Preparing for Thin Cows: Why the G20 should keep buffer stocks on the agenda | Food Security | Foods

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The issue of food price volatility is back on the political agenda of the G20 and the Committee on World Food Security. The time has come to reassess the potential of food reserves in the context of more integrated but also more volatile agricultural markets. On the basis of good practices, it is recommended 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.
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  Oxfam Briefing Note 2 1  June 2011  reparing for thin cows WHY THE G20 SHOULD KEEP BUFFER STOCKS ON THE AGENDA www.oxfam.org/grow   Katelin Nwaka in Manchali cereal bank in the region of Dodoma,Tanzania. © Pablo Tosco, Intermón Oxfam (Tanzania, 2009). The issue of food price volatility is back on the political agenda of the G20 and the Committee on World Food Security. The time has come to reassess the potential of food reserves in the context of more integrated but also more volatile agricultural markets. On the basis of good practices, it is recommended 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.  2 1 INTRODUCTION Despite their will to demonstrate a strong political engagement, world leaders have struggled to define co-ordinated responses to cope with the effects of the food price crisis. ‘Have we already forgotten the “riots” in Haiti or Africa when prices of certain food products suddenly exploded?’ asked the French President, Nicolas Sarkozy, in a recent speech, before recognising that ‘Between 2008 and 2010, nothing has been done’, 1  although the issue had been raised as a priority at meetings of the G8, G20 and the Food and Agriculture Organization of the United Nations (FAO)’s Committee on Food Security (CFS). 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. The option of establishing national food reserves has been brushed aside using the same arguments that led to their dismantling in the 1990s. Despite the fact that the recent food price fluctuations reflect ‘a collapse in market confidence’, as underlined by Justin Lin, Chief Economist at the World Bank, world leaders are still prescribing the same policy measures to deepen market integration. But what can the market do to feed the people who are now living in extreme poverty because of the global economic collapse? Feeding people who have no purchasing power is not covered by market strategies. Will poor countries be able to buy their food in international markets at times of crisis, when their lack of foreign currency does not allow them to compete with other buyers? Will millions of poor consumers be able to buy food at affordable prices, when biofuel producers and better-off consumers are willing to pay more for the same foodstocks? 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. Food reserves can indeed be an instrument – when combined with other measures – to support domestic productivity gains, thus lowering net food importing countries’ dependence on international markets and enhancing national food security. Policy makers need to learn from past experience, but solutions also need to be adapted to the context. Regulating markets does not necessarily mean carrying out highly interventionist policies. 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. Since I joined, I could access enough food to eat, without moving to another village. I could repay my loan and could later store my maize surplus when the harvest was good.” Katelin Nwaka joined a cereal bank in 2006, when she lost her harvest and applied for a bag of maize on credit. Dodoma, Tanzania, 2009  3 2 PERSUADING G20 LEADERS TO PUT FOOD RESERVES ON THE AGENDA   Price shocks and turbulent economic times have stimulated international interest in grain reserves in the past. Following World War II and up until 1969, the International Wheat Agreements were successfully negotiated among major wheat exporters and importers. Then in 1974, at the World Food Conference, the US President Gerald R. Ford spoke in favour of an international grain reserves system, 3  following the 1973/74 price shocks. But negotiations held by the United Nations Conference on Trade and Development (UNCTAD) four years later collapsed due to the lack of agreement among stakeholders on trigger price, and stocks levels, and who was to contribute. 4   After decades of low interest in stockholding policies, the 2007–08 food price crisis put food reserves back on the agenda, and in July 2009, at the L’Aquila Summit, G8 leaders agreed to further explore ‘the feasibility, effectiveness and administrative modalities of a system of stockholding… as a means to limit price volatility’. 5  However, in their draft report to G20 dated May 2011 named 'Price Volatility in Food and  Agricultural Markets: Policy Responses', 6  the international institutions only make a very quick review of food reserves, and conclude that ‘as attempts to stabilize food prices have proved either costly or ineffective, market based initiatives may be superior in countering food price volatility and enhancing food security in developing countries’. 7   Current stock levels put food security at risk It is widely recognised that the level of world stocks of cereals – both private stocks and those of the main producer countries – influences the stability of international markets. Historically, when global stocks of cereals fall below 15 to 20 per cent of world consumption, 8  large price increases and a breakdown of functioning markets follows. The three main price spikes seen on world cereals markets in the past 50 years – :1973/74, 1995/96 and 2007/08 – have coincided with low stock-to-use ratios. 9  In 2007, this ratio reached 16.5 per cent of global grain production – the lowest level since 1973. 10  This earlier low point also led to a global food crisis, in 1974. Cereal production growth in the major producing countries significantly declined between 1980 and 2000, 11  resulting in major changes in world markets. China replaced the USA as the major  stock-holder , with 50 per cent of world stocks of wheat during the 1996–2000 period. 12  But following some deficient harvests that affected its stocks, world stocks of cereal collapsed to just two months’ worth of consumption in 2009. 13   ‘I think that we’ve got to stockpile food reserves at a global level more effectively than we have in the past.’ Barack Obama, comments on the ‘global food crisis’ during a Q&A session, 10 June 2008 2    4 Today, there is no country or co-ordinated international mechanism that performs the role of market stock-holder. Relying on private stocks may also prove to be a risky strategy. Private producers have no incentive to hold a ‘socially optimal level of stocks’; 14  moreover, private stocks are spread across producers, traders and sellers, and thus difficult to track. Despite a relative increase in cereals in 2009/10 following a good harvest, global grain stocks decreased again by 15 per cent in early 2011. 15  This could result in the world stocks-to-use ratio for grains falling to 17.1 per cent 16 at the end of 2011, putting food security at risk. In their report to G20 leaders 'Price Volatility in Food and Agricultural Markets: Policy Responses', international institutions warn of a high risk of volatility in prices in the coming years. Even expectations of depleted stocks may be enough to raise prices sharply. Given the high level of risk and the reluctance of G20 leaders to build global grain reserve mechanisms, Oxfam believes that developing countries – especially those that are dependent on food imports – should be encouraged to build food reserves, or buffer stocks, at regional, national and local levels in order to limit price surges and as part of a broader strategy to enhance their national food security.
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