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Abstract
In the late 1990s, government policy in Bangladesh shifted in favor of increased
public foodgrain stocks, setting official minimum stock targets of 1.0 to 1.2 million tons,
as compared to operational targets of about 700 to 800 thousand metric tons in the early
1990s. Because no mechanism for stock rotation involving simultaneous buying and
selling grain at a wholesale level exists, higher stock levels with no increase in
distribution led to an increase in average age of stocks and problems of stock quality
deterioration. This paper extends earlier analyses of stock policy by focusing on a key
aspect of stock management in Bangladesh: the economic costs of stock quality
deterioration in storage, including the implicit costs to recipients of Public Food
Distribution System (PFDS) foodgrain.
Using market prices to value procurement and distribution of rice and wheat,
consumer and producer subsidies accounted for 57.4 and 20.9 percent, respectively, of
net outlay in 2000/01. Implicit losses to rice consumers due to quality deterioration were
significant in 2000/01: about 1.05 billion Taka (about 19 million dollars), equal to 10.9
percent of total net outlay on rice of the PFDS. Analysis of the costs and benefits of
alternative stock targets based on calculations of the minimum age of stock on a monthly
basis indicates that moderate increases in the size of stock (e.g. 200 thousand tons), lead
to only small net marginal outlays. However, unless procurement and distribution are
also raised, the age and quality of the stock for distribution deteriorates, resulting in
significant losses to program recipients.