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Malawi: Warehouse Receipt System and Options in Malawi’s agricultural commodity trade

General information
Project location: Kenengo (western part of capital Lilongwe) and Kasungu, Malawi
Consortium: Avignon Holdings Ltd., Farmers World Ltd., Avignon Holdings Pty Ltd.
Project Budget: Euro 825,000
External financing: 60% grant funding by PSOM
Project period: August 2008 - July 2010

In order to modernize the agricultural commodity market in Malawi and thereby solving practical problems that occur in maize trade and storage a system of warehouse receipts for smallholder farmers in combination with options for larger market players (traders, millers, and governmental food reserves) will be introduced. In Malawi, modern storages for cereals and pulses are not common and therefore the maize is stored in bags, under unfavourable conditions, with low quality control. This leads to post-harvest losses estimated between 15% and 20% (due to rodents, diseases, moist and moulding).

Avignon Holdings witnessed that the maize industry in South Africa benefited from the transparent prices generated in the futures market, for example in managing price risks and Farmers World Ltd, operating a chain of 110 outlets in Malawi for farmers to deliver their maize, soy and other farm produce at harvest time. They see the possibility to combine efforts and improve the agricultural market function by introducing warehouse receipt systems and options, supported by modern warehousing. Due to Farmers World’s network the system can be piloted in Malawi with a sufficient volume of produce. Furthermore arrangements are in place with banks to finance the procurement of maize and/or soy under the option system.

In order for any warehouse receipt or option system to be successful it is a prerequisite that the quality of the stored product can be guaranteed and certified. This requires perfect warehousing equipment (silo storage is considered the most suitable high standard storage concept) and an independent and certified quality control organization overseeing the operations. Since warehouse receipts are negotiable instruments, they can be traded, sold, swapped, used as collateral to support borrowing, or accepted for delivery against a derivative instrument such as a futures contract.

The project results can be summarized at follows:

  1. Business foundation: Establishment of Warehousing Company ;
  2. Six silos have been constructed at two sites (Western part of Lilongwe and at Kasungu 100 km north of Lilongwe);
  3. Starting storage operations
  4. Employment and training of some 40 persons in all aspects of warehousing and warehouse receipt systems and marketing activities;
  5. Successful marketing and awareness campaign for promotion of Warehouse Receipt Systems and Options;
  6. Management of commercial storage of 12,000 metric tons of maize and/or soya for farmers and other third parties, including quality guarantee. Sales and Business development for further expansion plans for Mzuzu and Blantyre. 

The staff needs to be intensively trained and coached depending on their tasks. Silo management and operators will be trained in technical aspects of the silo storages, storage control and commodity handling. Warehouse receipt system operators and administrative personnel will be trained in the procedures and principles of warehouse receipts. Quality managers and laboratory personnel will be trained in COMESA standards and certification procedures. Marketing and sales personnel will be trained in setting up and executing an awareness and promotion campaign. The awareness campaign may also include a road show for smallholder farmers, banks and other institutions that are involved in warehouse receipt systems.

As spin-off the partners foresee to invest in at least two more warehouses at Mzuzu and nearby Blantyre. When the warehouse receipt system is widely accepted and adopted by farmers and traders and receipts and options can be traded as collateral for credit lines at banks, more and more warehouses with WRS and options will be developed, linked to the current network of Farmers World outlets in Malawi. The spin-off can also be witnessed in increased private food reserves and establishing security of supplies.

 

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