Chapter 4


2. A second precondition is a realistic determination of the price limits, i.e. a price-range
 which runs in between the upper and lower ends of potentially fluctuating market prices
 (as shown in Figure 4.9), otherwise the system would imply a severely distorted price
 structure (with well know consequences) and would probably not be sustainable in the
 long-run. If the prices were set too high, stocks would accumulate over the years, if they
 were set too low, no purchases could be made (except under enforced procurement, as
 applied in various countries in the past, for example in Ethiopia during the Mengistu-
 regime) and no stocks could be built up to draw-on when required.

3. A third precondition is the availability of funds to effect purchases or imports when
 required.

Additional costs accrue from:

* the stand-by arrangements required in order to be able to intervene when necessary,
* the marketing operations, when interventions become necessary, and
* the necessary storage activities.

Although, in principle, the marketing margin should cover the storage costs, experience
shows that this is rarely the case as far as buffer-stocks held for market regulatory purposes
are concerned. The buffer stock issue which is closely related to a system of floor and
ceiling prices, will be discussed in greater detail in the following chapter.

Price guarantees can play a useful role in stabilising producer and consumer prices only as
long as the government is capable implementing the policy. When (as experiences show. see
the Mali case in Box 4.6) this is not the case, the outcome may be worse than without
government intervention. Erratic and unforeseen price fluctuations resulting from the
government's inability to maintain a guaranteed price level imply a substantial risk for all
parties concerned; the farmers, the traders, and the consumers. Private traders will be
discouraged from becoming committed to food marketing and from making any substantial
investment in this field, apart from; perhaps, speculating on windfall profits.

7.3 Other agricultural sector policies

Although market and price policies often form the core of structural and sectoral adjustment
programmes, they must, in order to be successful, be complemented by other measures,
addressing the specific constraints and potentials of a country. Therefore, agricultural
adjustment packages usually contain further policy elements which are aimed at enhancing
the capacity to respond to the changed conditions of an improved macro-economic
environment.

This holds for all aspects of agricultural development, such as research, extension, training,
technology, mechanisation, input supply, agricultural credit, rural infrastructure, land reform,
etc. These may (or should!) specifically address the constraints and potentials facing small-
scale and semi-subsistence farmers. FAO's "Special Programme on Food Production for
Food Security in Low Income Food Deficit Countries (LIFDCs)" represents an initiative in
this direction.


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