Ishwardi Sugarcane Research Institute in Ishwardi where
renowned & specialist persons were attended in the meeting. However, their decision &
comments as under:
 The new method (auto rice mill) can boost production capacity nearly 10 times.
 Currently total 17,000 rice mills including 450 automatic, around 1500 semi automatic, and
the traditional rest produce 1 lakh to 1.25 lakh tonnes of parboiled rice every year.
 Millers can increase rice parboiling by 8 lakh tonnes and rice bran oil production by 15 lakh
tonnes a year with implementation of the modern parboiling technology developed by
Bangladesh Rice Research Institute in collaboration with the German aid agency GIZ.
 Almost 70 percent of fuel potential from rice husk is wasted in the traditional method of
parboiling.
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Sl. Spokes persons Comments

i. Taposh Kumar, additional secretary
of the power and energy ministry as
the chief guest
ii. Md Abdul Aziz, a leading rice
producer in the north & secretary of
Ishwardi rice miller owners' group
iii. Md Masum Patwary, General
Manager of Bangladesh Bank.
iv. Al Mudabbir Bin Anam, component
manager for energy efficiency at
German aid agency GIZ
The introduction of the new fuel-efficient parboiling
system can easily halve the use of husk as fuel, and
produce rice bran oil from the savings.
Small and medium level rice producers are unable to
introduce auto-milling because of fund shortage.
Introducing automation is too costly for the small and
medium millers. He demanded soft loans from banks to
assist millers automate.
Bank officials should widen their loan disbursement
services among the small and medium millers of the zone
to increase production. Bangladesh Bank is ready to assist
the commercial banks in providing SME loans. The new
system will create jobs and scope for female employment,
which is why the central bank is encouraging it.
Traditional boilers are accident-prone, costly and fuel-
inefficient as compared to the newer method, which is also
more environments friendly. German aid agency GIZ has
helped set up at least 50 auto mills in parts of the country.

10. Present exposure of IBBL in Rice Mills Sectors

(Tk. in
million)
Division Client Limit Liability as on 30.06.14 Overdue
s HPSM WC Total HPSM WC Total HPSM WC Total
No.
CID-I 4 426.75 1,740.00 2,166.75 243.48 2,100.85 2,344.33 7.14 - 7.14
CID-II 56 1,842.52 5,845.50 7,688.02 1,354.22 4,900.03 6,254.25 6.28 19.32 25.60
SME-I 86 478.00 1,983.00 2,461.00 407.00 1,728.00 2,135.00 9.00 25.00 34.00
SME-II 305 3.30 1,369.75 1,373.05 3.11 1,186.00 1,189.11 - 37.44 37.44
Total 451 2,750.57 10,938.25 13,688.82 2,007.81 9,914.88 11,922.69 22.42 81.76 104.18
 12

Total exposure of IBBL in Rice Mills is only 3% as

compare to others sectors such i.e. textiles industry
19.05% and garments industry 4.51%.

Figure showed Division wise investment

position where CID-II invested highest
amount of Tk.7,688.02 million i.e. 56%
of total rice mill investment and
accordingly followed by SME-I
(Tk.2,461.00 million), CID-I
(Tk.2,166.75 million) and SME-II
(Tk.1,373.05 million) i.e. 18%, 16% &
10% respectively.

11. Market Share of IBBL in Rice Mill Sectors

Sl. Particulars Husking Major Auto Total
1 2 3 4 5 6
1 Country* 16,000 1,500 500 18,000
2 IBBL 268 56 127 451
3 Market share 1.68% 3.73% 25.40% 2.51%
*Source: Md. Abdul Quddus, Secretary of Bangladesh Auto, Major & Husking rice Mill Somity upto 30.06.2014.

At present total number of clients against Rice Mill of IBBL is 451

and existing annually paddy crushing capacity of those clients is
4,597,500 MT (approx) whereas total country production of paddy was
recorded in 2013, 34,400,000 MT i.e. 13% of cursing was done
through IBBL investment Rice Mills and the rest 87% crushed by
others.
 13

Top 10 Rice Mill clients of IBBL

Capacity Limit Liability as on 30.06.14 Overdue

Sl. Name of the client Branch Zone
MT/day HPSM WC Total HPSM WC Total HPSM WC Total
M/s. Nawab Auto Rice
1 CNG Rajshahi 608 263.00 750.00 1,013.00 81.00 851.05 932.05 2.03 - 2.03
Mill
Rashid Agro Food
2 Kustia Rajshahi 256 63.75 650.00 713.75 - 882.58 882.58 - - -
Product Ltd.
M/s. Nazrul Super Rice
3 Rohanpur Rajshahi 207 55.00 400.00 455.00 31.07 400.05 431.12 - - -
Mill
Mallick Agro Food Ind.
4 Iswardi Rajshahi 432 133.50 280.00 413.50 94.09 257.63 351.72 - - -
Ltd.
M/s. Monjur Auto Rice
5 CNG Rajshahi 186 107.85 300.00 407.85 83.98 200.09 284.07 - - -
Mill
A. Rahman Parash Auto
6 Noapara Khulna 256 100.00 300.00 400.00 162.48 312.22 474.70 5.11 - 5.11
Rice Mill
M/s. Northern Paddy
7 Barogola Bogra 144 96.00 200.00 296.00 104.43 294.46 398.89 0.92 - 0.92
Bi-Product
Mohd.
8 Kafil Agro Ind. Ltd. Krishi DNZ 128 30.00 250.00 280.00 25.86 249.85 275.71 - - -
Market
M/s. Shahan Auto Rice
9 Saidpur Rangpur 88 - 250.00 250.00 - 272.59 272.59 - - -
Mill
M/s. Sorna Auto Rice
10 Poradah Rajshahi 284 - 250.00 250.00 - - - - - -
Mill
Total 2589 849.10 3630.00 4479.10 582.91 3720.52 4303.43 8.06 - 8.06

12. Opportunity of Investment of IBBL in Rice Mill Sectors in Bangladesh

At present total exposure of IBBL against 451 number Rice Mill is Tk.13,688.82 million where
present outstanding is Tk.11,922.69 million (i.e. only 3% of total IBBL investment of
Tk.444,218 million as on 30.06.2014) and overdue is Tk.104.18 million (i.e. 0.5 % of total IBBL
overdue of Tk.20,860 million as on 30.06.2014). It seems that recovery against rice mill
investment is very well and there is also a good option to invest more funds in this sector.

13. Conclusion
The rice mill industry, over the last decade has become significantly competitive. Moreover, in
the dawn of automatic rice milling systems the competition has increased further. Many of
the husking mills are being upgraded to and replaced by the contemporary automatic rice
mills. This is because the automatic rice mills have significantly higher production
capacity. However, the technology of automatic rice mills is readily available with
moderate amount of capital. As a result, the rice mills do not have any kind of competitive
advantage regarding production facility. However, the procurement and sales of this
industry are relationship-based that is the rice mills have good understanding with both
suppliers and buyers. However, the banks (IBBL) have financially supported the rice mills
to expand or upgrade their facilities by providing term investments. As the rice mills are
expanding their production capacities, their working capital requirements are also pushing
upwards. So, the banks (IBBL) and the rice mills also experience an intertwined
profitability.