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)