Improved marketing methods ensure smallholder access |
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| Transforming agricultural marketing and improving access to finance through Warehouse Receipt Systems | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Regulated warehouse receipt systems (WRSs) are helping to combat persistent problems in agricultural marketing and credit systems in sub-Saharan Africa. Such problems include highly variable seasonal prices (especially for staple grains), cheating on weights and quality, and limited access to credit. They stem from a lack of efficient storage facilities, poor rural transport, poorly developed systems of standard grades and measures, unreliable market information systems and lack of collateral for bank loans. WRSs address many of these issues, to the benefit of both producers and consumers. The systems are open to all players and include specific mechanisms to ensure access by smallholders. They are being applied in Ethiopia, Ghana, Uganda, Tanzania, Zambia and Zimbabwe, as well as in Bulgaria, Kazakhstan, Moldova, Poland and Russia. Project Ref: CPH18:
Research Programmes: Crop Post-Harvest Programme Relevant Research Projects: R6344 - to review post-liberalisation agricultural marketing and credit systems in semi-arid production systems in Sub-Saharan Africa (SSA) and identify opportunities to improve them. R6768 - to study the economics of warehousing and assess the potential to use warehouse receipt systems to improve agricultural marketing and finance. The studies were undertaken in Ghana, Kenya and Zambia. R7013 - to study different models of warehouse receipt systems in order to determine which are most appropriate in the context of SSA and the prerequisites developing such systems. The countries studied were South Africa, Tanzania, Uganda, Russia, Hungary, Poland, USA, Brazil, Colombia and Argentina. This cluster of project was led by The Natural Resources Institute, University of Greenwich at Medway, Central Avenue, Chatham Maritime, Kent, ME4 4TB, UK. NRI research team included Jonathan Coulter (Leader) and Gideon Onumah (Lead contact: tel: 44 16343263, G.E.Onumah@gre.ac.uk). Independent local consultants assisted the team, which also collaborated with a number of public and private sector organisations involved with agricultural marketing. Details of individuals and institutions with whom NRI collaborated in piloting the WRS in Ghana included:
The review of agricultural marketing and credit systems in SSA concluded that though liberalisation had created more space for the private sector, inefficiencies persist, which continue to hamper trade and productivity enhancement. For instance, seasonal prices, especially for staple grains, are highly variable; considerable cheating on weights and quality occur to the detriment of producers; and access to credit is very limited. Factors contributing to this situation include lack of efficient storage facilities, poor rural transport infrastructure, poorly developed systems of standard grades and measures, unreliable market information systems and lack of collateral for bank loans. This experience has persisted in most countries in SSA (Coulter and Onumah 2002) as well as in some South Asian countries (Hubbard 2003). Principal outputs from the cluster, intended to help address the agricultural marketing and finance constraints identified above, were: · Service: The seminal output was that a regulated warehouse receipt system (WRS) can simultaneously help make agricultural marketing more efficient and improve access to finance. The system can help to moderate seasonal price variability to the benefit of producers and consumers; and create the basic framework for establishing vibrant commodity exchanges, which many SSA countries have been struggling to promote. The WRS model advocated by NRI was intended to be open to all players - with specific mechanisms developed to assure access by smallholders to the services provided. Commercial service delivery is also stressed to ensure long-term sustainability. · Policy: The prerequisites for developing WRS were identified, key among which is a supportive regulatory and policy environment. It was observed that the most significant challenges in establishing WRS are disabling elements in the policy environment, particularly ad hoc interventions occasioned by short-term reactions to symptoms of market inefficiency. · Methodology: Based on the research findings, NRI advocated a process approach in promoting receipt systems. The approach places emphasis on the specific context in countries and commodity sectors, rather than the imposition of generic blueprints, in the design and implementation of WRS project. This approach is inherently flexible, allowing for changes to be accommodated as implementation evolves. It is also premised on strong local leadership in the development of sustainable receipt systems, with especially by the private sector playing a lead role. External technical assistance has to be focused on providing technical guidance to local stakeholders in making strategic design and implementation decisions.
The research studies originally focused on durable agricultural commodities, particularly staple grains, which are predominantly traded in domestic markets. However, the outputs have subsequently proved applicable to durable export commodities (cotton and coffee). With some adaptive research, focusing in particular on appropriate temperature-controlled storage facilities systems, harvesting and post-harvest management systems as well as quality standards, there is potential for application to perishables. This will be particularly helpful in improving supply chains for locally-produced fruits and vegetables. Such improvements are critical in ensuring that local producers can exploit new marketing opportunities created by the growing importance of supermarket chains in developing countries.
The outputs are relevant to most of agricultural production systems in developing countries in Sub-Saharan Africa and South Asia. They are also relevant to South America and the transition economies of Eastern Europe.
The research projects learnt lessons from different receipt systems applicable to a wide range of farming systems. The outputs are therefore relevant to most of the farming systems in developing countries in Sub-Saharan Africa and South Asia as well as in South America and the transition economies of Eastern Europe.
The essential building blocks of the regulated WRS, validated under this cluster of projects as appropriate to SSA and most developing countries, include the following: efficient warehouse/storage management; reliable market information systems (for the benefit of producers, traders and lenders); trade-friendly and enforceable standard grades and measures for storable commodities; and effective farmer organisations that facilitate access to remunerative markets, credit and inputs. Successful promotion of WRS also requires the creation and maintenance of a supportive policy and regulatory environment. For this reason, outputs and lessons from other projects carried out under the RNRRS, including those listed below, can complement outputs from this cluster of projects. Crop Protection Programme:
Crop Post Harvest Programme
How the outputs were validated: The methodology used during the studies included:a) Desk review of various experiences mainly from secondary sources. The outcome informed the selection of countries for subsequent field studies. b) Field surveys in selected countries, involving semi-structured and unstructured interviews with established groups of smallholder farmers, extension staff, NGOs, government officials, traders, researchers and other private sector players, including bankers and insurers. The field surveys were undertaken by NRI researchers working closely with local consultants and stakeholders. c) Institutional analysis of the organisations involved in the different links of the supply chain for agricultural commodities. Subsequent validation of the outputs was carried out using the following methods: d) Holding multi-stakeholder workshops during which the outputs were discussed. Participants included farmer organisations, NGOs, government departments, traders, researchers and associations of bankers and insurers. e) Pilot testing of the output, initially in Ghana - details of which are discussed below. Outputs from the Ghana pilot influenced the design of projects to pilot WRS in other African countries, which are discussed in Section C. Local stakeholders who participated in the Ghana pilot included: - Ministry of Food and Agriculture (MOFA), Policy Planning, Monitoring and Evaluation Directorate. - Ghana Food Distribution Corporation (GFDC). - Societe Generale de Surveillance (SGS, Ghana Ltd). - Agricultural Development Bank (ADB). - Barclays Bank (Ghana) Ltd. - Grain Marketing Association of Ghana (GMAG) - six of its key member-grain-traders participated, lead among which were Yawheh Salom Farms Ltd., Letus Produce Co. Ltd., Maduco Ltd., CASHPRO and Joseph Foresight Ltd. - Local banking and legal consultants as well as an Agricultural Economist (Dr. E.O. Asante of GIMPA). The main conclusions from the review of agricultural marketing and credit systems in SSA (R6344) were subsequently validated by studies independently undertaken by IFPRI (Kherallah et al., 2002), Michigan State University (Dembele, N. and J. Staatz, 2002; and Jayne et al., 2002), and other UK researchers (Dorward et al., 2004). These studies confirmed that post-liberalisation agricultural finance and marketing systems in most developing countries suffer from a myriad of constraints that increase marketing margins - making consumers pay more for food while reducing farm-gate prices, thereby limiting the ability of small-scale farmers to adopt farm technology that can raise productivity and reduce poverty. Conclusions about the potential role of WRS in improving the performance of agricultural finance and marketing systems were validated through pilot testing in Ghana. Also undertaken was a comparative assessment of an inventory credit scheme, implemented by an NGO (Technoserve) which exclusively targeted smallholder farmers. The main outcomes were:
Details of the outcome are provided in the next sub-section. Where the Outputs were Validated: As reported above, the initial validation involved pilot testing of the WRS in the grain surplus-producing areas in central Ghana.
Who are the Users? Warehouse Receipts Systems (WRS) were generally perceived as a means of improving access to credit, hence the descriptive title "inventory credit system". However, following the pilot, and in part due to the outcome from it and other WRS pilots, the role of the system is increasingly being seen as an essential institutional component in programmes to modernise and improve the efficiency of agricultural marketing systems. There is growing recognition of its importance in ensuring that smallholder farmers can participate in and benefit from the development of modern and efficient agricultural marketing systems. Some of the programmes/initiatives under which the WRS has emerged as an important element include the following:
Additional details on some of these programmes and projects are provided below. Where the outputs have been used: Current application of the outputs in developing WRS include the following: Grain Market Improvement Projects:
Improving marketing of agricultural export commodities:
Projects to improve access to agricultural and rural finance:
Details on outcome of WRS projects in Zambia and Tanzania, where NRI provided technical advise for implementation are provided below. In both cases, sufficient progress has been made to mainstream WRS in the agricultural marketing and finance systems. Scale of Current Use: Zambia WRS - for grains (maize, wheat and soybean). Project launched in 2000 and by the end of the 2004/05 season:
Tanzania WRS - for export commodities (coffee and cotton). Project launched in 2000 and by the end of the 2004/05 season:
Policy and Institutional Structures, and Key Components for Success: Based on the experience from this cluster of research studies as well as the successful WRS pilots, some of which have been discussed above, we identify the following among the factors that are critical to the promotion of WRS which is sustainable as well as accessible and beneficial to often-marginalised players such as smallholder farmers and small-to-medium scale traders:
Where these conditions are not prevalent, they can be created and maintained if there is commitment from Government and key private sector players. Direct and Indirect Environmental Benefits: There are no direct environmental issues associated with WRS and their impact on output marketing systems. However, it is anticipated that as well-functioning markets emerge with the development of WRS, the improved incentive structure and rising productivity could impact positively on land use and the environment as smallholders will be able to increase household income and better assure household food security without having to extensify production. Under the WRS, pest control measures are undertaken by qualified operators. This represents fewer health hazards compared to control measures undertaken by less trained individuals. Furthermore, the requirement that the operators are regulated by appropriate agencies will ensure that pesticides used have minimum environmental impact. Adverse Environmental Impacts: No known adverse environmental impacts are associated with the WRS. Coping with the Effects of Climate Change, or Risk from Natural Disasters: Climate and natural disasters expose producers, especially smallholder farmers lacking the technological means to mitigate these risks, to significant output losses or even total crop failure. If in addition to these risks, inefficient marketing systems undermine post-harvest crop management as is currently the case in many countries in Africa and South Asia, then smallholders become even more vulnerable to income shocks and, along with poor consumers in food deficit rural and urban areas, to severe food insecurity. These risks will also make smallholder farmers even less attractive borrowers for formal financial intermediaries. The WRS helps to mitigate the impact of these risks by improving the marketing of output produced and improving access to finance by smallholders to finance that may be needed when households have to recover from such shocks. Key References Cited Coulter, J. and G. Onumah, 2002. The Role of Warehouse Receipt Systems in Enhanced Commodity Marketing and Rural Livelihoods in Africa. Food Policy 27(2002): 319-337. Dembele, N. and J. Staatz, 2002. The Effects of Market Reform on Agricultural Transformation in Mali. In T.S. Jayne, I. Minde, and G. Argwings-Kodhek (eds.) Perspectives on Agricultural Transformation: A View from Africa, Huntington, New York, Nova Science Publishers. Dorward, A., J. Kydd, J. Morrisson, and I. Urey, 2004. A Policy Agenda for Pro-Poor Agricultural Growth. World Development 32(1): 73-89. Hubbard M. 2003. Developing Agricultural Trade: New Roles for Government in Poor Countries. Pelgrave Macmillan, Houndsmill, UK. Jayne, T.S., J. Govereh, A. Mwanaumo, J. Nyoro, and A. Chapoto, 2002. False Promise or False Premise: The Experience of Food and Input Market Reform in Eastern and Southern Africa. World Development 30(11): 1967-1986. Kherallah, M., C. Delgado, E. Gabre-Madhin, N. Minot, and M. Johnson, 2002. Reforming Agricultural Markets in Africa. Baltimore: Johns Hopkins University Press. 224pp ISBN 0-8018-7198-0 Onumah, G. 2003. Improving Access to Rural Finance through Warehouse Receipt Systems in Africa. Paper presented at "Paving the way forward for rural finance: an International Conference on Best Practices", Washington 2-4 June 2003 Wandschneider, T. and R. Hodges, 2005. Local Food Procurement in Uganda: A Case Study Report for EC PREP (DFID). London, NRI and University of Greenwich. Relevant Research Projects,
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For relevant research projects, with links to further information Geographical regions included: Ethiopia, Europe, Ghana, Tanzania, Uganda, Zambia, Zimbabwe,  Target Audiences for this content:Processors, Traders, |
