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218. Report Prepared in the Bureau of Intelligence and Research1

No. 823

SHARING THE BURDEN IN THE NEXT FOOD CRISIS

At present, countries consuming three-fourths of the world’s grain follow trade and domestic policies that magnify the impact of a shortfall in worldwide grain supplies and force larger cutbacks on the remaining nations. In the scramble for grains during the 1972–75 food shortage, some nations increased their grain use by 10 to 20 percent over their pre-crisis levels, while others were forced to decrease consumption by as much as 16 percent. This disparity raises questions as to whether there are more equitable ways to adjust to future shortfalls and reduce economic disruptions.

Contrast in Pricing Policies

When domestic grain production falls in the Soviet Union, the PRC, and most of Eastern Europe, domestic consumption is maintained by making available additional imported grain at regular domestic prices. In the EC , grain prices are kept stable even in times of world shortage through frequent changes in the tariff rate applied to grain imports (known as the variable levy). These countries use nearly half of the world’s grain, yet their policies reduce economic incentives for grain conservation.

In the LDCs, where grains constitute the major element in the human diet, most governments try to maintain stable consumer prices through direct procurement and imports. When prices rise, the governments attempt to maintain consumption levels for the poor through some form of special distribution, by absorbing some of the import and marketing costs, and by using food aid when possible. In these ways most LDCs are able to prevent sharp cutbacks in consumption levels, albeit with shifts in foreign exchange expenditures or increased indebtedness.

The burden of adjustment has fallen chiefly on countries which use the remaining fourth of the world’s grain, that is, Canada, Australia, and the United States (the three major exporters), a few other developed countries, and some of the poorest LDCs.

In contrast to Europe and the USSR, the US has permitted internal prices to vary widely. In 1974–75, as a result of sharply increased corn and wheat prices, domestic US grain consumption decreased by 38 mil[Page 687]lion tons with only a 3-million-ton decline in exports (from 31 to 28 million tons). Canada and Australia, despite some protection against high prices for their wheat consumers, also showed a decline in overall grain use in the 1974 to 1976 period.

Prior to 1972, when world grain production capacity greatly exceeded normal demand, unusual demands for imports drew on excess stocks held by residual suppliers, while ample food aid was available to hard-pressed LDCs. However, with world grain supply and demand now more nearly in balance, particularly for feedgrains, a small shortfall leads to competitive scrambling for exportable supplies, sharp increases in prices, and soaring foreign exchange expenditures.

Adjustments During the 1972–75 Food Crisis

The recent crisis was generated by two very small decreases in world food production and somewhat larger decreases in per capita production:

—a 1-percent decrease in output from 1971 to 1972 meant a 3-percent decrease per capita;

—a 7-percent production increase from 1972 to 1973 meant a 5-percent increase per capita;

—another 1-percent decrease in output from 1973 to 1974 resulted in a 2-percent drop per capita; and

—a 2-percent increase in world production from 1974 to 1975 caused no change in per capita availabilities.

During the entire period, world production was at least 10 percent higher per capita than in the 1961–65 base period. Even in the LDCs, per capita production was above the base years, although it dropped from 105 percent in 1971 to 101 percent in 1972. Individual countries, of course, varied widely with changes of as much as 30 percent above or below the base period.

Grain consumption figures, although of varying reliability, illustrate the uneven adjustment to changes in world supplies. (See Table 1.)2

The LDCs in the aggregate were able to increase total grain consumption during each of the years after 1972, although not on a per capita basis in 1974–75. Clearly, this was possible only because of a decrease in consumption in the developed nations, with most of the decline occurring in the US. The EC Nine also maintained consumption above the 1969–72 average by 2 to 5 percent, mainly to support a larger livestock production. To feed an even more rapidly expanding live[Page 688]stock industry, Eastern Europe and the USSR increased grain consumption sharply until mid-1975; the severe 1975 drought brought distress slaughter to the USSR and forced a curtailment of consumption, despite more than 25 million tons of grain imports.

Table 23 shows the differences in consumption patterns of 22 major countries and areas. The logistical difficulties in distributing grain to combat the effects of the Sahel drought are evident in the 13-percent reduction in Central and West African consumption and the very small (3 percent) increase in the best year of the period. The remaining LDC regions show increases in grain consumption, in some cases substantial increases, partly as substitutes for other foods in short supply. Also, while obtaining more grain, many of these nations faced such economic problems as equitable internal distribution of food, increasing foreign indebtedness, and reallocation of foreign exchange earnings.

Implications

The higher prices received by growers and rising foreign exchange earnings from grain exports are a mixed blessing in exporting countries. Desperate LDCs turn to exporters with pleas (or demands) for concessional supplies. Livestock farmers in exporting countries, confronted with higher grain prices, sharply curtail the use of feedgrains and livestock production, which leads to early slaughter but subsequent shortage of livestock products. Livestock farmers, consumers, and labor groups seek action to limit price increases and control exports; these efforts handicap governments in responding to legitimate LDC pleas for more grain supplies. Wide variations in prices may also be damaging to the long-run interests of grain producers as land prices and other production costs increase. Finally, dogged pursuance of globally inconsistent efforts to maintain usual consumption levels contributes to global inflation, depletes LDC exchange reserves, and, in some circumstances, reduces world demand for other commodities.

Long-range efforts to expand food production, reduce waste, control population, and improve nutrition may affect the size of the shortfall but are relatively unimportant in dealing with a current shortage.

Of the programs to deal with grain shortages, some, such as grain reserves, must be inaugurated in advance of the shortfall, while others require adjustments in agricultural resource use and reallocations of food supplies during the period of crisis. In either case, the burden of these adjustments falls unevenly upon nations and groups within nations. It will be very difficult to spread the burden more equitably, or even to define an equitable sharing of the burden.

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In a world of free trade, flexible prices, and relatively adequate exchange reserves among countries, moderate changes in prices would stimulate many of the appropriate economic adjustments but not necessarily contribute to an improvement in equity. In the absence of such economic policies, remedies must be sought in other directions and will be very difficult to achieve. Some of the less difficult ones are listed below.

—The establishment of grain reserves, whether private, public, or international, can make a significant contribution to reducing the impact of a shortfall in current production. A reserve designed to stabilize grain supplies for livestock production must be much larger than one geared to stabilize foodgrain supplies for human consumption.

—More stable, possibly multi-year, food aid commitments have special significance for the lower income LDCs. Contributions by an array of the richer nations, even though they are not food exporters, can help prevent food aid from diminishing in quantity when the need is greatest.

—More flexible national policy to stimulate food-grain production through higher prices and other expansionist policies will help prevent a second or third year of food shortages.

—Provision of emergency grants and credits will enable low-income LDCs to compete more effectively in world grain markets during periods of shortages; however, this approach can be inflationary unless cutbacks are made in other countries.

Since food shortages bear most heavily on the poor, additional domestic programs are likely to be needed in individual countries to improve access to food supplies for adversely affected regions and economic groups.

More difficult measures that require considerable coordination among national policies for controlling or curtailing grain consumption include:

—Trade liberalization to extend the area of price-sensitive production and consumption.

—An insurance program sponsored by exporters, or by all high-income countries, to furnish grain to any LDC whose output falls below 3 or 4 percent of trend production.

—Measures in developed nations, including Eastern Europe and the USSR, to reduce the amount of foodgrains consumed by animals, either by switching to grass and fodder or by deliberate reduction of livestock numbers.

—Discouragement of human consumption of grain in all countries where alternative food supplies are available.

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In broad terms, countries able to carry and manage grain reserves and those with a significant livestock industry have flexibilities in their food supplies that are not available to most developing nations. Adjustments to the next food crisis will be more equitable if economic policies utilize these flexibilities. Without more effective efforts to share the adjustment, the governments of exporting countries will again be under pressure to consider controls on exports in order to moderate internal price movements and placate consumer groups.

  1. Source: National Archives, RG 59, Central Foreign Policy File, P770118–2107. Limited Official Use. Drafted by Witt and approved by Ely.
  2. Table 1, “Indexes of Grain Consumption for Major Categories, 1969–72 through 1976–77,” is attached but not printed.
  3. Table 2, “Adjustments in Grain Consumption: 1969–72 through 1975–76,” is attached but not printed.