The issue of food reserve levels has been “in” for the past several months. Although often condemned because of their costs, reserves now increasingly seem to be the most effective way to regulate agricultural markets and fight food insecurity.
Lately for instance, the issue of implementing regional emergency reserves came up again in Japan following the earthquake and tsunami that slammed its shores on March 11. Japanese Minister of Agriculture Michiko Kano shared his concerns, when he stated that a food crisis could arise due to an imbalance between on one hand a strong demand for food and on the other a reduced supply as a result of the destruction and irradiation of some agricultural production. What's more, Japan cannot count on sufficient food reserves and should importation levels become too inadequate, a genuine problem of agricultural resources––and thus food security––will occur
Most international experts are working on the concrete approaches to implement a regional and global system of reserves.
As Chair of the G20 Summit, France recently asked the World Food Programme (WFP) to consider the implementation of such a system––a “pragmatic response” to deal with emergency situations, said the WFP Executive Director. On a concrete basis, the UN agency will have to study various implementation procedures, especially regarding financing and management methods. It must be noted that the WFP recommendations will be presented at the agricultural G20 to be held in Paris this coming June.
As early as November 2010, researchers at the U.S. think tank Institute for Agriculture and Trade Policy had already addressed this issue1 and came to the conclusion that the best solution would be the implementation of a vertically designed reserve policy, which would include different measures at the local, national and international levels.
Quoi qu’il en soit et quelles que seront les mesures mises en place, si l’on souhaite que les politiques de stocks de réserves alimentaires soient réellement efficaces, trois questions doivent être posées en préalable dans les mois à venir2.
Be that as it may and regardless which measures will be implemented, three issues must first be addressed in the coming months2 if we want food reserve policies to be truly effective.
The first issue concerns the junctions of targeted goals regarding stabilizing prices and fighting food insecurity. While one of the key advantages of an agricultural and food reserve policy lies in its ability to impact both price level and volatility as well as food security and hunger, it also represents a serious liability. Undeniably, the time unit of these two objectives is drastically poles apart. The consequence of a reserve build-up and depletion will have a short-term consequence on price volatility, and a longer-term effect on hunger and food security… Problems can then arise when one wants to build-up reserves in cases of flat markets, while at the same time, depleting reserves to increase food assistance in case of humanitarian emergency.
The second issue deals with the creation of a regulatory entity to oversee and coordinate reserve measures. Indeed, entrusting such responsibility to a single international organization would not be pertinent, because the issue of food reserves interacts with several issues and each international organization has a specific area of expertise: fighting hunger for the FAO, trade for the WTO, financial stability for the IMF, etc… Consequently, none of these organizations is currently able to transversally manage a reserve policy. This is the reason why it is crucial to instigate a global agricultural governance system hinged on a new platform that would gather all international institutions dealing with agricultural issues.
The third issue relates to the budget earmarked for managing reserves. Any reserve policy can indeed be costly, as it includes warehousing costs, charges of immobilization and technical rotation, as well as infrastructure expenditures in developing countries. While using virtual reserves on futures markets allows limiting budgetary expenses, they are complementary and can never be substituted to physical reserves.
These three issues clearly show that if we want to efficiently regulate agricultural markets and permanently curb food insecurity and world hunger, a reserve policy is a required, but not sufficient, condition, both from an economic and budgetary perspective, not to mention the fact that further plans must be implemented.
One of such additional plans recommended by momagri would entail outlining price free fluctuation zones around an equilibrium price per agricultural product and per large homogenous economic zone. This would guarantee an adequate income to farmers while being acceptable by consumers. These fluctuation zones would differ according to regions, and within these zones, farmers would not receive subsidies, with the exception of activities in favor of the environment and specific support to ensure farming risks. As soon as prices would come out of the tunnel, regulatory measures would be triggered, especially those dealing with build-up and depletion of reserves.
Such plan would thus lead to improving the global effectiveness of a reserve policy on five levels:
- By outlining and clarifying the free fluctuation price range and the triggering of reserve build-up or depletion through international consensus;
The issue of reserves will be addressed in Dakar in the framework of the Dakar Agricole to be held on April 18 and 19, and perhaps at the June agricultural G20. Let us hope that, this year, all agricultural players will reach a consensus regarding the implementation of an effective reserve policy…
- By indirectly guaranteeing farmers with an average lucrative price;
- By curbing budgetary expenditures, due to the absence of subsidies when prices are fluctuating inside the tunnel;
- Since it is generating useful profits in times of crisis, since reserves are built up when prices are low and depleted when prices are high, the entity charged with managing and coordinating market regulation through reserves will be able to post profits if the system is balanced, presuming that free fluctuation ranges are properly assessed.
1 Please see momagri’s November 15, 2010 article, http://www.momagri.org/UK/focus-on-issues/Food-reserves-in-practice_784.html
2 Cf article momagri du 12/01/10 : http://momagri.org/FR/tribunes/Les-stocks-alimentaires-oui-mais-dans-quel-cadre-_718.html