Experiences in Africa

Buffer stocks in eastern and southern Africa are generally run by grain trading enterprises (GTE). Often, these GTEs are also in charge of social safety net stocks. GTEs lost importance in the late 1980s and 1990s following economic reforms. However, they re-emerged in the early 2000s and are now again dominant players in African grain markets (Jayne, 2012).

Certain operational features of GTEs raise concerns about their potential to reach their objectives. First, these enterprises not only operate with the purpose of stabilising prices, but also have other objectives such as providing grains in cases of emergencies, distributing food aid, providing food assistance and managing international trade (FAO, 1997). As mentioned above, one of the main reasons why public stock systems often fail is because they aim to achieve too many objectives with one instrument. Second, GTEs generally do not follow established intervention rules for purchasing and releasing stocks and rarely commit to floor and ceiling prices (Poulton et al., 2006). This lack of transparency and predictability is detrimental to the well-functioning of the scheme as it diminishes the confidence of consumers and private traders in buffer stocks (Jayne, 2012).

Table 4.2. Grain trading enterprises in Africa that deal with buffer stocks

Country

Name of grain trading enterprise

Kenya

National Cereals and Produce Board (NCPB)

Zambia

Food Reserve Agency (FRA)

Malawi

Agricultural Development and Marketing Corporation (ADMARC)

Ethiopia

Ethiopian Grain Trade Enterprise (EGTE)

Tanzania

National Food Reserve Agency (NFRA)

Kenya’s National Cereals and Produce Board (NCPB) and Zambia’s Food Reserve Agency (FRA) both aim to stabilise prices by procuring and selling cereals at administered prices. In addition, they also hold stock for food security and famine relief. Case studies suggest that their stockholding programmes were able to reduce aggregate price volatility over time. Jayne et al. (2008) estimate that Kenya’s NCPB stabilised maize market prices between 1989 and 2004. Mason and Myers (2013) show that Zambia’s FRA stabilised maize market prices between 1996 and 2008. However, maize price volatility in Kenya and Zambia between 2005 and 2011 was higher than in South Africa, which is the international reference price for Eastern and Southern Africa and does not have buffer stocks. In particular, the World Bank (2012b) estimates that price volatility6 between January 2005 and May 2011 reached 12% in Kenya and 14% in Zambia, while it was only 9% in South Africa.

The buffer stock policies in Kenya and Zambia are reported to have led to higher producer prices. In Kenya, average price levels increased around 20% between 1995 and 2004 (Jayne et al., 2008), while mean maize producer prices in Zambia rose by 17% between 1996 and 2008 (Mason and Myers, 2013). However, the food security impacts of the stocks are not unanimously positive. While consumers in Kenya benefited from relatively lower prices during times that market prices could have been high, consumer prices in Zambia rose even more than producer prices, namely 19% during 1996-2008. As a result, the price support policy of FRA negatively affected net buyers of maize in Zambia and is unlikely to have any positive welfare effects on poor households. Moreover, the benefits of higher prices in both programmes tend to be captured by the more affluent and food secure farmers. In Kenya, surveys indicate that the price support policy of NCPB led to a transfer of income from poor rural households and urban consumers to large maize-selling farms.

Malawi’s Agricultural Development and Marketing Corporation (ADMARC) is responsible for the marketing of all agricultural products and management of food security reserves, besides stabilising prices through buffer stocks. During the 2001-03 food crises and the 2007-08 price spikes, Malawi’s buffer stock schemes were not effective at reducing maize price volatility. The main reasons for this were lack of clear guidelines, mismanagement and exclusion of the private sector (Jayne and Tschirley, 2009; Minot and Rashid, 2013).

Buffer stocks in Ethiopia are operated by the Ethiopian Grain Trade Enterprise (EGTE). EGTE was established in 1992 with mandates to stabilise producer and consumer prices, earn foreign exchange through exporting grains to the world market, and maintain a strategic food reserve for disaster response and emergency food security operations. EGTE proved unsuccessful at stabilising prices and withdrew from its price stabilisation activities by the early 2000s, except for two ad hoc interventions during 2003 when cereal prices collapsed and during the price spike of 2007-08. Rashid and Negassa (2011) examine cereal price variability during the past three decades and show that price volatility was lower during the 1990s, when EGTE operated its buffer stock, compared to the 2000s, when EGTE had withdrawn from cereal price stabilisation. The authors argue that the higher price volatility in the 2000s cannot be attributed to the absence of EGTE. The same authors indicate that the high price variability was caused by production shocks in 2002-03 and by unpredictable market behaviour during 2006-08, when domestic prices were higher than import parity prices.

Starting in 2007, EGTE’s market intervention increased through subsidised sales of wheat. Dorosh and Ahmed (2009) demonstrate that government imports and sales in 2008-09 effectively lowered market wheat prices. However, the authors also note that market prices were still high relative to import parity prices and that similar results could have been obtained through trade if the government had not inhibited private sector imports. Furthermore, domestic grain prices remained high well into 2009, even though international grain prices had already dropped by that time (Minot and Rashid, 2013). Finally, AFD (2014) points out that as a result of the sale of government stock less wheat was available for emergency and food security interventions as these stocks are not separated from buffer stocks in Ethiopia.

Tanzania’s Strategic Grain Reserve (SGR) was established in 1991 with the objectives to stabilise staple grain prices, advise the government on food security policy, and supply food for emergency assistance. Since the volumes of purchases and sales accounted for only 4% of market surplus, the SGR did not have any significant impact on grain prices (Minot, 2010). Following the 2007-08 food price crisis, SGR was merged with other departments to form the National Food Reserve Agency (NFRA), which now covers an even larger set of objectives. The new agency most probably will not have much effect on grain prices since it holds 5% as a core strategic grain reserve.

 
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