The role of storage in the economy

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In most countries grains are among the most important staple foods. However they are produced on a seasonal basis, and in many places there is only one harvest a year, which itself may be subject to failure. This means that in order to feed the world's population, most of the global production of maize, wheat, rice, sorghum and millet must be held in storage for periods varying from one month up to more than a year. Grain storage therefore occupies a vital place in the economies of developed and developing countries alike.

The market for food grains is characterized by fairly stable demand throughout the year, and widely fluctuating supply. Generally speaking people's consumption of basic foods such as grains does not vary greatly from one season to another or from year to year. The demand for grain is 'inelastic', which means that large changes in the market price lead to relatively small changes in the amount of grains which people purchase.

Market supply, on the other hand, depends on the harvest of grains which is concentrated within a few months of the year in any one area, and can fluctuate widely from one year to the next depending on climatic conditions. New varieties that have shorter growing periods, and variation in climatic conditions and farming systems in different regions of a country, can help to even out the fluctuations in market supply. But even in a country such as Indonesia, which has diverse climatic and farming conditions and where 90 per cent of rice land is under short duration high yielding varieties, about 60 per cent of production is harvested within a three month period (Ellis et al. 1992).

The main function of storage in the economy is to even out fluctuations in market supply, both from one season to the next and from one year to the next, by taking produce off the market in surplus seasons, and releasing it back onto the market in lean seasons. This in turn smooths out out fluctuations in market prices. The desire to stabilise prices of basic foods is one of the major reasons why governments try to influence the amount of storage occurring, and often undertake storage themselves.

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