Explainer: Warehouse Receipt System

The Warehouse Receipt System seeks to bring sanity to the maize sub-sector, long characterised by corruption and exploitation of farmers.

Agriculture CS Peter Munya says the system will give farmers the option to sell maize when prices are favourable instead of selling at throwaway prices, as has been the norm.

The Warehouse Receipt System is a process where farmers/producers or growers deposit their produce in certified warehouses and are issued with a receipt as proof of ownership. The document can be used as collateral to get a bank loan.

In June 2019, Parliament passed the Warehouse Receipt System Act, providing a legal framework for its development and governance.

Munya says the WRS will help improve commodity storage, reduce post-harvest losses, curb value chain inefficiencies, and increase financial earnings to farmers, traders and service providers in the agricultural sector.

He spoke on Tuesday during a virtual forum on the national validation of the draft Warehouse Receipt System regulations.

“It is expected that the warehouse receipt will lead to the development of aggregation and offtake centres across the country, a network of modern certified agricultural produce warehouses, and linkages with structured trading platforms such as commodity exchanges and auctions,” said the CS.

Agriculture PS Hamadi Boga further explained that the WRS seeks to change the way the country trades, not just in maize but other commodities.

“Basically what happens is that you have private operators providing warehousing facilities and then you have the Warehouse Receipt Council and Agriculture and Food Authority, AFA, registering the private warehouse operators," he said.

"So when farmers harvest their produce, instead of rushing to the market which drives the prices down, they have places or the warehouses where they can deposit their produce, and in exchange they get a receipt which is a legal tender and they are able to sell their produce when the price is right by just selling the receipts.

“For example, those who want to purchase the produce don’t have to go to the farm, but will instead go to the warehouse operators in the system and they can bid for it and buy it there.”

Boga said most of the time farmers are desperate as they do not have anywhere to store their maize in case of a bumper harvest.

“The WRS serves two purposes, one, farmers are able to sell their produce when the price is right and hence will earn more, and at the same time farmers are shielded from post-harvest losses, which is responsible for 30 percent of the losses that farmers face,” the PS said.  

He explained that farmers do not sell maize directly to the National Cereals and Produce Board but to traders or brokers and it is these who drive the prices down.  

Boga said the purpose of the system is to enable farmers to put their maize in a warehouse at a fee as they look for the best price or wait until prices are favourable.

“The idea is to restructure the trading to benefit the farmer. Initially, farmers were used to the government coming in to purchase maize but we have discovered it is very expensive, and we would rather handle receipts,” the PS said.

He confirmed that there is still lack of information on the system among farmers.

“But the ministry has advised the council to educate farmers, so that we can move to this modern and more civilised way of doing grain trade which even neighbouring countries like Rwanda and Ethiopia are doing,” Boga said.

The Warehouse Receipt System Act established the Warehouse Receipt System Council, which was inaugurated by the CS on July 29, 2020.

The council was mandated to oversee the establishment, maintenance, and development of the WRS for agricultural commodities produced in the country in collaboration with county governments and other players in the value chain.  

The council is mandated to ensure the efficiency, effectiveness, and integrity of the system.

It is also mandated to provide for the registration, licensing and inspection of warehouses and warehouse operators.

The council comprises multi-sectoral representatives from the major agricultural commodities trade network in the public and private sector.

Jane Ngige, chair of the WRS council, says the journey of introducing the Warehouse Receipt System in Kenya, which started way back in 2009, is near completion and is now at the validation stage of the Draft Regulations 2020.

“I urge you, stakeholders and value chain actors, to propose improvements to fill any gaps in the draft regulations so that we can obtain a comprehensive clear and practical document. The council in partnership with stakeholders is at advance stage of implementing a pilot WRS for the October maize harvest. A total of 58 National Cereals and Produce Board warehouses have been identified as suitable for WRS."

She said the council is aware of inaccurate information in the public domain that is causing anxiety among stakeholders especially farmers.

“I wish to assure the Cabinet Secretary, stakeholders and general public that the council has prepared a communication and outreach plan for vigorous awareness, sensitisation and education of the value chain actors and the general public on the benefits of the WRS. We will continue to engage with stakeholders to make amendments that address emerging issues,” Ngige said.