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WAY OUT FOR PRICE DISCOVERY

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RURAL GODOWNS – WAY OUT FOR PRICE DISCOVERY & PROFIT
MAXIMISATION – CASE STUDY
Ajay Goyal of Ismailabad of Ambala District, Haryana is a big farmer and also a
trader. He is involved in aggregation of produce at village level and supply the
paddy to big rice millers and Maize to the Roller Flour & Starch mills.
Though he is in the business of aggregation of produce for the past 40 years, he
was constantly at the mercy of Government employees to get the godowns leased
and therefore, could not expand his business beyond few crores of rupees.
Though the potential is immense for expanding the business due to good export
markets opened up for Basmati and millers to whom he is supplying paddy had
expanded their capacities, Ajay Goyal could not encash the opportunity for the
above reason.
However, the situation had changed for better all at once after the announcement
of Grameen Bhandaran Yojana by GOI. In 2003, Ajay Goyal had approached
local NABARD office and took all the details along with the prescribed designs
and had approached Sutlej Bank, a PSU bank for the loan to construct two
godowns of 10,000 MT each.
Sutlej Bank had taken all the necessary precautions and the scheme was
sanctioned at an outlay of Rs 1.50 crores to each of the godown. Borrower’s
contribution was estimated at 25% of the total project cost and Ajay Goyal could
fulfill all the necessary formalities. Work had started on both the godowns and
the loan application was sent to NABARD for subsidy purpose. While appraising
the proposals, NABARD had indicated that revenue plan given by Ajay Goyal
was not convincing and in the better interest of the project, he may go for 7 years
lease agreement either with CWC or HAFED so that the returns out of the
investment are secure. Ajay Goyal being a shrewd business man and being in the
commodity business for quite some time had refused to budge and stuck to the
point that leasing godown space to individual farmers or keeping his own
produce would give better returns. On getting satisfactory revenue plan, the first
installment of the subsidy had been released and Ajay Goyal had finished the
construction in time and on verification by NABARD, DMI and Banker, the final
subsidy was also released.
Ajay Goyal on getting 20,000 MT of godown space had planned for bigger
business and started contacting all his farmers who were supplying Basmati
Paddy as well as Maize for giving their produce to him. He had also earmarked
5,000 MT space for farmers, if they are interested to keep the produce for
sometime so as to maximize their profits after initial procurement ceases.
Farmers were happy with both the deals and had shown enthusiasm to keep a
part of their produce for selling at a later date and supply the remainder to Ajay
Goyal.
Warehouse Receipts – Case study by G R Chintala, DGM/FM, BIRD Page 1 of 5

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During November 2005 when Basmati Paddy arrivals started, Farmers started
supplying them to Ajay Goyal and few of them had stacked in the space leased
out to them by Ajay Goyal. However, things went haywire when farmers wanted
money for the produce supplied immediately since they have to spend on sowing
the next crop i.e., Wheat. Even those farmers who had stored their produce
started feeling the scarcity of money to go for next season operations.
As Ajay Goyal was dealing with the Sutlej Bank and was getting limits to the
produce he was aggregating and storing in CWC / HAFED godowns against the
receipts given by them, he thought that the bank would automatically increase his
limit against Basmati stored in his godown.
Ajay Goyal was in for a shock when his bank i.e., Sutlej Bank had not obliged
and refused to give pledge loan against the commodity stored in his private
godown. The reasons given by the bank were valid from the bank’s point of view,
but the situation of Ajay Goyal started becoming precarious day by day and he
started exploring various options and had contacted a NEXTGEN Pvt. Sector
Bank for help. He was pleasantly surprised to get a positive response to look into
his case. NextGen Bank had asked for the following details:
1. Nature of the business of Ajay Goyal
2. Modus operandi with regard to procurement and disposal of commodities
3. Type of commodities he was dealing with
4. Market fluctuations during the last 5 years in commodities he was dealing
with
5. Was he able to dispose of the commodities stored without fail in the past
6. Was there any incidence of loss he faced during the past
7. What was the limit he was enjoying with the Sutlej Bank
8. What was the margin the Sutlej bank was insisting upon
9. Lay out and location of the godown
10. Was the godown constructed scientifically as per specifications
11. What about the provisions to tackle fire, rat and theft
12. Details of the commodities along with quantities he want to store now in
his own private godown
13. Area allocated to farmers to keep their produce on rental basis
14. Amount required and interest rate at which he would like to strike a deal
Ajay Goyal was surprised at the details asked by the NextGen Bank but had
furnished all of them. Do you know the result?
Ajay Goyal was sanctioned a Pledge loan limit of Rs 10.5 crores at an interest
rate of 11%. The produce value was considered @ Rs 10,000/- ton. Further, the
farmers who had stored 5,000 MT were also given Pledge loan @ 11% with
varied quantums depending on the produce value estimated by Ajay Goyal while
giving warehouse receipt to the individual farmer.
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RURAL GODOWNS - WAY OUT FOR PRICE DISCOVERY & PROFIT MAXIMISATION - CASE STUDY Ajay Goyal of Ismailabad of Ambala District, Haryana is a big farmer and also a trader. He is involved in aggregation of produce at village level and supply the paddy to big rice millers and Maize to the Roller Flour & Starch mills. Though he is in the business of aggregation of produce for the past 40 years, he was constantly at the mercy of Government employees to get the godowns leased and therefore, could not expand his business beyond few crores of rupees. Though the potential is immense for expanding the business due to good export markets opened up for Basmati and millers to whom he is supplying paddy had expanded their capacities, Ajay Goyal could not encash the opportunity for the above reason. However, the situation had changed for better all at once after the announcement of Grameen Bhandaran Yojana by GOI. In 2003, Ajay Goyal had approached local NABARD office and took all the details along with the prescribed designs and had approached Sutlej Bank, a PSU bank for the loan to construct two godowns of 10,000 MT each. Sutlej Bank had taken all the necessary precautions and the scheme was sanctioned at an outlay of Rs 1.50 crores to each of the godown. Borrower's contribution was estimated at 25% of the total project cost and Ajay Goyal could fulfill all the necessary formalities. Work had started on both the godowns and the loan application was sent to NABARD for subsidy purpose. W ...
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