The book begins by identifying the problem, namely the fact that world prices of agricultural commodities are unstable. It is true that international trade helps to moderate this instability, but it cannot do so if there is a world-wide shortage or surplus. There is therefore a question of what other measures might be adopted.
The price of food, like that of much else, is determined by supply and demand. The supply of food depends very much on Nature, especially the weather. But the demand for food remains broadly constant, because food is essential to survival. With inelasticity of demand and variations in the level of supply caused by good or poor harvests, price volatility appears unavoidable.
Price volatility causes harm. When prices are high, some citizens cannot afford enough food for their families. When prices are low, farmers can be put out of business and forced to leave the land. More fundamentally, unstable agricultural commodity prices can impede the development of farming, holding back economic development.
The book suggests that governments establish a ‘price band’ and keep the price of grain inside this band through a buffer stock. A buffer stock, for instance a grain reserve, sells grain to consumers to prevent prices rising too high and buys up grain from farmers to prevent prices falling too low. It uses market forces rather than trying to interfere with them by imposing fixed prices.
In some situations, free trade is the answer to the volatility of grain prices, but only if the world price lies within the country’s price band. If not, a government can keep the price on its national market inside the price band by buying into a buffer stock and selling out of a buffer stock, as the need arises. Other measures, such as subsidies to farmers or taxes on imports and exports, represent an additional expense for the national budget and cause collateral damage to the rest of the world. They are not desirable.
The main cost of a buffer stock lies in setting it up in the first place. Once set up, the government buys low and sells high and can earn a profit. Thus, a buffer stock can be financially self-sustaining. It is the perfect example of sustainability – setting up, at an initial cost, something which then runs itself. By not trying to fix prices, a buffer stock is also perfectly compatible with a market economy. The book concludes that it would be sensible for all countries to equip themselves with a grain buffer stock. Even better, governments can save money if, rather than setting up national buffer stocks, they cooperate together and set up a multi-country, regional stock.
This is an outline of the general argument. Of course, there are other issues which the book discusses and considers. What about the panoply of factors that affect supply and demand for food? What about WTO rules? What about virtual reserves? If readers are interested, they can see how these issues are considered in detail in the book. Alternatively, they are welcome to contact us with questions or comments. If you are interested in buying the book, please click here.