Is Commodity Storage an Option for Enhancing Food Security in Developing Countries?

Traditional arguments for commodity storage assume that weather is a controllable input so that agricultural producers’ total variable costs (and quasi-rents) are dependent on a shifting supply function. In this paper, an alternative explanation is offered that considers a fixed supply function but variable, weather-determined outputs. The standard result no longer holds unequivocally. With no government intervention, agricultural producers can fail to recoup their investment costs under good or bad weather outcomes, which incentivizes them to lobby for price stabilization policies. In developing countries, governments have a further incentive to store grain for food security – storage can prevent prices from rising so the most vulnerable can no longer afford to buy food. Numerical simulations indicate that extended periods of good or bad years can be troublesome because storage is no longer a neutral activity as there is a mismatch between purchases and sales