Warehouse Receipt Systems

Here is a very informative educational documentary on Warehouse Receipt Systems produced by the Technical Centre for Agricultural and Rural Cooperation ACO-EU (CTA), Agence Français de Développementé (AFD) and the Natural Resources Institute (NRI).

The film documents a study visit to Tanzania and South Africa. Even though the film provides plenty of useful information, its authors make sure to note:

“The examples presented in these two countries are typified by particular experiments and contexts and cannot simply be transposed to other cases. Nonetheless there are a great number of lessons to be learnt and which could provide guidancefor certain aspects of orientation and initiatives in your respective countries.”

I personally think that the documentary illustrates theoretical issues which are encountered the world over, and are not specific to any particular context. The film raises questions regarding trust, confidence, contractual completeness, regulation, product quality and standardisation. Even though in this documentary the issues emerge with regards to warehouse receipt systems, they are intrinsic characteristics of any market negotiations (and eventual transactions) taking place without the double coincidence of time and place. The film focuses on futures markets i.e. transactions without coinsidence in time. Conversely, market negotiations carried out via mobile phones, or other ICTs exemplify transactions without coinsidene in place.


Warehouse receipt systems were developed in the 1990s as a response to farmers’ income instability due to price fluctuations resulting from liberalisation. Since prices tend to be low during harvest periods and to subsequently rise, warehouse reeipt systems provide a solution by storing commodities for the suration of the low price season. Price volatility and lack of quality standards are attributed to market liberalisation in the agricultural sector.

Warehouse receipt systems operationalise the food supply chain and involve the following stakehoders:

  • farmers (individuals or cooperatives)
  • warehouse operators
  • financial institutions
  • exporters, traders

Tanzania

The warehouse receipt system was introduced in Tanzania in 2005 with the pilot crops of coffee and cotton. It enables farmers to receive loans and assure the quality of their produce. The system allows coffee producers (individuals or cooperatives) to store their coffee in a silo. Upon the receipt of the coffee the producers are issued with 2 certificates: certificate of title for them to keep and certificate of pledge to provide to third parties. These are normally cooperative or commercial banks participating in the system. The certificates of deposit allow farmers to induce confidence in the financial institutions. They also enable the banks to reach a new set of customers for financial services.

The warehouses also ensure the transparency of the commodity marketing system. Commodities are classified according to quality and offered for sale at regional and sub-regional markets. For example, coffee is graded and offered for sale at auctions administered by a public organisation.

Producers in other sectors, such as the Chawampu rice growers cooperative, have followed suit. Representatives of the cooperative introduce a model whereby they are able to offer 70% of market value of deposited quantities of rice. Subsequently, after selling the crop and substracting the administrative costs the cooperative, they provide a second payment to the members of the cooperative. Farmers use any additional income in order to buy seeds, fertilizer and to develop off-season activities.

The warehouse receipt systems functions well due to the high price differentials between the post-harvest season and the hungry season. The main challenges to the warehouse receipt system remain:

  • providing adequate infrastructure
  • ensuring warehouse security
  • reinforcing producers’ organisations
  • increasing the number of quality control specialists
  • reducing operating costs

South Africa

South Africa presents an advanced example based on the warehouse weceipt system because it has a functioning futures market in agricultural commodities. The SAFEX was established in the 1990s during an intense period of market liberalisation.

The advantages of South Africa include its good financial infrastructure for the settlement of deals and the quality of  its physical infrastructure enabling the trading, warehousing and transportation of the commodities. Critical is the legal enforcability of contractual rights and of legal receipt rights. Thereby, people are able to take the necessary steps and to manage their post-harvest risk well in advance.

SAGIS acts as an information intermediary for the South African commodity markets. It collects and distributes local consumption and up-to-date market information. The agricultural marketing giant SENWES provides mobile phone access to hourly prices of grain via SMS. Even though it is not typical of Africa in favouring large scale farmers, the South African warehouse receipt experience provides a useful benchmark for implementations elsewhere.

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4 thoughts on “Warehouse Receipt Systems”

  1. Interesting documentary and perhaps the two countries provide complimentary contexts. On one hand, Tanzania shows early stage developments, while South Africa provides an example of an advanced system. The warehouse receipt system also operates in Uganda, but has not yet caught on. For starters, cooperatives or farmer groups collapsed awhile back although there is an effort to revive them. Without groups, it is difficult for the average smaller farmer to participate effectively. There are too many hurdles in their way, not to mention information asymmetries. Given that many of the farmers are peasants, they prefer immediate payments for consumption. With emerging farmer groups, they are being encouraged to keep a small portion of their harvest with the group so it can fetch a better price in the future. The group or cooperative then deals with the logistics of storage and finding a good future price. But given the nature of members, they usually will not be able to wait for such long times for the better prices.

    Perhaps in developed agricultural markets like South Africa where a few large farms produce the bulk, they have the capacity to deal with issues of quality. Just telling a rural Ugandan farmer that your coffee is of “Class C” might not be very useful. There might be a need to link this up with the agricultural extension service, which then translates this into simple cumulative actions that a farmer needs to take into account to improve their quality.

    I also agree with you that the issues manifested in the documentary are nearly universal. Although the emerge within the context of the warehouse system, ordinary participants in various agricultural value chains have to devise rudimentary mechanisms to address them.

    Nice post!

  2. Educational Warehouse Receipt Documentary some errors. Would you please send through CD to below mailing address

    Muhammad Nadeem Khanzada
    Joint Director
    Rural Finance Policy Division
    Agricultural Credit Department
    State Bank of Pakistan
    I. I Chundrigar Road
    karachi Pakistan
    +92-21-99218107

  3. Interesting but could be better. I always read these articles and subsequent posts and think “why do people who do not really understand the EXACT situation in a given country or have experience from within both the commodity trade itself, cooperatives and WRS have to provide incorrect or assumption based statements” it just makes them look uninformed and also does collateral damage to the WRS and commodity exchange movement as a whole. After over 30 years in the business and having worked to assist multiple commodity exchange and WR systems I know what works, what doesn’t and how to achieve success. However, political interests, reluctance to commit at government level for fear of failure, a lack of good warehouse infrastructure and also a shortage of absolute commitment to see a project initiative through to the point of self sustainability on the p;art of donors are the main reasons why WRS / Commodity Exchange success results are so mixed. If you want to see one system that works (but still needs improvement and development) go to Ethiopia and get under the skin of ECX!!!
    John K.

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