Cost dynamics and operational constraints in spice powder processing: A case study of Srivari spices and foods ltd.

Introduction

"Agro-industry" is a broad concept including a wide range of industrial, manufacturing and processing activities that rely on agricultural raw materials, along with ancillary services and inputs that support agricultural production. In India, the food processing industry has emerged as a sunrise sector, gaining economic significance in recent years. Factors such as abundant raw material supply, evolving consumer preferences and supportive fiscal measures have accelerated its growth. Economically, this sector plays a crucial role in bridging agriculture and industry, enhancing overall value chains. Prioritizing this sector can effectively address issues related to food security. Strengthening this linkage is essential to reduce post-harvest losses, enhance the value and shelf-life of agricultural output and improve nutritional content. Notably, India already holds a strong position as a major exporter of various food products India is widely known as the "Origin and Land of spices". No other country has the diversity and volume of spice production found in India because of its favorable agroclimatic conditions. Spices hold significant economic value as key commercial crops, contributing to both domestic consumption and international trade. Domestically, they are extensively used not only in culinary applications but also across sectors like medicine, pharmaceuticals, perfumery and cosmetics. The consistent demand for Indian spices in global markets has substantially boosted the country's export earnings, reinforcing their importance in India's trade portfolio India offers ideal conditions for the cultivation of nearly all types of spices, with every state and union territory producing at least one spice variety in substantial quantity. Under the act of Parliament, 52 spices fall under the regulatory scope of the Spices Board, while the International Organization for Standardization (ISO) recognizes 109 different spices. Spice products are derived from whole spices and are available in various forms such as powders, essential oils, oleoresins, natural colors and preserved formats including freeze-dried, dehydrated, frozen, brined and syrup-based. Spices, known for their strong aroma and flavor, are plant-based substances predominantly sourced from tropical regions and commonly used as condiments. Historically, spices were highly valued due to their utility in medicine, preservation and perfumery. Today, India plays a dominant role in global spice production www.extensionjournal.com

Importance of spices processing industry

There is a significant surge in the consumption of processed foods, reflecting the impact of scientific and technological advancements on daily requirements and lifestyles. Spices, known for their distinctive flavor and aroma, play a vital role in enhancing the taste profile of a wide array of processed food products. Beyond their traditional use in raw or whole form, spices are increasingly processed to meet specific industry needs. If you pick any packet of quick savoury around you, it would surely contain added spice powders in it, such is the amount of scope which the processed spice industry has. Processed spices have relatively shorter shelflife than whole spices and hence they are sold in small packages in retail markets. The spices processing industry in India hence has a wide scope for development due to increasing trend in use of processed spices and in availability of wide range of spices in India.

Materials and Methods

Selection of the Study Area

Hyderabad district of Telangana was purposively selected. Srivari Spices and Foods Limited has a wide variety of product mix. So, it has been selected purposively for the study. In addition to wider product mix, maintenance of detailed data and records and easy accessibility to data prompted its selection.

Data Collection

The required data for the financial year 2023-2024 were collected from the annual budget provided. For calculating the cost of manufacturing, data was collected by taking actual observations of the activity of the unit by conducting interviews with the supervisors and from the records maintained by the unit for the year 2023-2024. The detailed data on various aspects like raw material used for different sections of the unit for manufacturing different products, output of different products were acquired from the production manager. Information regarding salary, manpower in each section of the plant and other benefits of the staff were collected from the account section and the managing director.

Total Cost and Return of the unit

The total revenue earned from the unit was calculated by multiplying the total quantity of product marketed with the price of that product per unit. Net returns per product are also calculated by subtracting total cost from total revenue of that product to check higher returns from particular product.

Break even analysis

The break-even point is the level of operation at which total revenue equals total costs. The break-even quantity is estimated by using the formula,

TFC BEQ = P -VC

Where, BEQ = Break even quantity TFC = Total annual fixed cost (₹) P = Price per kg produced (₹) VC = Variable cost per kg produced (₹)

Results and Discussion

Srivari Spices and Foods Private Limited is a company incorporated on 29 th January, 2019 as a private limited company under the Companies Act, 2013. The brand name used for marketing its products is "SRIVARI". Its products are marketed in states of Telangana and Andhra Pradesh with a unique business model, firstly comprising "D2C" (Direct To Customer) where products are delivered at the doorstep of the customers using approximately 15,000 retail stores. Secondly, "B2B" (Business To Business) wherein products are supplied to suppliers. The major manufactured spice powders include chilli powder, turmeric powder and coriander powder, besides whole wheat atta. To arrive at the conclusion of production cost per unit per product, there is a need to consider the fixed costs, operational costs separately which include the costs of investments; for machineries, human workforce, raw material etc. and other miscellaneous costs, which we will look into with the help of several tables below and then attempt to calculate the per unit costs of each product.

Production of different products

The information regarding production of different products for year 2023-24 is given in Table 4. The total production from the unit amounts to 812400 kilograms. The unit produces six different products. Among the spice powders processed, chilli powder accounts for the highest share of product (35.45%) of total processing of unit followed by turmeric powder share 12.56%, coriander powder share 10.64% whereas the share of other two products is only 5.04% of total processing of unit.

Cost of Raw material

The information related to procurement of raw material for the production of different spice powders during 2023-24 with their cost, rate is presented below in Table 5.

Total cost and Total returns of different spice powders (2023-2024)

The information related to total cost, total returns of different spice powders is presented in Table 7. The information about the total cost and total returns of different spice powders were estimated and presented in Table 4.17. It is seen from the table that the net profit of Srivari Spices and Foods Limited was ₹ 2727 lakhs during the study period. The total cost of Srivari Spices and Foods Limited unit was ₹ 157.23 lakhs.

Break-even analysis for different spice powders (2023-2024):

The information related to the break-even points for different spice powders are given in Table 8. From the Table 8, it is concluded that, the break-even for the three spice powders in both physical and monetary terms were more than actual production. The unit produced more than its break-even quantity for all the three spice powders.

Benefit: Cost ratio

The information related to the Benefit: Cost ratio of unit is presented in Table 9. The information regarding major spice powders B: C ratio is presented in Table 9. It is revealed that, the B: C ratio for Chilli powder, Turmeric powder and Coriander powder was 1.83, 1.52 and 1.63 respectively. Among the spice powders, the highest B: C ratio was observed in chilli powder (1.83), followed by coriander powder (1.63) and turmeric powder (1.52), respectively.

Problems faced by the unit

The information of problems faced by the unit to run its business are mentioned below:

Price fluctuations of raw material

Off season availability and market demand affect the prices of raw material like red chillies and turmeric rhizomes, impacting raw material cost predictability

Variability in procurement of raw materials

Raw materials sourced for the production of spice powders vary because of the differences in farming practices, regional differences and post-harvest handling. In case of turmeric, sourcing turmeric with consistent color, aroma and curcumin could be difficult.

Technological advancements

The existing processing equipment for grinding the raw material is functional but lacks advanced technological www.extensionjournal.com features when compared to competitors, which impacts efficiency and overall operational performance of the unit

Grinding issues

During the grinding process, heat is generated. Overheating during the grinding process reduces the quality and aroma of turmeric powder; reducing essential oils, pungency and flavour of chilli powder. Also, the equipment used for grinding wears out due to the hardness of turmeric rhizomes

Consumer preferences

A considerable section of the markets prefer organic spice powders, while others demand high-curcumin varieties, requiring product diversification. Some markets prefer spicier chilies, while others focus on milder varieties with strong color.

Moisture sensitivity

Turmeric powder absorbs moisture, leading to caking and loss of quality. The natural oil content in coriander can make the powder sticky, leading to clogging in machinery or might lead to clumping if it gets in contact with moisture.

Summary and Conclusion

The study indicates that the total investment in capital assets amounted to ₹ 646.79 lakhs, with plant and machinery constituting the dominant share of ₹ 434.83 lakhs, accounting for 67.23% of the total investment. Land formed the second largest component, with an investment of ₹ 87.48 lakhs (13.53%). The remaining 19.25% of capital investment was allocated to supporting assets such as factory buildings and sheds, electrical installations, vehicles, computers and data processing units, as well as furniture and fixtures, reflecting the comprehensive infrastructure requirements of the processing unit.

In terms of financial performance during the year 2023-24, chilli powder emerged as the most profitable product, recording the highest net return of ₹ 254.42 per kilogram and a superior benefit-cost ratio of 1.83. This was followed by coriander powder and turmeric powder, which generated net returns of ₹ 173.43 and ₹ 154.29 per kilogram with B: C ratios of 1.63 and 1.52, respectively. The comparatively stronger performance of chilli powder can be attributed to sustained market demand, lower processing and storage losses, and relatively stable availability of raw materials throughout the year.

The study reveals that the unit produces more than its breakeven quantity for all three spice powders. Therefore, it is concluded that all the products overtake the value in the production, in monetary terms and are risk-free and their worth has been surpassed by their respective production levels.

The study highlights that seasonal fluctuations, off-season scarcity and changing market demand significantly influence the availability and price stability of key raw materials such as red chillies and turmeric rhizomes. Variations in cultivation practices, regional sourcing and post-harvest handling further affect the uniformity of quality parameters. In turmeric, ensuring consistency in colour, aroma and curcumin content remains a major challenge, while evolving consumer preferences for organic, high-curcumin or regionspecific spice attributes necessitate product differentiation.

On the processing side, although the existing grinding machinery is operational, its technological limitations affect efficiency and product quality. Heat generation during grinding adversely impacts aroma, pungency and essential oil content, particularly in turmeric and chilli powders, while the hardness of turmeric accelerates equipment wear. Additionally, moisture absorption and oil content pose storage and handling challenges, leading to caking, stickiness and quality deterioration. These constraints underline the need for improved processing technology, better moisture control and quality-oriented sourcing strategies to sustain competitiveness in the spice processing sector.

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