Averting the Next Food Crisis: What role for food reserves?

Sophia Murphy, Guest Blogger

The 36th meeting of the FAO’s Committee on Food Security (CFS) concluded in archetypal UN fashion: one and a half hours of apparently aimless milling about followed by a call to order, a ten minute exchange during which it becomes clear that the milling about was actually about last – very last – minute negotiations, and, finally, adoption of the report by acclamation. So ended the first meeting of a revamped piece of the UN system — a small but fascinating piece.

Why fascinating? Because last year governments agreed to a major overhaul of the way the committee works, and to give the committee a pre-eminent role in the coordination of UN food security policy. The FAO, World Food Programme (WFP) and the International Fund for Agriculture and Development (IFAD) jointly run the CFS. There are several new mechanisms alongside, including one defining a Civil Society Mechanism to ensure adequate and accountable participation from the non-governmental sector writ large, and a recently constituted High Level Panel of Experts (yes, another acronym: HLPE) that will be commissioned by the CFS to write reports and more generally to provide the benefit of independent advice and thinking.

One of the encouraging signs out this past week of meetings in Rome was the attention given to the question of agricultural price volatility. Somewhat buried in a catch-all of an agenda that included climate change and vulnerable populations, price volatility was a component of the third of three roundtables organized by the CFS this past week.  The World Food Program was responsible for finalizing the background paper, and for organizing the roundtable itself. FAO then organized a side-event on the topic, to which I was invited to speak about food reserves.

It is not a time to be complacent. As former IFPRI-Director General, Joachim von Braun, warned in an August op-ed in the Financial Times, “Some lessons have been learned from 2008, but too little has been done to prevent future crises. In particular the malfunctioning of world grain markets has not been addressed – a failure now haunting world markets.” As first wheat and then maize prices have gone into price panic in recent weeks, it is obvious governments have moved all too slowly to put in place the mechanisms needed to better anticipate potential crises, to limit the damage they might cause, and to tackle the structural causes of the volatility itself.

FAO staff are not of one mind on grain reserves, either on their usefulness or the likelihood of the tool actually working. But on balance, it is fair to say many are skeptical. Not as hostile as some governments (e.g. the U.S.) and not as welcoming as others (e.g. France). Given the mixed experiences countries have had, this is hardly surprising. But in an age when volatility is again on the rise, and when many analysts, from many different parts of the political, geographical and economic spectrum, are agreed that production is only going to get less predictable, it was good to have a platform from which to address an audience of government officials, civil society representatives and a few staff from different intergovernmental agencies on the subject. Note that support for reserves in some form is coming from both the think tanks (notably IFPRI) and some of the widely read economic press, such as the Economist and the Financial Times.

In brief, the argument for grain reserves is premised on the observable fact that food markets are characterised by relatively fixed demand and uncertain supply, at least in the short-term. Variations in successive harvests, as well as in yields region by region, have led governments to use reserves as a way to even out supply for thousands of years. Indeed, most governments have some kind of food reserve in their purview, although nothing like to the extent that was true thirty years ago.

Trade, too, is invaluable to most countries’ food security, and has been used by many societies as a way to enhance domestic supply for centuries. But the 2007-2008 food price crisis highlighted the limits of trade. Global trade, like local production, has its own versions of supply shocks and resulting volatility. Meanwhile, many of the exporters that had been pushing at the WTO to reduce all barriers to trade, and to insist that the realization of food security required only that countries have access to their surpluses, imposed export restrictions. Few of these restrictions lasted long, but the message they sent was unmistakeable: when push comes to shove, our domestic needs will come first. The importing countries, many of them, heard the message.

Most recently, on October 19 ASEAN members agreed to put in place a revamp of their emergency rice reserve mechanism. In December, the governments of West Africa will meet to discuss how to create a regional emergency reserve from the existing national reserves in the region. As hosts of next year’s G20 summit on agriculture, France has put volatility at the centre of the agenda for the meeting.

At the same time, IFPRI is proposing a relatively small, globally managed reserve to be called upon in emergency situations. They suggest the World Food Programme should host the reserve, an idea not without merit, because WFP is a major grain buyer and distributor and therefore has considerable operational experience, as well as a need for grain that could ensure the reserve was properly turned over, avoiding waste. WFP has yet to respond to the proposal in any kind of formal way.

Of course, excessive volatility cannot be resolved through reserves alone. The reform of financial markets, discussed elsewhere on this blog, will be critically important, as will a host of measures that might best be summarized as investment (both public and private) in the storage, processing and distribution of agricultural commodities and food. When the High Level Panel of Experts established by the CFS turn their attention to the writing of a paper on the issue, they will want to touch on a number of these policy interventions. But here’s hoping they give reserves the attention they deserve. Long disregarded by most economists, and therefore by too many governments as well, reserves continue to offer a useful tool for agricultural development and food security. With today’s communication and transportation technologies, the potential to build a truly functioning reserve system has been enhanced. Add an arms-length institution, with proper oversight but independent of the ruling party and properly trained and paid staff, and governments will find themselves equipped with a powerful tool to protect and promote the right to food. Here is hoping the CFS can push this debate along, moving those governments with a will for change to act before the next crisis hits.

Sophia Murphy is a senior advisor to the Institute for Agriculture and Trade Policy (IATP) on trade, food security and global governance issues. Read more on IATP’s blog here.