An agricultural crop that typically comes to market once a year and whose harvesting window hardly lasts over a month is expected to meet the country’s domestic needs all year long and export demand (if any).

Therefore, it is highly essential to have sufficient stocks of the crop in the country. The storage need is even greater for perishable crops like potatoes, onions, dates, and garlic, otherwise, their availability in the country would be significantly decreased within just two-three months after harvesting.

Value chain analysis of crops (grains, pulses, oilseeds, horticultural crops, etc) reveals that their stocks are generally maintained at various levels of the value chain by farmers, processors (rice mills, flour mills, oil mills, feed mills, pulses factories, etc), exporters (if any), intermediaries (arthees, traders), and most importantly, stockists, who are spread out across the country.

The only exception is wheat — the major staple food of Pakistan, where the federal and provincial governments keep a few million tonnes of strategic reserves to ensure national food security.

People with disposable cash are now storing produce, considering it a relatively low-risk income-generating activity

Surprisingly, over the last two years, the market has witnessed a surge of new informal stockists, numbering in the thousands. Such small- and medium-sized stockists vary in size from a few tonnes to hundreds of tonnes of storage capacity, depending upon their respective financial muscle.

Amongst them are a great majority of retired people, pensioners, small investors, and serving government or private sector employees, who want to seek passive parallel income.

They usually buy crops directly from farmers or grain markets/fruit and vegetable markets and store these at their houses, rented godowns or temperature-controlled storage facilities (for fruits and vegetables).

Their business model relies upon the price differential between lower prices at crop harvesting time when the supply of crop exceeds demand and subsequent higher selling prices when market equilibrium is achieved after a few months.

Several factors may account for the emergence of these new stockists. First, the Russia-Ukraine war, which has disrupted global supply chains of various products, has led to high levels of food price inflation and price volatility across the world. Climate change is another factor that is adversely impacting food production and causing uncertainty in supplies.

As a result, small investors have begun to view storing crops (agricultural commodities) as a lucrative opportunity.

Second, the increase in the state bank’s policy interest rate to the tune of 21 per cent has increased businesses’ cost of borrowing and, in turn, inventory costs, rendering it unfeasible for processors to hold high levels of inventory of crops (raw material). Consequently, stockists have stepped in to fill the gap.

Third, interest earned on bank deposits is unable to match with the high rate of inflation in the country, coupled with the depreciation of the rupee. Anticipated slow economic growth has forced small investors, who usually invest in companies’ stocks, to seek alternative sources of passive income.

Hence, people with disposable cash are now storing agricultural crops, considering it a relatively low-risk income-generating activity that requires a minimum level of effort.

Fourth, concerted efforts have not been made so far to improve the farmers’ market power and crop-holding capacity. By improving their financial liquidity at the harvesting stage, farmers can settle their outstanding loans and purchase necessary agricultural inputs for the next crop rather than selling their produce immediately after harvesting, which may lead to oversupply in the market and cause a significant drop in prices.

Several countries, including the United States, Poland, Argentina, and Ghana, have successfully adopted the warehouse receipt system (WHR), also known as inventory credit — an effective tool for creating liquidity and easing access to credit.

It enables farmers to store their produce in licensed/approved warehouses and get a receipt as proof of their ownership, which can be used as collateral to get a loan from banks. No doubt, WHR helps smooth the supply and prices in the market, however, the concept of WHR is still in its infancy in Pakistan.

Usually, the role of such stockists is underestimated. They are criticised by almost all stakeholders, who often unjustly label them as rent-seekers, profiteers, and/or opportunists.

However, the fact of the matter is that the government(s) has categorised the commodities into non-essential items and essential items like wheat, sugar, pulses, etc. Such essential items come under the purview of the Prevention of Hoarding Act or Essential Commodities Act.

Therefore, hoarding of essential items and finished products can’t be promoted; nevertheless, in order to fulfil the country’s year-round needs, the private sector must be encouraged to store non-essential crops, especially when farmers and the government lack capacity to keep necessary stocks.

Farmers are happy that such stockists have created additional demand for crops such as maise (corn), paddy, sesame, canola, mustard, millet, sorghum, and potatoes during times of oversupply, and thus, they have helped to smooth out the supply and stabilise market prices, to a significant extent.

It has clearly enhanced the growers’ incomes as stockists’ purchases prevent market prices from touching the lowest ebb, during harvest time.

In addition, small stockists are in the thousands, and they rotate their stocks frequently, adding new crops after every three to four months. This reduces the risk of stocks of particular crops falling into the hands of a few for an extended period, which may lead to artificial shortages in the market.

Finally, post-harvest losses of crops in Pakistan are significant, ranging from 10-20pc, primarily due to poor handling of stocks. With the advent of such stockists, the government should capitalise on this opportunity to reduce losses as they, due to their sheer small size, are in a better position to keep their stocks at the correct moisture level and under the right conditions that can help eliminate the risk of insects, aflatoxins, and other diseases.

However, without improving their skills and expertise in crop storage, the reduction in losses would remain only a dream.

Khalid Wattoo is a farmer and a development professional Rahema Hasan is a political economist and graduate of the London School of Economics and Political Science

Published in Dawn, The Business and Finance Weekly, May 1st, 2023