Profitability Analysis Study for Rice

Parboiling Business

Produced By: MEDA EMERTA Project Rice Team

Daniel Luelsseged

October 2021
Bahir Dar, Ethiopia
Table of Contents
List of Tables ................................................................................................................................................. II
List of Figures ................................................................................................................................................ II
1. INTRODUCTION ........................................................................................................................................ 1
1.1 Background ......................................................................................................................................... 1
1.2 Objective of the study ........................................................................................................................ 2
1.2.1. General objective ....................................................................................................................... 2
1.2.2. Specific objective........................................................................................................................ 2
1.3 Scope of the Study.............................................................................................................................. 2
2. METHODOLOGY OF THE STUDY ............................................................................................................... 2
2.1 Research Design ................................................................................................................................. 2
2.2 Sources of Data collection.................................................................................................................. 2
2.3 Data Gathering Tools.......................................................................................................................... 3
2.4 Sampling Technique and Size............................................................................................................. 3
2.5 Method of Data analysis .................................................................................................................... 3
3. RESULT AND DISCUSSION ........................................................................................................................ 4
3.1 Socio-Demographic Characteristics of Respondents ........................................................................ 4
3.2 Cost and Sales Structure of Parboiled business ................................................................................ 5
3.2.1 Utility Expense Details ................................................................................................................ 9
3.3 Discussion on non-quantifiable variables to CBA ........................................................................... 10
4. Profitability analysis ............................................................................................................................... 12
4.1 Profit Margin Analysis ...................................................................................................................... 12
4.2 Break Even Analysis with sales price and profit relationship ......................................................... 16
4.3 Production Cost and Sales Price Relationship Analysis .................................................................. 20
5. CONCLUSION AND RECOMMENDATION ............................................................................................... 21
5.1 CONCLUSION .................................................................................................................................... 21
5.2 RECOMMENDATION......................................................................................................................... 21
Annexes ...................................................................................................................................................... 23
REFERENCES ................................................................................................................................................ 24

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List of Tables
Table 1: Socio-Demographic Characteristics of Respondents ...................................................................... 4
Table 2: Socio-Demographic Characteristics of Respondents (Specific to Age) ........................................... 5
Table 3: The price which cost for buying a paddy rice (for one quintal) ...................................................... 5
Table 4: The price which cost for milling paddy rice (for one quintal) ......................................................... 6
Table 5: The price which cost for transporting service (for one quintal) ..................................................... 6
Table 6: The price which cost for packaging service (for one quintal) ......................................................... 7
Table 7: The price which cost for cleaning service (for one quintal) ............................................................ 7
Table 8: Average milling recovery rate in kg (for one quintal paddy) .......................................................... 7
Table 9: The price which cost for polishing for brown rice (for one quintal) ............................................... 8
Table 10: The sale price for 74 kg of parboiled rice which yield from one quintal paddy ............................ 8
Table 11: Utility Expenses for Parboilers for those MSMEs who use AMIMTDE Technology ...................... 9
Table 12: Utility Expenses for Parboilers for those MSMEs who use African Rice Model Technology ........ 9
Table 13: Profit margin analysis tool for white parboiled rice during the harvest Season ........................ 12
Table 14: Profit margin analysis tool for brown parboiled business during the harvest Season ............... 13
Table 15: Profit margin analysis tool for white parboiled rice during off Season (Peak marketing Season)
.................................................................................................................................................................... 14
Table 16: Profit margin analysis tool for brown parboiled rice during off Season (Peak market Season) . 15

List of Figures
Figure 1: Sales Price and Profit Relationship at harvesting season for white rice (Refer Table 11 relating
to the graph) ............................................................................................................................................... 16
Figure 2: Sales Price and Profit Relationship at harvesting season for Brown rice (Refer please Table 12
relating to the graph) .................................................................................................................................. 17
Figure 3: Sales Price and Profit Relationship at off- season for White Rice (Refer please Table 13 relating
to the graph) ............................................................................................................................................... 18
Figure 4: Sales Price and Profit Relationship at off- season for Brown Rice (Refer please Table 14 relating
to the graph) ............................................................................................................................................... 19
Figure 5: Production cost and sales price relationship (We Referred Table 11 variables here) ................. 20

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1. INTRODUCTION
1.1 Background
Rice is a recent introduction in Ethiopia; an attempt to introduction of rice had probably been
started in Ethiopia when the wild rice was observed in the swampy and waterlogged areas of
Fogera and Gambella Plains (Gebey et al., 2012).

The importance of rice is being well recognized in the country as the area under cultivation,
production and productivity increased within the period of the two decades by 88%, 92% and 34%,
respectively (FAOSTAT, 2015). In productivity base, it is the second more productive cereal crop
next to maize (CSA, 2014). It has shown promise as to be among the major crops that can
immensely contribute towards ensuring food security in Ethiopia.

Rice is cultivating in all regions of Ethiopia (MoA, 2010). Of all rice producing regions Amhara
took the maximum share of rice production about 86% of the national rice production of which 91
% of the region rice production was came from Fogera plain (CSA, 2015), The Fogera plain is the
MEDA/EMERTA project intervention area.

Rice parboiling is an important value-adding step in rice processing. Parboiling is a process of

soaking, cleaning, steaming and drying paddy. The steaming process gives the rice qualities such
as increased milling recovery rate (less breakage), special flavor, and added health benefits which
mean that the parboiled rice is a source of iron and calcium. Also compared to white milled rice
(Non-Parboiled Rice), parboiled rice has fewer calories, fewer carbohydrates, more fiber, and more
protein and so tasty. These all makes it a healthier alternative to traditional white milled rice
(NonParboiled Rice), and makes its demand is increasing over time.

Thus, with the support of MEDA/EMERTA project 9 MSMEs engaged in the parboiling business
in the project intervention areas so called Fogera plain (Fogera, Dera and Libokemkem woredas)
are addressed so far. The kinds of MEDA/EMERTA Project’s supports were, creating access to
technology with PBG system; Provision of operational skill training (How to produces the
parboiled rice with the given technology) with the support of AMIMTDE; provision of marketing
promotion (Participating those MSMEs to available trade fair and bazar to exhibit their product);
and other technical marketing and business trainings (BDS supports provided for MSMEs).

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1.2 Objective of the study
1.2.1. General objective
The general objective of the study is to know the profitability of the parboiled rice business and
availability of the assessment findings for MSMEs’ price decision.

1.2.2. Specific objective

• To recommend the MSMEs for fair price setting for the product.

• To enable the MSMEs to understand cost benefit analysis of the business. (To adopt cost wise and
product wise techniques)

• To identify constraints affecting the parboiled business and to recommend possible

solutions.

1.3 Scope of the Study

The study delimited to the key parboiled rice business profitability factors affecting the parboiling
business in MEDA/EMERTA project intervention areas Yifag and Woreta. This study was limited
to existing parboiled business MSMEs with the support of MEDA/EMERTA project.

2. METHODOLOGY OF THE STUDY

2.1 Research Design
The study was undertaken through general analysis that is looking at from the participants. The
study team preferred the general analysis to other techniques to prove the acquired data
information. Quantitative and qualitative approaches were employed. The study team focused on
the quantitative approach which is more richness for provided data specific to Cost Benefit
Analysis (CBA).

2.2 Sources of Data collection

The study used both primary and secondary source of data,

• Primarily Data: The primarily data was collected from those who are engaged in
parboiling business with the support of MEDA/EMERTA project through structured
questionnaires developed by study team and interview.

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 • Secondary Data: The assessment conductor used secondary sources of data such as
EMERTA projects report, projects client list, clients’ materials which under using
(Record keeping, Business plan...).

2.3 Data Gathering Tools

The study team employed different data collection instrument tools and techniques. From those
the following are major one:

• Questionaries: The team employed the structured questioners to individual respondents

which would be taken from the existing MSMEs who are engaging in the parboiling
business with MEDA/EMERTA project support. The questionaries contain both open-
ended and close-ended questions and contains relevant basic information and its objectives.
• Individual Interview: with the developed questionaries conducted both structured and
semi-structured interview and asking questions face to face those eligible MSMEs.
• Review of secondary data: secondary sources of data such as EMERTA projects report,
projects client list, clients’ materials which under using (Record keeping, Business
plan...) and work premise underutilized.
• Simple Excel Matric tool: The study team prepared the xl sheet to calculate the cost and
benefit of the business. And, used as the source of questions for quantitative approach
too.

2.4 Sampling Technique and Size

So far, there are 9 MSMEs who are engaged in rice parboiling business with the support of
MEDA/EMERTA Project. Purposely the team grabbed 8 parboilers out of 9 MSMEs, which is
88.88% from the potential.

2.5 Method of Data analysis

The team employed both qualitative and quantitative data analysis methods. Likewise, descriptive
and profit margin analysis tools under employed for this study too.

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3. RESULT AND DISCUSSION
This part intended to present the finding and interpretation of the study on the profitability of
parboiled business, and it deals with data analysis and interpretation.

The qualitative data which would be collected from the interview had been analyzed through
explain of findings and some of are discussed in the form of table and percentage. The quantitative
approach which almost have direct impact on the profitability of the parboiled business preliminary
analyzed in the form of tables and percent to interpret each data privately.

3.1 Socio-Demographic Characteristics of Respondents

The majority of the sample respondents (75%) were female. Regarding the education status of the
MSMEs, 37.5% of the sample respondents were Diploma holder, 25% of the sample respondents
were degree holder, and 25% and 12.5% of respondents had attended at most secondary and
primary school, respectively. In the marital status, the majority of sample respondents married
(37.5%), and the remaining share are, divorce (25%), single (25%) and the least marital status is
windowed which account for 12.5% (Table 1).
In the age status of the respondents, the mean age of respondents were 36.5 years, the min was 23
and the max was 50 (Table 2).
Note That: The study team used the socio demographic information to give basic information
about the respondents.
Table 1: Socio-Demographic Characteristics of Respondents

Variable Frequency Percent

Sex
Male 2 25
Female 6 75
Total 8 100
Education
Illiterate 0 0
Read &write/ Religious school 0 0
Primary and junior secondary (1-8) 1 12.5
Secondary school (9-12) 2 25
Diploma 3 37.5
Degree 2 25
Total 8 100
Marital Status

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 Married 3 37.5
Windowed 1 12.5
Divorced 2 25
Single 2 25
Total 8 100
Source: own calculation

Table 2: Socio-Demographic Characteristics of Respondents (Specific to Age)

Variable Mean Min Max

Age 36.5 23 50

Source: own calculation

3.2 Cost and Sales Structure of Parboiled business

The Data analysis for specific questions (2.13, 2.14, 2.15, 2.16, 2.17, 2.18, 2.19 and 2.23) which
are quantifiable for analyzing the profitability of the business and verily eligible to conduct
Profitability analysis discussed below.

Table 3: The price which cost for buying a paddy rice (for one quintal)

No of
Q.no Item Alternatives Percentage
respondents

Min 1500
All 8 respondents
One quintal are experienced in
2.13 100%
paddy rice price different season
all alternatives
Max 2300

8 100
Source: Own calculation

The table (3) above indicates that, the one quintal paddy rice cost is the same across the areas, but
the only cost varieties occur in different seasons so, the low cost of the paddy rice will occur while

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in harvesting season which is 1500 ETB and the maximum cost shown during at peak marketing
season/non harvesting season which is 2300 ETB.

Table 4: The price which cost for milling paddy rice (for one quintal)

No of
Q.no Item Alternatives Percentage
respondents

100 7 87.5
2.14 Milling service fee
60 1 12.5
Total 8 100
Source: Own calculation

The sample prices cost for milling service for one quintal ranging from ETB 100 to ETB 60. Table
(4) indicates that the majority of the sample price (87.5%) is 100 ETB.

The difference between the two alternatives 100 and 60 is seemed broad difference, the reason
why, only one respondent who answered 60, accessed the milling service in family’s service
provider.

Table 5: The price which cost for transporting service (for one quintal)

No of
Q. No Item Alternatives Percentage
respondents
20 2 25
Transporting 30 3 37.5
2.15
service 40 1 12.5
45 2 25
Total 8 100
Source: Own calculation

The sample prices cost for transporting service for one quintal ranging from ETB 20 to ETB 45.
Table (5) indicates that the majority of the sample price (37.5%) is 30 ETB. Note that, the
transporting service shows that, the cost incurred for traveling the paddy rice to milling service
and the milled rice to the owner of the business store (Double transport fee).

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Table 6: The price which cost for packaging service (for one quintal)

No of
Q. No Item Alternatives Percentage
respondents
2.50 ETB 3 37.5
Packaging Service 1.21 ETB 2 25
2.16
Cost (Per Kg) 3.00 ETB 2 25
4.21 ETB 1 12.5
Total 8 100
Source: Own calculation

The sample costs for packaging service for 74 kg parboiled rice (74 is the average milling recovery
rate for one quintal paddy rice refer Table 8) ranging from ETB 1.21 to ETB 4.21. Table (6)
indicates that the majority of the sample price (37.5%) is 2.50 ETB per kg, and the packaging cost
for one quintal paddy rice after milled will be 74*2.50= 185 ETB.

Table 7: The price which cost for cleaning service (for one quintal)

No of
Q. No Item Alternatives Percentage
respondents

50 ETB 3 37.5
Cleaning
2.17 100 ETB 4 50
service
150 ETB 1 12.5
Total 8 100
Source: Own calculation

The sample prices cost for cleaning service for one quintal ranging from ETB 50 to ETB 150.
Table (7) indicates that the majority of the sample price (50%) is 100 ETB.

The difference between the two alternatives 150 and 50 is seemed broad difference, the reason
why, only one respondent who answered 150, it was found not fair to cost 150 for cleaning
service, but the team understood that the respondent with low negotiation skill.

Table 8: Average milling recovery rate in kg (for one quintal paddy)

No of
Q. No Item Alternatives Percentage
respondents
71 kg 3 37.5
Recovery
2.18 74 kg 4 50
Rate
76 kg 1 12.5
Total 8 100
Source: Own calculation

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The sample recovery rate for paddy rice for one quintal ranging from 71 kg to 76 kg. Table (8)
indicates that the majority of the recovery rate (50%) is 74 kg/Quintal.

Table 9: The price which cost for polishing for brown rice (for one quintal)

No of
Q.no Item Alternatives Percentage
respondents
100 7 87.5
2.19 Polishing service
60 1 12.5
Total 8 100
Source: Own calculation

The sample prices cost for polishing service for one quintal ranging from ETB 60 to ETB 100.
Table (9) indicates that the majority of the sample price (87.5%) is 100 ETB.

The difference between the two alternatives 100 and 60 is seemed broad difference, the reason
why, only one respondent who answered 60, accessed the polishing service in family’s service
provider.

Table 10: The sale price for 74 kg of parboiled rice which yield from one quintal paddy

No of
Q.no Item Alternatives Percentage
respondents

Min 2590 All 8

74 kg of respondents are
2.23 parboiled rice experienced in 100%
sales price is different season
Max 2960 all alternatives

8 100
Source: Own calculation

The table (10) indicates that the sales price is the same across the areas, but the only cost varieties
occur in different seasons. So, the low sales price will occur in the harvesting season when the
paddy cost reaches about 1500 ETB and sales price 2590 ETB recorded. And, in the peak market
season, the paddy cost is 2300 ETB and the sales price for parboiled rice will be 2960 ETB. Thus,
the relationship between as the input price (Paddy rice) increases the sale price also increase, the
vice versa is true.

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3.2.1 Utility Expense Details
Here the study team addressed all utility expense for MSMEs. The identified utility types for
parboiling business are electricity expense, water expense and husk expense. The MSMEs utilize
different technology for producing their product, which are AMIMTDE and Africa Rice Mode
Parboiling technologies. The AMIMTDE technology utilizes electricity and water utility expenses,
and the Africa Rice Model technology utilize only water and husk utilities. And, here below
discussed.
Table 11: Utility Expenses for Parboilers for those MSMEs who use AMIMTDE Technology

Unit
Expense Total
Description Unit Utility ETB Expense ETB
Electric Utility Expense
Per Quintal KW 13 0.2730 3.549
Electric Utility Expense
Per KG KW 0.1300 0.2730 0.03549
Water Utility Expense
per Quintal M3 0.165 5 0.825
Water Utility Expense
per KG M3 0.00165 5 0.00825
Source: Bahirdar City Administration water resource development office and Ethiopia Electric utility Authority

The utility expenses for rice parboilers who use AMIMTDE technology expend 0.0437 ETB
(0.03549+0.00825) to produce one KG of parboiled rice. The result shows us, the utility expenses
here above discussed has not significant impact in price decision and profitability. So, we left it to
incorporate in profitability analysis.

Table 12: Utility Expenses for Parboilers for those MSMEs who use African Rice Model Technology

Unit
Expense Total
Description Unit Utility ETB Expense ETB
Rice Husk Expense per Quintal KG 7.5 1.20 9
Rice Husk Expense per KG KG 0.075 1.2000 0.09
Water Utility Expense per Quintal M3 0.165 5 0.825
Water Utility Expense per KG M3 0.00165 5 0.00825
Source: Bahirdar City Administration water resource development office and from respondents

The technology that underuses by this MSMEs not consume Electric power, instead use solar
power with rice byproduct so called rice husk. The Solar power is without expense. So, the utility

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expense for this technology are rice husk and water. Thus, the utility expenses for rice parboilers
who use African Rice Model technology expend 0.098 ETB (0.09+0.00825) to produce one KG
of parboiled rice. The result shows us, the utility expenses here above discussed has not significant
impact in price decision and profitability. So, we left it to incorporate in profitability analysis.

3.3 Discussion on non-quantifiable variables to CBA

The Data analysis for specific questions (2.1, 2.2, 2.3, 2.4, 2.5, 2.6, 2.7, 2.8, 2.9, 2.10, 2.11, 2.12,
2.20, 2.21, 2.22, 2.24, and 2.25) which are non-quantifiable which all mean that those findings
not directly related to and use for analyzing the profitability of the business/CBA.

➢ 75% of the respondents are engaged in the parboiling business in time of less than 1 year.
➢ 75% of the respondents are new in engaging in income generating activity, which mean
that those engagement in such business was through MEDA/EMERTA project initiative
with responsible governmental stakeholders.
➢ 75% of the respondents were responded as having not income before engaging in this
business.
➢ All the respondents (100%) expressed their life and business changes because of engaging
in the parboiling business are as follows.
 Business skill development, Self Confidence boosted (Because of starting the
business and having income too), have Started to support their families, living
hopeful life (Thinking that their future is so interesting because of the business that
they are engaged in)
➢ 100 % of the respondents revealed that, their income level was increasing after getting in
the parboiling business.
➢ All respondents (100%) confirmed that their current business is so profitable and the path
to their dream and the cause that mentioned behind their interesting in their business are,
the business have latent demand since it is consumable good, and different skills either
technical or soft skill that they acquired through MEDA support and strengthened on those
skills. And all the respondents have planned to expand their existing business too. All the
respondents are producing both brown and white parboiling rice since the products have
untapped market demand.

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➢ All parboilers (100%) are expressed their expenses which incurred to produce the parboiled
rice are, purchasing paddy rice, milling service, transporting, packaging, cleaning, and
polishing. And the MSMEs are buying their paddy rice from both producers and
aggregators.
➢ All respondents (100%) not using properly their record keeping books for tracking their
cash flows/transaction. though MEDA supported them with providing record keeping
books.
➢ All respondents (100%) disclosed that their price setting methodology is not based on the
tracking tools or scientific.
➢ 100% of customers of the respondents are located from Yifag, Woreta, Bahir Dar, Gondar,
and Addis Abeba.
➢ The main challenges and recommendation of the respondents (Per their opinion),
Challenges
✓ They need verily dryer technology
✓ Aggressive marketing promotion
✓ Capital shortage
✓ Storage
Recommendations
✓ Availability of drier technology support through MEDA or through credit
facilities
✓ Conduct marketing promotion
✓ Link to financial institutions

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4. Profitability analysis
4.1 Profit Margin Analysis
The team used profit margin analysis tools to calculate the costs benefit of parboiled business. (Refer, from Table 3 to Table 10)

Table 13: Profit margin analysis tool for white parboiled rice during the harvest Season

(1.1) Costs incurred for producing parboiled rice (1.2) Sales Price for parboiled rice
Net Total Parboiled rice
Description Cost (For one Unit Sales Price Yield Sales Price (B)=(x*y))
S. N of expenses Unit quintal) S. N Description Units per kg (x) (y)

1.1 Paddy Rice 100kg 1500 3.1 Sales for Parboiled rice (Net Yield) kg 40 74 2,960.00
1.2 Milling 100kg 100
1.3 Transporting 100kg 30 (1.3) Profit Margin Calculation
1.4 Packaging 100kg 185 Description Un. Amount Remark
1.5 Cleaning 100kg 50 Total Parboiled rice Sales Price (B) ETB 2,960.00 Source from 1.2 table
1.6 Other Expenses 100kg 0 Total Production Cost (A) ETB 1,865.00 Source from 1.1 table

Total Production Cost 1,865.00 Profit/Loss C=(B-A) ETB 1,095.00

Note፡ All costs listed above are the cost of one quintal Note That፡- -> In the harvest season the input price or specific to paddy rice cost is getting
white paddy rice. low about 1,500 ETB.
➔ The assumption price for a k/g of parboiled rice is 40ETB which is the
current price the MSMEs are selling their product.
ETB(A) 1,865.00 ➔ Profit from sales of yield product is 1,095 ETB.

Remark:
• In the harvest season, the white parboiled rice while its selling price is getting 35 ETB for one kilo gram, it affects the total sales price and
its profits also. The total production cost remained unchanged.
• Accordingly, the total sales price would be 2590 ETB, and the profit margin would be 725 ETB.

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 Table 14: Profit margin analysis tool for brown parboiled business during the harvest Season

(2.1) Costs incurred for producing parboiled rice (2.2) Sales Price for parboiled rice
Net
S. Description of Cost (For one S. Unit Sales Price Yield Total Parboiled rice
N expenses Unit quintal) N Description Unit per kg (x) (y) Sales Price (B)=(x*y))
Sales for Parboiled rice (Net
2.1 Paddy Rice 100kg 1500 5.1 Yield) kg 40 74 2,960.00
2.2 Milling 100kg 100
2.3 Polishing 100kg 100 (2.3) Profit Margin Calculation
2.4 Transporting 100kg 30 Description Unit Amount Remark
2.5 Packaging 100kg 185 Total Parboiled rice Sales Price (B) ETB 2,960.00 Source from 2.2 table
2.6 Cleaning 100kg 50 Total Production Cost (A) ETB 1,965.00 Source from 2.1 table
2.7 Other Expenses 100kg 0 Profit/Loss C=(B-A) ETB 995.00
Note That፡- -> In the harvest season the input price or specific to paddy rice cost is getting
Total Production Cost 1,965.00 low about 1,500 ETB.
➔ The assumption price for a k/g of parboiled rice is 40ETB which is the current
Note ፡ All costs listed above are the cost of one quintal
white paddy rice. price the MSMEs are selling their product.
➔ Profit from sales of yield product is 995ETB.
ETB(A) 1,965.00

Remark:
• In the harvest season, the brown parboiled rice while its selling price is getting 35 ETB for one kilo gram, it affects the total sales price
and its profits also. The total production cost remained unchanged.
• Accordingly, the total sales price would be 2590 ETB, and the profit margin would be 625 ETB.

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Table 15: Profit margin analysis tool for white parboiled rice during off Season (Peak marketing Season)

(1.1) Costs incurred for producing parboiled rice (1.2) Sales Price for parboiled rice
Net Total Parboiled rice
Description Cost (For one Unit Sales Price Yield Sales Price (B)=(x*y))
S. N of expenses Unit quintal) S. N Description Units per kg (x) (y)

1.1 Paddy Rice 100kg 2300 3.1 Sales for Parboiled rice (Net Yield) kg 40 74 2,960.00
1.2 Milling 100kg 100
1.3 Transporting 100kg 30 (1.3) Profit Margin Calculation
1.4 Packaging 100kg 185 Description Un. Amount Remark
1.5 Cleaning 100kg 50 Total Parboiled rice Sales Price (B) ETB 2,960.00 Source from 1.2 table
1.6 Other Expenses 100kg 0 Total Production Cost (A) ETB 2,665.00 Source from 1.1 table

Total Production Cost 2,665.00 Profit/Loss C=(B-A) ETB 295.00

Note፡ All costs listed above are the cost of one quintal Note That፡- -> In the off-season the input price or specific to paddy rice cost is getting
white paddy rice. high about 2,300 ETB.
➔ The assumption price for a k/g of parboiled rice is 40ETB which is the
current price the MSMEs are selling their product.
ETB(A) 2,665.00 ➔ Profit from sales of yield product is 295 ETB.

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 Table 16: Profit margin analysis tool for brown parboiled rice during off Season (Peak market Season)

(2.1) Costs incurred for producing parboiled rice (2.2) Sales Price for parboiled rice
Net
S. Description of Cost (For one S. Unit Sales Price Yield Total Parboiled rice
N expenses Unit quintal) N Description Unit per kg (x) (y) Sales Price (B)=(x*y))
Sales for Parboiled rice (Net
2.1 Paddy Rice 100kg 2300 5.1 Yield) kg 40 74 2,960.00
2.2 Milling 100kg 100
2.3 Polishing 100kg 100 (2.3) Profit Margin Calculation
2.4 Transporting 100kg 30 Description Unit Amount Remark
2.5 Packaging 100kg 185 Total Parboiled rice Sales Price (B) ETB 2,960.00 Source from 2.2 table
2.6 Cleaning 100kg 50 Total Production Cost (A) ETB 2,765.00 Source from 2.1 table
2.7 Other Expenses 100kg 0 Profit/Loss C=(B-A) ETB 195.00
Note That፡- -> In the off-season the input price or specific to paddy rice cost is getting
Total Production Cost 2,765.00 High about 2,300 ETB.
➔ The assumption price for a k/g of parboiled rice is 40ETB which is the current
Note፡ All costs listed above are the cost of one quintal
white paddy rice. price the MSMEs are selling their product.
➔ Profit from sales of yield product is 195 ETB.
ETB(A) 2,765.00

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4.2 Break Even Analysis with sales price and profit relationship

Sales Price and Profit Relationship at Harvesting Season

For White Paraboiled Rice
1600
1400
1200
1000
800
600
400
200
0
1 2 3 4
PRICE 25.2027 35 40 44.9594
PROFIT 0 725 1095 1462

PRICE PROFIT

Figure 1: Sales Price and Profit Relationship at harvesting season for white rice (Refer Table 11 relating
to the graph)

In the harvesting season, the averaged estimated cost of production for 74 k/g of parboiled white
rice is 1,865.00 ETB (Note that: 74 k/g of parboiled rice is the average yield of 100 kg of paddy
rice and in the harvest season the paddy rice being sold at 1500.00ETB per a quintal). And, in
this time, the break-even sales price (BESP) would be 25.2021 per a kilogram of parboiled rice
(Where there is No Profit No Loss record here) and setting the sales price less than break even
sales price LOSS will occurs and setting greater than the break-even sales price PROFIT will
occurs. Thus, as the sales price step up from BESP the difference would be a profit from a kilogram
of parboiled rice.

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 Sales Price and Profit Relationship at Harvesting Season
For Brown Paraboiled Rice
1600
1400
1200
1000
800
600
400
200
0
1 2 3 4
PRICE 26.554 35 40 46.311
PROFIT 0 625 995 1462

PRICE PROFIT

Figure 2: Sales Price and Profit Relationship at harvesting season for Brown rice (Refer please Table 12
relating to the graph)

In the harvesting season, the averaged estimated cost of production for 74 k/g of parboiled
Brown rice is 1,965.00 ETB (Note that: 74 k/g of parboiled rice is the average yield of 100 kg of
paddy rice and in the harvest season the paddy rice being sold at 1500.00ETB per a quintal). And,
in this time, the break-even sales price (BESP) would be 26.554 per a kilogram of parboiled rice
(Where there is No Profit No Loss record here) and setting the sales price less than break even
sales price LOSS will occurs and setting greater than the break-even sales price PROFIT will
occurs. Thus, as the sales price step up from BESP the difference would be a profit from a kilogram
of parboiled rice. The brown rice cost exceeds by 1.35 ETB per a kilogram relative with white rice
in the off-season also. The brown rice cost exceeds by 1.35 ETB per a kilogram relative with white
rice in the harvest-season too.

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 Sales Price and Profit Relationship at off-Season For White
Paraboiled Rice
1600

1400

1200

1000

800

600

400

200

0
1 2 3 4 5 6
PRICE 36.0135 40 45 50 55 55.771
PROFIT 0 295 665 1035 1405 1462

PRICE PROFIT

Figure 3: Sales Price and Profit Relationship at off- season for White Rice (Refer please Table 13 relating
to the graph)

In the off-season, the averaged estimated cost of production for 74 k/g of parboiled White rice is
2,665.00 ETB (Note that: 74 k/g of parboiled rice is the average yield of 100 kg of paddy rice and
in the harvest season the paddy rice being sold at 2300.00ETB per a quintal). And, in this time,
the break-even sales price (BESP) would be 36.0135 per a kilogram of parboiled rice (Where
there is No Profit No Loss record here) and setting the sales price less than break even sales price
LOSS will occurs and setting greater than the break-even sales price PROFIT will occurs. Thus,
as the sales price step up from BESP the difference would be a profit from a kilogram of parboiled
rice.

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 Sales Price and Profit Relationship at off-Season For
Brown Paraboiled Rice
1600

1400

1200

1000

800

600

400

200

0
1 2 3 4 5 6
PRICE 37.3648 40 45 50 55 57.1216
PROFIT 0 195 565 935 1305 1462

PRICE PROFIT

Figure 4: Sales Price and Profit Relationship at off- season for Brown Rice (Refer please Table 14 relating
to the graph)

In the off-season, the averaged estimated cost of production for 74 k/g of parboiled Brown rice
is 2,765.00 ETB (Note that: 74 k/g of parboiled rice is the average yield of 100 kg of paddy rice
and in the harvest season the paddy rice being sold at 2300.00ETB per a quintal). And, in this
time, the break-even sales price (BESP) would be 37.3648 per a kilogram of parboiled rice
(Where there is No Profit No Loss record here) and setting the sales price less than break even
sales price LOSS will occurs and setting greater than the break-even sales price PROFIT will
occurs. Thus, as the sales price step up from BESP the difference would be a profit from a kilogram
of parboiled rice. The brown rice cost exceeds by 1.35 ETB per a kilogram relative with white rice
in the off-season also.

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4.3 Production Cost and Sales Price Relationship Analysis
To conduct this trend analysis, we referred table 11 placed above for taking 3 variables or
assumptions.

I. Let it be the sales price is 40 which is the current sales price

II. If the starting production cost begin at 1865 ETB (Refer Table 11, production
cost)
III. To keep the profit, remain unchanged
IV. If the rising scale of production cost would be 100 (In most cases increment in
paddy rice is by 100)

PRODUCTION COST AND ITS RELATIONSHIP WITH

SALES PRICE

2365
2265
2165
2065
1965
1865

46.75
45.40
44.05
42.70
41.35
40.00

1.35

1.35

1.35

1.35

1.35
0

1 2 3 4 5 6
Total production cost 1865 1965 2065 2165 2265 2365
Increament per 100ETB cost 0 1.35 1.35 1.35 1.35 1.35
Sales Price 40.00 41.35 42.70 44.05 45.40 46.75

Total production cost Increament per 100ETB cost

Sales Price Linear (Sales Price)

Figure 5: Production cost and sales price relationship (We Referred Table 11 variables here)

Accordingly, every 100 ETB increasing in the production cost influences the sales price to be
increased from its previous one by 1.35 ETB, and on the other side, when the production cost
decrease by 100ETB the vice versa is true, Usually the second options rarely applicable.

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5. CONCLUSION AND RECOMMENDATION
5.1 CONCLUSION
The study was designed to estimate the cost of production of parboiled rice and assessing its
profitability. The major cost component of parboiled rice was paddy rice cost. Specifically, for
white parboiled rice, paddy rice took the maximum share of the total variable cost 80.42% and
86.30% in the harvest and off-season respectively. In the harvest season the paddy rice cost record
low, and in the off-season (peak marketing season) when the paddy rice cost gets its maximum or
record high. And the remaining variable cost was operational costs of which milling cost,
transporting cost, packaging cost, cleaning cost, and polishing cost took the remaining share
percentage somehow. The MSMEs lack storage facilities to store paddy rice.

The sales price difference between brown parboiled rice and white parboiled rice is 1.35 ETB per
kg. For both products, every 100ETB increasing in the production cost influences on setting the
sales price to be increased in 1.35 ETB from previous one per kg. Regarding the profitability, any
transaction above its breakeven sales price is profit, thus our MSMEs now sale their product
40ETB per kg which is above BESP 25.20ETB at harvest season and BESP 37.36 ETB during
the off-season. Thus, the profit is very sensitive to seasons.

5.2 RECOMMENDATION
To improve the profitability of parboiled business, MSMEs should focus on cost effective and
time saving techniques and technologies like drier, modern storage. In addition, development
institutions should focus on credit/grant facilities, storage facilities, technology facilities,
strengthen market promotion (the health benefit of brown and white parboiled rice), business
skill training, and market information system to minimize price fluctuation.

In the parboiled rice production, the most expensive production cost is paddy rice which cost is
varies in different season (80.42% to 86.30%), the low cost of the paddy rice records in the harvest
season which cost will be 1,500 ETB and the high cost of paddy rice records in off-season which
cost will be 2,300 ETB, thus the study team recommend that the parboilers should have to buy
the paddy rice in the harvest season and should have modern storage facilities (like, Metal
Silo and others) which benefits them to buy the paddy rice in the harvest season and can store for
their offseason production period of parboiled rice.

21
With the support of storage facilities (Metal Silo…) the parboilers will save about 800 ETB per a
quintal during off-season. And, with facilitating of technologies and working premises the
parboilers will save about 240 ETB. Cumulative the parboilers can save about 1,040 ETB per a
quintal.

The MSMEs have not sufficient capital to operate their business in their full capacity. Thus, the
study team recommend that availability of credit and grant facilities should be employed. In
credit facilities, they enable to buy paddy rice in bulk in harvesting season to store more for off-
season and to available more products to the market throughout the year.

To efficiently utilize their working premise and time of drying the steamed paddy, The study team
recommend the drier technology with stair should avail for those MSMEs and this technology
accelerates the frequency of production and save their time too.

The team strongly recommends that the MSMEs should apply their record keeping tools to keep
their transaction healthy and to pass informed decision making (Profitability and price setting
techniques).

Other than Paddy cost, The MSMEs should be supported with different technologies like milling
machine, polishing machine, and packaging facilities to minimize the extra production cost.

22
Annexes

Annex 1-> Developed Questionnaire which have been used for caring out Profitability analysis

Questionair For Cost

benefit analysis.pdf

Annex 2-> Profitability analysis /Gross Profit Margin Tools which have been used for this study

Cost Benefit Analysis

Gross Profit Margin Tool.xlsx

Annex 3-> Electric and Water Utility Expenses

CBA Utility Expenses Data.xlsx

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REFERENCES
✓ CSA (2015). Federal Democratic Republic of Ethiopia Central Statistical Agency
Agricultural Sample Survey Report on Area and Production of Major Crops Private
Peasant Holdings, Meher Season,VolumeI
✓ Gebey T, Lemma T, Hoekstra D, Tegegne A, Alemu B. (2012). Participatory smallholder
dairy value chain development in Fogera woreda, Ethiopia: from IPMS project
interventions. IPMS Case Study. Nairobi: International Livestock Research Institute
✓ MoA (2010). Ministry of Agriculture, National Rice Research and Development Strategy
of Ethiopia [4] FAOSTAT (2015). Food and Agriculture Organization of the United
Nations Statistical Database.
✓ Utility expense (Water and Electricity) (2014 EC), from Bahirdar City administration
water resource development office and Ethiopia Electric utility Authority.

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