The food security
challenge
The article first describes current
market conditions and the nature
of the food security challenge they
present. Second, the article con-
siders the kinds of food security
measures which have been or
could be taken with respect to
improving LDC operations in com-
mercial grain markets, using
reserves to achieve supply and
price stabilization objectives and
making food aid a more effective
instrument for food security.
Keywords: Food security; Grain
markets; LDCs
Dr Gilmore is Managing Director,
Gilmore International Consulting,
1225 Nineteenth Street, NW, Suite
806, Washington, DC 20036, USA
(Tel: 202 822-9650). MS Huddleston is
Research Fellow at the International
Food Policy Research Institute, 1776
Massachusetts Avenue, NW, Wash-
ington, DC 20036, USA (Tel: 202 862-
5600).
0306-9192/83/010031-15$3.00 0 1983 Butterworth & Co (Publishers) Ltd
Richard Gilmore and Barbara Huddleston
The question of international food security in the 1980s has moved from
concern over real shortages to recognition of a more complex set of issues
relating to use of surpluses for food security. In 1974, the global grain bin
was nearly empty; today it is filled beyond capacity. Nevertheless,
developing country importers experiencing periodic crop reversals and
having to satisfy growing demand remain preoccupied with securing their
food resources over time at non-inflationary prices. Conversely,
producers burdened with surpluses in wheat and coarse grains and falling
farm income are waging a competitive effort to boost international prices.
The USA, in particular, has returned to a system of production controls
and export incentives designed to reduce the margin between world
supply and demand. If effective, heavy stock draw-downs and real
shortages could usher in a period of high prices once again,
notwithstanding increased production elsewhere.
Current conditions offer a unique opportunity to use today’s surpluses
as the basis for new food security initiatives. Moreover, the international
food security debate of the 1980s is less one-sided than in the last decade.
Efficient producers are groping for an effective means of improving their
return on production just as developing country importers are searching
for a way to achieve access to supplies to cover their own immediate and
longer-term deficits under an acceptable price threshold. Present market
conditions could be conducive to a resolution of both elements of this
shared problem. The food security challenge of today and the near
future, therefore, resides in designing the proper mix of market strategies
and food aid and national stock initiatives whose success is as much
dependent on importing developing countries as traditional suppliers or
donors.
Current market conditions
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,
31
The food security challenge

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).

Ending stocksa Change from StOCkS/USea

Maketing year as of 30 June previous year ratio
(July-June) World USA World USA world USA
1974/75 134.0 27.5 _ _ 10.9 19.4
1975/m 142.2 36.7 +0.33 +0.06 11.5 23.7
1976177 195.5 61.6 +0.68 +0.37 15.0 40.1
Note: aStocks data for world exclude China. 1977170 190.4 74.2 +0.20 PO.03 14.3 45.5
Sources: 1974/75-l 976/71- USDA World Agri- 1978179 218.4 72.3 +0.15 -0.02 15.3 40.0
cultural Outlook Board: 1977/7~1979/80 - lg7g/80 192.5 79.4 -0.12 +0.10 13.5 442
World Agricultural Supply and Demand jg80/81 180.4 62.1 -0.06 -0.22 12.4 36.4
Estimates. WASDE-107. USDA, 14 October I~AI/RP 217.4 90.7 +0.20 +0.59 14.8 54.3
1980; 1980/81-l 982/83 - World Agricultural 1982l83 (August
.Sup~ly and Demand Estimates, WASDE-137, projection) 238.0 125.4 +0.09 +0.23 16.1 67.2
USDA, 12 August 1982.

32 FOOD POLICY February 1983

 The food security challenge

240 .
- Nominal price (IWCindicator)
--- - Real price (1980 dolbrs - fob Atlontic parts.)

120

110

loo
Figure 1. Comparison of real and
nominal wheat prices.

strategies in poorer deficit countries to ensure a sustained period of food

security over the long run.

Nature of food security challenge

Short-term problems
First and foremost for the developing countries is the problem of
exchange rates and national balance of payments. Although the nominal
price of grains is down to its lowest point in three years, the dollar is at an
all-time high. With a high debt burden worsened by low, if not negative,
returns on raw materials and manufactured products from developing
countries, the latter have seen their potential gain from low world prices
quickly evaporate. Their currencies have depreciated relative to the US
dollar, sustained by high interest rates as opposed to real increments in
productivity. In 1981, African currencies depreciated on average by 29%
against the dollar, Latin American currencies by 18%,4 and Asian
currencies by 14%. As a result, the purchasing power of developing
countries has suffered, impeding access to foreign-origin food resources.
Paradoxically, the trough in international agricultural prices has also
made it more difficult for developing countries to pursue production
incentive policies, since the cost of these incentives rise as the dollar value
of domestic currencies and external prices fall. When international prices
are low because producers are accepting negative returns to capital, as is
now the case, the availability of cheap food imports represents a market
distortion, not a market efficiency. Under such circumstances, the argu-
ment that food aid can undermine the agricultural economies of aid
recipients also applies to that large grey area labelled commercial sales.
In addition, the price of inputs has increased worldwide, albeit at a faster
rate for capital than for labour intensive farming. Under these circum-
stances, total food production in developing countries is not expected to
4Excluding the Mexican peso, which has increase by more than 2% during the coming year,5 whereas consumption
experienced an effective devaluation to requirements will continue to grow at faster rates, along with population
date as high as 120% against the dollar. and income.
YJS Department of Agriculture, World food
Aid Needs and Availabilities, Washington, For developed countries, current conditions are equally problematic.
DC, 1982, p 2. Measures to curb production were introduced by the Reagan admini-

FOOD POLICY February 1983 33

The food security challenge

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

34 FOOD POLICY February 1983

 The food security challenge

US market is more accessible over time to developing country importers

from the standpoint of commercial exports as well as concessional food
transfers than most other suppliers.
By comparison, other importing and exporting countries contribute
significantly to contemporary trends of price instability and supply uncer-
tainties. The European Community (EC) is an example of a highly
protected agricultural economy with inherent costs and benefits. Its
impact on food deficit developing countries is increasingly important due
to the fact that the EC now is the world’s third largest wheat exporter and
that the availability and value of these supplies are artifically determined.
With a levy/export subsidy system at work, agricultural prices and
volumes are determined as a function of internal political and economic
conditions rather than international supply and demand considerations.
As a result, the EC does not offer the benefits of a consistent residual
supplier for developing countries. Its pricing policies and regulated trade
flows can undermine agricultural development plans in these countries
and can inspire retaliatory actions on the part of competing suppliers
which compound the problem. The likelihood of this outcome is all the
more probable in a market where international commodity prices are
below an average positive rate of return on production.
In this case, surplus countries will seek every means possible to export a
portion of their excess supplies. The EC system automatically raises its
import levy as the spread between low international prices and higher EC
prices widens. The resulting surplus production is partially drawn down
through exports, introducing more supplies on the world market, and
thus, depressing prices even further. Although favourable in the short
term for LDC buyers, the longer-term consequences are likely to under-
mine these countries’ pricing policies and agricultural production goals.
Importers seeking to stabilize their own internal agricultural eco-
nomies through highly protectionist devices must share in this respon-
sibility of exporting a higher form of instability often thrown into the laps
of the most vulnerable developing countries. Japan is a case in point as is
the USSR. In both cases, their import levels are less a function of
international prices than domestic policies defining utilization require-
ments.9 These countries tend to introduce a range of uncertainties into
the market which defy a development planner’s efforts to hedge con-
structively against such risks. In times of scarcity, these countries are
assured preferential access to foreign food resources by the sheer weight
of their unassailable purchasing power.
Food aid is a collateral problem in terms of its destabilizing effects as
administered by donor countries. Concessional and grant assistance is
generally linked with a donor’s annual economic performance and
foreign policy objectives. In the absence of long-term commitments, food
aid flows are at best indeterminate and cannot be factored into an aid
recipient’s national account until their atual fulfilment. In many
instances, the concessional corridor mirrors the recurrent problems of the
commercial sector, both of which are run at the sufferance of political and
economic vicissitudes independent of any immediate or long-term food
requirements in developing countries.
The private sector can also detract from the achievement of a workable
state of price stabilization and food security for individual developing - _
countries. The role of many of the largest-international grain trading
9Japan’s Food Agency has jurisdiction over
import levels and wholesale pricing for houses is more perplexing than government’s in that it is harder to
wheat and barley. discern. There are a host of efficiencies which accompany certain

FOOD POLICY February 1983

The food security challenge
economies of scale and commercial technologies which at least six of
these companies embody. lo On the other hand, there are less
distinguishable inefficiencies rooted in their oligopolistic structure. In
theory, developing countries, just like other importers, can select out the
inefficiencies, but their market power is such that instances are rare
where the opportunities arise. Moreover, the profitability of the grain
trading companies rests on the following essential components which
often work at cross purposes with food security and price stabilization
objectives:

0 High volume sales and rapid turnover in handling.

0 Multilateral sourcing to secure grain access from principal supply
origins.
0 Price movements within widely fluctuating price bands.
0 Supply uncertainties.
0 Large-lot transactions delivered in large vessels.
l Active hedging operations.
0 Vertically and horizontally integrated operations in supplying and
importing countries.

To minimize disparities in the allocation of global food resources to

individual countries and maximize countries’ ability to take advantage of
variable market conditions, one argument runs that multilaterally-
secured trade liberalization can do more for world food security than
international food reserve initiatives .l* Three major exporters, the USA,
Canada, and Australia have disavowed past efforts to establish a
multilateral reserve system on the grounds that the market and current
economic conditions can achieve the same objectives more effectively. A
collateral to this policy is an increased emphasis on encouraging
developing countries to achieve food self-reliance through production
and consumption efficiencies obtained by giving domestic markets
greater flexibility.
Another view put forward by the Secretariat of the World Food
Council for consideration by the Eighth Ministerial Meeting in June 1982
asserts that the current market glut is temporary, and that this is an ideal
time for countries to join in negotiating an agreement which would
remove up to 10 million tons of grain from the market and create a reserve
from which developing countries could draw when the market tightens
again.12 There certainly is evidence to suggest that existing marketing
systems are not adequate to ensure international food security for all
countries alike, even though available supplies currently appear
excessive. However, it would be a mistake to conclude from this that the
answer lies in the revival of old solutions. That present conditions do not
relieve basic food concerns of developing countries is not to suggest that
the remedy lies either with elaborate multilateral schemes or through a
pure laissez-faire approach to the problem. There is a better way to join
the debate, deriving distinct benefits from both positions.
Ttichard Gilmore, A Poor Harvest: The
Clash of Policies and Interests in the Grain Clearly what is needed, then, is a realistic approach to international
Trade, Longman, New York, 1982. food security which will allow developing countries to take advantage of
“Robert Paarlberg, ‘A food security global supply fluctuations in ways which neither strain their limited
approach for the 1980s: righting the
balance’, Agenda 1982, Overseas Deve- foreign exchange resources nor work to the disadvantage of their
lopment Council, pp 89-95. domestic production strategies. Some food security measures have
lZWorld Food Council, World Food Security already been adopted by national governments and international
and Market Stability: A Developing
Country-Owned Reserve, WFC/1982/5, organizations which respond to these concerns; yet other practical steps
Rome, March 1982. could be taken at relatively low political cost for both exporters and

FOOD POLICY February 1983

 The food security challenge
importers. These measures may be grouped under three headings: those
which improve the capacity of LDC importers to operate efficiently in
commercial grain markets; those which contribute to supply and price
stabilization in both domestic and international markets; and, those
which enhance the effectiveness of food aid as a food security resource for
low-income countries. The remainder of this article deals with each of
these in turn, discussing first the likely impact of measures which have
already been taken and then the merit of proposals for further action.

Operations in commercial grain markets

As already noted, the absence of food security for developing countries in
today’s market is defined mainly in terms of financing, exchange rates,
knowledge-intensive skills, and handling-related concerns. Despite the
increased availability of favourable exporter credit in times of surplus,
financing is a persistent problem for a range of developing country
borrowers faced with a disequilibrium in their balance-of-payments. The
credit crunch becomes even more serious in times of shortage when
exporter subsidies dry up and world prices rise.
To alleviate both problems and make it possible for developing
countries to finance commercial purchases regardless of world market
conditions, the International Monetary Fund (IMF) recently extended
the coverage of its Compensatory Financing Facility to include above-
trend costs of cereal imports. This permits countries to borrow from Fund
resources in an amount equal to the excess cost of cereal imports above
the trend value for a given year, unless this excess cost is offset by
above-trend export earnings. The credit is offered at favourable interest
rates, but must be paid back within three years. Since the facility’s
purpose is to permit countries to manage the financing of commercial
cereal imports with greater ease, it will benefit primarily those countries
which purchase sizeable quantities of cereals commercially from time to
time. I3
Low-income countries do not usually fall in this category, as they can
seldom afford to import cereals except with highly concessional assist-
ance. In 1974-78 for example, middle and high-income countries
imported an average of 48.8 million tonnes commercially per year and
received 3.5 million tonnes of food aid, whereas low-income countries
imported 6.7 million tonnes commercially and received 4.3 million tonnes
of food aid.14 On a per capita basis, middle and high-income countries
took 28.6 tonnes per thousand persons commercially and 2.0 tonnes in
food aid in 1976-78, while low-income countries took 5.5 and 3.6 tonnes
respectively. Low-income countries may be forced to use the facility in
particularly difficult years if no other source of assistance is available, but
for them the three-year repayment period merely postpones the inevit-
able strain which their commercial purchases will create when the pay-
ments become due. This drawback also applies to existing credit
programmes offered by exporting countries. For middle and high-income
countries, by contrast, the availability of IMF and other credit enables
them to cope efficiently with temporary balance of payments problems
caused by fluctuations in the amounts and prices of their cereal imports.
What these countries all share, however, is the need to refine their
13Huddteston,et a/, op tit, Ref 6. procurement technologies. Food aid recipients and commercial buyers
‘4BarbaraHuddleston, Closing the Cereals
Gap with Trade and Food Aid, IFPRI, alike must enter into the world market to cover their import requirements
Washington,DC,forthcoming. in competition with such importers as Japan, the EC, and the Soviet

FOOD POLICY February 1983 37

The food security challenge

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:

0 Absence of adequate price, supply, and commercial information and

analysis to assess significant market developments.
0 Government-run import/buying agency monopolies.
0 Relative scarcity of foreign exchange.
0 Higher commercial risk for LDCs.
0 Relative decline of food aid.
0 Small-scale purchases of foreign-origin grains, rice, and pulses.
0 Importing for immediate consumption requirements.
0 Low-grade port/internal handling, storage, and distribution facili-
ties.
0 Traditional consumer preferences.
0 Graft.

This same group of countries also shares a common opportunity. With

global supplies of all cereals at record levels, and hence, real prices below
the cost of production in even the most efficient producing countries,
LDC buyers that initiate certain reforms now can stretch a windfall profit
into a long-term gain. In general, the degree of loss or gain will depend on
the extent of reform appropriate for each country.
At a minimum, most LDCs have come to accept the need to plan major
purchases one year in advance to obtain negotiating flexibility and avoid
inefficient, unpredictable deliveries. Demurrage charges, delays in
discharges, cargo deterioration, and other costs are too great for LDC
governments to neglect an annual import review process at the
interministerial level. In addition, LDCs should consider relaxing tender
procedures, particularly for emergency purchases which will inevitably
be needed in some years. By giving the shipper opportunity to fix freight
and insurance charges at the time of sale, excess margins to cover the
seller’s risk can be avoided, with savings of up to 10 to 15% of the value of
the contract. l5
As already noted, LDC importers pay a substantial premium for their
habit of being spot buyers. To regain an acceptable level of market
control, they must achieve a greater degree of flexibility. For many
‘5World Food Council, Procurement Prac- countries a form of forward contracting may not be the answer, but larger
tices and Alternative Import Strategies for working stocks are. It is not suggested that at this stage individual LDCs
Developing Countries; Gilmore- Inter-
national Consulting, 13 January 1982, attempt to store enough grain to cover annual utilization requirements.
WFC/1982/5/Add 1. Rather, it would be sufficient to think in terms of 2-3 months of stock in

FOOD POLICY February 1983

 The food security challenge

the pipeline with another 2 months in storage (varying to an extent on a

case-by-case basis). This amount would ensure uninterrupted
distribution and a small buffer stock. If they act under current market
conditions, LDCs could buy grains at non-inflationary prices and obtain
the prerequisite level of flexibility to operate as futures buyers on the
open world market.
For those countries lacking suitable storage facilities, their forward
purchases would have to be held in the form of futures contracts.
Inventories stored in a neighbouring country might be preferable from a
food security standpoint, but less practical for political reasons. These
countries could also store their reserves in the supplying country, but
carrying costs, freight questions, and a level of political uncertainty might
make this option less attractive.

Use of reserves for supply and price stabilization

The question of appropriate reserve policy at both national and inter-
national levels is an important aspect of food security. For developing
countries the issues are the amount of stocks needed at different times of
the year to assure supply and price stability throughout each marketing
season, the amount of stocks needed as a reserve against occasional
emergencies, and the kind of international stabilization agreement, if
any, which merits support. For developed countries the issues are the
kind of support required by developing countries for improving their
national stocks programmes, the role of exporter stocks in assuring
international supply and price stability from year to year, and the kind of
international stabilization agreement, if any, which merits support.

National stocks programmes in developing countries

Since 1974, a number of developing countries have received assistance for
creation of reserve stocks under the auspices of the FAO Undertaking on
World Food Security and the FAO Food Security Assistance Scheme.
Much of this assistance has been intended for buffer stocks to safeguard
against unusual emergencies. Unfortunately, this approach did not take
into account the need to improve management of working stocks in many
countries as a precondition for designating some portion of these stocks
as a food security reserve.
Sound management of domestic price and procurement policies will
necessitate accumulation of larger working stocks in many developing
countries. Incentive prices for farmers will inevitably produce surpluses
in some years, and the government will have no choice but to purchase
and store these surpluses consistent with its overall pricing and pro-
duction goals. At the moment, however, many government purchasing
agencies are ill prepared to handle this eventuality, either from the
standpoint of financing stock accumulation or of managing the physical
stocks.16 Imports are the other side of the stock building and manage-
ment equation. Efficient procurement and handling technologies will
assist in reducing the costs of carrying stocks and permit better allocation
of foreign-source grain through domestic distribution channels.
Bilateral and multilateral donors have increasingly recognized that
Wheryl Christensen, ‘Emerging food much of their assistance must be used for necessary improvements in
problem and policy responses in Africa’, storage and marketing systems before it can be directed to creation of
Paper presented to American Agricultural
Economics Association, Logan, UT, August reserves. In this connection. the International Wheat Council has con-
1982. sidered whether to create a special subcommittee to evaluate foreign

FOOD POLICY February 1983

The food security challenge
“As noted earlier, some developing
countries may find it desirable to create
some stocks over and above the normal
needs of the market, particularly if they are
regular importers and need to assure un-
interrupted supply.
‘*Gilmore, op tit, Ref 10.
40
assistance flows for stock creation in developing countries. If established,
this committee would serve as a forum for coordinating allocation of both
food aid and financing to create such stocks, irrespective of whether the
intended purpose was to improve market management or create true
food security reserves. l7 This idea was set aside when negotiations for a
new International Wheat Agreement broke down in 1979, but it deserves
further consideration on its own merit, possibly as a new provision of the
next Food Aid Convention or as a new activity for the governing body of
the World Food Programme.
Existing exporter reserves
Partly for domestic policy reasons and partly to respond to international
pressure following the 1974 World Food Conference, the USA adopted a
unilateral reserve policy in its 1977 farm legislation. Crops held in reserve
in the USA have traditionally been acquired by the Commodity Credit
Corporation (CCC) as payment for non-recourse loans by producers.
The new law established farmer-owned reserves (FOR) for which storage
subsidies are paid, providing farmers agree not to release stocks unless
prices reach fixed levels which are anywhere between 20 and 35% above
the current market price, depending on the crop. Unlike CCC-held
stocks, these reserves are not working stocks in the sense of their being
readily accessible for domestic or foreign purchase. The primary purpose
of the programme, indeed, is to raise domestic, and hence, international
prices by isolating a fixed portion of supply from the market when world
prices are low.
A secondary purpose is to provide a backstop to international food
security by giving farmers incentives to release stocks and by drawing out
private stocks as prices rise. In fact, application of the programme under
the Carter administration served to introduce more price instability and
uncertainty than in its earlier absence. l8 This is because farmers tended
to unload stocks in spurts as prices climbed towards the release trigger,
causing rapid shifts in marketings and sharp fluctuations in price. The
programme has not been tested in a true food emergency however, but
certain modifications in the programme offer the prospect of correcting
such destabilizing effects.
The economic argument for creating the farmer-held reserve was that
when world prices are low, exporters must build up stocks or pay farmers
to take land out of production, either of which represents an unavoidable
cost for their domestic farm programmes. The effect during low price
periods should be to reduce somewhat the size of effectively available
stocks by isolating a portion of production under the FOR programme,
thereby triggering some increase in price for a given ratio of world stocks
to world consumption. This benefits producers and reduces the cost of
domestic farm programmes in exporting countries, while increasing the
cost of cereal purchases for importing countries. However, as the world
price approaches the trigger for releasing stocks, release of privately-held
stocks could be expected in advance of release of stocks from the reserve,
and the effects of both actions together would dampen price increases and
encourage more consumption than if no stocks had been set aside. This
benefits consumers in all countries either directly or through reduction in
the cost of imported cereals for governments which subsidize domestic
f oo d prices. Thus unilateral reserves in exporting countries, if properly
managed, can contribute simultaneously to domestic goals and world
food security.
FOOD POLICY February 1983

19WorldFood Council, op cit. Ref 12.
Z”While recognizing the need for food
security preparedness in the event of
another period of worldwide scarcity and
high prices, ministers participating in the
June meeting of the World Food Council
concluded that this proposal required
further study and elaboration before a
decision could be taken to proceed with
negotiations. In the WFC’s subsequent
report to the Second Committee of the UN
General Assembly, modifications were
proposed which would remove the uniform
release price provisions entirely in an effort
to make the reserve more responsive to
individual LDC food security requirements.
*‘James P. Houck and Man/ E. Rvan.
Economic Research on lntem&ional drain
Reserves: The State of Knowledge, Bulle-
tin 532-1979, University of Minnesota,
Agricultural Experiment Station, 1979.
FOOD POLICY February 1983
The food security challenge
Current multilateral reserve proposals
Similar arguments have been used to defend the idea of a multilateral
reserve held by and designated only for developing countries. The World
Food Council proposal of June 1982 called for negotiation of a buffer stock
agreement which would qualify for assistance under the IMF Buffer
Stock Facility. l9 Such an agreement would provide for buffer stock
purchases by developing countries in amounts up to one year’s normal
import requirement. The IMF would finance these purchases at 6.5%
over a three-year period. In addition, developed countries would be
asked to subsidize all or part of the storage costs for countries requiring
such assistance. The agreement would establish acquisition and release
prices, but might provide for early release for countries willing to repay
the storage and interest subsidies obtained as a result of participation in
the agreement.
A reserve agreement along the lines proposed could be useful to
developing countries if the exporters agree to pay the cost of storage as a
cost attributable to domestic farm programmes, if the reserve is created
through stock purchases by developing countries at subsidized interest
rates, and if the price range is low enough to assure acquisition and
release at prices favourable to LDC interests. However, it is not clear that
a reserve agreement providing equitable benefits to both developed and
developing country participants is negotiable.20
Fixing a satisfactory price band for a multilateral agreement poses
many problems. It is in the nature of such agreements that the stock
acquisition and release prices be relatively automatic. If the acquisition
price is too low, countries run the risk that the market will not drop to the
level necessary to permit stock acquisition. If the acquisition price is too
high, the benefits to participants are reduced because of the higher cost of
acquiring stocks. Similarly, if the release price is too low, stocks may be
drawn down prematurely from the standpoint of food security and
exporters may face depressed market prices even though current harvests
are below normal. But if the release price is set too high, developing
countries may not be able to get access to their own reserve stocks in years
when domestic production conditions require extra imports.
A second set of problems relate to the uncertainty about how often
reserve stocks created by a multilateral agreement would actually be
needed. The cost effectiveness of holding stocks depends on the length of
time the stocks are held, the differential between the purchase and sale
value of the grain, secondary price effects on cash and futures markets,
and rates of inflation, interest, and monetary exchange. The longer
stocks are held, the less likely it is that the final sale price will fully cover
the storage and interest costs of holding the grain.
A number of analysts have demonstrated that a period of high prices
similar to that which occurred in 1973-75 could be expected at least once
every decade if historical patterns repeat themselves.21 On this basis it is
often assumed that reservk stocks wduld be needed frequently enough to
avoid the excessive cost associated with long-term holding. However,
past experience indicates that while this factor has an important bearing
on the outcome as to cost-effectiveness of a reserve, there is no certainty
about the number of years which will intervene between a low price and
high mice vear.
ko; developing countries there is some risk in participating in a multi-
lateral reserve agreement, even under the favourable conditions pro-
posed to the World Food Council. Depending on the level of acquisition
41
The food security challenge
and release prices established by the agreement, a country could find that
the cost of carrying a reserve stock exceeds the value of the stock at the
fixed release price within three to five years after acquisitions.22 If the
country also has to pay some part of the storage cost, the time period
during which stocks can be economically held will be even’shorter. Other
uncertainties relate to future interest rates, currency exchange rates, and
shipping and handling conditions.
From the developed country perspective, unilateral reserves as an
adjunct of domestic farm support programmes may make some sense, but
it is not clear that a multilateral reserve agreement subsidized through the
IMF and bilateral storage grants is equally advantageous. In a unilateral
programme, the country holding the stocks takes a risk that its costs will
not be fully recovered, and if necessary it sets this off as a cost of farm
income support. However, it also retains the possibility of gain from the
operation of its reserve programme. In a multilateral reserve arrange-
ment subsidized by exporters, the exporters would be transferring this
possibility of gain to the developing country stockholders participating in
the agreement.
As pointed out above, donor support for grain storage and marketing
programmes in individual developing countries is clearly desirable. How-
ever, assistance for a multilateral reserve arrangement will reduce donor
flexibility in managing their own farm programmes in return for an
arrangement in which the gain to intended beneficiaries is not assured.
Moreover, a developing country reserve styled after the FOR in the USA
is not likely to translate into appreciable gains for growers in the USA.
The effect on price is hard to calculate because of the relatively large size
of the proposed reserve (9-12 million tons), and because acquisition-
release mechanisms most favourable to LDC interests would not shield
the farmer from the problem of enforced low ceilings on prices.

Food aid reforms

For developed countries, an approach more compatible with domestic
objectives may be to improve the responsiveness of food aid programmes
to the food security requirements of low-income countries with limited
foreign exchange reserves and fluctuating cereal import requirements.
This would require more explicit commitments to provide extra food aid
to cover exceptional import requirements of low-income countries,
backed up by unilateral reserves created as an adjunct of domestic farm
support programmes but restricted for release only to meet such food
security commitments.
Because of the chronic scarcity of foreign exchange and the lack of
control over domestic production and marketing systems in these low-
income countries, they are least able to take advantage of other food
security options offered by the international market. Consequently,
these countries need assurance that tonnages, financing, and transport
will be provided for extra cereal imports when production levels are low
or world prices are high. These countries normally devote less than 2% of
their annual foreign exchange earnings to commercial cereal imports, and
few could afford to increase this share in the face of larger import
%ost in this case equals the purchase requirements and/or higher world prices. Their only alternatives are to
price plus the interest payment on the IMF seek additional concessional assistance or accept the adverse conse-
credit during the first three years after
purchase, plus interest at market rates
quences for domestic consumption. Until domestic economic conditions
thereafter. improve, their food security needs can best be met through food aid

42 FOOD POLICY February 1983

 The food security challenge

commitments which will guarantee that unexpectedly large global

requirements arising from widespread production shortfalls can be met,
regardless of world market conditions.
One form of commitment which donors have so far failed to formalize
is the practice of supporting the World Food Programme’s International
Emergency Food Reserve at an annual level up to 500000 tons. This
reserve does not consist of a physical stock. Instead donors agree each
year on a level of contribution which they will make on a fast track in
response to emergency request channelled through the World Food
Programme. At present, the level of contribution is decided annually-
certainly there would be greater food security for potential recipients if
there were a multiyear commitment to a figure on the order of 500000
tons.
This amount should be sufficient to provide extra help to certain
countries with supply problems in normal years. However, it can scarcely
make a dent if there is a large-scale emergency. In years of widespread
production shortfall and low carry-over stocks, the amount of con-
cessional assistance required to meet food security needs could be sub-
stantially greater - some estimates place the figure as high as 12 to 16
million tons for developing countries as a whole.23 Donors could
theoretically commit themselves to increase food aid in times of world-
wide shortfall and high market prices on the strength of their own word,
but as a practical matter this would not be realistic unless they created
some kind of grain reserve to back up the commitment. Donors generally
implement food aid programmes by appropriating a fixed sum of money
each year for the purchase of commodities to be distributed as food aid. If
world prices are high, the appropriation will normally purchase less, not
more grain, and it is politically difficult to seek supplemental appro-
priations in a time of crisis.
Recognizing these constraints, the USA adopted legislation in 1978
creating a four-million ton wheat reserve to back up PL480 commitments.
This reserve assures that if grain prices are high and funds are tight, the
USA can nevertheless meet its minimum annual commitment of 4.5
million tons under the Food Aid Convention. The problem is that current
US assistance amounts to nearly 6 million tons. Thus a reserve which does
no more than back a minimum commitment will not provide true food
security in years when requirements are exceptionally large. This prob-
lem can be corrected by strengthening the food commitments under the
Food Aid Convention, and encouraging other donors to join the USA in
creating a network of unilateral reserves which will provide adequate and
explicit back-up for these strengthened commitments.
Article IV of the Food Aid Convention goes part way toward making
the necessary commitment. It provides that the governing body may
recommend that members increase the amount of aid available when
there are widespread shortages in developing countries. However, this
article will provide a true food security guarantee only if it is obligatory
rather than voluntary. As pointed out earlier, for exporters accumulating
stocks as a consequence of domestic farm programmes, the necessity of
holding them longer than is cost-effective may arise even if they are not
tied to food security commitments to LDCs. If food security benefit can
be obtained from a policy action which exporters will pursue in any case,
23Barbara Huddleston, ‘World food security it seems reasonable to suggest that steps be taken along these lines to
and alternatives to a new international
Wheat Agreement’, New lnterrtational ensure that this benefit is obtained. The current stock position in major
Realities, Vol6, No 2, March 1982. exporting countries, and the likelihood that unusually large amounts of

FOOD POLICY February 1983 43

The food security challenge

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:

0 Present international agricultural conditions and marketing systems

and institutions offer new means of achieving international food
security for developing countries in the next decade.
0 Concessional food resource transfers, if reconstituted under longer-
term commitments, differentiated policies responding to LDC eco-
nomic requirements, and tighter multilateral coordination, can be
beneficial to qualified aid-recipient countries.
0 The political climate in the context of existing economic conditions
does not augur well for elaborate new initiatives that require sub-
stantial additional expenditures among principal food donor
countries, unless their domestic interests are clearly well-served.

44 FOOD POLICY February 1983

 The food security challenge

0 Surplus countries have tangible self-interests in contributing to more

equitable allocation of existing food resources and in promoting
market conditions where food security and price stability prevail over
the long-term.
0 Political and economic sophistication in the leadership and decision
making levels of developing countries enhances the prospects for
maximizing the benefits from current market conditions as well as
introducing those measures most appropriate to longer-term national
food security and self-reliance.

The derivatives of these propositions are the solutions themselves. For

developing countries they range from small measures such as introducing
efficiencies into procurement and marketing practices to large pro-
grammes focusing on domestic price policies and agricultural develop-
ment plans. For developed countries they include improvements in
operational rules for national stocks, clarification of objectives, and
improvement in the flow of assistance for both immediate consumption
needs and longer-term food security requirements for LDCs.
The necessary steps to achieve these solutions must be taken at both
national and international levels in a coordinated way. Neither unilateral
nor multilateral measures alone are sufficient. Acceptance of burden
sharing and mutual responsibility is the starting point. With a common
sense of purpose, it should be possible for the international community to
move forward in constructive ways to assure adequate and financially
accessible food supplies in world markets year after year, despite fluc-
tuating production conditions. Today’s apparent surpluses afford the
opportunity to renew that sense of purpose and respond creatively to the
continuing food security challenge.

FOOD POLICY February 1983 45