STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY i STRENGTHENING © 2025 International Bank for Reconstruction and Development/The World Bank, the Food and Agriculture Organization of the United Nations and World Food Programme. STRATEGIC GRAIN This work is a product of the staff of The World Bank, the Food and Agriculture Organization of the United Nations (FAO), and the World Food Programme (WFP) with external contributions. The findings, interpretations, and conclusions expressed in this RESERVES TO work do not necessarily reflect the views of FAO, WFP, or The World Bank, its Board of Executive Directors, or the governments they represent. 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All queries on rights and licenses should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; e-mail: pubrights@worldbank.org. ii STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY iii TA B L E O F C O N T E N T S F I G U R E S , TA B L E S , A N D B O X E S Acronyms and Abbreviations................ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .vii Figures Acknowledgments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. viii Figure ES1: Number of Acutely Food-Insecure People, 2017–24..............................................xi Executive Summary........................... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . x Figure ES2: Prevalence and Number of Undernourished People, 2000–23...........................xi 1. I N T R O D U C T I O N .................. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Figure ES2: Key Drivers of Acute Food Insecurity, 2016–23....................................................xii 1.1 Report Background.................... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . 2 Figure 1: Price With and Without Demand for Storage...............................................................6 1.2 What are SGRs?. ...................... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . .. . . 3 Figure 2: Number of Acutely Food-Insecure People, 2017–24..................................................14 1.3 The Role of Storage in Grain Markets and the Essential Role of SGRs. . . . . . . .. .. . . 5 Figure 3: Prevalence and Number of Undernourished People, 2000–23..............................14 Figure 4: Number of Acutely Food-Insecure People by Region, 2024.....................................14 2. T H E R E L E VA N C E O F S G R S A M I D E V O LV I N G R I S K S A N D V U L N E R A B I L I T I E S ............................................................ . ... 9 Figure 5: Principal Drivers of Acute Food Insecurity, 2016–23...............................................15 2.1 History and the Recent Growing Challenge of Food Insecurity and Hunger . . . . . . 10 Figure 6: Number of State-Based Armed Conflicts Worldwide ..............................................16 2.2 Underlying Trends in Food Security Challenges. . . . . .. .. . . . .. . . . . . . . . . . . . . . . . . . . . . . . . 15 Figure 7: Number of Forcibly Displaced People Worldwide.......................................................16 Figure 8: Growth and Volatility Trends in Global Food Production per Capita, 1980–2020 2.2.1 Conflict and food emergencies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . 15 ...............................................................................................................................................18 2.2.2 Climate change and weather-driven events. . . . . . . . . . . . . . . . . .. .. .. .. .. . . . . .... 17 Figure 9: Global GDP Growth in Real Terms.................................................................................19 2.2.3 Economic shocks and food emergencies. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . 18 Figure 10: Global Agricultural and Food Prices, 1960–2024...................................................21 2.3 Recent Trends and Volatility in Global and Domestic Food Prices. . .. . . . . . . . . . . . .. 20 Figure 11: Volatility Differences Across Commodities, 1970–2022.......................................22 2.3.1 Global food price developments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... . . . . . . . . . . . . 20 Figure 12: Directions of Quarterly Price Movements on Domestic and International Markets – Agreement and Disagreement by Region and Commodity...............25 2.3.2 Do high international prices lead to high domestic prices?. . . . . . . . . . . . . . . . . . . 23 Figure 13: Government Debt and Debt Distress in Developing Countries............................35 3. K E Y E L E M E N T S A N D D E S I G N S T R AT E G I E S F O R E F F E C T I V E Figure 14: Rice and Wheat Price Inflation in India, 2021–24...................................................37 S G R S .............. . .................. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 9 Figure 15: Low Inventory Periods Signal the Potential for More Volatile Prices: U.S. Real 3.1 Avoiding Multiplicity and Unclear Objectives of SGRs. . . . . .. .. . . . . . . . . . . . . . . . . . . . . . 33 Wheat Prices, January 1990–August 2009...........................................................43 3.2 Reducing the SGR’s Fiscal Costs..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Figure 16: Wheat Prices in Kazakhstan and Uzbekistan, 2018–24.......................................45 3.3 Determining Effective Stock Size. .. . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . 42 Figure 17: Level and Volatility of Rice Prices in Selected Asian Countries, 2010–24.........47 3.4 Reducing Price Distortions and Other Economic Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Figure 18: Rice Consumption and the Impact of the Rice Price Reduction on Poverty in the Philippines.................................................................................................................48 3.5 Reducing the Cost of Stock Procurement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Figure 19: Breakdown of Production Costs of Rice Paddy in Selected Asian Countries, 3.6 Increasing the Impacts of Stock Releases. . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . 5 8 High-Yield Crop Season, 2013–14...............................................................................48 4. H A R N E S S I N G I N N O VAT I O N S A N D T E C H N O L O G I E S F O R Figure 20: Production and Import of Wheat in Selected MENA Countries, Averages E F F I C I E N T S G R S .............. . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . 6 3 2020–24...........................................................................................................................53 4.1. Storage Technologies.................. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Figure 21: Tenders in Wheat Procurement in the MENA Region, 2021–23..........................54 4.2. Monitoring Solutions for Efficient Stock Management. . . . ... . . . . . . . . . . . . . . ... . . . . . . 71 Figure 22: Number of Wheat Import Tenders, 2017–25...........................................................55 5. R E G I O N A L A N D G L O B A L R E S E R V E S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 7 5 Figure 23: Prices and Protein Content in Different Wheat Origins........................................56 Figure 24: Rice Prices in Bangladesh in Relation to International Prices.............................61 6. . . . . . . . . . . . . . . .. . . . . .. . . . .. . .. .. . . . . . . 8 1 GUIDING PRINCIPLES FOR SGRS References .........................................................................................................................................85 iv STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY v Figures, Tables, and Boxes Tables Table 1: Food Availability, Food Prices, and Poverty Rates by Decade...................................11 A C R O N Y M S A N D A B B R E V I AT I O N S Table 2: Number of Reported Meteorological, Hydrological, and Climatological AMIS Agricultural Market Information System Disasters...............................................................................................................................................17 APTERR ASEAN Plus Three Emergency Rice Reserves Table 3: Most Significant Price Runs Ordered by the Absolute Change in Real Food and ASEAN Association of Southeast Asian Nations Grain Prices.........................................................................................................................................23 CRED Centre for Research on the Epidemiology of Disasters Table 4: Percentage of Market Pairs Showing Cointegration Between Local and Global ECOWAS Economic Community of West African States Food Prices..........................................................................................................................................36 EU European Union FAO Food and Agriculture Organization of the United Nations Table 5: Profile of Countries Actively Using Public Grain Stocks...........................................32 FCV Fragility, Conflict, and Violence Table 6: Estimated Total Costs of Public Stocks by Function and Capacity in Ghana.....38 FEWS NET Famine Early Warning Systems Network Table 7: A Breakdown of the Total Fiscal Costs of Managing the Public Stocks in FRA Food Reserve Agency of Zambia Zambia.................................................................................................................................................39 FS2030 Food Systems 2030 Table 8: Bank Borrowings for Wheat Procurement by the Government of Punjab, FSQ Food Safety and Quality Pakistan, in Billion Pakistani Rupees............................................................................................40 FSIN Food Security Information Network GAFS Global Alliance for Food Security Table 9: Examples of Fiscal Costs Incurred from Meeting Various SGR Objectives............41 GDP Gross domestic product Table 10: Gradual Decline in SGR Size in Uzbekistan.................................................................44 GIEWS Global Information and Early Warning and Information System Table 11: Breakdown of Marketing Costs and Margins for Milled Rice in Selected Asian GNAFC Global Network Against Food Crises Countries, Philippine Pesos per Kilogram.....................................................................................49 GRFC Global Report on Food Crisis Table 12: Determinants of Wheat Price Tenders in Selected MENA Countries....................57 HICs High-income countries Table 13: Price Performance of Four Tenders in Egypt Financed by the World Bank IFPRI International Food Policy Research Institute Project..................................................................................................................................................58 IMF International Monetary Fund IoT Internet of Things Table 14: Postharvest Losses Along the Value Chain................................................................66 IPC Integrated Food Security Phase Classification Table 15: Main Storage Types and Their Advantages and Disadvantages...........................70 LICs Low-income countries Table 16: Types of Storage Facilities and Capacity of the FRA in Zambia............................71 LMICs Lower-middle-income countries Table 17: Types of Grain Losses Associated with Each Risk and Mitigation Solution.........71 MENA Middle East and North Africa MICs Middle-income countries Table 18: Review of Stock Monitoring Methods...........................................................................74 MSFP Modern Food Storage Facilities Project Table 19: International Agreements to Stabilize Commodity Prices......................................77 NFA National Food Authority of the Philippines Table 20: RFSR Stock Targets, Tons ............................................................................................79 NGO Nongovernmental Organization Table 21: RFSR Stocking Over Time, Tons...................................................................................80 OECD Organisation for Economic Co-operation and Development P4P Purchase for Progress Boxes RFSR Regional Food Security Reserve of ECOWAS Box 1: In-Kind Food Assistance or Cash Transfers.......................................................................5 PUNGRAIN Punjab State Grain Procurement Corporation Box 2: The Rise of Food Crisis Monitoring’s International Institutions...................................11 SAARC South Asian Association for Regional Cooperation Box 3: Reengagement in the Management of Public Grain Stocks in Norway.....................31 SFRA Strategic Food Reserve Agency SGR Strategic Grain Reserves Box 4: Rice Sector Reforms in the Philippines.............................................................................37 SSA Sub-Saharan Africa Box 5: Grain Silos Project in Punjab, India....................................................................................41 UN United Nations Box 6: WFP’s Local and Regional Procurement Strategy.........................................................52 UNHCR United Nations High Commissioner for Refugees Box 7: Importance of Grain Safety and Quality..........................................................................64 US$ United States Dollar WFP World Food Programme of the United Nations Box 8: Bangladesh Food Storage Modernization Project..........................................................68 WTO World Trade Organization Box 9: The Experience of Modernizing Stock Monitoring Solutions in Egypt......................68 vi STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY vii Acronyms and Abbreviations ACKNOWLEDGMENTS This report was jointly prepared by the World Bank, the World Food Programme of the United Nations (WFP), and the Food and Agriculture Organization of the United Nations (FAO). The completion of the report was co-led by Mansur Ahmed and Sergiy Zorya from the World Bank’s Agriculture and Food Global Department, Priya Singh and Susanna Sandstrom (Programme Operations Department), Jordi Renart and Sergio Silva (Partnerships and Innovation Department), from the WFP, and Dmytro Prykhodko from the FAO Investment Centre, with substantive input from Don Larson, the World Bank’s consultant. The task team would like to thank the World Bank’s staff Artavazd Hakobyan, Mio Takada, Kaja Waldmann, Barbara Cristina Noronha Farinelli, and Francisco Javier Bueso Ucles for coordinating the relevant country-related studies. The report has also benefited from the insights and inputs of Joshua Gill, Francis Darko, Nahid Pabon, Aicha Sanoh, and Bhavya Srivastava. The background studies were prepared by various experts from different organizations. From the World Bank, contributions were made by Christophe Gouel (Strategic Grain Reserves and Food Security), Adam Gross (ECOWAS Regional Reserves), Alban Thomas (Egypt and Tunisia), Roehlano Briones (Philippines), Jose Velez (Honduras), Juan Jose Espinal (Dominican Republic), Sandjar Babaev (Uzbekistan), Shoumitro Chatterjee (India), and Cristina Pirela (Bangladesh). The staff of and the experts from WFP included Friederike Greb, Stefan Meyer, Matus Zeman, Ozge Cesur, Virginia Siebenrok, Jean-Luc Kohler, Hani Chatila, Mostafa Youssef, Sofiane Essayem, Akuno Moses Hillary, Pascale Crapouse, Eleni Pantiora, Van Hoan Nguyen, Wambui Mbugua, Ones, Karuho, as well the collaboration of Nicholas Minot and Mamudu Akudugu as contractors. They prepared background studies on SGR’s Supply Chain Management, the Global Food Security Situation, Ghana, and Ethiopia. WFP is grateful to the French government for their financial contribution to support this work. Contributions from the FAO were made by Dmytro Prykhodko (Egypt and Tunisia) and Gennadiy Shulga (Storage Technologies and Solutions). Monika Tothova (Senior Economist, FAO) provided valuable comments and observations to the initial draft of the report. The report has also benefited from the FAO-EBRD cooperation program under the Food Security Package in the Southeast Mediterranean Region, particularly inputs for Chapter 3.5 on reducing economic costs of stock imports. The report benefited from the shared experiences of participants from two workshops - the Authors Workshop “Strengthening Strategic Grain Reserves for Sustaining Food Security” in Rome on October 1–3, 2024, and the workshop for the initial conception of the study in Washington DC, on October 2–3, 2023. The peer reviewers of the report were Diego Arias Carballo and Ashwini Rekha Sebastian from the World Bank, Oksana Nagayets from the International Finance Corporation, and Jean-Martin Bauer from the WFP. Marianne Grosclaude (Practice Manager of Agriculture and Food Global Department) and Shobha Shetty (Global Director for Agriculture and Food, SAGDR) from the World Bank, and Stanlake Samkange (Senior Director), Betty Ka (Director), and Arif Husain (Chief Economist) from the WFP; and Mohamed Manssouri (Director) from the FAO Investment Center, all supported the study and ensured that resources were available for its implementation. Megan Mayzelle edited the report, and Mariam Haidary provided logistical support. viii STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY ix Food insecurity today remains widespread and is increasing. In recent years, global hunger and food insecurity have risen after decades of improvement (FAO et al. 2024). Crises have caused a significant increase in acute food insecurity, with 343 million people in 74 countries facing this challenge in 2024 (Figure ES1). The COVID-19 pandemic and recent geopolitical conflicts, which escalated food prices and triggered a global cost-of-living crisis, substantially contributed to this rise. Although the number of acutely food-insecure people has slightly decreased since 2022, it remains more than double the pre-pandemic level. Among the 343 million acutely food-insecure people, 44 million across 47 countries have escalated from crisis to emergency levels. Chronic food insecurity also remains high, with up to 757 million people undernourished in 2023: one in 11 globally and one in five in Africa (Figure ES2). This represents a significant increase from 581 million undernourished people globally in 2019. FIGURE ES1: Number of Acutely Food-Insecure People, 2017–24 Sources: WFP 2024b (for 2020–24), FSIN and GNAFC 2024 (for 2017–19). FIGURE ES2: Prevalence and Number of Undernourished People, 2000–23 EXECUTIVE S U M M A RY Source: FAOSTAT 2024. Rising food insecurity levels have intensified the debate on whether current policies can adequately address new and heightened food security risks. Two main concerns are often highlighted (FAO et al. 2023). The first concern is that global risks to food security have increased and will continue to do so, driven by climate change, conflicts, and economic shocks (Figure ES3). Additionally, the frequency and magnitude of food supply disruptions x STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY xi Executive Summary have increased. Since the 2007–08 global food price spike, countries have increasingly significantly higher for them than other countries, justifying the use of SGRs. For example, restricted food exports during periods of high prices, heightening supply risks for import- Uzbekistan, a double landlocked country, faces risks related to inconsistent access to dependent nations (OECD 2024; World Bank 2024). Additionally, geopolitical tensions have wheat imports and volatile prices, particularly due to frequently changing trade policies in placed growing pressure on international trade, at times reducing its ability to quickly soften neighboring countries and domestic production fluctuations. As such, maintaining a well- food price spikes. The second concern is that current instruments for responding to acute food managed SGR is crucial for Uzbekistan to mitigate these risks and ensure stable wheat insecurity events have coverage gaps. These coverage gaps mainly result from insufficient availability. resources and access of first-line responders, making prioritization necessary. For example, in 2024, the World Food Programme (WFP), the largest provider of food assistance, reached Jointly prepared by the World Bank, the World Food Programme of the United Nations less than 40 percent of the acutely food insecure due to funding shortfalls, with interventions (WFP), and the Food and Agriculture Organization of the United Nations (FAO), this targeting households mostly in areas with Crisis or Emergency levels of acute food insecurity. report examines how SGRs can be strengthened at country, regional, and global levels, amid alarming global food security challenges. This is an update to a previous report on public foodgrain stocks published by the World Bank in 2012. This report aims to inform FIGURE ES3: Key Drivers of Acute Food Insecurity, 2016–23 policymakers and development practitioners on good practice’s guiding principles for designing and managing SGRs that would help enhance food security. These could inform the preparation and implementation of the National Food Security Crisis Preparedness Plans. This report, however, does not provide country-specific recommendations and does not analyze trade-offs among various food crisis response instruments using country typologies; these analyses are left to country-specific studies. This report reviews lessons learned from public stock management in developing countries with a long history of using them. It draws insights from the existing literature and the background studies prepared for this report on Bangladesh, India, the Philippines, and Uzbekistan in Asia; Ghana, Ethiopia, Zambia, and the ECOWAS regional reserve in Sub- Saharan Africa (SSA); Egypt and Tunisia in the Middle East and North Africa (MENA) region; and Honduras and the Dominican Republic in the Caribbean. These provide ample examples of key aspects of SGR management, offering practical insights on successful strategies and common pitfalls. The lessons learned show that SGRs can generate positive results if they follow key Note: The number of countries assessed varies by year: 48 in 2016; 51 in 2017; 53 in 2018; 55 in 2019; 55 in 2020; 53 principles and when integrated with broader food security strategies. SGRs can deliver in 2021; 58 in 2022, and 59 in 2023. results when they are underpinned by clear and manageable objectives, prudently managed Source: GRFC 2024. from a fiscal standpoint, and employed smartly to mitigate the impact of temporary food supply disruptions. Successful SGRs use market channels such as commodity exchanges for Strategic Grain Reserves (SGRs) are one of the tools for food security crisis management, interventions or are embedded in targeted safety net programs and maximize development emergency preparedness, and response. They could be relevant in light of the current context impacts by supporting smallholder commercialization. The lessons learned also show that described above. SGRs need to perform tasks that the private sector will not take on—i.e., SGRs fail to enhance food security when they are managed as buffer stocks to address too supporting the availability of food during emergencies. With efficient SGR management, it is many and often conflicting policy objectives. There are numerous causes of SGR failure, possible to crowd in the private sector so they engage more in storage and trade. SGRs can including lack of clarity of objectives, high fiscal costs, and crowding out of private storage enhance food availability during food supply disruptions, particularly in vulnerable and isolated and trade. regions. They are especially relevant for developing countries with high import dependency. Country-level SGRs are most likely to succeed. International price stabilization schemes SGRs are not intended for price stabilization and are most effective when integrated with for agricultural commodities have historically failed, and there is no reason to assume that broader food security strategies, where trade, private sector development, and safety nets play international grain reserves will succeed in the near future. Regional reserves, despite their important roles. To maximize their impact, SGRs should be small, simple, and smart, focusing potential, face coordination challenges and trust issues among participating countries. on cost-effective and efficient management to complement other food security efforts. Lessons from existing regional reserves, described in this report, underscore the need for Generating net gains from the use of public stocks is challenging. Only about 30 countries more robust coordination and agreements, considering diverse socio-economic factors and globally have actively used public stocks for enhancing food security. Most countries that use crisis contexts. While stronger regional cooperation can improve early warning systems, public stocks are developing countries that are net importers of grains, with the exceptions of information sharing, and capacity building for public stock management, regional reserves India, Pakistan, and Zambia, which export grains. These countries must occasionally import are unlikely to replace country-level SGRs in the near future.1 grains when experiencing large production shortfalls. Some countries with public stocks are landlocked, meaning the cost and time required to import grains during emergencies can be 1 The review of virtual grain stocks at global and regional level was beyond the scope of this report. xii STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY xiii Executive Summary The list of guiding principles for managing country-level SGRs is extensive but crucial for for purchases, and efficient storage and transportation. Acquiring stocks at market ensuring high value for money and improved food security. Public stocks fail for numerous prices through open tenders ensures competitive pricing and involves private traders, reasons, including unclear objectives, high fiscal costs, and crowding out of private storage and which benefits farmers. However, two exceptions may be considered for their potential trade, alongside other market distortions. Countries should carefully consider these factors developmental benefits even if they increase the cost of procurement: (a) where possible, to use SGRs effectively. SGRs are especially difficult to manage in countries with weak public integrating smallholder farmers into the SGR’s procurement mechanisms can support institutions or those experiencing fragility, conflict, and violence (FCV). The following principles local economies and smallholder commercialization; and (b) where relevant, prioritizing should be followed to maximize the impact of SGRs: procurement from regions with limited private trader presence can limit crowding out and benefit farmers in the region. In countries with large import volumes to replenish • Ensuring effective governance, transparency, and communication: Transparency and public stocks, such as those in the MENA region, large budget savings could be achieved clear communication are essential for SGRs. Stock size, procurement, and decisions by procuring wheat through open tenders and increasing tender efficiency. Choosing relating to timing and approach for release should be based on market principles with slightly lower wheat protein content, increasing the average size of tender, paying on limited public interventions. The institutional setup for managing SGRs can vary, but their time, reducing the urgency of wheat delivery, and ensuring competition among sellers all effective governance is critical. Public management of stocks is common, but private-public could help reduce the cost of grain procurement, saving billions of valuable public funds. partnerships can be effective if release decisions remain a public responsibility. Clear criteria help ensure that SGRs serve their intended purpose without distorting market signals. • Improving outcomes of stock release: Where markets function, stocks should be Changes in operation and management decisions should be timely and clearly explained to released through market channels, including auctions and commodity exchanges. avoid overreactions by market participants. Auctions are effective in urban areas with strong markets, rapidly increasing food availability during price surges. Commodity exchanges also enhance market functionality • Avoiding multiplicity and unclear objectives: The success of SGRs hinges on having clear and are recommended for price transparency and stock rotations. and well-defined objectives. Too many or conflicting goals can undermine their ability to improve food security, with many public stock initiatives failing for these reasons. Therefore, • Integrating SGRs into social safety net programs: In countries with weak market setting strategic goals, and adhering to them is essential. systems, targeted distributions via safety nets, such as food-for-work programs and school meals, remain necessary. Effectively integrating stock releases with safety net • Keeping SGR’s fiscal costs manageable: SGRs are inherently costly, particularly due programs, in this case, would ensure that the vulnerable populations included in those to the uncertainty of emergencies and the unsustainable fiscal burden of maintaining safety nets receive food supplies during emergencies. Yet, because safety net support large reserves. To reduce fiscal costs, countries should maintain relatively small reserves, and emergency food assistance are given as grants, fiscal and other costs could quickly optimize the timing of stock replenishment, procure and release stocks at market prices, escalate unless kept targeted and small-scale. and minimize financing, storage, transportation, and distribution costs. Public funds for SGRs should not be excessively diverted from other critical agriculture and food security • Pursuing complementary trade policies: Even amid heightened geopolitical tensions and investments. climate change, food importers must continue trading to receive timely food supplies. Aligning SGRs with trade policies would enhance the effect of SGR releases. Reducing • Determining an effective size of SGRs: The size of stocks should carefully balance fiscal trade protection levels, eliminating barriers for private sector grain imports, and cost and effectiveness. Large stocks are costly and can disrupt private trade, while small improving information systems and trade infrastructure can all help lower domestic food stocks may not cover food supply shocks. When calculating public stock size, decision- price volatility. makers should take into account the size of private stocks and incentivizing the private sector to increase them. For more accurate calculations, thresholds should be adjusted over • Investing in storage infrastructure, technology solutions, and innovations: Investing time and account for the trade environment and likelihood of shocks. in modern grain storage solutions such as silos, flat warehouses, and advanced digital monitoring technologies can reduce the cost of managing SGRs by minimizing grain • Reducing price distortions and other economic costs: To minimize price distortion, SGRs losses and maintaining quality. Rapidly developing technologies help detect early spoilage should focus on mitigating food supply disruptions and providing relief during crises, and pest infestations, preserving the economic value of reserves. However, selecting not on generating profits or stabilizing prices. SGRs should act as a last-resort safety the right technology requires careful consideration of each method’s advantages and net, intervening only when necessary to alleviate temporary supply constraints without disadvantages within specific country contexts. distorting overall market dynamics. For instance, releasing grain from SGRs at market prices during temporary import delays can be effective. Governments should avoid using In summary, SGRs can be one of the tools for food security crisis management, emergency SGRs to combat the impact of global prices on local prices, as intervening in broader market preparedness, and response. They should complement broader nonstock food security pressures is usually futile. Following these principles, SGRs can remain compatible with strategies that enhance the resilience of rural livelihoods and the functionality of overall liberalized grain markets, avoid large-scale interventions, and address supply disruptions safety nets. Properly managed SGRs should be part of a long-term plan that incorporates pragmatically. trade, agricultural productivity investments, and targeted safety net programs. SGRs are most effective for short-term interventions, stabilizing food supply during market shocks, • Reducing the cost of SGR replenishment: Clear and transparent replenishment rules for especially during food import delays. While design will inevitably vary from country to SGRs are crucial for minimizing fiscal costs and market disruptions. Effective strategies country, SGRs should be small, simple, and smart to maximize impact, focusing on cost- include transparent procurement at market prices, appropriate timing and locations effective, efficient management to complement other food security efforts. xiv STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY xv Executive Summary 1 1.1 REPORT BACKGROUND This report reviews how strategic grain reserves (SGRs) can improve food security as a risk management instrument. For decades, countries have implemented public policies and programs enhancing economic growth, agricultural productivity and trade, and safety nets to reduce food insecurity and provide emergency food assistance. These approaches have generally been effective, significantly reducing the prevalence and geographic spread of famine and food insecurity. However, progress has recently slowed due to new challenges such as increased uncertainty over food price levels and volatility, more frequent and intense weather risks from climate change, an increasing number of conflicts, geopolitical tensions, and constrained food export/supply disruptions during periods of tight global inventories. These challenges have exposed vulnerabilities in current food security strategies, calling for renewed attention to instruments such as SGRs. Rising food insecurity levels have intensified the debate on whether current policies can adequately address new and heightened food security risks. Two main concerns are often highlighted (FAO et al. 2023). The first concern is that global risks to food security have increased and will continue to do so, driven by climate change, conflicts, and economic/trade shocks. As this report will later detail, these three key drivers are increasingly overlapping, mutually reinforcing, and interconnected. While not all food supply shocks cause emergencies or spikes in food prices,2 shocks are often triggers. Conflicts and insecurity are the primary drivers of acute food insecurity, with 65 percent of the acutely food- insecure population living in conflict-affected areas (WFP 2024b). Additionally, the frequency and magnitude of food supply disruptions have increased. Since the 2007–08 global food price spike, countries have increasingly restricted food exports during periods of high prices, heightening supply risks for import- dependent nations (OECD 2024; World Bank 2024). The second concern is that current instruments for responding to acute food INTRODUCTION insecurity events have coverage gaps. These coverage gaps mainly result from insufficient resources and access of first-line responders, making prioritization necessary. For example, in 2024, the World Food Programme (WFP), the largest provider of food assistance, reached less than 40 percent of the acutely food insecure due to funding shortfalls, with interventions targeting households mostly in areas with Crisis or Emergency levels of acute food insecurity. However, pockets of acute food insecurity can persist in otherwise food-secure areas since targeting these populations can be very costly. Government-provided safety nets are typically designed to target households based on a poverty metric. The assistance is ongoing if the household remains poor, making it well-suited for addressing chronic food insecurity. Geopolitical tensions have placed growing pressure on international trade, at times reducing its ability to quickly soften food price spikes. Export restrictions remain frequent and are rising, especially during periods of global food commodity price spikes and tight inventories. This rise is unfortunate because, as the changing climate has major adverse effects on the overall food supply, trade is becoming 2 In the report, food supply and food prices refer to supply and prices of agricultural and food commodities and are used interchangeably. 1 STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY 2 Introduction increasingly vital for ensuring that food, farm inputs, and technologies move easily In terms of how SGRs are used an emergency grain source during market and cheaply across borders. Virtually all countries would have a lower risk of food disruptions, most governments deploy two types of food assistance programs. and nutrition insecurity were markets better integrated; the impact is especially The first is public in-kind food distributions, which are integrated into marked for the least-developed countries and emerging economies. comprehensive public safety nets. Public stocks held for this purpose are often referred to as Public Distribution Stocks. The second type consists of public stocks This report examines the role of SGRs at the country, regional, and global levels held to deliver in-kind relief during acute food insecurity emergencies. Public within this new context. The report is jointly prepared by the World Bank, the stocks held for this purpose are generally known as Emergency Food Stocks. Some WFP, and the Food and Agriculture Organization (FAO), bringing together the countries also use public stocks, known as buffer stocks, to manage food prices by experience of these international institutions, and updates the report on foodgrain acquiring stocks to boost low prices and releasing stocks to depress high prices. As public stocks published by the World Bank in 2012. This report aims to inform discussed later, price stabilization programs based on buffer stocks, once common, policymakers and development practitioners on good practices and guiding have had limited success. principles for designing and managing SGRs that might help enhance food security, not undermine it. The report uses country examples to derive the guiding principles When used to provide liquidity to constrained grain markets, SGRs represent in managing SGRs. This global report, however, does not provide country-specific one of three potential instruments to address household food insecurity, the recommendations and does not analyze trade-offs among various food crisis strengths and weaknesses of which relate to their targeting mechanisms. Safety response instruments along country typologies. nets (a first instrument), target poor households. Food assistance programs (a second instrument), address acute food insecurity, and, traditionally, target The report will also inform the preparation and implementation of the national households and communities. As a third instrument, SGRs also address acute food Food Security Crisis Preparedness Plans. These plans identify food security emergencies by targeting markets. SGR releases are triggered when assessment vulnerabilities, monitor risks, and prepare responses to emergencies. Twenty- is made that short-term market constraints have led to food shortages and price five countries have committed to developing such plans with support from the increases that significantly increased the number of food-insecure households. SGR Global Alliance for Food Security, recently renamed the Global Food and Nutrition operations are meant to provide relief to food-insecure households indirectly by Security Platform (World Bank 2023). Some of these plans are already under increasing food availability. implementation, and this report will inform improvements in SGR governance and management. Because of their design, the three instruments have differing budget consequences. Typically, safety net support and emergency food assistance are The report is structured into six chapters. The introduction provides the given as grants. By contrast, SGR reserves are sold and purchased at market background, discussing the key objectives of SGRs, the optimal roles of public rates, so some program costs are recovered. That said, because SGR assistance is and private storage in grain markets, and circumstances under which SGRs could untargeted when released through regular marketing channels, households that be effective for market intervention. Chapter 2 provides details on the rapidly are not food insecure also benefit from SGR operations. Consequently, the scale emerging risks and vulnerabilities for food security and how they influence the role of inventories needed to benefit all consumers might be quite large, especially if of SGRs in addressing these challenges. Chapter 3 delves into key design elements designed to bridge supply disruptions lasting months. This large inventory size, in and strategies for effective SGR governance and management, highlighting turn, drives up the cost of SGR programs. what has worked and not worked in the past. Chapter 4 discusses innovations and technologies in grain storage and monitoring, and storage infrastructure Another distinction worth emphasizing is the difference between high domestic enhancements. Chapter 5 discusses how regional and global reserves can prices driven by disrupted markets and high domestic prices in connected complement and support country-level public reserves. The report concludes with a markets. In the first instance, disruptions leave local food systems autarkic; list of guiding principles for effective SGRs in Chapter 6. price increases primarily allocate existing supplies rather than elicit new ones. This factor is why an influx of new supplies through a release from SGRs can be 1.2 WHAT ARE SGRS? effective. Alternatively, theory and practical experience suggest that releasing The term ‘Strategic Grain Reserves’ has been indiscriminately applied to several inventories into well-connected markets will have little impact on prices since gaps types of public stocks. For this report, SGRs are defined as publicly owned between domestic and external prices create arbitrage opportunities that effective inventories of food grains held in anticipation of episodes of acute food insecurity markets will close. Said differently, SGRs can be effective as an instrument to caused by trade and supply-chain disruptions. SGRs can be held for two broad mitigate sharp price increases—brought about by disruptions that constrain food purposes. First, SGRs can be used to boost private food supplies during short-term supplies—but not as an instrument to lower food prices generally. trade and supply-chain disruptions that result in sharp increases in domestic food For similar reasons, market constraints will determine the relative advantage of prices. This action is done by releasing SGRs into regular marketing channels. in-kind relief versus cash transfers. As discussed in Box 1, the use of cash transfers Second, SGRs can be a precautionary source of grain for food assistance programs rather than in-kind food distributions has become more prevalent as an instrument during market disruptions. for safety net and emergency programs, as they have proven to be cost-effective in many contexts. 3 STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY 4 Introduction Grain markets operate in two regimes: sufficient availability with low prices and positive storage demand, and limited availability with high prices and limited BOX 1: IN-KIND FOOD ASSISTANCE OR CASH storage demand. Figure 1 illustrates these regimes. In the first regime, price TRANSFERS elasticity is higher, and adjustments to supply shocks come from stock changes, In recent decades, emergency food assistance has gradually moved from in-kind resulting in small price changes. In the second regime, adjustments rely on less food distribution to cash transfers. In-kind household food distributions are less elastic consumption, leading to higher price increases and greater sensitivity to prominent than in previous decades due to cost and impact considerations. The shocks. Intra-seasonal storage by farmers, traders, and processors adjusts based Independent Evaluation Group of the World Bank found projects with conditional on continuous updates about crop conditions, reducing price spikes from bad cash transfers to be more consistent in achieving objectives than those with in- harvests by limiting destocking when negative information about crop conditions kind transfers (IEG 2011). More recent estimates show that in-kind food transfers emerges (Gouel 2020). Spatial arbitrage ensures that price gaps between markets account for a relatively small share of safety net arrangements at 18 percent of do not exceed transport costs. Trade interactions highlight two risks: (a) aggregate all safety-net funding in MENA, 11 percent in SSA, 10 percent in South Asia, and 9 (global harvest year-on-year variations) and (b) idiosyncratic (individual country percent in Latin America and the Caribbean (World Bank 2018). crop production variations). International trade smooths idiosyncratic risks, while storage in exporting countries mitigates aggregate risks. However, transport Furthermore, it is estimated that only 44 percent of the global safety nets in costs and trade barriers in exporting countries mean storage must also address recent years was provided in kind. The remaining 56 percent was delivered as idiosyncratic risks for less integrated and import-dependent countries, providing cash or fee waivers (Honorati, Gentilini, and Yemtsov 2015; Gadenne et al. 2024). an opening for SGRs. Even for food assistance, in case of WFP, about one-third of assistance is provided as cash even though its largest operations are in FCV countries (WFP 2023). FIGURE 1: Price With and Without Demand for Storage However, in-kind transfers can be preferred over cash where local markets are not fully functional or delivery mechanisms (connectivity issues, liquidity problems) of cash transfers are constrained, especially in FCV countries. WFP takes a modality agnostic approach to assistance. Detailed analysis of the country context, including levels of liquidity, market functionality, logistics networks, inform the decision on which modality of assistance WFP will deploy. The recent shift from in-kind to cash assistance for safety nets has important implications for SGR design. While SGRs are not widely expected to deliver food to targeted beneficiaries, with some exceptions where it is still justifiable, they are needed to boost private food supplies during short-term trade and supply-chain disruptions, making sure that safety net recipients can afford to buy food. Note: represents the price above which no speculative stocks are held. represents a negative 1.3 THE ROLE OF STORAGE IN GRAIN MARKETS AND THE supply shock occurring at two different levels of availability. ESSENTIAL ROLE OF SGRS Source: Gouel 2024. Extensive research covers how private storage markets, trade, and public stocks A market price that clears temporal markets must also clear spatial markets. influence commodity price levels and volatility. This section outlines the theoretical Arbitrage opportunities for storage also compete with arbitrage opportunities for foundations that inform the SGR design, focusing on the role of the public in relation trade. That is, grain that could be held for storage in one location for sale in that to private stocks. Grain markets are inherently volatile due to shocks and the low- location tomorrow could also be shipped for sale in another location. Consequently, price supply and demand elasticities.3 Weather, pests and diseases, and fluctuating a market-clearing price is one that leaves no temporal or spatial opportunities input prices affect grain production, while demand is influenced by consumer (Larson 1994, 2007). This is important for SGR operations since releasing public income changes and preferences as well as policy changes (e.g., biofuels) and cross- stocks into a local market can create spatial arbitrage opportunities, including market linkages (e.g., livestock feed demand). Low price elasticities of demand smuggling across the border, that, when acted upon, can limit the ability of SGR arise from grains being essential food and the lag between planting and harvesting. operations to lower local prices. Traders and processors stabilize prices by buying low and selling high, linking prices across periods. However, private storage cannot prevent all price spikes, as extreme With this competitive benchmark market setting, private storers are vital for or consecutive adverse shocks can leave stocks unexpectedly low. private marketing systems and provide basic grain price stability. They respond to public policies affecting their incentives, which is crucial for designing effective 3 See Gouel and Legrand (2022) for a characterization of these two dimensions. 5 STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY 6 Introduction interventions. In an ideal setting with perfect competition, information, rational disruptions and are necessary for countries based on their risk exposure, not just expectations, and complete asset markets, market equilibrium is efficient and economic status. High-income countries like Switzerland, South Korea, Japan, achieved by the private sector’s actions, making public interventions unnecessary and Norway5 maintain some public reserves, highlighting this point. Assessing risk (Coles and Hammond 1995). However, when these conditions fail, which is often the exposure involves evaluating factors such as the proportion of imported versus case in developing countries, market equilibrium becomes suboptimal, leading to domestically produced grains, risks of export restrictions and other global food disruptions and a potential role for SGRs. supply disruptions, logistical bottlenecks, domestic production vulnerabilities, and the potential for substituting grains and other adjustment margins, such Failures in spatial and temporal markets can threaten food security, requiring as livestock feed.6 These risk factors can also help determine the appropriate interventions like SGR operations. Poverty and food insecurity can persist reserve size.7 By evaluating and aligning the size and management of SGRs with despite perfect markets, and high food prices can occur even with efficient private each country’s specific risks and needs, policymakers can ensure these reserves storage (Coles and Hammond 1995). Developing countries often face market effectively contribute to national and global food security. failures, including imperfect risk perceptions, information, and coordination issues, affecting storage decisions (Barrett and Mutambatsere 2016). Imperfect risk perceptions affect storage decisions. Unpredictability can lead to suboptimal private storage inventories. Imperfect information and coordination issues arise THE BOTTOM LINE from incomplete or inaccurate market data on prices, weather impacts, harvest SGRs are one of the tools for food security crisis management, emergency sizes, and demand shifts. Grain inventories, dispersed among governments, preparedness, and response. They need to perform tasks that the private sector firms, and farms, are particularly problematic. The 2007–08 global food price will not take on—i.e., supporting the availability of food during emergencies— spike highlighted how the lack of reliable real-time information on rice inventories while, by efficient SGR management, crowding in the private sector to engage contributed to the runup in prices.4 Constraints on private storage include diverse more in storage and trade. SGRs can enhance food availability during food supply firm capacities, credit and insurance market imperfections, poor infrastructure, disruptions, particularly in vulnerable and isolated regions. They are especially and lack of competition. These constraints can lead to suboptimal private storage relevant for developing countries with high import dependency. SGRs are not levels. intended for long-term price stabilization and are most effective when integrated Policymakers in net-importing countries should, however, note that private with broader food security strategies that bring together trade, SGRs, private storage is generally optimal unless market disruptions occur, and they need sector development, and safety nets to improve food security. to promote trade even during times of global food price spikes. The 2007–08 global food price spike illustrates this point. At the start of the crisis, wheat prices rose due to production shortfalls, but trade continued despite export bans from some large wheat exporters. Prices increased significantly, but supplies remained available, and the resulting wheat price spike was modest compared to adjustments in rice prices. By contrast, rice prices rose more sharply despite relatively ample supplies, as multiple sellers such as India and Viet Nam banned exports, and the few that remained (e.g., Thailand) considered restricting exports (Headey 2011). However, as the policy debate over price stabilization escalated, numerical models became crucial, providing baselines to measure intervention impacts. Research suggests there is limited scope for public interventions, including buffer stock programs, due to practical challenges like detecting actual commodity price trends, political capture, and the risk of depleting buffer stocks (Williams and Wright 2005; Larson et al. 2014; Gouel, Gautam, and Martin 2016. In the medium to long term, governments are instead recommended to focus on improving information flows and trade and institutions that support private storage, given the significant benefits of doing so. Yet, in the short-term, weak private storage markets can present vulnerabilities that must be addressed in food security policies. 5 Norway has recently reintroduced SGRs after discontinuing them in the past (see Box 3, Chapter 3, for details). Determining the appropriate context for utilizing SGRs is crucial for their 6 Studies by FAO (2021) and Deteix, Salou, and Loiseau (2024) characterized the risk exposure of agricultural markets in various countries, providing a basis for developing vulnerability indicators that could guide effective implementation. SGRs can improve food security during supply countries in the use of SGRs. 7 In theory, SGRs’ size should balance costs and benefits. In practice, reserve sizes are often set using 4 This led to the creation of the Agricultural Market Information System in 2011, an inter-agency platform simple rules of thumb, such as maintaining reserves for a specified number of months of demand or import established by G20 Ministers of Agriculture, which assesses global food supplies focusing on wheat, maize, requirements (e.g., 4 months for cereals in Switzerland; 90 days for petroleum imports for International Energy rice and soybeans, and facilitates coordinated policy action during critical times. See also Delgado et al. (2010). Agency members). 7 STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY 8 Introduction 2 2.1 HISTORY AND THE RECENT GROWING CHALLENGE OF FOOD INSECURITY AND HUNGER The modern concept of food security began with the 1974 World Food Conference, which emphasized expanding food supplies to meet demand and stabilize prices. Initially, the focus was on national self-sufficiency, with food imports seen as a sign of insecurity (Upton, Cissé, and Barrett 2016; Clapp et al. 2022; Maletta 2024). Over time, several significant insights redirected the notion of food security away from national self-sufficiency. An important turning point was Sen’s observation that supply shortfalls of a similar scale did not always lead to famine, which sometimes occurred when available supplies were adequate.8 Another was the development of studies into the dynamics of resource allocation within households, a framework suitable for understanding how households managed the production and consumption risks that threatened food security (Binswanger and Rosenzweig 1986; Corbett 1988). In combination, the new thinking moved the focus of food insecurity discussions from national outcomes to household outcomes. The focus on households also allowed for the distinction between chronic and acute food insecurity. Chronic food insecurity is a persistent lack of adequate food intake over a long period and is commonly linked to household poverty. Acute food insecurity is a manifestation of food insecurity occurring at a specific point in time, posing a threat to lives, livelihoods, or both, regardless of its causes, context, or duration. Acute food T H E R E L E VA N C E insecurity can be idiosyncratic, for example, when a household can no longer acquire food due to illness, lost income, or temporary food price spikes. These kinds of food insecurity require different policy responses. OF SGRS AMID This new understanding emphasized the importance of local circumstances, markets, and institutions (Sen 1981; Ravallion 1997; Fogel 2004; Devereux 2018). At the 1996 World Food Summit, trade became an essential element of food E V O LV I N G security just as countries began to dismantle agricultural trade barriers (World Food Summit 1996; Maletta 2024). Soon, most of the core elements of a multi- dimensional approach to combating food insecurity, as advocated by the FAO, WFP, the World Bank, and other members of the international community, were RISKS AND in place. Over time, people’s increased incomes and lower grain and food prices reduced poverty (Table 1). The rise of food crisis monitoring institutions has also contributed to timely responses (Box 2). VULNERABILITIES 8 See Sen (1980, 1981). The idea that some starved while others ate well was often observed but not applied to discussions of famine. Sen (1980) quoted Bernard Shaw’s play, Man and Superman, to make this point (Shaw, 1903). 9 STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY 10 The Relevance of SGRs in the Context of Evolving Risks and Vulnerabilities TABLE 1: Food Availability, Food Prices, and Poverty Rates by Decade The Famine Early Warning Systems Network (FEWS NET) is another agency that was Decades Calories Protein Population Grain Prices Food Prices Income Poverty established to anticipate events that might lead to famine. It was initially established 1960s 2,292 63 3.3 86.3 73.1 4,236 - and funded by the United States in response to the deadly 1984–85 famines in Sudan, 1970s 2,403 65 4.0 98.1 88.5 5,466 - Ethiopia, and other African countries. It has since grown into a multi-stakeholder 1980s 2,572 69 4.8 59.6 54.8 6,225 40.0 partnership that monitors global food security risks. The system expanded considerably 1990s 2,653 72 5.7 41.0 38.5 7,079 33.8 in 2000 to strengthen local food security information and response planning systems in 2000s 2,766 76 6.5 35.8 34.9 8,517 23.0 Africa. Until its work was recently discontinued, the agency coordinated with partners on 2010s 2,895 87 7.4 44.1 43.0 10,081 11.3 information, training, and assessment missions. 2020s 2,972 91 7.9 44.0 42.0 11,141 9.4 Another important institution is the Integrated Food Security Phase Classification Note: Calories are measured as available calories per capita per day; protein is measured as available (IPC). This multi-party partnership encompasses a methodology for classifying grams of protein per capita per day (FAOSTAT 2024). Population is measured in billions (World Bank acute food insecurity events and facilitates the analysis for declaring famines. The 2024b). Monthly international price indices (World Bank 2024a) are deflated by the monthly U.S. FAO originally developed the methodology in 2004 to assess an evolving food crisis consumer price index where 1982–1984 = 100 (Federal Reserve Bank of St. Louis 2024). Prices begin in Somalia (Andrews and Flores 2008). The need for a rigorous assessment of acute in January 1960 and end in September 2024. Income is global GDP per capita, measured as constant malnutrition events and stakeholder agreement on the severity of events became US$ 2015. Poverty is calculated as a headcount ratio (percentage of the population) at US$2.15 per apparent when earlier multi-donor relief efforts were hampered by a lack of shared day, deflated by the 2017 PPP (World Bank 2024b). Undernourishment is given as the prevalence of sense of urgency during evolving food emergencies. The IPC classification system is undernourishment as a percentage of the population (World Bank 2024b). All values are decade averages, a 5-stage scaled classification system focused on nutrition outcomes and household except for the 2020s, which includes annual data through 2023 and monthly price data through coping behaviors. Normal circumstances are classified as stage 1, while stage 2 reflects September 2024. situations where households can avoid food gaps by shifting household budgets from non-food expenditures to food expenditures. Food gaps and malnutrition appear in stage 3 and mark the early stages of an acute hunger crisis. Assets are liquidated and food BOX 2: THE RISE OF FOOD CRISIS MONITORING’S gaps widen in stage 4, and famine appears in stage 5. At the global level, it is now a INTERNATIONAL INSTITUTIONS partnership of 19 organizations and intergovernmental institutions. The later decades of the twentieth century saw a rise in international institutions In recent years, other efforts were made to prompt monitoring and data collection designed to boost food security, provide advanced warnings of potential famines, and efforts around food insecurity. One example is the Food Security Information Network limit their severity. In 1961, the United Nations established the WFP as a collaboration (FSIN), an EU-funded collaborative platform with a Secretariat housed within the WFP. As between the United Nations and the FAO. Its first operation was to provide emergency part of its collaboration with the Global Network against Food Crises, the FSIN facilitates food relief following a 1962 earthquake in Iran (WFP 2024a). In 1968, the FAO and the the annual, multi-partner, consensus-based Global Report on Food Crises, its mid-year WFP set up a warning system to anticipate food shortages (Würdemann, Meijerink, update as well as regional reports. The 2024 Global Report on Food Crises report includes and van Dorp 2011). Over the years, the system was improved and expanded. In its information from 59 countries (FSIN and Global Network Against Food Crises, 2024). present form, the FAO’s Global Information and Early Warning and Information System Another example is the Agricultural Market Information System (AMIS). It is an inter- (GIEWS) operates a network of data collection and information sharing (FAO 2024). agency platform to enhance food market transparency and policy response for food Among other activities, GIEWS provides publicly available information on country security. It was launched in 2011 by the G20 Ministers of Agriculture following the global cereal balances, food prices, and indicators of crop stress, using remote sensing data. food price hikes in 2007–08 and 2010. Bringing together the principal trading countries The system, housed within the FAO’s Markets and Trade Division, dispatches rapid crop of agricultural commodities, AMIS assesses global food supplies, focusing on wheat, and food security assessment missions to investigate potential food shortages. maize, rice, and soybeans. It provides a platform to coordinate policy action in times of WFP established the vulnerability analysis and mapping (VAM) unit in 1994 to market uncertainty. improve monitoring of vulnerability to food insecurity and support a comprehensive Finally, the World Bank Group and German G7 Presidency jointly launched the Global understanding of structural and emergency factors causing food insecurity – a Alliance for Food Security (GAFS), recently renamed the Global Food and Nutrition requirement for effective programming and planning. A network of food security Security Platform. Launched in May 2022, GAFS was designed to catalyze an agile analysts across around 80 countries runs household assessments and analyses and coordinated response to the global food security crisis. GAFS has been a one-stop geospatial and economic data to gain insights on who is food insecure or vulnerable, platform, providing timely, quality food and nutrition security information for decision- why, where, and how the situation is likely going to evolve. VAM harnesses mobile makers. The GAFS dashboard displays the inter-relatedness of food crisis monitoring, technology, artificial intelligence and data analytics for remote real-time food security financial response, and research to achieve complementarity toward the GAFS objective. monitoring, forecasting and scenario simulations, and provides its data as a global public good. 11 STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY 12 The Relevance of SGRs in the Context of Evolving Risks and Vulnerabilities FIGURE 2: Number of Acutely Food-Insecure People, 2017–249 The global food security landscape has shifted significantly in recent years, diverging from past trends. Global hunger and food insecurity have risen after decades of improvement (FAO et al. 2024). Past crises, such as the 2007–08 and 2010–12 global food price spikes, did not lead to a global increase in chronic food insecurity due to strong economic growth in developing countries. In recent years, however, crises have seen a significant increase in acute food insecurity, with 343 million people in 74 countries facing this challenge in 2024 (Figure 2). The COVID-19 pandemic and recent geopolitical conflicts, which escalated food prices and triggered a global cost-of-living crisis, contributed substantially to the rise. Although the number of acutely food-insecure people has slightly decreased since 2022, it remains more than double the pre-pandemic level. Chronic food insecurity also remains high, with up to 757 million people undernourished in 2023: one in 11 globally and one in five in Africa (Figure 3). These figures represent a significant Sources: WFP 2024b (for 2020–24), FSIN and GNAFC 2024 (for 2017–19). increase from 581 million people undernourished around the world in 2019. Projections estimate that 582 million people will be chronically food insecure by FIGURE 3: Prevalence and Number of Undernourished People, 2000–23 2030 - significantly above pre-pandemic estimates. Food insecurity today is widespread and increasingly severe. Among the 343 million acutely food insecure people, 44 million across 47 countries have escalated from crisis to emergency levels. These populations experience large food consumption gaps, high acute malnutrition, and excess mortality or are mitigating such gaps through emergency strategies and asset liquidation. Acute hunger can persist in conflict-affected areas, leading to prolonged food insecurity. From 2019 to 2023, an average of 71 percent of areas monitored by FEWS NET in Yemen and 62 percent in South Sudan were designated as IPC Phase 3–5 areas. Driven mainly by conflict, the number of people facing catastrophic hunger (IPC5) reached a level unprecedented in this century. At the time this report went to press, up to 1.9 million people in the Gaza Strip and the West Bank, Sudan, South Sudan, Haiti and Mali were estimated to experience catastrophic levels of food insecurity (IPC5) in 2024 (WFP, 2024d), including starvation, death, destitution and extremely critical Source: FAOSTAT 2024. levels of acute malnutrition. FIGURE 4: Number of Acutely Food-Insecure People by Region, 2024 In 2024, half of the world’s acutely food-insecure people lived in SSA, a quarter in Asia and the Pacific, and the remainder in MENA, Latin America, and the Caribbean (Figure 4). The latest FAO-WFP Hunger Hotspots report provided early warnings on acute food insecurity for an outlook period of November 2024 to May 2025. The report flags that food insecurity is likely to deteriorate further in 16 hunger hotspots, with those of highest concern continuing to be Haiti, Mali, the Gaza Strip and the West Bank, South Sudan, and Sudan (WFP and FAO, 2024). The GRFC 2024 report shows a noticeable increase in food insecurity in Asia in recent years. Unfortunately, some of the drivers in the region were all too common: weather extremes in Pakistan and continued conflict in Myanmar. Source: WFP 2025. 9 Country coverage varies between years, depending on the number of food-crisis countries and data availability. The 2017 figure is based on 51 countries, 2018 on 53 countries, 2019 on 55 countries, 2020 on 79 countries, 2021 on 81 countries, 2022 on 79 countries, 2023 on 78 countries, and 2024 on 71 countries. 13 STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY 14 The Relevance of SGRs in the Context of Evolving Risks and Vulnerabilities 2.2 UNDERLYING TRENDS IN FOOD SECURITY CHALLENGES tripling in size since 2010—with Sudan, Syria, and the Democratic Republic of Congo having the highest numbers of internally displaced people (UNHCR 2024; The GRFC database contains an assessment of the single-most important driver IDMC 2024). associated with each acute food insecurity event. There is rarely a single driver of food insecurity in any country (Figure 5). Still, the streamlined classification of Conflicts have become a significant risk for agricultural markets, severely drivers helps reveal trends and common global drivers. The GRFC employs three impacting food security. In SSA, conflicts have been the primary driver of food categories of acute food insecurity events: conflict/insecurity, weather extremes, insecurity since 2013, exacerbated by droughts and locust infestations. Conflict and economic shocks. Unsurprisingly, conflict and insecurity are the main reasons disrupts all aspects of the food system, including crop production, storage, why so many people face hunger. Conflict disrupts food systems, blocks the processing facilities, and transport infrastructure, preventing supplies from delivery of humanitarian assistance, and displaces people who must abandon reaching markets and causing local food prices to surge. Economic contraction and the resources they own and their support networks. Impacts are often mutually limited livelihood opportunities further erode purchasing power. reinforcing. Conflicts force farmers, pastoralists, and urban workers to abandon their FIGURE 5: Principal Drivers of Acute Food Insecurity, 2016–23 livelihoods, leading to prolonged food insecurity even years after the violence ends. Internally displaced people often reduce their food intake, and food security deteriorates with repeated displacement. Additionally, conflicts impede humanitarian assistance, with catastrophic outcomes. The latest FAO-WFP Hunger Hotspots report warns that, without humanitarian aid and efforts to reduce access constraints, further starvation and death are likely in Mali, the Gaza Strip and the West Bank, South Sudan, Sudan, and Haiti (WFP and FAO 2024). Also, food production and supply rehabilitation in war-torn countries take decades (Kemmerling, Schetter, and Wirkus 2022). Displaced people may stay away from their homes for years, even when conflicts are resolved. FIGURE 6: Number of State-Based Armed Conflicts Worldwide Note: The number of countries assessed varies by year: 48 in 2016; 51 in 2017; 53 in 2018; 55 in 2019; 55 in 2020; 53 in 2021; 58 in 2022, and 59 in 2023. Source: GRFC 2024. 2.2.1 Conflict and food emergencies Source: Uppsala Conflict Data Program (database). The number of state-based armed conflicts worldwide has increased significantly over the last decade. The world is experiencing the highest level of FIGURE 7: Number of Forcibly Displaced People Worldwide state-based conflicts since World War II, with significant implications for food security (Rustad 2024). Between 2012 and 2023, the number of conflicts rose from 33 to 59, the highest since the Uppsala Conflict Data Program began collecting data in 1946 (Figure 6). Moreover, 92 countries are engaged in conflict elsewhere, more than at any point since the inception of the Global Peace Index in 2008. This increasing internationalization complicates negotiation processes and prolongs conflicts. At the same time, 108 countries are becoming more militarized - again the highest number since the Global Peace Index started tracking (Institute for Economics and Peace 2024). Trends in forced displacement highlight the global lack of peace and security, with 117 million people forcibly displaced at the end of 2023 due to persecution, conflict, violence, and human rights violations (Figure 7). UNHCR estimates that this number has reached 123 million by mid-2024—nearly Source: UNHCR Refugee Data Finder (database). 15 STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY 16 The Relevance of SGRs in the Context of Evolving Risks and Vulnerabilities There is also a growing recognition that the relationship between conflict and are found to have caused substantial crop yield reductions (Lesk, Rowhani, and food insecurity is bidirectional. Food insecurity results from conflict but also Ramankutty 2016), with a tripling of such events in Europe (Brás et al. 2021), sparks, reinforces, or perpetuates conflicts (Sova et al. 2023). Under certain leading to significant crop losses. In the last decade, the growth in global food per conditions, severe hunger can drive protests, unrest, and even civil wars. While capita production declined while volatility increased, highlighting that more volatile food insecurity alone may be unlikely to incite violence, when combined with socio- yields affect food production (Figure 8). economic and political inequalities, it can exacerbate grievances and spark conflict FIGURE 8: Growth and Volatility Trends in Global Food Production per Capita, 1980–2020 (Kemmerling, Schetter, and Wirkus 2022). 2.2.2 Climate change and weather-driven events Among the various drivers reshaping global food security, climate change is a key factor with far-reaching implications. Weather extremes have increased in frequency and intensity over time. According to the Centre for Research on the Epidemiology of Disasters’ EM-DAT database, from 1964 to 1983, an average of 76 climate disaster events were reported annually. This number increased to 225 events per year in the following two decades and reached 339 events per year between 2004 and 2023 (Table 2).10 Munich Re’s NatCatSERVICE database also shows exponential growth in the frequency of natural disasters at a rate of 2.6 percent over the last four decades (Chatzopoulos et al. 2021). TABLE 2: Number of Reported Meteorological, Hydrological, and Climatological Disasters Type 1964–83 1984–2003 2004–23 Source: FAOSTAT 2022. Droughts 184 277 315 Extreme temperature 30 211 396 Extreme weather events are already affecting agricultural export patterns. Recent research finds that two-standard-deviation extreme weather events— Floods 559 1,841 3,373 measured using the water balance deficit—reduce maize, rice, and soybean Glacial lake outbursts 0 0 4 bilateral export values by 48.2 percent, 53.4 percent, and 21.7 percent, respectively (Nes et al. 2025). The long-term results imply that increases in the standard Landslides 113 309 354 deviation of weather are associated with lower export values across all three Storms 606 1,653 2,125 crops. An increase in the frequency of extreme events can greatly shift current commodity export patterns, creating uncertainty in the short run that SGRs could Wildfires 29 213 219 potentially manage. Understanding these shifting trade patterns is necessary Total 1,521 4,504 6,786 to implement trade policy that enables countries to leverage their evolving comparative advantages and ensure the effectiveness of trade as a tool for Source: EM-DAT (database) 2024. mitigating the negative production effect of climate change. Climate change significantly impacts agricultural production. Adverse effects There is also a critical connection between climate change and conflicts, thus on crop yields are already visible and projected to intensify. Attribution studies indirectly affecting food security and its direct impact on agricultural production. generally show the adverse effects of recent climate change on crop yields, with Climate change exacerbates conflicts, especially in regions with fragile social and few exceptions (FAO 2023). New-generation models suggest these impacts could political conditions (Buhaug and von Uexkull 2021). Weather-related displacements occur sooner than expected (Jägermeyr et al. 2021). While most studies focus have ranged from 14–38 million people annually since 2008, with 20 million in on average yield decreases, the rationale for SGRs requires scrutiny into large 2023, mainly due to floods and storms (IDMC 2024). Slow-onset climate impacts deviations caused by weather extremes, which are becoming more common due to could force 216 million people to migrate within their countries by 2050, with the climate change. Such extremes in yields present a significant challenge for analysis largest shares in SSA (86 million people) and East Asia and the Pacific (59 million due to their low frequency, but evidence is mounting that climate change is making people) (Clement et al. 2021). large deviations in yield more common. For instance, heat waves and droughts 2.2.3 Economic shocks and food emergencies 10 Over time, improved disaster reporting and evolving technologies have led to more comprehensive data, Economic disruptions and recessions are more common causes of acute food though earlier years may lack consistency, which explains some patterns in natural disaster data (Ritchie and Rosado 2024; Alimonti and Mariani 2023). This means that cautious interpretation of trends over time is key, insecurity, partly due to lingering COVID-19 pandemic impacts. One in four especially when examining early data. 17 STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY 18 The Relevance of SGRs in the Context of Evolving Risks and Vulnerabilities acutely food insecure people around the world live in countries where economic Trade disruptions might diminish the ability of trade flows to smooth over shocks are the primary driver of hunger (FSIN and GNAFC, 2024). Historically, large idiosyncratic risks, compelling countries to rely more heavily on domestic global economic downturns have contributed to food price declines due to reduced production and storage capabilities. While these factors suggest increased risks, demand. Economic cycles have primarily driven food and commodity prices rather they may not represent a fundamentally new environment but a continuation than prices driving recessions, with the significant exception of energy (Baffes et al. of existing trends. International trade in agricultural products has always been 2015). However, the 2020 global recession, triggered by the COVID-19 pandemic, subject to public interventions during crises (Anderson and Nelgen 2012), with was exceptional. It caused a nearly 4 percent drop in global average incomes, countries systematically adjusting their trade measures to insulate domestic affecting nearly all markets, including agriculture ( IMF 2022; World Bank 2024b). markets from world price changes (Martin, Mamun, and Minot 2024). The World Yet, the food price index rose by 14 percent due to supply-chain disruptions, with Trade Organization (WTO) has historically struggled to provide a robust framework integrated markets experiencing higher price increases than segmented ones to address these issues (Cardwell and Kerr 2014). However, the potential (Dietrich et al. 2022). aggravation of these risks in the future, especially as they compound, cannot be excluded. In their medium-term agricultural outlook, the FAO and OECD stress Not only prices, but income levels also determine households’ ability to afford the importance of trade to smooth national production variations. They point to food. The pandemic triggered a global recession, but the economy rebounded worrisome potential disruptions of trade along bottlenecks such as the Panama quickly (Figure 9). Despite this recovery, global economic growth in 2024 remains and Suez Canals—problems in both of which hampered maritime shipping in below the pre-pandemic average of 3.1 percent. Forecasts indicate that 60 percent 2024—increased yield variability, and water scarcity due to accelerating climate of economies, representing 80 percent of the global population, will experience change and policies that could limit food supplies (OECD-FAO 2024). slower growth in the coming years compared to the 2010s. In FCV regions, all economies are expected to be poorer at the start of 2025 than before the pandemic Increased risks challenging a steady supply should trigger higher average grain (World Bank 2024a). stock levels. If private agents accurately account for these risks, they will increase their private stocks due to new profit opportunities. However, this assumes market FIGURE 9: Global GDP Growth in Real Terms operators have high knowledge and foresight—which is often unrealistic given the unpredictability of extreme events—and that they have access to affordable finance. The lack of knowledge about shock distributions and the high cost of finance in many developing countries justifies public interventions. The link between climate, conflicts, and food security strengthens the rationale for SGRs, assuming they follow good practices detailed in Chapter 3. 2.3 RECENT TRENDS AND VOLATILITY IN GLOBAL AND DOMESTIC FOOD PRICES Food price spikes are behind many recent food insecurity events. National macroeconomic events like high inflation or currency devaluations often trigger sharp increases in food prices. However, a price jump in internationally-traded commodities, especially in staple food grains like rice and wheat, is a systemic event that can worsen acute food insecurity globally. This section discusses Source: World Development Indicators. the recent developments in international food prices, their volatility, and the relationship between private storage and commodity prices. It also presents Globally, public debt levels have risen sharply in recent years, exacerbating empirical evidence about the extent and speed of transmission of global grain price food crises as high debt servicing costs limit social transfers and investments. spikes into local markets and what these findings mean for SGR management. Over the past 15 years, government borrowing has surged—initially driven by low interest rates and later accelerated by massive COVID-19-related spending. By 2.3.1 Global food price developments 2023, global public debt reached US$97 trillion, doubling over the past decade. Food price volatility, common since 1970, has been especially pronounced since The debt of developing countries has grown twice as fast as that of developed 2008 (Figure 10). These fluctuations reverberate through external trade, exchange economies since 2010 (UNCTAD 2024). Furthermore, the sharp interest rate hikes rate movements, and inflation rates, influencing the stability and growth of by major central banks two years ago, aimed at curbing inflation, have severely national economies. Understanding the nature and causes of this volatility is impacted poorer nations with high foreign debt. In 2024 and 2025, low-income essential to improving agricultural and trade policymaking and understanding the countries are expected to spend US$60 billion annually on debt repayment—three implications for SGR’s management. times the average annual refinancing cost between 2010 and 2020 (Holland and Pazarbasioglu 2024). 19 STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY 20 The Relevance of SGRs in the Context of Evolving Risks and Vulnerabilities such as those supporting domestic agricultural production (Aksoy and Beghin FIGURE 10: Global Agricultural and Food Prices, 1960–2024 2004) or the expansion of biofuel production (Rulli et al. 2016), or changes to food demand from growing populations, shifting consumer preferences, and other factors. For example, advances in biotechnology during the 1990s increased crop productivity by over 20 percent (Klümper and Qaim 2014). Volatility differs across commodities, but short-term fluctuations generally contribute less to overall price volatility than cyclical and permanent shocks. Figure 11 breaks down global price volatility for 13 commodities into four components: short-term fluctuations, business cycles, medium-term cycles, and shocks with permanent consequences. The data reveal that the relative importance of these components varies by commodity. Nonetheless, short-term price swings consistently represent a smaller proportion of total volatility, with cyclical components and permanent shocks accounting for the majority. As such, trade protection or price stabilization efforts will do little to lower long-term food prices but could undermine food security. Trade remains important to smooth out spikes in food prices. FIGURE 11: Volatility Differences Across Commodities, 1970–2022 Source: World Bank data. Food price volatility is driven by cyclical, short-term shocks, and long-term shifts. The cycles of commodity prices have lasted for several years and even decades. These so-called “supercycles,” were particularly evident in the 1970s, 1990s, and early 2000s to the present (World Bank 2025). Short-term shocks to food commodity prices are caused by many factors. Major drivers are transitory, or short-term demand-side shocks, trade tensions, export bans by major exporters, adverse weather conditions, and supply-chain disruptions, like those during the COVID-19 pandemic. Shocks in related markets can also spill over into food markets. For example, energy price booms raise food production costs through higher fertilizer and fuel prices (Baffes et al. 2022) and can contribute to government policies, for example the promotion of biofuel production in the early 2000s, which required large-scale agricultural expansion (Baffes 2013). Certain market conditions and macroeconomic variables can cause short-term Source: World Bank 2024. swings in food prices. Food prices are more volatile when futures contracts near expiration or when inventories are low. There is also a debate about whether Irrespective of the driving force, food price volatility remains a large concern, financial markets, like futures and derivatives, increase food price volatility. Despite exacerbating the negative impacts of higher food prices on food security. Some some studies attributing food price spikes to these markets, most do not establish food price spikes are hard to predict, making it more difficult to manage them a clear link (Boyd, Harris, and Li 2018; Aulerich, Irwin, and Garcia 2014; Brunetti, through trade and early warning systems. The issues draw special attention from Büyükşahin, and Harris 2016; Capelle-Blancard and Coulibaly 2011) or even suggest policymakers when food prices increase suddenly and sharply as governments that increased trading can lower price swings by mitigating risks (World Bank search for ways to limit the impact of high prices on food insecurity. Table 3 lists 2025). Macroeconomic variables, such as the equity index, crude oil prices, and the 20 price runs11 with the largest percentage price gain or loss from start to end. the U.S. dollar exchange rate are found to influence price volatility of commodity The table separately lists runs based on food prices and grain prices. While food markets. Price volatility was also more persistent during the multi-shock period prices are generally the prime concern for food security, grain prices and trade are (2022-23) compared to the era before the boom (1985–2001) showing that the practical focus of most policy interventions, including those involving SGRs. economic uncertainty influences agricultural commodity prices. Two out of the top seven price spikes for food and three of the top eight price Other types of shocks can affect commodity markets more permanently. These 11 A price run is defined as beginning when prices move in the same direction for two consecutive months and ends when prices move in the opposite direction for two consecutive months. shocks with permanent effects include technological innovations, public policies, 21 STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY 22 The Relevance of SGRs in the Context of Evolving Risks and Vulnerabilities spikes for grains have occurred since 2005. Most of the events with the largest • Policy measures such as export bans, import duties, export taxes, non-tariff price gain lasted over a year. While the onset can be sudden, the events play out barriers, or domestic policies such as price support all influence the extent to over months, and the most impactful events linger for a year or longer. These which price changes in domestic markets mirror those in international markets. lengthy durations are partly due to most major grain production occurring on an annual cycle, which often means that new supplies enter the market at six-month • When a country’s local currency appreciates against the U.S. dollar, food prices intervals between harvests in the northern and southern hemispheres. The nature in the local currency rise less than they do internationally. of storage markets also plays a role since inventories are built up or drawn down • The market structure is also important. In monopsonistic markets, whether over time. private or state-controlled, higher international prices may not always result in TABLE 3: Most Significant Price Runs Ordered by the Absolute Change in Real Food and better prices for producers or consumers. Grain Prices • The degree of processing of final consumption goods also affects price Food Price Index Grain Price Index transmission. The higher the cost share of raw production in the final product Rank Start Duration Price Change Start Duration Price Change and the less scope there is for substitution, the more a price change for the raw (Months) (Percentage) (Months) (Percentage) product will be transmitted into a price change for the final product. 1 Jul-72 12 113.56 Feb-72 18 162.88 This section presents evidence on price transmission from global to local grain 2 Apr-07 14 64.60 Apr-07 14 85.15 prices. The magnitude and differences in price transmission have implications for 3 Nov-80 23 -50.18 Jul-94 22 77.46 SGRs and other policy responses. When global prices spike, policymakers need 4 Nov-74 7 -43.25 Jun-10 10 69.01 to assess more than changes in global food prices to decide whether to activate 5 May-20 12 42.40 Nov-19 18 45.63 their SGRs. Other factors also matter, and a global shock does not always quickly 6 Oct-82 11 37.44 Jan-81 21 -44.44 trigger a local shock. At the global level, the implication is that stabilizing global 7 Aug-87 13 36.32 Jun-93 7 42.97 food prices alone has limits in terms of ensuring price stability at the country level. 8 Jun-10 14 35.27 Nov-05 15 39.90 Chapter 5 discusses this implication in more detail, covering regional and global 9 Apr-22 28 -33.11 Aug-77 8 39.01 reserves. 10 Jun-08 9 -31.89 Feb-74 16 -38.33 11 Jul-03 8 29.85 Oct-22 22 -35.61 Enabling the transmission of international food prices to domestic prices is 12 Sep-77 7 28.08 Sep-21 8 34.35 essential to pursuing comparative-advantage-based, sustainable agricultural 13 Oct-73 4 27.78 Jun-08 10 -34.02 production. Doing so ensures that domestic production responds to global food 14 Mar-14 20 -27.77 Jul-12 18 -32.72 scarcity or surplus (Zorya, Townsend, and Delgado 2012; Barrett 2001). For many 15 Apr-77 5 -27.72 May-96 6 -32.15 price-taking developing countries, international prices serve as opportunity costs 16 Sep-83 17 -25.49 Apr-84 18 -30.36 and play a key role in shaping the effective allocation of domestic resources. When 17 Jun-74 5 24.24 Jan-86 8 -29.42 the long-term trend of international prices is transmitted slowly and imperfectly to 18 Nov-76 5 21.48 Oct-73 4 29.12 domestic markets, consumers and producers make decisions based on prices that 19 Dec-21 4 20.97 Aug-87 6 28.71 do not represent their actual social costs and benefits. Thus, a sustained deviation 20 Jan-99 6 -20.10 Apr-02 5 27.62 of domestic prices from world prices in either direction leads to substantially Source: Authors’ calculations based on deflated monthly food and grain price indices, January 1960 to suboptimal outcomes. Moreover, as international food prices reflect global scarcity September 2024 (Federal Reserve Bank of St. Louis 2024; World Bank 2024a). or surplus, their transmission to domestic prices can help improve the global food system’s responsiveness to shocks. 2.3.2 Do high international prices lead to high domestic prices? At the same time, price transmission can lead to food security risks when uncertainty and price volatility on global food markets are high. Volatile and While the development of global prices matters for food security and related unpredictable prices may spill over to domestic markets, undermining incentives policy decisions—including on SGRs—as global price changes transmit to for farmers to respond to high price levels with an urgent increase in production, local prices, such price transmission differs in extent and speed. How quickly which is needed to lower food prices. In practical terms, farmers and countries face and to what extent the shocks in global markets are transmitted into local uncertainty when deciding what to plant or when to import, respectively, as they markets depends on transport and marketing costs, policy measures, local rely on likely price levels and distributions to inform their current decisions. This currency valuation, market structure, and degree of processing of goods for final uncertainty keeps food prices high for longer, leading to fundamental food security consumption (Zorya, Townsend, and Delgado 2012): risks for consumers and governments. • Transport and other marketing costs, when substantial, cause a rise in world Decoupling from international markets and pursuing a food self-sufficiency prices to be under-reflected in import parity prices and over-reflected in export policy to manage the increased global food price volatility are not sustainable parity prices. 23 STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY 24 The Relevance of SGRs in the Context of Evolving Risks and Vulnerabilities solutions, however. Self-sufficiency policies have not worked in the past, and they are unlikely to work in the future, even with more uncertain and volatile world TABLE 4: Percentage of Market Pairs Showing Cointegration Between Local and Global Food markets. Countries would be better off continuing their reliance on trade to align Prices their long-term food prices with those on global markets, while reducing short- term food price volatility by improving early warning systems, SGRs, and safety Commodities 2000–11 2004–23 nets. Wheat 25 59 Yellow maize n/a 60 Among regions and products, there are significant differences in the speed and White maize 31 39 degree to which world price movements were felt in regional or local markets. Rice 55 58 Domestic and international prices do not even always move in the same direction. Source: Authors’ estimate based on Greb et al. (2012) and World Bank 2024. The analysis of quarterly changes of domestic12 and international grain (i.e., maize, rice, and wheat) prices13 from 1995–2011 showed agreement in the For countries where domestic prices are linked to international prices, it usually direction of change for only 60 percent of cases. In 37 percent of cases, domestic takes several months for local prices to reflect the changes in international food prices increased when international prices increased, and in 23 percent of cases, prices. Changes in international prices are passed through to domestic prices domestic prices declined when international prices declined (Figure 12). The extent within 36 months, depending on the local production situation, access to markets, of agreements was highest in Europe and lowest in West Africa, without significant and import/export logistics. Even where markets are integrated, changes in difference by commodity. Domestic and international prices moved in opposed international prices are rarely fully transmitted. The average passthrough ranges directions in 40 percent of all cases. from 20–70 percent, i.e., a 1 percent change in international prices results in a 0.2–0.7 percent change in the domestic price. Yet even a 20 percent increase in Cointegration analysis confirmed that price transmission between market pairs local food prices can make a big difference to the poor (Greb et al. 2012). has been neither swift nor universal (Table 4). During 2000–11, only 25 percent of wheat market pairs were cointegrated with international prices. For maize, In Asia, the long-term price transmission elasticities for rice were largest in 31 percent of market pairs were cointegrated with international prices, while for countries open to trade, such as Bangladesh (0.34), Cambodia (0.70), and Viet rice, the share was 55 percent. Analysis of the price data for the 2024–23 period Nam (0.51). In the Philippines, the long-term transmission was small (0.23) due showed similar results for maize and rice; while the prevalence of cointegration for to its insulating measures. India and Indonesia are also decoupled from the wheat prices has increased, it is only at 60 percent. international market. India is largely self-sufficient, while Indonesia, which pursues a food self-sufficiency policy, imported irregularly and sought to break the link FIGURE 12: Directions of Quarterly Price Movements on Domestic and International Markets between international and domestic prices. When the price link is broken, imports – Agreement and Disagreement by Region and Commodity or exports from these countries are difficult to anticipate, making the world rice market more volatile. In the large wheat-importing countries in the MENA region, wheat prices are transmitted relatively quickly. Long-term price transmission coefficients average 0.2 to 0.4. The passthrough effects are notably higher for Djibouti, Egypt, Iraq, and the United Arab Emirates. By contrast, price transmission is very small in Algeria and Tunisia due to high food subsidies and controlled prices. In Latin America, transmission is relatively high in Ecuador, Nicaragua, and the Dominican Republic, while in Asia, price transmission elasticities range from 0.1 in India (a more closed economy) to 0.4 in Pakistan and 0.7 in Bangladesh (more open economies) (Greb et al. 2012). Transmission of international maize prices appears to be the lowest of the grains, particularly in SSA countries. Most SSA countries are close to self-sufficiency in white maize, with yellow maize mainly traded internationally. As such, local prices are driven more by local factors. In addition, the reasons for weak transmission include high infrastructure costs, small quantities for trade, and ad hoc trade Source: Authors’ estimate based on Greb et al. 2012. policies. Of the 40 maize markets studied by IFPRI, prices in only four have any relation to international prices. As a result, domestic food prices are mainly determined by local and regional factors and are often more volatile than global Data included 57 domestic prices for wheat, 262 domestic prices for rice, and 180 domestic prices for maize. 12 prices. The following international prices were used: wheat - US No. 2 HRW; rice - Thai 5 percent; yellow maize - 13 US No. 2 yellow Gulf; and white maize - Randfontein (South Africa). 25 STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY 26 The Relevance of SGRs in the Context of Evolving Risks and Vulnerabilities THE BOTTOM LINE Climate change, conflicts, and economic shocks are likely to continue bringing uncertainty, supply disruptions, and price volatility to global and local food markets, contributing to food insecurity. As such, SGRs, where relevant, could play a role in reducing food security risks. Despite frequent spikes in global food prices in the last two decades, long-term factors continue to dominate global food price changes, which SGRs cannot revert. Instead, SGRs should focus on addressing local food supply shocks, reflected in local food price spikes; the transmission of global food prices could cause such shocks, but this is not always and rarely fully the case. 27 STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY 28 3 While earlier chapters identify the benefits of SGRs, they also come with challenges. Market distortions, high fiscal costs, corruption, and enforcement issues can all undermine an SGR’s effectiveness. Thus, designing and implementing interventions that minimize these failures is crucial in ensuring that an SGR’s benefits outweigh the drawbacks. Reaching this outcome requires clearly defined, transparent, accountable, and well-coordinated policy frameworks that adapt to the evolving market conditions and effectively address immediate and long-term food security needs. As mentioned in the previous chapters, SGRs must also work together with trade and safety nets to deliver results. This chapter reviews lessons learned from public stock management in developing countries with a long history of using them. It draws insights from the existing literature and the background studies prepared for this report on Bangladesh, India, the Philippines, and Uzbekistan in Asia; Ghana, Ethiopia, Zambia, and the ECOWAS regional reserve in SSA; Egypt and Tunisia in the MENA region; and Honduras and the Dominican Republic in the Caribbean. These provide ample examples of key aspects of SGR management, offering practical insights on successful strategies and common pitfalls, detailed below. Before reviewing the country-specific lessons, it is worth noting that few countries have used public stocks proactively in recent years. This fact indicates a challenge in generating net gains from public stocks’ use. About 30 countries globally—or only 15 percent of all countries worldwide—have been actively using public stocks. Usually, they are low-income countries (LIC) and lower-middle- KEY ELEMENTS income countries (LMIC), who are, at the same time, net grain importers (Table 5). Some high-income countries (HIC), such as Switzerland, South Korea, and Japan, also maintain public stocks, highlighting that the need for such reserves depends on a country’s specific risk exposure rather than income level. Similarly, Norway AND DESIGN has recently reintroduced public stocks as an extra layer to protect against potential disruptions in global trade (Box 3). Still, public stocks are rarely used in countries with well-functioning markets, typically seen in HICs, but are more S T R AT E G I E S common in developing countries, net importers of grains, where markets function less effectively and food accounts for a large share of expenditures (Table 5). FOR EFFECTIVE SGRS 29 STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY 30 Key Elements and Design Strategies for Effective SGRs TABLE 5: Profile of Countries Actively Using Public Grain Stocks BOX 3: REENGAGEMENT IN THE MANAGEMENT No. Countries with Income Landlocked Net Trade Share of Food in Household OF PUBLIC GRAIN STOCKS IN NORWAY Active SGRs Status Position Expenditure (%) Norway started to stockpile 30,000 tons of grain for 2024 and 2025, prompted 1 Algeria MIC No Importer 43.1 by disruptions caused by the COVID-19 pandemic, geopolitical tensions, and 2 Bangladesh LMIC No Importer 28.6 climate change. The agreement, signed between the Ministry of Agriculture 3 Burkina Faso LIC Yes Importer n/a and Food, the Ministry of Finance, and four private companies, will ensure that 4 China UMIC No Importer 33.6 wheat is stored in existing facilities across the country, with three companies Dominican 5 UMIC No Importer 29.2 committed to store at least 15,000 tons in 2024. Companies are allowed to invest Republic in new storage facilities and choose locations, but they must ensure that the 6 Egypt LMIC No Importer 32.7 grain is available to the state for emergencies. This move reflects an extra layer 7 Ethiopia LIC Yes Importer 57.0 of security to protect against potential disruptions in global trade or domestic 8 Ghana LMIC No Importer 56.9 9 India LMIC No Exporter 35.4 production failures. Norway, with a population of 5.6 million, will spend 63 million 10 Indonesia LMIC No Importer 19.6 kroner (US$6 million) annually on grain stockpiling. 11 Iraq UMIC Yes Importer 35.0 Norway had previously stored grain in the 1950s but closed its storage facilities 12 Japan HIC No Importer 19.0 in 2003, deeming them unnecessary. However, in 2023, following geopolitical 13 Jordan LMIC No Importer 35.2 tensions, the Norwegian government established a commission to assess the 14 Kenya LMIC No Importer 36.0 country's emergency preparedness, leading to the recommendation to reintroduce 15 Malawi LIC Yes Importer 50.0 grain stockpiling. This initiative aligns with a model like that of Switzerland, 16 Mali LIC Yes Importer n/a where the government pays the private sector to store food and make it available 17 Morocco LMIC No Importer 40.4 in case of emergencies. Although not a widespread practice among HICs, the 18 Niger LIC Yes Importer 47.0 decision to stockpile grain in Norway highlights the growing importance of 19 Nigeria LMIC No Importer 51.8 such measures in developed nations, particularly in the context of geopolitical 20 Norway HIC No Importer 13.3 instability and global supply-chain vulnerabilities. Importer/ 21 Pakistan LMIC No 37.5 Exporter Source: The Washington Post. 22 Philippines LMIC No Importer 39.0 23 Saudi Arabia HIC No Importer n/a 24 South Korea HIC No Importer 14.4 25 Senegal LMIC No Importer 53.4 26 Switzerland HIC Yes Importer 10.8 27 Tunisia LMIC No Importer 28.7 28 Uzbekistan LMIC Yes Importer n/a Importer/ 29 Zambia LMIC Yes 52.5 Exporter 30 Zimbabwe LMIC Yes Importer n/a Note: LIC, Low-income countries; LMIC, lower-middle-income countries; UMIC, upper-middle-income countries; and HIC, high-income countries. Source: Authors’ assessment on public stocks and OECD for food expenditures 2023. Even fewer countries hold public stock primarily as protection against supply disruptions. Countries that do include Japan, Norway, South Korea, Saudi Arabia and Switzerland. More common among the countries that hold public stocks, including the United States and countries in European Union, are programs that combine emergency protection and price support as objectives. Most countries that use public stocks are net importers of grains, with the exceptions of India, Pakistan, and Zambia, which export grains. Still, sometimes, they must import grains when experiencing large production shortfalls. Some countries with public stocks are landlocked, meaning the cost and time required to 31 STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY 32 Key Elements and Design Strategies for Effective SGRs import grains during emergencies can be significantly higher for them than other stock’s objectives are clearer in some countries than others. Some countries—e.g., countries, justifying the use of SGRs. For example, Uzbekistan, a double landlocked China, India, Indonesia, Zambia, Pakistan, and the Philippines before 201914—focus country, faces risks related to inconsistent access to wheat imports and volatile on long-term price stabilization for both producers and consumers. Others, such prices, particularly due to the frequently changing trade policies in Kazakhstan as Bangladesh, Kenya, and Uzbekistan, respond to short-term supply disruptions and domestic production fluctuations. As such, maintaining a well-managed SGR is and address emergencies. In West Africa, public stocks generally avoid price crucial for Uzbekistan to mitigate these risks and ensure stable wheat availability. stabilization, often due to the small stock sizes. Egypt and Tunisia use public In many cases, exporting countries defend the management of public stocks by stocks to reduce the cost of bread, address emergency crises, and ensure a steady pointing to the need to maintain social safety nets, as in India, or the significant domestic supply. risk of food insecurity should they rely on imports from the global market. Having too many objectives, or even worse, having conflicting objectives, This chapter discusses how successful SGRs enhance food security when undermines SGRs’ ability to enhance food security. As such, clearly defining managed with clear objectives, fiscal prudence, and strategic market strategic objectives, complying with them, and communicating with market interventions, while failing when mismanaged with conflicting goals and high participants are critical for the SGR’s success. Many public stocks have failed to costs. The lessons learned show that SGRs can deliver results when they are deliver because multiple objectives led fiscal costs to escalate unsustainably. The underpinned by clear and manageable objectives, prudently managed in from a next subchapter discusses how to avoid fiscal cost escalations. fiscal standpoint, and employed smartly to mitigate the impact of temporary food supply disruptions. Successful SGRs use market channels such as commodity 3.2 REDUCING THE SGR’S FISCAL COSTS exchanges for interventions or are embedded in targeted safety net programs, Ballooning fiscal costs is a significant reason why public stock programs with where in-kind food distribution for an acutely food insecure population is superior multiple objectives fail. To start, holding SGR stocks only for emergencies can be to cash assistance, and maximize development impacts by supporting smallholder costly. The scale of reserves can be significant, since the likelihood of emergencies commercialization. The lessons learned also show that SGRs fail to enhance food and their duration is uncertain. In addition to initial outlays, maintaining the security when they are managed as buffer stocks to address too many and often quality of stored grain over time incurs significant expenses, including climate conflicting policy objectives. There are numerous causes of SGR failure, including control, pest management, and stock rotation. Factors such as the size of the lack of clarity of objectives, high fiscal costs, and crowding out of private storage reserves, the timing of stock replenishment, and price differences between and trade. Other causes of failure are less visible, such as price stabilization procurement and release of grain, influence the financial burden of managing achieved at a high average price level. The following subchapters present lessons SGRs. Adding the requirement to store grain for public distribution raises the learned on how to use SGRs to enhance food security rather than undermine it. scale and cost of public stocks. Moreover, the scale of buffer stocks sufficient to 3.1 AVOIDING MULTIPLICITY AND UNCLEAR OBJECTIVES OF SGRS influence domestic grain prices under extreme conditions can be remarkably large. Consequently, the fiscal costs of maintaining very large public stocks can become Public grain stocks, which include SGRs, often aim to achieve multiple objectives, unsustainable. Larger stocks result in higher fiscal costs, which divert already resulting in complex management structures and inefficient use of public limited public funds from other priority investments in the agriculture sector. resources. The underlying aim of maintaining price stability at affordable levels for the urban population has often been conflated with the objectives of meeting Thus, establishing and operating SGRs is not a zero-sum game. This fact is noted emergency food needs. There is also confusion about whether the public stock by developing countries, which are becoming increasingly fiscally constrained programs aim to achieve food self-sufficiency or food security, which requires (Figure 13). Many of these economies are poorer today than they were on the eve of access to sufficient, safe, and nutritious food for all people. Objectives become the COVID-19 pandemic, even though the rest of the world has largely recovered. especially conflicted when public stocks are used to provide price incentives for In the world’s 26 poorest LICs, government debt stands at 72 percent of GDP in both farmers and consumers. This approach is often called “buying high and 2024—an 18-year high. Nearly half of these LICs—twice the number in 2015—are selling low,” which first increases prices for producers and then reduces prices either in debt distress or at high risk of it. None are at low risk (World Bank 2025). for consumers. Such an approach leads to high fiscal costs, creates subsidy Thus, fiscal constraints are critical to shaping the design of SGRs, ultimately dependency for producers and consumers, crowds out the private sector, and determining what they can and cannot do. creates other market distortions that collectively work against food security. The more objectives a grain reserve has, the more financially demanding it becomes, diverting funds from other priorities and potentially endangering fiscal sustainability. Multiple objectives can reduce private storage and trade, requiring the public sector to fill the gap that the private sector could have filled. For example, the cost of large stores of grain for in-kind transfers are large relative to program benefits, which helps explain why most safety nets rely primarily on cash transfers or vouchers. Market interventions vary by country, and public In the Philippines, the Rice Tariffication Law passed in February 2019. It liberalized trade and changed the 14 mandate of the National Food Authority to focus only on addressing national emergency events (Box 4). 33 STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY 34 Key Elements and Design Strategies for Effective SGRs FIGURE 13: Government Debt and Debt Distress in Developing Countries prices in 2024. This move is significant for Pakistan, as wheat price setting and procurement operations in Pakistan had been in place since the 1970s to guarantee farmers a minimum return during periods of surplus and deficits. Additionally, these measures were used to subsidize wheat retail flour prices for consumers. However, these measures placed a huge financial burden on the treasury, with the central government and provinces incurring high costs for procurement operations, including large expenditures on storage, freight, and interest payments on bank loans. In 2013–14, for example, the annual fiscal cost was estimated at US$280 million, in addition to US$900 million of the unpaid liabilities accumulated from previous years (World Bank 2015). The large subsidy the government paid as a price for its interventions in the wheat market was not the only basis for the reform. Its interventions in wheat trade made the sector unresponsive to changing technology and farming practices, increased price volatility, encouraged hoarding, and misallocated resources. Thus, even in a country with such a long history of public wheat procurement at above-market prices, at some point, the unsustainable fiscal cost eventually left no choice but to suspend the program. Note: EMDE, emerging markets and developing economies. Source: World Bank 2025. e. India maintains public stocks to ensure fair prices for farmers, provide affordable grains to 800 million people, control inflation, and maintain a When multiple objectives are pursued, costs become extremely high. Here are strategic reserve against emergency shocks. From 2019 to 2024, India several examples: annually procured over 110 million tons of rice and wheat at minimum a. In Zambia, for example, public stocks are mandated to address food support prices, buying about 30 percent of total production. By 2022, emergencies, stabilize prices, and support farmers and consumers. In surplus stocks peaked at 33 million tons. Managing these stocks, including 2021, spending on the country’s Food Reserve Agency (FRA) accounted for the minimum price support and the public distribution system, costs 17 percent of tmmhe Ministry of Agriculture’s budget (World Bank 2021). India US$35 billion in 2022–23, representing 6.5–7.0 percent of public expenditure and about 1 percent of GDP. Maintenance of grain stocks b. In the Philippines, the multiple policy goals of the National Food Authority accounted for 10 percent of the total food subsidy in the country. These (NFA)—such as stabilizing prices, supporting self-sufficiency, and fiscal costs for public stocks have been supplemented by production controlling imports—has caused economic distortions, fiscal difficulties, subsidies, amounting to US$21–22 billion in 2019, including fertilizer and welfare losses, contributing to public debt and price volatility until and income transfers (Chatterjee et al. 2022). The effectiveness of these the rice importation reforms in 2019 (Tolentino and de la Pena 2020; stockpiles in controlling inflation has been mixed despite high fiscal costs Balié, Minot, and Valera 2021). The NFA did not recover its stockpiling and (Figure 14). distribution costs, requiring subsidies from the government. Since 2019, the NFA’s mandate changed from buying imported rice to procuring only domestically and selling its stocks to agencies involved in disaster-relief operations (Box 4). Even with this narrow mandate, the NFA continues relying on fiscal outlays to continue its operations. By 2023, the negative government net equity in the NFA balance sheet reached 116 billion pesos, or US$2 billion. c. In Tunisia, the cost of public stock in 2022 was US$1.7 billion, with wheat purchases and financing making up most of the cost. Food subsidies represented over half of the food and agricultural public expenditures in the country (FAO 2023). d. In 2025, the federal government of Pakistan stopped setting a minimum support price for wheat and ceased the staple’s procurement operations moving forward. This decision followed that of Punjab, the largest agricultural state, which chose not to purchase wheat above market 35 STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY 36 Key Elements and Design Strategies for Effective SGRs Ghana is currently considering establishing a public stock program that combines elements of an SGR with price stabilization objectives. A feasibility BOX 4: RICE SECTOR REFORMS IN THE PHILIPPINES assessment provides valuable insights into how SGR costs vary depending on the Before 2019, the Philippines strictly regulated rice imports, leading to high and objective and scale of operation. Depending on the coverage, establishing and volatile prices. As a staple food, rice production was heavily protected, with the operating public stocks as an emergency grain reserve could cost US$1–58 million NFA as the sole importer. These restrictions led to high import costs and timing annually (Akudugu and Minot 2024). The least costly option would provide rations issues relative to domestic demand, resulting in price disparities with internation- to 50,000 people for four months, while the costliest would cover one million al markets, smuggling, and discouraging domestic market investment. Rice prices people for a year. About 85 percent of costs are for grain, with the rest for storage in the Philippines consistently exceeded international export prices from Thailand (Table 6). For maize price stabilization, costs would range from US$3.5 million to and Viet Nam, with the gap widening over time. Consequently, the agricultural US$34 million, which is about 10 percent of the Ministry of Agriculture’s annual sector stagnated, with slow productivity growth and limited poverty reduction. budget, depending on the program’s aggressiveness. The least costly option is a 175,000-ton buffer stock to cap maize prices at 50 percent above the long-term Passed in February 2019, the Rice Tariffication Act eliminated import restric- average, while the costliest option is a 1.6-million-ton buffer stock to cap prices tions and introduced a transparent tariff regime. Tariff revenues safeguard local at 20 percent above the long-term average. Major cost components include stock rice farmers and improve productivity. The reform also shifted the NFA’s role from financing, warehouse depreciation, and salaries. market price stabilization to emergency response, reducing NFA stock from 1.8 million tons in 2019 to 127,000 tons in 2023. In their exploration of various options for emergency assistance and price stabilization in Ghana, Akudugu and Minot (2024) recommend that the country Since the reform, rice prices have declined, but production has continued to focus on emergency assistance with more modest goals. Specifically, they grow. Paddy production rose by 5.2 percent in the five years after the Rice Tariffi- suggest aiming to feed 50,000–100,000 people over four months, which would cation Act, i.e., 2019–23, compared to the previous five years. The poorest Filipi- require a grain reserve of 2,400–4,800 tons. This approach is considered more nos benefited the most (Figure 20). In July 2024, the government lowered the rice manageable than price stabilization. In case price stabilization is to be pursued, import tariff from 35 to 15 percent until 2028 to curb food price inflation, a move the most cost-effective goal will be to intervene when long-term real maize prices that would further reduce market distortions in agriculture in the Philippines. deviate by more than 50 percent above or below the long-term average. In that case, a reserve of approximately 175,000 tons would suffice. Source: Tolentino and de la Pena (2020), and Balié, Minot and Valera (2021). TABLE 6: Estimated Total Costs of Public Stocks by Function and Capacity in Ghana Policy Goals Commercial Storage Costs Net Revenue Revenue (US$ Thousands) (US$ Thousands) FIGURE 14: Rice and Wheat Price Inflation in India, 2021–24 (US$ Thousands) Emergency Grain Reserves (Tons) 2,400 -828 131 -959 7,300 -2,519 398 -2,916 4,800 -1,656 262 -1,918 14,600 -5,037 796 -5,833 48,000 -16.560 2,616 -19,176 146,000 -50,370 7,956 -58,326 Maize Price Stabilization (Tons) 175,000 6,038 9,536 -3,498 408,000 14,076 22,232 -8,156 920,000 31,740 50,131 -18,391 1,689,000 58,271 92,034 -33,763 Source: Akudugu and Minot 2024. A key driver of fiscal costs for public stocks is often a large gap between procurement and release prices of stocks. Table 7 shows the cost elements of Source: Using data from Ministry of Statistics and Programme Implementation, Government of India managing public stocks in Zambia, using the example from 2012. A more recent and Gulati et al. (2023). analysis revealed a continuation of the past approach in Zambia that pursues a policy of buying high and selling low, making the 2012 example still highly relevant (World Bank 2021). A subsidy to finance the difference between high prices paid to farmers and low prices offered to consumers accounts for 42.5 percent of the 37 STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY 38 Key Elements and Design Strategies for Effective SGRs total costs. The situation is similar in other countries that pursue the same policies, TABLE 8: Bank Borrowings for Wheat Procurement by the Government of Punjab, Pakistan, including Indonesia and the Philippines, especially before 2019. in Billion Pakistani Rupees TABLE 7: A Breakdown of the Total Fiscal Costs of Managing the Public Stocks in Zambia Year Old Borrowing New Borrowing Total Borrowing Repayment Balance Made Payable Cost Elements US$ Million Percentage of Total 2012–13 109.89 73.30 183.20 104.26 79.84 Fiscal Costs 2013–14 78.94 110.53 189.48 97.26 92.21 Storage 63.0 17.9 2014–15 92.21 112.58 204.79 39.09 165.70 Financing 38.0 10.8 2015–16 165.70 105.34 271.04 75.23 159.81 Transportation of procured maize 55.0 15.6 2016–17 159.81 128.06 323.88 78.87 24.500 Bagging and rebagging 25.1 7.1 Source: Shahzad, Razzaq, and Qing 2019. Subsidy (difference between release and procurement 150.0 42.5 prices) Reducing storage costs is also an important dimension to keep the SGR’s fiscal Construction of hard standing silos 15.0 4.3 costs at bay. The recent public stock’s storage costs are estimated at US$54.5 Rehabilitation of grain silos 6.7 1.9 per ton in Ghana, US$60.0 per ton in India, US$44.30 per ton in Bangladesh, and Total Costs 352.8 US$66–72 per ton in Honduras (Rashid and Lemma 2011; Akudugu and Minot Total costs as a share of the national budget (%) 8.2 2024).15 Recent data from the Food Corporation of India suggests that annual Total costs as a share of GDP (%) 1.9 storage charges for buffer food stocks are even higher, at 5,000–7,000 rupees per ton (US$80–95). Reducing storage costs should be one of the key priorities of SGR Source: World Bank 2012. management; Chapter 4 presents recent storage technologies and practices. Even when stocks are released for safety nets to assist acute food-insecure and The cost of maintaining grain reserves also varies depending on institutional other vulnerable populations, the fiscal sustainability of this justifiable activity arrangements. If the reserves are publicly managed, the government covers the should not be ignored. Grain released for vulnerable populations is provided for free, expenses. Conversely, if there is a legal obligation for importers or other private while grain is purchased at market prices domestically or internationally. If the entities to maintain reserves, these organizations may bear the cost, potentially SGR buys 100,000 tons of maize at US$250 per ton and releases an entire stock passing it on to consumers. Alternatively, the government might subsidize these as food assistance, the fiscal cost would be US$25 million, without accounting costs to ensure compliance and effectiveness. Separating the operations and for storage and other handling costs. Increasing the size of the procurements and accounting of different aspects of reserve management can enhance transparency releases to 1 million tons would escalate the fiscal cost to US$250 million—a very and accountability. For instance, one agency might manage the physical stocks large sum for most developing countries. Ideally, SGRs should buy and release with a dedicated budget, while another, perhaps an agency responsible for social stocks at market prices. If stocks need to be released in-kind, in cases where in- safety nets, could purchase the stocks at market prices during times of need. kind food assistance is superior to cash transfers, stocks should be small and well- Additionally, relief programs could use the stocks based on physical loans, with targeted to vulnerable populations to optimize the fiscal costs. the obligation to replenish stocks after a short period. This separation helps clarify costs and responsibilities, ensuring each entity operates efficiently within Reducing the cost of financing is another area for attention. In the case of its mandate. Finally, the public sector can delegate storage of public stocks Zambia, the financing costs accounted for 11 percent of total costs (Table 7). In to private entities, through public-private partnerships. An example of such a other cases, the cost of financing is much higher. In Pakistan, for example, the partnership is in Punjab, India (Box 5). Although such examples are still rare, they procurement, processing, storage, maintenance, and distribution of wheat stocks need to be explored more to crowd-in private investments in expanding the storage have been financed through bank loans. The Punjab Food Department borrowed infrastructure and reducing the needs for government’s capital investments. from commercial banks every year, with interest rates of 9–12 percent (World Bank 2017). In more recent years, the interest rate increased to 20 percent. As a result, debt servicing of loans constituted a major component of the total payables. In 2016–17, the amount payable was 245 billion rupees, a threefold increase from 2012–13 (Table 8). For comparison, the subsidy to cover the gap between high procurement price and low release price in 2016–17 was 37 billion rupees (Shahzad, Razzaq, and Qing 2019). 15 These are the estimated total storage costs incurred between procurement and release of stocks. Most countries keep stocks at least for six months. 39 STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY 40 Key Elements and Design Strategies for Effective SGRs To summarize, the fiscal costs of public stocks vary widely depending on policy objectives. Table 9 presents several simplified scenarios of three strategic options. BOX 5: GRAIN SILOS PROJECT IN PUNJAB, INDIA When public stocks are created as a tool for preparedness and response, ensuring In 2010, the Punjab State Grain Procurement Corporation (PUNGRAIN) awarded food availability during shocks, crises, or supply disruptions, their cost could a 30-year concession to LT Foods Limited - a Delhi-based food processing be contained. With the stock size of 1 million tons and the average storage and company with many years of experience in processing, storing, and marketing associated costs of US$30 per ton, buying grains at market prices and selling Basmati rice globally. Under this agreement, LT Foods was tasked with building, only when supply disruption temporarily spikes food prices could save a treasury owning, and operating 50,000 tons of storage capacity using silos—vertical, US$20 million in the first hypothetical case. Yet, when public stocks are used to sheet-metal structures equipped with automated systems for real-time support farmers and consumers, fiscal costs could quickly increase to US$70 monitoring of grain temperature and infestation—to store public stocks. The million. If the entire stock is bought at market prices and released at no cost to private partner was selected through a competitive bidding process based on vulnerable consumers through in-kind food distribution, the cost to the treasury technical evaluation and the lowest fixed tariff, with the World Bank Group’s would escalate to US$230 million. That is why clarity of objectives and analysis of International Finance Corporation serving as transaction adviser. fiscal sustainability are critical for sustainable SGR management. LT Foods was required to purchase the necessary land, build the facility, and TABLE 9: Examples of Fiscal Costs Incurred from Meeting Various SGR Objectives prepare the silos before the concession agreement took effect. At the end of the SGR for Supply Public Stocks for SGR for Emergency concession, the facility will remain with the private operator for private use. The Disruption Price Support (2) Assistance (3) total project cost was estimated at about US$7 million. The project received debt Response (1) financing from YES BANK and Rabobank. Market price of maize (US$ 200 200 200 At least four factors contributed to the project’s success: (i) the transparent per ton) and competitive bidding process, which led to the selection of a qualified, reliable Procurement price of maize 200 220 200 partner on a least-cost basis to the contracting agency; (ii) clear delineation (US$ per ton) of the roles and risks allocated between PUNGRAIN and the private partner, Release price of maize (US$ 250 180 0 with objective standards and specifications and monitoring mechanisms; (iii) per ton) strong commitment to the project on the part of PUNGRAIN, as evidenced by Storage/other SGR costs 30 30 30 its willingness to assume the payment and demand risk; and (iv) the parties’ (US$ per ton) willingness and ability to renegotiate the fixed storage fee to ensure the project’s Total gain/loss (US$ per ton) 20 -70 -230 Total gain/loss per 1 million viability over the long term. 20,000,000 -70,000,000 -230,000,000 tons (US$) Source: World Bank n.d. Source: World Bank staff. 3.3 DETERMINING EFFECTIVE STOCK SIZE The size of stocks is one of the most critical decisions when establishing and managing SGRs. This decision will affect both fiscal cost and the ability of SGRs to achieve their objectives. Estimating the size of required stocks to provide in-kind food assistance is relatively straightforward. It requires data on the frequency of emergencies, i.e., natural and human-made calamities, targeted population, and per capita consumption. For example, in the Philippines, the level of rice inventory that shall be strategically positioned and maintained by NFA at any given time was recently estimated at 300,000 tons or 7 days of consumption equivalent. The assessment used data from the National Disaster Risk Reduction Management Council, covering the population affected and the year, month, region, province, type, and number of days of the disaster. The sheltering period begins from a minimum of 3 days, up to the days of disaster, or where data is unavailable, a maximum of 15 days for major disasters. The rice requirement is calculated by multiplying the sheltering period by 120 kilograms per year (329 grams per day) to obtain 309,268 tons, rounded off to 300,000 tons. 41 STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY 42 Key Elements and Design Strategies for Effective SGRs Estimating the size of stocks required to mitigate short-term supply disruptions be an indicator of market risk (AMIS 2021). Thus, having about 20 percent of the is more challenging. A high level of SGR stocks would cost too much and crowd stock-to-use ratio in the country, for both private and public stocks, would have out private trade and storage, while a low stock level would not cover the food less impact on price volatility than having a much lower ratio, providing helpful supply shock. The challenge arises in calculating how much is enough, or what is a information for policymakers when deciding about SGR size. threshold stock size. One can start with a simple approach using an international experience on a stock-to-use ratio threshold that has been shown to influence the A good example of the gradual reduction in the size of public stocks vis-a-vis market. Using the example of wheat prices in the United States during 1990–2009, private stocks comes from Uzbekistan. The liberalization of wheat markets in Figure 15 shows that when the ending stocks-to-use ratio16 was below a threshold 2022 also included a change in the role of public stocks. Their role was historically of 15 percent, a 5-percent supply shortfall led to a much larger price spike than to buy 3 million tons of wheat annually, equivalent to half the annual output, and when initial stocks were higher. Wright (2011) calls food price volatility a symptom release these stocks at subsidized fixed prices to the state-owned flour mills. After of a structural problem of low stocks—that is, “when supplies get to certain low liberalization, their role shifted to procuring a small volume of wheat and selling levels, the prices become vulnerable to volatility.” Note, however, that ending stocks stock at market prices, mainly to mitigate the wheat supply shortfalls due to include both private and public stocks. In the case of the United States, all stocks export restrictions or logistical challenges in importing wheat from Kazakhstan. are private. In 2024, the SGR in Uzbekistan procured 0.8 million tons of wheat, covering 11 percent of annual food wheat consumption (Table 10). This amount was to FIGURE 15: Low Inventory Periods Signal the Potential for More Volatile Prices: U.S. Real supplement the ending stocks held by the private sector, maintained at about 10 Wheat Prices, January 1990–August 2009 percent of food wheat consumption. The reduced public stock level and market- based procurement and release of stocks, i.e., public stocks are managed as SGRs, have contributed to the relatively low volatility of domestic wheat prices, which are well aligned with import prices of wheat from Kazakhstan (Figure 16). TABLE 10: Gradual Decline in SGR Size in Uzbekistan 2021 2022 2023 2024 Size of wheat stocks 3,000 1,794 1,323 837 (thousand tons) In % of total wheat 50 29 20 12 consumption In % of food wheat 43 25 18 11 consumption Value of stocks (US$ 537 558 337 198 million) Gross cost of stocks as % 0.8 0.7 0.4 0.3 of GDP Source: Authors’ estimate based on the data provided by the Ministry of Economy and Finance of Source: Cafiero and Schmidhuber 2011. Uzbekistan. Defining an adequate level of stocks to reduce grain price volatility is not a new challenge. In the mid-1970s, following the world food crisis, the Intergovernmental Notably, the presence of SGRs in Uzbekistan helped the government risk Group on Grains adopted the level of SGR stocks as the lead early warning pursuing wheat price liberalization reforms in the first place. The availability of indicator for monitoring global food security. The Group defined a level of 17–18 the SGR and safety net programs helped overcome political resistance to wheat percent of cereal stocks (relative to annual consumption) as adequate to influence price liberalization, even in the face of an unfavorable external environment. As markets. The Committee on World Food Security later endorsed this definition. a result, wheat prices remained stable after the reforms. Before the reform, the Many experts, including AMIS,17 an inter-agency platform to enhance food market average price volatility was 12 percent. After June 2022, it slightly increased to 14 transparency and policy response for food security, still use this threshold for percent, like the extent of price volatility in Kazakhstan, the sole wheat exporter their forecasts and early warning system (AMIS 2012). While any exact threshold to Uzbekistan. This containment of price volatility can be attributed to several estimate should be treated cautiously—for example, to account for changes over factors: the careful management of SGRs and their adherence to market principles time, such as a lower propensity to keep national reserves because of a more have been key to minimizing market distortions and keeping prices in Uzbekistan liberalized trade environment—there is general agreement that higher stock-to-use aligned with those in Kazakhstan. Careful SGR management has also had a ratios are associated with more comfortable market situations, while low rates can calming effect on wheat market participants, who know that SGRs are available during emergencies. 16 The ending-stock-to-user ratio is calculated by dividing the ending stocks by domestic consumption. 17 For more information, see https://www.amis-outlook.org/home 43 STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY 44 Key Elements and Design Strategies for Effective SGRs FIGURE 16: Wheat Prices in Kazakhstan and Uzbekistan, 2018–24 d. At the extreme, all price instability could be eliminated by setting the procurement and release prices arbitrarily close to each other. Doing so would certainly be infeasible from both the cost and management point of view, as the public stocks would be forced to purchase or sell a large share of production. Furthermore, complete stabilization is undesirable from an economic point of view, as seasonal and spatial price fluctuations help farmers and consumers respond to surpluses and deficits, thus encouraging arbitrage and bringing the market to equilibrium. Even short-term price stabilization efforts, if not managed well, have proven to be costly. In Haiti, for example, the short-term gains for consumers from price stabilization in 2008–09 (achieved by subsidizing the sale of rice at below-market prices) ended up being lower than medium-term costs created by this stabilization (Aries and Carneus 2011). Haiti imports 70 percent of the rice it consumes. Before Source: Authors’ estimate using the FAO FPMA Tool price data. the 2008–09 global food price spike, the price of rice in the local markets was directly determined by import price, with no distortions. In March 2008, after the global rice price spike caused a domestic price spike, the government announced 3.4 REDUCING PRICE DISTORTIONS AND OTHER ECONOMIC COSTS a subsidy to keep the price of rice for consumers below import parity at a fixed US$43 per 50 kilogram bag. The subsidy was provided only for three months, Well-designed SGRs should have a strategy for reducing market price distortions costing US$17 million. Yet, a year after the subsidy program ended, the rice prices and other economic costs from its operations. In addition to the size of stocks, paid by consumers were estimated to be higher than they would have been without a release of stocks in response to supply disruptions by itself could affect food the subsidy program, costing Haitian consumers an additional US$23 million. The market prices, even if price stabilization is not a primary objective. In this context, reason behind this unintended consequence was that importers and distributors it is important to consider the following implications: factored future losses from uncertainty about government policies into their profit a. As discussed, SGR grain released when supply markets are disrupted and margins. Thus, the visible benefit of fixing prices for consumers at the price tag of markets autarkic is least likely to change private sector behavior, since the US$17 million was overshadowed by the invisible cost of US$23 million created by released supplies replace grain the markets were expected to supply. The interventions in trade. It was estimated that the US$17 million of public resources role of SGRs in such a case is primarily to hedge against the time it takes spent in the subsidy program would have translated into a food voucher of over the disruptions to dissipate and traders to import. Even so, while there are US$4 per month per household for 5 months for families living under the US$2- good reasons to expect that private storage markets will not fully account a-day poverty line. US$4 per month represents 40 percent of the monthly rice for low-probability events, even minimalist interventions could crowd out expenditures of a low-income household in Haiti. private storage at the margin. This is a recommended approach for the SGR management. The level at which prices are stabilized is also important for assessing the economic costs of price stabilization. Several East Asian countries have pursued b. A release of stocks at times of when there is a significant deviation of rice price stabilization through high import protection, enabling them to keep domestic price from import parity price would be least distortive when average rice prices well above the world market levels (FAO 2021).18 Examples governments need to respond to high food prices. A significant deviation are Indonesia and the Philippines, which have used high import tariffs and state could be defined as two or three standard deviations from the historical controls over imports to stimulate domestic rice production. Such an approach average price. Cost and storage requirements would be relatively small, as helped reduce rice price volatility yet created substantial visible and invisible the extreme levels of domestic and international price spikes are usually economic costs. During 2010–24, the rice wholesale price volatility in both short-lived and arbitrage activities not immediate. Such an approach would countries averaged 7 percent in relation to 17 percent in net exporting Thailand leave seasonal price cycles largely unaffected, permitting private sector to and Viet Nam (Figure 17). Such stabilization has likely helped farmers keep participate profitably in storage and trade. farmgate output prices up in the short run. Yet, in the long run, even farmers lose if little is done to raise productivity and reduce production costs. Consumers c. A narrower price trigger would require costly large annual purchases and lose in any case as they must pay higher food prices, compromising their food releases of stocks, managed as buffer stocks. This approach would reduce security. In developing countries, food constitutes a large share of total household both interannual and seasonal fluctuations of prices, making private storage of grain less profitable and requiring greater public storage to maintain a 18 While less frequently than in Asia, countries in other regions have also been using public stocks to stabilize given level of total storage. If the price ceiling is set too low, the public stocks prices at high levels. In Latin America, for example, the Dominican Republic used the rice price support mechanism under SGRs and trade restrictions to stabilize prices above import parity. In Eastern and Southern will be sold more often than bought, eventually exhausting public stocks and Africa, Malawi and Zambia were doing the same but have been less successful in keeping domestic prices more making it impossible to impose a price ceiling (Wright 2009). stable than international ones. 45 STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY 46 Key Elements and Design Strategies for Effective SGRs consumption (Table 5), and the poorest are affected the most when higher incomes FIGURE 18: Rice Consumption and the Impact of the Rice Price Reduction on Poverty in the do not offset higher food prices. Philippines FIGURE 17: Level and Volatility of Rice Prices in Selected Asian Countries, 2010–24 s Source: Authors’ estimate using the FAO FPMA price data. In-kind food distribution programs do not necessarily offset the effects of high Source: Balié, Minot, and Valera 2021. food prices, with implications for poverty. The recent experience of the Philippines from the 2019 rice tariffication and liberalization of rice import confirms these points. The NFA’s subsidized rice accounted for a small share of the country’s FIGURE 19: Breakdown of Production Costs of Rice Paddy in Selected Asian Countries, High- rice consumption (Figure 18, left), with the first two poorest quantiles suffering Yield Crop Season, 2013–14 the most from high rice prices. When rice prices declined by 17 percent due to the reforms, the poorest households benefited the most (Figure 18, right). Ironically, high prices do not necessarily translate into benefits for farmers, as higher output prices tend to inflate production costs. This phenomenon is not unique to Asia and has also been observed in HICs, which have a long history of keeping food prices high. The unintended cost-pushing effects of high output prices were among the main reasons for agricultural reforms in the United States and the European Union in the 1990s that aligned domestic prices with world market prices and shifted support to farm incomes rather than prices. In Asia, rice production costs are highest in countries with high rice prices, usually in net-importing countries, such as China, Indonesia, and the Philippines. Production costs in rice Source: Bordey et al. 2016. net exporting countries, such as India, Thailand, and Viet Nam, are almost half of that in net-importing countries (Figure 19). The key driver of the cost difference is In Indonesia and the Philippines, i.e., the countries with more stable but higher labor cost, which is much higher in net-importing countries. In the Philippines, for rice prices, the marketing costs between producers and consumers are also high, example, where rice alone accounts for 20 percent of the food component of the partly due to high rice prices. In these countries, marketing costs are nearly twice Consumer Price Index, high rice prices place upward pressure on wages. According as high as in Thailand, mainly due to higher transport costs and the cost of working to the research carried out by Lasco (2005), in the short run, a 1 percent increase in capital (Table 11). High rice prices in the Philippines and Indonesia increase the rice prices causes a 0.35 percent increase in wages in the Philippines. In the longer amount of working capital required to buy and store the same quantity of rice as run, the elasticity is above one. Thus, a high price policy for food staples is costly in Thailand and Viet Nam. In countries with lower rice prices, even when they are for the economy. more volatile, support for farmers tends to focus on reducing farm production and marketing costs while reducing consumer prices. This focus helps reduce poverty and enhance competitiveness. In contrast, countries with high rice prices support farmers by providing continuously rising output prices, which leads to the cycle of higher production and marketing costs and, thus, the continued taxation of consumers, who then pay the bill. 47 STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY 48 Key Elements and Design Strategies for Effective SGRs Artificially high prices paid by public stock programs tend to slow agricultural interventions typically involved with buffer stock policies yet offering a pragmatic diversification and reduce agricultural growth. Farmers respond to high prices response to supply disruptions. offered by public stocks by producing more of the supported crops, even in areas unsuitable for their production. In Asia, rice dominates the agricultural sector 3.5 REDUCING THE COST OF STOCK PROCUREMENT but generates low returns. Rice is a food staple for nearly 690 million Southeast Establishing clear replenishment rules is one crucial aspect of managing SGRs. Asians and accounts for a significant portion of harvested land in the region, e.g., Such rules are essential for minimizing fiscal costs and market disruptions. 75 percent in Cambodia and 60 percent in Viet Nam. Rice is cultivated by over Transparent, clear, and consistent practices involving SGR replenishment 100 million farmers, most of whom are smallholders, occupying not more than ensure effective public and private food security efforts. Effective replenishment two hectares of land each. However, rice yields in various East Asian countries strategies must address transparency in procurement methods, price-setting have decelerated, stagnated, or even declined over the past two decades. Farmers’ mechanisms, timing and location of procurement activities, procurement size, incomes have remained low, often below the poverty line. The average daily types of sellers, and transportation, and storage capacities. Therefore, well-defined earnings of rice farmers in East Asia vary between US$2 to US$6 per day. As strategies in these areas are vital to reduce procurement costs and ensure efficient such, smallholder (rice) farmers constitute a disproportionate share of the bottom management of reserves. 40 percent of the income distribution. In contrast, non-rice production systems generate higher revenues and employment and are associated with lower poverty Transparent procurement strategies and effective communication on levels. The situation is similar in eastern and southern Africa with the production of procurement size, strategy, process, and execution are vital for ensuring white maize. In Malawi and Zambia, offering incentive prices to producers of white smooth SGR operations with minimal disruptions in grain markets. Transparent maize on a pan-territorial basis encouraged its production in places that were management builds trust with the private sector, which can be wary of government better suited to more drought-resistant crops, such as millet and sorghum, and in intentions due to past interventions. By making operational procedures publicly areas that were previously under cotton and sugarcane production. available and announcing changes in a timely manner, governments can ensure that all parties have the necessary information to adjust their expectations and TABLE 11: Breakdown of Marketing Costs and Margins for Milled Rice in Selected Asian actions accordingly. Clear rules should protect the SGR’s management authority Countries, Philippine Pesos per Kilogram from undue influence, ensure fair operations, and prevent lobbying pressures and Philippines Indonesia Thailand Viet Nam costly stock accumulation. Total marketing costs: 4.63 4.97 2.73 3.78 Unpredictable changes in procurement policies increase market risks and Drying 0.26 0.62 0.33 0.52 discourage private investment in grain storage systems. Uncertainty on the Transport 2.09 2.22 1.08 1.76 volume, prices, and timing of stock replenishment makes it difficult for the private Milling 1.38 1.22 0.89 0.93 sector to make decisions on their level of engagement in grain markets. In Zambia, Storage 0.19 0.40 0.20 0.23 for example, the FRA’s practice of announcing minimum procurement volumes, Packaging 0.45 0.24 0.14 0.22 then often exceeding them, creates market uncertainty. For instance, in 2023, Cost of working capital 0.27 0.28 0.09 0.11 the FRA announced a minimum purchase target of 500,000 tons of stocks. In Gross marketing margins 9.06 5.61 4.55 3.45 2024/25, its target decreased to 300,000 tons, but the actual stock procurement Source: Bordey et al. 2016. was higher. Such a procurement approach often results in the FRA buying more than needed and selling excess stocks at lower prices, which disrupts markets and Thus, avoiding the use of SGRs as buffer stocks is an important precondition creates a fiscal burden. to generating value for money from using public stocks. A distinction between SGRs and buffer stocks lies in their intended purpose and the expected operational Stocks should be acquired at market prices, without undue influence from outcomes. While buffer stocks are designed to intervene regularly and smooth price lobbies, and with disposals limited to emergencies. For example, Bangladesh and fluctuations, SGRs focus on mitigating the impact of food supply disruptions and Uzbekistan buy grains for SGRs at market prices. However, many countries buy providing relief during crises without aiming to generate profits or stabilize prices grains at above-market prices. The gap between procurement and release prices for too long. This pragmatic approach ensures minimal disruption to the market, drives up the fiscal costs of public stockholding, as discussed in subchapter 3.2. allowing the reserves to operate as a last-resort safety net in emergencies rather Thus, procurement strategies for SGRs should focus on ensuring reserves are than as a continuous market participant. For example, if imports are unexpectedly sufficient to meet emergency needs rather than public stocks being a tool for delayed by several months, releasing grain from SGRs to prevent local price spikes minimum price support to farmers. To avoid market disruptions, procurement and could be appropriate, as this would alleviate temporary supply constraints without release prices should align with export and import parity prices. distorting overall market dynamics. These principles also mean that SGRs are not designed to combat global price spikes, as it would be futile for governments to Replenishing SGRs through open tenders can ensure grain procurement at intervene when facing broader market pressures. By adhering to these principles, competitive market prices, reducing fiscal costs and allowing the private sector SGRs maintain compatibility with liberalized grain markets, avoiding large-scale to operate profitably. In contrast, if grain is procured at an administratively determined pan-territorial price higher than the prevailing market price, it crowds 49 STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY 50 Key Elements and Design Strategies for Effective SGRs out private traders. Private traders are often excluded when replenishments are not conducted through open tenders, particularly in the case of large procurements at high prices. For instance, in India, where minimum procurement prices are BOX 6: WFP'S LOCAL AND REGIONAL PROCUREMENT generally above market levels and procurement volumes reach 25–30 percent of STRATEGY domestic production, the private sector’s role in trading wheat and rice is limited WFP’s local and regional purchase strategy is designed to support local farmers (Chatterjee et al. 2024; Chand 2009). Similarly, in Zambia, the FRA plays a key and their livelihoods, and specifically for the purpose of operations, reduce reliance role in grain markets, accounting for about 30 percent of the market surplus, and on imported commodities to shorten lead times and reduce cost. By leveraging private sector activities are heavily reliant on FRA activities. This dependency policy instruments, the amount purchased locally has steadily increased, up to 59 limits market activity and denies farmers essential market services from private percent of WFP’s global food procurement in 2024. entities. In operationalizing Local- and Pro-SHF Food Procurement approaches WFP has A well-defined sourcing strategy is also crucial for cost-effective SGR implemented indirect innovative contract modalities to address this, allowing replenishment. This strategy should consider both local and international procurement through traders or traditional suppliers. This approach provides the sources to mitigate risks such as price volatility, geopolitical challenges, trade/ necessary flexibility while ensuring that smallholder farmers are included. In 2024 supply, and climate-related disruptions. A structured and continuous market alone, the WFP sourced US$59 million worth of food from smallholder farmers, monitoring approach to strategically time purchases can significantly lower and investing directly into those businesses. Beyond the support to smallholders, procurement costs. For example, procuring during the harvest season or surplus such initiatives have proven to promote inclusivity, women empowerment, and periods when prices are low and avoiding large purchases during the lean deficit gender equality. This is significantly important when in developing countries the season help ensure cost efficiency for the SGR operations. Additionally, delivery agricultural sector is dependent on the labor from marginalized groups, including terms are vital for cost-effective sourcing, and supply-chain assessments should women farmers, with some farmer organizations comprising 60 percent female address potential risks for both local and international purchases, and account members. In South Sudan, a woman-led business winning a contract to supply for the capacities of the involved suppliers. Sourcing grains for public stocks in 3,000 tons of sorghum – the largest quantity contract awarded to a woman-led FCV contexts can be particularly challenging. The WFP supports the design of business by WFP in the country. Furthermore, a woman-led group that has been sustainable procurement strategies and is crucial in the procurement of food a key partner of WFP in Burkina Faso was the largest supplier of beans, maize, commodities in some of these countries, leveraging its global supply-chain millet and sorghum (12,700 tons) in 2023. This strategy improved the livelihoods expertise, market intelligence, logistical infrastructure, and procurement networks. of these farmers while integrating them into corporate procurement programs, In recent years, WFP has procured commodities for public stocks on behalf of offering essential market access and sustained demand. several governments. Examples include Ethiopia (400,000 tons), Sudan (200,000 tons), and, more recently, Burkina Faso (70,000 tons). A second example of successfully connecting smallholders with institutional demand comprises Madagascar Home-Grown School Feeding Programme. WFP Although the procurement strategy for SGR replenishment should generally Madagascar has leveraged local procurement to support smallholder farmers. follow market and cost minimization principles, two exceptions may be By the 2024-25 school year, this grew to cover 530 schools, reaching 160,000 considered for their potential developmental benefits. First, where possible, students as compared to 106 schools previous year. The scale-up was made strategies should integrate smallholders into value chains, as smallholders often possible by implementing the Local and Regional Food Procurement Policy, face challenges such as limited market access and aggregation capacity. Second, through indirect contract modalities. A total of 5,300 smallholder farmers procurement strategies could focus on regions with less private sector activity to contributed around 6,000 tons of food for WFP-supported programs in the avoid crowding it out. country, with nearly 50 percent of the farmers being women. The implementation In many instances, public procurement for SGRs tends to favor larger farms over of long-term contracts has provided both traders and smallholder farmers with smallholders, exacerbating inequality within the agricultural sector. In Kenya, greater visibility on demand, fostering a sustainable market for smallholder about 10 percent of the farms sell 74 percent of maize surplus and regularly benefit farmers. from National Cereals and Produce Board procurement (Jayne et al. 2008; World Source: WFP, various reports. Bank 2012). In Zambia, about 5 percent of all farmers account for half of the maize surplus and benefit from high prices (Fung et al. 2015). In Pakistan, only 5 percent of farming households are estimated to have a marketable wheat surplus. It is this subgroup that benefits from an increase in the procurement price of wheat (World Bank 2015). Thus, integrating smallholder farmers into SGR procurement mechanisms can support their livelihoods, contribute to fair price transmission and boost productivity. Box 6 presents examples of such WFP initiatives. 51 STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY 52 Key Elements and Design Strategies for Effective SGRs A sourcing strategy for SGR replenishment could also prioritize procuring from companies elsewhere in the world. Thus, a transparent process of tenders is crucial regions with limited private sector presence, where feasible. This effort could for MENA governments, ensuring fair and competitive procurement. While large limit crowding out of the private sector and benefit farmers in the region. The public expenditures through tenders allow for securing wheat supplies, they also public procurement to replenish SGR should avoid competing with private buyers in present an opportunity for even small improvements in tender terms to save public well-served areas and instead concentrate on remote regions where private sector finances. activity is limited. By acting as the buyer of last resort and buying at the market’s tail end, the stock procurement can support farmers when they struggle to find FIGURE 21: Tenders in Wheat Procurement in the MENA Region, 2021–23 buyers or when market prices fall very low, while keeping the pressure on the fiscal costs of SGR low. Ensuring grain procurement from these areas would provide crucial market access for smallholder farmers. In Zambia, the FRA’s significant size of procurement for public stock replenishment has crowded out some major market players; it has negatively impacted private sector participation and reduced investments in the maize sector (World Bank 2021). Thus, the FRA should consider adopting a strategy to restrict its grain purchases to the required stock amount and to source these stocks from areas where the private sector is less likely to operate. In countries that rely on imports to replenish grain stocks due to limited domestic production, the cost of maintaining public stocks is heavily affected by the efficiency of supply chains and the effectiveness of tendering procedures. Such countries are mainly located in the MENA region, where the natural environment is not favorable for agricultural production. Most MENA countries rely on imports of wheat and other food to satisfy domestic demand, and the share of imports is often above 50 percent of wheat consumption. In Jordan, it is more than 90 percent (Figure 20). In terms of volume, the largest wheat importers in the region are Egypt, Algeria, Morocco, and Saudi Arabia. In 2024–25 alone, these countries are projected Source: FAO Investment Center using Agricensus data. to import 32 million tons of wheat. When the costs of transferring grains from exporting countries to ultimate consumers are high, public stocks need to be larger. Tenders for importing wheat are large in the MENA region. During September 2017 and January 2025, Egypt is estimated to have had 632 wheat import tenders, FIGURE 20: Production and Import of Wheat in Selected MENA Countries, Averages 2020–24 using the normalized monthly observations (Figure 22).20 In Tunisia and Algeria, the number of such tenders was 565 and 472, respectively. Saudi Arabia had 367 tenders. Source: Authors using the USDA PSD data (2025). Improving grain import efficiency in MENA countries often means improving the tender efficiency, i.e., buying good quality grain at the lowest cost. During 2021– 23, the value of wheat imported by MENA countries averaged US$67 billion per year, with about 25 percent of this volume bought through tenders (Figure 21).19 In 2023 alone, the MENA governments spent US$23 billion on wheat purchases through tenders, which is twice the amount spent by other governments and private sector 20 The dataset was obtained from Agricensus/Fast Markets, and included 3,859 tenders conducted from 19 The results presented here come from the ongoing work under the FAO cooperation with the European Bank September 2017 to January 2025 by 38 tendering agencies globally. These agencies encompass both for Reconstruction and Development that focuses on improving grain sector import efficiency, particularly in the government bodies and private industry associations, such as the Flour Mills Industrial Association in South European Bank for Reconstruction and Developmen’s Southern and Eastern Mediterranean region, under a joint Korea, the Thai Feed Mills Association and others. The dataset comprises 146 supplying companies and a total Food Security technical assistance package. shipment volume of 190 million tons of wheat for the period concerned. 53 STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY 54 Key Elements and Design Strategies for Effective SGRs FIGURE 22: Number of Wheat Import Tenders, 2017–25 FIGURE 23: Prices and Protein Content in Different Wheat Origins Source: FAO Investment Center using Agricensus data. Source: Agincentives. Analysis was undertaken to determine what drives the prices of these tenders. The analysis was carried out employing a Two-Stage Least Squares model to From the importers’ perspective, wheat protein content plays an important role determine how specific import tender variables affect wheat prices paid. The model also during tenders. An increase in protein content requirement by 1 percentage includes a base scenario focusing on demand-side variables set by importing point raises the wheat price by an average of US$11 per ton. Protein content is the agencies in their tender terms, such as protein content, average size of tender, most significant price driver in the model. This finding confirms that higher protein urgency of delivery, and other factors affecting prices. An additional scenario content may limit wheat supply availability, implying that careful consideration of that replaces the average tender volume with two supply-side variables, i.e., protein content in tender specifications is essential to balancing cost efficiency and average volume per company and the number of companies submitting bids, adds food security objectives. considerations of both competition in tenders and economies of scale of supplier companies. In both scenarios, the import price is the dependent variable. The Other tender terms also affect prices. In the base scenario, the volume of the R-squared value for the base scenario is 0.705, indicating that the model explains tender, as a unit of demand, varies greatly on a monthly level (Table 12). For 70.5 percent of the variance in wheat prices. example, Algeria has an average monthly tender volume of 519,000 tons, while Tunisia has 107,000 tons. An increase of 100,000 tons appears to decrease the The value of wheat protein plays a critical role in determining wheat prices.21 average price by US$8.67 per ton. However, the actual price change may deviate Available exporter price data shows that wheat protein content is a primary price from this average depending on the country’s demand needs, availability of finance determinant (Figure 23). Higher-protein wheat consistently commands a price to buy, and port and storage infrastructure. premium, as seen in the case of Canadian wheat (13.5 percent protein). In contrast, lower protein wheat, such as Ukrainian wheat (11.5 percent), is priced significantly Reducing the urgency of deliveries can also lower prices. Reducing the time from lower, reflecting the specific demand for protein qualities of wheat for different bid closing to the start of delivery increases the price by US$1.05 per ton. Improved uses in the global market. The price divergence between different wheat origins tender planning can enhance predictability, allowing suppliers to better coordinate and protein levels has widened significantly from mid-2020 to mid-2024. Even as export logistics and potentially expand sourcing options by considering longer wheat prices stabilized into 2023 and early 2024, the premium on higher-protein shipping routes. The number of days between the bid close date and the delivery wheat persisted, reinforcing its role as a crucial pricing factor. start date (urgency window) varies greatly: Jordan allows for 118 days to arrange delivery, while Egypt allows 45 days, showing the opportunity to reduce tender costs. 21 Protein content is one of the most important quality parameters of wheat, which defines its final use for bread, crackers, pasta, and other uses. 55 STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY 56 Key Elements and Design Strategies for Effective SGRs TABLE 13: Price Performance of Four Tenders in Egypt Financed by the World Bank Project TABLE 12: Determinants of Wheat Price Tenders in Selected MENA Countries Date Project- Price Price MATIF CBOT Spread Spread Variables Algeria Egypt Iraq Jordan Saudi Tunisia Results Financed Offered Offered in a Wheat Price Financially Between Between Arabia Purchase (US$/ton)* Comparable (US$/ton)** Settled Black Tender Price Tender Price Average tender volume, ‘000 519 323 124 111 161 107 +100,000 tons decreases Volume Regional Sea Wheat and MATIF and CBOT tons the price by US$8.67/ton (tons) Tender Price (US$/ Price (US$/ Price (US$/ Delivery window (start-end), 36 31 42 15 45 20 +7-day and price increas- ton)*** ton) ton) days es by US$2.5/ton Dec-27, 200,000 339.0 461.0 (a) 337.4 309.4 1.6 30.0 Urgency window (bid close-de- 38 45 69 118 82 40 +7-day and price decreas- 2022 livery start), days es by US$1.05/ton Jan-10, 120,000 337.0 351.9 (b) 317.3 307.3 19.7 30.0 Number of tenders analyzed 565 632 38 117 367 472 - 2023 Supply-side scenario Feb-2, 535,000 322.8 329.0 (c) 310.5 304.8 12.3 18.1 Average volume of supply per 140 134 125 69 220 61 +10,000 tons decreases 2023 company per country, ‘000 the price by US$2.45/ton Feb-22, 240,000 317.0 333.0 (d) 299.6 315.0 17.4 2.0 tons 2023 Number of supplying compa- 6.4 5.2 1.2 1.7 4.6 3.7 +1 company per country/ Note: * bid evaluation reports; ** www.euronext.com; *** www.barchart.com nies per country, month month decreases the Source of comparable regional tenders: (a) Dec-21, 2022 Grain Board of Iraq, Australia wheat 100,000 tons; (b) Jan-5, 2023 price by US$1.82/ton Tunisia OdC, European wheat (French and Romanian) 50,000 tons; *** Feb-9, 2023 Algeria OIC Russian wheat 400,000 Source: FAO Investment Center’s calculations. tons; and (d) Feb-21, 2023 Jordan MIT Russian or Ukrainian wheat 60,000 tons. In the supply-side (additional) scenario, the model showed that the number of Source: Authors based on World Bank project data. companies supplying wheat per country per month also varies. Variation could be due to a combination of company size, specialization, and interest of companies 3.6 INCREASING THE IMPACTS OF STOCK RELEASES to participate in tenders, with potentially restrictive access to tenders by some tender agencies. Algeria has 6.4 companies participating in tenders per month, Stock releases also play an important role in achieving the SGR’s intended while Jordan has 1.7 companies. An increase of one company per country per outcomes. Stock releases can occur through auctions and commodity exchanges, month has the potential to decrease the price by US$1.82 per ton, reflecting higher i.e., untargeted releases and targeted distributions. Auctions, conducted in small competition (Table 12). This finding denotes the importance of allowing wider or varied batch sizes to ensure competition and limit market concentration, are access to tenders with periodic reviews of tender and access terms. effective in urban areas with well-functioning markets. They quickly increase market availability without needing pre-established distribution systems, which is Improving tender transparency and improving dispute resolution also reduces crucial during sudden price surges. Moreover, there is an increased expectation to the cost of wheat tenders. The World Bank-financed Emergency Food Security release stocks through commodity exchange to enhance the commodity exchange’s Response and Resilience Support Project facilitated procurement of 1.15 million viability and contribute to transparent price discovery mechanisms. Even for the tons of wheat through four competitive tenders conducted between December purpose of stock rotation, using the commodity exchange is recommended. 27, 2022, and February 22, 2023. The average lowest bid prices were consistently lower than those of similar tenders in the MENA region. Furthermore, the margin Some countries have already been using commodity exchanges to release between the selected benchmark prices and the lowest bid prices decreased stocks, while others aim to do it soon. Uzbekistan has been releasing stocks with each subsequent tender, as shown in Table 13. The interviews with wheat through commodity exchanges since 2021, and it has successfully minimized suppliers revealed that the reduction in the margin was attributed to the lower market distortions by doing so. Zambia has committed to increasing the sales of risks associated with more secured tenders, notably guaranteed finance, improved stocks through a commodity exchange (ZAMACE) as a part of the Zambia Growth dispute resolution, beneficiary ownership disclosure (transparency), and fast Opportunities Program. The program was launched in 2022 with the support of payment terms. Policymakers should note these and other above-mentioned the World Bank to improve price discovery, attract private sector participation, drivers of tender prices as they make a big difference in multibillion spending on and increase the volumes of commodities traded. Transparently releasing stocks stocks. via commodity exchanges is expected to encourage the FRA to utilize less market distortive maize stock trading operations and increase the transparency of trade decisions, which could incentivize farmers to diversify their crop production systems while enhancing productivity and competitiveness. Stock releases through commodity exchanges can be complemented by policies such as temporary subsidized storage facilities for farmers and cash payments for safety net beneficiaries. This approach has led to a significant 57 STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY 58 Key Elements and Design Strategies for Effective SGRs decrease in the size of procured wheat stocks in Uzbekistan and supported wheat its reserves as fresh stock. Rather than relying on universal food distribution, which price liberalization reforms there, ensuring more stable prices despite external has proven to be very costly and ineffective in reaching the intended population challenges. In Uzbekistan, the SGR size has declined gradually as an outcome of (World Bank 2012), these reserves integrate safety nets like food-for-work and the government’s deliberate policy. The policy sought to give more space to the school feeding, often in partnership with NGOs, which ensures that aid reaches private sector, reduce the role of the state, and lower the fiscal costs as part of those most in need. In Ethiopia, the Productive Safety Net Programme and the the market liberalization reforms. Uzbekistan paired SGR with other policies, such government’s emergency operations distribute SFRA stocks. This collaboration as providing farmers with temporary storage facilities for up to six months22 and boosts the safety net program’s efficiency, with SFRA maintaining robust inventory offering free storage for 500,000 tons of wheat if farmers cannot sell their produce management and coordinating with local and international partners to support the immediately after harvest. Additionally, cash payments to beneficiaries of safety country’s most vulnerable populations during crises. nets helped reduce SGR management costs by minimizing administrative expenses associated with the release of physical stocks to those in need. This approach The primary source of funding for SFRA comes from the Ethiopian government, allowed the release of grains through commodity exchange. This combination which allocates the budget annually. This funding is crucial for maintaining of policies has significantly reduced the size of procured wheat stocks from 50 the agency’s operational capacity, including covering the costs associated with percent of total production in 2021 to just 12 percent in 2024. As a result, the storage, transportation, and distribution. However, the SFRA also has funding SGR’s fiscal cost decreased from US$537 million or 0.8 percent of GDP in 2021 to through donor contributions, which significantly reduces the fiscal burden on the US$197 million or 0.3 percent in 2024 while still maintaining more stable wheat government. Many organizations, such as the Canadian International Development prices in recent years (Table 10). Agency, British Official Development Assistance, the United States Agency for International Development, WFP, and the EU, have supported SFRA. These funds However, auctions and commodity exchanges could be less effective in countries are used to reimburse loans, manage food stocks, and cover operational expenses. with poor marketing systems. In such cases, targeted in-kind food distributions The agency also receives locally purchased food aid and imports, which are would be more efficient. These should be managed through social safety nets or critical for maintaining adequate reserve levels. SFRA manages stocks and meets aid relief agencies, including food-for-work programs, food stamps, school meal operational expenses by engaging in cost-sharing arrangements with international programs, or supplementary feeding programs, to ensure vulnerable populations partners, which help spread the financial burden and ensure sustainability. receive necessary food supplies during emergencies. In Ethiopia, the Strategic Food For example, the WFP often provides technical support and covers part of the Reserve Agency (SFRA) partners with donors and government bodies to supply operational costs during emergency responses. This collaborative approach grains and implement emergency activities in high food insecurity regions. The enhances the financial stability of SFRA and improves its capacity to respond to SFRA maintains a rotating stock of cereals that can be borrowed by organizations food security crises effectively. like the WFP, with repayment on arrival of the pledged supplies, reducing the time between pledges and distribution. Another limit of auctioning stocks is that In addition to integrating SGRs into safety net programs, some countries showed the benefits of SGR can spill over to foreign markets through reduced imports or that following supportive trade and market policies could increase the impact reexports of released stocks. Appropriate trade policies must support SGRs to of the SGR’s releases. In Bangladesh, for example, the strategy of reducing duties prevent this leakage. If stocks are released through in-kind transfers to insolvent on rice imports and maintaining adaptive public stocks with flexible pricing has populations, the risk of leakage to foreign markets is naturally mitigated. proven more cost-effective for price stabilization than aggressive buffer stock policies used in the past (Minot et al. 2021). The public food distribution system’s Thus, in some instances, in-kind food distribution could still be justified for role in price stability was found to be insignificant, but integrating SGRs with releasing SGR stocks. Yet, the effectiveness of in-kind food distribution is social safety net programs and liberalized trade regimes helped stabilize rice prices largely determined by the integration of SGRs into well-functioning safety net (Figure 24). Bangladesh’s public reserve system is integrated with safety nets programs that ensure effective targeted releases. Countries like Ethiopia, Mali, and and managed with three key objectives: (a) distributing foodgrains to chronically Bangladesh have implemented such systems to support vulnerable populations food-insecure communities, (b) distributing foods during emergencies and natural during food emergencies. The Emergency Food Security Reserve in Ethiopia, the disasters, and (c) stabilizing market prices during short-term shocks. In 2023, Programme pour la Réstriction du Marché de Céréales in Mali, and the Public Food Bangladesh spent US$1.6 billion on its SGRs, an equivalent of 0.25 percent of GDP, Grain Distribution System in Bangladesh all target the poor through small, efficient complemented by a US$3.5 billion cash-transfer program for the vulnerable. reserves of typically 3–10 percent of domestic consumption. These reserves use early warning systems to determine optimal stock sizes, ensuring flexibility and responsiveness. The programs emphasize transparency through open tendering and effective stock management. Ethiopia, for example, maintains 62 percent of 22 To prevent disruptions from reduced public procurements and ensure farmers have safe storage for their wheat, the government of Uzbekistan introduced a transition support program. The program included free storage space for farmers for 500,000 tons of wheat for up to two months. By 2024, the program was expanded to 1.5 million tons for six months, but with the government covering only storage costs. Farmers were responsible for covering the costs of transporting wheat to storage and loading and unloading. In 2025, the government phased out this transitional support for farmers. 59 STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY 60 Key Elements and Design Strategies for Effective SGRs FIGURE 24: Rice Prices in Bangladesh in Relation to International Prices Source: FAO FPMA price data. Linking SGR to social safety nets can ensure that food reaches those in need. However, rapidly scaling such programs in emergencies can be logistically challenging, making it crucial that they can be adjusted during crises. This need for social safety net preparedness implies that there are complementarities between policies addressing chronic and acute hunger. The flexibility to switch from chronic to acute hunger programs is essential. Boosting existing in-kind programs or income support during crises could be a more cost-effective response than releasing untargeted reserves. The repetition of shocks in the last two decades has led to the emergence of adaptive social protection (World Bank 2018), a tendency even reinforced by the COVID-19 pandemic (Gentilini 2022) and the inflation shocks that have followed (Gentilini et al. 2022). It is crucial to capitalize on these efforts so that SGRs can be managed efficiently. THE BOTTOM LINE Market distortions, high fiscal costs, corruption, and enforcement issues can all undermine an SGR’s effectiveness. Thus, designing and implementing interventions that minimize these failures is crucial to ensure the reserve’s benefits outweigh the drawbacks. SGRs can deliver results when clear and manageable objectives underpin them, when they are managed prudently in terms of fiscal costs, and when they are used smartly to mitigate the impact of temporary food supply disruptions. Successful SGRs use market channels such as commodity exchanges, maximize development impacts by supporting smallholder commercialization, and are embedded in targeted safety net programs where in-kind food assistance works better than cash assistance. Yet, SGRs fail when managed as buffer stocks that aim to address too many and often conflicting objectives. There are numerous causes of SGR failure, including lack of clarity of objectives, high fiscal costs, price distortions, and crowding out of private storage and trade. Countries need to carefully consider these factors to use SGRs effectively. 61 STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY 62 4 Dependent on the reserve’s sourcing and distribution strategies, the enabling transport, storage and distribution networks must be reviewed and established to meet their objectives. Given the capital-intensive nature of physical infrastructure, the design of logistics network to support SGRs should be informed by detailed assessments. In addition to warehousing, which is covered in this chapter, grain safety and quality (Box 7) and port and road infrastructure will be fundamentally important as this will directly impact the efficiency of moving grain from procurement points to storage facilities and eventually to distribution points. Critical considerations in this process include complementarity with existing infrastructure and SGRs, existing logistics network and proximity to critical port/land access points, market access (both for procurements and releases), social, environment and cultural impacts, establishment and maintenance costs, and the use of technology. Similar to the grain procurement process, it is recommended that infrastructure projects are awarded based on a tender process to ensure competitive pricing and transparency. BOX 7: IMPORTANCE OF GRAIN SAFETY AND QUALITY Alongside infrastructure and technology, effective management of food safety and quality (FSQ) is crucial for the operation of SGRs. Best practices for development of a comprehensive FSQ process should emphasizes risk-based approaches to ensure safety and quality of food across the whole supply chain. WFP’s global experiences indicate that a tailored approach, integrated with the existing infrastructure, is most appropriate in embedding FSQ. The integrity of HARNESSING grain reserves starts with the selection and monitoring of suppliers. FSQ guidelines must stress the importance of a robust supplier approval process to ensure that all suppliers meet the highest standards of food safety and quality. Inspection I N N O VAT I O N S and spot testing are vital for ensuring that grains entering and stored in reserves remain safe and of high quality. Proper storage and handling are critical to maintaining the quality and safety of grains. The recommended practices include pest control, temperature and humidity monitoring and control, and reconditioning AND and repackaging to restore quality in the cases of minor spoilage or damage. Along the grain supply chain, traceability is essential for managing food safety risks in grain reserves. Such a system should include lot identification and TECHNOLOGIES food incident management protocols ensures that any safety or quality issues are swiftly identified, contained, and resolved. The transport of grains from procurement sites to storage facilities and ultimately to distribution points must FOR EFFICIENT also adhere to stringent FSQ standards. Key considerations include transport conditions (inspection of trucks and containers prior to loading), minimal handling and the prioritization of direct routes, and monitoring during transit. SGRS Regular quality assessments and continuous improvements are also vital for SGRs. Recommendations include routine assessments, the establishment of feedback mechanisms with third parties including suppliers and transporters, and continuous training and capacity development for staff involved in the operation of grain reserves, including warehouse managers, transporters, and procurement officers. These steps help adapt to evolving risks and ensure a proactive approach to FSQ management. 63 STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY 64 Harnessing Innovations and Technologies for Efficient SGRs High losses from improper storage and handling of grain stocks are among TABLE 14: Postharvest Losses Along the Value Chain the major reasons for the high costs of public stockholdings. Avoiding grain loss during prolonged storage is one of the most practical ways to increase an SGR’s attractiveness. This chapter explores innovative technological solutions for designing and managing grain storage facilities, including digital solutions that have evolved rapidly in recent years. It covers various aspects of technologies, including how SGRs can improve efficiency, quality preservation, and cost- effectiveness, looking at trade-offs for silos, flat warehouses, and bagging systems. It highlights the advantages and disadvantages of various methods, the risks associated with each technology, and the advanced monitoring solutions that can be implemented to mitigate these risks to ensure high and sustainable quality of stored grain. Adopting the technology solutions discussed in this chapter would increase the value for money of SGRs and follow the good practices described in the previous chapter. Storage often accounts for a large share of postharvest grain loss. The choice of storage technologies is context-dependent, but using the right technologies can reduce grain loss, improve the durability of stored grains, and ultimately lower the fiscal costs of managing SGRs. Grain loss occurs throughout the whole supply chain, starting from harvesting. A key challenge in reducing grain losses is that the magnitude of postharvest grain loss varies significantly depending on factors such as geographic location, climate, and the prevalence of pests. The magnitude of losses at the storage level could be up to 40 percent of total losses at the postharvest level (Table 14). Exposure to pests, temperature variation, and moisture (leading to mycotoxin formation) leads to high grain loss during storage. High levels of grain loss during Source: Authors based on Alam et al. (2028), Kumar and Kalita (2017), ADMI (2019), and APHILS storage highlight the importance of proper grain storage and monitoring. The use (2020). of the right storage technologies and effective stock monitoring and management solutions is critical. Combining on-farm storage technologies with financial products, group commitment devices, and flexible storage options while addressing 4.1 STORAGE TECHNOLOGIES both credit and loss constraints can offer a holistic solution to encourage effective grain storage investments in communities and farms (Ricker-Gilbert, Omotilewa, The significant losses observed during storage underline the importance of and Kadjo 2022). proper grain storage and control. Several available approaches and technologies, both traditional and innovative, can be deployed to minimize losses. For example, at the grain harvesting stage, technologies such as mechanical reapers may be more effective in reducing losses than manual harvesting. At the grain drying stage, mechanical drying may have the greatest impact compared to open-air drying. Grain storage can be achieved in various ways, depending on the type of grain, geographical location, local conditions, and available resources: a. Silos can reduce losses by 40–50 percent. They represent a more sophisticated storage solution than traditional storage methods, offering enhanced protection against environmental factors and pests. Cylindrical structures commonly made of steel or concrete differ in size and primary function. One key advantage of silos is their ability to maintain stable internal conditions, preserving grain quality over extended periods. Modern silos are equipped with integrated systems for monitoring and controlling temperature and moisture levels. These systems help mitigate spoilage risks by ensuring that the internal environment remains within optimal parameters. This capability is particularly valuable in regions with extreme temperatures or high humidity, where traditional storage methods might 65 STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY 66 Harnessing Innovations and Technologies for Efficient SGRs be risky and insufficient. They are mainly used in North America, Europe, Argentina, and Australia. A current trend is increasing the share of silo storage as it is best for long-term storage and is being adopted as countries modernize BOX 8: BANGLADESH FOOD STORAGE their agricultural infrastructure. The World Bank has been supporting several MODERNIZATION PROJECT countries, including Bangladesh and Egypt, with financing and technical Bangladesh is modernizing its grain storage infrastructure to improve food assistance to shift from traditional storage systems to modern silos (see Box 8 security and reduce losses. Most of the country’s SRG is stored in old and poorly and Box 9 for more details). maintained warehouses, leading to inefficiencies and spoilage. With support from the World Bank, Bangladesh is investing in modern storage facilities and imple- b. Flat warehouses can reduce losses by 25–35 percent. These structures consist menting innovative storage practices. of large, horizontal open spaces where grain is stored in bulk or bags, often stacked in layers. They are particularly predominant in regions where land is The Bangladesh Food Storage Facilities Project (MFSFP) is constructing seven abundant and inexpensive and have been widely utilized for grain storage due state-of-the-art silos with a total capacity of 487,300 tons. Five of these silos to their relatively low construction costs and the simplicity of their design. Flat are to store milled rice, and two are for wheat storage. Individual storage capac- warehouses are common in Russia, Ukraine, India, and parts of Africa as they ities of these modern silos range from 45,000 to 111,000 tons, and they come are cost-effective for large volumes, especially where land is plentiful. Even there, equipped with innovative technology to avoid grain loss and optimize storage however, this storage technology is being replaced by more loss-reducing options conditions. such as silos. New silos incorporate innovative technologies to enhance efficiency, safety, and grain longevity. These modern facilities are designed to optimize storage volume, c. Silo bags can reduce losses by 10–15 percent. These plastic, tube-shaped cooling efficiency, pest control, and cost considerations. Silos are also being built grain storage bags vary in length and diameter, with a holding capacity of with temperature and moisture control, fumigation systems, automated mechan- about 200 tons of maize, wheat, or soybean. The main advantage of silo bags is ical handling, and central computerized control systems for grain longevity and their adaptability. They can be used in diverse locations, making them ideal for safety. Each silo will contain two drying systems for moisture control, activated remote or temporary storage. Silo bags are particularly useful during harvest when moisture exceeds 12.5 percent. seasons when the volume of grain exceeds the capacity of permanent storage facilities, provided that the grain moisture levels permit their use. Silo bags are The project also supports small-scale storage solutions to protect household widely used in Argentina, Brazil, and some African countries, where flexible and grain stocks. In addition to building silos, the MFSFP provided 500,000 household low-cost temporary storage is needed. The trend is increasing in regions lacking with silos (90 kilogram food-grade plastic bins with watertight lids designed to permanent infrastructure. prevent water intrusion from floods) in cyclone-prone areas. This initiative helps households safeguard their food supplies and enhances resilience against extreme d. Ground storage can reduce storage losses by 5–10 percent. As the name weather events. suggests, ground storage involves storing grain directly on a prepared ground surface, often with soil or other material wall above 0.5 meters and covered Bangladesh is strengthening its institutional capacity by implementing a nation- with tarps to protect against rain and pests. It offers the most direct method wide digitized monitoring system for grain stocks. This system enables real-time for grain storage in regions with limited resources. Ground storage is used in tracking and management of grain stocks, supporting better oversight, improved rural Africa, South Asia, and generally in developing countries as a short-term food distribution, and greater efficiency in national food security planning. solution. However, its use is declining as better storage options become more available. e. Other methods, including hermetic storage, can help reduce storage losses by BOX 9: THE EXPERIENCE OF MODERNIZING 10 percent or less. Hermetic storage is largely used in rural areas of Southeast STOCK MONITORING SOLUTIONS IN EGYPT Asia, SSA, and Latin America. Traditional methods like bagging are still used in small-scale farming, but modern solutions like silo bags and hermetic storage Wheat is the primary grain staple in Egypt, forming the backbone of the are slowly replacing these. Hermetic storage is a relatively recent innovation in country’s food security and social safety net. Egypt consumes approximately grain storage, offering a high level of protection against spoilage and pests. A 20 million tons of wheat annually, importing around half of this to meet demand. key benefit of hermetic storage is its ability to create an anaerobic environment Bread produced from wheat is a staple food, with nearly 70 million people relying that reduces spoilage risk. Hermetic storage removes the need for chemical on it as their main food source. fumigants and so reduces the cost and environmental impact associated with Modern steel silos have improved Egypt’s wheat storage capacity and reduced traditional pest control methods. This feature makes it an attractive option grain losses. As of 2023, the public stock capacity stood at 4.7 million tons, with for regions with high humidity or heavy pest pressures, where other storage methods are unavailable or might be inefficient in maintaining grain quality. 67 STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY 68 Harnessing Innovations and Technologies for Efficient SGRs Each method has advantages and disadvantages, which must be considered when choosing a 3.3 million tons stored in modern steel silos, which offer superior grain preservation long-term storage solution. Table 15 details the advantages and disadvantages to consider for each and lower loss rates than traditional barns. Imported wheat for subsidized bread is technology solution. stored in these advanced silos, while locally produced wheat is stored in both barns TABLE 15: Main Storage Types and Their Advantages and Disadvantages and silos. Storage Type Advantages Disadvantages Since 2015, Egypt has implemented the National Project of Silos to increase • Low initial cost • High risk of grain spoilage due to exposure to weather storage capacity and secure its stocks. Currently, the World Bank is financing • Easy to establish and dismantle elements the upgrade, extension, and construction of an additional 700,000 metric tons of • Can store large quantities of grain • Requires very dry grain (12 percent moisture for wheat) and capacity to expand stocks and reduce grain losses, contributing significantly to Open-air • Flexible storage option for short-term frequent monitoring and maintenance the National Project of Silos. Through this project, the modern storage capacity ground needs • Susceptible to pest infestations, birds, and rodent attacks; increased from 1.2 to 3.3 million tons between 2014 and 2023, significantly bunkers not suitable for fumigation reducing wheat losses and preserving quality for extended periods. • Limited protection against moisture build-up and spoilage Advanced technologies are enhancing storage efficiency and minimizing wheat • Substantial land allocation requirements (480–500 square losses. Egypt employs various technological solutions to minimize grain losses meters for 600 tons of wheat) during storage and handling. Advances in sensor technologies have improved • Allows phosphine and controlled at- • Requires maintenance and more experienced labor precision, and closed-loop fumigation systems have been implemented to maintain mosphere fumigation • Seals must be tight to be effective the integrity of stored grains. Monitoring grain quantities in storage bins relies on • Fumigation with one-off use • Regular checks required sensors, including laser-based measurement systems. Maintenance and consistent Gas-tight • Easily aerated with fans • Requires foundation to be constructed precisely as required data collection are essential for ensuring the efficiency of storage systems. sealable silo • Capacity from 10 to 3,000 tons by the manufacturer • Can be used year-round While technological solutions have allowed improvements, safety tools in the • Up to 25-year lifespan country’s grain storage management system remain underused. The widespread use of tools such as carbon dioxide monitors could enhance operational efficiency • Cheaply erected within ten days • Requires regular checks for leaks, rust, etc. Non-sealed and the safety of silo storage complexes. Increased implementation of such • Easily moved where there is flat space • Possible water penetration in monsoon or other heavy rains silo technologies would reduce spoilage risks and improve overall grain management. • From 10 to 3,000-ton capacity • Not suitable for fumigation unless sealed at extra cost Strategic grain storage locations and digital integration are strengthening • Low initial cost • Requires substantial labor for bagging/unbagging and/or the country’s wheat value chain. Egypt strategically positions its grain storage • Can be laid on a prepared pad and the purchase or lease of loader and unloader complexes near transport routes and production sites to improve management easily shaped • Increased risk of insect damage from jute bags and reduce import dependence. With support from the World Bank and other • Provide harvest logistics support • Limited insect control options; fumigation is possible only donors, Egypt is also upgrading its storage information system to link complexes, • Can provide segregation options under specific protocols and airtight sheds Grain storage mills, and bakeries into a unified network. Upgrades would allow more efficient • Ground operated • Aeration of grain in bags is limited to research trials Must bags management of the wheat value chain, particularly for subsidized bread, which • Can accommodate high-yielding be fenced /walled off and covered with tarpaulin or plastic remains a major part of the country’s social safety net. seasons • Prone to attack by mice, birds, foxes, etc. • Limited wet weather access if stored in a paddock • Need to dispose of bag after use • Single use only • Can be used for dual purposes • Aeration systems require a specific design • 30-year plus service life • Risk of contamination from dual-purpose use Grain storage • Low cost per stored ton • Difficult to seal for fumigation sheds • Vermin control is difficult • Limited insect control options without sealing • Difficult to unload. Source: Authors’ assessment. Investing in better storage infrastructure can significantly reduce the risk of grain losses. In Zambia, for example, silos account for only 1.4 percent of the SGR’s storage capacity. Replacing sheds with concrete sheds or, even better, silos would reduce the loss of stored goods by at least half. Table 16 shows 69 STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY 70 Harnessing Innovations and Technologies for Efficient SGRs the storage types and capacities of Zambian SGR, while Table 17 summarizes the a. Silos: Wired sensor systems are ideal for large, permanent installations types of losses associated with specific risks and mitigation solutions. where data reliability and stability are paramount, especially if the system has been installed during construction. However, wireless IoT TABLE 16: Types of Storage Facilities and Capacity of the FRA in Zambia systems are gaining more share thanks to their flexibility and ease of Storage Facility Capacity (Tons) installation, particularly in facilities that require frequent monitoring of Sheds 973,760 multiple parameters like CO2 levels. Concrete slabs 74,000 b. Flat warehouses: Wireless IoT systems are the best option due to the ease Silos 15,000 of installation and flexibility in sensor placement, making them suitable Total 1,062,760 for large, open spaces. Wired systems are a viable alternative in static Source: World Bank 2021. layouts, while manual inspections can be a supplementary monitoring method. TABLE 17: Types of Grain Losses Associated with Each Risk and Mitigation Solution c. Silo bags: Given their portable and temporary nature, wireless IoT systems Risk Factor Type of Loss Mitigation Solutions are the most effective monitoring solution, offering scalability and real- Mold growth, mycotoxin Moisture sensors, proper drying, time data access. Manual inspections can be used for quick checks, but Moisture wired systems are generally impractical. contamination aeration Condensation, insect infestation, Temperature sensors, automated Temperature d. Hermetic storage: Wireless IoT systems are recommended for their ability combustion aeration, cooling to monitor critical parameters like CO2 without compromising the airtight Direct consumption, contamination, Fumigation, pest monitoring, IoT Pests seal. Manual inspections are usually unnecessary, and wired systems are spoilage systems not always suitable. Structural Flooding, water damage, Regular maintenance, robust Integrity contamination infrastructure e. Ground storage: Manual inspections are the most practical method for Operational monitoring, especially in short-term or low-cost scenarios. Wireless IoT Theft, spoilage, misallocation Improved security, IoT-based monitoring systems offer a modern alternative, especially for monitoring moisture Mismanagement and temperature, while wired systems are unsuitable. Note: IoT, Internet of Things Source: Authors’ assessment. Through several recommendations, grain storage facilities can significantly reduce the risks associated with long-term storage, safeguarding the economic value of grain and food security. The first recommendation is to adopt a hybrid 4.2 MONITORING SOLUTIONS FOR EFFICIENT STOCK MANAGEMENT monitoring approach combining wired systems with wireless IoT solutions. This Alongside infrastructure, an effective monitoring system of grain condition and hybrid approach can provide a robust and adaptable monitoring strategy, allowing storage environment is essential for minimizing the risks and maintaining the facilities to leverage the reliability of wired systems while benefiting from the quality and safety of stored grains. Monitoring systems help detect early signs flexibility and scalability of wireless solutions. The second recommendation is to of spoilage, pest infestation, and environmental changes that could negatively prioritize CO2 monitoring, which allows monitoring of CO2 in large-scale facilities affect grain quality. Monitoring systems can continuously track key environmental or regions with high spoilage risks to ensure early detection and prevention. CO2 parameters and storage conditions to detect potential issues and take corrective monitoring is particularly valuable in hermetic storage systems, where it can action before significant losses occur. The choice of monitoring solution will provide early warning of spoilage and allow for timely corrective action. The third depend on the specific needs of the storage facility and the available budget and recommendation is to leverage predictive analytics, which integrates artificial infrastructure. Currently available monitoring solutions include wired systems, intelligence-driven predictive analytics into monitoring systems to optimize wireless Internet of Things (IoT) systems, and manual inspections. Traditional wired resource use and improve decision-making. Predictive analytics can identify systems offer reliability and data security; however, wireless IoT systems provide patterns and predict potential issues before they occur, allowing for proactive the flexibility, scalability, and real-time monitoring capabilities needed for modern rather than reactive management. The fourth recommendation is to invest in grain storage. Solar-powered silos and cooling systems can reduce energy costs training and security to ensure that personnel can use advanced monitoring and improve sustainability, especially in off-grid areas. technologies and that robust security protocols can protect against data breaches. Regular training and updates on best practices in grain management can help The optimal monitoring system depends on the specific storage method used, minimize the risk of operational errors and ensure consistent quality. the specific storage environment, the scale of operations, and the need for data accessibility and flexibility: Like storage technologies, each monitoring solution has its advantages, disadvantages, and varying compatibility with different storage systems. These 71 STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY 72 Harnessing Innovations and Technologies for Efficient SGRs factors must be considered when selecting a long-term monitoring solution, as TABLE 18: Review of Stock Monitoring Methods presented in Table 18. Storage Recommended Advantages Disadvantages Suitability Method Monitoring Type Highly reliable data High installation and Best suited for large-scale, long-term THE BOTTOM LINE Wired Sensor transmission maintenance costs storage where consistent and Systems accurate data is critical One of the most practical ways to increase an SGR’s attractiveness is to avoid Flexibility and easy Potential signal Suitable for dynamic or grain loss and quality deterioration during prolonged storage through better Wireless IoT Silos installation interference in steel reconfigurable facilities; ideal for infrastructure and technologies. Innovative technologies for managing grain Systems silos monitoring multiple parameters storage facilities have evolved rapidly in recent years, including advanced digital Direct, hands-on Safety risks in Can complement automated solutions to monitor stocks and ensure high-quality stored grain. The various Manual observation confined spaces systems but are not recommended as technologies and methods for stock monitoring have their advantages and Inspections the main monitoring method disadvantages, to be considered when selecting solutions. In any case, investing in Easy deployment Battery maintenance Ideal for large, open spaces where technology solutions discussed in this chapter is critical to ensure the SGR’s high Wireless IoT without extensive required flexibility in sensor placement is value for money. Systems infrastructure needed changes Flat Stable data trans- Difficult and costly Not many practical wired solutions are Wired Sensor Warehouses mission, especially in installation in available Systems large facilities expansive areas Low cost and Labor-intensive and Suitable for smaller warehouses or as Manual accessible less effective for large a secondary monitoring method Inspections areas Portable and scalable Higher upfront costs Best for temporary or short-term Wireless IoT monitoring compared to manual storage with minimal infrastructure Systems methods Cost-effective Limited ability to Useful for quick, external checks but Silo Bags Manual detect internal issues less effective for continuous Inspections monitoring Wired Sensor Reliable but Impractical due to Not suitable due to the portable Systems impractical lack of fixed structure nature of silo bags Enhanced monitoring Requires robust Excellent for high-value or long-term Wireless IoT of CO2 levels for security protocols for storage where airtight conditions are Systems spoilage detection data protection maintained Limited need due to Difficult to implement Typically unnecessary, as Hermetic Manual sealed environment without breaking the automated systems handle most Storage Inspections seal monitoring needs Stable monitoring but Difficult to integrate Possible, but less common due to the Wired Sensor limited use without compromising need for airtightness; wireless is Systems the hermetic seal preferred if monitoring is necessary Simple and low-cost High risk of missing Suitable for short-term, low-cost Manual method internal spoilage storage; regular inspections are Inspections necessary Easier to deploy in Battery life concerns, Best suited for monitoring moisture Ground Wireless IoT temporary setups especially in harsh and temperature where quick setup is Storage Systems environments required Impractical due to Difficult to install Not recommended for ground storage Wired Sensor lack of structure and maintain in open, due to installation challenges Systems unstructured areas Note: Best options are highlighted in green. Source: Authors’ assessment. 73 STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY 74 Harnessing Innovations and Technologies for Efficient SGRs 5 Regional and international reserves have been proposed as tools for stabilizing food prices during spikes. Suggestions for global reserves included international coordinated reserves, emergency reserves, and virtual reserves managed through futures and options trading23 (von Braun et al. 2009; Robles and Torero 2009; Weber and Schulken 2024). Several efforts have been made to establish regional grain reserves in East Asia, South Asia, and West Africa, with the aim of allowing countries to access grains during emergencies and severe shortages. In East Asia, the ASEAN reformed its emergency rice reserves, which were established in 1979 by launching the ASEAN Plus Three Emergency Rice Reserves (APTERR) in 2011, pooling grain reserves from the ASEAN countries plus China, Japan, and Korea. In South Asia, the South Asian Association for Regional Cooperation (SAARC) launched a food bank in 1988 to support member countries during emergencies and food shortages. In West Africa, the ECOWAS, with technical support from the WFP, established the Regional Food Security Reserve (RFSR) in 2013 to address food insecurity in the region. In ideal settings, regional reserves can offer some advantages over country- level reserves. The main argument for global and regional grain reserves is the potential for countries to pool resources, saving costs through economies of scale. This approach spreads the financial burden more evenly rather than having each country maintain its own SGRs. Further advantages of regional reserves include: (a) independent management, which prevents governments from using the reserves for political purposes; (b) a regional platform for collective agreements to avoid trade disruptions during major food crises; and (c) enhanced effectiveness of food security policies, particularly in regions with similar risks and porous borders, where controlling trade flows can be challenging (Porteous 2017). Regional reserves can also lead to efficiency gains. For example, it was estimated that in the late REGIONAL 1990s, regional stockpiles in Southern and Eastern Africa could be 41 percent smaller than the combined national stocks required if there was no cooperation (Koester 1986). More recently, the required size of the regional reserves in ECOWAS countries was estimated to be 35 percent smaller than the combined national AND GLOBAL stocks needed to provide 30 days of consumption for most vulnerable people (WFP 2011). The estimates of the optimal stocks for ECOWAS in 2016 concluded that with regional cooperation, the required stocks in a regional reserve could be 40 RESERVES percent lower than without cooperation (Kornher and Kalkuhl 2016). The use of global or regional reserves to stabilize food prices, however, has been contentious due to the historical failures of many international reserve efforts. Since World War II, various international programs have been devised to manage commodity prices. In 1949, the International Wheat Council negotiated a stabilization agreement among major wheat producers and consumers. Similar agreements were reached under UN auspices for commodities such as sugar, tin, coffee, cocoa, and rubber. These agreements included buffer stock operations to stabilize prices. In 1969, the International Monetary Fund created the Buffer Stock Financing Facility to assist countries with their contributions to these international buffer stock arrangements. However, historical evidence suggests that, while such agreements may offer short-term stability, they often distort markets and eventually collapse (Table 19). The Organization of the Petroleum Exporting Countries is a notable exception, yet it also faces similar challenges. The lessons 23 The review of virtual grain stocks was beyond the scope of this report. 75 STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY 76 Regional and Global Reserves learned from past failures of international commodity programs are still relevant. While East Asia has seen the most notable effort to establish regional rice Countries today might be tempted to form similar grain reserve agreements, but reserves, the use of ASEAN reserves during emergencies remains modest. these would likely face the same issues. Global reserves encounter challenges Established in 1979 with 87,000 tons from voluntary commitments, the ASEAN such as coordination, setting objectives, budget sharing, currency fluctuations, Emergency Rice Reserve provided limited support due to complex procedures and cross-border stock movements, and determining triggers and release mechanisms small stockpiles (Shepherd 2011; Dano and Peria 2006). In response to the 2008– (Wright 2009). Moreover, reducing food price volatility at the global level does not 09 global price spikes, ASEAN reformed the reserve with technical assistance guarantee more stable food prices at the country level, as discussed in Chapter from the Asian Development Bank, and added Japan, China, and South Korea. The 2. This fact adds to the limitations of global reserves. The experiences of regional aforementioned APTERR now maintains an earmarked emergency rice reserve reserves that are still operational indicate that they face similar challenges. of 800,000 tons (700,000 tons from China, Japan, and Korea) for crises. While the use of the reserve for market intervention was discussed initially, APTERR TABLE 19: International Agreements to Stabilize Commodity Prices primarily focuses on humanitarian food relief during emergencies rather than Commodities Year Year of Nature and Impact of Mechanism (Members) market intervention (Briones 2011). The reserve operates through three programs: Initiated Collapse Agreement Tier 1 – special commercial contracts or sales; Tier 2 – emergency grants and loans; and Tier 3 – donated rice delivery during emergencies (Belesky 2014; Kim International Wheat Export and import quotas and Plaza 2018). Agreement: Failed to stabilize (5 exporters and 36 Wheat 1949 1971 prices and collapsed shortly importers) Despite the growing frequency of disasters and uncertainties in food production, before the 1970s price boom. APTERR’s reserve usage has remained limited. Over the past 12 years, member International Sugar Export and import quotas countries have withdrawn only 38,000 tons of rice under APTERR’s Tier 3 program Sugar 1953 1984 Agreement: Failed to stabilize (26 exporters and 18 to support people affected by emergencies, especially in the Philippines, Viet Nam, prices despite being renewed importers) and Myanmar (APTERR Secretariat 2021). Notably, in response to the COVID-19 three times. pandemic, 2,130 tons of rice were delivered to Cambodia, Myanmar, and the International Tin Agreement: Buffer stocks and export Philippines. A lack of clarity in defining emergency conditions and the consensus- Raised and stabilized prices, quotas (7 exporters and 18 based decision-making process have hindered the wider use of APTERR during Tin 1954 1985 but new entrants and importers) emergency responses (Kim 2021). Concerns about the timeliness and speed of substitution by aluminum led response for Tier 3 releases following a disaster remain high (ADBI 2018). For to its insolvency. example, after Super Typhoon Bopha in 2013, it took up to 18 months to fulfill International Coffee Export quotas (42 exporters the Philippines’ request for support. However, APTERR has played an important Agreement: Raised prices, and 7 importers) role in providing technical support to member countries regarding food security. Coffee 1962 1989 but disagreements among Established in 2016, the Food Emergency Monitoring and Information System is a members resulted in its critical decision-support tool that offers detailed information on food security, and termination. rice supply and demand. Publications such as the Weekly Update and Quarterly International Cocoa Export quotas (6 exporters) and Annual Reports provide insights into rice supply, price trends, and disaster Cocoa 1964 1965 Agreement: Lasted only one impacts, enabling rapid response and informed strategies. year due to a bumper crop. In South Asia, the SAARC Food Security Reserve has faced numerous operational International Cocoa Buffer stocks and export challenges and, in its current form, remains largely ineffective. SAARC was Agreement: Limited impact quotas (9 exporters and 35 Cocoa 1972 1993 established in 1988 to create a reserve of food grains for member countries during on prices despite being importers) food emergencies. The reserve held 241,580 tons by 2002 and was managed extended four times. by the SAARC Food Security Reserve Board. However, procedural issues and International Natural Rubber Buffer stocks (13 exporters other challenges prevented member countries from accessing these food stocks Agreement: Failed to stabilize and 49 importers) (SAARC Secretariat 2024).24 The reserve’s lack of utilization has been a persistent Rubber 1979 1999 prices and collapsed during concern for the Association. For instance, during Bangladesh’s severe food grain the East Asian Financial shortage from 1997 to 1998, the country could not access the reserve due to these crisis. procedural hurdles. Despite various attempts to resolve these issues and even Source: Baffes, Nagle, and Streifel 2024. relaunching the SAARC Food Bank in 2013, the reserve remained largely ineffective. It was not until May 2020 that Bhutan utilized food grains from the SAARC Food Bank Reserve in India, marking the first successful use of the reserve since its 24 For further information, see https://www.saarc-sec.org/index.php/areas-of-cooperation/agriculture-rural- development 77 STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY 78 Regional and Global Reserves inception in the late 1980s. However, no other countries could use the reserve to TABLE 21: RFSR Stocking Over Time, Tons address the food emergencies following the COVID-19 pandemic. 2017 2018 2019 2020 2021 2022 2023 Similar efforts to use regional stocks for emergencies have been undertaken in West Total Stock 11,179 22,394 16,611 13,192 27,144 19,268 10,720 Africa. With assistance from the WFP, ECOWAS designed the RFSR, a targeted and Deployment 1,130 13,581 7,856 5,529 14,971 8,425 2,178 cost-effective emergency food reserve system. This system includes small, regionally Final Stock 10,049 8,913 8,755 7,663 12,173 10,843 8,542 prepositioned stocks that are organized and operated with the active participation Stock Awaiting 1,130 14,711 22,567 24,516 23,836 25,968 28,146 of the involved countries and regions (WFP 2011). The RFSR comprises the 15 Replenishment ECOWAS member countries, as well as Chad and Mauritania, due to their membership Final in other regional bodies. The RFSR is based on the West Africa Regional Storage stock/60,000 17 15 15 13 20 18 14 Strategy of 2012 and collaborates with national SGR agencies to integrate local and MT Target (%) national storage systems. The World Bank and other donors provide support to the Source: Authors’ assessment. management of these reserves. Despite the original intentions, the RFSR has shown limited regional cooperation. The RFSR is part of a broader food security framework in West Africa that includes Initially, the idea was for national SGRs to allocate 5 percent of their stock for safety nets, early warning systems, market monitoring, and crisis response plans. regional solidarity purposes, but this target has not been met. The regional aspects In response to a food crisis, the reserve is activated upon request from an ECOWAS of the RFSR include budget allocations by regional organizations like ECOWAS member, aiming to approve and deliver food within 45 days. Stock deployments are and the West African Economic and Monetary Union, as well as the European triggered based on four criteria: (a) beneficiaries are in IPC Phase 3 or higher on the Union, and the sharing of public stock information among countries. However, the ‘Cadre Harmonisé’ scale; (b) local and national stocks cover less than 66 percent of movement of goods between countries has been limited during procurement and the need; (c) a national crisis response plan is in place, and (d) there is a commitment release processes that aim to aid food-insecure populations where needed. Since to replenish the stock. Once these criteria are met, the RFSR releases stocks to 2020, cross-border transportation of goods for RFSR stock deployment has only the designated national counterparty without engaging in beneficiary targeting or occurred five times.26 To strengthen the RFSR, it must expand storage capacity, distribution. Additionally, the RFSR provides technical assistance, develops national enable real-time stock reporting, hold countries accountable, and integrate storage policies, harmonizes procedures, and offers extensive training and capacity disaster risk finance tools. building. Despite having a well-designed technical strategy, effectively implementing RFSR has been challenging. Issues include recent political changes in Sahelian countries, THE BOTTOM LINE failure to meet stock targets, limited stock deployment, restricted cross-border Historically, international price stabilization schemes through agricultural mobility, and unmet replenishment commitments. The RFSR’s physical stock holdings commodity agreements have proven ineffective; there is no reason to assume that have reached a maximum of 27,000 tons, falling short of the target of 60,000 tons international grain reserves could succeed in the near future. The performance for the first four years. In fact, stock holdings have often been less than 45 percent of regional reserves has been below expectations, even though regional reserves of the target, dropping to 18 percent in 2023 (Table 20 and 21). The target has since could, in theory, complement country-level SGRs. While there is potential, been increased to 100,000 tons for Years 5–7 and 140,000 tons from Year 8 onward. regional reserve efforts have been hampered by coordination challenges and However, the scale of food insecurity in West Africa has dramatically increased since trust issues among participating countries. Lessons from existing regional these targets were set in 2012–13. The failure to meet targets is due to difficulties reserves underscore the need for more robust coordination and agreements that in meeting country-level commitments, over-reliance on donors, and the inability to consider the diverse crisis contexts and socio-economic factors. Stronger regional replenish stocks due to recurring food crises. As of 2023, the RFSR had deployed a cooperation can generate benefits related to early warning and information total of 54,563 tons of stock to five countries25 in 14 deployments over seven years. sharing, technical trainings, and other capacity building on public stock TABLE 20: RFSR Stock Targets, Tons management. Still, regional reserves are unlikely to replace country-level SGRs.   Years 1–4 Years 5–7 Year 8 Onward Physical Stock 60,000 100,000 140,000 Financial Reserve 116,380 193,967 271,554 Total Reserve 176,380 293,967 411,554 National Reserves 360,464 600,774 841,083 Total Stocks 536,824 894,741 1,252,637 26 According to the RFSR Technical Division, cross-border stock transfers included 205 tons of enriched flour Source: Authors’ assessment. from Togo to Niger in 2020; 2,000 tons of cereals from Nigeria to Niger, 1,000 tons from Togo to Niger, and 177.5 tons from Ghana to Burkina Faso in 2022; and 8,313 tons of cereals from Burkina Faso to Ghana in 25 These are Burkina Faso, Ghana, Mali, Niger and Nigeria. 2024. 79 STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY 80 Regional and Global Reserves 6 SGRs can help improve food security as a risk management tool and are most effective when integrated with broader food security strategies, where trade, private storage, and safety nets play important roles. Climate change, conflicts, and economic shocks are likely to continue bringing uncertainty, supply disruptions, and price volatility to global and local food markets, contributing to food insecurity. These challenges have exposed vulnerabilities in existing food security strategies, prompting the necessity for SGRs, where relevant, to play a role in reducing food security risks. Despite frequent spikes in global food prices in the last two decades, long-term factors continue to dominate global food price changes, which SGRs cannot revert. The report highlights that SGRs, as a food security intervention, are particularly effective in the short run, addressing local food supply shocks and providing a critical buffer against sudden supply disruptions, particularly in vulnerable and isolated regions, by ensuring an adequate food supply during emergencies and bridging the time needed for food imports. Implementing SGRs, however, demands careful consideration of fiscal constraints and market distortions, especially in developing countries with limited resources and high import dependency. The report uses country examples to highlight best practices and potential pitfalls, deriving guiding principles for SGR management. The design of details will vary from country to country, with stocks playing a larger role in net food-importing nations. SGRs are not a one-size-fits-all solution, and each country’s situation is unique, necessitating tailored analyses. This global report, therefore, does not provide country-specific recommendations and has not analyzed trade-offs among various food crisis response instruments using country typologies, leaving these analyses to country-specific studies. This report provides guiding principles for policymakers and development practitioners to design and manage SGRs effectively, based on good practices, enhancing food GUIDING security without undermining it. Country-level SGRs are the likeliest to succeed. International price stabilization schemes for agricultural commodities have historically failed, and there is no PRINCIPLES reason to assume that international grain reserves could succeed in the near future. Regional reserves, despite their potential, face coordination challenges and trust issues among participating countries. Lessons from existing regional reserves FOR SGRS underscore the need for more robust coordination and agreements, considering the diverse crisis contexts and socio-economic factors. Stronger regional cooperation can generate benefits related to early warning and information sharing as well as technical trainings and other capacity building on public stock management. Still, regional reserves are unlikely to replace the country-level SGRs. The list of guiding principles for managing public stocks is demanding but essential for ensuring high value for money and associated improvements in food security outcomes. There are numerous causes of SGR failure, including lack of clarity of objectives, high fiscal costs, and the crowding out of private storage and trade, in addition to other market distortions. These need to be carefully considered by countries to be able to use SGRs effectively. SGRs could be difficult to manage efficiently, especially in countries with weak public institutions or FCV countries. To maximize their impact, SGRs should be small, simple, and smart, focusing on cost-effective and efficient management to complement other food security efforts. 81 STRENGTHENING STRATEGIC GRAIN RESERVES TO ENHANCE FOOD SECURITY 82 Guiding Principles for SGRs The following guiding principles are critical in this respect: SGRs is crucial. Effective strategies should include transparent procurement methods at market prices, appropriate timing and locations for purchases, • Ensuring good governance, transparency, and communication: Transparency and efficient storage and transportation. Acquiring stocks at market prices and clear communication are essential for SGRs, with objectives, stock size, through open tenders ensures competitive pricing and involves private traders, procurement, and release decisions to be based on market principles and which benefits farmers. However, two exceptions may be considered for limited public interventions. The institutional setup for managing SGRs can their potential developmental benefits, even if they increase the direct cost vary, with public stocks being common, but private-public partnerships can of procurement: (a) where possible, integrating smallholder farmers into the also be effective if release decisions remain a public responsibility. Clear criteria SGR’s procurement mechanisms can support local economies and smallholder help ensure that SGRs serve their intended purpose without distorting market commercialization; and (b) where relevant, prioritizing procurement from signals. Changes in operation and management decisions need to be timely regions with limited presence of private traders can limit crowding out the and clearly explained to market participants to avoid overreactions by market private sector and benefit farmers in the region. In countries with large import participants. volumes to replenish public stocks, such as those in the MENA region, large • Avoiding multiplicity and unclear SGR objectives: SGRs’ success hinges on budget savings could be achieved by procuring wheat through open tenders having clear and well-defined objectives. Too many or conflicting objectives and increasing tender efficiency. Choosing slightly lower wheat protein content, can undermine the reserve’s ability to improve food security, with many public increasing the average size of tender, paying on time, reducing the urgency of stock initiatives failing for these reasons. Therefore, setting strategic goals, wheat delivery, and ensuring competition among sellers all could help reduce adhering to them, and communicating clearly with market participants is the cost of grain procurement, saving billions of valuable public funds. essential. • Improving outcomes of stock release: Where markets function, stocks should • Keeping SGRs’ fiscal costs manageable: SGRs are inherently costly, be released through market channels, including auctions and commodity particularly due to the uncertainty of emergencies, and the fiscal costs of exchanges. Auctions are effective in urban areas with strong markets, rapidly maintaining very large SGRs are often unsustainable. To reduce fiscal costs, it increasing food availability during price surges. Commodity exchanges also is advisable to maintain relatively small reserves, optimize the timing of stock enhance market functionality and are recommended for price transparency replenishment, procure and release stocks at market prices, and reduce the and stock rotations. costs of financing, storage, transportation, and distribution. The public funds • Integrating SGRs into social safety net programs: In countries with weak spent on SGRs should not be excessively diverted from other critical agriculture marketing systems, targeted distributions via safety nets, such as food-for- and food security investments. work programs and school meals, would still be necessary. Effective integration • Determining an effective size for SGRs: The size of stocks should carefully of stock releases with safety net programs, in this case, would ensure that balance fiscal cost and effectiveness. High stock levels can be costly and vulnerable populations included in safety nets receive necessary food supplies disrupt private trade, while low levels may fail to cover food supply shocks. during emergencies. Yet, because safety net support and emergency food When deciding about the size of public stocks, analyze the size of private assistance are given as grants, fiscal and other costs could quickly escalate stocks and what can be done to incentivize the private sector to increase them. unless kept targeted and small-scale. For more accurate calculations, adjust thresholds over time and account for the • Pursuing complementary trade policies: Even amid heightened geopolitical trade environment and likelihood of shocks. tensions and climate change, food importers must continue trading to receive • Reducing price distortions and other economic costs: To minimize price timely food supplies. Aligning SGRs with trade policies would enhance the effect distortion, SGRs should focus on mitigating food supply disruptions and of SGR releases. Reducing trade protection levels, eliminating barriers for the providing relief during crises rather than aiming to generate profits or private sector to import grains, and improving information systems and trade stabilize prices. SGRs should act as a last-resort safety net in emergencies, infrastructure can all help lower domestic food price volatility and levels. intervening only when necessary to alleviate temporary supply constraints • Investing in infrastructure, storage technology solutions and innovations: without distorting overall market dynamics. For instance, releasing grain from Investing in modern grain storage solutions and innovations such as silos, SGRs at market prices at times of temporary import delays can be effective. flat warehouses, and advanced digital monitoring technologies can further Governments should also avoid using SGRs to combat the impact of global lower the cost of managing SGRs by reducing grain losses and maintaining prices on local prices, as intervening in broader market pressures is usually FSQ. Rapidly developing technologies help detect early spoilage and pest futile. By adhering to these principles, SGRs can maintain compatibility with infestations, thereby preserving the economic value of reserves. 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