Warehouse Receipt Model in Punjab

This report is made possible by the support of the American people through the United States Agency for International Development (USAID). The contents are the sole responsibility of the author and do not necessarily reflect the views of USAID, the United States Government or Chemonics International

Warehouse Receipt Model in Punjab Consolidating Earlier Work and Setting Future Direction

2


Table of Contents

1. INTRODUCTION 3

2. BACKGROUND 4

3. EARLIER WORK COMMISSIONED BY PEEP 5

4. INTERNATIONAL EXAMPLES 9

4.1. UGANDA 9 4.2. KENYA 10 4.3. GHANA 10 4.4. ETHIOPIA 11 4.5. INDIA 11 4.6. MALAWAI 12 4.7. TANZANIA 12 4.8. ZAMBIA 13 4.9. INDONESIA 13 4.10. BULGARIA 14

5. PUNJAB AGRICULTURE SECTOR PLAN & WRS 14

5.1. GRAIN COLLATERALIZATION & WAREHOUSE RECEIPT MODEL 15

6. NEED/RATIONALE FOR WRS IN PUNJAB 16

7. STAKEHOLDERS PERSPECTIVE 18

7.1. FARMERS 18 7.2. MIDDLEMEN 19 7.3. PROCESSORS 19 7.4. GOVERNMENT 20 7.5. COMMERCIAL BANKS 21 7.6. STATE BANK OF PAKISTAN 21

8. ROADMAP FOR ESTABLISHMENT OF WRS IN PUNJAB 22

8.1. CROP SELECTION FOR WRS 22 8.2. CONTRACT/INSTRUMENT CHOICE FOR WRS 23 8.3. DESIRED STRUCTURE OF WRS MODEL FOR PUNJAB 24

9. PAC MODEL AS PILOT PROJECT 26

10. WAY FORWARD 30

REFERENCES 32

3


1. Introduction

Warehouse receipt system is not a new concept and many countries have

developed warehouse receipt systems (WRS) to facilitate farmers, processors and

banks. While on one hand, WRS enables the farmers to hold off the sales of their

produce in expectation of better prices, on the other, it also facilitates the banks

to extend credit to farmers based on secured collateral. Furthermore, the receipts

issued are tradable and can be sold or purchased through any electronic exchange

multiple times before the final settlement of the produce, at which stage the

delivery will take place. The receipts are generally recognized as legal documents

with formal ownership of a specific quantity and standard of a commodity stored

at a particular location, with specified quality parameters. Because of these

features, warehouse receipts provide efficient means to farmers for accessing

postharvest finance for working capital needs, especially those who are often

unable to secure credit owing to lack of easily available collateral.

The Punjab Enabling Environment Project (PEEP) funded by USAID has been

providing technical assistance to Agriculture Department Punjab on various

policy related interventions. One of the areas, where PEEP has previously assisted

the Agriculture Department, is technical advice for setting up a warehouse receipt

model for various crops. Followed by this technical support provided through an

international expert, various discussions have taken place and the government

has taken on board perspective of other stakeholders. The government has also

deliberated on strategic options such as choice of crops to focus on and whether

to set up a Punjab-specific commodity exchange. Pakistan Agriculture Coalition

(PAC), a non-profit organization established by Pakistan’s leading business groups

for the development of agriculture sector in the country, has also made a few

recommendations based on its own learning from Kunri (Sindh), where a small

WRS pilot for red chilies was undertaken. There was a need to consolidate these

various perspectives and approaches, validate viability of WRS financing system

in Punjab, propose a business model and devise a roll out plan. This report

presents these consolidated findings along with an implementation plan taking

into account the perspectives and roles of various value chain players including

farmers, private sector and government. This report aims at providing the future

direction to the Agriculture Department for kick starting establishment of WRS in

Punjab.

4


2. Background

Agriculture sector provides the foundation for Pakistan’s economy, contributing

20.9% in national GDP and providing employment to 43.5% of country’s

workforce. Every year, Pakistan produces approximately 45 million tons of wheat,

rice, maize and other major and minor crops for domestic consumption as well as

export. Punjab is the largest producer of agriculture commodities in Pakistan. The

agriculture value chain involves multiple intermediaries, whose involvement

along with other prevalent market inefficiencies; often impact the market

participants adversely. In particular farmers are worst affected by any such

market distortions. During harvesting season of major crops, a huge mismatch of

supply and demand is seen in every agriculture market, which results in decrease

in trading prices due to supply glut. Small farmers have to sell their produce on

unfavorable prices due to inadequate warehousing capacity, weak financial

muscle as well as looming cash requirements for the next crop. Inadequate

warehousing facility also leads to significant postharvest losses, worth billions of

rupees by some estimates. Besides absence of warehousing facilities, the

traditional sales platforms provide limited choice to famers for selling their

produce.

In recent past, State Bank of Pakistan introduced the concessional refinance

scheme 1 to encourage construction of silos, warehouses and cold storages,

however so far the scheme has failed to produce any significant results on the

ground. Moreover, reportedly Securities and Exchange Commission of Pakistan

(SECP) is also in the process of developing a regulatory regime for warehouse

receipt financing in the country.

Realizing the plight of farmers in accessing finance, getting a better price for their

produce and to have more robust sales platform as well as to ensure stabilization

of prices for consumers, Agriculture Department Punjab has planned to support

establishment of a functioning warehouse receipt financing system in the

province. There is a clear understanding in the government that any such model

should be private sector led and the government involvement should be minimal

and should only include providing support to make such a model functional.

1 http://www.sbp.org.pk/acd/Guidelines/2014/Draft-Frmwork-Warehouse-Receipt-Financing.pdf

5


3. Earlier Work Commissioned by PEEP

As mentioned earlier, the USAID-funded PEEP has provided detailed technical

assistance on this subject to Agriculture Department. The study, commissioned by

PEEP, highlighted that any warehouse receipt system (WRS) in the province

should be aimed at promoting grain storage in the private sector; developing

future agricultural commodity markets and promoting pledge lending; inviting

and encouraging private investment in identified areas; developing efficient

market models and encouraging private-public partnership in establishing these

markets. According to the study, these objectives can be met by creating and

operating a WRS network of silo complexes in Punjab, linked to a commodity

exchange.

The study noted that the Punjab agriculture sector is characterized by numerous

small, inefficient, financially weak farmers, as depicted through a comparison of

number of small landowners with less than 10 Ha, with the large farmers with

landholdings of 60 Ha and above.

Size of Land Ownership Number of Owners Percentage of Total

Above 60 Ha 5,339 0.10

Under 60 but above 20Ha 7,273 0.1





Under 2 above 1Ha 1,180,659 21.7

Under 1 Ha 2,490,316 45.8

TOTAL of below 60Ha 5,432,540

Source: Warehouse Receipt Financing in Punjab; Kennedy, J. 2015; USAID PEEP

About 98% of landholders have less than 10 Ha, placing them in small famer

category, where major economies of scale at farm level are not possible. The

study noted that wherever the famers in developed countries have much larger

sized holdings, significant investment in modern, efficient machinery can be

justified, but this is clearly not the case in Punjab, despite the fact that the overall

land area available for cultivation is capable of huge strides in output if

cooperation, amalgamation, inputs and machinery were employed on an

aggregate basis. The only potential for efficiency at farm level could therefore be

6


achieved either through farmers’ cooperation with each other or amalgamation

through the sale of holdings or probably a combination of both.

Based on this premise, the study suggested that the government should arrange

warehouses each with 50,000 MT of capacity, possibly through 300+ strategically

situated facilities, to service the needs of farmers across Punjab. Moreover, since

at individual level the volume of crops produced by each small farmer would be

too small and managing the sheer number of depositors at each warehouse during

the course of harvesting would be impossible, these 300+ warehouses should be

supplemented through grouping together of farmers to coordinate their cropping

cycle and aggregate their produce. These efforts, according to the report, would

result in a homogenous harvested crop, which can safely be mixed with each

other´s for the sake of transporting to the nearest warehouse. Each group should

then be supported through a weigher / tester at the point where they could safely

aggregate deliveries from the field. The weigher / tester can test for moisture

content with a simple hand held moisture meter and weigh bagged consignments

on a platform scale. The income from collective depositing can be shared equitably

among the group members. Through this coordination and aggregation, the

farmers could potentially deposit at warehouses directly, without the need for

‘arhtis’ (middlemen) to act as assemblers / aggregators, who under present

arrangements may claim a significant profit for their involvement in the

transaction.

Furthermore, being able to deposit collectively means that the farmers could

also collectively approach banks for a working capital loan directly, using their

harvested and deposited crop, verified through warehouse receipt receipts as

collateral, pledged to the participating bank in exchange for a loan.

In the proposed model, the farmers would have to sell their warehouse

receipts collectively in order to pay back capital and interest and to pay for

warehouse charges. Deduction of these invoiced expenses would be handled

by the commodity exchange (or WRS combined central depositary or clearing

house) before final disbursement of sale proceeds. The remaining balance

could be deposited in a nominated ‘group’ bank account from where they could

divide income amongst their grouping, in proportion to their shares.

7


The study suggests that adoption of such a model would reduce the losses

due to inadequate storage and hence spoilage to zero, provided the deliveries

to respective warehouses are made on time. Furthermore working capital

loans will be available at competitive interest rates using the warehouse

receipt as collateral; prices will be higher through more efficient trading via

commodity exchanges; and farm level efficiencies will be higher through

some form of cooperative farming.

The study does not exclude middlemen altogether and maintains that much of

these benefits (with probably the exception of the last one) could also accrue

through existing ‘arhtis’, who should also be actively encouraged to use the WRS

to make it work. The study further states that how existing farmer-arhti

relationship would develop in the WRS environment is difficult to predict, but it

is suggested that improved returns can be witnessed if both parties decide to take

advantage of WRS. The report also suggests a regulatory and monitoring role for

the government to closely examine this relationship after the creation of a WRS

network to ensure that farmers’ interests are well protected.

The study recognizes that development of a Punjab-wide WRS network would be

a very large project by any standards. As mentioned earlier, there is a need for at

least 300 major warehouses, each with 50,000 MT capacity, however any future

work in this direction may begin with smaller facilities of 10,000 or 20,000 MT

capacity. The study also provides some broad estimate for constructing a well-

designed and well-equipped 20,000MT silo facility2 at about US$2.34 million (Per

MT stored = US$117 or US$4.68 per MT annually over a 25 year depreciation

period)3.

2 Technical specifications given in the study: 20,000 MT silo with six hopper – bottomed pre-storage silos of 90MT capacity each; six individual intake pits, drive over grids and conveyors; six rotary grain cleaners, to include aspiration & cyclones for dust and light particle removal; eight x 2,500 MT capacity long term storage silos; eight silo unloaders; sixteen – 2 per silo - low volume ventilation units; temperature monitoring equipment - 4 per silo; phosphine pellet applicator for the purpose protect grain ¡n store from insect attack; two weighbridges and controls; system control panel; necessary 120tph elevators, conveyors, walkways; and initial basic set of laboratory equipment 3 In addition other costs incurred should include transport from port, bagging off lines and of

course land purchase, site preparation and civil engineering works, utility supply, office and

laboratory. The consultant further suggests some increase in these estimates since the estimate is

based on a 2-year old quote.

8


According to the study, the total cost (based on the above-mentioned estimate)

should be little less than this estimate due to the sheer scale of the overall 300+

units but should include other factors such as financing costs, inflation and other

less tangible expenses. Therefore, the total financial commitment required by

individual investors (banks, companies and individuals) / Government of Punjab

(depending on the preferred ownership and funding model decided upon) will

exceed US$6 million per 50,000 MT site for machinery hardware, land, civil

engineering and utility supply alone (using a cautious total budget figure of

US$120 per MT of storage capacity). The study also notes that in relation to all

capital investment expenditure, the capital cost would be spread from an

accounting perspective over the effective ‘useful life’ of the asset. This could

reasonably be expected to be 25 years for (silos, civil engineering and other

building works) and 10 years for moving-part machinery.

The study also recommends that any effort to develop WRS in Punjab should be

accompanied with establishment of a government warehouse receipts authority

to oversee the function of both the system itself and its individual warehouse

operators.

It seems that the study is based on learning from a number of other countries and

provides a sound model. However, based on a review of local situation and

discussions with stakeholders, following features in the proposed model need to

be re-looked at:

• The study does present a sound functioning model of how WRS work,

including details of processes as well as relationship amongst various

stakeholders and essential institutional linkages.

• The proposed model for cooperative farming is very important to make the

system work for small farmers, however it is an ambitious task and may

take many years before it can be successfully implemented at a larger scale.

• Establishing a Greenfield warehouse with USD 6 million+ per location

would result in approximately USD 2 billion cost for 300 locations. With an

expected life of 25 years, it may be very expensive and would need an

extensive cost benefit analysis.

9


• The model should make use of existing storage spaces within the public

and private sectors to propose a low-cost model that may be better suited

for Punjab.

• The report makes recommendations to address the undue margins claimed

by middlemen but also suggests integrating them in the model. This dual

approach causes some confusion because if middlemen are integrated into

such a solution and keep on claiming significant margins, it would be

unclear how farmers would take benefit from this solution.

4. International Examples

Before providing a policy advice, it is important to look at international examples

and review how other countries have managed to introduce WRS. Some of the

examples are discussed below, however, these are in no way meant to provide an

exhaustive secondary review and rather a few illustrations of WRS models in

other countries4:

4.1. Uganda

Uganda is located in East Africa and is the second most populous land locked

country after Ethiopia. Agriculture is the most important sector, which

contributes around 20% to the national GDP, 50% to exports and employs 70% of

the country's active population. Major crops of Uganda include plantains, cassava

and potatoes. Farmers in Uganda had been facing problems such as limited access

to credit and provision of poor storage facilities. Furthermore, low returns to

farmers made life difficult for the predominant rural population, which was

relying solely on agriculture income. To improve this situation, legislation on

warehouse receipt was enacted in 2006 and it took almost four years for the first

Ugandan bank to offer finance agreements by accepting warehouse receipt. The

Act established Uganda Warehouse Development Authority as a regulatory and

oversight body for managing warehouse receipt system. The overall objectives of

the Authority included: promoting financial inclusion through regulated inventory

credit; improving grades, quality and standards of agriculture commodities;

enhancing and improving storage infrastructure; developing a real time market

information system for supporting stakeholders in taking informed decisions; and

4 Extensive input on these international examples has been provided by Mr. Ali Tahawer, PEEP Consultant for Agriculture Department.

10


encouraging value addition of produce through efficient marketing system. Under

this Act, no person in Uganda can operate the warehouse and there is an elaborate

licensing regime operative in the country. The acceptance of electronic

warehouse receipt system was identified as a greatest challenge. To overcome this

issue a central registry was developed within the Authority in which issuance and

negotiation of warehouse receipts were to be registered. The primary users of

warehouse receipt system in Uganda are farmer cooperatives that receive loans

of USD 7000 against collaterals on average.

4.2. Kenya

The agriculture sector contributes to around 65% of Kenya's export earnings with

maize, potatoes and wheat constituting as the country's major food crops. The

Government of Kenya took a paradigm shift from direct management to adopting

regulatory policies with regards to agriculture commodities. A major component

of this transition encompassed warehouse receipt management. The WRS was

particularly beneficial for farmers with larger holdings but to allow small-scale

farmers to also benefit from the financing system, they were organized into

associations and their capacities were built to engage in collective management of

grain collection. The Warehouse receipt system in Kenya is focused on maize

which is primarily grown by small landholders. Two warehouse approaches were

undertaken by Kenyan Government - Certified Warehouse Receipt System and

Uncertified Warehouse Receipt System. Under certified WRS two different pilots

were initiated - one by East Africa Grain Council (EAGC) in 2008 and the second

by National Cereal and Produce Board (NCPB) in Sep 2010. The uncertified

warehouses consist of numerous small-scale grain storage initiatives taken in

rural areas. NCPB now has nationwide network of silos and warehouses in 110

sites with a combined capacity of 1.8 million metric tonnes. In addition Kenya is

focused on enhancing rural storage and local bulking of surplus grain called cereal

banking. The storage charges in WRS through cereal banking are negotiable,

variable across time and depend on prevailing market conditions.

4.3. Ghana

Ghana's economy is one of the strongest and most diversified in West Africa, given

its relative stability and good governance. The government established the Ghana

Commodity Exchange (GCX) to support WRS model for providing market access

and high returns to farmers in possession of small land holdings. In 2009, a

feasibility study was carried out for the establishment of commodity exchange,

11


which highlighted gaps in warehousing capacity. The Ghana Commodity Exchange

was designed as a public private partnership (PPP), with minimum government

share. The GCX project was launched in 2015 and brought key stakeholders in the

agricultural value chain together. The initiative allowed warehouses to be

constructed within short time spans in anticipation of high project volumes

expected from GCX commodity trading. The project was supported by the Bank of

Ghana.

4.4. Ethiopia

The agriculture sector in Ethiopia contributes 40-50% of the country's GDP and

60% of its exports. Agriculture sector is also the largest employer as it provides

employment to 70-80% of the active rural population. Agriculture markets in the

country were poorly structured and transaction costs were quite high for both

buyers and sellers. The WRS model in Ethiopia was established to enable any

person to store standardized agricultural products in warehouses; to establish a

legal contract between commodity growers and warehouse operators; and to

create an organized and efficient market system for agriculture products for

assuring sustainable income to small landholders. With the initial enactment of

new legislation, the Trade Ministry launched a project to establish a WRS model

in collaboration with Common Fund for Commodities (CFC). In 2007, the pilot

project was at an advance stage and before its completion, the Ethiopian

Commodity Exchange (ECX) was established in 2008. The establishment of the

Ethiopia Commodity Exchange (ECX) created a parallel regulatory platform for

Warehouse Receipt System. As compared to the earlier Proclamation, the ECX had

a broader scope as it covered a larger variety of commodities with different types.

The ECX was established in order to support producers to get market prices and

to allow agricultural producers and traders to get short-term loans from

accredited banks against warehouse receipts issued by the ECX. Furthermore,

policy makers in Ethiopia made efforts to link the ECX with the warehouse receipt

financing system. Presently, ECX is operating and managing warehouses to carry

out weightage and inventory management of agriculture commodities and issue

warehouse receipt.

4.5. India

In India, the agriculture sector contributes around 17.4% to the GDP and employs

around 50% of the country's active population. Major commodities of India are

sugarcane, rice, wheat, maize, potatoes, fruits and vegetables. It was estimated

12


that around 20-25% of food grains cultivated and produced in India wasted due

to poor storage capacity and the percentage was double for perishable

commodities. Warehousing was long established in India through the Agriculture

Produce Act 1956 and the Warehouse Cooperation Act 1962. However due to

anomalies in laws, stakeholders had no confidence in Warehouse Receipt System.

Later in 2010, the Indian Parliament enacted Warehouse Development and

Regulation Act, which introduced a negotiable warehouse receipt system with an

aim to improve storage capacity, increase farmer access to credit and allow high

return for farmers. Legislations in the Act supported financial institutions by

mitigating the risks accompanied by farmers’ lending. The Act was considered

crucial for Indian warehouse sector because it standardized and shaped

transactions and enhanced interest of lending institutions, logistics and

warehousing industry, buyers and sellers etc. WRS in India started with

expectations of high economic pay offs however it could not excel due to various

regulatory constraints in place. The Warehouse Development and Regulatory

Authority was mandated to regulate only negotiable warehouse receipts of the

commodity ecosystem and was not authorized to regulate entire warehousing

system. Due to this inherent flaw in the Act, the Authority was neither able to

handle dealings with banks nor convince them to use negotiable instruments for

agricultural funding of any significant scale.

4.6. Malawai

Malawi is one of the least developed African countries, with high dependence on

agriculture sector and majority of its population living in rural areas. The

warehouse receipt system was initiated in the country in 2005. The first

warehouse storage facility became functional in 2011 and was open to deposits

from any interested third party. Opportunity Investment Bank Malawi (OIBM) is

an active partner for WRS initiative and the model was promoted as a secure

investment, with high returns, in order to attract buyers, sellers and agriculture

investors. Through the WRS model, agriculture markets in Malawi have been

strengthened, benefitting farmers.

4.7. Tanzania

Tanzania is an agriculture-based country where the agriculture economy

contributes around 25% of the GDP and employs approximately 85% of the

workforce with a share of 85% in exports. Need for capital clubbed with poor

storage infrastructure forced small-scale farmers to sell their produce at prices

13


lower than prevailing market rates. To address these issues, the Tanzanian

Government with support from International Fund for Agricultural Development

(IFAD) and the Common Fund for Commodities (CFC), undertook numerous

warehouse receipt pilot initiatives. In 2002, the Agricultural Marketing Systems

Development Programme (AMSDP) was piloted as an inventory credit scheme

through a warehouse receipt system in 11 districts. Savings and Credit

Cooperative Societies (SACCOs) were introduced which helped farmers to get

loans from commercial banks if their produce was not sold at market price.

SACCOs are leading microfinance institutions in rural areas and are strongly

supported by the government. The first law governing warehouse receipt in

Tanzania, Warehouse Receipt Act (WRA) was enacted and promulgated in 2005

to provide a legal cover for the warehouse receipt program replication across

country, which combines provisions for the regulation and operation of

warehouses, as well as for warehouse receipts. Given these changes in the

government support, legal and regulatory provisions, the introduction of

warehouse receipt system (WRS) has resulted in visible success in addressing

poor storage and credit access issues of poor farmers.

4.8. Zambia

Zambia developed a warehouse receipt financing system in the year 2000 and also

established the Zambia Agriculture Commodity Agency (ZACA) with capacity of

26,000 tonnes. Due to operational issues however, ZACA ceased operation in

2006. A modified WRS was introduced again by USAID in 2010 to improve

livelihood of farmers through access to credit and adequate storage facilities. The

new model is available to depositors of different sizes and the project was initially

started from urban areas and later on scaled up in remote areas with surplus

produce. A robust certification and grading system is also a part of the WRS model

and warehouse operators either own or lease silos on commercial terms or are

free to charge commodity wise storage rates.

4.9. Indonesia

Agriculture sector plays an important role in Indonesia and contributes 15% to

national GDP, claims 21% of export earnings and provides approximately 38% of

total employment. The government initiated and formalized a system for

warehouse receipt finance and its implementation was supported through

technical assistance provided by International Finance Corporation (IFC). In

addition to issues pertaining to small and medium businesses lacking fixed asset

14


collateral to secure credit, the WRS also aimed at addressing issues of credit access

for farmers. To formalize warehouse receipt system (WRS), a legislation was

enacted by Indonesian Parliament in 2006. The law further strengthened the

system by stating roles and responsibilities of the warehouse managers. To bring

transparency in the system via paper or electronic forms of warehouse receipts, a

centralized registration center was established to register these receipts.

4.10. Bulgaria

The warehouse receipt system in Bulgaria is one of the few success stories

operative since the last nine years. Due to smooth operations, it has attracted key

stakeholders such as buyers, sellers and financial institutions. The Warehouse

Receipt System Development was initiated in 1997 in Bulgaria with the help of

USAID and the Bulgarian Government. Bulgaria also enacted laws for grain

marketing and storage to formalize the warehouse receipt system, laying out

regulations for marketing and storage of grain and rights and responsibilities of

individuals and legal entities involved in the process. Grain law was enacted for

two types of business entities - public warehouses and grain storage facilities.

Only public warehouses, licensed for storage grain, were authorized to issue

warehouse receipts. Licensing requirements for public warehouses were clearly

defined both for technological and financial standards. Bulgarian grain law also

includes provisions for indemnity fund, guaranteeing WRS' performance. The

Bulgarian indemnity fund is the first performance guarantee mechanism of its

kind developed outside the United States.

5. Punjab Agriculture Sector Plan & WRS

Agriculture Department Punjab has set a vision for re-positioning itself to

transform the agriculture sector in the province of Punjab to increase the crop

productivity, bring additional uncultivated area under cultivation and improve the

crop mix to create maximum value addition in the province to contribute towards

inclusive economic growth. This vision of the Department is clearly set out in its

sector plan. As per the sector plan, the focus of the Department is on transforming

the farmers of Punjab into progressive farmers, by equipping them with state-of-

the-art support and knowledge and providing them with quality and timely inputs

as well as through creating an enabling environment.

15


Under the sector plan, agricultural credit has been identified as a vital input for

leveraging the financial growth. According to the plan, at present 31 commercial,

microfinance banks and Islamic banks, with around 3,950 agriculture designated

branches, are facilitating farmers by extending agriculture credit throughout the

country. Additionally the agriculture lending banks including 19 commercial

banks, 2 specialized banks, 7 microfinance banks and 3 Islamic banks are engaged

in providing development loans to farming community for agriculture activities

including growing of crops, livestock, poultry, fisheries, orchards, forestry,

nurseries, apiculture and sericulture.

Despite the presence of this vast network however, farmers on ground still face

challenges and have limited access to finance, especially without collateral.

Therefore, poor subsistence farmers have to rely on expensive informal credit

sources and face numerous challenges such as higher loan servicing costs due to

limited volumes and high information costs and limited specialized products

offered by the financial intermediaries to better meet their financing needs. The

financial institutions on the other hand suffer from poor, insufficient collateral and

non-enforceability of security; low affordability for expensive financial products;

and non-alignment between farers’ return patterns and repayment schedules.

The Government has identified five key enablers to stimulate agriculture sector

growth, with efficient access for farmers to downstream infrastructure such as

markets and value addition apparatus as a key enabler. This would also mean

timely access to market information helping farmers in efficient decision-making

and claiming greater value from the value chain.

5.1. Grain Collateralization & Warehouse Receipt Model

The provincial government in Punjab realizes that warehouse receipt financing

and other related collateralized lending mechanisms can provide an alternative to

traditional lending requirements of banks and other financiers and are

particularly relevant in the context of Punjab. Agriculture Department believes

that warehouse receipts financing has the potential to improve the supply of rural

finance by easing collateral constraints and provide an avenue for working capital

provision to the farmers. The sector plan envisages that the model will be piloted

in 1-2 areas for selected crops and would then be scaled up.

16


Warehouse Receipt Model5 In warehouse receipt financing in the agricultural sector, the underlying collateral is a soft commodity such as grain or cotton. After harvest, the commodities are stored in a licensed warehouse that issues a receipt proving that the commodities are received and physically in the warehouse. This receipt forms the basis of the financing. Ideally, the warehouse receipt consists of two parts: a certificate of pledge and a certificate of title. When issuing the certificate of pledge to a lender, the farmer, trader, or agricultural company is able to take out a loan: he borrows against the collateral, hence the commodities and hereby covers his working capital needs. Lenders usually advance funds as a specified percentage of the value of the underlying commodities. This percentage needs to account for the costs that lenders have to incur when selling the commodities in case of a loan default, as well as the potential value decrease caused by price volatility in the respective commodity market. Subsequently the farmer sells his commodities either to a trader or a primary processor; to validate this sale he transfers the certificate of title. The buyer eventually pays back the loan plus interest directly to the lender and receives in exchange the certificate of pledge that had been deposited with the lender when the loan was issued. Once the buyer has both, the certificate of title and the certificate of pledge, he can release the commodities from the warehouse. Because of the easy recourse and the ability to sell a liquid collateral asset in case of default, warehouse receipts-based lending lowers the risk and reduces typical transaction costs of commodity transactions, such as high loan servicing costs due to limited volumes, high information costs, and high supervision costs.

6. Need/Rationale for WRS in Punjab

Punjab has two cropping seasons including Kharif, which starts from April-June

and is harvested during October-December; and Rabi that begins in October-

December and is harvested in April-May. Important kharif crops include rice,

sugarcane, cotton and maize, whereas key rabi crops include wheat, gram, lentil

and tobacco. Overall, important crops such as wheat, rice, sugarcane maize and

cotton account for 25.6% of the value added in overall agriculture and 5.4% to

GDP, while the other crops account for 11.6% of the value added in overall

agriculture.

Wheat Wheat is the staple diet for the country and is the most important crop, contributing 10% to the value added in agriculture and 2.1% in GDP at the national level, while the wheat produced in Punjab contributes 1.62% to the national GDP and 7.7% to the national value-added. During the last financial year, the wheat production in Punjab was estimated at 19.1 million tons, showing a decline of 3.16% over the previous year’s production6.

17


Table: Selected Major Crops of Punjab (Agriculture Sector Plan 2015)

Production volumes of major crops along with their contribution to GDP is given

below:

Crop Production

(Million Bales/Tons) Value Addition Overall GDP%

Value Addition Agriculture %

Punjab Pakistan Punjab Share Pakistan Punjab Pakistan Punjab

Wheat 19.116 25.037 77% 2.1 1.62 10 7.70 Cotton 10.277 14.026 73% 1.5 1.1 7.1 5.18 Sugarcane 41.074 65.28 63% 0.7 0.44 3.1 1.95 Rice (Basmati)

3.65 6.999 52% 0.7 0.36 3.2 1.66

Maize 3.881 5.044 78% 0.4 0.31 2.1 1.63 Table: Share of Punjab in GDP and Value Addition in Agriculture 2014-159

Despite this large agriculture base and high production volumes, the farmers are

unable to get decent prices for their produce, owing to involvement of a number

of intermediaries and middlemen.

According to business case developed by

Pakistan Agriculture Coalition (PAC), rice

farmers on an average pay 13% more to

middlemen because of insufficient cash to

sow the next crop with rice cultivation cost

per acre amounting to PK 34,050 on

5 Rural Finance Innovations – Topics and Case Studies; The World Bank 2005 6 Economic Survey of Pakistan 2014-15; Estimates 7 Economic Survey of Pakistan 2014-15; Estimates 8 Economic Survey of Pakistan 2014-15; Estimates 9 Agriculture Sector Plan 2015

Rice Rice is an important food and cash crop; second staple food grain crop for the country after wheat and a major source of foreign exchange earnings. Rice accounts for 3.2% of the value added in agriculture and 0.7% of GDP at the national level, while the rice produced in Punjab contributes 0.36% to the national GDP and 1.66% to the national value-added. During last financial year, basmati rice production in Punjab stood at 2.3 million tons, depicting a staggering increase of 13.6% over previous year’s production, however the irri rice production was estimated at 1.3 million tons, showing a decline of 7.93%7.

Maize Maize is considered an enriched food grain and has become extremely popular for farmers over the last few years. It contributes 2.1% of the value added in agriculture and 0.4% to GDP at the national level, while the maize produced in Punjab contributes 0.31% to the national GDP and 1.63% to the national value-added. During the last financial year, maize production stood at 3.68 million tons, depicting a slight decline of 0.82% over previous year8.

Source: Pakistan Agriculture Coalition (PAC)

18


deferred payment, as compared to PKR 30,000 on cash payment. This difference

is accrued solely because of limited access to credit. The example of rice has been

given just to illustrate the case and situation is not much different for other crops.

Such mismatch of supply and demand is seen in every agriculture market,

exploiting small farmers, who are often forced to sell their produce on unfavorable

prices due to inadequate warehousing capacity, weak financial muscle and cash

requirements for the next crop cycle. An effective and functioning WRS model can

address such challenges through providing adequate warehousing capacity,

reduced postharvest losses, robust sales platforms leading to higher prices for

farmers and easy access to credit.

7. Stakeholders Perspective

7.1. Farmers

Farmers are expected to be main beneficiaries of the proposed WRS, as any such

system would result in reducing the losses due to inadequate storage and hence

spoilage, provided there are no delays in delivery to warehouses after harvesting.

Moreover working capital loans are expected to be available at competitive

interest rates using the warehouse receipt as collateral, while the commodity

prices settled through the commodity exchange should be better than the prices

set in traditional markets. Additionally, any such model is also expected to lead to

farmer cooperation and synergy.

According to the earlier PEEP study, the greatest dividends from the proposed warehouse receipt system could accrue in terms of farmers’ collaboration and coordination. At individual level the volume of crop produced by each individual holding is simply too small and managing the sheer number of depositors at each warehouse during the course of harvesting would be impossible. However by grouping together to grow one or two wheat, rice or maize hybrids and ensuring that they apply inputs and protect their crop at the same time and in the same way this strategy will ensure that they collectively generate a homogenous harvested crop, which can safely be mixed with each other´s for the sake of transporting to their nearest WRS warehouse. By this method farmers could deposit at warehouses directly, without the need for an arthi (trader) to act as the assembler / aggregator, who would under current circumstances understandably expect a profit for their involvement as a principal in the transaction. Being able to deposit collectively means that (subject to sampling, analysis and final grade), that they could collectively approach banks for a working capital loan directly, using their harvested

19


and deposited crop (the warehouse receipt / receipts) as collateral, pledged to the participating bank in exchange for a loan.

In summary, following benefits are expected to be accrued to farmers from the

proposed model:

• Ease of finding buyers through the commodity exchange system

• Efficient price discovery model

• Minimum spoilage of crop due to securely and professionally managed

storage

• Guaranteed quality and quantity of the crop validated through

warehouse´s analytical laboratory

• Competitive interest rates due to warehouse receipts used as collateral (

• Efficient system for payments

• Deferred sales decision by farmers to fetch better prices

• Availability of up to the minute reliable market information and price

offers

• Competitive storage, possibly also chargeable fumigation, drying and

cleaning services if and when required

7.2. Middlemen

Although WRS traditionally connects the farmers directly with buyers, they do

not necessarily exclude the middlemen, who can also integrate their operations

within such a system. For instance, for a number of small farmers there might not

be much incentive in accessing WRS, due to conditions on packing and grading. In

such cases, middlemen can still play the role of aggregators and providing

services to link them to WRS. Their margins however are likely to shrink, with

farmers claiming greater profits. How existing farmer-middlemen (arhti)

relationships evolve in a WRS environment is difficult to predict, but broadly such

systems have known to result in greater empowerment of farmers, with

increasingly competitive interest rates for finance.

7.3. Processors

Processors are also expected to benefit tremendously from WRS. In particular,

they will accrue the following benefits:

• Ease of finding a variety of sellers through the electronic trading platform

20


• Assurance of specified quality (grades/standards) validated by the

warehouses

• Assurance of quantity specified through electronic weighing measures

• Quick turnaround of commodities due to professionally managed

warehousing facilities

• Ability to buy substantial quantities via the commodity exchange

• Ability to store after purchase if required (buyer pays storage daily after

purchase)

• Ability to resell if required without having to move the commodity (easy to

liquidate stock if judgment is that market is going to fall)

• Availability of reliable market information and prices as everybody (

• Stocks can be assembled for periods of late season shortfall and price

increase (without having to invest in own expensive storage and handling

capacity)

7.4. Government

The provincial government in Punjab is fully committed to promote WRS and

establish a functional model. This commitment is also articulated in the

Agriculture Sector Vision 2025. However, discussions have taken place at

various fora regarding various aspects of such a model and it is important to take

note of the following:

• Government is a major buyer for wheat, the most significant crop in the

province and if the WRS has to include wheat, it wouldn’t be possible until

the government decides to purchase it through such a system. However,

considering the political sensitivity of the issue, such a decision is unlikely

in near future.

• Agriculture Department is fully committed to wellbeing of small farmers

and the proposed system should be designed in a way to promote interest

of these farmers.

• There have been preliminary proposals within the government to

establish a provincial commodity exchange. However, there already

exists a national commodity exchange - Pakistan Mercantile Exchange

(PMEX) – that has taken almost a decade to become fully operational.

Therefore, there is an understanding that initially any WRS efforts in

21


Punjab should be linked with PMEX, however, at a later stage if need be,

such a proposal can be examined.

• Government is a firm believer in a private sector-led strategy for WRS and

is only envisioning its involvement, where it’s absolutely necessary. The

sheer scale of agriculture production in Punjab is so huge that without

private sector investment, catering to this base wouldn’t be possible.

Therefore, government is in favor of promoting localized cost-effective

solutions offering higher rate of return to private investors.

• Government is willing to take on the role of a regulator, wherever

necessary, however any such regulation should be to protect farmers

interest as well as for price stabilization, without discouraging private

sector to invest in the sector.

7.5. Commercial Banks

Commercial banks are another key beneficiary of WRS. Under present

arrangements, despite availability of credit, the banks are unable to lend to

farmers without any collateral. Only a handful of farmers are able to pledge their

properties or agriculture land, against which they can get credit, through

elaborate procedures. However, through WRS, farmers can get tradable receipts

against their crops stored in designated warehouses, which can be deposited in

the bank to get credit. Since these are tradable on electronic exchange, they can be

easily monetized and give comfort to the banks to provide agriculture credit

easily.

7.6. State Bank of Pakistan

State Bank of Pakistan is quite supportive of establishing WRS. In fact SBP has

already made positive moves by offering 5-year loans at a discounted interest

rate to encourage the building of silo complexes that would successfully be able

to implement a WRS and has published a supportive document ‘Framework for

Warehouse Receipt Financing in Pakistan’, detailing options, identifying possible

scenarios and explaining the system of lending against receipts. SBP has also

covered accreditation of warehouses, in its publication, suggesting that

warehouses would be selected together with partner banks.

22


8. Roadmap for Establishment of WRS in Punjab

Before proposing a way forward for Punjab to follow, it is important to consolidate

the earlier discussion, look at perspectives of various stakeholders, take benefit of

earlier work done in this regard and consider and review strategic choices. These

choices are available on many frontiers, including choice of crops, the scale of

project, extent of regulation, types of contract, etc. Following is a brief discussion

on some of these strategic choices for the proposed WRS model in Punjab:

8.1. Crop Selection for WRS

The PEEP study10 identified a number of crops, which can form part of the WRS

initiative. These are summarized in the table below (extracted from original

study):

Crop Marketing

Volume (2014 / 2015 Provisional)

Comments

Wheat 19,541,000 Unless there is a significant change in Govt. policy (recommended) state off-take in any given year could be 5– 6 million MT which would be directly exported if not required for emergency food purposes – of which Punjab would supply a substantial proportion.

Maize 3,600,000 100% available minus seed and locally sold to animal feed manufacturers and own consumption

Rice 3,648,000 100% available minus seed local procurement by rice mills and own consumption

Gram (Chick Peas)

330,000 Another crop that can be grown for import replacement and structured selling via the PMEX and grading at WRS warehouses could substantially increase famer’s returns.

Bajra (Millet)

267,000 200MT was imported by container shipment via Karachi in September 2015 alone = at least 2400 MT annually of import replacement available

Canola 200,000 With around 200,000 MT produced annually in Punjab and additional quantities imported also, this valuable oilseed should be a profitable crop to grow and store.

Sesame

(Sesamum)

25,775 Bahawalpur, DG Khan, Sahiwal, Lahore, Faisalabad and

Sargodha districts most important each producing 2000+ Source: Warehouse Receipt Financing in Punjab; Kennedy, J. 2015; USAID PEEP (Data source given in report is Punjab Department of Agriculture. AMIS (Agricultural Market Information Service)

The report noted that ‘volumes of other combinable crops produced fall under a

category which could be described as “minor” e.g. less than the 273,000MT

10 Warehouse Receipt Financing in Punjab; Kennedy, J. 2015; USAID PEEP

23


production and therefore are likely not to be viable in the sense that handling,

analysis and to maintain separation at warehouse level would be problematic.

Trading warehouse receipts for those commodities via PMEX would depend upon

what could be “captured” at warehouse level. However if one of the minor crops

were produced only or largely in one district of Punjab, the dynamic changes

somewhat as the crop would represent a significant proportion of a districts crop

output and therefore storing and marketing a reasonable proportion of the crop

could be economically feasible’.

Crop Choice for Pilot Project

Based on the report findings as well as consultations with many stakeholders, it is

proposed that while the pilot can be initiated with many crops, it is important that

the choice of crops is in line with government priorities. In order to create

maximum value and impact, the pilot should be undertaken with a major crop so

that further scale up is smooth. Wheat is the most significant major crop of Punjab,

however in this case the government (including provincial and federal) is the

largest single buyer to support the wheat subsidy initiative. Perhaps the most

significant way to move towards WRS could be a policy decision by the

government to do all its procurement through such a system, virtually forcing all

farmers to start using this model. However, such a proposal may be too ambitious

giving the political sensitivities around the wheat crop, its pricing and

procurement. Alternatively rice is another major crop, with significant exports.

Undertaking a pilot on rice could facilitate international buyers to switch to the

electronic platform and get better prices. Similarly the farmers can also fetch

better prices. Additionally, rice cultivation is concentrated in a few areas, which

may be easy to cater through a network of warehouses.

8.2. Contract/Instrument Choice for WRS

There could be multiple options in terms of choice of contract for the WRS model,

ranging from simple spot contracts to more complex forward, future contracts or

derivatives. The following matrix presents some of these options. The proposed option

for Punjab should cover both warehouse receipt repos to ensure financing for farmers

against their crops as well as standardized spot contracts with delivery through

warehouse receipts. The only pre-requisite for such warehouse receipts is to have some

24


regulation in place for the warehouses. Future contracts are already being traded in

Pakistan.

Table: Matrix of Contracts/Instruments and Regulatory Implications

Contracts Offered Use Regulatory implications

No standardized contracts – all contracts agreed on bilaterally

The exchange provides a meeting place for buyers and sellers

No need for government regulation. Exchange may handle contract performance guarantees and operate arbitration procedures.

Standardized spot contracts, with delivery through warehouse receipts

The exchange offers a liquid, safe environment for spot trading.

No need for government regulation. The warehouse system can be regulated by the exchange.

Standardized forward contracts

The exchange permits buyers and sellers to make commitments for future delivery.

No government regulation needed as long as these are genuine forward contracts. The exchange has to actively manage the risk of counterparty default.

Warehouse receipt repos The exchange enables those with stocks of physical commodities to use them as collateral for short-term loans.

Warehouse regulation required. Capital market regulations have to permit an exchange to have this function.

Commodity futures and option contracts

Risk management tools. It is advisable that there is a government department with the explicit responsibility of overseeing the market. Separate regulator for warehouses desirable.

Currency and interest rate futures and options

Risk management tools. Government regulation necessary, with good coordination with Central Bank.

Securities derivatives Offer leveraged alternative to cash securities, and can also be used to manage the risk on a securities portfolio.

Securities derivatives need to be regulated by the securities regulator.

Source: Guidebook on African Commodity and Derivatives Exchanges

8.3. Desired Structure of WRS Model for Punjab

The following matrix presents a number of parameters, where the government

can choose from various choices. These parameters include type of trading

platform, speed of trading, choice of instruments (as discussed above), brokerage

structure, clearing and settlement, extent of use of warehouse receipts, standard

setting and grading, price information availability and governance of trade. The

preferred suggested options are highlighted in underlined italics.

25


Table: Matrix of Parameters and Choices

Trading platform

Bringing people together in one location

Bulletin Board Auction Open outcry ring

Electronic platform, compatible with global standards

Speed of trading

Hours Minutes to days

Minutes Seconds Milli- or micro-seconds

Traded instruments

No standard products, trade on basis of reputation

Trade on the basis of samples

Trade on the basis of description/ grading certificates

Standardized spot contracts, warehouse receipts

Futures, options, repos

Brokerage structure

No brokers Clients leave their commodities with brokers for their later sale

Clients give brokers instructions by phone

Electronic order flow from clients to brokers

Brokers approve clients who then trade directly

Clearing and settlement

Pre-selection of participants

Fixed guarantee deposits

Payments handled by exchange

All trades guaranteed by the exchange. Global risk management standards.

Clearing by unrelated third party clearinghouse. Linked to global clearing firms

Use of warehouse receipts

None Warehouse receipts act as the instrument for the buyer’s sale

Active trade in warehouse receipts, which change hands more than once

Warehouse receipts act as delivery mechanism for the futures market

Trade of repos backed by receipts

Standard setting and grading

None Exchange offers simple grading services.

Exchange keeps samples of commodities traded, to help settle contractual conflicts

Exchange sets grading criteria, licenses graders and arbitrates quality conflicts.

Trade is in a narrow range of standard commodities. Exchange has strict grades and standards.

Price information

Prices sampled from market participants

Systematic collection of prices from representative pool of market participants

Contracted prices are registered at the exchange premises

Contracted prices are broadcast, with a delay (e.g., endof-day)

Real-time price information distributed in many ways

26


Governance of trade

Committee of market participants control access

No government regulation. Arbitrage rules, enforced by exchange committee

Government regulator alongside self-regulatory exchange

Exchange or regulator also given powers to regulate warehouse receipts

Four separate regulatory structures for overall regulation, exchange operations, brokerage and warehouse receipts

Source: Guidebook on African Commodity and Derivatives Exchanges

9. PAC Model as Pilot Project

Considering the objectives of the government for facilitating a private sector-led strategy for establishment of warehouse receipt system in Punjab and keeping in view Pakistan Agriculture Coalition’s experience in the area and its pilot in Kunri, it is proposed that government lends full support to PAC pilot for Punjab. The following section describes the concept proposed by PAC.

PAC’s model is built around the very important premise of inadequacy of the

agriculture marketing system to reward quality crops. Lack of requisite

technology and information support to the growers for producing quality produce

as well as absence of direct linkages with premium paying buyers also deprive

them earning their due share. Furthermore, oversupply situation in markets at the

time of crop harvest depresses price to the lowest level that starts rebounding

once bulk of the produce is transacted. Consequently, farmers have the most

significant disadvantage, especially those with high quality products. As explained

earlier, many a times they are forced to sell their produce at the time of depressed

prices due to lack of storage facilities as well as much needed cash to settle

outstanding loans invested in harvested crop, buy inputs for next cropping season

and meet other deferred financial needs.

PAC’s earlier pilot at Kunri was designed in partnership with SGS - one of the

world’s leading inspection, verification, and certification companies; Agility - one of

the world’s leading providers of integrated logistics and Pakistan Mercantile

Exchange (PMEX). The consortium led the development of an electronic trading

platform for quality-conscious buyers for agricultural commodities during 2015.

Besides, the growers were provided technical support in producing quality

produce. Main aim of the initiative was to incentivize quality production of

27


agricultural products and increase farmers’ earnings. The concept was piloted in

Sindh with the red chilli crop, which proved highly successful.

The newly proposed initiative by PAC is being undertaken with the objective to

setup a functional electronic trading platform in public-private partnership mode

that enables the growers to get fair price of their produce without unfair

deductions and digitize value chain payments. It also aims to support the farmers

to improve quality of their products and to provide them access to high-end

markets (particularly processors and exporters).

The proposed e-trading platform will involve marketing of produce of the quality

certified by an independent expert certifier in the quantity verified by a third party

verifier, where price would be determined through electronically open auction by

multiple buyers and transaction would be guaranteed by an authorized mercantile

exchange. The implementation of process for agricultural commodities generally

will involve following procedure/ stages.

• Comprehensive mapping of complete value chain of the crop to work out

the costs and margins at every transactional stage. This forms the basis for

pricing the solution i.e. determining the transaction charge.

• Quality specifications determination in consultation with all

stakeholders e.g. buyers, producers (farmers), traders etc.

• Sampling and quality testing of commodity at seller’s location/ trading

platform location by designated testing service provider.

• Certification of weight/ measurement by a designated warehousing and

logistics service provider.

• Electronically price negotiations based on test results, between buyers

and sellers.

• Loading, transport and delivery of auctioned lots by designated

warehousing and logistics provider.

28


• Settlement of payment on a commodity exchange (PMEX) within specified

time (24 hours) directly into the seller’s account.

• Structured training programs in required best agricultural practices at

each critical crop growth stage.

• Commodity financing for farmers based on agri-produce

collateralization, stored in warehouses managed by designated warehouse

service provider.

The following schematic presents the design of pilot proposed by PAC.

Source: Pakistan Agriculture Coalition

The main objective of this initiative would be to improve terms of trade for the

farmers, particularly smallholders. The intended outcomes of the proposed

initiative, inter alia, would include the followings:

• Higher net income for farmers without a net increase in processor’s cost.

• Greater prospects for producers (growers/ processors) to export directly

from the production source (farm gate/ processing unit).

• Transparent transactions in agriculture sector leading to clear price

signals to farmers to incentivize them in adopting better farm practices.

29


• Digitization of value chain payments (minimizing role of value-

destroying middlemen and reducing inefficiencies in value chain).

• Commercial sustainability of the trading platform, which will allow

much greater trading and impact with clarity about the roles of the public

sector and the private sector in the business model.

PAC has proposed to taken the following approach for the project:

A. Value Chain Mapping: Conduct value chain mapping of selected crops

B. Buyer Identification: Identify prospective buyers (processors and

exporters), estimate trading volumes for pilot commodities and compute

transaction costs for the trade facilitation.

C. Piloting Selected Crops: Pilot the selected crops on the trading platform

during first year. The PAC has already developed the sample legal

agreement, process flow, and Standard Operating Procedures for

implementation partners. Technical manuals and training programs will be

developed for each crop for growers’ guidance.

D. Marketing: Conduct active marketing of the trading platform to buyers

and sellers in pilot crops to achieve adequate volumes for cost recovery.

E. PPP Business Model: Achieve year-round trading and cost recovery

through a PPP business model that allows the private sector to recover its

investment cost while using public funds for overall project development

and for directly benefit farmers.

Below is a process flow diagram of the above-proposed model.

30


Source: Pakistan Agriculture Coalition

10. Way Forward

The following matrix, developed by PAC, presents proposed future actions and

responsible parties for undertaking the WRS pilot.

In order to advance efforts the following activities and allocation of

responsibilities are proposed (this will be applicable to each crop):

Subgroups for each crop to be formed such that relevant Director of Agriculture

Department will lead each subgroup. The subgroup will include key stakeholders and

relevant specialists of that crop and will conduct value chain mapping and identify

both timelines for pilot project and specifications for tradable produce using the

trading platform for that crop.

Task Responsibility

1. Development of survey questionnaires for value chain mapping [PAC has already developed the survey for wheat]

PAC

2. Identification of technical/commercial expert for each crop Relevant Sub-Group 3. Execution of surveys to map each crop’s value chain

[PAC has already executed the survey for wheat] Government of Punjab (GoPb)

4. Design of trading pattern for each crop (pricing, quality ranges, transaction charge, etc.) based on analysis of survey

PAC

31


data. This will also include any direct financial support required from GoPb

5. Marketing to each crop’s buyers and sellers Sub-Group/PAC/GoPb 6. Determination of quality specifications in consultation with

all stakeholders for each crop Sub-Group

7. Designation of service providers for testing/sampling and warehousing/logistics

Committee

8. Development of contract(s) for each crop to be traded on PMEX

PMEX

9. Approval of each crop’s contract(s) for trading SECP 10. Registration of buyers and sellers on PMEX to start trading Sub-Group 11. Coordination of trading in each crop PAC 12. Supervision of trading in each crop Sub-Group 13. Design of extension plan for each crop aimed at maximizing

participation of farmers on trading platform PAC

14. Extension services and crop assessments for each crop GoPb

32


References

• Frank, Höllinger, Lamon Rutten and Krassimir Kiriakov. 2009. “ The use of

warehouse receipt finance in agriculture in transition countries”. Working paper presented in World Grain Forum.

• Philine Wehling and Garthwaite.2015.” Designing warehouse receipt legislation Regulatory options and recent trends.” Food and Agriculture Organization of United Nations.

• G.C. Chutervedir.2015.” Warehouse Development and Regulatory Authority Government of India Annual Report 2014-15.” Warehousing Bhawan, 4/1, Siri Institutional Area, August Kranti Marg, Hauz Khas, New Delhi- 110 016.

• Almarie Nordier.2013.” The role of a warehouse receipt system:A case study of the Malawian Agricultural Commodity Exchange”

• Cedric Achille MBENG MEZUI, Lamon RUTTEN, Sofiane SEKIOUA, Jian ZHANG, Max Magor N’DIAYE, Nontle KABANYANE, Yannis ARVANITIS, Uche DURU and Bleming NEKATI.2013. “Guidebook on African Commodity and Derivatives Exchanges”.

• Microfinance Group.2015. “Report on warehousing in India”. Study commissioned by the Warehousing Development and Regulatory Authority.

• Gideon E. Onumah.2014.” Improving Access to Rural Finance through Regulated Warehouse Receipt Systems in Africa”.

• Source: https://www.agrifinfacility.org/sites/agrifinfacility.org/files/22%20-%203.29%20-%20Plenary%204%20-%20NMB%20Kenya%20-%20Pascal.pdf: accessed 6-9-16

• Agriculture Commodity Exchange of Africa .2012.”Warehouse Receipt System in Malawi a strategy - a solution”

• Daniele Giovannucci, Panos Varangis and Don Larson “Warehouse Receipt: facilitating credit and commodity markets”.

• Source: http://www.wrs.go.tz/index.php, accessed 5-9-16 • Source: http://www.zambia-invest.com/finance/capitalmarkets/zamace-

comoditty-exchange-to-launch-warehouse-receipt-system-this-year,

accessed 5-9-16

• Robert Pascal.2012. NMB Experience in Warehouse Receipt System-Financing In Tanzania

• “AGP-AMDe- Ethiopia Warehouse Receipt System and Regulation: A Case for Expansion”

• Source: http://www.ecx.com.et/ accessed 05-09-16 • Source: http://ap.fftc.agnet.org/ap_db.php?id=390: Accessed 06-9-16 • Rahayu Fery Anitasari and Gedung K1 Sekaran, Gunungpati.2015. “The

Developments of warehouse Receipt System and Obstacles faced” • Source: https://www.modernghana.com/news/640483/the-ghana-

commodity-exchange-series-collateral-management-a.html: Accessed 07-9-16

http://www.zambia-invest.com/finance/capitalmarkets/zamace-comoditty-exchange-to-launch-warehouse-receipt-system-this-year

http://www.zambia-invest.com/finance/capitalmarkets/zamace-comoditty-exchange-to-launch-warehouse-receipt-system-this-year

http://www.ecx.com.et/

http://ap.fftc.agnet.org/ap_db.php?id=390

https://www.modernghana.com/news/640483/the-ghana-commodity-exchange-series-collateral-management-a.html

https://www.modernghana.com/news/640483/the-ghana-commodity-exchange-series-collateral-management-a.html

33


Warehouse Receipt Model in Punjab

Documents

Transcript of Warehouse Receipt Model in Punjab