grain A


t its core, the idea of a strategic grain reserve is simple. Droughts, floods, failed harvests, global market volatil-


ity, and other factors can reduce food pro- duction and push food prices higher than poor people in some countries can afford. When a country’s domestic markets are poorly connected and when transporta- tion and communications infrastructure is weak—as in many developing coun- tries—it is particularly hard for a country to absorb price shocks. Te result can be acute food insecurity or, in extreme cases, famine. By maintaining an emergency stock of grain and making it available dur- ing times of crisis, a government can help protect national food security.


Te idea may be simple, but the execution is not, says IFPRI Senior Research Fellow Shahidur Rashid, who studies grain re- serves in Africa and Asia. Under the right conditions, strategic grain reserves can prevent widespread hunger and even save lives. However, if not managed properly,


10


expectations


Grain reserves can be key in muting food price shocks and stabilizing food markets, but managing them is complicated. How can policymakers use grain reserves to insure against risk—without busting their budgets? Sara Gustafson


grain reserves can “become expensive, breed corruption, and be dictated by special interests,” says Rashid.


Costly and Complicated Holding strategic grain reserves is not cheap. According to Rashid, the cost of holding and transporting a sufficient stock can range from US$35 to US$40 a ton. Tese costs alone can put pressure on a developing country’s budget. In India, the net cost of emergency stocks increased tenfold—from US$160 million to US$1.6 billion—between 1992 and 2002. Simi- larly, Pakistan’s bills for its grain reserves fluctuated between US$49 million and US$245 million from 1990 to 2003.


Beyond the cost, managing a grain reserve is a complex logistical operation that requires multiple public organizations to work together effectively—“always very difficult,” says Rashid. Creating and managing a reserve involves purchasing the grain, building and maintaining stor-


age facilities, transporting the grain to and from storage facilities, rotating the stock, and deciding when and at what price to release the grain.


Determining the optimal stock level is one of the greatest challenges. If a reserve is too large, not only will the government’s subsidy bills go up, but also the release of the stock will depress market prices and destroy private traders’ incentives to participate in the market. If it is too small, the government will fail to address emer- gencies and stabilize prices. Te political risks of such a situation can be high: wit- ness the food riots in several developing countries during the 2007–08 global food price hike.


Without strict and transparent manage- ment, strategic grain reserves, particularly large ones, may open the door to corrup- tion. In a 2007 study of grain-marketing parastatal companies, Rashid and his co- authors found that Indian politicians and


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28