Warehouse Receipt System
Extract from warehouse receipt system
strategy
ACE has advocated for a Warehouse
Receipt System (WRS) as an integral part of agricultural trade and
financing since its incorporation in 2005. There is a substantial
need in the market for a system that will reduce risk of
contract/performance defaults in agricultural trade and also
facilitate competitive financing with agricultural commodities as
collateral. Malawi does not have a regulatory framework for
warehouse receipts, so the system has to built on a contractual
relationship between depositors, storage operators, financial
institutions, and ACE. The success of the WRS is very much
dependent on the active involvement from all participants and this
is why it took 6 years before the first warehouse receipt (WR) was
issued, financed and traded in Malawi.
In 2011 ACE registered the GSL silos in Kanengo, Lilongwe as the
first WRS storage facility. The GSL facility has a capacity of
12000 MT and it was open to deposits from any interested third
party. OIBM was the first bank to confirm that they were willing to
finance a WR. OIBM proposed to finance 60% of the value at 20% pa
or 70% at 22% pa. These rates are very attractive to the small
scale sector and ACE promoted this opportunity, as a way for them
to receive financing, retain ownership of the maize and thereby
enable them to sell the maize at a time when the market is more
attractive than it is immediately after harvest.
High moisture content made it
difficult for GSL to take early deposits, but many of the
sensitised depositors could not wait and unfortunately sold their
maize before it could be deposited. Only on the 2nd of August 2011,
was GSL able to issue the first WR to Mr Chikasu of Bucow
investment, Mchinji. The deposit was 14.5 MT, Maize, ACE Grade 1
(same as NFRA grade). Mr Chikasu was later to make more deposits
and increased the WR to 44 MT. With the WR Mr Chikasu accessed
financing and later split the WR in 2, one was sold to WFP and the
other to a trader. Mr Chikasu could market his WR from a position
of strength because GSL was guaranteeing the quantity and
quality.
When Mr Chikasu sold his WR, the buyer
deposited the contract value to the ACE settlement account.
ACE settled the outstanding financing and storage cost, transferred
ownership of the WR to the buyer and gave Mr Chikasu the balance.
On that deal Mr Chikasu received a 72% increased income after all
cost were deducted, compared to the market price prevailing when he
deposited the maize. The buyer later went to pick up the maize at
GSL and the WR was cancelled.
The benefit for the small scale sector
is obvious and ACE anticipates that available third party storage
capacity will soon become scarce as more depositors look to utilise
space to improve their incomes. But the WRS will also add
value to the large commercial operator. As the volume increases the
WRS will become a very attractive vehicle for the flow of easy
accessible competitive agricultural financing. Also, WR's from
Malawi can be promoted regionally and internationally as a secure
instrument, attracting more buyers and perhaps even agricultural
investors and speculators that will ensure better prices of
Malawian commodities secured on WRs.
Life of a Warehouse Receipt
-
-
The storage operator issues a WR and
thereby guaranteeing the quantity and quality.
-
The Depositor requests financing
from a
preferred bank and
immediately receives the funds
-
The Depositor follows the prices and
may put the receipt for
sale on ACE.
-
A buyer accepts the offer and ACE
generates a contract.
-
The Buyer deposits fund into the ACE
settlement account.
-
ACE settles the finance and storage
cost and transfers ownership of the WR
-
ACE transfers the balance to the
seller
-
The new owner can either collect the
commodity or request new financing from a preferred bank.
-
The WR is cancelled in the Registry
if the commodity is collected. If not, the sequence starts
again
Please contact ACE if you have any questions about warehouse
receipts. ACE would like to assit you in the 2013 marketing
season.