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

Grading systems lapsed, providing little incentive for farmers to supply quality grain.
Moreover as grain production migrated to the centre-west of Brazil, encouraged by panterritorial
pricing policies, there was an orgy of subsidized investment loans for warehouse
construction, leading to a surfeit of large flat bulk stores, often poorly located and without
any provision for internal segregation needed to store grain by grade.
Reforms in the 1990s started to change the situation. Public procurement was reduced, and
the warehousing sector had to look for private sector custom, but it was ill-placed to service
it, and warehouse receipts lacked credibility with the banks. The legal requirement that
warehouses have non-trading status and the fiscal regime also made it difficult for them to
operate successfully without public-sector contracts. A study by Leão de Sousa and Marques
(1998) noted that US elevators were operating on very narrow commercialisation margins,
about 1.5%, and that the cost storage in Illinois was half that in Brazil, a difference which
they attributed to the elevators’ being able to combine warehousing with trading roles,
differences in the fiscal regime and the high level of competition between North American
elevators. By 1998, there was widespread appreciation among official and stakeholders of
the need to reform the industry, and more recent information suggests that the country has
made progress down this path.
The credibility of the Colombian warehousing system, as of that in neighbouring Venezuela,
allowed those countries’ respective commodity exchanges to market a system of REPOs, or
repurchase contracts, backed by warehouse receipts 6 . The REPO is a warehouse receiptbacked
security that an owner of warehoused stock can sell to institutional investors like
pension funds through the exchange trading mechanism, with a commitment to repurchase it
on maturity (60, 90 days etc.). In Colombia, it is the commodity exchange’s clearing house
that underwrites the transaction, and same is probably the case in Venezuela. The instrument
has proved attractive to sellers because it allows them to access funds at rates close to
Treasury Bills, and much lower than the rates on normal bank loans.
Eastern Europe and Former Soviet Union
Since the end of the 80s, a variety of approaches have been used to collateralise stock for
lending purposes, including bank surveillance using Soviet era documentation, employment
of collateral managers, field warehousing and regulated systems. There has been
considerable outside support for the development of WRS from the European Bank for
Reconstruction and Development (EBRD), USAID, CFC and others, much of it to establish
licensing regimes along North American lines. A recent FAO report (Höllinger et al., 2009)
shows that in 12 countries which have sought to develop WRS, the system is most fully
developed in three: Hungary, Bulgaria and Kazakhstan. All of these countries have special
WR laws for grains rather than broad legislation encompassing various commodities and
different commercial practices. The Hungarian system consists of three very large and well
capitalised warehousing companies carrying out a lot of field warehousing, and with
similarities to the above-mentioned Colombian system, while Bulgaria and Kazakhstan are
closer to American practice. Both these countries have established well-structured and
efficient government regulatory agencies and indemnity funds.
6
This should not be confused with REPO financing described elsewhere in this report, i.e. alternative system of
bank financing to get round problems of defective title in warehouse receipts
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