Theory and practice collide in the EU

Two years ago, at the height of the pandemic, there was a meeting of a subgroup of the European Commission to focus on ‘a contingency plan for ensuring food supply and food security.’ Naturally enough, COVID-19 had aroused fears of an interruption to food supplies. As a result, the controversial issue of food reserves was bound to crop up. And so it did.

Look through the slides produced by the participants for their presentations, available on line at https://ec.europa.eu/transparency/expert-groups-register/screen/meetings/consult?lang=en&do=groupDetail.groupMeeting&meetingId=23921 and in terms of theory you might feel that nothing had changed. One of the commission’s regular advisers, Professor Christopher Gilbert, of the University of Trento in Italy, contained the following arguments on one of his slides:

• Buffer stocks are a specific way of implementing food reserves in which the authorities attempt to maintain the market price within a band.

• The academic literature is largely negative in relation to buffer stocks.

• Buffer stocks are expensive – they crowd out private storage whereas ideally we should aim to crowd in additional private storage.

• Price bands are often subject to lobbying by interested parties with the result that they can get out of line with market realities.

• If markets regard price floors or ceilings as unrealistic, the buffer stock can become subject to speculative attack.

It is a little depressing to read the same old criticisms of buffer stocks repeated again and again. They are supposedly expensive. Not true – using them to reduce price volatility means releasing stocks onto the market when the price is high and replenishing it when the price is low – this reduces the costs of any buffer stock scheme. The idea they ‘crowd out’ private storage supposes that there are armies of private entrepreneurs knocking at the door struggling to get in on the business of private grain storage, while all the evidence is that they are not doing so. The danger of lobbying is real – the floor price adopted by the EU, for instance, was too high because farming lobbies were allowed too much power to influence the Common Agricultural Policy. But the solution is to control the influence of lobbyists within the EU, something long overdue in a number of areas. As for speculative attack, by reducing price volatility buffer stocks make speculative attacks less likely, not more.

That then, is the same old theory being trotted out. But practice, as that meeting showed, could be very different. Two of the other presentations came from Switzerland and Finland, countries where food reserves have been maintained for some time.

In the case of Finland, the slide presentation by Max Schulman made clear that it is a country whose long border with Russia makes it feel politically vulnerable, while its Northern location means that there may be heavy frost late into the growing season, threatening a very poor harvest. Imports may prove difficult in cold winters when the sea is too frozen for deliveries of food in the harbours.

Irrespective of the problems of the pandemic, Finland therefore has a National Emergency Supply Agency (NESA) which determines the amount of grain to be stored. Does it crowd out the private sector? No, it uses it. Perhaps we have here a way of making use of Gilbert’s notion of ‘crowding in’ the private sector. Registered companies are responsible for storage and for recycling the grain under contract with NESA. It is true that Finland does not specifically aim to reduce price volatility with its stock, and indeed lists among challenges posed by its storage programme the effect of releasing and rebuilding stocks on the internal market. But it is clearly firmly in favour of maintaining food reserves in the context of a public/private partnership.

The second example is Switzerland (not an EU member, though it does participate in parts of the single market). Once again, in the presentation by Menzi Mittelholzer, we find talk of ‘Private-Public-Partnership.’ The Swiss government obliges private companies to hold strategic stocks and join a compulsory stock organization. It also decides when stocks should be released.

So once again, we find the emphasis on the private and public sectors working together, rather than each refusing to do anything for fear of ‘crowding out the other,’ like two people each waiting for the other to board the bus first and then eventually watching it drive off without either of them. Whether or not the pandemic affected the situation, both Finland and Switzerland thought it sensible to have food reserves and to bring the public and private sectors together in order to organise them. It is true that they do not think in terms of buffer stocks as a sustainable means of overcoming price volatility in the way ACTION does. However, they recognise the value of food reserves and in both cases believe that it is public authorities who should make use of the private sector in order to coordinate the supplies and determine their use. The idea that the public sector, whatever the crisis and whatever the shortage, should never touch food reserves for fear of getting in the way of the private sector is simply unthinkable to the Finns or the Swiss. It should be unthinkable to the whole of the EU.