Trade in warehouse receipts likely soon

Regulator expects govt approval soon; move to help farmers get better access to financing.

The recently formed Warehousing Development & Regulatory Authority (WDRA) wishes to launch the trading of negotiable warehouse receipts (WR) on online spot exchanges.

It has sent a proposal to its parent ministry, consumer affairs. “We hope to get the response soon. We assume WRs would be available for trade on spot online commodity exchanges in a month,” said Dinesh Rai, chairman of WDRA, on the sideline of an interactive session organised by National Collateral Management Services Ltd (NCMSL).

WRs are being issued by nominated warehousing and collateral management companies as a guarantee of quantity and quality of agri commodities held by them on behalf of farmers. Based on the WRs, banks give loans to farmers at a nominal interest. This helps both parties. Banks are better able to meet the 40 per cent priority sector lending target set by the Reserve Bank of India and farmers manage to avoid distress-sales of agri commodities during harvest time, when prices remain low. In association with collateral partners, farmers sell the agri produce during the lean season, getting more return. Currently, WRs are negotiable but not tradable on any platform.

WDRA earlier thought to set up a national depository separately to keep track of traded WRs on the national level. “But we have proposed the ministry allow spot exchanges to also play the role of a national depository, as they have all the infrastructure required,” Rai added.

The tradability of negotiable WRs will help fetch higher prices for agri produce, depending upon demand in consuming centres. For example, apples produced in Himachal Pradesh and Jammu & Kashmir would fetch lower prices in these growing regions but if traded on a national platform, can get higher quotes from traders in consuming centres such as Mumbai.

Today, agri commodities are booked largely by arhatiyas or middlemen from farmers and stocked at warehouses to supply during the lean season at a higher price. Farmers’ distress sale continues during the harvesting season, due to the lack of warehousing facility and adequate knowledge and skill. The same farmers buy the commodity at almost double the price during the lean season for their own consumption. Therefore, the arhatiyas make most of the profit in the commodities produced by farmers due to their high holding capacity and better post-harvest management system.

“The tradability of negotiable WRs will also bring much needed transparency into the agri commodity trade and avoid multiple financing of the same receipt,” said Sanjay Kaul, managing director of NCMSL.

Domestic online stock exchanges, led by Financial Technologies-promoted National Spot Exchange, are currently generating an average daily turnover of Rs 1,000 crore, which will multiply several times with the launch of WR trade. “Tradability of WRs is set to help marginal farmers to hold stocks with even a small quantity of agri produce,” said Anil Chaudhary, managing director of National Bulk Handling Corporation.