Giving credit where credit is due

Under pressure to pay bills and replenish stocks, few of Zambia's small-scale maize farmers can afford to delay selling their newly harvested crop, in order to benefit from higher prices later in the year. Lacking finance for transport, as well as market information, many farmers have little option but to accept the prices - often well below production costs - offered by visiting grain traders. Those who can afford to store their crop risk losing everything to weevils and damp.

Combining storage and credit

	credit: John Esser, NR International

To access better markets for their maize, Zambia's farmers need access to credit and good storage. Over the last three seasons a pilot crop warehouse scheme has been attempting to offer them both, by drawing on research supported by the DFID Crop Post Harvest Programme. Six commercial grain warehouses have been registered by the Zambia Agricultural Commodities Agency, (ZACA), and are now offering farmers guaranteed storage for their crops. All grain deposited at the warehouses is weighed and graded, and the warehouse undertakes to deliver an equal quantity of similar grade or higher when the farmer decides to sell. In addition, ZACA has also been working with Zambia's financial institutions so that those who store grain at the warehouses can use their deposit as collateral, enabling even small-scale farmers to access loans. As Martin Hamusiya, ZACA's chief examiner explains, "The system allows the depositor to hold the crop while the price is still very low, access some financing to pay off pressures in the meantime, and sell when the price has gone up."

Wangwa Farms, a large commercial farm 80 kilometres west of Lusaka, owns and runs one of the registered warehouses. Wangwa stores its own grain, and also offers storage space, at commercial rates, to small-scale farmers in the area. To maximise efficiency, ZACA encourages farmers to bulk and deposit their maize in 30 ton lots, a standard delivery quantity in the market. The agency has also trained farmers in methods of cleaning their maize in order to earn an 'A' grade price for their crop. Staff at the warehouse are monitored, and procedures such as regular fumigation are carried out. Gaining a reputation for high standards, the warehouses have begun to attract large buyers, including the World Food Programme (WFP). Depositors are informed of the prices being offered, and can release their maize for sale when they choose, or look for buyers themselves.

Storage gives market strength

The Kulya Nkona Agricultural Cooperative is one of the depositors at Wangwa. Roderick Nyendwa, the group secretary believes that safe, guaranteed storage has dramatically improved their marketing power: "With your maize here, safe from the weevils, you are able to travel to the market place, learn more from the people there, how the market is going, how it is getting up and down. You are free, you do not panic, until the market is ready for you."

Farmers depositing grain are given a receipt, detailing the exact weight and grade of their maize, which they take to the bank when applying for a loan. However, as Martin Hamusiya explains, the process of persuading the banks to offer loans has not been easy. "Initially there was total mistrust. It took over two years of talking to banks, and some of them would just show us the way out." Of greatest concern was the credibility of the warehouse operators and the assurance that they could guarantee delivery, quality, and access to good buyers. ZACA put in place a series of requirements for the warehouses, including insurances for the crop against deterioration, theft or fraud. Eventually some of the smaller banks decided to take a risk and offer small loans.

Big banks come on board

In time, larger banks have recognised the benefits of the system and now, according to Hamusiya, are out-competing the smaller ones in offering credit to receipt-holders. Achieving full legal recognition for the receipts has, however, been a challenge and uncertainty over this has caused frustrating delays for depositors in receiving payments. ZACA are working closely with the government, and have drafted proposed changes to the Agricultural Credit Act to establish the legal security of the system.

Jacob Mwale, an advisor to ZACA, acknowledges that there is some way to go before the credit system is fully accepted. However, the agency has received numerous applications from commercial farms and rural entrepreneurs keen to establish registered warehouses. At the end of the 2005 season, the combined capacity of all six warehouses totalled 105,000 tons, but Martin Hamusiya says the aim is to double the number of warehouses, and expand storage to as much as 200,000 tons. In the longer term, Jacob Mwale speculates that the receipt system could be expanded to a regional level, as a new way of addressing the uneven pattern of rains and harvests that typify sub-Saharan African agriculture. Those countries who suffer a poor season could buy title to grain held in the warehouses of more fortunate neighbours, to be claimed at time of need.