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Abstract
Using case studies from six Asian countries, this paper (a) assesses the relevance
of underlying rationales for public intervention in foodgrain markets, (b) documents the
existing policies and regulations that support operation of grain parastatals, (c) provides
estimates of benefits and costs of parastatals, and (d) compares experiences of countries
that liberalized (or reduced intervention) with the ones that continue to have significant
presence of parastatals. Our results suggest that conditions in the region have improved
significantly over the past thirty years; and none of the four commonly agreed
rationales—that is, poorly integrated domestic markets, thin and volatile world market,
promoting modern technology and the scarcity of foreign exchange reserves—for public
intervention in foodgrain markets are now persuasive. Domestic foodgrain markets are
integrated, international markets for both wheat and rice are significantly more robust
than they were thirty years ago, High-Yielding Varieties (HYV) now cover practically all
of the high potential area sown to wheat and rice; and foreign currency reserves have
increased dramatically in all countries in recent years.
However, although rationales have lost their significance, many countries
continue to practice old policies and provide regulatory supports to parastatals, including
monopoly control over international trade, preferential access to transportation,
restrictions on movement of foodgrains, and cheap or interest-free credit. Relative to the
private sector, the costs of the grain parastatals have been high and are increasing, as
special interests and rent- seeking are increasingly dictating their operation. This is being
manifested in various forms, such as excessive public stocks in India, vacillating import policies in Indonesia and Pakistan, questionable government foodgrain import decisions
in the Philippines, and politically-determined ceiling and floor prices in India. On the
other hand, the experiences of Bangladesh and Vietnam, both of which have implemented
extensive reforms over the last fifteen years, suggest that reduced government
intervention can promote competition in the domestic markets, reduce subsidies, and
release funds for development and anti-poverty programs without jeopardizing price
stability. The paper concludes that reforms are overdue and the delay in changing the old
ways of doing price stabilization will be increasingly wasteful.