THE Punjab Food Department plans to build high-tech silos for 2m tonnes and modernise its wheat storage system — from bag to bulk, as they call it.

As the plan goes, 200 silos of 10,000 tonnes capacity each would be built near farms — aiming to facilitate farmers transport and store their produce nearby and cheaply. Individual investors, with the technical help of the USAID, would build the silos and the Punjab government would take them on renewable10-year lease.

According to financial analysis, the private sector would recover its original investment within six years and make profit for the next four. The silos, having a technical life of 25 years and constructed on BOO (build, operate and own) basis, will become commercially viable even if the lease is not renewed.

Punjab badly needs to modernise its old storage system. This is the third attempt by the province in the last 20 years

Punjab badly needs to modernise its old storage system. This is the third attempt by the province in the last 20 years. First one was made jointly by Punjab and the USAID in the late 1990s. Punjab even sent some millers to the US for first-hand experience of the bulk-handling process. The plan, however, never even took off.

At the turn of the current decade, Punjab, with much fanfare, made another attempt when it hired an international consultant in 2012 for modernisation of storage facility.

The study established financial viability of the project relating to construction and operational and service standards for silos. The initiative, however, fizzled out. Five years down the line, the Punjab government is at it again.

The authors of the new plan are optimistic for two reasons. First, Punjab had borne so much financial cost that it could not afford to continue with this outdated storage for this reason alone. Second, they have drawn lessons from past experiences and failures and have covered their flanks.

Punjab needs to upgrade its archaic storage system, and reduce its heavy costs. For example, the consultant reported 7.5pc supply chain losses in 2012. The Punjab governmwent buys wheat worth around Rs150bn every year. That means only annual supply chain losses are just under Rs11bn. This is one dimension of the price the province pays for failure to build modern silos.

Since these silos would be bulk storages — they would free the food department from shopping gunny bags worth Rs30bn every year. Though the department recovers this cost from millers, it still pays mark-up for the difference of time between its purchase and recovery.

The millers, on their part, sell the gunny bags in open market at half the price and pass on the rest — around Rs15bn — to consumers.

Modern silos have information technology that measures impurities and moisture content in the stored commodity and take human discretion out of weighing and storage process.

If weighing, impurities and moisture can be controlled through technology, it would be a paradigm shift for the entire faulty procurement process.

But the bulk handling system is an integrated concept and upgrading silos is one part of it. The other two parts are receiving and selling wheat in bulk. That means the farmers bringing the commodity in bulk — without gunny bags — and millers receiving it in bulk.

More investment is needed for technological and logistical requirements on both ends. The millers can afford to invest in modern crane-fitted trucks. For farmers, transporting wheat in bulk to silos would still be a uphill task. If they remain stuck with gunny bags, the full benefits of the system would be hard to realise. The government now needs to provide enabling environment to the private sector, or individual farmers, to have a transport system that could bring wheat to these centres in bulk.

Published in Dawn, Business & Finance weekly, March 6th, 2017