Calvin Miller Food and Agriculture Organization of the UN Rome, Italy Warehouse Receipt Financing and Collateral Management system to promote Agriculture Financing The good, the bad and reasons why Calvin Miller Food and Agriculture Organization of the UN Rome, Italy

Warehouse capacity and management

Challenges start with the fundamentals The warehouse Challenges start with the fundamentals The management

Bolivia Rice Strategic Alliance FONDECO Rice Mill Rural MFI CLIENTS Letter of Credit Rice Deposit Credit Request Credit Disbursement Gives Certificate of Deposit Rice Mill 1 2 3 4 6 5 Strategic Alliance FONDECO Rural MFI CLIENTS FONDECO - a financial institution within a holding company CCD = letter of credit guarantees payment MILL Deposits Trader Client?? Aval?? Agents CLIENT-BENEFICIARY: Rice Producer has immediate resources required to guarantee the grain deposited in the authorized mill 4

Niger Informal Warehouse Receipt System 5 Niger Informal Warehouse Receipt System Market Stock in warehouse = Collateral guarantee Small farmer group Finance institution Physical flows In Niger – 33% increase in stock value (in 4-6 months of storage) 18% of food stocks used for the lean season New income from off-season cultivation Monetary flows

Predictable timing of price peaks ensures price gains Source: Afrique Verte International, 2010, and Hernandez

Efficiency gains since introduction of inventory credit WRS –Tanzania Warrantage – Niger Increase of external finance to bulkers/traders to buy from small holder farmers, but not maize Increase of external finance for rural households’ non-farm rural activities while commodities are stored Enabled production and trade growth in specific subsectors, such as coffee, tobacco, cotton, cashew, and sunflowers Enables to smoother household cash flows and improve household incomes from non-farm and farm activities Enabled higher price gains within national value chains, but winning segments vary from crop to crop Although limited, enables greater stability of grain supply for domestic and export markets

Who Can Use a Warehouse Receipt System?

Crop receipts (rural product bond) Farmer/group signs binding obligation to pay an amount P which is equal to the cash value of the underlying commodity at issuance (V) plus a margin determined by a fixed or variable reference interest rate. In exchange, the buyer advances resources in the form of financing or inputs to the producer. At the settlement date, the issuer sells the harvested agricultural commodities in the marketplace and uses the proceeds to pay the buyer the outstanding obligation. At that time, the obligation is considered settled. Prior to settlement, due to the negotiable nature of the CPR, the buyer may offload the claim to a third party in the secondary market.