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Recommendations presented to Ghana Grains Council to develop an electronic warehouse receipt system in Ghana.
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Electronic
Warehouse
Receipt System
in Ghana
Initial Recommendations for
Ghana Grains Council
Prepared by
P S Krishna Kumar
Senior Technical Advisor, ICT
Popular Opinion
“In bumper harvest, prices fall so low that farmers are not able to repay their loans, despite abundant production. Then, it follows that in the following year, not enough food is produced to feed the population. Why don’t people store grain from year to year? Why can’t the market deliver in bad times and save in good times?”
Dr Osei Boeh-Ocansey
Director-General
Private Enterprises Foundation
2
Background
Ghana grains sector: full of promises, less on realization
Unlocking the potential: the key to sustainable, inclusive growth
Current need is to move locally produced commodities from the
non-industrial production storage centres into accredited
warehouses and silos, in standardized lots, graded, shelf-life
certificated and insured with no loss guarantees.
Institutions & structures to be developed:
Enforceable commodity standards setting and certification system.
Price discovery system.
Supportive financial and credit delivery system.
3
About Ghana Grains Council
A not-for-profit, private sector organization, which prepares,
disseminates, and promotes the exchange of information on matters
affecting the grain industry in Ghana.
Build cooperation, interaction, partnerships, alliances, networks &
market linkages
Support structured marketing systems by developing warehouse
receipts and paving way to setting up commodity exchange
Act as main certification authority in structured systems; and
provide commercial services as needed
4
Support from ADVANCE Program
ACDI/VOCA is improving Ghana’s agricultural sector by increasing
competitiveness in domestic, regional and international markets
through the USAID-funded Ghana Agricultural Development and Value
Chain Enhancement (ADVANCE) program
ADVANCE supports the continued emergence of the Ghana Grain
Council (GCC), the central private sector driven body that will be
responsible for setting warehousing receipt system and enforcement of
agreed policies and guidelines.
ADVANCE provides specific technical assistance to push and guide the
process of moving the already established GGC to becoming the corner
stone of industry-driven oversight mechanism on warehouse receipts.
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A range of services
In addition to WRS, GGC will develop a range of other services
which may be lacking, but are beneficial to and in demand.
transport brokerage, which is considered to be a major constraint in
matching offers and bids by the small holder farmers;
processing facility at warehouses while the produce awaits sale at better
prices at the markets;
offering weighing services as these are virtually not available to
smallholder farmers in markets;
quality control services such as testing for grain moisture using
moisture meters;
selling genuine farm inputs (fertilisers, seeds) at affordable prices;
brokering financial services to farmers by banks and micro-finance
institutions;
6
Building Blocks to Grain Exchange
7
Trade & Market Information
Policy Framework for Trade Exchanges
Standards & Certification for Commodities
Warehouse Receipt System
Arbitration Support
Financial Services (Insurance, Trade Financing)
Spot & Futures Trades
Ghana Grains Council will need to work collaboratively with other stakeholders to
establish the building blocks required for the emergence of a national exchange. This
process will have to be implemented strategically, with the creation of a physical
exchange being the last step in a series of systematic interventions.
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Ghana Grains Council has phased its focus
areas to extend its services through these
building blocks.
Warehouse Receipt System (WRS)
Warehouse Receipts (WR) have long history in industrial countries, short one in Africa (South Africa, Uganda, Ethiopia, Zambia, Tanzania)
WR can play an essential role in agricultural marketing
Can be traded, sold, swapped or used for delivery against a derivative instrument
Warehouse Receipt System can
Improve farm income and smooth domestic prices by providing an instrument to farmers to spread sales throughout the crop year
Mobilize credit to agriculture by creating a secure collateral for banks
Provide a way to gradually reduce the role of government in agricultural commercialization
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Warehouse Receipt (WR)
Document issued by warehouse operators as evidence that specified
commodities, of stated quantity and quality, have been deposited at
particular locations by named depositors
Depositor may be a producer, aggregator, farmer group, trader,
exporter, processor or an individual
Issued either on paper or electronically
Becomes a financial instrument if backed appropriately
Requires regulatory support to become negotiable title
Held to account (quality and quantity have to be absolute)
Ideally not part of an exchange
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Warehouse Receipt (contd.)
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WR Life Cycle
Crop Harvested
Grains to be stored at
Warehouses
Quality & quantity verified
Grade Certificate
issued
Warehouse Receipt Issued
Receipt available for
trade
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WRS Ecosystem
Warehouse Receipt Law
Depositors Warehouse Bank Buyer
12
Collateral Manager (Tripartite Collateral Management Agreement
Insurance
Provider
Regulated WRS
13
Market Support Systems
MIS, Legislation, Standards, Enabling Policy
Warehouse Regulatory Agency
Licensing Requirements
Operator’s capital adequacy, insurance cover,
performance bond
Licensed/Certified Warehouse Operators (local & international)
Depositors
Financial Institutions
BuyersCommodity Exchanges
Commodity WRWR Commodity
WR CreditPayment WR
Components of WRS
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• Quality & Quantity Guarantee
• Viable Storage
• Access to Finance
• Warehouse Receipt Financing
• Inspection
• Grading
• Insurance
Warehouse Bank
BuyerDepositor
GGC’s Engagement Model
15
Actors Warehousing Structure in Ghana
Commercial
Warehouse
Aggregators/ Traders
Village Level collection
and storage
Farm level Small holders
Large
Commercial
warehouse
Large
Commercial
warehouse
Large
Commercial
warehouse
Warehouse Locations
Pens Food Bank, Ejura - Ashanti
Ebenolan Enterprises, Techiman (formerly Digina Foods)
Grainleadeaders, Nkoranza
Savannah Farmers Marketing Company, Tamale
Gundaa Produce Company, Tamale.
UT Logistics (no upgrade to warehouse, training and grading equipment will be given)
Agrimat (volunteer, no upgrade to warehouse, training will be provided to fulfill the requirements for certification)
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Positioning
Warehouse Receipts
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Collateral financing is the most
common model that finances
WR. GGC to set up tripartite
collateral management
agreements (CMAs) involving a
bank, the borrower and the
collateral manager, which allow
depositors to secure bank
credit.
The warehouse receipts are
issued directly to the financing
bank and not to the depositor,
and they are non-negotiable and
non-transferable.
Warehouse Financing through Banks
Product delivered to Warehouse with delivery instructions & receipt in
Bank’s name
Warehouse operator bundles receipts for presentation to Bank
Bank finances individual depositors up to 70%
Buyers locate commodity grades and pay cash to
Bank
Bank accepts sale and presents receipts to
Warehouse operator with delivery instructions
Product delivered to buyers
Bank remits net proceeds to depositors less financed
portion plus interest
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WRS - Numerous Benefits
The use of inventory as collateral can ease access to finance and lower
financing costs, especially for smallholder producers (participating as
groups).
The application of standardized grades allows trading by description,
thereby reducing transaction costs, and also safeguarding against cheating
on weights and quality.
Trade using the WRS shortens the marketing chain and can potentially
increase producer margins.
Commodities are better stored by professional warehouse operators,
therefore reducing storage and post-harvest losses.
Create and maintain a more enabling policy and regulatory framework for
trade in agricultural commodities.
19
Micro-economic Benefits
Price transparency
(everyone has access to a neutral reference price)
Price discovery
(demand and supply developments are easily reflected in price levels)
Reduced transaction costs
(easier to find buyers or suppliers through a centralized market place)
In addition, WRS helps to define better quality standards, speed up
the process of product standardization, and improve the discipline in
the markets.
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Electronic Warehouse ReceiptsSystem Considerations
21
Electronic Warehouse Receipts (EWR)
Eliminate the need to store, file, safeguard and track used and
unused paper warehouse receipts
Eliminate the costs of overnight delivery of warehouse receipts
Centralize the purchasing, issuance, and monitoring of warehouse
receipts issued from all warehouse locations
Eliminate rejection with built-in “Validation of Grades” which
assures EWRs are not issued with incorrect data
Easily issue multiple, identical warehouse receipts in a matter of
seconds
Establishes a full audit trail electronically and combines with some
powerful reporting tools
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Challenges
Computer Literacy
Low electricity coverage
Low computer ownership
Internet availability/cost
Doubt about “validity” of data/electronic receipts
Last mile technology integration?
Lack of hosting service providers who can support SLA of 99% of
above uptime
23
Users of the System
Depositors
Aggregators & Traders
Buyers
Banks
Collateral Managers
Field Support Users (Samplers, Graders, Grain Inspectors)
24
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EWR Software Modules
License Management
Issue license to Warehouse
Issue license to Warehouse Operators
Issue license to Warehouse Staff – graders, samplers, grain inspectors
Issue license to Collateral Management’s Inspector
Manage suspension & revocation of licenses
Manage lost or destroyed licenses
Manage renewal of licenses
Manage Insurance Requirements & Performance Bonds
Manage inspection, weighing, grading and shelf-life certification
Manage stored grain inventory
26
EWR Software Modules (contd.)
Warehouse Receipts
Issue of electronic warehouse receipts
Manage alterations to warehouse receipts
Manage lost or destroyed warehouse receipts
Manage delivery of grains/cancellation of warehouse receipts
Manage partial delivery
Warehouse Receipt Transactions
Manage Transfer-In/Transfer-Out*
Manage Encumber-In/Encumber-Out*
Manage WR financing through participating banks
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* - Functions to be developed once commodity exchange is established & operational
EWR Software Modules (contd.)
Maintain Electronic Records of Warehouse Receipts
Classified by warehouse location, grain, buyer association, by depositor
Maintain Warehouse Operators’ Record of WR transactions
Maintain Warehouse Operators’ Record of Financial transactions
Create daily transaction reports
Create/aggregate market information and statistics
Maintain warehouse tracking sheet
Maintain bank tracking sheet
Monitor price movements over life of loan (WR financing)
Record/monitor additional collateral (WR financing)
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Non-functional Requirements
Web-based system that presents simple interface and works on low
bandwidth connectivity
When internet connectivity is unavailable or there is no access to
computers, mobile phone based message alerts, smart texts and call
center facility to be extended
Support multiple commodities & multiple warehouse locations
Support multiple banks & financial institutions through EDI
Support a central location – GGC office in Accra to lead most of the
back-end processing, record keeping & monitoring
All warehouses to receive incremental features that support
participation
29
Software Development Options
Option 1: Choose an established vendor/platform
ICX Africa (ICX Platform) has been a tried and tested system that is live
and used in South Africa (SAFEX) and Uganda (UCE)
The software platform supports end-to-end commodity exchange
function enabling electronic trades on spot and futures markets
GGC’s current needs are restricted to developing an Electronic Warehouse
Receipt System
The software pricing has two models
Fixed license cost – includes an one-time license cost (3 year term/perpetual
license) along with a 30% annual maintenance charges (recurring) and
recommends 40 person hours of customization effort per month.
Software As A Service (SaaS) – model recommends no upfront payment and
no infrastructure/asset ownership. ICX software will be hosted for GGC and
a monthly payment towards license cost and a commission on transactions
will be chargeable.
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Software Development Options
Option 2: Choose a software vendor for custom development
Ghana has capable technology firms that can develop the suggested
system using proprietary software
Microsoft Dynamics is a customizable framework that can help develop a
supply chain management and enterprise resource management system
without coding from the scratch
Initial development team which developed the ICX platform as Sandbox
projects is still available to develop a custom solution
Solicit vendors through RFI/RFP process to select a vendor that will
develop the EWR system for Ghana
31
Recommendations
Support reliable warehouse investors/operators
Identify strong and consistent buyers
Develop Collateral Management Agreement (tripartite) with CM(s)
Establish Market Information aggregation process
Develop internal policies and controls regarding warehouse
licensing/certification, grade certification, administration and
monitoring
Make a strong push to use electronic systems
Create consensus among banks and gain acceptance by leading banks
As this is still a non-regulated environment, work towards
establishing trust and confidence among stakeholders
32
Four Pillars of Operational Excellence
Trust
Transaction
Transform
Technology
33
Recommendations (contd.)
Of software development options available, recommend Option 2
whereby GGC will solicit vendors to develop a custom platform
that suits the needs and scope established
Option 1 tends to be too expensive considering the stage GGC is at
No warehouse system law; regulation may bring changes to the system
Demonstrate to depositors that value offered at warehouses and move
away from traditional markets
Depositors made to understand the need for producing standardized,
high quality grain through dissemination and advisory services of GGC
Establish credibility within the system and attract suitable partnerships
It may take 6 – 12 months easily before seeing appreciable WR volumes
flow through the software solution
“Don’t assume technology will be accepted”
34
Suggested Next Steps
35
Thank You!
Contact:
P S Krishna Kumar
Senior Technical Advisor, ICT
ACDI/VOCA
www.acdivoca.org
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