Committee on Juridical and Political Affairs November 16

Committee on Juridical and Political Affairs November 16 2017 Electronic Warehouse Receipts for Agricultural Products Department of International Law, Secretariat for Legal Affairs Jeannette M. E. Tramhel

OUTLINE I. Mandate II. Background III. An Explanation of the Issue IV. Addressing the Issue V. The Role of Warehouse Receipts VI. The Legal Framework VII. The Legal Framework – Challenges VIII. Draft Principles – A Contribution IX. Next Steps

MANDATE INTERNATIONAL LAW AG/RES. 2909 (XLVII-O/17) Part I, Section ii Resolutive paragraph 1: “To instruct the Permanent Council, through the Committee on Juridical and Political Affairs, to grant due consideration to the most recent resolutions adopted by the Inter-American Juridical Committee (CJI), along with their accompanying reports, to wit: … • Electronic Warehouse Receipts for Agricultural Products (document CJI/doc. 505/16 rev. 2); …and report to the General Assembly and the CJI on the outcome of these considerations. ”

BACKGROUND – chronology ELECTRONIC WAREHOUSE RECEIPTS FOR AGRICULTURAL PRODUCTS (CJI/doc. 505/16 rev. 2) 81 st - (August 2012) - topic included on agenda 82 nd - preliminary discussion document (CJI/doc. 427/13) 83 rd - proposed principles (CJI/doc. 437/13) 84 th - report and draft principles (CJI doc. 452/14) 86 th - works by other organizations (CJI/doc. 475/15) 87 th - works by other organizations (CJI/doc. 483/15) - presentation by Dr. Juan Carlos Di Sciullo (Ministry of Agriculture, Livestock and Fisheries, Argentina) 88 th - works by other organizations (CJI/doc. 497/16) 89 th - (September 2016) - final report (CJI/doc. 505/16 rev. 2) Recommendation: “Adoption of the attached draft principles”

BACKGROUND – topic origin CHARTER OF THE OAS Article 100 “…[The Inter-American Juridical Committee] may also, on its own initiative, undertake such studies and preparatory work as it considers advisable…” RATIONALE: - Concern over lack of access to credit in the agricultural sector - Strong agricultural sector basis for economic development - Warehouse receipts financing under-utilized in the region - Rural banks have ample liquidity, limited lending opportunities - Natural succession after the Model Law on Secured Transactions

UNDERSTANDING THE ISSUE How to create a thriving agricultural sector?

UNDERSTANDING THE ISSUE “Bio-physical eco-system” “Financial eco-system”

UNDERSTANDING THE ISSUE SLIDE COURTESY OF: Dobromir Christow, Senior Private Sector Specialist Trade & Competitiveness, World Bank Group

UNDERSTANDING THE ISSUE ENABLING THE BUSINESS OF AGRICULTURE (WBG, 2017) - Identifies and monitors regs & policies that affect ag and agri-business - Presents globally comparable data (for 62 countries) - Began in 2013 (comparable to “Doing Business” reports) INDICATORS: - Seed - Machinery - Markets - Water - Fertilizer - Finance - Transport - ICT SUB-INDICATORS: Branchless banking (agent) Branchless banking (E-money) Movable Collateral (Warehouse receipts) Movable Collateral (Getting Credit) Non-bank lending (microfinance institutions) Non-bank lending (Financial cooperatives) “The EBA finance indicators measure the quality of laws and regulations that promote access to financial services and support the development of agricultural enterprises. ”

UNDERSTANDING THE ISSUE OUTRIGHT SALE: - Producer sells at harvest - Requires revenue to pay expenses and purchase inputs for next cycle - High supply at harvest contributes to price volatility - Producer is “price taker”

ADDRESSING THE ISSUE WAREHOUSE RECEIPTS FINANCING: - Form of asset-based lending using stored products as collateral - Warehouse issues receipt upon deposit of the products - Receipt represents title to goods - Producer obtains cash from a lender using receipt as collateral - Producer retains ownership and can sell products at any time

ADDRESSING THE ISSUE OUTRIGHT SALE: - Producer sells at harvest - Requires revenue to pay expenses and purchase inputs for next cycle - High supply at harvest contributes to price volatility - Producer is “price taker” WAREHOUSE RECEIPTS FINANCING: Advantages - Improved access to credit - producer receives cash on delivery but retains ownership - can delay sale of product until prices are more favorable - Reduced price volatility - Greater participation by smallholders in commodity markets - through consolidation of crops and joint sales - Reduced postharvest losses of small holders - Improved quality of commodities through mandatory quality standards - Enhanced agricultural trade - Improved information about agricultural production

UNDERSTANDING W/R FINANCING Simplified Warehouse Receipt Process (without lender) Adapted from: A Guide to Warehouse Receipt Financing Reform World Bank Group, 2016

UNDERSTANDING W/R FINANCING Simplified Warehouse Receipt Process (with financing by lender) Adapted from: A Guide to Warehouse Receipt Financing Reform World Bank Group, 2016

THE LEGAL FRAMEWORK

THE LEGAL FRAMEWORK TECHNICAL CONSULTATIONS: Inter-American Institute for Cooperation on Agriculture (IICA) Food and Agriculture Organization of the United Nations (FAO) • FAO & EBRD (2014) - Designing Warehouse Receipt Legislation: Regulatory Options and Recent Trends World Bank Group • WBG (2016) - A Guide to Warehouse Receipts Financing Reform: Legislative Reform United Nations Commission on International Trade Law (UNCITRAL) • (13 July 2017) Model Law on Electronic Transferable Records • possible interest in developing a model law on WR?

THE LEGAL FRAMEWORK ELECTRONIC WAREHOUSE RECEIPTS (EWR): - electronic-based system to replace paper receipts - comparable to shift in electronic/paper-based banking systems Advantages: - Greater security against fraud than paper-based Increased transparency Easier determination of actual holder of the EWR Elimination of numerous formalities (physical endorsement) Improved data and information collection Increased transferability of EWRs Effective enforcement of security rights

LEGAL CHALLENGES 1. Paper-based to electronic format - transition An electronic warehouse receipt (EWR) and a paper-based warehouse receipt are functionally equivalent… 2. Civil law and common law - differences in approach “warehouse receipt” means the paper-based documentation that is issued to the person in control (depositor or bailor) upon the delivery of goods

THE CONTRIBUTION Electronic Warehouse Receipts for Agricultural Products (CJI/doc. 505/16 rev. 2) Objective: 1. To underscore the importance of warehouse receipts legislative reforms 2. To promote further development of international standards on the topic Recommendation: “Adoption of the attached draft principles”

THE CONTRIBUTION SUSTAINABLE DEVELOPMENT GOALS - #2 End hunger, achieve food security and improved nutrition and promote sustainable agriculture 2. 3 By 2030, double the agricultural productivity and incomes of small-scale food producers, in particular women, indigenous peoples, family farmers, pastoralists and fishers, including through secure and equal access to land, other productive resources and inputs, knowledge, financial services, markets and opportunities for value addition and non-farm employment 2. A Increase investment, including through enhanced international cooperation, in rural infrastructure… 2. C Adopt measures to ensure the proper functioning of food commodity markets… in order to help limit extreme food price volatility

NEXT STEPS INTERNATIONAL LAW AG/RES. 2909 (XLVII-O/17) Part I, Section ii Resolutive paragraph 1: “To instruct the Permanent Council, through the Committee on Juridical and Political Affairs, to grant due consideration to the most recent resolutions adopted by the Inter-American Juridical Committee (CJI), along with their accompanying reports, to wit: … • Electronic Warehouse Receipts for Agricultural Products (document CJI/doc. 505/16 rev. 2); …and report to the General Assembly and the CJI on the outcome of these considerations. ”

Thank you