How warehouse-based sales can mitigate farm marketing risk

An absence of concrete solutions to the problems of farmers is an outcome of collective systemic failure; however, natural risks associated with farming are often blamed for it. Though production risks can be mitigated by subscribing to suitable crop insurance scheme, the risk associated in marketing of agricultural produce is yet to get any absolute solution.

Marketing risk can be mitigated to a great extent by utilizing the services of warehouses and cold storages which help in postponing the sale till the market becomes favourable. But lack of capacity in holding the produce, financing multiple transportation, i.e. from farm to warehouse and warehouse to market and meeting storage charges prevents farmers from utilizing the services of warehouses and cold storages. Availability of markets at distant places from the farm or from warehouse exaggerates the problem.

Recalling the recommendations of the National Farmers Commission (2004) which emphasizes that a marketing outlet should ideally serve 80 square km i.e. it should be available within 5 km radius of farmers’ field.

However, under current scenario, average area served by a market is 115 sq. km while an average area served by a regulated market is 454 sq.km (Planning Commission, December 2011).

The growing number of agricultural warehouses in the country has the potential to supplement existing agricultural marketing infrastructure. Marketing outlets and warehouses are two of the most basic infrastructure required by the farmers, traders and other participants in the channel. Recently there have been instances of promotion of warehouses as an alternative market platform. The concept has been shaping up in Karnataka through initiatives of Rashtriya e-Market Services Private Limited. A similar initiative has been seen in Punjab where silos have been notified as Mandis.

As of now warehouses are not recognised as a component of market where sale/ purchase of commodities can take place. In order to declare a warehouse as a sub-market yard, the APMC Act of the states have to be amended and the warehouses which are fit to serve the purpose may be notified by respective state governments. Generally warehouses accredited by WDRA may be selected to be notified as a sub-market yard as the accreditation norms of WDRA requires warehouses to follow scientific storage practices which ultimately results in quality keeping of the produce.

During February 2015, the ‘Committee for Strengthening Negotiable Warehouse Receipts by the WDRA in the Country’ has also emphasised that warehouses could serve as alternative Mandis. The committee stated “Government of India may pursue the matter with all the State Governments for permitting the registered warehouses with the WDRA to be notified as Mandis under the relevant APMC Act”.

The first advantage to a farmer will be in the form of cost saving in transportation as farmers need to transport produce only either to the Mandi (if they opt to sell immediately after harvest) or warehouse (if they opt to sell later). The additional advantage which a farmer can have will be in the form of availability of pledge loan. The commodity stored in WDRA accredited warehouses are eligible for getting issue of a Negotiable Warehouse Receipt which could be considered as better collateral in availing loans from financial institutions. The third advantage for farmers as well as traders is in the form of flexibility in timing of sale/purchase of produce i.e. advantage of price movement between harvest and lean season can also be encashed.

The other advantage which a state may have with warehouse-based sale may be in establishing a better online marketing platform for agricultural produce. At warehouses, assaying facility may be availed by the warehousing agency and on an integrated online platform, the commodities stored in warehouses can be displayed for auction and sale. Having a quick data of available/ expected supply in the market for different commodities will be an additional advantage for government in deciding future course of actions in maintaining price stability in the market.

As of April 2015, the number of warehouse accredited with WDRA is 706 only. If the concept of Warehouse Based Sales has to flourish, the accreditation has to gather real pace. The number of accreditation agencies functioning on behalf of WDRA has also to be increased in states to speed up accreditation.

Also, there should be some relaxation in accreditation norms for the warehouses constructed under Rural Godown Scheme so that these warehouses can also qualify for accreditation, as well as to serve as sub-market yards. WDRA alternatively may also promote bankers in preferring its accredited warehouses which will help farmers in availing pledge loan through Negotiable Warehouse Receipt.

The writer is a New Delhi-based commodity expert. Views are personal.