Improving Agricultural Market Performance:
Creation and Development of Market Institutions
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Although warehouse receipts have achieved great success in Kazakhstan (as well as in
Bulgaria, Hungary, Moldova, and other European and Central Asian countries), the record is
decidedly less impressive in Africa. In Africa, warehouse receipt mechanisms have been used
for a wide range of commodities, including barley, cars and car parts, cashew nuts, ceramics,
cocoa, coffee, copper ore and metal, cotton, fertilizers, fish, logs and timber products, maize,
mobile phones, paper and school books, petroleum products, pharmaceuticals and chemicals,
rice, rubber, sesame, steel products, tea and vegetable oils.
As this list shows, warehouse receipts in many African countries are used to finance imports
rather than supporting domestic agricultural production. In this, they resemble free trade
zones, which are often used to defer payment of import duties and taxes. A large share of bulk
food imports into Africa, as well as some fertilizer imports, are financed through warehouse
receipts. Importers often cannot raise enough hard currency to finance a shipment of fertilizer
or food commodities. Local banks often do not have enough international credit lines to fund
such imports, while local funding is often far more expensive than international funding. To
overcome these constraints, international traders extend their own credit lines to importers,
warehousing products in bulk in the importing country and delivering in smaller quantities to
the importers.
According to FAO, an important factor in the lack of success of donor-sponsored African
warehousing schemes may be the selection of smallholder farmers as the major target
beneficiary group. This was understandable, since larger players have access to other sources
of finance. A WRS is unlikely, however, to respond adequately to credit access problems of
small farmers, since it is the larger producers that have larger surpluses to deposit as
collateral. “Experiences with well-functioning warehouse receipt systems around the globe
show that warehouse receipts are initially used by larger and more financially viable entities.
As the system expands, the effects gradually spread over to smaller producers and operators.
The major driving forces behind a sustainable warehouse receipt system are traders, large
producers and processors.”144
This is confirmed by findings from our case studies, particularly in Indonesia, where the WRS
is challenged by the lack of guaranteed farmers’ incomes during periods of storage and
processing.145 Indonesia’s WRS has also failed to change behavior of farmers to encourage
them to sell at later stages, when market prices are higher, rather than immediately following
the harvest, when prices are lower. Since one of the main benefits of WRSs is to allow farmers
to defer sales until prices are higher, while enabling them in the interim to obtain financing
against warehouse receipts, Indonesia’s WRS has clearly failed to achieve this.
Uganda Warehouse Receipt System
Uganda’s WRS experience also illustrates some of the potential difficulties such systems can
encounter. In 2000, a WRS was established under the Ministry of Trade, Industry, and
Cooperatives (MTIC), in collaboration with the Uganda Coffee Development Authority and the
Cotton Development Organization. In its pilot phase the system focused on coffee in Masaka
and southwestern Uganda and in Kasese for cotton, though it subsequently expanded to
144 Gourichon, H., & Pierre, G. (2017), “Améliorer l’efficacité et l’efficience de la stratégie de stockage public au Mali, ” Partie
2: Diagnostic. Rapport d’analyse de politique, SAPAA (Projet de Suivi et analyse des politiques agricoles et alimentaires), FAO:
Rome.
145 Interview conducted with Ministry of Agriculture in Jakarta, July 13, 2017