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CAUSES OF THE CRISIS 33


stocks have declined. First, declining stocks might simply reflect increased demand or reduced production levels, which would then push the burden of explanation back to other factors, such as weather shocks or biofuels. Sec- ond, stock levels could have declined because of exogenous policy decisions, such as the view that stocks were too high or involved too much wastage. This observation seems particularly pertinent to China as well as some of the former Soviet bloc countries. And third, prices could affect stock decisions, so that very low food prices up until 2003 may have decreased the apparent need to hold stock, especially given the advent of just-in-time inventory systems. All these explanations have some merit, but they are very difficult to observe empirically. The most important means of delving further into the stocks story is to set aside China. China is estimated to have had immensely high stock-to-use ratios for all major cereals in the 1990s—on the order of 70–90 percent—and markedly reducing these stocks was a justified policy action for China. Table 2.4 presents stocks of major consuming and export- ing countries and recalculates global trends with and without China for 1990–2000 and 2005–08. Netting out China turns out to be very important.8 World stocks for maize, for example, declined from 26 percent of consump- tion during 1990–2000 to just 14 percent during 2005–08, but excluding China from the global figures suggests that world stocks remained the same over the two periods, at just 12 percent. However, because the United States heavily dominates maize exports, U.S. stock trends—which declined from 16 to 12 percent over the two periods—still offer a promising explanation of maize price trends. The USDA has argued that biofuel production has already contributed to the depletion of U.S. maize stocks and will continue to do so in the next decade (USDA 2008a), and maize prices, biofuel demand, and maize stocks all appear to have changed at about the same time (Figure 2.12).9 It is also possible that surges in foreign demand in 2006 and 2007 also contributed somewhat to these stock declines, as we show below.


The story for wheat is complicated. Without China, world wheat stocks declined from above the recommend 17–18 percent threshold in the 1990s (19 percent) to several points below the threshold in 2005–08 (14 percent). Stocks declined in Canada, Europe, India, Kazakhstan, Pakistan, Russia (to just 7 percent of use), Ukraine, and the United States (bizarrely, stocks increased significantly in drought-affected Australia). What explains this almost perva- sive decline in stocks? There appear to be two factors: one is long term and the other short. The long-term story is that, globally, per capita production


8 One caveat here is that the USDA only projects stock levels in China, so we cannot claim that


data errors do not significantly alter our inferences from these data. 9 See Dawe (2009) for similar arguments.


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