Electronic

Warehouse

Receipt System

in Ghana

Initial Recommendations for

Ghana Grains Council

Prepared by

P S Krishna Kumar

Senior Technical Advisor, ICT

Popular Opinion

“In bumper harvest, prices fall so low that farmers are not able to repay their loans, despite abundant production. Then, it follows that in the following year, not enough food is produced to feed the population. Why don’t people store grain from year to year? Why can’t the market deliver in bad times and save in good times?”

Dr Osei Boeh-Ocansey

Director-General

Private Enterprises Foundation

2

Background

Ghana grains sector: full of promises, less on realization

Unlocking the potential: the key to sustainable, inclusive growth

Current need is to move locally produced commodities from the

non-industrial production storage centres into accredited

warehouses and silos, in standardized lots, graded, shelf-life

certificated and insured with no loss guarantees.

Institutions & structures to be developed:

Enforceable commodity standards setting and certification system.

Price discovery system.

Supportive financial and credit delivery system.

3

About Ghana Grains Council

A not-for-profit, private sector organization, which prepares,

disseminates, and promotes the exchange of information on matters

affecting the grain industry in Ghana.

Build cooperation, interaction, partnerships, alliances, networks &

market linkages

Support structured marketing systems by developing warehouse

receipts and paving way to setting up commodity exchange

Act as main certification authority in structured systems; and

provide commercial services as needed

4

Support from ADVANCE Program

ACDI/VOCA is improving Ghana’s agricultural sector by increasing

competitiveness in domestic, regional and international markets

through the USAID-funded Ghana Agricultural Development and Value

Chain Enhancement (ADVANCE) program

ADVANCE supports the continued emergence of the Ghana Grain

Council (GCC), the central private sector driven body that will be

responsible for setting warehousing receipt system and enforcement of

agreed policies and guidelines.

ADVANCE provides specific technical assistance to push and guide the

process of moving the already established GGC to becoming the corner

stone of industry-driven oversight mechanism on warehouse receipts.

5

A range of services

In addition to WRS, GGC will develop a range of other services

which may be lacking, but are beneficial to and in demand.

transport brokerage, which is considered to be a major constraint in

matching offers and bids by the small holder farmers;

processing facility at warehouses while the produce awaits sale at better

prices at the markets;

offering weighing services as these are virtually not available to

smallholder farmers in markets;

quality control services such as testing for grain moisture using

moisture meters;

selling genuine farm inputs (fertilisers, seeds) at affordable prices;

brokering financial services to farmers by banks and micro-finance

institutions;

6

Building Blocks to Grain Exchange

7

Trade & Market Information

Policy Framework for Trade Exchanges

Standards & Certification for Commodities

Warehouse Receipt System

Arbitration Support

Financial Services (Insurance, Trade Financing)

Spot & Futures Trades

Ghana Grains Council will need to work collaboratively with other stakeholders to

establish the building blocks required for the emergence of a national exchange. This

process will have to be implemented strategically, with the creation of a physical

exchange being the last step in a series of systematic interventions.

12

34

56

7

Ghana Grains Council has phased its focus

areas to extend its services through these

building blocks.

Warehouse Receipt System (WRS)

Warehouse Receipts (WR) have long history in industrial countries, short one in Africa (South Africa, Uganda, Ethiopia, Zambia, Tanzania)

WR can play an essential role in agricultural marketing

Can be traded, sold, swapped or used for delivery against a derivative instrument

Warehouse Receipt System can

Improve farm income and smooth domestic prices by providing an instrument to farmers to spread sales throughout the crop year

Mobilize credit to agriculture by creating a secure collateral for banks

Provide a way to gradually reduce the role of government in agricultural commercialization

8

Warehouse Receipt (WR)

Document issued by warehouse operators as evidence that specified

commodities, of stated quantity and quality, have been deposited at

particular locations by named depositors

Depositor may be a producer, aggregator, farmer group, trader,

exporter, processor or an individual

Issued either on paper or electronically

Becomes a financial instrument if backed appropriately

Requires regulatory support to become negotiable title

Held to account (quality and quantity have to be absolute)

Ideally not part of an exchange

9

Warehouse Receipt (contd.)

10

WR Life Cycle

Crop Harvested

Grains to be stored at

Warehouses

Quality & quantity verified

Grade Certificate

issued

Warehouse Receipt Issued

Receipt available for

trade

11

WRS Ecosystem

Warehouse Receipt Law

Depositors Warehouse Bank Buyer

12

Collateral Manager (Tripartite Collateral Management Agreement

Insurance

Provider

Regulated WRS

13

Market Support Systems

MIS, Legislation, Standards, Enabling Policy

Warehouse Regulatory Agency

Licensing Requirements

Operator’s capital adequacy, insurance cover,

performance bond

Licensed/Certified Warehouse Operators (local & international)

Depositors

Financial Institutions

BuyersCommodity Exchanges

Commodity WRWR Commodity

WR CreditPayment WR

Components of WRS

14

• Quality & Quantity Guarantee

• Viable Storage

• Access to Finance

• Warehouse Receipt Financing

• Inspection

• Grading

• Insurance

Warehouse Bank

BuyerDepositor

GGC’s Engagement Model

15

Actors Warehousing Structure in Ghana

Commercial

Warehouse

Aggregators/ Traders

Village Level collection

and storage

Farm level Small holders

Large

Commercial

warehouse

Large

Commercial

warehouse

Large

Commercial

warehouse

Warehouse Locations

Pens Food Bank, Ejura - Ashanti

Ebenolan Enterprises, Techiman (formerly Digina Foods)

Grainleadeaders, Nkoranza

Savannah Farmers Marketing Company, Tamale

Gundaa Produce Company, Tamale.

UT Logistics (no upgrade to warehouse, training and grading equipment will be given)

Agrimat (volunteer, no upgrade to warehouse, training will be provided to fulfill the requirements for certification)

16

Positioning

Warehouse Receipts

17

Collateral financing is the most

common model that finances

WR. GGC to set up tripartite

collateral management

agreements (CMAs) involving a

bank, the borrower and the

collateral manager, which allow

depositors to secure bank

credit.

The warehouse receipts are

issued directly to the financing

bank and not to the depositor,

and they are non-negotiable and

non-transferable.

Warehouse Financing through Banks

Product delivered to Warehouse with delivery instructions & receipt in

Bank’s name

Warehouse operator bundles receipts for presentation to Bank

Bank finances individual depositors up to 70%

Buyers locate commodity grades and pay cash to

Bank

Bank accepts sale and presents receipts to

Warehouse operator with delivery instructions

Product delivered to buyers

Bank remits net proceeds to depositors less financed

portion plus interest

18

WRS - Numerous Benefits

The use of inventory as collateral can ease access to finance and lower

financing costs, especially for smallholder producers (participating as

groups).

The application of standardized grades allows trading by description,

thereby reducing transaction costs, and also safeguarding against cheating

on weights and quality.

Trade using the WRS shortens the marketing chain and can potentially

increase producer margins.

Commodities are better stored by professional warehouse operators,

therefore reducing storage and post-harvest losses.

Create and maintain a more enabling policy and regulatory framework for

trade in agricultural commodities.

19

Micro-economic Benefits

Price transparency

(everyone has access to a neutral reference price)

Price discovery

(demand and supply developments are easily reflected in price levels)

Reduced transaction costs

(easier to find buyers or suppliers through a centralized market place)

In addition, WRS helps to define better quality standards, speed up

the process of product standardization, and improve the discipline in

the markets.

20

Electronic Warehouse ReceiptsSystem Considerations

21

Electronic Warehouse Receipts (EWR)

Eliminate the need to store, file, safeguard and track used and

unused paper warehouse receipts

Eliminate the costs of overnight delivery of warehouse receipts

Centralize the purchasing, issuance, and monitoring of warehouse

receipts issued from all warehouse locations

Eliminate rejection with built-in “Validation of Grades” which

assures EWRs are not issued with incorrect data

Easily issue multiple, identical warehouse receipts in a matter of

seconds

Establishes a full audit trail electronically and combines with some

powerful reporting tools

22

Challenges

Computer Literacy

Low electricity coverage

Low computer ownership

Internet availability/cost

Doubt about “validity” of data/electronic receipts

Last mile technology integration?

Lack of hosting service providers who can support SLA of 99% of

above uptime

23

Users of the System

Depositors

Aggregators & Traders

Buyers

Banks

Collateral Managers

Field Support Users (Samplers, Graders, Grain Inspectors)

24

25

EWR Software Modules

License Management

Issue license to Warehouse

Issue license to Warehouse Operators

Issue license to Warehouse Staff – graders, samplers, grain inspectors

Issue license to Collateral Management’s Inspector

Manage suspension & revocation of licenses

Manage lost or destroyed licenses

Manage renewal of licenses

Manage Insurance Requirements & Performance Bonds

Manage inspection, weighing, grading and shelf-life certification

Manage stored grain inventory

26

EWR Software Modules (contd.)

Warehouse Receipts

Issue of electronic warehouse receipts

Manage alterations to warehouse receipts

Manage lost or destroyed warehouse receipts

Manage delivery of grains/cancellation of warehouse receipts

Manage partial delivery

Warehouse Receipt Transactions

Manage Transfer-In/Transfer-Out*

Manage Encumber-In/Encumber-Out*

Manage WR financing through participating banks

27

* - Functions to be developed once commodity exchange is established & operational

EWR Software Modules (contd.)

Maintain Electronic Records of Warehouse Receipts

Classified by warehouse location, grain, buyer association, by depositor

Maintain Warehouse Operators’ Record of WR transactions

Maintain Warehouse Operators’ Record of Financial transactions

Create daily transaction reports

Create/aggregate market information and statistics

Maintain warehouse tracking sheet

Maintain bank tracking sheet

Monitor price movements over life of loan (WR financing)

Record/monitor additional collateral (WR financing)

28

Non-functional Requirements

Web-based system that presents simple interface and works on low

bandwidth connectivity

When internet connectivity is unavailable or there is no access to

computers, mobile phone based message alerts, smart texts and call

center facility to be extended

Support multiple commodities & multiple warehouse locations

Support multiple banks & financial institutions through EDI

Support a central location – GGC office in Accra to lead most of the

back-end processing, record keeping & monitoring

All warehouses to receive incremental features that support

participation

29

Software Development Options

Option 1: Choose an established vendor/platform

ICX Africa (ICX Platform) has been a tried and tested system that is live

and used in South Africa (SAFEX) and Uganda (UCE)

The software platform supports end-to-end commodity exchange

function enabling electronic trades on spot and futures markets

GGC’s current needs are restricted to developing an Electronic Warehouse

Receipt System

The software pricing has two models

Fixed license cost – includes an one-time license cost (3 year term/perpetual

license) along with a 30% annual maintenance charges (recurring) and

recommends 40 person hours of customization effort per month.

Software As A Service (SaaS) – model recommends no upfront payment and

no infrastructure/asset ownership. ICX software will be hosted for GGC and

a monthly payment towards license cost and a commission on transactions

will be chargeable.

30

Software Development Options

Option 2: Choose a software vendor for custom development

Ghana has capable technology firms that can develop the suggested

system using proprietary software

Microsoft Dynamics is a customizable framework that can help develop a

supply chain management and enterprise resource management system

without coding from the scratch

Initial development team which developed the ICX platform as Sandbox

projects is still available to develop a custom solution

Solicit vendors through RFI/RFP process to select a vendor that will

develop the EWR system for Ghana

31

Recommendations

Support reliable warehouse investors/operators

Identify strong and consistent buyers

Develop Collateral Management Agreement (tripartite) with CM(s)

Establish Market Information aggregation process

Develop internal policies and controls regarding warehouse

licensing/certification, grade certification, administration and

monitoring

Make a strong push to use electronic systems

Create consensus among banks and gain acceptance by leading banks

As this is still a non-regulated environment, work towards

establishing trust and confidence among stakeholders

32

Four Pillars of Operational Excellence

Trust

Transaction

Transform

Technology

33

Recommendations (contd.)

Of software development options available, recommend Option 2

whereby GGC will solicit vendors to develop a custom platform

that suits the needs and scope established

Option 1 tends to be too expensive considering the stage GGC is at

No warehouse system law; regulation may bring changes to the system

Demonstrate to depositors that value offered at warehouses and move

away from traditional markets

Depositors made to understand the need for producing standardized,

high quality grain through dissemination and advisory services of GGC

Establish credibility within the system and attract suitable partnerships

It may take 6 – 12 months easily before seeing appreciable WR volumes

flow through the software solution

“Don’t assume technology will be accepted”

34

Suggested Next Steps

35

Thank You!

Contact:

P S Krishna Kumar

Senior Technical Advisor, ICT

ACDI/VOCA

kkumar@acdivoca.org

www.acdivoca.org

36