Government is set to regulate the Warehouse Receipt System (WRS) by coming up with a law governing its operations.
In a press statement released last week, the Ministry of Trade and Industry said government is consulting stakeholders on a draft WRS bill.
The ministry has argued that lenders can mitigate credit risks using the stored produce as collateral while the warehouses allow transparent trade in agricultural commodities to develop, thereby reducing the length of the marketing chain.
The country has two commodity exchanges, the Agricultural Commodity Exchange (ACE) and Auction Holdings Commodity Exchange (AHCX) but there is no law to regulate the system, a situation that an analyst has said does not bring confidence to the structured market.
“[The exchanges] would make it possible for producers and lenders to gain access to exchange-traded forward contracts, or more sophisticated price insurance instruments like futures and options. We believe that farmers would embrace the WRS and defer the sale of their produce by making use of inventory credit to satisfy immediate consumption needs,” reads the statement, which has been signed by Ministry of Industry and Trade principal secretary Randson Mwadiwa.
Mwadiwa in the statement points out that storage by participants in the commodity system will moderate seasonal price variability and reduce trade margins for the benefit of both producers and consumers.
Responding to the proposed law, AHCX operations manager Davis Manyenje, in a telephone interview yesterday, said it is important that the system should be regulated because it will bring confidence to the market and prompt other players, including commercial banks and foreign players to participate.
“We have been agitating for regulation of the system and we believe that the law should have come earlier and not run after the market. We wholly support the draft bill to ensure that everyone is protected. It is however encouraging to note that there is sanity in the way people are operating in the absence of the regulation,” said Manyenje.