The Economics of the International Stockholding of Wheat

In low-income countries the bulk of adjustment to fluctuation in food supplies is made by the poor. The direct price and indirect employment effects of a 10 percent decline in foodgrain supplies reduce foodgrain expenditure by as much as 40 percent in real terms for the lowest 10 percent of the same decline in production the reduction in foodgrain expenditures is only 1 percent in real terms for the top 5 percent of the income distribution. And yet it is the poor who are least able to spend such a high proportion of their income on food that price increases induced by shortages greatly reduce their capacity to buy foodgrains, whereas the more well-to-do compensate by spending less on other goods and services, thereby further decreasing the income of the poor through reduced employment. Because the food intake of the poor is already so close to the minimum level, supply shortage result in increased malnutrition. Thus one of the most important actions that can be taken to improve conditions for the poor is to reduce fluctuation in food prices and supplies. IFPRI research in has examined various aspects of this problem. IFPRI Research Report 14 notes the deleterious effect on low-income countries of developed countries’ effort to stabilize their food supplied. A forthcoming IFPRI research report will examine trends and fluctuations in the Soviet Union’s grain imports. Other IFPRI research compares the burden developing countries face in finding exchange resources to compensate for supply shortfalls deriving from fluctuation in domestic production and that arising from fluctuations in international prices. Fluctuations in world prices of foodgrain imports placed a substantial foreign exchange burden on only small number of developing countries in the 1965-76 period, whereas the burden on foreign exchange resources stemming from fluctuations in domestic production was heavy for many more countries. Dan Morrow’s research examines in detail the rationale underlying stockholding decisions for wheat, the most important imports; as well as to IFPRI’s large program of research on public policies to assist low- income people to increase their food consumption. The combination of strong domestic programs with strong international programs can do much to protect the poor foodgrain from the point of view of international stock and trade. The report provides not only an understanding of the past behavior of world wheat stockholding but also a basis for anticipating the near future. The following points are of particular importance. First, there is likely to be substantial stockholding in the world wheat economy even in the absence of new international policies. Although there certainly room for improvement through measures such as information sharing, limits on export controls, or increased responsiveness of developed-country consumption to world supply fluctuations, the outlook for stockholding is not pessimistic. Second, commercial stockholding will adjust to changes in the world wheat economy. Thus, if the poor were not so readily squeezed demand would give rise to increased demand would give rise to increased world price fluctuations and, simultaneously, increased stockholding. Thus, the underlying culprit in the fluctuations in consumption by the poor is more their poverty than the fallings of the market per se. Third, an international program to increase public stocks would at least partly substitute for stocks that would have been held anyway. Although Morrow discusses how to minimize the effect, this suggests that an international stockholding agreement may be inefficient way to provide greater food security for low-income countries. It should be kept in mind that, as inefficient as they may be, national and international stocks are preferable to no program at all. This research further substantiates the conclusions drawn from other IFPRI research and reflected in the policy position of the World Food Council of the efficacy of a program to help low-income countries finance food imports in the times of domestic supply shortfall. These findings give special relevance to IFPRI’s continuing analysis of the scope and workings of an international financial facility to help low-income countries meet large upward fluctuations in their foreign exchange requirements for food from the privations incident to fluctuation in weather and prices.


Issue Date:
1980
Publication Type:
Report
DOI and Other Identifiers:
0-89629-019-0 (Other)
PURL Identifier:
http://purl.umn.edu/42221
Total Pages:
52
Series Statement:
Research Report
18




 Record created 2017-04-01, last modified 2017-11-08

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