NEGOTIABLE WAREHOUSE RECEIPTS 27th June, 2011

SPEECH OF THE HON. MINISTER FOR CONSUMER AFFAIRS, FOOD AND PUBLIC DISTRIBUTION AT CONFERENCE ON “NEGOTIABLE WAREHOUSE RECEIPTS”

June 27th, 2011 – Hotel Atria, Bangalore

Shri Dinesh Rai, Chairman, Warehousing Development and Regulatory Authority.

Dr. B. C. Gupta, Secretary, Food & Public Distribution, Government of India,

Shri Rajiv Aggarwal, Secretary, Department of Consumer Affairs, Government of India,

Shri Sandeep Dave, Secretary, Department of Agriculture, Government of Karnataka

Shri B. B. Pattnaik, MD, Central Warehousing Corporation,

Shri Sudhakar Gande, Chairman, FICCI Karnataka State Council

Distinguished invitees, warehousemen from different organizations, representatives of central and state governments, friends from the media, ladies and gentleman.

I am indeed happy to be with you all, at this conference on Negotiable Warehouse Receipts System. I would like to appreciate the initiatives taken by the Warehousing Development and Regulatory Authority (WDRA) and the industry chamber, FICCI, in organizing this interaction with stakeholders.

Agriculture is integral to economic development in India. Since independence, India has come a long way in removing technological isolation of agriculture and has consistently achieved higher levels of food production, year after year. As you are all aware, this year has witnessed a bumper crop and government granaries are virtually overflowing. There is a growing feeling that time has come to remove fiscal and financial isolation in which agricultural economy has been functioning. And proper backward and forward linkages are established with other spheres of economic activities.

Financing in agriculture has always been risky investment for banks and financiers due to low margins and uncertain operations. Financiers often consider physical collateral like land and farm machinery difficult to enforce or of very little resale value.

Amid such situation, warehouse receipts can be an alternative for farmers and processors. Though warehouse receipts finance is still not a very popular method of financing in India, it is expected to shown an upward trend as the Government of India has made Warehouse Receipts "negotiable" with the enactment of the Warehousing (Development and Regulation) Act 2007. It is expected to enhance their interest in lending and allow Banks to improve the quality of their lending services in respect of agricultural goods deposited by farmers in the registered warehouses. I am confident that the introduction of negotiable warehouse receipts will also make our farmers more empowered as they can avail credit against stored commodities in accredited warehouses and thereby avoid distress sale.

What farmers have to do is deposit their goods of certain quality, quantity and grade in accredited warehouses and receive a receipt for it. Being negotiable instruments, these receipts can be traded, sold, swapped and used as collateral to support borrowing.

Negotiable Warehouse Receipts backed by the underlying commodities, are an integral part of the marketing and financial systems of most industrial countries. These receipts are widely in use to avail credit from banks in countries like the US, Poland, Canada, Zambia and Dubai.

With rise in population and food demand, it is pertinent to take steps to ensure that farming remains a viable economic activity. Setting up of a strong warehousing infrastructure is an integral part of such a strategy and a major need of the hour. The structured warehousing system enables the markets to ease the pressure during the harvest season and to maintain uninterrupted supply during off-season. Hence, it solves the problem of glut and scarcity, two of the usual problems in agricultural marketing.

The overall efficiency of agribusiness sector can be greatly enhanced in India when producers and commercial entities convert inventories of agricultural raw materials into a readily tradable device. The negotiable status to warehouse receipts provides banks and financiers to play a meaningful role in developing commodity markets and extend necessary credit facilities.
The benefits of negotiable warehouse receipts are not restricted to farmers and financial institutions alone. It is expected that this would result in providing considerable benefits, both at macro and micro levels. Corporate sector can also benefit from negotiable warehouse receipts. There are many corporate who are in the business of procurement of agri-commodities on large scale, blocking their capital at the time of procurement. Commodities kept by them could be taken as collateral and loan given to them. Negotiable warehouse receipts also have the potential to positively influence the government procurement programmes as well. However, the success of warehouse receipts will depend largely on strong warehouse infrastructure in the country.

In the last couple of years, the Government of India has taken suitable measures to address the structural and institutional shortcomings in the warehousing business.

Last year, the Warehouse Development and Regulatory Authority (WDRA) was set up to promote scientific warehousing in the country, regulate and enforce accreditation of warehouses, build a system of quality certification and grading of commodities and usher in a system of negotiable warehouse receipts in the country. The Government of India has also extended the duration of the seven-year guarantee scheme for construction of warehouses to 10 years to attract more private players in storage and warehousing. Besides extending the tenure, several tender conditions have also been relaxed to make them more attractive. For example, requirement of title deed has been removed, as also the condition that godowns be taken within one month of completion. The Government of India has also come up with the National Policy on Handling, Storage and Transportation of Foodgrains that seeks to involve private sector participation in development of storage infrastructures in the country.

Despite these measures, the gap in warehousing is still estimated at 32 million tonnes and the private sector has to come forward to meet the agri-warehousing requirements of the country. I am sure our friends from the corporate sector are increasingly realizing the potential the warehousing receipts beholds and at the same are gearing for the challenges that lie ahead. I can assure you that the Government, on its part, is taking all suitable measures to help you in this endeavour.

The conference has been organized at a very opportune time and I believe all the stakeholders -- farmers, Government officials and the private sector -- can identify opportunities and challenges in the implementation of the negotiable warehouse receipt system in the country. I look forward to having your views and identification of any gap that in your opinion, we as policy makers need to look into.

I wish the conference every success and its deliberations, fruitfulness

Thank You