Warehouse Receipts Financing (A)

Code :FCF0029

Year :

Industry : -

Region : Asia

Teaching Note:Available

Structured Assignment :Not Available

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STORAGE OPTIONS AND RELATED ISSUES: Manjeet was seriously considering storing his harvest in a certified warehouse so that he could sell it during the leaner period and secure a better price (at the price discovered and notified by Agricultural Marketing Board ). Therefore, he enquired about the nearest storage facility certified by the Warehousing Development and Regulatory Authority of India (WDRA) and discovered that the nearest warehouse was the Central Warehousing Corporation at Hoshiarpur, which had a capacity of 1,700 tonnes and was approximately 20 kilometers (km) away from his village (Refer to Exhibit I for a list of Warehouses registered with WDRA in Punjab). However, storing his harvest in that warehouse was a challenge for Manjeet as he had no vehicle to transport the grains and transportation costs were otherwise too high.

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WAREHOUSE RECEIPTS FINANCING: Manjeet came to know that a trader called Kundan Shah from Hoshiarpur was offering to buy the wheat at Rs. 1,650 per quintal (Rs. 25 per quintal above the MSP). The trader was willing to pay a 30% cash advance with the remaining amount to be paid within 3 months of the crops being sold. He would take care of the transport as well. Manjeet was not happy with the offer as it was just about 10% above his cost of production, excluding the manual labor he had put in his field. However, he was still considering Kundanís offer as he had to pay back the loan taken from the local moneylender who usually charged an interest rate of 2% to 3% per month. If he accepted the offer from Kundan Shah, the 30% of the advance on crops that he would get would take care of a major portion of the loan repayment to the moneylender, enabling him to save a significant sum in terms of interest cost. With a major portion of the loan repaid, the moneylender would agree to extend a further loan for the next crop...

EXHIBITS: Exhibit I: List of Warehouses Registered with WDRA in Punjab (as on 30.04.2015)
Exhibit II: Grain Storage Structure Types in India
Exhibit III: Perceptions of Farmers about Different Means of Credit




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