Warehouse receipt financing: Bringing about the revolution in agricultural finance

In the Indian scenario it has been found that is it challenging to make credit available to
the farmers especially in the agricultural arena which is dominated by those farmers
who operate on a small scale. What makes the situation worse is that those farmers are
not financially sound enough to be able to offer appropriate assets as collateral. How
the warehouse receipt system functions is that the smallholder farmers can use their
stocks as security against the loan issued and thus this system is a feasible way of
helping the small scale farmers get access to loans. With a similar intention the
government has built storage capacity. To extend time for which modestly perishable
products can be sold beyond their harvesting season, farmers use this medium of
warehousing receipt. The warehouse receipt is used in lieu of a collateral, by means of
which a short-term loan can be obtained.

This loan provides the much needed working capital for the farmers operations. When
the warehouse inventories are use as a collateral themselves, it builds more liquidity in
the system by greater availability of cheaper loans, and there is greater flow of finances
in the agricultural sector. The process of warehousing sector and associated benefits
are limited in many developing countries because of institutional and structural
shortcomings like lack of incentives for the development of private storage industry
owing to government intervention in agricultural sector and lack of proper legal,
regulatory, and institutional environment to support a system of Warehouse Receipts
(RBI, 2005).

For the functioning of this system, the key role is played by the banks. They provide
loan to farmers against the receipts of warehouses containing agricultural produce and
thus help the government fulfill its objectives. However, despite continuous efforts by
the government, the pledge loan against warehouse receipt has not become popular in
India as the bankers are not confident with the management and maintenance of the
warehouses in the country (RBI, 2005). In a legendary move, , the Warehousing
(Development and Regulation) Act 2007 was rolled out in October, 2010 by the
Government of India so as to set proper regulations in place for the warehouse sector to
grow in India. It also seeks to introduce the negotiability of warehouse receipts, thus
giving them the name NWR- Negotiable Warehouse Receipts.

Since the year 2000, many economies which are emerging from the agricultural
standpoint such as Brazil, Indonesia and Ukraine have been successful in implementing
a similar warehouse receipts system thus paving a guiding path for India to follow suit.

Central Government’s Mega Food Park Scheme

The purpose of the Scheme of Mega Food Park is to provide a mechanism so that
agricultural production can be linked to the market where it has to be sold by bringing
the parties involved such as farmers, processors and retailers together. This ensures
that there is maximum value addition, minimum wastage, more income for the farmers
and more employment opportunities specially in rural areas. The Mega Food Park
Scheme follows a “Cluster” approach wherein the aim is to create state of the art
infrastructure in agricultural zones so that modern food processing units with well-
established supply chains can be set up there. The supply chain infrastructure of these
mega parks includes collection centers, primary processing centers, central processing
centers, cold chain and approx. 30-35 fully developed plots which are ground for
entrepreneurs to set up food processing units.

By now, 12 Mega Food Parks namely, Patanjali Food and Herbal Park, Haridwar; Srini
Food Park, Chittoor; North East Mega Food Park, Nalbari; International Mega Food
Park, Fazilka; Integrated Food Park, Tumkur; Jharkhand Mega Food Park, Ranchi;
Indus Mega Food Park, Khargoan; Jangipur Bengal Mega Food Park, Murshidabad;
MITS Mega Food Park Pvt. Ltd., Rayagada; Satara Mega Food Park, Satara;
Himalayan Food Park Pvt. Ltd., Udham Singh Nagar; and Greentech Mega Food Park
Pvt. Ltd., Ajmer are have been successfully set up.
Export and Import of Agricultural Products

As per the 2017-18 edition of Annual Report by the Indian Ministry of Commerce &
Industry, Agriculture and Allied Products Agriculture and Allied Products as a group
include Rice-Basmati; Non-Basmati; Other Cereals; Pulses; Tobacco; Spices; Cashew;
Meat; Fresh Fruits & Vegetables, etc. During 2017-18 (Apr-Oct) (P), export increased to
US$ 15,353.04 million from US$ 13,559.89 million in the previous year registering a
positive growth of 13.22 per cent. This is mainly because, out of 40 commodities under
this commodity group, 23 commodities registered a positive growth during the said
period.
Domestic availability of commodities, cost of production, global price levels are the
factors which affect India’s trade policy. However, if frequent changes are made to trade
policies, such as a reduction on the import duty on a commodity because of a shortage
in supply, or a decrease in minimum export price of a commodity to improve its exports,
then the agro-processing sector will be adversely impacted in terms of its growth.

RECOMMENDATIONS & CONCLUSION

REFERENCES
1. Issues Limiting the Progress in Negotiable Warehouse Receipt (NWR) Financing
in India- Shalendra, M.S. Jairath, Enamul Haque and Anu Peter V. CCS-National
Institute of Agricultural Marketing, Jaipur – 302 033 Rajasthan- Agricultural
Economics Research Review
2. Review of Warehouse Receipt As An Instrument For Financing In India- Dr.
Devajit Mahanta - INTERNATIONAL JOURNAL OF SCIENTIFIC &
TECHNOLOGY RESEARCH VOLUME 1, ISSUE 9, OCTOBER 2012
3. Annual Report 2017-18 | Government of India Ministry of Commerce & Industry
Department of Commerce
4. State of Agriculture in India - Tanvi Deshpande March 2017
5. Ministry of Food Processing Industries http://mofpi.nic.in/Schemes/mega-food-
parks