Farm equipment makers are upbeat over robust demand

Subsidies as well as easy financing by financial institutions give a fillip to the sector

Business Standard - Vijay C Roy / Chandigarh Feb 21, 2012, 00:55 IST Farm equipment manufacturers in the northern region, especially SMEs and their vendors, are upbeat over the robust demand for farm equipment in the domestic market. They are betting big on the Indian farm mechanisation market, which is estimated at over Rs 4,000 crore a year (excluding tractors). There are over 400 SME manufacturers and vendors in the northern region, comprising Chandigarh, Punjab, Haryana and Himachal Pradesh. Some of the SMEs market their product under their own brand name while others sell to large established players. Using indigenous technology and with the help of competitive pricing, these manufacturers cater to the domestic market as well as export to Sri Lanka, Nepal, Iraq, Iran and the southern African countries. According to analysts, labour shortages, subsidies by both Central and state governments as well as easy financing by financial institutions have given a boost to this sector, which is witnessing 20-25 per cent year-on-year growth. Sonalika Agro Industries Corporation Director Rajesh Thakur said, “The farm mechanisation sector has witnessed rapid growth in rural areas in the recent past, because of labour shortages. It is quality, competitive pricing and service which are driving the growth of manufacturers based in the northern region.” Farm mechanisation has been promoted vigorously by the Central and state governments. Farm implements that recently have been made eligible for bank financing, in addition to existing implements, include multi-crop threshers, sadd drills, rotavator bed planters, tractor-mounted sprayers, potato diggers (manual and automatic), caster threshers, sugarcane cutters and planters. The state governments provide a subsidy on the purchase of these machines that can go up to 50 per cent, depending on the machine. In Punjab alone, according to the “state focus” prepared by the National Bank for Agriculture and Rural Development (Nabard), the credit requirement for farm mechanisation in 2012-13 is estimated at Rs 1,748 crore (including tractors). This makes farm mechanisation the third-largest sector in the state in terms of credit requirement, after crop loans and dairy development. Farm mechanisation in Punjab had until recently been a “tractorisation” process, as the state had about 492,000 registered tractors as on March 31, 2009. However, the use of other kinds of farm equipment – power tillers, bullock/tractor drawn implements, reapers, threshers, cleaners/graders, zero-till seed-cum-fertiliser drills, raised-bed planters, reapers and rotavators – has also increased significantly over the last few years, making it an attractive sector for manufacturers. In Haryana farm mechanisation is a Rs 1,000 crore market. The managing director of Haryana-based Ashoka Foundry & Engineering Works, Kapil Gupta, said, “We have been doing very well over the last few years. In order to meet the robust demand, we are expanding our manufacturing capacity.” His company manufactures agricultural equipments such as automatic and semi-automatic potato planters, seed-cum-fertiliser drills, sugar trench planters, tillage equipment and sugarcane cutter and planters. Analysts said the factors driving the growth of farm mechanisation in the northern region are high quality, low cost and trouble-free maintenance. Punjab has about 40-60 farm implement manufacturers that focus on the complete value chain of farm mechanisation solutions and cater to both the domestic and the international market.

Godown rule to cover vegetables, fruits

Warehousing law amendment on cards to allow farmers use storage receipts as security for bank loans

Business Standard = Sanjeeb Mukherjee / New Delhi Feb 19, 2012, 00:31 IST WARM COVER * Warehouse law to also cover perishables such as fruit and vegetables * Norms to be prepared for registration and accreditation of cold storage * Farmers can store at the warehouses when prices fall and take bank loans against the storage receipts, which are also tradable * Step to address the huge proportion of produce that is left to rot due to lack of storage Scenes of potato and tomato growers dumping their produce on the roads in some parts of the country recently, after prices fell sharply, may be less visible if the agriculture ministry succeeds in implementing a new idea. To prevent distress sales, the ministry is working on a proposal to enable growers of perishable produce such as fruit and vegetables to get bank loans against commodities stored by them in designated warehouses and godowns. To make this effective, perishable commodities would be brought under the ambit of negotiable warehouse receipts. At present, such negotiable receipts can be had only against non-perishable food items such as grain and cereal stored in warehouses and godowns accredited by the Warehousing Development and Regulatory Authority (WDRA).   Negotiable warehouses receipts (NWRs) enable a grower to store produce in times of falling prices and get a bank loan on the receipt. Such a practice could be a boon for farmers when prices fall sharply. Potato prices in Punjab and western Uttar Pradesh have dropped by a little more than half in the past year, largely because of a bumper harvest. Similarly, prices of onions have dropped sharply in major growing areas of Maharashtra and Karnataka. “WDRA has been urged to start giving recognition to cold storage, so that negotiable receipts can be issued against the perishable commodities stored in these,” Agriculture Secretary P K Basu told Business Standard. He said this would go a long way in preventing distress sales among fruit and vegetable farmers and promote steady growth of cold chains and modern storage facilities. WDRA-recognised warehouses need to have modern facilities like pest control and fumigation, fire-fighting equipment, standardised construction and weighing equipment. The receipts issued by such recognised warehouses and cold storage are accepted by the government and banks can easily give loans on these. “We are in the process of adding a new chapter in the WDRA Act that will facilitate registration and accreditation of temperature-controlled warehouses like cold storage and also types of commodities for which NWRs can be issued. There has to be due diligence before norms are finalised, as cold storage are different from simple warehouses,” said Dinesh Rai, chairman of WDRA. Since October 2011 when WDRA was set up, around 3,000 NWRs have been issued by 300 accredited warehouses and godowns, against which Rs 25-30 crore of bank loan has been given to farmers. The value of goods stored in such warehouses is around Rs 100 crore. Officials said that not all farmers who got negotiable receipts against their produce availed of bank loans, as they might not be in need of money or might have traded the NWR further. Once WDRA starts granting recognition to cold storage, a standardised system for them could be developed, Basu said. In India, there are just around 5,000 cold storage, catering to 233 million tonnes of horticulture items produced annually. Horticulture contributes 25-30 per cent to agricultural gross domestic product.

US buyer turns to ‘spicy' Indian onion

The Hindu businessline CHENNAI, FEB. 13: 

Indian onion may be considered pungent than the ones grown elsewhere in the world. Some even term it ‘spicy' onion.

But it is the pungency that has turned a US buyer towards it.

“We have got enquiries from a US buyer for our onion. We have been asked to send a sample consignment,” said Mr Rupesh Jaju, Director of Nashik-based United Pacific Agro Pvt Ltd.

Asked what made the buyer look to Indian onion, he said: “It is because of our pungency”.

Indian onion, however, is unlikely to be sold in the US. “The buyer has said there will be no need for quarantine or other certification process. It will be stored and processed in a warehouse,” he said.

NEW MARKETS?

The onion, most probably, could find its way into markets such as Mexico or Panama around the US. Or it could even be processed into a value-added product for sale in the US itself, according to trade sources.

“Indian onion cannot get into the US as it is a large producer,” said Mr Jaju.

According to the Food and Agricultural Organisation, the US is the third largest producer, after India, producing over three million tonnes of onion.

More than that, the US has stringent quarantine norms in place that could make it difficult for Indian onion to enter that country.

“The US buyer will test the sample consignment and after that could place order for one or two containers. It will be a breakthrough if we get orders since we have never exported onion to the US,” said Mr Jaju.

During April-January period of the current fiscal, 11.98 lakh tonnes of onion were exported at a unit price of Rs 12,500 a tonne. In the previous fiscal, totally 13.40 lakh tonnes were shipped out of the country at a unit price of Rs 16,103 a tonne.

Exports mainly go to the Gulf, Malaysia, Singapore and Europe. If the US buyer comes forward to buy Indian onion, it will be first time that the vegetable will cross the Atlantic Ocean.

mrsubramani@thehindu.co.in

Why seek retail FDI for cold storage?

Shekar Swamy, Hindu Businessline dt/17/1/12

Instead of handing over our markets and cold chain infrastructure to foreign companies, we can create our own inclusive solution that will be the envy of the world.

The word “reform” is a euphemism for big foreign capital to gain access to Indian domestic markets in a policy framework that is conducive to their success. The announcement on foreign direct investment in multi-brand retail, currently in ‘pause' mode, is one such example.

One of the major reasons cited for such foreign investment is that this alone is the answer to building our nation's cold storage chain, to reduce wastage of fresh fruits and vegetables.

Let us look at two simple low-cost solutions, both of which can be indigenously developed, tested and deployed on a mass scale.

LESSON FROM NIGERIA

This inspiring example comes from the region around Kano, in northern Nigeria, an area characterised by hot days, low relative humidity and low rainfall that is concentrated within three months.

The region is home to a third of Nigeria's population of over 150 million people. The people are mostly small farmers and cattle-rearers. The area suffers from poor roads and power shortage, making cold storage difficult (a description that applies to vast tracts of India).

Consequently, farmers had to sell their produce at low prices, since they could not hold the produce.After studying the problem in depth, Mohammed Bah Abba, an enterprising lecturer at the Jigawa State Polytechnic, Dutse, came up with a unique solution. Hailing from a family of potters, he invented the pot-in-pot system of cooling (called zeer in local language).

The pot-in-pot technology consists of two earthenware pots of different diameters, one placed inside the other. The space between the two pots is filled with wet sand that is kept constantly moist, thereby keeping both pots damp. Fruit and vegetables are put in the inner pot, which is covered with a damp cloth. The phenomenon that occurs is based on a simple principle of physics: the water contained in the sand between the two pots evaporates towards the outer surface of the larger pot where the drier air is circulating.

The evaporation automatically produces cooling, causing a drop in temperature of several degrees in the inner container, extending the life of the perishable foods inside. In tests conducted, the temperature in the inner pot was reduced by 6-8 degrees C in 12 hours, and could be maintained by keeping the sand moist.

The shelf life of the produce improved significantly, as shown in the table.

The impact of the pot-in-pot was a reduction in the wastage of fresh fruits and vegetables. Farmers could hold the produce longer and sell on demand at higher prices. The cost of a pot-in-pot unit is around $5 (less than Rs 300).

Will this work in India? Tests can be run in different States to answer this question. The concept is not new as it is similar to matka-cooled water served in many parts of our country. More than 30,000 units are being sold annually in northern Nigeria. This can't happen unless it is successful.

The cooling required for many perishables is much more than what can be achieved in the pot-in-pot. However, this inexpensive non-electrical system can be the first level of storage in the farmers' homes, for produce which are amenable to this system. Lakhs of these of varying sizes can be deployed at a very low cost.

We all know how a bank locker works. We rent space as required, have access to it when we want, and pay a modest usage fee.

Now, imagine a cold storage room at the village level of size 20' width x 25' length x 10' height – 5,000 cu ft of space. Experts refer to this as a walk-in cooler.

BANK LOCKER EXAMPLE

A cold storage space of this size can be set up for a capital cost of under Rs 7 lakh (land excluded), for a cooling level of 5 degrees C, which will cover most fresh fruit and vegetables. (Temperature and moisture requirements do vary. Meat, for example, needs to be frozen. Even that can be set up.) Each cooler can be run by an owner-operator, throwing up lakhs of rural employment opportunities.

The electricity cost for such a storage locker (5 KW per hour, running 18 hours a day) is estimated at Rs 4,000 per week. Farmers can rent space in the cold locker on usage basis.

The rental cost per 100 cu ft will be just around Rs 400 per week (assuming 50 per cent capacity utilisation, and a target revenue of Rs 10,000 per week to cover electricity cost, manpower and return on investment).

The government can guarantee a return on this infrastructure investment, like it has done for fertiliser plants.

(The real challenge will be access to continuous supply of electricity, a problem that is common to all.)

India can set up 100,000 (500 million cubic feet) of these cold storage lockers in the villages and mandis for a cost of just Rs 7,000 crore.

To put this amount in perspective, the government is spending Rs 40,000 crore on the National Rural Employment Guarantee Act (NREGA), which shows we have the resources.

India can build the largest disaggregated ground-level cold storage chain in the world.

I spoke to two experts in cold storage to collate and verify this information. They were excited that this could be done. One of them even offered to build a prototype to prove the point.

TRANSPORTATION COLD CHAIN

The cost of adding refrigeration to a 7-9 tonne truck is around Rs 6 lakh. An expert in trucking whom I spoke to confirmed that truck operators will add this to their trucks, once they understand the higher rentals they can charge.

For a modest investment which can be indigenously funded, we can create a fleet of tens of thousands of refrigerated trucks plying all over the country. The pot-in-pot system, the cold storage locker chain, the refrigerated trucks, and presumably other simple ideas – all of these can be created easily.

FDI in multi-brand retail, with the massive damage it will cause to farmers and traders and the entire ecosystem, is not required to address the cold storage issue.

Instead of handing over our markets and cold chain infrastructure to foreign companies, we can create our own inclusive solution that will be the envy of the world.

(The author is Group CEO, R K SWAMY HANSA and Visiting Faculty, Northwestern University, USA. blfeedback@thehindu.co.in. The views are personal.)

(This article was published on January 16, 2012)

Why corporate farm ventures are failing

By Harish Damodaran - The Hindu Businessline dt.17/1/12

Food business cannot succeed without active hands-on promoter involvement.Is the corporate romance with fresh farm produce handling over? Well, it would seem so.

About two months back, Tata Chemicals ‘suspended' the operations of Khet-Se Agriproduce India, a 50:50 tie-up with Total Produce of Ireland for sourcing, packaging and distribution of fresh fruits & vegetables (F&V).

The joint venture had, in 2008, established a state-of-the-art distribution centre at Malerkotla in Punjab to sort, grade and pack produce procured directly from the fields. This centre — with 250 tonnes cold storage capacity and four ripening chambers of 10 tonnes each — supplied bananas, potatoes, tomatoes, cauliflowers and other horticulture products to retailers and institutional customers.

The decision to wind up was attributed to “non-achievement of planned scale of operations”. This, even after the Punjab Government exempted it from payment of any mandi fee or rural development fund cess on farm purchases made. Khet-Se was also into procuring apples from Himachal Pradesh and bananas and grapes from Maharashtra.

It is not an isolated case, though.

NOT SO FRESH

In 2004, Sunil Mittal's Bharti Enterprises forayed into horticulture through a 50:50 partnership with the Rothschild Group. Punjab again was the hub for the venture, FieldFresh Foods, which even set up a 300-acre R&D farm at Ladhowal, near Ludhiana, on land leased from the State Government.

Initially, the idea was to export mushroom, okra, Thompson seedless grapes, mangoes, pomegranates and lychees to niche markets in Europe and West Asia. By 2007, however, Rothschild had whittled down its stake to 10 per cent, even as the focus had shifted to supplying seasonal vegetables, bananas, apples, grapes and citrus fruits to the domestic market and limiting exports to just baby corn.

Also, the induction of the new 40 per cent partner — Del Monte Pacific of the Philippines — meant increased emphasis on processed foods and beverages, from canned fruit drinks and slices to ketchup and sauces. FieldFresh has since exited the fresh F&V segment: Out of its estimated Rs 100 crore sales, 60 per cent comes from processed foods and the balance from baby corn exports.

INCOMPLETE FRUITION

Apart from Khet-Se and FieldFresh, we also have ITC. The cigarettes-to-hotels major, in 2006, unveiled plans to open 140 ‘Choupal Fresh' stores for retailing F&V across 54 cities in three years — only to call it off in 2010.

That leaves the likes of Reliance Retail (its 650-odd outlets hawk roughly 600 tonnes of fresh produce daily), Kishore Biyani's Future Group (350 tonnes), Aditya Birla Retail's ‘More' (250 tonnes), Bharti Retail's ‘easyday' (50 tonnes) and the National Dairy Development Board-owned Mother Dairy/‘Safal' (350 tonnes). At an average Rs 20/kg realisation, even Reliance Fresh wouldn't be grossing more than Rs 450 crore.

Besides, there are corporates exclusively engaged in ‘backend' F&V procurement and distribution. Adani Agri Fresh handles some 18,000 tonnes of apples annually worth Rs 150 crore, while the Railways' subsidiary, Container Corporation of India, similarly does about 12,000 tonnes for Rs 100-120 crore.

More recently, Deepak Fertilisers and Petrochemicals acquired control in Desai Fruits & Vegetables, a firm based out of Navsari (Gujarat), specialising in contract cultivation of bananas. Its current annual volumes of 25,000-30,000 tonnes, valued at Rs 50-60 crore, are largely for exports to West Asia.

What all these details reveal is a simple fact: The grand corporate farm-to-fork vision of creating a huge business from linking Indian fields to consumers, both in overseas and domestic markets, has not particularly fructified on the ground. If after all these years, the biggest of them has not managed to achieve sales of Rs 500 crore, there is something clearly wrong somewhere.

TRYING AND ERRING

Not that they did not try. There has been no dearth of effort on their part to build supply chains to source produce, either by contracting directly with growers or through primary intermediaries, including bigger lead farmers who could liaison with others in the neighbourhood. They have also invested considerable sums in automatic sorter-grader lines, controlled atmosphere storage units, ripening chambers and other backend logistics infrastructure.

Neither were these corporates wrong in their basic assessment about India being the world's No.2 F&V producer behind China or its growing consumption demand spurred by rising incomes and urbanisation. That, in turn, presented vast opportunities to consolidate a business characterised by fragmented value chains and sizable post-harvest losses. If organised procurement and distribution had met with reasonable success in milk, why couldn't it be replicated in other perishable produce?

Where they got it wrong, though, was in assuming the horticulture business to be part of a diversification strategy – something auxiliary to the ‘core' activity of the group. That approach certainly does not work in sectors that demand high degree of promoter involvement, monetarily as well the amount of time devoted.

It is nobody's case here that a Mukesh Ambani or Sunil Mittal have been found lacking in basic commitment or passion for F&V retailing. It's just that it is too small a business, compared to petrochemicals or telecom, to engage their undivided attention.

But in food — even more so for perishables, where stocks have to be constantly rotated and replaced, while keeping unsold waste to a minimum — the need for personal involvement is paramount. It means keeping close track of purchases and arrivals, besides having tight control on costs.

BEING RIGHT THERE

It is this day-to-day promoter participation in the running of their firms that perhaps accounts for the success of food chains such as Saravana Bhavan and Haldiram or even lesser-known retailers like Saravana Stores and Shri Kannan Departmental Stores (SKDS). These are all family owned and managed enterprises, with core interest in that particular business or operations confined to a region.

Take SKDS, having a turnover of Rs 600 crore from 33 stores in Erode, Coimbatore, Tirupur, Pollachi, Karur and other western Tamil Nadu towns. Or Kay Bee Exports at Thane (Maharashtra), which happens to be India's largest exporter of okra, bitter gourd and other high-value vegetables to the European market.

Equally interesting is Kovai Pazhamudir Nilayam, a Coimbatore-based concern that supplies Rs 100 crore worth of F&V all over Tamil Nadu. While the purchases are centralised at Coimbatore, the outlets themselves are run by family members and trusted acquaintances, making for a personalised and compact management structure.

The big corporates have sought to overcome the promoter attention problem by roping in professional CEOs and managers at fancy salaries.

But that's not enough for a business requiring lot of patient nurturing and a hands-on approach – even after which it might not grow to a size befitting the stature of a large conglomerate.

In the meantime, the venture also starts to bleed, as overheads mount and the CEOs move on. We have seen this happen too often by now. The solution: Make the CEO an owner. Even better is to become CEO yourself. If not, make your nephew.

Affordable shopping: Safal shows the way

Business Standard: Mother Dairy’s retail model helps farmers but is under pressure from chains.

Call it the Safal model. For close to 25 years, a large chunk of households in the National Capital Region (NCR) have had access to fresh fruits and vegetables at affordable prices — at rates much lower than what the local vegetable and fruits market or the handcart vendor would charge. This was made possible by standing the concept of buying on its head. Instead of the farmer coming all the way to markets where the middleman would fleece him and where he had to pay steep taxes, the market went to his doorstep. As a result, customers could get the fresh products daily, making the farm-to-fork concept a reality long before retail chains began doing so in the metros. It is the Safal model that these chains also employ.

 The inspiration was milk. A decade and more after Mother Dairy, a fully owned subsidiary of the National Dairy Development Board (NDDB), had established itself as a leading vendor of milk purchased mostly through cooperatives of farmers, it turned its attention to fresh produce and edible oils. As a state-owned undertaking, NDDB’s basic mandate in all such endeavours is to provide a market for farmers through the cooperative framework and to help them get the right price for their produce. It cannot at the same time afford losses, says Pradipta Sahoo, horticulture business head at Mother Dairy Fruit & Vegetable Pvt Ltd (MDFV), which owns the Safal brand.

In the case of edible oils, sold under the Dhara brand, there is the larger issue of reducing dependence on imports. Sales, though, are just over Rs 350 crore in a market that is valued at Rs 75,000 crore — and this 22 years after it launched its first branded cooking oil.
Safal, on the other hand, has fared much better. Turnover is now Rs 550 crore and has been growing steadily at around 10 per cent annually, with the brand becoming a household name in NCR . Its 400-plus outlets provide vegetables that are five-15 per cent cheaper than the market rate, apart from bigger discounts on items that are in oversupply. This has helped to build consumer loyalty for MDFV, which sells about 350 tonnes of fruits and vegetables daily.
Strong backend— the farmer
Its strong point, however, is the backend of its operations, which in this case means the farmer. It works at the village level through its area stations, which have agriculture graduates on call for farmers.
The cultivator is the focus, not merely because of Mother Dairy’s social mandate but also to enhance marketability. “We not only pay the mandi (wholesale market) rate prevailing at Azadpur (Asia’s largest fresh produce market located in north-west Delhi), but also provide agriculture extension services to the farmer,” points out Sahoo. This includes crop planning, advice on what kind of seed and fertiliser to use and tips on good agriculture practices which from a consumer point of view are critical. Explains Sahoo: “One of the serious drawbacks with fresh produce is the heavy use of pesticide. We tell farmers how to use it and when. In mandis you will find produce that has been sprayed just before being harvested. This is not the case with Safal vegetables and fruits.”
Over time as trust developed, Mother Dairy has been able to put together over 200 farmers associations with a membership of 8,000 farmers straddling 14 states. But the relationship is sometimes rocky. Since there is no written contract, farmers are not bound to sell their crop to MDFV. Quite often, loyalty was at a discount when the big names in domestic retail such as Reliance Fresh, Spencer’s and More made their debut in Delhi five to six years ago. With their deep pockets they were able to buy out stocks of popular vegetables from farmers at higher rates while still keeping the prices low for consumers. Farmers are still switching sides.
Old-time associates of MDFV, however, say they would prefer to stay with Safal as long as the price is reasonable. Vinod Jhajharia from Abohar in Punjab has been selling vegetables to MDFV for the past decade. “I started by supplying bottle gourd to the company and then switched to kinnow (a hybrid citrus fruit) because the profits were higher. Company officials have helped me improve quality and given me an assured market,” he told Down To Earth.
The compelling reason for Jhajharia, as for other farmers, is that he gets the Azadpur rate without the aggravation of going to the mandi, haggling with the adhtiyas or commission agents and paying fees, taxes and bribes. “That can be a painful and time-consuming affair,” he says. There are other horror stories. Jhajharia says he once fell prey to an adhtiya who took away his produce worth Rs 80,000 and never paid him.
The other reason is assured payment, adds Surinder Juneja who heads the Abohar Safal Farmers Association. The association, formed five years ago, covers farmers of around 150 villages. Their average farm size is two to three hectares. Most of them grow kinnow, for which Abohar is famous. They also supply carrots and radish to MDFV.
“A farmer has a harrowing time when he goes to the mandi. In Punjab we have to pay four per cent market fee, and 5.5 per cent VAT, apart from commissions to the adhtiya. We save ourselves all this bother and make a profit even after Safal cuts transport cost from the final price,” explains Juneja. The taxes and fees are levied under the Agriculture Produce Market Committees Act and it varies in each state. Although the Centre has been calling for its reform and has put up a model Act for states to implement, few states have done so. As a result, if a farmer from Jammu and Kashmir wants to sell his produce in Delhi, he would have to pay taxes and octroi to each of the states he passes through. For Juneja, the comfort MDFV offers is that it is a public sector company and works through the cooperative model. “We have established a good working relationship over the years,” says Juneja, “because of our faith in this model”. But he confesses that association members do sell to other buyers, including retail chains, because Safal’s operations are limited and cannot absorb all that they grow.
Clearly, MDFV needs to gear up for competition. Its growth over the past decade has shown it is not as nimble as it should be. Given the aggressive plans being drawn up by domestic retail chains, not to mention the likely approval of foreign direct investment in retail, Safal could soon find itself under pressure. Sahoo, formerly with Reliance Retail, is aware of the challenges. “Retail chains price fresh produce low primarily to increase the footfalls. For them, this is not a priority segment and they use profits from other goods to subsidise fresh produce.”
MDFV cannot do that. But it believes “competitors cannot steal the trust Mother Dairy has built up in 25 years.” Whether it can withstand the harsh economics of the marketplace remains to be seen.

Storage bound farmers to get cheaper crop loan

The Economic Times dt.4/1/12: NEW DELHI: The Finance Ministry has launched a concessional loan scheme for farmers to prevent distress sale of agricultural produce.

Farmers who park their produce at warehouses will be able to avail short-term post harvest loan at 7% as against the prevailing rate of 11%-12%. Farmers making timely payment of the loans will further enjoy 3% interest subvention, bringing the real interest rate to 4%, according to the finance ministry directive.

This will benefit close to 100 million marginal and small farmers with kisan credit cards. "Now, a farmer will be able to get two crop loans in a year at a concessional rate," said a senior official with the National Bank for Agriculture and Rural Development (Nabard), which will implement the scheme.

The new scheme will ensure that the first crop loan taken by a farmer is converted into a produce marketing loan at a concessional rate. This will make the farmer eligible for a second concessional loan for the next season.

The loan will be available for up to six months against a negotiable warehouse receipt submitted to the bank. A negotiable warehouse receipt allows the transfer of ownership of a commodity stored in a warehouse without having to deliver the physical commodity.

The scheme will also boost the warehousing sector, the finance ministry believes. Earlier this week, the government had allowed Nabard to fully refinance bank loans at a lower interest rate in order to promote lending towards construction of warehouse facilities. There are 115 warehouses registered in the country.

Some bankers, however, see pitfalls in the scheme. "Banks will be under more pressure to recover the already high non-performing assets in the agricultural sector," a senior agriculture officer with a state-run bank said.

The government has set a target of Rs 4,75,000 crore towards agriculture loan this year. Bad loans in the sector stand at Rs 16,659 crore. The State Bank of India has the highest share of such loans, which were worth Rs 6,832 crore in September 2011.