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challenge
The article first describes current The question of international food security in the 1980s has moved from
market conditions and the nature concern over real shortages to recognition of a more complex set of issues
of the food security challenge they relating to use of surpluses for food security. In 1974, the global grain bin
present. Second, the article con- was nearly empty; today it is filled beyond capacity. Nevertheless,
siders the kinds of food security
developing country importers experiencing periodic crop reversals and
measures which have been or
having to satisfy growing demand remain preoccupied with securing their
could be taken with respect to
food resources over time at non-inflationary prices. Conversely,
improving LDC operations in com-
mercial grain markets, using producers burdened with surpluses in wheat and coarse grains and falling
reserves to achieve supply and farm income are waging a competitive effort to boost international prices.
price stabilization objectives and The USA, in particular, has returned to a system of production controls
making food aid a more effective and export incentives designed to reduce the margin between world
instrument for food security. supply and demand. If effective, heavy stock draw-downs and real
shortages could usher in a period of high prices once again,
Keywords: Food security; Grain notwithstanding increased production elsewhere.
markets; LDCs Current conditions offer a unique opportunity to use today’s surpluses
as the basis for new food security initiatives. Moreover, the international
Dr Gilmore is Managing Director,
food security debate of the 1980s is less one-sided than in the last decade.
Gilmore International Consulting,
Efficient producers are groping for an effective means of improving their
1225 Nineteenth Street, NW, Suite
806, Washington, DC 20036, USA return on production just as developing country importers are searching
(Tel: 202 822-9650). MS Huddleston is for a way to achieve access to supplies to cover their own immediate and
Research Fellow at the International longer-term deficits under an acceptable price threshold. Present market
Food Policy Research Institute, 1776 conditions could be conducive to a resolution of both elements of this
Massachusetts Avenue, NW, Wash- shared problem. The food security challenge of today and the near
ington, DC 20036, USA (Tel: 202 862- future, therefore, resides in designing the proper mix of market strategies
5600). and food aid and national stock initiatives whose success is as much
dependent on importing developing countries as traditional suppliers or
donors.
World stock positions for wheat, coarse grains, oilseeds, and rice in
1982/83 are at record highs. World carryover stocks going into this
marketing year were almost 10% higher than the preceding year for
wheat and more than 7% greater for coarse grains. Early projections for
1982/83 showed roughly the same rate of increase. If realized, these
increases would widen the margin of supply over demand two years in
succession.
Notwithstanding a significant shortfall in Soviet production in 1981/82,
carryover stocks for the composite mix of grains and rice as of August
1982 represent 16% of expected utilization for the world as a whole
(excluding China), the highest since the early 1970s’ and well above the
10% level generally accepted as representing adequate security (see
Table l).*
Export prices not only reflect these stock accumulations but exceed
them in terms of the rate of depreciation. US wheat export prices were
down 13% and corn dropped roughly 20% by the end of the 1981/82
marketing year as compared to 1980/81 (see Figure 1). These declines
were repeated for every grain exporting country, but were particularly
dramatic for US varieties. Other important indicators showed similar
signs of a price slump. For instance, ocean freight rates on the tell-tale US
Gulf to Rotterdam route had reached $6.75 per ton as of 1 July 1982, the
lowest figure recorded since September 1978 for vessels in the 50000 ton
and over class. Declines were also registered on the lower volume routes
to developing countries, albeit at less dramatic levels than for the Gulf-
Atlantic shipping lane. When the effect of inflation on prices is taken into
account, the real decline in grain and transport prices since 1978 is even
more dramatic.
For many observers these indicators point not just to conditions of
global world food security but world food glut. There is a school of
thought which argues that actions on international food security and price
stabilization are irrelevant under present market conditions. Rather,
developing countries along with competing high-income importers can
cover their food deficits in the short and medium-term from existing food
supplies concentrated within the small exporter group of countries. There
Stock utilization ratios averaged 13% from are, moreover, untapped lines of credit which surplus producing
197!5-78, and 14% from 1979-82. countries are offering in their effort to promote additional foreign sales.
ZUSDA, Foreign Agricultural Circular,
Grains, 16 August 1982, p 2. When And prospects for other forms of export subsidy loom in the offing.3
Chinese stocks are included, the security There are those, of course, who recognize that there will continue to be
level has been estimated to be 17% and disparties in the allocation of these global food resources to individual
prevailing levels averaged 19% between
1977 and 1980 (Barbara Huddleston. Fiona countries. And some also perceive that the current position reflects not
Merry, Phil kaikes and Christopher only the ability of traditional exporters to continue increasing yields and
Stevens, ‘The EEC and third world food and expanding production, but also a slowdown in demand increases as
agriculture’, in Christopher Stevens, ed,
EEC and the Third World: A Survey 2, ODV recession spreads around the world. On both counts current market
IDS, London, 1982. conditions are therefore no cause for unmitigated optimism about
3The EC under its Common Agricultural resolving the dilemma of long-term international food security. Because
Policy offers exports of wheat and wheat
flour at subsidized prices in addition to food of the reduction in purchasing power caused by worldwide recession, the
aid grants. In October 1982, the USA drew paradox has been that today’s global food surpluses do not guarantee
from special export promotion funds to food security, even in the short-term. In addition, present conditions
provide interest free credits and govern-
ment guarantees under a new blended argue in favour of taking advantage of overproduction in key agricultural
credit programme. economies in conjunction with national agricultural development
Table 1. Ending stocks position for wheat, coarse grains, and rice, 1974/75-1982/83 (projected).
240 .
- Nominal price (IWCindicator)
--- - Real price (1980 dolbrs - fob Atlontic parts.)
120
110
loo
Figure 1. Comparison of real and
nominal wheat prices.
stration in 1981/82 in a vain effort to prevent budget costs for farm income
support programme from soaring out of sight. These measures provided
that only farmers participating in acreage reduction programmes desig-
nated for each crop could be eligible for deficiency and programme
support payments. Because of low prices, farmer enrolment for the first
year reached a national average of 81%) but final certified compliance for
wheat averaged 49% nationwide. The discrepancy can be attributed to a
widespread assessment by US farmers that government support pay-
ments accompanying participation in the acreage reduction programme
were not great enough to compensate for the lost revenue from reduced
production.
Despite the negligible effect of last year’s programme, increased parti-
cipation in 1982/83 is likely due to extremely low market prices for wheat
and feedgrains, and the new paid land diversion programme plus higher
loan rates on wheat and corn legislated by Congress during the debate on
farm legislation shortly before the fall elections. If effective, the measures
would reduce the size of surplus stocks held in US grain elevators and
push market prices above the levels which trigger income support pay-
ments by the US Treasury. As long as world stocks remain above the food
security level, there is little prospect that production cutbacks will cause a
significant increase in prices. However, as the stock/utilization ratio
drops below the safety margin, prices start to move up, rising at a faster
rate the more the ratio declines.6
While the estimated stock/utilization ratio in the USA came to 41% for
wheat and corn before the new US legislation was passed, estimates for
the impact of combined land diversion payments and voluntary acreage
reductions at 20% of base acreage for wheat and 15% for corn suggest
ending stocks could fall by as much as 21.2 million tons for these two crops
alone. This could reduce the total stock/utilization ratio to about 36%,
and cause farm prices to rise to about $3.60 per bushel for wheat and
$2.90 for corn.’ If there is massive Soviet buying in response to sup-
posedly poor harvests during 1982/83, these price increases could be even
greater, with adverse consequences for developing country importers.
The immediate dilemma for developed countries is that programmes
which rationalize domestic production and stock outcomes may in-
advertently work against food security and price stabilization objectives
for developing countries. On the other hand, if production is not curtailed
and stocks are allowed to increase indefinitely, the rock bottom world
market prices may force the USA and other exporters into dumping their
surpluses in ways which work against the long-run production goals of
developing country importers.
Long-term challenge
6Barbara Huddleston, D. Gale Johnson,
Shlomo Reutlinger, and Albert0 Valdes, While it is convenient to attribute responsibility for international food
International Finance for Food Security, security to the USA because of its dominant supply position,8 other
World Bank monograph, Johns Hopkins developed coutries also pursue policies with more adverse effects on
University Press, Baltimore, MD, forth-
coming. world market stability. In fact, US policies traditionally have been pre-
7Figures derived from Congressional dicated on the notion that retention of a relatively open market system
Budget Office, Staff Working Paper on Paid will have a more stabilizing effect as consumption increases worldwide
Acreage Diversion Program, 24 June 1982.
*For 1982/83. US wheat production is than a managed market system. Moreover, the comparatively large uti-
estimated at 18% of total world production lization base within the USA is more likely to endure lower export prices
and exports at 48% of estimated world for agricultural commodities than competing surplus producers. Thus US
trade; for feedgrains the estimated per-
centages are 30% of world production and supplies are generally marketed at low prices compared with other sup-
84% of world trade. plies during surplus production periods. Under these circumstances, the
Union, which dominate the market. Not only can they maximize their
savings through certain efficiencies, but they can also enhance their food
security by introducing appropriate commercial reforms. In so doing,
they can purchase in advance of their immediate consumption
requirements to account for favourable seasonal trends, money market
developments, transportation costs, and other relevant indicators.
Food security requires maximum flexibility in responding to varying
economic and social conditions, and commercial sophistication for LDC
importers facilitates this adaptation process. The problem is that many
such importers have not succeeded in introducing the requisite reforms to
take advantage of existing market opportunities. The problem is com-
pounded by the structure of the market and the failure of many countries
to recognize resulting obstacles which LDCs must strive to overcome.
Although they are becoming increasingly important buyers as a group,
the participation of individual developing countries in the grain trade is
still quite limited, because of certain structural and procedural
characteristics:
food aid will be required in some future years, makes this approach a
feasible option.
If there is movement in this direction, the proposal discussed earlier to
establish some sort of ‘food security assistance committee’ under inter-
national auspices becomes all the more important. The advantages which
would flow from creating a coordinating mechanism linking food aid and
aid for stock creation include the following:
0 Both forms of aid will be effective only when recipient countries are
pursuing food strategies which strike an optimum balance between
maximizing domestic production possibilities and maximizing
external trade opportunities; it is inefficient and sometimes counter-
productive for both donors and recipients to continue reviewing
these policies separately for each form of assistance.
0 Food aid can sometimes be used as an alternative to reserve stocks, at
other times as a source of supply for creating reserve stocks. In both
cases the effect of food aid and its availability must be explicitly
considered in formulating optimum procurement and stocks policies.
0 Conversely, the utility of food aid is affected by a country’s capacity
to manage its own internal marketing system. Where this manage-
ment capacity is deficient, a programme of assistance which offers
commodity aid as an adjunct to other assistance for storage and
marketing programmes can make both types of help more effective.
Under the auspices of such a committee, the respective roles of food aid
and of national stocks could be weighed and appropriate action taken in
response to both normal year-to-year harvest fluctuations and excep-
tional, widespread production shortfalls.
Conclusion
No single initiative adequately addresses the dual problem of stable
access to world food supplies at non-inflationary prices and a fair return
to efficient producers which constitute the joint concerns of LDC
importers and DC exporters in international food security. Given current
economic, commercial, and political conditions, the question for LDCs
remains how best to achieve an acceptable level of food security at
minimum cost. Too frequently LDC governments have pursued a line of
entrapment where the responsibility for resolving this dilemma rests with
the world’s principal producing countries. This position is neither entirely
appropriate nor productive. Rather, the present climate underscores the
need for political and economic readjustment that is both international
and unilateral in nature and rests on a number of fundamental pro-
positions: