'Excessive' controls keep ag giants out of India

"Excessive" state controls are discouraging the agricultural trading giants from investing in India's storage sector despite the "huge potential" for building elevators in a country where $3.5bn of grain is written off every year.

While India is the second-ranked producing country, after China, of both rice and wheat, agricultural trading houses have been reluctant to invest in the country thanks to the degree of government control over the sector, which limits hopes for returns, Rabobank said.

"Strategic players, such as grain trading companies with a track record of investment in bulk storage structures worldwide, are still quite sceptical about investing in this sector in India because of excessive government control and fluctuating government regulation," the bank said.

Lost grain

This reluctance defies the "huge potential" in the sector, with the 78m tonnes of storage available for food grains inadequate to meet demand, leaving many crops to be stored in temporary facilities, such as silo bags, expected to take 2.5m tonnes of wheat in Madhya Pradesh along this year - or dumped on the ground.

Last year, "about 5m-6m tonnes of wheat were in open storage".

The shortfall is leaving India with huge losses of food grains, with official estimates that 6-10% of production "in current storage facilities is damaged by moisture, insects, rodents and fungi", the bank said.

Assuming a loss of 8%, in the middle of the range, "damages total about 16m tonnes of grain at an estimated value close to 225bn rupees ($3.5bn)".

'Excessive controls'

In fact, the shortfall in storage could reach 35m tonnes by 2017, given growing grain inventories, which are being supported by policies offering farmers minimum support prices, and a food security bill guaranteeing, in effect, two-thirds of Indians 5kg of grains a month, Rabobank said.

The bill implies a need for 61m tonnes of grains - millet, rice and wheat - a year, "which will require the government to buy a large amount of food grains from the market, and to manage them as well".

However, private sector groups are being discouraged from building silos by "excessive controls over procurement, storage and distribution".

"There are frequent restrictions on private storage of stocks of pulses wheat, sugar and other such commodities in various states."

Long payback

Furthermore, high interest rates meant that the payback period for a 20,000-tonne grain storage facility can be 10 years.

"These infrastructure investments require a long-term outlook and hence may be of interest to only a few investors," the bank said.

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