The Costs and Benefits of Regional Cooperation on Grain Reserves: The Case of ECOWAS

Abstract

In the wake of the 2007/2008 international food crisis, public food reserve regained the attention of policymakers. However, establishing public food reserves came at high economic and fiscal costs. On the other hand, the imperfect correlation of supply shocks across neighboring countries entails the potential to reduce regional market volatility through intra-regional trade integration and storage cooperation. In this chapter, optimal reserve levels are theoretically derived in order to assess costs and benefits of regional storage cooperation. The model is then applied to the West African region, which is in the process of establishing a region-wide reserve. With regional cooperation, the required stocks in a regional emergency reserve can be 40 % lower than without cooperation. Limited intra-regional trade reduces the need for stock releases significantly. Full market integration would diminish regional consumption variability to 3.4 %, lower than for every West African country individually, but is not effective in dampening severe supply shortfalls. Cooperation in a stabilization reserve, in addition to trade integration, only has limited impact on consumption stability, and thus storage cooperation should be restricted to an emergency reserve.