## Lesson 47. Costs And Returns On Storage

47.1 Cost and Returns on Storage

The gross return on storage may be defined as the increase in the price of the stored product at the time of storage till it is "de-stored" and either sold or consumed. The cost of storage should include the following:

1.  The cost of the maintenance of the storage structure, i.e.,  depreciation, repairs, insurance and interest on sunk capital; or, alternatively, the rent paid for hiring the storage structure;

2.  Interest on the value of the stored goods;

3.  Value of the quantitative and qualitative loss during storage;

4.  Risk premium for a possible price fall and damage during storage;

5.  The cost of protective materials; for example, insecticides, pesticides, rodenticides, fumigation, gunny bags, electricity, polythene covers; and

6.  Tax payments, payment's to labour, etc.

These items of costs may be grouped into fixed or variable costs, depending on whether they vary with the quantity of goods stored or not. For example, for a professional warehouse owner, the maintenance and repair of the storage structure, the salaries of the permanent staff, depreciation on the building, taxes, record keeping, etc., are fixed costs. For a farmer, however, who is trying to decide whether to sell or store grain for some time for later sale, all the costs are variable.

Whether it pays a farmer to store his farm produce may be worked out with the help of the following formula:

NR = GR- C                                                                       ................................................................ (47.1)

Where

NR = Net returns to storage (Rs.)

GR = P1-P0

Po = Purchase price or market price at the time of storage

P1 = Selling or market price at the time of de-storing

C = Cost involved in storage

NR > 0, implies positive returns on storage

NR < 0, indicates negative returns on storage

The Percentage margin (Ms) from storage may be calculated as:

Where all have meanings as defined earlier.

 Sr No. Item Rs.   (per quintal) (i) Charges of loading at the auction platform  and unloading till the warehouse 1.00 (ii) Transportation charges from the auction  platform to the warehouse 1.00 (iii) Warehouse charges for 9 months 18.00 (iv) Loss during storage and transit 2.50 (v) Interest on Rs. 250 foregone for  9 months @ 16% per year 30.00 (vi) Transportation charges from warehouse to the auction platform 1.00 (vii) Loading at the warehouse and unloading at the auction platform 1.00 Total Rs.54.50

Using the notations given earlier, Po = 250, C = 54.50, NR will be positive only if PI or price of wheal in the mouth of December is expected to be more than the sum of Po and C i.e., Rs, 304.50.

References:

1) Hall, D. W. Handling and storage of food grains in tropical and subtropical Areas.

2) Sinha, R.N &Muir. Grain Storage: Part of a System. Avi Publisher