AGP-AMDe - thiopia Warehouse Receipt System and
Regulation – A Case for Expansion
By the Agricultural Growth Program-Agribusiness and
Market Development (AGP-
July
19, 2013 (published online: February 11, 2014 3:07:13 PM)
EXECUTIVE
SUMMARY
Smallholder
farmers in Ethiopia, as in many other African countries, are largely located in
poor rural areas, geographically dispersed, and have limited access to road and
communication infrastructure; thus raising the cost of market participation.
This is especially true for farmers growing relatively low value staple crops
on smallholdings. Many development efforts focus on increasing the production
capacity of smallholder farmers in order to increase their incomes. However, in
the absence of strategies that increase market access and augment limited
demand, production increases and storage capacities may actually depress
commodity prices and incomes.
A
warehouse receipt system (WRS) provides guaranteed storage and quality control
to buyers and sellers. In Tanzania, for example, after the WRS was introduced,
farm gate prices increased leading to an immediate and positive impact on
farmers’ income. It enabled farmers to improve the quality and increase the
quantity of their produce and access financial services and loans.
The
Government of Ethiopia plans to define a strategy that will ensure access to
finance by the smallholder farmers and increased returns from the sale of their
commodities. The aim is to greatly expand the physical availability of
warehousing services, while making warehouse receipts a primary tool of trade
and trade financing. Such a system will allow banks to improve the quality of
their lending portfolio, and enhance their interest in the agricultural sector.
This will result in higher returns to farmers, better service to consumers
(lower prices, better quality and greater variety) and macro-economic benefits
through a more healthy trade balance in agricultural commodities.
A
WRS has significant potential to resolve the existing challenges in the output
market. It is a system of financing and trading agricultural outputs based on a
warehouse receipt; a document guaranteeing the existence and availability of a
given quality and quantity of commodity in storage for safekeeping. The system
finances agricultural commodity owners by using their commodity as collateral.
A
well-designed warehouse receipt system can provide many benefits to smallholder
farmers, cooperatives, traders, and other players across the agricultural value
chain. The first and most immediate benefit to smallholder farmers is that it
enables smallholder farmers to access credit by using their output as
collateral. This satisfies farmers’ cash needs at harvest time and allows them
to wait for a better offer or price at which to sell their commodities; which
as a result gives them better bargaining power. The second benefit relates to
reducing post-harvest losses. A WRS can enable standard storage service
provision on a credit basis; so farmers can pay for the service after their
product is sold; which can reduce the incidence of post-harvest losses.
Finally,
the system allows farmers to create a financial identity. In a WRS, the opening
of individual accounts is mandatory – hence, the account records a farmer’s
financial history and can demonstrate their creditworthiness to financial
institutions should farmers require further financial support in the future.
The review team found an overwhelming support for
reactivation of Proclamation No. 372/2003 that mandates the Ministry of Trade
to regulate the WRS. The Warehouse Receipt Financing Proclamation No. 372/2003
identifies the Ministry of Trade as the implementing institution with the
responsibility to regulate WRS operations and enactment of directives for
matters that have not been covered in the proclamation.
As a way forward, it is recommended that:
i. The expansion of the current WRS operated by Ethiopia
Commodity Exchange (ECX) to cover more commodities and stakeholders;
ii. Review, update, and implement the Proclamation that gives
Mandate to the Ministry of Trade to implement and regulate the WRS;
iii. Creation of a strong Licensing Regulatory Body;
iv. Capacity development of all Warehouse System actors and
stakeholders;
v. The Government should treat WRS as a priority and provide
incentives to promote availability and access to private sector investments in
a warehouse receipts infrastructure;
vi. Stock-taking of the number, quality and capacity of
warehouses in surplus production areas for strategic planning and capacity
intervention; and
vii. Establish the technical, managerial, and resource
requirements for establishing a warehouse and grading regulatory system at the
Ministry of Trade.
Read the full report
here: http://www.scribd.com/doc/214571297/AGP-AMDe-Ethiopia-Warehouse-Receipt-System-a-Case-for-Expansion-Report
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