Background

The introduction in 1995 of electronic cotton warehouse receipts represented the single most significant change in the U.S. cotton industry in several decades. The industry quickly embraced this change which was permitted for cotton under federal legislation passed in the early 1990's.

During the 1995-96 crop year, when electronic cotton receipt systems first began operating on a commercial basis, about 45% of the crop was handled with electronic receipts.  Approximately 97% of the crop was represented by electronic receipts by 1999-2000.  Currently 99.5% of the cotton receipts issued in the U.S. are electronic.

The current federal warehouse law permits electronic receipts to be issued for any commodity.  At present EWR Inc. handles both electronic cotton and peanut receipts.

Electronic Title Description

An electronic warehouse receipt (ewr) is simply a computer record of all of the information which is required on a legal paper receipt.  That data record is stored on the disk of a secure computer system which has to be approved by the U.S. Department of Agriculture as meeting specific operating standards.  Electronic receipts are authorized by federal legislation and represent title documents which are legally equivalent in every way to paper receipts.

The entity which operates the computer system on which electronic receipts are stored is called a "Provider."  Within the Provider's computer, each receipt record is associated with party - the "holder" - who has access to that receipt record.  Only the holder can "transfer" his electronic receipts to another holder.  This is accomplished by the holder simply informing the Provider via computer as to who the new holder should be.

An electronic receipt system must be highly secure and the Provider has the responsibility for maintaining that integrity. Federal regulations require further security in the form of backup computer systems and an audit trail of all system activity.

The electronic receipt operation begins when a warehouse creates a file of receipt records and transmits that file via Internet to the Provider's computer system.  The records become legal receipts when stored on the computer.  The warehouse is the initial holder and can transmit instructions to the Provider to make another party the new holder.  The Provider sends confirmation of these transactions to the "sending" and to the "receiving" holders.

An electronic receipt can have many holders during its existence but can have only one holder at any specific moment.  At some point, a shipper-holder will “deliver” his receipts back to the issuing warehouse (who then becomes the holder) along with instructions regarding shipment of the physical commodity.  As the warehouse ships the commodity, it sends instructions to the Provider's computer to cancel the appropriate electronic receipts.  Based on these directions from the warehouse, the Provider marks the receipt record as cancelled and a legal receipt no longer exists.

The preceding description provides only the most simplistic view of electronic receipts.  Certainly the concept and basic operations are quite simple and straightforward.  However, complexities can be added to the system to provide for many different situations such as electronic bank drafts.  Such added features - when made available by the Provider - increase the value of the electronic receipt system to all of its users.

Electronic Document Advantages

The many advantages of electronic receipts are the key reason that electronic receipts have had such a powerful impact in a short expanse of time.  First, electronic receipts eliminate the need for handling paper - including keypunching, sorting, and transporting paper.  In addition, the electronic receipt "moves" over the Internet which permits transfers between traders to be completed much more swiftly than paper documentation allows.  Keypunching (and its associated cost) of data is reduced or eliminated because receipt information can be directly captured into the holder's computer from the Provider's system.  A further advantage comes from the fact that each Provider maintains an audit trail which keeps details of every movement of electronic receipts between holders.  This information can be very helpful in resolving problems and locating receipts; however, this same information is not available in any format for paper receipts/documents.

Financial Institutions

Financial institutions have become increasingly comfortable with electronic warehouse receipts. Only a handful of banks would accept electronic receipts as collateral in September 1995.  Today more than 100 financial institutions find such loans quite acceptable.

The EWR Inc. Provider systems for peanuts and cotton allow the use of the receipts as collateral by financial institutions and special programming is in place to meet these unique requirements.  Also, drafts can be used through the EWR Inc. systems and this is a very popular way to exchange receipts.  To date EWR Inc. has not had direct funds transfer in conjunction with its system.  The Provider systems will allow this but financial institutions and their customers simply have so far not chosen to do this.  To handle funds transfers in conjunction with receipt transfers would be straightforward given the design of the EWR Inc. Provider systems and could be brought online quickly if interest was shown by parties.

EWR Inc.

In 1994 a group of leaders from the warehouse, cooperative, and merchandising segments of the cotton industry came together and formed EWR, Inc.  Its purpose is to provide high quality electronic receipt services to everyone.  Its founders ensured in its by-laws that EWR, Inc. would be responsive to the needs of the agricultural sector and that high-quality electronic receipt services would be the primary activity on which the company would focus.

EWR, Inc. handled over 5.9 million receipts - more than 30% of the crop - in its first year of operation.  In the 2003-2004 season over 14.5 million electronic receipts were issued on EWR, Inc. which was more than the number of receipts issued on all other Provider systems combined.  EWR, Inc. acquired one of its competitors and handled 23 million cotton receipts in the 2004 - 2005 season.

EWR, Inc. offers its users great flexibility since it is designed to work in conjunction with any software that the user may already have.  Over three dozen vendors of software packages for warehouses, gins, merchants, buying points, shellers, banks, and producers have enhanced their software to communicate directly with EWR, Inc.  Users do not have to utilize any certain "brand" of software.  For those in the cotton industry who have no software, EWR, Inc. does provide to users at no cost a very basic package which allows them to work directly with the EWR system.

Through their work with EWR, Inc. many large merchants report that their experience with electronic receipts has been very good.  Through the use of electronic receipts several companies stated that they were able to reduce data entry costs by as much as 60 percent. 

Everyone who has become comfortable with electronic receipts has indicated that they do not want to return to paper.  In the industry where performance counts and time is of the essence, electronic receipts have proven that they increase efficiency and save money at the same time.  That combination is unbeatable and it may be many years before industry can take advantage of a positive change of this magnitude again.

Electronic Peanut Receipts

In 2002 EWR Inc. began investigating the possible introduction of electronic warehouse receipts to the peanut industry.  The peanut receipt differs from the cotton receipt since cotton is an identity-preserved commodity whereas peanuts are not.

This effort began with EWR Inc. staff contacting peanut industry leadership and explaining the concept.  When it became clear that significant industry interest existed then USDA was contacted.  In early 2003 USDA and EWR Inc. agreed to conduct a pilot project for peanuts.  That involved a fully functional electronic peanut receipt system developed by EWR Inc. along with USDA Price Support Division’s agreement to accept peanut electronic receipts for loan purposes.   The pilot ran on a limited scale in October, 2003, and was a complete success.  The system is now available to the entire peanut industry.  It is anticipated that 90% of the peanuts (by weight) will be represented by electronic receipts in 2005.

Contracts

EWR Inc. has contracts with every entity (including USDA) in both the cotton industry and the peanut industry which wants to utilize its receipt system.  These contracts delineate the obligations of all parties and the remedies available to each.  Contracts fall under Tennessee state law because the law is clear that sales tax is not applicable.  EWR Inc. maintains offices in Tennessee, North Carolina, and Texas.  Copies of the peanut and the cotton contracts can be made available for review upon request. 

Costs/Pricing

In the 1980's and the 1990's the National Cotton Council performed economic analyses to determine the value of an electronic receipt to the cotton industry.  Those studies, which were shared extensively with people in the cotton industry through publications and in meetings, served as the basis on which electronic cotton receipt development was pursued.  Currently it costs a cotton warehouse 2 cents to issue an electronic receipt.  Changes in holdership cost 2 cents (charged to the holder who initiates the change).  When a receipt is cancelled there is a charge of 6 cents.

When EWR Inc. found interest in the peanut industry for electronic receipts, the company did an economic analysis to determine the true, full cost of handling paper receipts to the industry.  A similar study had been done in the cotton industry a decade earlier.  At the same time a second effort was undertaken to estimate the cost, including a reasonable profit margin, to develop and operate an electronic receipt system for peanuts.  When all of this analysis work was complete it was shared with the peanut industry in a variety of forums.

The studies showed that, depending upon assumptions, the cost of handling paper receipts by the peanut industry was 48 to 75 cents per ton.  The cost to operate an ewr system was estimated to be approximately 25 cents per ton.

Certificated Receipts

EWR Inc. works closely with the New York Board of Trade which requires certificated receipts.  EWR Inc. ensures that certs meet all NYBOT requirements before they can be issued as electronic receipts.  In addition, NYBOT requires a variety of statistical data on certificated receipts as a group.  EWR Inc. compiles this information daily and places it into a data file which NYBOT retrieves via the Internet.  NYBOT uses the file to develop a variety of reports which it publishes.  In some instances NYBOT requires information on a specific receipt.  Law requires receipt data can only be given to the Holder.  In these instances NYBOT has to obtain permission from the Holder before EWR Inc. can provide the receipt data.  NYBOT also makes use on occasion of EWR Inc.’s audit log to trace the history of a cotton receipt for a variety of reasons.

EWR Inc. provides a variety of other services on a fee basis to NYBOT including custom programming and specialized certificated receipt verification services.  While these are beyond the scope of a straightforward ewr system, they have proven to be very convenient for NYBOT.

Conclusion

EWR Inc. concentrates its resources on doing an outstanding job of providing electronic warehouse receipt services to industry.  With over ten years of experience and infrastructure already in place, the company feels that it could offer excellent services to other commodities.