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The Right Time to Invest in Indian Grain Storage?

The Right Time to Invest in Indian Grain Storage?

19 September 2013
Rabobank

INDIA - Demand for grain warehousing in India is expected to grow in the coming five years, according to a new report by Rabobank, driven by an envisaged grain-storage deficit, inadequate storage and the new Indian Food Security Bill.

Collectively, these trends are provoking the development of large-scale storage solutions which would be a mix of silos and traditional brick godowns.

However, long gestation periods and fluctuating government policies have meant that large corporations have been cautious to invest in the past.

Rising land prices and declining labour availability bolster the already strong case for modernised silo storage and handling solutions.

In the long run, strategic players who prefer a relatively lower degree of government control will be investing; however, in the short-term, silos will attract investment on the back of government schemes and captive usage by private millers and processors.

“The demand for grain warehousing in India is expected to grow at a 5 percent to 6 percent CAGR in the next five years” said Rabobank analyst Vaishali Chopra. “This growth will be driven by a range of factors including the government focus on food security, storage space deficit and the recently announced National Food Security Bill.

India must see improvements to its existing storage system as well as the creation of additional storage capacity to meet the demand of increased food production. Currently, the majority of storage facilities are government owned and increased participation from the private sector will be needed to make up the difference.”

Storage construction requires significant, often upfront, investment which is better suited for large corporate players. Large private sector players participating in agri-related and infrastructure projects will look for a conducive investment environment, triggered by the increasing cost of land, labour shortage and India’s focus on food security.

Storage capacity seasonality, price fluctuations, excessive government controls, acquisition of land for large-scale projects and long gestation periods collectively play their part in curtailing private sector investment.

Once the sector is relatively free of government control, these companies are expected to bring their knowhow and experience to India’s grain warehousing industry in the long term.

Silo storage, unlike traditional godowns, significantly reduce grain losses due to bad weather, pest infestation and pilferages, whilst also reducing grain maintenance and storage costs in the long term.

In addition, requirements for labour, handling and packaging are significantly reduced in silo storage. Collateral management agencies will be instrumental in pushing investment in storage capacity through the development of modern silos.

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