The agricultural G20, held last June in Paris, contributed to combating agricultural price volatility, one of the international community’s priorities for food security. Among the proposed measures to limit its effects on vulnerable populations, the G20 proposed the setting-up of emergency food stocks that will be tested for efficiency in West Africa1
. If this initiative is a good advancement, many experts believe that the G20 should go further and consider the creation of veritable buffer stocks aimed at stabilizing markets. This is what is recommended in the Oxfam report “Preparing for Thin Cows: Why the G20 should keep buffer stocks on the agenda”, of which we have published excerpts below2
Momagri editorial board
The underlying causes of the crisis and instruments to cope with food price volatility have been scrutinised by the international community since 2008. But while historically low levels of grain reserves are unanimously highlighted as a major cause of the food price crisis, food reserves have been largely absent from the international agenda – apart from in relation to emergency responses. […]
This briefing paper argues that local and national food reserves can play a vital role in price stabilisation and food security policies. Food reserves have long been out of fashion. But it's high time to look again at the evidence. Examples from Indonesia, Madagascar and Burkina Faso demonstrate that if properly designed, national food reserves can be effective. Some G20 countries and international institutions are starting to look at this. It's high time they all do, without prejudice. […]
The time has come to reassess the potential of food reserves in the context of more integrated but also more volatile agricultural markets, and to experiment with innovative and complementary instruments that can improve the efficacy of food reserves, while at the same time addressing market failures and providing benefits and incentives to small-scale farmers. […]
The cost of not having food reserves
There are, of course, certain costs associated with holding and operating a food reserve. As the international institutions stated in their report to the G20: ‘domestic procurement, food releases from buffer stocks and trade programmes require continuing budgetary allocations to cover any operational losses occurring in domestic and international trading’, and ‘the operational costs of buffer stocks are significant’3
. However, the human, political and economic costs of not having a food reserve are even greater. […]
Analysis of the 2007–08 food price crisis reveals that the costs of operating a food reserve need not be as high as one might imagine. According to Justin Lin, Senior Vice President and Chief Economist at the World Bank, a ‘relatively small’ difference in stock levels might have made all the difference between ‘too little and adequate stocks’. As he explained: ‘The difference in global ending-year stocks in 2004/05 and 2007/08 was only about 60 million tonnes – only about 2.7 percent of global production.’4
Setting the rules
Buffer stocks are often associated with monopolies or tight controls on trade, marketing, sale and even production, and have been blamed for discouraging or damaging private activities in developing countries. The international institutions also report that ‘poor management akes buffer stocks ineffective…There is repeated evidence that releases are made too late to influence food prices or to safeguard food security. Abrupt and unpredictable changes in buffer stock operations raise market risk significantly and discourage private investment.’5
If food reserves have been poorly managed in the past or have not contributed to food security or price stability in many instances, this does not mean that the policy tools themselves are unable to stabilise prices. One could rather argue for better implementation of policy and better governance of food reserves to avoid patronage or damaging time lags between government announcements and the actual implementation of policy measures.
Adopting 'rules-based' approaches, whereby leaders are committed to acting according to pre-defined rules and triggers, may reduce the level of policy uncertainty and contribute to broader grain market development. Improved management would also imply investing in training and research to improve the capacity of implementing agencies to adapt the key parameters, including the size of the stocks needed or the domestic price band level (bearing in mind international trends). Finally, ensuring that farmers’ associations, the private sector and civil society organisations have the chance to actively participate in the governance and management of public stocks could significantly increase their transparency and accountability.
G20 leaders are concerned about a possible return to food reserve policies, but it should be borne in mind that taking a highly interventionist approach does not have to be the only way. Oxfam believes that governments should retain the ability to regulate the market to achieve their national food security objectives. But this should be within a clear and transparent framework of credible commitment to support investment in the development of sustainable, resilient and productive smallholder agriculture. Past experiences show the benefits of government intervention when it is restricted to avoiding market failures, making markets work more efficiently, or even creating markets when they do not exist – rather than substituting public activities for private activities. For example, from 1975 to the 1990s, Indonesia's food reserves have been efficient by just controlling around 10 per cent of the country's rice market. The government created institutions to promote savings and encouraged investment in transport infrastructure and market-places, while maintaining a price band (defining the floor and ceiling prices) wide enough to promote private activities when capital markets were particularly weak.
Developing countries should retain the ability to develop and regulate their domestic food markets and contribute to their food security objectives by mitigating price volatility through buffer stocks by:
• Setting a durable, transparent framework and adopting clear rules and triggers, such as price band and stock-to-use ratios, for public interventions in buffer stocks;
• Promoting public procurement from smallholders at a sufficient price, together with targeted support programmes such as access to credit, inputs and training;
• Developing strong institutional capacities to regularly update key parameters (e.g., the level of stocks needed, trend in market prices, etc.) and to adapt quickly to ever-changing realities;
• Ensuring efficient and accountable governance, with the active participation of farmers’ organisations, the private sector and civil society organisations. This needs specific support to smallholders and women’s organisations to develop their capacities to engage meaningfully in the management of food reserves at local and national levels;
• Developing synergies and complementarities between local, national and regional reserves to strengthen local food security and enhance regional trade.
G20 members, donors and international institutions should:
• Provide technical and financial support to developing countries for the creation and management of food reserves at local, national and regional levels, in order to limit price surges and as part of a broader strategy to enhance national food security;
1 See « Emergency food stocks in West Africa » : http://momagri.fr/UK/a-look-at-the-news/Emergency-food-stocks-in-West-Africa_988.html
2 The material is adapted with the permission of Oxfam GB, Oxfam House, John Smith Drive, Cowley, Oxford
OX4 2JY UK www.oxfam.org.uk. Oxfam GB does not necessarily endorse any text or activities that accompany the materials, nor has it approved the adapted text. To read the full version on Oxfam’s website : http://policy-practice.oxfam.org.uk/publications/preparing-for-thin-cows-why-the-g20-should-keep-buffer-stocks-on-the-agenda-133862
3 FAO, IFAD, IMF, OECD, UNCTAD, WFP, the World Bank, the WTO, IFPRI and the UN HLTF (2011) Price Volatility in Food and Agricultural Markets: Policy Responses. Policy Report to G20
4 J. Lin (2008) Prepared Remarks. Roundtable on 'Preparing for the next global food price crisis' organised at the Center for Global Development, The World Bank
5 Price Volatility in Food and Agricultural Markets
• Support innovative approaches and instruments to improve the management and efficacy of food reserves in the current context of integrated food and agricultural markets.