The Hindu Business Line : `Just in time' inventory policy may not be apt for farm products

WHILE most manufacturers opt for the `just in time' inventory to reduce the carrying or overheads cost, the CEO of Idhayam Group, Mr V.R. Muthu, prefers to differ. According to him, this inventory policy would not be appropriate to agriculture-related processing houses.

In an informal chat, he recalled how his company, engaged in gingelly oil extraction ended up paying high rates for the sesame seeds last year and eventually lost its market because customers opted for cheaper edible oil.

"The Chinese entered our market and started procuring the seeds at Rs 2,800 a bag (of 75 kgs). When the seed prices shot up, we had no option but to source it at those levels. The price of the one litre packet soared to Rs 93 from its earlier rate of Rs 67. The sudden rise literally forced the consumer to look at other cheaper oil. We have since changed our inventory policy," he told Business Line.

The company now procures sufficient quantity of seeds during the harvest season in Tamil Nadu (between March and May), when the seed rate is relatively low as farmers are keen to off-load their produce.

"During this period, the price band would vary between Rs 1,600 and Rs 2,700 a bag. We do not mind paying a little extra to get quality seeds and maintain adequate stock for crushing round the year. The removal of the Storage Control Order is a blessing. We no longer have to depend on upcountry markets for seeds and pay the transport charges as well," he said.

This strategy, according to him, had enabled the company to review the price structure and reduce the rate of the one litre pack at Rs 72 plus, compared to over Rs 90 the previous year.

According to him, the `just in time' inventory tended to trigger the price levels. He took objection to the term `hoarding' and stated that the company was only `stocking' the produce.

When asked why the company did not chose the contract farming route to source quality seeds, he said: "I am not for contract farming. After entering into a buy-back agreement with the grower, I cannot opt out if the quality of the seed falls below my expectation. On the other hand, by paying a premium for good quality seeds, I can lure growers into sesame cultivation and procure adequate quantities," he argued.

Gujarat, he said, had failed miserably during the current year in sesame seed production because of high content of free fatty acids.

Idhayam is keen on promoting the `health' benefits of the gingelly oil from its stable. Without specifying the seed requirement, he said there was a ten-fold increase in the last couple of years and the company was confident of another jump in requirement within the next five years. "We want to popularise Idhayam Wealth globally," Mr Muthu said.

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