Bangladesh J. Seed Sci. & Tech.

16 (1 & 2): 125-132 (2012)

ISSN 1029 - 8800
VALUE CHAIN ANALYSIS OF BADC CONTRACT FARM RICE SEED IN SELECTED AREAS OF
MYMENSIHGH DISTRICT

M. Soren, M. I. A. Mia1, M. J. Alam2, A. K. M. G. Kausar and M. R. Hossain3

Former MS students, Department of Agribusiness and Marketing, Bangladesh Agricultural University,
Mymensingh, Bangladesh

Abstract
The purpose of the study was to examine value chain of BADC contract farm rice seed and activities of the
actors involved in value chain of rice seed in Mymensingh district. Necessary data were collected from 20
contract farmers in Mymensingh sadar, 3 BADC stations (BADC seed production centre, Balashpur,
Mymensingh, BADC seed production centre, Netrokona, BADC seed sales centre, Dholadia, Mymensingh) and
20 rice seed dealers from Sadar Upazila and Phulpur Upazila of Mymensingh district by using a structured
interview schedule through direct interview method during the months of March and April, 2013. Simple
arithmetic techniques were used for required calculations. The findings indicate that the BADC as the main
value chain actor. The contract growers produced foundation rice seed by applying BADC supplied breeder
seed. For Aman and Boro season, total cost of producing rice seed for contract farmer was Tk.1452.24/quintal
and Tk.1587.96/quintal, respectively. In case of BADC total cost of producing rice seed was about
Tk.2685.56/quintal and Tk.2680.79/quintal for Aman and Boro season, respectively. BADC sold the seed by its
registered dealers to the farmers. The registered dealers earned 7% to 10% commission based on distance
covered and amount of seed for distribution. The study also figured out the contract farmers facing lack of
capital problem, the seed processing centers facing lower quality seed supply by contract grower zone (CGZ)
problem and the registered seed dealers are confronting lack of credit and warehousing facility problems.

Key Words: Rice seed production, Value chain, Contract farming, BADC.

INTRODUCTION
Rice is the main agricultural crop to feed a total population of about 160 million people in Bangladesh. With
increasing population over the years the demand for rice is increasing. The production of rice has been
increasing due to adoption of modern agricultural practices and modern seed varieties. In 2010-11 the yield of
modern Aus, Aman and Boro varieties was 2.18 ton ha-1, 2.6 ton ha-1 and 3.92 ton ha-1, respectively (BBS
2012). Although there was an increasing trend in production, land for rice cultivation has been decreasing day
by day which necessitate increasing the productivity of rice. For this reason high yielding rice variety is being
invented by private and public sector agencies over the years. Beside this good quality of seed is also a factor of
increasing yield. For availing quality seed, seed industry in Bangladesh plays a significant role. The seed
industry in Bangladesh comprises of both public and private sector initiatives. In the public sector Bangladesh
Agricultural Development Corporation (BADC), Bangladesh Rice Research Institute (BRRI), Department of
Agriculture Extension (DAE) and Bangladesh Institute of Nuclear Agriculture (BINA) are involved.

It must be noted that, the government has recently given the seed sector a “priority” status (BSGDMA, 2007).
In the private sector, there are more than 100 companies involved in the seed sector, with over 5000 registered
seed dealers and thousands of contract farmers operating across the country leading to improved livelihoods
amongst the rural community.

1&2
Professor and Associate Professor, Respectively, Dept. of Agribusiness and Marketing, Bangladesh Agricultural
University, Mymensingh, Bangladesh.
3
Former MS student, Dept. of Agricultural Economics, Bangladesh Agricultural University, Mymensingh,
Bangladesh
126 Value chain analysis of BADC farm rice seed

There are some other public and private institutions e.g. BRAC, SYNGENTA, Supreme Seed Company,
Premier seed etc., are producing high yielding and good quality rice seeds. For the involvement of these
organizations it has become possible to reduce the demand supply (production) gap of seed. In 2010-11 the gap
was 134452 metric ton where in 2009-10 it was 151181 metric ton (BADC 2012). Among these BADC has
been producing the largest amount of quality seed. BADC produces its seed in two ways. First in their own
farm and second one is by contract farmers. Breeder seed is supplied to the seed producing institutions like
BADC by Bangladesh Rice Research Institution (BRRI). This breeder seed is again used for further seed
production in the BADC own farm and also in contract farmers farms. Contract farmers supply seed to the seed
companies at a premium rate. The seed companies market the seeds by their authorized dealers to the farmers.

The value chain analysis describes the activities that take place in a business and relates them to an analysis of
the competitive strength of the business and a tool for identifying ways to create more customer value. It
identifies nine strategically relevant activities that create value and cost in a specific business. These nine
value-creating activities consist of five primary activities and four support activities (Kotler, 2006). Influential
work by Michael Porter suggested that the activities of a business could be grouped under two headings:

Primary activities
Primary activities are those that are directly concerned with creating and delivering a product (e.g. component
assembly). Primary value chain activities include:

i. Inbound logistics: All those activities concerned with receiving and storing externally sourced
materials.
ii. Operations: The way in which resource inputs (e.g. materials) are converted to outputs (e.g. products).
iii. Outbound logistics: All those activities associated with getting finished goods and services to buyers.
iv. Marketing and sales: Essentially an information activity - informing buyers and consumers about
products and services (benefits, use, price etc.).
v. Service: All those activities associated with maintaining product performance after the product has
been sold; and production may increase effectiveness or efficiency (e.g. human resource
management).

Support activities
i. Procurement: This concerns how resources are acquired for a business (e.g. sourcing and negotiating
with materials suppliers.)
ii. Human Resource Management: Those activities concerned with recruiting, developing, motivating
and rewarding the workforce of a business.
iii. Technology Development: Activities concerned with managing information processing and the
development and protection of "knowledge" in a business.
iv. Infrastructure: Concerned with a wide range of support systems and functions such as finance,
planning, quality control and general senior management.

Rice seed marketing included into primary activities. In every stages of marketing some extra value added with
rice seed along with some changes with the seed. In a view of above circumstances present study was to
estimate the value edition of rice seed by the actors, examine the activities of the actors and identify the
constraints of rice seed value chain in the study area.
 Soren et al. 127

MATERIALS AND METHODS

The present study was conducted in Mymensingh district. Data were collected from 20 contract farmers in
Mymensingh sadar, 3 BADC stations (BADC seed production centre, Balashpur, Mymensingh, BADC seed
production centre, Netrokona, BADC seed sales centre, Dholadia, Mymensingh) and 20 rice seed dealers from
Sadar Upazila and Phulpur Upazila of Mymensingh district by using a structured interview schedule through
direct interview method during the months of March and April, 2013. Simple arithmetic techniques were used
for required calculations.

Gross return was calculated by multiplying the total volume of output of an enterprise by the average price of
the product. It consisted of sum of the volume of main product and by product. The following equation was
used to estimate gross return:

GR=ΣQP.PP + ΣQs.Ps
Where,
GR = Gross return from rice seed (Tk./acre)
QP= Quantity of rice seed (quintal/acre)
PP= Average price of rice seed (Tk./quintal)
Qs= Quantity of straw (quintal/acre)
Ps= Average price of straw (Tk./quintal)

Net return was calculated by deducting all costs (variable and fixed) from gross return.
π = Gross return - (variable cost + fixed cost) Here, π = Net return (profit)
Gross return = Total production x per unit price

Marketing margin is the difference between the producers and consumers prices.
Marketing margins and net margins of different actors were estimated by using the following formula:
Gross marketing margin (Tk/quintal) = Sale price (Tk. /quintal) - Purchase price (Tk./quintal)
Net margin (Tk./quintal) =Gross margin (Tk./Quintal) - Marketing cost (Tk./quintal)
Value addition (%) = (Marketing margin/Purchase price) × 100

RESULTS AND DSICUSSIONS

Value addition by actors in rice seed marketing
Marketing channel of BADC seed in Mymensingh district was identified. Three value adding actors were found
in the marketing channel, they were contract farmer’s (or seed producer), BADC and authorized dealers of
BADC. But sometimes BADC sold rice seed directly to the farmer’s but unofficially. Maximum seed (about
99%) was marketed by the dealers. Estimated value addition of the actors in BADC seed distribution showed in
Table 1

Yield and Return from Rice Seed

Contract farmer
It was found that in Aman season 25 quintal rice seed and 48 quintal straw were obtained from one acre of land.
Also in Boro season 27 quintal rice seed and about 15 quintal straw were obtained from one acre of land. Most
of the farmers were not acquainted with modern technology. They did not use optimum dozes of fertilizer and
intercultural operations. Therefore, the outputs of the farmers were not satisfactory.

BADC for foundation seed

In Aman season 18 quintal of rice seed and 4800 kg of straw were obtained from one acre of land. Also in Boro
season 19 quintal of rice seed and about 3900 kg of straw were obtained from one acre of land.
128 Value chain analysis of BADC farm rice seed

Gross Return
Contract farmer
In Aman season gross return from one acre land from rice seed was Tk. 55000 and return from straw was Tk.
4800. In Boro season which were Tk. 59400 and Tk. 4500, respectively.

Table 1.Costs and returns of contract farmers for Aman and Boro rice seed production
Aman Boro
Items Particulars
Total value Cost or return Total value Cost or return
(Tk./acre) (Tk./quintal) (Tk./acre) (Tk./quintal)
Human labour (Man-day) 17500 700 20650 764.81
Land preparation 2000 80 3000 111.11
Seed/seedlings (Kg) 896 35.84 1225 45.37
Variable
Fertilizer and insecticide 6910 276.4 8000 296.29
costs
Irrigation 2000 80 3000 111.11
Total variable costs
29306 1172.24 35875 1328.70
(TVC)
Rental value of land 7000.00 280 7000.00 259.26
Fixed
Total fixed cost (TFC) 7000.00 280 7000.00 259.26
costs
Gross cost (GC) 36306 1452.24 42875 1587.96
Rice seed (quintal) 55000 2200 59400
Return Straw (Kg) 4800 - 4500 -
and Gross return (GR) 59800 - 63900 -
margin Gross margin (GM) 30494 - 28025 -
Net margin 23494 - 21025 -
Source: Field Survey, 2012.

Table 2. Costs and returns of BADC produced Aman and Boro foundation seed
Aman Boro
Items Particulars
Total value Cost or return Total value Cost or return
(Tk./acre) (Tk./quintal) (Tk./acre) (Tk./quintal)
Human labour (Man-day) 19800 1100 21600 1136.84
Land preparation 2200 122.22 2200 115.79
Variable Seed/seedlings (Kg) 1000 55.55 1000 52.63
costs Fertilizer and insecticide 13840 768.89 14135 743.95
Irrigation 3500 194.44 4000 210.53
Total variable costs (TVC) 40340 2241.11 42935 2259.74
Rental value of land 7000.00 388.89 7000.00 368.42
Fixed Other expenses 1000 55.56 1000 52.63
costs Total fixed cost (TFC) 8000.00 444.44 8000.00 421.05
Gross cost (GC) 48340 2685.56 50935 2680.79
Return Rice seed (quintal) 46800 2600 49400 2600
and Straw (kg) 4800 - 3900 -
margin Gross return (GR) 51600 - 53300 -
Gross margin (GM) 11260 - 10365 -
Net margin 3260 - 2365 -
Source: Field Survey, 2012.

From the Table 1 and Table 2 it is clear that, the total fixed cost of producing rice seed production was lower than
those of variable cost in both Aman and Boro season for both contract framers and BADC. Among variable costs,
human labour cost was found major cost item in both seasons in the study area.
 Soren et al. 129

BADC for foundation seed

It was found that gross return from rice seed was Tk. 46800 and return from straw was Tk. 4800 in Aman season.
Whereas these were Tk. 49400 and Tk. 3900 in Boro season, respectively.

Gross Margin
Contract farmer
In Aman season gross margin of one acre of land was Tk. 30494 and net margin was Tk.23494 per quintal. In
Boro season gross margin of one acre of land was Tk. 28025 and net margin was Tk.21025 per quintal.
BADC for foundation seed
In Aman season gross margin from one acre of land was Tk. 11260 and net margin was Tk. 3260 per quintal. In
Boro season gross margin from one acre of land was Tk. 10365 and net margin was Tk. 2365 per quintal

Net Return
Contract farmer
For Aman season the net return or profit of one acre land by producing rice seed was Tk. 23494. Average net
return was very small indicating that the farmers can hardly cover their cost of production and got a small return.
So the real situation of farmers shows the ability of farmer to act as a value adding actor. For Boro season the net
return or profit from one acre of land by producing rice seed was Tk. 21025.
BADC for foundation seed
For Aman season the net return or profit from one acre of land by producing rice seed was Tk.3260. Average net
return was very small indicating that the farmers can hardly cover their cost of production and got a small return.
So, the real situation of farmers shows the ability of farmers to act as a value adding actor. For Boro season the net
return or profit from one acre of land by producing rice seed was Tk. 2365.

Value China Activities of Actors

Contract farmers, BADC, seed dealers play different value chain activities, which were identified and value
addition occurred in different forms. Value addition by contract farmers in different forms of activities shown in
Table 3.

Table 4 shows that value addition due to drying was Tk.501/quintal (22.20%) where it was Tk.509/quintal
(23.13%) for marketing in Aman season and in Boro season value addition due to drying was Tk.692/quintal
(31.45%) where it was Tk. 750/quintal (34.09%) for marketing. It was found that most of the contract farmer’s
were not fully aware about the benefits of value chain. The matter of fact that they were engaged only with some
traditional value adding activities like drying, cleaning, storing etc. but they had no idea about modern value chain
activities.

Registered seed dealers were the ultimate actors. They were registered by BADC for BADC seed marketing.
They got fixed commission for purchasing seed from BADC and selling price was predetermined by BADC.
Marketing cost and value addition by seed dealers in different forms of activities shown in Table 5 and Table 6.
 130
Value chain analysis of BADC farm rice seed
Table 3. Value addition by contract farmers in different forms of activities (Aman and Boro season)
Aman Aman Boro Boro
Items Price Value addition Value Value addition Value
(Tk./quintal) addition (Tk./quintal) addition
Value Wet rice seed Price 2000 1950
addition Dry rice seed price 2200 2200
due to Drying cost 50 45
drying Winnowing 25 4.75 20 7.74
Chatal rent 20 22
Seed cleaning 10 12
Marketing margin (value addition) 200 250
Net marketing margin 95 151
Value Farm gate price of rice seed 2000 2000
addition Market price of rice seed 2200 2200
due to Packaging cost 10 10
marketing Weighing cost 10 7.75 10 7.75
Loading 10 10
Transportation 15 15
Marketing margin (value addition) 200 200
Net marketing margin 155 155
Source: Field Survey, 2012.

Table 3 shows that value addition due to drying was Tk. 95/quintal (4.75%) where it was Tk. 155/quintal (7.75%)
for marketing in Aman season. Similarly for Boro season, value addition due to drying was Tk.151/quintal (7.74%)
where it was Tk. 155/quintal (7.75%) for marketing.

Value addition by BADC in different forms of activities shown in Table 4.

Table 4. Value addition by BADC in different forms of activities (Aman and Boro season)
Aman Aman Boro Boro
Items Price Value addition Value Value addition Value
(Tk./quintal) addition (Tk./quintal) addition
Purchase price of rice seed 2200 2200
Selling price 2784 3045
Value Grading 30 50
addition Winnowing 25 22.20 40 31.45
due to Electricity 18 45
drying Seed cleaning 10 18
Marketing margin (value addition) 584 845
Net marketing margin 501 692
Value Purchase price of rice seed 2200 2200
addition
due to Selling price of rice seed 2784 3045
marketing
Packaging cost 25 45
Weighing cost 14 23.13 25 34.09
Loading 16 15
Transportation 20 10
Marketing margin (value addition) 584 845
Net marketing margin 509 750
Source: Field Survey, 2012.
 131
Soren et. al

Table 5. Average marketing cost of Aman and Boro rice seed dealers
Cost Items Aman Boro
Tk./quintal % of total cost Tk./quintal % of total cost
Transportation 40 43.01 40 43.01
Loading and unloading 25 26.88 25 26.88
Bag/Sack, Sewing 3.25 3.26 3.25 3.26
Market toll 10.25 10.75 10.25 10.75
Personal expenses 3.13 3.22 3.13 3.22
Rent for shop 7 7.53 7 7.53
Interest for borrowed money 5 5.38 5 5.35
Total marketing cost 93.63 100.00 93.63 100.00
Source: Field Survey, 2012.

The total marketing cost of seed dealers was Tk. 93.63./quintal. Among the variable costs, transportation cost
was the highest and was about Tk.40/quintal. In Aman season, total variable cost and fixed cost was 94.66%
and 5.34% of total cost, respectively.

Table 6. Marketing costs, margins and value addition of Aman and Boro rice seed dealers
Item Aman Boro
(Tk./quintal) % of MM (Tk./quintal) % of MM
Purchase price of rice seed 2784 3045
Sales price of rice seed 3200 3500
Variable cost 88.63 21.31 88.63 19.48
Marketing
Fixed cost 5 1.20 5 1.09
cost
Total 93.63 22.51 93.63 20.58
Value addition (marketing margin) 416 100 455 100
Gross margin 327.37 78.69 366.37 80.52
Net margin 322.37 77.49 361.37 70.42
Source: Field Survey, 2012.

From Table 6 it is definite that in Aman season average purchasing price of rice seed was Tk. 2784.00/quintal
and average selling price of rice seed was Tk. 3200.00/quintal. Average value addition by the rice seed dealers
was only Tk. 416/quintal which is 14.94% of total. In Boro season average purchasing price of rice seed was
Tk. 3045/quintal and average selling price of rice seed was Tk. 3500/quintal. Average value addition by the rice
seed dealers was only Tk. 455/quintal which is 14.94% of total.

Table 7. Various commission rate received by registered rice seed dealer

Commission rate (%) Distance Volume of purchase
10 1-10 km 500-2000 Kg
13 Above 10 km Above 2000 kg
Source: Field Survey, 2012.

The value addition or profit margin directly related with the commission they received from BADC while
purchasing rice seed. When the dealers received 13% they could manage at least 10% profit margin or extra
add value above marketing costs. When the dealers received 10% they could manage at least 7% profit margin
or extra add value covering marketing costs.

Constraints and Solutions

Contract growers
The contract farmers claimed that BADC delays in collection of seed from them and did not pay price of
supplied seed timely which were more severe problems. So it is suggested to collect seed from farmers and to
make payment timely by BADC. The contract framers major problem was lack of capital and other identified
132 Value chain analysis of BADC farm rice seed

problems were inadequate irrigation facility, lack of agricultural credit. In thee cases provision of bank loan,
supplying machinery and irrigation equipment by BADC were suggested measures by farmers. The farmers
expected to get seed and other requirements from BADC timely. It is difficult to assure the quality of seed for
contract framers. To assure quality seed, farmers to be trained with the use of modern production, processing
and other quality improving techniques.

Seed processing centre

All the officers of seed processing centre opined that the seeds supplied by the Contract Grower Zone (CGZ)
were not of good quality. As a result the seed could not be distributed to the dealers and the target could not be
achieved. They also added that Seed Processing Centre had no sufficient /adequate storage facilities for
different variety of seeds. Quality improvement of seed by contract farmers and expansion of variety wise
storage facilities were suggested measures by seed processing center.

Registered dealers
Problems faced by registered dealers were lack of bank loan facility, lack of warehousing facilities, non-
availability of seed according to farmers preference, loss incurred due to unsold seed and insufficient seed
supply. Among these problems lack of bank loan facility was the most important. To solve these problems
provision of bank loan or credit facility, timely supply of quality seed, development of storage facility and
arrangement for seed inspection were suggested measures by registered dealers.

CONCLUSION AND RECOMMENDATIONS

The findings of the study lead to conclude that for stabilizing rice prices, forecasting of prices and production
should be made by BADC in time before sowing, so that the contract farmer’s can adjust rice acreage
accordingly. By effective implementation of the idea of value chain rice seed contract farmers could receive the
expected return. Market information is very essential for effective rice seed value chain. Finally, the study
makes following recommendations for the improvement of rice seed value chain and also production and
marketing system of rice seed:

i. Government should provide sufficient credit and subsidy to all types of farmers including contract
farmers and ensures uninterrupted supply of electricity for better irrigation.
ii. Farmer’s should be supervised during the rice cultivation so that modern cultivation method can be
used. Processing technology should be made available for the contract farmer’s so that they could
reduce cost of processing.
iii. Commission rate for dealers needed to vary with the volume of transaction.

REFERENCES
BADC (2012). Bangladesh Agriculture Development Corporation, Contract Grower Division, Seed Wing,
Dhaka.
BBS (2012). Yearbook of Agricultural Statistics of Bangladesh. Bangladesh Bureau of Statistics, Statistics
Division, Ministry of Planning, Government of the Peoples Republic of Bangladesh, Dhaka.
BSGDMA (2007). Bangladesh Seed Grower, Dealer and Merchants Association, “Asian Seed Congress 2007”,
Manila, Philippines. Retrieved May 25, 2013 from http:// www.apsaseed.org.
Kotler, P., Armstroy, G. (2006). Principles of Marketing, 11th ed., Pearson Education Ltd., New Jersey 07458,
USA. pp. 35-42.