Public stockholding is a policy tool used by governments to purchase, store, and manage stocks of agricultural products or other commodities. Read here to learn more.
This approach serves multiple objectives, including stabilizing prices, ensuring food security, supporting agricultural sectors, and providing a buffer against market volatility.
The concept is particularly relevant in discussions related to global trade and the World Trade Organization (WTO), where it can be a contentious issue due to its implications for international trade and market distortions.
Why Public Stockholding?
Public food stockholding (PSH) refers to the procurement, storage and release of food stocks by governments through state-owned enterprises or other public agencies.
- Stocks can comprise both domestically procured and imported food.
- Usually, cereals (less perishable) are prevalent in national diets.
- Countries frequently exposed to shocks are generally more likely to keep stocks
Public Stockholding or Public Food Stockholding historically received attention during food crises.
- Very low levels of world food stocks, primarily cereals, pose a serious threat to consumption levels and make the world too dependent on the vagaries of weather.
- Low stocks are strongly associated with price spikes and volatility. Ample stocks can provide a cushion against supply and demand shocks.
- Low stocks are a necessary but not sufficient condition for such shocks to produce a spike.
- Stockholding is a vital part of the solution to food insecurity in the LDCs and would serve as a crucial means to limit price volatility.
Types of food PSH programmes
- EMERGENCY STOCKSย to reduce the vulnerability of consumers to supply disruptions or food price shocks in emergencies.
- BUFFER STOCKSย to stabilize prices within the domestic market to avoid excessive volatility (the policy focus is on both consumers and producers).
- STOCKS FOR DOMESTIC FOOD DISTRIBUTION / AIDย to promote physical and economic access to adequate quantities of food for certain target population groups.
Objectives of Public Stockholding
- Price Stabilization: Governments buy commodities when prices are low and sell them when prices are high, helping to stabilize market prices and protect both producers and consumers from price volatility.
- Food Security: Maintaining stocks of essential food items ensures availability during times of shortage, such as crop failures, natural disasters, or economic crises.
- Support for Farmers: Purchasing commodities at predetermined prices provides financial stability for farmers, encouraging production and aiding in rural development.
- Market Regulation: Through strategic releases of stock, governments can influence market supply and demand dynamics to prevent extreme price fluctuations.
Criticisms
- Trade Distortions: Public stockholding can lead to market distortions if domestic prices are kept artificially high or low. This can affect global markets, particularly if a significant exporter or importer adopts such policies.
- WTO Regulations: The WTO generally has rules against trade-distorting subsidies, including those involved in public stockholding. However, developing countries argue that such policies are crucial for food security and rural development, leading to ongoing negotiations for more flexible terms under the WTOโs Agreement on Agriculture.
- Financial and Operational Costs: Establishing and maintaining public stockpiles can be financially demanding. It involves costs related to purchasing, storing, and managing the stocks, which can be substantial.
- Risk of Decay and Mismanagement: Physical storage of commodities carries risks of decay, damage, or loss due to poor management or natural disasters. Additionally, stockpiling systems can be prone to corruption and inefficiency.
Examples of Public Stockholding Programs
- Indiaโs Food Corporation of India (FCI): FCI manages the public distribution system for grains and operates under a mandate to stabilize prices and ensure food security through the procurement and distribution of wheat and rice.
- The United States’ Strategic Petroleum Reserve (SPR): This is a stockpile of petroleum maintained by the U.S. Department of Energy as an emergency supply to safeguard against disruptions in oil supplies.
- Chinaโs State Reserves: China manages extensive reserves of various commodities, including grains, pork, and cotton, to stabilize prices and ensure supply security.
WTO and Public Stockholding
The issue of public stockholding for food security purposes is a hot topic in WTO negotiations.
- Developing countries, led by nations like India, have sought amendments to WTO rules that would allow them to hold larger quantities of food stock without facing the usual restrictions related to trade-distorting subsidies.
- The Bali Ministerial Decision of 2013 allowed for interim solutions, but a permanent solution has been sought in subsequent WTO discussions.
- Public stockholding continues to be an essential strategy for many countries, balancing the need for economic stability and food security against the complexities of global trade rules and market dynamics.
Why in the news?
India is trying to restart work at the WTO on the long-pending permanent solution for public stockholding subsidies, for the smooth running of programmes such as the MSP.
- The 2024 Ministerial Conference in Abu Dhabi failed to deliver results, but some countries, including Brazil and the US, are trying to defer the matter as well.
- In a Committee on Agriculture (CoA) meeting at the WTO headquarters in Geneva, New Delhi insisted that members should revisit the joint proposal made by the G33-African Group-ACP Group on public stockholding.
- The Bali interim solution on public stockholding offers India and other developing nations a peace clause that allows them to breach the WTO-prescribed agriculture subsidy limit (10 per cent of the value of production) without the risk of legal action from other members.
Impact of Public stockholding on markets
Domestic impacts:
Producers:
- Guaranteed and remunerative outlets can provide a stable market and support farm incomes.
- Over-reliance on institutional markets can crowd out private investment.
Consumers:
- An important form of social protection for the most vulnerable.
- Production may be skewed towards procured commodities, to the detriment of efforts to promote dietary diversification.
Government:
- Practicable way of supporting producers and consumers.
- High fiscal costs due to the scale of operations, implementation challenges (particularly targeting beneficiaries)
International impacts:
Foreign producers:
- Import demand is reduced in countries holding large stocks, thereby reducing market opportunities for producers in other countries.
- If, in countries holding huge stockpiles, stock release decisions are unpredictable, this can influence price levels and volatility.
Foreign consumers:
- Ample stocks can provide confidence in the availability of supplies to deal with exogenous shocks.
- Uncertainty about the availability of stocks held by large consuming countries in the event of exogenous shocks affecting global markets.
Given the possible international impacts, PSH therefore remains a difficult area of agricultural negotiations.
Related articles:
- WTO, Trade Facilitation Agreement and Indian Stand
- Food security in India
- Agri-Food Policies for SWAB
-Article by Swathi Satish
Leave a Reply