Developing Warehouse Receipts in Emerging Market Countries

The importance of warehouse receipts financing systems and collateral management arrangements cannot be underestimated as key components for the development of commodity markets, producer finance (pre-export finance), commodity risk management and structured trade finance in emerging markets commodity-dependent countries.

Recognising the importance of warehouse finance, many emerging markets countries have taken steps to introduce legislation covering public warehousing and the issue of negotiable and non-negotiable warehouse receipts. This legislation typically provides for the following:

1. The provision of “public” warehouse operators. These warehouse operators are independent providers of storage and they are in the business only of storing commodities or other goods. They do not store their own goods, to avoid conflicts of interest
2. The rules by which the public warehouse operators receive goods for storage and their rights and obligations when accepting goods for store.
3. The method by which a warehouse receipt - which is the legal receipt for the goods being stored and which is issued by the public warehouse operator may be pledged (roughly meaning mortgaged) to a bank, or passed to another in a sale or purchase (negotiated). This means if you own the warehouse receipt, you own the goods and if you sell the warehouse receipt, you are selling the underlying goods themselves.
4. Other matters.

By creating warehouse receipts legislation, law-makers create an enabling legal framework to provide opportunities for traders and financiers. These opportunities bring working capital into the marketplace for commodities, which in turn benefits producers by bringing greater financial liquidity into the supply chain. The legislation itself reduces risk and therefore creates opportunities for all participants.

Since, according to the World Bank, the IMF and UNCTAD, many emerging market countries are commodity-export-dependent, the positive political and economic effects of introducing warehouse receipts legislation are widespread. As stated, the rural economy benefits from increased capital. From a political standpoint, this will be felt directly in better financial opportunities for a large rural electorate – so as a policy goal, the introduction of warehouse receipts seems to work well – both for the market and for the government of the day.

The newest global entrant to the negotiable warehouse receipts club will be India. Recently, the Indian parliament has passed enabling legislation which is now waiting for Presidential assent and this will make negotiable warehouse receipts a reality throughout the country. This in turn will pave the way for a huge explosion in the development of logistics systems, farmer and intermediary finance and serve as a basis for future development of the futures market. Whilst the trading of futures is presently banned for wheat, rice and pulses, warehouse receipts will be an important development for the creation of forward and futures markets for these key commodities in the future.

For more information about warehouse receipts, contact the author of this article, Daniel Day-Robinson, Day Robinson International (UK) +44 1392 271222 or

Dan Day-Robinson is Managing Director of Day Robinson International, a global consultancy and training provider based in the United Kingdom which serves the international trade finance and commodities markets. As well as managing the Day Robinson Group companies in the UK and in Asia as Chief Executive, Dan Day-Robinson provides consulting services in the emerging markets; for example (in relation to this article) recently working for the World Bank, the British Government,& the Common Fund for Commodities, which are all international aid and development agencies. In addition, as a former commodities trader and banker with Cargill and Kleinwort Benson, he works for banks and private institutions globally.