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2014
CERTIFICATE
submitted is the result of original research work and is of sufficiently high standard to
warrant its presentation to the examination. I also certify that neither the project report
nor part thereof has been previously submitted by him for a degree of any university.
(Dr. SEEMA)
Date: Chairperson
CERTIFICATE
No part of the project report has been submitted by the student for any
other degree or diploma. The published part and all the assistance and help
received during the course of the investigations have been duly acknowledged by
the author of the project report.
(Dr. SEEMA)
Chairman of the Advisory Committee
I INTRODUCTION
II REVIEW OF LITERATURE
LITERATURE CITED
APPENDICES
LIST OF TABLES
4.1 Investment details of the selected large scale soybean processing unit
4.2 Investment details of the selected medium scale soybean processing unit
4.3 Investment details of the selected small scale soybean processing unit
4.4 Details of the processing cost of the selected large scale soybean
processing unit
4.5 Returns from processing of soybean in to soy oil and soy meal from the
selected units
4.6 Details of the processing cost of the selected medium scale soybean
processing unit
4.7 Returns from processing of soybean in to soy nuggets and soy flour
from the selected units
4.8 Details of the processing cost of the selected small scale soybean
processing unit
4.9 Returns from processing of soybean in to soy milk and tofu from the
selected units
4.10 Financial feasibility analysis in the selected soybean processing units
4.11 Problems faced by the selected soybean processing units (10 point scale)
It is by the lavish and boundless blessing of the Almighty that I have been able to
complete my studies successfully hitherto and present this humble piece of work for
which I am eternally indebted.
Fervently and modestly, I extol the genuine cooperation, inspiration, advice and
affection offered to me by the Chairman of my Advisory Committee Dr.Seema,
Professor & Head, School of Agribusiness Management, College of Agriculture,
Rajendranagar, ANGRAU, Hyderabad right from the initiation of the work to shaping of
the manuscript.
I am greatly beholden beyond words to express my deep sense of gratitude and a
great privilege to work under the able and highly exceptional guidance of
Dr.P.Radhika, Assistant Professor, School of Agribusiness Management, College of
Agriculture, Rajendranagar, ANGRAU, Hyderabad for her brilliant counsel,
constructive suggestions.
I equally owe my deep sense of gratitude to Sri. M.H.V.Bhave, Associate
Professor, Department of Statistics and mathematics and member of my Advisory
Committee for his invaluable guidance, suggestions and support during my course of
study.
I feel immense pleasure in extending my deep sense of gratitude to
Dr.A.Janaiah, Member, Board of Management, Acharya N.G. Ranga Agricultural
University, Hyderabad for his cooperation.
I express my heartfelt love and affection from the inner core of heart to my
beloved father and mother, for their blessings, inspiration, encouragement and moral
support to achieve the pinnacle of success in my life. It remains less even if I say a lot
about them.
I owe much to my loving sisters and brothers for their everlasting unparalleled
affection, co-operation, constant encouragement and moral support. They have been my
source of confidence and motivation all through my life.
It is time to surface out genuflect love and affectionate gratitude to my dearest friends
Rajeshwar, Hari Narayan, Pramod, Suresh, Bharat, Anju, Sonam, Dipen Shanti, and
Sarfraz Alam for their unhesitating help and constructive criticisms throughout my
educational career.
I would like to extend thanks to all my teachers, batch mates and juniors for
sharing their ideas, joy and sorrows throughout the period of my study over here. Words
are not enough to express my heartfelt thanks to my seniors Sumer, Pavan, Hemant, Deep
Narayan, Manish, Madhu, Kapil, Aditya and Nitesh for their moral support timely, which
instilled in me confidence to proceed forward.
I am very much delighted to express my indebtedness to non-teaching staff of
SABM Rajkumar, Anand, Victoria, Anusha and others for their constant co-operation at
various stages of the study and immense help as when needed in completion of project
report. I wish to extend my thanks to one and all those have contribution even in a small
way in the completion of my project work.
Finally I am very much thankful to Acharya N. G. Ranga Agricultural University
and Indian Council of Agricultural Research for the financial support received to pursue
MBA(Agribusiness).
Though many have not been mentioned, none are forgotten.
the result of the original project work done by me. I also declare that no material
contained in the project report has been published earlier in any manner.
I. D. No. RMBA/2012-26
Date:
AUTHOR : SARMAN LAL CHAUDHARI
FACULTY : AGRICULTURE
YEAR OF
: 2014
SUBMISSION
ABSTRACT
Soybean (Glycine max (L) Merrill) is an important oilseed crop in the World. It is
known as the ‘golden bean’, ‘miracle crop’ etc., because of its several uses. India’s rank
was fifth in soybean production (14.67 million metric tonnes) in the world in 2012-13.
Soybean production is mainly confined to Madhya Pradesh, Rajasthan, Maharashtra,
Andhra Pradesh, Karnataka, Uttar Pradesh and Chhattisgarh. The area under the crop in
Madhya Pradesh during 2012-13 was 60.32 lakh hectares and the production was 78.00
lakh tonnes with productivity of 1293 kg/ha -1. In Madhya Pradesh major soybean producing
districts are Ujjain, Devas, Shajapur, Sehore, Indore, Ratlam, Balaghat, Chhindwara,
Gwalior, Bhopal, Jabalpur, Itarasi, Sagar, Mandsaur, Datia, Rewa and Satna. In Mandsaur
district, soybean crop is being grown by large number of farmers on an area of 2.7 lakh
hectares as situated in the fertile land of Malwa Plateau . The soybean processing unit is the
main industry of this district.
The study was conducted in Mandsaur districts of Madhya Pradesh with the
following objectives:
1. To study the investment pattern of small, medium and large scale soybean
processing units in the study area.
2. To estimate the cost and returns pattern of selected soybean processed products in
Mandsaur districts.
3. To understand the business viability of the selected units.
4. To find out the constraints faces by the processors
For the study, 8 small, 5 medium and 2 large processing units were selected from
Mandsaur district of Madhya Pradesh. Thus, a total sample size of 15 processing units
formed the basis for analysis of investment pattern, cost and return, economic feasibility
and constraints faces by processors. The results are presented here under.
Regarding the investment pattern, the total capital requirement for large, medium
and small scale processing units were Rs. 10,08,18,500, Rs. 5,00,15,000 and Rs. 94,18,700
respectively. It is obvious that as the plant size increases the capital requirement also
increases. The total cost and return in processing of 1028 tonnes of soybean into soy oil and
soy meal in large scale unit worked out and is around Rs. 38,489.09 per tonne per year.
Thus, the net returns per year amounted to Rs. 21,126.67 per tonne. The total cost of
processing of 440 tonnes of soybean into soy nuggets and soy flour in the medium scale
unit was Rs. 54,123.46 per tonne per year and is against the net return of Rs. 27,921.99 per
tonne per year. Similarly, In the small scale processing unit the total cost incurred was Rs.
2,07,308.27 per tonne per year from processing of 15 tonnes of soybean into soy milk and
tofu and net return was Rs. 1,57,491.73 per tonne per year. In concern of the business
feasibility, the NPV of large scale soybean processing unit at 14 per cent discount rate was
around Rs.7,91,92,444.17 with IRR of 65.64 per cent and the BC ratio 1.42. Whereas for
the medium scale unit NPV, IRR and BC ratio were Rs. 4,50,78,550.63, 63.06 per cent and
1.40 respectively. Similarly, Rs.1,00,05,197.01, 94.13 per cent and 1.73 were the NPV,
IRR and BC ratio of small scale processing unit. Thus the BC ratio of all the processing
units were greater than one, showing their favourable financial position and viability of
business.
With regard to the constraints faced by the processors, Non availability of quality
produce, erratic power supply, fluctuation in soybean prices were found to be the major
constraint in the processing of soybean into different processed products. The other
problems faced by the processing units are lack of suitable transport facility and less
awareness among the consumers regarding soy processed products, maintenance of
machinery, storage facility and non availability of cost effective technology.
The following abbreviations shall be used both for singular and plural units.
% : Per cent
@ : At the rate of
& : And
Rs. : Rupees
l : Litre
Fig. : Figure
ha : Hectare
Kg : Kilogram
MT : Metric Tonnes
No. : Number
Viz. : Namely
i.e. : that is
t : Tonne
ha : Hectare
TPA : Tonnes Per Annum
dept. : Department
t ha-1 :
Tonne Per Hectare
INTRODUCTION
Soybean (Glycine max (L) Merrill) is a farm crop that belongs to the family of
Fabaceae. It is an annual herbaceous plant which is bushy and erect with leafy plant
structure. Its height is 40 –100 cm. The number of seeds per pod is 2 – 5. Soybean
grows well in warm and moist climate. Soil temperature of 15.5 0C or above favours
rapid generation and vigorous seeding growth. The crop cycle is of about 3 months.
Seeds are sown from the beginning of July, the plants develop pods during mid July and
the crop is harvested in the mid of September or early October.
Soybean is cream coloured, oval shaped and is of the size of common pea.
Soybean is a kharif crop. Soybean is richest, easiest and cheapest available source of
protein. The processed soybean is the largest source of protein feed and second largest
source of vegetable oil in the world. Soybean oil is widely used as edible oil whereas its
meal is mainly used in animal feed industry.
The soybean is an environment friendly grain legume, which is also called as the
Golden bean of 20th century because of its several uses. The term ‘the miracle bean’ is
synonymously also used for. The crop has wide geographical adaptation and unique
chemical composition with an unmatched composition of an excellent source of protein
and oil. It contains about 43 per cent of good quality protein, 21 per cent carbohydrates,
5 per cent minerals, 8 per cent moisture, 19 per cent fat, 4 per cent fiber and reasonable
amounts of vitamins and minerals. Apart from the utilization of soybean as vegetable, it
is also used in oil industry where it occupies first place in the world oil production. It
has tremendous potential to meet the protein-calorie malnutrition of the ever increasing
Indian population. Soy based food products are also suitable for diabetic patients as they
contain less carbohydrates and low unsaturated fatty acid. Soy protein is also good to
people who are allergic to animal protein. Due to higher protein content it is also known
as ‘the bone less meat’. It is one of the most economical protein sources in the world
and much cheaper than the animal flesh.
Importance of soybean crop
Soybean is one of the major oilseed crops in the world accounting for 27 % of
the total oil seed production in the world and 85% of the world’s production is crushed
for oil extraction. World soybean production during 2012-13 was 281.7 million metric
tonnes. The major soybean producing countries in the world are United States of
America with 85.7 million metric tonnes (30.43%) ranks first in production of soybean
followed by Brazil with 79.82 million metric tonnes (28.34 %), Argentina with 53.27
million metric tonnes (18.91%) and China with 18.49 million metric tonnes production
(6.6%). China is the largest importer and United States is the largest exporter of
soybean in the world (www.faostat.fao.org).
India ranks fifth in soybean production in the world with 14.67 million metric
tonnes production (5.21 per cent). Though commercial production of soybean began in
1969-70, soybean production is mainly confined to Madhya Pradesh, Maharashtra,
Rajasthan, Chhattisgarh, Karnataka, Tamilnadu, Uttar Pradesh and Andhra Pradesh.
After 1972, India’s soybean production began to skyrocket i.e. from 0.032 million
hectares and 0.014 million metric tonnes in the year 1969-70 to 10.80 million hectares
and 14.67 million metric tonnes in 2012-13 and the productivity has also increased from
a mere 426 kg/hectares to 1353 kg/hectares in 2012-13 (www.indiastat.com).
In India, soybean is mainly cultivated during kharif season as rainfed crop and to
some extent in rabi season under irrigated condition. In India, Madhya Pradesh (MP)
has the largest area for production of soybean (55.63%) followed by Maharashtra
(38%), Rajasthan (9%), Chhattisgarh (3%), Karnataka (1.5%), Tamilnadu and other
states of nation (www.indiastat.com).
Table 1.1 India in World Soy Industry (2012-13)
The figures in the above table show that the share of India in the world soybean
production is 5.2 per cent, in soy oil production it is 3.8 per cent whereas it imports
about 11 per cent of the total soy oil of the world. India contributes to 4.7 per cent of
soy meal production and 6.7 per cent of soy meal exports.
The area under the crop in Madhya Pradesh during 2012-13 was 60.32 lakh
hectares and the production was 78 lakh tonnes with productivity of 1293 kg/ha. In
Madhya Pradesh major soybean producing districts are Ujjain, Devas, Shajapur, Sehore,
Indore, Ratlam, Balaghat, Chhindwara, Gwalior, Bhopal, Jabalpur, Itarasi, Sagar,
Mandsaur, Datia, Rewa and Satna (www.mpkrishi.org).
Sources : www.mapsofindia.com
* Highlighted areas are soybean cultivating regions in India.
With the increasing health consciousness among the general public soybean’s
use is gaining acceptance in the form of textured vegetable protein popularly known in
India as soy badi or soy nuggets, soy fortified wheat flour for making nutritious chapatis
and also for other uses. Soy biscuits made from blends of soybean and wheat flour are
also available in the market. These products are penetrating into the diet of the Indians.
Here it is important to mention that adding soy protein with cereal protein in
any form, improves the quality of the protein and the resultant product by increasing its
nutritional value. The same thing happens when soy protein is admixed with
cow/buffalo milk. Because of the non availability of soy milk and tofu everywhere in
the country, this products usage is confined only to its local area of production. But this
soy milk is lactose free, dairy free and relevant to certain consumers with lactose
intolerance or daily protein allergy. It requires extensive promotional activities at the
national level to make it popular. Being mainly the country of vegetarian people, India
has indeed a very great potential for soy products. The very large vegetarian population
of this region promises a bright future for soy foods. Its higher nutritional as well as
medicinal value combined with affordable price is increasing the demand for soy
processed foods.
The major share of soybean production in India comes from Madhya Pradesh,
Maharashtra and Rajasthan. So majority of soy processing units are situated in these
states. It has been estimated that nearly 85 per cent of soybean produced in the country
is processed and nearly 40 per cent is processed in Madhya Pradesh alone. Therefore,
soybean processing is an important sector in Madhya Pradesh. There are more than 130
soybean processing units in Madhya Pradesh out of more than 370 across the country
but most of them are engaged in processing soybean for oil, de-oiled cake (DOC) and
lecithin. Only a few are engaged in making value added products indicating
apprehensions on viability of investments in soybean value added products. With the
increasing level of awareness of the people with regard to the soybean value added
products, the demand for the products is also on the raise. In this regard, there is need to
understand the financial implications of processing of various value added products of
soybean. Therefore, in the present study, an attempt is made to find out the financial
feasibility and profitability of processing soybean value added products in Mandsaur
district of Madhya Pradesh with the following specific objectives.
1.3 OBJECTIVES OF INVESTIGATION
1. To study the investment pattern of small, medium and large scale soybean
processing units.
2. To estimate the cost and returns pattern of selected soybean processed products.
3. To understand the business viability of the selected units.
4. To find out the constraints faced by the processors in the procurement,
processing and marketing.
The study was conducted in Mandsaur district of Madhya Pradesh. The study
mainly concentrates on initial investment pattern, cost and returns, business viability
and constraints involved in processing of soybean value added products. Three types i.e.
large, medium and small scale soybean processing unit have been taken into
consideration. It is noticed that most of the large soy processing units are involved in
soy oil and soy meal processing and medium scale unit are involved into production of
soy nuggets and soy flour whereas small scale is producing mainly soy milk and soy
paneer (Tofu). Hence, this study throws light on various financial aspects involved in
processing of value added products of soybean and critically examines economic
feasibility of processing unit. It would also throw light on constraints in production and
would be a guide to the processers to choose their plant size.
The study pertained to the owners of the private processing units who were
generally suspicious of the motives of any investigation because of fear of taxation.
Therefore, the investigator had to face certain drawbacks in ascertaining the accuracy of
some data. Great care was taken in eliciting the required information as accurately as
possible. Single person’s research is always confronted with various bottle necks and
hence the present study was not an exception to these inherent limitations. This study
was confined to a particular region and to specific units and hence conclusions drawn
are applicable only to such units where similar conditions exist.The present study was
undertaken in Mandsaur jurisdictions of Madhya Pradesh and both qualitative and
quantitative data were collected from different soy processing units in a very limited
period of time and for a limited sample size. Hence, generalization of the results has to
be attempted carefully.
1.6 STRUCTURE OF THE PROJECT REPORT
REVIEW OF LITERATURE
In this chapter an attempt is made to critically review the literature of the past
research work done relevant to the present study. For any investigation, the findings of
earlier studies may possibly give insight of the problem and sets direction for the
research. Such a review would help the researcher to organize the research on proper
lines and bring about refinement in the study. A brief account of the previous work done
on the study is and compiled to enable better understanding of issues concerned to the
present study under the following sub heads.
Manjunath (2003) compared the private and public sector fruits and vegetable
processing units in Bangalore district of Karnataka. He indicated that the capital
investment was higher on plant and machinery (80.58%) in private sector whereas in
public sector, it was 74.65 per cent.
Joshi et al. (1999) studied the capital investment in the home, cottage, small and
large scale mango pulp making units in South Konkan region. In these, the fixed capital
accounted to the tune of Rs.1.01 lakh, Rs.1.6 lakh, Rs.1.8 lakh, and Rs.20.7 lakhs
respectively. The working capital accounted for Rs.2.25 lakhs, Rs.11.35 lakhs, Rs.4.34
lakhs and Rs.21.03 lakhs respectively. The working capital was more in proportion than
fixed capital in all the categories. Analysis also indicated that processing of mango pulp
was more economical as indicated by higher scale efficiency than all other categories.
Teggi et al. (1998) studied the costs involved in jaggery production in Bijapur
district. The investment required for establishing jaggery processing unit with a capacity
of one ton per day was around Rs.97,000. The share of the shed in total investment was
maximum (29%) followed by investment on land (21%) and cane crusher (20%). The
investment made on jaggery processing unit was repaid with in a short span of one year.
Kalse et al. (1996) found that the Initial investment for the establishment of oil
industries, dal mills and cotton ginning industries was Rs. 3.19 lakhs and 5.63 lakhs
respectively. The cost of machinery was the major item contributing 61.43 per cent and
59.12 per cent in dal mill and cotton ginning industry respectively. The average capacity
utilization of oil industry, dal mill and cotton ginning industry was 41.67 per cent, 71.20
per cent and 47.79 per cent, respectively
Singh et al. (1994) while studying the economics of marketing and processing of
pulses in Bhundelkhand region (Uttar Pradesh), estimated that of the total cost,
land/building accounted for the highest share (51.97 %) followed by machinery and
equipment (40 %), electricity fitting (4.72 %) and other fixed capitals (3.31 %) in arhar
processing plant. In case of grain processing unit land/building, machinery, electricity
and other fixed capital accounted for 50.26, 42.19, 4.77 and 2.78 per cent, respectively.
Sharma and Pandey (2008) studied the costs and net profits from Guava
processing in Uttar Pradesh in the year 2004-05. The cost of processing guava into jam
and jellies was estimated at Rs. 3,96,482 per year, the gross returns obtained from
selling it worked out to Rs. 5,28,750 per year and the net returns obtained were Rs
1,32,268 per annum. It was observed that the processing of guava was more profitable
than selling it raw.
Shaheen and Gupta (2004) in their study on economics and potential of apple
processing industry in Kashmir province of Jammu and Kashmir state found that
average per quintal processing cost of concentrated apple juice was computed at Rs.
2807.13, while the net return was Rs. 2189.23 per quintal. They also found that at least
four processing plants with a processing capacity of 50000 MT per annum can be
established in Kashmir, where the raw material is more than sufficient to run them at
full capacity.
Singh et al. (2003) conducted a study to find out the techno-economic feasibility
of processing of aonla products, like the preparation of aonla pulp based products (jam,
squash, sauce) and non pulp based candy (segmented). They found that the per litre
processing cost of squash and cost of 1 kg candy was much lower than that the cost of 1
litre sauce and one kg jam.
Wadkar et al. (2001) studied the economics of fruit processing unit of kokum in
Ratnagiri district of Maharashtra. The study revealed that, in kokum processing industry,
on an average 317.07 MT of fresh fruits were used to get dried kokum rind and Amrit
kokum, and 685 kg of fresh fruits were used to produce kokum butter. The per factory
total capital investment made towards processing of dried Kokum rind, Amrit kokum
and Kokum butter accounted to Rs.1,04,418/-, Rs.3,73,385/- and Rs.2,73,807/-
respectively. The cost of processing of one quintal of dried kokum rind was
Rs.2,143.91/- and of 100 bottles of Amrit kokum was Rs.2,031.68 and cost of
processing per tin (10 kg) of kokum butter was Rs.1, 482.14. The study had also
identified three marketing channels for the distribution of kokum products viz., (1)
Producer- consumer, (2) producer- wholesaler- retailer- consumer and (3) producer-
contractor- retailer- consumer. The cost of marketing worked out to Rs.3.90 per kg of
dried kokum rind, Rs.6.30 per litre of Amrit kokum and Rs.14.20 per kg of kokum butter.
Marketing cost items includes octroi, transport and sales tax paid on kokum products.
Sharma (2013) studied the business viability and potential of guar (cluster bean)
industry in India. The study revealed that Benefit Cost Ratio obtained was 1.11 for the
plant having processing capacity of 5000 TPA guar seed. The NPV and IRR for the
investment were found to be Rs.1101.04 lakh and 72.53 per cent respectively at 14 per
cent discount rate showing the financial feasibility of investment. The Pay Back Period
for the investment was 2 years 24 days. From study it was concluded that The guar gum
processing is a profitable business for the investors and it can be seen by good Benefit
Cost Ratio (1.11) and lower Pay Back Period. The investment is also financially feasible
as represented by NPV and IRR of the investment.
Kakade et al. (2011) studied the financial feasibility of grapes winery units in
Maharashtra. About 32 grape winery units were selected from Pune, Nasik and Sangli
districts. In order to know the financial feasibility of project, the evaluation measures
used were net present worth, benefit cost ratio, and internal rate of return. The result
revealed that present worth of benefit was Rs. 651.47 lakh while present worth of cost
was Rs. 439.93. Thus, net present worth was Rs. 211.54 lakh. Benefit cost ratio was
found to be 1.48 and while, the internal rate of return (IRR) was found to be 65.50 per
cent.
Sundarevarodarayan and Ramanathan (2008) reported that B C ratio and IRR for
new plantations were 1.42 and 34.36 per cent, while for old plantations it was 1.06 and
17.17 per cent respectively. Further, they suggested that need to create an awareness to
adopt improved varieties (HYV) which not only reduce the cost of cultivation but also
increase the net income among the different size group of farmers.
Jayesh (2001) used NPV, IRR, BCR and PBP for analysing the financial
feasibility of pepper and cardamom plantations in Kerala and Karnataka. The financial
feasibility analysis revealed that the investment in pepper and cardamom plantations in
the states of Kerala and Karnataka was economically sound even under the risks of
increase in costs and decrease in returns.
Patil et al. (2000) evaluated the economic feasibility of teak plantation in Nagpur
forest circle in Maharashtra state. For testing the economic viability, project evaluation
techniques were used. The benefit cost ratio, net present value, profitability index,
payback period and internal rate of return (at 12% discount rate) were 5.77, Rs. 102275,
9.49, 9 years and 34.24 per cent, respectively, while the corresponding figures at 15 per
cent discount rate were 4.198, Rs. 52003, 6.30, 9 years and 33.24 per cent. This
indicated that all the parameters of economic feasibility test turned out to be favourable,
thereby justifying investment in teak plantations, which was found to be economically a
viable proportion.
Singh (2008) found that the major problems faced by processing sector were, low
productivity of raw materials leading to high unit price of final products, lack of storage
infrastructure leading to wastage and increasing unit price of finally available quantity,
lack of trained human resource, inadequate knowledge of material and lack of market
intelligence and inadequate cold storage and refrigerated transport facility of the fresh as
well as processed commodities which needs to be solved immediately for the growth of
processing sector.
Yadav and yadav (2007) studied the prevailing practices of post harvest handling
and management (focusing on processing, pre-cooling, grading, packaging, transport,
storage and marketing) of horticultural produce (including fruits and vegetables) in the
north eastern region of India: Assam, Arunachal Pradesh, Manipur, Meghalaya,
Mizoram, Nagaland, Sikkim and Tripura. Postharvest handling, processing and
marketing constraints were enumerated. Some thrust areas, like poor marketing,
transportation, cold storage facility and absence of insurance facility were identified as
problems in post-harvest technology for value addition.
Rangasamy and Dhaka (2007) found that the economic efficiency of dairy plants
is severely influenced by a variety of constraints at 3 important value addition stages of
milk procurement, processing and manufacturing and distribution of dairy products.
This study was conducted to compare the constraints faced by cooperative and private
dairy plants at these vital value addition stages. Some of the members of the cooperative
society selling the milk to private milk vendors and some of the collection centers
taking the inadequate quantity of milk were the very serious problems faced by
cooperative and private dairy plants, respectively. Underutilization of transport vehicles,
underutilization of chilling centres and underutilization of plant at milk processing and
manufacturing levels were the most serious constraints faced by both the cooperative
and private dairy plants. Encouraging value addition, effective sales promotion and
advertisement strategy and also focusing on consumer-oriented market research and
development were some of the suggested strategies.
Raghuwanshi et al. (2006) from their study on price spread and constraints of
marketing of soybean in Sehore district of Madhya Pradesh revealed that the higher
transportation rates, lack of farmers organization, low price during the peak period,
distance from mandi and lack of information about warehouses were the major
constraint faced by the most of producers and thus they needed special attention for
their solution.
The study was conducted in Mandsaur district of Madhya Pradesh. It lies between
the parallels of latitude 230 45' 50" North and 250 2' 55" North, and between the
meridians of longitude 740 42' 30" East and 750 50' 20" East. Mandsaur district forms
the northern projection of Madhya Pradesh from its Western division, i.e.,Ujjain
Commissioner's Division. The district is an average size district of Madhya Pradesh and
is a highly industrialised district. It extends for about 142 km from North to South and
124 km from East to West and spread in the total area of 5521 km² with a population of
1,339,832 in 2011. The district is bounded by two districts namely Neemuch in the
West-North and Ratlam district of Madhya Pradesh bounds it in the South. It is also
surrounded by Pratapgarh, Chittorgarh, Kota, Jhalawar districts of Rajasthan.
3.1.2 Topography
Mandsaur is one of the Western districts of Madhya Pradesh and is something like
a dumbell in shape. The country slopes gently and smoothly Northward from the high
table land of Malwa plateau in Madhya Pradesh towards Mandsaur. It is well watered
drained by Shivna river flowing from the centre.
3.1.3 Demography
The climate of this district is generally dry except in South-West monsoon. Year
may be divided into four seasons. The cold season is from December to February. This
is followed by the hot season from March to the middle of June. Thereafter the South-
West monsoon season starts and continues upto about the middle of September. In this
district there is rapid increase in temperatures after February. The month of May is
generally the hottest month with the mean daily maximum temperature at 39.8 0 C. and
the mean daily minimum at 25.40 C. Days are intensely hot in summer and hot dust-
laden winds which blow during this season add to the discomfort. On individual days in
the summer session and in June before the onset of the monsoon the day temperatures
often go up above 450 C. January is the coldest month with the mean daily maximum
temperature at 35.00 C. and mean daily minimum at 9.30 C. The average annual rainfall
in the district is 786.6 mm. The rainfall in the Districts in the region round
about Sitamau- Mandsaur- Malhargarh , and in general increases in the Northern part of
the district from the West towards the East. Due to congenial climate, it is also famous
for large production of opium around the world.
Fig: 3.1 Map of Mandsaur District
3.2 SAMPLING PROCEDURE
Mandsaur district of Madhya Pradesh was selected for the study as the district is
one of the major producers of soybean in the Madhya Pradesh and majority of the
soybean processing units are located in this district.
For the study two large, five medium and eight small scale processing units
involved in producing various processed products were purposively selected from
Mandasaur district of Madhya Pradesh. Thus a total sample size of fifteen processing
units formed the basis of the study.
Both primary and secondary data was collected for this study. The primary data
on the investment details, cost and returns in processing, constraints in procurement,
processing and marketing etc. were collected from the processors of the selected units
with the help of well designed pretested questionnaire prepared specifically for the
purpose. The information on the area, production and other details of soybean
production and processing were obtained from the secondary sources like the records of
the selected units, previous reports, journals, state agriculture departments, websites etc.
The data collected from primary and secondary sources were analyzed in
multiple stages. The data were subjected to statistical analysis through the following
techniques.
The data collected were presented in tabular form to facilitate easy comparison.
The simple tabular analysis was employed for analysis of the capital investment, cost
and return structure and constraints in soybean processing. Constraints faced by the
soybean processing units were calculated by the opinion survey method through the
response of respondents regarding particular problem. The data was summarized with
the help of statistical tools like averages and percentages to obtain meaningful results.
3.4.2 Functional analysis
For the project feasibility analysis the discounted cash flow technique which has
an advantage of reducing cash flow to single point of time was used to facilitate the test
of feasibility. The discounting procedure estimate the present value of an amount either
received or paid out in the future. The discounting factor permits the determination of
the present value and has found application in evaluation of project. Three financial
feasibility techniques were used in the study to evaluate the feasibility of investment in
soybean processing units viz; Net Present Value (NPV), Internal Rate of Return (IRR)
and Benefit Cost Ratio (BCR).
∑
( )
Where,
Rt = Cash inflow in the t th year (in Rs),
Ct = Cash outflow in the t th year (in Rs),
I = Discount rate 14 % per annum,
t = Present age of processing unit (in years), and
T = Expected life of processing unit (in years).
3.4.2.2 Benefit Cost Ratio (BCR)
The benefit cost ratio of an investment is the ratio of the discounted value of all
cash inflows to the discounted value of all cash outflows during the life of soybean
processing units. It is worked out by discounting the future gross returns and cost during
the life period of processing unit at the rate of 14 per cent.
( )
( )
∑ and ∑
( ) ( )
Where,
Bt = Benefit from unit in the t th year,
Ct = Cost of unit in the t th year,
I = Rate of discount (14% per annum),
t = Age of unit (in years), and
T = Economic life of unit (in years).
The rate at which the Net Present Value of the project is equal to zero is called
Internal Rate of Return (IRR) to the project. The internal rate of return is arrived at,
through interpolation technique by using different discount rates so as to see that net
present value is equated to zero. The net cash inflows were discounted to determine the
present worth by the following interpolation technique
In this method, problem faced by the processor is expressed in ten point scale.
Two extremities of a condition namely the condition of no problem with one score point
and the condition of a severe problem with a maximum of ten score point. Processors
were asked to rate the individual problem as perceived and experienced by them in
various processing and related activities in the range of one to ten to depict the exact
severity of the problem.
The problems so identified were categorized into seven broad groups and for
each group the ratings were expressed in percentages based on scores of the individual
problems in that specific group and ranked accordingly. The formula used for this
purpose is given as.
Fixed cost: The fixed cost is the cost associated with the owning of fixed resources
which incurred on the fixed assets. The fixed cost includes depreciation, administrative
charges, insurance premium etc.
Interest on fixed capital: It is the interest on the fixed cost and is calculated at 10 per
cent per annum.
Interest on working capital: This was calculated on the entire working cost of the
processing unit at the prevailing interest rate of 12.5% per cent per annum.
Processor: Processor is a person who processes the raw soybean by mechanical means.
He is a person who purchases raw soybean from the wholesalers/village
traders/producers, then converts it into different value added product and sell the
products to the next intermediary in the marketing channel.
Raw material costs: The price paid by the unit, as value of soybean purchased, formed
the raw material costs. It was the total value of soybean utilized in producing processed
soy products.
Soy flour: It is made by roasting the soybean, removing the coat, and grinding into
flour. Soy flour is manufactured with different fat levels.
Soy meal: It is a solid residue bi-product produced after the extraction of soy oil, also
known as De-oiled cake. Soy meal is a significant and cheap source of protein for
animal feeds and many prepackaged meals.
Soy milk: It is made by soaking soybean and later on grinding them with water. The
fluid which results after straining is called soymilk.
Soy nuggets: It is a textured soy protein made from defatted soy flour, also called as
soy chunks. It is often used as a meat analogue or meat extender. It is quick to cook,
with a protein content equal to that of meat.
Soy oil: It is one of the most widely consumed vegetable oil extracted from the seeds of
the soybean by crushing it.
Tofu: It is a nutritious product made by coagulating hot soy milk with some food grade
chemicals such as calcium chloride, magnesium chloride, calcium sulphate, acetic acid
and citric acid etc. It is also known as soy paneer.
Variable cost: The expenses that vary proportionately with the level of processing
activities or volume of output of any business. It includes cost of raw material
(soybean), chemicals, packaging, wages for casual workers, electricity and fuel charges
etc.
Small scale soybean processing industry: where the initial investment in plant and
machinery is more than Rs. 25 lakh but does not exceed Rs. 5 crore.
Medium scale soybean processing industry: where the initial investment in plant and
machinery is more than Rs.5 crore but does not exceed Rs.10 crore.
Large scale soybean processing industry: where the initial investment in plant and
machinery is more than Rs.10 crore.
Fig: 3.1 Map of Mandsaur District
Chapter IV
4.1.1 Investment details of the selected large scale soybean processing unit
The large scale soybean processing unit requires huge initial investment. It
requires a minimum of 3-4 months time to set up the plant and start the activities. It is
seen from the Table 4.1 that the total fixed capital investment was Rs. 10,08,18,500
and the major investment items are on land, machinery, equipment and building. The
investment on land was Rs. 5,79,36,000 which accounts for 57.47 per cent of the total
investment cost, whereas the investment on building and machinery and equipment
worked out to Rs. 1,34,78,000 (13.37 per cent) and Rs. 1,52,57,500 (15.13 per cent)
respectively. The investment on vehicles accounted to 8.14 per cent of the total cost
whereas the investment on other fixtures contributed to 5.89 per cent to the total cost.
Table 4.1 Investment details of the selected large scale soybean processing unit
The details of investment of medium scale soybean processing unit are given in
the Table 4.2. The total investment costs in medium scale soybean processing unit
worked out to Rs. 5,00,15,000. The investment on land amounted to Rs. 3,01,07,000
with 60.20 per cent of total investment cost. The investment on machinery and
equipment worked out to Rs. 73,43,000 (24.49 per cent) whereas the investment on
building amounted to Rs. 64,43,000 (12.88 per cent) and investment on other fixtures
amounted to Rs. 12,14,000 (2.43 per cent) of the total investment cost respectively. The
cost of vehicles worked out to Rs. 49,08,000 (9.81 per cent).
Table 4.2 Investment details of the selected medium scale soybean processing unit
4.1.3 Investment details of the selected small scale soybean processing unit
The details of investment of small scale soybean processing unit are given in the
Table 4.3. From the table it is observed that the major investment costs in small soybean
processing unit was on land whereas the total investment was Rs. 94,18,700. The
investment on land, building and machinery and equipment worked out to Rs. 45,80,300
(48.63 per cent), Rs 25,82,600 (27.42 per cent) and Rs. 15,31,000 (16.25 per cent)
respectively. It is seen that the expenditure on vehicles and other fixtures was Rs.
6,24,000 (6.63 per cent) and Rs.1,00,800 (1.07 per cent) of the total investment cost
respectively.
Table 4.3 Investment details of the selected small scale soybean processing unit
All the costs incurred by the processing unit from the point of procurement of
raw materials till the produce is brought to the marketable condition are grouped under
two broad heads, viz ,fixed cost and variable cost which together constitutes the total
processing cost. There is huge difference among the processing cost of large, medium
and small size of processing unit as the capital requirement is different to produce
different products. The large scale units are producing mainly soy oil and soy meal
whereas medium size units are involved in the production of soy nuggets and soy flour.
The small processing units produce soy milk, and soya paneer (tofu) mainly as per their
convenience and availability of capital.
4.2.1 Processing cost and returns from the selected large scale soybean processing
unit
The cost of large scale soybean processing unit is given in the Table 4.4.
Processing is the important function in soybean as it makes it suitable for consumption.
The economy of the processors depends upon the capacity of the plant utilized along
with the efficient exploitation of the product. The processing cost for two products i.e.
soy oil and soy meal, of processing units is presented in the Table 4.4. The total
processing cost worked out was Rs. 38,489.09/tonne. The total processing cost is
divided into variable cost and fixed cost. The variable and fixed cost incurred is
estimated as Rs. 34,079.97/tonne (88.54 per cent) and Rs. 4,409.12/tonne (11.46 per
cent) in large processing units respectively. Of the total variable cost, the cost of raw
material and chemicals (Rs. 26,021.40/tonne) was the major cost component which
constituted about 67.61 per cent of the total processing cost. The next important variable
cost incurred was interest on working capital estimated around Rs. 3,786.66/tonne
which contributed about 9.84 percent of the total processing cost. Beside these, soybean
processing machineries requires consistent and long hours of electricity supply for
continuous processing. The electricity and fuel charges, wages for labour, transportation
cost and cost of packing material were about Rs. 1,089.49/tonne (2.83 per cent), Rs.
992.22/tonne (2.58 per cent), Rs. 749.03/tonne (1.95 per cent) and Rs. 466.93/tonne
(1.21 per cent) respectively. The other variable cost items were storage charges,
spoilage cost and repair and maintenance charges on which the expenditure incurred by
large processors combinedly constituted about 1.95 per cent of total processing cost.
The total fixed cost constituted about 11.46 per cent of total cost. The main component
of fixed costs of large processing unit was salary to permanent employees which was
about Rs. 1,432.20/tonne constituting 3.72 per cent. The depreciation on the machinery,
equipment and vehicles was valued at Rs. 1,424.61/tonne (3.70 per cent). The
depreciation on building was Rs. 504.98/tonne (1.31 per cent) for large scale processing
unit. The interest on fixed capital was evaluated @ 10 per cent which worked out to Rs.
400.83 contributing about 1.04 per cent of total processing cost. The other components
of fixed cost are administrative charges, insurance premium, license fee and other
charges.
Table 4.4 Details of the processing cost of the selected large scale soybean
processing unit
Amount Amount
S. No. Particulars %
(Rs./year) (Rs./Tonne)
Variable cost
1 Cost of raw materials and chemicals 26750000 26021.40 67.61
2 Cost of packing materials 480000 466.93 1.21
3 Storage charges 321000 312.26 0.81
4 Electricity and fuel charges 1120000 1089.49 2.83
5 Transport cost 770000 749.03 1.95
6 Wages for labour 1020000 992.22 2.58
7 Repairs and maintenance 214000 208.17 0.54
8 Telephone charges 39420 38.35 0.10
9 Sales tax/market cess/mandi tax 43100 41.93 0.11
10 Spoilage costs 236000 229.57 0.60
11 Others 148000 143.97 0.37
12 Interest on working capital @ 12.5 % 3892690 3786.66 9.84
Total variable cost 35034210 34079.97 88.54
Fixed cost
1 Depreciation on building 519120 504.98 1.31
2 Depreciation on machineries and vehicles 1464500 1424.61 3.70
3 Administrative charges 392700 382.00 0.99
4 Payment to permanent labour 1472300 1432.20 3.72
5 Insurance premium 22400 21.79 0.06
6 License fees 15500 15.08 0.04
7 Others 234000 227.63 0.59
8 Interest on fixed capital @ 10 % 412052 400.83 1.04
Total fixed cost 4532572 4409.12 11.46
Total processing cost 39566782 38489.09 100.00
Total processed quantity (Tonnes) 1028
The large scale soybean processing unit processed about 1028 tonnes per year,
working 8 hours a day and 250 days in a year. As indicated in the Table 4.9. total cost of
the processing was Rs. 38,489.09/tonne and the gross return worked out to Rs.
59,615.76/tonne. Therefore a net return of Rs. 21,126.67/tonne was obtained from the
processing of soybean into soy oil and soy meal. Thus, for every rupee of investment in
processing of soybean, about Rs. 1.55 was obtained as returns, indicating its
profitability.
Table 4.5 Returns from processing of soybean into soya oil and soy meal from the
selected units
4.2.2 Processing cost and returns of the selected medium scale soybean processing
unit
The processing cost of medium scale processing unit is worked out and
presented in the Table 4.6. It is evident from the data that the total annual processing
cost of Rs. 54,123.46/tonne was incurred to produce soy nuggets and soy flour. The
fixed cost was estimated as Rs. 6,632.20/tonne which accounted to 12.25 per cent of
the total processing cost. The variable cost amounted to Rs. 47,491.26 /tonne
accounting for 87.75 percent of total processing cost. It was worth noting that,
amongthe variable cost items, cost of raw material constituted more than half of the
total cost of processing. The cost of raw materials and chemicals were the major
component of variable cost and it worked out to Rs. 35,409.09/tonne (65.42 per cent).
The other major component of variable cost was interest on working capital, which
accounted for Rs. 5,276.81/tonne i.e 9.75 per cent of total cost. The other items of
expenditure was electricity and fuel charges which amounted to Rs. 1,909.09/tonne
contributing to 3.53 per cent of total cost. Other costs, which followed, were wages to
labour, transportation charges, cost of packing material and storage charges which
amounted to Rs. 1,479.55/tonne (2.73 per cent), Rs. 1,204.55/tonne (2.23 per cent), Rs.
772.73/tonne (1.43 per cent), and storage charges Rs. 506.82/tonne (0.94 per cent) per
annum respectively. Among the fixed cost components, payment to the permanent
employees was the major cost contributing factor with Rs. 2,222.73/tonne (4.11 per
cent). The other items of fixed cost were depreciation on machinery and vehicles,
depreciation on building, interest on fixed capital and administrative charges which
accounts for Rs. 2,061.31/tonne (3.81 per cent), Rs. 698.07/tonne (1.29 per cent), Rs.
602.93 (1.11 per cent) and Rs. 572.73/tonne (1.06 per cent), per annum respectively.
Table 4.6 Details of the processing cost of the selected medium scale soybean
processing unit
Amount Amount
S.No. Particulars %
(Rs./year) (Rs./Tonne)
Variable cost
1 Cost of raw materials and chemicals 15580000 35409.09 65.42
2 Cost of packing materials 340000 772.73 1.43
3 Storage charges 223000 506.82 0.94
4 Electricity and fuel charges 840000 1909.09 3.53
5 Transport cost 530000 1204.55 2.23
6 Wages for labour 651000 1479.55 2.73
7 Repairs and maintenance 105000 238.64 0.44
8 Telephone charges 26830 60.98 0.11
9 Sales tax/market cess/mandi tax 29530 67.11 0.12
10 Spoilage costs 113000 256.82 0.47
12 Others 136000 309.09 0.57
13 Interest on working capital @ 12.5% 2321795 5276.81 9.75
Total variable cost 20896155 47491.26 87.75
Fixed cost
1 Depreciation on building 307150 698.07 1.29
2 Depreciation on machineries and vehicles 907000 2061.36 3.81
3 Administrative charges 252000 572.73 1.06
4 Payment to permanent labour 978000 2222.73 4.11
5 Insurance premium 19230 43.70 0.08
6 License fees 10500 23.86 0.04
7 Others 179000 406.82 0.75
8 Interest on fixed capital @ 10% 265288 602.93 1.11
Total fixed cost 2918168 6632.20 12.25
Total processing cost 23814323 54123.46 100.00
Total processed quantity(Tonnes) 440
The Table 4.7 shows that the gross returns (Rs. 82,045.45/tonne) obtained from
the medium scale processing unit were nearly three times of net returns (Rs.
27,921.99/tonne). The benefit cost ratio was high (1.52) indicating the profitability of
converting soybean into soya nuggets and soy flour. It can be observed from the data
collected from the units that 440 tonnes of soybean have to be processed with working
of machine for 8 hours in a day and 250 days in a year to get 266 tonnes of soya nuggets
and 152 tonnes of soy flour.
Table 4.7 Returns from processing of soybean into soya nuggets and soy flour from
the selected units
4.2.3 Processing cost and returns of the selected small scale soybean processing
unit
The structure of costs incurred by processors in converting raw soybean into soy
milk and tofu is presented in the Table 4.8. The total cost of processing of 15 tonnes of
soybean worked out to Rs. 2,07,308.27/tonne, out of which Rs. 1,69,161/tonne (81.60
per cent) was towards variable inputs, while Rs. 38147.27/tonne (18.40 per cent)
towards fixed inputs. Among variable cost components, the cost of raw material and
chemicals was Rs. 45,133.33/tonne significantly constituted about 21.77 percent of the
total processing cost. The cost on packing material was Rs. 25,666.67/tonne (12.38 per
cent) which formed the next major component of processing cost. The electricity and
fuel charges, interest on working capital, transportation cost, storage charges, and
wages to casual labour were Rs. 22,066.67/tonne (10.64 per cent), Rs. 18,795.67/tonne
(9.07 per cent), Rs. 16,866.67/tonne (8.14 per cent), Rs. 13,226.67/tonne (6.38 per
cent) and Rs. 11,533.33/tonne (5.56 per cent) respectively. Whereas Among the fixed
cost components, depreciation on machineries and vehicles and depreciation on
building were the major cost contributing items having share of Rs. 12,366.67/tonne
(5.97 per cent) and Rs. 10,589.33/tonne (5.11 per cent) respectively. The other fixed
costs items were payment to permanent labour, interest on fixed capital and other
charges which accounts for Rs. 7,200/tonne (3.47 per cent), Rs. 3,467.93/tonne (1.67
per cent), and Rs. 2180/tonne (1.05 per cent), per annum respectively.
Table 4.8 Details of the processing cost of the selected small scale soybean
processing unit
Amount Amount
S. No. Particulars %
(Rs./year) (Rs./Tonne)
Variable cost
1 Cost of raw materials and chemicals 677000 45133.33 21.77
2 Cost of packing materials 385000 25666.67 12.38
3 Storage charges 198400 13226.67 6.38
4 Electricity and fuel charges 331000 22066.67 10.64
5 Transport cost 253000 16866.67 8.14
6 Wages for labour 173000 11533.33 5.56
7 Repairs and maintenance 68000 4533.33 2.19
8 Telephone charges 8200 546.67 0.26
9 Sales tax/market cess/mandi tax 6880 458.67 0.22
10 Spoilage costs 32000 2133.33 1.03
11 Others 123000 8200.00 3.96
12 Interest on working capital @ 12.5% 281935 18795.67 9.07
Total variable cost 2537415 169161.00 81.60
Fixed cost
1 Depreciation on building 158840 10589.33 5.11
2 Depreciation on machineries and vehicles 185500 12366.67 5.97
3 Administrative charges 25300 1686.67 0.81
4 Payment to permanent labour 108000 7200.00 3.47
5 Insurance premium 4850 323.33 0.16
6 License fees 5000 333.33 0.16
7 Others 32700 2180.00 1.05
8 Interest on fixed capital @ 10% 52019 3467.93 1.67
Total fixed cost 572209 38147.27 18.40
Total processing cost 3109624 207308.27 100.00
Total processed quantity (Tonnes) 15
As indicated in the Table 4.9, from 15 tonnes of raw soybean were processed,
from which 75600 litres of soya milk and 7800 kg of tofu was produced. The gross
returns worked out to Rs. 5,04,000/tonne per year from soya milk and
Rs.1,56,000/tonne per year from tofu, considering the average market price of Rs. 60
per litre of soya milk and Rs. 120 per kg of tofu. Thus, the net returns per year
amounted to Rs. 23,62,376. In other words, Rs.1,57,491.73 was obtained as net returns
for every tonne of soybean processed into soya milk and tofu. Further, for every rupee
of investment in soya milk and tofu processing, about Rs 1.76 was obtained as returns,
indicating its profitability.
Table 4.9 Returns from processing of soybean into soy milk & tofu from the
selected units
Soy
S. No. Particulars Unit Unit Tofu total
milk
1 Quantity processed Tonne 9 Tonne 6 15
2 Quantity produced Litres 75600 Kilogram 7800
3 Price Rs./litre 60 Rs./kg 120
4 Total cost Rs./year 3109624
5 Total cost Rs./tonne 207308.27
6 Gross return Rs./year 4536000 Rs./year 936000 5472000
7 Gross return Rs/tonne 504000 Rs./tonne 156000 364800
8 Net return Rs./year 2362376
9 Net return Rs./tonne 157491.73
10 BC ratio 1.76
A perusal of the given Table 4.10 shows the comparison between three types of
soya processing units. Soybean processing unit whether small, medium or large scale,
once established continues to generate returns at least upto 15 years. To establish
soybean processing unit, the initial investment depends on the capacity of the plant. The
costs and returns were analyzed carefully to test the worthiness of investment in
processing enterprise. In analyzing the investment feasibility, the establishment costs,
maintenance costs and gross returns from the soybean processing units were considered
and discounted at 14 per cent discount rate since it represents the opportunity cost of the
capital. Small, medium and large scale processing units having a processing capacity of
20 TPA, 500 TPA and 1500 TPA of raw soybean respectively were taken for the study
to assess the financial feasibility. The stream of cost and returns were used for analysis
purpose.
The financial feasibility of small, medium and large scale processing units was
calculated on overall basis i.e. for all the products manufactured in small, medium and
large scale units respectively.
The Net Present Value (NPV) criterion helps to evaluate the benefits accrued
and costs incurred during the project life. The advantage of NPV is that it gives an idea
about surplus and varies with level of investment and discount rates. In this study, NPV
was calculated to indicate the money that would be generated by a project at a given
discount rate. It is an absolute measure by discounting the net cash inflows. The NPV of
small scale soybean processing unit at 14 per cent discount rate was Rs. 1,00,05,197.01
and for medium scale it was Rs. 4,50,78,550.63 whereas for large scale unit NPV
worked out to Rs. 7,91,92,444.17. The formal selection criterion of NPV is to accept all
the projects with positive values. Applying this principle, the Net Present Value of
soybean processing units clearly indicates financial feasibility of investment of small,
medium and large scale processing units.
The processing units considered for the study faced similar kind of problems,
but the extent of severity varied from unit to unit and therefore, the ranking of each
problem varied with the unit. The problems faced by the units regarding infrastructure
facilities, procurement of raw material, processing, product character, distribution,
marketing and returns etc. are discussed here under.
The selected large scale units have given an average rank of seven to the problem
of power supply indicating that it is a major constraint for them. The next major
constraint mentioned by them was non availability of land which was the high medium
level problem. The constraint like unavailability of water was ranked as medium
intensity problem with a ranking of five. Location and approach road constraints were
given lower rankings indicating that their intensity were less medium and very less
respectively.
With regard to the medium scale units, the problem of power supply was ranked
as a high intensity constraint. Other constraints like non-availability of land, shortage of
water and poor approach road were given a ranking of five each indicating its medium
intensity whereas location problem was less significant.
The small scale units have given a rank of five for location and power supply as
a constraint indicating the medium intensity of the problem. Unavailability of water and
land was the next major constraint ranked as four. The other problems were lack of
approach road which was ranked as low intensity problem.
Raw material is the basic need of any processing unit for the successful running
of the business. Availability of right quantity of required quality material at the right
time is the prerequisite for any processing unit. Constraints associated under this head
like non availability of raw material, wide fluctuation in soybean prices, non-availability
of quality produce, transportation facility and transportation cost have been studied.
The large units have given an average rank of eight to the problem of non-
availability of quality produce indicating that it as a major constraint. Fluctuation in
soybean prices was given rank six indicating their medium high intensity. Other
constraints like non availability of raw material, transport facility and its cost were
given a rank of two, three and four respectively indicating their very less, low and less
medium intensive problem respectively.
The medium scale units have given a rank of seven for the constraint of non
availability of quality produce indicating high intensity of the problems. Fluctuation in
soybean prices was the next major constraint of high medium intensity followed by non-
availability of raw material, transport facility and transport cost with rank of four each
which indicates as low medium intensity problem.
With respect to small scale units, lack of transport facility was given a ranking of
eight indicating that it is a high intensity constraint. Transportation cost was given a
rank of six indicating their medium high intensity. Fluctuation in soybean prices and
non-availability of raw material were given rank five indicating that they are medium
intensity problems. The constraint of non availability of raw material was given a rank
three indicating it as low intensity constraint.
4.4.3 Constraints with respect to processing
The large scale units have given an average rank of seven for non-availability of
cost effective technology indicating that it was a major constraint faced by them. Other
constraints like maintenance of machinery and non-availability of labour were given a
rank of six and five indicating high medium and medium intensity of the constraints
respectively.
The selected medium scale units have given a average rank of six for
maintenance of machinery indicating the medium high intensity of the constraint. Non
availability of cost effective technology and non-availability of labour with a rank five
each were indicating its medium intensity problem.
The small scale units have given an average rank of eight for the constraint of non
availability of cost effective technology indicating it as a major constraint. Maintenance
of machinery was given a ranking of five indicating medium intensity of the constraint.
Another constraint such as non availability of labour was given a rank three indicating
as low intensity constraint.
The study of the selected large scale units have given an average rank of six for
pest and rodent problem and handling of product and machinery indicating that it is a
major constraint for them. Storage of product was given a rank of five indicating that it
is a problem of medium intensity.
The medium scale unit have given a rank of five to storage indicating that it is a
major constraint for them. Handling of product was given a ranking of four indicating
that it is the next major constraint with less medium intensity. Pest and rodent problem
were given a ranking of three indicating low intensity of the constraint.
The small scale unit have given a average rank of eight to the constraint of storage
indicating it as a major constraint. Handling of product was the next major constraint
with average rank of five indicating medium intensity nature of problem whereas pest
and rodent was ranked as very low intensity problem.
Constraints associated with distribution were classified into two heads namely
non availability of transport facilities and high transportation cost.
The large scale units have given a rank of five to the constraint of high
transportation cost indicating that it is a medium intensity problem. Non availability of
transport facility was ranked as four which indicates less medium intensity problem.
The medium scale units have given a rank of four for the constraint high
transportation cost indicating that it is less medium constraint for them. Non availability
of transporting vehicle was given a ranking three indicating low intensity of the
constraint.
The small scale units have given a rank of eight for the constraint high
transportation cost indicating that it is high intensity constraint for them. Lack of
transport vehicle was given a ranking of six indicating high medium intensity of the
constraint for concerned units.
Under the problems associated with marketing no proper market, high costs in
promotion and low awareness among consumers have been identified.
The large scale units have given an average rank of six for no proper market
indicating it as constraint of high medium intensity. Low awareness among consumers
was ranked as medium intensity problem with a ranking of five. Other constraint like
high cost involved in promotion was given rank of four indicating it as less medium
intensity constraint.
The medium scale units have given a rank of seven for the constraint of no proper
market indicating it as moderate high intensity. Low awareness among consumers is the
next major constraint with rank of six indicating it as a high medium intensity problem
followed by high cost in promotion with a rank of four showing a less medium intensity
constraint.
The small scale units have given an average rank of eight to the constraint low
awareness among consumers indicating that it was high intensity constraint for them.
No proper market was ranked as seven indicating moderate high intensity of constraint.
High cost in promotion was ranked as low intensity problem with a ranking of three.
The large and small scale units ranked them as four indicating that it is less
medium intensity constraint whereas medium scale unit have given an average rank of
three to returns indicating that it was a low intensity constraint.
The ranking given for various constraints listed under each major category have
been summed up and for each rank category overall ranks were assigned, separately for
large, medium and small scale soybean processing unit.
In case of large scale units, processing was the first major constraints, whereas
product character was the second major constraint. Marketing, infrastructure facility,
procurement of raw material, distribution and returns constraints were ranked III, IV, V,
VI and VII respectively.
In case of medium scale units, marketing was the first major constraint followed
by infrastructure facility which was the second. The processing, procurement of raw
material, product character, distribution and returns constraints were assigned ranks of
III, IV, V, VI and VII respectively.
In case of small scale units, constraint of distribution stood first, whereas the
constraint of marketing was the second. Procurement of raw material, processing,
product character, Infrastructure facility and returns constraints stood at ranks III, IV, V,
VI and VII respectively.
Table 4.11 Problems faced by the selected soybean processing units (10 point scale)
Total 24 27 21
B. Procurement of raw material
1. Availability of raw material 2 4 3
2. Fluctuation in soybean prices 6 6 5
3. Non availability of quality produce 8 7 5
4. Transport facility 3 4 8
5. Transportation cost 4 4 6
Total 23 25 27
C. Processing
1. Non availability of cost effective 7 5 8
technology
2. Non availability of labour 5 5 3
3. Maintenance of machinery 6 6 5
Total 18 16 16
D. Product character
1. Handling 6 4 5
2. Storage 5 5 8
3. Pest & rodent problem 6 3 2
Total 17 12 15
E. Distribution
1. Non availability of transport 4 3 6
vehicle
2. Transportation cost 5 4 8
Total 9 7 14
F Marketing
1. Not proper market 6 7 7
2. High cost in promotion 4 4 3
3. Low awareness among consumers 5 6 8
Total 15 17 18
G. Returns 4 3 4
Total 4 3 4
On a scale of 10, 10 – Extreme high, 9- very high, 8-high, 7-moderate high, 6-high
medium, 5-medium, 4-less medium, 3-low, 2-very low and 1-no problem.
Table 4.12 Ranking of constraints faced by the selected soybean processing units
A Infrastructure
50 24 48 IV 27 54 II 21 42 VI
facility
Procurement
B
of raw 50 23 46 V 25 50 IV 27 54 III
material
C Processing
30 18 60 I 16 53.3 III 16 53.3 IV
D Product
30 17 56.7 II 12 40 V 15 50 V
character
E Distribution
20 9 45 VI 7 35 VI 14 70 I
F Marketing
30 15 50 III 17 56.67 I 18 60 II
G Returns
10 4 40 VII 3 30 VII 4 40 VII
Fig: 4.1 Image of soybean seeds
Fig: 4.2 Images of soy oil
Fig: 4.3 Images of soy meal
Fig: 4.4 Images of soy nuggets
Fig: 4.5 Images of soy flour
Fig: 4.6 Images of soy milk
Fig: 4.7 Images of tofu (soy paneer)
Chapter V
5.1 SUMMARY
Soybean (Glycine max (L) Merrill) is an important oilseed crop in the World. Its
large scale cultivation is concentrated in a few countries such as USA, Brazil,
Argentina, China, India, Paraguay and Canada, which together produces about 95 per
cent of the world's 281.7 million metric tonnes of annual soybean production (2012-13).
India ranks fifth in soybean production in the world with 14.67 million metric tonnes
production (5.21 per cent).
Madhya Pradesh has emerged as the Soy state of the country with a share of
over 55.63 per cent in area and 53.17 per cent in production. The area under the crop in
Madhya Pradesh during 2012-13 was 60.32 lakh hectares and the production was 78
lakh tonnes. In Madhya Pradesh, major soybean producing districts are Ujjain, Devas,
Shajapur, Sehore, Indore, Ratlam, Balaghat, Chhindwara, Gwalior, Bhopal, Jabalpur,
Itarasi, Sagar, Mandsaur, Datia, Rewa and Satna.
1. To study the investment pattern of small, medium and large scale soybean
processing units in the study area.
2. To estimate the cost and returns pattern of selected soybean processed products
in Mandsaur district.
3. To understand the business viability of the selected units.
4. To find out the constraints faced by the processors in the procurement,
processing and marketing of soybean.
The data has been collected through personal interview method from soybean
processors with the help of pre-tested schedules designed for the purpose. For the study
two large, five medium and eight small scale processing units involved in producing
various processed products were selected from Mandsaur districts of Madhya Pradesh
purposively.
Various analytical tools were employed for analysis of collected data. Tabular
analysis was done by working out simple averages and percentages. For analysis of cost
of processing of different soy value added products, all costs incurred in the processing
of soybean i.e. variable costs and fixed costs were considered to arrive at the total cost.
Total cost for establishing processing unit and operational cost for processing of
soybean processed product was analyzed and then total returns were calculated. The
data were compiled, tabulated and analyzed using Benefit-Cost-Ratio (BCR), Net
Present Value (NPV), and Internal Rate of Return (IRR) and other suitable statistical
tools and techniques to obtain the feasibility of establishing soybean processing unit.
For constraints in processing of soybean, problem rating method was used.
MAJOR FINDINGS OF THE STUDY
The precise scanning of large scale processing units which processed mainly soy
oil and soy meal was done to assess the economic efficiency of soybean processing unit.
It was found in the study that establishment of large scale unit requires huge investment.
In the findings of research, the initial investment of processing unit was Rs.
10,08,18,500 in which major investment was on land (Rs. 5,79,36,000) followed by
machinery and equipments (Rs. 1,52,57,500) and building (Rs. 1,34,78,000)
respectively.
The processing cost of soy oil and soymeal was combinedly calculated on yearly
basis. Out of total processing cost (Rs. 38,489.09/tonne) the major share was spent on
purchase of raw material (Rs. 26,021.40/tonne) which accounted for 67.61 per cent of
the total processing cost. Other major cost were interest on working capital (9.84 per
cent), salaries to permanent employees (3.72 per cent), depreciation on machineries and
vehicles (3.70 per cent), electricity and fuel charges (2.83 percent) and wages for daily
labour (2.58 per cent) etc.
The gross return (Rs. 59,615.76/tonne) was more than two times of net returns
(Rs. 21,126.67/tonne).The returns structure of the large processing unit revealed that
Benefit Cost Ratio was 1.42 for the plant having processing capacity of 1500 TPA
soybean. The NPV and IRR for the investment were found to be Rs. 7,91,92,444.17 and
65.64 per cent respectively at 14 per cent discount rate showing the financial feasibility
of investment. Thus it can be analyzed that investment pattern in large processing plant
is financially feasible and profitable for investors.
The gross return (Rs. 82,045.45/tonne) was approximately three times of net
returns (Rs.27,921.99).The returns structure of the medium processing unit revealed that
Benefit Cost Ratio was 1.40 and the NPV for the investment was found to be Rs.
4,50,78,550.63 (at 14 per cent discount rate) and IRR 63.06 percent, and shows the
financial feasibility of investment. Thus it can be analyzed that investment pattern was
financially feasible and profitable for investors.
The analysis was done to assess the economic efficiency of small scale soybean
processing unit. It was found that the establishment of small unit which processed
mainly soy milk and tofu requires significant amount of investment. The initial
investment of processing unit was Rs. 94,18,700 in which the major investment
component was land (Rs. 45,80,300) with 48.63 per cent of total investment followed
by building and machinery and equipments was (Rs. 25,82,600) with 68.62 per cent and
Rs. 15,31,000 with 16.25 per cent of total investment cost respectively.
The total cost of processing was found to be Rs. 2,07,308.27/tonne per year. Out
of the total processing cost, the major share was due to raw material and chemicals (Rs.
45,133.33/tonne) which accounted for 21.77 per cent. The other major components are,
cost of packing material (12.38 per cent), electricity and fuel charges (10.64 per cent),
interest on working capital (9.07 per cent), Transportation cost (8.14 per cent), storage
charges (6.38 per cent) and depreciation on machinery and vehicles (5.97 per cent) etc.
The gross return (Rs.3,64,800/tonne) was more than two times of net returns
(Rs. 1,57,491.73/tonne). The Benefit Cost Ratio was 1.73 and the NPV for the
investment was found to be Rs. 1,00,05,197.01 (at 14 per cent discount rate) and IRR
94.13 per cent. Thus it can be analyzed that investment pattern in small processing plant
is financially feasible and profitable for investors.
Constraints faced by soybean processors
In case of large processing units, processing was the first major constraint,
followed by the product character. Marketing, infrastructure facility, procurement of
raw material, distribution and return constraints have obtained ranks of III, IV, V, VI
and VII respectively.
In small scale units, constraints of distribution stood first, whereas the constraint
of marketing was a second. Procurement of raw material, processing, product character,
Infrastructure facility and returns constraints have obtained rank of III, IV, V, VI and
VII respectively.
5.2 CONCLUSIONS
It may be concluded from the study that there is an immense scope for
expansion of soybean processing business in Mandsaur district of Madhya Pradesh as
well as in other similar areas in India. The cost of processed product of soybean is
though higher but due to good demand in the market, the returns are also very high
which resulted in good net margin to the processors. It was found in the study that in
the process of value addition, raw materials was the major cost incurred by the units.
The soybean processing is a profitable business for the investors and it can be
seen from the good BCR of different products which indicates that for all units there are
good returns. The investment is also financially feasible as represented by NPV and
IRR. The constraints faced by the large scale units is non availability of quality
produce, erratic power supply, fluctuation in soybean prices and non-availability of cost
effective technology. Erratic power supply, non-availability of quality produce,
maintenance of machinery and less awareness among the consumers were the major
constraints in the medium scale processing unit. Whereas lack of transportation
fascility, non-availability of cost effective technology, storage problem, high transport
charges, less awareness among the consumers and lack of market were identified as
major constraints in the small scale soybean processing unit.
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APPENDIX-A
Cash flow statement of large scale soybean processing unit
Gross Return Net Return Discounting Discounted Discounted Gross Discounted Net
Years Cost (Rs.)
(Rs.) (Rs.) Factor @14% Cost (Rs.) Return (Rs.) Return (Rs.)
1 39566782 0 -39566782 0.87719298 34707703.51 0 -34707703.51
2 35034210 61285000 26250790 0.76946753 26957686.98 47156817.48 20199130.50
3 35034210 61285000 26250790 0.67497152 23647093.84 41365629.37 17718535.53
4 35034210 61285000 26250790 0.59208028 20743064.77 36285639.8 15542575.02
5 35034210 61285000 26250790 0.51936866 18195670.85 31829508.6 13633837.74
6 35034210 61285000 26250790 0.45558655 15961114.78 27920621.57 11959506.79
7 35034210 61285000 26250790 0.39963732 14000977.88 24491773.31 10490795.43
8 35034210 61285000 26250790 0.35055905 12281559.55 21484011.68 9202452.13
9 35034210 61285000 26250790 0.30750794 10773297.85 18845624.28 8072326.43
10 35034210 61285000 26250790 0.26974381 9450261.269 16531249.37 7080988.10
186718431.3 265910875.5 79192444.17
Gross Return Net Return Discounting Discounted discounted Gross Discounted Net
Year Cost (Rs.)
(Rs.) (Rs.) Factor @14% Gost (Rs.) Return (Rs.) Return (Rs.)
1 23814323 0 -23814323 0.877192982 20889757.02 0 -20889757.02
2 20896155 36100000 15203845 0.769467528 16078912.74 27777777.78 11698865.04
3 20896155 36100000 15203845 0.674971516 14104309.42 24366471.73 10262162.31
4 20896155 36100000 15203845 0.592080277 12372201.25 21374098.01 9001896.76
5 20896155 36100000 15203845 0.519368664 10852808.11 18749208.78 7896400.67
6 20896155 36100000 15203845 0.455586548 9520007.116 16446674.37 6926667.26
7 20896155 36100000 15203845 0.399637323 8350883.435 14426907.34 6076023.91
8 20896155 36100000 15203845 0.350559055 7325336.347 12655181.88 5329845.53
9 20896155 36100000 15203845 0.307507943 6425733.638 11101036.74 4675303.10
10 20896155 36100000 15203845 0.26974381 5636608.454 9737751.524 4101143.07
111556557.5 156635108.2 45078550.63
Gross Return Net Return Discounting Discounted Discounted Gross Discounted Net
Year Cost (Rs.)
(Rs.) (Rs.) Factor @14% Cost (Rs.) Return (Rs.) Return (Rs.)
1 3109624 0 -3109624 0.87719 2727740.35 0 -2727740.35
2 2537415 5472000 2934585 0.76947 1952458.45 4210526.32 2258067.87
3 2537415 5472000 2934585 0.67497 1712682.85 3693444.14 1980761.29
4 2537415 5472000 2934585 0.59208 1502353.38 3239863.28 1737509.90
5 2537415 5472000 2934585 0.51937 1317853.84 2841985.33 1524131.49
6 2537415 5472000 2934585 0.45559 1156012.14 2492969.59 1336957.45
7 2537415 5472000 2934585 0.39964 1014045.74 2186815.43 1172769.69
8 2537415 5472000 2934585 0.35056 889513.80 1918259.15 1028745.34
9 2537415 5472000 2934585 0.30751 780275.27 1682683.46 902408.20
10 2537415 5472000 2934585 0.26974 684451.99 1476038.13 791586.14
13737387.8 23742584.82 10005197.01