Thursday, June 05, 2008

Back to the bad old ways

In a paper I gave in Norwich last week, I rather optimistically expressed the view that even if the current 'food crisis' shored up existing protectionism and subsidies in the European Union, we would not see a reversion to old, discredited policy instruments. One such instrument I had in mind was intervention buying which created a risk free market for farmers and produced the notorious grain and butter mountains.

I may have spoken too soon. The latest edition of Food Ethics produced by the estimable Food Ethics Council is devoted entirely to the 'food crisis', although quite what the food crisis is remains undefined. However, the editorial calls for 'rebuilding public stocks, which provide an important buffer against price volatility.'

Inevitably, Moses gets brought into one of the articles. Another article calls for 'public stocks .. to be re-established, with planning for local, national and regional roles. Such stocks provide an important buffer against price spikes and food insecurity.' Of course, they also provide a buffer between consumers and producers because the price mechanism cannot function as a transmitter of information. The writer does admit that they are expensive and there is 'lost theoretical market efficiency'.

That lost efficiency is not theoretical in the abstract sense of the word, it has real implications for whether we make optimal use of scarce resources.


Anonymous said...

To be fair on the authors, I think they're talking more about the needs of developing countries, and poor people at risk of hunger.

Most countries - developed or developing - maintain stocks of oil, but that doesn't seem to stop the functioning of the world oil market.

As long as stocks are established with the intention of preventing hunger due to price spikes, esp. price spikes caused by speculation, then they're not necessarily a bad thing.

What is certainly a bad thing is setting an intervention price floor. But that's a rather different policy, and the stock is the by-product of the price floor, rather than being a discrete end in itself.

Wyn Grant said...

I take your point. One might argue about how helpful the strategic reserve in the US is to the oil market. It is all possible to exaggerate the role of speculators - it is the first resort of politicians in a crisis.