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Agri Warehousing Finance

At the time of harvest farmers should ideally look forward to commanding a good price for his labor. But the reality for most Indian farmers is quite different. Soon after harvest, prices for all commodities are at their lowest. Unfortunately, it is the smaller and marginal farmers who are most likely to succumb to a low price since their need for realization of funds (to meet household needs, pay off loans etc) is the most acute.

Prices only tend to rise as fresh produce and market arrivals dip with the passage of time. Clearly, the availability of finance at the right time strengthens farmers’ ability to reject the low prices on offer. It is on this assumption that IFPL launched another innovative product, the Warehouse receipt based finance. This allows the farmer the opportunity to take a loan against his produce (stored in a warehouse against a receipt) and avoid a distress sale.

The storage capacity in India is mainly concentrated towards production centers. Only 22% 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.

With a view to increase the participation of private sector and development & regulation of warehousing industry, Government of India introduced ‘The Warehousing (Development and Regulation) Act’ in September 2007. The main focus of this Act is to establish a regulated environment for issuance of Negotiable Warehouse Receipt (NWR) under Warehousing Development and Regulatory Authority (WDRA) which was constituted in October 2010 under the said Act. The functions of WDRA include registration and accreditation of warehouses intending to issue NWR. WDRA, since inception had granted accreditation to 51 applications out of 300 applications submitted as on March 31, 2011.

Generally, at the time of harvesting, the price of agricultural commodities tends to be lower because of positive supply situation and farmers often do not get adequate price for their produce. By depositing their produce in a registered warehouse and obtaining NWR, farmers can use it as collateral for obtaining short-term borrowing for their working capital requirement for the current sowing season from banks. Further, when the prices become favorable, the farmer can sell the same, repay the loan and get a surplus income.

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