Storage facilities for agri commodities: SBP urged to incentivise private banks to increase lending

ISLAMABAD: The Competition Commission of Pakistan (CCP) has recommended to the State Bank of Pakistan (SBP) to encourage and incentivise private commercial banks to increase lending for storage facilities of agricultural commodities.

According to a report of the CCP issued on Monday, there is a huge gap between the public sector’s storage capacity and the actual needs.

According to estimates, there is room for developing proper storage facilities for 16 MMTs of wheat, 4.4 MMTs of rice, 4 MMTs of maize, and 3 MMTs of potatoes.

To overcome the financing problems faced by the private sector to develop storage facilities, the SBP should encourage and incentivise private commercial banks to increase lending for such facilities.

Likewise, the government should also encourage and incentivise the private sector to make investment in establishing silos, warehouses and cold storage facilities through the provision of low-cost land, energy, and other infrastructure.

These incentives will not only increase domestic agricultural production but will help develop ancillary industries and will enable country to export agricultural commodities and earn foreign exchange.

Furthermore, the development of grain storage can also help the country mitigate the adverse effects of floods and droughts.

The SBP has announced various financing schemes such as financing facility for the storage of agricultural produce for the establishment/expansion of silos, warehouses and cold storage facilities. Such schemes are introduced to encourage the private sector to invest in agricultural storage facilities, however, access to finance through such schemes has remained limited due to the stringent financing criteria set by the commercial banks, the CCP report said.

The report stated that Pakistan is facing grain storage problems at a large scale throughout the country, due to either traditional methods of seed storage or the shortage of commercial grain storages or their management.

The shortage of grain storage facilities results in huge post-harvest losses that range from 15pc to 35pc and affects national agricultural output. Similarly, in case of excess production in crops such as onion, tomato and potato, farmers do not have the storage facilities and are compelled to sell their produce at a low price to the village dealers. In the worst-case scenario, they end up wasting the whole crop due to higher charges incurred for transporting the crop to mandis.

In case of wheat, the government procures wheat from farmers on MSP and stores it in its godowns. The procurement and storage of wheat by the government has resulted in crowding out of the private sector from the storage industry.

The production, consumption and stock keeping of wheat in Pakistan is in such a pattern that it does not leave room for the private sector storage industry. Around 1/3rd of the total wheat is kept by the farmers for their domestic consumption.

The procurement by the government hovers between the ranges of 25 percent-39 percent.

Considering this situation there is no room left in storage for the private sector. For instance, if 27 million tons of wheat is produced in a year then nine million tons (1/3rd of total production) is retained by farmers and another 8.1 million tons (30 percent) is procured by the government. After subtracting these two major chunks, only 9.9 million tons of wheat is left as a marketable surplus.

This surplus is consumed within four months hence, leaving no room for storage capacity in the private sector.

Similarly, the investment by the private sector in the storage of other crops is also limited which results in the non-availability of storage facility or higher charges incurred due to lower economies of scale.

Milk is a highly perishable commodity and it needs to be stored immediately, however, due to a lack of storage capacity in the milk industry, 20 percent milk produced is wasted.

Copyright Business Recorder, 2022