Cadmus

From European Union to World Union: Building Effective and Democratic Global Governance – ACTION for a World Community for Food Reserves

7. Historical Evidence Regarding The Role of Stocks
Figure 1 shows the price of wheat over the last hundred years (the prices are those received by US farmers).2
After the Second World War and until the 1970s, the price was relatively stable. Whilst prices varied from one year to the next, there were no sudden hikes or rapid falls. Why were prices stable for this 20-year period? Because, the major countries of the world wanted stability and predictability. To this end, they concluded an International Wheat Agreement which, to some extent, brought order to international trade in wheat. In addition, Canada and the United States decided to hold fairly substantial stocks of wheat which acted as a buffer, absorbing changes in supply and demand and thereby helping to stabilise world market prices.
Stable prices were advantageous to the world as a whole. However, the cost of price stabilisation was borne by these two countries – Canada and the United States. It was not a cost that was shared between all beneficiary countries.*
Prices were stable until the early 1970s when Canada and the United States decided not to continue to hold substantial stocks. They considered that the benefits of stable prices did not warrant the costs to their own economies and public budgets. As a result, the price of wheat started to vary significantly from one year to the next. There were no longer any stocks that could act as a buffer.

Figure 1: The price of wheat (nominal, US $ per bushel)

8. What may we Expect in the Future?
Price volatility may become worse because global warming could reduce crop yields meaning from time to time there may be less food available.

9. Grain Stocks – Should they be Private or Public?
As told in the Book of Genesis, Pharaoh and Joseph in ancient Egypt may not have known about price elasticity but they certainly realised that stocks were indispensable. Just as stocks were used to avoid price volatility several thousand years ago, so they can be used for the same purpose today and it is this that we propose. But should governments do it or should storage be left to the private sector?
Generally speaking, private grain storers store only that quantity of grain that they are reasonably sure of selling at a later date at a profit. This is the quantity that they deem the market can absorb until the next harvest comes in. In calculating how much to store, private grain storers assume that the next harvest will be a normal harvest. To assume otherwise, for instance, to assume that the next harvest will be bad would be to take the risk of ending up storing more than the market can absorb and of making a trading loss.
The problem for society, of course, arises when the next harvest does, indeed, turn out to be bad. Then prices escalate, because the amount of grain that private storers have in store is not sufficient to cover the harvest shortfall. The inability of private storers (of the ‘free market’) to resolve this societal problem is an example of a market failure and, like all other market failures, can be rectified only by public (i.e. government) action. The storage of grain – at a level over and above that which the private sector is willing to undertake – is therefore a public good to be supplied by governments.
Rather than each country having its own reserve stock, for several reasons it would make sense to have one global stock upon which governments could call as and when necessary. Firstly, many countries are too poor to establish their own national stocks. Secondly, in some countries, because of local pressures, courts of law have difficulty following up cases of alleged corruption. Thirdly, compared to the sum total of individual national stocks, a global stock would provide greater cover for the same cost (aggregation of risk and the insurance effect).

10. Our Proposal
Our proposal is for a reserve stock of grain, held at the world level. If international stocks are going to be properly and soundly managed, they have to be under the control of a supranational body, i.e. a body in which there is a limited sharing of sovereignty. This confers on the body a measure of authority over its member countries so that it can oblige them to act in the broad global interest of humanity as a whole rather than in the national interest of the country. It is for this reason that if a global grain reserve is to be properly managed the managing body has to be sovereignty-sharing rather than inter-governmental.**
We therefore propose that a new organisation be set up, perhaps called the ‘World Community for Food Reserves’. This organisation would be responsible for managing the stocks – for their establishment, release and replenishment. Its member countries would share sovereignty in this particular domain.
The members of the World Community for Food Reserves would be individual countries with the European Union as a single member in its own right (rather than its 27 member states).
There are already some eight international organisations working in the field of food. Instead of setting up yet another international organisation, would it not be logical to charge one of the existing organisations with the task of managing reserves?
Alas, none of the existing organisations are in a position to set up and manage a reserve stock of food. They do not have the requisite powers and it is extremely unlikely that they will ever receive those powers from their member states. The existing organisations are inter-governmental – just like the International Commission for cleaning up the Rhine. They can exhort, cajole and try to persuade governments to take particular actions but they cannot oblige them to do so. The proper management of a global food reserve requires governments to stick to the rules. Only a sovereignty-sharing body can ensure this.
The big difference between this proposal and the existing international organisations is that the World Community would have teeth because its rules would be binding and enforceable.

11. A Gradual Enlargement in Membership
Initially, the new organisation is likely to have a few members only, but if it becomes successful, it would grow – success being the best advertisement to attract aspiring members. The Community would have an executive commission, a council representing its member states, a parliamentary assembly representing the citizens and a court to hear cases of alleged infringement. All the member countries would have a guaranteed seat and a guaranteed voice in the council. The principles of democracy would apply. In the event that it is not possible to reach a decision by consensus – on, say, the amount of money that each country should contribute, or the conditions under which grain could be released – a vote would be taken by qualified majority voting.
The Community would be open to all countries that meet two conditions. Firstly, they must be willing to share sovereignty in the field of food stocks. Secondly, they must be able to share sovereignty in this field. In practice this means that their governments must have the administrative capacity to manage reserve stocks of food.
What would the World Community for Food Reserves do with its stocks? Would they be sold to governments or given away directly to the hungry? How would it all work in practice? Figure 2 shows the basic operations.

Step 1: The Community procures a stock of grain and stores it in its own warehouses. The warehouses are sited in its member countries.
Step 2: The Community has agreed, in advance, with each government a national ‘trigger price’. This is the price at which grain becomes very expensive for, say, the poorest quartile of the urban population. Each government monitors the price of grain on its market.
Step 3: If the market price reaches the ‘trigger price’ then the government submits a request for the release of grain from the Community’s stock. If the request is deemed to be justified, the Community authorises the release of grain to the government.
Step 4: The government does not give the grain to its citizens. Rather, it sells the grain on the market and returns the money to the Community.
Step 5: When the market price has started to fall (after the next harvest, assuming that it is a normal harvest) the Community replenishes its stock by buying grain on the local market. The replenishment has to be done when markets are slackening to avoid causing the very problem that this proposal seeks to avert (unaffordable prices).

Figure 2: How the World Community for Food Reserves would function

12. Conclusion
This is our thesis: firstly, the world is lacking the means to address global problems in an efficacious manner; secondly, the evidence of the European Union demonstrates that sovereignty-sharing works − the Rhine is just one of many examples; and thirdly, that we could start to share sovereignty at the global level with food security (and subsequently addressing climate change, global poverty, war and conflict and other world problems).
Perhaps, we can learn from the European Union’s experience, recalling the words of Jean Monnet, its founding father: “The European Community is but a step towards the way we will organise the world of tomorrow.” ***


* The beneficiary countries were all those which engaged in wheat trade, either as importers or exporters. The benefit was greater price stability.
** For an explanation of how countries can share sovereignty, see: Beginner’s guide to sovereignty sharing, available on website: www.world-community-for-food-reserves.org
*** In original French: “… La Communauté elle-même n’est qu’une étape vers les formes d’organisation du monde de demain.”
2 USDA ERS, Wheat Data: Yearbook Tables U.S. and foreign wheat prices, Retrieved from http://www.ers.usda.gov/Data/Wheat/YBtable20.asp


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