Cold Storage Study

COLD STORAGE UNITS FINANCED UNDER

CAPITAL INVESTMENT SUBSIDY SCHEME AN IMPACT ASSESSMENT

V. Puhazhendhi Sohan Premi

Neeraj Sharma B.V.S. Prasad Kuldeep Singh

R. S. Mor G. P. Praveen

\T/ Department of Economic Analysis and Research

National Bank for Agriculture and Rural Development Mumbai, India.

2003

POfiHWOfiD

The horticultural sector has been showing promising growth since nineties and the country ranks second in the production of fruits and vegetables in the world. Despite huge production, the infrastructure for post-harvest management of horticultural crops is still a limiting factor. The annual loss of fruits and vegetables is estimated at 25 to 30 per cent.

Recognising the need for the creation of post-harvest management infrastructure, Government of India, as recommended by the High Level Expert Committee [HLEC] appointed by the IVIinistry of Agriculture during 1998, is implementing the Capital Investment Subsidy Scheme for Construction / Expansion / iVIodernisation of Cold Storages and Storages for Horticultural Produce. The scheme is being implemented by NABARD in association with the National Horticultural Board [NHBJ.The scheme has helped in the addition of 407 cold storage units with about 20 lakh tonnes storage capacity.

With a view to assessing the impact of the scheme on value addition to the farm produce, economics of the units financed, etc., NABARD conducted a study through its Department of Economic Analysis and Research [DEAR]. The study was conducted in five states viz., Andhra Pradesh, Gujarat, iVIadhya Pradesh, Rajasthan and Uttar Pradesh covering a sample of 38 new cold storage units financed under the scheme. The study has brought out several positive features of the scheme like the increase in the number of cold storage units and the positive role played by the private sector in development of cold storage infrastructure. The study findings highlighted the pattern of capacity utilisation of the cold storage units across the regions and among different sizes and also quantified the decreasing trend in rental values of commodities stored in them during the last three years due to competition. Based on the primary data collected from farmers and traders using cold storage units financed under the scheme, it was assessed that they were able to get a better price besides an improvement in the quality of their produce through value addition, as a result of grading and packing. The repayment performance of the cold storage borrowers was good. The study has brought out action points worth considering by the implementing agencies and the entrepreneurs at the grassroots level.

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I am sure the findings of the study will be useful for further improvement in the implementation of the scheme and will also provide insights for the implementing agencies as well as the entrepreneurs regarding the factors that will influence the viability of the cold storage units in future.

National Bank for Agriculture and R. Balakrishnan Rural Development Executive Director Mumbai 2 September, 2003

•rA3L£ Qr CONTENTa s

Executive Summary 01,

I Introduction 03

II Approach of the Study 08 Methodology

III Capital Investment Subsidy Scheme for Cold Storage - A Review 11

Progress of cold storage industry Change in legal provisions of cold storage industry Institutional finance and role of NABARD Progress in implementation of CIS scheme Average cost of investment per tonne Capacity created and future potential Role of different agencies

IV Implementation Aspects of Cold Storage units financed under CIS scheme 26

Location of cold storage units Ownership pattern and management Capacity created and utilisation pattern Pattern of use of cold storage units Trend in rental charges Pledge finance Benefit at farmers' level

V Cost of Investment 39 Technical aspects of cold storage units Cost of investment Bank loan and subsidy released Cost and time over run

VI Economics of Investment 47 Gross income Operational and maintenance cost Net income Cash flow statement Financial rate of return (FRR) Break even analysis

VII Repayment Performance 56

VIM Conclusion and Implications for Policy 59

Annexures 64

i i i

Authors*

Head Office, Mumbai

Dr. V.Puhazhendhi, General Manager Dr. (Mrs.) Sohan Premi, Assistant General Manager

Regional Offices

Shri. Neeraj Sharma, Assistant General Manager, Lucknow Shri. B.V.S. Prasad, Assistant General Manager, Hyderabad Dr. Kuldeep Singh, Assistant General Manager, Ahmedabad Shri. R. S. Mor, Assistant General Manager, Jaipur Shri. G. P. Praveen, Manager, Bhopal

Department of Economic Analysis and Research National Bank for Agriculture and Rural Development 4th floor, C wing, Plot No.C-24, 'G' Block RB.No.8121, Bandra-Kuria Complex Bandra (East), Mumbai - 400 051 e-mail : [email protected]

* Views expressed in the report are that of the authors alone and not the Institution.

iv

RB.No.81

mailto:[email protected]

LJST Of TABLES Table 2.1 Distribution of sample units 08

Table 2.2 Classification of sample cold storage units according to capacity created 09

Table 3.1 Progress of cold storage units in India 11

Table 3.2 Commodity-wise distribution of cold storage units 12

Table 3.3 Sector-wise distributions of cold storage units 13

Table 3.4 Details of cold storage units sanctioned under CIS scheme by NABARD 17

Table 3.5 Region-wise cold storage units financed under CIS scheme by NABARD 18

Table 3.6 Region-wise details of total capacity and average capacity created 18

Table 3.7 Frequency distribution of cold storage units sanctioned under CIS scheme 19

Table 3.8 State-wise details of average cost of investment per tonne 20

Table 3.9 Details of cold storage units according to type 21

Table 3.10 Details of cold storage units according to ownership pattern 21

Table 3.11 Details of cold storage units according to source of financing 22

Table 3.12 List of top ten districts covered under CIS scheme 22

Table 3.13 Assessment of requirement of cold storage capacity by HLEC vis-a-vis achievement by NABARD 23

Table 3.14 Details of cold storage units sanctioned under CIS scheme 24

Table 3.15 Future Potential - Capacity and total cost 25

Table 4.1 Capacity created and utilised 27

Table 4.2 Inflow and outflow pattern 31

Table 4.3 Rental charges of potato per tonne during the year 2001-02 32

V

Table 4.4 Rental value of potato per tonne 33

Table 4.5 Estimated margin per quintal of potato for farmers 37

Table 4.6 Reasons for not storing in the cold storage by control farmers 38

Table 5.1 Capacity-wise average investment cost of cold storage units at historical prices 42

Table 5.2 State-wise average investment cost of cold storage units at historical prices 42

Table 5.3 Capacity-wise break-up of cost of investment per tonne 44

Table 5.4 State-wise break-up of cost of investment per tonne 44

Table 5.5 Capacity-wise details of cost of investment and bank loan 45

Table 5.6 State-wise details of cost of Investment and bank loan 46

Table 6.1 Capacity-wise details of gross income 47

Table 6.2 State-wise details of gross income 48

Table 6.3 Capacity-wise break-up of gross income .48

Table 6.4 State-wise break-up of gross income 49

Table 6.5 Capacity-wise details of O & M cost 49

Table 6.6 State-wise details of O&M cost 50

Table 6.7 Capacity-wise break-up of operational cost 50

Table 6.8 State-wise break-up of operational cost 51

Table 6.9 Capacity-wise details of-net income 51

Table 6.10 Stale-wise details of net income 52

Table 6.11 Cash flow statement 53

Table 6.12 Capacity-wise financial rate of return(FRR).... 53

Table 6.13 State-wise details of financial rate of return(FRR) 54

Table 6.14 Break-even point to reach viability 55

Table 7.1 State-wise details of demand, collection and balance 56

Table 7.2 Capacity-wise details of demand, collection and balance , 57

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Fig. 3.1 Commodity-wise distribution of cold storage capacity 12

Fig. 3.2 Sector-wise distribution of cold storage capacity 13

Fig. 3.3 Refinance disbursement under storage and market yards 16

Fig. 3.4 Deviation of cost of investment from the normative cost of CIS scheme 20

Fig. 4.1 State-wise pattern of capacity sanctioned, created and utilised under CIS scheme 28

Fig. 4.2 Pattern of capacity sanctioned, created and utilised under CIS scheme 29

Fig. 4.3 Inflow and outflow pattern of potato in cold storage units .30

Fig. 4.4 Inflow and outflow pattern of chillies in cold storage units 31

Fig. 4.5 Monthly average wholesale price of potato in Lucknow market (1999-2002) 36

Fig. 4.6 Monthly average wholesale price of potato in Jaipur market (1999-2002) 37

Fig. 5.1 Break-up of cost of investment 43

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EXECUTIVE BUUimAfi'/ The present study attempts to evaluate the performance of cold storage units financed under Capital Investment Subsidy (CIS) Scheme implemented by Government of India with refinance support from NABARD. The study was conducted in five states viz. Andhra Pradesh, Gujarat, IVIadhya Pradesh, Rajasthan, and Uttar Pradesh covering a sample of 38 new cold storage units financed under the scheme. The benefits accrued to the farmers through the implementation of the scheme were assessed through primary data collected from 100 farmers, who used the cold storage units for storing their commodities. The reference period of the study was the year 2001-02. Following are the major findings of the study.

• The implementation of CIS scheme has significantly contributed in increasing the number of cold storage units in the study area.

• Cold storage units were owned and managed primarily by the private sector, which accounted for 95 per cent and the remaining 5 per cent were managed by the co-operative sectors.

• Potato was the major commodity stored in the units, which accounted for 59 per cent of the number of units and 85 per cent of the capacity created. Chillies, turmeric and groceries were the other major commodities stored in the units.

• The average capacity created per unit was 6188 tonnes with a size ranging from 2300 to 10000 tonnes. The capacity utilised against its creation for the sample as a whole was 84 per cent. Full capacity utilisation was observed in Gujarat and Andhra Pradesh and it was 92 and 74 per cent in Madhya Pradesh and Uttar Pradesh, respectively. The capacity utilisation was 69 per cent in Rajasthan, which was significantly low among states. The utilisation was observed to be relatively higher in small units of less than 3000 tonnes compared to medium and large units.

• The average rental charge for potato was Rs.851 per tonne for the sample as a whole which ranged from Rs.716 to Rs.894 per tonne. It was however observed that the rental charges had declined during the last three years.

• The average investment cost per tonne was Rs.2501 with a range of Rs.20d8 in Uttar Pradesh and Rs.4475 in Gujarat. High cost under civil structure on account of construction of anti seismic buildings

with RCC walls and use of high cost technology like fin coil system were the contributing factors for increased cost of investment per tonne in Gujarat than other states. The average investment cost was relatively higher in small and medium size units when compared to the large units.

• All the units were in operating profit and had attained viability with the financial rate of return at 19.35 per cent for investment with subsidy and 14.33 per cent without subsidy. If the units were in operation with full capacity created then the viability might have increased to 23.24 per cent and 17.82 per cent for investment with and without subsidy, respectively.

• The repayment performance of the cold storage units was satisfactory and in many cases advance repayment was observed, which indicated repayment from other sources of income.

• The farmers were able to get a price advantage of Rs.85 per quintal due to storing of the produce in the cold storage units. They also had the advantage of improving the quality of the produce through value addition as a result of grading and packing due to its storage in the cold storage units.

The study findings have identified the following major constraints faced by the cold storage units and its users:

• The excess storage capacity for storage of potato over the demand created under CIS scheme resulted in under utilisation of the units in Rajasthan.

• Low capacity utilisation of cold storage units in a few selected states might be mainly due to low demand, more competition, low production and dependence of single commodity for storage.

• Significant growth in the number of cold storages due to implementation of CIS scheme and over crowding and concentration of large number of cold storage units in specific pockets led to the decline in the rental value of commodities.

• High cost of investment in buildings and other civil structures especially in small units of less than 3000 tonnes Capacity.

• The expenditure on electricity constitutes the major share in the total expenditure and the rising trend in the tariffs of electricity may further increase the operational cost, which may adversely effect the viability of the units.

Horticulture Development in India

India is endowed with diverse agro-climatic conditions, which enable production of a large number of horticultural commodities throughout the year and is therefore the first and the second largest producer

of fruits and vegetables respectively in the world. At present, the total operational holding under agriculture in the country is pegged at 1,655 lakh hectares. Of this, 153 lakh ha of land is under horticulture. During 2001, India produced 1166 lakh tonnes of fruits and vegetables, which accounted for 10 per cent of the world production of 11645 lakh tonnes.

Despite its vast potential, the horticultural sector could not progress to the desired extent as foodgrains production always remained at the forefront of the planners and policy makers. Commercialisation of horticulture started only during early Nineties, when the Government of India recognised its vast potential and increased the plan allocation from a meager Rs.7.6 crore during V Five Year Plan to Rs.24 crore, Rs.1000 crore and Rs.1200 crore in VII, Vill and IX Five Year Plans, respectively.

During the VIM Five Year Plan, emphasis was given to the thrust areas such as improving availability of seed/planting material of High Yielding Varieties (HYV), expansion of area under fruit crops, improving productivity, development of infrastructure for post harvest management and marketing, technology transfer and export enhancement etc. As a result, the production of fruits and vegetables grew at a Compounded Annual Growth Rate (CAGR) of 3.75 per cent after the VIII Five Year Plan as compared to 3.10 per cent prior to this period. Despite a large share in the world production of fruits and vegetables, exports are abysmally low at one per cent as against 10 per cent in world production. During 2001, the world trade of fruits and vegetables stood at $ 677,779 million to which India contributed $ 9528.88 million (1.41%). The internal requirement of fruits and vegetables is to the tune of 116 million tonnes even at the lower per capita availability of 311 gram/day as against 370 gram/day.

Introduction

Frequent crop failures and heavy dependence on monsoon are the concerning issues of Indian agriculture. Horticulture is no exception to this and there is frequent variation in the production of horticultural crops, especially vegetable crops. Such seasonal variation in production of crops like onion and potato has a direct impact on the Indian Economy.

Most fruits and vegetables are highly perishable in nature. Lack of adequate harvest and post-harvest infrastructure in terms of collection centres, packing houses, packaging materials, post harvest treatment, pre-cooling and cold chain facilities etc., lead to huge wastage to the tune of 30 per cent i.e. nearly 34 million tonnes of fruits and vegetables worth Rs.25 to 30 thousand crore.

The country experiences wide fluctuations in prices of horticultural produce, particularly, potato and onions. The lack of efficient storage and marketing infrastructure for perishable products are the missing links in the supply chain management. Creation of adequate storage facility is the only remedy that could reduce perishability and enhance value addition. Thus, there is an urgent need for creation of adequate capacity especially for the perisiiable products to protect the interest of producers and consumers. To avoid this, adequate infrastructure with various measures like financial support, fiscal incentives and enabling legal provisions need to be created.

High Level Expert Committee

Keeping in view the above issues, the Government of India appointed a High Level Expert Committee (HLEC) under the Chairmanship of Shri J N L Srivastava, former Secretary, Ministry of Agriculture and Cooperation in November 1998 for improving the cold storage/other storage capacities for horticultural produce of the country. The committee made the assessment that additional cold storage capacity of the order of 12 lakh tonnes would be required during Ninth Five Year Plan Period and rehabilitation/renovation of 8 lakh tonnes capacity (approximately) which was lying unutilised in various states especially in Uttar Pradesh, Bihar and Orissa would be necessary. The committee also of recomrriended the creation of godowns with a storage capacity of 1.5 lakh tonnes for onion on farm storage in producing areas and 3 lakh tonnes at Market Yards and Terminal Markets in different states.

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Capital Investment Subsidy Scheme


As a sequel to these recommendations and with a view to ensuring quicker development of cold storage capacity as also reducing post harvest losses of horticultural produce through the promotion/setting up of cold storages including controlled/modified atmospheric storages, Government of India announced a scheme titled "Capital Investment Subsidy Scheme (CIS scheme) for Construct ion/ Expansion/ Modernisation of Cold Storages and Storages for Horticultural Produce". The scheme is implemented jointly by NABARD, National Co-operative Development Corporation (NCDC) and National Horticulture Board (NHB) on the following pattern :

• The scheme which was originally envisaged for operation from April 1999 to March 2002 was further extended to the 10" Five Year Plan Period.

• Proprietary/Partnership Firms, Cooperative Societies, Companies, Corporations, Agricultural Produce Market Committees/Boards, Agro-industries Corporation, Growers'Associations, etc., are eligible under the scheme to set up cold storages. The units established should have multi chamber facility so as to store various horticultural produce.

• Promoters should commit 25 per cent of the project cost as margin money. In case of beneficiaries of SEMFEX-II, beneficiaries need to bring only 15 per cent as margin money.

• Term loan @ 50 per cent of the project cost is provided by banks at PLR+1 per cent rate of interest. However, the entrepreneurs are provided bank loan inclusive of subsidy amount i.e. 75 per cent of project cost out no interest is chargeable to the subsidy portion of bank loan. NABARD refinance @90 per cent of bank loan is available to banks which are eligible for refinance from NABARD. NABARD provides refinance at a concessional rate of 7.75% p.a.

• Credit linked back ended capital subsidy @ 25 per cent of project cost subject to a maximum of Rs. 50 lakh is provided. Subsidy is kept by the bank in "Subsidy Reserve Fund Account - Borrower-wise," which is adjusted against the last few instalments of the bank loan.

• For North-East states the subsidy is @33.33 per cent subject to a maximum of Rs. 60 lakh.

Introduction

• The subsidy flows from NHB and is operated by NABARD through eligible financing banks and by NCDC where cooperatives seek loan from NCDC.

• The subsidy is released to the bank/FI by NABARD as per the guidelines issued by NHB.

• Subsidy is released by NABARD even in cases where refinance is not involved.

• For new cold storages or expansion of existing cold storages, the subsidy is given @ Rs.1000/tonne of capacity created.

• For modernization/rehabilitation of cold storages subsidy is given @ Rs. 250/tonne of capacity renovated/modernized.

• For calculation of subsidy, the capacity created is expressed in terms of potato storage which is taken as 3.4 cum/MT or 120 cuft/MT

• Subsidy is released in two instalments. The first instalment of 50 per cent eligible subsidy amount is released after the bank sanctions a project and claims subsidy from NABARD. The remaining 50 per cent of subsidy is released after joint inspection of the unit by a team comprising officials of NABARD, NHB and the financing bank.

• The subsidy under this scheme is back ended. The repayment schedule is drawn by banks in such a way that the subsidy amount is adjusted once the bank loan (net of subsidy) is liquidated. Generally, loan repayment period may be upto 9 years with 2 years grace period depending on the cash flow.

• In case if no bank loan is involved, promoters have to apply directly to NHB for subsidy.

At the end of June 2002, a total of 407 cold storages with capacity of 19.87 lakh tonnes were created under the scheme. Against the total financial outlay of Rs.519.04 crore, bank loan of Rs.287.32 crore and eligible subsidy of Rs.118.41 crore have been sanctioned by NABARD under the CIS scheme, in the country.

Since large number of cold storage units were financed under the CIS scheme. Government of India has extended the scheme to the X Five Year Plan period also. Further, the Inter Ministerial Task Force on


Agricultural Marketing Reforms constituted by IVIinistry of Agriculture, Government of India has recommended the creation of an additional capacity of 56.50 lakh tonnes during the X Five Year Plan period. Since it was felt necessary to get feedback about scheme implementation at the field level and related issues for further consideration, it was decided by NABARD to conduct an evaluation study in five major states, where large number of cold storages were financed under the scheme. The main purpose of the study was to evaluate the efficiency in the operation of the scheme as also to quantify the economics of the investments.

The rest of the report is organised into eight chapters including Conclusion & Implications for Policy given in the last chapter. Approach of the Study is given in Chapter II. Review of Capital Investment Subsidy Scheme is analysed in Chapter I I I . Implementation Aspects of CIS Scheme and Cost of investment are presented in Chapter IV and Chapter V, respectively. Chapter VI is devoted to the Economics of Investments and Repayment Performance is discussed in Chapter VII.

\PPPiOAQH 'Of THB STUDY

T y he overall objective of the study was to evaluate the performance of cold storage units financed under Capital Investment Subsidy Scheme of Government of India with refinance support from

NABARD. The specific objectives of the study were:

1. to study the pattern of use, level of utilisation of the cold storage units and perception of farmers about its utility.

2. to quantify the cost of investment, benefits accrued and viability of the cold storage units.

3. to assess the repayment performance and additional employment generated due to cold storage units, and

4. to discuss the issues and constraints in implementation of CIS scheme and draw action points for future consideration.

Multi stage sampling method was adopted for the study. At the first stage, five states representing four major zones viz., Northern, Central, Western and Southern zones where large number of cold storage units were sanctioned and implemented under CIS scheme were purposively selected for the study. At the second stage, 18 districts (Annexure 2.1) having high concentration of cold storage units financed during 1999-2000 were selected for the purpose of the study. At the third stage, 38 cold storage units, which were financed during the year 1999-2000 and had completed atleast two years of operation, were selected. The sample units constitute only new units financed under CIS scheme. The distribution of sample units among different states is presented in Table 2.1.

Table 2.1 Distribution of sample units

State Units Sanctioned as on March 2001

Number of Districts Selected

Sample Units

Andhra Pradesh

Gujarat

Madhya Pradesh

Rajasthan

Uttar Pradesh

18 24 24 22 91

1 6 3 3

5

5 9 7 7

10

Total 179 18 38

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Capital Investment S uhsidy Scheme

With a view to assessing the perception of the farmers/traders who were using the cold storage units with special reference to their utility in terms of price advantage and other related issues, a sample of 100 cold storage users (farmers/traders) was selected at random in the service area of the selected cold storage units and the required primary details were collected from them. The sample in respect of the number of cold storage units and users was proportionately distributed among states based on the units sanctioned under the scheme. Further, in order to identify the reasons for not using the cold storage units, 27 control sample farmers who were not using the cold storage facilities were selected for the study.

The size of capacity created plays a greater role in the viability of the cold storage units and to quantify this factor the sample cold storage units were post stratified according to their capacity created into three major sizes, i.e., small (upto 3000 tonnes), medium (3000-6000 tonnes) and large (6000 tonnes and above). The distribution of sample units according to capacity created is presented in Table 2.2.

Table 2.2 : Classification of sample cold storage units according to capacity created

Size Average capacity created (tonnes) No. of units

Small

Medium

Large

2348

4374

10051

8

15

15

Overall 6188 38

Methodology

Data were collected in three different sets of questionnaires specially designed for cold storage units, financing banks and farmers using cold storage facility. Further, average prices, arrivals of major commodities that are stored in cold storages were also collected from market yards. The questionnaire meant for cold storage units focused on location, distance from markets/farmers'field, financial, physical details, capacity created, utilised, rental charges, break up of different components of cost, operation and maintenance cost, pattern of usage and also of employment generation, etc. Like-wise, the questionnaire for financing

Approach of the Study

agencies focused on appraisal system, bank loan, security, subsidy and its treatment, monitoring, repayment schedule, loan outstanding, etc.

The questionnaire for farmers concentrated on their cropping pattern, land holding, sources of irrigation, distance from cold storage, percentage of produce kept in cold storage, rental charges paid, insurance paid, price realized and price difference at the time of harvest and sale, apart from general impression of the utility/service of cold storage. The field study was conducted from July to September 2002 simultaneously in the selected states. Reference year of the study was the financial year 2001-02 and all the costs and benefits have been valued at the reference year price.

The benefits urider the scheme were considered separately for owners and users. For the cold storage units, income would be mainly from rental charges. If the owners of the cold storage units keep their own produce, the benefit to that extent would be accounted by way of saving in loss, saving in transportation costs, if any, better price realisation, etc. For farmers, realisation of better prices due to cold storage, saving in losses, etc., were taken in to account. In addition, an attempt was made to find out employment generated on recurring and non-recurring basis.

For working out financial viability, Financial Rate of Return (FRR) was worked out, with and without subsidy. Break-even level of net income and capacity utilisation was worked out at the point where the unit could generate the required income to reach the FRR of 15 per cent.

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mmmmmi^ - C H A P T E R ' I I I ' ' -- " ' "'^'^

CAPITAL Ji jyESJTiVJEjTr SUBSIDY SCriei^iJS ?0t\ COLD SYOfiAGE - A fiEViEVV

In this chapter an attempt has been made to review the progress in implementation of Capital investment Subsidy Scheme against a background of the progress of the cold storage industry in India

and the financial assistance provided by banks with NABARD refinance.

Progress of cold storage industry

Low temperature storage is one of the oldest methods of preservation of food. Its origin can be traced back to the 19"" century. However, the first cold storage in India was established as early as in 1892 at Kolkata. The progress was very slow initially. The industry got a fillip after independence and the number of cold storage units rose to 4146 with a storage capacity of 149.52 lakh tonnes in 2001 from a meager 359 units with storage capacity of 3.05 lakh tonnes in 1964 (Annexure 3.1).

Table 3.1 : Progress of cold storage units in India

Years Number of cold storage units Storage capacity (lakh tonnes)

1981 2370 43.75

1985 2522 50.99

1991 2970 77.88

1995 3167 85.80

2001 4146 149.52

Over the years there was steady progress both in terms of number of units and capacity created (Table 3.1). The estimates of compound annual growth rate revealed that growth in the number of cold storages was relatively slower (2.56%) during 1981 to 2001 as compared to the storage capacity (5.84%) during the same period, indicating that units with higher capacity came up in the later periods. The growth during the implementation of the CIS scheme for a number of cold storages and storage capacity was observed to be 4.90 per cent and 10.66 per cent, respectively. This increasing trend could be the result of various incentives offered by Government of India under the CIS scheme.

11

CISSfor Cold Storage - A Review

The commodity-wise distribution of cold storages as on December 2001 indicated that about 59 per cent and 85 per cent of the number and capacity created respectively was being utilised exclusively for storage of potatoes (Fig. 3.1).

Fig. 3.1 : Commodity-wise distribution of cold storage capacity

Fruits & Veg 1.18%

Milk & Milk Products 0.43%

Multipurpose 12.47%

Fruits and vegetables, meat, fish, milk and dairy products, etc., were the other major commodities stored in the cold storage units (Table 3.2).

Table 3.2 : Commodity-wise distribution of cold storage units

(as on December 2001) Purpose Number Capacity

(lakh tonnes)

Potatoes

Multipurpose

Fish

Milk & Milk Products

Fruits and Vegetables

Others

2445 (58.97)

720 (17.37)

438 (10.56)

211 (5.09) 199

(4.80) 133

(3.21)

126.48 (84.59) 18.65

(12.47) 1.52

(1.02) 0.64

(0.43) 1.76

(1.18) 0.47

(0.31)

Total 4146 (100)

149.52 (100)

(Figures in parentheses indicate percentage to total)

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Further, maximum number of cold storage units were established by the private sector (3667) followed by the co-operative sector and the public sector (Table 3.3). Private sector alone accounted for 94 per cent of the storage capacity created (Fig.3.2). Among the regions, maximum number of cold storage units were set up in the central region (1315) followed by northern region (810), western region (735) and eastern region (686).

Fig. 3.2 Sector-wise distribution of cold storage capacity

Public Sector 0.60%

Cooperative Sector 5.38%

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* . V • • • " l i s , pj^m > . » • • » • )l • " J * • • •, .• • • X • • • ^ • • • ¥ " "

», •_*^» • « • ^ m wTp * * • m • • •, • • • • • ^ •. • • .• a • • • • • .• * • M •

Private Sector 94.02%

Table 3.3 : Sector-wise distribution of cold storage units

(as on December 2001)

Particulars Number Capacity (lakh tonnes]

Private Sector

Cooperative Sector

Public Sector

3667 (88.45)

341 (8.22)

138 (3.33)

140.58 (94.02)

8.05 (5.38)

0.89 (0.60)

Total 4146 (100)

149.52 (100)


13


Change in legal provisions of cold storage industry

The regulation of cold storage started with the enactment of the Central Cold Storage Order 1964 under Section 3 of the Essential Commodity Act, 1955 to provide technical specifications and minimum norms for hygienic storage of edible commodities. The order was applicable all over India. Subsequently, states like West Bengal, Uttar Pradesh, Haryana, Punjab etc., sought permission from the Central Government to enact their own independent legislation for regulation of cold storages in their respective states. These states wanted to include some provisions, which were not included in the Central Cold Storage Order such as compulsory insurance, compensation to the farmers, fixation of storage charges, power to requisition storage space, compulsory issue of receipts in the prescribed format, etc. Government of India, in the interest of the farmers, permitted these states to have their own cold storage legislation and also promulgated another cold storage order known as Central Cold Storage Order 1980 wherein all the above provisions were included. Department of Marketing & Inspection (DMI), Ministry of Agriculture and Government of India enforced the Central Cold Storage Order 1980.

Government of India modified the Central Cold Storage Order during May 1997 in line with the policy of liberalization. At the same time, the states were also advised to modify their respective cold storage orders to remove unnecessary control. Most of the states except West Bengal have either repealed their cold storage order or removed some provisions such as compulsory licencing, rent control etc., to encourage demand driven growth of cold storages. The state of West Bengal has also relaxed some provisions under state cold storage order except for the fixation of rent for storage of potatoes.

Institutional finance and role of NABARD

As per the guidelines issued by Reserve Bank of India on priority sector lending, advances made by banks to plantation and horticulture sector are treated as direct advances to agriculture sector. Since infrastructure like cold storage, storage godowns, etc., for agricultural produce is directly linked to agriculture, the advances made for construction and running of cold storages used for storing own produce is classified as direct finance to farmers for agricultural purposes. However, the loans granted to cold storage units used for custom hiring are classified as

14


indirect advance to agriculture, provided the unit is in a rural area and is used for storage of agricultural produce and also not registered under SSI. The loans granted to cold storages registered under SSI are treated as priority sector advance.

As per the above guidelines, the advances granted to units set up in urban areas having an outlay of more than the SSI limit do not qualify for priority sector advances. Further, as outlays of most of the cold storage units are more than Rs.1.00 crore (present SSI limit), practically no loan sanctioned to cold storage units set up in urban areas could be accounted as advance to priority sector. Therefore, banks are reportedly not keen to finance cold storage projects located in urban areas. Further, it is very difficult to classify the cold storage units used for storage of own produce and custom hiring in rural areas, as the same cold storage may be used both for storage of own produce and custom hiring depending upon demand and supply conditions. Hence, the advances made for construction of a cold storage units for storage of agricultural produce irrespective of their size, location, ownership, pattern of use etc., are treated either as direct advance or indirect advance to agriculture.

Plantation and horticulture is one of the major sectors eligible for refinance support from NABARD. With a view to creating adequate storage capacity for agricultural produce of perishable nature, NABARD has been supporting cold storage projects with its refinance assistance since ARDC days. Studies revealed that the cold storage units under private sector were used only by traders/middlemen. Hence, the policy of financing cold storage projects by NABARD was reviewed during 1989 and it was decided that the proposals for setting up of cold storage projects in private sector would not merit refinance support from NABARD except in cases where it forms an integral part of a project, and thus, cold storage projects set up by producers' co-operatives and public/joint sector units were provided refinance support by NABARD. However, above restrictions were removed during 1999 and cold storage projects set up by private parties are now eligible for refinance support from NABARD.

A steady progress in disbursement of refinance to Plantation and Horticulture (P&H) activities has been made by NABARD. By the end of 2002, disbursement under P&H has increased to Rs.280.00 crore from

15


a meager Rs.33.00 crore during 1981-82. The disbursement of refinance to cold storage projects was not monitored separately by NABARD and it was reported under Storage and Market Yards (SGMY) prior to inception of the subsidy scheme. The disbursement under SGMY had increased from Rs.9.00 crore during 1981-82 to Rs.16.45 crore during 1998-99 (Annexure 3.2). There was a quantum jump in the disbursement of refinance from Rs. 15.40 crore in 1999-2000 to Rs.227.14 crore during 2001-2002 due to implementation of the subsidy scheme.

Fig. 3.3: Refinance disbursement under storage and marl<et yards

25000

20000

- 15000

10000

5000

-• « -*-- \ — I — I — p — I — 1 — I — I — r - - 1 — I — I — r -

>" /%.'" ^J" /i'" <v'-' K'-* rt'" Z-'-* A!^ n/^ t^f^

^ ^ ^' ^ ^ ^ ^ £= ^

Progress in implementation of CIS scheme

Government of India announced the CIS scheme with an estimated capital outlay of Rs.652.50 crore and subsidy of Rs.175.00 crore. The scheme was originally envisaged for operation from April 1999 to March 2002 and subsequently extended upto March 2007 (10th Five Year Plan Period).

As at the end of June 2002, 407 schemes were sanctioned under CIS scheme with TFO of Rs.56,379.26 lakh and bank loan of Rs.31133.38 lakh (Table-3.4). The schemes implemented had created a capacity of 19.87 lakh tonnes. NABARD sanctioned Rs 25792.19 lakh and disbursed Rs.16443.58 lakh. Subsidy released under the scheme aggregated Rs. 8219.49 lakh.

16


Table 3.4 : Details of cold storage units sanctioned under CIS scheme by NABARD

(Rs, lakh)

Year No. of Capacity TFO Bank Refinance Refinance Subsidy

units* (lakh

tonnes)

loan sanctioned disbursed Released

1999-2000 15 0.67 1967.89 1059.30 993.09 891.52 0.00

2000-01 226 11.73 32000.10 17647.28 14628.53 7123.79 2564.74

2001-02 150 6.76 19828.71 10959.31 9086.96 8249.78 4472.51

April 2002 to 16 0.71 2582.56 1467.49 1083.61 178.49 1182.24

30 June 2002

Total 407 19.87 56379.26 31133.38 25792.19 16443.58 6219.49

Excluding onion godowns

Recognizing cold storages as one of the important infrastructural facilities for storage and marketing of agricultural produce, a few state governments realized the need to establish cold storage units for perishable products and approached NABARD to provide financial assistance to them from Rural Infrastructure Development Fund (RIDF). Hence, NABARD extended direct finance to state governments for setting up cold storage facilities during 1998-99. A total of four projects in the states of Nagaland (1) and Tripura (3) were accorded sanctions to the tune of Rs. 5.57 crore. In addition, a food park project with the objectives of enhancing the quality of horticultural produce, increasing the processing of fruits and vegetables and reducing wastage by extending the shelf life of the produce by creating cold chain facilities, has also been sanctioned to state government of Punjab.

Region-wise distribution

The region-wise distribution of the schemes showed that the highest number (186) of units had been sanctioned in the central region followed by northern region (74), western region (64) and southern region (63) (Table 3.5). Among the states, Uttar Pradesh ranked first (146) followed by Gujarat (40) and Punjab (31). Average TFO worked out to be the highest in southern region (Rs. 176.10 lakh) followed by eastern region (Rs. 166.27 lakh), western region (Rs. 138.59 lakh) and central region (Rs. 128.79 lakh), whereas average TFO was found lowest in northern region (Rs.124.05 lakh) (Annexure 3.3). The variation

•;>:«<>>iSM:iK-;S>>:

17


In TFO was due to various factors such as geographical location of the state, average size of unit, technology used and type of unit etc. Average bank loan sanctioned varied from Rs.101.34 lakh (southern region) to Rs.63.42 lakh (central region). The amount of average subsidy and refinance sanctioned was found to be the highest in eastern region and in southern region respectively.

Table 3.5 : Region-wise cold storage units financed under CIS scheme by NABARD

(Rs. in lakh)

Region No. of Average Average Subsidy NABARD Schemes TFO Bank loan Refinance

Northern 74 124.05 76.64 29.40 68.36

Eastern 20 166.27 87.62 39.12 76.13

Central 186 128.79 63.42 30.84 49.30

Western 64 138.59 86.39 27.86 72.73

Southern 63 176.10 101.34 36.65 85.50

All India 407 138.64 76.49 31.41 63.37

The region-wise details of total capacity created shows (Table 3.6) that central region ranked first in terms of total capacity (11.28 lakh tonnes) followed by northern (2.87 lakh tonnes) and southern (2.81 lakh tonnes) region whereas the average capacity created was found to be highest in central region (6065 tonnes) followed by eastern region (4518 tonnes) and southern region (4461 tonnes) which indicates that the cold storages with bigger installed capacity have come up in the central region. (State-wise details given in Annexure 3.4).

Table 3.6 : Region-wise details of total capacity and average capacity created

Region No.of schemes Total capacity Average capacity created (lakh tonnes) created (tonnes)

Northern 74 2.87 3874

Eastern 20 0.90 4518

Central 186 11.28 6065

Western 64 2.01 3135

Southern 63 2.81 4461

All India 407 19.87 4882


Frequency distribution of cold storage units

The frequency distribution of cold storages financed under the scheme revealed that majority of the cold storages (65) fell in the range of total financial outlay of more than Rs.200 lakh which indicates that quite a good number of units were large units having multi chambers and only 11 cold storages fell in less than Rs. 40 lakh class interval (Table 3.7). Out of 407 cold storages, 75 were having TFO upto Rs. 80 lakh. These include mainly expansion and rehabilitation type of cold storages.

Table 3.7 : Frequency distribution of cold storage units sanctioned under CIS scheme

Class interval Frequency Cumulative (Rs. lakh) distribution (Nos) frequency (Nos)

Upto 40 11 11

41 - 60 20 31

61 - 80 44 75

81 - 100 44 119

101 - 120 59 178

121 - 140 49 227

141 - 160 43 270

161 - 180 44 314

181 - 200 28 342

Above 200 65 407

Average cost of investment per tonne

A normative cost of Rs.4000 tonne has been fixed under CIS scheme for the purpose of subsidy. The average cost of investment per tonne of cold storage units sanctioned under CIS scheme was estimated at Rs.3277 which varied from Rs.2156 (Uttar Pradesh) to Rs.5280 (West Bengal) (Table 3.8).The average cost per tonne was observed to be lowest in Uttar Pradesh which was mainly due to use of cheaper technology in which only potatoes could be stored. The high cost of investment in states like Gujarat was mainly due to high investment in plant and machinery as well as civil structures. The reasons for variation in cost of investment in the States covered under the study are presented in Chapter V.

19

CISS for Cold Storage - A Review

Table 3.8 : State-wise details of average cost of investment per tonne

(Rs./tonne)

State Minimum Maximum Average cost

Andhra Pradesh 2321 5868 3753 Assam 2868 4895 3891 Bihar 2779 4728 3587 Chhattisgarh 1511 3145 2159 Gujarat 2388 14725 4807 Haryana 1913 5922 3757 Himachal Pradesh - - 2267 Jharkhand 2099 3909 3004 t^rnataka 2044 6764 4341 Madhya Pradesh 1419 13124 3159 Maharashtra 2408 9822 4941 Orissa 3591 4696 3994 Punjab 1706 4784 3077 Rajasthan 2457 3778 3028 Tamil Nadu 2993 7969 5155 Uttar Pradesh 879 4388 2156 Uttaranchal 1684 2814 2249 West Bengal 2713 9663 5280

All India 3277

Fig. 3.4 : Deviation of cost of investment from the normative cost of CIS scheme.

Tir

. ^ .^

<(' f

R ^' 4f /y;^ .^; V

20


Distribution of cold storage units according to type

The distribution of cold storage units according to type revealed that about 85 per cent of the units sanctioned under the scheme were for new units only and remaining were for expansion/rehabilitation of the existing units (Table 3.9).

Table 3.9 : Details of cold storage units according to type

Region New Expansion Rehabilitation Total

Northern 69 5 0 74

Eastern 17 3 0 20

Central 144 41 1 186

Western 56 7 1 64

Southern 59 4 0 63

All India 345 60 2 407

The average capacity created per unit varied from 3135 tonnes (western region) to 6065 tonnes (central region). Among the states, Chhattisgarh ranked first having the highest average capacity (6589 tonnes/unit) whereas the average capacity created (per unit) was lowest in Gujarat (2943 tonnes/unit) excluding Himachal Pradesh where only one unit (2120 tonnes) was sanctioned (Annexure 3.4). Most of the units financed under CIS Scheme were new units only (Annexure 3.5)

Distribution of cold storage units according to ownership

The distribution of cold storage units according to ownership pattern showed that maximum number of units (278) were owned by private limited companies followed by partnerships and proprietorships (Table 3.10). Only 6 units were owned by co-operative societies, which was due to the fact that co-operative societies are financed by NCDC.

Table 3.10: Details of cold storage units according to ownership pattern

Ownership Number of Cold storage units

Capacity created (lakh tonnes)

Private Limited Com.

Partnership

Proprietorship

Co-operative Society

278

111

12

6

14.45

4.78

0.42

0.22

All India 407 19.87

fm:i!mA^fffifmmi

21

CISS for Cold Storage - A Review 5SSSSs$iK*HSSS^A^>«S

Agency-wise distribution of cold storage units

Agency-wise sanction of schemes (Table 3.11) indicates that commercial banks played a major role (93.37%) in financing the cold storage units followed by RRBs (3.44%) while it was negligible for co-operatives (3.19%). (State-wise details given in Annexure 3.6).

Table 3.11 : Details of cold storage units according to source of financing

Region Number of schemes sanctioned

Total Region RRBs CBs sees

Total

Northern 1 69 4 74

Eastern 1 16 3 20

Central 8 177 1 186

Western 1 58 5 64

Southern 3 60 0 63

All India 14 380 13 407

Under CIS scheme, highest number of cold storage units were sanctioned in Agra (25) and Ferozabad(14) districts of Uttar Pradesh followed by Sonepat(14) district of Haryana and Jaipur(12) district of Rajasthan. List of top 10 districts covered under CIS scheme is given in table 3.12.

Table 3.12 : List of top ten districts covered under CIS scheme

District State Number of Capacity Created Units Sanctioned (Tonnes)

Agra Uttar Pradesh 25 168644

FIrozabad Uttar Pradesh 14 93856

Sonepat Haryana 14 60977

Jaipur Rajasthan 12 67552

Banaskantha Gujarat 9 31116

Badaun Uttar Pradesh 8 26931

Etawah Uttar Pradesh' 7 53775

Gandhlnagar Gujarat 7 20925

Gwalior Madhya Pradesh 7 30880

Kannauj Uttar Pradesh 7 73971

mi^M»yms^»i?^iXi

22


Capacity created and future potential

The state-wise requirement assessed by the High Level Expert Committee [HLEC] on cold storages for Ninth Plan Period vis-a-vis achievement in sanction of the schemes by NABARD under CIS scheme as on 30 June 2002 is given in Table 3.13. It can be seen therefrom that NABARD has been able to sanction 407 cold storage units with a storage capacity of 19.87 lakh tonnes as against the projected number of 280 with capacity of 12 lakh tonnes all over India, which shows an achievement of 165 per cent. In most of the states, the achievement had crossed the physical target set by HLEC. A good number of projects were sanctioned in those states also where HLEC had not set any target potential e.g., Rajasthan, Andhra Pradesh, iVIaharashtra, Punjab, etc., whereas only four projects with 17,500 tonnes

Table 3.13 : Assessment of requirement of cold storage capacity by HLEC vis-a-vis achievement by NABARD

(Capacity in tonnes)

State Potential assessed Achievement by Acliievement by HLEC NABARD* (%)

No. of units Capacity No. of units Capacity

Gujarat 15 60000 40 117735 196.23 Orissa 30 140000 4 17500 12.50 Madtiya Pradesh 12 35000 27 101861 291.03 Andhra Pradesh 28 149710 Maharashtra 24 82884 Punjab 31 103576 Haryana 12 25000 17 69573 278.29 Tamil Nadu 21 S7784 Assam 7 3500 5 20900 597.14 Rajasthan 25 111425 Uttar Pradesh 81 486000 146 945107 194.47 Uttaranchal 2 8618 Karnatal<a 18 45000 14 63574 141.28 Bihar 30 150000 5 20440 13.63 Himachai Pradesh 1 2120 Chhatisgarh 11 72480 Jharkhand 2 9318 West Bengal 35 155000 4 22200 14.32 Manipur 10 50000 0.00 Kerala 10 1000 0.00 Other States 20 50000 0.00

Total 280 1200500 407 1986805 165.50

('Excluding 4 schemes on onion godowns)

23


of Storage capacity could be sanctioned in the state of Orissa as against the target of 30 units with cold storage capacity of 1,40,000 tonnes set by HLEC which may have been due to low level of agricultural production because of recurrence of natural calamities. In case of Bihar, only five cold storages with storage capacity of 20,400 tonnes could be sanctioned as against projected 30 cold storage units with capacity of 1,50,000 tonnes which was due to late take-off (August 2000) of the subsidy scheme because of existence of control on rentals by state govt.

Similarly, the progress in implementation of the scheme has been slow in West Bengal where only four units with 22,200 tonnes capacity could be sanctioned by NABARD as against the target of 35 units with 1,55,000 tonnes storage capacity due to control on rentals of potato which is a principal commodity for storage in the state.

Role of different agencies

As on 31 October 2002, a total of 604 cold storage schemes with a total financial outlay of Rs.809.67 crore were sanctioned by different agencies. About 72 per cent of the cold storage units were sanctioned by NABARD followed by NHB (21.36%) and NCDC (6.95%). Agency wise details of schemes sanctioned and capacity created are given in Table 3.14.

Table 3.14: Details of cold storage units sanctioned under CIS scheme

(As on 31 October 2002)

Particulars NABARD NCDC NHB (Direct cases)

NAFED Total

Total number of projects sanctioned

432 (71.52)

42 (6.95)

129 (21.36)

1 (0.17)

604 (100.00)

Total capacity of sanctioned projects (lakh tonnes)

20.79 (75.96)

1.47 (5.37)

5.07 (18.52)

0.04 (0.15)

27.37 (100.00)

Total financial outlay/total project cost (Rs. crore)

591.61 (73.07)

55.51 (6.86)

160.05 (19.76)

2.50 (0.31)

809.67 (100.00)

Amount of subsidy released by NHB (Rs. crore)

145.70 (75.56)

13.30 (6.90)

32.81 (17.02)

1.00 (0.52)

192.81 (100.00)


m^^^^ii^ffifsm^^^m^

24


Cold storage capacity have always remained inadequate for storage of horticultural produce. The installed cold storage capacity which was only 0.09 per cent of the total production of fruits and vegetables during 1964, increased to 12.82 per cent during 2001. However, potato remains the major commodity stored in cold storages. Keeping in view the post-harvest losses to the tune of 30 per cent of the total fruits and vegetables and also marketable surplus, the present cold storage capacity is inadequate. Hence, the Inter Ministerial Task Force on Agricultural Marketing Reforms constituted by Ministry of Agriculture, Government of India has recommended the creation of an additional capacity of 56.50 lakh tonnes during X Five Year Plan period, with an estimated investment cost of Rs.4720 crore, including subsidy of Rs.1175crore (Table 3.15).

Table 3.15 : Future potential - capacity and total cost

Type Capacity Unit cost Total cost (lakh tonnes) (Rs./tonne) (Rs. in crore)

Cold Storage 40 5000 2000 Cold Storage 10 1000 100 (Rehabilitation /

Modernisation

Onion Storage) 6 2000 120

Cold Chain (reefer vans. 2500 zero energy chamber etc.)

Total 56 4720

25

CHAPTER IV

iMP'L^MEMrj^non AS;PSGT3 OF COLD BronAQE UNITB FJMAMCSD UNDHFi OIB BCHElVlE

n attempt has been made in this chapter to discuss the implementation aspects of cold storage units financed under CIS scheme. Different aspects like characteristics of cold storage

units, location, ownership, size, extent and pattern of their utilization etc., have been discussed based on details collected from the sample cold storage units as well as sample farmers covered for the study. Adherence to banking norms, adequacy of bank loan, margin money contribution, etc., have also been discussed in this chapter.

Location of cold storage units

The location of the cold storage units was decided mainly by the existence of production and market of the commodity to be stored alongwith necessary infrastructural facilities. IVIost of the sample cold storage units were ideally located near the markets and were also easily accessible by farmers. The units were also well connected by road. About 85 per cent of the cold storages were located within a distance of 12 to 15 kms from the district headquarters. The mandis and villages were also situated within a distance of 10 kms from the units. This ideal location of the cold storage units contributed towards reduced cost of transport to the farmers to a greater extent. The service area of the cold storage can be considered as around 10 to 12 villages.

However, it was observed that in most of the states, the cold storage units were located in two or three major districts. The implementation of the CIS scheme also promoted additional units in the same area, which led to more concentration of cold storages. For example, a majority of the units in Andhra Pradesh were concentrated in Guntur and Visakhapatnam. Similarly, most of the cold storages were located at Indore and Gwalior in IVIadhya Pradesh, Agra, Faridabad and Kannauj in Uttar Pradesh. Such a tendency of concentrating units in a specified area would lead to competition among several units that may reduce the rental charges of the produce, etc., and put undue pressure on the viability of cold storage units.

26


Ownership pattern and management

IVIost of the owners of sample cold storage units had other businesses as their primary activity and the cold storage business always remained a secondary/tertiary business. The staff managed the cold storages and owners generally visited them at weekly intervals. During the field study, it was observed that there is still greater scope for the cold storage units to market their services more aggressively. About 95 per cent of the cold storage units were owned and operated as limited companies/ ownership firms and the remaining 5 per cent of the units were owned by co-operative societies. In general, the staffing pattern of the cold storage unit includes a manager, two operators/ electricians, 4-5 skilled labourers and two security men. Skilled labourers were used for loading and unloading of stocks. In addition, unskilled labourers were used during loading and unloading periods for various operations like grading, packaging, loading in the trucks, etc. In most of the cases, the wages of unskilled labourers were collected from the users of the unit.

Capacity created and utilisation pattern

The average capacity created per unit of sample cold storage unit was 6188 tonnes during the reference year with the size ranging from 2300 - 10000 tonnes (Table 4.1). The sample cold storage units in Gujarat were predominantly small in size with average capacity created being 2707 tonnes. However, the units in Andhra Pradesh and Uttar Pradesh

Table 4.1 : Capacity created and utilised (In tonnes)

Particulars Capacity Capacity Capacity %of Sanctioned created utilised Utilisation

Capacity wise Small 2535 2348 2140 91 Medium 4528 4374 3803 87 Large 8786 10051 8203 82

State wise Andhra Pradesh 7490 8160 8200 100 Gujarat 2873 2707 2698 100 Madhya Pradesh 5829 5778 5297 92 Rajasthan 4338 4499 3116 69 Uttar Pradesh 8551 9806 7304 74

Overall 5789 6188 5190 84

27

Implementation Aspects

were larger in size with capacities of 8160 and 9806 tonnes, respectively The comparison of capacity created with the sanctioned capacity under the scheme indicated that, in general, there was a tendency of creating more capacity than the sanction. For the sample as a whole, the capacity created was about 7 per cent more than the sanction under the scheme and this trend was common in all the states except in Gujarat (Fig. 4.1). The small and medium sized units of less than 6000 tonnes had created less than the capacity sanctioned. The trend of creating more capacity than the sanction among larger units might be due to the contribution of higher share of the investment cost by them from their own sources.

Fig. 4.1 : State-wise pattern of capacity sanctioned, created and utilised under CIS scheme.

12000

10000--

10 O 8000

^ 6000 £ u a §• 4000

u 2000 - -

on Capacity Sanctioned 0 Capacity created S Capacity utilised

Overall

The capacity utilisation is one of the major factors, which directly influences the profitability of the cold storage units. The utilisation of the cold storage units depended upon various factors lil<e distance from the market, distance from the farmers'fields, involvement of the entrepreneur in day to day working of the cold storage unit, reputation of the entrepreneur in the area as perceived by the cold storage users, existence of other cold storage units in the district/adjoining district/state, provision of credit facilities to the farmers, etc. The capacity utilised for the sample as a whole worked out to 84 per cent fof principal crop stored. Full utilisation of capacity created was observed in Gujarat and Andhra Pradesh and it was 92 per cent in Madhya Pradesh. The capacity

- •^^ffc^i^?f::^f:!^mMmitS^:yim:?ii!x>?i;

28


Utilisation was relatively less in Uttar Pradesh (74%) and the least in Rajasthan (69%). The frequency distribution of the sample units according to capacity utilisation indicated that about 81 per cent of the sample units utilised the capacity of more than 75 per cent, whereas about 8 per cent and 11 per cent of the sample units were able to utilise the capacity to the extent of 51 to 75 per cent and 26 to 50 per cent, respectively.

Fig. 4.2 : Pattern of capacity sanctioned, created and utilised under CIS scheme.

12000

10000

s 8000

^ 6000

'o n O. 4000 CO U

2000

I Capacity Sanctioned I Capacity created I Capacity utilised

Small Medium Large

Among different categories of units, the capacity utilisation was relatively higher in the small size units (Fig.4.2). The percentage of utilisation of the capacity was to the extent of 91 per cent in smaller size units (less than 3000 tonnes) and 87 per cent in the medium size units (Table 4.1). The percentage of utilisation was comparatively less (82%) in the larger units of above 6000 tonnes.The above analysis revealed that there exists greater scope for improving the capacity utilisation of the units established in states like Rajasthan and Uttar Pradesh

Pattern of use of cold storage units

Potato was the major commodity stored in the sample cold storage units in all the selected states except Andhra Pradesh where it was chillies and turmeric. The cold storage units where potato was the predominant commodity stored were in operation from February to November in a year and they remained closed during December and January. During

29


this period, repair, cleaning and maintenance were undertaken. Potato was stored in the unit during February to March, immediately after harvest of the crop (Table 4.2). The outflow period starts from August and reaches its peak during October to November (Fig.4.3). With regard to commodities other than potato (chillies/turmeric), the inflow period was predominantly during March - April and outflow was widespread from June to November. The outflow was widely spread throughout the year with the maximum in the months of August to October. Since the cold storage units functioned throughout the year without any break, unlike the potato storing units, there were occasions when the commodities were stored for more than one year.

Fig. 4.3 : Inflow and outflow pattern of patato in cold storage units

10O

90

g

| 5 0

^ 40 U « CL 30 0

u

20

10

0

• Inflow H Outflow • Inflow H Outflow

^

,•, , , , ,r Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec

In general the cold storage units were used mainly for storing the produce from farmers on rental basis. Other major users of cold storages were the traders whose share in capacity utilisation of cold storage varied from 24 to 42 per cent in different states. The use of cold storages for own produce was relatively less, which accounted only for 5 to 10 per cent of the total capacity utilised. As far as Andhra Pradesh is concerned, all the sample cold storages were used exclusively for rental purposes and there was no use of the cold storage for own purpose. It was observed that the farmers sold the entire produce kept in the storage in one lot. It was also reported by the sample farmers that they sell about 30 per cent of the produce immediately after harvesting and keep the

30


remaining produce at the cold storage for future selling. Chillies and spices are kept in the cold storage for trading purposes. Hence, the inflow and outflow in cold storages is more frequent thereby increasing the capacity utilisation (Fig.4.4).

-5- 50

« 40

^ 30 o

« O 20

Fig. 4.4 : Inflow and outflow pattern of chillies in cold storage units

Inflow

Outflow

Table 4.2 : Inflow and outflow pattern (Per cent)

Months Potato Chillies/Turmeric Months

Inflow Outflow Inflow Outflow

January - - - 7.7 February 90.9 - 4.6 4.4 March 9.1 - 60.8 1.8 April - - 26.1 1.0 May - 0.5 5.6 6.9 June - 1.5 0.7 8.8 July - 9.6 1.1 12.0 August - 13.4 0.8 10.6 September - 19.9 0.3 11.0 October - 23.6 - 13.7 November - 31.5 - 13.6 December - - - 8.5

Total 100.0 100.0 100.0 100.0

31


Though potato was the main commodity stored in the cold storages in IVIadhya Pradesh, about 40 per cent of it was for wafer grade potato and 5 to 7 per cent for groceries. Wafer grade potatoes commanded 54 per cent more rental charges per quintal, compared to the table grade. In this case, the technology adopted was also observed to be different, requiring relatively high temperature (12 - 14° C) and high relative humidity (above 90 %) for its storage. These storage conditions prevent starch to sugar conversion. In addition, the chips grade potato is subjected to CIPC treatment to inhibit sprouting.

Trend in rental charges

The rental charge is the only major criterion which decides the profitability of the unit. The estimated average rent per tonne of potato was Rs.851 with a range from Rs.716 to Rs.894 (Table 4.3). Among different states the average rent charged was higher in Gujarat (Rs.908) followed by Madhya Pradesh (Rs.889) and Uttar Pradesh (Rs.804). The average rent was observed to be the lowest in Rajasthan (Rs.663).

Table 4.3 : Rental charges of potato per tonne during the year 2001-02

(Rupees)

State Maximum Minimum Average

Gujarat

Madhya Pradesh

Rajasthan

Uttar Pradesh

935

910

762

861

846

852

583

742

908

889

663

804

Average 894 716 851

The process of fixing the rental charges was decontrolled since 1996 and at present the cold storage unit owners from the local area are fixing the rental charges. The rental charges varied from commodity to commodity and among districts in the state, which is dependent on demand and supply interaction. With a view to assessing the trend of the rental charges for different periods of time, the data was collected from the sample units for three years since 1999-2002 and the results are presented in Table 4.4.

32


Table 4.4 : Rental value of potato per tonne

(Rupees)

Particulars 1999-2000 2000-01 2001-02 % decrease

Gujarat 938 937 908 3.20

Madhya Pradesh 957 912 889 7.11

Rajasthan 820 735 663 19.15

Uttar Pradesh 862 833 804 6.73

All India 904 874 842 6.86

There has been a declining trend in the rental charges of potato during the last three years. The average rental value for the sample as a whole was Rs.904 per tonne during the year 1999-2000, which was reduced to Rs.842 during 2001-02. Thus, the reduction in the rental charges was to the extent of 6.86 per cent. Among different states, the reduction in the rental charges was significantly higher in Rajasthan (19.15 %) followed by Madhya Pradesh (7.11 %). A discussion with owners of cold storages as well as farmers revealed that the establishment of more number of cold storage units in the study area was due to the implementation of CIS scheme which was in turn the major reason for the declining trend in the rental charges. However, this trend has favoured farmers.

Pledge finance

The banks were also extending produce/mortgage loans for the produce kept in cold storages at 50 per cent of the market value of stock. Government of Andhra Pradesh had also introduced a scheme operated through market yards known as 'Rythu Bandhu'. Under this scheme, 75 per cent of the value of the produce kept in the storage godowns subject to a maximum of Rs.50,000 was given as loan to each of the farmers. The produce kept by the farmers was covered by insurance and no interest was charged upto first 90 days. Thereafter, reasonable interest was charged. Almost all the financing banks were extending loan facilities for the produce kept in the cold storages in Andhra Pradesh.

In other states, financing banks do not extend pledge finance against cold storage receipts. However, the cold storage units were extending pledge loan to the farmers at a high interest rate of 18 per cent to 24 per cent per annum against the stock of potato stored in the cold storage.

33


The extent of pledge loan varied from 20 per cent to 50 per cent of the value of the stock held. In Uttar Pradesh, Madhya Pradesh and Rajasthan, the banks were providing a working capital limit to the cold storage units against the stock of farmers. The cold storage units were further extending pledge loan to the farmers at a higher rate by charging an additional 2 to 8 per cent per annum service charge. Since both of these practices are not beneficial to the farmers, the bankers should extend pledge loan to the farmers directly or the state government may consider implementing a scheme on the lines of 'Rythu Bandhu' scheme of Andhra Pradesh.

Thus, there is no common policy framework for the existing pledge loan against the stocks stored in the cold storage units in the present scheme and there is urgent need to integrate this aspect with the scheme.

Insurance

All the units studied had undertaken comprehensive insurance for the unit as well as plant and machinery. However, insurance for the stock was done only for 55 per cent of the sample units. During the field study, it was observed that most of the cold storage owners were not showing keen interest in insuring stock of the farmers. Wherever insurance was made, the premium was collected from the farmers/users along with rental charges.

Interest rate

All the banks charged rate of interest as per the guidelines of the scheme i.e., one per cent more than the Prime Lending Rate. The ultimate rate of interest charged varied from 12 to 14.5 per cent among different states. However, majority of the banks charged 13 per cent interest.

Repayment period

The repayment period suggested under the CIS scheme was nine years with two years grace period. During the grace period only interest was to be collected. However, the study revealed that there was no uniformity in fixing the period of repayment. The repayment period fixed varied from five to nine years and it was also fixed arbitrarily without following any specific norms. Further, it was observed that in the case of 33 per cent of the loan accounts only, the grace period allowed was two years. In other cases it varied from six to eighteen months. Hence, it can be concluded that the banks wanted quicker recovery of the loans.

34


Release of subsidy

As per the guidelines of the CIS scheme, a back ended subsidy of 25 per cent of the total project cost subject to a maximum of Rs.50 lakh is available to the cold storage units. The subsidy is available only in those states/union territories/areas, which do not administer or control rentals for cold storages under any statutory or administrative order. Half of the eligible subsidy amount is released as advance subsidy to the financing bank after the scheme is appraised/sanctioned by NABARD and issue of sanction letter by the financing bank. The subsidy admissible to the borrower is kept in a separate account by the financing bank in the name of the borrower. The remaining 50 per cent of the subsidy amount is disbursed to the participating bank by NABARD only after conduct of an inspection by the Joint Monitoring Committee consisting of officials from NABARD, financing bank (generally the concerned Branch Manager) and a representative of the National Horticultural Board. For this purpose the promoters/financing bank initiate necessary action to get the inspection conducted on the project site by the Joint Monitoring Committee when the project is nearing completion. After conduct of inspection, the bank submits the claim for final subsidy in the prescribed format to NHB through NABARD enclosing Monitoring Committee report, compliance if any and completion certificate. The final subsidy is released on the basis of the satisfactory report on the completion of the project. The bank cannot charge any interest on the subsidy portion of bank loan. It is envisaged that the subsidy amount is credited to the borrower's account by the financing bank on the same day of its release by NABARD.

The study revealed that the share of subsidy released was 25 per cent of the total cost in all the states except in Gujarat, where it was 19.51 per cent, which was due to creation of lesser capacity as compared to the sanctioned one. The time taken for release of subsidy varied from two weeks to three months among different states.

Benefit at farmers' level

The primary data collected from the sample farmers revealed that about 52 per cent of the sample beneficiaries using the cold storage facilities belonged to small and marginal farmers. About 82 per cent of the sample farmers reported the availability of cold storages within 5-10 kms with easy accessibility. Availability of storage space was also not reported to be a problem by any of the sample farmers. Before the implementation of

35


the scheme, the farmers used to approach cold storage units in far away places and had to face long queues at the time of storing and were sometimes forced to sell their produce at unremunerative prices due to non availability of storage space. The implementation of the scheme provided more number of cold storage units and owners/agents of these units approached the farmers to persuade them to keep their produce in their unit. There were occasions when incentives, discounts and other facilities were also offered to the farmers so that capacities in the store were fully utilised. In the case of potato producing farmers, they used to sell around 35 per cent of the produce at the time of harvest and store the remaining quantity in the cold storage units in order to realize better prices.

Fig. 4.5 : Monthly average wholesale price of potato in Lucknow market (1999-2002)

600 LUCKNOW Market

600

Ax 5 ** •A 400 / \ C • • -" \ C ^ ^ » *"^ \

100 100

Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec

Benefit of the cold storage unit as a price advantage was worked out as the difference between farm gate price at the time of loading and unloading of potato in the cold storage unit. In terms of expenditure, the rent paid by the farmer for transport, loading and unloading costs were worked out. The estimated average price advantage for the sample as a whole worked out to Rs.186/quintal and it was relatively higher in Madhya Pradesh (Rs.212/quintal) than the other states (Rs.144 - 155/quintal) (Table 4.5). As discussed elsewhere in the report, storage of wafer quality potato was the reason for better price advantage in Madhya Pradesh when compared to other states. The prime advantages of storage of potato between loading and unloading periods were further validated using the trend in wholesale prices of potato in the selected markets from the study areas (Fig.4.5 and 4.6) (Annexure 4.1).

36

i^SyK^ii^S5S?;aiSS^gK©iS*SSS:r?SJ


Fig. 4.6 : Monthly average wholesale price of potato in Jaipur market (1999-2002)

450

400

350 W

5 300

* * 260

£ S 200 'C

a. 150 100

SO

0

JAIPUR Market

Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec

On the expenditure side, the average cost per quintal incurred by farmers worked out to Rs.101 with a range of Rs.104 in Madhya Pradesh to Rs.83 in Rajasthan. The estimated net benefit for storing one quintal of potato worked out to Rs.85 for the sample as a whole and it was higher in Madhya Pradesh (Rs.108) followed by Rajasthan (Rs.68). Further, the value addition for the commodities stored in the cold storage units as a result of packing, grading and minimurh processing ensured a better price and enhanced market demand. This advantage has been taken into account while realizing the sale prices. The above analysis clearly indicates the advantage to farmers due to implementation of the scheme both in terms of financial margins as well as by providing other amenities.

Table 4.5 : Estimated margin per quintal of potato for farmers

(Rupee)

State Price Price Price Rent Transport, Total Net

(Feb/ Mar)

(Oct/ Nov)

advantage loading and unloading

cost

cost benefit

Gujarat 431 586 155 89 14 103 52

Madhya Pradesh 411 623 212 88 16 104 108

Rajasthan 423 574 151 66 17 83 68

Uttar Pradesh 424 568 144 80 14 94 50

Over All 426 612 186 85 16 101 85

37


With a view to identifying the reasons for not using the cold storage, control samples of 27 farmers with a fair distribution of small and marginal farmers were studied and the results are presented in Table 4.6. The farmers who are not using the cold storage were fully convinced about the advantage. They were not able to store mainly because of distress sale, which accounted for 59 per cent of the farmers. Though owners of the cold storage units provided pledge loan facilities, the farmers were not aware of these facilities. Low production of potato was yet another reason, which was expressed by 11 per cent of the control farmers. Higher risk in potato price and low information about such facilities restricted about 19 per cent of the control farmers in using the cold storage unit. Lack of proximity to the cold storage was also one of the reasons expressed by 11 per cent of the control farmers for not using the cold storage.

Table 4.6 : Reasons for not storing in tlie cold storage by control farmers

Reasons Farmers Reasons

Number Percentage

Distress sale

Low production

Higher risk In potato price

Distance

16

3

5

3

59

11

19

11

Total 27 100

38

COST OF iM¥iSTIi i^

T ^f his chapter attempts to quantify the item-wise cost of investment of the sample cold storage units constructed under the scheme at historical prices. Adequacy of loan amount and other sources

of funds were also examined. Since the technical parameters of the cold storage projects are significantly influencing the cost of investment, a brief discussion on the technical aspects of the projects has also been attempted in this chapter.

Technical aspects of cold storage units

The basic principle of preservation in the cold storage is removal of heat from a commodity or space. For preservation of commodities, a temperature lower than that of the natural surroundings is achieved in the storage chambers. This is achieved with the help of a refrigerant. The technology of refrigeration is based on Vapour Compression System (VCS). There are three types of VCS systems available depending upon the cooling arrangements viz., diffuser type, bunker type and fin coil type. The operational cost of diffuser type of system is higher as compared to other VCS systems. Bunker type systems are the cheapest and the most suited for storage chambers having height more than 11.5 m. This technology is very common and all cold storages studied in Uttar Pradesh and iVIadhya Pradesh are using this technology.

The cold storage units studied in Rajasthan used both bunker as well as fin coil system. Fin coil systems are used for cold storage chambers with heights of 5.4 m onwards. This technology is about 5 per cent costlier than bunker type but it is very energy efficient with low operational cost and higher space availability for storage of produce. The cold storage units studied in Andhra Pradesh (except one where bunker type system was used) and Gujarat used Fin coil systems. The cold storages in Andhra Pradesh used air circulation units, which were more efficient in maintaining the desired temperature. Vapour Compression System (VCS) consists of a Compressor, Condenser, Expansion valve and Evaporator.

39

Cost of Investment

Refrigeration cycle

The cooling in VCS is accomplished by evaporation of a liquid refrigerant under reduced pressure and temperature. The fluid enters the compressors where the temperature is elevated by mechanical compression. The vapour condenses at this pressure, and the resultant heat is dissipated to the surrounding. The high-pressure liquid then passes through an expansion valve through which the fluid pressure is lowered. The low-pressure fluid enters the evaporator where it evaporates by absorbing heat from the refrigerated space, and re-enters the compressor. The whole cycle is repeated and the cooling effect is achieved. The compressor and condenser are installed outside the storage chamber as considerable amount of heat is generated in this area, whereas, the expansion valve and evaporator are inside the chamber. The refrigerant (ammonia gas) filled in the evaporator at a low pressure absorbs heat from the storage chamber and the commodities stored in the chamber. The storage chambers are fabricated with insulation material, which help in maintaining the desired low temperature.

Cold chain

As the name indicates, this is a system which provides a series of facilities for maintaining ideal storage conditions from the point of origin to the point of consumption for perishable commodities in order to preserve quality and ensure longer shelf life. In other words, a product in a cold chain moves through pre-cooling units at the farm, refrigerated transport vehicles for transportation of the product to a cold storage, both at producing and consuming centres, network of super markets with refrigerated cabinet display units and finally reaches the domestic refrigerator of a consumer. The ideal storage temperature must be maintained all throughout the chain. Under the scheme, NABARD has sanctioned cold storage units with pre-cooling facility. However, no further cold chain components are supported to maintain the cooling achieved.

Insulation material

The purpose of insulation is to reduce heat ingress through the wall ceiling and floor of the storage chamber. If proper insulation of storage chamber is not provided, it will increase the energy requirements leading to high operating cost. Various types of insulating materials such as

40


cork, glass fibre, mineral fibre, foam, polystyrene, extruded polystyrene, cellular glass or foam glass, phenolic foam, polyurethane foam etc., are used. However, the most commonly used insulation material for insulation of sidewalls, partition walls, floor and roof of cold storages is thermocol. Poly Urethane Fibre (PUF) panels are also used for insulation to some extent. All the cold storage units, which were studied, used thermocol as insulation material except one in Andhra Pradesh where Polyurethane Foam (PUF) panels were used. Proper thickness of insulating material should be used for insulation of walls. Generally, two layers of insulating material are used. A 100 mm thickness of low-density thermocol is used for sun facing walls and roof, whereas 80 mm thickness of low-density thermocol is used for other two walls. Partition walls were insulated with 40 mm low-density thermocol and a thickness of 80 mm high-density thermocol used for floors.

Scope for technological upgradation

As discussed elsewhere in the report, majority of the units were designed for storing a single commodity only and these units were not suitable for storage of other perishable products like fruits, vegetables, milk and livestock products which require specific temperature and humidity conditions. However, it was observed that there exists scope for converting the existing big chambers into smaller chambers for storing multiple produce with a marginal increase in the cost. Also, there exists scope for improving the mechanical equipments such as high-speed compressors, cooling coils and condensers for upgrading the units, thus improving their utility and viability.

Cost of investment

The major items of investment cost of the cold storage units include (i) construction of chambers, (ii) thermal insulators, (iii) plant and machinery for refrigeration system and (iv) electrical fittings and fixtures. The average cost of investment per unit worked out to Rs.154.80 lakh per unit and it was Rs.2501 per tonne of capacity created as compared to Rs. 4000 per tonne normative cost under CIS scheme, which works out 62.53 per cent. The normative cost (Rs. 4000 per tonne) was fixed by NABARD in consultation with NHB keeping in view the various locations and types of units to take care of variation in actual cost of investment in different states and type of technology. Disaggregating the sample units

41

Cost of Investment

according to size of the units revealed that the cost of investment per unit has increased according to the capacity. However the investment cost per tonne of capacity utilised was inversely related to the size of the units. (Table 5.1).

Table 5.1 : Capacity-wise average investment cost of cold storage units at historical prices.

Size of unit Investment cost per unit (Rs.lakh)

Capacity created (tonne)

Investment cost per tonne (Rs.)

Small

Medium

Large

104.26

120.76

216.98

2348

4374

10051

4440

2761

2159

Overall 154.80 6188 2501

Among different states, the cost of investment per unit was observed to be relatively higher in Andhra Pradesh (Rs.220.44 lakh) followed by Uttar Pradesh (Rs. 196.90 lakh) whereas it was least in Rajasthan (Rs.119.43 lakh) (Table 5.2). Increased capacity created, construction of multiple chambers for storing commodities other than potato, use of air circulation units and higher cost of land were the major factors that contributed to increased value of cost of investment per unit in Andhra Pradesh compared to other states. However, the cost of investment per tonne of capacity created was relatively higher in Gujarat (Rs.4475) followed by Andhra Pradesh (Rs.2702) and it was least in Uttar Pradesh (Rs.2008).

Table 5.2 : State-wise average investment cost of cold storage units at historical prices.

State Investment cost Capacity created Investment cost per unit (Rs.lakh) (tonne) per tonne (Rs.)

Andhra Pradesh 220.44 8160 2702

Gujarat 121.13 2707 4475

Madhya Pradesh 126.45 5778 2188

Rajasthan 119.43 4499 2655

Uttar Pradesh 196.90 9806 2008

Overall 154.80 6188 2501

:;:S-SSSSia:V:3iftSSSK4^^

42

Capital Investment Subsidy Scheme •ifmcmyfifff^^^x^^M

With a view to identifying the contributing factor for variation in the cost of investment per tonne among different states and size of units, break up of cost was worked out.

Civil works included construction of cooling chambers, drying shed, machine room, office, staff quarters, water tank, boundary wail, etc. Internal frames were constructed with RCC columns. The items included under wooden racks include wooden stairs and beams, floors, fanties and battens. Major items under plant & machinery included are compressor, condenser, receiver, air-cooling units, associated piping and control panels. The insulation items included the expenditure on glass wool, thermocol, wire mesh, wooden frames and cement/lime plasters over wire mesh. IViisceilaneous expenditure included preliminary and pre operative expenses. An analysis of break up of cost of investment revealed that civil/wooden work constituted a major share followed by plant & machinery (Fig.5.1).

Fig. 5.1 : Break up of cost of investment

Land and Land dev Miscellaneous 5%

Plant & Machinery ^°''°'

Civil works 64%

As per the operational guidelines of the CIS scheme, value of land should not exceed 10 per cent of the total investment cost approved by the bank. The cost of land needs to be considered only when the land is purchased. Further, the value of land is to be reckoned towards the margin money requirement of the entrepreneurs. The value of land should be its purchase value and only that portion of land is to be included as margin money. As could be seen from table 5.3, the percentage share of cost of land worked out to 5.56 per cent to the total cost of investment, which is less than the scheme assumptions.

43

Cast of Investment

Table 5.3 : Capacity-wise breakup of cost of investment per tonne.

(Rupees)

Size of Land and land Civil/ wooden Plant & Misc. Total

unit development works machinery expenditure

Small 149 3036 1127 128 4440

(3.36) (68.38) (25.38) (2.88) (100.00)

Medium 76 1716 739 230 2761

(2.75) (62.15) (26.77) (8.33) (100.00)

Large 165 1378 578 38 2159

(7.64) (63.83) (2677) (1.76) (100.00)

Overall 139 1604 666 92 2501

(5.56) (64.13) (26.63) (3.68) (100.00)

Figures in parentheses indicate percentage to total.

An analysis of the pattern of break-up of cost of investment among different size groups revealed that investment cost per tonne was significantly higher in small units (Rs.4,440) when compared to medium units (Rs.2,761) and large units (Rs.2,159). The major contributing factor for increase in per unit cost in smaller units was mainly on account of increased expenditure on civil/wooden work.

Table 5.4 : State-wise breakup of cost of investment per tonne

(Rupees)

State Land and land CivilAA/ooden Plant & Misc. Total

development works machinery expenditure

Andhra 86 1851 698 67 2702

Pradesh (3.19) (68.50) (25.83) (2.48) (100.00)

Gujarat 132 3150 1057 136 4475

(2.95) (70.39) (23.62) (3.04) (100.00)

Madhya 78 1380 550 180 2188

Pradesh (3.56) (63.07) (25.14) (6.23) (100.00)

Rajasthan 121 1647 747 140 2655

(4.56) (62.03) (28.14) (5.27) (100.00)

Uttar Pradesh 194 1198 578 38 2008

(9.66) (59.66) (28.79) (1.89) (100.00)

Overall 139 1604 666 92 2501 (5.56) (64.13) (26.63) (3.68) (100.00)

Figures in parentheses Indicate percentage to total.

44


The break-up of cost of investment per tonne among different states indicates that the cost per tonne was significantly higher in Gujarat (Rs.4,475) when compared to other states which might be due to high cost of investment in civil structure and plant and machinery (Table 5.4). Higher cost under civil structure in Gujarat which works out to Rs.3,150 per tonne was mainly on account of construction of anti seismic building of cold storages probably with cross beams and RCC walls. Similarly, the cost of investment on plant and machinery was also observed to be higher in Gujarat, which might be due to use of high cost technology such as fin coil system. The lower investment cost in Uttar Pradesh was due to setting up of single commodity cold storages having bunker type technology. In these units, potato was the only commodity stored.

Bank loan and subsidy released

Adequacy of bank loan sanctioned and disbursed for construction of cold storage units under the scheme has been analysed by comparing its value with the actual cost of investment and the details are given in Table 5.5.

Table 5.5 Capacity-wise details of cost of investment and bank loan

(Rs. lakh)

Size of Actual Investment Banl< loan Subsidy Margin Bank loan

unit investment cost

cost approved by NABARD

disbursed released money as % of actual cost

Small 104.26 110.17 57.57 22.37 24.32 55.22

l^edium 120.76 124,02 60.07 29.57 31.12 49.74

Large 216.98 211.86 98.64 37.76 80.58 45.46

Overaii 154.80 155.78 74.12 31.29 49.40 47.88

The cost of investment per unit as approved by NABARD was Rs.155.78 lakh, which was almost equal to the actual cost of Investment (Rs.154.80 lakh). Hence, there was no significant difference between the cost of investment as appraised by NABARD and actual cost of investment. The estimated bank loan disbursed worked out to Rs.74.12 lakh for all the units, which accounted for about 48 per cent of the total cost of investment. As expected, the bank loan disbursed had registered an increase corresponding to the capacity created and the actual cost of investment. Among different states, the percentage of bank loan to the

45

Cost of Investment Kss;ss?;:>s?s^S's

actual cost of investment was observed to be relatively higher in Gujarat and Andhra Pradesh followed by Rajasthan and Madhya Pradesh and it was least in Uttar Pradesh (Table 5.6).

Table 5.6 : State-wise details of cost of investment and bank loan

(Rs, lakh)

State Actual Investment Bank Subsidy Margin Banic loan

Investment cost loan released money as % of

cost approved by

NABARD disbursed actual cost

of

Investment

Andhra 220.44 222.06 119.90 46.39 54.16 54.39

Pradesh

Gujarat 121.13 129.50 66.57 26.80 27.76 54.96

Madhya 126.45 128.64 61.55 31.16 33.74 48.68

Pradesh

Rajasthan 119.43 119.71 59.50 29.25 30.68 49.82

Uttar 196.90 190.53 77.05 28.60 91.25 39.13

Pradesh

Overall 154.80 155.78 74.12 31.29 49.40 47.88

The estimated subsidy worked out to Rs.31.29 lakh and the share of subsidy to the total investment cost was 20.21 per cent. In conformity with the guidelines of the scheme, the subsidy released was less than 25 per cent of the cost of investment and less than the maximum ceiling of Rs.50 lakh. In about 85 per cent of the sample units, there was no delay in release of the subsidy and in the remaining cases also, the subsidy was released after a period of 65 days.

Cost and time overrun

All the sample units were constructed and put into operation within a period of 6 months and hence there was no time overrun. As a result, the cost of investment was almost equal to the cost of the project approved by NABARD and hence there was no cost overrun in most of the cases.

46

T y his chapter attempts to examine the financial viability of the selected cold storage units based on the parameters such as gross income, operational expenditure and net income realized

by the units. The present level of viability as well as its scope for improvement was assessed by working out break-even point for selected economic parameters.

Gross income

The estimated gross income per unit for the sample as a whole worked out to Rs.43.70 lakh and it was Rs. 842 per tonne of capacity utilised (Table 6.1), Disaggregation of sample units according to capacity revealed direct relationship of per unit of gross income with capacity utilised and inverse relationship with per tonne of gross income. The level of gross income was influenced by capacity created as well as the nature of produce stored in the cold storage.

Table 6.1 : Capacity-wise details of gross income

Size of unit Gross income (Rs.lakh /unit)

Gross income (Rs./tonne)

Small

Medium

Large

20.49

33.95

65.83

957

892

802

Overall 43.70 842

Among different states, the gross income per unit was relatively higher in Andhra Pradesh followed by Uttar Pradesh and Madhya Pradesh and the same was relatively low in Gujarat and Rajasthan (Table 6.2). However, the gross income per tonne of capacity utilised was observed to be the highest in Gujarat (Rs.949), followed by Madhya Pradesh (Rs.889) and Uttar Pradesh (Rs.841) and it was least in Rajasthan (Rs.728). As indicated in Chapter IV (Table 4.3) increased rental value

47

Economics of Investment

of potato and better capacity utilisation (Table 4.1) were the contributing factors that had positively influenced the higher gross income per tonne in Gujarat when compared to other states.

Table 6.2 : State-wise details of gross income

State Gross Income Per Unit (Rs. Lakh)

Gross Income Per Tonne (Rs.)

Andhra Pradesh Gujarat

Madhya Pradesh Rajasthan Uttar Pradesh

65.45

25.61

47.11

22.69

61.43

798

949

889

728

841

Overall 43.70 842

The major source of income in the cold storage units was through collection of rent from the storage of potato and other commodities. It was also observed that owners store their own produce. For the purpose of estimating the income from the storage of own produce, in addition to the rental value of produce, the saving in transport cost was taken as benefits. As indicated in table 6.3, about 6 per cent of the produce stored was from own sources and this share was relatively higher in low capacity created units than the higher capacity created units.

Table 6.3 : Capacity-wise break-up of gross income (Rs.lakh)

Size of Unit Stored Produce (Tonnes)

Income from own produce*

Rental Income

Total Income

Size of Unit

Owned Hired

Income from own produce*

Rental Income

Total Income

Small

Medium

Large

804

185

187

1336

3516

8016

7.67

2.64

1.90

12.82

31.31

63.93

20.49

33.95

65.83

Overall 311 4834 3.41 40.29 43.70

* Includes savings in transport cost and rental value

The use of cold storage for own produce was observed to be more predominant in states like Gujarat, Uttar Pradesh and Madhya Pradesh and the units were exclusively used for rental purposes in Rajasthan and Andhra Pradesh (Table 6.4).

48


Table 6.4 : State-wise break-up of gross income (Rs.lakh)

Size of Unit Stored Produce Income from Rental Total (Tonnes) own produce* Income Income

Owned Hired

own produce* Income Income

Andhra Pradesh - 8200 - 65.45 65.45

Gujarat 803 1894 7.61 18.00 25.61

Madhya Pradesh 338 4960 6.19 40.92 47.11

Rajasthan - 2873 - 22.69 22.69

Uttar Pradesh 223 7082 1.77 59.66 61.43

Overall 311 4834 3.41 40.29 43.70

* Includes savings in transport cost and rental value

Operational and maintenance cost

The operational and maintenance cost of the cold storage unit included expenditure on electricity and diesel, salaries and wages, repair, insurance, ammonia, post and telegraph and administrative expenses. The estimated total operational and maintenance cost per annum per unit worked out to Rs.17.70 lakh and it was Rs.341 per tonne of capacity utilized (Table 6.5).There was a direct relationship between the capacity created and the operational cost per annum and an inverse relationship with cost per tonne of capacity utilised.

Table 6.5 - Capacity-wise details of O & M cost

Size of unit Annual 0 & M Cost per unit (Rs. in lakh)

Annual O & M Cost Per Tonne (Rs.)

Small

Medium

Large

8.27

14.44

25.98

386

379

317

Overall 17.70 341

Among different states, the total operational cost per unit was relatively higher in Uttar Pradesh followed by Andhra Pradesh and it was least in Gujarat (Table 6.6). However, the estimated operational and maintenance cost per tonne was relatively higher in Uttar Pradesh ( Rs. 386) followed by Rajasthan and it was least in Andhra Pradesh.

49


Table 6.6 : State-wise details of 0 & M cost (Rs. lakh)

State Annual O&M cost per unit (Rs. in lakh)

Annual O&M cost per tonne (Rs.)

Andhra Pradesh

Gujarat

Madhya Pradesh

Rajasthan

Uttar Pradesh

23.31

8.97

17.62

10.47

28.17

284

332

333

336

386

Overall 17.70 341

Expenditure on electricity and diesel was found to be the single largest cost involved as variable cost, which worked out to 64.68 per cent and it was showing a decreasing trend as the quantum of capacity created increased (Table 6.7), The expenditure on salary was found to be the next major item of cost, which accounted for 16.24 per cent, followed by administrative & miscellaneous (10.33%) and repairs (3.97%). The proportion remained the same among cold storage and different capacity utilised and also among different states.

Table 6.7 : Capacity-wise break-up of operational cost (per cent)

Size of

Unit Salaries &

wages

Repairs Insurance Electricity & diesel

Ammonia Admn &

IVIisc Total

Small

Medium

Large

15.64

16.97

15.95

3.64

3.39

4.36

5.55

2.50

2,56

69.29

69.07

59.63

1.57

1.15

2,09

4.31

6,92

15,41

100

100

100

Overaii 16.24 3.97 3.00 64.68 1.78 10.33 100

Among different states also, the expenditure on electricity and diesel was in the range of 57.76 per cent in Uttar Pradesh to 69.65 per cent in Gujarat (Table 6.8).

The expenditure on insurance was in the range of 2 to 4 per cent among different states. Administrative expenditure was relatively higher in Uttar Pradesh, Madhya Pradesh and Andhra Pradesh and it was significantly low in Gujarat and Rajasthan.

50


Table 6.8 : State-wise break-up of operational cost

(per cent)

State Salaries

& wages

Repairs Insurance Electricity

& diesel

Ammonia Admn &

Misc

Total

Andhra 14.42 2.80 2.15 65.98 1.20 13.45 100

Pradesh

Gujarat 15.80 3.16 3,91 69.65 1.25 6.23 100

Madhya 15.83 3.86 2.50 63.61 0.57 13.63 100

Pradesh

Rajasthan 19.88 2.92 2.50 65.32 2.58 6.80 100

Uttar 16.08 4.26 3.52 57.76 2.41 15.97 100

Pradesh

Overall 16.24 3.97 3.00 64.68 1.78 10.33 100

Net income

The estimated net income, which is the difference between gross income and operational cost per annum worked out to Rs.26.00 lakh per unit and it was Rs.501 per tonne of capacity utilised (Table 6.9). Similar to the pattern of gross income and operational expenses, there was a direct relationship between capacity utilised and net income and an inverse relationship between capacity utilised and net income per tonne. As discussed elsewhere in the report, relatively increased net income per tonne realised by larger units when compared to small and medium size units were mainly due to storing multiple commodities in states like Andhra Pradesh.

Table 6.9 : Capacity-wise details of net income

(Rs. lakh)

Size of Unit Net Income Per Unit (Rs.in lakh)

Net Income Per Tonne (Rs.)

Small

Medium

Large

12.22

19.51

39.85

571

513

486

Overall 26.00 501

51


Among different states, the net income per unit as well as per tonne of capacity utilised was higher in Andhra Pradesh followed by Uttar Pradesh and it was least in Rajasthan (Table 6.10). Higher net income in Andhra Pradesh might be due to full capacity utilisation and storing of multiple products with higher rental values. Relatively poor capacity utilised and low rental value of potato and storing of single commodity (potato) were the contributing factors for low income in Rajasthan. Increased cost of maintenance in Gujarat due to technical specifications was also responsible for low net income.

Table 6.10 : State-wise details of net income

State Net Income Per Unit (Rs. in lakh)

Net Income Per Tonne(Rs)

Andhra Pradesh

Gujarat

Madhya Pradesh

Rajasthan

Uttar Pradesh

42.14

16.64

29.49

12.22

33.26

514

617

557

392

455

Overall 26.00 501

Cash flow statement

For the purpose of assessing the financial viability of the cold storage units, financial rate of return has been worked out for which cash flow statements were prepared on the basis of the following assumptions.

• The life of civil structures is more than 50 years and plant and machinery were also working well for more than 15 years. Hence, for the purpose of analysis, the cash flow has been prepared for the period of 15 years.

• The average capacity utilisation, the net income generated were valued at the reference year prices and the details collected from sample units were used for the purpose of the analysis.

• The salvage value worked out was 50 per cent of the value of civil structure and 20 per cent of the value of plant and machinery.

• Subsidy was not considered in the cash flow analysis and the entire actual cost has been taken into account.

52


The details of cash flow statement for the samples categorised according to size of capacity utilisation as well as among states are presented in Table 6.11.

Table 6.11 : Cash flow statement (Rs. lakh)

Size of Unit/ Cost of Investment at Net Income Salvage Value State current prices (0 th Year) (1-15 years) (15 th Year)

Small 110.08 12.22 40.94

Medium 127.64 19.51 44.00

Large 227.16 39.85 60.86

Andhra Pradesh 240.69 42.14 86.90

Gujarat 126.52 16.64 40.93

Madhya Pradesh 132.71 29.49 46.23

Rajasthan 131.67 12.21 43.76

Uttar Pradesh 199.11 33.26 70.06

Overall 162.73 26.00 57.90

Financial rate of return (FRR)

Based on the details of cash flow statements, financial rate of return was worked out for the sample units and the results are presented in Table 6.12. The analysis shows that the FRR for all the sample units worked out to 14.33 per cent. However, if the subsidy is included, then there was an improvement in the viability, which worked out to 19.35 per cent for the sample as a whole.

Table 6.12 : Capacity-wise financial rate of return (FRR) (per cent)

Size of Unit Actual capacity Full Capacity Size of Unit

without subsidy

with subsidy

without subsidy

with subsidy

Small

Medium

Large

9.00

13.72

15.96

12.61

19.04

20.25

10.28

16.32

20.40

14.11

22.22

25.22

Overall 14.33 19.35 17.82 23.24

:'i*;:;«;^::SWK*iSB:>>

53

Economics of Investment SK^SSJSJftSSSSSS

Among different sizes of units, larger units were found to be viable with an FRR of 15.96 per cent and 20.25 per cent without and with subsidy, respectively. Medium sized units were viable only with subsidy but small units were not viable even with subsidy. The lower returns to small units were largely on account of higher cost of investment especially on the cost of buildings and other civil structures. With a view to assessing the impact of the level of utilization, the FRR has been worked out with the assumption of full capacity utilisation and the result showed that the returns substantially improved for all categories of units, though, the returns to small units was 14.11 per cent only with subsidy. However, it may be noted that FRR with subsidy in all cases at full capacity was higher than the rate of interest prescribed (PLR + 1%) for all types of units.

Among different states, the cold storage units were found to be financially viable in Andhra Pradesh, Madhya Pradesh and Uttar Pradesh and were not viable in Gujarat and Rajasthan (Table 6.13).

Table 6.13 : State-wise details of financial rate of return (FRR)

Size of Unit Actual capacity Full capacity Size of Unit

without subsidy

with subsidy

without subsidy

with subsidy

Andhra Pradesh

Gujarat

Madhya Pradesh

Rajasthan

Uttar Pradesh

15.89

11.22

21.38

6.53

15.05

20.66

15.52

28.65

10.09

18.30

15.89

11.28

23.54

11.54

21.46

20.66

15.59

31.37

16.09

25.53

Overall 14.33 19.35 17.82 23.24

Even after providing subsidy and utilisation of full capacity created, the sample cold storage units in Rajasthan were not financially viable. The cold storage units in Gujarat were found to be viable only after providing subsidy. This was mainly due to high cost of investment (Rs.4475/tonne) compared to other states (Rs.2008/tonne to Rs.2702/tonne). The cost of investment in Gujarat was relatively higher mainly on account of superior quality construction, having high density thermocol insulation, availability of load bearing capacity and earthquake resistant structures with fincoil system and well equipped scientific storage facilities to minimize post harvest losses.

;:sa;:*m:sfts¥aft;:s S¥i^/^yAiKft:A5i'iSSi-SiS;SiiS;:i%i«KSS^-ISaS5

54

^^^m^vy^mmmA Capital Investment Subsidy Scheme

Break even analysis

Keeping bankability as a basis, the viability of a cold storage unit has been fixed at a level of income generation of the unit to reach 15 per cent FRR and this point has been assumed as break even point. Accordingly, major parameters like expected net income and capacity utilisation were worked out to reach the viability of the units (Table 6.14)

Table 6.14 : Break even point to reach viability

State/Size Expected %0f Expected %of Net Income increase/ capacity Increase/

decrease utilisation Decrease

Andhra Pradesh 40.29 -4 7839 -4

Gujarat 20.72 +25 3358 +24

Madhya Pradesh 21.70 -26 3896 -26

Rajasthan 21.59 +77 7394 +137

Uttar Pradesh 33.26 0 7310 0

Small 17.89 +46 3133 +46

Medium 20.93 -7 4080 +7

Large 38.11 -4 8196 0

Overall 26.94 +4 5520 +6

The expected net income to attain viability was worked out at Rs.26.94 lakh for the sample as a whole. Hence, to attain the level of break even, the net income from the cold storage units needs to be increased to 4 per cent of the existing net income. Among different states, the need for increased net income was observed in Gujarat and Rajasthan, whereas in the remaining three states (Andhra Pradesh, Madhya Pradesh and Uttar Pradesh), the break-even gross income was within the existing income level.

Small size units were expected to increase the income level to about 46 per cent. Large and medium units were able to generate adequate income over and above the break-even point. Similarly, to reach viability level, the capacity utilization has to be increased to 5520 tonnes. Among different size groups, this was higher in small groups and among states, this was significantly higher in Gujarat and Rajasthan.

55

••I OSAF^^R Til

fiSPAywiHMT p^t\^oimvx^\ a£

ankability of any project is determined by generation of adequate

incremental income to repay the loan instalment due. The

recovery of bank loan is an important indicator for the success

of lending by a bank. This chapter examines the repayment performance

of the selected cold storage units in different states and also discusses

about the repayment norms.

The analysis of Demand, Collection and Balance of the sample units

(as on March 2002) indicates the satisfactory performance of the scheme

in terms of its recovery of bank dues (Table 7.1).

Table 7.1 : State-wise details of demand, collection and balance

(Rs. lakh)

State Demand Collection Balance Recovery percentage (%)

Andhra Pradesh 62.90 46.86 16.04 74.50

Gujarat 23.80 19.16 4.64 80.50

Madhya Pradesh 7.74 9.83 -2.09 >100

Rajasthan 5.47 12.35 -6.88 >100

Uttar Pradesh 9.87 11.22 -1.35 >100

Overall 19.74 18.05 1.69 91.44

The overall recovery percentage worked out to about 91 per cent and it

was more than cent per cent in states like Rajasthan, Madhya Pradesh

and Uttar Pradesh. The recovery performance was relatively less in

Gujarat (81%) and Andhra Pradesh (75%). The analysis of recovery

performance among different categories revealed that it was relatively

less in the small units (Table 7.2).

56


Table 7.2 : Capacity-wise details of demand, collection and balance

(Rs. lakh)

Size of the unit Demand Collection Balance Recovery percentage (%)

Small 19.72 14.91 4.81 75.61

Medium 11.07 16.24 -5.17 >100

Large 25.93 20.87 5.06 80.49

Overall 19.74 18.05 1.69 91.44

Out of 38 cold storage units selected, accounts were already settled in

case of one unit (Gujarat), whereas the repayment had not yet started

in two units (one each in Rajasthan and Gujarat) at the time of field visit.

The recovery was found to be more than 100 per cent in 22 units and it

was 100 per cent in case of 5 units. The recovery percentage was less

than 100 per cent (28% to 98%) only in case of 5 units. Two units in

Madhya Pradesh had made advance payment, whereas one unit in

Gujarat had not paid the instalment due.

It was observed that in Rajasthan although the units were not financially

viable at the present level of utilisation and the rentals realised, they

had not defaulted in repayment. The repayments were made out of the

income generated from other sources/ business occupations, as it was

reported to be the secondary activity of the owners. Only one case of

willful default was observed (Andhra Pradesh), where the unit had not

repaid to the extent of surplus available. Further, this fact could be

established by the fraud committed by the unit in the case of pledge/

working capital loans.

As per the scheme, the repayment period fixed was nine years with a

grace period of two years. However, the field study revealed that the

implementing banks had fixed shorter grace periods varying from 6-18

months in different states; as a result, the beneficiaries were forced to

make arrangements for repayment of dues through the income generated

from other sources.

57

Repayment Performance

Employment generation

Construction of cold storage units resulted in creation of non-recurring and recurring employment. Non-recurring employment was created during the construction period and it varied from 8990 mandays (per unit) in Andhra Pradesh to 14900 mandays (per unit) in Gujarat. On commencement of the operation, the unit provided recurring employment to the local population. It was observed that the average annual recurring employment generated in the cold storage units varied from 7 persons to 28 persons per cold storage unit throughout the year (i.e., 240 days). The proportion of installed capacity was observed to be higher in recurring as well as non-recurring employment in all the states.

58

mi,mmmmmmmmm>mmmmi»-- C H A P T E R VIO *»«=«ism™™«« ^ ^

CONCLUEilQN AND IIVIPLJCATJON' rOH i OLJCY

T y he present study is an attempt to evaluate the performance of cold storage units financed under CIS scheme. The study was

—' conducted in five selected states covering a sample of 38 new cold storage units financed under the scheme. With a view to assessing the performance of cold storages in different areas as well as for different sizes of units, the sample units were post-stratified according to state as well as capacity created. IVIajor conclusions drawn from the study are as under:

• The implementation of CIS scheme has significantly contributed in increasing the number of cold storage units in the study area.

• Cold stoTage units were owned and managed primarily by the private sector, which accounted for 95 per cent and the remaining 5 per cent by co-operative sectors. Potato was the major commodity stored in the units, which accounted for 59 per cent of the number of units and 85 per cent of the capacity created. However, chillies and turmeric were the major commodities stored in Andhra Pradesh.

• The average capacity created per unit was 6188 tonnes with a size ranging from 2300 to 10000 tonnes. The capacity created was about 7 per cent more than that sanctioned under the scheme and this trend was observed to be common in most of the states except Gujarat. The average size of cold storage units in Gujarat was relatively small when compared to other states. The average capacity utilised against its creation was 84 per cent and it was fully utilised in Gujarat and Andhra Pradesh. The level of utilisation was relatively low in Rajasthan. The utilisation was observed to be relatively higher in smaller units.

• The average rental charge for potato was Rs.851 per tonne for the sample as a whole with a range from Rs.716 to Rs.894 per tonne. The rental charges were relatively low in Rajasthan, which accounted for Rs.663 per tonne. Over crowding and creation of more number of cold storage units due to the implementation of CIS scheme has resulted in reduction in rental charges.

59

Conclusion and Implications for Policy

• The benefits of CIS scheme from the users point of view indicate that the farmers were able to get better price advantage due to storing the produce during harvesting season and selling it during lean season. They also had the advantage of improving the quality of the produce through value addition due to grading and packing for its storage in the cold storages.

• The investment cost per tonne worked out to Rs.2501, which was relatively higher in small and medium size units when compared to the larger units. Among states, the investment cost was significantly higher in Gujarat (Rs.4475), which was due to creation of lower capacity units and higher investment in civil structure. About 64 per cent of the cost was incurred for civil construction and wooden works, followed by plant and machinery. This trend remains the same among different capacities created as well as among states.

• The down payment contributed by the beneficiaries was significantly higher and the share of bank loan worked out to about 48 per cent of the actual cost of investment. The subsidy released was 25 per cent of the investment cost and time taken for release of subsidy varied from two weeks to three months. The interest charged by the banks varied from 12 to 13 per cent. Grace period was fixed at less than two years and repayment periods were fixed arbitrarily ranging from 5 to 9 years.

• All the units were operating in profit and attaining viability with the financial rate of return of 19.35 per cent for investment with subsidy and 14.33 percent with out subsidy. If the units were in operation with full capacity created then the viability might be increased to 23.24 per cent and 17.82 per cent for investment of with and without subsidy respectively. The cold storage units in Rajasthan were not viable even with subsidy due to low capacity utilisation and low rental charges.

• The repayment performance of the cold storage units was satisfactory and in many cases advance payment was observed.

Emerging problems

The study findings have identified the following major problems/ constraints faced by the cold storage units and its users:

60

Capital Investment Subsidy Scheme SgS^SWS5¥S:iS?;?!fS^

The excess storage capacity over the demand created under CIS scheme resulted in under utilisation of the units in a state like Rajasthan. Due to mismatch between demand and supply of capacity in the state, the cold storage units especially the new units were not getting sufficient supply to keep them viable. To mitigate this problem the cold storage owners have formed an Association in Jaipur and are vigorously pursuing with Food Corporation of India for storing wheat in their units.

Low capacity utilisation of cold storage units in a few selected states might be mainly due to low demand, more competition, low production and dependence of single commodity for storage.

Significant growth in the number of cold storages because of implementation of CIS scheme and over crowding and concentration of more number of cold storage units in specific pockets led to decline in rental value of commodities.

The expenditure on electricity constitutes the major share in the total expenditure and rising trend in tariff of electricity might further increase the operational cost significantly. This has resulted in making the cold storage units non-viable.

High operational cost due to inefficient cold storage technology like diffuser system, poor quality insulation, insufficient thickness and mis-match of plant and machinery with the capacity.

Inadequate infrastructural facilities mainly on forward and backward linkages and lack of effective tie up with the market arrangements restrict the farmers in using the cold storage facilities more extensively.

Inadequate availability of pledge finance to farmers and working capital support for cold storage unit owners.

Lack of cold chain in all states.

Lack of technology for storage of multiple products in Uttar Pradesh and Madhya Pradesh.

61

Conclusion and Implications for Policy

SWOT analysis

The strength of cold storage units is that they provide safe storage for perishable commodities and this benefits both the cold storage owners and the farmers/traders. Value addition for the commodities is yet another advantage.

Weakness of cold storage sector is that it is not exploring the possibilities of storing more varieties of commodities in multi chambers. Instead of creating big chambers for a single commodity, they can go for small/ medium sized chambers for storing a variety of commodities, depending on local demand.

The opportunities lie in the fact that cold storages are established in good production and marketing areas. Export potential can be explored, if more varieties of commodities can be stored by creating multi product chambers. Agro processing industries can also be started in adjoining areas. Linkages can be established with food processing centres.

Threats come from competition by the establishment of new units in nearby areas. Scanty rainfall can result in low production of commodities and if there is storage of only a single commodity, then the unit may end up with losses.

Action Points

The study findings have identified the following action points that may improve the performance of CIS scheme and ensure benefits to the cold storage owners and entrepreneurs and also the users like farmers and traders.

• There is a need to improve the efficiency of the cold storage units through conversion of existing potato cold storage units to multi purpose storage, if feasible.

• Given the relatively lower return generated by small units, they can consider minimising the cost of construction especially of the civil structure components for ensuring viable returns to the unit.

• While appraising projects with less than 3000 tonnes capacity, the beneficiaries may be advised to construct buildings and other civil

62


Structures only to the extent required for the projects, so that viability of these units can be enhanced.

Market linkages to food processing units can be provided if the commodities stored are of commercial nature. The farmers may be assured of quality maintenance. For that, the units may be actually in operation for a prescribed minimum number of hours every day.

Availability of pledge finance is a key issue, which needs to be addressed. At present, there is no common policy framework for the existing pledge loan against the stocks stored in the cold storages. These facilities may be integrated with the scheme.

Greater emphasis on value addition methods like grading, packing and minimum processing that enhance the quality of the commodities may be given which will have a direct impact on better demand and price in the market.

The commodities stored in the cold storage units may be adequately insured for which necessary/ compulsory arrangements must be built in the scheme implementation.

The CIS scheme has to be reviewed with reference to the policy in terms of area specific capacity created. To reduce the regional imbalances of overcrowding in specified areas, region specific allocation may have to be made while implementing such schemes taking into account demand and supply of commodities available for storage.

63

a:^i>hrSraL

Annexure 2.1 :

Annexure 3.1 :

Annexure 3.2 :

Annexure 3.3 :

Annexure 3.4 :

Annexure 3.5 :

Annexure 3.6 :

Annexure 4.1 :

Districts covered under the study

Growth of cold storages in India

Disbursement under storage/market yards

State-wise details of CIS scheme on cold storages

State-wise details of average capacity

Details of cold storage units according to type

Details of cold storages according to source of financing

Monthly average wholesale price of potato (1999 - 2002)

64


Annexure 2.1 : Districts covered under the study

Sr. No. Name of district State

1. Banaskanta Gujarat

2. Gandhinagar Gujarat

3. Anand Gujarat

4. Kutch Gujarat

5. Rajkot Gujarat

6. Mehsana Gujarat

7. Agra Uttar Pradesh

8. Firozabad Uttar Pradesh

9. Badaun Uttar Pradesh

10. Etawah Uttar Pradesh

11. Kannauj Uttar Pradesh

12. Jaipur Rajasthan

13. Bikaner Rajasthan

14. Bharatpur Rajasthan

15. Gwalior Madhya Pradesh

16. Indore Madhya Pradesh

17. Raipur Madhya Pradesh

18. Guntur Andhra Pradesh

65

Annexure

Annexure 3.1 : Growth of cold storages in India

Year Numbers Capacity (Tonnes)

1964 359 305513

1965 600 682100

1966 706 266470

1967 797 1115375

1968 929 1260346

1969 1091 1551256

1970 1218 1638331

1971 1318 1693980

1972 1403 1764332

1973 1503 1869974

1974 1576 1939524

1975 1615 1993992

1976 1747 2126935

1977 1971 2620699

1978 2072 3061355

1979 2300 3525608

1980 2283 3964525

1981 2370 4374785

1982 2457 4627624

Year Numbers Capacity (Tonnes)

1983 2495 4818336

1984 2488 5022568

1985 2522 5099115

1986 2607 5402160

1987 2659 5578442

1988 2749 6142014

1989 2797 6793377

1990 2942 7727849

1991 2970 7787599

1992 2973 7790000

1993 3053 8090000

1994 3124 8170000

1995 3167 8580000

1996 3253 8730000

1997 3443 10353090

1998 3502 10739030

1999 3597 11328900

2000 3886 13621981

2001 4146 14952000

Sources : (i) Rana, R.S.(1992) Refrigeration for perishables an integral part of marketing. Agricultural Marketing Vol. XXXV (3): 73

(ii) Economic Survey - 2001 -02.

66


Annexure 3.2 : Disbursement under storage/market yards

(Rs. lakh)

Year Plantation And

Horticulture

Share

(%)

Storage and Market

Yards

Share (%)

Total Disburse

ment

1981-82 3300 5.50 900 1.50 60000

1982-83 2700 3.84 1254 1.78 70300

1983-84 3800 4.26 941 1.05 89200

1984-85 4700 4.43 1196 1.13 106100

1985-86 6300 5.29 1855 1.56 119165

1986-87 6800 5.10 2591 1.94 133420

1987-88 7500 5.06 2895 1.95 148191

1988-89 6500 5.12 1562 1.23 127015

1989-90 9700 5.70 1339 0.79 170213

1990-91 9400 4.94 1420 0.75 190217

1991-92 9900 4.82 895 0.44 205436

1992-93 10500 4.45 1505 0.64 235911

1993-94 12200 4.44 1600 0.58 274500

1994-95 12900 4.28 1800 0.60 301100

1995-96 13800 4.50 2057 0.67 306420

1996-97 14900 4.23 1400 0.40 352300

1997-98 18600 4.74 1445 0.37 392200

1998-99 18200 4.03 1645 0.36 452100

1999-20 19500 3.74 1540 0.30 521531

2000-01 24700 4.01 10141 1.65 615810

2001-02 28000 4.19 22714 3.40 668291

CAGR (1981-82 to 1990-91)

14.63% 6.30% 12.52%

CAGR (1991-92 to 2001-02)

10.53% 23.43% 12,26%

w>iH'<S&>>SSSS:^

Annexure

Annexure 3.3 : State-wise details of CIS scheme on cold storages

(Rs. lakh)

Region/ State No. of

Schemes

Total

Financial

Outlay

(TFO)

Average

TFO

Bank

Loan

Average

Bani(

Loan

Eligible

Subsidy

Average

Subsidy

Refinance

Sanctioned

Average

Refinance

Northern Region

Haryana 17 2628.07 154.59 1673.52 98.44 584.97 34.41 1506.17 88.60

Hin^achal Pradesh 1 48.07 48.07 36.00 36.00 12.02 12.02 32.40 32.40

Punjab 31 3173.21 102.36 1676.65 54.09 779.14 25.13 1508.96 48.68

Rajasthan 25 3330.53 133.22 2285.04 91.40 799.57 31.98 2010.92 80.44

Sub Total 74 9179.89 124.05 5671.21 76.64 2175.70 29.40 5058.45 68.36

Eastern Region

Assam 5 784.04 156.81 503.00 100.60 242.29 48.46 460.63 92.13

Bihar 5 666.93 133.39 283.70 56.74 172.83 34.57 201.80 40.36

Jhari(hand 2 286.07 143.04 186.57 9329 71.52 35.76 167.91 83.96

Orissa 4 692.50 173.13 280.36 70.09 168.04 42.01 198.32 49.58

West Bengal 4 895.84 223.96 498.80 124.70 127.64 31.91 493.93 123.48

Sub Total 20 3325.38 166.27 1752.43 87.62 782.32 39.12 1522.58 76.13

Central Region

Chhattisgarh 11 1512.98 137.54 911.38 82.85 377.76 34.34 802.91 72.99

Madhya Pradesh 27 2480.25 91.86 1516.01 56.15 606.35 22.46 1412.64 52.32

Uttar Pradesh 146 19765.11 135.38 9235.14 63.25 4702.26 32.21 6834.01 46.81

Uttaranchal 2 197.18 98.59 133.94 66.97 49.29 24.65 120.55 60.27

Sub Total 186 23955.51 128.79 11796.47 63.42 5735.67 30.84 9170.10 49.30

Western Region

Gujarat 40 5230.85 130.77 3356.51 83.91 1053.46 26.34 2878.85 71.97

Maharashtra 24 3638.86 151.62 2172.58 90.52 729.73 30.41 1775.59 73.98

Sub Total 64 8869.71 138.59 5529.08 86.39 1783.19 27.86 4654.45 72.73

Southern Region

Andhra Pradesh 28 5297.75 189.21 3058.73 109.24 1176.12 42.00 2756.66 98.45

Karnataica 14 2386.12 170.44 1137.12 81.22 508.99 36.36 1023.41 73.10

Tamil Nadu 21 3410.37 162.40 2188.36 104.21 623.75 29.70 1606.60 76.50

Sub Total 63 11094.24 176.10 6384.20 101.34 2308.87 36.65 5386.67 85.50

Grand Total 407 56424.73 138.64 31133.39 76.49 12785.75 31.41 25792.25 63.37

68

m':^V?SSS':?gS'<f^^?


Annexure 3.4 : State-wise details of average capacity

State No. Of

Schemes

Total Capacity

Created (Tonnes)

Average Capacity

Created (Tonnes)

Northern Region

Haryana 17 69573 4092.53

Himachal Pradesh 1 2120 2120.00

Punjab 31 103576 3341.16

Rajasthan 25 111425 4457.00

Sub Total 74 286694 3874.24

Eastern Region

Assam 5 20900 4180.00

Bihar 5 20440 4088.00

Jharkhand 2 9318 4659.00

Orissa 4 17500 4375.00

West Bengal 4 22200 5550.00

Sub Total 20 90358 4517.90

Central Region

Chhattisgarh 11 72480 6589.09

Madhya Pradesh 27 101861 3772.63

Uttar Pradesh 146 945107 6473.34

Uttaranchal 2 8618 4309.00

Sub Total 186 1128066 6064.87

Western Region

Gujarat 40 117735 2943.38

Maharashtra 24 82884 3453.50

Sub Total 64 200619 3134.67

Southern Region

Andhra Pradesh 28 149710 5346.79

Karnataka 14 63574 4541.00

Tamil Nadu 21 67784 3227.81

Sub Total 63 281068 4461.40

Grand Total 407 1986805 4881.58

69

Annexure

Annexure 3.5 : Details of cold storage units according to type

Region / State New Expansion Rehabilitation Total

Northern Region

Haryana 16 1 17

Himachal Pradesh 1 1

Punjab 29 2 31

Rajasthan 23 2 25

Sub Total 69 5 74

Eastern Region

Assam 5 5

Bihar 3 2 5

Jharkhand 2 2

Orissa 4 4

West Bengal 3 1 4

Sub Total 17 3 20

Central Region

Chhatisgarh 9 2 11

Madhya Pradesh 23 3 1 27

Uttar Pradesh 111 35 146

Uttaranchal 1 1 2

Sub Total 144 41 1 186

Western Region

Gujarat 33 6 1 40

Maharashtra 23 1 24

Sub Total 56 7 1 64

Southern Region

Andhra Pradesh 28 28

Karnataka 14 14

Tamil Nadu 17 4 21

Sub Total 59 4 63

Grand Total 345 60 2 407

%iKS%S!^-^Stf:!:

70


Annexure 3.6 : Details of cold storages according to source of financing

Region/State Number Of Schemes Sanctioned Total Region/State

RRB CBs SCBs

Total

Northern Region

Haryana 17 17

Himachal Pradesh 1 1

Punjab 1 27 3 31

Rajasthan 24 1 25

Sub Total 1 69 4 74

Eastern Region

Assam 1 4 5

Bihar 5 5

Jharkhand 2 2

Orissa 4 4

West Bengal 1 3 4

Sub Total 1 16 3 20

Central Region

Chhatisgarh 11 11

Madhya Pradesh 3 23 1 27

Uttar Pradesh 5 141 146

Uttaranchal 2 2

Sub Total 8 177 1 186

Western Region

Gujarat 1 35 4 40

Maharashtra 23 1 24

Sub Total 1 58 5 64

Southern Region

Andhra Pradesh 1 27 28

Karnataka 2 12 14

Tamil Nadu 21 21

Sub Total 3 60 63

Grand Total 14 380 13 407

71 msf;^miii;iss^^mim^mif;;m^^

Annexure

Annexure 4.1 : Monthly average wholesale price of Potato (1999-2002)

Price in RsyQtI.

Montli/Year Jaipur market Lucknow market

Montli/Year 1999 2000 2001 2002 1999 2000 2001 2002

January 253 137 166 426 197 137 159 474

February 215 138 229 350 169 104 218 324

March 179 180 289 334 191 158 238 312

April 224 205 440 402 189 170 356 348

May 266 240 506 386 262 176 495 358

June 255 245 500 400 327 180 489 365

July 240 238 508 413 290 185 478 482

August 246 225 508 431 266 190 477 480

September 240 224 529 550 279 191 481 526

October 304 226 577 589 322 170 928 910

November 349 199 642 588 284 165 819 818

December 215 182 395 - 265 194 446 -

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Cold Storage Study

Documents

Transcript of Cold Storage Study