Warehousing Act to hit mandi volumes

The volume of trade in agricultural commodities at the the country’s 7,500 state-run mandis, the wholesale trading centres, is likely to be hit with the implementation of the Warehousing (Development & Regulation) Act , 2007 (WDRA), which has just been notified.

According to an estimate, the mandis transact business in agri commodities worth a total of Rs 2,500-3,000 crore daily. The new Warehousing Development and Regulatory Authority (WDRA) is currently preparing rules for warehouses, their owners and the government to adhere to. The Act also mandates registration of warehouses. The regulator, in turn, will allow storages with modern infrastructure to issue warehouse receipts (WRs), which will be tradable and negotiable.

This means, a farmer or trader in even a remote village should be able to raise funds from banks equivalent to 75-80 per cent of the value of commodities by depositing the produce at a nearby registered warehouse. Also, they will be able to sell in various parts of the country.

“The process will certainly reduce physical movement of agri commodities to mandis. Currently, nearly 30 per cent of farmers transport goods to mandis on their own. The rest still sell to local arhatiyas (aggregators cum financiers) to raise funds immediately, who accumulate goods to sell in nearby mandis in high volume,” said Madan Sabnavis, chief economist with Care Ratings.

Most farmers in even that 30 per cent category do not use futures exchanges for hedging or price reference. Once WRs become negotiable, farmers will be able to trade receipts and, therefore, the physical movement of commodities will be restricted. But, the process will take some time. It requires proper regulation, good infrastructure and educating the farmers, Sabnavis added.

“Yes, existing spot mandis will lose some business in future, as the deals will be executed outside more than within mandis,” said Sanjay Kaul, managing director of the NCDEX-promoted National Collateral Management Services Ltd.

The WR will include an assurance of quantity, quality and validity, so it will enable farmers to access bank credit. Beside helping banks to achieve their priority sector lending targets.

According to Anil Choudhary, managing director of the Financial Technologies-promoted National Bulk Handling Corporation, the negotiability of WRs will also safeguard financial institutions from the risks inherent in credit extension to farmers. Which means the secondary market will develop.

The pledging of agricultural produce with WR backing will also benefit futures commodity exchanges in the form of increased transactions, said V K Tyagi, regional manager of Central Warehousing Corporation, Ahmedabad.