Q & A

Why do we need regional reserves?

To moderate the volatility of food prices.

What are the benefits to society of moderating price volatility?

We can prevent

  • Hunger and food riots (caused by high prices for food)
  • Farm bankruptcies (caused by price slumps). Low prices can be ruinous for farmers – as described in John Steinbeck’s novel, The Grapes of Wrath (1939).

We can

  • discourage excessive speculation in food commodities.
  • calm the world market. If governments know that they have recourse to a food reserve, they will not panic if the price on the world market starts to rise.

Regarding countries that normally import food, they will no longer be obliged to suddenly buy from the world market – thereby sending prices even higher.

As for countries that normally export food, they will no longer feel the need to suddenly restrict exports to the world market – which also sends prices higher.
There will be less shocks to the world market. Prices will be more stable. The international market will remain open. Trade will continue. This is good for everybody – both importing and exporting countries.

What are the basic rules that governments have to respect?

  1. Return the money to the Regional Food Community
  2. Share the reserve with other countries in the region

What are the positives of this proposal?

  1. Reserves can be self-financing (by buying low and selling high).
  2. Reserves are compatible with a market economy. They do not introduce distortions or deadweight costs. Prices continue to transmit signals to producers and consumers alike.
  3. Timeliness – grain is immediately available (grain does not have to be shipped from, say, Canada or the United States).
  4. Reserves provide food that the local people are used to rather than foods that are foreign to them and which they may not be able to process.
  5. Food is physically in situ on the territory of the country. The country has psychological reassurance.
  6. Less speculation – food reserves cause the world market to be more stable than it otherwise would be.
  7. Reserves are ‘globally friendly.’ They do not make food more expensive for other countries.
  8. Food reserves help farmers by preventing price slumps.
  9. In the wake of a natural disaster, reserves can be immediate source of food.
  10. Reserves are ‘price neutral.’ The average price of food over time neither increases nor decreases. It is the highs and lows which are moderated.
  11. Food reserves can be understood by everybody – it is not an obscure notion.

How is it possible to establish a food reserve if grain prices are already high? That will just bid up the prices even more.

Some harvests are good, others are bad. A regional community would buy grain only after a good harvest, when the price is low.

Why not national reserves? Why regional reserves?

There are two reasons:

A food reserve is a way by which a country can be part of the world economy (open trade) but can insure itself from the risk of the world price for food becoming unaffordable to its citizens. If that happens, the government will face a food crisis.

As with all insurance schemes, it makes sense to pool the risk with others rather than to self-insure. For a given premium, the indemnity is bigger. Regional reserves are therefore cheaper than national reserves.

Secondly, regional reserves introduce countries to the community method of international cooperation. This is an effective method of cooperation – one that is much better than the inter-governmental method (used by, for instance, the United Nations).

The community method is the method used by the governments of the European Union. It enables them to sort out their problems without going to war, which was so often the case in previous centuries. Because of the community method of international cooperation, many people of Europe are now very prosperous.

The community method can be adapted to suit different parts of the world and should be used more. Indeed, it is a method that must be used more if the world is going to address its many global problems through law, justice and democracy.

I am a consumer – what is in it for me?

No more acute hunger in your country. No longer any hikes in the price of food. The price will be reasonable.

There will be no cause for food riots in your country. Your government will be spared this source of political turbulence.

Your government will be in a better position to concentrate on long-term development.

I am a farmer – what is in it for me?

An income earning opportunity – you can earn money by storing grain for the community.

You will find that prices are more stable and predictable – this makes it easier to plan ahead and you can invest with greater confidence.

A drought may turn you from a farmer into a net consumer. You may have to fill the gap by buying food from the market. Without a food reserve the price may be more than you can afford. Your family may go hungry. But with a food reserve in place, the price will be affordable

How much does a food reserve cost?

Food reserves are not expensive – a few dollars or euros for each person in the country. But they must be well managed.

Is this proposal good or bad for trade?

If prices are unstable, the world market will not be trusted. Countries will turn their back on trade – they will seek safety in becoming self-sufficient in food. That is inefficient and wastes economic resources. It is not a good thing for the world. It is better to trade.

More regional integration

Regional reserves are more likely to work if governments use the community method of cooperation. Only then can they be guaranteed that the rules will be democratic and that everybody will stick to them. The community method includes a judicial body and provides an enforcement mechanism. There can be no free-riding. Nor can there be reneging on promises or pulling out of agreements.

The community method is more certain and more reliable than the inter-governmental method of cooperation. Regional food reserves introduce governments to this method of cooperation. If governments can use it successfully to organise a food reserve, they will be in a position to apply it to other regional issues such as the creation of customs unions, the management of river basins, areas of free circulation of particular goods, university exchange schemes.

Better international cooperation

Eventually, this method of cooperation could be used at the international level to provide a means of managing and resolving climate change, territorial disputes, global poverty, pandemic diseases, piracy, people smuggling and so forth.

The community method is the application of the rule of law at the international level. This is what the world badly needs to extricate it from its current partial disorder.

Could food reserves help bring greater stability to the world?

Everybody needs to be assured that they will be able to buy food tomorrow. Governments need to know that their citizens will be able to eat.

One of the most basic services that a government needs to provide to its citizens is affordable food. If food is not affordable, citizens will live a precarious existence – will they be able to eat tomorrow?

The volatility of food prices can put great pressure on governments, many of which are weak and fragile. A lot of governments are already struggling with many financial, development and security challenges. Some states have failed.

Food reserves can make people’s lives safer and more secure. They can ease the pressure on governments. Governments will be able to tick a certain but unpredictable problem off their ‘to do’ list.

Regional food reserves introduce governments to the community method of international cooperation. It may open the door to more regional integration and to better international relations. These are sine qua non for economic development. Countries may become more prosperous and people’s lives better and safer. Young men may see a future for them in their home countries and not risk their lives on perilous journeys to Europe.