Effects of Stock-holding Policy on Maize Prices: Evidence from Zambia

Abstract

Many countries, particularly in the developing world, use public stockholding programs to stabilize price for both farmers and consumers. Governments directly purchase and store staple grains, and then sell them to processors or consumers often at a substantial subsidy. Despite the substantial costs of these stockholding programs, little is known about their effectiveness in mitigating the retail price swings. This paper estimates the effects of the purchase and sales activities of the Zambian Food Reserve Agency (FRA) on maize market prices across more than thirty markets in Zambia using monthly price data from 2003 to 2008. To deal with the endogeneity in purchases and sales, we use predicted FRA purchase and sales targets as instrumental variables. Controlling for other policies in place, we find evidence that FRA activities stabilize retail prices in the major district markets within the cropping year. Results show that FRA purchases raise local prices for surplus maize producers for about 5% on average during the time of harvest and FRA sales help to lower the price during the lean season up to 7%. On the other hand, we are only able to find evidence of the FRA reducing price volatility between years in a few district markets.

Publication
Journal of Agricultural and Food Industrial Organization, under review
Date