The economics of warehouse receipt system: a case of smallholder cotton producers in Maswa district, Shinyanga-region

Producers in most developing countries lack the means to mitigate price risk, and this affect their income and ability to repay loans. Warehouse Receipt System facilitate development of simple mechanism by which producers, lenders and traders can secure a floor price by looking in a fixed future price. The general objective of this study was to assess the performance of WRS by describing the WRS operating in cotton sector, analyzing profitability of the WRS to cotton production, identifying challenges and constraints facing its key players and identifying factors contributing to the profitability differences among cotton farmers. Simple random sampling techniques were employed in selecting farmers. Descriptive and quantitative techniques were employed to meet the objectives of the study. Description of WRS seems to be the same as other places operating the system and three main key players were identified (farmers, warehouse operators and finance institutions). The roles of each key player relied on the Tanzania warehouse receipt regulations. It has been observed that, with presence of WRS, the profits to cotton farmers are able to increase. Insufficient information systems, poor knowledge about the system, unimproved infrastructure were among the challenges mentioned. It has also revealed that household size and cotton field size contribute to the differences in profit among cotton farmers. Basing on the results of this study, WRS should be adopted in other crops because, apart from credit facilities provision, it assists traders to pool financial resources, and form networks for consolidating cotton marketing; also the system will help farmers to organize themselves into AMCOs for the purpose of bulking and marketing cotton together