Feasibility Study of Using the Warehouse Receipt System by Farmers as a Short-Term Financing Tool: A Case Study of Corn Farmers in Iran

Given the shortage of annual income for farmers in villages, rural households do not have significant savings to finance their activities. Thus, they inevitably have to turn to formal or informal sources to provide part of their financial requirements in order to be able to provide their required inputs on time. This study aimed at investigating the problem of providing liquidity to small farmers and selling products immediately after harvest with unsuitable prices, which brings very low profit margins and sometimes losses for farmers. To solve the problem, the proposal of FAO was reviewed using the capacity of the Iranian Agricultural Commodity Exchange, where a warehouse receipt system was proposed for short-term financing of farmers. In order to operationalize the warehouse receipt system in Iran, it was designed and localized according to the type of financial and economic relations governing the country.

In this study, the dynamic programming or Bellman Equation was used. According to Bellman equation, a crop year is divided into two seasons, the first season is called Marketing Season and the second one is called Without Product Season. Marketing season begins with harvesting of corn and would be finished with the beginning of without product season. Without product season starts at the end of selling Corn and would be finished at the beginning of next harvesting. The smallholder farmer begins the marketing season by storing freshly harvested corn. He must decide how much of his corn he wants to sell at the initial market prices and how much he wants to store (the amounts of the product stored are divided into two parts including the amount stored in the farmer's farm and the amount stored in the commercial warehouses; and the storage in the commercial warehouse is costly for him. In this study, it was assumed that the corns were not transferred to the next year. To optimize the farmer's current and future consumption utility, the dynamic planning method with the aim of maximizing the consumption utility function of the small-scale farmer in season i (here, it included two seasons of marketing and without product and had two values) with definition limits was used to finance the warehouse receipt system.

Optimizing the utility of the farmer's current and future consumption according to the amount of corn sales and storage was done using MATLAB 2021Rb software. By values in tables the results of the feasibility of using the warehouse receipt system method by the farmer as a short-term financing tool was studied. In this study, three scenarios were examined. In the first scenario, which is the same as the basic state, the farmer's degree of risk aversion to corn price changes during the marketing season was considered to be 0.4; thus, at the optimal point, the farmer would sell 25 percent of the corn at the time of harvest and store the remaining 75 percent of the corn in the farm warehouse. In the second scenario, the farmer's degree of risk aversion to corn price changes during the marketing season was considered to be 0.5; thus, at the optimal point, the farmer would sell 43 percent of the corn at harvest time and store the remaining 57 percent of the corn in the farm warehouse (the amount of corn stored in the commercial warehouse would be zero). There were also consumed 48 percent of the income from the sale of corn products in the marketing season and stores and the remaining 52 percent in cash during the marketing season for use in the off-season. Finally, in the third scenario, the farmer's degree of risk aversion to corn price changes during the marketing season was considered to be 0.6; thus, at the optimal point, the farmer would sell 53 percent of the corn at the time of harvest and store the remaining 47 percent of the corn in the farm warehouse. The amount of corn stored in the commercial warehouse by the farmer would be zero. Also, there were consumes 47 percent of the income from the sale of corn products in the marketing season and stored the remaining 53 percent in cash during the marketing season for use in the off-season.

According to the study results, the use of the warehouse receipt system by Iranian corn growers has failed under the studied conditions and it will be applicable only in certain conditions for risk-taking people. Therefore, considering many benefits of this method application for farmers, for its implementation, the following are suggested: 1. Knowledge and awareness of farmers through training and education will reduce the risk of adopting new methods. Therefore, by introducing and informing about the advantages and disadvantages of the proposed plan, it will be easier for farmers to make their decisions.2. The government can provide the conditions for farmers to use this method by applying price policies. The government can optimize the possibility of storing corn in commercial warehouses by creating a price difference for different qualities of corn.3. The government can support the implementation of this method by granting facilities with a low interest rate through which in addition to benefiting the farmers, the commodity exchange will be developed.4. Securitization of warehouse receipts for supply in the commodity exchange can optimize the farmers' use of the warehouse receipt financing system. Farmers or intermediaries in the agricultural sector can use this method to market their products and sell them at the right price.