Chapter 5


1) An adequate institutional and physical market infrastructure which allows:
 purchases to be effected, and
 buffer-stocks to be built-up
 in periods of abundant supplies, when prices tend to drop below the floor price,
 and the availability of:
 buffer-stocks to be released, and/or
 food (aid) imports to be channelled into the market,
 when the market prices reach the ceiling level.

2) Another precondition for an effective system of floor and ceiling prices is the setting of a
 realistic price band, i.e. a price-range which runs in between the upper and lower ends of
 potentially fluctuating market prices, as demonstrated in Figure 5.5.

 Figure 5.5: (In-)Appropriate and (in-)effective price ranges for floor and ceiling prices

 price


 ...... ..... . ...Ineffective ceiling prices
 Effective ceiling prices

 Inappropriate floor prices
 Inappropriate ceiling prices

 Effective floor prices
 I,! th.. Ineffective floor prices
 time
 Begin of harvesting season

 If the prices were set outside the bands indicated, the system would imply either
 ineffective prices, or a severely distorted price structure which is not sustainable in the
 long-run.

 If the floor price were set too high, stocks would accumulate over the years without
 being sold (as, for example, in the Mali case recorded in Box 4-6, Chapter 4).

 If the floor price were set too low it would be ineffective, as no purchases could be
 made and no stocks could be built-up to draw on later when required.

 If the ceiling price were set too high, it would be ineffective, as no sales from the stocks
 could be made.

 If the ceiling price were set too low, it would be difficult to maintain as the amount of
 stocks needed to stabilise the price would be rapidly exhausted (if not compensated
 with cheap food imports).

 3) A third precondition is the availability of funds for the purchasing and stocking operation.


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