Banks’ reluctance slows down new farmers loan plan warehouse receipt

• The Treasury has so far released Sh1.6 billion for purchase of maize from the farmers, but this has not been enough to mop up the entire supply, according to the NCPB managing director, Gedion Misoi.
• The WRS was supposed to help farmers obtain loans on the strength of receipts issued by the NCPB to reduce post-harvest losses that account for between 30-40 per cent of storage due to poor storage methods.
• Under the system, farmers are expected to deliver their cereals at the NCPB depots after harvesting and are then issued with a receipt as proof of the transaction, as they wait for better market prices.

Commercial banks’ reluctance to honour the recently introduced warehouse receipt system (WRS) has slowed down adoption of the scheme set up to benefit farmers by stabilising grain prices during harvest seasons.

Farmers complained yesterday that only Equity Bank has been advancing them loans based on the receipt system run by the National Cereals and Produce Board (NCPB), while other lenders were reluctant to accept the documents as collateral.

The Treasury has so far released Sh1.6 billion for purchase of maize from the farmers, but this has not been enough to mop up the entire supply, according to the NCPB managing director, Gedion Misoi.

“All financial institutions should respect the WRS. We encourage them to support farmers, as stakeholders in food production. As long as a farmer can demonstrate that he has deposited maize in the NCPB warehouses, he should be granted a loan,” Prof Misoi said after meeting farmers at the cereals board’s Eldoret depot.

The cereals board has been buying maize from the farmers at a price of Sh3,000 per 90 kilogramme bag, but insufficient funds from the government have left them vulnerable to middlemen who offered lower prices for their produce especially when supply is high. Millers and other traders are offering Sh2,500 for a 90-kilogramme bag of maize. The farmers argued that dependence on money from the previous harvest seasons to prepare their farms and buy farm inputs would be a thing of the past if all banks were to honour the WRS and provide loans to farmers.

The up-front cash would help them to increase acreage and improve the country’s food security.

The WRS was supposed to help farmers obtain loans on the strength of receipts issued by the NCPB to reduce post-harvest losses that account for between 30-40 per cent of storage due to poor storage methods.

Under the system, farmers are expected to deliver their cereals at the NCPB depots after harvesting and are then issued with a receipt as proof of the transaction, as they wait for better market prices.

Farmers too can trade under the commodity exchange initiative for better prices where millers and other traders are free to purchase from the board or the farmer can decide to sell the receipt to another willing buyer at a profit.

“This system will protect you from exploitation and a farmer is free to sell his produce when he deems it appropriate at the prevailing market prices. It works well especially when NCPB has run short of money because by the time they have the funds, the price might have gone up,” said Prof Misoi.

Farmers are charged a fee to cater for storage, drying, fumigation, insurance and security as they wait for prices to improve.

Some of the farmers interviewed said many banks were still reluctant to honour the WRS and called on the NCPB to enter into binding agreements with the financial institutions on the matter. “The idea has not been endorsed by these institutions,” said Daniel Koech, a farmer from Kesses in Uasin Gishu County.

The first tranche’ of Sh800 million released by the Treasury for purchase of maize has been exhausted, but the government has released an additional Sh800 million.
“The Sh1.6 billion that was set aside for purchase of maize is hardly enough to mop up the more than 40 million bags of maize expected from farmers in the country this season. Farmers must seek other buyers willing to buy at better prices or store the cereals under the WRS,” said Prof Misoi.

So far the government has purchased close to 500,000 bags of maize. “The country had a bountiful harvest this season and we are not expecting any imports of maize next year like was the case last year,” said Prof Misoi.

dodunga@ke.nationmedia.co.ke