Govt to launch warehouse receipt system

Govt to launch warehouse receipt system

JAKARTA (JP): The government will soon introduce the Warehouse
Receipt System (WRS) in several provinces to help local farmers
gain access to financial institutions.

Minister of Industry and Trade Rahardi Ramelan said on Tuesday
that WRS, a system which enables farmers to use their commodities
as collateral in securing loans from financial institutions,
would in the first stage be developed in East Java for rice,
South Sulawesi for cocoa and Lampung for coffee.

"WRS, among other things, enables farmers and traders to keep
their commodities in safe places, and they could secure loans
from bank and international traders using their warehouses
receipts as collaterals," said Rahardi, who is also the chairman
of the State Logistics Agency (Bulog).

After addressing a seminar on WRS, sponsored jointly by his
ministry and the United Nations Conference on Trade and
Development (UNCTAD), Rahardi said the system would be extremely
beneficial to farmers wishing to obtain bank loans to finance
their farming activities.

Lamon Rutten, coordinator of commodity marketing, risk
management and finance at UNCTAD said a sound WRS would benefit
farmers, traders, exporters and importers by providing price
certainties and market information.

He said WRS would provide increased flexibility and reduce
risks in the marketing chain.

"For example, producers can more freely decide to continue
storing their products rather than selling (them) at harvest time
at unfavorable prices."

"During peak harvest season, when the prices of unhusked rice
tend to decline, farmers can use WRS to obtain credits, which use
their grains as collateral and would be payable once the rice is
sold off after the harvest season."

Rutten said WRS would provide financial benefits for farmers
and traders, which could in turn make their goods more
competitive in the market.

"Once goods are in a warehouse, production risks are
eliminated, the quality of the goods can be controlled and
transport risks become manageable. Therefore, risks for lenders
are less, so loans can become more affordable."

But he said many of the benefits would only be fully realized
if there was a system for trading warehouse receipts, such as a
credible commodity exchange.

"A WRS linked to a commodity exchange would enable farmers and
traders to receive price information from the exchange, which
would enhance their bargaining power."

Rahardi said using WRS would enable Indonesia to market its
agricultural products more competitively and efficiently during
the era of agriculture trade liberalization because such a system
would reduce marketing costs.

He said the export and import of agricultural products
typically required enormous amounts of working capital to
purchase the commodities concerned, but the cost was a serious
burden to exporters, a situation which in the end would make the
products less competitive.

"The WRS may reduce the risks because the creditor can accept
reasonable, or even much lower interest rates," he said.

But Rutten said Indonesia needs well-run warehouses,
sufficient control on warehousing companies and an appropriate
legal and regulatory environment to implement a sound WRS. (gis)