This document discusses strategic grain reserves and their role in stabilizing food prices and ensuring food security in Africa. It argues that strategic grain reserves, which operate independently from the market by only lending stocks in emergencies, are more effective than integrated buffer stock policies that also involve government price setting and market interventions. Key elements of effective strategic reserves include high government commitment, coordination with safety net programs, clear stock release guidelines, and optimal storage of stocks in strategic locations.

1. Strategic Grain Reserves Food Prices Stabilization in Africa Shahidur Rashid Senior Research Fellow International Food Policy Research Institute (IFPRI) Imperial Royale Hotel, Kampala January 31, 2011

2. Talking points Why grain reserves / price policies? Grain reserves, food security, and agricultural development. Illustrations using country case studies The need for distinguishing emergency food security reserves and other food stocks (e.g., buffer stocks) The key elements of a successful strategic grain reserves

3. Why SGR / price policies? Price is the outcome of a process of exchange, we call market. So, price of a commodity will be right only if the process of exchange is right—that is, if the market fundamentals (infrastructure, markets institutions, information, etc.) are right. If market fundamentals are missing / inadequate, markets cannot ensure efficient resource allocation; and hence policy interventions (e.g., holding food stocks, providing safety nets, building roads) are justified. And such interventions are not contradictory to the theories of market economics

4. DAI L Y INCOME Income Distribution line Poverty line = $2 /day 40% 80% 100% population Ag development and food policies The S-shape curve: S-shaped curve= Cumulative income distribution Poverty line = $2 / day Proportion of people below poverty line = 40 percent C B A

5. Ag Development and food policies (2)

6. Grain reserve, agriculture, & food security Suppose government of a developing country makes the following two policy decisions: Enhance agricultural productivity (through group B and C) Ensure food security for its poor and vulnerable through safety nets programs (supporting group A)

7. Grain reserve, agriculture, &food security (2) To enhance agricultural productivity, government does the following: Invests in agricultural R&D to develops a new adaptable technology. Disseminate this technology through massive extension programs. Farmers adopt the new technology; and There is bumper harvest, with prices hitting lower than costs of production market collapses

8. Grain reserve, agriculture, & food security (3) A policy advisor steps in and suggests ensuring a minimum price so that farmers do not get discouraged by market collapse.

9. Grain reserve, agriculture, & food security (4) Procurement Grain stock Open Market Safety nets Emergency distribution Food for Education Food for works Nutrition and health

10. Grain reserve, agriculture, & food security (5) This is the model Asian countries adopted to promote green revolution. While some countries substantially reformed, many countries continue to follow these policies (e.g., India, Indonesia, and Pakistan Some countries in Africa practice similar policies (e.g., Kenya, Malawi, and Zambia) However, other African countries (e.g., Uganda, Mozambique, and Ethiopia substantially withdrew)

11. Challenges of this integrated model Challenges of this model are: Too many objectives; Too many stakeholders; Too many institutions involved; Too complex to monitor and achieve efficiency Involves very large public subsidies; Often captured by special interests; Studies suggest that African countries that pursued this model had higher food price variability NEED TO DISTINGUISH STRATEGIC /EMERGENCY RESERVE FROM THIS MODEL

12. Distinguishing strategic reserve

13. Distinguishing strategic reserve (2) A strategic reserve agency serves as the custodian of the grain stocks It serves as shock absorber in case of emergencies and unforeseen events Governments & other humanitarian agencies can borrow from the reserve to continue to carry out their operations in case of emergencies; or other unforeseen events causing disruption in supply

14. Elements of a successful strategic reserve High level of commitments from both govt. and its development partners A slim management structure with representations for all stakeholders. A clear stock rotation and lending (distribution) guideline, which is transparent, responsive and flexible. Strong linkages / coordination with emergency, safety nets, and other food security programs. An optimal stock holdings in strategically located storage facilities

15. Elements of a success (Ethiopia example) The Emergency Food Security Reserve Administration (EFSRA) of Ethiopia is governed by a board that is consisted of Ministers of Finance, Agriculture, Trade, Internal Affairs, and the Head EFSRA At a second level, there is a technical committee, which composed of representatives from GoE, Development partners, UN agencies, EGTE, and a NGO representative.

16. Elements of a success (Ethiopia example) A clear stock release guideline, which is transparent, responsive, and flexible Head of EFSRA has the authority to release a total 25000 metric tons provided: EFSRA head does not approve more than 5000 metric tons at a time Request comes from the head of agency with a pre-specified date of replenishment

17. Elements of a success (Ethiopia example) A clear stock release guideline, which is transparent, responsive, and flexible Head of EFSRA has the authority to release a total 25000 metric tons provided: EFSRA head does not approve more than 5000 metric tons at a time Request comes from the head of agency with a pre-specified date of replenishment

18. Elements of a success (Ethiopia example) Any loan within the range of 25,000 to 50,000 metric tons requires approval of the technical committee Any amount larger than 50,000 metric requires approval of the board, provided EFSRA has at least 25 % of total targeted stock available If the stock level drops below 25% of the target, neither head of EFSRA nor the technical committee can authorize withdrawal. In such a circumstance, only the BOARD can make the loan decision. This was the case in 2008

19. Summary Food stock has been part of broader agricultural policies in many developing countries. In the literature, these types of policies are called (often interchangeably) buffer stock policies, food price stabilization policies, or dual price policies. Strategic reserve is DIFFERENT in that strategic reserve does not involve price setting, purchases or sales by the government or government agencies

20. Summary Buffer stock and price stabilization policies involve too many objectives, implemented through a complex management structure, and often involve very large public subsidies. By contrast, strategic reserve has much simpler objective, which is “ to absorb shocks and facilitate emergency and safety nets operations. In the absence of effective coordination with safety nets and emergency programs, SGR / price stabilization can expensive and be harmful to market development