Exploring the Feasibility of the Food Reserve Agency to Implement Virtual Grain Reserves

By Brian P. Mulenga and Antony Chapoto

Excerpt

  • Strategic food reserves are an important component of national food security.
  • Currently Zambia, through the Food Reserve Agency (FRA), holds all its food reserves as physical stocks with huge cost implications on the treasury.
  • By embracing innovative grain trading systems such as commodity exchanges, FRA can reduce the cost of managing food reserves as well as diversify Zambia‚Äôs strategic food reserve portfolio by splitting the recommended volume of strategic grain reserves into physical stocks and grain options (virtual reserves).
  • By purchasing grain options, the FRA will only pay a small fee to hold the option (right) to purchase the grain for delivery at a later date as and when required.
  • Virtual reserves would thus give FRA the flexibility of choosing when grain delivery can be made and where, with the possibility of exiting the contract in the event that the additional grain is not required.

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