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COMMON FUND FOR COMMODITIES
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Development of African Grain System (CFC/FIGG/11FA)

 

Project completed 2004

 

Counterpart Contributions:

Ghanaian stakeholders: USD 248,825

Zambian stakeholders: USD 140,850

Ethiopian stakeholders: USD 247,292

 

Institutions Involved in the Project:

The Grains and Feeds Working Group, Ghana,

The Food Reserve Agency , Zambia, and

The Ministry of Trade and Industry, Ethiopia;

 

The central objective of the project is to improve the efficiency and performance of grain marketing systems primarily through the development of warehousing and inventory credit. The project covers three countries, namely Ghana, Zambia and Ethiopia. In all three countries, the project aims to:

(i) in the short term, demonstrate the practicality of warehousing and inventory credit (WIC);

(ii) on a limited scale, develop a long-term strategy for the development of WIC and related improvements in the grains sector; and,

(iii) assist in implementing this long-term strategy.

The WIC system will allow farmers to pledge their harvest as collateral and obtain low-cost financing to cover their immediate liquidity needs. This will relieve the farmers from the pressure to sell their product immediately after harvest at low prices, allowing them to take advantage of the possible beneficial movements in the local grain market.

In addition to stabilising and increasing farmers’ incomes, a WIC system will reduce transaction costs in local grain markets and stimulate investment in agriculture. In the medium-term, a noticeable increase in grain production can be expected, increasing the general availability of grain in countries involved and promoting food security. Because poorer farmers are particularly vulnerable to the variability of market prices, a WIC system is expected to have its most significant impact on the poor.

The project should have substantial multiplier effects that will generate significant employment and livelihood opportunities. Some of these may also help reduce migration from rural to urban areas which has been identified as a significant problem in all three countries. The improved availability of low-cost financing and seasonal crop storage should make both domestic and foreign trade more competitive leading to significant foreign exchange gains through increased exports and/or import substitution. Similar multiplier gains may accrue from the project’s important training outputs. Particularly valuable will be the generation of effective partnerships between public and private sector entities which should serve to enhance and sustain gains from liberalised economic development.

Under the phased implementation arrangement, the project activities in Ghana and Zambia began in 2000. Because the conditions in the two countries were significantly different, the priorities of the project activities were adjusted accordingly. In Ghana, the project identified a non-bank financial institution to act as an independent regulatory body in the system of Warehouse Inventory Credit. With the assistance of the project counterparts, warehouses were identified which could offer acceptable standards of storage in suitable locations, and which were interested in participating in the project. In Zambia, the Working Group on Grains and Feeds has been created on the basis of the Zambian Agricultural Commodities Association (ZACA). Specialists from Zimbabwe Exchange were invited to assist with the training of the project participants. The Working Group was expected to act as a catalyst in the process of the formulation of the regulatory framework necessary for the creation and functions of a WIC system. The work of the Working Group has attracted significant attention from the grain industry and from the Government. The first warehouse receipts were initiated in Zambia in electronic form in November 2001. In Ethiopia, the activities started in 2001 with stakeholder meetings to identify workable approaches for the operation of a system of warehouse receipts.