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December 16, 2010

More ideas for improving cereal markets in West Africa

After my fascinating meeting last week on a West African food security reserve, my second meeting in Ghana was also about cereals. It was a capacity-building workshop for the region entitled, Enhancing the Functioning of Cereals Markets in West Africa. The meeting was called by UNCTAD's Special Unit on Commodities, in partnership with ECOWAS, ROPPA (the association of West African farmers' organizations), and CILSS. The meeting considered two issues: warehouse receipts/warrantage (I'll explain in a moment!) and commodity exchanges. The meeting was rich in content and highly educational. It was fascinating—even though I was unable to stay for the last half day of meetings, and even though some tropical bug found it's way into my system so as to make the last 24 hours tiring and uncomfortable. 

So, first warehouse receipts and warrantage. Warrantage certainly sounds French, and if you look online, it seems the French use the word more, and are the only ones with online definitions. But I think the word must be from the English word "warrant," which in one of its several definitions means a written order from person A that instructs person B to pay a specified recipient a specific amount of money or goods at a specific time. In effect, warrantage refers to the system of using grain as collateral for loans. A financier (in most cases in West Africa, the money comes from a micro-finance institution) lends money to a farmer against grain that the farmer puts into a depot as collateral. In the simplest form, as practiced in Niger, the depot is locked with two padlocks—the farmer has one key and the creditor has another. The system was widely used in the U.S. and Europe in the 19th century. A warehouse receipt works in a similar way: the receipt entitles the bearer to a given amount of money in exchange for the grain stored in an agreed facility. Farmers are able to avoid selling their crop right at harvest time, when prices are low.

Warrantage is found all over the region, and judging from the presentations made by the conference, has seen plenty of success (see here for an account of how it has worked in Niger). The practice remains piecemeal, and there are plenty of questions including coverage, legal protections, ensuring standards and grades, and reforming the finance side to better reflect the constraints and opportunities of grain as collateral. Nonetheless, the conference presentations provided a heartening look at how to get credit into remote rural areas and meet a critical need in the struggle to strengthen food security.

The second topic was commodity exchanges. I have to say, I was far less convinced about the importance of such exchanges during the presentations I heard during the meeting. Commodity exchanges are expensive (it costs tens of millions of dollars to establish one). They require significant administrative oversight and capacity—not something available in abundance in many of the countries in the region. They work at very high levels of aggregation (the Nigerian exchange works with half-tonne minimums, which is a fraction of the minimum used in any of the export commodity exchanges, even within Africa). Aggregation on this scale immediately creates the need for intermediaries—possibly several—between farmers and the exchange. And then, I cannot see how the markets for food grains in West Africa need such a mechanism. The volumes of cereals moving around within the region just do not justify it, and there is no export of food grains to speak of from the region (unlike cotton and cocoa).  

I left before the end, so am hoping to see some kind of concluding report emerge of what others thought. The presenters on the commodity exchanges believed in what they were offering, I am sure. But I encountered more than one skeptic in my conversations around the breakfast table and over coffee. Overall, though, my take-away impression was of a big room full of people who are serious about the business of trading food in West Africa. The network of farmers organizations in the region, ROPPA, was not only present, it was a central pillar of the organization and execution of the meeting. It was heartening to see, and highly educational to listen to.

Sophia Murphy

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