Let market forces set warehouse prices: competition commission

Let market forces set warehouse prices: competition commission
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First Published: Mon, Mar 12 2007. 12 11 AM IST
Updated: Mon, Mar 12 2007. 12 11 AM IST
The Competition Commission of India, the entity that checks on anti-competitive practices, has opposed a government move to grant the proposed warehousing development and regulatory authority with powers to centrally administer and fix rental rates for warehouses.
Instead, they believe prices should be left to individual warehouses based on local demand and supply conditions in various parts of the country.
Private warehouses don’t come under government price controls. But while government warehouses are allowed to fix rental prices, they have to adhere to broad benchmarks set out by the Central Warehousing Corp. (CWC), the premier agency in the country for operating 514 warehouses with a storage capacity of 10.27 million tonnes.
The creation of a new warehouse regulator is an important element of the Warehousing (Development and Regulation) Bill, 2005 that was conceived to not only reform grain trade, but also provide farmers?easy access ?to ?liquidity.
The regulator is to be charged with managing a new warehouse receipt system, which would create a paper currency of sorts for trading, establish accreditation agencies for warehouse registration, act as an arbitrator and fix warehouse rentals.
But the commission has said it would be inappropriate for the regulator to centrally set warehouse prices and has suggested that the regulator’s role be restricted to technical regulation, similar to the Directorate General of Civil Aviation, which does not fix fares and instead focuses on technical issues such as air safety and engineering standards.
“While we welcome the provisions of making warehousing receipts (as) negotiable instruments, and setting up of a regulatory authority, the commission has advised the government that the regulator should not be given powers to regulate the warehousing rates and also the conditions of services of various warehouses,” Vinod Dhall, chairman of the commission said. He noted that such pricing authority tantamounts to interference and was therefore best left to market forces.
When the Warehousing Bill is passed, it would create a new form of receipts that the farmers would get on depositing their produce in the warehouse. These receipts allow for transfer of the title of goods without physically moving them. At present, warehousing receipts are non-negotiable instruments and trading in them is restricted. The Bill seeks to establish them as negotiable instruments, which may be in physical or electronic form.
When it becomes a law, the warehousing provisions are expected to address problems faced by farmers both in post-harvest storage of the produce and in addressingtheir liquidity needs.
Typically, a farmer is forced to sell his produce in the nearest mandi (local wholesale market) at the prevailing price or incur expenses to store it and still be responsible for finding a better price locally.
In the proposed sytem, the farmer could pledge his receipts to secure working capital while waiting for better prices to prevail or also trade the receipts themselves to others. Since the commission’s role is advisory at the moment—a Competition Bill is awaiting passage in the Budget session of Parliament—any recommendations are not binding on the government.
“We have received the commission’s comments, but have yet to take a view on the same,” said a senior food ministry official who did not want to be named.
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First Published: Mon, Mar 12 2007. 12 11 AM IST