Buffer stocks are globally responsible

When people talk about food buffer stocks, they tend to think about them in the context of a single country. The idea is to have more stable prices by releasing grain (or another food commodity) onto the market when prices are high and replenishing the buffer stock by buying grain when prices are low. This helps to stabilise the price in the country, keeping it within a range. The price doesn’t fall too low for farmers to make a profit and it doesn’t rise too high for consumers to afford enough bread.

But no country lives in isolation. It shares the planet with a couple of hundred other countries. When thinking of what stabilises prices within one country, we have to think about the impact on all the rest.

A buffer stock brings stability to a country and also has a stabilising effect for the planet. When grain is scarce in the world, the price will be high. Rich countries will be able to import grain, but poor countries will struggle to scrape the money together. When a rich country buys grain on the world market and imports it, this will put upward pressure on the world price. Poor countries will find it even more difficult to scrape together the money and may have to go without. That can mean foot riots and hunger.

Instead of importing grain, the rich country could draw grain down from a buffer stock – assuming it had one. The rich country could satisfy its requirement for grain without putting upward pressure on the world price.

The converse is also true. Suppose a country exports grain at a time when the world price is low. Exporting grain will drive the price lower – and threaten to make wheat farming unprofitable for farmers. If, instead of exporting the grain, the country were to replenish a national buffer stock, then this would keep the price inside the country at a level acceptable to farmers, without driving the world price down further.

This system of buffer stocks is therefore globally responsible. Countries help others as well as helping themselves. They stabilise prices at home but also help to stabilise world prices. And the more countries that choose to have buffer stocks, the more they can all help to keep prices stable for the planet as a whole as well as at home.

Compare this system with that of import and export subsidies. If a country chooses to deal with high prices by subsidising imports, then it will import grain even when prices are high, adding to demand and pushing the world price up further. Conversely if, when prices are low, a country provides its farmers with an export subsidy, then they will be able to export even more and world prices will be driven lower. Hence import and export subsidies made a bad world situation worse.

Import and export subsidies exacerbate the volatility of prices; buffer stocks mitigate it. Import and export subsidies distort market forces; buffer stocks use market forces to stabilise prices. Buffer stocks are globally responsible; import and export subsidies are not. Why, then, are so many organisations, like the IMF and the World Bank, that purportedly seek to promote a stable global economy based on free trade, so hostile to buffer stocks or, at best, lukewarm about them?  Perhaps they could let us know.