How Warehousing Reforms Impact Agri Growth & Resilience

 By Sanjay Gupta, MD and CEO, National Commodities Management Service Limited (NCML)

In light of the recent announcement by Union Minister Anurag Thakur about introducing the ‘world’s largest food grain storage plan’ with warehouses in every block across the country under cooperative societies, it becomes essential to assess and emphasise the role of warehousing reforms for agricultural growth.

According to the annual report published by the Ministry of Agriculture and Cooperation, the agriculture and allied sector engages 54.6 per cent of the total workforce (Census 2011) and contributes 18.6 per cent to India’s gross value added (GVA) at current prices during 2021-22.

The production trend in India also indicates positive growth with foodgrain production estimated at 315.72 million tonnes, an increase of 4.98 million tonnes compared to 2020-21.

Pulses production during 2021-22 reached a record 27.69 million tonnes, exceeding the last five years’ average, by 3.87 million tonnes, and oilseeds production hit a record 37.70 million tonnes, up by 1.75 million tonnes from 2020-21.

While the upward trend in production is promising for an agrarian nation, it also poses the challenge of having sufficient infrastructure to support such growth. Achieving self-sufficiency requires an ample supply of well-equipped warehouses to handle the increased production.

Studies by Chaturvedi and Raj (2015) reveal that India experiences post-harvest losses of foodgrains as high as 12 to 16 million tonnes annually, amounting to Rs 50,000 crore per year (Singh, 2010).

This highlights the significance of warehousing in preventing losses and ensuring efficient storage and distribution of agricultural produce. The importance of warehousing was recognised as early as 1928 in India, when the Royal Commission on Agriculture mentioned it in its report. All India Rural Credit Survey, in 1954, recommended the creation of storage facilities near production areas to minimise post-harvest losses. However, even after a century, the state of warehousing in India remains far from desired.

As seen in the adjoining table, a major portion of the organised warehousing capacity in the country is still managed by the government through Public Sector Undertakings (PSUs) such as the Food Corporation of India (FCI), Central Warehousing Corporation (CWC) and State Warehousing Corporations (SWCs), State Marketing Federations, State Civil Supplies Corporations, and others.

The current situation not only calls for the creation of appropriate infrastructure but also significant reforms in warehousing. Warehousing reforms are of paramount importance in driving agricultural growth and ensuring the sustainable development of the agricultural sector.

Storage and Preservation

Proper storage is crucial for many agricultural commodities, including perishable goods, as they have a limited shelf life. Warehousing reforms offer modern storage techniques, temperature control systems, and inventory management practices that optimise the preservation of agricultural produce. These reforms enable farmers to store their produce for extended periods, reducing post-harvest losses including spoilage, minimising wastage, and maintaining the quality of goods. Reliable storage facilities enhance farmers’ confidence, allowing them to produce more without fear of immediate market saturation and ensuring a steady supply of goods to the market.

Market Stability

Warehousing reforms play a pivotal role in achieving market stability, a key requirement for sustained agricultural growth. In times of excess production, when there is a surplus of agricultural commodities, warehouses can be used to store the surplus and release  it gradually into the market as demand increases. By preventing sudden price crashes, these reforms shield farmers from significant losses and stabilise market prices. Stable prices incentivise farmers to invest in production, as they are assured of fair returns, while consumers benefit from consistent pricing and improved food security.

 Access to Finance

Warehousing reforms create opportunities for farmers to access financial resources vital for agricultural growth. Warehouses meeting prescribed standards can be used as collateral for obtaining loans from banks and financial institutions. Farmers can pledge their stored produce, ensuring a reliable and tangible asset that facilitates credit access at favourable interest rates. By leveraging their stored goods, farmers can manage their cash flow efficiently, invest in agricultural inputs, and meet various financial obligations. The committee formed under the chairmanship of Mr Dinesh Rai for Strengthening Negotiable Warehouse Receipts emphasised the role of Electronic Negotiable Warehouse Receipts (eNWRs) as an instrument to access finance. These eNWRsoffer advantages over paper warehouse receipts, reducing manual handling, eliminating transportation of paper receipts, minimising chances of forgery, and providing quick access to information.

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 By Sanjay Gupta, MD and CEO, National