-
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Public grain reserves: International experience and lessons for
Malawi
Nicholas Minot
International Food Policy Research Institute
IFPRI-Malawi, Lilongwe,
27 January 2017
-
2
Outline Objectives of public grain reserves Current issues
Public food distribution Emergency relief Price
stabilization
International experience Future directions Conclusions &
lessons for Malawi
-
Food and nutrition security: ensuring that all people at all
times have access to sufficient nutritious food for a healthy,
active life
Public reserves can promote FNS in three ways Reserves can
supply food distribution network
assistance to chronically poor households Reserves facilitate
emergency relief
assistance to temporarily poor household due to flooding,
drought, or other natural disaster
Reserves can be used for food price stabilization reduce risk to
households and farmers
Objectives of public grain reserves
-
Capacity and stocks needed for public food distribution depend
on: Monthly quantity distributed (Q) Average time (months) in
storage (T) Capacity requirement = 2QT (under certain
conditions)
Current issues:Public food distribution
Chart1
50
0
50
0
50
0
50
0
50
0
50
0
50
0
Y-Values
Months
Quantity in stock over time
Sheet1
X-ValuesY-Values
050
10
1.0150
20
2.0150
30
3.0150
40
4.0150
50
5.0150
60
6.0150
70
-
Traditional approach: procurement in surplus areas or from
imports, sell to consumers in urban areas and sometimes rural areas
at subsidized prices
Cost-effectiveness as poverty reduction strategy depends on
targeting
Studies show leakage to non-poor households is common
Shift from universal distribution to geographic targeting to
social safety net programs
Current issues:Public food distribution
-
Capacity and stocks needed for emergency relief depend on: Time
needed to obtain supplies from imports or other
sources Distribution of emergency need within that time
Percentage of emergencies to be fully covered
Current issuesEmergency relief
Chart1
0.5
0.25
0.125
0.0625
0.03125
0.015625
0.0078125
0.00390625
0.001953125
0.0009765625
0.0004882813
1 in 30 year emergencyrequirements
Y-Values
Emergency requirements
Probability of different emergency requirements
Sheet1
X-ValuesY-Values
00.5
250.25
500.125
750.0625
1000.03125
1250.015625
1500.0078125
1750.00390625
2000.001953125
2250.0009765625
2500.0004882813
Chart1
110
110
110
110
40
110
110
110
110
70
110
110
110
110
110
110
110
110
10
110
110
110
110
110
110
110
110
110
110
20
110
Y-Values
Years
Stock over time
Sheet1
X-ValuesY-Values
0110
1110
2110
3110
440
5110
6110
7110
8110
970
10110
11110
12110
13110
14110
15110
16110
17110
1810
19110
20110
21110
22110
23110
24110
25110
26110
27110
28110
2920
30110
-
Fuzzy boundary between emergency relief and price stabilization,
particularly if emergency defined broadly
Traditionally emergency relief in form of food (cereals,
vegetable oil, etc)
Increasing use of cash assistance Cash assistance is cheaper for
government & more
flexible for beneficiary Works well if shortages are local and
market work well Food aid still needed if emergency is national or
markets
dont work
Current issuesEmergency relief
-
Motivation for price stabilization
Current issuesPrice stabilization
By comparison, for six Asian countries, the CV for rice prices
ranged from 12% in Bangladesh to 25% in the Philippines
Chart1
0.26TanzaniaTanzania
0.27ZambiaZambia
0.29KenyaKenya
0.31MozambiqueMozambique
0.36Avg for s & e AfricaAvg for s & e Africa
0.37Avg of 7 countriesAvg of 7 countries
0.43UgandaUganda
0.49MalawiMalawi
0.51EthiopiaEthiopia
Series 1
Column1
Column2
Sheet1
Series 1Column1Column2
Tanzania26%
Zambia27%
Kenya29%
Mozambique31%
Avg for s & e Africa36%
Avg of 7 countries37%
Uganda43%
Malawi49%
Ethiopia51%
To resize chart data range, drag lower right corner of
range.
-
Benefits of price stabilization Importance to consumers depends
on share of budget spent
on grains Importance to farmers depends on share of income
from
grain sales Studies find benefits of price stabilization to be
relatively
small (0-2% of income) but political pressure for stabilization
remains strong
Costs of price stabilization to government Amortized cost of
storage facilities Transport and handling Spoilage in storage
Financial costs (buy now, sell later)
Current issuesPrice stabilization
-
If band is too high: Buying more than selling Accumulation of
stocks Eventually exhaust
funding or storage capacity
If band is too low: Selling more than buying Depletion of stocks
Eventually exhaust stocks
One option: adjust mid-point using rolling average (e.g. past 3
years)
0
20
40
60
80
100
120
140
160
180
200
1 11 21 31 41 51 61 71 81 91
With buffer stock
Without buffer stock
0
20
40
60
80
100
120
140
160
180
200
1 11 21 31 41 51 61 71 81 91
With buffer stock
Without buffer stock
Level of price band
-
Wide band implies: Less price stabilization Less frequent
intervention Lower cost
Narrow band implies: More price
stabilization More frequent
intervention Higher cost
Width of price band
0
20
40
60
80
100
120
140
160
180
200
1 11 21 31 41 51 61 71 81 91
With buffer stock
Without buffer stock
0
20
40
60
80
100
120
140
160
180
200
1 11 21 31 41 51 61 71 81 91
With buffer stock
Without buffer stock
-
12
Benefits of price stabilization
-
Costs of price stabilization depend on details
0
200
400
600
800
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Pric
e (U
S$/to
nne)
0
200
400
600
800
1000
1200
1400
0
5
10
15
20
25
30
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Cos
t (U
S$ m
illio
n/ye
ar)
CV
of p
rice
(%) Price
volatility (CV)
Annual cost of stabilization
Price ceiling
Price floor
For hypothetical country producing 2 m tonnes/year with high
volatility, relationship between width of band
and cost of price stabilization for a country producing 2
million tonnes per year with high price volatility
-
Public food reserves in practice Typically managed by
state-owned enterprise Reserves in main staple cereal and 1-2
others
Root crops and cooking bananas too perishable Food reserves in
developing countries have multiple objectives
Price stabilization, preparation for emergencies, support farm
price, keep down consumer prices, etc.
Food reserves use different types of interventions Not just
buying & selling, but import & export policy,
government imports and exports, regulations of grain
marketing
Food reserves do not use consistent buy/sell rules Intervention
depends on budget resources, politics, etc.
-
Discretionary Rule-based
Definition Decisions about buying and selling are made based on
judgement based on a wide range of factors
Decisions about buying and selling are based on explicit
criteria using a small number of quantifiable factors such as
price
Factors influencing decision
Weather, harvest size, world prices, stocks, availability of
funding, political pressure, political debate, leadership
decisions
Usually just buying price and selling price, though may be
adjusted occasionally
Predictability Less predictable Predictable based prices
Effect on private sector
Lower investment in storage and transport capacity because of
uncertainty
Greater investment due to predictability
Potential for rent-seeking
Higher Lower
Buying and selling policies
Public food reserves in practice
-
International experience: Eastern and Southern AfricaPublic food
reserves in practice
-
Public food reserves in practiceExamples of minimal
intervention
Uganda Plan for Modernization of Agriculture says:
The Government recognises that publicly held food reserves are
very expensive under the best of conditions and require careful
management to minimise losses due to spoilage. Such schemes have
had limited success in other countries, but have certainly exerted
substantial demands upon public funds. Therefore, government will
not adopt any policy to accumulate such stocks unless and until
careful studies in Uganda have determined their efficacy.
Mozambique No strategic grain reserve or price stabilization
efforts
Tanzania Has Strategic Grain Reserve but has been too small to
affect prices
(purchases are about 1% of production)
-
Public food reserves in practiceExamples of more interventionist
policies
Ethiopia Ethiopia Grain Trading Enterprise (EGTE) Ad hoc
intervention in maize & wheat markets In 2006-8, rising grain
prices, surpassed import parity
Inflation Harvest smaller than estimated No private imports
because announced government imports and foreign exchange
shortage
Kenya National Cereals & Produce Board (NCPB) Successful in
partial stabilization and raising maize prices Major price spike in
2009 caused by
High import tariff (50%) No private imports because announced
government imports When tariff lowered, congestion in transport
routes
Major corruption scandal Allocation of valuable import licenses
Allocation of subsidized maize from NCPB
-
1980s: maize marketing controlled by National Ag Marketing Board
(NAMBOARD), which set pan-territorial and pan-seasonal prices and
handled maize imports and distribution
1989: NAMBOARD abolished and private trade legalized 1996: Food
Reserve Agency (FRA) formed to administer grain
reserve as buffer stock, private trade remains legal FRA
procurement was small or zero over 1996 2001,
expanded since 2002, dominant buyer since 2005 Other
intervention: export bans, tariff rates, govt maize
imports
Public food reserves in practiceZambia
-
Study by Mason and Myers (2013) Method: VAR time-series analysis
of effect of FRA purchase
and sales on maize prices in Zambia over 1996-2008 Results: FRA
reduced CV of maize price by 17% FRA raised average price of maize
by 10% Welfare effect of price increases much larger than
welfare
impact of stabilization Benefits to large surplus farmers,
losses to urban consumers
and small net-maize buyers in rural areas
Public food reserves in practiceZambia
-
Public food reserves in practiceMalawi
Agricultural Development & Marketing Corporation (ADMARC)
and Food Reserve Agency (FRA)
Three price spikes since 2000 Poor rainfall played a role but
price spike exacerbated by: Lack of transparency about grain stock
size Government announcements of imports, then delays Procurement
for government export
In spite of efforts to stabilize maize price, volatility among
the highest in sub-Saharan Africa Question is whether volatility is
high in spite of stabilization
efforts or whether intervention may contribute to spikes
-
Maize prices in MalawiSeasonal price index (1.0=average)
0.8
0.9
1.0
1.1
1.2
1.3
1.4
M4 M5 M6 M7 M8 M9 M10 M11 M12 M1 M2 M3
2015 2016
SI_NOMINAL SI_REAL
-
Maize prices in MalawiAdmarc sales, retail maize and MFG prices,
2005-2016
102030405060708090
100110120130140150160170180190200210220230240250260270280290300
Jan-
05
Apr
-05
Jul-0
5O
ct-0
5Ja
n-06
A
pr-0
6Ju
l-06
Oct
-06
Jan-
07
Apr
-07
Jul-0
7O
ct-0
7Ja
n-08
A
pr-0
8Ju
l-08
Oct
-08
Jan-
09
Apr
-09
Jul-0
9O
ct-0
9Ja
n-10
A
pr-1
0Ju
l-10
Oct
-10
Jan-
11
Apr
-11
Jul-1
1O
ct-1
1Ja
n-12
A
pr-1
2Ju
l-12
Oct
-12
Jan-
13
Apr
-13
Jul-1
3O
ct-1
3Ja
n-14
A
pr-1
4Ju
l-14
Oct
-14
Jan-
15
Apr
-15
Jul-1
5O
ct-1
5Ja
n-16
A
pr-1
6Ju
l-16
Oct
-16
nom
inal
MK
/kg
Average National Retail Price
ADMARC Sales Price
MFG maize prices
-
Maize prices in Malawi Domestic price and import & export
parity over 2004-2016 in US$
0
100
200
300
400
500
600M
ay-0
4Ju
l-04
Sep-
04N
ov-0
4Ja
n-05
Mar
-05
May
-05
Jul-0
5Se
p-05
Nov
-05
Jan-
06M
ar-0
6M
ay-0
6Ju
l-06
Sep-
06N
ov-0
6Ja
n-07
Mar
-07
May
-07
Jul-0
7Se
p-07
Nov
-07
Jan-
08M
ar-0
8M
ay-0
8Ju
l-08
Sep-
08N
ov-0
8Ja
n-09
Mar
-09
May
-09
Jul-0
9Se
p-09
Nov
-09
Jan-
10M
ar-1
0M
ay-1
0Ju
l-10
Sep-
10N
ov-1
0Ja
n-11
Mar
-11
May
-11
Jul-1
1Se
p-11
Nov
-11
Jan-
12M
ar-1
2M
ay-1
2Ju
l-12
Sep-
12N
ov-1
2Ja
n-13
Mar
-13
May
-13
Jul-1
3Se
p-13
Nov
-13
Jan-
14M
ar-1
4M
ay-1
4Ju
l-14
Sep-
14N
ov-1
4Ja
n-15
Mar
-15
May
-15
Jul-1
5Se
p-15
Nov
-15
Jan-
16
nom
inal
US$
per
met
ric to
n
Export parity (USD/mt) Import parity (USD/mt) Malawi domestic
price (USD/mt)
-
25
Buffer stocks are notorious for being politicised, and making
variable pricing decisions depending on political pressures. For
this reason, it is argued that they need to be recast as
independent agencies or trusts, with a legal status that enables
them to operate free of political interference
maize policy in Malawi is understandably highly political, and
many decisions can only be understood in terms of electoral cycles,
promises made by political parties and their leaders prior to
gaining power, and the goal of securing political support from
important sectors of the populace in the future. (Manda, 2010)
Public food reserves in practiceMalawi
Role of political factors in public reserves
-
With income growth: share of household expenditure allocated to
food declines
(Engels Law) Share of food spending allocated to staples
declines
(Bennetts Law) Diet shifts away from staple grains and toward
meat, fish,
dairy products, fruits & vegetables, and processed foods
Implications for reserves: as importance of staples in diet
declines, need for grain price stabilization declines
Future directions
-
With structural transformation of the economy Diversification in
farm production into high-value commodities,
so that income from staple grains becomes less important.
Reduction in incidence of poverty due to income growth Gradual
long-term shift of poverty from rural to urban Growth in export
value & foreign reserves relative to cost of
imported food, making food imports less of an economic burden
and macro-economic risk
Implications for public grain reserves: Declining importance
Future directions
-
With development of infrastructure and markets Need to deliver
food in kind declines Cash assistance is less expensive to deliver
and provides
more flexibility for beneficiary Cash creates demand, which will
draw food supplies to
region if roads are passable and markets functioning WFP and
several countries switching from in-kind assistance
to cash assistance
Implications for public grain reserves: Declining need to store
grain for distribution
Future directions
-
Lessons for Malawi Consider shifting from direct in-kind food
assistance to
cash-based assistance Could be provided on pilot basis to test
effects Studies in other countries show cost savings and
satisfaction among beneficiaries with similar benefits for food
security
Open borders provide no-cost price band Impeding imports has
exacerbated price spike in
several cases
-
Lessons for Malawi Price stabilization is expensive
Large procurement costs (US$ 20-100 m per year) Storage,
handling, and overhead State enterprises cannot cover costs with
stabilization efforts
Aggregate benefits are small Most estimates 0 to 4% of farm
income
Benefits of price stabilization not pro-poor Most of benefits to
larger commercial farmers, also urban poor
Food price stabilization prone to rent-seeking Improve
consistency and predictability in govt actions
-
Lessons for Malawi Promote private grain storage &
imports
Credit, non-intervention, & storage rental
Promote consumption of secondary staple crops Cassava can act as
shock absorber for grain markets
Rationale for 3 months grain reserve To cover period until
commercial imports can be arranged
If price stabilization politically necessary Adopt rule-based
price band Adopt wide & market based price band Adjust center
of band periodically Provide transparency on stock levels and
predictability
in procurement/sales activities
Slide Number 1Slide Number 2Objectives of public grain
reservesCurrent issues:Public food distributionCurrent
issues:Public food distributionCurrent issuesEmergency
reliefCurrent issuesEmergency reliefCurrent issuesPrice
stabilizationCurrent issuesPrice stabilizationSlide Number 10Width
of price bandSlide Number 12Costs of price stabilization depend on
detailsPublic food reserves in practiceBuying and selling
policiesSlide Number 16Public food reserves in practiceExamples of
minimal interventionPublic food reserves in practiceExamples of
more interventionist policiesPublic food reserves in
practiceZambiaSlide Number 20Public food reserves in
practiceMalawiMaize prices in MalawiSeasonal price index
(1.0=average)Maize prices in MalawiAdmarc sales, retail maize and
MFG prices, 2005-2016 Maize prices in Malawi Domestic price and
import & export parity over 2004-2016 in US$Slide Number
25Future directionsFuture directionsFuture directionsLessons for
MalawiLessons for MalawiLessons for Malawi
