review of warehouse receipt system and inventory credit initiatives in ...

eceipt itself (e.g. outstanding storage charges). The holder of the warehouse receipt is
entitled to the good described in it, whatever the depositor or the warehouse operator has
done with the goods in the meantime. A negotiable warehouse receipt is in effect a document
of title to the underlying goods. By contrast the rights of the transferee of a non-negotiable
receipt will only be equivalent to the rights of the transferor, and can more easily be defeated
by other claimants. The difference in the terms is explained at greater length in Coulter and
Shepherd (1995, Annex 2).
This is sometimes a grey area. In some cases a transferable warehouse receipt has been
designed to have all the properties of a negotiable instrument, but the laws and legal practice
in the country concerned do not treat it as such, or there may not have been sufficient case
history for it to be asserted as negotiable with complete confidence. The author has used the
term ‘transferable’ in this sense, to indicate a document that is designed to become to become
negotiable as a result of legislation and/or custom and practice.
Why prioritise warehouse receipts?
Warehouse receipts systems (WRS) are part of a framework of ‘modern market institutions’,
that countries adopt in different combinations and permutations according to circumstances,
to develop their agriculture and render markets more efficient and effective in delivering
benefits to consumers and producers. There are various other such institutions including
grading systems, contracting, alternative dispute settlement (usually through arbitration by
trade peers), marketing cooperatives, contract farming, commodity exchanges, hedging
devices (through exchanges or over-the-counter), and market information systems.
Warehouse receipt systems can play a central role in developing the framework of modern
market institutions, for the following reasons:
• They can provide surplus-producing farmers (including smallholders) with a market
window which can help them secure the best possible deal, allowing them to deal directly
with downstream buyers and financiers, and overcome asymmetric power relationships
within the market chain. Smallholder farmers are typically isolated from markets, have
limited selling alternatives, lack contact with downstream buyers, are unable to enter into
contractual relationships (due to lack of trust), are usually obliged to accept the buyer’s
assessment of weight/volume and quality and, find it difficult to hold the crop for better
prices. Farmers (or groups of farmers) can overcome these constraints by depositing their
crops in a warehouse that dries, cleans and grades them according to established
standards, and holds them until they wish to sell. Of equal importance is the warehouse’s
service as guarantor, i.e. acting as collateral manager for any lender who wishes to
finance the farmer against the security of the warehouse receipt, and guaranteeing
delivery of the goods against the farmer’s contractual commitments. The warehouse
operator uses its own commercial and financial standing to enhance the farmer’s own
standing with bankers and commercial counterparties. The warehouse may be linked to a
commodity exchange through which the farmer can sell the goods. Alternatively, the
farmer may sell privately or make use of a simple escrow-based settlement mechanism to
ensure that he (along with the bank and warehouse operator) gets paid before the goods
are removed from the warehouse.
• As implied in the previous paragraph, the WRS provides a platform for the introduction
of other institutional innovations, notably grading, contracting and exchange trading. It is
difficult to introduce grading systems into markets where most grain is traded informally
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