Mid-June this year, President Uhuru Kenyatta assented into law the Warehouse Receipt System (WRS) Bill 2017. The WRS act will provide a legal framework for the development and regulation of a WRS to address marketing challenges associated with the grain sub-sector.
The WRS is defined as “part of the whole of the process of depositing commodities in a licensed warehouse, the issuance of a warehouse receipt reflecting the quantity and quality of the deposited commodity, the management of the transfer of the receipts as a document of title and includes the regulation of warehouses and actors associated in the processes”.
The WRS act provides for the creation of a warehouse receipt council which comprises of stakeholders, and the various government institutions that have a regulatory role in the industry.
The council shall facilitate the establishment, maintenance, and development of the WRS for agricultural commodities produced in Kenya. The Council will also ensure the efficiency, effectiveness, and integrity of the system. It will also provide for the registration, licensing and inspection of warehouses.
Noah Wekesa, the chairman of the Strategic Food Reserve Board opines that the WRS is more organized and will help address challenges affecting the grains sector and more so maize. He also observes that the WRS will help in addressing the mess witnessed in the buying and selling maize process.
How will the Warehouse Receipt System work?
According to Gerald Masila, the CEO Eastern Africa Grain Council (EAGC), Warehouse receipt financing is a form of secured lending in which the bank advances funds against inventory goods that are being stored in a warehouse and that have been assigned to the lender.
A warehouse receipt is a document provided by the warehouse operator, acknowledging receipt of produce or goods in the stated quality, quantity, and other parameters. With the WRS, he points out that farmers will be guaranteed of the security and quality of their produce. The warehouse receipt system is aimed at formalizing grain trade in Kenya.
It will also help improve access for credit to farmers as well as promote good post-harvest and proper storage of grains.
The system will allow farmers to deposit maize in a licensed warehouse after which they will be issued with a receipt that reflects the quality and quantity of the commodity delivered.
Farmers will thereafter be able to access loans using the receipt as it will be used as collateral.
“Farmers will also buy other farm inputs like fertilizer using the receipt and pay once the maize has been sold. The system will allow farmers to decide when to sell their maize for example when the market price is right,” he explained.
Access to Financing
Smallholder farmers often face the challenge of inadequate agricultural funding. However, such a challenge could be addressed by the warehouse receipt system, where farmer co-operatives or individual farmers can deposit produce and are issued with warehouse receipts that are used by farmers to access loans from banks.
Agriculture, Livestock and Irrigation cabinet secretary Mwangi Kiunjuri has assured the National Assembly’s agriculture committee of his ministry’s commitment in implementing the warehouse receipt system to help farmers reduce post-harvest losses, get good prices for their grain and access financial loans.
Adan Haji, Mandera East MP and chair of the committee said the WSR will only deal with commodities as legislators had cut out the trade bit.
“We implore the ministry through the Instrument Act to do the regulation on WRS,” he said.
In 2015, the Kenya National Assembly passed the warehouse receipt bill, with the intention to establish a regulatory framework.
Point of Caution
Farmers have called for careful thought in the implementation of WRS. The main question lingering in their minds, for example, is what will happen if the commodity price falls after a farmer has already secured a loan or inputs against the WRS.
WRS legislations in other countries
According to EAGC, the WRS has been implemented in many parts of the world, either through a dedicated legal framework or through the law of contract.
In neighboring Uganda, Tanzania and Ethiopia, WRS legislations have been in place for more than a decade to support the implementation of the WRS. Rwanda and Malawi are also currently developing their own WRS legislations.
In Ethiopia, the WRS and its legislations are managed by the Ethiopian Commodity Exchange (ECX).