Food Security: An Insurance Approach

The International Food Policy Research Institute’s early efforts have shown dramatically what an immense food problem the Third World and the globe generally face over the next decades. Solution to that problem requires a major commitment of resource and the political will to back up that commitment on the part of developing and developed countries alike. But, even if that commitment is made, it is becoming increasingly apparent that lack of purchasing power in the hands of the poor not only stands in the way of reaching the objective f adequate diets for all, but may also prevent latent demand from making itself felt through remunerative prices, production may ot grow at the rate required to meet the true food needs of the world’s population a decade or two technology are available to meet this objective. That situation had promoted the Institute’s research into policies for increasing incomes and food consumption of low-income people through food subsidies and market forces. It is of course the lower income majority who spend 50 or 60 percent of additions to their income on grain alone, as compared to the 5 or 10 percent of added income spent on grain by the upper income deciles. Therefore they are hunt more when supply variation forces prices up. It has become apparent that for governments to make the political and economic commitments essential to increase effective demand for food by the lower income people, there must be a reasonable degree of certainty that this increased demand can be consistently met. Given that inevitable vagaries of weather and the variability of world price, the high cost of national schemes of food storage and the intense demand for resources for development itself, it is essential that a viable international system of food security be devised. In response to this need, the International Food Policy Institute has carried on a research program dealing with various aspects of food security. This Research Report reflects part of this work. It suggests an approach based on insurance principles, by which the international community can contribute to the food security of food deficit developing countries without having to create large buffer stocks and stabilize world grain prices. The objective of such a scheme would be to permit developing countries to stabilize cereal consumption at a relatively stable cost. The reserve proposal which is in the forefront of international discussion at the moment is that being considered by the International Wheat Council under the auspices of the United Nations Conference on Trade and Development. Whether countries can agree on a formula for a system of nationally held, internationally coordinated buffer stocks which would be operated in response to price movements remains to be seen. If no agreement is reached, the importance of considering a more limited approach to the food security problem of low income, food deficit developing countries is obvious. Even if agreement is reached, however, the food security needs of many developing countries will still not be fully met. Operation of an international reverse designed to deal with price instability in world markets does not eliminate the need for consumption adjustment in participating countries when prices exceed the release trigger. Developed countries with substantial livestock sector can more easily make this adjustment than can developing countries in which a substantial portion of the population lives at the subsistence margin. Further, even if grain is released onto the market in years of relatively high prices, developing countries would still have to bid competitively with other importers to obtain needed supplies. In such years, developing countries with exceptionally poor harvests, foreign exchange constraints, and relatively small orders would be relatively weak bidders. Thus, in order to avoid curtailing consumption, they might still have no choice but to pay excessively high food import bills in relation to what their economics can afford. Finally, released to what their economies can afford. Finally, release of grain in response to price triggers would not take into accounts the fact that countries with less flexibility in making transport and handling arrangements for substantially increased imports would be at a disadvantage in obtaining access to this grain. This report is part of an ongoing project, of IFPRIs Trade Program, under the general direction of Alberto Valdes. Other aspects of this project include a quantitative assessment of the sources and magnitudes of food security of grain in detail the characteristics and magnitude of food insecurity and possibilities of implementing alternative approaches in Asia, Africa and Latin America.