22 September 2009

Plans by the National Cereals and Produce Board (NCPB) to roll out a warehouse receipt payment system by November is a step in the right direction considering the severe constraints most farmers face in accessing credit.

Though the concept has widely featured in the public domain since 2007, its implementation has remained a tall order for its proponents such as the private-sector driven East African Grain Council (EAGC) mainly due to lack of produce storage capacity.

The entry of the resource endowed NCPB should, however, rekindle fresh hope particularly if it comes to play a complimentary role to the projects already conceived by other players such as EAGC.

World over warehouse receipts systems have today become important and effective tool for creating liquidity and easing access to credit besides offering extra benefits such as streamlining the supply chain and prices in the market, improving grower incomes, and reducing food losses.

Kenya should not miss out such benefits if we have in place a properly functional system to replace the current scenario where reckless government interventions in commodity markets have suppressed the economic returns to private storage and affected the need for private credit.

It is common knowledge that with the opening of markets and the liberalisation of global as well as regional trade, concepts such as the warehouse receipts are becoming vital in reducing uncertainty and enhance efficiency.

Notable gains from the warehouse receipt system is that it helps mop-up credit to agriculture by creating secure collateral for the farmer, processor, and trader, smoothing market prices by facilitating sales throughout the year rather than just after harvests and reducing risk in the agricultural markets thus improving food security and credit access in rural areas.

It also helps increase market power of small-holders by enabling them to choose at what point in the price cycle to sell their crops besides helping to upgrade the standards and transparency of the storage industry since it requires better regulation and inspection.

But like any other initiatives aimed at addressing mass and sensitive issues such as commodity trade, there must be a sound legal and institutional framework to guarantee performance and keep cost at manageable levels.

Foolproof legal backing has an advantage of providing a secure system whereby stored agricultural commodities can serve as collateral, be sold, traded or used for delivery against financial instruments including futures contracts.

The NCPB has had its fair criticism over its institutional capacity in areas such as corporate governance and its management must first prove to the public its commitment to change in order to win back the confidence of the farmers it targets through the scheme.

Perhaps it would be prudent to give the private sector a frontal role in the whole warehouse scheme so that the concept can be handed an urgent image boost, which is critical at this time when the economy is loaded with caution over wasteful or risky ventures.

allafrica