AP Markfed to procure maize for poultry industry

Develops model that involves village-level self-help groups

Andhra Pradesh Markfed has developed an end-to-end business model whereby it will involve village level self-help groups (SHGs) for its maize procurement to cater to poultry industry with whom it has tied up on the lines of forward trading.

Though the state government agency had done it in a small way by procuring over 2,000 tonnes of maize of the total 40,000 tonnes purchased for poultry industry players last year at an investment of about Rs 22.5 crore, the experience and the advantages thereof has made it to go all out this time.

According to M T Krishnababu, managing director of APMarkfed, architect of the whole idea, the agency will not only involve more and more SHGs for procurement of maize but also proposes to increase the procurement itself by bringing in more poultry farmers and companies this year.

"This time, we have planned to issue open advertisement inviting poultry farmers to enter forward agreement for maize procurement," he said.

Last year, Markfed entered into an agreement with a dozen big poultry players in and around Hyderabad, including Venkateshwara Hatcheries group, to supply maize at least at a 10-15 per cent cost advantage, especially during offseasons.

Initially, poultry farmers will have to pay 10 per cent of the total cost of the required quantity of maize. The rest can be paid when the stocks are lifted from the godowns, that too, limited to that particular quantity at a predetermined price.

"As, over 70 per cent of the investment in poultry industry goes into poultry feed, this arrangement will allow the poultry companies to reduce the expenditure on this front. It will also enable them to work out cost and margin of their business much ahead with lesser uncertainty," Krishnababu says.

Poultry industry consumes most of the maize production followed by biscuit companies and a maize-based distillery in the state. According to Krishnababu, more and more biscuit companies are using maize in place of wheat in their products taking advantage of the low price of the former.

A price committee comprising both industry representatives and Markfed officials will decide the price of procurement of maize on weekly basis during the maize season. The entire produce will be kept at the state and Central Warehousing Corporation godowns.

Neither the poultry companies need to stock huge quantities of maize for offseason requirements nor lock in money for the purpose through this arrangement.

"Taking advantage of the demand from poultry industry, the private maize traders will sell the produce at a premium during offseasons like summer which hurts the margins of the industry. This arrangement will ensure a relatively stable pricing for them," Krishnababu told Business Standard.

Markfed took Rs 9 crore loan from banks at a discounted rate of interest and invested the rest of the amount from internal accruals for the purpose last year. It collected 2.5 per cent towards service charge from poultry companies.

"We could get 2.5 per cent more interest on our own money, which otherwise could have yielded just over 6 per cent interest if kept in banks, which alone fetched Rs 40 lakh to Markfed," Krishnababu said.

However, the only thing which neither the poultry businessmen nor Markfed could foresee last year was that there was unexpected production of maize during Rabi season under Nagarjuna Sagar right branch canal that made off season prices also come down to a great extent.

Markfed is now in the process of finding ways to reduce costs of procurement to ensure cost benefit to the poultry companies even in such unexpected circumstances.

Involving SHGs is one such method. SHGs will procure the produce from local farmers at minimum support price and send it directly to the designated warehouse godowns, for which they will receive one per cent service charge from the agency.

This, according to Krishnababu, reduces the cost of handling the procurement. It has become an attractive proposition to the SHG members as they need not invest any money. Markfed officials will directly pay the price to the farmers.