Farmers can now use warehouse receipts to get loans while waiting for maize prices to go up.

Delayed payment has often discouraged many Kenyan farmers from selling their maize to National Cereals and Produce Board (NCPB), the country’s main buyer of maize and other cereals. The parastatal has for many years played a very important role in stabilizing maize prices: It would buy maize for the government Strategic Grain Reserve at a better price than that by millers and middlemen and then sell to interested buyers at a reasonable price.


Following non-payment, however, most small-scale farmers, over the years have had no option but to sell their maize to millers and middlemen who frequently offer lower prices. Often, farmers can hardly recover their production costs, leave alone make a profit.


Warehouse receipts to get loans

The NCPB has now launched an initiative to help farmers: The Warehouse Receipting System (WRS). Through the WRS, farmers can now deliver their maize to the board for storage; they are given a receipt showing the amount of maize delivered and its value. Farmers can use the receipt as security to get loans or to pay school fees, buy inputs and meet their other financial needs while waiting for prices of maize to improve.

Warehouse storage rates

Here is how the system works: Cheruiyot, a farmer in Baringo has 300 bags of maize, which he wants to deliver to NCPB. The board will take the maize if it meets the minimum requirements in terms of quality. Cheruiyot will then be given a warehouse receipt showing that he has delivered 300 bags of maize and the value of each bag, which depends on quality of the maize and the price set by NCPB at the time of delivery.


The warehouse receipt is like a share certificate. Cheruiyot can use the receipt as security to apply for a loan at any bank; all the bank needs to do is to verify with NCPB if the receipt is genuine before giving out the loan. The amount of money handed out by the bank will be a proportion of the total value of the maize (A bank can for instance give a farmer up to 80 per cent of the value of their maize).


When the market prices improve, Cheruiyot can sell his maize to a buyer who is instructed to deposit the money into the farmers account at the bank, which gave the loan. The bank then deducts the loan including the interest, while the NCPB recovers the storage charges while the balance is given to the farmer.


Less damage and maize insured


The most important aspect of the Warehouse Receipting System is that the farmer retains the ownership of the cereals throughout the period it is stored at the NCPB. Farmers can store their maize at NCPB warehouses for a maximum of six months, where it is safe and cannot get damaged by weather or even pests. Kenyan farmers incur a storage loss of between 28 to 30 per cent due to damage by pests and weather. According to the NCPB operations Manager Ernest Ogwora, the stored maize is also fully insured against fire or flood damage or any other peril.


The Cereal Warehousing system was started last year as a pilot project in 17 maize depots in Kenya. Ernest Ogwora says that farmers in those areas delivered 50,000 tons of maize to NCPB depots under the warehousing system at an initial price of Ksh 1,800 a bag in September 2010. Farmers who waited until May this year sold their maize at between Ksh 2,500 and Ksh 3,000 a bag.