Food price volatility - how about global strategic reserves?
29 August 2012 | by Mark Corner
Food prices are again volatile, raising the spectre of starvation in poor countries and food inflation in rich countries.But what causes prices to spike? With no general consensus, fingers are pointed in all directions: the Americans are turning half their corn crop into biofuels; the Chinese and Indians have begun to eat meat; the Russians and Ukrainians have restricted exports; the European Union is hindering the development of farming in the developing countries; speculators have piled into the futures markets; developing countries are panic-buying…
Whatever the cause, one thing is certain - there is no mechanism for dealing with a sudden fall in supply, due to a meagre harvest, or with a sudden increase in demand for grain. For this, the world could establish a strategic grain reserve - something that does not exist. Before prices rose, grain could be released onto the market, pre-empting a price hike. When prices fell, the reserve could be replenished.
So if it is that simple, why hasn't the United Nations already set one up? In the 1950s, the first director-general of the UN Food and Agriculture Organisation, Sir John Boyd-Orr, was a strong proponent of a global strategic reserve. But his efforts came to nought. He resigned with the words: "The hungry needed food, so we provided statistics."
The constraint of working within a UN framework is that it precludes any sharing of sovereignty. But a degree of sovereignty-sharing is a sine qua non for an effective global solution to the food crisis. Governments must respect basic rules regarding contributions, replenishments and how food is distributed.
The sharing of sovereignty is the principle upon which the EU is founded. While the EU is by no means perfect, it has succeeded in its objective of ending bloodshed. After European states had started to share sovereignty after the Second World War, they placed themselves in a position to make and enforce common law. This permitted them to address problems more effectively. The law was made democratically by a parliament and enforced by a court of justice.
As for the current eurozone crisis, we should remember that strictly speaking this is not an area in which sovereignty is shared. The euro is not an EU matter. It is an inter-governmental arrangement between those countries that have decided to adopt the euro as their currency. Neither the parliament nor the court have jurisdiction in the matter and it is not a domain in which sovereignty is shared. The EU had no legal right to invoke sanctions against those countries that didn't respect the Growth and Stability Pact and borrowed too much - like Germany and France in 2004. Arguably, if sovereignty had been shared in this matter from the beginning, some of the eurozone's current travails would not have arisen.
We propose a global food reserve to mitigate the volatility of food prices. It would be managed by a new organisation – a World Community for Food Reserves. It could start in a small way with, say, half a dozen countries, just as the EU started in the 1950s with only six members. When grain prices were low, the community would purchase a reserve stock of grain. The grain would be stored on a decentralised basis – some in each of its member states. Each member state would have the right to request that the community release grain – for sale at current market prices – onto its national market before a price rise occurred. By quickly increasing physical supply, food prices could be kept at a level that everyone could afford.
Would all this not be mired in corruption – that perennial scourge of development aid? No, because the process would be overseen by the community which would have the authority to refer allegations of non-compliance to a court of justice. The sharing of sovereignty is not something that we need fear. It is not the loss of sovereignty. Of course, countries transfer a part of their autonomy to a body that is over and above themselves. But they own that body and run it together.
In the beginning, not all countries would be willing to share sovereignty but some would. If it worked, others would surely want to join. There are still people who think the solution lies in a scientific miracle by which crop yields double overnight. But science alone cannot stop volatility of market prices. A strategic reserve, able to quickly augment supply, perhaps could.
In the US, we have GM but prices rise. Drought limited our corn growth on drought resistant corn so it holds little to no promise. We are having more and more cross contamination so it may possible make more of our crops perform poorly over time, in times of drought. GM is not the answer.
Lee V - United States