Monday, 16 January 2012

Step up investments for better storage facilities

The Hindu Business Line - Jan 16 - article by Rana Kapoor - CEO Yes Bank


The World Bank estimates the prevalence of underweight children in India to be among the highest in the world. It currently stands at nearly double that of sub-Saharan Africa. This translates into a key factor contributing to our inability to ensure availability and access to nutritious food for millions in India. The Indian Council of Agricultural Research (ICAR) estimates that rice and cereal production need to grow 30 per cent, pulses 140 per cent and oilseeds by 243 per cent for the country to be able to feed its population by 2020. While programmes are undertaken on a mission-mode basis to increase food production, there needs to be a substantial capital investment flow in increasing infrastructure for food storage. Even as a substantial number have poor access to adequate food, there is a significant quantum of food that is wasted every year only because of insufficient storage facilities.
Global warming is threatening sustainability of current agricultural production levels. Research shows that if there is a temperature change of even 2 degrees Celsius and rainfall change of just 7 per cent, rice yields will fall by 15-42 per cent and wheat yields almost by 34 per cent due to compounded reasons such as drought, salinity and submergence. In the developing economies, creation of new industrialised infrastructure is causing climate change, even as the food economic system bears the increasing pressure of supply shortages and a diverse increase in demand leads to higher inflation. Monetary and fiscal policies can address this problem in the short or medium term, but efficient management of the country's food system becomes even more significant in the long term. Undoubtedly, efficient and effective storage is one of the most vital components of the food system management process. An efficient and strategic storage system not only reduces wastage but also helps in building a robust, just-in-time supply chain. This helps in reducing price volatility, ensuring higher nutrition retention, preserving value of commodities, reducing food inflation as much as in plugging the demand-supply gap. Creation of this additional infrastructure could have a multiplier effect in establishing associated agri- and food business ecosystems. Dry storages and cold chains consisting of production centres, centres of aggregation and even ports could then help in reaping a comparative advantage in export trade and also in efficient imports.
Current Situation
Food warehouses in India have traditionally been lacking in optimal size, adequate design and air movement, friendly storage systems, proper hygiene conditions, inventory management and even technology-aided solutions. Although slightly more modern form of warehouses have started appearing across the country, these are still a far cry from the sophistication of the modern-day warehouses in some other parts of the globe.
There is a unique and surprising co-relation between fragmented land holdings and warehousing pattern. Lower land holdings mean that every farmer has to secure his limited production in gunny bags. The produce is sometimes bagged at the field or at themandi. Major aggregation for cereals and other crops happen at themandi,before the crops begin their journey to areas of consumption. In countries with higher land holdings, the entire produce comes in a loose form, which can then be put through silos which are far more efficient in preventing wastage.
Latest estimates show India's total agri-warehousing capacity to be around 91 million tonnes, of which 37 million tonnes are owned by Government agencies like the Food Corporation of India (FCI), the Central Warehousing Corporation (CWC) and the State Warehousing Corporations (SWC). The Government uses around 60 million tonnes, which include a hired capacity of 23 million tonnes.
The Rural Godown Scheme introduced in 2001-02 has been successful in increasing the storage capacity. Since inception of the scheme, National Bank for Agriculture and Rural Development has extended Rs 732.23 crore so far as subsidy, which has helped in creating 28.43 million tonnes of storage capacity. The scheme was recently modified to help creation of single warehouses of up to 30,000 tonnes. Though farmers as well as groups of farmers have comparatively created smaller warehouses, larger storage-specific companies like National Bulk Handling Corporation, National Collateral Management Services, Star Agri, Origo, Ruchi Infra, etc, have created and are managing warehousing spaces with much larger capacities, creating liquidity against deposited stocks by acting as collateral managers to commodity-finance products of the banks.
Current deficit in warehousing is estimated at 35 million tonnes based on the current production numbers. To increase storage capacity, the Government has formulated a scheme to build an additional storage capacity of 15.27 mt in 19 states through private participation on a fast-track mode. However, there are also regional imbalances in the existing warehousing capacity. The northern region accounts for 48 per cent of the total capacity whereas the east and north-east cumulatively account for only 8 per cent of the total capacity. The west, south and central regions have 13 per cent, 22 per cent and 9 per cent of the capacity respectively.
Cold chains are another major area where India need to revamp infrastructure. At 180 million tonnes, India is the second largest producer of fruits and vegetables. But the cold storage capacity in the country can support only 23-24 mt of produce. Out of these, about 80 per cent is used to store potatoes. As the chains are highly fragmented and skewed towards a few States, it becomes difficult to integrate them with distant and export markets. Only 2 per cent of the products that need temperature-controlled environments are actually under such conditions in India; whereas in China it is 15 per cent, and in Europe and North America, it is as high as 85 per cent.
For the development of the warehousing industry in a regulated manner the Warehousing (Development & Regulation) Act, 2007 has been enacted. This, as an authoritarian body, has been set up to look after the development and regulation of warehouses, the regulation of negotiability of warehouse receipts (WR) and to promote an orderly growth of the warehousing business. The regulation aims to ensure safe warehouse receipt finance for banks and in turn, the negotiability of the WRs could open up a larger secondary market for the receipts. Most importantly, it could minimise distress sales by farmers.
New-age banks have started extending agricultural loans to various agri-value chain participants in the form of credit lines against pledge of different agri-commodities represented by physical WRs. Agricultural commodities stored in warehouses or cold storages are considered as collateral for such loans.
>Public Private Partnership (PPP)
The FCI has rolled out a public-private-partnership scheme to construct warehouses across the country. This model aims at addressing the massive requirement of funds to construct more warehouses. The immediate capacity requirement has been estimated at 4.5 mt with an investment of over Rs 4,000 crore.
The Ministry of Food Processing Industries has launched the third phase of Mega Food Parks Scheme where it offers incentives to entrepreneurs setting up infrastructure for the food-processing industry. This scheme will help also in increasing the cold-chain capacity in production zones and in creating a hub-and-spoke model having primary and central processing centres.
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