F e b r u a r y 16, 1957
THE
ECONOMIC
W E E K L Y
Cost and Profit in Storing Agricultural Produce
D S Chauhan & CS Raghubanshi
( Continued from previous issue and concluded)
D I F F E R E N T types o f structures
are used to store a g r i c u l t u r a l commodities. T h e y differ in shape, size,
a n d capacity. I n villages o f western
UP, wheat, gur, paddy, b a r l e y a n d
g r a m are stored i n K a c h c h a K o t h a s
or h u t s In earthen
pots, bins or
receptacles made o f m a t t i n g , m u d ,
a n d w i c k e r w o r k a n d i n some v i l lages, in large earthen cylinders.
B u t i n i m p o r t a n t m a r k e t s , they are
stored in kothas, godowns, kachcha
and pucca k h a t t i s . The m o s t comm o n types of
structures
used to
store different commodities f o u n d in
western U P are: ' B h a a r o l i ' , ' K u t h a l a '
'Kothl', 'Thekka', Kothas (kachcha
a n d pucca) t k a c h c h a
and
pucca
k h a t t i s , as t h e y are called in t h e
local language,
and
i n proper
godowns.
Wheat, gur,
mustard,
c o t t o n b a r l e y a n d g r a m are stored
i n k o t h a s a n d godowns, w h e a t i s
also stored in kachcha and pucca
khattis.
The cost of c o n s t r u c t i o n of some
of the structures estimated by expert stockists i n mandis a n d v i l lagers are shown in Table 1.
F r o m Table I i t w i l l be seen
t h a t k o t h i s are the cheapest of a l l
structures, b u t t h e i r capacity is the
smallest. The cost of construction of
cold storages is the
highest a n d
t h e i r capacity,
in proportion to
the cost, is also considerable. In
the case of k a c h c h a k h a t t i s of 750800 mds capacity, the cost r e l a t i v e
to capacity, a n d also as compared
to t h a t of k o t h i , is smaller. K a c h c h a
k o t h a is cheaper to construct as
compared to pucca k o t h a , w h i l e b o t h
the structures are of
the same
capacity. B u t it is not o n l y the
cost of construction w h i c h has to
be t a k e n i n t o account. Losses I n curred d u r i n g the period of storage
have also to be considered. A n d when
we consider losses, it is found t h a t
the losses in kachcha
k o t h a are
more t h a n those in
pucca k o t h a .
Godowns are not expensive to cons t r u c t w h e n w e t h i n k i n terms o f
t h e i r c a p a c i t y a n d smaller losses.
T h e y are r e a l l y the best f o r m of
storing food
grains
a n d other
agricultural
commodities.
The
m i n i m u m capacity should, however,
be a b o u t 1,000 or 1200 mds, b u t
l a r g e r godowns w i l l prove more
economical.
The average d u r a t i o n of storage
was f o u n d to be 143 days in wheat,
136 days In m u s t a r d , 135 days in
potato, a n d 130 days in g u r . T h u s
i t was longest i n w h e a t a n d shortest
in gur, t h o u g h the difference was
s m a l l . O n a n average the d u r a t i o n
was 4 to 5 m o n t h s .
The t o t a l
q u a n t i t y stored was 8358 m d s in
gur, 7480 mds in wheat, 8663 mds
in m u s t a r d , a n d 3300 mds in potato*.
The s m a l l q u a n t i t y o f p o t a t o stored
indicates the l i m i t e d facilities of
cold storage i n t h i s region.
In no case was the t o t a l stock
purchased i n one
lot, n o r w a s i t
sold i n one l o t . A g a i n , there was
considerable difference b o t h i n the
p u r c h a s i n g price a n d i n the s e l l i n g
price of different lots of each commodity .
The
t o t a l storage cost was Rs
10,729-12-1 in the case of gur, Rs
* T h e r e l a t i v e differences in the
t o t a l quantities i n g u r , w h e a t a n d
m u s t a r d should n o t be t a k e n as the
representative f i g u r e s f o r the t o t a l
stocks o f these commodities i n a l l
the m a r k e t s of w e s t e r n U P t a k e n
together. T h i s is because the prop o r t i o n of the samples in the case
of different commodities is n o t exa c t l y the same if the t o t a l area is
t a k e n i n t o account.
I n the case o f a l l the commodities,
adjustments have been made f o r the
loss of w e i g h t w h i l e c a l c u l a t i n g the
t o t a l selling
prices. I t w a s v e r y
significant, in the case of notato.
256
7,209-7-10 in the case of wheat, Rs
13,751-9-11 in the case of m u s t a r d ,
a n d Rs 23,119-11 in the case of
potato.
These figures do n o t give
a n y idea of the r e l a t i v e costs of storage in the case of different c o m modities since there was considerable difference between t h e i r q u a n t i ties. F o r a c o m p a r a t i v e s t u d y they
are reduced in t e r m s of cost of
storage per md per m o n t h , t h e average cost of s t o r i n g 100 mds of the
specific c o m m o d i t y f o r the t o t a l
d u r a t i o n a n d the average cost o f
s t o r i n g R s 100/- w o r t h o f c o m m o d i t y
for total duration.
Out o f these
three sets of figures, the
cost per
md per m o n t h provides the best basis
f o r comparison. T h e o t h e r t w o
figures are, however, useful to the
stockists f o r k n o w i n g the t o t a l i n vestment a n d thus f o r c a l c u l a t i n g
the r a t e o f r e t u r n .
The first and
the last, p a r t i c u l a r l y the first, can
be u t i l i s e d by the public bodies in
the d e t e r m i n a t i o n of the prices a n d
the m a r g i n s between the p u r c h a s i n g
a n d the selling prices, p a r t i c u l a r l y
f o r t r a n s f e r r i n g the benefits to the
producers (or even to the consumers
as the case m a y be) w h e n t h e y do
n o t get f a i r prices or t h e i r due a n d
a m a j o r p a r t of the difference between the consumers' price a n d the
producers' price goes to m i d d l e m e n
or is usurped in the t r a d e channel
as is the case in our c o u n t r y . T a l k i n g
of the c o m p a r a t i v e storage costs in
the case of different commodities it
was f o u n d to be highest in the case
THE
ECONOMIC
F e b r u a r y 16, 1957
W E E K L Y
of potato, being Rs-15-11 or about one
rupee per m d per m o n t h . I t i s p r i m a r i l y due to the h i g h charges made
by the owners of the cold storage.
T h e y can safely be termed as monopolistic charges because of the h i g h l y
Inadequate facilities for cold storages. These charges are r a t h e r unjust
a n d m u s t be reduced. The lowest
charges are in the case of w h e a t .
T h i s is p r i m a r i l y due to the saving
o n bags w h i l e s t o r i n g i n K h a t t i s ,
as is m o s t l y done in H a p u r .
Breakdown by Items
A f u r t h e r study of the
storage has been made in
to the various
items of
b r e a k d o w n of storage costs
cost of
relation
cost A
has been
attempted i n Table I I I w i t h a v i e w
to locate the places or items where
economy could be made.
Table I I I shows t h a t the case o f
potato is v e r y m u c h different f r o m
t h a t of the other three commodities.
In the case of potato, about threefourth
the
total
storage
cost
is the cold storage charge, w h i c h
is v e r y u n j u s t . There is considerable r o o m f o r economy in this regard.
Besides, the actual s h r i n k age was f o u n d to be m u c h less t h a n
it was charged f o r . These charges
should be to the extent of a c t u a l
s h r i n k a g e a n d not at a presupposed
percentage w h i c h is higher t h a n the
actual.
In the case of gur, wheat
257
a n d m u s t a r d , the most i m p o r t a n t
items (costing m a x i m u m ) are bags
a n d accessories, 'staff a n d records'
a n d the 'interest' charges. Of these
three interest is related to the i n vestment
a n d therefore
affords
little
scope for
economy.
The
r e m a i n i n g t w o items f o r m 6 5 . 6 %
of the t o t a l storage cost in the case
of gur, 5 4 . 3 % in the case of wheat,
a n d 57.3% in the case of m u s t a r d .
E c o n o m y is, however, possible and
desirable on these t w o items p a r t i c u l a r l y . The methods of economi s i n g can be the
construction of
proper types of structures a n d expansion in the volume of stocks.
Other
items are however m i n o r ;
THE
F e b r u a r y 16, 1967
and there are differences in t h e i r
m a g n i t u d e in the case of different
commodities.
These
differences
arise on account of
the types of
structures c o m m o n l y used a n d the
nature of the c o m m o d i t y e g, in the
case of r e n t a n d repairs the percentage i s highest i n w h e a t a n d
lowest i n the case o f m u s t a r d w h i c h
is due to the h i g h e r cost of repeated
repairs o f k a c h c h a k h a t t i s a t H a pur where huge quantities of w h e a t
are stocked.
Besides, at H a p u r
the r e n t f o r k h a t t i s is h i g h e r ; a n d
i n the case o f g u r a n d m u s t a r d ,
v e r y few stores were t a k e n on rent,
a n d hence the costs were l o w e r .
Taking a
c o m p a r a t i v e v i e w of
the first three commodities we
f o u n d t h a t in the case of 'bags and
accessories', the highest per centage ( 3 9 . 2 % ) w a s on g u r a n d the
lowest ( 1 5 . 2 % ) o n w h e a t . I t l a
because w h e a t was stored in k h a t t is to a v e r y large extent a n d g u r
i n v a r i a b l y requires the use of bags
a n d other
accessories.
Labour
charges are r o u g h l y the same f o r
a l l the three cases.
R e n t a n d rep a i r charges
were highest in the
case of w h e a t a n d least in the case
of mustard. It
was due t o the
difference in the types of
stores
used to store these t w o c o m m o d i ties.
T h e interest charges, however, are highest in the
case of
m u s t a r d . T h i s was due to the h i g h
investment. T h e charges f o r staff
a n d records are highest in the case
of
w h e a t because of
the longer
d u r a t i o n o f storage, p a r t i c u l a r l y
at H a p u r ; t h e y are lowest in the
case of m u s t a r d ,
because of the
greater volume of business.
size instead of 'Bhelies' of s m a l l size.
I n the case o f p o t a t o the cost can
be m i n i m i s e d by establishing m o r e
c o l d storages at suitable places a n d
thus
b r e a k i n g the m o n o p o l y
of
owners of present cold storage
p l a n t s w h i c h are v e r y inadequate
in number.
I n the case o f w h e a t a n d m u s t a r d , however.
different types
of
stores were f o u n d to be used. F o r
s t o r i n g w h e a t the average cost is
l o w e r in the case of k a c h c h a k h a t t i s t h a n i n t h a t o f k o t h a . I t i s because of the lower cost of construct i o n a n d bags n o t being used. B u t
this difference should n o t be the
deciding f a c t o r in
the choice of
types of storage, since d e t e r i o r a t i o n
in the q u a l i t y of the stock is also
a n important consideration.
In
the case of m u s t a r d there was l i t t l e
difference in costs
of storage in
kothas and in godowns.
B u t the
average costs of
s t o r i n g can be
further minimised by constructing
pucca k o t h a s a n d concrete k h a t t i s
p a r t i c u l a r l y of bigger size.
Profit (or Loss) and the Rate of
Return
(a) Loss D u r i n g Storage. T a b l e
V shows the extent of q u a n t i t a t i v e
loss suffered d u r i n g the period of
storage in the
case of different
commodities stored in different
types of structures.
Storage Cost by Types of Structures
T h e average storage cost per md
per m o n t h in the case of the differ e n t types of structures in different
commodities i n the m a r k e t s o f
western U P as shown by the present study is summarised in T a b l e
IV.
In the case of g u r a n d potato,
where o n l y one type of s t r u c t u r e
was f o u n d to be in use. i e, k o t h a
i n t h e f o r m e r a n d cold storage i n
the l a t t e r . Therefore, the question
of c o m p a r a t i v e cost in these t w o
cases d i d n o t arise. However, suggestions f o r economising
storage
costs can be made f r o m the present
study i n these t w o cases also.
In
t h e case of g u r , storage costs can
be m i n i m i s e d considerably s i m p l y
b y a change i n the physical f o r m i n
w h i c h g u r is prepared by producers,
i e in the f o r m of 'Bhelas' of bigger
258
ECONOMIC
WEEKLY
T h e losses are largest in k h a t t i s
a n d least in k o t h a s . Pucca k h a t t i s
f o u n d in H a p u r
m a r k e t are less
expensive in c o n s t r u c t i o n as c o m pared t o godowns,
a n d losses i n
pucca k h a t t i s are also s m a l l e r ; i t
i s n e a r l y equal t o t h a t i n k o t h a s .
Therefore, pucca k h a t t i s are econom i c a l f r o m b o t h the points o f view,
i e, the extent of losses a n d the
cost o f c o n s t r u c t i o n .
In kachcha
k h a t t i s losses are l a r g e r on account
of seepage of w a t e r f r o m sides.
T h e loss can, however, be reduced
by care in the use of m a t e r i a l f o r
l i n i n g , b u t i t cannot b e e l i m i n a t e d
c o m p l e t e l y . Losses are highest in
the case of g u r since some q u a n t i t y
is t u r n e d i n t o molasses. T h e y are
lowest in the case of m u s t a r d because loss of moisture, or deterioration
i n q u a l i t y , o r damage b y
pests, etc are least in t h e i r case.
( b ) . P r o f i t a n d the R a t e o f Ret u r n . P r o f i t a n d loss are calculated
on a n n u a l basis a n d at the r a t e of
Rs 100/- w o r t h of c o m m o d i t y . T h e
rate of r e t u r n is also calculated on
a n n u a l basis o n
the t o t a l investment. Table V I
b r i n g s together
the f i n a l results.
In t h e case of gur, there w a s a
loss of about 16% on the t o t a l I n vestment or of Rs 1.6-2-8 on Rs 100
worth of commodity.
T h e r e was
p r o s t i n the r e m a i n i n g three commodites: the highest p r o f i t being
THE
ECONOMIC
W E E K L Y
F e b r u a r y 16, 1957
o n p o t a t o , n e a r l y 2 5 % a n d the
lowest o n w h e a t b e i n g 4 . 8 o r r o u g h l y 5 % . I n the case o f m u s t a r d , the
p r o f i t w a s 5.9 or about 6% . T a k i n g
a l l t h e four, a n d a l l the 4 0 cases,
the r a t e o f r e t u r n w a s 15.8 o r about
16%.
These figures s h o u l d n o t be t a k e n
as an i n d i c a t i o n of profits a n d losses to the s t o c k i s t s in the case of
different commodities, since the
final results have been influenced
p a r t i c u l a r l y b y the price v a r i a t i o n s
for different
commodities d u r i n g
the
specific period
under s t u d y .
T h e y can however,
serve as lab
specimen. T h e results suggest t h a t :
( i ) T h e t o t a l r a t e of r e t u r n is
quite h i g h , i n d i c a t i n g t h a t s t o r i n g
is quite a l u c r a t i v e business p r o position i n t h i s a r e a . B u t i n the
consideration of a f a i r share to the
producers in the consumer's price,
or a f a i r price
to the consumers
such a h i g h m a r g i n does n o t seem
to be j u s t .
( i i ) T h e h i g h profits i n p o t a t o
should
a t t r a c t p r i v a t e o r public
i n v e s t m e n t t o c o l d storage p l a n t s
i n t h i s area*.
* T h e i n v e s t i g a t i o n was done by
C S R a g h u b a n s h i under the guidance
a n d supervision of Dr D S C h a u h a n .
T h e f o r m e r processed the d a t a a n d
made the f i n a l calculations. B u t
the f o r m i n w h i c h the present
paper appears a n d the i n t e r p r e t a t i o n
o f the d a t a are, however, g i v e n b y
the l a t t e r .
Engineers
for
Steel
Plants
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259