Access to finance has always been a challenge for more than 3.5 million farming families in Malawi. More so, the farmers struggle to get their produce to organised markets; hence, losing out by disposing of the commodity to middlemen at below-market prices.
But the Farmers Union of Malawi (FUM), the countryâ€™s representative of smallholder farmers, says the warehouse receipt system (WRS), being championed by the Agriculture Commodity Exchange (ACE) for Africa, is a tool that will help to unlock farmersâ€™ potential to achieve their goals.
A warehouse receipt is a document issued by a licensed warehouse operator certifying the quality and quantity of a specified commodity placed by a named depositor into a secure storage environment.
The system ensures a farmer puts the commodity, for example, beans, in a warehouse, and receives a warehouse receipt as proof of deposit.
For example, if a farmer deposits a commodity managed by ACE, he or she gets a receipt and with that receipt they can go to a bank if they want a loan, and can get up to 70 percent of the total value of the commodities they have deposited in a warehouse.
FUM president Felix Jumbe told Business News this week that since farmers have been complaining of a lack of access to markets and finance from the banks, the warehouse receipt system could play the magic.
â€œThis is one form of market where we can get our products sold. The fact that you can have a warehouse receipt and you can use that to get money in the bank eases cash flow problems for farmers,â€ he explained.
However, Jumbe called for the process to be holistic and be harmonised with all other developments taking place in the commodity market.
Already, the ACE has over 30 registered brokers and market prices for a number of commodities from the countryâ€™s 28 districts.
Last month, the countryâ€™s tobacco auctioneer, Auction Holding Limited (AHL), announced that it would soon establish Auction Holdings Limited Commodity Exchange (AHCX).
Jumbe said the two have to work together since they are all focusing on the smallholder farmer.
A money market analyst, James Chikavu Nyirenda earlier noted that to avoid duplication, the players in the commodities market should explore ways on how the two initiatives can be merged into one Malawi Commodity Exchange (MCE).
â€œThis signals opportunities for profitable trade. It levels the playing field between farmers and others with better information and it also opens up new markets within and outside of the country,â€ he said.
But Jumbe noted that there is need to put appropriate legislation and regulatory framework to ensure that the farmer and all other players in the value chain are protected by legal instruments.
In Malawi, smallholder farmers take up almost 80 percent of the land and the rest is shared with medium to large-scale farmers.
Supporting the idea of a properly instituted legal framework, FUM policy and advocacy coordinator Mphatso Dakamau said since the WRS requires several participants such as brokers, a clearing system, the financial sector, floor managers and collateral managers, there is need for guidance so that business is done in a transparent and accountable manner.
â€œWe need laws. Government has to come in and put up the legislation to guide the behaviour of different sectors in commodity exchange,â€ he suggested.
ACE principal advisor, Kristian Moller, called for collective efforts to scale up the initiative so that it reaches many farmers in Malawi.
Experts say WRS can also be beneficial to banks by reaping benefits of high repayment rate on warehouse receipt loans while farmers would increase their possible selling price by as much as 200 percent, which is a significant impact in view of risks associated agriculture.
ACE was established in 2004 and has 40 registered users operating in six countries.