Is Commodity Storage an Option for Enhancing Food Security in Developing Countries?

Gerrit van Kooten, Schmitz Andrew () and Kennedy P. Lynn ()
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Schmitz Andrew: University of Florida, Gainesville, FL, USA
Kennedy P. Lynn: Louisiana State University, Baton Rouge, LA, USA

Journal of Agricultural & Food Industrial Organization, 2020, vol. 18, issue 1, 12

Abstract: We revisit the underlying economics of commodity storage and its relation to food security by first clarifying the standard model used to analyze the economic efficiency and distributional effects of commodity storage programs. We find that producers prefer stabilization, although their incomes are more variable, while consumers are indifferent. However, numerical simulations indicate that physical stocks will build up inexorably over a sustained period or the government will need to raise prices continuously over a prolonged period. For the least developed countries facing fluctuating world prices, government should guarantee the price received by producers because, with price uncertainty, farmers could experience losses even under a ‘good’ weather outcome; this would guarantee the producer price, benefitting farmers, while allowing the consumer price to vary with the world price benefits consumers as they prefer price instability. In some cases, however, the government may wish to impose a price ceiling so that households living at or near subsistence can afford to buy grain – an argument based on the grounds of food security. Numerical simulations indicate that such a mixed-price policy increases the wellbeing of both consumers and producers. Physical storage is not a necessity.

Keywords: agricultural policy in developing countries; price stabilization and commodity storage; applied welfare economics (search for similar items in EconPapers)
JEL-codes: O13 Q02 Q11 Q13 Q18 (search for similar items in EconPapers)
Date: 2020
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Related works:
Working Paper: Is Commodity Storage an Option for Enhancing Food Security in Developing Countries? (2018)
Working Paper: Is Commodity Storage an Option for Enhancing Food Security in Developing Countries? (2018)
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DOI: 10.1515/jafio-2019-0054

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