Ukraine – Grain Warehouse Receipt Program

Providing smallholder farmers with access to credit

For years, ACDI/VOCA has worked to help bring about legal and regulatory reform in the Ukrainian agricultural sector to promote the growth of economic opportunities, and encourage investment and the adoption of modern technology throughout the country. One aspect of that reform process has been ACDI/VOCA’s introduction of a warehouse receipt program to provide smallholder farmers with the chance to get access to credit.

Traditionally, Ukrainian farmers have been forced to sell their wheat crops immediately after harvest to get financial capital for expenses and to buy inputs for the next planting. The sale of the wheat immediately upon harvest saturated the market, leading to low prices. Farmers had no choice but to accept the low price, however, because of their inability to get collateral from other sources like commercial banks, which viewed them as high risk.

Today ACDI/VOCA has helped to change that situation through the $600,000, European Bank for Reconstruction and Development (EBRD)-funded Grain Warehouse Receipt Program in Ukraine. Under this program, ACDI/VOCA has created a system that enables Ukrainian farmers to store some of their grain after harvest and use it as collateral for loans based on the market commodity value, providing needed funds to cover immediate expenses and prepare for the next harvest. This system stabilizes the price of wheat because farmers no longer bring all their grain to market at the same time. Assured of financing, the farmers are now able to wait for market prices to improve before selling their grain. As a result, they obtain a higher average price, which increases their annual incomes. In addition, ACDI/VOCA trains market participants (e.g., bankers, warehouse workers, traders, farmers) on the warehouse receipt program and its benefits. The implementation of this program was preceded by several years of work conducted by ACDI/VOCA to support regulatory reform in Ukraine and create the necessary legal environment for a grain warehouse storage and receipt program to function.

Two important components of the Grain Warehouse Receipt Program are the creation of a central registrar for warehouse receipts and the establishment of an indemnity fund. The registrar standardizes the documentation required to provide proof of title to the grain in storage, a critical step in establishing the grain as acceptable collateral for the banks to lend against. The indemnity fund is a type of insurance program that protects the farmer from loss of value should the grain be destroyed or damaged beyond its economic value while in storage. Without the indemnity protection, the risk of storing the grain for sale at a future time might be too high.

ACDI/VOCA's successful implementation of the grain warehouse receipt system has created cooperation among banking, production, insurance and trade systems in Ukraine by providing simplified access to lending facilities. In 2008, ACDI/VOCA will complete the development of a fully functioning warehouse receipts system. Depending on the passage of proposed legislation, over 600 warehouses will be mandated to join the indemnity fund along with any other warehouses that were subsequently certified, thereby increasing warehouse receipts by about 20 percent.

For more information contact Natalia Mytsak at nmytsak@acdivoca.org.

Updated: 3/08