Market Intermediaries, Storage and Policy Reforms

Intermediaries play a crucial role in the functioning of agricultural and food markets through linking production, imports and storage with consumption. They may be either private firms or parastatals, each type with a different objective function. In this paper, we develop a theoretical framework in the context of a small open economy subject to an exogenous and stochastic world commodity price and analyse how competition in the intermediary sector and alternative forms of intermediaries determine the incentives for storage and market outcomes more generally. We apply this framework to the Egyptian wheat sector as an illustrative case study, a country where food security is a priority and where both forms of intermediaries co-exist. Through stochastic simulation, we analyse two changes in government policy where we account for different characterisations of the intermediary sector: the first is the effects of changing the policy instruments; the second relates to market reforms where the private sector replaces the storage function of the parastatal.