Feasibility and Impact Analysis of an International Grain Reserve

Recent price surges have caught the attention of the entire society, and have put food reserve policy back into the political spotlight. However, few studies have investigated the operation of a grain reserve on a global scale. Therefore, the objectives of my research are to model and compare alternative operational price bands of an international grain reserve, and determine the relative feasibility and impact of the alternative price bands.

A global economic model was modified by building the capability to analyze alternative price bands of an international grain reserve. The feasibility of alternative price-band scenarios were evaluated by comparing: 1) their relative effectiveness of adjusting market prices to within the price bands; 2) the quantity of grain needed to be adjusted; 3) the cost of fulfilling the project goal; 4) and the impact on global market trade. Each of these elements will be discussed below.

According to the results, the international grain reserve demonstrated a reverse relationship with world reference prices, strong effectiveness to support prices above an established lower price bound, a certain effectiveness to eliminate extreme high prices, and a relatively feasible cost to operate. As the international grain reserve operates longer, its ability of eliminating extreme high prices becomes greater and the potential quantity of accumulated reserve stocks grows. The international grain reserve program with paralleled price band tends to have a stable or slightly decreasing cost over time.

In determining the appropriate price band of an international reserve, the primary objective for initiating a reserve should be considered. If the primary objective is to protect consumer’s welfare, the model results suggest that the upper price bound should not be set too low to invalidate the programs’ ability to avoid extreme high prices; if the primary objective is to support producer’s income, the model results indicate that a price band with a relatively low upper price bound would help to make the reserve program sustainable.