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India’s warehouses add capacity, but costs weigh

India’s warehouses add capacity, but costs weigh
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First Published: Mon, Jul 02 2007. 02 34 PM IST
Updated: Mon, Jul 02 2007. 02 34 PM IST
Arpan Mukherjee & Jasudha Kirpalani/Reuters
Mumbai: Indian warehouse providers are increasing capacity to keep up with demand as more agricultural products stack up on retail shelves and commodity exchanges, but have been stymied by land acquisition delays and high costs.
“If the Indian farmer is able to store his produce, get liquidity and wait for the right price, the farmer would be much better off than what he is today,” Anil Choudhary, managing director, National Bulk Handling Corp. Ltd (NBHC) said.
With over 40 commodities being traded and more likely, greater investment in storage facilities is needed from the farm gate to the delivery point, industry players said.
“We need big investments on the farm side and also on the marketing side,” Choudhary added.
Currently, bulk warehousing is provided by state-run Food Corp. of India (FCI), Central Warehousing Corp. (CWC) and 17 state warehousing corporations and single-space owners.
Food Corp.’s managed storage capacity is 25.2 million tonnes while CWC’s is 10.3 million tonnes. CWC also has 50% stake in state warehousing corporations that manage 25 million tonnes.
NBHC, part of the group that runs Multi Commodity Exchange of India, plans to add 5 million tonnes of warehousing capacity in 3-5 years. It now manages about 1,200 third-party warehouses.
Competitor National Collateral Management Services Ltd. (NCMS) is targeting capacity of up to 2 million tonnes in three years.
“I would say more commodities are being looked at as a liquid asset,” Managing Director A. Hari Prasad said.
The government is also chipping in. It plans to spend $24 billion over eight years on cold or supply chain infrastructure, a recent report by brokerage Macquarie Research said.
It also plans to appoint a warehousing regulator and create tradeable instruments in national warehousing receipts through the Warehouse (Development and Regulation) Bill, 2005, which is expected to be passed later this year.
India’s food wastage due to poor storage facilities is also seen as an opportunity. Wastage is pegged at 20 million tonnes a year at the first stage of harvest, non-profit researcher India Development Foundation said.
However, the figure is disputed by industry experts who point out that no authoritative study has been done on the subject. “It cannot be that high,” Prasad of NCMS said.
Land woes
Warehousing is capital intensive and returns are not always attractive, Ajay Khera, executive director (commercial) of Central Warehousing Corp., said.
“Land acquisition is a major issue and you cannot have land at a cost that gives you a good return.”
Land is estimated to account for 30-50% of warehousing cost and at existing rates, setting up a warehouse could cost Rs600-3,000 a square foot, industry players said.
The procedure for land acquisition takes at least two years to complete with several approvals needed from state governments and local governing bodies, adding to costs.
“If you have land that belongs to your forefathers, construct a warehouse. If you want to purchase land today and construct a warehouse, please do not. It does not work,” Khera said.
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First Published: Mon, Jul 02 2007. 02 34 PM IST