A Grain New Deal

By Yong Kwon

In the face of a worldwide food crisis, U.S. Department of Agriculture leadership in the establishment of a wide network of food reserve swaps would help minimize harm to vulnerable people in the Global South today and Americans in the near future. The UN estimates that as many as 45 million people may have been pushed into acute food insecurity by the COVID-19 pandemic between February and June 2020. The World Food Programme foresees an additional 130 million people falling into this category by the end of the year. Without a collaborative intervention, the human toll may worsen. 

This crisis is not rooted in a global reduction of agricultural output, but caused by people’s inability to afford food in their local markets. Most countermeasures have been domestic policies focused on redistributing incomes to workers furloughed amid the pandemic-induced recession. But policies aimed at ensuring the people’s ability to afford food does not yet take into account the real possibility of food prices spiking in response to panic purchases as people anticipate conditions to worsen. To preclude this insecurity, there is a vital foreign policy approach: making public commitments to open countries’ food reserves to emergency exchanges.

Shortages in Times of Plenty 

This call for greater international cooperation in food policy is informed by the 2008 global rice crisis. An imagined shortage triggered the hoarding of grain by countries in South Asia and caused a sudden spike in food prices across the Asia-Pacific region. The principal catalyst was India’s ban on rice exports in October 2007, based on the incorrect belief that stopping grain shipments abroad would direct cereal into the Indian domestic market and help address endemic poverty. This myopic policy instead created widespread panic across the South Asian region, as people believed that a rice shortage was imminent. 

In response to shortages created by this panic, Vietnam and Thailand, two of the world’s largest rice producers, halted exports in February and April of 2008 respectively. As a consequence, the crisis spiralled further out of control, even affecting parts of the United States.

The panic only came to an end in May 2008 when Japan announced that it would sell its surplus rice reserves to the Philippines. Reports of new grain supplies moderated prices even before these vaunted shipments set sail, reinforcing the view that fear – not actual shortages of grain – had instigated the crisis. 

Today, the shock (this time from the global pandemic) is prompting governments to reconsider  restrictions on food exports. Vietnam briefly halted the signing of new rice export contracts in March. Kazakhstan followed suit, reportedly to ensure a steady domestic supply of food. These are reflexive moves that ignore the dangers of beggar-thy-neighbor agricultural policies, which could spark market panics and make food inaccessible to not only those abroad but also the most vulnerable members within their borders.

Keep Calm and Cooperate

In this precarious environment, cooperation is vital to stabilize food prices around the world. And most importantly, these efforts must be made publicly known to reassure consumers and food vendors everywhere.  

Even as public authorities are addressing the many complexities of this unprecedented public health crisis, government institutions in the United States and elsewhere demonstrated a capacity for extensive international  coordination when it came to protecting the financial sector. The U.S. Federal Reserve and the central banks of the world’s largest capital markets arranged vital foreign exchange swaps to soothe the global financial market as soon as the economic consequences of the pandemic became apparent. These national institutions learned to work together during the 2007-08 Global Financial Crisis when there were fears that nations might engage in beggar-thy-neighbor devaluations like they had during the Great Depression. Similar cooperation in the international grain trade is possible and eminently desirable. 

Building on designs of the 1979 ASEAN Food Security Reserve Agreement and the 2004 East Asia Emergency Rice Reserve, this proposed food swap would require countries to stockpile a predetermined amount of food that could be released to one another. Representatives of member countries would meet regularly to determine when and where these stocks should be released, and whether the distribution is a response to an unexpected crisis or aimed at poverty alleviation. 

The absence of a principal coordinator represented a critical weakness in these previous food reserve arrangements. Ideally, new swap agreements would be established between all the countries of the world and the United Nations Food and Agriculture Organization would organize these exchanges. If the world falls short of reaching a multilateral commitment, the U.S. Department of Agriculture should take the lead in hosting engagements to coordinate grain swaps between member countries.

Even if the ongoing pandemic does not affect food prices this year or next, the institutionalization of global food policy cooperation is important because the threat of a crisis is ever-looming in our society. For instance, climate change has contributed to an upsurge of desert locusts in the Arabian Peninsula, East Africa, and northern India. In January, the locust swarm attacked 25,000 hectares of crops in the Indian state of Gujarat. And the infestation has only grown in affected regions over the past several months.  

The United States is not immune to these risks. Between 2000 and 2014, the flow of the Colorado River declined by a fifth from its 20th century average. This vital water source supplies the essential agricultural land in southern California, which provides over a third of the country’s vegetables and two-thirds of the country’s fruits and nuts. The foreseeable drought would devastate the domestic produce market. 

Given these risks, international cooperation is a rational response. The immediate cost of the commitment to a food exchange is zero. But if the signal helps maintain food price stability, the payoff from minimizing human suffering is enormous.

More than 820 million people across the world were classified as food insecure before the pandemic – nearly 10% of the entire human population. Any shocks to the system are bound to threaten their ability to access education, establish a trade, and provide care to their children. These vulnerable people constitute human capital vital to the long-term economic wellbeing of emerging economies. Moreover, the establishment of an institutional framework to tackle the ongoing food crisis would not only help emerging markets overcome the ongoing food crisis, but also potentially provide a backstop for future crises here and elsewhere.  

Yong Kwon studied economic history at the London School of Economics and moderates the subreddit r/EconomicHistory. He is currently the Director of Communications at the Korea Economic Institute of America. Views in this post are his own and do not represent the official position of the Korea Economic Institute of America.

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