FOLLOWING an above-average rainfall season, our rain-fed dependent agricultural production , coupled with a move towards private funding for commercial farmers and the widespread adoption of improved agronomic practices by communal farmers is expected to yield record agricultural output.
The Brett Chulu Column
It seems we are not ready to handle this increased output — the focus has been on upgrading pre-harvest practices — there is absence of a coordinated effort to spearhead a national scale postharvest management programme. The move to establish a warehouse receipting system as part of the National Development Strategy One (NDS1, 2021-2025) intervention raised hopes that post-harvest loss prevention would be managed using cutting-edge technologies.
What is warehouse receipting?
An agricultural warehouse receipting system is a network of warehouses for the storage and trading of commodities where producers send their harvest of crops that do not perish quickly such as grains and legumes for storage. It is more than a storage facility. Warehouses under the warehouse receipting system use scientific methods for storage of harvests so that post-harvest losses are minimised. In Africa, it is estimated that 35% of harvests is lost due to poor handling and storage.
The warehouse receipting system is also a financial innovation farmers receive negotiable warehouse receipts that become a financial instrument that is tradable and can be used as collateral for borrowing from financial institutions. Currently, warehouse receipting is done electronically with the possibility of a warehouse receipting database being linked to financial institutions, farmers, tax authorities and commodity exchanges. Warehouses are located near the farms. These warehouses can be run by private entities regulated by a state body. This is in line with the thrust of private sector led economic growth.
The Grain Marketing Board (GMB)can be re-organised to become the regulatory authority for the warehouse receipting system responsible for licensing warehouses. The envisaged increase in grain and oilseed production under Pfumvudza would be best handled by a warehouse receipting system. Clearing houses will be needed to support warehouse receipting. This is another service sector spawned.
According to the NDS1, the warehouse receipting system would work hand-in-glove with an agricultural commodity exchange. In December last year, Finance Minister Mthuli Ncube indicated that the agricultural commodities exchange would be launched between January and March 2021. It is understood that this exchange will be called the Zimbabwe Mercantile Exchange (ZMX). A commodity exchange is an organised market where commodities are sold by licensed members. The commodity exchange can be privately-owned. How will the millions of farmers participate in an agricultural commodity exchange? There are two alternatives. First, the farmers can form marketing co-operatives that will register as members of the commodity exchange. This will enable farmers to get a seat on the board of the commodity exchange. The second alternative is to nominate registered warehouses that are members of the commodity exchange to sell on their behalf. In Ethiopia, 3,5 million small scale farmers sell their produce through the Ethiopia Commodity Exchange (ECX). It is possible for Zimbabwe to form a similar commodity exchange.
The electronic warehouse receipting electronically linked to a commodity exchange has several advantages. It allows for a transparent price discovery for farmers’ produce as many sellers and buyers are involved on either side of a trade. A farmer can initiate the sale of produce from a mobile phone. Farmers can also receive real-time information on prices. Farmers do not have to be forced to sell as they can wait for an opportune time to sell, knowing fully well that their electronic warehouse receipts guarantee they will sell anytime they wish to. The system also greatly reduces counterparty risk (risk that either buyer or seller will not receive what is due to them) as clearing houses will ensure payment and delivery are done. Settlement is also relatively quick such as T+1 (payment done a day after a trade is done). This greatly improves the liquidity of farmers as opposed to buyers with high bargaining power imposing long payment cycles. The greedy middlemen is also eliminated. Traceability is another advantage especially for export purposes where strict rules-of-origin are required by blocs such as the EU. Commodities can be electronically tagged and tracked as they move through the warehouse receipting system.
The structures for a warehouse receipting in Zimbabwe are not in place.
Government has not yet made a decision on the fate of the GMB — it is not clear which government agency will act as the regulator of the warehouses. In the absence of clear legislative roadmap on the establishment of warehouses that meet the minimum standards for electronic warehousing, it is impossible that we will have a modern warehouse receipting system in place this year. This puts paid any hope for a national scale professional post-harvest loss management. We should expect post-harvest losses to rise as much as 30%. It is a risk for which we will likely have no mechanisms to compensate for this year. New warehouses would need to either built or the existing one upgraded to meet the required standards.
Private players that are expected to be licenced would need to acquire the technologies and expertise to handle post-harvest losses — any shoddy work on their part will attract legal suites when harvest spoils. Private players will need time to establish the warehouses that are fit for purpose. There is no publicly available information of a necessary audit of the existing warehouses to ascertain if they have enough capacity to handle a decentralised warehousing system. There is confusion over whether the guaranteed produce prices announced in the last quarter of 2020 will be implemented — the implementation of that pricing policy will force the postponement of the establishment of a warehouse receipting system. Farmers are used to the GMB — a move towards a warehouse receipting system needs investment in an extensive education campaign to build trust in the new system.
There is the issue of the software that will run the necessary electronic receipting. It is a huge undertaking with complex legal, funding and technical implications that have to be carefully navigated. We cannot have all these project management imperatives achieved between now and end of March, more so with the scaled back activity occasioned by the second Covid-19 wave — it was always going to be a complex undertaking without the pandemic.
On the basis of these hurdles, the country should brace for significant post-harvest losses — this underlines the importance of coordinated strategy in a systemic way to map out implications of various sectoral strategies.
Chulu is a management consultant and a classic grounded theory researcher who has published research in an academic peer-reviewed international journal. — [email protected]