Although the main function of a strategic grain reserve is social/humanitarian in nature it also has to be recognised that there are often political connotations related to its management and operation which need to be taken into account. While basic principles can be laid down for the management and operation of a reserve, because the social, and possibly political, implications of food shortfalls can be extremely sensitive, government would normally want to retain some powers of discretion over the use of the reserve. This would be particularly the case when such decisions involve the government in additional costs. The extent to which the government would want to, or should, exercise such control would vary from country to country. For example in Tanzania the government, through the Prime Minister's Office sanctions all releases from the reserve, while in Zambia the Food Reserve Agency is empowered to make market releases without recourse to government while decisions relating to releases intended for humanitarian relief are the responsibility of the Office of the Vice President. In designing the overall structure for the management and operation of the reserve a decision has to be taken relating to the responsibilities to be retained by government and those to be delegated to the agency charged with the management and operation of the reserve.
The main responsibilities which should remain under government control are:
- monitoring the performance of the entity charged with the management and operation of the reserve, and taking the necessary action to correct adverse trends;- ensuring that the entity is acting in accordance with its approved mandate;
- monitoring the efficiency with which resources entrusted to the reserve are being utilised;
- reviewing the audited accounts of the reserve's activities;
- modifying or otherwise adjusting the mandate, i.e. authority and responsibilities, of the entity to meet changing circumstances;
- authorising actions to be undertaken which involve the government incurring additional costs, i.e. increasing the resources available to the reserve, sanctioning releases of grain for relief actions.
As a guiding principle in determining the responsibilities which remain with government care should be taken to avoid government using its authority to interfere directly in the management of the reserve, particularly with respect to directing or promoting social actions which could be interpreted as having political objectives, or other actions which could have a damaging impact on the functioning of a liberalised market. Decisions which are of a purely operational nature should be left to the entity responsible for the reserve. To avoid future misunderstandings between government, the concerned entity and traders relating to the functioning of the reserve it is advisable to specify clearly the responsibilities of the government and the entity in an Operational Procedures Manual. This would, inter alia, also provide a distinction between their respective roles and thereby help ensure that the opportunity for government to interfere is minimised.
Within the government, institutional options for vesting responsibility for the reserve include: a high level committee, composed of senior officials from relevant ministries, e.g. Ministries of Agriculture, Food, Finance, Home Affairs and Health; the office of a senior minister or a designated department in government, e.g. Food Security Department.
In the past this responsibility for the management and operation of the reserve was usually entrusted either to the parastatal grain agency or to a specifically created institutional entity. The National Cereals and Produce Board, in Kenya, and Grain Marketing Board in Zimbabwe are examples of parastatals which were given responsibility for managing and operating the strategic grain reserve. In these instances the reserve was treated as a buffer, or minimum, stock within the normal operational stocks of the parastatal. As such there was no physical separation of the reserve or special requirements to be met for its use. Conversely, the establishment of a specialised entity, e.g. the Food Security Units in Ethiopia and Tanzania, was associated with the physical separation, and identification, of the reserve from normal operating stocks. Set conditions were established which had to be met before grain could be released from the reserve, e.g. the declaration of a food emergency and high level authorisation for the release of grain. As these specialised entities did not have direct access to storage facilities, or experience of grain management, the physical storage of grain was normally contracted out. The parastatal was usually appointed to this task as it was often the only organisation with both storage facilities and experience of grain storage management.
With the introduction of market liberalisation there will continue to be a need for an institutional entity with responsibility for managing the strategic grain reserve. As before the choice lies between giving the responsibility to the parastatal or a retaining management within government by giving responsibility to a government department or through the creation of specialised semi-autonomous entity.
The process of market liberalisation will bring about fundamental changes to the structure and role of the parastatal grain agencies. While some may remain in the public sector others could eventually be privatised or, as happened to Namboard in Zambia, wound-up. From the outset of the liberalisation process parastatals will lose their monopoly of the grain market and, for the first time, have to compete alongside the private sector for the purchase and sale of grain. To avoid charges of unfair competition by the private sector the parastatal will need to operate according to commercial principles and no longer be able to depend on the government covering commercial trading losses. Although the parastatal may be required to undertake certain social responsibilities, e.g. price stabilisation, particularly during the early transitional stages, care needs to be taken to ensure that these do not create opportunities for conflicts of interest. Such a situation could arise between a parastatal's commercial grain marketing activities and the non-commercial, government financed, activities associated with managing the reserve. For example, a parastatal could always be open to charges of making stock, or financial, manipulations between the reserve and its commercial activities to its advantage. If the parastatal is to be given the responsibility for the reserve, as is the case of ADMARC in Malawi, an essential requirement should be the separation of activities associated with the management and operation of the strategic grain reserve from those associated with normal commercial market operations. Of key importance is the separation of financial accounting of the costs incurred by, and revenues accruing to, the reserve from those of commercial activities. To protect its interests the government may also wish to appoint a higher level authority to act as a "watch dog" to monitor the parastatal's actions. With a parastatal managing and operating the reserve there may also be private sector complaints that they are debarred from bidding for some of the potentially profitable aspects of managing the reserve, e.g. grain storage.
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Zambia Food Reserve Agency The Food Reserve Agency (FRA) was established in 1996 as a semi-autonomous corporate body with responsibility for managing the National Food Security Reserve. To this end the FRA purchases grain at the beginnig of the marketing season for release at market value under the circumstances that the private sector is unable to meet the market demand for grain. The total quantities to be. Purchased each year will be determined by the FRA on the basis of the country's food outlook and the financial resources it commands. All purchases and; releases will be made at the prevailing market paces with the full participation I of the private sector through open public tender. Physical storage of the grain held in the reserve will be contracted out to private sector companies by open tender. The FRA is headed by a Board comprising 10 members, seven of whom are drawn from various sections of the private sector. Specifically the FRA is not a buyer of last resort, it does not buy commodities at guaranteed prices, there are no floor or ceiling prices and it has no mandate to operate a system of price stabilisation. |
The alternative to appointing the parastatal for the management of the reserve is the establishment of a specialist entity or agency. As it would be responsible for administering public funds, the entity itself should probably be within the public sector1 It could be a department within a ministry e.g. the Food Security Department in Tanzania, or a semi-autonomous body such as the Food Reserve Agency in Zambia. While overall responsibility for the reserve would be vested in the entity, many of its activities could be undertaken by the private sector, e.g. by contracting out or tendering for the purchase and sale of grain, and for the storage of grain.
1 It is also conceivable that a private sector agency could be appointed a manager of the reserve in return for a fee.
Whichever structure is chosen for managing the reserve there will be a need to appoint a governing body with overall decision making responsibility for matters relating to the management and operation of the reserve. This could be a Board of Directors as is the case for the Food Security Agency in Zambia or a Board of Trustees for the Food Security Department of the Ministry of Agriculture in Tanzania. For parastatal, and private sector organisations the governing body would need to be a governmental structure, e.g. an interministerial Food Security Committee in Ethiopia. The composition of the governing body, particularly those responsible for specialised reserve agencies, can have an important influence on the manner and effectiveness with which the reserve functions. For example although the Boards governing the strategic grain reserves in Tanzania and Zambia have similar responsibilities their structures are very different. In Tanzania the strategic grain reserve, which has a separate legal status, is administered by the Food Security Department, Ministry of Agriculture and Cooperatives. A Board of Trustees, chaired by the Permanent Secretary, Ministry of Agriculture, and comprising representatives from various ministries is the main decision making body concerning the reserve. In contrast the Food Reserve Agency which was recently established in Zambia is a semi-autonomous corporate body governed by a Board of Directors of whom seven out of the Board of ten are drawn from the private sector (see Appendix 5) Thus, while the Tanzanian reserve is firmly under government control, in Zambia the functioning of the Food Reserve Agency is strongly influenced by the private sector
Options for the Management of the Strategic Grain Reserve
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Option Responsibility for Reserve |
Advantages |
Disadvantages |
Comments |
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Parastatal
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a) Structure already in existence., therefore no need to create another agency. |
a) Possible problem of maintaining a separation between operational and reserve stocks, finances and costs. |
a) Government must ensure that parastatal operates without any privileges, e.g. losses written off, access to subsidised bank loans. |
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b) Parastatal familiar with the grain market and with grain storage.
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b) Government may be reluctant to reimburse parastatal for the costs incurred in maintaining the reserve. |
b) Management fee for managing and operating the reserve should be negotiated annually. |
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c) Continuing temptation for government to require parastatal to intervene in the market or undertake social activities. |
c) Government will need to independently supervise parastatal on a regular basis to ensure that the reserve is fully accounted for and in good condition.
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d) Private sector always suspicious of parastatal's position. |
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Institutional Entity
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a) Entity is only responsible for the reserve, and therefore can be easily held accountable, |
a) Need to establish a new, albeit small, entity.
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a) Entity should have control over the financial resources made available for the reserve As reserve has no other source of income, the government must be prepared to pay for all social interventions it requires the reserve to make, preferably at the time of the intervention.
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b) No conflict of interest with commercial activities. |
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c) Entity can be seen to be neutral by private sector in the operations it undertakes e.g. purchasing, recycling and releases. |
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d) Entity able to contract out most of the operational activities associated with managing the reserve, and thereby reduce operational costs. |
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Government Department
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a) Entity is only responsible for the reserve, and therefore can be easily held accountable. |
a) Continuing temptation for government to require parastatal to intervene in the market or undertake social activities. |
a) Financial costs of maintaining and operating the reserve have to be paid for directly.
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b) No conflict of interest with commercial activities. |
b) Department likely to be viewed with suspicion by private sector |
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c) Department able to contract out most of the operational activities associated with managing the reserve, and thereby reduce operational costs. |
c) Government departments are notorious for their lack of understanding of the workings of a free market |
The advantages of bringing the private sector into the management of the reserve include:
- the opportunities for government to adversely interfere in the management and operation of the reserve are significantly reduced;- greater transparency in the management and operation of the reserve;
- greater attention paid to the cost effectiveness of the reserve's operations;
- reduced likelihood of market operations undertaken by the reserve adversely distorting the grain market;
- strengthening private sector confidence in the government's policy of non-interference in the grain market;
- encouraging a increased willingness of private sector traders to recognise the reserve more as a partner than a threat.
The decisions for which the governing bodies are responsible for making and the procedures which should be followed need to be specified in an Operational Procedures Manual. Similarly, the decisions which management of the agency responsible for the reserve are authorised to take and the procedures they are required to follow should also be clearly specified in the manual.
Routine operational activities such as warehouse management would normally be under the direct control of the agency responsible for the reserve. However, for activities which are related to the integrity of the reserve or could have an impact on the market, it may be considered necessary to require a more senior authority to sanction the activity. There may also be a difference between those activities which can be undertaken directly by the parastatal and specialised reserve agency.
Suggested Level for Making Decisions Relative to the Reserve
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Decision Level |
Comments |
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Parastatal |
Reserve Agency/Government Dept. |
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Procurement/Replenishment |
Higher Authority, based on advice of parastatal and or other governmental agencies. Financial resources, if not held by parastatal, will need to be made available by higher authority. Physical purchases made by the parastatal using established channels to the limit of the financial resources or the sanctioned purchase amount |
Governing body based on assessment of the needs to the limit of the available financial resources, or to a predetermined level. Physical purchases made using approved mechanisms to the limit of financial resources or the target amount. |
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Market Sales |
Higher Authority based on advice of parastatal and or other governmental agencies. Quantities, locations and manner of sale to be specified. Sales likely to be made through normal channels of parastatal at prevailing market price, or ceiling price. |
Governing body based on assessment of the market situation. Sales made through private sector. Method of sale could be at prevailing market price, price set by agency or by auction |
Factors triggering release to be defined. Could include: |
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Relief Releases |
Higher Authority based on advice of other government agencies. Quantity and location and receiving agency to be specified. Full financial value of the grain should be paid into the reserve's account at the time of release. |
Government Authority based on advice of other government agencies. Quantity and location and receiving agency to be specified. Full financial value of the grain should be paid into the reserve's account at the time of release. |
Relief releases are for distribution through a relief programme such as food for work. |
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Recycling |
Parastatal if gram from the reserve can be exchanged with parastatal's commercial grain stocks on a tonne for tonne basis. Otherwise Higher Authority to authorise quantity and manner in which it will be recycled |
Governing body based on advice of reserve inspectors |
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Storage |
Parastatal, with grain normally being held in parastatal storage facilities |
Reserve Agency/government department normally on the basis of the lowest bid from open public tender. |
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The organisational structure required for the management of the reserve will vary depending upon the particular circumstances and nature of the organisation responsible for the reserve. For those reserves which are to be managed by the parastatal, there will probably be no need to establish a separate department, division or management structure. There will, however, be a need to maintain separate records and accounts as well as to maintain separate physical stocks. As these additional managerial and staff responsibilities and tasks could, in most instances, be given to the existing staff of the parastatal there should be no need for the parastatal to increase its staffing to manage the reserve. A senior manager would need to be designated for making operational decisions related to the reserve, within the scope of authority delegated to the parastatal, and for liaising with the higher level body responsible for authorising activities which are outside the parastatal's jurisdiction.
A specialised reserve agency will, however, need to establish a management structure to meet its specific needs. Although these structures can be expected to differ between countries, an example of a typical basic organisation structure is given below. Usually the organisation would be headed by a General Manager who would be responsible for the overall management of the reserve and accountable for the activities undertaken. In the organisation chart three basic functions have been identified: stock management, finance and administration and market monitoring. Other functions may be required depending on the responsibilities given to the agency. For example, the Food Reserve Agency in Zambia in addition to being responsible for the maintenance and operation of the strategic grain reserve is also responsible for leasing, or renting, the publicly owned grain storage facilities. It has therefore established a Properties Department to specifically look after the management of these facilities.
The stock management function is responsible for ensuring the integrity of the physical stock which is held at any particular time in terms of quantity and quality. Depending on circumstances the stock may be held in storage facilities which are operated by the reserve agency, as is the case in Tanzania, or stored under a contract arrangement with public or private sector companies, as in Malawi. Staffing requirements, and costs, are likely to be higher if the stock is held in storage facilities operated by the reserve agency. While manual staff may be hired on a casual basis as required, there will be a need for some permanent staff at each storage location irrespective of the stock held, e.g. storage manager, storekeepers and security guards. As stock movements into and out of the reserve are infrequent, staff productivity is inherently low in comparison with storage facilities catering for normal market needs. Labour costs per tonne handled can therefore be expected to be correspondingly high. Contracting out grain storage should reduce these costs as the charges incurred to the contracting organisation will be based on the stock actually held rather than on the capacity of the facility used. There will, however, be a need for additional inspectors to monitor stocks and supervise movements into and out of the reserve, e.g. ensure that the quality of grain purchased is in accordance with specifications, that the grain is fully accounted for and that its quality is satisfactory.
A Finance and Administration function will be required to manage the financial resources of the reserve. This would include investing cash generated from the sale of grain until such time as it is required for stock replenishment. In addition the function should be responsible for the preparation of an annual financial report for submission to government for audit and an annual budget specifying its financial requirements, in accordance with standard government practice. It should be headed by a qualified accountant who would be supported by clerks/bookkeepers as required.
Typical Organisation Structure for the Management and Operation of a Strategic Grain Reserve
The Market Monitoring function would provide a regular flow of information to the General Manager on the prevailing market conditions, in particular market prices and price trends. It would be responsible for making recommendations on the need for, and timing of, sales to combat market shortfalls and for recycling stocks as well as for purchases to replenish the reserve. Additionally, it would monitor prices and availabilities in the international market to advise on the prospects for grain imports. Recommendations prepared would be submitted to the governing body of the agency for sanctioning action. The information required would be sourced from other government agencies e.g. Ministry of Agriculture for production estimates and the early warning system. The market information and market intelligence derived from these sources should, in addition to being made available to reserve management and relevant government departments, also be made available as a service to the private sector. It should be headed by an economist with experience of market analysis.
