Depleted Granary

As noted at the World Food Conference, the past several years have seen a drastic reduction in world food reserves. The large cereal stocks which for two decades provided substantial security against poor harvests and kept a lid on world cereal prices have dwindled to the point where reserves provide little capacity to counter the threat famine in low-income countries facing crop failures, and offer no restraint to rising food prices. Both on a per capita basis and as a percentage of annual consumption, world grain reserves have fallen to the lowest levels in two decades. Specifically, world wheat and coarse grain stocks are projected by the USDA to fall to only 9 percent of annual consumption by the end of the 1974/75 crop year, compared with a 17-percent average for crop years ending 1970 through 1972 and 26 percent for those ending in 1961 through 1963. And after more than two decades of relative price stability, grain prices have soared. Between 1971/72 and 1973/74, average export values in the United States rose about 150 percent for wheat and 100 percent for corn.

With world food consumption now at the mercy of a single year's production, there is a great need to rebuild world grain stocks as soon as possible. At current consumption levels, it will probably take at least two good agricultural years world-wide to raise stock levels significantly. In the meantime, famine, which has already struck some areas of Africa and Asia as a consequence of crop failures, would become widespread if another major crop loss occurred in one or more of the world's principal producing areas. The countries that could reduce food consumption without dire consequences are unlikely to do so in order to restore world reserves. Thus, one can only hope that these good crop years precede any further major crop failures.

While the immediate problem before the international community is to restore food reserves to levels that can avert the threat of widespread famine, the longer-run problem is to develop a scheme for maintaining reserves at levels sufficient to provide security against famine yet not so large as to severely depress producers' prices. Ideally, changes in stocks would offset cyclical fluctuations in production, thereby stabilizing consumption and producers' and consumers' prices around long-run trends. Successful stock management clearly would benefit both exporting and importing nations.

Despite the commonality of producers' and consumers' interests in the overall success of stock management, important sources of conflict in the design of such a scheme make its establishment extremely difficult. Issues of potential conflict include the size, financing, ownership, and location of reserves, as well as the terms and guarantees of access to these reserves. Consumers are likely to favor a higher average level of stocks than producers since this would provide a higher level of security and would tend to hold down long-run prices. Stocks are expensive to maintain. This raises the issue of cost sharing, and recent experience provides net importing countries reason to question what supplies they can actually rely upon in the event of serious shortages. For example, the United States has curtailed concessionary food shipments in recent years despite the urgent needs of some of the world's poorest nations, and pressures to preserve food for U.S. consumers have even led to export curbs on normal commercial sales. It is not clear that the international community can rely on access to stocks held in private hands, since these stocks might be withheld in times of impending shortages in anticipation of even higher prices.

While resolution of the equity issues among importers and exporters is an essential step for the implementation of a world food reserve system, this is only an added complication in the task of devising a stock management scheme that works. If authorities should seek in their stock management to stabilize prices at levels which are too low, shortages would soon reemerge and stocks would be depleted. On the other hand, if the prices were set too high, surpluses and unwieldy stocks would emerge. In either case, the stock management system would break down and might on balance be counterproductive. The task is further complicated by the need to adjust the average level of stocks and prices to such secular trends as rising world consumption levels and long-run changes in production costs.

An idea of the difficulties involved in achieving or even approaching an ideal management scheme for food reserves can be obtained by considering the wide divergence in opinion regarding the prognosis for agriculture over the next decade or two. While one can readily point to a number of the specific events which contributed to the drastic change in the world food situation in recent years, there is uncertainty as to whether these events represent an unusual ephemeral combination of factors or an indication of long-run trends which can be expected to continue to have an adverse effect on agricultural production. Opinions range from those who feel that food scarcity, even in the more developed countries, will be the normal condition for at least the next several decades to those who feel that the current favorable agricultural investment incentives and the relaxation of production constraints will bring a rapid increase in world production, sufficient to restore world stocks and lower prices.

These two prognoses have very different implications for the mode of restoring and managing stocks. If it is correct that we may expect long-term shortages, a substantial belt-tightening, especially in the wealthier countries, will be required to rebuild stocks to levels capable of providing some minimum acceptable protection against crop losses and maintaining export capabilities. However, there would be strong resistance to such a course. Consumers would resist the higher prices which would result during the accumulation period and producers would resist the accumulation because of its likely long-term impact on prices. Moreover, countries dependent on food imports would need some guarantee of access to the reserves at prices they could afford. The countries needing such access the most would be the least able to bid for food stocks during periods of production declines, and, as recent events indicate, these are the periods in which international largess is apt to be scarcest. Thus, the task of cooperatively restoring and maintaining worldwide food security under long-term scarcity conditions would be a major economic and moral challenge. Failure to accept this challenge would mean a rapid spread of malnutrition, hunger, and famine among the world's poor. Acceptance of the challenge would require greater self-imposed sacrifices among the world's wealthy than they have been willing to make in recent years.

If the future brings a return of food surpluses, the issues involved in stock management would take on a very different appearance to both exporters and importers. Agricultural surpluses invariably bring producers' appeals for price supports, which generally lead to the accumulation of unmanageably high stocks and eventually to production controls. These circumstances would probably bring a return of the conditions prevalent during the past two decades, when the United States provided the world considerable security against widespread crop failures through its maintenance of large grain stocks, its idling of land which could readily be returned to production, and its willingness to respond to the needs of the world's hungry with concessionary grain exports. This, of course, would make world food security primarily the by-product of one country's efforts to limit its production surpluses and to support prices, rather than part of a program designed to enhance world food security. The prospect of thus enjoying the benefits of large stocks without bearing their costs might dampen the enthusiasm of net importing nations for the development of a worldwide stock management scheme capable of avoiding a repetition or worsening of current food shortages.

Recent events have given strong indication that the world community should not attempt to rely on the food reserves of a few countries. The most pressing need is for an international emergency food reserve of perhaps 8 to 10 million tons of grain which would be used to help offset production fluctuations in the LDCs. Widespread concern with the current inability of any international organization to alleviate the threat of famine in the world's poorer regions has brightened the prospects for adoption of such a scheme, although its introduction may depend on some easing of the tight international food situation. By contrast, the prospects for a more ambitious international stock management scheme, to stabilize long-run grain prices, are not good. Despite the potential benefits of such a schemer its high cost, the potential impact on producers' prices, the uncertainties regarding future world agricultural output, and the historical tendency to seek nationalistic solutions to agricultural problems are all major obstacles to developing and adopting a stock management scheme likely to stand the test of time.