Chapter 5


* construction and maintenance of rural roads, and

* improvements of the marketing system, to promote inter-regional transfers from surplus
 to deficit areas.



 Box 5.1:
 Market-stability interventions and food security conclusions from an analytical model

 Stockpiling to achieve food security was generally found to be a costly activity. It is not possible to pursue
 stocking policies, which require an increased involvement of the public sector in the buying and selling of
 grain, without increasing the budget (both foreign exchange and domestic currency) of the agency which would
 implement those policies. The required funds increase with the degree of food security achieved. It is seldom
 possible for any agency to make a profit from market-stabilisation intervention while meeting food security
 goals, unless resources, such as food aid, are received at below market costs.

 Higher stock levels become more effective in reducing extreme consumption shortfalls of vulnerable groups
 when combined with explicit price triggers for their accumulation and release. This price-band regime is
 effective because it corresponds more closely to the nature of food-security goals of the government and food
 agency managers. When price bounds are reached, stocks are quickly released or acquired to maintain
 consumption and prices within desired limits: While market extremes are to be avoided, variability within set
 limits is not seen as problematic.

 Greater public sector involvement in the market affects the profitability of the private sector. This effect is
 disproportionately higher than the improvement in food security achieved. (...)

 Source: P. Abbot et al., A Model for Assessing Food-security Policy Alternatives, in P. Berck and D. Bigman
 (ed), Food Security and Food Inventories in Developing Countries, Oxford 1993




 Food pricing and storage policies play a particularly prominent role in attempts to reduce
 supply instabilities. This area of policy is politically sensitive as it can be seen to contradict
 the major objectives of structural adjustment programmes in various respects:

 Price stabilisation can undermine the objective of market price liberalisation,

 Government market interventions related to price stabilisation and stockpiling run counter
 to the objective of reducing the role of government in the economy,

 Marketing and storage operations for food security purposes incur additional cost which
 can seldom be recovered, leading to increased budgetary expenditures.

 Nonetheless, a strong case has been made by a number of analysts that market instability
 discourages private sector investment in agriculture, and hence slows potential growth in the
 sector. In most developing countries, farmers cannot insure against crop failure, or hedge on
 futures markets against price fluctuations. Governments can offset the risks faced by farmers
 by stabilising markets.


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