Harnessing the potential of warehouse receipt systems for sustainable agricultural growth

Onome Amuge

Post-harvest losses of farm produce, a persistent challenge for Nigerian farmers, particularly smallholder farmers who comprise over 60 percent of the nation’s agriculture sector, have had a devastating effect on the country’s food security. This issue has been seen to not only affect the farmers directly, but also has a far-reaching impact on the country’s economic development and food security, as well as the livelihoods of millions of Nigerians who depend on agriculture for sustenance and income.

With food inflation soaring and millions of Nigerians finding it increasingly difficult to meet their daily food requirements, experts in the agriculture sector have stressed the urgent need for focused investments in warehouse receipt systems (WRS). These systems, designed to facilitate the management and storage of farm produce, are viewed as a crucial component in addressing the problem of post-harvest losses, which has been a significant contributor to the ongoing food crisis in Nigeria.

The SNV Netherlands Development Organisation, a non-profit international development organisation, defines warehouse receipt systems as a mechanism where farmers store their produce in certified warehouses, and in return, receive a warehouse receipt or warrant that serves as evidence of their ownership. During the deposit process, the amount of produce is weighed and documented, after which the warehouse operator issues the receipt, allowing farmers to use the document as collateral for loans or to sell their produce at a later date when prices are more favourable.

The legal backing of these warehouse receipts ensures the quality and security of the stored agricultural products. This in turn allows the products to be used as collateral for loans from local banks, or to be traded, sold, or used for financial instruments, all while remaining securely stored. This process not only provides farmers with a secure system to store their produce and receive credit, but also opens up new opportunities for trade and financial investments in the agricultural sector.

According to analysts familiar with this system, one of the key benefits of warehouse receipt systems for smallholder farmers is that they offer access to professional storage facilities at a low cost from certified grain warehouses. This ensures that the quality and quantity of their farm products are maintained, thus enabling both private and public industries to utilise them with confidence in their operations.

Other benefits of warehouse receipt systems for the Nigerian agricultural as highlighted by analysts include:

• Reduced market risk by facilitating year-round sales, rather than just after harvest, leading to improved food security and reduced market volatility.
• Increased market power for smallholder farmers, as they can now choose the most favourable point in the price cycle to sell their commodities.
• Improved standards and transparency in the storage sector, reducing corruption and improving trust in the market.
• Enhanced competition and market information due to the creation of commodity markets, which also facilitate international trade opportunities.
• Reduced post-harvest losses due to improved storage conditions.

According to Sule Haruna, the director of food and strategic reserve at the Federal Ministry of Agriculture and Food Security (FMAFS), warehouse receipt systems have the potential to greatly enhance productivity and reduce poverty among farmers in Nigeria.

The FMAFS director further highlighted the advantages of the warehouse receipt system for Nigerian farmers. He stressed that the system will not only provide farmers with direct access to warehouse operators, where they can store their produce and receive a receipt indicating ownership, but also solve the barrier posed by middlemen and act as collateral for grants and loans.

“The warehouse receipt system is a way of drawing farmers out of poverty, because of the exclusion of the incidences of middlemen that buy from farmers at a very low price and later, send to the market at a very high price.

“Farmers will be ‘receipted’ at their convenience, and when they see that the prices are appreciated, they will be able to go to the warehouse, submit their product and take it for sale or produce the receipt offered at the warehouse as collateral in banks and other financial organisations,” he explained.

Nancy Olisakwe, vice president of clearing and settlement at AFEX Commodities Exchange, shared a similar sentiment on the potential of the WRS in improving the agriculture sector in Nigeria. Olisakwe highlighted the system’s ability to not only address issues of low productivity and post-harvest losses but also provide farmers and food processors with a powerful tool for mitigating these challenges, which are often barriers to increased efficiency and profitability in the industry.

Despite its numerous advantages, warehouse receipt systems have faced skepticism and distrust from some local farmers, who question whether the system was truly designed to protect their interests.

Folorunsho Aminu, a cocoa farmer based in Idanre, Ondo State, raised concerns about the lack of transparency in the implementation of WRS in certain parts of Nigeria, stating that this is a significant hindrance to the system’s effectiveness and efficiency.

Aminu argued that, in many cases, the prices are predetermined by the operators, limiting farmers’ negotiation power. He further noted that the shortage of adequate storage facilities in the country is hindering the effectiveness of WRS. He also stressed that many licensed warehouses lack modern facilities such as computers and efficient logistics, compromising the quality and security of stored produce.

According to Aminu, the traditional practice of selling crops to middlemen remains the preferred method due to a range of factors. These include the lack of adequate infrastructures, high transportation costs, and overcrowding of warehouse facilities. As a result, many farmers find it more practical and convenient to sell to middlemen rather than use the Warehouse Receipt System.

In addition to the lack of transparency and the issue of storage facilities, some farmers have expressed concerns about their lack of knowledge regarding the Warehouse Receipt System and how it operates. This can result in farmers making uninformed decisions when selling their crops, which can lead to exploitation by intermediaries. Also, the concentration of WRS facilities in urban areas has been identified as a major hindrance to the adoption of the system by smallholder farmers in rural areas, where most agricultural activities take place.

In order to address the challenges facing the Warehouse Receipt System (WRS) and promote its effective and widespread adoption, industry experts have proposed several measures. These include providing competency-based training for both WRS operators and farmers to ensure that they fully understand their respective roles and responsibilities within the system.

By bridging the knowledge gap and fostering awareness of WRS among stakeholders, it is hoped that the system will be more efficiently and equitably implemented, leading to improved productivity, reduced post-harvest losses, and overall growth of the agricultural sector in Nigeria.

Analysts also assert that an effective and equitable WRS hinges on the availability of timely and comprehensive market information, which must be made publicly available for farmers to use as a reference when making crucial decisions about their crops. They also noted that regular updates on demand, supply, and prices, released daily or weekly, would empower farmers with the information they need to make informed assessments and choices.

To ensure that the WRS achieves its full potential and delivers the expected benefits to farmers and the agricultural sector in Nigeria, licensed warehouse operators have been encouraged to adopt modern storage facilities that can facilitate their daily operations and contribute to the overall success of the system.

Moreover, the implementation of guarantees and policies to maintain high-quality products within the WRS is expected to boost farmers’ trust in the system and encourage their continued participation.