Project Report On Warehousing Sector (Repaired)

7/5/2010

AGRIWAREHOUSING SECTOR OF INDIA

By Rahul Khetawat

Agri Warehousing Sector in India

Executive Summary

One of the major segments contributing to a rapidly growing logistics industry is the
warehousing business. The growth in international trade and agriculture production coupled
with the rise in containerization levels has led to high demand for warehouses. Agriculture
accounts for a significant share of warehousing demand at the tertiary hubs. With the plenty of
labour and land available at the rational cost and good infrastructure connectivity can propel
some of this locations to become attractive warehousing hubs in future. This creates tremendous
opportunity for the private sector. The market, which is valued at INR 20 bn, is expected to grow
due to the demand generated by importers, exporters and agri processors for specialized services.

The report begins with an overview of the industry indicating market size, growth, current state
of the market and the infrastructural resources available. The report highlights various types of
warehouses, categorized on the basis of ownership and usage. An analysis of the various
investment options available to players entering the market has been provided in order to assist
new entrants.
The report covers the various initiatives taken by the government towards the development of
warehousing sector including introduction of Single-tax Goods & Services Tax (GST) regime
and Warehousing Act 2007, investments in logistics parks and free trade warehousing zones
(FTWZs), and development of infrastructural facilities. The report identifies the key
characteristics and trends including strong macroeconomic fundamentals, change in tax policy
boosting warehouse outsourcing, significant investments by the logistics providers in
warehousing segment, entry of realty players and large scale investments from private equity
firms.
Competition section profiles major private and public players in the market. The section contains
a snapshot of their corporation, future investment outlook as well as their financial performance,
providing an insight into the existing competitive scenario.

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Table of Content

• Overview of Indian Economy 4

• Logistics Sector of India 5-7

• Warehosuing Sector India 8-10

• Driver of warehousing sector 11

• Agriculture Sector in India 12-17

• Indian Agriwarehousing Sector 18-39

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Overview of Indian economy
The Indian economy has witnessed remarkable growth in recent years supported by market
reforms, inflow of foreign direct investment, rise in agriculture production, information
technology, expanding capital market and many more factors. With a population of more than
billion people, the country has witnessed a phenomenal opportunity in agriculture sector.

In the last quarter of 2009-10 India’s gross domestic product(GDP) growth was 8.6% and index
of industrial production recoded a growth of 17.6% and CAGR 6.0% during the past decade
and stock market grows by 70% from 10876 to 17728(April 2009 to April 2010). India’s export
nos. is also rapidly growing but growth in agriculture and allied sector is discouraging despite
positive growth in GDP but agriculture and allied sector grows negatively with -0.2%.

The overall target of GDP growth in the country for the 11th five year plan is 9% with an annual
average growth rate of 4% in agriculture and allied sector.

House Hold Steady Indian INC Resilient Govt under Stress

Fiscal Deficit: 6.8% of GDP
Gross Dom Saving: 340bn Corporates

Household Savings: 230bn$ Corporate profit: 80bn$ Mainly because of

Underleveraged Consumers High ROE Agri Debt wavier: 17bn$
8%of GDP
Competitiveness 6th pay commission: 6.5bn$
Financial Saving 18% of GDP
Low leverage NAREGA
USD 180bn skewed towards
deposit Oil Bonds : 25bn$

Bond to FCI: 12bn$

Way out
Wa
Assets and Sales allocation

• 3G Spectrum and BWA allocation : recived
22bn$

• Royalty from KG basin gas
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• Disinvestment of PSU

• Land Bank Unlocking


Logistics Sector of India

Against this backdrop of tremendous expansion across sectors, logistics sector assumes a pivotal
role in reducing cost and rate of inflation by improving efficiencies and avoiding wastage of agri
commodities, fruit and vegetable. In a survey conducted by the world
bank in 2007 India ranked 39th in the logistics performance index.
Key Highlights of According to world bank India is identified to be a ‘comprehensive
Indian Logistics reformer’ in the process of transforming from being a logistics unfriendly
Sector state to logistics friendly one.

Presently valued at Significant improvement can be witnessed in a govt. approach to the
$110bn sector. Putting greater emphasis on warehouse, free trade warehousing
zone development, simplifying tax policies and subsidies. In the recent
Expected to grow downturn, the emphasis to reduce cost and improve efficiencies across
CAGR of 10% sectors has put the spot light on supply chain. Where there are ample
opportunities to value engineer processes.
Employ 45mn people
Logistic cost equate to 13% of India’s GDP, which is higher than those
Source: CII Report
developed nation of US and Europe where they equate to about to only
10%. The emergence of outsourcing along with consolidation of 3PL
players would result in approving efficiencies and lowering costs in
supply chain.

Critically, only about 6% of the Indian logistics industry is organised, while the rest is riddled
inefficiencies and low level of innovation. However organised logistics market is expected to
grow to about 14% of total Indian logistics industry by 2011. Despite this the advance concept of
customer support, inbound logistics, reverse logistics have yet to gain traction in fragmented and
technically challenged environment. India is currently midst of a first wave of logistics
outsourcing with a fragmented market of 3PL players.

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Chart No. 1
• In 2007

94%
unorgnised
6%
Organised

• In 2011

86%
unorgnised
14%
Organised

Source: JLLM report

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Chart No. 2

Source: IIM Ahmedabad report on logistics sector of Indi

Warehousing
is second
largest
contributor in
total cost of
logistics

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Chart No. 3

Source: JLLM Report

Also Share of third party
logistics is very low even
country like Japan they are
working on 7PL and
Europe on 5PL.
As compare to US and
Europe Logistics cost
equated to GDP is on
higher side in India if
we could bring it down
to the level of 10%
India can save 35bn$ a
year.

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Warehousing sector in India

Modern warehousing forms an integral part of a supply chain where goods are not only stored for
safekeeping, but several value-advance processes are implemented to process inventories,
thereby minimizing obsolescence and reducing wastage. Warehouses are used for critical
functions such as stockpiling, product mixing, value addition, distribution and customer service.

Traditionally in India warehousing featured a small unit sizes. Although indigenous constraint
based innovation has taken place at various levels, the lack of world class standards and
specifications poses a significant challenge to other growth sector that rely on logistics and
warehousing. An indirect tax structure incentivised companies in India to maintain seprate
warehouse in different states.

With the growth of orgnised warehousing and an expected simplification of existing tax structure
warehousing in India is witnessing a paradigm shift towards large logistic park with the state of
the facilities. The of Indian warehousing sector is primarily driven by the industrial growth of
country. While the Indian economy is predominantly driven by the service based industry and
agriculture sector. Both agriculture and service have thus far been the key demand generator for
warehousing sector.

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Current Scenario: Market Size

The Indian warehousing sector is poised to become a $55 billion by 2010-11 with around 45
million sq ft warehousing space expected to be developed in the country in next five years
supplemented by around 110 logistics parks. Warehousing activities account for about 26 per
cent of the total Indian logistics industry and offer tremendous growth potential. The sector
growing at the rate of 35-40 per cent every year.

The total logistic cost in India is estimated to be 14% of the GDP which translate into slightly
over 140billion if we assume India’s GDP is slightly over 1trillion dollors. Out of this logistics
cost almost 98.7% by unorgnised sector such as small warehouse operator, transporter and
slightly more than more than 1.5% by organised
sector which accounts approximately 2 billion.

The entry of global third party logistics players is fast
Warehousing sector expected t o
changing the model of logistics model in the country
be $55bn by 2011.
to more of a strategic function. Changing business
Sector growing at the rate of 35- dynamics and the entry of global third party logistics
40%. players has led to the remodeling of the logistics
services in India. "From a mere combination of
45Mn Sq.ft warehousing space
to be developed in next five transportation and storage services, logistics is fast
years. emerging as a strategic function that involves end-to-
end solutions that improve efficiencies. Around 45
million sq ft warehousing space is expected to be
developed by various logistics companies which
would further boost real estate activities in key locations across the country.

The total share of organised warehousing space is less than 8% of the total warehousing space in
India. The industry is fragmented and largely un-organised and is dominated by small players
with small capacities. The warehousing sector is also expected to positively impact on many
global manufacturing majors wanting to make India a hub for skill intensive manufacturing
given the abundant supply of well qualified engineers. Given the current shortage of quality
warehousing space, rentals in some locations closer to the city have touched as high at Rs. 30 per
sft per month. Organised retail in India grew from $16.99 billion in 2006-07 to $25.44 billion in
2007-08, a growth of 49.7 per cent with a potential to touch $45 billion by 2010. A number of
warehousing companies have been steadily increasing their capacities over the last two years
thanks to the retail boom across the country.

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Driver of the Warehousing Sector

Containerized
5th Largest consumer
traffic to grow by
market in the world
avg. rate of 18%
by 2025 (Mc Kinsey)
annually over the
Retail Market to Demand next decade
grow to USD Generator (SCI) Exim Cargo
419.93bn by 2015 Export Import
(Mc Kinsey) Organised
Retail
Govt. Investment
18.5% of India’s target of USD
GDP 20.38 billion over
the next two year
Agri exports grow by in infrastructure
25% in 2008-09 sector

Achieve self
Agriculture Infrastructure
sufficiency in most
Sector
of commodities Logistics & 25% Subsidy on
warehousing warehouse
Investment
opportunity of USD development.
180 billion in next
Facilitators Development of
five years.
FTWZ free trade
Required huge warehousing
Policy Support
warehousing space zone
Manufacturing

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Indian Agriculture an Overview
Agriculture, as the largest private enterprise in India, is the lifeline of economy. Agriculture
provides the underpinning for our food and livelihood security and support for the economic
growth and social transformation of the country. During 2008-09 the agriculture sector
contributed to approximately 15.7% of India’s GDP and 10.23% of total exports besides
providing employment to around 58.2% of the work force.

In the recent past, the impact of various food, financial and economic crises has been felt across
the world. This has compromised the lives, livelihood and food security of people. Therefore
there is a compelling case for increased investment in the sector. The continued high growth of
agriculture is essential to meet the food and nutritional requirement of the people and provide
livelihood and income in rural areas. Agriculture will continue to have the pride of place in
national policies and plan since the nation’s food security depends upon performance of the
agriculture sector.

The overall target of the GDP growth in the country for the 11th plan is 9% per annum with
annual avg. growth rate of 4% in agriculture,10-11% for Industry and 9-11% in service sector.
The strategy for accelerating agriculture growth to 4% is required actions in terms of bringing
technology to farmers, improving the efficiencies of investments, increasing system support and
rationalizing subsidies and fostering inclusiveness through group approach, by which farmer will
get better access to land credit and skills.

Growth In agriculture and allied sector GDP vis-à-vis total GDP from 2005-06 to 2009-10
Table No.1

Year Total GDP Agriculture and Allied
sector (%)

Actual Growth Actual Growth

2005-06 9.5 5.2

2006-07 9.7 3.7

2007-08 9.2 4.7

2008-09 6.7 1.6

2009-10(AE) 7.2 (-) 0.2

Source: Planning Commission, CSO
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The agriculture and allied sector is showing decline 0.2% during 2009-10 as against the previous
year’s growth. This is mainly due to the impact of overall deficit of 23% in rainfall during the south
west monsoon which adversely affected kharif production.

Public and Private Sector Investment in agriculture and allied sector Table No.2

Year Investment in agriculture and allied Share in investment (%)
sector
Total Public Private Public Private
2004-05 78848 16183 62665 20.5 79.5
2005-06 93121 19909 73211 21.4 78.6
2006-07 94400 22978 71422 24.3 75.7
2007-08 110006 23039 86967 20.9 79.1
2008-09 138597 24452 114145 17.6 82.4
Source: Central Statistical Orgnisation

Public Investment in Agriculture and allied sector in different five year Plans Table no.3

Five Year Plan Public Investment(Rs in Crore)

1980-85 64,012

1985-90 52,107

1992-97 45,565

1997-02 42,226

2002-2007 67,260

Public Investment in agriculture and
allied sectors in real terms, had
witnessed a steady decline from six
five year plan onwards. but trend
reversed inP athgfive year plan and in
13 | 10 e
2009 govt. waived off $17bn farmers
loan.


Gross Capital formation public and private in Agriculture and allied sectors and it’s
percentage share to GDP of agriculture and allied Sector Table No.4

Year Public % share in Agriculture Private % share in Total % share in
Investments and allied sector GDP Investment Agriculture and investment Agriculture and
(Rs Crore) (Rs. Crore) allied sector GDP allied sector GDP
2004-05 16183 2.9 62665 11.2 78848 14.1
2005-06 19909 3.4 73211 12.4 93121 15.8
2006-07 22978 3.8 71422 11.7 94400 15.4
2007-08 23039 3.6 86967 13.6 110006 17.2
2008-09 24452 3.8 114145 17.5 138597 21.3

The share of private
investment to GDP of
agriculture and allied
sector is rapidly
increasing it refelects
in commodity output
as well and very
encouraging for
warehousing sector.

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Indian corp production Scenario

The total geographical area of the country is 328.7 million hectare, of which 140.3 million
hectares is net sown area, while 193.7 million is the gross cropped area. The gross and net
irrigated area is 85.8 million hectares 60.9 million respectively, with cropping intensity of 138%

Corp Production

Production of food grains during 2009-10 is estimated at 216.85 million tones as compare to
234.47 million ton achieved during 2008-09.

Commodity wise production data Table No. 5

Commodity Production in 2008- Production in 2009- Net difference
09(million Ton) 10 (Million Ton) (Million Ton)

Rice 99.18 87.56 -11.62

Wheat 80.68 80.28 -0.40

Coarse Cereals 40.03 34.27 -5.76

Sugar Cane 285.03 251.27 -33.76

Cotton Bales 222.76 223.18 +.52

Jute & mesta 103.65 103.57 -.09

Oil Seeds 27.72 26.32 -1.40

Source: Govt of India agriculture report 2009-10

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Stock of food grain in central pool or with Govt. Agencies for Public
distribution System

Table no. 6 All Values in Lac Tons

Year Commodity Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total
Stock
Rice 147.2 153.6 160.49 157.19 150.57 151.17 144.9 136.59 134.71 132.14 179.88 195.3
2000 Wheat 171.7 158.1 144.03 131.87 215.2 277.68 277.57 275.91 272.97 268.5 264.98 259.8
C.Grains 0.01 0 0 0 0 0 0 0 0 0 0 0.08
Total 318.9 311.7 304.52 289.06 365.77 428.85 422.47 412.5 407.68 400.64 444.86 455.1 4561.99
Rice 207 224 232.24 231.91 229.41 228.61 227.51 222.04 215.72 214.52 265.03 251
2001 Wheat 250.4 241.2 233.03 215.04 292.16 375.47 389.2 387.15 378.74 368.26 357.97 340.1
C.Grains 0.28 0.43 2.25 2.83 2.87 2.93 2.87 0.89 0.12 0.02 0.02 0.47
Total 457.7 465.6 467.52 449.78 524.44 607.01 619.58 610.08 594.58 582.8 623.02 591.5 6593.57
Rice 256.2 261.3 259.68 249.12 243.51 234.01 219.37 201.25 175.29 157.7 205.09 202.7
2002 Wheat 324.2 302 284.64 260.39 381.04 413.17 410.74 396.58 379.02 356.37 330.59 312.7
C.Grains 0.8 0.91 0.92 0.72 0.92 1.12 0.36 0.62 0.09 0.09 0.04 0.02
Total 581.1 564.3 545.24 510.23 625.47 648.3 630.47 598.45 554.4 514.16 535.72 515.4 6823.24
Rice 193.7 187.8 176.13 171.57 153.2 132.7 109.74 80.73 71.24 52.41 56.59 108.7
2003 Wheat 288.3 213.2 185.8 156.45 260.12 265.36 241.94 224.27 207.04 184.27 164.13 145.6
C.Grains 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.39 0.24 0.11 0.13 0.2
Total 482.1 401 361.96 328.05 413.35 398.09 351.71 305.39 278.52 236.79 220.85 254.5 4032.25
Rice 117.3 124.3 135.75 130.69 127.22 122.51 107.63 91.09 72.22 60.92 110.04 111.4
2004 Wheat 126.9 109.5 85.73 69.31 190.33 193.9 191.52 174.26 159.98 142.23 126.31 106.6
C.Grains 6.02 6.3 6.34 6.47 6.34 6.41 6.41 6.41 0.63 0.23 0.75 0.02
Total 250.2 240.1 227.82 206.47 323.89 322.82 305.56 271.76 232.83 203.38 237.1 218 3039.92
Rice 127.6 142.1 136.58 133.41 130.33 115.95 100.71 79.9 63.72 48.49 103.38 111.3
2005 Wheat 89.31 73.05 57.5 40.66 150.5 161.31 144.54 129.81 116.22 102.9 90.52 76.31
C.Grains 0.03 0.31 5.7 5.64 4.07 6.09 5.88 4.13 4.11 4.08 4.08 2.45
Total 217 215.5 199.78 179.71 284.9 283.35 251.13 213.84 184.05 155.47 197.98 190.1 2572.73
Rice 126.4 139.7 141.1 136.73 128.04 119.51 111.41 95.24 78.21 59.69 125.11 120.6
2006 Wheat 61.88 48.74 34.49 20.09 89.93 93.2 82.07 73.3 67.17 64.12 59.94 55.94
C.Grains 4.31 6.57 7.35 9.38 10.22 10.27 11.62 2.55 9.43 2.26 1.44 1.13
Total 192.6 195 182.94 166.2 228.19 222.98 205.1 171.09 154.81 126.07 186.49 177.6 2209.07

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Rice 119.8 126.4 139.67 131.71 134.81 126.14 109.76 91.65 69.37 54.89 106.51 100.5
2007 Wheat 57.29 53.85 51 45.63 116 133.08 129.26 120.19 110.08 101.21 90.25 83.58
C.Grains 0.87 0.29 0.05 0.58 0.28 0.05 0.05 0.02 0.02 0 0.4 0.65
Total 177.9 180.5 190.72 177.92 251.09 259.27 239.07 211.86 179.47 156.1 197.16 184.8 2405.87
Rice 114.8 140.4 147.34 138.35 128.64 121.29 112.49 97.93 84.72 78.63 141.39 155.8
2008 Wheat 77.12 71.62 65.06 58.03 176.92 241.23 249.12 243.8 232.59 220.25 209.61 196
C.Grains 0 1.68 1.43 1.16 1.12 1.15 1.15 1.13 0.73 0.58 2.44 2.79
Total 191.9 213.7 213.83 197.54 306.68 363.67 362.76 342.86 318.04 299.46 353.44 354.6 3518.39
Rice 175.8 201.9 212.57 216.04 214.07 204.03 196.16 187.92 172.11 153.49 216.21 229
2009 Wheat 182.1 167.7 152.76 134.29 298.26 331.22 329.22 316.23 300.73 284.57 268.88 251.6
C.Grains 4.01 4.27 5.34 5.49 5.9 13.01 6.45 5.8 5.09 4.35 2.4 3.01
Total 361.9 374 370.67 355.82 518.23 548.26 531.83 509.95 477.93 442.41 487.49 483.6 5462.05
Rice 243.5 256.6 269.5 267.13 262.25 252.66
2010 Wheat 230.9 206.2 183.88 161.25 337.13 351.62
C.Grains 2.5 1.5 3.79 4.66 4.5 4.51
Total 477 464.3 457.17 433.04 603.88 608.79 3044.14

Source: www.fciweb.nic.in

In the first six month of
2010 govt. Agencies has
procured 30.44mn of Government is rapidly
commodity across India to increasing the qty of buffer
store this much they have
stock for public distribution
a storage capacity only
29.804millon ton it also system to control inflation
include a open space and ensure availability of
which is covered with food grains in ample amount.
plinth. So there is big gab
This is also generating a
in demand supply of
warehouses. huge demand of scientific
warehouses to store that

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Indian Agri warehousing Sector

This capital intensive marketing infrastructure is necessary for carrying the agriculture produce
from production season to consuming periods. Lack of inadequate scientific storage facilities
cause heavy losses to farmers in terms of huge wastage of quantity and quality of corps in
general seasonal fluctuations are aggravated in the absence of these facilities. To have a
scientific storage facility in the country, the “agriculture produce corporation act” was enacted in
1956. The government also enacted the warehousing acts during July 1957 to August 1958. The
scheme of warehousing, rural godown has initiated in public, cooperative and private sectors in
the country to meet the storage need of the producers in different areas. Keeping in view present
agriculture production in the country, the available storage facilities/ capacities are still
inadequate. Looking at the production trends and increasing marketed surplus (70%), a storage
capacity of 150MT is still needed.

Indian agri warehousing sector currently valued at approximately USD 2bn. And growing
rapidly and majorly dominated by government agencies and very few private players could have
developed a storage capacity.

All India Rural Credit Survey Committee (1954) recommended a three tire system of
warehousing: at the national level, state and district level, village and rural level.

At present there are three main agencies in the public sector which are engaged in building large
scale storage/warehousing capacity. They are: the Food Corporation of India (FCI), Central
Warehousing Corporation (CWC), and State Warehousing Corporation (SWC).

FCI provides storage capacity for food grains. It has its own go downs and it also hires storage
capacity from other sources such as CWC, SWCs, State Governments and private parties.

Besides, public sector agencies, co-operatives have also constructed warehouses in rural areas for
storage of their members' produce, for stocking of fertilizers and other inputs and consumer
articles. To avoid unfair competition with the go downs of the co-operative marketing societies,
the state warehousing corporations do not open warehouses at any place below the sub divisional
level. By 1987-88, a total storage capacity of over 10 million tonnes in the co-operative sector
was available.

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STATE WISE STORAGE CAPACITY AVAILABLE WITH DIFFERENT
STORAGE AGENCIES IN THE COUNTRY AS ON 31.3.2010

All figures in lac M.T Table No. 7

State FCI CWC SWC Total

Andhra Pradesh 38.18 15.04 20.32 73.54

Arunachal 0.22 0.22
Pradesh

Assam 2.73 0.65 2.50 5.88

Bihar 6.72 1.26 2.57 10.55

Chhatishgarh 8.43 2.84 10.24 21.51

Delhi 3.67 1.51 5.18

Goa 0.15 0.41 0.56

Gujrat 6.80 7.65 1.53 15.98

Haryana 24.45 5.37 16.24 46.06

Himachal 0.25 0.07 0.32
Pardesh

Jammu & 1.31 1.31
Kashmir

Jharkhand 1.19 0.35 1.54

Karnataka 8.37 7.11 10.44 25.92

kerala 5.37 1.23 2.25 8.85

MadhyaPardesh 9.50 5.17 20.82 35.49

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Maharashtra 19.98 16.64 12.48 49.10

Manipur 0.20 0.20

Mizoram 0.23 0.23

Nagaland 0.34 0.13 0.37

Orrisa 6.43 3.17 4.06 13.66

Philippines 0.80 0.80

Pondicherry 3.55 0.19 3.74

Punjab 73.73 6.95 57.00 137.68

Rajasthan 16.08 4.01 7.72 27.81

Sikkim 0.11 0.11

TamilNadu 9.70 6.31 6.47 22.48

Tripura 0.51 0.24 0.75

Uttar Pardesh 26.87 11.63 32.33 70.83

UttraKhand 2.37 0.71 3.08

West Bengal 11.06 6.54 2.15 19.75

Total 288.36 105.98 209.26 603.60

Source: http://fcamin.nic.in/dfpd/EventListing.asp

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Storage Capacity developed by private players

Very few players could have developed warehousing capacity till date due to the high cost of
infrastructure and low ROI.

Shree Shubham logistics
Table No.8

S.No. Warehouse location Capacity

1 Sri Ganganagar 27830MT.

2 Bikaner 21742MT.

3 Kota 12964MT.

4 merta City 19560Mt.

5 Alwar- Cold Storage 22,161Mt.

6 Jodhpur

7 Deesa 36000mt

8 unjha 15719MT.

9 Rajkot 16764Mt.

10 Ahmedabad

Star Agri warehousing and Colletral Management Ltd.

They have started acquiring land for development of warehouses and already constructed
warehouse of 3000MT. in Alwar district.

Rest warehousing capacity is highly fragmented and owned by small businessman and traders
which is not scientific and in very small size.

Tremendous opportunity of investment for private players.

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Organsied warehousing sector dominated by govt. agencies

Approximately 80% warehousing
capacity is owned by govt.
Agencies.

Rest is scattered between private
unorganised players.

Very few with private organised
players but now they are aggressively
22 | P a g e developing their capacities.


Why Agri Warehousing

In the post green revolution era, there is a significant growth in the production and productivity
in the Indian agriculture. The country has become self sufficient in food grains and achieved a
remarkable growth in the production of pulses, oil seeds and fibers to meet the requirements of
the country. Although our farming community toiled hard, they could not get real benefit of the
growth in the economy in the absence of a suitable mechanism to ensure a reasonable rate of
return to their hard labour and investments. Only a handful of influential farmers, who have the
infrastructure to overcome the market fluctuations, could derive the benefits.

Chart No.4

All losses % of total production

10-12% produce loss
occurs due to Lack of
storage infrastructure and
23 | P a g e supply chain inefficiency


Current State of Agri warehousing Sector

1. Small and Scattered warehousing facilities
2. Low use of I.T and other technologies

3. Lack of trained manpower to manage warehouses

4. Insufficient and inefficient facilities.

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Various Types of Warehouse

Types of Warehouses on the basis of the ownership

PRIVATE PUBLIC BONDED

Owned by the individual, Owned by Government Specially constructed near seaports
large business house for and meant for the storage and airports and accept goods for
storage of own goods of goods. storage till payment of customers
by importers. The method of
operation and charges for storage
is regulated by the Government.

Types of Warehouses on the basis of types of commodities stored

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GENERAL REFRIGERATED

Storage of fertilizers, cotton, tobacco, food Warehouses in which temperature is
grains, wool, petroleum, etc. Generally no maintained as per requirement. Meant for
specific requirements. Storage items with a perishable commodities such as
longer life span.
Vegetables, fruits, fish, beefs and Meat. The
temperature in these Warehouses is
maintained below 3 to 5 degrees.

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Scope of service in warehouse

1. Scientific Storage

A large quantity of the agricultural commodities can be stored. The commodities can be
protected against the quantitative as well as qualitative losses occurring due to unavoidable
circumstances such as floods, pests. It can carry agriculture produce from production season to
consuming periods. It helps in the stabilization of prices by adjusting demand and supply.
Storage is necessary for some period
for performance of other marketing
functions. Storage provides
employment and income through price
advantages.

Types of Storage Structures

Underground Storage Structures

Underground storage structures are
dugout structures similar to a well
with sides plastered with cow dung.
They may also be lined with stones or
sand and cement. They may be
circular or rectangular in shape. The
capacity varies with the size of the structure.

Advantages

• Underground storage structures are safer from threats from various external sources of
damage, such as theft, rain or wind.
• The underground storage space can temporarily be utilized for some other purposes with
minor adjustments; and
• The underground storage structures are easier to fill up owing to the factor of gravity.

Surface storage structures

Food grains in a ground surface structure can be stored in two ways - bag storage or bulk storage.

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I. Bag storage

• Each bag contains a definite quantity, which can be bought, sold or dispatched without
difficulty;
• Bags are easier to load or unload.
• It is easier to keep separate lots with identification marks on the bags.
• The bags which are identified as infested on inspection can be removed and treated
easily; and
• The problem of the sweating of grains does not arise because the surface of the bag is
exposed to the atmospheres.

I. Bulk or loose storage

Advantages

• The exposed peripheral surface area per unit weight of grain is less. Consequently, the
danger of damage from external sources
is reduced; and
• Pest infestation is less because of almost
airtight conditions in the deeper layers.
• The government of India has made
efforts to promote improved storage
facilities at the farm level.

2. Quality Testing and Certification

A warehouse generally provides wide range
of f testing, grading and certification services. This helps in ascertaining the value of the
commodity deposited and brings about transparency between all interested entities. Testing and
analysis plays a crucial role in commercial settlement and in the assessment of quality standards in
products and materials.

3. Colletral Management
It means managing the collateral on behalf of the collateral taker. CM transactions are intended
to protect against performance risk of counter party. Banks in India have traditionally been assets
based lenders with hardly any knowledge of asset financed. Reach of banks, majorly private
sector banks in particular, coupled with lack of domain expertise. Banks, Public & Private, under

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pressure to expand agri credit portfolio, sound collateral management therefore to become major
enabler.

Role of Colletral Manager

• Identify various inherent and external risks associated with collateral and mitigate these risks with
integrated risk management system

• Audit , Accredit & Provide storage facilities for commodity funding

• Quality and Quantity assurance for both lender and borrower, backs the same with
guarantees and insurance

• Arrange quality certification and quality protection services

• Manage storage facilities adhering to operational standards for minimizing loss and risks

• Storage facility audit for structural integrity

• Commodity quality testing and certification

• Issuing warehouse receipt with commodity value and quality grade

• Marking of pledge / lien

• Risk Management of collateral

•

Collateral Manager’s liability

• For anthropogenic damage CM is liable with provision for standard deduction

• Stock management

• Basic Risk Mitigation practices

Full stock value insurance and security arrangements

Know Your Customer (KYC) process as stipulated

Fidelity guarantee to cover employee related liability

• Stock released only after delivery order from bank.

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4. Warehouse receipt financing

Our farming community depends heavily on the borrowed money for the agricultural operations.
The borrowings are at an unreasonably high rate of interest, mostly from the money lenders. As a
result, they are forced to sell their produce immediately after the harvest although price is very
low. Thus, the farmers lose heavily on their investments. This vicious cycle is recurring year
after year making the farmers poorer. Today, the country is not having a reasonable
infrastructure for providing relief to these farmers. The facility for storage of agricultural
produce is inadequate in rural areas. The farmers therefore have to dispose of their produce at an
unremunerative price, immediately after the harvest. The creation of storage facilities, through
construction of grain godowns in villages will remedy the above situation. The farmers can store
their produce in godowns by paying rents, and release the produce to market when the price is
reasonable. Meanwhile, the farmers can borrow from a financial institution, in case of need, by
pledge of godown receipt.

The business of “Financing against Warehouse receipts” is currently in its nascent stages, as far
as India is concerned. However, it can certainly prove to be a highly lucrative business with
tremendous potential that it possesses, especially in view of organized trade through multi
commodity futures exchanges as also impending launch of spot trade in agricultural
commodities.

Loan against Warehouse Receipts is basically a self-liquidating loan with the tenure of the loan
not exceeding 12 months (stipulated so as to guard against depletion in quality/valuation of the
underlying goods) and with security margin of up to 25-40%. This margin is taken to guard
against the “Market Risk” that the bank is subject to, due to unfavorable movement in the prices
of the underlying commodity.

All the major Public as well as Private sector banks have already brought this business into
focus, and have started taking aggressive steps in this direction.

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Comparative Analysis of different banks and their interest rates

Aixs Bank SBI PNB

Interest Rates

Security Margin

C.M Comission

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Risk Assessment and Mitigation

Risks Identified Ways to Mitigate Risk

Risk Associated with fake warehouse • Random checks should be conducted either before
receipts, or misrepresentation of disbursal of the loan or anytime later to cross check the
quantity/quality of the commodity stored. authenticity of the warehouse receipt and take stock of
the commodities stored in the warehouse.
• In case of Private warehouses, a warehouse will be
linked to a particular branch. Only through this branch
Advances will be made to avoid duplication and
difficulties in co-ordination.
Risk Associated with volatility in price The security margin that would be initially charged at 30%
movement of the underlying commodity should be sufficient for mitigating these risks.

Risks related with the All the commodities stored will be comprehensively insured
damage/obsolescence of the stored to mitigate this risk.
commodities

Default on interest and/or principal The Security Margin of 20-30% should be good enough to
payment (Credit Risk) cover for the probabilities of Credit Risk

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Government initiative for warehousing sector

1. Shift to GST tax regime

Major transition from Central Sales Tax to the existing VAT regime coupled with the
introduction of Single-tax Goods & Services Tax (GST) allowing for the lower logistics costs
Expected to lead to large warehouses offering various services via integration of technology

The GST will standardize tax rates throughout the country, allowing many corporations to move
away from having warehouses in different states to adhere to each state’s tax code, and employ
logistics companies to manage distribution and supply chains.

2. Warehousing Act.

The Warehousing Act, 2007 introduced a negotiable warehouse receipt (NWR) system NWR’s
are expected to facilitate FI’s as it provides cost advantages and eases trade procedure for players
will generate requirement of quality warehousing infrastructure.

3. Private Investment in logistics parks and FTWZs

Government has been encouraging private players to develop logistics parks and Free Trade
Warehouse Zones in order to boost this sector by drawing in large scale investments. to create
trade related infrastructure to facilitate the import and export of goods and services with freedom to
carry out trade transactions in free currency.

Benefits of the FTWZ

Fiscal and regulatory benefits

• Tax Benefits: Income tax (section 80IA) and Service Tax exemptions for developers and
users of the zone ~ reduces logistics costs for users of the zone.
• Duty Deferment Benefits: Custom Duty deferment benefits for products requiring
longer storage time.
• Excise Duty Exemptions: Excise duty exemption for products sourced from the
domestic markets, including goods, spares, DG sets, packing materials, etc.

Infrastructure Benefits

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• Single Product Storage Facilities: Assist in meeting specific warehousing requirement
for each product category e.g. different sections for storage of tea and coffee, etc.
• Shared Equipments: Ability of users to save on capital investments by leasing
equipments provided by the zone.

Administration Benefits

• Delivery Time: Reduction in custom clearance time and better logistics connectivity
leading to improved delivery time.
• Support Facilities and Effective Management: Provision of efficient management
services and international expertise along with support facilities such as banking,
insurance etc.

Other Benefits • Export oriented • FDI inflow • Employment potential. • Competitiveness of
industries • Attractiveness of support/ancillary industries • Boost to all-round economic activity

5. 100% FDI allowed through automatic route

Government has allowed 100% FDI in warehousing through automatic route. This may lead to
quality warehousing space development and and which will benefit to entire sector.

6. Subsidy on warehouse construction

Government is providing 25% subsidy on warehouse construction and 75% loan of total project
cost at very low interest rates.

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Major Players in warehousing Sector
Private Sector Companies
1. National Bulk Handling Corporation

Corporate Information Business highlights

Year of 2005 • Rs14, 000 Cr. of loan have already been
Incorporation disbursed.

Key People Jignesh Shah, CMD • Handling largest commodity portfolio in
private sector.
Anil Choudhary, C.E.O
• Their labs are accredited with NABL and
Major State Bank of India, SGS.
Shareholders Future Technologies
• Procuring wheat in Punjab for government
Storage 14,70,000 Metric ton agencies on MSP.
Capacity
• Planning to construct own warehousing
No. of 569 (All leased) capacity across India.
Warehouse
Financial Highlight
Other Commodity testing,
All values in crore
Services Colletral Management,
Commodity funding,
Fumigation,
procurement, Audit

Revenue 103 Cr.

Expenditure 91 Cr.

PAT 9.55Cr.

Bank 33 Banks
empanelment

Testing Labs 32
As compare to 2007-08 profit and revenue is doubled in
2008-09.

Major Chunk of revenue comes from Procurement business.
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2. National Colletral Management Service Limited

Corporate Information Business highlights

Year of 2004 • Company has recently got private
equity investment of 35Cr. from Indian
Incorporation
Finance Corporation the P.E arm of
World Bank.
Key People Mr. Shri A. Hari0000
Prasad, MD C.E.O • IFC also providing 60Cr. to company
as a debt.
Mr. Shyam Lal, C.B.O
• Company is planning to invest 420Cr.
Major PNB, NCDEX, Audit in construction of 55 warehouses, 6
Shareholders Control and Expertise cold storage and 3 multi purpose
logistics center in 10 different states
Group- U.K, HDFC.
and will take storage capacity to
1.4million ton (owned).
Storage Capacity 3,98,930 M.T
• They will raise 140Cr. via equity and
No. of Warehouse 410 (All leased) internal accruals. Rest will be mix of
debt
Other Services Commodity testing,
Procurement, Colletral All value in Crore Financial Highlights
Management,
Commodity funding,
Fumigation, Price
intelligence

Revenue 74.51Cr.

Expenditure 62.74Cr.

PAT 2.34

Bank empanelment 6
All values in crore
Testing Labs 9

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3. Shree Shubham logistics Business Highlight

Year of 2004 • Only company in private sector which
Incorporation has developed his warehosing capacity

Key People Aditya Bafna, executive • Recenly signed M.O.U with rajasthan
Director state warehousing corporation to
manage his warehosue in rajasthan.
Major Kalpatru power and
Shareholders transmission Ltd. • They have 12 company owned
warehouses and theycan store
Storage Capacity 6,30,500M.T out of 2,30,500MT into it.
2,30,500 is owned
• Earning per share stood at 1.69Rs.
No. of Warehouse 12(Owned)
Financial highlight
All figures in Lac
Procurement, Colletral
Management,
Commodity funding,
Fumigation,

Revenue 51Cr.

Expenditure 50.92Cr.

PAT 16.94Lac

Bank empanelment 5

Testing Labs 11
Revenue Breakup

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4. Star Agriwarehousing and Colletral Management Ltd.

Business Highlights

Year of April, 2006 • The fatest growing company in agri
warehousing business also got “Tata Nen
Incorporation
hottest startup award”.

Key People Mr. Suresh Goyal, • Handling Largest quantity of mustard in India.
(Chairman)
Amit Mundawala • They got term sheet from K.S oil for 50%
stake in company.
(M.D)
• They also provide procurement service under
Major Suresh Goyal, Amith the brand name of “Star agri commodities”.
Shareholders Agarwal, Amit
Mundawala, Amit Financial Highlights
Khandelwal All values in lac

Storage Capacity

No. of Warehouse 950 (All leased)

Colletral Management,
Commodity funding,
Fumigation,

Revenue 4.19Cr.

Expenditure 3.25Cr.
Income form
PAT 80.93Lac Procurement
Business
Bank empanelment 4

Testing Labs 8

In Fy-09 revenue form procurement business was 104.63Cr. expenditure were
104.36Cr.and Profit after tax was 13.38Lac.

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Project Report On Warehousing Sector (Repaired)

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