Effects of Stockholding Policy on Maize Prices: Evidence from Zambia

Abstract

Abstract Many countries in the developing world use public stockholding programs to stabilize prices for both farmers and consumers. Governments directly purchase and store staple grains, and then sell them to processors or consumers, often at heavily subsidized prices. Despite the substantial costs of these stockholding programs, little is known about their effectiveness in mitigating retail price swings. This paper estimates the effects of purchase and sales activities of the Zambian Food Reserve Agency (FRA) on monthly maize market prices across more than thirty markets in Zambia 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, we find evidence that FRA activities stabilize retail prices in major district markets within the cropping year. Results show that FRA purchases raise local prices for surplus maize producers about 5 % on average at the time of harvest, and that FRA sales help lower the prices to consumers during the lean season up to 7 %. However, we find limited evidence that the FRA is able to reduce price volatility between years.