Warehouse law brings hope to farmers
Oct 10, 2006
THE President has assented to the Warehouse Receipt System (WRS) Bill.<br>The system will see farmers earn more for their produce using the power of collective action, which is emphasised under the system.
By Charles Bwogi
THE President has assented to the Warehouse Receipt System (WRS) Bill.
The system will see farmers earn more for their produce using the power of collective action, which is emphasised under the system.
The new law, the Warehouse Receipt System Act 2006, formalises the WRS, which involves farmers depositing produce in a certified warehouse and getting a receipt.
The receipt can be used as collateral in a bank when a farmer wants a loan before the sale of his deposited produce.
The receipt can also be used to look for market instead of a farmer carrying the produce along.
“The good price attracted under the system is due to the good quality of warehoused goods and the right amount needed by big traders,†the system’s national coordinator, Fred Mwesigye, said.
Mwesigye said the system achieves two important purposes, which are facilitating credit inventory on products held in storage and enhancing negotiating abilities of the depositor.
Lenders can more readily mitigate credit risk by using the stored commodity as collateral.
Allied Bank has tailored a loan product for Arabica Coffee farmers under the system and charges a flat interest rate of 2% and advances farmers 70% the value of the coffee deposited at the warehouse.
“Despite this advance, the farmer retains ownership of the produce,†Lameck Otim, the corporate manager at Allied Bank, said. Otim said farmers pay back after selling the produce.
Christian Baine of DCDM Consulting, who are consulting on the project, said since the system will ease access to commodity finance, farmers will be able to defer sales at harvest time when sales are low. Baine said they would be able to meet household needs and pay off production loans without selling the produce.
That will enable the farmers benefit from seasonal price increases.
He said traders and processors will also benefit from the lower cost of inventory procurement, with the consumer benefiting from lower cost products during the lean seasons as a result of the reduced trade margins.
Mwesigye said the system is one of the ways through which Uganda will enforce standards for agricultural products, which are often discounted by international traders for lack of standards.
Baine said systems of standardising grades and measures for harvests are poorly-developed except for a few exports.
“Maize, for instance, lacks standards except those provided by buyers like the World Food Programme. Lack of standards and equipment means that produce is bought using weight and quality equipment of traders. Many times, it is unfairly discounted,†he said.
Baine said what is worse is that the trading process has been unregulated for long.
Mwesigye said, “The law is a confidence-builder among crucial stakeholders in the system like banks who for long have given the condition of the existence of proper legislation before they can fully embrace the system.â€
The new act provides for the licensing of warehouses and warehouse keepers to provide for a national system of warehouse bonding to protect depositors.
The law also seeks to establish the warehouse authority, which will “investigate the storage, warehousing, classifying according to grade and weighing, and certification of goods.â€
This means the authority, in collaboration with collateral managers, will ensure that only goods, which meet standards, are kept in warehouses.
“We want to ensure the quality of goods stored in warehouses is good and can attract competitive prices,†Mwesigye said.
The system has been implemented in the east and western parts of Uganda, piloting in coffee and cotton crops.
In the eastern districts of Mbale, Sironko Kapchorwa and Manafwa, coffee farmers who traded through the system earned an average of 20% above the Uganda Coffee Development Authority’s indicative price.
THE President has assented to the Warehouse Receipt System (WRS) Bill.
The system will see farmers earn more for their produce using the power of collective action, which is emphasised under the system.
The new law, the Warehouse Receipt System Act 2006, formalises the WRS, which involves farmers depositing produce in a certified warehouse and getting a receipt.
The receipt can be used as collateral in a bank when a farmer wants a loan before the sale of his deposited produce.
The receipt can also be used to look for market instead of a farmer carrying the produce along.
“The good price attracted under the system is due to the good quality of warehoused goods and the right amount needed by big traders,†the system’s national coordinator, Fred Mwesigye, said.
Mwesigye said the system achieves two important purposes, which are facilitating credit inventory on products held in storage and enhancing negotiating abilities of the depositor.
Lenders can more readily mitigate credit risk by using the stored commodity as collateral.
Allied Bank has tailored a loan product for Arabica Coffee farmers under the system and charges a flat interest rate of 2% and advances farmers 70% the value of the coffee deposited at the warehouse.
“Despite this advance, the farmer retains ownership of the produce,†Lameck Otim, the corporate manager at Allied Bank, said. Otim said farmers pay back after selling the produce.
Christian Baine of DCDM Consulting, who are consulting on the project, said since the system will ease access to commodity finance, farmers will be able to defer sales at harvest time when sales are low. Baine said they would be able to meet household needs and pay off production loans without selling the produce.
That will enable the farmers benefit from seasonal price increases.
He said traders and processors will also benefit from the lower cost of inventory procurement, with the consumer benefiting from lower cost products during the lean seasons as a result of the reduced trade margins.
Mwesigye said the system is one of the ways through which Uganda will enforce standards for agricultural products, which are often discounted by international traders for lack of standards.
Baine said systems of standardising grades and measures for harvests are poorly-developed except for a few exports.
“Maize, for instance, lacks standards except those provided by buyers like the World Food Programme. Lack of standards and equipment means that produce is bought using weight and quality equipment of traders. Many times, it is unfairly discounted,†he said.
Baine said what is worse is that the trading process has been unregulated for long.
Mwesigye said, “The law is a confidence-builder among crucial stakeholders in the system like banks who for long have given the condition of the existence of proper legislation before they can fully embrace the system.â€
The new act provides for the licensing of warehouses and warehouse keepers to provide for a national system of warehouse bonding to protect depositors.
The law also seeks to establish the warehouse authority, which will “investigate the storage, warehousing, classifying according to grade and weighing, and certification of goods.â€
This means the authority, in collaboration with collateral managers, will ensure that only goods, which meet standards, are kept in warehouses.
“We want to ensure the quality of goods stored in warehouses is good and can attract competitive prices,†Mwesigye said.
The system has been implemented in the east and western parts of Uganda, piloting in coffee and cotton crops.
In the eastern districts of Mbale, Sironko Kapchorwa and Manafwa, coffee farmers who traded through the system earned an average of 20% above the Uganda Coffee Development Authority’s indicative price.