M ACRO /F INANCE G ROUP

Report on warehousing in India

Study commissioned by the
Warehousing Development and
Regulatory Authority

N ATIONAL I NSTITUTE OF P UBLIC F INANCE

AND P OLICY
September 1, 2015

Contents
Acronyms
1

Introduction

1.1

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.1.1

11

Literature Review

13

2.1

State of Indian Agriculture Warehousing . . . . . . . . . . . . . . . . . . . . . . . . . . .

13

2.1.1

Current capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

13

2.1.2

Categories of warehouses

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14

Market failures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14

2.2.1

Information asymmetry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14

2.2.2

Inadequate nationwide regulation and enforcement . . . . . . . . . . . . . . . . .

14

Market-based solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

15

2.3.1

Collateral management services . . . . . . . . . . . . . . . . . . . . . . . . . . .

15

2.3.2

Closed User Groups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

15

Promoting warehousing in India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

16

2.4.1

Gramin Bhandaran Yojana (GBY) . . . . . . . . . . . . . . . . . . . . . . . . . .

16

2.4.2

Private Entrepreneurs Guarantee (PEG), 2008 Scheme . . . . . . . . . . . . . . .

16

2.5

Warehouse receipt financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

16

2.6

Uses of Negotiable Warehouse Receipts . . . . . . . . . . . . . . . . . . . . . . . . . . .

17

2.7

Regulating warehousing effectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

21

2.2

2.3

2.4

Terms of reference for this study . . . . . . . . . . . . . . . . . . . . . . . . . . .

Methodology

23

3.1

Sampling Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

23

3.1.1

District selection and criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

24

3.2

Details of the participants/ respondents . . . . . . . . . . . . . . . . . . . . . . . . . . . .

25

3.3

Detailed study schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

26

3.3.1

Number of respondents covered . . . . . . . . . . . . . . . . . . . . . . . . . . .

26

3.4

Selection strategy of respondents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

28

3.5

Data collection procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

28

3.6
4

28

Findings of the study

31

4.1

The market for warehouse receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

33

4.1.1

Utility of storage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

33

4.1.2

Types of warehouse receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

33

4.1.3

Pledge finance market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

34

Warehousing business operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

37

4.2.1

Profiles of users of warehouses . . . . . . . . . . . . . . . . . . . . . . . . . . . .

37

4.2.2

Profiles of operators of warehouses . . . . . . . . . . . . . . . . . . . . . . . . .

37

4.2.3

Warehousing facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

38

4.2.4

Key aspects of the warehousing business and related processes . . . . . . . . . . .

40

4.3

Risks associated with storage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

45

4.4

Experiences of consumers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

47

4.4.1

Categories of users who use warehouses . . . . . . . . . . . . . . . . . . . . . . .

47

4.4.2

The factors that depositors consider while choosing a warehouse . . . . . . . . . .

49

4.4.3

The concerns of depositors with regard to storage of commodities . . . . . . . . .

50

4.4.4

Incidences of disputes and how they were resolved . . . . . . . . . . . . . . . . .

51

4.4.5

Perception and usage of government run schemes . . . . . . . . . . . . . . . . . .

51

Infrastructure for e-NWRs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

51

4.2

4.5
5

Data analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Analysis and recommendations

55

5.1

The market for warehouse receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

55

5.1.1

Analysis of findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

55

5.1.2

Recommendations for improving the market for warehouse receipts . . . . . . . .

56

Warehousing business operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

56

5.2.1

Analysis of findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

56

5.2.2

Recommendations for regulating warehousing business operations . . . . . . . . .

58

Risks associated with storage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

59

5.3.1

Analysis of findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

59

5.3.2

Recommendations for mitigating risks in the warehousing business . . . . . . . .

59

Experiences of consumers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

59

5.4.1

Analysis of findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

59

5.4.2

Recommendations for improving the warehouse user experience . . . . . . . . . .

60

Infrastructure for e-NWRs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

61

5.5.1

Analysis of findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

61

5.5.2

Recommendations for building infrastructure for e-NWRs . . . . . . . . . . . . .

62

Consolidated Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

62

5.2

5.3

5.4

5.5

5.6

A Annexure: Survey questions

67

A.1 Questionnaire for CWC & SWC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

67

A.2 Questionnaire for WSPs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

68

A.3 Questionnaire for banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

69

A.4 Questionnaire for warehouse owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

70

A.5 Questionnaire for traders & others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

71

A.6 Questionnaire for farmers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

72

B Annexure: District Profiles

75

Acronyms
APMC

Agricultural Produce Marketing

Committee.

CCI

The Cotton Corporation of India.

CMC

Collateral Management Company.

CMS

Capital Markets Services.

CUG

Closed User Group.

CWC

Central Warehousing Corporation.

FCI

Food Corporation of India.

FMC

Forward Markets Commission.

FPO

Farmer Producer Organisation.

HAFED

The Haryana State Cooperative

Supply and Marketing Federation Limited.

NABARD

National Bank for Agricultural

and Rural Development.

NBHC

National Bulk Handling Corporation Ltd..

NCDEX

National

Commodity

and

Derivatives Exchange.
NCMSL

National Collateral Management Services Ltd..

NFL

National Fertilizers Limited.

NIPFP

National Institute of Public Finance and Policy.

NWR

Negotiable Warehouse Receipt.

PACS

Primary

Agriculture

Co-

operative Society.
PDS

Public Distribution System.

RBI

Reserve Bank of India.

SAP

Systems, Applications and Products data management solutions.

SSL

Shree Shubham Logistics Pvt.

Ltd..

SWC

State Warehousing Corporation.

WDRA

Warehousing Development and

Regulatory Authority.

WhO

Warehouse Owner.

WR

Warehouse Receipt.

WSP

Warehouse Service Provider.

Executive Summary
Warehousing in India has been linked to food

India more credible and trustworthy. Proper im-

security and agricultural growth. The Central Gov-

plementation of the WDR Act will enhance the

ernment established state owned and controlled

credibility of warehousing and enable the market

warehousing corporations to enable better storage

to grow and service a variety of consumers such

of agricultural commodities in the 1950s. Over

as traders, farmers, banks (involved in pledge fi-

the last two decades, the need for warehousing has

nancing) and exchanges.

also been felt in non-agricultural sectors such as

WDRA commissioned the Macro/Finance

retail commerce. Warehousing is now seen as an

Group, National Institute of Public Finance and

integral part of the supply chain where goods are

Policy (NIPFP) to conduct a qualitative sample

not only stored for safekeeping, but also where

study on the warehousing market across the coun-

other value processes are implemented, thereby

try. This was the result of a felt need to understand

minimising wastage and costs.

the agricultural warehousing market and the ex-

Warehousing is regulated by state governments

periences of different stakeholders in this market

and most states have warehousing laws under

from a first hand perspective. Over the course of

which they license warehouses. In 2007, the Par-

three months, NIPFP has conducted focus group

liament passed the Warehousing (Development

discussions and in depth interviews with different

and Regulation) Act, 2007, which came into force

stakeholders across the country. These responses

on October 25, 2010. This created the Warehous-

have been collated as findings and analysed in the

ing Development and Regulatory Authority, a cen-

report.

tral regulator for Negotiable Warehouse Receipts

Warehousing in agriculture is part of the larger

(NWRs).

agricultural ecosystem. Just like agriculture, the

The WDR Act is an:

warehousing market is local, unorganised, and

Act to make provisions for the development

fragmented. National standards have not yet been

and regulation of warehouses, negotiability of

uniformly adopted or mandated, and the quality of

warehouse receipts, establishment of a Warehous-

warehousing and the contractual obligations that

ing Development and Regulatory Authority and

Warehouse Service Providers (WSPs) enter into,

for matters connected therewith or incidental

vary widely across regions.

thereto.1

Large, organised corporate entities have entered

Warehousing Development and Regulatory Au-

this market in the past decade, and many are grow-

thority (WDRA) was established to regulate the

ing rapidly. They offer better quality services,

market in NWRs, so as to make warehousing in

have better internal systems and processes and

1 See

can make greater capital investment into the busi-

preamble of the WDR Act

ness. Over time, market consolidation is likely to

ing and quality of infrastructure are important con-

occur along segments. For example, there may

siderations (other than storage and labour costs).

emerge a few dominant national players in spe-

Most users have started graduating towards larger,

cific kinds of commodities, or types of storage

nationally operating WSPs. Other than warehous-

(cold storages, for example).

ing and collateral management, WSPs also offer

However, due to high land costs capital invest-

in some cases, to help clients purchase and sell

ment into building new warehousing infrastruc-

commodities. For some bank branches, WSPs

ture is limited. Many WSPs prefer to offer storage

also track market prices of pledged commodities

related services (such as collateral management)

to help banks have an accurate view of their mar-

in rented warehouses. As per some conversations,

gins against loans.

this is beginning to change as consumers (mainly

A warehouse is the most likely, and efficient

banks), start demanding better services, and ware-

location for aggregation of agricultural produce.

house availability decreases.

WSPs are providing value added services that reg-

The governments focus has been on encourag-

ulated markets currently provide (for example,

ing farmers to use warehouses in order to access

assaying of commodities, checking quantity, ser-

post-harvest credit. Lending against agricultural

vices with regard to buying and selling of com-

commodities stored in warehouses is generally

modities, etc). In addition, the legal obligation

considered safe as the commodity is good col-

to preserve the commodity as per the information

lateral. Different sources have estimated a fairly

provided in the Warehouse Receipts (WRs) issued

large potential for pledge financing to grow in

by them creates the foundations for a national mar-

India. However, the main users of warehouses

ket in agriculture, based on the credibility of the

and the main beneficiaries of pledge financing are

warehouse receipts issued by WSPs.

traders who use pledge financing to hedge or tide

WDRA is the appropriate authority to drive

over liquidity constraints.

this effort. A state has limited resources, and its

WSPs are value enhancing intermediaries in

resources must therefore be employed in a man-

this process of pledge financing. They act as the

ner so as to provide the most useful services for

banks collateral manager (as Collateral Manage-

the market in the most efficient manner possible.

ment Companies (CMCs)) for the safekeeping of

It must provide basic goods of having relevant

the pledged commodity. This may involve storing

standards for regulation, ensure compliance, and

a commodity at a warehouse owned/ operated by

protect consumers. It must regulate so as to use

a WSP, or at a location owned/ operator by the

market relevant tests for supervising warehouses.

borrower. In either case, the value addition to the

It must have an efficient inspection system that

bank derives from the quality of the systems and

inspects diverse aspects of a WSPs operation and

processes followed by the WSP for preserving the

incentivises corrective behaviour.

commodity. This includes regular inspection for

It must also enable the creation of information

quantity, fumigation (where required), and accu-

technology infrastructure that creates more infor-

rate quality and quantity measurement.

mation and transparency in the sector. A national

Other users also stated that the quality of ser-

electronic system of holding and transferring WRs

vices, including turnaround times, client interfac-

will be beneficial for all stakeholders. A small

Report

WSP will get visibility at a national level, simply

Chapter 3 presents the study schedule, sampling

by abiding with WDRAs regulations, therefore

criteria and details of respondents interviewed

increasing its competitiveness based purely on the

over nine districts:

quality of its services. Established WSPs will be

1. Karnal, Haryana

able to differentiate themselves on the basis of

2. Mehsana, Gujarat

their specialised skills in handling specific com-

3. Ernakulam, Kerala

modities, or in specific regions. Banks and other

4. Guntur, Andhra Pradesh

stakeholders will get access to information about

5. Purnia, Bihar

warehousing capacity and quality at a local level.

6. North 24 Parganas, West Bengal

Fraud and duplication, substantial risks with phys-

7. Vidisha, Madhya Pradesh

ical WRs, will be minimised.

8. Nanded, Maharashtra
9. Kamrup, Assam

Intrusive regulation may endanger the growth

of this market if it unduly restricts certain business

In addition, in-depth interviews were held with

activities (that do not threaten a WSPs core duty

several bank representatives in Mumbai.

to preserve the quality of a deposited commodity).

The findings of the survey, and its analysis are

Regulation must also be nimble enough to allow

provided for in chapters 4 and 5 respectively. In

regulated entities to conduct their business (reg-

addition, chapter 5 contains recommendations for

ulatory approval processes must have clarity and

regulating the warehousing market in the country.

certainty). The focus of regulatory supervision

The recommendations provided in chapter 5 have

must be on defining market-relevant minimum

been provided below.

standards, ensuring standard operating procedures

Summary of recommendations

are adhered to and developing essential market

1. Warehouse regulation should be neutral to

infrastructure that provides more information and

the categories of users of warehouses. Reg-

transparency to the market.

ulations that impose performance require-

This following chapters of the report presents

ments must impose such requirements as are

the literature, findings and their analysis that the

generally necessary to make the business of

conclusions stated above are based on. It begins

warehousing trustworthy and credible.

by introducing the features of the Indian ware-

2. Co-ordinated efforts between WDRA and

housing market WDRA in Chapter 1. The chapter

state warehousing regulators must be made

also looks at the development of the NWR system

to bring unlicensed warehouses within the

and its potential usage today.

regulatory purview. Additionally, users of

Chapter 2 discusses the history of WR finance

warehouses must be convinced of the legal

and NWRs, the benefits of negotiability and the

risks of using unlicensed warehouses.

challenges in making the warehousing market

3. Regulation must require the creation of struc-

trustworthy and credible. This chapter also dis-

tured and standardised formats for reporting

cusses the problems that are predominant in the

information. Lending will improve further

current Indian warehousing market as well as the

once lenders see a market with greater trans-

solutions that the market has developed to over-

parency and information.

come these.
Report

4. An electronic NWR system will enable mar3

ket participants to use NWRs without having

12. Regulations must contain directions to WSPs

to worry about fraud and duplication.

to devise operating procedures that enable

5. The unit of regulatory supervision in ware-

them to discharge their functions with due

housing must be the owner of the warehous-

diligence. Regulatory supervision must fo-

ing operation rather than the owner of the

cus on compliance with these processes.

warehouse.

13. Warehousing regulations with regard to reg-

6. Business processes and the quality of service

istration of WSPs must focus on creating

are key factors of competition in the market.

minimum standards with regard to business

Regulation must therefore create minimum

processes and quality standards.

standards and ensure compliance with them.

14. Warehousing regulations should focus on

7. A focus on the processes of warehousing will

bridging information gaps in the warehous-

enable regulation of both WSPs and CMCs.

ing market. On one hand, an information

Collateral management being a subset of

repository with details of WSPs, capacity

warehousing does not need to be regulated

utilisation, past track record of WSPs should

separately. Regulation of warehousing ser-

be created, on the other hand regulatory su-

vices in general, will enable supervision of

pervision should focus on improved compli-

collateral management processes as well.

ance on part of WSPs.

8. Warehousing registration has to be a quick

15. There must be a framework for dispute res-

and nimble process in order to facilitate the

olution. While greater competition will in

current market practices that are helping in

time force WSPs to be more responsive to

market development. For this, registration-

concerns of consumers, the government has

related entry barriers must be lower and post-

a role in ensuring consumer protection. Reg-

registration supervision must be better.

ulated entities must therefore be required to

9. There must be no regulatory supervision of

create a framework for redressing grievances

pricing within warehousing services. Any

of consumers. WDRA must then provide a

restrictions will disrupt the organic develop-

hearing against any unresolved grievances.

ments within the warehousing market that is

16. WDRA must create a consolidated online

leading to its transformation.

database of all NWRs issued, which should

10. Regulations should ensure that insurance

be updated real-time with every NWR trans-

coverage for all aspects of legal liability is

action or transfer.

covered. Both the warehousing infrastruc-

17. The database created by the regulator, must

ture, and the commodity stored within a

be easily accessible through a user-friendly

warehouse must be insured against structural

portal, with ease of use and intuitive learn-

infirmities, fire, burglary, theft, employee

ability of software, where all users of the

malfeasance, etc.

NWRs are able to view and undertake trans-

11. Regulators should abstain from attempting

actions easily. It must also account for pro-

to solve operational risks to WSPs. Doing so

viding information to users without inter-

would disrupt the operation of competitive

net access, through tele-access, mobile SMS

forces in a rapidly evolving market.

alerts etc.

Report

18. Most WSPs covered during the course of

the study had the basic infrastructural requirements (or arrangements) for accurately
weighing and assessing the quality of the
commodity. It is advisable that the ownership of weighing and quality testing infrastructure is not made compulsory, provided
that other checks are in place. For instance:
In case of presence of weigh-bridges close
to the warehouse, it is essential that WSP
staff accompany the depositor to ensure correct measurement of commodities being deposited. The presence of in-house weighing
equipment may not be imperative.

Report

Report

Acknowledgements
This qualitative study was carried out with the

1. Core team:

purpose of developing an in-depth understand-

(a) Anirudh Burman

ing of the warehousing sector in India. WDRA,

(b) Iravati Damle

the regulatory body for warehouses in the coun-

(c) Mehtab Hans

try is re-writing its rules and regulations to gov-

(d) Rachna Sharma

ern the warehousing sector in an efficient manner.

(e) Sameeraj Ilapavuluri

This qualitative survey was commissioned to the

(f) Smriti Sharma

National Institute of Public Finance and Policy

2. Other team members for field visits:

(NIPFP) to gather information about the ware-

(a) Apoorva Gupta

housing market in order to help WDRA frame

(b) Mayank Mishra

evidence-based regulations.

3. External consultant: Udita Das.

The NIPFP team carried out this survey in nine

districts across the country. The survey required
interactions with varied stakeholders. This task
would not have been possible without the help
and cooperation of WDRA, Directorate of Marketing & Inspection, Ministry of Agriculture, Government of India, National Bank for Agricultural
and Rural Development (NABARD), ICICI Bank,
HDFC Bank, State Bank of India, DCB Bank, Yes
Bank, StarAgri Limited, Shree Shubham Limited,
Origo India, Sohanlal Commodities Limited, National Bulk Handling Corporation, NCMSL and
New India Assurance. We acknowledge the help
and support of all the market participants without whose cooperation this report would not have
been possible.
We hope this report will facilitate understanding perspectives and concerns of all the key stakeholders of the warehousing sector and benefit the
warehousing sector of India.
NIPFP team for the survey:
7

Report

Chapter 1

Introduction
1.1

Introduction

which came into force on October 25, 2010. This

created the Warehousing Development and Regu-

Warehousing in India has been linked to food se-

latory Authority, a central regulator for NWRs.

curity and agricultural growth. The Central Gov-

The WDR Act is an:

ernment established state owned and controlled

Act to make provisions for the development

warehousing corporations to enable better storage

and regulation of warehouses, negotiability of

of agricultural commodities in the 1950s. Over

warehouse receipts, establishment of a Warehous-

the last two decades, the need for warehousing has

ing Development and Regulatory Authority and

also been felt in non-agricultural sectors such as

for matters connected therewith or incidental

retail commerce. Warehousing is now seen as an

thereto.2

integral part of the supply chain where goods are

The WDR Act gives WDRA the following pow-

not only stored for safekeeping, but also where

ers and functions, amongst others:3

other value processes are implemented, thereby

1. to issue to the applicants fulfilling the re-

minimising wastage and costs. In addition, ware-

quirements for warehousemen a certificate

housing has become an essential factor that en-

of registration in respect of warehouses, or

ables food producers to access credit in the form

renew, modify, withdraw, suspend or cancel

of pledge financing.

such registration;4

Warehouses are primarily licensed by state gov-

2. to regulate the registration and functioning

ernments under state warehousing laws. State

of accreditation agency, renew, modify, with-

laws which contain legal consequences for of-

draw, suspend or cancel such registration,

fences committed under them vary from state to

and specify the code of conduct for officials

state, and are applied inconsistently across the

of accreditation agencies for accreditation

country. As a result, there is no national standard-

of the warehouses;5

isation for warehouse regulation and enforcement.

3. to specify the qualifications, code of con-

Market participants therefore rest heavily on con-

duct and practical training for warehouse-

tractual processes (that are devoid of any statutory

men and staff engaged in warehousing busi-

backing) to detect violations, impose penalties

2 See

preamble of the WDR Act

35 of the WDR Act for list of powers and functions of WDRA
4 Section 35.(2)(a) of the WDR Act
5 Section 35.(2)(b) of the WDR Act

and adjudicate disputes.

3 Section

In 2007, the Parliament passed the Warehousing (Development and Regulation) Act, 2007,
9

1.1. INTRODUCTION

CHAPTER 1. INTRODUCTION

ness;6

warehouse finance in India better. There is also a

4. to regulate the process of pledge, creation of

lack of literature available on WR market in India

charges and enforcement thereof in respect

and the experiences of market participants within

of goods deposited with the warehouse;;7

the system. The understanding of the benefits and

5. to promote efficiency in conduct of ware-

challenges of the WR system from a quantitative

house business.8

and qualitative standpoint is critical as it allows

6. to promote professional organisations connected with the warehousing

business;9

for determining effective ways to strengthen the

and,

warehousing market.

7. to specify the duties and responsibilities of

The WDRA is currently operating in an unor-

the warehouseman.10

ganised, fragmented, and rapidly evolving market.

These functions have been given to WDRA to

In order for it to discharge its functions effectively,

ensure that the NWR issued by WDRA-regulated

a deep understanding of the business of warehous-

warehouses were uniform and had a fiduciary trust

ing, and its network effects is required. This re-

of depositors and banks. In order to start issuing

port examines the warehousing industry in India

NWRs, a warehouse service provider must first

by understanding the experiences of stakeholders

register his warehouses with WDRA. It was hoped

within the warehousing ecosystem and explores

that WDRA regulated NWRs would be beneficial

how the warehousing business is run in different

for a number of stakeholders such as banks, finan-

parts of the country. In addition, the report pro-

cial institutions, insurance companies, trade, com-

vides insights into the warehouse finance market

modities exchanges as well as consumers. In a

and the risks involved in it.13

span of four years, a total of seven hundred and six

warehouses have been registered with WDRA.11 .

There is also a need to evolve an understanding

The report tries to understand the challenge asso-

of the government role in agriculture and ware-

ciated with registering warehouses and also looks

housing in the market economy as it still plays a

at the overall potential of the WDRA.

very dominant part. The qualitative survey was

Although there has been a lot of research done

conducted cognisant of this aspect and studied the

on WR and its utility in the modern commodities

different forms of government intervention in the

12 ,

agricultural sector and the perception of govern-

there is no data on experiences of market partic-

ment schemes and subsidies in the stakeholders.

ipants to understand the warehousing market or

In addition, with a large majority of the warehous-

market by multiple authors and organisations

ing business still state run, it became imperative

6 Section

35.(2)(c) of the WDR Act

7 Section 35.(2)(d) of the WDR Act
8 Section 35.(2)(e) of the WDR Act
9 Section 35.(2)(g) of the WDR Act
10 Section 35.(2)(o) of the WDR Act
11 Warehousing Development and Regulatory Authority,
List of warehouses registered with the WDRA, 2015, URL:
http : / / wdra . nic . in / RegisteredWarehouses . pdf
(visited on 08/28/2015).
12 Please refer to reports and articles by Department of
Food and Public Distribution, International Finance Corporation and Mahanta as few of the myriad examples present
on this subject

Report

for this report to consider the Central Warehousing Corporation (CWC) and State Warehousing
Corporation (SWC) as two key stakeholders in the
warehousing market dynamic.

13 For the purposes of this study, a warehouse is being

defined as under the WDR Act.

10

CHAPTER 1. INTRODUCTION

1.1.1

1.1. INTRODUCTION

Terms of reference for this study

1. Understanding how a warehousing business

is run
2. Understanding the risks associated with storage and preservation of commodities through
the value chain.
3. Understand the user experience of different
kinds of warehouse users at the time of deposit and receipt of goods:
4. Understand the market for warehouse receipts
5. Understand whether market participants
have the necessary infrastructure for transacting NWRs and/or are willing to make such
investment.

Report

11

1.1. INTRODUCTION

Report

CHAPTER 1. INTRODUCTION

12

Chapter 2

Literature Review
2.1

State of Indian Agriculture Warehousing

2.1.1

vate sectors is depicted in 2.1.1:

Current capacity
There exists evidence of lack of warehousing

Agricultural warehousing accounts for fifteen per-

capacity in the country.17 The warehousing capac-

cent of the warehousing market in India and is

ity gap estimated by the Planning Commission

estimated to be worth Rupees 8,500 crore.14 It

stands to be at 27 million metric tonnes today. A

is however perceived to be inadequate and unor-

study on state of Indian famers in the year 2004 by

ganised. More than 40 percent of the agricultural

the Ministry of Agriculture estimated that about

warehouses are run by state enterprises such as

7% of food grains and 30% of fruits and vegetable

FCI, CWC and

SWCs.15

are lost due to inadequate handling facilities. Ap-

30 percent of the warehousing capacity is held

proximately, 10% of valuable spices are lost due

by unorganised small godown players. These un-

to lack of proper post-harvest infrastructural facili-

organised warehouses lack scale and quality. On

ties. The above post-harvest losses of agricultural

the other hand, there are a few large national-level

commodities in monetary terms have been esti-

players in the warehousing market which own

mated at about Rs. 44,000 crores.18

professionally run warehouses and also provide

Out of the total capacity present in the Indian

ancillary services around warehousing.16

warehousing today, only 19.44 lakh metric tonne

Although there is no exact data on the number

(1.94 million metric tonne) has been registered

of warehouses present, some of the substantial

with WDRA by a total of seven hundred and six

capacities available in public, cooperative and pri-

warehouses of CWC, SWC, Primary Agriculture

Co-operative Society (PACS).19 This corresponds

14 Ernst

& Young LLP and CII Institute of Logistics, Indias warehousing industry: an overview, URL: http://
www.ey.com/Publication/vwLUAssets/The-IndianWarehousing-Industry-An-Overview/%5C$FILE/EYThe- Indian- Warehousing- Industry- An- Overview.
pdf (visited on 11/18/2014).
15 Price Waterhouse Coopers, Building warehousing competitiveness, tech. rep., Price Waterhouse Coopers, URL:
https : / / www . pwc . in / en _ IN / in / assets /
pdfs/publications- 2011/building- warehousingcompetitiveness-india.pdf (visited on 08/28/2015).
16 Ernst & Young LLP and CII Institute of Logistics, Indias warehousing industry: an overview.

17 Price Waterhouse Coopers, Building warehousing competitiveness.

18 Department of Food and Public Distribution, Committee
for Strengthening Negotiable Warehouse Receipts by the
Warehousing Development and Regulatory Authority in the
Country, tech. rep., Government of India, 2015, URL: http:
//wdra.nic.in/FinalBook.pdf (visited on 08/28/2015).
19 Department of Food and Public Distribution, Committee
for Strengthening Negotiable Warehouse Receipts by the
Warehousing Development and Regulatory Authority in the
Country.

13

2.2. MARKET FAILURES

CHAPTER 2. LITERATURE REVIEW

Table 2.1: Total Storage Capacity of Different Entities

Name of the organisation
1
2
3
4
5
6

Food Corporation of India (FCI)

Central Warehousing Corporation (CWC)
State Warehousing Corporations (SWCs) and State Civil Supplies
Cooperative Sector
Private Sector
Total

Storage capacity (in million metric tonne)

38.34
10.30
Source:
34.84
15.07
18.97
117.52

Report by the Committee for Strengthening Negotiable Warehouse Receipts by the Warehousing Development and Regulatory Authority in the
Country

2.2.1

to 1.65% of the overall capacity estimated to be

present in the market

today.20

Information asymmetry

Insufficient information on a warehouse leaves its

users unable to judge the value of receipts issued

2.1.2

Categories of warehouses

by that warehouse.
From a lenders perspective, the current market

Warehouses in India can be categorised based on:

comes with risks relating to both the structure

1. Ownership;

of the warehouse (for example its resilience to

2. Management; and

floods), as well as the its management (leading

3. Type of good stored.

to risks such as theft or fraud). Lenders cannot

Warehouses can be owned by private entities or

judge the viability of lending against warehouse

government entities. Some warehouses are profes-

receipts issued for goods stored in that warehouse.

sionally managed by warehouse service providers,

From a depositors perspective, there is no way

while others are managed by individuals. Enti-

to ascertain and ensure that the goods are stored

ties also operate and manage warehouses for self-

safely and maintained in both quality and quantity.

consumption. Warehouses can also be categorised

Sellers of warehousing service have privileged

with respect to the type of goods they store. As

information about their warehouses which is not

a result, forms of storage that differ from a tradi-

available to the buyers of those services. This

tional warehouse (such as silos or cold storages)

leads to a situation of information asymmetry.

also exist.

2.2.2

2.2

Market failures

Inadequate nationwide regulation

and enforcement

Currently two problems are predominant in the

State laws containing legal consequences for of-

Indian warehousing market:

fences committed under them vary from state to

state, and are applied inconsistently across the

1. Information asymmetry; and

country. As a result, there is no national standard-

2. Inadequate nationwide regulation and en-

isation for warehouse regulation and enforcement.

forcement.

Market participants must therefore rest heavily

20 Most

of the storage capacity available with CWC and

SWCs is occupied by the FCI for storage of Central Pool
stocks.

Report

on contractual processes (that are devoid of any

statutory backing) to detect violations, impose
14

CHAPTER 2. LITERATURE REVIEW

2.3. MARKET-BASED SOLUTIONS

penalties and adjudicate disputes.

lender, in order to assure protection of the stored

Both of these factors, information asymmetry

goods. Their involvement may vary from operat-

and inadequate nationwide regulation and enforce-

ing the warehouse to simply overseeing the oper-

ment, negatively impact the trade in, and lending

ations. Collateral managers ensure the safety (to

against, commodities stored in warehouses. Over

both quality and quantity) of goods stored in ware-

time, the market has developed its own solutions

houses, and lenders are subsequently far more

to these problems (see section 2.3). These solu-

willing to participate in warehouse receipt-based

tions are available to only some market partici-

lending when a collateral manager is involved.

pants, leaving those that are excluded at a disad-

Consequently, a premium is available in the mar-

vantage.

ket for service providers that can assure lenders

protection against losses, and/or compensation in

2.3

case losses occur.

Market-based solutions

The warehousing process (including storage, collateral management and trade) brings different

2.3.2

risks to each stakeholder at various points of the

Closed User Groups

process. These risks are currently not mitigated

effectively and, as a result, the quality and quan-

CUGs in the warehousing sector bridge the in-

tity of the stored goods is often compromised. As

formation asymmetry problem by generating and

a result, the market has developed its own solu-

sharing relevant information within CUGs.

tions to overcome the information asymmetry and

The National Commodity and Derivatives Ex-

failure in regulation and enforcement. The two

change (NCDEX) operated CUG is an example of

leading solutions are in the form of:

a CUG that attempts to solve the problem of mar-

1. Collateral management services; and

ket failure by replicating the regulatory interven-

2. The Closed User Group (CUG).

tions that state regulation should solve. NCDEX is

a national on-line commodity exchange. In order

2.3.1

Collateral management services

to ensure the sanctity of the physical settlement of

CMCs offer to preserve and protect commodities

commodities traded on the exchange, it operates a

stored in warehouses on behalf of lenders. In

CUG of WSPs NCDEX has 405 accredited ware-

addition to physical security, CMCs also under-

houses with a holding capacity of 2 million metric

take to absorb losses to the stored commodities on

tons.21 Additionally, NCDEX has its own inspec-

their balance sheet. These services help bridge the

tion, audit and monitoring mechanisms to which

problem of low quality information about the na-

the NCDEX registered WSPs have to adhere to.22

ture of warehousing services being provided. The

additional cost of engaging the services of CMCs

21 National Commodity and Derivatives Exchange, Annual

Report 2013-14, Accessed: 2014-12-17, 2014, URL: http:
//www.ncdex.com/Downloads/AboutUs/PDF/Annual_
Report_2013-14.pdf.
22 See Regulation 18 of the National Commodity &
Derivatives Exchange Limited, National Commodity &
Derivatives Exchange Limited, Regulations, 2003, 2003.

is therefore a reflection of the price of information

that is currently not available in this market.
A collateral manager acts as a middle-man
between the warehouse service provider and the
Report

15

2.5. WAREHOUSE RECEIPT FINANCING

2.4

CHAPTER 2. LITERATURE REVIEW

Promoting warehousing in India

5. There is a positive impact on the price realisation as 62.30% users mentioned experiencing

2.4.1

Gramin Bhandaran Yojana (GBY)

increase in the prices.

This scheme was implemented by the Department

6. About 42.10% farmers mentioned that the

of Agriculture and Cooperation, Ministry of Agri-

role of intermediaries and brokers has been

culture and has since been merged with other ex-

reduced due to the rural godowns.

isting schemes to be renamed as Agricultural Mar-

7. Majority of the godowns are owned by

keting Infrastructure (AMI) scheme, which is a

an individual. Only 5.25% godowns sur-

sub-scheme of Integrated Scheme for Agricultural

veyed were owned by companies/ corpora-

Marketing (ISAM).

tion/ firms etc.

The objective of the scheme was to promote

2.4.2

construction of scientific warehouses in the rural

Private Entrepreneurs Guarantee

(PEG), 2008 Scheme

areas of the country. The scheme provides subsidy

of 25%. For north-eastern states, Farmer Producer

In 2008, Government of India enacted a scheme

Organisations (FPOs), panchayats, women, SC/

for creating additional storage capacity for food

ST and self-help groups, the subsidy is 33.33%.

grains through the private sector, CWC and SWC.

NABARD has sanctioned projects to several

Under this scheme, Food Corporation of In-

PACS for setting up warehouses so as to provide

dia (FCI), gives a guarantee of ten years to pri-

the nearest source of scientific warehousing to the

vate parties for assured hiring of warehouses. For

farmers.

expeditious construction of godowns, it was de-

An independent evaluation conducted by

cided that wherever CWC or SWC have their own

Global Agrisystem Pvt. Ltd. under the report ti-

land within the identified locations the CWC or

tled Evaluation and Impact Assessment for the

SWC will construct godowns on priority for which

Central Sector Scheme of Grameen Bhandaran

FCI would give a guarantee of 9 years for stor-

Yojna highlighted that :

age charges. As of the beginning of year 2015,

1. More than 76% of godowns built under the

121 lakh metric ton capacity had been completed.

scheme are of less than 1000 MT;

Private entrepreneurs created 93 lakh metric ton

2. 66.60% of the godowns are owned by farm-

capacity under the scheme, and 28 lakh metric ton

ers;

capacity was created by the CWC and SWC .23

3. Majority of the promoters received approval

for subsidy within six months; but the major

2.5

Warehouse receipt financing

problem faced in getting the subsidy was

a) Lengthy procedural wait time

Agricultural production and trade are often consid-

b) Non cooperation of the officials, and

ered low-margin, high uncertainty operations and

c) A delay in release subsidy

are perceived as risky investments by financiers.

Physical collateral such as land and machinery

4. Pledge loan against stored produce was

found not to be a popular practice among

23 See

Chapter 4 Department of Food and Public Distribution, Committee for Strengthening Negotiable Warehouse
Receipts by the Warehousing Development and Regulatory
Authority in the Country.

farmers and significant numbers , 37.42%

did not wish to avail credit.
Report

16

CHAPTER 2. LITERATURE REVIEW

2.6. USES OF NEGOTIABLE WAREHOUSE RECEIPTS

is rarely used in mitigating financiers risks and

of discussion of the draft.27 However the concept

as a result finance for agriculture can be difficult

of negotiable warehouse receipts came to fruition

and expensive. In light of this, WR finance can

in 2007 with the establishment of the WDR Act

play an important role in smoothening income for

and WDRA.

farmers by providing liquidity at times when cash

Although WR finance is estimated to be $3.0-

flows dry out.24

$3.5 billion in India, it is far from its potential of

$60 billion.28 In addition to the market problems

Warehouse receipt financing has been primarily

mentioned in section 2.2.2 and section 2.2.1, there

developed to :

are several reasons behind this gap :

1. provide liquidity for depositors while allow-

1. Banks are still risk averse and fear it is not

ing them to hold on to their goods till they

possible to recover loans from the depositor

receive a better price;

in case of fraud, mismanagement or insol-

2. allow farmers to use this system to avoid a

vency of the depositor;

distress sale and obtain working capital;

2. Legal remedies are time consuming and in-

3. improve the transparency and efficiency of

adequate; and

goods stored

3. Lack of an e-NWR platform.29

While the overall market for pledge financing

has grown over the recent past, it is still far from
reaching it full potential25 . To help reach this

2.6

full potential, warehouse receipt financing and

Uses of Negotiable Warehouse Receipts

negotiability have been discussed ever since the

Reserve Bank of India (RBI) conducted a com-

The literature in the public domain specifically

prehensive All-India Rural Credit Survey in 1951

talking about NWRs, a subset of WR is negligible.

and recommended the creation of a negotiable

There is scant literature evaluating the benefits or

warehouse receipt system in the country.26 . Later,

performance of NWRs. This is especially true

the Warehouse Receipts Bill in 1978 was drafted

concerning their use in India. There has been no

with the objective of endowing upon warehouse

study so far assessing whether the real benefits

receipts the status of negotiability under the Ne-

that were once anticipated by the negotiability

gotiable Instruments Act, 1881. The Warehouse

being introduced has actually taken shape since

Receipts Bill was initiated by the Banking Laws

its introduction.
The negotiability of WR allows the title to the

Committee but did not proceed beyond the stage

goods to be transferred from one person to another

24

See section 2 Dr. Devajit Mahanta, Review of warehouse receipt as an instrument for financing in India, in:
International Journal of Scientific & Technology Research 1
(9 Oct. 2012).
25 See Chapter 10 International Finance Corporation, Warehouse Finance and Warehouse Receipt Systems, A Guide for
Financial Institutions in Emerging Economies, tech. rep.,
International Finance Corporation, URL: http : / / www .
mongolbank.mn/conference/books/01.pdf (visited
on 08/28/2015).
26 See Chapter 2 Department of Food and Public Distribution, Committee for Strengthening Negotiable Warehouse
Receipts by the Warehousing Development and Regulatory
Authority in the Country.

Report

via the passing of the related NWR. The main

27 See section on Legislative Effort and Action Plan
Jonathan Coulter and G. Ramachandran, A strategy for the
development of warehouse receipt system for agriculture
in India, tech. rep., Forward Markets Commission, Government of India and The World Bank, 2000, URL: http:
//www.fmc.gov.in/showfile.aspx?lid=1143 (visited
on 08/28/2015).
28 See page 71 International Finance Corporation, Warehouse Finance and Warehouse Receipt Systems.
29 See page 71 International Finance Corporation, Warehouse Finance and Warehouse Receipt Systems.

17

2.6. USES OF NEGOTIABLE WAREHOUSE RECEIPTS

CHAPTER 2. LITERATURE REVIEW

Source : Report titled : The use of warehouse receipt finance in agriculture in transition countries

benefits of a NWR is that :

receipts and commodity futures and Committee for

Strengthening Negotiable Warehouse Receipts by

1. A negotiable receipt allows easier trade and

the Warehousing Development and Regulatory Au-

refinancing.
2. They can be traded on secondary markets,

thority in the Country mention considerable bene-

such as commodity exchanges, thereby at-

fits for the Indian market from the introduction of

tracting a larger pool of capital into commod-

NWRs that include :

ity financing, beyond bank lending.

1. Farmers may sell privately or make use of a

3. Easy to integrate with trading on an elec-

simple settlement mechanism to ensure that

tronic exchange platform receipt may replace

he gets paid before the goods are removed

normal physical delivery in case the stake-

from the warehouse;

holders trust the system.

2. A transaction can take place informally or on

4. It forms the basis for forward delivery of

an organised market or exchange. In either

commodities and can be developed into fu-

case, the WR forms the basis for the creation

tures

contracts.30

of a spot, or cash market;

In India, the lack of negotiability of warehouse

3. If transactions involve the delivery of goods

receipts was solved by the creation of WDRA

on a future date, WR can form the basis for

under the WDR Act. Under this act, warehouses

the delivery system in a commodity futures

that are registered with WDRA are allowed to

exchange ;and

issue NWRs.

4. WR increase the confidence of participants,

The Report of the Working Group on warehouse

particularly those in the private sector, in

market transactions.

30 See

page 27 Food and Agriculture Organization, The

use of warehouse receipt finance in agriculture in transition
countries, 2009, URL: http : / / www . fao . org / 3 / a i3339e.pdf (visited on 08/28/2015).

Report

5. Increase of liquidity in the rural areas.;

6. Banks will improve the quality of their lend18

CHAPTER 2. LITERATURE REVIEW

2.6. USES OF NEGOTIABLE WAREHOUSE RECEIPTS

ing services and lower the cost of financing

tered warehouses from stock limits under Es-

sential Commodities Act, 1955.

7. Encourage scientific warehousing of agricultural commodities ;and

8. Improve the supply chain and enhance rewards for grading and quality.
However, there has not been a large demand
for NWRs. The Committee for Strengthening Negotiable Warehouse Receipts by the Warehousing Development and Regulatory Authority in the
Country recommended the following to generate
greater demand for NWRs:
1. Scheme should provide pledge financing for
all the farmers holding KCC against NWRs
issued by all the registered warehouses including cold storages
2. Need for Full Fledged Infrastructure Status
to Warehousing Sector
3. Simplification of accreditation / registration
rules and regulation with a view to register
more warehouses for issuance of NWRs.
4. Unified policy of insurance for WDRA requirement
5. Creation of Electronic Warehouse Receipts
6. NWR is issued as a Government security
under Securities Contracts (Regulation) Act,
1956
7. Introduction of Modern Technology in warehousing sector
8. Greater awareness programmes for the farmers
9. A robust mechanism of inspection of warehouses
10. Capacity Building Programme in Warehousing Sector
11. Procurement of food grains through NWRs.
12. Simplification conversion of land use to be
taken up with state governments.
13. Exemption of commodities stored in regisReport

19

2.6. USES OF NEGOTIABLE WAREHOUSE RECEIPTS

CHAPTER 2. LITERATURE REVIEW

Box 1: Bulgaria - A success story in warehouse finance

In Bulgaria warehouse receipt financing was first used in 2000. This was primarily due to the strict budgetary constraints that were
placed on it by the International Monetary Fund(IMF). This created a major challenge for grain producers and processors as they could
not generate operating capital due to stricter banking measure that were put into place.a
The programmes major components were:
1. Development and implementation of a warehouse receipt system in Bulgaria;
2. Development of grain commodity markets;
3. Assistance to providers of grain marketing information;
4. Assistance to grain industry trade organisations efforts to consolidate and influence policy decisions and establish trade rules; and
5. Technical assistance and training to private grain processing and storage companies.b
The project covered all aspects of the grain marketing infrastructure, which was an important precondition for its success.
By 2009, this system was in full gear, with 47 licensed public warehouses and more than 500,000 tonnes of licensed capacity. As of 2009,
the system had established itself as a major factor in stability of the grain market, and there had been no defaults related to the activities
of licensed public warehouses. The financial sector lent an annual 10 to 50 million Euro against warehouse receipts. The requirement for
warehouses was that they provide services to the newly established grain intervention agency with a public warehouse license.c
Bulgaria today has one of the few operational indemnity funds for warehousing outside the United States. The Bulgarian Ministry of
Agriculture?s provided a three-year interest-free loan of US $2.5 million for the initial capitalisation of an indemnity fund.d This greatly
helped in the successful expansion of the system. In the case of default of a WR obligation, the endorsers of the note of collateral are
liable for damages incurred before its holder. When the holder of the note of collateral for grain deposit does not receive the amount on
the note within three days of its being lodged, he/she is entitled to demand sale of the grain deposited in the public store.
Bulgaria also successfully introduced a prototype market information system complementing development of the warehouse receipt
system. The implementation agency created a weekly grain marketing information service, based on direct information collected from a
sample group of traders and grain processors in the country. The information is processed and distributed to a subscription list consisting
of banks, licensed public warehouses, producers, and domestic and international traders.e
a See page 54 Food and Agriculture Organization, The use of warehouse receipt finance in agriculture in transition
countries.
b See page 55 Food and Agriculture Organization, The use of warehouse receipt finance in agriculture in transition
countries.
c See page 38 Food and Agriculture Organization, The use of warehouse receipt finance in agriculture in transition
countries.
d See page 38 Food and Agriculture Organization, The use of warehouse receipt finance in agriculture in transition
countries.
e See page 35 Food and Agriculture Organization, The use of warehouse receipt finance in agriculture in transition
countries.

Report

20

CHAPTER 2. LITERATURE REVIEW

2.7

2.7. REGULATING WAREHOUSING EFFECTIVELY

Regulating warehousing effectively

It is imperative that a firm understanding of the realities of Indian warehousing sector be present to
enable policymakers to write regulations that governing warehousing in India. It is highly critical to
understand the reasons behind the slow uptake of
NWRs and its limited use over the last four years.
It is also equally important to determine the
challenges that face stakeholders in the system
that prevent them from accessing pledge financing
and what could be done to mitigate them.
The lack of literature on NWRs, its usage and
the evaluation of its performance so far is hindering the ability to take concrete steps on real
reform. It is essential to understand what the role
of the NWRs will be in the future and whether
it serves the purpose for which it was set out for.
This report aims to provide this information and
assess user feedback to help bridge the data gap to
provide a clearer sense of the ecosystem in which
agricultural warehousing exists.

Report

21

2.7. REGULATING WAREHOUSING EFFECTIVELY

Report

22

CHAPTER 2. LITERATURE REVIEW

Chapter 3

Methodology
The research for the study consisted of three

1. Geographical spread of the districts across

main tools:

the country for maximum coverage of major

crops and terrains across regions ;

1. Review of secondary literature on warehous-

2. Sufficient density and availability of public

ing in India, and practices in other jurisdic-

and private warehouses in the district (based

tions, as stated in section 2.

on the data provided to us by WDRA and

2. Field research based on the predefined ques-

publicly available data);

tionnaires designed and approved for specific categories of respondents. Different pre-

3. A mix of rural and urban districts;

defined questionnaires were used for farm-

4. Coverage of districts with different crop pro-

ers, traders, WSPs, CMCs and banks. These

file across states or regions to compare for

questionnaires were employed in focus group

differences and similarities in the warehous-

discussions and in-depth interviews with re-

ing sector and usage of NWRs;

spondents. Questions were designed in a

5. A district mix of the various types of agri-

manner so as to leave flexibility for related

cultural commodity(ies) produced and stored

discussions around broad themes and con-

in the region that are also a part of the list

cerns. A list of respondents is given in sec-

notified for the issuance of NWRs; and

6. Availability of adequate stakeholders partici-

tion 3.3.1.

pating in the warehousing business;

3. Observations of working of the market in-

The selected districts were then confirmed by

frastructure such as mandis and exchanges.

discussions with market participants. In some

3.1

cases, there was a change in the selected districts

Sampling Methodology

based on such conversations. This was done in

The selection of districts and respondents was

order to ensure the selected district satisfied the

done in a manner that is diverse and reflective

criteria stated above, and provided findings with

of the broad cross-section of the stakeholders in-

regard to the objectives for this study.

volved in the warehousing sector. The strategy

ensured maximum variation so as to get a diverse
set of data for analysis.
The district selection was done based on the
criteria mentioned below :
23

3.1. SAMPLING METHODOLOGY

3.1.1

CHAPTER 3. METHODOLOGY

District selection and criteria

Districts have been selected based on the criteria mentioned in section 3.1. The district wise profile is
provided in table below, which provides a high level profile of the district in addition to the reasons for
choosing it.
District Name

Region

Rural/

Crop Mix

Reason for selection

Wheat, Rice, Sug-

Part of a predominant rice and wheat growing belt re-

arcane

gion in the north

Groundnut, Bajra,

Insight into the workings of multi commodity ware-

Cotton, Jeera

houses housing a large jeera and groundnut market.

Groundnut, Cot-

Urban multi commodity region consisting of one of

ton, Castor and

the few remaining regional exchanges

Urban
1
2

Karnal, HR

North

Mehsana, GJ

West

Rajkot, GJ

Semi-urban
Rural
Urban

Sesamum
3

Ernakulam, KL

South

Urban

Pepper,

Paddy,

Rubber

and

An urban district in the south, rich in spices and home

to a regional commodity exchange.

Coconut
4

Guntur, AP

South

Rural/ Semi

Paddy,

Cotton,

This is a district situated within the rice rich region

Urban

Maize and Chillis

of Andhra Pradesh consisting of a large number of

cold storage facilities for chillis and dry storage for
turmeric and paddy.

Purnia, BH

North

Rural

Rice,

Wheat,

Maize

A district in the large agricultural dependent state

which has implemented agricultural market reforms
in the recent past

North 24 Par-

East

Rural/Urban

Central

Rural

ganas, WB
7
8

Vidisha, MP
Nanded, MH

West

Rural

Potato, Rice, Jute,

An eastern district close to Kolkata, producing rice

Oilseeds

and potato, staple of the eastern gangetic plain.

Soybeans, Wheat,

Large soyabean producing district in a well developed

Chickpeas

warehousing state in central India

Cotton,

Soy-

beans, Sorghum,

Highly productive multi commodity district in a state

with large warehousing infrastructure

Black gram
9

Kamrup

(Ru-

East

Rural

ral),AS
Kamrup

Urban

Rice, Rape seed,

A north east district with a hilly and plain terrain in

Mustard

both a rural and urban context

Rice, Tea, Wheat

(Metropolitan),AS

Source : www.agricoop.nic.in

Report

24

CHAPTER 3. METHODOLOGY

3.2

3.2. DETAILS OF THE PARTICIPANTS/ RESPONDENTS

Details of the participants/ respondents

Field research was conducted by interviewing

these stakeholders at each district or region. These
interviews were conducted through a mix of Fo-

In addition to the district selection, the respondent

cused Group Discussions (FGDs) and one on one

selection within each district has been done to

interviews. A predefined questionnaire was de-

ensure maximum sample of a diverse number of

signed for the key stakeholders including to record

categories. The break up and overall scale of

their feedback but the majority of the interviews

respondents interacted with is provided in this

were to be conducted in a semi structured format.

section.

The collected primary data from questionnaires

The following is a list of all the categories of

was then tabulated and organised for the analysis

respondents covered for this qualitative study.

of the data and inferences were drawn from the

evaluation study leading to recommendations and

1. Depositors

suggestions.

Farmers - Primary target for utilising

warehouses and NWRs in order to
make fewer distress sales and a main
focus of the study.
Traders - Primary users warehouses
today and potentially large subset of
NWR users.31
2. Public and Private banks engaged in pledge
financing
3. WSPs32
CMCs33
Central Warehousing Corporation
State Warehousing Corporations
4. Warehouse Owners
5. Agricultural Produce Marketing Committees
(APMCs) markets
6. Regional commodity exchanges
31 Some traders were also commissioned agent or brokers
who are market participants that help connect farmers with
traders to sell their goods. These brokers are a crucial cog
in the mandi ecosystem since they also provide easy unorganised means of finance to farmers at a relatively higher
cost.
32 For the purposes of this study, a "WSP is being defined
as the owner/partnership/government institution that owns
and/or operates a warehouse which provides storage and
warehousing services for goods including but not limited to
agriculture produce, metals, commodities, liquids etc.
33 They either lease/buy warehouses and manage commodities that are used for pledging. They are also sometimes just
the caretaker of the goods within a fully captive warehouse.
They usually provide these services to banks.

Report

25

3.3. DETAILED STUDY SCHEDULE

3.3

CHAPTER 3. METHODOLOGY

Detailed study schedule

The qualitative survey utilised 9 in house researchers from NIPFP for the field surveys.
Each team was responsible for conducting multiple activities during a single field visit. This included moderating focus group discussion, interviewing respondents, transcribing and video graphing these responses.
A team spent 3-4 days at each district or region.
Table 3.2: Study Plan
Field Visit/ Activity
1
2

Pilot field study in Karnal, HR

Qualitative training at NIPFP office by Ms. Udita Das,
Qualitative Research Expert
Field study in Mehasana, GJ and Rajkot, GJ
Interviews in Mumbai with multiple public and private
banks
Field study in Ernakulam, KL
Interview collateral manager in Hyderabad and field
study in Guntur, AP
Field study in Purnia, BH
Field study in North 24 Parganas, WB
Field study in Vidisha (Ganj Basoda), MP
Field study in Nanded, MH
Field study in Kamrup, AS

3
4
5
6
7
8
9
10
11

3.3.1

No.of
Days
3
3

Date of Completion
17/4/15
24/4/15

4
3

9/5/15
15/5/15

3
5

21/5/15
5/6/15

4
4
3
3
6

5/6/15
10/6/15
17/6/15
17/6/15
25/6/15

Number of respondents covered

The following is a list of all the categories and the minimum number of respondents covered in total for the
qualitative study.
District

Farmers

Traders

Name

Warehouse

CWC

SWC

CMC

Banks

APMC

Owners

Karnal, HR

10

Mehsana,

Regional
Exchange

GJ, Rajkot,
GJ
3

Mumbai,

MH
4

Ernakulam,

KL
5

Guntur, AP

Purnia, BH

North

24

Vidisha, MP

Parganas,
WB
8

Report

26

CHAPTER 3. METHODOLOGY
9

Nanded,

3.3. DETAILED STUDY SCHEDULE

15

51

53

17

17

MH
10

Kamrup
(Rural and
Metropolitan), AS
Total

Report

27

3.6. DATA ANALYSIS

3.4

CHAPTER 3. METHODOLOGY

Selection strategy of respondents

Both pre-structured and open questionnaires were utilised.

Two inter-connected strategies were used for re-

2. In-depth interviews

cruiting respondents:

Combination of formal, semi structured

1. One of the prominent WSPs in a particular

and open questions

district was requested to facilitate interac-

Interviews were conducted with farm-

tions with key market participants such as

ers, traders, lenders, institutions, banks.

banks, traders, etc. The WSP provided as-

Interviews were conducted mostly with

sistance through their local staff to locate

senior level management.

and contact willing respondents or provide

The majority of the research was conducted via

contact details for the respondents.

semi-structured interviews. The interviewers had

2. The report used a system of purposive sam-

adequate flexibility to explore related issues that

pling , which is the selection of a certain sam-

were relevant and came to light during the course

ple where the most amount of information

of the interview.35 .

can be gathered by interviewing or observing

a varied, large and particular group.34 Using

3.6

this technique, a specific selection criteria

which to select a sample of participants was

Data analysis

As Merriam states, the preferred way of data anal-

determined.

ysis is to analyse data during data collection rather

The following considerations also informed the

than waiting to begin data analysis until all data

selection of respondents:

has been collected. During this study, information

1. Typical sampling : Ensuring some stakehold-

collected in the initial districts was used to refine

ers reflect the average or typical individual.

and focus the questionnaire.

2. Unique sampling : Ensuring at least a few

The data collected from all nine districts was

stakeholders display atypical or unusual char-

analysed by identifying segments and categories

acteristics.

that assisted in answering the research objectives.

3. Snowball sampling : Selected participants

Determining the categories present in collected

and interviewees who then, referred us to

interview transcripts and field notes was based

other stakeholders , who the report also de-

on the major topics covered in the questionnaire.

cided to ask for participating in the study.

The responses to these questions were then segregated under these categories and analysed for

3.5

a focussed summary of the responses provided

Data collection procedures

across districts per stakeholder.

Interviews were conducted using two methods :

The primary data from questionnaires was tabu-

1. Focus group discussions

lated and organised for the analysis of the data and

Small group discussions were organ-

inferences were drawn from the evaluation study

ised, usually with 4-8 participants.

leading to recommendations and suggestions.

34 Michael Quinn Patton, Qualitative research and evaluation methods, Thousand Oaks, 2002.

Report

35 Sharan Merriam, Qualitative Research: A Guide to Design and Implementation, John Wiley and Sons, 2009.

28

CHAPTER 3. METHODOLOGY

3.6. DATA ANALYSIS

Disclaimer: This report does not intend to be

taken as a comprehensive set of all warehousing
participants within the country, but rather be used
to understand the data emanating from the quantitative report more holistically. This will provide a
fuller analysis and give policymakers a much better understanding of the causes and consequences
of public opinion.

Report

29

3.6. DATA ANALYSIS

Report

CHAPTER 3. METHODOLOGY

30

Chapter 4

Findings of the study

This section states the findings of the study

place CMCs in-charge of managing the

across nine districts (and in-depth interviews with

pledged commodity.

stakeholders in Mumbai). Findings have been

There has been a rapid growth of the

arranged as per the objectives of the qualitative

pledge financing business in recent

study stated in section 1. These findings are not

years, and bank branches in almost all

intended to provide a statistically determination

surveyed districts had growing portfo-

of practices within the warehousing market on

lios of pledge finance. The business

a national, state or sub-state level. They are in-

was most robust in areas with high

tended to convey the practices followed by a wide

agricultural production and well func-

diversity of respondents across different districts.

tioning agricultural markets such as

A brief summary of findings is provided below:

Mehsana, Guntur and Vidisha.

2. Warehousing business operations:

1. Market for warehouse receipts

The market for warehouse receipts in

Profiles of those in the warehousing

agricultural commodities is dominated

business are varied. Almost all districts

by storage for two primary purposes:

had the presence of one or more large

(i) storage for preservation, and (ii) stor-

WSP companies. Such WSPs act as

age for accessing credit.

pure WSPs, as well as CMCs.

Traders are the main users of ware-

Many of the respondents were those

houses for both these purposes within

engaged in building warehouses and

the districts covered in the study. A

leasing them out to WSPs. In some

very small proportion of farmers who

districts, there were also smaller, indi-

were respondents used warehouses.

vidual proprietors who are WSPs.

Storage itself takes place in both li-

Generally, the quality of warehousing

censed and unlicensed warehouses,

infrastructure did not vary depending

though users generally prefer licensed

on what kind of entity owned it. Newer

warehouses.

warehousing facilities were generally

Banks that are engaged in pledge fi-

better than older ones. Most CWC

nancing prefer warehouses with bet-

and SWC warehouses visited during

ter documentation and quality, but

the study were older, and therefore of

31

CHAPTER 4. FINDINGS OF THE STUDY

There was general under-utilisation

inferior quality.
The quality and kinds of services of-

of warehouses in certain districts that

fered by WSPs varies substantially.

are major agricultural marketing hubs.

The kinds of services offered as CMCs

Less developed markets generally have

depend on the contractual arrangement

low availability of warehouses.

between the bank and the WSP.

some districts, low capacity utilisation

In

was ascribed to low agricultural output

3. Risks associated with storage:

in the past year.

WSPs, and Warehouse Owners (WhOs)

face both business and legal liability

There is evidence of information asym-

risks. Business risks emanate from nor-

metry and power asymmetry in the

mal operations of the warehousing busi-

warehousing market. In some districts,

ness and competitive forces. Legal lia-

depositors spoke about lack of infor-

bility risks arise due to lack of profes-

mation on warehouse rents and their

sional diligence, acts of employees, or

inability to raise concerns with WSPs

natural or man-made disasters.

due to lack of quality warehousing options.

Business practices, internal controls

and standard operating procedures are
the first step towards risk-mitigation.

5. Infrastructure for e-NWRs

Most large WSPs had standard operating procedures and internal control and

Most respondent WSPs stated that

inspections systems.

they maintain standardised procedures,

Insurance against legal liability risks is

trained staff and insurance for conduct-

the other form of risk mitigation. Large

ing the warehousing business with min-

WSPs insure both their infrastructure

imal risks.

and the commodities they have in their

Some large WSPs have electronic sys-

custody from such risks. Generally

tems for record-keeping, verification

though, the WSP took insurance for

and generation of WRs. However, tech-

the infrastructure. Insurance for the de-

nology has not been integrated com-

posited commodity was usually found

pletely into the business processes of

to be taken by the depositor.

these firms. One WSP who has done so

4. Experiences of consumers of warehouses:

reported operational efficiencies con-

Farmers comprise the smallest propor-

sequent to complete technology adop-

tion of users of warehouses. The pri-

tion for its warehousing business. A

mary users of warehouses are traders,

large portion of the market continues

government agencies like FCI and

to use completely manual and paper-

HAFED, and banks.

based processes.

Warehouse usage depends on the quality of services delivered by the WSP,

costs of labour and transportation.
Report

32

CHAPTER 4. FINDINGS OF THE STUDY

4.1

4.1. THE MARKET FOR WAREHOUSE RECEIPTS

The market for warehouse receipts

4.1.2

Types of warehouse receipts

In todays market, there exists two different receipts associated with warehousing. These are

4.1.1

Utility of storage

:
1. Warehouse receipts : A warehouse receipt is

Warehousing services are used largely by traders.

given to a depositor when the public ware-

In some districts (for example, Guntur) large farm-

house is actively managed and leased by a

ers utilise warehouses as well.

CMC. In this case, the CMC does not have

to provide the bank with information beyond

Warehouses serve an important purpose for

KYC data, because the quantity and quality

traders who use it for three main reasons:

of the product is verified before the receipt is

1. Use it store goods for them to further process

generated, and stated on the WR. These are

and mill;

generally preferred by the bank since they

2. Use it to store goods that can be exported

are issued by WSPs/ CMCs in full control of

later at a higher price after processing;

the warehouse. Respondents in various dis-

3. For accessing credit for financial liquidity till

tricts implied that although the loan to value

the goods are sold.

ratio is the same for both WR and storage re-

The commodities stored vary widely. The rice

ceipts, banks tend to usually give loans faster

millers in Karnal, the jeera traders in Mehsana and

and easier for WRs.36 In issuing warehouse

the chilli traders in Guntur all used modern ware-

receipts, CMC gain revenue from the deposi-

housing to maintain goods that are export quality.

tor as well as a commission from the bank on

In Ernakulam, and Kamrup , the agriculture ware-

the value of the loan, typically in the range

houses were used to store electronic items as well

of 0.5%-1.5%.

as other materials like books due to the lack of

2. Storage Receipts : A storage receipt is given

farmers or traders in that area. This was true of

to depositors when the warehouse is owned

both private and government warehouses.

by a warehouse owner and the goods within

the warehouse are managed by a CMC. Here

The perception among the majority of respon-

the CMC, appointed by the bank is manag-

dents across the surveyed districts is that there

ing these goods on behalf of the bank. The

isnt a shortage of warehousing facilities. Due

warehouse, in this case, could be public or

to consecutive years of bad yields, there is an

a captive godown used to store the goods

excess supply of warehousing facilities in most

of the owner himself. Banks honour stor-

districts surveyed, driving rents down. In low pro-

age receipts on a case to case basis based on

ductivity areas on the other hand, there is a lack of

specific, strict criterion.37 In the case of a

warehousing, but due mainly to the low necessity

36 As mentioned by the bank manager of a public sector
bank in Karnal.
37 A commodity head in a large private bank during a
meeting in Mumbai mentioned that the overall market for
storage receipts in India was around 40% of the overall
warehousing finance market in India.

for storage. This was true of North 24 Parganas,

where the banks reported that the warehousing capacity in rural areas was very small and the culture
of warehousing was yet to really take off.
Report

33

4.1. THE MARKET FOR WAREHOUSE RECEIPTS

CHAPTER 4. FINDINGS OF THE STUDY

storage receipt issuance, the CMC only earns

registering loans worth a hundred crores.

a commission from the bank and not from the

3. Financing is focused around the commodi-

depositor. The depositors share of payment

ties produced and traded in that area e.g.

is embedded within the tripartite agreement

chillies in Guntur, jeera in Mehsana, etc.

between the bank, depositor and the CMC

4. The pledge financing business is safe with

the help of CMCs, and growing every year.

The difference in the types of receipts owes

to the legal regulation of warehouses under state

5. Loans to farmers are within RBI stipulated

laws. Only licensed warehouses are legally per-

limits. Generally loans to farmers are not

mitted to issue WRs. Storage spaces that are un-

provided above this limit. Traders, however

licensed are not legally permitted to issue WRs.

do not have a fixed limit and get loans upto

However, a lot of storage does in fact occur at

eight crore based on credit worthiness

such locations. Banks also lend to persons who

6. Banks are highly reliant on CMC to man-

store commodities within their own facilities, af-

age the goods in warehouses and feel that

ter the commodity is placed under the charge of

they are an integral part of the pledge finance

a CMC. Storage receipts are issued in such cases,

business.
7. Although most of the pledge finance business

where the facility at which a commodity is stored

is conducted with private warehouses, banks

is not a licensed warehouse.

in most districts expressed a preference for

4.1.3

Pledge finance market

storage in CWC and SWC due to lower risk

owning to government ownership.

Pledge finance involves a depositor pledging his

8. There has been growth in demand for ware-

or her agricultural commodities to a bank so as

housing, especially in Ernakulam, Purnia and

to avail a loan. This is done in order to acquire a

Nanded. However, lenders did caution that

working capital and meet the financial needs of

the trends were usually seasonal and depen-

the depositor while waiting for a good price to sell

dent on commodity prices.

the commodity.

Potential:

Although WR finance is estimated to be $3.0-

Some districts surveyed have shown a tremen-

$3.5 billion in India, it is far from its potential of

dous potential for pledge finance. Karnal and

$60 billion.38 .

Mehsana have a large number of traders and pro-

Interviews with bank branches provided signifi-

cessors due to their large rice and jeera market

cant insights into the pledge finance market :

respectively.

1. The main users of pledge finance in all districts were traders. There was a very small

In certain cases like Nanded and Guntur, the rea-

proportion of farmers who availed pledge

son for a robust pledge finance portfolio is good

finance.

warehousing market, wide variety of commodities

2. A portfolio of a bank branch, on average, is

available and good access to a mixture of com-

usually around seven to ten crores. Guntur

modities varied and stocking possibilities high.39

was an anomaly however with a bank branch

39 The

wide variety of commodities in Nanded is a big

advantage since it allows the bank to access a wide base of
customers and enables risk diversification.

38 See

page 71 International Finance Corporation, Warehouse Finance and Warehouse Receipt Systems.

Report

34

CHAPTER 4. FINDINGS OF THE STUDY

4.1. THE MARKET FOR WAREHOUSE RECEIPTS

In Vidisha, many large FMCG companies such

as ITC and Cargill are procuring directly from
farmers/traders, which has had an impact in the
scope of expansion in commodity financing in the
areas as well.
North 24 Parganas had a large number of farmers, yet the pledge finance market was relatively
small. This was largely due to the fact that rural areas did not have enough warehouses. The pledge
finance market has also been affected by the fraud
that took place in Burdwan district in West Bengal
where the CMCs and depositors colluded to pilfer
stock.
In Kamrup, the pledge finance market is negligible because the majority of the warehouses
used by the traders are for storing goods only for
a very limited period of time. These warehouses
are used to provide traders with transit storage of
goods moving from mainland India to the other
north-eastern states.

Report

35

4.1. THE MARKET FOR WAREHOUSE RECEIPTS

CHAPTER 4. FINDINGS OF THE STUDY

Box 2: Finance required during the production life cycle

There are three stages of production where producers require finance. This is uniform across all surveyed districts.
1. Pre-Production stage: The farmers obtain finance for procuring seeds, fertilisers, and other farm equipment for production. The
banks at this stage, lend through a short term crop loan scheme for farmers issued via the Kisan Credit Card. In Guntur, farmers
also were able to avail loans through PACS at a rate of interest of just seven percent. However, many of the farmers interviewed
across all districts usually borrow from middle men who are commissioned brokers (arhatiyas).
2. Production: Farmers require finance for hiring labour, farm equipment and renting farm land. The same credit facilities available
during pre-production are available at this stage. During this stage, respondent farmers reported that they harvest and store
their commodities in their own backyard. The duration for which this storage occurs is proportional to the perishability of the
commodity.a
3. Post-production: Farmers require finance for transportation and repayment of loans availed during pre-production and production
stage. At this stage, farmers borrow from commissioned agents through an informal trust arrangement (this was reported in all
districts except Ernakulam). This is primarily because middlemen are open to lending small amounts of money, more frequently
and without the requirement of a collateral. Respondents in most of the surveyed districts mentioned twenty four percent interest
charged per annum. In most cases, the farmer disposes of his commodity to either a commissioned agent or a trader as soon the
crop is harvested.

a In situations where the commodity is not highly perishable, the farmer keeps his produce usually out in the open, with
jeera, rice and turmeric.

Box 3: Profiles of Unjha and Basoda mandi

Unjha mandi
Unjha mandi is situated in the Mehasana district of Gujarat. It is one of Asias largest markets for the trading of jeera, fennel seed and
psyllium.
Location: The Unjha mandi has several locational advantages. It lies on the main line of the Western railway and the nearest Unjha railway
station is only 1 kilometre away. It is well connected by Ahmedabad-Delhi national highway and state highway 41. The proximity to
rail, road and sea route help traders connect with both domestic and international buyers. There are 35-40 banks with their branches in
Unjha city which help service the large volume of mandi transactions.
Transaction mechanism: All payments to farmers happen through cash in the mandi and the trade settlement takes place on the same day.
The buyers pay 1.5 % commission to the middlemen or the arhatiyas. The seller/farmer is charged only for labour for off-loading the
produce in the market. The mandi committee takes a commission of 0.5% of the value of goods. The mandi committee is responsible
for dispute resolution and effective oversight. Respondent farmers in the mandi, and traders operating there all stated that they were very
happy with the mandis functioning. Mandi administrators stated three main reasons for this:
1. No limitation on volume of commodity allowed in to the market;
2. The mandi mandates all transactions only in cash; and
3. Regular and impartial inspections and auction oversight by mandi inspectors.
Facilities in the mandi premises: There are approximately 1000 godowns (both registered and unregistered) located close to the mandi .
The mandi is also equipped with a canteen where all farmers are provided food at concessional rates, and also a rest house for farmers.
Basoda mandi
Basoda mandi is situated in the Vidisha district of Madhya Pradesh. It is one of the biggest grain markets in Asia. The main commodities
traded in this mandi are wheat, gram and soybeans.
Location: The Basoda mandi lies on the main line of a railway and the nearest railway station is less than one kilometre away. It is
well connected by state highway and national highway. There are 6-7 banks close to the Basoda mandi offering banking and commodity
financing services.
Transaction mechanism: All payments to farmers happen through cash in the mandi and the trade settlement takes place on the same day.
The buyers pay commission to the middlemen or the arhatiyas. The seller/farmer is charged only for labour and off loading the produce
in the market. Mandi administration is provided by an elected mandi committee.

Report

36

CHAPTER 4. FINDINGS OF THE STUDY

4.2

4.2. WAREHOUSING BUSINESS OPERATIONS

Warehousing business operations

financing against stored commodities. Banks

engage CMCs to take possession of the collat-

One of the main objectives for this study was to

eral (the deposited commodity) before disbursing

understand the business warehousing. This would

credit to borrowers.42

include understanding the functioning of a single

In urban districts such as Ernakulam and Kam-

individual WSP40 , and organised companies that

rup, the user profile is more diverse. This is be-

function as WSPs and CMCs. It would also in-

cause warehouses are close to consumption as

clude an understanding of the relevant concerns

well as production centres. The same warehouses

of users of warehousing facilities. Accordingly,

in such areas are used to store both agricultural

this section is organised into the following parts:

and non-agricultural commodities (such as CBSE

1. Profiles of users of warehouses (section

exam answer scripts, electronic goods, fertilisers,

4.2.1)

paint, etc.)

2. Profiles of operators of warehouses (section

4.2.2)

4.2.2

Profiles of operators of warehouses

3. Warehousing facilities (section 4.2.3)

The following main forms of warehouse operators

4. Key aspects of the warehousing business and

were found in the districts covered:

related processes (section 4.2.4)

1. WSPs who own or rent warehouses for pro-

4.2.1

viding public warehousing services or for

Profiles of users of warehouses

collateral management. In some cases, such

Traders comprise the dominant users of the ware-

WSPs have to manage collateral in premises

houses covered in the study. This was true across

under the control of a third party as well.

all but one district (Guntur, AP). However, some

CWC and SWCs are government owned

WSPs, CMCs and banks stated that many traders

companies engaged in the business of pro-

are also farmers, or may hold themselves out as

viding warehousing services;

farmers in certain cases to avail discounted storage

2. Individuals who own warehouses (WhOs),

charges at warehouses.41

but provide no warehousing facilities. They

In some instances, large companies engaged

usually lease out the premise to WSPs for

in the processing of agricultural commodities are

providing warehousing/ collateral manage-

also clients of WSPs. Companies such as ITC

ment services, or to corporate clients for cap-

Limited and Cargill also use warehouses in certain

tive storage;

areas for temporary storage.

3. Individuals who own warehouses and pro-

Banks are important users of warehousing ser-

vide warehousing services. There were a

vices. Depositors (mainly traders) avail of pledge

small number of such respondents in some

districts covered in the study;

40 For

the purposes of this study, a "WSP is being defined

as the owner/partnership/government institution that owns
and/or operates a warehouse which provides storage and
warehousing services for goods including but not limited to
agriculture produce, metals, commodities, liquids etc.
41 Respondents in Karnal and Guntur stated that in some
cases, traders also enter into agreements with farmers who
then avail of warehousing facilities, etc on the traders behalf.

Report

4. Mandis and some regional exchanges have

their own warehousing / godowns.
42 In

certain cases, borrowers approach CMCs directly.

The CMC then forwards the request for pledge financing to
the bank.

37

4.2. WAREHOUSING BUSINESS OPERATIONS

4.2.3

CHAPTER 4. FINDINGS OF THE STUDY

Warehousing facilities

Warehousing facilities varied depending on:

1. The local economy of the region. Areas with
a vibrant agricultural economy such as Guntur, Mehsana, Ernakulam and Vidisha generally had better and larger warehouses than
less vibrant economic areas such as Purnia,
Kamrup and North 24 Parganas;
2. The time when the facility was constructed
(recently built warehouses were significantly
better than those built 10-15 years earlier);
3. The profile of the warehouse owner: Corporate entities with larger capital have built
high-quality warehouses in recent years.
Older SWC and private warehouses were
generally of inferior quality; and,
4. The purpose for which the warehouse is being built: Warehouses built for dry storage
are different from cold storages.
Other than this, there were differences in infrastructure standards within and across regions. Such
differences pertained to plinth heights, facilities
for ventilation, access routes, material used for
construction, etc.
A number of warehouses were unlicensed. In
addition, respondents in North 24 Parganas and
Kamrup stated that their states do not have a
licensing system for warehouses.43 However,
all these facilities were being used for providing warehousing facilities. Banks were providing pledge financing regardless of whether warehouses were licensed or not. This was being done
through the use of CMCs in such areas.

43 Licensing

of warehouses in West Bengal is governed by

the West Bengal Warehouses Act, 1963 and the West Bengal
Warehouses Rules, 1967. The Director of Marketing is the
licensing officer. There is no need for a license for operating
a warehouse in Assam.

Report

38

CHAPTER 4. FINDINGS OF THE STUDY

4.2. WAREHOUSING BUSINESS OPERATIONS

Box 4: Regional Commodity Exchanges

Very few regional commodity exchanges are still actively functioning today. Two such exchanges were covered as part of this study, and
have been profiled below.
India Pepper And Spice Trade Association (IPSTA) Exchange :
This regional exchange located in Ernakulam, Kerala is the only pepper exchange in India. It has over 105 registered broker members,
out of whom 15-20 are active. Farmers comprise a very small proportion of the total membership. To become a member, one needs to
be referred by an existing member and submit a guarantee fund. The exchange is completely electronic now and has developed its own
unique trading platform that mimics the NCDEX trading platform. Members use the market primarily for hedging. The settlement taken
place on the 15th of every month, as compared to the 30th for a national exchange. Goods have to be deposited in the 6000 MT warehouse
run by the exchange (or in a CWC warehouse nearby that the exchange has tied up with) at least five days prior to the settlement date.
No cash payments are allowed. These goods are randomly sampled for quality at a third party lab in case required.
Regional Commodity exchange, Rajkot:
This regional exchange (mainly for castor) is located in Rajkot. This is the only remaining exchange running on an open outcry model,
where traders and brokers gather in a open courtyard in the middle of the exchange to buy and sell. There are a total of 101 broker
members, currently 22 are active. Almost all the members are traders from around the region. The daily turnover of the exchange is
around Rs 35 crore and the settlement at the exchange happens on the day after the trade. These physical settlements are inspected by the
exchange and also by the Forward Markets Commission (FMC). Although the exchange has a godown, it is rarely used since most of the
members have their own godowns and the general storage requirement is low due to the next-day settlement policy. In recent years the
exchange has lost volume and value after the NSEL collapse. The loss in trust has resulted in lower profit and turnover for the exchange.
The exchange aims to move towards an electronic platform soon to compete with the national exchange, but is currently weighing up the
cost benefit analysis as the initial capital expenditure would involve two to three crores. Broker members use the exchange primarily for
hedging.

Report

39

4.2. WAREHOUSING BUSINESS OPERATIONS

4.2.4

CHAPTER 4. FINDINGS OF THE STUDY

Key aspects of the warehousing

districts covered.44 In most cases, storage oc-

business and related processes

curred at a facility under the active control and

management of the WSP. The WSP had leased/

Business activities

rented the premises, and the depositor may or

In the districts covered in the study, public ware-

may not have been one of many depositors in that

houses offer the following services:

warehouse.

1. preservation of commodities;

In other cases, the premises in which the com-

2. collateral management for pledge financing;

modity was stored was owned/ rented by the de-

and

positor, and the WSP took possession and control

3. storage for trading on commodity exchanges.

over the space in which the commodity was stored.

WSPs such as Shree Shubham Logistics Pvt.

The WSP was in-charge of ensuring the physical

Ltd. (SSL), National Bulk Handling Corporation

security of the deposited commodities.

Ltd. (NBHC), National Collateral Management

The nature of obligations also varied depend-

Services Ltd. (NCMSL), are engaged in all three

ing on the types of services required of the WSP.

kinds of activities. CWC and SWCs warehouses

In most cases, the WSP was in-charge of veri-

are not being used for trading on exchanges. It

fying the quantity of the commodities, sampling

was found that in some situations, where the ware-

and certifying the quality of the commodities, and

housing facility is under the actual control of the

undertaking steps (for example, fumigation) to

WSP, the same premise may be used for both

preserve the value of the commodity. In some

preservation, as well as for collateral manage-

cases however, the obligation of the WSP was

ment.

limited to ensuring the physical security of the

NCDEX, the largest commodity exchange has

commodity, and the depositor undertook to pre-

stringent requirements for the storage of commodi-

serve the quality of the commodity (for example,

ties that are traded on its exchange. It does not

by fumigating the deposited goods periodically at

permit non-exchange commodities to be stored

his own expense).

within the same godown.

The process for storing commodities is divided

into three phases:

Business processes

1. Inward process,

It was found that the primary business activity

2. Storage process and

of a WSP is to provide storage and preservation.

3. Outward process

WSPs involved in collateral management provide

It was found that most of the large WSPs fol-

services that are additional to the basic facility of

lowed similar basic protocols at each of these

storage for preservation. Exchange-linked storage

three stages. Most such WSPs stated that they

requires more stringent processes and protocols

have detailed written process documents. WSPs

for storage for preservation.

in almost all districts follow a standard operating

Storage for preservation

procedure even if it is not formally documented in

There was a wide diversity of the kinds of ser-

most cases. These also include a process for fumi-

vices related to the obligations that WSPs under-

44 This

take in relation to storage within and across the

Report

use.

40

does not include captive warehouses for personal

CHAPTER 4. FINDINGS OF THE STUDY

4.2. WAREHOUSING BUSINESS OPERATIONS

gation and maintenance of the stock as required.

basket of services that a WSP can provide. These

The inward process starts with the depositor

include quantity and quality assaying, fumigation,

pest control and insurance.

bringing the commodities at the gate of the warehouse. The watchman issues the depositor a gate

The activities of the WSP once a contract has

pass which contains information about license

been agreed to is provided below :

plate number of the truck, weight of the truck

1. WSPs have the keys to the warehouse and

with goods and without goods, drivers signature.

control all stock entering or exiting the ware-

The depositor takes the gate pass to warehouse

house.

manager and starts unloading goods. The unload-

2. WSPs staff are on site during working hours

ing charges are borne by the depositor. WSPs then

to manage the stock.

sample the commodity and examine its quality.

3. WSPs provide standard storage practices for

Quality testing is usually done, either on

ensuring preservation e.g. stacking, distance

premises or in a lab in a nearby town or city. Most

from walls, etc,

WSPs have equipment to examine the quality of

4. The WSPs also offer other value added ser-

a commodity in the warehouses owned by them.

vices including procurement and help in

If such equipment is not present in certain ware-

sale of commodities and monitoring market

houses, the sample is sent to another facility or an

prices on behalf of banks with pledged com-

independent lab for quality testing.

modities.

The storage process involves sampling, regular

5. WSPs provide banks a bi-weekly or monthly

inspection and periodic fumigation of the stock.

reports on information on the goods and if

These processes vary depending on the type of

demanded, reports on price movements.

commodity and its perishability. Inspection is con-

Banks stated that they all follow a centralised

ducted by the Capital Markets Services (CMS)s

empanelment process with regard to CMCs. The

internal audit team as well as by bank reps in

choice of which WSPs to empanel as a CMC

almost all the cases with a varying level of fre-

is made centrally, at the corporate offices of all

quency ranging from two weeks to two months.

banks. Branch heads at local branches then have

In this service offering, WSPs earn income by

discretion in selecting one of the empanelled

levying charges on the depositors. This is done on

CMCs for handling the pledged commodity. This

a rental charge per month based on either a) space

choice depends on the quality of services provided

occupied by the commodity per square feet or b)

by the empanelled WSPs in that region. Banks

per bag cost.

choose WSPs based on many factors:

1. General quality of service and responsive-

Collateral management services

ness;

WSPs are empanelled and engaged by banks to

to provide collateral management services and se-

2. Prompt deposit and release of goods;

cure the pledged goods in a warehouse for a depos-

3. Well-defined processes and protocols;

itor. This happens once the depositor approaches

4. Prompt issuance of warehouse/ storage receipts; and

the bank to seek a loan against the commodities at

a warehouse. A tripartite agreement is then signed

5. Financial soundness of the WSPs.

between the bank, depositor and the WSP for a

Exchange-linked storage

Report

41

4.2. WAREHOUSING BUSINESS OPERATIONS

CHAPTER 4. FINDINGS OF THE STUDY

Some WSPs have warehouses which have segregated warehouses or space within warehouses
for NCDEX-traded goods. NCDEX is the largest
agricultural commodity exchange currently in op-

Box 5: Process for pledge financing

eration in India. These are used for exchange

The warehouse finance process usually includes the fol-

linked storage and trading.

lowing steps:
1. The depositor brings the goods to a warehouse

The requirements and processes followed for

managed by a WSP, or the commodity is already

such warehouses are far more stringent than a

stored at a particular premise and the WSP has to

regular accredited warehouses:

manage the commodity at such premise. If it is the

latter of the two, the WSP usually has to inspect the

1. Warehouses for exchange linked storage

premises and certify that they are fit for storage of

must be independent, or segregated from

that commodity.a
2. The WR is generated after the process of checking

already existing warehouses with non-

the quantity and quality is conducted by the WSP.

exchange commodities. The WSP must de-

3. Quantity is usually checked using a weigh-bridge

marcate such a facility clearly for the purpose

which generates a weighing slip that cannot be tampered with.b

of exchange trading and storage.

4. Quality of the commodity is tested and certified by

2. There are detailed specifications for unload-

an on-site or a nearby lab.

5. The depositor or the WSP approaches a bank to

ing at particular bays, and including driver

seek a loan against a WR or storage receipt issued

signature, cross checking of bills.

at the warehouse.c
6. The bank then determines the amount of loan to

3. Tracking of all goods has to be done to a

disburse based on the assessment of the quantity

particular lot size and recorded.

and quality of goods done by the WSP as men-

4. Colour code or symbol code different goods

tioned on the WR.

7. Inspections on the quantity and quality of the

5. Explicit marking of the goods that have ex-

goods is conducted by the internal audit team of

a WSP and the representatives of the bank fort-

pired as per exchange specifications is re-

nightly to monthly.

quired.

8. The depositor then has the option of finding a

6. Stricter, standardised requirements are pre-

buyer or withdrawing his goods by approaching

the bank for a release order.

scribed regarding stacking of goods.

9. The depositor is then allowed to withdraw his

7. There are regular NCDEX and third-party

goods once all the outstanding dues are paid.

inspections.

a In

some cases like Vidisha, multiple WSPs

provide collateral management services within the
same third party owned warehouse. Though this
practice is generally avoided by larger WSPs, there
are exceptions.
b In certain districts like Guntur, a bag is assumed
to be a certain weight and the quantity is determined
based on number of bags stored. This is risky and
un-scientific.
c In Ernakulam and Vidisha, when the warehouse
doesnt meet certain requirements, the bank asks the
WSP to identify a different location fit for storage

The WSP usually charge per bag, at a rate up to

double for exchange-linked storage compared to
a non-exchange linked warehouse. In one district,
the non-exchange rate per bag was eight rupees
compared to the exchange linked bag of sixteen
rupees.
Sources of revenue, costs
The costs and revenue in warehousing business
differ for warehouse owners and WSPs. The costs
for warehouse owners are limited to the extent

Report

42

CHAPTER 4. FINDINGS OF THE STUDY

4.2. WAREHOUSING BUSINESS OPERATIONS

of constructing a warehouse and maintaining the

that he has to pay the warehouse

warehouse. In some cases the WSPs also own

owner. In Karnal, the WSP stated

warehouses. In those cases, the costs with regard

that the rent for the warehouse

to constructing and maintaining the warehouse

makes 70 percent of the total cost.

are also incurred by the WSP. In cases where

the WSP has a revenue sharing

WSPs merely rent/ lease warehouses, their costs

agreement with the warehouse

for WSPs are limited to operational expenses.

owner: In this business model, the

Costs and revenues for WSPs

WSP has an agreement with the

The cost and revenue break-up for WSPs differs

warehouse owner and instead of

paying a rent to the warehouse

on basis of their cost and revenue model.

owner, the WSP shares the rev-

1. Costs: The costs for WSPs can be divided

enue with the warehouse owner in

under following sub-headings:

an agreed ratio.

(a) Rent: Rent is major component of cost

for WSP. However, in some cases, the

(b) Salaries for staff: A WSP has staff for

WSPs own warehouses and do not have

supervising the warehouse, providing

to pay rent. None of the WSPs we met

security and auditing the warehouses.

owned all the warehouses they were

The WSPs in almost all districts stated

managing. In fact, some WSPs do not

that salaries are a major cost compo-

invest any money on capital creation

nent for WSPs. In Guntur, the WSP

or warehouse construction. The rent

stated that salaries are 80 percent of

component of cost depends on individ-

total costs.
(c) Insurance premium for stored com-

ual business model of WSP. The three

modities:

business models are as follows:

Report

A WSP is responsible

the WSP owns the warehouse: In

for the quantity and quality of the

this business model, the WSP

commodities stored in the warehouse.

has to incur the capital costs in-

WSPs buy insurance to cover their risks

curred by the warehouse owner

with regard to the commodities. The

for building and maintaining the

standard insurance policy cover taken

warehouse. Another capital cost

by WSPs cover risks related to fire,

component for WSPs is the cost

flood and theft.

of equipments (weighing, testing,

2. Revenue: The sources of revenue for the

fumigation, pallets and dunnage

WSPs can be divided into the following cate-

sheets). In addition to the capital

gories:

costs, the WSP has to incur oper-

(a) Rental income: The WSP can earn

ational costs. These costs can be

rental income from a warehouse if he

sub-divided into:

owns the warehouse. This rent may

the WSP leases the warehouse: In

be charged on a per sq. ft. basis or

this business model, the major cost

per bag basis. If the WSP doesnt own

component for the WSP is the rent

the warehouse and has leased the ware43

4.2. WAREHOUSING BUSINESS OPERATIONS

CHAPTER 4. FINDINGS OF THE STUDY

house, the rent component is passed on

itary access to land, or the gov-

to the depositor.

ernment provides subsidies, it

(b) Service charge: WSPs provide a bou-

is not viable to construct a

quet of services to their customers. De-

warehouse.

positors can ask for the WSP to secure

B. Buildings and fixtures: The

the quantity of stock and not concern

cost of building a warehouse

itself with the quality of the stock. On

depends on labour costs, ma-

the other hand, a depositor may ask the

terials costs and the quality

WSP to fumigate the stock and preserve

of fixtures (electricity, water,

its quality. In either case, the service

fire equipment and ventila-

charged to the depositor will vary.

tion) in a warehouse.

Un-

(c) Commission from the bank: Once the

der the NABARD scheme,

goods are pledged with a bank, the

warehouses were required to

bank becomes the custodian of the

be constructed in accordance

goods. In that case, the WSP earns

with certain parameters and

his commission from the bank. In Kar-

standards. Many respondent

nal, the banker stated that their bank

warehouse owners had used

paid its empanelled WSPs 0.75 to 1

the NABARD subsidy scheme

percent of interest income depending

to construct warehouses. Util-

on their years of association and past

ising this subsidy, the cost

record. In some cases, banks can pay

of construction for warehouse

the WSP a fixed rate for managing a

owners across nine districts

warehouse. For example, in Guntur,

on an average came to Rs. 650

the bank paid Rs. 35,000/ month for

per square feet (excluding the

managing a warehouse to the WSP.

land cost). In Nanded and

Costs and revenues for owners of ware-

Purnia, the warehouse own-

houses

ers stated that constructing a

The cost and revenue break-up for WhOs is

warehouse cost them Rs. 500

as follows:

per square feet, in Mehsana

(a) Costs

the cost of construction was

i. Capital costs: Capital costs are in-

Rs. 650 per square feet, and

curred on a one-time basis for con-

in Ernakulam constructing a

structing the warehouse. These

warehouse cost Rs. 850 - 950

costs can be further sub-divided

per square feet.

ii. Operational costs

into the following:

Report

A. Land: Throughout the nine

A. Insurance: WhOs typically

districts, warehouse owners

buy an insurance policy to

stated that the cost of land is

safeguard their warehouse

high and unless one has hered-

premises from fire, flood and

44

CHAPTER 4. FINDINGS OF THE STUDY

4.3. RISKS ASSOCIATED WITH STORAGE

other perils. In Ernakulam,

house owner has a revenue sharing

one warehouse owner stated

agreement with the WSP): In some

he paid Rs.

6000 per an-

cases, the WSPs make a revenue

num as insurance premium.

sharing agreement with the ware-

Larger WSPs stated they had

house owners. In this case, the

a company-wide floater in-

warehouse owners receive a share

surance policy covering all

in the revenue earned by the the

their risks across warehouses

WSPs. In Guntur, the warehouse

throughout the country.

owner had a 75:25 revenue shar-

B. Repair and maintenance: The

ing agreement with the WSP. In

warehouse owner is also re-

North 24 Parganas and Purnia, the

sponsible for maintaining the

warehouse owner had a 70:30 rev-

life of the warehouse. Ex-

enue sharing agreement with the

penses on wear and tear, re-

WSP. This enables WSPs to bear

pair and maintenance of the

rental costs in accordance with the

warehouse building and fix-

capacity utilisation of the rented/

tures are borne by the ware-

leased facility.

house owner.
(b) Revenue

4.3

Risks associated with storage

i. Rent: The WhO receives a fixed

Report

rent either from the depositor (if

This section categorises and explains the risks that

the WSP is not involved) or from

exist in the warehousing business. Most respon-

the WSP who has hired the ware-

dents take common risk mitigation measures to

house. The rents across the dis-

cover for the specific types of risk they are vulner-

tricts varied from Rs. 4 to 6/sq

able to.

ft. In some cases, the warehouse

WSPs generally suffer from business risks and

owners charged rent on a per bag

legal liability risks. Business risks arise in the

basis. In cases where the ware-

usual course of the operation of the market. These

houses are hired by WSP, the

pertain to low demand for services, increased com-

warehouse lease is usually for a

petition, higher input costs, etc. Such risks lead to

period of 11 months with 1 month

a loss of market for the firm.

exit clause. In Guntur, Karnal and

Most WSPs that participated in this study re-

North 24 Parganas, the warehouse

ported that low capacity utilisation leading to

owners stated that the WSP can

low rentals is a risk to their business. Many re-

exit a warehouse by providing a

spondents in Mehsana and Ernakulam pointed

one month notice to the warehouse

to the high costs of renting/ leasing warehous-

owner.

ing premises and noted that it is a significant in-

ii. Share of revenue from proceeds of

put cost. Vidisha had much greater competition

warehousing services (if the ware-

among WSPs than some other districts, mainly

45

4.3. RISKS ASSOCIATED WITH STORAGE

CHAPTER 4. FINDINGS OF THE STUDY

due to the high volume of business in agricul-

causes: WSPs in most districts had fire safety

tural commodities. Most banks involved in pledge

equipment such as extinguishers installed. A

financing had at least two empanelled WSPs to

few large WSPs also had provisioning for

perform collateral management services for them.

water to douse fires within their facilities.

One measure to guard against low demand and

Another common measure to guard against

therefore low income from rentals is to lease ware-

such risks is to take insurance. Most WSPs

housing facilities on a revenue-sharing basis. In

who formed part of the study had insured

Guntur, Mehsana and Nanded, WSPs reported that

both the infrastructure and the stored com-

in some cases they had entered into an agreement

modities against fire.

with WhOs to pay a percentage of the monthly

2. Threat of third-party actions such as theft,

revenues to the WhO rather than a fixed rental.

burglary: WSPs in all districts employ se-

This ensured that the rental costs of the WSP were

curity guards at their warehousing facilities.

aligned with its capacity utilisation of that ware-

There was at least one security guard in

house.

almost every warehousing facility visited

Legal liability risks arise when a WSP fails

during this study. In addition, almost all

to perform a contractual obligation, or becomes

the warehouses visited had a boundary wall

liable to the holder of the warehouse receipt for

(other than some warehouses in Ernakulam45

the actions of its agents or employees. The general

and North 24 Parganas). Some warehous-

and pre-dominant contractual obligation of WSPs

ing facilities had close circuit television cam-

is to ensure the preservation of the commodity, so

eras installed as well. In addition, almost all

that the holder of the WR receives the commodity

WSPs take insurance against theft.

in the condition stated in the WR. If the quantity

3. Threat of loss due to incorrect assessment of

or quality of a commodity is less than that stated in

quantity and quality of the commodity by the

the WR, the WSP becomes liable to compensate

WSPs employees: WSPs and WhOs employ

the holder.

trained personnel at their facilities to manage

WSPs have to take a variety of measures to pre-

and oversee the deposit of commodities in

vent against legal liability risks. One measure is to

accordance with their internal standard oper-

build/ lease/ rent warehousing infrastructure that

ating procedures.46 Almost all large WSPs

is adequate for preservation of the types of com-

also maintain records of visitors, deposits of

modities to be stored. For example, respondents

commodities and WRs issued. The detailed

in Kamrup stated that the construction of ware-

practices of WSPs have been explained in

houses in that area generally takes into account

section 4.2.4.

the threat of earthquakes, as Kamrup falls within

45 A number of small warehouses (approximately 100-300

MT capacity) were located within densely populated areas in
Ernakulam. Such warehouses did not have boundary walls
in certain cases.
46 In some cases where WSPs were maintaining multiple
facilities within a close distance, they maintained a full team
of 5-6 people at a central hub, and 1-2 people at all other
facilities. This allocation of personnel depended upon the
intensity of usage of that particular warehousing facility, as
well as the value of the commodity stored in such facility.

a zone of high seismic activity. Such risks are

common to both WSPs and WhOs (who usually
rent out their facilities for warehousing services).
Numerous other risk mitigation measure pertain
to the warehousing facility. These include:
1. Threat of fires due to natural or man-made
Report

46

CHAPTER 4. FINDINGS OF THE STUDY

4.4. EXPERIENCES OF CONSUMERS

4. Threat of loss due to misappropriation/ theft

schemes (section 4.4.5).

by employees: WSPs usually require that

its employees follow laid-down processes.

4.4.1

Some WSPs have independent, central in-

Categories of users who use warehouses

spection/ vigilance teams that inspect ware-

Farmers

housing facilities periodically. Most WSPs

Farmers comprise the smallest proportion of

reported that such inspections occur at fort-

users of public warehouses.47 Some farmer re-

nightly to bi-monthly intervals. Such in-

spondents in Karnal, Mehsana, Ernakulam, Purnia

spections cover an inspection of the com-

and Kamrup have built storage spaces for their

modity stored against the internal records

personal use. The storage in such make-shift

of the company, as well as an inspection of

godowns is for temporary preservation, till they

whether the standard operating procedures

can sell their produce to the middlemen. Across

are being adhered to. Other than this, WSPs

all the districts visited, farmers stated that they

and WhOs also maintain fidelity insurance

dont use public warehouses to store their crops.

coverage. Smaller WSPs generally did not

This was corroborated with other findings from

have such insurance, and in some cases were

WSPs who verified that of the total stock stored in

unaware of the need and availability of the

their warehouses, less than 5 percent belonged to

same. All large WSPs had fidelity insurance.

farmers. Guntur was an exception where the WSP

Risks also arise from natural disasters or from

stated that seventy percent of the stock belonged

the likelihood of the occurrence of other Acts

to farmers. However, the WSP also mentioned

of God such as civil wars, riots, etc. However,

that many traders book storage space in name of

the WSP is generally not liable for loss caused by

farmers to avail discount in storage rent, therefore

such incidences.

it was difficult to say with certainty if the stock

indeed belonged to farmers.

4.4

Experiences of consumers

Government agencies
Government entities like FCI, The Haryana

This section covers the following:

State Cooperative Supply and Marketing Federa-

1. Categories of users who use warehouses, and

tion Limited (HAFED), National Fertilizers Lim-

reasons for non-usage (section 4.4.1);

ited (NFL) and The Cotton Corporation of In-

2. The factors that depositors consider while

dia (CCI) continue to be the biggest procurers

choosing a warehouse (section 4.4.2);

of food and cash crops. The majority of the ca-

3. The concerns of depositors with regard to

pacity of the CWC and SWC warehouses is ab-

storage of commodities - common risks aris-

sorbed by these government entities. In Karnal

ing from low quality warehousing and risk

and Nanded, more than 90 percent of the capacity

mitigation measures (section 4.4.3);

of the CWC warehouses was used up by govern-

4. Incidences of disputes and how they were

47 We

sub-divided the farmers into two categories.

Small and medium farmers (owning upto 20 acres of
land)
Large farmers (owning more than 20 acres of land)

resolved; (section 4.4.4) and

5. Whether government run schemes affect
their choice and their perception of these
Report

47

4.4. EXPERIENCES OF CONSUMERS

CHAPTER 4. FINDINGS OF THE STUDY

ment entities. In other districts too, we found that
government agencies reserve warehousing space
for their own consumption leaving very little spare
capacity available for private users of warehouses.
Agencies like FCI use warehouses to maintain
buffer stock for Public Distribution System (PDS).
In the interviews with CWC and SWC, we found

Box 6: Reasons for farmers inability to

that government WSPs prefer to rent out space

use warehouses

to government agencies rather than scouting for

The challenges for farmers to use warehouses and subse-

private depositors.

quently warehouse receipts are detailed below:

1. Farmer respondents stated that they require imme-

Traders

diate cash to finance their business and personal

Traders are the second largest users of ware-

expenses;

houses.48

2. In North 24 Parganas and Karnal the warehouses

were far away from the point of production, and

With the government warehouses

closer to mandis which led to high cost of trans-

mostly used up for PDS, traders use private ware-

portation;

houses to store their stock. After procuring the

3. In certain districts like Karnal, the government sets

stock from aggregators, the arhatiyas choose stor-

the MSP for non-basmati paddy and wheat, resulting in negligible fluctuation through the year.

age option on the basis of clients requirements.

Therefore, there is no incentive to store the com-

Arhatiyas deal with several kinds of clients like

modity in order to profit from seasonal variation in

processors, importers, exporters. Interviews with

prices;
4. Big traders or big farmers crowd out small farmers

traders in Mehsana revealed that the storage re-

in certain cases. This was especially noticeable in

Guntur PACS warehouse where two large farmers

quirements of importers, exporters and traders

occupied a small 200 MT godown.

who deal in NCDEX trade are stringent. On the

5. CWC and SWC warehouses are critically few in

other hand, mill processors who procure stock for

number and largely reserved for government pro-

their own consumption are more accommodative

curement in most of the districts; and

6. Small farmers usually are not able to afford ware-

with storage requirements, that is, they do not

houses due to smaller crop yields. In certain districts like Unjha, private warehouse owners stated

care as much about the quality of stock. In North

that they were unwilling to store small quantities

24 Parganas, one processing company had stored

of produce as it is not cost-efficient. Warehouse

owners stated they prefer to rent out space to a

its stock for its own consumption. In our visit

large group of farmers who aggregate their de-

we found some percentage of the stock infested

posits together use a warehouse.a .

and despite repeated reminder by CMC and the

a Various

farmer producer organisations in

Mehsana, Karnal and Guntur bring together farmers
and help them realise economies of scale

bank, the processing mill had not got his stock

fumigated.
Banks
Banks are direct users of warehouses for preserving the commodities pledged to them. In all
the districts surveyed, stocks were pledged to pub48 For the purpose of this qualitative study, traders includes

arhatiyas and final buyers. This is because the WSPs we

interviewed referred to major stockists broadly as traders.

Report

48

CHAPTER 4. FINDINGS OF THE STUDY

4.4. EXPERIENCES OF CONSUMERS

lic and private banks. Traders store crops for long

Box 7: Factors considered by deposi-

periods of time either for deferred consumption

tors while choosing warehouses

or for hedging. During this time, some choose to

In Karnal, farmers stated that when they bring paddy to

pledge their stock. The WSP issues them a WR or

the mandi for sale, the moisture content is high. Subse-

a storage receipt against the stock which then is

quently, the moisture levels drop significantly during stor-

pledged to the bank against a loan. The bank then

age which leads to shrinkage and loss in volume. Due

has a lien over the pledged commodity. Once the

to this farmers preferred to sell their crop immediately

depositor is ready to pay the loan back, he goes

after harvest. In Kochi, traders preferred privately owned

to the bank, pays off the loan and gets a release

warehouses because the respondents felt that private ware-

order. This release order entitles the depositor to

houses are run by CMCs who have more stringent prac-

reclaim the stock and use it or sell it further.

tises for preserving quality of commodities. Similarly, in

Nanded, depositors of turmeric mentioned that the com-

4.4.2

The factors that depositors con-

modity is high value and very sensitive to infestation.

sider while choosing a warehouse

This led them to choose warehouses which were newly

constructed as the spoilage in case of turmeric is faster

All users of warehouses (including farmers,

in older warehouses. In Nanded, depositors yet again

traders and banks) stated that they are primarily

preferred private WSPs because of perceived better pro-

concerned about the preservation of the quantity

cesses.

and quality of stock. When a user chooses a warehouse to store his goods, he expects that the WSP
depends on the following factors:

would be able to take care of the quantity and

quality of stock in such a manner that the value of

1. Cost of transportation

the commodity will be preserved.

2. Rent, and
3. Labour costs.

The quantity of stock can be affected by following factors:

In Mehsana, traders preferred warehouses that

1. Loss of stock due to fire, flood, theft or bur-

were closer to processors, thus confirming that

glary.

transportation charge is an important considera-

2. Loss of moisture leading to shrinkage and

tion for traders. In Guntur, some depositors stated

loss in weight.

that the loading and unloading charges are lower

On the other hand, the quality of the stock can

in government WSPs, while others felt that the

be affected by the following factors:

loading and unloading charges are higher in gov-

1. Moisture gain

ernment WSPs. Depositors in Purnia stated that

2. Infestation of stock

they preferred government WSPs because they

3. Loss of lustre

charge lower rents. In Vidisha and Kamrup too,

4. Intermingling with inferior quality of stock

depositors preferred government warehouses be-

In addition to preserving quantity and quality

cause of lower storage rents.

of commodities, another concern for users is the

Traders who store their crop for purposes of

cost of storage. This is primarily a concern for

hedging are also sensitive to price fluctuations

farmers and traders. The cost of the warehouse

and volatility. This is external to warehousing,

Report

49

4.4. EXPERIENCES OF CONSUMERS

CHAPTER 4. FINDINGS OF THE STUDY

however market sentiment and price volatility de-

thus they avoided using those warehouses.

termine the usage of warehouses. For example, if

Traders in Nanded stated that their previous

the market is depressed and the traders expect the

experience with government WSPs was poor.

market to improve then they will choose to stock

They recounted how when they stored their

the commodity in anticipation of higher returns

stock at CWC and SWC warehouses, the

in future. On the other hand, if the commodity

quality of their deposited stock deteriorated

market is bullish then the traders would rather sell

due to leakage, dust and lack of fumigation.

their stock than store it. This was confirmed by

In addition, the warehouse managers were

depositors in Ernakulam and Kamrup who said

apathetic to their concerns. This led them to

that they use warehouses in anticipation of better

prefer private WSPs over government WSPs.

rates and any marginal increase in rates leads to

2. Lack of accountability and transparency: In

liquidation of stock. This finding was also con-

Purnia, farmers felt that government WSPs

firmed in Vidisha where depositors said that they

were unwilling to take responsibility of the

prefer warehouses where the WSP is able to de-

stock and thus the farmers did not feel confi-

liver goods faster. This means that depositors

dent leaving their crop in those warehouses.

especially traders who need to deliver stock at

Traders in Nanded believed that it is diffi-

agreed rates are sensitive to delivery time on part

cult to hold government WSPs accountable

of WSPs.

for loss in quantity or quality of the stock

which is why it was better to stock com-

4.4.3

modities with private WSPs. Both in Purnia

The concerns of depositors with re-

and Karnal, farmers felt that there was no

gard to storage of commodities

transparency with regard to storage rents. In

Farmers and traders in the surveyed districts stated

Karnal, farmers said that private WSPs do

their concerns with regard to storage of commodi-

not provide any public information on rents.

ties. These concerns can be categorised as fol-

Similarly, in Purnia farmers said that WSPs

lows:

should publish rent schedules.

3. Lack of understanding among depositors: In

1. Lack of good quality warehouses: In Guntur,

Purnia, farmers believed that warehousing is

the farmers stated that the only warehouse

a public good and the government should pro-

available to them was a small warehouse

vide it for free. So, while there was a private

constructed by their PACS which could not

warehouse available within their village (Bi-

accommodate all farmers produce. There

rauli), and two privately owned warehouses

were no other government or private ware-

within 2 kilometres of their village, they did

houses nearby. The non-availability of ware-

not use them because they did not want to

houses led them to stop using warehouses. In

pay storage rent. In North 24 Parganas, the

Mehsana, the farmers stated that the only us-

farmers could not fathom the benefits of stor-

able warehouses were within mandi yards

ing their produce. On the contrary they as-

and those warehouses commanded a pre-

sumed that storage of crops will create a glut

mium for their better quality and location.

in the market and suppress the prices. In

This had cost implications for them and

Report

50

CHAPTER 4. FINDINGS OF THE STUDY

4.5. INFRASTRUCTURE FOR E-NWRS

Kamrup, farmers assumed that they alone

for the entire booked space.

can take care of their crops and WSPs cannot

be trusted to take care of their produce.

4.4.4

4.5

Incidences of disputes and how

WDRA intends to make the use of NWRs elec-

they were resolved

tronic in order to enable seamless transfers of

NWRs, more information and transparency about

No incidences of disputes were brought to our no-

the quality and services provided by WSPs, and

tice across surveyed districts. However, our inter-

create minimum standards for warehousing ser-

actions with farmers and traders led us to believe

vices. This requires the large-scale adoption of

that there exists a power asymmetry between de-

the following:

positors and the WSPs. This can be illustrated by

1. Electronic systems for the creation of elec-

the example in Kamrup where the traders said that

tronic NWRs: This will require basic com-

the warehousing space in the district was scarce.

puterised systems for input of relevant in-

For this reason they refrained from asking ques-

formation, as well as precautions embed-

tions or raising concerns with WSPs because they

ded in standard operating processes to pre-

feared that they would be denied warehousing

vent against alteration and tampering of the

space if the WSPs were annoyed. Similarly, the

recorded information.

farmers in Kamrup stated they had doubts about

2. Equipment for accurately testing the quality

how disputes with regard to quantity and quality

of the deposited commodity;

of commodities could be raised or resolved.

4.4.5

Infrastructure for e-NWRs

3. Equipment for accurately weighing the quantity of the commodity to be deposited;

Perception and usage of govern-

4. A centralised system of record-keeping, such

ment run schemes

that the information contained in NWRs may

Government WSPs are mandated to extend dis-

be verified periodically. This will require all

counts to farmers when availing storage space.

warehouses to be connected to the WSPs

However, the farmers in Karnal told us that the

central record-keeping system through the

discount schemes in fact worked against farmers

internet; and
5. A system of general record-keeping for en-

as WSPs preferred to rent space to traders who

abling regulatory supervision;

can be charged higher, thus crowding out farmers. Farmers in Karnal stated that they were often

6. Access to a central repository of NWRs by

denied storage space both by government and pri-

market participants such as farmers, traders,

vate WSPs. Farmers in Karnal also mentioned that

and banks. This will require basic internet

CWC required farmers to make advance bookings

connectivity for all market participants.

and pay rent for the period of non-usage in order to

Technology adoption

block storage space. This made storage expensive

The level of technology adoption and infras-

for farmers. Another concern with advance space

tructure readiness vary across WSPs and other

booking was that if the actual yield fell short of

market participants. Some CMCs have invested

booked capacity then the farmers ended up paying

in and incorporated Systems, Applications and

Report

51

4.5. INFRASTRUCTURE FOR E-NWRS

CHAPTER 4. FINDINGS OF THE STUDY

Products data management solutions (SAP) as an

and the central office.

integral part of their warehousing operations. In

Market participants, with the exception of

such cases, the WR is created and all relevant in-

banks do not leverage technology effectively. This

formation is fed live into an internet enabled SAP

is primarily because there are no electronic WRs

system. The central office of the WSP therefore

issued in the market. Receipts are printed and

has immediate knowledge and information about

issued in physical form. It is however noteworthy

the creation of the WR. Some other CMCs have

that there was mobile phone and internet connec-

adopted technology on a piecemeal basis. In these

tivity in all the surveyed districts. Market partici-

cases, while the receipt is generated electronically,

pants can therefore access central records through

the information is not shared centrally through a

mobile based applications as well.

SAP system. Such information is usually shared

Banks maintain central records of all lending

with the central office through more routine forms

against warehouse receipts. Some banks have

of electronic communication, such as encrypted

adopted data management systems specifically

email communication. Smaller WSPs provide

for their pledge financing portfolio. The use of

their clients with printed receipts, but their sys-

technology, and readiness for a system of NWRs

tems themselves are not fully electronic.

was found highest amongst banks.

Generally, the level of technology adoption is

Equipment for warehousing

low, but most large WSPs are moving rapidly to-

Most CMCs and some WSPs had the basic

wards adoption of better technology to improve

equipment for assessing and recording the qual-

their internal control mechanisms. One WSP

ity and quantity of deposited commodities. In

stated that the cost of full SAP adoption was ap-

most cases, such equipment was present in-house

proximately rupees five crore (including training

within the warehousing facility. In certain districts

of personnel), and took about one year to imple-

such as Ernakulam and Vidisha, there were plenty

ment throughout the organisation.

of external weigh-bridge facilities that are used

In regions where the overall market infrastruc-

routinely by depositors and WSPs. Some large

ture is well developed, and exchange linked trad-

WSPs had weigh-bridges that generated the record

ing is common, the level of technology adoption

of the weight electronically, and therefore could

was generally better. In smaller markets, the level

not be tampered with.49

of technology adoption was lower. This is note-

Record-keeping

worthy since technology has the potential to de-

Most WSPs keep records in registers regarding

liver a better integrated view of warehouse perfor-

visitor information, movement of vehicles within

mance in remote areas, and reduce the cost and

the warehousing facility, records of depositors and

fallibility of human supervision.

their personnel. The diligence in record-keeping

Very few WSPs reported a technology enabled

49 Some

WSPs stated that they usually weigh the vehicle

carrying the commodity twice: once with the commodities
loaded, and once after unloading, to arrive at the net weight
of the commodity. In some cases, the commodity is weighed
bag by bag on other weighing equipment after it has been
unloaded from the truck. This is done especially for high
value commodities where there is need for extreme accuracy
in recording the quantity.

system of central inspection. Information captured electronically is usually verified by internal

teams who conduct periodic stock verifications.
There may be situations where there is asymmetric
information between the local warehouse manager
Report

52

CHAPTER 4. FINDINGS OF THE STUDY

4.5. INFRASTRUCTURE FOR E-NWRS

however varies widely. Smaller WSPs, especially

those who merely rent/ lease out warehousing
facilities for other WSPs and WSPs do not follow
such processes despite providing some ancillary
services such as security. In this case too, there is
a trend towards better record-keeping, especially
among the nationally organised WSPs.

Report

53

4.5. INFRASTRUCTURE FOR E-NWRS

Report

CHAPTER 4. FINDINGS OF THE STUDY

54

Chapter 5

Analysis and recommendations

This chapter analyses the findings in chapter

growth of the warehousing market in the near

4 in order to provide analysis that will enable

future. However, other regulatory changes in

WDRA to regulate the warehousing business bet-

the agricultural sector may have an impact

ter. The warehousing sector is extremely dynamic

on this trend. For example, the government

and in a phase of rapid expansion. Multiple WSPs

has recently launched initiatives to create an

have made substantial investments, and are grow-

integrated online platform for regulated agri-

ing on a national scale. Heavy, intrusive regula-

cultural markets.50 This development may

tion may endanger the growth of this market if

have significant impact on the type of ser-

it unduly restricts certain business activities (that

vices for which warehouses are required in

do not threaten a WSPs core duty to preserve the

the national spot market.

quality of a deposited commodity) or is not nimble

2. The number of farmers using warehouse re-

enough to allow regulated entities to conduct their

ceipts was negligible across all the surveyed

business. The focus of regulatory supervision

districts. Farmers usually do not store their

must be on defining market-relevant minimum

harvest at all, due to high financial liquidity

standards, ensuring standard operating procedures

requirements.51 . It may be concluded that

are adhered to and developing essential market

government programs aimed at subsidising

infrastructure that provides more information and

warehouse usage for promoting financial in-

transparency to the market.

clusion have not been as successful as desired. Access to warehousing should not be

5.1

used as a substitute for direct financial inclu-

The market for warehouse receipts

5.1.1

sion. This has to be done by incentivising

formal lending institutions to provide better

Analysis of findings

50 See

Press Information Bureau, Central Sector Scheme

for Promotion of National Agricultural Market through
Agri-Tech Infrastructure Fund, July 2, 2015. Available at:
CentralSectorSchemeforPromotionofNationalAgriculturalMarkett
visited on August 5, 2015. 585 regulated markets across
the country will be integrated with the common e-platform
to provide farmers and traders with access to opportunities
for purchase/ sale of agri-commodities at optimal prices in a
transparent manner across the country.
51 There are other obstacles for farmers to utilise warehouses, which are stated in 6

1. Traders are the dominant users of warehouses across the country. They are also the
largest users of warehouse receipt finance
and are targeted by banks and CMC as potential clients to avail pledge finance. Pledge
financing is likely to be the key driver of the
55

5.2. WAREHOUSING BUSINESS OPERATIONS

CHAPTER 5. ANALYSIS AND RECOMMENDATIONS

5.1.2

quality of services to farmers. The warehous-

Recommendations for improving

the market for warehouse receipts

ing business must be regulated in a manner

so as to making the use of warehouses safer,

1. Warehouse regulation should be neutral to

trustworthy and more useful.

the categories of users of warehouses. Reg-

3. The warehouse receipt market today exists

ulations that impose performance require-

for licensed warehouses, that are open for

ments must impose such requirements as are

storage to the general public and unlicensed

generally necessary to make the business of

warehouses, which are primarily used by

warehousing trustworthy and credible.

traders and processors for their captive use.

2. Co-ordinated efforts between WDRA and

Although there is a strong preference by the

state warehousing regulators must be made

banks to fund licensed warehouses, they see

to bring unlicensed warehouses within the

a lot of potential to provide pledge finance to

regulatory purview. Additionally, users of

goods stored in the unlicensed warehouses

warehouses must be convinced of the legal

with the help of empanelled CMCs. Ware-

risks of using unlicensed warehouses.

house regulation must therefore focus on

3. Regulation must require the creation of struc-

ensuring unlicensed warehouses gradually

tured and standardised formats for reporting

come within the ambit of regulatory supervi-

information. Lending will improve further

sion.

once lenders see a market with greater trans-

4. Banks in mature markets within the districts

parency and information.

surveyed have all seen their portfolio of

4. An electronic NWR system will enable mar-

pledge finance increase. Traders, who are

ket participants to use NWRs without having

major users of warehouses access pledge

to worry about fraud and duplication.

finance largely to tide over liquidity constraints. The demand for this service will

5.2

continue to grow organically. Regulation of

Warehousing business operations

warehousing should enable this market to

5.2.1

develop.
5. The perception of the Gramin Bhandaran Yo-

Analysis of findings

1. As stated in section 4.2.1, warehouse us-

jana scheme has been below average in most

age is not limited to one specific category

of the districts. However, it is undeniable

of users. While traders are dominant users,

that the scheme has encouraged most small

banks, farmers, processors and government

entrepreneurs to build warehouses, usually

agencies (including for storing exam answer

on previously owned land. The increase in

sheets in North 24 Parganas) all use ware-

recent years of land prices in several districts

houses. It is therefore difficult to target pub-

has made building a warehouse without some

lic policy actions aimed at specific categories

form of subsidy very difficult indeed and this

of users such as farmers. Many medium

scheme has provided them with an opportu-

to small farmers are also traders or proces-

nity to break even within eight to nine years.

sors, and vice-versa. Some of them also

trade on commodity exchanges, especially in

Report

56

CHAPTER 5. ANALYSIS AND RECOMMENDATIONS

5.2. WAREHOUSING BUSINESS OPERATIONS
Mehsana.

can have over another is the quality of its

2. There is a clear segregation in the market

systems and processes, and its experience in

between firms or individuals that construct

managing that particular kind of commodity.

warehouses, and WSPs who provide ware-

This is a clear indicator that banks and other

housing services, including collateral man-

users place greater emphasis on the quality

agement. Firms and individuals involved in

of the services offered by the WSP than the

both, have differing sources and levels of le-

infrastructure. While a basic standard of in-

gal liability. An owner of a warehouse may

frastructure is essential, warehousing busi-

rent out his facility and incur no legal liabil-

ness is fairly active even in regions with low

ity except from those arising from infrastruc-

quality warehouses.

tural infirmities. WSPs however face much

5. There is a high degree of standardisation

higher legal liability as they have actual phys-

in the basic processes followed by WSPs.

ical custody of a deposited commodity.

Every WSP who was a respondent follows

3. Public warehouses (run by WSPs) offer ser-

the same basic processes with regard to in-

vices related to storage for preservation only,

ward movement of commodities, the storage

storage for pledge financing, and storage for

process and for outward movement. These

trading on commodity exchanges. The re-

basic processes of weighing commodities,

quirements of storage, the specific services

sampling, and maintaining stacking plans

to be provided and the degree of external

are common within the industry. They can

oversight differs for all three. Large WSPs

therefore be stated to be minimum require-

that have good internal systems and pro-

ments for any warehousing operation. Their

cesses, electronic record-keeping systems,

widespread prevalence indicates that they

and a proper system of internal inspection

must be considered minimum standards for

and reporting to their clients do not face is-

warehousing operations.

sues in providing all three services. There-

6. Collateral management is a subset of ware-

fore, the basic integrity of storage practices is

housing services, and is most distinct from

a pre-requisite for delivery of proper services

warehousing in cases where the CMC man-

to users.

ages a commodity in a location which is not

4. Warehousing and commodity management

a public warehouse. The other difference be-

is extremely dynamic. WSPs generally have

tween warehousing services and collateral

a mix of self-owned and hired/ leased ware-

management is that the latter involves a tri-

housing facilities. As such, the facilities un-

partite agreement between the WSP, the de-

der the active control and management of a

positor/ borrower and the bank. This is not

WSP may vary widely over time, and from

however a material difference from the per-

region to region. Each large WSP manages a

spective of warehousing regulation. Within

mix of high quality warehousing infrastruc-

the warehousing market, WSPs must be free

ture and low quality warehouses. As many

to compete and provide services that the

WSPs manage commodities in hired loca-

larger market values.

tions, the competitive advantage one WSP

Report

7. The business of collateral management re57

5.2. WAREHOUSING BUSINESS OPERATIONS

CHAPTER 5. ANALYSIS AND RECOMMENDATIONS
quires dynamism and fluidity in warehouse

ket trust and a larger client base. Compet-

management. In many cases, WSPs ware-

itive forces are therefore constraining up-

houses are leased for less than a year. In

ward revision of charges. This is however

order for effective regulatory oversight, ware-

likely to change with greater penetration of

house registration processes need to nimble

private WSPs in most districts covered dur-

and quick. This will enable the market to

ing the study. With a diversification of the

develop under proper regulatory supervision,

client base, and greater market consolida-

without hindering the growth of the market.

tion, charges will increase, and so will the

8. Exchange linked storage is subject to strict,

consequent incentives for investing in the

direct oversight by the exchange itself. Ex-

warehousing business.

change accredited WSPs have to segregate

exchange-traded storage from other storage,

5.2.2

and follow stricter processes. Such storage

warehousing business operations

is also more expensive than normal storage,

and WSPs are able to charge significantly

1. The unit of regulatory supervision in ware-

higher rents for such storage. As long as

housing must be the owner of the warehous-

exchanges have obligations to ensure deliv-

ing operation rather than the owner of the

ery of exchange traded goods, they will con-

warehouse.

tinue to regularly supervise exchange-linked

2. Business processes and the quality of service

storage. Commodity exchanges world-wide

are key factors of competition in the market.

have such mechanisms in place. Regulatory

Regulation must therefore create minimum

supervision of warehousing should not cre-

standards and ensure compliance with them.

ate entry barriers and performance require-

3. A focus on the processes of warehousing will

ments that cater only to the requirements of

enable regulation of both WSPs and CMCs.

exchanges. Doing so would leave out the

Collateral management being a subset of

bulk of commodity warehousing from its reg-

warehousing does not need to be regulated

ulatory purview.

separately. Regulation of warehousing ser-

9. Most respondent WSPs complained of high

vices in general, will enable supervision of

capital costs, of which land cost was a sig-

collateral management processes as well.

nificant component. However, capital costs

4. Warehousing registration has to be a quick

are input costs that can be transferred on to

and nimble process in order to facilitate the

the consumers. Therefore, charges for ware-

current market practices that are helping in

housing services are relatively low compared

market development. For this, registration-

to what WSPs expect them to be. WSPs did

related entry barriers must be lower and post-

not discuss why charges cannot be increased.

registration supervision must be better.

This can however, also be ascribed to the

5. There must be no regulatory supervision of

operation of market forces. New WSPs are

pricing within warehousing services. Any

competing with older ones, usually CWC

restrictions will disrupt the organic develop-

and CWCs. Older WSPs have greater marReport

Recommendations for regulating

ments within the warehousing market that is

58

CHAPTER 5. ANALYSIS AND RECOMMENDATIONS

5.4. EXPERIENCES OF CONSUMERS

leading to its transformation.

ture, and the commodity stored within a

warehouse must be insured against structural

5.3

infirmities, fire, burglary, theft, employee

Risks associated with storage

malfeasance, etc.

5.3.1

2. Regulators should abstain from attempting

Analysis of findings

to solve operational risks to WSPs. Doing so

1. WSPs face a number of operational risks that

would disrupt the operation of competitive

occur in the usual course of business. These

forces in a rapidly evolving market.

risks are germane to the warehousing sec-

3. Regulations must contain directions to WSPs

tor, and competitive forces ensure businesses

to devise operating procedures that enable

take steps to mitigate/ overcome such risks.

them to discharge their functions with due

2. Legal risks faced by WSPs can be insured

diligence. Regulatory supervision must fo-

against, even if they cannot be prevented.

cus on compliance with these processes.

Proper insurance coverage enhances consumer protection by giving WSPs the ability

5.4

to compensate aggrieved consumers, and not

suffer detrimental losses while doing so. It

Experiences of consumers

5.4.1

Analysis of findings

also ensures a contractual relationship that

is similar to a fiduciary relationship: the

1. As stated in section 4.4.1, warehouses are

WSP takes on the complete responsibility

used by a variety of users like farmers,

for preservation of the value of the commod-

traders, government agencies and banks. The

ity, even in the case of damage caused by

largest users of warehouses continue to be

third-parties.

government agencies and traders. Therefore,

3. Regulation can also help the market mitigate

policies cannot be targeted to benefit any one

many risks by requiring or specifying stan-

type of depositors. WDRA is keen that farm-

dard operational procedures that will enable

ers are benefitted by NWRs, however the

market participants to mitigate legal liability

farmers continue to be smallest users of ware-

risks. These would mostly arise due to lack

houses.

of good procedures for commodity preserva-

2. Farmers do not use warehouses for a variety

tion, lack of good operational procedures for

of reasons. The main reason among those is

stock verification, lack of proper inspection

the necessity for immediate financial liquid-

systems, and lack of proper safety equipment

ity post-harvest, and the lack of availability

or compliance with safety norms.

of good formal lending channels. This issue cannot be resolved by providing better

5.3.2

warehouses alone. The quality of services

Recommendations for mitigating

provided by participants in the formal bank-

risks in the warehousing business

ing sector needs to improve. It is not correct

1. Regulations should ensure that insurance

to expect that better availability of storage

coverage for all aspects of legal liability is

infrastructure alone will promote greater fi-

covered. Both the warehousing infrastruc-

nancial inclusion.

Report

59

5.4. EXPERIENCES OF CONSUMERS

CHAPTER 5. ANALYSIS AND RECOMMENDATIONS

3. Farmers also do not use warehouses because

and related costs. The regulatory focus must

of lack of aggregation. Fragmented and

therefore be on ensuring minimum standards

small land holdings mean that the volume of

in the quality of preservation. The associ-

an individual producers is not large enough

ated costs are likely to decrease once there

to justify rental costs and other charges re-

is greater supply of warehousing. This sup-

lated to storage. This is another reason why

ply can be enhanced through regulation that

arhatiyas (intermediaries or aggregators) are

helps the market to clearly differentiate be-

large users of warehouses. Such aggregation

tween a WDRA regulated warehouse and an

can be enabled if the warehouse itself be-

unregulated one.

comes a source of aggregation and for sale

and transfer of the commodity. In such cases,
the farmer would deposit his commodity directly at the warehouse, and have the ability
to sell the commodity as it is stored at a warehouse, without going to a regulated market.

5.4.2

4. Respondents repeatedly emphasised as stated

Recommendations for improving

the warehouse user experience

in section 4.4.2 that quality of warehousing

is a key differentiator when it comes to making a choice with regard to a warehouse. In

1. Warehousing regulations with regard to reg-

one case, a trader pointed to slow turnaround

istration of WSPs must focus on creating

times of one WSP as a reason for switch-

minimum standards with regard to business

ing to another. Warehousing regulation must

processes and quality standards.

therefore not increase the cost of compliance

2. Warehousing regulations should focus on

so as to deter participants from storage in

bridging information gaps in the warehous-

regulated warehouses.

ing market. On one hand, an information

5. Many respondents stated that while they

repository with details of WSPs, capacity

were unhappy about the quality of preser-

utilisation, past track record of WSPs should

vation, they were unable to seek redress or

be created, on the other hand regulatory su-

compensation due to lack of other alterna-

pervision should focus on improved compli-

tives in the market. This situation may im-

ance on part of WSPs.

prove if competition is encouraged and nat-

3. There must be a framework for dispute res-

ural market forces compel WSPs to handle

olution. While greater competition will in

customer grievances better. In the medium

time force WSPs to be more responsive to

to long term however, basic standards of con-

concerns of consumers, the government has

sumer protection are necessary to safeguard

a role in ensuring consumer protection. Reg-

the orderly growth of the market.

ulated entities must therefore be required to

6. The factors that influence the usage patterns

create a framework for redressing grievances

of warehouses are broadly based on the qual-

of consumers. WDRA must then provide a

ity of preservation promised by the WSP

hearing against any unresolved grievances.

Report

60

CHAPTER 5. ANALYSIS AND RECOMMENDATIONS

5.5

Infrastructure for e-NWRs

5.5. INFRASTRUCTURE FOR E-NWRS

was observed that despite low technology
adoption, the warehousing market does not

5.5.1

Analysis of findings

require specialised and sophisticated technological knowledge or skills to access price

1. Technology improves record keeping and

and best practices related information. Users

lowers operational costs for a WSP since

can access information through SMS, emails,

it helps them improve their internal control

etc.

mechanisms. By reducing the possibility of

4. There are system wide efficiencies to be had

human discretion and error, technology adop-

by creating centralised data and information

tion can improve the efficacy and reliability

infrastructure for tracking warehouses and

of the warehouse receipts issued by a WSP.

warehouse receipts. The database will have

However, since the initial costs of adoption

several advantages for WSPs and users of

of technology are high, regulatory interven-

warehouse receipts for the electronic system

tion through nudges can substantially help

will solve the inefficiencies of the present

WSPs in adopting technology solutions for

WR system. Paper WRs are susceptible

warehouse database management.

to theft and forgery, they have to be care-

2. The creation of a central repository of infor-

fully maintained and physically transferred

mation about warehouse receipts can serve

between warehouses, owners of receipts and

two purposes; one, of providing warehouse

lien holders to assure protection and trans-

receipt based information to all stakeholders

fer of title. However an e-NWR system will

involved and two, incentivising all WSPs to

override these problems and enable faster

move to the centralised system of storing in-

exchange among receipt holders. The on-

formation. This is because, the operational

line database will reduce transaction costs

costs of maintaining two database manage-

and reduce process time for users. This will

ment systems, one online and another offline,

eliminate any duplication, loss or theft of

for a WSP are very high. Therefore, it is

warehouse receipts. Lending by banks is

highly likely that WSPs would migrate a cen-

likely to increase as the database will solve

tralised, online database management system

the problem of lack of reliable information

with greater connectivity to the other stake-

of warehouse owners, goods deposited and

holders within this market. This may also

the WR.

result in WSPs issuing only NWRs to ben-

5. Physical infrastructure is very important for

efit from the online database management

accurate assessment and recording of de-

system.

posited commodities in a warehouse. Robust

3. Even though the survey found use of technol-

physical infrastructure is the first checkpoint

ogy based solutions by stakeholders of the

to ensure the accuracy and reliability of a

warehousing business to be generally low,

warehouse receipt issued. Although the sur-

it was found that farmers and traders were

vey found that most WSPs did not lack for

aware of the NCDEX prices for the com-

such equipment, in some districts, weighing

modities they produce and trade, which they

assaying equipments was available close to

would benchmark to the commodities. It

Report

61

5.6. CONSOLIDATED RECOMMENDATIONS

CHAPTER 5. ANALYSIS AND RECOMMENDATIONS
the warehouses.

warehousing trustworthy and credible.

2. Co-ordinated efforts between WDRA and

5.5.2

Recommendations for building in-

state warehousing regulators must be made

frastructure for e-NWRs

to bring unlicensed warehouses within the

regulatory purview. Additionally, users of

1. WDRA must create a consolidated online

warehouses must be convinced of the legal

database of all NWRs issued, which should

risks of using unlicensed warehouses.

be updated real-time with every NWR trans-

3. Regulation must require the creation of struc-

action or transfer.

tured and standardised formats for reporting

2. The database created by the regulator, must

information. Lending will improve further

be easily accessible through a user-friendly

once lenders see a market with greater trans-

portal, with ease of use and intuitive learn-

parency and information.

ability of software, where all users of the

4. An electronic NWR system will enable mar-

NWRs are able to view and undertake trans-

ket participants to use NWRs without having

actions easily. It must also account for pro-

to worry about fraud and duplication.

viding information to users without inter-

5. The unit of regulatory supervision in ware-

net access, through tele-access, mobile SMS

housing must be the owner of the warehous-

alerts etc.

ing operation rather than the owner of the

3. Most WSPs covered during the course of

warehouse.

the study had the basic infrastructural re-

6. Business processes and the quality of service

quirements (or arrangements) for accurately

are key factors of competition in the market.

weighing and assessing the quality of the

Regulation must therefore create minimum

commodity. It is advisable that the owner-

standards and ensure compliance with them.

ship of weighing and quality testing infras-

7. A focus on the processes of warehousing will

tructure is not made compulsory, provided

enable regulation of both WSPs and CMCs.

that other checks are in place. For instance:

Collateral management being a subset of

In case of presence of weigh-bridges close

warehousing does not need to be regulated

to the warehouse, it is essential that WSP

separately. Regulation of warehousing ser-

staff accompany the depositor to ensure cor-

vices in general, will enable supervision of

rect measurement of commodities being de-

collateral management processes as well.

posited. The presence of in-house weighing

8. Warehousing registration has to be a quick

equipment may not be imperative.

and nimble process in order to facilitate the

current market practices that are helping in

5.6

Consolidated Recommendations

market development. For this, registrationrelated entry barriers must be lower and post-

1. Warehouse regulation should be neutral to

registration supervision must be better.

the categories of users of warehouses. Reg-

9. There must be no regulatory supervision of

ulations that impose performance require-

pricing within warehousing services. Any

ments must impose such requirements as are

restrictions will disrupt the organic develop-

generally necessary to make the business of

Report

62

CHAPTER 5. ANALYSIS AND RECOMMENDATIONS

5.6. CONSOLIDATED RECOMMENDATIONS
ments within the warehousing market that is

16. WDRA must create a consolidated online

leading to its transformation.

database of all NWRs issued, which must be

10. Regulations should ensure that insurance

updated real-time with every NWRs transac-

coverage for all aspects of legal liability is

tion or transfer.

covered. Both the warehousing infrastruc-

17. The database created by the regulator, must

ture, and the commodity stored within a

be easily accessible through a user-friendly

warehouse must be insured against structural

portal, with ease of use and intuitive learn-

infirmities, fire, burglary, theft, employee

ability of software, where all users of the

malfeasance, etc.

NWRs are able to view and undertake trans-

11. Regulators should abstain from attempting

actions easily. It must also account for pro-

to solve operational risks to WSPs. Doing so

viding information to users without inter-

would disrupt the operation of competitive

net access, through tele-access, mobile SMS

forces in a rapidly evolving market.

alerts etc.

12. Regulations must contain directions to WSPs

18. Most WSPs covered during the course of

to devise operating procedures that enable

the study had the basic infrastructural re-

them to discharge their functions with due

quirements (or arrangements) for accurately

diligence. Regulatory supervision must fo-

weighing and assessing the quality of the

cus on compliance with these processes.

commodity. It is advisable that the owner-

13. Warehousing regulations with regard to reg-

ship of weighing and quality testing infras-

istration of WSPs must focus on creating

tructure is not made compulsory, provided

minimum standards with regard to business

that other checks are in place. For instance:

processes and quality standards.

In case of presence of weigh-bridges close

14. Warehousing regulations should focus on

to the warehouse, it is essential that WSP

bridging information gaps in the warehous-

staff accompany the depositor to ensure cor-

ing market. On one hand, an information

rect measurement of commodities being de-

repository with details of WSPs, capacity

posited. The presence of in-house weighing

utilisation, past track record of WSPs should

equipment may not be imperative.

be created, on the other hand regulatory su-

A warehouse is the most likely, and efficient

pervision should focus on improved compli-

location for aggregation of agricultural produce.

ance on part of WSPs.

WSPs are providing value added services that reg-

15. There must be a framework for dispute res-

ulated markets currently provide (for example,

olution. While greater competition will in

assaying of commodities, checking quantity, ser-

time force WSPs to be more responsive to

vices with regard to buying and selling of com-

concerns of consumers, the government has

modities, etc). In addition, the legal obligation

a role in ensuring consumer protection. Reg-

to preserve the commodity as per the information

ulated entities must therefore be required to

provided in the WRs issued by them creates the

create a framework for redressing grievances

foundations for a national market in agriculture,

of consumers. WDRA must then provide a

based on the credibility of the warehouse receipts

hearing against any unresolved grievances.

Report

issued by WSPs.
63

5.6. CONSOLIDATED RECOMMENDATIONS

CHAPTER 5. ANALYSIS AND RECOMMENDATIONS
WDRA is the appropriate authority to drive this
effort. A state has limited resources, and its resources must therefore be employed in a manner
so as to provide the most useful services for the
market in the most efficient manner possible. It
must regulate so as to use market relevant tests for
supervising warehouses. It must have an efficient
inspection system that inspects diverse aspects
of a WSPs operation and enforces corrective behaviour.

Report

64

Bibliography
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Report

66

Appendix A

Annexure: Survey questions

A.1

Questionnaire for CWC & SWC

with WDRA? Why/ why not?

(b) Have you benefitted from registration?

1. Introduction:

(c) Whether you faced any issues with the

(a) Profiles : Size, Capacity, Services pro-

registration process?

vided, commodities stored, staff size

(d) How often do you interact with WDRA

and for what reason?

(b) What is the profile of staff present?

4. Warehouse Receipts(WR) and Negotiable

(c) Where is the warehouse located? What

Warehouse Receipts(NWR)

is the selection criteria, distance from

(a) Do you issue Negotiable Warehouse

mandi, farmers

Receipts(NWR)?

(d) Profile of depositors ( Farmer, trader,

(b) If yes, how much % of stock is

govt. %)

pledged? By whom?

2. Warehousing Business:

(c) How many NWRs have you issued in

(a) What is the operating expenditure for

the last five years?

running the warehouse ?

(d) What is the process for issuing the

(b) What is the revenue from rent and stor-

NWRs? What is the ease of the pro-

age ( CWC mandated per bag storage?)

cess or barriers?

(c) Whether it is owned, managed or

(e) Whether there is awareness amongst

leased?

borrowers and willingness to use NWR

(d) What is the capacity utilisation? (Sea-

vs WR?

sonal average)
(e) Whether there is a standard operating
procedure(SOP) for warehouse management?( For. Eg: Fumigation, quality testing procedure)
(f) Whether any steps are taken for risks
and mitigation steps(insurance)?
3. Warehousing Development and Regulatory
Authority(WDRA)
(a) Whether the warehouse is registered
67

A.2. QUESTIONNAIRE FOR WSPS

A.2

APPENDIX A. ANNEXURE: SURVEY QUESTIONS

Questionnaire for WSPs

Authority(WDRA)
(a) How often do you interact with WDRA
and for what reason?

1. Introduction;

4. Storage

(a) Profiles : Size, Capacity, Services pro-

receipts(SR),

Warehouse

Re-

vided, commodities stored, staff size

ceipts(WR) and Negotiable Warehouse

Receipts(NWR)

(b) What is the profile of the staff present?

(a) Do you issue SRs, WRs, NWRs?

(c) What is the location of the warehouse?

When do you issue them and how many

have you issued in the past?

What is the selection criteria, distance

(b) If yes, how much % of stock is

from the mandi, farmers?

pledged? By whom? ( Profiles of peo-

(d) What is the profile of the depositors?(

ple who have pledged )

Farmer, trader, govt. %)

(c) How many SRs/WRs/NWRs are issued

2. Warehousing and CMC business

in the last five years?

(a) What is the Operating expenditure for

(d) What is the process for issuing the

running the warehouse?

SRs/WRs/NWRs? What is the ease of

(b) Whether the warehouse is owned? If

the process or barriers?

yes, what are the capital costs?

(e) Whether there is awareness of borrow-

(c) What is the revenue from rent and stor-

ers and willingness to use NWR vs

age?

WR?

(d) Whether the warehouse is owned, managed or leased?

(e) What is the capacity utilisation? (Seasonal average)
(f) What is the Standard Operating Procedure(SOP) for warehouse management
( Fumigation, quality testing procedure,
security services)
(g) What are the risks in the business?

What are the mitigation

steps(insurance) taken?
(h) What are the terms of engagement
for your Collateral Management Companys services ?
(i) Which banks have you tied up with?
What is your rate ?
(j) What other services do you provide (
procurement)? If so, from whom and
how ( Detail the process)
3. Warehousing Development and Regulatory
Report

68

APPENDIX A. ANNEXURE: SURVEY QUESTIONS

A.3

Questionnaire for banks

A.3. QUESTIONNAIRE FOR BANKS

(f) Whether the bank has a preference of
warehouse? (Govt. vs. Private, Registered vs. Unregistered?)

1. Portfolio;
(a) What is the current pledge financing

(g) Whether there is a cost difference in

portfolio of the bank? ( and as a % of

loan based on whether the commod-

overall loans)

ity is stored in govt. vs. private warehouse?

(b) Whether the loans are issued against

(h) On what basis are loan applications re-

Warehouse Receipts(WRs), Storage Re-

jected?

ceipts(SRs) or Negotiable Warehouse

(i) What are the risks involved and what

Receipts(NWRs)?

are the mitigation steps taken? ?

(c) What has the trend been over the last 5

(j) Whether insurance coverage is re-

years?

quired? If yes, who pays for the in-

(d) What financing products do you offer

surance?

for agriculture commodity financing?

(e) What is the default rate for the loans

(k) Do you currently have a system where

for commodity financing? How many

the information regarding fraud ac-

loans have become Non Performing As-

counts are shared across banks?

4. Collateral Management Companies(CMC)

sets(NPAs)?
(f) What are the targets for the branch?

(a) Which CMCs have you empanelled?

(g) Whether the bank does any marketing

(b) How do you select a CMC?

(c) What are the terms of engagement with

of its commodity finance products and

the CMC?

how?

(d) What are the disputes with the CMC?

2. Borrowers

How have they been resolved?

(a) Profile ( Farmer, Trader, Net worth, col-

(e) Have you dealt with only Warehouse

lateral)

Service Providers(WSP) till now? Can

(b) What is the size of the loans taken?

you envisage a system where there is

(Range and average)

no CMC? Will this impact loan rates?

(c) What is the average duration of the

5. Warehousing Development and Regulatory

loan?

Authority(WDRA)

3. Process

(a) Whether you have dealt with WDRA

(a) What is the end to end loan process?

registered warehouses? What the expe-

(b) What are the interest rates? Whether

rience been?

they vary with profile of borrowers?

(b) Whether preferential rates are offered

(c) What are the processing charges

against NWRs?

levied?

6. Perception of government and government

(d) What is the turn around time for loan

schemes

issuance?
(e) What is the loan to value ratio usually?

(a) What is the total benefit availed by bor-

How is this determined ?

Report

rowers under government schemes for

69

A.4. QUESTIONNAIRE FOR WAREHOUSE OWNERS

APPENDIX A. ANNEXURE: SURVEY QUESTIONS

A.4

warehousing?
(b) How many warehouses have been built

Questionnaire

for

warehouse

owners

under such scheme?

(c) What is the viability of the scheme?(

1. Introduction;

Breakeven, ROI, etc)

(a) Profile. What are the total number

of warehouses owned, size, infrastructure, crops stored, built on ancestral
land/purchased land etc.
(b) What is the profile of the staff?
(c) What is the location of the warehouse,
what is the selection criteria, distance
from the mandi, farmers?
(d) What is the profile of depositors? (
Farmer, trader, govt. %)
2. Warehousing business
(a) What is the capital expenditure and operating expenditure incurred?
(b) What is the revenue from rent and storage?
(c) Whether it is owned, managed or
leased?
(d) What is the standard operating procedure for warehouse management/ warehouse storage operations?
(e) What are the risks involved and what
mitigation steps do you take?
(f) What are the regulations or licences
obtained? Whether the warehouse is
registered?
3. Warehousing Development and Regulatory
Authority(WDRA)
(a) Whether you are aware about WDRA?
(b) Whether your warehouse is registered
with WDRA? Why/Why not?
(c) Do you see any benefit of registering
with WDRA?
(d) How often do you interact with WDRA
and for what reason?
4. Warehouse Receipts(WRs) and Negotiable

Report

70

APPENDIX A. ANNEXURE: SURVEY QUESTIONS

A.5. QUESTIONNAIRE FOR TRADERS & OTHERS

A.5

Warehouse Receipts(NWRs)
(a) Whether you are aware of WRs/N-

Questionnaire for traders & others

WRs?
(b) Whether you are availing any benefit

1. Introduction;

from them?

(a) Profiles ? What is the size of your com-

(c) If yes, how much % of stock do you

pany, crops dealt with ?

pledge?

2. Procurement process

(d) What are the benefits?

(a) Who do you buy from?

(e) If no, why not?

(b) Who is the rate determined?

(f) What is the process for issuing a

(c) Where do you procure from?

WR/NWR?

3. Storage of goods

(g) What is your perception of the ease in

(a) Where do you store the commodities?

the process or barriers?

(In warehouses,godowns/govt., private)

(h) Have you had any past experience with

(b) Are the warehouses captive? If yes,

WRs?

i. Do you have a Collateral Manage-

(i) Have you dealt with NWR? If no, why

ment Company(CMC)to manage

not?

the goods?

5. Perception of government and government

ii. Do you issue Negotiable Ware-

schemes

house Receipts(NWRs)?

(a) Whether you are aware of government

(c) Are the warehouses registered?

schemes for warehousing?

(d) Why not use government warehouses

(b) Whether you have availed any ben-

if rates are better?

efit under any scheme?( NABARD

(e) What is the selection criteria of the

schemes)

warehouse?

i. What was the total loan availed?

(f) What are the cost of storage, rent, trans-

ii. How many warehouses were built?

portation, CMC charges?

iii. What is the viability of the

(g) What is the average duration of stor-

scheme?( Breakeven, ROI, etc)

age?

(c) Whether the scheme has been benefi-

(h) What is the wastage or quality loss on

cial?

the commodity?

(d) What is your perception of the ease,

(i) Whether you purchase insurance for

process to avail benefits and barriers in

the commodities stored? ( What kind,

the scheme?

with whom?)

(e) What are the limitations of the scheme?

(j) What are the benefits of storage?

4. Warehouse Receipts(WRs) and Negotiable
Warehouse Receipts(NWRs)
(a) Whether you are aware about WRs and
NWRs?
(b) Whether you are using WRs and

Report

71

A.6. QUESTIONNAIRE FOR FARMERS

APPENDIX A. ANNEXURE: SURVEY QUESTIONS

A.6

NWRs?

Questionnaire for farmers

i. If yes, how much % of stock do

you pledge?

1. Introduction;

ii. What are the benefits?

(a) Profile. What is the size of your farm,

iii. If no, why not?

crops grown, yield, harvest season?

(c) What is the process?

(b) Do you have any other sources of in-

(d) What is your perception of the process

come?

of availing loan against WRs/NWRs,

2. Crop cycle

ease of the process or barriers?

(a) What are the resources (time,money)

(e) How has your past experience with

involved in the pre to post production

WRs been?

stages?

(f) Have you dealt with NWR? Why not?

(b) Who do you sell your produce to?

5. Risks involved

(c) How and where do you sell your pro-

(a) What are the overall risks involved in

duce?

your business?

(d) When do you sell your produce?

(b) What are the risks associated with ware-

(e) What price do you get ?

house receipts/NWRs?

3. Warehouse : Access to storage

(c) How do you handle disputes? Do you

(a) Are you aware of warehousing facili-

have any disputes about quality ?

ties in the vicinity? Do you use them?

6. Perception of government and government

(b) If yes, then:

schemes

i. Do you have your own warehouse

(a) Are you aware about any government

or do you rent it out? ( If rent, how

schemes for warehousing?

is it determined and why)

(b) Have you availed benefit under any

ii. What do you store?

scheme? (NABARD schemes)

iii. Why do you store your produce?

i. What is the total loan availed?

(own consumption-seed vs pledge

ii. How many warehouses were built?

finance)

iii. What is the viability of the

iv. How do you select the ware-

scheme?( Breakeven, ROI, etc)

houses? (Distance, cost, commod-

(c) Whether the scheme has been benefi-

ity management, infra, etc.)

cial?

v. What are the terms of engage-

(d) What is your perception of the process

ment? (Storage charges, other)

of availing benefit of the scheme, ease/

vi. Do you have any concerns?

barriers?

vii. How has your experience been

(e) What are the limitations of the scheme?

with warehouse owners/CMCs/CWCs/SWCs/Private)

(c) If no, then:
i. Why do you not use warehousing
for your produce? (Prior experi-

Report

72

APPENDIX A. ANNEXURE: SURVEY QUESTIONS

ence, Money, Accessibility, Lack

(d) What is your perception of the process

of knowledge etc.)

of availing finance, ease of the process

ii. What is the maximum time you

and barriers, if any?

hold the commodity before bring-

(e) How has your past experience been

ing it to the mandi?

with Warehouse receipts?

7. Perception of government and government

4. Access to finance

schemes?

(a) If you need money, who do you go to?

(a) Whether you are aware about govern-

(b) What do you need it for?

ment schemes for warehousing?

(c) Whether you prefer informal sources

(b) Whether you are availing benefit un-

or formal sources? Which do you use?

der any of those schemes? (NABARD

Why?

scheme)

(d) What are the terms of the finance

availed?

(c) Whether it has been beneficial?

What is the interest rate

(d) What is your perception of the process

payable?

of availing benefit under the scheme,

(e) What collateral do you provide to avail

ease of the process and barriers, if any?

the loan?

(e) What are the limits of the schemes ?

(f) How has your interaction been with

banks with regard to availing loans,
KCC etc.?
5. Access to information
(a) What information do you have regarding market price for commodities ?
(b) How is the price at which you sell to
the Trader(Arhatiya)determined ?
(c) Do you use crop insurance? Have you
heard about it ?
6. Warehouse Receipts(WRs) and Negotiable
Warehouse Receipts(NWRs)
(a) Whether you are aware about WRs,
NWRs?
(b) Whether you are availing benefit of
WRs and NWRs?
i. If yes, how much % of stock do
you pledge?
ii. Does storage make sense and
why?
iii. If no, why not?
(c) What is the process of availing finance
against WRs/NWRs?
Report

A.6. QUESTIONNAIRE FOR FARMERS

73

A.6. QUESTIONNAIRE FOR FARMERS

Report

APPENDIX A. ANNEXURE: SURVEY QUESTIONS

74

Appendix B

Annexure: District Profiles

75

Karnal

Abstract
Karnal is a rich rice producing and milling district in Haryana. In addition to rice and paddy, wheat is the
other staple crop of the region. Although warehouse finance was taking place, it was mostly in the form
of warehouse or storage receipt and not negotiable warehouse receipts. The creation of warehouses on a
large scale was because of the attractive rentals as well as large government procurement that existed in
the area. The majority of the farmers, small and marginal sold their crops immediately to brokers at local
markets.There were a lot of export oriented traders in the region due to the ability to procure rice, especially
basmati rice.
Respondents: The respondents were ten farmers, four traders, one collateral manager, four warehouse
owners, one public bank manager, one SWC and one CWC.
Commodities: The agricultural commodities grown in this region are predominantly paddy and wheat.
WDRA awareness: The stakeholders were generally unaware of WDRA. Only the CWC manager was
aware of WDRA as the CWC warehouse was registered and was issuing NWRs.
Government schemes and utilisation: Warehouse owners and traders both have availed the subsidy
scheme under NABARDs Grameen Bhandaran Yojana to build warehouses. This scheme allowed for
issuance of five year term loans to build warehouses for stipulated government use. However, the warehouse
owner had numerous complaints regarding the adherence to contract by FCI. Farmers avail Kisan credit card
loans issued by the bank. They also obtain rebates on purchase of new machinery.
Pledge financing market: The total pledge financing market is approximately Rs 100 crore. The loan
ranges from Rs 2.5 crore to Rs 25 crore. The majority users of commodity pledge financing are traders and
large farmers. The bank see little risk of pledge financing as most of the loans are secured by a collateral
manager or given to a CWC or SWC. However, the bank found the private warehouses to be in a better
condition than government warehouses.

Mehsana

Abstract
Mehsana district is situated in Gujarat. The major crops grown in this region are castor and jeera. The
farmers in this region grow three crops annually. Mehsana has large state of the art private warehouses and
these are mostly owned/leased by Shree Shubham Logistics. As castor and jeera are traded on the NCDEX
exchange, many warehouses in this region are registered with WDRA. This enables warehouse owners to
charge a premium for storing goods in NCDEX linked warehouses.

Respondents: The respondents were six farmers, six traders, one private bank, two warehouse owners
and one collateral manager.
Commodities: The agricultural commodities grown in this region are bajra, potato, groundnut, jeera,
castor, guar seed, isabgol maize, and mustard. The farmers also grow various kinds of vegetables.
WDRA awareness: The farmers were not aware of WDRA. Banks, traders, warehouse owners and
collateral managers were aware of WDRA.
Government schemes and utilisation: The state government procures milk from farmers at a
minimum set price. The farmers avail the Kisan Credit Card subsidy offered by the central government.
Traders and warehouse owners who built warehouses under the NABARD scheme did not receive any subsidy.
Pledge financing market: Major private banks offer pledge financing in this region. Traders and large
farmers are the users of pledge financing.

Ernakulam

Abstract
Ernakulam is an urban district in Kerala with Kochi as the major city within it. The district and the
surrounding regions are known for their pepper and spice production. There is little awareness regarding
NWRs, but traders, bank officials and CWC manager have dealt with warehouse finance. Traders are
the largest users of warehouses and warehouse finance. Large farmers and traders were regular users of
warehouses and used it store high value spices like pepper and cardamom. The demand from agricultural
commodities is significantly lower than the supply of warehouses available in the district, mainly due to the
recent pepper adulteration dispute with the food and safety regulator. The overall demand for warehouse
finance is increasing in the region, with most of the goods pledged being held in captive godowns.
Respondents : We interacted with two small farmers, four traders, one private bank, one warehouse
owner, one private bank , one CWC and a SWC.
Commodities : The major crops grown in Ernakulam are cardamom, pepper, green gram, green peas and
ginger.
WDRA awareness : There is awareness about WDRA and NWRs amongst traders, SWC and the CWC.
The CWC and SWC warehouses are registered with WDRA, however they havent issued NWRs and are
doubtful about the benefits of registration.
Government schemes and utilisation : Some warehouses have been constructed under the GBY scheme
under NABARD. However, no money has been received as per scheme guarantee by the warehouse owners.
Pledge financing market : Major private sector banks provide warehouse financing and funding against
warehouse receipts facility. Paddy is predominantly pledged and financed against in Perambavoor, cashews
in Kollam, pepper, spices, cardamom in eastern Kerala.

Guntur

Abstract
Guntur district, located close to the new capital of Andhra Pradesh, is home to the largest chilli market in
the country. This region also has large mandis for turmeric and lemon and is close to areas which are rich in
paddy production. The storage of these chilli takes place in cold storage facilities. In most of the cold storage
facilities, the farmers make up the same number of traders, if not more. The banks have a large profile and
also fund against cotton, maize and turmeric along with chilli. The chilli traders in the region use the storage
facilities for exports, while the maize traders store and sell their produce to beer and poultry processing
companies. Institutions like ITC and governmental agencies like Cotton Corporation of India have leased
dry warehouses for their own storage. Farmers in the region are members of PACS, which have utilised the
services of a CMC to try and register their warehouses with WDRA. However, the storage facilities are far
outweighed by the demand from the farmers. The farmers storing their goods in dry warehouses, were also
generally unable to hold on to their produce for long, due to the immediate need for money.

Respondents: The respondents were six farmers, five traders, one private bank, three warehouse owners,
one collateral manager, one SWC and one CWC manager.
Commodities: The agricultural commodities grown in this region are paddy, cotton, chilli, maize and
turmeric .
WDRA awareness: The farmers showed little awareness of WDRA or NWRs in spite of the training
sessions that were recently held for farmers in the area. The warehouse owners, traders and even the bank
manager were generally unaware of WDRA. Only the collateral manager that we interacted with were aware
of WDRA and were actively helping farmer run PACS to get their warehouses registered.
Government schemes and utilisation: Dry warehouse owner had utilised subsidy under the GBY
scheme of NABARD to construct warehouses. However, the time taken to provide for the subsidy was
considered to be far too long. The farmers, as a part of the PACS, availed lower interest rates on loans.
Pledge financing market: The trend of commodity pledge financing in Guntur is increasing and the
profile of the banks was exceptionally high last year. Total business in the area for the bank was Rs100-120
crore. The major focus for banks to fund against were cotton and chilli but to a smaller extent included
maize and turmeric. Farmers made up fifteen percent, traders and depositors made up fifteen percent and the
other seventy percent was processors. The loan to value ratio in this region was slightly lower than other
districts at sixty to sixty five percent for farmers and seventy to seventy five percent for traders due to the
inability to grade all the goods scientifically and instead having to grade them visually.

Purnia

Abstract
Purnia is a district situated in Bihar. The major crops grown in this region are maize and potatoes. The
farmers in this region grow three crops annually. Purnia houses the famous Annaj Mandi and it is from
here that the grain requirement of the northeast states are met. None of the farmers have used a warehouse
to store their goods. The traders prefer government warehouses over private warehouses due to the better
prices offered. There are no taxes charged by the mandi because APMC law is not applicable in Bihar. The
existence of middlemen makes it difficult for farmers to access banks and other government schemes due to
the high cost involved.

Respondents: The respondents were eight farmers, five traders, one SWC warehouse, one private bank,
three warehouse owners and one collateral manager.
Commodities: The agricultural commodities grown in this region are maize, wheat, jute, potatoes and
banana.
WDRA awareness: The farmers, warehouse owners and traders are not aware of WDRA. Only banks
and collateral managers are aware of WDRA.
Government schemes and utilisation: Each block is provided subsidised rice and wheat seeds by the
government. However, these seeds are of poor quality and produces low yield. The government provides
subsidy on urea, however the rates have reduced over time.
Pledge financing market: The trend of commodity pledge financing in Purnia is increasing. This is
evident from the value of their portfolio in pledge financing between 2014 and 2015. In 2014 the portfolio
was was Rs 7 crore. In 2015 (Jan-June), the portolio is already at Rs 6 crore. There has been no funding
against NWRs. Majority of the pledge financing users are traders and large farmers.

North 24 Parganas

Abstract
North 24 Parganas in West Bengal is a highly agricultural district. The warehousing market is underdeveloped and the warehouse finance market is not mature with a history of a large fraud that occurred in the
recent past. The banks have lower portfolio size compared to other more mature warehousing states and
districts. They mostly run commodity finance to meet priority sector lending targets. Farmers and traders
were unaware of warehouse finance with traders predominantly using warehouses for storage. Farmers
usually sell their goods to the middleman and could not understand the benefits of storing crops as they
believe that it would cause a glut in the market and suppress rates further.
Respondents: The respondents were six farmers, one private bank, one collateral manager, one SWC and
one CWC manager.
Commodities: The agricultural commodities grown in this region are paddy and mustard. The farmers
also grow various kinds of vegetables.
WDRA awareness: The farmers were not aware of WDRA. Banks and collateral managers were aware
of WDRA but generally unaware of NWRs.
Government schemes and utilisation: The farmers borrow money from NABARD samiti but usually do
not take loans from banks due to the dislike of paperwork.
Pledge financing market: Banks offer pledge financing but have a very limited number of clients and
low portfolio size. The low pledge finance portfolio is also due to the lack of warehousing that exists in West
Bengal and the large fraud in the warehouse finance market that took place in the recent past.

Vidisha

Abstract
Vidisha is a district situated in Madhya Pradesh. The major crops grown in this region are wheat, channa
and soyabeans. The region is only able to grow two crops annually due to scarcity of water. Many large
companies such as ITC and Cargill procure commodities from traders. There are more private warehouses
than government warehouses in the region and the traders generally prefer dealing with private warehouses
due to the prompt services provided.

Respondents: The respondents were five farmers, two traders, one collateral manager, two warehouse
owners, three private banks, one public sector bank and one CWC warehouse in Bhopal city.
Commodities: The agricultural commodities grown in this region are wheat, channa and soyabeans.
WDRA awareness: The farmers are not aware of WDRA. Only traders, banks and warehouse owners are
aware of WDRA.
Government schemes and utilisation: Subsidy on pesticides are not available to the farmers. One
warehouse owner applied to NABARD for subsidy for building a warehouse. However, the warehouse owner
has not yet received any subsidy amount.
Pledge financing market: The total pledge financing market is approximately Rs 60 crore. ICICI bank
has a market share of approximately 65-70% in this region. The majority users of commodity pledge
financing are traders and large farmers.

Nanded

Abstract
Located at the crossroads of Northern and Southern India, Nanded is an important trading hub. Its location
in Maharashtra has created a robust warehousing market and a substantial pledge finance market with the
presence of major collateral management companies.The crops predominantly grown in Nanded are high
value crops such as soya bean and turmeric. Currently, there are very few cold storage facility in the region.
However, given the presence of high value, perishable commodities, cold storage facilities are likely to
come up in few years. The users of warehousing facilities are largely traders, who either own their personal
warehouses or hire a collateral management company to store it in leased warehouses. The awareness of
WDRA and NWRs is limited to only amongst the traders.
Respondents : We interacted with five small farmers, two private banks, one collateral management
company, two warehouse owners, one CWC and a SWC manager.
Commodities : The major crops grown in Nanded are cotton, soyabean, turmeric, groundnut, white
gram, red gram, tur, bengal gram. Price fluctuations in cotton prices have diverted a majority of the farmers
towards soya bean, which has made Nanded a hub for soya bean.
WDRA awareness : The level of awareness about WDRA and NWRs is negligent especially among
the farmer and warehouse owners. Internal management issues have prevented CWCs and SWCs from
registering with WDRA. The traders and collateral managers, who are the majority users of warehousing
also do not see any apparent benefit in registering their warehouses with WDRA.
Government schemes and utilisation :Warehouse owners have availed the Grameen Bhandaran Yojana
( GBY) scheme under NABARD, to build their warehouses and are satisfied with the scheme and the
subsidies offered.
Pledge financing market : Major private banks have pledge finance operations in Nanded. Of the nine
surveyed districts, pledge financing portfolio in Nanded is above average.

Kamrup

Abstract
Warehousing is crucial in Assam because the state serves as a transit point for transporting commodities
to the rest of the states across North East India. Kamrup district has an urban character and the only
major crop grown in the area is paddy. However, owing to its location near the state capital, commodities
from adjoining districts as well as other states are traded here. Pledge financing is largely absent. The
awareness about WDRA and NWRs is limited amongst personnel of the CWC and SWC. Farmers
store their produce in personal, traditional storage structures. Warehousing in Assam falls under the
administrative supervision of the Department of Cooperation, instead of Department of Consumer Affairs, as in other states. This organisational issue has significantly stifled the growth of warehousing in Assam.

Respondents : We interacted with two small farmers, one private banks, two warehouse managers, one
CWC and a SWC manager.
Commodities : The major crop grown in Kamrup is paddy. Betel nut and vegetables are also grown to a
limited extent.
WDRA awareness : There is no awareness amongst farmers or traders about WDRA. Some CWC and
SWC warehouses are registered with WDRA, however they are skeptical about continuing registration.
Government schemes and utilisation : Warehouses have been built under the GBY scheme under
NABARD. Farmers are discontented with the facilities made available to them.
Pledge financing market : There is absence of pledge financing in Kamrup.