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LEARNING FROM THE PAST 85


and the USSR after receiving predictions of normal demands for grains for the rest of the world (Johnson 1975; Schuh 1983).3 The amount purchased by the USSR was about half of U.S. carryover stocks of July 1, 1972, and more than one-quarter of 1972 production. It would be shipped before the 1973 crop was in. The USSR also made significant wheat purchases from Canada, further depleting North American wheat stocks. By August 1972, the wheat export price jumped from US$1.68 per bushel in July to US$2.40 in early August. U.S. policies were slow to adjust. Stagnant wheat markets for many years had convinced the United States that high prices were not sustainable, so the government held the net export price target at about US$1.63, even though this target drove up U.S. prices and increased the costs of U.S. farm subsi- dies from an estimated US$67 million up to an actual cost of US$300 million for 1973 (Destler 1978). Pricing policies that had worked reasonably well for more than a decade became simply inappropriate. Without the export sub- sidy, market prices would have much more promptly reflected the impact of the enormous grain exports contracted to the Communist countries in 1972, and a more gradual price rise would probably have ensued, allowing for more timely supply responses.


In addition to the demand shock from the Communist countries, several supply shocks affected global grains production (Destler 1978). Harsh winters, droughts, or tropical cyclones affected some major producers, including Argen- tina, Australia, India, Peru (a major producer of animal feed), Philippines, and the USSR, leading to a 3 percent decline in world grain production in 1972, and 1974 also produced poor grain harvests, especially in Canada and the United States. This conflagration of output shocks in a relatively short time certainly exacerbated some of the deeper troubles in global food mar- kets, but it is unlikely that they were a driving factor, if only because similar shocks have occurred in other years (for instance in the early 1960s) with relatively little repercussion on international prices.


The rapid rise in rice prices is more puzzling, however, as most of the aforementioned shocks related to wheat production in more developed coun- tries (even the 1974 weather shocks in India mostly affected wheat produc- tion). The volatility in rice export prices came about precisely because of the thinness of the international rice trade and the special characteristics of the rice market (Timmer 2009; Chapter 2). But as in the current crisis (Dawe 2008), the percentage change in nominal retail prices for rice during 1970–74 were generally a fraction of the international price change, with Bangladesh


3 On June 10, 1971, Nixon terminated the need for companies to obtain clearance from the U.S. Department of Commerce to export wheat, flour, and other grains to China, Eastern Europe, and the USSR, and the requirement that 50 percent of grain sold must be carried in U.S. ships was suspended.


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