Norton Rose Fulbright (together with the IFC and FAO) to assist Africa’s fragmented farmers with introduction of agrarian receipts
Africa’s smallholder farmers have long been subject to fragmented, disorganised markets where they have had to sell their products for lower than the market price. A key reason for this has been the absence of an environment where smallholder farmers are able to source funding at reasonable rates or (in many cases) at all. This type of market fragmentation means that many African smallholder farmers are caught in a cycle of poverty. The use of warehouse receipts over the past two decades in many African markets has helped smallholder farmers but to a limited degree. It has reduced the risk of financing by enabling farmers to use warehouse receipts as collateral ready to liquidate in an event of default.
However, warehouse receipts have not proven to be the panacea many had hoped for. In many markets one of the major drawbacks has been the exclusion of small stake producers and traders from warehouse receipt systems as the main users are large-scale operators who own or rent entire warehouses or silos and can afford fees costing thousands of dollars (US) per month.
South Africa has without doubt the most sophisticated warehouse receipt system on the continent through its network of silos connected to SAFEX. Despite the existence of this enviable system, many smallholder farmers operating in South Africa have not benefitted from SAFEX. Some have gone as far as to say that in most African countries, there have been very limited benefits to the domestic agricultural trade through the introduction of warehouse receipts.
Norton Rose Fulbright will provide legal assistance to the International Finance Corporation (IFC) (a member of the World Bank Group) and the Food and Agricultural Organization (FAO) in a breakthrough feasibility study in which it is hoped that agrarian receipts will be introduced to Africa for the first time to enable Africa’s smallholder farmers to securely source funding.
Benefits of agrarian receipts
Agrarian receipts are essentially a promise to supply agricultural products or make a payment after the sale of agricultural products in return for getting resources (financial or commodity) at the time of receipts issuance for business activities.
Agrarian receipts have been successfully introduced in Brazil (where they are referred to as CPRs- Cedulo de Produto Rural) and now the IFC and FAO is looking to build a pipeline of transactions in Africa using the same instruments.
There is much evidence to show that Brazil has managed to transform its agricultural sector through the use of agrarian receipts. Testament to their success has been their introduction in other markets such as Ukraine and Poland – markets also lacking efficient financing instruments for agribusiness. Norton Rose Fulbright is honoured to be part of the project to help end the cycle of poverty that many African smallholders still face.