Owners of cold storages in major potato-producing States including Uttar Pradesh, West Bengal, Bihar and Gujarat are a worried lot these days. A sizeable amount of loans they had taken from banks to lend to potato farmers and traders have not been repaid and have turned into non-performing asset (NPA).
With the price of the tuber crashing, a majority of the farmers and traders have been unable to repay the loans they had taken from cold store owners against warehouse receipts. Unable to repay their loans, cold storages are shutting down operations.
According to Mahendra Swarup, President, Federation of Cold Storage Association, 200-300 cold storages in UP, which is the largest potato-growing State, are likely to close down as they have become unviable.
“A majority of the store owners have only been able to repay 50-60 per cent of the loans taken at the beginning of the loading season in February. While it is difficult to say the total amount of credit taken, as per our estimate, ₹400-500 crore are yet to be repaid,” Swarup said.
UP has close to 1,700 cold storages with a capacity of around 120 lakh tonnes. The State produces 140-150 lakh tonnes of potatoes a year. Agra and Farukkhabad, which are the key producing districts, have been the worst hit, said Swarup.
Grim situation
The situation is equally grim in West Bengal, the second largest potato-growing State with an average annual production of 100-110 lakh tonnes. The State has close to 470 potato cold storages with a capacity to load about 70 lakh tonnes of the tuber.
Ashok Kumar Pradhan, MD and CEO, United Bank of India, said the West Bengal Cold Storage Association (WBCSA) has urged the State Level Bankers’ Committee (SLBC) to restructure the loans to salvage the situation. United Bank is the SLBC convenor in the State.
“In the last SLBC meeting, in December 2018, they had asked for a restructuring of loans. But we did not feel there is much stress, so we did not think restructuring would be essential. But we have asked individual banks to look at it on a case-by-case basis,” Pradhan said. The WBCSA estimates the total loss incurred by the potato industry in the State, including growers, traders and store owners, at ₹2,000 crore.
Farmers and traders typically store a certain quantity of potatoes in cold storages, and release it in the market when demand arises. They receive advance money as loans from cold storage owners against the potatoes loaded. They have to repay the loan when they offload the stock and earn their returns.
“A large number of potato farmers and traders had loaded a higher quantity of the tuber in cold storages this year in anticipation of prices firming up on the back of lower production. But production was down by just 5-10 per cent and the excess carry-over stock from last year dampened prices, which remained almost muted throughout the year,” said Patit Paban De, past president of the WBCSA.
Cold storages, which usually close down by end-November for maintenance, are unable to do so as they are still sitting on around 3 lakh tonne of potatoes.
De said since the market price was ruling lower than the loading price since October, people were not releasing their stock.
Potato, which was fetching ₹900-1,000 a quintal at the time of loading in March 2018, is currently not even getting ₹100-125 a quintal.
Production of potatoes across the country has been growing year-on-year, even while consumption has not grown at a similar rate, Swarup said.
Problem of plenty
“If a farmer could grow 80-90 packets (of 50 kg each) of potatoes on one bigha of land earlier, today he can produce more than 150 packets because of the improvement in farming techniques and use of better fertilizers,” he said.
However, consumption has not kept pace. In fact, some States such as Gujarat and Assam, which were ‘importing’ potatoes till 8-10 years ago, have started growing the tuber in a ‘big way’.
“Gujarat was the biggest consuming State for potatoes 8-10 years ago; now they are competing with UP and ‘exporting’ potatoes to other markets. Moreover, we do not have many potato processing industries in the country to boost consumption,” Swarup added. Prices are therefore likely to remain muted unless demand picks up sharply.
Cold storage owners who have defaulted on their loans will find it difficult to obtain fresh loans from banks this season. So they might be unable to lend to farmers and traders, thereby creating a tight liquidity situation.
“Farmers and traders who have incurred huge losses from the crop last season may not be able to sustain themselves if they are not extended some support,” De pointed out.
In Gujarat, the financial stress is building up in the cold storage industry. There are two segments in the cold storage sector — one catering to the production centres and the other to the consumption centres.
“The financial stress is intense in the segment that caters to the production centres. These cold storage owners play guarantors to the farmers for cold storage receipt finance. Also, they lend small amounts to farmers for seed purchase and other agri spends. But with prices turning non-remunerative in the key crop of potato, farmers default on repayment on receipt finance and the burden comes on the cold storage owners,” said Ashish Guru, President, Gujarat Cold Storage Association.
According to Guru, most of the cold storages cater to potato farmers, who have been facing lower realisation of their farm produces due to reduced prices.
In Gujarat there are about 377 cold storages as of 2018-end with capacity of about 2.8 million tonnes (approx 574 lakh katta of 50 kg each).
“We have not seen much capacity getting added in the last year, but the stress levels have been up since 2015,” said Guru.