What is in this article?:
- Exports, uncertainty and size of ongoing food crisis
- 850 million hungry
- Models may overestimate grain exports and prices
- Many country import only what they can’t produce
- Policies needed to end food crises
In creating computer models of the agricultural sector, modelers have often treated stocks as a demand factor, leaving exports to take up whatever is left over—residual demand. As a consequence of this assumption, analyses of policies or conditions that cause grain supplies to increase while domestic demand remains relatively stable result in the overestimation of exports and prices.
As we read Derek Headey and Shenngen Fan’s “Reflections on the Global Food Crisis,” we were pleased to see their quote from Congressional Research Service Specialist in Agricultural Policy Randy Schnepf’s 2006 report, “Price Determination in Agricultural Commodity Markets: A Primer.” In that report Schnepf wrote: “Most market observers consider exports to be the great uncertainty underlying commodity supply, demand, and price forecasts.”
Ignoring the uncertainty of exports has driven agricultural policy since the adoption of the 1985 Farm Bill, when we lowered the loan rate in an attempt to “recapture” the exports that many argued rightfully belonged to the U.S. As we have seen, export markets are not the property of any nation and our attempt to lower loan rates were unsuccessful in increasing U.S. exports.
In addition, it is important to understand that, for the most part, many countries only import the amount of agricultural commodities they cannot produce themselves. If their production increases their imports decline and vice versa.
Perhaps if we remember that exports are uncertain we will be less likely to take seriously policy proposals that will work only in the presence of booming exports.