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PERFORMANCE OF WAREHOUSING IN KARNATAKA A COMPARATIVE ANALYSIS

Thesis submitted to the University of Agricultural Sciences, Dharwad in 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

ADVISORY COMMITTEE DHARWAD FEBRUARY, 2007 (R.A.YELEDHALLI) MAJOR ADVISOR

Approved by: Chairman : ______________________ (R.A.YELEDHALLI)

Members : 1.______________________ (H.S.VIJAYAKUMAR) 2.______________________ (VILAS KULKARNI) 3.______________________ (K.A.JAHAGIRDAR)

CONTENTS

Chapter No
I. INTRODUCTION

Title

Page No.

II.

REVIEW OF LITERATURE

III.

METHODOLOGY

IV.

RESULTS

V.

DISCUSSION

VI.

SUMMARY AND POLICY IMPLICATIONS

VII.

REFERENCES

LIST OF TABLES
Table No.
4.1. 4.2(i). 4.2(ii). 4.2(iii). 4.3(i). 4.3(ii). 4.4(i). 4.4(ii). 4.5(i). 4.5(ii).

Title
Investment on selected warehouses (fixed cost) Profile of commodities stored in the selected warehouses of KSWC (owned) during 1991-2005 Profile of commodities stored in the selected warehouses of KSWC (hired) during 1991-2005 Profile of commodities stored in selected private warehouses during 1991-2005 Cost and returns of selected warehousing units Financial feasibility and economic viability Composition of user groups (depositor) in utilising the selected KSWC warehouses Composition of user groups (depostitor) in utilizing the selected private warehouses Hiring of private godowns by state warehousing corporation during the year 1991-2005 Statement showing the average storage capacity, Occupancy and percentage of occupancy in the selected KSWC warehouses during the year 1991-2005 Statement showing average storage capacity, occupancy and percentage of occupancy in the selected private warehouses during the year 1991-2005 Problems faced by sample farmers in utilizing the selected KSWC warehousing facilities Problems faced by sample farmers in utilizing the selected private warehousing facilities Problems of the traders in utilizing the selected KSWC warehousing services Problems of the traders in utilizing the selected private warehousing services Problems faced by the staff of the selected KSWC warehouse Descriptions of the problems faced by the staff of the selected private warehouses

Page No.

4.5(iii).

4.6(i). 4.6(ii). 4.7(i). 4.7(ii). 4.8(i). 4.8(ii).

I. INTRODUCTION
WAREHOUSING
Traditionally, warehousing involves the storage of raw material, work-in-process inventory 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 the growing 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 significant changes in the last decade owing to the growth in world trade and expansion of international markets as well as increasing application of new technology. Internationally, warehousing industry is classified into three different types viz. Public warehousing, Private warehousing and Contract warehousing. Of these, contract warehousing, which has dedicated customers with long-term agreement, is the fastest growing segment of the industry internationally and is expected 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 capacity hired from Central Warehousing Corporation and State Warehousing Corporations was 261.21 lakh tonnes as on 1.3.2005. The hired capacity with the Food Corporation of India was 109.80 lakh tonnes as on 1.3.2005. Warehousing activities of CWC include food grain warehouses, custom bonded warehouses, 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 of the country provide warehousing facilities to users through its own warehouses and also by privately owned warehouses located within or outside the port arena. Increased liberalization of 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 the industry. Food and agriculture marketing includes the movement of agricultural produce from the farm where it is produced to the consumer or manufacturer. It includes physical handling and transport, initial processing and packing to simplify sales transactions and to meet the different consumers requirements and storing products over a period of time to meet consumers continual demand. Between production of food grains and its distribution, storage and warehousing is a crucial and an organic link. It is crucial because it makes available food grains to people all through the year, though its production is seasonal. It is an organic link because there should be no gap in the chain of the production reaching the ultimate consumer. Particularly in the case of agricultural crops, which are subjected to the hazards of drought, 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 stability in matter of supply of food grains. It is said that in a good year farms produce and in the bad year, the storage and warehouses. Because of advancement in science and technology, agricultural usage of improved seeds, chemical fertilizers, pesticides and improved irrigation facilities Indian agriculture has transformed 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 their moneys worth to the consumers is the task of scientific marketing. Demand for agricultural commodities remain rather steady throughout the year while their supply is seasonal

depending on harvesting time. Farmers in villages use various kinds of storage structures such as mud bin, cement bin etc. these are neither adequate nor appropriate to meet the storage requirements of large surpluses for a considerable period of time. Meeting this demand is the challenge of the Central Warehousing Corporation and the State Warehousing Corporations. 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 time and place utility. The problems of warehousing shall, therefore, have to be tackled with same zeal as production has been attempted with matching efforts. Increased production should not result in increased wastage. As per 2001 census Indias population was 1028 billion. India will overtake Chinas population by 2050. Our population will be 1592 billion by 2050, while Chinas population will be 1392 billion. Therefore the problems of storage, movement and utilization of the food grains will be of equal magnitude. Considerable attention is, no doubt being paid to the imported grains for proper storage. But, the producers stocks, which constitute nearly 75 per cent of the total food grain production, have not received adequate attention for proper storage. What is worse is a developing nation not only produces less, it loses much of its valuable production due to poor and unscientific storage conditions. So while planning for agricultural development and effective distribution of agricultural commodities, planning for storage and warehousing, should form an integral part. In the present context of food grain trade, it is worthwhile assessing the planning done for food grains trade, its production, its distribution and the present arrangement for storage and warehousing.

STORAGE AND WAREHOUSING


Storage implies preserving. It is the process of carrying surplus production for future consumption. It includes all types of storage, whether traditional method or scientific methods of 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 term and warehousing forms a part of it.

WAREHOUSE AND WAREHOUSING


Warehouse means any building, structure or other protected enclosure which is used for the purpose of storing goods on behalf of depositors but does not include cloak rooms 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 as well from the licensing authority, which satisfies itself about the storage worthiness of the structure to be licensed before the grant of the license. A licensed warehouse issues a receipt for the goods deposited in the prescribed form called a warehouse receipt, which may be marked negotiable or non-negotiable. Warehousing is an economic activity and denotes a dynamic aspect of commercial storage. It provides for safe keeping of goods in an orderly manner at suitable locations for easy 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 return on payment of warehousing charges. The Central and State Warehousing Corporations accept only such commodities for storage as can be stored under the provisions of the warehousing Corporations of the Warehousing Corporations Act, 1962 and notifications issued there under (Chibber, 1982). The developing countries are striving for agricultural, industrial, technological and economic growth to improve the standard of living of their people. The establishment of a well-planned network of warehouses is important both for domestic and international trade

and public distribution of essential commodities. Warehousing is an essential infrastructure for trade, commerce and physical distribution. Today in the world of economic flexibility, the manufacturers and distributors, bid for the maximum sales, which leads to intense competition both in price and service. The storage of products at strategic locations for efficient sales promotion and physical distribution is of prime 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 and growth of its storage. Its necessity arises fundamentally out of lack of co-ordination and adjustment between the time and place of production of goods and the time and place of their consumption. Further the type, size and location of storage would depend on whether it is required for Inventory or Transit. In the international trade, it is necessitated to satisfy customs clearance formalities, pre-shipment fumigation and quarantine requirements, arrival and departure schedules of carriers and vehicles. The demand for storage (both inventory and transit) is essentially derived demand. It consists 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 inelastic to its price of storage. This is because the cost of storage is a very small element in the final price of the commodity. The terms storage, godown and warehouse are often taken and used as synonymous. Storage denotes function while godown or warehouse is simply the form of storage. Warehousing is used to describe the business or trade of storage and its prime objective is to profit from storage. It is an important link in the chain of marketing. It serves place and time utility and add to the place value of goods. These also smoothen out fluctuations in the supply and demand, which are often influenced by natural and political events.

FUNCTIONS OF WAREHOUSES
They provide protection to goods against heat, wind, storm, moisture, etc. and also cut 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.

These goods are stored from the time of their production or purchase till their consumption or use. ii) Protection of goods : A warehouse provides protection to goods from loss or damage due to heat, dust, wind and moisture, etc. It makes special arrangements for different products according 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 goods are handed over to the warehouse-keeper for storage, the responsibility of these goods passes on to the warehouse-keeper. Thus, the risk of loss or damage to goods in storage is borne by the warehouse keeper. Since it is bound to return the goods in good condition, the warehouse becomes responsible for any loss, theft or damage, etc. Thus, it takes all precautions 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 document in favor of the owner of the goods, which is called warehouse-keepers warrant. This warrant is a document of title and can be transferred by simple endorsement and delivery. So while the goods are in custody of the warehouse-keeper, the businessmen can obtain loans from banks 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 is seasoned, and fruits are ripened, etc. Sometimes warehouses also undertake these activities on behalf of the owners. vi) Grading and branding : On request warehouses also perform the functions of grading and branding of goods on behalf of the manufacturer, wholesaler or the importer of goods. It also provides facilities for mixing, blending and packaging of goods for the convenience of handling and sale. vii) Transportation : In some cases warehouses provide transport arrangement to the bulk depositors. 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 context constitutes the dynamic phase of commercial storage and marketing coupled with training of personnel in scientific warehousing techniques. The warehouses can serve as insurance

against different kinds of contingencies. The development of the concept of scientific warehousing in India was due to three factors (Ranganathan, 1986). First, Royal commission on Agriculture (1927) argued that the major defect of the Indian Agricultural Marketing Economy, was derived from the non-availability of the specification in the pattern of cropping and development of transport facilities, fertilizers, irrigation schemes and improved seeds, the need for organized marketing as well as the need for scientific storage became especially relevant in the current Indian economic scene. The All India Rural Credit Survey Committee set up by the Reserve Bank of India in 1954, reiterated the point-already made by the Royal Commission on Agriculture (1927) for establishing a public warehousing system in India. This committees recommendation resulted in the enactment of the Agricultural Produce (Development and Warehousing) Corporations Act, 1956 under which the Central and State Warehousing Corporations were set up in the public sector. The more comprehensive Warehousing Corporations Act replaced it in 1962. The Central Warehousing Corporation started functioning during July 1957- August 1958. Here the five main objectives the warehousing Corporations can be summarized: 1. The creation of a negotiable paper to provide an instrument for expansion of credit through 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 in storage and by promoting and developing warehousing and scientific storage facilities. 3. Providing assistance in orderly marketing through the introduction of standard grade specifications and the warehouse receipt. 4. Training of personnel and 5. Assisting government and government sponsored organizations to arrive at their scheme 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 India importance. State warehousing Corporations in the respective states at district level and Co-operatives operates in Taluk and village level

b) c)

Warehousing facilities are necessary to increase the holding capacity of the stocks of the farmers which will enable him to realize higher returns, thereby reducing the price spread and increasing the producers share in the consumers rupee. Hence Warehouse constitutes an important infrastructure for agricultural development. However, agricultural development is a precondition for the Warehouse to be developed. The present study has been undertaken, to examine the progress of the state warehouses 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.

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 the officials of KSWC and Private Warehouses.

PRESENTATION OF THE THESIS


Chapter I Introduction : In this chapter, the nature, importance of the present study and the specific objectives of the study have been indicated. Chapter II Review of Literature : It presents a comprehensive review of the relevant research work done on related topics by the different authors. Chapter III Methodology : It outlines the features of the study area, sampling design followed, 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 suggest the policy implications arising from the findings of the study. Chapter VII References : This chapter provides the list of literature referred for the present study.

II. REVIEW OF LITERATURE


A review of past research helps in identifying the conceptual methodological issues relevant to the study. This would enable the researcher to collect information and subject them to sound reasoning and meaningful interpretation. A brief review of the earlier research work 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 available literature pertaining to the present study has been reviewed under following heads : 2.1 2.2 2.3 Investment pattern and feasibility Profile of different commodities stored and utilization pattern Problems faced.

2.1

INVESTMENT PATTERN AND FEASIBILITY

Lingamurthy et al. (1981) reported that regulated market provides storage facilities to the farmers who want to wait for a fair price. The Warangal Agricultural Market in Andhra Pradesh has 2100 metric tonnes storage accommodation which is sufficient to cater to the needs of the farmers of the market center. Moderate rates are charged for storage. But this 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 cold storage capacity in India is exclusively used for potato storage. The existing cold storage capacity has been created in the private sector which owns 85.85 per cent of the cold stores and 92.58 per cent of cold storage capacity. The public and cooperative sectors put together hold remaining 14.15 per cent of the total capacity and most of them were under utilizing their installed capacity. Author opined that diversified utilization of cold storage facilities are necessary for improving the viability of cold storage. Rajendran (1987) opined that establishment of cold storages in general appeared to be economically unsustainable. It was observed from the study that 55 per cent of the project cost 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 project viable, reduction in installation cost and working cost were necessary. Rao (1990) compared wholesale market price with cold storage economics in Bangalore district. Results of the study implied that storage beyond July might not be a workable proposition due to glut in the market. This type of situation adversely affect the economy of cold storage. He suggested that cold storage coupled with trading activity may be in a position to absorb losses and improve capacity utilization of the unit. Dalvi et al. (1992) studied economics of processing of cashewnut in Sindhudurg district of Maharashtra. They observed that the overall total capital investment was 40.44 lakhs, which consisted of Rs. 4.45 lakhs fixed capital (11.01%) and Rs. 35.99 lakhs working capital (88.99%). In the total capital investment, the share of land and building was 1.55 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 was a direct relationship between the total capital investment and the size of oil mill. It was seen that 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 of Davana in the Eastern Dry Zone of Karnataka, observed that from among the various items

included under variable costs, the cost of the raw material stood at Rs. 7.2 lakhs, which accounted for 92 per cent of the total variable costs. The wages accounted for 4.60 per cent followed by the cost of fuel wood, which accounted for 1.84 per cent. Saika and Talukdar (1996) studied the economic potential of commercial processing firms at farm level for major spices in Nagam district of Assam. It was observed that on 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 equipments shared the higher portion and it was followed by opportunity cost of own land. Out of total capital investment, 91.73 and 98.85 per cent were shared by raw materials in turmeric and chilly processing units, respectively. Joshi et al. (1999) studied the capital investment in the home cottage, small and large scale of mango pulp making units in South Konkan region. In these, the fixed capital 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 lakhs and Rs. 21.03 lakhs, respectively. Manjunath (2003) evaluated the performance of fruits and vegetable processing units of 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 study showed that plant, machinery and equipments formed major component of investment accounting 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 and fixtures and miscellaneous fixed assets contributed to an extent of 7.51 per cent, envisaging total investment of Rs. 300.03 lakhs in the cooperative processing unit. Investment on infrastructure facility structures, office fixtures and miscellaneous fixed assets contributed to an extent of 7.49 per cent, envisaging total investment of Rs. 500.98 lakhs in private processing unit.

2.2

PROFILE OF DIFFERENT COMMODITIES STORED AND UTILIZATION PATTERN

Alaouze et al. (1978) used dynamic programming to examine whether Australia should store wheat for subsequent sale at higher prices. The dynamic programming model was developed assuming that the demand for Australian wheat is perfectly elastic at the world price. The major conclusions of the study are : (a) Apart from interest rate, the most important factor affecting storage in any season was the price in the following season; (b) the holding of a speculative reserve to be sold in seasons of episodic price increased was generally unwarranted; (c) the optimal policies associated with simulations of the historical price series observed for the period 1953-54 to 1971-72 (when Australian wheat prices had a stable mean and a low variance) indicate that a storage policy based on storing wheat in seasons 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 capacity utilization, profitability, commitment to serving primary producers and administration, based on data collected from six fruit and vegetable cold stores in Bangalore city relating to the years 1975-76 to 1977-78. In terms of capacity utilization, profitability and management, the private sector performed better than the other two sectors. The bad business performance of the cooperative unit was mainly due to mismanagement, while in the case of the government unit it was due to faulty planning and administration. In terms of meeting the cold storage needs of primary producers and to some extent of the agriculturists, the cooperative unit performed well. It was found that the private units were not willing to accept certain kinds of

produce like potatoes from farmers. Under such circumstances, the responsibility of protecting the producers interest lies with cooperative and government sectors. However, the management 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 for kharif and rabi seasons, 26 per cent and 60 per cent respectively were stored by farmers for various 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 as size of holding increased although the absolute quantity stored was positively associated with the 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 and those were much more liable to damage and loss rodents and moisture being the major destructive forces. Metal bins were used only by 25 per cent of farmers but 80 per cent of cultivators 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 marketing system by determining optimal sizes and locations of warehouses and investigating ways by which the marketing costs of the product could be minimized. He examined the transport and storage systems in each of the 13 regions of Philippines during 1975-77. He found that warehousing facilities were inefficiently located, with shortages of storage facilities in some regions 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 large amount of the crop could be lost through inefficient handling and processing. Reddy and Narasimhan (1980) found that locating of the colossal godowns of Central Warehousing Corporation adjacent to the market yard of the Hindupur regulated market was for the best advantage of growers and traders. Samajpati et al. (1980) compared low cost structures for storage of paddy by farmes in Bangladesh and showed that oval bins made of bamboo splits and plastered with mud and cowdung were the most suitable. Saxena and Mathur (1980) examined the relationship between seasonal price variation and profitability of storage of wheat and relative economics of various methods of storage, 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 were analyzed. Storage cost per quintal was lowest with kuthila method, but it was not a scientific method of storage since losses were maximum in this method and only small farmers adopted it, having only a small amount of marketable surplus. With the bulk method, the cost of storage was less than with the bag method. The storage cost increased with the increase in the period of storage, with all the three methods of storage. The bulk method of storage was more profitable to farmers than the bag and kuthila method of storage. With the bag method of storage, the cost of storage was maximum. Storage profit showed a direct relationship between 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 State Warehousing Corporations observed that the Corporation stored merchandise of the Government, Government sponsored organizations. Food Corporation of India, Fertilizer companies, 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 meet the basic objectives of providing scientific storage facilities to agricultural produce at cheaper storage charges in the state. He reported that the corporation not only used its own capacity upto an optimum but also hired the same from other agencies. The study revealed that fertilizers and food grains were stored in large quantities and RSWC has not been able to attract commercial crops for storage and the poverty stricken agriculturist in Rajasthan was selling them at the price fixed by the traders.

2.3

PROBLEMS FACED

Rehman (1985) observed that there were 107 agro-based industrial units in Baduan district 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 3,398 people annually. He also assessed a great potential for future agro-industrial expansion in the above district. Hemachand (1989) in his study on economics of processing of arhar in Narasinghpur district of Madhya Pradesh found that the main problems of the processors were short supply of raw materials, frequent shedding of power and inefficient technology which together ultimately lead to lower capacity utilization and declining output. Srivastava (1989) indicated that, with subsequent secondary and tertiary processing of various raw materials, the value added as well a the price of finished products would increased. He observed that agro-processing units accounted for 39 per cent of the total factories in the study area. He noticed capital productivity ratio in agro-industries was almost the double (0.7) than the non-agro based industries (0.35). While labour productivity was 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 raw materials, frequent price fluctuations, non-availability of skilled labour and high taxes. Venkatasheshaiah (1992) in his study on groundnut processing units in Andhra Pradesh identified stiff competition among the processors for getting the required raw materials, frequent power shedding, high taxation, low product recovery and non-availability of efficient technology at an affordable costs as the major problems associated with their business. Mangal Singh (1995) while studying the strategies for effective management of sugar factories in India found that lack of quality raw material, efficient technology and professionally trained management personnel at different levels of organizational structure as the main problems as depicted by the study. He carried these problems as firms internal problems 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 of Himachal Pradesh, studied the problems of cultivators during storage, transportation and marketing of these crops. They pointed out some of the major problems like costly wooden boxes, time consuming manual grading, distant markets, high transportation charges, malpractices in the market and lack of market information. It was observed that about 90 per cent of growers were facing the problem of distant market, lack of standard grade was reported by about 37 per cent of cultivators and costly packing material was reported as problem by 75 per cent of cultivators. It was thus suggested that the market information should be announced through mass media like radio/TV and also through pamphlets. Singh and Singh (1996) studied the performance of agro-processing units in Punjab and 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 very survival of the industry or unit under consideration. Rai et al. (1996) examined the potentials and problems of agro-processing industries in Haryana state and revealed that there is a tremendous scope for agro-processing industries in Haryana where the supply of raw materials, processing units and marketing are not serious problems. Infrastructural facilities in the state are reasonably well developed. The future potential of developing agro-processing industries lies in wheat milling, rice milling, feed and concentrate industry, edible oil, cotton processing and sugarcane milling.

Brahmaprakash and Dineshkumar (1997) in their study on infrastructural requirements for establishment, development and operation of agro-based industries in rural areas opined that lack of market information, storage and transportation, timely and adequate financial support and post-harvest technology were the major-problems to realize the rural projects in India. Jagadish Prasad (1997) conducted a case study on three sets of marketing institutions viz., public institutions, cooperative organizations and private trade in Ranchi district of Bihar to identify the problems and prospects of vegetables marketing and on the basis of findings to suggest suitable strategies for improving its efficiency. It was observed that in case of cooperative marketing institutions, the financial position was not sound. Lack of infrastructural 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 was reasoned by lack of infrastructural facilities such as transportation, storage and technology for post-harvest handling. He also opined that lack of integrated network between the producer farmers was a problem of the agro-based industries. Patil (1998) in her study on performance evaluation of fruit and vegetable processing units 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 major constraints observed in fruit and vegetable processing units. Raman Dev (1998) in his study on business performance analysis and appraisal of the cashewnut processing units in Uttara Kannada district of Karnataka identified high taxation, short supply of raw materials, non-availability of skilled labour, unfavourable government policies and marketing system as the major problems as conceived by the industry. Chidri (1999) in his study on management of agro-processing units in Karnataka indicated that high taxation, high procurement cost, irregular power supply, inadequate finance, irregular labour supply and marketing of finished products are the major problems faced by the tur processing units. Ashraf Ali (2000) in his study on business performance of cooperative oil mills noticed that non-availability of raw materials in sufficient quantity and in desired quality was the most important problem faced by the large and medium scale units followed by lack of infrastructural facilities as the second in order. Kavitha (2000) documented agro-processing units/industries in different taluks of Uttar Kannada district. She stated about the number of agro-processing units/industries in different taluks of Uttar Kannada district along with their investment. Totally 531 agroprocessing 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, honey processing units, pickle making units, poultry farm, aqua culture, textiles, wood and wood based industries and other industries which include 27 units.

III. METHODOLOGY
It is understood that methodology is the strong foundation for systematic and scientific research or investigation. It is imperative to give the details of investigation and methods adopted by the investigator in finding out the fact or problems. This chapter outlines briefly 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 3.2 3.3 3.4 3.5 Selection of the study area Description of the study area Nature and source of data Sampling procedure Analysis of data

3.1

SELECTION OF THE STUDY AREA

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

3.2

DESCRIPTION OF STUDY AREA

3.2.1 Karnataka
The study pertains to northern districts of Karnataka state, India. The state of 0 0 0 0 Karnataka is located between 11.5 and 19 north latitudes and between 74 and 78 east longitudes. It is eighth largest state in India both in area and population with an area of 191,800 km2 and 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 bounded by Maharashtra, Goa, Andhra Pradesh, Tamil Nadu and Kerala in the north, east, southeast and southwest, respectively. The state has 27 districts, 175 taluks and 27,066 inhabited villages. Karnataka is situated in tropical zone and enjoys warm climate throughout the year. 0 0 The mean temperature ranges from 21.5 C to 31.7 C, the maximum and minimum 0 0 temperatures being 42 C and 14 C, 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 4029 mm. Average annual rainfall of the state is 1354 mm. The major part of rainfall in the state is received from the southwest monsoon which commences in the first week of June and continues till the end of September. Most part of the state has by red soils. Laterite soils are found in the hilly ad coastal regions of the western parts. The northern parts of the state has block soils with high moisture holding capacity.

3.2.2 North Karnataka


The total geographical area of this region accounts for 69.6 lakh ha. The major crops grown 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. The normal 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 of data was collected and used. The primary source of data was specially collected so as to elicit the first hand information about the functioning of private godowns and Karnataka State Warehousing corporation and also problems encountered by the user group, owners of private godowns and the officials of Karnataka State Warehousing Corporation. The secondary source of data was collected to evaluate the investment pattern, profit arised from different commodities stored, to work out the financial feasibility, economic viability, composition of user groups and capacity utilization etc. The data pertaining to establishment charges and maintenance cost like rent of godowns, dunnage, equipments, insurance, disinfestation charges, number of warehouses, capacity (owned, hired and total), commodity-wise utilization, depositor-wise utilization, paidup 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 North Karnataka region. A total of 18 warehouses were selected at the rate of 6 warehouses in each region of Hubli, Raichur and Gulbarga covering North Karnataka, six warehouses were covered two each owned by KSWC, hired by KSWC and in the private sector, respectively in the region of North Karnataka for comparative analysis. The warehouses were selected based on the capacity and quantum of commodities (tonnages) stored in the godowns in the study area. In order to analyse the problems of user groups, owners of Private godowns and the officials of Karnataka State Warehousing Corporation. 10 samples of user groups, owners of private godowns was selected under each category of warehousing and 180 samples for the entire study region was collected.

3.5

ANALYSIS OF DATA

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

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

Net present worth (NPW)


The net present worth is simply the present worth of net benefit of a project discounted at the opportunity cost of capital. The criterion ranks the alternatives. Generally higher 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 benefit streams were considered at a discount rate of 14 per cent. The general verbal and mathematical form of net present worth criterion is presented below. NPW = Present worth of benefits Present worth of costs Bt Ct NPW = n Where, Bt Ct t n d I t=1 = Benefits in each year = Costs in each year = 1, 2, 3.n = Number of years = Discount rate = Initial investment (1 d)t -I

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

Benefit:cost ratio
It is the ratio of discounted cash in flows (project benefits) to the discounted cash out flows (project costs), which must be unity or more for an enterprise to be considered worthwhile. The technique also ranks for selection. The minimum ratio required is 1:1. This ratio of 1:1 indicates the coverage of costs without any surplus benefits. But, usually the ratio should be more than unity in order to provide some additional returns over the costs for clear division. The benefit:cost ratio can be stated both verbally and mathematically. Present worth of benefits BCR = Present worth of costs

The mathematical form of benefit:cost ratio is as follows. n Bt (1 + d)t t=1 n Ct (1 + d)t t=1

BCR =

Where, Bt Ct t n d = Benefit in each year = Costs in each year = 1, 2, 3n = Number of years = Discount rate

Internal rate of returns


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

IRR = Where, Bt Ct t n d

n t=1

Bt - Ct (1 + d)
n

=0

= Benefit in each year = Costs in each year = 1, 2, 3n = Number of years = 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 considered for viable investment and financial soundness.

IV. RESULTS
The necessary data collected from various sources were analyzed and interpreted looking to the objectives of the study. In this chapter, the results of the investigation carried out are presented under the following headings. 4.1 4.2 4.3 Investment pattern in warehouses Profile of commodities stored in selected units Financial feasibility and economic viability of selected KSWC warehouses and private warehouses Composition of user groups Capacity utilization Problems/constraints faced by the user groups and warehouse operators in functioning of warehouses

4.4 4.5 4.6

4.1

INVESTMENT PATTERN IN WAREHOUSES

It can be observed from the Table 4.1 that around 91 per cent of total cost in KSWC and 89 per cent of the total cost in private warehouses was involved in the construction of building, purchase of land and other structures. While, the investment on the machineries was around 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 higher than KSWC and the cost invested by private warehouse on building and land was much higher than KSWC.

4.2

PROFILE OF COMMODITIES STORED IN SELECTED UNITS

Table 4.2(i), 4.2(ii) and 4.2 (iii) indicates the year wise commodity wise break up of utilization of KSWC (owned), KSWC (hired) and private warehouse during the study period 1991-92 to 2004-05. The commodities stored were food grains, pulses, oilseeds, fertilizers and other agricultural produce and inputs. Further, some non-agricultural products were also being stored in warehouses. In case of KSWC (owned), it could be seen that the fertilizers dominated the warehouse space and constantly occupied more than 50 per cent of the total storage space except 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 space which 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 occupied by food grains were 38, 46 and 24 per cent in KSWC (owned), KSWC (hired) and private warehouses, respectively. After food grains, fertilizer utilized fairly large warehouse space in all the 3 units of warehouse i.e., KSWC (owned), KSWC (hired) and private, the pulses and oilseeds also utilized the warehouse space.

4.1: Investment on selected warehouses (fixed cost)


(Value in lakh Rs.) Type of Warehouse Cost on building and land 215 (91.00) 375 (89.00) Cost of machinery and equipment 38.75 (9.00) 70.35 (11.00) Total (%)

KSWC

100

Private

100

Note : Figures in parentheses indicate percentage to total fixed cost

The average space occupied by oilseeds was found lowest in KSWC (owned), which was 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 VIABILITY OF SELECTED KSWC WAREHOUSE AND PRIVATE WAREHOUSES

For financing agricultural and allied activities, the lending agencies strongly consider the economic viability and financial feasibility of a project. It is generally an indicator of the capability of an investment to generate income sufficient to liquidate it over the period of its productive life. For assessing the units, annual returns and annual expenditure were worked out. To evaluate the feasibility of investment in the warehouse business, project evaluation criteria such as net present value (NPV), benefit:cost ratio, internal rate of returns and payback period were worked out. The analysis was done based on the cost and returns of 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.

Table 4.2(i): Profile of commodities stored in the selected warehouses of KSWC (owned) during 1991-2005
(QTY. MT) Year 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 Average Food grains 3032 40952 6896 9422 9860 6425 8312 12992 14422 13696 14900 14100 15120 14000 13295 Per cent 17 76 39 37 37 25 24 38 40 44 38 35 40 38 38 Pulses 735 692 608 906 506 1260 3290 2000 1800 1700 1200 1000 850 800 1240 Per cent 4 1 3 4 2 4 10 6 5 6 3 3 2 2 4 Oilseeds 506 591 144 594 322 652 890 850 600 286 300 800 620 740 564 Per cent 3 1 1 2 1 2 3 3 2 1 1 2 1 2 2 Fertilizers 12426 10656 9432 12036 14069 21951 19960 17069 18902 14900 22400 20112 18600 20120 16617 Per cent 71 21 55 48 52 64 58 49 50 46 56 50 49 54 51 Others 849 925 572 2428 2035 1816 1733 1200 1000 1400 700 4100 3000 1600 1668 Per cent 5 2 2 9 8 5 5 4 3 4 2 10 8 4 5

Table 4.2 (ii): Profile of commodities stored in the selected warehouses of KSWC (hired) during 1991-2005
(Qty in MTs) Year 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 Average Foodgrains 2061 2142 2416 3862 4896 5162 7061 70061 9462 11864 14661 16961 16961 20457 13430 % 16 16 16 16 16 17 22 22 23 25 29 29 33 52 24 Pulses 889 860 1012 1142 1861 1861 1396 1241 1916 2102 1410 1891 1996 1384 1497 % 7 6 7 4 6 6 4 4 4 4 3 3 3 3 5 Oilseeds 892 912 982 1044 1142 1432 1891 1436 1832 1931 1120 1216 1862 1064 1340 % 7 6 7 4 4 5 6 5 4 4 2 2 3 2 4 Fertilizers 8091 9461 9596 13961 19402 19206 21091 21164 26991 29964 32202 36432 34031 15035 21188 % 63 67 64 56 63 62 65 65 63 61 63 60 58 37 60 Others 947 747 904 4810 3561 3200 994 1424 2660 3103 1562 3932 2011 2462 2308 % 7 5 6 20 11 10 3 4 6 6 3 6 3 6 7

Table 4.2(iii): Profile of commodities stored in selected private warehouses during 1991-2005
(QTY. MT)
Year 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 Average Food grains 4020 4952 6890 520 2800 5425 5312 8992 9422 8432 9680 8436 9430 9920 6108 Per cent 45 40 45 11 33 47 52 56 52 50 44 61 53 55 46 Pulses 960 1200 1800 1006 996 1600 600 1860 1340 1120 1640 1232 1000 1168 Per cent 11 10 12 21 14 14 6 12 7 6 7 9 0 5 9 Oilseeds 580 500 960 420 890 810 1120 1142 1200 820 1210 670 Per cent 6 4 6 10 11 7 11 7 6 4 5 0 0 0 5 Fertilizers 1132 5000 5860 2180 2860 2800 1960 2500 5800 7220 8432 4200 8450 6500 4563 Per cent 34 40 32 46 36 25 29 16 24 37 40 30 47 37 34 Others 345 745 860 550 500 860 1220 1500 2197 616 960 500 775 Per cent 4 6 5 12 6 7 12 9 11 3 4 0 0 3 6

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


(Rs. in lakhs) KSWC (Owned) Year Cost 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 Average 59 60 64 67 71 74 77 80 83 88 92 96 103 109 80 Returns 70 73 80 86 92 98 105 111 120 129 138 144 150 160 111 Net profit 11 13 16 19 21 24 28 31 37 41 46 48 47 51 31 Cost 25 27 29 14 17 21 26 37 40 58 62 64 64 65 40 Returns 24 36 41 13 18 31 28 46 53 51 61 46 64 66 41 Net profit -1 9 11 -1 1 10 2 9 13 -7 -1 -18 1 2 Cost 28 39 41 50 54 53 55 55 78 85 89 100 97 71 64 Returns 45 59 62 76 84 85 89 90 132 139 146 169 164 122 94 Net profit 17 20 21 28 30 32 34 35 54 54 57 69 67 51 41 KSWC (Hired) Private

Table 4.3(ii): Financial feasibility and economic viability

Selected units Sl. No. Particulars KSWC (lakh Rs.) 1. Net present value (NPV) a. b. c. d. 2. 3. At 12% 9.5% 8% 4% B:C ratio Internal rate of returns (IRR) Pay back period (PBP) a. b. c. d. At 12% 9.5% 8% 4% 4.5 yrs 4.2 yrs 4.0 yrs 3.7 yrs 10.5 yrs 9.2 yrs 8.8 yrs 7.3 yrs -1.95 89.77 172.09 614.42 1.47 8.12% -125.43 -20.78 70.97 546.91 1.74 5.06% Private (lakh Rs.)

4.

Note : Figures in parentheses indicate percentage to the total It was assumed from several research studies that the economic life of the assets were as follows. Assets 1. Buildings Economic life (yrs) 50-60

2. Machineries

15-20

It was evident from the Table 4.3(i) that all the selected warehousing units were able to 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.

It could be seen that the profit earned by private warehousing units was highest and the average was Rs. 41 lakhs, followed by KSWC (owned) which was found to be Rs. 31 lakhs. 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 warehousing units. 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 making more profit than compared to private warehousing unit. It is evident from the table that hiring of godowns by KSWC was not economical and viable. The profits earned by hired godowns of KSWC was positive only in some years. So it is 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 capacity in order to overcome from these loss. It was observed that the Table 4.3(ii) that net present value of KSWC was Rs. 1.95 lakhs and that of private warehouse was Rs. 125.43 lakhs, respectively at 12 per cent rate of interest. 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 lakhs and Rs. 70.97 lakhs in KSWC and private warehouses, respectively. The NPV at 4 per cent was Rs. 614.42 lakhs and 546.91 lakhs in KSWC and private warehouses, respectively. The internal rate of return was 8 per cent in KSWC and 5 per cent in private warehouses. In case of payback period, it was observed that the project was viable after 4.5 years at 12 per cent in KSWC and 10.5 years in private warehouses. At 9.5 per cent rate of interest, the project was viable after 4.2 years in KSWC and 9.2 years in private warehouse, respectively. At 8 per cent rate of interest, it was observed that the project is viable after 4 years in KSWC and 8.8 years in private warehouses, respectively. At 4 per cent rate of interest, the project was viable after 3.7 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 and their undertakings deposited more of foodgrains and fertilizer companies deposited only the fertilizer. The other commodities were deposited by interested groups like traders, brokers etc. Table 4.4(i) and Table 4.4(ii) give details of depositor-wise utilization of KSWC and private warehouses. It is evident from the Table 4.4(i) and 4.4(ii) that government and government undertakings dominated the storage space in KSWC and in private warehouses the fertilizer companies dominated in utilizing the storage space. In KSWC, the government undertakings occupied the highest storage space over the years except in few years and their storage space went on increasing from 26 per cent in 1991-92 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 to 51 per cent. And in this case, also there was increasing trend over the years, except in the last two years, which showed the declining trend. Traders and producers also utilized the warehouse space. The utilization was fluctuating throughout the study period. In case of private warehouse the utilization of space of producers was very negligible in last three years, which was not the case with respect to KSWC. The utilization of space by traders was more than producers in case of both the warehouses i.e., KSWC and private.

Table 4.4(i): Composition of user groups (depositor) in utilising the selected KSWC warehouses
(Qty in MTs) Year 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 Average Govt. 5987 5852 3492 8916 9515 3486 6743 6816 8923 16816 18413 9861 8482 7861 8654.50 % 23 22 13 28 27 9 16 16 20 37 40 22 17 15 21.79 Govt. Underta-king 6881 8900 9892 6886 2861 10481 14062 14962 16017 9989 10061 18432 22061 23861 12524.71 % 26 31 36 22 8 27 33 35 36 22 22 40 44 47 30.64 CoOperative s 2849 2998 1248 1012 3325 1054 2290 2161 1817 1912 1062 1260 1896 1432 1879.71 % 11 10 4 3 9 4 5 5 4 4 2 3 4 3 5.07 Traders 3756 4087 4342 5864 7602 7725 7580 6960 7890 8012 7062 7102 8505 8612 6792.79 % 14 14 16 18 22 20 15 16 7 15 18 18 17 15 16.07 Producers 3753 3857 4076 5864 7602 7725 7580 6960 7860 7890 8012 7102 8505 8612 6814.14 % 14 13 15 18 22 20 18 16 18 18 15 15 17 16 16.79 Fertilizer comp 3247 3218 4351 3402 4132 7249 5888 4812 6862 1262 1150 650 630 1200 3432.36 % 12 10 16 11 12 20 13 12 15 4 3 2 1 1 9.43

Table 4.4(ii): Composition of user groups (depostitor) in utilizing the selected private warehouses
(Qty in MTs) Year 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 199-00 200-01 200102 2002-03 2003-04 2004-05 Average Govt. 614 1102 1486 1864 2491 3969 4162 4460 4919 4990 6210 6926 8931 7432 4254.00 % 7 9 11 8 8 12 13 15 11 9 12 12 15 20 11.57 Govt. Undertaking 2492 1896 2109 2901 3964 3964 3986 4012 3412 4861 6866 6994 8963 14969 5099.21 % 20 13 14 11 13 13 12 11 11 14 14 15 25 32 15.57 CoOperative s 1986 1461 1861 1432 1020 1416 1201 860 1161 896 890 1896 1432 826 1309.86 % 14 10 12 6 4 4 4 2 3 2 2 3 2 2 5.00 Traders 1952 2260 2468 4703 6896 8991 9402 9861 11969 9432 9956 9942 8104 8289 7444.64 % 15 16 16 19 22 30 29 30 28 20 19 16 14 20 21.00 Producers 1406 2542 1691 4777 5629 1508 2240 2110 3050 3800 2395 1890 964 1402 2528.86 % 10 18 11 19 18 5 7 6 7 8 5 3 2 3 8.71 Fertilizer comp 4411 4861 5295 9142 10862 10862 11416 11561 16901 22981 24416 30816 24432 9436 14099.43 % 34 34 36 37 35 35 35 36 40 47 48 51 41 23 38.00

The utilization of warehouse by co-operatives was fluctuating over the years in both the 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. The storage capacity of KSWC went on increasing according to the demand. The storage capacity constructed year-wise since 1991-92 is given in Table 4.5(i). It could be seen from the table that the pace of construction programme had been increasing in recent years. During the year 2000-01 the total capacity owned by KSWC was 43,000 m tonnes and after that it remained the 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 increasing simultaneously with the occupancy. The percentages of occupancy is fluctuating over the study period and was highest during the year 1991-92. The total capacity owned and hired and 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 to 45 per cent of the total storage capacity. Yearly fluctuations not withstanding it can be said that a private godown, the supplementary source of storage is bound to remain with the corporation for a quite long-time to come. In the year 1993-94, the hired capacity accounted for 50.5 per cent of the total storage capacity of the warehouse. And during the last 5 years the 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 has increased more than four folds over the study period i.e., from 17,000 MTs in 1991-92 to 75,000 MTs in 2004-05. This shows the over increasing storage needs and demands of the customers, who represent a cross section of procedures, traders, co-operatives, fertilizer companies, 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 of occupancy decreased drastically to 55 per cent.

4.6

PROBLEMS/CONSTRAINTS FACED BY THE USER GROUPS AND WAREHOUSE STAFF IN FUNCTIONING OF 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 sample farmers opined that the storage cost is high in both KSWC and private warehouses. Nearly 40 per cent and 44 per cent of the farmers indicated that they have only small quantity to be stored in both KSWC and private warehouses. The other important problems were price fluctuations, lack of awareness, location and transportation faced by the farmers in case of both the warehouses. It could be observed from the Table 4.6(i) and 4.6 (ii) that about 20 per cent in KSWC and 17 per cent in private warehouse users expressed the problem of price fluctuations, which was high in case of storage.

Table 4.5(i): Hiring of private godowns by state warehousing corporation during the year 1991-2005

(In metric Tons) Year 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1998-00 2000-01 2001-02 2002-03 2003-04 2004-05 Average Total storage capacity 32013 36412 38432 48902 50976 52461 54032 60816 62496 75901 77982 79697 79490 81040 59332.14 Owned capacity 19000 19000 19000 40000 40000 40000 40000 40000 40000 43000 43000 43000 43000 43000 36571.43 Hired capacity 13013 17412 19432 8902 10976 12461 14032 20816 22496 32901 34982 36697 36490 38040 22760.71 % of Hired Capacity 40.6 47.8 50.5 18 21.5 24 26 34.2 36 43.3 44.8 46 45.9 46.9 37.54

Table 4.5(ii): Statement showing the average storage capacity, Occupancy and percentage of occupancy in the selected KSWC warehouses during the year 1991-2005
(In metric Tons) Capacity utilization in percentage 84 82 74 67 71 75 83 74 73 60 60 58 64 64 70.64

Year 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 Average

Avg. capacity own & hired 32013 36412 38432 48902 50976 52461 54032 60816 62496 75901 77982 79697 79490 81040 59332.14

Occupancy including reservation 26973 29812 28301 32812 36016 39202 44661 45019 45616 45912 47060 46307 51206 52018 40779.64

Table 4.5(iii): Statement showing average storage capacity, occupancy and percentage of occupancy in the selected private warehouses during the year 1991-2005
(in metric Tons)
Year 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05 Average Total storage capacity 17000 17000 17000 38000 38000 38000 38000 38000 60000 60000 60000 75000 75000 75000 46142.86 Occupancy including reservation 13660 14722 15310 25619 31362 31361 32892 32964 43361 49264 51261 60832 59369 40912 35920.64 Capacity utilization in percentage 80 87 90 67 82 82 87 87 72 82 85 81 79 55 79.71

Table 4.6(i): Problems faced by sample farmers in utilizing the selected

KSWC warehousing facilities


(n=120)
Sl. No Description of the problem No. of farmers Percentage to total 48 33 25 20 17 15 15 11 10 8 7 -

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.

High storage charge Small quantity Delay in getting storage space Price fluctuations Lack of awareness Lack of transportation facility No proper guide lines Inadequate storage space Location is faraway Risk of damage Immediate need of cash Any others

58 40 30 23 20 18 18 13 12 10 8 -

Table 4.6(ii): Problems faced by sample farmers in utilizing the selected private warehousing facilities
(n=120) Sl. No 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Description of the problem High storage charge Small quantity Price fluctuations Lack of awareness Location is faraway Lack of transportation facility Delay in getting storage space Inadequate storage space Immediate need of cash No proper guide lines Risk of damage No. of farmers 72 44 20 20 14 9 8 4 4 3 2 Percentage to total 60 37 17 17 12 8 7 3 3 3 2

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 in KSWC indicated that storage costs were higher and in the case of private warehouses, 80 per cent of traders indicated the same. As high as 80 per cent of the traders indicated that the demand for stored products is very low.

4.6.3 Problems faced by warehouse staff


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

Table 4.7(i): Problems of the traders in utilizing the selected KSWC warehousing services
(n=20) Sl. No Description of the problem No. of farmers Percentage to total 70 60

1. 2.

High cost of storage Poor demand for the stored Products

14 12

3. 4.

Inadequate storage facility Others Total

4 2 32

20 10 160

Table 4.7(ii): Problems of the traders in utilizing the selected private warehousing services
(n=20) Sl. No Description of the problem No. of farmers Percentage to total 80 60

1. 2.

High cost of storage Poor demand for the stored products Inadequate storage facility Others Total

16 12

3. 4.

1 29

5 29

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

Sl. No. I. 1.

Particulars Financial Problems High rate of protective Materials

No. of operators

Percentage

90

2. 3. 4. II. 1. 2.

High rate of interest Paucity of working capital Requirement of large capital Technical Problems Inadequate manpower Inadequate technical Supervision

8 7 7

80 70 70

6 5

60 50

3. III. 1. 2. 3.

Maintenance problem General Problems Lack of demand by users Lack of awareness Competition among Warehouses

30

9 7 6

90 70 60

4. 5. IV

Risk of damage Deterioration in quality and quantity Administrative problems

1 1 4

10 10 40

Table 4.8(ii): Descriptions of the problems faced by the staff of the selected private warehouses
(n=10) Sl. No I. 1. Particulars Financial Problems High rate of protective Materials 2. 3. 4. II. 1. Requirement of large capital High rate of interest Paucity of working capital Technical Problems Inadequate technical Supervision 2. 3. III. 1. Maintenance problem Inadequate manpower General Problems Competition among Warehouses 2. 3. 4. 5. Lack of demand by users Lack of awareness Risk of damage Deterioration in quality and Quantity IV Administrative problems 2 20 6 60 8 80 5 50 9 90 No. of operators Percentage

In case of KSWC they were facing some technical problems like maintenance problem, 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 lack of 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 of private warehouse. Competition among warehouses is also posing a big problem and lastly it was found that about 40 per cent of the operators faced administrative problems in KSWC and in case of private warehouses it was low at about only 20 per cent of the operators/staff.

V. DISCUSSION
The results of the study presented in the previous chapter are discussed in detail in this chapter. The focus is to throw light on some of the causes responsible for the major trends in the last chapter. They are discussed under the following broad headings. 5.1 5.2 5.3 Investment pattern in warehouses Profile of commodities stored in selected units Financial feasibility and economic viability of selected KSWC warehouse and private warehouses Composition of user groups Capacity utilization Problems/constraints faced by the user groups and warehouse operators in functioning of warehouses

5.4 5.5 5.6

5.1

INVESTMENT PATTERN IN WAREHOUSES

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

5.2

PROFILE OF COMMODITIES STORED IN THE SELECTED UNITS

It was noticed from the Table 4.2(i), 4.2(ii) and 4.2 (iii) that food grains, fertilizers occupied major storage space along with oilseeds, pulses etc which occupied some part of total 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. The average occupancy of space by fertilizers was about 51 per cent, on the other hand food grains have shown a fluctuating trend over the years. The average occupancy was found to be 38 per cent during the study period. The occupancy varied from as low as 17 per cent in 1991-92 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 the major portion of area. The average occupancy of space during the study period was found to be 46 per cent. this was followed by fertilizers, which occupied the second highest space. It varied from as low as 16 per cent in 1998-99 to as high as 47 per cent during the year 200304. The average space occupied by pulses and oilseeds was 9 and 5 per cent during the study period.

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 year over the study period except in the least two years. This was followed by food grains, which occupied the second highest storage space. Upto 1996-97 it occupied a constant area of about 16 per cent and after 1995-96 it started increasing and touched a highest of 52 per cent in the year 2004-05. This shows the increasing trend of food grains production. The average space 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 their low cost of storage and efficient handling and transportation attracting the fertilizers stocks and are performing better than public sector warehouses. The government warehouses are not 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 ratio and payback period were employed to evaluate the financial feasibility of investment on warehouse business enterprise. It could be observed from the Table 4.3(ii), that the net present value at 12 per cent rate of interest found to be negative. Hence, it can be concluded that the investment in the selected units is economically infeasible and unusual. Whereas, at 9.5 per cent rate of discount, net present value was found to be positive in KSWC and negative in private warehouses, while in case of 8 per cent rate of discount, net present value in the KSWC and private warehouse were positive. Similarly, at 4 per cent rate of interest, the net present value was positive in both the warehousing units. Hence, here it could be concluded that at 4 per cent 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 and hence it clearly indicates that investment and functioning of private warehousing units is not profitable, 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), it could be noticed that at 12 per cent rate of interest, the time required to repay the loan was more than 4 years in KSWC and more than 10 years in case of private warehouses, whereas in the case of 9.5 per cent rate of interest, the PBP was found to be more than 4 years in KSWC 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 was comparatively less i.e., in the range of 3 to 7 years. Hence, it could be concluded that it is quite likely that in case of KSWC it might have higher net returns value, the private warehouses 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, in private 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 warehouses i.e., government and private were broadly classified into six categories as government, government undertaking, co-operatives, traders, producers and fertilizer companies.

Looking at the depositor-wise utilization of the government warehouses, it can be seen that government and government undertakings are accounting for much of the storage space of the corporation over the study years and their storage price was fluctuating. In case of private warehouses the fertilizer companies accounted for more than 30 to 40 per cent over the years except during 2003-04 and this was followed by traders and government undertaking. Because of drought in the recent years, the utilization by producers has declined in private warehouses. In case of government warehouses, the fertilizer companies, one of the depositor of the corporation, till 1999-2000 used to occupy about 15 per cent of the warehouse space, but after that their utilization fell sharply because of many reasons as listed before. The traders stored major part of their commodities in private warehouses than government because of efficient handling of the commodities stored and the transportation of commodities is undertaken by the private warehouse only. The storage space occupied by co-operatives and producers were fluctuating in both the warehouses, and they also utilized the facilities provided by the warehouses. The producers stored the commodities in the warehouses in order to get the loans. The farmers utilized less storage space, because of many problems like location of warehouses in towns and cities, handling and transportation bottlenecks, lack of assured bank advances against warehouse receipts lack of facilities for marketing the produce stored in the warehouses and inadequate marketable surplus. It is paradoxical that agriculturists, for whom the warehouses are primarily meant, are not the major beneficiaries of the warehouse facilities. It is definitely possible if credit were to fourth come against the warehouse receipts from the commercial banks. This requires topmost attention. The view that warehouses are meant for agriculturists will only be a historical derivative and not an authentic and authoritative objective. Therefore steps will have to be taken at the national level to impart a definite rural bias to warehousing. The concept may be self imposed or otherwise that the warehousing corporations in the country are to run on commercial lines needs a pragmatic look in view of the social objectives in consonance with the directive principles ensured in our constitution. Profit making appears to be a malaise. But when warehousing corporations are making profit, they should not hesitate to serve this noble objective 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 more than 80 per cent of the total storage capacity except in last two years and in the year 1994-95 and 1999-2000. But, in case of government warehouses the percentage of occupancy is fluctuating over the study period and average occupancy is 71 per cent. This indicates that the private warehouses are making more profit than KSWC in the recent years. If we see the capacity, occupancy, reserved capacity and utilization against reserved capacity they are not nearly significant in both the warehouses, which indicates that the reservations by different agencies are not matched by their utilization. The Karnataka State Warehousing Corporation, keeping in view the demand for the warehouses by careful survey has been opening warehouses to serve the people. To cope up with the increasing demand for warehouse facilities in different parts of the state, particularly semi-urban areas, the KSWC is opening warehouses throughout the state. As a result, the storage capacity has doubled and still increasing during the study period. In order to provide storage facilities to all customers during all seasons particularly during peak season when the storage capacity of KSWC is fully utilized, the private warehouses are hired. Since, the demand for storage is seasonal in nature, the corporation is continued to depend on hired godowns. The percentage of hired capacity had increased during the last coupl of years

mainly because the corporation has undertaken procurement of foodgrains under food for work programme of the state government. In case of private warehouses the total storage capacity has more than tribled over the study period due to its increasing demand and efficiency of the functioning than compared with KSWC. And the percentage of occupancy was also higher than the KSWC. During the year 2004-05, the percentage of occupancy was only 55 per cent as the fertilizer companies which sold fertilizer directly to the producers or farmers 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 USER GROUPS AND WAREHOUSE STAFF IN FUNCTIONING OF WAREHOUSES

If the industry is to survive and thrive, the problems faced by farmers, traders and staff shall have to be identified, analyzed and documented. It is not important to identify or analyse the problems, but serious efforts should be made to overcome these problems. However, only concerted efforts of all the cold storage units connected with the industry can bring fruitful results. Farmers, traders and warehouse staff were interviewed in order to ascertain their views 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 of the 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 not get adequate storage space, small quantity of produce, lack of awareness, no proper guidelines, location and transportation problems were encountered and so kept away from storage. It was very paining to listen to the mourning talk of the farmers especially small farmers that warehouse operators did not give good response during the time of storage. Big farmers will get more weightage. It is therefore, advised that warehouse owners have to treat that all the customers are equal. As most of the small scale farmers get the loan from the money lenders, they need to pay the loan immediately after harvesting so the farmers were not be able to store their produce in the warehouses.

5.6.2 Problems faced by the traders


It is observed from the Table 4.7(i) and 4.7(ii) that high cost of storage facility and poor demand for the stored products were major problems faced by commission agents-cumwholesale traders. It was also opined that due to quality deterioration, they hesitated to storage their produce for longer time. The quality deterioration may be attributed to some factors viz., grading of the produce, improper management of warehouse condition, etc.

5.6.3 Problems faced by the staff


It is indicated from the Table 4.8(i) and 4.8(ii) that it was most important to study the problems faced by the warehouse staff in running these warehouses.

The discussion held with warehouse staff indicated that high rate of protective materials was a major problem. This rate of protective materials caused for higher expenditure on working of warehouses. In case of KSWC they faced another big problem which the private warehouses did not face so much i.e., high rate of interest for working capital. Lack of demand and competition among warehouses caused lot of problem in complete occupancy of warehouses. In case of private warehouses awareness was created through advanced audiovisual aids and so that they did not face, this problem which was seen in the case of KSWC. Other technical problems faced the KSWC are inadequate technical supervision, inadequate manpower and maintenance problem, which was not in case of private warehouses. This shows that adequate technical manpower is required and also the proper maintenance of the warehouse with good technical supervision. There is also a need to provide training to warehouse operators about storage techniques, maintenance and other storage details. Trainings and workshops should be conducted on warehouses and also create awareness to the users and create better understanding between warehouse staff and users.

VI. SUMMARY AND POLICY IMPLICATIONS


Warehousing refers to the activities involving storage of goods on a large-scale in a systematic and orderly manner and making them available conveniently when needed. In other words, warehousing means holding or preserving goods in huge quantities from the time of their purchase or production till their actual use or sale. Warehousing is one of the important auxiliaries to trade. It creates time utility by bridging the time gap between production and consumption of goods. Warehousing is a well-established activity in India. Both the public sector and private sector have a significant presence. However, if warehousing is described as an industry, the Government of India and the State Governments are dominant players. Most of warehouse owners are the sole properties and partnerships, in private sector usually having small and dispersed capacity. Private warehousing has yet to come to the fore front as an integral part of Indias warehousing industry, except as regards port warehousing. Government has hitherto been the largest player in the warehousing industry. It has a massive role in the procurement of food grains and other agricultural produce, and as a depositor of such produce in warehouses that are either owned by Government or small private owners. Government is also present in the warehousing industry as owner of warehouses earmarked for use by both private traders and parastatals. The All India Rural Credit Survey Committee of 1949 has guided the Governments presence in the warehousing industry. The Committee recommended a three-level structure, including the Government of India, the State governments and co-operatives. Co-operatives were expected to provide storage in rural areas close to the farms. Warehousing was seen as a necessary but relatively unprofitable activity, which would not attract much private sector interest, which therefore required public investment. Moreover, the presence of the private sector was seen as a threat to the continued and smooth availability of produce for consumption. A major step in implementing the three-tier policy was the warehousing Corporation Act of 1962, which created the Government of India owned Central Warehousing Corporation (CWC) and provided for CWC to take an active role in creating 16 State Warehousing Corporations (SWCs). The CWC started 7,000 tonnes of storage capacity, but now has 450 warehousing sites with a total capacity of about 7.5 million tonnes, which it is expanding at a rate of about 200,00 tonnes per annum. The SWCs have more than 2500 warehouses sites with an aggregate capacity of about 12.5 million tonnes. Together, the CWC and SWCs dominate the warehousing industry and provide economically valuable services across the country. Warehouses of the SWCs are usually smaller but well spread over more sites unlike the warehouses of the CWC that are usually big and located at fewer sites. The Government of India and State Government institutions are the main customers for CWCs and the SWCs storage services. The Food Corporation of India (FCI) is also a very significant customer. State agencies account for more than 75 per cent of the usage of public warehouses. The private sector, farmers and co-operatives account for the remainder. The Karnataka State Warehousing Corporation came into being on the 25th November 1957 with only 3 warehouses one each at Mysore, Hubli and Raichur with a st storage capacity of 300 metric tonnes. As on 31 March, 2006, it was running 116 warehouses with a total storage capacity of 864887 lakh metric tonnes out of which 468798 MTs was owned and 396084 MTs was hired. In the present study, the growth and performance and utilization pattern of KSWC and private warehouse has been studied. Secondary data were collected from the KSWC from 1991-92 to 2004-05 pertaining to number of warehouses, capacity, commodity-wise utilization, depositor-wise utilization, paid up capital, total assets, income, expenditure and profit. Balance sheet and profit and loss statements were also collected from the annual reports of the Karnataka State Warehousing Corporation.

For studying the problems of the farmers regarding the use of warehouse facilities three districts, Bagalkot, Bijapur and Dharwad were selected. Forty farmers from each district were surveyed to identify the problems regarding the use of warehouse facilities. Warehouse officials and managers were interviewed to elicit their opinions regarding constraints in utilization of warehouse capacity in different regions of the state.

IMPORTANT FINDINGS OF THE STUDY


The Karnataka State Warehousing Corporation keeping in view, the demand for the warehouses, by careful survey, has been establishing warehouses to serve the people. The capacity of the corporation has almost doubled during the study period of fourteen years. Even in the places where the corporation had its own godowns, it had hired private godowns to meet the growing demands for storage accommodation. This is a very healthy trend in the field of warehousing activities in the state. Since, the demand for storage is seasonal in nature, the corporation continued to depend on hired godowns, which constitute almost 50 per cent of the total storage capacity. The percentage of hired capacity had increased during the last coupl of years mainly because the corporation has undertaken procurement of food grains under food for work programme of the state government. The commodity-wise break up of utilization of warehouses showed that food grains have dominated the warehouse capacity utilization. Food grains accounted for more than 50 per cent of the storage space in almost all the years over the study period. On the other hand, agricultural inputs, mainly fertilizers, have shown a fluctuating trend over the years. During the recent years, there was only marginal increase in the quantity of the fertilizer stored in the corporation. Private warehouses with lower storage charges and efficient handling and transportation were attracting the fertilizer stocks. Private warehouses have their own trucks for transportation, which is not present in the case with the state warehouses. The analysis of depositor-wise utilization of the warehouses has revealed that in recent years the government and government undertakings utilized much of the storage space of the corporation. Till 1999-2000, farmers used to occupy about 10 per cent of the storage space but after that there was a sharp decline. Because of drought in recent years, the utilization by producers has declined sharply. It was found that about 47 per cent of the farmers used warehouse to avail loan facilities from the banks. Farmers expressed difficulties in respect of obtaining credit from the commercial banks against warehouse receipt and were of the view that 75 per cent of the value of their produce stored in the warehouse should be advanced as loan. At present, only 40-50 per cent of the value of the produce is advanced as loan and sometimes even the banks refuse to provide credit on warehouse receipt. Majority of the non-beneficiary farmers felt that inadequate marketable surplus was the main reason for not using warehouse facilities. Further, it was noticed that about 40 per cent of the farmers had resorted to distress sale due to prior financial commitments. About 50 per cent of the non-beneficiary farmers were utilizing space inside their dwelling houses for the storage of farm produce creating storage space or constructing bins. From the study, it could be observed that KSWC were under more profit than the private warehouse units in North Karnataka. But, during the last 3-5 years there were some drastic changes noticed in private warehouses as a result private warehouses are giving stiff competition to KSWC. In the selected warehouse units, the major commodities stored were foodgrains, fertilizers, pulses and cereals with varied fluctuations of storage. In case of KSWC, more space was occupied by foodgrains followed by fertilizers. And these units were found full in the months of September to April. And in case of private warehouses the major space was occupied by fertilizers, followed by foodgrains and were found full in the months of April to November.

In case of break up of cost on installation of selected units, buildings/civil structures occupied major share of the investment. The investment of machineries and equipment was higher in private warehouses than compared to KSWC. In case of average annual working cost, warehousing charges and disinfection charges occupied the major share in both the warehouses. From the evaluation pattern of investment, it was noticed that at 4 per cent rate of interest both the warehouses had positive net present value and found that they are financially sound and economically viable. In both the units, it observed that at 12 per cent rate of interest the net present values were negative. At 9.5 per cent rate of interest the net present value was found to be positive in case of KSWC and negative in private warehouse. Payback period was more than 4 years and 10 years in KSWC and private warehouses, respectively at 12 per cent. Payback period was more than 4 years and 9 years in KSWC and private warehouses at 9.5 per cent. At 8 per cent, the payback period was 4 years in KSWC and more than 8 years in private warehouses and similarly at 4 per cent rate of interest the payback period for KSWC was more than 3 years and for private warehouse it more than 7 years. Composition of users group comprised of government, government undertakings, fertilizer companies, traders etc. The government and government undertakings occupied highest storage space in KSWC and in private warehouses fertilizer companies were dominating the storage space. In view of different circumstances under which the warehouses are operating, the constraints faced by warehouse staff were elicited. The major problems found were high rate of interest, high rate of protection materials, competition among warehouses, lack of awareness, and requirement of large capital. It is felt from the study that the farmers need to be educated on the benefits of storage. They are of the view that present storage charge is high, delay in getting loans, price fluctuation and so on. Hence, in order to create awareness in farmers all these problems must be addressed properly and convince them to avail the facilities provided by warehouses.

POLICY IMPLICATIONS
1. It reveals from the study that the investment in land and building was a major share of total investments in both Karnataka State Warehousing Corporation and Private Warehouses. The policies could be diverted towards investment on mechanizing the warehouses, whereby cost of maintenance could be reduced to a larger extent. 2. The average occupancy of warehouses was found to be less than 40 per cent by different categories of users. The occupancy rate can be increased by providing the customers with good facilities and less procedural system in warehousing operation. The profile of commodities also could be diversified by providing special structures for storage for different type of commodities as demanded by the customers. 3. It reveals from the study that financial feasibility of Karnataka State Warehousing Corporation was found financially infeasible and economically unviable. Whereas the private warehouses were financially feasible. This could be overcome by good warehousing facilities with adequate infrastructure, scientific treatment and easy accessibility to the users of warehouses. The rate of returns could be enhanced through provision of adequate working capital by creating a corpus fund to facilitate short-term capital requirement by the Karnataka State Warehousing Corporation. However, the private warehouses could derive the benefits from the commercial banks on concessional basis.

4. The composition of user groups shows that the government sector occupying a larger section of the capacity utilization compared to other user groups. The operations of Karnataka State Warehousing Corporation could be made more competitive through various measures and policies to attract diverse composition of user groups. 5. It reveals from the study that generally the farmers do not get adequate space especially during the peak seasons, which may deny the farmers from utilizing the advantages of temporal price variations in agricultural commodities. The policies of the Karnataka State Warehousing Corporation may focus to provide adequate space to farmers during the peak months of harvest by keeping a kind of reserved occupancy for the benefit of farmers at large. 6. The development of optimum sized structures to suit the location looking to the season and crops grown. The warehouses may be managed to have a year round occupancy, thus achieving efficiency and reduction in the operational costs.

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PERFORMANCE OF WAREHOUSING IN KARNATAKA A COMPARATIVE ANALYSIS


MALLIKARJUNAGOUDA S. PATIL 2007 Dr. R. A. YELEDHALLI Major Advisor

ABSTRACT
The present study was undertaken with the objective of assessing the progress and performance of KSWC in comparison with private warehousing corporation, analyzing the profile of commodities stored, financial feasibility, comparison of user groups, capacity utilization and problems faced by user groups. Mainly, secondary data were collected from KSWC and the private warehousing corporation. Simple labour analysis was used wherever the analysis involved the straight forward determination of percentages or proportion. The financial feasibility discounted cash flow technique was employed. An opinion survey was also conducted to know the reasons and problems faced by user groups and administrative staff and warehouses. Looking at the profile of commodities stored in the warehouses, the fertilizer occupied the highest storage in all the three kinds of warehouses followed by food grains. The occupancy of oilseeds and pulses was negligible. The financial feasibility of KSWC was under heavy profits at the rate of 8 per cent but in case of private warehouses, it was found at the rate of 4 per cent. Looking at the composition of user groups and capacity utilization, different types of depositors deposited different commodities in warehouses. Depositors like government undertakings, government departments, traders, producers, fertilizer companies etc. stored their produce. The highest storage space (capacity) was utilized by government and government undertakings. About 48 to 60 per cent of the sample farmers opined the problem of high storage cost in both KSWC and private warehouses. The other importance problems were small quantity, price fluctuations, lack of awareness etc. About 80 per cent of warehouse staff expressed the problem of high working cost, which was mainly due to requirement of large capital, protective materials etc. in case of KSWC they are facing some technical problems like maintenance, inadequate technical supervision etc., which was not in case of private warehouses.

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