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Govt. should roll over warehouse receipt system
2008-03-13 09:21:46
By Editor
In many developing countries past government interventions in commodity markets have reduced the economic returns to private storage or obviated the need for private credit.
But with the opening of markets and the liberalisation of trade, such instruments as warehouse receipts are becoming important in the transition to well-functioning markets.
Warehouse receipts have a long history in industrial countries a short one in developing countries, but even shortest one in Tanzania.
The receipts, what`s more called warrants, are documents stating the ownership of a specific amount of a commodity or good with specific characteristics stored in a specific warehouse for a specific fee.
When backed by provisions that enhance their value as collateral, warehouse receipts can play an essential role in agricultural marketing.
In more advance economies, they have been traded, sold, swapped, or used for delivery against a derivative instrument, such as a futures contract.
The overall efficiency of agricultural markets is thus greatly enhanced by the ability to convert agricultural products into such tradable devices.
The system can improve farm income and smooth domestic prices by providing an instrument to farmers to spread sales throughout the crop year.
It can also mobilise credit to agriculture by creating secure collateral for banks as well as helping to create cash and forward markets and thus enhance price discovery and competition.
By its own nature, it provides a way to gradually reduce the role of government in agricultural commercialization
Unfortunately, when the system was introduced in the country`s cashewnut producing areas last year, it first looked confusing to stakeholders probably because financing often makes it unattractive for farmers, traders, and speculators to store.
And, almost certainly an appropriate legal environment had not been made known to all prior to the implementation of the system.
That far we have come limping over the system, and yet the willingness of cashew-nut farmers to sell their crops under the warehouse receipt payment system has significantly raised that commodity’s export volume and value.
It is according to the February Bank of Tanzania economic report which attests that in January, the export volume of cashew nuts went up to 36,639 tons compared to 21,806 tons exported in December 2007. The hefty increase in cashew-nut exports was for the most part responsible for raising the total value traditional exports by 8.7 percent to USD 54.7m.
That is why it remains reasonable for the government to roll over the system by putting in place some of the preconditions for its efficient functioning.
For instance, a viable storage industry exists and that returns to storing commodities should be market-determined, so that farmers and traders store in expectation of higher prices or rush goods to market when spot markets are especially tight.
Again, warehouse receipts must be functionally equivalent to stored commodities while specifying the quality and quantity of the goods stored.
The rights, liabilities, and duties of each party to a warehouse receipt (producer, bank, warehouse, and so on) must be clearly defined. Receipts must be freely transferable by delivery and endorsement.
This way, the system can be made to fit and become acceptable throughout the country.
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