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Success Stories Assistance Areas SEED Reports Contact Information Last updated: 41     Grain Marketing ACDI/VOCA GRAIN STORAGE AND MARKETING PROJECT FINAL REPORT SUBMITTED BY JOE ALLEN SENIOR PROJECT ADVISOR MARCH 1999 WARSAW, POLAND   Table of Contents Preface 3 Acknowledgements 4 List of Acronyms 5 Introduction 7 Chapter 1 The Game Plan 10 Chapter 2 The Lineup 15 The Owners The General Manager The Team The Fans Chapter 3 The Game 19 Task Force 5 Levels Grain Standards Pilot Projects 1997 1998 Legislation Commodity Exchange Oversight Changes in the Role of ARR Chapter 4 The Box Score 37 Hits Home Runs Runners Stranded Strike Outs Evaluation Team Report Chapter 5 Extra Innings 39 Chapter 6 Post Season Awards 41 Appendixes 42   Preface As the end of the GSMP approached my thoughts turned away from project activities toward those of the final report and how to structure the report to be interesting and informative. The attempt to be interesting and informative must embrace both the reader as well as the writer. So you will see that parts of this report are a little unorthodox as I compare the GSMP to the game of baseball—the goal being to increase the interest of the reader and the writer. Those of you, who know me, know that one of my passions in life is the game of baseball. You also know that I take my interest in the game, its history and future very seriously—so you will understand that my comparison of my work on the GSMP with the game of baseball is truly a gesture of respect for the GSMP and its participants. The informative part actually came very easy, as most people who read the report will have a vested interest in its findings. This interest may either be in the impact for Poland, the impact for various United States development resources, to learn from the Poland project for their own individual knowledge and organizational benefit or even to possibly duplicate portions of the project in another country. It is my hope that each of you that read this report will gain from its contents. However, as you read I ask you to be cognizant of the challenges faced and commitments made by the funding organizations, the implementing organizations and the staff who conducted the day to day activities. Lessons learned from the successes and also from the shortcomings can be an excellent way to leverage resources to the benefit of others and I hope this report will accomplish those things. I walk away from this project with mixed emotions--- the satisfaction of knowing that we played the game to the best of our ability, yet with the disappointment of knowing that we left men on base and that we struck out a few times. However, as I take off the uniform and hang up the spikes as the Senior Project Advisor for the GSMP I take great personal and professional pride in presenting this report to you. WAIT UNTIL NEXT YEAR! I hold this---the most optimistic statement in baseball as my hope for the continuation of the GSMP initiatives and for the continued improvement of Polish agriculture. Joe Allen, Senior Project Advisor Back to Top   Acknowledgements  It is impossible to recognize everyone that played an important role in the GSMP. However, there are several organizations and individuals that should be pointed out. Of course the project would have not been possible without the funding, vision and project support from USAID. The supplemental funding provided by the USDA and the Polish Ministry of Agriculture provided additional flexibility from both a program and funding viewpoint. ACDI/VOCA as the project contractor took on the ultimate responsibility for program implementation and accountability. While the collective role of the US components was the administration of development activities our many Polish partners realized their role to be one of long-term involvement and in all reality their role is only beginning. Regards of course must go to the GSMP staff who moved the project forward. PISiPAR, its leadership, warehouse examiners and staff demonstrated their true support and commitment toward the realization of a Licensed Elevator System for Poland. Thanks to the many members of the Task Force that shared the vision early in the project and provided the leadership to create a structure for the project. A personal thanks to Gus Schumacher, your support and interest was a personal inspiration and motivation for me. A special thanks goes to the following departments of agriculture that either provided paid leaves of absence for employees so they could serve as volunteers or they hosted a group from PISiPAR during one of the US Training Programs. Illinois Department of Agriculture Missouri Department of Agriculture United States Department of Agriculture-Farm Service Agency Oklahoma Department of Agriculture Ohio Department of Agriculture Minnesota Department of Agriculture To my favorite team—the KC ROYALS—the road trip is over, I am rounding third and heading toward home! Linda, what can I say to you, as your support, sacrifices and commitment to the project motivated me to complete the project to the best of my ability. A special thanks for your efforts in organizing the "Symposium" in 1997. Your class and style made the Symposium a success. Thank you to each and every one of you. Joe Allen, Senior Project Advisor Back to Top   List of Acronyms AAWCO Association of American Warehouse Control Officials ACDI/VOCA Agriculture Cooperative Development International/Volunteers in Overseas Cooperative Assistance ARR Agency for Agricultural Markets ARMA Agency for Restructuring and Modernization of Agriculture ASA American Soybean Association CBOT Chicago Board of Trade DPR Daily Position Record EBRD European Bank for Reconstruction and Development EU European Union FAMI Foundation for Agricultural Market Infrastructure FAS Foreign Agriculture Service-USDA FSA Farm Service Agency-USDA GSMP Grain Storage and Marketing Project IF Indemnity Fund MAFE Ministry of Agriculture and Food Economy MOE Ministry of Economy MOF Ministry of Finance MVP Most Valuable Participant NGFA National Grain and Feed Association PGFC Polish Grain and Feed Chamber PISiPAR State Inspection of Purchase and Processing of Agricultural Products SPA Senior Project Advisor USAID United States Agency for International Development USDA United States Department of Agriculture WC Draft White and Case Commodity Exchange and Warehouse draft legislation WAREHOUSE ACT Act of 1998 on Warehousing of Agricultural Products WBOT Warsaw Board of Trade Back to Top   Introduction To truly understand the evolution of the GSMP and how it got to where it is today you must go back in history. In spring of 1993 a concept paper was written for Coopers/Lybrand for a project involving warehouse receipts in Latvia. This proposal was short lived and was never funded. However, the concept paper found its way to Poland and was used to create a VOCA volunteer Scope of Work in July of 1993. VOCA brought two volunteers to Poland for six weeks during the summer of 1993. The reports filed by the volunteers were eventually used as the framework for an unsolicited proposal from VOCA to USAID in March of 1995 with ultimate funding and with project implementation in late spring of 1995. A partner of VOCA in the proposal, FAMI, was initially involved, as a sub-contractor was also an active participant in getting the project funded. However, as further detailed in the Game Plan, FAMI was later released from the team. The project has received several funding awards and contract extensions and the chart below provides a summary of the amounts and timing. Agency Agreement # Amount From To USAID 181-0024-A-00-5211 $1,717,245 April 1, 1995 March 31, 1997 USAID 181-0024-A-00-5211 No Cost Extension -0- April 1, 1997 September 30, 1997 USAID 181-0024-A-00-5211 Funded Extension 500,000 October 1, 1997 September 30, 1998 USAID 181-0024-A-00-5211 Funded Extension 61,560 October 1, 1998 December 31, 1998 USDA 58-3148-6-069 199,984 April 1, 1996 March 31, 1997 USDA 58-3148-6-069 No Cost Extension -0- April 1, 1997 September 30, 1997 USDA 58-3148-6-069 No Cost Extension -0- October 1, 1997 December 31, 1997 USDA-MAFE Local Currency Funding By letter of agreement which provided for the funds and the use of an automobile 90,000 April 1, 1996 March 31, 1997       USDA-MAFE Local Currency Funding By letter of agreement   No Cost Extension -0- April 1, 1997 September 30, 1997 USDA-MAFE Local Currency Funding By letter of agreement   No Cost Extension -0- October 1, 1997 December 31, 1997 USDA-MAFE Local Currency Funding By letter of agreement   No Cost Extension -0- January 1, 1998 Until funds are depleted not later than August 1999 TOTAL FUNDS AWARDED   $2,568,789     Funding totals by individual donor were as follows: USAID $2,278,805 89% USDA 199,984 8% USDA/MAFE 90,000 3% TOTAL $2,568,789 ======== The total months of work performed on the project was 43, which is 79% more than the time originally provided for under the first USAID agreement. The GSMP was able to extract this additional programmatic activity on only a 33% funding increase from USAID. The GSMP was able to leverage USAID funding of the project with supplemental funding in the amount equal to 11% of the entire contract. In summary the GSMP was able, in a combined structure, increase programmatic activity from the original proposal by 79%. This is versus only an increase of 44% from a funding viewpoint. This increased time was created when management decisions were made to delay expenditures when the results of those expenditures would not create any impact for the project. Those funds were held until the appropriate time and project activities would continue in other directions. Matching contributions are also an important component of a development program such as the GSMP. Below are a few key areas where matching contributions were brought into the GSMP. These are in addition to the match contribution of ACDI/VOCA volunteers. Ministry of Agriculture and Food Economy Warsaw Board of Trade Foundation for the Establishment of a Grain and Feedstuffs Exchange Association of American Warehouse Control Officials American Soybean Associations U.S. Grain Council 5 State Departments of Agriculture World Bank National Grain and Feed Association Adam Rytelewski Joe Allen Task Force Members Pilot Project Elevators Polish Grain and Feed Chamber USDA British Know How Fund Back to Top   Chapter 1  The Game Plan  The theme of the Game Plan and its implementation through the 43 months of the project was this—"Design a Warehouse Licensing System for Poland by Poles". This theme was held at the forefront of all project activities and was instrumental in gaining strong support from project participants.  To best way to describe the Game Plan or goals of the project would be to start with the original goals and outcomes as outlined in the Cooperative Agreement. These goals and outcomes will be summarized in two ways. First, under the original agreement amended for the addition of two new outcomes and changes created by the termination of the FAMI subcontract agreement. The second grouping will be the goals and outcomes as provided for and updated with the funded extension of the project from October 1, 1997 through September 30, 1998. These same activities were the focus during the 3-month no cost extension by USAID through December 31, 1998. In addition to the specific goals and outcomes the GSMP is under the following USAID Strategic Objective.  Strategic Objective 1.4: "Competitive, market oriented private financial sector"; Intermediate Result C "Increased availability of financial services and products"; Lower Level Intermediate Result C.1 "New financial instruments developed and marketed broadly"; Target: To develop and implement a licensed grain elevator system in Poland. To be involved in the development of the appropriate legislation for regulating and licensing commodity exchanges. Original 1995 Objectives and Outcomes Objectives To have 7-17 elevators licensed to participate in a government sanctioned grain storage program and using warehouse receipts. To develop a revised system of grading standards for grain. Develop an operating system of warehouse receipts, acceptable as collateral by financing institutions. The development of an operating grain elevator inspection and examination system. Brokers trading in warehouse receipts along with the acceptance of warehouse receipts as delivery document and method of transfer of title. Outcomes GSMP will provide advisors to legislative panels, parliamentary and ministerial commissions to provide consultation on the development of legislation governing licensed grain warehousing. It is hoped that farmers will be able to access credit using warehouse receipts as collateral. GSMP will provide encouragement, planning assistance and technical assistance (TA) to the Ministry of Agriculture and Food Economy (MAFE) in order to upgrade Poland’s grain grading standards, widely recognized as inefficient. GSMP will provide training and TA to cooperative elevators selected to participate in the Pilot Project. Warehousemen and financial managers of cooperative and private, non-cooperative elevators will be trained to manage their responsibilities in compliance with Polish regulations. A Pilot Grain Warehousing Project will include 22 elevators located throughout the country. GSMP will provide training to governmental and or private grain inspectors in order to develop the capacity to inspect elevators to determine their level of compliance with Polish law. GSMP will provide US experts to advise on appropriate legislation for regulation and licensing of commodity exchanges. The Ministry of Agriculture’s Fund for Restructuring and Modernization of Agriculture will be sought as a provider of funds for capital investments in newly licensed elevators. ACDI/VOCA will use volunteers to help develop a Polish Grain and Feed Association, as an active membership organization, which will perform lobbying, communication, education and other functions for the grain and feed industry in Poland. Develop an Indemnity Fund to support the Pilot Project and supplement the warehouse bonding process. The structure, funding source and claims procedures will then be in place to support the country wide licensed elevator system available through the Pilot Project. Outcomes number 9 and 10 were added at the recommendation of the SPA and following the termination of the FAMI agreement as described below. The original cooperative agreement between ACDI/VOCA and USAID provided for the inclusion of a Polish subcontractor to assist with the implementation of the GSMP and the above outcomes. The Foundation for Agriculture Market Infrastructure (FAMI) under the leadership of Ms. Kazimiera Sperling was selected as a subcontractor. ACDI/VOCA agreed with FAMI on a subcontract (although the contract was never agreed upon by FAMI) in the amount of $626,000 including a training component. However, in early 1996 in became evident that the obligations accepted by FAMI could not be met and the organization was not capable of carrying out its portion of the agreement. ACDI/VOCA under advisement from the GSMP Senior Project Advisor elected to terminate its agreement with FAMI. The determination was made to maintain 100 % of the project management using ACDI/VOCA staff, Polish Consultants and US based volunteers. The 10 objectives on the previous page were selected as guidelines for the ongoing implementation of the GSMP. These objectives were also included in the USAID contract amendment, which reflected the removal of FAMI as a partner in the project. However, it is important to note that several Founding Members of FAMI continue to work with and support the GSMP activities on an individual basis. You will also want to review the GSMP Work Plans, which are, attached as Appendixes A, B and C as detailed below. These Work Plans projected the activities of the project in advance of implementation and served as a guideline for the measurement of results of the project. Appendix A April 1, 1995 through June 30, 1996 Appendix B July 1, 1996 through September 30, 1997 Appendix C October 1, 1997 through September 30, 1998 You will note that as the project moved forward so did the quality of the Work Plans. 1997-1998 Objectives and Outcomes The 1997-98 Work Plan incorporated the original 5 Objectives into the Outcome format for the final year of the project. The original Objectives were included as Outcome number 1 of 11 for the balance of the project  OUTCOME # 1 Continuation and enhancement of the original 1995-97 objectives listed below: To have 7-17 elevators licensed to participate in a government sanctioned grain storage program and using warehouse receipts. To develop a revised system of grading standards for grain. Develop an operating system of warehouse receipts, acceptable as collateral by financing institutions. The development of an operating grain elevator inspection and examination system. Brokers trading in warehouse receipts along with the acceptance of warehouse receipts as delivery document and method of transfer of title. The first 4 original objectives are highlighted because it is important to note that four of the five of these objectives were met and the project actually expanded its activities as illustrated by the balance of the following outcomes.  OUTCOME # 2 Review, license and approve for the issuing of warehouse receipts an additional 35 to 50 grain storage facilities.  OUTCOME # 3 Increase the PISiPAR core examiner pool from 10 to 20 examiners.  OUTCOME # 4 Publish a Warehouse Examination Handbook  OUTCOME # 5 Publish a Financial Review Handbook. OUTCOME # 6 Finalize the design and legal structure of the Indemnity Fund.  OUTCOME # 7 Assist with the solidification of the Polish Grain and Feed Chamber as strong membership based organization through member service enhancements and overall membership expansion.  OUTCOME # 8 Assist with the passing of an effective "Warehouse Act" regulating publicly licensed agriculture commodity storage facilities.  OUTCOME # 9 Encourage the development of an extensive farmer education handbook and other education tools with the assistance of Piotr Szymanski, Director of Wielkopolska Chamber of Agriculture in Poznan and the newly formed organization being started by the British Know How Fund.  OUTCOME # 10 Assist the Warsaw Board of Trade in selecting delivery warehouses from the pool of available publicly licensed facilities.  OUTCOME # 11 Apply warehouse receipts as a tool to test alternative types of price support, intervention and strategic reserve management methods by ARR. These alternatives move ARR to a secondary market role rather then primary and create improved transparency to the commodity markets. Potential Intervention Changes Change from minimum price subsidy to an after market subsidy. Maintain State inventories in licensed elevators using warehouse receipts. Sell ARR inventories using a warehouse receipt catalog. Design an ARR warehouse and farm stored loan program.  Status of Objectives and Outcomes To best review the results of the above objectives and outcomes Appendix D is a copy of the December 31, 1998 Quarterly Report submitted to USAID and to the USDA. This quarterly report will address the specific line items while this Project Final Report summarizes on the broad-based results of the project. Please note that the 12-31-98 Quarterly Report does not have the attachments as part of the Appendix. These attachments are on file with USAID, USDA and ACDI/VOCA. Back to Top   Chapter 2 The Lineup  The Owners The owners of the project were the funding sources USAID, USDA and The Ministry of Agriculture but the Polish participants in the project will acquire the ownership rights to the project from the original owners.  The General Manger ACDI/VOCA as the contractor on the project with USAID and USDA had the primary responsibility for project implementation through its ex-patriot and in country staff. ACDI/VOCA is an international economic development organization based in Washington, DC, with projects in 31nations. It was created by America's agricultural cooperatives and Farm Credit Banks to empower farmers and entrepreneurs to succeed in the global economy. The organization's $35 million program is funded by a variety of donors, chief among them USAID and the U.S. Department of Agriculture. ACDI/VOCA has been able to leverage its experience in Poland in developing similar projects in other countries. The organization has either started or is in the process of proposing projects in the following countries: Hungary Bulgaria Ukraine Russia  Uganda Turkey  The Team The team involved in the day to day project was adjusted from time to time to best fit the needs of the project’s long term goals. The staff in place at the end of the project is listed below. Project Manager: Adam Rytelewski Project Consultant: Jerzy Wojciechowski Project Coordinator: Joanna Pawlak Project Accountant: Anna Micherewicz Polish Grain and Feed Chamber Coordinator: Ewa Wasek Senior Project Advisor: Joe Allen Regional Program Officer: Anne Dudte (ACDI/VOCA-Washington DC) In addition to the professional staff members of the team included the Task Force, participating farmers and elevators. However, the members of the team better known as GSMP volunteers and consultants were the teammates that provided the expertise, talent and insight into the work of the project and much of the success of the project must go to them. The table below summarizes the individuals that contributed to the project as volunteers and consultants. ACDI/VOCA GRAIN STORAGE AND MARKETING PROJECT VOLUNTEER AND CONSULTANT SUMMARY JUNE 1995-DECEMBER 1998 Volunteers Project # Volunteer Date Project Description PG. 300001 Bill Stiles Sept. 1995 Warehouse Examinations PG. 300002 Henry Mulkiewicz Oct. 1995 Information Systems PG. 300003 Bill Rausch Nov. 1995 Warehouse Examinations PG. 300004 Rolland Hendricks Feb. 1996 Warehouse Examiner Supervision PG. 300005 Randy Hawkinson Mar. 1996 Elevator Bin Charts and Diagrams PG. 300006 CANCELLED     PG. 300007 John Schobel Feb. 1996 Commodity Exchanges PG. 300008 CANCELLED     PG. 300009 CANCELLED     PG. 300010 Ryszard Smolarek Mar. 1996 Volunteer numbers 300010-14 were Senior Staff and Appointees from the Ministry of Agriculture and Food Economy. They spent approximately 10 days in the US visiting various commodity exchanges, licensing authorities and elevators. PG. 300011 Kazimierz Gutowski Mar. 1996   PG. 300012 Zbigniew Popielski Mar. 1996   PG. 300013 Jerzy Plewa Mar. 1996   PG. 300014 Henryk Makarewicz Mar. 1996   PG. 300015 David Miller Jun. 1996 Elevator Manager Training PG. 300016 CANCELLED     PG. 300017 Steve Mikkelsen Nov. 1996 Warehouse Legislation PG. 300018 Tom Jennings Jul. 1996 Indemnity Fund Design PG. 300019 Steve Reno Jul. 1996 Indemnity Fund Design PG. 300020 Randy Gordon Oct. 1996 Grain Trade Association Development. Mr. Gordon also went to Lithuania and Russia during this trip. PG. 300021 CANCELLED     PG. 300022 CANCELLED     PG. 300023 CANCELLED     PG. 300024 Bob Stephens Nov. 1996 Farmer training PG. 300025 Chris Klenklen Jan. 1997 PISiPAR financial review training PG. 300026 Terry Chapman Jan. 1997 Elevator Accounting PG. 300027 Marsha Cusack May 1997 Warehouse Examinations PG. 300028 Steve Reno # 2 Jul. 1997 Indemnity Fund PG. 300029 Rowland Ricketts Jul. 1997 Insurance Study versus an Indemnity Fund PG. 300030 Dick DeVries Sep. 1997 Symposium and Examiner Supervision PG. 300031 Roger Reeves Jan. 1998 Subsequent Examinations GR. 300004 Rolland Hendricks # 2 Mar. 1998 Examiner Supervision PG. 300032 CANCELLED     PG. 300033 CANCELLED     PG. 300034 Chris Klenklen # 2 May 1998 Financial Review PG. 300035 Randy Gordon # 2 Nov. 1998 Polish Grain and Feed Chamber PG. 300036 Bob Hagemeyer Nov. 1998 Warsaw Board of Trade PG. 300037 Tom Jennings # 2 Dec. 1998 Indemnity Fund United States Training for PISiPAR Examiners Group A-Ohio 1. Andrzej Pianowski 2. Jozef Jezewski Mar. 1997 US warehouse regulatory training and AAWCO Conference in Oklahoma City. Group B-Illinois and USDA-Kansas City 1. Jozef Szymczyk 2. Malgorzata Augustyniak 3. Gregorz Muchowski 4. Adam Rytelewski Mar. 1997   Group C-Minnesota   1. Marek Pazgrat 2. Jacek Zbrzezniak Mar. 1997   Group D- Missouri and Oklahoma 1. Marian Buczkowski 2. Tadeusz Glinka 3. Waldemar Ruett Mar. 1997   Volunteers provided by USDA USDA-1 Ed Durgin   Market Information with PISiPAR USDA-2 Jim Epstein Nov. 1996 Market Information with PISiPAR Consultants C 001 Joe Dial Aug.-Sept. 1998 Commodity Exchange Oversight The Fans The spectators of the GSMP were both supportive and some a bit challenging. The fans cheered when we got a hit and they jeered when we struck out but the fans are the reason the game is played. The young, the old, men and women watch the game and learn something. Whether the fan was a farmer who wants a better price, marketing flexibility and safety for his grain, a politician that wants to improve the conditions for his constituents, a government employee that wants to improve their job, a funding source that wants to contribute to positive change, a development organization that wants to take the game to other countries, or an agribusiness that wants improved market share---- the game provides something for everyone. Back to Top   Chapter 3 The Game Task Force  The game is an overall review of activities and the implementing of the Game Plan. The Game Plan called for the designing of a system for Poland by Poles. This was initially accomplished through the use of a Task Force representing the 5 Groups impacted most by the system. These 5 groups are: Farmers Banks Warehousemen Insurance Companies Regulators and Legislators  5 Level Guarantee System The foundation of the future work of the GSMP was laid by the Task Force through the creation of a program to create a 5 Level Guarantee System for the protection of warehouse receipts issued in Poland. The work on the five levels was ongoing within the framework of the Pilot Projects. These five levels are: The Licensing System Regulations Financial Review The Examination System Examiners manual Bin charts and diagrams Air space measurement techniques Inventory Warehouse Bonding Indemnity Fund Each of the individual levels is important but the collective value of all five levels is the significant result of developing the system. It is important to discuss the components of each of the five levels and how they interact and depend on one another to collectively bring security and integrity to a warehouse receipt. The following section will discuss each level in more detail and outline its role in the system.  The Licensing System: The description of the system of an elevator applying and ultimately receiving a license can be quite lengthy. In lieu of writing a detailed summary as a part of this report Appendix E are the Regulations that the GSMP volunteers and PISiPAR developed for use by PISiPAR and the MAFE. These are subject to modification based on the final legislative mandates included in the yet to be passed law. However, many of the components of the regulations can easily be adapted. The key for the GSMP and its perpetuation is that the regulations for the most part are in place and this will assist in the implementation of the law. In summary though the licensing process at a minimum should include due diligence done by the licensing authority in regard to the applying organization in the following areas. Business Structure Financial condition Experience of elevator management Source Document Records Scale tickets Daily position record (DPR) Settlement system Structural condition of the facility Facility ownership The Examination System: The GSMP and PISiPAR concentrated on the three types of examinations the basis for this level of the guarantee system. The three types are: Original Subsequent Special Following the application by a warehouse for a license there must be an original examination completed to create the base records for all future examinations and inventory confirmations. The core of these records is the bin chart and diagram of the elevator. These charts and diagrams provide the source documents that create the foundation for the very important "air space measurement system". The air space measurement system is a mathematical calculation that is very accurate and if done properly can determine the amount of grain in any type of storage facility. For example, let’s say a normal storage tank at an elevator is 30 meters high and 8 meters wide. The bin chart would tell us how many tons of grain the tank would hold based on a normal test weight. For illustration purposes let’s say it is 1200 tons (40 tons per meter of height). During an examination the examiner would measure from the top of the bin to the top of the grain inside the tank. This measurement is the airspace or portion of the tank without grain again for illustration purposes is --- let’s say 13 meters. Simple mathematics tell us that there is 17 (30 –13=17) meters of grain in the tank. Therefore, 17 meters of grain at 40 tons per meter is the quantity of grain in the tank or in this case 680 tons adjusted for test weight. The creation of these bin charts and diagrams along with all other examination procedures are outlined in the Warehouse Examination Manual prepared by the GSMP and PISiPAR. The document is too large to submit with this report but copies are on file with USAID, Warsaw, and ACDI/VOCA Washington the PGFC and PISiPAR. This examination manual has also been supplied to the USAID, USDA and ACDI/VOCA grain project in Bulgaria. The GSMP has been advised that the report has been translated into Bulgarian and is being used as a model for that project’s examination system. In reality a large portion of the long-term viability of the licensed warehouse system will lie on the strength of this examination system. The need for a strong examination system was the motivation behind the large amount of resources that were used on the creation of this level of the guarantee system. Inventory: The importance of inventory and its quantity and quality assurance is actually the essence of the warehousing system and yet is very simple if the first two levels of the guarantee system work properly. So in the event an elevator goes out of business for whatever reason and the inventory against warehouse receipts is in place and with proper legislative structure there should be no losses to warehouse receipt owners. The inventory verification process established as a part of the examination level is the tool to monitor this inventory. The system of inventory control is predicated on the creation of accurate bin chart and diagram and the accurate record keeping of the elevator using a DPR. The importance of a DPR is so vital that a sample has been included as Appendix F. Warehouse Bonding: The use of warehouse bonds was probably the one of the easiest concepts to transfer into the Polish marketplace in the context of the GSMP. It is important that you understand that the bonding of a warehouse is separate from the physical damage insurance coverage on the assets and inventories of the elevator. Bonding is protection against the financial or performance failure of the elevator. In most cases one insurance company will write both the physical damage and the bonding insurance as a complete package for the elevator. During the early discussions within the Task Force the original idea was to bond a large percentage of the risk or obligations of a licensed warehouse. However, it became evident for two reasons that this was not going to be practical. First, the costs to the elevators was going to prohibitive and secondly the retention level of the coverage by the insurance companies based on premium- risk reward ratios restricted the desire to participate by the insurance companies. This situation is not unique to Poland. For example, during the early and mid 1980’s insurance and bonding companies in the United States began to exit the market as losses mounted and risk-premium ratios were non existent. The US grain industry and the regulatory bodies were able to solve many of the bonding issues through improved licensing approval processes and from the creation of Indemnity Funds (IF). The GSMP leadership and the Task Force elected to consider the use of an IF in Poland yet retain a modified bonding level in the guarantee system. The IF will be discussed in the next section. The bonding level was originally set at 250,000 PLN for the 1997 Pilot Project and adjusted to meet the needs of the participants for the 1998 Pilot Project. It is also important to note that the GSMP and PISiPAR accepted irrevocable bank letters of credit in lieu of a bond issued by an insurance company. There were three insurance companies on the Task Force sub-committee representing the insurance industry and each of them agreed to write, "warehouse bonds" for project elevators. Those insurance companies were: Warta PZU Polisa As stated above the original bonding level was set at 250,000 PLN but following several discussions and meetings it was determined that due to the small quantities of receipts being issued the costs to the elevator were not offset by the revenue generated from being a participation in the project. The elevators realized they had an obligation to bear some of the costs in a pilot format but wanted to discuss an adjustment to the bonding schedule. All parties including USAID reached a compromise and it was agreed to make the adjustment in the bonding schedule. The following letter was sent to the elevators participating in the project. It is the opinion of the GSMP staff that the increase in the number of licensed elevators in 1998 was partly due to the change in the bonding schedule.  Dear GSMP Pilot Project Elevator, During our meeting on June 16, 1998 we had a lengthy discussion on what the bonding level needed to be for this harvest. We all agreed that it needed to be high enough to provide protection to warehouse receipt holder yet still be cost effective for you, the warehouseman. Below you will find our proposed changes that we feel will meet the needs of all participants in the Pilot Project. We have discussed this with PISiPAR and with USAID but we also welcome your comments or questions. We have also determined that those companies that want to license multiple locations that the bonding will be based on the tons of warehouse receipts issued as listed. In addition the license fee for multiple location licensed will be 600 PLN for the first location and 200 for each additional location.  NEW PILOT PROJECT BONDING SCHEDULE Allowable Tons Bond Amount of Warehouse Receipts Minimum Bond 100,000 PLN 1,000 Level II 175,000 PLN 1,750 Maximum Bond 250,000 PLN 1750 + This new bonding level is to facilitate the licensing of the 1998 elevators and will be made retroactive so that the 1997 elevators may use the same bonding schedule. Appendix E, the licensing regulations developed for PISiPAR includes a sample of the bond form developed by the GSMP in conjunction with the insurance companies. In the sequence of the 5 levels the licensing process and the original examinations are completed but the license is not issued until the elevator provides an approved bond to PISiPAR. The following quote from the SPA will best describe the importance of the bonding element. "No Bond—No License". Indemnity Fund: In the Boxscore section of this report you will see that the IF is included in the category of "Runners Stranded" meaning that it was a hit and met with great acceptance and understanding but never reached conclusion. The IF is also included in the "Extra Innings" section as an item that needs continued work. The IF from a legislative viewpoint was included in the Warehouse Act submitted to the Parliament. However, early on the GSMP realized that there was a high probability that the legislation would not be passed prior to the end of the project. Since USAID had agreed to permit $50,000 of the grant funds to be used as start up capital for the IF an alternative must be put in place pending the passage of enabling legislation. The alternative plan was a letter of intent and subsequent escrow agreement between the GSMP and a Polish participant that could move forward the goals of the IF once the legislation passed. The GSMP selected the Foundation for the Establishment of a Grain and Feedstuffs Exchange (Foundation) as an appropriate organization to fulfill this role. The Foundation was under the direction of Wojciech Dobrzynski. There are three key documents that are included in Appendix G. The first is a letter from USAID to the GSMP detailing the requirements of the GSMP $50,000 contribution to the IF. The second is a draft copy of a letter of intent between the GSMP and the Foundation and the third is a letter from the Foundation to the GSMP stating that the letter of intent could most likely not be executed. The letter from the Foundation refers to the late changes to the letter of intent. These changes were created first to assure that the needs of USAID are met and to assure that the Foundation is restricted from using the funds for any activity outside of the IF. While conceptually, the IF was designed in a very strong manner and is necessary, it never became a reality within the timeframe of the GSMP.  Grain Standards The improvement of grade standards and grading procedures was objective #2 in the original agreement. During the 1995-97 phase the GSMP contracted with the Central Laboratory to carry out this function. The standards were used on a test basis for the 1997 pilot project and were also published in the GSMP Handbook published in the fall of 1997. Further work was done in 1998 on grain standards with work being done jointly by the GSMP, the British Know How Fund, the Warsaw Board of Trade, ARR and through the PGFC. It is important to note that the work progressed keeping in mind the various users of the grading system as well as Poland’s potential entry in the EU at some point in the future. On May 26, 1998 the parities signed an agreement officially agreeing to use the revised standards for the 1998 harvest period. The GSMP Handbook and the jointly designed standards are attached as Appendix H. Pilot Projects As a component of the game plan Pilot Projects were carried out during harvest of 1997 and 1998 to test the progress being made in the overall system. The 1997 portion was hoped to have been implemented in 1996 but due to the delays caused by the FAMI change along with other factors it was delayed until 1997. There were in excess of 110 elevators that applied to participate in the first pilot project. The GSMP ultimately selected 24 to participate and proceed with the application process. The results were disappointing but the issuance of the first warehouse receipt did take place and continued public awareness was generated. Ultimately seven (7) elevators (the minimum required in the original objective) were licensed. The following excerpt from the 1995-97 Project Review document published in December of 1997 summarizes the 1997 Pilot Project. 1997 Warehouse Receipts became a reality in Poland during Harvest 1997 in an environment of doubt, the lack of legislation and yet with great optimism within the group of project participants and the GSMP staff. The goal now will be to build on what we have accomplished, isolate the challenges in front of us and prepare the Ministry of Agriculture and Food Economy to proceed with the Licensed Elevator System following the end of the GSMP.  The GSMP must also look at and provide for "Post-Harvest" activities. Post –Harvest activities will be the delivery of grain to a project licensed facility by a farmer that stored his grain on the farm during harvest and now wants to deliver to the elevator. This post-harvest period includes November and December but also will include the first couple of months in 1998. The post-harvest delivery of grain will enable the farmer to gain the potential market price increases from harvest until a later delivery period. The GSMP supports this concept but must state that the quality of on farm storage in general does not provide the same quantity and quality protection that would come from a licensed storage facility. The GSMP as described many times was initially centered on a 24 Elevator Pilot Project and a subsequent 4 elevator ARR Pilot Project. However, please keep in mind that being one of the 24 project elevators did not guarantee a license nor did it mandate participation on behalf of the elevator. The elevator must meet the licensing requirements and at any time the elevator was free to withdraw from the project as it is vital that participation in the project and the eventual countrywide system be on a voluntary basis. The following facilities were issued licenses during the 1997 harvest-licensing period of August 1, 1997 through November 30, 1997. There are also several outstanding promises for a license. PISiPAR issues a promise when the facility is ready to be licensed but the elevator company has yet to supply 100% of the required documentation. The document missing in most cases is the warehouse bond or letter of credit (L/C). The lack of the bond or L/C does restrict the elevator from being licensed. The bonding and L/C requirement also provides additional support to the licensing system by virtue of acting as the second pair of eyes reviewing the financial condition of the company.  LICENSED ELEVATORS  Elevator Name and Address License Number and Date of Issue Warehouse Receipt Numbers Delivered by GSMP Number of Warehouse Receipts Issued Tons of Grain Central Soya Olsztynek 1 18-08-97 0001-0100 4 297 Central Soya Lobez 2 28-08-97 0701-0800 5 542 PZZ Ujazd Gorney 3 18-09-97 2301-2400 2 1,300 (including company owned) PZZ Boleslawiec 3-1 19-11-97 0501-0600     Rolimpex Dobre Miasto 4 14-10-97 2201-2300 2 700 (including company owned grain) Rolimpex Koronowa 5 15-12-97 2101-2200     El-Corn Bartoszyce 6 01-12-97 0801-0900     Promises have been issued to the following elevators: Elevator 1, Rogow PZZ in Kozlowie Romex, Konin The list of licensed elevators is a testimony to the support of the system, the fact that the system is voluntary and most importantly that the initial design of the regulatory environment is working. It is better to have a few elevators licensed properly than have too many licensed elevators that it jeopardizes the long-term implementation of warehouse receipts in Poland. The GSMP has truly taken a QUALITY over QUANTITY approach toward the first licensing period and strongly supports that position.  The significance of having warehouse receipts issued in lieu of adequate legislation through the use of the safekeeping and pledge agreement demonstrates the interest in the system. Our goal now must be to expand the use of licensed elevators and warehouse receipts within the framework of the submitted legislation. 1998 The 1998 Pilot Project ended with the following results: 47 Examinations completed 47 Financial reviews completed 8 Negative reviews 39 Positive reviews 28 Withdrawal and/or license rejections from the project 8 from financial rejections 20 voluntary withdrawals 13 Licenses issued 1 License Pending 5 Licenses to be issued in 1999 4335 Tons of grain placed on warehouse receipts 1 Farmer loan issued in the amount of 150,000 PLN While the above reflects between 13 and possibly 19 licenses issued in a Pilot Project format there are several key numbers from the above list. 8 Negative financial reviews demonstrate the success of the training of PISiPAR if they can make the determination that an elevator should be rejected for financial reasons. The integrity of the system and warehouse receipts is greatly enhanced by this process. 20 The fact that elevators on a voluntary basis can withdraw from the system is one of the key fundamental foundations of a free enterprise licensing system and that is the system is VOLUNTARY. Each of these facilities withdrew for its own reason and the importance and significance of the system being voluntary cannot and should not be overlooked. In fact, if you were to refer back to page 3 paragraph 5 of the original proposal submitted to USAID by VOCA on March 20, 1995 the voluntary nature of the system is discussed. Furthermore if you look at page 35 item # 1 of the VOCA volunteer report to ARR dated August of 1993 the importance of a voluntary system is also stressed. Being able to uphold this "voluntary" structure from concept to reality is a key success of the GSMP. 5 If the 5 elevators do exchange their promises for a license from PISiPAR in January of 1999 it immediately provides proof of the desire for the system to continue once the USAID funding and program activities have ended. While many opponents of the GSMP have challenged the project saying-- that if is such a good system why are farmers not using the system for loans? The GSMP has held fast to the knowledge that high interest rates, ARR intervention and other outside forces have negated the use of receipts as loan collateral. However, the issuance of a loan in the Pilot Project structure demonstrates that short-term cash flow loans are needed and can be obtained using warehouse receipts. The goal of the GSMP over the life of the project and in particular during the last phases of the GSMP was to continually transfer project activities to the project’s Polish partners. This was the case for the licensing process for the 1998 Pilot Project. PISiPAR the licensing authority at he Ministry of Agriculture and Food Economy had full responsibility for the licensing process including approval and rejection of license applications. The GSMP only served as a coordinator of the process and its role within the project. Appendix I is a copy of the PISiPAR licensing report.  1997 and 1998 Combined Results 20 Licensed elevators 7,174 Tons of grain covered by warehouse receipts Loan obtained by farmers  The First Loan The first loan was issued to Zbigniew Kadziolka from Krotoszyce. It was for 408 tons and was issued by Cukro Bank. The short-term cash flow loan was used to make a farm lease payment. The farmer could not find a buyer for his grain but was able to sell it on forward contract. He then used the GSMP Safekeeping and Pledge agreements that were developed in lieu of enabling legislation and with his warehouse receipt he was able to obtain a loan. The forward contract also provided a higher degree of collateral for the bank so the loan was issued with the following terms. Loan amount 150,000 PLN ($43,000) (3 days) Term 9-16-98 through 11-30-98 Sold to his elevator for 11-30-98 delivery At 420 PLN per ton. Interest rate 26% Collateral Warehouse Receipt 408 tons Calculation: 408 X 420 PLN on contract 171,360 Loan Proceeds: 150,000 PLN or 87% of collateral value. Bank: Cukro Bank Wroclaw Farmer: Alojzy Kadziolka Krajow 10 (village) Krotoszyce (community) When the Mr. Kadziolka was asked about the loan and the use of warehouse receipts his comment was, " the system will meet the expectations of Polish farmers". The GSMP, its funding sources and the project’s participants of course would like to see more loans issued. However, for two key reasons loans are restricted in use in Poland even though in the pilot project format we have proved that loans are needed and can work. The two key reason loan usage is not greater are high commercial interest rates and excessive government intervention. While the numeric results are marginal the overall results do confirm that the components design and implemented by the project do work. The GSMP ends with the knowledge that each component of the Pilot Project can and do work. It is important to go back and further discuss the contract format created by the GSMP. As mentioned above there were two contracts used. The first was Safekeeping Agreement and the second was a Pledge Agreement. These two agreements allow for the use of grain as collateral in conjunction with Polish Commercial and Civil Codes. The collateral is a combination of the warehouse receipt and the safekeeping agreement. An additional note should be pointed out here. The collateral in this format of the combined documents (receipt and agreement) is not a negotiable document. While the negotiability of a warehouse receipt is of the utmost importance, in a non-legislated environment, the negotiability has been waived to promote the issuance of loans. Samples of the two contracts and a sample warehouse receipt are included in Appendix J.  Legislation In addition to implementing the pilot projects, around the 5 levels one of the significant activities of the project was the writing and submission of draft legislation as a "Parliamentary Initiative". The Act of 1998 on Warehousing Agricultural Products was introduced in Parliament through the GSMP. A copy of the draft is attached as Appendix K. Included with the draft is the signature page of the members of Parliament that sponsored the draft and the AWS Caucus support letter for the legislation. In Poland and most likely in other developing markets where warehouse receipt projects are being implemented there is the need for a variety of legislative changes in tandem with the basic Warehouse Act. For example in Poland there was the need for an adequate Collateral Law. The Collateral law, which did pass in Poland, was developed and passed through another USAID project. Even though the Collateral Law was not a component per se of the GSMP and considering that this report and its attachments may be used as guideline in other countries the Collateral Law has been included as Appendix L. The legislation had not passed as of the end of the project nor had it gone through its first reading at the Parliament. The legislative path of this draft and in most cases all legislation in Poland is very frustrating. There is a debate in the development world both from a contractor viewpoint and that of the funding institutions centered on whether a GSMP type project should start before, during or after the passage of enabling legislation. The answer is not simple and really depends on the country. In Poland’s case had the project waited for enabling legislation the creation of the regulatory foundation, the PGFC, increased public awareness and the other items from the GSMP would still be in the thought process. Although in the case of Bulgaria the law was passed prior to any pilot project activities to develop regulatory and enforcement regulations. The jury is still out on which approach is most affective or if it is still best to evaluate the needs and situation at the time of implementation. In regard to the Poland legislative process and specifically the Warehouse Act a brief chronological summary is in order. The process began early on in the project when the GSMP was asked to comment on what is referred to as the "White and Case" draft or as it is described in this report the WC draft. This review was done in late 1995 and early 1996. In short the WC draft was one piece of legislation covering two related yet quite different activities—commodity exchanges and licensed warehouses. The GSMP made a number of key comments but in short they centered on three key points. One, the draft should not be one law as the regulating of commodity exchanges is quite different from that of licensing, "for public use" grain elevators. Secondly, the warehouse portion of the draft was poorly written and very restrictive to the industry and cumbersome for the farmers and lending institutions. The third key issue was the lack of any insurance, bonding or other guarantees to protect to he holders of warehouse receipts. Having uncovered the shortcomings of this draft the GSMP realized that it must take a proactive stance on the legislative front. The offensive movement took on two focuses, one was to promote the discontinuation of the WC draft and the second was to develop an alternative piece of legislation. Granted the GSMP has not been successful in having legislation passed, however, it was also incumbent on the GSMP staff to prevent legislation that was not satisfactory from passing. This actually may be as important as passing the current legislation that is in the Parliament. The Parliament did discontinue in early fall of 1997 debate on the WC draft following several meetings with GSMP staff members and reviewing the written opinion of the legislation. In November 1996 the GSMP began the process of developing a new draft Warehouse Act. A rough draft based on the goals of the project was developed but knowing that it had a heavy influence of US Warehouse Act components it was mandatory that the draft be adapted to meet Polish legal requirements. During the first 7 months of 1997 the draft was worked and re-worked and in August 1997 the GSMP began working with the legislative office at the Sejm to assure the draft had a Polish structure. The elections during the fall of 1997 were very significant for the GSMP. The prior coalition was led in agriculture by PSL and various project activities had met with continual resistance during the prior three years. However, following the 1997 elections the new government actually stated in the agriculture portion of the Coalition Agreement the need for commodity exchange and warehouse receipt legislation. The Agriculture portion of the agreement read as follows.  COALITION AGREEMENT BETWEEN SOLIDARITY ELECTORAL ACTION (AWS) AND LIBERTY UNION (UW) Agriculture The agricultural policy goal shall be a multi-function development of the rural sector and modernization of agriculture, including especially reliable guarantees for the development of modern and stable family farms. To achieve this goal the following efforts shall be taken: 19.1 Improve agrarian structure (with the growth of the average acreage of commercial farms, protection of farmland, elimination of farming on marginal soils, etc.) by providing significant support in form of the opportunities to buy farmland owned currently by the State Treasury, through limited tenders used also for this purpose. 19.2 Stimulate investment processes in agriculture (by reducing costs of credits). 19.3 Develop models of environment friendly farming. 19.4 Stabilize the market of farm products to increase farmers’ incomes and protect consumers’ interests (prevent up and down price fluctuations through intervention purchases and sales and minimum price system) 19.5 Conduct effective policy to prevent undesired disturbances in the market of farm and food products; especially the ones produced by imports of subsidized or poor quality food products. 19.6 Establish futures exchanges with the system of warehouse receipts and licensed warehouses. 19.7 Promote and support exports 19.8 Support the development of agricultural chambers. 19.9 Cause incorporation of Poland into the team working on the final form of the European Chart of Rural Areas. 19.10 It is necessary to solve the re-privatization issue and satisfy the existing claims with respect of assets taken over in compliance or with violence of the Land Reform Decree. The claims may not refer to lands transferred to farmers in virtue of the land reform nor acquired through civil law agreements. 19.11 Make adequate and necessary preparations to the negotiations on the integration of Poland with the European Union. 19.12 The social security policy shall be developed within the framework of the Farmer Social Security Fund (KRUS), however; parallel with, the efforts to develop farmer pension funds similar to the funds established for other professional groups. 19.13 Tax system in agriculture shall be reorganized and improved. The efforts to assure the reimbursement of VAT to farm producers’ tax shall be initiated with simultaneous introduction of farm income tax for farmers who volunteer to adhere to such a system and undertake to keep records. The farms that would not feel prepared to switch to the new system shall be left with an option to adhere to a tax system similar to the existing one. 19.14 Sale of land to foreigners shall be subject to mandatory control to prevent abuses and non- compliance with the laws. Discrepancies: 19.15 AWS have proposed additionally: to determine minimal share of the state budget in expenditures in agriculture to pay interest on national reserves, including the ones in foreign currencies kept with the NBP (National Bank of Poland) and allocate the amounts provided this way to support restructuring processes in agriculture and rural areas. to allocate to rural areas at least 50% of all resources spent on effective measures to control unemployment to undertake efforts to open the World Bank Agricultural Structural Adjustment Loan (ASAL II) still in 1998 19.5.2 AWS have proposed additionally: to assure the share of Polish farm products in the Common Market proportionally to the farmed acreage in Poland to assure that the pace of restructuring of small farms, that represent the only source of income, will not produce excessive unemployment to avoid extremely dramatic changes in the cost structure of farm production, especially the ones due to increased costs of fuels and energy. The UW party deems that the proposed provision does not exhaust the entire problem and is premature. The draft ultimately and based upon the above commitment was submitted to the Sejm’s Agriculture committee in February of 1998. We had hoped to have the legislation introduced as a government initiative but we could never get the MAFE to endorse several key components of the Warehouse Act. The GSMP knew of its responsibility to try to assure that the Ministry of Agriculture is on board with the draft but also realized that if the draft waited on the Ministry it would never be introduced. To assure the Ministry’s role and in an attempt to reduce political challenges the GSMP began work with the Minister of Agriculture’s appointed committee on legislation. The goal was for the Parliament and the MAFE to present a mutually agreed upon draft rather than having to debate two drafts. However, it became quite difficult to work with the committee and a true working relationship was never developed. That actually brings us to where we are today and that is with the parliamentary initiative at the Parliament awaiting its first reading and a forthcoming draft from the MAFE. The MAFE draft is the resurrection once again of the WC draft although they did separate the commodity act portion from that of licensed warehouses. Another key variance between the two camps is the use of a one-part or two-part warehouse receipt. The GSMP contends that a one-part is most efficient, as do the grain industry, banking sector and the farmers. Additional challenges were faced due to the political situation in Poland. The MAFE would rather pass a poor piece of legislation that is introduced by them than to have a superior law pass that benefits Polish agriculture and the Ministry, if it is introduced as a parliamentary initiative. The feasibility of enabling legislation passing is currently up in the air. There seems to be a desire to pass legislation from the Ministry, Parliament and the various industries that are impacted by the system. However, politics, individual aspirations overshadow the countrywide need and desire for proper legislation. To shed additional light on the frustrations that have been experienced related to the politics of the Warehouse Act consider the following. The draft legislation continues to be challenged by the Ministry’s legislative committee because it is an American initiative yet the Sejm’s legislative office has approved the draft and is of the opinion that with minor changes it would be a strong piece of legislation. Secondly Poland’s goal of entry to the European Union is in the forefront of all agriculture activities. In that light the project faces this statement on a regular basis—but maybe the law doesn’t meet the requirements of the EU. In answer to that you should read page 69 of the Poland version of the European Commission’s working document titled "Agricultural Situation and Prospects in the Central and Eastern European Countries". The section being referred to relates to the excessive credit system of the Agency of Restructuring and Modernization of Agriculture’s (ARMA). The report goes on to say that that almost one-half of the 40 credit lines could be replaced with a reliable warehouse receipt system. The GSMP is positioned to provide that reliable system of warehouse receipts if the political barriers were replaced with a true desire to make progress. The GSMP was even once accused of "American Imperialism" as it moved the concept of warehouse receipts through the Polish agriculture community. Those two ideas and attitudes make it almost impossible for the GSMP to continue its role of assisting with the legislative process. The concern with the legislative process and the creation of an IF in conjunction with the MAFE has been an ongoing challenge for most of 1998. The following excerpt from the GSMP’s June 30, 1998 Quarterly Report supports that problem. Excerpt from 6-30-98 Quarterly Report  Areas of Concern: There are a few areas that pose concern for the GSMP. The encumbrance of the passage of proper legislation through confusion on the Government draft legislation. I will refer to this draft as the "White and Case" or WC draft. The WC draft was under consideration in the Parliament in the second half of 1997. However, the GSMP was successful in having the debate on this draft stopped. When the WC draft was discontinued several members of Parliament requested that the GSMP proceed with the writing of a replacement draft based on our experience from the Pilot Project and from working with PISiPAR and other Polish organizations. We of course accepted the request and as detailed in the March 31, 1998 Quarterly Report we submitted this draft to the appropriate parties in early February 1998. Much to our surprise and in our opinion with little understanding of the WC draft it was re-introduced as a government initiative during this quarter. While the GSMP doesn’t, nor is it in the position to mandate which draft is considered we do feel a responsibility to assure that quality and sound legislation is introduced and ultimately passed. We have worked to develop a cooperative spirit within the government and the parliament to assure that a true evaluation of the two drafts is accomplished before one or the other or maybe a combination of the two drafts is submitted to Parliament. While we sense much progress was made and that it is apparent that the Pilot Project based draft or Parliamentary Initiative is superior to the WC draft it will be late July or early August before a final determination is made on the two drafts. We monitor this potential roadblock on a daily basis. The discussion about a one-part or two-part warehouse receipt continued during this quarter. The GSMP staff feels that the one-part form as promoted by the project will prevail even though other countries in addition to Poland are considering the two-part form. We continue to say that the use of the two-part form as it was done prior to W.W.II doesn’t provide the best flexibility and flow of documents that are needed in today’s marketplace. We are obtaining documented support from the banking sector and also the World Bank and the EBRD. The GSMP Senior Project Advisor is concerned about one component of the Indemnity Fund. There is a provision for a fund contribution in the amount of $50,000 from USAID pending the completion of certain criteria. The concern comes from the criteria of a $50,000 match from a Polish Partner. While work on the fund will continue the status of the $50,000 matching payment may be in jeopardy. It is also interesting if you compare the actions of the MAFE with the obligation outlined in the agreements agreed upon by the MAFE, ACDI/VOCA and USAID. Copies of these agreements are provided in Appendix M. These agreements reflect the requirement outlined in the original objective #1 to have government sanction of the GSMP activities but they do not reflect the true action of the MAFE. If the Polish agriculture community and its leaders truly want a system of licensed warehouses to create the warehouse receipt then the tools left by the GSMP are there to assist them. If they elect not to proceed then the GSMP has done the best it can in providing guidance in this area. The ball is in their glove. UPDATE On January 22, 1999 the MAFE introduced as a Governmental Initiative a second version of a warehouse act to the Sejm. This is the long awaited revamping of the old WC draft with additions from the Ministry’s Legislative Committee. The GSMP has been updated by the Sejm’s Agriculture Committee that the plan is now to submit both drafts for a "First Reading" on one of the following days, February 17th. 18th or 19th. Following the joint first reading the two drafts will then be sent to the Sejm Agriculture Committee for debate. The goal will be to have one draft come out of committee for consideration by the full body of Parliament. This was actually the goal of the GSMP when it attempted to work with the Ministry’s Legislative Committee in March of 1998 to combine the two efforts into one draft but prior to it being submitted to Parliament.  Commodity Exchange Oversight Project Outcome # 7 on page 10 of this report refers to the GSMP providing experts to advise on appropriate legislation for the regulation and licensing of commodity exchanges. However, in the restructuring of the project in 1996 and within the 1997-98 Work Plan the activity in this area was scaled back. The Warsaw Board of Trade (WBOT) was and is still closely tied to the government through the ownership of over 60% by the Foundation under the leadership of the Ministers advisor Wojciech Dobrzynski. Therefore it was felt that resources applied to the development of futures market would be even more difficult than the key GSMP activities. The GSMP did communicate and coordinate with the WBOT on regular basis and did provide them with 2 volunteers through the life of the project. Also, the March 1996 volunteer group from Poland that went to the US had the opportunity to visit several exchanges in line with the volunteer’s responsibilities in Poland. The GSMP also under 1997-98 Outcome # 10 was able to provide the WBOT with guidelines for accepting elevators as "regular for delivery". The WBOT was also a participant and a signatory on the Grain Standards agreement described on page 23 and Appendix H. In addition, at the request of USAID, the GSMP hired one consultant to provide oversight guidance to the Polish Securities and Exchange Commission (PSEC). The funding for this activity was by reallocating the budget line item that was originally for an External Evaluation. USAID provided the funds for the August evaluation team and the GSMP provided the consultant to the PSEC. The consultant was Mr. Joe Dial. Mr. Dial was a former commissioner at the Commodity Futures Trading Commission. Mr. Dial’s full report is on file with USAID and ACDI/VOCA, however Appendix N is Mr. Dial’s interim report. One key observation made by Mr. Dial that solidified the GSMP’s position on the weakness of the WC Draft. It was discussed earlier that the WC draft was originally a combination of an act on commodity exchanges and licensed warehouses. A component of Mr. Dial’s consulting trip was to review the commodity exchange portion of the WC draft. Completely independent of the GSMP’s opinion of the warehouse portion of this act Mr. Dial disclosed, in his opinion, that the commodity exchange portion was inadequate. This reinforcement of the weakness of both components of the draft proves that the push of the WC draft by government officials is motivated by other than the desire for quality legislation.  Changes in the Role of ARR The boxscore section of this report lists changes at ARR as a strikeout for the GSMP. The ARR activity of the GSMP was not included in the original project description. However, it was added to the 1997-98-work plan to expand on several initial activities that had started between the GSMP and ARR. Work with ARR was considered as an area of importance for the long-term viability of the GSMP and the overall market reforms needed to create transparent and liquid commodity markets in Poland. Discussions about ARR seem to surface in any agriculture-focused report issued whether by the GSMP, European Union, the World Bank or any other organization working within Polish agriculture. The GSMP had hoped that the use of warehouse receipts by ARR would lead them to less disruptive intervention activities and improved marketing of government inventories. In an attempt to work with ARR the GSMP signed a Memorandum of Understanding with ARR for the organization’s participation the 1997 Pilot Project. However, the GSMP-ARR activities never advanced beyond the agreement although there were training sessions provided for the ARR grain elevator system ELEWARR at the four locations which were selected to participate in the pilot project. ARR’s participation in the GSMP project became uncomfortable for ARR and the Ministry of Agriculture. Therefore, the GSMP much like the rest of the proponents for ARR changes failed to get to first base. The article on the following page from the Warsaw Business Journal edition of November 11-17, 1996 announces the signing of the agreement and if you read the article you can already sense the lack of commitment on behalf of ARR. In addition, Appendix O is a copy of the agreement signed between the GSMP and ARR. In addition, the 1998 Pilot Project was impacted by the activities of ARR as detailed in the following excerpt from the GSMP’s June 30, 1998 Quarterly Report.  From 6-30-98 Quarterly Report The GSMP participated in numerous ARR planning and policy meetings. The 1998 Harvest intervention Policy is scheduled to be published in July. SPECIAL NOTE: The GSMP staff wants to advise USAID that while every effort to license the projected number of elevators (35-50). The final number licensed will depend to a degree on ARR policy. Some warehouses may elect to not purchase warehouse bonds because of the ARR sponsored activities. If they do not purchase a bond then the GSMP and PISiPAR will not license the elevator. In addition it is quite possible that ARR policy will reduce the need for farmers to obtain commercial credit therefore also impacting the success of the GSMP.  ARR Agrees to study market pricing, but no immediate action to take place. The Warsaw Business Journal November 11-17, 1996 Back to Top   Chapter 4  The Box Score In baseball the boxscore is a brief summary of the action of the game for those who missed the game or just want to review the key action from the game. Therefore, from the GSMP game, below is a brief historic recap of some of the activities of the project.  Hits Hits can best be described as the project activities that were successful. Some were more successful than others were. Some were a single, a double or a triple. But non-the less these items if used properly by the project participants were a success.  1st. Warehouse receipt  1st. Loan  Pilot Projects Farmers Association Transition Luncheon Grain Standards  Homeruns Homeruns will be those things that elevated the project to a significant level and brought impact at a level that will create lasting tool for Polish agriculture. PGFC International Symposium in September 1997 Public Awareness International Focus Discontinuation of the WC Draft Maximum Leverage of Resources  Runners Stranded Runners stranded are those project activities that were in the hit's category but were never completed to a satisfactory level. Legislation Indemnity Fund  Strikeouts Strikeouts will be those things that met with very little success or must still be addressed for the true reality of a Licensed Warehouse System in Poland to be realized.  FAMI ARR Policy Commodity Exchange Regulation  USAID Evaluation Team Every umpire calls a game different than the next and each scout analyses a player differently. Therefore, within the scope of the GSMP it is also important to have a second opinion on the results of the project. Appendix P is a copy of the USAID Evaluation team report. The report was submitted following a team review of the project in August of 1998 including meetings with project participants and the GSMP staff. Back to Top   Chapter 5 Extra Innings  Extra innings or what will happen with the project components, both finished and unfinished, following the project. Time will be the true test but this report will point out the current status of the components and the plans in place for the perpetuation of project activities. The fate of those plans will rest in the hands of the GSMP’s Polish partners and participants. There are four key areas where there must be ongoing activities or the results of the GSMP will be a project of wasted resources and time. Those areas are listed below and summarized as to their importance. The Polish Grain and Feed Association The Pilot Project Results Licensed elevators PISiPAR Enabling Legislation Indemnity Fund  When you look at the above areas it is evident that the PGFC must take a leadership role in the endeavor to keep the GSMP success alive. In an attempt to solidify the PGFC role and position the GSMP leadership went to great lengths to provide them with the necessary tools to complete their organizational goals. The key activity was the financial support given the PGFC through the local currency funding as well as from the GSMP USAID funds. The PGFC was provided office space free of charge from November 1997 through December 1998 and the organization was given an option to extend the office lease following the end of the GSMP. This gave the PGFC adequate time to finalize its structure, staff the organization and prepare for its post-GSMP activities. In addition, all of the office furniture, equipment and supplies of the GSMP were transferred to the PGFC along with the GSMP vehicle, a 1992 Plymouth Grand Voyager van. Of additional significance is the balance of USDA sponsored funding from the local currency budget in the amount of approximately $20,000 is being given to the PGFC for its ongoing operations. These funds will be available through July/August 1999 in conjunction with the Agriculture Section of the US Embassy. These funds and other items including the organization's dues and sub-lease revenue will provide the organization with a substantial foundation to build upon. Hopefully part of the long-term success of the PGFC will be the completion of the unfinished GSMP activities. The PGFC and will need to engage several other organizations in the process including PISiPAR, The Parliament, the Warsaw Board of Trade, The Ministry of Agriculture and Food Economy to name a few. Fortunately through the close relationship between the PGFC and the GSMP source documents, resources and contacts will be easily transferred with the closure of the GSMP. In addition, the PGFC’S recent membership application to the NGFA based in Washington DC will also bring strong organizational tools to the PGFC. It is anticipated that two staff members and one industry member of the PGFC will attend the NGFA’s National Convention in March in San Francisco followed by a weeks stay in Washington DC to learn more about trade organizations and their role in US agriculture. In addition, to further leverage USAID resources the PGFC was supplied with a copy of the USAID funded Gemini Small Business Project manuals for membership based organizations. Those manuals are described below. Membership-Based Business Organizations in Poland: The ABC’s of Management Tool Kit supporting the above publication You might say the GSMP game is over and the PGFC will be pitching the second game of a "Doubleheader" and since the First Game has ended without a final score it is hoped that the second game will be a winner for the GSMP’s Polish partners and participants. So as the season comes to an end and the lights go out on the GSMP stadium, we know that the interest in the game has been transferred to the Polish participants. Tomorrow will bring a new season with a few players retiring from the game, a few rookies joining the veterans but for sure the game must continue. However, hopefully soon the "Ground Rules" will change and in Poland those ground rules are in the form of Enabling Warehouse Legislation. Back to Top   Chapter 6 Post Season Awards  MVP (Most Valuable Participant)  USAID—For their funding, vision and support  Cy Young Award Miroslaw Kozlakiewicz--- For his delivery of the Legislation to the Sejm  Manager of the Year Jerzy Kuchciak--- manager of the Boleslawiec and Ujazd Gorney elevators  Rookie of the Year Polish Grain and Feed Chamber  Inducted in to the GSMP Hall of Fame Jan Popis---For his farmer advocacy Marek Popis---For the first warehouse receipt Zbigniew Kadziolka—For the first warehouse receipt loan  All-Star Team Joanna Pawlak James Higgiston Adam Rytelewski GSMP Task Force ACDI/VOCA Volunteers Jane Shichman Magda Wyganowska Malgorzata Augustyniak Jacek Zbrzezniak Zbigniew Brys Wlodzimierz Rembisz Back to Top   Appendixes  Appendix A: Work Plan April 1, 1995---June 30, 1996 Appendix B: Work Plan July 1, 1996---September 30, 1997 Appendix C: Work Plan October 1, 1997---September 30, 1998 Appendix D: Quarterly Report dated 12-31-98 Appendix E: PISiPAR Regulations Appendix F: Daily Position Record (DPR) Appendix G: Indemnity Fund Documentation Appendix H: GSMP Handbook and 1988 Grain Standards Appendix I: PISiPAR 1998 Licensing Report Appendix J: Safekeeping and Pledge Agreements and Warehouse Receipt  Appendix K: The Act of 1998 on Warehousing of Agricultural Products Appendix L: USAID/IRIS Collateral Law Appendix M: MAFE/ACDI/VOCA/USAID Agreements Appendix N: Joe Dial Interim Report Appendix O: GSMP and ARR Agreement Appendix P: USAID Evaluation Team Report Back to Top

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