The IMF does not understand buffer stocks

Last year a team of ‘IMF experts’ published a report intended to help member countries deal with the economic effects of COVID-19. One of the reports, published on June 29th, concerned ‘food markets during COVID-19’ and came out against using food buffer stocks to stabilize prices. It claimed that they ‘carry a large fiscal cost and do not efficiently improve food security.’

Our previous blogpost focused on newspaper reports from two decades ago when the IMF advised Malawi to sell its stocks just before the country was plunged into a food crisis through catastrophic crop failure. Though the government claimed that it been given such advice, the IMF itself denied having any expertise in food security issues. Yet it is clear, two decades on, that ‘IMF experts’ clearly do think that they have such expertise and that they are now as hostile to buffer stocks as they were just before Malawi’s crop failure. Can we get any clues from last year’s report as to why the IMF remains hostile to buffer stocks?

What is noticeable about the IMF report is that it is hostile to buffer stocks but not to what it calls ‘strategic grain reserves’. It offers two reasons for preferring strategic grain reserves. In the reasoning of the IMF, these ‘target disbursement only to food-insecure people, usually at times of shortage.’ They are emergency hand-outs aimed at those most in need.

Buffer stocks are different from strategic grain reserves. Buffer stocks are a price stabilisation measure. They release food whenever food prices rise and are replenished when food prices fall.  The goal is to maintain food prices within a set band. But the IMF seems not to have grasped this concept. Its report claims that buffer stocks ‘reduce prices for all and are not targeted to vulnerable groups.’

The IMF’s argument is extremely strange. Strategic grain reserves are aimed at those most in need when an emergency arises; buffer stocks are intended to prevent an emergency taking place in the first place. Isn’t the latter obviously a better policy? If a village living next to the sea was threatened with flooding, would you argue in favour of sandbags and buckets on the reasoning that these could be rushed to those whose homes were knee-deep in water, or would you argue for a coastal wall around the village which would protect each and every person, not only those ‘most in need’?

The IMF report says that in the case of buffer stocks ‘the cost of buying the grains escalated as purchases occurred when food prices were high.’ But this is the precise opposite of what our system proposes. The principle is one of buy cheap and sell dear. Stocks are replenished when the price of grain is low and released onto the market when the price of grain is high. It is a recipe for sustainability. The fact that the IMF doesn’t understand this straightforward recipe formula is a further indication that it still doesn’t recognise the system being proposed.

The IMF report suggests that ‘price stabilization goals can be achieved through other means, including by promoting cross-border and other international trade.’ Yet we know that when there is a shortage of food all sort of measures – such as export bans and export quotas – are brought into play which make cross-border trade either impossible or very expensive. The IMF approach is to rely on cheap imports and save a bit to help the worst-off if there’s an emergency. Let the winds and tides do their work and assemble a few buckets in case of flooding. Buffer stocks offer the lasting solution of a coastal wall around the village. They deserve a much better reception than the one being given by the IMF.


Reference: IMF, Fiscal Affairs, June 29, 2020, Food Markets During COVID-19.