chapterr 5


The preceding discussion has already revealed the close linkages which exist between price
stabilisation and stocking policies: building-up of food stocks means increased market
demand and has the effect of stabilising prices from falling below desired levels in times of
abundant supplies, while a release of food stocks means increased market supplies and
prevents prices from rising exorbitantly when market supplies are scarce. There are two
exceptions to this general rule:

1) if stocks are built-up with food imports, there is no additional market demand and no
 price effect on the domestic market when stocks are built-up, and

2) if stocks are released via free food distribution to the poor, the volume of market
 supplies and the market prices will not be affected to the full extent of the stock release.

In the latter case there may be indirect effects, if the beneficiaries of free food rations reduce
their market demand for food, or if they sell part of the free food rations on the market. (Such
phenomena are related to the issue of targeted assistance being addressed further below.)

In establishing targets for the size of public food stocks, a compromise has to be found
between the objective of maximising supply stability and food security, and minimising
costs and budgetary burdens. The costs of public stockholdings are quite substantial and are
seldom covered by the marketing margins, as indicated above.

In defining optimal stocking levels for public food reserves, a number of different factors
have to be taken into consideration, such as:
* Production and supply risks, depending, for example, on the drought proneness of a
 country, the prevailing production systems (e.g. rain-fed versus irrigated agriculture),
 civil disorder, etc.
* External supply routes for food imports: countries with easy access to external markets
 will have lower storage requirements than, for example, land-locked countries, countries
 with insufficient port facilities, or areas which are cut off from external markets for
 geographical, political or economic reasons.
* The quality of the internal transport infrastructure determines the effectiveness and
 efficiency of internal transfers between (potential) surplus and deficit regions.
* Private stocks held, for example, by farmers, traders or households, and the
 interrelationship between private and public stockpiling practices. Private stocks will
 reduce the need for public security reserves. The interaction between private and public
 stocking practices depends largely on:
* The established marketing system: the role of public sector and private agencies in
 food marketing, pricing and marketing policies pursued by the government, and the
 efficiency of the marketing system. (The case of pan-seasonal pricing policies
 discouraging private stockholding has already been addressed in section 7.2 of Chapter
 4.)


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