Warehouse receipts yet to be accepted as tradable instruments in the region

Isaac Chege, director of the Nafic Grain Trading Company at his EAGC-Certified warehouse in Eldoret.
Isaac Chege, director of the Nafic Grain Trading Company at his EAGC-Certified warehouse in Eldoret.    

A regional grain marketing initiative meant to stabilise prices and reduce post-harvest losses is yet to make a meaningful impact among smallholder farmers in Kenya.

Officials from the Eastern Africa Grain Council (EAGC) and its principal financier, Alliance for a Green Revolution in Africa (Agra) blamed the shallow penetration of the warehouse receipt system on mistrust and lack of awareness along the value chain on the advantages of using the receipts as tradable instruments.

“The transferability of warehouse receipts has not been widely accepted” said Anne Mbaabu, the marketing director of Agra’s Market Access Programme (Map). She added that this has limited the development of a secondary market besides increasing logistics and transaction costs.

Agra, whose main financiers are the Melinda & Bill Gates Foundation, launched a Map in mid-2008 to promote markets, ensure higher returns to smallholder farmers and address market failures in Kenya and elsewhere in the region. It has so far invested about $2 million in the programme.

From reports, much of Agra’s money has gone to finance the EAGC — which is most active in Kenya. The Tanzania Warehouse Licensing Board and the Ghana Grain Council have also benefited.

“We are also working with the governments of Burkina Faso and Mozambique to introduce the warehouse receipt system,” said Mbaabu.

Despite these ambitions, the warehouse receipt system has inherent weaknesses including operating in a legal vacuum.

According to Ms Mbaabu, lack of a legal framework has been “causing reservations” among some financial institutions who she says have not been keen to use contract law as the basis of lending against the warehouse receipts.

The system enables farmers, traders and grain processors to deposit their produce in EAGC-certified warehouses upon that they are issued with official receipts which they can either offer for sale to buyers or use as collateral to secure bank loans.

EAGC says that this helps to meet farmers and other grain handlers’ financial needs as they wait to sell their produce at a later date. The system is also supposed to reduce post-harvest losses a major problem among particularly smallholder farmers. It is also meant to stabilise producer prices and thereby raise farmers’ incomes.

However, the system does not guarantee that farmers will always get good prices for their produce. Gerald Masila, EAGC’s chief executive, said the warehouse receipt system “is plagued by challenges related to its scale of operation as well as the timing of grain releases to attract better prices.”

Lack of training

It was apparent from interviews with farmers in the North Rift that the entire system hinges on the belief that the price of grains and particularly maize would have risen between the time farmers deposit their maize in the EAGC-certified warehouses and the time they sell it. This has not always been working as expected, leading to some smallholder farmers to experiencing losses.

Philomena Wambui is one of the smallholder farmers who experienced losses after taking up the warehouse receipt system in 2012.

Ms Wambui, a middle aged woman from Moi’s Bridge, in Trans Nzoia had borrowed Ksh500,000 from Equity Bank in 2012 against some 300 bags of maize she had deposited at Mama Millers Ltd, an EAGC certified warehouse located in the same area. Of the 300 bags she delivered to the warehouse, 120 bags came from her own 10-acre farm while she had bought the additional 180 bags from other farmers.