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.
