the potential for development of a warehouse receipt system ...

October, 2015

This publication was produced for review by the United States Agency for International Development. It was prepared by Chemonics International under the Punjab Enabling Environment Project.

THE POTENTIAL FOR DEVELOPMENT OF A

WAREHOUSE RECEIPT SYSTEM TO SERVE THE PROVINCE OF PUNJAB, PAKISTAN

Punjab Enabling Environment Project (PEEP) 2

THE POTENTIAL FOR DEVELOPMENT OF A WAREHOUSE RECEIPT SYSTEM TO SERVE THE PROVINCE OF PUNJAB, PAKISTAN.

PUNJAB ENABLING ENVIRONMENT PROJECT (PEEP)

CONTRACT NO. AID-391-C-14-00002

DISCLAIMER This study is made possible by the support of the American people through the United States Agency for International Development (USAID). The contents are the sole responsibility of the author and do not necessarily reflect the views of USAID, the United States Government or Chemonics International.


Contract Number: XXXXX Contractor Name: Chemonics International, Inc. USAID Technical Office: Office of Economic Growth and Agriculture, USAID Pakistan Date of Report: October, 2015 Document Title: The Potential for Development of a Warehouse Receipt System to

Serve the Province of Punjab, Pakistan Author's Name: John A. Kennedy SOW Title and Work Plan Action: USAID Pakistan Punjab Enabling Environment Project (PEEP)

Technical Assistance for Development of a Warehouse Receipt System to Serve the Province of Punjab, Pakistan

Work Plan Level XXXXX

Action # XXXXX SOW # 2015-HICD-05


Acknowledgement During the course of this assignment, the consultant has had the privilege of working closely with of PEEP project staff, whom he has come to regard with great respect for their enthusiasm and professional attitude to both their work in general and this assignment in particular. Singled out for mention are of course the project COP, Mr. Mohammad Junaid and Team Leader Mr. Asad Zahoor. A special mention is reserved for Mr. Ghulam Ishaq, PEEP Horticultural Specialist, without whose boundless energy, enthusiasm for the task and sheer effort the assignment aims would not have been accomplished.


List of Acronyms

Arthee Pakistani for “Trader” or “Merchant” a network of which support farmers input

supply needs and output distribution

Abbreviations and Acronyms

CMSA Capital Markets and Securities Authority

EBRD European Bank for Reconstruction and Development

ECX Ethiopia Commodity Exchange

EGTE Ethiopia Grain Trade Enterprise

ESOKO Electronic Market (Soko is Kiswahili for Market) - a market info system

Etc. Etcetera

EU European Union

eWRS Electronic Warehouse Receipt

FICC Farm Inputs Care Centre Ltd

FICC Farm Inputs Care Centre - Kenya

GDP Gross Domestic Product

GIN Goods Issued Note

Govt. / GOVT. Government

GoPb Government of Punjab

GRN Goods Received Note

GTPA Grain Traders and Processors Association (of Malawi)

Ha Hectare

MCX Multi Commodity Exchange

IP Identity Preserved (Individual parcels of grain are separated from each other)

MT Metric Ton

NAO National Authorising Officer (An EU Delegation Appointee)

NASFAM National Association of Small Farmers (Malawi)

NB Nota Bene (Latin) meaning “Note”

NCDEX National Commodity and Derivatives Exchange

PEEP Punjab Enabling Environment Project

PKR Pakistan Rupees (National Currency)

PP Polypropylene (strong woven plastic fiber sacks often used for grain / fertilizer

SLA Service Level Agreements

SMS Short Messaging System (otherwise known as “Text “messaging)

Spot A trading term meaning now, today, not in the future

SWOT Strengths, Weaknesses, Opportunities, Threats

tph Metric tons per hour

TWLB Tanzanian Warehouse Licensing Board

UCE Uganda Commodity Exchange

UK United Kingdom of Great Britain and Northern Ireland

USAID United States Agency for International Development

USD United States Dollar

Ush. Uganda Shillings (National Currency)

UWRSA Uganda Warehouse Receipts System Warehouse Receipt System Authority

WFP World Food Program

WFP World Food Program

WHR Warehouse Receipt

WRS Warehouse Receipt System


Table of Contents

ACKNOWLEDGEMENT ............................................................................................................. ......................................... 2

ABBREVIATIONS AND ACRONYMS ........................................................................................................... ........................ 3

TABLE OF CONTENTS............................................................................................................ ............................................ 4

EXECUTIVE SUMMARY ..................................................................................................................................................... 7

FINAL REMARKS ......................................................................................................................................................................... 11

1.0 INTRODUCTION ........................................................................................................................................................ 12

1.1 OBJECTIVES OF USAID PEEP AND BACKGROUND TO THE WRS CONSULTANCY ................................................................................ 12

1.2 DEPARTMENT OF AGRICULTURE ARABLE SECTOR DEVELOPMENT INITIATIVES ................................................................................... 13

2.0 DEVELOPMENT OF THE WAREHOUSE RECEIPT SYSTEM INTERNATIONALLY ............................................................... 15

2.1 ROLE OF WRS AS A TOOL IN ASSISTING SECTOR DEVELOPMENT AND STAKEHOLDER BENEFIT .............................................................. 16

2.2 WAREHOUSE RECEIPT SYSTEMS IN OTHER TRANSITION ECONOMIES .............................................................................................. . 18

2.2.1 Ethiopia .............................................................................................................. ...................................................... 20

2.2.2 India ................................................................................................................................. ........................................ 23

2.2.3 Kazakhstan ............................................................................................................ ................................................... 25

2.2.3.1 The Kazakh Story .................................................................................................................................................. 25

2.2.3.2 A Lesson to be Learnt from Kazakhstan and Ukraine ................................................................... ........................ 27

2.2.4 Malawi .............................................................................................................................................................. ....... 28

2.2.5 Tanzania .............................................................................................................. ..................................................... 30

2.2.6 Uganda ................................................................................................................................. .................................... 33

2.3 KEY POTENTIAL BENEFITS WHICH COULD BE OFFERED BY A WRS - PUNJAB .................................................................................... 39

2.3.1 Benefits for farmer / first buyer must be real: ....................................................................... .................................. 39

2.3.2 Benefits for the Processor / Exporter must also be real: ......................................................................................... . 40

2.3.3 Challenges to the Introduction of a WRS in the Province of Punjab ..................................................... .................... 40

3.0 NEEDS ASSESSMENT ................................................................................................................................................. 41

3.1 ANALYSIS OF AGRICULTURAL SECTOR IN PUNJAB ......................................................................................................................... 41

3.1.1 Major Crops of Punjab Viable for a WRS ................................................................................................................. . 42

3.1.2 Warehouse Capacity Available and Location ............................................................................. .............................. 43

3.1.3 Weaknesses of the Current Crop Trading System, ................................................................................................... 43

3.1.4 An Overview of Credit Facilities Available to Farmers ............................................................................................. . 44

3.2 CURRENT STAGE OF AGRICULTURAL DEVELOPMENT AND NEED FOR A WRS .................................................................................... . 45

3.3 A SITUATION AND GAP ANALYSIS OF THE REGULATORY REGIME IN PUNJAB – (WITH REFERENCE TO WRS) ............................................ 47

4.0 ANALYSIS AND STAKEHOLDERS ASSESSMENT ........................................................................................................... 49

4.1 SWOT ANALYSIS OF WRS / COMMODITY EXCHANGE SYSTEM ...................................................................................................... 49

...................................................................................................................................................................................... 49

4.2 INITIATIVES OF GOVT. OF PUNJAB & STATE BANK OF PUNJAB IN THE CREATION OF AN ENABLING ENVIRONMENT FOR A WRS / PMEX

SYSTEM .................................................................................................................................................................................... 50

4.2.1 State Bank of Pakistan ............................................................................................................... .............................. 50

4.2.2 Government of Punjab .................................................................................................. ........................................... 52

4.3 CURRENT WAREHOUSE FACILITIES IN PUNJAB – PUBLIC & PRIVATE SECTOR – AND THEIR VIABILITY AS WHS CAPACITY ............................ 53


4.3.1 Government Owned Storage Capacity ..................................................................................... ................................ 53

4.3.2 Discussion with Government of Punjab Food Department ..................................................................................... . 53

4.4 STAKEHOLDER ANALYSIS OF A WHR SYSTEM FOR PUNJAB. ........................................................................................................... 56

4.4.1 Farmers ........................................................................... ........................................................................................ . 56

4.4.2 State Bank of Pakistan and Commercial Banks ........................................................................... ............................. 57

4.4.3 Processors of Agricultural Produce ......................................................................................................................... . 58

4.4.4 Mercantile Exchange of Pakistan ....................................................................................... ...................................... 59

4.4.5 Existing Traders in Punjab ............................................................................................ ............................................ 60

4.4.6 Government of Punjab ............................................................................................................................. ................ 61

4.4.7 International Logistics Companies .......................................................................................................................... . 62

4.4.8 Potential Investors and Other Stakeholders ...................................... ....................................................................... 62

5.0 PROPOSED MODEL OF WHR SYSTEM FOR PUNJAB. ................................................................................ ................... 64

5.1 BUSINESS MODEL PROPOSED .................................................................................................................................................. 64

5.1.1 Recommended Warehouse Ownership Model ................................................................................. ........................ 64

5.1.2 Link with Existing Commodity Exchange ................................................................................. ................................. 67

5.2 ROLE OF PLAYERS IN THE PROPOSED MODEL .............................................................................................................................. 68

5.3 APPROXIMATE QUANTITY OF REQUIRED WAREHOUSING FACILITIES IN PUNJAB ................................................................................ . 71

Table 12 Crop Production and Storage Needs .................................................................................. ................................. 73

5.4 KEY SUCCESS FACTORS AND CHALLENGES .................................................................................................................................. 73

5.4.1 Success Factors / Benefits / Improvements to Currently Available Services ............................................. ............... 73

5.4.2 Challenges / Hurdles to be Overcome ..................................................................................................................... . 74

6.0 IMPACT .................................................................................................................................................................... 75

6.1 SOCIAL, ECONOMIC, POLITICAL AND FINANCIAL IMPACT ............................................................................................................... 75

Table 13 – Pakistan GDP by Province .................................................................................................... ............................ 77

6.2 IMPACT ON PUNJAB GOVERNMENT POLICY – CROP SUPPORT PRICES, FOOD SECURITY, IMPORT /EXPORT ............................................. 78

7.0 OVERALL RECOMMENDATIONS AND PHASE 1 PILOT DETAILED ACTION PLAN. .......................................................... 80

7.1 STRATEGY FOR INTRODUCTION ................................................................................................................................................ 80

7.2 OWNERSHIP ........................................................................................................................................................................ 81

7.3 THE PILOT PROJECT ............................................................................................................................................................... 82

7.3.1 Pilot Phase Detailed Implementation Plan .............................................................................................................. . 83

7.4 REQUIREMENTS – INSTITUTIONAL FRAMEWORK .......................................................................................................................... 85

7.4.1 Warehouse Receipts – Legal “Document of Title” in Pakistan? .............................................................................. . 85

7.4.2 Warehouse Receipt System Authority ..................................................................................................................... . 85

7.5 POLICY INTERVENTIONS TO ENCOURAGE INVESTMENT & EARLY ADOPTION OF THE SYSTEM ................................................................ 86

7.5.1 Investor and Stakeholder Sensitization. ..................................................................................... .............................. 86

7.5.2 Establish a Warehouse Receipts System Authority ....................................................................... ........................... 89

7.5.3 Incentive Encouragement for Investors ................................................................................. ................................... 89

7.6 POSSIBLE COST OF PILOT PROJECT FACILITY ............................................................................................................................... 90

ANNEXES ....................................................................................................................................................................... 91

ANNEX 1 COMPARING PUNJAB AGRIC. DEPARTMENT INITIATIVES WITH WRS PROPOSALS ............................................ . 91

ANNEX 2 COPY OF NCDEX (INDIA) LAUNCH OF WHEAT TRADING CONTRACT .............................................................. .... 93

ANNEX 3 ACE STRUCTURE.............................................................................................................................................. 97

ANNEX 4 SCHEMATIC DIAGRAM OF A WRS IN ACTION ......................................................................................... 98


ANNEX 5 STRUCTURE AND OPERATIONAL RESPONSIBILITY MODEL – WRS AUTHORITY ........................................... 100 100 ANNEX 6 SAMPLE WAREHOUSE KEEPERS LICENCE CONDITIONS .......................................................................... 101 ANNEX 7 PUNJAB CEREAL OUTPUT (2014/15) AND WAREHOUSE CAPACITY NEEDS, BY DISTRICT .............................. 108 ANNEX 8 GRAPHIC OF PUNJAB WAREHOUSE CAPACITY NEEDS, BY REGION........................................................... 109 ANNEX 9 GOVERNMENT EXPORTS & IMPORTS OF WHEAT 1990 – 2015 ................................................................ 110 ANNEX 10 GOVERNMENT OWNED / CONTROLLED STORAGE CAPACITY ................................................................ 111 ANNEX 11 LIST OF 81 AGRICULTURAL COMMODITIES ELIGIBLE FOR ISSUANCE OF NEGOTIABLE WHR´S IN INDIA......... 112 ANNEX 12 ACTION PLAN TIMELINE WAREHOUSE CONSTRUCTION PHASES 2 TO 11 ................................................ 113 ANNEX 13 POSSIBLE WHS WHEAT, MAIZE & RICE STANDARDS (EXAMPLES ONLY) .................................................. 114 ANNEX 14 MEETINGS HELD & PERSONS MET - BRIEF NOTES ON SUBJECT AND OUTCOME ....................................... 116


Executive Summary In section 1.2 of the main report, a section (1.2) lists the stated objectives of the Punjab Department of

Agriculture. It is not necessary to repeat the detail of those objectives here except to compare those where the

focus of the consultant´s report conclusions and recommendations will have an impact if implemented. The

whole list of WRS associated objectives and comparison can be found in Annex 15 of the report and should be

viewed as containing the potential outcomes of implementing a warehouse receipt system if efficiently and

carefully implemented in the Punjab. It has been included as it offers as a rapid comparison of Government of

Punjab Proposals with potential results if implemented as recommended by the consultant. The objectives that can be directly achieved by creating and operating a WRS network of silo complexes in

Punjab, linked to a commodity exchange are:

• Promote grain storage in the private sector • Develop future agricultural commodity markets and promote pledge lending • Invite and encourage private investment in identified areas • Develop efficient market models and encourage private-public partnership in establishing these markets

This executive summary describes findings achieved from the consultant´s research, opinions of other interested

parties based on discussions held with key potential stakeholders in a WRS. Headlined recommendations noted in this summary can be viewed in greater detail under sections: 7.0 Overall Recommendations and Phase 1 Pilot Detailed Action Plan. 7.1 Strategy for Introduction 7.2 Ownership 7.4 Requirements – Institutional Framework 7.5 Policy Interventions to Encourage Investment & Early Adoption of the System 7.6 Possible Cost of Pilot Project Facility

Why is a WRS Critical to the Development of Punjab Agriculture?

The Punjab agricultural sector is typified by numerous small, inefficient, financially weak farmers as depicted in the

table below, by comparing the sheer number of land owners with less than 10 Ha, with the number of 60Ha and above

landowners. The task of ensuring economically viable agricultural development becomes clear. Indeed ninety eight percent of land holders have less than 20Ha. Even at this level, major economies of scale at farm level are not possible. Where the famers of some developed nations have much larger sized holdings on which significant investment in modern, efficient machinery can be justified, this is clearly not the case in Punjab, yet the overall land area available for cultivation is capable of huge strides in output if cooperation, amalgamation, inputs and machinery were employed on a provincial basis.


The holding sizes are currently so small, making any degree of mechanization impractical and unaffordable. Their only potential for efficiency at farm level lies in either (a) cooperation with each other or (b) amalgamation through the sale of holdings (probably both), so that the farmers are able to participate and compete in a market for arable crop outputs that will without doubt become priced based on not only demand but also against world market prices, asked by large efficient farmer-producers of staple food products.

Size of Land Ownership Number % of Total of

Owners

Above 60 Ha 5,339 0.10

Under 60 - above 40Ha 7,273 0.1

Under 20 - above10Ha 91,548 1.7

Under 10 - above 5Ha 315,553 5.8

Under 5 above 3Ha 569,024 10.5

Under 3 above 2Ha 772,828 14.2

Under 2 above 1Ha 1,180,659 21.7

Under 1 Ha 2,490,316 45.8

TOTAL of below 60Ha 5,432,540 Source: Pakistan Bureau of Statistics 2010 Census.

How Can Small Farmers Harness the Benefits Offered by a WRS?

If the Government of Punjab, through their Agriculture Department carries out their expressed development strategy to utilize warehouse receipts as a tool with which to assist small farmers develop, it could represent the commencement of farmer’s cooperation with each other across the whole province. To be able to deposit at a suggested 50,000MT capacity warehouse, (of which Punjab will require over 300 strategically sited facilities if the network is to service the needs of all province combinable arable crop farmers), farmers will need to make decisions collectively. At individual level the volume of crop produced by each individual holding is simply too small and managing the sheer number of depositors at each warehouse during the course of harvesting would be impossible. However by (a) grouping together to grow one or two wheat, rice or maize hybrids, (b) ensuring that they apply inputs and protect their crop at the same time and in the same way, (c) harvest at the same time also, this strategy will ensure that they collectively generate a homogenous harvested crop, which can safely be mixed with each other´s for the sake of transporting to their nearest WRS warehouse. The grouping would need to appoint a weigher / tester at the point where they could safely aggregate deliveries from the field, and where the weigher / tester can test for moisture content with a simple hand held moisture meter and weigh bagged consignments on a platform scale so that income achieved from collective depositing can be shared equally and equitably among the group members. By this method farmers COULD deposit at warehouses directly, without the need for an Arthee (trader) to act as

the assembler / aggregator, who would under current circumstances understandably expect a profit for their

involvement as a principal in the transaction. Being able to deposit collectively means that (subject to sampling, analysis and final grade), that they could

collectively approach banks for a working capital loan directly, using their harvested and deposited crop (the

warehouse receipt / receipts) as collateral, pledged to the participating bank in exchange for a loan.


They would have to sell their warehouse receipt collectively in order to pay back capital and interest, also to

then pay for warehouse charges. Deduction of these invoiced expenses would be handled by the commodity

exchange / WRS combined central depositary / clearing house before final disbursement of sale proceeds. The remaining balance would then be deposited in a nominated “group” bank account from where they could

divide income amongst their grouping, pro-rata to the quantities from each individual that made up the

deposited quantity shown on the warehouse receipt. What do they gain from this activity?

• Losses due to inadequate storage and hence spoilage, are reduced to zero, as long as they do not delay delivery to warehouse as soon as they have harvested.

• Working capital loans will be available at competitive interest rates (we were assured by potential banker stakeholders) using the warehouse receipt as collateral.

• Prices achieved for their harvested crop via the commodity exchange should be better than they would expect under other non – WRS circumstances.

• They would have begun the operation of a cooperative group - working together, making decisions

together for the benefit of all “members” and enjoying the benefits from having done so. All of the above benefits could also accrue via or to the existing Arthee (Agricultural Merchant / informal money lender) network who should also be actively encouraged to deposit and use the WRS. For a number of small farmers there will be little alternative than to continue with existing sale modalities, at least at the beginning, due to existing levels of indebtedness to Arthees – which, it is reported from interviews held during the consultancy are considerable, in proportion to the size of individual land holdings. Before these farmers are free from indebtedness they would be obliged to repay advances provided under existing cropping credit arrangements by providing harvested crop in payment. How existing farmer / Arthee relationships develop in a WRS environment are difficult to predict, but it can be confidently suggested that beneficial development (improved returns) can be the result for both Arthee and farmer if they wish to take advantage of what a WRS can offer. Periodic monitoring by the Agriculture Department, Government of Punjab, of developments in Arthee / farmer relationships after the creation of a WRS network would be useful to ensure that excessive advantage is not being taken by the stronger of the two sides in this typical and long standing Punjab farmer / trader relationship example.

Commencement of Implementation and Possible Costs

The development of a province – wide WRS network would be a very large project by any standards. The

consultant has avoided the pitfall of suggesting possible total costs for the construction section of a pilot WRS

facility (10 or 20,000MT, to be decided) or for each of it is suggested 50,000MT major implementation units that

would be the viable sized network units that should be expected to follow. However, what can be confidently

stated is that a quotation was gained two years previously, for the supply of a 20,000MT silo facility by a UK grain

plant manufacturer and erection contractor to ECX (Ethiopia Commodity Exchange and Warehouse Receipt

System). This comprised at that stage of supply only on a CIF Djibouti basis of the following:

• Six hopper – bottomed pre-storage silos of 90MT capacity each (buffer intake, pre cleaning storage) • Six individual intake pits, drive over grids and conveyors • Six rotary grain cleaners, to include aspiration & cyclones for dust and light particle removal • Eight x 2,500 MT capacity long term storage silos


• Eight silo unloaders • Sixteen (2 per silo) Low volume ventilation units • Temperature monitoring equipment (4 per silo) • Phosphine pellet applicator for the purpose protect grain ¡n store from insect attack • Two weighbridges and controls • System control panel • Necessary 120tph elevators, conveyors, walkways etc. • An initial basic set of laboratory equipment • Supervising engineers to oversee construction, commissioning and final handover

Total CIF Djibouti cost in pounds sterling was £1.52 million, with the further option of adding two bagging lines

including conveyors, elevators, hoppers, in-line weighers, (50Kg units) stitches for PP sacks and removal

conveyors at an additional ex works cost of sterling pounds £49,000 or US$75,460. Using a nominal exchange rate of US$1.54 to £1 the cost of the 20,000MT silo pilot warehouse would amount to

US$2.34 million, (Per MT stored = US$117 or US$4.68 per MT annually over a 25 year depreciation period) plus

transport from port, bagging off lines and of course land purchase, site preparation and civil engineering works,

utility supply, office and laboratory. The consultant suggests that with significant and continued reductions in

energy costs and more importantly that of steel over the last two years, balanced against a nominal rate of

inflation in other areas – that current prices should overall have changed only slightly from those quoted at the

time. The total cost (based on the above-mentioned quotation) should be able to be shaved slightly due to the sheer

scale of the overall 300+ unit, 11 year duration project but would clearly be subjected to other factors such as

financing costs, inflation and other less tangible expenses listed below under “Final Remarks”. The total financial

commitment required by individual investors (banks, companies and individuals) / Government of Punjab

(depending on the preferred ownership and funding model decided upon) will exceed US$6 million per 50,000

MT site for machinery hardware, land, civil engineering and utility supply alone (using a cautious total budget

figure of US$120 per MT of storage capacity). It must be remembered that in relation to all capital investment expenditure, although funding has to be

sourced and utilized, the capital cost would be spread from an accounting convention perspective over the

effective “useful life” of the asset. This could reasonably be expected to be 25 years for (silos, civil engineering

and other building works) and 10 years for moving-part machinery.


Final Remarks

The construction aspect is only a part of what is needed. The effort, planning and implementation over an

estimated 11 year period from embarking on the physical erection of the first facility, of over 300 additional sites

across Punjab, on-going sensitization, training and education, assisting with the formation of farmer groups, (a

matter for direct Agriculture Department involvement and not the WRS), linking of warehouse sites including,

most importantly the pilot to the PMEX / another commodity exchange and clearing banks, with electronic

systems, hardware, software, operator training and system proving before formal start-up, will involve an input

of significant proportions on behalf of the Government of Punjab, its Agriculture Department and whichever

development, funding and operating models are finally agreed upon. This effort must include the parallel establishment of a Government of Punjab parastatal - The Warehouse

Receipts Authority with which to oversee the function of both the system itself and its individual warehouse

operators – with the Authority growing in capacity as each development comes on stream until the eventual

total suite of 300+ warehouses are functioning successfully. The above executive summary is expanded upon throughout the body of the report, where all aspects of needs,

key success factors, stakeholder assessment, models and impact are discussed together with the provision of

appended data. The list Annex 14 Meetings Held & Persons Met - Notes on Subject and Outcome, describes persons met and

interviewed, to which has been added very brief comments concerning discussions with a range of potential

stakeholders and an eventual comment in each case as to their attitude toward a WRS. Most were positive,

some were assessed as being “neutral” but only very few could be considered as being negative. Finally it must be mentioned that general enthusiasm and potential for benefit was perceived and voiced by all

stakeholders met, from whichever quarter – farmer, trader, processor-buyer and banker, commodity exchange

executives and the Agricultural Department of the Government of Punjab. Those statements of support and / or benefit potential were expressed willingly and a clear understanding existed

among all interviewees that there must be a significant change in the way that arable crop marketing is to be

carried out in the future. Progress in terms of efficient post-harvest storage and better marketing with the least

possible direct state involvement as a purchaser and seller of grains in particular is not simply the only logical way

forward but is demanded by all sections of Punjab agriculture. Without significant input and willingness to provide information and opinion from those interviewed during the

consultancy, this report would be significantly less broadly based and detailed.


1.0 Introduction This report was commissioned by Chemonics as contractor on behalf of USAID, currently managing the PEEP

(Punjab Enabling Environment Project) in order to establish the potential and modalities leading to the

introduction of a warehouse receipt system for arable crops in the Punjab province of Pakistan.

A background of small farmer´s, 1 activity in (wheat) markets and low yields per hectare achieved at farm level

identify the challenges faced by the province´s agricultural sector. Adding to the above, the fact that survival as a

rural business for many of Punjab´s smallholder farmers depends on the existence of a functioning informal

economy which, while assisting the farmers survival, does not raise taxation for the economy. However, the

introduction of a warehouse receipts system and marketing of crop outputs through a commodity exchange (the

two are in successful cases linked together) would mean that farmers will have to decide as to whether to join the

formal economy in order to enjoy the benefits of potentially improved incomes, in exchange for becoming

formally recorded and liable to taxation. The prime mover in this potential (WRS) development is the Punjab Regional Government Agriculture

Department who have the task of creating an environment in which investment will be encouraged and output

improved. They have published their intention to provide better quality agronomy services, valued by farmers,

better varieties of seed, and significantly reduce losses. They also requested that PEEP undertake a study into

the possibility of setting up a WRS for the financing and trading of arable crop production in Punjab – as is

described in the component´s SOW heading.

1.1 Objectives of USAID PEEP and Background to the WRS Consultancy

The goal of Punjab Enabling Environment Project (PEEP) is to improve the enabling environment for the

agribusiness sector in Punjab by promoting private sector led growth. The project will develop and implement a set of activities that will result in significant policy reforms, capacity

building of sector associations and investments in Punjab to support the government, private sector and civil

society organizations in improving livestock, dairy and horticulture value chains. PEEP is unique in the sense that it will develop and implement a set of activities based on three project

components that will not only result in significant policy reform and the capacity building of sector stakeholders,

but will also be instrumental in leveraging $180 million in private sector investment and create 15,000 direct and

indirect job opportunities over the five year life of the project. The above goal has led to the formulation of three

prime objectives: • Accelerate advocacy for policy, regulatory and institutional reforms through the private sector, leading to

early adoption, approval and implementation of the reforms. • Support institutional capacity building to sustain reforms. 1 98.1% of land holdings in Pakistan are below 10 Ha. 67% are under 3Ha. At this level, cultivated land returns from growing

combinable arable crops must be considered as at or only slightly above a subsistence level only.


• Mobilize private sector investments in horticulture, livestock and dairy projects through improvement in the

business enabling environment 1.2 Department of Agriculture Arable Sector Development Initiatives

Listed below are the published initiatives in which the Agriculture Department, Government of Punjab aims to

develop the sector. Those initiatives highlighted in blue (eight from a total of nineteen) will have a direct impact

on a warehouse receipt system, if introduced. Other listed initiatives could be said to have a secondary yet still

valid connection to a WRS development - such as reducing regional disparity and enhancing productivity and

improving livelihoods. Should the recommended model of a privately operated (Punjab Agriculture Department managed) linked WRS

and Commodity Exchange system is adopted, then the listed development initiatives will be of even greater impact

than originally intended. It is concerning that under “Market Activity” one sub – heading – “Democratize the Market Committees that

manage the public sector markets” is listed. It indicates that the Agriculture Department continues to view its role

as a manager of commodity markets. Government function in markets should be limited to providing a healthy

environment where markets can flourish. True free markets are not just indicators of supply and demand but they

encourage increases or decreases in supply or demand through the volumes that they trade in and by the values

that they trade at. Government-created intervention on the other hand creates uncertainty, violent, often

unforeseen movements in prices and available volumes as a result of government market activity (as a seller or a

buyer). It is advisable that government leave markets to manage themselves. However, recording and reporting of traded

price and volumes traded on markets can be very helpful in gaining transparency and increasing awareness among

farmers, traders and processors of what is being traded and at what values. The published Punjab Department of Agriculture arable sector initiatives are listed under their own headings

below (in bold type) but not in order of priority as: Development Enhancing Productivity and Improving Livelihoods

• Bridge the yield gap between progressive and resource-poor farmers • Promote diversification to high-value crops and vertical integration to increase small farmers’ income • Provide resources, skills and information to enable small farmers to be linked with consumers, especially

of high-value markets.


Improving Governments Ability to Handle Food Security Challenges

• Reduce expenditure on holding large wheat reserves in the public sector • Promote grain storage in the private sector • Develop future agricultural commodity markets and promote pledge lending • Make well-informed decisions based on accurate information such as production, stock, import and

export prices, etc. and scientific prediction.

Reduce Regional Disparity

• Special emphasis on building institutions, providing resources, and training small farmers in the

neglected region of Southern Punjab. • Encourage production of high-value crops to high potential marginal lands in Thal and Cholistan.

Sustaining Agricultural Resources

• Agricultural production will be transformed from an input-oriented to a knowledge-based system. For

this purpose, efficient energy, water, pesticide, fertilizer, and labor utilization and management

systems will be developed and promoted.

Key Initiatives

Establishment of Seed Units

• Provision of basic and pre-basic seed to the private sector • Sell established varieties / hybrids to the private sector on competitive basis

Promoting Food Quality, Safety and Traceability through a “Star Farm” Concept

• Capacity building of extension agents, traders, processors, and farmers • Invite and encourage private investment in identified areas

Market Activity

• Allow private sector to establish various kinds of agriculture markets • Limit the role of the Market Committee in the area of public sector markets • Democratize the Market Committees that manage the public sector markets • Develop efficient market models and encourage private-public partnership in establishing these markets


2.0 Development of the Warehouse Receipt System Internationally Warehouse receipts have long been in use in developed industrial economies – often known initially as warrants,

their purpose was designed to ensure that the goods described on the receipt were under the ownership of “X”

but that they were stored at “Y”. The storage was mostly a chargeable item and sometimes the cost of that service,

per period, was inserted into the receipt. There were and still are both negotiable and non-negotiable warehouse receipts and warrants in use. A

futures market warrant of entitlement is a negotiable receipt. A shipping trade Bill of Lading is a negotiable

receipt. The inclusion of the word warehouse in receipt laws defined the fact that the goods were stored in a

warehouse. The beginning of warehouse receipt´s use for agricultural commodities – usually grains, pulses and oilseeds –

came from commodity futures markets in the US and UK where the warrant of entitlement was presented by a

buyer who owned the receipt to a warehouse keeper where the commodity was stored, usually at the same

time as a request to withdraw the commodity from the warehouse, in full or in part. The negotiable aspect of a warehouse receipt came about when holders of receipts did not want to withdraw

their purchases immediately, but to hold, sell at a later date, fund the cost of a receipt purchase from bank funds,

using the receipt itself as a collateral as long as the commodity was stored in a “first class” warehouse. The first

class aspect is a term used to denote the known status and reputation of a warehouse keeper. Clearly if the

warehouse was not secure or the warehouse keeper did not possess an excellent reputation, full stock of all

insurance risks cover and a healthy balance sheet then they could not reasonably be classed as “First Class”. The

addition of secure premises and an excellent reputation when added to the full stock all insurance risks cover

and a healthy balance sheet created the “First Class” warehouse keeper status. Over time the system became well known and well used, eventually being of interest to and used by International

Development Agencies of which USAID, World Bank and the Common Fund for Commodities were probably

among the first to see its value as a development tool in the task of assisting small rural farmers to access “capital

markets” without having to travel to a country´s capital with their goods, in order to sell them at prices above

those offered locally. The system used is now known throughout developed and developing nations as a WRS (Warehouse Receipts

System) and has been deployed in numerous countries with varying levels of success. It is important to

emphasize that use of the model(s) (as they vary from country to country) is not a solution, more a tool with a

potential solution attached. Full and correct implementation, a robust legal framework, a connected method

by which the commodities stored in the warehouse can be marketed and value addition by warehousing is

realized are all extremely important aspects that have sometimes been ignored, causing a fairly rapid demise

of the system in countries where it was inadvisably deployed. It is correct also to suggest that although international development initiatives are well meant – withdrawal of

the international development project that instigated use of a WRS in a country has also been quoted as the

reason for its demise.


2.1 Role of WRS as a Tool in Assisting Sector Development and Stakeholder Benefit A warehouse receipt system offers a level of security to depositors also quality discovery not previously present

for combinable crops in many developing countries. These benefits come with the establishment of

professionally managed storage facilities. The whole package is intended to offer benefit to both producers of

arable crop commodities and processors equally. A linked commodity exchange offers an equally impartial

vehicle for the sale of agro-commodities and price discovery, leading to a robust MIS as an additional benefit.

The WRS as a part of a value chain which includes a Commodity Exchange offers a powerful development

combination for any country´s arable agricultural sector. The WRS model operates as a service vehicle for depositors and buyers by offering the following facilities:

• Cost – effective secure storage for combinable crops (which crops are included in a particular warehouse

facility will have much to do with volumes of specific crops grown within the warehouse catchment area) • A grading service – accurate sampling of depositor deliveries to store, testing according to recognized

parameters and allocating a quality grade to the specific delivery prior to formal acceptance • A weighing service – using the warehouses own (public) weighbridge, the net weight of all deposited

commodities are accurately measured and recorded. • A cleaning service - in the case of many warehouses (although not all) a service is offered where the

deposited crop can be cleaned to improve its grade after testing. Sometimes excess admixture which is

removable by mechanical cleaning can downgrade a commodity. Removing that admixture allows the

true value of the underlying deposited to be realized. • A drying service – in many cases warehouses will also offer a drying service. This mechanical process can

be offered in order to secure the underlying quality of the commodity and to make safe long term storage

possible. • Whether a commodity deposit requires drying or not is identified during testing of the sample,

accurately taken from a depositor’s whole commodity consignment by skilled warehouse staff at the

time of each delivery to the warehouse. • Known, scientifically recognized deductions of weight for moisture losses during drying and trash

removal during cleaning – no guesswork and no cheating. • Long term storage – valuable so that depositors can choose when they wish to sell their commodities

instead of being forced to sell at a low price, high availability period at and immediately after each

year´s harvest. • Rapid depositing and out loading facilities – the warehouses contain commercial scale intake, conveying,

elevating and storage facilities, specifically designed to handle high hourly volumes of throughput. • Adding Value to Crops - by simply knowing exactly what the farmer has to sell (after analysis, grading and

weighing into store) he / she can be confident concerning which markets and which buyers to target when

selling their crop • Providing collateral against which banks are happy to make working capital loans to farmers – A

warehouse receipt, when pledged to a bank, becomes “locked” in that without the banks consent it

cannot be sold unless the bank receives cleared funds from the sale and therefore in the interim the

underlying commodity cannot be disposed of. Once sold and the banks agreed capital and interest

requirements are satisfied, the balance is transferred to the seller, minus any charges due to the

warehouse keeper. • Normally the whole payment process after a sale is undertaken can be achieved within 24 hours.


• Once a sale is made, warehouse storage and out loading charges relating to the quantity of commodity

involved in the sale are for the buyer´s account – as the depositor is no longer the owner of that quantity

of commodity. • The buyer can be confident that the grade stated on their warehouse receipt, for the quantity that has

been allocated to that grade at the time of depositing, is the grade that will be delivered from store to

the farmer´s chosen buyer at the time of collection from the warehouse. • Benefits above are also valued by buyers and processors – guaranteed quality identified by grade,

guaranteed quantity identified by the use of the warehouses public weighbridge at the time of out

loading. • Logistic benefits achieved by known location collections of commodity and rapid out loading facilities.

The system is just as valid when applied to the small rice, wheat, rice and maize farmers of Pakistan or even

smaller coffee farmers of Ethiopia. The basic development model remains unchanged, it is only how it is applied

at national level that alters and creates the difference between success and failure. In the previous chapter it was

mentioned that some WRS systems have become internationally recognized successes. That is true of ECX

(Ethiopia Commodity Exchange), which utilized an in-house WRS in order to provide local delivery points for

farmers selling on the Addis Ababa located commodity exchange, for testing and grading coffee which was then

separately stored according to its quality and to provide a secure “First Class” facility – in Ethiopia´s case owned

and controlled by ECX itself. The commodity exchange company was established and owned by government, with

directors drawn from state government and industry operator´s, processors, traders and banks also. It remains

so today, having resisted the possibility of placing the warehousing division of the organization into private hands

in favor of establishing a separate yet state owned warehousing company.

Changes in operational methodology have been made since its inception, expansion has occurred and further

developments are soon to be introduced – such as futures trading and trading from local terminals. Significant

forward–moving developments – yet pressure brought to bear on the exchange by international coffee

wholesalers and organizations such as “Fair Trade” have all claimed that their interests were damaged in some

way and have forced changes to the initially presented ECX model. Implementation of new initiatives should

therefore be undertaken with awareness that there is no single route to WRS success. Physical on site

observation of several operational models in different countries before making decisions concerning which to

implement is a critical in developing an understanding of what could be the most suitable combination, (WRS

and Commodity Exchange). Warehouse receipts systems require warehouses and the most flexible, low handling-cost warehouse type

involves the use of silo capacity for storage and mechanical handling. Floor storage is not an option to be

discarded however, but the silo or floor storage choice depends very much on quantities and grades to be

handled – Also critical is whether the intended commodity is capable of withstanding mechanical handling

processes.

2.2 Warehouse Receipt Systems in Other Transition Economies Clearly a warehouse receipt system is not a complete answer to the various challenges that exist in transition

economies arable crop sectors alone. It is a system design, a basic skeleton upon which national agro-commodity

marketing sectors can implement, change, develop, add to or subtract from – depending upon national needs.

Improved seed varieties, suited to specific national or regional climates need to be used and hence available for


purchase at economic prices, fertilizer use should be encouraged and applied economically, also herbicides and

fungicides. In short agricultural practices need to be targeted toward best practice levels by a holistic approach

to agricultural sector development.

Warehouse receipts have been found to be an essential part of that transition process due to their ability to allow

small farmers to deposit at locally situated warehouses, considerable distances away from capital markets, which

individually they could not hope to access. The system also shortens the value chain substantially, cutting the

need for small scale farm traders / money lenders, medium sized local market buying agents, transport-based

buyers and capital – located assemblers. All of these entities take a margin from their trading operations and

many of them are involved in the chain from small farmer to capital assembler and / or processor. Cutting the

need for their services, places between three and four previous profits in the hands of the farmer through use of

a WRS. A well implemented WRS assists arable crop commodity markets to become less risk - inclusive, more quality

assuring, less waste suffering. Transaction borrowing costs can also be reduced. Examples of several nation´s

initiatives are discussed below, together with pointers toward what made a specific initiative successful or a

failure, together with lessons to be learnt. Size of market and / or size of producer does not appear to be a limiting factor in any specific case, but initial

enthusiasm and willingness among all players to use rather than misuse the system are key contributors to

successes: The following countries WRS initiatives have been examined to the extent possible from available evidence and

where possible the consultants direct experience whilst carrying out development work, feasibility studies or

other areas of technical assistance activity for donors, where the commodity exchanges and WRS involved were

the recipients of project activity. Included in the analysis of countries WRS are statistics for crop production, exports figures were available and

warehouse storage capacity. By comparing warehouse capacity with national applicable crop output, readers

will become aware of the level of impact and penetration achieved by each national WRS scheme and also the

challenges that they faced in attempting to remain independent in the face of government wishes to use WRS

facilities for food security purposes, large traders in particular tend to use of their influence to side-line the

whole system and to create other establishment difficulties. Reliable, detailed, publicly available information of warehouse receipt systems in developing countries is

surprisingly difficult to obtain. Numerous articles (scholarly and others) have been viewed by the consultant and

colleagues have been contacted with requests for information. General articles abound, containing statements of knowledge and understanding, yet much of the available

information has been sourced from a few, common reports and replicated, often without acknowledgement of

source. Most information and reports generated by consultants is on behalf of consulting companies contracted

by national development agencies. They do not share information to the internet concerning specific

development initiatives – hence the lack of detailed and valuable information. The chosen national examples – India, Ethiopia, Malawi, Uganda, Kazakhstan and Tanzania, (listed in no

particular order of success, size etc.) have been selected due to either the consultants direct involvement with


these WRS and Commodity Exchange developments, or, in the case information drawn from India, Kazakhstan

and Tanzania, the amount of information available in the public domain and via internet sources.


2.2.1 Ethiopia 2.2.1.1 The History: Ethiopia´s story is one of (a) WRS and commodity exchange creation due to the shock of an extremely severe

crop failure in the north of the country in 1984 causing a significant loss of life. Money had been diverted from

the economy by the Mengistu Haille Mariam government for the purchase of weapons instead of imported

food, aid was slow to arrive and Western European governments were concentrating on building “Intervention

System” grain stocks rather than distributing food aid. The warehouse receipt system and linked commodity exchange in Ethiopia was initially developed around the

country´s maize crop. The development was commenced to benefit and modernize the way Ethiopia as a whole

was trading its commodity assets. Ethiopia needed a change from the traditional means of trading to better support the needs of all those involved

in trading and production. Challenges for farmers and the whole value chain resulted from:

• Ultra - small family farm coffee producers receiving low returns for their production. • Low values offered locally by coffee trading intermediaries. • Necessary for them to travel to Addis Ababa to make higher value sales of their crops, yet were weak

sellers on arrival as no sale at the price offered meant that they would have to return home with their

unsold commodity. • A lack of awareness relating to coffee quality grading parameters • No / very low taxation returns to government despite coffee representing Ethiopia´s biggest export

earner due to the informal nature of the market ECX themselves describe the situation prior to its establishment in the following paragraph: “Before ECX was established agricultural markets in Ethiopia had been characterized by high costs and high

transaction risks, forcing much of Ethiopia into global isolation. With only one third of output reaching the

market, commodity buyers and sellers tended to trade only with those they knew, to avoid the risk of being

cheated or default. Trade was done on the basis of visual inspection because there was no assurance of product

quality or quantity, which drove up market costs, leading to high consumer prices. For their part, small-scale

farmers, who produce 95 percent of Ethiopia’s output, came to market with little information and were at the

mercy of merchants in the nearest and only market they knew, unable to negotiate better prices or reduce

their market risk”. ECX, which encompassed both a commodity exchange and a connected WRS, was established in 2008. The system

has now developed to become the county´s effective conduit for all export coffee and sesame. A far cry from the

original limited design intentions. Some large farming companies and cooperatives are excluded from a state

mandate which ensures that export trade in these two commodities does not circumnavigate the system, but are

still included in the overall quality enabling package. Initially an “open cry” spot exchange, ECX commenced operations with just three warehouses – significantly

short of the number required to handle the national exportable crops that it was to handle.


The first year of difficulties (the learning curve) culminated in an agreement being formed between the

Ethiopian Government, as the owner of EGTE (Ethiopian Grain Trade Enterprise), the state owned organization

that held substantial crop reserve warehouse (floor) storage capacity so that ECX took on leasehold as it grew

and required more capacity throughout the country. That leased storage capacity has been expanded year by year so that by 2014 the company managed and

controlled over 50 warehouse floor store buildings on seventeen regional sites. Each has a laboratory,

weighbridge, office and is electronically connected to a central, (Addis Ababa), depositary where all electronic

warehouse receipts, once issued, are retained. 2.2.1.2 The Exchange and Electronic WHR Registry: The system is robustly backed up by several, secure integrated replicate systems that can be live and act in integrity

should the core system fail in any way to ensure that record keeping and trading is never compromised. The central depositary is also linked to participating lending banks systems, enabling their interaction with the

system in that they are able to place and withdraw pledges on receipts which “lock” or “unlock” a warehouse

receipt from being transferred from one owner to another as long as a bank’s interest (loan) against that receipt

has not been discharged in full repayment of capital and interest. Once that is achieved the receipt is available for

immediate transfer and sale with any residual funds resulting from a receipt´s sale transferred to the seller of the

receipt (previous owner) and borrower of bank funds, lent against the security of a warehouse receipt. At that

time, any charges due for warehousing are also deducted before payment is made. Bank´s connection to the exchange is not only via the central depositary, but also to ECX´s market information

system. The banks receive the same market information as farmer and trade members do. Market movements

during an exchange trading session are available on connected computers and are also sent to sellers and buyers

by SMS or IVR (interactive voice response) messaging systems. In most regional trading centers, large constantly

updated “ticker” screens (a total of 21 in all, planned to be increased to 200 eventually) show minute by minute

changes in market prices for commodities, grades and locations where applicable. 2.2.1.3 Warehousing:

Robust warehouse operating rules – based on a “Warehouse Operations Manual 2” (the warehouse managers rule

book / procedural resource) governs practice and procedures at each site in respect of storage and handling. A

similar “Quality Operations Manual 3” controls sampling and all quality analytical processes. Procedures in both cases are logical, but are necessarily rigidly adhered to in order to ensure that no mistakes

are made at arrival, sampling, weighing, quality analysis, grading, storage point allocation and recording.

2 and 3 Produced by J.A. Kennedy


Also that the treatment of all intake, sampling, testing, grading and generation of receipts is fairly and

independently undertaken for every depositor. Eventually at the depositors call a warehouse receipt is sold and the new owner will apply to collect the

underlying commodity. After a request to collect is received and approved, discharge as a procedure is basically

intake in reverse, with checks and balances at all stages. NO persons other than ECX staff are allowed inside

warehouses without specific, written consent by the warehouse site supervisor. The warehouses operate a FIFO (first in, first out) system, to ensure that there is a constant flow of commodity

through the facility. This makes sure that stock is always as fresh as possible. Stock is comingled according to its

allocated quality grade, as ascertained by warehouse laboratory procedures. Storage is all floor based and commodities - (Coffee, Sesame, Chick Peas and White Pea Beans mainly, although

some maize is also warehoused and traded) are not mixed in the same building. Fumigation facilities exist to accomplish any pest removal procedure using Phosphine Gas and carried out in

each warehouse site´s quarantine building. Example: ECX Achievements by 1999 (after one year of operation)


2.2.2 India India´s example is NCDEX, (National Commodity and Derivatives Exchange) – www.ncdex.com dealing with a

range of products and essentially a futures and "spot” exchange, founded in 2002. There is also another large

commodity exchange dealing in numerous products including agricultural output, named MCX, (Multi Commodity

Exchange, based in Mumbai) – www.mcxindia.com, which commenced operation in November 2003 to deal with

a whole raft of commodities from metals, to rubber, energy and other products including agriculturally sourced

volume– and a third - The National Multi Commodity Exchange, ( www.nmce.com) located in Ahmedabad, Gujarat

and deals in Rubber, Cardamom, Guar Seed, Castor Seed, Copra, Rape / Mustard Seeds / Soya Oil, Pepper, Gram,

Jute and Robusta Coffee. The agricultural commodities that NCDEX trades in are Cereals and Pulses: Millet, Barley, Chick Peas, Maize (a

feed and an industrial grade) and Wheat. The other exchanges have chosen industrial commodities plus “nice”

market agricultural crops with specialist market outlets. The NCDEX exchange had 848 registered members and client base of 2 million as of 31 July 2013. NCDEX has offices in Mumbai, Delhi, Ahmedabad, Indore, Hyderabad, Jaipur, and Kolkata

It offers trading on more than 49,000 terminals across 1,000 centers in India by the end of July 2013.

It facilitates deliveries of commodities through a network of over 594 accredited warehouses through eight

warehouse service providers, with holding capacity of around 1.5 million tons. Deliveries average 100,000 MT at every contract expiry. The average delivery ratio for Q1 of 2013-14 was 98%.

2.2.2.1 Warehouse Receipts in India Launched in January 2003, the Indian national warehouse receipt system is controlled by the Warehousing

Development and Regulatory Authority (WDRA) – under the Department of Food and Public Distribution,

Government of India. At its launch as a pilot project, the Central Warehousing Corporation implemented a ten

model warehouse system across five states using Canadian and South African systems as examples. Recently the

WDRA has launched several documents requesting expressions of interest targeted at (a) a partially electronic

WRS – the original system was “paper based” and (b) outsourcing some service areas, Their mission statement reads: “The mission of Warehousing Development and Regulatory Authority (WDRA) is

to regulate and ensure implementation of the provisions of the Warehousing (Development and Regulation) Act,

2007 for the development and regulation of warehouses, Regulations of Negotiability of Warehouse Receipts and

promote orderly growth of the warehousing business” There are two classes of warehouses formed under the scheme and authority which controls the national

negotiable warehouse receipt system – up to 10,000 MT capacity and above 10,000 MT capacity. The

categorization is largely for the purpose of registration and inspection fee payment. Typical of WRS warehouse registration in most countries now is their list of requirements to be provided at the

time of registration:

• Acceptable applicant proof of identity.

http://www.ncdex.com/

file:///C:/Users/rhasan/Desktop/www.mcxindia.com

http://www.nmce.com/

https://en.wikipedia.org/wiki/Delhi

https://en.wikipedia.org/wiki/Ahmedabad

https://en.wikipedia.org/wiki/Indore

https://en.wikipedia.org/wiki/Hyderabad

https://en.wikipedia.org/wiki/Jaipur

https://en.wikipedia.org/wiki/Kolkata


• Copy of the board of director´s resolution, authorizing the applicant to apply for registration. • Proof of ownership / lease deed / rent agreement, showing the possession of the warehouse. • An undertaking that all the local laws have been complied with for carrying out the business of

warehousing. • Copies of the insurance policies for standard fire and special perils, burglary and fidelity guarantee as

prescribed by the WDRA. • A certificate duly signed by the Chartered Accountant or scheduled bank indicating positive net worth. • A layout plan of the warehouse.

According to their publication, the WDRA is now responsible for 949 registered warehouses, with capacities

varying between 100 and 37,000 MT and representing a mixture of Central Warehousing Corporation, State

Warehousing Corporation, Primary Cooperative Societies and Private God owns. There are 122 registered,

operational private god owns and 76 primary cooperatives listed as registered with the WDRA together with 175

CWC facilities. The balance is made up of State Warehouse Corporation facilities. There are 14 so called “Accreditation Agencies” responsible for inspection and certification of warehouses which

is carried out twice each year and carries with it a fee for the service. More information can be gained from the WDRA official website at www. wdra.nic.in 2.2.2.2 NCDEX -Price Discovery A paper produced by the Indian Institute of Management in August 2009 concluded: “Real time price information dissemination has benefited most market participants" The biggest benefit for all participants has been transparency in price formation brought about by the exchange.

All farmers now follow the NCDEX prices and base their selling decisions on the same. One of the traders surveyed

in Dees indicated that the bigger farmers usually prefer to stock their produce rather than selling immediately

after harvest, so as to capitalize on the opportunity offered by a future price rise. Though smaller farmers

continued to make immediate post-harvest sales, a large part of their decision making process is also governed

by extenuating circumstances including the repayment of debt, meeting immediate liquidity requirements etc. Dilution of the previous monopoly –the processors Earlier, the castor seed market for example was characterized by a small set of buyers – i.e. the millers and

processors and a large number of sellers i.e. the farmers, implying a perfectly competitive market for the latter

and a near monopoly – type situation for the former. Since the millers and Arthees (traders and commission agents) would set their own price, the system deprived

the farmers of a remunerative contribution and affected their earnings. Creation of a commodity exchange at

the national level, by creating greater competition on the buying side of the market, brought about dilution of

the near monopoly position of the smaller group of processors.

http://wdra.nic.in/


2.2.2.3 NCDEX - Membership Useful though the commodity exchange concept may be seen as for traders, large processors and others, it is as

useful to the small farmer as is the business relationship that he /she has with their chosen broker ( member).

The broker becomes an exchange member (one of several categories - Trading Membership only, Trading /

Clearing Membership / Professional Clearing Membership), etc. The farmer is not be permitted to undertake

exchange business in his own right, although he /she would be able to do so with the use of a broker (member)

who carries one of the membership statuses above.

2.2.2.4 NCDEX - Traded Volumes Some indication of traded volumes can be gained from the NCDEX website At http://www.ncdex.com/ClearingServices/ClearingServicesDeliveries.aspx where statistics are available. A

snapshot from January 2015 delivery figures is included in the following table. It should be remembered that

actual traded volumes on futures exchanges usually far exceed the quantities actually tendered for delivery on

the exchange itself:

Table 1 Quantities Delivered Against NCDEX Contracts – January 2015 Commodity Location Date Volume (MT)

Barley Jaipur 20/01/2015 610

Barley Bhabhar 29/12/2014 – 20/01/2015 160

Castor Seed Deesa 29/12/2015 – 20/10/2015 17,750

Castor Seed Kadi 29/12/2014 – 20/01/2015 117,360 Guar Seed Bikaner, Deesa, 13/01/2015 – 20/01/2015 2,270

Jodhpur,

Sringanganagar

2.2.3 Kazakhstan

2.2.3.1 The Kazakh Story Many countries have considered implementing WRS and commodity exchanges. Some chose to implement

commodity exchanges, some took the WRS route without a commodity exchange. In nearly every case an attempt

was made to formalize grain and arable crop commodity trading so as to benefit small farmers (usually) who

were unable to match the strength of large, comparatively powerful traders who profited at the farmers expense.

On numerous occasions they have failed to observe that the system operates as a strong and complete resource,

only when both elements are brought together and with the necessary supporting legislative framework in place

and an overseeing Warehouse Receipt System Authority, whose function is to monitor and act to ensure the

safety and equitability of the system and its actors at all levels throughout the system. In Kazakhstan, as with several other countries, the legislative framework was weak and despite a significant

level of assistance from EBRD at bank level, the WRS is as yet incomplete and commodity exchange in the

main hardly of assistance from EBRD at bank level, the WRS is as yet incomplete and commodity exchanges,

in the main hardly function.

http://www.ncdex.com/ClearingServices/ClearingServicesDeliveries.aspx


FAO reports on the current situation in a paper: Commodity Exchanges in Europe and Central Asia (Belozertsev

A., Rutten L., Hollinger F., published by FAO Investment Division - in which from pages 29 to 33 it charts the

uncoordinated approaches so far applied, the level of continued interference, control / attempts at control and

disagreements between Ministries. Also discussed are the market-disruptive actions of the Kazakh State Food

Corporation, a lack of interest in transparency on the part of big market players and the poor performance of

futures exchange initiatives.

Success, in some areas, has not however been completely absent. Warehouse receipts and bank lending against

that secure instrument was the subject of a substantial push by EBRD.

The size of Kazakhstan’s wheat crop in comparison to other cropping is noted in the table below:

Table 2 Kazakhstan Combinable Arable Cropping

Crop

‘000´s Ha % of

Crop

000´s Ha

% of Total

Total

Barley 1,582 9.5 Millet 43.6 0.3

Oats 174.4 1.0 White Winter 49.4 0.3

Wheat

Seed Wheat 97.4 0.6 Green Beans 91.4 0.5

Rice 94.1 0.6 Other 124.2 0.7

Buckwheat 92.1 0.6 White (Spring) 14,271 85.8

Wheat

This wheat crop is stored in some 222 grain silo complexes, averaging 60,000MT each – providing storage for

13.3 million MT.

Currently, the warehouse receipt system has 51 independent silo owning enterprises, all of which are under the control of a state agency known as “KazAgro” which since use of the system commenced in 2003 have increased the use of their capacity by 88% (from 241,000 MT in 2003 to 2,049,000 in 2010). Even so, this still only represents 23% of the total available capacity.

A critical indicator of the success / use of the silo enterprises is the amount of money lent to warehouse receipt

holders by (EBRD supported) Kazakh banks. Eight banks in all have lent against pledges amounting to 1.8 million

MT of grains, valued at US$222 million during the second quarter of 2010.

Total lending between 2003 and 2010 amounted to US$2.3 billion (against pledges). Lending was shared by 19

participating banks, of which 9 lent 2% or less each and the remaining 10 handled the bulk of the loans – with

very large proportions represented by two at 14% each, one at 12% and one lending 18% of the total.

It could be concluded that the link between the Kazakh WRS and commodity futures exchange(s) was weak to

non-existent, judging by the failures reported by Belozertsev, Rutten and Hollinger.

Data concerning the traded path of stored cereals pledged is not available in the public domain so cannot be

exampled here, but it is suspected that traditional outlets such as Russia, Kyrgyzstan, Uzbekistan, and

Turkmenistan also now China would have been significant buyers of Kazakh wheat output, with state to state

http://www.fao.org/3/a-at655e.pdf

https://en.wikipedia.org/wiki/Russia

https://en.wikipedia.org/wiki/Kyrgyzstan

https://en.wikipedia.org/wiki/Uzbekistan

https://en.wikipedia.org/wiki/Turkmenistan

https://en.wikipedia.org/wiki/Turkmenistan


Food security business making up a large part of export trade hence the State Food Corporation´s obvious

presence in trade and infrastructural initiatives. Kazakhstan is the largest landlocked country in the world and with a population of only 6 per square kilometer,

domestic consumption is low. Exports of its wheat output are therefore key to its economic survival. Although Kazakhstan has a “successful” WRS it relies currently on the participation of four banks, a state food agency and an undeclared number of powerful traders for that success. It could be argued that farms are also of significant size and that therefore trading strength is well balanced, but the uptake of warehouse receipt secured loans does not evidence significant strength in the arable sector. A secure integration between Kazakhstan´s WRS and a new (revitalized) commodity exchange is required with

which to trade receipts and to formalize a direct price discovery mechanism for use by producer and processor /

exporter. Price transparency and good, reliable, timely market information are what makes markets work for all participants – buyers, sellers, banks and arbitragers, all of whom need to know what forces are pushing or pulling market prices in order to make commercial decisions. They also need to be sure that their trading vehicles (warehouses, banks, contracts and market oversight) are managed professionally with the absolute minimum or ideally the complete absence of political interference. It is therefore extremely important for Pakistan’s arable commodity trade development that those instruments are not left to one side when it launches its own WRS and commodity exchange linkages. A robust WRS overseer with the power invested in it by the Punjab Government Agriculture Department to ensure that no special advantage is offered or taken by any one commercial or state owned organization will ensure equitable behavior on all sides, compliance with regulations and avoidance of some if not all of the pitfalls experienced in Kazakhstan . 2.2.3.2 A Lesson to be learnt from Kazakhstan and Ukraine The in transparent sales and purchases mentioned above have been the domain of powerful traders and the State Food Corporation. Transparency is not evident and data concerning the path of traded commodities and the prices at which trades in grains were conducted are not, as previously explained, in the public arena. Market information is therefore limited to trading between other entities and is not representative of the trade as a whole. Although not included in this review of other nation’s warehouse receipts and commodity exchange schemes, Is Ukraine, another ex-Soviet and huge grain producing country, which has a WRS that functions, but not as well as it should. Part of the reason for this situation is due to the powerful international shippers who are deeply involved in the Ukraine grain trade (Noble, Bunge, Cargill and Archer Daniels Midland) having vertically integrated their operations to become not only international trader and shipper, but also port silo operator / owner, inland WRS silo owner / operator and also rural agricultural merchant. The only area that they are not Involved in is growing the crop itself. Competition is stifled, the WRS system is sidelined and upstream trading is

avoided by the fact that the shippers complete control of all aspects of grain trading and handling from inland silo

delivery through to ship export. The transparency demonstrated by a well-managed WRS and commodity exchange “partnership” is that (a)

equitable services are offered to all by the WRS and (b) the prices of commodities traded are available for all

to view. The strong but fair level of control and oversight evident in the activities of a Warehouse Receipts Authority

greatly assists (c) the maintenance of sound and professional warehouse operators and their services, together with (d) a Securities and Exchange Commission (or similar) controlling body for trading of


commodities on exchange floors or via an electronic decentralized system. 2.2.4 Malawi

Malawi´s example is focused on the commodity exchange “ACE” - Agricultural Commodity Exchange for Africa.

As Malawi is a relatively small African landlocked country, the commodity exchange sees its borders as

transparent to the extent that it will (and does) offer its services to interested parties in surrounding countries. ACE is two companies, ACE Limited predominantly controlled by traders and ACE Trust controlled by farmer

interests. This design was chosen to prevent one group from taking ACE in an undesired direction. The spilt of activities and finance is shown in the table included under Annex 2 - ACE Structure, taken from the

Chairman´s 2011 statement to the board of directors: When mentioning progress in his report, the ACE chairman used the following example: Table 3 ACE Trades Volumes 2006-2010

Period Trades Other BVO WFP BVO Total

Volume Mt Value $ Volume Mt Value $ Volume Mt Value $ Volume Mt Value $

2006 - 2009 28,379.90 9,475,298.00 28,379.90 $9,475,298.00

2010 7,368.50 2,306,686.99 2,000.00 683,360.00 10,107.55 4,010,820.66 19,476.05 7,000,867.65 2011 6,033.95 1,842,865.96 468.00 222,316.00 24,769.06 6,943,687.30 31,271.01 9,008,869.25

Total 41,782.35 $13,624,850.95 2,468.00 $905,676.00 34,876.61 $10,954,507.95 79,126.96 $25,485,034.90 Note (a) that two suppliers defaulted on a 12,700 MT WFP Maize contract

(b) BVO is a WFP designed purchasing model “Bid, Volume Only”. It means that WFP ´s exchange bid is

decided upon by WFP In - country management, and that although they are operating within a commodity

market environment they do not increase their bid price. Therefore the “volume” only” means that until their

needs are satisfied (or not – if their bid is too low to attract sellers) the price that they offer remains the same. Note (a) at the bottom of the table was in the report. Clearly defaults were an issue for ACE – buyers and sellers

“walked away” from their contractual obligations if market price movements were unfavorable to their

interests. This was unsustainable – without contract law allowing for the enforcement of an agreement to buy

and to sell between two or more parties the whole effort of bringing buyer and seller together and forming a

commercial agreement between them was completely wasted by the certainty that one party to a contract

would default if market prices moved against them. The Chairman´s statement continued: QUOTE Two suppliers on ACE were awarded large contracts to supply

12,700 Mt Maize to WFP FOB Beira, but both failed to provide a performance bond within the required period and

WFP placed them in default of contract. Non-performance is not an option in WFP contracts, and WFP pipelines

cannot run dry as this can have severe humanitarian consequences. This is a big setback for WFP involvement with

ACE and ACE operations as a whole. ACE and WFP will begin a dialogue to discuss a way forward and indications

are that WFP in the meantime will downscale large international contracts through ACE. UNQUOTE.


This could not be a more pertinent example of why ACE needs to be linked to a warehouse receipt system. At this point a consultant was contracted through the USAID “Compete” program to assess the situation in the

field, interview players and report on the potential for a successful WRS introduction 4. The report indicated a critical need for the ACE to have a zero default record – otherwise it would fail without any

doubt. No farmer, processor or trader will willingly place a contract with a third party in the knowledge that should

any potential gain move to the counterparty alone then default would be a clear and certain outcome. In the consultant´s report concerning an existing and undesirable situation it mentioned: The move toward publicizing and operating a warehouse receipt based trading platform alongside the earlier

(and continuing) non-warehouse based trading method was prompted by the Malawian tendency to default

on contracts which at the time of delivery may (or may not) be less valuable than at the date of trade. This

unfortunate tendency to default has often been caused by either traders selling short and being unable to cover

their sale at profitable price levels or where an unscrupulous faction have observed that default (often

unenforceable in Malawian courts) is more profitable than delivery. Under those circumstances they prefer to

resell their volume at a higher spot price than to honor a lower priced “forward” contract.

A “SWOT” analysis was constructed for the organization which identified areas of strength and weakness. In some

ways the strength / opportunity comparison to the weakness / threat headings seem finely poised but on deeper

consideration the sheer magnitude of the opportunity and the support available from trade sources within

Malawi and among exporters on the opportunities side far outweighs the weaknesses - which are manageable -

whereas the threats are in some cases not controllable by ACE / WFP policy, for example, banks willingness to

provide warehouse keepers with a bond, the cost of insurance premiums. As accurate evaluation as is possible

should be undertaken with traders and WFP to ascertain how strong is their willingness to support the trading

system. Prices are not an issue – “the market is the market” to use a well-known phrase, no trader in Malawi is in

control of it – all traders are subject to it, the WRS and ACE itself will function just as efficiently in a bull or a bear

market.

The consultancy report continued to make other recommendations, all of which were designed to increase

income, increase security of contract, grasp best practice and harmonize a WRS with ACE´ s commodity

exchange linked activity. A “SWOT” table, included in the final report of ACE Strengths, Weaknesses,

Opportunities and Threats is included below: 4 John Kennedy was the consultant chosen to undertake the task. The report was filed with the USAID “Compete” program and also delivered to the ACE as the recipient beneficiary of the work done.


Strengths Weaknesses Support voiced for WRS from all traders and Reliance on third party warehouse keepers processors interviewed ACE staff management capacity need Available warehouse and silo capacity development to control warehouse keepers Ample WRS experience in Africa - (supporting TA (Inspection / audit etc.)

skills are available) System requires strict controls Already trading using the ACE platform Funding for IT infrastructure required (portals, Backing from NASFAM clearance, and audit)

Donor funding likely for system set-up

Opportunities Threats Greatly increased income from traded volumes Will warehouse keepers join? Other related facilitation activity income streams Will warehouse keepers perform efficiently & also

Create new secure finance funding streams for Offer extra services? exports Considerable insurance requirements Cut defaults to zero Need for a warehouse keepers bond Best prospect for rapid sustainability achievement Traders and exporters might not use the WRS

system WFP business can be done direct – not necessarily

via ACE Following receipt of the consultant´s report and recommendations in October 2011, ACE wasted no time in

approving certain initiatives (in particular the licensing of warehouse storage silo facilities) at third party sites and

launching a warehouse receipt scheme with the express intention of ensuring that for the following season they

were well placed to serve the needs of farmers and buyers from a secure lending and pledge perspective. At the

same time the directors wanted to ensure that storage was available to use at competitive rates that would lift

farmers out of post-harvest pressure selling, allowing them to make marketing decisions knowing that their crop

was being safely cared for and not suffering deterioration due to high moisture, spontaneous heating and insect

pest damage. They expected to have 200,000 MT of capacity registered and dedicated to the WRS before commencement of

the 2012 harvest. The latest information available shows that by June 2015 they have reached the US$10million

lent against warehouse receipts. 2.2.5 Tanzania

Preparations for the opening of Tanzania Mercantile Exchange are underway. The initiative began with the President of Tanzania having made a visit to Ethiopia Commodity Exchange in 2013 while attending to state

matters at the African Union, which is headquartered in Addis Ababa. On his return to Tanzania he is reported to have directed those concerned, within his ministries, to establish such a facility in the country also. The president had observed that the linked commodity exchange / WRS could provide a marketplace where

buyers and sellers meet to trade and be assured of quality, delivery and payment.


Just over the two years later, much has been done, although it may not be physically apparent. On 29th May 2015, Act number 22, Volume 96 was passed by parliament and was subsequently gazetted. Named the Commodity Exchanges Act of 2015 it paved the way for the establishment of an Agricultural

Commodity Exchange by putting the legal framework in place.

At a recent meeting of Tanzanian Government officials the following report was provided which notes progress

to date, development matters underway and any as yet incomplete.

Table 4 Commodity Exchange Development Progress – Tanzania

Completed Exchange Development Actions Incomplete Actions (Ongoing)

Established a Team of Expert to oversee the process of To put in place Legal and Regulatory

establishing and developing a commodity exchange in the Framework for an efficient Commodity

country. The team comprised officials from Prime Exchange;

Minister’s Office, Ministry of Industry and Trade; To prepare business plan and budget

Ministry of Agriculture and Food Security; Ministry of which indicates roles of each stakeholder

Finance; Attorney General; Tanzania Warehouse in agricultural commodity value chains?

Licensing Board, Capital Markets and Securities To establish a capacity building program

Warehouse Receipt System Authority also the for the purpose of creating local

Agricultural Council of Tanzania (ACT). expertise to manage the system

Prepared a Concept Paper on the establishment of a To sensitize stakeholders, policy makers

and the general public

Commodity Exchange in Tanzania;

Road Map for the establishment and development of Investment in the Technology: - The

commodity exchange prepared.

exchange will be setup on the strong

Undertook a study visit to the Ethiopian Commodity

backbone of IT infrastructure, which

Exchange and Ethiopia Commodity Exchange Warehouse

requires significant investment in

Receipt System Authority; the India leading Commodity

developing and acquiring the required

Exchange (NCDEX) and Dalian Commodity Exchange of

China software and the hardware.

Undertook three Studies on: (i) Developing Legal and

Regulatory Framework, (ii) Linkage between Warehouse

Receipt System and the Established Commodity

Exchange; and (iii) Commodity Exchange Design. The

draft reports have been discussed during stakeholders

workshop held late June, 2013. Final reports submitted.

A draft Cabinet Paper for establishing commodity

exchange has been prepared

Established Warehouse Receipt System for coffee,

cashew nut, sesame sunflower, paddy and maize;

Already Tanzania has in place a mini exchange for coffee

whereby warehouses receipts are traded by linking

buyers and sellers in automated trading platform;

According to the above, it could be argued that rapid progress has been made in order to get to this point so quickly.

However much still remains to be done although it should be emphasized that a “commodity auction” for coffee and

cashew nuts had already been established – funded by the USAID “Compete” initiative.


Still to be addressed are:

• Funding:- initial investment for infrastructure and manpower development; • Infrastructure: – inadequate investment in Rural Roads, Warehouses and Weighing scales; • Inadequate development of Information and Communication Technology in rural areas; • Underdeveloped:-warehouse receipt system for effective functioning of the envisaged commodity

exchange. • Funding initial investment for infrastructure and manpower development; • Inadequate awareness of the functioning of commodity exchange among stakeholders which slow

down the buy in process; • Enhance capacity of Tanzania Warehouse Licensing Board (TWLB) so as to ensure integrity and

reliability of the warehouse receipt systems through the upgrading of exchange accredited warehouses

and logistics infrastructure, also enforcement of exchange defined product specifications. • Enhance capacity of Capital Markets and Securities Warehouse Receipt System Authority to regulate

the Commodity Exchange. • Redefine the role of agriculture marketing boards in order for them to alter their direction to

concentrate more on production promotion through crop and seeds researches. Training and certification of sixty “Tanzania Mercantile Exchange” traders and intermediaries was due to commence in

June 2015 as reported by the Capital Markets and Securities Warehouse Receipt System Authority. A CMSA

spokesperson was quoted in the press as saying that the exchange was expected to be launched before the end of this

current year, with dealers and regulations expected to be in place by end September.

Commodities expected to be traded are coffee, sesame seed and cashew nuts – the country´s three large foreign

exchange earners, together with the possibility of adding maize at an early stage.

The Tanzania Mercantile Exchange as it is now known, is to be housed in the LAPF Building, Kijitonyama, New

Bagamoyo Road, Dar Es Salaam. The CMSA is in charge of developing technical aspects of the market while the

Ministry of Agriculture, Food Security and Cooperatives and Ministry of Trade and Industry are developing

tradable commodity and quality standards. The exchange is designed to include an open cry trading floor, warehouse delivery locations from where data leading to the issuance of an electronic warehouse receipt will take place and market price information tickers. The tickers, designed along ECX lines, are to be placed in regional market places and will provide up to the second market price information for all commodities trading in a current session. This allows data to be placed in front of buyers and sellers and will supplement an SMS on- demand market information service which is also planned for early introduction. Progress continues at a rapid pace with warehouses established / licensed and operational in fifteen regions of

the country. The table below lists volumes of cashew nuts stored since 2014 to December 2015:


Table 5 WRS Warehouses and Capacities in Tanzania WAREHOUSE NAME WAREHOUSE OPERATOR LOCATION TOTAL BAG TOTAL WEIGHT (Kgs)

1 AGROFOCUS LTD SCALABLE PACE LTD Newala 124,808 9,985,551

2 BUCO HOLDINGS LTD - MASASI YURAP CO LTD Masasi 184,482 14,802,882

3 BUCO HOLDINGS LTD- LINDI SMART ARTITUDE LTD Lindi Rural 39,501 3,155,018

4 ILULU MTAMA NANGOMBA HOLDING CO LTD Lindi Rural 38,755 3,098,125

5 LINDI FARMERS LTD MARKET WATCH CO LTD Ruangwa 163,410 13,098,553

6 MTANDI INVESTMENT CENTER L.M. MALEGERI CO LTD Masasi 186,271 14,949,807

7 OLAM (T) LTD SCALABLE PACE LTD Mtwara Urban 154,922 12,401,977

8 TANECU NEWALA JAMOSO CO LTD Newala 176,357 14,109,207

9 TANECU TANDAHIMBA MAMKA CO LTD Newala 282,048 22,581,444 10 UMOJA AMCOS DAGEM EXPORT LTD Liwale 54,825 4,386,471

TOTAL 1,405,379 112,569,035

Development of the Mercantile Exchange and WRS is supported by AGRA (Alliance for a Green Revolution in

Africa) which has been instrumental in assisting WRS development in several African nations, and often in

cooperation with other donors. A similar arrangement could be sought by the Government of Punjab, to ease

the strain of initially establishing the pilot warehouse described in this report, also to ensure that best

practices from other (successful) schemes are able to be sought and utilized. 2.2.6 Uganda Uganda Commodity Exchange (UCE) and warehouse receipts system began in 2006 as an EU funded

development project, launched in 2004 under the Ministry of Trade. It was a two year project, extended by one

additional year´s assistance due to lack of progress caused by protracted delays in gaining parliamentary

approval for a Warehouse Receipt System Act, eventually passed and gazette in June 2006. Prior to the launch of UCE a study of country-wide existing warehouse capacity had been commissioned by the

Ministry of Trade. The study was carried out by a Uganda based collateral management company. The study

reported adequate rural warehouse capacity although some was said to need repair and maintenance according

to the report. Findings by the EU project at the time of implementation painted a very different picture. Many facilities had

fallen into an irreversible state of repair, others were old storage buildings constructed many years previously

from untreated corrugated iron (an unsuitable material under any circumstances with a limited lifespan unless

treated to repel corrosion) particularly in a high humidity equatorial climate. Some, (very few) could be

suitable, subject to formal inspection by UCE but all would require capital expenditure in terms of drying and

cleaning facilities in order to enable them to deliver maize of an East African Grade Standard 1, 2, or 3 (COMESA)

Standard onto the market for receipting and trading 5.

5 John Kennedy was involved with an extension to this EU supported development project. The difference between the amount of available (suitable) warehouse capacity in the country – reported at the outset by a Ugandan collateral management and consulting company represented a lack of capacity for the task or deliberate miss-reporting of the situation. Had the project Task Manager in Brussels been aware of the difference between the supposed and actual


Maize trading in Uganda had for most small farmers a significantly long value chain with trading described

below: 1. Farmer sells ”surplus to own needs” quantity to local small buyer (who has been providing funding to some

degree during the growing season) 2. The small trader takes his quantity to a local Soko (market) where he trades the quantity to a second buyer

who owns a larger pickup truck and has been providing funds to the farmer via the first buyer against a promise

of commodity to be delivered after harvest. 3. The second buyer takes a pick-up truck load to a small wholesale trader / aggregator (of which there are many)

located at a main trunk road junction en-route to Kampala. These buyers have small warehouses capable of

holding 20 to 30 MT. 4. A Kampala based lorry – owner / trader collects and purchases grain regularly from sellers / traders at the

road junction village when en-route to Kampala after having made trade goods deliveries into the countryside.

He delivers his purchased load to Kampala. 5. In Kampala there are three large wholesale trading companies / silo owners, equipped with drying, cleaning

and bagging facilities – Sunrise Commodities, Maganjo Millers and Aponya. These wholesalers are large

providers of bagged maize to WFP (their largest off-taker) and also export to Kenya, Somalia, South Sudan and

Tanzania. Add to this list Unga Millers (A Kenyan owned wheat and maize milling company) and WFP (who take around

150,000 MT of maize and beans annually) and the picture concerning Ugandan maize trade off-take is complete,

with the exception of small scale local maize mills scattered across the Ugandan countryside, which were / are

too small to be interested in the WRS and UCE at any stage. The above example is a situation where many small sellers have no more than a handful of buyers to choose from

at the time of sale. Those buyers are / were to some extent in collusion with each other and all were accepting,

bagging and selling to WFP (who publicly advertise that they are “the largest buyer of food in Uganda”). Warehouse capacity, the project would not have received EU support, or the construction of suitable capacity would have been made a prerequisite to support.


Table 6: Uganda Cereal Production and (Formal) Exports 2007 – 2010

Agricultural Production 2007 2008 2009 2010

Wheat Production 19,000 MT 19,000 MT 20,000 MT 21,500 MT

Maize Production 1,262,000 MT 1,266,000 MT 2,354,660 MT 2,373,500 MT

Soybean Production 176,000 MT 178,000 MT 180,000 MT 175,000 MT

Agricultural Exports 2006 2007 2008 2009

Rice Exports 14,989 MT 24,592 MT 25,342 MT 38,107 MT

Wheat Exports 2,420 MT 1,393 MT 1,454 MT 236.00 MT

Maize Exports 80,990 MT 56,254 MT 24,489 MT 50,630 MT

Soybean Exports 3,046 MT 5,798 MT 3,250 MT 2,630 MT

Source: International Food Policy Research Institute “Food Security Portal” N.B. In addition to recorded export statistics there is also a substantial additional informal export volume

attributable mostly to maize exports crossing the Uganda to Southern Sudan and Uganda to Kenya / Tanzanian

borders. The EU Funded development project formed an assistive relationship with one warehouse keeper who acted as

a pilot demonstration point for interested parties and was helped by the provision of project expert technical

expertise, a grain drier and also a cleaner / bagger. All warehouse arrivals were in bags of catch weight capacity hessian or PP sacks involving individual weighing at

intake in the presence of the depositor, while sampling, grading and recording was carried out at the same time.

All commodities had to be re-bagged into new, sound, 50Kg PP sacks. (In the case of commodity destined for WFP

it had to be re-bagged for a second time into bags –supplied by WFP – but printed with the WFP logo). The selected warehouse keeper – Agroways Ltd., was an extremely cooperative development partner who,

during the life of the project added 50% of additional storage capacity to his existing building. Operations and

the cleanliness of the warehouse and site were always exemplary. A good training and demonstration pilot

project.

http://www.foodsecurityportal.org/api/wheat-production

http://www.foodsecurityportal.org/api/maize-production

http://www.foodsecurityportal.org/api/rice-exports

http://www.foodsecurityportal.org/api/wheat-exports

http://www.foodsecurityportal.org/api/maize-exports

http://www.foodsecurityportal.org/api/soybean-exports


A notice was, according to the warehouse keepers licensing conditions exhibited at the warehouse entrance which

clearly listed Agroways service charges and procedures where all potential depositors could see. A WRS portal was installed in the warehouse office where direct (internet) connection was made with the UCE

depositary for the recording, splitting and canceling of warehouse receipts. Software and training in the use of

the system was provided by Sandbox of Johannesburg, South Africa. After a slow start the UCE project made progress, but was always hampered by the lack of suitable warehouse

capacity and the early expiry of EU funded budget support. The Ministry of Agriculture and Cooperative

Development under which the project was established, were never keen to provide or facilitate financial backing

for warehouse construction. See table below which detailed available capacity and location: Table 7 Uganda Prospective Warehouse Capacity Summary – November 2008

Warehouse Proposed Approx. Drying/cleaning facility Location

commodities Capacity

(MT)

Nyakatonzi Coop Maize 1,800 None Kasese

KACOFA Maize 1,800 Cleaning unit available. Kapchorwa

Drying unit available but

has never worked

Mal Lubanga Omio Maize, Beans 480 None Apac

MSSGL Maize 950 Yes Masindi

Millennium Maize, Beans 250 None Isingiro

Villages

West Acholi Coop Maize, Beans 1,350 None Gulu

Union

Kigezi Coop Union Maize, Beans, 1,000 None Rukungiri

Rice

Buwagi Maize 950 None Kamuli

AgriNet Doho Rice 880 None Butalejja

AgriNet DATC Maize 230 None Tororo

Rapid Advisory Maize 1,800 None Kireka

Afro Kai Maize 1,300 Yes Kigumba

Afro Kai Maize 5,800 Cleaner available, drier Kasese

with limited capacity

Agroways Maize, Beans, 6,000 Cleaner and drier available Jinja

Rice

Source: EU Technical Assistance to the Uganda Commodity Exchange and Warehouse Receipt System Project


By November 2008 Warehouses that had joined the UCE scheme were: a) Agroways Ltd. Jinja b) Masindi Grain Growers Cooperative, Masindi c) Nyakatonzi Farmers’ Cooperative, Kasese d)West Acholi Cooperative Union, Gulu e) KACOFA, Kapchorwa. f) Tororo

f)Mbarara

1. April 2008 WRS launched 2. December 2008 MoU Signed with WFP for the purchase of 150,000 MT of Maize via the UCE exchange 3. December 2008 Agreement achieved with UCDA (Uganda Coffee Development Warehouse Receipt System

Authority) over Coffee Warehouse Licensing Conditions 4. December 2008 Over 100 applications were received after a UCE newspaper advertisement for trainee

exchange brokers (narrowed down to 30 for sensitization, training and final selection). 5. Agreement achieved with CDO (Cotton Development Organization) over Cotton Warehouse Licensing 6. June 2009 IICD (International Institute for Communication and Development) Rural information Service teams

up with UCE to disseminate traded volume and price information to farmers 7. UCE Commences Exchange Trading with 450 depositors (of which 70% farmers groups 30% private traders) 8. WFP procures 7,000 MT through the eWRS system. (Over 12,000 MT deposited by this time) 9. Bankers Training culminated in initial agreements between UCE and Stanbic Bank, Centenery Bank and

Housing Finance Bank as approved WRS financing organizations, accepting receipts as pledge collateral and

prepared to lend up to 60% of the market value of a ACE warehouse receipt 10. Housing Bank lends over 300 million Ush. using warehouse receipts as collateral Challenges Despite the excellent start made by UCE, charted above, it continued to be reliant on project funding for

sustainability. The end of EU´s Technical Assistance to the Uganda Commodity Exchange and Warehouse Receipt

System Project occurred without agreement to a further extension (the NAO informed UCE that to mount a new

project could take up to five years before fresh funding was available, due to the EU procedures involved and

other competing projects in the process of approval). Other donors contacted by UCE management and the government were either unwilling or unable to assist once

the EU funding expired. The project continued to find that sufficient warehouse capacity in production areas was a serious challenge.

Eventually the “first” UCE failed to realize its potential and closed its doors.


However recently, government (Ministry of Trade, Industry and Cooperatives) has formed a joint venture

agreement with a group of cooperatives and farmers associations which was announced on 29th August 2015

where the government holds 20% of the shares and the private sector the other 80%. Currently 1 billion

individual shares are available to be issued to investing individuals, with the board of directors to make a

decision concerning the offering soon. The government is represented on the board of directors by a delegate

from the Uganda Development Corporation. The Board Chairman is Chris Kaijuka, well known in the Uganda grain trade, having established a seed company

“Afrokai” (translated means Africa can do it) in 1978 and is also founder and managing director of Farm Inputs

Care Centre (FICC) Ltd. The new UWRSA (Uganda Warehouse Receipts System Warehouse Receipt System Authority) board consists of:

Omar Ingels Kassim, (board chairperson), Joseph William Kitandwe, (member, representing ministry of Trade,

Industry and Co-operative), Leornard Msemakweli, (member representing Uganda Cooperative Alliance)

Emmanuel Kikoni,(member representing Uganda Bankers Association) Paul Muhame (member representing the

non-life Insurance technical committee, Uganda Insurers Association) Derrick Kirunga (member representing

Uganda National Chamber of Commerce), Gideon Badagawa representing PSFU(The Private Sector Foundation

of Uganda ) and Francis Mukama (member representing Uganda National Farmers Federation). The Permanent Secretary Ministry Trade Industry and Cooperatives, Ambassador Julius Onen who doubles as

chair of the steering committee to the joint business venture was reported as saying that all the necessary

policies and Memorandums of Understanding have been put in place and that President Yoweri Museveni was

expected to officially launch operations early in September 2015. According to a report of a workshop held by the Minister of Trade, Amelia Kyambadde in “New Vision” newspaper

on Saturday 26th September 2015, Wilfred Thembo-Mwesigwa, the executive director of the Grain Council of

Uganda, informed the meeting that members had already committed to use 156,000 of the 550,000 metric tons

available storage capacity to kick-start the warehouse receipt system and the commodity exchange.

Deborah Kyarisiime, the acting executive director of the Uganda Warehouse Receipt System Authority,

confirmed this. “Thirty grain traders have been pre-inspected for licensing, and formal applications will be

submitted to UWRSA soon for licensing and operation as public warehouses.” This must be good news for the Ugandan grain market and farmer producers. It would be a sad day if the work

put in by those who had initiated and developed the exchange and warehouse receipt system initially, which had

culminated in a failure, largely due to lack of continued international donor support at the outset, but also due in

part to the lack of sufficient and adequate commercial rural warehousing capacity. Further developments under

this new commercial – government partnership should be observed closely.


2.3 Key Potential Benefits Which Could Be Offered by a WRS – Punjab The critical factors leading to success are that farmers (or first buyer depending on the model chosen to develop)

together with processors and exporters must desire the system and perceive that benefit can accrue directly

for them through using the system. What is perceived as a benefit by one group within the arable crop

marketing value chain may not necessarily be seen as valuable by another. The first task is therefore to ensure

that there is something offered by a proposed system for all involved players. Structuring a system which makes available to everybody what used to be hidden, providing access to markets

that used to be closed, having grade standards where previously there were none, generating easy access to

formal finance which was previously difficult and being able to dispel arguments / points of view which are

counter to the system, with confidence and common sense evidence will prove that the benefits suggested are

indeed available and valuable. Success leads to success. The greater the volume of grain traded through an exchange and WRS, the more the

curious will eventually be compelled to try the system for themselves, and the more trade will be channeled

through its system. 2.3.1 Benefits for farmer / first buyer must be real:

• Ease of finding buyers (via the commodity exchange system) • Certainty of no spoilage (securely and professionally managed storage) • Known quality (through the warehouse´s analytical laboratory) - Guaranteed • Known quantity (via the warehouses weighbridge) - Guaranteed • Competitive interest rates (available by having safe, instantly monetisable collateral – known quantity

and quality commodity stored in a secure licensed warehouse and represented by a legal negotiable

document of title – a warehouse receipt) • Deposit today – money in the sellers bank from a sale (in a maximum of two days’ time if necessary)”

T+1” 6 • If the seller prefers not to sell but await higher prices, easy availability of “crop in store” – bank loans,

secured by using pledged warehouse receipts as collateral. • It must be possible to split a warehouse receipt – (so if the seller does not wish to dispose of all stock at

once, it can be managed professionally without disruption. E.g. a 100MT receipt could be split 20:80,

60:40, 50:50 etc.) Although minimum deposit (and therefore warehouse receipt) quantities must also

apply – e.g. 25MT. • Availability of up to the minute reliable market information and price offers • Competitive storage, possibly also chargeable fumigation, drying and cleaning services if and when

required. • All commodities available in either bulk or 50kg PP sacks (or 40Kg depending on national preference ) • Samples of each deposit retained in case of dispute)

6 “T+1” is a description meaning Traded Day plus one day. The WRS guarantees to be able to work on a “T-1” deposit day, “T”, which is the traded day and T+1 which is when accounts are settled, the receipt is transferred to its new owner and the

clearing bank places funds in the sellers bank, drawing them from the buyers bank. If a seller is a farmer / 1st buyer depositor, any charges due to the warehouse keeper are also taken at that time. The buyer commences paying storage charges on the same day as the traded day.


• Grading is undertaken by warehouse trained staff (each tested every 2 years and after refresher course,

certificated) – their job depends on their certificate and their skill 2.3.2 Benefits for the Processor / Exporter must also be real:

• Ease of finding sellers (on the exchange floor) • Certainty of good quality (known grades and standards available in warehouses for sale) – Guaranteed • Certainty of accurate weighing of purchases when loaded out from a warehouse - Guaranteed • Certainty of quick turn round at the time of collection (Professional warehouse handling, testing and

weighing facilities. • Ability to buy substantial quantities via the commodity exchange • Ability to store after purchase if required (buyer pays storage daily after purchase) • Ability to resell if required without having to move the commodity (easy to liquidate stock if judgment is

that market is going to fall) • Same reliable market information and prices as everybody (Exchange generates price information,

through an in-house information service which disseminates exchange traded price information. • Stocks can be assembled for periods of late season shortfall and price increase (without having to invest

in own expensive storage and handling capacity) • Ready market (at a price) • Weighed and Tested at Deposit (and checked for quality as it leaves) • Quality, according to accepted grade standards is guaranteed by the warehouse keeper in accordance

with that described on a warehouse receipt. 2.3.3 Challenges to the Introduction of a WRS in the Province of Punjab

• Too few warehouse facilities nationally – either silo or floor storage, capable of handling large volume

of deposited commodity for storage in various grades and having a minimum capacity of 20-50,000 MT

per site in order to achieve cost – effective operating costs, and generate acceptable returns on

investment. • No weighbridge on-site (public or private) to be regularly checked by the appropriate national weights

and measures authority • No laboratory on–site with which to qualify depositors commodity deposits for on-site storage and

warehouse receipting and to define quality and appropriate grade. • No internet connection existing or possible at some warehouses / proposed locations and no hope of

obtaining the same. It is essential that an electronic connection with the exchange central depositary is

available at all times so that warehouse receipt balances are always updated in real time, 24/7. • High farmer indebtedness to input suppliers – at levels that may inhibit them from depositing at

warehouses and taking advantage of a WRS • Farmers too small to deposit individually. Mechanisms need to be examined in such cases so that ultra-

small farmers can deposit in multiples of 25MT – by family grouping or village group, whereby they

aggregate their commodity locally, using a moisture meter to judge and make decisions concerning

suitability for comingling with other group/family members and a platform weighing scale so that

contributions to the bulk can be quantified and net income resulting from a sale can be shared equitably.


• Deposits would have to be in one name e.g. “Z” group from “Y” village and a contact person nominated.

A building for temporary, safe storage of the collective bulk commodity before transporting to a

warehouse would also be essential. • This is a very real and significant challenge for the Agricultural Department, Government of Punjab to

overcome. A substantial training effort and probably also the provision of subsidized, competitively

priced accurate moisture meters and platform weighing scales would need to be made available for

village groups to use. • Informal trading in the geographic collection area of the warehouse, avoiding any regulation, taxes

etc., which offer disruptively high figures for ungraded (and often unsuitable) commodity simply to

attempt to unsettle a good, working, depositor / warehouse keeper and exchange relationship would

need to be dealt with quickly to avoid disruption and dis-satisfaction among depositors at the outset of

WRS operations in a given area. Once established, such futile attempts to disrupt would eventually

cease. • A wet harvest and no drying capacity at farm or warehouse level, causing crop damage, risk of insect

attack, mould growth, aflatoxin build-up and creating losses for farmers and reductions in storable

commodity deliveries to warehouses are always a danger. Highly professional behavior and knowledge

on the part of each warehouse keeper • Warehouses not located in areas of production. Location is so important –storage needs to be

constructed locally, easily accessible by farmers and traders / consumers alike is key to their being willing

to work with the system. Farmers will not be keen to travel considerable distances with their crop – they

need rapid off-take from the field at that busy time of year. • Government involvement in fixing buying prices at above market levels / applying subsidies to exports

is disruptive to normal market forces (their offtake at harvest creates upward pressure – or at least

relaxes downward pressure) and eventually by offering subsidies in the export market so as to sell the

stock that they purchased depresses later season values. 3.1 Needs Assessment 3.2 Analysis of Agricultural Sector in Punjab

The agricultural sector in Pakistan is beset with the problems that arise from substantial areas being farmed on a

subsistence or near subsistence basis (98% of land holdings are of 10 Ha or less). Also problematic are the high

production costs that go hand in hand with low outputs per hectare. Government involvement in the market through export subsidies offered for government-procured volumes and

export or import bans that cause market disruption. Subsidies are also offered to encourage imports occasionally.

Food reserve purchasing by the government from domestic supplies is also prevalent in the market place,

although at a lower level during the last five years than previously – with purchases made at above local market

prices. See Annex 9 Government Exports & Imports of Wheat 1990 – 2015 for volumes and values of government

controlled cereal exports and imports.


Punjab farmers inability to hold harvested crops in good condition, to dry harvested quantities that containing

excess moisture and also not be able to clean samples containing excess admixture, filth, other crop seeds means

that the quality of “ex field” grains offered for sale are often not up to a reasonable commercial standard. The

farmer offers his / her crop to their chosen buyer / commission agent who has often provided the grower with

credit during the course of the crop year – the commission agent / trader is both an informal money lender and a

merchant. Prices offered will not be especially competitive, but the buyer has available cash, something that the

farmer / seller is very much in need of after the expense of funding crop inputs during the year. There will be a

loan to be repaid as a result of input purchase credit being offered by the merchant / buyer. The seller has little

choice but to accept the offered price for the sale of his / her harvest.

The above scenario picture was painted on several unconnected occasions by both farmers and “Arthees”

(agricultural merchant/informal money lenders), also by bankers who knew that the informal lending real

interest rate was high when the low value of purchased crop was also included in the equation.

3.1.1 Major Crops of Punjab Viable for a WRS

Table 9 2014/2015 Crop Production Statistics and Comments Crop Marketing Volume Comments

(2014 / 2015 Provisional)

Wheat 19,541,000 Unless there is a significant change in Govt. policy

(recommended) state off-take in any given year could be 5 – 6 million MT which would be directly exported if not required for emergency food purposes – of which Punjab

would supply a substantial proportion. Maize 3,600,000 100% available minus seed and locally sold to animal feed

manufacturers and own consumption

Rice 3,648,000 100% available minus seed local procurement by rice mills and own consumption

Gram (Chick Peas) 330,000 Another crop that can be grown for import replacement and structured selling via the PMEX and grading at WRS

warehouses could substantially increase famer’s returns. Bajra (Millet) 267,000 200MT was imported by container shipment via Karachi in

September 2015 alone = at least 2400 MT annually of

import replacement available

Canola 200,000 With around 200,000 MT produced annually in Punjab and additional quantities imported also, this valuable oilseed

should be a profitable crop to grow and store. Bahalpur, DG Khan, Sahiwal, Lahore, Faisalabad and

Sesame (Sesamum) 25,775 Sargodha districts most important each producing 2000+

MT each (DG Khan produces nearly 7000 MT) Data Source: Punjab Department of Agriculture. AMIS (Agricultural Market Information Service)

Volumes of other combinable crops produced, fall under a category which could be described as “minor” e.g. less than

the 273,000MT production of Millet and therefore are likely not to be viable in the sense that handling, analysis and to

maintain separation at warehouse level would be problematic. Trading warehouse receipts for those commodities via

PMEX would depend upon what could be “captured” at warehouse level. However IF one


of the minor crops were produced only or largely in one district of Punjab, the dynamic changes somewhat as

the crop would represent a significant proportion of a districts crop output and therefore storing and marketing

a reasonable proportion of the crop could be economically feasible. 3.1.2 Warehouse Capacity Available and Location Clearly it is necessary from the outset of this analysis to examine the availability, also suitability and condition of

existing warehouse capacity. It was not possible to examine with any accuracy the availability of privately held

storage capacity during the course of this study (available and not in use or in use but which could be contracted

to a WRS in both cases) due to time constraints. PASSCO storage facilities were updated (according to their website) with the aid of the USAID funded Facilities,

Systems and Management (FSM) project in 1991. That was a refurbishment – not a “new build”. That puts the

refurbishment at 24 years old today, while the godowns that were involved were already much older than that. Little evidence of farmer or trader erected, purpose built storage facilities exists in Punjab, with the bulk of

facilities being owned by processors – who with a need for daily supplies on a regular basis throughout the year

considered it necessary to have their own stock on site, and PASSCO who holds government food security stock. Arthees move grain from place to place (farmer to processor and farmer to government Godown and take

profits from their trading activities. They do pack some quantities into 50Kg PP bag units for sale to private

household buyers and are understood to have their own Godown´s although age, condition and location of

these facilities were not made available to the consultant. The PEEP project is putting together a note concerning currently available storage capacity to include an estimate

of processor - owned capacity to which can be added government owned sites. The study and report is intended

at least to make a professional attempt at balancing available capacity against known cropping figures and in so

doing be able to plot surplus / shortage figures which will in turn feed into a storage capacity need figure and

hence a location and volume development plan for WRS grain, oilseeds and pulse storage needs. 3.1.3 Weaknesses of the Current Crop Trading System, Currently, from discussion and observation it is clear that the majority of the province’s major grain crops are

purchased from farmers by so called “Commission Agents” / Arthees (Merchants). They get first option due to

the system of crop credit financing which they offer and which forces the farmer to look initially to the Arthee as

a buyer so that financing debts can be settled. Sales are then made by the Arthees to government and others

(wheat), rice millers and animal feed producers (rice and maize). It should also be noted that around 1.2 million

MT of wheat annually is purchased by individual families and stored in the home. Arthees are keen sellers to this

market where wholesale priced purchases can become retail priced sales from stock for the sake of re-bagging

into inexpensive PP sacks and retaining a stored reserve at their Godown.


Farmers have additional problems in marketing their crop which can be listed as:

• No or at best poor quality unventilated storage capacity • Weak selling position due to forced sales at harvest time resulting from indebtedness and lack of

storage • Unknown quality of the produce that is offered for sale (further weakening the farmers bargaining

position) • Often an unknown seed variety / saved seed is planted uncertainty concerning government buying

and selling activity affecting market prices (and demand) either positively or negatively. (State

activity can be disruptive as it occurs without prior warning). • Add to the above the normal issues that all farmers have to deal with such as ultra-dry or ultra- wet

weather, affecting growth ripening patterns, pest attack, disease prevention, machinery breakdown

(where machinery is employed) are risks that any other businessman (after all, farmers are also

businessmen) would not even contemplate. Strengths attributable to the current marketing situation are difficult to discern – the system – formal and

informal trade coupled with state buying and selling is not an ideal base from which expanding, successful

farmers can emerge. A significant change in the whole environment is required in order for the whole arable

sector to flourish. 3.1.4 An Overview of Credit Facilities Available to Farmers In confirmation of comments made under the previous heading, the farmer in Pakistan is often / usually at the

mercy of a trader /commission agent known as an Arthee. Only large farmers (of which there are few) have the

financial capacity, requiring no need of either Arthee or bank with which to cover its working capital. Consultant

has been informed by the Punjab Agriculture Department that 95% of farmers in the region cultivate below 12.5

Ha each, which corroborates the information published earlier in this report derived from the Pakistan Bureau

of Statistics. This clearly identifies that without solid collateral, which can be reliably valued and easily monetized,

banks cannot afford the element of risk involved in small producer lending. The farmer on the other hand, to afford the cost of tilling the land, preparing it for sowing, purchasing seed,

fertilizer and agrochemicals in an attempt to generate better yields and maintain a healthy crop has to purchase

inputs. With a family to support and little by way of available working capital he is forced to buy inputs from a

seller who does not require to be paid immediately. Equally the seller knows that if credit is provided, the most

demanding creditor (whoever that happens to be) will be the one that the farmer pays first. Others have to wait

for what may or may not be an additional financial surplus available from the sale of the crop after harvest.

• “After harvest” is often some weeks or months away from the time that the debt is incurred, so a form

of interest is devised to make the provision of a funding element to the loan more palatable to the

farmer. That is dealt with by not showing an interest charge at all but by simply paying a value for the

crop that accounts for a reasonable charge for having advanced funds (in terms of purchased inputs

credit).


• Often known as “crop credit” it exists in many developing countries and largely represents the

poverty trap that the small farmer is in. • Farmer’s prices are low because they are forced to sell at harvest time to alleviate spoilage and when

there are many farmer sellers and few buyers, market price depression results. • The farmer’s situation is further compounded by the need to repay working capital debt – obtained to

purchase crop inputs with. • By the time this year’s debts are paid and an allowance retained from which to live, there is little

remaining for the purchase of seed and inputs for the following crop. The cycle therefore

recommences. This is an unsustainable situation in itself, but add to it the additional price depression factor emanating from

low priced international markets over the course of the last two harvests and unlikely to increase in the short

term, it is highly likely that numerous small farmers will suffer complete financial collapse within the next few

years.

3.2 Current Stage of Agricultural Development and Need for a WRS Despite having a large land area, irrigation capacity and a favorable climate, Punjab in common with other

provinces has a weakly developed agricultural system, characterized by small farmers, large consumer –

processors and government - based market activity which was originally designed to ensure food security for the

population. The other outstanding factor is the sheer number of the rural population (farmers) and as mentioned above the

small size of landholding. From the Pakistan 2000 Census, FAO reports the following details of land holdings in

Punjab province: Number of farms 5.25 million (64% of total Pakistan) Average farm area 5.6 Acres (2.15 Ha) of which the cultivated area is 5.1 acres (1.96Ha) Without significant amalgamation of land holdings or a huge cooperative effort among the rural population

there is simply no chance of farming efficiency resulting from the use of larger equipment that offers

significantly low cultivation, seeding, spraying, fertilizing and harvesting costs per hectare. The only advantage

possessed by Punjab farmers is that investment costs are very low, (they are in the main not investing in new

equipment) as are their labor expenses – as the farmers income arises from his own and family labor , not that

of hired employees. Adding to this already difficult situation caused by the tradition of dividing land among sons upon their father´s

death and the possibility of the sons actually being able to farm their proportion of the divided land holding as

individuals must be very limited. In relation to a WRS, there are possibilities that the trickle-down effect of higher returns from sales by Arthees

through a WRS / Commodity Exchange linked project could provide the possibility of increased returns for the

farmer also. There is no guarantee of this however.


It would be better if farmers could cooperate with each other initially at family level and then at village level, creating

larger blocks of land, increasing their chances of returns from mechanization, discounts achieved from buying inputs in

larger quantities, higher prices for outputs achieved by being able to directly deposit at a WRS warehouse facility along

with the earlier mentioned WRS benefits that could accrue to each individual depositor. Without that occurrence the prospect of significant improvements in comparative living standards (rural vs

urban) achieved from very small scale farming incomes are small. It is expected that much of the grain deposited at what is intended to be a Punjab-wide network of WRS

warehouses at the beginning will be by Arthees who have themselves purchased from farmers, as the small farmer

will not possess sufficient quantity (for example) from a harvest to enable an economic sized truck - load to be

sent to a warehouse. If cooperation with each other by farmers could generate full "lorry load lots” of say several

farmers production, aggregated by variety and moisture content, (weighed individually at the time of aggregation)

then there are possibilities for improved returns from sales made via a commodity exchange facility for those that

would be able to deposit at WRS warehouses directly, so allowing them to make their own sales through the linked

commodity exchange. By this procedure they would be able to circumnavigate the local agricultural merchant.

The merchant´s margin achieved by trading the famer´s crop would therefore be directly receivable by the farmer.

As a holder of a warehouse receipt after depositing, the farmer could borrow funds from a bank at competitive

rates with which to buy the following year´s crop inputs, simply by using the warehouse receipt and pledging it to

the bank lender. The farmer need not sell the crop at harvest time either - able to wait for higher prices as the

excess availability of commodity immediately after harvest becomes exhausted.


3.3 A Situation and Gap Analysis of the Regulatory Regime in Punjab – (With

reference to WRS)

Area of Analysis Current State Desirable / Potential Future State

Silo / Warehouse Generally poor with the exception That all grain storage facilities should be inspected

condition not of large processors raw material and certified regularly (e.g. annually or ideally twice

checked and storage annually) by a parastatal organization with the

passed as knowledge and capacity to do so. Until existing

acceptable by any storage quality improves greatly each inspection could

appropriate include an advisory as well as regulatory role being

“Warehouse present for say 2 years from commencement before

Receipt System cessation of any advisory elements. Each inspection

Authority” should however note progress in improving previously

advised situations but failure to complete works

within a reasonable given timeframe should

constitute an inspection failure, together with

elements that clearly represent an inspection failure.

Government sets Many (it would perhaps not be The prospect of parastatal organization’s monitoring

grain quality incorrect to say MOST) farmers in crop quality after harvesting and at the time of

analytical criteria Punjab have poor quality “grain delivery to processors has much to commend it –

and compliance storage” to no storage at all. Very however buyer – processors themselves must also

with those criteria little on farm purpose built ensure via their laboratories that they only accept

at any point in the capacity exists and farmers are good quality material. The farmer has no such testing

value chain forced to sell their produce capacity. Were he to use a grain warehouse, where he

immediately “off the field” at could take commodity immediately it is harvested,

harvest time or suffer have it weighed, sampled and tested, by an approved

consequences attributable to and constantly checked and approved inspector, with

insect pest, vermin, bird and other the same procedure applied to weighbridges – the

wild animal damage, spoilage due farmer could then confidently deposit his crop for safe

to excessively high moisture in storage until he /she wishes to sell. His / her crop

early harvested crops causing would be graded and comingled with more of the

mould, fungus, spontaneous heat same grade. When the farmer sells, the quality of

damage, and a subsequent their stored crop is known and is guaranteed by the

significant loss of quality which warehouse keeper. Not only can deliveries from a

can on occasions amount to losses WRS warehouse be guaranteed but it is normally

of up to 100%. It is claimed that expected in such circumstances that the warehouse

Punjab normally averages 15 to keeper is FULLY responsible for meeting the quality

20% spoilage annually standards attributable to the grade given to the

deposited commodity when deliveries are made from

store. Although the store could be privately owned

and managed, the Agricultural Department of the

Government of Punjab via a parastatal controlling

and monitoring organization “The Warehouse

Receipts Authority” would monitor recorded

exceptions (if any) as far as quality & quantity is

concerned from the perspective of securing farmer /

depositors position and that of the buyer of

commodity.

Farmer lending is Unregulated Arthee lending to Warehouse receipts must achieve the status of


unregulated and farmers is not in the best interests “secure document of title” or other legal status which hidden “interest” of the farming community - is equally secure and representative of the underlying

charges apply – interest rates (although cloaked commodity and representing fungible goods, before farmers unable to by the merchant’s margin) are any potential buyer or seller can consider them as pledge crop as unrealistically high and banks “holding value”. They can then be pledged to banks as loan collateral as prefer not to participate due to highly liquid collateral against which banks would be

no such high transaction default risks. prepared to lend (at competitive interest rates). instrument exists Security from the banks perspective comes with the allowing that to warehouse receipt being pledged to the bank and happen. “locked” by that participating banker to prevent

trading by / to another party without the banks express permission (e.g. via a commodity exchange that has the facility and mandate to make payment

both to bank (capital and interest), warehouse keeper

for outstanding, agreed charges and also to the

depositor – seller for the balance of funds achieved

from a sale. Distribution of funds is made through the commodity exchange clearing system using a

contracted clearing bank to make payments.


4.0 Analysis and Stakeholders Assessment 4.1 SWOT Analysis of WRS / Commodity Exchange System

STRENGTHS • Providing farmers with cost-effective storage,

competitive due to sheer economy of scale. • Testing of quality, load by load • Weighing of farmers loads • Drying and cleaning if necessary • Storing by grade category resulting from testing at

the time of intake. • Once tested and graded, quality is guaranteed • Fast out loading • Crop – (warehouse receipt) can be used by farmers

as loan collateral with participating banks • Commodity sold on a Pakistan Commodity

exchange – possibly the PMEX • Payment made to farmers bank account one day

only after sale (deliver today, sell tomorrow, get paid the next day)

• Silo operator is fully insured, indemnified and bonded.

• Government agency (Warehouse Receipts Authority) checks for mistakes and bad practice (if any) and refers the offending WRS operator to a tribunal if it is suspected to have been negligent or have deliberately broken rules.

OPPORTUNITIES

• Increased prices for farmers are possible with this system

• Deals can be direct with processors (no middle men) • Post-harvest storage losses due to spoilage can be

dramatically reduced to zero by use of the WRS • After pilot, expansion is easy (extra silos) bringing

even more economies of scale. • Brings small farmers together to become used to

working as groups for collective benefit • Can improve livelihoods derived from income at all

sizes of farm • Up to the minute market price information service

can be added for free text and recorded voice

messages – also on “tickers” in market centers via the proposed PMEX linkage.

WEAKNESSES • Storage is not on the farmers own farm • Individuality is lost • Transport cost from farm to store • Time taken for farmer / farmers to make the

delivery • Deliveries to store ideally need to be in lorry

load units, therefore farmers would have to cooperate at village level to assemble their crops, test % moisture and check-weigh individual proportions before delivery.

• For very small farmers they would have to pool harvests and share income

• System HAS to include linkage with a commodity

exchange to work to best effect. Those WRS

systems that have no linkage as described

eventually fail or fall into the hands of

agricultural merchants – whose agenda differs

from that of a WRS service operator.

THREATS • Markets go down as well as up – commodity

exchanges make selling easier and safer but not ALWAYS at better prices

• Processors refuse to play • Government buying or selling programs might

prove to be disruptive for prices when markets can react quickly to news, good or bad

• Farmers do not see the benefits of a WRS • Farmers might not use the commodity

exchange – preferring to stay with the Arthee who uses the WRS system himself.

• Government fails to attract sufficient investor

funds


4.2 Initiatives of Govt. of Punjab & State Bank of Punjab in the Creation of an

Enabling Environment for a WRS / PMEX System

4.2.1 State Bank of Pakistan It is encouraging to note that both the GoPb and the State Bank of Pakistan are in favor of a WRS. This is clear

from the request made to PEEP by the Government of Punjab for a study to be carried out among potential

stakeholders, to examine the viability of such a system and its potential suitability for the Punjab arable farming

situation in particular. The State Bank has already made positive moves by offering 5 year loans at a discounted

interest rate to encourage the building of silo complexes that would successfully be able to implement a WRS and

have published a supportive document “Framework for Warehouse Receipt Financing in Pakistan”, detailing

options, identifying possible scenarios and explaining the system of lending against receipts. Of particular interest is their section 6.0 where Shariah Compliant Financing of Warehouse Receipt Lending is

discussed. The bank mentions in their section 6 text that “An IBI will purchase the commodities in its own name

and then sell them on to the end buyer at an agreed mark up.” Agreed with whom? The farmer or the buyer? If a

farmer were to decide not sell their commodity until later in the year, due to the likelihood of a rise in prices, how

does the bank´s proposal cope with that scenario? Surely the IBI should sell back to the farmer at an agreed

margin, so that the farmer can then sell through his broker on the commodity exchange? They also discuss a system known as “Salam” – sale of goods against full payment in advance but for delivery to

be deferred until a specified future date. It is mentioned that it gives the farmer necessary flexibility, enabling

the purchase of farm inputs. Is this not the same system used by the Arthees currently in providing “cropping

credit” to farmers at disguised high interest rates? Further clarification of these proposals will be necessary before due consideration and comparison with the

normally used method of lending against receipts which are pledged to the bank as collateral. It must be

remembered that the receipt is an electronic record these days. The early warehouse receipts, printed on paper

and endorsed at the time of each sale, with a copy held by warehouse keeper, a copy held by bank if a loan was

taken by the farmer and a copy held by the depositor. The “Authority” also held an original copy. Although the

system functioned, it was not particularly secure and was slow by virtue of paper receipts having to be gathered

and passed from depositor to buyer or depositor to bank and then eventually to buyer. Currently constructed systems are electronic using a Central Depositary where all receipt records are maintained.

A warehouse keeper produces the electronic record and although the depositor may receive a paper copy, it

contains no value as a document – the value lies in the electronic record itself, which can be pledged, bought and

sold, just as the paper document used to be, yet transmission and changes of ownership can be virtually

instantaneous by electronic means. Multiple checks and balances can be installed in a system to ensure that only

entitled depositors, buyers and bankers can access the record. It is more secure than any paper based system

and can handle huge transaction volumes. The bank mentions in its Risk Management table that there is a risk of small, subsistence level farmers not

utilizing the system in favor of their traditional borrowing and selling methods.

• Small unit sized deliveries to Warehouses: This is also a concern of the consultant, hence his


recommendation that the Warehouse Receipts Authority undertake training of farmer village or family

groupings in order that they are fully aware of the systems advantages which can be achieved if they

cooperate effectively with other members of their group. For example, it is inconceivable that

warehouses can accept very small tractor and trailer size deposits in numbers that would clearly cause a

log jam at warehouse weighbridge / sampling / discharge points. For this reason the consultant has

suggested minimum 25MT truck loads (with one smaller load per depositor group as they complete

clearance of their crop). Some changes to this proposal are possible before it is implemented, but the

basic model has to hold good otherwise chaos at intake would result. In this respect the consultant has

directly experienced the above scenario. • Lack of Familiarity with Bank Borrowing: As many smallholders will have never used a bank loan to fund

working capital needs, training / awareness creation of farmer village / family groups is also necessary in

this area, supported by a panel of local bankers so that impressions of banks can be changed / enhanced

at a friendly, informal event level. • Use of Commodity Exchange Brokers: As with the other two headings, a lack of full understanding / pre-

conceived impressions can de-rail the most beneficial of initiatives. To ensure that smallholders are aware

of how the commodity exchange link with warehouse receipts will work and how smallholder: broker

relationships are conducted; further training / awareness creation sessions should be mounted. In this

case selected commodity exchange staff and / or brokers should assist. • In each of the above cases, the trainer or supporter has the opportunity to meet potential clients and

forge relationship links at the events, offering a good and beneficial reason for becoming involved. The bank also discusses, in Chapter 7, Accreditation of Warehouses, suggesting that warehouses would be

selected together with partner banks. Presumably they mean by the Warehouse Receipts Authority and partner

banks although that is not referred to. What is inserted into the usually accepted system of an overseeing

“Authority” is a collateral manager who they suggest will carry out the accreditation procedure. The consultant is of the opinion that the Authority should be the authorizing and inspecting body on behalf of

the Government of Punjab. The example given in Ukraine of sub-contracted inspectors taking bribes for NOT

carrying out an inspection, yet signing an approval certificate is only too clear to suggest that the temptation

would not exist in Punjab also. With the exception of the few above comments it is clear that the State Bank of Pakistan have a good grasp of

the benefits and need for a linked WRS and Commodity Exchange system with which to advance agricultural

commodity marketing and improve livelihoods of farmers, while providing the security that will allow Pakistan

banks to participate fully in agricultural working capital funding. As an incentive to private enterprise becoming involved in constructing storage capacity that could be deemed

eligible for use by the WRS, the State Bank have publicly offered a competitive interest financing facility, targeted

specifically at potential WRS storage building. Loan periods are said to be for five years. Normally such lending

is offered over a ten year period. The term of the loan offer needs to be adjusted.


4.2.2 Government of Punjab Together with a WRS, the GoPb wishes to establish their own commodity exchange in the Punjab – to trade

agricultural commodities such as wheat, maize, barley, rapeseed, rice, chickpeas etc. (among other goods, such

as they mention in their own example are - gold and other metals). The nation of Pakistan already has an existing

commodity exchange in Karachi – the Pakistan Mercantile Exchange (otherwise known as PMEX). Has the GoPb

assessed the condition, suitability for the role of WRS Exchange and historic investigated prior operational

effectiveness of the PMEX? There have also been discussions concerning Government of Punjab budget implications involved with

establishing a whole WRS framework (the consultant was invited an attended one of these discussions) where

taking a financial stake in the WRS by the Government of Punjab owning part of each silo complex was

discussed. Is owning a stake necessary? Are they aware of the cost of a 10% share in the proposed 300 + warehouses? Let us imagine a 10% stake (not

unusual in order to have a voice on a board of directors) in each of the provisional warehousing companies

which could have storage capacity of around 50,000MT each? The cost of each completed and operational

50,000 MT facility would be around 900 million PKR, therefore a state share of 10% implies a financial

commitment on behalf of the Government of that would amount to approximately 90 million PKR per facility.

The total number of facilities required to handle the whole province´s cereal storage needs alone amounts to

several hundred 50,000 MT silo complexes. The state does have a role to fulfill as regulator of the whole WRS and can adequately do so through the formation

of a new parastatal organization (the Warehouse Receipts System Authority), that should be formed with the

express purpose of control, monitoring and policing the operations of each and every independent WRS service

provider warehouse also state owned operators if they are eventually seen as being able to provide a WRS service

on an equivalent scale and by offering the same service as other operators will be required to do. The responsibility carried by the warehouse keeper is substantial and the provincial government should be seen

as using a guiding, supporting and monitoring hand with which to assist them in their task. The vehicle through

which the Government of Punjab would have an interest would therefore be via its Warehouse Receipts

Authority, removing the need for any financial involvement in individual warehouses at all. Should any warehouse keeper make the mistake of acting in their own best interest by whatever means, instead

of caring from their clients grains, oilseeds and pulses in the very best professional manner, the Warehouse

Receipt System Authority should be expected to ensure that such activity is dealt with firmly and that the example,

as well as any resulting judgement is well understood by other warehouse keepers who might otherwise be

tempted to behave in a similar manner. That should be the provisional government´s role – creation of an environment where a service is provided to

the provinces arable farming sector with the benefit of their facilitation and assistance where prudent, together

with the protection of that environment by the firm yet measured application of laws and regulations formed

or adapted to suit the very specific nature of the warehouse receipt system´s strong service level support for

the provinces grain, pulse and oilseed value chain as a whole – from farmer through to final processor.


The facilitation role of the GoPb through a WRS Warehouse Receipt System Authority is proposed and discussed

at a later stage in this report.

4.3 Current Warehouse Facilities in Punjab – Public & Private Sector – and their

viability as WHS Capacity 4.3.1 Government Owned Storage Capacity GOVERNMENT OWNED STORAGE CAPACITY (000´s MT)

Day / Month 30-6 30-6 30-Jun 30.6 30-6 30-6 30-6 30-6 30-6 30-6 30-6 Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Agency

1.WHEAT 4339 4339 4339 4339 4339 4339 4339 4339 4339 4339 4339 Provincial 3780 3780 3780 3780 3780 3780 3780 3780 3780 3780 3780 Punjab 2483 2483 2483 2483 2483 2483 2483 2483 2483 2483 2483 Sindh 709 709 709 709 709 709 709 709 709 709 709 NWFP 365 365 365 365 365 365 365 365 365 365 365 Balochistan 223 223 223 223 223 223 223 223 223 223 223 Federal 559 559 559 559 559 559 559 559 559 559 559 Food Directorate - - - - - - - - - - - AK&NA. 64 64 64 64 64 64 64 64 64 64 64 Def.Division 54 54 54 54 54 54 54 54 54 54 54 National Log.Cell - - - - - - - - - - - PASSCO 441 441 441 441 441 441 441 441 441 441 441

2. RICE:

(Rice Export 826 826 826 826 826 826 826 826 826 826 826 Corporation)

3.COTTON:

(Cotton Export* 450 450 450 450 450 450 450 450 450 450 450 Corporation)

(In 000 Tons) 77 77 77 77 77 77 77 77 77 77 77 Total Capacity 5242 5242 5242 5242 5242 5242 5242 5242 5242 5242 5242

* = '000' bales

Source:- i) Defunct M/O Food and Agriculture R = Repeated from 30-06-2002 to 30-06-2012

ii) Trading Corporation of Pakistan, Karachi. Total Punjab - Two million, four hundred and eighty three thousand MT No specific information has been offered to the consultant concerning the condition of Government warehouse

capacity although it is believed to be in less than optimum condition / suitability for the efficient , safe and secure

storage of arable combinable crop commodities. The PEEP project is to carry out a survey of private grain storage capacity and condition very soon. The result of

that initiative will greatly assist the Government of Punjab and hence it’s Agriculture Department to be aware of

any potentially suitable existing and suitably located facilities before embarking on the encouragement and

incentivisation of additional purpose built WRS facilities. 4.3.2 Discussion with Government of Punjab Food Department It has proved difficult to obtain an appointment to discuss the GoPb´s role in wheat sales, storage and purchase

pricing / sale subsidies, resulting in a sheet of simple questions having to be being produced and transmitted to

the Food Department with the hope of receiving answers.


The director of the department was extremely busy and declined to answer the questions, although did

eventually grant a last minute interview to Ghulam Ishaq, (a PEEP staff expert, assisting the consultant), on Friday

9th October after working hours. The questions and answers received are detailed below. Clearly the Food Department is not a professional

organization with poor facilities at its disposal. Perhaps some arrangement could be made under the auspices of

the WRS where the Warehouse Receipts Authority and the Department of Food could work together in the future

for the benefit of the population and particularly the farming community. There is a need for cooperation and

assistance in developing an altered role for the Food Department if a market–supportive WRS and Commodity

Exchange system result from this report and the Agriculture Department initiative. Questions Put To the Food Department of Punjab 1. Government storage facilities– does the capacity represent ALL buildings or are their “storage places”

involved – if so how much is of each type (list by category shown in the government capacity document). 2. What condition is the government storage in? Good / Average / Poor / Falling down? 3. Does any of it possess under grain ventilation for the purpose of assisting the keeping quality of grains etc.? 4. Describe in detail what pest and vermin control procedures are undertaken. 5. Is any of the grain stored at these sites tested for quality during intake? 6 What are the precise minimum quality standards that the stored produce has to achieve before it is rejected

or considered as “not fit for human consumption?” 7. Are stocks held in these facilities meant for animal or human consumption – and how do you differentiate

between the two. 8. Do you store for World Food Program (WFP) – what do you store – and what other information do you have

about any stocks that you keep for them – e.g. packing – how is it packed? Grain quality – what minimum quality

parameters do you insist upon? 9. What happens to the crops that you store eventually – who removes the stock and where does it go?

Domestic animal feed mills / human flour mills / export? 10. What losses do you suffer from – what quantities are declared unfit for sale / use at the end of a storage

period? 11. How much wheat, maize and rice is exported from Punjab? Any data available of wheat transported/moved

to other provinces of the country from Punjab?


Answers Given by the Director of the State of Punjab Food Department (incl. Consultant’s Comments) The manager of the Punjab Ministry of Agriculture Food Department was interviewed in his office to discuss the

status of Punjab Food Department wheat storage and various issues related to it. The manager mentioned that

currently the department has 2.17 MT storage in its godowns while more than 3 MT wheat is held in temporary

tarpaulin covered open storage. Consultant Comment: This 3 million MT is therefore at risk to quality

deterioration, weather, vermin, bird attack and theft. Two types of storage are maintained. The condition of storage varies from good to average. Consultant Comment:

It would be interesting to be able to compare that statement with a visible inspection of all their facilities. It was stated that out of 800,000MT of wheat allocated for export, 200,000 tones had been exported so far during

the current season. The manager said that they try to maintain quality but only through visual methods. In case of serious concern,

samples are sent to government operated laboratories for testing. Consultant Comment: If the concern was

triggered by an unusual event, smell, evidence of insect infestation then by the time the government laboratory

receives samples and provides a report based on its analysis of the sample, damage will already have been done.

Tarpaulin covered stacks might be suitable for unthreshed grains or straw in bales but it is not sufficiently

sophisticated to be used in the storage of high value cereal grains, as it has no ventilation or fumigation capacity. They are adopting common mechanisms of controlling stored grains pests such as beetles through preventive

sprays and fumigation by Aluminium Phosphide. The wheat stored is finally sold by the Government of Punjab to flour mills, feed mills and traders for export. They do not store for WFP, but a few years ago they sold wheat to WFP as per their quality criteria. No wheat is stored for animals, but if any quality issue occurs during storage due to rains or any other factor, the

wheat sample is sent to a laboratory for quality testing. If the sample is found unfit for human consumption, it is

sold for animal feed. Consultant Comment: How bad a measure of condition is “unfit for human consumption”?

How can animals be expected to produce meat and milk if fed on grain that has clearly suffered from damage? When aeration is desired, the doors of the storage rooms are kept open. The ventilators are also there for

ventilation. Consultant Comment: This ad-hoc unsophisticated and unprofessional measure is insufficient and far

from “best practice”·.


4.4 Stakeholder Analysis of a WHR System for Punjab.

This heading is discussed with particular reference to objectives, needs and influences that may lead to success

or failure and operational viability. Clearly the subject matter could be a stand-alone report of considerable magnitude. As that is not the intention

of this sub-heading it is dealt with fully under each point in a summary format yet covering every pertinent factor. 4.4.1 Farmers A WHR In Punjab - Why Is It Needed, Is there a Demand for Such Facilities?

• There is a significant lack of any measurable quantity of suitable storage capacity at farm level in the

province – capable of securely holding the quantities harvested from the provinces privately owned

agricultural land mass. • There is virtual a complete lack of mechanized, post-harvest, pre-processing (drying and cleaning)

facilities at farm level in the province. • There is no professionally trained resource to which farmers could turn in order to get their arable

combinable crops analyzed for quality at reasonable cost so as to enable them to separate good from

bad with the power of a range of tests that processors themselves carry out before (a) purchasing a said

lot. It is at farmers own limited storage places where uncontrolled, unaware mixing of lots from different

fields can damage a perfectly acceptable sample by adding lesser quality produce to it, often for the sake

of better utilization of storage or transport capacity. • There is little chance of any farmer gaining the real and due market value for the crop that they offer

for sale when they do so without knowing where in a list of quality grade values it would fit. They are

therefore the weakest of sellers. They do not know what they are offering for sale.

• There is a NEED for a method of solving the above damage done annually to crops and also to

farmer´s incomes due to a lack of knowledge (concerning storage, segregation and quality analysis

and hence retaining / maximizing the value of the commodity that the farmer has harvested).

• Better segregation of quality allows specific market targeting of available supplies • Better quality cereals etc. contribute to better processed products • Animals and humans are therefore better fed, with all the tangible and intangible benefits they bring • Less wastage increases the quantity of availability from the same hectare as before = higher recorded

yields. • Improved farmer incomes generated through simply segregating by quality parameters and knowing

exactly what it is that they are selling generates improved living standards and disposable income,

increased purchasing of yield increasing crop inputs such as better seed, increased fertilizer usage and

essential agrochemical application, so increasing yields yet again.


• Farmers interviewed by the consultant stated that better storage availability is essential for their farming future, to help improve their method of selling crops. A WRS provides this and much more. The collective introduction of large scale warehouse, dedicated to farmers needs is farm more cost efficient than multiple small on-farm storage.

4.4.2 State Bank of Pakistan and Commercial Banks Having held interviews with several commercial banks with bases in Lahore / Karachi, it can be reported that ALL

of those interviewed were positively in favor of the implementation of a WRS / PMEX linked grain storage and

marketing system. Those interviewed were: State Bank of Pakistan (Karachi) An early and consistent supporter of the WRS / PMEX linked initiative. They have

already introduced a funding program for the building of warehouses and advertised this in nationally circulated

newspapers. The funding line is available for warehouses and equipment. The level of funding support offered is

laudable, although the loan terms are for five years only. Normal pay-back periods offered internationally for

loans in support of the erection of agricultural commodity warehouses are ten years. Five years is not a sufficient

term for amortizing a loan for this purpose and needs to be reconsidered. Example: In Europe grain warehousing could be erected under the following scenario: 33% owner investor capital,

30% (10 year) bank loan. The balancing 60% is covered by approximately a 25% government grant aid for

equipment, 32.5 % government grant aid for warehouse building and civil engineering works. Should the

warehouse owner also be successful in applying for an EU, EAGGF (European Aid and Guidance Guarantee Fund)

grant, the total grant figure becomes 50% on the condition that the recipient repays a proportion of the national

grant already received so that the EU plus national total does not exceed 50% of total capital expenditure. Allied Bank (Lahore) Own two warehouses of their own that they use for IP storage of rice. The interviewee did

not demonstrate a high level of grain trade knowledge – e.g. that analytical tests are undertaken so as to

understand quality and produce graded lots to processors specifications,- but after an explanation of how a WRS

operates the respondent said that they would be strong supporters of a WRS / PMEX linked system. Nib Bank (Lahore) Very interested – this bank currently finances stock in some (unsuitable) storage, hires guards

to care for it and yet still suffer from theft and deterioration. With securely stored and easily monetisable

collateral involved via a WRS, the interviewee assured the consultant that interest rates offered would be

competitive. MCB Bank (Lahore) Very interested – they specifically said that in order to break the Arthees grip on farmers

they would be prepared to mortgage farmers land so that they could clear Arthee – based debt levels and be

able to use the WRS / PMEX thereafter.


4.4.3 Processors of Agricultural Produce Engro was the first processor met and is a very large rice processing and agribusiness company well known

throughout Pakistan. They explained their processing of Basmati rice and that most of their procurement is done

through Arthees. However they had been the implementer of a project named “Spirit” in which they improved

the cultivation and agronomic techniques of groups of small farmers and were keen to further those connections. The consultants visit also involved meeting one of the groups of farmers, formed under “Spirit.” Their project

and also the potential of a WRS were discussed with them. The group showed keen interest in the system and it was explained to them that they would need to deliver

harvests in minimum 20 -25MT lorry loads, but that they could do this by the use of a small centrally located

building which they should select themselves, where each farmer – member would bring his (for example) rice,

during harvest and it would have to be tested for moisture content and weighed, in-bag, by one of their own,

selected members, to allow for the sharing of income generated by the sale of the aggregated crop . Ajax Rice Millers Little to comment on concerning the meeting. The WRS was explained and although cordial, the interviewee

expressed little by way of positive opinion although some negativity was evident. It is however understandable

that if in the past millers and processors have been able to purchase cereals at prices low, they are not going to

be incredibly enthusiastic about a scheme which will probably increase the cost of what they buy. Olympia Animal Feeds A lively and frank discussion with this organization who indicated interest in the WRS. They were somewhat

concerned about the fact that animal feed manufacturers could already retain significant stocks of their own and

also that Arthees were such a part of smallholders lives in the sense that they were crop buyers and money lenders

to people who were not familiar with making visits to banks etc., to the extent that the interviewee believed sales

would continue to be made to these merchants and that they would continue to provide crop credit before

harvesting. The National Group of Companies (National Flour & General Mills Ltd) The company has flour mills, a solvent oil extraction plant where they produce rapeseed oil from imported "00"

grade rapeseed, poultry hatchery, broiler breeders, growers and a poultry processing plant. They also make their

own animal feed and have a total of 300,000MT of storage capacity for grains across all group processing and

storage sites. The consultant gained the impression that the company would be prepared to recommend / suggest

that USAID / Goop / mount a pilot WRS project and that they would like to include their storage located at a

minimum of one or more of their sites as WRS warehouses. A meeting with the company chairman in this respect

was suggested by the interviewee.


4.4.4 Mercantile Exchange of Pakistan A meeting with PMEX management concluded that his organization is supportive of an international WRS

development project if mounted. It launches an exchange contract in Pakistani Chilies on Monday 5th October

2015, with attached laboratory (managed by S.G.S. – a collateral management / cargo superintending company)

and storage facilities. They were frustrated by the political position-taking and lack of action taken by the GoPb

in respect of launching a pilot WRS for examination, demonstration, training and evaluation purposes but

nevertheless offered their support and services in respect of any additional information that they could supply or

support with. The consultant considers that this company may be an invaluable, professional, potential partner for a WRS /

Commodity Exchange – linked project. They have the infrastructure in existence with which to facilitate an initial

small scale or eventually full scale project. However their system is based on what is known as “terminal trading” of commodities from any location, linked

to the central PMEX facility in Karachi. The consultant supports this method of trading as a destination for any

WRS / Exchange development project. However, It is the consultant´s opinion that commencement as an

“open out-cry” exchange is valuable from the perspective of being able to demonstrate trading in action and

to allow for the building of confidence among all stakeholders, by virtue the fact that initially at least, trading

in action could be seen. The best of confidence builders, especially when actual trading action can be coupled

with a tour of the whole PMEX facility, including clearing and central depositary – linking the use of modern

document storage and handling with the sometimes hectic activity on a trading floor and evidence of trading

in action.

The use of electronics is essential in the 21st century – and electronics should play their full part from the point

of deposit at a warehouse through to arrival at the exchange trading floor as an offer for sale and then in clearing

receipts from buyers funds, payment of storage costs, bank loans and finally crediting sellers bank accounts. To

have a clearing house already undertaking this function or in a position to do so with only minor modifications

to an existing tried, tested and proven system would be a significant advantage to any WRS start-up. It is on the exchange trading floor where in the consultant´s experience, high levels of trading activity can be

clearly demonstrated, leading to changes in valuations and in the generation of real market – traded prices that

farmers and processors would be able to receive by SMS, recorded voice message by mobile phone or computer

display. Strategically located market price “tickers” should also be involved in visualizing prices and increasing

transparency. PMEX is capable of undertaking these tasks but as with other actors, would need to be convinced

that this vision of trading in action should be the starting point from an exchange trading perspective – followed

by in several, (4 to 5) years the staged introduction of an additional fully electronic version, province – wide, to

include futures trading at that stage – but not before.


4.4.5 Existing Traders in Punjab A total of two groups of traders, (Arches) and one individual so called “commission agent” were visited where a

WRS and commodity exchange system was explained and discussions held on the trader’s hopes, fears and

opinions concerning potential benefits that could be offered and possible challenges to be met. Group 1 The Arches were positive and understood the principal of a WRS. Their concern was that many small farmers are

already in debt to them for crop inputs to the extent that they will be unable to fully repay from the current year´s

crop. The Arches said that they were providing credit for free while the banks were charging them 17% for

borrowed money. The consultant is suspicious concerning claims that the margin made on the sale of agro inputs

and purchase of grains does not cover a nominal interest charge as well - but the level of debt is concerning.

Working capital in agriculture at smallholder level is not able to withstand interest charges of 17% - IT ALSO means

if true - check with banks - whether banks are aware of this level of sector debt - that the grower is TIED to the

Arthee and unable to sell grain by a different method (e.g. warehouse receipt sale) because it is already

committed as a "pledge" however informal to a trader. See comments under 4.4.2 State Bank of Pakistan and Commercial Banks Group 2 A good meeting with around eight (+/-) traders present. The consultant was conscious that it might not be wise

to mention that the WRS system could be of great assistance to the small farmer directly. As such he pointed out

that a WRS could accept deposits from both Arthee´s and farmers if necessary. Surprisingly that didn´t concern

them, they stated that they were content to see a scheme that did not necessarily target the larger farmers who

needed help less than the small farmer does. Government intervention it was eventually agreed was disruptive to

the market generally despite possible good intentions - AND always had to be paid for by someone at some time.

It was not a free gift they said. Generally they could be described as positive and supportive. This meeting greatly added to the distillation of the consultants thoughts and concerns about WHO the WRS

should be targeted towards – trader level / or farmer level. It became clear that the Arthees believe they would

remain as a player in the market even if farmers were expressly targeted as potential WRS participants. With that

in mind the consultant is consequently clear that the “right to deposit” should be offered to all parties in the

Punjab arable commodity trade – farmers and traders , with processors and the state controlled food reserve

system operating as buyers and off-takers (under certain pre-agreed conditions concerning monopolization

concerning state activity, inadvisable manipulation and regulation of the wheat market). Arthee´s place in rural life must not be discounted either. They have served rural communities for generations as

farm input providers, output buyers and in addition have become involved in financing those with no bank account

or formal financing arrangement for their business (and life expenses). It is very likely that their function and

business model will change as agricultural output itself changes, probably providing agronomic advice as a

precursor to and in the encouragement of trade on both the input and output side of a farmers business.


It is hoped that they will be required to provide less credit under a WRS regime as that could, without doubt be

supplied, using WHR´s as collateral, adequately, formally and at considerably lower real interest rates via the

formal banking system. However their expertise as grain traders and agricultural input merchants mean that

they play an important role in rural business and their activity should not be discouraged. Indeed several might

well become depositors on their own account. Certainly at the outset and possibly in the longer term, that would

be an advantage rather than a disadvantage. As evidence of this, the whole export coffee trade in Ethiopia under a WRS / ECX umbrella, is traded by “first

buyers” (with the exception of farmer – cooperatives and specialist coffee trading, who have been provided with

their own special exchange based system, still under the banner of ECX). It was accepted at the outset that farmers

were individually too small to contemplate as depositors in their own right. Unit load sizes would be such that no

warehouse could cope with the sheer volume of individual deposits and transactions involved at the time of

intake. 4.4.6 Government of Punjab The GOPBB appears to be actively encouraging the establishment of a WRS and commodity exchange system in

the sector. PEEP officers and the consultant were invited to attend the most recent meeting of the GoPb

Agricultural Department´s) steering committee on the matter during w/c 28th September. There was ample

discussion although no agenda available to any attending with the exception of the GoPb Special Secretary who

chaired the meeting. Although some English was used, more than half of the proceedings were discussed in Urdu

/ Punjabi, making full involvement difficult for the consultant and author of this report. Over the course of the last weeks, which the above meeting confirmed, it is clear that there is a considerable

amount of different opinion within GoPb in terms of whether they will or can initiate a WRS and whether it should

be a “stand alone” system or whether it ought to be linked to an exchange. They do however, it was clarified,

want an exchange, they believe that it should be established in Punjab and that It should trade multiple

commodities, not just grains. By the end of the session, lasting over an hour, the Special Secretary declared that the meeting was now closed

and departed for his office. No decisions were taken, no tasks given to committee members and no conclusions

drawn; no date was set for the next meeting. Concerned that the GoPb may fail to grasp this opportunity by

talking without applying themselves to the task, the consultant asked for a meeting with the Special Secretary in

order to be able to hold a personal question and answer session with the aim of clarifying the development issues

involved, helping with an understanding of what will succeed and what will probably fail, also to understand the

Government of Pakistan´s thinking in relation to developing the wheat market in particular as it is currently

controlled to a large degree by the state. At the moment they are in complete legal control of the (formal) wheat

market in the country. Millers and processors are allowed to buy but no other entity other than the state is

formally allowed to trade in wheat. That, if continued, is not healthy for agribusiness and certainly unhelpful as

far as the development of a free market in wheat is concerned and hence the potential future of any WRS.


4.4.7 International Logistics Companies As an attempt to quantify whether large international logistics companies would be interested in participating

with a WRS, a visit was made to discuss the potential with Agility, (Agility Logistics Pvt. Ltd is their Pakistan

operating arm) is an international logistics and warehousing company, based in Kuwait, the company

commenced operations in 1979 as a local warehousing provider in Kuwait. It is now a group limited by share

capital, traded on the stock exchanges of Kuwait and Dubai. Generic growth was possible in the Middle East,

whereas expansion in the rest of the world has taken the form of mergers and acquisitions. In Pakistan the company has its base in Karachi, with a payroll of over 600 employees and operating 400 trucks.

They own warehouses in Karachi, Multan, Siagal and Lahore. The company has over 300,000 square meters of

warehouse capacity in Pakistan, is ISO certified in Quality Management, and have recently directly invested

US$17 million in an import warehouse to operate for Proctor and Gamble, Abbot and several other companies.

The warehouse operates on a racked FIFO basis and is fully computer controlled. They currently also provide warehousing and logistics services in Pakistan for Nestle, Colgate / Palmolive, Shell,

UNICEF, PMEX and National Foods. As a professional, highly experienced logistics and warehousing company they, along with others are very likely

to be interested in not only operating one or several WRS warehouses, but would also be contenders for the

provision of transportation services both into and from WRS warehouses on behalf of farmers, Arthees and

buyers of warehouse receipts. Another logistics company that has shown interest in knowing more about a potential of involvement in WRS

warehouse operation is E2E Supply Chain Management Ltd. An Indian owned company, they have a base in

Karachi from where their Pakistan operation is managed. This company was also visited by the consult during

the course of his investigations. 4.4.8 Potential Investors and Other Stakeholders Potential investors in warehouse capacity are likely to be:

• Domestic Logistics Companies - potential investors • Pakistan Banks – potential investors / capital lenders • Private Pakistan Capital Investment Funds – potential investors • Animal Feed Manufacturers – potential WRS warehouse operators / investors • Flour Millers and Rice Millers – potential WRS warehouse operators / investors • Domestic Exporters / International Grain Export / Import organizations - potential WRS warehouse

operators / investors • Existing Warehouse Owners - potential WRS warehouse operators / investors


Other Stakeholders List:

• GoPb as the responsible facilitation organization driving the development & overseeing the work of the

WRS via a Warehouse Receipt System Authority • Banks as lenders of working capital to farmers and other receipt holders and taking a pledge against a

receipt / receipts as collateral • The Warehouse Receipts Warehouse Receipt System Authority itself, as the licensor (on behalf of GOPB),

monitor, inspector, overseer and ultimate controller of the WRS system and its private operating

companies (warehouse operators) • Collateral Managers as the responsible organizations that, in the event of a serious misdemeanor on the

part of the warehouse operator that caused the WHR Warehouse Receipt System Authority to suspend

or remove a warehouse operator´s license, would enter the premises and manage the organization,

proceeding to discharge the warehouse in an orderly and efficient manner until stocks were finally

exhausted. • Laboratory Equipment Manufacturers / Suppliers who could provide turnkey laboratory facilities across

all WRS facility warehouses, or individual suppliers of equipment could be selected to provide their

specific equipment for each warehouse laboratory, which would be the point from which all grading

would be carried out on depositors samples, taken from each arrival consignment. • Insurance Companies as the entities which would insure the buildings and equipment against “All Risks”

– Fire, Lightening, Explosion, Flood, etc., etc. They would also provide cover for employee fidelity,

professional indemnity, burglary, public liability and to provide an insurance “bond” to be a sum of

money, available to be paid in the event of a legitimate call from the Warehouse Receipt System

Authority, based on a serious misdemeanor by a warehouse operating company, causing their license to

be removed / suspended by the Warehouse Receipt System Authority. The bond´s function would be to

pay for the cost of collateral management services arising from that event. • Transport Contractors employed by the farmer / first buyer in order to bring and discharge commodity

into the warehouse – also those that would be collecting commodity from the warehouse. • Logistics Companies, both domestic and international. As professional organizations very familiar with

all of the challenges involved with moving large volumes of goods from one point to another,

warehousing, accounting for goods using sophisticated electronic techniques – they should be well

placed to manage one or several WHR warehouses. Were visited during the consultant’s investigation

and on the whole left a good to excellent impression of efficiency, service and expansion by having

achieved better than expected results for clients. • Grain Warehousing Construction contractor which in all probability would be (although not necessarily)

the one that constructed the facility initially and provided support as required in terms of required repair

and expansion when necessary. • Any other local contractors used – electrical repair companies, electric motor rewinding companies, IT

support companies, utility companies, (telecoms, water, electricity, refuse) etc. • A security service contractor – each warehouse will contain a significant quantity of a very valuable

commodity. Competent, professional night guard staff will be necessary. Several ECX warehouses

(especially those using remote weighbridge services) employ guards to travel with a truck going from

the warehouse site to and from the public weighbridge.


Coffee is a valuable commodity and there is always the possibility that theft or additional payload could

be added during the journey to increase recorded weighbridge weights. The truck driver could be

working in conjunction with a depositor to defraud the system. Guarding in the way described acts as a

disincentive. • Other small yet valuable service providers – a welder, office supplies company etc. The list is

considerable. 5.1 Proposed Model of WHR System for Punjab. 5.2 Business Model Proposed 5.1.1 Recommended Warehouse Ownership Model There are three possible basic models under which a WRS could be established: 1. Fully State Owned and Controlled – where the province of Punjab is the service operator, sole investor and

owner of the facility, while also performing the role of “the Warehouse Receipt System Authority” who would

oversee, monitor and exercise a level of equitable control over all warehouse operations (and those concerning

the service connection between the WRS system and a commodity exchange, to be nominated by the Province

of Punjab as the provider of a WHR trading service to depositors). 2. PPP (Public/Private Partnership) – in this example the province of Punjab takes a financial (and therefore a

responsibility and control) stake in the business, sharing all risks and rewards, in proportion to the public and

private equity shares held. Any decision making would clearly be at a board of director level with votes cast on behalf of each equity

proportion and decisions based (and recorded) on the result of such voting. For example – an often used PPP

49/51 equity split would basically favor the 51% shareholder where full attendance was the only occasion upon

which votes could be taken on proposals. If all directors from within the 51% shareholder group voted “as one” a

decision would always be returned in their favor. Any division of opinion in the 51% shareholding group causing

a vote “against” a proposal or even an abstention would cause the decision, based on votes counted to move

against the proposal. Care is therefore advised concerning selected equity proportions not unintentionally

granting executive power to any one particular shareholder group. 3. Private Ownership – in this case the facility is owned, managed and controlled by a private investor or group

of investors. In the case of a group of investors a management company which represented the shareholders in

proportion to their investment would be the operating vehicle for the shareholders. Similar warning comments prevail as with shareholdings as with the PPP model (above). In every case the duties to be performed on behalf of depositors are unchanged, except for model 2 and 3

where a “WRS Warehouse Receipt System Authority” is independent of the warehouse management

organization but remains responsible to the Province of Punjab for the function of licensing, overseeing,

monitoring, inspecting and controlling (in an oversight sense) the warehouse keepers operations.


It is recommended that a fully private model is chosen for the following reasons:

• The level of financial investment in each warehouse is considerable and on a “whole Punjab” basis

would prove limiting if not impossible to fund for any one single owner.

• Warehouses could logically be owned by different individuals / different groups of investors.

• The task of maintaining adequate control over what would eventually run into hundreds of

individual warehouses could be beyond the capacity of any provincial administration which already

has many other duties and demands to attend to.

• If each warehouse (or a group of several warehouses within a given geographical area) were owned

and managed by one private company, economies of scale, improvements in management and

sharing of skills are likely to be of benefit together with logistic planning and execution savings.

• A Warehouse Receipts Warehouse Receipt System Authority reporting to the Government of Punjab

would establish and maintain the governments control requirements and oversee the systems

warehouse operators compliance and through them, the satisfactory performance of warehouse

staff.

• An Authority would be able to grant an operator’s license for a facility or in the case of

misdemeanor suspend or even withdraw that license.

• It would be responsible for annual and spot inspections of facilities, procedures and records for

operational compliance with the operator´s license conditions. One seemingly insignificant area of

control would be in the carrying out of laboratory equipment “ring testing” By this method

warehouse laboratories test a sample of known quality and report its result to the WRA. The samples

is large enough to have been split into numerous homogenous parts with each warehouse receiving

a part and one part having been tested by a public laboratory. Any discrepancy from the known

correct test result is dealt with by equipment repair, replacement, recalibration etc., to the

satisfaction of the WRA so that all facilities can be achieve the highest possible degree of replicacy.

• Procedures and Practices would have to be performed in accordance with a “Warehouse Operations

Manual” and also a “Quality Operations Manual” and “Financial Operations Manual” which would

represent the three key areas of individual warehouse compliance reporting (together with a physical

inspection of the premises and equipment) under jurisdiction of the Warehouse Receipt System

Authority.

• Each warehouse keeper would as a condition of license, be required to financially contribute to the

cost of an insurance bond provided by an insurer nominated by the Warehouse Receipts Authority

which would be set at a level commensurate with the expense involved in using a collateral

management company to manage the warehouse and all of its functions on behalf of the


Warehouse Receipt System Authority, IF a warehouse keeper’s license was suspended or revoked by

the Warehouse Receipt System Authority following a serious breach of license conditions.

• A tribunal should be established by the Warehouse Receipt System Authority to deal with disputes

arising from grade complaints and other matters of dispute. The tribunal should be free of influence

from any party with a vested interest in the outcome of any potential judgement but the tribunal

should serve as a reliable, equitable and fair method of resolving complaint to the satisfaction of

parties who possess an interest in the dispute itself (Government via the Authority, depositor, buyer,

warehouse keeper, bank for example).

• A private warehouse keeper would contribute an agreed annual premium for insurance bond cover

but also maintain and prove the timely payment of any regular insurance premiums for the purpose

of holding approved policies adequately covering the cost (by agreement of the Warehouse Receipt

System Authority) of buildings, stock and machinery against “All Risks” – (the standard Fire, Lightning,

Explosion, Flood, etc. perils),” and “Consequential Loss”. Separate insurance would also have to be

in existence and current for public liability, employee fidelity and management indemnity.

• The warehouse keepers should be made aware that good insurance cover is no excuse for weak and

unprofessional management in the mitigation of insured risks. Best practice professional warehouse,

stock, staff and record management would be the absolute responsibility of each warehouse keeper.

• With the above in place – depositors and buyer can rest in the comfort of knowing that any problem

concerning the management of their goods while held by a private operator are fully and

professionally controlled and managed by a system designed specifically for that purpose.

Summary: • Private Warehouse Owners, controlled by the proposed Government of Punjab´s Warehouse

Receipts Authority would as private companies have a vested interest in efficiency and

profitability. They would also be responsible for maintaining a satisfactory balance sheet and net

worth. • Control, licensing, inspection and compliance would be the responsibility of the Warehouse

Receipts Authority, established by and responsible to the Govt. of Punjab. • The individual or multiple warehouse operating company on the other hand is responsible for the

efficient and professional servicing of its clients requirements (clients being both depositors and

buyers who own commodity which is stored in their warehouse). It is responsible for ensuring

compliance with the Authorities regulations and operations manuals, the maintenance of

adequate records, issuing warehouse receipts and at the request of the owner of a receipt. • Good private warehouse management, with oversight by the Warehouse Receipts Authority

would be able to manage and control the individual warehouse keepers operations without the

Government of Punjab having to undertake those tasks itself.


• As the network of warehouses grows during the (suggested) 11 years of development of the

complete Punjab – wide WRS network, a robust yet equitable service sector will grow and serve

the province’s farmers, traders and processors. • During this development period the government will also be able to gradually withdraw from market

intervention, having replaced it with the creation of a market – efficient system where grains and

other arable commodities can, after harvesting, be cared for by a professional service provider,

ensuring zero wastage, replaced by known reductions in weight through drying and cleaning. The

system is designed to create exactitudes in respect of a depositor’s crop in every case, concerning

both weight and quality. Current unknown´s become knowns under a WRS. 5.1.2 Link with Existing Commodity Exchange There has been some discussion at Provincial Administration level concerning the establishment of a Punjab-

Based Commodity Exchange. An alternative option recommended is to link with the existing Pakistan Mercantile

Exchange. The reasons behind the recommended alternative are:

• The exchange has a solid history of success. • It has brokers located in nearly all Punjab districts • It already offers a real time trading service • Formed in 2002, (operational in 2007) PMEX already operates with two Rice Futures contracts and one

Wheat futures contract in existence at this time, however other contracts and different quality

parameters based on processors specific needs will need to be created. Suggested below are seven

possible grain contracts: • Rice Long Grain Basmati • Rice Paddy • Wheat Milling 1st Grade Bread Wheat (a list of specific hard endosperm varieties and or quality

parameters would quantify this best grade of wheat). • Wheat Milling 2nd Grade Bread Wheat (the hard endosperm variety list would remain the same but the

quality parameters would be lower. • Biscuit /Cake Flour/Other Milling Wheat (Soft endosperm textured wheat varieties would make up this

list, with quality parameters set to capture wheat suitable for processes such as biscuit, cake, gluten

extraction, starch production etc.). • Non Milling Wheat (This category captures all wheat that is not suitable for milling and can be sub

divided into possible grades 1 and 2 by virtue of specific weight – e.g. over 74Kgs per Hl and below 74

Kgs / Hl. • It is also likely that in some areas where land and climate are especially suitable that warehouses might

deem it practical business proposition (by virtue of the sheer amount of a particular crop grown within

their catchment area) and profitable (by virtue of providing a handling, cleaning, drying and storage

service to those farmer growers) to allocate some storage capacity to other crops such as Millet, and

Chick Peas.


5.2 Role of Players in the Proposed Model Listed and described not in order of importance but in order of commencement of their role: Government of Punjab: the initiator of the project, based on support from the State Bank of Pakistan, who

through a formal paper described a warehouse model, its functions, linkages and ownership while at the same

time offered subsidized capital loans for a period of five years in order to encourage potential investors to utilize

the model with the broad intention of improving the national arable crop commodity storage resource. Punjab represents the largest land area and hence volume of arable crop output in Pakistan. The government of

Punjab has a vested interest and responsibility to improve the quality of storage in the province. Benefits if the

model were successfully implemented across the whole province would be: – lower post-harvest wastage, better

grading, the ability to offer commodity safely stored, as collateral against bank loans for the farming community

and importantly the formalization of a largely informal economy. The good publicity generated by pioneering this

changed methodology in Punjab would not be without advantages either. At the outset they should consider how to best to publicize and create broad awareness of the new service and

aggressively ensure that all players as stakeholders were aware of what the benefits were and also how to

become involved. Investors in Commodity Storage: As the government is very keen to offer incentives and encouragement to

pioneers in the venture, no doubt there would be benefits offered such as low interest loans, and possibly tax

breaks involved. Yet the major reason for investing would be for return on capital and the possibility of further

profitable expansion. There is no doubt that there is a huge market in the countryside as yet untapped, currently

generating small margins and yet capable of significant increases in output. Investors in rural storage would have

a ready client base, loyal and profitable if the investor cultivated, by virtue of efficiency and service levels a

contented client base. The investors role is therefore that of a highly capable manager of an agribusiness enterprise, adding value to

clients cereal harvest by grading after analysis, recording by weight and grade, ensuring that the commodities

under their care are safe from harm and finally to exactly load out of store the quantities represented by

warehouse receipts. They also have to conform to rules and regulations, inspections and license conditions as prescribed from time

to time by the “Warehouse Receipts Consultancy” whose role is also discussed in this section. Banks would undoubtedly have a role to play in assisting the financing of and supporting investment by offering

(it is suggested) loans of not five year duration as suggested by the State Bank of Pakistan but for a more realistic

period of 10 years. The warehouses are building structures which traditionally (internationally) have been able to be written off in formal

accounts over 25 years (building and civil works) and 10 years (moving part machinery). A five year loan does not

therefore offer a match for the investment write-off period. Banks offering a 10 year loan would be more likely to gain

the investors custom. They could equally wish to take an equity stake in their own right – not unusually so in respect

of commodity warehousing. Their equally important role is in advancing working capital loans to farmers and others

owning warehouse receipts who may not wish to sell their commodity immediately post – harvest. Secure collateral

provided for these loans would be the warehouse receipt itself, pledged to the bank in exchange for a loan. No


commodity pledged could be sold and paid for without the banks loan having been fully accounted for. Loans

using WRS commodities as collateral are usually for up to 60% of the commodity´s value at the time of loan

uptake. Capital and interest are paid from the proceeds of a sale before other claimants – (warehouse keeper,

for storage, possibly also cleaning and fumigation, haulage contractor who delivered the commodity from farm

to store at harvest time and then finally the depositor). These functions are carried out by one of the commodity

exchange – linked clearing banks. Buyers of Commodity whose role must be recognized. Without their willingness to buy warehouse receipts and

hence the underlying commodity the system would collapse. It is also important that this valuable stakeholder

group is aware of and value the service offered by the scheme as a whole, in that it would build, quite rightly,

expectation amongst depositors of higher obtainable prices for their commodity. It is not expected that higher prices paid should lead to shrinking margins in the commodity processing sector,

simply that premiums are the result of efficiency savings shared. Their role within the warehouse receipt scheme is as follows: to identify the wheat / rice / maize quality that

they wish to buy and why. They may also wish to sensitize local farmer / first buyer users of the scheme

concerning their needs so that the warehouses, Warehouse Receipt Authority and PMEX can discuss and agree

an arrangement when grades for receipting and PMEX trading are established that are specifically designed to

match processors needs. Of buyer / processors met, where discussions concerning a WRS and Commodity Exchange were held, positive

responses were received and in one case (mentioned in Section 4.4.3 Processors of Agricultural Produce) the

processor suggested that they could be interested to invest in a WRS facility as a warehouse keeper and play

their role in an exchange linked market as a buyer. What they said was that they have several storage points

already in existence and that a WRS was a logical extension to their existing business, assured them of quality

raw materials and a useful sourcing method. Insurance Companies – are required to provide cover at each warehouse for several events and their specialized

function as a risk absorber is invaluable to the warehouse keeper being able to provide comfort to the users of a

warehouse facility. The insured risks mentioned will be required by the GOPB “Warehouse Receipt System

Authority” which will require a licensed warehouse keeper to be fully paid up in respect of insurance premiums

with approved insurers and having adequate cover to the satisfaction of the Warehouse Receipt System Authority.

Risks to be insured will be - All Risks (Fire, Lightening, Explosion, Flood etc.), together with consequential loss

insurance (needs to be confirmed, can be expensive in some countries), Employers Liability, Employee Fidelity. An

insurance bond will also be required with which, in the case of a misdemeanor on behalf of the warehouse keeper,

of such severity that if the Warehouse Receipt System Authority suspends or revokes their operating license -

then the bond conditions are triggered and a collateral manager called in to manage the warehouse on behalf of

the Warehouse Receipt System Authority as the management will have been barred from the premises. The bond

is designed to pay for a collateral manager while the warehouse management is investigated and the situation

that triggered the need for the bond payment is resolved.


Warehouse Keeper – This role may or may not be filled by the investor themselves, but separating it from the

investment function allows for the duties of the warehouse owner / manager to be described individually for the

sake of clarity. The prime requirement of a warehouse keeper in any situation is “to carefully accept and securely

store commodities on behalf of others, out loading that commodity to the rightful owners order whether that

is the depositor or another who may have become the rightful owner during the course of the storage period”.

The warehouse keeper has “a duty of care” and an obligation to provide a “full out-turn guarantee” In the case of an agricultural arable crop commodity warehouse receipt scheme warehouse keeper, the function

is refined by the storage needs of the type of commodity handled. The warehouse keeper under circumstances

where they will store wheat, maize and rice (possibly also other crops) will be responsible for the accurate

weighing and grading of the incoming commodity. They will be responsible for the accurate and complete sampling of the incoming commodity consignment and

also the laboratory testing of that sample together with the recording of test results. Duplicate samples to the

ones drawn and tested must be retained for at least 2 months after depositing in case of grade dispute. A grade is established by the warehouse keeper’s senior laboratory technician after considering the test results

achieved by the sample, and comparing those results with the fixed quality parameters laid down for each

storable commodity grade. The grade achieved must be recorded in concert with the weight – both sets of information combined form the

basis of a warehouse receipt and should be recorded against the name and formal address of the depositor,

together with a system generated warehouse receipt reference number. “The system” will be a facility used by all warehouse receipt scheme participating warehouses within Punjab for

recording and maintaining the records securely, for use in identifying stock to be sold on a nominated commodity

exchange and to facilitate loading out accurate quantities of the correct grade of commodity to an authorized

owner of the receipt and underlying commodity. It is expected that the system will be positioned, maintained

and operated by the nominated commodity exchange on behalf of the Warehouse Receipt System Authority. The warehouse keeper will maintain and clearly advertise to depositors visiting the warehouse site, a list of

functions and charges involved that can be carried out by the warehouse keeper if they are required by the

depositor. The depositor may request that a given listed process be carried out by a warehouse keeper – usually to ensure that

the commodity reaches a storable and gradable standard. The warehouse keeper has the right to refuse to store any

given consignment of commodity by virtue of its incompatibility with established grades and lots already in store. The

refusal can be verbally transmitted but must be followed up by an explanatory formal, signed document. Any

commodity once accepted at a warehouse cannot then be rejected at a later date. The warehouse keeper has to store commodities in a safe and secure situation, paying attention to all risks but

also paying special attention to the condition of the stored commodity as far as moisture, temperature, mould

and store pests are concerned. That list of pests is (by no means a full list) but will include such insects as grain

weevil, saw toothed grain beetle etc., rats, mice, pigeons and other birds and rodents. Adequate yet safe

measures (to the extent that human health or life must not be threatened) must be employed while controlling

pests, or consuming / handling the commodities treated with approved pest controllants and stored in the

warehouse. Pest control measures must be taken to ensure that no ingress of any kind into stored commodity


bulks is achieved. Maximum aflatoxin levels permitted must also be adhered to and tested for where

appropriate. Haulage Contractor – an invaluable member of the warehouse “team” who, although possibly not employed in any

contractual way by the warehouse keeper, performs the function (and is thereby a regular visitor to the warehouse),

of collecting commodity for delivery to the warehouse and / or collecting commodity from the warehouse for

subsequent delivery to a processor of that commodity. The more the contractor is familiar with the operations of the

warehouse, the more valuable he will be in knowing what to do, where to do it, where to wait, how to prepare the

lorry / vehicle for sampling, weighing, tipping and loading. The lorry driver’s familiarity assists with speed of intake and

out loading, in demonstrating to others who do not possess similar experience. Warehouse Keeper Staff – This valuable and essential category has not been placed in “last” position not

because of their unimportant role. This dedicated team of professionals has the task of sampling, weighing, grading, testing, accounting, and

managing, controlling, reporting, liaising and generating information concerning consignments of commodity

arriving at the warehouse, while in store at the warehouse and as it is leaving the warehouse also. Their reliability and skills, clerical, general managerial, IT, maintenance and controlling familiarity with and on

behalf of exterior clients, depositors, haulage contractors etc., is vital in the smooth running of the warehouse

operation. The (proposed 50,000 MT capacity) sized warehouses will have a staff of (or multiples of – depending on

warehouse capacity): manager, accountant, secretary, IT specialist, data technician, senior laboratory technician

+ 2 / 3 additional during harvest, sampler + 2/3 additional during harvest, weighbridge operator + 2 additional

during harvest, store controller + 2 additional full time general assistants + up to four more casual assistants

during harvest, security guards x 2 + 2 additional during harvest. Total staff on site permanently - 12. Total staff

on site at harvests 26.

5.3 Approximate Quantity of Required Warehousing Facilities in Punjab Based on the three major combinable arable commodities, (wheat, maize and rice), an assessment of required

storage capacity “at farm level” was undertaken, using production figures available from the Government of

Punjab Agricultural Department. By “farm level” it is meant rurally located capacity designed to serve a specific area of production as is opposed

to processing facility storage which is located at the processing plant and not at the place of harvest or close to

the place of harvest. Based on the statistics for Punjab crop production and output for each Punjab Division,

supplied by GoPb Agric. Dept. AMIS statistics for the 2014/2015 harvest year, relating to each of the three main

crops, a production output table was generated which can be found in Annex 7 Punjab Cereal Output (2014/15)

and Warehouse Capacity Needs, by District and in Annex 8 Graphic of Punjab Warehouse Capacity Needs, by

Region


Punjab cereal crop output is stated to be 25.8 million MT (2014/2015), of which Wheat Is 19.64 million and Rice

3.592 million, leaving 2,586 million tons of maize. Based on informal survey knowledge, informal consumption of grain (wheat plus some rice) amounts to

approximately 1.2 million MT annually and the Govt. of Pakistan food reserve program regularly maintains stocks

of 2.3 million MT. This leaves a requirement for formal post-harvest storage of 22.3 million MT. Flour millers and

other processors – animal feed manufacturers, starch processors, seed merchants etc. are estimated to take

around 3 million MT and store it as a reserve against short term needs, although this could be considered as “work

in progress”.


The above assumptions are detailed in table 12:

Table 12 Crop Production and Storage Needs ITEM QUANTITY (000´s MT)

Wheat 19,640

Rice 3,591

Maize 2,586

TOTAL CROP 25,817

Home Stored 1,200

Government Stored 2,300

Processor Stored and Seed Needs 3,000

UNSERVED WITH ADEQUATE RURAL STORAGE CAPACITY 19,317 approximately

This figure, if expressed in terms of the number of 50,000 MT warehouse receipt system units 386 individual

sites, strategically located in areas of concentrated production in Punjab are required.

5.4 Key Success Factors and Challenges

5.4.1 Success Factors / Benefits / Improvements to Currently Available Services

• WRS scheme will provide depositors with cost-effective storage facilities that they cannot otherwise

afford

• Testing of quality, load by load, (whereas currently farmers have no idea of the quality of crop they

produce) and comingling of farmers produce by known grade quality standards.

• Weighing of depositors loads. Accurate weighing allows the farmer to know exactly what his yield/ha is

and how much of each commodity and each grade he / she can sell – exactly.

• Cleaning and fumigating service would be available if / when required. It ensures the quality of goods,

insect free.

• Storing by grade category & fast out loading. Keeps processors happy – rapid turnaround for trucks and

consistent deliveries of quality product.

• Post-harvest losses can be eradicated – farmers yield output jumps by +15% 7 in the first year

• WHR´s can be used as loan collateral with participating banks. They like WHR´s – easy to monetize

7 Said to be the post-harvest loss figure – quoted by traders, farmers, GOPB, AMIS et al.


• Commodity must be sold on PMEX or similar facility – it is the only way to guarantee payment to all

service providers – (warehouse storage and handling, cleaning and fumigation charges, transport

• Contractor at intake, bank interest and capital also the commodity exchange broker’s charges).

• Payment made 1 day after sale directly into sellers bank account – this is VERY quick - (Informal cash sales are instant obviously) but trade payments often take some time to come through.

• Silo operator is fully insured, indemnified and bonded. Risk is kept to an absolute minimum.

• Oversight - Government agency checks for mistakes and bad practice (if any) and punishes silo operator

if negligent.

• Transparency - the system is designed to give farmers and first buyers a first class service with no

hidden costs.

• Rapid, constantly available market information. Market information via the commodity exchange portal

will be available by SMS, recorded voice message, market place “Tickers”, internet, email, television and

radio. 5.4.2 Challenges / Hurdles to be Overcome

• Deliveries to store ideally need to be in lorry load units, therefore farmers would have to cooperate at

village level to assemble their crops, test % moisture and weigh before delivery. Very small farmers

would have to pool harvests and share income – some organization required on their part.

• Farmers may not feel able to use the service, preferring to continue with existing Arthee relationships.

(many farmers are in debt to these merchants / commission agents already) It is probable that to begin with at least, the WRS has to be opened up to all players – farmers and first

buyers also. The first buyer has a role to play as an assembler and has been involved in trading with and

funding rural communities for many years. The strength of that local bond should not be ignored by

warehouse keepers, the Warehouse Receipt System Authority or through them the GOPB.

• Markets go down as well as up – commodity exchanges make selling easier and safer but not ALWAYS

better. Farmers might blame the WRS system if prices fall in any given year.

• Processors refuse “to play” – preferring to buy at lower prices from existing sources and risk receiving

lower quality product.

• Government buying or selling programs might prove to be disruptive for prices when the market can

react quickly to news of unexpected purchasing / selling activity


• Farmers may not see the benefits of a WRS – or articulate their nervousness toward a new system in an

incorrect and derogatory manner, in an attempt to cover their real reasons for not participating which are

likely to be a lack of knowledge of the system, incorrect local rumor spread by competitors etc.

• Services provided have to be paid for. Although the benefits to small farmers are significant – there will

be costs involved – e.g. warehousing (the longer storage is used for the more it costs), intake fee – the

weighing (in and out) and analytical service has to be paid for, drying (if used) – should a deposit be too

moist for safe storage, the deposit will either be rejected or a drying charge can be agreed and the service

performed, cleaning (if used) – should a deposit contain too much trash, small grains and other non-

acceptable admixture it will either be rejected or a cleaning charge can be agreed and the service

performed, fumigation (if used) – should a deposit contain evidence of pest presence which would

damage the consignment (and other co-mingled commodity), the deposit would be rejected or as

fumigation charge agreed and the service performed. Issuing a warehouse receipt – the final charge –

the cost of raising and issuing a negotiable warehouse receipt would be due to be paid on each receipt

issued. Optionally / this could be required by the farmer as a warehouse receipt per load delivered and

deposited at the warehouse or alternatively as a warehouse receipt per total consignments making up

one specific grade.

• Some charges are optional, some are mandatory. A deposit under any circumstance would incur a

weighing charge, grading charge, warehouse receipt charge and warehousing charge dependent on how

long the commodity was finally retained at the warehouse for. Farmers / depositors may not wish to pay

these charges and sell their crops elsewhere instead of using the WRS system at all. 6.1 Impact 6.2 Social, Economic, Political and Financial Impact

Financial Impact Without the additional services of a Socio – Economist it is impossible with the consultants own skill level and

background to quantify in precise social and economic terms what the likely benefits (both tangible and

intangible) will be. What can be confidently stated however is that there will be real economic benefit for the farming community

in terms of preventing post-harvest losses? A figure of 15% (although it is suspected that it could be higher) is

quoted by most players as being the reduction in what a farmer can / does sell compared with what he actually

harvests.


The WRS will immediately enable all of those that participate in the scheme to benefit from the eradication of

the post-harvest loss problem from the first harvest´s use of a WRS warehouse. That benefit is not a “once only

benefit”. It will reoccur at every future harvest when a WRS facility is used. Prices paid for warehousing may increase over time. Although price trends (rises and falls in prices) will continue as

always, through better knowledge of what they have to sell farmers will be able to capture premiums for quality that

they never realized existed before. Through laboratory testing at intake, grains will be able to be stored in “like” grades,

designated by quality parameters. Farmer / First Buyer depositors will be offering grains for sale in quantities and

qualities that match those shown on their warehouse receipt and grading certificate. They will EXPECT higher prices for better quality produce, and although buyers may be reluctant to pay

increased values for WRS stored and guaranteed parcels of grains at the outset, they have to come to realize

that the system is also of considerable benefit to them. Once realization dawns and differences in flour extraction statistics are examined for example, flour quality

improves through the use of better quality - guaranteed cereals, the miller / processor will prepared to

relinquish a small part of their gross margin in order to capture supplies that better suit their needs, when

compared to the ungraded, unknown quality produce that they currently have to process. Social Impact The consultant´s experience with the management of farmer owned cooperative grain storage facilities over ten

years, – (managed, also established then managed) is that the collective ethic is strong among rural communities

and given a strong, respected local leader, they will work together for the collective good. This is surprisingly true

of farmers, long heralded as being fiercely independent people. The consultant has found by experience that

farmers are very willing to work with each other – but they need to see a commercial benefit emerge at the end

of their efforts in order to continue working for the perceived collective benefit for more than one trial occasion.

In short, betrayal of their trust causes rejection in the case of structures where commercial benefit is offered but

not in the final event, delivered. There is social benefit on offer through collective use of a WRS and where financial well - being improves among

users of the system, so will the wealth of the local community through trade and the disbursement of that income. Practical benefits can also occur as once collective activity can be seen and felt to be beneficial, spin-off collective

activity can also occur – such as collectivization of transport from farm to warehouse. Many farmers are too small to

be able to fill a 20 - 25MT lorry with wheat, rice or maize daily as they harvest, but several that are growing the same

variety and farming in the same locality, harvesting at the same time could and are likely to be interested in sharing

the transport facility needed to take grains to a WRS warehouse and gaining the benefit of providing a complete load

and paying a reduced charge per ton for more efficient means of transport.


This will lead to them sharing the income from grain deposited because it is unlikely that warehouses will be

able to split intake records among more than one depositor per lorry load. They will need to ensure that their

own produce is not superior / inferior to that of their cooperating “neighbor”. How that occurs was discussed

earlier in this report - but while working together with each other from harvesting to the receiving of a

warehouse receipt and sharing income from a sale of that receipt, the beginnings of a farmer’s cooperative

begin to emerge. The farmers can grasp that potential if they wish. Buying can be done collectively also, once the farmers realize the benefits of collective sale and transportation they

may consider the possibility of cost savings by collectivizing their agrochemical and fertilizer orders, expecting (and

receiving) discounts for larger orders, delivered to one local point instead of several. Economic Impact There can be no doubt that the formalization and documentation of the rural economy, partially achieved

through formalization of the arable commodity trade are enormous. With a rural population of around 45 million,

many of which are to some degree involved in agriculture, mostly informally, to bring this volume of the

population within the national taxation net would be a significant development, economically. The warehouse receipt system would bring order and improved income to agriculture from contributions

achieved by reducing losses, increasing sales values simply by understanding that quality matters and from

grading and testing crops. Table 13 – Pakistan GDP by Province A WRS would potentially add to

Punjab economic activity, once full roll-out is achieved, adding 300+ silo warehouse units to the Punjab grain and other agricultural commodity warehousing resource and with

individual site storage capacities of around 50,000 MT, the venture would involve the creation of 19.3 million MT of new storage capacity and generate around 4,600 permanent jobs and 5,400 part time positions.

Source: Regional Accounts of Pakistan, Methodology & Estimates


Political Impact Politically the development would be hugely beneficial to the ruling political party, in that they would be seen to

be formalizing the “grey” economy, improving efficiency, helping farmers and sharing economic burdens among

more of the Punjab population more fairly than previously. As much of the income currently generated from

agricultural activity is undeclared and therefore outside the tax net.

6.2 Impact on Punjab Government Policy – Crop Support Prices, Food Security,

Import /Export

Government Policy (Development) The consultant’s opinion is that the success of this venture, lessons learnt and successes achieved along the way

will be instrumental in spurring further facilitating of major projects where they are of benefit to a specific sector

– wide audience. They do have to take care with the oversight aspect of the warehouse receipt project however

as their controlling body – the proposed Warehouse Receipt System Authority, needs to be risk aware and quick

to act in order to maintain the structure and confidence of investors, depositors, buyers and warehouse keepers

alike . Success in doing so will greatly inform them in respect of the requirements of control in respect of other,

future projects and the experience gained will make them able to develop, consider, assess and launch similar

projects in the future. Crop Support Prices & Food Security Part of the reason that crop prices (cereals in particular) have to be supported in Punjab is because of low output

quality. Poor quality cereals sell for much lower prices per ton than high quality. At the moment nobody at farmer

level knows the analytical difference between good and bad. There are no laboratory technicians that test cereals

on farms, only at government laboratories, flour mills, rice mills and similar establishments. Therefore ALL prices

are depressed because there cannot be any guarantees made for grains when they are sold, as no farmer knows

exactly what he / she is offering for sale in anything other than purely visible terms. Experience informs the buyer

(and seller) what plump, fresh, undeteriorated grain looks and smells like. What they cannot know without

expensive laboratory equipment is the exact technical analysis required by a discerning flour or rice miller for

example and whether or not the commodity concerned is in a suitable condition for (importantly) storage for

periods of up to 10 / 11 months each year without a deterioration in quality. There are several parameters to be tested for presence/absence / high / low readings before the indications

achieved will prove that a sample of grain under analysis is of good or excellent bread making standard. Equally

it could be proved unfit for the purpose. Farmers will complain that they are being offered low prices, but they will not add that it is because the quality

of their crop is low! The government supports prices which are unwittingly traded at low price levels because of

low quality. If quality discovery was the norm, then prices for good quality commodity would be higher, and less

of farmers produce would reach the state reserve (and hence receive price support) because it will already have

been sold to a flour miller due to its higher quality.

Millers are prepared to purchase good quality raw material for several months into the future – because although


the cost of good quality cereals are important to them, their first interest is to ensure a continuous flow of good

quality raw material. A WRS can meet that need by segregating good from less good commodity on behalf of

depositors, ensuring that quality and grade discovered at the time of deposit is maintained, and delivering that

quality to buyers. At whatever time of the year a farmer sells – (and timing can be extended by enabling

borrowing from banks against receipts, meaning that the flow of commodity offerings will continue into later

months of the selling season) - there would be a willing buyer, assured that they will get exactly what they have

purchased. Farming is not about producing for support institutions – it exists to produce good quality food to sustain a

population which over recent years has become more concerned about what they eat – and what they are being

asked to pay for. The government is buying the worst of the crop, which otherwise would be traded at low prices.

The best of the crop is marketed at prices that are equal to or above the support price. Governments have concerns about food reserves, emergency food needs and feel it their duty to carry stocks in

case of a disaster. As populations become more wealth-sufficient and agriculture becomes more sophisticated –

farmers can afford proper equipment to cultivate, sow, care for and harvest their crop, less need for food reserve

stocks arise, and the sophistication spreads to crop marketing and quality discovery also. Then, gradually the state reserve and price support function becomes redundant! Punjab is not at that point yet,

but it is close. The WRS will help that event come about – predictably within the next 5 to 10 years.

Import / Export Import and export grain business should be an area free from political influence. Unfortunately in many

countries this separation is either not adhered to or ignored. Grains and oilseeds are traded by governments,

causing increases and decreases in prices as a result of their unforecast intervention. Better that they leave well alone as the price falls and rises caused by their eventually announce d activity is usually

detrimental to a farmer or trader who has been holding stock, has just sold stock before an announcement was

made or has made a sale and was about to seek stock with which to deliver against a sale. However in a warehouse receipt system situation if there are any trade “whispers” concerning government to

government grain deals about to occur the market information service, plugged into the commodity exchange /

WRS should pick it up and broadcast it to WRS clients that have subscribed to the service. Sales can be made

rapidly through the exchange based on information received if necessary. Other non WRS client farmers would

not receive any information until the following television or radio news broadcast – and possibly not even then if

a more topical story took its place. Imports of quality agricultural materials are required from time to time – but from a Punjab wheat perspective it

would normally only be milling grade that was imported. If those imports are replaced with known quality Punjab

wheat supplies from WRS stocks, that could in itself be a major benefit as mentioned earlier in this section.

7.0 Overall Recommendations and Phase 1 Pilot Detailed Action Plan. 7.1 Strategy for Introduction As mentioned earlier in the body of the report, there are three options viable for implementation, yet the


consultant is aware that there are only two practical implementation strategies that hold the potential for success

and long term sustainability, in respect of ownership. Certainly, “ownership” of the development project itself lies

squarely with the Government of Punjab, as instigator, developer and controller of both the development itself

and from an operational perspective as warehouse operations commence and expand over time. This is a long term development project – in terms of the life of the facilities to be provided and services that it

will provide to Punjab agriculture also in terms of the amount of time that it will take to complete. The initially installed warehouse facilities themselves are likely to last for around 40 years (with the initial

investment depreciated financially over 25 years (buildings, civil engineering works) and 10 years (machinery) if

international accounting conventions are applied. The project itself could be planned to roll out over an 11 year development (construction) period across the whole

of Punjab. The reasoning behind an 11 year plan is simply the sheer volume of capacity and number of units to

be installed. See Annex 12 Action Plan Timeline Warehouse Construction Phases 2 to 11 to view a roll-out

timetable. This involves a 2 year pilot phase (physical assessment of the plan benefits, wide scale sensitization,

training, planning for the full scale construction and operational implementation phase, to commence at the

beginning of year 3 and continue until year 11). Even finite planning, land procurement, utility service provision and the commencement of a scheduled silo and

ancillary equipment arrival, contractor selection, management and staff employment and training, will require

significant timing and planning. Undertaken with care, once, without errors is far more sustainable than ambitious

timelines that have to be adjusted due to errors in initial assessment. It should also be accepted that while the eleven year period is on-going and silo erection in individual districts is

still at first phase level, it is highly likely that the early implemented districts will already be planning and

implementing expansion plans due to increased demand created by a need to store increased yield from initially

selected crops together with demand for storage of additional, yet currently cultivated crops such as - Canola,

Chickpeas (Gram), Millet (Bajra), Guar, Tumeric, Sesame, Mung Beans (Moong), Groundnut, Barley). So the

development of a suite of WRS facilities will be entering an expansion phase before some districts have erected

their first facility.


7.2 Ownership There are three facility ownership options to be considered before commencement. These have now been listed

in order of recommendation – (note the reverse order): 1. Private Ownership – in this case the facility is owned, managed and controlled by a private investor or group

of investors. In the case of a group of investors a management company which represented the shareholders in

proportion to their investment would be the operating vehicle for the shareholders. In every case the duties to be performed on behalf of depositors are unchanged, except for model 2 and 3 where

the “Warehouse Receipt System Authority” is independent of the warehouses management but remains

responsible to and reports to the Province of Punjab in respect of the function of licensing, overseeing,

monitoring, inspecting and controlling (in an oversight sense) warehouse keeper operations on behalf of the

Govt. of Punjab. 2. PPP (Public/Private Partnership) – in this example the province of Punjab takes a financial (and therefore a

responsibility and control) stake in the business, sharing all risks and rewards. 3. Fully State Owned and Controlled – where the province of Punjab is the service operator, sole investor and

owner of the facility, while also controlling “the Warehouse Receipt System Authority” which would oversee,

monitor and exercise a level of equitable control over all warehouse operations (and those concerning the

service connection between the WRS system and a commodity exchange, to be nominated by the Province of

Punjab as the provider of the WHR trading service to depositors) Of the three options above, the consultant recommends option 3, (for the proposed pilot facility) with option two

as a possibility at the outset and leading to eventual full privatization (option 1) IF complete private investor

funding of the project at the outset becomes a challenge. In that event the Government of Punjab has to take a developers stake – with a view to full private ownership of

each site or multiple sites, and the recovery of state investment capital at the earliest opportunity. Having one owner per site or several sites within a reasonable area encourages pride in implementation and a

degree of “competition to succeed” which is desirable as it will create energy and dedication to the task. Competition between warehouse keepers is not advisable – this would be a service provision provided by the

Government of Punjab and contracted out via the Warehouse Receipts Authority to private warehouse operators

and a commodity exchange organization – all warehouse keepers should be instructed by the Warehouse

Receipts Authority concerning their service charge rates at commencement and for at least the first three years

of operation. Following that learning period, encompassing three years of loading, storing and loading out of the warehouses,

each owner will have learnt much about their business, clients and how to manage efficiently and profitably,

within the boundaries of the system itself.


7.3 The Pilot Project This is where training and education begins, all stakeholders learn much about the warehouse receipts system,

controls, clients, (depositors, buyers, WRS physical IT linkages and data processing, the warehouse and its

operation). In parallel, the chosen commodity exchange must play their part in creating / sharing existing systems

and developing awareness among all other stakeholders of how the selling of WHR´s will be undertaken, how

information is received and transmitted, market information provision etc. Banks must also be contacted

concerning both capital investment in the pilot (if necessary), clearing function possibilities for the value of sales

made on the commodity exchange, loans against pledged WHR´s. Sensitization is the heading for much of the above logical activity. Owing to the fact that the pilot has so much

depending upon it and activity levels surrounding it – much of which is of a development nature, it is suggested

here that the Govt. of Punjab partner with an international development donor in mounting a project – “the

Punjab Warehouse Receipt Scheme Project” or similarly named, to oversee and carry out the not insubstantial

amount of training, publicity, organization and management of tasks that will use the pilot project as a training

ground and example, for replication across multiple Punjab districts. For optimum cost – effectiveness while at the same time ensuring that the pilot model is not excessively

expensive in the short term, it is suggested that the pilot project warehouse facility capacity amounts to

between 10,000MT to 20,000MT of storage. This is considered to be the minimum of cost effective capacity for a stand – alone unit, will be easy to manage

and demonstrate yet can be built quickly and operational within 9 months of having commenced site works.

Contractors can learn lessons in preparation for the roll – out of additional sites while further planning is carried

out and the construction work continues at the pilot site. In the meantime staff can be selected, trained and (in

the case of laboratory, weighing and sampling staff) be certificated as competent task managers. The site chosen upon which to build the pilot warehouse must be large enough to allow for (and local

permission granted for) expansion to 50,000 MT capacity overall.


7.3.1 Pilot Phase Detailed Implementation Plan

Ref

PILOT WAREHOUSE PROJECT IMPLEMENTATION TEMPLATE

Tasks

P/0 Warehouse Receipt System development agreed and is to commence with 10,000MT or 20,000MT pilot project (to be decided). Warehouse Receipts

Authority formed, powers and responsibilities, reporting modalities defined, controller and staff selected.

P/1 Initial selection of potential development partners (international development project for TA and national contractors for warehouse construction - to also

include international designers / suppliers / erecters of silo systems and design and building project manager / surveyor).

P/2i First public announcement, EOI requests (high level) incl. banks, logistics companies, civil engineering companies, turnkey silo system providers,

weighbridge , utilities, power, water, telephone etc.

P/2ii Agreement signed with Commodity Exchange to supply trading system, market info service, (SMS and Ticker pilot phase), training for warehouse support

level staff and equipment supply (input and market terminals) also for broker training and local publicity support

P/3 International Development Project Commences with staff advertisement, selection, training and certification, farmer, trader and buyer sensitization

P4i EOI responses considered, categorized, assessed and selections made, rejects informed, meeting organized for 1st and if necessary additional public

information dissemination session(s)

P/4/ii Second public announcement (Press / Media Launch of Warehouse Receipt System Pilot Project)

P/4/iii International tender announcement - lab equipment

P/5i Local tender warehouse office /lab/weighbridge construction / equipment supply

P/5ii Construction of warehouse facility, washrooms, workshop, canteen and office (inch .lab, weighbridge, sample storage, record storage, Data processing,

various offices undertaken and completed. On - site trainings etc. occur when not interfering with construction work.

P/5iii Site security considered agreed and implemented

P5iv Completed warehouse system testing and handover

P6i Warehouse staff familiarization with system, site and duties. Procedures and practices agreed, warehouse operations manual and quality operations

P6ii manual introduced, SLA´s set

First review of pilot phase, lessons learnt so far. Additional procedures introduced, depositor preparedness discussed, extra effort organized if necessary.

Buyer preparedness discussed, extra effort organized if necessary.

P7i Warehouse Operations Manual and Quality Operations Manual produced by International TA

P/7ii Any required paperwork agreed, purchased and supplied

P7iii Depending on harvest proximity - first opening day announced / publicity organized


P8i First year involves publicity, training and sensitization for all players on site, second and third years involve training and sensitization for Phase II potential

P9i

participant farmers, traders and buyers. Phase II staff will also be trained at the pilot and relationships formed between Phase II and Pilot Phase staff.

Final Review of Pilot and lessons learnt. Plans for Phase II commence implementation.


7.4 Requirements – Institutional Framework “The systems of formal laws, regulations, and procedures, and informal conventions, customs, and

norms that shape socio-economic activity and behavior”. 7.4.1 Warehouse Receipts – Legal “Document of Title” in Pakistan? In some countries, depending on their legal model, there has been a need to establish a “Warehouse

Receipts Act” as in Uganda for example, in order to establish a legal framework for the establishment of

a commodity exchange and warehouse receipt. In Ghana this was not necessary as the Security and

Exchange Commission already had existing legal precedent in terms of the functioning of exchange

market instruments under their control. This instrument dealt adequately with the matter of the

warehouse receipt being a formal security or document of title, holding value. The commodity exchange

and warehouse receipt system was therefore formed under the umbrella of the SEC. In Pakistan there appears to be some confusion concerning the legal status of a warehouse receipt. Does

it carry value or not. Some say that it does, others disagree. The consultant was not charged with taking

council´s legal opinion concerning the matter , due to time and cost constraints, so apart from mentioning

that this understanding or misunderstanding requires urgent clarification in the form of legal councils

opinion – more cannot be done. It should be pointed out however that the drafting and introduction of a

new law to allow for the exchange and WRS function – particularly the trading of receipts and granting of

loans when using WHR´s as collateral will take parliamentary time and could delay the project by a year

or more. Hence the need for urgent and indisputable legal opinion on the matter. 7.4.2 Warehouse Receipt System Authority The system will need to be under the control of the Government of Punjab. It is expected that the

Authority be established as a Parastatal organization registered in Punjab and under the ownership of

the Government of Punjab – allowing for the line of reporting to be allotted to the Agriculture

Department. The “Authority” would have wide ranging powers of oversight, granting of warehouse operators licenses,

certificates of competence to samplers, weigher´s and laboratory staff / graders. In addition it would have

the duty of warehouse inspection at all levels. That is to say inspection of equipment, storages, health and

safety, recording, and records, warehouse operations manual, quality operations manual and SLA

compliance. (SLA´s are applied to warehouses by the Authority as a method of monitoring activity level

compliance etc. For example – SLA´s can be set for MT intake per day, vehicles left unloaded at close of

business each night). They are a target / indicator of satisfactory performance during particularly sensitive

periods (e.g. harvest time) but should not be unreasonably set. SLA performance outside target levels

would be expected to be investigated by the Authority and acceptable reasons given for breaches.

Alternatively if an SLA were found to be realistic by the Authority after investigation, then an agreed new

target could be applied.


Inspections would be both annual and of a spot check nature. The warehouse receipt system is to be

seen by all as a service industry, operating at the highest level of accuracy, performance and service

provision. ANY breech of a procedural or accounting nature would be a serious matter and dealt with

accordingly. On the other hand the Authority is also to be seen as an advisor and supporter where

circumstances beyond the control and/or jurisdiction of the warehouse keeper occur and formal advice

on how to deal with a particularly unusual set of circumstances is requested by an individual (or many )

warehouse keeper (s). In respect of licensing the warehouse keeper should be in no doubt that any serious misdemeanor on

their part would lead to suspension or withdrawal of their license, subject to arbitration review. An

appeal to the Agriculture Secretary could be possible if required, following a tribunal judgement and

final recourse to a court of law would be possible. However suspension / withdrawal would remain in

place under such circumstances while due process was observed. A collateral management company could be deployed to manage the warehouse under the above

circumstance, funded by the warehouse keepers bond which is described earlier in this report, to which

all warehouse keepers will be required to subscribe to. (The warehouse manager / owner and office

senior office staff would from the date of the Authority suspending a license be barred from access to

the site), except under exceptional circumstances. The Warehouse Receipt System authority is therefore a very powerful instrument of The Government of

Punjab and it carries the responsibility for ensuring the function and integrity of a highly valuable resource

– the system itself together with crops which it holds on behalf of clients – both for buyers and sellers. It

is also responsible for ensuring that the linkages and performance of a combined WRS and Commodity

Exchange offer continuous and real benefit at all points of its specific place in the commodity value chain. The Authority will not regulate the commodity exchange itself – as its regulator (The Securities and

Exchange Commission) is already in place – although it will monitor and report on performance levels

and SLA´s set for the relationship between the exchange (PMEX or another) and the warehouses , their

clients and the system as a whole.

7.5 Policy Interventions to Encourage Investment & Early Adoption of the

System 7.5.1 Investor and Stakeholder Sensitization. There can be no doubt concerning the size of this potential project – also the fact that it is not only

ambitious but in its grasp of the current situation having selected the potential way forward for Punjab

arable agriculture´s future. Equally ambitious needs to be the process of sensitizing investors, potential warehouse keepers (they

may not necessarily be the same organization) policy makers, construction contractors and equipment

suppliers. The project itself will need inputs from the state and private sector, within Punjab, Pakistan as a whole

and also globally.


It is suggested that: Step 1. Should be the engagement of a specific first class international consulting company, to organize

and publicize the holding of a conference to encompass all potential developer stakeholders. Farmer and

buyer sensitization comes later and can be handled on a more localized basis. This event would be similar in size, target and desired outcome as that of a large international symposium

(conference) and should be viewed as such. Suitable national and regional players in warehousing (with an

awareness of logistics, warehousing and operating both bagged and bulk commodities) should be targeted

invitees, along with constructors that have a history in erecting (20 to 50,000 MT capacity) silo storage

complexes, bankers (of both national and international development focus), potential warehouse keepers

(drawing on national and regional expertise, international experience and also regional and national logistics

companies) as a participants at audience level. Add to this list financiers (national banking organizations, international finance houses, hedge and

investment funds, World Bank / IFC, other international merchant bankers. Finally and equally

importantly, include successful commodity exchange operators with a background and experience

parallel to the starting point at which the Government of Punjab is currently commencing. As the expert in charge of and with experience of organizing such events – in this case with the desired

outcome of interesting investors and capital equipment suppliers along with potential warehouse

operating partners – the international organizing company´s function would be to remove the difficulty

involved with mounting such a high profile event from the Government of Punjab´s shoulders, yet working

to achieve the Government´s aims and outcomes, while being constantly in touch with and responsible

to a nominated Government of Punjab individual and through them a committee selected to specifically

guide and oversee the task. Expected delegates at the event should include but not be limited to a comprehensive list of:

• Potential Warehouse Investors, • Specialist Warehouse Construction Companies (both partial and full turnkey) • Potential Warehouse Operators • Logistics Operators • Commodity Exchange Operators • National Bankers interested in Warehouse Receipt–Based Lending • National and Regional Processors of Cereals, Oilseeds and Pulses • Representative of a / the National Farmers Organization (as applicable) • Representative of a / the National Agricultural Merchants Association (as applicable) • Representatives from Media Organizations (Radio, television, national newspapers, magazines

etc. dedicated to agriculture) • Computer Hardware and Software Suppliers experienced in the development and supply,

installation and support of similar facilities internationally. • Others as applicable


The symposium should be designed to raise awareness of the Government of Punjab´s plans, timetable,

requirements and target sector and the fact that they are seeking interest and investment partners from

the outset. Speakers should be selected that have significant international experience in developing and

managing such facilities as the Government of Punjab wish to erect and use to serve their arable farming

community. Step 2. The intended outcome should be to have presented their case to potential investment,

construction, operational and supplier stakeholders so that contacts can be established and key follow-

up discussions can commence, designed to shape the way forward and gather partner implementers,

prepared to work with each other in bringing the plan to a successful conclusion.


7.5.2 Establish a Warehouse Receipts System Authority Step 3. Would involve moves by the Government of Punjab (GoPb) to establish the Warehouse Receipts

Authority, following the passing of legislation empowering and setting out its role and powers. Key staff of the

WRA would firstly have to prepare themselves and the organization’s structure by visiting two, possibly three

examples of similar structures, selecting effective and best practice examples to work with and develop for

use at the Phase 1 pilot project. In training staff, developing operations manuals, applying license criteria to

potential warehouse keepers, the Authority (WRA) will have to be clear in its thinking, equal in its application

of rules and regulations and able to maintain a balance between the interests of all participating stakeholders.

See Annex 5 Structure and Operational Responsibility Model – WRS Authority 7.5.3 Incentive Encouragement for Investors Step 4. Governments often use incentives with which to encourage investment in given areas or projects

in order to attract organizations which would otherwise not commit. This could also be true of the

investment required in a Punjab Warehouse Receipt Scheme, where the projected capacity required by

2025 is projected at 19.3 million Metric Tons. By the time that the final warehouse has been constructed

– realistically by 2025, there ought to have been yield acceleration in Punjab of a cautiously estimated

1% annually resulting from improved farming practices and cereal / pulse and oilseed varieties. That alone

increases the requirement for storage by another 193,000 MT annually or a further four warehouse sites.

What the consultant envisages occurring is that expansion will occur at existing sites to deal with

additional yields and additional crops also, creating a gradual improvement of available capacity nation-

wide rather than by the further addition of capacity of a “green field” development nature. What incentive mechanisms, could be offered to encourage private investment in a WRS? Possible areas used by governments and regional authorities in other countries have been: Direct Grant Aid - where government directly assists development costs by providing a fixed percentage

proportion from its own funds, subject to a strict compliance agreement concerning expansion,

operational modalities, eligibility etc. Reduced or Freedom from Local Taxes – this method uses as an incentive a reduction in local land /

business rates or reduced / freedom from company profit taxation (for a fixed number of

“establishment” years) so that the company can be financially more stable during its initial set – up

expense related period. No Cost Land – where land held by the state is available for development and is located in a suitable

area for the business to operate – this contribution toward capital cost reduction is also a way of

encouraging / steering the choice of business location. Subsidized Interest Rates – governments can undertake to subsidies the cost of lender interest charges

for a fixed number of years, easing the burden of initially funding capital loans while business volumes

are built up.


7.6 Possible Cost of Pilot Project Facility All investment required to cater for the initially forecast 20,000 MT pilot facility could amount to more

than US$3.0 million - US$150 per MT (pilot project, to include, intake Points x 2, Pre cleaning Storage

Bins 6 x 90MT, Flat Bottomed Storage Silos 8 x 2,500 MT with Sweep Auger Discharger, 25tph Rotary

Cleaner, 2 x Weighbridges, Control Panel, 2 x Bagging Off Lines at 25tph Each. These figures have been taken from a quotation received three years ago by the consultant in response

to a specific order for equipment with which to build a 20,000MT capacity facility in Africa and should be

checked with current values. However with the benefit of falling steel costs – prices may not have

changed very much since that time. To be added will be civil engineering works, office and laboratory,

workshop, perimeter fencing and the cost of utility services provision. To look 10 years ahead with any level of accuracy is both difficult and fraught with risk – however with

current low inflation in developed economies, reduced energy and steel costs, falling industrial output –

now must be a favorable time to consider investment in capital equipment. It is evident that now, construction costs are in some cases lower than they were until before the

international banking crisis of 2008 and sellers of equipment would be very eager to secure business in

the current weak international trade environment – especially one of the size suggested by the Punjab´s

existing cereal output statistics. That being the case the consultant suggests that following the above initial steps an early opportunistic

commitment to and commencement of the pilot project, with Phase 2 following as closely behind as is

economically and practically feasible would be a logical point from which to commence operations. After the pilot project has commenced operation, Phase 2 funding and investment should be embarked

upon – spreading the Phase 2 warehouse projects training effort as widely as possible from a

geographical perspective so as to gain maximum publicity and raise awareness among rural communities

at District level. Also taken into account should be the capacities required within each district so that unnecessary

concentration in non-critical areas does not occur, but a balance of investment in the adoption of new

warehouse capacity and trading methodology throughout the whole province is preserved. In the chart

Annex 12 Action Plan Timeline Warehouse Construction Phases 2 to 11- a coordinated approach has

been taken to construction in each district, so that large production districts receive a greater number of

annual building projects, but only in proportion to other smaller producing districts. This results in

equitable construction and operational start-ups so as to service to the sector in every district over the

11 year development cycle. The aim is to have constructed and have operational up to 19.25 million MT

of WRS capacities by 2026, represented by 385 sites each with a capacity of 50,000 MT and one, (the

original pilot and training site) of 20,000 MT. By year 12 it is fully expected that the pilot site will have

expanded to a similar capacity as the other suggested 50,000 MT initial development capacities at other

sites, together with capacity expansion in some of the other high output areas also.


Annexes

Annex 1 Comparing Punjab Agric. Department Initiatives with WRS

Proposals

Stated Agric. Department Initiative PEEP Consultant Proposals Impact

A WRS and Commodity Exchange linked Punjab wide

development will provide an invaluable resource for

Provide resources, skills and information those without cereal storage capacity (of which there are

many) and via the Commodity Exchange link allow clearly

to enable small farmers to be linked with described quality standards to apply to sales made

consumers, especially of high-value directly to processors of WRS stored grains, where

markets quality would be a matter of guarantee and supplies

could be made available for sale and could be retained at

competitive storage rates by buyers for use during later

months of a marketing season.

Substantial budget savings can be experienced in that (a)

there should be little need for more than a minimal state

owned stockholding in a “WRS” led environment, (b)

Reduce expenditure on holding big reducing expenditure on large scale purchases (at

inflated prices) and (c) hence stock degradation which up

wheat reserves in the public sector

to present have been a matter of concern, (d) also

alleviating the need each season to subsidies export sales

purely designed to remove and monetize unrequired

excessive state owned stocks of dubious quality

The recommended approach is to initially implement a

pilot project of reasonable capacity to act as a training

and demonstration point for many farmers, first buyers

and processors with a “cross–Punjab” resource of private

Promote grain storage in the private or PPP based units developed over the course of an 11

year implementation timescale. Each it is proposed

sector

should be rurally based, accessible to the farming

community and able to store segregated qualities of

wheat, maize and rice. Other valuable crops such as

millet, chickpeas, canola, sesame et al to be encouraged

for safe storage, weighing, grading and sale via a / the

commodity exchange in following years.

The commodity exchange linkage as proposed would

provide considerable amounts of market price and

traded volume information for all sectors of the trade on

Develop future agricultural commodity a daily basis which can be electronically disbursed to

farmers, traders and processors by using suggested

markets and promote pledge lending

media such as SMS, recorded voice message via mobile

phone, internet, radio, television, newsprint and

strategically located “tickers”.


Sold and unsold stock information can be valuable tools

for processors and the Agric. Department alike – critical

when short to medium term planning is undertaken.

Pledge lending is at the core of the WRS system.

Commodities in store can be pledged in exchange for

loans in the knowledge that stocks are securely held,

condition is maintained and that banks in the event of

loan default can rapidly monetize their collateral via the

commodity exchange at known price levels.

The WRS would provide a commodity storage

Agricultural production will be management system in which all involved players could

transformed from input-oriented to have a high level of confidence. Professionally managed

knowledge-based system. For this storage, known grades for commodities, known weights

purpose, efficient energy, water, allowing the placing of confident selling instructions to a

pesticide, fertilizer, and labor utilization farmer / Arthee´s broker on the commodity exchange

and management systems will be will revolutionize selling methodology and generate

developed and promoted. profitable returns when compared against the cost of

farmers input costs.

Capacity building of extension agents, Much can be carried out a WRS sites, acting as focal

points for the building of capacity across all mentioned

traders, processors, and farmers

players.

WRS “warehouses” should ideally be investments, which

are owned / managed by local, (Agric. Dept. WRA

selected and licensed) businessmen, who provide the

Invite and encourage private investment service to the farming community under the watchful

in identified areas eye of a “Warehouse Receipts Authority” which should

be a parastatal organ of the Punjab Agric. Department,

charged with promoting and overseeing the service for

the benefit of all.

The commodity exchange / WRS linked system will

Allow private sector to establish various provide an intermediary market place where buyers and

kinds of agriculture markets sellers needs are able to be met at one focal trading

point.

The WRS / Commodity Exchange model would be a

partnership between private enterprise (investment,

management) and the Punjab Agric. Dept., through the

Develop efficient market models and Warehouse Receipts Authority, with the Commodity

Exchange acting as a clearing house for buyers and

encourage private-public partnership in

sellers marketing and buying requirements, also bankers

establishing these markets

in support providing investment capital for silo owners

(using the silo complex as security for capital loans and

also working capital for farmers and traders by the use of

the commodities that they grow and trade as collateral.


Annex 2 Copy of NCDEX (India) Launch of Wheat Trading Contract

NATIONAL COMMODITY & DERIVATIVES EXCHANGE LIMITED Circular to all trading and clearing members of the Exchange Circular No.: NCDEX/TRADING-028/2004/075 Date: XX/XX/XXXX Subject: Launch of Wheat contract

We are pleased to announce that trading in Standard Mill Quality Wheat 10 MT. Contracts on the Exchange will commence from Tuesday, July 6, 2004. The details of this new contract are given below: Sr. No. Commodity Symbol Basis * 1. Standard Mill Quality Wheat 10 MT WHTSMQDEL Ex-Warehouse Delhi inclusive of all taxes

The initial contracts available for trading will be for expiry dates of September 20, 2004, October 20, 2004, November 19, 2004 and December 20, 2004. The subsequent new

contracts will be introduced on the trading day following the expiry of the near month contract.

Contract name: Standard Mill Quality Wheat 10 MT

Table 14 NCDEX Commodity Wheat Futures Contract Specifications

Sr. Instrument Asset Expiry Market Price Tick Delivery

No. Type Symbol Date Lot Unit Size Lot 1 FUTCOM WHTSMQDEL 20- 10000 Rs. / Re. 1 10 MT deliverable

SEPT- Kgs (=10 Quintal 10000 Kgs in B Twill once used

2004 MT) (=10 MT) 100kgs jute sacks,

2. FUTCOM WHTSMQDEL 20-OCT- 10000 Rs. / Re. 1 10 MT deliverable 2004 Kgs Quintal 10000 Kgs in B Twill once used

(=10 MT) (=10 MT) 100kgs jute sacks 3. FUTCOM WHTSMQDEL 19-NOV- 10000 Rs. / Re. 1 10 MT deliverable

2004 Kgs Quintal 10000 Kgs in B Twill once used

(=10 MT) (=10 MT) 100kgs jute sacks Please note that upon expiry of the contracts, if any Seller with an open position desires to give physical delivery at a particular delivery centre, then the corresponding Buyer with an open

position as matched by the process put in place by the Exchange, shall be bound to settle by taking

physical delivery.

Registered Office: Exchange Plaza, C- 1, Block G, Bandra East, Mumbai 400 051, India.

Phone: +91-22-5640 6789, Fax +91-22-5640 6899, Website: www.ncdex.com


The contracts and the transactions therein will be subject to Rules, Bye Laws, Regulations of the Exchange and circulars issued by the Exchange from time to time. For and on behalf of National Commodity & Derivatives Exchange Limited Narendra Gupta Chief Business Officer For further information / clarifications, please contact 1. Mr. Shrikant Subbarayan - Phone No. (022) 5640 6513 / Ms. Sanvali Kaushik -

Phone No. (022) 5640 6599, 9821510099 2. Helpdesk by E-mail to: [email protected] ANNEXURE TO CIRCULAR NO.: NCDEX/TRADING-028/2004/075 dated July 2, 2004

Registered Office: Exchange Plaza, C- 1, Block G, Bandra East, Mumbai 400 051, India.

Phone: +91-22-5640 6789, Fax +91-22-5640 6899, Website: www.ncdex.com Specifications

STANDARD MILLING QUALITY WHEAT 10 MT Futures Contract Specifications Trading System NCDEX Trading System Trading Hours Mondays through Fridays 10:00 am to 4:00 pm & 5:00 pm to 11:00 pm Closing Session - 11:15 pm to 11:30 pm Saturdays 10:00 am to 2:00 pm Closing Session – 2:15 pm to 2:30 pm Basis Price Ex- Warehouse Delhi inclusive of all taxes Unit of Trading 10,000 Kgs (=10MT) Quotation/base value Rs/Quintal Tick Size Re. 1.00 Ticker Symbol WHTSMQDEL Delivery Unit:

10 MT deliverable in B Twill once used 100kgs jute sacks, the

tare weight deduction per sack for net weight calculation shall

be 1 kg per quintal of gross weight Quality Specification:

1. Damaged Kernel 2% max. (Infestation damaged not to exceed 1 per 100 kernels) 2. Foreign matter (Organic/Inorganic)

2% max. 3. Shrunken / Shrivelled / Broken Grain - 3% max. 4. Total defects (sum of 1, 2 &

http://www.ncdex.com/


3) 6% max.


(Tested on 3 mm. sieve) consisting of: Damaged • Foreign matter (organic/inorganic) • shrunken, shriveled, broken grains

5. Moisture 11% max. 6. Test weight 76 kg. /hl. min. Quantity Variation +/- 5% of contract quantity

Delivery Centre Ex-warehouse Delhi*

Delivery upon expiry of the contracts: if any Seller with open position desires to give delivery at a particular delivery centre, then the corresponding Buyer with open position as matched by the process put in place by the Exchange shall be bound to settle by taking physical delivery. Contract Months September, October, November, December 2004 are being launched from Tuesday, July 6, 2004. No. of Active contracts: Maximum 12 contracts or minimum 2 contracts running concurrently. Opening of contracts: The first set of contracts will be launched on Tuesday, July 6, 2004. Subsequently trading in any contract month will open on the 21st of the month. If the opening day happens to be a non-trading day, contracts would open on the next trading day. Contracts to be launched: other than on the 21st of a month would be launched with the approval of the FMC with in three working days from the date of receipt of such approval by FMC. Due Date 20th day of the expiry month: If 20th happens to be a holiday, then previous trading day. If 20th happens to be a Saturday or Sunday then the due date shall be the

immediate preceding trading day of the Exchange. On the expiry day the contracts expiring that day would

expire at 4.00 p. m. and would not be available for trading Closing of contracts will be settled as per general rules and product specific regulations Price Band Limit 10% or as specified by Exchange from time to time.

Limits will not apply if the limit is reached during final 30 minutes of trading

Position Limits Member-wise: Max (Rs.20 Crores, 15% of open interest), whichever is higher

Position Limits Client–wise: Max (Rs.10 Crores, 10% of open

interest), whichever is higher


Discount Quality variance is acceptable in specifications for Moisture, Total Defects and Test Weight only with discounts as follows: Moisture • Moisture up to 11% – accepted without rebate • Moisture above 11% max up to 13% max – accepted with rebate on 1:1 basis * note- this is not

sufficient – loss in weight due to moisture should be 1.25% weight for each 1% of moisture.

• Moisture above 13% – rejected Total Defects • Total defects below 6% – accepted without rebate • Total defects above 6% up to 8% – accepted with rebate on 1:1 basis • Total defects above 8% – rejected Test weight • Test weight up to 76 kg/hl – accepted without rebate • Test weight below 76 kg/hl – acceptable up to 74 kg/hl accepted with rebate of 150 grams per kg/hl or

pro-rata variance in hectoliter weight deducted per quintal weight delivered Also deliverable at designated warehouses at: Kanpur, Kota, Indore, Karnal,

Khanna subject to location premium/discount differences which shall be announced

by the Exchange from time to time. The Exchange may add/remove/modify delivery locations from time to time with due notice period.

• NCDEX had 848 registered members and client base of 2 million as of 31 July 2013. • It offers trading on more than 49,000 terminals across 1,000 centers in India as of 31 July 2013. • It facilitates deliveries of commodities through a network of over 594 accredited warehouses

through eight warehouse service providers, with holding capacity of around 1.5 million tons. (Some of these will be / could be silos and others floor storage warehouses.

• It offers average deliveries of 1000,000 MT at every contract expiry. Average delivery ratio for Q1 of 2013-14 is 98%

• NCDEX offers futures trading in 31 agricultural and non-agricultural commodities. • NCDEX also offers as an information product, an agricultural commodity index. This is a value-

weighted index called DHAANYA and is computed in real time using the prices of the ten most liquid commodity futures traded on the NCDEX platform, aimed at providing a reliable benchmark for India's agro-commodities

• It recently launched COMTRACK, which is a proprietary electronic warehouse accounting system developed and implemented by the Exchange which facilitates electronic accounting of commodities deposited in the warehouses approved by the Exchange. It facilitates transfer of such deposited commodities against the obligations arising out of the trades executed on the Exchange trading platform under the Clearing and Settlement process of the Exchange in a similar fashion to ECX´s central depositary and clearing house system. Banks and approved financial institutions can place pledges on stocks against loans made to depositors, using the pledged stock as collateral for the loan.


Annex 3 ACE Structure

Item ACE Trust ACE Ltd

Date of 12th November 2007 15th July 2005

incorporation Registration 7491 – Trustees incorporation Act 4094 – Companies Act number

Shareholders N/A 30 Members in 6 countries Governing Board of Trustees: Board of Directors: body Chairman: Chairman:

Dyborn Chibonga Ian Goggin

Board: Board:

Ian Goggin Kristian Schach Moller Kristan Schach Moller Rosemary Kanyuka Rosemary Kanyuka

Paulo Chiziwa

Ownership of 50% 50% trade

platform

Income Grants Commercial activities such as trade commissions, share revenues, other trade

related commissions and commercial

trainings Ace Ltd 1) Alliance for a Green Revolution in Africa (AGRA) (US$ 350,000) – ACE in Activities partnership with Grain Traders and Processors Association (GTPA) – Linking

small farmers to markets.

USAID Compete (US$ 95,000) – Operating funding and development of ACE trade

2) system and software.

3) EU and Common Fund for Commodities (US$ 600,000) Warehouse receipt implementation in Malawi, refurbishment of NASFAM

4) warehouses in Balaka Natenje, Nchisi and Kafulu cooperative

5) Initiative (MLI) (US$ 40,000) – funding for a trade facilitator to utilize the

ESOKO SMS system to send trade opportunities directly to farmers. Ace Trust ACE ltd has been dormant the last years due to lack of funds. Trade commissions Activities are beginning to be generated and operating cost coverage will be transferred from

ACE Trust as funds are available.

The aim to have ACE ltd sustainable and independent from donor funding.


Annex 4 Schematic Diagram of a WRS in Action

MAKING A COMMODITY DEPOSIT AT A WRS SCHEME WAREHOUSE

Larger or Farmers Traders

Groups of Small (First

Farmers Buyers)

1B 1A

1

It must be below 14%

If the sample and

Take Their Commodity to

moisture and if not of

therefore the whole

consignment does not the Warehouse (Wheat, objectionable smell or taint is

?

?

meet certain basic Maize, and Rice) weighed and analyzed in the

minimum standards and / In time, if there is enough laboratory. Some samples

or farmer / trader does

demand, other crops also – might need cleaning or

fumigating to bring them up

not agree to cleaning E.G. Chick Peas, Canola etc.

costs involved with

to a minimum standard. If so

this can be discussed with

cleaning / fumigation the

warehouse staff and agreed.

delivery is rejected

2

Commodity is Allocated to a

Grade, According to its

Analysis, it is Weighed (any

bags are returned) and

Accepted at Warehouse. A

Receipt Issued for Weight

and Grade.

5 Farmer / Trader Decides

to Sell Now or Sell Later.

To Borrow Money from

Bank (or Not). The

Warehouse Receipt is

recorded on a Centrally

Maintained Database for

ALL Warehouse Receipts

3 Several Deliveries from one

Trader / Farmer can be

added together to make up

a warehouse receipt of

(say) 50 MT or much more.

Alternatively one delivery,

deposited at the warehouse

of (say) 20 MT can have a

formal warehouse receipt

issued.

4 Farmer / Trader leaves

warehouse with paper

receipt for load of

commodity deposited. His

account is credited with the

quantity and grade on the

receipt. Day = “T-1”


Farmer / Farmers Group / 6

First Buyer Decides on

When to Sell.

7 Farmer / Farmers Group / First

Buyer Decide to Sell Now. Broker

is Contacted and Checks Records

on Database. Receipt is allocated

for Sale at Next Commodity

Exchange Session. Rules are

agreed – “sell at x” or “sell today”

“sell at close” etc. Broker accepts

instruction and sale is made. Day = “T” Receipt Allocated to Sale

and Matched. Funds taken From

Buyers A/C and Sellers A/C

credited minus agreed charges for

cleaning, storing and broker. “Day

= T+1”

Warehouse Keeper after 4A

Cleaning (and Fumigating if

necessary) the Commodity,

Stores it Safely with More

of the Same Grade. Quality,

and Condition is Checked

Regularly, Ventilation used

if Necessary

7A Farmer / Farmers Group / First Buyer Decide to Wait

Before Selling. Bank is Contacted and Warehouse Receipt

Offered as Collateral. Bank Checks Records on Database.

Receipt is Accepted as Collateral and Loan of 60% That

Days Commodity Value Placed in Borrowers Account.

Bank Places “Pledge” E.G. “Lock” on Receipt. When Sale

of Commodity (Receipt) Made, No Funds Paid to

Depositor Until Loan and Interest Paid. Then – Receipt is

“Unlocked” – e.g. Pledge Removed.

4B Warehouse Keeper is requested

to Load Commodity out to the

Buyer. Checks Database and Sees

That Buyer is now the Owner of

the Receipt, and That All Charges

for Storage Are Already Paid into

Warehouse Keeper Account. Then

Loads Commodity Out to Buyers

Transport. OR Buyer Can Continue

To Hold Commodity in Warehouse

For As Long As The “Life” of the

Receipt. (Can Be Up to 9mnths

After Harvest).

8 Farmer / Farmers Group / First

Buyer Decides to Sell. Contacts

Broker. Sale is made according to

“X”. Banks Pledge is Recognized,

Buyers Account is Debited, Bank

is paid and “Lock” is removed.

Any Amount Due to Warehouse

Keeper is Paid (Storage, Cleaning,

Fumigation etc.), Broker is Paid

and Remaining Amount Credited

to Depositors Account. Days T

and T+1


Annex 5 Structure and Operational Responsibility Model – WRS Authority

Government of Punjab

Warehouse Receipts Authority

Finance & Accounting Dept.

Director

Including Electronic WRS

function & maintenance

thereof – working closely

with Trade / Processor

Deputy Director

Liaison Dept.

Secretarial and Support

Services Dept. including

communications, record

maintenance, reporting,

liaison with Disciplinary Tribunal

Warehouse Trade /

Warehouse

Warehouse

Warehouse

Processor

Licensing and

Operation Staff

Bonds,

Liaison,

Inspection and

Rule

Certification

Indemnity Fund

Commodity

Certification

Compliance

and Training

& Insurance

Grades, PMEX

Manager &

Manager & Liaison Manager & Manager &

Staff

Staff

Manager &

Staff

Staff

Staff

Licensing new

Inspection of

Overall Liaison Responsible for Liaison with

warehouses,

with trade

training of

warehouse “All

compliance

warehouse

organizations

operations / lab

Risks” and

with license

structure &

(e.g. grades and

/ graders /

consequential

conditions &

equipment

grading) also

samplers /

loss insurers,

other WRA

function &

PMX matters &

weigher’s,

bond suppliers,

regulations &

condition –

the function of

certification and

ensuring

compliance

issues

the MIS service

refresher

indemnity fund

with operations

operational

together with

courses

maintenance

and quality

certificate

PMX

including

compliance


manuals certification


Annex 6 Sample Warehouse Keepers License Conditions

FORM 5

Regulation 9

THE UGANDA WAREHOUSE RECEIPT SYSTEM AUTHORITY

CN WAREHOUSE KEEPER’S LICENCE **

(Issued under Section 25, Warehouse Receipt System Act No. 14 of 2006) 1. LICENCE CATEGORY: public / private (delete as applicable)…………………… Warehouse keeper (Name and address) ……………………………………………

..………………………………………… ……………………………………………

Name, address and owner of warehouse: ………………………………………………………………………………………………………………………………………………………… ………………………….………… THE WAREHOUSE KEEPER IS HEREBY LICENCED TO OPERATE A WAREHOUSE AS UNDER 2. Categories of, and grade or quality of goods: ………………………………………………………………………………………………………………………………………………………… …………………………………………………………………………………………………………………………………… 3. Maximum storage volume in metric tons …………………………………………………………….. ……………………………………………………………………………………………… 4. Period between ………………………………………………………………….. 5 Fee paid: Shs………………………Receipt No.: ……………………………….. 6. Validity: Valid until ……………………………………………………………… 10. License Terms & Conditions: See overleaf

Signature Designation Date


LICENCE TERMS & CONDITIONS FOR OPERATION OF A GRAIN WAREHOUSE

These License Terms Conditions have been prepared by the Uganda Commodity Exchange (“the Authority”) as the

regulatory body for Warehouse Receipts in Uganda under the Warehouse Receipts Systems Act 2006 (“the Act”). License holder The person or company identified as “the Warehouse Keeper” is: Name: ……………………………………………………………………………. Postal address: ……………………………………………………………………………………. …………………………………………………………………………………………………….. Name of Chief Executive (if a company): ………………………………………………………… Contact details (phone, fax and email): …………………………………………………………… ……………………………………………………………………………………………………..

Warehouse to be licensed The above named Warehouse Keeper is hereby licensed to operate at the following warehouse to the specified

commodities and maximum volumes: Ref. no. ………………………. Name of site: ………………………………………………………. Postal address: ……………………………………………………………………………………………………… Name of warehouse owner (if different from the Warehouse Keeper): Contact details (phone, fax and email): ……………………………………………………………. ……………………………………………………………………………………………………… Name of warehouse manager: ……………………………………………………………………… Contact details (phone, fax and email): ……………………………………………………………. ……………………………………………………………………………………………………… Dimensions of facility to be licensed (length x width x height to roof supports): …………………………………………………………………………………………………………………………………………………………………………………………… ………………… Storage capacity in eligible commodities: …………….....…………………………………………


Other facilities (cleaners, dryers, weighbridges) to be made available to depositors and their capacity: ……………………………………………………………………………………………. …………………………………………………………………………………….…………………………………………………………………………………………………… …………………………………………………………………………………………………………………………… Detailed sketch plans for the site and the licensed facility are attached as Annex 1 to this Contract.

Category of warehouse Public Warehouse, as defined in R.4 of the Warehouse Receipt Regulations 2007 Eligible commodities for deposit

………………………………………………………………………………………………………

Applicable Law and technical requirements This License is governed by the following laws, regulations and technical requirements:

a) The Warehouse Receipts Systems Act, (No. 14 of 2006), (hereafter referred to as ‘the Act’) b) Warehouse Receipt Regulations, Statutory Instrument No. 33 of 2007, (hereafter referred to as ‘the

Regulations’) c) Technical Licensing Conditions for Grain Warehouses, Version 1, shown in Annex 2 to this document d) UCE grading standards for maize and beans, shown as Annex 3 to this document e) Procedures for insect control, shown as Annex 4 to this document Physical structure and equipment The Warehouse keeper shall ensure that the warehouse at all times complies with Schedule 1 to the Regulations, which

sets out minimal requirements for regulatory compliance, Annex 5 to this document. Failure to keep the physical

structure compliant with Schedule 1 will be prima facie of a breach of this License. The warehouse must have suitable office facilities equipped with grain sampling and testing equipment prescribed by

the Authority, and computer and peripherals to enable internet access and printing of documents. Goods Inwards The Warehouse Keeper is entitled to request a declaration from the depositor (Annex 2, sub-Annex 1) which forms the

basis of the offer to deposit the commodity with the Warehouse Keeper. Prior to deposit, the Warehouse Keeper must


inform the depositor of his or her rights as a holder of a Warehouse Receipt, including the tariff applicable to services

provided.

The Authority will supply an explanatory document for holders of Warehouse Receipts which the Warehouse

Keeper must issue to depositors. The Warehouse Keeper should obtain and retain a written acknowledgement from

the depositor that he or she has understood the document. The Warehouse Keeper must post his tariff conspicuously according to Regulation 42 of the Regulations. Licensing of weighers and graders The Warehouse Keeper will ensure that all sampling, weighing and grading of goods is carried out at all times by

licensed weighers and graders, with the latter carrying out sampling. For this purpose he will employ persons duly

licensed by the Authority according to Annex 2, Part VI. Issue of Warehouse Receipt The Warehouse Keeper will issue the depositor with a Warehouse Receipt within 24 hours of the issue of the

Weight and Grade Certificate(s) certifying that the goods have been received into storage. The Warehouse Keeper

must exercise the same care in respect of commodities for which they intend to issue a Warehouse Receipt as if the

Warehouse Receipt had been issued at the moment that the Weight and Grade Certificate was completed. UCE will provide the necessary technical assistance and training for the implementation of the electronic

warehouse receipt system. Duty of care The Warehouse Keeper is responsible for the condition of goods stored in the warehouse, and will comply with the

conditions shown in Schedule 5 to the Regulations, and which are shown as Annex 6 to this document, and in Annex

2, Part V. Attention is drawn to Annex 2, Article 14, which requires the Warehouse Keeper to guarantee full out-turn

of commodity as evidenced by the warehouse receipt. If grain is found to be losing condition, the Warehouse Keeper is responsible for reconditioning the goods subject to R.

46(8) of the Regulations. If the grain cannot be brought back into condition, the Warehouse Keeper must immediately

buy in grain of the grade required to replace the out-of-condition grain. Actions on presentation of a Warehouse Receipt and request to discharge the commodity The Warehouse Keeper must only release commodities when presented with a Warehouse Receipt and when

the presenter of that Warehouse Receipt can prove his or her identity. The Warehouse Keeper is entitled to charge for its services according to its published tariff. Two copies of a formal written request for discharge must be provided by the owner of a warehouse receipt to the

relevant warehouse keeper. The warehouse keeper must formally date-stamp both copies of the request document

and also note the time received. The duplicate documents are to be jointly signed by the warehouse keeper and the

owner. One copy to be retained by the warehouse keeper and the other is to be returned immediately to the owner. Discharge of the goods represented by a warehouse receipt must be made available by the warehouse keeper to the

owner within twenty four (24) hours of presentation (during a Monday – Friday working week excluding public


holidays). For the purpose of calculating the time between presentation and the commencement of discharge any

presentation is deemed to have taken place at the end the working day during which it is presented.

The rate of discharge in relation to any specific warehouse must be considered to be what is normal and

reasonable under the circumstances for the warehouse concerned. Grace period There is no grace period applicable to the ownership of warehouse receipt, except that warehouse receipt rent charges

commence for any owner who has purchased the warehouse receipt from the previous owner on the day following the

day of purchase. Whole or part consignments are covered by this clause in that requests for discharge may be made for

less than the total volume contained in a warehouse receipt. Rent charged will only apply to quantities remaining in

store at the end of each day during a period when an owner is in the process of taking delivery/collecting grain against

a warehouse receipted quantity. Charges for services The Warehouse Keeper will charge depositors according to R.42 of the Regulations. The Warehouse Keeper must levy

storage charges on the basis of the number of day’s stored, pro-rating charges according to the number of days each

holder has title to the warehouse receipt. Disputes with depositors and warehouse receipt holders Disputes over grades and weights will be handled according to Annex 2, Part VII. The depositor, holder of receipt or the

warehouse keeper may appeal to the Authority as to the weight or the grade of a lot of grain stored or to be stored in a

warehouse or to be delivered from a warehouse. The Authority will arbitrate the matter under the Ugandan Arbitration

and Act 2000, and its decision and award (if any) will be binding upon the parties. Any award/costs involved will be for the account of the party found to be in default of their obligations under the

warehouse keeper’s regulations, licensing conditions, and any other regulations issued by the Authority and in force

at the time of the dispute. Complaint due to delay in or refusal to discharge warehouse receipted goods. In the case of delaying the commencement of discharge for more than twenty four working hours (Monday – Friday,

excluding public holidays) or refusing to discharge against a formally presented request the owner has the right to

lodge a complaint with the Authority. Procedure following receipt of a complaint. The complaint will firstly be investigated by the UCE appointed inspector and the reasons for the delay/refusal

established. If in the inspector’s opinion the warehouse keeper has failed in their obligation under the warehouse

keeper’s license conditions then a notice will be given of the impending revocation of their license. The warehouse

keeper then has a period decided by the Authority within which to load the goods or suffer the revocation of their

warehouse keeper’s license. At that point the Authority will ascertain whether the warehouse keeper has defaulted

on their obligation and if the owner’s claim is reasonable. Either the goods or the value of those goods as ascertained

by the inspector on the day of default must be immediately available or payable by the warehouse keeper to the

owner. The warehouse keeper may at this time make a formal claim against the relevant insurance policy for


compensation against the claim.

Demurrage on vehicles Only in the case of excessively delayed discharge to a warehouse receipt owner’s vehicle(s) or vehicle(s) hired by the

owner who has presented a request to discharge in a formal and timely manner will a demurrage charge be deemed

to be for a warehouse keeper’s account. The validity of a demurrage claim will be decided upon by the relevant UCE

appointed inspector in the light of evidence contained in the request for discharge document and speed of loading

evidence. Local (to the warehouse) applicable demurrage charges (if any) for a period of delay are to apply in this

case. Force Majeure In the case of a legitimate force majeure situation occurring, a warehouse keeper may only delay receipt or discharge,

drying, cleaning, or in any other way processing of a depositor’s /owner’s goods for a period during which force

majeure conditions apply. Depositors/owners affected by the claim must be formally advised by the claimant of the

force majeure situation as soon as it occurs and as soon as it ends. Applicable force majeure situations will only be acts of God, strike, and lockout, and accident, breakdown of plant or

machinery, power failure, fire or for any reason caused by action of public authority or public utility undertaking. Bond The Warehouse Keeper will file with the Authority a bond of not less than Ug. Shs. xxxxxx/= in the form approved by

the Authority. The bond may be provided by a bank guarantee to the same value issued by a bank or insurance

company licensed in Uganda. Annex 7 contains a form of bond. In the event that a license is suspended or revoked, the bond will immediately become available for the Authority to

utilize in order to carry out license obligations which the Warehouse Keeper has failed to undertake. Such action by the

Authority does not prevent or deter the holder of a Warehouse Receipt from seeking separate recourse for any actual

or suspected deterioration in the commodity which is the subject of that Warehouse Receipt. Insurance and Compulsory Notification of Significant Events to the Authority Stock held in the warehouse Stock must be insured for fire, theft and loss due to other perils described in S31 and 66 of the Act. Professional Indemnity The warehouse keeper must hold current insurance in respect of their professional duties. The policy must define the

Warehouse Keeper’s professional duties as being those stated in the Act and the warehouse license, in particular its

‘duty of care’ as defined in these documents. Fidelity of warehouse keeper’s staff In addition to the professional requirement to maintain staff of sufficient number and training to perform the duties set

out in the Warehouse Keeper’s license, the license holder is required to have insurance in respect of breach of fidelity

by employees. The extent of the cover shall be based on the volume of the goods when deposited and the value


attributable to that grade based on the prices published by the Authority at the date of issue of the warehouse receipt.

The cover, if based on ‘first loss’, shall be for a minimum of 100MT of the goods, else for the full value of the goods in

storage.

Insurance undertakings In respect of insurable risks described in S.31 and 66 of the Act, the warehouse keeper must provide the insurer with up

to date information on the volume and value of storage goods insured for every month of storage, differentiating said

goods by type and grade. The warehouse keeper will make monthly declarations to the insurance company, by means of

which it shall value the goods on the basis of indicative prices issued by the Authority. The policy must be sufficient in value to provide full value cover for the grades stored in the event of full loss arising

from the insurable risks described in S.31 and 66 of the Act and similar perils. If not already subject to cover in the fire

and other perils policy, further cover must be taken by the warehouse keeper for ‘acts of God’ or acts of public

enemies, such as riots, public disorder, war (including civil war), etc. Where a separate policy related to the risk of theft by a third party is offered on a ‘first loss’ basis, the minimum volume

of that first loss shall be 100 MT. Notification of the interest of the Authority on the insurance policy The insurance policy or other instrument utilized to provide the cover described above must note the interest of the

Authority in the policy. The insurer must undertake to notify the Authority in writing of any changes in the value or

extent of the cover and its expiry or cancellation, and make good any losses to holders of warehouse receipts

resulting from a failure to notify. Warehouse failure In the event that the Warehouse Keeper fails to perform its duties under this License Contract, or becomes

insolvent, the Authority may proceed according to R.49 and R.50 of the Regulations. Fees payable to the Authority The Warehouse Keeper will pay the Authority the Authority US$ 0.20 per ton-month of storage of receipted maize,

and US$0.30 per ton-month of receipted beans, for services provided under the Act. The Authority will levy charges

pro-rata based on the number of days the goods remain receipted.

Signed by ………………………………………………… …….. ……………………………………… Name: Name: Legal representative of Warehouse Keeper Chief Warehouse Examiner, UCE Date:


Annex 7 Punjab Cereal Output (2014/15) and Warehouse Capacity Needs, by District

Divisions Production Production Production Storage

Wheat Rice Maize Required

‘000’s MT ‘000’s MT ´000´s MT (50,000)´s MT

Rawalpindi 646.32 2.04 127.6 15

Sargodha 1454.41 75.81 93.8 32

Gujranwala 2926.00 1278.08 11.6 84

Lahore 1799.79 822.09 204.0 56

Faisalabad 2788.57 303.56 434.9 70

Multan 2793.17 158.66 389.6 67

Dera Ghazi 2442.30 192.58 9.2 53

Khan

Bahawalpur 2959.43 210.24 64.0 59

Sahiwal 1838.63 548.83 1251.8 73

TOTAL Multiples of 50,000 unit capacity required to Store Annual Crop: 509

(Less Govt. storage, informal consumption, seed, processor storage) = 386


Annex 8 Graphic of Punjab Warehouse Capacity Needs, by Region

Warehouse Capacity

Needs by District

Color Coding Total Production

(‘000’s MT)

>1000

1000-2000

2000-3000

3000-4000

<4000


Annex 9 Government Exports & Imports of Wheat 1990 – 2015


Annex 10 Government Owned / Controlled Storage Capacity

GOVERNMENT OWNED STORAGE CAPACITY (000´s MT)

Day / Month 30-6 30-6 30-Jun 30.6 30-6 30-6 30-6 30-6 30-6 30-6 30-6

Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Agency

1.WHEAT 4339 4339 4339 4339 4339 4339 4339 4339 4339 4339 4339

Provincial 3780 3780 3780 3780 3780 3780 3780 3780 3780 3780 3780 Where?

Punjab 2483 2483 2483 2483 2483 2483 2483 2483 2483 2483 2483

Sindh 709 709 709 709 709 709 709 709 709 709 709

NWFP 365 365 365 365 365 365 365 365 365 365 365

Balochistan 223 223 223 223 223 223 223 223 223 223 223

Federal 559 559 559 559 559 559 559 559 559 559 559 Where?

Food Directorate - - - - - - - - - - -

AK&NA. 64 64 64 64 64 64 64 64 64 64 64

Def.Division 54 54 54 54 54 54 54 54 54 54 54

National Log.Cell - - - - - - - - - - -

PASSCO 441 441 441 441 441 441 441 441 441 441 441 Where?

2. RICE:

(Rice Export 826 826 826 826 826 826 826 826 826 826 826 Where?

Corporation)

3.COTTON:

(Cotton Export* 450 450 450 450 450 450 450 450 450 450 450

Corporation)

(In 000 Tons) 77 77 77 77 77 77 77 77 77 77 77

Total Capacity 5242 5242 5242 5242 5242 5242 5242 5242 5242 5242 5242

* = '000' bales

Source:- i) Defunct M/O Food and Agriculture R = Repeated from 30-06-2002 to 30-06-2012

ii) Trading Corporation of Pakistan, Karachi. Total Punjab - Two million, four hundred and eighty three thousand MT


Annex 11 List of 81 Agricultural Commodities Eligible for Issuance of Negotiable WHR´s in India

Name of Commodity Name of Commodity Name of Commodity

Wheat Rice Moong (whole)

Paddy Jawar Moong split (unhusked)

Bajra Barley Moong split (husked)

Maize Ragi Masoor (Lentil) whole

Soyabean Mustard seed Masoor (Lentil) split (husked)

Rapeseed Groundnut Arhar /Tur (Red gram) whole

Groundnut (pods) Whole pulses and split pulses Arhar /Tur (Red gram) split (husked)

Sunflower oilseed Milled pulses Kabuli Chana

Cotton bales Cotton seed Chana whole (Bengal Gram)

Jute bales Chilies Chana split (husked) / Dal Chana

Tamarind seeds Cumin seeds Matki / Moth (whole)

Castor seeds Cashew kernels Matki / Moth split (husked)

Arecnut Black pepper Yellow Peas (whole)

Coriander Fennel seeds Rajma

Fenugreek seeds Guar gum Lobia

Sesame seeds Sesame seeds Raw Milled Superfine / Fine Rice

Isabgol Horse gram Raw Milled Medium Rice

Black gram (Flour) Coffee beans Raw Milled Common (Coarse) Rice

Sago Turmeric Parboiled Milled Superfine / Fine

Ball Copra Cup Copra Parboiled Milled Common (Coarse

Cardamom Urd Whole (Black Gram) Parboiled Milled Medium Rice

Urd split (husked) Urd split (unhusked) Fine Broken Rice

Groundnut Oil Mustard Oil Common Broken Rice

Rice Bran Oil Sesame (Til or Gingelly Oil) Niger Seed Oil

Safflower Seed Oil Coconut Oil Castor Oil

Maize (Corn) Oil Cotton Seed Oil Soya bean Oil

Mahua (Mowrah Oil) Salseed Oil (Fat) Sunflower Seed Oil

Linseed Oil Taramira Seeds Cotton seeds


Annex 12 Action Plan Timeline Warehouse Construction Phases 2 to 11

Phase 2 to 11 Annual Building Projects Required by District Bldg Bldg Bldg Bldg Bldg Bldg Bldg Bldg Bldg TOTAL Projects / Projects / Projects / Projects / Projects / Projects / Projects / Projects / Projects / TOTAL MT Builds Yr x 50,000 Yr x 50,000 Yr x 50,000 Yr x 50,000 Yr x 50,000 Yr x 50,000 Yr x 50,000 Yr x 50,000 Yr x 50,000 per

Phase Year Where MT Each Where MT Each Where MT Each Where MT Each Where MT Each Where MT Each Where MT Each Where MT Each Where MT Each Year 2 2016 Gujranwala 6 Sahiwal 5 Bahawalpur 5 Multan 5 Faisalabad 5 DG Khan 4 Lahore 5 Sarghoda 3 Rawalpindi 2 2,000,000 40 3 2017 6 5 5 5 5 4 5 3 1 1,950,000 39 4 2018 6 5 5 5 5 4 5 3 1 1,950,000 39 5 2019 6 5 5 5 5 4 5 2 1 1,900,000 38 6 2020 6 5 5 5 5 4 5 2 1 1,900,000 38 7 2021 6 6 4 6 5 4 5 3 1 2,000,000 40 8 2022 7 6 4 5 5 4 5 2 1 1,950,000 39 9 2023 7 6 4 5 6 4 3 2 1 1,900,000 38

10 2024 7 6 4 5 6 4 2 2 1 1,850,000 37 11 2025 7 6 4 5 6 4 2 2 1 1,850,000 37

TOTAL Warehouses 64 55 45 51 53 40 42 24 11 385 TOTAL Total Capacity 3,200,000 2,750,000 2,250,000 2,550,000 2,650,000 2,000,000 2,100,000 1,200,000 550,000 19,250,000 Plus Phase 1 Pilot (MT) 20,000 19,270,000 Total Capacity = Production minus Government off- Take, Seed, Informal Use


Annex 13 Possible WHS Wheat, Maize & Rice Standards (Examples Only)

Accepted Min Max Hagberg Protein Wet Max Admixtre Ergot

Varieties Kgs / Hl Moister FN Min content Weight Screening Max 2%

WHEAT % (at 14% Gluten gs (%

by

moisture % passing

**

weight

through

a 2mm

sieve)

Class 1

Hard “ x , y , z” 76 14 250 Min 11% 20% 2% 2% Free

Milling

Class 2

Soft Min

Milling

“a, b, c”

76

14

225

nil

2%

2%

Free

10.5%

Starch

Product All 75 14 nil Max 10% nil 2% 2% 0%

n

Animal All

68

14

nil

nil

nil

2%

2&

0%

Feed

Diseased Discolo Broken / Insect Stained Shrvelled Total Foreign Filth

MAIZE

Max

r Chipped Damage Max Max

Defect Matter Max

Max

Max

Max

Max

Max

**

Class 1 0.5% 2.0% 0.5% 2.0% 0.0% 0.0% 10.5% 1% 0.5%

Class 2 0.5% 3.0% 6.0% 3.0% 0.5% 0.5% 16.0% 3% 0.5%

Class 3 0.5% 3.0% 10.0% 4.0% 0.5% 0.5% 23.0% 7% 1.0%


RICE Moisture Damaged, Chalky Other Foreign Paddy Under Broken

** Content Shriveled Grains Grains Matter Grains Milled Grains

/ Yellow and

Max

Red

Striped

Basmati N/A N/A N/A N/A N/A N/A N/A N/A N/A

Irri 14% 5% 10% 2% 1.2% 0.8% 4% 20%

Others N/A N/A N/A N/A N/A N/A N/A N/A

Source: Examples from Ghana Standards Agency & PMEX (for different commodities)

** Other criteria may also apply.


Annex 14 Meetings Held & Persons Met - Brief Notes on Subject and Outcome

Attitude to WRS

Date Where With Whom Information Gained Positive? Negative Next

? Meeting?

8-Sep-15 Dept. of Mr. Mahmood Punjab Govt. procures up to 20% of wheat crop Requested info on Neutral to

Agriculture Akhtar size and number of holdings / size of crops (wheat, rice, maize, Positive

Govt. of oilseeds, and pulses) after post-harvest losses more than 16%.

Punjab Govt. of Punjab willing to effect the necessary legislation if a WRS

is given a "go ahead" 9-Sep-15 Agriculture Dr. Noor ul Islam Limited information gained - asking him for info concerning Negative

Research Khan training of lab technicians & lab equipment supply + could they concern

Board, Govt. assist in some way ng

of Punjab wheat,

believes

Govt.

takes

care of

wheat

through

their

buying

program

me


9-Sep-15 Govt. of Dr. Anjum Ali Buttar 95% of farmers have less than 12.5 Ha. Warehouses and crop Not sure No further Punjab supplies will be different in different areas of Punjab. Lower What his apptmnt. Director Punjab is the wheat producing area. Govt. paying $325 /MT for opinion arranged. Ag. General, wheat compared with local market prices of abt. $260. could be Dept. AMIS a Agriculture Refrigerated storage reqd. in Punjab for potato seed (Punjab interpret better source Extension & planting) and ware + seed sales to other parts of the country. Over ed as - he of info via Adaptive 400,000 acres planted to potatoes. Questions to be asked: Range is some their web

Research (construction) of available warehouse capacity, construction and years site location. Also estimated age and condition (scale of 1 to 10) by past

type. Where is soya grown and how much. Cereals by type Districts

retirement

of Southern Punjab where major cereal, oilseed and pulses are

grown, estimated annual consumption (domestic), post-harvest

losses at farm level, proportion of seed retained at farm level also

Domestic (on farm) use. Finally - to complete the Punjab crop

balance sheet have you got consumption figures available on a

Crop by crop basis? We to ask at next meeting why the govt. pays

such a premium when simply removing surplus at market price

Would have the same effect. (prices would rise)

11-Sep-15 Govt. of Dr. Suhail Saleem Interested, very much in favor of cooperative groups being able Positive - I said Invite to Punjab , to use the system. A number of village based groups still exist - a that I would Stakeholders Punjab Board remnant for an earlier development initiative which worked, contact him meeting

of albeit briefly but which could be revived should they see a benefit again once I

Investment & in being part of a WRS had a draft in

Trade, place 12-Sep-15 Engro Rice Mr. Abid Ilyas Dar At the mill: Received a presentation of the company and its Positive both Mill visit

Mill and subsidiaries and the "Spirit" project geared toward improving rice at farm and scheduled Associated crop growing and post-harvest operations. The quality checks they mill level for 14/09

Small employed were briefly highlighted and also seasonal moisture (although it

Farmers bonus system. With the farmers: after having explained what should be

benefits can accrue from a WRS, they uttered their wish that such remembered

a system could be implemented locally. The farmers met were a that the

group at village level who acted as an aggregator, collecting their company

rice together and then selling "as one". They each knew of their representative

contribution and the payment received for all their rice is met is not

distributed among them pro rata to quantity delivered. a major

decision maker


regarding

group policy


15-Sep-15 Engro Rice Mr. Mohamad Both gentlemen were helpful and gave us their time. The object of Positive but Nothing Mill Ateeq Ur Rhaman - the visit was to establish how they worked and brief them they were not arranged

Value Chain concerning the WRS. Also - to view the laboratory and establish decision

Purchasing Manager their quality standards. Info was gained via a grading sheet and makers so

and Mr. Zekria photos were taken of the plant and equipment. Questions that should not be

Hussain Production remained were added to a small list of questions and Rahema counted in

Manager Hasan was given these to pursue terms of

opinions

16-Sep-15 General Mr. Babar A lively discussion with this very experienced gentleman who Positive - with Verbally Manager, Mahmood, showed interest in the WRS. He was concerned in part about the some invited him Olympia fact that animal feed manufacturers could keep significant stocks reservations. to a

Animal Feed of their own anyway and also that Arthees were such a part of stakeholders

Mill smallholders lives in the sense that they were crop buyers and meeting at

money lenders to people who were not familiar with making visits draft report to banks etc., to the extent that he believed sales would continue time in a few to be made to these people and that they would continue to days before

provide crop credit before harvesting. my

departure

16-Sep-15 Sheikhupura Mr. Sheikh Abdul A good meeting with around eight (+/-) traders present. The A discussion Invited Arthees Afeez, President of meeting was joined by our own Col. Ammar Yassar who joined the that covered verbally to a

Sheikhupura discussion. The point here is that JK felt it might not be wise to all areas of stakeholders Chamber of mention that they system could be of great assistance to small concern - meeting Commerce, Mr. farmers. He pointed out that it could be limited to Arthee level outcome before

Sheikh Abdul initially if necessary. That didn´t concern them, they were happy to positive departing

Mannan, CEO - Al- see a scheme that did not necessarily target the large wealthy

Hafeez Traders, and farmers who need it less than the little guys. Government

others intervention it was eventually agreed was disruptive to the market

generally despite possible good intentions - AND always had to be

paid for by someone at some time. It was not a free gift. All in all

they were positive and supportive. The son of the CEO - Mr.

Mannan, had returned from the UK and studies there to join his

father´s business. He was very supportive and on several occasions

spoke to JK alone. A useful contact.


18-Sep-15 Directorate Mr. Muhammad Provided statistics concerning agricultural output, consumption Not as useful No more of Ajmal, Project and exports for rice, wheat and maize. Unfortunately there was no or positive as I meetings Agriculture Manager (AMIS) output figure for 2014/5 and despite the fact that we are only would have intended interested in statistics relating to Punjab, some of those provided hoped. Rahema to were for "all Pakistan" and therefore not of much use. He directed explore re

us to their MIS website but we found some pages constructed but better

without data etc. Not as useful as we would have wished. statistics

19-Sep-15 7 Arthees Tayaba Traders - The Arthees were positive and understood the principal. Their Negative

and 1 farmer Newas Zeeeshan concern was that many small farmers are already in debt to the re farmer

- also an Zari Corporation - Arthees for crop inputs to the extent that they will be unable to depositing additional Shadab Traders fully repay from this year’s crop. The Arthee´s said that they were g,

Arthee in the (Maize Traders) D providing credit for free while the banks were charging them 17% positive

town after Masood / S. Ramzan for borrowed money. It is doubted that the margin made on the re their

the group Also later, Junaid sale of agro inputs and purchase of grains does not cover a own

meeting. Asgar Jawa, Al Bahar nominal interest charge as well - but the level of debt is situation

Enterprises concerning. Working capital in agriculture at smallholder level

cannot stand interest charges of 17% - IT ALSO means if true - we

must check with banks - whether banks are aware of this sector

debt - that the grower is TIED to the Arthee and unable to sell his

grain by a different method (e.g. warehouse receipt sale) because

it is already committed as a "pledge" however informal to a trader.

19-Sep-15 Farmer Visit Mr. Shems ul Arfeen This intelligent, positive farmer was articulate and spoke good Positive re the

on Return to Akhtar Abad, Okara English. He too said that low prices over the last two years had system but

Lahore created a situation where growing rice, wheat and maize was not concerned

profitable. Covering the cost of all inputs would be an achievement about clearing

he said. Indebtedness to merchants was a way of life. The sector debt to enable

(particularly small farmers) is in trouble and subsidy isn´t the him to use it.

answer. Someone has to pay for the subsidy!


21-Sep-15 Allied Bank A useful meeting although the correspondent Mr. Mahmood was Interested but Nothing not as forthcoming as in the case of NiB Bank. However wheat the keen to tell us arranged

two banks had in common was their support for the system He that he knew

said that they had two warehouses of their own that they use for what he was

Identity Preserved storage of rice? Ghulam - what did he say about talking about

maize starch and corn oil?? He thought that wheat and maize etc. I sent him

would work with a WRS but that rice would not - there were, he an

said, that there were too many varieties being grown. What he introductory

didn´t understand was that those varieties would be taken into email to Mamo

consideration when testing was done as in the case of Engro - Mhretu (IFC)

storage would then be by GRADES formed from lots which copying Mamo

conform to tests and are of a limited group of varieties. This too, suggesting

banker did not understand how grain 8and rice) is graded then that I was sure

stored. He thought that it was “by variety” – which it is not. he would be

happy to share

IFC´s WRS

experiences 21-Sep-15 NiB Bank Mr. Khawaja Yousaf, Good meeting - he was very interested in the WRS as they finance Very Positive. Invited to

Area Head, Central stocks in stores which are not fit for the purpose, pay guards and He said that our CBG - Central still lose stock via theft and spoilage. We discussed contract the banks stakeholder farming, lending (which they already do) against sugar stocks and would BRING meeting if cotton bales. I suggested that interest rates would / should be low custom OK´d by the

on liquid, secure collateral. He assured me that they would be. I COP

asked him to communicate with their Addis Ababa branch to find

out what experiences they have had with a WRS. 22-Sep-15 Global Assets Mr. Chaudhary Useful discussion, Mr. Chaudhary is very well versed in the matter Positive but

Management Usman Ali Executive of WRS / ECX in action) and claims to have input into the State sees larger

Director Bank´s WRS bank loan offer in support of the erecting of plans and

centralized grain storage and receipting site in the Punjab. He development

showed us photographs of what he said were the foundations to leveraged from

silos being constructed. Surprised if the foundations photographed USAID report.

were those for circular silos. He also showed us the photo of a Claims other

large multi-warehouse site model, featuring both silos and floor WRS initiatives

storage. Not quite sure what his point was in doing so. More under way.

research is needed into his claims and proposals.


22-Sep-15 Basmati Mr. Ch. Hamid Malhi The WRS system was explained at length to Mr. Hamid Malhi, who Supports the Invited to Growers (Director of T & VTA was very much in favor of assisting the small farmer. He was clear initiative to our Association / /President of BGA) about the real cost of the Arthees informal lending arrangements look into what stakeholder Technical to farmers as "crop credit" in advance of harvest - and the debt is required and meeting if it Education & burden that it created. He was very much in favor of establishing what system is Ok´d by

Vocational the system after an initial pilot project soundly founded with can be the COP

Training excellent management which can be used as a demonstration successfully

Authority point for all stakeholders. An intelligent, influential man (sits on adopted.

important government committees) and would be a good ally (and Would like to

a clear and concise speaker) if an initiative is put forward for see it adopted

development project support. quickly 22-Sep-15 MCB Bank Mr. Naeem Yaqub Both were interested and in favor of the initiative once explained Supportive. Invited to

Ltd., Head, Khan and Mr. Raza to them. It took time to convince them that I knew what I was The consultant our

NPL & Agric Ehsan talking about but once they came round to the idea they were directed them stakeholder Credit good to talk to. They are concerned about the small farmer´s towards Fen meeting if it Division / profitability but said that to break the Arthee´s grip they would be grain and ECX is Ok´d by

EVP - Credit prepared to mortgage farmers land - allowing the farmer to websites the COP

and Trade deposit crops at WRS warehouses, free from borrowed debt - the where they

Head, North Arthee would be paid off. Farmers could then take out loans would be able

against their WHR, secured by the current year´s crop without to find

taking funds in advance of harvest. information.

They were told

we had spoken

to NiB and

Allied already. 22-Sep-15 BSL Private Mr. Sheikh Shahid Explained the WRS to Mr. Siddiq, whose company has over 1200 Positive - but Invited to

Ltd, Director, Siddiq trucks of varying sizes, sites along the north / south Punjab then he is a our Commercial corridor, a QMS and a tracking system for lorries. They are about positive type of stakeholder (North) to trial "Driver Cams" so that driver´s actions can be recorded. person. He meeting if it They have agreements for exclusive delivery of products for some knows Jawed is Ok´d by

major international companies and are audited annually by some Ali, a director the COP of them including Nestle and Shell (Mobil Oil). The distribution of Eleni LLC,

method they employ including collection centers, logistics and knows Keith

delivery (to what could be a WHS warehouse) is quite compatible Thomas,

with how the WRS would work if based on small farmers. They director, also

would have to invest in a collection / delivery fleet or alternatively ECX´s success

fleet of trailers (either flat bed or bulk) depending on which type of and Eleni´s


collection (bulk or bags) the WRS plumps for. reputation.


23-Sep-15 Additional Mr. Hussain Sardar Govt. of Punjab obtains information on stocks of cereals, sales,

Secretary, stores available and the situation regarding PASSCO. -he said that

Agriculture the farmer was not charged sales tax on fertilizer, seeds and

Department agrochemicals, and they had the advantage of a free extension

(Planning), service. It was a shame that we met him BEFORE Mr. Sharif of

Govt. Of Pedavar, who said that the extensionists did not know what they

Punjab were doing and gave wasteful, incorrect advice. Mentioning the

value chain he said that: the farmer harvests and cultivates, the

Agric. Dept. (Govt.) provides tractors and other machinery at

subsidized (e.g. 60:40%) selling prices. The farmer takes his crop to

market and can sell to either a private buyer or a Food Department

Buyer, both of whom would be present. He didn´t reply when

asked why it was that the state has to buy at such high prices,

(above market) and then subsidies sales in order to get rid of the

stock that they have bought. A meeting is to be arranged with the

Food Department - suggested for the 1st Oct but this will need to

be changed as we will be in Karachi. 23-Sep-15 Branch Mr. Muhammad We should have expected that the interviewee was not really Neither positive or No

Manager, Rashid Afzal, Branch aware of agriculture´s problems, what a WRS was and the current negative, just a bad choice arrangement Bank of Manager state of borrowing / lending in respect of the farmer / Arthee of interviewee made Pakistan relationship. Mr. Afzal was friendly but not of much help. He did

however suggest that we contacted the banks agric. section - We

have a phone number.

23-Sep-15 Director s (2) Mohammad Farooq The two gentlemen were father and son in law. The older of the Very Positive, Invited to of the Asghar and Imran two directors was very interested in what we had to say and wants listens, thinks our Seasons Ejaz us to speak to his chairman as soon as we are able to. The then makes a stakeholder Group of company has flour mills, a solvent oil extraction plant where they decision. meeting if it Companies produce rapeseed oil from imported "00" seed, poultry hatchery, is Ok´d by broiler breeders, growers and a processing plant. They also make the COP their own animal feed and have a total of 300,000MT of storage

capacity for grains across all group processing and storage sites. It

is our (Ghulam and JK) opinion that he is prepared to recommend /

suggest that a project might like to include their storage located at

least one site as a WRS warehouse.


23-Sep-15 President, Asif Sharif Mr. Sharif liked to talk and had much to say about low world If Invited to “Pedaver” market prices for agricultural commodities and the high cost of anything, I our production in Pakistan. He said that he had previously been would err stakeholder involved with a WRS in Pakistan which hasn´t worked. We on the meeting if it suggested the possibility that maybe whoever implemented a WRS side of is Ok´d by

pilot project should also have in the ToR´s that farmers in the saying the COP

depositor catchment area of the silo complex were targeted with that he

agric. extension and education by trained local staff that would was

remain after the project end. Enough time needs to be dedicated negative /

to the project and all parties should be encouraged to use the WRS questioned

- farmers, traders (Arthee’s) and processors together with the the

banking sector in placing pledges on receipts where money is lent potential

by them to farmer / Arthee (receipt owner). The main thing is behind

absolute transparency in silo storage charges, market price info the

etc. we said initiative

29/09/201 Additional Liaqat Ali Dolla Clearly this was not the correct office. They register companies Positive No further 5 Registrar of here. Although he did give us the contact details for the SEC office plans

Companies in Karachi that deals with the Mercantile exchange etc. What we

Securities wanted was to establish if the SEC could have a method of

and ensuring that a WR could be pledged and used as a secure

Exchange document of title embodying the value of the underlying

Commission (described) commodity thereon for legal purposes to save having

to get an act of parliament passed to do the job which would be a

lengthy and tedious procedure. He couldn´t answer the question

but pointed us to the person who could. We can arrange an

appointment for when we are in Karachi on Thurs & Fri this week.

29/09/201 CEO The Dr Mian Khalil Significant discussion concerning silo projects, the potential for a Positive - but No further 5 Grains Ahmed WRS in Punjab. The CEO´s assistant is to send an email with a then he plans

([email protected]) budget figure for a 10,000 MT silo facility incl. intake, silos and would be! He

discharge facilities (apparently civils will not be included). JK also wants to sell

asked if they could provide some estimate of total capacity in the silo facilities1

province owned by feed millers, flour millers and rice mills, so that

we can deduct that from the total required to serve the current

level of production.


20-Sep-15 e2e Supply Ghazanfar Ali A pretty "switched on" salesman who was keen to tell us how big Excessively No plans as Chain and how good his company is. They read well in Wikipedia but it is positive - he yet may be

Management clear that it is an advertisement rather than a factual wants in and an idea to

independently written document. However they may be interested would invest invite to the in the logistics attached to the silo operation or even able to also - stakeholders

handle the whole collection and silo combined. What concerns JK a Whether his presentation

little though, is that small farmers would not like the care of their boss agrees

crop to be in someone else´s hands until they have deposited it at with his

– (to begin with at least) - a silo that they are SURE is independent opinion is

and going to look after their crop - and from where an official another

receipt is put in their hands - if there were a problem with quality matter

it needs to be understood by the farmer - there and then - not by

message from a third party AFTER it has been tipped (or rejected if

it is in that poor a condition).

2-Oct-15 Pakistan Elaz Ali Shah, A useful meeting. Mr. Shah tends to share the same opinions and Positive We should Mercantile Managing Director views as JK does, I recommended that they go to ECX to observe although he is invite one

Exchange & Hasan Mahmood, what they do and how. There are some good lessons to be learned concerned person to the

Head of Research, there and a good success story to view about the stakeholder Product disjointed meeting

Development and opinions at

Risk Punjab

administration

n level

2-Oct-15 ACE Global Fahad Ullah Khan, Apart from the fact that this gentleman´s function is it seems that Positive (he is Not Depositary CEO of ACE´s of a salesman / business generator for the company, JK does not sure to be) impressed

subsidiary in see why he has given so much time trying to get a WRS / although the

Pakistan - AGD Commodity Exchange off the ground. He seems to see ACE author does

Pakistan (Pvt.) Ltd Global´s subsidiary position in the system as that of warehouse not agree

and collateral manager of the warehouses on behalf of investment with the

holders - and possibly also sees the Pakistan ????? investment model that he

organization and IFC as providing funds with which to build sees for the

warehouses. Difficult to figure out what his angle actually is. WHS & other

opinions


2-Oct-15 Assistant Mustafa Kamal As Assistant Director of the State Bank Mustafa Kamal Mufti has Positive - the Invite to Director and Mufti and Kamran the ear of several people who could push a WHS and Exchange bank have stakeholders Additional Akram Bakhshi trading structure. The problem it seems is that there are too many offered a meeting. Director differing ideas about what works, who should invest, what pilot to facility to Doubt if he mount, where, who should deposit etc. Mr. Mufti was one of those build will come but

with a different view. In places he was emancipated, in others old w/houses but a 2nd in

fashioned. Nonetheless he could / would be a supporter of the only for 5 command

system worth keeping "on board" and cultivating. years - should might

be 10

3-Oct-15 CEO and Moin A Malik and This international logistics company provided a presentation of Positive and Invite to Director, Aamir Haroon what they do in Pakistan and who they work for - together with professional stakeholders (Commercials their functions, warehousing, Cold Chain Distribution, Chemical meeting

) Agility Logistics, Packing and Relocation, Records Management,

Logistics (Pvt.) Government and Defense Projects etc. Although their experience

Ltd is in what could be described as "standard" logistics and

transportation areas involving computer managed records, stock

picking etc., it evidences a high level of capacity in stock control

and stock management, technology solutions in stock and

transportation management. They are partnering PMEX in the first

"Chili" exchange and warehouse receipt system in Pakistan - due

to be launched on 5th October. A potential investor,

transportation and storage partner for a pilot project and further

development. Their national and significant, proven experience

reach is valuable - particularly in being able to demonstrate

professionalism at project level from the outset. 06-Oct-15 Additional Hassan Sardar Private briefing Meeting with the Additional Secretary. Went well Very Positive Will attend

Secretary, mainly, some improved understanding of a WRS was noted. stakeholders Agriculture meeting

Department

(Planning),

Govt. Of

Punjab


Chemonics International, Inc.

Punjab Enabling Environment Project (PEEP)

Punjab, Pakistan

the potential for development of a warehouse receipt system ...

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