Instruments of Grain Storage Policy

Traditionally, grain storage policy has been conceived as a program of building (State-owned) silos and collection points. Today, storage policy is more likely to emphasize adequate management of the facilities and the financing of storage costs incurred by farmers. Accordingly, its four main components are the following:

• Privatization of storage facilities, optionally with at least some capital participation by farmers, as discussed in Chapter 3.

• Development of a program of certificates of grain deposit, or crop liens, which is available to all classes of farmers.

• Establishment of an effective system of quality standards for grains.

• Transformation of grain handling to a bulk basis, instead of in bags.

A network of private grain storage facilities is a key component of a marketing system, and it goes a long way toward reducing the chances of extreme seasonal fluctuations in prices.

Regardless of whether the silos are owned by the State or by the private sector, certificates of grain deposit are essential in order that farmers of all income strata have access to the storage option. Storage not only carries its own direct costs, but it also represents a deferral of the income that results from sale of the crop. Many smaller farmers are obliged economically to sell their crops at harvest time, when prices reach their lowest point during the annual cycle. Some even sell the crop when it is still standing in the fields. In many circumstances, they could gain by postponing the sale for two or three months, until prices begin to recover, but cannot afford to wait that long to receive their major source of income for the year. Bankable certificates of grain deposit, along with a scheme of registered storage locations, can facilitate for them a payment that represents up to 80% of the value of the crop, through the banking system.

Certificates of grain deposit, in turn, cannot function without a system of grading standards for the products. A storage facility cannot be managed on an economically viable basis by depositing bags of grain with farmers' names on them. Grains have to be stored collectively, by grade. To put a grading system into effect requires a substantial effort in educating farmers. Among its benefits is the differentiation of market prices by grade, and this will provide incentives for quality improvement and eventually will assist domestic farmers to better meet the challenge of imported products, which tend to be uniform in grade.

An important implication of the move to storage by grade is that products can be transported in bulk, instead of in bags. Similarly, in the case of larger farms and co-operatives, modern harvesting equipment can be used that handles the product in bulk. Changing a country's grain handling and storage system to a bulk basis, in the links for which it is feasible, can reduce harvest and post-harvest costs and make the country's grain producers more competitive internationally. Argentina, Uruguay, Ecuador, Venezuela and most of Brazil have carried out such a transition to bulk handling of their rice production. It can be worthwhile to investigate the feasibility of making such a conversion.

Both certificates of grain deposit and the development of product grading systems to facilitate storage are examples of policies that improve farmers' access to markets.

Public policy also can assist in the establishment of adequate on-farm storage. The value of this contribution has been illustrated by V. Seshamani for the case of Zambia:

.. . lack of on-farm storage facilities and compulsory expenditures such as the payment of school fees and purchase of blankets due to the onset of winter at the very time of the ripening of the crops impel low-income farmers to sell their crops at very low prices to exploitative marketing agents. This results in further low incomes for the farmers rendering them unable to find the wherewithal for the purchase of seed, fertilizer, etc., leading to lower crop output in the following season and further low incomes.

Inadequate availability of marketing agents, inadequate finance and credit facilities, inadequate on-farm storage facilities, the poor state of the roads, inadequate transport facilities in the rural areas and slow information flows all contributed to the poor overall supply response to the policy changes.. . .84

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