public grain reserves: international experience and lessons for...
TRANSCRIPT
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INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Public grain reserves: International experience and lessons for Malawi
Nicholas Minot
International Food Policy Research Institute
IFPRI-Malawi, Lilongwe,
27 January 2017
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Outline• Objectives of public grain reserves• Current issues
• Public food distribution• Emergency relief• Price stabilization
• International experience• Future directions• Conclusions & lessons for Malawi
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Food and nutrition security: ensuring that all people at all times have access to sufficient nutritious food for a healthy, active life
Public reserves can promote FNS in three ways• Reserves can supply food distribution network
assistance to chronically poor households • Reserves facilitate emergency relief
assistance to temporarily poor household due to flooding, drought, or other natural disaster
• Reserves can be used for food price stabilization reduce risk to households and farmers
Objectives of public grain reserves
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Capacity and stocks needed for public food distribution depend on:• Monthly quantity distributed (Q)• Average time (months) in storage (T)• Capacity requirement = 2QT (under certain conditions)
Current issues:Public food distribution
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Traditional approach: procurement in surplus areas or from imports, sell to consumers in urban areas and sometimes rural areas at subsidized prices
Cost-effectiveness as poverty reduction strategy depends on targeting
Studies show leakage to non-poor households is common
Shift from universal distribution to geographic targeting to social safety net programs
Current issues:Public food distribution
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Capacity and stocks needed for emergency relief depend on:• Time needed to obtain supplies from imports or other
sources• Distribution of emergency need within that time• Percentage of emergencies to be fully covered
Current issuesEmergency relief
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1 in 30 year emergencyrequirements
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Emergency requirements
Probability of different emergency requirements
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2250.0009765625
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Stock over time
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Fuzzy boundary between emergency relief and price stabilization, particularly if “emergency” defined broadly
Traditionally emergency relief in form of food (cereals, vegetable oil, etc)
Increasing use of cash assistance• Cash assistance is cheaper for government & more
flexible for beneficiary• Works well if shortages are local and market work well• Food aid still needed if emergency is national or markets
don’t work
Current issuesEmergency relief
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Motivation for price stabilization
Current issuesPrice stabilization
By comparison, for six Asian countries, the CV for rice prices ranged from 12% in Bangladesh to 25% in the Philippines
Chart1
TanzaniaTanzaniaTanzania
ZambiaZambiaZambia
KenyaKenyaKenya
MozambiqueMozambiqueMozambique
Avg for s & e AfricaAvg for s & e AfricaAvg for s & e Africa
Avg of 7 countriesAvg of 7 countriesAvg of 7 countries
UgandaUgandaUganda
MalawiMalawiMalawi
EthiopiaEthiopiaEthiopia
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Series 1Column1Column2
Tanzania26%
Zambia27%
Kenya29%
Mozambique31%
Avg for s & e Africa36%
Avg of 7 countries37%
Uganda43%
Malawi49%
Ethiopia51%
To resize chart data range, drag lower right corner of range.
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Benefits of price stabilization• Importance to consumers depends on share of budget spent
on grains• Importance to farmers depends on share of income from
grain sales• Studies find benefits of price stabilization to be relatively
small (0-2% of income) but political pressure for stabilization remains strong
Costs of price stabilization to government• Amortized cost of storage facilities• Transport and handling• Spoilage in storage• Financial costs (buy now, sell later)
Current issuesPrice stabilization
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If band is too high:• Buying more than selling• Accumulation of stocks• Eventually exhaust
funding or storage capacity
If band is too low:• Selling more than buying• Depletion of stocks • Eventually exhaust stocks
One option: adjust mid-point using rolling average (e.g. past 3 years)
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Level of price band
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Wide band implies:• Less price stabilization• Less frequent
intervention• Lower cost
Narrow band implies:• More price
stabilization• More frequent
intervention• Higher cost
Width of price band
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With buffer stock
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Benefits of price stabilization
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Costs of price stabilization depend on details
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Annual cost of stabilization
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For hypothetical country producing 2 m tonnes/year with high volatility, relationship between width of band…
… and cost of price stabilization for a country producing 2 million tonnes per year with high price volatility
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Public food reserves in practice Typically managed by state-owned enterprise Reserves in main staple cereal and 1-2 others
• Root crops and cooking bananas too perishable Food reserves in developing countries have multiple objectives
• Price stabilization, preparation for emergencies, support farm price, keep down consumer prices, etc.
Food reserves use different types of interventions• Not just buying & selling, but import & export policy,
government imports and exports, regulations of grain marketing
Food reserves do not use consistent buy/sell rules• Intervention depends on budget resources, politics, etc.
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Discretionary Rule-based
Definition Decisions about buying and selling are made based on judgement based on a wide range of factors
Decisions about buying and selling are based on explicit criteria using a small number of quantifiable factors such as price
Factors influencing decision
Weather, harvest size, world prices, stocks, availability of funding, political pressure, political debate, leadership decisions
Usually just buying price and selling price, though may be adjusted occasionally
Predictability Less predictable Predictable based prices
Effect on private sector
Lower investment in storage and transport capacity because of uncertainty
Greater investment due to predictability
Potential for rent-seeking
Higher Lower
Buying and selling policies
Public food reserves in practice
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International experience: Eastern and Southern AfricaPublic food reserves in practice
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Public food reserves in practiceExamples of minimal intervention
Uganda• Plan for Modernization of Agriculture says:
“The Government recognises that publicly held food reserves are very expensive under the best of conditions and require careful management to minimise losses due to spoilage. Such schemes have had limited success in other countries, but have certainly exerted substantial demands upon public funds. Therefore, government will not adopt any policy to accumulate such stocks unless and until careful studies in Uganda have determined their efficacy.”
Mozambique• No strategic grain reserve or price stabilization efforts
Tanzania• Has Strategic Grain Reserve but has been too small to affect prices
(purchases are about 1% of production)
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Public food reserves in practiceExamples of more interventionist policies
Ethiopia • Ethiopia Grain Trading Enterprise (EGTE)• Ad hoc intervention in maize & wheat markets• In 2006-8, rising grain prices, surpassed import parity
Inflation Harvest smaller than estimated No private imports because announced government imports and foreign exchange shortage
Kenya• National Cereals & Produce Board (NCPB)• Successful in partial stabilization and raising maize prices• Major price spike in 2009 caused by
High import tariff (50%) No private imports because announced government imports When tariff lowered, congestion in transport routes
• Major corruption scandal Allocation of valuable import licenses Allocation of subsidized maize from NCPB
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1980s: maize marketing controlled by National Ag Marketing Board (NAMBOARD), which set pan-territorial and pan-seasonal prices and handled maize imports and distribution
1989: NAMBOARD abolished and private trade legalized 1996: Food Reserve Agency (FRA) formed to administer grain
reserve as buffer stock, private trade remains legal FRA procurement was small or zero over 1996 – 2001,
expanded since 2002, dominant buyer since 2005 Other intervention: export bans, tariff rates, govt maize
imports
Public food reserves in practiceZambia
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Study by Mason and Myers (2013) Method: VAR time-series analysis of effect of FRA purchase
and sales on maize prices in Zambia over 1996-2008 Results: FRA reduced CV of maize price by 17% FRA raised average price of maize by 10% Welfare effect of price increases much larger than welfare
impact of stabilization Benefits to large surplus farmers, losses to urban consumers
and small net-maize buyers in rural areas
Public food reserves in practiceZambia
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Public food reserves in practiceMalawi
• Agricultural Development & Marketing Corporation (ADMARC) and Food Reserve Agency (FRA)
• Three price spikes since 2000 Poor rainfall played a role but price spike exacerbated by: Lack of transparency about grain stock size Government announcements of imports, then delays Procurement for government export
• In spite of efforts to stabilize maize price, volatility among the highest in sub-Saharan Africa Question is whether volatility is high in spite of stabilization
efforts or whether intervention may contribute to spikes
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Maize prices in MalawiSeasonal price index (1.0=average)
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SI_NOMINAL SI_REAL
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Maize prices in MalawiAdmarc sales, retail maize and MFG prices, 2005-2016
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100110120130140150160170180190200210220230240250260270280290300
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Average National Retail Price
ADMARC Sales Price
MFG maize prices
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Maize prices in Malawi Domestic price and import & export parity over 2004-2016 in US$
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“Buffer stocks are notorious for being politicised, and making variable pricing decisions depending on political pressures. For this reason, it is argued that they need to be recast as independent agencies or trusts, with a legal status that enables them to operate free of political interference…
maize policy in Malawi is understandably highly political, and many decisions can only be understood in terms of electoral cycles, promises made by political parties and their leaders prior to gaining power, and the goal of securing political support from important sectors of the populace in the future.” (Manda, 2010)
Public food reserves in practiceMalawi
Role of political factors in public reserves
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With income growth:• share of household expenditure allocated to food declines
(Engel’s Law)• Share of food spending allocated to staples declines
(Bennett’s Law)• Diet shifts away from staple grains and toward meat, fish,
dairy products, fruits & vegetables, and processed foods Implications for reserves: as importance of staples in diet
declines, need for grain price stabilization declines
Future directions
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With structural transformation of the economy• Diversification in farm production into high-value commodities,
so that income from staple grains becomes less important. • Reduction in incidence of poverty due to income growth• Gradual long-term shift of poverty from rural to urban • Growth in export value & foreign reserves relative to cost of
imported food, making food imports less of an economic burden and macro-economic risk
Implications for public grain reserves: Declining importance
Future directions
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With development of infrastructure and markets• Need to deliver food in kind declines• Cash assistance is less expensive to deliver and provides
more flexibility for beneficiary• Cash creates demand, which will draw food supplies to
region if roads are passable and markets functioning• WFP and several countries switching from in-kind assistance
to cash assistance
Implications for public grain reserves: Declining need to store grain for distribution
Future directions
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Lessons for Malawi Consider shifting from direct in-kind food assistance to
cash-based assistance• Could be provided on pilot basis to test effects• Studies in other countries show cost savings and
satisfaction among beneficiaries with similar benefits for food security
Open borders provide no-cost “price band”• Impeding imports has exacerbated price spike in
several cases
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Lessons for Malawi Price stabilization is expensive
• Large procurement costs (US$ 20-100 m per year)• Storage, handling, and overhead• State enterprises cannot cover costs with stabilization efforts
Aggregate benefits are small• Most estimates 0 to 4% of farm income
Benefits of price stabilization not pro-poor• Most of benefits to larger commercial farmers, also urban poor
Food price stabilization prone to “rent-seeking” Improve consistency and predictability in govt actions
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Lessons for Malawi Promote private grain storage & imports
• Credit, non-intervention, & storage rental
Promote consumption of secondary staple crops• Cassava can act as shock absorber for grain markets
Rationale for 3 months grain reserve• To cover period until commercial imports can be arranged
If price stabilization politically necessary• Adopt rule-based price band • Adopt wide & market based price band• Adjust center of band periodically • Provide transparency on stock levels and predictability
in procurement/sales activities
Slide Number 1Slide Number 2Objectives of public grain reservesCurrent issues:�Public food distributionCurrent issues:�Public food distributionCurrent issues�Emergency reliefCurrent issues�Emergency reliefCurrent issues�Price stabilizationCurrent issues�Price stabilizationSlide Number 10Width of price bandSlide Number 12Costs of price stabilization depend on detailsPublic food reserves in practiceBuying and selling policiesSlide Number 16Public food reserves in practice�Examples of minimal interventionPublic food reserves in practice�Examples of more interventionist policiesPublic food reserves in practice�ZambiaSlide Number 20Public food reserves in practice�MalawiMaize prices in Malawi�Seasonal price index (1.0=average)Maize prices in Malawi�Admarc sales, retail maize and MFG prices, 2005-2016 Maize prices in Malawi �Domestic price and import & export parity over 2004-2016 in US$Slide Number 25Future directionsFuture directionsFuture directionsLessons for MalawiLessons for MalawiLessons for Malawi