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In Tanzania, the Agricultural Marketing Systems Development Programme (AMSDP) co-funded by IFAD contributed to an increase in incomes and improved livelihoods for small-scale farmers by enabling them to get better prices for their produce and gain access to credit through a Warehouse Receipt System.

In Tanzania, smallholder farmers have very limited access to markets and lack facilities to store their produce. As a result, they are forced to sell their surplus produce during the harvest season, when farm gate prices are low. Traders who can afford adequate storage sites often take advantage of smallholders’ constraints: they collect agricultural products at very low prices and sell them during the most profitable market conditions. In addition, farmers face enormous difficulty in obtaining credit for their agricultural activities because of the lack of financial services in rural areas. Moreover, banks require collateral that farmers cannot provide; as agricultural productivity is uncertain due to weather conditions and other external factors, farm produce cannot be used as safe collateral to obtain a loan. In 2002, the IFAD-funded AMSDP introduced the Inventory Credit Scheme through the Warehouse Receipt System (WRS) for cereals (maize and paddy) in 11 districts¹ of the country. Under this scheme, small-scale farmers were able to store their produce in warehouses during harvest, when prices are relatively low, and release them to the market at better prices during periods of low supply. To meet farmers’ immediate financial needs while they deferred their incomes, the programme enabled them to access finance from commercial banks through Savings and Credit Co-operative Societies (SACCOS). The role of the SACCOS is to mediate and provide guarantees to banks on behalf of farmers. As household incomes improved (due to the increase of farm gate prices by 200-300 per cent), the WRS also had other positive outcomes. For example, in the programme areas, access to education and health improved and some communities were able to build new and modern housing, as well as purchase motorcycles and bicycles to ease transportation problems. The programme also increased women’s participation in SACCOS and promoted collective bargaining and selling among the farmers and farmer groups.

Results

• After the WRS was introduced, farm gate prices increased up to 300 per cent.² This led to an immediate and positive impact on farmers’ income.
• The WRS scheme enabled farmers to improve the quality and increase the quantity of their produce and access financial services and loans.³
• Business relations between banks, SACCOS and smallholder farmers were strengthened, resulting in more favourable loan terms for agricultural producers; interest rates for commercial loans were reduced from 20 per cent to 13 per cent.⁴
• Introducing the WRS in the pilot areas created employment in various activities related to the warehouse system, such as transportation, dusting and security.
• AMSDP contributed to the enactment of the Warehouse Receipt Act and the establishment of the Tanzania Warehouse Licensing Board.⁵

Main lessons

• The Government should continue to create a conducive environment and expedite the full operationalization of the Warehouse Receipt Act to motivate and protect the parties involved in the WRS.
• The costs of running a WRS can be significantly reduced by rehabilitating existing storage facilities and using local expertise – for example engaging local collateral managers where they are available.
• In order for the WRS to be more effective, farmers should be assisted in a holistic manner starting from the production stage (Value Chain Approach) to ensure that the quality and quantity of their produce is up to the required market standards.
• The distance between the farmers and participating commercial banks is a notable problem. In addition to risks arising from traveling long distances with cash, there are additional overhead costs on the part of the participating SACCOS.

Main challenges addressed

CHALLENGES	SOLUTIONS	BENEFITS
1) Often commercial banks are not willing to provide finance directly to the smallholder farmers after they deposit their produce in designated warehouses.	It was realized that the best way to manage the schemes was to use existing institutions as financial intermediaries to provide surety on behalf of the farmers. The SACCOS were found to be suitable to take up this role.	By using the deposited produce as collateral, farmers gained secure access to credit and had the option to sell when they could get the best prices. Farm gate prices rose and the scheme had an immediate and positive effect on household incomes.
2) Often smallholder farmers lack skills to compete in a free-market economy.	Farmers who joined the WRS were able to bargain and sell collectively.	Collective bargaining enabled farmers to fetch higher prices compared to the prices they would obtain if they were to sell individually.
3) Farmers are often not able to meet market demand, particularly for high-quality produce.	The WRS involves quality check-up by collateral managers before the consignment is allowed into the warehouse, and poor-quality produce is rejected.	Farmers were motivated to pay more attention to the quality of their produce.
4) Trade can be inhibited by poor communication and marketing infrastructure in rural areas.	AMSDP has rehabilitated marketing infrastructure, particularly rural access roads, warehouses and market centres.	Smallholders’ access to markets improved. However, poor communication and telecommunication networks significantly inhibit trading in rural areas. Affordable ICT (e.g. solar-powered internet facilities) as well as mobile phones can improve access to markets on a much wider scale.

Background

After the collapse of the state-managed cooperatives and Tanzania’s banking sector in the late 1980s, farmers did not have sufficient access to markets and financial services. In the 1990s, during the liberalization/ privatization period of the financial sector and agricultural markets, the private sector did not respond as anticipated, especially in rural areas. This prompted the government of Tanzania and IFAD to launch the Agricultural Marketing Systems Development Programme (AMSDP). A particularly outstanding element of this programme was the piloting of the Rural Inventory Credit Scheme through the Warehouse Receipt System for cereals (maize and paddy). There were basically five main players in the AMSDP WRS model: farmers (depositors), SACCOS, collateral managers, commercial banks and insurers.

The basic concept is that:

• Farmers deposit produce in a designated warehouse under the supervision of a collateral manager and obtain a receipt; a copy of the receipt is sent to the SACCOS. The farmers do not lose identity of their deposited produce and they remain responsible for identifying buyers and selling.
• The SACCOS apply for a loan from a commercial bank on behalf of the farmer based on the farmer’s requirements as per the certificate from the collateral manager. The SACCOS then on-lend the loan to the farmer after receiving it from the bank. Moreover, The SACCOS also coordinate loan repayments by making sure that buyers of produce pay directly to the SACCOS or to the bank.
• The collateral manager safeguards the interest of the commercial bank by ensuring that the deposited produce is of agreed quality and quantity until the farmer is ready to sell.
• The bank advances loans to the SACCOS for on-lending to individual farmers or farmer groups at negotiated commercial rates.
• The insurer provides insurance for the deposited produce, particularly against fire and theft. The collateral manager is insured under a “Professional Indemnity Cover” as a pre-requisite for the role.
  

In Tanzania the WRS was first introduced in 1996 by private inspection companies. At that time, the main users of the system were large cash-crop producers/traders, who owned or rented warehouses since they could afford warehousing fees. The IFAD-supported WRS under the AMSDP targeted smallholder producers and ventured into the “non-traditional” cash crops. The scheme was implemented in the northern and southern rural regions of Tanzania and had immediate positive effects on household incomes.

Fostering ownership and sustainability

Beneficiary participation and enthusiasm have been key factors of success of the WRS. In some areas, increased awareness and strong enthusiasm of producers boosted the use of WRS to the point where storage space was exhausted. The trainings on quality and quantity enhancement and the organizational capacity-building provided within the programme have led to a change in mind-sets. Farmers have started perceiving agriculture not only as a subsistence activity, but also as something profitable. This has boosted their sense of ownership over the WRS and led to its spontaneous replication. Involvement of beneficiaries during the construction and rehabilitation of roads and market centres also created a sense of ownership, commitment and responsibility. Since the programme closed, the warehouse scheme has shown good prospects of being sustainable and growing since it brings economic and social benefits to the farmers. The programme’s innovation to incorporate SACCOS has also fostered the sustainability of the warehouse scheme.

Replication and scaling up

The policy and legislative environment has evolved in a favourable way for continued implementation of the warehouse system. The programme contributed to the enactment of the Warehouse Receipt Act and the establishment of the Tanzania Warehouse Licensing Board. The implementation of the scheme started in Mbeya region (Mbarali district at Chimala) and Manyara Region (Babati District at Magugu). The increased demand compelled five more districts to be incorporated. At the time of the programme’s completion in December  2009, the WRS had covered 11 districts. Farmers empowered by secure access to credit and reliable storage facilities had the option to sell when they could get the best price for their produce. These successes inspired farmers to ask for larger loans to engage in the processing of produce. Even after the programme ended, growth in terms of size and number of WRS schemes has been noted; the model has been replicated by other producers as well as private entrepreneurs, and some schemes initiated revolving funds to reduce dependence on banks. The creation of a partnership with the IFAD-supported Rural Financial Services Programme (RFSP) allowed AMSDP to be  more effective and efficient. In districts where AMSDP and RFSP collaborated, the results were impressive. To this end, AMSDP and RFSP have been scaled up in a new joint programme – the Marketing Infrastructure, Value Addition and Rural Finance Support Programme (MIVARF), which covers all regions of Tanzania Mainland and Zanzibar. MIVARF has a special WRS sub-component that incorporates partnership with the private sector.

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1/ IFAD, Independent Office of Evaluation (2011). Rural Financial Services Programme and Agriculture Marketing Systems Development Programme. Interim Evaluation. p. 17.

2/ Ibid., p. 34.

3/ IFAD and The United Republic of Tanzania Prime Minister’s Office (2010). Agricultural Marketing Systems Development Programme. Completion Report. p. V.

4/ Ibid.

5/ Ibid., p. 34.