LAHORE: Immediate significant investment in modern agri-storage is critical to address country’s post-harvest losses for wheat, rice and maize which are estimated at nearly $343 million per annum in quantity and quality due to lack of proper drying and storage.
The Covid-19 crisis has highlighted long-standing shortcomings of Pakistan’s agricultural value chains. The scarcity of modern storage for agricultural commodities and the lack of information about availability of stocks have also led to volatile commodity prices and insecurity of supply raising concerns about Pakistan’s food security, so investment in modern agri-storage is critical for addressing this situation, said a feasibility study on ‘Private Silo Warehousing for Pakistan’s Grains’ conducted by the USAID.
The report claimed nearly all modern drying and silo storage for Pakistan’s leading grains—wheat, rice paddy, and maize— exists inside large-scale mill facilities and is not accessible to farmers, traders, and medium-to small-sized millers.
The farmers are the real losers in these crop value chains even though they bear the most risk among all stakeholders in the agricultural sector. The loss of quality is mainly due to the primitive practice of sun drying which farmers as well as traders depend on since they do not have access to mechanical drying facilities. Farmers are not able to hold their rice paddy or maize since they require drying after harvest and most often have to make a ‘distress sale’ of their harvest as the prices at harvest time are the lowest of the year, the report added.
Beyond these physical losses, the lack of reliable storage with grading of commodity means that the markets for these commodities are often constrained to local buyers. In Pakistan’s rural landscape, commodity testing labs are not found in the wholesale markets but only on the premises of the larger mills. This leads to lack of standardization which has far-reaching consequences: this is the major hurdle in the way of nation-wide electronic trading of agri-commodities.
The advent of the electronic warehouse receipts regime in Pakistan in 2020 brings a strong prospect for addressing these major gaps in the Pakistan’s leading crop value chains. Under this regime, an accreditation entity called Naymat Collateral has been licensed by Pakistan’s corporate regulator, the Securities and Exchange Commission of Pakistan (SECP). Under a clear contractual framework defined by the CMC Regulations 2019 notified by SECP, Naymat Collateral will accredit warehouses and warehouse operators and run a software system in which warehouse operators will be able to issue electronic warehouse receipts (EWRs) against stock which pass regime-wide testing criteria for each crop and enter storage at the accredited warehouse. These EWRs are transferable and can be traded on the Pakistan Mercantile Exchange. This is the kernel of a nation-wide agri-commodity market with the same testing and grading criteria applied for a crop at all accredited warehouses. For banks, a system of pledging (blocking of pledged EWRs) based on the successful ‘CDC model’ of securitization has been incorporated into this regime. Warehouse operators have a clear obligation to give back the quantity and quality they take in. And this is intended to bring confidence to not only the depositor but also to the bank lending against the EWR as well as any traders on the commodity exchange that a warehouse operator will make them whole for the stock underlying any EWR issue by that warehouse operator. A number of risk mitigation mechanisms are built into the architecture of the regime to address risks to the fulfillment of this promise. The study also point out that the rice-wheat belt of northeastern Punjab, the maize-wheat belt of eastern Punjab (which also has maize-maize), and the rice-wheat belt of upper Sindh are the most suitable geographies for the proposed storage business.
The crop rotations in these areas can maximize the utilization of the storage facilities through the year and also use the drying facilities for at least one crop. A comprehensive value chain mapping by this study reveals that farmers can make appreciable gains by getting their rice paddy and maize dried mechanically and stored in a silo facility.
The study also proposed a 15,000-ton facility as a more commercially viable unit for drying and storage paid by customers, emerged during the pilots conducted. The proposed 15,000-ton storage facility comprises six 2,500-ton silos to facilitate storage of different grades of commodity. It has a drying unit constituted by three trains of 10 tons per hour each to allow flexibility in accommodating lots of different moisture levels. The investment outlay for this facility is estimated at Rs. 283 million with Turkish-origin silos, the feasibility added.
Copyright Business Recorder, 2021
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