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HomePosts Tagged "Abhay Dandwate"
Agribusiness, Opinions, Supply Chain, Warehousing

 By Abhay Dandwate, Chief Risk Officer & Head Strategy, National Bulk Handling Corporation

India’s agricultural value chain relies heavily on agri-warehousing to bridge the gap between year-round distribution and seasonal crop supply. Through the use of sustainable practices, innovation, and investment encouragement, the agri-warehousing sector may realise its full potential and make a substantial contribution to India’s agricultural growth narrative.

India’s agricultural sector, while progressing steadily, faces a significant challenge: the lack of modern and scientific storage facilities. With an annual food grain production of approximately 330 million tonnes and an agricultural warehousing capacity of around 201 million tonnes, a substantial storage gap of over 40 per cent persists. This shortfall contributes to an alarming annual loss of about 74 million tonnes of food, accounting for 22 per cent of total food grain production and 10 per cent of both food grains and horticultural produce. A major factor behind these losses is the inadequacy of storage infrastructure.

Recognising the need to address this issue, the Government of India has launched numerous initiatives to enhance the country’s storage capacity through the construction of warehouses, godowns, and silos. Presently, over half of India’s warehousing capacity is owned and managed by public sector undertakings such as the Food Corporation of India (FCI), Central Warehousing Corporation (CWC), State Warehousing Corporations (SWCs), and other state agencies. To complement these efforts, schemes like the Agricultural Marketing Infrastructure (AMI), the Private Entrepreneurs Guarantee (PEG) Scheme under a public-private partnership (PPP) model, the PM Krishi Sampada Yojana, and cooperative sector programmes aim to encourage private sector participation in developing storage infrastructure.

Landmark Initiatives in Storage Development

A key milestone in India’s agri-warehousing sector is the government’s announcement of the world’s largest grain storage plan within the cooperative sector. Over the next five years, this initiative seeks to establish a storage capacity of 70 million tonnes with an investment of Rs 1.25 lakh crore. This ambitious plan includes constructing small storage structures with a 2,000-tonne capacity at the block level to reduce food grain losses due to insufficient facilities.

The initiative also involves building thousands of warehouses and godowns nationwide and integrating Primary Agricultural Credit Society (PACS) godowns into the food grain supply chain. This integration, led by the National Cooperative Development Corporation (NCDC) and supported by NABARD, aims to reduce transportation costs and create storage capacity sufficient for 100  per cent of India’s grain production. The Warehousing Development and Regulatory Authority (WDRA) has waived registration fees for cooperative sector warehouses, incentivising farmers to use these facilities and secure better prices for their produce.

Aligning existing schemes such as the Agricultural Infrastructure Fund (AIF) with the storage initiative enables PACS to access subsidies and interest subvention benefits, significantly boosting infrastructure development. These measures collectively aim to strengthen the agricultural value chain and reduce post-harvest losses.

To read more click on:https://agrospectrumindia.com/e-magazine

 By Abhay Dandwate, Chief Risk Officer &

AgroPolicy, Foodgrains, India, Opinions, Pulses, Trade, Vegetables

By Abhay Dandwate, Chief Risk Officer – National Bulk Handling Corporation Pvt. Ltd.

India, one of the biggest producers of wheat and wheat flour, prohibited wheat exports last year due to a rapid and unexpected decline in output caused by a sharp increase in temperatures during the Rabi season. This move occurred despite a surge in export demand for Indian wheat, driven by already tight global supplies resulting from the Russia-Ukraine conflict.

This was not the isolated incidence of India imposing export restrictions as an effort to tame galloping domestic prices. In the middle of May last year, India imposed a ban on wheat exports. Subsequently, in July, restrictions on wheat flour exports were introduced, mandating traders to obtain permission before shipping wheat flour.

Spoilsport El Niño

As of July this year, in the wake of rising food prices, high inflation and fear of rice shortage due to  El Niño disruptions as the country heads into a festive season Indian government decided to ban the export of non-basmati white rice too in order to ensure adequate domestic availability at reasonable prices. Also, Indian parboiled rice exports were levied with a 20 per cent tariff, and the minimum export price (MEP) for Basmati rice was mandated at $1,200 per tonnes, aimed at preventing non-basmati rice from being exported under the classification of basmati rice. This action was in addition to the ban imposed on the export of broken rice, declared in September last year, which remains effective even to date. 

Nevertheless, in response to the protest expressed by the exporter’s lobby, pointing out that over 50 per cent of basmati rice is exported for less than $1,000 per tonnes, basmati rice exports may get a deep dent, the government has provided substantial relief by assuring to recommend a lower minimum export price (MEP) of $850 per metric tonnes.

One of the main reasons for this action was the expectation of below normal monsoon rains this year.

Global Impact

Owing to the preempted ill effects of the monsoon India, the world’s largest rice exporter, limited rice shipments, imposed a high minimum export price (MEP) on Basmati rice, imposed a 40 percent duty on onion exports, permitted duty-free imports of pulses, and may potentially ban sugar exports going forward. The government might continue with ongoing curbs on exports of rice varieties and wheat for a prolonged period.

Although India’s decision to ban rice exports was based purely on domestic fundamentals, not surprisingly it had a detrimental impact on countries heavily reliant on imports. Prima facie, there seems to be no problem with this approach as every country has its domestic compulsion to ensure supply for its own fellow country persons at an affordable price to contain the food inflation first.

To read more click on: https://agrospectrumindia.com/e-magazine

By Abhay Dandwate, Chief Risk Officer -

Finance, Interaction, Opinions, Warehousing

Agriculture commodities business is a high volume and low margin business and is often accompanied by moderate to high level of risk. The economic returns of warehousing activity are highly vulnerable to the Production Risk, Market Risk and Regulatory Risk. The utilisation of the warehousing space largely hinges on the Production of Crop, Expected Price Outlook of Agri Commodity, Export Prospects, Domestic Demand, Government Procurement and Regulatory Guidelines. Here’s a closer look at the current scenario and some measures that could help mitigate the risks involved.

Agri warehousing business is fraught with high degree of Operational Risk, Quality Risk, Quantity Risk, Market Risk and Regulatory Risk therefore it requires constant monitoring and surveillance. One of the biggest challenges in Agri warehousing business emanates from the fact that numerous warehouses are spread across the remote parts of the country, which are not economically viable due to underutilisation and increased cost of construction driven by high land price, surge in cement and steel price. At the same time, warehouses situated at remote locations are exposed to the fraud risk because of the movable nature of the Agri commodities. Additionally, the commodities kept in the remote warehouse locations are further vulnerable to the risk of theft, burglary and also prone to the delayed remedial action in the event of fire, flood or natural calamity related incidents.

Agriculture warehousing being predominantly an unorganised and low-cost sector, professional practices, systems and procedures are still at nascent stage making it challenging for organised, professional players to survive because low entry barriers which has brought down margins with increased risks and created an adverse Risk to Reward ratio in the business. Agriculture being a seasonal activity, the harvested Agri commodity stored in the warehouse, which is utilised over the period that blocks significant working capital of the producer. Traders or Processors, who in turn necessitates these entities to avail finance against the value of these underlying Agri commodity from the financial institutions. Agri commodity finance has transformed in the last few years and with the advent of Collateral Management Business because of which banks and other financial institutes have ventured into this business aggressively. Commodity Finance products got impetus in 2004-05 and was mainly driven by 2-3 large private sector banks and now this business has spread across more than 50 financial institutions and banks. Commencement of Future Trading has further paved the way for demit funding for banks/financial institutions and now with the introduction of option in Exchange and with the setting up of National E-Repository Limited (NERL), which is a national level market infrastructure institution that records and stores Warehouse Receipts in an electronic form (e-NWRs), under the aegis of Warehouse Development and Regulatory Authority (WDRA), will further play important role in deepening the Agri commodity business. However, this is yet to get fillip.

The loans against Agri commodities are typically short term and self-liquidating in nature. The collateral manager guarantees the banks about the quality and quantity of the Agri commodities, provides price information required for margin call and also aids in disposal of the commodities, if necessary. The last few years of subdued agricultural growth and economics has increased counterparty risks with rising incidents of fraud, especially for all players in the collateral management business. This industry is manpower intensive and the industry due to its low-cost profile and less organised nature, has a significant challenge in attracting talent with the right skills, integrity and value systems especially at field level. The banks and financial institutes transfer the risk of quality and quantity of underlying commodity through the Collateral Management (CM) agreement by paying services charges to the Collateral Manager. Therefore in the event of any short fall incident arising on account of infidelity of employees, liability to make good losses to the bank /financial institution sometimes crystallises on the CM agencies.

CM business is fraught with high degree of operational risk

Additionally this industry is manpower intensive and CM companies remain dependent on the effective supervision of storage and monitoring of inflow and outflow of commodities and the risk reward ratio is very slender therefore this business requires constant monitoring and surveillance.

Another challenge in providing CM services emanates from the logistics complexities of securing numerous warehouses spread across the remote parts of the country and safe custody of commodity as usually commodity is stored in the warehouse/cold storages owned by the third party therefore possibility of undue influence of the warehouse owner/cold storage owner cannot be totally ruled out.
In Agri commodity finance business downward volatility of prices erodes the margin of the client and in such a situation delayed disposal of the commodity may snowball into financial loss to the financial institution/ company.

Further, transfer of risk to the insurance company is limited due to the reduction in the quantum of sum assured coupled with surge in the insurance premium cost.

• Extensive risk profiling of client based on the past antecedent of the client, analysis of financial standing.
• Exposure capping based on the client rating, commodity concentration and geography concentration.
• Continuous streamlining of the operating process and issuing detailed standardised operating process and ensuring its adherence to ensure the security of the underlying commodity.
• Several levels of audit checks based on the risk profile of warehouses/godowns.

The current collateral management processes in India are evolving and now shifting more towards technology-driven monitoring which plays an important role in the management of the thinly spread structures. The system not only ensures that the issuance and release of the warehouse receipt are centralised, but also keeps all relevant personnel updated in real time on the status of the collateral. The use of CCTV cameras is also an important element to initiate corrective action and downsize the likely quantum of risk.

Agriculture commodities business is a high volume

Finance, Interaction, Opinions, Warehousing

Abhay Dandwate, Chief Risk Officer, National Bulk Handling Corporation (NBHC) gives his opinion on the budget on how it will help India achieve its growth target 

Budget 2022-23 is a comprehensive capital expenditure led growth-orientated allocation, relying on the strategy to pump prime the economy through public investment, which will lead to crowding-in of private investment, eventually setting in motion the virtuous cycle of increase in employment rate and spurt in demand leading to increased consumption.

The outlay for capital expenditure in the budget is stepped up sharply by 35.4 per cent from Rs 5.54 lakh crore in the current year to Rs 7.50 lakh crore in 2022-23, while the effective capital expenditure of the central government is estimated at Rs 10.68 lakh crore in 2022-23, which will be about 4.1 per cent of GDP.

The revised estimated growth of tax revenues of 14 per cent against the budget estimates is a reflection of effective tax collection, notwithstanding to fact that the economy is also grappling with the brunt of covid, which is attributable to an increase in GST, corporate tax, income tax Collection. Tax to GDP ratio is estimated at 10.70 per cent as against 9.8 per cent earlier which is indicative of the endeavour of the government to maintain a tight lid on the expenditure; however still, it is lesser as compared to vibrant nations which are having Tax to GDP ratio in the range of 15-16 per cent.

The fiscal deficit for the full year is now revised to 6.9 per cent as against 6.8 per cent of the budgetary estimate which appears to be more authentic and realisable. However, on the disinvestment front, the government has lagged as the actual disinvestment against the BE of Rs 175000 crore is very meagre and considering the current pace of disinvestment, the revised estimate has been lowered to Rs 78000 crore.

However, the government has accomplished the daunting task of sale of Air India and there is a likelihood that the IPO of LIC will sail through in the current fiscal. The disinvestment target of Rs 65000 crore pegged for FY 22-23, appears to be more modest and realistic. The real challenge for the government will now be to fund this huge capital expenditure which will predominantly come from the proceeds of asset monetisation and raising debt from the bond market.

MSME is the cornerstone of the economy with regards to the generation of employment which was impacted most owing to the covid wave. Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE) scheme is proposed to be revamped. All these measures will give much-needed succour to this fragile sector.

Agriculture has shown its resilience despite facing the brunt of the covid wave and has shown consistent growth in the last two years by registering a growth of 3.6 per cent and 3.9 per cent in FY 20-21 and FY21-22 (Est) respectively, thus playing an instrumental role in driving the overall GDP @ 9.2 per cent in FY 21-22.

Agri sector budget allocation is focussed on the tech-driven approach to augment agriculture production. Kisan Drones’ will be promoted for crop assessment, spraying of insecticides, digitisation of land records which would give a better estimate of the crop, reduce wastage of pesticides, and ease of doing farming which would eventually lead to higher productivity for small and marginal farmers.

Announcement of government to start a scheme to lower the dependence on imports of oil and focus to increase domestic production of oilseed is the clear signal that the government is committed to reducing its dependence on edible oil import which has been one of the flashpoints of retail inflation as well one of the major factors of foreign exchange outgo which has already crossed 1 lakh crore mark.

Promotion of chemical free natural farming is another agenda on the radar of the Government with an initial focus on 5 kilometre corridor along the river Ganga.

Delivery of digital and Hi-Tech services to farmers in PPP mode and launching of the fund with blended capital to finance agriculture start-ups with NABARD is renewed emphasis of the IT-driven approach towards agriculture. In a bid to ensure stricter adherence on fuel bending, Government has proposed a levy of Rs 2 per litre on unblended fuel exemplify the government of its priority which will force the oil companies to meet the blending target and also give encouragement to the sugar industry to install distillery, which in turn supplement their income to meet the cost of production of sugar.

To achieve the ambitious target 280 GM of solar installed capacity by 2030 has increased allocation under Production Linked subsidy of Rs 19500 cr to make it to Rs 24000 coupled with a hike in the customs duty on imported solar modules and solar cells which is intended to boost the domestic production of solar panels but in the shorter run, same may have its dampening effect on the per-unit solar energy cost as the cost of imported solar modules and the solar cell is lower than the domestic solar components.

Introduction of Central Bank Digital Currency (CBDC) will give a big boost to digital economy, using block chain and other technologies. Digital currency may also lead to a more efficient and cheaper currency management system. However details of it will be known when RBI unveils the contours of the CBDC.

Overall budget is a forward-looking budget and is the step in the right direction to propel India’s growth.

Abhay Dandwate, Chief Risk Officer, National Bulk