Final Documentation

Building a warehouse receipts program that works for all stakeholders, USAID Zambia, 2007

    Authored by: Rick Andrews, Rob Munro, and Mike Field, of Emerging Markets Group, Ltd. in collaboration with Weidemann Associates, Inc

    Warehouse receipts have for some time been recognized as an important tool to provide the agricultural sector with increased flexibility in marketing decisions and also as a mechanism to obtain financing for farm operations. A warehouse receipt is a certification of legal ownership of a particular commodity that is stored in a specified location and is of a specified quality and condition, such that when the commodity is sold, the buyer can have the comfort, without physical inspection, that the product they have purchased will be available to them when required, in the condition outlined on the warehouse receipt. Development practitioners and donors have pushed to have warehouse receipts used to provide benefits to smallholder farmers to enhance their participation in the broader market for agricultural products. Warehouse receipts are also an integral part of agricultural commodity exchanges as they allow trade to take place with "paper or receipts" rather than the physical commodity. This article will set out that warehouse receipts are not an isolated service or function; rather they are a derived service which is based on a functioning and transparent transaction system that will drive the demand for warehouse receipt services.

    USAID Zambia had been searching for a way to support the development of a warehouse receipt program that would involve smallholders and allow them to participate in the market. When an initial intervention through an organization called ZACA (Zambia Agricultural Commodity Agency) was unable to establish an effective warehouse receipt system, USAID used the PROFIT (Production, Finance and Improved Technology) project to work with the private sector to establish a new entity, ZAMACE (Zambia Agricultural Commodity Exchange) with a stronger commercial focus and a link to a regional commodity exchange. There were five underlying reasons that ZACA did not perform as anticipated.

    This paper will outline some of the lessons around the launch of the new entity and how smallholders will be involved once a functioning commodity exchange and linked warehouse receipt program is established.