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When farmers have secure access to credit and reliable storage facilities for their grain, it gives them the option to sell when they can get the best price. This means that in a situation of rising food prices small farmers stand to benefit, not to lose. The warehouse receipt system, introduced through the IFAD-supported Agricultural Marketing Systems Development Programme in Tanzania, is now being mainstreamed by the government throughout the country.

Maimuna Omary Ikanga weighs her maize in the Qash receipt system warehouse Credit: IFAD/M. Millinga

The harvest has been good. It’s the end of a busy day and Maimuna Omary Ikanga, a farmer from Qash in the Babati district of Tanzania, has loaded an ox-drawn cart with sacks of grain harvested on her land. She sets off to the warehouse where attendants weigh the grain, measure moisture levels and stitch up the sacks for storage. They give Maimuna a warehouse receipt for her grain.

That receipt is no ordinary piece of paper. It represents an opportunity for Maimuna to grow as a small-scale entrepreneur and continue to lift herself and her family out of poverty. With the receipt, she can use her stored grain as collateral to get credit at reasonable interest rates, and she can continue to build the small business she started in the early days of the receipt system.

“Before, I was harvesting my crop and selling it at a low price, which was all I could get,” says Maimuna, who grows maize, peas, beans and sunflowers. “Now, if I store it, get a loan and wait for prices to go up, I can make a profit.”

Linkages are key to success

Amina Isare and Sellemn Ally treat maize with pesticides at the Qash receipt system warehouse Credit: IFAD/M. Millinga

The warehouse receipt system is the result of a collaboration between two IFAD-funded projects that are being pioneered in the Babati district. The success of the system relies on a series of linkages that are being addressed by IFAD’s projects in Tanzania. They involve access to storage facilities, credit, markets and market information.

The Agricultural Marketing Systems Development Programme (AMSDP) was set up in 2002 to improve the structure and performance of Tanzania’s crop marketing systems. The seven-year programme, which ends in 2009, is working in four main areas:

• developing agricultural marketing policy
• empowering small producers by building their entrepreneurial and organizational capacity and improving their links to markets
• providing marketing-related financial services so that small farmers can secure loans to cover the period between harvest and sale
• developing rural marketing infrastructure, including storage facilities, marketplaces and roads

The infrastructure component of the AMSDP has built safe, managed storage facilities for farmers that fulfil all the requirements for maintaining the quality of the product.

Maimuna Omary Ikanga and helpers take her produce to the receipt system warehouse in Qash, Babati district Credit: IFAD/M. Millinga

The Rural Financial Services Programme supports the creation of savings and credit cooperatives (SACCOs) formed by local communities, which allow poor rural people to get much-needed credit at reasonable rates. The warehouses have been built or rehabilitated in areas where SACCOs have considerable experience. Once the harvesting season begins, SACCOs managers submit a loan application to the bank. The warehouse manager issues a receipt to the farmer when the produce has been deposited in the warehouse. The farmer can use this receipt to obtain a loan from the SACCOs of up to 70 per cent of the value of the deposited stock. Farmers can then wait for better prices before they sell.

“The warehouse receipt system is an arrangement that solves two problems: the lack of storage facilities in the district and the difficulty of obtaining credit,” says Vincon Nyimbo, marketing specialist of the AMSDP. “At certain times of the year farmers need cash for various reasons. These warehouses help manage the food security issue and the marketing issue.”

Historically banks have been reluctant to finance agricultural-related activities. The uncertainty of external factors such as drought or floods makes investment too risky. The warehouse receipt system provides a way of getting around that.

Crop prices usually decrease drastically during the harvest season, but after three to six months the prices may double or triple. Farmers without storage are forced to sell their produce when market prices are low. Traders often exploit this situation. They have storage facilities and can sell with a good profit margin once market prices improve.

The links to markets and to up-to-date market information forged by the AMSDP and the First Mile Project, which is supported by the Government of Switzerland, are a third factor in the success of the warehouse receipt system. Farmers in Babati, for example, are well informed of movements in the markets and they are able to access markets rapidly, so they can wait to sell at the right time for the best price.

Profits for investment

Labels identify stored rice in the Magugu warehouse Credit: IFAD/M. Millinga

The warehouse receipt system has had an immediate and positive effect on farmers’ incomes. Some have been able to use the credit to venture into new enterprises.

In 2006, when the harvest was good, Maimuna and others nearly doubled the income from their produce. “We kept it in the warehouse when the price was 15,000 Tanzanian shillings (US$13) for a 100 kilogram sack and we sold for 26,000 shillings a sack when the price rose.”

Maimuna invested her profits in a satellite dish, a television set and a generator. With the nearest electricity source 10 kilometres away, this was a major attraction for the community.

“I bought it to watch the World Cup,” she says. She charged fellow villagers to watch the football matches on her television set. “To tell the truth, I was making money! In just a day I was making 18,000 to 20,000 shillings. And it went on for a month...” Maimuna is now building a second house. If harvests continue to be good, perhaps she will be able to finish it next year. Maimuna has also become a SACCOs chairperson. She is responsible for organizing meetings and represents members of her association at the meetings.

More and more farmers have been using the system. As a result, the SACCOs have been able to obtain bigger loans on more favourable terms, which in turn has had a positive impact on farmers’ incomes. Farmers in other areas are demanding that the system be extended. Outside the programme area some farmers’ associations have even been implementing warehouse receipt systems with their own funds.

In view of the success of the system in Babati and other districts, the government wants to extend it throughout the country.

“We are in the process of refining the system so that we can give practical recommendations to the government as it replicates the system,” says Nyimbo. “It was important, for instance, that there was a legal framework for the operation of the warehouses. The Warehouse Receipt System Act of 2005 allows the private sector to own and manage warehouses. This is an excellent example of how programmes like this can have a direct impact on policy development within the country. The Act was an answer to needs identified while piloting the warehouse receipt system.”

Source: IFAD