Stabilization of food supply: The grain reserve approach

Given the challenges posed by climate change, here is an idea that makes a lot of sense: grain reserves. Why? Because grain reserves are a relatively cheap public insurance policy in the face of tremendous uncertainty, when the risks of failure include starvation. Governments can use a reserves policy to invest in storage and transportation infrastructure; to work with the private sector to cover gaps and market failures; to provide farmers with guarantees that encourage investment; and to increase transparency to discourage hoarding and speculation.

Confronted with the reality of climate change, governments must take a smarter approach towards managing our food supply. Grain reserves have an impressive pedigree. For thousands of years, households and governments have stored some of each harvest as an insurance against the uncertainties of the next. Food reserves respond to inherent characteristics of agriculture, particularly the presence of relatively constant, inelastic demand coupled with much more variable short-term supply. Unregulated agricultural markets often over-produce, leading to a pattern of many years of declining prices, interrupted by short, sharp, upward spikes. Food reserves can lessen the unwanted consequences of unstable agricultural markets.

There are many models to choose from—indeed, most governments have some form of reserve in place—though most have been scaled back considerably since the days when food reserves were the norm. In the past, some of the major exporting countries (notably Canada and the U.S., in the case of wheat) held reserves that effectively both established a price floor for their growers and gave wheat importers confi dence that the grain supply was safe, even if one year’s harvest was poor.

In other cases, national governments have operated domestic focused reserves. Many such national reserves in sub-Saharan Africa were troubled by poor finance and oversight. Even those that worked relatively well were dismantled over the 1990s, largely because they did not fi t in the model of economic liberalization that dominated donor thinking at the time. But there are compelling reasons to consider their re-establishment given the vital nature of food security, the effects of climate change on agricultural production, and the failure of purely market-based approaches to provide an adequate and appropriate food supply and distribution. Countries can learn from their experiences in establishing independent and accountable central banks, which in the past were similarly crippled by poor governance and a lack of accountability. They can also benefit from the dramatic changes in information technology, communications and transportation to build reserves that are flexible, and that are responsive to change in market conditions.