Grain reserves and food security in the Middle East and North Africa

Abstract

Aggregate stocks of major grains declined to minimal feasible levels in 2007–2008, due to high global income growth and biofuel mandates. Given these minimal stocks, prices were very sensitive to shocks, such as the Australian drought, and biofuel demand boosts due to the oil price spike. The effects of these shocks were magnified by a sequence of trade restrictions by key exporters to protect vulnerable consumers. Beginning in the ‘thin’ global rice market in the fall of 2007, these turned market anxiety into panic. Recognizing the unreliability of imports, vulnerable countries, including some in the Middle East and North Africa (MENA), are now considering investing in strategic reserves, pursuing self sufficiency and acquiring foreign land to ensure grain supplies for domestic consumption. The associated expense and negative incentive effects on national reserves may be acceptable if they have quantitative targets related to the needs of the most vulnerable, for distribution only in emergencies. In many MENA countries, heavy subsidies on grain consumption for both rich and poor reduce the stabilizing response of consumption to price, and increase reserves needed to ensure food security. Accumulation of stocks is a more efficient strategy than pursuit of self-sufficiency in most MENA countries, as they have no comparative advantage in expanding agriculture, given restricted water supplies. Acquisition of foreign lands leaves food supplies exposed to sovereign risk and other supply chain problems beyond importers’ control. MENA countries could cooperate and so smooth much of the risk posed by fluctuations in their own harvests.