World Grain - November 2010 - 74

FEATURE

Addressing
food insecurity
T

he Russian government's recent decision to embargo
wheat exports has put food security back on the agenda of policymakers. The food situation does not seem
likely to deteriorate into the volatility that characterized
world markets in 2007-08, when prices for food staples
like wheat and rice tripled. Prices, however, have not fallen
back to pre-2007 levels, nor has the number of global hungry retreated much from its post-2008 spike to 900 million.
Consequently, the stress on the world's poorest and hungriest may be severe, even with smaller disturbances to global
markets.
For this reason, debate is renewing over what steps may be
taken to reduce food insecurity. Three ideas deserve review.
They are global stocks, virtual stocks and contract sanctity
(supplemented with purchasing-power aid).
GLOBAL STOCKS
The notion of food reserves reaches back to biblical times,
if not before. More recently, it was the leading recommendation coming out of the First World Food Conference in Rome
in 1974, and it resurfaces regularly when food supplies tighten. Unfortunately, it poses several insurmountable problems.
One involves who should accumulate and release these
stocks. No international agency has the credibility or the resources to execute such a program.
Moreover, getting agreement on when to accumulate and
when to release stocks has proven elusive. Food import-dependent countries want stocks released at low prices. Exportdependent countries want them released, if at all, only at very
high prices. No inter-governmental agreement between these
conflicting views seems likely.
Finally, stockholding is a costly exercise. Acquisition costs
are incurred up front. Interest and storage costs accumulate
over time. Any "forward positioning" of stocks in regions
particularly vulnerable to shortfalls adds in transportation expenses while putting such stocks "out of position" to serve
emergency needs elsewhere. And the existence of stocks tends
to depress prices (which deters production), to displace private
stockholding (which undercuts the basic purpose of reserves)
and to discourage market- and private-sector adjustments to
supply/demand shifts.
76

by Robbin S. Johnson

Contract sanctity and targeted
purchasing assurance offer the best
solution for improving food security
VIRTUAL STOCKS
Proponents of virtual stocks take a different approach in
assessing the cause of food insecurity and in addressing its
remediation. They acknowledge that tightening carryover
stocks create the preconditions for aggravated food insecurity,
but they recognize the costs and burden-sharing issues that
prevent "global reserves" from becoming a reality.
They conclude that it should be possible to avoid the extremes of price volatility that occur in tight markets by counteracting what they label as speculative buying on futures markets. So, when feverish buying of futures occurs, they would
have some new international entity begin selling aggressively
in those markets to counteract this speculative fever.
Virtual stocks pose many of the same sovereignty and conflict-of-interest issues as global stocks do: To whom should
such authority be ceded? How would it be funded? At what
price levels should it act?
To this shared set of problems should be added one more.
Speculative activity in futures markets (as distinguished from
physical hoarding by sellers or buyers) generally has been
shown to dampen price volatility rather than to accentuate it.
It does so by encouraging those who can to reduce use while
signaling producers to expand output. Trying to counter such
speculation, then, actually could worsen the situation, and it
does nothing to address physical hoarding.
SANCTITY OF CONTRACTS
Rather than blaming markets and empowering governments
to "manage them better," contract sanctity would attack public misbehavior in food markets. Global trade in food staples
averages around 10% to 15% of annual consumption (a little
less for rice, a little more for wheat). These international trade
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Contents
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http://digital.world-grain.com/sosland/wg/2004_09_01
http://digital.world-grain.com/sosland/wg/2004_08_01
https://www.nxtbookmedia.com