reserve could keep price fluctuations within desirable limits and prevent excessive
price fluctuations caused by hoarding, speculation and panic that would otherwise
take place. A national food reserve might also take advantage of a heavy crop by
adding to stocks relatively cheaply, preventing prices from falling to excessively
low levels.
incentive to use land and other resources in ways that the market required. But
there could be no question that a number of developing countries suffered from
excessive and harmful local price fluctuations. That caused hardship and damaged
the country's economy. Such price fluctuations could be kept within reasonable
limits by establishing a national food reserve. It could counteract hoarding and
maintain supplies to the market whether crops fell or not, thereby preventing
panic and sustaining confidence. The same effect could not be obtained from
imports, which could not be speeded up at short notice.
ities offered by farmers for sale under such a programme depended, to some extent,
on public confidence in the government's ability to deal with emergencies. With a
food reserve large enough to enable government to deal effectively with temporary
or local food shortages, the required degree of confidence might be created, and
farmers induced to sell more than in the absence of the reserve. Similarly, food
reserves should be large enough to discourage hoarding and convince speculators
that they could not win in playing against the reserve. At the same time, confid-
ence worked both ways. The stronger the reserve, the greater the confidence. But
the stronger the confidence created by other means, the less the need for reserves.
National food reserves should therefore be developed alongside such other meas-
ures that helped to maintain confidence in stable prices. Otherwise, the size of
reserves required for anti-hoarding devices would be more than a government
could afford.
but produces problems in transition. Development project may eventually increase
agricultural output but only after a fairly long gestation period. Meanwhile,
demand for staple foods may rise sharply through the multiplier effect. Increases
in real incomes lead to considerable increases in the consumption of staples.
Increased development expenditure also increases non-agricultural employment,
which also increases the monetary demand for food. In the absence of increased
market food supplies, this could lead to inflationary pressures. The existence of
food reserves may cushion the effects of sudden inflationary pressures and allow
time for adjustments to the scale of expenditures by meeting temporary needs
until other measures are implemented to restore the balance between supply and
demand. A national food reserve should be designed to deal with fluctuations of