ICT to Enhance Warehouse Receipt Systems and Commodity Exchanges in Africa Last updated November 20102
certified warehouses, and their issuance,handling, liens, and cancellation aremanaged by systems overseen by theregulator. The receipts can be used in acommodity exchange, enabling buyersand sellers to conduct transactions usingthe receipts to represent the physicalgoods, which can remain in warehousesand are moved only after the transactionis completed.ICT is a recent tool for WRS, beingprimarily employed to improvetransaction speed and allow for 24 hourtrading. As transaction volumesincrease, ICT becomes more valuable.In Africa, almost all of the storagebetween harvest and when the staplecrops are consumed is financed byfarmers and the myriad traders andprocessors holding stock. This involvesvast amounts of capital; in Kenya alonethe harvest value of the main staplecrops is over $750 million; Kenya,Uganda, and Tanzania’s average maizeharvest has a value of over $1 billion.This capital cost is tied up month aftermonth until it is sold to the consumer.Without finance, the companies that buyor own stocks of commodities areconstrained by tying up their capital inthese stocks. Properly managedwarehouse receipt programs provide aregulated instrument that allows financialinstitutions to advance loans against thereceipts with the commodity ascollateral, freeing up the capital held inthe system. This is a key benefit of warehouse receipt systems.Even though the WRS may not directlyhelp smallholder farmers, there are anumber of important indirect benefits.With a WRS, financing becomes moreavailable so there is more money to buythe commodity from the farmers, whichincreases the number of times thetraders can go back into the market topurchase grain, increasing competitionand generally reducing the sharp drop of prices at harvest. If the smallholderfarmer can meet the minimumconditions for a deposit to a warehouse(either individually or in a group), she orhe can delay selling their commodity,waiting for prices to increase, and stillprovide for immediate cash needsthrough financing the warehouse receipt.The term “
covers arange of structured marketconfigurations including physical marketplaces; however in modern parlance theconcept has come to mean an electronicplatform where buyers and sellersinterface through registered brokers totrade multiple lots of differentcommodities. The standardized contractstraded specify quality, quantity, andsometimes location. Depending on thesophistication of the market orexchange, the contracts will include spotprice, forward, futures, and optionscontracts. Brokers are used as exchangelicensed intermediates who guaranteethe performance of the buyer and/or theseller of a contract. Generally buyersand sellers will have provided the brokerwith financial guarantees that underpintheir performance. Most exchanges havea specified lot size (e.g., 100 metrictons). At the end of any particulartrading period (e.g., three months), thesales and purchases are reconciled; mostcancel out and the remainder isconcluded through delivery of warehouse receipts (paper or electronic)from acceptable registered warehouses.The owner of the receipt then arrangesfor collection from the statedwarehouse, or sells it back onto theexchange to another buyer.Most exchanges carry out significantlymore transactions than there is realcommodity in the market. Someexchanges, such as ACE in Malawi, haveno underlying guarantee of commodityand therefore no official confirmation of quality and volume. Offers and bids arebased on trust that the commodity isreally there and of the quality stated,with the broker taking the risk that bothbuyer and seller are legitimate.Generally this type of exchange has failedto achieve high volumes in Africa.Ownership structure of an exchangeranges from those entirely owned andsupported by the private sector (e.g.,SAFEX, which began with 84 memberseach paying Rand 50,000 to join), to thosethat are government-owned (e.g. UCE,Uganda Commodity Exchange).
Thereare variations, such as the Ethiopianmodel, which is government-owned, butsells membership seats on an annual basis(the most recent price was an average of Birr 210,000 per seat).
Current systems in Africa:
Warehouse receipt systems andcommodity exchanges are moreprevalent in east and southern Africathan in west or central. There arecurrently operational warehouse receiptsystems or inventory finance systems inKenya, Uganda, Ethiopia, Tanzania, SouthAfrica, and Madagascar. Several WestAfrican countries utilizewarrantage/inventory credit (Ghana,Burkina Faso, Niger, Senegal) andcontrats de tierces detention (Mali).
Warrantage in its simplest form isdepositors (farmers) storing their commodityalongside other depositors (farmers of thesame group) in a small general store. Thesesystems have extended to include inventorycredit, which is the financing of a proportionof the commodity’s value in the store. Oftenthe financier, the store owner, and thefarmer group representative will each controla key to one of the padlocks on the door andtherefore control the movement of thecommodity from the store. In Mali the ‘tiercedetention’ (third party holding) worked in asimilar manner with the banks controlling therelease of traders’ goods stored in a thirdparty warehouse.
Initiatives to launch warehouse receiptsystems are in process in Ghana andNigeria. Commodity exchanges—or atleast entities labeled as commodityexchanges—include ACE in Malawi,ASCE in Nigeria, ECX in Ethiopia,SAFEX in South Africa, UCE in Uganda,and ZAMACE in Zambia. There are alsoefforts underway to launch a nationalcommodity exchange in Khartoum, aWest Africa Commodity Exchange basedin Accra, and a Pan-African exchangebased in Gaborone. As of November2010, there is also an effort under wayto establish a regional commodityexchange in east Africa facilitated byKenya’s National Cereal and ProduceBoard.