Search results

This article shows that partial price stabilisation is superior to complete price stabilisation in stabilising national export earnings in virtually all situations and is more likely to stabilise national than world export earnings, in contrast to the findings of an earlier study. It also shows that the kind of partial price stabilisation achievable in practice is almost certain to reduce instability in the export earnings from each commodity for every exporting country.

Price stabilization in international commodity markets is a main element of the North‐South dialogue. Within the Integrated Programme on Commodities (IPC) of UNCTAD, it is intended to create buffer stocks for 10 core commodities: sugar, natural rubber, cocoa, coffee, tea, cotton, jute, hard fibres, copper, and tin. Several theoretical studies justify these plans by stressing the positive effects of a functioning buffer stock scheme on different economic goals. It is argued that price stabilization will, “potentially at least, improve aggregate welfare” (Turnovsky, 1978, p. 143) and that risk benefits in the case of risk‐averse producers “will be far more important” (Bigman, 1982, p. 1984; on the concept, see Newbery/Stiglitz, 1981, pp. 267 et seq.) than the transfer benefits, if income uncertainty is reduced by the stabilization policy. Other positive effects of buffer stocks are stressed with respect to food security (Bignan, 1982, pp. 129 et seq.) and, except for the case of supply‐induced fluctuations and a price elastic import demand, with respect to the stability of export earnings (Nguyen, 1980, pp. 343 et seq.). The export earnings stabilizing effect as well as a mostly earnings‐raising effect is confirmed for several core commodities by simulation analyses (Behrman/Ramangkura, 1978, p. 166) and by dynamic optimization (Lee/Blandford, 1980, p. 385). Moreover, stable export earnings of less developed countries (LDCs) are expected to induce higher growth rates of GNP than unstable ones (Lim, 1976, pp. 311 et seq.).

Since the adoption in 1976 of the Integrated Programme for Commodities, only four international commodity agreements have been concluded, of which only one, the International Natural Rubber Agreement (1979), was new. The others are the International Sugar Agreement (1978), the International Cocoa Agreement (1980) and the International Tin Agreement (1981). In view of the broad political support for international commodity agreements, the progress towards concluding such agreements is slow. Moreover, in some of them universality is lacking. Several countries which account for a substantial proportion of world production and consumption of, and trade in, the commodity subject to an international agreement, have not ratified or acceded to the relevant agreements. The duration of the negotiations has been exceedingly long in comparison with experience on negotiations of the previous agreements. This outcome, several years after the adoption of the Integrated Programme for Commodities, is disappointing and unexpected, especially since the basic purpose of that Programme and the setting up of the Common Fund in accordance with it was “to act as a catalyst for international commodity agreements”. The purpose of this article is to examine the reasons for this outcome.

We discuss food security within the context of welfare economics. We review models of commodity price stabilization brought about by government storage, and/or the private sector. We use data on the stocks of major commodities to discuss the implications of storage models on food security.

The impact of storage on food security is discussed within the context of welfare economics.

Storage is not necessarily a solution to solving long-term world food problems. Also, at times in history, countries such as the United States have accumulated large stocks of commodities such as wheat, which turned out to be a costly policy.

While food insecurity is a major issue worldwide, the solution does not entirely lie in governments being heavily involved in managing and owning food stocks. The private sector manages stocks as a part of commercial transactions. The government’s role is to provide food from stockholdings in times of emergency situations.

Over the past 25 years, direct cash transfers (often abbreviated as direct benefit transfer, DBT) to the poorer section of the society are gaining popularity over explicit subsidization of prices of essential commodities. One of the main arguments in favor of DBT is that it will cost the government less money and yet, the consumer benefit will be high. This paper aims to examine the proposition critically. Removal of price support exposes the consumers to market risk, and any income support programme must compensate the consumers accordingly.

The authors use a theoretical study where the model of a representative consumer under different specification of preferences is used to compare programme costs under price stabilization and income support programmes.

What the authors show in the paper that the comparative cost of the programmes crucially depends on the nature of preferences, as well as the good under question. For certain specifications of the indirect utility function and the marginal utility of money, one programme may cost less than the other. Any policymaker must take account of such nuances before making a blanket prescription.

The main limitation is that only a representative consumer is taken.

The specification of indirect utility function plays a decisive role in deciding, which one these two policies, DBT or stabilizing price at a fixed level.

The main novelty of the paper is in the different specifications of the indirect utility function considered in the paper.

Washington.—The Government of the United States at the Copenhagen Conference of the Food and Agricultural Organisation last September firmly supported the twin objectives of Sir John Orr's World Food Hoard proposals of raising the diets of all nations to a health standard and of stabilising agricultural prices at levels fair alike to both producers and consumers. Sir John's specific proposal for a World Food Board was not considered at Copenhagen. Instead, the U.S., the United Kingdom and all other nations represented at Copenhagen unanimously agreed to refer the whole question to a 17‐nation Preparatory Commission which met in Washington from October 28th to January 24th. The Commission was specifically instructed by the terms of reference to consider Sir John's proposal and any other alternative proposals which might be offered. The preparatory commission in its recommendations followed the instructions in the terms of reference and its final recommendations as made public on January 24th containing little of the specific machinery of the original proposals of Sir John's. But the twin objectives of Sir John's proposals were retained in the final recommendations. Had a show down come to Sir John's proposals at Copenhagen, the U.S. would have opposed it. Of this there can be no doubt. As early as August 9th, a month before the Copenhagen Conference, the U.S. Department of State issued a public statement on the Orr proposals. Any doubt as to the U.S. position was dispelled by Under Secretary of Agriculture Norris E. Dodd, who was chief American delegate at both Copenhagen and Washington. In his opening speech before the preparatory commission in Washington on October 28th, Mr. Dodd gave four reasons why the U.S. opposed the Orr proposal. He said: “First, we consider it doubtful whether a World Food Board or any similar device would, by itself, be adequate to deal with the effect that widespread government intervention threatens to have upon the agricultural demand and supply situation over the world once the present emergency has come to an end. Second, we consider it doubtful whether any combination of buffer‐stock and surplus‐disposal operations which contemplates the establishment of a two‐price system can be operated successfully without quantitative controls of supply. In our view such controls are not adequately provided for. Third, there is the fact that price, production and distribution problems differ greatly between different commodities and at different times. An over‐all body such as the proposed World Food Board would not suffice for dealing effectively with these so different and rapidly changing problems, which ought to be dealt with by special negotiations, commodity by commodity. Fourth, Governments are not likely to place the large funds needed for financing such a plan in the hands of an international agency over whose operations and price policy they would have little or no control. In view of these considerations, we believe that it is fortunate that the Copenhagen Conference has given this Commission a free hand to consider alternative machinery for achieving the basic objectives which we all support.” The original Orr proposals called for an internationally‐managed and internationally‐financed World Food Board. It would have bought and sold exportable surpluses at agreed minimum and maximum prices, thus providing a buffer‐stock against fluctuation in price and supply. Excess supplies under the Orr plan were to be sold cheaply to feed chronically malnourished people. FAO would work with such nations and with other international argencics to build producing and buying power so as to remove the underlying causes of poor diets. A statement by Under Secretary of Agriculture Mr. Norris E. Dodd, made on January 24th in connection with the report of the FAO Preparatory Commission on the food proposals, said, in part: “The principal ideas which the U.S. has advanced in the Commission are: (1) That the problems of better diets and price stabilisation mustbe approached in connection with the general expansion of production, employment, trade and consumption, as envisaged in the proposals for an International Trade Organisation, which we consider as complementary to the FAO programme. (2) That particular problems of price stabilisation can best be met through separate but co‐ordinated international agreements covering the specific commodities affected, within the general framework of principles for such agreements provided in the proposed ITO. (3) That under such commodity agreements the participating nations should consider methods of using excess supplies to support special food programmes to improve the diets of the most needy groups in connection with long‐term development plans designed to overcome the causes of malnutrition. (4) That the co‐ordination of national agricultural and nutritional programmes is so important the FAO should bring about annual consultation upon such programmes among the responsible national officials.” The principal U.S. proposals incorporated in the final report and recommendations of the FAO Preparatory Commission published on January 24th may be summarised as follows: The international commodity agreement approach to the stabilisation problem. The use of excess supplies under commodity agreements to support supplemental food programmes for vulnerable groups. Annual consultation of national agricultural and nutritional officials for the purpose of bringing about co‐ordination and integration of national programmes. Appointment of an interim co‐ordinating committee on international commodity agreements to bridge the gap between FAO and the projected International Trade Organisation. Acceptance in the final report of the American proposal for international commodity agreements may be construed as not merely an American victory since the commodity agreements would be negotiated within the framework of the proposed International Trade Organisation. Governments of 18 nations are represented on the ITO Preparatory Committee which met in London simultaneously with the FAO Preparatory Commission sessions in Washington. Here is the basic difference between the Orr World Food Hoard proposals and the final recommendation. Under a commodity agreement, such as provided for in the final report, each nation holds its own reserves, and finances its own operations. It provides for a co‐ordinated system of nationally managed and nationally financed buffer stocks of individual commodities. The Orr proposal envisaged an internationally managed and internationally financed World Food Board operating in many commodities. The U.S. position with reference to tieing in ITO with FAO was set out fully by Mr. Dodd in his October 28th speech before the FAO Preparatory Commission. Mr. Dodd said: “In putting forward its suggestions for an International Trade Organisation, the Government of the United States has had in mind the importance of securing— with the help of a reduction in trade barriers and other measures—a world‐wide expansion in employment, production, trade and consumption. We consider that action toward this end is of fundamental importance to the achievement of the objectives which this (Prepara‐tary) Commission is considering… It is the considered view of the United States Government that the ITO proposals provide a useful starling point for the deliberations of this Commission.” Previous U.S. experience in attempting to solve the riddle of farm surplus in the midst of hunger has been uneven and spotty. Perhaps the worst failure in this regard was the ill‐fated Federal Farm Board created in 1929 to arrest the drastic decline in farm prices. The Board advanced large sums to farmers' co‐operatives which extended loans to its member co‐operatives to induce farmers to withhold wheat and cotton from the market, without, however, controlling production. The Farm Board finally concluded that no such scheme could succeed without control over production, and production control therefore became a salient feature of the Agricultural Adjustment Act of 1933. This Act was amended in 1936 to meet the objections of the U.S. Supreme Court, which held it unconstitutional, but the essential requirement of control over production was retained and remains in effect to‐day. The Commodity Credit Corporation, a Government buying and selling agency created in 1933, has succeeded where the Farm Board failed, because the Government has exercised a degree of control over production. At Copenhagen last September, Mr. Dodd referred to the success of the Commodity Credit Corporation in these words: “Some people have expressed fear that stabilisation of farm prices would keep food prices above the reach of many consumers, but in the United States we have used the Commodity Credit Corporation effectively to protect farm prices, and food consumption, meantime, has increased. Furthermore, Commodity Credit stocks have served as reserves against years of bad weather and poor crops—reserves that were welcome indeed during the last war.” The Biblical idea of Joseph—of an ever‐normal granary—wherein surplus farm supplies are carried over from years of good harvest as a reserve against lean years of crop failure and hunger war and popularised in the United States by Mr. Henry A. Wallace during his service as Secretary of Agriculture, 1933–40. Sir John's World Food Board proposal also envisaged this evernormal granary concept, but failed of adoption because of the heavy expense involved, together with lack of adequate controls over production. It was this absence of production control in the Orr plan that led the U.S. to oppose the Orr plan, even though the country was in sympathy with its humanitarian objectives of raising living standards through expansion of consumption.

The issue of export instability exerts an enduring fascination for economists with an interest in the area of economic development. Over several decades a voluminous literature has emerged embracing debates on the domestic consequences and on the causes of export instability. The purpose here is to examine these debates and an attempt is made to set out different theoretical stances, to classify and examine empirical findings, and to indicate the directions in which the debates have moved. Such a statement of a review article's purpose is, of course, incomplete without more specific delineation of the boundaries within which the general objectives are pursued. Here that delineation has three facets.

Charles Oscar Hardy (1884–1948) was a well-known though perhaps not leading monetary and financial economist of his time. He was and is important enough, however, to be remembered and studied a half century later (see Frank G. Steindl, Monetary Interpretations of the Great Depression, Ann Arbor, MI: University of Michigan Press, 1995; J. Ronnie Davis, The New Economics and the Old Economists, Ames, Iowa: Iowa State University Press, 1971; and Allan H. Meltzer, A History of the Federal Reserve, 1913–1951, Chicago, IL: University of Chicago Press, 2003). Educated at Ottawa University, Kansas (AB, 1904) (a private university affiliated with the Baptist Denomination) and the University of Chicago (Ph.D., 1916), he taught at both schools as well as at the University of Iowa. He was Vice President of the Federal Reserve Bank of Kansas City, had a long-term association with the Brookings Institution, and was a frequent advisor to government agencies. Working when the gold standard was in effect, he discerned instability as the likely consequence of excessive gold stocks and resultant credit expansion. An advocate of central-bank monetary management, he worried over limits to its power to create monetary stability because of shifts in the balance of trade and in long-term investment, and called for major reform of the gold standard. Subsequently, he advocated activist monetary and fiscal policy. Hardy also contributed to the development of the theory of risk and uncertainty, a field dominated by his colleague, Frank Knight.