There is often a discussion as to whether it is better to hold physical stocks of grain in the area of production or in the area of consumption. From a pure cost point of view, it is cheaper to hold grain in the area of production rather than transfer it to areas of consumption. In this way the costs of transport and handling are kept to a minimum, only being incurred as and when it is clear that the grain will be required in a particular location. However, reality is rarely as theory would suggest. The reserve has to be held in locations where suitable facilities with adequate capacity for the long-term storage of significant quantities of grain exist. As a result of past marketing policies, which were heavily biased towards meeting the needs of the urban consumer, modern storage facilities, bag stores and/or silos, were often located in, or within easy reach of, the main urban areas. With market liberalisation many of these facilities will be increasingly under-utilised as the storage pattern changes to take into account changed market conditions. For example: instead of grain being bought and put into stock by the parastatal at the beginning of the marketing year and then steadily released throughout the year, more grain will tend to remain on-farm, as producers try to benefit from the higher prices towards the end of the season. Storage demand by private traders is also likely to be low as they tend to operate on the basis of rapid stock turnover and small margins rather than purchase and store grain. Thus, while suitable storage capacity should not be a problem, the location of the reserve will be dictated in the first instance by the location of existing available storage facilities.
While there could be advantages to having the reserve spread across several locations consideration has to be given to maintaining control and supervision over the physical stocks. The more fragmented the reserve becomes through storage in different locations, the higher will be the cost for monitoring the integrity of the stock, and the greater will be the likely need for subsequent stock movements. This would appertain whether the reserve was administered by a parastatal or by a reserve agency. There could therefore be advantages to restricting the reserve to a few strategic locations which can be readily monitored and supervised. If it is intended to purchase and sell grain using a tendering system, it may also be more beneficial to locate the reserve close to areas where traders are active which will help ensure keen competition between traders. Several countries, e.g. Malawi and Zambia, want to provide some support to producers in the more remote or disadvantaged areas. Although it is likely to increase the cost of grain purchase to the agency, there may be a case for locating a proportion of the reserve in such areas, provided that suitable storage facilities exist, to encourage traders to source grain in the area. Any additional cost for undertaking such inherently higher cost operations at the request of government should be charged separately to government, perhaps as a social charge.
