Inflation release issued by the Central Statistics Agency showed relatively low inflation rate in the month of March 2014 which stood at 0.08%, much lower than the previous month recorded 0.26% due to supply disruptions. Foodstuffs to be the only group of commodities experienced deflation with a rate of 0.44%. Deflation that occurred in this group is influenced by harvest that occurred in various regions.
At first glance, the figures above show an encouraging indicator. But if we look more deeply, the abundance of supply at harvest contain some issues. From the side price movement, when supply is plentiful, the price of a commodity becomes very low. But not long after, when the harvest was over and began entering the plant, the price goes up high because supply are running out.
From the side of farmers, lower prices of their commodities at harvest would not be enjoyable because the profits they get less. Had they could hold the commodity for longer, they can sell the commodity at a better price.
Already a common of understanding that farmers bargaining power is very low. The increase in the price of their commodity production, they rarely enjoy. In fact, sometimes they themselves become victims of the rise in commodity prices of commodities they produce because they have been sold out at the time of harvest.
This illustration shows the unfavorable stock management. If we want to think further turns out to stock management problems also not modest matter. Stock management is not just a matter of organizing supplies, but also related to the farmers resistance to pressure their financial needs.
At the time of the production process, planting, maintenance, until the time of harvest, the farmers would need cash to feed and fund their children’s school that costs always increase along with movements in inflation. The farmers, particularly those in rural areas, have little access to easy and inexpensive financing. When they try to get financing from banks, they are constrained by collateral.
Warehouse receipt is an alternative solution to increasing the bargaining power the farmers. Warehouse receipt is a document in proof of ownership of the goods stored in a warehouse registered specifically issued by the warehouse manager.
In Indonesia, in accordance with the Regulation of the Minister of Trade No.26/M-DAG/PER/6/2007 eight agricultural commodities as goods that can be stored in the warehouse in the administration of the warehouse receipt system. Those commodities are unhusked rice, rice, coffee, cocoa, pepper, rubber, seaweed, and corn.
Despite the fact that more complex transactions, warehouse receipts can even be traded, sold, exchanged, or can be used for delivery of goods in derivative transactions such as futures contracts. But typically in Indonesia warehouse receipts are used as collateral to get loans from banks. The use of warehouse receipts as collateral the bank has multiple benefits both for banks and for the farmers.
For banks, the warehouse receipt is secure collateral. All data warehouse receipts centrally administered at the Registration Center and supervised by the Commodity Futures Trading Regulatory Board. In addition, there is a quality assurance for the owner of the goods or prospective owner of the goods because the goods are stored properly managed by the business before storage and quality tested by independent Conformity Assessment Board who has received certification from the National Accreditation Committee and approved by the Commodity Futures Trading Regulatory Board.
In addition, warehouse receipts can also be an alternative method for banks to boost lending in agriculture which is still relatively low. Based on data from Bank Indonesia, share of agricultural credit to total bank credit by the end of 2013 was recorded at 5.34% only. Still small share of agricultural credit can also be seen as a potential financing is still very wide open for banking.
For farmers, the warehouse receipt is one means to get fresh funds required during the growing season until the next harvest. At the time of harvest, the farmers can store their agricultural commodities in the warehouse using warehouse receipt system.
Farmers will get a receipt that can be used as collateral to obtain fresh funds from banks. Funds from the bank they can use to fund their daily needs while waiting for higher commodity prices so they can sell it at a better advantage at the same time pay off debts at the bank.
Moreover, with the funds to make a living while waiting until the next harvest, the farmers have the option to hold commodities. Farmers have the bargaining power to sell the commodity whenever he wants without worrying about the financial situation of the household.
With the adequate time, the farmers also can choose the most suitable buyer price for optimum profit. Under these conditions, rise in the price of certain commodities can also be enjoyed by the farmers as producers of these commodities.
In the context of price movements, farmers’ bargaining power to control the timing of the sale of commodities greatly impact on price stability. During the harvest, prices are not too low because the supply of goods is not too much. Also in post-harvest period, the price is not too high because the supply of goods is still there. So the price movements, especially of volatile components, which are mostly agricultural commodities, can be steady.
Published on The Jakarta Post, 11 April 2014
Photo source : wfp.org