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BOX 2: SAFEX DIVISION OF JSE - MAIN REQUIREMENTS OF APPROVED SILO OWNERS, AS PLANNED IN AUGUST 2009 (tonnages in maize equivalent) Must have: • adequate experience and technical expertise + two years successful operational track record • necessary equipment for bulk handling in all weather conditions • at least 9,000 tonnes in-loading, storage and out-loading capacity, and minimum out-load rate of 500 tonnes/9 hour day, at each individual storage site. At least 10,000 tonnes or more average capacity at all silo sites operated by the owners. • reliable road network and access To annually provide SAFEX with a copy of the audited accounts Net worth: R.20 million for capacity up to 60,000 tonnes R.40 million for capacity up to 100,000 tonnes R.60 million for capacity over 100,000 tonnes If the silo owner has a single registered delivery point, it must additionally provide a performance guarantee equivalent to the current value of 10% of the total storage potential of the most commonly stored product. At its discretion, SAFEX may require other operators to provide additional guarantees. Insurance cover of building, equipment and commodities for fire and allied risks, spontaneous combustion and explosion, terrorism, theft and public violence + fidelity cover for employees, as determined by JSE Upon failure to deliver quantity and quality as per SC, the silo owner must pay cash settlement within 24 hours + 30% penalty Conformity to JSE contract specifications + agreement not to conclude any concurrent storage agreements at odds with JSE’s rules or contract specifications Diverse requirements re paper and electronic documentation Non-discrimination between SC holders while in and out-loading commodities To report disputes to JSE as soon as they occur; arbitrator to be appointed by JSE. JSE reserves may appoint a collateral manager to manage the deregistration of a silo site, if due to mismanagement that comprises the owner’s ability to honour the SAFEX silo receipts issued Note: this is paraphrased to the best of the author's ability; those seeking full and exact details should contact SAFEX Silo operators either issue SCs in their own name, or issue the more widely-used SAFEX receipts. Producers may appoint brokers to sell their grains or sell independently on the open market. In such cases the benchmark price is usually the SAFEX price for the nearest month. Where producers wish to defer sale, they can obtain finance against the SC. In such cases, the borrower must usually hedge against any downside price risks using futures and options traded on the exchange. As a result of the availability of price risk management instruments developed on the basis of the SC system, banks have been able to structure production finance, requiring borrowers to deposit their produce with certified silos. Their track record in deposits is used in determining their output, against which finance is provided. Buyers of SCs include processors, who may take delivery of the underlying commodity on presentation 16
to the silo operator; or investors. The investors participate in the market primarily to make gains from anticipated price movements, but play a crucial role of making the market liquid and enabling risk sharing. Starting in 2004, the two leading silo operators, accounting for 60% of grain handled in South Africa, commissioned a software company to develop a system of electronic silo certificates (ESCs). It is a “closed community” internet-based system to which users must sign up using a participant agreement, and use passwords to gain access. When a farmer or other player deposits grain in the warehouse, the warehouse operator creates the document which is validated and sits on a Johannesburg-based server. The holder can then enter the system and transfer to other parties as title to the underlying goods, or ‘in encumbrance’, i.e. as loan security. Holders of warehouse receipts, or their brokers, use the system to deliver on SAFEX contracts. The system also provides an on-line registry of warehouse receipts, as well as various types of information of use to participants, Government agencies and other parties, none of which is available with a conventional paper-based system. The system first gained the support of banks which saw that it would greatly reduce costs of using paper documentation (the cost is minimal 7 ), increase security, speed up handling, and create a clear audit trail of transactions. In an environment where time is money, it allowed banks to do business faster and lend out their money more quickly. It took some time to gain the support of the trading community which was concerned about the confidentiality of the data, but this was achieved by contracting out the management of the system to EXORDIA, a company owned by PriceWaterhouseCoopers (PWC), and various legal provisions to make the system watertight. Lastly an Administration Centre was established, including a telephone trading desk to help farmers who were not computer-literate 8 use the system into which farmers phone and give instructions. The system has now been customised to Ugandan needs, as discussed below in the Uganda section, and is on offer to other African countries. Countries wishing to use it save considerable up-front costs, and are able to access a ready made and tested system including its full security features. 7 Höllinger et al. (2009) comment that “most of the grains stored in South Africa pass through the system, at a cost that is a fraction of that of paper warehouse receipt systems or registries such as those set up in Ukraine 8 Most commercial farmers in South Africa are over 50, and their sons have by and large taken urban jobs, and this explains the significant level of computer illiteracy among them 17
Page 1 and 2: Review of Warehouse Receipt System
Page 3 and 4: CHAPTER 5: ALTERNATIVE APPROACHES F
Page 5 and 6: GLOSSARY OF ABBREVIATIONS Collatera
Page 7 and 8: SUMMARY Introduction The report is
Page 9 and 10: Category 3: Farmer-focused approach
Page 11 and 12: involvement in EAGC, its regional f
Page 13 and 14: Purpose and activities CHAPTER 1: I
Page 15 and 16: and ungraded, due to a chicken-and-
Page 17 and 18: CHAPTER 2: REVIEW OF INTERNATIONAL
Page 19 and 20: oversight system is funded by user
Page 21: Where implementation has failed or
Page 25 and 26: CHAPTER 3: COLLATERAL MANAGEMENT AN
Page 27 and 28: CHAPTER 4: EASTERN & SOUTHERN AFRIC
Page 29 and 30: Malawi The main food crop is maize,
Page 31 and 32: Although the CECAM network has rece
Page 33 and 34: companies), who hold the processed
Page 35 and 36: curing companies), and the requirem
Page 37 and 38: Kenya is in some ways suited to fol
Page 39 and 40: to see it through its current initi
Page 41 and 42: decade 25 . The WRS Regulations of
Page 43 and 44: these are purely private initiative
Page 45 and 46: officials never accepted moving the
Page 47 and 48: eceipts, unreceipted third party st
Page 49 and 50: The networked MF system has certain
Page 51 and 52: TABLE 1: ALTERNATIVE APPROACHES FOR
Page 53 and 54: 3c. Technological improvements in r
Page 55 and 56: It is even more important to streng
Page 57 and 58: distrust of the unknown and interes
Page 59 and 60: FIGURE 2: CAUSE AND EFFECT IN THE D
Page 61 and 62: Of particular, but not exclusive, r
Page 63 and 64: BIBLIOGRAPHY Beaurre d’Augères,
Page 65 and 66: ANNEX 1: LIST OF PEOPLE INTERVIEWED
Page 67 and 68: South Africa - half-day meeting at
Page 69 and 70: ANNEX 2: ZAMBIA CASE STUDY Backgrou
Page 71 and 72: with other parties. USAID provided
Page 73 and 74:
trading in the same, along South Af
Page 75 and 76:
ANNEX 3: MALAWI CASE STUDY Backgrou
Page 77 and 78:
uyers. The mere availability of mor
Page 79 and 80:
operators who can offer a ‘one-st
Page 81 and 82:
With this in mind the author has pu
Page 83:
The CECAM (Caisses d'Epargne et de
Page 86 and 87:
TABLE 4.1: RATE OF PEPAYMENT BY CEC
Page 88 and 89:
duration of the loan; (b) by a tech
Page 90 and 91:
committee and carries out a classic
Page 92 and 93:
ANNEX 5: TANZANIA CASE STUDY Note:
Page 94 and 95:
While the Warehouse Licensing Board
Page 96 and 97:
which farmers in different district
Page 98 and 99:
TABLE 5.3: MAIZE & PADDY STORED, BY
Page 100 and 101:
Expenses directly related to storag
Page 102 and 103:
TABLE 5.5: FINANCIAL ANALYSIS OF ST
Page 104 and 105:
WFP’s involvement with ‘new mar
Page 106 and 107:
Work by David Tschirley (2009), of
Page 108 and 109:
ANNEX 7: QUESTIONS AND ANSWERS 1. W
Page 110 and 111:
and arbitrary basis, in order to me
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