Economics of cereal banks in the Sahel

Over 3,300 such organizations were inventoried in 1990, about half of them in Burkina Faso, and 300 to 600 in each of the other states in the region. Mauritania is an exception, with only a handful of cereal banks. Despite the enthusiasm with which cereal banks are being created and expanded, analysis of their economic foundations is sparse. This report examines several issues. Can cereal banks offer better or cheaper services than private traders? Do cereal banks serve to strengthen cooperative village institutions? How important is their role as emergency food stocks? The main conclusion is that cereal banks are being oversold. The assumption of widespread grain market failures, which is a central rationale for the banks, is not confirmed in most of the literature, and the ability of the banks to outperform the private trading sector on a sustainable basis is extremely unlikely. There are some market failures and structural weaknesses that cereal banks might address, notably in credit markets and in isolated areas where traders fail to service thin markets. But in both cases, subsidies are required to sustain cereal bank activity. These subsidies can hinder the growth of the commercial sector (though probably not significantly so in most markets). The subsidies also promise little in the way of building viable institutions, because the cereal bank incentive structure is flawed, and the failure rate is high. For these reasons, the promotion of cereal banks by donor agencies should be reconsidered. (Author abstract, modified)