A regional grain marketing initiative meant to stabilise prices and reduce post-harvest losses is yet to make a meaningful impact among smallholder farmers in Kenya.

Officials from the Eastern Africa Grain Council (EAGC) and its principal financier, Alliance for a Green Revolution in Africa (Agra) blamed the shallow penetration of the warehouse receipt system on mistrust and lack of awareness along the value chain on the advantages of using the receipts as tradable instruments.

“The transferability of warehouse receipts has not been widely accepted” said Anne Mbaabu, the marketing director of Agra’s Market Access Programme (Map). She added that this has limited the development of a secondary market besides increasing logistics and transaction costs.

Agra, whose main financiers are the Melinda & Bill Gates Foundation, launched a Map in mid-2008 to promote markets, ensure higher returns to smallholder farmers and address market failures in Kenya and elsewhere in the region. It has so far invested about $2 million in the programme.

From reports, much of Agra’s money has gone to finance the EAGC — which is most active in Kenya. The Tanzania Warehouse Licensing Board and the Ghana Grain Council have also benefited.

“We are also working with the governments of Burkina Faso and Mozambique to introduce the warehouse receipt system,” said Mbaabu.

Despite these ambitions, the warehouse receipt system has inherent weaknesses including operating in a legal vacuum.

According to Ms Mbaabu, lack of a legal framework has been “causing reservations” among some financial institutions who she says have not been keen to use contract law as the basis of lending against the warehouse receipts.

The system enables farmers, traders and grain processors to deposit their produce in EAGC-certified warehouses upon that they are issued with official receipts which they can either offer for sale to buyers or use as collateral to secure bank loans.

EAGC says that this helps to meet farmers and other grain handlers’ financial needs as they wait to sell their produce at a later date. The system is also supposed to reduce post-harvest losses a major problem among particularly smallholder farmers. It is also meant to stabilise producer prices and thereby raise farmers’ incomes.

However, the system does not guarantee that farmers will always get good prices for their produce. Gerald Masila, EAGC’s chief executive, said the warehouse receipt system “is plagued by challenges related to its scale of operation as well as the timing of grain releases to attract better prices.”

Lack of training

It was apparent from interviews with farmers in the North Rift that the entire system hinges on the belief that the price of grains and particularly maize would have risen between the time farmers deposit their maize in the EAGC-certified warehouses and the time they sell it. This has not always been working as expected, leading to some smallholder farmers to experiencing losses.

Philomena Wambui is one of the smallholder farmers who experienced losses after taking up the warehouse receipt system in 2012.

Ms Wambui, a middle aged woman from Moi’s Bridge, in Trans Nzoia had borrowed Ksh500,000 from Equity Bank in 2012 against some 300 bags of maize she had deposited at Mama Millers Ltd, an EAGC certified warehouse located in the same area. Of the 300 bags she delivered to the warehouse, 120 bags came from her own 10-acre farm while she had bought the additional 180 bags from other farmers.

“I borrowed the money in the belief that officials of the EAGCC would look for a good market for the maize as they had promised,” she said that by the time she sold the maize, the prevailing price had not risen as she had anticipated.

“I incurred a loss of Ksh72,000 ($785),” she said adding that although the system has benefits, she is not willing to risk taking a loan anymore.

Ms Wambui blames her loss partly on the EAGC officials who, she said, did not look for markets for her maize as they had promised.

Fred Otieno, a Kitale-based EAGC’s official, blamed Ms Wambui’s loss on lack of training. “Together with some other farmers who are members of the Gods Favour Women Group, Ms Wambui was not trained by EAGC... she experienced the losses out of ignorance.”

This was backed by Davine Minayo, EAGC’s market linkages officer, who said that although EAGC links farmers to grain buyers, the main responsibility for looking for market rests with the farmers who deposit their maize in the certified warehouses.

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EAGC is a membership organisation registered in 2006. It operates as a non-profit organisation in Kenya and is in the process of launching operations in Uganda, Tanzania, Rwanda, Burundi and Ethiopia.

The council is involved in the dissemination and exchange of information related to the regional grain industry. It aims to develop what it terms “structured grain trading systems” in the region with set rules and regulations.

EAGC has partnered with Agra in the latter’s market access programme and considers the warehouse receipt system a tool that enables farmers and other players in the grain industry to access storage and finance.

According to Ms Mbaabu, seven financial institutions in East Africa are participating in the system including Equity Bank, Chase Bank in Kenya and three in Tanzania including the Kilimanjaro Co-operative Bank.

“In Kenya, four banks decided to use warehouse receipts even before the government completes the related legislation process,” she said, adding that in Tanzania, Agra has helped the Tanzania Warehouse Licensing Board to monitor and license warehouses for storage of different commodities including staples.

Agra has been financing EAGC to implement the scheme. According to EAGC’s audited accounts for 2013, the organisation gave EAGC a grant of $206,865 on April 5, 2013 and another of $170,665 on November 14, 2013.

The cash was meant to help EAGC to promote agricultural market institutions and create market intelligence among other initiatives. With this financial input, EAGC said that by the end of last year, nearly 9,000 farmers were trained in the warehouse receipt process and how to ensure that their grain retains good quality.

Agra reports that some 40 warehouses have been licensed, 10 of which are in Kenya while 30 are in Tanzania. It also says that some 277,415 tonnes have been stored in the licensed warehouses — 19,886 tonnes in Kenya and 257,529 tonnes in Tanzania. Further, the organisation says that some 1,126 depositors in Kenya and Tanzania have received $45,943,334 in loans against the receipts.

But as far as grain handling in the region is concerned, the system has not made much headway considering the sheer volume of grain produced there.

For instance, data from FAOSTAT, the statistic division of the Food and Agricultural Organisation, shows that last year, the quantity of maize produced in Kenya last year was 3,390,941 tonnes while Uganda and Tanzania produced 2,748,000 tonnes and 5,356,350 tonnes, respectively. Ethiopia’s 2013 maize production amounted to 6,674,048 tonnes.