If I had two minutes with the Director General of the FAO, I would ask him to increase stocks

If I had two minutes with the Director General of the FAO, I would ask him to increase stocks.

By Steve Wiggins – Research Fellow, ODI

If I had two minutes with Dr Diouf, the Director General of the Food and Agriculture Organization (FAO), I would pitch for the rebuilding of physical stocks of food, back to something like 30% of typical annual use, or around 650 million tonnes.
The world food system has taken quite a battering in the last twelve months, and rebuilding stocks would help to calm nerves and restore the resilience of the global food system. Food prices have always been volatile, but by and large increasing amounts of staple foods have been offered on the world markets over the last 50 years at ever lower prices. In all that time, only one major price spike was seen, that of 1973/74: before 60% of the current world population was even born. So the 2007/08 spike in food prices has come as a shock.
All agree that the spike has been caused by the coming together of at least half a dozen factors including: harvest failures; higher oil prices leading to surging production of biofuels plus higher costs of fertiliser and transport; and panic reactions to rising prices as food exporters try to limit exports and food importers try to buy more. Meanwhile, hot money has speculated on commodity markets as never before.
But underlying all of these has been the fundamental erosion of resilience in the system. As recently as the turn of the century, stocks of the main three cereals — maize, rice and wheat — stood at almost 550 million tonnes, more than 34% of annual use. By 2003/04 these had fallen to 318 million tonnes, less than 19% of use. With too few stocks in place to buffer the system, then unexpected shocks in both supply and demand, adjustment has largely been a matter of pricing.
The rebuilding of stocks back to something like 30% of typical annual use cannot be done, clearly, in the immediate future without wrecking the markets. But it should be a medium term objective.
FAO could be the key mediator in negotiating which countries would pay for and hold the additional stocks, how best to build those stocks in the medium term, and how to operate the stocks with clear and transparent rules that do not leave those in the market fearing that overhanging public stocks might destabilise the system.
This suggestion to re build stocks was endorsed by the leaders at the G8 summit earlier this year, with the Russian President, Dmitry Medvedev, reported to be particularly keen on the idea. If he were to take the lead, it would add political weight to the argument and reinforce Russian prestige on the world stage.
Such political leadership, backed by the organisational know-how of FAO, could fuel a global push to increase stocks in the medium-term and protect the poorest from a repeat of this year’s food price crisis.