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Session 4 b paul dorosh


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Session 4 b paul dorosh

  1. 1. Trade, Grain Reserves and Food Security: Lessons from Country Experience Paul Dorosh and Shahidur Rashid International Food Policy Research Institute Presentation at the IFPRI – UN-ESCWA international conference Food Secure Arab World: A Roadmap for Policy and Research February 6-7, 2012 – UN-ESCWA, Beirut, Lebanon
  2. 2. Plan of Presentation• Public stocks vs. international / private sector trade• Bangladesh rice trade and price stabilization • Private sector imports and public stocks can be complementary in stabilizing domestic markets • The 2008-09 world rice market shocks• Pakistan wheat procurement and distribution • Farmer, miller and other interests can encourage excessively high procurement and stocks• Zambia maize stocks and public sector imports • Government policy can destabilize domestic markets• Concluding Observations INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  3. 3. Nominal Prices of Cereals, 1960-2009 US$/ton 700 600 500 US$/ton 400 300 200 100 0 Wheat US HRW Rice Maize (US Yellow #2) Source: Calculated from IMF and FAO data.INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  4. 4. Real Prices of Cereals, 1960-2009, US$(1990)/ton 1200 1000 800 US$(1990)/ton 600 400 200 0 1960 1963 1966 1972 1975 1978 1981 1987 1990 1993 1996 2002 2005 2008 1969 1984 1999 Wheat US HRW Rice Maize (US Yellow #2) Source: Calculated from IMF and FAO data. Prices deflated by the US CPI.INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  5. 5. Public Stocks for Food Security• The spike in international prices in 2007-08 and subsequent price volatility have caused many countries to rethink their policies with respect to the degree of reliance on international trade and size of public food stocks.• High and volatile international prices suggest the need for larger public rice stocks• However, there can also be substantial costs involved, including… • Direct costs of storage facilities, losses of grain quality in storage, handling costs, as well as risk of possible disruption of private trade and storage, etc.)INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  6. 6. Investment in Agricultural Production• One alternative to reliance on trade is to increase domestic cereal supplies• Investments in agriculture (particularly, agricultural research) that raise agricultural productivity a major reason for source of rural income growth and poverty reduction in China and India (Fan, 2008). • These investments have the potential to increase availability of food, reduce its price and raise both rural agricultural and non-agricultural incomes security.INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  7. 7. Domestic Production and Self-Sufficiency • Self-sufficiency is not always desirable, however. • In some cases, achieving self-sufficiency would entail production at costs substantially higher than the cost of alternative sources (e.g. the international market). • Moreover, government expenditures on achieving self-sufficiency can have high opportunity costs in terms of lost opportunities for investments in education, health and other key sectors.INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  8. 8. Bangladesh: Trade Liberalization and thePrivate Sector Rice Import Trade, 1994-2001• Bangladesh liberalized its import trade in rice in the early 1990s, thereby enabling private sector imports to add to domestic supply in years of relatively poor harvests.• Following the 1998 flood, private sector imports exceeded 200 thousand tons/month for seven consecutive months, stabilizing domestic prices at import parity (based on India wholesale market prices plus transport and marketing costs). • At the same time, public distribution of wheat (and rice) from stocks and public imports targeted poor households. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  9. 9. The 2007/08 World Price Shock and Disruption of Trade with India• In mid-2007 world prices of major cereals rose sharply due to poor harvests in major producing countries and subsequent trade restrictions• India announced a rice export ban in late 2007, but later negotiated a restricted volume of trade at set prices• Bangladesh wholesale prices rose rapidly, but did not reach import parity with Thai rice, as international market prices hit record levels. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  10. 10. Bangladesh Rice Prices and Imports, 2005-11 70 400 60 350 300 50 Imports (thousand tons) 250 Price (Taka/kg) 40 200 30 150 20 100 10 50 0 0 Jan-10 Jan-11 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jul-09 Jul-10 Jul-05 Jul-06 Jul-07 Jul-08 Private Sector Imports Dhaka Wholesale Price Import Parity (ex: Bangkok) Import Parity (BPL) Source: Dorosh and Rashid (2012).INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  11. 11. Bangladesh: Stabilizing Rice Prices 2007-08• The gap between domestic supply and domestic demand at real prices of 2007-08 was estimated at 2.0 mn tons (about 10% of 6-month domestic supply)• The Bangladesh government ultimately arranged for about 1.0 mn tons of imports and added 0.7 mn tons of rice through distribution of government stocks.• Yet domestic prices rose sharply, suggesting that excess private stock-holding contributed to the domestic price rice.• Earlier additions to supply may have been sufficient to calm markets and greatly dampen the price rise. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  12. 12. Pakistan: Wheat Market Interventions • Domestic procurement at fixed “support price” in excess of open market prices • Large farmers who sell wheat to government benefit most • Significant losses in government storage, and high costs of handling and transport • Sales of wheat to flour mills at fixed “release price” below open market prices • Subsidies on sales of imported wheat • In some years, subsidized sales of exportsINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  13. 13. Pakistan: Initial and Estimated Peak Wheat Stocks* 1991-92 to 2010-11 12 10 8 (million tons) 6 4 2 0 1991-92 1993-94 1995-96 1997-98 1999-00 2001-02 2003-04 2005-06 2007-08 2009-10 Initial Stocks Intial Stocks + Domestic Procurement* Peak wheat stocks are estimated as end-April stocks plus May-June domestic procurement. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  14. 14. Possible Financial Losses* on Domestic Wheat Procurement and Sales 45 40 35 billion (2009-10) Rupees 30 25 20 15 10 5 - 2005-06 2006-07 2007-08 2008-09 2009-10 Financial LossINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  15. 15. Zambia Maize Trade Policy:Policy Uncertainty Adds to Price Instability• In Zambia, policy makers fear a loss of government control over maize supplies and the politically sensitive maize price. • As a result, in recent years, Zambia’s default policy has been to restrict private sector cross-border maize flows.• In 2001, the government announce that it would import large volumes of maize, thus scaring off the commercial private trade.• Then, due to a shortage of funds or to management difficulties, government ends up bringing in less maize than they intended, resulting in higher prices than necessary. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  16. 16. Conclusions: Stocks AND Trade for Price Stabilization• The 2007/08 world cereal price shocks and subsequent price instability suggests the need for public stocks to ensure cereal availability• Public stocks and (private sector) imports can be effective complementary policies. This requires: • Maintaining incentives for domestic production and private sector trade • Transparent and consistent government policy to provide clear signals to farmers, traders and consumers • Effective monitoring and market analysis to enable governments to adjust policy interventions when needed INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  17. 17. ReferencesDorosh, Paul A. 2001. “Trade Liberalization and National Food Security: Rice Trade between Bangladesh and India”, World Development, 29(4): 673-689.________ . 2009. “Price Stabilization, International Trade and National Cereal Stocks: World Price Shocks and Policy Response in South Asia”, Food Security 1(2):137-149.Dorosh, Paul A., Simon Dradri and Steven Haggblade. 2009. “Regional Trade, Government Policy and Food Security: Recent Evidence from Zambia”, Food Policy 34: 350-366.Dorosh, Paul A. and Shahidur Rashid. 2011. “Bangladesh Rice Trade and Price Stabilization: Implications of the 2007/08 Experience for Public Stocks” (manuscript).Fan, Shenggen, ed. 2008. Public expenditures, growth, and poverty: Lessons from developing countries. Baltimore, Md., U.S.A.: Johns Hopkins University Press.INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE