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

2007, it was wound up and some of its staff and assets were transferred to the new Zambian
Agricultural Commodity Exchange (ZAMACE), a private sector institution supported by
USAID, which is in the process of establishing warehouses linked to its own operation.
The immediate cause of ZACA’s demise was mismanagement, leading to its insolvency, but
the following underlying problems contributed to the organisation’s problems, i.e.:
• disabling policies (crowding out private storage activity)
• lack of progress with supportive legislation (seen as a major impediment by banks)
• lack of active involvement of some key stakeholder groups represented on the Board, and
• poorly focused donor support. During the latter stages, project support was heavily
targeted at smallholder farmers while insufficient attention was devoted to other aspects
vital to ZACA’s survival.
• some poor harvests
This is further discussed in Annex 2. Despite its demise, the initiative has demonstrated that
such a system, properly structured and supported, is potentially viable, and moreover that
farmers can use it to trade with large processors and obtain finance from leading international
banks.
Prospects for the development of a regulated WRS now rest with ZAMACE. Leading
Zambian-based trading companies make up the initial membership, but it is now opening up
to new players, notably brokers without trading interest in the commodities handled, and it
has the support of a USAID project. Since 2007, it has traded 35,800 tonnes of commodities,
and registered and charged fees on members' off-exchange trades on an additional 16,630 tonnes).
This is a small percentage of what it needs to comfortably break even (400,000 tonnes per
annum), but this may grow with the support of WFP-Zambia which is carrying out its local
and regional purchases (LRP) through the ZAMACE and other players. WFP has made
considerable efforts to adapt its procurement rules to the new system. ZAMACE is also in
the process of training and certifying a number of warehouse keepers who will be linked to
the exchange and take deposits from smallholder farmers.
ZAMACE has certain other factors working in its favour: Zambia’s large-scale players on
the farming and processing side (helpful in driving exchanges or WRS initiatives in their
early stages), a Managing Director with a background in Zambia’s successful stock exchange,
a cohesive team seeking to develop ZAMACE. However it also faces some challenges:
teamwork might be stronger if the main farmers’ union (ZNFU) was more actively involved;
it needs to secure stronger involvement of buyers other than WFP, and; certain aspects of
public policy. Notwithstanding, Government has decided to push through the long awaited
amendment to the Agricultural Credit Act, which will safeguard the warehouse receipt (WR)
as a document of first title and hence encourage the financial institutions to participate in the
WRS. It has also issued a policy statement in favour of ZAMACE; hopefully it will
nominate ZAMACE as its agent responsible for licensing and inspecting agricultural
warehouses under the Act, and in this way foster the development of a strong indigenous
warehousing industry 10 .
10 Significantly however, the draft amendment makes no provision for mandatory licensing of public warehouses,
which may make it difficult for a prospective warehouse licensing authority from generating sufficient income to cover
its costs.
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