Traditionally the target size of a food reserve was determined on the basis of the cereal requirements of the vulnerable population for the time required following the recognition of an imminent food emergency until additional supplies could be made available for distribution, i.e. the lead time. For the purposes of calculation it was typically assumed that the cereal requirement was equivalent to some 160-175 kg per person per year and that a lead time of three months would be required to organise and receive additional supplies. The resultant size for the reserve was held static at this level until circumstances were considered to have changed and the calculation was repeated. This was usually only after several years. Countries which adopted this approach included: Ethiopia (with an initial reserve size of 180,000 tonnes), Mozambique (60,000 tonnes), and Tanzania (100,000 tonnes).
As an alternative some countries based the size of their reserve on market demand, for example Zambia determined the target size for its reserve at an estimated three months' market demand, equivalent to 2.0-2.5 million 90 kg bags, i.e. 180-225,000 tonnes. While Kenya (3.0 million 90 kg bags), Malawi (180,000 tonnes) and Zimbabwe (936,000 tonnes) decided on their reserve stock needs using more pragmatic assessments.
The above methods used for determining the size of reserve stocks assumed that the consumption pattern of the affected population would remain constant and that the, so called, food gap, i.e. the difference between availability (production and opening stocks) and consumption requirements, would be filled by a combination of stock reduction and imports. However, in times of food shortage people change their eating habits, by switching to alternative foods, e.g. cassava and other root crops instead of maize, or, in the extreme, by eating less1 thereby reducing the demand for the staple food. There is thus, a tendency to over-estimate the size of the food shortfall and consequently the size of the reserve required to cope with it. To avoid this pitfall due account needs to be taken of the likely extent to which vulnerable households will switch to alternative foods when determining an appropriate size for the reserve.
1 This is discussed in "Food Security in Malawi: A Market Oriented Approach", USAID, 1996.
Given the variable nature of the frequency and scale of events which can precipitate a food emergency and the prevailing monopolistic structure of the grain market, the methods of determining the size of the reserve discussed above would probably have been more than adequate to cope with the initial needs of all but the most devastating emergencies. However, the target levels were seldom put to the test during the 1970s and 1980s as vulnerable countries were unable to establish or maintain reserves at the target levels. An exception was Malawi which established and maintained its target reserve level and was able to combat two food emergencies successfully, in 1987 and 1991. However, by maintaining large reserve stocks on a continuing basis, including years of good harvests when it was unlikely that a food emergency necessitating the use of the full reserve could arise, the government has had to bear a needlessly high cost. This is particularly the case for those countries which have high rates of interest which, under the terms of their structural adjustment programmes, can no longer be subsidised. There is therefore a need to consider alternative methods of maintaining a reserve which provides an acceptable level of ability to cope with food shortages while being less financially demanding.
The introduction of a liberalised market also has implications for the circumstances under which a strategic grain reserve is required to operate. The government, having given up its monopoly position in cereals marketing, is no longer aware of the quantity of grain marketed and does not have control over all the marketed grain stocks. These were key factors used by government in the past for determining and administering the food needs of the country. Instead government now has to depend on secondary information, such as prevailing market prices, market availabilities and price trends, to determine the market prospects and the likelihood of an emergency arising. The situation is further complicated for those countries which oscillate between surpluses and deficits, particularly when traders are also involved in importing and exporting grains. Under such circumstances the government is not necessarily aware whether adequate provision has been made by the private sector to cater for the import needs of the country. To be able to monitor the situation the need for an effective information system, as discussed earlier, assumes paramount importance.
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Malawi Strategic Grain Reserve The strategic grain reserve, set at 180,000 tonnes by government was established in the early 1980s to its target level. Apart from normal stock rotation the reserve was not required oaf a the poor harvest year of 1987 which coincided with an influx of refugees from Mozambique, The reserve was drawn down and subsequently replenished by donors. The reserve was again required in 1991 as a result of drought. Thus, over the period 1981-1996 the reserve has been required on two occasions but the level of stock has been maintained at, or close to the reserve target level for most of the rime. Tire cost to the government of maintaining the reserve could have been substantially reduced had an assessment been made of the likely need for the reserve each year and the stock adjusted accordingly. |
The cost of establishing and maintaining a grain reserve is directly related to its physical size. Reducing the average size held would therefore result in a lower cost to government. This could be achieved, without jeopardising its ability to cope adequately with the initial stages of a food emergency, through the adoption of a policy of adjusting the size of the reserve according to the prevailing circumstances rather than attempting to maintain a reserve of a fixed size irrespective of the circumstances.
Within the Sahel and Sub-Saharan Africa the most likely cause of a major food emergency historically has been drought. Floods, although prevalent in certain areas, are normally limited geographically and, for all but the most serious, have a lesser, and localised, market impact than droughts. However, while floods can strike with little or no warning, the implications of a drought on domestic grain production, and therefore on the grain availability in the following marketing year, should have been recognised well before harvest. As there is rarely a total crop failure the impact of the drought on the availability of grain in the market is only likely to start to be seriously felt after 3-4 months into the next marketing year. Initially this would be evidenced by higher real market prices for grains, with a possible increase in demand for alternative foods, coupled with prices starting to rise earlier than normal in the marketing year. There should thus be a warning period of at least 6 months that there is likely to be a food shortage. This should provide an adequate lead time for government to make a reliable assessment of the size of the shortfall and initiate measures necessary for coping with the situation. The assessment could also be used for determining the likely demands that could be put on a strategic grain reserve, and thus the size of reserve which would be required. By adopting this approach the physical size of the reserve could be adjusted each year in accordance with the perceived needs. Thus, in years of good production or surplus, when the demands on a grain reserve are likely to be low, the size of the reserve would be reduced. Conversely, in years of poor production, e.g. as a result of drought, the size of the reserve would be increased to enable it to cope with the increased likelihood of a food shortage arising.
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Ethiopia Strategic Grain Reserve In 1981 an FAO mission recommended the establishment of a strategic grain reserve of 180,000 tonnes to help cope with food emergencies- The size of the reserve was based on an assessment of up to 3,7 million vulnerable people who would seed to be provided with a basic food ration for an expected lead time to mobilise additional supplies of four months, In 1987, the ODNRI, using the experience of the disastrous drought of 1983 and the resultant famine, advised that the size of the strategic grain reserve should be increased to 205,000 tonnes, sufficient to provide: a 95% protection for a period of up to 6 months to a potentially vulnerable population of 4,3 million people1. This calculation assumed that the mobilisation time for additional supplies would be some 5-6 months. |
1 The Size, Location Infrastructure and Management of a Food Security Reserve to Assist Famine Relief in Ethiopia, ODNRI, 1987.
Such a system of a variable, or dynamic, reserve size requires that an annual review is undertaken by the responsible government agency, e.g. Early Warning Unit, to determine the food prospects for the coming marketing season. Normally this would be done some 2 -3 months prior to harvest, i.e. when reasonable forecasts of crop production should be available. This review would then form the basis for the governing body of the agency responsible for the reserve to make a decision on the size of reserve required for the coming season. Because of the number and variability of the factors involved, many of which are non-calculable, e.g. the quantities of grain which will be imported by private sector traders or the extent of a switch to alternative foods, determination of the size has to be made on the basis of reasonable assumptions and past experience. It should, however, be remembered that the size can always be adjusted as new, or improved, information becomes available. Even within a season the reserve size should not be immutable, but rather be in a continual state of adjustment to meet circumstances as they arise. In determining the size for the reserve certain principles should be observed: For example:
- there should be a minimum size for the reserve to act as an insurance against unforeseen circumstances. Initially this could be set at about one month's market requirements;- while there should be no maximum size for the reserve it should not normally be greater than the quantity required to meet the market demand for the lead time needed to arrange alternative supplies.
As the quantities required for the reserve would vary from year-to-year so would the financial resources required to purchase and maintain the reserve. This would mean that either the government would have to make provision for a variable level of funding each year or the responsible agency be allowed to hold and operate funds provided on a continuing basis. In the first instance the reserve would need to make a budget request each year for the funds required to bring the reserve stock up to the determined level. This may cause problems for the allocation and release of funds due to the fiscal year not coinciding conveniently with the crop year, i.e. when government budget allocations are made the requirements for the reserve may not be known, or to financial constraints on government. With the reserve agency administering the funds the necessary purchases could be made as and when required, up to the limit of the available funds, without recourse to government. Using this system the reserve would be held in varying combinations of physical stock and cash, with the cash component representing the residual financial resources available for the purchase and maintenance of stocks after the needed stocks have been purchased. Thus, in years when there is surplus production, and the likely demand on the reserve is low, the physical stock would be correspondingly low and the cash account1 high. The reverse situation would apply in years when poor harvests could lead to food shortages. Depending on the ability of the reserve agency to regenerate its funds from releases into the market, it may be necessary to periodically request government for additional funds to finance grain buying operations. This would be more likely to occur in years of poor production when larger reserve stocks are required and domestic grain prices are likely to be higher. This type of approach to maintaining and operating the reserve has been adopted by the Food Reserve Agency of Zambia.
1 These funds should be kept in a deposit bearing account, preferably in foreign convertible currencies. This would enable the agency to protect the value of its funds against the risk of local currency devaluation, and to also have funds available to purchase on the international market if necessary.
With full market liberalisation the private sector would be expected to actively participate in the import, and export, of grain on its own account to meet its perception of market opportunities. However, as it is not the responsibility of the private sector to take social considerations into account in its normal operations, it will only invest in the import, or export, trade if it considers that the investment and risk involved will be adequately compensated by the potential opportunities for making an acceptable profit. Basic conditions that must exist for traders to consider investing in importing grain include:
- a belief that the market price will rise above the import parity price for a reasonable period. This is a fundamental requirement if grain importing is to be a profitable business venture;- confidence that the government will not take actions which could distort the market to such an extent that importing grain becomes unprofitable or too risky. This would include: releases of grain into the market, from the reserve or from other stocks it might be holding, e.g. food aid, at below import parity price;
- adequate access to the credit required to be able to buy grain in the international market in economic quantities for the mode of transport used.
As the private sector is profit motivated any grain it imports will be destined for sale in the market. It would be unrealistic to expect private sector traders to also import grain to meet the needs of vulnerable groups who do not have the resources to purchase grain in the market at the prevailing price. This is a social responsibility for which government has to make separate arrangements, e.g. food for work, food stamps. Traders are also likely to err on the conservative side when arranging imports, i.e. they will tend to under-import rather than over-import to avoid being left with high cost stocks at the end of the marketing year when prices can be expected to fall as the new crop comes into the market. It could therefore be that responsibility for ensuring that the market is adequately supplied in the final weeks of the marketing year will rest with government through releases of grain from the reserve to make good the shortfall of private sector imports. Additionally the government will continue to be responsible for making provision, through releases from the reserve, for the needs of those transitory food insecure who are unable to access the market.
