Sunday, September 14, 2014

GRAIN STORAGE--CAN WE TAKE CARE OF ARTHIYA AND AUDITORS ?


GRAIN STORAGE--CAN WE TAKE CARE OF ARTHIYA AND AUDITORS ?

TEJINDER NARANG




Grain Storage—A  Systematic Failure??
Tejinder  Narang

Food security and food production are the buzzwords for all inclusive Indian growth, but there has been a major policy failure in past decade for augmenting grain storage space .
FCI and State Agencies have 37mt (million tons) of covered storage. Since they procure 50-55 mt grain annually, this space is grossly inadequate. These Government outfits have CAP (covered and plinth) and “plinth only” depots for 13 mt. They are  just“atmospheric dummy depots”. They cannot be regarded as “stores” by any stretch of imagination.  Safety/quality of grains even  in covered spaces is questionable as per  recent reports of wheat bags found filled with mud in Freozpur(Panjab) and liquor bottles located in Jaipur.  This is an indication of  deep  rot and malaise within the system itself.
Since 2000 onwards, Punjab was to add  capacity of 7.12 mt and Haryana another 3.88 mt. Only 0.8 mt of storage space has been built during last three years. An  irretrievable systematic failure indeed.






Losses from “harvest to household” are assessed at  10% under covered and more than  20% for open cap/plinth storage. Taking mid way--  15%  damages on 50 mt grains @ Rs 15000/meteric ton, amounts to disappearance of 7.5mt of stocks. It would cost Rs 10500 crores annually, though actual reported loss by FCI is around 0.6% (Rs 450 crores). 

SILOS

What is preventing acceleration in creation of extra warehousing?  An ultra modern pilot  silo project for six  lakhs tons has already been implemented in 2005-07 by FCI and Adani Logistics. Why this model that has BOO (build own operate) concept with assured revenue of 20 years not seen rapid expansion? The possible reason  is--  because of  limitation of active inter connectivity of  mandis with silos  and provision of rail linkages.
Vertical silos are less capital intensive due to lower land coverage, clean, safe, and economical in long term as compared to conventional horizontal warehouses, provided post harvest operations are consistent for bulk handling. The delay in creation of silo storage space cannot be attributed to funding or  some commercial bottlenecks.  It is the mandi (market yards) system that needs to be reoriented specially for wheat. Mandis have to move near silos for bulk handling, cleaning and storage or silos have to be available within 2-3 km radius of mandis.  All this requires comprehensive coordinated planning, as rail linkages are also to be provided for dispatches.
There  are around 1700 mandis in Panjab that currently handle wheat in bagged packing. The  present mode is  -- Bagging  and debagging in 50/100kg packing for storage, subsequent loose movement to destination and final packing in bags. That route has to change to  bulk/loose handling, cleaning, gradation, storage, dispatches via railways. Clusters of mandis may have to be dedicated to a specific yard of silos for bulk/loose grains.

ARTHIYAS

Arthiyas (commission agents) are the prime players in mandi system. Reduction in mandis or clustering threreof for silos may rattle their  business of  bagging/ weighment/ quality manipulation (to some extent) as handling/cleaning will be mechanized.   There are about 45000 arthiyas in Punjab alone who are the intermediaries with procurement agencies for disbursement of payments to farmers (less commission). They are also financiers to the farmers. It is very difficult to dissuade farmers from system of traditional lending and repayment. Bank loans require procedures, collateral security and therefore are a deterrent to farmers.
An expert committee in Punjab listed several malpractices by commission agents: evasion of market fees and other taxes; over weighing of agricultural produce of  farmers; non payment of incidentals due to labor; deduction of excessive charges; illegal gratifications to the procurement agency and the marketing staff at the expense of farmers and illegal commissions. (World Bank report 2003)
Arthiyas have  controlled farmers, laborers and officialdom  for  last 50 years. Unless political will is demonstrated to break this nexus, silo systems may not be easily workable and viable as vested interests will continue to promote ideas of  conventional  godowning.

CONVENTIONAL STORAGES

Renting of  conventional horizontal warehousing system appears to be much cheaper when compared with cost benefits analysis of modern silos. Stacking of bags does not mean a good house keeping.  It makes efficacy of fumigation difficult and stocks are prone to high infestation and therefore natural destruction.
Other negative aspects are the leakages that filter in market or spraying water on grains for injecting “moisture tonnage” or replacing good bags with bad ones. These  practices  perpetuate concept of  “cheap rentals” . Wet wheat when  dried in the open and re-stored and distributed  develops toxicity as per  scientists of Karnal Research Institute.  Rentals when clubbed with such invisible losses make traditional storages very expensive for the owners. It is, however, highly profitable for all  intermediaries  thriving on institutionalized pilferage.

AUDIT  IMPLICATIONS

On audit books modern silo system will be faulted as it cannot capture  harsh reality of these well programmed frauds that make a mockery of rate of return on investments. Actual users/ millers get hooked on to the lower prices of pilfered stocks, while paper stocks in the Government books remain unchanged. The mind set of auditors has to change as these enormous losses  cannot be easily quantified.
Since new investments are being planned on BOO basis, a reasonable rate of return beyond currently offered term of seven years has to be guaranteed for PPP (public, private partnership).    Land  prices in Panjab/ Haryana and elsewhere are soaring and availability of cheap labor is getting limited. There are better alternatives like real estate for higher returns, than to  rely upon uncertain returns after seven years, when life cycle of a godown is 30 years.  Entrepreneurs are shying away from doing business with FCI/state agencies.
Unless these vital issues are addressed soon,  destruction  of grains may be much faster than its creation. Higher productivity/yields of crops may prove to be futile in real terms.
Tejinder Narang is a former Director of PEC Ltd. and now a freelance commodity analyst.

No comments:

Post a Comment