France pushes for strategic food stocks to cool prices

Reuters News
Posted: Sep 11, 2012 4:15 PM
France pushes for strategic food stocks to cool prices

By Julien Ponthus

RENNES, France (Reuters) - French President Francois Hollande has launched a global campaign to win support for creating strategic stockpiles of agricultural commodities, he said on Tuesday, one of the boldest measures yet to tame volatile food prices.

Amid fears that the world could be on the brink of a third food price panic in four years after dire droughts in the U.S. Midwest and the Black Sea area, Hollande's comments once again put France in the vanguard of efforts to give major producers and consumers greater power to prevent price spikes.

"I am pushing with heads of state and government for protection against (market) volatility in the form of emergency food stocks," Hollande said in a speech to farmers in Rennes.

"I propose to implement market management and crisis management policies by setting up strategic stocks," he said, stressing that he was "convinced of the benefits of global governance for subjects as crucial as food security."

France first raised the issue of reserves last year as it chaired the Group of 20 leading economies. But the final deal limited promises to food aid stocks in countries that could most need them, a measure that is yet to be implemented.

It is unclear whether Hollande will be more successful this time around in convincing the United States or his European peers to rebuild public grain stockpiles that were liquidated decades ago; or, as in the case of China, to use existing government stockpiles more collaboratively to address global issues.

Analysts said the practical challenges -- and costs -- of maintaining long-term food reserves remain daunting.

"I think there is lots and lots of grain history in which countries have decided to store for whatever reason and they usually end up selling the grain at a cheaper price after the rats and other things have gnawed at it," said Dan Basse, an analyst at AgResource Co in Chicago.

Hollande did not specify what food the reserves could include or where they could be located.

His call came just a day before a key U.S. crop report that may determine whether G20 officials convene an emergency meeting. But analysts have questioned whether the so-called Rapid Response Forum, created last year by the G20, has any meaningful tools to address prices.


Strategic agriculture stocks could prove difficult to manage because, unlike strategic oil inventories that can be kept in storage for months or years, grain reserves would have to be rotated regularly, complicating the process and elevating costs.

The United Nations' food agencies urged world leaders last week to take swift, coordinated action to ensure that food price shocks do not turn into a catastrophe that could hurt tens of millions of people in coming months.

The recent crop shortfalls were likely an anomaly and a return to normal yields would alleviate the tightness in the market, taking the issue off the table for world leaders, said Rich Feltes, analyst at RJ O'Brien in Chicago.

"The U.S. looked into that area heavily in the 1980s and what we found was that it was an enormous cost to the taxpayer. It served as a dampener for farm income," Feltes said. "It kept prices low because we knew there was an overhang, stockpile, a reserve for the market in times of shortage."

Although it maintains a sizeable strategic oil reserve, the United States liquidated its grain stockpiles two decades ago and generally opposes regional or global reserves as counter-productive, costly and disruptive to the market.

The timing is also less than ideal.

"Even if there were a decision today to establish a new system of strategic stockpiles, it would take time and money to put such a system into practice," said Pat Westhof, director of the FAPRI think tank at the University of Missouri.

"In the short run, putting grain into public storage would tend to drive prices higher by reducing the amount of grain available to users. In the longer run... experience has shown it is difficult to agree on the rules that determine operation of a strategic reserve."

Oxfam estimated that a global grain reserve of just 105 million metric tons would have been enough to help avoid the food price crisis in 2007-2008. The cost of maintaining this reserve would have been $1.5 billion; or just $10 for each of the 150 million additional hungry people that may have been fed.

Breeders, whose animals rely heavily on grains for their feed, have been among the hardest hit by the rally in grain prices. French Agriculture Minister Stephane Le Foll was expected to put forward an action plan to help them on Wednesday.

"I realize that whatever our efforts, all of this can be reduced to nothing if this volatility of farm products and commodities persists," Hollande said.

(Writing by Sybille de La Hamaide; Additional reporting by Chuck Abbott in Washington and Mark Weinraub in Chicago; editing by Catherine Bremer, Jim Marshall and Dan Grebler)