18 Aug 2017
Brief: SAMPADA scheme will play a major role in shoring up Agricultural capacity utilization levels as well as alleviating wastage issues; financing for sub segments are however a matter of concern; both food processing as well as cold storage categories record a credit offtake near negative
Warehousing facility for agricultural commodities has been major problem in India as they are perishable in nature. As per the Central Institute for Post-Harvest Engineering and Technology’s (CIPHET) estimation, post-harvest loss of the crops is around 5% of the agricultural GDP. As given in the Table below, wastage of fruit and vegetable is in the range of 6.7% to 15.9% of production annually. Due to perishable nature and lack of storage facilities, the prices of the agricultural commodities in turn are highly volatile. Price of the agro-products remains low during the harvesting season and moves up gradually till another production cycle comes along. This impacts the earnings of the farmers and consumption expenditure of the consumers. Warehousing infrastructure is therefore pivotal in stabilizing the prices of the agro commodities and will have a soothing effect on inherent volatility in Food CPI. SMERA believes that this will benefit both the farmers as well as consumers.
In order to minimize the post-harvest wastage and maintain the price stability, Indian government is augmenting the storage capacity. The storage capacity has been increased from 24.4 million tons to 35 million tons between FY09 to FY17 alone. Connected, agricultural production is also recording strong growth (food grain by 9.8% and horticulture by 3.4% in FY17); hence higher capacity utilization is expected. It is already well known that food grain stored in the cold storage will maintain its quality, hence, it will fetch better price. Moreover, grains in the cold storage will be protected from value destroying pest attacks as well as natural concerns. Therefore, farmers would park their products in Food Park and sell them phase wise. We believe that Government of India’s SAMPADA scheme will play a major role in shoring up Agricultural capacity utilization levels as well as alleviating wastage issues. The Rs. 6000 crore scheme anticipates the creation of an agro eco-system across the country that will spawn 42 Mega Food Parks and 236 Cold Storage chains.
Even though the scheme has been slow to make inroads in all states at this time, the impact can be significant on the sector and may help increase India share in agro commodity trade. The Government’s ambitious plan to double farm incomes by 2022 will also receive a boost. As a note, India’s share in global share in agro production (in value terms) is pegged at 10.5%; as a comparison China’s share is nearly 23%. In additions to the complications arising out of the GST implementation, these realities will however also make the farmers wait longer for cash; hence, hence their informal working capital cycles may become stretched (both organized and unorganized players). As far as financing availability is concerned, given the priority status, even though credit offtake to overall agriculture sector is expected to maintain certain growth trends, sub segments are a matter of concern. Food processing as a matter of fact is recording an offtake of -0.4% while Cold Storage (which is part of Other Infrastructure) records it at just 0.3% as on June 2017. We therefore believe that future endeavors to strengthen and create an eco-system will first require supply side modifications when it comes to sub component financing.
Source: CIPHET, 2015, Ministry of Agriculture, Government of India
Note*Wastage as percent of Total Production