Designing warehouse receipt legislation: Regulatory options and recent trends
The FAO Investment Centre and the FAO Development Law Branch have just published a review of warehouse receipt legislation and related regulatory practices worldwide. The publication “Designing warehouse receipt legislation: regulatory options and recent trends” provides country-based examples on how to develop enabling legislation for inventory credit.
Farmers often face difficulties accessing credit and are compelled to sell their crop immediately after the harvest, when prices are typically at their lowest, to buy inputs for the next season. Warehouse receipt systems allow them to access short-term credit from banks by depositing their crop in certified warehouses and using it as collateral.
The publication provides guidance for countries seeking to develop or reform existing warehouse receipt legislation. It highlights the importance of core elements of a good enabling legislation, while suggesting flexibility to accommodate country specificities.
“The success of a warehouse receipt system depends on a well-designed and enabling legal framework that ensures producers, credit providers and market participants of its integrity and transparency,” explains Philine Wehling, the study’s main author and FAO Legal Expert. “However, many countries lack specialised know-how to develop legislation that inspires confidence to market players”.
The publication is intended for policymakers, legal experts and potential investors. It is divided into three main parts: (1) the basic concept of warehouse receipt financing, its core elements and benefits, (2) some guidance for countries seeking to introduce or reform warehouse receipt legislation, with details on how to conduct a legislative assessment and analyse its results, and (3) country case studies to shed light on how specific legal, agricultural and economic contexts can impact the efficacy of such a system.
The review also benefited from the lessons drawn from concrete legislative support activities undertaken under the cooperation between FAO and the European Bank for Reconstruction and Development (EBRD) in the area of grain warehouse receipts. These projects demonstrated the multifaceted benefits of grain warehouse receipts systems. Apart from providing an appealing way for countries to mobilize credit for the agricultural sector, grain warehouse receipts systems also promote higher technical and managerial standards for warehouses, thus reducing post-harvest losses and improving flows of information on stored agricultural commodities.