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Making progress in finance, market and post-harvest risk management
Policy Brief
Key messages
1.
2.
3.
4.
Governments of sub-Saharan
African (SSA) countries and
development partners have taken
considerable interest in four
different types of warehouse
receipt systems (WRS): community-
based system; private collateral
management; public regulated
system; and pledge on production.
WRS entitle farmers to store
commodities in exchange of a
“receipt”. These schemes have
extensive prospects for farmers
to manage risks because they
may include services that enable
farmers to access credit, well-
managed storage facilities,
secure inputs and better/stable
market prices.
Sustainability is constrained by
limited security of legal
enforcement, inadequate
warehouse infrastructure, poor
local management capacities,
absence of local ownership in
donor sponsored schemes and
financial partners' reluctance to
support WRS in rural areas.
Responses to the challenges in WRS
should focus on: enactment of a robust
legislative framework for WRS,
strengthening the skills and
empowering community groups,
farmers and service providers to assume
responsibilities, stimulating investment
in quality warehouse structures and
building on existing local institutions.
Context
Agricultural development in sub-Saharan Africa (SSA) is challenged by
risks that are rooted at several but interlinked levels – production,
markets and macro/policy environments. In Mozambique and
Uganda, endemics of pest and disease are frequent in the production
and post-harvest months due to inadequate use of proper inputs and
poor storage facilities. In countries like Cote d'Ivoire, Burkina Faso and
Niger farmers' access to structured market for inputs and major
commodities such as cocoa, coffee, cotton and groundnuts, is often
exacerbated by civil strife. In politically stable economies like Ghana,
lack of knowledge over price trends and inadequate storage facilities
lessen farmers' potential to benefit from market price changes. The
impacts of these risks are not different from the cases of Madagascar
and Senegal where farmers suffer competition from cheaper import.
In addressing these challenges, many governments, local groups,
development partners and other stakeholders in SSA have recently
invested considerable interests and resources into different WRS
schemes. A “Study on Appropriate Warehousing and Collateral
Management Systems in Sub-Saharan Africa”
2
was conducted in
2014. It forms the basis for this policy brief. The different initiatives
studied in the nine case countries show the opportunities and
constraints to develop sustainable WRS in SSA.
Four types of WRS in SSA
A WRS scheme entitles farmers to deposit storable commodities in
well-managed structures in exchange for a document known as
warehouse receipt (WR). The receipt provides proof of ownership of
stated quantity and quality of commodity in the warehouse. It could
1 This policy brief was developed by Balikisu Osman for PARM, IFAD
2
A three-volume report from “Study on Appropriate Warehousing and Collateral Management
Systems in in Sub-Saharan Africa” conducted by J. Coulter, Consulting Ltd and Sullivan &
Worcester, UK LLP. The subject countries are Burkina Faso, Niger, Senegal, Ghana, Cote d’Ivoire,
Madagascar, Cameroon, Mozambique, and Uganda. The full reports were co-published by the
Agence Française de Développement (AFD), the Technical Centre for Agricultural and Rural
Cooperation (CTA) and the International Fund for Agricultural Development (IFAD) / PARM.
be used to secure a loan from a connected financial service provider.
Depending on the legal framework, the value of the receipt may or
may not be negotiable. Based on the cases studied in Burkina Faso,
Niger, Senegal, Ghana, Cote d’Ivoire, Madagascar, Cameroon,
Mozambique, and Uganda, four main types or modalities of WRS in
SSA have been identified: the community-based system; private
collateral management system; public warehouse system; and pledge
on current/future production. While detailed description of the four
types of WRS in SSA is given below, the Table 1 presents a summary
of the potential advantages and limitations.
Table 1: Potential Advantages and Disadvantages of the four WRS
Type of WRS3
Advantages
Disadvantages
Community-
based:
MG, BF, NG,
SG, CM
Direct farmer involvement
High accountability and
repayment
Improve management of local
economy
Operates with fixed calendar
Depend on donor support
Producers lack storage skills and
market knowledge
Not regulated
Public
regulated:
UG, GH, MZ,
SG, CI
Open system for all public
Facilitates price discovery,
trading & development of
commodity exchange
Requires regulation
Require economies of scale
High cost of operation
Bureaucracy with quality
management challenges
Private
collateral
management:
UG, BF, NG,
GH, CI, MZ,
SG, CM
Important component for value
chain development
Private activity not dependent
on donors or governments
supports
High cost of operation
Inaccessible to many rural clients
Vulnerable to fraud
Require adequate regulations, which
might not exist
Pledge on
production: CI
Access to production finance
before harvesting
Facilitates contract farming
Open for value chain finance
Requires much monitoring and
supervision
Source: Adapted from AFD/CTA/IFAD-PARM, 2014, pg. 125/6
i
Community-based WRS
Community groups and producer organisations in partnership with
microfinance institutions (MFIs) support warehouse receipt activities.
3
MG-Madagascar, BF-Burkina Faso, NG-Niger, SG-Senegal, CM-Cameroon, UG-Uganda, GH-
Ghana, MZ-Mozambique, CI-Cote d'Ivoire.
Platform for Agricultural Risk Management
Warehouse Receipt System | Comparative | Policy Brief | January 2017
Tools Assessment
Warehouse Receipt System
In sub-Saharan Africa1:
2
Platform for Agricultural Risk Management
Warehouse Receipt System | Comparative| Policy Brief | January 2017
At the most basic level, commodities are stored in community-owned
or rented facility under a double key padlock system: the group
secures one key and the MFIs secure the other. Stocks are managed
with technical support from local or international development
organisations, government agencies and private consultants. In some
cases, financial, technical and other supportive services come from
members' contributions. Community-based WRS are more
decentralised in nature, but may also be centralised when producer
groups merge into well-represented union or federation with
institutional viability. Both centralised and decentralised activities have
taken place in different forms across SSA such as the Greniers
Communautaires Villageoises (GCVs) in Madagascar, and Community
Warrantages (CW) in Burkina Faso, Niger, Senegal and Cameroon.
Private collateral management system
Collateral management companies may provide support for
commodity storage activities that are far beyond the capacities of
community groups. Popular among them are the ACE, Coronet, and
Ballore Group, who work in a number of SSA countries. The WR
operations of these companies involve tripartite agreements with
producers and financial service providers. The operator handles
depositors' stock in a warehouse facility rented or owned by the
company or a client and administers the receipts. Farmers can store
their commodities, and sell later when prices are higher. While
commodities are in storage, farmers may access inputs, loans, and
brokerage services from the company or other connected third
parties. The system has enabled producers in Cote d'Ivoire, Senegal
and Uganda to secure quality input supply from warehouse operators
and benefit higher and more stable commodity market prices.
Public Regulated WRS
In some countries, the government establishes warehouse facilities
and appoints a regulatory body to regulate public warehouses or
licensed private facilities where the general public can deposit
commodities. In regulated warehouses, stocks may be stored for
many months. Effective pre and post storage services such as
commodity cleaning, bagging, drying, stocking and pest control are
rendered to maintain stock quality. Depositors may also have access
to supportive services such as brokerage and value chain
development. Both public and private warehouses regulated by the
state serve as avenues for farmers to avoid post-harvest pest attacks,
improve commodity quality and connect to potential buyers.
Examples exist in Uganda and Ghana, but Mozambique is yet to
progress after failed attempts.
Pledge on Production
Pledges are made on expected agricultural harvest rather than
conventional system of stocked commodities. With this system, a
farmer pledges on the current or future production and a financial
provider lends against a documented security presenting the state of
the pledged produce. Pledge on production is not common in SSA
but a related activity is practiced in Côte d’Ivoire where banks are
lending to rubber farmers based on the security of crops. The banks
depend on supervisory and monitoring systems to ensure full
repayments. It is expected that an introduction of legal basis for WRS
will attract banks and collateral operators to promote receipts on
current or future production but this might be limited by the
perishability of the commodity in question.
Legal Framework for WRS in SSA
One of the main constraints for the development of WRS in SSA is the
limited legal backing for warehouses, warehouse operators and
collateral management activities. At the time the study was
conducted, only Uganda has a WRS Act, enacted in 2006. Ghana and
Mozambique have pushed forward a drafted legislation to control
future operations, if enacted. Meanwhile, WRS management and
agreements are based on principles of contract law, with different
means to establishing security and different degrees of law
enforcement.
The Organisation for the Harmonisation of Business Law in Africa
(OHADA) is a legal agreement that oversees legal norms needed to
ease commercial operations. For members of the OHADA countries
(Senegal, Niger, Cameroon, Burkina Faso and Cote d'Ivoire) financing
and security on pledged goods is guaranteed through registration
with the Registre du Commerce et du Crédit Mobilier (RCCM). But the
enforcement of the five-country OHADA regulations at national level
is not always strong. In other countries, security is enshrined under
national regulations like the Securities Act of 2004 (Law No 2003-041)
in Madagascar, which requires borrowers to grant full control over
pledges to financiers. The progress in Ghana entails Warehouse
Receipt Rules and Regulations (WRRRs) for Ghana Grain Council (GGC)
regulated operators, and registration of unregulated pledges with the
Collateral Security Registry. However, in Mozambique, there is neither
a security act nor a registry, thus increasing risks of double pledging.
In addition to the legal framework, other opportunities and threats in
WRS in SSA are presented in (Table 2).
Table 2: Opportunities and Threats of WRS in SSA
Case countries
Opportunities
Threats
Uganda
Liberal government policy on
trade
Weak involvement of private stakeholders
Cameroon
Government and donor
support
Limited involvement of local operators
No certification on standards
Senegal
Stakeholder driven
Government and donor
support
Policy contradictions and competition of cheap
imports
Niger
High ownership and
accountability
Vision leadership
Limited private sector involvement
Mozambique
Existence of 39 silos with
capacity of 200,000tons and
quality control lab.
Lack consultation of private stakeholders
Warehouses are distant from farmers.
Cote d'Ivoire
Government driven
Non-performing coops
Limited involvement of stakeholders
Ghana
Stakeholder driven
Long-term support of funding
agencies
GGC's cohesion and governance
Limited scale of formal markets
Burkina Faso
Stakeholder driven
Visionary leadership
Lack of experience
Interventionist trend at government level.
Madagascar
Strong demand
Vision leadership
Long-term commitment
Poor quality management
Contradictions with liberalised import policy
Source: Adapted from AFD/CTA/IFAD-PARM, 2014, pg. 126/7ii
Contributions to Agricultural Risk Management
When managed professionally, WRS schemes could extensively
improve farmers' management of risks and, hence, their livelihoods. It
contributes to agricultural risk management in at least three
directions: access to collateral and agricultural finance; security over
quality inputs and better stable commodity prices; and reduction of
post-harvest losses.
1. Improving smallholder farmers' access to
collateral and agricultural finance
Access to finance remains a key challenge to smallholder farmers in
sub-Saharan Africa. Due to high costs and risks, financial service
providers are reluctant to render loan services to these farmers most
of whom reside in remote rural areas and lack collateral security.
Through WRS activities, community groups, financial service
providers, and collateral management companies can ease
smallholder farmers' access to credit facilities. Cases across
Madagascar, Burkina Faso, Niger, Senegal and Cameroon portray
positive outcomes.
3
Platform for Agricultural Risk Management
Warehouse Receipt System | Comparative| Policy Brief | January 2017
GCVs in Madagascar
In Madagascar, members of producer groups and federations such as
FIFATA, TIAVO, OTIV and UNICECAM store commodities in
home/compound-based or community-owned facilities from 3 to 10
months. Within the period, farmers could access loans at interest rates
of 1.5% to 4%, from mutual and non-mutual financial service
providers using the stock as collateral. The total lending from three
organisations (UNICECAM, TIAVO and OTIV Tana) are estimated at
USD 10.2m in 2010 and USD 20.6m in 2013. Efforts to extend services
to clients in deprived areas have increased but the average loan sizes
have shrunk since 2011, from USD 436 to USD 315 in 2013 due to bad
harvests and competition from cheaper imports.
Centralised activities in Niger and Burkina Faso
The state-owned agricultural bank of Niger (BAGRI) and three MFIs
(the Asusu S.A, Tanaadi and the Coopec-Kokari) dominate community
warrantage activities in Niger. They provide storage credit facilities
and pre-finance operations of centralised producer organisations like
the Cigaba Union and Mooriben Federation. Annual loan to members
of Cigaba Union in Konkorido area was €123,000 in 2008/09 season.
Unlike other warrantage groups, the Cigaba Union has adopted best
practices to become less dependent on donor funded warehouse and
reduced loan-to-value rate for credit.
In Burkina Faso, centralised community warrantage activities have
contributed to the institutional viability of small producer groups, and
potentially reduced cost of services for MFIs and simplified access to
financial services. Financing for warrantage activities in Burkina Faso,
mainly come from members' savings. However, activities have recently
attracted Coris Bank, which started financing to warrantage groups in
2014.
Decentralised activities in Senegal and Cameroon
The EU funded community warrantage pilot for smaller groups of
maize and millet farmers in Kaolack region of Senegal. The project
involved MFIs such as GRET, ENDA, PAMIF, ADAK and U-IMCEC to
work NGOs and provide credit on warehoused commodities. Loans
were up to 80% of the stock value, and were repaid on monthly
instalments. The initiative increased income of participating farmers
by 24% but failed to continue at the end of the project as MFIs were
not prepared to operate without logistic support from donors.
In Cameroon, community WRS was championed through three
projects – the PADMIR
4
, CAMCAUUL network and APCC
5
/Credit du
Sahel/SODECOTON. The PADMIR project connected about 62,000
small rural producers to 260 microfinance networks in Central,
Western and Far North regions of Cameroon. The APCC, Credit du
Sahel and SODECOTON partnered scheme provided production credit
to cereal farmers. These developments have attracted the attention of
Government of Cameroon and the World Bank to launch WRS on
food crops like cassava, maize and sorghum. A major threat to the
system however, is the inexistence of legal framework to control
activities and perishability of some of the commodities. Security is
guaranteed by elements of trust and peer pressure.
2. Securing quality input, and better and stable
market prices for commodities
The fragile socio-economic and political landscapes of most sub-
Saharan African countries trap farmers into informal, unreliable and
unsecured input markets. Commodity markets are also unstable, with
low prices during harvest season, and price increases in more than
4
Projet d'appui au développement de la microfinance rurale (PADMIR)
5
Cotton producers association (APCC)
three months after. But not all farmers can benefit from such price
rises because of lack of knowledge, poor network with buyers and
inadequate storage facilities. With the WRS, collateral managing firms,
community groups and state regulatory bodies, compel
farmers/traders to store commodities and benefit from services that
include storage securities, brokerage, input supply and value chain
development.
Receipting with ACE in Cote d'Ivoire
Collateral management companies in Cote d'Ivoire handle exports of
cashew, coffee, cocoa, cotton and imports like fertilizers. Their
operations, mainly at the ports of Abidjan and San Pedro have revived
agricultural inputs supply in the local market. The ACE has a WR
agreement with cotton farmers on many production inputs. The
company monitors stock at cotton gins, oversees government input
subsidies and coordinates input supply to cooperatives. About 72,000
farmers have secured reliable access to fertilizers and pesticides from
the ACE WR scheme, but it relied on 20% government subsidies that
might not be sustainable. Another remarkable aspect of the ACE WRS
is that it operates with an electronic system and connects farmers to
exporters and buyers who offer better market prices.
Ballore Group on USAID/PCE in Senegal
Under the Projet Croissance économique (PCE), the United States
Agency for International Development (USAID) championed a
tripartite agreement between Ballore Group, FEPROMAS federation
and CNCAS bank to increase maize production, value-chain and
connections to feed millers in Dakar. For beneficiary farmers, the
initiative is a great opportunity to seek reliable supply of farm inputs
and equipment from Ballore Group. Through the project, Ballore
Group served about 882 farmers, but was undermined with limited
formalization in the collateral management procedures, inconsistency
in commodity quality and a drop in international prices for maize.
Unregulated schemes of Coronet and USAID/CFC in Uganda
Even though private collateral management activities are not
regulated in Uganda, companies are remarkably advancing farmers
livelihoods. The Coronet serves cereal cooperatives with production
credit on inputs, labour and pre-harvest operations. It also contracts
specialist to pre-inspection, test quality, and develop value-chain for
stocked commodities, but did not reach out to more rural clients for
fear of cost and transactional risks. A similar scheme piloted
sponsored by the Common Fund for Commodities (CFC) and USAID
commenced in 2004 to link coffee and seed cotton cooperatives to
warehouses managed by collateral companies. Some cooperatives
later secured export licence and begAn exporting cotton seeds
directly to international markets. Export increased from 460 tons of
lint bales in 2008, to 1,000 tons in 2010.
Wienco Ghana outgrowers scheme
Wienco Ghana is a private entity that operates warehouse receipt
through the GGC's regulated public initiative in Ghana. It accounts for
49% of GGC's warehouse operations where farmers deposit
commodities in licenced warehouses during harvesting seasons and
receive inputs for production. The client farmers of this Wienco's
outgrowers' scheme receive fertilizers, insecticides, hybrid seeds,
spraying machines and other farm equipment. Sometimes, the service
provider contracts experts to give technical advice and trainings to
farmers. It has been reported that the services have enabled clients to
increase yields from 1.2-1.8 tons to 4.0-4.3 tons per ha.
3. Reducing Post-Harvest losses and maintaining
commodity quality
With the seasonality of production and limited storage/processing
facilities in SSA, farmers have to sell their produce immediately after
4
Platform for Agricultural Risk Management
Warehouse Receipt System | Comparative| Policy Brief | January 2017
harvest. Others who store their commodities for later are faced with
post-harvest losses in commodity quality and quantity due to pests,
diseases, theft, damp weather and other events. However, with the
WRS, client farmers/traders deposit their commodities in well-
managed warehouses where stocks are properly handled, monitored
and checked for quality purposes. Many public, privately licenced and
community managed warehouses in sub-Sahara Africa have granted
farmers with such opportunities to prevent post-harvest losses.
UCE in Uganda
Estimated post-harvest loss of grains in Uganda is averaged at 70%. A
WRS act was enacted in 2006, followed by the establishment of the
Uganda Commodity Exchange (UCE) with assistance from the
European Commission (EU). Even though the UCE is mandated to
oversee operations in both state-owned and licenced private
warehouses, it practically focuses on public storage of grains and
pulses. It has connected depositors to an e-WRS and trained them to
use efficient post-harvest handling techniques to protect commodities
from damp weather, pest and disease attacks. Stocks in warehouses
are benefit from inspection and quality checks undertaken by
warehouse chief examiners and staff. The practice improved quality of
warehouse receipted stock, and attracted traders to offer better prices
to smallholder farmers, especially in the Eastern Uganda. By the end
of the EU assistance in 2013, stock deposits were estimated at about
22,600 tons but the quantities were small to make the project viable.
Additionally, the project did not succeed to engage WFP – a dominant
buyer – due to low quality standard.
The GGC and GCX initiatives in Ghana
The Ghana Grain Council (GGC) and Ghana Commodity Exchange
(GCX) initiatives are set to revive the distorted WRS pilot for maize in
the 1990s. Since inception in 2012, the GGC has certified seven
warehouses with a capacity of 36,000 tons. Each warehouse has drying
and cleaning facilities. Before storage, commodities are subjected to
moisture and foreign matter inspections by the Ghana Standards
Authority (GSA). The UCE also contracts external experts to monitor
stock and check storage hygiene, commodity quality, and pest
control. Deposits are expected to increase in the next five years and
this would require adequate warehouse capacities.
The BMM and SATH in Mozambique
Mozambique attempted public warehouse receipting through two
initiatives: the Mozambique Commodity Exchange (BMM) and
Southern African Trade Hub (SATH). The BMM is set to assume
responsibility to licence 39 silos with capacities of 200,000 tons even
though most of them are not reachable, in terms of the distance from
rural farmers. Operations are expected to provide better storage
options for grains, and enable farmers to store their commodities for
more than five months after harvest. SATH is a revived initiative that
seeks to work with Export Trading Group (ETG) on USAID supports,
even though it has failed in the past as a result financier's bankruptcy.
GCVs and commodity storage protection in Madagascar
The GCV activities bring farmers together to learn and share
commodity storage mechanisms that are useful for combating post-
harvest storage pest and disease attacks. In all the GCV mutual
networks, family and community farmer groups are collectively
responsible for cleaning, weighing, loading, stacking of commodities.
They also receive assistance from management specialists such as
International Monetary Fund (IMF) staff who are supporting farmers in
many storage activities including preservation, grains quality
monitoring, and cleanliness of warehouses. In the collateral activities
of the Fund for Marketing Agricultural Products (FCPA), supervisors
examine the condition of the warehouses and monitor commodity
quality to ensure stock safety against post-harvest losses.
Recommendations
The WRS has significant prospects for farmers to manage the
complexities of risks that surround their livelihoods, but the full
potentials have not been fetched in SSA due to challenging
constraints. Enhancing the schemes’ sustainability requires much
effort from governments, donors, financial service providers, producer
groups, individual farmers and other stakeholders. The study proposes
the following recommendations:
Enactment of proper legislative framework: With the exception of
Uganda, none of the case countries have passed a warehouse receipt
law to provide legal basis for the scheme. Activities are defined based
on ordinary principles of contract law and the OHADA Uniform Act (in
the five case countries in West Africa). This does not guarantee
enough security for actors. Appropriate legal framework is required
to ensure credibility of the system. Legislation should stipulate
modalities on pledges, the requirement for warehouse structures,
quality standards for stock, usability of receipts and other concerned
security issues.
Enhance knowledge, management capacities and ownership from
local groups: Not all the initiatives were continued at the end of
donor assistance. Increasing ownership from local communities
should be prioritized in WRS project design. Donors should capitalise
on local knowledge in developing the components of WRS schemes.
This requires building local capacities from the inception stage, and
permitting them to use their acquired skills throughout the project
life-span.
Open up for private investment in warehouse structures and
schemes: Collateral management companies in Africa are few, and
community groups' depend on donor sponsored facilities, which is
not a laudable solution. Governments should open up for private
investment in warehouse facilities and their maintenance. They should
provide incentives in form of tax rebates, utilities, flexible contract
allocation, expertise training and other forms of supports, to entice
private bodies into warehouse structures investments. Partnerships
including farmers and private companies can enhance the
development and access to more secure and efficient value chains.
Build on local institutions: Even though financial service component
of WRS is critical for agricultural development and risk management,
providers have downplayed its importance to smallholder farmers. In
many cases, banks are hesitant to serve rural farmers for fear of cost
and risks. Federations and cooperatives that have existed in many
rural communities should be involved. Banks should work with NGOs
to provide responsive savings and repayment trainings to members of
organised groups. Executives of federations should be capacitated to
administer loans, oversee warehouse pledges, secure commodity
markets that pay better and stable prices, and lead reimbursement
procedures.
i
Volume 1 – Key Findings “Study on Appropriate Warehousing and Collateral Management Systems in in Sub-Saharan
Africa”.