A World Food Reserve

MAC/WFY

Page-64

0230_553559_10_cha06

194570. Early Attempts: FAO's Pioneering Work

storage construction could reduce costs and facilitate maintenance. The size of
a national food reserve would be determined, among other things, by facilities
available for rotation on terms that would not unduly disturb domestic markets.
There was no evidence to suggest that the cost of government stockholding in
developing countries was higher than in developed countries. Experience showed
that once reasonably good storage capacity had been constructed and arrange-
ments made for adequate maintenance and control, losses due to deterioration
could be held down to a small proportion.

A range of factors affected storage costs. The cost of setting up and maintaining

a national reserve depended mainly on its size, which depended on the circum-
stances of each country. The greater the geographical dispersion of stocks, the
higher the storage costs. The composition of stocks would also affect storage costs.
Costs would also depend on the availability of existing storage capacity and the
need to construct new storage facilities. Costs varied widely by types of storage
plants and of auxiliary equipment in different countries and by the design and
material used.

The annual costs of a reserve programme included the charges for the services

of the capital investment and those for current expenses for implementing the
programme. The fixed costs were mainly those derived from the investment in
storage space and administration. Variable costs related mainly to the investment
in commodity stocks and their holding and handling. Storage space for a reserve
programme could not be utilized continuously at full capacity as the reserve was
drawn on to meet fluctuations. Therefore, costs could not be reckoned as merely
proportional to the size of the stock carried. Since some costs were fixed inde-
pendent of the actual size of stocks, the cost per ton was higher than when full
capacity of storage was utilized. However, most storage facilities were `versatile'.
They could be used for other purposes and not necessarily left empty. The cost of
replacement of bags was an important item when storage was not in bulk. Current
expenditure on upkeep and repairs had to be added. Where reserve stocks were
carried in stores rented from privately owned facilities, the rent paid included
depreciation, interest charges on capital invested in the stores and a quota for
current repairs. Physical losses in storage might be covered in many ways. In
private stores losses might be covered by insurance premiums.

Governments carry their own risk since they could be self-insured at less than

the cost of commercial insurance. In well-supervised warehouse, storage losses
from rodents, insects, and moisture damage could be kept down by fairly simple
preventive measures. More frequent rotation of stocks was necessary in developing
countries, particularly in the tropics, to reduce losses. Rotation was largely a relat-
ively inexpensive, labour-intensive, operation since wage rates were low. Turnover
might be tied in with other government programmes, in which case its costs would
not be entirely additional. Finally, the carrying costs included the cost of admin-
istration. A national reserve might be operated by an existing administration and
the extra outlay might involve only direct supervisory and warehouse staff. Where
a separate administrative unit was set up, the costs would be somewhat higher.
A direct comparison of total carrying costs in different countries under different
conditions was difficult to make because of the lack of data.

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Useful links	A World Food Reserve MAC/WFY Page-64 0230_553559_10_cha06 64 194570. Early Attempts: FAO's Pioneering Work storage construction could reduce costs and facilitate maintenance. The size of a national food reserve would be determined, among other things, by facilities available for rotation on terms that would not unduly disturb domestic markets. There was no evidence to suggest that the cost of government stockholding in developing countries was higher than in developed countries. Experience showed that once reasonably good storage capacity had been constructed and arrange- ments made for adequate maintenance and control, losses due to deterioration could be held down to a small proportion. A range of factors affected storage costs. The cost of setting up and maintaining a national reserve depended mainly on its size, which depended on the circum- stances of each country. The greater the geographical dispersion of stocks, the higher the storage costs. The composition of stocks would also affect storage costs. Costs would also depend on the availability of existing storage capacity and the need to construct new storage facilities. Costs varied widely by types of storage plants and of auxiliary equipment in different countries and by the design and material used. The annual costs of a reserve programme included the charges for the services of the capital investment and those for current expenses for implementing the programme. The fixed costs were mainly those derived from the investment in storage space and administration. Variable costs related mainly to the investment in commodity stocks and their holding and handling. Storage space for a reserve programme could not be utilized continuously at full capacity as the reserve was drawn on to meet fluctuations. Therefore, costs could not be reckoned as merely proportional to the size of the stock carried. Since some costs were fixed inde- pendent of the actual size of stocks, the cost per ton was higher than when full capacity of storage was utilized. However, most storage facilities were `versatile'. They could be used for other purposes and not necessarily left empty. The cost of replacement of bags was an important item when storage was not in bulk. Current expenditure on upkeep and repairs had to be added. Where reserve stocks were carried in stores rented from privately owned facilities, the rent paid included depreciation, interest charges on capital invested in the stores and a quota for current repairs. Physical losses in storage might be covered in many ways. In private stores losses might be covered by insurance premiums. Governments carry their own risk since they could be self-insured at less than the cost of commercial insurance. In well-supervised warehouse, storage losses from rodents, insects, and moisture damage could be kept down by fairly simple preventive measures. More frequent rotation of stocks was necessary in developing countries, particularly in the tropics, to reduce losses. Rotation was largely a relat- ively inexpensive, labour-intensive, operation since wage rates were low. Turnover might be tied in with other government programmes, in which case its costs would not be entirely additional. Finally, the carrying costs included the cost of admin- istration. A national reserve might be operated by an existing administration and the extra outlay might involve only direct supervisory and warehouse staff. Where a separate administrative unit was set up, the costs would be somewhat higher. A direct comparison of total carrying costs in different countries under different conditions was difficult to make because of the lack of data. back to top Next page
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