In 2007 and 2008, many developing countries experienced one of the most severe food shortages in recent decades. In Sub-Saharan Africa, the Machrek and Asia, the crisis brought about unprecedented riots and strong political instability. While opinions on the factors that triggered the crisis vary, they all outline the devastating results of price hyper-volatility of agricultural commodities. At that time, most decision-makers in the nations affected by the crisis were overwhelmed––no valid recovery program to deal with this type of situation had been planned beforehand––and the international community found itself unable to stem the crisis, since food reserves were at their lowest. Since 2008, curbing price hyper-volatility and solving food insecurity have been top priorities for the international community, and food reserves became a strategic variable.
Yet, the establishment of food reserve policies is a burdensome issue, and further economic and political measures are required to maximize the global effectiveness of such a plan.
Many conferences and seminars are being held on this topic, such as the one co-hosted by the Institute for Agriculture and Trade Policies (IATP) 1 in early June in Brussels that focused on “Food Reserves: Stabilizing Markets, Investing in Farmers and Achieving Food Security.”
The following points gained consensus among the conference attendees:
- Agricultural and food reserve must play a key role in stabilizing agricultural commodity prices and in fighting international food insecurity and hunger;
Thus, following a lengthy period during which neoliberal-inspired experts considered agricultural and food reserves as counter-productive to achieve agricultural market effectiveness, reserves are now returning at the center of considerations to regulate agricultural markets. The reasons put forward are both economic––reviving or calming markets through contra-cyclic measures––and strategic, due to the weight of agriculture in the global economy, and the billion people suffering from hunger worldwide.
- Because of the interconnection between the economies and the financialization of agricultural markets, reserve policies must apply to both physical markets and futures markets through the build up of “virtual reserves”;
- A superstructure bringing together all concerned players must be responsible to manage and coordinate reserve and release operations in agricultural markets.
This is the case for France and Brazil, which have already set up collaborative task forces to discuss joint measures to curb volatility. Likewise, the next meeting of the United Nations Committee on Food Security in October 2010 will address these issues.
Yet, if the idea is making headway, three issues must nevertheless be addressed to maximize the general effectiveness of such a system and avert the “slip-ups” that were observed in the past.
- How must we act so that reserve policies improve market conditions?
The first issue is one of convergence of targeted objectives in matters of price stabilization and the fight against food insecurity. While one of the key benefits of an agricultural and food reserve policy precisely lies in its ability to impact at the same time price levels and volatility––as well as food security and hunger––it also represents a serious liability. In fact, the time unit relating to each of these two problems is radically different. The impact of a stockholding or release measure will have a direct short-term consequence on price levels and volatility, but a much longer-term influence on hunger and food security. Thus, one of the hurdles that might be encountered is specifically the fact that the recommendations concerning stockholding or releases by international experts and the entities concerned with market risk assessment and food security are confronting each other. Some would like release measures because markets are depressed, while others would like release measures to increase food aid, since hunger is spreading.
- How must we maximize political decisions on market regulation through reserves, in order to reach the targeted objectives of price volatility and food security?
- How must we streamline and rationalize budgets earmarked for the implementation of such a system?
The second issue is that of the creation of a regulatory body charged with overseeing and coordinating reserve measures. It is directly related to the first issue. Some experts feel that the United Nations Committee on Food Security could be in charge of the global coordination of reserve operations. But giving this responsibility to a single international organization would not be pertinent, since the issue of food reserves interacts with several fields, and each international organization commands a specific area of expertise––fighting hunger for the FAO, trade for the WTO, economic development for the World Bank and financial stability for the IMF. Consequently, none of these organizations is currently able to transversally oversee stockholding or release policies. This is why it is crucial to initiate a global system of governance for agriculture based on a new central plank that would include all international institutions concerned by agricultural issues.
The third issue concerns the budget allocated to the management of reserves. While reserve policies are genuinely effective to stabilize prices, the inferred costs can be substantial. Reserve policies are indeed costly, as they include warehousing fees, charges tied to downtimes and technical rotations, as well as significant expenditures in infrastructures, especially in developing countries. If utilizing virtual reserves in futures markets enables to limit budget outlays, these virtual reserves complement but can never replace physical reserves.
The three above-mentioned issues confirm that a reserve policy is a required but not sufficient condition––from an economic and budgetary standpoint––to successfully regulate agricultural markets and lastingly shrink food insecurity and hunger worldwide.
It is thus crucial to implement a supplementary scheme to improve the management of reserves in such a system. As advocated by momagri2, it would be based on the determination of regulation-free fluctuation ranges around an equilibrium price per agricultural product and per large homogenous economic zone that would provide decent revenues to farmers while remaining acceptable by consumers. These fluctuation zones would vary according to regions, and, within each zone, farmers would only be subsidized for environmental preservation pursuits and for specific support to cover operational risks. As soon as prices would be outside this tunnel, regulatory measures would be initiated, especially regarding stockholding and releases.
This system would therefore improve the global effectiveness of stockholding policies on five levels:
- By defining and firming up, by international consensus, regulation-free fluctuation price margins and the accepted initiation of stockholding and release measures;
- By indirectly guaranteeing average compensation levels to farmers;
- By reining in budget expenditures with the elimination of subsidies when prices fluctuate within the tunnel;
- By generating useful profits in times of crisis since, because stockholding is made when prices are low and release performed when prices are high, the superstructure in charge of managing and coordinating market regulation through reserves will make profits if the system is balanced––which infers an adequate assessment of regulation-free margins.
1 In partnership with the Collectif Stratégies Alimentaires (CSA) and Oxfam Solidarity.
2 Please see http://www.momagri.org/UK/governance-intro.html