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COLD STORAGE UNITS FINANCED UNDER

CAPITAL INVESTMENT SUBSIDY SCHEME


AN IMPACT ASSESSMENT

V. Puhazhendhi Sohan Premi Neeraj Sharma B.V.S. Prasad Kuldeep Singh R. S. Mor G. P. Praveen

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Department of Economic Analysis and Research National Bank for Agriculture and Rural Development Mumbai, India. 2003

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The horticultural sector has been showing promising growth since nineties and the country ranks second in the production of fruits and vegetables in the world. Despite huge production, the infrastructure for post-harvest management of horticultural crops is still a limiting factor. The annual loss of fruits and vegetables is estimated at 25 to 30 per cent. Recognising the need for the creation of post-harvest management infrastructure, Government of India, as recommended by the High Level Expert Committee [HLEC] appointed by the IVIinistry of Agriculture during 1998, is implementing the Capital Investment Subsidy Scheme for Construction / Expansion / iVIodernisation of Cold Storages and Storages for Horticultural Produce. The scheme is being implemented by NABARD in association with the National Horticultural Board [NHBJ.The scheme has helped in the addition of 407 cold storage units with about 20 lakh tonnes storage capacity. With a view to assessing the impact of the scheme on value addition to the farm produce, economics of the units financed, etc., NABARD conducted a study through its Department of Economic Analysis and Research [DEAR]. The study was conducted in five states viz., Andhra Pradesh, Gujarat, iVIadhya Pradesh, Rajasthan and Uttar Pradesh covering a sample of 38 new cold storage units financed under the scheme. The study has brought out several positive features of the scheme like the increase in the number of cold storage units and the positive role played by the private sector in development of cold storage infrastructure. The study findings highlighted the pattern of capacity utilisation of the cold storage units across the regions and among different sizes and also quantified the decreasing trend in rental values of commodities stored in them during the last three years due to competition. Based on the primary data collected from farmers and traders using cold storage units financed under the scheme, it was assessed that they were able to get a better price besides an improvement in the quality of their produce through value addition, as a result of grading and packing. The repayment performance of the cold storage borrowers was good. The study has brought out action points worth considering by the implementing agencies and the entrepreneurs at the grassroots level.
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I am sure the findings of the study will be useful for further improvement in the implementation of the scheme and will also provide insights for the implementing agencies as well as the entrepreneurs regarding the factors that will influence the viability of the cold storage units in future.

National Bank for Agriculture and Rural Development Mumbai 2 September, 2003

R. Balakrishnan Executive Director

rA3L Qr CONTENTa s
Executive Summary I II III Introduction Approach of the Study Methodology Capital Investment Subsidy Scheme for Cold Storage - A Review Progress of cold storage industry Change in legal provisions of cold storage industry Institutional finance and role of NABARD Progress in implementation of CIS scheme Average cost of investment per tonne Capacity created and future potential Role of different agencies Implementation Aspects of Cold Storage units financed under CIS scheme Location of cold storage units Ownership pattern and management Capacity created and utilisation pattern Pattern of use of cold storage units Trend in rental charges Pledge finance Benefit at farmers' level Cost of Investment Technical aspects of cold storage units Cost of investment Bank loan and subsidy released Cost and time over run Economics of Investment Gross income Operational and maintenance cost Net income Cash flow statement Financial rate of return (FRR) Break even analysis Repayment Performance Conclusion and Implications for Policy Annexures iii 01, 03 08

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IV

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VI

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VII VIM

56 59 64

Authors* Head Office, Mumbai Dr. V.Puhazhendhi, General Manager Dr. (Mrs.) Sohan Premi, Assistant General Manager

Regional Offices Shri. Neeraj Sharma, Assistant General Manager, Lucknow Shri. B.V.S. Prasad, Assistant General Manager, Hyderabad Dr. Kuldeep Singh, Assistant General Manager, Ahmedabad Shri. R. S. Mor, Assistant General Manager, Jaipur Shri. G. P. Praveen, Manager, Bhopal

Department of Economic Analysis and Research National Bank for Agriculture and Rural Development 4th floor, C wing, Plot No.C-24, 'G' Block RB.No.8121, Bandra-Kuria Complex Bandra (East), Mumbai - 400 051 e-mail : nabdear@vsnl.com

* Views expressed in the report are that of the authors alone and not the Institution. iv

LJST Of TABLES
Table 2.1 Table 2.2 Table 3.1 Table 3.2 Table 3.3 Table 3.4 Table 3.5 Table 3.6 Table 3.7 Table 3.8 Table 3.9 Distribution of sample units Classification of sample cold storage units according to capacity created Progress of cold storage units in India Commodity-wise distribution of cold storage units Sector-wise distributions of cold storage units Details of cold storage units sanctioned under CIS scheme by NABARD Region-wise cold storage units financed under CIS scheme by NABARD Region-wise details of total capacity and average capacity created Frequency distribution of cold storage units sanctioned under CIS scheme State-wise details of average cost of investment per tonne Details of cold storage units according to type 08 09 11 12 13 17 18 18 19 20 21 21 22 22 23 24 25 27 31 32

Table 3.10 Details of cold storage units according to ownership pattern Table 3.11 Details of cold storage units according to source of financing Table 3.12 List of top ten districts covered under CIS scheme Table 3.13 Assessment of requirement of cold storage capacity by HLEC vis-a-vis achievement by NABARD Table 3.14 Details of cold storage units sanctioned under CIS scheme Table 3.15 Future Potential - Capacity and total cost Table 4.1 Table 4.2 Table 4.3 Capacity created and utilised Inflow and outflow pattern Rental charges of potato per tonne during the year 2001-02
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Table 4.4 Table 4.5 Table 4.6 Table 5.1 Table 5.2 Table 5.3 Table 5.4 Table 5.5 Table 5.6 Table 6.1 Table 6.2 Table 6.3 Table 6.4 Table 6.5 Table 6.6 Table 6.7 Table 6.8 Table 6.9

Rental value of potato per tonne Estimated margin per quintal of potato for farmers Reasons for not storing in the cold storage by control farmers Capacity-wise average investment cost of cold storage units at historical prices State-wise average investment cost of cold storage units at historical prices Capacity-wise break-up of cost of investment per tonne State-wise break-up of cost of investment per tonne Capacity-wise details of cost of investment and bank loan State-wise details of cost of Investment and bank loan Capacity-wise details of gross income State-wise details of gross income Capacity-wise break-up of gross income State-wise break-up of gross income Capacity-wise details of O & M cost State-wise details of O&M cost Capacity-wise break-up of operational cost State-wise break-up of operational cost Capacity-wise details of-net income

33 37 38 42 42 44 44 45 46 47 48 .48 49 49 50 50 51 51 52 53 53 54 55 56 57

Table 6.10 Stale-wise details of net income Table 6.11 Cash flow statement Table 6.12 Capacity-wise financial rate of return(FRR).... Table 6.13 State-wise details of financial rate of return(FRR) Table 6.14 Break-even point to reach viability Table 7.1 Table 7.2 State-wise details of demand, collection and balance Capacity-wise details of demand, collection and balance , vi

Fig. 3.1 Fig. 3.2 Fig. 3.3 Fig. 3.4 Fig. 4.1 Fig. 4.2 Fig. 4.3 Fig. 4.4 Fig. 4.5 Fig. 4.6 Fig. 5.1

Commodity-wise distribution of cold storage capacity Sector-wise distribution of cold storage capacity Refinance disbursement under storage and market yards Deviation of cost of investment from the normative cost of CIS scheme State-wise pattern of capacity sanctioned, created and utilised under CIS scheme Pattern of capacity sanctioned, created and utilised under CIS scheme Inflow and outflow pattern of potato in cold storage units Inflow and outflow pattern of chillies in cold storage units Monthly average wholesale price of potato in Lucknow market (1999-2002) Monthly average wholesale price of potato in Jaipur market (1999-2002) Break-up of cost of investment

12 13 16 20 28 29 .30 31 36 37 43

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EXECUTIVE BUUimAfi'/
The present study attempts to evaluate the performance of cold storage units financed under Capital Investment Subsidy (CIS) Scheme implemented by Government of India with refinance support from NABARD. The study was conducted in five states viz. Andhra Pradesh, Gujarat, IVIadhya Pradesh, Rajasthan, and Uttar Pradesh covering a sample of 38 new cold storage units financed under the scheme. The benefits accrued to the farmers through the implementation of the scheme were assessed through primary data collected from 100 farmers, who used the cold storage units for storing their commodities. The reference period of the study was the year 2001-02. Following are the major findings of the study. The implementation of CIS scheme has significantly contributed in increasing the number of cold storage units in the study area. Cold storage units were owned and managed primarily by the private sector, which accounted for 95 per cent and the remaining 5 per cent were managed by the co-operative sectors. Potato was the major commodity stored in the units, which accounted for 59 per cent of the number of units and 85 per cent of the capacity created. Chillies, turmeric and groceries were the other major commodities stored in the units. The average capacity created per unit was 6188 tonnes with a size ranging from 2300 to 10000 tonnes. The capacity utilised against its creation for the sample as a whole was 84 per cent. Full capacity utilisation was observed in Gujarat and Andhra Pradesh and it was 92 and 74 per cent in Madhya Pradesh and Uttar Pradesh, respectively. The capacity utilisation was 69 per cent in Rajasthan, which was significantly low among states. The utilisation was observed to be relatively higher in small units of less than 3000 tonnes compared to medium and large units. The average rental charge for potato was Rs.851 per tonne for the sample as a whole which ranged from Rs.716 to Rs.894 per tonne. It was however observed that the rental charges had declined during the last three years. The average investment cost per tonne was Rs.2501 with a range of Rs.20d8 in Uttar Pradesh and Rs.4475 in Gujarat. High cost under civil structure on account of construction of anti seismic buildings

with RCC walls and use of high cost technology like fin coil system were the contributing factors for increased cost of investment per tonne in Gujarat than other states. The average investment cost was relatively higher in small and medium size units when compared to the large units. All the units were in operating profit and had attained viability with the financial rate of return at 19.35 per cent for investment with subsidy and 14.33 per cent without subsidy. If the units were in operation with full capacity created then the viability might have increased to 23.24 per cent and 17.82 per cent for investment with and without subsidy, respectively. The repayment performance of the cold storage units was satisfactory and in many cases advance repayment was observed, which indicated repayment from other sources of income. The farmers were able to get a price advantage of Rs.85 per quintal due to storing of the produce in the cold storage units. They also had the advantage of improving the quality of the produce through value addition as a result of grading and packing due to its storage in the cold storage units.

The study findings have identified the following major constraints faced by the cold storage units and its users: The excess storage capacity for storage of potato over the demand created under CIS scheme resulted in under utilisation of the units in Rajasthan. Low capacity utilisation of cold storage units in a few selected states might be mainly due to low demand, more competition, low production and dependence of single commodity for storage. Significant growth in the number of cold storages due to implementation of CIS scheme and over crowding and concentration of large number of cold storage units in specific pockets led to the decline in the rental value of commodities. High cost of investment in buildings and other civil structures especially in small units of less than 3000 tonnes Capacity. The expenditure on electricity constitutes the major share in the total expenditure and the rising trend in the tariffs of electricity may further increase the operational cost, which may adversely effect the viability of the units.

Horticulture Development in India

ndia is endowed with diverse agro-climatic conditions, which enable production of a large number of horticultural commodities throughout the year and is therefore the first and the second largest producer of fruits and vegetables respectively in the world. At present, the total operational holding under agriculture in the country is pegged at 1,655 lakh hectares. Of this, 153 lakh ha of land is under horticulture. During 2001, India produced 1166 lakh tonnes of fruits and vegetables, which accounted for 10 per cent of the world production of 11645 lakh tonnes. Despite its vast potential, the horticultural sector could not progress to the desired extent as foodgrains production always remained at the forefront of the planners and policy makers. Commercialisation of horticulture started only during early Nineties, when the Government of India recognised its vast potential and increased the plan allocation from a meager Rs.7.6 crore during V Five Year Plan to Rs.24 crore, Rs.1000 crore and Rs.1200 crore in VII, Vill and IX Five Year Plans, respectively. During the VIM Five Year Plan, emphasis was given to the thrust areas such as improving availability of seed/planting material of High Yielding Varieties (HYV), expansion of area under fruit crops, improving productivity, development of infrastructure for post harvest management and marketing, technology transfer and export enhancement etc. As a result, the production of fruits and vegetables grew at a Compounded Annual Growth Rate (CAGR) of 3.75 per cent after the VIII Five Year Plan as compared to 3.10 per cent prior to this period. Despite a large share in the world production of fruits and vegetables, exports are abysmally low at one per cent as against 10 per cent in world production. During 2001, the world trade of fruits and vegetables stood at $ 677,779 million to which India contributed $ 9528.88 million (1.41%). The internal requirement of fruits and vegetables is to the tune of 116 million tonnes even at the lower per capita availability of 311 gram/day as against 370 gram/day.

Introduction Frequent crop failures and heavy dependence on monsoon are the concerning issues of Indian agriculture. Horticulture is no exception to this and there is frequent variation in the production of horticultural crops, especially vegetable crops. Such seasonal variation in production of crops like onion and potato has a direct impact on the Indian Economy. Most fruits and vegetables are highly perishable in nature. Lack of adequate harvest and post-harvest infrastructure in terms of collection centres, packing houses, packaging materials, post harvest treatment, pre-cooling and cold chain facilities etc., lead to huge wastage to the tune of 30 per cent i.e. nearly 34 million tonnes of fruits and vegetables worth Rs.25 to 30 thousand crore. The country experiences wide fluctuations in prices of horticultural produce, particularly, potato and onions. The lack of efficient storage and marketing infrastructure for perishable products are the missing links in the supply chain management. Creation of adequate storage facility is the only remedy that could reduce perishability and enhance value addition. Thus, there is an urgent need for creation of adequate capacity especially for the perisiiable products to protect the interest of producers and consumers. To avoid this, adequate infrastructure with various measures like financial support, fiscal incentives and enabling legal provisions need to be created. High Level Expert Committee Keeping in view the above issues, the Government of India appointed a High Level Expert Committee (HLEC) under the Chairmanship of Shri J N L Srivastava, former Secretary, Ministry of Agriculture and Cooperation in November 1998 for improving the cold storage/other storage capacities for horticultural produce of the country. The committee made the assessment that additional cold storage capacity of the order of 12 lakh tonnes would be required during Ninth Five Year Plan Period and rehabilitation/renovation of 8 lakh tonnes capacity (approximately) which was lying unutilised in various states especially in Uttar Pradesh, Bihar and Orissa would be necessary. The committee also of recomrriended the creation of godowns with a storage capacity of 1.5 lakh tonnes for onion on farm storage in producing areas and 3 lakh tonnes at Market Yards and Terminal Markets in different states.
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Capital Investment Subsidy Scheme Capital Investment Subsidy Scheme As a sequel to these recommendations and with a view to ensuring quicker development of cold storage capacity as also reducing post harvest losses of horticultural produce through the promotion/setting up of cold storages including controlled/modified atmospheric storages, Government of India announced a scheme titled "Capital Investment Subsidy Scheme (CIS scheme) for Construction/ Expansion/ Modernisation of Cold Storages and Storages for Horticultural Produce". The scheme is implemented jointly by NABARD, National Co-operative Development Corporation (NCDC) and National Horticulture Board (NHB) on the following pattern : The scheme which was originally envisaged for operation from April 1999 to March 2002 was further extended to the 10"^ Five Year Plan Period. Proprietary/Partnership Firms, Cooperative Societies, Companies, Corporations, Agricultural Produce Market Committees/Boards, Agro-industries Corporation, Growers'Associations, etc., are eligible under the scheme to set up cold storages. The units established should have multi chamber facility so as to store various horticultural produce. Promoters should commit 25 per cent of the project cost as margin money. In case of beneficiaries of SEMFEX-II, beneficiaries need to bring only 15 per cent as margin money. Term loan @ 50 per cent of the project cost is provided by banks at PLR+1 per cent rate of interest. However, the entrepreneurs are provided bank loan inclusive of subsidy amount i.e. 75 per cent of project cost out no interest is chargeable to the subsidy portion of bank loan. NABARD refinance @90 per cent of bank loan is available to banks which are eligible for refinance from NABARD. NABARD provides refinance at a concessional rate of 7.75% p.a. Credit linked back ended capital subsidy @ 25 per cent of project cost subject to a maximum of Rs. 50 lakh is provided. Subsidy is kept by the bank in "Subsidy Reserve Fund Account - Borrower-wise," which is adjusted against the last few instalments of the bank loan. For North-East states the subsidy is @33.33 per cent subject to a maximum of Rs. 60 lakh.

Introduction The subsidy flows from NHB and is operated by NABARD through eligible financing banks and by NCDC where cooperatives seek loan from NCDC. The subsidy is released to the bank/FI by NABARD as per the guidelines issued by NHB. Subsidy is released by NABARD even in cases where refinance is not involved. For new cold storages or expansion of existing cold storages, the subsidy is given @ Rs.1000/tonne of capacity created. For modernization/rehabilitation of cold storages subsidy is given @ Rs. 250/tonne of capacity renovated/modernized. For calculation of subsidy, the capacity created is expressed in terms of potato storage which is taken as 3.4 cum/MT or 120 cuft/MT Subsidy is released in two instalments. The first instalment of 50 per cent eligible subsidy amount is released after the bank sanctions a project and claims subsidy from NABARD. The remaining 50 per cent of subsidy is released after joint inspection of the unit by a team comprising officials of NABARD, NHB and the financing bank. The subsidy under this scheme is back ended. The repayment schedule is drawn by banks in such a way that the subsidy amount is adjusted once the bank loan (net of subsidy) is liquidated. Generally, loan repayment period may be upto 9 years with 2 years grace period depending on the cash flow. In case if no bank loan is involved, promoters have to apply directly to NHB for subsidy.

At the end of June 2002, a total of 407 cold storages with capacity of 19.87 lakh tonnes were created under the scheme. Against the total financial outlay of Rs.519.04 crore, bank loan of Rs.287.32 crore and eligible subsidy of Rs.118.41 crore have been sanctioned by NABARD under the CIS scheme, in the country. Since large number of cold storage units were financed under the CIS scheme. Government of India has extended the scheme to the X Five Year Plan period also. Further, the Inter Ministerial Task Force on

Capital Investment Subsidy Scheme Agricultural Marketing Reforms constituted by IVIinistry of Agriculture, Government of India has recommended the creation of an additional capacity of 56.50 lakh tonnes during the X Five Year Plan period. Since it was felt necessary to get feedback about scheme implementation at the field level and related issues for further consideration, it was decided by NABARD to conduct an evaluation study in five major states, where large number of cold storages were financed under the scheme. The main purpose of the study was to evaluate the efficiency in the operation of the scheme as also to quantify the economics of the investments. The rest of the report is organised into eight chapters including Conclusion & Implications for Policy given in the last chapter. Approach of the Study is given in Chapter II. Review of Capital Investment Subsidy Scheme is analysed in Chapter III. Implementation Aspects of CIS Scheme and Cost of investment are presented in Chapter IV and Chapter V, respectively. Chapter VI is devoted to the Economics of Investments and Repayment Performance is discussed in Chapter VII.

\PPPiOAQH 'Of THB STUDY

T
1. 2. 3. 4.

y he overall objective of the study was to evaluate the performance of cold storage units financed under Capital Investment Subsidy Scheme of Government of India with refinance support from NABARD. The specific objectives of the study were: to study the pattern of use, level of utilisation of the cold storage units and perception of farmers about its utility. to quantify the cost of investment, benefits accrued and viability of the cold storage units. to assess the repayment performance and additional employment generated due to cold storage units, and to discuss the issues and constraints in implementation of CIS scheme and draw action points for future consideration.

Multi stage sampling method was adopted for the study. At the first stage, five states representing four major zones viz., Northern, Central, Western and Southern zones where large number of cold storage units were sanctioned and implemented under CIS scheme were purposively selected for the study. At the second stage, 18 districts (Annexure 2.1) having high concentration of cold storage units financed during 1999-2000 were selected for the purpose of the study. At the third stage, 38 cold storage units, which were financed during the year 1999-2000 and had completed atleast two years of operation, were selected. The sample units constitute only new units financed under CIS scheme. The distribution of sample units among different states is presented in Table 2.1. Table 2.1 Distribution of sample units
State Andhra Pradesh Gujarat Madhya Pradesh Rajasthan Uttar Pradesh Total
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Units Sanctioned as on March 2001 18 24 24 22 91 179

Number of Districts Selected 1 6 3 3 5 18


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Sample Units 5 9 7 7 10 38

Capital Investment S uhsidy Scheme

With a view to assessing the perception of the farmers/traders who were using the cold storage units with special reference to their utility in terms of price advantage and other related issues, a sample of 100 cold storage users (farmers/traders) was selected at random in the service area of the selected cold storage units and the required primary details were collected from them. The sample in respect of the number of cold storage units and users was proportionately distributed among states based on the units sanctioned under the scheme. Further, in order to identify the reasons for not using the cold storage units, 27 control sample farmers who were not using the cold storage facilities were selected for the study. The size of capacity created plays a greater role in the viability of the cold storage units and to quantify this factor the sample cold storage units were post stratified according to their capacity created into three major sizes, i.e., small (upto 3000 tonnes), medium (3000-6000 tonnes) and large (6000 tonnes and above). The distribution of sample units according to capacity created is presented in Table 2.2. Table 2.2 : Classification of sample cold storage units according to capacity created Size Small Medium Large Overall Methodology Data were collected in three different sets of questionnaires specially designed for cold storage units, financing banks and farmers using cold storage facility. Further, average prices, arrivals of major commodities that are stored in cold storages were also collected from market yards. The questionnaire meant for cold storage units focused on location, distance from markets/farmers'field, financial, physical details, capacity created, utilised, rental charges, break up of different components of cost, operation and maintenance cost, pattern of usage and also of employment generation, etc. Like-wise, the questionnaire for financing Average capacity created (tonnes) 2348 4374 10051 6188 No. of units 8 15 15 38

Approach of the Study agencies focused on appraisal system, bank loan, security, subsidy and its treatment, monitoring, repayment schedule, loan outstanding, etc. The questionnaire for farmers concentrated on their cropping pattern, land holding, sources of irrigation, distance from cold storage, percentage of produce kept in cold storage, rental charges paid, insurance paid, price realized and price difference at the time of harvest and sale, apart from general impression of the utility/service of cold storage. The field study was conducted from July to September 2002 simultaneously in the selected states. Reference year of the study was the financial year 2001-02 and all the costs and benefits have been valued at the reference year price. The benefits urider the scheme were considered separately for owners and users. For the cold storage units, income would be mainly from rental charges. If the owners of the cold storage units keep their own produce, the benefit to that extent would be accounted by way of saving in loss, saving in transportation costs, if any, better price realisation, etc. For farmers, realisation of better prices due to cold storage, saving in losses, etc., were taken in to account. In addition, an attempt was made to find out employment generated on recurring and non-recurring basis. For working out financial viability, Financial Rate of Return (FRR) was worked out, with and without subsidy. Break-even level of net income and capacity utilisation was worked out at the point where the unit could generate the required income to reach the FRR of 15 per cent.

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CHAPTER'III

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CAPITAL Ji^jyESJTiVJEjTr SUBSIDY SCriei^iJS ?0t\ COLD SYOfiAGE - A fiEViEVV

n this chapter an attempt has been made to review the progress in implementation of Capital investment Subsidy Scheme against a background of the progress of the cold storage industry in India and the financial assistance provided by banks with NABARD refinance. Progress of cold storage industry

Low temperature storage is one of the oldest methods of preservation of food. Its origin can be traced back to the 19"" century. However, the first cold storage in India was established as early as in 1892 at Kolkata. The progress was very slow initially. The industry got a fillip after independence and the number of cold storage units rose to 4146 with a storage capacity of 149.52 lakh tonnes in 2001 from a meager 359 units with storage capacity of 3.05 lakh tonnes in 1964 (Annexure 3.1). Table 3.1 : Progress of cold storage units in India
Years 1981 1985 1991 1995 2001 Number of cold storage units 2370 2522 2970 3167 4146 Storage capacity (lakh tonnes) 43.75 50.99 77.88 85.80 149.52

Over the years there was steady progress both in terms of number of units and capacity created (Table 3.1). The estimates of compound annual growth rate revealed that growth in the number of cold storages was relatively slower (2.56%) during 1981 to 2001 as compared to the storage capacity (5.84%) during the same period, indicating that units with higher capacity came up in the later periods. The growth during the implementation of the CIS scheme for a number of cold storages and storage capacity was observed to be 4.90 per cent and 10.66 per cent, respectively. This increasing trend could be the result of various incentives offered by Government of India under the CIS scheme.
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CISSfor Cold Storage - A Review The commodity-wise distribution of cold storages as on December 2001 indicated that about 59 per cent and 85 per cent of the number and capacity created respectively was being utilised exclusively for storage of potatoes (Fig. 3.1). Fig. 3.1 : Commodity-wise distribution of cold storage capacity

Fruits & Veg 1.18% Multipurpose 12.47%

Milk & Milk Products 0.43%

Fruits and vegetables, meat, fish, milk and dairy products, etc., were the other major commodities stored in the cold storage units (Table 3.2). Table 3.2 : Commodity-wise distribution of cold storage units (as on December 2001)
Purpose Potatoes Multipurpose Fish Milk & Milk Products Fruits and Vegetables Others Total Number 2445 (58.97) 720 (17.37) 438 (10.56) 211 (5.09) 199 (4.80) 133 (3.21) 4146 (100) Capacity (lakh tonnes) 126.48 (84.59) 18.65 (12.47) 1.52 (1.02) 0.64 (0.43) 1.76 (1.18) 0.47 (0.31) 149.52 (100)

(Figures in parentheses indicate percentage to total) 12

Capital Investment Subsidy Scheme Further, maximum number of cold storage units were established by the private sector (3667) followed by the co-operative sector and the public sector (Table 3.3). Private sector alone accounted for 94 per cent of the storage capacity created (Fig.3.2). Among the regions, maximum number of cold storage units were set up in the central region (1315) followed by northern region (810), western region (735) and eastern region (686). Fig. 3.2 Sector-wise distribution of cold storage capacity
Public Sector 0.60% Cooperative Sector 5.38%

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Private Sector 94.02%

Table 3.3 : Sector-wise distribution of cold storage units (as on December 2001)
Particulars Private Sector Cooperative Sector Public Sector Total Number 3667 (88.45) 341 (8.22) 138 (3.33) 4146 (100) Capacity (lakh tonnes] 140.58 (94.02) 8.05 (5.38) 0.89 (0.60) 149.52 (100)

(Figures in parentheses indicate percentage to total) 13

CISSfor Cold Storage - A Review Change in legal provisions of cold storage industry The regulation of cold storage started with the enactment of the Central Cold Storage Order 1964 under Section 3 of the Essential Commodity Act, 1955 to provide technical specifications and minimum norms for hygienic storage of edible commodities. The order was applicable all over India. Subsequently, states like West Bengal, Uttar Pradesh, Haryana, Punjab etc., sought permission from the Central Government to enact their own independent legislation for regulation of cold storages in their respective states. These states wanted to include some provisions, which were not included in the Central Cold Storage Order such as compulsory insurance, compensation to the farmers, fixation of storage charges, power to requisition storage space, compulsory issue of receipts in the prescribed format, etc. Government of India, in the interest of the farmers, permitted these states to have their own cold storage legislation and also promulgated another cold storage order known as Central Cold Storage Order 1980 wherein all the above provisions were included. Department of Marketing & Inspection (DMI), Ministry of Agriculture and Government of India enforced the Central Cold Storage Order 1980. Government of India modified the Central Cold Storage Order during May 1997 in line with the policy of liberalization. At the same time, the states were also advised to modify their respective cold storage orders to remove unnecessary control. Most of the states except West Bengal have either repealed their cold storage order or removed some provisions such as compulsory licencing, rent control etc., to encourage demand driven growth of cold storages. The state of West Bengal has also relaxed some provisions under state cold storage order except for the fixation of rent for storage of potatoes. Institutional finance and role of NABARD As per the guidelines issued by Reserve Bank of India on priority sector lending, advances made by banks to plantation and horticulture sector are treated as direct advances to agriculture sector. Since infrastructure like cold storage, storage godowns, etc., for agricultural produce is directly linked to agriculture, the advances made for construction and running of cold storages used for storing own produce is classified as direct finance to farmers for agricultural purposes. However, the loans granted to cold storage units used for custom hiring are classified as 14

Capital Investment Subsidy Scheme indirect advance to agriculture, provided the unit is in a rural area and is used for storage of agricultural produce and also not registered under SSI. The loans granted to cold storages registered under SSI are treated as priority sector advance. As per the above guidelines, the advances granted to units set up in urban areas having an outlay of more than the SSI limit do not qualify for priority sector advances. Further, as outlays of most of the cold storage units are more than Rs.1.00 crore (present SSI limit), practically no loan sanctioned to cold storage units set up in urban areas could be accounted as advance to priority sector. Therefore, banks are reportedly not keen to finance cold storage projects located in urban areas. Further, it is very difficult to classify the cold storage units used for storage of own produce and custom hiring in rural areas, as the same cold storage may be used both for storage of own produce and custom hiring depending upon demand and supply conditions. Hence, the advances made for construction of a cold storage units for storage of agricultural produce irrespective of their size, location, ownership, pattern of use etc., are treated either as direct advance or indirect advance to agriculture. Plantation and horticulture is one of the major sectors eligible for refinance support from NABARD. With a view to creating adequate storage capacity for agricultural produce of perishable nature, NABARD has been supporting cold storage projects with its refinance assistance since ARDC days. Studies revealed that the cold storage units under private sector were used only by traders/middlemen. Hence, the policy of financing cold storage projects by NABARD was reviewed during 1989 and it was decided that the proposals for setting up of cold storage projects in private sector would not merit refinance support from NABARD except in cases where it forms an integral part of a project, and thus, cold storage projects set up by producers' co-operatives and public/joint sector units were provided refinance support by NABARD. However, above restrictions were removed during 1999 and cold storage projects set up by private parties are now eligible for refinance support from NABARD. A steady progress in disbursement of refinance to Plantation and Horticulture (P&H) activities has been made by NABARD. By the end of 2002, disbursement under P&H has increased to Rs.280.00 crore from 15

CISSfor Cold Storage - A Review a meager Rs.33.00 crore during 1981-82. The disbursement of refinance to cold storage projects was not monitored separately by NABARD and it was reported under Storage and Market Yards (SGMY) prior to inception of the subsidy scheme. The disbursement under SGMY had increased from Rs.9.00 crore during 1981-82 to Rs.16.45 crore during 1998-99 (Annexure 3.2). There was a quantum jump in the disbursement of refinance from Rs. 15.40 crore in 1999-2000 to Rs.227.14 crore during 2001-2002 due to implementation of the subsidy scheme.

Fig. 3.3: Refinance disbursement under storage and marl<et yards


25000 20000 15000 10000 5000 - -*- \ I I p I 1 I I r - 1 I I r -

>"

^ ^ ^^' ^ ^ ^ ^ =

/%.'"

^J"

/i'"

<v'-'

K'-*

rt'"

Z-'-*

A!^

n/^

t^f^

Progress in implementation of CIS scheme Government of India announced the CIS scheme with an estimated capital outlay of Rs.652.50 crore and subsidy of Rs.175.00 crore. The scheme was originally envisaged for operation from April 1999 to March 2002 and subsequently extended upto March 2007 (10th Five Year Plan Period). As at the end of June 2002, 407 schemes were sanctioned under CIS scheme with TFO of Rs.56,379.26 lakh and bank loan of Rs.31133.38 lakh (Table-3.4). The schemes implemented had created a capacity of 19.87 lakh tonnes. NABARD sanctioned Rs 25792.19 lakh and disbursed Rs.16443.58 lakh. Subsidy released under the scheme aggregated Rs. 8219.49 lakh. 16

Capital Investment Subsidy Scheme Table 3.4 : Details of cold storage units sanctioned under CIS scheme by NABARD
(Rs, lakh)
Year No. of units* Capacity (lakh tonnes) 1999-2000 2000-01 2001-02 April 2002 to 30 June 2002 Total 407 19.87 56379.26 31133.38 25792.19 16443.58 6219.49 15 226 150 16 0.67 11.73 6.76 0.71 1967.89 32000.10 19828.71 2582.56 1059.30 17647.28 10959.31 1467.49 993.09 14628.53 9086.96 1083.61 891.52 7123.79 8249.78 178.49 0.00 2564.74 4472.51 1182.24 TFO Bank loan Refinance Refinance Subsidy Released

sanctioned disbursed

Excluding onion godowns

Recognizing cold storages as one of the important infrastructural facilities for storage and marketing of agricultural produce, a few state governments realized the need to establish cold storage units for perishable products and approached NABARD to provide financial assistance to them from Rural Infrastructure Development Fund (RIDF). Hence, NABARD extended direct finance to state governments for setting up cold storage facilities during 1998-99. A total of four projects in the states of Nagaland (1) and Tripura (3) were accorded sanctions to the tune of Rs. 5.57 crore. In addition, a food park project with the objectives of enhancing the quality of horticultural produce, increasing the processing of fruits and vegetables and reducing wastage by extending the shelf life of the produce by creating cold chain facilities, has also been sanctioned to state government of Punjab. Region-wise distribution The region-wise distribution of the schemes showed that the highest number (186) of units had been sanctioned in the central region followed by northern region (74), western region (64) and southern region (63) (Table 3.5). Among the states, Uttar Pradesh ranked first (146) followed by Gujarat (40) and Punjab (31). Average TFO worked out to be the highest in southern region (Rs. 176.10 lakh) followed by eastern region (Rs. 166.27 lakh), western region (Rs. 138.59 lakh) and central region (Rs. 128.79 lakh), whereas average TFO was found lowest in northern region (Rs.124.05 lakh) (Annexure 3.3). The variation
;>:<>>iSM:iK-;S>>:

17

CISSfor Cold Storage - A Review In TFO was due to various factors such as geographical location of the state, average size of unit, technology used and type of unit etc. Average bank loan sanctioned varied from Rs.101.34 lakh (southern region) to Rs.63.42 lakh (central region). The amount of average subsidy and refinance sanctioned was found to be the highest in eastern region and in southern region respectively. Table 3.5 : Region-wise cold storage units financed under CIS scheme by NABARD (Rs. in lakh)
Region Northern Eastern Central Western Southern All India No. of Schemes 74 20 186 64 63 407 Average TFO 124.05 166.27 128.79 138.59 176.10 138.64 Average Bank loan 76.64 87.62 63.42 86.39 101.34 76.49 Subsidy 29.40 39.12 30.84 27.86 36.65 31.41 NABARD Refinance 68.36 76.13 49.30 72.73 85.50 63.37

The region-wise details of total capacity created shows (Table 3.6) that central region ranked first in terms of total capacity (11.28 lakh tonnes) followed by northern (2.87 lakh tonnes) and southern (2.81 lakh tonnes) region whereas the average capacity created was found to be highest in central region (6065 tonnes) followed by eastern region (4518 tonnes) and southern region (4461 tonnes) which indicates that the cold storages with bigger installed capacity have come up in the central region. (State-wise details given in Annexure 3.4). Table 3.6 : Region-wise details of total capacity and average capacity created
Region Northern Eastern Central Western Southern All India No.of schemes 74 20 186 64 63 407 Total capacity created (lakh tonnes) 2.87 0.90 11.28 2.01 2.81 19.87 Average capacity created (tonnes) 3874 4518 6065 3135 4461 4882

Capital Investment Subsidy Scheme

Frequency distribution of cold storage units


The frequency distribution of cold storages financed under the scheme revealed that majority of the cold storages (65) fell in the range of total financial outlay of more than Rs.200 lakh which indicates that quite a good number of units were large units having multi chambers and only 11 cold storages fell in less than Rs. 40 lakh class interval (Table 3.7). Out of 407 cold storages, 75 were having TFO upto Rs. 80 lakh. These include mainly expansion and rehabilitation type of cold storages. Table 3.7 : Frequency distribution of cold storage units sanctioned under CIS scheme
Class interval (Rs. lakh) Upto 40 41 - 60 61 - 80 81 - 100 101 - 120 121 - 140 141 - 160 161 - 180 181 - 200 Above 200 Frequency distribution (Nos) 11 20 44 44 59 49 43 44 28 65 Cumulative frequency (Nos) 11 31 75 119 178 227 270 314 342 407

Average cost of investment per tonne A normative cost of Rs.4000 tonne has been fixed under CIS scheme for the purpose of subsidy. The average cost of investment per tonne of cold storage units sanctioned under CIS scheme was estimated at Rs.3277 which varied from Rs.2156 (Uttar Pradesh) to Rs.5280 (West Bengal) (Table 3.8).The average cost per tonne was observed to be lowest in Uttar Pradesh which was mainly due to use of cheaper technology in which only potatoes could be stored. The high cost of investment in states like Gujarat was mainly due to high investment in plant and machinery as well as civil structures. The reasons for variation in cost of investment in the States covered under the study are presented in Chapter V. 19

CISS for Cold Storage - A Review Table 3.8 : State-wise details of average cost of investment per tonne (Rs./tonne) State Andhra Pradesh Assam Bihar Chhattisgarh Gujarat Haryana Himachal Pradesh Jharkhand t^rnataka Madhya Pradesh Maharashtra Orissa Punjab Rajasthan Tamil Nadu Uttar Pradesh Uttaranchal West Bengal All India Minimum 2321 2868 2779 1511 2388 1913 2099 2044 1419 2408 3591 1706 2457 2993 879 1684 2713 Maximum 5868 4895 4728 3145 14725 5922 3909 6764 13124 9822 4696 4784 3778 7969 4388 2814 9663 Average cost 3753 3891 3587 2159 4807 3757 2267 3004 4341 3159 4941 3994 3077 3028 5155 2156 2249 5280 3277

Fig. 3.4 : Deviation of cost of investment from the normative cost of CIS scheme.

Tir

R
f <('
^' 4f

.^ .^

/y;^ .^;

20

Capital Investment Subsidy Scheme Distribution of cold storage units according to type The distribution of cold storage units according to type revealed that about 85 per cent of the units sanctioned under the scheme were for new units only and remaining were for expansion/rehabilitation of the existing units (Table 3.9). Table 3.9 : Details of cold storage units according to type
Region Northern Eastern Central Western Southern All India New 69 17 144 56 59 345 Expansion 5 3 41 7 4 60 Rehabilitation 0 0 1 1 0 2 Total 74 20 186 64 63 407

The average capacity created per unit varied from 3135 tonnes (western region) to 6065 tonnes (central region). Among the states, Chhattisgarh ranked first having the highest average capacity (6589 tonnes/unit) whereas the average capacity created (per unit) was lowest in Gujarat (2943 tonnes/unit) excluding Himachal Pradesh where only one unit (2120 tonnes) was sanctioned (Annexure 3.4). Most of the units financed under CIS Scheme were new units only (Annexure 3.5) Distribution of cold storage units according to ownership The distribution of cold storage units according to ownership pattern showed that maximum number of units (278) were owned by private limited companies followed by partnerships and proprietorships (Table 3.10). Only 6 units were owned by co-operative societies, which was due to the fact that co-operative societies are financed by NCDC. Table 3.10: Details of cold storage units according to ownership pattern
Ownership Private Limited Com. Partnership Proprietorship Co-operative Society All India Number of Cold storage units 278 111 12 6 407
fm:i!mA^fffifmmi

Capacity created (lakh tonnes) 14.45 4.78 0.42 0.22 19.87

21

CISS for Cold Storage - A Review


5SSSSs$iK*HSSS^A^>S

Agency-wise distribution of cold storage units Agency-wise sanction of schemes (Table 3.11) indicates that commercial banks played a major role (93.37%) in financing the cold storage units followed by RRBs (3.44%) while it was negligible for co-operatives (3.19%). (State-wise details given in Annexure 3.6). Table 3.11 : Details of cold storage units according to source of financing
Region Northern Eastern Central Western Southern All India Number of schemes sanctioned RRBs 1 1 8 1 3 14 CBs 69 16 177 58 60 380 Total 74 20 186 64 63 407

sees
4 3 1 5 0 13

Under CIS scheme, highest number of cold storage units were sanctioned in Agra (25) and Ferozabad(14) districts of Uttar Pradesh followed by Sonepat(14) district of Haryana and Jaipur(12) district of Rajasthan. List of top 10 districts covered under CIS scheme is given in table 3.12. Table 3.12 : List of top ten districts covered under CIS scheme
District State Capacity Created Number of Units Sanctioned (Tonnes) 25 14 14 12 9 8 7 7 7 7 168644 93856 60977 67552 31116 26931 53775 20925 30880 73971

Agra FIrozabad Sonepat Jaipur Banaskantha Badaun Etawah Gandhlnagar Gwalior Kannauj

Uttar Pradesh Uttar Pradesh Haryana Rajasthan Gujarat Uttar Pradesh Uttar Pradesh' Gujarat Madhya Pradesh Uttar Pradesh
mi^Myms^i?^iXi

22

Capital Investment

Subsidy

Scheme

Capacity created and future potential The state-wise requirement assessed by the High Level Expert Committee [HLEC] on cold storages for Ninth Plan Period vis-a-vis achievement in sanction of the schemes by NABARD under CIS scheme as on 30 June 2002 is given in Table 3.13. It can be seen therefrom that NABARD has been able to sanction 407 cold storage units with a storage capacity of 19.87 lakh tonnes as against the projected number of 280 with capacity of 12 lakh tonnes all over India, which shows an achievement of 165 per cent. In most of the states, the achievement had crossed the physical target set by HLEC. A good number of projects were sanctioned in those states also where HLEC had not set any target potential e.g., Rajasthan, Andhra Pradesh, iVIaharashtra, Punjab, etc., whereas only four projects with 17,500 tonnes Table 3.13 : Assessment of requirement of cold storage capacity by HLEC vis-a-vis achievement by NABARD
(Capacity in tonnes) State Potential assessed by HLEC No. of units Capacity 15 30 12 60000 140000 35000 Achievement by NABARD* (%) No. of units Capacity 40 4 27 28 24 31 17 21 5 25 146 2 14 5 1 11 2 4 117735 17500 101861 149710 82884 103576 69573 S7784 20900 111425 945107 8618 63574 20440 2120 72480 9318 22200 Acliievement

Gujarat Orissa Madtiya Pradesh Andhra Pradesh Maharashtra Punjab Haryana Tamil Nadu Assam Rajasthan Uttar Pradesh Uttaranchal Karnatal<a Bihar Himachai Pradesh Chhatisgarh Jharkhand West Bengal Manipur Kerala Other States Total

196.23 12.50 291.03

12 7 81 18 30

25000 3500 486000 45000 150000

278.29 597.14 194.47 141.28 13.63

35 10 10 20 280

155000 50000 1000 50000 1200500

14.32 0.00 0.00 0.00 165.50

407

1986805

('Excluding 4 schemes on onion godowns)

23

CISSfor Cold Storage - A Review of Storage capacity could be sanctioned in the state of Orissa as against the target of 30 units with cold storage capacity of 1,40,000 tonnes set by HLEC which may have been due to low level of agricultural production because of recurrence of natural calamities. In case of Bihar, only five cold storages with storage capacity of 20,400 tonnes could be sanctioned as against projected 30 cold storage units with capacity of 1,50,000 tonnes which was due to late take-off (August 2000) of the subsidy scheme because of existence of control on rentals by state govt. Similarly, the progress in implementation of the scheme has been slow in West Bengal where only four units with 22,200 tonnes capacity could be sanctioned by NABARD as against the target of 35 units with 1,55,000 tonnes storage capacity due to control on rentals of potato which is a principal commodity for storage in the state. Role of different agencies As on 31 October 2002, a total of 604 cold storage schemes with a total financial outlay of Rs.809.67 crore were sanctioned by different agencies. About 72 per cent of the cold storage units were sanctioned by NABARD followed by NHB (21.36%) and NCDC (6.95%). Agency wise details of schemes sanctioned and capacity created are given in Table 3.14. Table 3.14: Details of cold storage units sanctioned under CIS scheme
(As on 31 October 2002) Particulars NABARD NCDC NHB (Direct cases) 129 (21.36) 5.07 (18.52) 160.05 (19.76) 32.81 (17.02) NAFED Total

Total number of projects sanctioned Total capacity of sanctioned projects (lakh tonnes) Total financial outlay/total project cost (Rs. crore) Amount of subsidy released by NHB (Rs. crore)

432 (71.52) 20.79 (75.96) 591.61 (73.07) 145.70 (75.56)

42 (6.95) 1.47 (5.37) 55.51 (6.86) 13.30 (6.90)

1 (0.17) 0.04 (0.15) 2.50 (0.31) 1.00 (0.52)

604 (100.00) 27.37 (100.00) 809.67 (100.00) 192.81 (100.00)

(Figures in parentheses indicate percentage to total)


m^^^^ii^ffifsm^^^m^

24

Capital Investment Subsidy Scheme Cold storage capacity have always remained inadequate for storage of horticultural produce. The installed cold storage capacity which was only 0.09 per cent of the total production of fruits and vegetables during 1964, increased to 12.82 per cent during 2001. However, potato remains the major commodity stored in cold storages. Keeping in view the postharvest losses to the tune of 30 per cent of the total fruits and vegetables and also marketable surplus, the present cold storage capacity is inadequate. Hence, the Inter Ministerial Task Force on Agricultural Marketing Reforms constituted by Ministry of Agriculture, Government of India has recommended the creation of an additional capacity of 56.50 lakh tonnes during X Five Year Plan period, with an estimated investment cost of Rs.4720 crore, including subsidy of Rs.1175crore (Table 3.15). Table 3.15 : Future potential - capacity and total cost
Type Capacity (lakh tonnes) 40 10 Unit cost (Rs./tonne) 5000 1000 Total cost (Rs. in crore) 2000 100

Cold Storage Cold Storage (Rehabilitation / Modernisation Onion Storage) Cold Chain (reefer vans. zero energy chamber etc.) Total

2000

120 2500

56

4720

25

CHAPTER IV

iMP'L^MEMrj^non AS;PSGT3

OF COLD BronAQE

UNITB FJMAMCSD UNDHFi OIB BCHElVlE


n attempt has been made in this chapter to discuss the implementation aspects of cold storage units financed under CIS scheme. Different aspects like characteristics of cold storage units, location, ownership, size, extent and pattern of their utilization etc., have been discussed based on details collected from the sample cold storage units as well as sample farmers covered for the study. Adherence to banking norms, adequacy of bank loan, margin money contribution, etc., have also been discussed in this chapter. Location of cold storage units The location of the cold storage units was decided mainly by the existence of production and market of the commodity to be stored alongwith necessary infrastructural facilities. IVIost of the sample cold storage units were ideally located near the markets and were also easily accessible by farmers. The units were also well connected by road. About 85 per cent of the cold storages were located within a distance of 12 to 15 kms from the district headquarters. The mandis and villages were also situated within a distance of 10 kms from the units. This ideal location of the cold storage units contributed towards reduced cost of transport to the farmers to a greater extent. The service area of the cold storage can be considered as around 10 to 12 villages. However, it was observed that in most of the states, the cold storage units were located in two or three major districts. The implementation of the CIS scheme also promoted additional units in the same area, which led to more concentration of cold storages. For example, a majority of the units in Andhra Pradesh were concentrated in Guntur and Visakhapatnam. Similarly, most of the cold storages were located at Indore and Gwalior in IVIadhya Pradesh, Agra, Faridabad and Kannauj in Uttar Pradesh. Such a tendency of concentrating units in a specified area would lead to competition among several units that may reduce the rental charges of the produce, etc., and put undue pressure on the viability of cold storage units.

26

Capital Investment Subsidy Scheme

Ownership pattern and management IVIost of the owners of sample cold storage units had other businesses as their primary activity and the cold storage business always remained a secondary/tertiary business. The staff managed the cold storages and owners generally visited them at weekly intervals. During the field study, it was observed that there is still greater scope for the cold storage units to market their services more aggressively. About 95 per cent of the cold storage units were owned and operated as limited companies/ ownership firms and the remaining 5 per cent of the units were owned by co-operative societies. In general, the staffing pattern of the cold storage unit includes a manager, two operators/ electricians, 4-5 skilled labourers and two security men. Skilled labourers were used for loading and unloading of stocks. In addition, unskilled labourers were used during loading and unloading periods for various operations like grading, packaging, loading in the trucks, etc. In most of the cases, the wages of unskilled labourers were collected from the users of the unit. Capacity created and utilisation pattern The average capacity created per unit of sample cold storage unit was 6188 tonnes during the reference year with the size ranging from 2300 - 10000 tonnes (Table 4.1). The sample cold storage units in Gujarat were predominantly small in size with average capacity created being 2707 tonnes. However, the units in Andhra Pradesh and Uttar Pradesh Table 4.1 : Capacity created and utilised
(In tonnes) Particulars Capacity wise Small Medium Large State wise Andhra Pradesh Gujarat Madhya Pradesh Rajasthan Uttar Pradesh Overall Capacity Sanctioned 2535 4528 8786 7490 2873 5829 4338 8551 5789 Capacity created 2348 4374 10051 8160 2707 5778 4499 9806 6188 Capacity utilised 2140 3803 8203 8200 2698 5297 3116 7304 5190 %of Utilisation 91 87 82 100 100 92 69 74 84

27

Implementation Aspects were larger in size with capacities of 8160 and 9806 tonnes, respectively The comparison of capacity created with the sanctioned capacity under the scheme indicated that, in general, there was a tendency of creating more capacity than the sanction. For the sample as a whole, the capacity created was about 7 per cent more than the sanction under the scheme and this trend was common in all the states except in Gujarat (Fig. 4.1). The small and medium sized units of less than 6000 tonnes had created less than the capacity sanctioned. The trend of creating more capacity than the sanction among larger units might be due to the contribution of higher share of the investment cost by them from their own sources. Fig. 4.1 : State-wise pattern of capacity sanctioned, created and utilised under CIS scheme.
12000

10000-10 O 8000 ^ 6000

on Capacity Sanctioned 0 Capacity created S Capacity utilised

u
a

4000

u
2000 - -

Overall

The capacity utilisation is one of the major factors, which directly influences the profitability of the cold storage units. The utilisation of the cold storage units depended upon various factors lil<e distance from the market, distance from the farmers'fields, involvement of the entrepreneur in day to day working of the cold storage unit, reputation of the entrepreneur in the area as perceived by the cold storage users, existence of other cold storage units in the district/adjoining district/state, provision of credit facilities to the farmers, etc. The capacity utilised for the sample as a whole worked out to 84 per cent fof principal crop stored. Full utilisation of capacity created was observed in Gujarat and Andhra Pradesh and it was 92 per cent in Madhya Pradesh. The capacity
^^ffc^i^?f::^f:!^mMmitS^:yim:?ii!x>?i;

28

Capital Investment Subsidy Scheme Utilisation was relatively less in Uttar Pradesh (74%) and the least in Rajasthan (69%). The frequency distribution of the sample units according to capacity utilisation indicated that about 81 per cent of the sample units utilised the capacity of more than 75 per cent, whereas about 8 per cent and 11 per cent of the sample units were able to utilise the capacity to the extent of 51 to 75 per cent and 26 to 50 per cent, respectively. Fig. 4.2 : Pattern of capacity sanctioned, created and utilised under CIS scheme.
12000 10000

s
^

8000

I Capacity Sanctioned I Capacity created I Capacity utilised

6000

'o n
O. 4000 2000

CO

Small

Medium

Large

Among different categories of units, the capacity utilisation was relatively higher in the small size units (Fig.4.2). The percentage of utilisation of the capacity was to the extent of 91 per cent in smaller size units (less than 3000 tonnes) and 87 per cent in the medium size units (Table 4.1). The percentage of utilisation was comparatively less (82%) in the larger units of above 6000 tonnes.The above analysis revealed that there exists greater scope for improving the capacity utilisation of the units established in states like Rajasthan and Uttar Pradesh Pattern of use of cold storage units Potato was the major commodity stored in the sample cold storage units in all the selected states except Andhra Pradesh where it was chillies and turmeric. The cold storage units where potato was the predominant commodity stored were in operation from February to November in a year and they remained closed during December and January. During 29

Implementation Aspects this period, repair, cleaning and maintenance were undertaken. Potato was stored in the unit during February to March, immediately after harvest of the crop (Table 4.2). The outflow period starts from August and reaches its peak during October to November (Fig.4.3). With regard to commodities other than potato (chillies/turmeric), the inflow period was predominantly during March - April and outflow was widespread from June to November. The outflow was widely spread throughout the year with the maximum in the months of August to October. Since the cold storage units functioned throughout the year without any break, unlike the potato storing units, there were occasions when the commodities were stored for more than one year. Fig. 4.3 : Inflow and outflow pattern of patato in cold storage units
10O

90

g
| 5 0
^ U 40

Inflow H Outflow

CL 30
0

u
20 10 0

^
Jan Feb

,, , ,^, ,r
Mar Apr May June July

Aug

Sep

Oct

Nov

Dec

In general the cold storage units were used mainly for storing the produce from farmers on rental basis. Other major users of cold storages were the traders whose share in capacity utilisation of cold storage varied from 24 to 42 per cent in different states. The use of cold storages for own produce was relatively less, which accounted only for 5 to 10 per cent of the total capacity utilised. As far as Andhra Pradesh is concerned, all the sample cold storages were used exclusively for rental purposes and there was no use of the cold storage for own purpose. It was observed that the farmers sold the entire produce kept in the storage in one lot. It was also reported by the sample farmers that they sell about 30 per cent of the produce immediately after harvesting and keep the 30

Capital Investment Subsidy Scheme remaining produce at the cold storage for future selling. Chillies and spices are kept in the cold storage for trading purposes. Hence, the inflow and outflow in cold storages is more frequent thereby increasing the capacity utilisation (Fig.4.4). Fig. 4.4 : Inflow and outflow pattern of chillies in cold storage units

-5- 50
40 Inflow Outflow ^ o 30

O 20

Table 4.2 : Inflow and outflow pattern


(Per cent) Months Inflow January February March April May June July August September October November December Total Potato Outflow Chillies/Turmeric Inflow Outflow 7.7 4.4 1.8 1.0 6.9 8.8 12.0 10.6 11.0 13.7 13.6 8.5 100.0

90.9 9.1

100.0

0.5 1.5 9.6 13.4 19.9 23.6 31.5

4.6 60.8 26.1 5.6 0.7 1.1 0.8 0.3

100.0

100.0

31

Implementation Aspects Though potato was the main commodity stored in the cold storages in IVIadhya Pradesh, about 40 per cent of it was for wafer grade potato and 5 to 7 per cent for groceries. Wafer grade potatoes commanded 54 per cent more rental charges per quintal, compared to the table grade. In this case, the technology adopted was also observed to be different, requiring relatively high temperature (12 - 14 C) and high relative humidity (above 90 %) for its storage. These storage conditions prevent starch to sugar conversion. In addition, the chips grade potato is subjected to CIPC treatment to inhibit sprouting. Trend in rental charges The rental charge is the only major criterion which decides the profitability of the unit. The estimated average rent per tonne of potato was Rs.851 with a range from Rs.716 to Rs.894 (Table 4.3). Among different states the average rent charged was higher in Gujarat (Rs.908) followed by Madhya Pradesh (Rs.889) and Uttar Pradesh (Rs.804). The average rent was observed to be the lowest in Rajasthan (Rs.663). Table 4.3 : Rental charges of potato per tonne during the year 2001-02
(Rupees) State Gujarat Madhya Pradesh Rajasthan Uttar Pradesh Average Maximum 935 910 762 861 894 Minimum 846 852 583 742 716 Average 908 889 663 804 851

The process of fixing the rental charges was decontrolled since 1996 and at present the cold storage unit owners from the local area are fixing the rental charges. The rental charges varied from commodity to commodity and among districts in the state, which is dependent on demand and supply interaction. With a view to assessing the trend of the rental charges for different periods of time, the data was collected from the sample units for three years since 1999-2002 and the results are presented in Table 4.4. 32

Capital Investment Subsidy Scheme Table 4.4 : Rental value of potato per tonne
(Rupees) Particulars Gujarat Madhya Pradesh Rajasthan Uttar Pradesh All India 1999-2000 938 957 820 862 904 2000-01 937 912 735 833 874 2001-02 908 889 663 804 842 % decrease 3.20 7.11 19.15 6.73 6.86

There has been a declining trend in the rental charges of potato during the last three years. The average rental value for the sample as a whole was Rs.904 per tonne during the year 1999-2000, which was reduced to Rs.842 during 2001-02. Thus, the reduction in the rental charges was to the extent of 6.86 per cent. Among different states, the reduction in the rental charges was significantly higher in Rajasthan (19.15 %) followed by Madhya Pradesh (7.11 %). A discussion with owners of cold storages as well as farmers revealed that the establishment of more number of cold storage units in the study area was due to the implementation of CIS scheme which was in turn the major reason for the declining trend in the rental charges. However, this trend has favoured farmers. Pledge finance The banks were also extending produce/mortgage loans for the produce kept in cold storages at 50 per cent of the market value of stock. Government of Andhra Pradesh had also introduced a scheme operated through market yards known as 'Rythu Bandhu'. Under this scheme, 75 per cent of the value of the produce kept in the storage godowns subject to a maximum of Rs.50,000 was given as loan to each of the farmers. The produce kept by the farmers was covered by insurance and no interest was charged upto first 90 days. Thereafter, reasonable interest was charged. Almost all the financing banks were extending loan facilities for the produce kept in the cold storages in Andhra Pradesh. In other states, financing banks do not extend pledge finance against cold storage receipts. However, the cold storage units were extending pledge loan to the farmers at a high interest rate of 18 per cent to 24 per cent per annum against the stock of potato stored in the cold storage. 33

Implementation Aspects The extent of pledge loan varied from 20 per cent to 50 per cent of the value of the stock held. In Uttar Pradesh, Madhya Pradesh and Rajasthan, the banks were providing a working capital limit to the cold storage units against the stock of farmers. The cold storage units were further extending pledge loan to the farmers at a higher rate by charging an additional 2 to 8 per cent per annum service charge. Since both of these practices are not beneficial to the farmers, the bankers should extend pledge loan to the farmers directly or the state government may consider implementing a scheme on the lines of 'Rythu Bandhu' scheme of Andhra Pradesh. Thus, there is no common policy framework for the existing pledge loan against the stocks stored in the cold storage units in the present scheme and there is urgent need to integrate this aspect with the scheme. Insurance All the units studied had undertaken comprehensive insurance for the unit as well as plant and machinery. However, insurance for the stock was done only for 55 per cent of the sample units. During the field study, it was observed that most of the cold storage owners were not showing keen interest in insuring stock of the farmers. Wherever insurance was made, the premium was collected from the farmers/users along with rental charges. Interest rate All the banks charged rate of interest as per the guidelines of the scheme i.e., one per cent more than the Prime Lending Rate. The ultimate rate of interest charged varied from 12 to 14.5 per cent among different states. However, majority of the banks charged 13 per cent interest. Repayment period The repayment period suggested under the CIS scheme was nine years with two years grace period. During the grace period only interest was to be collected. However, the study revealed that there was no uniformity in fixing the period of repayment. The repayment period fixed varied from five to nine years and it was also fixed arbitrarily without following any specific norms. Further, it was observed that in the case of 33 per cent of the loan accounts only, the grace period allowed was two years. In other cases it varied from six to eighteen months. Hence, it can be concluded that the banks wanted quicker recovery of the loans. 34

Capital Investment Subsidy Scheme Release of subsidy As per the guidelines of the CIS scheme, a back ended subsidy of 25 per cent of the total project cost subject to a maximum of Rs.50 lakh is available to the cold storage units. The subsidy is available only in those states/union territories/areas, which do not administer or control rentals for cold storages under any statutory or administrative order. Half of the eligible subsidy amount is released as advance subsidy to the financing bank after the scheme is appraised/sanctioned by NABARD and issue of sanction letter by the financing bank. The subsidy admissible to the borrower is kept in a separate account by the financing bank in the name of the borrower. The remaining 50 per cent of the subsidy amount is disbursed to the participating bank by NABARD only after conduct of an inspection by the Joint Monitoring Committee consisting of officials from NABARD, financing bank (generally the concerned Branch Manager) and a representative of the National Horticultural Board. For this purpose the promoters/financing bank initiate necessary action to get the inspection conducted on the project site by the Joint Monitoring Committee when the project is nearing completion. After conduct of inspection, the bank submits the claim for final subsidy in the prescribed format to NHB through NABARD enclosing Monitoring Committee report, compliance if any and completion certificate. The final subsidy is released on the basis of the satisfactory report on the completion of the project. The bank cannot charge any interest on the subsidy portion of bank loan. It is envisaged that the subsidy amount is credited to the borrower's account by the financing bank on the same day of its release by NABARD. The study revealed that the share of subsidy released was 25 per cent of the total cost in all the states except in Gujarat, where it was 19.51 per cent, which was due to creation of lesser capacity as compared to the sanctioned one. The time taken for release of subsidy varied from two weeks to three months among different states. Benefit at farmers' level The primary data collected from the sample farmers revealed that about 52 per cent of the sample beneficiaries using the cold storage facilities belonged to small and marginal farmers. About 82 per cent of the sample farmers reported the availability of cold storages within 5-10 kms with easy accessibility. Availability of storage space was also not reported to be a problem by any of the sample farmers. Before the implementation of 35

Implementation Aspects the scheme, the farmers used to approach cold storage units in far away places and had to face long queues at the time of storing and were sometimes forced to sell their produce at unremunerative prices due to non availability of storage space. The implementation of the scheme provided more number of cold storage units and owners/agents of these units approached the farmers to persuade them to keep their produce in their unit. There were occasions when incentives, discounts and other facilities were also offered to the farmers so that capacities in the store were fully utilised. In the case of potato producing farmers, they used to sell around 35 per cent of the produce at the time of harvest and store the remaining quantity in the cold storage units in order to realize better prices. Fig. 4.5 : Monthly average wholesale price of potato in Lucknow market (1999-2002)
LUCKNOW Market
600

5 **
A 400

/
^^ *"^

Ax

-"

100

Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec

Benefit of the cold storage unit as a price advantage was worked out as the difference between farm gate price at the time of loading and unloading of potato in the cold storage unit. In terms of expenditure, the rent paid by the farmer for transport, loading and unloading costs were worked out. The estimated average price advantage for the sample as a whole worked out to Rs.186/quintal and it was relatively higher in Madhya Pradesh (Rs.212/quintal) than the other states (Rs.144 - 155/quintal) (Table 4.5). As discussed elsewhere in the report, storage of wafer quality potato was the reason for better price advantage in Madhya Pradesh when compared to other states. The prime advantages of storage of potato between loading and unloading periods were further validated using the trend in wholesale prices of potato in the selected markets from the study areas (Fig.4.5 and 4.6) (Annexure 4.1). 36

Capital Investment Subsidy Scheme


i^SyK^ii^S5S?;aiSS^gKiS*SSS:r?SJ

Fig. 4.6 : Monthly average wholesale price of potato in Jaipur market (1999-2002)
450 JAIPUR Market 400 350 W 5 300

* ^
* 260

S 200 'C

a.
150 100 SO 0

Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec

On the expenditure side, the average cost per quintal incurred by farmers worked out to Rs.101 with a range of Rs.104 in Madhya Pradesh to Rs.83 in Rajasthan. The estimated net benefit for storing one quintal of potato worked out to Rs.85 for the sample as a whole and it was higher in Madhya Pradesh (Rs.108) followed by Rajasthan (Rs.68). Further, the value addition for the commodities stored in the cold storage units as a result of packing, grading and minimurh processing ensured a better price and enhanced market demand. This advantage has been taken into account while realizing the sale prices. The above analysis clearly indicates the advantage to farmers due to implementation of the scheme both in terms of financial margins as well as by providing other amenities. Table 4.5 : Estimated margin per quintal of potato for farmers
(Rupee) State Price (Feb/ Mar) Price Price (Oct/ advantage Nov) Rent Transport, loading and unloading cost 14 16 17 14 16 Total cost Net benefit

Gujarat Madhya Pradesh Rajasthan Uttar Pradesh Over All

431 411 423 424 426

586 623 574 568 612

155 212 151 144 186

89 88 66 80 85

103 104 83 94 101

52 108 68 50 85

37

Implementation Aspects With a view to identifying the reasons for not using the cold storage, control samples of 27 farmers with a fair distribution of small and marginal farmers were studied and the results are presented in Table 4.6. The farmers who are not using the cold storage were fully convinced about the advantage. They were not able to store mainly because of distress sale, which accounted for 59 per cent of the farmers. Though owners of the cold storage units provided pledge loan facilities, the farmers were not aware of these facilities. Low production of potato was yet another reason, which was expressed by 11 per cent of the control farmers. Higher risk in potato price and low information about such facilities restricted about 19 per cent of the control farmers in using the cold storage unit. Lack of proximity to the cold storage was also one of the reasons expressed by 11 per cent of the control farmers for not using the cold storage. Table 4.6 : Reasons for not storing in tlie cold storage by control farmers
Reasons Number Distress sale Low production Higher risk In potato price Distance Total 16 3 5 3 27 Farmers Percentage 59 11 19 11 100

38

COST OF iMiSTIii^

^f his chapter attempts to quantify the item-wise cost of investment of the sample cold storage units constructed under the scheme at historical prices. Adequacy of loan amount and other sources of funds were also examined. Since the technical parameters of the cold storage projects are significantly influencing the cost of investment, a brief discussion on the technical aspects of the projects has also been attempted in this chapter. Technical aspects of cold storage units The basic principle of preservation in the cold storage is removal of heat from a commodity or space. For preservation of commodities, a temperature lower than that of the natural surroundings is achieved in the storage chambers. This is achieved with the help of a refrigerant. The technology of refrigeration is based on Vapour Compression System (VCS). There are three types of VCS systems available depending upon the cooling arrangements viz., diffuser type, bunker type and fin coil type. The operational cost of diffuser type of system is higher as compared to other VCS systems. Bunker type systems are the cheapest and the most suited for storage chambers having height more than 11.5 m. This technology is very common and all cold storages studied in Uttar Pradesh and iVIadhya Pradesh are using this technology. The cold storage units studied in Rajasthan used both bunker as well as fin coil system. Fin coil systems are used for cold storage chambers with heights of 5.4 m onwards. This technology is about 5 per cent costlier than bunker type but it is very energy efficient with low operational cost and higher space availability for storage of produce. The cold storage units studied in Andhra Pradesh (except one where bunker type system was used) and Gujarat used Fin coil systems. The cold storages in Andhra Pradesh used air circulation units, which were more efficient in maintaining the desired temperature. Vapour Compression System (VCS) consists of a Compressor, Condenser, Expansion valve and Evaporator. 39

Cost of Investment Refrigeration cycle The cooling in VCS is accomplished by evaporation of a liquid refrigerant under reduced pressure and temperature. The fluid enters the compressors where the temperature is elevated by mechanical compression. The vapour condenses at this pressure, and the resultant heat is dissipated to the surrounding. The high-pressure liquid then passes through an expansion valve through which the fluid pressure is lowered. The low-pressure fluid enters the evaporator where it evaporates by absorbing heat from the refrigerated space, and re-enters the compressor. The whole cycle is repeated and the cooling effect is achieved. The compressor and condenser are installed outside the storage chamber as considerable amount of heat is generated in this area, whereas, the expansion valve and evaporator are inside the chamber. The refrigerant (ammonia gas) filled in the evaporator at a low pressure absorbs heat from the storage chamber and the commodities stored in the chamber. The storage chambers are fabricated with insulation material, which help in maintaining the desired low temperature. Cold chain As the name indicates, this is a system which provides a series of facilities for maintaining ideal storage conditions from the point of origin to the point of consumption for perishable commodities in order to preserve quality and ensure longer shelf life. In other words, a product in a cold chain moves through pre-cooling units at the farm, refrigerated transport vehicles for transportation of the product to a cold storage, both at producing and consuming centres, network of super markets with refrigerated cabinet display units and finally reaches the domestic refrigerator of a consumer. The ideal storage temperature must be maintained all throughout the chain. Under the scheme, NABARD has sanctioned cold storage units with pre-cooling facility. However, no further cold chain components are supported to maintain the cooling achieved. Insulation material The purpose of insulation is to reduce heat ingress through the wall ceiling and floor of the storage chamber. If proper insulation of storage chamber is not provided, it will increase the energy requirements leading to high operating cost. Various types of insulating materials such as 40

Capital Investment

Subsidy

Scheme

cork, glass fibre, mineral fibre, foam, polystyrene, extruded polystyrene, cellular glass or foam glass, phenolic foam, polyurethane foam etc., are used. However, the most commonly used insulation material for insulation of sidewalls, partition walls, floor and roof of cold storages is thermocol. Poly Urethane Fibre (PUF) panels are also used for insulation to some extent. All the cold storage units, which were studied, used thermocol as insulation material except one in Andhra Pradesh where Polyurethane Foam (PUF) panels were used. Proper thickness of insulating material should be used for insulation of walls. Generally, two layers of insulating material are used. A 100 mm thickness of low-density thermocol is used for sun facing walls and roof, whereas 80 mm thickness of low-density thermocol is used for other two walls. Partition walls were insulated with 40 mm low-density thermocol and a thickness of 80 mm high-density thermocol used for floors. Scope for technological upgradation As discussed elsewhere in the report, majority of the units were designed for storing a single commodity only and these units were not suitable for storage of other perishable products like fruits, vegetables, milk and livestock products which require specific temperature and humidity conditions. However, it was observed that there exists scope for converting the existing big chambers into smaller chambers for storing multiple produce with a marginal increase in the cost. Also, there exists scope for improving the mechanical equipments such as high-speed compressors, cooling coils and condensers for upgrading the units, thus improving their utility and viability. Cost of investment The major items of investment cost of the cold storage units include (i) construction of chambers, (ii) thermal insulators, (iii) plant and machinery for refrigeration system and (iv) electrical fittings and fixtures. The average cost of investment per unit worked out to Rs.154.80 lakh per unit and it was Rs.2501 per tonne of capacity created as compared to Rs. 4000 per tonne normative cost under CIS scheme, which works out 62.53 per cent. The normative cost (Rs. 4000 per tonne) was fixed by NABARD in consultation with NHB keeping in view the various locations and types of units to take care of variation in actual cost of investment in different states and type of technology. Disaggregating the sample units
41

Cost of Investment according to size of the units revealed that the cost of investment per unit has increased according to the capacity. However the investment cost per tonne of capacity utilised was inversely related to the size of the units. (Table 5.1). Table 5.1 : Capacity-wise average investment cost of cold storage units at historical prices.
Size of unit Investment cost per unit (Rs.lakh) 104.26 120.76 216.98 154.80 Capacity created (tonne) 2348 4374 10051 6188 Investment cost per tonne (Rs.) 4440 2761 2159 2501

Small Medium Large Overall

Among different states, the cost of investment per unit was observed to be relatively higher in Andhra Pradesh (Rs.220.44 lakh) followed by Uttar Pradesh (Rs. 196.90 lakh) whereas it was least in Rajasthan (Rs.119.43 lakh) (Table 5.2). Increased capacity created, construction of multiple chambers for storing commodities other than potato, use of air circulation units and higher cost of land were the major factors that contributed to increased value of cost of investment per unit in Andhra Pradesh compared to other states. However, the cost of investment per tonne of capacity created was relatively higher in Gujarat (Rs.4475) followed by Andhra Pradesh (Rs.2702) and it was least in Uttar Pradesh (Rs.2008). Table 5.2 : State-wise average investment cost of cold storage units at historical prices.
State Andhra Pradesh Gujarat Madhya Pradesh Rajasthan Uttar Pradesh Overall Investment cost per unit (Rs.lakh) 220.44 121.13 126.45 119.43 196.90 154.80
:;:S-SSSSia:V:3iftSSSK4^^

Capacity created (tonne) 8160 2707 5778 4499 9806 6188

Investment cost per tonne (Rs.) 2702 4475 2188 2655 2008 2501

42

Capital Investment Subsidy Scheme


ifmcmyfifff^^^x^^M

With a view to identifying the contributing factor for variation in the cost of investment per tonne among different states and size of units, break up of cost was worked out. Civil works included construction of cooling chambers, drying shed, machine room, office, staff quarters, water tank, boundary wail, etc. Internal frames were constructed with RCC columns. The items included under wooden racks include wooden stairs and beams, floors, fanties and battens. Major items under plant & machinery included are compressor, condenser, receiver, air-cooling units, associated piping and control panels. The insulation items included the expenditure on glass wool, thermocol, wire mesh, wooden frames and cement/lime plasters over wire mesh. IViisceilaneous expenditure included preliminary and pre operative expenses. An analysis of break up of cost of investment revealed that civil/wooden work constituted a major share followed by plant & machinery (Fig.5.1). Fig. 5.1 : Break up of cost of investment
Miscellaneous Plant & Machinery ^''' Land and Land dev 5%

Civil works 64%

As per the operational guidelines of the CIS scheme, value of land should not exceed 10 per cent of the total investment cost approved by the bank. The cost of land needs to be considered only when the land is purchased. Further, the value of land is to be reckoned towards the margin money requirement of the entrepreneurs. The value of land should be its purchase value and only that portion of land is to be included as margin money. As could be seen from table 5.3, the percentage share of cost of land worked out to 5.56 per cent to the total cost of investment, which is less than the scheme assumptions. 43

Cast of Investment Table 5.3 : Capacity-wise breakup of cost of investment per tonne.
(Rupees) Size of unit Small Medium Large Land and land development 149 (3.36) 76 (2.75) 165 (7.64)

Civil/ wooden works


3036 (68.38) 1716 (62.15) 1378 (63.83)

Plant & machinery 1127 (25.38) 739 (26.77) 578 (2677)

Misc. expenditure
128 (2.88) 230 (8.33) 38 (1.76)

Total

4440 (100.00) 2761 (100.00) 2159 (100.00) 2501 (100.00)

Overall

139 (5.56)

1604 (64.13)

666 (26.63)

92 (3.68)

Figures in parentheses indicate percentage to total. An analysis of the pattern of break-up of cost of investment among different size groups revealed that investment cost per tonne was significantly higher in small units (Rs.4,440) when compared to medium units (Rs.2,761) and large units (Rs.2,159). The major contributing factor for increase in per unit cost in smaller units was mainly on account of increased expenditure on civil/wooden work. Table 5.4 : State-wise breakup of cost of investment per tonne
(Rupees) State Land and land development 86 (3.19) 132 (2.95) Madhya Pradesh Rajasthan Uttar Pradesh Overall 78 (3.56) 121 (4.56) 194 (9.66) 139 (5.56) Misc. CivilAA/ooden Plant & works machinery expenditure 1851 (68.50) 3150 (70.39) 1380 (63.07) 1647 (62.03) 1198 (59.66) 1604 (64.13) 698 (25.83) 1057 (23.62) 550 (25.14) 747 (28.14) 578 (28.79) 666 (26.63) 67 (2.48) 136 (3.04) 180 (6.23) 140 (5.27) 38 (1.89) 92 (3.68) Total

Andhra Pradesh Gujarat

2702 (100.00) 4475 (100.00) 2188 (100.00) 2655 (100.00) 2008 (100.00) 2501 (100.00)

Figures in parentheses Indicate percentage to total.

44

Capital Investment Subsidy Scheme The break-up of cost of investment per tonne among different states indicates that the cost per tonne was significantly higher in Gujarat (Rs.4,475) when compared to other states which might be due to high cost of investment in civil structure and plant and machinery (Table 5.4). Higher cost under civil structure in Gujarat which works out to Rs.3,150 per tonne was mainly on account of construction of anti seismic building of cold storages probably with cross beams and RCC walls. Similarly, the cost of investment on plant and machinery was also observed to be higher in Gujarat, which might be due to use of high cost technology such as fin coil system. The lower investment cost in Uttar Pradesh was due to setting up of single commodity cold storages having bunker type technology. In these units, potato was the only commodity stored. Bank loan and subsidy released Adequacy of bank loan sanctioned and disbursed for construction of cold storage units under the scheme has been analysed by comparing its value with the actual cost of investment and the details are given in Table 5.5. Table 5.5 Capacity-wise details of cost of investment and bank loan
(Rs. lakh) Size of unit Small l^edium Large Overaii Actual investment cost 104.26 120.76 216.98 154.80 Investment cost approved by NABARD 110.17 124,02 211.86 155.78 Banl< loan disbursed 57.57 60.07 98.64 74.12 Subsidy released 22.37 29.57 37.76 31.29 Margin money 24.32 31.12 80.58 49.40 Bank loan as % of actual cost 55.22 49.74 45.46 47.88

The cost of investment per unit as approved by NABARD was Rs.155.78 lakh, which was almost equal to the actual cost of Investment (Rs.154.80 lakh). Hence, there was no significant difference between the cost of investment as appraised by NABARD and actual cost of investment. The estimated bank loan disbursed worked out to Rs.74.12 lakh for all the units, which accounted for about 48 per cent of the total cost of investment. As expected, the bank loan disbursed had registered an increase corresponding to the capacity created and the actual cost of investment. Among different states, the percentage of bank loan to the 45

Cost of Investment
Kss;ss?;:>s?s^S's

actual cost of investment was observed to be relatively higher in Gujarat and Andhra Pradesh followed by Rajasthan and Madhya Pradesh and it was least in Uttar Pradesh (Table 5.6). Table 5.6 : State-wise details of cost of investment and bank loan
(Rs, lakh) State Actual Investment cost Subsidy Investment Bank cost released loan approved by disbursed NABARD Margin money Banic loan as % of actual cost of Investment 54.16 54.39

Andhra Pradesh Gujarat Madhya Pradesh Rajasthan Uttar Pradesh Overall

220.44

222.06

119.90

46.39

121.13 126.45 119.43 196.90

129.50 128.64 119.71 190.53

66.57 61.55 59.50 77.05

26.80 31.16 29.25 28.60

27.76 33.74 30.68 91.25

54.96 48.68 49.82 39.13

154.80

155.78

74.12

31.29

49.40

47.88

The estimated subsidy worked out to Rs.31.29 lakh and the share of subsidy to the total investment cost was 20.21 per cent. In conformity with the guidelines of the scheme, the subsidy released was less than 25 per cent of the cost of investment and less than the maximum ceiling of Rs.50 lakh. In about 85 per cent of the sample units, there was no delay in release of the subsidy and in the remaining cases also, the subsidy was released after a period of 65 days. Cost and time overrun All the sample units were constructed and put into operation within a period of 6 months and hence there was no time overrun. As a result, the cost of investment was almost equal to the cost of the project approved by NABARD and hence there was no cost overrun in most of the cases.

46

y his chapter attempts to examine the financial viability of the selected cold storage units based on the parameters such as gross income, operational expenditure and net income realized by the units. The present level of viability as well as its scope for improvement was assessed by working out break-even point for selected economic parameters. Gross income

The estimated gross income per unit for the sample as a whole worked out to Rs.43.70 lakh and it was Rs. 842 per tonne of capacity utilised (Table 6.1), Disaggregation of sample units according to capacity revealed direct relationship of per unit of gross income with capacity utilised and inverse relationship with per tonne of gross income. The level of gross income was influenced by capacity created as well as the nature of produce stored in the cold storage. Table 6.1 : Capacity-wise details of gross income Size of unit Small Medium Large Overall Gross income (Rs.lakh /unit) 20.49 33.95 65.83 43.70 Gross income (Rs./tonne) 957 892 802 842

Among different states, the gross income per unit was relatively higher in Andhra Pradesh followed by Uttar Pradesh and Madhya Pradesh and the same was relatively low in Gujarat and Rajasthan (Table 6.2). However, the gross income per tonne of capacity utilised was observed to be the highest in Gujarat (Rs.949), followed by Madhya Pradesh (Rs.889) and Uttar Pradesh (Rs.841) and it was least in Rajasthan (Rs.728). As indicated in Chapter IV (Table 4.3) increased rental value 47

Economics of Investment of potato and better capacity utilisation (Table 4.1) were the contributing factors that had positively influenced the higher gross income per tonne in Gujarat when compared to other states. Table 6.2 : State-wise details of gross income
State Andhra Pradesh Gujarat Madhya Pradesh Rajasthan Uttar Pradesh Overall Gross Income Per Unit (Rs. Lakh) 65.45 25.61 47.11 22.69 61.43 43.70 Gross Income Per Tonne (Rs.) 798 949 889 728 841 842

The major source of income in the cold storage units was through collection of rent from the storage of potato and other commodities. It was also observed that owners store their own produce. For the purpose of estimating the income from the storage of own produce, in addition to the rental value of produce, the saving in transport cost was taken as benefits. As indicated in table 6.3, about 6 per cent of the produce stored was from own sources and this share was relatively higher in low capacity created units than the higher capacity created units. Table 6.3 : Capacity-wise break-up of gross income
(Rs.lakh) Size of Unit Stored Produce (Tonnes) Owned Small Medium Large Overall 804 185 187 311 Hired 1336 3516 8016 4834 7.67 2.64 1.90 3.41 12.82 31.31 63.93 40.29 20.49 33.95 65.83 43.70 Income from own produce* Rental Income Total Income

* Includes savings in transport cost and rental value

The use of cold storage for own produce was observed to be more predominant in states like Gujarat, Uttar Pradesh and Madhya Pradesh and the units were exclusively used for rental purposes in Rajasthan and Andhra Pradesh (Table 6.4). 48

Capital Investment Subsidy Scheme Table 6.4 : State-wise break-up of gross income
(Rs.lakh) Size of Unit Stored Produce Income from Rental own produce* Income (Tonnes) Owned Andhra Pradesh Gujarat Madhya Pradesh Rajasthan Uttar Pradesh Overall Hired 8200 1894 4960 2873 7082 4834 Total Income

803 338

7.61 6.19

65.45 18.00 40.92 22.69 59.66 40.29

65.45 25.61 47.11 22.69 61.43 43.70

223 311

1.77 3.41

* Includes savings in transport cost and rental value

Operational and maintenance cost The operational and maintenance cost of the cold storage unit included expenditure on electricity and diesel, salaries and wages, repair, insurance, ammonia, post and telegraph and administrative expenses. The estimated total operational and maintenance cost per annum per unit worked out to Rs.17.70 lakh and it was Rs.341 per tonne of capacity utilized (Table 6.5).There was a direct relationship between the capacity created and the operational cost per annum and an inverse relationship with cost per tonne of capacity utilised. Table 6.5 - Capacity-wise details of O & M cost
Size of unit Annual 0 & M Cost per unit (Rs. in lakh) 8.27 14.44 25.98 17.70 Annual O & M Cost Per Tonne (Rs.) 386 379 317 341

Small Medium Large Overall

Among different states, the total operational cost per unit was relatively higher in Uttar Pradesh followed by Andhra Pradesh and it was least in Gujarat (Table 6.6). However, the estimated operational and maintenance cost per tonne was relatively higher in Uttar Pradesh ( Rs. 386) followed by Rajasthan and it was least in Andhra Pradesh. 49

Economics of Investment Table 6.6 : State-wise details of 0 & M cost (Rs. lakh)
State Andhra Pradesh Gujarat Madhya Pradesh Rajasthan Uttar Pradesh Overall Annual O&M cost per unit (Rs. in lakh) 23.31 8.97 17.62 10.47 28.17 17.70 Annual O&M cost per tonne (Rs.) 284 332 333 336 386 341

Expenditure on electricity and diesel was found to be the single largest cost involved as variable cost, which worked out to 64.68 per cent and it was showing a decreasing trend as the quantum of capacity created increased (Table 6.7), The expenditure on salary was found to be the next major item of cost, which accounted for 16.24 per cent, followed by administrative & miscellaneous (10.33%) and repairs (3.97%). The proportion remained the same among cold storage and different capacity utilised and also among different states. Table 6.7 : Capacity-wise break-up of operational cost
(per cent) Size of Unit Small Medium Large Overaii Salaries & wages 15.64 16.97 15.95 16.24 Repairs Insurance Electricity Ammonia Admn & & diesel IVIisc 69.29 69.07 59.63 64.68 1.57 1.15 2,09 1.78 4.31 6,92 15,41 10.33 Total

3.64 3.39 4.36 3.97

5.55 2.50 2,56 3.00

100 100 100 100

Among different states also, the expenditure on electricity and diesel was in the range of 57.76 per cent in Uttar Pradesh to 69.65 per cent in Gujarat (Table 6.8). The expenditure on insurance was in the range of 2 to 4 per cent among different states. Administrative expenditure was relatively higher in Uttar Pradesh, Madhya Pradesh and Andhra Pradesh and it was significantly low in Gujarat and Rajasthan. 50

Capital Investment Subsidy Scheme

Table 6.8 : State-wise break-up of operational cost


(per cent) State Salaries Repairs & wages Andhra Pradesh Gujarat Madhya Pradesh Rajasthan Uttar Pradesh Overall 16.24 3.97 3.00 64.68 1.78 10.33 100 19.88 16.08 2.92 4.26 2.50 3.52 65.32 57.76 2.58 2.41 6.80 15.97 100 100 15.80 15.83 3.16 3.86 3,91 2.50 69.65 63.61 1.25 0.57 6.23 13.63 100 100 14.42 2.80 2.15 Insurance Electricity & diesel 65.98 1.20 Ammonia Admn & Misc 13.45 100 Total

Net income The estimated net income, which is the difference between gross income and operational cost per annum worked out to Rs.26.00 lakh per unit and it was Rs.501 per tonne of capacity utilised (Table 6.9). Similar to the pattern of gross income and operational expenses, there was a direct relationship between capacity utilised and net income and an inverse relationship between capacity utilised and net income per tonne. As discussed elsewhere in the report, relatively increased net income per tonne realised by larger units when compared to small and medium size units were mainly due to storing multiple commodities in states like Andhra Pradesh. Table 6.9 : Capacity-wise details of net income
(Rs. lakh) Size of Unit Small Medium Large Overall Net Income Per Unit (Rs.in lakh) 12.22 19.51 39.85 26.00 Net Income Per Tonne (Rs.) 571 513 486 501

51

Economics of Investment Among different states, the net income per unit as well as per tonne of capacity utilised was higher in Andhra Pradesh followed by Uttar Pradesh and it was least in Rajasthan (Table 6.10). Higher net income in Andhra Pradesh might be due to full capacity utilisation and storing of multiple products with higher rental values. Relatively poor capacity utilised and low rental value of potato and storing of single commodity (potato) were the contributing factors for low income in Rajasthan. Increased cost of maintenance in Gujarat due to technical specifications was also responsible for low net income. Table 6.10 : State-wise details of net income
State Net Income Per Unit (Rs. in lakh) 42.14 16.64 29.49 12.22 33.26 26.00 Net Income Per Tonne(Rs) 514 617 557 392 455 501

Andhra Pradesh Gujarat Madhya Pradesh Rajasthan Uttar Pradesh Overall

Cash flow statement For the purpose of assessing the financial viability of the cold storage units, financial rate of return has been worked out for which cash flow statements were prepared on the basis of the following assumptions. The life of civil structures is more than 50 years and plant and machinery were also working well for more than 15 years. Hence, for the purpose of analysis, the cash flow has been prepared for the period of 15 years. The average capacity utilisation, the net income generated were valued at the reference year prices and the details collected from sample units were used for the purpose of the analysis. The salvage value worked out was 50 per cent of the value of civil structure and 20 per cent of the value of plant and machinery. Subsidy was not considered in the cash flow analysis and the entire actual cost has been taken into account. 52

Capital Investment Subsidy Scheme The details of cash flow statement for the samples categorised according to size of capacity utilisation as well as among states are presented in Table 6.11. Table 6.11 : Cash flow statement
(Rs. lakh) Size of Unit/ State Small Medium Large Andhra Pradesh Gujarat Madhya Pradesh Rajasthan Uttar Pradesh Overall Cost of Investment at current prices (0 th Year) 110.08 127.64 227.16 240.69 126.52 132.71 131.67 199.11 162.73 Net Income (1-15 years) 12.22 19.51 39.85 42.14 16.64 29.49 12.21 33.26 26.00 Salvage Value (15 th Year) 40.94 44.00 60.86 86.90 40.93 46.23 43.76 70.06 57.90

Financial rate of return (FRR) Based on the details of cash flow statements, financial rate of return was worked out for the sample units and the results are presented in Table 6.12. The analysis shows that the FRR for all the sample units worked out to 14.33 per cent. However, if the subsidy is included, then there was an improvement in the viability, which worked out to 19.35 per cent for the sample as a whole. Table 6.12 : Capacity-wise financial rate of return (FRR)
(per cent) Size of Unit Actual capacity without subsidy Small Medium Large Overall
:'i*;:;;^::SWK*iSB:>>

Full Capacity without subsidy 10.28 16.32 20.40 17.82 with subsidy 14.11 22.22 25.22 23.24

with subsidy 12.61 19.04 20.25 19.35

9.00 13.72 15.96 14.33

53

Economics of Investment
SK^SSJSJftSSSSSS

Among different sizes of units, larger units were found to be viable with an FRR of 15.96 per cent and 20.25 per cent without and with subsidy, respectively. Medium sized units were viable only with subsidy but small units were not viable even with subsidy. The lower returns to small units were largely on account of higher cost of investment especially on the cost of buildings and other civil structures. With a view to assessing the impact of the level of utilization, the FRR has been worked out with the assumption of full capacity utilisation and the result showed that the returns substantially improved for all categories of units, though, the returns to small units was 14.11 per cent only with subsidy. However, it may be noted that FRR with subsidy in all cases at full capacity was higher than the rate of interest prescribed (PLR + 1%) for all types of units. Among different states, the cold storage units were found to be financially viable in Andhra Pradesh, Madhya Pradesh and Uttar Pradesh and were not viable in Gujarat and Rajasthan (Table 6.13). Table 6.13 : State-wise details of financial rate of return (FRR)
Size of Unit Actual capacity without subsidy Andhra Pradesh Gujarat Madhya Pradesh Rajasthan Uttar Pradesh Overall 15.89 11.22 21.38 6.53 15.05 14.33 with subsidy 20.66 15.52 28.65 10.09 18.30 19.35 Full capacity without subsidy 15.89 11.28 23.54 11.54 21.46 17.82 with subsidy 20.66 15.59 31.37 16.09 25.53 23.24

Even after providing subsidy and utilisation of full capacity created, the sample cold storage units in Rajasthan were not financially viable. The cold storage units in Gujarat were found to be viable only after providing subsidy. This was mainly due to high cost of investment (Rs.4475/tonne) compared to other states (Rs.2008/tonne to Rs.2702/tonne). The cost of investment in Gujarat was relatively higher mainly on account of superior quality construction, having high density thermocol insulation, availability of load bearing capacity and earthquake resistant structures with fincoil system and well equipped scientific storage facilities to minimize post harvest losses.
;:sa;:*m:sftsaft;:s
Si^/^yAiKft:A5i'iSSi-SiS;SiiS;:i%iKSS^-ISaS5

54

Capital Investment Subsidy Scheme


^^^m^vy^mmmA

Break even analysis Keeping bankability as a basis, the viability of a cold storage unit has been fixed at a level of income generation of the unit to reach 15 per cent FRR and this point has been assumed as break even point. Accordingly, major parameters like expected net income and capacity utilisation were worked out to reach the viability of the units (Table 6.14)
Table 6.14 : Break even point to reach viability State/Size Expected Net Income 40.29 20.72 21.70 21.59 33.26 17.89 20.93 38.11 26.94 %0f increase/ decrease -4 +25 -26 +77 0 +46 -7 -4 +4 Expected capacity utilisation 7839 3358 3896 7394 7310 3133 4080 8196 5520 %of Increase/ Decrease -4 +24 -26 +137 0 +46 +7 0 +6

Andhra Pradesh Gujarat Madhya Pradesh Rajasthan Uttar Pradesh Small Medium Large Overall

The expected net income to attain viability was worked out at Rs.26.94 lakh for the sample as a whole. Hence, to attain the level of break even, the net income from the cold storage units needs to be increased to 4 per cent of the existing net income. Among different states, the need for increased net income was observed in Gujarat and Rajasthan, whereas in the remaining three states (Andhra Pradesh, Madhya Pradesh and Uttar Pradesh), the break-even gross income was within the existing income level. Small size units were expected to increase the income level to about 46 per cent. Large and medium units were able to generate adequate income over and above the break-even point. Similarly, to reach viability level, the capacity utilization has to be increased to 5520 tonnes. Among different size groups, this was higher in small groups and among states, this was significantly higher in Gujarat and Rajasthan. 55

OSAF^^R Til

fiSPAywiHMT p^t\^oimvx^\ a
ankability of any project is determined by generation of adequate incremental income to repay the loan instalment due. The recovery of bank loan is an important indicator for the success of lending by a bank. This chapter examines the repayment performance of the selected cold storage units in different states and also discusses about the repayment norms. The analysis of Demand, Collection and Balance of the sample units (as on March 2002) indicates the satisfactory performance of the scheme in terms of its recovery of bank dues (Table 7.1). Table 7.1 : State-wise details of demand, collection and balance
(Rs. lakh) State Demand Collection Balance Recovery percentage (%) 74.50 80.50 >100 >100 >100 91.44

Andhra Pradesh Gujarat Madhya Pradesh Rajasthan Uttar Pradesh Overall

62.90 23.80 7.74 5.47 9.87 19.74

46.86 19.16 9.83 12.35 11.22 18.05

16.04 4.64 -2.09 -6.88 -1.35 1.69

The overall recovery percentage worked out to about 91 per cent and it was more than cent per cent in states like Rajasthan, Madhya Pradesh and Uttar Pradesh. The recovery performance was relatively less in Gujarat (81%) and Andhra Pradesh (75%). The analysis of recovery performance among different categories revealed that it was relatively less in the small units (Table 7.2).

56

Capital Investment Subsidy Scheme Table 7.2 : Capacity-wise details of demand, collection and balance (Rs. lakh)
Size of the unit Demand Collection Balance Recovery percentage (%) 75.61 >100 80.49 91.44

Small Medium Large Overall

19.72 11.07 25.93 19.74

14.91 16.24 20.87 18.05

4.81 -5.17 5.06 1.69

Out of 38 cold storage units selected, accounts were already settled in case of one unit (Gujarat), whereas the repayment had not yet started in two units (one each in Rajasthan and Gujarat) at the time of field visit. The recovery was found to be more than 100 per cent in 22 units and it was 100 per cent in case of 5 units. The recovery percentage was less than 100 per cent (28% to 98%) only in case of 5 units. Two units in Madhya Pradesh had made advance payment, whereas one unit in Gujarat had not paid the instalment due. It was observed that in Rajasthan although the units were not financially viable at the present level of utilisation and the rentals realised, they had not defaulted in repayment. The repayments were made out of the income generated from other sources/ business occupations, as it was reported to be the secondary activity of the owners. Only one case of willful default was observed (Andhra Pradesh), where the unit had not repaid to the extent of surplus available. Further, this fact could be established by the fraud committed by the unit in the case of pledge/ working capital loans. As per the scheme, the repayment period fixed was nine years with a grace period of two years. However, the field study revealed that the implementing banks had fixed shorter grace periods varying from 6 - 1 8 months in different states; as a result, the beneficiaries were forced to make arrangements for repayment of dues through the income generated from other sources.

57

Repayment

Performance

Employment generation Construction of cold storage units resulted in creation of non-recurring and recurring employment. Non-recurring employment was created during the construction period and it varied from 8990 mandays (per unit) in Andhra Pradesh to 14900 mandays (per unit) in Gujarat. On commencement of the operation, the unit provided recurring employment to the local population. It was observed that the average annual recurring employment generated in the cold storage units varied from 7 persons to 28 persons per cold storage unit throughout the year (i.e., 240 days). The proportion of installed capacity was observed to be higher in recurring as well as non-recurring employment in all the states.

58

mi,mmmmmmmmm>mmmmi--

CHAPTER VIO

*=ism^^^^^

CONCLUEilQN AND IIVIPLJCATJON'^ rOH i^OLJCY

y he present study is an attempt to evaluate the performance of cold storage units financed under CIS scheme. The study was ' conducted in five selected states covering a sample of 38 new cold storage units financed under the scheme. With a view to assessing the performance of cold storages in different areas as well as for different sizes of units, the sample units were post-stratified according to state as well as capacity created. IVIajor conclusions drawn from the study are as under: The implementation of CIS scheme has significantly contributed in increasing the number of cold storage units in the study area. Cold stoTage units were owned and managed primarily by the private sector, which accounted for 95 per cent and the remaining 5 per cent by co-operative sectors. Potato was the major commodity stored in the units, which accounted for 59 per cent of the number of units and 85 per cent of the capacity created. However, chillies and turmeric were the major commodities stored in Andhra Pradesh. The average capacity created per unit was 6188 tonnes with a size ranging from 2300 to 10000 tonnes. The capacity created was about 7 per cent more than that sanctioned under the scheme and this trend was observed to be common in most of the states except Gujarat. The average size of cold storage units in Gujarat was relatively small when compared to other states. The average capacity utilised against its creation was 84 per cent and it was fully utilised in Gujarat and Andhra Pradesh. The level of utilisation was relatively low in Rajasthan. The utilisation was observed to be relatively higher in smaller units. The average rental charge for potato was Rs.851 per tonne for the sample as a whole with a range from Rs.716 to Rs.894 per tonne. The rental charges were relatively low in Rajasthan, which accounted for Rs.663 per tonne. Over crowding and creation of more number of cold storage units due to the implementation of CIS scheme has resulted in reduction in rental charges.
59

Conclusion and Implications for Policy The benefits of CIS scheme from the users point of view indicate that the farmers were able to get better price advantage due to storing the produce during harvesting season and selling it during lean season. They also had the advantage of improving the quality of the produce through value addition due to grading and packing for its storage in the cold storages. The investment cost per tonne worked out to Rs.2501, which was relatively higher in small and medium size units when compared to the larger units. Among states, the investment cost was significantly higher in Gujarat (Rs.4475), which was due to creation of lower capacity units and higher investment in civil structure. About 64 per cent of the cost was incurred for civil construction and wooden works, followed by plant and machinery. This trend remains the same among different capacities created as well as among states. The down payment contributed by the beneficiaries was significantly higher and the share of bank loan worked out to about 48 per cent of the actual cost of investment. The subsidy released was 25 per cent of the investment cost and time taken for release of subsidy varied from two weeks to three months. The interest charged by the banks varied from 12 to 13 per cent. Grace period was fixed at less than two years and repayment periods were fixed arbitrarily ranging from 5 to 9 years. All the units were operating in profit and attaining viability with the financial rate of return of 19.35 per cent for investment with subsidy and 14.33 percent with out subsidy. If the units were in operation with full capacity created then the viability might be increased to 23.24 per cent and 17.82 per cent for investment of with and without subsidy respectively. The cold storage units in Rajasthan were not viable even with subsidy due to low capacity utilisation and low rental charges. The repayment performance of the cold storage units was satisfactory and in many cases advance payment was observed.

Emerging problems The study findings have identified the following major problems/ constraints faced by the cold storage units and its users: 60

Capital Investment Subsidy Scheme


SgS^SWS5S:iS?;?!fS^

The excess storage capacity over the demand created under CIS scheme resulted in under utilisation of the units in a state like Rajasthan. Due to mismatch between demand and supply of capacity in the state, the cold storage units especially the new units were not getting sufficient supply to keep them viable. To mitigate this problem the cold storage owners have formed an Association in Jaipur and are vigorously pursuing with Food Corporation of India for storing wheat in their units. Low capacity utilisation of cold storage units in a few selected states might be mainly due to low demand, more competition, low production and dependence of single commodity for storage. Significant growth in the number of cold storages because of implementation of CIS scheme and over crowding and concentration of more number of cold storage units in specific pockets led to decline in rental value of commodities. The expenditure on electricity constitutes the major share in the total expenditure and rising trend in tariff of electricity might further increase the operational cost significantly. This has resulted in making the cold storage units non-viable. High operational cost due to inefficient cold storage technology like diffuser system, poor quality insulation, insufficient thickness and mis-match of plant and machinery with the capacity. Inadequate infrastructural facilities mainly on forward and backward linkages and lack of effective tie up with the market arrangements restrict the farmers in using the cold storage facilities more extensively. Inadequate availability of pledge finance to farmers and working capital support for cold storage unit owners. Lack of cold chain in all states. Lack of technology for storage of multiple products in Uttar Pradesh and Madhya Pradesh. 61

Conclusion and Implications for Policy SWOT analysis The strength of cold storage units is that they provide safe storage for perishable commodities and this benefits both the cold storage owners and the farmers/traders. Value addition for the commodities is yet another advantage. Weakness of cold storage sector is that it is not exploring the possibilities of storing more varieties of commodities in multi chambers. Instead of creating big chambers for a single commodity, they can go for small/ medium sized chambers for storing a variety of commodities, depending on local demand. The opportunities lie in the fact that cold storages are established in good production and marketing areas. Export potential can be explored, if more varieties of commodities can be stored by creating multi product chambers. Agro processing industries can also be started in adjoining areas. Linkages can be established with food processing centres. Threats come from competition by the establishment of new units in nearby areas. Scanty rainfall can result in low production of commodities and if there is storage of only a single commodity, then the unit may end up with losses. Action Points The study findings have identified the following action points that may improve the performance of CIS scheme and ensure benefits to the cold storage owners and entrepreneurs and also the users like farmers and traders. There is a need to improve the efficiency of the cold storage units through conversion of existing potato cold storage units to multi purpose storage, if feasible. Given the relatively lower return generated by small units, they can consider minimising the cost of construction especially of the civil structure components for ensuring viable returns to the unit. While appraising projects with less than 3000 tonnes capacity, the beneficiaries may be advised to construct buildings and other civil 62

Capital Investment Subsidy Scheme Structures only to the extent required for the projects, so that viability of these units can be enhanced. Market linkages to food processing units can be provided if the commodities stored are of commercial nature. The farmers may be assured of quality maintenance. For that, the units may be actually in operation for a prescribed minimum number of hours every day. Availability of pledge finance is a key issue, which needs to be addressed. At present, there is no common policy framework for the existing pledge loan against the stocks stored in the cold storages. These facilities may be integrated with the scheme. Greater emphasis on value addition methods like grading, packing and minimum processing that enhance the quality of the commodities may be given which will have a direct impact on better demand and price in the market. The commodities stored in the cold storage units may be adequately insured for which necessary/ compulsory arrangements must be built in the scheme implementation. The CIS scheme has to be reviewed with reference to the policy in terms of area specific capacity created. To reduce the regional imbalances of overcrowding in specified areas, region specific allocation may have to be made while implementing such schemes taking into account demand and supply of commodities available for storage.

63

a:^i>hrSraL

Annexure 2.1 : Districts covered under the study Annexure 3.1 : Growth of cold storages in India Annexure 3.2 : Disbursement under storage/market yards Annexure 3.3 : State-wise details of CIS scheme on cold storages Annexure 3.4 : State-wise details of average capacity Annexure 3.5 : Details of cold storage units according to type Annexure 3.6 : Details of cold storages according to source of financing Annexure 4.1 : Monthly average wholesale price of potato (1999 - 2002)

64

Capital Investment Subsidy Scheme

Annexure 2.1 : Districts covered under the study


Sr. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. Name of district Banaskanta Gandhinagar Anand Kutch Rajkot Mehsana Agra Firozabad Badaun Etawah Kannauj Jaipur Bikaner Bharatpur Gwalior Indore Raipur Guntur State Gujarat Gujarat Gujarat Gujarat Gujarat Gujarat Uttar Pradesh Uttar Pradesh Uttar Pradesh Uttar Pradesh Uttar Pradesh Rajasthan Rajasthan Rajasthan Madhya Pradesh Madhya Pradesh Madhya Pradesh Andhra Pradesh

65

Annexure Annexure 3.1 : Growth of cold storages in India


Year 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 Sources : Numbers Capacity (Tonnes) Year 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Numbers Capacity (Tonnes) 2495 2488 2522 2607 2659 2749 2797 2942 2970 2973 3053 3124 3167 3253 3443 3502 3597 3886 4146 4818336 5022568 5099115 5402160 5578442 6142014 6793377 7727849 7787599 7790000 8090000 8170000 8580000 8730000 10353090 10739030 11328900 13621981 14952000

359 600 706 797 929


1091 1218 1318 1403 1503 1576 1615 1747 1971 2072 2300 2283 2370 2457 (i) (ii)

305513 682100 266470 1115375 1260346 1551256 1638331 1693980 1764332 1869974 1939524 1993992 2126935 2620699 3061355 3525608 3964525 4374785 4627624

Rana, R.S.(1992) Refrigeration for perishables an integral part of marketing. Agricultural Marketing Vol. XXXV (3): 73 Economic Survey - 2001 -02.

66

Capital Investment Subsidy Scheme

Annexure 3.2 : Disbursement under storage/market yards (Rs. lakh)


Year Plantation And Horticulture 3300 2700 3800 4700 6300 6800 7500 6500 9700 9400 9900 10500 12200 12900 13800 14900 18600 18200 19500 24700 28000 14.63% 10.53% Share (%) 5.50 3.84 4.26 4.43 5.29 5.10 5.06 5.12 5.70 4.94 4.82 4.45 4.44 4.28 4.50 4.23 4.74 4.03 3.74 4.01 4.19 Storage and Market Yards 900 1254 941 1196 1855 2591 2895 1562 1339 1420 895 1505 1600 1800 2057 1400 1445 1645 1540 10141 22714 6.30% 23.43% Share (%) 1.50 1.78 1.05 1.13 1.56 1.94 1.95 1.23 0.79 0.75 0.44 0.64 0.58 0.60 0.67 0.40 0.37 0.36 0.30 1.65 3.40 Total Disbursement 60000 70300 89200 106100 119165 133420 148191 127015 170213 190217 205436 235911 274500 301100 306420 352300 392200 452100 521531 615810 668291 12.52% 12,26%

1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-20 2000-01 2001-02 CAGR (1981-82 to 1990-91) CAGR (1991-92 to 2001-02)

w>iH'<S&>>SSSS:^

Annexure

Annexure 3.3 : State-wise details of CIS scheme on cold storages


(Rs. lakh) Region/ State No. of Total Average TFO Bank Loan Average Eligible Average Refinance Bani( Loan Subsidy Subsidy Sanctioned Average Refinance

Schemes Financial Outlay (TFO) Northern Region Haryana Hin^achal Pradesh Punjab Rajasthan Sub Total Eastern Region Assam Bihar Jhari(hand Orissa West Bengal Sub Total Central Region Chhattisgarh Madhya Pradesh Uttar Pradesh Uttaranchal Sub Total Western Region Gujarat Maharashtra Sub Total Southern Region Andhra Pradesh Karnataica Tamil Nadu Sub Total Grand Total

17
1

2628.07 48.07 3173.21 3330.53 9179.89

154.59 48.07 102.36 133.22 124.05

1673.52 36.00 1676.65 2285.04 5671.21

98.44 36.00 54.09 91.40 76.64

584.97 12.02 779.14 799.57 2175.70

34.41 12.02 25.13 31.98 29.40

1506.17 32.40 1508.96 2010.92 5058.45

88.60 32.40 48.68 80.44 68.36

31 25 74

5 5 2 4 4

784.04 666.93 286.07 692.50 895.84 3325.38

156.81 133.39 143.04 173.13 223.96 166.27

503.00 283.70 186.57 280.36 498.80 1752.43

100.60 56.74 9329 70.09 124.70 87.62

242.29 172.83 71.52 168.04 127.64 782.32

48.46 34.57 35.76 42.01 31.91 39.12

460.63 201.80 167.91 198.32 493.93 1522.58

92.13 40.36 83.96 49.58 123.48 76.13

20

11 27
146

1512.98 2480.25 19765.11 197.18 23955.51

137.54 91.86 135.38 98.59 128.79

911.38 1516.01 9235.14 133.94 11796.47

82.85 56.15 63.25 66.97 63.42

377.76 606.35 4702.26 49.29 5735.67

34.34 22.46 32.21 24.65 30.84

802.91 1412.64 6834.01 120.55 9170.10

72.99 52.32 46.81 60.27 49.30

2
186

40 24 64

5230.85 3638.86 8869.71

130.77 151.62 138.59

3356.51 2172.58 5529.08

83.91 90.52 86.39

1053.46 729.73 1783.19

26.34 30.41 27.86

2878.85 1775.59 4654.45

71.97 73.98 72.73

28 14 21 63
407

5297.75 2386.12 3410.37 11094.24 56424.73

189.21 170.44 162.40 176.10 138.64

3058.73 1137.12 2188.36 6384.20 31133.39

109.24 81.22 104.21 101.34 76.49

1176.12 508.99 623.75 2308.87 12785.75

42.00 36.36 29.70 36.65 31.41

2756.66 1023.41 1606.60 5386.67 25792.25

98.45 73.10 76.50 85.50 63.37

68

Capital Investment Subsidy Scheme


m':^V?SSS':?gS'<f^^?

Annexure 3.4 : State-wise details of average capacity


State Northern Region Haryana Himachal Pradesh Punjab Rajasthan Sub Total Eastern Region Assam Bihar Jharkhand Orissa West Bengal Sub Total Central Region Chhattisgarh Madhya Pradesh Uttar Pradesh Uttaranchal Sub Total Western Region Gujarat Maharashtra Sub Total Southern Region Andhra Pradesh Karnataka Tamil Nadu Sub Total Grand Total 28 14 21 63 407 149710 63574 67784 281068 1986805 5346.79 4541.00 3227.81 4461.40 4881.58 40 24 64 117735 82884 200619 2943.38 3453.50 3134.67 11 27 146 2 186 72480 101861 945107 8618 1128066 6589.09 3772.63 6473.34 4309.00 6064.87 5 5 2 4 4 20 20900 20440 9318 17500 22200 90358 4180.00 4088.00 4659.00 4375.00 5550.00 4517.90 17 1 31 25 74 69573 2120 103576 111425 286694 4092.53 2120.00 3341.16 4457.00 3874.24 No. Of Schemes Total Capacity Created (Tonnes) Average Capacity Created (Tonnes)

69

Annexure Annexure 3.5 : Details of cold storage units according to type


Region / State Northern Region Haryana Himachal Pradesh Punjab Rajasthan Sub Total Eastern Region Assam Bihar Jharkhand Orissa West Bengal Sub Total Central Region Chhatisgarh Madhya Pradesh Uttar Pradesh Uttaranchal Sub Total Western Region Gujarat Maharashtra Sub Total Southern Region Andhra Pradesh Karnataka Tamil Nadu Sub Total Grand Total 28 14 17 59 345 4 4 60
%iKS%S!^-^Stf:!:

New

Expansion

Rehabilitation

Total

16 1 29 23 69

17 1

2 2 5

31 25 74

5 3 2 4 3 17 1 3 2

5 5 2 4 4 20

9 23 111 1 144

2 3 35 1 41 1 1

11 27 146 2 186

33 23 56

6 1 7

40 24

64

28 14 21 63 2 407

70

Capital Investment Subsidy Scheme Annexure 3.6 : Details of cold storages according to source of financing Region/State Northern Region Haryana Himachal Pradesh Punjab Rajasthan Sub Total Eastern Region Assam Bihar Jharkhand Orissa West Bengal Sub Total Central Region Chhatisgarh Madhya Pradesh Uttar Pradesh Uttaranchal Sub Total Western Region Gujarat Maharashtra Sub Total Southern Region Andhra Pradesh Karnataka Tamil Nadu Sub Total Grand Total 3 14 1 2 27 12 21 60 380 13 28 14 21 63 407 1 1 35 23 58 4 1 5 40 24 64 8 3 5 11 23 141 2 177 1 1 11 27 146 2 186 1 1 4 5 2 4 1 16 3 3 5 5 2 4 4 20 1 1 17 1 27 24 69 3 1 4 17 1 31 25 74 Number Of Schemes Sanctioned RRB CBs SCBs Total

msf;^miii;iss^^mim^mif;;m^^

71

Annexure Annexure 4.1 : Monthly average wholesale price of Potato (1999-2002) Price in RsyQtI. Jaipur market Montli/Year 1999 January February March April May June July August September October November December 253 215 179 224 266 255 240 246 240 304 349 215 2000 137 138 180 205 240 245 238 225 224 226 199 182 2001 166 229 289 440 506 500 508 508 529 577 642 395 2002 426 350 334 402 386 400 413 431 550 589 588 1999 197 169 191 189 262 327 290 266 279 322 284 265 2000 137 104 158 170 176 180 185 190 191 170 165 194 2001 159 218 238 356 495 489 478 477 481 928 819 446 2002 474 324 312 348 358 365 482 480 526 910 818 Lucknow market

72