Monthly Archives: June 2013

Grain Storage trends in India

By David McKee and Munishwar Vasudeva

Indian government agencies at the state and federal level are expected to hold an unprecedented stock of 90 million tonnes of rice and wheat when the annual wheat procurement drive ends in June, up from 78 million tonnes a year before.

Over 99% of this government grain is still stored in 50-kg bags in state-owned warehouses or in the open  air. Such has been the practice for decades despite storage losses of 10% or more, according to some official estimates.

Now a movement is gaining momentum in India that will revolutionize both the modalities and technology  of government grain storage. Many initiatives among states and at the center’s Food Corporation of India (FCI) are propelling this drive for reform.


These schemes include Public Private Partnerships (PPPs) for construction of dozens of steel silo storage  facilities, long-term contracts with builders of traditional go-downs under a scheme called Private Entrepreneur Guarantee (PEG), and the large-scale introduction by companies of storage services using hermetically sealed silo bags to hold cereals procured by the state.

Current Situation

At present, FCI operates a network of warehouse facilities throughout India in both grain surplus and deficit states with storage capacity of 27 million tonnes of bagged wheat and rice. State agencies hold stock on behalf of FCI in warehouses totalling another 16 million tonnes, bringing the total government covered storage capacity to 43 million tonnes.

Privately owned warehouses already built in the last several years for guaranteed 10-year lease to government agencies under PEG hold another 7 million tonnes of grains.

FCI and state agencies dispose of an additional 18 million tonnes of capacity in facilities called Covered Area Plinths (CAP), consisting of an earthen platform of standard dimensions holding stacks of jute bags covered by tarpaulins. Such technology, introduced during British colonial rule, is officially considered to be “scientific storage” but has high rates of grain losses due to moisture exposure, rodents, lack of aeration and delayed liquidation of stocks.

Only wheat can be stored outdoors in this manner on CAPs. With the exception of a couple of states, government agen-cies do not hold paddy but purchase or collect as levy payments sacks of milled
rice which must be kept in warehouses. Space shortages often mean that bagged wheat is moved outside when the rice crop is harvested and processed in the fall in India’s dual cereal crop breadbasket states of Punjab and Haryana.

Due to successive record wheat and rice crops and the state’s obligation to purchase these cereals at a minimum support price that is often higher than the market price, the national storage gap, estimated for last year at about 10 million, continues to widen.

Furthermore, labor rates in India have been on the rise, increasing the costs associated with manual unloading from trucks, stacking and de-stacking in go-downs, and loading of 50-kg bags back onto trucks. Organized labor demanding higher pay or a change from contractual to departmental status has been able to effectively close down major government warehouse facilities for months at a time.

Driven by top-down guidance from FCI, as a policy decision most Indian government agencies have decided to no longer construct their own storage facilities but will rely on the private sector instead. Furthermore, these agencies are now requiring that all new storage be bulk automated facilities in order to
reduce labor strife, operating costs and quality deterioration.

Federal PPPS

At the federal level, PPPs for silo storages have been officially endorsed. In India’s 13th Five Year Plan for the years 2015 to 2020, the National Planning Commission has committed the country to realize 18 million tonnes of silo capacity for government’s grain in storages to be provided by the private sector on a Build, Own and Operate (BOO) basis.

In the shorter term, FCI is completing the planning work and government approval to launch tenders this year for grain storage facilities to hold 2 million tonnes of wheat.

This targeted amount of storage capacity has been allocated by FCI as the nodal agency to 42 storage facilities in 10 different states, including 38 locations of 50,000 tonnes and four of 25,000 tonnes. About 1.6 million tonnes is to be located in production zones in five surplus states: Punjab, Haryana, Madhya
Pradesh, Uttar Pradesh and Bihar. The remainder will be for consumption in grain deficit areas in five states: Assam in the northeast, West Bengal in the east, Maharashtra and Gujarat in the west and Kerala in the far southwest.

Bin size will be standardized at 12,500 tonnes. All facilities will be required to have rail sidings, which could be 30% of overall project costs. Potential contractors must have land or an agreement in place for the purchase of suitable land in order to participate to bid to build steel silo storages for lease to the  government.

Tendering will be handled by FCI. Bid documents are under preparation and will be approved through a num
ber of agencies including the Ministry of Food, Planning Commission, and various departments of the Ministry of Finance. The tender is expected to be announced by mid-year 2013. FCI hopes to award the 20-year storage contracts by the end of 2013.

Companies will bid based on annual storage rates per tonne. The storage facilities will have to be built to FCI specifications, though they will not be owned by the agency.

Under the proposed structure, any newly built silo storage will be declared a “mandi” (grain market square). But unlike in traditional mandis, farmers will have the right to deliver the grain for sale directly to the government without having to go through commission agents known as “ardhiyas,” who exact legally fixed middleman charges of 2.5%.

So far this ambitious program applies only to wheat, which makes up about two-thirds of all government cereals stocks, and for which the storage periods can be as long as four years due to the strategic reserve nature of some FCI holdings. Rice, which has a higher turnover rate, will continue to be stored in go-downs.

FCI is proceeding from several years of experience with a very successful “pilot” PPP program undertaken with Indian corporate logistics giant Adani Group as the tender winner. Seven steel silo storage facilities totaling 550,000 tonnes of capacity were built in production and consumption zones and linked by bulk rail transport. The seven facilities operate with a total of only 80 staff members.

State PPPS

While the FCI continues the federal planning and approval process, individual state governments have already pushed ahead with their own PPP projects. Punjab, the state with the largest wheat surplus, last year put into use a 50,000-tonne steel silo facility built by a private sector group under a tendering process.

Madhya Pradesh, which has transformed itself from a wheat deficit to the number three wheat surplus state in the last several years, has launched its own tender for PPP storage. It calls for 500,000 tonnes of steel silo storage at 10 sites of 50,000 tonnes each. In MP, the government is providing the land for the new storage sites.

The basis is Build Operate and Transfer (BOT) with bid winners to operate for 10 years with an option for 10 more years before ownership takeover by the government. The federal FCI model, on the other hand, is BOO so ownership is never transferred to the state. The federal Planning Commission will provide a 20% subsidy on the project costs.

The MP government has fixed the guaranteed service charge at 62.5 rupees (U.S.$1.20) per tonne per month based on total capacity. This is the same as paid for warehouse storage of bags. To compensate for this low rate, MP government will provide a subsidy on the estimated project costs of up to 20% beyond the federal subsidy. However, bidding will be based on the amount of subsidy required by the private contractors, so that a winning bid could result in a subsidy well below 20%.

RFQ (Request for Qualifications) has been completed and offers should arrive in May.

Silo Bags

In 2011, the Government of India started test trials of silo bags under the Ministry of Food, Consumer Affairs and Public Distribution. These were carried out at FCI go-down sites in Nerela, Delhi State and in Sanewal, Punjab State. After six months of trials, test results were published and states were encouraged by the center to use the new technology for government grain.

Madhya Pradesh has taken the lead in the introduction of silo bags to India. After conducting field trials for 25,000 tonnes near Bhopal, where wheat was filled in the cocoon like bags in May 2012 and emptied out in mid-March of 2013, it has now placed orders for about 1.3 million tonnes of storage capacity with three Indian companies which are the agents for separate manufacturers in Argentina, where up to now this hori-
zontal bulk method has enjoyed the greatest success.

Under the MP model, private operators bid competitively to provide a storage service based on a per tonne, per cycle fee. Contracts are signed yearly with companies that already have the storage bags and handling equipment in the country or under delivery.

One acre can store only 2,200 tonnes of grain in silo bags, so land requirements could be an obstacle. However, the MP government owns large tracts which are leased to farmers but must be allowed to rest every few years. This fallow land will be utilized for storage sites. Land preparation consists only of some levelling.

Each bag is about 200 feet long, 9 feet in diameter (60 meters x 3 meters) and can store around 200 tonnes. The bags are made from three-layer HDPE (high density polyethylene) 220 microns thick. Grain is protected from rain, UV rays and other atmospheric conditions.

The bags are hermetically sealed so that within three weeks 16% carbon dioxide is generated, sufficient to kill any insects in the grain. Holes from pecking by birds can be patched easily with tape.

The bags are unrolled like a sock while being filled by a silo bag loader tractor which is fed by a screw conveyer that lifts grain from the ground into a grain cart. The 200-foot long plastic sack is coiled on one end with a heat seal at the other end. The process of filling the bag pushes the tractor forward. One bag can be stuffed full of wheat in an hour.


The operator provides a complete package of services including receiving, weighing, filling silo bags, and
emptying them to fill 50-kg bags when government requires. MP is now paying these service providers about 500 rupees per tonne ($10) per grain cycle from receiving to delivery of bags of 50 kg. Conventional warehousing costs the government about 700 rupees per tonne.

Rajasthan, another new wheat surplus state with an underdeveloped mandi system, is likely to adopt the MP silo bag approach at least as a temporary solution before silo facilities can be built for longer term storage.