warehouse and distribution

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PERFORMANCE OF WAREHOUSING IN KARNATAKA A COMPARATIVEANALYSIS

Thesis submitted to theUniversity of Agricultural Sciences, Dharwadin partial fulfillment of the requirement for the

Degree of

MASTER OF BUSINESS ADMINISTRATION

In

(AGRIBUSINESS)

MALLIKARJUNAGOUDA S. PATIL

DEPARTMENT OF AGRICULTURAL MARKETING,CO-OPERATION AND AGRIBUSINES MANAGEMENT

COLLEFE OF AGRICULTURE, DHARWAD

UNIVERSITY OF ARGICULTURAL SCIENCES,

DHARWAD 580 005


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ADVISORY COMMITTEE

DHARWAD(R.A.YELEDHALLI)

FEBRUARY, 2007 MAJOR ADVISOR

Approved by:

Chairman : ______________________(R.A.YELEDHALLI)

Members : 1.______________________(H.S.VIJAYAKUMAR)

2.______________________

(VILAS KULKARNI)

3.______________________(K.A.JAHAGIRDAR)


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CONTENTS

ChapterNo

TitlePageNo.

I. INTRODUCTION

II. REVIEW OF LITERATURE

III. METHODOLOGY

IV. RESULTS

V. DISCUSSION

VI. SUMMARY AND POLICY IMPLICATIONS

VII. REFERENCES


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LIST OF TABLES

TableNo.

TitlePageNo.

4.1. Investment on selected warehouses (fixed cost)

4.2(i). Profile of commodities stored in the selected warehouses of KSWC(owned) during 1991-2005

4.2(ii). Profile of commodities stored in the selected warehouses of KSWC(hired) during 1991-2005

4.2(iii). Profile of commodities stored in selected private warehouses during1991-2005

4.3(i). Cost and returns of selected warehousing units

4.3(ii). Financial feasibility and economic viability

4.4(i). Composition of user groups (depositor) in utilising the selected KSWCwarehouses

4.4(ii). Composition of user groups (depostitor) in utilizing the selected private

warehouses

4.5(i). Hiring of private godowns by state warehousing corporation during theyear 1991-2005

4.5(ii). Statement showing the average storage capacity, Occupancy andpercentage of occupancy in the selected KSWC warehouses duringthe year 1991-2005

4.5(iii). Statement showing average storage capacity, occupancy andpercentage of occupancy in the selected privatewarehouses during the year 1991-2005

4.6(i). Problems faced by sample farmers in utilizing the selected KSWCwarehousing facilities

4.6(ii). Problems faced by sample farmers in utilizing the selected privatewarehousing facilities

4.7(i). Problems of the traders in utilizing the selected KSWC warehousingservices

4.7(ii). Problems of the traders in utilizing the selected private warehousingservices

4.8(i). Problems faced by the staff of the selected KSWC warehouse

4.8(ii). Descriptions of the problems faced by the staff of the selected privatewarehouses


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I. INTRODUCTION

WAREHOUSING

Traditionally, warehousing involves the storage of raw material, work-in-processinventory or finished goods in a covered space in the most suitable way for a specific time

period. It also adds temporal and spatial significance to the value of the commodity. With thegrowing importance of logistics and supply chain management throughout the world,warehousing has emerged as one of the vital component of the supply chain.

Globally, the USD 100 billion warehousing industry has undergone significantchanges in the last decade owing to the growth in world trade and expansion of internationalmarkets as well as increasing application of new technology. Internationally, warehousingindustry is classified into three different types viz. Public warehousing, Private warehousingand Contract warehousing. Of these, contract warehousing, which has dedicated customerswith long-term agreement, is the fastest growing segment of the industry internationally and isexpected to grow at a rate of 12-15 per cent over the next couple of years.

In India, warehousing industry is mostly dominated by public sector undertakings viz.,Central Warehousing Corporation (CWC), State Warehousing Corporations and others. The

total covered capacity available with FCI for storage of Food grains including the capacityhired from Central Warehousing Corporation and State Warehousing Corporations was261.21 lakh tonnes as on 1.3.2005. The hired capacity with the Food Corporation of India was109.80 lakh tonnes as on 1.3.2005.

Warehousing activities of CWC include food grain warehouses, custom bondedwarehouses, container freight stations, inland clearance depots and air cargo complexes.

Ports act as the interface for sea borne trade movement. Most of the major ports ofthe country provide warehousing facilities to users through its own warehouses and also byprivately owned warehouses located within or outside the port arena. Increased liberalizationof the economy has boosted private sector participation in ports.

Looking at the future of the warehousing industry, it has been observed that

technology is likely to play a major role through the increasing applications of Internet.Information technology is likely to play a key role in determining the competitiveness of theindustry.

Food and agriculture marketing includes the movement of agricultural produce fromthe farm where it is produced to the consumer or manufacturer. It includes physical handlingand transport, initial processing and packing to simplify sales transactions and to meet thedifferent consumers requirements and storing products over a period of time to meetconsumers continual demand. Between production of food grains and its distribution, storageand warehousing is a crucial and an organic link. It is crucial because it makes available foodgrains to people all through the year, though its production is seasonal. It is an organic linkbecause there should be no gap in the chain of the production reaching the ultimateconsumer. Particularly in the case of agricultural crops, which are subjected to the hazards ofdrought, flood, wind, cold and heat and occasional changes in individual farm plans storage

plays a very important role. A well-planned storage facility can bring in a great deal of stabilityin matter of supply of food grains. It is said that in a good year farms produce and in the badyear, the storage and warehouses.

Because of advancement in science and technology, agricultural usage of improvedseeds, chemical fertilizers, pesticides and improved irrigation facilities Indian agriculture hastransformed itself from subsistence farming to commercial farming throwing up surpluses.Management of these surpluses in a way that will give incentive price to the farmers and theirmoneys worth to the consumers is the task of scientific marketing. Demand for agriculturalcommodities remain rather steady throughout the year while their supply is seasonal


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depending on harvesting time. Farmers in villages use various kinds of storage structuressuch as mud bin, cement bin etc. these are neither adequate nor appropriate to meet thestorage requirements of large surpluses for a considerable period of time. Meeting thisdemand is the challenge of the Central Warehousing Corporation and the State WarehousingCorporations.

Warehousing has always been an integral part of marketing, as it is deeply related to

agricultural production and which exercises an important economic influence by creating timeand place utility. The problems of warehousing shall, therefore, have to be tackled with samezeal as production has been attempted with matching efforts. Increased production should notresult in increased wastage.

As per 2001 census Indias population was 1028 billion. India will overtake Chinaspopulation by 2050. Our population will be 1592 billion by 2050, while Chinas population willbe 1392 billion. Therefore the problems of storage, movement and utilization of the foodgrains will be of equal magnitude. Considerable attention is, no doubt being paid to theimported grains for proper storage. But, the producers stocks, which constitute nearly 75 percent of the total food grain production, have not received adequate attention for properstorage. What is worse is a developing nation not only produces less, it loses much of itsvaluable production due to poor and unscientific storage conditions. So while planning foragricultural development and effective distribution of agricultural commodities, planning for

storage and warehousing, should form an integral part. In the present context of food graintrade, it is worthwhile assessing the planning done for food grains trade, its production, itsdistribution and the present arrangement for storage and warehousing.

STORAGE AND WAREHOUSING

Storage implies preserving. It is the process of carrying surplus production for futureconsumption. It includes all types of storage, whether traditional method or scientific methodsof storage, whether controlled or ambient and maintained by the private or public agencies.On the other hand, warehousing means scientific facilities for storage of commodities,generally combined with the elements of trade and profit. The storage is, thus, a broader termand warehousing forms a part of it.

WAREHOUSE AND WAREHOUSING

Warehouse means any building, structure or other protected enclosure which isused for the purpose of storing goods on behalf of depositors but does not include cloakrooms attached to hotels, railway stations, the premises of other public carriers and the like.

A licensed warehouse is required to obtain weigher, grader and sampler licenses aswell from the licensing authority, which satisfies itself about the storage worthiness of thestructure to be licensed before the grant of the license. A licensed warehouse issues a receiptfor the goods deposited in the prescribed form called a warehouse receipt, which may bemarked negotiable or non-negotiable.

Warehousing is an economic activity and denotes a dynamic aspect of commercialstorage. It provides for safe keeping of goods in an orderly manner at suitable locations foreasy retrieval when required for use. Warehousing is a trade involving deposit of goods,merchandise, chattel, commodities and wares in the warehouses for safe custody and returnon payment of warehousing charges. The Central and State Warehousing Corporationsaccept only such commodities for storage as can be stored under the provisions of thewarehousing Corporations of the Warehousing Corporations Act, 1962 and notificationsissued there under (Chibber, 1982).

The developing countries are striving for agricultural, industrial, technological andeconomic growth to improve the standard of living of their people. The establishment of awell-planned network of warehouses is important both for domestic and international trade


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and public distribution of essential commodities. Warehousing is an essential infrastructure fortrade, commerce and physical distribution.

Today in the world of economic flexibility, the manufacturers and distributors, bid forthe maximum sales, which leads to intense competition both in price and service. The storageof products at strategic locations for efficient sales promotion and physical distribution is ofprime importance. Hence there is a great demand for warehousing-cum-distribution center

facilities from the exporters, importers and distributors at important marketing centers.

One of the indicators of economic development of a country is the industry andgrowth of its storage. Its necessity arises fundamentally out of lack of co-ordination andadjustment between the time and place of production of goods and the time and place of theirconsumption. Further the type, size and location of storage would depend on whether it isrequired for Inventory or Transit. In the international trade, it is necessitated to satisfycustoms clearance formalities, pre-shipment fumigation and quarantine requirements, arrivaland departure schedules of carriers and vehicles.

The demand for storage (both inventory and transit) is essentially derived demand. Itconsists of two components.

1. The volume of commodity entering the storage (long-term demand)

2. The duration of its storage (short term demand)

However in actual practice, the demand for storage of a commodity is rather inelasticto its price of storage. This is because the cost of storage is a very small element in the finalprice of the commodity. The terms storage, godown and warehouse are often taken andused as synonymous. Storage denotes function while godown or warehouse is simply theform of storage. Warehousing is used to describe the business or trade of storage and itsprime objective is to profit from storage. It is an important link in the chain of marketing. Itserves place and time utility and add to the place value of goods. These also smoothen outfluctuations in the supply and demand, which are often influenced by natural and politicalevents.

FUNCTIONS OF WAREHOUSES

They provide protection to goods against heat, wind, storm, moisture, etc. and alsocut down losses due to spoilage, wastage etc. This is the basic function of every warehouse.In addition to this, warehouses now-a-days also perform a variety of other functions.

Warehouses perform the following functions.

i) Storage of goods

ii) Protection of goods

iii) Risk bearing

iv) Financing

v) Processing

vi) Grading and branding

vii) Transportation

i) Storage of goods : The basic function of warehouses is to store large stock of goods.


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These goods are stored from the time of their production or purchase till theirconsumption or use.

ii) Protection of goods : A warehouse provides protection to goods from loss or damage dueto heat, dust, wind and moisture, etc. It makes special arrangements for different productsaccording to their nature. It cuts down losses due to spoilage and wastage during storage.

iii) Risk bearing : Warehouses take over the risks incidental to storage of goods. Once goodsare handed over to the warehouse-keeper for storage, the responsibility of these goodspasses on to the warehouse-keeper. Thus, the risk of loss or damage to goods in storage isborne by the warehouse keeper. Since it is bound to return the goods in good condition, thewarehouse becomes responsible for any loss, theft or damage, etc. Thus, it takes allprecautions to prevent any mishap.

iv) Financing : When goods are deposited in any warehouse, the depositor gets a receipt,which acts as a proof about the deposit of goods. The warehouses can also issue a documentin favor of the owner of the goods, which is called warehouse-keepers warrant. This warrantis a document of title and can be transferred by simple endorsement and delivery. So whilethe goods are in custody of the warehouse-keeper, the businessmen can obtain loans frombanks and other financial institutions keeping this warrant as security. In some cases,warehouses also give advances of money to the depositors for a short period keeping their

goods as security.

v) Processing : Certain commodities are not consumed in the form they are produced.Processing is required to make them consumable. For example, paddy is polished, timber isseasoned, and fruits are ripened, etc. Sometimes warehouses also undertake these activitieson behalf of the owners.

vi) Grading and branding : On request warehouses also perform the functions of grading andbranding of goods on behalf of the manufacturer, wholesaler or the importer of goods. It alsoprovides facilities for mixing, blending and packaging of goods for the convenience ofhandling and sale.

vii) Transportation : In some cases warehouses provide transport arrangement to the bulkdepositors. It collects goods from the place of production and also sends goods to the place

of delivery on request of the depositors.

LOCATION OF A WAREHOUSE

The important factors, which influence the selection and location of a warehouse, are:

1. Proximity to production point

2. Nearness to potential markets/customers

3. Availability of easy, quick and regular means of transport at a reasonable cost

4. Storage costs

5. Handling costs

6. Availability of credit facilities

7. Availability of bounded warehousing facilities

8. Industrial climate and

9. Prompt marketing information system

Warehousing is an age-old phenomenon, which in modern international contextconstitutes the dynamic phase of commercial storage and marketing coupled with training ofpersonnel in scientific warehousing techniques. The warehouses can serve as insurance


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against different kinds of contingencies. The development of the concept of scientificwarehousing in India was due to three factors (Ranganathan, 1986). First, Royal commissionon Agriculture (1927) argued that the major defect of the Indian Agricultural MarketingEconomy, was derived from the non-availability of the specification in the pattern of croppingand development of transport facilities, fertilizers, irrigation schemes and improved seeds, theneed for organized marketing as well as the need for scientific storage became especiallyrelevant in the current Indian economic scene.

The All India Rural Credit Survey Committee set up by the Reserve Bank of India in1954, reiterated the point-already made by the Royal Commission on Agriculture (1927) forestablishing a public warehousing system in India. This committees recommendation resultedin the enactment of the Agricultural Produce (Development and Warehousing) CorporationsAct, 1956 under which the Central and State Warehousing Corporations were set up in thepublic sector.

The more comprehensive Warehousing Corporations Act replaced it in 1962. TheCentral Warehousing Corporation started functioning during July 1957- August 1958. Herethe five main objectives the warehousing Corporations can be summarized:

1. The creation of a negotiable paper to provide an instrument for expansion of creditthrough commercial banks for the benefit of the producers, depositors and others.

2. The addition to the totality of the nations real income by reducing waste and losses instorage and by promoting and developing warehousing and scientific storagefacilities.

3. Providing assistance in orderly marketing through the introduction of standard gradespecifications and the warehouse receipt.

4. Training of personnel and

5. Assisting government and government sponsored organizations to arrive at theirscheme of price support and price control.

Warehousing in public sector comprises of three-tier system.

a) Central Warehousing Corporation (CWC) operates in centers of all Indiaimportance.

b) State warehousing Corporations in the respective states at district level and

c) Co-operatives operates in Taluk and village level

Warehousing facilities are necessary to increase the holding capacity of the stocks ofthe farmers which will enable him to realize higher returns, thereby reducing the price spreadand increasing the producers share in the consumers rupee. Hence Warehouse constitutesan important infrastructure for agricultural development. However, agricultural development isa precondition for the Warehouse to be developed.

The present study has been undertaken, to examine the progress of the statewarehouses in Karnataka.

The specific objectives of this study are as under:

1. To evaluate the investment pattern in the warehouses.

2. To analyse the profile of commodities stored in the warehouses.

3. To evaluate the financial feasibility and economic viability of the warehouses.


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4. To analyse the composition of user groups in utilizing the warehouses.

5. To analyse the capacity utilization of warehouses.

6. To analyse problems faced by the user groups and administrative problems faced by theofficials of KSWC and Private Warehouses.

PRESENTATION OF THE THESIS

Chapter I Introduction : In this chapter, the nature, importance of the present study and thespecific objectives of the study have been indicated.

Chapter II Review of Literature : It presents a comprehensive review of the relevantresearch work done on related topics by the different authors.

Chapter III Methodology : It outlines the features of the study area, sampling designfollowed, collection of relevant data and analytical tools used in the study.

Chapter IV Results : It is devoted to present the main findings of the study through tables.

Chapter V Discussion : It presents discussion of the results of the study.

Chapter VI Summary and Policy implications : This chapter provides summary and suggestthe policy implications arising from the findings of the study.

Chapter VII References : This chapter provides the list of literature referred for the presentstudy.


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II. REVIEW OF LITERATURE

A review of past research helps in identifying the conceptual methodological issuesrelevant to the study. This would enable the researcher to collect information and subjectthem to sound reasoning and meaningful interpretation. A brief review of the earlier researchwork related to the present study is presented in this chapter. There are only a limited number

of studies on the performance and storage utilization pattern of warehouses. The availableliterature pertaining to the present study has been reviewed under following heads :

2.1 Investment pattern and feasibility

2.2 Profile of different commodities stored and utilization pattern

2.3 Problems faced.

2.1 INVESTMENT PATTERN AND FEASIBILITY

Lingamurthy et al. (1981) reported that regulated market provides storage facilities tothe farmers who want to wait for a fair price. The Warangal Agricultural Market in AndhraPradesh has 2100 metric tonnes storage accommodation which is sufficient to cater to theneeds of the farmers of the market center. Moderate rates are charged for storage. Butthis storage accommodation is only a temporary one, ranging between 15 and 30 days.

Bhatnagar (1985) reported that as high as 87.49 per cent of total installed coldstorage capacity in India is exclusively used for potato storage. The existing cold storagecapacity has been created in the private sector which owns 85.85 per cent of the cold storesand 92.58 per cent of cold storage capacity. The public and cooperative sectors put togetherhold remaining 14.15 per cent of the total capacity and most of them were under utilizing theirinstalled capacity. Author opined that diversified utilization of cold storage facilities arenecessary for improving the viability of cold storage.

Rajendran (1987) opined that establishment of cold storages in general appeared tobe economically unsustainable. It was observed from the study that 55 per cent of the projectcost was involved in building materials and civil works. Machineries and power costs

accounted for 22 and 36 per cent, respectively. He concluded that to make the projectviable, reduction in installation cost and working cost were necessary.

Rao (1990) compared wholesale market price with cold storage economics inBangalore district. Results of the study implied that storage beyond July might not be aworkable proposition due to glut in the market. This type of situation adversely affect theeconomy of cold storage. He suggested that cold storage coupled with trading activity may bein a position to absorb losses and improve capacity utilization of the unit.

Dalvi et al. (1992) studied economics of processing of cashewnut in Sindhudurgdistrict of Maharashtra. They observed that the overall total capital investment was 40.44lakhs, which consisted of Rs. 4.45 lakhs fixed capital (11.01%) and Rs. 35.99 lakhs workingcapital (88.99%). In the total capital investment, the share of land and building was1.55 per cent. Finally, they concluded that the processing of cashew was a capital intensive

business.

Venkatasheshaiah (1992) evaluated the groundnut processing in Andhra Pradesh.He studied the investment pattern of groundnut processing units and revealed that there wasa direct relationship between the total capital investment and the size of oil mill. It was seenthat the capital invested per quintal of oil production was Rs. 161.01 in baby expeller mills,Rs. 122.24 in 2-chamber mills and Rs. 83.86 in 3-chamber expeller mills.

Ravishankar (1993) while studying the economics of production and processing ofDavana in the Eastern Dry Zone of Karnataka, observed that from among the various items


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included under variable costs, the cost of the raw material stood at Rs. 7.2 lakhs, whichaccounted for 92 per cent of the total variable costs. The wages accounted for 4.60 per centfollowed by the cost of fuel wood, which accounted for 1.84 per cent.

Saika and Talukdar (1996) studied the economic potential of commercial processingfirms at farm level for major spices in Nagam district of Assam. It was observed thaton an average capital investment in commercial processing units were Rs. 1.20 lakhs, Rs.

0.94 lakhs and Rs. 0.78 lakh, respectively. The investment in machinery and equipmentsshared the higher portion and it was followed by opportunity cost of own land. Out of totalcapital investment, 91.73 and 98.85 per cent were shared by raw materials in turmeric andchilly processing units, respectively.

Joshi et al. (1999) studied the capital investment in the home cottage, small and largescale of mango pulp making units in South Konkan region. In these, the fixedcapital accounted to the tune of Rs. 1.0 lakh, Rs. 1.6 lakh, Rs. 1.8 lakh and Rs. 20.7 lakhs,respectively. The working capital accounted for Rs. 2.25 lakhs, Rs. 11.35 lakhs, Rs. 4.3 lakhsand Rs. 21.03 lakhs, respectively.

Manjunath (2003) evaluated the performance of fruits and vegetable processing unitsof Bangalore district which revealed that the total cost of processing amounted to Rs.31147.38 and Rs. 33890.37 per tonne of processed products in private and public sector

units, respectively.

Siddaram (2004) studied the investment pattern in the processing units. The studyshowed that plant, machinery and equipments formed major component of investmentaccounting for 50.12 per cent of investment followed by building and civil structures (33.35%)and cost of land (9.02%) and infrastructure facilities (6.69%). The investment on plant,machinery and equipments was Rs. 150.36 lakhs followed by building and civil structures (Rs.100.05 lakhs), cost of land (Rs. 27.05 lakhs). Investment on infrastructure facilities, office andfixtures and miscellaneous fixed assets contributed to an extent of 7.51 per cent, envisagingtotal investment of Rs. 300.03 lakhs in the cooperative processing unit. Investment oninfrastructure facility structures, office fixtures and miscellaneous fixed assetscontributed to an extent of 7.49 per cent, envisaging total investment of Rs. 500.98 lakhs inprivate processing unit.

2.2 PROFILE OF DIFFERENT COMMODITIES STORED ANDUTILIZATION PATTERN

Alaouze et al. (1978) used dynamic programming to examine whether Australiashould store wheat for subsequent sale at higher prices. The dynamic programming modelwas developed assuming that the demand for Australian wheat is perfectly elastic at the worldprice. The major conclusions of the study are : (a) Apart from interest rate, the mostimportant factor affecting storage in any season was the price in the following season; (b) theholding of a speculative reserve to be sold in seasons of episodic price increased wasgenerally unwarranted; (c) the optimal policies associated with simulations of the historicalprice series observed for the period 1953-54 to 1971-72 (when Australian wheat prices had astable mean and a low variance) indicate that a storage policy based on storing wheat inseasons of below average prices would have been wrong more than half a time.

Mohandoss et al. (1979) analyzed the relative performance of government (1%),cooperative (5%) and private agencies (94%) in running the cold stores in terms of capacityutilization, profitability, commitment to serving primary producers and administration, basedon data collected from six fruit and vegetable cold stores in Bangalore city relating to theyears 1975-76 to 1977-78. In terms of capacity utilization, profitability and management, theprivate sector performed better than the other two sectors. The bad business performance ofthe cooperative unit was mainly due to mismanagement, while in the case of the governmentunit it was due to faulty planning and administration. In terms of meeting the cold storageneeds of primary producers and to some extent of the agriculturists, the cooperative unitperformed well. It was found that the private units were not willing to accept certain kinds of


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produce like potatoes from farmers. Under such circumstances, the responsibility ofprotecting the producers interest lies with cooperative and government sectors. However, themanagement units in these sectors should be improved to make them function efficiently.

Raheja and Mehrothra (1980) found that, of the total production of food grains forkharifand rabiseasons, 26 per cent and 60 per cent respectively were stored by farmers forvarious purposes such as home consumption, seed, delayed sale or use for payment in kind

and animal feed. The proportion of production kept for storage showed a declining trend assize of holding increased although the absolute quantity stored was positively associated withthe size of holding. Separate storage structures were used only on large land holding.Traditional containers were used by 75 per cent of those without separate storage rooms andthose were much more liable to damage and loss rodents and moisture being the majordestructive forces. Metal bins were used only by 25 per cent of farmers but 80 per cent ofcultivators were not satisfied with their existing storage facilities and were keen to change.

Recto (1980) undertook a study with the aim of improving the paddy/rice marketingsystem by determining optimal sizes and locations of warehouses and investigating ways bywhich the marketing costs of the product could be minimized. He examined the transport andstorage systems in each of the 13 regions of Philippines during 1975-77. He found thatwarehousing facilities were inefficiently located, with shortages of storage facilities in someregions and surpluses in others. There had been an improvement in the production of rice,

but there was a corresponding improvement in marketing infrastructures and services. A largeamount of the crop could be lost through inefficient handling and processing.

Reddy and Narasimhan (1980) found that locating of the colossal godowns of CentralWarehousing Corporation adjacent to the market yard of the Hindupur regulated market wasfor the best advantage of growers and traders.

Samajpati et al. (1980) compared low cost structures for storage of paddy by farmesin Bangladesh and showed that oval bins made of bamboo splits and plastered with mud andcowdung were the most suitable.

Saxena and Mathur (1980) examined the relationship between seasonal pricevariation and profitability of storage of wheat and relative economics of various methods ofstorage, using data collected from a sample of 148 cultivators of Bitchpuri block, Agra, Uttar

Pradesh for the year 1974-75. Three methods of storage, bulk, bag and kuthila wereanalyzed. Storage cost per quintal was lowest with kuthila method, but it was not a scientificmethod of storage since losses were maximum in this method and only small farmersadopted it, having only a small amount of marketable surplus. With the bulk method, the costof storage was less than with the bag method. The storage cost increased with the increase inthe period of storage, with all the three methods of storage. The bulk method of storage wasmore profitable to farmers than the bag and kuthila method of storage. With the bag methodof storage, the cost of storage was maximum. Storage profit showed a direct relationshipbetween seasonal price variation and period of storage mainly due to a rise in prices.

Mallick and Mallick (1998) in their study on the functioning of Orissa StateWarehousing Corporations observed that the Corporation stored merchandise of theGovernment, Government sponsored organizations. Food Corporation of India, Fertilizercompanies, cooperatives, etc. to the extent of 98 per cent of total stocks handled in their

godowns and warehouses.

Sharma (2002) in his study on the role of Rajasthan State Warehousing Corporation(RSWC) in providing scientific storage, observed that the Corporation has been able to meetthe basic objectives of providing scientific storage facilities to agricultural produce at cheaperstorage charges in the state. He reported that the corporation not only used its own capacityupto an optimum but also hired the same from other agencies. The study revealed thatfertilizers and food grains were stored in large quantities and RSWC has not been able toattract commercial crops for storage and the poverty stricken agriculturist in Rajasthan wasselling them at the price fixed by the traders.


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2.3 PROBLEMS FACED

Rehman (1985) observed that there were 107 agro-based industrial units in Baduandistrict of Uttar Pradesh based on crops like oilseeds, pulses, sugarcane, potato and mentha.He pointed out that these agro-industrial units together provided employment for about 3,398people annually. He also assessed a great potential for future agro-industrial expansion in theabove district.

Hemachand (1989) in his study on economics of processing of arhar in Narasinghpurdistrict of Madhya Pradesh found that the main problems of the processors were short supplyof raw materials, frequent shedding of power and inefficient technology which togetherultimately lead to lower capacity utilization and declining output.

Srivastava (1989) indicated that, with subsequent secondary and tertiary processingof various raw materials, the value added as well a the price of finished products wouldincreased. He observed that agro-processing units accounted for 39 per cent of the totalfactories in the study area. He noticed capital productivity ratio in agro-industries was almostthe double (0.7) than the non-agro based industries (0.35). While labour productivitywas less than half when compared to non-agro based industries.

Nagesh (1990) found that major problems faced by the groundnut processors in

Karnataka were high competition among the existing processors, short supply of rawmaterials, frequent price fluctuations, non-availability of skilled labour and high taxes.

Venkatasheshaiah (1992) in his study on groundnut processing units in AndhraPradesh identified stiff competition among the processors for getting the required rawmaterials, frequent power shedding, high taxation, low product recovery and non-availabilityof efficient technology at an affordable costs as the major problems associated with theirbusiness.

Mangal Singh (1995) while studying the strategies for effective management of sugarfactories in India found that lack of quality raw material, efficient technology andprofessionally trained management personnel at different levels of organizational structure asthe main problems as depicted by the study. He carried these problems as firms internalproblems and similarly pointed to the firms external problem such as governments pricing

policies.

Sharma et al. (1995) while studying marketing of vegetables in Solan district ofHimachal Pradesh, studied the problems of cultivators during storage, transportation andmarketing of these crops. They pointed out some of the major problems like costly woodenboxes, time consuming manual grading, distant markets, high transportation charges,malpractices in the market and lack of market information. It was observed that about 90 percent of growers were facing the problem of distant market, lack of standard grade wasreported by about 37 per cent of cultivators and costly packing material was reported asproblem by 75 per cent of cultivators. It was thus suggested that the market informationshould be announced through mass media like radio/TV and also through pamphlets.

Singh and Singh (1996) studied the performance of agro-processing units in Punjaband revealed that failure of these industries on the market front in terms of brand is the major

problem. Further, they opined that any such failure ultimately put a question mark on the verysurvival of the industry or unit under consideration.

Rai et al. (1996) examined the potentials and problems of agro-processing industriesin Haryana state and revealed that there is a tremendous scope for agro-processingindustries in Haryana where the supply of raw materials, processing units and marketing arenot serious problems. Infrastructural facilities in the state are reasonably well developed. Thefuture potential of developing agro-processing industries lies in wheat milling, r ice milling, feedand concentrate industry, edible oil, cotton processing and sugarcane milling.


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Brahmaprakash and Dineshkumar (1997) in their study on infrastructuralrequirements for establishment, development and operation of agro-based industries in ruralareas opined that lack of market information, storage and transportation, timely and adequatefinancial support and post-harvest technology were the major-problems to realize the ruralprojects in India.

Jagadish Prasad (1997) conducted a case study on three sets of marketing

institutions viz., public institutions, cooperative organizations and private trade in Ranchidistrict of Bihar to identify the problems and prospects of vegetables marketing and on thebasis of findings to suggest suitable strategies for improving its efficiency. It was observedthat in case of cooperative marketing institutions, the financial position was not sound. Lack ofinfrastructural facilities for better marketing of vegetables and also lack of storage facilities,which were highly essential to avoid market gluts.

Roy (1997) opined that lower capacity utilization of the agro-based industries wasreasoned by lack of infrastructural facilities such as transportation, storage and technology forpost-harvest handling. He also opined that lack of integrated network between the producerfarmers was a problem of the agro-based industries.

Patil (1998) in her study on performance evaluation of fruit and vegetable processingunits in North Karnataka indicated that lack of availability of raw material, irregular power

supply, high taxation for the commodities and lack of modernization of machines as the majorconstraints observed in fruit and vegetable processing units.

Raman Dev (1998) in his study on business performance analysis and appraisal ofthe cashewnut processing units in Uttara Kannada district of Karnataka identified hightaxation, short supply of raw materials, non-availability of skilled labour, unfavourablegovernment policies and marketing system as the major problems as conceived by theindustry.

Chidri (1999) in his study on management of agro-processing units in Karnatakaindicated that high taxation, high procurement cost, irregular power supply, inadequatefinance, irregular labour supply and marketing of finished products are the major problemsfaced by the tur processing units.

Ashraf Ali (2000) in his study on business performance of cooperative oil mills noticedthat non-availability of raw materials in sufficient quantity and in desired quality was the mostimportant problem faced by the large and medium scale units followed by lack ofinfrastructural facilities as the second in order.

Kavitha (2000) documented agro-processing units/industries in different taluks ofUttar Kannada district. She stated about the number of agro-processing units/industries indifferent taluks of Uttar Kannada district along with their investment. Totally 531 agro-processing units have been identified, which included rice mills, cashew processing units,bakeries (bread), soft drinks and ice-cream, flour mills, oil mills, papad and chips, processed(scented) supari, medicinal and aromatic plants processing units, areca leaf up units, honeyprocessing units, pickle making units, poultry farm, aqua culture, textiles, wood and woodbased industries and other industries which include 27 units.


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III. METHODOLOGY

It is understood that methodology is the strong foundation for systematic andscientific research or investigation. It is imperative to give the details of investigation andmethods adopted by the investigator in finding out the fact or problems. This chapter outlinesbriefly the characteristics of the area selected for the study, nature and sources of data, the

tools and techniques adopted in the analysis of data and evaluating the results.

The methodology followed is presented under the following heads.

3.1 Selection of the study area

3.2 Description of the study area

3.3 Nature and source of data

3.4 Sampling procedure

3.5 Analysis of data

3.1 SELECTION OF THE STUDY AREA

The North Karnataka region of Karnataka state has been considered for the study toprovide representative sample to consider the unique characteristics covering diversifiedregions in the Karnataka State. The public undertaking under the Government ofKarnataka the largest warehousing services is catering to the large population in the state.Hence, it was imperative to select the Karnataka State Warehousing Corporation purposivelyfor the investigation.

3.2 DESCRIPTION OF STUDY AREA

3.2.1 Karnataka

The study pertains to northern districts of Karnataka state, India. The state ofKarnataka is located between 11.5

0and 19

0north latitudes and between 74

0and 78

0east

longitudes. It is eighth largest state in India both in area and population with an area of191,800 km

2and according to 2001 census, the states population is about 5.5 crores. About

63.06 per cent of the population in the state live in rural areas. The state is boundedby Maharashtra, Goa, Andhra Pradesh, Tamil Nadu and Kerala in the north, east, southeastand southwest, respectively. The state has 27 districts, 175 taluks and 27,066inhabited villages.

Karnataka is situated in tropical zone and enjoys warm climate throughout the year.The mean temperature ranges from 21.5

0C to 31.7

0C, the maximum and minimum

temperatures being 420C and 14

0C, respectively. Northern karnataka tends to be hotter than

the south.

The normal rainfall of the districts ranges from as low as 569 mm to as high as 4029mm. Average annual rainfall of the state is 1354 mm. The major part of rainfall in the stateis received from the southwest monsoon which commences in the first week of June andcontinues till the end of September.

Most part of the state has by red soils. Laterite soils are found in the hilly ad coastalregions of the western parts. The northern parts of the state has block soils with high moistureholding capacity.


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3.2.2 North Karnataka

The total geographical area of this region accounts for 69.6 lakh ha. The major cropsgrown in this region are maize, cotton, chilli, sorghum, wheat, redgram etc.

The three districts selected for the study are Dharwad, Raichur and Gulbarga.Agronomically, these districts fall under five agro-climatic zones. Northeastern dry zone,

northern dry zone, northern transition zone, northeastern transition zone and hilly zone. Thenormal rainfall of these districts varied from as low as 565 mm to as high as 3800 mm.

3.3 NATURE AND SOURCE OF DATA

In order to analysis the objectives of the study both primary and secondary sources ofdata was collected and used.

The primary source of data was specially collected so as to elicit the first handinformation about the functioning of private godowns and Karnataka State Warehousingcorporation and also problems encountered by the user group, owners of private godownsand the officials of Karnataka State Warehousing Corporation.

The secondary source of data was collected to evaluate the investment pattern, profitarised from different commodities stored, to work out the financial feasibility, economicviability, composition of user groups and capacity utilization etc.

The data pertaining to establishment charges and maintenance cost like rent ofgodowns, dunnage, equipments, insurance, disinfestation charges, number of warehouses,capacity (owned, hired and total), commodity-wise utilization, depositor-wise utilization, paid-up capital, total assets, gross receipts, expenditure and profit, miscellaneous expenditure etc.of the selected warehouses were collected for the period from 1991-92 to 2004-05.

3.4 SAMPLING PROCEDURE

The KSWC has divided the state into six divisions covering varied number of taluks.There are totally 116 warehouses, out of which 4,78,802 MTs is owned and 3,89,112 MTs is

hired capacity and there are also host of private godowns scattered around the NorthKarnataka region.

A total of 18 warehouses were selected at the rate of 6 warehouses in each region ofHubli, Raichur and Gulbarga covering North Karnataka, six warehouses were covered twoeach owned by KSWC, hired by KSWC and in the private sector, respectively in the region ofNorth Karnataka for comparative analysis. The warehouses were selected based on thecapacity and quantum of commodities (tonnages) stored in the godowns in the study area. Inorder to analyse the problems of user groups, owners of Private godowns and the officials ofKarnataka State Warehousing Corporation. 10 samples of user groups, owners of privategodowns was selected under each category of warehousing and 180 samples for the entirestudy region was collected.

3.5 ANALYSIS OF DATA

Simple tabular analysis was followed to analyse the investment profile, profile ofdifferent commodities stored, composition of user groups, capacity utilization and constraintsfaced by users and warehouse operators in functioning of warehouse services. In order tostudy the financial feasibility discounted cash flow technique involving internal rate of returns(IRR), benefit:cost ratio (BCR) and net present worth (NPW) were employed.


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Tabular analysis

The primary data/secondary data collected are presented in tabular form to facilitateeasy comparison. The constraints faced by users and operators, profile of differentcommodities stored, composition of users groups etc. others are presented in the form oftabular analysis. It is summarized with the help of statistical tools like averages andpercentages to obtain meaningful results.

Net present worth (NPW)

The net present worth is simply the present worth of net benefit of a projectdiscounted at the opportunity cost of capital. The criterion ranks the alternatives. Generallyhigher the net present worth better would be the preference. In computing net present worth,the difference between the present value of cost streams and present value of the benefitstreams were considered at a discount rate of 14 per cent. The general verbal andmathematical form of net present worth criterion is presented below.

NPW = Present worth of benefits Present worth of costs

NPW = - I

Where,

Bt = Benefits in each year

Ct = Costs in each year

t = 1, 2, 3.n

n = Number of years

d = Discount rate

I = Initial investment

In order to select the project or to consider the worthiness of a project investment, thenet present worth should be positive.

Benefit:cost ratio

It is the ratio of discounted cash in flows (project benefits) to the discounted cash outflows (project costs), which must be unity or more for an enterprise to be consideredworthwhile. The technique also ranks for selection. The minimum ratio required is 1:1. Thisratio of 1:1 indicates the coverage of costs without any surplus benefits. But, usually the ratioshould be more than unity in order to provide some additional returns over the costs for cleardivision. The benefit:cost ratio can be stated both verbally and mathematically.

BCR =

The mathematical form of benefit:cost ratio is as follows.

BCR =

Bt Ct

(1 d)t

n

t=1

Present worth of benefits

Present worth of costs

n

t=1

Bt

(1 + d)t

n

t=1

Ct

(1 + d)t


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Where,

Bt = Benefit in each year


t = 1, 2, 3n

n = Number of years

d = Discount rate

Internal rate of returns

The internal rate of returns is the rate of returns, which equates the discountedbenefits with the discounted cost. It represents the average earning capacity of an investmentfrom the project during its economic life period. The mathematical form of IRR is;

IRR = = 0

Where,

Bt = Benefit in each year


t = 1, 2, 3n

n = Number of years

d = Discount rate

The internal rate of returns also ranks different investment proposals for preference in

the order of the magnitude. The IRR should be more than the discount rate to be consideredfor viable investment and financial soundness.

n

t=1

Bt - Ct

(1 + d)n


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IV. RESULTS

The necessary data collected from various sources were analyzed and interpretedlooking to the objectives of the study. In this chapter, the results of the investigation carriedout are presented under the following headings.

4.1 Investment pattern in warehouses

4.2 Profile of commodities stored in selected units

4.3 Financial feasibility and economic viability of selected KSWC warehouses and privatewarehouses

4.4 Composition of user groups

4.5 Capacity utilization

4.6 Problems/constraints faced by the user groups and warehouse operators infunctioning of warehouses

4.1 INVESTMENT PATTERN IN WAREHOUSES

It can be observed from the Table 4.1 that around 91 per cent of total cost in KSWCand 89 per cent of the total cost in private warehouses was involved in the construction ofbuilding, purchase of land and other structures. While, the investment on the machineries wasaround 9 per cent and 11 per cent to the total cost, in KSWC and private warehouses,respectively. In case of private warehouses the investment on machineries was little higherthan KSWC and the cost invested by private warehouse on building and land was muchhigher than KSWC.

4.2 PROFILE OF COMMODITIES STORED IN SELECTEDUNITS

Table 4.2(i), 4.2(ii) and 4.2 (iii) indicates the year wise commodity wise break up ofutilization of KSWC (owned), KSWC (hired) and private warehouse during the study period1991-92 to 2004-05. The commodities stored were food grains, pulses, oilseeds, fertilizersand other agricultural produce and inputs. Further, some non-agricultural products were alsobeing stored in warehouses.

In case of KSWC (owned), it could be seen that the fertilizers dominated thewarehouse space and constantly occupied more than 50 per cent of the total storage spaceexcept in few years. But, in the case of KSWC (hired), the food grains occupied more space,followed by fertilizers. In private warehouses the fertilizers dominated the storage spacewhich was found to be more than 60 per cent in all the years except during the last year(2004-05) of study period.

The average space occupied by fertilizers in case KSWC (owned), KSWC (hired) and

private warehouses were 51, 34 and 60 per cent, respectively. The average space occupiedby food grains were 38, 46 and 24 per cent in KSWC (owned), KSWC (hired) and privatewarehouses, respectively.

After food grains, fertilizer utilized fairly large warehouse space in all the 3 units ofwarehouse i.e., KSWC (owned), KSWC (hired) and private, the pulses and oilseeds alsoutilized the warehouse space.


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4.1: Investment on selected warehouses (fixed cost)

(Value in lakh Rs.)

Type of WarehouseCost on building

and landCost of machinery

and equipmentTotal (%)

KSWC 215(91.00)

38.75(9.00)

100

Private 375(89.00)

70.35(11.00)

100

Note : Figures in parentheses indicate percentage to total fixed cost

The average space occupied by oilseeds was found lowest in KSWC (owned), whichwas about just 2 per cent. In case of private warehouse the average space occupied by

pulses and oilseeds was nearly equal.

4.3 FINANCIAL FEASIBILITY AND ECONOMIC VIABILITYOF SELECTED KSWC WAREHOUSE AND PRIVATEWAREHOUSES

For financing agricultural and allied activities, the lending agencies strongly considerthe economic viability and financial feasibility of a project. It is generally an indicator of thecapability of an investment to generate income sufficient to liquidate it over the period of itsproductive life. For assessing the units, annual returns and annual expenditure were workedout.

To evaluate the feasibility of investment in the warehouse business, projectevaluation criteria such as net present value (NPV), benefit:cost ratio, internal rate of returnsand payback period were worked out. The analysis was done based on the cost and returnsof all selected warehouses and the results are presented in Table 4.3(ii).

4.3.1 Cost and returns

Warehouses are important linkage in the post harvest management infrastructure.The present scenario in the warehousing industry seems to be very much encouraging.


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Table 4.2(i): Profile of commodities stored in the selected warehouses of KSWC (owne

YearFoodgrains

Per cent Pulses Per cent Oilseeds Per cent Fertilizers Pe

1991-92 3032 17 735 4 506 3 12426

1992-93 40952 76 692 1 591 1 10656

1993-94 6896 39 608 3 144 1 9432

1994-95 9422 37 906 4 594 2 12036

1995-96 9860 37 506 2 322 1 14069

1996-97 6425 25 1260 4 652 2 21951

1997-98 8312 24 3290 10 890 3 19960

1998-99 12992 38 2000 6 850 3 17069

1999-00 14422 40 1800 5 600 2 18902

2000-01 13696 44 1700 6 286 1 14900

2001-02 14900 38 1200 3 300 1 22400

2002-03 14100 35 1000 3 800 2 20112

2003-04 15120 40 850 2 620 1 18600

2004-05 14000 38 800 2 740 2 20120

Average 13295 38 1240 4 564 2 16617


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Table 4.2 (ii): Profile of commodities stored in the selected warehouses of KSW

Year Foodgrains % Pulses % Oilseeds % Fertilizers

1991-92 2061 16 889 7 892 7 8091 6

1992-93 2142 16 860 6 912 6 9461 6

1993-94 2416 16 1012 7 982 7 9596 6

1994-95 3862 16 1142 4 1044 4 13961 5

1995-96 4896 16 1861 6 1142 4 19402 6

1996-97 5162 17 1861 6 1432 5 19206 6

1997-98 7061 22 1396 4 1891 6 21091 6

1998-99 70061 22 1241 4 1436 5 21164 6

1999-00 9462 23 1916 4 1832 4 26991 6

2000-01 11864 25 2102 4 1931 4 29964 6

2001-02 14661 29 1410 3 1120 2 32202 6

2002-03 16961 29 1891 3 1216 2 36432 6

2003-04 16961 33 1996 3 1862 3 34031 5

2004-05 20457 52 1384 3 1064 2 15035 3

Average 13430 24 1497 5 1340 4 21188 6


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Table 4.2(iii): Profile of commodities stored in selected private warehouses duri

YearFoodgrains

Per cent Pulses Per cent Oilseeds Per cent Fertilizers Pe

1991-92 4020 45 960 11 580 6 1132

1992-93 4952 40 1200 10 500 4 5000

1993-94 6890 45 1800 12 960 6 5860

1994-95 520 11 1006 21 420 10 2180

1995-96 2800 33 996 14 890 11 2860

1996-97 5425 47 1600 14 810 7 2800

1997-98 5312 52 600 6 1120 11 1960

1998-99 8992 56 1860 12 1142 7 2500

1999-00 9422 52 1340 7 1200 6 5800

2000-01 8432 50 1120 6 820 4 7220

2001-02 9680 44 1640 7 1210 5 8432

2002-03 8436 61 1232 9 - 0 4200

2003-04 9430 53 - 0 - 0 8450

2004-05 9920 55 1000 5 - 0 6500

Average 6108 46 1168 9 670 5 4563


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Table 4.3(i) : Cost and returns of selected warehousing units

KSWC (Owned) KSWC (Hired) Year

Cost Returns Net profit Cost Returns Net profit Cost

1991-92 59 70 11 25 24 -1 28

1992-93 60 73 13 27 36 9 39

1993-94 64 80 16 29 41 11 41

1994-95 67 86 19 14 13 -1 50

1995-96 71 92 21 17 18 1 54

1996-97 74 98 24 21 31 10 53

1997-98 77 105 28 26 28 2 55

1998-99 80 111 31 37 46 9 55

1999-00 83 120 37 40 53 13 78

2000-01 88 129 41 58 51 -7 85

2001-02 92 138 46 62 61 -1 89

2002-03 96 144 48 64 46 -18 100

2003-04 103 150 47 64 64 - 97

2004-05 109 160 51 65 66 1 71

Average 80 111 31 40 41 2 64


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Table 4.3(ii): Financial feasibility and economic viability

Selected unitsSl. No. Particulars

KSWC (lakh Rs.) Private (lakh Rs.)

1. Net present value(NPV)

a. At 12% -1.95 -125.43

b. 9.5% 89.77 -20.78

c. 8% 172.09 70.97

d. 4% 614.42 546.91

2. B:C ratio 1.47 1.74

3. Internal rate of returns(IRR)

8.12% 5.06%

4. Pay back period (PBP)

a. At 12% 4.5 yrs 10.5 yrs

b. 9.5% 4.2 yrs 9.2 yrs

c. 8% 4.0 yrs 8.8 yrs

d. 4% 3.7 yrs 7.3 yrs

Note : Figures in parentheses indicate percentage to the total

It was assumed from several research studies that the economic life of the assets wereas follows.

Assets Economic life (yrs)

1. Buildings 50-60

2. Machineries 15-20

It was evident from the Table 4.3(i) that all the selected warehousing units were ableto earn normal profits. Therefore, for assessing the economic viability of warehousing units,an annual profitability of the warehouses were calculated. The table 4.3(i) shows all the costs,returns and profits incurred during that particular year.


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It could be seen that the profit earned by private warehousing units was highest andthe average was Rs. 41 lakhs, followed by KSWC (owned) which was found to be Rs. 31lakhs.

It was noticed that the average returns were found highest in case of KSWC (owned)godowns than the other two units, but the average profit was higher in private warehousingunits. This was because of the working cost incurred, which was highest in case of KSWC

(owned) warehousing units. Because of this the KSWC (owned) godowns were not makingmore profit than compared to private warehousing unit.

It is evident from the table that hiring of godowns by KSWC was not economical andviable. The profits earned by hired godowns of KSWC was positive only in some years. So itis not economical for KSWC warehousing units to hire the godowns to store the produce.Instead they must go for their owned godowns i.e., they must increase their storage capacityin order to overcome from these loss.

It was observed that the Table 4.3(ii) that net present value of KSWC was Rs. 1.95lakhs and that of private warehouse was Rs. 125.43 lakhs, respectively at 12 per cent rate ofinterest.

The net present value at 9.5 per cent was Rs. 89.77 lakhs and Rs. 21.78 lakhs in

KSWC and private warehouses, respectively. The NPV at 8 per cent was Rs. 172.09 lakhsand Rs. 70.97 lakhs in KSWC and private warehouses, respectively. The NPV at 4 per centwas Rs. 614.42 lakhs and 546.91 lakhs in KSWC and private warehouses, respectively. Theinternal rate of return was 8 per cent in KSWC and 5 per cent in private warehouses. In caseof payback period, it was observed that the project was viable after 4.5 years at 12 per cent inKSWC and 10.5 years in private warehouses. At 9.5 per cent rate of interest, the project wasviable after 4.2 years in KSWC and 9.2 years in private warehouse, respectively. At 8 per centrate of interest, it was observed that the project is viable after 4 years in KSWC and 8.8 yearsin private warehouses, respectively. At 4 per cent rate of interest, the project was viable after3.7 years in KSWC, 7.3 years in private warehouses respectively.

4.4 COMPOSITION OF USER GROUPS

Different types of depositors deposited different types of commodities in the

warehouses. Depositors like government undetakings, government departments, traders,producers, fertilizer companies etc. stored their produce. The government department andtheir undertakings deposited more of foodgrains and fertilizer companies deposited only thefertilizer. The other commodities were deposited by interested groups like traders, brokersetc.

Table 4.4(i) and Table 4.4(ii) give details of depositor-wise utilization of KSWC andprivate warehouses. It is evident from the Table 4.4(i) and 4.4(ii) that government andgovernment undertakings dominated the storage space in KSWC and in private warehousesthe fertilizer companies dominated in util izing the storage space.

In KSWC, the government undertakings occupied the highest storage space over theyears except in few years and their storage space went on increasing from 26 per cent in1991-92 to 47 per cent in 2004-05, this shows the increasing trend. Similarly, in private

warehouses the highest space was occupied by fertilizer companies, which ranged from 34 to51 per cent. And in this case, also there was increasing trend over the years, except in thelast two years, which showed the declining trend.

Traders and producers also utilized the warehouse space. The utilization wasfluctuating throughout the study period. In case of private warehouse the utilization of spaceof producers was very negligible in last three years, which was not the case with respect toKSWC. The utilization of space by traders was more than producers in case of both thewarehouses i.e., KSWC and private.


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Table 4.4(i): Composition of user groups (depositor) in utilising the selected KSW

Year Govt. %Govt.

Underta-king%

Co-Operative

s% Traders % Producer

1991-92 5987 23 6881 26 2849 11 3756 14 3753

1992-93 5852 22 8900 31 2998 10 4087 14 3857

1993-94 3492 13 9892 36 1248 4 4342 16 4076

1994-95 8916 28 6886 22 1012 3 5864 18 5864

1995-96 9515 27 2861 8 3325 9 7602 22 7602

1996-97 3486 9 10481 27 1054 4 7725 20 7725

1997-98 6743 16 14062 33 2290 5 7580 15 7580

1998-99 6816 16 14962 35 2161 5 6960 16 6960

1999-00 8923 20 16017 36 1817 4 7890 7 7860

2000-01 16816 37 9989 22 1912 4 8012 15 7890

2001-02 18413 40 10061 22 1062 2 7062 18 8012

2002-03 9861 22 18432 40 1260 3 7102 18 7102

2003-04 8482 17 22061 44 1896 4 8505 17 8505

2004-05 7861 15 23861 47 1432 3 8612 15 8612 Average 8654.50 21.79 12524.71 30.64 1879.71 5.07 6792.79 16.07 6814.14


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Table 4.4(ii): Composition of user groups (depostitor) in utilizing the selected priva

Year Govt. %Govt.

Underta-king

%Co-

Operatives

% Traders % Produc

1991-92 614 7 2492 20 1986 14 1952 15 1406

1992-93 1102 9 1896 13 1461 10 2260 16 2542

1993-94 1486 11 2109 14 1861 12 2468 16 1691

1994-95 1864 8 2901 11 1432 6 4703 19 4777

1995-96 2491 8 3964 13 1020 4 6896 22 5629

1996-97 3969 12 3964 13 1416 4 8991 30 1508

1997-98 4162 13 3986 12 1201 4 9402 29 2240

1998-99 4460 15 4012 11 860 2 9861 30 2110

199-00 4919 11 3412 11 1161 3 11969 28 3050

200-01 4990 9 4861 14 896 2 9432 20 3800

200102 6210 12 6866 14 890 2 9956 19 2395

2002-03 6926 12 6994 15 1896 3 9942 16 1890

2003-04 8931 15 8963 25 1432 2 8104 14 964

2004-05 7432 20 14969 32 826 2 8289 20 1402Average 4254.00 11.57 5099.21 15.57 1309.86 5.00 7444.64 21.00 2528.8


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The utilization of warehouse by co-operatives was fluctuating over the years in boththe warehouse.

4.5 CAPACITY UTILIZATION

The Karnataka State Warehousing Corporation, keeping in view, the demand for

warehouse after careful surveys had been opening warehouses to serve the people. Thestorage capacity of KSWC went on increasing according to the demand. The storage capacityconstructed year-wise since 1991-92 is given in Table 4.5(i). It could be seen from the tablethat the pace of construction programme had been increasing in recent years. During the year2000-01 the total capacity owned by KSWC was 43,000 m tonnes and after that it remainedthe same and only the hired capacity went on increasing.

From the Table 4.5 (ii), it could be seen that the total storage capacity is increasingsimultaneously with the occupancy. The percentages of occupancy is fluctuating over thestudy period and was highest during the year 1991-92. The total capacity owned and hiredand occupancy including reservation can be seen in the Table 4.5(ii).

4.5.1 Hiring of private godowns

It can be seen from the Table 4.5(i) that the hired capacity constituted around 40 to45 per cent of the total storage capacity. Yearly fluctuations not withstanding it can be saidthat a private godown, the supplementary source of storage is bound to remain with thecorporation for a quite long-time to come. In the year 1993-94, the hired capacity accountedfor 50.5 per cent of the total storage capacity of the warehouse. And during the last 5 yearsthe percentage of hired capacity is increasing.

4.5.2 Private warehouses

It may be observed from the Table 4.5(iii) that the total storage capacity hasincreased more than four folds over the study period i.e., from 17,000 MTs in 1991-92 to75,000 MTs in 2004-05. This shows the over increasing storage needs and demands of thecustomers, who represent a cross section of procedures, traders, co-operatives, fertilizercompanies, government departments etc. The percentage of occupancy is fluctuating over

the years and highest was in the year 1993-94 and during 2004-05 the percentage ofoccupancy decreased drastically to 55 per cent.

4.6 PROBLEMS/CONSTRAINTS FACED BY THE USERGROUPS AND WAREHOUSE STAFF IN FUNCTIONINGOF WAREHOUSES

4.6.1 Problems faced by the farmers

Table 4.6(i) and 4.6(ii) indicated that about 48 per cent and 60 per cent of samplefarmers opined that the storage cost is high in both KSWC and private warehouses. Nearly 40per cent and 44 per cent of the farmers indicated that they have only small quantity to bestored in both KSWC and private warehouses. The other important problems were pricefluctuations, lack of awareness, location and transportation faced by the farmers in case ofboth the warehouses.

It could be observed from the Table 4.6(i) and 4.6 (ii) that about 20 per cent in KSWCand 17 per cent in private warehouse users expressed the problem of price fluctuations,which was high in case of storage.


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Table 4.5(i): Hiring of private godowns by state warehousing corporation during th

(In

YearTotal storage

capacityOwned capacity Hired capacity

%

1991-92 32013 19000 13013

1992-93 36412 19000 17412

1993-94 38432 19000 19432

1994-95 48902 40000 8902

1995-96 50976 40000 10976 1996-97 52461 40000 12461

1997-98 54032 40000 14032

1998-99 60816 40000 20816

1998-00 62496 40000 22496

2000-01 75901 43000 32901

2001-02 77982 43000 34982

2002-03 79697 43000 36697

2003-04 79490 43000 36490

2004-05 81040 43000 38040

Average 59332.14 36571.43 22760.71


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Table 4.5(ii): Statement showing the average storage capacity, Occupancy and percentage of

KSWC warehouses during the year 1991-2005

(In metric

YearAvg. capacityown & hired

Occupancy includingreservation

Capacity utilizin percenta

1991-92 32013 26973 84

1992-93 36412 29812 82

1993-94 38432 28301 74

1994-95 48902 32812 67

1995-96 50976 36016 71

1996-97 52461 39202 75

1997-98 54032 44661 83

1998-99 60816 45019 74

1999-00 62496 45616 73

2000-01 75901 45912 60

2001-02 77982 47060 60

2002-03 79697 46307 58

2003-04 79490 51206 64

2004-05 81040 52018 64Average 59332.14 40779.64 70.64


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Table 4.5(iii): Statement showing average storage capacity, occupancy and percentage of oc

private warehouses during the year 1991-2005

Year Total storage capacityOccupancy including

reservationCapacit

pe

1991-92 17000 13660

1992-93 17000 14722

1993-94 17000 15310

1994-95 38000 25619

1995-96 38000 31362

1996-97 38000 31361

1997-98 38000 32892

1998-99 38000 32964

1999-2000 60000 43361

2000-01 60000 49264

2001-02 60000 51261

2002-03 75000 60832

2003-04 75000 59369

2004-05 75000 40912

Average 46142.86 35920.64


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Table 4.6(i): Problems faced by sample farmers in utilizing the selectedKSWC warehousing facilities

(n=120)

Sl. No Description of the problem No. of farmersPercentage

to total

1. High storage charge 58 48

2. Small quantity 40 33

3. Delay in getting storage space 30 25

4. Price fluctuations 23 20

5. Lack of awareness 20 17

6. Lack of transportation facility 18 15

7. No proper guide lines 18 15

8. Inadequate storage space 13 11

9. Location is faraway 12 10

10. Risk of damage 10 8

11. Immediate need of cash 8 7

12. Any others - -


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Table 4.6(ii): Problems faced by sample farmers in utilizing the selectedprivate warehousing facilities

(n=120)

Sl. No Description of the problem No. of farmersPercentage to

total

1. High storage charge 72 60

2. Small quantity 44 37

3. Price fluctuations 20 17


5. Location is faraway 14 12

6. Lack of transportation facility 9 8

7. Delay in getting storage space 8 7

8. Inadequate storage space 4 3

9. Immediate need of cash 4 3

10. No proper guide lines 3 3


4.6.2 Problems faced by traders

It could observed from the Table 4.7(i) and 4.7(ii) that about 70 per cent of traders inKSWC indicated that storage costs were higher and in the case of private warehouses, 80 percent of traders indicated the same.

As high as 80 per cent of the traders indicated that the demand for stored products isvery low.

4.6.3 Problems faced by warehouse staff

As far as financial problems are concerned, most of the staff (80%) felt that theirbusiness suffered mainly due to high working cost, which was mainly due to requirement oflarge capital, protective materials etc.


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Table 4.7(i): Problems of the traders in utilizing the selected KSWCwarehousing services

(n=20)


total

1. High cost of storage 14 70

2. Poor demand for the stored

Products

12 60

3. Inadequate storage facility 4 20

4. Others 2 10

Total 32 160

Table 4.7(ii): Problems of the traders in utilizing the selected privatewarehousing services

(n=20)


total

1. High cost of storage 16 80

2. Poor demand for the storedproducts

12 60

3. Inadequate storage facility 1 5

4. Others - -

Total 29 29


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Table 4.8(i): Problems faced by the staff of the selected KSWCwarehouse

Sl. No. ParticularsNo. of

operatorsPercentage

I. Financial Problems

1. High rate of protective

Materials

9 90

2. High rate of interest 8 80

3. Paucity of working capital 7 70

4. Requirement of large capital 7 70

II. Technical Problems

1. Inadequate manpower 6 60

2. Inadequate technical

Supervision

5 50

3. Maintenance problem 3 30

III. General Problems

1. Lack of demand by users 9 90


3. Competition among

Warehouses

6 60


5. Deterioration in quality and quantity 1 10

IV Administrative problems 4 40


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Table 4.8(ii): Descriptions of the problems faced by the staff of theselected private warehouses

(n=10)

Sl. No ParticularsNo. of

operators

Percentage

I. Financial Problems

1. High rate of protective

Materials

9 90

2. Requirement of large capital 5 50

3. High rate of interest - -

4. Paucity of working capital - -

II. Technical Problems

1. Inadequate technical

Supervision

- -

2. Maintenance problem - -

3. Inadequate manpower - -

III. General Problems

1. Competition among

Warehouses

8 80

2. Lack of demand by users 6 60

3. Lack of awareness - -

4. Risk of damage - -

5. Deterioration in quality and

Quantity

- -

IV Administrative problems 2 20

In case of KSWC they were facing some technical problems like maintenanceproblem, inadequate technical supervision etc. which was not in case of private warehouses.This can be observed from the Table 4.8(i) and 4.8(ii).

From the view point of general problems, about 90 per cent owners were facing lackof demand by the users, which was about 60 per cent in case of private warehouses.

Lack of awareness was also a major problem in case of KSWC and not in case ofprivate warehouse. Competition among warehouses is also posing a big problem and lastly itwas found that about 40 per cent of the operators faced administrative problems in KSWCand in case of private warehouses it was low at about only 20 per cent of the operators/staff.


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V. DISCUSSION

The results of the study presented in the previous chapter are discussed in detail inthis chapter. The focus is to throw light on some of the causes responsible for the majortrends in the last chapter. They are discussed under the following broad headings.

5.1 Investment pattern in warehouses

5.2 Profile of commodities stored in selected units

5.3 Financial feasibility and economic viability of selected KSWC warehouse and privatewarehouses

5.4 Composition of user groups

5.5 Capacity utilization

5.6 Problems/constraints faced by the user groups and warehouse operators infunctioning of warehouses

5.1 INVESTMENT PATTERN IN WAREHOUSES

It was observed from the Table 4.1, which includes the break up of cost of installationi.e., land and buildings took a major share to the total investment followed by purchase ofmachineries and other equipments required for the maintenance of warehouses. The costinvolved in the construction of buildings could be reduced which inturn makes thesewarehouses to charge minimal rate to their produce, so that more quantity could be stored bythe farmers and traders. Maintenance of machineries and handling of the commodities storedin the warehouses must be efficient, so that it attracts the customers.

5.2 PROFILE OF COMMODITIES STORED IN THE SELECTEDUNITS

It was noticed from the Table 4.2(i), 4.2(ii) and 4.2 (iii) that food grains, fertilizersoccupied major storage space along with oilseeds, pulses etc which occupied some part oftotal area.

Karnataka being the 8th

largest state of India has wide and varied topography,climate, soils etc. and produces various types of crops like food grains, pulses, oilseeds,spices, fruits and also imports from other states.

Looking at the commodity wise break up of utilization of government warehouses(owned), it can be seen that fertilizers have dominated the warehouse capacity utilization. Theaverage occupancy of space by fertilizers was about 51 per cent, on the other hand foodgrains have shown a fluctuating trend over the years. The average occupancy was found tobe 38 per cent during the study period. The occupancy varied from as low as 17 per cent in1991-92 to as high as 76 per cent in the year of 1992-93. Pulses and oilseeds occupied only

a little negligible part of the warehousing space.

In case of KSWC (hired) warehouses instead of fertilizers, food grains occupied themajor portion of area. The average occupancy of space during the study period was found tobe 46 per cent. this was followed by fertilizers, which occupied the second highest space. Itvaried from as low as 16 per cent in 1998-99 to as high as 47 per cent during the year 2003-04. The average space occupied by pulses and oilseeds was 9 and 5 per cent during thestudy period.


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But, in case of private warehouses, fertilizers occupied the major storage area.Fertilizers accounted for more than 60 per cent of the storage space in almost all the yearover the study period except in the least two years. This was followed by food grains, whichoccupied the second highest storage space. Upto 1996-97 it occupied a constant area ofabout 16 per cent and after 1995-96 it started increasing and touched a highest of 52 per centin the year 2004-05. This shows the increasing trend of food grains production. The averagespace occupied by food grains and fertilizers was found to be 24 and 60 per cent during the

study period.

On comparing the government and private warehouses, private warehouse with theirlow cost of storage and efficient handling and transportation attracting the fertilizers stocksand are performing better than public sector warehouses. The government warehouses arenot having their own lorries for transportation and handling of the commodities is not efficient,which is not the case with private warehouses.

5.3.1 Financial feasibility and economic viability

The evaluation criteria such as net present value, internal rate of returns, B:C ratioand payback period were employed to evaluate the financial feasibility of investment onwarehouse business enterprise.

It could be observed from the Table 4.3(ii), that the net present value at 12 per centrate of interest found to be negative. Hence, it can be concluded that the investment in theselected units is economically infeasible and unusual. Whereas, at 9.5 per cent rate ofdiscount, net present value was found to be positive in KSWC and negative in privatewarehouses, while in case of 8 per cent rate of discount, net present value in the KSWC andprivate warehouse were positive. Similarly, at 4 per cent rate of interest, the net present valuewas positive in both the warehousing units. Hence, here it could be concluded that at 4 percent rate of interest, the selected units were economically feasible and viable.

Internal rate of returns

Internal rate of returns were found less than 8 per cent in the private warehouse andhence it clearly indicates that investment and functioning of private warehousing units is notprofitable, and in case of KSWC the IRR was found more than 8 per cent and hence it is

profitable.

Payback period

It is the time period required to repay the loans borrowed. From the Table 4.3(ii), itcould be noticed that at 12 per cent rate of interest, the time required to repay the loan wasmore than 4 years in KSWC and more than 10 years in case of private warehouses, whereasin the case of 9.5 per cent rate of interest, the PBP was found to be more than 4 years inKSWC and more than 9 years in private units.

It could be concluded that at 4 per cent and 8 per cent rate of interest, the PBP wascomparatively less i.e., in the range of 3 to 7 years. Hence, it could be concluded that it isquite likely that in case of KSWC it might have higher net returns value, the privatewarehouses might promise the shorter payback period with returns as early as possible.

Finally, taking all the factors into consideration, it can be concluded that KSWC at 9.5,8 and 4 per cent rate of discount as economically viable and financially sound. Similarly, inprivate warehouses at 8 and 4 per cent was economically viable and financially sound.

5.4 COMPOSITION OF USER GROUPS

As it was observed from the Table 4.4(i) and 4.4(ii) that users of selected warehousesi.e., government and private were broadly classified into six categories as government,government undertaking, co-operatives, traders, producers and fertilizer companies.


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Looking at the depositor-wise utilization of the government warehouses, it can beseen that government and government undertakings are accounting for much of the storagespace of the corporation over the study years and their storage price was fluctuating. In caseof private warehouses the fertilizer companies accounted for more than 30 to 40 per cent overthe years except during 2003-04 and this was followed by traders and governmentundertaking. Because of drought in the recent years, the utilization by producers has declinedin private warehouses.

In case of government warehouses, the fertilizer companies, one of the depositor ofthe corporation, till 1999-2000 used to occupy about 15 per cent of the warehouse space, butafter that their utilization fell sharply because of many reasons as listed before.

The traders stored major part of their commodities in private warehouses thangovernment because of efficient handling of the commodities stored and the transportation ofcommodities is undertaken by the private warehouse only.

The storage space occupied by co-operatives and producers were fluctuating in boththe warehouses, and they also utilized the facilities provided by the warehouses. Theproducers stored the commodities in the warehouses in order to get the loans. The farmersutilized less storage space, because of many problems like location of warehouses in townsand cities, handling and transportation bottlenecks, lack of assured bank advances against

warehouse receipts lack of facilities for marketing the produce stored in the warehouses andinadequate marketable surplus.

It is paradoxical that agriculturists, for whom the warehouses are primarily meant, arenot the major beneficiaries of the warehouse facilities. It is definitely possible if credit were tofourth come against the warehouse receipts from the commercial banks. This requires top-most attention. The view that warehouses are meant for agriculturists will only be a historicalderivative and not an authentic and authoritative objective. Therefore steps will have to betaken at the national level to impart a definite rural bias to warehousing. The concept may beself imposed or otherwise that the warehousing corporations in the country are to run oncommercial lines needs a pragmatic look in view of the social objectives in consonance withthe directive principles ensured in our constitution. Profit making appears to be a malaise. Butwhen warehousing corporations are making profit, they should not hesitate to serve this nobleobjective of running rural warehouses though they are not economically viable units.

5.5 CAPACITY UTILISATION

As observed from the Table 4.5(i) and 4.5(ii) that private warehouses occupied morethan 80 per cent of the total storage capacity except in last two years and in the year 1994-95and 1999-2000. But, in case of government warehouses the percentage of occupancy isfluctuating over the study period and average occupancy is 71 per cent.

This indicates that the private warehouses are making more profit than KSWC in therecent years.

If we see the capacity, occupancy, reserved capacity and utilization against reservedcapacity they are not nearly significant in both the warehouses, which indicates that thereservations by different agencies are not matched by their utilization.

The Karnataka State Warehousing Corporation, keeping in view the demand for thewarehouses by careful survey has been opening warehouses to serve the people. To cope upwith the increasing demand for warehouse facilities in different parts of the state, particularlysemi-urban areas, the KSWC is opening warehouses throughout the state. As a result, thestorage capacity has doubled and still increasing during the study period. In order to providestorage facilities to all customers during all seasons particularly during peak season when thestorage capacity of KSWC is fully utilized, the private warehouses are hired. Since, thedemand for storage is seasonal in nature, the corporation is continued to depend on hiredgodowns. The percentage of hired capacity had increased during the last coupl of years


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mainly because the corporation has undertaken procurement of foodgrains under food forwork programme of the state government. In case of private warehouses the total storagecapacity has more than tribled over the study period due to its increasing demand andefficiency of the functioning than compared with KSWC. And the percentage of occupancywas also higher than the KSWC. During the year 2004-05, the percentage of occupancy wasonly 55 per cent as the fertilizer companies which sold fertilizer directly to the producers orfarmers due to shortage and huge demand and also some fertilizer companies have started

their own warehouses for storage.

5.6 PROBLEMS/CONSTRAINTS FACED BY THE USERGROUPS AND WAREHOUSE STAFF IN FUNCTIONINGOF WAREHOUSES

If the industry is to survive and thrive, the problems faced by farmers, traders andstaff shall have to be identified, analyzed and documented. It is not important to identify oranalyse the problems, but serious efforts should be made to overcome these problems.

However, only concerted efforts of all the cold storage units connected with theindustry can bring fruitful results.

Farmers, traders and warehouse staff were interviewed in order to ascertain theirviews on different aspects of storage practices.

5.6.1 Problems faced by farmers

The discussion held with farmers (Table 4.6(i) and 4.6(ii)) indicated that majority ofthe farmers opined that high cost of storage keeps them away from the storage practices.

It also indicated that most of time price varied from months to months. As a result,farmers can not expect higher price in the future as they did not anticipate price variations,storage of produce may not be advantageous. It also revealed that sometimes farmers did notget adequate storage space, small quantity of produce, lack of awareness, no properguidelines, location and transportation problems were encountered and so kept away fromstorage.

It was very paining to listen to the mourning talk of the farmers especially smallfarmers that warehouse operators did not give good response during the time of storage. Bigfarmers will get more weightage. It is therefore, advised that warehouse owners have to treatthat all the customers are equal.

As most of the small scale farmers get the loan from the money lenders, they need topay the loan immediately after harvesting so the farmers were not be able to store theirproduce in the ware

warehouse and distribution

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