Food Security: New Market Variables and Rational Public Policy Choices
by Kendell W. Keith
With a forward by Joseph Glauber, Chief Economist, USDA
National and global food security has become a topic of great interest following recent commodity price spikes in 2008 and 2012. The downward trend of grain stocks is related to higher demand from increased incomes, higher protein diets, and biofuels, the combination of which seems to have set the stage for more frequent episodes of high volatility in food markets related to weather and other potential supply disruptions. These developments have led to considerable dialogue regarding possible need for greater government intervention in markets to provide for improved assurance of food at reasonable prices. Even in the U.S. some farm groups are calling for the re-establishment of a farmer-owned reserve for grain—a program terminated over 16 years ago. Recent research offers considerable evidence that private markets remain the best mechanism for distributing relatively scarce stocks. However, it is unrealistic to expect zero intervention by governments. The critical links between national security and food security, the strategic importance of food, and prospects for internal political unrest caused by food shortages are all significant matters of public policy in many countries. So, political leaders will continue to be drawn into some form of oversight or involvement in food supply/distribution management for a variety of reasons. The conclusions of this paper are that governments should: 1) avoid significant intervention in markets (such as trading futures or accumulating large stocks) which could distort efficient distribution of grain and food; 2) invest in the collection of stocks data and work cooperatively with other countries to make such data public for a more efficient global food distribution system; 3) participate in ongoing dialogue with other countries on methods to discourage government policy shifts that aggravate impacts of temporary shortages; and 4) if viewed as necessary, supplement private grain stocks with low levels of stocks held for strictly humanitarian and emergency needs. Government holding of large stocks discourages private stock accumulation, distorts market signals and impedes timely supply and demand responses in private markets.