Session 4 b paul dorosh

Trade, Grain Reserves and Food Security:

Lessons from Country Experience

Paul Dorosh and Shahidur Rashid

International Food Policy Research Institute

Presentation at the IFPRI – UN-ESCWA international conference

Food Secure Arab World: A Roadmap for Policy and Research

February 6-7, 2012 – UN-ESCWA, Beirut, Lebanon

INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

Plan of Presentation

• Public stocks vs. international / private sector trade

• Bangladesh rice trade and price stabilization

• Private sector imports and public stocks can be

complementary in stabilizing domestic markets

• The 2008-09 world rice market shocks

• Pakistan wheat procurement and distribution

• Farmer, miller and other interests can encourage

excessively high procurement and stocks

• Zambia maize stocks and public sector imports

• Government policy can destabilize domestic markets

• Concluding Observations


Nominal Prices of Cereals, 1960-2009

US$/ton

Source: Calculated from IMF and FAO data.

0

100

200

300

400

500

600

700U

S$/t

on

Wheat US HRW Rice Maize (US Yellow #2)


Real Prices of Cereals, 1960-2009,

US$(1990)/ton

0

200

400

600

800

1000

1200

19

60

19

63

19

66

19

69

19

72

19

75

19

78

19

81

19

84

19

87

19

90

19

93

19

96

19

99

20

02

20

05

20

08

US$

(19

90

)/to

n

Wheat US HRW Rice Maize (US Yellow #2)

Source: Calculated from IMF and FAO data. Prices deflated by the US CPI.


Public Stocks for Food Security

• The spike in international prices in 2007-08 and

subsequent price volatility have caused many

countries to rethink their policies with respect to

the degree of reliance on international trade and

size of public food stocks.

• High and volatile international prices suggest

the need for larger public rice stocks

• However, there can also be substantial costs

involved, including…

• Direct costs of storage facilities, losses of grain

quality in storage, handling costs, as well as risk of

possible disruption of private trade and storage, etc.)


Investment in Agricultural Production

• One alternative to reliance on trade is to

increase domestic cereal supplies

• Investments in agriculture (particularly,

agricultural research) that raise agricultural

productivity a major reason for source of rural

income growth and poverty reduction in China

and India (Fan, 2008).

• These investments have the potential to increase

availability of food, reduce its price and raise both

rural agricultural and non-agricultural incomes

security.

• Self-sufficiency is not always desirable,

however, in cases where the target grain supply

can only be produced at costs substantially

higher than the average cost of alternative

sources (e.g. the international market).


Domestic Production and Self-Sufficiency

• Self-sufficiency is not always desirable,

however.

• In some cases, achieving self-sufficiency would

entail production at costs substantially higher

than the cost of alternative sources (e.g. the

international market).

• Moreover, government expenditures on achieving

self-sufficiency can have high opportunity costs in

terms of lost opportunities for investments in

education, health and other key sectors.


Bangladesh: Trade Liberalization and the

Private Sector Rice Import Trade, 1994-2001

• Bangladesh liberalized its import trade in rice in

the early 1990s, thereby enabling private sector

imports to add to domestic supply in years of

relatively poor harvests.

• Following the 1998 flood, private sector imports

exceeded 200 thousand tons/month for seven

consecutive months, stabilizing domestic prices at

import parity (based on India wholesale market

prices plus transport and marketing costs).

• At the same time, public distribution of wheat (and rice)

from stocks and public imports targeted poor

households.


The 2007/08 World Price Shock and

Disruption of Trade with India

• In mid-2007 world prices of major cereals rose

sharply due to poor harvests in major producing

countries and subsequent trade restrictions

• India announced a rice export ban in late 2007,

but later negotiated a restricted volume of trade

at set prices

• Bangladesh wholesale prices rose rapidly, but

did not reach import parity with Thai rice, as

international market prices hit record levels.


Bangladesh Rice Prices and Imports, 2005-11

0

50

100

150

200

250

300

350

400

0

10

20

30

40

50

60

70Ja

n-0

5

Jul-

05

Jan-0

6

Jul-

06

Jan-0

7

Jul-

07

Jan-0

8

Jul-

08

Jan-0

9

Jul-

09

Jan-1

0

Jul-

10

Jan-1

1

Imp

ort

s (t

hou

san

d t

on

s)

Pri

ce (

Tak

a/k

g)

Private Sector Imports Dhaka Wholesale Price

Import Parity (ex: Bangkok) Import Parity (BPL)

Source: Dorosh and Rashid (2012).


Bangladesh: Stabilizing Rice Prices 2007-08

• The gap between domestic supply and domestic

demand at real prices of 2007-08 was estimated at

2.0 mn tons (about 10% of 6-month domestic supply)

• The Bangladesh government ultimately arranged for

about 1.0 mn tons of imports and added 0.7 mn tons

of rice through distribution of government stocks.

• Yet domestic prices rose sharply, suggesting that

excess private stock-holding contributed to the

domestic price rice.

• Earlier additions to supply may have been sufficient to

calm markets and greatly dampen the price rise.


Pakistan: Wheat Market Interventions

• Domestic procurement at fixed “support price” in

excess of open market prices

• Large farmers who sell wheat to government benefit

most

• Significant losses in government storage, and

high costs of handling and transport

• Sales of wheat to flour mills at fixed “release

price” below open market prices

• Subsidies on sales of imported wheat

• In some years, subsidized sales of exports


Pakistan: Initial and Estimated Peak Wheat

Stocks* 1991-92 to 2010-11

0

2

4

6

8

10

12

1991

-92

1993

-94

1995

-96

1997

-98

1999

-00

2001

-02

2003

-04

2005

-06

2007

-08

2009

-10

(mill

ion

tons

)

Initial Stocks Intial Stocks + Domestic Procurement

* Peak wheat stocks are estimated as end-April stocks plus May-June domestic procurement.


Possible Financial Losses* on Domestic Wheat Procurement and Sales

-

5

10

15

20

25

30

35

40

45

2005-06 2006-07 2007-08 2008-09 2009-10

bill

ion

(200

9-10

) Ru

pee

s

Financial Loss


Zambia Maize Trade Policy:

Policy Uncertainty Adds to Price Instability

• In Zambia, policy makers fear a loss of government

control over maize supplies and the politically

sensitive maize price.

• As a result, in recent years, Zambia’s default policy has

been to restrict private sector cross-border maize flows.

• In 2001, the government announce that it would

import large volumes of maize, thus scaring off the

commercial private trade.

• Then, due to a shortage of funds or to management

difficulties, government ends up bringing in less

maize than they intended, resulting in higher prices

than necessary.


Conclusions:

Stocks AND Trade for Price Stabilization

• The 2007/08 world cereal price shocks and

subsequent price instability suggests the need for

public stocks to ensure cereal availability

• Public stocks and (private sector) imports can be

effective complementary policies. This requires:

• Maintaining incentives for domestic production and

private sector trade

• Transparent and consistent government policy to

provide clear signals to farmers, traders and consumers

• Effective monitoring and market analysis to enable

governments to adjust policy interventions when needed


References

Dorosh, Paul A. 2001. “Trade Liberalization and National Food Security: Rice Trade between Bangladesh and India”, World Development, 29(4): 673-689.

________ . 2009. “Price Stabilization, International Trade and National Cereal Stocks: World Price Shocks and Policy Response in South Asia”, Food Security 1(2):137-149.

Dorosh, Paul A., Simon Dradri and Steven Haggblade. 2009. “Regional Trade, Government Policy and Food Security: Recent Evidence from Zambia”, Food Policy 34: 350-366.

Dorosh, Paul A. and Shahidur Rashid. 2011. “Bangladesh Rice Trade and Price Stabilization: Implications of the 2007/08 Experience for Public Stocks” (manuscript).

Fan, Shenggen, ed. 2008. Public expenditures, growth, and poverty: Lessons from developing countries. Baltimore, Md., U.S.A.: Johns Hopkins University Press.

Session 4 b paul dorosh

Business

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