Presentation Fin4Ag S17 by Jonathan Coulter and Ibrahima Idiakhoumpa

1. J O N AT H A N C O U LT E R A N D
I B R A H I M A I D I A K H O U M PA
AT T H E C TA / A F R A C A I N T E R N AT I O N A L
C O N F E R E N C E O N R E V O L U T I O N I S I N G F I N A N C E
F O R A G R I - VA L U E C H A I N S
K E N YA S C H O O L O F M O N E TA R Y E C O N O M I C S
N A I R O B I , 1 6 J U LY 2 0 1 4
MOVING FORWARD WITH WAREHOUSING
AND COLLATERAL MANAGEMENT IN
AFRICA
TECHNICAL PRESENTATION
J COULTER CONSULTING LTD

2. WRS & COLLATERAL MANAGEMENT
STUDY
• Commissioned by: CTA, IFAD and AFD
• to foster emergence of warehousing and collateral
management services, in favour of smallholder farmers
• Subject countries: Burkina Faso, Cameroon, Côte d’Ivoire,
Ghana, Madagascar, Mozambique, Niger, Senegal and
Uganda
• Study consortium: J Coulter Consulting + Sullivan &
Worcester LLP
• Plus local technical and legal consultants in Subject Countries
• Activities:
• legal and institutional due diligence
• identify obstacles and make recommendations for Subject Countries
and OHADA region

3. STUDY TYPOLOGY
• Type A: Private warehouses, under control and responsibility
of a collateral manager (CMA)
• includes field warehouse, i.e. goods held in borrower’s store
• Type B: Public warehouses
• Type C: Community inventory credit
• usually supported by MFIs, and
• refinanced by commercial banks
• double-padlock arrangement
• bags marked in name of individual depositor
• Type D: Lending against the security of current or future
production
• documentary security, as with Brazilian Agricultural Bonds (CPRs)
• not practiced in Africa
• There is also lending against stored commodities, with
surveillance by stock monitor (SMA) or lender

4. TYPE C: COMMUNITY
INVENTORY CREDIT

5. MAIN TYPE C CASES
Country Commodity Volume stored
per annum (tons)
Participating
depositors (est.)
Madagascar
GCVs
Mainly paddy
(also cloves,
coffee & others)
100,000-120,000 > 80,000
Niger Grains, oilseeds,
pulses &
dehydrated prods.
5,000
(as of 2008/09)
12,500
Burkina Faso Grains, oilseeds
and pulses
3,400 4,000
Commodities overwhelmingly stored in name of individual depositors
Madagascar mostly stores in homes; Niger & Burkina Faso in community
stores
Repayment reported close to 100%

6. HIGHLIGHTS OF MALAGASY “GCVS”
• Farmers storing mostly in their own homes
• Current trend to centralised storage
• Wholehearted adoption by MFI networks
• >40% of loan portfolio of CECAMS and TIAVO
• 25% for OTIV-Tana, more urban-based network
• Strong impact on farmers and seasonal price
stabilisation
• Needs/opportunities for further development:
• improve risk management
• develop post-harvest handling + diversify commodities, esp.
maize
• develop warehousing profession from bottom up

7. WARRANTAGE COMMUNAUTAIRE IN
NIGER AND BURKINA FASO
• Mostly semi-subsistence approach, farmers selling individually
• Some groups more market-oriented or federated
• Positive impacts on household resource management, livelihoods
and food security
• Key elements of sustainability
• Local appropriation, peer pressure, accountability
• forced savings aspect
• decentralised management with low operating costs
• favourable public policy, but with contradictions
• Key elements detracting from sustainability
• inflexibility of product (fixed calendar for depositing, borrowing and
reimbursement)
• Rural MFIs less developed than in Madagascar
• price movements difficult to foresee accurately
• dependency on outside support to build warehouses
• Positive externalities may justify continued support

8. TYPE A: PRIVATE
WAREHOUSES USING
COLLATERAL
MANAGEMENT
AGREEMENTS (CMAS)

9. PRIVATE WAREHOUSING IN
SUBJECT COUNTRIES
• All countries except Madagascar
• Mostly in and around port, focused on imports and exports
• Côte d’Ivoire pre-eminent: est. $2.6 billion for export CMAs
• The only Subject Country to regulate collateral managers
• more patchy services in up-country areas and land-locked
countries
• sometimes in support of international buyers and cotton companies,
using both CMAs and SMAs
• often in support of processors
• smallholders making very limited use of CMAs, with some
exceptions (Burkina, Uganda)
• high fixed costs (usually US$ 1,000 per site per month or more)
• versus atomisation of production and trade
• producer orgs. rarely enjoy confidence of financiers
• limited success of Government & aid inspired initiatives with cocoa in
Côte d’Ivoire & Cameroon

10. CHICKEN-AND-EGG PROBLEM INHIBITS
BANKS FROM LENDING UP-COUNTRY
• lack of experience in lending to producers
• approach conditioned by financing international trade
• expecting structured financing + known off-takers
• without which they often request other collateral
• multiple apprehensions about: performance of
warehouse operators, producer orgs., pricing of
commodities, need to foreclose
• leading to: little lending activity, and
• non-development of skills/procedures like price
monitoring, hair-cutting, marking-to-market

11. INNOVATING AT THE MARGIN
• Regional banks (e.g. Coris, BRS, Ecobank) investing in,
or in partnership with, CMs in West Africa
• CMs in Burkina Faso (SEGAS-BF, Expertis and
Auxigages) innovating with farmers and small-scale
processors:
• structuring the value chain
• a source of both opportunity and risk
• Ugandan CM (Coronet) active in CMAs involving
smallholder farmers
• We need to leverage this, through capacity building
support, focusing on banks, CMs and clients

12. RECENT SENEGAL INITIATIVES ILLUSTRATE
BOTH OPPORTUNITIES AND CHALLENGES

16. TYPE B: PUBLIC
WAREHOUSING

17. KEY CONSIDERATIONS WITH PUBLIC
WAREHOUSING
• Stronger case for regulation than with other Types of
warehousing
• large number of depositors’ goods at risk
• Scale is key to viability:
• At level of warehouse capacity: units < 1,500 tons maize likely to
be uneconomic (Onumah et al., 2013)
• When warehouse also trades, breakeven threshold may be lower
• At regulatory level: throughput < 100,000 tons maize pa may be
uneconomic

18. APPROACHES TO PUBLIC
WAREHOUSING
Country Commodity Warehouses and
capacity
Tons deposited or
financed
Legislative approach
Tanzania (Act 2005) Mainly cashews &
coffee
60 licensed w/h, 260
Kt
Deposits > 170 Kt pa
Uganda (Act 2006) Mainly maize 5 licensed w/h,
about 22 Kt
Deposits 22.6 Kt
in 5 years to 2013
Voluntary, contractual approach
South Africa
(since 1995)
Maize, wheat,
sunflower, s/beans
Over 200 SAFEX reg.
sites, >10 Mt
Several million tons
financed pa
Ghana Grains Council
(since 12/2012)
Maize 7 certified w/h,
36 Kt
Deposits 29.5 Kt
Repo financed 6.9 Kt
ECX “big bang” approach
Ethiopia Commodity
Exchange
Coffee, sesame, pea-
beans
Circa 17 large w/h
sites
Deposits > 500 Kt pa

19. PROS & CONS, SELF-REGULATORY
APPROACH
• likely to be responsive to stakeholder concerns
• can react quicker to changes in the industry and market, but
• Requires high stakeholder cohesion
• Need to self-finance through voluntary levies
• Transparency may prove challenging
• Difficult to protect depositors against w/h failure; need to
restrict entry
• Legal risks: good title; claim over commingled goods;
protection re third party claimants, and; enforcement of rights
re defaulting debtors

20. PROS & CONS WITH LEGISLATED
APPROACH
• It can:
• render WRs negotiable documents of title, and overcome legal
risks
• facilitate intervention in failing warehouses, and
• increase number of eligible storage facilities, but
• Legislative process is often long and has uncertain
outcome
• Will not work without a coherent & widely shared national
vision for WRS
• Risks of underfunding and understaffing of regulatory
agency, + weak public sector management

21. PROS & CONS OF ECX BIG BANG
APPROACH
• Can build critical mass, in political & financial terms
• Overcome regulatory and institutional obstacles, and
reach break-even, but
• Ethiopian case very difficult to replicate:
• lower enforcement capacity
• “mandating” food crops creates massive parallel trade
• Risks appealing to short term dirigiste politics
• Large prestige projects may inhibit open debate about
pros and cons

22. WE CONCLUDE
• There is no magic bullet!
• In general we prefer:
• a stakeholder-driven approach
• leading to
• a well-informed legislated approach

23. KEY SUCCESS FACTORS WITH
WAREHOUSING INNOVATIONS
• Objective factors:
• The underlying demand for the innovation
• Scale economies in Type A and B operations
• Scope to massively scale-up Type C operations
• Process factors:
• Vision and leadership of promoters
• Private sector involvement and initiative
• Scope to modify approach in the light of experience
• The role of Government, the degree to which supportive or
otherwise
• Implications for international promoters:
• Vital to address objective factors up front
• Addressing process factors calls for patient long-term
programme

24. SUGGESTED PROGRAMME CONTENT
• Independent analyses and backstopping for the Funding
Agencies
• Building capacity of players (banks, MFIs, CMs and POs)
• a challenge fund for training initiatives
• certification of CMs working in up-country locations
• Develop and test a robust PPP model for funding warehouse
construction
• Coordinate with international companies and other
development programmes
• Support specific country initiatives
• Capitalise experiences and feed them back into public domain

25. SUMMARY POINTS
• We have identified three main financing Types A, B & C,
each with its merits and constraints
• Success with Type C (community inventory credit) can
be a springboard for types A and B, particularly in
Madagascar
• The main priorities are:
• to build capacity of collateral managers and bankers willing to
innovate
• National WRS initiatives require: (a) close examination of demand
and economics; (b) strong stakeholder institutions, and; (c)
coherent & shared vision
• International partners require long-term programmes, more than
projects, to push the envelope