Strengthening African Rural Smallholder (STARS) is a five year program that runs in Burkina Faso, Rwanda, Ethiopia and Senegal. It is implemented by ICCO and funded by Mastercard Foundation. In the program, improving the lives of smallholder farmers is a main objective.
STARS in Senegal developed a warehouse system, or warrantage, in partnership with three Microfinance Institutions (MFIs): MEC FADEC Ndiambour, UFM and U-IMCEC. The warrantage system supports smallholder farmers by enabling them to sell their product outside the harvesting period when the prices in the market are very low. In 2018, STARS together with its MFI partners developed a pilot test in the Louga and Tambacounda region. Farmers involved in the pilot test were funded by MFIs depending on the quantity of products stored in the warehouse, which was co-handled by MFIs and producer organizations FAPAL and FADEC NORD.
Is it successful?
The following three examples show that the warehouse lending product has proven to form a promising added value for smallholder farmers:
1. Case UFM Louga and FAPAL
After six months of storage from February to July 2018, the producer organization FAPAL in collaboration with UFM Microfinance proceeded with the commercialisation of the stocked black eyed-pea (niebe). One of the success factors was to keep the same quality of the production by using appropriate warehousing. With a price equal to 200 FCFA ($0,36) per kilogram at the beginning of the warehousing, the black eyed-pea was sold at 600 FCFA / kg ($1,07) 6 months after storage, an increase of 400 FCFA/kg ($0,72), 200% in relative value (see figure below). The global storage costs spent by farmers is 70 FCFA/kg ($0,12) including financial charges (interest rate, credit management fee) and storage fee in the warehouse. With this successful experience, FAPAL and UFM decided to expand their next agricultural campaign by opening three additional warehouses in order to reach more producers.
2. Case MEC FADEC NJAMBUR and FADEC NORD
The experience of MEC FADEC Ndiambour (MFN) and FADEC Nord (PO) with the storage of black-eyed pea (niebe) has lead to interesting results. With a price of 235 FCFA ($0,42) per kilogram at the storage point and 400 FCFA ($0,72) per kilogram in the destocking period, an increase of 165 FCFA ($0,30) per kilogram was noted with a total charges of 40 FCFA/ Kg ($0,07) including credit fees and storage fees.
3. Case UIMCEC and Po’s of Diokoul and Sinthiou Maleme Tambacounda
U-IMCEC has piloted warehouse lending with three different crops: millet, maize and sorghum. At the beginning of the season, the price per kilogram of millet and sorghum was 175 FCFA ($0,31) and for maize, 150 FCFA ($0,26). After six months of storage the millet and sorghum were sold at 250 FCFA ($0,44) per kilogram and the maize at 300 FCFA ($0,53) per kilogram with an average total credit fee of 26 FCFA ($0,05) per kilogram for these cereals, including interest cost, management fees, and insurance.
For all these experiences, the key factors of success were the quality of:
- the warehouse used (good storing facilities)
- the production before storage (seed was not contaminated)
- the product conditioning
- and, specifically for the black-eyed pea, the PICS bags that were used. PICS stands for Purdue Improved Crop Storage, a new technology which avoids insect damage and is also promoted in the STARS program
In addition to the above-mentioned points, the price fluctuations also formed a key element in the success of the warehouse lending product.
Figure: Crop price development in warrantage credit system for different crop types
The main benefits of the warrantage
Warrantage enables farmers to increase their income through a good selling price and to increase their food security level during lean season.
The experiments are very likely to be sustainable: the microfinance institutions got a successful business with 100% of credit reimbursement through the secured system of this type of credit. The system entails that the warehouse has two secured padlocks. One key is kept by the MFI and the other key is kept by the farmer representant. This mechanism ensures the MFI to be repaid as the produce is stored safely and can’t be sold separately by farmers without informing the MFI.
Convinced of the usefulness and profitability of this loan, farmers are motivated to increase their production by using the best quality of inputs such as seed and fertilizer. With the opportunity of having a secured market with advantageous prices through the warehouse lending product, farmers can cover their house expenses and agricultural activities. Farmers can improve their production and thereby increase their income and food security.
Blog by Dada Gueye, STARS Program MERL Advisor