In his article entitled “Why farmers need to produce for the market” (New Vision, 12 March 2009), Mr. Ambrose Bugaari argues passionately about the need for market orientation in the agricultural sector. He underscores the establishment of producer organisations; creation of certified rural agricultural commodity bulking centres; and scaling-up of warehouse receipt systems – as some of the measures to improve agricultural marketing.
His views indeed resonate some of the latest policy directions that many poor countries around the world, Uganda inclusive, consider as eminent pathways for rural transformation. Consider the warehouse receipt system for example. They have potential for improving overall efficiency of markets, particularly in the agribusiness sector, because producers and commercial entities can convert inventories of agricultural raw materials or intermediary or finished products into a readily tradable device.
Since warehouse receipts are negotiable instruments, they can be traded, sold, swapped, and used as collateral to support borrowing. They also provide farmers with an instrument that will allow them to extend the sales period of modestly perishable products well beyond the harvesting season.
However, In order for a warehouse-receipt system to be viable, the economy within which it operates must meet certain conditions. For instance the prospective recipient of a warehouse receipt should be able to determine, before acceptance, if there is a competing claim on the collateral underlying the receipt.
Secondly, the warehouse system requires sound operational architecture – such as reliable warehouse certification, guaranteeing basic physical and financial standards; the existence of independent determination and verification of the quantity and the quality of stored commodities, based on a national grading system; and the availability of property and casualty insurance extending to agricultural commodities.
Thirdly, a key prerequisite for the acceptability of warehouse receipts by the trade and by banks is the existence of a performance guarantee for warehouses, assuring that the quantities of goods stored match those specified by the warehouse receipt and that their quality is the same as, or better than, that stated on the receipt. Without this guarantee, farmers and traders will be reluctant to store their crops, and banks will be hesitant to accept warehouse receipts as secure collateral for financing agricultural inventories.
While I don’t want to sound a pessimist, I can’t realistically see these pre-conditions being met in the foreseeable future in Uganda. There is simply too much corruption in the system; regulatory institutions are riddled with incompetence at national level; while being non-existent at district and lower governance levels. In any case, there is considerable loss of public trust in collective marketing owing to the past fiascos, and I can guarantee that most commercial banks will remain sceptical about dealing with anybody who comes with a promissory note based on agricultural inventory.
Moreover, looking at the quality of government investments (in roads which don’t last a year; schools which crumble before they are commissioned; hospitals whose supplies are never delivered; etc), I doubt that there will be sufficient government commitment and investment of the required calibre to guarantee safe storage of agricultural products in rural warehouses. Letting the private sector to run rural warehouses will obviously make the service too costly for the impoverished farmers.
What I don’t doubt is that the government of Uganda will force through some legal framework on the warehouse receipt system. In fact, that is inevitable given the hysteria that has enshrouded the concept of agricultural warehousing in the recent past. However, government ought to know that passing frameworks is the easiest part; the devil will be in the details of operationalising such frameworks and ensuring they deliver benefits to farmers.
In any case, one needs to ask whether farmers have enough produce to warehouse when nearly one third of the country’s population is reportedly facing starvation! Therefore where as Mr. Ambrose Bugaari contended that the supply-driven, government interventionist approach is doomed, I strongly differ! Such an approach is what exactly we need at the moment to enable the starving farmers escape hunger. Talk of the warehouse receipt system, while undoubtedly good, is far-fetched for the impoverished rural farmers.
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