Food security: for reserve stocks

The invasion of Ukraine by Russian armed forces on February 24th brutally upset the already precarious balance of global food security. At the start of the 2021/2022 wheat season, forecasts indicated that wheat production would be lower than consumption, leading to a deterioration in the stocks-to-use ratio to its lowest value since 2016/2017, i.e. 35 %. Excluding China, whose stocks are uncertain, this ratio was reduced to 21.5 %, the lowest value since 2007/2008. Inevitably, as during the economic and financial crisis of the subprimes Since 2008, these fundamentals have caused a shock on the markets with a very sharp rise in global prices. Thus, the May 2022 deadline on the Euronext futures market, which at its lowest had quoted €200/T in May 2021, peaked at more than €250/T in August, to then experience a continuous increase until reaching a new peak at nearly €310/T in November 2021. While favorable information on harvests in the Southern Hemisphere reduced tension on the markets, Russia's attack in Ukraine caused a stunning effect and a surge in prices which reached almost €430/T at the beginning of March, to then fluctuate between €360 and €380/T.

The armed conflict in Ukraine has suddenly revealed the belligerents' dominant position in the global commodities market. Previously, Russia and Ukraine together accounted for 30 billion tonnes of global wheat trade, 32 billion tonnes of barley, 19 billion tonnes of corn, 20 billion tonnes of sunflower, and 79 billion tonnes of sunflower oil. The abrupt halt to loading operations in Ukraine, the bombing of port sites, the dangers to river and sea navigation due to mine-laying, and their impact on chartering and insurance costs have abruptly brought the issue of food security to the forefront, both in terms of accessibility, due to very high prices, and availability, as supply disruptions affected certain trade flows.

While the Russian president brandished the threat of food weapons to put pressure on public opinion and rally countries to his side, the United Nations and many countries were alarmed by the consequences of the conflict on food security, firstly for Ukraine but also for all importing countries, particularly in Africa and the Near and Middle East, which depend on imports from the Black Sea.

Thus, the issue of food security has returned to the top of political agendas, as was the case after the market surge in 2008. For the record, the "G20 agriculture", convened at the initiative of France, led to the creation of an information system on agricultural markets, AMIS (Agricultural Market Information System), whose secretariat is provided by the FAO, the creation of a Rapid Response Forum and the project to establish pre-localized emergency humanitarian food reserves under the aegis of the World Food Programme (WFP). However, discussions on the implementation of reserve stocks were not successful since, to ensure balances between supply and demand, confidence in the role of market forces took precedence over provisions considered too interventionist. Over the past decade, grain and oilseed markets have been marked by the rise of Russian and Ukrainian agriculture and their share of the global market, so the conflict between the two countries reveals new aspects of food insecurity. Emergency food reserve systems, such as those established in ECOWAS, with the support of the European Union and the French Development Agency, are unable to meet the quantitative needs of the current crisis. Created to respond to specific situations, they are in no way a solution for widespread disruptions in essential commodity markets.

In the European Union, the COVID-19 pandemic has raised the issue of food supply continuity, leading to the launch in November 2021 of a Commission-coordinated expert group called the European Food Crisis Preparedness and Response Mechanism (EFSCM). The war in Ukraine precipitated the first meetings of this body in March 2022, whose purpose appeared to apply to all crisis circumstances, recognizing the relative unpreparedness of crisis management mechanisms in this area. Furthermore, at the extraordinary G7 Summit on March 24, French President Emmanuel Macron launched the Food and Agriculture Resilience Mission (FARM) initiative. This is a multilateral approach that should bring together all relevant actors—states, international organizations, the private sector, and civil society—to ensure food security in the most vulnerable countries by acting on the three pillars of trade, solidarity, and production. Finally, members of the WTO Committee on Agriculture agreed on March 21 to reach a consensus on food security at the Ministerial Conference to be held in June. For the United States, the European Union, and some members of the Cairns Group, this will involve exempting WFP food purchases from any export restrictions, while developing countries are moving toward a permanent solution of public stockpiles. The delicate issue of acquiring, holding, and managing public stockpiles for food security purposes divides members, but beyond problems of compliance with multilateral agreements, the legitimacy of reserve stocks will need to be addressed in substance.

Having noted the inadequacy of current measures, President Macron's FARM initiative, like the EFSCM or the next WTO conference, will have to explore measures likely to provide effective responses to guarantee food security, whatever the nature of the crises – whether health-related, linked to armed conflicts or climatic hazards.

Thus, the issue of reserve stocks should be addressed in circumstances where geopolitical urgency combined with the need to address the consequences of climate change dictates agenda priorities. In the very short term, alternative sources of supply from the Black Sea must be found, as well as financial solutions to meet the needs of the poorest countries and the most deprived populations. In the medium and long term, the issue of reserve stocks now appears unavoidable.

In its latest annual report published in February 2022, the French Court of Auditors devoted a chapter to “Food supply security”[1], highlighting the inadequacy of current crisis management systems. In particular, it recommends better inventorying of stocks, without however building up strategic reserves as in Switzerland, Germany or Finland. However, the reference to the "Swiss Reserve"[2] deserves attention because it is a public-private partnership for maintaining stocks of essential food products and fodder, but also medicines and pharmaceutical products, calculated in months of consumption, carried out by private sector companies, under public control and whose financial cost is integrated into the prices paid by consumers, i.e. a charge of around 12 CHF (approximately 12 euros) per inhabitant per year[3]This mechanism is similar to that of strategic oil stocks implemented by the countries united in the International Energy Agency (IEA), mostly members of the OECD, which are obliged to maintain a stock corresponding to at least 90 days of consumption. We have just seen the effectiveness of this mechanism, when following the sharp rise in gas and oil prices, the members of the IEA decided to draw 120 million barrels from these stocks to mitigate the inflationary effects of the Russo-Ukrainian conflict.

So, taking up the Viewpoint published by the FARM Foundation in April 2013[4], the plea for the creation of reserve stocks is now all the more relevant within the framework of a "Global Pact for Food Security". This would involve exporting producer countries integrating the coverage of the needs of importing countries with their own needs, as well as allowing regional agreements to truly follow the same logic. The European Union has a particular responsibility in this area towards the countries of the Mediterranean, the Sahel, and West Africa. It must take this geopolitical perimeter into account when defining its production, marketing, and storage objectives.

[1] https://www.ccomptes.fr/sites/default/files/2022-02/20220216-RPA-07-securite-approvisionnements-alimentaires.pdf

[2] https://www.reservesuisse.ch/?lang=fr

[3] See the box on Swiss strategic stocks in this regard. Demeter 2022, Food: the new frontiers, under the direction of Sébastien Abis and Matthieu Brun (IRIS Editions).

[4] Bernard Valluis, “Food security: for reserve stocks”. Viewpoint, Foundation for Agriculture and Rurality in the World (FARM), April 2013.