This paper presents an analysis of the cost contributors in the production of fortified rice. The sensitivity of cost to capacity utilization and inclusion rate is also analyzed.
The research was undertaken through extensive data collection and in-depth analysis based on feedback received from stakeholders in the rice supply chain and procurement data at WFP.
Raw materials are the largest component of the production cost and estimated to constitute 88% of total fortified rice production costs followed by the cost of handling 6%, other direct operational costs 3%, indirect operational expenses 1%, and bank charges, insurances and tax 2%. Incremental cost of rice fortification is estimated between $25-80 USD/MT. The variability in cost estimates is indicative of opportunities to optimize costs. The cost projections are less than average annual variability of milled rice prices which is as high as $80USD/MT over past 10 years.The additional costs of rice millers due to fortification consist mainly of capital investments in blending equipment, transportation of fortified kernels, quality inspection and banking fees while cost of blending is marginal.
Cost optimizations within the supply chain can thus be achieved by optimizing the main cost drivers which include blending at milling locations to reduce transportation and handling and other efficiency gains such as adoption of standard operating procedures at critical points instead of excessive controls along the supply chain. The cost of fortified kernels is also lower at higher capacity utilization at fortified kernel plants or by lowering blending ratios.