1. Paddy Processing: An Introduction

2. PADDY
Three major types of paddy:
i) Thick Paddy – Rice recovery percentage is around 70% (full-grading rice; only
whole rice)
ii) Medium Paddy – Rice recovery percentage is 55% (full-grading rice)
iii) Thin Paddy – Rice recovery percentage is 50% (full-grading rice)
RICE CLASSIFICATION
(based on paddy)
i) Thick Rice – Popular brands in this category are: Kanchhi and B-44 (Radha-
12)
ii) Medium Rice – Popular brands include: Ranjit, Mansuli, and Sona Mansuli
iii) Thin Rice – Popular brands: Basmati (Nepali brand) and Jeera Masino (almost
100% imported from India)
RICE CLASSIFICATION
(based on processing)
i) Raw – In this type, only husk is separated from paddy
ii) Steam – Steam is applied to rice followed by drying. This type of rice has the
maximum demand
iii) Parboiled - Paddy is boiled at 80 degree Celsius to obtain parbpiled rice.
Preferred by diabetic patients. Parboiling is also done to produce bhujaa.
MAJOR MILLS IN THE
EASTERN REGION –
Nepali Competitors
JK Mill (Duhabi), Radha Krishna Rice Mill (Rani, Biratnagar), Chandra Shiv Khadya
Udhyog (Nimbua), Himalaya Industries (Katahari), Saraswati Rice Mill
(Khanar), Goyal Rice Mill (Itahari), Makhan Rice Mill (Jhapa)
Basic Facts & Figures

3.  Data for the price(s) of rice and paddy were collected for the last 6 years from various government agencies
(data for wholesale price, retail price, and price at the Indian border were collected and tabulated)
 From the data, only the wholesale price was taken into account in the financial model (calculation of gross
sales profit)
 Official price figures for bran only available for the last couple of months
 Interviews with wholesalers and mills -
− Both current price(s) and the price range(s) for this year collected from wholesalers and mills for: rice,
paddy, bran, and husk
− Gathered market information on the market for bran and husk
− Gained an understanding on the milling processes and key challenges faced by Nepali rice mills in the
Terai region
Collection of
historical
price(s) of
paddy, rice,
and bran
1
Verification of
price(s) by
interviewing
wholesale
suppliers in
Biratnagar
and rice mills
in: Morang,
Jhapa, and
Sunsari
2
Adjustment
of official data
3  Reconciliation of the data from government agencies and the data collected from wholesalers and mills
 Current price(s) used in the data analysis (financial model) for the purpose of calculating gross
profit for the three different paddy/rice types. Historical price variations are recorded and the
average annual growth rate of prices calculated, which will serve as inputs for future calculations.
Methodology: Data Collection & Analysis

4. Annual Gross Profit from
Thick Rice Processing
(15,872,000) – Gross Loss of NRs. 1.5 Crore
Annual Gross Profit from
Medium Rice Processing
38,304,000 – Gross Profit of NRs. 3.8 Crore
Annual Gross Profit from
Thin Rice Processing
458,752,000 – Gross Profit of NRs. 45.8 Crore (Since most of Jeera Masino
seems to be imported from India, the calculations for thin rice were
primarily based on Basmati)
Financial Model: Key Takeaways
The processing of thin rice appears
to have the highest gross margin
and, thus, the highest gross profit.
However, the demand for thin rice
(especially Basmati) may not be high
in our target market

5. Key Factors Affecting Profitability
Price of
Paddy
Price of
Rice
Demand &
Price of By-
Products
Husk
Requirement
for Source of
Energy
Rice processing mills can only be a
“price taker” in the market for rice;
price of rice controlled because of
subsidized mills on the Indian side
The husk produced from processing
may not be adequate to produce the
estimated required energy through
boiler steam turbine
 Most of the paddy for Nepali mills
supplied from India because of
production constraint in Nepal.
The subsidized paddy from India
means that Indian
farmers/middlemen benefit while
Nepali farmers struggle to
compete
 Both paddy and rice prices
generally have an average annual
growth rate of 10%. Other than
that, price of rice in Nepal is
dictated less by local demand and
more by the large mills
(subsidized) in India near the
border
 Market of Bran and Broken Rice
– The gross profit mostly depends
on the sale of bran and broken
rice (and husk, if husk is not
burned for boiler/gasifier), which
explains the higher margin on thin
rice processing (the by-products
from thin paddy add up to 50% of
paddy)
Price of paddy (cost of goods sold)
from Nepali farms controlled through
market mechanism by the price of
Indian paddy (which enjoys subsidy)
Mills appear to have no margin on
paddy-rice conversion; profit mostly
derived from the sale of by-products
 Estimated husk requirement for
500-600 kW steam turbine
appears to be around 4 ton/hour.
To put things in perspective, husk
accounts for 18-20% of paddy.
There might be additional costs
associated with buying husk to
meet the gap (needs to be further
calculated and verified)

6. REASON/EFFECT
 The subsidized
Indian mills
established across
the border get an
unfair advantage and
can produce rice at a
lower price
compared to Nepali
rice
 Nepali mills confirm
that the Indian rice
brands are usually in
the market at a
slightly lower price
Subsidy to Indian
Processing Mills
 Most mills in
Morang, Jhapa, and
Sunsari rely on NEA-
supplied energy, and
have generator as
backup
 Few larger mills (J.K.
Mill, for instance)
run many hours on
diesel-powered
generators with an
operational cost of
almost NRs. 8,000
per hour (est. 80
liters per hour). How
they are still
profitable remains a
mystery.
Unreliable Energy
Supply
 Due to inadequate
paddy production in
Nepal, most of the
Nepali mills
currently import
paddy from India
 One major reason
discouraging Nepali
farmers from
producing is the
subsidy given to
Indian farmers,
thereby reducing
cost of paddy
production in India
Inadequate Paddy
Production in
Nepal
2 31
Key Challenges Faced by Nepali Processing Mills