Food Reserves, Global Food Security, and International Stability

Incentivizing farmers to hold food reserves would protect global food security
December 12th 2022

Read Adin’s op-ed on U.S. food reserve policy here: “Dwindling Food Reserves Are a National Security Risk.”

How the U.S. Can Protect Global Food Security

War, pandemic, and a global economic downturn have combined to create the current food crisis. The Russian invasion of Ukraine has disrupted the trade of food as well as key farming inputs such as fertilizers and energy, with world food prices increasing 15% following the invasion. Although prices have fallen back to close to their pre-invasion levels, this is still a 44% increase in prices from the start of the COVID-19 pandemic, which hampered trade, the movement of migrant farm workers, and the normal operation of food processing and distribution centers. Consumers face high prices in the midst of a global economic downturn and rising inflation, reducing their purchasing power. The modern food system has suffered similar crises before, most notably in the early 1970s and in 2007 and 2008. While each crisis has had different proximate causes, all were preceded by a period of low agricultural stocks.

Food stocks help absorb supply disruptions from losses in production or trade, stabilizing prices. Stocks are also tapped to quickly provide humanitarian aid, and building up reserves can encourage investment in production by providing an additional market for farmers when prices are low. American major crop stocks have been in decline for decades. Global reserves, with the very notable exception of those held by China, have fallen from their peak in the 1980s and have remained roughly steady, dipping in the runup to both the 2007 crisis as well as the current price spike. 

Trends in agricultural stock levels, in the U.S. and around the world, have been substantially influenced by global trade agreements. The WTO Agreement on Agriculture (AoA), which seeks to reduce trade-distorting and protectionist policies, has encouraged developed countries to shift away from supporting storage and toward direct farmer payments. Farmers are therefore disincentivized from holding larger reserves when prices drop because they’re guaranteed a minimum price for commodities. Although the AoA has played a crucial role in facilitating trade, it imposes constraints on using public food reserves to improve food security, hurting developing and import-dependent countries the most.

The U.S. could decrease the vulnerability of global food prices to supply disruptions by modifying its stance on trade agreements. America has consistently sided against proposed amendments to the AoA that would allow for greater use of public food reserves. This opposition is based on the ability of governments to abuse these programs to distort trade and prop up domestic industry (more on that later). By endorsing changes to the AoA, the U.S. could help lift current restrictions on public food stockholding programs, facilitating larger reserves and greater price stability around the world. These changes should exempt food security stocks up to a certain level from support limits currently imposed on countries and change the reference price used to determine support levels to better reflect current market conditions and account for inflation.

“Although the AoA has played a crucial role in facilitating trade, it imposes constraints on using public food reserves to improve food security, hurting developing and import-dependent countries the most… By endorsing changes to the AoA, the U.S. could help lift current restrictions on public food stockholding programs, facilitating larger reserves and greater price stability around the world.”

Despite having a financially healthy farm sector, the U.S. provides significant support to agricultural producers, and this support is increasingly in the form of subsidies for crop insurance and farmer incomes, which disincentivizes risk mitigation. At the same time, the U.S. has drawn down its humanitarian food reserves and has not replenished them in over a decade, hampering America’s ability to quickly and effectively provide both domestic and international food assistance. This approach affects poor consumers here and abroad and harms key U.S. national security interests. Both problems can be addressed by restructuring federal agricultural policy to couple farm support to production, rather than providing direct farm payments.

High staple crop stocks are critical for a resilient agricultural system. While some policies of the past century led to the buildup of excessive reserves that had adverse effects on trade efficiency and production incentives, global and domestic policy has overcorrected for these pitfalls, making consumers more vulnerable to supply disruptions. The U.S. can serve its economic, security, and humanitarian goals by aligning its agricultural programs and its stance on international trade to support healthy stock levels at home and abroad.

The Importance of Food Stocks

Agricultural stocks are generally held for two main purposes: stabilizing prices and hedging against supply shocks. Individual producers will store foodstuffs when the expected future price is higher than the current price plus the additional cost of storing the commodity. This is called competitive storage, and in a well-functioning market with good credit access, farmers and others in the food supply chain can use it to hedge their own risk against price changes, such as from lost production. However, this generally does not lead to socially optimal storage levels, as the public has an interest in stable prices and in having reserves on hand to respond to emergencies. Small agricultural stocks are associated with higher and more volatile prices in the U.S. and abroad, which in turn harm consumers, worsen food security, and decrease investment in agricultural research and development.

Food price spikes both cause and are exacerbated by low reserve levels. As prices rise, stocks are drawn down to increase supply. When stocks are too low to draw upon and there is insufficient supply, prices rise sharply (because demand for food is highly inelastic). The food crisis of 1972 to 1975 saw international grain prices more than double, with excess mortality estimates nearing five million. The global stock-to-use ratio, the ratio of the amount of food stored to the amount used in a given year, fell 30% in the lead-up to the crisis. In 1973, stock levels fell below 17%. Such low levels were not seen again until 2006, the year before the next major global food crisis. Many factors contributed to the food price spikes of the mid-2000s, but modeling work suggests that higher stocks would have reduced the jump in major crop prices by 38 to 52%. While food reserves leading up to the current food emergency were not as low, the world ended 2021 with the lowest stocks in five years despite record production (stock level and price data from the USDA Foreign Agricultural Service).

The impact that stock-to-use ratios of staple crops have on food prices varies for different countries. Crop storage levels significantly impact wholesale commodity prices in the U.S., with the stock-to-use ratio of corn, for example, explaining over 80% of the variance in domestic corn prices over the past 30 years. However, long supply lines largely buffer American consumers from these price fluctuations, with crop prices accounting for less than 10% of the price of food in the U.S. As a result, the food consumer price index is not significantly associated with U.S. reserve levels. Since many of the world’s poor rely on staple crops for much of their diet, however, global reserve levels account for over 40% of the variance in worldwide food prices. Increases in food prices can be devastating: The World Bank estimates that every 1% rise in global food prices leads to an additional 10 million people falling into extreme poverty.

Beyond total stock levels, another important influence on food security is the global distribution of stocks and their openness to the market. Since 1990, the proportion of the global population living in a food import-dependent nation has increased from 60% to 80%, meaning that just a handful of countries have a large influence on worldwide markets and food supplies. Several times in recent history, low stock levels have not been followed by a significant food price increase, such as in 1996 and 2002, but in both of these cases China opened its large food reserves to global markets. By contrast, during the current crisis, China has not yet released any of its stocks, despite holding 69% of the corn, 60% of the rice, and 51% of the wheat stored worldwide. While having a population only 23% higher than Sub-Saharan Africa, China holds more than 24 times as much grain, and India holds more than 3 times as much. Restrictions on the movement of agricultural goods were a significant factor in the 2007 food crisis, accounting for around 13% of the price increase. With so much of the world dependent on food imports, and 35 countries imposing agricultural export restrictions in the wake of the disruptions caused by the Russian invasion of Ukraine, the continuation of extreme disparities in food reserve levels is a major impediment to food security and food system resilience. While the U.S. remains the world’s largest provider of humanitarian food assistance, its share of global crop reserves has declined from up to 40% in the 1980s to just above 5% today, shown below. Thus, a growing proportion of the world’s food is held in countries that are less open to global markets.

Reserves improve food security by buffering against price spikes, and can also increase production and investment in agricultural development, encouraging long-term sectoral growth. In the past, some food stockpiles have been built up to excessive levels, mismanaged, or abruptly dumped in the market. But well-designed reserve policies can avoid these pitfalls while providing security to producers against negative price shocks. A policy of filling reserves when crop prices are low gives farmers the confidence needed to invest in production. As discussed in more detail below, these policies contrast to blanket income support for producers that is not tied to production, which discourages investment and innovation. Volatile food prices have been a major factor leading to underinvestment in agricultural R&D in developing countries. This lack of investment contributes to persistent yield gaps between developing and developed nations, increases import dependence, limits total food production, and keeps rural incomes low.

Insufficient food reserves are associated with higher and more volatile food prices. Low stock levels have exacerbated past food crises, and are a factor in the severity of the current crisis. Reserves held by private producers are generally not sufficient to guard against large supply disruptions. Policy makers’ reactions to this issue have evolved over the past several decades, influenced by changing global trade regimes and domestic policy trends.

Historic Food Reserve Policies

Policies supporting food reserves have moved in and out of favor in different parts of the world over the past century, but have largely continued to decline since the liberalization of the 1990s (despite an uptick in interest following the 2007 and 2010 food crises). Public granaries have a millennia-long history as a hedge against pests and bad weather, and in fact the first modern programs in the U.S. explicitly drew inspiration from ancient Chinese policies. While advancements in agriculture lessened these concerns, during the Cold War many countries were motivated to build up their reserves in preparation for the possible outbreak of a new global conflict. In the U.S., reserves were also seen as welfare programs for rural America and as geopolitical tools that could be used to foster goodwill and shape global markets. Partially motivated by frustration over America’s use of its large agricultural surplus to dominate foreign markets, and by a changing economic paradigm, the global community began to look unfavorably on public stockholding policies by the turn of the century. One response was for countries to agree to set limits on how and to what degree they could build up their food reserves. This then caused a shift in how developed nations support their agricultural sectors as they moved from direct payments for food production to price supports and subsidized insurance. In the wake of the food crisis of 2007, many countries sought to reverse these trends. There are also early indications that the current crisis is already leading to similar thinking, but there remain substantial disagreements between countries over integrating public stockholding policies into global trade agreements.

U.S. federal support for food reserves began in the Great Depression, and essentially ended in 1996. The initial stockpiling program, termed the Ever Normal Granary as an homage to dynastic Chinese tradition, was largely billed as a New Deal-era welfare program for farmers. American agriculture fed the Allies during the Second World War, and as a result was producing far beyond domestic needs when the war ended. The government adopted a policy of supporting this outsized production by buying the surplus and using it to support humanitarian aid and geostrategic interests abroad. The American policy of mostly in-kind food donations during the twentieth century was cemented in law in 1954, and proponents to this day argue that having U.S.-labeled food products shipped overseas serves an important role in bolstering America’s image. By the 1970s, however, massive publicly owned reserves began to be seen as unwieldy, and agricultural lobbies opposed tying reserves to policies governing how much land could be planted. The result was a new paradigm called Farmer Owned Reserves (FOR), where the government subsidized loans to farmers for up to three years to encourage them to store their produce. This policy change led to a 10% reduction in the typical amount of corn stored and a more than 40% drop in wheat stocks (although soy reserves actually increased slightly). The government still owned some stockpiles, but by 1996 the only remaining public reserves were for foreign humanitarian aid, and the FOR program was terminated. This led to a further reduction of corn, wheat, and soy stock-to-use ratios by 50%, 43%, and 14%, respectively. Following the 2007 food crisis, the U.S. depleted its last humanitarian reserves. This decline in food stockpiling programs has been mirrored by many other countries over the past several decades.

No other nation matched the U.S. in humanitarian food assistance during the twentieth century, but public reserves for price stabilization and emergency response were common in both developing and developed countries. In addition to fears about another global conflict, governments were also motivated to increase their stockpiles after the devastation of the 1972-1975 food crisis, and ideas for a coordinated global food reserve were even floated by the U.S. However, authorities in many developing countries abused their control of reserves to serve narrow political interests, making them unsustainable. Moreover, by the 1990s a consensus emerged that more integrated global trade networks would be more efficient than large stockpiles at allowing countries to patch up supply shortfalls. The crisis of 2007, however, changed the thinking of many global leaders.

Countries with larger reserves were much better able to weather the price spikes of the mid-2000s, and this inspired many nations to revisit public stockholding policies. Countries that had maintained reserves released significant amounts of food to shield their consumers from high prices during the crisis. The starkest example was China, which had already opened its reserves to the international market in the early 2000s and saw its considerable stocks drop by more than two-thirds amid rising global prices. Markets soared again in 2010 and 2011. This perpetuated the food crisis, sparked violent food riots in more than 20 countries and, in the estimation of many scholars and policymakers, led to the Arab Spring. Several multilateral organizations, including the FAO, World Bank, and the G20 called for or investigated renewed reserve programs. Although the global community is far from a consensus around the merits of optimal program options, there is agreement over the importance of robust humanitarian reserves, and several regional organizations created or revitalized joint stock holding programs designed to alleviate short-term supply shortages. Indeed, the fact that food prices did not crash more quickly after the spikes in 2008 or 2011 has been attributed to the move by several countries, most notably China and India, to rebuild their reserves. Nations in the G33 have argued that the WTO AoA limits their ability to stockpile food needed to weather future crises. Despite all of the policy discussion of increasing global stocks, actual reserves, excluding those in China, have remained roughly flat, as shown below. 

The WTO Agreement on Agriculture

The WTO Agreement on Agriculture has helped reduce trade barriers worldwide but has also caused a substantial shift in how countries support their agricultural sectors, reducing both public and private food storage. The AoA places constraints on policies that are seen as trade distorting, such as tariffs or other trade barriers. Governments are also limited in how much and in what ways they can support domestic producers. Programs that are seen as non-trade-distorting are unconstrained, while those perceived as meaningfully impacting international markets face spending caps. There is disagreement on how different policies should be classified, but over the past few decades, the WTO has looked favorably on programs that decouple support to farmers from production. Policies that tie support to production, such as buying food for a stockpile at preset prices, have hard limits. As a result, countries have changed how they subsidize their domestic agricultural industries. Beginning in 2013, WTO negotiations have been at a stalemate over if and how to change the AoA to allow for greater food reserves. The U.S. should endorse reasonable amendments that would alleviate these problems and allow nations to invest in public stockholding programs.

The AoA limits spending that is seen as trade-distorting to 5% (10% for developing countries) of the value of a nation’s agricultural sector at-large or of a specific commodity that is being supported. If a public program buys food at a set price, then the difference between this price and a WTO reference price is multiplied by the quantity of the commodity procured and added to the total support that the country has provided to domestic producers. Thus, building a public food reserve faces a spending cap, although funding to maintain a reserve does not. The G33 claims that its members may break their WTO obligations as they try to establish public stockpiles, and has offered proposals that would exempt these programs from AoA limits. America has joined the Cairns Group, an association of agricultural exporters that do not use subsidies, in opposing this change. The conflict has remained unresolved since the 2013 Ministerial Conference in Bali, despite hopes for the 2022 Geneva meeting. In light of continued disagreement at the WTO, there is currently a temporary “peace clause” in place, but it has little force behind it and does not resolve the policy conflict. Several of the proposals by the G33 go too far in not setting any limits on public stock holding programs. A more moderate plan could limit trade concerns while providing for food security needs.

Public stockholding programs should be large enough to insulate vulnerable consumers from supply shocks and price spikes, but excessive reserves might be abused to harm global markets or support domestic industries at the expense of other countries. Indeed, part of the impetus for the AoA was anger in the international community over the U.S. dumping its publicly-supported agricultural surplus in foreign markets, depressing prices and ultimately reducing production. Buying up stocks can also drive up prices, especially during shortages. This practice appears to be exacerbating the current crisis, as 2021 stock levels were lower than expected due to high Chinese demand driven partially by their program to build up large reserves. To avoid these issues, the AoA should be amended to exempt purchases of food for reserves at administered prices if these prices are available for both domestic and international producers. The exemption should only extend to stocks built up to a predetermined level. Also, to avoid dumping concerns, countries should agree to not sell their stocks abroad unless they have permission from a trading partner. Public food purchases after stocks have reached the predetermined level would again contribute to AoA spending limits. Massive programs, like those in China which have in fact been challenged as violating WTO obligations, would run afoul of such a proposal, but countries with more modest reserve policies would not be restricted.

The commodity reference price used by the AoA should be amended. Right now, the price is set at the average price for agricultural products from 1986 to 1989. According to the FAO Food Price Index (FFPI), food prices during that period were less than half of what they are this year, and even during non-crisis times, the real FFPI from 2016 to 2019 was still more than 40% higher than the 1986-1989 average. This means that public food purchases, even at or near current market prices count substantially toward a country’s AoA spending limits. The reference price should be updated to equal a rolling average of global market prices over the previous several months to a year. Prices should also be set in a stable currency, such as the U.S. dollar or the IMF’s Special Drawing Rights so that countries experiencing extreme inflation do not have their reference prices become obsolete overnight. This alone would ease the pressure on public stockholding programs, and combined with an amendment to exempt reserves up to a level needed for food security guarantees would make consumers far less vulnerable to future food shortages.

Allowing countries to support their food security goals through reasonable public stockholding programs, while avoiding the pitfalls of excessive reserve buildup and government involvement in price setting, is key to U.S. national interests. The AoA should be amended to exempt food acquired for public stocks up to a point needed to hedge against supply disruptions, and the WTO external reference price should reflect current market conditions and not unduly punish countries with unstable currencies.

U.S. Farm Support

Beyond building public reserves, governments can also contribute to food price stability and availability by crafting support programs to incentivize private stockholding and encourage producers to adopt other risk-minimizing strategies. U.S. federal agricultural support currently does the opposite. Massive subsidies on crop insurance and guaranteed price minimums encourage risk-taking, disincentive private reserves, and reduce the adoption of climate adaptation strategies. The movement of American farm policy toward income rather than production support is part of a trend across developed countries spurred by WTO obligations. As a result, consumers both at home and abroad are more vulnerable to production shocks and trade disruptions.

Political pressures to provide generous federal support to agriculture are strong, but several changes could align this support with the important goal of increasing food supply resilience without necessarily cutting back on farmer benefits. The USDA and USAID could use their purchasing authorities to acquire certain staple commodities when prices are low, replacing current programs that simply pay farmers when they sell at low prices. Subsidized insurance premiums, rather than acting as income support for producers, should be conditioned on adopting risk-reducing strategies to incentivize more resilient farming practices. Marketing Assistance Loans (MALs), which currently subsidize farmer incomes and are used to help smooth prices over the year, should be extended to last several years rather than nine months to encourage longer-term storage. These changes could run up against AoA spending caps, further showing that it is important for the U.S. to revisit its stance on public stockholding rules. With larger public and private reserves and a more resilient agricultural system, the U.S. would be more secure against threats to its own food supplies and could better meet its humanitarian goals.

The AoA aims to lower public spending that can distort market signals, and it sets specific limits on farm support policies tied to production. Such programs can reduce resource use efficiency by distorting the market signals that producers receive. It is reasoned that if farmers are given public payments irrespective of output, then production decisions will be driven solely by market prices. This is why Annex 2 of the AoA exempts decoupled income support programs from spending limits. The U.S. 1996 Federal Agriculture Improvement and Reform (FAIR) Act, passed one year after the AoA came into force, marked America’s transition toward decoupled income support, which is also touted as being more efficient at boosting farmer incomes than production-based subsidies. Since the bill’s passage, decoupled public farm support relative to the value of U.S. agricultural production has fallen by more than 40%. However, total federal spending as a proportion of agricultural production has risen by 9% over the same time period, while the global amount of public agricultural funding relative to output fell by 75%. Farm support funding has mostly gone to highly subsidized insurance premiums and payments to farmers when prices are low. Meanwhile, investments in boosting productivity have decreased, with public R&D funding falling 20%. Thus, while the AoA sought to reduce government spending on agriculture outside of areas like R&D and infrastructure, under the new trading regime the U.S. has increased farm subsidies, paying farmers in ways that reduce agricultural resilience.

The preference for decoupled support policies is based on the assumption that farm support policies that are decoupled from production distort markets less than policies that tie public support to farm output. Recent work has challenged the assumptions, and the policies that this idea inspired in the U.S. has had negative effects on commodity price stability and food system resilience. What these policies do accomplish, however, is to efficiently transfer wealth to American farmers. While politically popular among a powerful interest group, this is hardly necessary. The U.S. agricultural sector is much more financially healthy than other industries and already supports higher incomes, and the beneficiaries of public funding are disproportionately the most well-off producers. Recent modeling suggests that decoupled payments lower productivity by allowing firms to stay solvent that would otherwise exit the market. Indeed, farms go bankrupt at less than one-third the rate of other American businesses. Beyond lowering productivity, farm income support decreases storage and other risk mitigation practices.

In a market without intervention, producers will store commodities if the expected future price is higher than current prices plus the cost of storage. Storage also provides a buffer against supply shocks. U.S. policy interferes with this response by paying farmers when prices are low, meaning they are not incentivized to keep stocks. It does this through three programs; market assistance loans (MALs), Price Loss Coverage (PLC), and Agricultural Risk Coverage (ARC). MALs are nine-month-long loans where farmers use their commodities as collateral. The value of the loan principal is determined using a statutory price for the given commodity. If market prices rise, farmers reclaim their goods at this statutory price and then sell at this higher price. In the 1980s, market prices remained consistently below this statutory price, largely due to low export demand (the strong U.S. dollar made American commodities expensive overseas). As a result, many farmers forfeited their commodities, leaving the USDA in possession of large amounts of produce. The USDA has since made changes to prevent this from happening again. If prices do not rise above the statutory price, farmers can buy back their goods for less than the principal and get paid the difference, guaranteeing that farmers get paid the equivalent of selling their goods for at least the statutory price. PLC and ARC were introduced in the 2014 farm bill, replacing other income support measures. They both essentially work by paying farmers the difference between the price at which they sell their commodities and a preset price, either statutory prices under PLC or five-year average prices under ARC.

MALs, PLC, and ARC all provide farmers a price floor. This is also what public stockholding programs have traditionally done but by buying and holding commodities rather than simply paying farmers. These programs typically cost over $7 billion per year, but this money could be used to purchase commodities at a low price. Some of this expense could be recouped by selling commodities when prices rise, helping ease supply constraints, but reserves could also be devoted toward humanitarian food assistance, both by supplying domestic food banks and providing goods overseas (discussed more below). Since 1933, the USDA’s Commodity Credit Corporation (CCC) has had broad authority to acquire and maintain stocks and provide other forms of farm income support and to contribute to humanitarian donations. The CCC has not held reserves since 2005, but the PLC and ARC commodity support programs could be replaced by a policy of using the CCC to purchase goods when prices fall below a statutory level. The current commodity prices used by the PLC are fairly high, as the prices of corn and wheat, for example, have been below this threshold 41% and 66% of the time since 2014 when the statutory prices were set. In replacing the PLC and ARC, the CCC could adopt a policy of buying commodities when prices are low, set at a point below the current reference prices so as not to acquire stocks that are too large. By reducing the effective price floor of U.S. commodities, this change would also encourage farmers to increase their private reserves as a way to take advantage of higher future prices. Over the past five years, postharvest grain and oilseed stocks have occupied an average of around 70% of the storage space available, suggesting that there is capacity for additional stockpiling (but the USDA could also invest in additional facilities to ensure that there is sufficient capacity).

Beyond serving as an additional price floor mechanism, the MAL program also helps farmers smooth prices over the course of a year. By extending the duration of these loans from nine months to several years, the USDA could further encourage private storage, providing capital for farmers to hold their goods from the market when prices are low, helping raise prices, and selling when conditions are more favorable. A similar scheme, the Farmer Owned Reserve (FOR) program, was in place from 1977 to 1996. In addition to increasing storage, this policy helped smooth prices, with the standard deviation of corn and wheat prices while the program was in place being roughly a third of what they’ve been since. More stable prices increase investment as producers and buyers can plan for the future more effectively. 

America still faces several threats to secure food supplies. Warming temperatures not only increase the likelihood of extreme weather but also the chance that yields across multiple countries fall due to synchronized production shocks, with some modeling showing a 7% annual chance of a 10% drop in corn production globally at 2o C warming. Such a global shock would be unprecedented in modern history. Simulations of a drought on par with that seen in the 1930s Dust Bowl show a 33% decline in U.S. wheat production over four years, a loss that would almost completely deplete American reserves and cut global stocks in half. In 1970, 15% of U.S. corn production was wiped out due to a single pest, the Southern Corn Blight. With the increasing concentration of agricultural production, the recurrence of such an epidemic could be devastating for domestic and global supplies. Other major threats include the deployment of nuclear weapons, where even a contained local exchange would shoot over five terrograms of soot into the stratosphere and reduce the yield of global staple crops by more than 10% for several years. With all of these and other hazards on the horizon, it is critical for the U.S. to have larger reserves to safeguard its own food supplies, and to be able to meet its humanitarian and security goals abroad.

U.S. Domestic and International Food Assistance

The U.S. has consistently been the largest provider of humanitarian food assistance, but declines in American food reserves have resulted in significant changes in the composition of U.S. foreign food aid. Food assistance, beyond serving a direct humanitarian purpose, remains vitally important to American national security objectives. Public reserves would allow the U.S. to provide quicker, more effective aid in circumstances where supplies are low. The U.S. should maintain humanitarian reserves, positioning some portion of these stocks in vulnerable areas to improve response time. Reserves have also traditionally been tapped to help Americans by stocking food banks, but the lack of public reserves has reduced these centers’ ability to provide assistance during recent economic downturns from the pandemic and inflation. Increased food purchases by the CCC as discussed above would help poor consumers in the U.S. and overseas.

Beginning with the 1954 Agricultural Trade Development and Assistance Act, later renamed the Food for Peace Act, the U.S. has required that international food assistance be sourced from American producers. Other requirements, such as the need for at least half of donated food to be shipped on U.S. vessels flying the American flag and manned by an American crew or the mandate that food packaging bear the label “by the people of the United States of America,” show how considerations of national interest have shaped U.S. food aid policy. However, some of these stipulations decrease the efficacy of U.S. aid, with the shipping requirements alone increasing food donation costs by an estimated 68% for bulk foods and more than 100% for packaged goods. While the U.S. has not made changes to these burdensome requirements, it has altered its food aid in response to the drawdown of food reserves. 

Once dominated by direct donations of food, known as in-kind donations, in 2010 U.S. food assistance began incorporating substantial market-based assistance, or cash donations. This form of assistance has since grown from 10% of U.S. food aid to 59% as of 2020. While an appropriate and efficient tool in some circumstances, market-based assistance has limitations when responding to crises stemming from food shortages. Cash donations can be faster, support local markets, and may be cheaper than in-kind support, making it more effective when economic access is the main barrier to food. However, when food supplies are short, market-based assistance can increase food costs, particularly in poorly integrated markets. Of course, this problem is not unique to market-based assistance: The lack of available stockpiles also hampers in-kind donations, since aid agencies have to make ad hoc purchases, often when prices are high. The CCC has not held substantial stocks since 2005, forcing USAID to make food purchases on the open market. Given that donations are most needed when food prices are high, this raises expenditures and compromises the agency’s efficacy. Low stocks also slow down aid delivery, with USAID donations typically taking 3 to 6 months to reach the target population. Such a long wait can be devastating for people in urgent need. Having reserves on hand, and especially placing them in locations that are expected to require assistance, has been shown to substantially reduce delivery times. To ameliorate these problems, the Bill Emerson Humanitarian Trust, which spent down its last food reserves in 2008, should be replenished and should maintain a continuous stock of staple grains.

Many Americans also rely on publicly purchased food to meet their basic needs. The USDA, through CCC purchases authorized under The Emergency Food Assistance Program (TEFAP), contributes around $400 million annually in commodities to US food banks. Many food banks are now struggling to maintain supplies, faced with food inflation which poses the dual challenge of limiting the amount that the centers can buy with their fixed budgets and increasing demand for food assistance. With the TEFAP program also having to make purchases on the open market rather than drawing from reserves, support has waned in recent months. In 2008, the USDA, having already drawn down the reserves that it would typically tap to provide aid during an economic downturn, bartered its stocks of cotton to help maintain supplies at food banks. As a nation that produces nearly a sixth of the world’s major staple crops, the U.S. should not be caught unprepared to meet the demands of its vulnerable consumers, and a stable reserve held by the CCC would hedge against this.

How to Better Protect Food Security

Well-managed public and private food reserves play a key role in a resilient food system. Internationally, countries can use public stockholding programs to provide a secure investment environment for producers and to hedge against supply shocks from losses in production or from trade disruptions. Current trade rules limit the policy space countries have to build up reserves. This is particularly true for developing countries with poorly developed futures markets where governments have an interest in providing price signals by setting administered prices in advance of purchases, and for countries with unstable currencies where WTO reference prices are especially outdated. Larger food reserves would also benefit the U.S. in several ways. Despite a robust agricultural sector, American food supplies are still vulnerable to risks from conflict, climate, pests, and pathogens. A larger buffer could help the U.S. weather these production shocks. American federal farm policy has increasingly moved to disincentivize farm adaptations that would make U.S. agriculture less vulnerable to these risks and has discouraged private reserves that would stabilize food supplies. U.S. foreign food assistance serves important national interests, but these programs are hindered by the lack of publicly-held humanitarian reserves. When food prices are high, many Americans turn to food banks for their basic needs. These centers, however, struggle to meet demand as they must also contend with high market prices. With continuous reserves — purchased when prices are low and released to vulnerable consumers as prices rise — the USDA could better address this recurring challenge. To promote reasonable food reserves at home and abroad, the U.S. should consider the following:

Endorsing an amendment to the WTO Agreement on Agriculture that: 

  • Exempts publicly acquired food reserves from AMS limits up to a preset level needed to meet national food security needs
  • Changes the reference price to reflect current market conditions by setting the benchmark to a rolling average of the past several years, set in USD or another stable currency
  • Counts only actual, not all eligible, purchases toward the value of a country’s AMS
  • Conditions participation in the public stockholding exemption on a country agreeing to make the administered price available to all producers and on countries agreeing to not trade their stockpiles with other countries without their express permission

Changing U.S. farm support programs to increase the adoption of risk-reducing strategies and encourage stockholding by:

  • Extending the duration of MALs from nine months to several years
  • Replacing ARC and PLC income support with a policy of using CCC purchasing power to buy commodities at low prices, set below current statutory price thresholds
  • Lowering the PLC statutory price and the ARC reference price if these programs are not replaced by a stockholding holding policy
  • Conditioning subsidized crop insurance on adopting climate adaptation practices

Improving U.S. in-kind food assistance for consumers at home and abroad through:

  • Holding humanitarian reserves in the Bill Emerson Humanitarian Trust
  • Maintaining CCC-owned reserves that can be tapped by other international aid programs such as Food for Peace Title II and TEFAP for the benefit of food bank recipients