Armed with a production guarantee, Ghanaian farmers expand Africa’s loan pool

By David Njagi

For the first time in Africa, farmers in Ghana are using agricultural produce as collateral to secure loans from lenders. But the exploitative brokers are fighting back.

After harvest, farmers store their produce in a licensed warehouse, where they then receive a receipt from the Ghana Grains Council (GGC) as proof of ownership.

A warehouse receipt is a document in electronic form certifying the quantity and quality of products such as corn, rice or soybeans, placed by the farmer in the establishment as the depositor.

It is this receipt that they then use as collateral to obtain loans, according to Isaac Okyere, the agricultural project manager of Sinapi Aba, a social enterprise working in rural areas of Ghana.

“Stored produce is sold at a later date when prices favor farmers instead of being sold immediately after harvest. They then use the proceeds to repay the loans,” says Okyere.

Smallholder farmers in rural Ghana have long struggled with agricultural value chain brokers who induce them to sell their produce immediately after harvest, often at prices below market value.

Farmers may be tempted to sell their produce if they need cash quickly or if there has been a glut of production, to protect their produce from wastage, Okyere said.

However, with warehouse receipts, farmers are able to avoid the pressures of production gluts, low produce, as well as challenging exploitative brokers.

For example, a bag of rice fetches about four Ghanaian cedis (about 65 US cents) immediately after harvest, but when stored in a warehouse it increases in value and can fetch up to eight Ghanaian cedis (about one dollar and 30 US cents).

“With the loan I get from my products as collateral, I can buy quality seeds and rent more land for farming,” says Mbalicho Nalori, a smallholder farmer in northern Ghana.

Nalori has been a farmer for about 12 years and has been doing warehouse receipts for three years. After each harvest on her seven-acre farm, she sends up to seven bags of produce to the warehouse. The rest, about three bags, is kept at home for consumption by her family.

But exploitative brokers are fighting back, according to Kusaku Anane, a core farmer in northern Ghana. A nucleus farmer is an agent around which small farmers are organized. They provide farmers with technical support and information on credit, seeds, chemicals and transport for farmers, among others.

Among the tricks brokers use to induce farmers to sell their produce at low prices is collusion with market players in rural and urban markets to manipulate prices.

They also form Welfare Associations that control transportation, the flow of market information, as well as the supply of produce to city markets. This shifts market power in favor of brokers and traders, says Anane.

“With warehouse receipts, farmers can sell their produce in groups and they can control broker prices,” he says.

Known brokers in Ghana’s agricultural value chain declined to comment on allegations that they distort market prices and exploit smallholder farmers.

The warehouse receipt system is a project of the Ghana Commodity Exchange (GCX) which was established in 2013 and aims to provide credit and loans to farmers, based on their commodity deposits.

Lenders offer a marketing season loan of 75% of the value of grain stored in the warehouse at 10% interest, and charge four Ghanaian cedis (about 65 US cents) per bag as a collateral management fee.

Sinapi Aba and the Agricultural Development Bank are some of the lending institutions providing credit to farmers using agricultural produce as collateral.

Charities like Opportunity International through its Roots of Change program are also working with around 12,000 farmers in Ghana and DRC to provide financial solutions to poor households through innovations such as warehouse receipts.

“These financial solutions break intergenerational poverty. Struggling families are now able to buy more land for farming and even build modern houses when they are financially self-sufficient,” says Lydia Baffour Awuah, Roots of Change Senior Program Manager for Ghana.

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