Sandeep Sabharwal’s fancy office in Moti Nagar, New Delhi, hardly reflects his company’s core line of business — warehouse management — in the traditional sense.
With dozens of youngsters glued to their desktops across the office, the ambience of Sohan Lal Commodity Management’s (SLCM) corporate office is more of a business process outsourcing (BPO) unit than an agri-logistics solutions provider. An exception perhaps, is a quality testing laboratory, tucked away in a corner, with shelves full of sealed commodity samples from warehouses the company manages across the country.
The government has taken several steps to improve post-harvest management practices
Being the only home-grown company in the Indian agri-warehousing sector to have raised four rounds of foreign direct investment, SLCM can afford to be a little swanky. Though, that is not the reason it operates like a BPO. It is only because SLCM’s business is entirely technology driven.
“Everything is automated and we have the ability to monitor, real time, each warehouse even in the remotest location,” says Sabharwal. The centralised management information system, custom developed by the company, enables it to manage any warehouse agnostic to infrastructure, location and weather patterns across agricultural commodities. Thus, without focusing on building warehouses, it’s excelling at the agri-logistics. Through scientific storage techniques, the company claims to have the ability to reduce storage losses from 10 per cent to 0.5 per cent.
The SLCM’s business model could play a crucial role in resolving India’s food grain storage problems. The country incurs losses to the tune of Rs 80,000 crores each year due to storage problems alone.
As on May, 2015, the cumulative storage capacity of various agencies such as Food Corporation of India, Central Warehousing Corporation, state warehousing corporations, cooperatives and private parties stood at just 121.11 million metric tonnes (mt), while the marketable surplus of food grains in 2013-14 alone was approximately 159 milliom mt. In terms of volumes, studies conducted by Indian Council of Agricultural Research indicate that harvest and post harvest losses of major crops and commodities in India are in the range of 4-6 per cent of the total production.
To tackle the situation, the central government is implementing a host of schemes to augment India’s storage capabilities. “The government is implementing the Integrated Scheme for Agricultural Marketing (ISAM) — a sub-scheme of which, the Agricultural Marketing Infrastructure (AMI) facilitates construction and renovation of warehouses in rural areas of various states,” says agriculture minister Radha Mohan Singh.
Between April 2001 and June 2015, 35,226 godowns with a capacity of 555.13 lakh mt have been sanctioned for construction and renovation, for which a subsidy of Rs 1908.50 crore was released. Of this, a total of 28,694 godowns with a capacity of 480.59 lakh mt have been constructed and 1,743 godowns with a capacity of 22.13 lakh mt have been renovated, the minister explains.
Schemes such as Rashtriya Krishi Vikas Yojana, Rural Infrastructure Development Fund and Warehouse Infrastructure Fund under the National Bank for Agriculture and Rural Development (NABARD) are also promoting creation of scientific storage for agriculture produce. In addition, National Cooperative Development Corporation is also assisting cooperatives in rural areas to construct godowns for storing agriculture inputs and farm produce.
However, the gap is simply too wide, which indicates a huge business opportunity for entrepreneurs like Sabharwal.
“Production and enhancing storage capacity are all long-term goals. What I am trying to do is reduce the wastage under the current situation. I can manage your crop irrespective of your warehouse, location or whether it is kept in a cold storage or a hut,” says Sabharwal.
SLCM manages a technology-enabled network of around 800 warehouses and 19 cold storages across 17 states with a total capacity of over 1.74 million mt.
The company also offers a host of other services including procurement solutions to farmers, processors, traders, etc. It has also partnered with financial institutions for collateral management and has a wholly-owned non banking financial company for collateral financing across diversified agri products.
The post-harvest ecosystem is very diverse, and hence has several players like SLCM. There’s Star Agri-warehousing and Collatoral Management, Origo India and Gramco Infratech among others. More players are entering the market and luring investors to pump in capital in the under-developed agricultural storage and cold chain industry in India that is touted as the next big thing and expected to contribute to long-term gains as retail demand and consumption pick up in smaller cities and towns across the country.
“We are not pure play warehousing operators. We are an agriculture infrastructure company that aims at addressing the needs of the farming communities for farm services and agri-infrastructure” says Raman Singh Saluja, founder, managing director, Gramco Infratech.
The company, though not into collateral management at the moment, offers grading facility to farmers who can get 15-25 per cent value addition on their crops. “There is huge fragmentation in this sector, hence huge opportunity,” says Saluja. Since the Indore-based company focuses on creating physical infrastructure, it has limited its operations to Madhya Pradesh for the moment.
Saluja says that unlike the government schemes for developing front-end infrastructure, there is none for the backend. “There is no policy for the local player who works for integrated backend. We are not recognised as an industry,” he complains.
Despite government’s attempts to make front end more investment friendly, the policy remains flawed, say entrepreneurs. For instance, warehouse management companies are finding it tough to compete in the L1 (lowest bidder) government market. “We do not operate government warehouses because of this problem. It is high time the government recognises the savings we offer in terms of reduction in storage loss,” Sabharwal says.
Currently, there is indeed a dearth of warehouses in India, especially in the agriculture sector. But there, too, lies a positive. For a country which is primarily an agrarian economy, there is immense potential in the agri-logistics and cold chain industry. In fact, seeing this, risk capital investors such as private equity and venture capital funds are betting big on the business opportunity that the sector has to offer in the long run.
“There is a significant investor interest in niche segments like cold chain, agri-logistics, and warehousing within the logistics sector,” says Raja Lahiri, partner at advisory firm Grant Thornton. However, there’s need for integrated infrastructure and agri policies, which could lead to more warehouses in the country he adds.
Some corporate lawyers, on conditions of anonymity, revealed that there are quite a few private equity (PE) deals in advanced stages of discussion. For instance, ColdEX Logistics, a cold chain company that provides support and distribution services to well-known international brands including Burger King and Starbucks, is in talks with a host of PE investors to raise about $80 million. In December 2010, it had raised $10 million from India Equity Partners in lieu of a significant minority stake.
Investments are pouring in this sector. Since 2012, PE investors have infused around $275 million in the sector, according to research firm Venture Intelligence. Recently, Canadian investment giant Fairfax invested $126 million in National Collateral Management Services, a private-sector agricultural commodities storage company headquartered in Gurgaon. Other prominent deals in the sector include Temasek’s $40 million investment in Star Agriwarehousing and Mandala Capital Fund’s $25 million funding in logistics firm Gati Kausar, which has a network of cold warehouses, transports refrigerated goods across sectors including meat and bio-pharma.
paramita@businessworld.in
(This story was published in BW | Businessworld Issue Dated 14-12-2015)
