Leverage the warehouse receipt system to maximise farm returns
A warehouse. The Warehouse Receipt System facilitates the issuance of negotiable warehouse receipts to producers that store their products in licensed warehouses. FILE PHOTO | POOL
With the expected abundant rain and favourable weather conditions in 2024, Kenya is poised for a bumper harvest, barring any unforeseen variables that may hinder productivity.
Challenges arise during periods of postharvest abundance, with oversupply leading to decreased prices and losses for smallholder farmers.
The warehouse receipt system (WRS) presents an opportunity to address these challenges.
The WRS primarily supports the structured trade in agricultural produce by establishing licensed professional storage facilities, or warehouses, for the safekeeping, packaging, or processing of agricultural produce.
To be licensed under WRS, the warehouse must meet stringent criteria. All licensed warehouse operators must obtain a performance bond and insurance to ensure that producers and financiers alike are confident that the operator will meet its obligations.
The WRS facilitates the issuance of negotiable warehouse receipts to producers that store their products in licensed warehouses. These receipts serve as collateral, allowing producers to access financing, typically a percentage of the value of the stored produce.
The WRS formalises the perfection of financiers' security interests in the stored produce. A financier feels comfortable that the licensed warehouse operator will monitor the access and release of the warehoused produce on behalf of the financier until the loan is repaid.
How do the various stakeholders in the agricultural value chain benefit from WRS? For producers, WRS offers flexibility, allowing them to store produce in the licensed warehouse until prices are favourable eliminating the need to sell in distress. Smallholder farmers benefit from access to modern storage facilities and markets, allowing them to aggregate produce after harvest for better returns.
Meanwhile, owners of stored produce can obtain structured financing to meet immediate financial needs, from purchasing inputs to covering household expenses and personal development. The benefits extend beyond farmers; investors find lucrative opportunities in the agricultural commodities value chain, from operating licensed warehouses to commodity trading.
Financiers, too, take the opportunity to make investments in socially relevant sectors, bolstered by formal collateral arrangements and improved risk management.
Governments at the national and county levels benefit from improved food security management and valuable data for policy formulation and price stability control.
Furthermore, WRS opens doors for the use of innovative technology solutions such as blockchain and artificial intelligence (AI) in the agriculture value chain.
Blockchain, for example, can offer a transparent and secure platform for tracking compliance with global standards such as those set by Fairtrade International.
In an era of increasing emphasis on environmental, social and governance (ESG) compliance, this technological integration ensures accountability and can improve global market access for Kenyan produce.
As warehouse operators continue to be licensed under WRS, including private operators like AFEX Fair Trade Kenya, stakeholders in Kenya's agricultural value chain have a fantastic opportunity to leverage WRS for prosperity and growth.
The writer is an African-focused commodity, trade compliance, and finance lawyer.
