The Zimbabwean government has launched a multi-million-dollar warehouse receipts project to boost coffee production in the small-scale coffee growing areas of Karoi, Guruve and the
With land reform, coffee production was set to increase from the current 2,000 hectares to 6,000 ha in Manicaland in addition to 1,500 ha between Karoi and Guruve, bringing the total hectarage under coffee in the country to 7,500 ha.
The system was expected to be fully operational by July 2003.
The Coffee Market Development and Trade Promotion project manager Dugmore Tawonezvi says the warehouse research would improve the quality of coffee, efficiency and transparency of coffee marketing and trade in a liberalised economy.
Tawonezvi, who works for the Ministry of Lands, Agriculture and Rural Resettlement, says coffee farmers would access bridging finance from financial institutions through the project, while storing their produce in warehouse at the Grain Marketing Board depots and the Zimbabwe Coffee Mill waiting for coffee prices to firm.
The lack of affordable credit has limited the effective participation of smallholder farmers and local traders in coffee production and marketing.
He says the high risks of default have prevented the extension of sufficient credit by local financing institutions for coffee trade finance.
However, the default risk was high due to perceived lack of adequate collateral, coupled with limited experience and exposure of financing institutions to the fundamentals of coffee trade, marketing and transaction cycles.
The Ministry of Lands, Agriculture and Rural Resettlement with the assistance of Common Fund for Commodities (CFC) and through the coordinated effort of both the public and private sectors seeks to address the constraints through the implementation of the project.
Tawonezvi claims the main thrust of the project was to establish a framework (legislation) for operating a privately run warehouse that enables the use of stored products (coffee) as collateral to access finance from local and international banks.
The major output would be the collateral management arrangements suitable for pre-export finance.
Under an agreement between the farmer and exporter and a local bank, a system would be developed for issuing negotiable warehouse receipts on the basis of stocks received by warehouse managers against specified criteria of quality, price and quantity.
The activities associated with this component include the identification of suitable warehouses, mobilisation of farmers, traders, exporters and banks to participate in the project and the drafting of a legislation to protect the rights and obligations of all participants.
The use of warehouse receipts system as collateral was anticipated to:
- Provide access to commercial financing for smallholder farmers.
- Improve profitability for farmers.
- Reduce lending risks for banks.
- Expand banks participating in coffee business.
- Increase market transparency and efficiency and
- Provide a step towards forward and futures markets.
Although the project started in 2001, a warehouse receipt bill was yet to be drafted by the ministry.