Interacting with Gulshan Rewari- Feature Editor of Riceoutlook Magazine – AGM (Supply Chain & Procurement) of Adani Wilmar Ltd – Mr. Dinesh Chhatra spoke about prevailing procurement of paddy this season. He talked about some of the challenges faced by the producers of rice and their possible solutions.
Indian rice industry, especially Northern India, is rampant with rumors rather than facts in paddy procurement season. This is bane of this unorganized sector where lots of unconfirmed and unaccounted information flows in the market every year. This information can be very conservative or speculative in nature. Although this has been present every year but with the arrival of social media and penetration of mobile phones things have taken a new turn. Information sometime, riding on malicious intent, distorts the pricing mechanism of a particular Mandi or region as whole. If a big exporter group has started paddy procurement in a mandi and some trader or miller who is sitting on a huge stock can start a rumor that lots of buying happening by so and so. And this normal buying pattern can trigger a price escalation. It is not rice mill but rather a rumor mill that is working and this unorganized sector is very organized when it comes to fuelling rumors. The procurement price varies a lot whereas selling price for export of rice is within a tight range thus forcing some of the players to incur losses. As the costs are more or less fixed for milling, these rumors in the procurement process play a very negative role in the rice industry.
Putting it jokingly, Mr. Dinesh Chhatra compared the rice industry to an Elephant and the stake holders as blind men who are defining the industry according to what they feel without understanding the complete picture.
Illustrating this with an example Mr. Chhatra elaborated that assuming that selling price for exports to the Middle East is USD 630-635, and a big producer has started the normal buying of paddy at 20-22 per kg. With the ever increasing use of social media tools such as Whatsapp, Facebook, Twitter, Wechat, LinkedIn etc, the news spreads like wild fire that massive buying is happening. This phenomenon gives rise to what can be termed as a panic buying where many buyers enter the market and raise the offer price of paddy. Without any hedging mechanism for rice as a commodity, Brand value is the only assets that can help get a lower procurement price. The good paymasters and bulk buyers can attract a marginal cash discount of 2-3 percent further. Ironically some new buyer or trader can get an extra one percent if he chooses to offers advance payment. For last few years, the capacity expansion of the miller has outpaced the demand of rice. There is an estimated 186 lakhs tonnes of production of rice while the demand of Basmati rice is around 95 lakhs tonnes. After subtracting other variety of rice there is still the abundance of gap on the supply side. With limited storage and warehousing capacities with the producer/trader the selling and lifting of rice immediately becomes a priority. The experienced brokers/miller can buy good paddy for less than the others and get the price advantage on selling price. The buyers are always in a fix with regards to the timing and the price of buying. Many try to play safe by purchasing at all price points. These many variations in pricing of almost Rs 10000 per tonne of paddy can seriously limit or erode the margins of many millers.
Mr. Dinesh Chhatra states further that owing to rumors playing havoc within the rice industry at all stages and taking into account all cost heads, the buying by the corporates is usually higher by Rs 2000-3000 per tonne. Some of the unethical practices by the selected few like mixing of two or more varieties or bending rules to avoid some taxes also lead to distortion of selling prices in the overseas market. Many a miller/exporters are turning defaulters in the past few years giving a bad name to the Nation. Many stake holders in rice industry who have misused the Indian financial system taking far more loans then their worth are fleeing the scene leaving many lenders in lurch. This scenario, where the news of willful defaulter has become a frequent occurrence, has badly shaken the conservative and compact rice market.
The banks and other financial institutions have started a strict recovery process and are following strenuous KYC norms laid by the RBI for further lending. Therefore this situation is heading for a logical conclusion where only the serious players will stay and survive in couple of years. The government’s plan to develop new food parks and industrial zones will enable fresh investment to flow in the warehousing and cold storage facilities. The swift movement of goods throughout the country, owing to GST, in coming financial year will stop the menace of rotting of rice and expedite exports.
About Dinesh Chhatra
Dinesh Chhatra has primary responsibilities of managing the back end operations of the Rice Division of Adani Wilmar Ltd. He has been associated with the rice industry since 1995.