Preparing For Thin Cows

Following the dramatic food price increases in 2007–08, an estimated 150 million people joined the ranks of those who go hungry. Since then, almost nothing has been done to stabilize the market and in 2011 prices reached a new record high. Low international grain stocks are one of the main causes of these crises.

On June 22-23rd the G20 is meeting to discuss the issue of food price volatility. In the preparatory papers, the option of establishing national buffer stocks has been brushed aside using the same arguments that led to their dismantling in the 1990s.

This briefing paper argues that local and national food reserves can play a vital role in price stabilization and food security policies. Contrary to the arguments developed by mainstream economists and echoed by world leaders, several experiences demonstrate that food reserves can be effective in limiting the transmission of international price fluctuations, and are often the last bastion when it comes to supplying domestic markets at times of crisis.

Food reserves can also 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.

Key recommendations

National Governments in developing countries should retain the ability to develop and regulate 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 bands and stock-to-use ratios, for public interventions in buffer stocks;
• Promoting public procurement from smallholders at a sufficient price, together with targeted support programs 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’ organizations, the private sector, and civil society organizations. This needs specific support for smallholders and women’s organizations 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.

As part of a broader strategy to enhance national food security and limit price surges, 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. G20 members should also support innovative approaches and instruments to improve the management and efficacy of food reserves in the current context of integrated food and agricultural markets.