Falcon Invoice Discounting: The best investment platform in india for investors
Session 4 b paul dorosh
1. 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
2. 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
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
3. Nominal Prices of Cereals, 1960-2009
US$/ton
700
600
500
US$/ton
400
300
200
100
0
Wheat US HRW Rice Maize (US Yellow #2)
Source: Calculated from IMF and FAO data.
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
4. Real Prices of Cereals, 1960-2009,
US$(1990)/ton
1200
1000
800
US$(1990)/ton
600
400
200
0
1960
1963
1966
1972
1975
1978
1981
1987
1990
1993
1996
2002
2005
2008
1969
1984
1999
Wheat US HRW Rice Maize (US Yellow #2)
Source: Calculated from IMF and FAO data. Prices deflated by the US CPI.
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
5. 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.)
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
6. 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.
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
7. 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.
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
8. 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.
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
9. 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.
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
11. 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.
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
12. 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
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
13. Pakistan: Initial and Estimated Peak Wheat
Stocks* 1991-92 to 2010-11
12
10
8
(million tons)
6
4
2
0
1991-92
1993-94
1995-96
1997-98
1999-00
2001-02
2003-04
2005-06
2007-08
2009-10
Initial Stocks Intial Stocks + Domestic Procurement
* Peak wheat stocks are estimated as end-April stocks plus May-June domestic procurement.
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
14. Possible Financial Losses* on
Domestic Wheat Procurement and Sales
45
40
35
billion (2009-10) Rupees
30
25
20
15
10
5
-
2005-06 2006-07 2007-08 2008-09 2009-10
Financial Loss
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
15. 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.
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
16. 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
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
17. 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.
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
