Most of us have been following the unfolding drama of historic droughts across the world. The maize and soybean crops of the US Midwest have been very hard hit and global prices have already reacted strongly. With the US as a major supplier to the international trade this is not a big surprise. But, supply concerns are exacerbated by the uncertain ability of Latin American suppliers to respond this year to make up shortfalls. Less widely reported is the drought in Russia and the strong possibility that Russian wheat exports will fall substantially. Past experience suggests that Russia will not hesitate to restrict exports if its domestic supply looks like it will fall short of its needs. While there are some signs that the South Asian Monsoon is recovering (better late than never) its delay will still have a negative impact on Indian rice production as late plantings are known to produce significantly lower than normal rice yields.
So, the global cereals markets are on tenterhooks and face uncertainty not seen since 2008. We can expect traders to be very active in such an environment and we can similarly expect outcries over their profiteering from the misery of the poor, with the argument being that speculation drives prices beyond the reach of neediest people. The latest dust up has been around statements made by a leading trader that they expect to do very well in this market. Traders argue that by simply responding to market signals they are providing the mechanisms to make sure that the available grain gets to where it is needed most. The rub, of course, is whether absolute need translates directly (or even “efficiently”) into where the highest price is obtained. This is a fascinating area of discussion and I have pretty strong opinions on whether or not market “solutions” are congruent with solutions that are socially palatable or desirable. But, that is not what I want to talk about now.
I will be participating in an Economist Conference discussion titled Feeding The World: Asia’s prospect of plenty next month in Hong Kong, which will be dedicated to food security. Global trade will certainly figure into the discussions and I certainly want to be clear that efficient and transparent trade is critical to the smooth flow of food to where it is needed. Mechanisms that reveal the amount of grain being traded, where it is destined and the prices paid, along with reliable estimates of the amount of grain that will come on the market, are needed to provide that transparency. This argument was put forward in a task force report commissioned by the Asia Society in 2010 - Never an Empty Bowl: Sustaining Food Security in Asia - so I will not talk about that here, either.
What I would like to talk about is the need to provide adequate grain supplies – or soft commodities as they are known by traders - to enter into international trade. Not every country is able to meet its own needs for rice, my particular favorite grain. Nor should they necessarily try to. However, at the global level it is critical that there be adequate and reliable rice supplies to meet aggregate demand. This means that those countries (or regions) where it makes sense to produce rice surpluses should be able to provide them even when the weather deals the occasional bad hand. A prerequisite is that there be good production and marketing infrastructure (irrigation, roads, ports) as well as the basic units of production: excellent rice varieties and associated production practices that allow the varieties to express their potential. No matter how good the marketing ability of a country is, if the rice yields are lost to weather aberrations or pest infestations there will be no tradable surpluses and this will lead to market turmoil and widespread suffering.
In the past we have had to live with the effect of bad weather on rice production. However, we now are in the midst of a revolution in science and technology that is allowing us to understand how the rice plant responds to environmental stresses – droughts, heat, floods, storm surges, sea water intrusion to name a few. Armed with new research tools we are able to develop rice varieties that will tolerate the common weather anomalies that have confronted rice farmers for millennia. Likewise, these same stresses will be more common as we face the realities of climate change. Similar advances are being made for the other staple crops.
The International Rice Research Institute (IRRI) has recently announced a number of discoveries that have already resulted in the development of rice varieties that tolerate flood, drought and salty soils. But, these revolutionary findings did not happen overnight as much as it might seem to the casual observer. Without exception these have been the result of 15 – 20 years of steady research investment, almost all of it unsung until the final touches were put on the work. IRRI’s work has been mostly supported by international development assistance. Support for research is not a typical use for development assistance, most of which is typically targeted to meeting short- and long- term needs like famine relief, health, education, infrastructure or other similar national priorities. Only a tiny fraction of assistance is ever directed to research and even that small sum tends to be the first on the chopping block when budgets are cut.
For the world to have reliable supplies of rice for a stable global rice trade – that is, surpluses from one region and one country flowing to another despite the weather in a given year – rice production will have to be relatively impervious to the vagaries of the weather. This will require long term research investments that will be relatively impervious to the vagaries of political and national budgetary climates. We have the plan in place to deliver the research under the Global Rice Science Partnership (the CGIAR Research Program for Rice) but where can such the long-term funds for this research come from? This is a question that extends beyond rice to all of the major staples that are internationally traded.
Well, in the clamor that is sure to arise around traders “making a killing” on grain shortages, I think there is an opportunity to build the structures that will ensure stable growth of future grain supplies. Why not impose a small research levy, or fee, on every ton of grain traded internationally? The levy could be collected at a commodity exchanges and futures markets for rice, such as that recently proposed by the Asian Development Bank. Support for research could be collected as a fraction of a percent on each trade, or a few dollars per ton at the port of first international shipment, depending on the commodity. As the purpose of the levy would be to promote international public research, proceeds should flow to the international research community, preferably through existing mechanisms already established for such work. For example, the CGIAR, hosted by the World Bank, is an existing mechanism to support agricultural research for developing countries, including a program dedicated to rice research. In short, there is no need to create any new systems or bureaucracies, the focus is more on allocating modest resources to where they can be used to most benefit not only the traders but governments and consumers as well.
Nations could mirror this model for internal trade to support their local research programs that have historically taken up the products of international research and translated them into locally adapted technologies. A levy could be collected at mills or processing plants, often the first step in value addition to a crop.
This is not a revolutionary concept as many developed countries and commodity groups willingly – I dare say happily – participate in such schemes because the producers see the direct benefits from research. Surely traders would prefer predictable market ranges since in times of extreme volatility there are big losers as well as big winners. Developing such a program is about as close to an international win–win as I can imagine. Farmers can be sure of reliable, more productive harvests thanks to continually improving technologies delivered via well funded public research.Traders who surely benefit from marketable surpluses pay for the research that makes these surpluses possible. Banks and governments benefit from the economic development and stability such food security guarantees. Consumers benefit from a global trade that assures supplies can move and that prices remain stable. And, of course global society benefits as it can turn its attention from making sure that next month there is enough to eat towards longer range and even thornier problems such as health and education issues. As support for public research programs in agriculture have always been tenuous, adopting broadly accepted levies to fund research could make a world of difference to the poor while still allowing traders to make a killing.