Although AKRSPI and KKFF’s warehouse receipts program were different in design, both organizations learned a number of important lessons that can hopefully benefit other practitioners working with warehouse receipts, delayed marketing and spot exchanges.
- Organizations managing warehouse receipts programs should aim to build synergies with other players in the post-harvest value chain such as transporters, warehousing facilities, commodity exchange platforms and buyers. This can increase overall efficiency in the post-harvest value chain, which can ultimately result in a more consistent supply of commodity on the market as well as stable market prices. Written agreements (especially with buyers) should be in place with all partners before the program is advertised to farmers.
- Organizations implementing warehouse receipts programs should be transparent about their fee structure as well as how money generated from warehouse receipts activities will be used by the organization.Rural farmers earning a relatively small profit from commodity sales might hesitate to participate in a program that may appear to substantially benefit another organization—especially when they can independently participate in the traditional market. KKFF currently earns a small profit from transport, storage and delayed marketing activities and reinvests this into member activities. They have informed farmers about this arrangement (with an overall positive reaction) in an effort to be transparent.
- Warehouse receipts programs should maintain industry-backed and evaluated operational procedures to ensure credibility with financial institutions and rural farmers.Industry-accepted guidelines on valuation not only ensure transparency with farmers but also provide financial institutions with the documentation that they need in order to issue warehouse credit. KKFF has developed a Standards Operations Protocol (SOP) and utilized industry guidelines for measurement and valuation of commodity.
- Legally sound agreements should be drafted for all parties involved in warehouse receipts activities including the implementing organization, warehousing and transport companies, financial institutions and farmers.Key agreement components should include information about:
- Liability: Typically the owner of the warehouse assumes responsibility of any produce stored.
- Insurance: Purchasing insurance as risk mitigation against the stored produce is highly recommended.
- Forward contracts: All forward contracts should safeguard the interests of all parties involved including buyers and sellers.
- Receipts: The implementing organization should ensure that all warehouse receipts provided to farmers will be honored by participating financial institutions.
- Incorporating spot exchanges into a warehouse receipts program can provide a transparent platform for farmers to obtain current market information as well as secure direct contracts with reputable buyers.A well-designed spot-exchange platform can provide many benefits to both producer and buyer including transparency of sale, guaranteed payment, storage, transport and reputable valuation and measuring practices.
If formal spot-exchange platforms do not currently exist in an organization’s operating area, organizations can work with local technology companies to provide market information to farmers as well as develop a reliable network of buyers.
- Practitioners working in partnerships with organizations providing spot-exchange services should ensure that all key participants fully understand the agricultural product being sold as well as the practices of the local market.Spot exchanges should provide farmers with more lucrative options than selling on the conventional market. Insufficient knowledge of the agricultural product and the local market can result in a disadvantageous situation for rural farmers in the form of lower sales prices. Spot exchange programs should ensure that a sufficient number of buyers are participating in sales to prevent collusion. A small number of buyers can result in collusion, ultimately affecting the sales price offered to rural farmers. One way to prevent this from occurring is to educate buyers in addition to farmers on the benefits of spot exchanges including higher quality products, secure payment and timely delivery.
While the impact of KKFF and AKRSPI’s warehouse receipts programs on the food security of their clients was not fully explored, certain results point towards positive linkages. Increased income as a result of higher sales prices can possibly improve the ability of rural farmers to purchase a wider variety of food for their household as well as re-invest in activities to further stabilize and improve their income throughout the year. Staggered sales of agricultural commodity on the local market can possibly improve food security for local communities by ensuring a more consistent supply of food. As AKRSPI and KKFF continue to refine and develop their warehouse receipts programs, they hope to further explore the impact of their programs on the food security of rural households in India.