71280 ECONOMIC AND SECTOR WORK USING PUBLIC FOODGRAIN STOCKS TO ENHANCE FOOD SECURITY SEPTEMBER 2012 REPORT NUMBER 71280-GLB ECONOMIC AND SECTOR WORK USING PUBLIC FOODGRAIN STOCKS TO ENHANCE FOOD SECURITY REPORT NUMBER 71280-GLB © 2012 The International Bank for Reconstruction and Development/ The World Bank 1818 H Street, NW Washington, DC 20433 Telephone 202-473-1000 Internet www.worldbank.org/ard All rights reserved: This volume is a product of the staff of the International Bank for Reconstruction and Development/The World Bank, the Natural Resources Institute, United Kingdom, and the Food and Agriculture Organization of the United Nations (FAO). The �ndings, interpretations, and conclusions expressed in this paper do not necessarily reflect the views of the executive directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Any queries on rights and licenses, including subsidiary rights, should be addressed to the Of�ce of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: pubrights@worldbank.org. Cover Photo: Ossewa/Wikimedia Commons. Grain Elevator in Tweespruit, South Africa. CONTENTS III Table of CONTENTS Lists of Figures, Tables, and Boxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v Acronyms and Abbrevations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi Chapter 1: Renewed Attention to Foodgrain Stocks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Chapter 2: How Can Public Stocks Improve Food Security? . . . . . . . . . . . . . . . . . . . . . . . 5 2.1 Ef�ciency Gains from Price Stabilization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.2 Distributional Gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Chapter 3: Empirical Evidence on Using Stocks for Price Stabilization . . . . . . . . . . . . . . . . 13 3.1 A Multiplicity and Lack of Clarity of Objectives of Public Stocks Lead to Failures . . . . . . . . . . . . . . 13 3.2 Fiscal Costs Too Frequently Escalate to Unsustainable Level . . . . . . . . . . . . . . . . . . . . . . . . . 14 3.3 The Economic Costs of Maintaining High Food Prices Are Very Large . . . . . . . . . . . . . . . . . . . . 18 3.4 Countries Fail to Achieve Price Stability, Despite Having Buffer Stocks . . . . . . . . . . . . . . . . . . . . 22 3.5 Buffer Stocks Often Crowd Out the Private Sector, Weakening Its Contribution to Economic Growth and Job Creation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Chapter 4: Empirical Evidence on Food Emergency and Safety Net Stocks . . . . . . . . . . . . . 29 4.1 Food Emergency Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 4.2 Food Safety Net Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Chapter 5: How Regional Foodgrain Reserves Can Help . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Chapter 6: Recommendations for Managing Public Foodgrain Stocks. . . . . . . . . . . . . . . . . 39 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 EC O N O M I C A N D S E CT OR WORK LI S T S O F F I G U R E S , TABL E S, AND BOXE S V Lists of FIGURES, TABLES, AND BOXES FIGURES Figure 1.1: Low Inventory Periods Signal the Potential for More Volatile Prices: U.S. Real Wheat Prices, January 1990–August 2009 . . . . . . . . . . . . . . . . . . . . . . . . 2 Figure 1.2: Ending Stocks of Cereals Declined in Developed Countries While Rising in Developing Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Figure 3.1: Average Annual Program Costs Go Up with More Aggressive Replenishment in MNA . . . . . 16 Figure 3.2: Wheat Supply Chain Costs in MNA Countries in 2009 Were Much Higher than in Benchmark Countries (Netherlands and the Republic of Korea) . . . . . . . . . . . . . . . . . . . . . . . . . 17 Figure 3.3: The Rising Gap between the Philippines’ NFA Revenues and Expenses . . . . . . . . . . . . . . 18 Figure 3.4: Maize Prices in Kenya and Zambia Are Typically Well Above Prices in South Africa (The Major Exporter of White Maize in the Region) . . . . . . . . . . . . . . . . . . . . . . . . . 19 Figure 3.5: Rice Prices in the Philippines and Indonesia Are Kept Above International Reference Prices . . 20 Figure 3.6: A Large Export/Import Parity Price Gap May Lead to High Local Price Volatility: The Example of Wheat in Addis Ababa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Figure 3.7: Rice Prices Are Less Volatile in Asian Countries That Use Buffer Stocks . . . . . . . . . . . . . 24 Figure 3.8: Farm-Gate Rice Prices in the Philippines Are Volatile Despite Stable Consumer Prices . . . . . 25 Figure 4.1: Rice Prices in Bangladesh Have Closely Followed International Reference Prices . . . . . . . . 32 TABLES Table 2.1: Projects with Cash Transfers Are More Consistent in Achieving Objectives than Those with In-Kind Transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Table 3.1: Public Spending on Stocks Has Often Been Larger than on Agriculture and Research . . . . . . 15 Table 3.2: Smaller Reserves Are Cheaper and Suf�cient to Achieve Price Stability . . . . . . . . . . . . . . 16 Table 3.3: A Breakdown of the Total Fiscal Costs of Managing Maize Stocks in Zambia Is Revealing . . . . 17 Table 3.4: Food Accounts for a Large Share of the CPI in Developing Countries . . . . . . . . . . . . . . . . 20 Table 3.5: Rice Marketing Costs in the Philippines Are Much Higher than in Thailand, Reducing the Bene�ts to Farmers of High Consumer Prices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 EC O N O M I C A N D S E CT OR WORK VI LIS TS OF FIGUR ES , TA BLES , A ND B OX ES Table 3.6: Farmers Tend to Receive a Higher Share of the Wholesale Rice Price in Countries with Lower Consumer Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Table 3.7: Volatility of Maize Prices in Selected SSA Countries, January 2005 through May 2011 . . . . . . 22 Table 3.8: Maize Price Volatility Is Higher in African Countries with High Market Interventions . . . . . . . 23 Table 3.9: Price Volatility versus Predictability in Selected SSA Countries, 1994–2008 . . . . . . . . . . . . 23 Table 3.10: Stocks and Market Prices Vary in Ethiopia under Different Rotation Scenarios . . . . . . . . . . 26 Table 4.1: ESFRA Stock Age and Storage Costs, 2005–2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Table 4.2: Foodgrain Stocks, Procurement, and Policy in Selected Countries of South Asia, Average 2001–2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Table 5.1: All International Agreements to Stabilize Commodity Prices Have Failed . . . . . . . . . . . . . 35 BOXES Box 2.1: Empirical Estimates of Gains from Food Price Stabilization . . . . . . . . . . . . . . . . . . . . . . 7 Box 4.1: High Costs of Universal Food Transfer Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 US ING PUBLIC FOOD GR A IN STOCK S TO ENH A NCE FOOD S EC UR ITY ACR O N Y MS A N D A BBRE VIAT IONS V II ACRONYMS AND ABBREVIATIONS ARD Agriculture and Rural Development NEPAD New Partnership for Africa’s Development AMIS Agricultural Market Information System NFA National Food Authority, the Philippines ASEAN Association of Southeast Asian Nations NGO Nongovernmental organization APTERR ASEAN Plus Three Emergency Rice OECD Organization for Economic Cooperation and Reserve Development BULOG Badan Urusan Logistik, Indonesia OP Operasi Pasar, Indonesia CPI Consumer price index PFDS Public Foodgrain Distribution System, Bangladesh ECOWAS Economic Community of West African States PRMC Programme de Restructuration des Marches EFSRA Emergency Food Security Reserve Cerealiers, Mali Administration, Ethiopia PSD Production, supply, and disappearance ESW Economic sector work PSNP Productive Safety Net Program, Ethiopia EU European Union RASKIN Berasuntuk Rakyat Miskin, Indonesia FAO Food and Agriculture Organization of the United Nations SAARC South Asian Association for Regional Cooperation FRA Food Reserve Agency, Zambia SGR Strategic Grain Reserve, Malawi GDP Gross Domestic Product SSA Sub-Saharan Africa GIEWS Global Information and Early Warning System of the FAO TFP Total factor productivity IFPRI International Food Policy Research TPDS Targeted Public Distribution System, India Institute USDA U.S. Department of Agriculture MNA Middle East and North Africa $ U.S. dollar NCPB National Cereals and Produce Board, Kenya WFP World Food Programme EC O N O M I C A N D S E CT OR WORK ACK N O W L E D G ME NT S IX ACKNOWLEDGMENTS This report was prepared by the World Bank Agriculture and Rural Development (ARD) Department. The completion of the report was led by Sergiy Zorya, with substantive input from Christopher Delgado, Aparajita Goyal, Saswati Bora, Robert Townsend, and Iride Ceccacci. The background studies for Africa were prepared by Nicholas Minot from the International Food Policy Research Institute (IFPRI) and for Asia by Andrew Shepherd, previously with the United Nations Food and Agriculture Organization (FAO) and now a Senior Technical Advisor to the Technical Centre for Agricultural and Rural Cooperation in Wageningen. This effort has bene�ted from the experiences and feedback of numerous World Bank staff through the Rural Policies Thematic Group. It has also bene�ted from the shared experiences of participants from the World Bank, FAO, and IFPRI at the Seminar “Role of Public Stocks in Food Security in Developing Countries,� organized by the World Bank in Washington, DC, on December 6, 2011. Don Larson, Stephen Mink, and Patrick Labaste from the World Bank and Carlo Ca�ero from FAO served as peer reviewers. Mark Cackler (Sector Manager, ARD) and Juergen Voegele (Sector Director, ARD) supported the study and ensured that resources were available for its implementation. Amy Gautam and Julie Cannon edited the report, and Kaisa Antikainen provided logistical support. EC O N O M I C A N D S E CT OR WORK EX E C U T I V E S U MMARY XI EXECUTIVE SUMMARY The recurrent global food price spikes in 2008 and 2010 rekindled interest in the use of national foodgrain stockpiles (“stocks�) to enhance food security. They were a commonly used instrument in government responses to these food prices spikes. They were also widely considered as a useful tool after the 1974 food crisis and its associated food price volatility and sup- ply disruptions. Large stocks became a reality at the global level in the 1980s and 1990s as a side-product of farm income support policies in the developed countries. However, large “buffer� or “intervention� stocks, as the grain accumulations in developed countries came to be called, eventually proved to be very costly forms of producer income support and were drawn down for �scal and other reasons starting in the late 1990s. This report, prepared for government and development partner practitioners, revisits the issues and evidence concerning grain stocks. It starts with an open mind concerning stocks as policy tools and speci�cally seeks to avoid the polarization of views that grew up around the topic in the 1980s and 1990s. It takes the form of an evidence-based review of developing country experience. Historically, grain stocks have been used for two main purposes. First, to stabilize domestic prices and second, to provide readily available emergency food and safety net reserves targeted at the most vulnerable. The assessment of actual experi- ence of using grain stocks for these two purposes is summarized as follows. Using grain stocks to stabilize domestic prices has generally not been an effective instrument to improve food security outcomes. Developed countries no longer use stocks to stabilize domestic prices due to the unpredictability and often unsus- tainably high budget costs. In Africa and Asia, where price stabilization programs are still frequently pursued, high �scal costs are crowding out needed public investment in agricultural productivity and rural infrastructure. The often unpredictable grain purchases and releases of stabilization programs are discouraging private investment in both grain production and storage, which are the key to lowering both the level and volatility of food prices. Using grain stocks to provide readily available emergency food reserves targeted to the most vulnerable has proven to be a more effective instrument to improve food security outcomes. This is especially the case where stock schemes have been part of a more comprehensive safety net approach with considerable effort at targeting the poor and vulnerable (as in Bangladesh, Ethiopia, and Mali). Such stocks permit a continued price transmission of higher prices to producers providing the incentive to increased domestic food supply that can subsequently help lower domestic food prices while providing a safety net to the poor. Effective targeting provides emergency food to the most vulnerable, which is more cost ef�cient than universal food distribution programs and has less negative impacts on producer prices and incentives for private storage. Effective early warning systems; compliance with rules and procedures; maintaining small reserves; good management and flexibility; and collaboration between donors, relief agencies, and government authorities all help minimize budget outlays, market distortions, and mistargeting of bene�ciaries. A similar distinction between price stabilization and safety net backup applies to regional (multicountry) reserves, compared to national reserves. Price stabilization schemes through international agricultural commodity agreements have not been an effective instrument to stabilize prices. While small regional reserves for humanitarian purposes aimed at complementing na- tional safety net programs, in theory, could be effective, in fact there are no working examples despite several attempts to set these up over the last 40 years. Regional reserves have required stock provision from multiple countries, and stock releases to multiple countries. Coordination challenges and trust issues across national borders have complicated implementation. EC O N O M I C A N D S E CT OR WORK XI I EX ECUTIV E S UM M A RY Strong ownership of participating countries and implementable arrangements are the likely key to success of regional reserve programs. Furthermore, improvements in communications, �nancial, and transportation technologies, and in regional integra- tion efforts, may make regional options more feasible in the future. In sum, the evidence suggests that public grain stocks can play a limited but important complementary role in improving food security, complementing a broader nonstock strategy that addresses both the resiliency of rural livelihoods and the functional- ity of overall safety nets. Public grain stocks as a food security intervention is most effective in the short term, especially for bridging the time needed to import food and targeting support to helping ensure the most vulnerable have food to eat in times of market shocks. If used, public grain stocks need to be incorporated into a coherent longer-term strategy that combines the use of trade, investments in agricultural productivity, and well-managed, targeted safety net programs. Design details will vary from coun- try to country, with stocks having a larger role in net food importing countries. A comprehensive strategy, not public stocks per se, is necessary to succeed in stabilizing domestic food prices in a way that induces agricultural growth and accelerates poverty alleviation. US ING PUBLIC FOOD GR A IN STOCK S TO ENH A NCE FOOD S EC UR ITY C H A P T E R 1 — R E N E WE D AT T E NT ION T O F OODGRAIN S TOCK S 1 Chapter 1: RENEWED ATTENTION TO FOODGRAIN STOCKS The purpose of this report is to analyze when and how public also widely considered as a useful tool. The focus has been foodgrain stocks can be used to enhance food security. The on the low level of stocks. The global ending-stocks-to- concern is for food-vulnerable poor people, who are at risk of use ratio2 for coarse cereals, for example, dropped from becoming malnourished as a result of various shocks, such as 18.6 percent in 2005/06 to 14.7 percent in 2010/11, accord- the global food price spikes in 2007/08, 2010/11, and 2012/13.1 ing to the World Agricultural Supply and Demand Estimates In the long term, what matters most for these people is their in- of the U.S. Department of Agriculture (2012). This ratio is come growth, because the share of food expenditures declines projected to decline further to 13.8 percent in 2011/12. as incomes grow, with the consequence that food price volatil- The major exporters’ stocks to disappearance ratio3 experi- ity does not present as much of a threat. Improved agricultural enced an even bigger decline, dropping from 19.1 percent productivity, induced by good agricultural policy and invest- in 2005/06 to 10.2 percent in 2010/11, and is projected to go ments in public goods, has been a driving force in increasing down to 8.1 percent in 2011/12 (USDA 2012). farm incomes, making food available at affordable prices, and reducing poverty. However, further productivity gains will be Lower global stocks have made it harder to moderate the needed in the future to keep pace with population and income impact of global production shortfalls on prices given that growth and to overcome evolving supply constraints, evidenced short-term food demand is inelastic. Using the example of by more expensive food since 2007 (World Bank 2012b). In the wheat prices in the United States, which are the reference short-to-medium term, however, public foodgrain stocks can world market prices, �gure 1.1 shows that when the stocks- be used as one of several policy instruments to protect vulner- to-use ratio is below 15 to 20 percent, a 5 percent supply able people from food price spikes. They warrant a separate shortfall leads to a much larger price spike than when ini- review as there is a lack of clarity about when these stocks are tial stocks are higher. In general, when global stocks fall to useful and how they relate to alternative instruments and to low levels, the likelihood of price spike increases and food long-run objectives of food security. prices becomes linked to information on stocks, especially to supply and demand disturbances that further reduce the The discussion on the drivers of the recent increase in ending-stocks-to-use rate (Prakash 2011). Wright (2011) calls global food price volatility has brought renewed attention food price volatility a symptom of a structural problem of low to foodgrain stocks. Stocks have played an important role stocks—that is, “when supplies get to certain low levels the in this discussion (G20 2011; World Bank 2012b), similarly prices become vulnerable to volatility.� to the situation after the 1974 food crisis and its associated food price volatility and supply disruptions when they were The recent decline in global stocks occurred mainly due to stock reduction in developed countries (�gure 1.2). Total end- ing stocks in these countries decreased from 130 million tons 1 This report uses the de�nition of food security as spelled out in in 2005/06 to 91 million tons in 2011/12, a continuation of the The State of Food Insecurity in the World 2001, “food security is trend that began in the early 1990s when the Organization for a situation that exists when all people, at all times, have physi- cal, social and economic access to suf�cient, safe and nutritious Economic Cooperation and Development (OECD) countries food that meets their dietary needs and food preferences for an active and healthy life,� but focuses on food security of the most vulnerable poor individuals (FAO 2002). Compared to households 2 The ending-stocks-to-use ratio is estimated as ending stocks to with more assets, poor households have fewer options for diver- domestic consumption. sifying their production activities and must spend a larger share 3 This ratio is estimated as ending stocks of major exporters to of their income on food. Large and sudden food price spikes are their domestic consumption and exports (disappearance). These dif�cult for these households to adjust to, eroding their purchas- are stocks held by major exporting countries, mainly by the pri- ing power, causing them to reduce their intake of calories and mi- vate sector that can be quickly made available to respond to new cronutrients, and pushing them further into poverty and hunger. demands. EC O N O M I C A N D S E CT OR WORK 2 CH A PTER 1 — R ENEWED ATTENTION TO FOOD GR A IN S TOC K S FIGURE 1.1: Low Inventory Periods Signal the Potential for More Volatile Prices: U.S. Real Wheat Prices, January 1990–August 2009 2.0 1.8 1.6 1.4 US$/bu, CPI deflated 1.2 1.0 0.8 0.6 0.4 5% 5% 0.2 0.0 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% stock-to-use ratio (US) Source: Ca�ero and Schmidhuber (2011), based on the storage model developed by Brian Wright. reformed their agricultural policies in order to comply with (up by 42 percent) and are projected to increase further to the Uruguay Round of the World Trade Organization and also 343 million tons in 2011/12 (up by 51 percent compared to to make them less costly to taxpayers and less distortive 2006/07), according to the U.S. Department of Agriculture to the economy. Public stocks, which were often a side- (USDA). Grain stocks increased not only in China and India, product of farm support policies, were also reformed in this the traditional holders of large public inventories, but also in process and in most cases were abolished (Mercier and von other developing countries of Asia, Africa, and the Middle Cramon-Taubadel 2012). The mountains of butter and grains East (�gure 1.2). While there are no consistent data on pri- in the European Union (EU), butter and cheese in the United vate versus public stocks worldwide,4 country-level market States, and wool in Australia, the results of price stabilization reviews and studies indicate an increase in public stocks schemes, were no longer maintained. Total ending stocks of particularly. cereals in developed countries were more than halved, from 224 million tons in 1986/87 to about 100 million tons during Many developing countries intend to continue increasing their the 1990s (�gure 1.2). public stockholding. Countries in the Middle East and North Africa (MNA), for example, plan to double their wheat reserves Most stocks in OECD countries are now held by farmers, from the current six months of domestic consumption to traders, and processors. In spite of recent concerns about about twelve months (World Bank and FAO 2012). Ethiopia is low global stocks, ongoing discussions of the new U.S. Farm considering expanding its food security stocks from 407,000 Bill and the EU’s Common Agricultural Policy do not indicate tons to 1,500,000 tons (Rashid and Lemma 2011), while that these countries will return to subsidization of public Malawi intends to increase its stock size from 60,000 tons to stockholding and price intervention policies such as those more than 100,000 tons (Faruqee 2009). India’s export bans of the 1970s and 1980s (Mercier and von Cramon-Taubadel in 2007 and 2008 have stimulated discussions in Bangladesh 2012). Thus, their stocks will remain relatively low. 4 One of the tasks of the recently established Agricultural Mar- Stocks in developing countries in contrast have been grow- ket Information System (AMIS) (a global partnership between ing, particularly since the �rst global food price spike in 2008. international organizations, including the World Bank, and the Total stocks in developing countries as a group grew from members of the G20 plus other large producing and consuming countries) is to get better data on public stocks. To obtain more 228 million tons in 2006/07 to 328 million tons in 2010/11 information on AMIS, go to www.amis-outlook.org. US ING PUBLIC FOOD GR A IN STOCK S TO ENH A NCE FOOD S EC UR ITY C H A P T E R 1 — R E N E WE D AT T E NT ION T O F OODGRAIN S TOCK S 3 FIGURE 1.2: Ending Stocks of Cereals Declined in Developed Countries While Rising in Developing Countries 500,000 developed countries 450,000 developing countries 400,000 developing countries w/o China 350,000 ending stocks, '000 tons 300,000 250,000 200,000 150,000 100,000 50,000 0 62 61 64 63 66 65 68 67 19 0/1 9 1 74 73 19 /19 5 78 77 8 79 1 84 83 19 /19 5 19 /19 7 90 89 92 91 94 93 19 6/1 5 20 /19 7 00 99 02 01 04 03 06 05 08 07 10 09 1 7 6 72 97 76 97 82 98 86 98 88 8 9 9 98 99 01 19 /19 19 /19 19 /19 19 /19 19 /19 19 /19 19 /19 19 /19 19 /19 19 /19 19 /19 20 /20 20 /20 20 /20 20 /20 20 /20 19 /1 19 0/1 19 /1 /2 60 19 Source: USDA PSD Online. Note: Cereals include maize, rice, and wheat. Developed countries include Australia, Canada, EU-27, Japan, Korea, Rep., New Zealand, Norway, Switzerland, and the United States. about increasing its rice stock level from 650,000 tons to bring food prices back down. In practical terms, farm- to 3,000,000 tons, essentially moving away from emer- ers deciding what to plant and countries deciding when to gency and safety net assistance to price stabilization policies import face less certainty in the likely distribution of world abandoned by the authorities in the 1990s (Rashid 2011). food prices and perhaps greater consequences from using Increases in regional reserves are also being considered. The past price levels and distributions to guide current decisions. Association of Southeast Asian Nations (ASEAN) has been This uncertainty keeps food prices at high levels for a longer active in strengthening its Regional Rice Reserves (ASEAN period, leading to fundamental food security risks for con- Plus Three), while the Economic Community of West African sumers and governments. States (ECOWAS), with the support of the World Food Programme (WFP), has been working to establish regional However, there is a lack of clarity about the role that stocks grain reserves for humanitarian purposes in West Africa. can play at the global level and what they can do at the na- tional level. At the global level, periods of low global ending- The desire of some developing countries to use stocks to stock-to-use ratios signal the higher likelihood for more protect them against higher food price volatility is understand- volatile food prices. Higher stock levels available for release able. Episodes of extreme price volatility are a major threat to in large exporting countries can help reduce global price vola- food security in these countries. When unpredictable, food tility. But most developing countries are price takers; while prices undermine incentives for farmers to respond to high they need to worry about global prices, they also need plans price levels with the critical increase in production needed to deal with high and volatile domestic prices. At the national EC O N O M I C A N D S E CT OR WORK 4 CH A PTER 1 — R ENEWED ATTENTION TO FOOD GR A IN S TOC K S level, public stocks can be useful in the short run. They can Although client demand for advice in this area is growing, the help mitigate the impact on prices of production shortfalls or supply of accessible materials useful for advisory purposes global price spikes transmitted to domestic markets. They is low and, in many cases, out of date. This report reviews can be released onto domestic markets until imports arrive. lessons learned from around the world, focusing on suc- Many countries, for example, released stocks onto the mar- cesses achieved and mistakes made. It attempts to identify ket as a response to the recent global food price spikes.5 But the kinds of public foodgrain stock programs that work and accumulating more public stocks alone does not guarantee those that do not. Based on this review, the report makes more stable prices and food security in general. recommendations on how to increase the impact of public stocks on food security. The important question is how to make sure public stocks present a solution to food security problems. A key element The report is structured as follows. Chapter 2 discusses eco- to consider is the purpose of the stock. There are many nomic and social gains from using public stocks and how they cases where public stocks have failed to achieve their stated have to be managed to ensure achievement of these gains. objectives and continue to place cost burdens on taxpayers Chapter 3 presents empirical evidence on the results of price and the economy (World Bank 2006). The public stock- stabilization through the use of public stocks and explains holding policies in OECD countries were reformed because why bene�ts rarely exceed costs. Chapter 4 presents empiri- their high costs outweighed the bene�ts created by more cal evidence on when public stocks produce the most ben- stable prices. Less predictable global food prices now may e�ts, which is mainly when they respond to food emergency provide a greater rationale for public stocks, but as in the situations and reach out to food vulnerable groups of the past, their success will depend on many factors, including population without distorting economic incentives. Chapter the objectives for holding stocks, their management, costs, 5 discusses how regional reserves can complement national targeting, enabling policy framework, and complementary programs. Chapter 6 summarizes good practice responses to public investments. maximize the use of public stocks to enhance food security. 5 The release of public stocks was one of the most frequent responses to the global price spikes in 2008 and 2010. Thirty- �ve out of 81 developing countries, mainly in Asia and Africa, released grain stocks at subsidized prices to protect poor con- sumers during that period (Demeke et al. 2008), yet there has been no consistent assessment of the costs and bene�ts of these interventions. US ING PUBLIC FOOD GR A IN STOCK S TO ENH A NCE FOOD S EC UR ITY C H A P T E R 2 — H O W CAN P UBL IC ST OCKS IMP ROVE FOOD S EC URITY? 5 Chapter 2: HOW CAN PUBLIC STOCKS IMPROVE FOOD SECURITY? There is general agreement that highly volatile and thus 2.1 EFFICIENCY GAINS FROM PRICE uncertain food prices and temporary problems with access to STABILIZATION affordable food can impose signi�cant economic and social Objectives of Buffer Stocks costs on society. Potential costs can be broken down into More stable prices can produce a number of ef�ciency (i) economic inef�ciency costs; and (ii) negative distributional gains.6 Stable prices can help farmers accelerate their sup- outcomes (Newbery and Stiglitz 1981). Public stocks can help ply response, for example, through better access to �nance, reduce these costs. When credit, insurance, and forward greater use of purchased inputs, and ultimately increased markets are incomplete, as is the case in most low-income investments (Dawe 2009; World Bank 2006). They can en- developing countries, public stocks can add to private stocks, courage cereal-producing farmers to diversify their cropping making food prices less sensitive to short-term shocks. They patterns to high-value crops if they could buy cereals for con- can also provide assistance during food emergencies or be sumption at more predictable prices. Stable prices may also part of social assistance programs for impoverished people. allow consumers to diversify their diets and increase their Public stocks can help mitigate a number of risks faced by intake of proteins, vitamins, and minerals, crucial for reduc- food-vulnerable people, but alternatives should also be con- ing malnutrition (Timmer 2004). sidered. As a group, the food vulnerable are at risk of (i) global In addition, price stabilization can generate economy-wide food price shocks; (ii) local supply shocks (failed harvests); gains. An accelerated supply response would bring the level (iii) income shocks (e.g., economic downturns, exchange rate of foodgrain prices down. In return, low foodgrain prices shocks); and (iv) disruptions of domestic and international effectively increase real wages for employees without in- trade (e.g., export bans imposed by other countries, natural creasing nominal wages paid in the industrial and service calamities, or logistical trade problems). The composition of sectors. In conjunction with other factors, this combination aggregate risk will vary from country to country, but most vul- of low nominal wages and high real wages stimulates job nerable households face more than one type of risk. In turn, creation and economic growth necessary for sustainable the relevance of public stocks in each country depends on the poverty alleviation. On the other hand, uncertain prices slow composition of risks prevalent and whether alternative policy farmers’ supply response, leading to longer periods of lower instruments are available to address them. For example, food production and higher foodgrain prices. When food prices deliveries from public stocks can help when harvests fail, but are rising, workers need higher wages to keep real incomes investing in trade corridors or reducing regional trade restric- from falling as they pay for more expensive food (Timmer tions can also be effective; cash transfers often work better 2004). As higher nominal wages discourage investments, than food transfers in the face of economic crises. These the end result is often a slowdown in the productivity growth alternatives and their trade-offs are considered in the report. essential for food security and poverty alleviation. This report analyzes three categories of public foodgrain The ultimate objective of public stockholding is not price stocks that can help address some of the above-mentioned stability per se, but the economic gains achieved by it. In risks. The �rst category is “buffer stocks,� which can help achieve ef�ciency gains through more stable short-term 6 Stable prices do not mean �xed prices. Full price stabilization food prices. The second category is “emergency stocks,� for agricultural products is neither achievable nor desirable. Sea- kept as a precaution against food emergencies to improve sonal and spatial price movements are natural for agriculture, as distributional outcomes. Finally, “food safety net stocks� can they are the key to fostering arbitrage and underlining storage and trade decisions. The concern is uncertain price movements, be held to strengthen social assistance for the impoverished which are dif�cult to predict and very disruptive for economic and thus can also improve distributional outcomes. decisions. EC O N O M I C A N D S E CT OR WORK 6 C H A PTER 2 — H OW CA N PUBLIC STOCK S IMPR OVE FOOD S EC UR ITY ? other words, attaining more stable prices through buffer program. Buffer stocks can distort markets because of their stocks does not automatically guarantee positive outcomes impact on prices. Stock programs are often combined with for growth and poverty alleviation, and how price stabilization insulating trade policies, which together may better achieve is achieved can determine the quality of agricultural growth price stabilization outcomes (as shown by Gouel and Jean, and eventually food security. Public stocks are most effective 2012, in a study for small developing countries), but may at mitigating short-term price fluctuations, not influencing also crowd out the private sector domestically and even longer-term prices. When stocks are used to stabilize longer- internationally due to collective action problems.8 Even with- term prices at an arti�cially high level (above the export par- out a direct monopoly on trade, buffer stock programs can ity price for net exporters, or above the import parity price eliminate incentives for private sector engagement in prof- for net importers), the long-term agricultural growth may be itable trade and storage activities when they aim either to either unachievable or of low quality (e.g., attributable more smooth out seasonal fluctuations or eliminate pan-territorial to higher use of inputs rather than to a greater ef�ciency price differences. Such programs discourage private invest- of input use or a better mix of agricultural outputs—that ment in trade logistics and private storage, increasing the is, growth in total factor productivity [TFP]). Without a con- need for the public sector to �ll the gap. If the private sector tinuous increase in output prices to match the rising input is eventually crowded out of grain supply chains, long-term prices on international markets,7 such growth is usually short TFP growth is much more costly and dif�cult to achieve, and lived, while the burden on the budget, the economy, and public outlays quickly escalate. poor consumers is enormous. On the other hand, if public stocks seek to smooth out short-term fluctuations but permit Thus, foodgrain price stabilization programs need to be care- domestic prices to follow the world market trend, agricul- fully designed to support long-term agricultural growth by tural growth will be driven by (i) higher ef�ciency of input reducing short-term price volatility without distorting long- use, and (ii) shifts from production of lower-value outputs to term prices. Even when stabilization programs are designed higher-value outputs, resulting in higher farm incomes and a well, empirical studies have found that ef�ciency gains from continued supply response (Fuglie 2009). In this case, public price stabilization tend to be small (box 2.1), pointing to the stocks would make a positive contribution to food security limitations of achieving short-term price stability without and poverty alleviation. complementary investments in raising agricultural productiv- ity. Investments in agricultural research, extension, irrigation, Ef�ciency gains from price stabilization also hinge on �scal sustainable land management, rural infrastructure, and other costs. Maintaining stocks is expensive, especially in coun- programs are needed to influence the rate of agricultural TFP tries with high interest rates, posing a recurrent expense growth (WDR 2007; World Bank 2012b). Keeping budget on national budgets. Costs tend to be higher when multiple allocations to buffer stocks under control will create �scal and unclear objectives are pursued, particularly when buffer space for these long-term investments, while the increase in stocks are used to support farmers and consumers at the agricultural TFP will not only permit farmers to remain pro�t- same time. Poor targeting of food transfers also increases able at lower food prices, but will also speed up structural costs. Large �scal costs can crowd out spending on other transformation and poverty alleviation. public goods, especially in poor countries, thus impairing their long-term economic growth. The mere existence of stocks Some policy alternatives to buffer stocks can achieve similar and relatively stable prices does not necessarily induce long- outcomes, and they need to be considered before investing term agricultural growth if the �scal costs of keeping public in storage programs. Investments in regional trade corridors stocks are high. and elimination of trade restrictions can facilitate the flow of food from surplus to de�cit areas, reducing short-term food Achievement of ef�ciency gains also depends on whether price volatility. Simulations of the impact of maize produc- the private sector is crowded in or out by a price stabilization tion shortfalls on food prices in Southern Africa, conducted 7 Although there is considerable uncertainty about future energy 8 A collective action problem occurs when trade measures used prices, there is little doubt that energy prices will be higher than in to stabilize domestic prices are ineffective when used by all the past 20years and that this will increase agricultural production countries at the same time, as this magni�es the international costs, requiring a continuous increase in output prices to maintain price instability associated with exogenous shocks to food mar- constant terms of trade for farmers. On the other hand, higher kets. This happened in 2008, when insulating trade policies energy prices will also increase demand for agricultural commodi- used simultaneously by many countries resulted in a 45 percent ties to produce biofuels, pushing output prices up. The net result increase in international rice prices and a 30 percent increase will depend on commodity- and country-speci�c circumstances. in international wheat prices (Martin and Anderson 2011). US ING PUBLIC FOOD GR A IN STOCK S TO ENH A NCE FOOD S EC UR ITY C H A P T E R 2 — H O W CAN P UBL IC ST OCKS IMP ROVE FOOD S EC URITY? 7 BOX 2.1: Empirical Estimates of Gains from Food Price Stabilization Most studies have concluded that the ef�ciency gains and consumers gain little and even lose. While the from agricultural commodity price stabilization are gen- multicommodity integrated framework is superior to erally quite small when measured as a proportion of one-commodity estimates, it is dif�cult to imagine full household incomes. They have also concluded that the price stabilization of one or two staple crops, much less gains are higher (i) for risk-averse households, (ii) for seven of them. Investment in rural infrastructure to re- large net sellers, (iii) when stabilizing prices of staple duce the gap between export and import parity prices crops that tend to be more volatile than export crops, and promotion of trade is a necessary and more ef�- (iv) when stabilizing a bundle of multiple products rather cient way to achieve multiple crop price stabilizations, than a single commodity, and (v) in countries where not public stocks. foodgrains account for a large share of gross domestic The vast majority of quantitative estimates of price sta- product and consumers’ spending. bilization have focused on export crops that typically The �rst estimate of stabilization gains was undertak- make up a very small proportion of domestic consumer en by Newbery and Stiglitz (1981) who found the gains expenditures, such as coffee, cocoa, cotton, jute, rub- to farmers from complete price stabilization range ber, and wool. Studies of food crops are rare, though from 0 to 3 percent of household income, depending gains from the price stabilization of these crops are on assumptions of risk aversion. Srinivasan and Jha expected to be higher, given their higher price volatility, (2001) made similar estimates for the Indian economy particularly in Africa, and their high share in household as did Islam and Thomas (1996) for �ve Asian econo- expenditures (World Bank 2006). mies, and also found that the static gains to price sta- bilization were quite small, at about 1.5 to 3.5 percent It is important to note that the economic gains of stabi- of farm income. More recently, Myers (2006) applied lization are diminishing as foodgrains become a smaller the same model but distinguished between poor and proportion of value added in developing economies and affluent producers. Depending on the risk aversion of as a share of household expenditures. An econometric each group, affluent producers were estimated to gain assessment of the 25-year period from 1970 to 1995 the most from more stable prices (adding 9 percent in Indonesia showed that rice price stabilization efforts to their income), while poor producers gained less paid very high dividends in fostering economic growth (3 percent) because their sales were a smaller share in the �rst two �ve-year plans, apart from the additional of income. Bellemare et al. (2011) analyzed the impact bene�t provided by enhanced political stability (Timmer of price stabilization in a multicommodity framework in 1996, 2004). By the mid-1990s, however, as the share Ethiopia and found that farmers who have big surplus- of rice in value added and the consumption basket de- es can gain from 6 to 32 percent of household income clined, bene�ts from market interventions diminished, from the stabilization of prices of seven commodities, requiring a much more market-oriented rice policy in depending on risk aversion assumptions and whether Indonesia to bring about new ef�ciency gains. they produce coffee. At the same time, poorer farmers Source: Authors. by the World Bank (2008), illustrate that a 30 percent pro- How to Achieve the Objectives duction shortfall would increase maize prices in Zambia by Different strategies for managing stocks have differential im- 163 percent without cross-border trade; but when cross- pacts on resource allocation, investment, and consumption, border trade is permitted, local prices would increase only by and thus on ef�ciency gains. The transparent management of 36 percent. In Malawi, a 20 percent production shortfall buffer stocks is a challenging task. The use of buffer stocks would result in maize prices spiking up by 62 percent is often a political issue, making them a risky investment when trade with northern Mozambique is banned, and by in terms of their potential to generate economic bene�ts. 27 percent when cross-border trade takes place. Thus, the Transparency and the predictability of operational decisions effects of alternative or complementary policies should be regarding buffer stocks are therefore essential. Operational considered before making investments in buffer stocks. and technical decisions include, but are not limited to, which EC O N O M I C A N D S E CT OR WORK 8 C H A PTER 2 — H OW CA N PUBLIC STOCK S IMPR OVE FOOD S EC UR ITY ? mechanisms to use to monitor market conditions, the size permitting the private sector to participate pro�tably and composition of stocks, the locations of warehouses in storage and trade within a wide range of prices. and buying stations, the price band for buying and selling, 2. A narrower price band at best would require costly procurement and distribution rules, the rotation schedule, large annual purchases during the harvest season communication strategies, and how to �nance the reserve.9 when prices are lowest and large annual sales during All of these are important ingredients if buffer stocks are to the off-season when prices are highest. This ap- achieve their stated objectives in a cost-ef�cient manner; proach would reduce both interannual and seasonal some of them are discussed here. fluctuations in food prices, making seasonal storage of grain less pro�table; the private sector would The institutional framework for managing stocks matters. likely withdraw from seasonal storage, necessitating Public stocks should be managed with a level of autonomy greater public storage to maintain a given level of total similar to that of central banks, within a framework of clear storage. If the price ceiling is set too low, the buffer and well-de�ned objectives and implementation arrange- stock will be sold more often than bought, so that ments. There is no need to build a bureaucracy around tech- eventually public stocks would be exhausted, making nical decisions. Clear triggers for market interventions and it impossible to impose a price ceiling (Wright 2009). stock releases should be used to avoid market disruptions 3. At the extreme, all price instability could be eliminat- and politicization of stock management. Staff with skills ap- ed by setting the buying and selling prices arbitrarily propriate for managing stocks and keeping accurate records close to each other. This would almost certainly of stock movements should be mobilized or recruited. An be infeasible from both the cost and management incentive structure to retain them and ensure a high standard points of view, as the buffer stock would be forced of performance should be adopted.10 to purchase or sell a large share of annual production. An important technical dimension of buffer stock rules is the Furthermore, complete stabilization is undesirable price band for buying and selling stocks. Not all stocking pro- from an economic point of view, because seasonal grams use predetermined price bands for market decisions, and spatial price variations help farmers and consum- but when they do, it is important to consider the following ers respond to surpluses and de�cits, thus bringing implications: the market to equilibrium. 1. A price band set to match the gap between export The level at which the price band is set matters a lot. If a and import parity prices, which is often quite wide in price floor is set arti�cially high (e.g., above the import parity the poorer developing countries, would limit pur- level), farmers will gain in the short run but lose in the long chases or sales to cases of serious shortages or large run, especially if little is done to raise productivity and reduce surpluses. Most importantly, it would require little or production costs. Consumers will lose in any case, as they no government intervention if the price parities are will pay higher prices, compromising their food security. If a allowed to pass through to markets. The role of price floor is set arti�cially low (e.g., below the export parity stocks in such a case is primarily to hedge against level), farmers will under-produce, thereby providing consum- the time it takes importers to import or exporters to ers with less food. Arti�cially lowering food prices requires export grain. Cost and storage requirements would huge subsidies and has rarely been successful over the long be relatively small, and the degree of price stabili- run. The deadweight losses from enforcing large deviations zation beyond that provided by international trade between domestic and reference world market prices in- would also be modest. Stocks in this case would crease with the square of the deviation, so large deviations basically speed up the influence of trade on domes- hurt more than small ones (Dawe 2009; Timmer 2004). At a tic prices by �lling any gap from the time it takes minimum, if prices are stabilized through buffer stocks, it is to move grain internationally. Such a band would essential to maintain long-term domestic prices along inter- also likely leave seasonal cycles largely unaffected, national market trends. Even so, history suggests that the effort will not be sustainable over time (see chapter 3). 9 Lynton-Evans (1997) provides good operational guidance on the Another important dimension of buffer stock management establishment of strategic grain reserves in the context of Sub- is the rules of replenishment. When stocks are replenished Saharan Africa. 10 See more details in Minot (2011), a background paper prepared through open tenders, all market players can participate and for this report. bene�t from this additional sale channel. Open tenders also US ING PUBLIC FOOD GR A IN STOCK S TO ENH A NCE FOOD S EC UR ITY C H A P T E R 2 — H O W CAN P UBL IC ST OCKS IMP ROVE FOOD S EC URITY? 9 offer an opportunity to procure grain at competitive market (GMR 2012). Supporting these people with more affordable prices, reducing the cost to the treasury and permitting the food is an important public policy task. private sector to operate pro�tably. In contrast, if all buying Public foodgrain stocks are one option for helping the poor and selling depots use the same administratively determined at times of food insecurity. Support via stocks can be pro- pan-territorial price, the incentives for private traders to move vided with or without affecting food prices. As discussed in grain from one location to another will be reduced or elimi- section 2.1, setting prices arti�cially low to redistribute nated. Depots in surplus zones will pay above-market prices income from producers to consumers is not a �scally and and will be forced to purchase the entire surplus. Meanwhile, economically feasible strategy. When prices are low, produc- in de�cit zones, depots will sell at below-market prices and ers tend to produce less, making it very expensive to keep will be forced to supply large quantities of grain. The buffer prices low in the long run. Stabilizing food prices at a high stock will essentially become a grain marketing parastatal, level, the most frequent outcome of existing price stabiliza- responsible for all grain transport from surplus to de�cit zones. tion schemes (see chapter 3), explicitly taxes the poor net Furthermore, this transport will be done at a loss, as the price consumers and thus cannot be considered a good social difference will be less than the cost of transportation. policy except in rare cases when most of the poor net con- The number of buying and selling depots throughout the sumers are also net producers of food.11 The smartest way country affects costs. If the buffer stock has just one buying to achieve distributional outcomes is to have cost-ef�cient and selling depot, the effectiveness of the price stabilization transfer programs that are food or cash based, depending will decline with distance from the depot. More speci�cally, on circumstances, and that target the neediest groups of the the effective price floor will decline with distance from the population, without distorting food prices. depot at a rate determined by the cost of transportation, Well-targeted reserves can offer a real alternative to export while the effective price ceiling will rise with distance from bans. Reserves can be used to protect the poor while allow- the depot at the same rate. A large number of buying and ing price signals to be transmitted to producers. In contrast, selling depots will provide price stabilization to a larger share export bans and other trade restrictions are a blunt subsidy of the population, but at a higher cost. to consumers, both poor and rich, at the expense of many The mechanism for the release of grains is also important. poor farmers. Farmers forego the opportunity to bene�t The release mechanism needs to be designed carefully to from higher output prices when export restrictions are put ensure that the impact on prices is substantial and that the in place, which in turn slows their supply response. Small quantities released are adequate. Just having public stocks reserves targeted to the poor are a much better solution in does not guarantee that they will be released when food times of crises. prices are high; in other words, public stocks can often be Public stocks designed as a precaution against food emer- illiquid. In some cases, releases are late due to political de- gencies (i.e., as emergency reserves) are intended to provide cision-making processes or noncompliance with the release a �rst line of defense. In designing emergency reserves, rules; in others, the release mechanism is designed such that governments have to consider the kinds of disasters they grains cannot be disbursed quickly enough to affect prices, are likely to face and whether food transfers are the best as when grain is sold to a small number of millers or traders, option to help the poor. In Sub-Saharan Africa (SSA), for or when too little stock is released. example, food emergencies typically result from drought, although floods have also become more common. Droughts cause enormous damage but can be anticipated, giving 2.2 DISTRIBUTIONAL GAINS governments time to look for alternatives to cover shortfalls Objectives of Emergency and Food Safety Net Stocks (Lynton-Evans 1997; Murphy 2009; NEPAD 2004). The lead The poor are the most vulnerable to food price instability. time allows governments to make a reasonable estimate of Compared to households with more assets, poor households how much additional food might be needed, providing a basis have fewer options for diversifying their production activi- for decisions regarding the size of the reserve, and allowing ties and must spend a larger share of their income on food. planning of�cials to better manage costs. Delivery of food Large and sudden food price spikes are dif�cult for these households to adjust to, eroding their purchasing power, 11 In most countries around the world, including those with low causing them to reduce their intake of calories and micro- incomes, the number of net poor consumers always exceeds nutrients, and pushing them further into poverty and hunger the number of net poor producers (WDR 2007). EC O N O M I C A N D S E CT OR WORK 10 C H A PTER 2 — H OW CA N PUBLIC STOCK S IMPR OVE FOOD S EC UR ITY ? transfers can be outsourced to the private sector, including expanding their access to �nancial services, communica- nongovernmental organizations (NGOs). Because grain re- tions, and more productive livelihoods. Households have bet- serves are expensive, it is not cost-effective to hold stocks ter information than policymakers about what they need, and that are never used. Thus, a variable reserve that adjusts its cash payments harness that information more effectively stocks year to year based on updated needs assessments is than in-kind transfers. Cash provides households with the more effective. Such a system relies on accurate and timely flexibility to allocate resources to their most critical needs. food security information. An emergency reserve system that Finally, cash transfers may stimulate local economies and includes these elements is likely to satisfy the preconditions provide a multiplier impact with broader bene�ts than those for ef�cient use of physical reserves (see chapters 4 and 6). generated by food transfers (Gentilini 2007). An emergency food reserve is essentially used for hu- In most cases, cash transfers appear to be superior in terms manitarian purposes and is therefore liable to incur �nancial of ef�cient achievement of objectives to any in-kind trans- losses. As such, governments must be prepared to provide fers in safety net programs. The Independent Evaluation the necessary �nancial support to enable reserves to sustain Group’s review of 71 safety net projects supported by the their activities. Accuracy and timeliness of information on World Bank found that projects that supported conditional market developments, on the one hand, and on vulnerable cash transfers achieved their objectives more consistently population for better and quick targeting during emergen- than projects that supported other safety net instruments cies, on the other, are important to adjust stock size to the (table 2.1). Projects supporting in-kind transfers, including real needs and contain costs as mentioned above. Strong food transfers, were among the lowest performing program oversight and clear rules and procedures (e.g., operational type. manuals) can also help minimize costs. But a sustained Cash-based safety nets have also become more appealing commitment to �nance reserves is absolutely necessary to due to agricultural policy reforms in developed countries. maintain con�dence in the ability to provide timely humani- In the past, agricultural policies in the OECD countries cre- tarian response. ated large surpluses of agricultural products that led to high In addition to responding to emergency situations, public levels of grain stocks. These public stocks were accessible stocks can help strengthen social assistance to the desti- for food aid programs in developing countries, for which the tute and impoverished. This type of redistributive reserves equivalent �nancial resources for cash-based safety nets is often called food safety net reserves. In many develop- would not necessarily have been available. For example, the ing countries, a signi�cant portion of the population cannot U.S.’s Food for Peace resources and the EU’s Stabilization meet even their most basic needs without help. Safety net of Export Earnings Program made it possible for develop- reserves can transfer food to food-insecure households and ing countries to receive physical stocks for emergency and individuals, in parallel with other forms of assistance. safety net purposes and often allowed domestic sales re- ceipts to �nance other development activities. Elimination of the mountains of public stocks as discussed in chapter 1, How to Achieve the Objectives The �rst question to be answered is whether a food transfer program is even appropriate compared to a cash transfer. Cash transfers have two main bene�ts over food transfers. TABLE 2.1: Projects with Cash Transfers Are More First, they are less costly to distribute than physical commod- Consistent in Achieving Objectives than ities, and second, household welfare is increased via greater Those with In-Kind Transfers flexibility in allocating resources (i.e., consumer sovereignty). PROJECTS SUPPORTING SAFETY SUBSTANTIAL OR HIGHER Program designers can take advantage of electronic cash NETS INSTRUMENTS EFFICACY RATING (%) transactions that reduce both costs and the opportunities for Conditional cash transfers 77 corruption; physical control over food is often more expen- Education and health subsidies 76 sive and more dif�cult to audit, so corruption and leakage Public work programs 70 problems tend to be greater (Alderman 2011). Multiple levels of physical transfer required for food distribution increase the Unconditional cash transfers 65 opportunities for misappropriation, while innovations in cash In-kind transfers 54 transfer delivery systems have created more developmental Energy, water, and housing subsidies 40 opportunities for participants in social transfer programs, Source: IEG (2011). US ING PUBLIC FOOD GR A IN STOCK S TO ENH A NCE FOOD S EC UR ITY C H A P T E R 2 — H O W CAN P UBL IC ST OCKS IMP ROVE FOOD S EC URITY? 11 combined with donor countries’ changes to related food aid in chapter 4 for the empirical evidence). Such programs are rules,12 have forced developing countries to seek other op- characterized by high administrative and overall �scal costs, erating modalities for managing their domestic reserves for and a high degree of leakage (Basu 2010; Dawe et al. 2011; emergency and safety net purposes. Shepherd 2011). Universal food subsidy programs, there- fore, should be avoided. The recent move by the Philippines However, under certain circumstances, food transfers are to cease subsidized food distribution and use conditional preferable to cash transfers. In many remote areas, banking cash transfers instead seems to be a recognition both of the systems are not in place, and security risks may be too high failure of the subsidized food program in this regard, and of to transport and distribute cash safely. In a country faced the relative success of targeted cash transfers in other parts with severe market failures (caused by conflict, drought, or of the world, particularly in Latin America.14 some other disruption of the market), particularly with re- spect to food, food transfers bolster food supply, at least in Other programs ensure better poverty targeting. Supple- the short run. Particularly under circumstances of food price mentary feeding programs, including maternal and child inflation and severe food shortages, when currency value health feeding and school feeding, provide a direct transfer is eroding rapidly, and there is little available in the market, of food to target households or individuals. Their impacts are direct delivery of food can provide an effective emergency higher when food is forti�ed or combined with vitamins to response (Alderman 2011; Sabates-Wheeler and Devereux improve nutritional outcomes. Food may be prepared and 2010). Food transfers are usually more politically acceptable eaten onsite (e.g., in child feeding centers or school pro- than cash transfers in these cases. Moreover, if the objective grams) or given as a “dry ration� to take home. Even when is to improve the nutrition and health status of a target group, targeted to individuals (e.g., children and pregnant or lactat- then direct transfers of forti�ed and more nutritious food are ing mothers), supplementary food is often shared among perhaps more effective than cash transfers.13 household members. In the case of onsite feeding, the meal eaten onsite may be substituted for a home-prepared meal. The effectiveness of food transfers in alleviating poverty Supplementary feeding is often provided conditional on depends on how good the program is at both identifying participation in other public services such as primary health poor households and ensuring that transfers are delivered care (pre- and postnatal and well-baby care) and education. at low administrative cost. Targeting is the key to covering Food-for-work programs provide wages in the form of food. as many needy as possible and minimizing leakages to the Because they provide a source of guaranteed employment, nonpoor (Coady et al. 2008; de la Briere 2011). Designing and they constitute a true safety net, but only households with implementing a transfer program require that some budget able-bodied members can bene�t. Effective food-for-work resources be devoted to these activities, thereby reducing programs can build physical infrastructure that contributes to the budget available for program bene�ciaries. But allocat- long-term food security (Yemtsov 2011). ing resources to improving the design and implementation of a transfer program increases the likelihood of reaching the Where feasible, national reserves can be complemented by right bene�ciaries. community-level stocks. Community cereal banks have a va- riety of forms and numerous purposes, including improving Food transfer programs differ in terms of targeting ef�ciency. the food supply over the agricultural cycle, providing a locally Subsidized food distributed through retailers (as is done in based, in-kind savings and loan facility, or maintaining a local India, the Philippines until 2010, and some MNA countries) or emergency food stock. Cereal banks became popular in the directly to bene�ciaries through village administrators (as in 1970s, following a series of droughts in Sahelian countries, Indonesia) is rarely an ef�cient targeting strategy (see box 4.1 and are still operating in West Africa, mostly with the support of development agencies. Such projects are worth support- 12 Australia, Canada, and the EU have relaxed their domestic food ing as they can complement national-level stocks, but atten- aid procurement rules and moved toward more cash-based pro- tion needs to be paid to their management and sustainability, gramming. More than half of the food aid provided by Australia and Canada is purchased locally by the World Food Programme given their high historical rate of failure (documented by the (WDR 2007). Catholic Relief Services, 1998, and the World Bank et al., 13 Food forti�cation refers to the addition of micronutrients to pro- cessed food and is considered to be a valid technology to re- duce malnutrition when people cannot consume a balanced diet 14 Philippines’s Conditional Cash Transfer Program expanded to adequate in every nutrient. Food forti�cation has a long history in provide essential support to 2.3 million families (or 4.2 million developed countries (e.g., for the successful control of de�cien- people) at the end of 2011, from 6,000 households in February cies in vitamins A and D, iodine, and iron). 2008. EC O N O M I C A N D S E CT OR WORK 12 C H A PTER 2 — H OW CA N PUBLIC STOCK S IMPR OVE FOOD S EC UR ITY ? 2011). The most frequent problems with community cereal With so many good things properly managed and targeted banks include (i) high losses when competing with commer- public stocks can do, it is still important to remember that cial traders due to overestimation of pro�t margins and un- they can help eradicate only some of the negative impacts derestimation of costs; (ii) high defaults on loans of grain to of price spikes. Given the large number of poor people, and local community members; (iii) stock management problems, frequent and high price fluctuations in developing countries, including postharvest losses; (iv) poor understanding of com- raising agricultural productivity and diversifying their income munity ownership; and (v) effectively reaching target bene�- and employment are needed to increase the income of the ciaries. Thus, in the context of emergency relief and safety poor (Krandker et al. 2011). Safety nets and emergency nets, cereal banks can play an important role in supplying reserves can be viewed as a short-term �x to reduce the food on favorable terms, but they require signi�cant resource severity of food deprivation, but the longer-term solution still investment and continuous support to the communities. rests on promoting the income and productivity of the poor. US ING PUBLIC FOOD GR A IN STOCK S TO ENH A NCE FOOD S EC UR ITY C H A P T E R 3 — E M P IRICAL E VIDE NCE ON USING ST OCK S FOR PRICE STA BILIZATION 13 Chapter 3: EMPIRICAL EVIDENCE ON USING STOCKS FOR PRICE STABILIZATION A number of developing countries have used buffer stocks include (a) a multiplicity and lack of clarity of objectives; and for price stabilization over the years. In Asia, the focus (b) �scal costs that rise to unsustainable levels, crowding out has been on stabilizing the price of rice (e.g., China, India, other agricultural investments. Other causes of failure are Indonesia, and the Philippines) and wheat (e.g., India and less obvious. They are indirect and invisible but are essential Pakistan). Eastern and Southern Africa have focused on for understanding the reasons for the low value for money white maize prices (e.g., Kenya, Malawi, and Zambia), while from investing in buffer stocks. They include (c) the costs stabilization of wheat prices has been the focus in many of stabilization achieved at high price levels, (d) the failure MNA countries.15 Most countries that use buffer stocks to bring down price volatility despite large expenditures on are regular net importers, but in Africa there are examples buffer stocks, and (e) crowding out of the private sector. of irregular net importers also trying this (e.g., Malawi and Governments in many OECD countries abolished their buf- Zambia), posing additional challenges to stabilizing domestic fer stock programs and price stabilization schemes in the prices. Large countries such as China and India are another 1990s and 2000s for many of these same reasons. Empirical exception to the net importer rule; they are self-suf�cient in evidence below is presented along this list of main failures. rice and wheat, and justify the use of buffer foodgrain stocks by their large size and the high risk that this would entail if they were to use world markets to import if the need arose. 3.1 A MULTIPLICITY AND LACK OF CLARITY OF OBJECTIVES OF PUBLIC STOCKS This chapter reviews lessons learned from the management LEAD TO FAILURES of buffer stocks in selected developing countries where in- Many established food reserves attempt to cover too many formation is available. While there is no consistent informa- conflicting objectives. The underlying aim of maintaining price tion on buffer stocks worldwide, there are several countries stability at levels affordable for urban populations has often in SSA and Asia with a long history of managing reserves for been confused with the objectives of meeting urgent food which information is available. In SSA, the lessons learned needs arising from emergency situations and addressing the cover Kenya, Malawi, and Zambia (Chapoto and Jayne 2009; needs of populations suffering from chronic food insecurity. Jayne et al. 2008; Minot 2011; World Bank 2012a). In Asia, the This has led to complex management structures with over- lessons are taken from India, Indonesia, and the Philippines lapping and sometimes contradictory policy priorities, often (Basu 2010; Dorosh 2009; Shepherd 2011; Timmer 2004; resulting in inef�cient and inappropriate use of resources. World Bank 2007). Some lessons are also available for MNA countries (Larson et al. 2012; World Bank 2011). Clarity of objectives is even more muted when buffer stocks seek to provide price incentives to farmers and urban consum- If buffer stock programs are judged by how well they have ers simultaneously. Enforcing pan-territorial prices, which many followed the rules described in chapter 2, there are no clear governments tried to do in the 1970s and 1980s (and some success stories. Public stocks have rarely been managed even in the recent years), not only increases budget costs as- in a way where resulting gains exceeded the cost of inter- sociated with paying for the gap between buying expensive ventions. The causes of some failures are well known and grain in remote areas and selling it cheaply in urban areas, but it also promotes monoculture farming, limits agricultural diver- si�cation, and crowds out private sector jobs in rural areas. 15 Buffer stocks are rarely, if at all, used in Latin America and Carib- bean or Europe and Central Asia, two of the World Bank’s six re- In Zambia, attempts to support small holders and urban con- gions. They were used in the EU in the past but were abolished during the series of reforms of the Common Agricultural Policy sumers simultaneously (even during two recent, consecutive that started in the mid-1990s. bumper harvests) led to signi�cant market distortions and EC O N O M I C A N D S E CT OR WORK 14 CHAP T ER 3 — EMPIRICA L EVID ENC E ON USING S TOCK S FOR PRICE STAB ILIZATION large �scal costs but had little impact on poverty. In 2010 A similar problem with unclear triggers and intervention ob- and 2011, Zambia’s Food Reserve Agency (FRA) bought the jectives exists in the Philippines. Its National Food Authority total maize surplus of about 2 million tons at import parity (NFA), the public agency tasked with managing public stocks, prices. Neither the FRA nor private traders could export to has until recently pursued a “buy high, sell low, and store neighboring Zimbabwe or the DRC because domestic maize long� policy, trying simultaneously to (i) promote self-suf�- prices were about $100 above the export parity (World Bank ciency through high paddy prices; (ii) improve access of the 2012a). To make things worse, consumers only partially ben- poor to affordable rice through its low prices; and (iii) have e�ted from the bumper harvests. Local food prices remained suf�cient stocks to release in an emergency. These conflict- high because the FRA was able to sell only a small portion of ing objectives not only inflate �scal costs but also increase its stocks, mainly through direct sales to several large mills uncertainty for market agents regarding the speci�c objec- that were slow to reduce maize prices for consumers. In tive to be achieved during certain times. In the end, this un- February 2012, the FRA still had about 1.3 million tons of certainty results in higher prices paid by consumers and little stock and was unable to �nd buyers, while domestic prices bene�t to producers (e.g., see the analysis of impact of high remained well above export parity. The overall outcome is output prices on farm pro�ts in section 3.3). little impact, at large cost, on the 60 percent of the popula- tion in Zambia that still live below the poverty line. 3.2 FISCAL COSTS TOO FREQUENTLY ESCALATE TO UNSUSTAINABLE LEVEL When food self-suf�ciency policies prevent timely food im- ports, implementation arrangements and triggers for buying Buffer stocks are expensive. They are a recurrent expendi- and selling stocks are often compromised. In Indonesia, ture for national budgets. The cost of holding grain stocks can despite the existence of quantitative triggers for imports,16 be as high as 15 to 20 percent of the value of the stock per uncertainty exists about importing rice for both government year (Action Aid 2011). Raising producer prices above market market interventions and for its safety net program, the levels and lowering consumer prices below market levels Berasuntuk Rakyat Miskin (RASKIN). The decision to import adds to �scal costs, especially in poor countries. These costs is made by the president on advice from the cabinet, often can crowd out spending on public goods, thus impairing the a long process. Because the government promotes self-suf- long-term growth of the economy. The high �scal costs of �ciency, some policy makers are reluctant to admit that any buffer stocks have opportunity costs in terms of growth that imports are required, so import requests to the public agency may offset the bene�ts of stable prices. tasked with managing public stocks (Badan Urusan Logistik As a general rule, the greater the number of objectives a re- [BULOG]) are delayed, even when the domestic market price serve has, the larger its size will need to be, and thus more clearly signals the need for imports (Shepherd 2011). It can �nancial resources will be required. Governments therefore be months before the Department of Trade grants approval, have to balance the additional bene�ts that can be obtained and before Indonesia signs an MOU for government-to- from broadening the role of the reserve with the additional government transactions with Thailand or Vietnam. Delayed costs, including the cost of capital invested in stocks. In gen- approval in 2010, for example, caused domestic prices in eral, �scal costs increase with the size of the reserve, higher Indonesia to rise signi�cantly (Shepherd 2011). Therefore, procurement prices, more aggressive replenishment rates, and mixed policy objectives can create uncertainty about the use lower release prices. Total �scal costs ranged from 0.5 percent of triggers, the timing of imports, and stock releases, sub- of Gross Domestic Product (GDP) in Indonesia to 1.5 percent stantially reducing the economic rates of return from invest- of GDP in India and 1.9 percent of GDP in Zambia in recent ing in foodgrain stocks. years, the highest being in countries where higher procure- ment prices were not matched by higher sales prices. 16 Badan Urusan Logistik (BULOG) has three triggers to alert the These opportunity costs are not small. Table 3.1 illustrates need for imports. The �rst trigger is when the marketing mar- gin goes above 25 percent, compared with the target margin of that spending on stocking programs is often about the same 17 percent. The second is when production levels are 10 percent or even exceeds spending on agricultural research and other under forecast levels, though this trigger is constrained by inad- agricultural programs, which are fundamental to increasing equate information. The third, and perhaps most important, is when the level of stocks goes below 1.5 million tons. This �gure long-term agricultural TFP in these countries. In other words, has not changed since the 1990s and has not been updated to high spending on public stocks does not leave much budget reflect either increases in population or the growing Berasuntuk Rakyat Miskin (RASKIN) distribution commitment, though there space for the long-term investments that are absolutely nec- are plans to increase the minimum to 2 million tons. essary to improve the food security of vulnerable populations. US ING PUBLIC FOOD GR A IN STOCK S TO ENH A NCE FOOD S EC UR ITY C H A P T E R 3 — E M P IRICAL E VIDE NCE ON USING ST OCK S FOR PRICE STA BILIZATION 15 TABLE 3.1: Public Spending on Stocks Has Often Been Larger than on Agriculture and Research SPENDING ON SPENDING ON SPENDING ON AGRICULTURAL PUBLIC STOCK PROGRAMS AGRICULTURE RESEARCH AND DEVELOPMENT (R&D) COUNTRY (% OF GDP) (% OF GDP EXCLUDING [A]) (% OF GDP) [A] [B] [C] India 1.0% (2004/05) to 1.5% (2008/09) 1.2% (2008/09) 0.06% (2008/09) Indonesia 0.5% (2008–10) 0.8% (2008) 0.05% (2003) Philippines 0.4% (2005/06) to 1.0% (2009) 0.8% (2005) 0.06% (2002) Zambia 0.3% (2009) to 1.9% (2011) 0.6% (2010) 0.15% (2010) Source: Data on public expenditure on public stocks [A] for India are from Rhee (2011), Dawe et al. (2011), and government statistics; for Indonesia from Rhee (2011); for the Philippines from the World Bank (2007) and Rhee (2011); and for Zambia from IMF and Nkonde et al. (2011). Spending on agriculture [B] is from World Bank country reports and government statistics. Spending on agricultural research and development [C] is from Pardey et al. (2006) and World Bank country reports. An important determinant of �scal costs is the size of stocks. without necessarily weakening the impact of stocks on price The annual costs of storing and handling one ton of cereals volatility. range from $21 in Egypt and Bangladesh, $33 in Ethiopia, The cost of the program also depends on decisions about the and $42 to $44 in Tunisia, Qatar, and Indonesia, to $49 speed of replenishment. A more aggressive purchase strat- in Malawi and $75 in Zambia (Cummings et al. 2006; egy tends to increase budget costs. The simulated annual Rashid and Lemma 2011; Rohrbach et al. 2010; Shepherd costs of keeping strategic grain reserves in MNA countries 2011; World Bank and FAO 2012).17 In Malawi, a compari- for the storage target of �ve months can vary from $827 son of the operational costs of holding different levels of million at a 10 percent build-up rate to $1,172 million at a stocks showed that doubling reserves from their actual 50 percent build-up rate (�gure 3.1). An aggressive buying level of 60,000 tons would have increased operational costs strategy means that, on average, more replacement stocks by more than four times during 1988 to 2008, due to the are purchased during high price periods, driving up program need to carry over stock during years of surplus production costs. Buying more when prices are low and buying less and due to the high economic costs of rotation (Faruqee when prices are high is an effective way of controlling the 2009). cost of storage programs.18 The longer stocks are kept, the larger the �scal costs. In The total costs of buffer stocks include not only storage Malawi and Zambia, maize stocks are often kept for more costs but many other cost elements that are often invisible than a year without rotation. Larger stockholdings can help to the public. In Zambia, storage costs accounted for only reduce volatility but often only to a point, after which in- 18 percent of the total �scal bill in 2011/12 (table 3.3). The creasing reserves does little. Larson et al. (2012) simulated most important cost element was a subsidy to �nance the the impact of different stock accumulation rates on price difference between high prices paid to farmers and low pric- volatility and budget expenses in MNA countries and found a es for urban consumers. Transport costs for moving procured large trade-off between �scal costs and the impact of larger maize to silos cost 16 percent of the bill, while �nancing costs stocks on price volatility (table 3.2). After a certain point, and bagging and re-bagging costs added another 18 percent. the cost of building additional inventories greatly exceeds the Overall in 2011/12, stockholding operations in Zambia were rate of decline in price volatility. The increase of stock size estimated to account for 8 percent of the total budget and from �ve to six, seven, or more months of consumption rais- 1.9 percent of GDP, without accounting for physical and qual- es the budget costs signi�cantly, while having little impact ity losses. This amount equaled total road investments in the on price volatility. These simulations show that the cost of country and was much higher than Zambia’s public spending building up stocks increases rapidly and that programs based on rural electri�cation, water, sanitation, and social programs on smaller stock levels are much cheaper to implement, combined (World Bank 2012a). 17 Note that these costs do not necessarily include the same 18 Note that for MNA countries, which rely on imports to build their expenses in all countries, which may cover handling, storage, stocks, it may be easier to follow the “buy low, sell high� strat- fumigation, insurance, labor costs, and opportunity costs of tight egy, whereas for African countries, seasonal fluctuations make it capital. more dif�cult to forecast prices. EC O N O M I C A N D S E CT OR WORK 16 CHAP T ER 3 — EMPIRICA L EVID ENC E ON USING S TOCK S FOR PRICE STAB ILIZATION TABLE 3.2: Smaller Reserves Are Cheaper and Suf�cient to Achieve Price Stability MARGINAL CHANGE OF MARGINAL CHANGE COSTS COMPARED TO OF COEFFICIENT OF MONTHS OF STORAGE TO ANNUAL COSTS COEFFICIENT OF NO STORAGE VARIATION MEET STORAGE TARGET (US$ MILLION) VARIATION OF PRICES (%) (%) 0.0 0 16.359 0.1 209 15.393 –5.91 0.2 451 14.847 116 −3.55 0.3 692 14.605 169 −1.63 0.4 929 14.505 203 −0.68 0.5 1,172 14.467 229 −0.26 0.6 1,410 14.467 249 0.00 0.7 1,649 14.461 266 −0.04 0.8 1,892 14.460 281 −0.01 1.0 2,389 14.460 307 0.00 1.2 2,838 14.461 326 0.00 Source: Larson et al. (2012). Note: The costs are presented for a 50 percent build−up replenishment rate. FIGURE 3.1: Average Annual Program Costs Go Up with More Aggressive Replenishment in MNA 3,000 10% build-up 50% build-up 2,500 annual costs (US$ million) 2,000 1,500 1,000 500 0 0 0.01 0.05 0.1 0.15 0.2 0.3 0.4 0.5 0.6 0.7 0.8 1 1.2 target stock levels Source: Larson et al. (2012). In countries that replenish stocks with imports, the costs of high, public stocks need to be larger. High costs in supply buffer stocks are greatly affected by the ef�ciency of supply chains can result from (i) underinvestments in ports, storage, chains. When the costs of transferring grains from exporting roads, or other infrastructure and (ii) poor trade facilitation. In countries to ultimate consumers in importing countries are MNA countries in 2009, the logistic and management costs US ING PUBLIC FOOD GR A IN STOCK S TO ENH A NCE FOOD S EC UR ITY C H A P T E R 3 — E M P IRICAL E VIDE NCE ON USING ST OCK S FOR PRICE STA BILIZATION 17 TABLE 3.3: A Breakdown of the Total Fiscal Costs of (�gure 3.2), pushing these countries to import more and Managing Maize Stocks in Zambia Is Revealing store longer to cover domestic requirements on time. All of US$ PERCENT (%) these logistic costs increase the �scal costs of maintaining COST ELEMENTS MILLION OF TOTAL stocks, reducing the amount of funds available for the long- Storage costs 63.0 17.9 term investments needed to generate economic growth. Financing costs 38.0 10.8 The rising gap between procurement and release prices is Transportation of procured maize 55.0 15.6 another typical driver of �scal costs. In the Philippines, NFA’s Bagging and re-bagging 25.1 7.1 mandate has been to support farmers, protect consumers Food subsidy (release price – procurement price) 150.0 42.5 (particularly the poor), and ensure buffer stocking. The con- Construction of hard standing slabs 15.0 4.3 tradictions of this mandate resulted in NFA becoming the Philippines’ most indebted public body. During the 2000s, Rehabilitation of grain silos 6.7 1.9 its gross margins were negative, as gross revenues were TOTAL COSTS 352.8 100.0 not enough to cover costs (�gure 3.3). In 2009, NFA was Total costs as a share of total budget expenditure 8.2% estimated to have lost $785 million even with the subsidy Total costs as a share of GDP 1.9% included. It had the greatest level of borrowings of any state Source: World Bank (2012a). corporation and was the largest loss-making government corporation and the largest recipient of a government sub- sidy in the Philippines (Jha and Mehta 2008). of importing wheat were estimated at $40 per ton compared India provides another example of rising �scal costs due to to only $11 in the Netherlands and $16 in the Republic of the mismatch between procurement and release prices. The Korea (World Bank and FAO 2012). In Egypt and Jordan, costs of India’s food subsidy went from 1.0 percent of GDP costs were about four times higher than in the Netherlands in 2004/05 to 1.5 percent of GDP in 2008/09, just because FIGURE 3.2: Wheat Supply Chain Costs in MNA Countries in 2009 Were Much Higher than in Benchmark Countries (Netherlands and the Republic of Korea) 4.5 4 total costs (indexed to the Netherlands) 3.5 3 2.5 2 1.5 1 0.5 0 . t an en ar a a n o n an s ep yp nd bi i no cc ai is at rd m m ,R hr Eg ra n o la ba Q Ye O Jo Tu or iA Ba r ea he Le M ud r et Ko Sa N port logistics storage transport to island silos and mills WISC management Source: Larson et al. (2012). EC O N O M I C A N D S E CT OR WORK 18 CHAP T ER 3 — EMPIRICA L EVID ENC E ON USING S TOCK S FOR PRICE STAB ILIZATION FIGURE 3.3: The Rising Gap between the Philippines’ NFA Revenues and Expenses 90,000 80,000 70,000 million pesos (in nominal terms) 60,000 50,000 40,000 30,000 20,000 10,000 0 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 expenses gross revenues Source: Briones and Parel (2011). food release prices remained unchanged while buying prices Countries with domestic prices kept at a high level include rose (Basu 2010). The �scal costs are projected to continue Kenya, Zambia, Indonesia (after 2005), and the Philippines. rising as the Food Corporation of India bought 19 million In Kenya, the National Cereals and Produce Board (NCPB) tons of rice in 2011, 15 percent above the 2010 level. It had has kept domestic prices high since about 1995. It has been 29.8 million tons of rice in its silos, well above the 11.8 million more successful than Zambia at lowering price volatility, but tons required under the country’s buffer norms, while release at the expense of high price levels (�gure 3.4).19 Zambia has prices are not expected to be adjusted upwards (FAO 2012). been less successful in achieving price stability than Kenya, and similarly unsuccessful in reducing domestic prices to improve access to food by the poor. Price volatility in Kenya 3.3 THE ECONOMIC COSTS OF MAINTAINING and Zambia has been higher than in South Africa (the refer- HIGH FOOD PRICES ARE VERY LARGE ence market for white maize in Eastern and Southern Africa), In many countries, food prices are stabilized at a high level, which does not maintain public buffer stocks. well above the import parity prices. This is due to the desire Asian countries have been much better at achieving price to promote food self-suf�ciency and also because stabiliz- stability than African countries, but also at the expense ing prices at a high level tends to be less demanding for of high price levels. The Philippines has historically kept public budgets if authorities can effectively control imports. domestic prices above international prices, while Indonesia However, it brings about high economic costs that are often invisible and unintended. These costs go beyond the �scal costs that are frequently discussed and known. High food 19 Between 1995 and 2004, the price volatility, measured by the prices may bring about short-term bene�ts to producers, but coef�cient of variation, was estimated to have been lowered by 36 percent. At the same time, wholesale maize prices in Nairobi they ultimately hurt consumers, and in the long run erode were 20 percent higher than would have been the case without competitiveness of agriculture and even the whole economy. NCPB interventions (Jayne et al. 2008). US ING PUBLIC FOOD GR A IN STOCK S TO ENH A NCE FOOD S EC UR ITY C H A P T E R 3 — E M P IRICAL E VIDE NCE ON USING ST OCK S FOR PRICE STA BILIZATION 19 FIGURE 3.4: Maize Prices in Kenya and Zambia Are Typically Well Above Prices in South Africa (The Major Exporter of White Maize in the Region) 600 South Africa Price Volatility - Kenya = 12% Zambia - Zambia = 14% Kenya - South Africa = 9% 500 400 price in US$/ton 300 200 100 0 4 04 5 05 6 06 7 07 8 08 9 09 0 10 1 11 n-0 l- n-0 l- n-0 l- n-0 l- n-0 l- n-0 l- n-1 l- n-1 l- Ja Ju Ja Ju Ja Ju Ja Ju Ja Ju Ja Ju Ja Ju Ja Ju Source: FAO Global Information and Early Warning System. Note: The Kenyan maize price is the wholesale price in Nairobi; the Zambian maize price is the wholesale price in Lusaka. The price in South Africa is the wholesale Randfontein white maize price. Price volatility is de�ned as the standard deviation of the logarithm of �rst price differences and is estimated for the period from January 2005 to May 2011 for consistency with table 3.7. moved to a “high price regime� in 2005 after several de- the wholesale rice prices had been reduced to the level of cades of successful stabilization along world market prices border prices during 2000 to 2005, the poorest 30 percent (�gure 3.5). would have spent 10 percent less on food, and hunger among such families would have declined correspondingly. The most obvious consequence of stable yet high prices is The proportion of households experiencing hunger in the immediate taxation of domestic consumption and increased Philippines rose from under 10 percent in 1998 to over poverty. Food constitutes a much larger share of the con- 24 percent in 2009 (Tolentino et al. 2011), correlated with rises sumer price index in developing countries than in developed in the rice price in the poorest regions (Jha and Mehta 2010). countries (table 3.4), such that the poorest are hurt the most when prices rise and are not offset by higher incomes. In Public food distribution programs cannot offset the effects Kenya, several studies (carried out independently using the of high food prices. India, Indonesia, and the Philippines (un- nationwide farm household survey implemented during the til 2010) have all distributed rice to vulnerable populations 1990s and early 2000s) found that a 20 percent increase in at subsidized prices through various programs to partially maize prices between 1995 and 2004 signi�cantly increased compensate for the impact of their buffer stock policies that the rural and urban poverty and transferred income from the have pushed food prices up. In the Philippines, subsidized majority of small-scale maize purchasing farmers to a very rice covered only 10 to 12 percent of the rice purchases of small number of larger maize-surplus farmers (Jayne et al. the poorest households in 2007/08, with the remaining 80 2008; Mghenyi 2006; Mude and Kumar 2006). Warr (2005) to 90 percent purchased at prices well above the world mar- found that higher rice prices increased poverty in Indonesia. ket level (World Bank 2007). In India, the impacts of food In the Philippines, the World Bank (2007) estimated that if distribution programs on the poor are estimated not to have EC O N O M I C A N D S E CT OR WORK 20 CHAP T ER 3 — EMPIRICA L EVID ENC E ON USING S TOCK S FOR PRICE STAB ILIZATION FIGURE 3.5: Rice Prices in the Philippines and Indonesia Are Kept Above International Reference Prices 900 Philippines 1,000 Indonesia 800 900 800 700 700 600 US$ per ton 600 US$ per ton 500 500 400 400 300 300 200 200 100 100 0 0 00 00 01 02 y-03 r-04 -05 v-05 -06 l-07 y-08 r-09 -10 v-10 De -95 Oc -96 Se -97 Au 98 Ju 00 Ap -02 De -06 No -06 Oc -07 Se -08 Au 09 1 No -95 Ju -99 M 01 M -03 Fe -04 Ju -10 Ja -05 n- v- p- l- n p n l-1 Ja No Se Ju Ma Ma Ja No Se Ju Ma Ma Ja No p- l- p- n- n v t ay t r ar n c v g c g b Ja Philippines (average national) Thailand (5% broken) Indonesia (IR 64 III) Thailand (5% broken) Source: Philippines Bureau of Agricultural Statistics, Ministry of Trade of Indonesia, and the World Bank Pink Sheet Tables. TABLE 3.4: Food Accounts for a Large Share of the CPI High food prices tend to lower wage competitiveness. In in Developing Countries the Philippines, for example, where rice alone accounts for COUNTRY SHARE (%) 20 percent of the food component of the Consumer Price Bangladesh 58.8 Index (CPI), high rice prices place upward pressure on wag- es. According to research carried out by Lasco (2005), in the Philippines 46.6 short term, a 1 percent increase in rice prices causes a 0.35 India 46.2 percent increase in wages. In the longer run, the elasticity Pakistan 40.3 is above one. Minimum wage is signi�cantly influenced by Vietnam 39.9 inflation: a 10 percent increase in the CPI induces a 12 per- Indonesia 36.2 cent increase in the minimum wage. When real wages in the Thailand 33.0 Philippines increase by 10 percent, agricultural and service sector employment are estimated to decline by 4.3 percent Malawi 60.0 and 2.8 percent, respectively (Brooks 2002). Zambia 55.0 United States 14.8 Thus, a high price policy for food staples can be very costly Euro zone 14.0 for the economy. It is counterproductive to raise prices for the main commodity consumed by laborers in a situation Japan 25.9 where labor-intensive growth in the nonfarm economy is Source: ADB (2011) and the World Bank Development Indicators. essential for poverty alleviation, and when neighboring countries enjoy a competitive advantage of lower food prices exceeded 5 percent of their incremental spending (Jha and that translates into more competitive wages and higher Ramaswami 2010). In Indonesia, the RASKIN food distribu- consumption. The pace at which countries are able to bring tion program compensated for only 3 percent of total rice down their food prices sustainably, and thereby enhance consumption of the poor in 2010, with the remaining 97 per- labor competitiveness, will have a bearing on their capacity cent of rice purchased in the market at arti�cially high prices to expand into any internationally competitive, labor-intensive (World Bank 2012c). activity. US ING PUBLIC FOOD GR A IN STOCK S TO ENH A NCE FOOD S EC UR ITY C H A P T E R 3 — E M P IRICAL E VIDE NCE ON USING ST OCK S FOR PRICE STA BILIZATION 21 TABLE 3.5: Rice Marketing Costs in Philippines Are TABLE 3.6: Farmers Tend to Receive a Higher Share of Much Higher than in Thailand, Reducing the the Wholesale Rice Price in Countries with Bene�ts to Farmers of High Consumer Prices Lower Consumer Prices PHILIPPINES THAILAND DIFFERENTIAL SHARE RECEIVED WHOLESALE RICE (PHP PESOS/ (PHP PESOS/ (PHP PESOS/ PRICE KG) KG) KG) 1990–95 1995–2000 2000–05 (US$/TON IN 2005) Transport costs 0.70 0.40 0.30 Indonesia 50% 45% 45% 304 Drying costs 0.14 0.15 –0.01 Philippines 51% 47% 48% 381 Storage costs 0.42 0.07 0.34 China 61% 65% 64% 259 Milling costs 0.32 0.23 0.09 Thailand 50% 61% 63% 252 Total marketing 1.58 0.85 0.72 Source: Authors’ estimate based on price data from FAOSTAT and FAO GIESW. costs Source: Dawe et al. (2006). quality of infrastructure in Thailand. Philippine farmers would likely have been much better off if the money used for NFA Ironically, high prices do not necessarily translate into ben- had been invested in rural connectivity. e�ts for net producers, as higher-output prices inflate pro- duction costs.20 In the Philippines, where rice prices are the When marketing costs are high, high consumer prices are highest in East Asia, production costs are also the highest, not passed to farmers. In Indonesia and the Philippines, due to high labor costs and perhaps also due to less pressure where rice prices are high, the wedge between producer on inef�cient producers. In Central Luzon, total production and consumer prices is also high (table 3.6) and has even costs per ton of paddy were estimated at $96 per in 1999, increased in the last 15 years. In contrast, in China and compared to $59 in the Central Plain of Thailand, $74 in the Thailand, where rice prices are lower, using the example of Mekong Delta of Vietnam, and $69 in Indonesia (Moya and the year of 2005,21 farmers received a higher proportion of Dawe 2006). Labor costs are the major driver of the cost dif- consumer prices, and this share has grown. In countries with ference, accounting for 60 percent of total production costs; low rice prices, support to farmers tends to focus on reduc- labor costs in the Philippines are high due to high rice prices, ing the farm production and marketing costs while reducing creating a vicious cycle. To sum up, the farming community consumer prices and thus alleviating poverty and boosting is not necessarily better off with higher support prices, espe- competitiveness. On the other hand, in countries with high cially when these incentives lead to higher production costs rice prices, support to farmers is provided through continu- and when little is done to improve agricultural TFP. ously rising output prices, which leads to the cycle of higher production and marketing costs, and thus the continued taxa- Marketing costs can also be inflated by high food prices. As tion of consumers who pay the bill. a result, farmers obtain a lower portion of consumer prices. In the Philippines, marketing costs are estimated to be nearly In addition to providing low bene�ts, high food prices sup- twice as high as in Thailand, mainly due to larger storage and ported under buffer stock programs tend to increase dispar- transport costs (table 3.5). Storage costs in the Philippines ity in agriculture. The wealthiest and largest farmers, who are larger because high rice prices increase the amount of typically represent an absolute minority in low-income coun- working capital required to buy and store the same quantity tries, receive the bulk of the bene�ts of these programs. of rice than in Thailand. Higher interest rates in the Philippines further amplify storage costs. The large difference in trans- port costs is due to higher road quality and better overall 21 In 2011, the market-based rice pricing policy in Thailand was replaced by the high price policy under its Paddy Pledging Program. According to Reuters, as a result of that policy, Thai- land had 13.9 million tons of paddy rice—equivalent to about 20 This phenomenon is not unique for Asia and has also been ob- 8.3 million tons of milled rice—as of May 2012, due to dif�culty served in OECD countries, which have a long history of keeping exporting its surplus without incurring a loss. Its exports plum- food prices at high levels. The unintended cost-pushing effects meted by 42 percent in 2012 compared to the previous year, as of high-output prices were among the main reasons for recent its 5 percent broken-grade rice cost $610 a ton compared to only reforms in the United States and the EU that brought domestic $430 in Vietnam. The cost of the program will continue to place prices into alignment with world market prices and shifted sup- a signi�cant burden on taxpayers and consumers unless the sup- port to farm incomes rather than prices. port price is reduced or eliminated. EC O N O M I C A N D S E CT OR WORK 22 CHAP T ER 3 — EMPIRICA L EVID ENC E ON USING S TOCK S FOR PRICE STAB ILIZATION In Kenya, about 3 percent of all farmers sell 50 percent of TABLE 3.7: Volatility of Maize Prices in Selected SSA the maize surplus and regularly bene�t from NCPB pro- Countries, January 2005 through May 2011 curements (Jayne et al. 2008). In Zambia, about 5 percent NUMBER OF NUMBER OF of all farmers account for half of the national maize surplus COUNTRY OBSERVATIONS MARKETS VOLATILITY (%) and bene�t from high prices (Nkonde et al. 2011). In the Chad 223 3 13.2 Philippines, 40 percent of all rice farm households account Ethiopia 294 4 9.5 for two-thirds of the marketed domestic rice, with relatively Kenya* 597 8 11.7 little accruing to poor rice farm households (Dawe 2006). In Malawi* 364 5 19.7 Indonesia, the main bene�ciaries of BULOG procurement (5 to 9 percent of total production in the country) are the Mozambique 523 7 11.4 1.2 million better-off households (about 20 percent) with the Niger 364 5 11.3 largest holdings of rice lands, while the other 80 percent of Nigeria 224 3 12.5 farming households are net consumers of rice (McCulloch Tanzania 149 2 11.0 and Timmer 2008). Thus, in most cases, public procurement Zambia* 570 8 13.7 bene�ts larger farms, not smallholders, increasing disparity South Africa 77 1 9.1 within the sector. (international reference Finally, arti�cially high prices offered by public reserve agen- price for Eastern and cies tend to slow diversi�cation and thus reduce the value of Southern agricultural output. Farmers respond to high prices offered Africa) by state agencies by producing more of the supported crops, Source: Authors’ calculations and Minot (2011), based on data from FEWSNET and FAO GIEWS (for South Africa). even in areas not suitable for their production. In Zambia, Note: Price volatility is de�ned as the standard deviation of the logarithm of offering incentive prices to producers of white maize on a �rst price differences. * Countries with buffer stocks. pan-territorial basis encouraged its production in areas that were better suited to more drought-resistant crops, such as millet and sorghum,22 and in areas that were previously under cotton and sugarcane production. As a result, the value of and that observed in many neighboring countries without total agricultural output per farming household in 2010/11 re- buffer stocks (table 3.7). mained about the same as in 2001/02. The share of maize in Foodgrain stocks are not suitable for addressing the underly- total agricultural output increased from 48 percent in 2001/02 ing causes of price volatility in these countries. Price volatility to 54 percent in 2005/06 to 2007/08 and further to 61 percent in Eastern and Southern Africa is high because of poor infra- in 2010/11, with less and less of higher-value crops being structure and the low resilience of agricultural production to produced in the country (Nkonde et al. 2011). Lower income weather shocks, among other reasons. The former increases per capita is the price paid by the majority of farmers for the the wedge between export and import parity prices, within high price incentives to maize net producers promoted by which domestic prices may fluctuate widely without triggering the Zambian FRA. exports or imports. Private exports or imports remain unpro�t- able until domestic prices either drop below the export parity 3.4 COUNTRIES FAIL TO ACHIEVE PRICE price or rise above the import parity price. In such countries, STABILITY, DESPITE HAVING BUFFER food prices tend to signi�cantly drop in years of good harvest STOCKS and spike in years of low harvest. For example, wheat prices Some countries using buffer stocks fail to achieve price sta- in Addis Ababa, Ethiopia, fluctuate depending on domestic bility even when it is an objective. This problem is particu- production outcomes, within the large wedge between ex- larly acute in Africa. In spite of the large budget resources port and import parity prices (�gure 3.6). The wedge increased spent on price stabilization, domestic price volatility in Kenya, from $150 per ton in the 1990s to $220 per ton in 2010. Malawi, and Zambia exceeds that of the international market To achieve positive outcomes in stabilizing prices through stocks, these countries need to (i) increase the resilience of 22 If the current policy toward maize remains in place, in years of their agricultural production to weather shocks by investing poor rains, farmers in these areas will continue to experience disastrous reductions in production, which may lead to transitory in agricultural research, extension, irrigation, land markets, food insecurity. and sustainable land measures, and (ii) reduce the gap US ING PUBLIC FOOD GR A IN STOCK S TO ENH A NCE FOOD S EC UR ITY C H A P T E R 3 — E M P IRICAL E VIDE NCE ON USING ST OCK S FOR PRICE STA BILIZATION 23 FIGURE 3.6: A Large Export/Import Parity Price Gap May Lead to High Local Price Volatility: The Example of Wheat in Addis Ababa 900 800 700 nominal prices (US$ per ton) 600 500 400 300 200 100 0 8 8 9 0 1 2 3 4 5 6 7 8 9 9 0 1 n-9 c-9 v-9 t-0 p-0 g-0 l-0 n-0 y-0 r-0 r-0 b-0 n-0 c-0 v-1 t-1 Ja De No Oc Se Au Ju Ju Ma Ap Ma Fe Ja De No Oc export parity price domestic price import parity price Source: Rashid and Lemma’s (2011) calculations from Ethiopian Grain Trading Enterprise data. Note: Import and export parity �gures are calculated using U.S. Hard Red Winter Wheat Price (fob Gulf of Mexico) plus international shipping ($30/ton in December 2008) and domestic handling and transport from Djibouti to Addis (1,350 Birr/ton in December 2008). between parity prices by investing in infrastructure and trade TABLE 3.8: Maize Price Volatility Is Higher in African logistics and avoiding export and import restrictions, which Countries with High Market Interventions further widen the price parity gap. Putting limited budget LEVEL OF NO. OF NO. OF resources into buffer stocks instead of the above-described INTERVENTION OBSERVATIONS MARKETS VOLATILITY (%) investments is a wasteful endeavor. Low 1,850 25 11.3 High 1,531 21 14.6 Due to the challenges in using stocks to stabilize prices, buf- Source: Minot (2011), based on data from FEWSNET. fer stock programs can even amplify domestic price volatility. Note: Volatility is de�ned as in table 3.7. In a sample of countries from Eastern and Southern Africa, maize price volatility was much higher in the group of coun- tries seeking to stabilize prices by using buffer stocks than TABLE 3.9: Price Volatility versus Predictability in in the group of countries without such programs. In coun- Selected SSA Countries, 1994–2008 tries with buffer stocks (e.g., Kenya, Malawi, and Zambia), PRICE VOLATILITY PRICE the average price volatility from January 2005 to May 2011 COUNTRY/MARKET (%) UNCERTAINTY (%) was 14.6 percent, compared to 11.3 percent in the countries Ethiopia/Addis Ababa 26.2 6.8 without buffer stocks, a difference statistically signi�cant at Kenya/Nairobi (1994–08) 22.5 5.6 the 1 percent level (table 3.8). Low-intervention countries Kenya/Nairobi (2005–08) 18.9 4.3 rely on trade, mainly cross-border, to stabilize food prices, Malawi/Lilongwe 50.5 14.6 while high-intervention countries limit cross-border trade and Mozambique/Maputo 24.2 7.7 appear to implement stockholding programs in a way that ampli�es volatility rather than reducing it. South Africa/Randfontein 28.8 6.4 Tanzania/Dar es Salaam 27.8 8.0 The problem is exacerbated when food prices not only re- Zambia/Lusaka 36.7 11.4 main volatile but also become less predictable. Malawi and Source: Chapoto and Jayne (2009). Zambia not only had the highest degree of price volatility Note: Price volatility is de�ned as the unconditional coef�cient of variation in the region between 1994 and 2008, but the uncertainty of price over time; price unpredictability is de�ned as the unanticipated component of price instability; i.e., the conditional variance from a price of this price volatility was also the highest (table 3.9), as forecast model. EC O N O M I C A N D S E CT OR WORK 24 CHAP T ER 3 — EMPIRICA L EVID ENC E ON USING S TOCK S FOR PRICE STAB ILIZATION implementation arrangements for their buffer stocks and of other countries (Martin and Anderson 2011). These poli- discretionary trade policies created uncertainty (Chapoto and cies may serve the short-term interests of the implementing Jayne 2009; Faruqee 2009; World Bank 2012a). In contrast, countries in question, but not for those of the world at large after embracing an open borders policy with respect to or for those countries in the longer term, as they suppress regional trade in 2005, Kenya has lowered its price volatil- the price signal necessary for their own ef�cient supply ity and increased price predictability by entering a customs response. union with members of the East African Community. Overall, countries with fewer trade distortions and no buffer stocks Second, stabilization policies in some Asian countries tend to have both lower absolute volatility and higher predictability achieve stable consumer prices rather than producer prices. of prices. The economic gains from such stabilization are smaller given that stable farm prices are the key to inducing supply re- Asian countries with rice buffer stocks performed much bet- sponse. In the Philippines, where national average monthly ter than African countries with maize stocks in terms of sta- price time series are available at farm, wholesale, and retail bilizing domestic prices. One of the reasons for more stable levels for the period between 1990 and 2011, the volatility rice prices is that rice production in Asia is irrigated, and thus of farm (paddy) prices was 11.6 percent compared to only less variable than maize production in Africa. Another rea- 3 percent at both the wholesale and retail levels (�gure 3.8). son is lower export and import parity price gaps. Domestic Lower volatility of consumer prices has not trickled down to rice prices in China, India, Indonesia, and the Philippines are producers. Farm-gate prices are volatile due to ineffective much more stable than in Thailand (the major rice exporter) management of irrigation systems, and underinvestment in or Bangladesh and Cambodia (the two countries pursuing an infrastructure, research and extension services, and other open trade policy) (�gure 3.7). productivity-inducing activities, leading to high yield variabili- ty (World Bank 2007). Unless public investments address the But there are two reasons to be cautious about this relative key causes of volatility at the farm-gate, stabilizing producer success. First, the high volatility of rice prices in Thailand is prices will require high budget outlays (to procure outputs partially caused by the insulating price stabilization policies from farmers) in addition to stabilizing consumer prices. FIGURE 3.7: Rice Prices Are Less Volatile in Asian Countries That Use Buffer Stocks Thailand Cambodia Bangladesh Philippines* Indonesia* India* China* 0 1 2 3 4 5 6 7 8 9 10 volatility, percent Source: Authors’ estimate based on prices from FAO GIEWS and World Bank. Note: * Countries known to use buffer stocks to stabilize rice prices. Price volatility is de�ned as in table 3.7. US ING PUBLIC FOOD GR A IN STOCK S TO ENH A NCE FOOD S EC UR ITY C H A P T E R 3 — E M P IRICAL E VIDE NCE ON USING ST OCK S FOR PRICE STA BILIZATION 25 FIGURE 3.8: Farm-Gate Rice Prices in the Philippines Are Volatile Despite Stable Consumer Prices 40 35 retail wholesale paddy volatility: 30 3.0% 25 pesos per kg 20 15 10 volatility: 11.6% 5 0 90 91 92 t-93 -95 r-96 l-97 t-98 -00 r-01 l-02 t-03 -05 r-06 l-07 t-08 -10 r-11 n- r- l- n n n n Ja Ap Ju Oc Ja Ap Ju Oc Ja Ap Ju Oc Ja Ap Ju Oc Ja Ap Source: Authors’ estimates based on data from the Philippines Bureau of Agricultural Statistics. Note: Price volatility is de�ned as in table 3.7. 3.5 BUFFER STOCKS OFTEN CROWD OUT closely (Timmer 2004). Yet when the BULOG’s monopoly was THE PRIVATE SECTOR, WEAKENING restored in 2005, domestic prices rose and became more ITS CONTRIBUTION TO ECONOMIC volatile, as illustrated in �gure 3.5 (Shepherd 2011). Similarly, GROWTH AND JOB CREATION the bene�ts of cross-border trade in Zambia and Malawi When private storage is not optimal due to market failures were described in chapter 2. Overall, the effectiveness of on credit, insurance, and forward markets, buffer stocks buffer stocks depends on the coexistence of alternative or can complement private storage. On the other hand, public complementary policies, a factor that should be considered stocks can crowd out private stocks, requiring even larger before investing in them. buffer programs. But the largest crowding out impact that buffer stocks have is often on private trade. When this is Buffer stock programs have negative effects on the private the case, the private sector underperforms in terms of cre- sector when government actions are dif�cult to anticipate. ating jobs and driving economic growth, which is so much Some actions are related to buffer stock operations, while needed for sustained poverty alleviation in developing others are related to trade policy, which usually comple- countries. ments buffer stock programs. Such actions include import and export bans, nontransparent licensing of importers, un- In a majority of cases, private trade can achieve similar levels realistic import requirements in terms of price and quantity, of price stability, as can large sums of public money spent release of subsidized food onto domestic markets, or failure on buffer stocks. Bangladesh opened its rice trade to the to deliver on announced state-to-state contracts (Chapoto private sector in 1991, and since then its domestic price and Jayne 2007; Nkonde et al. 2011). All of this creates volatility has been about the same as in the Philippines uncertainty for the private sector and drives domestic food (�gure 3.7). Indonesia had stable rice prices from 2000 to prices up unnecessarily, sometimes even above the import 2004, when it allowed private imports. Domestic prices parity price, when governments cannot afford to take over were not only stable but followed the import parity level very the import bill entirely. EC O N O M I C A N D S E CT OR WORK 26 CHAP T ER 3 — EMPIRICA L EVID ENC E ON USING S TOCK S FOR PRICE STAB ILIZATION When replenishments are not done through open tenders, The decision-making process is often delayed due to insuf- private traders are also crowded out. The impact is particu- �ciently reliable price data. In turn, the Ministries give instruc- larly signi�cant in cases when large procurements take place tions to BULOG regarding the price at which the rice should at high prices. In India, where the minimum procurement be sold and in which locations. Alternatively, decisions on prices are well above market level and the procurement vol- OP implementation can be made at the national level with- ume reaches 25 to 30 percent of domestic production, the out the intervention of the provinces, an option that induces private sector’s role in trading wheat and rice is very limited. uncertainty. OP should be implemented when prices are 25 In Zambia, where procurement prices have recently been percent higher than the three-month moving average, but in kept above the import parity level in spite of two consecutive practice a much lower percentage (around 10 percent) seems bumper harvests in 2010 and 2011, private sector activity has to be used as the yardstick (Shepherd 2011). Some regions in essentially stopped, as it is unable to compete with the FRA the country have resisted the use of OP to help protect farm (World Bank 2012a). This reduces the role of the private sec- prices. Others have resisted RASKIN supplies of lower-quality tor in ef�ciently moving goods from surplus to de�cit areas. imported rice, as they often meet consumer resistance. Improper stock release mechanisms may also crowd out the Even stock rotations, if done improperly, can destabilize mar- private sector. The best way to make market interventions kets. To maintain stocks in good condition, it is necessary to successful is to sell stocks through open tenders to the pri- periodically rotate them. In some locations, it is possible to vate sector. However, many countries do not organize open hold grain satisfactorily for longer than a single marketing year, tenders, preferring to channel stocks directly to selected but in most areas, shorter periods are recommended (Lynton- millers and traders. This reduces the ef�ciency of releases. Evans 1997). In tropical conditions, even more frequent rota- In Zambia, for example, the FRA has been releasing maize tions are required. In Djibouti, for example, rotation is required at subsidized prices to a limited number of large mills. This every six months to minimize stock losses (Hanush 2010). approach not only reduces competition in the milling sector But if not carried out in an orderly and transparent fashion, but also limits the extent and speed of transmission of lower rotations can disrupt markets and discount private trade. release prices to the market prices of maize and maize flour Predictability of rotation is the key to minimizing negative im- (World Bank 2012a). pacts on the market. Larger amounts of rotated stocks affect Complex release arrangements create uncertainty and thus markets and prices more than smaller releases, stressing the raise the costs of doing business for the private sector. In importance of having a small stock. Rotations that are car- Indonesia, for example, the Operasi Pasar (OP) market inter- ried out routinely every month are less disruptive than those vention program is designed to dampen unacceptable up- carried out during shorter periods of time, but they are more ward price movements. This fairly complicated bureaucratic dif�cult to manage, as monthly releases require monthly re- process involves a District Food Security Council proposing plenishments. In Ethiopia, it is estimated that if the stock lev- to the Provincial Food Security Council to implement OP. el was increased to 1,500,000 tons from the current 600,000 Provincial Governors then make a proposal to the Ministry tons, distortions from releases and rotation would increase of Economic Affairs and the Ministry of Trade. This proposal signi�cantly, even if the releases were well managed. But includes the target rice price and the location for distribution. if releases were not well targeted to the poor, and if the TABLE 3.10: Stocks and Market Prices Vary in Ethiopia under Different Rotation Scenarios GRAIN PRICE-DEPRESSING EFFECT IF PRICES GRAIN PRICE-DEPRESSING EFFECT IF PRICES ESTIMATES ARE RELATIVELY ELASTIC (0.6) ARE RELATIVELY INELASTIC (0.4) OF MARGINAL DISTRIBUTE EQUAL DISTRIBUTE EQUAL DISTRIBUTE EQUAL DISTRIBUTE EQUAL PROPENSITY TO AMOUNTS EVERY AMOUNTS IN SIX AMOUNTS EVERY AMOUNTS IN SIX CONSUME (MPC) STOCK LEVEL MONTH LEAN MONTHS MONTH LEAN MONTHS (%) MPC = 0.0 407,000 tons 2.18 4.36 3.27 6.55 1,500,000 tons 18.42 36.84 27.69 55.26 MPC = 0.32 407,000 tons 1.48 2.97 2.23 4.45 1,500,000 tons 12.53 25.05 18.79 37.58 Source: Rashid and Lemma (2011). US ING PUBLIC FOOD GR A IN STOCK S TO ENH A NCE FOOD S EC UR ITY C H A P T E R 3 — E M P IRICAL E VIDE NCE ON USING ST OCK S FOR PRICE STA BILIZATION 27 stocks were rotated during the six months of the lean season The Bottom Line instead of in equal amounts each month of the year, market The general performance of price stabilization schemes in prices could decline by 37 to 55 percent, versus only 2 to developing countries has been ineffective in improving food 3 percent with a small stock size and a careful release policy security outcomes. Reasons vary by country, but they can (table 3.10). In Djibouti, the establishment of buffer stocks be generalized as follows. Typically, problems arose from the would destabilize private trade and prices only due to the scheme being used for a multiplicity of objectives with lack of necessity of short-term rotations of stocks (Hanush 2010). clarity among them. This led to an escalation of �scal costs to In Malawi, it is estimated that increasing the reserve from unsustainable levels, taxing poor consumers, crowding out 60,000 tons to 200,000 tons would depress domestic prices spending on agricultural productivity and rural infrastructure, in the short run by 11 to 17 percent if stocks were rotated/ and discouraging private investment, which are key drivers released monthly and by 23 to 34 percent if stocks were to lowering both levels and volatility of food prices. Indirect released during the six months of the lean period (Thangata costs of maintaining public stocks often outweigh direct, and Lemma 2010). more visible costs. EC O N O M I C A N D S E CT OR WORK C H A P T E R 4 — E M P IRICAL E VIDE NCE ON F OOD E MERGENC Y A ND SA FETY NET STOCK S 29 Chapter 4: EMPIRICAL EVIDENCE ON FOOD EMERGENCY AND SAFETY NET STOCKS Public stocks contribute the most to the food security of vulnerable in times of scarcity.23 As was the case in many poor vulnerable people when they are used to respond to countries in the 1970s, an initial objective of EFSRA was food emergencies and support safety nets. Such reserves price stabilization, in addition to food emergency response. improve distributional outcomes, and there are several good Over time, the government shifted the program’s focus to re- examples of such programs. The essential purpose of such spond to droughts and emergencies, effectively coordinating reserves is to buy time until imports or food aid arrives and national and donor aid activities. EFSRA was the only imme- to ensure predictable and rapid access to suf�cient food diate source of food supplies in the 1990/2000 and 2002/03 by people affected by emergencies and those who cannot drought periods, and both government and relief agencies meet their basic needs without help. relied on its reserves to combat the unusually sharp increase in food prices in 2008/09 and during the 2011 Horn of Africa Small reserves with clear pro-poor targeting have been drought. successfully operating in a number of countries. Ethiopia’s Emergency Food Security Reserve Administration (EFSRA) EFSRA has several strengths. First, the objectives of the has been successfully implemented. In Mali, Programme agency are clearly de�ned and followed. EFSRA focuses on de Restructuration des Marches Céréaliers (PRMC) has targeting the poor and vulnerable at times of food emergen- been successful in integrating emergency responses by cies. Second, the size of its reserves is small, capped at supporting food-insecure people through safety nets as one 407,000 tons, just suf�cient to meet the estimated immedi- element of a comprehensive program of cereal market lib- ate needs of the target group, pending commercial imports eralization. In recent years, Ethiopia has also moved toward or food aid. Since 2005, actual stocks have not exceeded having integrated food-security reserves similar to those 302,000 tons (which is below 10 percent of total domestic in Mali. In Bangladesh, the Public Foodgrain Distribution consumption of maize), the amount estimated to cover the System (PFDS) has coexisted with private trade, focusing needs of food-insecure people with 400 grams of grain a day on safety nets while allowing private traders to address rice for a period of four months. The recurrent size of stocks is price volatility. optimized through the use of a national early warning system that provides timely and credible information about harvest In most instances, success has been achieved through well- prospects, potential food shortages, and the relief food de�ned objectives and pro-poor targeting. Effective early needs of Ethiopia’s vulnerable population. warning systems, compliance with rules and procedures, good management and flexibility, and collaboration between EFSRA is designed to be simple and flexible in its response donors, relief agencies, and government authorities all help to emergency needs. The agency is overseen by a board minimize budget outlays, market distortions, and mistarget- composed of representatives from different ministries. To ing of bene�ciaries. Furthermore, food transfer programs be responsive during emergencies, the general manager of have been more successful where cash transfers are less EFSRA is given the authority to release up to 5,000 tons of effective (i.e., in remote areas and in countries with high grain at a time, for a total of up to 25,000 tons if requested by inflation). any recognized relief agency. For larger amounts, decisions are made by a technical committee consisting of govern- ment and donor representatives. Overall, the organizational 4.1 FOOD EMERGENCY RESERVES structure and the management of EFSRA reflect the high Ethiopia’s emergency reserves are used to address recur- rent production shocks and the need to import food and to 23 The analysis of Ethiopia’s EFSRA is derived from NEPAD (2004), compensate for weak infrastructure to protect the poor and Rashid and Lemma (2011), and Minot (2011). EC O N O M I C A N D S E CT OR WORK 30 CHAP T E R 4 — EMPIRICA L EVID ENC E ON FOOD EMERGENC Y A ND SA FETY N ET S TOC K S TABLE 4.1: ESFRA Stock Age and Storage Costs, 2005–2008 2005 TO 2006 2007 TO 2008 < 3 MONTHS 3 TO 6 MONTHS 6 TO 9 MONTHS < 3 MONTHS 3 TO 6 MONTHS 6 TO 9 MONTHS Quantity (tons) 147,778 69,452 8,308 67,440 26,184 7,996 Percentage 70.1 29.1 0.8 62.2 18.3 5.8 Storage costs ($) 1,216,000 1,143,000 205,000 921,000 715,000 327,000 Source: Rashid and Lemma (2011). level of commitment from the government and are flexible Productive Safety Net Program (PSNP), food-for-work, and enough to promptly respond to emergency needs of varying school feeding programs. Since 2005, withdrawals for safety degrees. net programs have accounted for 57 percent of EFSRA’s budget (Rashid and Lemma 2011). PSNP has targeted EFSRA does not engage directly in buying and selling grains. chronically poor households through public works and direct The primary mechanism to respond to emergencies is the support using both food and cash transfers. Bene�ciaries in provision of inventory loans to well-established relief and locations with good market access receive cash for labor- rehabilitation agencies working in the country. These NGOs intensive public projects, while bene�ciaries in remote areas have their own implementation arrangements and mecha- are paid in maize or wheat. High inflation in the second part nisms to reach out to target groups, and the government, of the last decade eroded the value of cash transfers, but satis�ed with these targeting mechanisms, trusts NGOs to the more stable macroeconomic environment in recent years deliver food relief in times of crises. Delivery of subsidized has provided the foundation for continued provision of cash food through ration shops or local government channels was transfers and for the design of more flexible arrangements to identi�ed to be cost-ineffective at targeting the poor and was make timely adjustments for inflation. hence rejected. Engagement with NGOs has ensured the minimal impact of the reserve on market prices, thus avoid- The oldest and most successful food safety net program ing unnecessary distortions. (the PRMC) is in Mali. Its unique multipartner program was piloted in 1981 as part of the structural reform process and This effective collaboration with NGOs promotes successful, was subsequently extended to several other Sahelian coun- cost-ef�cient stock management. On average, from 2005 to tries, such as Burkina Faso, Chad, and Niger. This integrated 2008, none of EFSRA’s seven warehouses appears to have food security reserve system includes a number of elements held stocks older than nine months. At the national level, that enable it to operate ef�ciently in the context of private 70 percent of stocks in 2005/06 and 62 percent in 2007/08 sector participation in markets, including (i) an early warning were not older than three months (table 4.1). This is quite system; (ii) a market-information system; (iii) a small stock remarkable, as there are countries where foodgrains in pub- of between 30,000 and 35,000 tons; (iv) an emergency in- lic warehouses are held for more than a year. The resulting tervention unit; (v) a joint counterpart fund; and (vi) a food cost savings were large, as EFSRA did not incur recurrent security fund (NEPAD 2004). monthly storage costs. At average monthly storage costs of Mali’s PRMC has both physical and cash reserves that help $2.7 per ton, cutting storage terms from six to three months save money. The physical reserve is capped at 35,000 tons, implied a 70 percent cost savings (or about $1,100,000) in �nanced through the joint counterpart fund. There is also a 2005/06. In summary, the ef�ciency of stock rotation and the food security reserve fund composed of �nancial contribu- associated cost reduction have been instrumental to the suc- tions from the government and donors, suf�cient to import cess of EFSRA in Ethiopia. and distribute 25,000 tons of cereals in the event of a major food emergency. This cash reserve generates signi�cant 4.2 FOOD SAFETY NET RESERVES budget savings as a result of not storing additional stocks, and by having access to funds to import food when needed. Given the large number of people with chronic food insecuri- ty, Ethiopia began to add safety nets to the emergency objec- As in Ethiopia, transfers in Mali are made through safety net tives of EFSRA in 2005. Its safety net programs include the channels. This is a much more ef�cient way of targeting the US ING PUBLIC FOOD GR A IN STOCK S TO ENH A NCE FOOD S EC UR ITY C H A P T E R 4 — E M P IRICAL E VIDE NCE ON F OOD E MERGENC Y A ND SA FETY NET STOCK S 31 needy compared to selling subsidized food through retailers BOX 4.1: High Costs of Universal Food Transfer (as is done in India, the Philippines, and some MNA coun- Programs tries) or directly to bene�ciaries through village administra- In the Philippines, spending on rice-based social pro- tors (as in Indonesia). Universal food distribution programs grams rose from 0.08 percent of GDP in 2007 to 0.58 are criticized for their weak targeting, high administration percent of GDP in 2008 (Manasan 2009), though the per- costs, large �scal costs, and high levels of leakage. The styl- centage of recipients who were nonpoor was estimated ized facts from such programs are presented in box 4.1. at 39 percent in rural areas and 68 percent in urban areas Decisions in Mali regarding releases from the reserves are (Jha and Ramaswami 2010). The cost of reaching the made by a joint donor-management board on the basis of poor was as high as $8 for each $1 disbursed when ac- information provided by the early warning system. Periodic counting for rice that simply disappeared or was sold to technical reports on food outlook and vulnerability assess- people other than the poor (Jha and Mehta 2008). The ments guide decision making, including on the size of stocks. recent move by the Philippines to cease subsidized food If there is no call for food transfers, reserve managers may distribution and to instead use conditional cash transfers even export grains as part of the stock rotation process. seems to be a recognition both of the failure of NFA in Overall, technical procedures for managing stocks are clearly this regard and of the relative success of such cash de�ned and adhered to, including (i) regular quality control transfers in other parts of the world. and rotation of stocks, (ii) open tendering of releases and Only 10 percent of India’s food subsidy transfer is es- procurement, and (iii) recycling of grains toward the end of timated to have been received by the poor, with in- the marketing season when market supplies are running low come transfer to the nonpoor estimated at 19 percent, and the prospects for the forthcoming harvest are becoming and illegal diversion at 42 percent of the total program. clear. The cost of transferring one rupee worth of bene�ts In the two decades since it was set up, the PRMC has proved under the Targeted Public Distribution System (TPDS) its effectiveness in dealing with local and short-term food in- was estimated at Rs. 6.68, compared to Rs. 1.44 for security and has demonstrated its durability (NEPAD 2004). A Integrated Child Development Services and Rs. 1.85 for clear food security policy has ensured the PRMC’s effective- the Maharashtra Employment Guarantee Scheme. Even ness. Its reserves cover clearly identi�ed population groups the Planning Commission’s estimate suggests that leak- at greatest risk of food insecurity and target the food needs ages fall within the range of 32 to 40 percent (Ganesh- of food-insecure people. Government commitment has been Kumar et al. 2008). More recently, Khera (2011) showed essential in promoting trade in food staples, so that food that 67 percent of the wheat meant to reach the poor can be moved easily from surplus to de�cit areas, while the ended up missing the target, being pilfered or sold on reserves help groups of people with low purchasing power the open market. who cannot afford to buy suf�cient food. In Indonesia, the spending on the RASKIN food distri- In Asia, Bangladesh’s public reserve system (the PFDS) is bution program accounted for 53 percent of total social the one most integrated with safety nets. Until the early assistance expenditures in 2010. In contrast to India and 1990s, Bangladesh’s food policy was similar to that of India the Philippines’ programs, RASKIN is a targeted pro- and Pakistan, with government control of international gram, but it has still been the least cost-ef�cient social trade and large-scale domestic procurement for the pub- assistance program in the country. About 40 percent of lic foodgrain distribution system. However, since the early all bene�ts went to the 60 percent of richest households. 1990s, Bangladesh has liberalized its domestic and inter- The RASKIN had the highest administrative costs, about national trade, while retaining a reduced PFDS (table 4.2). 35 percent per Rupiah of rice delivered, and provided the Private sector imports have played a major role in price sta- lowest-valued transfers to intended bene�ciaries, com- bilization, particularly following major domestic production pared to other programs based on cash transfers (World shortfalls such as those following the massive 1998 floods. Bank 2012c). Nearly all administrative expenditure was spent on logistics and management of physical stocks The PFDS’s strength is that it focuses on areas where public rather than on safeguarding and supporting operations stocks can make a difference. The role of price stabilization crucial for effective service to bene�ciaries. was given to the private sector, which has successfully sta- Source: Authors. bilized domestic prices around the reference prices of India EC O N O M I C A N D S E CT OR WORK 32 CHAP T E R 4 — EMPIRICA L EVID ENC E ON FOOD EMERGENC Y A ND SA FETY N ET S TOC K S TABLE 4.2: Foodgrain Stocks, Procurement, and Policy in Selected Countries of South Asia, average 2001–2007 PAKISTAN INDIA INDIA BANGLADESH BANGLADESH WHEAT WHEAT RICE WHEAT RICE Production (million tons) 20.33 70.51 87.23 1.21 25.68 Procurement (million tons) 3.89 16.09 22.52 0.11 0.88 Share of production (%) 19.2 23.0 25.7 6.7 3.4 Stocks (million tons) 1.16 17.06 16.40 0.23 0.54 Stocks (kg per capita) 7.6 16.2 15.4 1.7 3.8 Distribution channels Subsidized sales Subsidized sales Subsidized sales Targeted distribution Targeted distribution to flour mills through PDS through PDS and sales Source: Dorosh (2009). FIGURE 4.1: Rice Prices in Bangladesh Have Closely Followed International Reference Prices 900 800 Bangladesh - Dhaka Thailand - Bangkok 700 India - Delhi 600 US$ per ton 500 400 300 200 100 0 n -00 0 1 2 3 4 5 5 6 7 8 9 0 0 v-0 ep-0 Jul-0 ay-0 ar-0 an-0 ov-0 ep-0 Jul-0 ay-0 ar-0 an-1 ov-1 ep-1 1 Ja No S M M J N S M M J N S Source: FAO GIEWS. and Thailand (�gure 4.1). Liberalization of the rice trade in- The government instead used public funds to address natu- duced massive imports of rice by hundreds of small traders. ral disasters and to maintain safety nets and institutional In 1998, private rice imports were six times larger than gov- distribution. It targeted bene�ciaries directly through safety ernment rice distribution. If the government had imported nets, not rationing shops. The broad set of reforms that this grain, the added cost of the imported rice, with delivery started in the early 1990s included the reduction of stocks to local markets, would have been $50 to $100 million. And from about 2 million to 1 million tons, and subsequently to if the government had subsidized this rice by selling it at 0.65 million tons in 2003 (Rashid 2011). All rationing systems the price used for limited government sales in urban centers, were abolished, and targeted and conditional safety net pro- the total �scal cost would have been $160 to $210 million. grams, such as food for education, were introduced. This The liberal trade policy helped the government stabilize experience shows that market development and trade liber- prices without large government stocks and their associated alization, providing another option for price stabilization, are �scal costs (WDR 2007). potentially less costly and more effective, while permitting US ING PUBLIC FOOD GR A IN STOCK S TO ENH A NCE FOOD S EC UR ITY C H A P T E R 4 — E M P IRICAL E VIDE NCE ON F OOD E MERGENC Y A ND SA FETY NET STOCK S 33 the government to focus on achieving positive food security highly vulnerable northwest region. But given the large num- outcomes. ber of poor people there and frequent and high price fluctua- tions, more programs are needed to increase the income of The food price spike in 2008 changed the situation in the poor by raising their agricultural productivity and diversi- Bangladesh. The government had been considering a sizable fying their income and employment (Krandker et al. 2011). increase in the size of its stocks since being cut off from In summary, safety nets and food transfers can be viewed food imports when India used an export ban in 2007 and as a quick �x to reduce the severity of food deprivation, but 2008. The operating costs of PFDS have more than doubled the longer-term solution rests on promoting the income and compared to 2001/02, due to higher stock holding and productivity of the poor. larger rice subsidies in recent years (Rashid 2011). While the government’s concerns are well founded, any further in- The Bottom Line crease in the stock level in the country should be carefully considered, unless there are justi�able additional PFDS chan- The most effective use of food stocks tends to be as part of a nels to control program costs and minimize the distortion of comprehensive safety net approach, with considerable effort markets. at targeting the poor and vulnerable. Safety nets allow trans- mitting higher prices to producers, providing the incentive to Despite the successes of these food emergency and safety increased domestic food supply that can subsequently help net reserves, it should be noted that safety nets and food lower domestic food prices. Effective targeting provides transfers can help eradicate only some of the negative im- emergency food to the most vulnerable, which is more cost- pact of price spikes. Safety nets cost money and require effective than universal food distribution programs and has good institutions, conditions not usually met in countries less negative impacts on producer prices and incentives for where hunger prevails. High food price variability and long, private storage. Effective early warning systems; compli- lean seasons are the reality in most parts of Africa and Asia. ance with rules and procedures; maintaining small reserves; A recent assessment of safety nets in Bangladesh showed good management and flexibility; and collaboration between the positive, though limited, impact of government- and donors, relief agencies, and government authorities all help nongovernment-run safety net programs on mitigating both minimize budget outlays, market distortions, and mistarget- seasonal and nonseasonal food deprivation in the country’s ing of bene�ciaries. EC O N O M I C A N D S E CT OR WORK C H A P T E R 5 — H O W RE GIONAL F OODGRAIN RE SE RVES CA N H ELP 35 Chapter 5: HOW REGIONAL FOODGRAIN RESERVES CAN HELP There have been several ongoing efforts to establish re- When regional reserves aim to stabilize prices, the situation is gional food reserves in Asia and Africa in recent years. In more contentious. Many efforts to establish international re- East Asia, the ASEAN reformed its Emergency Rice Reserve serves and commodity agreements to stabilize prices failed in System by adding resources from China, Japan, and Korea the past. International Commodity Agreements with economic to establish the ASEAN Plus Three Emergency Rice Reserve clauses and market interventions historically existed for six (APTERR). In 2007, the South Asian Association for Regional commodities (i.e., cocoa, coffee, natural rubber, sugar, tin, and Cooperation (SAARC) relaunched a food bank to be tapped wheat), but none of these price stabilization agreements have into during emergencies and serious food shortage periods survived to the present day (table 5.1). Although international (Action Aid 2011). In West Africa, there have been efforts by stocks were envisaged, they were small and thus inadequate ECOWAS, in partnership with the World Food Programme to mitigate price spikes, while their releases often required (WFP), to establish a regional humanitarian reserve (WFP time-consuming bilateral negotiations (Larson et al. 2012; 2011). Tangermann 2011). They also failed because they did not guar- antee continued international collaboration during food emer- What is the value added of regional reserves compared to gencies. Trust and governance issues remain real hurdles. national ones? Major gains may arise from (i) cost savings from economies of scale; (ii) independent management of The largest effort to revitalize regional stocks is in East Asia. regional reserves that prevents governments from using The ASEAN Emergency Rice Reserve, set up in 1979 as part reserves for political gains, and ensures that they target vul- of the implementation of the ASEAN Food Security Reserve nerable people through safety nets; and (iii) the existence of Agreement in a delayed response to the 1972/73 rice crisis, a forum for collective agreement to avoid trade restrictions never really functioned (Shepherd 2011). Countries commit- during major food crises. These are not contentious issues ted to voluntarily provide rice for a common regional stock- and some studies suggest that there are gains to be made. pile to meet emergency requirements, but 25 years after its It was estimated, for example, that for Southern and Eastern establishment, the ASEAN Emergency Rice Reserve stood Africa countries to stabilize cereal consumption in each coun- at only 87,000 tons. The reserve provided little meaningful try in the late 1990s, regional stocks could theoretically be support at the time of food emergencies in the region, due to 41 percent less than the sum of national stocks needed if co- onerous request and delivery procedures and its insigni�cant operation was lacking (Koester 1986). Recently, the WFP es- volume (Dano 2006; Dano and Peria 2006). timated that regional stocks in ECOWAS countries would be 35 percent smaller than the sum of national stocks needed With support from Japan, proposals were made in the mid- to provide 30 days of consumption for the most vulnerable 2000s for the East Asian Emergency Rice Reserve, which (WFP 2011). would involve the “Plus Three.� This envisaged earmarked TABLE 5.1: All International Agreements to Stabilize Commodity Prices Have Failed SUGAR TIN COFFEE COCOA RUBBER Year of initial agreement 1954 1954 1962 1972 1980 Stabilization clause Lapsed in 1963, revived, Collapsed in 1985 Suspended in 1985 Suspended in 1998 Suspended in 1996, revived, lapsed in 1983 suspended again in 1999 Source: Larson and Gouel (2011). EC O N O M I C A N D S E CT OR WORK 36 CH A PTER 5 — H OW REGIONA L FOOD GR A IN RES ERVES C A N H ELP stocks of 787,000 tons, with 700,000 tons provided by China, Indonesia are unwilling to open their markets to commercial Japan, and Korea (the “Plus Three�). Again, this attracted imports due to political fears of being dependent on what is relatively little support. Releases were planned under three perceived as a “thin� world market; they are actively promot- “tiers.� Tier One involved a commercial transaction where ing food self-suf�ciency. Having a sizable reserve in place that the reserve functioned primarily as a supply-demand match- could be used for market intervention purposes if prices rose ing service. There has been just one transaction under Tier would assuage some of those doubts and perhaps encourage One, when Vietnam supplied 10,000 tons to the Philippines. greater market liberalization. Yet the same issues surround- Given that most of the Philippines’ commercial transactions ing reserves at the national level (as discussed in chapter 3) are with Vietnam anyway, the added value of the reserve’s also characterize regional reserves. Both will likely fail if they involvement is unclear. Under Tier Two, the release is gov- attempt to manage prices rather than their causes or conse- erned by a loan or grant agreement from the earmarking quences. The domestic policies of individual countries are the country. Release under Tier Three is meant to meet acute underlying cause of high price uncertainty and the thinness emergency needs of disaster victims. Between 2005 and of the world rice market in Asia. Without more disciplined 2010, 3,000 tons were distributed as food relief in four coun- trade and price support policies, export prices in Vietnam and tries, and Thailand donated 520 tons to the Philippines after Thailand will remain highly volatile. However, at present it a typhoon (Briones 2011). is not clear whether ASEAN is preparing to use its regional platform to impose more discipline on its member states, par- In response to the recent global food price spikes, steps are ticularly in avoiding export bans, commercializing trade, and now underway to launch APTERR. In May 2011, the 18th moving from measures supporting farm prices to measures ASEAN Summit expressed the desire that a formal agree- supporting farm incomes and agricultural TFP. ment be reached. With technical support from the Asian Development Bank, steps are presently being taken to Some efforts to use regional stocks for emergencies have develop guidelines and standard operating procedures to recently taken place in West Africa. With assistance from govern the reserve’s operation in times of natural disasters. the WFP, ECOWAS has been designing a targeted, cost- After the price increases of 2007/08, it was initially thought effective emergency humanitarian food reserve system that APTERR could play a market intervention role, but it has with small, regionally prepositioned stocks, to be organized since been decided that stockpiled reserves should be mainly and operated with the active participation of the countries aimed at providing humanitarian food relief for localized emer- and regions concerned (WFP 2011). The proposed regional gencies, although targeting “market-wide disruption, such as reserve would give poor food-de�cit countries rapid access a sudden food availability gap at national level, or an extreme to about 67,000 tons of cereals (rice, maize, millet, and sor- price spike� is not excluded (Briones 2011). The size of the ghum suf�cient to meet the 30-day consumption require- reserves will likely remain modest due to the high �nancial ments of the vulnerable population) for distribution through costs of maintaining them. The intention is that APTERR will targeted assistance schemes and other safety net programs. move more aggressively than in the past to address emer- It intends to pilot the use of virtual stocks for an additional gencies. However, several issues remain to be resolved, in- 60 days of consumption requirements and to work with na- cluding broadening the base of contributions (there has been tional governments to strengthen systems of national and too much reliance to date on Japan and Thailand, APTERR’s regional resilience, addressing a speci�c challenge to exist- major proponents), storage management, legal aspects, the ing response mechanisms, and providing a critical additional extent to which futures markets (not used for rice at present) line of defense and saving lives in emergencies. could be used instead of physical stockholding, and how to encourage potential countries in need to pay for handling and This regional reserve’s strength is in its focus on a speci�c distribution of rice when they can still rely on the WFP to problem with clear objectives. It seeks to give low-income, provide food aid in areas hit by natural calamities (particularly food-de�cit countries predictable and rapid access to suf�- in Cambodia, Laos, Myanmar, and the Philippines). cient food to meet the humanitarian needs of their vulnerable population through safety nets and other targeted food as- The creation of a functional APTERR has also been constrained sistance programs during periods of high and volatile prices. by the multiplicity of objectives. Some countries want the re- The proposed size of the reserve is too small to crowd out the serve to pursue market stabilization. Countries have different private sector and distort market prices, but it is suf�cient to de�nitions of food security, and some equate it with national provide assistance to food-vulnerable people at times of cri- food self-suf�ciency. Countries such as the Philippines and ses. The program details appropriate burden sharing among US ING PUBLIC FOOD GR A IN STOCK S TO ENH A NCE FOOD S EC UR ITY C H A P T E R 5 — H O W RE GIONAL F OODGRAIN RE SE RVES CA N H ELP 37 countries and donors, with participating countries playing effective instrument to stabilize prices. While small regional a key role in governance and �nancing. The proposal also reserves for humanitarian purposes aimed at complementing envisages a streamlined, accountable governance structure. national safety net programs, in theory, could be effective, The involvement of NGOs and donors in the governance and there are no working examples despite several attempts to management of reserves will help limit potential interfer- set these up over the last 40 years. Regional reserves have ences, ensure that clear operational and �nancial rules and required stock provision from multiple countries, and stocks controls are established and followed, build trust among releases to multiple countries. Coordination challenges and stakeholders, and promote transparency (WFP 2011). It re- trust issues across national borders have complicated imple- mains to be seen how the proposed reserve will function in mentation. Strong ownership of participating countries and practice. implementable arrangements are the likely key to success of regional reserve programs. Furthermore, improvements in The Bottom Line communications, �nancial, and transportation technologies, International price stabilization schemes through interna- and in regional integration efforts, may make regional options tional agricultural commodity agreements have not been an more feasible in the future. EC O N O M I C A N D S E CT OR WORK C H A P T E R 6 — R E C OMME NDAT IONS F OR MANAGIN G PUB LIC FOOD GR A IN STOCK S 39 Chapter 6: RECOMMENDATIONS FOR MANAGING PUBLIC FOODGRAIN STOCKS Public stocks can play a limited but important complementa- appropriate skills should be mobilized or recruited, ry role in improving food security, complementing a broader and an incentive structure put in place to retain them nonstock strategy that addresses both the resiliency of rural and ensure a high standard of performance. livelihoods and the functionality of overall safety nets. Public 2. Transparency, awareness creation, and commu- grain stocks as a food security intervention are most effec- nication strategy: Awareness creation and commu- tive in the short run, especially for bridging the time needed nication campaigns are the key to the predictability for food imports, and targeting support to helping ensure the of public stock management and its successful most vulnerable have food to eat in times of market shocks. coexistence with private storage and trade. Such campaigns are often neglected and underfunded, If used, public grain stocks need to be incorporated into a leading to failures, as described in detail in this coherent long-term strategy that combines the use of trade, report. Regardless of the methods used for buying investments in agricultural productivity, and well-managed and selling stocks, the associated procedures and targeted safety net programs. Design of details will vary triggers should be transparent and clearly speci�ed from country to country, with stocks having a larger role in in an operational procedure manual. Any change net food-importing countries. A comprehensive strategy, to the manual should be publicly announced in a not public stocks per se, is necessary to succeed in stabiliz- timely manner to allow the private sector to adjust ing domestic food prices in a way that induces agricultural accordingly. growth and accelerates poverty alleviation. 3. Size of reserves: A reserve should be limited in size to avoid a dominant position in the market but should If countries continue using public stocks for price stabiliza- be sizable enough to affect prices. The size of stocks tion, they are advised to align implementation arrangements should be commensurate with their �scal affordabil- with the objective to improve food security of vulnerable ity, cost-effectiveness, and storage capacity. households. In this context, price stabilization can be suc- cessful only if addressing relatively rare price events in a 4. Composition of the reserve: As a basic principle, way that crowds in private sector and stimulates agricultural public reserves should be composed of cereals that growth, permitting a gradual long-term reduction of food are widely consumed, normally readily available prices; these are the keys to alleviating poverty and enhanc- in the domestic market, and preferably locally ing the long-term economic competitiveness of developing produced. In selecting the speci�c grain type, there countries. The list of safeguards for managing public stocks will always be trade-offs, but from an operational and is demanding but absolutely essential for ensuring high value budgetary standpoint, it would be advantageous to for money and associated improvements in food security have only one type of grain in the reserve. outcomes. The following features are critical in this respect: 5. Location of the reserve: The reserve has to be held in locations where suitable facilities with adequate 1. Management structure: Stocks should be managed capacity for long-term storage of grain exist. Locating with a level of autonomy similar to that of central storage facilities in producing areas may save on banks, within a framework of clear and well-de�ned transportation costs, but ready access to markets objectives and implementation arrangements. There and targeted bene�ciaries needs to be factored into is no need to build bureaucracy around technical the decision. While there could be advantages to decisions. Clear triggers for market interventions and spreading the reserve over several locations, con- releases should be used to avoid market disruptions sideration has to be given to the ability to maintain and politicization of stock management. Staff with control over and supervise the physical stocks. EC O N O M I C A N D S E CT OR WORK 40 CHAP TER 6 — R EC OMMEND ATIONS FOR MA NA GING PUB LIC FOOD GR A IN S TOC K S 6. Financing the reserves: Financing is required to needs. A rotation strategy needs to be carefully de- fund the purchase of grain and to cover operational signed to protect stocks from aging and to minimize costs (i.e., the administrative costs of the agency price distortions during rotations. A rotation strategy responsible for the reserve, storage, handling, needs to consider including sales and transfers to transport, and maintenance costs of the grain). Costs safety nets and careful rotation of grain toward the are minimized when the agency buys low, sells high, end of the marketing season when market supplies and stores short. The agency should not attempt to are running low and when there should also be a maintain producer and consumer prices within a good indication of the crop prospects for the follow- band narrower than the import and export parity price ing year, and hence the likely reserve needs. band (see below). Savings can also be made by Food emergency and safety net reserves are more practical (i) outsourcing market monitoring systems (early and desirable for public investments to achieve food security warning systems, etc.); (ii) contracting the private outcomes than buffer stocks aiming at stabilizing prices. But sector to store the reserves; (iii) focusing on a single, even these public stock programs require careful design and locally available grain; and (iv) buying and selling implementation arrangements to produce results. In addition stocks though existing market mechanisms (i.e., to the safeguards for buffer stocks described above, the fol- public open tenders or commodity exchanges). lowing features are essential for the success of these types 7. Price band: If a price band is set, it should be around of public stocks: the export and import parity prices in a way that smoothes out occasional price spikes, not inter- 1. Food versus cash transfers: The option of food seasonal fluctuations, through market interventions transfers needs to be compared with the often that only occur every few years. This will reduce preferable choice of cash transfers. Foodgrain interannual price instability but leave seasonal cycles stocks should be used only for their main purpose largely unaffected, permitting the private sector to of addressing food emergencies and chronic food participate pro�tably in storage and trade. insecurity. 8. Rules of replenishment: Replenishments need to 2. Transfer mechanisms: When food transfers are be designed to ensure that the reserves minimize deemed superior to cash transfers, ef�cient trans- their costs. Purchases need to be made through fer mechanisms should be identi�ed and designed. open tenders when prices are low, in locations close Food distribution at subsidized prices and universal to strategic storage facilities by using existing market subsidy in general are the least preferred options; participants in their normal marketing roles. While food vouchers and stamps, food-for-work, school purchasing directly from farmers holds certain at- feeding, emergency relief, and other targeted safety tractions, it has substantial practical and operational net programs are more ef�cient. problems. To avoid having several tens of thousands 3. Better promotion of nutritional outcomes: Food of individual transactions of relatively small quanti- transfers have the potential to improve the nutri- ties, consideration needs to be given to introducing a tional outcomes of program bene�ciaries by adding minimum quantity that would be bought at a buying nutrients and minerals to food, including through point or storage location. As an alternative to main- bioforti�cation. Food safety net programs should be taining a network of buying points, purchases could more active in this area to generate greater bene�ts. be restricted to storage facilities in which reserves Yet forti�cation can be hampered by a lack of proper are to be held. government regulations or low incentives to process- 9. Rules of releases and rotation: Sales of stocks also ing sector to fortify food. need to be made through public open tenders at 4. Effective targeting and clear, transparent procure- market prices. The results of these tenders should ment and release procedures: Strict targeting of be published to maintain transparency and account- vulnerable groups for food relief, open tendering of ability in the tendering process. Commodity exchang- releases and procurements, and a careful rotation es can be used to strengthen the price discovery strategy would all help minimize possible adverse mechanism and add to the integrity of the process. impacts on markets, and contribute to the ef�cient Different lot sizes can be offered to cater for different functioning of the reserve. US ING PUBLIC FOOD GR A IN STOCK S TO ENH A NCE FOOD S EC UR ITY C H A P T E R 6 — R E C OMME NDAT IONS F OR MANAGIN G PUB LIC FOOD GR A IN STOCK S 41 5. Size of the reserve: Emergency reserve stocks determine the level of stocks that will keep costs should be suf�cient to meet urgent food needs under control. resulting from emergency-induced food shortages Regional reserves can complement national schemes. But until food imports or other domestic supplies can clearly de�ned objectives and implementable arrangements be mobilized and delivered. Normally, this amounts are necessary to ensure successful functioning of such to a stock size equivalent to one to three months schemes. Importantly, countries need to avoid trade restric- of estimated domestic consumption of the major tions during major food crises. This is demanding, explaining cereal consumed in the country. Chronic food needs why so little has been achieved so far with implementation among poor and vulnerable populations should be of regional reserves in different parts of the world. But if met through programs designed speci�cally for that cooperation agreements are reached and implementation purpose. National food reserve stocks can be rotated details are worked out, regional reserves can provide sub- through such safety net programs. stantial complementary bene�ts to national-level programs. 6. Early warning systems: For both emergency and Improvements in communications, �nancial, and transporta- safety net reserves, an early warning system and tion technologies are likely to make regional options more annual vulnerability assessments are needed to feasible in the future. EC O N O M I C A N D S E CT OR WORK REFERENCES 43 REFERENCES Action Aid. 2011. No More Food Crises: The Indispensible Role of Dano, E. 2006. “ASEAN’s Emergency Rice Reserve Schemes.� Food Reserves. June. Women in Action, http://www.isiswomen.org/downloads/wia/ wia-2006-3/03wia06_04aDano.pdf. ADB. 2011. Global Food Price Inflation and Developing Asia and World Bank. Manila: Asian Development Bank. Dano, E., and E. Peria. 2006. “Emergency or Expediency? A Study of Emergency Rice Reserve Schemes in Asia.� A joint publication Alderman, H. 2011. “Food Transfers and Safety Nets.� Presentation of Asia DHRRA and AFA, Manila. at the Role of Public Stocks in Food Security seminar held at The World Bank, Washington, DC, December 6. Dawe, D. 2006. “Rice Trade Liberalization Will Bene�t Poor.� In Why Does the Philippines Import Rice? Meeting the Challenge Basu, K. 2010. “The Economics of Foodgrain Management in India.� of Trade Liberalization, ed. D. Dawe, P. Moya, and C. Casiwan. Chief Economic Advisor, Ministry of Finance of India. Manila: Joint Publication of International Rice Research Institute Bellemare, M., C. Barrett, and D. Just. 2011. “The Welfare Impacts (IRRI) and Phil Rice, Manila, pp. 43–52. of Commodity Price Volatility: Evidence from Rural Ethiopia.� Dawe, D. 2009. “Price Stabilization for Staple Foods: Costs and Working paper. Bene�ts, Implications for Modeling, and Using Trade Policy as a Briones, R. 2011. “Regional Cooperation for Food Security: The Case Safety Net.� FAO. Paper prepared for the Meeting on Uncertainty of Emergency Rice Reserves in ASEAN Plus Three.� Philippine and Price Volatility of Agricultural Commodities, Paris, June. Institute for Development Studies, Manila. Dawe, D., S. Block, A. Gulati, J. Huang, and S. Ito, eds. 2011. Briones, R., and D. Parel. 2011. “Putting Rice on the Table: Rice “Domestic Rice Price, Trade, and Marketing Policies.� Rice in Policy, the WTO, and Food Security.� Policy Notes 2011-11, the Global Economy: Strategic Research and Policy Issues for Philippine Institute for Development Studies. Food Security. International Rice Research Institute, Manila. Brooks, R. 2002. “Why Is Unemployment High in the Philippines?� Dawe, D., P. Moya, C. Casiwan, and J. Cabling. 2006. “Better Banks IMF Working Paper 02/23, Washington, DC. and Paddy Wholesale Markets Are the Key to Reducing Rice Marketing Margins.� In Why Does the Philippines Import Rice? Ca�ero, C., and J. Schmidhuber. 2011. “Stock and Price Data: Does Meeting the Challenge of Trade Liberalization, ed. D. Dawe, Practice Match with Theory?� Presented at the AMIS Meeting P. Moya, and C. Casiwan, 13–22. Manila: Joint Publication of in Rome, December 19. International Rice Research Institute and Phil Rice. Catholic Relief Services (CRS). 1998. “Community-Level Grain de la Briere, B. 2011. “Targeting Social Safety Net Programs.� Storage Projects (Cereal Banks): Why Do They Rarely Work and Presentation for the SSN Core Course, World Bank, Washington, What Are the Alternatives?� Workshop in Dakar, Senegal, spon- DC. sored by CRS with funding from USAID/OFDA. Demeke, M., G. Pangrazio, and M. Maetz. 2008. “Country Responses Chapoto, A., and T. Jayne. 2007. “How Does Regional Trade Affect to the Food Security Crisis: Nature and Preliminary Implications of Maize Price Unpredictability?� Presented at Second African the Policies Pursued.� Agricultural Support Service, FAO, Rome. Grain Trade Summit, Nairobi, Kenya, April 18–19. Dorosh, P. 2009. “Price Stabilization, International Trade and National Chapoto, A., and T. Jayne. 2009. “The Impact of Trade Barriers and Cereal Stocks: World Price Shocks and Policy Response in South Market Interventions on Maize Price Predictability: Evidence from Asia.� Food Security 1: 137–49. Eastern and Southern Africa.� MSU International Development Working Paper 102, East Lansing, Michigan. FAO. 2002. The State of Food Insecurity in the World 2011. Rome. Coady, D., P. Dorosh, and B. Minten. 2008. “Evaluating Alternative FAO. 2012. “Rice Market Monitor.� January 2012, Volume XV, Approaches to Poverty Alleviation: Rice Tariffs versus Targeted Issue 1. Trade and Markets Division, UN Food and Agriculture Transfers in Madagascar.� IMF Working Paper 08/9, Washington, DC. Organization, Rome. Cummings, R., S. Rashid, and G. Ashok. 2006. “Grain Price Faruqee, R. 2009. “Government Policy and Program for Strategic Stabilization Experience in Asia: What Have We Learned?� Food Grain Reserve in Malawi: Issues and Options.� Report prepared Policy 31: 302–12. for the World Bank, Washington, DC. EC O N O M I C A N D S E CT OR WORK 44 REFER ENC ES Fuglie, K. 2009. “Agricultural Productivity in Sub-Saharan Africa.� Larson, D., and C. Gouel. 2011. “Modeling Precautionary Storage.� USDA, Economic Research Service. Paper presented at the Presentation made at The Role of Public Stocks in Food Security Cornell University Symposium on the Food and Financial seminar organized by the World Bank in Washington, DC, Crises and Their Impact on the Achievement of the Millennium December 6. Development Goals, New York, May 1–2. Larson, D., J. Lampietti, C. Gouel, C. Ca�ero, and J. Roberts. 2012. G20. 2011. “Price Volatility in Food and Agricultural Markets: Policy “Food Security and Storage in the Middle East and North Responses.� Policy Report for G20 with contributions by FAO, Africa.� Policy Research Working Paper 6031, the World Bank, IFAD, IMF, UNCTAD, WFP, the World Bank, the WTO, IFPRI, and Washington, DC. the UN HLTF, May 3. Lasco, M. C. 2005. “Dynamics of Agricultural Wages and Rice Prices in Ganesh-Kumar, A., A. Gulati, and R. Cummings. 2008. “Reforming the Philippines.� Master Thesis, Michigan State University, Lansing. Foodgrains Management: Achieving Food Security with Cost- Lynton-Evans, J. 1997. “Strategic Grain Reserves. Guidelines for Effectiveness.� Working Paper 27, Indira Gandhi Institute of their Establishment, Management and Operation.� Agricultural Development Research, Mumbai. Services Bulletin 126, Rome, http://www.fao.org/docrep/ Gentilini, U. 2007. Cash and Food Transfers: A Primer. The World w4979e/w4979e00.htm. Food Programme, Rome. Manasan, R. 2009. “Reforming Social Protection Policy: Responding GMR. 2012. Food Prices, Nutrition, and the Millennium to the Global Financial Crisis and Beyond.� Philippine Institute for Development Goals. Global Monitoring Report, World Bank, Development Studies, Discussion Paper Series 2008-22, Makati. Washington, DC. Martin, W., and K. Anderson. 2011. “Export Restrictions and Price Gouel, C., and S. Jean. 2012. “Optimal Food Price Stabilization in a Insulations during Commodity Price Booms.� American Journal Small Open Developing Country.� World Bank Policy Research of Agricultural Economics 94(2): 422–27. Working Paper 5943, Washington, DC. McCulloch, N., and P. Timmer. 2008. “Rice Policy in Indonesia: A Special Hanush, D. 2010. “A Possible Contribution of Food Reserves Issue.� Bulletin of Indonesian Economic Studies 44(1): 33–44. to Food Security in Djibouti.� World Food Programme, Draft Mercier, S., and S. von Cramon-Taubadel. 2012. “US and EU Farm Report, October. Policies: What Happens Next?� Presentation sponsored by the IEG. 2011. “Social Safety Nets: An Evaluation of World Bank Rural Policies Thematic Group at the World Bank in Washington, Support, 2000–2010.� Independent Evaluation Group, World DC, February 16. Bank, Washington, DC. Mghenyi, E. 2006. “Food Pricing Policy, Rural Poverty, and the Islam, N., and S. Thomas. 1996. “Foodgrain Price Stabilization Distribution of Income: Insights from Maize in Kenya.� Paper in Developing Countries.� Food Policy Review 3, IFPRI, presented at the International Agricultural Economics Tri-Annual Washington, DC. Meeting, Gold Coast, Australia, August 16. Jayne, T., R. Myers, and J. Nyoro. 2008. “The Effects of NCPB Minot, N. 2011. “Food Price Volatility and the Management of Public Marketing Policies on Maize Market Prices in Kenya.� Agricultural Grain Stocks in Eastern and Southern Africa.� Prepared for ARD, Economics 38: 313–25. World Bank, Washington, DC. Jha, S., and A. Mehta. 2008. “Effectiveness of Public Spending: Moya, P., and D. Dawe. 2006. “Mechanization and Saving Labor The Case of Rice Subsidies in the Philippines.� ADB Economic Are the Keys to Making Rice More Competitive.� In Why Does Working Paper Series, 138, Asian Development Bank, Manila. the Philippines Import Rice? Meeting the Challenge of Trade Liberalization, ed. D. Dawe, P. Moya, and C. Casiwan, 69–72. Jha, S., and A. Mehta. 2010. “Inclusiveness through Food Security: Manila: Joint Publication of International Rice Research Institute The Philippines’ National Food Program.� In Poverty, Inequality and Phil Rice. and Inclusive Growth in Asia, ed. Zhuang, Juzhong. Asian Development Bank, Manila. Mude, A., and P. Kumar. 2006. “Estimating the Welfare Impacts of Maize Price Policy in Kenya.� Study presented at the World Bank Jha, S., and B. Ramaswami. 2010. “How Can Food Subsidies Workshop on Poverty and Economic Growth, Washington, DC. Work Better? Answers from India and the Philippines.� Asian Development Bank Economics Working Paper Series 221, Murphy, S. 2009. “Strategic Grain Reserves in an Era of Volatility.� Manila. Institute for Agriculture and Trade Policy, October. Khera, R. 2011. “India’s Public Distribution System: Utilization and Myers, R. 2006. “On the Costs of Food Price Fluctuations in Low- Impact.� Journal of Development Studies 47(7), pp. 1–23. Income Countries.� Food Policy 31(4): 288–301. Koester, U. 1986. “Regional Cooperation to Improve Food Security NEPAD. 2004. “NEPAD Study to Explore Further Options for Food in Southern and Eastern African Countries.� IFPRI Research Security Reserve Systems in Africa.� New Economic Partnership Report 53, Washington, DC. for Africa’s Development with the technical support from the World Food Program, Rome. Krandker, S., A. Khaleque, and H. Samad. 2011. “Can Social Safety Nets Alleviate Seasonal Deprivation? Evidence from Northwest Newbery, D., and J. Stiglitz. 1981. The Theory of Commodity Bangladesh.� Policy Research Working Paper 5865, World Bank, Price Stabilization: A Study in the Economics of Risk. Oxford: Washington, DC. Clarendon. US ING PUBLIC FOOD GR A IN STOCK S TO ENH A NCE FOOD S EC UR ITY REFERENCES 45 Nkonde, C., N. Mason, N. Sitko, and T. Jayne. 2011. “Who Gained USDA. 2012, March 9. “World Agricultural Supply and Demand and Who Lost from Zambia’s 2010 Maize Marketing Policies?� Estimates.� The United States Department of Agriculture, Food Security Research Project Working Paper 49, Lusaka, Washington, DC. Zambia. Warr, P. 2005. “Food Policy and Poverty in Indonesia: A General Pardey, P., J. Alston, and R. Piggott, Eds. 2006. “Agricultural R&D in Equilibrium Analysis.� Australian Journal of Agricultural Resource the Developing World: Too Little, Too Late?� International Food and Economics 49(4): 429–451. Policy Research Institute, Washington, DC. WDR. 2007. World Development Report 2008: Agriculture for Prakash, A., Ed. 2011. “Safeguarding Food Security in Volatile Global Development. World Bank, Washington, DC. Markets.� FAO, Rome. WFP. 2011. “Emergency Humanitarian Food Reserves: Feasibility Rashid, S. 2011. “Public Foodgrain Stock Management Policies in Study, Cost-Bene�t Analysis and Proposal for Pilot Program.� Bangladesh.� International Food and Policy Research Institute. World Food Programme, September 14, Rome. Presentation made at The Role of Public Stocks in Food Security World Bank. 2006. “Managing Food Price Risks and Instability seminar organized by the World Bank in Washington, DC, in an Environment of Market Liberalization.� Agriculture and December 6. Rural Development Department, World Bank, Washington, Rashid, S., and S. Lemma. 2011. “Strategic Grain Reserves in DC. Ethiopia: Institutional Design and Operational Performance.� World Bank. 2007. “Philippines: Agriculture Public Expenditure IFPRI Discussion Paper 01054, Washington, DC. Review.� Technical working paper, Manila and Washington, DC. Rhee, C. 2011. “Food Price Inflation, Poverty, and Inclusive Growth World Bank. 2008. “Regional Trade in Food Staples: Prospects for in Asia.� Presentation of the Chief Economist of ADB at the Stimulating Agricultural Growth and Moderating Food Security Commodity Price Volatility and Inclusive Growth in LICs work- Crises in Eastern and Southern Africa.� Agriculture and Rural shop in Washington, DC. Development, World Bank Africa Region, Report 46929-AFR, Rohrbach, D., R. Faruqee, M. Sadler, and C. Baker. 2010. “Optimal Washington, DC. Grain Reserve Strategies for Malawi.� Discussion Paper, World World Bank. 2011. “MNA Facing Challenges and Opportunities: Bank, Washington, DC. Regional Economic Update.� World Bank, Washington, DC. Sabates-Wheeler, R., and S. Devereux. 2010. “Cash Transfers and World Bank. 2012a. “Food Reserves in Zambia: How to Use Them High Food Prices: Explaining Outcomes on Ethiopia’s Productive Better for Poverty Reduction and Diversi�cation.� Presentation Safety Net Program.� Future Agricultures Working Paper, to the Government of Zambia as a part of the TA on Agricultural London. Policy Reforms, Washington, DC, and Lusaka. Shepherd, A. 2011. “Lessons Learned from the Management of World Bank. 2012b. “Responding to Higher and More Volatile Global Public Stocks in East Asia.� Background paper for the Economic Food Prices.� Economic Sector Work, Agriculture and Rural Sector World Managing Public Stocks for Food Security, World Development Department, World Bank, Washington, DC. Bank, Washington, DC. World Bank. 2012c. “Targeting Poor and Vulnerable Households in Srinivasan, P., and S. Jha. 2001. “Liberalized Trade and Domestic Indonesia.� Working Paper 67218, World Bank, Washington, Price Stability: The Case of Rice and Wheat in India.� Journal of DC. Development Economics 65(2): 2–24. World Bank and FAO. 2012. “The Grain Chain: Food Security and Tangermann, S. 2011. “Policy Solutions to Agricultural Market Managing Wheat Imports in Arab Countries.� Washington, DC, Volatility: A Synthesis.� Issue Paper 33, International Centre for and Rome. Trade and Sustainable Development, Geneva. World Bank, NRI, and FAO. 2011. “Missing Food: The Case of Thangata, P., and S. Lemma. 2010. “Price Stabilization and Strategic Postharvest Losses in Sub-Saharan Africa.� Report 60371-AFR, Grain Reserves: The Case of Malawi.� Presentation at the ARD/AFTAR World Bank, UK Natural Resource Institute, and UN Risk Management in African Agriculture: Taking Stock of What FAO. Has and Hasn’t Worked African Agricultural Markets Program, Lilongwe, Malawi, November 5. Wright, B. 2009. “International Grain Reserves and Other Instruments to Address Volatility in Grain Markets.� Policy Research Working Timmer, P. 1996. “Does Bulog Stabilize Rice Prices? Should It Try?� Paper 5028, World Bank, Washington, DC. Bulletin of Indonesian Economic Studies 32(2): 45–74. Wright, B. 2011. “Price Volatility in Agricultural Commodities: Market Timmer, P. 2004. “Food Security in Indonesia: Current Challenges Fundamentals.� Presentation at the Forum for Agricultural Risk and the Long-Term Outlook.� Working Paper 48, Center for Management in Development, Zurich, June 9. Global Development, Washington, DC. Yemtsov, R. 2011. “Weaving the SSN Poverty and Vulnerability Tolentino, V., J. Bruce, and B. De La Pena. 2011. “Stymied Reforms Assessments: Overview of Concepts and Methods.� in Rice Marketing in the Philippines, 1980–2009.� Chapter 7 in Presentation for the SSN Core Course, World Bank, Washington, Built on Dreams: Grounded on Reality. Economic Policy Reform DC. in the Philippines, the Asia Foundation, Manila. EC O N O M I C A N D S E CT OR WORK A G R I C U L T U R E A N D R U R A L D E V E L O P M E N T Agriculture and Rural Development (ARD) 1818 H Street, NW Washington, D.C. 20433 USA Telephone: 202-477-1000 ARD AGRICULTURE AND RURAL DEVELOPMENT Internet: www.worldbank.org/ard