Improving agricultural commodity trade and finance in Africa through promoting a warehouse receipt system.
Submitting InstitutionUniversity of Greenwich
Unit of AssessmentAnthropology and Development Studies
Summary Impact TypeEnvironmental
Research Subject Area(s)
Economics: Applied Economics, Econometrics
Commerce, Management, Tourism and Services: Banking, Finance and Investment
Summary of the impact
The Natural Resources Institute (NRI) of the University of Greenwich has,
since the early 1990s, played a lead role in researching, developing and
piloting a sustainable and transferable warehouse receipt system (WRS)
that is accessible to smallholder farmers in Africa. This institutional
innovation helps to overcome post-liberalisation challenges in agriculture
by easing access to finance, improving crop marketing and increasing
incomes for smallholder farmers. The outcome of the pilots is also
influencing strategic choices by governments in developing institutions,
regulations and policies which foster efficient and remunerative output
markets in Africa.
Decades after liberalisation, Africa's agriculture continues to be
hampered by inefficient markets with low transparency, high transaction
costs and high price volatility. Smallholder farmers and small-scale
traders have very limited access to finance. Consequently, smallholder
farmers are often compelled by household liquidity constraints to sell the
bulk of their produce at harvest when prices are low. This squeezes
producer margins and reduces incentives to adopt technology which can
increase farm productivity and output.
Availability of inventory finance (loans made using agricultural
commodities stored in third-party warehouses as collateral) can help
address some of these challenges. However, in the 1990s the most common
inventory finance systems in Africa had major limitations. Commercial
providers of inventory finance required the underlying stocks to be
managed by reputable international inspection companies who charged high
fees: affordable by only large-scale enterprises, engaged predominantly in
import/export trade. Domestic trade in agricultural commodities hardly
benefited. Furthermore, the receipts issued did not represent transferable
title to the stored commodities, so it was not possible to use them in
trade conducted between parties who had no personal contact. On the other
hand, NGOs like Technoserve promoted inventory credit systems which
exclusively targeted smallholder farmers. They typically provided
intensive supervision as well as loan guarantees (sometimes as high as
100% of the credit advanced to farmers). However, the lack of economies of
scale and high oversight costs associated with this system limited efforts
to scale up and to achieve sustainability.
NRI therefore set as its research objective the development of a
sustainable warehouse receipt system (WRS) that is accessible to
smallholder farmers. The aim was to develop a WRS which improves access to
inventory finance but also facilitates trade because the receipt
represents transferable title to the stored commodity. Such a system had
to attract commercial finance and larger-scale depositors - farmers,
processors and exporters - in order to build up breakeven volumes within
4-5 years, the duration of most donor-funded projects.
NRI's initial research, funded by DFID, involved a review of WRS models
in the US, South America, India and Eastern Europe. The most promising
model was then piloted for maize in Ghana in 1993-1996. The research
indicated that a regulated, widely-accessible WRS will deliver benefits to
African farmers by easing access to finance and facilitating more
efficient trade in agricultural commodities, including by providing a
solid foundation for a viable commodity exchange. The research and
subsequent pilots identified the following prerequisites for successful
a. A network of licensed/certified warehouse operators who satisfy
requirements designed to protect the interests of depositors and lenders
including stipulated minimum capital.
b. Enforcement of quality standards which minimise risk of deterioration
of stored commodities during storage and are trade-friendly.
c. A robust regulatory system consisting of warehouse legislation and a
trusted regulatory agency.
d. Issuing of transferable warehouse receipts with features which
minimise the risk of fraud.
e. Reliable market information systems.
f. Access by smallholder farmers through primary-level organisations.
g. Effective capacity building for key players.
References to the research
(REF1 submitted staff in bold, * submitted by the University of Greenwich to RAE 2008, UoA 43, **REF2 Output,)
3.1 Coulter, J., & Shepherd, A. W. (1995). Inventory Credit: an
approach to developing agricultural markets. Food & Agriculture
Organisation Agricultural Services Bulletin No. 120 (cited 35 times
in Google Scholar).
*3.2 Coulter, J., & Poulton, C. (2001). Cereal Market Liberalization
in Africa. In T. Akitama, J. Baffes, D. Larson, & P. Varangis (Eds.),
Commodity Market Reforms: Lessons of two decades (pp. 191-271). The
World Bank: Washington, D.C. (cited 27 times in Google Scholar).
*3.3 Coulter, J., & Onumah, G. (2002). The role of warehouse receipt
systems in enhanced commodity marketing and rural livelihoods in Africa. Food
Policy, 27(4), 319-337. http://dx.doi.org/10.1016/S0306-9192(02)00018-0
(cited 93 times by Google Scholar).
3.4 Onumah, G. E. (2003). Improving access to rural finance through
regulated warehouse receipt systems in Africa. Presented at the Paving the
Way Forward for Rural Finance: An International Conference on Best
Practices, Washington, D.C., 2-4 June 2003 (cited 15 times in Google
3.5 Onumah, G. E., Davis, J. R., Kleih, U., & Proctor, F.J. (2007).
Empowering Smallholder Farmers in Markets: Changing agricultural marketing
systems and innovative responses by producer organizations, ESFIM Working
Paper 2. IFAP/ECART/IFAD. (cited 13 times in Google Scholar)
3.6 Onumah, G. E. (2012). Warehouse Receipts and Securitisation in
Agricultural Finance to Promote Lending to Smallholder Farmers in Africa:
Potential Benefits and Legal/Regulatory Issues. Uniform
Law Review-Revue de droit uniforme, 17(1-2), 351-367. http://dx.doi.org/10.1093/ulr/17.1-2.351
3a Development of Grain Marketing Systems using Warehousing Receipt
and Inventory Credit in Africa.
Common Fund for Commodities (CFC)
Location: Ghana, Zambia and Ethiopia
November 1999 to December 2004
Total project cost: $2,075,475; of which
CFC grant funding was equivalent to US$ 1,179,578 with counterpart
contribution of US$ 258,930 from DFID and contribution of US$ 636,967 by
stakeholders in the target countries - Ethiopia, Ghana and Zambia
Implementation led by Jonathan Coulter.
3b Coffee Market Development and Trade Promotion in Eastern and
Southern Africa and Improvement of Cotton Marketing and Trade Systems in
Eastern and Southern Africa
Common Fund for Commodities (CFC)
Grant reference numbers: (CFC/ICO/03FA) (CFC/ICA/12FA)
Location: Tanzania, Uganda and Zimbabwe Start date for NRI
lead role in piloting WRS for coffee and cotton was October 2004, and
completion date was September 2006
Funding directly available to NRI was US$1,318,587.
Implementation led by G. E. Onumah.
3c Review for restructuring the Uganda Commodity Exchange.
Delegation of the European Union in Uganda
Grant reference number: Framework Contract AMS/451 Lot No.1 (Uganda).
June 2004-July 2004
Funding directly available to NRI: €45,637.
Implementation led by G. E. Onumah.
3d Facilitating Study Visit on Warehouse Receipt Systems (WRS) and
Agricultural Commodity Exchanges (ACE) for stakeholders from West Africa.
Main grant funding by Technical Centre for Agriculture and Rural
Co-operation (CTA) and L'Agence Française de Développement (AFD)
Grant reference numbers: Cont: 234; Proj: 4-7-41-153-8 and NRI/AFD/STR-APR 2008 06 072
Location: Tanzania and South Africa
September 2008 to February 2009
Total funding: €94,461
Implementation led by G. E. Onumah.
3e Farm Risk Management for Africa (FARMAF)
Main grant funding by the European Commission, Food Security Thematic
Programme, counterpart funding by: AGRINATURA-EEIG
Grant reference numbers: DCI-FOOD 2011/260-875
Location: Burkina Faso, Tanzania and Zambia
December 2011 to December 2015.
Total funding: €4.7 million. UoG income €663,997.
Implementation led by G. E. Onumah.
Details of the impact
The outcome of NRI's research has been adopted in the design of projects,
for staple grains as well as export commodities, funded by donors
including the Common Fund for Commodities (CFC), the European Union, the
World Bank and USAID in West, Eastern and Southern Africa. Progress in
developing the NRI-promoted WRS model is most advanced in Tanzania, making
it possible to mainstream inventory finance for export commodities such as
cashew and extend it to food staples such as maize. Demonstrable benefits
to smallholders are outlined below by commodity, followed by impacts on
national and regional policy.
Almost all cashew nuts produced in Tanzania are now marketed through the
WRS - first piloted in 2007 to make raw cashew marketing more transparent.
The WRS allows primary (village-level) Agricultural Marketing Cooperatives
(AMCOs) to borrow over US$50 million per season from commercial banks to
finance purchases from members as they build up volumes for sale. The
receipted nuts are traded through an auction system involving over 30
exporters and local processors who submit sealed bids for advertised lots.
The introduction of these two allied systems, WRS and the auction system,
has contributed to higher producer prices. In the 2007/08 season, cashew
farmers in Tanzania obtained average farmgate prices estimated at US$290
per tonne. By 2011/12, the minimum price was estimated at US$750 per tonne
- an increase of over 2.5 times without any corresponding increase in the
international market price. The improved producer incentives contributed
to a rise in output from 79,100 tonnes in 2008/09 to over 158,000 tonnes
in the 2011/12 season.
In Tanzania, WRS has enabled smallholder farmers to directly market
value-added `clean' coffee rather than unprocessed `parchment' coffee. The
farmers sell through rural cooperative societies (RCS) which aggregate on
behalf of members using inventory finance from banks. It is estimated that
over US$12 million commercial bank financing is provided per season for
the coffee trade. The coffee is deposited with curing factories licensed
by the Tanzania Warehouse Licensing Board. Launched in the early 2000s,
this system enables over 4,000 smallholder coffee farmers to sell through
RCSs. Usually, they receive an initial payment which is about 60% of the
farmgate price offered by private traders for parchment. Subsequent
payments, received in two tranches, bring the total to almost 170% of the
parchment price. Increased competition at farmgate level has also
reportedly benefitted non-participating farmers.
The WRS pilot for cotton has taken off in Eastern Tanzania, where
ginners, who traditionally bought the raw seed cotton, processed it into
lint and cotton seed and then sold them, are willing to provide
toll-ginning services: farmers' organisations pay a fee for ginning and
can then sell the processed products themselves. The organisations use
inventory finance to make initial payments to farmers while they wait for
processing. Participating farmers obtain net incremental income of over
50% above the price for seed cotton. In one community, the farmers'
organisation used part of the profits to finance procurement of inputs and
tractor services, leading to a ten-fold increase in profits for members.
Ginners in Western Tanzania are increasingly interested in replicating the
model. WRS has not had much impact on the market in unprocessed cotton as
Even in countries such as Tanzania, Ghana, Kenya and Zambia, where export
bans and other government interventions in output markets make it
difficult for depositors to sell their produce for the best possible
prices, there is evidence that private sector representative
organisations, e.g. the Ghana Grain Council and the Grain Traders'
Association of Zambia, continue to advocate the NRI- promoted WRS model.
Furthermore, in countries where commodity exchanges were incorporated in
advance of reliable delivery systems, the exchanges are increasingly
reverting to the NRI WRS model where the receipt assures delivery against
traded contracts. This is the case in Zambia, where government and the
Zambia Agricultural Commodity Exchange are in dialogue over a regulatory
system that will foster WRS. The Ethiopia Commodity Exchange is also
promoting WRS for "non-mandated" crops such as grains to encourage their
trading on the exchange floor.
Impact on policy and strategy for developing efficient output markets
Following declarations by African Union high-level meetings and other
regional fora in 2005-2006 on the need to promote new market institutions,
African governments have incorporated WRS into agricultural policies. The
Kenyan government initiated a WRS to improve trade in maize and other
staple grains in 2010. In Tanzania, the government and private
stakeholders are working to strengthen the WRS to ensure a sound
foundation for a viable commodity exchange. Similar programmes have been
initiated by the governments of Nigeria and Uganda to turn around the poor
performance of their commodity exchanges.
Sources to corroborate the impact
i) Common Fund for Commodities (CFC) - major donor for WRS pilots
ii) Technical Centre for Agricultural and Rural Co-operation (ACP-EU) -
collaborated with NRI in sharing experience on WRS
iii) The Tanzania Warehouse Licensing Board(TWLB) - beneficiary of
technical advice from NRI in piloting WRS for export commodities in
iv) The Alliance for a Green Revolution in Africa (AGRA) -
grant-providing organisation supporting agricultural sector development in
v) Eastern Africa Grain Council - regional stakeholder organisation
collaborating with NRI on structured trade and finance involving the use
of warehouse receipts
vi) The WRS is a key pillar of the Farm Risk Management (FARMAF) Project
which is being implemented by AGRINATURA-EEIG. http://www.agrinatura.eu/News-Events/Farm-Risk-
vii) The International Finance Corporation recently launched a global WRS
financing programme aimed at increasing access to working capital to
farmers and other players in agricultural value chains, with its basic
features mirroring the NRI-promoted model. http://www1.ifc.org/wps/wcm/connect/Industry_EXT_Content/IFC_External_Corporate_Site/Ind