10. Death of a Collateral Manager
Traditional Collateral Management Businesses are changing their stripes in the post-farm laws economic climate. Can they reinvent themselves in the age of agritech?
“From a branding perspective, it might appear as a small change from Collateral to Commodities, but in the life of the business and our presence in the overall agriculture industry, it's a giant leap.” - Siraj Chaudhary, CEO, NCML
“This year we are trying to replace Rs 60 odd crore of collateral business that we were doing on not very favourable terms. We as a company has decided to step away from those businesses that are not dependent on professional systems even though that will impact our business.” - Ramesh Doraiswami, CEO, NBHC
Dear Readers,
Hi! My name is Venky. I write Agribusiness Matters every week to help us make sense of vexing questions of food, agribusiness, and digital transformation in an era of Climate change. Feel free to dig around the archives if you are new here.
Death of A Collateral Manager
01/ We are in that fork of history moment when warehouses wake up to discover that while they are made of grains and fumigated phosphine gas smells, they are also made of farmers’ (and traders’) hopes and fears.
02/ On 10th June 2021, NCML announced that they are no longer National Collateral Management Services Ltd, but National Commodity Management Services.
And a few days back, I chatted with NCML’s CEO, Siraj Chaudhry to understand NCML’s plans to reinvent itself in the post-farm laws economic climate.
Earlier in January 2020, leading directors of Shree Shubham Logistics, Edelweiss Agri Value Chain, Star AgriWarehousing, NCML, Arya Ag, National Bulk Handling Corporation, Kalyx Warehousing, Origo Commodities came together and formed Agri-warehousing service providers Association to collaborate and I presume, lobby for consensual issues with the government and policy circles.
03/ To understand why now is a significant fork of history moment and what the future portends, we need to step back and understand the warehousing business as usual.
Warehousing Business As Usual
04/ If you break down the warehousing business in India, the key players are the buyer, seller, warehouse service provider, and lender. The buyer could very well be a trader, processor, aggregator (not in the tech sense), or exporter. The seller could be a small farmer, although the transactions are largely dominated by the traders so far.
Of course, there are other allied players like the insurance players. We will zoom in on them later. For the farmer, it boils down to an existential-high stakes question: Do I hold the grain in the warehouse or do I keep the money in my pocket?
05/ As I’ve written earlier, if we are looking at an ideal system that works for the weakest link, it boils down to two freedoms
a. Freedom of choice to sell at the right time to the competitive buyer
b. Freedom of choice to decide the composition of transaction costs to bridge the gap between the Farm to Fork.
06/ Transaction costs are very important here because the system is 90% informal, thanks to the non-existent taxation system in agriculture and the lack of discipline in sales filings. Plus you have archaic regulations like Section 8 of Banking Regulation Act 1949 (!) which prevents banks from directly or indirectly selling or bartering goods.