An Analytical Study Of The Silk Reeling Operations In Karnataka
Silk reeling sector, though provides a vital transformation, appear to be the weakest link owing to its innumerable problems and the limited value addition that takes place. Problems are associated with raw material availability, working capital constraints, marketing and quality related aspects. Reeling sector is input dependent activity and its operations are influenced heavily by three factors viz., cocoon quality, cocoon price and cocoon supply. However, there has not been adequate thrust on quality due to the absence of quality based price fixation. Absence of quality based pricing has been a major deterrent factor in the pursuit for quality improvement. The seasonality associated with cocoon quality, cocoon supply and price as also the raw silk price almost always determine the fate of reeling activity.
Being aware of the limited research done in respect of Indian silk industry, an elaborate literature review in the area of economics and management aspects of the silk industry in general and silk reeling operations in particular, was made.
Studies on the economics of reeling operations done in the past indicate negative net revenue for the reeling units. However, if the reeling industry has survived over the years, it cannot be in spite of the loss. The industry has to breakeven over a period of time to consolidate the gains, however meagre. So, it is worthwhile to study the economics of silk reeling industry over a sufficient period of time, that is enough to include a cycle of seasonality, be it with respect to cocoon quality, cocoon availability, cocoon price, raw silk demand or raw silk price. In addition, if the element of uncertainties at varying points of time is included to study their effect on reeling economics, it makes the study more meaningful.
It may be noted that, the variations in cocoon price over a period of time are dictated by the seasonality with respect to cocoon supply and demand. With regard to the variations in cocoon price at a given point of time (within a season), price differential between the cocoon lots appears to be largely due to its quality. A study of the inter relationship between cocoon quality, its quantity and price as also raw silk price is important. It is therefore felt that, the relationship between the cost of cocoons, cocoon quality and its productivity, when built into the determination of reeling economics, the analysis will be more realistic.
A study of a typical reeling unit, to unearth the intricacies of operations and decision-making in the light of the volatile situation in the industry forms a pre requisite for a clear understanding of its functioning.
Since reeling activity is highly input dependent, ignoring the aspects of the input market dynamics would not yield a holistic perspective of the operations. If one has to study and understand the market dynamics, the attributes of the commodity transacted should be clearly known. The commodity in question here is cocoon. The quality of cocoons does not have a unique expression, either to consider as a variable for studying the relationships in the market or as an input into the production process or as a yardstick for commercial transactions.
The thesis thus deals with three major aspects of silk reeling industry in Karnataka, relating to the quality of raw material, dynamics of market transactions and analysis of the day to day operations of a typical silk reeling unit.
There are around five quality parameters used for testing the quality of cocoons and each of them has a certain dimension of importance in defining the quality of cocoons. The procedures followed in Japan and China are not readily adaptable for Indian conditions. Therefore, an attempt has been made to develop a unique measure of cocoon quality under Indian conditions both from the point of view of appropriateness of representation as also the ease of determination commercially.
In view of the importance of shell ratio 9c (SR%) and defective cocoon % (DC%) in representing the quality of cocoons, these two quality parameters are used for fixing the cocoon quality index. The statistical technique chosen for developing the Cocoon Quality Index (CQI) is discriminant analysis. Data on SR% and DC9c in respect of a sample of around 40,000 lots of multibi cocoons spanning a period of two years were collected for the analysis. The objective was to group the cocoons into low, medium and high quality in addition to arriving at a discriminant function to represent the quality index from SR% and DC% as independent variables.
The analysis has contributed in establishing an index for assessing and grading the quality of, both mutibi and bivoltine cocoons in the Indian context. The study has also brought to focus the fact that, SR% and DC% adequately represent the quality of cocoons. As an extension of the objective, the commercial application of CQI as a means of price fixation mechanism in the cocoon markets has been illustrated.
An analysis of the quality of cocoon lots presently being transacted in Karnataka has been made.
The study of the market dynamics focused first on estimation of the relationship between cocoon price and its quality and supply (quantity) and then establishment of the causal relationship between cocoon price and silk price. Day wise aggregate data were used in. these two instances. In addition, the relationship between lot size, quality and price of cocoons being transacted in the cocoon markets has been established using the lot wise micro level data.
The interrelationships of the various time series data have been studied through ARIMA analysis. The asymmetry in response of raw silk price to changes in cocoon price has been studied.
The study enabled the identification of the determinants of cocoon price and raw silk price which are the major factors contributing to the revenue of a silk reeling unit. The capability of the buyers to assess the quality of cocoons subjectively even in the absence of an analytical system, speaks about the experience and expertise of the reelers. The supply quantity of cocoons largely influences the cocoon price. The dependence of raw silk price on cocoon price indicates the predominance of the supply side of the industry. The symmetry in the response of raw silk price to changes in cocoon price has also been established.
The problems typical of a reeling unit merit the application of simulation technique in order to gain insights into the operations of a reeling unit. Discrete Event System Simulation has been used with fixed time increment approach and terminating criteria. The operations of a typical silk reeling unit have been simulated for a period of one whole year.
A typical model based on the heuristic thinking of reelers to reflect the practices ingrained in the reeling units has been developed. The strategies they adopt to counter the vagaries of their operations have also been considered. Silk reeling being an input controlled industry, the heuristics of cocoon buying decision has been incorporated as the core of the model. The heuristics are derived from discussions with several prominent reelers and observation of their operations. The model tries to incorporate the volatile situation of the cocoon market and the raw silk sale price as also the constraints of working capital and the decision the reeler tends to take under these conditions.
Standard procedures of simulation viz., variance reduction techniques, verification and validation of simulation model etc. have been followed. Simulation experiments have been made considering the factors of strategies, working capital borrowed money and installed capacity, in order to study its influence on the performance of a
reeling unit. The simulation experimental data have been initially subjected to rnultivariate analysis and later to univariate ANOVA for each of the two response variables viz., cumulative net revenue and cumulative capacity utilisation.
The unique relationship between revenue and capacity utilisation indicated a trade-off between the two. The reeling unit has to aim at maximising utilisation without major setbacks in revenue. It has been found that the capacity utilisation of a reeling unit is influenced more significantly by the factors or parameters of the model viz., strategy, working capital, and borrowed money and plant capacity, while the variables of the model viz., cocoon price, CQI and raw silk price influence cumulative net revenue.
The importance of cocoon quality for better economics of production has been clearly established which should serve as a guiding factor for cocoon buying decision. An interesting result is that when there is adequate working capital, a bigger batch size for raw silk sales earns higher net revenue. The seasonality in net revenue is overwhelming in all the cases. The reeling unit has positive net revenue in the first six months with a few ups and downs and the gain it had consolidated slowly reduces before stabilising at a relatively lower level.
The important contributions are the development of a quality index for grading of cocoons, establishment of the interrelationships among cocoon price, its quality and supply quantity as also the relationship between cocoon price and raw silk price. The much needed insight into the operations of a reeling unit has been provided by the simulation analysis. For the first time it has been established that, reeling units do make profits from the primary product. The model incorporated good management decision making for the purchase of cocoons and handling of working capital and other operations.
Advisor:Bala Subrahmanya, M H; Somashekar, T H
School:Indian Institute of Science
Source Type:Master's Thesis
Keywords:economics sericulture silk industry reeling weaving cocoon multi cocoons bivoltine
Date of Publication:12/01/2000