October 31, 2017
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Posted by NCID

Imagine that a baguette costs 1 USD. Three months later, you go to the same shop to buy the exact same baguette and the person at the counter asks for 1.85 USD. Suddenly, you can’t afford a baguette. Even if you could, that is the money you had budgeted for other primary needs. Far from being fiction, this happened in Haiti, where the price of grain increased up to 85 percent in 2008. The food crisis led to violent protests, as people couldn’t afford to eat, and eventually concluded with the ousting of the prime minister. 

Price shocks affect food security in many poor regions around the world. The problem is that, despite rising production, food prices are rising and increasingly volatile, increasing the probability of social unrest and rioting. ¿How can we stop prices from going up? ¿How can we avoid extreme hunger? Professor Randall Romero-Aguilar, from the University of Costa Rica, and Economist at the Consejo Monetario Centroamericano, presented on October 30th his paper titled “Food Security for Whom? The Effectiveness of Food Reserves in Poor Developing Countries” at the University of Navarra as part of NCID’s Weekly Seminars. 

The author analyzes how food reserves could mitigate the impact of price swings and food insecurity in the poorest regions. Using Haiti’s example, a poor developing country where the government implemented this strategy in 2011 by building a reserve that holds up to 35,000 tons of grain, the author introduces a theoretical model to quantify the effect of such a policy. Intuitively, these infrastructures should smooth price volatility and help reduce hunger in times of crisis. 

To the question: “¿Can a stockpile of grain end up hunger?,” the answer is no. “The optimal grain storage policy would not fully stabilize food prices nor prevent extreme hunger,” said Romero-Aguilar, “but it would reduce its frequency”. The author added that this method is very sensitive to parameters such as the storage costs, the initial stock available and the price of grain. Depending on these factors, it could be that this policy is outperformed by others that are directed towards attacking poverty in the long-run. “In many cases, a storage policy is no better than accumulating financial assets”, he concluded.

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