Countries

WAREHOUSE RECEIPT SYSTEMS

COUNTRIES

TANZANIA

Local Project Management

The Local Management Unit (LMU) is located in Pamba House, Dar es Salaam and headed by a three-member team:

Ms Elizabeth Kimambo (Head and National Project Coordinator)
Mr Fidelis Temu (Associate Project Coordinator for Coffee sector)
Mr Mohammed Mbaga (Associate Project Coordinator for Cotton sector).

The two Key stakeholders are the Tanzania Coffee Board and Tanzania Cotton Board. The Project is hosted by the Ministry of Trade, Industry and Marketing.

The Tanzania WRS Model

The key features of the Tanzania WRS are:

Designated warehouse operators are private coffee curing factories and cotton ginneries
Depositors are mainly primary cooperative societies who market coffee on behalf of their members, though some medium-scale traders and cooperative unions are also participating.
Financing is not so much for speculating on favourable price movements but mainly to access working capital, e.g. to the primary cooperative societies, allowing them to make initial payments to members while waiting for the crop to be processed for the market. The lead banks financing against Warehouse Receipts issued under the project are CRDB Bank, Exim Bank (Tanzania) Ltd. and the Kilimanjaro Cooperative Bank.
Cured coffee is predominantly sold through the Moshi Coffee Auction. Payment is channelled through the Auction to the financing bank, allowing it to recover the loan provided and related charges.
The system is primarily trust-based and does not involve a collateral manager or a regulatory body in overseeing the activities of the warehouse operators.

A Warehouse Receipt Act was recently passed by the Tanzanian parliament. In addition to providing a framework within which Warehouse Receipts can be issued, the Act provides for the establishment of a Regulatory Board to license and inspect participating warehouse operators. For more details please visit http://www.wrs-tz.org.

PROGRESS MADE

Considerable progress has been made in piloting the WRS for coffee and cotton in Tanzania (further details provided in Coffee/Cotton Sector Pilots below). This progress and the promulgation of supportive legislation by the Government of Tanzania have helped create a platform for mainstreaming WRS in the country. So far the main achievements have included:

Designing of a secure Warehouse Receipts, to be printed soon. The proposed Regulatory Board will regulate the issuing, usage and circulation of the Warehouse Receipts
Warehouse Operators and primary cooperative societies have been trained in warehouse standards and quality assurance respectively
Warehouse regulations and inspection manuals are under preparation to facilitate establishment of the Regulatory Board
LMU staff and other relevant key stakeholders were trained in Warehouse Inspection to enable the enforcement of regulations/standards prior to the establishment of the Regulatory Board. The resource person came from the NRI implemented Project - Zambia Agricultural Commodity Agency in Zambia (ZACA).
Arrangements have been initiated to institutionalise training in warehousing to assure availability of skilled professionals
The development of an effective and sustainable market information system is underway. This includes a website for disseminating project information as well market related issues. The site will be transferred to the Regulatory Board once the Board is functional. Other means for disseminating market information will include radio bulletins, newspapers, television, newsletters, and flyers. A training manual on market information is being prepared and will be available from the LMU and later from the Regulatory Board.

Coffee Sector Pilot

Coffee contributes over 17% of Tanzania's foreign exchange earnings and is mainly produced by smallholders (over 85%). Nearly 75% of coffee produced in Tanzania is Arabica.

Four warehouse operators are participating in the WRS pilot. These are Tanzania Coffee Curing Company (TCCCO, Mbozi coffee Curing Company Ltd, Mbinga Coffee Curing Company Ltd, and Tanganyika Coffee Curing Company Ltd. The geographical spread of the operators cover the following regions: Kilimanjaro, Tanga, Arusha, Kigoma, Mbeya, and Mbinga regions.

There are over 50 coffee farmer groups using the Warehouse Receipt Systems. These are predominantly Primary Cooperative Societies. The table below shows quantities of parchment coffee deposited by these groups and the financing against these deposits by CRDB Bank, Exim Bank and Kilimanjaro Cooperative Bank Ltd over the past 4 seasons.

Season	Parchment Deposits (kg)	Total Bank Finance under WRS (TZS)
2002/03	8,269,507	4,697,692,852
2003/04	9,842,066	2,264,686,440
2004/05	15,297,250	8,653,345,500
2005/06	12,022,717	N/A

Farmers have reported receiving much higher prices under the WRS than prices paid by the private traders. Anecdotal evidence also suggests that the quality of the coffee delivered by the primary level organisations is constantly improving. The improvements have been attributed to the higher prices linked directly to higher quality coffee and the improved traceability systems enhanced with the use of WRS. Primary level farmer organisations using the WRS are also showing increasing sophistication in their marketing strategies as the case below illustrates.

Mamsera Rural Cooperative Society

The Mamsera Rural Cooperative Society (MRCS) is a coffee marketing groups and has a membership of 1,024 people. Coffee is bought from members and non-members on the basis of quality [Special, Parchment 1 and Parchment 2]. This procurement system is aiding in producing higher quality coffee.

For ‘first payment’ to producers, MRCS has to borrow money from the banks at going interest rates. The MRCS opted to deposit with Rafiki Coffee Ltd Company, a coffee curing factory venturing into lending under the WRS because of the lower financing cost – Rafiki offers advances against the deposited parchment coffee at interest rate of 12%, instead of 20% on loans from the Kilimanjaro Cooperative Bank (KCB) previously used. As is the case with groups borrowing from KCB and depositing with other curing factories, loan repayments are completed when the coffee is sold through the Moshi Coffee Auction.

Besides the coffee business venture, the MRCS has branched into a number of other activities each assigned its own budget and handled separately:

hardware business
Brick making
inputs business
coffee nurseries

Cotton Sector Pilot

Cotton contributes about 14% of foreign exchange earnings to Tanzania’s economy. More than 95% of Tanzanian cotton is grown in the Western Cotton Growing Areas while the rest comes from the Eastern Cotton Growing Areas. Cotton production is dominated by smallholder farmers, harvesting on average 600kg seed cotton per hectare.

The cotton pilot is currently only in Moshi. The Tanzania Cotton Board is currently running the ginnery on a short-term lease from the Kilimanjaro Native Cooperative Union (KNCU) who in turn is offering toll (contract) ginning services to primary societies. The main depositor has constantly been the Oridoyi Rural Cooperative Society (a smallholder primary society) from Manyara Region in Eastern Tanzania.

The Oridoyi Rural Cooperative Society was established in 1995 and has a current membership of 600 farmers. The Society began using the WRS to market their cotton in 2003/04 season. The process of depositing involves the primary society sending seed cotton to the Moshi Ginnery. Because of the toll-ginning service offered, the primary society is able to use the deposited seed cotton as collateral, allowing them to obtain finance from CRDB Bank, TZS390 million in the 2005/06 season. The loans obtained are used to make initial payments to the members. The initial payment to the producer is often set close to the minimum price set by the Cotton Board at the beginning of each season.

After ginning, the primary society markets the lint and cotton seed itself. In the 2004/05 season, the group was able to market cotton lint directly to a UK-based merchant, with the assistance of the Tanzania Cotton Board. Proceeds from the sales are channelled through the bank, allowing the bank to recover loans and related interest costs and charges. The balance is credited to the primary society, which deducts operating and administration costs after which point it can opt to make a second or third payment to the depositors. During the 2003/04 season, the society financed expansion of area under cultivation by about 4 hectares for each member from the profits made from the sale of lint and cotton seed. This explains the substantial increase in output the following season (2004/05) as shown in the Table below.

Season	Seed Cotton Deposited under WRS (kg)
2002/03	103,273
2003/04	229,470
2004/05	826,000
2005/06	1,200,000

However, the WRS cotton pilot was seriously hampered by the use of old gin stands which were in operation at the Moshi ginnery. Following recommendations by the WRS project, four gin stands were imported from India with funding from the Ministry of Cooperatives and Marketing (MCM). This installation of new gin stands improved ginning efficiency substantially. The efficiency in ginning is expected to substantially increase the net income of the depositors, through reducing the cost of servicing loans and obtaining higher lint quality.

The main challenge for the WRS Project team is to expand use of the system to the Western Cotton Growing Areas. The LMU continues to work tirelessly to replicate the Oridoyi success story in the West. Further to this, there is need to identify ginners willing to provide toll ginning services to the farmer groups intending to use the WRS. The financial benefits of a ginner providing toll ginning services to producers, and for cotton producers to market lint cotton instead of seed cotton is being explored. The report will be available soon.

UGANDA

Local Project Management

The Local Management Unit (LMU) consists of the following:

Mr. Fred Mwesigye (Part-time National Project Coordinator and Commissioner, Ministry of Tourism, Trade and Industry)
Ms Deborah Kyarasiime (Project Assistant)
Mr Chris Baine (Full-time Technical Advisor)
Mr Apollo Kamugisha (Associate Project Coordinator for Coffee sector)
Mr Hans Muzoora (Associate Project Coordinator for Cotton sector).

The host Ministry for the project is the Ministry of Trade, Tourism and Industries (MTTI). The project office is located in the Farmers’ House, Kampala in which the headquarters of the MTTI is located.

The key players include the two commodity boards: Uganda Coffee Development Authority (UCDA) and the Cotton Development Organisation (CDO).

The Uganda WRS Model

The progress made in Uganda up to now includes the following:

A Warehouse Bill is being promoted in Uganda to provide a regulatory framework within which the system can develop. The Bill is currently under consideration by the Parliament of Uganda. To facilitate its passage through ensuring understanding of the concept and key issues as well garner support behind the Bill, workshops were organised targeting key stakeholders and parliamentarians representing Sessional Committees on agriculture, finance and trade. Two study tours to Tanzania were also organised for stakeholders to enable them to acquaint themselves with how the WRS works, since Tanzania has made more progress in terms of piloting the systems for coffee and cotton.
A market information system (MIS) has been established in Uganda, initially for the coffee sector. The MIS is expected to be sustainable due to its reliance on available capacity within UCDA on information collection and dissemination. Information dissemination is via local media - newspapers and broadcasting bulletins. Price information on coffee (and later to include cotton) is also being disseminated via SMS messaging. A private service provider – True Africa - is providing this service to UCDA. The information provided covers prices of Arabica and Robusta coffee in the main coffee producing districts.
Training in coffee quality assurance has been provided to, especially coffee producers. The main resource persons were from the UCDA.

The outcomes of the WRS pilots are reported below per commodity.

Progress Made in Coffee Sector Pilot

Coffee is Uganda's premier export commodity, accounting for up to 55% of the countries foreign exchange earnings. Over 90% of Uganda’s coffee is Robusta, and comes from the Lake Victoria zone. Arabica is mainly grown near Mt Elgon in the East. Coffee production is mainly by smallholder farmers.

The key features of the Uganda Coffee WRS are:

Certified Warehouse Operators include Bugisu Cooperative Union Muhame Cooperative Society and Banyankole Kweterana Cooperative Union.
A collateral management company – Cotecna, has been appointed to issue Warehouse Receipts and to manage deposited stocks
Depositors included farmer groups, including those under NUCAFE, [LINK TO http://www.ugandacoffee.org/nucafe.php] Cooperative Societies, Area Cooperative Marketing Enterprises and some medium-scale traders
Allied Bank is participating in the WRS Project. However, the coffee deposits received during the two pilots were sold directly after depositing and did not require any inventory-backed bridging finance
Most of the coffee was sold directly to exporting companies before processing, as either parchment (Arabica) or kiboko (Robusta)
Robusta deposited in the designated warehouse in Mbarara (Western Uganda) was sold by auction through the Uganda Commodity Exchange.
Volumes deposited since the launch of the WRS project pilots have been small.

Further farmer sensitisation, training and mobilizing programmes have been planned for the Central and South-Western regions, focusing on Ntungamo and Bushenyi areas, to ensure improved uptake of the WRS for the coming coffee season.

Progress Made in Cotton Sector Pilot

Although cotton is produced widely in Uganda, most production is concentrated in the Northern and Eastern regions of the country. Cotton is produced mainly by smallholder farmers. Over 90% of the cotton produced in Uganda is for the export market.

The cotton pilot involves two main farmer groups, one from Kasese and the other from Bushenyi area. The societies together have over 120 farmers.
Most of the participating farmer groups belong to NCU. The NCU has been reported to be purchasing new gin stands in anticipation of the increased workload.
Nyakatonzi Co-operative Union (NCU) is providing toll ginning services to the farmer groups as well as warehousing facilities.
As with the coffee pilots, COTECNA is providing collateral management for the cotton pilots.
By end of February, month into the season, over 100,000 kg of seed cotton had been deposited.

The challenge for the WRS Project and the Cotton Development Organisation is to increase the number of participating groups, and convincing banks to lend against the seed cotton inventories.

ZIMBABWE

The Zimbabwean local management unit (LMU) consists of the Project Manager (Mr. Dagmore Tawonezvi) and an administrative assistant, Ms Beauty Nyamukonda. The project is under the Government of Zimbabwe’s Ministry of Agriculture and the Ministry of Industry and International Trade.

Progress in Zimbabwe

The main prerequisites of the WRS are in place:

Banks including Kingdom bank and Agriculture Development Bank are ready to finance against Warehouse Receipts
The Zimbabwe Coffee Mills (ZCM) has signed up as a warehouse operator under the coffee pilot, while the Grain Marketing Board (GMB), will provide warehousing for soyabean
ITS-Socotec, a collateral management company, will manage the receipted commodities and issue the Warehouse Receipts
Standard Warehouse Receipts have been printed and ready for use.
Participating farmers have been trained in coffee and soyabean quality issues

Coffee Sector Pilot

Zimbabwe’s coffee production is concentrated in the mountainous Eastern Highlands of Manicaland Province.

A sizeable number of farmers are also located in Mashonaland Province. Most coffee in Zimbabwe is commercially produced, while smallholders, who account for approximately only 5% of output, are mainly organised into producer associations and collective groups. The WRS participating smallholder groups include the Honde Valley Coffee Growers Association (HVCGA) and the Vumba Agricultural Collective Cooperative Society (VACCS). The HVCGA consists of nearly 500 members, most producing coffee on plot sizes ranging from 0.5-0.8 hectares. The association was formed mainly to facilitate crop marketing and inputs procurement. VACCS has a 23 share-holding membership. All members, with the help of casual and permanent staff, work and market their coffee together. In recent years, the area under coffee production has decreased to about 24 hectares.

In previous financing arrangements, all smallholder farmers would be advanced up to 80% of the coffee value by the coffee mills at delivery. They would receive the rest of the money after the coffee has been sold. This process, from delivering coffee to the mill to when coffee is sold, takes on average a period of 2-3 months. The VACCS group, however, would not receive this inventory advance, (as this does not apply to farmers on plots bigger than 20 hectares). Instead they would receive 20% of the expected yield, just soon after coffee flowering stage. The expected yield is a result of a triangulation process based on an assessment of coffee flowers. Although this early financing helps to improve the group’s cash-flow, both groups face considerable cash-flow problems as there are big time lags between harvest and sale of coffee.

The WRS Project aims to alleviate these cash-flow problems faced by smallholder farmers. However, this could not be achieved during the 2004/05 pilot season because of declining output and high financing costs.

Soyabean Sector Pilot

Soyabean is a commodity grown in many areas of Zimbabwe, both by large and small scale producers. The WRS Project Pilot in soyabeans is in Mashonaland West - Chinhoyi and Mhangura Districts.

The soyabean sector offers a promising opportunity to demonstrate that the WRS could be a viable means of marketing agricultural commodities in Zimbabwe. In normal circumstances the average period of storage of the collateralised stocks will be between six and eight months, over which prices normally tend to rise significantly.

The WRS team is anticipating substantial deposits during the 2005/06 pilot season. Sensitisation, farmer mobilisation and quality training are the LMU’s main focus of activities. Some producer promotional materials have been developed and used for WRS. [PDF 326Kb]