Ever-normal granary

Overview

The ever-normal granary is an economic term that refers to a buffer stock scheme where an agricultural product is stored in a granary at constant supply in an effort to stabilize prices. The ever-normal granary is maintained by a large entity, typically a government, who buys and sells grain to offset surpluses and shortages that would otherwise cause prices to fluctuate. In this way, the ever-normal granary protects against the potential volatility of agricultural prices that can be caused by a variety of situations such as disease or drought. The governing body averages the prices across several or more years. When yields are high and there is a surplus of grain, the government purchases grain from farmers at this average price and stores it. Then, when yields are low and there is a shortage, the government sells grain from storage to consumers, again at the average price. While historically the ever normal granary referred to a literal granary where foods were stored during times of high yield, the phrase is sometimes used contemporarily to refer to the concept of storing any commodities for price stabilization. It is important to note that in order for such granaries to be effective, the average supply must be adjusted periodically to keep up with any broad trends toward increased yield. That is, it must truly be an average of probable yield outcomes at that given point in time.

The graph below shows the supply and demand for a grain market with an ever normal granary. S_high and S_low show the supply of grain in high and low yield years, and S_avg shows the average supply. The government buys Q_high – Q_avg grain during high yield years and sells Q_avg – Q_low grain during low yield years. The price is thus stabilized to P_avg.

History

Ever-normal granaries have been instituted since at least biblical times, because there is reference to such granaries in the Old Testament. In Genesis, the Egyptians used an ever-normal granary to stabilize their food market during the seven years of high yields and subsequent seven years of famine. Another well-known example of ever-normal granaries is during the Sui dynasty in China (7th century). [ [http://www.bufferstock.org/introd.htm Introduction to Commodity Buffer Stocks ] ] Storage of agricultural products for price stabilization has also been used in modern times in many countries, including the United States. In more recent times, the concept of ever-normal granaries has been expanded to encompass a general strategy of storing different types of commodities for price stabilization. One notable example of this idea is presented by Benjamin Graham in his book, "Storage and Stability", which was written in 1937 during the Great Depression. Graham suggested that much like years of high agricultural yields, years of overproduction of commodities in general could be neutralized by storing commodities until periods of underproduction. This idea was in response to the overproduction of goods during the Great Depression, and the desire to preserve jobs and keep prices stable during this time. [ [http://www.bufferstock.org/introd.htm Introduction to Commodity Buffer Stocks ] ]

References