The Ghana Grains Council is set to begin implementation of a Warehouse Receipt System to enable farmers boost their income earnings and also use their produce as collateral for credit.
The Warehouse Receipts System, which is expected to start in the next three months, will involve a trade in grains by which deposits of grain in a Ghana Grains Council certified warehouse will serve as collateral to enable the depositor to access credit.
The system is expected to allow farmers to hold their produce in a certified warehouse until such time that the price of the commodity in trade is good. It will also reduce the risks Banks face in advancing agriculture commodity-financing to farmers.
The CEO of Ghana Grains Council (GGC), Dr. Kadri Alfah, explained that the implementation of the system follows success in other African countries where Warehouse Receipts Systems have improved farmers’ average farm-hold financing income.
He said the GGC-certified warehouse is designed to provide quality and quantity assurance in support of the warehouse receipts created, as it will mainly deal in maize and rice due to their high standardisation assurance in the country.
“These two have already established National Standards by which grain can be graded,” he said.
Already, five 1,000 metric tonne warehouses from the Millennium Development Authority (MIDA) projects have been targetted for certification and the Ghana Grains Council also has two 500 metric tonne warehouses in Tamale and Nkoranza.
Additionally, twenty-five 30 metric tonne community warehouses are to be built in the Northern region to serve as aggregation points and feeders for bigger warehouses; and at the same time, seven Warehouses have been identified for certification in Brong Ahafo Region.
“All these warehouses are in key grain areas throughout of the country. The weighing, grading and quality control sensitisation has already begun.
“GGC is in the process of procuring software for creating Warehouse receipts. These will all be electronic, and financial institutions will be able to monitor receipts pledged to them,” Dr. Alfah added.
In the current asset form, most banks do not consider agricultural commodities as a desirable form of collateral and therefore have a limited exposure to their financing.
Access to credit by farmers is estimated at 6.7% of total outstanding bank credit directly exposed to the sector, even though agriculture contributes about one-third of the country’s GDP.
The Head of Risk Management of UT Bank, Simon Badzi, said the Warehouse Receipt System is a necessary step toward improving agriculture commodity financing in which banks advance credit facilities to farmers when the commodity or crop itself serves as collateral for the facility.
“It is the means of accessing post-harvest finance for working capital needs. The financing cycle begins after the harvest. The harvested crop is stored in a licenced warehouse that issues a receipt proving the commodity is physically in the warehouse. This receipt forms the basis of the financing,” he said.
Mr. Badzi however added that there are some challenges to this system of financing agriculture: such as infestation, improper ambiance in the warehouse, theft, fire and floods among others, which all pose significant risk to banks.
