Slovenia’s grain reserves

Though many people understand how buffer stocks can reduce price volatility, they sometimes worry about how even a good system might be manipulated by interest groups. It’s all very well, they say, to release reserves when prices are high and replenish them when they are low, but who is to define ‘high’ and ‘low’? The consumer will want a price that’s as low as possible. The producer will want a price that’s as high as possible. Isn’t there a danger in all this?

 

Yes, there is. Farmers, for instance, would like to take control of a system of food reserves in order to ensure that the price floor below which prices cannot be allowed to fall is set at the highest possible level. This is what undermined the Common Agricultural Policy of the European Union. The farmers had too much influence and ensured that the price floor was set at too high a level.

 

How do you stop this happening? Not by rejecting the whole idea of buffer stocks altogether but by being careful about their management. A good example is Slovenia.

 

In accordance with the Commodity Reserves Act, this EU country operates with stocks of various types of food, including grain. Stocks are managed by the Commodity Reserves Agency and are partly a precaution against war (Slovenia, it needs to be remembered was engaged in a short war with Serbia only 20 years ago) and natural disasters. But ‘major disturbances and instabilities in the markets’ are also specifically mentioned, and this is where the role of buffer stocks in reducing price instability is vitally important.

 

Won’t Slovenian farmers seek to insist upon too high a price floor in order to ensure that their incomes are as great as possible? That would be a danger if the Commodity Reserves Agency was in the hands of the Ministry of Agriculture, but it is not. It is managed by the Ministry of Economic Development and Technology. The agency does have a representative of the Ministry of Agriculture on its administrative board, but he or she is only one of nine. The others include two members of the Ministry for Economic Development and Technology and one each from the Ministries of Finance and Defence.

 

Every government has responsibilities and needs to have the right instruments at its disposal in order to carry them out. It needs to balance the demands of various interest groups in a fair way. But it would be strange if a government were to refuse to use certain instruments because there had been malpractice in the past. A shovel that’s used to assault someone does not thereby cease to be a useful tool for digging the garden. Slovenia protects itself through reserves that are managed by a department that can have input from interest groups without allowing them to be the exclusive determinants of the outcome. No system makes corruption or undue influence impossible, but as Slovenia shows there are ways of making it much less likely.