Development in Indian Warehousing Industry with Focus on Pulses

-  Article Published in HANDBOOK OF PULSES 2016 -  Page (54 - 59) 

Warehousing plays a very vital role in promoting agriculture marketing, rural banking and financing and ensuring Food Security in the county. It enables the markets to ease the pressure during harvest season and to maintain uninterrupted supply of agricultural commodities during off season. Hence, it solves the problems of glut and scarcity, which are the usual problems in agricultural marketing. Though warehousing is an independent economic activity, yet is closely linked with production, consumption and trade. Warehousing is now seen as an integral part of the supply chain where goods are not only stored for safekeeping, but also where other value processes are implemented, thereby minimizing wastage and costs.

Agricultural warehousing accounts for fifteen percent of the warehousing market in India and is estimated to be worth Rupees 8,500 crore. However, it is perceived to be inadequate and unorganised. More than 40 per cent of the agricultural warehouses are run by state enterprises such as FCI, CWC and SWCs. About 30 per cent of the warehousing capacity is held by unorganised small godown players. These unorganised warehouses lack scale and quality. On the other hand, there are a few large national-level players in the warehousing market which own professionally run warehouses and also provide ancillary services around warehousing. Although there is no exact data on the number of warehouses present, some of the substantial capacities available in public, cooperative and private sectors are depicted in the adjacent table.

Given the fact that a huge quantity of government procured food grains are kept in open storage (CAP) for months together, the risk of quality deterioration needs no emphasis. In this context, the finding of an expert Committee, point to a total warehousing gap 35 million MT during the 12^th plan period, reflecting the excess of demand for warehousing capacity less supply or availability of the same. In the other words, warehousing capacity of 35 million MT need to be created in the country during the 12^th plan period to ensure that the demand for storage of agri commodities is adequately take care of. Of this gap, as indicated above, capacity of 12.11 million MT has already been created. The gap insofar as the private sector is concerned is likely to be about 10 million MT as the bulk of the storage gap is in the public sector.

About 80 per cent handling and warehousing facilities are not mechanized and traditional manual methods for loading, unloading and handling of foodgrains and other commodities are used. However, the warehouses which are mechanized have just forklifts or hydraulic hand pallet trucks. These numbers clearly indicate that there is an acute shortage of organized and good quality warehousing and storage infrastructure in the country, for both, agricultural and non-agricultural commodities. In spite of the fact that government has incentivized agri-warehousing capacity building, there had been lack of sustained investment in the warehousing sector. The private sector initiatives were small and sporadic in this sector. Besides, most of the private sector warehousing capacities available in the country were of poor quality, small, fragmented and do not meet the requisite infrastructure standards.

The warehousing capacity built over past 10 years, especially those sanctioned by NABARD have an average storage capacity per warehouse of 1,261 MT and around 75 per cent of numbers of godowns have capacity of less than 1,000 MT. The development of small and medium godowns indicates that most of them have been built by farmers or a community of farmers thus ensuring that distress sale is reduced and better prices are paid to farmer for their produce. Apart from this there are few large national level players which have emerged over the last decade owing to the available capital subsidy. These include National Bulk Handling Corporation Ltd., National Collateral Management Services Ltd., Adani Agri Logistics, Star Agriwarehousing & Collateral Management Ltd., Shree Shubham Logistics Ltd., Ruchi Infrastructure Ltd., Guru Warehousing Corporation, Paras Warehousing and LTC Commercial. Irrespective of the concerted efforts from the government as well as private and corporate players in the warehousing sector, the industry is gripped with regional imbalance.

Only 22 per cent of total storage capacity is available in the major consumption states. Even some of the states have got storage capacities of less than one month of their requirement. While obvious factors like proximity to the major mandis in the state, differences in the quantities of food grain and pulses produced within the state, etc. are the major causes behind the regional imbalances, other key factors like the extent of interest and initiative shown by bank officials in promoting the concept of rural godowns to local entrepreneurs, publicity and awareness created about the scheme at the local level, etc. also played a major role behind these regional imbalances. In short, dominant producers of food grain and related agricultural products comprise the majority of godowns and storage capacity.

The warehousing industry in India gained tremendous impetus after the introduction of the Warehousing Development and Regulatory Authority (WDRA) which came into existence on 26th October 2010 as per the provisions made in the Warehousing (Development and Regulation) Act, 2007. WDRA has been instrumental in the implementation of negotiable warehouse receipt (NWR) w.e.f. 26^th April 2011. As per the Warehousing (Development and Regulation) Act, 2007, negotiable warehouse receipts (NWRs) can be in both paper and electronic forms. The format of the NWR has been finalized in consultation with various stakeholders and Indian Banks’ Association (IBA), and paper NWRs are now being issued by the registered warehouses across the country. The advantages of electronic warehouse receipts (EWR) over the paper warehouse receipts include: reduction in manual paper handling, elimination of transportation of paper warehouse receipts, reduction in chances of forgery, and quick access of information. The WDRA play a vital role in developing an orderly, robust and reliable warehousing system in the country not only for foodgrains and other dry commodities but also for perishable commodities like fruits and vegetables wherein post-harvest losses are reported to be about 30 per cent. The introduction of NWR system in the country would not only help farmers to avail better credit facilities and avoid distress sale but would also safeguard financial institutions by mitigating risks inherent in credit extension to farmers. The pledging /collateralization of agricultural produce with a legal backing in the form of NWR would lead to increase in flow of credit to the rural areas, reduce the cost of credit (due to certainty of recovering credit by the bank) and would spur other related activities, like standardization, grading, packaging and insurance services in the agricultural sector. With the increased requirement of quality storage, warehousing industry would also get a boost in rural areas. This would also fill gaps in the logistic chain of agri-business in the rural sector.

With the emergence of the collateral management companies, warehouse receipt finance has gained acceptance in the banking sector, with all big and small banks now participating in this space. As a result, finance against commodities is likely to experience a participating in this space. As a result, finance against commodities is likely to experience a phenomenal growth. While currently the size of the market is estimated at about Rs. 30,000 crore, as per a recent study by NABCONS, the potential for finance against collateral of major agri commodities and fertilizers is Rs. 166234 crore, details in this regard are given in adjacent table.

Over the years warehousing business has been transformed to a great extent from merely a storage infrastructure to a one stop shop for supply chain management through the entry of private sector. Nowadays the goods are stored as per the scientific methodology to protect them against the quantitative as well as qualitative losses occurring due to unavoidable circumstances such as floods, pest attacks, etc. Hence, ‘warehouse performance indicators’ should be introduced to check the efficiency of the warehouses which now should include quality parameters like ability to control wastage, pest control measures, provide wide range of testing, grading and certification services which can help in ascertaining the value of the commodity deposited and bring transparency among all interested entities.

In India Pulses are grown in around 24-26 million hectares of area producing 17-19 million MT of pulses annually. India accounts for over one third of the total world area and over 20 per cent of total world production. India primarily produces Bengal gram (chickpeas), red gram (tur), lentil (masoor), green gram (mung) and black gram (urad). For majority of vegetarian population in India, pulses are the major source of protein. Pulses and pulse crop residues are also major sources of high quality livestock feed in India. In India pulses are cultivated on marginal lands under rain fed conditions.  Only 15 per cent of the area under pulses has assured irrigation. Because of the high level of fluctuations in pulse production (due to biotic and abiotic stress) and prices (in the absence of an effective government price support mechanism) farmers are not very keen on taking up pulse cultivation despite high wholesale pulse prices in recent years.  India having the largest shares about 25 per cent production, about 33 per cent acreage and about 27 per cent consuming of total pulses of the world. The acreage ranged from 23.46 (2003-04) to 23.82 million hectares (2015-16) and production varied from 14.91 million MT (2003-04) to 17.33 million MT (2015-16). The productivity has increased from 636 kg/ hectares (2003-04) to 728 kg/ hectares (2015-16). The major pulses producing states are Madhya Pradesh (24.12 per cent), Maharashtra (16.46 per cent), Rajasthan (12.94 per cent), Utter Pradesh (8.82 per cent), Andhra Pradesh (8.06 per cent) and other states together (21.29 per cent) during 2015-16.

As per the figures given in table 2, the Pulses accounts for a share of about 4.49 per cent of the total Warehouse Receipt Finance happening in the country. Of the total food grains produced in the country, the total pulses contribute to 6.85 per cent and the cereals comprises of about 93.15 per cent (as per production statistics of 2015-16). Thus we can see that the pulses at present command a very low profile status in terms of utilizing the warehousing capacity of the country. In order to improve the situation of the pulses situation in the country the government has proposed  proposal to create a buffer stock of 3.5 lakh MT of pulses during the current 2015-16 crop year through domestic purchase or imports to prevent a further price spikes. Out of the proposed 3.5 lakh MT, about 1.5 lakh MT of tur and urad will be procured in the ongoing kharif marketing season and the rest 2 lakh MT of chana and masoor will be bought in the rabi marketing season. With huge buildup of inventories and limited storage space with the government there is ample scope of expansion of private warehousing in the pulse sector.

Though the storage capacity has increased at a CAGR of about 8 per cent during the last decade till March 2016, the irony remains that around 20-30 per cent of the total food grain harvest is wasted due to lack of availability of storage capacity, regional imbalance in warehouses, lack of adequate scientific storage and inefficient logistic management in the country.