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ACKNOWLEDGEMENTS

Organizational Traineeship Segment gave us an opportunity to use the skills that we had
developed in different functional areas. We thank IRMA for providing an opportunity to work in
the real business environment and gain first hand experience regarding various aspects involved
in the business.

We would like to thank Prof. Arvind Gupta for giving us the necessary direction before and after
the project. As our faculty guide, he has been instrumental in giving the necessary guidance with
regard to the scope of the study and also to dwell into finer issues in the context of the project.

We would like thank Prof. Jayant Negi (OTS Coordinator), IRMA for having invited projects
from CCD. We would like to thank Prof. Trilochan Sastry (CEO), CCD, whose enthusiasm and
instructions encouraged us to do our job better at every stage. We would like to thank the whole
of the staff of our host organization, CCD at Hyderabad and at Adilabad, for giving us an
opportunity to work with them for all the suppor t they had given us during our project.

We also would like to thank all the Government officers and traders who have given us valuable
information to add value to our project. Last but not the least, we would like to thank all those
whose names are not mentioned here but have assisted us a lot in carrying out our project work.

Sudharsana Reddy J R (25071)


Satish Chandra G (25095)

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EXECUTIVE SUMMARY
Title: Value Chain Analysis of Red Gram and Soya bean and feasibility of processing
unit for Red Gram
Organisation: Centre for Collective Development, Hyderabad
Reporting Officer: Prof. Trilochan Sastry
Faculty Guide: Prof. Arvind Gupta
Students’ Name: Satish Chandra G and Sudarsana Reddy J R
Objective : a) To identify activities that would provide better value realisation for the farmer
members of the commodity cooperatives. b) To estimate the potential procurement levels of Red gram
and Soya in the project area of CCD. c) To find out the feasibility of setting up of a processing unit for
Reg gram. d) To find out the feasibility of owning warehouses for storing the produce and sell later when
the prices are high. e) To prepare a database for market intelligence.
Scope of the study: The study was carried out in the five mandals of the operation of CCD in the district
of Adilabad, Andhra Pradesh and was focussed on Red Gram and Soya bean.
Methodology and sources of data: Included surveys of wholesalers at mandal and district levels and
surveys of small & large traders in the three mandals and at the district Head quarters. Informal
discussions with the farmers and Govt. officials were also done. Secondary data from the MRO offices
and Agricultural Marketing department were also collected.
Major findings and conclusions: The farmers are not getting the right returns on their produce. The
traders, who are the credit providers at the time of need, procure the produce from the producers using
false weighing methods, paying less than the market price and also charging high interest rates- usually at
the rate of 50% per annum. From the farmers’ side, it’s found that many farmers sell away the produce
immediately after the harvest without drying it, with a view that the high moisture content in the produce
would fetch them more mone y as it weighs more, but eventually get less paid by the trader for high
moisture content. There is scope for lots of simple value addition that can fetch good realisation to the
primary producers. The market prices are highly fluctuating & mostly dependent on the supply and the
season. Lack of knowledge about proper harvesting techniques; insufficient market information, unsure
prices for the produces etc. are some of the bottlenecks the primary producers face in the trade. Market
linkages should be developed and effectively utilised for the benefit of the farmers. It is the successful
management of the linkages which make the present actors in the value chain successful or unsuccessful.
The dependence on the traders and the fear that the relationship would suffer, will fade away as the
cooperatives get strengthened.
Recommendations :
For Soya Bean: 1) The nascent cooperatives should not venture into own processing as of now because:
(a). Already there exists a futures market (Anamath system) in practice and the farmers of the commodity
cooperative should take full advantage of it first before enter processing. (b) The cost for owning a
solvent extraction plant is very high and the working capital requirements would also be very high and
out of the reach of the cooperatives. (c) There are not cooperatives enough which can assure supply to the
cooperative’s solvent plant (if established) and a large number of solvent extractors in India are facing the
problem of under capacity utilisation. 2) The simple value addition at the farmer level still offers the best
p III) Dependence on single solvent plant should be reduced and the relation with the other two solvent
plants need to be improved.
For Red Gram: 1) The cooperatives may set up an Akola -type good quality 5 ton-per-day processing
mill on their own only when the procurement would be 11500 quintals over a period of two years in two
equal instalments. 2) The cooperatives would benefit more while storing the produce at the CWC
warehouses but not owning their own warehouses. 3) The cooperatives would better set up a processing
mill than warehouses.

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LIST OF TABLES

Sno TABLE DETAILS Page Number

1 Facts and Figures about Soya Bean 8


2 Opportunity cost of Storage of Soya beans 9
3 Soya Bean Processors within the District of Adilabad 11
4 Value addition Activities in Soya bean Value Chain 13
5 Results of the survey for soya potential procurement 21
6 Results of the survey for Red Gram potential procurement 22
7 Value Activities at each stage of the value chain 26
8 Opportunity cost of Storage of Red Gram 27
9 Price of Raw Red Gram(1st quality- Patka) in the markets
of Adilabad District 28
10 Fixed Costs for a 5-ton per day capacity mill 34
11 Yearly costs of a Dal Mill (In Rupees) 34
12 Variable Costs per Quintal 34
13 Costs per qtl of process 36
14 Variable Costs per Quintal 36
15 Benefit in variable cost by owning a mill 37
16 Quantity to be procured in the 2nd year for repaying by 2nd yr 38
17 Cost of warehouses for various capacities 39
18 Costs for a 600 quintal warehouse 39
19 Costs (per qtl) of storage at CWC warehouse (In Rupees) 40
20 Variable costs for own storage 40

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LIST OF FIGURES

Sno FIGURE DETAILS Page Number


1. Location of Adilabad 1
2. Value Chain of Soya Bean 13
3. Value Chain of Tuar Dal (Red gram) 25
4. New value chain if a cooperative is formed 27

TABLE OF CONTENTS AT THE END OF THE MAIN DRAFT

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1 INTRODUCTION

1.1 About the organisation


Centre for Collective Development (CCD) is an NGO started in June 2003. The organisation is
registered as society under Andhra Pradesh state society act. The name it wanted to get registered
under was Centre for Cooperative Development reflecting the clar ity of the vision of the
organisation. As another organisation was already registered under that name, the registration
was done under the name ‘Centre for Collective Development’. The head office of the
organisation is situated in Hyderabad and it is working in two districts of Andhra Pradesh-
Ananta pur and Adilabad to promote thrift and credit societies based on Grameen Model and
Commodity Cooperatives. The Founder-Secretary-cum-CEO is Prof. Trilochan Sastry. The
members of the board of trustees are highly renowned from diverse backgrounds and they reflect
the activities CCD is performing or is going to perform. Annexure-1 carries a small brief
introduction about the members of the board of trustees.

1.2 Project Area Description


FIGURE NO: 1 Location of Adilabad
Adilabad is the northern most district of
Telangana region of Andhra Pradesh.
Adilabad has the largest forest area than
any other district in Andhra Pradesh. The
land type found here is Black Cotton Soil.
The area of operations of CCD falls in the
middle of the district. CCD is currently
working in 3 mandals- Utnoor, Narnoor
and Jainoor. It plans to expand its
operations to two other mandals-
Indervelly and Sirpur (U) during this
year. All these 5 mandals fall under the
tribal agency area (‘Agency area’ in
short). Majority of the population belongs to the Scheduled Tribes with sub-castes being
Lambadas, Gonds, Kollams, Aands, Marathas, etc. This area does not have any river. Large part
of the cultivated land is rain fed. Major crops grown in the region are Soya bean, Cotton,

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Vegetables & Red gram in Kharif; Wheat, Jowar & Red gram in Rabi. Other crops grown are
Paddy, Green gram, Black gram and other pulses. Of these, Red gram is sown as inter-crop in
Cotton, Soya and Jowar.

1.3 Present Situation and need for commodity cooperatives


In Andhra Pradesh there has been no substantial intervention on commodity cooperatives
targeting particularly small and marginal farmers. The Intervention strategies by the government
and other institutions are neutral to the question of poverty, largely arguing that if wealth is
created, everyone including the marginal farmers will be benefited. However, experience shows
that large numbers of the poor – several million – continue to be marginalized. Commodity
cooperatives focused on the poor person’s crops would fill this gap in the development efforts.
Small and marginal farmers suffer from at least five losses of income:
i. Credit related: Either credit is not available, or they pay high interest rates for loans,
sometimes more than 50%.
ii. Poor quality seeds, fertilizers and pesticides obtained at higher price
iii. Poor farming practices because of lack of investment resources
iv. Tied sales of the produce to the trader who initially gave the inputs on credit before the
season
v. Distress sale of any left over produce immediately after harvesting when prices are low
These five factors place them in a vicious cycle from which they are unable to escape. Firstly,
credit itself continues to elude the small and marginal farmers and they continue to be dependent
on the informal credit networks. Even if this credit is available, it still does not address the
problem of low yields or distress sales. Credit is only a partial solution. Perhaps no intervention
other than a cooperative can bring long term sustained benefits to farmers. Further the
cooperatives should be owned and run by the members only. Institutions that are run by outsiders
are not answerable to the poor and eventually decline over time. Several well intentioned
‘cooperatives’ run by the Government have not performed well (in a sense this is against the
cooperative principles since by definition a cooperative is run by its members).

1.4 Vision of CCD


CCD wants to achieve the status for agricultural commodities what NDDB accomplished for the
da iry sector. CCD wants to expand its area of operation across the state of Andhra Pradesh and
later on across the nation.

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1.5 Mission of CCD
“Promoting vibrant, member owned and member controlled cooperatives, primarily of the poor,
for their economic well being”. The mission comprises of following objectives-
♦ Social objective: Forming the cooperatives
♦ Financial objective: Establish initial credit linkages with formal banking system.
♦ Marketing objective: Establish initial linkages with country wide markets.
♦ Technical objective: Linkages with agriculture specialists, food processing later.
♦ Educational objective: Intense capacity building of cooperatives.

1.6 Rationale for the project and the expected outcomes


In order to achieve its mission CCD needs to understa nd the value chain of the commodities
especially Red gram and Soya bean (in the district of Adilabad). With the insights from the value
chain study, CCD should be able to identify which effective steps are to be initiated in order to
achieve its social, financial, marketing, technical and educational objectives.

2 OBJECTIVES OF THE STUDY


♦ Value chain analysis of Soya bean and Red gram for identification of better value realisation
activities for the farmer members of the commodity cooperatives
♦ Estimation of the potential procurement levels of Red gram and Soya in the project area of
CCD in the district of Adilabad
♦ Feasibility of a processing unit for Red gram
♦ Feasibility of owning warehouses for storing the produce and sell later when the prices are
high
♦ Prepa ration of a database of market intelligence sources for the cooperatives

3 DESIGN OF THE STUDY

3.1 Methodology
This is a study of the value chain of Soya bean and Red gram. As a part of the study, a survey
was conducted for estimating the potential procurement of Soya bean and Red gram in the project
area of CCD (Five tribal mandals of Adilabad district namely Utnoor, Narnoor, Jainoor, Sirpur
and Indervelly). The study includes value chain(s) study, potential procurement survey,

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feasibility of processing of da l mill unit(s) , feasibility of warehouses and suitable
recommendations to the commodity cooperatives.

Sources of data include both the Primary and the Secondary sources. Primary sources included all
the actors in the value chain starting from the farmer and ending with the consumers. Discussions
were held with various institutions and government officials responsible for implementing
agricultural policies, marketing functions, etc. Various stake holders have also added to our
understanding of the dynamics of the commodity markets. The Secondary sources included the
data from the government departments of agriculture, planning, revenue (which were mostly
unusable due to the lack of uniformity, and glaring discrepancies between actual situation and the
records). Books related to commodities and internet also provided valuable insights.

3.2 Scope
The scope of the project was limited to two commodities- Soya bean and Red gram (Tuar / Arhar
Dal) in the district of Adilabad with some inputs from the other markets like Nagpur for Soya and
Akola , Yavatmal and Nagpur for Red gram. The scope of feasibility study for processing units
and warehouses was also restricted to financial and technical feasibility. The issues like the
mobilisation of capital (including working ca pital), social mobilisation and mobilisation of raw
material were out of the scope of this study. The scope was also limited to analysing the required
tasks but not to critically assess the tasks given.

3.3 Limitations
This study is subject to the following limitations. Firstly, the project area was under the
Integrated Tribal Development Agency, where the non- tribal are proscribed to buy, own, lease or
gift any asset under the AP Scheduled Land Registration and Transfer Act, 1959. So, the business
men (who generally were non tribal) either lied or gave false information about the business of
the commodities.
Secondly, the trade of commodities is full of secrecy and zero trading (means no or negligible
taxes are paid by the traders). Deals are settled and no official receipts are exchanged. So the
price details over a period of time could not be found out and no trend analysis could be carried
out.

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Thirdly, we found that the official records are a sham and render it impossible to understand the
trends over a period of time and other changes in the market dynamics.
Fourthly, the limitation of the project undertaken is that as an industry wide value chain study, it
is too broad. It may obscure important sources of competitive advantage of individual actors
involved in the chain. Though actors in the same industry may have similar value chain, the value
chain of the competitors often differs. For example, the value chain of two traders of raw Red
gram is different from each other and each has a different competitive strength. One of them
might have strong client base because of long time of existence as a competitive advantage and
the other trader may be more risk taking in terms of lending credit inputs and gaining huge
margins because of tied sales of the farmer.
To minimise the intensity of the fourth limitation the value chain study taken up was looked at
more closely at each stage of the chain and we tried to analys e the various dynamics involved in
a greater detail at every stage.

4 DEFINITIONS

4.1 Value
Value of a product in Marketing is the consumers’ expectation of product quality in relation to
the actual amount paid for it.
Value = Perceived Benefits Received / Price Paid

4.2 Value Chain


Value chain displays total value, and consists of value activities and margin. If we combine all
the steps of value addition we get bird’s eye view of the Value Chain.

4.3 Value Activity


Value Activities are the physically and technologically distinct activities a firm performs. These
are the building blocks by which a firm creates a product valuable to its buyers. How each
activity is performed combined with its economics will determine whether a firm is high or low
cost relative to competitors. Value activity can be divided into two broad types, primary and
support activities. Primary activities involved in the physical creation of the product and its sale
and transfer to the buyer as well as after sale of assistance. Primary activities can be further
divided into a) Inbound Logistics b) Operations c) Outbound Logistics d) Marketing & Sales e)

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Service. Support activities support the primary activities and each other by providing purchased
inputs, the technology, human resources, and various firm wide functions.

4.4 Margins
Margin is the difference between total value and the colle ctive cost of performing the value
activities.

4.5 Value added


Value added is the difference between the selling price and the cost of purchased raw material

4.6 Linkages
Linkages are relationships between the way one value activity is performed and the cost or
performance of another

5 WHAT EXACTLY IS ‘VALUE CHAIN’ AND HOW SHOULD IT BE


STUDIED?
Value chain is oft confused with the other chains, but it is different from the supply chain or the
marketing chain. Value chain may also include the same constituents of supply chain or marketing
chain but the focus in Value chain study is on the value addition activities and the linkages at each
stage. Another element which is often confused is the Value addition. Value chain is not only looking
at the net value added at each stage but much more than that. Value added gives us a part picture as
the cost incurred not only includes the cost of raw materials but also many other purchased inputs
used in that stage for the relevant activities to be performed. Hence the cost be haviour of the
activities cannot be understood without simultane ously examining the costs of the other purchased
inputs used to perform the activities. Further , as value added fails to highlight the effect of investing
and managing the linkages necessary, value added at each stage of the chain is not an effective tool to
understand the value chain. Value chain is not a collection of independent activities but a system of
interdependent activities. Value activities are related by linkages within a value cha in. So in
understanding the value chain, we need to first understa nd the value activities, which require the
isolation of activities that are technologically and strategically distinct. After identifying the

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activities, the cost behaviour, value added and market linkage dynamics can be understood better at
each stage

6 SOYA BEAN

6.1 Global Scenario


Soya bean is the most popular oilseed produced globally. The global production of Soya bean is 170-
185 million tons, which is 55-58% of the global production of oilseeds. Soya bean, on crushing and
solvent extraction, yield Soya oil at 18% recovery and Soya meal. About 85% of the global
production is crushed. U.S., Brazil, Argentina, China, and India are the major producers in order of
production. In US, India and China , crop starts arriving from Aug-Sept, while it starts from Jan-Feb
in S. America. 55-60 million tons of the world’s Soya bean production is traded annually. USA (20-
30 million tons), Brazil (12-18 million tons), Argentina (5-10 million tons) are the exporters of
beans, while China (18-20 million tons) and EU (15-18 million tons) are the major importers.
Argentina (3-5 million tons) and Brazil (2-3 million tons) are the major exporters of oil. China (1.5-
2.5 million tons) and India (1-2 million tons) are the major importers of oil. Crushers, refined oil
manufacturers, animal feed manufacturers and farmers are the major stakeholders in the Soya value
chain worldwide. The important world Soya markets are Chicago (CBOT), which is the largest Soya
futures market of the world and China, where beans and meal are traded at Dalian Commodity
Exchange.

6.2 Indian Scenario


India produces 5-7 million tons of beans, 1 million ton of oil and 3-5 million tons of Soya meal in a
normal year. Madhya Pradesh (3.5-4.5 million tons), Maharashtra, Rajasthan are the major producers
of Soya bean in India. India permits imports of Soya bean at 30% import duty. However, there are no
imports of Soya bean into India as it is more feasible to import oil. With imports, the total oil
availability in the country is around 2.5 million tons. The production is highly dependent on the
monsoon and fluctuates over years. Soya is a kharif crop sown in June-July and harvested by
September-October. Peak arrivals are from October-November. The prices follow the international
sentiments and display very high volatility. Indore, Ujjain, Dewas, Mandsore in Madhya Pradesh,
Nagpur in Maharashtra, Kota in Rajasthan are major trading centres.
Some facts (2003-04)

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Table No:1 Facts and Figures about Soya Bean
India (In % Share of
(Rounded figs.) million tons) World India
Annual Seed Production 6 180 3
Annual Oil Production 1 30 3.3
Annual Oil Imports 1.5 9 16.7
Annual Oil Consumption 2.5 30 8.3
Annual Meal Production 3.5 130 3.5
Annual Meal Exports 2.5 43 5.8
Annual Meal
Consumption 1 130 0.7
Source: www.Soyastat.com

6.3 Local scenario (Soya Bean in Adilabad)


Over 50,000 poor families in Adilabad district of AP grow Soya beans. The current average yield is
around 5 quintals per acre, whereas good farming practices can yield around 12 quintals. The market
price of Soya is around Rs.1000 per quintal immediately after the harvest. The poor farmers realize
something between Rs.650 to Rs.900 per quintal, and an average of Rs.850 per quintal due to tied
sales and because markets in interior rural areas are not efficient. In year 2003-04, the discovery of
Asian Soya rust disease in Soya fields in sections of US fields has provided an upward bias for both
Soya bean and Soya meal prices which led to the unprecedented prices ever, touching Rs. 1911 per
quintal (July 2004) in the local market of Adilabad District for the crop of 2003-04. The starting
price in the 2003-04 October was 1100 whic h finally reached 1911 in July 2004. But in the following
year (2004-05) because of the increase in Soya bean production in the international arena, the prices
around the world came down drastically and stayed in the range of 1100 (in October) to Rs. 1412 (in
December), which was the highest Soya bean price recorded this season. Because of the monitoring
done by CCD on the internet, the farmers in the commodity cooperative were informed about the
Soya bean situation. This prompted the disposal of Soya bean at Rs.1370 per quintal (in early
January 2005) which reduced from the maximum of Rs.1412 (in December 04). Those people who
paid no heed to this advice and continued to hold their produce have never even seen the price rise
above Rs. 1300 till date . The present price as of now (as on 25/7/05) for Soya bean is Rs. 1260 per

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quintal in the Adilabad market. This way of providing timely information to the farmers CCD
ensured decent returns to the Soya farmers of the commodity cooperatives.
Table No: 2
Opportunity cost of Storage of Soya beans
cost of one quintal of Soya bean at start of season 1100
% interest (per month) 2
Costs incurred for storing per month:
Interest incurred per month of storage (in Rs.) 22
Storage and Treatment cost per Quintal 3
Weig ht Loss(in case of summer months) 1 % per
month 11
Total 36
The minimum increase in the cost of Soya bean should be Rs 36 for every month so that the
farmer would not be losing any money because of storage of Soya beans for a month.

6.4 Present Local Market for Soya bean


In addition to the Nagpur market the local market in Adilabad is mainly catering to the Soya
solvent extraction plants. All these plants offer ‘Anamath’ mode of procurement (the
procurement is done at the time of the harvest and the farmer can sell it on a future date on that
day’s market price for Soya bean. If the farmer wants to sell it at that point of time itself then the
market price is given to the farmer with a cash discount of 1.5% immediately on that day or full
amount within 20-30 days from the day of procurement.). Further, if required by the farmer, a
loan of an amount less than 60 % worth of Soya bean deposited would be given to him at an
interest rate of two rupees per month. The cost of storage would be charged if the produce so
deposited is not sold before 45 days. The determination of how much storage costs that are
actually charged is again dependent upon the relationship of the farmer with the processor.
Whenever the produce is sold, the farmer gets the price of sale after deducting the cost of storage
for the period extending beyond 45 days. The benefits of such an arrangement are as follows:
On the farmer’s side he can get the price on the day he wants and need not be worried about
storing, treating, etc.
It is like next to liquid money if they follow this mode of supply to the solvent extractors.
On the other hand the benefits for the solvent extractor are:

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Assured supply of raw material for the huge crushing requirements to be met. The greater the
number of days the plant runs, the greater will be the efficiency of the plant.
The varieties are graded on the basis of size and moisture and enough scale of the various
categories gets built up so that separate warehouses can be used for better handling of operations.
The working capital requirements would reduce substantially along with sure supply of the inputs
The price of Soya bean is determined on the basis of the meal price in the international markets.
The crush margin between meal, oil and seed also gives signals to the plant owner as to when the
procurements should be done so that there are arbitrage benefits. The plant owner is at some risk
of the pric e fluctuations in the international markets because as there is no assured supply of
Soya beans they have to procure at every point of time through out the year. Hence on some days
the traders even though aware of the arbitrage difference cannot reject the supplier even though
the profits from that deal may be lesser than normal.
Table: 2
SOYA BEAN PROCESSORS WITHIN THE DISTRICT OF ADILABAD
SOLVENT SOYA
PLANT MAX MEAL
CAPACITY(IN OIL EXTRA - SOYA REQD
METRIC TONS EXTRA- CTED FOR 200
OF SOYA CTED PER DAYS OF
SOLVENT BEANS PER PER DAY OPERATION
SNO EXTRACTOR DAY) DAY (TONS) (TONS) LOCATION

GMR NAGPUR ROAD,


1 SOLVENT 400 68 328 80,000 ADILABAD
PONNARI,
2 KK SOLVENT 1000 170 820 200,000 ADILABAD
NEAR MARKET
3 GS OILS 800 136 656 160,000 YARD, ADILABAD
TOTAL 2200 374 1804 440,000

In India the average capacity utilisation of solvent extraction plants is 30 % -35 %. Many solvent
extractor plants in Indore the Soya capital of India are running at 30-35 % to just break even. To
earn decent profits the number of days the solvent plant should increase to 54 % or 200 days of
running. For running 200 days the importance of dependence on continuous supply increases
much more than the profit margins because of arbitrage. So, as long as the supply increases to the
extent it is assured that all the solvent plants in the region will get as much produce whenever

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needed, the risk with the solvent plant owners remains. A lot of the produce is transported to
Nagpur market during the flush season. To reverse this trend the solvent plants are taking the
produce under the Anamath scheme so that the capacity utilisation is some where around 50 % of
full capacity.

6.5 Present Market for Soya meal


There are three solvent extraction plants in Adilabad which extract Soya Oil and a substantial
amount of the Soya bean produced in this region is procured by these three solvent extractors.
The decrease in international Soya prices of has also affected the Soya solvent extractors in
Adilabad. According to Mr. Ajay one of the heirs in GMR group thinks that “rising domestic
consumption is offering support to processors”. The clientele of GMR group’s Soya meal include
Venkateswara Hatcheries who have the biggest poultry business in India. The poultry industry is
very much dependent on Soya meal and hence the meal produced in Andhra Pradesh could be
sold at a competitive price to the very big poultry Industry in Andhra Pradesh who earlier used to
procure Soya meal from Maharashtra and Madhya Pradesh earlier at a higher cost.

6.6 Seven Key Factors Influencing Soya bean Markets


♦ Weather at all the producing centres, domestic and international. The pod bearing period,
being the most crucial.
♦ The area planted is determined by the price of Soya bean against that of competitive crops,
viz., Maize , Jowar and Bajra.
♦ International price movement, the futures market at CBOT being the major international
reference market.
♦ Pests and diseases
♦ The supply-demand and price scenario of competitive oils, viz., palm oil.
♦ Demand for Soya meal from the cattle feed sector and the entire fundamentals of this sector.
♦ The crush margin between meal, oil and seed.

6.7 Value Chain of Soya Bean


FIGURE NO: 2

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Value Chain of Soyabean
(The Magic Bean)

Oil Wholesalers Packers


FARMER Small Trader

Foreign Cattle Soya Refined Oil Retailers


Big Trader
feed Industry

Soya Meal
Solvent Extractor
Exporter Refinery
(Meal & Oil)
CUSTOMERS
Meal
Soya Meal Meal to local
By-products 7
Trader cattle feed industry
marketing chain

Table No 4
Value addition Activities in Soya bean Value Chain
Stage

Primary Activities Support Activities


1. Operations: Post Harvesting Techniques: 1). 1. Labour employed (or self) for
Adequate Drying(12%), 2) Storage in a Clean PHT
& Dry Area, Chemical Treatment for longer 2. Moisture measurement through
storage, Good packaging of Soya bean in moisture meters
Farmer

bags for storage 3. Cooperative can get quality


2. Marketing: Letting the traders and other report from a testing agency
farmers know about the quality of produce
that produce

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1. Pooling (Assembly) at farmers door step and 1. Labour employed for collection
taking it to a bigger market 2. Leveraging Linkages with the
Small Trader

2. Transport to an higher assembly market traders higher up


3. Mixing various qualities and selling off for a
higher price.
4. Intermediate storage before sale

1. Pooling (Assembly) at greater level of 1. Labour employed for c ollection,


volumes grading
Big Trader

2. Grading Qualities (on basis of moisture & 2. Leveraging Linkages with the
size) and storing the produce separately. actors higher up in the chain

1. Crushing of Soya beans for meal and oil 1. Solvent extraction technology
through solvent extraction technique 2. Skilled, Semiskilled and
Solvent Extractor

2. Inbound & Outbound Logistics and Unskilled labour employed to


Marketing of Soya beans and Soya Meal oversee various activities
3. The crush margin between meal,
oil and seed.

1. Soya oil is double(/single) refined with 1. Human resource employed


bleaching powder and other chemicals 2. Technology for refining Soya
Oil refinery

oil
3. Managing Linkages with
wholesalers / packer

1. Packing of oil for a better shelf life & 1. Quality standards maintenance
Packers

Handling during packing

1. Stocking enough inventory to meet the 2. Human resource employed.


wholesale demand.(Utility of Place & Time) 3. Managing Linkages with
Oil

wholesalers / packer

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1. Value addition by pushing the product to the 1. Credit facility also provided
customers in various ways many a times.
2. Special Packaging for retail sale 2. Managing relationship with
Retailers

3. Enhancing buyer (end customer) value in customers


terms of giving respect and selling the
product at the desired time and place.

6.7.1 Stage 1: At Farmer Level


The farmer after harvesting has one of the three options. The farmer decides to take
1. Sell immediately without performing post harvest value addition activities.
2. Sell immediately with performing post harvest value addition activities.
3. Store the produce and sell it at the right price.
Depending upon the scale of the production and other factors the farmer sells the produce to one of
the three persons: 1- Trader at the local level 2- Big Trader 3- Solvent plant for processing. The
farmer may also sell the produce to the trader from whom he has taken inputs on credit for
agr iculture. The farmer may lose out on the effective price, faulty weighing and unjustifiable
penalties levied. Some times the farmer need not bear any transport costs even, as the middle men
come home and procure directly from their home obviously for a lesser price. The market price of
procurement at any stage is determined by the market price at the nearest biggest market.
To think that the farmers do not understand that they are being cheated at the hands of traders would
be a fault in our own understand ing. The farmers very clearly understand that the trader is very
efficient than him/her in doing the function of marketing in every possible sense and hence spins off
that func tion of marketing to the trader to reduce the future risk. If the farmer on the other hand goes
ahead individually to the next level of marketing chain he/she will lose more because of lack of
linkages or relationships and hence retains or may increase the risk of losses. Hence, the proposed
cooperative, as an institutional mechanism can address the issue of bargaining power and bring scale
of operations which can only pave the way for marketing through the cooperative. With the
cooperative the risk of farmer gets transferred from an individual level to a collective level. These are
the strategic moves (or activities) performed by the farmer with or without cooperative in the value
chain.

17
Prices of procurement of Soya bean fluctuate depending on the international Soya bean prices. The
prices at which Soya bean is traded on the Chicago Board of Trade is considered the international
price and basing upon it the national, regional and local prices get changed in a top down order. In
the project area Adilabad city market rates are the basis upon which the rates are worked backwards.
Depending upon the distance from the district market the prices in the villages get changed.
Throughout the district the difference is in the range Rs.50 to Rs. 80 less than the market yard price
at Adilabad. This difference would cater to the transportation cost (which is around Rs. 20 per quintal
as Rs. 2000 is the cost of transport per truck of 10 tons to Adilabad) and the margin of the trader(s)
for performing the function of assembly of the agricultural produce. Some costs like the labour for
loading and unloading the produce also is borne by the trader. It is around Rs. 5 per quintal (at
maximum). The cost of hiring storage bags is passed on to the farmer. With Simple pooling and
transport of the produce a trader is able to make decent profits of Rs. 35 to Rs. 65 without
considering the profit made from the unfair means used by them
Even though the market price of Soya bean is highly fluctuating, for the purpose of illustration a
price of 1200 per quintal during the flush season (locally) is assumed for illustration. The price the
farmer gets in an interior village ranges from 1100 to 1140. Further, even though there are simple
machines like the moisture meters which can physically determine the quality of the Soya beans the
traders don not use them and quote the price based on looking at the sample in their hands. This is
purposefully done for their advantage. Hence they quote a lesser price which would be more than the
standard practice of determining the penalties in terms of % cuttings. Finally the trader also takes
away the customary norm of one or two Kgs extra for every quintal purchased.
With the proposed cooperatives the new system would be as follows:
The cooperative would ensure strict quantity and quality standards in terms of moisture, cleanliness
of the produce, etc with the use of electronic weighing, moisture checking machines, etc. Then a
sample is sent for testing so that the cooperative can be sure of the price it can command at the
solvent plant. The quality of seeds in the project area was ve ry good (20.3 % of oil content) last year.
Normally oil content in Soya bean is in the range of 18 % to 20 %. A 1 % loss is there for the
processor. If the oil content is more the cooperative can definitely demand a better price to its
produce at the point of sale. In this way over time if the cooperative can effectively demonstrate its
quality standards the processors will definitely pay more to the cooperative’s produce. Developing
market linkages also becomes easy if the quality from the cooperative is good over the long run. The
commodity trade including the Soya bean is heavily dependent upon the successful management of
linkages (or relationships with the various actors in the value chain)

18
6.7.2 Stage 2: Small trader
The small traders are generally the ones who perform the function of procurement from the farmers
at the village level at the least possible cost. The small traders are of many types. They range from 1)
Temporary traders who collect the produce directly at the homes/fields of the farmers with little or
very less fixed expenses. Their modus operandi is very cost effective. Even there are part time traders
who are provided loans for this business by the processors (solvent plant owners) for this
procurement at the village level so that their input costs of raw materials also remain controlled. But
the loans are provided to trust worthy traders and this relationship is an important source for the
traders to get their working capital for their business. They some times take two wage labourers for
help and go collecting the produce in the village. At the end of that day he deposits the produce to the
processor and gets cash payment which he uses for next day’s procurement. 2) There are also small
traders who incur some fixed expenses (like owning a small shop in the village, some employees,
etc). These traders are also flexible in their approach in procuring the produce. They either go to the
farmer’s field/home and collect the produce or also buy the crop at their shops. These traders are
continuously in knowledge about which farmer has got how much production, the quality of the
produce, and the time of their harvesting. If the farmer has already taken any input loan they get
assured procurement from them because of the agreement. If the farmer has not taken any loan then
the traders constantly try to give them and bring them under their net. The trader community even at
the village level has a cartel and the prices of procurement are artificially kept below the market
price. However, because of the competition from outside traders and development of connectivity in
the form of roads to the bigger towns and cities the situation is improving for the farmer but it’s still
a long way to go before the marginal farmers who lack scale get the fair price.

6.7.3 Stage 3: Big traders


The big traders are generally in towns which get all the produce from the surrounding villages other
than which is sold off to the small traders or big farmers who take it directly to the processors. In the
project area of CCD out of the five mandals the big traders are located mainly in Indervelly where
from long time back the agricultural produce is brought to this market. Indervelly has some of the
biggest and richest traders in the district of Adilabad. Some of the traders who originally were from
Indervelly have now started their own processing units (Soya Solvent Extractor plants in Adilabad).
This is the place where the maximum amount of crop input loans are given some times at an interest
rate of 25% to 50 % for the time of the crop. Effectively the percentage of interest charged for Soya
farmers is in the range of 100 % to 150 % per annum. For the farmers caught in this vicious cycle it

19
is very hard for them to come out of it. Annexure –2 carries a note on the relation between a trader
and a farmer and how it differs from the relationship the farmer has with a banker and what can a
farmer do to improve his situation. The techniques big traders make profits are detailed in Annexure-
3& 4

6.7.4 Stage 4: Processing


For Soya bean at least in this region, the stockists are themselves the processors. In many other
commodities there exists another layer before the processor in the form of Stockists. But in Soya
bean this function of stocking is done by the solvent extractors in huge warehouses. In Adilabad all
the three processors have huge inventories in warehouses and are in continuous procurement mode so
as to ensure capacity utilisation of the plant. The processing of Soya bean goes through a complex
process called solvent extraction because the oil in Soya bean doesn’t come out so easily as it is the
case with other oilseeds. The Solvent extraction can be simply explained as follows: As Soya bean is
very hard to be put in an expeller unit it is first made into flakes Flakers machine and these flakes are
fed into the solvent plant where the chemical gets mixed with these flakes at high temperature of 50
Centigrade and the oil from the beans mix with the Hexane and get separated into Miscella tank.
Miscella is the mixture of oil and solvent. From the Miscella tank the oil is heated to 110 centigrade
at which point the solvent vapour gets separated into a condenser and oil into a separate tank. The
percentage of oil which can be extracted ranges from 17 % to 19 % from the Soya beans with a loss
of around 1 % oil. The Soya meal is separated and finds market in cattle feed market locally as well
as globally. It is said by the observers of the industry that solvent plant owners mix fine quality sand
ranging from 1 % to 2 % in the Soya meal. The oil coming out of the solvent extraction plant has a
count of 0.45 to 0.55 Free Fatty Acids (FFA). For edible consumptions dieticians recommend oil
with FFA of 0.2 to 0.3 and colour count of 30. So the oil is sent to a refinery where it gets double
refined before entering the market. Depending on the market demand for oil sometimes with single
refining also the oil is released into the market. At the refinery the oil from the solvent plant is
purified by treating with bleaching powder and soap.

6.7.5 Stage 5: Wholesalers, Packers and retailers


The oil from the refinery reaches the wholesalers or the packers. The wholesalers cater to the need of
the local market whose clients would be the retailers and end consumers who purchase in bulk. The
wholesalers depending upon their linkages in the market sell the oil around two rupees mark-up on

20
the amount they procure it for. The mixing of various oils is an area the wholesalers make profits
many a times.

6.7.6 Stage 6: Consumers


Soya refined oil cost only more than cotton seed oil and hence is a cheap substitute for the costly
groundnut and other oils. In some places there is a very good market for expelled groundnut oil. But
in Adilabad, the refined oil is having a good market. Around 50 % of the edible oil market in
Adilabad is of Soya bean oil.

6.7.7 B y-products of Soya Bean


All the other by products are made from the Soya meal. The quality of Soya meal makes it fit or not
for certain by products. Locally market is presently only there for Soya Chunks (Meal Maker made
from Soya Bean). Even though American Soya Bean Association is spreading awareness by
conducting workshops the veracity of results of the good effects hasn’t yet reached the masses and
also there are many questions unanswered in the international debate on genetically modified Soya
bean production and consumption

6.8 Recommendations for the members of the commodity cooperatives:


For the members of the Commodity Cooperatives the manoeuvring in the value chain existing at
present is limited but can be substantially improved from the present situation where they are caught
up in a vicious cycle in which whatever the gains made by them in agriculture are being apportioned
by the other intermediaries in the market.
1. The myth surrounding the sale of the produce immediately after harvesting without adequate
drying because it is thought the weight would be more. True , that weight of the produce
would be more immediately after harvest because the percentage of moisture ranges from
15%-16% which can sometimes also go up to 20 %. But consequently there is a penalty for
inadequately dried Soya beans in terms of % points in weight for every one percentage point
increase of moisture more than the allowed 12%. The space for drying is generally a concern
among small farmers but it is more often laziness rather than lack of space for drying. Use of
electronic moisture metres at the point of procurement can be used to screen out the input
which has more moisture than desired.

21
2. Other post harvesting techniques like proper packing, removal of unwanted material and
storage should be followed properly so that the produce coming to the cooperative should be
of good quality. Electronic weighing of the crop can benefit the farmers substantially
3. Simple Value addition is still the best proposition for the farmers of the commodity
cooperative because the fledgling cooperatives at least as of now should not venture into
complex value addition by going into processing. The solvent extraction plants need huge
investments in the range of at least three crore rupees and the huge fixed costs will bring its
own set of problems which are better left.
4. Futures markets operating in the Adilabad in the form of ‘Anamat’ should be exploited as of
now and once the ‘Options’ bill gets passed in the parliament the dream of trading on
NCDEX may become a reality for CCD promoted cooperatives

7 ESTIMATION OF POTENTIAL PROCUREMENT OF SOYA BEAN AND


RED GRAM IN THE PROJ ECT AREA

The cooperatives, if they set up Red gram and Soya bean processing units, need raw material (raw
Red gram and Soya bean) for the mill to process it. For finding out how much opportunity the mill
has in the procurement of the raw material, a Gram Panchayat level survey was conducted in the five
mandals of the project area of the organisation- Utnoor, Indervelly, Narnoor, Jainoor and Sirpur (U).
The survey included visits to the Gram Panchayats and talking to a group of 4 – 5 farmers at each
Gram Panchayat level. The survey does not have any sampling, as it was intended to cover all the
GPs of potential procurement in the five mandals. On the whole over three-fourth of the total number
of Gram Panchayats were covered. Potential procurement, here, means: Total estimated production
of the crop in the whole of the Gram Panchayat – total estimated consumption. This ideally means
that the potential procurement is the quantity of the output of a crop that is being sold in the market.

The survey results are as follows: (figures in quintals)


Table No 5 Results of the survey for Soya bean potential procurement
Table No:5
S. No: Mandal Name Soya bean potential
1 Utnoor 58750
2 Indervelly 32670

22
3 Jainoor 41430
4 Narnoor 82900
5 Sirpur (U) 70125
Total of five mandals 2,85,875

As we have seen that the necessary quantity of a 400 ton-per-day capacity Soya processing plant for
processing at least 6 months a year would be about 400*180 = 72000 tons, which means 7,20,000
quintals. There is no such huge level of production in the project area of the organisation. The present
scenario of the three solvent plants in Adilabad is that they are functioning at a capacity utilisation
ranging from 30% to 35%. In spite of importing from the neighbouring districts in the state as well as
neighbouring states, they are functioning at these levels. The least available capacity of a solvent
plant is 50 tonnes per day. It requires an initial capital of Rs.4 crores (courtesy: Mr. Suresh Itapu,
American Soya bean Association, New Delhi). This is a huge amount for the cooperatives. If the
cooperatives opt for an expeller plant of Soya bean, it costs them Rs.20- 25 lakhs (courtesy: Mr.
Suresh Itapu, American Soya bean Association, New Delhi). As the condition of Soya bean has not
been encouraging during the 2004-2005 seasons, the organisation intends to opt for a Soya expeller
plant a year after the Re d gram unit is set up. So, the study about Soya bean is restricted to value
chain in detail.

Table No 6: Results of the survey for Red Gram potential procurement


Table No. 6
S. No: Mandal Name Red gram potential
1 Utnoor 24355
2 Indervelly 18550
3 Jainoor 14000
4 Narnoor 22200
5 Sirpur (U) 6050
Total of five mandals 85,155

23
Therefore, it’s shown that there is a lot of potential for a Red gram processing unit as the capacity of
the proposed mill is 2 - 5 ton-per-day (tpd), where the figures stand at 85,155 quintals (8500 tons
approximately) of Red Gram.

8 RED GRAM

8.1 Overview about Red Gram:


Red gram is an important pulse crop in India. It is also known as Pigeon pea, Arhar and Tuar. Red
gram is mainly cultivated and consumed in developing countries of the world. India is the largest
producer and consumer of Red gram in the world. Red gram accounted for about 20 percent of the
total production of pulses in the country during the year 2000-2001. Red gram is a protein rich staple
food. It contains about 22 percent protein, which is almost three times that of cereals. Red gram
supplies a major share of protein requirement of vegetarian population of the country. Red gram is
mainly consumed in the form of split pulse as Dal, which is an essential supplement of cereal based
diet. In addition to being an important source of human food and animal feed, Red gram also plays an
important role in sustaining soil fertility by improving physical properties of soil and fixing
atmospheric Nitrogen. Being a drought resistant crop, it is suitable for dry land farming and
predominantly used as an intercrop with other crops. In Adilabad district, Red gram is grown as an
intercrop with Soya bean, Cotton and Jowar. The productivity in the project area is generally in the
range of 1 quintal per acre to 2 quintals per acre (Productivity is based on assuming it to be an
Intercrop)

8.2 Importance of Red gram:


India alone accounted for about 81 percent of total world’s production in the year 2002 and 90
percent of total world’s consumption of Red gram. The total pulse production of the country was
11.08 million tonnes in 2000-01 including Red gram (2.25 million tonnes). Generally, this crop is not
grown as commercial crop and major portion of the produce is consumed in the respective state itself.
Every Red gram plant is a mini-fertilizer factory as the crop has unique characteristics of restoring
and maintaining soil fertility through fixing atmospheric nitrogen in symbiotic association with
Rhizobium bacteria present in the root nodule s. Red gram crop is suitable for inter-cropping, with
different crops (Cotton, Sorghum, Pearl millet, Green gram, Black gram, Maize, Soybean,
Groundnut) for increasing production and maintaining soil fertility. Red gram is grown throughout
the tropical and subtropical countries of the world especially in South Asia, Eastern and Southern

24
Africa, Latin America, Caribbean countries and Australia. According to FAO statistics, worldwide
Red gram was grown in about 4.16 million hectares and its production was 2.99 million tonnes in
2002. India is the largest producer of Red gram accounting 81.49 percent of total production and
80.59 percent of total area of the world. Other major Red gram producing countries are Myanmar
(10.02 percent), Malawi (2.64 percent) and Uganda (2.60 percent). The productivity is highest in
Uganda (1000 kg/ha) followed by Nepal (875kg/ha) and India (728 kg/ha). The cropped area of Red
Gram includes India 3430 thousand acres out of the total 4064 thousands of hectares irrigated in the
whole world. Maharashtra is the largest producer of Red gram accounting for nearly 33.49 percent of
the total production followed by Uttar Pradesh (19.73 percent), Madhya Pradesh (12.18 percent),
Andhra Pradesh (8.17 percent), Gujarat (8.13 percent) and Karnataka (6.34 percent). These six major
states together contribute about 88 percent of the total production and about 88 percent of the total
area in the country in 2001-2002. Among major Red gram growing states, Maharashtra has the
largest area under the crop. Maharashtra accounts 30.11 percent of the total area in the country
followed by Karnataka (14.27 percent), Andhra Pradesh (12.40 percent), Uttar Pradesh (11.76
percent), Madhya Pradesh (9.91 percent) and Gujarat (9.84 percent), whereas productivity is highest
in Bihar (1281 kg/ha) followed by Uttar Pradesh (1142 kg/ha), Madhya Pradesh (837kg/ha) and
Maharashtra (757 kg/ha).

8.3 Post-harvest losses in Red Gram:


These can be minimized in the process of threshing, winnowing, storage, processing, handling and
transportation. The loss at threshing yard is
1. Threshing and Winnow ing: The loss at threshing yard is 0.5 percent. In order to reduce the
losses, threshing and winnowing operations are required to be completed within a short
period through improved equipments.
2. Transport losses: During transportation, the losses are reported to be to the extent of 0.5
percent and necessitating quick transportation to reduce the losses.
3. Processing: Because of the use of old and outdated methods of dal milling, the loss at this
stage is up to 1 percent. Akola model of dal Mills are now considered to be standard mills
and Akola brand is the supreme brand.
4. Storage: Due to improper and inefficient methods of storage, the loss is estimated up to 7.5
percent during storage. Quantitative losses result from spoilage, drainage, infestation by

25
insects, rodents or birds. Therefore, improved storage facilities should be adopted to reduce
the losses.

8.4 Value Chain Analysis of Red Gram

The complete value chain of Red gram is depicted in the figure 3. From the farmer, the raw Red gram
is purchased by a small trader who operates at a village level. Profit for the small trader usually
would be about Re. 1/- to Rs. 2/- per kilo. Also, these traders usually use false weighing machines
and so are left with more quantity. From this small trader, the gram is then purchased by a stockist or
a big trader who operates at the mandal level. These traders either sell the gram to the miller on
weekly or fortnightly basis, or when the gram accumulates to a certain maximum quantity at which
they can operate. Profit at this level would be about Re. 1/- a kilo. Moreover, these traders mix all the
types of Red gram and sell them as a single quantity, thus making some more profit on that also
whereas they purchase the gram at different prices based on the quality of the gram.
So, the exact profit at this stage can not be estimated. The costs accrued at each stage of the chain are
as follows: the small trader purchases at the fields and transports it to the mandal level big trader. The
transport cost would be about Rs. 10/- per quintal. This trader sells the gram to the big trader at the
market price. Then, where does he make profit? Generally, the price at the farm level is less than that
of the market level. Moreover, these traders use false weighing measures, thus appropriating about 2-
4 kilos (they take 72-74 kilos for a seventy-kilo-bag) of the produce. This kind of appropriation is
done by almost all the traders (small and big).
Some of these big traders sell the gram to the miller within a fortnight. Some of these traders who
can afford storing the gram, store the gram for some time, and sell it to the miller at a higher price.
Of course, they have to bear the uncertainty of the price, but Red gram is not a commodity whose
price fluctuates much. So, the traders would be in a comfortable position while dealing in Red gram.
Those traders, who store the produce, incur a cost of Rs. 3/- per month per quintal if they store it at a
CWC (Central Warehouse Corporation) warehouse. The storage costs they incur, if they store at their
own place, are not revealed. Then, they incur the transport cost of about Rs. 20/- per quintal of gram
for transporting the gram to the miller.

Figure No: 3 Value Chain of Tuar Dal (Red gram)

Consumer
Small Trader
Farmer

26
Retailer
Big
Trader/stockist
From the traders, the gram reaches the miller who processes the raw gram into edible gram. Complex
value addition is done here, unlike the earlier stages where only simple value addition is done. The
upper layer is separated here and it is called ‘husk’. This husk is used as cattle feed. Husk also has a
very huge market both wholesale and retail. The millers charge Rs. 50/- as processing charges and
keep the husk for them if they do job work for anyone. Also, they give 75 kilos of processed gram
per quintal of raw gram if they do processing job. But, they get the end product in the range of 78-80
kilos per quintal of raw gram. Thus, they make profit on the remaining quantity of a minimum of 3
kilos on processed gram.
Table 7 Value Activities at each stage of the value chain
Stage Activity
Farmer Proper drying; removal of unwanted material; proper packing
Small trader(s) Pooling at the village level; transport to the big trader
Big trader(s) Pooling at a large r scale; mix of various qualities into one quality;
transport to the miller
Miller Grading the raw gram; milling the raw gram into dal and husk; own
wholesaling or transport to the wholesaler;
Wholesaler Storage of the processed gram and distributing it to retailers
Retailer Sale to the customers over 20-30 days

27
From the miller, the processed gram is sold to wholesalers. Some millers themselves are wholesalers.
At the wholesaler stage, the turnover of the gram is high such that the margins may be low at this
stage, but the scale is high and the wholesalers make good profits on scale. From the wholesalers, the
gram reaches retailers at a margin of about 1-1.5 rupees a kilo. The retailers’ rotation time is 20 – 30
days. Margin at this stage would be about 2 rupees a kilo. Thus the raw material from the farmer
generally reaches the miller via two more stages. And the processed gram reaches the consumer via
two more stages from the miller.
What can the cooperative do?
If the farmers form a cooperative, they can pool their produce and sell it directly to the miller. If the
cooperatives set up a mill, then so many stages can be eliminated before the processed gram reaches
the consumer. The farmer can retain the profits of all the traders who previously were there from the
farmer to the miller. If the cooperatives set up a mill, then the farmers can sell their produce to the
wholesaler who deals in processed gram by eliminating three stages till that stage and meanwhile
retain the profits.
Annexure 5 contains the Comparison between standard trade practices and actual trade practices

What the cooperative can not do?


Although the cooperatives can eliminate three stages in the chain, it can not eliminate the remaining
two stages because the costs of being a wholesaler and a retailer would require specialised attention
to be given on them. So, the cooperative can not enter those stages of the business.
The chain of the business if the farmers form cooperatives and the cooperatives set up a mill on their
own will be as shown in the figure no 4.
Figure No: 4: New value chain if a cooperative is formed

FARMER Farmers cooperative Dal to wholesaler

Retailer
Consumer

Table N o: 8
Opportunity cost of Storage of Red Gram
cost of one quintal of Tuar dal 1400

28
% interest (per month) 2
Costs incurred for storing per month:
Interest incurred per month of storage (in Rs.) 28
Storage and Treatment cost per Quintal 3
Weight Loss(in case of summer months) 1 % per
month 14
Total 45

The minimum increase in the cost of Red Gram should be Rs 45 for every month so that the farmer
would not be losing any money because of storage of Red Grams for a month. Generally, the trend
observed is that the price of Tuar dal in Adilabad
Table No:
Table No: 9
st
Price of Raw Red Gram(1 quality- Phatka) in the markets of Adilabad District
Year Jan- Feb Mar May August
2005 1400 1600 1800 2250
2004 1600 1400 1600 1700
2003 1300 1400 1600 1800
Source: Wholesalers and Retailers in Adilabad. (Figures are approximates)

From the above table we can observe that on an average the increase in the prices is generally
unidirectional (increasing) except for the year of 2004. In year 2003 there was a severe drought and
hence the price of Red gram in 2004 during the harvest season (Jan-Feb) was higher than normal.
Other wise the price trends of Red gram are unidirectional (increasing) generally. The price increase
is generally (around Rs. 100 per month) is greater than the cost of storage of the Red gram (Rs. 45
per month). So as the fluctuations in the Red Gram prices are relatively lesser and the volumes per
farmer are also lesser compared to Soya bean, the risk in storing the Red Gram is very less compared
to storing Soya bean. So the cooperative must try and sell the Red gram in the three months of June-
July-August where the prices are generally high.

8.5 Summary of marketing constraints identified for Red Gram and suggestions
recommended:
♦ Distress sale: Due to financial crisis, farmers are forced to sell their produce just after
harvesting. During this period, farmers get lower price due to glut in the market. The

29
producers cannot withhold or store their produce for some period to get better price since the
farmers have to meet urgent requirement of money.
What can be done: The cooperative can procure the crop at the market pric e prevailing
during harvest and pay 50 % amount immediately to meet the crisis requirements. The
farmers over a period of time should be motivated to play an active part in Thrift and Credit
Cooperatives so that dependencies on the traders and in turn the tied and distress sales can be
avoided.
♦ Unstable price: Generally, the price of Red gram prevails low in the early post harvest period
due to more arrivals in the market and later on prices go up. Due to this unstable price, the
farmers get lesser price.
What can be done: As the requirement of raising working capital is not a problem for the
cooperatives as of now and given the general trend of Red gram prices increasing from
around 1400 at the harvest and reaching at least Rs. 1700 (Sometimes like this year it has
shot up to 2150) per quintal in the month of august the risk of holding and selling should be
taken. The returns would be at least getting some margin after deducting the carrying costs.
The only exception can be when the prices immediately after the harvest are reasonably high.
At that time, the Red gram should be sold when the deal is good. Staggered sales at equal
intervals over the storing period can also get good returns depending upon the situation.
♦ Lack of market information: Due to lack of information regarding arrivals and prices
prevailing in other markets, producers market the Red gram in the village and nearby market
at lower price, which can be avoided.
What can be done: The NCDEX price ticker installed in Narnoor village can give the latest
price of Red gram. CCD can play a substantial role in facilitating the villagers in getting
market information. The database of market intelligence submitted by us can be further
appended and new linkages be forged.
♦ Adoption of standards: Farmers usually do not grade their produce, as a result they do not get
remunerative price in the market.
What can be done: CCD should enforce strict standards on the quality of input it receives
through the use of technology and novel ideas.
♦ Inadequate storage facilities: Due to inadequate storage facilities in rural areas, farmers loose
a substantial quantity of their produce by way of drainage, spoilage, rodents etc. Farmers are

30
also forced to sell their produce just after harvest due to lack of storage facilities. Hence, rural
warehouses are must to avoid the sale immediately after the harvest.
What can be done: Even though the feasibility study done by us indicates that warehouses
built all by the villagers fund are unviable, if subsidies are given by the government or
government warehouses can come up by the request of villagers this situation can be
resolved. Further the existing warehouses are not being used by the villagers at individual
level. At the cooperative level the existing infrastructure can be utilized.
♦ Transportation facilities at producers’ level: Due to inadequate transportation facilities at
village level, producers sell their Red gram to traders directly from their farm or in the
village, which offer them lesser price than prevailing in the markets.
What can be done: The members of the cooperative can try to evolve low cost modes of
transport the goods to the market concerned.
♦ Training to producers: The training to producers regarding marketing of their produce is
essential. It improves their skill for better marketing of their produce.
What can be done: The cooperatives promoted by CCD should be helped by CCD in getting
the right training required for doing the function of marketing
♦ Infrastructure facilities: Due to inadequate infrastructure facilities with producers, traders
and at market level, the marketing of Red gram is affected adversely.
What can be done: Even though the pace of creating infrastructure facilities like roads,
electricity is much more today in Adilabad district in comparison to earlier times, much more
needs to be done in this regard. The cooperatives on their part should do their best to utilize
the existing infrastructure and educate the people of the infrastructure requirements and
thereby leading it to a popular need which would ultimately get the attention of the political
parties
♦ Malpractices in markets: There are many malpractices prevailing in markets like excess
weights, delay in payment, large quantity of samples from the produce, different kinds of
arbitrary deductions for religious and charitable purposes from producers, high commission
charges, delay in weighing, loading, unloading and weighing charges from producers
What can be done: With the idea of malpractices prevalent in the market, the cooperatives
should be careful in avoiding what all they can avoid. With increase in bargaining power of
the cooperatives the effect of malpractices will be reduced substantially progressively.

31
♦ Superfluous middlemen: The existence of a long chain of middlemen reduces the share of the
consumer’s price received by the producer-seller.
What can be done: The creation of institutional setups like the commodity cooperatives in the
true spirit of cooperation, participation can be the best thing to happen for reducing the risk
and increasing the returns to small and marginal farmers in a developing country like India.
Even though earlier attempts by NDDB to promote commodity cooperatives have failed fresh
attempts like these should go ahead with the knowledge of why the previous ones have failed
ANNEXURE 6 contains the details of difference between getting a loan from the trader and a banker
for an individual farmer

9 FEASIBILITY ANALYSIS OF A RED GRAM PROCESSING UNIT

9.1 Market Analysis


Red gram is used by almost all the households regularly. It’s used in all the hotels everyday. So, there
is no dearth of demand. Red gram is used regularly by all and the closest substitute for Red gram is
green gram, which accounts for about half the market share of Red gram. But green gram is used in
preparing various food items, whereas Red gram is used specifically for preparing dal. So, in terms of
this utility, there is no threat of any other pulse taking away Red gram’s market. Over the seasons,
Red gram is mostly sold during the period of March to August after which vegetables enter the
market and the sale of Red gram decreases. So, the price of Red gram more or less stabilises during
the period September to November. After Diwali, the crop is harvested during December to the first
half of February. So, during this period the price of Red gram is the least in the year, except some
rare exceptional years like that of 2003-2004 (due to the failure of crop resulted from the drought
during 2003 summer). Generally, the retail price of Red gram ranges from Rs. 20-34 but it’s not
mandatory. The price rises by 1 rupee or 2 rupees a year (over the past four years the maximum price
of processed Red gram ranges from Rs. 28/- to Rs. 34/-).

Therefore, it can be inferred that there would not be any dearth of demand for Red gram.

9.2 Technical Analysis - Manufacturing process/technology:


The following parts make a pulse processing machine: Ruler, elevator, water and oil mixer, graders,
sieves, fans, etc. First the raw gram is poured at the elevator and the cups inside the elevator take the

32
raw material through the elevators and deliver in the grader where the raw material is graded into big
and small sized gram and also the unwanted material is fanned out. Then, the gram is passed through
a pipe where oil and water are applied to it. Oil is applied to the gram for easy breakage of the gram.
Then, the gram is sent into a ruler where the gram is subject to churning and the mechanism inside
the ruler beats the gram. Thus, the husk (outer layer) on the gram receives a beat and loosens a bit.
Thus, the first phase of the process ends. As the gram gets a little soaked it needs to be dried for a
day.

In the second phase of the process, the gram is again passed through the elevators and from elevators
through the pipes to the ruler via oil and water applying pipes. Here, the husk is released from the
gram and round gram and husk are separated. Thus ends the second phase and this material is dried
for another day. In the third phase, the gram is subject to the same process and here, the round gram
breaks into two cotyledons. This gram is then dried. Then we are left with the processed and
unpolished gram. This gram is then polished before selling it off whenever a deal is made. Polishing
is not done immediately as polishing requires applying of oil as seen in the process of the previous
stages. And when oil is applied to the gram, it gets spoiled on storage. So, polishing is done only
when required in order to avoid spoilage of the processed gram.

9.3 Plant capacity


There are a variety of types of mills available- CFTRI (Central Food Technology and Research
Institute) model, PKV (Panjabrao Krishi Vidyapeeth) and man-made Akola and Bombay type
machines. But the quality of the output from the former two (CFTRI & PKV) models is not
competitive in the market. They are only for domestic use in villages and can not be replicated for
commercial purpose. As there are no makers available for the Bombay model in Akola, it could not
be explored in detail. Although, the two are different in making, both the Akola and Bombay models
are similar in terms of output. So, an Akola -type machine is proposed for the cooperatives

The suggested plant has the capacity to process 5 ton raw gram a day. As the gram in process is not
processed entirely in one day, a batch of 20 tons is processed in four days. So, the effective capacity
of the plant becomes 5 tons a day.

33
The processing plant needs an area of 3000 sq. ft. of area for the building where we have the plant
established in about 1500 sq. ft., storage space of 900 sq. ft. for husk, processed gram and raw gram
and a room for water and oil account for the remaining space.
Time required for the plant to commence the process from the beginning of the building is as
follows:
Construction of the building - 2 ½ months
Making and installation of the machine also trial run) - 2 months
Total time required - 4 ½ months

So, in order to commence the work in January, the work should begin latest by the end of July.

9.4 Financial Analysis of the mill


The fixed cos ts for a 5-ton Akola-type pulse processing mill are as follows (figures in rupees):
Land - 1 acre
Building - 3000 sq. ft
Platform - 5000 sq. ft
Metal - 30 tons
Motor - 40 HP
Laying of electric poles from the feeder line along with the wire required costs Rs. 8000/- per 65
metres of distance from the 11 KV feeder line. It’s assumed that the mill will be located at a distance
of 500 metres from the feeder line.

TABLE NO: 10
Fixed Costs for a 5-ton per day capacity mill
Land (approximately) 100000
Building & Platform 960000
Machine & installation 846250
Bore well, Motor & related 100,650
Transformer, wiring, starters, meters, poles 205538

34
Total 2212438

In addition, there are yearly fixed costs which are shown in the following table :
TABLE NO: 11
Yearly costs of a Dal Mill (In Rupees)
Electricity yearly charges for 40 HP connection 1500
Manager: 4000/month 48000
Watchmen(2): 1200/month each 28800
Repairs & maintenance 25000
Master:4000/month for 6 months 24000
Helper:3000/month for 6 months 18000
Total 145300

The variable costs per quintal are as follows:


While calculating the variable costs, it’s assumed that the mill runs for 10 hours a day and on all the
days except on Sundays. The number of labourers required would be 5 members outside the mill for
drying the in-process and packing the processed gram, 4 members inside the mill apart from the
master and helper, for feeding the mill with raw material etc.
TABLE NO : 12
variable Costs per Quintal
Electricity -10hr @ 30 HP consumption 17.5
Hamali (labour) 5.6
Gunny bags 25
Transport(to Adilabad Market) 20
Less return on gunny bags(Rs. 7 per 50 kg bag) from customer 14
Total VC/qtl 54.1

9.5 Risk analysis

What if the price of the commodity in the market does not increase as expected or it has gone down?
Does that hold any impact on the mill?

35
The mill is set up on the basis of the difference in the cost between an own mill and outsourcing the
processing job. So, the price in the market does not hold any impact on the mill. The profitability of
the mill suffers only when there is not enough procurement. So, it’s suggested the cooperative set up
a mill only when there is enough number of cooperatives to supply the required raw material to the
mill so that the instalment amount on the mill is repaid. Thus, the mill performs in its own way
irrespective of the prices in the market. The only threats to the mill seem to be the procurement and
when the benefit from processing is less than the cost of processing of which the latter is not likely to
happen (looking at the price of Red gram over years).

10 WHICH ONE SHOULD THE COOPERATIVE OPT FOR?

10.1 Own mill vs. outsourcing the processing job


The organisation intends the cooperatives to set up a Red gram processing unit for them. It floated
the idea of setting up a mill so that the farmers would be more benefited from the mill. At present the
cooperatives are getting the job work done by a private miller. It was thought that the farmers would
benefit more from their own mill rather than outsourcing the job. So, the feasibility of setting up a 5
ton-per-day Red gram processing mill is worked out. The quality from of the processed Red gram
should be competitive in the market. So, an Akola-type mill was found best available. Therefore,
although the costs are high, such mill was worked out.

Variable costs of getting one quintal of Red gram processed by outsourcing the processing job are
shown in the following table:
Table No: 13
Costs per qtl of process
Transport to Adilabad 20
Hamali (loading & unloading) 5
Transport from ADB 20
Process cost 50
Gunny bags 25
Return from gunny bags 14
Total 106

36
Average variable cost/qtl incurred while outsourcing the processing job= Rs. 106/-

Variable costs of getting one quintal of Red gram processed by owning a mill are shown in the table
below:

Table No: 14
Electricity -10hr _30 HP consumption 17.5
Hamali 5.6
Gunny bags 25
Transport(to Adilabad market) 20
Less return on gunny bags(Rs. 7 per 50 kg bag) from customer 14
Total variable cost/qtl 54.1

Thus, the average variable cost/qtl incurred while owning a mill= Rs. 54.1/-
Benefit in variable cost by owning a mill= Rs. 106 – 54.1 = Rs. 51.9/-
Benefits by owning a mill vis-à-vis outsourcing the processing job are shown in the table below:

Table No: 15
Benefit in variable cost by owning a mill
Variable Costs for mill/qtl
Variable costs/qtl 54.1
Total V C/qtl 54.1
Difference in V C 51.9
Revenues from processing
Husk (20 kg) at Rs. 5/kg 100
Dal (3 kg) at Rs.25/kg 75
Total revenues for the processor 175
Total savings in process (per qtl) 226.9

Total fixed costs= Rs. 22, 12,438/-


Interest rate = 12%

37
Interest for one year = Rs. 530985/-
Instalment per year = Rs. 1294068/-
Benefit per quintal =Rs. 226.9/-
Total quantity (in qtl) needed to repay the instalment amount =
Instalment per year/benefit per quintal
= 1294068/226.9
= 5703.25 quintals
Therefore, the cooperatives have to procure at least 5703.25 quintals of raw Red gram to repay the
instalment of that year.

What if the cooperative fails to procure the required quantity of raw material (5703 qtl) in the first
year?
If the cooperatives fail to procure the required quantity of raw material in the first year, the
repayment capacity decreases and there is left over a part of the instalment. In the next year the
cooperatives will have to procure more quantity to repay the left out amount of the first year and the
interest accrued on that amount in addition to the instalment in the second year.

The procurement required corresponding to the procurement in the first year and how much quantity
of raw material is needed to be procured in the second year is shown in the following table:

Table No: 16 Quantity needed to be procured in the 2nd year for repaying by 2nd yr

first year procurement (qtl) 500 1000 1500 2000 2500 3000
Quantity (in qtl) needed to be procured in
the 2nd year 11530. 9 10970.9 10410.9 9850.9 9290.9 8730.9
first year procurement (qtl) 3500 4000 4500 5000 5500 6000
Quantity (in qtl) needed to be procured in 8170.9 7610.9 7050.9 6490.9 5930.9 5370.9
the 2nd year

Thus, the above table gives an idea for the cooperatives as to how much they would have to procure
the raw material in order to repay the whole initial investment on the mill and get the whole

38
ownership of the mill for themselves. Annexure- 7 contains the detailed explanation of quantities
needed to be procured for the mill by the cooperatives to repay the loan entirely in 2 years.

10.2 Own warehouses vs. outsourcing the storage job


The organisation is of the idea that the cooperatives would set up their own warehouses instead of
storing the raw material and the processed material in the Central Warehouse Corporation (CWC). It
floated the idea of setting up of warehouses which would meet the specifications of the National
Securities Exchange. Once a warehouse is certified by the NSE, the material stored in it can be traded
through the NCDEX. So, the organisation thought of setting up of such warehouses at village level or
at mandal level which ever would be feasible. The idea of setting up of such warehouses is: i) to
minimise the dependence on the local traders to dispose off the processed or raw material and ii) to
minimise the cost of transport and other costs for storage at the CWC warehouses.

The costs of such warehouses with varied capacities are given below:
Table No: 17 Cost of warehouses for various capacities
Capacity (in qtl) Length Breadth Cost of the warehouse (Rs.)
100 50 20 450000
500 70 35 1400000
600 82 50 1600000
1000 2400000

So, cost of five * 100-ton capacity warehouses would be Rs. 2250000.


Also, almost all the big Gram Panchayats’ potential procurement stands above 500 or 600 quintals
and some GPs could procure about 1000 quintals. So, 100 -ton capacity warehouses are not
recommended at each GP le vel. Also, the cost of setting up individual 100 quintal capacity
warehouses multiplies by Rs. 450000 each warehouse. So, only 600 quintal or1000 quintal capacity
warehouses seem better. For calculation purposes, we take the 600-quintal warehouse as our un it of
example.
Table No: 18 Costs for a 600 quintal warehouse
Fixed costs Total F C 1620000

39
Building for a 6000 qtl capacity mill 1600000 Interest rate/year 12%
Land (cost assumed) 20000 Time period to repay (years) 2
Interest for 2 years 388800

Total 1620000 Total amount to be repaid 2008800

Each instalment accounts for: Rs. 947547/-

Storage at CWC warehouses:


The costs incurred for storage at CWC warehouses are shown in the following table
Table No: 19
Costs (per qtl) of storage at CWC warehouse(In Rupees)
time
period
(months)
Transport to ADB 20
Loading & unloading 5
Cost of treating the raw gram at Rs. 3/qtl/month 6 18
Transport from CWC warehouse to sale point 10
Total 53

The cost incurred for storage at own warehouses are shown below:
Table No: 20
Variable costs for own storage
Treating/qtl/6 months 18
transport to ADB (for sale) 20
Total VC/qtl 38

Savings in V C/qtl by setting up own warehouses 15

Thus, an own warehouse saves a cost of Rs. 15/- per quintal. To repay the whole of the investment in
two years, each instalment would be Rs. 947547/- at the interest rate of 12% per annum. To repay the

40
instalment, it needs 63170 quintals. But the cost incurred is on a 600 quintal capacity warehouse. So,
it’s not recommended to opt for an own warehouse. The cooperatives would better store the produce
or the final product in the CWC warehouses.

10.3 Own Red gram processing unit vs. own warehouses


Once the possibility of a Red gram processing mill and of an own warehouse is worked out, it would
be better to work the differential benefit for the farmers from each of the two. So, it’s seen which of
the two benefits the farmers better. It’s found that the benefit in variable cost per quintal of raw
material by owning a mill is Rs. 226.9/-. The benefit in variable cost per quintal of raw material by
owning a mill is only Rs. 15/-. Also, repayment for a warehouse can not be done in two years.
Effectively, the net value added by the warehouse is negative in terms of repayment in tw o years. So,
it would be better for the cooperatives to opt for a Red gram processing mill instead of a warehouse.

11 IMPLEMENTATION PLAN

11.1 Organisation Structure:


Once the mill is set up, there should be a structure of the cooperatives. The mill would be owne d by
the federation of the cooperatives. All the cooperatives which fall under the area of the procurement
area of the mill become members of the federation. The organisation wants to extend its area of
operation to the whole of the district. And when the area of operation increases, the number of mills
required would also be more. So there would be more mills. Then, those cooperatives which fall
under the purview of one mill now may become members of another mill. Then, normally, the new
cooperatives which fall in the area of the old mill will pay their capital. The old cooperatives which
now fall under this mill would become members of another mill. And they may have to pay their
capital again. To avoid this double payment, it’s suggested that the old mill repay the capital of the
old cooperatives to the new mill.

11.2 Procurement plan:


The cooperatives would procure the raw material from the farmer members at the cooperative door-
step. Till such procurement all the costs are to be borne by the farmers. From the point of
procurement, all the costs are borne by the cooperative and added to the total costs.

41
11.3 Marketing plan:
The cooperatives would sell the raw gram or processed gram which ever looks profitable based on
the prices at that time. It would better sell it in instalments which would mean lesser working capital
needed. Also, by selling in instalments, the cooperatives would be able to purchase inputs for the
next season by the time monsoon arrives. Else, it would become very difficult to arrange finances for
the inputs for the following cropping season. For effective marketing, as suggested earlier, the
cooperatives need to maintain good linkages with the traders dealing in these commodities.

12 DATABASE FOR MARKET INTELLIGENCE

Traders in the region, or for that matter, anywhere, carry on their business more on the contacts they
have rather than anything else. All the business activities are carried out through the contacts they
maintain with other traders, millers and farmers. So, in order to make the organisation’s job well
informed, a database which contains the contact numbers and addresses of millers, solvent plants,
traders, advocates, tax consultants, agricultural officers concerned, electricity department, bore well
contractors and others is prepared. Almost all the contacts in the database are first hand information
wherein we had met them or talked to them on phone or got the contact details from the others in the
database. This database is assumed to come in handy very much for the organisation to carry out
anything needed for carrying out its business and for setting up processing units. The complete
database is attached as Annexure 8 .

13 LEARNING S DURING OTS


As Michael Porter says, ““Learning is often the cumulation of many small improvements rather than
any major breakthroughs”. Our experience during the OTS says that learning about anything can not
happen all of a sudden. It’s often a process which needs some time to understand the intricacies of
any business.
Our learning during the OTS, when put in a few lines, is as follows:
♦ Difference between real business and the classroom:
In the classroom we say that a cooperative pays all the taxes (sales tax, market cess and income
tax). But by paying all such taxes, the cooperative would be able to refund to the farmer members
a maximum of Rs. 100/- per quintal of the produce supplied to the cooperative by the members.
In India, there is provision that only business entities should pay taxes and not the farmers. Even

42
VAT does not apply to the farmers. But, at the same time, if the product is sold in the name of the
cooperative, then the cooperative should pay taxes all the above said taxes. But if the farm
produce or the product is sold in the name of a farmer, then there would be no such tax. So, if the
cooperative sells the product through a farmer or some farmers, then there would be no such
payment of taxes. Such savings of money accounts to about 300 rupees more refunds per quintal
of the produce for the farmers, which means refunds of about Rs. 400/- per quintal.
♦ Informal markets and personal relationships
Most of the trade carried out by a private trader is facilitated through the contacts the trader has.
He does not incur much of transaction costs after settling in the business. But, initially he might
have incurred costs for building these contacts. As these costs are not tangible to notice them, it’s
not possible to exactly identify how much cost the trader incurs and how much profit he gets. The
markets function informally and personal relationships matter very much. So, the cooperative is
suggested to maintain good contacts in the trade circle in the region of its operation and beyond
for better performance of its business.
♦ CAC in action
During the OTS, we made some visits to the villages where the organisation has intervened.
There, we could see some issues studied about the collective action and cooperation. The farmers
of one village were not ready to give the agricultural inputs to the other village who were in
immediate need whereas the former had a little time before they needed the inputs and also when
inputs were guaranteed to arrive by the time they sowed.
♦ Real Development vs. ‘Development’
It was observed first hand by our own experience how the so-called ‘development’ programmes
of the Go vernment impairs the real potential of the society in the development process. The
Government agencies like Velugu and ITDA poured crores of rupees in that tribal area and gave
subsidies and implemented some programmes which were mostly of giving by the Go vernment
and not any participation from the targeted beneficiaries. We have experienced the negative sides
of such initiatives. When we were in a village for the details about the potential procurement of
Red gram and Soya bean, a villager asked, “What are you giving”? On hearing that we were not
giving anything, his reply was, “Come here if you give anything. If not, don’t come”. Thus, we
feel that real development is impaired by some initiatives of the Government. Is it over initiative
or impairment of the society or both?

43
14 REFERENCES
1. Michael E. Porter “Competitive Advantage- Creating and Sustaining Superior Performance”,
New York, The Free Press, (1985)
2. Jagannathan N. Vijay “Informal Markets in Developing Countries”, New York, Oxford
University Press, (1987)
3. Shenoi. P. V. “Oilseeds Production, Processing and Trade: A Policy Framework”, Mumbai,
NABARD Press.
4. Advances in Pulse Production Technology, Jeswani, L.M. and Baldev, B., Indian Council of
Agricultural Research Publication (1988).
5. Principles and Practices of Post Harvest Technology, Pandey ,P.H.(1988)..
6. Agricultural Marketing in India, Acharya, S.S.and Agarwal,N
7. Handling and storage of food grains, Pingale, S.V.(1976).
8. Fundamentals of Food and Nutrition, Mudambi, S.R.and Rajagopal,M.V.
9. Post Harvest Technology of Cereals, Pulses and Oil seeds, Chakraverty, A.(1988).

Websites:
www.soystat.com
www.assasc.com
www.mapsofindia.com
www.soygrowers.com
www.itcportal.com
www.agricoop.co.in
www.macroscan.com
www.oilworld.com
www.sopa.org
www.seaofindia.org
www.futuresource.com
www.dowjones.com

44
TABLE OF CONTENTS

ACKNOWLEDGEMENTS ............................................................................................................ 0
1 INTRODUCTION ....................................................................................................................... 4
1.1 About the organisation.................................................................................................... 4
1.2 Project Area Description................................................................................................. 4
1.3 Present Situation and need for commodity cooperatives ................................................ 5
1.4 Vision of CCD ................................................................................................................ 5
1.5 Mission of CCD.............................................................................................................. 6
1.6 Rationale for the project and the expected outcomes ..................................................... 6
2 OBJECTIVES OF THE STUDY............................................................................................ 6
3 DESIGN OF THE STUDY..................................................................................................... 6
3.1 Methodology ................................................................................................................... 6
3.2 Scope............................................................................................................................... 7
3.3 Limitations ...................................................................................................................... 7
4 DEFINITIONS........................................................................................................................ 8
4.1 Value ............................................................................................................................... 8
4.2 Value Chain..................................................................................................................... 8
4.3 Value Activity ................................................................................................................. 8
4.4 Margins ........................................................................................................................... 9
4.5 Value added..................................................................................................................... 9
4.6 Linkages.......................................................................................................................... 9
5 WHAT EXACTLY IS ‘VALUE CHAIN’ AND HOW SHOULD IT BE STUDIED? ......... 9
6 SOYA BEAN ........................................................................................................................ 10
6.1 Global Scenario ............................................................................................................. 10
6.2 Indian Scenario ............................................................................................................. 10
6.3 Local scenario (Soya Bean in Adilabad)....................................................................... 11
6.4 Present Local Market for Soya bean............................................................................. 12
6.5 Present Market for Soya meal....................................................................................... 14
6.6 Seven Key Factors Influencing Soya bean Markets ..................................................... 14
6.7 Value Chain of Soya Bean............................................................................................ 14
6.7.1 Stage 1: At Farmer Level...................................................................................... 17
6.7.2 Stage 2: Small trader............................................................................................. 19
6.7.3 Stage 3: Big traders............................................................................................... 19
6.7.4 Stage 4: Processing ............................................................................................... 20
6.7.5 Stage 5: Wholesalers, Packers and retailers.......................................................... 20
6.7.6 Stage 6: Consumers............................................................................................... 21
6.7.7 By-products of Soya Bean.................................................................................... 21
6.8 Recommendations for the members of the commodity cooperatives:.......................... 21
7 ESTIMATION OF POTENTIAL PROCUREMENT OF SOYA BEAN AND RED GRAM
IN THE PROJECT AREA............................................................................................................ 22
8 RED GRAM.......................................................................................................................... 24
8.1 Overview about Red Gram: .......................................................................................... 24
8.2 Importance of Red gram: .............................................................................................. 24
8.3 Post-harvest losses in Red Gram: ................................................................................. 25

45
8.4 Value Chain Analysis of Red Gram.............................................................................. 26
8.5 Summary of marketing constraints identified for Red Gram and suggestions
recommended:........................................................................................................................... 29
9 FEASIBILITY ANALYSIS OF A RED GRAM PROCESSING UNIT.............................. 32
9.1 Market Analysis ............................................................................................................ 32
9.2 Technical Analysis - Manufacturing process/technology:............................................ 32
9.3 Plant capacity ................................................................................................................ 33
9.4 Financial Analysis of the mill ....................................................................................... 34
9.5 Risk analysis ................................................................................................................. 35
10 WHICH ONE SHOULD THE COOPERATIVE OPT FOR? .......................................... 36
10.1 Own mill vs. outsourcing the processing job ................................................................ 36
10.2 Own warehouses vs. outsourcing the storage job ......................................................... 39
10.3 Own Red gram processing unit vs. own warehouses.................................................... 41
11 IMPLEMENTATION PLAN ........................................................................................... 41
11.1 Organisation Structure: ................................................................................................. 41
11.2 Procurement plan: ......................................................................................................... 41
11.3 Marketing plan:............................................................................................................. 42
12 DATABASE FOR MARKET INTELLIGENCE............................................................. 42
13 LEARNINGS DURING OTS ........................................................................................... 42
14 REFERENCES ................................................................................................................. 44

46
Annexure 7

Procurement plan and repayment schedule for the red gram processing unit
(Figures in rupees unless specified)

Procurement
First year 500 1000 1500 2000 2500 3000
1st year instalment 1294068 1294068 1294068 1294068 1294068 1294068
Profit made by setting up a
mill 113450 226900 340350 453800 567250 680700
Total minimum profit to be
made in the 1st year to
cover the instalment 1294068 1294068 1294068 1294068 1294068 1294068
Minimum profit to be made
on the sale of Dal in 1st
year to repay the 1st
instalment 1180618 1067168 953718 840268 726818 613368
Minimum profit to be made
(per qtl) to repay the 1st
instalment 2361.2 1067.2 635.8 420.1 290.7 204.5
Amount left out to be
repaid after 1st year and
carried over to 2nd year (if
not sold at the above p rofit) 1180618 1067168 953717.8 840267.8 726817.8 613367.8

Second year
c/d amount 1180618 1067168 953717.8 840267.8 726817.8 613367.8
2nd year instalment 1294068 1294068 1294068 1294068 1294068 1294068

Amount to be repaid in the


2nd year 2474686 2361236 2247786 2134336 2020886 1907436
interest on unpaid 1st yr 114446.14 100832.14 87218.140
instalment 141674.1 128060.1 03 03 32 73604.14
total profit to be made in
the 2nd year 2616360 2489296 2362232 2235168 2108104 1981040
Quantity (in qtl) needed
to be procured in the 2nd
year to repay the whole
amount by the end of 2nd
year 11530.89 10970.89 10410.89 9850.89 9290.89 8730.89

47
Procurement plan and repayment schedule for the red gram processing unit (Contd...)

(Figures in rupees unless specified)

Procurement
First year 3000 3500 4000 4500 5000 5500
1st year instalment 1294068 1294068 1294068 1294068 1294068 1294068
Profit made by setting up a mill 680700 794150 907600 1021050 1134500 1247950
Total minimum profit to be made in the 1st
year to cover the instalment 1294068 1294068 1294068 1294068 1294068 1294068
Minimum profit to be made on the sale of
Dal in 1st year to repay the 1st instalment 613368 499918 386468 273018 159568 46118
Minimum profit to be made (per qtl) to
repay the 1st instalment 204.5 142.8 96.6 60.67063 31.91357 8.385061
Amount left out to be repaid after 1st year
and carried over to 2nd year (if not sold at
the above profit) 613367.8 499917.8 386467.8 273017.8 159567.8 46117.84

Second year
c/d amount 613367.8 499917.8 386467.8 273017.8 159567.8 46117.84
2nd year instalment 1294068 1294068 1294068 1294068 1294068 1294068

Amount to be repaid in the 2nd year 1907436 1793986 1680536 1567086 1453636 1340186
interest on unpaid 1st yr instalment 73604.14 59990.14 46376.14 32762.14 19148.14 5534.14
total profit to be made in the 2nd year 1981040 1853976 1726912 1599848 1472784 1345720
Quantity (in qtl) needed to be procured
in the 2nd year to repay the whole
amount by the end of 2nd year 8730.894 8170.894 7610.894 7050.894 6490.894 5930.894

Annexure 8

Database for market Intelligence

Electricity
Divisional Engineer, Adilabad 08732-231015
Legal & tax

48
Mr. Bapu Reddy, Advocate, Utnoor 08731- 275279 94402 33650
Mr. Ravi Mohan, Sales Tax Consultant,
Adilabad 98482 24695
Mr. Rajendra Prasad; Gen Manager, Dist 08732-226660-
industries Centre, Adilabad office 98487 78531
Mill makers
Akola
STD
2452420- Code-
Bansi Lal Sharma, Akola Residence 094231 27580 0724
5621082-
Munna Lal Sharma, Akola Residence 098503 00714
Hemchand Sharma,Nitin Engg. Woks, MIDC
IV Phase, Akola 093725 02424
2400571-
Mewa Lal Sharma, Akola Residence
Mr. Sheik Badi, Vijayawada
M/s. Chaitanya Industries(Rice mill mfrs.),
Jagitial 08724-221790 98854 52790
Suri Industries, Hyderabad
0724- 258325-
Shriram Associates, J-27, Phase-3, MIDC, office, 0724-
Akola- 444104 2459647 shreeman9@rediffmail.com
098230 90002 www.shriram associates.com
Agri Market Committee, Adilabad
08732-230669-
Asst. Director, Marketing office 08732-230857
Asst. Director, Agri. 98499 02930
08732-222013-
Rythu Bazar, Estate Officer office
Seeds & Fertilisers
Eagle seeds & Biotech, Indore
Ankur seeds Pvt. Ltd, Hyd(branch);
H.O:Nagpur 040-23210392
Maharashtra State seeds Corporation, Akola
krishidan seeds, Jalna
Ram Reddy: Natraj Traders, Adilabad 94407 24421
karim traders, Adilabad 08732-223733 08732-230733

Adilabad & other mills & solvents


Lalit Kedia: Satyanarayana Dal mill 94400 64695
08732-
230602- 98481 23931,
G S Oil Mill 08732-320675 office 98495 23961
Kanakayya Dal Mill, Asifabad 08733-279363
GMR Solvent 98492 63555 98481 31423 98492 94111
GMR Refinery 08732-230740

08732-
KK Solvent, Near Lalit Dal Mill 223343;223389 223306
Kagaznagar, Adilabad district 94400 60877
Mancherial, Adilabad district 93903 10039

49
Kama Reddy, Nizamabad district 98480 29306 94400 69810

Others
Mr. Tirupathi,Asst. Project Manager, VELUGU 94407 70167
Mr. Raju, ITC e-choupal, Nagpur 098222 20990
Mr. Amol, ITC e-choupal, Nagpur 098503 89290
Mr. Ramesh, Project Director ATMA, Adilabad
Mr. P A Borkar(Research Engineer), Post Harvest
Technology Scheme, Dr. Panjab Rao Deshmukh Krishi 2258205.
Vidyapeeth, Akola Ext:1029

Traders
Abdul seth- Jainoor, Adilabad district
Krishna murthy seth- Jainoor, Adilabad district
Amar Chaus- Jainoor, Adilabad district
Eshwar Sai Kirana-Etchoda, Adilabad District 251641
Madhu (Soya meal trader cum broker) Chintavar Transport,
Near Bus Stand, Adilabad 98499 92889
Borewell and motor appliances, Adilabad
Jyoti Agencies, Shop No. 3&4, Dhanalaxmi complex, Gunj 08732-230850-
Road, Adilabad shop
Trishul Borewell 94400 62525 94404 19448

Annexure 5:
Comparison between standard trade practices and actual trade practices

Comparison between standard trade practices and actual trade practices


10-2-2 Standard
Specifications for Soya Bean for MSP
Norms of Actual Trade in Soyabeans

Parameter Percentage Parameter Percentage

50
Waste Material ( Waste Material (
2% 2%
&unclean material) &unclean material)
Not tested but price is
Immature and 2nd Immature and 2nd reduced if the trader feels
grade 5% grade there is substantial
difference
Spoiled and Rotten Spoiled and Rotten
3% 2%
Grains Grains
Grains Spoilt on usage Grains Spoilt on usage
of machine and cracks 15% of machine and cracks Not tested
visible visible
Moisture Content 12% Moisture Content 10-12%
Source: AMC Adilabad( in telugu On basis of interaction with various actors in the value
Originally) chain during OTS

Annexure 3:
Penalties borne by the farmers at different stages during sale of seed and recommended
solutions

sno % of
Stage Reason penalties Solution (if any)

51
In BORA system more waste material % is
discovered because of the the planned way of 0.25% -
drawing more samples from the bottom part of 0.5% No better system at
the bag where sand gets deposited because more than the market level is
of deposition during transit through trucks actual pesent as of now
The determination of percentage of spoiled
Testing of and rotten seeds is not as per the govt. Not in the farmers
standards standards 1% hands directly
1
in actual The determination of percentage of 2nd
trade quality and immature seeds is not even done discretion
and price for the entire lot at the discretion of of the
the trader trader
No. of % Adequate Drying &
Because of higher moisture the farmer loses points > Electronic Moisture
the corresponding weight in seed 12% testing Machines
Immediate
Norm of tansporting of
giving 1- As there would be weight loss because of produce by pooling
2
2% more transit the traders pass on this loss and much of a group farmers
seed more to the farmers in the form of extra 1-2 themselves to the
KGs to compensate for the loss 1-2% processing plant

Faulty The traders have expertise in cheating the


mechnical farmers during weighing the produce. The Electronic weigh
3 ways they cheat are many like weighing on Machines would
weighing
machines faulty machines, holding the weighing ensure correct
machine at a different point 0-5% weighing

Annexure 4:
Penalties for farmer in actual trade at the hand of local traders and options at farmer level
Parameter Penalty Options the farmers have

52
Rounded to the nearest
multiple of 0.5 and During threshing and putting into bags care
If waste matter is > 2 % respective weight is should be taken to prevent contact with
deducted during payment sand and waste matter as much as possible
for the crop

Rounded to the nearest


Farmer should take care at every stage of
If immature,2nd grade, multiple of 0.5 and
agriculture and special care during drying
spoiled and rotten grains respective weight is
>2% deducted during payment and storing the grains which can minimise
this wastage
for the crop

Because of lack of Awareness and myth


For every 1% more
that immediately after threshing the weight
moisture farmer is
If Moisture is > 12 % of produce will be higher adequate drying is
deducted 1% weight on the
not done. Necessary drying of the seeds
crop
would prevent farmers losses

Annexure 1

53
Brief Introduction to Trustees of Center for Collective Development (CCD), Hyderabad

1. Rama Reddy, Trustee

Founder and current President of Co-operative Development Foundation (CDF). Has been
working on promoting co-operatives, co-operative legislation and advocacy, and other fields
including better Governance and Education since 1975. Has made very significant
contributions to the Co-operative movement in Andhra Pradesh and around the country.

2. Y.V Rao, Trustee


Has a vast experience in insurance sector.

3. Ramaswamy Kidambi, Trustee

Vice President Karvy Consultants and CEO of Karvy E Business. Obtained his MBA from
IIM Ahmedabad. Worked for 20 years with various business organizations in India, Dubai
and the US, including KPMG in the US. Has a keen interest in Development and is Advisor,
Aatmeeya Manasika Vikasa Kendra, Hyderabad, an institute to help rehabilitate mentally
challenged children, Member, Governing Council, Shantiniketan Womens ’ College and Joint
Secretary, IIM Ahmedabad Alumni Association, Hyderabad

4. Sivakumar Surampudi, Trustee (PGDRM, IRMA)

Chief Executive of ITC’s Rs.1700 Crores Agri. Businesses Group. This group exports
agricultural commodities and food ingredients like Tobacco, Oilseeds, Grains, Coffee,
Spices, Fruits & Vegetables and Shrimps to more than 140 customers located in 55 countries
around the world. Their network of procurement, processing & shipping operations is spread
across 15 states in India. He is a member of the management committees and core groups of
various Government and Industry bodies. A recipient of HMA’s Young Manager of the Year
Award 1999 and MTA Ugadi Purashkar 2002. He is spearheading ITC’s e-Choupal
movement to IT enable the Indian farmer. Servicing more than a million farmers in about

54
12000 villages (and expanding at the rate of 20 villages every day), ITC’s e-Choupal is the
largest Internet based intervention in rural India by any Corporate.

5. M.Ravindra Vikram, Trustee

Partner, M.Anandam and Co., Chartered Accountants, Secunderabad. Director, ASM


Technologies Limited, Normak Fashions (P) Limited, SDG Software Technologies (P)
Limited, Glochem Industries Limited, Shakthi Roofings Limited, Wings Infonet Limited,
KPM Information Systems (P) Limited, Planck Instruments (P)Limited. Trustee and
Treasurer, M.Venkatarangaiya Foundation a leading voluntary organisation doing pioneering
work in literacy and eradicating child labour in Ranga Reddy District, Andhra Pradesh.

6. G.Muralidhar, Trustee

B.Tech (Electronics & Communications), Regional Engineering College Warangal (RECW),


PG Diploma in Rural Management (PRM), Institute of Rural Management, Anand (IRMA),
1989. Fourteen years experience in Development. Working with Society for Elimination of
Rural Poverty in its World Bank supported District Poverty Initiatives Project (in AP) and
AP Rural Poverty Reduction Project as its State Project Adviser (Livelihoods). Worked
earlier with Naandi, an autonomous foundation for the development of Andhra Pradesh,
Hyderabad, May ’99 – December ‘00, as Program Officer/Head, Program Management and
first employee, responsible to the Board of Trustees. Established and continues to be
associated with Akshara, a network for development support services; and Krit i, a foundation
promoting livelihoods.

7. Trilochan Sastry, Secretary


(Ph.D. MIT, MBA IIM Ahmedabad, B.Tech. IIT Delhi)

Professor, Indian Institute of Management, Bangalore, March 2003 to date. Professor, Indian
Institute of Management, Ahmedabad, 1991 to February 2003. Visiting Scholar,
Massachusetts Institute of Technology, Spring 1995, Visiting Professor, International
University of Japan, Niigata, Japan, Spring 1996, Visiting Professor, Indian Institute of
Management, Bangalore, March 2000 to December 2000, Visiting Scholar, Hong Kong

55
University of Science and Technology, Jan-June 2001, Professor, Indian School of Business
and Associate Dean (Research), July 2001 to January2002. Worked with Oil and Natural Gas
Commission May 1983 to August 1985 in the Chairman's Office at New Delhi. Obtained the
“Best Young Teacher” award for 1999 from the Association of Indian Management Schools
(AIAM). Published several papers in International Journals. One of the Managing Trustees of
Co-operative Development Foundation (CDF) a Hyderabad based organisation that promotes
co-operatives in rural areas. Worked with the Society for Elimination of Rural Poverty
(SERP), Andhra Pradesh for 7 months as a volunteer in 2002. Chairman, Association for
Democratic Reforms, which won a public interest litigation (PIL) on criminalization of
politics. Carried out a successful Election Watch in the Gujarat Elections in 2002 that resulted
in the release of names of 138 candidates with criminal background.

ANNEXURE 2
THE RELATIONSHIP OF A FARMER WITH THE ‘SETH’ (TRADER):
The relationship of a farmer with the trader is much valued both by the trader, the farmer and the
farmer’s family. It is eternal source of security for the farmer as has been the case since ages.
The feudal system in India remains only in the annals of the history but the mental makeup of the
farmers and the traders closely resembles that system. It’s not to say that this relationship is not
in sync with the modern day world but this relationship explains many details of the dynamics of

56
the Farmer and its contribution to the vicious circle in which the farmer gets caught up and is
unable to break free.
The functions the trader performs:
1. Keeps in continuous touch with the farmers.
2. Knows more about the farmer’s fields, the quality of the crop, the growth of weeds, the
credit requirement needs for the farm more than the farmer himself.
3. Offers financial help when required
4. Gives money at the time of any exigency in the farmer’s family.

The farmers who look like the beneficiaries of the benevolent traders however have to pay a
price for this sort of insurance they have in the form of the traders. And the price they have to
pay is exorbitant by any standards. In Adilabad district, the farmers have to pay up in a
combination of many ways like the following:
1. The sale of the produce should be made to the trader from where the farmer has taken the
credit. And during the sale of the produce the bargaining power of the farmer is low and
cannot put conditions for sale but follow submissively to whatever methods the trader
uses to weigh, assess quality and determine price. If the farmer tries to get a better deal
by raising his voice he would be at risk of losing the next year’s inputs loan and hence
keeps his mouth shut in spite of the gross injustice meted out to him in the process of tied
sales of the produce. The relationship is not restricted to a monetary one only but also
extends to psychological and emotional support relationship. As the farmers also know
that the trader can perform the marketing function better than themselves individually can
the farmers spin off this function to the traders. They also recognize that if they were to
venture into marketing at a higher level in the chain the risks they face also increase
considerably because of lack of linkages or relationships.
2. The interest charged by the traders is very high. They have to pay 25 % interest from the
proceeds of the tied sales. The 25 % is not on the whole year but for the time between the
time of taking of the crop loan and the arrival of new crop. Thus, the farmers end up
paying interest at the rate of 75 % to 100 % interest per annum.
3. The psyche of the farmers has become much ingrained with the fact that they would be
continuously in debt and whenever they have any small surplus they also spend that

57
money in owning some asset like a motor cycle, colour television or construct one room
in addition to their existing house. This habit of lavishness in whatever income one earns
poses a serio us weakness and the farmer never comes out of the shackles of the vicious
cycle. Investment and management of financial resources is equally important to a small
& marginal farmer as much as it may be important to a stock broker. The

There is a lot a farmer can do to come out of the poverty- trader- tied & distress sales- poverty
vicious cycle. The following may be some of the steps in the right direction:
1. The management of finances even for a farmer holds the key for getting out of the vicious
cycle.
2. The main reasons why the farmers fall into the debt trap is because:
a. Health emergencies of family members: Habit of savings can substantially
decrease the dependence on these traders cum moneylenders. The formation of
SHG’s and Thrift and Credit Cooperatives can generate a source of loan in case of
emergency
b. Inputs requirement for the farming
c. Using away all the money necessary for crop inputs the next season to own some
asset or luxury good

ANNEXURE 6:
Difference between getting a loan from the trader and a banker for the farmer

58
Loan
TRADER vs BANKER
• Easily accessible • Not accessible easily
• As much amount • Only partial loans are
requested is given granted initially
• Immediate disbursal • Delayed disbursals
• Loan at doorstep • Loan after hassles
• Keeps in touch • Has no incentive to
continuously with keep in touch with the
farmer farmer

What can the Farmer to do to improve his terms with the banking system,
– Meet the bankers often rather than meeting only two times(once at loan disbursal and
once at repayment)
– Explain the situation to the bank authorities in case of a delay in repayment. Ex. Tuar
prices may rise…These explains which have logic are generally considered as
legitimate explanations of delay in repayment of loans
– Learn the grading mechanism of loan
Dec 31st --Grade A re payers (next yr ++)
Mar 31st --Grade B re payers (next yr +)
After Mar 31st ---Grade C re payers (next yr -)

59