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Drought rekindles talk of strategic grain reserves

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The drought that descended on the United States this summer will translate into higher prices for breakfast, lunch and dinner. The inevitability of this scenario introduces an old question that has become new: When weather strikes, what can curb food inflation?

Recent suggestions cover a wide range of complicated approaches, from GPS-guided drip irrigation techniques to genetically engineered crops and from new federal biofuel standards to new farm insurance programs to new commodity-markets regulations. How ironic that the oldest agricultural technology of them all may provide the simplest and most timely solution.

Grain silos sport quaint silhouettes on country roads, but these stores of corn, soybeans and wheat have played an essential role in the history of drought, flood and frost, and they suggest a solution to the specter of inflation. No one questions why the United States maintains a Strategic Petroleum Reserve. The very threat of bringing reserves to the market can moderate the spiking price of crude oil. But when it comes to food prices, our country cannot even threaten to bolster the national supply because the United States does not possess a national grain reserve.

Such was not always the case.

The modern concept of a strategic grain reserve was first proposed in the 1930s by Wall Street legend Benjamin Graham. Graham’s idea hinged on the clever management of buffer stocks of grain to tame our daily bread’s tendencies toward boom and bust. When grain prices rose above a threshold, supplies could be increased by bringing reserves to the market — which, in turn, would dampen prices. And when the price of grain went into free-fall and farmers edged toward bankruptcy, the need to fill the depleted reserve would increase the demand for corn and wheat, which would prop up the price of grain.

Following Graham’s theory, President Franklin D. Roosevelt created a grain reserve that helped rally the price of wheat and saved American farms during the Depression. In the inflationary 1970s, the USDA revamped FDR’s program into the Farmer-Owned Grain Reserve, which encouraged farmers to store grain in government facilities by offering low-cost and even no-interest loans and reimbursement to cover the storage costs. But over the next quarter of a century the dogma of deregulated global markets came to dominate American politics, and the 1996 Freedom to Farm Act abolished our national system of holding grain in reserve.

As for all that wheat held in storage, it became part of the Bill Emerson Humanitarian Trust, a food bank and global charity under the authority of the secretary of Agriculture. The stores were gradually depleted until 2008, when the USDA decided to convert all of what was left into its dollar equivalent. And so the grain that once stabilized prices for farmers, bakers and American consumers ended up as a number on a spreadsheet in the Department of Agriculture.

Now, as the United States must confront climate change, commodity markets riddled by speculation, increased import costs, hosts of regional conflicts and the return of international grain tariffs and export bans, we have put our faith entirely in transnational agribusiness and the global grain market.

History is not on our side. Since the days Joseph ruled the granaries of Egypt, nations have relied on vast storage systems to safeguard against bad weather, bad luck and the occasional revolution. The Chinese founded their national grain reserve in 54 BC when Keng Shou-ch’ang, the assistant grand minister of agriculture, proposed that all of the provinces along the boundary of the empire create stores of rice for an inevitable day of catastrophe. The Chinese grain reserve has been in place ever since, its current volume and dimension a state secret, for the grain reserve is considered one of the keys to Chinese national security. Over the past decade, India too has been bolstering its reserves, and French President Francois Hollande recently proposed European-wide strategic grain reserves.

Much like our international competitors in the market for global food, corporate agribusiness has learned to leverage the advantages of storing as much grain as possible. Cargill, the largest private company in the world, began its business in 1865 — with a grain silo. Today it is believed that Cargill’s global network of silos stores more grain than any other private company. But no one knows for sure because, like the Chinese, Cargill executives keep the amount of grain they buy, sell and store a secret. In 2008, Cargill parlayed its immense wheat holdings into an 86 percent jump in profits on global commodities exchanges. Such windfalls during times of panic, price hike and scarcity are not surprising: Since the days of food shortages in ancient Greece and Rome, spikes in the price of bread encourage grain bankers to hoard, not bring more grain to market.

All of which brings us back to this summer’s drought and the next global food crisis. In the last five years two devastating run-ups in the price of food have pushed the number of hungry people on the planet to a billion and the number of "food insecure" households in the United States to 17 million. These recent crises, ignited by biofuel mandates and fed by speculation, have caused bread riots in 30 countries and fostered revolution and regime-change. And spikes in the price of corn, soy and wheat not only threaten grain deficit countries and the poverty-stricken. They blight everyone up and down the food chain, from food processors to grocers, restaurateurs and consumers. A surge in the price of global food commodities may be the one thing an impoverished child in Mississippi and the chief executive of McDonald’s loathe in equal measure.

No one has to remind presidential candidates that a nation’s food supply is an essential element of national security. But the intricacies of commodities regulations and the sticky politics associated with biofuels, climate change and international grain markets may lead both candidates to overlook a time-tested way to sidestep the next food crisis. Despite the weather, the weevils, the mandates and the speculators, there is a way to blunt the ravages of drought and market greed. Bad weather need not guarantee food inflation. The sure path to national food security is a national grain reserve.

 

Frederick Kaufman is the author of Bet the Farm: How Food Stopped Being Food, to be published in October.

 

— Los Angeles Times

 

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