FMRSP Working Paper No. 36

Since the late 1990s, there has been a gradual shift in Government of Bangladesh policy in favor of increased public foodgrain stocks. In the mid-1990s, the operational stock target of the Public Foodgrain Distribution System (PFDS) was effectively in the range of 700 to 800 thousand metric tons. However, sharp declines in food stocks in early 1998 following an unexpectedly poor aman harvest in November/December 1997 and shortages of wheat stocks after the floods in July through September 1998 have led many to conclude that higher levels of stocks were needed. Currently, the official government stock target is 1.0 million metric tons, as announced by the Honorable Prime Minister in 1998. The determination of appropriate stocks levels involves several aspects. Working stocks are needed for smooth operation of the PFDS. Emergency foodgrain reserves, not necessarily in addition to working stocks, are also needed to alleviate the effects of possible relief and market stabilization needs in the event of major disasters (floods, cyclones) and crop shortages. Holding stocks involves real financial costs, however, including those involved in storage losses, and construction and maintenance of storage facilities, as well as the costs involved in rotating stocks through the PFDS. The costs of stock deterioration, borne by recipients of PFDS foodgrain, are generally not included in financial analyses of the costs of holding stock, though.