CAUSES OF THE CRISIS 31


of the maize made into ethanol goes back into the animal-feed system. Hence the diversion from food uses is generally overestimated. Despite these qualifications, there is little doubt that biofuel demand in the United States is having a major impact on maize prices and probably on soybeans as well, while E.U. and European agricultural trends toward increased oilseed production have increasingly affected wheat markets. Moreover, the unwillingness of these governments to move away from biofuel subsidies will probably keep agricultural markets significant tighter for years to come. Helb- ling, Mercer-Blackman, and Cheng (2008) also note an asymmetry: biofuel industries have large effects on agricultural prices and very small effects on oil prices. So for the moment at least, biofuels are not substantially lessen- ing the impact that rising oil prices are having on agricultural production and trade.


Declining Stocks and Reserves


The total supply of agricultural goods depends not only on current production but also on available stocks. Moreover, stocks are probably the most direct indicator of security for both food self-sufficient countries and major food importers who monitor the stocks of their largest suppliers. For such com- modities as rice, which is dominated by consumers who depend on rice as their staple food, demand is highly inelastic. It is only when demand for stocks is added to demand for current consumption that total demand becomes more elastic (because a decrease in production can be compensated for by release of stocks). Conversely, relatively small changes in supply at low levels of stocks can result in rapid price changes (Wright 2009). Food scientists and economists have generally argued that countries need to keep stocks of around 17–18 per- cent of total consumption or use levels (FAO 1983), although a clear distinc- tion should be made between countries that predominantly consume staples and those that predominantly export them. Exporters of staples usually have little interest in keeping any reserves in excess of those needed to ensure a steady supply of staples to their export destinations, although hoarding is pos- sible if suppliers are confident that a price rise is on the horizon. Stocks certainly seem to be highly relevant to the current crisis, if only because there has been much more action in the trends of stocks for major staples than in production tends. Indeed, stocks have declined markedly in recent years. Figure 2.11 presents a highly aggregated picture of trends in the global stocks of wheat, maize, and rice relative to the global consumption of each staple, along with the average real international dollar price of all three staples.


Agricultural economists rightly emphasize that when stocks are high, prices are generally low and stable. This high-stock/stable-price regime char-


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