Warehouse Receipt Systems (WRS) are mechanisms that allow farmers to access markets and financial services using their commodity as collateral. The system has become an integral part of the agricultural sector in Uganda especially from the 1990’s. Hence, we witness both public and private efforts towards WRS as early as 1996 and 2004 respectively.
Of recent, WRS has garnered importance due to its ability to significantly reduce post harvest losses. Indeed Uganda’s second National Development Plan (NDP II) acknowledges that limited storage capacity, particularly warehouses in the country, impedes effective post-harvest management and structured commodity.
The result is that the country is unable to address the challenge of price volatility of agricultural products. Consequently, government has revived the WRS by strengthening the regulatory framework through the establishment of the Uganda Warehouse Receipt Systems Authority in 2015.
Despite the above efforts, the development and or uptake of WRS services has remained rather low in Uganda. The article therefore tries to explore the gaps in the regulatory framework, structure, conduct as well as performance of Uganda’s WRS with a view of devising feasible policy options to increase its efficiency and effectiveness for market competitiveness and service delivery.
An examination of the gaps in current policy and regulatory framework for WRS
While most government policy documents acknowledge the need to develop post harvest infrastructure for agricultural development. Many possess significant gaps on the policy action for developing WRS.
Overall, except for the NDPII, which provides some sort of target for the number and capacity of the warehouses, other policies do not have a clear implementation strategy that relates to the WRS. For example, while the National Trade Policy has a draft implementation strategy in place, it is brief and lacks mention of strategies for the WRS.
On the other hand, the National Agriculture Policy has a detailed implementation framework but does not include strategies relating to the WRS, while the National Grain Trade Policy does not have any implementation strategy in place.
More so, the Ministry of Trade Industries and Cooperative, the main implementing body of the WRS in Uganda, lacks an updated sector development plan with details on strategies for the WRS. And while the collaborative implementing body Ministry of Agriculture Animal Industry and Fisheries (MAAIF), has a sector development plan with a strategic action plan to promote value addition, post-harvest handling, storage and marketing, it lacks excerpts on the WRS and its potential to provide smallholders with finance and markets.
Further, while the presence of these regulatory frameworks is meant to guide the WRS authority, the perpetual absence of targets not only incorrectly guides the authority but also leads to the waste of resources. In addition, the perpetual absence of such targets will make reviews and updates of these policies cumbersome. This means that the WRS authority ought to invest in setting achievable targets for a set period for the development of the WRS in Uganda.
Gaps in the WRS structure
There exists significant loopholes in the structure of WRS in Uganda. First of all, there is a mismatch of the regional distribution of potential warehouses and location of production centres for most of the targeted commodities, figure 1 and 2. Indeed evidence reveals that while a large share of maize and bean output occurs in the western districts of Kabale, Hoima, Kiruhura, Kabarole, Masindi, and Isingiro, districts, warehouses are mostly concentrated in the central districts (figure 2).
There also exists enormous barriers to entry into the WRS emanating from high costs of adherence, absence of appropriate postharvest handling technologies, financial emergencies that motivate quick commodity sales to middlemen, computer illiteracy which deters participation in the E-WRS and fierce competition from the informal traders that are not stringent on quality and yet provide quick cash. As such, many farmers are excluded from using the system.
Figure 1: Geospatial figures produced by Daniel Aboagye, in collaboration with AidData.
Figure 2: Geospatial figures produced by Daniel Aboagye, in collaboration with AidData.
Identified gaps in the conduct of WRS (strategies to maintain quality and reduce price fluctuations)
With regards to the conduct of the WRS, most players stepped up efforts to improve the quality of commodities delivered by farmers, however, majority of farmers do not understand the composition of grades. Additionally, Uganda has performed poorly at the regional level in ensuring the quality and standard for grain since government’s intervention is limited only to certification and harmonization of grades and standards.
Secondly, efforts to control price fluctuations (such as bulking to sell at a warehouse facility) have not been fully successful since farmers prefer to sell at farm gate to avoid the high transport costs associated with moving commodities to the warehouse.
What are the issues with WRS performance?
In terms of performance, the WRS in Uganda has adhered to regional and international grades as set by the East African Grain Council. However, evidence reveals that some of Uganda’s warehouse facilities (Jinja and Masindi) only allow storage of grade I and II maize, yet farmers are incapable of differentiating between these two grades. Secondly, farmers’ adherence to the set standards by the WRS is non-binding due to the large informal market for maize that cares less about quality.
As far as access to credit through the WRS is concerned, most farmers/traders are still oblivious of the procedures and processes required to obtain finance through the WRS. Additionally, many farmers perceive the WRS to be unprofitable due to the perceived hidden costs that emanate from costs related to the provision of warehouse services.
How can the gaps be addressed?
In view of the foregoing constraints to the WRS in Uganda we propose the following policy actions. First, government should do more to provide an enabling environment that will allow the creation of warehouse facilities to store various agricultural and non-agricultural commodities. Second, investment in the public WRS should be allied with current production capabilities of the country.
Third, it is imperative that MAAIF spearhead the promotion of grades and standards and should not leave it to the private sector, NGOs and the donor community. Last, it is of immense importance that actors undertake massive sensitization of the E-WRS.