Tag: warehouse

To ensure a food-secured future, the government is adopting innovations that are capable  of improving the lives of farmers.  One of these is the Warehouse Receipt System. It is meant to  help farmers gain access to loans from banks and prevent hasty sale of agricultural commodities at a loss. DANIEL ESSIET reports.

Farmers, whether corporate or individuals,face a lot of risks. Not only are they prone to input and output price volatility, but they also face high financial risks resulting from the production cycles.

Agric producers also have to deal with risks associated with negative outcomes mainly deriving from extreme weather shocks, such as drought, floods or cold waves. The change is significant, as temperatures rise, rainfall patterns change and pests and diseases find new ranges, posing new risks to food and farming.

Added to this, is the challenge of    struggling with storage at post harvest levels. Those who  have  debts to  repay sell the produce when harvest season begins. They cannot   hold onto their crops until the lean season, when the price and potential for profits are at their highest. This lead them to sell off their produce immediately after harvest, when the price and potential for profits are at their lowest.

However, a financing solution has been introduced, which seeks to cushion the producers against such eventualities, known as Warehouse Receipt System.The process starts with gathering   produce among small producers into bulking centres where quality are  affirmed. The produce is then moved into certified warehouses where it is handled professionally to guarantee quality while in storage.

With warehouse receipt finance, a farmer or trader delivers his produce to a warehouse that has been approved by a bank, or other lender. The warehouse, or collateral management company in charge of it, then issues a receipt vouching for the quantity and quality of produce being stored.

The bank then takes the receipt and provides financing to the farmer or trader – typically up to 70 per cent of its current market value – against it. The receipt acts as collateral for the bank, giving it the right to take ownership of the stored produce if the loan is not repaid.

The credit advance, which is secured by the warehoused commodity, is then recovered a few months later when the depositors choose to sell their produce.

 The Team Leader, Agric Extension, Agricultural Transformation Agenda (ATA), Prof Tunji Arokoyo,  said  the  warehouse receipt system (WRS) is gaining momentum due to its potential in boosting agricultural growth.

Its  existence, he  explained, protects farmers from seasonal price change   by giving them the opportunity to store their product and sell it during favourable price periods.

Beyond this, he said the project helps rural farmers to access bank loans in return for storage of their produce in a community- based warehouse. Once the harvest is stockpiled in the warehouse, the producer organisation obtains a loan from a microfinance institution and distributes it to its members on the basis of their share of the total stored commodity.

According to him, a well developed WRS can provide a platform for the development of the entire commodity chain, providing incentives for a range of different parties, including farmers, financiers, traders, processors, public sector buyers, food aid managers and investors in storage capacity.

Warehouse receipt finance is spreading fast, giving smaller traders and bigger farmers, or cooperatives the chance to tap finance immediately while they protect their produce and hopefully negotiate better prices for it.

There remains huge challenges though.

According to him, if not properly managed, warehouses remain vulnerable to everything from theft,  fraud to insect infestation. And although using a collateral manager provides more comfort to banks extending the credit, there still are not enough active WRFs outlets in Africa.

The President, National Cashew  Association  of Nigeria (NCAN), Tola Faseru, said warehouse receipting is part of a package of innovations designed to modernise and enhance the efficiency of agricultural marketing systems.

Faseru said improper preservation or drying techniques, coupled with inadequate storage facilities, can force small farmers to let commercial or foreign traders reap the rewards of seasonal price swings.

With warehouse receipt, howver, he said a whole series of problems are resolved. Apart from protecting the crop where an estimated  40 per cent of harvests rot before reaching market, it also frees up financing for the farmer. Without warehouse receipt finance, many commercial traders would not have enough collateral to meet banks’ requirements, given the huge quantities of grain that they are dealing with.

Warehouse receipt finance is especially helpful for smaller traders who might struggle to borrow otherwise.

With the use of warehouse receipt financing, also known as inventory credit, he said small farmers  will gain an advantage on the playing field.

Expectedly, the warehouse receipts are administered to producer groups, instead of individuals, which helps the flow of market information. It   will create price transparency which empowers farmers to make informed sales decisions rather than waiting for “farm gate” buyers who often offer below- market prices.

Negotiable warehouse receipts allow transfer of ownership of that commodity stored in a warehouse without having to deliver the physical commodity. These receipts are issued in negotiable form, making them eligible as collateral for loans.

Banks have more faith in such negotiable warehouse receipts and farmers would be able to seek loans easily against these receipts.

It also enhance banks’ interest in lending in respect of farm goods deposited by farmers in the registered warehouses.

For watchers, there is need for an enabling policy environment that recognises and supports a free market – willing buyer willing seller and with minimal distortions is necessary.

To make it work, the government needs to certify warehouses with higher  tonnes capacities  nationwide, where produce can  be deposited nationwide.

More financial institutions have to join the warehouse receipt systems process to enable them advance credits to farmers on warehouse receipt financing using the deposited commodity.

Managing Director, Bank of Agriculture, (BoA), Dr Mohammed Santuraki, share the same  thought  about the project.

He said the launch of the Electronic Warehouse Receipt System, e-WRS for farm produce would bring farmers closer to the market.

Speaking during the launch of the system in Abuja, Santuraki listed the commodities to be traded to include, cocoa, sesame seeds, maize, sorghum and cashew.

According to Santuraki, post-harvest loss is a very big challenge for the Nigeria farmern as it forces farmers to sell their produce at very low prices.

“But with this system, the farmers will get better value for their products and it will increase the margin farmers get for their produce.

Director-General, Securities and Exchange Commission, SEC, Ms Arunma Oteh, described the implementation of the e-WRS for farm produce as a game-changer for Nigeria’s agriculture.

Oteh said it was a significant milestone for the Nigerian economy and the backbone of any commodities exchange.

“It is bound to have transforma-tive impact on agriculture, food security, poverty alleviation, economic inclusion and ultimately on the socio-economic advancement of Nigeria as encapsulated in the Transformation Agenda of President Goodluck Jonathan.

“Agriculture employs over 65 per cent of Nigerians and this scheme will help address the persistent problems our farmers face in terms of limited access to markets and credit,” she said.

According to Oteh, commodities exchange helps in creating effi-ciencies in the production and distribution of essential raw materials across countries.

“They provide a centralised marketplace where commodity producers can sell their products to those who wish to use them for manufacturing, export or consumption.

“They also facilitate price discovery, reduce risk and costs, while improving the allocative efficiency of the economy.’’

Oteh said the federal government’s agricultural transformation agenda; ATA had already brought remarkable dividends for over 10 million farmers, making it easier to access inputs and agricultural extension services.

“This warehouse initiative will go a long way in consolidating the gains of ATA and improving the livelihood of millions of smallholder farmers in our country,” she said.

President, Federation of Agricultural Commodity Associations of Nigeria, FACAN, Dr Victopr Iyama said the implementation of the system would lead to sustainability along the value chain.

“It will lead to remuneration gain for farmers as over 25 per cent of farmers’ products are lost due to lack of storage facilities.

“A lot of sensitisation is on but we need to do more after this launch in the pilot states because no farmer will see the advantages and not jump at it.’’

In his remark, the Chief Executive Officer, Stanbic IBTC Bank, Mr. Yinka Sanni, noted that agriculture contributes 22 per cent of the country’s GDP and affects a significant number of the people.

He pledged the bank’s commitment to the scheme, adding that it would stand as a middleman to give confidence to participants of the programme.