By Peter Moers, FUNDER (Fundacion Desarrollo
Empresarial Rural), Honduras, 1999
Banks are a combination of warehouse and financial institution, where
farmers can deposit their
harvest and receive a receipt. By storing
goods in the warehouse, the farmers can wait until prices increase before
selling their harvest on the market. By receiving a receipt they can
circulate as money, they are not forced to sell their crops when prices
are at their lowest, generally following the harvest. Thus in this piece
we refer to both a Warehouse and a Rural Credit Bank as being two arms
of a "Cereal Bank".
Translated by Stephen DeMeulenaere, YAPPIKA, Indonesia
Cereal Banks are probably the earliest form of banking institution. Thousands
of years before Christ the Egyptians already knew a system of paying receipts
based in amounts of wheat deposited in a warehouse administered by the state.
The administration the amount deposited by each farmer. The value is determined
by noting the quantity and quality and the year of the harvest. The farmer is
thus insured against the dangers of robbery, fire, flood, drought, etc. The high
cost of storage is thus shared between many farmers paying small amounts.
The system also makes it possible to transfer value of one account to that of
another by means of a system of checks. In this fashion the farmer might pay
for costs that he would otherwise have to wait for a sale at the market in order
to pay. This type of system makes it possible to circulate receipts between different
warehouses, and thus different communities in a region. Another important characteristic
of the system is that the depositor pays for the service of storage. The amount
to pay depends of the amount and quality of goods in storage. One way to avoid
this cost is to provide seed for next year's planting to the warehouse, which
they can sell to other farmers to make up storage costs.
Operation of the Warehouse Receipt system:
In the marry of the rural communities assisted by FUNDER, one can think
of a Rural Credit Bank that is involved in the construction of a warehouse, where
the farmers can deposit their corn, beans, rice, or other products of basic consumption
basic that are capable of keeping for several months. In exchange for the deposit,
the Bank Cereal presents the farmer with a Warehouse Receipt for each amount
of grain deposited, for example a bushel or kilogram. The receipt cites the amount
and the date of the deposit. If the quality of the seed is uniform (e.g. with
a humidity less than 14%), it is not necessary to mention quality on the receipt,
since the warehouse provides the best available standard of quality in return.
The quality can be identified at the time of deposit using the most common methods
The Warehouse Receipt can be used in several ways:
- As a medium of exchange "(money)" for
purchases made inside the community. The receipt will be accepted since
this endorsed by the warehouse and backed
by an amount of food which is stored at the warehouse.
- As a guarantee for obtaining a loan at the Rural Credit Bank. The loan
can be made to 80% of the actual amount of grain. This is an interesting
option because the farmer wants to store the harvest as soon as it's complete
(in the month of December in Honduras), while at the same time having a money
while taking advantage (through the storage of the harvest) of the ability
to sell when prices return to normal (in the months of May and June). Thus
farmers do not have to sell their harvest right away, when prices are always
the lowest. When the loan is repaid, the Rural Credit Bank, in cooperation
with the warehouse, can determine how prices have affected the value of money
during that time, by adjusting the remaining 20% of the deposit. If prices
that year are good, the rate of interest on the loan is adjusted accordingly,
ideally to avoid additional payment by the farmer.
- Sell the receipt to a local investor (which can be a private body or the
Rural Credit Bank. The purchase price will usually be equal to the market
price of the stock at the instant of sale. In principle, one can think of
the Rural Credit Bank as ensuring the convertability of the receipt between
the deposit at the warehouse and conventional money. A fund can be established
to ensure convertability, and be reduced little by little as confidence in
the system increases and the receipts are increasingly treated as money.
Benefits of the "Warehouse Receipt"
The great benefit of this system for the community is that it enlarges the
monetary base (or alleviates the scarcity of money.) If there was no Cereal Bank,
the deposit would have been:
Due to the lack of monetary liquidity
at the local level, many farmers are compelled to sell their goods immediately
after harvest. The Cereal Bank allows the farmer
to store their deposit until the price rises in the future, while giving the
farmer access to "money". This additional injection of money will increase the
dynamics of the local economy generating additional income and employment. Of
course the absolute condition need in order to gain this advantage is to ensure
the widespread acceptance of the receipt as a medium of exchange at the local
- Sold to a coyote (loan shark or those who profit from the misfortune and
desperacy of others) at a price well below the market rate, allowing for
a very small rate of return to the farmer.
- Stored at home, losing the potential of the seed as guarantee.
How is the Cereal Bank Financed?
To cover the administrative expenses, natural depreciation of goods in the
silos (due to rot & rodents), we are thinking of several options:
- The Cereal Bank can charge a commission of 1% monthly on each deposit.
The commission can be paid in the form of the goods already deposited. In
fact the receipt can be worth less 1% each month from the date of issue (date
of deposit). This method has a disadvantage for use as a medium of exchange,
because each receipt is worth a different amount, depending of your date
- The Cereal Bank can demand that
holder of the receipt buy a seal or stamp at the end of each month, allowing
for the value of the receipt to remain
the same. This method , known as "demurrage" was applied with success during
the Great Depression years (1929-) in many communities in Europe and North
America. This method has the effect of accelerating economic activity (because
nobody wants to pay for the stamp at the end of the month) and consequently
local economic activity increases.
- A third method could be that the Cereal Bank can charge a certain amount
for the deposit and redemption of stock in the warehouse, taking into account
the average cost of storage. The disadvantage of this method is that it reduces
the desire to deposit the grain in the warehouse in the first place. On the
other hand, it stimulates use of the receipt as a medium of exchange. The
initial amount paid could be returned to the farmer if sale prices for the
stock were good in that year.
One supposes that the losses of the Cereal Bank are minimal compared to other
methods of storage (such as at home with poorer quality storage methods which
can cause losses of 10 to 20%. This implies again that if the prices hold stable,
the farmer will benefit by depositing the stock. The Bank Cereal gives local
investors, particularly the Rural Credit Bank and Health Program (see Community
Economic Complex information below) an interesting way of moving the community
towards greater economic health and the possibility of greater capital generation.
The Cereal Bank and the Community Economic Complex (CEC)
The Community Economic Complex is a model for integrating various local
economic components into a coordinated whole. The Cereal Bank forms part of this
complex of community enterprises, all financed directly or indirectly through
the Rural Credit Bank. The main bonds between the Cereal Bank and the other community
- The Credit Union gives initial credit to the Cereal Bank or contributes
to infrastructure development.
- The Credit Union accepts the Warehouse Receipts as a loan guarantee
- The Credit Union can grant credit to producers in the form of inputs,
in addition to the Producer's Cooperative, and recoup this credit in
the form of stock in the Cereal Bank.
- The Credit Union can accept part payment in Warehouse Receipts, being
a profitable easily convertible form of money.
- The Cooperative Store can sell some of the stock stored at the Warehouse.
- The Cooperative Store can accept receipts as a form of payment, which
can then be used to pay for local expenses (employees, etc.), or as
a way of purchasing other goods for sale in the store.
- The Producer's Cooperative knows the productive situation of its
members and is therefore the best vehicle for promoting the Cereal
Bank among its members and between other cooperatives.