The Effect of Warehouse Receipt Finance on Terms of Trade for Farmers

Warehouse receipt finance has received substantial interest as an instrument to improve trading conditions and market access for small-scale farmers in developing countries. Warehouse receipt systems are intended to provide farmers producing storable crops with liquidity (coupled with adequate storage conditions) allowing them to wait for higher prices rather than selling their produce at unfavorable terms right after harvest. By such means the systems are also expected to reduce crop price fluctuations across time. This project examines warehouse receipt systems and aims to address the following research questions: Can warehouse receipt financing improve the bargaining power of farmers in agricultural produce markets? Does it reduce crop price variability over time? Does it affect small farmers or only larger enterprises? Can it affect other farmers' practices such as investment decisions and technology adoption?

 

This project aims to complement the emerging literature on the benefits of available credit and storage by conducting a country-wide analysis of the effect of a new warehouse receipt financing system (WDRA) in India. To address the research questions the researchers will use two basic specifications, the first is a difference-in-differences specification, using outcomes in markets close to a new WDRA warehouse in the period after the warehouse registration. The second is a supply estimation, where the researchers allow the elasticity of crop supply to the market by farmers to differ before and after the date of registration, for markets near a new warehouse.

 

Multiple NGOs, development investment companies, and governments have been involved in attempts to create warehouse receipt finance systems to include smallholder farmers more successfully than had the limited systems which began operating in this sector during the 1980’s in Sub-Saharan Africa, mostly catering to imported goods and large exporters. In India, the WDRA warehouses are an opportunity to evaluate the effect of an investment in infrastructure on farmers' trading terms, post-harvest liquidity and market accessibility. Identifying the different players also allows this project to compare the effect of private vs. government warehousing institutions. The rich rural commodity price data accessible in the case of India and the regulated system provide a solid case study to examine the effect of warehouse receipt credit on crop market interactions.

Authors

Beáta Itin-Shwarz

Hebrew University of Jerusalem