Around the Institute

Food Reserves Could Come Back Into Vogue

June 16, 2011  • Kremena Krumova

As posted by Epoch Times.- John Guinan is quoted in the article.

While storing food had lost most of its meaning during the last decades due to easy access to global markets and high maintenance costs, the practice could come back into fashion in the face of the global food crisis.

Rapidly rising prices and food shortages over the last year, have sparked riots and popular uprisings, put pressure on food-importing countries, and according to World Bank estimates, pushed another 44 million people into poverty.

Last year’s severe droughts in Russia, the catastrophic floods in Pakistan, the disaster in Japan, and the floods, fires, and tornadoes ravaging the United States, have rekindled an interest in storing food as a way to cushion the impact of shocks in agricultural production.

Twenty years ago, maintaining food reserves—a practice that goes back to biblical times—fell into disfavor because of high storage costs, and a neo-liberal aversion to unnecessary government intervention in the food market.

Today, global grain reserves are at a historic low. The U.S. Agriculture Department announced in April that U.S. reserves had reached the lowest point in 15 years, due to increased demand for corn for ethanol production. These reserves are projected to fall to 675 million grain bushels by late August, enough to feed only about 48 million people.

Last January, Russia’s grain union reported that grain reserves had dropped by 24 percent to 32.8 million metric tons, mainly due to the country’s worst drought in half a century.

During the last global food price crisis in 2007 and 2008, global prices for rice and wheat skyrocketed 74 percent and 130 percent respectively in a matter of weeks. By the end, the legions of the world’s hungry had reached 1 billion people.

The United Nations World Food Program (WFP) warns that due to the effects of climate change alone, 20 percent more people will be at risk of hunger by 2050.

By that time, the U.N. predicts the world’s population will increase from over 6.7 billion today, to approximately 9.1 billion. Most of that growth will be in sub-Saharan Africa where food insecurity is already a major concern.

Distribution Issues

The national food policy of Bangladesh says that food is a basic human need and plays a crucial role in the agro-based economy of Bangladesh. (WFP/Chu Cancan)

The main reason for rising food prices, however, is not a lack of food. It an issue of distribution and lack of buying power.

“Today there is no shortage of food; what we have is increase in prices because of increase in demand and also because the world production is highly concentrated in few countries,” said Maximo Torero, director of Markets, Trade, and Institutions Division at the International Food Policy Research Institute (IFPRI) in an e-mail interview.

Thus any production shock in a main food exporting country, like the United States or Russia, will cause prices to rise, impacting poor, food-importing countries most.

Facing increasing hunger, market unpredictability, and food price volatility, world leaders have shown interest to resuming the practice of food stores.

At the G-20 meeting last month in Rome, leaders discussed developing an emergency reserve system, aimed at servicing the most vulnerable countries.

Still, world powers could not reach a consensus on what French Agriculture Minister Bruno Le Maire called, the “very last solution,” in a meeting with Agriculture Secretary Tom Vilsack in Washington earlier this month.

Some of the sticking points mentioned by Le Maire are Brazil and Argentina’s desire to reduce price volatility, but at the same time willingness to allow commodity prices to keep rising. And China has found it difficult to accept the idea of increasing transparency in the markets, which is what a global reserve system would require.

Further discussions will be held at the next G-20 meeting in Paris, June 22-23. France currently holds the G-20 presidency and has been spearheading the effort.

Another option would be to agree to “virtual reserves,” which is based on shared and coordinated commitment for supplying food between participating countries. In this system, commodities would be bought in the futures market as hedges. In other words, they would be promissory, not actual budget expenditures.

The concept has its critics, however, who see it as an inferior option.

“Virtual reserves concept is flawed from the beginning. Countries need out-of-market, physical reserves,” argues Harwood D. Schaffer, research assistant professor at the Department of Agricultural and Resource Economics of the University of Tennessee Institute of Agriculture.

Schaffer says that the issue of food reserves is purely a question of politics.

“We can easily solve the problem with food production. What makes this hard to solve, are actually politics and ideology,” he said.

Other experts say the most efficient way to secure food is by expanding capacity of global food production and involving more players in the agriculture game. And Africa has great potential.

“Half of the world’s arable land is in Africa. If this land is put into exploitation, it will lessen the pressure and will lower the baseline prices, and will add one more supplier, in times when there are droughts or floods,” said Joe Guinan, director of TransFarm Africa Initiative, at the Aspen Institute in Washington, D.C.