A World Food Reserve

MAC/WFY

Page-60

0230_553559_10_cha06

194570. Early Attempts: FAO's Pioneering Work

expected, private traders might carry stocks into the next crop year. Otherwise,
they had no incentive to carry stocks over.

A more or less self-sufficient country could have recourse to imports to supple-

ment a poor crop thereby keep prices down and reducing private traders' profits.
The conclusion was that in the absence of expectations of considerable price
rises, traders were not likely to carry stocks adequate to meet a shortage due
to a poor crop. Similarly, it was unlikely that commercial interests in normally
importing countries would hold much more than enough stocks to fill the distri-
bution pipelines until the next shipment arrived. The extent to which carrying
costs could be passed on to the importing country in the form of higher prices
depended on conditions of world supply and demand in international trade. In a
buyer's market, they tended to be borne mainly by the exporting country. In food-
exporting developing countries, carrying costs may be a heavy burden, usually
borne by the growers. Future markets in commodities could serve a useful purpose
in enabling manufacturers and others to avoid risks due to price changes but
futures markets played little part in developing countries. Farmers, traders and
others provided for the only hedging in those economies by hoarding or buying
food grains when they thought their prices were likely to rise. Even when traders
judged correctly that prices were likely to rise, their purchases could do harm by
bringing about excessive increases in areas of temporary shortage to which supplies
could not be easily transported. This illustrated the advantage of government-held
stocks adequate to counteract such destabilizing speculation.

The paradox was that although the need for stockholding was greatest in a

number of developing countries, they were the least able to afford to provide
them. Such savings that could be made from their low incomes was required for
directly productive investment to raise output and living standards. Therefore,
before deciding to strengthen their stockholding through the establishment of
national food reserves, they should carefully review their overall food policies
and the various possible alternatives they might follow. Low productivity and
instability should be attacked simultaneously on a number of fronts. The most
appropriate and urgent measures would vary with the special circumstances of
each country. These measures required capital in one form or another.

But developing countries had relatively little capital, which was also needed

for other non-agricultural projects in the development programme. The pace of
development was therefore inevitably slow, unless a country had some valuable
resource, such as oil, to exploit, and the amount of external economic aid available
to them was limited. A fundamental remedy for food shortages was to raise the
level of output per worker, which was far below that of the more technically
advanced developed countries. But this task was even more difficult in some
developing countries where a substantial part of the limited resources for new
investment was needed to expand consumption of a rapidly increasing population.
In addition to the time lag between the expansion in total demand and supply,
fluctuations occurred in the size of the crops and the level of demand. These
fluctuations could not be forecast with sufficient accuracy in time for adequate
measures to be taken to offset their effects because crop reporting and statistical

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Useful links	A World Food Reserve MAC/WFY Page-60 0230_553559_10_cha06 60 194570. Early Attempts: FAO's Pioneering Work expected, private traders might carry stocks into the next crop year. Otherwise, they had no incentive to carry stocks over. A more or less self-sufficient country could have recourse to imports to supple- ment a poor crop thereby keep prices down and reducing private traders' profits. The conclusion was that in the absence of expectations of considerable price rises, traders were not likely to carry stocks adequate to meet a shortage due to a poor crop. Similarly, it was unlikely that commercial interests in normally importing countries would hold much more than enough stocks to fill the distri- bution pipelines until the next shipment arrived. The extent to which carrying costs could be passed on to the importing country in the form of higher prices depended on conditions of world supply and demand in international trade. In a buyer's market, they tended to be borne mainly by the exporting country. In food- exporting developing countries, carrying costs may be a heavy burden, usually borne by the growers. Future markets in commodities could serve a useful purpose in enabling manufacturers and others to avoid risks due to price changes but futures markets played little part in developing countries. Farmers, traders and others provided for the only hedging in those economies by hoarding or buying food grains when they thought their prices were likely to rise. Even when traders judged correctly that prices were likely to rise, their purchases could do harm by bringing about excessive increases in areas of temporary shortage to which supplies could not be easily transported. This illustrated the advantage of government-held stocks adequate to counteract such destabilizing speculation. The paradox was that although the need for stockholding was greatest in a number of developing countries, they were the least able to afford to provide them. Such savings that could be made from their low incomes was required for directly productive investment to raise output and living standards. Therefore, before deciding to strengthen their stockholding through the establishment of national food reserves, they should carefully review their overall food policies and the various possible alternatives they might follow. Low productivity and instability should be attacked simultaneously on a number of fronts. The most appropriate and urgent measures would vary with the special circumstances of each country. These measures required capital in one form or another. But developing countries had relatively little capital, which was also needed for other non-agricultural projects in the development programme. The pace of development was therefore inevitably slow, unless a country had some valuable resource, such as oil, to exploit, and the amount of external economic aid available to them was limited. A fundamental remedy for food shortages was to raise the level of output per worker, which was far below that of the more technically advanced developed countries. But this task was even more difficult in some developing countries where a substantial part of the limited resources for new investment was needed to expand consumption of a rapidly increasing population. In addition to the time lag between the expansion in total demand and supply, fluctuations occurred in the size of the crops and the level of demand. These fluctuations could not be forecast with sufficient accuracy in time for adequate measures to be taken to offset their effects because crop reporting and statistical back to top Next page
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