Structured Marketing Systems And Its Policy Implication On West Africa By Kadri Alfah ( PhD ) International Centre For Evaluation And Development (ICED)Conference 25th – 26th July, 2017

Some are simple; others are more sophisticated. What are structured marketing systems? Main feature is that value chain actors ( producers, traders, processors, storage operators, millers, banks and others enter into organized, regulated trading and financing arrangements. Such systems are not new in Africa: they are used for export commodities such as coffee & grains in countries like Ethiopia, South Africa, Uganda, Kenya, Mauritius etc. Some are simple; others are more sophisticated. But all have the same core components: Some common core supporting components; - Good post harvest management systems such as cleaning, drying, sorting, grading etc - Reliable and trusted commercial storage and warehousing systems - Efficient trade financing systems - Clearing and settlement systems; System also relies on : -Market and price information -Trade Contracts -Rules and regulation

Some benefits of Structure Marketing System ? Structured trading system has an impact of catalyzing economic activity in many different sectors of the economy as well as agricultural development; Encourages commodity bulking and aggregation which enhances producers , particularly smallholder farmer participation in the broader marker for agricultural products, both at regional and national level Allow trade to be conducted based on instruments like spot trading, forward and futures contract rather than the physical commodity Eradicates contract disputes, and enhances market integrity and promote trade Enhance the linkages of nation, regional and international value chains Lead to a more volume driven trading system such as a commodity exchange Serves as mechanisms for reducing transaction and marketing cost as its easy for market participants to engage each other in wider market Enhance better planning for national and regional governments, as they deal with more organized group rather than a dispersed group S

CONTINUATION - Stimulate better allocation of resources such as agricultural extension services, value chains training, product quality controls etc. Facilitate the implementation of government fiscal control measures such as revenue collection through taxation and public expenditure etc. Increase access to finance for financial exclusives , particularly small holder farmer by facilitating the quantification and mitigation of risks suffered by financial institution such as information and operational risks Facilitates the strategic management of commodities such as bulking and storage, and selling steadily, which reduces price volatility, inflation and improves food security Facilitates value chains development, training and risk management Ensures better Agricultural auditing and accounting Stimulates the development of Infrastructure required for economic growth such as good roads, good warehousing, efficient transportation systems etc, Provides mechanism to eliminate or reduce contract disputes within agricultural marketing systems and cost of doing business, which enhances profitability Provides the mechanism for mitigation of systemic risks ( market risks ) through use of derivatives and other risk management instruments Stimulate growth and innovation of financial institutions and insurance companies, as they create products to meet market needs resulting in general development of the financial industry sector

TYPES OF STRUCTURED MARKETING SYSTEMS IN WEST AFRICA Inventory credit system (ICS) or ‘’Warrantage’’ Remains the most dominant form, in Francophone West Africa e.g. Niger, Burkina Faso, Niger, Senegal, Ivory Coast Piloted in Ghana in the 1980s by Technoserve to improve the lives of smallholder farmers and later replicated in many African countries. Exclusive target smallholder farmers who aggregate/bulk their commodities, store in warehouses, secure bank credit on them , and sell later when prices are better The average storage capacity of warehouses ranges between 50 and 500 tonnes whereas Exclusively targeting of smallholder farmers often implies limited participation of mainstream commercial banks in financing inventories Financing is often dominated by microfinance institutions, offering small loans Commercial Warehouse receipts Warehouse are usually larger, at least 1000MT, certified to meet industry/national or international standard, targets mostly medium to large scale producers with economical volumes Sellers may indulge in direct sales or link to a secondary market such as a commodity exchange Underpinned by warehouse receipts law or existing contract law of the country Grading, standardization and product guarantees are expected Commercial banks provides credit required, but some microfinance institutions may be involved

Inventory financing under collateral management Involves issuing of warehouse receipts backed by tripartite collateral management agreements (CMAs) Took off in most African countries in the 1990s when most governments in Africa scaled back their involvement in agricultural marketing systems Collateral managers take custody of stored commodities under existing contract law or regulation by an independent regulatory agencies Important when demand for exporters and importers are rising, and there are opportunities for increased private involvement domestic and external trade in agricultural commodities Commodity Exchanges Structured marketing systems where warehouse receipts issued by operators are recognized as negotiable and/or transferable documents of title, are exchanged on an exchange Trading are conducted by rules developed by the exchange and approved by a regulator. Commodity revolves around the exchange rather than direct deals with buyers. Commodities are standardized including all terms and conditions relating to trade, settlement and delivery of the commodities Contracts can be traded for immediate delivery or future deliver Products quantity and quality are guaranteed, including cash and commodity settlement Provide other services such as market and price information, risk management and inventory financing services

Developing Structured Market system in West Africa Governments and donors should allow private sector to drive the process based on well designed and sound business plans rather than forcing their evolution into the market for the sake of protecting a group such as small holder farmers. They should rather focus on creating the right policy environment for the private sector to take the lead Direct more resources to the development of the building blocks required for a successful structured marketing systems such as ; national and region standard and grading for warehouses and commodities, training and capacity building of value chain actors, better roads and transportation systems, enabling policy for cross border trade, increased agricultural productivity, cross border trade agreements that facilitates development of structured marketing systems etc. Facilitate the establishment of a trusted and capable regulator, at the national level and harmonize at the regional level Prioritize the commercial sector for agriculture ( large traders and processors ) as they are likely to bring the volumes required to guarantee sustainability

CONTINUATION Set up national law on warehouse receipts and commodity exchanges, and then work towards the harmonization of these laws across the region. Contract laws is not sufficient for the development of the sector especially banks which are critical ( no first loss guarantee to the bank ). Do away with national governments interferences in the grains market with interventions such as price caps, prices settings and export and import bans Work towards the harmonization of Interest rates, and a common ECOWAS exchange rate to promote cross border trade Legal framework that encourages inter country and cross border trade such as taxation, documentation, insurance, lending, trading Encourage cross border sourcing of finance and insurance products. Banks such as Ecobank, Access bank Work towards a West Africa common trading platform and warehouse receipts system, and encourage cross border sourcing of commodities. Will prolong production season of many countries, even out between deficit and surplus production areas and stabilize prices across borders

Some key policy issues that could impact structured market systems National and regional policies are required to legitimize structured market systems such as warehouse receipts, warehouse receipts financing, commodity exchanges to boost their development and growth. E.g. law to recognize warehouse receipts as document of pledge for loans by financial institutions to accept it, and as a tradable product Legislation required for structured market functions such as warehouse certification, inspection, transfer of commodities titles, establishing of quality standards etc Policy to fully liberalize the commodity trading sector, abolishing price controls, export and import bans to address food security concerns all affect structured market systems Promote the development of institutional infrastructure across the region such as roads, warehousing, transportation to enable the exploitation of opportunities for structured trading Creation of more competitive and innovative financial sector based on needs will enhance structured marketing systems Support a regional crop intensification programs such as use of irrigation, better input, use of better crop varieties will increase production of food staples

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