Thursday, 10 January 2013

First Grain Warehouse Receipts Issued in Ghana


Getting a loan, storing crops, earning more from sales—all are about to become a little easier for Ghanaian grain farmers and traders with the recent issuance of the first grain warehouse receipts. This auspicious event took place in December in Tamale, in northern Ghana, a relatively poor area that is the focus of development efforts. The receipts are a record of deposit that can be accepted as collateral by banks and nonbank financial institutions.

"This is equivalent to the first shot fired in a revolution, one that for the first time will facilitate secure storage of inspected and certified grain, the establishment of a transparent system of private sector grain stores and short-term financing of agricultural investments with negligible risk for lenders," said ACDI/VOCA's Olaf Kula in Accra.

The Ghana Grains Council (GGC) expects that a well regulated warehouse receipt system will help the country combat persistent problems in agricultural marketing and credit including variable seasonal prices, cheating on weights and quality and limited access to credit. These problems stem from a lack of efficient storage facilities, poorly developed systems of standard grades and measures, unreliable market information systems and lack of collateral for bank loans. In addressing many of these issues, both producers and consumers will benefit.

Food Security Meets Risk Reduction and Financial Services
The U.S. Agency for International Development supported the GGC through the West Africa Agribusiness Trade Promotion (ATP) project and the Ghana ADVANCE project, part of the agency's Feed the Future program, implemented by ACDI/VOCA. After much planning and groundwork, the council established the breakthrough warehouse receipt system under which farmers can store grain and use it as collateral for loans based on its market value.

The system integrates smallholders into the warehouse receipt system so they can benefit from direct linkage to more diversified markets, including buyers who are looking for standardized grain stocks. Loans granted under the system can be used to cover immediate expenses or make investments in preparation for the next harvest. It is hoped that such a system will create more stability in the market, as well as better harvesting, processing and storage practices and a better product for consumers.

According to Kula, "Over the past two decades there have been a number of private and public sector-supported efforts to develop a viable grain warehouse receipting system in Ghana. This is truly a concept whose time has come, and we are grateful to USAID as well as the many private sector individuals that contributed time and capital to building the GGC."

Before, Farmers Were Price Takers—Not Price Makers

For Ghanaian farmers, who usually have to sell their crop at harvest time, when the market is glutted and prices are low, the creation of a warehouse receipt system is a welcome development.

Under the system, grain is delivered to; inspected, cleaned, graded and certified by; and stored in GGC-certified warehouses that meet Ghanaian and international standards. Once graded and certified, the commodity can be used as collateral by participating banks. Banks who are members of the GGC will be able to rediscount the receipts by selling them to other GGC members.

Depositors are given five months to sell their grain. The GGC's CEO, Dr. Kadri Alfah , explained that this will discourage stockpiling and protect the warehouse operator from financial losses due to weight loss from moisture.

2009 Stakeholder Workshop Was Genesis
In 2009, ACDI/VOCA facilitated a stakeholder workshop to determine whether Ghanaian cereals value chain actors were ready to make another attempt at establishing a warehouse receipt system. The result was the formation of the GGC. ACDI/VOCA provided meeting space and technical support until the GGC was incorporated in March 2010, and thereafter budgetary support under USAID funding.

The GGC developed a regulatory framework and design specifications for certifiable warehouses. It built a membership of grain value chain actors including farmers, grain traders, millers, poultry feed associations, banks, nonbank financial institutions and collateral managers. The Council worked closely with the Ghana Standards Authority, the Minister of Food and Agriculture, the Minister of Trade and Industry and partners such as the World Food Program, which has agreed to purchase commodity from GGC-certified warehouses under Purchase for Progress, the WFP's local procurement program.

Sustainability at Stake
Full GGC sustainability hinges on proper system implementation and the certification of additional warehouses. As ACDI/VOCA's Kula said, "We anticipate that this will create the critical mass, or snowball effect, attracting additional warehouses into the program and potential cost recovery within the next 3-5 years."

In this first phase over 10,000 farmers and farmer-based organizations will benefit. Under the ADVANCE project, the GGC, with assistance from ACDI/VOCA, is training farmers on grain standards, grain quality assurance, use of formal contracts and proper warehousing management and practices. The GGC recognizes that these steps could serve as the foundation for a future commodity exchange in Ghana.

"We have ECOSAFE collateral managers, one of the most respected collateral managers in Ghana who are supporting our program, including providing inspection services for our certified warehouses and ensuring the all quality standards set in the GGC rules and regulations are followed," Dr. Alfah explained. The program uses strict grading protocols set by the Ghana Standards Authority and will maintain transparent graded price data.

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