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I was thinking about the idea of hoarding and the kind of news it is making in India. What strikes me is that hoarding of pulses and cereals does not happen the way people thinks because they are a perishable commodity and by hoarding any such product a trader will loose turnover and will have lower return of capital although he can get higher margin. I don't think that except for rice any other produce can be hold for long, as they are perishable. Even rice will turn blackish with time. And if anybody thinks that storing them in cold storage will preserve then then also then it does not make sense as the traders sunk cost will remain the same whether he hoard or look for more turnover.

So could please anybody help me have a more clear understanding of this hoarding news or is it just a hoax.

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    $\begingroup$ Could you please link to some of the news items you mentioned? $\endgroup$ – Giskard Aug 6 '15 at 19:11
  • $\begingroup$ Hoarding makes sense if they people are speculating on a higher price. Or even valuation. If a shortage is anticipated, hording makes a lot of sense. $\endgroup$ – Jamzy Aug 21 '15 at 5:34
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It does not make economic sense. Disclaimer that I am responding directly to your Thai example, and not talking about economics of storage. Rice can be safely stored for a period of time, and it is in the United States. Many developing countries struggle with proper storage of grain. For example, the World Bank estimates that 10-20% of South Saharan Africa's grain crop is lost to spoilage each year, roughly equivalent the amount of grain that they import yearly which can feed 48 million people.

The Thai government, not traders, where hoarding rice under their rice pledging scheme. The government has lost billions of dollars under the scheme and the Thai prime minister Yingluck Shinawatra faces possible jail time. During the 2011 crop year, the Thai government announced the rice pledging scheme which would establish the price floor and pay growers 50% over market price (subsidy).

The Thai government also greatly reduced exports, so it had a large stockpile of old crop rice (for several years). Part of the plan was to help their producers, the other possibly to have a hold of the global market (large control over the global supply). What ended up occurring was that their new crops had to compete against the old crops. The "alternative" product brought Thai and world prices down.

In addition, this was a very strange way of the Thai government to give aid to producers since it would have been more efficient to directly pay an equal amount of the additional producer surplus gained from the price floor straight to the producers.

A large percentage of the rice did in fact rot, and the government is now auctioning off rice that is not fit for human consumption. Some of it is also not fit for animal consumption and will have to be auctioned off for ethanol producers.

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  • $\begingroup$ Your argument is valid that government is culprit of hoarding and same happens in India with wheat, rice etc. However I was saying that this hoarding is not a feasible choice for traders and producer as it is for government and fluctuation in price is a direct result of government action. In India under previous government inflation was around 20% and in current it is around 5%-6%. $\endgroup$ – user86354 Aug 9 '15 at 6:54
  • $\begingroup$ Yes, and I was answering your question: it does not make economic sense...which is why the ex prime minister is possibly going to prison and why the government has lost billions of dollars. I believe I read somewhere that no economist was behind this plan. So there you go. $\endgroup$ – Nox Aug 9 '15 at 17:55

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